Common use of Revenue Adequacy Clause in Contracts

Revenue Adequacy. For the first 10 months of the 2018/2019 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $606.2 million, while PJM collected $905.6 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. The new allocation of surplus congestion revenue provides for revenue adequacy for FTRs first, and any remaining revenues are allocated to ARR holders. For the 2017/2018 planning period, the ARR target allocations were $573.8 million while PJM collected $601.2 million from the combined Annual and Monthly Balance of Planning Period FTR Auctions. • ARRs as an Offset to Congestion. ARRs did not serve as an effective way to return congestion revenues to load. Total ARR and self scheduled FTR revenue offset only 74.5 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2011/2012 planning period through the 2016/2017 planning period, under the previous allocation of balancing congestion. In the 2017/2018 planning period, in which balancing congestion and M2M payments were directly assigned to load, total ARR and self scheduled FTR revenues offset 50.0 percent of total congestion costs. Under the new rules for surplus congestion revenue allocation beginning in the 2018/2019 planning periods, ARRs, self scheduled FTRs and surplus congestion revenue would offset 81.5 percent of total congestion costs. The goal of the FTR market design should be to ensure that load has the rights to 100 percent of the congestion revenues. Financial Transmission Rights

Revenue Adequacy. For the first 10 seven months of the 2018/2019 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $606.2 424.9 million, while PJM collected $905.6 895.2 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. The new allocation of surplus congestion revenue provides for revenue adequacy for FTRs first, and any remaining revenues are allocated to ARR holders. For the 2017/2018 planning period, the ARR target allocations were $573.8 million while PJM collected $601.2 million from the combined Annual and Monthly Balance of Planning Period FTR Auctions. • ARRs as an Offset to Congestion. ARRs did not serve as an effective way to return congestion revenues to load. Total ARR and self scheduled FTR revenue offset only 74.5 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2011/2012 planning period through the 2016/2017 planning period, under the previous allocation of balancing congestion. In the 2017/2018 planning period, in which balancing congestion and M2M payments were directly assigned to load, total ARR and self scheduled FTR revenues offset 50.0 percent of total congestion costs. Under the new rules for surplus congestion revenue allocation beginning in the 2018/2019 planning periods, ARRs, self scheduled FTRs and surplus congestion revenue would offset 81.5 74.2 percent of total congestion costs. The goal of the FTR market design should be to ensure that load has the rights to 100 percent of the congestion revenues. Financial Transmission Rights

Revenue Adequacy. For the first 10 months of the 2018/2019 2017/2018 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $606.2 562.7 million, while PJM collected $905.6 601.2 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. The new allocation of surplus congestion ARRs have historically been fully funded by the revenue provides for collected from the Annual FTR Auction. As a result, ARRs do not receive revenue adequacy for FTRs first, and any remaining revenues are allocated to ARR holderscollected from the long term or monthly auctions. For the 2017/2018 2016/2017 planning period, the ARR target allocations were $573.8 914.2 million while PJM collected $601.2 941.5 million from the combined Annual and Monthly Balance of Planning Period FTR Auctions. • ARRs as an Offset to Congestion. ARRs did not serve as an effective way to return congestion revenues to load. Total ARR and self scheduled FTR revenue offset only 74.5 73.3 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2011/2012 planning period through the 2016/2017 planning period, under the previous allocation of balancing congestion. In the 2017/2018 planning period, in which balancing congestion and M2M payments were directly assigned to load, total ARR and self scheduled FTR revenues offset 50.0 50.7 percent of total congestion costs. Under the new rules for surplus congestion revenue allocation beginning in the 2018/2019 planning periodsallocation, ARRs, ARRs and self scheduled FTRs and surplus congestion revenue would have offset 81.5 76.8 percent of total congestion costs. The goal of the FTR market design should be to ensure that load has the rights to 100 percent of the congestion revenues. Financial Transmission Rights

Revenue Adequacy. For the first 10 months of the 2018/2019 2017/2018 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $606.2 479.2 million, while PJM collected $905.6 623.6 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. The new allocation of surplus congestion ARRs have historically been fully funded by the revenue provides for collected from the Annual FTR Auction. As a result, ARRs do not receive revenue adequacy for FTRs first, and any remaining revenues are allocated to ARR holderscollected from the long term or monthly auctions. For the 2017/2018 2016/2017 planning period, the ARR target allocations were $573.8 914.2 million while PJM collected $601.2 941.5 million from the combined Annual and Monthly Balance of Planning Period FTR Auctions. • ARRs as an Offset to Congestion. ARRs did not serve as an effective way to return congestion revenues to load. Total ARR and self scheduled FTR revenue offset only 74.5 73.3 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2011/2012 planning period through the 2016/2017 planning period, under the previous allocation of balancing congestion. In the first 10 months of the 2017/2018 planning period, in which balancing congestion and M2M payments were directly assigned to load, total ARR and self scheduled FTR revenues offset 50.0 percent of total congestion costs. Under the new rules for surplus congestion revenue allocation beginning in the 2018/2019 planning periods, ARRs, self scheduled FTRs and surplus congestion revenue would offset 81.5 61.6 percent of total congestion costs. The goal of the FTR market design should be to ensure that load has the rights to 100 percent of the congestion revenues. Financial Transmission Rights