Northern States Power Companies (NSP-MN & NSP-WI) Transmission Customer Meeting October 18, 2016 Rate Discussion: Attachment O, GG & MM

Legal Disclosure This document contains certain statements that describe the NSP Companies management’s beliefs concerning future business conditions and prospects, growth opportunities and the outlook for the electric transmission industry based upon information currently available. Such statements are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Wherever possible, NSP Companies has identified these forward-looking statements by words such as “anticipates”, “believes”, “intends”, “estimates”, “expects”, “projects” and similar phrases. These forward-looking statements are based upon assumptions management believes are reasonable. Such forward-looking statements are subject to risks and uncertainties which could cause actual results, performance and achievements to differ materially from those expressed in, or implied by, these statements.

Meeting Purpose / Objective The purpose of today’s meeting: Present the projected Attachment O, GG and MM revenue requirements for the rates that will be effective January 1 through December 31, 2017. These revenue requirements were calculated using the NSP Companies Tariff templates using projected net revenue requirement and projected load. Review the 2017 Attachment O, GG and MM formula rate calculation cost components relative to the 2016 calculations currently in effect. Discuss the recent FERC Opinion 551 setting the ongoing ROE at 10.32%. The dates and schedules, and even the projects themselves, represent our best estimates for projects to be initiated and completed. Please be aware that many factors could alter those schedules, including regulatory approvals, construction resources, availability of materials, weather, and other unforeseen events.

Attachment O, GG & MM Formula Rate for 2017 Originally filed with MISO and posted on OASIS on August 31, 2016 Update information was posted on OASIS on October 13, 2016 MISO review of the Company’s: Attachment O, GG, and MM with 2015 Actual Costs – In Process Attachment O, GG and MM with 2017 Costs – In Process The information currently on OASIS is incorporated in this presentation.

Attachment O Budgeted Rate Effective 1/1/2017 Based upon total Revenue Requirements Submitted to MISO Annual Cost ($/kW/Yr) $ 42.744 Network & P-to-P Rate ($/kW/Mo) $ 3.562 Peak Rate Off-Peak Rate Point-To-Point Rate ($/kW/Wk) $ 0.822 $ 0.822 Point-To-Point Rate ($/kW/Day) $ 0.164 $ 0.117 Point-To-Point Rate ($/MWh) $ 10.275 $ 4.879 This is not the NSP Zone Rate. MISO calculates Zonal Rate.

Comparison of 2017 Revenue Requirement to Attachment O Net Revenue Requirement 2016 $402.4M Cost Drivers in 2017: Decrease in Return Requirement $ (24.9M) Decrease in Operating Costs $ (23.4M) Increase in Annual True-up $ (16.9M) Increase in Revenue Credits $ (1.5M) Decrease in Attachment GG & MM Rev Req $ 19.3M Attachment O Net Revenue Requirement 2017 $355.0M

Comparison of 2017 Revenue Requirement to Attachment O Net Revenue Requirement 2016 $402.4M Cost Drivers in 2017: Decrease in Return Requirement $ (24.9M) Decrease in Operating Costs $ (23.4M) Increase in Annual True-up $ (16.9M) Increase in Revenue Credits $ (1.5M) Decrease in Attachment GG & MM Rev Req $ 19.3M Attachment O Net Revenue Requirement 2017 $355.0M

Annual Revenue Requirement Determination Function of: Rate Base x Weighted Cost of Capital

Change in Rate Base Total Rate Base – 2016 $2,619.5M Net plant in service increase $ 72.8M Decrease in CWIP $ (30.7M) Increase in accumulated deferred taxes $ (47.8M) Decrease in other working capital $ (4.2M) Net decrease in rate base $ (9.9M) Total Rate Base – 2017 $2,609.6M

Change in Cost of Capital Weighted Cost of Capital 2017 2016 D/E Ratio Cost D/E Ratio Cost LTD 48% 2.25% 47% 2.27% Equity 52% 5.66% 53% 6.56% 7.91% 8.83% 2017 ROE = 10.82% ( 10.32% per Opinion 551 + 50 Basis Point RTO Adder)

Reconciliation of Change in Return for 2017 Change in Rate Base $ (9.9M) x 7.91% $ (0.8M) PY Rate base x decrease in WCC $2,619.5M x (0.92%) $ (24.1M) Net change in return $ (24.9M) The decrease in the return is driven by the decrease in WCC for 2017. Actual calculation performed on whole values

Comparison of 2017 Revenue Requirement to Attachment O Net Revenue Requirement 2016 $402.4M Cost Drivers in 2017: Decrease in Return Requirement $ (24.9M) Decrease in Operating Costs $ (23.4M) Increase in Annual True-up $ (16.9M) Increase in Revenue Credits $ (1.5M) Decrease in Attachment GG & MM Rev Req $ 19.3M Attachment O Net Revenue Requirement 2017 $355.0M

Change in Operating Costs Detail Operating costs in 2016 Rate $ 338.5M Decrease in income taxes $(16.8M) Decrease in taxes other than income $ ( 3.1M) Decrease in O&M costs (Transmission and A&G) $ ( 2.3M) Decrease in depreciation $ ( 1.2M) Net decrease in Operating Costs $( 23.4M) Operating costs in 2016 Rate $ 315.1M

Comparison of 2017 Revenue Requirement to Attachment O Net Revenue Requirement 2016 $402.4M Cost Drivers in 2017: Decrease in Return Requirement $ (24.9M) Decrease in Operating Costs $ (23.4M) Increase in Annual True-up $ (16.9M) Increase in Revenue Credits $ (1.5M) Decrease in Attachment GG & MM Rev Req $ 19.3M Attachment O Net Revenue Requirement 2017 $355.0M

True-Up Calculation 2017 2016 Change Prior Year Annual True-up ATRR Component $( 34.5M) $ (13.4M) Divisor Component $ 15.2M $ 9.9M Interest on True-up $ (1.3M) $ (0.2M) Total $( 20.6M) $ (3.7M) $( 16.9M) 2015 Actual 2014 Actual

Comparison of 2017 Revenue Requirement to Attachment O Net Revenue Requirement 2016 $402.4M Cost Drivers in 2017: Decrease in Return Requirement $ (24.9M) Decrease in Operating Costs $ (23.4M) Increase in Annual True-up $ (16.9M) Increase in Revenue Credits $ (1.5M) Decrease in Attachment GG & MM Rev Req $ 19.3M Attachment O Net Revenue Requirement 2017 $355.0M

Change in Net Revenue Credits Revenue Credits Estimated in 2016 Rate $ (9.9M) Higher Projected Transmission Rent $ (0.8M) Higher Projected PTP/Contracts $ (0.7M) Increase in 2017 Revenue Credits $ (1.5M) Revenue Credits Estimated in 2017 Rate $ (11.4M) An increase in Revenue Credits will decrease the Attachment O Revenue Requirements

Comparison of 2017 Revenue Requirement to Attachment O Net Revenue Requirement 2016 $402.4M Cost Drivers in 2017: Decrease in Return Requirement $ (24.9M) Decrease in Operating Costs $ (23.4M) Increase in Annual True-up $ (16.9M) Increase in Revenue Credits $ (1.5M) Decrease in Attachment GG & MM Rev Req $ 19.3M Attachment O Net Revenue Requirement 2017 $355.0M

Attachment GG & MM revenue requirements are deducted from Attachment O Components of Attachment GG & MM Attachment GG Attachment MM Rev Req for 2016 $ 90.8M $ 63.0M Operating expenses (1) $ 10.0M $ 3.6M Depreciation expense $ 11.5M $ 8.6M Taxes other $ 6.5M $ 4.9M Income taxes $ 16.7M $ 12.6M Return $ 34.3M $ 25.8M Rev Req for 2017 (Attachment O Deduct) $ 79.0M $ 55.5M Decrease 2017 versus 2016 $ 11.8M $ 7.5M $ 19.3M Attachment GG & MM revenue requirements are deducted from Attachment O revenue requirements (1) Includes Common & General depreciation calculation

MTEP Projects Included in Attachment GG Calculation The following RECB project costs were included in the Attachment GG: In service Cannon Falls (MTEP 1456) Yankee (Colville) Station (MTEP 1366) Ulik Wind (MTEP 2765) St. Cloud – Sauk River (MTEP 1953) Nobles Gen Station (MTEP 1457) Upgrades for G349 (MTEP 1458) Upgrades for G809 (MTEP 2109) Upgrades for G417 (MTEP 2119) Pleasant Valley-Byron (MTEP 2178) 10. Glenco-West Waconia (MTEP 1285) 11. MN Valley Kerkhoven (MTEP 3312) 12. Kohlman Lake Goose Lake (MTEP 3317) 13. Coudry Osprey (MTEP 3375) 14. Wilmarth Sub (MTEP 3104) 15. CAPX202-Bemidji-Grand Rapids 230Kv line (MTEP 279) 16. CAPX2020-Fargo- St. Cloud 345Kv line (MTEP 286) 17. CAPX2020-Rochester-Lacrosse 345Kv line (MTEP 1024) 18. GIP 826 Crandal (MTEP 9523) CWIP None at this time the Company has authority to include in the formula rate. Total project costs included in Attachment GG : $581.6M

MTEP Projects Included in Attachment MM Calculation The following RECB project costs were included in the Attachment MM: In service CAPX2020-Brookings (MTEP 1203) CWIP None at this time the Company has authority to include in the formula rate Total project costs included in Attachment MM : $438.3M

Total Revenue Requirements Attachment GG & MM 2017 Annual Revenue Requirements $ 79.0M $ 55.5M True-Up Adjustment $ 1.0M $ 5.7M Total 2017 MISO Billings $ 80.0M $ 61.2M Attachment GG Attachment MM

FERC Opinion 551 Opinion 551 adopted a Return on Equity (ROE) rate for MISO Transmission Owners of 10.32%, down from the current ROE of 12.38%. FERC required MISO to implement the ROE by October 28, 2016. Implementation of FERC Opinion 551 will have two components: Implementation of the new ROE rate; Implementing the necessary refunds for the established refund period Refund period is November 12, 2013 through February 11, 2015. At this time MISO is developing the process and methodology for processing refunds.

Principal Rate Analyst Questions? Thank you all for attending today’s meeting Contacts: Carolyn M Wetterlin Sr. RTO Manager 612-330-6599 Thomas E Kramer Principal Rate Analyst 612-330-5866