August 22, 2014

Missouri River Energy Services and Member Attachment O

Customer Meeting

Terry Wolf, Manager of Transmission Services

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

Meeting PurposeMRES 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 informationBenson 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: ~350 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 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

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

2013 True-Up Adjustment OverviewActual Projected Difference

Net Revenue Requirement$6,313,763 $6,097,661 ($216,102) (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 BaseRate Base Item

2013Actual

(Monthly Average)

2013Projected (Monthly Average)

$ Change

% Change Explanation

Gross Plant in Service $ 76,047,789 $ 71,513,182 $ 4,534,607 6.3%

Increase primarily due to closeout of portion of Alexandria substation (CapX Fargo Phase 2).

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%

CWIP $ 43,309,066 $ 47,377,921 $ (4,068,855) -8.6%Decrease primarily due to closeout of portion of Alexandria substation (CapX Fargo Phase 2).

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

Rate Base Item 2013

Actual (Monthly Average)

2013 Projected (Monthly Average)

$ Change

% Change Explanation

Gross Plant in Service $ 6,844,335 $ 2,077,329 $ 4,767,006 229.5%

The increase is due to the timing of the closeout of a portion of the Alexandria substation (CapX Fargo Phase 2).

Accumulated Depreciation $ 85,554 $ - $ 85,554 - %

Net Plant in Service $ 6,758,781 $ 2,077,329 $ 4,681,452 225.4%

The increase is due to the timing of the closeout of a portion of the Alexandria substation (CapX Fargo Phase 2).

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

2013Actual

2013Projected

$ Change

% Change Explanation

O&M $ 5,326,457 $ 5,133,693 $ 192,764 3.8%

Depreciation Expense $ 1,182,429 $ 1,026,565 $ 155,864 15.2% Increase in Depreciation Expense is due

to plant additions.

Taxes Other than Income $ 333,714 $ 304,013 $ 29,701 9.8%

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

Operating Expense $ 6,842,601 $ 6,464,271 $ 379,330 5.9% 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)2013

Actual 2013

Projected $

Change %

Change Explanation

Long Term Debt 66% 73% N/A (7%)Lower debt percent is due to issuing less debt than projected and higher than projected margins.

Proprietary Capital 34% 27% N/A 7.0%Higher equity percent is due to issuing less debt than projected and higher than projected margins.

Total 100.00% 100.00% N/A - %

Cost of Debt 5.69% 5.48% N/A 0.21%

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

Rate of Return 7.99% 7.35% N/A 0.64% (LTD*Cost of Debt) + (Proprietary Capital * MISO Equity Return)

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 9.8% Increase largely due to higher rate of

return.

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 12.38% 12.38%Rate of Return –

Hypothetical Capital Structure 8.70% 8.58% 55% * Cost of Debt plus 45% * 12.38%

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

Additional Return – Hypothetical Capital Structure $ 357,847 $ 612,157

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

Revenue Requirements2013

Actual 2013

Projected $

Change %

Change Explanation

Return - Actual Capital Structure $ 6,748,812 $ 6,144,901 $ 603,911 9.8%

Increase due to additional investment in CapX transmission plant.

Additional Return –Hypothetical Capital Structure $ 357,847 $ 612,157 $ (254,310) -41.5%

Decrease due to smaller difference between actual and hypothetical rate of return.

Operating Expense $ 6,842,601 $ 6,464,271 $ 378,330 5.9% See Operating Expense slide for

details.

Total Revenue Requirement $ 13,949,260 $ 13,221,329 $ 727,931 5.5%

Attachment GG Adjustments $ (5,667,928) $ (5,374,066) $ (293,862) 5.5%Credit for the CapX Fargo Project slightly higher than projected.

Attachment MM Adjustments $ (1,774,477) $ (1,614,449) $ (160,028) 9.9%Credit for the CapX Brookings Project slightly higher than projected.

Attachment O Revenue Requirement Before credits $ 6,506,855 $ 6,232,814 $ 274,041 4.4%

Revenue Credits $ 193,092 $ 135,153 $ 57,939 42.9% Revenue credits slightly higher than projected.

Net Attachment O Revenue Requirement $ 6,313,763 $ 6,097,661 $ 216,102 0.2% Revenue Requirement before

credits less Revenue Credits

16

MRES Total ATRRAttachment O, GG, MM

$13,756,168

Attachment O $6,313,763

45%

Non-MISOIS PRICING ZONE

$3,387,49154% of Att O

MISOOTP PRICING ZONE

$2,926,271 46% of Att O

MISO Attachment GG CapX Fargo$5,667,928

41%

MISO Attachment MM CapX Brookings

$ 1,774,47713%

2013 MRES Annual Transmission Revenue Requirement Distribution

MRES member Attachment O Information

All standard MISO templatesOTP JPZ

BMU – 2012 financials, 1 yr lagDLPU– 2012 financials, 1 yr lag

ITC-M JPZ - WPU– 2012 financials, 1 yr lag

GRE JPZ – HUC - 2013 financialsMRES is contact for any initial questions

Total Rate Base

Rate Base Item BMU DLPU HUC WPU

Gross Plant in Service $ 676,121 $ 1,525,464 $ 8,791,031 $ 2,940,891

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

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 )