May 8, 2002 — American Electric Power and the PJM Interconnection, LLC, have entered into a memorandum of understanding that would provide for AEP to join PJM, AEP announced.

The memorandum, or MOU, creates a framework for the parties to work toward AEP becoming a member of the PJM regional transmission organization if certain conditions are met. AEP would join PJM-West as either a transmission-owning member or a member of the Alliance GridCo.

Alliance GridCo is a proposal by a group of utilities, including AEP, to form an independent transmission company under the authority of a regional transmission organization, or RTO.

“We believe the interests of AEP’s customers and shareholders are best served by participation in an RTO with an existing energy market and a proven track record of RTO-related operations and of assimilating new market participants,” said J. Craig Baker, AEP senior vice president – regulation and public policy.

Participation in PJM-West will provide AEP access to a competitive wholesale market, which meets the standard market design favored by the Federal Energy Regulatory Commission (FERC), and will help ensure transmission service reliability, he said.

“Our participation in PJM-West will bring the benefits of RTO participation and the PJM energy market to our customers within a projected six to 12 months, sooner we believe than other options we considered,” Baker said.

AEP expects to transfer functional control of its transmission facilities in its seven eastern states and to become fully operational within PJM and its energy market within the six- to 12-month time frame. The transition of AEP into PJM-West operations is expected to be similar to the transition of Allegheny Power into PJM-West, which occurred earlier this year. FERC approval of the transfer will be required.

AEP decided to enter into the MOU with PJM after evaluating FERC’s April 24 order responding to a filing by the Alliance companies. In that filing, the Alliance sought guidance on a variety of issues, including the allocation of functions and responsibilities between RTOs and independent transmission companies (ITCs) operating within RTOs.

AEP is concerned that FERC’s allocation of functions described in its April 24 order, and the fact that this allocation may change over time, may not leave sufficient responsibilities with ITCs for them to become viable businesses. FERC’s ruling on the allocation of functions, along with the potential of protracted litigation between MISO and the Alliance companies over costs and revenue allocations, led AEP to make its decision on RTO participation.

Conditions in the MOU between AEP and PJM include satisfactory agreements with PJM and/or the PJM transmission owners regarding rates and revenue distribution, reserve requirement obligations, recovery of AEP’s prudently incurred Alliance-related costs, and development of an implementation plan specifying tasks, costs and schedule for completion.

American Electric Power is a multinational energy company with a balanced portfolio of energy assets. AEP, the United States’ largest electricity generator, owns and operates more than 42,000 megawatts of generating capacity in the U.S. and select international markets. AEP is a wholesale energy marketer, ranking among North America’s top providers of wholesale power and natural gas with a growing wholesale presence in European markets.

In addition to electricity generation, AEP owns and operates natural gas pipeline systems, natural gas storage, coal mines, and the fourth-largest inland barge company in the U.S. AEP is also one of the largest electric utilities in the United States, with almost 5 million customers linked to AEP’s wires. The company is based in Columbus, Ohio.