Common use of Revenue Adequacy Clause in Contracts

Revenue Adequacy. For the 2016/2017 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $914.2 million, while PJM collected $941.5 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2015/2016 planning period, the ARR target allocations were $931.6 million while PJM collected $968.1 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The year over year decrease in ARR target allocations and auction revenue is a result of decreased prices from the previous planning period resulting from continued reduced allocation of Stage 1B and Stage 2 ARRs. ARR revenue adequacy is also affected by PJM’s clearing of additional counter flow FTRs to alleviate infeasibilities from Stage 1A. • 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 63.8 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2014/2015 planning period. In the 2016/2017 planning period, total ARR and self scheduled FTR revenues offset 98.1 percent of total congestion costs. The total offset for the last six planning periods is

Revenue Adequacy. For the 2016/2017 2016 to 2017 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $914.2 908.9 million, while PJM collected $941.5 926.3 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2015/2016 2015 to 2016 planning period, the ARR target allocations were $931.6 million while PJM collected $968.1 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The year over year decrease in ARR target allocations and auction revenue is a result of decreased prices from the previous planning period resulting from continued reduced allocation of Stage 1B and Stage 2 ARRs. ARR revenue adequacy is also affected by PJM’s clearing of additional counter flow FTRs to alleviate infeasibilities from Stage 1A. • 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 63.8 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2014/2015 2014 to 2015 planning period. In the 2016/2017 first four months of the 2016 to 2017 planning period, total ARR and self scheduled FTR revenues offset 98.1 95.7 percent of total congestion costs. The total offset for the last six planning periods isis 71.4 percent. The goal of the design should be to return 100 percent of the congestion revenues to the load. Financial Transmission Rights

Revenue Adequacy. For the 2016/2017 first four months of the 2017/2018 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $914.2 550.4 million, while PJM collected $941.5 558.4 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2015/2016 2016/2017 planning period, the ARR target allocations were $931.6 914.2 million while PJM collected $968.1 941.5 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The year over year decrease in ARR target allocations and auction revenue is a result of decreased prices from the previous planning period resulting from continued reduced allocation of Stage 1B and Stage 2 ARRs. ARR revenue adequacy is also affected by PJM’s clearing of additional counter flow FTRs to alleviate infeasibilities from Stage 1A. • 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 63.8 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2014/2015 planning period. In the 2016/2017 first four months of the 2017/2018 planning period, which reallocated balancing congestion and M2M payments to load, total ARR and self scheduled FTR revenues offset 98.1 percent of total congestion costs. The total offset for the last six planning periods isoffset

Revenue Adequacy. For the 2016/2017 2016 to 2017 planning period, the ARR target allocations, which are based on the nodal price differences from the Annual FTR Auction, were $914.2 911.4 million, while PJM collected $941.5 935.7 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions, making ARRs revenue adequate. For the 2015/2016 2015 to 2016 planning period, the ARR target allocations were $931.6 million while PJM collected $968.1 million from the combined Long Term, Annual and Monthly Balance of Planning Period FTR Auctions. The year over year decrease in ARR target allocations and auction revenue is a result of decreased prices from the previous planning period resulting from continued reduced allocation of Stage 1B and Stage 2 ARRs. ARR revenue adequacy is also affected by PJM’s clearing of additional counter flow FTRs to alleviate infeasibilities from Stage 1A. • 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 63.8 percent of total congestion costs, which include congestion in the Day-Ahead Energy Market and the balancing energy market, for the 2014/2015 2014 to 2015 planning period. In the 2016/2017 first seven months of the 2016 to 2017 planning period, total ARR and self scheduled FTR revenues offset 98.1 82.3 percent of total congestion costs. The total offset for the last six planning periods isis 70.9 percent. The goal of the design should be to return 100 percent of the congestion revenues to the load. Financial Transmission Rights