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

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $626.7 767.9 million in credits from the FTR auctions during the 2012 2014 to 2013 2015 planning period, with a projected average hourly . The FTR auction revenue collected pays ARR credit of $0.66 per MWholders’ credits. During the comparable 2011 2014 to 2012 2015 planning period, ARR holders received $1,055.9 735.3 million in ARR credits with an average hourly ARR credit of $1.06 per MWcredits. 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 2012 2014 to 2013 2015 planning period and the 2013 2015 to 2014 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. Total FTR auction net revenue $767.9 $962.0 Annual FTR Auction net revenue $602.9 748.6 $558.4 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 $0.6 936.3 ARR target allocations $570.5 735.3 $503.4 928.8 ARR credits $570.5 735.3 $503.4 928.8 Surplus auction revenue $56.2 32.6 $55.6 33.2 ARR payout ratio 100 100 FTR payout ratio* 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M 100 100 * Shows twelve months for 2012/2013 2014/2015 and four seven months for 2013/20142015/2016. -$6 ARR and FTR Revenue and CongestionFTR Prices and Zonal Price Differences ComEd DLCO DAY EKPC ATSI AEP DEOK PENELEC AP PPL Met-Ed JCPL PECO AECO Dominion PSEG RECO DPL As an illustration of the relationship between FTRs and congestion, Figure 13-13 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- scheduled FTRs and do include Residual ARRs starting in August 2012. FTR prices increased in the 2014 to 2015 Annual FTR Auction prices as a result of reduced supply caused by PJM’s assumption of more outages in the model used to allocate Stage 1B and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 to 2014 planning period through September 30, 2013Stage 2 ARRs. The day-ahead and real- time congestion are based on increased FTR prices resulted in an increase in dollars paid per ARR MW. For the difference between zonal congestion prices and Western Hub congestion prices. One measure of the effectiveness of ARRs as an offset 2014 to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 to 2013 2015 planning period, the total revenues received by dollars per MW of ARR allocation was $11,279, while the holders previous planning period resulted in a dollars per MW of all ARRs and FTRs offset 92.6 $6,692, a 68.5 percent increase in payment per allocated ARR MW. Some of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders MW lost from proration were provided in the Day-Ahead Energy Market Residual ARR process, but the residual allocations are not comparable to the ARRs awarded in the annual process because residual ARR allocations change each month and the balancing energy market is presented by control zone in Table 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 cannot be self scheduled as FTRs. The For the first seven months of the 2015 to 2016 planning period, the dollars per MW of ARR credits do not include allocation was $7,739.36. 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 $2,000 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 credits for revenue to pay prevailing flow FTRs without increasing prevailing flow obligations. This action removes money from the portion excess ARR revenue stream and caused the large decrease in excess ARR revenue beginning in June 2014. Currently, excess FTR auction revenue is allocated pro rata to FTR holders at the end of any the planning period, instead of being distributed to ARR that was self scheduled as an holders. 11/12 12/13 13/14 14/15 15/16 $12,000,000 $10,000,000 Excess Revenue $8,000,000 $6,000,000 $1,800 $4,000,000 $1,600 $1,400 $2,000,000 $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 Figure 13-5 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 since auctions in excess of ARR holders purchase self-scheduled FTRs target allocations after PJM’s implemented counter flow FTR clearing process. Stage 1A ARRs may be over allocated in the Annual FTR Auction and initial Stage 1A process, which requires that facility limits are increased above their actual capability. FTRs are financial instruments that entitle their holders to receive revenue is then paid back or require them 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 pay charges based on locational congestion price differences between sink and source that occur in the Day- Ahead Energy MarketMarket across specific FTR transmission paths, subject to revenue availability. This value, termed the FTR credits are paid to FTR holders and may be less than the target allocation. The FTR , defines the maximum, but not guaranteed, payout ratio was 77.3 percent of the target allocation for the 2013 to 2014 planning period through September 30, 2013FTRs. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular an FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows reflects the difference in 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 total revenue and system. For the congestion for each ARR control zone sink.Long Term FTR Auction a list of available 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 will receive $626.7 947.3 million in credits from the Annual FTR auctions Auction during the 2012 to 2013 planning period, with a projected average hourly ARR credit of $0.66 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits with an average hourly ARR credit of $1.06 1.05 per MW. During the comparable 2010 to 2011 planning period, ARR holders received $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 2012 2010 to 2013 2011 and the 2013 2011 to 2014 2012 (through December 31, 2011) planning periods. Annual FTR Auction net revenue has been sufficient to cover ARR target allocations for both planning periods. The 2011 to 2012 planning period’s Annual and Monthly Balance of Planning Period FTR Auctions generated a surplus of $602.9 104.5 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 $558.4 45.5 million in auction net revenue, above the amount needed to pay 100 percent of ARR target allocations. 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% Total FTR auction net revenue $1,074.3 $1,051.8 Annual FTR Auction net revenue $1,049.8 $1,029.6 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 24.5 $0.6 22.1 ARR target allocations $570.5 1,028.8 $503.4 947.3 ARR credits $570.5 1,028.8 $503.4 947.3 Surplus auction revenue $56.2 45.5 $55.6 104.5 ARR payout ratio 100 100 100% 100% FTR payout ratio* 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M 85.0% 84.9% * Shows twelve months for 2012/2013 2010/2011 and four seven months ended 31-Dec-11 for 2013/2014. -$6 2011/2012 57 The 2011 to 2012 ARR and FTR Revenue and CongestionFTR Prices and Zonal Price Differences ComEd DLCO DAY EKPC ATSI AEP DEOK PENELEC AP PPL Metvolume data in Table 12-Ed JCPL PECO AECO Dominion PSEG RECO DPL As an illustration of the relationship between FTRs and congestion, Figure 13-13 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 to 2014 planning period through September 30, 2013. The day-ahead and real- time congestion 31 are based on the difference between zonal congestion prices and Western Hub congestion prices. One measure of the effectiveness of ARRs as an offset to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 92.6 percent of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders included in the Day-Ahead Energy Market and the balancing energy market is presented by control zone 2011 to 2012 ARR allocation data in Table 1312-2630. ARRs and self58 The 2011 to 2012 directly allocated FTR volume data in Table 12-scheduled FTRs that sink at an aggregate 32 are assigned to a control zone if applicable.24 Total revenue equals the not included in 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 selfallocation data in Table 12-scheduled FTRs in the Annual FTR Auction and that revenue is then paid back to the ARR holders, netting the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled FTR MW) and the cleared price for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day- Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 77.3 percent of the target allocation for the 2013 to 2014 planning period through September 30, 2013. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into 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 $626.7 968.1 million in credits from the FTR auctions during the 2012 2015 to 2013 2016 planning periodperiod before accounting for self scheduling, with a projected average hourly load shifts or residual ARRs. The FTR auction revenue collected pays ARR credit of $0.66 per MWholders’ credits. During the comparable 2011 2015 to 2012 2016 planning period, ARR holders received $1,055.9 926.3 million in ARR credits with an average hourly ARR credit of $1.06 per MWcredits. 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 2012 2015 to 2013 2016 planning period and the 2013 first four months of the 2016 to 2014 2017 planning periods. Total FTR auction net revenue $968.1 $926.3 Annual FTR Auction net revenue $602.9 936.3 $558.4 909.0 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 31.8 $0.6 17.3 ARR target allocations $570.5 931.6 $503.4 908.9 ARR credits $570.5 931.6 $503.4 908.9 Surplus auction revenue $56.2 36.5 $55.6 17.4 ARR payout ratio 100 100 FTR payout ratio* 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M 100 100 * Shows twelve months for 2012/2013 2015/2016 and four months for 2013/20142016/2017. -$6 ARR and FTR Revenue and CongestionFTR Prices and Zonal Price Differences ComEd DLCO DAY EKPC ATSI AEP DEOK PENELEC AP PPL Met-Ed JCPL PECO AECO Dominion PSEG RECO DPL As an illustration of the relationship between FTRs and congestion, Figure 13-13 2 shows the dollars per ARR MW held for each month of the 2010 to 2011 through the first four months of the 2016 to 2017 planning periods. The ARR MW held do not include self-scheduled FTRs and do include Residual ARRs starting in August 2012. FTR prices increased in the 2014 to 2015 Annual FTR Auction prices as a result of reduced supply caused by PJM’s assumption of more outages in the model used to allocate Stage 1B and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 to 2014 planning period through September 30, 2013Stage 2 ARRs. The day-ahead and real- time congestion are based on increased FTR prices resulted in an increase in dollars paid per ARR MW. For the difference between zonal congestion prices and Western Hub congestion prices. One measure of the effectiveness of ARRs as an offset 2014 to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 to 2013 2015 planning period, the total revenues received by dollars per MW of ARR allocation was $11,279, while the holders previous planning period resulted in a dollars per MW of all ARRs and FTRs offset 92.6 $6,692, a 68.5 percent increase in payment per allocated ARR MW. Some of the total congestion costs within PJMARR 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. 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 $/ARR MW Figure 13-3 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. 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. The comparison between result is to increase FTR funding. This action removes money from the excess ARR revenue received stream and caused the decrease in excess ARR revenue beginning in June 2014. Currently, excess FTR auction revenue is allocated pro rata to FTR holders at the end of the planning period, instead of being distributed to ARR holders. 11/12 12/13 13/14 14/15 15/16 16/17 Excess Revenue 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 excess auction revenue, by ARR planning period, for planning periods 2010 to 2011 through 2016 to 2017. 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 “buy back” **Through September 30, 2016 FTRs are financial instruments that entitle their holders and the actual to receive revenue or require them to pay charges based on locational congestion experienced by these ARR holders price differences in the Day-Ahead Energy Market across specific FTR transmission paths, subject to total congestion revenue including day-ahead and balancing congestion. The value of the balancing energy market is presented by control zone in Table 13day-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 ahead congestion price differences, termed the FTR credits from ARRs which are self scheduled as target allocation, defines the maximum, but not guaranteed, payout for FTRs. The ARR credits do not include the ARR credits for the portion target allocation of any ARR that was self scheduled as an FTR since ARR holders purchase selfreflects the difference in day-scheduled ahead congestion prices rather than the difference in LMPs, which includes both congestion and marginal losses. Auction market participants are free to request FTRs in between any eligible pricing nodes on the system. For the Long Term FTR Auction a list of available hubs, control zones, aggregates, generator buses and interface pricing points is available. For the Annual FTR Auction and that revenue is then paid back to FTRs bought for a quarterly period in the ARR holdersmonthly auction the available FTR source and sink points include hubs, netting control zones, aggregates, generator buses, load buses and interface pricing points. An FTR bought in the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled Monthly FTR MW) and the cleared price Auction for the ARR path from single calendar month following 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 auction may be less than the target allocation. The FTR payout ratio was 77.3 percent of the target allocation include any bus for the 2013 to 2014 planning period through September 30, 2013. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.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 $626.7 620.2 million in credits from the Annual FTR auctions Auction during the 2012 to 2013 planning period, with a projected an average hourly ARR credit of $0.66 0.63 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits credits, with an average hourly ARR credit of $1.06 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 2011 to 2012 and the 2012 to 2013 and the 2013 to 2014 (through December 31, 2012) planning periods. Total FTR auction net revenue $1,055.9 $620.2 Annual FTR Auction net revenue $1,029.6 $602.9 $558.4 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 26.3 $0.6 17.3 ARR target allocations $570.5 947.3 $503.4 565.4 ARR credits $570.5 947.3 $503.4 565.4 Surplus auction revenue $56.2 108.6 $55.6 54.7 ARR payout ratio 100 100 FTR payout ratio* 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M 80.6 74.8 * Shows twelve months for 2012/2013 and four 2011/2012 seven months for 2013/20142012/2013. -$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 1312-13 18 shows Annual FTR Auction prices and an approximate measure of day- day-ahead and real-time congestion for each PJM control zone for the 2012 to 2013 to 2014 planning period through September 30, 2013period. The day-ahead and real- time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices. Figure 12-18 Annual FTR Auction prices vs. average day-ahead and real-time congestion for all control zones relative to the Western Hub47: Planning period 2011 to 2012 Annual FTR Auction path price Day-ahead congestion Real-time congestion $3 $2 $1 ($/MW) $0 -$1 -$2 -$3 ComEd ATSI DAY DEOK AEP DLCO PENELEC AP PPL RECO PECO Met-Ed JCPL AECO PSEG DPL Dominion Pepco -$4 One measure of the effectiveness of ARRs as an offset to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten seven months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 92.6 82.1 percent of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market is presented by control zone in Table 1312-2639. ARRs and self-scheduled FTRs that sink at an aggregate are assigned to a control zone if applicable.24 applicable.48 Total revenue equals the ARR credits and the FTR credits from ARRs which are self scheduled as FTRs. The ARR credits do not include the ARR credits for the portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and that revenue is then paid back to the ARR holders, netting the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled FTR MW) and the cleared price for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day- Day-Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 77.3 74.8 percent of the target allocation for the first seven months of the 2012 to 2013 to 2014 planning period through September 30, 2013period. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $626.7 1,055.9 million in credits from the Annual FTR auctions Auction during the 2012 to 2013 planning period, with a projected average hourly ARR credit of $0.66 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits with an average hourly ARR credit of $1.06 per MW. During the comparable 2010 to 2011 planning period, ARR holders received $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 2011 to 2012 and the 2012 to 2013 and the 2013 to 2014 (through June 30, 2012) planning periods. Total FTR auction net revenue $1,055.9 $606.3 Annual FTR Auction net revenue $1,029.6 $602.9 $558.4 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 26.3 $0.6 3.4 ARR target allocations $570.5 947.3 $503.4 565.4 ARR credits $570.5 947.3 $503.4 565.4 Surplus auction revenue $56.2 108.6 $55.6 40.8 ARR payout ratio 100 100 100% 100% FTR payout ratio* 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M 80.6% 92.9% * Shows twelve months for 2012/2013 and four months 2010/2011 one month for 2013/20142012/2013. -$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 Payout ratio for 2011/2012 not finalized As an illustration of the relationship between FTRs and congestion, Figure 1312-13 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 2011 to 2014 2012 planning period through September 30, 2013period. The day-ahead and real- real-time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices. One measure of the effectiveness of ARRs as an offset to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 92.6 percent of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market is presented by control zone in Table 13-26. ARRs and self-scheduled FTRs that sink at an aggregate are assigned to a control zone if applicable.24 Total revenue equals the ARR credits and the FTR credits from ARRs which are self scheduled as FTRs. The ARR credits do not include the ARR credits for the portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and that revenue is then paid back to the ARR holders, netting the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled FTR MW) and the cleared price for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day- Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 77.3 percent of the target allocation for the 2013 to 2014 planning period through September 30, 2013. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $626.7 562.8 million in credits from the FTR auctions during the first seven months of the 2013 to 2014 planning period. During the first seven months of the 2012 to 2013 planning period, with a projected average hourly ARR credit of $0.66 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 620.2 million in ARR credits with an average hourly ARR credit of $1.06 per MWcredits. 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 2012 to 2013 planning period and the first seven months of the 2013 to 2014 planning periods. Total FTR auction net revenue $626.7 $562.8 Annual FTR Auction net revenue $602.9 $558.4 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 $0.6 4.4 ARR target allocations $570.5 $503.4 503.8 ARR credits $570.5 $503.4 503.8 Surplus auction revenue $56.2 $55.6 59.0 ARR payout ratio 100 100 100% 100% FTR payout ratio* 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M 67.8% 75.1% * Shows twelve months for 2012/2013 and four seven months for 2013/2014. -$6 ARR and FTR Revenue and CongestionFTR Prices and Zonal Price Differences ComEd DLCO DAY EKPC ATSI AEP DEOK PENELEC AP PPL Met-Ed JCPL PECO AECO Dominion PSEG RECO DPL As an illustration of the relationship between FTRs and congestion, Figure 13-13 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 to 2014 planning period through September 30, 2013. The day-ahead and real- time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices. One measure of the effectiveness of ARRs as an offset to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 92.6 percent of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market is presented by control zone in Table 13-26. ARRs and self-scheduled FTRs that sink at an aggregate are assigned to a control zone if applicable.24 Total revenue equals the ARR credits and the FTR credits from ARRs which are self scheduled as FTRs. The ARR credits do not include the ARR credits for the portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and that revenue is then paid back to the ARR holders, netting the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled FTR MW) and the cleared price for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day- Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 77.3 percent of the target allocation for the 2013 to 2014 planning period through September 30, 2013. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $626.7 568.8 million in credits from the FTR auctions during the 2012 2013 to 2013 2014 planning period, with a projected average hourly ARR credit of $0.66 per MW. During the comparable 2011 2013 to 2012 2014 planning period, ARR holders received $1,055.9 506.2 million in ARR credits with an average hourly ARR credit of $1.06 per MWcredits. 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 2012 to 2013 planning period and the 2013 to 2014 planning periods. $50 14/15 Total FTR auction net revenue $626.7 $568.8 Annual FTR Auction net revenue $602.9 $558.4 Monthly Balance of Planning Period FTR Auction net revenue* revenue $23.9 $0.6 10.4 ARR target allocations $570.5 $503.4 506.2 ARR credits $570.5 $503.4 506.2 Surplus auction revenue $56.2 $55.6 62.6 ARR payout ratio 100 100 FTR payout ratio* ratio 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M * Shows twelve months for 2012/2013 and four months for 2013/2014. -$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 72.8 As an illustration of the relationship between FTRs and congestion, Figure 13-13 18 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 to 2014 planning period through September 30, 2013period. The day-ahead and real- real-time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices. One measure of the effectiveness of ARRs as an offset to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 92.6 percent of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market is presented by control zone in Table 13-26. ARRs and self-scheduled FTRs that sink at an aggregate are assigned to a control zone if applicable.24 Total revenue equals the ARR credits and the FTR credits from ARRs which are self scheduled as FTRs. The ARR credits do not include the ARR credits for the portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and that revenue is then paid back to the ARR holders, netting the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled FTR MW) and the cleared price for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day- Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 77.3 percent of the target allocation for the 2013 to 2014 planning period through September 30, 2013. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been revenue adequate for every auction to date. Customers that self schedule ARRs as FTRs have the same revenue adequacy characteristics as all other FTRs. The adequacy of ARRs as an offset to total congestion compares ARR revenues to total congestion sinking in the participant’s load zone as a measure of the extent to which ARRs offset market participants’ actual, total congestion into their zone. Customers that self schedule ARRs as FTRs provide the same offset to congestion as all other FTRs. ARR holders received a projected $626.7 624.6 million in credits from the FTR auctions during the first ten months of the 2012 to 2013 planning period, with a projected an average hourly ARR credit of $0.66 0.63 per MW. During the comparable first ten months of the 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits credits, with an average hourly ARR credit of $1.06 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 2011 to 2012 and the 2012 to 2013 and the 2013 to 2014 (through March 31, 2013) planning periods. Total FTR auction net revenue $1,055.9 $624.6 Annual FTR Auction net revenue $1,029.6 $602.9 $558.4 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 26.3 $0.6 21.7 ARR target allocations $570.5 947.3 $503.4 565.4 ARR credits $570.5 947.3 $503.4 565.4 Surplus auction revenue $56.2 108.6 $55.6 59.1 ARR payout ratio 100 100 FTR payout ratio* 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M 80.6 74.8 * Shows twelve months for 2012/2013 and four 2011/2012 ten months for 2013/20142012/2013. -$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 1312-13 11 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2012 to 2013 to 2014 planning period through September 30, 2013period. The day-ahead and real- real-time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices. One measure of the effectiveness of ARRs as an offset to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 92.6 percent of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market is presented by control zone in Table 13-26. ARRs and self-scheduled FTRs that sink at an aggregate are assigned to a control zone if applicable.24 Total revenue equals the ARR credits and the FTR credits from ARRs which are self scheduled as FTRs. The ARR credits do not include the ARR credits for the portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and that revenue is then paid back to the ARR holders, netting the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled FTR MW) and the cleared price for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day- Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 77.3 percent of the target allocation for the 2013 to 2014 planning period through September 30, 2013. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.

Revenue Adequacy. As with FTRs, revenue adequacy for ARRs must be distinguished from the adequacy of ARRs as an offset to total congestion. Revenue adequacy is a narrower concept that compares the revenues available to ARR holders to the value of ARRs as determined in the Annual FTR Auction. ARRs have been Figure 13-3 shows a map of over allocated ARR source points in Stage 1A, regardless of reason, for the 2013 to 2014 through 2016 to 2017 planning periods. The year indicated for each source point is the latest year that source was announced as over allocated in the Stage 1A process. Generators retired as of the 2016 to 2017 planning period are indicated by a square marker to 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 $626.7 767.9 million in credits from the FTR auctions during the 2012 2014 to 2013 2015 planning period, with a projected average hourly . The FTR auction revenue collected pays ARR credit of $0.66 per MWholders’ credits. During the comparable 2011 2014 to 2012 2015 planning period, ARR holders received $1,055.9 735.3 million in ARR credits with an average hourly ARR credit of $1.06 per MWcredits. 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 2012 2014 to 2013 2015 planning period and the 2013 2015 to 2014 2016 planning periods. As seen here, due to decreased FTR volume leading to increased FTR nodal prices, total auction revenue increased 26.1 percent while projected ARR target allocations increased 26.7 percent from the previous planning period. 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. Total dollars per MW was 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 $2,000 $1,800 $1,600 R M $1,400 2014/2015 2015/2016 Total FTR auction net revenue $767.9 $968.1 $1,200 Annual FTR Auction net revenue $602.9 748.6 $558.4 936.3 W Monthly Balance of Planning Period FTR Auction net revenue* $23.9 19.3 $0.6 31.8 $1,000 ARR target allocations $570.5 735.3 $503.4 931.6 $/AR ARR credits $570.5 735.3 $503.4 931.6 $800 Surplus auction revenue $56.2 32.6 $55.6 36.5 ARR payout ratio 100 100 $600 FTR payout ratio* 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M 100 100 * Shows twelve months for 2012/2013 2014/2015 and four months for 2013/20142015/2016. -$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, $400 Figure 13-13 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-scheduled FTRs and do include Residual ARRs starting in August 2012. FTR prices increased in the 2014 to 2015 Annual FTR Auction prices as a result of reduced supply caused by PJM’s assumption of more outages in the model used to allocate Stage 1B and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 to 2014 planning period through September 30, 2013Stage 2 ARRs. The dayincreased FTR prices resulted in an increase in dollars paid per ARR MW. For the 2014 to 2015 Figure 13-ahead and real- time congestion are based on 5 shows the difference between zonal congestion prices and Western Hub congestion pricesmonthly excess ARR revenue from the 2011 to 2012 through 2015 to 2016 planning periods. One measure of the effectiveness of ARRs as an offset to congestion Excess ARR revenue is a comparison of the revenue received by collected each month from FTR auctions in excess of ARR target allocations after PJM’s implemented counter flow FTR clearing process. Stage 1A ARRs may be over allocated in the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Marketinitial Stage 1A process, which requires that facility limits are increased above their actual capability. The revenue which serves as an offset for ARR holders comes from These increased facility limits must be carried over into the FTR auctions while auctions, which results in an over selling of FTR MW. Beginning with the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 2014 to 2013 2015 planning period, market rules allow PJM to decrease prevailing flow target allocations by clearing counter flow FTRs, without making the total revenues received by 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 FTR auction revenue is allocated pro rata to FTR holders of all ARRs and FTRs offset 92.6 percent at the end of the total planning period, instead of being distributed to ARR holders. 11/12 12/13 13/14 14/15 15/16 16/17 Excess Revenue 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 FTRs are financial instruments that entitle their holders to receive revenue or require them to pay charges based on locational congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders price differences in the Day-Ahead Energy Market and the balancing energy market is presented by control zone in Table 13-26across specific FTR transmission paths, subject to revenue availability. 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 This value, termed the FTR credits from ARRs which are self scheduled as target allocation, defines the maximum, but not guaranteed, payout for FTRs. The ARR credits do not include the ARR credits for the portion target allocation of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled 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 in between any eligible pricing nodes on the system. For the Long Term FTR Auction a list of available hubs, control zones, aggregates, generator buses and interface pricing points is available. For 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 FTRs bought for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day- Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 77.3 percent of the target allocation for the 2013 to 2014 planning period through September 30, 2013. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.quarterly

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 $626.7 947.3 million in credits from the Annual FTR auctions Auction during the 2012 to 2013 planning period, with a projected average hourly ARR credit of $0.66 per MW. During the comparable 2011 to 2012 planning period, ARR holders received $1,055.9 million in ARR credits with an average hourly ARR credit of $1.06 1.05 per MW. During the comparable 2010 to 2011 planning period, ARR holders received $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 2012 2010 to 2013 2011 and the 2013 2011 to 2014 2012 (through March 31, 2012) planning periods. Total FTR auction net revenue $1,074.3 $1,054.4 Annual FTR Auction net revenue $602.9 1,049.8 $558.4 1,029.6 Monthly Balance of Planning Period FTR Auction net revenue* $23.9 24.5 $0.6 24.8 ARR target allocations $570.5 1,028.8 $503.4 947.3 ARR credits $570.5 1,028.8 $503.4 947.3 Surplus auction revenue $56.2 45.5 $55.6 107.1 ARR payout ratio 100 100 FTR payout ratio* 67.8 77.3 FTR Auction LMP DA Congestion RT Congestion $8 $6 $4 W) $2 ($/M * Shows twelve months for 2012/2013 and four months for 2013/2014. -$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 85.0 83.2 As an illustration of the relationship between FTRs and congestion, Figure 1312-13 9 shows Annual FTR Auction prices and an approximate measure of day- ahead and real-time congestion for each PJM control zone for the 2013 2011 to 2014 2012 planning period through September 30March 31, 20132012. The day-ahead and real- real-time congestion are based on the difference between zonal congestion prices and Western Hub congestion prices. One measure of the effectiveness of ARRs as an offset to congestion is a comparison of the revenue received by the holders of ARRs and the congestion paid by the holders of ARRs in both the Day-Ahead Energy Market and the Balancing Energy Market. The revenue which serves as an offset for ARR holders comes from the FTR auctions while the revenue for FTR holders is provided by the congestion payments from the Day-Ahead Energy Market and the balancing energy market. During the first ten months of the 2012 to 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset 92.6 percent of the total congestion costs within PJM. The comparison between the revenue received by ARR holders and the actual congestion experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market is presented by control zone in Table 13-26. ARRs and self-scheduled FTRs that sink at an aggregate are assigned to a control zone if applicable.24 Total revenue equals the ARR credits and the FTR credits from ARRs which are self scheduled as FTRs. The ARR credits do not include the ARR credits for the portion of any ARR that was self scheduled as an FTR since ARR holders purchase self-scheduled FTRs in the Annual FTR Auction and that revenue is then paid back to the ARR holders, netting the transaction to zero. ARR credits are calculated as the product of the ARR MW (excludes any self-scheduled FTR MW) and the cleared price for the ARR path from the Annual FTR Auction. FTR credits equal FTR target allocations adjusted by the FTR payout ratio. The FTR target allocation is equal to the product of the FTR MW and the congestion price differences between sink and source that occur in the Day- Ahead Energy Market. FTR credits are paid to FTR holders and may be less than the target allocation. The FTR payout ratio was 77.3 percent of the target allocation for the 2013 to 2014 planning period through September 30, 2013. The target allocation is not a guarantee of payment nor does it reflect congestion incurred on a particular FTR path. The target allocation is used to set a cap on path specific FTR payouts. The Congestion column shows the amount of congestion in each control zone from the Day-Ahead Energy Market and the balancing energy market and includes only the congestion costs incurred by the organizations that hold ARRs or self-scheduled FTRs. The last column shows the difference between the total revenue and the congestion for each ARR control zone sink.