Common use of Revenue Adequacy Clause in Contracts

Revenue Adequacy. For the 2014 to 2015 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $735.3 million while PJM collected $767.9 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2013 to 2014 planning period, the ARR target allocations were $506.2 million while PJM collected $568.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRs. • ARRs as an Offset to Congestion. 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 ARR holders across the Day-Ahead Energy Market and balancing energy market for the 2014 to 2015 planning period and for the 2013 to 2014 planning period. Individual participants may not have a 100 percent offset. Recommendations • The MMU recommends that PJM report correct monthly payout ratios to reduce understatement of payout ratios on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate portfolio netting to eliminate cross subsidies among FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate subsidies to counter flow FTRs by applying the payout ratio to counter flow FTRs in the same way the payout ratio is applied to prevailing flow FTRs. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce FTR sales on paths with persistent overallocation of FTRs including clear rules for what defines persistent overallocation and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate overallocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM apply the FTR forfeiture rule to up to congestion transactions consistent with the application of the FTR forfeiture rule to increment offers and decrement bids. (Priority: High. First reported 2013. Status: Not adopted. (Pending before FERC.) • The MMU recommends that PJM not use the ATSI Interface or create similar closed loop interfaces to set zonal prices to accommodate the inadequacies of the demand side resource capacity product. Market prices should be a function of market fundamentals. The MMU recommends that, in general, the implementation of closed loop interface constraints be studied in advance and, if there is good reason to implement, implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding. (Priority: Medium. First reported 2013. Status: Not adopted.)

Revenue Adequacy. For the 2014 2012 to 2015 2013 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, allocations were $735.3 570.5 million while PJM collected $767.9 626.7 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2013 2011 to 2014 2012 planning period, the ARR target allocations were $506.2 982.9 million while PJM collected $568.8 1,091.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRsmaking ARRs revenue adequate. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs served as an effective offset against congestionto congestion can be measured by comparing the revenue received by ARR holders to the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. The For the 2012 to 2013 planning period, the total revenues received by ARR holders, including self-scheduled FTRs, offset 100 92.6 percent of the total congestion costs experienced by these ARR holders across in the Day-Ahead Energy Market and the balancing energy market for market. For the 2014 2011 to 2015 2012 planning period period, the total revenues received by the holders of all ARRs and FTRs offset more than 88.8 percent of the total congestion costs within PJM and for the 2013 2010 to 2014 2011 planning period. Individual participants may not have a 100 percent offsetperiod 97.3 percent. Recommendations • The MMU recommends that PJM report Report correct monthly payout ratios to reduce understatement overstatement of payout ratios underfunding problem on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate portfolio netting to eliminate cross subsidies among across FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate subsidies to counter flow FTRs FTR holders by applying the payout ratio treating them comparably to counter prevailing flow FTRs in the same way FTR holders when the payout ratio is applied to prevailing flow FTRsapplied. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate cross geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve Improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce Reduce FTR sales on paths with persistent overallocation of FTRs underfunding including clear rules for what defines persistent overallocation underfunding and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement Implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate overallocation Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM apply the FTR forfeiture rule to up to congestion transactions consistent with the application of the FTR forfeiture rule to increment offers and decrement bids. (Priority: High. First reported 2013. Status: Not adopted. (Pending before FERC.) • The MMU recommends that PJM not use the ATSI Interface or create similar closed loop interfaces to set zonal prices to accommodate the inadequacies of the demand side resource capacity product. Market prices should be a function of market fundamentals. The MMU recommends that, in general, the implementation of closed loop interface constraints be studied in advance and, if there is good reason to implement, implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding. (Priority: Medium. First reported 2013. Status: Not adopted.)

Revenue Adequacy. For the first four months of the 2013 to 2014 to 2015 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, allocations were $735.3 503.4 million while PJM collected $767.9 559.0 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2012 to 2013 to 2014 planning period, the ARR target allocations were $506.2 565.4 million while PJM collected $568.8 614.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRsmaking ARRs revenue adequate for that period. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs served as an effective offset against congestionto congestion can be measured by comparing the revenue received by ARR holders to the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. The For the 2013 to 2014 planning period through September 30, 2013, the total revenues received by ARR holders, including self-scheduled FTRs, offset 100 85.5 percent of the total congestion costs experienced by these ARR holders across in the Day-Ahead Energy Market and the balancing energy market for market. For the 2014 2012 to 2015 2013 planning period period, the total revenues received by the holders of all ARRs and FTRs offset more than 92.6 percent of the total congestion costs within PJM and for the 2013 2011 to 2014 2012 planning period. Individual participants may not have a 100 percent offsetperiod 88.9 percent. Recommendations • The MMU recommends that PJM report Report correct monthly payout ratios to reduce understatement overstatement of payout ratios underfunding problem on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate portfolio netting to eliminate cross subsidies among across FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate subsidies to counter flow FTRs FTR holders by applying the payout ratio treating them comparably to counter prevailing flow FTRs in the same way FTR holders when the payout ratio is applied to prevailing flow FTRsapplied. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate cross geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve Improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce Reduce FTR sales on paths with persistent overallocation of FTRs underfunding including clear rules for what defines persistent overallocation underfunding and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement Implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate overallocation Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM apply Apply the FTR forfeiture rule to up to congestion transactions consistent with the application of the FTR forfeiture rule to increment offers and decrement bids. (Priority: High. First reported 2013. Status: Not adopted. (Pending before FERC.) • The MMU recommends that PJM not use the ATSI Interface or create similar closed loop interfaces to set zonal prices to accommodate the inadequacies of the demand side resource capacity product. Market prices should be a function of market fundamentals. The MMU recommends that, in general, the implementation of closed loop interface constraints be studied in advance and, if there is good reason to implement, implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding. (Priority: Medium. First reported 2013. Status: Not adopted.)

Revenue Adequacy. For the first ten months of the 2013 to 2014 to 2015 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, allocations were $735.3 432.7 million while PJM collected $767.9 662.3 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2012 to 2013 to 2014 planning period, the ARR target allocations were $506.2 587.0 million while PJM collected $568.8 653.6 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRsmaking ARRs revenue adequate. • ARRs as an Offset to Congestion. 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 across in the Day-Ahead Energy Market and the balancing energy market for the first ten months of the 2013 to 2014 to 2015 planning period and for the 2012 to 2013 to 2014 planning period. Individual participants may not have a 100 percent offset. Recommendations • The MMU recommends that PJM report Report correct monthly payout ratios to reduce understatement overstatement of payout ratios underfunding problem on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate portfolio netting to eliminate cross subsidies among across FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate subsidies to counter flow FTRs FTR holders by applying the payout ratio treating them comparably to counter prevailing flow FTRs in the same way FTR holders when the payout ratio is applied to prevailing flow FTRsapplied. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate cross geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve Improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce Reduce FTR sales on paths with persistent overallocation of FTRs underfunding including clear rules for what defines persistent overallocation underfunding and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement Implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate overallocation Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM apply Apply the FTR forfeiture rule to up to congestion transactions consistent with the application of the FTR forfeiture rule to increment offers and decrement bids. (Priority: High. First reported 2013. Status: Not adopted. (Pending before FERC.) • The MMU recommends that PJM not use the ATSI Interface or create similar closed loop interfaces to set zonal prices to accommodate the inadequacies of the demand side resource capacity product. Market prices should be a function of market fundamentals. The MMU recommends that, in general, the implementation of closed loop interface constraints be studied in advance and, if there is good reason to implement, and implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding. (Priority: Medium. First reported 2013. Status: Not adopted.)

Revenue Adequacy. For the 2014 2015 to 2015 2016 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $735.3 million 927.0 million, while PJM collected $767.9 956.2 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2013 2014 to 2014 2015 planning period, the ARR target allocations were $506.2 735.3 million while PJM collected $568.8 767.9 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRs. With the decrease in Stage 1B and Stage 2 ARR allocations, total ARR revenue has increased at a slower rate than congestion costs. For the 2015 to 2016 planning period ARR dollars per MW increased 111.8 percent while congestion only increased 29.1 percent relative to the 2013 to 2014 planning period. • ARRs as an Offset to Congestion. 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 ARR holders across the Day-Ahead Energy Market and balancing energy market for the 2014 to 2015 planning period and for the 2013 2015 to 2014 2016 planning period. Individual participants may not have a 100 percent offset. Recommendations • The MMU recommends that PJM report correct monthly payout ratios to reduce understatement of payout ratios on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate portfolio netting to eliminate cross subsidies among FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate subsidies to counter flow FTRs by applying the payout ratio to counter flow FTRs in the same way the payout ratio is applied to prevailing flow FTRs. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce FTR sales on paths with persistent overallocation of FTRs including clear rules for what defines persistent overallocation and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate overallocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM apply the FTR forfeiture rule to up to congestion transactions consistent with the application of the FTR forfeiture rule to increment offers and decrement bids. (Priority: High. First reported 2013. Status: Not adopted. (Pending before FERC.) • The MMU recommends that PJM not use the ATSI Interface or create similar closed loop interfaces to set zonal prices to accommodate the inadequacies of the demand side resource capacity product. Market prices should be a function of market fundamentals. The MMU recommends that, in general, the implementation of closed loop interface constraints be studied in advance and, if there is good reason to implement, implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding. (Priority: Medium. First reported 2013. Status: Not adopted.)

Revenue Adequacy. For the first seven months of the 2013 to 2014 to 2015 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, allocations were $735.3 175.0 million while PJM collected $767.9 197.5 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2012 to 2013 to 2014 planning period, the ARR target allocations were $506.2 587.0 million while PJM collected $568.8 653.6 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRsmaking ARRs revenue adequate. • ARRs as an Offset to Congestion. ARRs served as an effective offset against congestion. The total revenues received by ARR holders, including self-self- scheduled FTRs, offset 100 percent of the total congestion costs experienced by these ARR holders across in the Day-Ahead Energy Market and the balancing energy market for the first seven months of the 2013 to 2014 to 2015 planning period and for the 2012 to 2013 to 2014 planning period. Individual participants may not have a 100 percent offset. Recommendations • The MMU recommends that PJM report Report correct monthly payout ratios to reduce understatement overstatement of payout ratios underfunding problem on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate portfolio netting to eliminate cross subsidies among across FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate subsidies to counter flow FTRs FTR holders by applying the payout ratio treating them comparably to counter prevailing flow FTRs in the same way FTR holders when the payout ratio is applied to prevailing flow FTRsapplied. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate cross geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve Improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce Reduce FTR sales on paths with persistent overallocation of FTRs underfunding including clear rules for what defines persistent overallocation underfunding and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement Implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate overallocation Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM apply Apply the FTR forfeiture rule to up to congestion transactions consistent with the application of the FTR forfeiture rule to increment offers and decrement bids. (Priority: High. First reported 2013. Status: Not adopted. (Pending before FERC.) • The MMU recommends that PJM not use the ATSI Interface or create similar closed loop interfaces to set zonal prices to accommodate the inadequacies of the demand side resource capacity product. Market prices should be a function of market fundamentals. The MMU recommends that, in general, the implementation of closed loop interface constraints be studied in advance and, if there is good reason to implement, and implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding. (Priority: Medium. First reported 2013. Status: Not adopted.)

Revenue Adequacy. For the 2013 to 2014 to 2015 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $735.3 520.0 million while PJM collected $767.9 593.9 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2012 to 2013 to 2014 planning period, the ARR target allocations were $506.2 587.0 million while PJM collected $568.8 653.6 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRsmaking ARRs revenue adequate. • ARRs as an Offset to Congestion. 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 across 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 and for the 2012 to 2013 planning period. Individual participants may not have a 100 percent offset. Recommendations • The MMU recommends that PJM report Report correct monthly payout ratios to reduce understatement of payout ratios on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate portfolio netting to eliminate cross subsidies among FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate subsidies to counter flow FTRs by applying the payout ratio to counter flow FTRs in the same way the payout ratio is applied to prevailing flow FTRs. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve Improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce Reduce FTR sales on paths with persistent overallocation of FTRs including clear rules for what defines persistent overallocation and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement Implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate overallocation Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM apply Apply the FTR forfeiture rule to up to congestion transactions consistent with the application of the FTR forfeiture rule to increment offers and decrement bids. (Priority: High. First reported 2013. Status: Not adopted. (Pending before FERC.) • The MMU recommends that PJM not use the ATSI Interface or create similar closed loop interfaces to set zonal prices to accommodate the inadequacies of the demand side resource capacity product. Market prices should be a function of market fundamentals. The MMU recommends that, in general, the implementation of closed loop interface constraints be studied in advance and, if there is good reason to implement, implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding. (Priority: Medium. First reported 2013. Status: Not adopted.)

Revenue Adequacy. For the first four months of the 2014 to 2015 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $735.3 732.2 million while PJM collected $767.9 752.9 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2013 to 2014 planning period, the ARR target allocations were $506.2 million while PJM collected $568.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRsmaking ARRs revenue adequate. • ARRs as an Offset to Congestion. 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 across in the Day-Ahead Energy Market and the balancing energy market for the first four months of the 2014 to 2015 planning period and for the 2013 to 2014 planning period. Individual participants may not have a 100 percent offset. Recommendations • The MMU recommends that PJM report Report correct monthly payout ratios to reduce understatement of payout ratios on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate portfolio netting to eliminate cross subsidies among FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate subsidies to counter flow FTRs by applying the payout ratio to counter flow FTRs in the same way the payout ratio is applied to prevailing flow FTRs. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate Eliminate geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve Improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce Reduce FTR sales on paths with persistent overallocation of FTRs including clear rules for what defines persistent overallocation and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement Implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate overallocation Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM apply Apply the FTR forfeiture rule to up to congestion transactions consistent with the application of the FTR forfeiture rule to increment offers and decrement bids. (Priority: High. First reported 2013. Status: Not adopted. (Pending before FERC.) • The MMU recommends that PJM not use the ATSI Interface or create similar closed loop interfaces to set zonal prices to accommodate the inadequacies of the demand side resource capacity product. Market prices should be a function of market fundamentals. The MMU recommends that, in general, the implementation of closed loop interface constraints be studied in advance and, if there is good reason to implement, implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding. (Priority: Medium. First reported 2013. Status: Not adopted.)

Revenue Adequacy. For the first seven months of the 2014 to 2015 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $735.3 733.7 million while PJM collected $767.9 761.1 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2013 to 2014 planning period, the ARR target allocations were $506.2 million while PJM collected $568.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, despite decreased volume, is a result of increased prices resulting from the reduced allocation of Stage 1B and Stage 2 ARRsmaking ARRs revenue adequate. • ARRs as an Offset to Congestion. ARRs served as an effective offset against congestion. The total revenues received by ARR holders, including self-self- scheduled FTRs, offset 100 percent of the total congestion costs experienced by ARR holders across the Day-Ahead Energy Market and balancing energy market for the first seven months of the 2014 to 2015 planning period and for the 2013 to 2014 planning period. Individual participants may not have a 100 percent offset. Recommendations • The MMU recommends that PJM report correct monthly payout ratios to reduce understatement of payout ratios on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate portfolio netting to eliminate cross subsidies among FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate subsidies to counter flow FTRs by applying the payout ratio to counter flow FTRs in the same way the payout ratio is applied to prevailing flow FTRs. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate geographic cross subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM reduce FTR sales on paths with persistent overallocation of FTRs including clear rules for what defines persistent overallocation and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • The MMU recommends that PJM implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM eliminate overallocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013. Status: Not adopted.) • The MMU recommends that PJM apply the FTR forfeiture rule to up to congestion transactions consistent with the application of the FTR forfeiture rule to increment offers and decrement bids. (Priority: High. First reported 2013. Status: Not adopted. (Pending before FERC.) • The MMU recommends that PJM not use the ATSI Interface or create similar closed loop interfaces to set zonal prices to accommodate the inadequacies of the demand side resource capacity product. Market prices should be a function of market fundamentals. The MMU recommends that, in general, the implementation of closed loop interface constraints be studied in advance and, if there is good reason to implement, implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding. (Priority: Medium. First reported 2013. Status: Not adopted.)