SPPs Requirements and Use of Audited Financials

July 18, 2013

Scott Smithssmith@spp.org · 501.614.3339

Issue Related to Financial Statements:

• SPP has traditionally interpreted the Credit Policy such that only Annual Financial Statements prepared in U.S. GAAP are used for analysis

• Prior to the Integrated Marketplace registration deadline (June 2013) SPP had not received many foreign prepared statements for consideration

• For Financial Only Registration (June 2013), SPP received Canadian GAAP and International Financial Reporting Standards (IFRS) prepared financials

2

Financial Statement Used For:

• Determination of Minimum Criteria for Market Participation Total Asset and Tangible Net Worth minimums

• Assessment of creditworthiness and unsecured allowance amount Financial ratios

Tangible Net Worth

Notes to financial statements ( for both qualitative and quantitative information)

3

SPP Financial Statement Requirements:

• Section 3.1 – Minimum Criteria for Market Participation 3.1.1.1 – Audited Financial Statements & Related Info

• “All annual Financial Statements submitted must be audited”

• Entities with SEC reporting requirements: 3 years of 10-K, current years 10-Q, 8-K (material changes)

• Entities without SEC requirements: 3 years of Report of Independent Accountants , audited statements (IS, BS, CF, SE), notes to financial statements, managements discussion, quarterlies can be unaudited

• Not-For-Profit entities may have alternate requirements specified by SPP

4

SPP Financial Statement Requirements:

• Appendix “D” – Guarantee Agreement Guarantor must meet Credit Policy requirements

Section 14(e) – requires audited financial statements: “in conformity with United States generally accepted accounting principles”

• Section 4.2 – Composite Credit Score “SPP will apply all measures used to determine Composite

Credit Scores in a consistent manner”

5

Other RTO Polices and Practices:• MISO

Financial statements must be audited; also silent on preparation

Allows both Non-Foreign (US & Canada) and Foreign Guarantee agreements (with significant provisions)

Foreign Guarantor must provide audited financials in US GAAP, Canadian GAAP, or IFRS

• PJM Similar to MISO approach: “GAAP format or other format

acceptable to PJMSettlement”

6

CPWG Considerations:

• Should SPP consider non-U.S. GAAP audited financials for purposes of: Minimum Criteria for Market Participation

Establishment of Unsecured Credit Allowance

• Should SPP create a separate Guarantee Agreement Template and associated tariff language for foreign entities?

7