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 $620.2 million in credits from the Annual FTR Auction during the 2012 to 2013 planning period, with an average hourly ARR credit of $0.63 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 12-38 lists ARR target allocations 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 (through December 31, 2012) planning periods. Table 12-38 ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 2011/2012 2012/2013 Total FTR auction net revenue $1,055.9 $620.2 Annual FTR Auction net revenue $1,029.6 $602.9 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 $17.3 ARR target allocations $947.3 $565.4 ARR credits $947.3 $565.4 Surplus auction revenue $108.6 $54.7 ARR payout ratio 100 100 FTR payout ratio* 80.6 74.8 * Shows twelve months for 2011/2012 seven months for 2012/2013. ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences 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 Effectiveness of ARRs as an Offset to Congestion 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.

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 $620.2 626.7 million in credits from the Annual FTR Auction auctions during the 2012 to 2013 planning period, with an a projected average hourly ARR credit of $0.63 0.66 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits, credits with an average hourly ARR credit of $1.05 1.06 per MW. Table 12-38 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 (through December 31, 2012) planning periods. Table 12-38 12‑34 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 2011/2012 and 2013 to 2014 2012/2013 2013/2014 Total FTR auction net revenue $1,055.9 626.7 $620.2 559.5 Annual FTR Auction net revenue $1,029.6 602.9 $602.9 558.4 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 23.9 $17.3 1.1 ARR target allocations $947.3 570.5 $565.4 502.4 ARR credits $947.3 570.5 $565.4 502.4 Surplus auction revenue $108.6 56.2 $54.7 57.1 ARR payout ratio 100 100 FTR payout ratio* 80.6 74.8 67.8 74.7 * Shows twelve months for 2011/2012 seven months 2012/2013 and one month for 2012/20132013/2014. ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences 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 Effectiveness of ARRs as an Offset to Congestion 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.Congestion

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 $620.2 568.8 million in credits from the Annual FTR Auction auctions during the 2012 2013 to 2013 2014 planning period, with an average hourly ARR credit of $0.63 per MW. During the comparable 2011 2013 to 2012 2014 planning period, ARR holders received $1,055.9 506.2 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 1213-38 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 2011 to 2012 and the 2012 to 2013 (through December 31, 2012) planning period and the 2013 to 2014 planning periods. Table 12-38 13‑24 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 2011/2012 2012/2013 and 2013 to 2014 2013/2014 2014/2015 Total FTR auction net revenue $1,055.9 568.8 $620.2 752.9 Annual FTR Auction net revenue $1,029.6 558.4 $602.9 748.6 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 10.4 $17.3 4.2 ARR target allocations $947.3 506.2 $565.4 732.2 ARR credits $947.3 506.2 $565.4 732.2 Surplus auction revenue $108.6 62.6 $54.7 20.6 ARR payout ratio 100 100 100% 100% FTR payout ratio* 80.6 74.8 72.8% 100.0% * Shows twelve months for 2011/2012 seven 2013/2014 and four months for 2012/20132014/2015. ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences 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 Effectiveness of ARRs as an Offset to Congestion 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.Congestion

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 will receive $620.2 947.3 million in credits from the Annual FTR Auction during the 2011 to 2012 to 2013 planning period, with an average hourly ARR credit of $0.63 1.05 per MW. During the comparable 2010 to 2011 to 2012 planning period, ARR holders received $1,055.9 1,028.8 million in ARR credits, with an average hourly ARR credit of $1.05 1.15 per MW. Table 12-38 16 lists ARR target allocations and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2010 to 2011 and the 2011 to 2012 and the 2012 to 2013 (through December March 31, 2012) planning periods. Table 12-38 12‑16 ARR revenue adequacy (Dollars (Millions)): Planning periods 2010 to 2011 and 2011 to 2012 and 2012 to 2013 (See 2011 SOM, Table 12‑33) 2010/2011 2011/2012 2012/2013 Total FTR auction net revenue $1,055.9 1,074.3 $620.2 1,054.4 Annual FTR Auction net revenue $1,049.8 $1,029.6 $602.9 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 24.5 $17.3 24.8 ARR target allocations $1,028.8 $947.3 $565.4 ARR credits $1,028.8 $947.3 $565.4 Surplus auction revenue $108.6 45.5 $54.7 107.1 ARR payout ratio 100 100 FTR payout ratio* 80.6 74.8 85.0 83.2 * Shows twelve months for 2010/2011 and ten months ended 31-Mar-11 for 2011/2012 seven months for 2012/2013. ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences As an illustration of the relationship between FTRs and congestion, Figure 12-18 9 shows Annual FTR Auction prices and an approximate measure of day-day- ahead and real-time congestion for each PJM control zone for the 2011 to 2012 to 2013 planning periodperiod through March 31, 2012. The day-ahead and real- 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 Effectiveness of ARRs as an Offset to Congestion 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.

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 will receive $620.2 947.3 million in credits from the Annual FTR Auction during the 2011 to 2012 to 2013 planning period, with an average hourly ARR credit of $0.63 1.05 per MW. During the comparable 2010 to 2011 to 2012 planning period, ARR holders received $1,055.9 1,028.8 million in ARR credits, with an average hourly ARR credit of $1.05 1.15 per MW. Table 12-38 16 lists ARR target allocations and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2010 to 2011 and the 2011 to 2012 and the 2012 to 2013 (through December March 31, 2012) planning periods. Table 12-38 12‑16 ARR revenue adequacy (Dollars (Millions)): Planning periods 2010 to 2011 and 2011 to 2012 and 2012 to 2013 (See 2011 SOM, Table 12‑33) 2010/2011 2011/2012 2012/2013 Total FTR auction net revenue $1,055.9 1,074.3 $620.2 1,054.4 Annual FTR Auction net revenue $1,049.8 $1,029.6 $602.9 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 24.5 $17.3 24.8 ARR target allocations $1,028.8 $947.3 $565.4 ARR credits $1,028.8 $947.3 $565.4 Surplus auction revenue $108.6 45.5 $54.7 107.1 ARR payout ratio 100 100 100% 100% FTR payout ratio* 80.6 74.8 85.0% 83.2% * Shows twelve months for 2010/2011 and ten months ended 31-Mar-11 for 2011/2012 seven months for 2012/2013. ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences As an illustration of the relationship between FTRs and congestion, Figure 12-18 9 shows Annual FTR Auction prices and an approximate measure of day-day- ahead and real-time congestion for each PJM control zone for the 2011 to 2012 to 2013 planning periodperiod through March 31, 2012. The day-ahead and real- 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 Effectiveness of ARRs as an Offset to Congestion 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.

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 $620.2 566.7 million in credits from the Annual FTR Auction auctions during the 2012 first ten months of the 2013 to 2013 2014 planning period, with an average hourly ARR credit of $0.63 per MW. During the comparable 2011 first ten months of the 2013 to 2012 2014 planning period, ARR holders received $1,055.9 505.5 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 1213-38 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 2011 to 2012 and the 2012 to 2013 (through December 31, 2012) planning period and the first ten months of the 2013 to 2014 planning periods. Table 12-38 13‑26 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 2011/2012 and 2013 to 2014 2012/2013 2013/2014 Total FTR auction net revenue $1,055.9 626.7 $620.2 566.7 Annual FTR Auction net revenue $1,029.6 602.9 $602.9 558.4 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 23.9 $17.3 8.3 ARR target allocations $947.3 570.5 $565.4 505.5 ARR credits $947.3 570.5 $565.4 505.5 Surplus auction revenue $108.6 56.2 $54.7 61.1 ARR payout ratio 100 100 100% 100% FTR payout ratio* 80.6 74.8 67.8% 75.1% * Shows twelve months for 2011/2012 seven 2012/2013 and ten months for 2012/20132013/2014. ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences 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 Effectiveness of ARRs as an Offset to Congestion 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.Congestion

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 $620.2 968.1 million in credits from the Annual FTR Auction auctions during the 2012 2015 to 2013 2016 planning periodperiod before accounting for self scheduling, with an average hourly load shifts or residual ARRs. The FTR auction revenue collected pays ARR credit of $0.63 per MWholders’ credits. During the comparable 2011 first seven months of the 2016 to 2012 2017 planning period, ARR holders received $1,055.9 935.7 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 1213-38 12 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 2015 to 2012 2016 planning period and the 2012 first seven months of the 2016 to 2013 (through December 31, 2012) 2017 planning periods. Table 1213-38 12 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 2015 to 2012 2016 and 2012 2016 to 2013 2011/2012 2012/2013 2017 2015/ 2016 2016/ 2017 Total FTR auction net revenue $1,055.9 968.1 $620.2 935.7 Annual FTR Auction net revenue $1,029.6 936.3 $602.9 909.0 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 31.8 $17.3 26.7 ARR target allocations $947.3 931.6 $565.4 911.4 ARR credits $947.3 931.6 $565.4 911.4 Surplus auction revenue $108.6 36.5 $54.7 24.3 ARR payout ratio 100 100 100% 100% FTR payout ratio* 80.6 74.8 100% 100% * Shows twelve months for 2011/2012 2015/2016 and seven months for 2012/20132016/2017. Figure 13-4 shows the dollars per ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences As an illustration MW held for each month 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 2010 to 2013 2011 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 Effectiveness of ARRs as an Offset to Congestion 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 through the first seven months of the 2012 2016 to 2013 2017 planning periods. The ARR MW held do not include self-scheduled FTRs and do include Residual ARRs starting in August 2012. FTR prices increased in the 2014 to 2015 Annual FTR Auction as a result of reduced supply caused by PJM’s assumption of more outages in the model used to allocate Stage 1B and Stage 2 ARRs. The increased FTR prices resulted in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total revenues received by dollars per MW of ARR allocation was $11,279, while the holders previous planning period resulted in a dollars per MW of all ARRs and FTRs offset 82.1 $6,692, a 68.5 percent increase in payment per allocated ARR MW. Some 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 MW lost from proration were provided in the Day-Ahead Energy Market Residual ARR process, but the residual allocations are not comparable to the ARRs awarded in the annual process because residual ARR allocations change each month 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 cannot be self scheduled as FTRs. The For the 2015 to 2016 planning period, the dollars per MW of ARR credits do not include the ARR credits for the portion of any ARR that allocation 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$10,641.54. 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 For the first seven months of the 2012 2016 to 2013 2017 planning period, the dollars per MW of ARR allocation were $7,180.49 down from $7,739.36 in the first seven months of the 2015 to 2016 planning period. Total dollars per MW were down slightly in the 2016 to 2017 planning period due to increased Stage 1B and Stage 2 ARR volume. 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 Figure 13-4 Dollars per ARR MW paid to ARR holders: Planning periods 2010 to 2011 through 2016 to 2017 allows PJM to use the excess auction revenue to pay prevailing flow FTRs without increasing prevailing flow obligations. The result is to increase FTR funding. This action removes money from the ARR revenue stream and caused the decrease in excess ARR revenue beginning in June 2014. Excess auction revenue is allocated pro rata to FTR holders at the end of the planning period, instead of being distributed to ARR holders. Figure 13-5 Monthly excess ARR revenue: Planning periods 2011 to 2012 through 2016 to 2017 11/12 12/13 13/14 14/15 15/16 16/17 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $6,000,000 $4,000,000 $2,000 $1,800 $2,000,000 June Aug Oct Dec Feb Apr June Aug Oct Dec Feb Apr June Aug Oct Dec Feb Apr June Aug Oct Dec Feb Apr June Aug Oct Dec Feb Apr June Aug Oct Dec $1,600 $- $1,400 $/ARR MW $1,200 $1,000 $800 $600 $400 $200 $0 Excess Auction Revenue Figure 13-5 shows the monthly excess auction revenue from the 2011 to 2012 through 2015 to 2016 planning periods. Excess auction revenue is the revenue collected each month from FTR auctions in excess of ARR target allocations. Beginning with the 2014 to 2015 planning period, market rules allow PJM to decrease prevailing flow target allocations by clearing counter flow FTRs, without making the opposite prevailing flow FTR available, as long as ARRs remain revenue adequate.22 This Table 13-13 shows the excess auction revenue, by planning period, for planning periods 2010 to 2011 through 2016 to 2017. Table 13-13 Excess Auction Revenue: Planning periods 2010 to 2011 through 2016 to 2017 Planning Period Excess Auction Revenue 2010/2011 $29,704,562 2011/2012 $80,083,695 2012/2013 $66,652,822 2013/2014 $71,687,937 2014/2015* $29,045,590 2015/2016 $29,612,591 2016/2017** $12,093,742 Total $318,880,939 *Start of counter flow “buy back” **Through December 31, 2016 22 See PJM. “Manual 6: Financial Transmission Rights” Revision 17 (June 1, 2016), p. 55. Financial Transmission Rights FTRs are financial instruments that entitle their holders to receive revenue or require them to pay charges based on locational congestion price differences in the Day- Ahead Energy Market across specific FTR transmission paths, subject to total congestion revenue including day-ahead and balancing congestion. The value of the day-ahead congestion price differences, termed the FTR target allocation, defines the maximum, but not guaranteed, payout for FTRs. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular an 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 reflects the difference between in day-ahead congestion prices rather than the total revenue difference in LMPs, which includes both congestion and the congestion for each ARR control zone sinkmarginal losses.

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 $620.2 1,055.9 million in credits from the Annual FTR Auction during the 2011 to 2012 to 2013 planning period, with an average hourly ARR credit of $0.63 1.06 per MW. During the comparable 2010 to 2011 to 2012 planning period, ARR holders received $1,055.9 1,028.8 million in ARR credits, with an average hourly ARR credit of $1.05 1.15 per MW. Table 12-38 27 lists ARR target allocations 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 (through December 31June 30, 2012) planning periods. Table 12-38 12‑27 ARR revenue adequacy (Dollars (Millions)): Planning periods 2010 to 2011 and 2011 to 2012 and 2012 to 2013 (See 2011 SOM, Table 12‑33) 2011/2012 2012/2013 Total FTR auction net revenue $1,055.9 $620.2 606.3 Annual FTR Auction net revenue $1,029.6 $602.9 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 $17.3 3.4 ARR target allocations $947.3 $565.4 ARR credits $947.3 $565.4 Surplus auction revenue $108.6 $54.7 40.8 ARR payout ratio 100 100 100% 100% FTR payout ratio* 80.6 74.8 80.6% 92.9% * Shows twelve months for 2011/2012 seven months 2010/2011 one month for 2012/2013. Payout ratio for 2011/2012 not finalized ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences As an illustration of the relationship between FTRs and congestion, Figure 12-18 13 shows Annual FTR Auction prices and an approximate measure of day-day- ahead and real-time congestion for each PJM control zone for the 2011 to 2012 to 2013 planning period. The day-ahead and real- 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 Effectiveness of ARRs as an Offset to Congestion 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.

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 $620.2 761.1 million in credits from the Annual FTR Auction auctions during the 2012 first seven months of the 2014 to 2013 2015 planning period, with an average hourly ARR credit of $0.63 per MW. During the comparable 2011 first seven months of the 2014 to 2012 2015 planning period, ARR holders received $1,055.9 733.7 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 1213-38 40 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 2013 to 2012 2014 planning period and the 2012 2014 to 2013 (through December 31, 2012) 2015 planning periods. Table 1213-38 40 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 2013 to 2012 2014 and 2012 2014 to 2013 2011/2012 2012/2013 2013/2014 2014/2015 Total FTR auction net revenue $1,055.9 568.8 $620.2 761.1 Annual FTR Auction net revenue $1,029.6 558.4 $602.9 748.6 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 10.4 $17.3 12.5 ARR target allocations $947.3 506.2 $565.4 733.7 ARR credits $947.3 506.2 $565.4 733.7 Surplus auction revenue $108.6 62.6 $54.7 27.4 ARR payout ratio 100 100 FTR payout ratio* 80.6 74.8 72.8 100.0 * Shows twelve months for 2011/2012 2013/2014 and seven months for 2012/20132014/2015. 2015 Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2014 to 2015 planning periods. The ARR MW held do not include self scheduled FTRs and do include Residual ARRs starting in August 2012. FTR prices increased in the 2014 to 2015 Annual FTR Auction as a result of reduced supply caused by a more conservative model used to allocate Stage 1B and Stage 2 ARRs. The increased FTR prices result in an increase in dollars paid per ARR MW. Some of the ARR MW lost from proration were provided in the Residual ARR process, but the residual allocations are not comparable to the ARRs awarded in the annual process because residual ARR allocations change each month and cannot be self scheduled as FTRs. Figure 13-16 Dollars per ARR MW paid to ARR holders: Planning periods 2010 to 2011 through 2014 to 2015 $2,000 $1,800 $1,600 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 $1,400 $/ARR MW $1,200 $1,000 $800 $600 $400 $200 $0 Excess ARR Revenue Excess ARR revenue is the revenue collected each month from FTR auctions in excess of ARR target allocations after PJM’s implemented counter flow FTR clearing process (Figure 13-17). Beginning with the 2014 to 2015 planning period, market rules allow PJM to lower facility limits by clearing counter flow FTRs, without making the opposite prevailing flow FTR available, as long as ARRs remain revenue adequate. This allows PJM to use the excess ARR revenue to pay prevailing flow FTRs without increasing prevailing flow obligations. This action removes money from the excess ARR revenue stream and caused the large decrease in excess ARR revenue beginning in June 2014. Currently excess ARR revenue is allocated pro rata to FTR holders. Figure 13-17 Excess ARR revenue: Planning periods 2011 to 2012 through 2014 to 2015 11/12 12/13 13/14 14/15 Excess Revenue $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 June Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June Jul Aug Sep Oct Nov Dec $- ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences 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 Effectiveness of ARRs as an Offset to Congestion 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.Congestion

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 $620.2 626.7 million in credits from the Annual FTR Auction auctions during the 2012 to 2013 planning period, with an a projected average hourly ARR credit of $0.63 0.66 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits, credits with an average hourly ARR credit of $1.05 1.06 per MW. Table 12-38 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 (through December 31, 2012) planning periods. Table 12-38 12‑34 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 2011/2012 and 2013 to 2014 2012/2013 2013/2014 Total FTR auction net revenue $1,055.9 626.7 $620.2 559.5 Annual FTR Auction net revenue $1,029.6 602.9 $602.9 558.4 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 23.9 $17.3 1.1 ARR target allocations $947.3 570.5 $565.4 502.4 ARR credits $947.3 570.5 $565.4 502.4 Surplus auction revenue $108.6 56.2 $54.7 57.1 ARR payout ratio 100 100 100% 100% FTR payout ratio* 80.6 74.8 67.8% 74.7% * Shows twelve months for 2011/2012 seven months 2012/2013 and one month for 2012/20132013/2014. ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences 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 Effectiveness of ARRs as an Offset to Congestion 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.Congestion

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 $620.2 626.7 million in credits from the Annual FTR Auction auctions during the 2012 to 2013 planning period, with an a projected average hourly ARR credit of $0.63 0.66 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits, credits with an average hourly ARR credit of $1.05 1.06 per MW. Table 1213-38 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 2011 to 2012 and the 2012 to 2013 (through December 31, 2012) and the 2013 to 2014 planning periods. 2012/2013 2013/2014 Total FTR auction net revenue $626.7 $559.0 Annual FTR Auction net revenue $602.9 $558.4 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 $0.6 ARR target allocations $570.5 $503.4 ARR credits $570.5 $503.4 Surplus auction revenue $56.2 $55.6 ARR payout ratio 100 100 FTR payout ratio* 67.8 77.3 Table 12-38 13‑25 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 2011/2012 2012/2013 Total FTR auction net revenue $1,055.9 $620.2 and 2013 to 2014 Figure 13‑13 Annual FTR Auction net revenue $1,029.6 $602.9 Monthly Balance of prices vs. average day‑ahead and real‑time congestion for all control zones relative to the Western Hub: Planning Period period 2013 to 2014 through September 30, 2013 FTR Auction net revenue* LMP DA Congestion RT Congestion $26.3 8 $17.3 ARR target allocations 6 $947.3 4 W) $565.4 ARR credits 2 ($947.3 /M $565.4 Surplus auction revenue $108.6 $54.7 ARR payout ratio 100 100 FTR payout ratio* 80.6 74.8 0 -$2 -$4 * Shows twelve months for 2011/2012 seven 2012/2013 and four months for 2012/20132013/2014. -$6 ARR and FTR Revenue and Congestion FTR 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 1213-18 13 shows Annual FTR Auction prices and an approximate measure of day-day- ahead and real-time congestion for each PJM control zone for the 2012 2013 to 2013 2014 planning periodperiod 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. 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 Effectiveness of ARRs as an Offset to Congestion 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 ten months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 82.1 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 1213-3926. ARRs and self-scheduled FTRs that sink at an aggregate are assigned to a control zone if applicable.48 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-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 77.3 percent of the target allocation for the first seven months of the 2012 2013 to 2013 2014 planning periodperiod 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 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 will receive $620.2 565.4 million in credits from the Annual FTR Auction during the 2012 to 2013 planning period, with an average hourly ARR credit of $0.63 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 947.3 million in ARR credits, with an average hourly ARR credit of $1.05 1.06 per MW. Table 12-38 16 lists ARR target allocations 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 (through December 31September 30, 2012) planning periods. Table 12-38 ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 2011/2012 2012/2013 Total FTR auction net revenue $1,055.9 $620.2 614.8 Annual FTR Auction net revenue $1,029.6 $602.9 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 $17.3 11.9 ARR target allocations $947.3 $565.4 ARR credits $947.3 $565.4 Surplus auction revenue $108.6 $54.7 49.4 ARR payout ratio 100 100 100% 100% FTR payout ratio* 80.6 74.8 80.6% 79.1% * Shows twelve months for 2011/2012 seven four months for 2012/2013. Table 12‑16 ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 (See 2011 SOM, Table 12‑33) ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences 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 Effectiveness of ARRs as an Offset to Congestion 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.Congestion

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 $620.2 562.8 million in credits from the Annual FTR Auction auctions during the first seven months of the 2013 to 2014 planning period. During the first seven months of the 2012 to 2013 planning period, with an average hourly ARR credit of $0.63 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 620.2 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 1213-38 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 2011 to 2012 and the 2012 to 2013 (through December 31, 2012) planning period and the first seven months of the 2013 to 2014 planning periods. Table 1213-38 41 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 2011/2012 and 2013 to 2012/2013 2013/2014 Total FTR auction net revenue $1,055.9 626.7 $620.2 562.8 Annual FTR Auction net revenue $1,029.6 602.9 $602.9 558.4 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 23.9 $17.3 4.4 ARR target allocations $947.3 570.5 $565.4 503.8 ARR credits $947.3 570.5 $565.4 503.8 Surplus auction revenue $108.6 56.2 $54.7 59.0 ARR payout ratio 100 100 100% 100% FTR payout ratio* 80.6 74.8 67.8% 75.1% * Shows twelve months for 2011/2012 2012/2013 and seven months for 2012/20132013/2014. ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences 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 Effectiveness of ARRs as an Offset to Congestion 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.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 $620.2 624.6 million in credits from the Annual FTR Auction auctions during the first ten months of the 2012 to 2013 planning period, with an average hourly ARR credit of $0.63 per MW. During the comparable first ten months of the 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 12-38 21 lists ARR target allocations 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 (through December March 31, 20122013) planning periods. Table 12-38 12‑21 ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 2011/2012 2012/2013 Total FTR auction net revenue $1,055.9 $620.2 624.6 Annual FTR Auction net revenue $1,029.6 $602.9 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 $17.3 21.7 ARR target allocations $947.3 $565.4 ARR credits $947.3 $565.4 Surplus auction revenue $108.6 $54.7 59.1 ARR payout ratio 100 100 FTR payout ratio* 80.6 74.8 * Shows twelve months for 2011/2012 seven ten months for 2012/2013. ARR and FTR Revenue and Congestion FTR Prices and Zonal Price Differences As an illustration of the relationship between FTRs and congestion, Figure 12-18 11 shows Annual FTR Auction prices and an approximate measure of day-day- ahead and real-time congestion for each PJM control zone for the 2012 to 2013 planning period. The day-ahead and real- 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 Effectiveness of ARRs as an Offset to Congestion 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.