Equity-Indexed Compensation Plans

PAA Long-Term Incentive Plan Awards

Our LTIP awards include both liability-classified and equity-classified awards. In accordance with FASB guidance regarding share-based payments, the fair value of liability-classified LTIP awards is calculated based on the closing market price of the underlying PAA unit at each balance sheet date and adjusted for the present value of any distributions that are estimated to occur on the underlying units over the vesting period that will not be received by the award recipients. The fair value of equity-classified LTIP awards is calculated based on the closing market price of the underlying PAA unit on the respective grant dates and adjusted for the present value of any distributions that are estimated to occur on the underlying units over the vesting period that will not be received by the award recipient. This fair value is recognized as compensation expense over the service period.

Certain LTIP awards contain performance conditions based on the attainment of certain annualized distribution levels and vest upon the later of a certain date or the attainment of such levels. For awards with performance conditions (such as distribution targets), expense is accrued over the service period only if the performance condition is considered probable of occurring. When awards with performance conditions that were previously considered improbable become probable, we incur additional expense in the period that the probability assessment changes. This is necessary to bring the accrued obligation associated with these awards up to the level it would be if we had been accruing for these awards since the grant date.

The following is a summary of the awards authorized under our LTIPs as of December 31, 2017 (in millions):



LTIP		PAA LTIP Awards Authorized
Plains All American 2013 Long-Term Incentive Plan		13.1
Plains All American PNG Successor Long-Term Incentive Plan		1.3
Plains All American GP LLC 2006 Long-Term Incentive Tracking Unit Plan		10.8
Total		25.2

Although other types of awards are contemplated under certain of the LTIPs, currently outstanding awards are limited to “phantom units,” which mature into the right to receive common units of PAA (or cash equivalent) upon vesting, and “tracking units,” which, upon vesting, represent the right to receive a cash payment in an amount based upon the market value of a PAA common unit at the time of vesting. Some awards also include DERs, which, subject to applicable vesting criteria, entitle the grantee to a cash payment equal to the cash distribution paid on an outstanding PAA common unit. The DERs terminate with the vesting or forfeiture of the underlying LTIP award.

As of December 31, 2017, 7.3 million LTIP awards were outstanding. Of this amount, 2.6 million include DERs. The outstanding and probable LTIP awards are expected to vest at various dates between January 1, 2018 and December 31, 2022.

Our accrued liability at December 31, 2017 related to all outstanding liability-classified LTIP awards and DERs was $27 million, of which $15 million was classified as short-term and $12 million was classified as long-term. These short- and long-term accrued LTIP liabilities are reflected in “Accounts payable and accrued liabilities” and “Other long-term liabilities and deferred credits,” respectively, on our Consolidated Balance Sheets. At December 31, 2016, the accrued liability was $38 million, of which $25 million was classified as short-term and $13 million was classified as long-term.

Activity for LTIP awards under our equity-indexed compensation plans denominated in PAA units is summarized in the following table (units in millions):



	PAA Units ⁽¹⁾
	Units		Weighted Average Grant Date Fair Value per Unit
Outstanding at December 31, 2014	7.3		$	41.45
Granted	2.1		$	28.76
Vested	(2.1	)	$	28.91
Cancelled or forfeited	(0.4	)	$	44.56
Outstanding at December 31, 2015	6.9		$	41.23
Granted	4.5		$	23.38
Vested	(1.9	)	$	45.91
Modified	—		$	(8.21	)
Cancelled or forfeited	(0.6	)	$	37.19
Outstanding at December 31, 2016	8.9		$	29.62
Granted	0.9		$	23.52
Vested	(1.7	)	$	42.12
Modified	—		$	(6.04	)
Cancelled or forfeited	(0.8	)	$	26.99
Outstanding at December 31, 2017	7.3		$	24.68

⁽¹⁾

Approximately 0.6 million, 0.5 million and 0.5 million PAA common units were issued, net of tax withholding of approximately 0.2 million, 0.3 million and 0.3 million units during 2017, 2016 and 2015, respectively, in connection with the settlement of vested awards. The remaining PAA awards (approximately 0.9 million, 1.1 million and 1.3 million units) that vested during 2017, 2016 and 2015, respectively, were settled in cash.

AAP Management Units

In August 2007, the owners of AAP authorized the issuance of AAP Management Units (a profits interest) to provide additional long-term incentives and encourage retention for certain members of our senior management. This plan has been discontinued and there will be no new grants of AAP Management Units; however, as of December 31, 2017, 0.8 million outstanding AAP Management Units were unearned. These AAP Management Units will become earned based on the attainment of certain PAA distribution levels and additional performance conditions based on distributable cash flow measures determined by management. Once earned, we will issue to AAP approximately 0.941 common units for each AAP Management Unit, and each AAP Management Unit will be entitled to a distribution equal to approximately 94.1% of the distribution paid by AAP to an AAP unit on a quarterly basis. Once vested, each AAP Management Unit holder is entitled to convert his or her AAP Management Units into AAP units and a like number of PAGP Class B shares based on a conversion ratio of approximately 0.941 AAP units and Class B shares for each AAP Management Unit.

Equity-Indexed Compensation Plan Information

We refer to all of the LTIPs and AAP Management Units collectively as our “equity-indexed compensation plans.” The table below summarizes the expense recognized and the value of vested LTIP awards (settled both in common units and cash) under our equity-indexed compensation plans and includes both liability-classified and equity-classified awards (in millions):



	Year Ended December 31,
	2017		2016		2015
Equity-indexed compensation expense	$	41	$	60	$	27
LTIP unit-settled vestings	$	16	$	24	$	37
LTIP cash-settled vestings	$	25	$	28	$	66

Based on the December 31, 2017 fair value measurement and probability assessment regarding future distributions, we expect to recognize $75 million of additional expense over the life of our outstanding awards related to the remaining unrecognized fair value. Actual amounts may differ materially as a result of a change in the market price of our units and/or probability assessments regarding future distributions. We estimate that the remaining fair value will be recognized in expense as shown below (in millions):



Year	Equity-Indexed Compensation Plan Fair Value Amortization ⁽¹⁾
2018	$	42
2019	21
2020	9
2021	2
2022	1
Total	$	75


⁽¹⁾	Amounts do not include fair value associated with awards containing performance conditions that are not considered to be probable of occurring at December 31, 2017.