NSPM & NSPW Transmission Customer Meeting - June 26, 2019

The meeting discussed the actual costs of Northern States Power Companies (NSPM & NSPW) Attachment O for 2018. It covered compliance with the Formula Rate Protocol, True-Up calculations, and the impact of TCJA on revenue requirements. The presentation showcased the 2018 True-Up recap and compared it to prior years' figures, highlighting areas of significant impact.

• Transmission
• Customer Meeting
• NSPM
• NSPW
• Attachment O

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1. Northern States Power Companies (NSPM & NSPW) MISO Attachment O-NSP Transmission Customer Meeting June 26, 2019 Discussion: Attachment O Actual Costs 2018 1

2. 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 2018 Attachment O Cost Information Present the 2018 True-Up calculation that will be included in the development of the projected rates that will be effective January 1 through December 31, 2020, and Recap the 2018 Actual Attachment O cost information relative to the 2018 budget information upon which the 2018 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

3. Attachment O-NSP Actual 2018 Revenue Requirement Submitted to MISO and posted to OASIS on May 31, 2019; Updated June 14, 2019 MISO is still performing their review on this submission The 2018 True-Up plus interest will be included in the development of the 2020 Attachment O-NSP Annual Transmission Revenue Requirement (ATRR) and rates The 2018 actual ATRR (and thus the true-up) were significantly impacted by the impact of the TCJA on ADIT. That impact was not reflected in the estimated rates. Tariff revisions accepted Dec. 2018. The information currently on OASIS is incorporated in this presentation. 3

4. Attachment O-NSP 2018 True-Up Recap Based upon total blended NSPM and NSPW Revenue Requirements Actual 2018 Budget 2018 Difference Net Revenue Requirement * $319.5M $338.2M $(18.7M) A Projected Year Divisor True-Up Divisor 8.572M 8.379M 0.193M Annual Cost ($/KW/Yr) * $37.278 $40.365 (3.087) Divisor True-Up *(Divisor Difference x Budget Rate) Total True-Up (Revenue Requirement & Divisor True-Up) $ 7.8M B $ 26.5M (A B) Approximately $16.5M of True-up is due to TCJA impact on excess ADIT and flow back. in addition, transmission network loads exceeded budget for the first time in five years. 4 * Actual calculation performed on whole numbers

5. Comparison of 2018 True-Up to Prior Years Test Year (A) (B) Rev Req Divisor Total (A-B) 2018 True-Up $(18.7M) $ 7.8M $(26.5M) 2017 True-Up $ (4.7M) $ (5.0M) $ 0.3M 2016 True-Up 2015 True-Up 2014 True-Up $(16.1M) $ (0.7M) $(15.4M) $(34.5M) $(15.2M) $(19.3M) $(18.9M) $(10.0M) $(8.9M) 2013 True-Up $(16.8M) $ 7.7M $(24.5M) 2012 True-Up $(12.3M) $ (3.2M) $ (9.1M) 2011 True-Up $ 4.3M $ (1.4M) $ 5.7M 5

6. Comparison of 2018 Budget Revenue Requirement to 2018 Actual Revenue Requirement Budgeted Net 2018 Revenue Requirement Cost Deviations for 2018: Lower Operating Costs Lower Return Requirement $338.2M $ (27.2M) $ (3.7M) Lower Revenue Credits Lower Attachment GG & MM Credits $ 2.8M $ 9.4M Actual Net 2018 Revenue Requirement $319.5M 6

7. Comparison of 2018 Budget Revenue Requirement to 2018 Actual Revenue Requirement Budgeted Net 2018 Revenue Requirement Cost Deviations for 2018: Lower Operating Costs Lower Return Requirement $338.2M $ (27.2M) $ (3.7M) Lower Revenue Credits Lower Attachment GG & MM Credits $ 2.8M $ 9.4M Actual Net 2018 Revenue Requirement $319.5M 7

8. Change in Operating Costs Detail Budgeted Operating Costs in 2018 Rate $293.4M Lower income taxes $(17.8M) Lower O&M costs (Transmission and A&G) $ (6.4M) Lower incurred taxes other than income $ (4.0M) Higher depreciation expense $ 1.0M Net Decrease in Operating Costs $(27.2M) Actual Operating costs for 2018 $266.2M 8

9. Comparison of 2018 Budget Revenue Requirement to 2018 Actual Revenue Requirement Budgeted Net 2018 Revenue Requirement Cost Deviations for 2018: Lower Operating Costs Lower Return Requirement $338.2M $ (27.2M) $ (3.7M) Lower Revenue Credits Lower Attachment GG & MM Credits $ 2.8M $ 9.4M Actual Net 2018 Revenue Requirement $319.5M 9

10. Annual Revenue Requirement Determination Function of: Rate Base x Weighted Cost of Capital 10

11. Change in Rate Base Total Budgeted Rate Base 2018 $2,678.6M Lower Average Net plant in service No Change in Average CWIP Higher Accumulated Deferred Taxes (deducted from rate base) Lower Other Working Capital Net Decrease in rate base $ (9.9M) $ 0.0M $ (8.0M) $(1.7M) $ (19.6M) Total Actual Rate Base 2018 $2,659.0M 11

12. Change in Cost of Capital Weighted Cost of Capital LTD Equity Cost of Capital D/E Ratio 2018A 2018B Cost * Cost of Capital D/E Ratio Cost * 4.50% 47.17% 2.12% 4.57% 46.40% 2.12% 10.82% 52.83% 5.72% 10.82% 53.60% 5.80% 7.84% 7.92% * Actual calculation performed on whole numbers; ROE Base 10.32% + 50BP Adder 12

13. Reconciliation of Change in Return for 2018 Change in Rate Base* $(19.6M) x 7.84% $(1.6M) PY Rate base x decrease in WCC* $2,678.6M x (0.08)% $(2.1M) Net change in return $ (3.7M) Overall lower Return was a function of both a lower Rate Base and the decrease in Weighted Cost of Capital * Actual calculation performed on whole numbers 13

14. Comparison of 2018 Budget Revenue Requirement to 2018 Actual Revenue Requirement Budgeted Net 2018 Revenue Requirement Cost Deviations for 2018: Lower Operating Costs Lower Return Requirement $338.2M $ (27.2M) $ (3.7M) Lower Revenue Credits Lower Attachment GG & MM Credits $ 2.8M $ 9.4M Actual Net 2018 Revenue Requirement $319.5M 14

15. Change in Net Revenue Credits (Other revenue received that offsets total revenue requirement) Estimated Revenue Credits in 2018 Rate Actual Revenue Credits in 2018 $ (12.5M) $ (9.7M) Difference; increases 2018 Revenue Req $2.8M Components of Revenue Credits: Rental Revenues higher than budget Point to Point revenue lower than budget $3.2M $(0.3M) $2.8M 15

16. Comparison of 2018 Budget Revenue Requirement to 2018 Actual Revenue Requirement Budgeted Net 2018 Revenue Requirement Cost Deviations for 2018: Lower Operating Costs Lower Return Requirement $338.2M $ (27.2M) $ (3.7M) Lower Revenue Credits Lower Attachment GG & MM Credits $ 2.8M $ 9.4M Actual Net 2018 Revenue Requirement $319.5M 16

17. Components of Attachment GG & MM Attachment GG Attachment MM Rev Req Budget for 2018 $ 71.8M $ 60.9M Operating expenses (1) $ (1.0M) $ (0.7M) Depreciation expense Taxes other Income taxes* Return Rev Req Actual 2018 $ 0.9M $ (0.4M) $ (0.5M) $ (0.5M) $ (2.8M) $ (2.7M) $ (0.7M) $ (1.0M) $ 67.7M $ 55.6M Lower 2018 Actuals $ 4.1M $5.3M $ 9.4M Attachment GG & MM revenue requirements are deducted from Attachment O, lower credits increase Attachment O revenue requirements * Income tax amounts reflect TCJA related impact associated with excess ADIT and related flow back 17 (1) Includes Common & General depreciation calculation

18. This will likely be my last presentation as Ryan is going to assume the function of Lead Analyst. Which comes with all honors including presenting at these Customer Mtgs. Questions? Contacts: Carolyn M Wetterlin Sr. RTO Manager 612-330-6599 Thomas E Kramer or Ryan E Strean Principal Rate Analyst Principal Rate Analyst 612-330-5866 612-330-4527 18