Common use of Revenue Adequacy Clause in Contracts

Revenue Adequacy. Congestion revenue is created in an LMP system when all loads pay and all generators receive their respective LMPs. When load pays more than generators receive, excluding losses, positive congestion revenue exists and is available to cover the target allocations of FTR holders. The load MW exceed the generation MW in constrained areas because part of the load is served by imports using transmission capability into the constrained areas. That is why load, which pays for the transmission capability, receives ARRs to offset congestion in the constrained areas based on that transmission capability. Generating units that are the source of such imports are paid the price at their own bus, which does not reflect congestion in constrained areas. Generation in constrained areas receives the congestion price and all load in constrained areas pays the congestion price. As a result, load congestion payments are greater than the congestion-related payments to generation.11 In general, FTR revenue adequacy exists when the sum of congestion credits is as great as the sum of congestion across the positively valued FTRs. Revenue adequacy must be distinguished from the adequacy of FTRs as an offset against congestion. Revenue adequacy is a narrower concept that compares the revenues available to cover congestion to the target allocations across specific paths for which FTRs were available and purchased. The adequacy of FTRs as an offset against congestion compares FTR revenues to total congestion on the system as a measure of the extent to which FTRs offset the actual, total congestion across all paths paid by market participants, regardless of the availability or purchase of FTRs. FTRs are paid each month from congestion revenues, both day ahead and balancing, FTR auction revenues and excess revenues carried forward from prior months and distributed back from later months. At the end of a planning period, if some months remain not fully funded, an uplift charge is collected from any FTR market participants that hold FTRs during the planning period based on their pro rata share of total net positive FTR target allocations, excluding any charge to FTR holders with a net negative FTR position for the planning year. For the 2011 to 2012 planning period, FTRs were not fully funded and thus an uplift charge was collected. FTR revenues are primarily comprised of hourly congestion revenue, from the day ahead and balancing markets, and net negative congestion. FTR revenues also include ARR excess which is the difference between ARR target allocations and FTR auction revenues. Competing use revenues are based on the Unscheduled Transmission Service Agreement between the New York Independent System Operator (NYISO) and PJM. This agreement sets forth the terms and conditions under which compensation is provided for transmission 11 For an illustration of how total congestion revenue is generated and how FTR target allocations and congestion receipts are determined, see Table G-1, “Congestion revenue, FTR target allocations and FTR congestion credits: Illustration,” MMU Technical Reference for PJM Markets, at “Financial Transmission and Auction Revenue Rights.“ service in connection with transactions not scheduled directly or otherwise prearranged between NYISO and PJM. Congestion revenues appearing in Table 12-9 include both congestion charges associated with PJM facilities and those associated with reciprocal, coordinated flowgates in the MISO whose operating limits are respected by PJM.12 The operating protocol governing the wheeling contracts between Public Service Electric and Gas Company (PSEnG) and Consolidated Edison Company of New York (Con Edison) resulted in no reimbursement ofcongestion charges to Con Edison in the 2012 to 2013 planning period through September 30, 2012.13, 14 If hourly congestion revenues are negative at the end of the month, charges are allocated as Day-Ahead Operating Reserves charges. When the congestion dollars collected from load are less than the congestion dollars paid to generation, this is included in Day-Ahead Operating Reserve charges. For the current planning period, $27,896 of charges have been included. This type of adjustment is infrequent, occurring only three times in the 2010 to 2011 planning period, never in the 2011 to 2012 planning period and once in the first four months of the 2012 to 2013 planning period. FTRs were paid at 79.1 percent of the target allocation level for the first four months of the 2012 to 2013 planning period. Congestion revenues are allocated to FTR holders based on FTR target allocations. PJM collected $222.5 million of FTR revenues during the first four months of the 2012 to 2013 planning period, and $799.4 million during the 2011 to 2012 planning period. For the first four months of the 2012 to 2013 planning period, the sink and source with the highest positive FTR target allocations were Northern Illinois Hub and Xxxxx. Similarly, the sink and source with the largest negative FTR target allocations were Quad Cities and Kammer.

Revenue Adequacy. Congestion revenue is created in an LMP system when all loads pay and all generators receive their respective LMPs. When load in a constrained area pays more than the amount that generators receive, excluding losses, positive congestion revenue exists and is available to cover the target allocations of FTR holders. The load MW exceed the generation MW in constrained areas because part of the load is served by imports using transmission capability into the constrained areas. That is why load, which pays for the transmission capability, receives ARRs to offset congestion in the constrained areas based on that transmission capabilityareas. Generating units that are the source of such imports are paid the price at their own bus, which does not reflect congestion in constrained areas. Generation in constrained areas receives the congestion price and all load in constrained areas pays the congestion price. As a result, load congestion payments are greater than the congestion-related payments to generation.11 generation.10 That is the source of the congestion revenue to pay holders of ARRs and FTRs. In general, FTR revenue adequacy exists when the sum of congestion credits is as great as equal to or greater than the sum of congestion across the positively valued FTRs. If PJM allocated FTRs equal to the transmission capability into constrained areas, FTR payouts would equal the sum of congestion. Revenue adequacy must be distinguished from the adequacy of FTRs as an offset against total congestion. Revenue adequacy is a narrower concept that compares the total congestion revenues available to cover congestion to the total target allocations across the specific paths for which FTRs were available and purchased. A path specific target allocation is not a guarantee of payment. The adequacy of FTRs as an offset against congestion compares ARR and FTR revenues to total congestion on the system as a measure of the extent to which ARRs and FTRs offset the actual, total congestion across all paths paid by market participants, regardless of the availability of ARRs or the availability or purchase of FTRs. FTRs are paid each month from congestion revenues, both day day-ahead and balancing, . FTR auction revenues and excess revenues are carried forward from prior months and distributed back from later months. At the end of a planning period, if some months remain not fully funded, an uplift charge is collected from any FTR market participants that hold FTRs during the planning period based on their pro rata share of total net positive FTR target allocations, excluding any charge to FTR holders with a net negative FTR position for the planning year. For Since the 2011 to 2012 planning period, FTRs were not fully funded and thus an uplift charge was collected. In June 2014 there was $2.9 million in excess congestion revenue, to be used to fund months later in the planning period that may have a revenue shortfall. FTR revenues are primarily comprised of hourly congestion revenue, from the day day-ahead and balancing markets, and net negative congestion. markets.11 FTR revenues also include ARR excess excess, which is the difference between ARR target allocations and FTR auction revenues, and negative FTR target allocations, which is an income for the FTR 10 For an illustration of how total congestion revenue is generated and how FTR target allocations and congestion receipts are determined, market from FTRs with a negative target allocation. Competing use revenues are based on the Unscheduled Transmission Service Agreement between the New York Independent System Operator (NYISO) and PJM. This agreement sets forth the terms and conditions under which compensation is provided for transmission 11 service in connection with transactions not scheduled directly or otherwise prearranged between NYISO and PJM. Congestion revenues appearing in Table 13-15 include both congestion charges associated with PJM facilities and those associated with reciprocal, coordinated flowgates (M2M flowgates) in MISO and NYISO whose operating limits are respected by PJM.12 In the first six months of 2014, the market to market operations resulted in NYISO, MISO and PJM redispatching units to control congestion on flowgates located in the other’s area and in the exchange of payments for this redispatch. The Firm Flow Entitlement (FFE) represents the amount of historic flow that each RTO had created on each reciprocally coordinated flowgate (RCF) used in the market to market settlement process. The FFE establishes the amount of market flow that each RTO is permitted to create on the RCF before incurring redispatch costs during the market to market process. If the non-monitoring RTO’s real-time market flow is greater than their FFE plus the approved MW adjustment from day-ahead coordination, then the non-monitoring RTO will pay the monitoring RTO based on the difference between their market flow and their FFE. If the non-monitoring RTO’s real-time market flow is less than their FFE plus the approved MW adjustment from day-ahead coordination, then the monitoring RTO will pay the non-monitoring RTO for congestion relief provided by the non-monitoring RTO based on the difference between the non-monitoring RTO’s market flow and their FFE. For an illustration the 2012 to 2013 planning period, PJM paid MISO and NYISO a combined $40.3 million for redispatch on the designated M2M flowgates, and for the 2013 to 2014 planning period PJM has paid MISO and NYISO a combined $44.3 million. The timing of how total congestion revenue is generated and how the addition of new M2M flowgates may reduce FTR target allocations and congestion receipts are determinedfunding levels. XXXX’s ability to add flowgates dynamically throughout the planning period, which were not modeled in any previous PJM FTR see Table G-1, “Congestion revenue, FTR target allocations and FTR congestion credits: Illustration,” MMU Technical Reference for PJM Markets, at “Financial Transmission and Auction Revenue Rights.“ service in connection with transactions not scheduled directly or otherwise prearranged between NYISO and PJM. Congestion revenues appearing in Table 12-9 include both congestion charges associated with PJM facilities and those associated with reciprocal, coordinated flowgates in the MISO whose operating limits are respected by PJM.12 The operating protocol governing the wheeling contracts between Public Service Electric and Gas Company (PSEnG) and Consolidated Edison Company of New York (Con Edison) resulted in no reimbursement ofcongestion charges to Con Edison in the 2012 to 2013 planning period through September 30, 2012.13, 14 If 11 When hourly congestion revenues are negative, it is defined as a net negative at the end of the month, charges are allocated as Day-Ahead Operating Reserves charges. When the congestion dollars collected from load are less than the congestion dollars paid to generation, this is included in Day-Ahead Operating Reserve charges. For the current planning period, $27,896 of charges have been included. This type of adjustment is infrequent, occurring only three times in the 2010 to 2011 planning period, never in the 2011 to 2012 planning period and once in the first four months of the 2012 to 2013 planning period. FTRs were paid at 79.1 percent of the target allocation level for the first four months of the 2012 to 2013 planning period. Congestion revenues are allocated to FTR holders based on FTR target allocations. PJM collected $222.5 million of FTR revenues during the first four months of the 2012 to 2013 planning period, and $799.4 million during the 2011 to 2012 planning period. For the first four months of the 2012 to 2013 planning period, the sink and source with the highest positive FTR target allocations were Northern Illinois Hub and Xxxxx. Similarly, the sink and source with the largest negative FTR target allocations were Quad Cities and Kammerhour.

Revenue Adequacy. Congestion revenue is created in an LMP system when all loads pay and all generators receive their respective LMPs. When load in a constrained area pays more than the amount that generators receive, excluding losses, positive congestion revenue exists and is available to cover the target allocations of FTR holdersexists. The load MW exceed the generation MW in constrained areas because part of the load is served by imports using transmission capability into the constrained areas. That is why load, which pays for the transmission capability, receives is assigned ARRs to offset congestion in the constrained areas based on that transmission capabilityareas. Generating units that are the source of such imports are paid the price at their own bus, which does not reflect congestion in constrained areas. Generation in constrained areas receives the congestion price and all load in constrained areas pays the congestion price. As a result, load congestion payments are greater than the congestion-related payments to generation.11 In generalgeneration.27 That is the source of the congestion revenue to pay holders of ARRs and FTRs. If PJM allocated FTRs equal to the transmission capability into constrained areas, FTR revenue adequacy exists when payouts would equal the sum of congestion credits is as great as the sum of congestion across the positively valued FTRscongestion. Revenue adequacy must be distinguished from the adequacy of ARRs/FTRs as an offset against total congestion. Revenue adequacy is a narrower concept that compares the revenues available to cover total congestion revenues, including day-ahead and balancing congestion, to the total target allocations allocations, based only on day-ahead congestion, across the specific paths for which FTRs were available and purchased. A path specific target allocation is not a guarantee of payment. The adequacy of ARRs/FTRs as an offset for load against congestion compares ARR and self- scheduled FTR revenues to total congestion on the system as a measure of the extent to which FTRs offset the actual, total congestion across all paths paid by market participants, regardless of the availability or purchase of FTRssystem. FTRs are paid each month from congestion revenues, both day day-ahead and balancing, . FTR auction revenues and excess revenues are carried forward from prior months and distributed back from later months. For example, in June 2014, there was $2.9 million in excess congestion revenue, to be used to fund months later in the planning period that may have a revenue shortfall. At the end of a planning period, if some months remain not fully funded, an uplift charge is collected from any FTR market participants that hold FTRs during the planning period based on their pro rata share of total net positive FTR target allocations, excluding any charge to FTR holders with a net negative FTR position for the planning year. For example, the 2011 2013 to 2012 2014 planning period was not revenue adequate, and thus this uplift charge was collected from FTR participants. There was excess congestion revenue at the end of the 2014 to 2015 planning period, FTRs were not fully funded and thus an which was distributed to FTR participants in the same manner that the FTR uplift charge was collectedis applied. FTR revenues are primarily comprised of hourly congestion revenue, from the day day-ahead and balancing markets, and net negative congestion. markets.28 FTR revenues also include ARR excess revenues, which is equal the difference between ARR target allocations and FTR auction revenues, and negative FTR target allocations, which are a source of revenue from FTRs with a negative target allocation. Competing use revenues are based on the Unscheduled Transmission Service Agreement between the New York Independent System Operator (NYISO) and PJM. This agreement sets forth the terms and conditions under which compensation is provided for transmission 11 For an illustration of how total congestion revenue is generated and how FTR target allocations and congestion receipts are determined, see Table G-1, “Congestion revenue, FTR target allocations and FTR congestion credits: Illustration,” MMU Technical Reference for PJM Markets, at “Financial Transmission and Auction Revenue Rights.“ service in connection with transactions not scheduled directly or otherwise prearranged between NYISO and PJM. Congestion revenues appearing in Table 12-9 include both congestion charges associated with PJM facilities and those associated with reciprocal, coordinated flowgates in the MISO whose operating limits are respected by PJM.12 The operating protocol governing the wheeling contracts between Public Service Electric and Gas Company (PSEnG) and Consolidated Edison Company of New York (Con Edison) resulted in no reimbursement ofcongestion charges to Con Edison in the 2012 to 2013 planning period through September 30, 2012.13, 14 If hourly congestion revenues are negative at the end of the month, charges are allocated as Day-Ahead Operating Reserves charges. When the congestion dollars collected from load are less than the congestion dollars paid to generation, this is included in Day-Ahead Operating Reserve charges. For the current planning period, $27,896 of charges have been included. This type of adjustment is infrequent, occurring only three times in the 2010 to 2011 planning period, never in the 2011 to 2012 planning period and once in the first four months of the 2012 to 2013 planning period. FTRs were paid at 79.1 percent of the target allocation level for the first four months of the 2012 to 2013 planning period. Congestion revenues are allocated to FTR holders based on FTR target allocations. PJM collected $222.5 million of FTR revenues during the first four months of the 2012 to 2013 planning period, and $799.4 million during the 2011 to 2012 planning period. For the first four months of the 2012 to 2013 planning period, the sink and source with the highest positive FTR target allocations were Northern Illinois Hub and Xxxxx. Similarly, the sink and source with the largest negative FTR target allocations were Quad Cities and Kammer.revenues

Revenue Adequacy. Congestion revenue is created in an LMP system when all loads pay and all generators receive their respective LMPs. When load pays more than the amount that generators receive, excluding losses, positive congestion revenue exists and is available to cover the target allocations of FTR holders. The load MW exceed the generation MW in constrained areas because part of the load is served by imports using transmission capability into the constrained areas. That is why load, which pays for the transmission capability, receives ARRs to offset congestion in the constrained areas based on that transmission capabilityareas. Generating units that are the source of such imports are paid the price at their own bus, bus which does not reflect congestion in constrained areas. Generation in constrained areas receives the congestion price and all load in constrained areas pays the congestion price. As a result, load congestion payments are greater than the congestion-related payments to generation.11 generation.12 In general, FTR revenue adequacy exists when the sum of congestion credits is as great as the sum of congestion across the positively valued FTRs. Revenue adequacy must be distinguished from the adequacy of FTRs as an offset against congestion. Revenue adequacy is a narrower concept that compares the revenues available to cover congestion to the target allocations across specific paths for which FTRs were available and purchased. The adequacy of FTRs as an offset against congestion compares FTR revenues to total congestion on the system as a measure of the extent to which FTRs offset the actual, total congestion across all paths paid by market participants, regardless of the availability or purchase of FTRs. FTRs are paid each month from congestion revenues, both day ahead and balancing, FTR auction revenues and excess revenues carried forward from prior months and distributed back from later months. At the end of a planning period, if some months remain not fully funded, an uplift charge is collected from any FTR market participants that hold FTRs during the planning period based on their pro rata share of total net positive FTR target allocations, excluding any charge to FTR holders with a net negative FTR position for the planning year. For the 2010 to 2011 to 2012 planning period, FTRs were not fully funded and thus an uplift charge was collected. FTR revenues are primarily comprised of hourly congestion revenue, from the day ahead and balancing markets, and net negative congestion. FTR revenues also include ARR excess which is the difference between ARR target allocations and FTR auction revenues. Competing use revenues are based on the Unscheduled Transmission Service Agreement between the New York Independent System Operator (NYISO) and PJM. This agreement sets forth the terms and conditions under which compensation is provided for transmission 11 service in connection with transactions not scheduled directly or otherwise prearranged between NYISO and PJM. Congestion revenues appearing in Table 12-10 include both congestion charges associated with PJM facilities and 12 For an illustration of how total congestion revenue is generated and how FTR target allocations and congestion receipts are determined, see Table G-1, “Congestion revenue, FTR target allocations and FTR congestion credits: Illustration,” MMU Technical Reference for PJM Markets, at “Financial Transmission and Auction Revenue Rights.“ service in connection with transactions not scheduled directly or otherwise prearranged between NYISO and PJM. Congestion revenues appearing in Table 12-9 include both congestion charges associated with PJM facilities and those associated with reciprocal, coordinated flowgates in the MISO whose operating limits are respected by PJM.12 PJM.13 The operating protocol governing the wheeling contracts between Public Service Electric and Gas Company (PSEnGPSE&G) and Consolidated Edison Company of New York (Con Edison) resulted in no a reimbursement ofcongestion of $0.2 million in congestion charges to Con Edison in the 2011 to 2012 to 2013 planning period through September 30March 31, 2012.132012.14,15 For the current planning period, 14 If no charges have been made to the Day Ahead Operating Reserves. These charges may be necessary if the hourly congestion revenues are negative at the end of the month. If this happens, charges are made and allocated as additional Day-Ahead Operating Reserves chargescharges during the month. When This means that within an hour, the congestion dollars collected from load are were less than the congestion dollars paid to generation. This is accounted for as a charge, this which is included in allocated to Day-Ahead Operating Reserve charges. For the current planning period, $27,896 of charges have been includedReserves. This type of adjustment is infrequent, occurring only three times in the 2010 to 2011 planning period, never in the 2011 to 2012 planning period and once in the first four months of the 2012 to 2013 planning period. FTRs were paid at 79.1 83.2 percent of the target allocation level for the first four ten months of the 2011 to 2012 to 2013 planning period. Congestion revenues are allocated to FTR holders based on FTR target allocations. PJM collected $222.5 705.9 million of FTR revenues during the first four ten months of the 2012 to 2013 planning period, and $799.4 million during the 2011 to 2012 planning period, and $1,430.7 million during the 2010 to 2011 planning period. For the first four ten months of the 2011 to 2012 to 2013 planning period, the top sink and top source with the highest positive FTR target allocations were Northern Illinois Hub AEP without Mon Power and Xxxxxthe Western Hub. Similarly, the top sink and top source with the largest negative FTR target allocations were Quad Cities AEP without Mon Power and KammerXxxxxx. Table 12-10 presents the PJM FTR revenue detail for all of the 2010 to 2011 planning period and the first ten months of the 2011 to 2012 planning period.