Common use of Revenue Adequacy Clause in Contracts

Revenue Adequacy. For the 2012 to 2013 planning period, the ARR target allocations were $570.5 million while PJM collected $626.7 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2011 to 2012 planning period, the ARR target allocations were $982.9 million while PJM collected $1,091.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs as an offset to 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. For the 2012 to 2013 planning period, the total revenues received by ARR holders, including self-scheduled FTRs, offset 92.6 percent of the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2011 to 2012 planning 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 2010 to 2011 planning period 97.3 percent. Recommendations • Report correct monthly payout ratios to reduce overstatement of underfunding problem on a monthly basis. • Eliminate portfolio netting to eliminate cross subsidies across FTR marketplace participants. • Eliminate subsidies to counter flow FTR holders by treating them comparably to prevailing flow FTR holders when the payout ratio is applied. • Eliminate cross geographic subsidies. • Improve transmission outage modeling in the FTR auction models. • Reduce FTR sales on paths with persistent underfunding including clear rules for what defines persistent underfunding and how the reduction will be applied. • Implement a seasonal ARR and FTR allocation system to better represent outages. • Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process.

Revenue Adequacy. For the 2012 first ten months of the 2013 to 2013 2014 planning period, the ARR target allocations were $570.5 432.7 million while PJM collected $626.7 662.3 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2011 2012 to 2012 2013 planning period, the ARR target allocations were $982.9 587.0 million while PJM collected $1,091.8 653.6 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs served as an effective offset to congestion can be measured by comparing the revenue against congestion. The total revenues received by ARR holders to holders, including self-scheduled FTRs, offset 100 percent of the total congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For market for the first ten months of the 2013 to 2014 planning period and for the 2012 to 2013 planning period, the total revenues received by ARR holders, including self-scheduled FTRs, offset 92.6 percent of the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2011 to 2012 planning 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 2010 to 2011 planning period 97.3 percent. Recommendations • Report correct monthly payout ratios to reduce overstatement of underfunding problem on a monthly basis. • Eliminate portfolio netting to eliminate cross subsidies across FTR marketplace participants. • Eliminate subsidies to counter flow FTR holders by treating them comparably to prevailing flow FTR holders when the payout ratio is applied. • Eliminate cross geographic subsidies. • Improve transmission outage modeling in the FTR auction models. • Reduce FTR sales on paths with persistent underfunding including clear rules for what defines persistent underfunding and how the reduction will be applied. • Implement a seasonal ARR and FTR allocation system to better represent outages. • Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. • 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. • The MMU recommends that PJM not use the ATSI Interface or create similar 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 implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding.

Revenue Adequacy. For the 2012 first four months of the 2013 to 2013 2014 planning period, the ARR target allocations were $570.5 503.4 million while PJM collected $626.7 559.0 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2011 2012 to 2012 2013 planning period, the ARR target allocations were $982.9 565.4 million while PJM collected $1,091.8 614.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequateadequate for that period. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs as an offset to 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. For the 2012 2013 to 2013 2014 planning periodperiod through September 30, 2013, the total revenues received by ARR holders, including self-scheduled FTRs, offset 92.6 85.5 percent of the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2011 2012 to 2012 2013 planning period, the total revenues received by the holders of all ARRs and FTRs offset more than 88.8 92.6 percent of the total congestion costs within PJM and for the 2010 2011 to 2011 2012 planning period 97.3 88.9 percent. Recommendations • Report correct monthly payout ratios to reduce overstatement of underfunding problem on a monthly basis. • Eliminate portfolio netting to eliminate cross subsidies across FTR marketplace participants. • Eliminate subsidies to counter flow FTR holders by treating them comparably to prevailing flow FTR holders when the payout ratio is applied. • Eliminate cross geographic subsidies. • Improve transmission outage modeling in the FTR auction models. • Reduce FTR sales on paths with persistent underfunding including clear rules for what defines persistent underfunding and how the reduction will be applied. • Implement a seasonal ARR and FTR allocation system to better represent outages. • Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. • 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.

Revenue Adequacy. For the 2012 first four months of the 2014 to 2013 2015 planning period, the ARR target allocations allocations, which are based on the nodal price differences from the Annual FTR Auction, were $570.5 732.2 million while PJM collected $626.7 752.9 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2011 2013 to 2012 2014 planning period, the ARR target allocations were $982.9 506.2 million while PJM collected $1,091.8 568.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs served as an effective offset to congestion can be measured by comparing the revenue against congestion. The total revenues received by ARR holders to holders, including self-scheduled FTRs, offset 100 percent of the total congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For market for the 2012 to 2013 planning period, the total revenues received by ARR holders, including self-scheduled FTRs, offset 92.6 percent first four months of the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2011 2014 to 2012 2015 planning 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 period and for the 2010 2013 to 2011 2014 planning period 97.3 percentperiod. Recommendations • Report correct monthly payout ratios to reduce overstatement understatement of underfunding problem payout ratios on a monthly basis. (Priority: Low. First reported 2013.) • Eliminate portfolio netting to eliminate cross subsidies across among FTR marketplace participants. (Priority: High. First reported 2013.) • Eliminate subsidies to counter flow FTR holders FTRs by treating them comparably applying the payout ratio to prevailing counter flow FTR holders when FTRs in the same way the payout ratio is appliedapplied to prevailing flow FTRs. (Priority: High. First reported 2013.) • Eliminate geographic cross geographic subsidies. (Priority: High. First reported 2013.) • Improve transmission outage modeling in the FTR auction models. (Priority: Low. First reported 2013.) • Reduce FTR sales on paths with persistent underfunding overallocation of FTRs including clear rules for what defines persistent underfunding overallocation and how the reduction will be applied. (Priority: High. First reported 2013.) • Implement a seasonal ARR and FTR allocation system to better represent outages. (Priority: Medium. First reported 2013.) • Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. (Priority: High. First reported 2013.) • 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.) • 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.)

Revenue Adequacy. For the 2012 first seven months of the 2013 to 2013 2014 planning period, the ARR target allocations were $570.5 175.0 million while PJM collected $626.7 197.5 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2011 2012 to 2012 2013 planning period, the ARR target allocations were $982.9 587.0 million while PJM collected $1,091.8 653.6 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs served as an effective offset to congestion can be measured by comparing the revenue against congestion. The total revenues received by ARR holders to holders, including self- scheduled FTRs, offset 100 percent of the total congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For market for the first seven months of the 2013 to 2014 planning period and for the 2012 to 2013 planning period, the total revenues received by ARR holders, including self-scheduled FTRs, offset 92.6 percent of the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2011 to 2012 planning 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 2010 to 2011 planning period 97.3 percent. Recommendations • Report correct monthly payout ratios to reduce overstatement of underfunding problem on a monthly basis. • Eliminate portfolio netting to eliminate cross subsidies across FTR marketplace participants. • Eliminate subsidies to counter flow FTR holders by treating them comparably to prevailing flow FTR holders when the payout ratio is applied. • Eliminate cross geographic subsidies. • Improve transmission outage modeling in the FTR auction models. • Reduce FTR sales on paths with persistent underfunding including clear rules for what defines persistent underfunding and how the reduction will be applied. • Implement a seasonal ARR and FTR allocation system to better represent outages. • Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. • 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. • The MMU recommends that PJM not use the ATSI Interface or create similar 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 implemented so as to include them in the FTR Auction model to minimize their impact on FTR funding.

Revenue Adequacy. For the 2012 2013 to 2013 2014 planning period, the ARR target allocations allocations, which are based on the nodal price differences from the Annual FTR Auction, were $570.5 520.0 million while PJM collected $626.7 593.9 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2011 2012 to 2012 2013 planning period, the ARR target allocations were $982.9 587.0 million while PJM collected $1,091.8 653.6 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs served as an effective offset to congestion can be measured by comparing the revenue against congestion. The total revenues received by ARR holders to holders, including self-scheduled FTRs, offset 100 percent of the total congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For market for the 2013 to 2014 planning period and for the 2012 to 2013 planning period, the total revenues received by ARR holders, including self-scheduled FTRs, offset 92.6 percent of the congestion costs experienced by these ARR holders in the Day-Ahead Energy Market and the balancing energy market. For the 2011 to 2012 planning 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 2010 to 2011 planning period 97.3 percent. Recommendations • Report correct monthly payout ratios to reduce overstatement understatement of underfunding problem payout ratios on a monthly basis. • Eliminate portfolio netting to eliminate cross subsidies across among FTR marketplace participants. • Eliminate subsidies to counter flow FTR holders FTRs by treating them comparably applying the payout ratio to prevailing counter flow FTR holders when FTRs in the same way the payout ratio is appliedapplied to prevailing flow FTRs. • Eliminate geographic cross geographic subsidies. • Improve transmission outage modeling in the FTR auction models. • Reduce FTR sales on paths with persistent underfunding overallocation of FTRs including clear rules for what defines persistent underfunding overallocation and how the reduction will be applied. • Implement a seasonal ARR and FTR allocation system to better represent outages. • Eliminate over allocation requirement of ARRs in the Annual ARR Allocation process. • 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. • 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.

Revenue Adequacy. For the 2012 2015 to 2013 2016 planning period, the ARR target allocations allocations, which are based on the nodal price differences from the Annual FTR Auction, were $570.5 million 927.0 million, while PJM collected $626.7 956.2 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2011 2014 to 2012 2015 planning period, the ARR target allocations were $982.9 735.3 million while PJM collected $1,091.8 767.9 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The increase in ARR target allocations and auction revenue, making ARRs 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 adequatehas 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 and FTRs as an Offset to Congestion. The effectiveness of ARRs served as an effective offset to 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 marketagainst congestion. For the 2012 to 2013 planning period, the The total revenues received by ARR holders, including self-scheduled FTRs, offset 92.6 100 percent of the total congestion costs experienced by these ARR holders in across the Day-Ahead Energy Market and the balancing energy market. For market for the 2011 2014 to 2012 2015 planning 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 period and for the 2010 2015 to 2011 2016 planning period 97.3 percentperiod. Individual participants may not have a 100 percent offset. Recommendations • Report The MMU recommends that PJM report correct monthly payout ratios to reduce overstatement understatement of underfunding problem payout ratios on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • Eliminate The MMU recommends that PJM eliminate portfolio netting to eliminate cross subsidies across among FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • Eliminate The MMU recommends that PJM eliminate subsidies to counter flow FTR holders FTRs by treating them comparably applying the payout ratio to prevailing counter flow FTR holders when FTRs in the same way the payout ratio is appliedapplied to prevailing flow FTRs. (Priority: High. First reported 2013. Status: Not adopted.) • Eliminate The MMU recommends that PJM eliminate geographic cross geographic subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • Improve 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.) • Reduce The MMU recommends that PJM reduce FTR sales on paths with persistent underfunding overallocation of FTRs including clear rules for what defines persistent underfunding overallocation and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • Implement 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.) • Eliminate over allocation 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.)

Revenue Adequacy. For the 2012 first seven months of the 2014 to 2013 2015 planning period, the ARR target allocations allocations, which are based on the nodal price differences from the Annual FTR Auction, were $570.5 733.7 million while PJM collected $626.7 761.1 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2011 2013 to 2012 2014 planning period, the ARR target allocations were $982.9 506.2 million while PJM collected $1,091.8 568.8 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. • ARRs and FTRs as an Offset to Congestion. The effectiveness of ARRs served as an effective offset to 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 marketagainst congestion. For the 2012 to 2013 planning period, the The total revenues received by ARR holders, including self-self- scheduled FTRs, offset 92.6 100 percent of the total congestion costs experienced by these ARR holders in across the Day-Ahead Energy Market and the balancing energy market. For market for the 2011 to 2012 planning period, the total revenues received by the holders of all ARRs and FTRs offset more than 88.8 percent first seven months of the total congestion costs within PJM 2014 to 2015 planning period and for the 2010 2013 to 2011 2014 planning period 97.3 percentperiod. Individual participants may not have a 100 percent offset. Recommendations • Report The MMU recommends that PJM report correct monthly payout ratios to reduce overstatement understatement of underfunding problem payout ratios on a monthly basis. (Priority: Low. First reported 2013. Status: Not adopted.) • Eliminate The MMU recommends that PJM eliminate portfolio netting to eliminate cross subsidies across among FTR marketplace participants. (Priority: High. First reported 2013. Status: Not adopted.) • Eliminate The MMU recommends that PJM eliminate subsidies to counter flow FTR holders FTRs by treating them comparably applying the payout ratio to prevailing counter flow FTR holders when FTRs in the same way the payout ratio is appliedapplied to prevailing flow FTRs. (Priority: High. First reported 2013. Status: Not adopted.) • Eliminate The MMU recommends that PJM eliminate geographic cross geographic subsidies. (Priority: High. First reported 2013. Status: Not adopted.) • Improve 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.) • Reduce The MMU recommends that PJM reduce FTR sales on paths with persistent underfunding overallocation of FTRs including clear rules for what defines persistent underfunding overallocation and how the reduction will be applied. (Priority: High. First reported 2013. Status: Adopted partially, 14/15 planning period.) • Implement 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.) • Eliminate over allocation 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.) • 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.)