Northern States Power Companies NSPM NSPW MISO Attachment

Northern States Power Companies (NSPM & NSPW) MISO Attachment O-NSP Transmission Customer Meeting June 26, 2018 Discussion: Attachment O Actual Costs 2017 1

Meeting Purpose / Objective The purposes of today’s meeting are to: • Comply with the Attachment O-NSP Formula Rate Protocol requiring a Customer Meeting to discuss the Actual 2017 Attachment O Cost Information • Present the 2017 True-Up calculation that will be included in the development of the projected rates that will be effective January 1 through December 31, 2019, and • Recap the 2017 Actual Attachment O cost information relative to the 2017 budget information upon which the 2017 Attachment O-NSP estimated rates were calculated. The dates and schedules, and even the projects themselves, represent our best estimates for projects to be initiated and completed. Please be aware that many factors could alter those schedules, including regulatory approvals, construction resources, availability of materials, weather, and other unforeseen events. 2

Attachment O-NSP Actual 2017 Revenue Requirement • Submitted to MISO and posted to OASIS on June 1, 2018 • MISO is still performing their review on this submission • The 2017 True-Up plus interest will be included in the development of the 2019 Attachment O-NSP Annual Transmission Revenue Requirement (ATRR) and rates The information currently on OASIS is incorporated in this presentation. 3

Attachment O-NSP 2017 True-Up Recap Based upon total blended NSPM and NSPW Revenue Requirements Net Revenue Requirement Actual 2017 Budget 2017 $350. 3 M $355. 0 M Difference $ (4. 7 M) A Projected Year Divisor True-Up Divisor 8. 188 M 8. 306 M (0. 118 M) Annual Cost ($/KW/Yr) * $42. 780 $42. 744 (0. 0351) Divisor True-Up * (Divisor Difference x Budget Rate) Total True-Up (Revenue Requirement & Divisor True-Up) * Actual calculation performed on whole numbers $ (5. 0 M) $ 0. 3 M B (A – B) 4

Comparison of 2017 True-Up to Prior Years Test Year Rev Req Divisor (A) (B) Total (A-B) 2017 True-Up $ (4. 7 M) $ (5. 0 M) $ 0. 3 M 2016 True-Up $(16. 1 M) $ (0. 7 M) $(15. 4 M) 2015 True-Up $(34. 5 M) $(15. 2 M) $(19. 3 M) 2014 True-Up $(18. 9 M) $(10. 0 M) $ (8. 9 M) 2013 True-Up $(16. 8 M) $ 7. 7 M $(24. 5 M) 2012 True-Up $(12. 3 M) $ (3. 2 M) $ (9. 1 M) 2011 True-Up $ 4. 3 M $ (1. 4 M) $ 5. 7 M 2010 True-Up $ 20. 6 M $ (0. 5 M) $ 21. 1 M 5

Comparison of 2017 Budget Revenue Requirement to 2017 Actual Revenue Requirement Budgeted Net 2017 Revenue Requirement Cost Deviations for 2017: $355. 0 M Higher Operating Costs $ 3. 6 M Lower Revenue Credits $ 0. 5 M Lower Return Requirement $ (5. 5 M) Higher Attachment GG & MM Credits $ (3. 3 M) Actual Net 2017 Revenue Requirement $350. 3 M 6

Comparison of 2017 Budget Revenue Requirement to 2017 Actual Revenue Requirement Budgeted Net 2017 Revenue Requirement Cost Deviations for 2017: $355. 0 M Higher Operating Costs $ 3. 6 M Lower Revenue Credits $ 0. 5 M Lower Return Requirement $ (5. 5 M) Higher Attachment GG & MM Credits $ (3. 3 M) Actual Net 2017 Revenue Requirement $350. 3 M 7

Change in Operating Costs Detail Budgeted Operating Costs in 2017 Rate $315. 1 M Higher O&M costs (Transmission and A&G) $ 2. 4 M Higher depreciation expense $ 3. 8 M Lower incurred taxes other than income $ (1. 3 M) Lower income taxes $ (1. 3 M) Net Decrease in Operating Costs $ 3. 6 M Actual Operating costs for 2017 $318. 7 M 8

Comparison of 2017 Budget Revenue Requirement to 2017 Actual Revenue Requirement Budgeted Net 2017 Revenue Requirement Cost Deviations for 2017: $355. 0 M Higher Operating Costs $ 3. 6 M Lower Revenue Credits $ 0. 5 M Lower Return Requirement $ (5. 5 M) Higher Attachment GG & MM Credits $ (3. 3 M) Actual Net 2017 Revenue Requirement $350. 3 M 9

Change in Net Revenue Credits (Other revenue received that offsets total revenue requirement) Estimated Revenue Credits in 2017 Rate $11. 6 M Actual Revenue Credits in 2017 $11. 1 M Difference which increased 2017 Revenue Req $ (0. 5 M) Components of Revenue Credits: Rental Revenues higher than budget Point to Point usage lower than budget $ 0. 4 M $(0. 9 M) $(0. 5 M) 10

Comparison of 2017 Budget Revenue Requirement to 2017 Actual Revenue Requirement Budgeted Net 2017 Revenue Requirement Cost Deviations for 2017: $355. 0 M Higher Operating Costs $ 3. 6 M Lower Revenue Credits $ 0. 5 M Lower Return Requirement $ (5. 5 M) Higher Attachment GG & MM Credits $ (3. 3 M) Actual Net 2017 Revenue Requirement $350. 3 M 11

Annual Revenue Requirement Determination Function of: Rate Base x Weighted Cost of Capital 12

Change in Rate Base Total Budgeted Rate Base – 2017 $2, 609. 6 M Lower Average Net plant in service $ (6. 7 M) Higher Average CWIP $ 0. 6 M Higher Accumulated Deferred Taxes $ 37. 3 M $ (1. 3 M) (deducted from rate base) Lower Other Working Capital Net Decrease in rate base Total Actual Rate Base – 2017 $ (44. 7 M) $2, 564. 9 M 13

Change in Cost of Capital Weighted Cost of Capital 2017 A D/E Ratio Cost * 2017 B D/E Ratio Cost * LTD 47. 59% 2. 16% 47. 67% 2. 25% Equity 52. 41% 52. 33% 5. 66% 5. 67% 7. 83% * Actual calculation performed on whole numbers 7. 91% 14

Reconciliation of Change in Return for 2017 Change in Rate Base* $(44. 7 M) x 7. 83% $ (3. 5 M) PY Rate base x decrease in WCC* $2, 609. 6 M x (0. 08)% $ (2. 0 M) Net change in return $ (5. 5 M) Overall lower Return was a function of lower Rate Base and the decrease in Weighted Cost of Capital * Actual calculation performed on whole numbers 15

Comparison of 2017 Budget Revenue Requirement to 2017 Actual Revenue Requirement Budgeted Net 2017 Revenue Requirement Cost Deviations for 2017: $355. 0 M Higher Operating Costs $ 3. 6 M Lower Revenue Credits $ 0. 5 M Lower Return Requirement $ (5. 5 M) Higher Attachment GG & MM Credits $ (3. 3 M) Actual Net 2017 Revenue Requirement $350. 3 M 16

Components of Attachment GG & MM Attachment GG Rev Req Budget for 2017 Attachment MM $ 79. 0 M $ 55. 5 M Operating expenses (1) $ 0. 4 M Depreciation expense $ 2. 2 M $ 0. 5 M Taxes other $ (0. 2 M) $ 0. 2 M Income taxes $ (0. 4 M) $ 0. 6 M Return $ (1. 2 M) $ 0. 8 M Rev Req Actual 2017 $ 79. 8 M Higher 2017 Actuals $ 0. 8 M $58. 0 M $ 2. 5 M $ 3. 3 M Attachment GG & MM revenue requirements are deducted from Attachment O, higher credits reduce Attachment O revenue requirements (1) Includes Common & General depreciation calculation 17

Questions? Contacts: Carolyn M Wetterlin Sr. RTO Manager 612 -330 -6599 Thomas E Kramer Principal Rate Analyst 612 -330 -5866 18