Transmission Services Meeting Information

August 22, 2014 Terry Wolf, Manager of Transmission Services

Agenda Meeting Purpose MRES Profile MRES True-up for 2013 MRES member rate information Question/Answer

Meeting Purpose MRES background Regulatory Changes / Timelines MRES specific rate information MRES true-up info on Attachment O/GG/M from 2013. True-up from 2013 along with forecast for 2015 will be incorporated into rates become effective on January 1, 2015. MRES member rate information Benson Municipal Utilities (BMU), Detroit Lakes Public Utilities (DLPU), Hutchinson Utilities Commission (HUC), and Worthington Public Utilities (WPU).

- 61 Members served - Transmission: ~350 miles - Generation: ~744 MW - Renewable: ~86 MW Missouri River Energy Services Rugby Wind Project Fort Peck Dam Garrison Dam ITA Canyon Ferry Dam Big Horn River CapX Fargo Yellowtail Dam CapX Brookings Oahe Dam Watertown Power Plant Irv Simmons Point Beach Nuclear Plant Marshall Wind Project Big Bend Dam Gavin s Point Dam Odin Wind Project Fort Randall Dam Worthington Wind Project Laramie River Station MBPP MRES Member Exira Station MRES Generation Resource Red Rock Hydroelectric Plant Planned MRES Generation Resource Federal Hydroelectric Dam Transmission Projects (MBPP, Irv Simmons, ITA, CapX (Fargo, Brookings)

MRES FERC Background Transmission facilities are owned by Western Minnesota Municipal Power Agency (WMMPA) FERC Declaratory Order (EL08-22, 12/08) combines financial statements for ATRR Attachment O effective 6/1/11 Incentive 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 Issues Complaint against MISO TOs regarding ROE and certain TOs regarding capital structure (ER14-12) Unknown timing and impacts Resolved in 2014?? Complaint against MISO TOs regarding Protocols (Docket EL12-35) Requires changes in timing and info shared

Regulatory / FERC Issues, Procedures and Timing cont. By June 1st Post actual calculations and true-ups based on prior year s Rate Information By 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

2013 True-Up Adjustment Overview Actual $6,313,763 Projected $6,097,661 Difference ($216,102) Net Revenue Requirement (a) Divisor True-Up Divisor 667,836 684,556 16,720 Projected Rate ($/kW/Yr) $8.907 True-Up (Divisor Difference x Projected Rate) ($148,925) (b) Interest (a + b * interest rate) ($1,321) (c) Total 2013 True-Up Adjustment (Under Recovery) ($366,348) (a+b+c)

Total Rate Base 2013 Actual (Monthly Average) 2013 Projected (Monthly Average) $ % Rate Base Item Explanation Change Change Increase primarily due to closeout of portion of Alexandria substation (CapX Fargo Phase 2). Gross Plant in Service $ 76,047,789 $ 71,513,182 $ 4,534,607 6.3% Accumulated Depreciation $ 36,216,713 $ 36,603,167 $ ( 386,454) -1.1% Net Plant in Service $ 39,831,075 $ 34,910,015 $ 4,921,061 14.1% Decrease primarily due to closeout of portion of Alexandria substation (CapX Fargo Phase 2). CWIP $ 43,309,066 $ 47,377,921 $ (4,068,855) -8.6% Working Capital, M&S and Prepayments $ 1,376,421 $ 1,350,564 $ 25,857 1.9% Total Rate Base $ 84,516,563 $ 83,638,500 $ 878,063 1.0% 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 2013 Actual (Monthly Average) Average) 2013 Projected (Monthly $ % Rate Base Item Explanation Change Change The increase is due to the timing of the closeout of a portion of the Alexandria substation (CapX Fargo Phase 2). Gross Plant in Service $ 6,844,335 $ 2,077,329 $ 4,767,006 229.5% Accumulated Depreciation - % $ 85,554 $ - $ 85,554 The increase is due to the timing of the closeout of a portion of the Alexandria substation (CapX Fargo Phase 2). Net Plant in Service $ 6,758,781 $ 2,077,329 $ 4,681,452 225.4% CWIP Projects included in Rate Base $ 43,309,066 $ 47,377,921 $ (4,068,855) -8.6% Working Capital $ - $ - $ - - % Rate Base- Hypothetical Capital Structure $ 50,067,847 $ 49,455,250 $ 612,597 1.2% Net Plant + CWIP + Working Capital Note: The above numbers are transmission only and general and intangible plant allocated to transmission.

Operating Expenses Expense Item 2013 Actual 2013 Projected $ % Explanation Change Change O&M $ 5,326,457 $ 5,133,693 $ 192,764 3.8% Depreciation Expense Increase in Depreciation Expense is due to plant additions. $ 1,182,429 $ 1,026,565 $ 155,864 15.2% Increase in other taxes is due to property taxes on additional transmission plant in service. Taxes Other than Income $ 333,714 $ 304,013 $ 29,701 9.8% Operating Expense $ 6,842,601 $ 6,464,271 $ 379,330 5.9% O&M + Depreciation + Taxes Note: The above numbers are transmission only and A&G expenses, general plant depreciation and taxes allocated to transmission.

Return on Rate Base (Actual Capital Structure) 2013 Actual 2013 Projected $ % Explanation Change Change Lower debt percent is due to issuing less debt than projected and higher than projected margins. Higher equity percent is due to issuing less debt than projected and higher than projected margins. N/A (7%) Long Term Debt 66% 73% N/A 7.0% Proprietary Capital 34% 27% - % N/A Total 100.00% 100.00% N/A Cost of Debt 5.69% 5.48% 0.21% Equity return approved for MISO Transmission Owners. (LTD*Cost of Debt) + (Proprietary Capital * MISO Equity Return) N/A MISO Equity Return 12.38% 12.38% 0.0% N/A Rate of Return 7.99% 7.35% 0.64% Total Rate Base $ 84,516,563 $ 83,638,500 $ 878,063 1.0% From Rate Base Calculation Allowed Return Actual Capital Structure $ 6,748,812 $ 6,144,901 $ 603,911 Increase largely due to higher rate of return. 9.8%

Return on Rate Base (Hypothetical Capital Structure) 2013 Actual 2013 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 5.69% 5.48% See previous slide. MISO Equity Return Rate of Return Hypothetical Capital Structure 12.38% 12.38% 55% * Cost of Debt plus 45% * 12.38% 8.70% 8.58% Rate of Return - Actual Capital Structure 7.99% 7.35% See previous slide. Difference between Hypothetical and Actual Capital Structure 0.715% 1.238% Rate Base - Hypothetical Capital Structure $ 50,067,847 $ 49,455,250 Hypothetical and actual capital structure difference * Hypothetical Capital Structure Rate Base Additional Return Hypothetical Capital Structure $ 357,847 $ 612,157

Revenue Requirements 2013 Actual 2013 Projected $ % Explanation Change Change Increase due to additional investment in CapX transmission plant. Decrease due to smaller difference between actual and hypothetical rate of return. Return - Actual Capital Structure $ 6,748,812 $ 6,144,901 $ 603,911 9.8% Additional Return Hypothetical Capital Structure $ 357,847 $ 612,157 $ (254,310) -41.5% See Operating Expense slide for details. Operating Expense $ 6,842,601 $ 6,464,271 $ 378,330 5.9% Total Revenue Requirement $ 13,949,260 $ 13,221,329 $ 727,931 5.5% Credit for the CapX Fargo Project slightly higher than projected. Credit for the CapX Brookings Project slightly higher than projected. Attachment GG Adjustments $ (5,667,928) $ (5,374,066) $ (293,862) 5.5% Attachment MM Adjustments $ (1,774,477) $ (1,614,449) $ (160,028) 9.9% Attachment O Revenue Requirement Before credits $ 6,506,855 $ 6,232,814 $ 274,041 4.4% Revenue credits slightly higher than projected. Revenue Credits $ 193,092 $ 135,153 $ 57,939 42.9% Net Attachment O Revenue Requirement Revenue Requirement before credits less Revenue Credits $ 6,313,763 $ 6,097,661 $ 216,102 0.2%

2013 MRES Annual Transmission Revenue Requirement Distribution MRES Total ATRR Attachment O, GG, MM $13,756,168 MISO Attachment MM MISO Attachment GG Attachment O CapX Brookings CapX Fargo $6,313,763 $ 1,774,477 $5,667,928 45% 13% 41% Non-MISO MISO IS PRICING ZONE OTP PRICING ZONE $3,387,491 $2,926,271 54% of Att O 46% of Att O 16

MRES member Attachment O Information All standard MISO templates OTP JPZ BMU 2012 financials, 1 yr lag DLPU 2012 financials, 1 yr lag ITC-M JPZ - WPU 2012 financials, 1 yr lag GRE JPZ HUC - 2013 financials MRES is contact for any initial questions

Total Rate Base Rate Base Item BMU DLPU HUC WPU $ 8,791,031 $ 2,940,891 Gross Plant in Service $ 676,121 $ 1,525,464 Accumulated Depreciation $ 81,135 $ 422,703 $ 3,899,362 $ 283,089 Net Plant in Service $ 594,986 $ 1,102,761 $ 4,891,670 $ 2,657,802 Working Capital, M&S and Prepayments $ 6,439 $ 534 $ 71,542 $ 3,161 Total Rate Base $ 601,425 $ 1,103,295 $ 4,963,211 $ 2,660,963

Return on Rate Base BMU DLPU HUC WPU Long Term Debt 54% 13% 2% 3% Proprietary Capital 46% 87% 98% 97% Total 100.00% 100.00% 100.00% 100.00% Cost of Debt 4.29% 6.45% 8.86% 3.66% MISO Equity Return 12.38% 12.38% 12.38% 12.38% Rate of Return 8.03% 11.60% 12.31% 12.11% Total Rate Base $ 601,425 $ 1,103,295 $ 4,963,211 $ 2,660,963 Return $ 48,268 $ 127,994 $ 611,107 $ 322,244

Operating Expenses Expense Item BMU DLPU HUC WPU O&M $ 16,343 $ 4,274 $ 322,040 $ 0 Depreciation Expense $ 20,284 $ 49,956 $ 232,093 $ 63,773 Taxes Other than Income $ 5,492 $ 31,978 $ 119,029 $ 66,811 Operating Expense $ 42,119 $ 86,208 $ 673,162 $ 130,584 Note: The above numbers are transmission only and A&G expenses, general plant depreciation and taxes allocated to transmission.

Revenue Requirements BMU DLPU HUC WPU Return $ 48,268 $ 127,994 $ 611,107 $ 322,244 Operating Expense $ 42,119 $ 86,208 $ 673,162 $ 130,584 Total Revenue Requirement $ 90,386 $ 214,202 $ 1,284,269 $ 452,827 Revenue Credits $ 0 $ 0 $ 33,528 $ 0 Net Attachment O Revenue Requirement $ 90,386 $ 214,202 $ 1,250,741 $ 452,827

Questions If 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 )