attachment z2 payment plan and interest...total amount payable $ (4,000,000) payable subtotal -...

Attachment Z2 Payment Plan and Interest

April 7, 2016

Objectives

Describe the two payment plans considered by the Z2 Payment Plan Task Force (Z2 PPTF)

Illustrate the payment plans and the associated interest calculations

Discuss the payment plan recommendation approved by the Z2 PPTF and the Regional Tariff Working Group (RTWG)

Describe and illustrate how interest will be accrued on the Upgrade Sponsors’ creditable balances

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Payment Plan

The Z2 PPTF considered a range of options for billing the amounts necessary to fund credits owed for the historical period before implementation of the Z2 settlement system

After discussion, the Z2 PPTF narrowed the choice down to two options:

1. Level Payment Plan

2. Staggered Billing

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Option 1: Level Payment Plan

Each entity with a net payable would be offered the option to pay the entire amount at one time or pay in equal installments every three months

Each entity opting for installments would pay in Month 1, Month 4, Month 7, and Month 10

Under the current system implementation schedule, Month 1 would be Nov. 2016 and Month 10 would be Aug. 2017

FERC interest rate applies to the outstanding unpaid balances of those paying in installments

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Option 1: Level Payment Plan (continued)

Those opting for full payment would be billed the total amount and would pay that amount in Month 1

No interest would be charged to those making full payment since principal amounts would be paid upfront

Entities with net receivable balances would receive distribution of amounts paid in proportion to their net receivable balances

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Option 2: Staggered Billing

SPP would bill all entities incrementally based upon subsets of the historical period

The incremental settlement statements would be issued every three months until the entire historical period is billed

For example, SPP could charge and credit 2008-2010 amounts in Month 1, 2011-2012 amounts in Month 4, 2013-2014 amounts in Month 7, and 2015-2016 amounts in Month 10

The incremental periods would be selected with the goal of smoothing out the invoiced amounts. However, the amount billed in each period would not be equal to the other periods.

No interest would be included in the amounts charged.

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Logistics Under Either Option

Several weeks before go-live, Staff will provide each entity its net amount payable or receivable for the historical period

– Before actual billing, this historical amount will be adjusted to include the most recent month(s). This will be provided on an informational basis only.

The historical amounts will be invoiced under the payment plan selected and each invoice must be paid in full

For months going forward, the normal monthly billing will start in the same month as the historical settlement

– These normal monthly billings will not be subject to any payment plan

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Z2 Level Payment Plan Illustration

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Initial Balance Receivable (Payable)

Payment Plan Election

Single Payment - Nov. 2016 1st Installment - Nov. 2016

Paid Received Paid Received

Company 1 $ 2,000,000 N/A $ - $ (750,000) $ - $ (316,303)

Company 2 $ (2,500,000) Yes $ - $ - $ 632,607 $ -

Company 3 $ (1,500,000) No $ 1,500,000 $ - $ - $ -

Company 4 $ 2,000,000 N/A $ - $ (750,000) $ - $ (316,303)

Total $ - $ 1,500,000 $ (1,500,000) $ 632,607 $ (632,607)

Total Amount Receivable $ 4,000,000

Total Amount Payable $ (4,000,000)

Payable Subtotal - Single Payment $ (1,500,000) Annual Rate 3.25%

Payable Subtotal - Payment Plan $ (2,500,000) Quarterly Rate 0.8125%

Note: The FERC interest rate applicable to the entire payment plan will be the rate effective in the quarter in which the payment plan starts. This will ensure a stable level of payments and receipts.

Z2 Level Payment Plan (continued)

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Initial Balance Receivable (Payable)

2nd Installment - Feb. 2017 3rd Installment - May 2017 4th Installment - Aug. 2017

Paid Received Paid Received Paid Received

Company 1 $ 2,000,000 $ - $ (316,303) $ - $ (316,303) $ - $ (316,303)

Company 2 $ (2,500,000) $ 632,607 $ - $ 632,607 $ - $ 632,607 $ -

Company 3 $ (1,500,000) $ - $ - $ - $ - $ - $ -

Company 4 $ 2,000,000 $ - $ (316,303) $ - $ (316,303) $ - $ (316,303)

Total $ - $ 632,607 $ (632,607) $ 632,607 $ (632,607) $ 632,607 $ (632,607)

Total Amount Receivable $ 4,000,000

Total Amount Payable $ (4,000,000)

Z2 Level Payment Plan Summary

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Initial Balance Receivable (Payable)

Interest Receivable (Payable)

Single Payment Payment Plan TotalFinal

BalancePaid Received Paid Received

Company 1 $ 2,000,000 $ - $ (750,000) $ - $(1,265,213) $ 15,213 $ (0)

Company 2 $ (2,500,000) $ - $ - $ 2,530,427 $ - $ (30,427) $ 0

Company 3 $ (1,500,000) $ 1,500,000 $ - $ - $ - $ - $ -

Company 4 $ 2,000,000 $ - $ (750,000) $ - $(1,265,213) $ 15,213 $ (0)

Total $ - $ 1,500,000 $ (1,500,000) $ 2,530,427 $(2,530,427) $ - $ -

Total Amount Receivable $ 4,000,000

Total Amount Payable $ (4,000,000)

Interest Calculation in Level Payment Plan

Month 1 = $0

Month 4 = (Initial Balance – Amount Paid Month 1) X (FERC Rate / 4)

Month 7 = (Initial Balance – Amounts Paid Months 1 & 4 +

Interest Accrued in Month 4) X (FERC Rate / 4)

Month 10 = (Initial Balance – Amounts Paid Months 1, 4 & 7 +

Interest Accrued in Months 4 & 7) X (FERC Rate / 4)

These amounts are included in the quarterly payments in a manner similar to a standard amortized loan

The interest is distributed to net receivable entities on a proportional basis

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Staggered Billing Illustration

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Initial Balance Receivable (Payable)

1st Billing - Nov. 2016 2nd Billing - Feb. 2017 3rd Billing - May 2017 4th Billing - Aug. 2017Final

BalancePaid Received Paid Received Paid Received Paid Received

Company 1 $ 2,000,000 $ - $ - $ - $ (500,000) $ - $ (600,000) $ - $ (900,000) $ -

Company 2 $ (2,500,000) $ 800,000 $ - $ 700,000 $ - $ 600,000 $ - $ 400,000 $ - $ -

Company 3 $ (1,500,000) $ - $ - $ 300,000 $ - $ 500,000 $ - $ 700,000 $ - $ -

Company 4 $ 2,000,000 $ - $ (800,000) $ - $ (500,000) $ - $ (500,000) $ - $ (200,000) $ -

Total $ - $ 800,000 $ (800,000) $ 1,000,000 $ (1,000,000) $ 1,100,000 $ (1,100,000) $ 1,100,000 $ (1,100,000) $ -

Total Amount Receivable $ 4,000,000

Total Amount Payable $ (4,000,000)

Option 1: Level Payment Plan – Pros & Cons

Pros

• Flexibility—Does not have to be a one size fits all approach

• Customers that choose to pay the entire amount avoid additional interest

• Equal amounts paid and received each quarter

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Cons

• Administration of multiple options including additional audit controls

• Manual calculation of revenue distribution increases risk of error

• Because invoice amounts are levelized, they can be directly tied to billing detail only in aggregateover entire historical period

Option 2: Staggered Billing – Pros & Cons

Pros

• Flexibility in determining time increments for billing

• Ease of administration for SPP staff

• No new audit controls

• Similar process to production; billing could start immediately upon completing the historical period calculations

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Cons

• One size fits all approach may not be preferred by all

• Net receivers would not be paid interest associated with the balances during the payment plan period

Payment Plan Recommendation

On Feb. 10, 2016, the Z2 PPTF recommended Option 1 as the method to settle amounts for the historical period.

On Feb. 25, 2016, the RTWG approved Option 1. There were 2 opposed (Xcel and WFEC) and 2 abstentions (LES and TPS). The following is the approved motion:

Extend the payment plan across four consecutive quarters and start the invoicing period immediately following the go-live date. The payment plan only pertains to the historical settlements amounts. The first quarterly installment of the Z2 Payment Plan is due the immediate invoice period following go-live. Entities can opt out entirely from any payment plan by notifying SPP of their intention and pay their balance due for the historical period on the first invoice. Interest is to accrue on unpaid balances over the last three quarters of the plan. The billable amounts for Z2 crediting from the ‘current’ month will also be due and billed separately from any payment plan.

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Interest Accrued on Sponsor Balances

Attachment Z2, Section II:

The Directly Assigned Upgrade Costs are recoverable, with interest calculated in accordance with 18 CFR §35.19a(a)(2), from new transmission service using the facility as defined below until the amount owed the Upgrade Sponsor is zero.

Interest application in the Z2 crediting system:

Interest will be added to the creditable balance of each Upgrade Sponsor to the extent that its previous directly assigned costs and accrued interest have not been fully offset by credits.

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Interest Accrued on Sponsor Balances

Interest Accrued Each Month = (Payments by Sponsor to Date

– Credits Received to Date + Interest Accrued Previously)

X Monthly FERC Rate

Monthly FERC Rate = (1 + FERC Rate / 4)1/3 – 1

This accrual increases the Upgrade Sponsor’s recoverable amount, but does not guarantee payment

Payment depends on subsequent transmission service

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INTEREST ACCRUAL ON SPONSOR'S BALANCE

- Sponsorship by Generator Interconnection Customer

Annual Interest Rate

Payment for Upgrades

Interest Accrual Credits ReceivedDate Balance

4/1/2014 3.25% $ 1,000,000 $ - $ - $ 1,000,000

5/1/2014 3.25% $ - $ 2,701 $ - $ 1,002,701

6/1/2014 3.25% $ - $ 2,708 $ - $ 1,005,409

7/1/2014 3.25% $ - $ 2,716 $ - $ 1,008,125

8/1/2014 3.25% $ 1,000,000 $ 2,723 $ - $ 2,010,848

9/1/2014 3.25% $ - $ 5,431 $ - $ 2,016,279

:

:

9/1/2016 3.25% $ - $ 5,795 $ - $ 2,151,126

10/1/2016 3.25% $ - $ 5,810 $ - $ 2,156,936

11/1/2016 3.25% $ - $ 5,826 $ (200,000) $ 1,962,762

12/1/2016 3.25% $ - $ 5,301 $ (20,000) $ 1,948,063

1/1/2017 3.25% $ - $ 5,262 $ (20,000) $ 1,933,325

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INTEREST ACCRUAL ON SPONSOR'S BALANCE

- Sponsorship by Transmission Service Customer

Annual Interest Rate

Payment for Upgrades

Interest Accrual

Credits ReceivedDate Balance

4/1/2014 3.25% $ 10,000 $ - $ - $ 10,000

5/1/2014 3.25% $ 10,000 $ 27 $ - $ 20,027

6/1/2014 3.25% $ 10,000 $ 54 $ - $ 30,081

7/1/2014 3.25% $ 10,000 $ 81 $ - $ 40,162

8/1/2014 3.25% $ 10,000 $ 108 $ - $ 50,271

9/1/2014 3.25% $ 10,000 $ 136 $ - $ 60,407

:

:

9/1/2016 3.25% $ 10,000 $ 814 $ - $ 312,051

10/1/2016 3.25% $ 10,000 $ 843 $ - $ 322,894

11/1/2016 3.25% $ 10,000 $ 872 $(150,000) $ 183,766

12/1/2016 3.25% $ 10,000 $ 496 $ (5,000) $ 189,263

1/1/2017 3.25% $ 10,000 $ 511 $ (5,000) $ 194,774

Questions?

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Attachment Z2 Payment Plan and Interest