December 14, 2011
Terry Wolf, Manager of
Transmission Services
Agenda
Meeting Purpose
 MRES Profile
 Attachment O Calculation
 Capital Projects
 Budget Risks
 Question/Answer
Meeting Purpose
 To provide an informational forum regarding the
MRES forecasted Attachment O for 2012.
 The forecasted Attachment O for 2012 is calculated
using the Midwest ISO’s EIA Form 412 Attachment OMRES template with a projected net revenue
requirement and projected load.
 Rates become effective on January 1, 2012 for joint
pricing zone comprised of Otter Tail Power Company,
Great River Energy, and MRES.
 Attachment GG, and Attachment MM are planned to
be effective January 1, 2012.
-
Missouri River
Energy Services
61 Members served
Transmission: ~239 miles
Generation: ~740 MW
Renewable: ~84 MW
Rugby
Wind
Project
Fort Peck Dam
ITA
Garrison Dam
Canyon Ferry Dam
Big Horn River
CapX
Fargo
Yellowtail Dam
Oahe Dam
Irv
Simmons
Big Bend
Dam
Fort Randall Dam
Laramie
River Station
Watertown
Power Plant
CapX
Brookings
Point Beach
Nuclear Plant
Marshall Wind Project
Gavin’s
Point
Dam
Odin Wind Project
Worthington
Wind Project
MBPP
MRES Member
MRES Generation Resource
Planned MRES Generation Resource
Federal Hydroelectric Dam
Transmission Projects (MBPP, Irv Simmons,
ITA, CapX (Fargo, Brookings)
Exira Station
Red Rock
Hydroelectric
Plant
MRES FERC Activities
 Transmission facilities are owned by Western
Minnesota Municipal Power Agency
(WMMPA)
 FERC Declaratory Order (EL08-22, 12/08)
combines financial statements for ATRR
 Attach O effect 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)
Forward Looking Attachment O
 Forward Rate Requirements
 Rate Base
 Operating Expenses
 Revenue Requirement and Rate
 Network Rate Summary
Forward Rate Requirement
 By June 1 of each year, MRES will post on OASIS all
information regarding any Attachment O True-up
Adjustments for the prior year.
 2012 Forward Looking Attachment O will be trued-up by
June 2013.
 Beginning 2012 and each year thereafter, MRES will
post on OASIS its projected Net Revenue Requirement
including the True-Up Adjustment and load for the
following year, and associated work papers in October.
 Beginning in 2011 and each year thereafter, MRES will
hold a customer meeting to explain its formula rate
input projections and cost detail.
Total Rate Base
Rate Base Item
2012
Projected
(Monthly
Average)
Projected
12/31/11
$ Change
%
Change
Explanation
Gross Plant in
Service
$ 73,564,991
$ 71,839,919
$1,725,072
The increase is due mainly to the
2.4% capitalization (approximately $10M) of
CAPX Fargo Phase I in December 2011.
Accumulated
Depreciation
$ 35,220,891
$ 34,678,374
$ 542,517
1.6%
Net Plant in Service $38,344,101
$ 37,161,545
$ 1,182,556
3.2%
The increase is due to CapX Fargo Phases
$17,020,550 219.7% 2 and 3 ($11.5M) and CapX Brookings
($5.5M).
CWIP
$ 24,768,664
$ 7,748,114
Working Capital
$1,320,795
$ 1,269,018
Total Rate Base
$ 64,433,560
$ 51,777
Annual Depreciation Expense combined
with projected additions and retirements.
4.1%
$ 46,178,677 $ 18,254,883 39.5% Net Plant + CWIP + Working Capital
Note: The above numbers are transmission only
and
general and intangible plant allocated to
Rate Base Earning Hypothetical Capital Structure Return
Rate Base Item
2012
Projected
(Monthly
Average)
Projected
12/31/11
$ Change
%
Change
Gross Plant in
Service
$-
$-
$-
-%
Accumulated
Depreciation
$-
$-
$-
-%
Net Plant in
Service
$-
$-
$-
-%
CWIP Projects
included in Rate
Base
$ 24,768,664
Working Capital
$-
Rate Base$ 24,768,664
Hypothetical
Capital Structure
$ 7,748,114 $ 17,020,550 219.7%
$-
$-
Explanation
Projected costs for CWIP projects
requested to be included in rate base.
-%
$ 7,748,114 $ 17,020,550 219.7% Net Plant + CWIP + Working Capital
Note: The above numbers are transmission only and
general and intangible plant allocated to transmission.
Operating Expenses
Expense Item 2012 Projected 2011 Projected
$ Change
%
Change
O&M
$ 5,221,403
$ 4,807,181
$ 414,222
8.6%
Depreciation
Expense
$1,082,864
$ 840,295
$ 242,569
28.9%
Explanation
Increase in Depreciation Expense due to
projected plant additions.
Taxes Other
than Income
$290,268
$ 253,161
$ 37,107
Increased is due to a projected increase
in total company property tax expense
14.7% and a projected increase in the
transmission GP allocation percentage
from 2011 to 2012.
Operating
Expense
$6,594,534
$ 5,900,637
$ 693,897
11.8% 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)
2012
Projected
2011
Projected
Long Term Debt
72%
74%
Proprietary Capital
28%
26%
Total
100.00%
100.00%
Cost of Debt
5.91%
5.91%
MISO Equity Return
12.38%
12.38%
Rate of Return
7.73%
7.59%
Total Rate Base
Allowed Return -Actual
Capital Structure
$ Change
%
Change
Explanation
Decrease due to no additional debt
( 2%) expected in 2012, scheduled principal
payments and projected higher equity.
Increase due to projected net surplus
2% for 2012 combined with lower longterm debt.
Cost of debt is expected to remain
constant from 2011 to 2012.
Equity return approved for MISO
0.00%
Transmission Owners.
(LTD*Cost of Debt) + (Proprietary
-0.47%
Capital * MISO Equity Return)
0.00%
$ 64,433,560 $ 46,178,677 $ 18,254,883 39.5% From Rate Base Calculation
$ 4,978,834
$ 2,916,880 $ 2,061,954
Increase largely due to additional
70.7% transmission investment. See Rate
Base slide for additional detail.
Return on Rate Base (Hypothetical Capital Structure)
2012 Projected 2011 Projected
Comments
Long Term Debt
55%
N/A
Proprietary Capital
45%
N/A
Total
100.00%
N/A
Weighted Cost of Debt
5.91%
N/A
MISO Equity Return
Rate of Return- Hypothetical Capital
Structure
Rate of Return- Actual Capital
Structure
Difference between Hypothetical and
Actual Capital Structure
12.38%
N/A
8.823%
N/A
55% * Cost of Debt plus 45% *
12.38%
7.727%
N/A
From previous slide.
1.096%
N/A
$ 24,768,664
N/A
Rate Base- Hypothetical Capital Structure
Additional Return –Hypothetical
Capital Structure
$ 271,558
N/A
Capital Structure requested in
docket EL 11-45-000.
See previous slide.
Hypothetical and actual capital
structure difference *
Hypothetical Capital Structure
Rate Base
A forward looking test year will be effective January 1, 2012 for MRES.
Therefore, a hypothetical capital structure calculation for prior years in not applicable.
Revenue Requirements
2012
2011 Projected $ Change % Change
Projected
Return -Actual Capital
Structure
Additional Return–
Hypothetical Capital
Structure
Operating Expense
Total Revenue
Requirement
Attachment GG
Adjustments
Attachment MM
Adjustments
Attachment O Revenue
Requirement Before
credits
$ 4,978,834
$ 2,916,880
$ 2,061,954
$ 271,558
-
$ 271,558
$ 6,594,534
$ 5,900,637
$ 693,897
11.8%
$ 11,844,926
$ 8,817,517
$ 3,027,409
34.3%
($ 4,067,684)
-
($
4,067,684)
($ 819,435)
-
($ 819,435)
$ 6,957,807
$ 8,817,517
($ 1,859,710)
Revenue Credits
$ 135,156
$ 135,156
Net Attachment O
Revenue Requirement
$ 6,822,651
$ 8,682,361
Explanation
70.7%
Projected credit for the
CapX Fargo Project.
Projected credit for the
CapX Brookings Project.
(21.1%)
Revenue credits assumed
to remain unchanged from
2011 to 2012.
Revenue Requirement
($ 1,859,710) (21.1%) before credits less
Revenue Credits
Capital Projects:
Transmission Line Projects > $100K
Project
Brookings – Twins Cities 345
kV Line
Fargo – St. Cloud 345 kV Line
Estimated
Voltage In-Service
Date
Forecasted
2012 Capital
Addition
345 kV
$ 10,976,012
345 kV
Build new 345 kV line from St. Cloud
(Quarry) to Alexandria to Fargo (Bison)
$ 23,065,087
(MN/ND) (190 miles), includes Alexandria
substation.
Project Description
Rate Summary
$1.00
$0.84
$0.82
$0.80
$0.62
$0.60
$0.40
$0.20
$(0.02)
$-
$0.03
$(0.10)
$(0.20)
$(0.40)
$(0.50)
$(0.60)
Return- Actual
Capital
Structure
Additional
ReturnHypothetical
Capital
Structure
Operating
Expenses
Attachment GG
Adjustment
Attachment
MM
Adjustment
Revenue
Credits
2012 Projected
ATRR
Budget Risks
Revenue
Financing
Demand/
Weather
Regulatory
Findings
Tight
Budgets
Timing of
Capital
Projects
Questions
If you have any additional questions after the meeting,
please submit via e-mail to Terry Wolf:
twolf@mrenergy.com
All questions and answers will be distributed by e-mail
to all attendees. Additionally, the questions and answers
will be posted on the MRES OASIS website
(http://oasis.midwestiso.org/OASIS/MRET) within two
weeks from the date of inquiry.