2014 Attachment O Customer Meeting

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2014 Attachment O Customer Meeting November 20, 2013 Terry Wolf, Manager of Transmission Services Agenda Meeting Purpose MRES Profile Forecasted for 2014 with True-up for 2012 Capital Projects Budget Risks Question/Answer Meeting Purpose To provide an informational forum regarding the following; MRES true-up info on Attachment O/GG/M from 2012. MRES forecasted Attachment O/GG/MM for 2014. MRES utilizes EIA Form 412 template for completing Attachment O True-up from 2012 along with forecast for 2014 will be incorporated into rates become effective on January 1, 2014 for Attachment O joint pricing zone comprised of Otter Tail Power Company, Great River Energy, and MRES. Attachment GG, MM effective January 1, 2014. - 61 Members served Missouri River - Transmission: ~239 miles Energy Services - Generation: ~744 MW - Renewable: ~86 MW Rugby Fort Peck Dam Wind Project Garrison Dam ITA Canyon Ferry Dam Big Horn River CapX Fargo Yellowtail Dam CapX Oahe Dam Watertown Power Plant Brookings Irv Point Beach Simmons Nuclear Plant Marshall Wind Project Big Bend Dam Gavin’s Odin Wind Project Point Fort Randall Dam Dam Worthington Wind Project Laramie River Station MBPP MRES Member Exira Station MRES Generation Resource Red Rock Hydroelectric Planned MRES Generation Resource Plant Federal Hydroelectric Dam Transmission Projects (MBPP, Irv Simmons, ITA, CapX (Fargo, Brookings) 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 11-45 on January 20, 2012 Pending FERC Issues Complaint against MISO TOs regarding Protocols (Docket EL12-35-000) Will require changes in timing and info shared Will be resolved in 2014 Complaint against MISO TOs regarding ROE and certain TOs regarding capital structure ( ER14-12-000) Unknown timing and impacts Resolved in 2014?? True-up of Attachment O / GG / MM Forward Rate Requirements Rate Base Operating Expenses Revenue Requirement and Rate Network Rate Summary 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. 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 2014 2013 Projected Projected $ % Rate Base Item Explanation (Monthly (Monthly Change Change Average) Average) Gross Plant in The increase is due mainly to the projected $ 107,061,023 $ 71,513,182 $ 35,547,841 49.7% capitalization of CapX Fargo Phase 2 and a Service portion of CapX Brookings. Accumulated Annual Depreciation Expense combined $ 37,444,201 $ 36,603,167 $ 841,034 2.3% Depreciation with projected additions and retirements. Net Plant in Service $ 69,616,822 $ 34,910,015 $ 34,706,807 99.4% CWIP $ 45,433,754 $ 47,377,921 $ (1,944,167) -4.1% Working Capital, M&S and $ 1,545,076 $ 1,350,564 $ 194,512 14.4% Prepayments Total Rate Base $ 116,595,652 $ 83,638,500 $ 32,957,152 39.4% 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 2014 2013 Projected Projected $ % Rate Base Item Explanation (Monthly (Monthly Change Change Average) Average) The increase is due mainly to the Gross Plant in projected capitalization of CapX Fargo $ 35,271,170 $ 2,077,329 $ 33,193,841 1597.9% Service Phase 2 and a portion of CapX Brookings. Accumulated $ 493,553 $ - $ 493,553 #DIV/0! Depreciation Net Plant in $ 34,777,617 $ 2,077,329 $ 32,700,288 1574.2% Service CWIP Projects included in Rate $ 45,433,754 $ 47,377,921 $ (1,944,167) -4.1% Base Working Capital $ - $ - $ - - % Rate Base- Hypothetical $ 80,211,371 $ 49,455,250 $ 30,756,121 62.2% Net Plant + CWIP + Working Capital Capital Structure Note: The above numbers are transmission only and general and intangible plant allocated to transmission. Operating Expenses Expense 2014 2013 $ % Explanation Item Projected Projected Change Change O&M $ 5,592,612 $ 5,133,693 $ 458,919 8.9% Depreciation Increase in Depreciation Expense is due $ 1,895,223 $ 1,026,565 $ 868,658 84.6% Expense to projected plant additions. Taxes Other Increase in other taxes is due to projected $ 496,027 $ 304,013 $ 192,014 63.2% property taxes on additional transmission than Income plant in service. Operating $ 7,983,862 $ 6,464,271 $ 1,519,591 23.5% O&M + Depreciation + Taxes Expense 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) 2014 2013 $ % Explanation Projected Projected Change Change Long Term Debt 75% 73% $- 2.00% Proprietary Capital 25% 27% $- (2.0%) $- -% Total 100.00% 100.00% Cost of Debt 5.43% 5.48% N/A (0.05%) Equity return approved for MISO MISO Equity Return 12.38% 12.38% N/A 0.00% Transmission Owners. (LTD*Cost of Debt) + (Proprietary Rate of Return 7.18% 7.35% N/A (0.17%) Capital * MISO Equity Return) Total Rate Base $ 116,595,652 $ 83,638,500 $ 32,957,152 39.4% From Rate Base Calculation Increase largely due to additional Allowed Return – $ 8,373,575 $ 6,144,901 $ 2,228,674 36.3% transmission investment. See Rate Actual Capital Structure Base slide for additional detail. Return on Rate Base (Hypothetical Capital Structure) 2014 2013 Comments Projected Projected Long Term Debt 55% 55% Capital Structure approved in Proprietary Capital 45% 45% docket EL 11-45-000. Total 100.00% 100.00% Weighted Cost of Debt 5.43% 5.48% See previous slide. MISO Equity Return 12.38% 12.38% Rate of Return – 55% * Cost of Debt plus 45% * 8.56% 8.58% Hypothetical Capital Structure 12.38% Rate of Return - Actual Capital Structure 7.18% 7.35% See previous slide. Difference between Hypothetical and Actual 1.375% 1.238% Capital Structure Rate Base - Hypothetical Capital Structure $ 80,211,371 $ 49,455,250 Hypothetical and actual capital Additional Return – structure difference * $ 1,102,658 $ 612,157 Hypothetical Capital Structure Hypothetical Capital Structure Rate Base Revenue Requirements, Excluding Prior Year True-Up 2014 2013 $ % Explanation Projected Projected Change Change Increase due to additional Return - Actual Capital $ 8,373,575 $ 6,144,901 $ 2,228,674 36.3% investment in CapX Structure transmission plant. Increase due to additional Additional Return – $ 1,102,658 $ 612,157 $ 490,501 80.1% investment in CapX Hypothetical Capital Structure transmission plant. Operating Expense $ 7,983,862 $ 6,464,271 $ 1,519,591 23.5% See Operating Expense slide for details. Total Revenue Requirement $ 17,460,096 $ 13,221,329 $ 4,238,767 32.1% Before Prior Year True-Up Projected credit for the CapX Attachment GG Adjustments $ (8,086,829) ($ 5,374,066) $ (2,712,763) 50.5% Fargo Project. Projected credit for the CapX Attachment MM Adjustments $ (3,129,634) ($ 1,614,449) $ (1,515,185) 93.9% Brookings Project. Attachment O Revenue $ 6,243,633 $ 6,232,814 $ 10,819 0.2% Requirement Before credits Revenue credits assumed to Revenue Credits $ 135,153 $ 135,153 $ - 0.0% remain unchanged from 2013 to 2014. Net Attachment O Revenue Revenue Requirement before Requirement Before Prior Year $ 6,108,480 $ 6,097,661 $ 10,819 0.2% credits less Revenue Credits True-Up Revenue Requirements, Including Prior Year True-Up 2013 $ % 2014 Projected Explanation Projected Change Change Attachment O Before True-Up $ 6,108,480 $ 6,097,661 $ 10,819 0.2% Attachment O True-up, Including $ (1,489,607) $ - $ (1,489,607) #DIV/0! Interest Attachment O Revenue $ 4,618,873 $ 6,097,661 $ (1,478,788) -24.3% The true-up adjustment for Requirement Including True-Up Attachment O is primarily due Attachment GG Before True-Up $ 8,086,829 $ 5,374,066 $ 2,712,763 50.5% to ITA true-up amount, and for Attachment GG True-up, Attachment GG/MM is Including Interest $ (1,368,055) $ - $ (1,368,055) #DIV/0! primarily due to the Attachment GG Revenue investment in CapX Requirement Including True-Up transmission plant being less $ 6,718,774 $ 5,374,066 $ 1,344,708 25.0% than projected in 2012. Attachment MM Before True-Up $ 3,129,634 $ 1,614,449 $ 1,515,185 93.9% Attachment MM True-up, $ (273,057) $ - $ (273,057) #DIV/0! Including Interest Attachment MM Revenue $ 2,856,577 $ 1,614,449 $ 1,242,128 76.9% Requirement Including True-Up 2014 MRES Annual Transmission Revenue Requirement Distribution MRES Total ATRR Attachment O, GG, MM $15,835,356 MISO Attachment GG MISO Attachment MM Attachment O CapX Fargo CapX Brookings $4,618,873 $8,086,829 $ 3,129,634 29% 51% 20% MISO Non-MISO OTP PRICING ZONE IS PRICING ZONE $2,181,889 $2,436,984 47% of Att O 53% of Att O 17 $1.50 Attachment O Rate Summary $1.03 $0.99 $1.00 $0.50 $0.56 $0.14 $- $(0.02) $(0.18) $(0.50) $(0.39) $(1.00) $(1.00) $(1.50) $/kW-mo Capital Projects: Transmission Line Projects in MISO > $500K Forecasted Estimated 2014 Capital Project Voltage In-Service Project Description Additions Date by yr end Brookings – Twins Cities 345 2015 for MTEP Project ID 1203 – Attachment MM 345 kV entire $ 7,399,554 Build new 345kV line from SD to SE Twin kV Line project Cities (250 miles) MTEP Project ID 286 – Attachment GG 2015 for Build new 345 kV line from St.
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