OTTER TAIL POWER COMPANY

2013 Attachment O – True-upCustomer Meeting

August 15, 2014

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Agenda

Meeting Purpose

Otter Tail Power Company Profile

Attachment O Calculation

Capital Projects

Question/Answer

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Meeting Purpose• To provide an informational forum regarding

Otter Tail’s 2013 Attachment O for True-up.• The 2013 Actual Year Attachment O is

calculated using the FERC Form 1 Attachment O template under the MISO Tariff utilizing actual data as reported in the 2013 FERC Form 1 for Otter Tail Power.

• Any True-up for 2013 will be included in the 2015 FLTY Attachment O Calculation for rates effective January 1, 2015 for the joint pricing zone comprised of Otter Tail, Great River Energy, and Missouri River Energy Services.

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Otter Tail Power Company

Mission: To produce and deliver electricity as reliably, economically, and environmentally responsibly as possible to the balanced benefit of customers, shareholders, and employees and

to improve the quality of life in the areas in which we do business.

– Incorporated in 1907, Otter Tail Power Company is a subsidiary of Otter Tail Corporation, trading under the NASDAQ symbol OTTR.

– Size: 70,000 square miles

– Communities served: 422

– Customers served: 130,200

– Transmission: ~ 5,400 miles

– Generation: ~ 798 MW of owned generation

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2013 Actual Year Attachment O

Actual Year Rate Requirements

Rate Base

Operating Expenses

Revenue Requirement and Rate

Network Rate Summary

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Rate Requirements By June 1 of each year, Otter Tail will post on OASIS all

information regarding any Attachment O True-up Adjustments for the prior year.

By September 1, 2014, and September 1 all years thereafter, Otter Tail will hold a customer meeting to explain its Actual Year True-up Calculation. Ex., 2013 Forward Looking Attachment O will be trued-up by

June 1, 2014 with a corresponding Customer Meeting being held by September 1, 2014.

Beginning Sept. 1, 2010 and Sept. 1 all years thereafter, Otter Tail will post on OASIS its projected Net Revenue Requirement ,including the True-Up Adjustment and load for the following year, and associated work papers.

Beginning in 2010 and each year thereafter, Otter Tail will hold a customer meeting by October 31, to explain its formula rate input projections and cost detail.

Beginning in 2014 and each year thereafter, the MISO Transmission Owners will hold a Regional Cost Sharing stakeholder meeting by November 1.

Rate Base

Note: The above numbers are Transmission only

Rate Base Item 2013 Actual

2013 Projected $ Change %

Change Explanation

Gross Plant in Service

$275,626,777 $287,571,748 $(11,944,971) (4.2%)

The decrease in Plant in Service from Projected to Actual was due to a combination of the Bemidji CAPX project going into service at less than expected capitalized cost as well as the delayed in-service of various line segments on the Bookings and Fargo CAPX projects

Accumulated Depreciation

$102,362,268 $102,744,252 $(381,984) (0.4%) Net result of Annual Depreciation Expense combined with projected retirements.

Net Plant in Service

$173,264,509 $184,827,496 $(11,562,987) (6.3%) = Gross Plant - A/D

Adjustments to Rate Base $(42,727,177) $(44,023,296) $1,296,119 (2.9%)

ADIT - Book vs Tax Depreciation Timing Differences originating due to accelerated tax depreciation methods such as Bonus depreciation and MACRS tables created when large Transmission (i.e., Fargo Phase II and Fargo Phase III) projects go into service.

CWIP for CON Projects

$47,702,021 $53,482,317 $(5,780,296) (10.8%)

Reduced spend on Fargo CAPX project in late 2012 due to delays associated with material deliveries that carried forward through 2013. All is expected to be timing in nature.

Land Held for Future Use

$9,037 $9,038 $(1) 0.0%

Working Capital $5,359,241 $5,830,055 $(470,814) (8.1%) Decrease in CWC due to drop in Transmission-related O&M which is discussed on the next tab.

Rate Base$183,607,631 $200,125,610 $(16,517,979) (8.3%) = Net Plant + Adj + CWIP + Land + Working

Capital

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Operating Expenses

Note: The above numbers are Transmission only

Expense Item

2013 Actual

2013 Projected $ Change % Change Explanation

O&M $12,766,870 $15,223,429 $(2,456,559) (16.1%)

Total Company 2013 Actual O&M for Transmission expense decreased by ~$540K or only about 3% compared to the reported amounts used in the Forward Looking Test Year (FLTY). However, the amounts related to MISO 26/26A and Schedule 10 charges actually went up ~$1.75M which increased the amount removed from O&M’s on Attachment O.

Depreciation Expense

$5,785,772 $5,923,798 $(138,026) (2.3%)Decrease in depreciation expense coincides with the reduction in expected Plant in Service reported on the previous slide.

Taxes Other than Income $2,173,165 $2,373,190 $(200,025) (8.4%)

Property Tax Assessments came in lower than expected and a lower GP allocator are driving the decrease in transmission-related property tax allocations calculated on Attachment O.

Income Taxes $7,144,939 $7,933,216 $(788,277) (9.9%)

Decrease in Rate Base = Decrease in Return = Decrease in Income Tax Expense; Also, 2013 had a lower ETR than at the time the FLTY calculation was completed as the ND State Tax rate has been lowered from 5.15% to 4.53%.

Operating Expense $27,870,746 $31,453,633 $(3,582,887) (11.4%) = O&M + A&G + Depreciation + Taxes

Revenue Requirement and Rate

 2013 Actual

2013 Projected

$ Change % Change Explanation

Long Term Debt 46.48% 46.17%   0.31% Tracking close to forecast.

Common Stock 53.52% 53.83%   (0.31%) Tracking close to forecast.

Total 100.00% 100.00%     = Debt + Equity

Weighted Cost of Debt 5.49% 5.73%   (0.24%)Refinanced slightly more outstanding debt at a lower rate than originally expected .

Cost of Common Stock 12.38% 12.38%   0.00% Unchanged

Rate of Return 9.18% 9.31%   (0.13%) = (LTD*Cost)+(Preferred Stock*Cost)+(Common Stock*Cost)

Rate Base $183,607,631 $200,125,610 $(16,517,979) (8.25%) From "Rate Base" Calculation

Allowed Return $16,850.312 $18,629,007 $(1,778,695) (9.55%) = Rate of Return * Rate Base

Operating Expenses $27,870,746 $31,453,633 $(3,582,887) (11.39%) From "Operating Expense" Calculation

Attachment GG Adjustments

$10,937,462 $13,142,264 $(2,204,802) (16.78%)

As with the discussion associated with the change in CWIP on Attachment O, GG projects have spent less to date than expected due to delays in material deliveries which also leads to less than expected revenue requirements.

Attachment MM Adjustments

$2,377,316 $3,007,552 $(630,236) (20.96%)As with the discussion associated with the change in CWIP on Attachment O, MM projects have spent less to date than expected which leads to lower than expected revenue requirements.

Gross Revenue Requirement

$31,406,280 $33,932,824 $(2,526,544) (7.45%) = Return + Expenses - Adjustments

Revenue Credits $4,566,650 $7,328,404 $(2,771,754) -37.82%2013 Actual Year Other MISO Schedule revenue as well as ITA contractual payments were less than projected.

2012 True-up (Including Interest)

$(4,159,423) $(4,159,423) - 0.00% N/A

Net Revenue Requirement

$22,690,207 $22,444,998 $245,210 1.09% = Gross Revenue Requirement - Revenue Credits + True-up

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2013 Attachment O True-up

CalculationAttachment O

True-up Calculation 

2013 Actual

2013 Projected $ Change % Change Explanation

ATRR True-up $245,210  From “Net Revenue Requirement” line on previous slide.

Divisor $704,697 $670,317 $(34,380) (5.13%) From FERC Form 1

Projected Cost ($/kW/Yr) $33.484 From 2013 FLTY Attachment O Template

Divisor True-up $(1,151,185) = Divisor x Projected Cost ($/kW/Yr)

Total Principal True-up $(905,975) = ATRR + Divisor True-up Amounts

Interest on True-up $(59,508) = Avg Monthly FERC Interest Rate on Refunds x Principal True-up

Total Principal and Interest True-up $(965,483) To be Applied to 2015 FLTY Attachment O

Calculation

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RATE SUMMARY

$0.11 or 3.9% Decrease

2013

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2013

Act

ual A

TRR

($1.00)

($0.50)

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00 $2.79

($0.14)($0.27) ($0.24)

($0.03) ($0.04)

$0.27 $0.08

$0.35

($0.10)

$2.68

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Total Transmission Revenue Requirement Breakdown

Total Rev. Req. =

$36,004,985

Net Attch. O ATRR =

$22,690,207

Attch. GG Rev. Req. = $10,937,462

Attch. MM Rev. Req. = $2,377.316

2013 Transmission Projects

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Attachment O Capital Projects: Transmission Line Projects >

$200K

Project Forecasted 2013 Capital

Addition

Actual 2013

Capital Addition

$ Change % Variance Reason for Variance

Circuit Breaker Replacements $300,000 $342,593 $42,593 14.2%

Project scope changed to include 5 breaker replacements rather than 4

Rejected Pole Replacements $400,000 $415,960 $15,960 4.0% Tracking close to forecast

Jamestown – Edgeley – Oakes Line Rebuild $500,000 $202,273 ($297,727) (59.5%) Reliability concerns addressed

by a lower cost plan

Parshall Area 115 kV Source $600,000 $5,348 ($594,652) (99.1%) Project delayed due to negotiations with third party

Summit 115/41.6 kV Transformer Replacement $1,000,000 $619,717 ($380,283) (37.8%) Material costs were lower than

expected

Transmission Line Capacity Upgrades $5,000,000 $2,452,216 ($2,547,784) (51.0%)

Engineering has delayed the initiation of expected construction activities

Oakes Area Transmission Improvements $5,637,004 $455,650 ($5,181,354) (91.9%) Project delayed due to budget

constraints

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Attachments GG and MM Capital Projects:

Transmission Line Projects > $200K

Project Forecasted 2013 Capital

Addition

Actual 2013 Capital

Addition$ Change %

Variance Reason for Variance

Attachment GG

Buffalo – Casselton 115 kV Line $7,506,464 $3,326,581 ($4,179,883) (55.7%) Underlying improvements

delayed until 2014 and 2015

Fargo – St. Cloud 345 kV Line $20,683,120 $27,077,796 $6,394,676 30.9% Material deliveries

accelerated during 2013

Attachment MM

Brookings – Hampton Line $11,587,249 $10,493,282 ($1,093,967) (9.4%) Weather impacted expected project schedule.

Big Stone South – Brookings Line $1,562,040 $581,900 ($980,140) (62.7%)

Project development activities did not occur as quickly as forecasted

Big Stone South – Ellendale Line $3,865,059 $2,420,133 ($1,444,924) (37.4%)

Project development activities did not occur as quickly as forecasted

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Questions?

If you have any additional questions after the meeting, please submit via e-mail to:

Kyle Sem, CPA

Manager – Business Planning

ksem@otpco.com

All questions and answers will be distributed by e-mail to all attendees. Additionally, the

questions and answers will be posted on Otter Tail’s OASIS website

(http://www.oasis.oati.com/OTP/index.html) within two weeks from the date of inquiry.