Common use of Revenue Adequacy Clause in Contracts

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $568.8 million in credits from the FTR auctions during the 2013 to 2014 planning period. During the 2013 to 2014 planning period, ARR holders received $506.2 million in ARR credits. Table 13-24 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2012 to 2013 planning period and the 2013 to 2014 planning periods. Total FTR auction net revenue $568.8 $752.9 Annual FTR Auction net revenue $558.4 $748.6 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 $4.2 ARR target allocations $506.2 $732.2 ARR credits $506.2 $732.2 Surplus auction revenue $62.6 $20.6 ARR payout ratio 100% 100% FTR payout ratio* 72.8% 100.0% * Shows twelve months for 2013/2014 and four months for 2014/2015.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers ARRs that are self schedule ARRs scheduled as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers ARRs that are self schedule ARRs scheduled as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected will receive $568.8 565.4 million in credits from the Annual FTR auctions Auction during the 2012 to 2013 to 2014 planning period, with an average hourly ARR credit of $0.63 per MW. During the 2013 comparable 2011 to 2014 2012 planning period, ARR holders received $506.2 947.3 million in ARR credits, with an average hourly ARR credit of $1.06 per MW. Table 1312-24 16 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2011 to 2012 and the 2012 to 2013 planning period and the 2013 to 2014 (through September 30, 2012) planning periods. 2011/2012 2012/2013 Total FTR auction net revenue $568.8 1,055.9 $752.9 614.8 Annual FTR Auction net revenue $558.4 1,029.6 $748.6 602.9 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 26.3 $4.2 11.9 ARR target allocations $506.2 947.3 $732.2 565.4 ARR credits $506.2 947.3 $732.2 565.4 Surplus auction revenue $62.6 108.6 $20.6 49.4 ARR payout ratio 100% 100% FTR payout ratio* 72.880.6% 100.079.1% * Shows twelve months for 2013/2014 and 2011/2012 four months for 2014/20152012/2013.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $568.8 626.7 million in credits from the FTR auctions during the 2012 to 2013 to 2014 planning period, with a projected average hourly ARR credit of $0.66 per MW. During the 2013 comparable 2011 to 2014 2012 planning period, ARR holders received $506.2 1,055.9 million in ARR creditscredits with an average hourly ARR credit of $1.06 per MW. Table 1312-24 34 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2011 to 2012 and the 2012 to 2013 planning period and the 2013 to 2014 planning periods. Total FTR auction net revenue $568.8 626.7 $752.9 559.5 Annual FTR Auction net revenue $602.9 $558.4 $748.6 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 23.9 $4.2 1.1 ARR target allocations $506.2 570.5 $732.2 502.4 ARR credits $506.2 570.5 $732.2 502.4 Surplus auction revenue $62.6 56.2 $20.6 57.1 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 72.8% 100.0% 67.8 74.7 * Shows twelve months for 2013/2014 2012/2013 and four months one month for 2014/20152013/2014.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $568.8 566.7 million in credits from the FTR auctions during the first ten months of the 2013 to 2014 planning period. During the first ten months of the 2013 to 2014 planning period, ARR holders received $506.2 505.5 million in ARR credits. Table 13-24 26 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2012 to 2013 planning period and the first ten months of the 2013 to 2014 planning periods. Total FTR auction net revenue $568.8 626.7 $752.9 566.7 Annual FTR Auction net revenue $602.9 $558.4 $748.6 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 23.9 $4.2 8.3 ARR target allocations $506.2 570.5 $732.2 505.5 ARR credits $506.2 570.5 $732.2 505.5 Surplus auction revenue $62.6 56.2 $20.6 61.1 ARR payout ratio 100% 100% FTR payout ratio* 72.867.8% 100.075.1% * Shows twelve months for 2013/2014 2012/2013 and four ten months for 2014/20152013/2014.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $568.8 1,055.9 million in credits from the Annual FTR auctions Auction during the 2013 2011 to 2014 2012 planning period, with an average hourly ARR credit of $1.06 per MW. During the 2013 comparable 2010 to 2014 2011 planning period, ARR holders received $506.2 1,028.8 million in ARR credits, with an average hourly ARR credit of $1.15 per MW. Table 1312-24 27 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2011 to 2012 and the 2012 to 2013 planning period and the 2013 to 2014 (through June 30, 2012) planning periods. Total FTR auction net revenue $568.8 1,055.9 $752.9 606.3 Annual FTR Auction net revenue $558.4 1,029.6 $748.6 602.9 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 26.3 $4.2 3.4 ARR target allocations $506.2 947.3 $732.2 565.4 ARR credits $506.2 947.3 $732.2 565.4 Surplus auction revenue $62.6 108.6 $20.6 40.8 ARR payout ratio 100% 100% FTR payout ratio* 72.880.6% 100.092.9% * Shows twelve months for 2013/2014 2010/2011 one month for 2012/2013. Payout ratio for 2011/2012 not finalized As an illustration of the relationship between FTRs and four months congestion, Figure 12-13 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for 2014/2015each PJM control zone for the 2011 to 2012 planning period. The day-ahead and real-time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $568.8 626.7 million in credits from the FTR auctions during the 2012 to 2013 to 2014 planning period, with a projected average hourly ARR credit of $0.66 per MW. During the 2013 comparable 2011 to 2014 2012 planning period, ARR holders received $506.2 1,055.9 million in ARR creditscredits with an average hourly ARR credit of $1.06 per MW. Table 13-24 25 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2012 to 2013 planning period and the 2013 to 2014 planning periods. Total FTR auction net revenue $568.8 $752.9 Annual FTR Auction net revenue $602.9 $558.4 $748.6 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 23.9 $4.2 0.6 ARR target allocations $506.2 570.5 $732.2 503.4 ARR credits $506.2 570.5 $732.2 503.4 Surplus auction revenue $62.6 56.2 $20.6 55.6 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 72.8% 100.0% 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M * Shows twelve months for 2013/2014 2012/2013 and four months for 2014/20152013/2014. -$6 ARR and FTR Revenue and CongestionFTR Prices and Zonal Price Differences ComEd DLCO DAY EKPC ATSI AEP DEOK PENELEC AP PPL Met-Ed JCPL PECO AECO Dominion PSEG RECO DPL As an illustration of the relationship between FTRs and congestion, Figure 13-13 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 to 2014 planning period through September 30, 2013. The day-ahead and real- time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices. One measure of the effectiveness of ARRs as an offset to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 92.6 percent of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market is presented by control zone in Table 13-26. ARRs and self-scheduled FTRs that sink at an aggregate are assigned to a control zone if applicable.24 Total revenue equals the ARR credits and the FTR credits from ARRs which are self scheduled as FTRs. The ARR credits do not include the ARR credits for the portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and that revenue is then paid back to the ARR holders, netting the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled FTR MW) and the cleared price for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day- Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 77.3 percent of the target allocation for the 2013 to 2014 planning period through September 30, 2013. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $568.8 562.8 million in credits from the FTR auctions during the first seven months of the 2013 to 2014 planning period. During the first seven months of the 2012 to 2013 to 2014 planning period, ARR holders received $506.2 620.2 million in ARR credits. Table 13-24 41 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2012 to 2013 planning period and the first seven months of the 2013 to 2014 planning periods. Total FTR auction net revenue $568.8 626.7 $752.9 562.8 Annual FTR Auction net revenue $602.9 $558.4 $748.6 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 23.9 $4.2 4.4 ARR target allocations $506.2 570.5 $732.2 503.8 ARR credits $506.2 570.5 $732.2 503.8 Surplus auction revenue $62.6 56.2 $20.6 59.0 ARR payout ratio 100% 100% FTR payout ratio* 72.867.8% 100.075.1% * Shows twelve months for 2013/2014 2012/2013 and four seven months for 2014/20152013/2014.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $568.8 624.6 million in credits from the FTR auctions during the first ten months of the 2012 to 2013 to 2014 planning period, with an average hourly ARR credit of $0.63 per MW. During the 2013 first ten months of the 2011 to 2014 2012 planning period, ARR holders received $506.2 1,055.9 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 1312-24 21 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2011 to 2012 and the 2012 to 2013 planning period and the 2013 to 2014 (through March 31, 2013) planning periods. Total FTR auction net revenue $568.8 1,055.9 $752.9 624.6 Annual FTR Auction net revenue $558.4 1,029.6 $748.6 602.9 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 26.3 $4.2 21.7 ARR target allocations $506.2 947.3 $732.2 565.4 ARR credits $506.2 947.3 $732.2 565.4 Surplus auction revenue $62.6 108.6 $20.6 59.1 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 72.8% 100.0% 80.6 74.8 * Shows twelve months for 2013/2014 and four 2011/2012 ten months for 2014/20152012/2013. As an illustration of the relationship between FTRs and congestion, Figure 12-11 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2012 to 2013 planning period. The day-ahead and real-time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $568.8 620.2 million in credits from the Annual FTR auctions Auction during the 2012 to 2013 to 2014 planning period, with an average hourly ARR credit of $0.63 per MW. During the 2013 comparable 2011 to 2014 2012 planning period, ARR holders received $506.2 1,055.9 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 1312-24 38 lists projected ARR target allocations from the Annual ARR Allocation, and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2011 to 2012 and the 2012 to 2013 planning period and the 2013 to 2014 (through December 31, 2012) planning periods. Total FTR auction net revenue $568.8 1,055.9 $752.9 620.2 Annual FTR Auction net revenue $558.4 1,029.6 $748.6 602.9 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 26.3 $4.2 17.3 ARR target allocations $506.2 947.3 $732.2 565.4 ARR credits $506.2 947.3 $732.2 565.4 Surplus auction revenue $62.6 108.6 $20.6 54.7 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 72.8% 100.0% 80.6 74.8 * Shows twelve months for 2013/2014 and four 2011/2012 seven months for 2014/20152012/2013. As an illustration of the relationship between FTRs and congestion, Figure 12-18 shows Annual FTR Auction prices and an approximate measure of day-ahead and real-time congestion for each PJM control zone for the 2012 to 2013 planning period. The day-ahead and real- time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices. Figure 12-18 Annual FTR Auction prices vs. average day-ahead and real-time congestion for all control zones relative to the Western Hub47: Planning period 2011 to 2012 Annual FTR Auction path price Day-ahead congestion Real-time congestion $3 $2 $1 ($/MW) $0 -$1 -$2 -$3 ComEd ATSI DAY DEOK AEP DLCO PENELEC AP PPL RECO PECO Met-Ed JCPL AECO PSEG DPL Dominion Pepco -$4 One measure of the effectiveness of ARRs as an offset to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first seven months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 82.1 percent of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market is presented by control zone in Table 12-39. ARRs and self-scheduled FTRs that sink at an aggregate are assigned to a control zone if applicable.48 Total revenue equals the ARR credits and the FTR credits from ARRs which are self scheduled as FTRs. The ARR credits do not include the ARR credits for the portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and that revenue is then paid back to the ARR holders, netting the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled FTR MW) and the cleared price for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 74.8 percent of the target allocation for the first seven months of the 2012 to 2013 planning period. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.