1. SPPs Requirements and Use of Audited Financials July 18, 2013 Scott Smith ssmith@spp.org · 501.614.3339

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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