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2011 Transmission Customer Meeting October 12, 2011

2011 Transmission Customer Meeting October 12, 2011. 2011 Transmission Customer Meeting. Agenda Minnesota Power and MISO Rates Structure 2010 True Up 2012 Rates Supporting Documentation Questions. Minnesota Power and MISO Rate Structure. ALLETE Attachment O to the MISO Tariff

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2011 Transmission Customer Meeting October 12, 2011

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  1. 2011 Transmission Customer Meeting October 12, 2011

  2. 2011 Transmission Customer Meeting • Agenda • Minnesota Power and MISO Rates Structure • 2010 True Up • 2012 Rates • Supporting Documentation • Questions

  3. Minnesota Power and MISO Rate Structure • ALLETE Attachment O to the MISO Tariff • Develops rates for the AC system • Schedule 7 Firm Point to Point Transactions • Schedule 8 Non Firm Point to Point Transactions • Schedule 9 Network Transmission Service • Develops rates for the HVDC system • Schedule 7 Firm Point to Point Transactions • Schedule 8 Non Firm Point to Point Transactions • Schedule 9 Network Transmission Service

  4. Minnesota Power and MISO Rate Structure • ALLETE Attachment GG to the MISO Tariff • Develops rates for the AC system • Schedule 26 Network Upgrade Charge • Develops rates for the HVDC system • Schedule 26 Network Upgrade Charge

  5. 2010 True Up • Minnesota Power is required to perform a true up of the 2010 forecasted rates to actual cost during 2011. • This true up has been completed based on the 2010 FERC Form 1 . • Any adjustments as a result of the true up will be included as part of the 2012 forward looking test year. These adjustments will also include an interest calculation.

  6. 2010 True Up Results

  7. 2010 True Up Results MISO Attachment O True Up Calculation • Annual Transmission Revenue Requirement True Up AC System DC System Historic Year Actual RR $ 29,913,575 $ 15,754,008 Historic Year Projected RR $ 32,028,415$ 15,985,088 Historic Year True Up $ (2,114,840) $ (231,080) • Divisor True Up (KW Peak) Historic Year Actual Divisor 1,488,400 500,000 Historic Year Projected Divisor 1,445,500500,000 Difference in Divisor 42,900 0 Historic Year Projected Annual Rate ($/kw/yr) $ 22.157 $ 31.970 Divisor True Up (Rate * Difference) $ 950,549 • Summary Revenue Requirement True Up $ (2,114,840) $ (231,080) Divisor True Up $ 950,549$ 0 Total 2010 True Up Before Interest $ (1,164,291) $ (231,080) • Interest Calculation$ ( 75,679) $ (15,020) Minnesota Power Average Prime Interest Rate Interest for 24 Months (Jan-10 to Dec-11) 3.25% 3.25% • Total True Up $(1,239,970) $ (246,100)

  8. 2010 True Up Results MISO Attachment GG True Up Calculation Annual Attachment GG Revenue Requirement True Up AC System DC System Historic Year Actual RR for GG $ 4,770,799 $ 0 Historic Year Projected RR for GG $ 3,801,425$ 0 Historic Year True Up $ 969,354 $ 0 Interest Calculation $ 9,965 $ 0 Minnesota Power Short Term Interest RateInterest for 24 Months (Jan-10 to Dec-11) .514% Total True Up $ 979,319 $ 0

  9. 2012 MISO Rate Projections

  10. 2012 MISO Rate ProjectionsRevenue Requirements Based on MP 2012 Budget AC SystemDC System Gross Plant in Service (13 month avg.) $291,453,512 $127,421,467 CWIP (13 month avg.) $ 33,078,662 Rate Base $ 168,002,502 $ 60,274,065 Attachment GG Credits ( $ 16,192.567) Net Revenue Requirements $ 38,753,394 $ 16,329,538 (Before True Up Credits) True Up Credits ($,1,239,970) ( $ 231,080) Net Revenue Req. $ 37,513,424 $ 16,098,458 2012 Projected Peak (MW)1,520.2 500.0 Annual 2012MISO Transmission Rate $24,677 $32,197 ( Net RR / Peak = $/MW Yr)

  11. 2012 MISO Rate ProjectionsAnnual Rates Converted to Monthly Rates AC System DC System Annual Rates $24,677 $32,197 Monthly Rates (Annual rates / 12) Schedule 7 (Firm) $2,056 $2,683 Schedule 8 (Non Firm) $2,056 $730* Schedule 9 (Network)$2,056 N/A * HVDC Non Firm Transactions are charged $ 1 per MW/Hr due to non firm losses being incremental

  12. 2012 MISO Rate Projections Comparison of Monthly Rates 2011 compared to 2012 2011 2012 AC System $2,223 $2,056 DC System $2,482 $2,683

  13. 2012 Rate Analysis • AC Load up from 2011. DC Load steady • AC Plant Balances up due to completion of the Phase 1 of the Essar Steel Project, the St. Cloud to Monticello CAPX Line and the Boswell to Bemidji CAPX Line. • CWIP Balances are up to reflect the continuation of the St. Cloud to Fargo CAPX project • AC Revenue Requirements have been offset by $16,192,567 in Attachment GG Credits

  14. Schedule 26 Network Upgrade Charge Until MISO publishes 2012 allocations from all MISO TO’s a complete rate can not be projected. The 2012 allocations will be posted by MISO in December 2011. Minnesota Power will be collecting revenue requirements for the following projects through Schedule 26 in 2012. 115 KV Badoura Area Upgrades In Service $ 5,930,346 (Includes 2010 True Up Amount) 230 kV Boswell to Bemidji CAPX Project In Service Sept 2012 $ 2,231,332 345 kV St Cloud to Monticello CAPX Project In Service Dec 2011 $ 2,770,511 345 kV St Could to Fargo CAPX Project CWIP $ 4,503,690 115 kV 9 Line Upgrade In Service Dec 2012 $ 1,736,007

  15. 2012 Supporting Documentation • A revised Attachment O and GG were posted to the MP page of the MISO OASIS earlier this week • A complete set of working papers can also be found at the same location • https://oasis.midwestiso.org/oasis/MP

  16. 2011 Transmission Customer Meeting • Questions

  17. 2011 Transmission Customer Meeting Contacts: Mike Donahue Mdonahue@mnpower.com (218) 355-2617 Jeanne Kallberg Jkallberg@mnpower.com (218) 355-2648 Kara Henderson Khenderson@mnpower.com (218) 355-2869

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