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 True-up from 2013 along with forecast for 2015 will be incorporated into rates become effective on January 1, MRES member rate information Benson Municipal Utilities (BMU), Detroit Lakes Public Utilities (DLPU), Hutchinson Utilities Commission (HUC), and Worthington Public Utilities (WPU).

Missouri River Energy Services 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 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 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 ProjectedDifference Net Revenue Requirement$6,313,763 $6,097,661($216,102)(a) Divisor True-Up Divisor667,836684,55616,720 Projected Rate ($/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 Rate Base Item 2013 Actual (Monthly Average) 2013 Projected (Monthly Average) $ Change % Change Explanation Gross Plant in Service $ 76,047,789 $ 71,513,182 $ 4,534,6076.3% 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, % 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 $ 25,8571.9% Total Rate Base $ 84,516,563 $ 83,638,500 $ 878,0631.0%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, % 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, % 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 $ 612,5971.2%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 $ Change % Change Explanation O&M $ 5,326,457 $ 5,133,693 $ 192,7643.8% Depreciation Expense $ 1,182,429 $ 1,026,565 $ 155, % Increase in Depreciation Expense is due to plant additions. Taxes Other than Income $ 333,714 $ 304,013 $ 29,7019.8% Increase in other taxes is due to property taxes on additional transmission plant in service. Operating Expense $ 6,842,601 $ 6,464,271 $ 379,3305.9%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 $ Change % Change Explanation Long Term Debt66%73% N/A(7%) Lower debt percent is due to issuing less debt than projected and higher than projected margins. Proprietary Capital34%27% N/A7.0% Higher equity percent is due to issuing less debt than projected and higher than projected margins. Total100.00% N/A - % Cost of Debt5.69%5.48% N/A 0.21% MISO Equity Return12.38% N/A 0.0% Equity return approved for MISO Transmission Owners. Rate of Return7.99%7.35% N/A 0.64% (LTD*Cost of Debt) + (Proprietary Capital * MISO Equity Return) Total Rate Base$ 84,516,563 $ 83,638,500 $ 878,0631.0%From Rate Base Calculation Allowed Return – Actual Capital Structure $ 6,748,812 $ 6,144,901 $ 603,9119.8% Increase largely due to higher rate of return.

Return on Rate Base (Hypothetical Capital Structure) 2013 Actual 2013 Projected Comments Long Term Debt55% Capital Structure approved in docket EL Proprietary Capital45% Total100.00% Weighted Cost of Debt5.69%5.48%See previous slide. MISO Equity Return12.38% Rate of Return – Hypothetical Capital Structure 8.70%8.58% 55% * Cost of Debt plus 45% * 12.38% Rate of Return - Actual Capital Structure7.99%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 Requirements 2013 Actual 2013 Projected $ Change % Change Explanation Return - Actual Capital Structure $ 6,748,812$ 6,144,901 $ 603,9119.8% 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 $ 378,3305.9% See Operating Expense slide for details. Total Revenue Requirement $ 13,949,260$ 13,221,329 $ 727,9315.5% 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 $ 274,0414.4% Revenue Credits $ 193,092$ 135,153 $ 57, % Revenue credits slightly higher than projected. Net Attachment O Revenue Requirement $ 6,313,763$ 6,097,661 $ 216,1020.2% Revenue Requirement before credits less Revenue Credits

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

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 financials MRES is contact for any initial questions

Total Rate Base Rate Base ItemBMUDLPUHUCWPU 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 BMUDLPUHUCWPU Long Term Debt54%13%2%3% Proprietary Capital46%87%98%97% Total100.00% Cost of Debt4.29%6.45%8.86%3.66% MISO Equity Return12.38% Rate of Return8.03%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 BMUDLPUHUCWPU 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 BMUDLPUHUCWPU 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 $ 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 to Terry Wolf: All questions and answers from this meeting will be distributed by 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. ( )