Common use of Patterns of Ownership Clause in Contracts

Patterns of Ownership. The overall ownership structure of FTRs and the ownership of prevailing flow and counter flow FTRs is descriptive and is not necessarily a measure of actual or potential FTR market structure issues, as the ownership positions result from competitive auctions. In order to evaluate the ownership of prevailing flow and counter flow FTRs, the MMU categorized all participants owning FTRs in PJM as either physical or financial. Physical entities include utilities and customers which primarily 7 See PJM. “Manual 6: Financial Transmission Rights,” Revision 13 (June 28, 2012), p. 39. take physical positions in PJM markets. Financial entities include banks and hedge funds which primarily take financial positions in PJM markets. International market participants that primarily take financial positions in PJM markets are generally considered to be financial entities even if they are utilities in their own countries. Table 13-2 presents the Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September 2013 by trade type, organization type and FTR direction. Financial entities purchased 75.6 percent of prevailing flow and 85.7 percent of counter flow FTRs for the first nine months of the year, with the result that financial entities purchased 79.6 percent of all prevailing and counter flow FTR buy bids in the Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September 2013. Buy Bids Physical 24.4 14.3 20.4 Financial 75.6 85.7 79.6 Total 100.0 100.0 100.0 Sell Offers Physical 32.5 28.6 31.9 Financial 67.5 71.4 68.1 Total 100.0 100.0 100.0 Table 13-3 presents the daily net position ownership for all FTRs for January through September 2013, by FTR direction. Physical 46.6 20.6 37.8 Financial 53.4 79.4 62.2 Total 100.0 100.0 100.0

Patterns of Ownership. The overall ownership structure of FTRs and the ownership of prevailing flow and counter flow FTRs is descriptive and is not necessarily a measure of actual or potential FTR market structure issues, as the ownership positions result from competitive auctions. In order to evaluate the ownership of prevailing flow and counter flow FTRs, the MMU categorized all participants owning FTRs in PJM as either physical or financial. Physical entities include utilities and customers which primarily 7 See PJM. “Manual 6: Financial Transmission Rights,” Revision 13 (June 28, 2012), p. 39. take physical positions in PJM markets. Financial entities include banks banks, trading firms and hedge funds which primarily take financial positions in PJM markets. International market participants that primarily take financial positions in PJM markets are generally considered to be financial entities even if they are utilities in their own countries. Table 13-2 5 presents the Monthly Balance monthly balance of Planning Period planning period FTR Auction auction cleared FTRs for January through September 2013 2018 by trade type, organization type and FTR direction. Financial entities purchased 75.6 76.2 percent of prevailing flow FTRs, up 3.6 percentage points, and 85.7 82.9 percent of counter flow FTRs FTRs, up 1.0 percentage points, for the first nine months of the year, with the result that financial entities purchased 79.6 percent 79.0 percent, up 2.0 percentage points, of all prevailing and counter flow FTR buy bids in the monthly balance of planning period FTR auction cleared FTRs for 2018. Buy Bids Physical 23.8 17.1 21.0 Financial 76.2 82.9 79.0 Total 100.0 100.0 100.0 Sell Offers Physical 18.0 19.5 18.5 Financial 82.0 80.5 81.5 Total 100.0 100.0 100.0 Table 13-6 shows the HHI values for cleared MW for the 2018/2019 planning period monthly auctions by period. Table 13-6 Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September 2013. Buy Bids Physical 24.4 14.3 20.4 Financial 75.6 85.7 79.6 Total 100.0 100.0 100.0 Sell Offers Physical 32.5 28.6 31.9 Financial 67.5 71.4 68.1 Total 100.0 100.0 100.0 HHIs by period Auction Hedge Type Prompt Month Prompt Month+1 Prompt Month+2 Q2 Q3 Q4 Jun-18 Obligation 353 432 487 587 659 773 Option 3796 5981 7006 4854 4761 6586 Jul-18 Obligation 329 434 1283 827 559 681 Option 0000 0000 0000 3666 3918 6260 Aug-18 Obligation 254 534 528 509 430 522 Option 2437 3135 4673 5486 4729 5578 Sep-18 Obligation 330 481 534 610 772 Option 0000 0000 0000 1622 4876 Table 13-3 7 presents the average daily net position ownership for all FTRs for January through September 20132018, by FTR direction. Physical 46.6 20.6 37.8 36.8 18.9 29.7 Financial 53.4 79.4 62.2 63.2 81.1 70.3 Total 100.0 100.0 100.0100.0 In an effort to manage FTR revenues, PJM may adjust normal transmission limits (rather than the inflated limits used in Stage 1A) in the FTR auction model. If the normal capability limit is not consistent with full funding goals and simultaneous feasibility, then FTR Auction capability reductions are undertaken pro rata based on the MW of Stage 1A infeasibility and the availability of auction bids for counter flow FTRs.36 PJM may also remove or reduce infeasibilities caused by transmission outages by clearing counter flow bids without being required to clear the corresponding prevailing flow bids.37 The use of both of these procedures are contingent on PJM actions not affecting the full funding of allocated ARRs, all requested self scheduled FTRs clear and net FTR auction revenue is positive.

Patterns of Ownership. The overall ownership structure of FTRs and the ownership of prevailing flow and counter flow FTRs is descriptive and is not necessarily a measure of actual or potential FTR market structure issues, as the ownership positions result from competitive auctions. The percentage of FTR ownership shares may change when FTR owners buy or sell FTRs in the Monthly Balance of Planning Period FTR Auctions or the secondary bilateral market. In order to evaluate the ownership of prevailing flow and counter flow FTRs, the MMU categorized all participants owning FTRs in PJM as either physical or financial. Physical entities include utilities and customers which primarily 7 See PJM. “Manual 6: Financial Transmission Rights,” Revision 13 (June 28, 2012), p. 39. take physical positions in PJM markets. Financial entities include banks and hedge funds which primarily take financial positions in PJM markets. International market participants that primarily take financial positions in PJM markets are generally considered to be financial entities even if they are utilities in their own countries. Table 1312-2 3 presents the Annual FTR Auction cleared FTRs for the 2013 to 2014 planning period by trade type, organization type and FTR direction. In the Annual FTR Auction for the 2013 to 2014 planning period, financial entities purchased 54.7 percent of prevailing flow FTRs and 82.2 percent of counter flow FTRs, with the result that financial entities purchased 61.5 percent of all Annual FTR Auction cleared buy bids for the 2013 to 2014 planning period. Buy Bids Physical Yes 9.2 0.2 7.0 No 36.1 17.5 31.5 Total 45.3 17.8 38.5 Financial No 54.7 82.2 61.5 Total 100.0 100.0 100.0 Sell Offers Physical 20.7 19.0 20.2 Financial 79.3 81.0 79.8 Total 100.0 100.0 100.0 Table 12-4 presents the Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September June 2013 by trade type, organization type and FTR direction. Financial entities purchased 75.6 73.4 percent of prevailing flow and 85.7 83.1 percent of counter flow FTRs for the first nine six months of the year, with the result that financial entities purchased 79.6 77.1 percent of all prevailing and counter flow FTR buy bids in the Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September June 2013. Figure 12-2 shows the FTR forfeitures values for both counter flow and prevailing flow FTRs for each month of June 2010 through June 2013 by company type. Total forfeitures for the 2012 to 2013 planning period were Buy Bids Physical 24.4 14.3 20.4 26.6 16.9 22.9 Financial 75.6 85.7 79.6 73.4 83.1 77.1 Total 100.0 100.0 100.0 Sell Offers Physical 32.5 28.6 31.9 32.7 32.9 32.7 Financial 67.5 71.4 68.1 67.3 67.1 67.3 Total 100.0 100.0 100.0 $519,317 (0.06 percent of total FTR target allocations). Physical Counter Financial Counter $300,000.00 Table 1312-3 5 presents the daily net position ownership for all FTRs for January through September June 2013, by FTR direction. Physical 46.6 20.6 37.8 49.4 24.7 41.0 Financial 53.4 79.4 62.2 50.6 75.3 59.0 Total 100.0 100.0 100.0

Patterns of Ownership. The overall ownership structure of FTRs and the ownership of prevailing flow and counter flow FTRs is descriptive and is not necessarily a measure of actual or generally considered to be financial entities even if they are utilities in their own countries. Table 13-13 presents the 2016 to 2019 Long Term FTR Auction market cleared FTRs by trade type, organization type and FTR direction. The results show that financial entities purchased 70.1 percent of prevailing flow buy bid FTRs and 78.5 percent of counter flow buy bid FTRs with the result that financial entities purchased 73.8 percent of all Long Term FTR Auction cleared buy bids for the 2016 to 2019 Long Term FTR Auction. Buy Bids Physical 29.9 21.5 26.2 Financial 70.1 78.5 73.8 Total 100.0 100.0 100.0 Sell Offers Physical 29.2 24.3 27.5 Financial 70.8 75.7 72.5 Total 100.0 100.0 100.0 Table 13-14 presents the Annual FTR Auction cleared FTRs for the 2015 to 2016 planning period by trade type, organization type and FTR direction. In the Annual FTR Auction for the 2015 to 2016 planning period, financial entities purchased 56.3 percent of prevailing flow FTRs, down 1.2 percent, and 75.0 percent of counter flow FTRs, down 5.0 percent, with the results that financial entities purchased 62.3 percent, down 2.1 percent, of all Annual FTR Auction cleared buy bids for the 2015 to 2016 planning period. Buy Bids Physical Yes 8.8 0.9 6.3 No 34.9 24.1 31.4 Total 43.7 25.0 37.7 Financial No 56.3 75.0 62.3 Total 100.0 100.0 100.0 Sell Offers Physical 22.9 23.5 23.2 Financial 77.1 76.5 76.8 Total 100.0 100.0 100.0 potential FTR market structure issues, as the ownership positions result from competitive auctions. In order to evaluate the ownership of prevailing flow and counter flow FTRs, the MMU categorized all participants owning FTRs in PJM as either physical or financial. Physical entities include utilities and customers which primarily 7 See PJM. “Manual 6: Financial Transmission Rights,” Revision 13 (June 28, 2012), p. 39. take physical positions in PJM markets. Financial entities include banks and hedge funds which primarily take financial positions in PJM markets. International market participants that primarily take financial positions in PJM markets are generally considered to be financial entities even if they are utilities in their own countries22 See PJM. “Manual 6: Financial Transmission Rights,” Revision 16 (June 1, 2014), p. 39. Table 13-2 15 presents the Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September 2013 2015 by trade type, organization type and FTR direction. Financial entities purchased 75.6 74.9 percent of prevailing flow FTRs, down 5.2 percent, and 85.7 76.8 percent of counter flow FTRs FTRs, down 11.0 percent, for the first nine months of the year, with the result that financial entities purchased 79.6 percent 75.7 percent, down 7.3 percent, of all prevailing and counter flow FTR buy bids in the Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September 20132015. Buy Bids Physical 24.4 14.3 20.4 25.1 23.2 24.3 Financial 75.6 85.7 79.6 74.9 76.8 75.7 Total 100.0 100.0 100.0 Sell Offers Physical 32.5 28.6 31.9 33.8 34.7 34.1 Financial 67.5 71.4 68.1 66.2 65.3 65.9 Total 100.0 100.0 100.0 Table 13-3 16 presents the average daily net position ownership for all FTRs for January through September 20132015, by FTR direction. Physical 46.6 20.6 37.8 39.4 20.4 32.1 Financial 53.4 79.4 62.2 60.6 79.6 67.9 Total 100.0 100.0 100.0100.0 In an effort to address reduced FTR payout ratios, PJM may use normal transmission limits in the FTR auction model. These capability limits may be reduced if ARR funding is not impacted, all requested self-scheduled FTRs clear and net FTR Auction revenue is positive. If the normal capability limit cannot be reached due to infeasibilities then FTR Auction capability reductions are undertaken pro rata based on the MW of Stage 1A infeasibility and the availability of appropriate auction bids for counter flow FTRs.23 In another effort to reduce FTR funding issues, PJM implemented a new rule stating that PJM may model normal capability limits on facilities which are infeasible due to modeled transmission outages in Monthly Balance of Planning Period FTR Auctions. The capability of these facilities may be reduced if ARR target allocations are fully funded and net auction revenues are greater than

Patterns of Ownership. The overall ownership structure of FTRs and the ownership of prevailing flow and counter flow FTRs is descriptive and is not necessarily a measure of actual or potential FTR market structure issues, as the ownership positions result from competitive auctions. In order to evaluate the ownership of prevailing flow and counter flow FTRs, the MMU categorized all participants owning FTRs in PJM as either physical or financial. Physical entities include utilities and customers which primarily 7 See PJM. “Manual 6: Financial Transmission Rights,” Revision 13 (June 28, 2012), p. 39. take physical positions in PJM markets. Financial entities include banks and hedge funds which primarily take financial positions in PJM markets. International market participants that primarily take financial positions in PJM markets are generally considered to be financial entities even if they are utilities in their own countries. Table 13-2 4 presents the 2015 to 2018 Long Term FTR Auction market cleared FTRs by trade type, organization type and FTR direction. The results show that financial entities purchased 73.9 percent of prevailing flow buy bid FTRs and 78.3 percent of counter flow buy bid FTRs with the result that financial entities purchased 75.6 percent of all Long Term FTR Auction cleared buy bids for the 2015 to 2018 Long Term FTR Auction. 7 See PJM. “Manual 6: Financial Transmission Rights,” Revision 15 (October 10, 2013), p. 39. Buy Bids Physical 26.1 21.7 24.4 Financial 73.9 78.3 75.6 Total 100.0 100.0 100.0 Sell Offers Physical 31.0 32.0 31.3 Financial 69.0 68.0 68.7 Total 100.0 100.0 100.0 Table 13-5 presents the Annual FTR Auction cleared FTRs for the 2014 to 2015 planning period by trade type, organization type and FTR direction. In the Annual FTR Auction for the 2014 to 2015 planning period, financial entities purchased 57.5 percent of prevailing flow FTRs and 80.0 percent of counter flow FTRs, with the results that financial entities purchased 64.4 percent of all Annual FTR Auction cleared buy bids for the 2014 to 2015 planning period. Buy Bids Physical Yes 10.4 0.6 7.4 No 32.1 19.5 28.2 Total 42.5 20.0 35.6 Financial No 57.5 80.0 64.4 Total 100.0 100.0 100.0 Sell Offers Physical 28.2 25.4 27.4 Financial 71.8 74.6 72.6 Total 100.0 100.0 100.0 Table 13-6 presents the Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September 2013 2014 by trade type, organization type and FTR direction. Financial entities purchased 75.6 80.1 percent of prevailing flow and 85.7 percent of counter flow FTRs for the first nine months of the year, with the result that financial entities purchased 79.6 percent of all prevailing and counter flow FTR buy bids in the Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September 2013. Buy Bids Physical 24.4 14.3 20.4 Financial 75.6 85.7 79.6 Total 100.0 100.0 100.0 Sell Offers Physical 32.5 28.6 31.9 Financial 67.5 71.4 68.1 Total 100.0 100.0 100.0 Table 13-3 presents the daily net position ownership for all FTRs for January through September 2013, by FTR direction. Physical 46.6 20.6 37.8 Financial 53.4 79.4 62.2 Total 100.0 100.0 100.0and

Patterns of Ownership. The overall ownership structure of FTRs and the ownership of prevailing flow and counter flow FTRs is descriptive and is not necessarily a measure of actual or potential FTR market structure issues, as the ownership positions result from competitive auctions. In order to evaluate the ownership of prevailing flow and counter flow FTRs, the MMU categorized all participants owning FTRs in PJM as either physical or financial. Physical entities include utilities and customers which primarily 7 See PJM. “Manual 6: Financial Transmission Rights,” Revision 13 (June 28, 2012), p. 39. take physical positions in PJM markets. Financial entities include banks banks, trading firms and hedge funds which primarily take financial positions in PJM markets. International market participants that primarily take financial positions in PJM markets are generally considered to be financial entities even if they are utilities in their own countries. Table 13-2 12 presents the Monthly Balance 2017/2020 long term FTR auction market cleared FTRs by trade type, organization type and FTR direction. The results show that financial entities purchased 77.5 percent of Planning Period prevailing flow buy bid FTRs and 84.9 percent of counter flow buy bid FTRs with the result that financial entities purchased 80.8 percent of all long term FTR Auction auction cleared buy bids for the 2017/2020 Long Term FTR Auction. Physical entities purchased only 19.2 percent of all available long term FTRs in the 2017/2020 Long Term FTR Auction. Buy Bids Physical 22.5 15.1 19.2 Financial 77.5 84.9 80.8 Total 100.0 100.0 100.0 Sell Offers Physical 36.9 26.6 33.3 Financial 63.1 73.4 66.7 Total 100.0 100.0 100.0 Table 13-13 presents the annual FTR auction cleared FTRs for January through September 2013 the 2017/2018 planning period by trade type, organization type and FTR direction. In the Annual FTR Auction for the 2017/2018 planning period, financial entities purchased 77.5 percent of prevailing flow FTRs, up 20.6 percentage points, and 79.7 percent of counter flow FTRs, down 5.2 percentage points, with the results that financial entities purchased 66.6 percent, up one percentage point, of all annual FTR auction cleared buy bids for the 2017/2018 planning period. Trade Type Organization Type Self-Scheduled FTRs FTPrevailing Flow R Direction Counter Flow All Buy Bids Physical Yes 7.2 1.0 4.8 No 32.7 22.3 28.6 Total 39.9 23.3 33.4 Financial No 60.1 76.7 66.6 Total 100.0 100.0 100.0 Sell Offers Physical 21.3 17.6 20.0 Financial 78.7 82.4 80.0 Total 100.0 100.0 100.0 Table 13-14 presents the monthly balance of planning period FTR auction cleared FTRs for 2017 by trade type, organization type and FTR direction. Financial entities purchased 75.6 74.3 percent of prevailing flow FTRs, up 1.7 percent, and 85.7 82.7 percent of counter flow FTRs FTRs, up 0.6 percent, for the first nine months of the year, with the result that financial entities purchased 79.6 percent 78.3 percent, up 1.3 percent, of all prevailing and counter flow FTR buy bids in the monthly balance of planning period FTR auction cleared FTRs for 2017. Table 13-14 Monthly Balance of Planning Period FTR Auction cleared FTRs for January through September 2013. patterns of ownership by FTR direction: 2017 Trade Type Organization Type FTPrevailing Flow R Direction Counter Flow All Buy Bids Physical 24.4 14.3 20.4 25.7 17.3 21.7 Financial 75.6 85.7 79.6 74.3 82.7 78.3 Total 100.0 100.0 100.0 Sell Offers Physical 32.5 28.6 31.9 16.7 17.0 16.8 Financial 67.5 71.4 68.1 83.3 83.0 83.2 Total 100.0 100.0 100.0 Table 13-3 15 presents the average daily net position ownership for all FTRs for January through September 20132017, by FTR direction. Physical 46.6 20.6 37.8 49.6 28.1 40.4 Financial 53.4 79.4 62.2 50.4 71.9 59.6 Total 100.0 100.0 100.0100.0 In an effort to manage FTR revenues, PJM may use normal transmission limits (rather than the inflated limits used in Stage 1A) in the FTR auction model. These capability limits may be reduced if ARR funding is not affected, all requested self scheduled FTRs clear and net FTR auction revenue is positive. If the normal capability limit cannot be reached due to infeasibilities then FTR Auction capability reductions are undertaken pro rata based on the MW of Stage 1A infeasibility and the availability of auction bids for counter flow FTRs.29 In another effort to manage FTR revenues, PJM implemented a rule stating that PJM may model normal capability limits (rather than the inflated limits used in Stage 1A) on facilities which are infeasible due to modeled transmission outages in Monthly Balance of Planning Period FTR Auctions. The capability of these facilities may be reduced if ARR target allocations are fully funded and net auction revenues are greater than zero. This reduction may only take place when there are counter flow auction bids available to reduce the infeasibilities.30 In the 2017/2020 Long Term FTR Auction, 133,153 MW (26.8 percent of demand; 44.8 percent of total FTR volume) of counter flow FTR buy bids cleared, an increase from 120,650 MW and 43.5 percent of total FTR volume. In the same auction, prevailing flow FTR buy bids cleared 163,931 MW (9.8 percent of demand;