2015 Attachment O True-up Customer Meeting July 29, 2016

AGENDA Meeting Purpose Otter Tail Power Company Profile Attachment O Calculation 2015 Transmission Projects Question/Answer

MEETING PURPOSE To provide an informational forum regarding Otter Tail’s 2015 Attachment O for True-up. The 2015 Actual Year Attachment O is calculated via the FERC Form 1 Attachment O template under the MISO Tariff utilizing actual data as reported in Otter Tail’s 2015 FERC Form 1 Any True-up for 2015 will be included in the 2017 FLTY Attachment O Calculation for rates effective January 1, 2017 for the joint pricing zone comprised of the following transmission owners: Otter Tail, Great River Energy, Missouri River Energy Services, Benson Municipal Utilities, Detroit Lakes Public Utilities and Alexandria Light & Power.

Otter Tail Power Company Profile

Service area NORTH DAKOTA SOUTH DAKOTA 70,000 Square miles 131,149 Customers 421 Communities Avg. population about 458 770 Employees 445 Minnesota 210 North Dakota 115 South Dakota About 800 MW owned generation About 245 MW wind generation About 5,300 miles of transmission lines Service area LANGDON WIND ENERGY CENTER Rugby Devils Lake Crookston Garrison SOLWAY COMBUSTION TURBINE Bemidji COYOTE STATION LUVERNE WIND FARM ASHTABULA WIND ENERGY CENTER Jamestown ASHTABULA III JAMESTOWN COMBUSTION TURBINE NORTH DAKOTA Fergus Falls Wahpeton HOOT LAKE PLANT Oakes SOUTH DAKOTA Morris BIG STONE PLANT Milbank LEGEND Headquarters Customer service center LAKE PRESTON COMBUSTION TURBINE

Our mission To produce and deliver electricity as reliably, economically, and environmentally responsibly as possible to the balanced benefit of customers, shareholders, and employees and to improve the quality of life in the areas in which we do business.

Our Vision Growth and success—for our company and the rural communities we serve. We collaborate and prosper through responsible, resourceful action. We balance community, economic, and environmental commitments. Always.

Our VALUES INTEGRITY We conduct business responsibly and honestly. SAFETY We provide safe workplaces and require safe work practices. CUSTOMER FOCUS We provide reliable electricity and timely, courteous customer service. COMMUNITY We care about the people and places we serve and improve the quality of life in the areas in which we do business. RESOURCEFULNESS We draw on the ingenuity and expertise of various resources to create strategic, balanced, practical plans.

Attachment O Calculation

2015 ACTUAL YEAR ATTACHMENT O Actual Year Rate Requirements Rate Base Operating Expenses Revenue Requirement and Rate Network Rate Summary

by November 1 of each year. RATE REQUIREMENTS Actual By June 1 of each year, Otter Tail will post on OASIS all information regarding any Attachment O True-up Adjustments for the prior year. By September 1 of each year, Otter Tail will hold a customer meeting to explain its Actual Year True-up Calculation. Ex., 2016 Forward Looking Attachment O will be trued-up by June 1, 2017 with a corresponding Customer Meeting to be held by September 1, 2017. Forward Looking By September 1 of each year, Otter Tail will post on OASIS its projected Net Revenue Requirement, including the True-Up Adjustment and load for the upcoming year, and associated work papers. A customer meeting will be held by October 31 of each year to explain its forward looking formula rate input projections and cost detail. The MISO Transmission Owners will hold a Regional Cost Sharing stakeholder meeting by November 1 of each year.

RATE BASE Note: The above numbers are Transmission only Rate Base Item 2015 Actual Projected $ Change % Change Explanation Gross Plant in Service $381,519,700 $386,778,026 $(5,258,326) (1.4%) The decrease in Plant in Service from Projected to Actual was due to timing of in-service dates and lower capitalized project costs than expected. Accumulated Depreciation $111,888,154 $112,631,484 $(743,330) (0.7%) Net result of Annual Depreciation Expense combined with projected retirements. Net Plant in Service $269,631,545 $274,146,542 $(4,514,997) (1.6%) = Gross Plant - A/D Adjustments to Rate Base $(67,323,696) $(62,362,196) ($4,961,500) 8.0% ADIT - Book vs Tax Depreciation Timing Differences originating due to accelerated tax depreciation methods for Transmission projects going into service. CWIP for CON Projects $34,072,148 $40,886,235 $(6,814,087) (16.7%) Decrease was mainly due to the Fargo Phase III CAPX 2020 project going into service earlier than anticipated and lower spend versus forecast on other projects. Land Held for Future Use $9,037 $9,038 $(1) 0.0% Working Capital $6,722,903 $5,894,170 $828,733 14.1% Increase in CWC due to slight increases in inventory and direct Transmission and A&G-related O&Ms. Rate Base $243,111,938 $258,573,789 $(15,461,851) (6.0%) = Net Plant + Adj + CWIP + Land + Working Capital Note: The above numbers are Transmission only

Taxes Other than Income OPERATING EXPENSES Expense Item 2015 Actual Projected $ Change % Change Explanation O&M $14,723,450 $14,024,094 $699,356 5.0% Most of the increase is in transmission related regulatory expenses along with slight increases in A&G related expenses. Depreciation Expense $7,050,278 $7,140,892 $(90,614) (1.3%) Decrease in depreciation expense coincides with the reduction of Plant in Service reported on the previous slide. Taxes Other than Income $3,238,017 $3,133,563 $104,454 3.3% Property Tax increases. Income Taxes $9,220,579 $9,822,603 $(602,024) (6.1%) Higher ETR in the 2015 actual vs the FLTY filing increased the tax calculation slightly. This is somewhat offset by a Decrease in Rate Base = Decrease in Return = Decrease in Income Tax Expense. Operating Expense $34,232,325 $34,121,153 $111,172 0.3% = O&M + A&G + Depreciation + Taxes Note: The above numbers are Transmission only

REVENUE REQUIREMENT AND RATE   2015 Actual Projected $ Change % Change Explanation Long Term Debt 48.07% 48.35% (0.28%) Tracking close to forecast. Common Stock 51.93% 51.65% 0.28% Total 100.00% = Debt + Equity Weighted Cost of Debt 5.38% 5.54% (0.17%) Cost of Common Stock 12.38% 0.00% Unchanged Rate of Return 9.01% 9.08% (0.06%) = (LTD*Cost)+(Preferred Stock*Cost)+(Common Stock*Cost) Rate Base $243,111,937 $258,573,789 $(15,461,852) (5.98%) From "Rate Base" Calculation Allowed Return $21,914,041 $23,465,923 $(1,551,882) (6.61%) = Rate of Return * Rate Base Operating Expenses $34,232,324 $34,121,152 $111,172 0.33% From "Operating Expense" Calculation (Less) Attachment GG Adjustments $17,916,401 $18,208,328 $(291,927) (1.60%) The reduction in revenue requirements is mainly due to less spend on Fargo CAPX than originally projected and a lower rate of return as calculated above. (Less) Attachment MM Adjustments $6,429,239 $6,603,848 ($174,609) (2.64%) The reduction in revenue requirements is mainly due to less capital spend on the BSAT projects as well as a lower Rate of Return as calculated above. Gross Revenue Requirement $31,800,726 $32,774,901 $(974,174) (2.97%) = Return + Expenses - Adjustments Revenue Credits $5,629,352 $6,283,694 $(654,342) (10.41%) The reduction is mainly due to less MISO Schedule 26 and 26A credits than forecasted. Prior Year True-up (Including Interest) $(1,181,325) - N/A Net Revenue Requirement $24,990,048 $25,309,881 (319,832) (1.26%) = Gross Revenue Requirement - Revenue Credits + True-up

2015 Attachment O True-up Calculation Actual Projected $ Change % Change Explanation ATRR True-up $(319,832)  From “Net Revenue Requirement” line on previous slide. Divisor (kW) 730,451 704,967 (25,484) (3.61%) Projected Cost ($/kW/Yr) $35.90 From 2015 FLTY Attachment O Template Divisor True-up $(914,933) = Divisor x Projected Cost ($/kW/Yr) Total Principal True-up $(1,234,766) = ATRR + Divisor True-up Amounts Interest on True-up $(81,728) = Avg. Monthly FERC Interest Rate on Refunds x Principal True-up Total Principal and Interest True-up $(1,316,494) To be Applied to 2017 FLTY Attachment O Calculation

RATE SUMMARY Z

TOTAL TRANSMISSION REVENUE REQUIREMENT BREAKDOWN Total Rev. Req. = $49,335,688 Net Attch. O ATRR = $24,990,048 Attch. GG Rev. Req. = $17,916,401 Attch. MM Rev. Req. = $6,429,239

2015 transmission Projects

ATTACHMENT O CAPITAL PROJECTS: TRANSMISSION LINE PROJECTS > $200K

ATTACHMENTS GG AND MM CAPITAL PROJECTS: TRANSMISSION LINE PROJECTS > $200K

Manager – Regulatory Administration QUESTIONS? If you have any additional questions after the meeting, please submit via e-mail to: Stuart Tommerdahl Manager – Regulatory Administration stommerdahl@otpco.com All questions and answers will be distributed by e-mail to all attendees. Additionally, the questions and answers will be posted on Otter Tail’s OASIS website (http://www.oasis.oati.com/OTP/index.html) within two weeks from the date of inquiry.