October 30, 2014

2015 Attachment OCustomer Meeting for

Missouri River Energy Services and Marshall Municipal Utilities

Terry Wolf, Manager of Transmission Services

AgendaMeeting Purpose MRES

Profile Attachment O Calculation Question/Answer

MMUProfileAttachment O CalculationQuestion/Answer

Regulatory Background and Outstanding Issues

Meeting PurposeTo provide an informational forum regarding

the MRES forecasted Attachment O for 2015.

The forecasted Attachment O for 2015 is calculated using the Midwest ISO’s EIA Form 412 Attachment O-MRES template with a projected net revenue requirement and projected load.

Rates become effective on January 1, 2015 for joint pricing zone comprised of Otter Tail Power Company, Great River Energy, and MRES.

Attachment GG, MM effective January 1, 2015.

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: ~239 miles- Generation: ~744

MW- Renewable: ~86

MW

MRES FERC ActivitiesTransmission 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

Forward Looking Attachment OForward Rate Requirements Rate Base Operating Expenses Revenue Requirement and Rate Network Rate Summary

Forward Rate RequirementBy June 1 of each year, MRES will post on OASIS

all information regarding any Attachment O True-up Adjustments for the prior year.2015 Forward Looking Attachment O will be true-up

info will be posted June 2014 from 2013 financials.MRES will post on OASIS its projected Net

Revenue Requirement including the True-Up Adjustment and load for the following year, and associated work papers in September.

MRES will hold a customer meeting to explain its formula rate input projections and cost detail.

Total Rate BaseRate Base Item

2014Projected (Monthly Average)

2015Projected (Monthly Average)

$ Change

% Chang

e Explanation

Gross Plant in Service $ 107,061,023 $ 163,462,421 $ 56,401,398 52.7%

The increase is due mainly to the projected energization of CapX Fargo Phase 3 and a portion of CapX Brookings.

Accumulated Depreciation $ 37,444,201 $ 40,020,878 $ 2,576,677 6.9%

Net Plant in Service $ 69,616,822 $ 123,441,543 $ 53,824,721 77.3%

CWIP $ 45,433,754 $ 12,378,619 $(33,055,135) -72.8%

Working Capital, M&S and

Prepayments $ 1,545,076 $ 1,709,614 $ 164,538 10.6%

Total Rate Base $ 116,595,652 $ 137,529,777 $ 20,934,125 18.0% 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

Projected (Monthly Average)

2015 Projected (Monthly Average)

$ Change

% Change Explanation

Gross Plant in Service $ 35,271,170 $ 87,233,135 $ 51,961,965 147.3%

The increase is due mainly to the projected energization of CapX Fargo Phase 3 and a portion of CapX Brookings.

Accumulated Depreciation $ 493,553 $ 1,925,723 $ 1,432,170 290.2%

Net Plant in Service $ 34,777,617 $ 85,307,412 $ 50,529,795 145.3%

CWIP Projects included in Rate

Base $ 45,433,754 $ 12,378,619 $ (33,055,135) -72.8%

Working Capital $ - $ - $ - - %

Rate Base- Hypothetical

Capital Structure $ 80,211,371 $ 97,686,032 $ 17,474,661 21.8% Net Plant + CWIP + Working Capital

Note: The above numbers are transmission.

Operating Expenses

Expense Item

2014Projected

2015Projected

$ Change

% Change Explanation

O&M $ 5,592,612 $ 5,978,422 $ 385,810 6.9%

Depreciation Expense $ 1,895,223 $ 3,029,955 $ 1,134,732 59.9% Increase in Depreciation Expense is due

to projected plant additions.

Taxes Other than Income $ 496,027 $ 911,077 $ 415,050 83.7%

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

Operating Expense $ 7,983,862 $ 9,919,454 $ 1,935,592 24.2% 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

Projected 2015

Projected $

Change % Change Explanation

Long Term Debt 75% 78% $- 4.00%

Proprietary Capital 25% 22% $- -12.0%

Total 100.00% 100.00% $- - %

Cost of Debt 5.43% 4.88% N/A -10.1% Lower cost of 2014 debt issue

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

Rate of Return 7.18% 6.53% N/A -9.1% (LTD*Cost of Debt) + (Proprietary Capital * MISO Equity Return)

Total Rate Base $ 116,595,652 $137,529,777 $ 32,957,152 18.0% From Rate Base Calculation

Allowed Return –Actual Capital Structure $ 8,373,575 $ 8,979,168 $ 2,228,674 7.2%

Increase largely due to additional transmission investment. See Rate Base slide for additional detail.

Return on Rate Base (Hypothetical Capital Structure)2014

Projected 2015

Projected Comments

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

Total 100.00% 100.00%

Weighted Cost of Debt 5.43% 4.88% See previous slide.

MISO Equity Return 12.38% 12.38%Rate of Return –

Hypothetical Capital Structure 8.56% 8.26% 55% * Cost of Debt plus 45% * 12.38%

Rate of Return - Actual Capital Structure 7.18% 6.53% See previous slide.

Difference between Hypothetical and Actual Capital Structure 1.375% 1.727%

Rate Base - Hypothetical Capital Structure $ 80,211,371 $ 97,686,032

Additional Return – Hypothetical Capital Structure $ 1,102,658 $ 1,687,476

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

Revenue Requirements, Excluding Prior Year True-Up

2014 Projected

2015Projected

$ Change

% Change Explanation

Return - Actual Capital Structure $ 8,373,575 $ 8,979,168 $ 605,593 7.2%

Increase due to additional investment in CapX transmission plant.

Additional Return –Hypothetical Capital Structure $ 1,102,658 $ 1,687,476 $ 584,818 53.0%

Increase due to additional investment in CapX transmission plant.

Operating Expense $ 7,983,862 $ 9,919,454 $ 1,935,592 24.2% See Operating Expense slide for

details.Total Revenue Requirement Before Prior Year True-Up $ 17,460,096 $ 20,586,098 $ 3,126,002 17.9%

Attachment GG Adjustments $ (8,086,829) ($ 9,742,309) $ (1,655,480) -20.5% Projected credit for the CapX Fargo Project.

Attachment MM Adjustments $ (3,129,634) ($ 4,445,882) $ (1,316,248) -42.1% Projected credit for the CapX Brookings Project.

Attachment O Revenue Requirement Before credits $ 6,243,633 $ 6,397,908 $ 154,275 2.5%

Revenue Credits $ 135,153 $ 135,153 $ - 0.0%Revenue credits assumed to remain unchanged from 2014 to 2015.

Net Attachment O Revenue Requirement Before Prior Year

True-Up $ 6,108,480 $ 6,262,755 $ 154,275 2.5% Revenue Requirement before

credits less Revenue Credits

Revenue Requirements, Including Prior Year (2013 Actual) True-Up

2014 Projected

2015Projected

$ Change

% Change

Attachment O Before True-Up $ 6,108,480 $ 6,262,755 $ 154,275 2.5%

Attachment O True-up, Including Interest $ (1,489,607) $ 339,555 $ 1,829,162 -122.8

Attachment O Revenue Requirement Including True-Up $ 4,618,873 $ 6,602,310 $ 1,983,437 42.9%

Attachment GG Before True-Up $ 8,086,829 $ 9,742,309 $ 1,655,480 20.5%

Attachment GG True-up, Including Interest $ (1,368,055) $ 56,044 $ 1,424,099 -104.1%Attachment GG Revenue Requirement Including True-Up $ 6,718,774 $ 9,798,353 $ 3,079.579 45.8%

Attachment MM Before True-Up $ 3,129,634 $ 4,445,882 $ 1,316,248 42.1%

Attachment MM True-up, Including Interest $ (273,057) $ 302,570 $ 575,627 -210.8

Attachment MM Revenue Requirement Including True-Up $ 2,856,577 $ 4,748,452 $ 1,891,875 66.2%

15

MRES Total ATRRAttachment O, GG, MM

$21,149,115

Attachment O $6,602,310

31%

Non-MISOIS PRICING ZONE

$3,338,09151% of Att O

MISOOTP PRICING ZONE

$ 3,264,219 49% of Att O

MISO Attachment GG CapX Fargo$ 9,798,353

46%

MISO Attachment MM CapX Brookings

$ 4,748,45223%

2015 MRES Annual Transmission Revenue Requirement Distribution

Marshall Municipal Utilities

- Located in SW MN- Load ~ 85 MW- Transmission

- ~ 15 miles- 6 HV substations

- Generation: - CT and Wind

Interconnected

MMU FERC ActivitiesTransmission facilities are owned by

Marshall Municipal Utilities Commission (MMU)

MMU is a member of MRESMRES has an agency agreement with

MMU (6th agency agreement in MISO)MRES will be signatory to JPZ in NSP

zoneMISO made FLTY filing on October 21,

2014, asking for effective date of 1/1/15, ER15-142

Forward Looking Attachment OForward Rate Requirements Rate Base Operating Expenses Revenue Requirement and Rate Network Rate Summary

Forward Rate RequirementBy June 1 of each year, MRES will post on

MRES OASIS all information regarding any Attachment O True-up Adjustments for MMU for the prior year.

MRES will post on MRES OASIS projected Net Revenue Requirement including the True-Up Adjustment and load for the following year, and associated work papers in October.

MRES will hold a customer meeting for MMU to explain its formula rate input projections and cost detail.

Total Rate BaseRate Base Item

2014Projected (Monthly Average)

2015Projected (Monthly Average)

$ Change

% Change Explanation

Gross Plant in Service $ 17,071,419

Accumulated Depreciation $ 8,774,764

Net Plant in Service $ 8,296,655

Working Capital, M&S and

Prepayments $ 102,143

Total Rate Base $ 8,398,798

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

Operating Expenses

Expense Item

2014Projected

2015Projected

$ Change

% Change Explanation

O&M $ 558,847

Depreciation Expense $ 557,718

Taxes Other than Income $ 291,577

Operating Expense $ 1,408,143 Sum of prior 3 items

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

Return on Rate Base2014

Projected 2015

Projected $

Change %

Change Explanation

Long Term Debt 33%

Proprietary Capital 67%

Total 100.00%

Cost of Debt 4.09%

MISO Equity Return 12.38% Equity return approved for MISO Transmission Owners.

Rate of Return 9.6% (LTD*Cost of Debt) + (Proprietary Capital * MISO Equity Return)

Total Rate Base $ 8,398,798 From Rate Base Calculation

Return $ 806,637

Revenue Requirements, Excluding Prior Year True-Up

2014 Projected

2015Projected

$ Change

% Change Explanation

Return $ 806,637

Operating Expense $ 1,408,143

Total Revenue Requirement Before Prior Year True-Up $ 2,214,780

Attachment GG Adjustments NA

Attachment MM Adjustments NA

Attachment O Revenue Requirement Before credits $ 2,214,780

Revenue Credits $ 0Assumed zero because no basis to estimate.

Net Attachment O Revenue Requirement Before Prior Year

True-Up$ 2,214,780

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)Required changes in timing and info shared

MMU FERC Filing ER15-142

Regulatory / FERC Issues, Procedures and Timing

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

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

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