# Otter Tail Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [Otter Tail Corp](/companies/ottr.md) (CIK 1466593)
- Form: 10-Q
- Filed: 2024-11-07
- Accepted by EDGAR: Nov 7, 2024, 12:30 ET
- Period: 2024-09-30
- Accession: 0001466593-24-000140
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1466593/000146659324000140/ottr-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1466593/000146659324000140/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $338.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $1.03bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $18.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $55.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $107.5m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $313.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $11.2m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $31.2m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $18.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $57.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $85.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $246.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $2.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $5.87 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $2.04 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $5.91 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 42,081,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 42,068,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $322.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $259.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2024-01-01 to 2024-09-30 | $58.7m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2024-09-30 | $280.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $650.3m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $3.57bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $299.6m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-09-30 | $943.7m | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | at 2024-09-30 | $67.4m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-09-30 | $1.63bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 45,679 characters.

*You should read the following discussion and analysis of our financial condition and results of operations together with our interim financial statements and the related notes appearing under Item 1 of this Quarterly Report on Form 10-Q, and our annual financial statements and the related notes along with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 10-K for the year ended December 31, 2023.*

Otter Tail Corporation and its subsidiaries form a diverse group of businesses with operations classified into three segments: Electric, Manufacturing and Plastics. Our Electric segment business is a vertically integrated, regulated utility with generation, transmission and distribution facilities to serve our customers in western Minnesota, eastern North Dakota and northeastern South Dakota. Our Manufacturing segment provides metal fabrication for custom machine parts and metal components and manufactures extruded and thermoformed plastic products. Our Plastics segment manufactures PVC pipe for use in, among other applications, municipal and rural water, wastewater and water reclamation projects.

### RESULTS OF OPERATIONS – QUARTER TO DATE

Provided below is a summary and discussion of our operating results on a consolidated basis followed by a discussion of the operating results of each of our segments: Electric, Manufacturing and Plastics. In addition to the segment results, we provide an overview of our Corporate costs. Our Corporate costs do not constitute a reportable segment, but rather consist of unallocated general corporate expenses, such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of segment performance. Corporate costs are added to operating segment totals to reconcile to totals on our consolidated statements of income.

### CONSOLIDATED RESULTS

The following table summarizes consolidated operating results for the three months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| Operating Revenues | **$338,033** | $358,056 | $(20,023) | (5.6)% |
| Operating Expenses | **230,492** | 236,940 | (6,448) | (2.7) |
| **Operating Income** | **107,541** | 121,116 | (13,575) | (11.2) |
| Interest Expense | **(11,173)** | (9,175) | (1,998) | 21.8 |
| Nonservice Components of Postretirement Benefits | **2,367** | 2,289 | 78 | 3.4 |
| Other Income (Expense), net | **5,421** | 2,471 | 2,950 | 119.4 |
| **Income Before Income Taxes** | **104,156** | 116,701 | (12,545) | (10.7) |
| Income Tax Expense | **18,677** | 24,727 | (6,050) | (24.5) |
| **Net Income** | **$85,479** | $91,974 | $(6,495) | (7.1)% |

**Operating Revenues** decreased $20.0 million primarily due to decreased sales volumes in our Manufacturing segment. See our segment disclosures below for additional discussion of items impacting operating revenues.

**Operating Expenses** decreased $6.4 million primarily due to decreased sales volumes in our Manufacturing segment and lower fuel costs in our Electric segment. See our segment disclosures below for additional discussion of items impacting operating expenses.

**Interest Expense** increased $2.0 million primarily due to the issuance of an additional $120.0 million of long-term debt at OTP in March 2024, the proceeds of which were used to repay short-term borrowings, fund capital expenditures, and support operating activities.

**Other Income (Expense)** increased $3.0 million, having a positive impact on net income, primarily due to increased investment income earned on our short- and long-term investments. Increased investment income was primarily driven by increased available cash for investment from cash generation of our Plastics segment. Gains on our corporate-owned life insurance policies also contributed to the increase in other income.

**Income Tax Expense** decreased $6.1 million primarily due to decreased income before income taxes and an increase in PTCs at OTP due to increased wind and solar generation. Our effective tax rate was 17.9% for the three months ended September 30, 2024 and 21.2% for the same period last year.

### ELECTRIC SEGMENT RESULTS

The following table summarizes Electric segment operating results for the three months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| Retail Revenues | **$110,802** | $110,499 | $303 | 0.3% |
| Transmission Services Revenues | **15,152** | 13,670 | 1,482 | 10.8 |
| Wholesale Revenues | **3,139** | 4,752 | (1,613) | (33.9) |
| Other Electric Revenues | **1,287** | 1,405 | (118) | (8.4) |
| Total Operating Revenues | **130,380** | 130,326 | 54 | — |
| Production Fuel | **14,991** | 19,603 | (4,612) | (23.5) |
| Purchased Power | **10,735** | 10,895 | (160) | (1.5) |
| Operating and Maintenance Expenses | **43,737** | 43,534 | 203 | 0.5 |
| Depreciation and Amortization | **20,741** | 18,958 | 1,783 | 9.4 |
| Property Taxes | **3,705** | 4,194 | (489) | (11.7) |
| Operating Income | **$36,471** | $33,142 | $3,329 | 10.0% |
|  | **2024** | **2023** | **change** | **% change** |
| Electric kilowatt-hour (kwh) Sales (in thousands) |  |  |  |  |
| Retail kwh Sales | **1,304,446** | 1,300,324 | 4,122 | 0.3% |
| Wholesale kwh Sales – Company Generation | **71,702** | 119,515 | (47,813) | (40.0) |
| **Heating Degree Days** | **2** | 3 | (1) | (33.3) |
| **Cooling Degree Days** | **378** | 317 | 61 | 19.2 |

The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating and cooling degree days as a percent of normal for the three months ended September 30, 2024 and 2023.

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Heating Degree Days | **4.7%** | 6.3% |
| Cooling Degree Days | **111.5%** | 92.2% |

The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions for the three months ended September 30, 2024 and 2023, and between those periods.

|  | 2024 vs Normal | 2024 vs 2023 | 2023 vs Normal |
| --- | ---: | ---: | ---: |
| Effect on Diluted Earnings Per Share | $0.01 | $0.02 | $(0.01) |

**Retail Revenues** increased $0.3 million primarily due to the following:

- A $3.0 million increase in retail revenues, net of an estimated refund, from an interim rate increase in North Dakota effective January 1, 2024 in connection with our current rate case.
- A $1.1 million increase due to the impact of favorable weather.

The increases in retail revenues described above were partially offset by the following:

- A $2.9 million decrease in fuel recovery revenues due to lower generation from our coal-fired and natural gas facilities and lower market energy prices.

Retail revenues were also impacted by a net decrease in rider revenues primarily due to increased PTCs from our wind and solar generation, which are passed on to customers, partially offset by additional recovery of costs associated with our advanced meter infrastructure and wind repowering projects.

**Transmission Services Revenues** increased $1.5 million primarily due a reduction in our estimated refund liability in connection with the resolution of a contested matter with FERC related to the allowed ROE during certain prior periods, which resulted in an additional nonrecurring revenue in the current period. The impact of the reduced refund was partially offset by refunds paid to other transmission owners in the current period.

**Wholesale Revenues** decreased $1.6 million primarily due to a 40% decrease in wholesale sales volumes.

**Production Fuel** costs decreased $4.6 million primarily due to a decrease in generation from our coal-fired and natural gas facilities compared to the same period last year, as described above.

**Depreciation and Amortization** increased $1.8 million due to additional assets, including certain distribution assets, being placed in service.

### MANUFACTURING SEGMENT RESULTS

The following table summarizes Manufacturing segment operating results for the three months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| Operating Revenues | **$79,896** | $100,678 | $(20,782) | (20.6)% |
| Cost of Products Sold (excluding depreciation) | **64,398** | 76,288 | (11,890) | (15.6) |
| Selling, General, and Administrative Expenses | **7,616** | 11,010 | (3,394) | (30.8) |
| Depreciation and Amortization | **5,199** | 4,551 | 648 | 14.2 |
| Operating Income | **$2,683** | $8,829 | $(6,146) | (69.6)% |

**Operating Revenues** decreased $20.8 million primarily due to a 13% decrease in sales volumes, with declines experienced primarily in the recreational vehicle, agriculture, construction, and lawn and garden end markets. Sales volumes have softened due to lower end market demand and inventory management efforts by manufacturers and dealers. A 37% decline in scrap metal revenues, largely driven by lower production volumes and a 6% decrease in steel costs, which are passed through to customers, also contributed to the decrease in operating revenues.

**Cost of Products Sold** decreased $11.9 million primarily due to lower sales volumes, as described above.

**Selling, General, and Administrative Expenses** decreased $3.4 million primarily due to variable costs associated with decreased business activity and financial performance during the period.

### PLASTICS SEGMENT RESULTS

The following table summarizes Plastics segment operating results for the three months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| Operating Revenues | **$127,757** | $127,052 | $705 | 0.6% |
| Cost of Products Sold (excluding depreciation) | **47,056** | 42,015 | 5,041 | 12.0 |
| Selling, General, and Administrative Expenses | **5,870** | 3,906 | 1,964 | 50.3 |
| Depreciation and Amortization | **1,086** | 1,012 | 74 | 7.3 |
| Operating Income | **$73,745** | $80,119 | $(6,374) | (8.0)% |

**Operating Revenues** increased $0.7 million as a 13% increase in sales volumes, driven by continued customer sales volume growth and distributor and end market demand, was largely offset by continued declining sales prices. Sales prices have steadily declined throughout the year and decreased 11% compared to the same period last year.

**Cost of Products Sold** increased $5.0 million primarily due to increased sales volumes, as described above. The unique supply and demand conditions experienced in recent years, which caused significant volatility and increases in resin costs, have subsided and resin costs remained stable during the period.

**Selling, General, and Administrative Expenses** increased $2.0 million primarily due to costs associated with ongoing litigation regarding the pricing of PVC pipe, which is further described in Note 10 to the consolidated financial statements, as well as variable costs associated with financial performance during the period.

### CORPORATE COSTS

The following table summarizes Corporate operating results for the three months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| General, and Administrative Expenses | **$5,333** | $947 | $4,386 | 463.1% |
| Depreciation and Amortization | **25** | 27 | (2) | (7.4) |
| Operating Loss | **$5,358** | $974 | $4,384 | 450.1% |

**General, and Administrative Expenses** increased $4.4 million primarily due to increased insurance and employee benefit expenses, including increases in our workers' compensation and employee health insurance claim costs, after we had experienced a decline in employee medical costs in the prior year.

### RESULTS OF OPERATIONS – YEAR TO DATE

### CONSOLIDATED RESULTS

The following table summarizes consolidated operating results for the nine months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| Operating Revenues | **$1,027,437** | $1,034,853 | $(7,416) | (0.7)% |
| Operating Expenses | **714,011** | 727,014 | (13,003) | (1.8) |
| **Operating Income** | **313,426** | 307,839 | 5,587 | 1.8 |
| Interest Expense | **(31,225)** | (28,285) | (2,940) | 10.4 |
| Nonservice Components of Postretirement Benefits | **7,197** | 7,122 | 75 | 1.1 |
| Other Income (Expense), net | **14,491** | 7,841 | 6,650 | 84.8 |
| **Income Before Income Taxes** | **303,889** | 294,517 | 9,372 | 3.2 |
| Income Tax Expense | **57,077** | 58,093 | (1,016) | (1.7) |
| **Net Income** | **$246,812** | $236,424 | $10,388 | 4.4% |

**Operating Revenues** decreased $7.4 million primarily due to decreased sales prices within our Plastics segment, decreased sales volumes in our Manufacturing segment, and decreased fuel recovery revenues and unfavorable weather in our Electric segment. Within our Plastics segment, the impact of decreased sales prices was more than offset by increased sales volumes. See our segment disclosures below for additional discussion of items impacting operating revenues.

**Operating Expenses** decreased $13.0 million primarily due to lower sales volumes within our Manufacturing segment and lower purchased power costs in our Electric segment, partially offset by the impact of increased sales volumes within our Plastics segment. See our segment disclosures below for additional discussion of items impacting operating expenses.

**Interest Expense** increased $2.9 million due to the issuance of an additional $120.0 million of long-term debt at OTP in March 2024, the proceeds of which were used to repay short-term borrowings, fund capital expenditures, and support operating activities.

**Other Income** increased $6.7 million, having a positive impact on net income, primarily due to increased investment income earned on our short-term cash equivalent investments and long-term marketable securities. Increased investment income was primarily driven by increased available cash for investment resulting from cash generation in our Plastics segment. Allowance for funds used during construction in our Electric segment also increased related to an increase in capital expenditures compared to the same period last year.

**Income Tax Expense** decreased $1.0 million compared to the same period last year. Our effective tax rate was 18.8% for the nine months ended September 30, 2024, and 19.7% for the same period last year. The decrease in our effective tax rate was primarily driven by an increase in PTCs from our wind and solar generation assets.

### ELECTRIC SEGMENT RESULTS

The following table summarizes Electric segment operating results for the nine months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| Retail Revenues | **$331,673** | $340,667 | $(8,994) | (2.6)% |
| Transmission Services Revenues | **39,805** | 40,606 | (801) | (2.0) |
| Wholesale Revenues | **8,273** | 9,260 | (987) | (10.7) |
| Other Electric Revenues | **4,945** | 5,464 | (519) | (9.5) |
| Total Operating Revenues | **384,696** | 395,997 | (11,301) | (2.9) |
| Production Fuel | **45,009** | 45,928 | (919) | (2.0) |
| Purchased Power | **42,507** | 57,932 | (15,425) | (26.6) |
| Operating and Maintenance Expenses | **136,367** | 134,604 | 1,763 | 1.3 |
| Depreciation and Amortization | **61,014** | 55,955 | 5,059 | 9.0 |
| Property Taxes | **11,691** | 13,151 | (1,460) | (11.1) |
| Operating Income | **$88,108** | $88,427 | $(319) | (0.4)% |
|  | **2024** | **2023** | **change** | **% change** |
| Electric kilowatt-hour (kwh) Sales (in thousands) |  |  |  |  |
| Retail kwh Sales | **4,200,801** | 4,281,400 | (80,599) | (1.9)% |
| Wholesale kwh Sales – Company Generation | **210,772** | 268,401 | (57,629) | (21.5) |
| **Heating Degree Days** | **3,286** | 4,374 | (1,088) | (24.9) |
| **Cooling Degree Days** | **439** | 571 | (132) | (23.1) |

The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating and cooling degree days as a percent of normal for the nine months ended September 30, 2024 and 2023.

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Heating Degree Days | **81.4%** | 108.6% |
| Cooling Degree Days | **94.6%** | 123.6% |

The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions for the nine months ended September 30, 2024 and 2023, and between those periods.

|  | 2024 vs Normal | 2024 vs 2023 | 2023 vs Normal |
| --- | ---: | ---: | ---: |
| Effect on Diluted Earnings Per Share | $(0.09) | $(0.15) | $0.06 |

**Retail Revenues** decreased $9.0 million primarily due to the following:

- A $14.8 million decrease in fuel recovery revenues primarily due to a 17% decrease in the cost of purchased power, as well as a 12% decrease in the volume of purchased power driven by unfavorable weather.
- An $8.6 million decrease due to the impact of unfavorable weather.

The decreases in retail revenues described above were partially offset by the following:

- An $8.2 million increase in retail revenues, net of an estimated refund, from an interim rate increase in North Dakota, effective January 1, 2024, in connection with our current rate case.
- A $2.7 million increase in retail revenues due to increased sales volumes from commercial and industrial customers.

Retail revenues were also impacted by a net increase in rider revenues primarily due to the additional recovery of costs associated with our advanced meter infrastructure and wind repowering projects, partially offset by increased PTCs from our wind and solar generation, which are passed on to customers.

**Transmission Services Revenues** decreased $0.8 million primarily due to refunds paid to other transmission owners in the current period as well as certain project cost and operating and maintenance expense updates in the prior period which resulted in additional nonrecurring revenues during the period. The decreases were partially offset by a reduction in our estimated refund liability in connection with the resolution of a contested matter with FERC related to the allowed ROE during certain prior periods, which resulted in an additional nonrecurring revenue in the current period.

**Production Fuel** costs decreased $0.9 million primarily due to a decrease in generation from our coal-fired and natural gas facilities compared to the same period last year, primarily due to a decrease in overall demand due to unfavorable weather.

**Purchased Power** costs to serve retail customers decreased $15.4 million due to a 17% decrease in the price of purchased power per kwh, primarily due to decreased market energy costs, as well as a 12% decrease in the volume of purchased power due to decreased demand resulting from unfavorable weather.

**Depreciation and Amortization** increased $5.1 million due to additional assets, including certain distribution assets, being placed in service.

**Property Taxes** decreased $1.5 million due to lower taxes associated with certain of our wind farm facilities in North Dakota due to a revision of the tax methodology applied to the property and lower than anticipated tax rates in Minnesota.

### MANUFACTURING SEGMENT RESULTS

The following table summarizes Manufacturing segment operating results for the nine months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| Operating Revenues | **$275,961** | $309,936 | $(33,975) | (11.0)% |
| Cost of Products Sold (excluding depreciation) | **213,105** | 237,670 | (24,565) | (10.3) |
| Selling, General, and Administrative Expenses | **27,958** | 32,058 | (4,100) | (12.8) |
| Depreciation and Amortization | **15,199** | 13,551 | 1,648 | 12.2 |
| Operating Income | **$19,699** | $26,657 | $(6,958) | (26.1)% |

**Operating Revenues** decreased $34.0 million primarily due to a 12% decrease in sales volumes, with declines experienced primarily in the lawn and garden, agriculture, construction, and horticulture end markets. Sales volumes have softened due to lower end market demand and inventory management efforts by manufacturers, dealers, and distributors. Scrap metal revenues decreased 1%, driven by lower production volumes and lower scrap metal prices, which also contributed to the decrease in operating revenues.

**Cost of Products Sold** decreased $24.6 million primarily due to decreased sales volumes, as described above.

**Selling, General, and Administrative Expenses** decreased $4.1 million due to variable costs associated with decreased business activity and financial performance during the period.

**Depreciation and Amortization** increased $1.6 million due to an increase in our capital investment in manufacturing equipment and our facilities.

### PLASTICS SEGMENT RESULTS

The following table summarizes Plastics segment operating results for the nine months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| Operating Revenues | **$366,780** | $328,920 | $37,860 | 11.5% |
| Cost of Products Sold (excluding depreciation) | **129,867** | 113,660 | 16,207 | 14.3 |
| Selling, General, and Administrative Expenses | **14,484** | 11,372 | 3,112 | 27.4 |
| Depreciation and Amortization | **3,293** | 3,052 | 241 | 7.9 |
| Operating Income | **$219,136** | $200,836 | $18,300 | 9.1% |

**Operating Revenues** increased $37.9 million primarily due to a 28% increase in sales volumes driven by continued customer sales volume growth and distributor and end market demand. Additionally, in the first nine months of 2023, distributors were closely managing their inventory levels and making strategic purchasing decisions amid the then uncertain market conditions which resulted in decreased sales volumes. Sales prices have steadily declined throughout the year and decreased 13% compared to the same period last year, partially offsetting the impact of increased sales volumes.

**Cost of Products Sold** increased $16.2 million due to increased sales volumes, as described above, partially offset by a 16% decrease in the cost of PVC resin and other input materials.

**Selling, General, and Administrative Expenses** increased $3.1 million due to costs associated with ongoing litigation regarding the pricing of PVC pipe, as well as variable costs associated with increased sales volumes and financial performance during the period.

### CORPORATE COSTS

The following table summarizes Corporate operating results for the nine months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 | $ change | % change |
| --- | ---: | ---: | ---: | ---: |
| General, and Administrative Expenses | **$13,444** | $8,003 | $5,441 | 68.0% |
| Depreciation and Amortization | **73** | 78 | (5) | (6.4) |
| Operating Loss | **$13,517** | $8,081 | $5,436 | 67.3% |

**General, and Administrative Expenses** increased $5.4 million primarily due to increased insurance and employee benefit expenses, including increases in our workers' compensation and employee health insurance claim costs, as well as increased share-based compensation expenses and external service provider costs.

### REGULATORY MATTERS

The following provides a summary of general rate, rate rider, and other regulatory filings that have or are expected to have a material impact on our operating results, financial position or cash flows.

### GENERAL RATES

### North Dakota Rate Case

On November 2, 2023, OTP filed a request with the North Dakota Public Service Commission (NDPSC) for an increase in revenue recoverable under general rates in North Dakota. In its filing, OTP requested a net increase in annual revenue of $17.4 million, or 8.4%, based on an allowed rate of return on rate base of 7.85% and an allowed rate of return on equity of 10.6% on an equity ratio of 53.5% of total capital. Through this proceeding, OTP has proposed changes to the mechanism of cost and investment recovery, with recovery moving from riders into base rates. The filing also includes a proposal to implement a sales adjustment mechanism to address potential significant load additions or losses.

The filing included an interim rate request of a net increase in annual revenue of $12.4 million, or 6.0%, which was approved by the NDPSC on December 13, 2023. Interim rates went into effect on January 1, 2024, and are subject to potential refund until the finalization of the rate case.

On July 3, 2024, OTP filed an update to the original request increasing the amount of the net annual revenue requirement increase from $17.4 million to $22.5 million, or a net increase of 10.9% in annual revenue, to account for certain items identified throughout the regulatory process to date. An evidentiary hearing before the NDPSC is scheduled to take place in December 2024, with a final decision anticipated in early 2025.

### RATE RIDERS

The following table includes a summary of pending and recently concluded rate rider proceedings with a significant revenue impact:

*(in millions)*

| Recovery Mechanism | Jurisdiction | Status | Filing Date | Amount | Effective Date | Notes |
| --- | --- | --- | --- | ---: | --- | --- |
| RRR - 2023 | MN | Approved | 11/01/22 | $17.5 | 07/01/23 | Recovery of Hoot Lake Solar costs, Ashtabula III costs, and true up for PTCs from Merricourt. |
| ECO - 2023 | MN | Approved | 04/03/23 | 9.7 | 10/01/23 | Recovery of energy conservation improvement costs as well as a demand side management financial incentive. |
| ECO - 2024 | MN | Requested | 04/01/24 | 8.8 | 10/01/24 | Recovery of energy conservation improvement costs as well as a demand side management financial incentive. |
| RRR - 2024 | MN | Approved | 12/04/23 | 8.0 | 09/01/24 | Recovery of Hoot Lake Solar costs, Ashtabula III costs, wind upgrade project costs at our four owned wind facilities, and true up of PTCs for Merricourt. |
| EUIC - 2025 | MN | Requested | 05/03/24 | 4.1 | 01/01/25 | Recovery of advanced metering infrastructure, outage management system, geographic information system, and demand response projects. |
| RRR - 2023 | ND | Approved | 12/30/22 | 12.2 | 05/01/23 | Recovery of Merricourt, Ashtabula III and other costs. |
| RRR - 2022 | ND | Approved | 01/05/22 | 7.8 | 04/01/22 | Recovery of Merricourt costs, Ashtabula III costs, and deferred taxes and PTCs. |
| TCR - 2023 | ND | Approved | 09/15/22 | 7.5 | 01/01/23 | Recovery of transmission project costs. |
| TCR - 2024 | ND | Approved | 11/02/23 | 4.5 | 01/01/24 | Recovery of transmission project costs. |
| MDT - 2023 | ND | Approved | 07/08/22 | 3.1 | 01/01/23 | Recovery of advanced metering infrastructure, outage management system and demand response projects. |
| TCR - 2025 | ND | Requested | 09/16/24 | 3.1 | 01/01/25 | Recovery of transmission project costs. |
| PIR - 2024 | SD | Approved | 06/03/24 | 3.2 | 09/01/24 | Recovery of Ashtabula III, Merricourt, Astoria Station, wind upgrade projects, Advanced Grid Infrastructure project costs, and impact of load growth credits. |
| PIR - 2022 | SD | Approved | 06/01/22 | 3.0 | 09/01/22 | Recovery of Ashtabula III, Merricourt, Astoria Station, Advanced Grid Infrastructure project costs, and impact of load growth credits. |
| TCR - 2023 | SD | Approved | 11/01/22 | 3.0 | 03/01/23 | Recovery of transmission project costs. |

### RESOURCE PLANNING

### Minnesota

In May 2024, the MPUC approved OTP’s 2023 to 2037 Integrated Resource Plan (IRP). Consistent with MPUC practice, the decision was made during deliberations by oral vote and was finalized in a written order issued in July 2024.

The MPUC:

- Directed OTP to procure the following generation resources, subject to additional regulatory review and approval:
- 200 to 300 megawatts of solar generation by November 1, 2027, or as soon as practicable thereafter,
- 150 to 200 megawatts of wind generation by December 31, 2029, or as soon as practicable thereafter,
- 20 to 75 megawatts of battery storage by December 31, 2029, or as soon as practicable thereafter;
- Approved the project to add on-site liquified natural gas storage at Astoria Station natural gas plant by 2027;
- Directed OTP to designate the Minnesota share of the jointly owned Coyote Station coal-fired plant as an Available Maximum Emergency (AME) resource beginning in 2026 and ending no later than December 2031. If the designation as an AME resource is found to not be feasible, then Minnesota customers shall not continue to pay for or depend on capacity or energy from Coyote Station past 2028; and
- Directed OTP to commence activities to no longer serve Minnesota customers with capacity or energy from Coyote Station as soon as feasible and no later than December 31, 2031.

Under the MPUC’s order, OTP will file its next IRP in May 2026. In this filing, the company will include, among other options, an analysis considering the continued operation of Big Stone Plant with AME.

### North Dakota

In February 2023, we filed a request for an Advanced Determination of Prudence (ADP) with the NDPSC for the on-site liquified natural gas storage at Astoria Station. Our latest supplemental IRP in North Dakota, which was filed in March 2023, included the on- site storage request as well as other investments to meet our customers’ anticipated capacity and energy needs while maintaining system reliability and low electric service rates. At an informal hearing in July 2024, the NDPSC denied the on-site fuel storage ADP. It remains unclear what action the NDPSC will take on our IRP.

### ENVIRONMENTAL REGULATION

In April 2024, the EPA finalized new regulations under Section 111 of the Clean Air Act to regulate greenhouse gas (GHG) emissions from existing and new fossil fuel-based power plants. The final rule establishes subcategories for new combustion turbines and existing coal-fired power plants to achieve certain carbon dioxide (CO2) emission reduction levels based on the respective subcategory. For existing coal-fired power plants, the applicable subcategory is based upon the date at which the plant will cease operations.

We continue to review and evaluate the final regulations and their impact on our power plants and the potential impact to our operating results, financial condition and liquidity. Coyote Station and Big Stone Plant, our two co-owned coal-fired power plants, are within the scope of the regulations, but we do not believe our combustion turbines would be within the scope of the final regulation.

In April 2024, the EPA also finalized regulations to strengthen and update Mercury and Air Toxics Standards for coal-fired power plants, tightening the emission standard for toxic metals and finalizing a reduction standard for mercury from existing lignite-fired sources. The EPA also published a final rule under the Clean Water Act to reduce pollutants discharged through wastewater from coal-fired power plants and a final rule requiring the safe management of coal ash at inactive facilities, including requirements for ongoing monitoring and closure and post-closure care.

We continue to review and evaluate these final regulations, and their impact on our operations, which could have a material impact on our operating results, financial condition and liquidity.

### LIQUIDITY

### LIQUIDITY OVERVIEW

We believe our financial condition is strong and our cash and cash equivalents, other liquid assets, operating cash flows, existing lines of credit, access to capital markets and borrowing ability, because of investment-grade credit ratings, when taken together, provide us ample liquidity to conduct our business operations, fund our short-term and long-term capital expenditure plans and satisfy our obligations as they become due. Our liquidity, including our operating cash flows and access to capital markets, could be impacted by macroeconomic factors outside of our control, including higher interest rates and debt capital costs and diminished credit availability. In addition, our liquidity could be impacted by non-compliance with certain financial covenants under our various debt instruments. As of September 30, 2024, we were in compliance with all financial covenants (see the Financial Covenants section under Capital Resources below).

The following table presents the status of our lines of credit as of September 30, 2024 and December 31, 2023:

*(in thousands)*

|  | Borrowing Limit | 2024 Amount Outstanding | Letters of Credit | Amount Available | 2023 Amount Available |
| --- | ---: | ---: | ---: | ---: | ---: |
| OTC Credit Agreement | **$170,000** | **$—** | **$—** | **$170,000** | $170,000 |
| OTP Credit Agreement | **170,000** | **67,401** | **8,772** | **93,827** | 79,446 |
| Total | **$340,000** | **$67,401** | **$8,772** | **$263,827** | $249,446 |

OTC and OTP are each party to separate credit agreements (the OTC Credit Agreement and OTP Credit Agreement, respectively) which provide for unsecured revolving lines of credit. Should additional liquidity be needed, the OTC Credit Agreement includes an accordion feature allowing us to increase the amount available to $290 million, subject to certain terms and conditions. The OTP Credit Agreement also includes an accordion feature allowing OTP to increase that facility to $250 million, subject to certain terms and conditions.

As of September 30, 2024, we had $263.8 million of available liquidity under our credit facilities and $280.0 million of available cash and cash equivalents, resulting in total available liquidity of $543.8 million, compared to total available liquidity of $468.1million as of September 30, 2023.

### CASH FLOWS

The following is a discussion of our cash flows for the nine months ended September 30, 2024 and 2023:

*(in thousands)*

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Net Cash Provided by Operating Activities | **$322,775** | $318,495 |

**Net Cash Provided by Operating Activities** increased $4.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to an increase in net income driven by increased earnings from our Plastics segment, partially offset by increased working capital at our Manufacturing segment.

*(in thousands)*

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Net Cash Used in Investing Activities | **$312,166** | $232,018 |

**Net Cash Used in Investing Activities** increased $80.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase in cash used in investing activities was primarily due to a $50.1 million investment in U.S. treasuries made to secure a fixed rate of return until their maturity in September 2026, and an increase in capital expenditures in 2024. Capital expenditures during the nine months ended September 30, 2024 included additional investments in our wind repowering and advanced meter infrastructure projects, as well as continued investments in our manufacturing facility expansion projects in Arizona and Georgia.

*(in thousands)*

|  | 2024 | 2023 |
| --- | ---: | ---: |
| Net Cash Provided by (Used In) Financing Activities | **$39,038** | $(16,259) |

**Net Cash Provided by (Used In) Financing Activities** increased $55.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Financing activities for the nine months ended September 30, 2024 included the issuance of $120.0 million of long-term debt at OTP, the proceeds of which were used to repay short-term borrowings under the OTP credit agreement, fund Electric segment construction expenditures, and support operating activities. We manage the capital structure of OTP independent from our consolidated financial position to ensure compliance with the capital structure approved through regulation; therefore, our decision to issue long-term debt at OTP is not impacted by our consolidated cash and cash equivalent position.

Financing activities for the nine months ended September 30, 2024 also included net short-term borrowings of $14.0 million and dividend payments of $58.7 million. Financing activities for the nine months ended September 30, 2023 included net short-term borrowings of $43.3 million and dividend payments of $54.8 million.

### CAPITAL REQUIREMENTS

### CAPITAL EXPENDITURES

Our capital expenditure plan includes investments in electric generation facilities, transmission and distribution lines, manufacturing facilities and upgrades, equipment used in the manufacturing process, and computer hardware and information systems. Our capital expenditure plan is subject to review and is revised in light of changes in demands for energy, technology, environmental laws, regulatory changes, business expansion opportunities, the costs of labor, materials and equipment and our financial condition. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Form 10-K for the year ended December 31, 2023 for our capital expenditure plans for the five year period from 2024 through 2028.

### CONTRACTUAL OBLIGATIONS

Our contractual obligations primarily include principal and interest payments due under our outstanding debt obligations, commitments to acquire coal, energy and capacity commitments, payments to meet our postretirement benefit obligations, and payment obligations under land easements and leasing arrangements.

Our contractual obligations as of December 31, 2023 are included in Item 7, *Management's Discussion and Analysis of Financial Condition and Results of Operations,* of our Annual Report on Form 10-K for the year ended December 31, 2023. There were no material changes in our contractual obligations outside of the ordinary course of business during the nine months ended September 30, 2024, except for the obligation described below.

On October 30, 2024, OTP entered into an agreement to acquire the assets of a solar facility currently under development. Per the agreement, the purchase price is equal to $23.6 million, plus the reimbursement of certain interconnection costs and costs to purchase and store the main power transformer. Closing of the transaction is expected to occur in the second half of 2025.

### COMMON STOCK DIVIDENDS

We paid dividends to our shareholders totaling $58.7 million, or $1.4025 per share, in the first nine months of 2024. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, our actual or expected level of earnings and cash flows from operations, the level of our capital expenditures and our future business prospects. As a result of certain statutory limitations or regulatory or financing agreements, the amount of dividends we are allowed to pay could be restricted. See Note 11 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. The decision to declare dividends is reviewed quarterly by our Board of Directors.

### CAPITAL RESOURCES

Financial flexibility is provided by operating cash flows, unused lines of credit and access to capital markets, and is aided by strong financial coverages and investment grade credit ratings. Debt financing will be required in the next five years to refinance maturing debt and to finance our capital investments. Our financing plans are subject to change and are impacted by our planned level of capital investments, and decisions to reduce borrowings under our lines of credit, to refund or retire early any of our outstanding debt, to complete acquisitions, or to use capital for other corporate purposes.

### REGISTRATION STATEMENTS

On May 3, 2024, we filed two registration statements with the SEC, replacing two previously filed registration statements upon their expiration. The first statement, a shelf registration, allows us to offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the registration statement. No new debt or equity has been issued pursuant to the registration statement. The second registration statement allows for the issuance of up to 1,500,000 common shares under our Automatic Dividend Reinvestment and Share Purchase Plan, which provides our common shareholders, retail customers of OTP and other interested investors a method of purchasing our common shares by reinvesting their dividends and/or making optional cash investments. Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. As of September 30, 2024, there were 1,453,913 shares available for purchase or issuance under the plan. Both registration statements expire in May 2027.

### SHORT-TERM DEBT

OTC and OTP are each party to a credit agreement (the OTC Credit Agreement and the OTP Credit Agreement, respectively) which each provides for unsecured revolving lines of credit. The following is a summary of key provisions and borrowing information as of, and for the nine months ended, September 30, 2024:

*(in thousands, except interest rates)*

|  | OTC Credit Agreement | OTP Credit Agreement |
| --- | ---: | ---: |
| Borrowing Limit | $170,000 | $170,000 |
| Borrowing Limit if Accordion Exercised1 | 290,000 | 250,000 |
| Amount Restricted Due to Outstanding Letters of Credit as of September 30, 2024 | — | 8,772 |
| Amount Outstanding as of September 30, 2024 | — | 67,401 |
| Average Amount Outstanding During the Nine Months Ended September 30, 2024 | — | 40,122 |
| Maximum Amount Outstanding During the Nine Months Ended September 30, 2024 | — | 102,024 |
| Interest Rate as of September 30, 2024 | 6.35% | 6.29% |
| Maturity Date | October 29, 2027 | October 29, 2027 |
| 1Each facility includes an accordion featuring allowing the borrower to increase the borrowing limit if certain terms and conditions are met. |  |  |

### LONG-TERM DEBT

In March 2024, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $120.0 million of senior unsecured notes consisting of (a) $60.0 million of 5.48% Series 2024A Senior Unsecured Notes due April 1, 2034, and (b) $60.0 million of 5.77% Series 2024B Senior Unsecured Notes due April 1, 2054. The proceeds of the notes were used to repay existing short-term borrowings, fund capital expenditures, and for general corporate purposes.

As of September 30, 2024, we had $947.0 million of principal outstanding under long-term debt arrangements. These instruments generally provide for unsecured borrowings at fixed rates of interest with maturities ranging from 2026 to 2054. Note 7 to our consolidated financial statements included in this Quarterly Report on Form 10-Q includes additional information regarding these short-term and long-term debt instruments.

### Financial Covenants

Certain of our short- and long-term debt agreements require OTC and OTP to maintain certain financial covenants. As of September 30, 2024, we were in compliance with these financial covenants as further described below:

**OTC,** under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00, and may not permit its priority indebtedness to exceed 10 percent of its total capitalization. As of September 30, 2024, OTC's interest-bearing debt to total capitalization was 0.38 to 1.00, OTC's interest and dividend coverage ratio was 10.4 to 1.00, and OTC had no priority indebtedness outstanding.

**OTP,** under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00, and may not permit its priority indebtedness to exceed 20 percent of its total capitalization. As of September 30, 2024, OTP's interest-bearing debt to total capitalization was 0.48 to 1.00, OTP's interest and dividend coverage ratio was 3.27 to 1.00, and OTP had no priority indebtedness outstanding.

### CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES

The discussion and analysis of our results of operations are based on financial statements prepared in accordance with generally accepted accounting principles in the United States of America. Certain of our accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the preparation of our consolidated financial statements. We have disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 the critical accounting policies that affect our most significant estimates and assumptions used in preparing our consolidated financial statements. There have been no material changes to our critical accounting policies and estimates from those disclosed in the most recent Annual Report on Form 10-K.

## Market risk

As filed, 221 characters.

There have been no material changes in our market risk from those disclosed in Item 7A, *Quantitative and Qualitative Disclosures About Market Risk,* in our Annual Report on Form 10-K for the year ended December 31, 2023.

## Controls and procedures

As filed, 1,002 characters.

***Evaluation of Disclosure Controls and Procedures.*** Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of September 30, 2024, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.

***Changes in Internal Control over Financial Reporting.*** There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 3,199 characters.

There have been no material changes from the risk factors disclosed in Item 1A, *Risk Factors,* of our Annual Report on Form 10-K for the year ended December 31, 2023, except for the risk factors below.

**Legislation, regulation, litigation or other actions related to climate change and greenhouse gas emissions could materially impact us.**

Current and future federal, state, regional and international regulations to address global climate change and reduce GHG emissions, including measures such as mandated levels of renewable generation, mandatory reductions in CO2 emission levels, taxes on CO2 emissions, or cap-and-trade regimes, could require us to incur significant costs which could negatively impact our financial condition, operating results and liquidity if such costs cannot be recovered through rates granted by rate-making authorities or through increased market prices for electricity.

In April 2024, the EPA finalized new regulations under Section 111 of the Clean Air Act to regulate GHG emissions from existing and new fossil fuel-based power plants. The new regulations require existing coal-fired power plants to achieve certain CO2 emissions reduction levels, with the amount of reduction dependent upon the remaining operating life of the facility. The new regulation has the potential to materially impact the operations of our coal-fired power plants, which could have a material impact on our operating results, financial condition and liquidity.

In addition to complying with legislation and regulation, we could be subject to litigation related to climate change. If we were subjected to such litigation, the costs of such litigation could be significant and an adverse outcome could require substantial capital expenditures, changes in operations and possible payment of penalties or damages which could affect our financial condition, operating results and liquidity if the costs are not recoverable in rates or covered by insurance.

**Claims, litigation, government investigations, and other proceedings may adversely affect our business, operating results and liquidity.**

We are periodically subject to actual and threatened claims, litigation, investigations, and other proceedings, including proceedings by governments and regulatory authorities, involving utilities regulation, competition and antitrust, product quality matters, and liability claims.

Any of these proceedings, including the currently ongoing proceedings related to our Plastics segment businesses, could have an adverse effect on our financial condition, operating results and liquidity. It is possible that a resolution of one or more proceedings, including as a result of a settlement, could involve damages, sanctions, consent decrees, or orders requiring us to make substantial future payments, prevent us from offering certain products or services, require us to change our business practices in a manner materially adverse to our business, otherwise disrupt our business, divert management resources, damage our reputation, or otherwise have a material effect on our operations. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties.

Filed Nov 7, 2024.
Source: SEC EDGAR, the filing index for accession 0001466593-24-000140. Last ingested by Listed: Nov 4, 2026, 12:58 ET. No prices; not investment advice.