2018-2019 Integrated Resource PlanKey Inputs & Portfolios Update

December 10, 2018

Outline

Updated IRP Schedule “Going-In” Position IRP Inputs Review

Load Forecasting Fundamental Commodity Forecasting DSM/EE Assumptions Cost of Resource/Technology Options

Portfolios to be considered

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Updated Stakeholder Process

Meeting Date Topic

1

February 15, 2018Northeast Indiana Innovation

Center3211 Stellhorn Road

Fort Wayne, IN 46815

2018 IRP Kick-off Meeting - Stakeholder Process & Scenario Discussion

2

April 11, 2018 Barnes & Thornburg

11 S. Meridian St.Indianapolis, IN 46204

Considerations for Modeling DSM in the 2018 IRP & Update on the IRP

3

February 13, 2019I&M South Bend Service Center

2929 Lathrop St.South Bend, IN 46628

Updated Inputs, Portfolios, Scenarios & Initial Modeling Results

4

March 22, 2019Minnetrista Gathering Place1200 N. Minnetrista Pkwy.

Muncie, IN 47303

Modeling Results, Preferred Portfolio Discussion & Final Inputs

Portfolio Assumptions – I&M Going In Capacity Position

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Capacity position based on excluding from the portfolio: • RP2 (2022), RP1 (2028) • DCCNP1(2034), and DCCNP2 (2037)• No new resource additions

Portfolio Assumptions – I&M Going In Energy Position

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Energy position based on excluding from the portfolio: • RP2 (2022), RP1 (2028) • DCCNP1(2034), and DCCNP2 (2037)• No new resource additions

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I&M Load Forecast Summary

• I&M’s load has been relatively flat over the past decade and is not expected to grow over the next decade.

Compound Growth Rates

Peak Historical 10-Yr (2008-18) -0.1%Forecast 10-Yr (2019-29) -0.4%

Energy Historical 10-Yr (2008-18) -0.3%Forecast 10-Yr (2019-29) -0.5%

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Economic Outlook

.

Gross Regional Product for the I&M service territory is expected to grow in line with the US over the next decade. However, growth in population and non-farm employment are expected to lag the US.

Source: Moody’s Analytics

8

Load Growth by Jurisdiction

There are a number of wholesale contracts that are expiring in the next couple of years that are not expected to renew (-308 MW in total). Partially offsetting the decline in wholesale load are a number of announced Industrial expansions in IN and MI (+15 MW in total).

-0.2%-0.6%

0.0%

0.2%

-0.1%

-3.9%-4.5%-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%

IN Retail MI Retail Wholesale

I&M Long Term Sales Growth Rates by Jurisdiction

Historical 10-Yr (2008-18)Forecast 10-Yr (2019-29)

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Retail Load Growth by Class

.

The Residential and Commercial class sales are expected to be essentially flat over the next decade while Industrial sales are expected to see modest growth.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2000 2005 2010 2015 2020 2025 2030

Annu

al G

Wh

Sale

s

I&M GWh Sales(Weather Normalized History & Forecast)

Residential Commercial

Industrial

Historical (2008-18)

Forecast (2019-29)

Residential -0.8% 0.0%Commercial -0.7% 0.1%Industrial 0.4% 0.3%

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Adjustments for DSM Programs

The load forecast was adjusted for company sponsored DSM/EE programs that are in the current plan filed with the Commission (through 2020).

Long term DSM/EE amounts are optimized in the IRP modeling (using Plexos).

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I&M Load Forecast Scenarios

Based on stakeholder request, an extreme weather scenario was developed assuming cooling degree days increase by 2% per year. The Extreme Weather scenario was within the High and Low Economic scenario boundaries that are evaluated in the IRP modeling.

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Fundamentals

Forecast Process:

Forecast requires iterative solution to satisfy all constraints

LT Capacity Expansion Fuel Forecast

Load Forecast

Emissions Forecast

Capital Costs

Input Aurora Run

Existing Unit Modifications

Yearly Runs (8760 hrs dispatch)

Generate Reports

Emission ConstraintsFuel Burn

Market Price

Output

Recycle

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Fundamentals

Forecast Process:

30 Year Normal Weather vs Actual Weather

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Analysis and Insight

. The Long-Term Forecast The centerpiece is the Reference Case, referred to internally as the “Consensus

Case”. It contains:o Objective input assumptions and output analysiso Fuel sensitivities used to portray cause-and-effect and provide regulatory

bounding of power priceso Comparisons with the EIA and other retained consultancies (names

redacted) featured along with a cursory gap analysis

“Scenarios” Collaborative scenarios

o Distributed as a supplement to the Reference Case.o Highlights internal concerns and observations that deviate from

“sensitivities” in that contributing/concurring factors must harmonize

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Fundamentals

Fundamental Forecast – 2018H2:

Base Fundamental Forecast High, Low and Status Quo Carbon impacts effective 2028

Future Considerations:

Natural Gas Fundamentals Evolving State of Carbon Mitigation

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Commodity Prices (2018 Forecast – Nominal $)(Prices are not location specific but reflect trading hubs)

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Commodity Prices (2018 Forecast – Nominal $)(Prices are not location specific but reflect trading hubs)

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Planning assumptions for I&M IRP development – Energy Efficiency

AP = Achievable Potential HAP = High Achievable Potential; EE bundles are made available as resource options

Residential

Commercial / Industrial

BundleLCOE

($/MWh)

Installed Cost

($/kWh)

Yearly Potential Savings (MWh)

2020-2024

Yearly Potential Savings (MWh)

2025-2029

Yearly Potential Savings (MWh)

2030-2039

Yearly Potential Savings (MWh)

2040-2045

Bundle Life

R - HVAC Equipment - AP $88.01 $0.60 8,759 10,256 11,790 12,346 10.00R - HVAC Equipment - HAP $132.02 $0.90 1,777 1,956 1,799 1,770 10.00

R - Building Shell - AP $162.66 $1.65 1,516 1,623 1,786 1,834 20.00R - Building Shell - HAP $243.99 $2.48 696 615 525 - 20.00

R - Appliances - AP $45.17 $0.26 4,520 4,720 4,969 5,087 8.00 Air Purifier, Dehumidifier, Refrigerator/freezer recyclingR - Appliances - HAP $67.75 $0.40 2,238 2,004 1,689 1,627 8.00

R - Water Heating - AP $34.41 $0.24 6,340 7,232 6,226 5,295 10.00R - Water Heating - HP $51.62 $0.35 3,225 3,304 2,184 1,617 10.00

R - Lighting - AP $88.21 $0.64 - - 1,954 1,866 11.00R - Lighting - HP $132.32 $0.97 - - 592 1,029 11.00

R - Behavioral - AP $108.66 $0.10 28,500 28,500 28,500 28,500 1.00Achievable Potential Sum 49,634 52,331 55,225 54,928

High Achievable Potential Sum 4,711 4,575 4,014 3,398

Measures

Air Source Heat Pump, Geothermal Heat Pump, Ductless Minisplits, Central AC Maintenance, CAC Maintenance, Wifi Thermostats High Efficiency Windows, Reflective Film-Windows, Insulation Sealing

Heat Pump Water Heater, Pipe Insulation, Low Flow Showerhead

Screw-In Lighting to LED (interior and exterior, speciality)

Enhanced Bill Presentation

BundleLCOE

($/MWh)

Installed Cost

($/kWh)

Yearly Potential Savings (MWh)

2020-2024

Yearly Potential Savings (MWh)

2025-2029

Yearly Potential Savings (MWh)

2030-2039

Yearly Potential Savings (MWh)

2040-2045

Bundle Life

C - VFD - AP $6.88 $0.06 5,411 5,748 6,484 6,629 14.00C - VFD - HAP $10.31 $0.09 2,599 2,444 2,150 2,200 14.00

C - INDUSTRIAL MEASURES - AP $15.55 $0.11 6,417 5,688 4,636 4,361 10.00C - INDUSTRIAL MEASURES - HAP $23.32 $0.16 2,624 2,003 1,190 999 10.00C - HVAC & REFRIGERATION - AP $10.62 $0.10 10,216 9,875 9,757 9,625 17.00

C - HVAC & REFRIGERATION - HAP $15.93 $0.15 3,921 3,407 2,278 1,970 17.00C - COMMERCIAL OUTDOOR LIGHTING - AP $11.89 $0.10 3,093 3,463 2,688 2,347 14.00

C - COMMERCIAL OUTDOOR LIGHTING - HAP $17.84 $0.15 1,109 1,388 906 738 14.00C - COMMERCIAL INDOOR LIGHTING - AP $11.95 $0.10 20,482 22,707 19,885 17,912 13.00

C - COMMERCIAL INDOOR LIGHTING - HAP $17.93 $0.15 5,707 6,936 4,674 3,591 13.00C - BUILDING MANAGEMENT SYSTEM - AP $28.25 $0.19 4,036 4,253 4,606 4,735 10.00

C - BUILDING MANAGEMENT SYSTEM - HAP $42.37 $0.29 1,770 1,608 1,380 1,325 10.00Achievable Potential Sum 49,656 51,733 48,056 45,609

High Achievable Potential Sum 17,729 17,785 12,579 10,822

Screw-in, High-Bay Fixtures, Interior Lighting - Occupancy Sensors, Linear Lighting

Ventilation - Demand Controlled, RTU - Advanced Controls, Process - Timers and Controls, Compressed Air - Leak Management Program,

Screw-in, High-Bay Fixtures, Interior Lighting - Occupancy Sensors, Linear Lighting

Measures

Ventilation VSC, Pumping System VSD, Compressed Air VSD

Water Cooled Chiller, Chilled Water Reset, Air Cooled Chiller, Ventilation upgrade, HVAC economizer

Retrocomission, Fan System Flow optimization, Pumping system optimization, Water heat upgrade, insulation wall cavity

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Demand Response Resources: The Company’s DR resources are based on a “BYOT”

Residential program and the Commercial program is a “EIS” light interface with existing customer equipment

Four blocks of each DR resource can be selected per year

DSM/Energy Efficiency

Sector ParticipantsDemand Savings

(kW)

Energy Savings(kWh)

Enrollment/Installation

Cost

Total First Year Cost

Ongoing Annual Cost

Service Life(Years)

Residential 3,375 3,299 837,540 $1,932,250 $1,971,408 $89,158 15

Sector ParticipantsDemand Savings

(kW)

Energy Savings(kWh)

Enrollment/ Installation

Cost

Total First Year Cost

Ongoing Annual Cost

Service Life(Years)

Commercial 44 954 200,647 $468,963 $507,138 $214,524 15

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DSM/Energy Efficiency

Volt VAR Optimization Resources: I&M has 68 MW of demand reduction potential from VVO; 33 circuits

installed, 15 circuits in process; 18 circuits planned in 2019

Tranche No. of CircuitsCapital

InvestmentAnnual O&M

Demand Reduction

(kW)

Energy Reduction

(MWh)1 32 $10,688,000 $320,640 8,066 33,2112 32 $10,688,000 $320,640 6,443 26,5293 33 $11,022,000 $330,660 6,185 25,4644 33 $11,022,000 $330,660 5,701 23,4735 33 $11,022,000 $330,660 5,413 22,2866 33 $11,022,000 $330,660 5,115 21,0587 33 $11,022,000 $330,660 4,793 19,7348 33 $11,022,000 $330,660 4,574 18,8349 33 $11,022,000 $330,660 4,397 18,10110 33 $11,022,000 $330,660 4,223 17,38611 33 $11,022,000 $330,660 4,004 16,48412 33 $11,022,000 $330,660 3,668 15,10013 33 $11,022,000 $330,660 3,264 13,43914 32 $10,688,000 $320,640 2,549 10,49415 32 $10,688,000 $320,640 1,733 7,137

One Tranche of VVO may be selected per year, based on planning and implementation constraints

IRP Inputs and Assumptions

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• Supply Side Resource Costs –• Nuclear• Coal with 90% Carbon Capture• Natural Gas Combined Cycle – with & without

Carbon Capture• Natural Gas Simple Cycle• Wind• Solar• Storage• Combined Heat & Power

AEP SystemNew Generation Technologies

Key Supply-Side Resource Option Assumptions (a)(b)(c)

Installed Full Load Fuel Variable Fixed CapacityCapability (MW) (d) Cost (c,e) Heat Rate Cost O&M O&M Factor LCOE (f)

Type Std. ISO Summer Winter ($/kW) (HHV,Btu/kWh) ($/MBtu) ($/MWh) ($/kW-yr) (%) ($/MWh)

Base LoadNuclear 1,610 1,560 1,690 7,900 10,500 0.91 6.24 145.43 80 176.3Pulv. Coal with Carbon Capture (PRB) 540 520 570 9,200 12,500 2.28 5.60 91.79 75 230.6Combined Cycle (1X1 "J" Class) 540 700 720 1,000 6,300 2.94 1.97 10.81 75 62.3Combined Cycle (2X1 "J" Class) 1,080 1,410 1,450 800 6,300 2.94 1.73 9.16 75 57.5Combined Cycle (2X1 "H" Class) 1,150 1,490 1,530 700 6,300 2.94 1.63 8.65 75 55.8

PeakingCombustion Turbine (2 - "E" Class) (g) 180 190 190 1,200 11,700 2.94 3.94 17.60 25 145.9Combustion Turbine (2 - "F" Class, w/evap coolers) (g) 490 500 510 700 10,000 2.94 6.07 15.77 25 114.0Aero-Derivative (2 - Small Machines) (g,h) 120 120 120 1,400 9,900 2.94 2.44 18.93 25 143.8Recip Engine Farm 220 220 230 1,300 8,300 2.94 2.61 6.32 25 123.0Battery 10 10 10 1,900 87% (i) 0.00 0.00 38.99 25 175.8

Notes: (a) Installed cost, capability and heat rate numbers have been rounded(b) All costs in 2018 dollars, except as noted.(c) $/kW costs are based on summer capability(d) All Capabilities are at 1,000 feet above sea level(e) Total Plant Investment Cost w/AFUDC (AEP-East rate of 5.5%,site rating $/kW)(f) Levelized cost of energy based on capacity factors shown in table(g) Includes Dual Fuel capability and SCR environmental installation(h) Includes Black Start capability(i) Denotes efficiency, (w/ power electronics)

IRP Inputs and Assumptions

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• Combined Heat and Power resource is assumed to be 15MW, with a full load net heat rate of ~4,800 Btu/kWh and an installed cost of ~$2,100/kW

• Stakeholder requested, AEPSC Generation Engineering developed a Class V estimate for a NGCC with Carbon Capture resource: Highlights include: Overnight Installed cost: $2,050/kW; Full Load Heat Rate: 7,600 Btu/kWh; Controlled CO2 rate: 11.7 lb./mmBtu

IRP Inputs and Assumptions

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Wind Resources for the IRP

• Installed Cost based on Bloomberg New Energy Finance’s H1 2018 Renewable Energy Market Outlook• Two Tranches Available as a Modeling Constraint – Tranche A & Tranche B both reflect impact of the

Production Tax Credit• 300MW of Wind Available per year; 150MW for each Tranche, with a maximum build over the planning period

of 2,100MW• Expected Capacity Factor: 40.5% for Tranche A & 35% for Tranche B

Source: AEP Based on Bloomberg New Energy Finance H1 2018 US Renewable Energy Market Outlook

• Two Tranches Available as a Modeling Constraint – Tier 1 and Tier 2 Pricing with Normalized Investment Tax Credit impact

• 300MW of Solar Available per year; 150MW at Tier 1 & 150MW at Tier 2, with a maximum build over the planning period of 1,700MW

• Expected Capacity Factor ~24.4%, from Single Axis Tracking system• For a 2021 Commercial Operation Date ~LCOE $62 to $68/MWh

IRP Inputs and Assumptions

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Solar Resources for the IRP

Source: AEP Based on Bloomberg New Energy Finance H1 2018 US Renewable Energy Market Outlook

IRP Inputs and Assumptions

25

Energy Storage – 10MW/40MWh Resource

• Based on Lithium Ion technology, Energy Product• Cost Estimates based on Internal Estimates and information from EPRI and Storage Suppliers

IRP Inputs and Assumptions

26Forecast is based on PJM’s November 27, 2018 Distributed Solar Forecast

Modeling Portfolios Under Consideration

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• Current Modeling Portfolios to be Considered:1. Base, Low, High, Status Quo (no carbon price), High

I&M Load and Low I&M Load Optimizations2. Rockport Scenarios -3. Company Scenarios -4. Stakeholder Scenarios –

Modeling Portfolios Under Consideration: continued

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• Current Modeling Portfolios to be Considered:1. Base, Low, High, Status Quo (no carbon price), High

I&M Load and Low I&M Load Optimizations• I&M will analyze portfolios based on the Fundamental Commodity forecasts

shown on pages 16 & 17 as well as the Base, High and Low Load forecasts shown on page 11

Modeling Portfolios Under Consideration: continued

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• Current Modeling Portfolios to be Considered:2. Rockport Scenarios:

• I&M will analyze scenarios based on various assumed outcomes related to the potential future of the Rockport plant• Rockport Unit 1 retires EOY 2028 and Rockport Unit 2 has no lease

extension with I&M• Rockport Unit 1 has an FGD in 1/2026 and Rockport Unit 2 has no

lease extension with I&M• Rockport Unit 1 has an FGD in 1/2029 and Rockport Unit 2 has no

lease extension with I&M• Rockport Unit 1 retires EOY 2025 and Rockport Unit 2’s lease is

extended and an FGD is installed by 1/2029• Furthermore, for all scenarios that included an FGD the unit is

operated for an additional 10 years

Modeling Portfolios Under Consideration: continued

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• Current Modeling Portfolios to be Considered:3. Company Scenarios:

• I&M will analyze scenarios based on various assumed resource constraints as described below:1. Conventional Portfolio

• Meet energy demand through economically selected resources including universal solar, wind, storage and DSM/EE programs

• Add peaking capacity (CT or capacity purchase) in 2022, NGCC in 2028, 2034, & 20372. 12 - Year Peaking Plan

• Meet energy demand through economically selected resources including universal solar, wind, storage and DSM/EE programs

• Add peaking capacity (CT or capacity purchase) in 2022 & 2028, NGCC in 2034 & 2037

3. 15 - Year Peaking Plan• Meet energy demand through economically selected resources including universal

solar, wind, storage and DSM/EE programs• Add peaking capacity (CT or capacity purchase) in 2022 & 2028, & 2034, NGCC in

2037

Modeling Portfolios Under Consideration: continued

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• Current Modeling Portfolios to be Considered:4. Stakeholder recommended:

A. DSM/EE “Sommer” Decrement Approach:• I&M will analyze various assumed impacts on potential future

incremental DSM/EE levels based on a Stakeholder’s recommendation:1. Assumed Residential EE achieved 0.25% annual reduction throughout the analysis period2. Assumed Commercial EE achieved 0.50% annual reduction throughout the analysis period3. Assumed Industrial EE achieved 0.25% annual reduction throughout the analysis period

B. High Renewables Plan – Including high DG adoption, additional detail needed

C. No New Fossil generation – Additional detail neededD. Extreme Weather Scenario – See Slide 11, Aligns with High Load

sensitivity E. Others To be determined…

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Next Steps and Timing of Stakeholder Input

• By January 4, 2019, stakeholders are asked to provide comments on: The portfolio components (resources) that should be considered The attributes of resources (cost and performance) to be considered Considerations for additional scenarios Considerations for evaluating risk

• I&M plans to finalize the evaluation by early February to prepare for the 3rd Stakeholder meeting

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Follow-up Steps in the Stakeholder ProcessMeeting Date Topic

1

February 15, 2018Northeast Indiana Innovation

Center3211 Stellhorn Road

Fort Wayne, IN 46815

2018 IRP Kick-off Meeting - Stakeholder Process & Scenario Discussion

2

April 11, 2018 Barnes & Thornburg

11 S. Meridian St.Indianapolis, IN 46204

Considerations for Modeling DSM in the 2018 IRP & Update on the IRP

3

February 13, 2019I&M South Bend Service Center

2929 Lathrop St.South Bend, IN 46628

Updated Inputs, Portfolios, Scenarios & Initial Modeling Results

4

March 22, 2019Minnetrista Gathering Place1200 N. Minnetrista Pkwy.

Muncie, IN 47303

Modeling Results, Preferred Portfolio Discussion & Final Inputs

• Further questions or stakeholder comments can be made at: https://www.indianamichiganpower.com/info/projects/IntegratedResourcePlan