SPP staff say they still are waiting for an order from FERC before they can begin distributing millions of dollars in compensation to transmission upgrade sponsors from its beleaguered Attachment Z2 process and unwinding billions of dollars in settlements.
The numbers are huge.
The grid operator says it owes about $147 million in refunds, plus an additional $46 million or so in interest to transmission users that made payments under the Z2 process as far back as 18 years ago. It says it also will have to unwind and recalculate more than $20 billion in market settlements dating back to 2015 to resettle that Z2 activity.
Only about 1 to 2% of the latter resettlements are related to the Z2 process, staff told stakeholders during a Jan. 26 virtual meeting.
“This will impact both network and point-to-point activities, so if you’re a transmission customer or transmission owner, you will be impacted, most likely,” said Steve Davis, SPP’s settlements manager. “It’s a large mountain that we’re chiseling away to have a smaller impact.”
That mountain has grown to Everest proportions since 2008, when SPP received FERC’s approval for its tariff attachment that awards credits to sponsors from upgrade sponsors whose service could not be provided “but for” the upgrade. The attachment also required the RTO to invoice the charges monthly and to make any adjustments within one year.
However, software problems delayed Z2’s final implementation for eight years before 2016, during which the RTO did not invoice any upgrade charges. FERC approved a waiver request to settle more than 365 days in arrears, but in 2019, the commission reversed course and said SPP should have settled Z2 activity from only September 2015 forward. (See FERC Reverses Waiver on SPP’s Z2 Obligations.)
SPP General Counsel Paul Suskie has called the Z2 resettlement headache “the most litigated, drawn-out process we’ve ever had.”
The RTO proposed a solution to unwind credit payment obligations assessed under Z2 and made an informational filing at FERC in 2024. In September, the commission ordered the grid operator to make a compliance filing for the proposal. (See FERC Requires Additional Z2 Filing from SPP.)
SPP answered with a filing in November (ER16-1341). It also issued updated refund balances with accrued interest to entities affected by FERC’s remand.
The commission has yet to respond to that filing.
Asked when SPP expects to see the commission’s order, Davis said, “I wish I knew, and that’s probably the best answer we could give. We would love it to be tomorrow, but honestly, I don’t know that we have any indication from FERC.”
SPP’s Charles Locke reminded stakeholders that FERC’s initial order in the proceeding indicated SPP was not to act on the Z2 refunds “until it was specifically authorized to do so by FERC.”
Davis said whenever a favorable order comes, “We plan on hitting the ground running.”
About a month after FERC’s order, SPP will issue final invoices for the refund period. Staff then will complete and deploy an interim Z2 resettlement system and calculate and administer the revised credit payment obligations.
When that process is complete — about eight to 12 months, SPP says — resettlement invoices will be issued for the 2015-2020 operating days. Staff said more than $580 million in Z2 credits have been applied since Sept. 1, 2015; undoing and refunding those historical settlements will require recalculating each operating day since, a process projected to take about two years.
“I keep calling it ‘reshaking of the snow globe,’” Davis said. “We have to recalculate inputs into the Z2 process as if the 2009 period through the September 2015 really never happened.”
Market participants facing big bills will be able to take advantage of a five-year payment plan, using FERC’s interest rate. The commission’s rate for the first quarter of 2026 is 7.20%.
At some point, SPP will transition to the current settlement system for production invoices. Additional resettlements will be run on that system monthly, with staff expecting to resettle three historical operating months each month. They expect to be in sync with normal monthly settlements in 2031.
Ironically, SPP no longer uses the Z2 process. Stakeholders recommended, and the grid operator approved, eliminating Z2 credits in 2020 and replaced them with incremental long-term congestion rights (ILTCRs) for new upgrades. The ILTCRs will limit total compensation to each upgrade’s directly assigned upgrade costs and interest.
