The Letters are correctly sized in accordance with PennDOT Publication 111M, Traffic Control Pavement Markings & Signing Standards-TC 8600 & 8700, which uses TC-8700 uses Clearview Lettering which is located on Sheet 8 thru 11.
No, sir, the lettering is
not correctly sized. Here is a picture of the actual sign (click to view at full 1024 x 768 resolution):

If the lettering were correctly sized, the lowercase letters would be larger.
TC-8700 sheets 8 through 11 in Publication 111M (pp. 33-36 in
the PDF file currently available from the PennDOT website) are spacing charts for
intercharacter spacing, which is not at issue here. The intercharacter spacing is correct for the height of lowercase letter that is actually used; it is the height itself that is wrong.
I think the problem here is a misinterpretation of TC-8700C (sheet 1 of 18, p. 26 in the PDF file). It is based on the old days of Series E Modified, when there was just all-uppercase Series E Modified which was dimensioned by capital letter height and a separate Lowercase alphabet which was dimensioned by lowercase loop height. In correctly sized mixed-case Series E Modified/Lowercase legend, the lowercase loop height is always 3/4 the capital letter height. The current version of Series E Modified is now mixed-case, so mixed-case legend in that typeface is now correctly specified by capital letter height
only. This means that if you choose 16" capital letter height, you get lowercase letters at the correct 12" lowercase loop height automatically.
There are two issues with using the old Series E Modified/Lowercase letter sizing rules with Clearview legend. First, none of the Clearview alphabets have a tidy 4:3 ratio between uppercase letter height/lowercase loop height. The ratio is more like 5:4 or 6:5. Second, like the post-2000 Series E Modified, Clearview typefaces include both uppercase and lowercase letters and are correctly specified as to height by uppercase letter height only.
The interchange sequence sign being discussed in this thread would have been correctly designed if the lettering had been specified
only as Clearview 5-W 13.4" capital letter height. The sign design actually calls for 13.4" capital letters paired with lowercase letters that are designed to match the height of 10" capital letters. In other words, the actual lowercase loop height is considerably less than 10"--eyeballing it, I would say about 8".
I would note in addition that other PennDOT districts like Districts 6 and 11 have been sizing Clearview legend by uppercase letter height only, as I have outlined above. This results in signs where the lowercase letters match the uppercase letters and are easy to read. The part of TC-8700C sheet 1 which deals with uppercase and lowercase letters is obsolete and should not be used for legend in Clearview or the current versions of the FHWA alphabet series; the only parts which are still relevant are the ones dealing with composition of fraction rectangles and exit tab legend.