American Electric Power Company (AEP)

3.2.2 Regulation.

(a) Each Internal Market Buyer that is a Load Serving Entity in a Regulation Zone shall have an hourly Regulation objective equal to its pro rata share of the Regulation requirements of such Regulation Zone for the hour, based on the Market Buyer’s total load (net of operating Behind The Meter Generation, but not to be less than zero) in such Regulation Zone for the hour (“Regulation Obligation”). An Internal Market Buyer that does not meet its hourly Regulation obligation shall be charged for Regulation dispatched by the Office of the Interconnection to meet such obligation at the Regulation market-clearing price determined in accordance with paragraph (c) of this Section, plus the amounts, if any, described in paragraph (f) of this section.

(b) A Generating Market Buyer supplying Regulation in a Regulation Zone at the direction of the Office of the Interconnection in excess of its hourly Regulation obligation shall be credited for each increment of such Regulation at the higher of (i) the Regulation market-clearing price in such Regulation Zone or (ii) the sum of the regulation offer and the unit-specific opportunity cost of the resource supplying the increment of Regulation, as determined by the Office of the Interconnection in accordance with procedures specified in the PJM Manuals.

(c) The Regulation market-clearing price in each Regulation Zone shall be determined at a time to be determined by the Office of the Interconnection which shall be no earlier than the day before the Operating Day and the market-clearing price each hour shall be equal to the highest sum of a resource’s Regulation offer plus its estimated unit-specific opportunity costs from among the resources selected to provide Regulation. A resource’s Regulation offer for any of the Regulation Zone(s) in the PJM West Region shall not exceed the cost of providing Regulation from such resource, plus seven dollars and fifty cents, unless and until market-based pricing is authorized for Regulation in such Regulation Zone.

(d) In determining the Regulation market-clearing price in each Regulation Zone, the estimated unit-specific opportunity costs of a resource offering to sell Regulation each hour shall be equal to the product of (i) the deviation of the set point of the resource that is expected to be required in order to provide Regulation from the resource’s expected output level if it had been dispatched in economic merit order times (ii) the absolute value of the difference between the expected Locational Marginal Price at the generation bus for the resource and the offer price for energy from the resource (at the megawatt level of the Regulation set point for the resource) in the PJM Interchange Energy Market.

(e) In determining the credit under subsection (b) to a Generating Market Buyer selected to provide Regulation in a Regulation Zone and that actively follows the Office of the Interconnection’s Regulation signals and instructions, the unit-specific opportunity cost of a resource shall be determined for each hour that the Office of the Interconnection requires a resource to provide Regulation and shall be equal to the product of (i) the deviation of the resource’s output necessary to follow the Office of the Interconnection’s Regulation signals from the resource’s expected output level if it had been dispatched in economic merit order times (ii) the absolute value of the difference between the Locational Marginal Price at the generation bus for the resource and the offer price for energy from the resource (at the megawatt level of the Regulation set point for the resource) in the PJM Interchange Energy Market.

(f) Any amounts credited for Regulation in an hour in excess of the Regulation market-clearing price in that hour shall be allocated and charged to each Internal Market Buyer in a Regulation Zone that does not meet its hourly Regulation obligation in proportion to its purchases of Regulation in such Regulation Zone in megawatt-hours during that hour.