August 21, 2015

Missouri River Energy Services and Member Attachment O

Customer Meeting

Terry Wolf, Manager of Transmission Services

AgendaMeeting Purpose MRES Profile MRES True-up for 2014MRES member historical rate informationDoes not include historical info for MMU

Question/Answer

Meeting PurposeMRES background

Regulatory Changes / Timelines

MRES specific rate information MRES true-up info on Attachment O/GG/M from

2014.True-up from 2014 along with forecast for 2016

will be incorporated into rates to be effective on January 1, 2016.

MRES member rate informationALP Utilities (ALP), Benson Municipal Utilities

(BMU), Detroit Lakes Public Utilities (DLPU), Hutchinson Utilities Commission (HUC), and Worthington Public Utilities (WPU).

Missouri River Energy Services

Odin Wind Project

WorthingtonWind Project

Marshall Wind Project

LaramieRiver Station

Exira Station

WatertownPower Plant

Missouri River

Misso

uri R

iver

Misso

uri R

iverYellowstone River

Big Horn RiverCanyon Ferry Dam

Fort Peck Dam

Yellowtail Dam

Garrison Dam

Oahe Dam

Big Bend Dam

Fort Randall Dam

Gavin’s PointDam

Rugby Wind

Project

Point Beach Nuclear Plant

Red Rock Hydroelectric

Plant

MBPP

Irv Simmons

CapX Fargo

CapX Brookings

ITA

MRES Member

MRES Generation Resource

Planned MRES Generation Resource

Federal Hydroelectric Dam Transmission Projects (MBPP, Irv Simmons, ITA, CapX (Fargo, Brookings)

- 61 Members served - Transmission: ~362 miles- Generation: ~744

MW- Renewable: ~86

MW

MRES FERC BackgroundTransmission facilities are owned by Western

Minnesota Municipal Power Agency (WMMPA)FERC Declaratory Order (EL08-22, 12/08)

combines financial statements for ATRRAttachment O effective 6/1/11Incentive filing (EL11-45, 6/11)

CapX; Fargo P2 & P3, and Brookings CWIP, Abandon Plant, Hypothetical cap structure

205 filing (ER12-351, 11/11)FERC Approved ER12-351, and EL 11-45 on

January 20, 2012

Regulatory / FERC IssuesComplaint against MISO TOs regarding ROE and certain TOs regarding capital structure (ER14-12)Unknown timing and impactsResolved in 2015??

Complaint against MISO TOs regarding Protocols (Docket EL12-35)

Regulatory / FERC Issues, Procedures and Timing cont.

By June 1st Post actual calculations and true-ups based on prior year’s Rate

InformationBy September 1st

Meet with Interested Parties to discuss the actual prior year’s Rate information

December 1st Deadline for information requests

By January 10th Must respond to information requests

January 31st Deadline for informal challenges

March 15th Annual Informational filing

March 31st Deadline for formal challenges

True-up of Attachment O / GG / MM

Forward Rate Requirements Rate Base Operating Expenses Revenue Requirement and Rate Network Rate Summary

2014 True-Up Adjustment OverviewActual Projected Difference

Net Revenue Requirement$4,410,970 $4,618,873 ($207,903) (a)

Divisor True-Up

Divisor 688,216 672,094 16,122

Projected Rate ($/kW/Yr) $6.872

True-Up (Divisor Difference x Projected Rate) ($110,796)

(b)

Interest (a + b * interest rate) ($1,740) (c)

Total 2014 True-Up Adjustment (Under Recovery) ($320,439)

(a+b+c)

Total Rate BaseRate Base Item

2014Actual

(Monthly Average)

2014Projected (Monthly Average)

$ Change

% Change Explanation

Gross Plant in Service $86,881,475 $107,061,023 ($20,179,548) -18.8% Both Brookings and Fargo project in-service

dates were delayed.

Accumulated Depreciation $37,013,250 $37,444,201 ($430,951) -1.2%

Net Plant in Service $49,868,225 $69,616,822 ($19,748,597) -28.4%

CWIP $65,630,535 $45,433,754 $20,196,781 44.5% With the delayed in-service dates, additional plant remained in CWIP.

Working Capital, M&S and

Prepayments $1,213,081 $1,545,076 ($331,995) -21.5%

Total Rate Base $116,711,841 $116,595,652 $116,189 0.1% Net Plant + CWIP + Working Capital

Note: The above numbers are transmission only and general and intangible plant allocated to transmission.

Rate Base Earning Hypothetical Capital Structure Return

Rate Base Item 2014

Actual (Monthly Average)

2014 Projected (Monthly Average)

$ Change

% Change Explanation

Gross Plant in Service $16,876,577 $35,271,170 ($18,394,593) -52.2% With the delayed in-service dates,

additional plant remained in CWIP.

Accumulated Depreciation $374,648 $493,553 ($118,905) -24.1%

Net Plant in Service $16,501,929 $34,777,617 ($18,275,688) -52.6%

With the delayed in-service dates, additional plant remained in CWIP.

CWIP Projects included in Rate

Base $65,630,535 $45,433,754 ($20,196,781) -44.5%

Working Capital $ - $ - $ - $ -

Rate Base- Hypothetical

Capital Structure $82,132,464 $80,211,371 $1,921,093 2.4% Net Plant + CWIP + Working Capital

Note: The above numbers are transmission only and general and intangible plant allocated to transmission.

Operating Expenses

Expense Item

2014Actual

2014Projected

$ Change

% Change Explanation

O&M $ 4,949,677 $ 5,592,612 ($642,936) -11.5%

Depreciation Expense $ 2,256,216 $ 1,895,223 $360,993 19.0% Increase in Depreciation Expense is due

to plant additions.

Taxes Other than Income $ 356,997 $ 496,027 ($139,031) -28.0%

Increase in other taxes is due to property taxes on additional transmission plant in service.

Operating Expense $ 7,562,890 $ 7,983,863 ($420,974) -5.3% O&M + Depreciation + Taxes

Note: The above numbers are transmission only andA&G expenses, general plant depreciation and taxes allocated to transmission.

Return on Rate Base (Actual Capital Structure)2014

Actual 2014

Projected $

Change %

Change Explanation

Long Term Debt 73% 75% N/A -2.67%

Proprietary Capital 27% 25% N/A 8.00%Higher equity percent is due to issuing less debt than projected and higher than projected margins.

Total 100.00% 100.00% N/A N/A

Cost of Debt 5.50% 5.43% N/A 1.29%

MISO Equity Return 12.38% 12.38% N/A 0.0% Equity return approved for MISO Transmission Owners.

Rate of Return 7.35% 7.18% N/A 2.37% (LTD*Cost of Debt) + (Proprietary Capital * MISO Equity Return)

Total Rate Base $116,711,841 $116,595,652 $116,189 0.1% From Rate Base Calculation

Allowed Return –Actual Capital Structure $8,576,631 $8,373,575 $203,055 2.4% Increase largely due to higher rate of

return.

Return on Rate Base (Hypothetical Capital Structure)2014

Actual 2014

Projected $

Change%

Change Comments

Long Term Debt 55% 55% NA NA Capital Structure approved in docket EL 11-45-000. Proprietary Capital 45% 45% NA NA

Total 100.00% 100.00% NA NA

Weighted Cost of Debt 5.50% 5.43% NA 1.29% See previous slide.

MISO Equity Return 12.38% 12.38% NA NARate of Return –

Hypothetical Capital Structure

8.60% 8.56% NA -2.67% 55% * Cost of Debt plus 45% * 12.38%

Rate of Return - Actual Capital Structure 7.35% 7.18% NA 2.37% See previous slide.

Difference between Hypothetical and Actual

Capital Structure1.25% 1.38% NA -9.42%

Rate Base - Hypothetical Capital Structure $82,132,464 $80,211,371 $1,921,093 2.4%

Additional Return – Hypothetical Capital

Structure $1,024,778 $1,102,658 ($77,880) -7.06%

Hypothetical and actual capital structure difference * Hypothetical Capital Structure Rate Base

Revenue Requirements2014

Actual2014

Projected$

Change%

Change Explanation Return - Actual Capital

Structure $8,576,631 $8,373,575 $203,055 2.4% Increase largely due to higher rate of return.

Additional Return –Hypothetical Capital Structure $1,024,778 $1,102,658 ($77,880) -7.06%

Operating Expense $7,562,890 $7,983,863 ($420,974) -5.3% O&M + Depreciation + Taxes

Total Revenue Requirement $17,164,298 $17,460,096 ($295,798) -1.69%

Attachment GG Adjustments ($8,033,546) ($8,086,829) $53,283 0.66%Credit for the CapX Fargo Project slightly higher than projected.

Attachment MM Adjustments ($3,409,843) ($3,129,634) ($280,209) -8.95%Credit for the CapX Brookings Project slightly higher than projected.

Attachment O Revenue Requirement Before credits $5,720,909 $6,243,633 ($522,724) -8.37%

Revenue Credits ($269,753) $135,153 ($404,906) -299.59% Adjustment from a prior year estimate caused the variance.

Net Attachment O Revenue Requirement $5,990,662 $6,108,480 $117,818 -1.93%

Revenue Requirement less Revenue Credits, does not include 2012 true-up

16

MRES Total ATRRAttachment O, GG, MM

$17,164,298

Attachment O $5,720,909

33%$4,410,970 (After True-up)

Non-MISO (SPP) IS(UMZ) PRICING ZONE

$2,334,19753% of Att O

MISOOTP PRICING ZONE

$2,076,77347% of Att O

MISO Attachment GG

CapX Fargo$8,033,546

47%

MISO Attachment MM

CapX Brookings$ 3,409,843

20%

2014 MRES Annual Transmission Revenue Requirement Distribution

MRES member Attachment O Information

All standard MISO templatesMRES is MISO TO on behalf of 6 MRES

membersMRES is contact for any initial questionsOTP JPZ

ALP – 2014 financials (first year)BMU – 2013 financials, 1 yr lagDLPU– 2013 financials, 1 yr lag

ITC-M JPZ - WPU– 2013 financials, 1 yr lagGRE JPZ – HUC - 2014 financials

Total Rate Base

Rate Base Item ALP BMU DLPU HUC WPU

Gross Plant in Service $ 2,547,572 $ 676,121 $ 1,542,961 $ 8,872,537

$ 3,150,487

Accumulated Depreciation $ 931,248 $ 101,418 $ 472,271 $ 4,148,959 $ 383,393

Net Plant in Service $ 1,616,324 $ 574,703 $ 1,070,690 $ 4,723,577 $ 2,767,094

Working Capital, M&S and Prepayments $ 9,205 $ 3,903 $ 488 $ 76,698 $ 3,668

Total Rate Base $ 1,625,530 $ 578,605 $ 1,071,178 $ 4,800,275 $ 2,770,762

Return on Rate Base

ALP BMU DLPU HUC WPU

Long Term Debt 13% 54% 12% 2% 2%

Proprietary Capital 87% 46% 88% 98% 98%

Total 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of Debt 4.62% 2.77% 1.38% 4.83% 3.56%

MISO Equity Return 12.38% 12.38% 12.38% 12.38% 12.38%

Rate of Return 11.39% 7.23% 11.01% 12..25% 12.18%

Total Rate Base $ 1,625,530 $ 578,605 $ 1,071,178 $ 4,800,275 $ 2,770,762

Return $ 185,072 $ 41,833 $ 117,958 $ 588,104 $ 337,431

Operating Expenses

Expense Item ALP BMU DLPU HUC WPU

O&M $ 27,170 $ 18,025 $ 3,902 $ 376,352 $ 3,673

Depreciation Expense $ 78,229 $ 20,284 $ 49,894 $ 231,202 $ 99,659

Taxes Other than Income $ 68,710 $ 4,840 $ 31,539 $ 126,582 $ 67,725

Operating Expense $ 174,109 $ 43,148 $ 85,335 $ 734,136 $ 171,057

Note: The above numbers are transmission only and A&G expenses, general plant depreciation and taxes allocated to transmission.

Revenue Requirements

ALP BMU DLPU HUC WPU

Return $ 185,072 $ 41,833 $ 117,958 $ 588,104 $ 337,431

Operating Expense $ 174,109 $ 43,148 $ 85,335 $ 734,136 $ 171,057

Total Revenue Requirement $ 359,181 $ 84,981 $ 203,293 $ 1,322,240 $ 508,488

Revenue Credits $ 52,623 $ 4,057 $ 10,919 $ 22,582 $ 1,995

Net Attachment O Revenue Requirement $ 306,558 $ 80,981 $ 192,374 $ 1,299,658 $ 505,493

QuestionsIf you have any questions after the meeting, please submit via e-mail to Terry Wolf: twolf@mrenergy.com

All questions and answers from this meeting will be distributed by e-mail to all attendees. Additionally, the questions and answers will be posted on the MRES OASIS website along with any follow-up questions received within two weeks from the date of inquiry on the OASIS site.(http://oasis.midwestiso.org/OASIS/MRET )