American Electric Power has signed a memorandum of understanding (MOU) with Allegheny Energy Inc. to form a joint venture company to build and own new electric transmission assets within PJM Interconnection (PJM).

Under the terms of the MOU, AEP and Allegheny will build 765-kV transmission lines and related facilities to link AEP's Amos Station (near St. Albans, W.Va.) with Allegheny's proposed Kemptown Station in Maryland. The project is part of AEP's vision of an I-765(TM) transmission superhighway to bolster the nation's transmission grid and encompasses the first half of the AEP I-765(TM) Interstate Project, a 550-mile, $3 billion 765-kV transmission line proposed by AEP in January 2006. The project also includes a portion of Allegheny's complementary Wylie Ridge-Kemptown transmission proposal. The joint venture will build and own approximately 250 miles of 765-kV transmission lines from AEP's Amos station to the Maryland border. An additional estimated 40 miles of 765-kV transmission line from the Maryland border to Kemptown Station will be owned by Allegheny.

Based on the current plans, the entire project is estimated to cost approximately $1.8 billion depending on PJM requirements. Some portions of the project would be owned by the joint venture, with other portions owned by the respective companies. AEP's estimated share of the costs would be approximately $700 million.

"The joint venture agreement with Allegheny allows us to move forward with construction of a significant portion of the I-765(TM) transmission superhighway that is urgently needed to help relieve transmission congestion and enhance reliability in PJM for millions of consumers connected to the eastern grid. This joint venture pairs AEP's decades of expertise in building and operating more than 2,100 miles of 765-kV transmission with Allegheny's 500-kV transmission experience and relationships in this region to help ensure that the benefits of 765-kV can be expanded in PJM sooner to help address issues preventing efficient flow of electricity," said Michael G. Morris, AEP chairman, president and chief executive officer.

A PJM study released today indicates that the Amos-Kemptown 765-kV line is the preferred solution for ensuring long-term reliability of the region's transmission system. AEP and Allegheny anticipate that the Amos-Kemptown line will be included in the next PJM Regional Transmission Expansion Plan (RTEP), scheduled for release in mid-2007. Once the project is included in the RTEP, the joint venture will seek Federal Energy Regulatory Commission (FERC) regulatory recovery consistent with the declaratory orders made July 20, 2006, for AEP's Interstate Project and Allegheny's transmission proposal. The in-service date for Amos-Kemptown will be determined by the PJM RTEP process, with the earliest possible completion in 2012.

The joint venture will operate as a transmission utility and be subject to the rules and regulations of FERC and PJM. Equity ownership of the new company will be equally split between AEP and Allegheny. The joint venture will be managed by a board that includes two representatives from AEP and two from Allegheny. AEP will have lead responsibility for engineering, designing and constructing the 765-kV elements of the project. Each company will provide services to the joint venture for siting, acquiring rights-of-way, regulatory approvals, and operations and maintenance of the project.

The joint venture agreement does not include any provisions for the remaining portion of AEP's I-765(TM) Interstate Project proposal from Allegheny's Kemptown Station into New Jersey, which remains under study by PJM. The agreement also does not preclude either company from pursuing other transmission opportunities in PJM.

AEP and Allegheny expect to execute definitive agreements for the joint venture by mid-2007 and anticipate the joint venture will begin operations in the second half of 2007. AEP and Allegheny anticipate that the Amos-Kemptown 765-kV line will be designated part of a National Interest Electric Transmission Corridor by the Department of Energy in 2007. Both companies remain committed to working cooperatively with the siting processes for impacted states.

AEP's joint venture with Allegheny is part of an aggressive transmission development program that AEP has identified over the last year. In addition to the AEP Interstate Project, AEP announced Electric Transmission Texas (ETT), a joint venture with MidAmerican Energy Holdings Co., in November 2006 to build up to $1 billion in transmission infrastructure within the Electric Reliability Council of Texas (ERCOT). ETT has since proposed a $7 billion transmission plan for ERCOT designed to support growth of renewable generation and the economic future of Texas. AEP also signed an MOU with a subsidiary of ITC Holdings Corp. in November 2006 to perform a technical study evaluating the feasibility of extending AEP's 765-kV transmission infrastructure through Michigan, a potential $2 billion investment. Additionally, AEP filed a $3 billion 765-kV transmission proposal for consideration in the Southwest Power Pool to reduce congestion and enhance reliability.

"We need to build a strong interstate transmission system, just like our interstate highway system, to help address the current inadequacies of our nation's existing transmission infrastructure. Congress and FERC agree that investment in transmission is crucial to ensure the reliability of the electricity grid and the growth potential of our economy," Morris said. "If we develop a truly functional interstate transmission grid, power plants will compete against one another, the wholesale market will be more robust, and consumers will benefit from lower electricity costs and expanded access to renewable electricity that can be transported from the areas where it is viable to areas where it is needed."