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 $767.9 million in credits from the FTR auctions during the 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 to 2015 planning period, ARR holders received $735.3 million in ARR credits. Table 13-25 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 2014 to 2015 planning period and the 2015 to 2016 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 Total FTR auction net revenue $767.9 $956.2 Annual FTR Auction net revenue $748.6 $936.3 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 $20.0 ARR target allocations $735.3 $927.0 ARR credits $735.3 $927.0 Surplus auction revenue $32.6 $29.3 ARR payout ratio 100% 100% FTR payout ratio* 100% 100% * Shows twelve months for 2014/2015 and four months for 2015/2016. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 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 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 $767.9 568.8 million in credits from the FTR auctions during the 2013 to 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2013 to 2014 to 2015 planning period, ARR holders received $735.3 506.2 million in ARR credits. Table 13-25 31 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 2014 2012 to 2015 2013 planning period and the 2015 2013 to 2016 2014 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. $50 $- 13/14 14/15 Table 13‑25 13‑32 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 2012/2013 2013/2014 Total FTR auction net revenue $767.9 626.7 $956.2 568.8 Annual FTR Auction net revenue $748.6 602.9 $936.3 558.4 Monthly Balance of Planning Period FTR Auction net revenue* revenue $19.3 23.9 $20.0 10.4 ARR target allocations $735.3 570.5 $927.0 506.2 ARR credits $735.3 570.5 $927.0 506.2 Surplus auction revenue $32.6 56.2 $29.3 62.6 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% * Shows twelve months for 2014/2015 and four months for 2015/2016. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ratio 67.8 72.8 ARR and FTR Revenue and Congestion Effectiveness FTR Prices and Zonal Price Differences As an illustration of ARRs the relationship between FTRs and FTRs as an Offset to Congestion Table congestion, Figure 13-26 compares the revenue 18 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market each PJM control zone for the 2013 to 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs The day-ahead and all FTRs to the total real-time congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits based on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR zonal congestion prices and FTR offset and the Western Hub congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015prices.

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 $767.9 761.1 million in credits from the FTR auctions during the first seven months of the 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the first seven months of the 2014 to 2015 planning period, ARR holders received $735.3 733.7 million in ARR credits. Table 13-25 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 2013 to 2014 planning period and the 2014 to 2015 planning period and the 2015 to 2016 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 13-40 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 to 2014 and 2014 to 2015 2013/2014 2014/2015 2015/2016 Total FTR auction net revenue $767.9 568.8 $956.2 761.1 Annual FTR Auction net revenue $558.4 $748.6 $936.3 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 10.4 $20.0 12.5 ARR target allocations $735.3 506.2 $927.0 733.7 ARR credits $735.3 506.2 $927.0 733.7 Surplus auction revenue $32.6 62.6 $29.3 27.4 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% 72.8 100.0 * Shows twelve months for 2014/2015 2013/2014 and four seven months for 2015/20162014/2015. 2015 Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2014 to 2015 to 2016 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 a more outages in the 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. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 13-16 Dollars per ARR MW paid to ARR holders: Planning periods 2010 to 2011 through 2014 to 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,200 $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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 processprocess (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 Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 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 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 process because residual ARR allocations change each month and cannot be self scheduled as FTRs. 2013/2014 2014/2015 Total FTR auction net revenue $568.8 $767.9 Annual FTR Auction net revenue $558.4 $748.6 Monthly Balance of Planning Period FTR Auction net revenue* $10.4 $19.3 ARR target allocations $506.2 $735.3 ARR credits $506.2 $735.3 Surplus auction revenue $62.6 $32.6 ARR payout ratio 100% 100% FTR payout ratio* 72.8% 100.0% Table 13‑35 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 to 2014 and 2014 to 2015 their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $767.9 million in credits from the FTR auctions during the 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 to 2015 planning period, ARR holders received $735.3 million in ARR credits. Table 13-25 35 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 2013 to 2014 to 2015 planning period and the 2014 to 2015 to 2016 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 34.7 percent while projected ARR target allocations increased 26.1 45.0 percent from the previous planning period. Table 13‑25 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 Total FTR auction net revenue $767.9 $956.2 Annual FTR Auction net revenue $748.6 $936.3 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 $20.0 ARR target allocations $735.3 $927.0 ARR credits $735.3 $927.0 Surplus auction revenue $32.6 $29.3 ARR payout ratio 100% 100% FTR payout ratio* 100% 100% * Shows twelve months for 2014/2015 and four months for 2015/2016. Figure 13-16 18 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 * Shows twelve months for 2013/2014 and cannot be self scheduled as FTRstwelve months for 2014/2015. Figure 13‑16 13‑18 Dollars per ARR MW paid to ARR holders: Planning periods 2010 to 2011 through 2014 to 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,200 $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 19 shows the monthly excess ARR revenue from the 2011 to 2012 through 2014 to 2015 to 2016 planning periods. 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. 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 13‑19 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 ARR and FTR Revenue and Congestion 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 2014 to 2015 planning period, the total revenues received by the holders of all ARRs and FTRs offset 88.3 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 in Table 13-36. 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 100 percent of the target allocation for the 2014 to 2015 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. June Aug Oct Dec Feb Apr June Aug Oct Dec Feb Apr June Aug Oct Dec Feb Apr June Aug Oct Dec Feb Apr $- ARRs served as an effective offset against congestion. The total revenues received by ARR holders, including self-scheduled FTRs, offset 100 percent of the total congestion costs experienced by these ARR holders in the Day- Ahead Energy Market and the balancing energy market for the 2014 to 2015 planning period and for the 2013 to 2014 planning period. The Congestion column shows the amount of congestion 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 congestion collected. Table 13-36 shows the total offset due to ARRs and self-scheduled FTRs for the entire 2013 to 2014 and the 2014 to 2015 planning periods. ARRs and self-scheduled FTRs served as an effective offset against congestion. ARR and self-scheduled FTR revenues offset greater than 100 percent of the total congestion costs incurred by ARR holders for both the 2013 to 2014 and the 2014 to 2015 planning periods. Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 37 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periodsperiod. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13‑36 ARR and self‑scheduled FTR congestion offset (in millions): Planning periods 2013 to 2014 and 2014 to 2015 Planning Period ARR Credits Self‑Scheduled FTR Credits Total Revenue Congestion Total Revenue ‑ Congestion Difference Percent Offset 2013/2014 $336.2 $88.7 $424.9 $22.1 $432.2 >100% 2014/2015* $485.1 $352.9 $837.9 $194.7 $643.3 >100% * Shows twelve months through June 30, 2015 Table 13-26 37 shows the total offset due to ARRs and FTRs for the entire 2013 to 2014 and 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 88.3 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2014 to 2015 to 2016 planning period. In the 2013 to 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 98.2 percent of the congestion costs. Table 13‑26 13‑37 ARR and FTR congestion offset (in millions): Planning periods 2013 to 2014 and 2014 to 2015 and 2015 to 201632 201533 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 2013/2014 $522.3 $1,814.9 $598.8 $1,738.3 $1,771.0 ($32.7) 98.2% 2014/2015* $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 1,390.34 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four twelve months through September June 30, 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 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 $767.9 968.1 million in credits from the FTR auctions during the 2014 2015 to 2015 2016 planning periodperiod before accounting for self scheduling, load shifts or residual ARRs. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 first seven months of the 2016 to 2015 2017 planning period, ARR holders received $735.3 935.7 million in ARR credits. Table 13-25 12 lists projected ARR target allocations from the Annual ARR Allocation, Allocation and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2014 2015 to 2015 2016 planning period and the 2015 first seven months of the 2016 to 2016 2017 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 13-12 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 2015 to 2014 2016 and 2014 2016 to 2015 2014/2015 2015/2016 2017 2015/ 2016 2016/ 2017 Total FTR auction net revenue $767.9 968.1 $956.2 935.7 Annual FTR Auction net revenue $748.6 936.3 $936.3 909.0 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 31.8 $20.0 26.7 ARR target allocations $735.3 931.6 $927.0 911.4 ARR credits $735.3 931.6 $927.0 911.4 Surplus auction revenue $32.6 36.5 $29.3 24.3 ARR payout ratio 100% 100% FTR payout ratio* 100% 100% * Shows twelve months for 2014/2015 2015/2016 and four seven months for 2015/20162016/2017. Figure 13-16 4 shows the dollars per ARR MW held for each month of the 2010 to 2011 planning period through 2015 the first seven months of the 2016 to 2016 2017 planning periods. The ARR MW held do not include self 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 result resulted in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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. For the 2015 to 2016 planning period, the dollars per MW of ARR allocation was $10,641.54. For the first seven months of the 2016 to 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 13‑16 13-4 Dollars per ARR MW paid to ARR holders: Planning periods 2010 to 2011 through 2015 2016 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 excess ARR revenue stream and caused the large decrease in excess ARR revenue beginning in June 2014. Currently, excess ARR 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 13‑17 Excess 13-5 Monthly excess ARR revenue: Planning periods 2011 to 2012 through 2015 2016 to 2016 2017 11/12 12/13 13/14 14/15 15/16 16/17 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 2,000 $200 1,800 $2,000,000 $0 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 ARR Auction Revenue Figure 13-17 5 shows the monthly excess ARR auction revenue from the 2011 to 2012 through 2015 to 2016 planning periods. Excess ARR auction revenue is the revenue collected each month from FTR auctions in excess of ARR target allocations after PJM’s implemented counter flow FTR clearing processallocations. Beginning with the 2014 to 2015 planning period, market rules allow PJM to lower facility limits 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. adequate.22 This allows PJM to use the excess ARR revenue to pay prevailing flow FTRs without ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column 13 shows the amount paid for FTRs from the Long Term FTR Auctionexcess auction revenue, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the by planning period, ultimately netting the transaction for planning periods 2010 to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost2011 through 2016 to 2017. Table 13-26 shows 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 offset due to ARRs congestion revenue including day-ahead and FTRs for the entire 2014 to 2015 and first four months balancing congestion. The value of the 2015 to 2016 planning periods. ARRs and FTRs served as an effectiveday-ahead congestion price differences, termed the FTR target allocation, defines the maximum, but not totalguaranteed, offset against congestionpayout for FTRs. ARR The target allocation of an FTR reflects the difference in day-ahead congestion prices rather than the difference in LMPs, which includes both congestion and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015marginal 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 a projected will receive $767.9 947.3 million in credits from the Annual FTR auctions Auction during the 2014 2011 to 2015 2012 planning period. The FTR auction revenue collected pays , with an average hourly ARR holders’ creditscredit of $1.05 per MW. During the 2014 comparable 2010 to 2015 2011 planning period, ARR holders received $735.3 1,028.8 million in ARR credits, with an average hourly ARR credit of $1.15 per MW. Table 1312-25 33 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 2014 2010 to 2015 planning period 2011 and the 2015 2011 to 2016 2012 (through December 31, 2011) planning periods. As seen here, due Annual FTR Auction net revenue has been sufficient to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected cover ARR target allocations increased 26.1 percent from the previous for both planning periods. The 2011 to 2012 planning period’s Annual and Monthly Balance of Planning Period FTR Auctions generated a surplus of $104.5 million in auction net revenue through December 31, 2011, above the amount needed to pay 100 percent of ARR target allocations. The entire 2010 to 2011 planning period’s Annual and Monthly Balance of Planning Period FTR Auctions generated a surplus of $45.5 million in auction net revenue, above the amount needed to pay 100 percent of ARR target allocations. Table 13‑25 Projected 12-30 Annual ARR allocation volume: Planning periods 2010 to 2011 and 2011 to 2012 Planning Period Stage Round Requested Count Requested Volume (MW) Cleared Volume (MW) Cleared Volume Uncleared Volume (MW) Uncleared Volume 2010/2011 1A 0 8,862 61,793 61,793 100.0% 0 0.0% 1B 1 3,885 27,850 27,850 100.0% 0 0.0% 2 2 1,901 15,333 4,160 27.1% 11,173 72.9% 3 1,374 15,321 4,167 27.2% 11,154 72.8% 4 1,247 15,317 3,872 25.3% 11,445 74.7% Total 4,522 45,971 12,199 26.5% 33,772 73.5% Total 17,269 135,614 101,842 75.1% 33,772 24.9% 2011/2012 1A 0 12,654 64,160 64,160 100.0% 0 0.0% 1B 1 7,660 27,325 22,208 81.3% 5,117 18.7% 2 2 3,498 20,321 3,072 15.1% 17,249 84.9% 3 2,593 18,538 6,653 35.9% 11,885 64.1% 4 2,080 18,194 6,383 35.1% 11,811 64.9% Total 8,171 57,053 16,108 28.2% 40,945 71.8% Total 28,485 148,538 102,476 69.0% 46,062 31.0% Table 12-31 ARR volume for ATSI Control Zone: 2011 to 2012 planning period57 Planning Period Requested Count Bid and Requested Volume (MW) Cleared Volume (MW) Cleared Volume Uncleared Volume (MW) Uncleared Volume 2011/2012 1,309 5,434 2,770 51% 2,663 49% Table 12-32 Direct allocation of FTR volume for ATSI Control Zone: 2011 to 2012 planning period58 Planning Period Bid and Requested Count Bid and Requested Volume (MW) Cleared Volume (MW) Cleared Volume Uncleared Volume (MW) Uncleared Volume 2011/2012 114 7,750 4,189 54% 3,561 46% Table 12-33 ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 2010 to 2014 2011 and 2014 2011 to 2015 2014/2015 2015/2016 2012 2010/2011 2011/2012 Total FTR auction net revenue $767.9 1,074.3 $956.2 1,051.8 Annual FTR Auction net revenue $748.6 1,049.8 $936.3 1,029.6 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 24.5 $20.0 22.1 ARR target allocations $735.3 1,028.8 $927.0 947.3 ARR credits $735.3 1,028.8 $927.0 947.3 Surplus auction revenue $32.6 45.5 $29.3 104.5 ARR payout ratio 100% 100% FTR payout ratio* 10085.0% 10084.9% * Shows twelve months for 2014/2015 2010/2011 and four seven months ended 31-Dec-11 for 2015/2016. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 planning periods. 2011/2012 57 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13volume data in Table 12-17 shows the monthly excess ARR revenue from 31 are included in the 2011 to 2012 through 2015 ARR allocation data in Table 12-30. 58 The 2011 to 2016 planning periods2012 directly allocated FTR volume data in Table 12-32 are not included in ARR allocation data in Table 12-30. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 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 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 $767.9 million in credits from the FTR auctions during the 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 to 2015 planning period, ARR holders received $735.3 million in ARR credits. Table 13-25 10 lists projected ARR target allocations from the Annual ARR Allocation, Allocation and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2014 to 2015 planning period and the 2015 to 2016 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 13-10 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 and 2015 to 2016 2014/ 2015 2015/ 2016 Total FTR auction net revenue $767.9 $956.2 962.0 Annual FTR Auction net revenue $748.6 $936.3 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 $20.0 25.8 ARR target allocations $735.3 $927.0 928.8 ARR credits $735.3 $927.0 928.8 Surplus auction revenue $32.6 $29.3 33.2 ARR payout ratio 100% 100% FTR payout ratio* 100% 100% * Shows twelve months for 2014/2015 and four seven months for 2015/2016. Figure 13-16 4 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 planning periods. The ARR MW held do not include self 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 result resulted in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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. For the first seven months of the 2015 to 2016 planning period, the dollars per MW of ARR allocation was $7,739.36. Figure 13‑16 13-4 Dollars per ARR MW paid to ARR holders: Planning periods 2010 to 2011 through 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 These increased facility limits must be carried over into the FTR auctions, which results in an over selling of FTR MW. 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. 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 FTR auction revenue is allocated pro rata to FTR holders at the end of the planning period, instead of being distributed to ARR holders. Figure 13‑17 Excess 13-5 Monthly excess ARR revenue: Planning periods 2011 to 2012 through 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 1,800 $4,000,000 $400 1,600 $200 1,400 $2,000,000 $0 1,200 $/ARR MW 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 $- $1,000 $800 $600 $400 $200 $0 Excess ARR Revenue Figure 13-17 5 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. Beginning with Stage 1A ARRs may be over allocated in the 2014 to 2015 planning periodinitial Stage 1A process, market rules allow PJM to lower which requires that facility limits by clearing counter flow FTRs, without making the opposite prevailing flow FTR available, as long as ARRs remain are increased above their actual capability. Financial Transmission Rights FTRs are financial instruments that entitle their holders to receive revenue adequate. This allows PJM to use the excess ARR revenue or require them to pay prevailing flow FTRs without ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares charges based on locational congestion price differences in the revenue for ARR and FTR holders and the congestion in both the Day-Day- Ahead Energy Market and the balancing energy market for the 2014 across specific FTR transmission paths, subject to 2015 and the first four months of the 2015 to 2016 planning periodrevenue availability. This compares value, termed the total offset provided by all ARRs and all FTRs to FTR target allocation, defines the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auctionmaximum, but not guaranteed, payout for FTRs. The “FTR Credits” column represents the total FTR target allocation for of an FTR reflects the difference in congestion prices rather than the difference in LMPs, which includes both congestion and marginal losses. Auction market participants are free to request FTRs from between any eligible pricing nodes on the system. For the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance Auction a list of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015available hubs,

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 $767.9 562.8 million in credits from the FTR auctions during the first seven months of the 2013 to 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 first seven months of the 2012 to 2015 2013 planning period, ARR holders received $735.3 620.2 million in ARR credits. Table 13-25 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 2014 2012 to 2015 2013 planning period and the 2015 first seven months of the 2013 to 2016 2014 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 13-41 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 2012/2013 2013/2014 Total FTR auction net revenue $767.9 626.7 $956.2 562.8 Annual FTR Auction net revenue $748.6 602.9 $936.3 558.4 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 23.9 $20.0 4.4 ARR target allocations $735.3 570.5 $927.0 503.8 ARR credits $735.3 570.5 $927.0 503.8 Surplus auction revenue $32.6 56.2 $29.3 59.0 ARR payout ratio 100% 100% FTR payout ratio* 10067.8% 10075.1% * Shows twelve months for 2014/2015 2012/2013 and four seven months for 2015/20162013/2014. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 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 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 will receive $767.9 947.3 million in credits from the Annual FTR auctions Auction during the 2014 2011 to 2015 2012 planning period. The FTR auction revenue collected pays , with an average hourly ARR holders’ creditscredit of $1.05 per MW. During the 2014 comparable 2010 to 2015 2011 planning period, ARR holders received $735.3 1,028.8 million in ARR credits, with an average hourly ARR credit of $1.15 per MW. Table 1312-25 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 2014 2010 to 2015 planning period 2011 and the 2015 2011 to 2016 2012 (through March 31, 2012) planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 Projected 12‑16 ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 2010 to 2014 2011 and 2014 2011 to 2015 2014/2015 2015/2016 2012 (See 2011 SOM, Table 12‑33) 2010/2011 2011/2012 Total FTR auction net revenue $767.9 1,074.3 $956.2 1,054.4 Annual FTR Auction net revenue $748.6 1,049.8 $936.3 1,029.6 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 24.5 $20.0 24.8 ARR target allocations $735.3 1,028.8 $927.0 947.3 ARR credits $735.3 1,028.8 $927.0 947.3 Surplus auction revenue $32.6 45.5 $29.3 107.1 ARR payout ratio 100% 100% FTR payout ratio* 10085.0% 10083.2% * Shows twelve months for 2014/2015 2010/2011 and four ten months ended 31-Mar-11 for 2015/2016. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs FTR Prices and FTRs as Zonal Price Differences As an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months illustration of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs relationship between FTRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auctioncongestion, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the DayFigure 12-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column 9 shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction prices and that revenue was then paid back an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2011 to those ARR holders 2012 planning period through ARR credits on a monthly basis throughout the planning periodMarch 31, ultimately netting the transaction to zero2012. The total ARR day-ahead and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of real-time congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows are based on the difference between the total ARR zonal congestion prices and FTR offset and the Western Hub congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015prices.

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 $767.9 626.7 million in credits from the FTR auctions during the 2014 2012 to 2015 2013 planning period. The FTR auction revenue collected pays , with a projected average hourly ARR holders’ creditscredit of $0.66 per MW. During the 2014 comparable 2011 to 2015 2012 planning period, ARR holders received $735.3 1,055.9 million in ARR creditscredits with an average hourly ARR credit of $1.06 per MW. Table 13-25 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 2014 2012 to 2015 planning period 2013 and the 2015 2013 to 2016 2014 planning periods. As seen here, due to decreased 2012/2013 2013/2014 Total FTR volume leading to increased auction net revenue $626.7 $559.0 Annual FTR nodal prices, auction Auction net revenue increased 24.5 percent while projected $602.9 $558.4 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 $0.6 ARR target allocations increased 26.1 percent from the previous planning period. $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 13‑25 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 Total FTR auction net revenue $767.9 $956.2 Figure 13‑13 Annual FTR Auction net revenue $748.6 $936.3 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 $19.3 8 $20.0 ARR target allocations 6 $735.3 4 W) $927.0 ARR credits 2 ($735.3 /M $927.0 Surplus auction revenue $32.6 $29.3 ARR payout ratio 100% 100% FTR payout ratio* 100% 100% 0 -$2 -$4 * Shows twelve months for 2014/2015 2012/2013 and four months for 2015/20162013/2014. -$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 13-16 13 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 prices and an approximate measure of reduced supply caused by PJM’s assumption of more outages in day- ahead and real-time congestion for each PJM control zone for the model used 2013 to allocate Stage 1B and Stage 2 ARRs2014 planning period through September 30, 2013. The increased day-ahead and real- time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices. 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 prices result in an increase in dollars paid per ARR MWauctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. For During the 2014 first ten months of the 2012 to 2015 2013 planning period, the total dollars per MW revenues received by the holders of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of all ARRs and FTRs as an Offset to Congestion Table 13-26 compares offset 92.6 percent of the total congestion costs within PJM. The comparison between the revenue for received by ARR and FTR holders and the actual congestion experienced by these ARR holders in both 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 2014 to 2015 portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs that revenue is then paid back to the total congestion costsARR 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 of for the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total credits equal FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, 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 product of the FTR target allocations and the FTR payout ratioallocation. The FTR payout ratio was 100 77.3 percent of the target allocation for the 2013 to 2014 to 2015 and 2015 to 2016 planning periodsperiod through September 30, 2013. The “target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR Auction Revenue” path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in each control zone from the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of includes only the congestion costscosts incurred by the organizations that hold ARRs or self-scheduled FTRs. Table 13‑26 The last column shows the difference between the total revenue and the congestion for each ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015control 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 $767.9 568.8 million in credits from the FTR auctions during the 2013 to 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2013 to 2014 to 2015 planning period, ARR holders received $735.3 506.2 million in ARR credits. Table 13-25 31 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 2014 2012 to 2015 2013 planning period and the 2015 2013 to 2016 2014 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. $50 $- 13/14 14/15 Table 13‑25 13‑32 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 2012/2013 2013/2014 Total FTR auction net revenue $767.9 626.7 $956.2 568.8 Annual FTR Auction net revenue $748.6 602.9 $936.3 558.4 Monthly Balance of Planning Period FTR Auction net revenue* revenue $19.3 23.9 $20.0 10.4 ARR target allocations $735.3 570.5 $927.0 506.2 ARR credits $735.3 570.5 $927.0 506.2 Surplus auction revenue $32.6 56.2 $29.3 62.6 ARR payout ratio 100% 100% FTR payout ratio* 100ratio 67.8% 10072.8% * Shows twelve months for 2014/2015 and four months for 2015/2016. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness FTR Prices and Zonal Price Differences As an illustration of ARRs the relationship between FTRs and FTRs as an Offset to Congestion Table congestion, Figure 13-26 compares the revenue 18 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market each PJM control zone for the 2013 to 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs The day-ahead and all FTRs to the total real-time congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits based on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR zonal congestion prices and FTR offset and the Western Hub congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015prices.

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 $767.9 626.7 million in credits from the FTR auctions during the 2014 2012 to 2015 2013 planning period. The FTR auction revenue collected pays , with a projected average hourly ARR holders’ creditscredit of $0.66 per MW. During the 2014 comparable 2011 to 2015 2012 planning period, ARR holders received $735.3 1,055.9 million in ARR creditscredits with an average hourly ARR credit of $1.06 per MW. Table 1312-25 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 2014 2011 to 2015 planning period 2012 and the 2015 2012 to 2016 2013 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 12‑34 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 2012/2013 2013/2014 Total FTR auction net revenue $767.9 626.7 $956.2 559.5 Annual FTR Auction net revenue $748.6 602.9 $936.3 558.4 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 23.9 $20.0 1.1 ARR target allocations $735.3 570.5 $927.0 502.4 ARR credits $735.3 570.5 $927.0 502.4 Surplus auction revenue $32.6 56.2 $29.3 57.1 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% 67.8 74.7 * Shows twelve months for 2014/2015 2012/2013 and four months one month for 2015/20162013/2014. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 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 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 $767.9 968.1 million in credits from the FTR auctions during the 2014 2015 to 2015 2016 planning periodperiod before accounting for self scheduling, load shifts or residual ARRs. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 first seven months of the 2016 to 2015 2017 planning period, ARR holders received $735.3 935.7 million in ARR credits. Table 13-25 12 lists projected ARR target allocations from the Annual ARR Allocation, Allocation and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2014 2015 to 2015 2016 planning period and the 2015 first seven months of the 2016 to 2016 2017 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 13-12 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 2015 to 2014 2016 and 2014 2016 to 2015 2014/2015 2015/2016 2017 2015/ 2016 2016/ 2017 Total FTR auction net revenue $767.9 968.1 $956.2 935.7 Annual FTR Auction net revenue $748.6 936.3 $936.3 909.0 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 31.8 $20.0 26.7 ARR target allocations $735.3 931.6 $927.0 911.4 ARR credits $735.3 931.6 $927.0 911.4 Surplus auction revenue $32.6 36.5 $29.3 24.3 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% 100 100 * Shows twelve months for 2014/2015 2015/2016 and four seven months for 2015/20162016/2017. Figure 13-16 4 shows the dollars per ARR MW held for each month of the 2010 to 2011 planning period through 2015 the first seven months of the 2016 to 2016 2017 planning periods. The ARR MW held do not include self 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 result resulted in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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. For the 2015 to 2016 planning period, the dollars per MW of ARR allocation was $10,641.54. For the first seven months of the 2016 to 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 13‑16 13-4 Dollars per ARR MW paid to ARR holders: Planning periods 2010 to 2011 through 2015 2016 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 excess ARR revenue stream and caused the large decrease in excess ARR revenue beginning in June 2014. Currently, excess ARR 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 13‑17 Excess 13-5 Monthly excess ARR revenue: Planning periods 2011 to 2012 through 2015 2016 to 2016 2017 11/12 12/13 13/14 14/15 15/16 16/17 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 2,000 $200 1,800 $2,000,000 $0 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 ARR Auction Revenue Figure 13-17 5 shows the monthly excess ARR auction revenue from the 2011 to 2012 through 2015 to 2016 planning periods. Excess ARR auction revenue is the revenue collected each month from FTR auctions in excess of ARR target allocations after PJM’s implemented counter flow FTR clearing processallocations. Beginning with the 2014 to 2015 planning period, market rules allow PJM to lower facility limits 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. adequate.22 This allows PJM to use the excess ARR revenue to pay prevailing flow FTRs without ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column 13 shows the amount paid for FTRs from the Long Term FTR Auctionexcess auction revenue, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the by planning period, ultimately netting the transaction for planning periods 2010 to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost2011 through 2016 to 2017. Table 13-26 shows 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 offset due to ARRs congestion revenue including day-ahead and FTRs for the entire 2014 to 2015 and first four months balancing congestion. The value of the 2015 to 2016 planning periods. ARRs and FTRs served as an effectiveday-ahead congestion price differences, termed the FTR target allocation, defines the maximum, but not totalguaranteed, offset against congestionpayout for FTRs. ARR The target allocation of an FTR reflects the difference in day-ahead congestion prices rather than the difference in LMPs, which includes both congestion and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015marginal 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 a projected will receive $767.9 947.3 million in credits from the Annual FTR auctions Auction during the 2014 2011 to 2015 2012 planning period. The FTR auction revenue collected pays , with an average hourly ARR holders’ creditscredit of $1.05 per MW. During the 2014 comparable 2010 to 2015 2011 planning period, ARR holders received $735.3 1,028.8 million in ARR credits, with an average hourly ARR credit of $1.15 per MW. Table 1312-25 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 2014 2010 to 2015 planning period 2011 and the 2015 2011 to 2016 2012 (through March 31, 2012) planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 Projected 12‑16 ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 2010 to 2014 2011 and 2014 2011 to 2015 2014/2015 2015/2016 2012 (See 2011 SOM, Table 12‑33) 2010/2011 2011/2012 Total FTR auction net revenue $767.9 1,074.3 $956.2 1,054.4 Annual FTR Auction net revenue $748.6 1,049.8 $936.3 1,029.6 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 24.5 $20.0 24.8 ARR target allocations $735.3 1,028.8 $927.0 947.3 ARR credits $735.3 1,028.8 $927.0 947.3 Surplus auction revenue $32.6 45.5 $29.3 107.1 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% 85.0 83.2 * Shows twelve months for 2014/2015 2010/2011 and four ten months ended 31-Mar-11 for 2015/2016. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs FTR Prices and FTRs as Zonal Price Differences As an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months illustration of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs relationship between FTRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auctioncongestion, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the DayFigure 12-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column 9 shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction prices and that revenue was then paid back an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2011 to those ARR holders 2012 planning period through ARR credits on a monthly basis throughout the planning periodMarch 31, ultimately netting the transaction to zero2012. The total ARR day-ahead and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of real-time congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows are based on the difference between the total ARR zonal congestion prices and FTR offset and the Western Hub congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015prices.

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 $767.9 1,055.9 million in credits from the Annual FTR auctions Auction during the 2014 2011 to 2015 2012 planning period. The FTR auction revenue collected pays , with an average hourly ARR holders’ creditscredit of $1.06 per MW. During the 2014 comparable 2010 to 2015 2011 planning period, ARR holders received $735.3 1,028.8 million in ARR credits, with an average hourly ARR credit of $1.15 per MW. Table 1312-25 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 2014 2011 to 2015 planning period 2012 and the 2015 2012 to 2016 2013 (through June 30, 2012) planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 Projected 12‑27 ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 2010 to 2014 2011 and 2014 2011 to 2015 2014/2015 2015/2016 2012 (See 2011 SOM, Table 12‑33) 2011/2012 2012/2013 Total FTR auction net revenue $767.9 1,055.9 $956.2 606.3 Annual FTR Auction net revenue $748.6 1,029.6 $936.3 602.9 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 26.3 $20.0 3.4 ARR target allocations $735.3 947.3 $927.0 565.4 ARR credits $735.3 947.3 $927.0 565.4 Surplus auction revenue $32.6 108.6 $29.3 40.8 ARR payout ratio 100% 100% FTR payout ratio* 10080.6% 10092.9% * Shows twelve months for 2014/2015 and four months 2010/2011 one month for 2015/20162012/2013. Figure 13-16 shows the dollars per ARR MW held Payout ratio for each month of the 2010 to 2011 through 2015 to 2016 planning periods. The ARR MW held do 2011/2012 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 finalized ARR and FTR Revenue and Congestion Effectiveness FTR Prices and Zonal Price Differences As an illustration of ARRs the relationship between FTRs and FTRs as congestion, Figure 12-13 shows Annual FTR Auction prices and an Offset to Congestion Table 13approximate measure of day- ahead and real-26 compares the revenue time congestion for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market each PJM control zone for the 2014 2011 to 2015 and the first four months of the 2015 to 2016 2012 planning period. This compares the total offset provided by all ARRs The day-ahead and all FTRs to the total real-time congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits based on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR zonal congestion prices and FTR offset and the Western Hub congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015prices.

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 in their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $767.9 968.1 million in credits from the FTR auctions during the 2014 2015 to 2015 2016 planning periodperiod before accounting for self scheduling, load shifts or residual ARRs. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 2015 to 2015 2016 planning period, ARR holders received $735.3 926.3 million in ARR credits. Table 13-25 6 lists projected ARR target allocations from the Annual ARR Allocation, Allocation and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2014 2015 to 2015 2016 planning period and the 2015 first four months of the 2016 to 2016 2017 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 13-6 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 2015 to 2014 2016 and 2014 2016 to 2015 2014/2015 2017 2015/2016 2016/2017 Total FTR auction net revenue $767.9 968.1 $956.2 926.3 Annual FTR Auction net revenue $748.6 936.3 $936.3 909.0 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 31.8 $20.0 17.3 ARR target allocations $735.3 931.6 $927.0 908.9 ARR credits $735.3 931.6 $927.0 908.9 Surplus auction revenue $32.6 36.5 $29.3 17.4 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% 100 100 * Shows twelve months for 2014/2015 2015/2016 and four months for 2015/20162016/2017. Figure 13-16 2 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 the first four months of the 2016 to 2016 2017 planning periods. The ARR MW held do not include self 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 result resulted in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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. For the 2015 to 2016 planning period, the dollars per MW of ARR allocation was $10,641.54. For the first four months of the 2016 to 2017 planning period, the dollars per MW of ARR allocation were $4,599 down from $5,261 in 2015 to 2016. Total dollars per MW were down slightly in the 2016 to 2017 planning period due to increased Stage 1B and Stage 2 ARR volume. Figure 13‑16 13-2 Dollars per ARR MW paid to ARR holders: Planning periods 2010 to 2011 through 2015 2016 to 2016 2017 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,200 $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 3 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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 processallocations. Beginning with the 2014 to 2015 planning period, market rules allow PJM to lower facility limits 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. This allows PJM to use the excess ARR revenue to pay prevailing flow FTRs without increasing prevailing flow obligations. The result is to increase FTR funding. This action removes money from the excess ARR revenue stream and caused the decrease in excess ARR revenue beginning in June 2014. Currently, excess FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset auction revenue is allocated pro rata to Congestion Table 13-26 compares the revenue for ARR and FTR holders and at the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months end of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting instead of being distributed to ARR holders. Figure 13-3 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 $2,000,000 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 $- Table 13-7 shows the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR excess auction revenue, by planning period, for planning periods 2010 to 2011 through 2016 to 2017. The Table 13-7 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** $4,569,160 Total $311,356,357 *Start of counter flow “Congestionbuy back” column shows the total amount of **Through September 30, 2016 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 the balancing energy marketcongestion. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months value of the 2015 to 2016 planning periods. ARRs and FTRs served as an effectiveday-ahead congestion price differences, termed the FTR target allocation, defines the maximum, but not totalguaranteed, offset against congestionpayout for FTRs. ARR The target allocation of an FTR reflects the difference in day-ahead congestion prices rather than the difference in LMPs, which includes both congestion and marginal losses. Auction market participants are free to request FTRs between any eligible pricing nodes on the system. For the Long Term FTR revenues offset 82.1 percent Auction a list of available hubs, control zones, aggregates, generator buses and interface pricing points is available. For the total congestion costs Annual FTR Auction and FTRs bought for a quarterly period in the Day-Ahead Energy Market monthly auction the available FTR source and sink points include hubs, control zones, aggregates, generator buses, load buses and interface pricing points. An FTR bought in the balancing energy market within PJM Monthly FTR Auction for the first four months of single calendar month following the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015auction may include any bus for which an LMP

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 $767.9 568.8 million in credits from the FTR auctions during the 2013 to 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2013 to 2014 to 2015 planning period, ARR holders received $735.3 506.2 million in ARR credits. Table 13-25 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 2014 2012 to 2015 2013 planning period and the 2015 2013 to 2016 2014 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 13‑24 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 and 2014 to 2015 2013/2014 2014/2015 2015/2016 Total FTR auction net revenue $767.9 568.8 $956.2 752.9 Annual FTR Auction net revenue $558.4 $748.6 $936.3 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 10.4 $20.0 4.2 ARR target allocations $735.3 506.2 $927.0 732.2 ARR credits $735.3 506.2 $927.0 732.2 Surplus auction revenue $32.6 62.6 $29.3 20.6 ARR payout ratio 100% 100% FTR payout ratio* 10072.8% 100100.0% * Shows twelve months for 2014/2015 2013/2014 and four months for 2015/20162014/2015. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 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 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 $767.9 million in credits from the FTR auctions during the 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 to 2015 planning period, ARR holders received $735.3 million in ARR credits. Table 13-25 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 2014 to 2015 planning period and the 2015 to 2016 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 Total FTR auction net revenue $767.9 $956.2 Annual FTR Auction net revenue $748.6 $936.3 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 $20.0 ARR target allocations $735.3 $927.0 ARR credits $735.3 $927.0 Surplus auction revenue $32.6 $29.3 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% 100 100 * Shows twelve months for 2014/2015 and four months for 2015/2016. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 88.3 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% 82.1 * Shows four months through September 30, 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 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 $767.9 566.7 million in credits from the FTR auctions during the first ten months of the 2013 to 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the first ten months of the 2013 to 2014 to 2015 planning period, ARR holders received $735.3 505.5 million in ARR credits. Table 13-25 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 2014 2012 to 2015 2013 planning period and the 2015 first ten months of the 2013 to 2016 2014 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 13‑26 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 2012/2013 2013/2014 Total FTR auction net revenue $767.9 626.7 $956.2 566.7 Annual FTR Auction net revenue $748.6 602.9 $936.3 558.4 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 23.9 $20.0 8.3 ARR target allocations $735.3 570.5 $927.0 505.5 ARR credits $735.3 570.5 $927.0 505.5 Surplus auction revenue $32.6 56.2 $29.3 61.1 ARR payout ratio 100% 100% FTR payout ratio* 10067.8% 10075.1% * Shows twelve months for 2014/2015 2012/2013 and four ten months for 2015/20162013/2014. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 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 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 $767.9 620.2 million in credits from the Annual FTR auctions Auction during the 2014 2012 to 2015 2013 planning period. The FTR auction revenue collected pays , with an average hourly ARR holders’ creditscredit of $0.63 per MW. During the 2014 comparable 2011 to 2015 2012 planning period, ARR holders received $735.3 1,055.9 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 1312-25 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 2014 2011 to 2015 planning period 2012 and the 2015 2012 to 2016 2013 (through December 31, 2012) planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 Projected 12-38 ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 2011/2012 2012/2013 Total FTR auction net revenue $767.9 1,055.9 $956.2 620.2 Annual FTR Auction net revenue $748.6 1,029.6 $936.3 602.9 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 26.3 $20.0 17.3 ARR target allocations $735.3 947.3 $927.0 565.4 ARR credits $735.3 947.3 $927.0 565.4 Surplus auction revenue $32.6 108.6 $29.3 54.7 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% 80.6 74.8 * Shows twelve months for 2014/2015 and four 2011/2012 seven months for 2015/20162012/2013. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 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 and FTRs as an Offset to Congestion Table 13One 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-26 compares 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 and FTR holders and the actual congestion experienced by these ARR holders in both 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 2014 to 2015 portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs that revenue is then paid back to the total congestion costsARR 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 of for the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total credits equal FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, 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 product of the FTR target allocations and the FTR payout ratioallocation. The FTR payout ratio was 100 74.8 percent of the target allocation for the 2014 first seven months of the 2012 to 2015 and 2015 to 2016 2013 planning periodsperiod. The “target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR Auction Revenue” path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in each control zone from the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of includes only the congestion costscosts incurred by the organizations that hold ARRs or self-scheduled FTRs. Table 13‑26 The last column shows the difference between the total revenue and the congestion for each ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015control 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 $767.9 624.6 million in credits from the FTR auctions during the 2014 first ten months of the 2012 to 2015 2013 planning period. The FTR auction revenue collected pays , with an average hourly ARR holders’ creditscredit of $0.63 per MW. During the 2014 first ten months of the 2011 to 2015 2012 planning period, ARR holders received $735.3 1,055.9 million in ARR credits, with an average hourly ARR credit of $1.05 per MW. Table 1312-25 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 2014 2011 to 2015 planning period 2012 and the 2015 2012 to 2016 2013 (through March 31, 2013) planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 Projected 12‑21 ARR revenue adequacy (Dollars (Millions)): Planning periods 2011 to 2012 and 2012 to 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 2011/2012 2012/2013 Total FTR auction net revenue $767.9 1,055.9 $956.2 624.6 Annual FTR Auction net revenue $748.6 1,029.6 $936.3 602.9 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 26.3 $20.0 21.7 ARR target allocations $735.3 947.3 $927.0 565.4 ARR credits $735.3 947.3 $927.0 565.4 Surplus auction revenue $32.6 108.6 $29.3 59.1 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% 80.6 74.8 * Shows twelve months for 2014/2015 and four 2011/2012 ten months for 2015/20162012/2013. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness FTR Prices and Zonal Price Differences As an illustration of ARRs the relationship between FTRs and FTRs as congestion, Figure 12-11 shows Annual FTR Auction prices and an Offset to Congestion Table 13approximate measure of day- ahead and real-26 compares the revenue time congestion for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market each PJM control zone for the 2014 2012 to 2015 and the first four months of the 2015 to 2016 2013 planning period. This compares the total offset provided by all ARRs The day-ahead and all FTRs to the total real-time congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits based on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR zonal congestion prices and FTR offset and the Western Hub congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015prices.

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 $767.9 565.4 million in credits from the Annual FTR auctions Auction during the 2014 2012 to 2015 2013 planning period. The FTR auction revenue collected pays , with an average hourly ARR holders’ creditscredit of $0.63 per MW. During the 2014 comparable 2011 to 2015 2012 planning period, ARR holders received $735.3 947.3 million in ARR credits, with an average hourly ARR credit of $1.06 per MW. Table 1312-25 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 2014 2011 to 2015 planning period 2012 and the 2015 2012 to 2016 2013 (through September 30, 2012) planning periods. As seen here, due to decreased 2011/2012 2012/2013 Total FTR volume leading to increased auction net revenue $1,055.9 $614.8 Annual FTR nodal prices, auction Auction net revenue increased 24.5 percent while projected $1,029.6 $602.9 Monthly Balance of Planning Period FTR Auction net revenue* $26.3 $11.9 ARR target allocations increased 26.1 percent from the previous planning period$947.3 $565.4 ARR credits $947.3 $565.4 Surplus auction revenue $108.6 $49.4 ARR payout ratio 100% 100% FTR payout ratio* 80.6% 79.1% * Shows twelve months for 2011/2012 four months for 2012/2013. Table 13‑25 Projected 12‑16 ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 Total FTR auction net revenue $767.9 $956.2 Annual FTR Auction net revenue $748.6 $936.3 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 $20.0 ARR target allocations $735.3 $927.0 ARR credits $735.3 $927.0 Surplus auction revenue $32.6 $29.3 ARR payout ratio 100% 100% FTR payout ratio* 100% 100% * Shows twelve months for 2014/2015 and four months for 2015/2016. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 and 2012 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2013 (See 2011 to 2012 through 2015 to 2016 planning periods. 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. Beginning with the 2014 to 2015 planning periodSOM, 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 Table 12‑33) ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 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 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 $767.9 626.7 million in credits from the FTR auctions during the 2014 2012 to 2015 2013 planning period. The FTR auction revenue collected pays , with a projected average hourly ARR holders’ creditscredit of $0.66 per MW. During the 2014 comparable 2011 to 2015 2012 planning period, ARR holders received $735.3 1,055.9 million in ARR creditscredits with an average hourly ARR credit of $1.06 per MW. Table 1312-25 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 2014 2011 to 2015 planning period 2012 and the 2015 2012 to 2016 2013 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 12‑34 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2012 to 2013 and 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 2012/2013 2013/2014 Total FTR auction net revenue $767.9 626.7 $956.2 559.5 Annual FTR Auction net revenue $748.6 602.9 $936.3 558.4 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 23.9 $20.0 1.1 ARR target allocations $735.3 570.5 $927.0 502.4 ARR credits $735.3 570.5 $927.0 502.4 Surplus auction revenue $32.6 56.2 $29.3 57.1 ARR payout ratio 100% 100% FTR payout ratio* 10067.8% 10074.7% * Shows twelve months for 2014/2015 2012/2013 and four months one month for 2015/20162013/2014. Figure 13-16 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 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 result in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 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 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 $4,000,000 $400 $200 $2,000,000 $0 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 $- Excess ARR Revenue Figure 13-17 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. 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 ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares the revenue for ARR and FTR holders and the congestion in both the Day-Ahead Energy Market and the balancing energy market for the 2014 to 2015 and the first four months of the 2015 to 2016 planning period. This compares the total offset provided by all ARRs and all FTRs to the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auction. The “FTR Credits” column represents the total FTR target allocation for FTRs from the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 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 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 $767.9 million in credits from the FTR auctions during the 2014 to 2015 planning period. The FTR auction revenue collected pays ARR holders’ credits. During the 2014 to 2015 planning period, ARR holders received $735.3 million in ARR credits. Table 13-25 10 lists projected ARR target allocations from the Annual ARR Allocation, Allocation and net revenue sources from the Annual and Monthly Balance of Planning Period FTR Auctions for the 2014 to 2015 planning period and the 2015 to 2016 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, auction revenue increased 24.5 percent while projected ARR target allocations increased 26.1 percent from the previous planning period. Table 13‑25 13-10 Projected ARR revenue adequacy (Dollars (Millions)): Planning periods 2013 to 2014 and 2014 to 2015 2014/2015 2015/2016 and 2015 to 2016 2014/ 2015 2015/ 2016 Total FTR auction net revenue $767.9 $956.2 962.0 Annual FTR Auction net revenue $748.6 $936.3 Monthly Balance of Planning Period FTR Auction net revenue* $19.3 $20.0 25.8 ARR target allocations $735.3 $927.0 928.8 ARR credits $735.3 $927.0 928.8 Surplus auction revenue $32.6 $29.3 33.2 ARR payout ratio 100% 100% 100 100 FTR payout ratio* 100% 100% 100 100 * Shows twelve months for 2014/2015 and four seven months for 2015/2016. Figure 13-16 4 shows the dollars per ARR MW held for each month of the 2010 to 2011 through 2015 to 2016 planning periods. The ARR MW held do not include self 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 result resulted in an increase in dollars paid per ARR MW. For the 2014 to 2015 planning period, the total dollars per MW of ARR allocation was $11,279, while the previous planning period resulted in a dollars per MW of $6,692, a 68.5 percent increase in payment per allocated 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. For the first seven months of the 2015 to 2016 planning period, the dollars per MW of ARR allocation was $7,739.36. Figure 13‑16 13-4 Dollars per ARR MW paid to ARR holders: Planning periods 2010 to 2011 through 2015 to 2016 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 $1,800 $1,600 $1,400 $1,200 These increased facility limits must be carried over into the FTR auctions, which results in an over selling of FTR MW. 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. 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 FTR auction revenue is allocated pro rata to FTR holders at the end of the planning period, instead of being distributed to ARR holders. Figure 13‑17 Excess 13-5 Monthly excess ARR revenue: Planning periods 2011 to 2012 through 2015 to 2016 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $/ARR MW $1,000 $800 $6,000,000 $600 1,800 $4,000,000 $400 1,600 $200 1,400 $2,000,000 $0 1,200 $/ARR MW 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 $- $1,000 $800 $600 $400 $200 $0 Excess ARR Revenue Figure 13-17 5 shows the monthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. 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. Beginning with Stage 1A ARRs may be over allocated in the 2014 to 2015 planning periodinitial Stage 1A process, market rules allow PJM to lower which requires that facility limits by clearing counter flow FTRs, without making the opposite prevailing flow FTR available, as long as ARRs remain are increased above their actual capability. Financial Transmission Rights FTRs are financial instruments that entitle their holders to receive revenue adequate. This allows PJM to use the excess ARR revenue or require them to pay prevailing flow FTRs without ARR and FTR Revenue and Congestion Effectiveness of ARRs and FTRs as an Offset to Congestion Table 13-26 compares charges based on locational congestion price differences in the revenue for ARR and FTR holders and the congestion in both the Day-Day- Ahead Energy Market and the balancing energy market for the 2014 across specific FTR transmission paths, subject to 2015 and the first four months of the 2015 to 2016 planning periodrevenue availability. This compares value, termed the total offset provided by all ARRs and all FTRs to FTR target allocation, defines the total congestion costs. ARR credits are calculated as the product of the ARR MW and the cleared price of the ARR path from the Annual FTR Auctionmaximum, but not guaranteed, payout for FTRs. The “FTR Credits” column represents the total FTR target allocation for of an FTR reflects the difference in congestion prices rather than the difference in LMPs, which includes both congestion and marginal losses. Auction market participants are free to request FTRs from between any eligible pricing nodes on the system. For the Long Term FTR Auction, Annual FTR Auction, the Monthly Balance Auction a list of Planning Period FTR Auctions, and any FTRs that were self scheduled from ARRs, adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and congestion price differences between sink and source that occur in the Day-Ahead Energy Market. FTR credits are the product of the FTR target allocations and the FTR payout ratio. The FTR payout ratio was 100 percent of the target allocation for the 2014 to 2015 and 2015 to 2016 planning periods. The “FTR Auction Revenue” column shows the amount paid for FTRs from the Long Term FTR Auction, the Annual FTR Auction, the Monthly Balance of Planning Period FTR Auctions and any ARRs that were self scheduled as FTRs. ARR holders that self schedule FTRs purchased the FTRs in the Annual FTR Auction and that revenue was then paid back to those ARR holders through ARR credits on a monthly basis throughout the planning period, ultimately netting the transaction to zero. The total ARR and FTR offset is the sum of the ARR credits and the FTR credits minus the FTR auction revenue. The “Congestion” column shows the total amount of congestion in the Day-Ahead Energy Market and the balancing energy market. The last column shows the difference between the total ARR and FTR offset and the congestion cost. Table 13-26 shows the total offset due to ARRs and FTRs for the entire 2014 to 2015 and first four months of the 2015 to 2016 planning periods. ARRs and FTRs served as an effective, but not total, offset against congestion. ARR and FTR revenues offset 82.1 percent of the total congestion costs in the Day-Ahead Energy Market and the balancing energy market within PJM for the first four months of the 2015 to 2016 planning period. In the 2014 to 2015 planning period, total ARR and FTR revenues offset 88.3 percent of the congestion costs. Table 13‑26 ARR and FTR congestion offset (in millions): Planning periods 2014 to 2015 and 2015 to 201632 Planning Period ARR Credits FTR Credits FTR Auction Revenue Total ARR and FTR Offset Congestion Total Offset ‑ Congestion Difference Percent Offset 2014/2015 $761.3 $1,261.8 $794.9 $1,228.2 $1,390.3 ($162.1) 88.3% 2015/2016* $322.3 $275.2 $325.8 $271.7 $330.97 ($59.3) 82.1% * Shows four months through September 30, 2015available hubs,