November 16, 2012
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 2013.
 The forecasted Attachment O for 2013 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, 2013 for joint
pricing zone comprised of Otter Tail Power Company,
Great River Energy, and MRES.
 Attachment GG, MM effective January 1, 2013.
- 61 Members served
- Transmission: ~239 miles
- Generation: ~744 MW
- Renewable: ~86 MW
Missouri River
Energy Services
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
 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 11-45 on January
20, 2012
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 true-up
info will be posted June 2013.
 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.
 MRES will hold a customer meeting to explain its
formula rate input projections and cost detail.
Total Rate Base
Rate Base Item
2013
Projected
(Monthly
Average)
2012
Projected
(Monthly
Average)
$
Change
%
Change
Explanation
Gross Plant in
Service
$ 71,513,182 $ $67,918,031 $ 3,595,151
The increase is due mainly to the projected
5.3% capitalization of CapX Fargo Phase 2 in
December 2013.
Accumulated
Depreciation
$ 36,603,167 $ $35,634,208
2.7%
Net Plant in Service
CWIP
$34,910,016
$ 968,959
$ $32,283,823 $ 2,626,193
Annual Depreciation Expense combined
with projected additions and retirements.
8.1%
The increase is due to CapX Fargo Phases 2
$ 47,377,921 $ $21,383,316 $ 25,994,605 121.6% and 3 ($15.3M) and CapX Brookings
($10.7M).
Working Capital,
M&S and
Prepayments
$ 1,350,564
Total Rate Base
$ 83,638,500
$ 1,385,904
$ (35,340)
(2.5%)
$ 55,053,043 $ 28,585,457 51.9% 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
Projected
(Monthly
Average)
2012
Projected
(Monthly
Average)
$
Change
%
Change
The increase is due to the projected
100% capitalization of CapX Fargo Phase 2 in
December 2013.
Gross Plant in
Service
$ 2,077,329
$-
$ 2,077,329
Accumulated
Depreciation
$-
$-
$-
-%
Net Plant in
Service
$ 2,077,329
$-
$ 2,077,329
100%
CWIP Projects
included in Rate
Base
Working Capital
Rate BaseHypothetical
Capital Structure
Explanation
The increase is due to CapX Fargo
$ 47,377,921 $ 21,383,316 $25,994,605 121.6% Phases 2 and 3 ($15.3M) and CapX
Brookings ($10.7M).
$-
$-
$-
-%
$ 49,455,250 $ 21,383,316 $ 28,071,934 131.3% 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
Projected
2012
Projected
$
Change
%
Change
O&M
$ 5,133,693
$ 5,124,596
$ 9,097
0.2%
Depreciation
Expense
$1,026,565
$ 975,327
$ 51,238
5.3%
Taxes Other
than Income
$304,013
$ 291,819
$ 12,194
4.2%
Operating
Expense
$6,464,271
$ 6,391,742
$ 72,529
1.1%
Explanation
Increase in Depreciation Expense due to
projected plant additions.
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
Projected
2012
Projected
$
Change
%
Change
Long Term Debt
73%
73%
$-
-%
Proprietary Capital
27%
27%
$-
-%
Total
100.00%
100.00%
$-
-%
Cost of Debt
5.48%
5.63%
N/A
MISO Equity Return
12.38%
12.38%
N/A
Rate of Return
7.35%
7.45%
N/A
Total Rate Base
Allowed Return –
Actual Capital Structure
Explanation
Difference is due to benefit of
(0.15%) refinancing in late 2012 and projected
cost of debt issuance in late 2013.
Equity return approved for MISO
0.00%
Transmission Owners.
(LTD*Cost of Debt) + (Proprietary
(0.10%)
Capital * MISO Equity Return)
$ 83,638,500 $ 55,053,043 $28,585,457 51.9% From Rate Base Calculation
$ 6,144,901
$ 4,100,525 $2,044,376
Increase largely due to additional
49.9% transmission investment. See Rate
Base slide for additional detail.
Return on Rate Base (Hypothetical Capital Structure)
2013
Projected
2012
Projected
Long Term Debt
55%
55%
Proprietary Capital
45%
45%
Total
100.00%
100.00%
Weighted Cost of Debt
5.48%
5.63%
MISO Equity Return
Rate of Return –
Hypothetical Capital Structure
12.38%
12.38%
8.58%
8.67%
55% * Cost of Debt plus 45% *
12.38%
Rate of Return - Actual Capital Structure
7.35%
7.45%
See previous slide.
Difference between Hypothetical and Actual
Capital Structure
1.238%
1.22%
Rate Base - Hypothetical Capital Structure
$ 49,455,250
$ 21,383,316
Additional Return –
Hypothetical Capital Structure
$ 612,157
$ 260,632
Comments
Capital Structure approved in
docket EL 11-45-000.
See previous slide.
Hypothetical and actual capital
structure difference *
Hypothetical Capital Structure
Rate Base
Revenue Requirements
2013
Projected
2012
Projected
$
Change
%
Change
Return - Actual Capital
Structure
$ 6,144,901
$ 4,100,525
$ 2,044,376
49.9%
Additional Return –
Hypothetical Capital Structure
$ 612,157
$ 260,632
$ 351,525
134.9%
Operating Expense
$ 6,464,271
$ 6,391,742
$ 72,529
1.1%
Total Revenue Requirement
$ 13,221,329
$ 10,752,899
$2,468,431
23.0%
Attachment GG Adjustments ($ 5,374,066) ($ 2,946,393)
$(2,427,673)
82.4%
Projected credit for the CapX
Fargo Project.
Attachment MM Adjustments ($ 1,614,449)
($ 851,343)
($ 763,106)
89.6%
Projected credit for the CapX
Brookings Project.
$ 6,955,163
($ 722,349)
(10.4%)
Attachment O Revenue
Requirement Before credits
$ 6,232,814
Explanation
Revenue Credits
$ 135,153
$ 135,153
$-
-%
Revenue credits assumed to
remain unchanged from 2012
to 2013.
Net Attachment O Revenue
Requirement
$ 6,097,661
$ 6,820,010
($ 722,349)
(10.4%)
Revenue Requirement before
credits less Revenue Credits
2013 MRES Annual Transmission
Revenue Requirement Distribution
MRES Total ATRR
Attachment O, GG, MM
$13,086,176
Attachment O
MISO Attachment GG
MISO Attachment MM
CapX Fargo
CapX Brookings
$5,374,066
$ 1,614,449
41%
12%
$6,097,661
47%
MISO
Non-MISO
OTP PRICING ZONE
IS PRICING ZONE
$2,830,518
$3,267,143
46% of Att O
54% of Att O
14
Attachment O Rate Summary
$1.00
$0.80
$0.79
$0.75
$0.74
$0.60
$0.40
$0.20
$0.07
$$(0.02)
$(0.20)
$(0.20)
$(0.40)
$(0.60)
$(0.65)
$(0.80)
Return- Actual
Capital
Structure
Additional
ReturnHypothetical
Capital
Structure
Operating
Expenses
Attachment GG
Adjustment
Attachment
MM
Adjustment
Revenue
Credits
2012 Projected
ATRR
Capital Projects:
Transmission Line Projects
in MISO > $500K
Project
Brookings – Twins Cities 345
kV Line
Fargo – St. Cloud 345 kV Line
Estimated
Voltage In-Service
Date
345 kV
2015 for
entire
project
345 kV
2015 for
entire
project
Forecasted
2013 Capital
Additions
by yr end
Project Description
MTEP Project ID 1203 – Attachment MM
$ 12,227,081 Build new 345kV line from SD to SE Twin
Cities (250 miles)
MTEP Project ID 286 – Attachment GG
Build new 345 kV line from St. Cloud
$ 19,788,401 (Quarry) to Alexandria to Fargo (Bison)
(MN/ND) (190 miles), includes Alexandria
substation.
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.