Otter Tail Corp: Form 10-Q for the period ended Sep 30, 2025

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, 2024.

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.

ECONOMIC CONDITIONS

Broad changes in U.S. trade and tariff policy and potential countermeasures implemented by foreign countries could significantly impact domestic macroeconomic conditions and our business operations. Newly imposed or increased tariffs may cause disruption in our supply chain and increase the cost of our Electric segment capital expenditures, which could impact our capital spending plan or result in delayed or under-recovery of our capital investments. Tariffs on steel and aluminum have increased domestic steel prices in the current year, impacting our Manufacturing segment. To date, the impact has not been significant and price increases have been passed on to our customers. If there are price increases in the future which we are unable to pass on to our customers or if end market demand declines due to elevated pricing, the operating results of our Manufacturing segment would be negatively impacted.

Broader macroeconomic conditions resulting from newly imposed or increased tariffs could include rising inflation and a heightened risk of an economic recession, which could have a more extensive impact on our business. Such impacts may include increased operating and investment costs, reduced demand for electric service, elevated interest rates, and reduced customer demand for our products, which may be impacted by residential and commercial construction levels and the result of customer in-sourcing affecting our metal fabrication business. All of these factors could negatively impact our operating results and financial position.

Currently, we cannot predict the ultimate impact on our business as it is dependent on the extent and duration of changes in U.S. tariff policy and any countermeasures implemented by foreign countries.

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, 2025 and 2024:

(in thousands)

Operating Revenues decreased $12.5 million primarily due to decreased sales prices in our Plastics segment and decreased sales volumes in our Manufacturing segment, partially offset by increased sales volumes in our Plastics segment as well as increased fuel recovery revenues and sales volumes in our Electric segment. See our segment disclosures below for additional discussion of items impacting operating revenues.

Operating Expenses decreased $1.5 million primarily due to lower cost of goods sold from decreased sales volumes in our Manufacturing segment and the impact of lower material costs in our Plastics segment, as well as lower operating and maintenance expenses in our Electric segment. These decreases were partially offset by an increase in production fuel costs in our Electric segment. See our segment disclosures below for additional discussion of items impacting operating expenses.

Nonservice Components of Postretirement Benefits decreased by $2.1 million, having a negative impact on net income, primarily due to a decrease in the amortization of plan amendment-related gains and an increase in the amortization of actuarial losses.

Income Tax Expense decreased $5.9 million primarily due to a decrease in income before income taxes, as well as an increase in PTCs at OTP driven by increased wind generation which qualified for credits. Our effective tax rate was 14.1% for the three months ended September 30, 2025 and 17.9% for the same period last year. The decrease in our effective tax rate was primarily driven by an increase in PTCs from our wind generation assets. In late 2024, we completed our first wind repowering project and additional projects were completed in 2025. The completion of these repowering projects results in the commencement of PTCs earned from the generation from these facilities.

ELECTRIC SEGMENT RESULTS

The following table summarizes Electric segment operating results for the three months ended September 30, 2025 and 2024:

(in thousands)

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 degree days and cooling degree days as a percent of normal for the three months ended September 30, 2025 and 2024.

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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, 2025 and 2024, and between those periods.

Retail Revenues increased $0.8 million primarily due to increased fuel recovery revenue, increased sales volumes excluding the impact of weather, and increased rider revenue, primarily driven by the recovery of our investments in our wind repowering projects. These increases were partially offset by the impact of seasonal rate differences between interim and final rates in North Dakota, which went into effect in March 2025. The impact of unfavorable weather compared to the same period last year also negatively impacted operating revenues.

Wholesale Revenues increased $7.2 million due to a 124% increase in wholesale sales volumes and a 48% increase in wholesale prices driven by increased fuel costs and market demand for wholesale energy. Wholesale revenues, net of wholesale fuel costs, are generally returned to customers and result in a reduction of retail revenue.

Production Fuel costs increased $10.5 million due to an increase in the price of natural gas and an increase in generation from our natural gas facilities compared to the same period last year, as well as an increase in generation at Big Stone Plant.

Purchased Power costs decreased $1.2 million primarily due to a 30% decrease in the amount of power purchased, partially offset by a 25% increase in the price of purchased power driven by higher market energy costs.

Operating and Maintenance expenses decreased $2.6 million primarily due to decreases in labor and service provider costs. Compared to the same period last year, a greater percentage of labor hours were dedicated to capital investment projects, which resulted in an increase in capitalized labor costs and a corresponding reduction in operating and maintenance expenses.

Depreciation and Amortization expense increased $1.7 million due to additional assets, including certain wind, transmission and distribution assets, being placed in service.

Nonservice Components of Postretirement Benefits decreased $2.0 million, having a negative impact on net income, primarily due to a decrease in the amortization of plan amendment-related gains and an increase in the amortization of actuarial losses.

Income Tax Expense (Benefit) was a $0.7 million net benefit in the current period, compared to a $0.9 million expense in the same period last year, primarily due to an increase in PTCs driven by increased wind generation that qualified for PTCs compared to last year. PTCs are generally credited to customers and result in a reduction of operating revenue as well as income taxes.

MANUFACTURING SEGMENT RESULTS

The following table summarizes Manufacturing segment operating results for the three months ended September 30, 2025 and 2024:

(in thousands)

Operating Revenues decreased $2.9 million primarily due to an 8% decrease in sales volumes, with declines experienced across several end markets, including lawn and garden, agriculture, and horticulture. Sales volumes were down due to continued soft demand and inventory management efforts by manufacturers and dealers amid continued challenging market conditions. The impact of lower sales volumes was partially offset by a 3% increase in steel costs, which are passed through to customers.

Cost of Products Sold decreased $7.3 million largely due to lower sales volumes, as discussed above, as well as improved production efficiencies compared to the same period last year.

Selling, General, and Administrative Expenses increased $1.2 million due to variable compensation costs associated with financial results during the period and expectations for full-year performance.

Income Tax Expense (Benefit) was an expense of $1.1 million in the current period compared to a $0.2 million benefit for the same period last year. The change from the same period last year was largely due to an increase in income before income taxes. In addition, we recognized an increase in research and development tax credits in the third quarter of 2024, resulting in the income tax benefit.

PLASTICS SEGMENT RESULTS

The following table summarizes Plastics segment operating results for the three months ended September 30, 2025 and 2024:

(in thousands)

Operating Revenues decreased $17.7 million primarily due to a 17% decrease in sales prices compared to the same period last year, continuing the decline in product pricing from peak levels in late 2022. The impact of decreased sales prices was partially offset by a 4% increase in sales volumes, primarily driven by increased production capacity following the completion of our expansion project at Vinyltech in late 2024.

Cost of Products Sold decreased $2.9 million primarily due to a 16% decrease in the cost of input materials, including PVC resin. The decrease has been driven by global supply and demand dynamics which continue to result in elevated resin supply. The impact of decreased material costs was partially offset by a 4% increase in sales volumes, as discussed above.

Income Tax Expense decreased $3.8 million due to a decrease in income before income taxes.

CORPORATE COSTS

The following table summarizes Corporate operating results for the three months ended September 30, 2025 and 2024:

(in thousands)

General and Administrative Expenses decreased $1.6 million primarily due to decreases in costs associated with workers’ compensation and employee health insurance claims.

Income Tax Benefit increased $1.7 million due to the internal allocation of interim tax expense to arrive at the appropriate consolidated effective tax rate.

RESULTS OF OPERATIONS – YEAR TO DATE

CONSOLIDATED RESULTS

The following table summarizes consolidated operating results for the nine months ended September 30, 2025 and 2024:

(in thousands)

Operating Revenues decreased $31.5 million primarily due to decreased sales prices within our Plastics segment and decreased sales volumes in our Manufacturing segment, partially offset by increased fuel recovery revenues and the impact of favorable weather in our Electric segment. Within our Plastics segment, the impact of decreased sales prices was also partially offset by increased sales volumes. See our segment disclosures below for additional discussion of items impacting operating revenues.

Operating Expenses increased $3.9 million primarily due to increased purchased power and fuel costs in our Electric segment, and the impact of increased sales volumes in our Plastics segment. These increases were partially offset by lower cost of goods sold from decreased sales volumes in our Manufacturing segment and the impact of lower material costs in our Plastics segment. See our segment disclosures below for additional discussion of items impacting operating expenses.

Interest Expense increased $3.8 million primarily due to the issuance of $100.0 million of long-term debt at OTP during the year, the proceeds of which were used to repay short-term borrowings, fund capital expenditures and support operating activities.

Nonservice Components of Postretirement Benefits decreased by $4.8 million, having a negative impact on net income, primarily due to a decrease in the amortization of plan amendment-related gains and an increase in the amortization of actuarial losses.

Income Tax Expense decreased $20.5 million primarily due to a decrease in income before income taxes, as well as an increase in PTCs at OTP, driven by increased wind generation which qualified for tax credits. Our effective tax rate was 14.0% for the nine months ended September 30, 2025 and 18.8% for the same period last year. The decrease in our effective tax rate was primarily driven by an increase in PTCs from our wind generation assets.

ELECTRIC SEGMENT RESULTS

The following table summarizes Electric segment operating results for the nine months ended September 30, 2025 and 2024:

(in thousands)

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, 2025 and 2024.

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, 2025 and 2024, and between those periods.

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Retail Revenues increased $23.5 million, primarily due to the following:

• A $17.1 million increase in fuel recovery revenues, primarily due to an increase in the cost of purchased power, as well as an increase in the generation from our coal-fired and natural gas facilities, as described below.
• A $4.3 million increase in sales volumes, excluding the impact of weather.
• A $4.2 million increase from the impact of favorable weather.
• A $1.2 million net increase in rider revenues, largely due to the continued recovery of our investment in our wind repowering projects.

These increases were partially offset by the impact of seasonal rate differences between interim and final rates in North Dakota, which went into effect in March 2025.

Wholesale Revenues increased $8.1 million due to a 37% increase in wholesale sales volumes and a 45% increase in wholesale sale prices driven by increased fuel costs and market demand for wholesale energy. Wholesale revenues, net of wholesale fuel costs, are generally returned to customers and result in a reduction of retail revenue.

Production Fuel costs increased $11.0 million due to an increase in the price of natural gas and an increase in generation from our natural gas facilities compared to the same period last year, as well as an increase in generation at Big Stone Plant.

Purchased Power costs increased $13.4 million due to a 34% increase in the price of purchased power due to increased market energy costs.

Depreciation and Amortization increased $6.1 million due to additional assets, including certain wind, transmission and distribution assets, being placed in service.

Interest Expense increased $3.8 million primarily due to the issuance of additional long-term debt in March 2024, March 2025, and June 2025, totaling $220.0 million, the proceeds of which were primarily used to fund our capital investments.

Income Tax Expense (Benefit) was a $9.2 million benefit in the current period, compared to a $0.7 million expense in the same period last year, primarily due to an increase in PTCs driven by increased wind generation that qualified for PTCs compared to last year. PTCs are generally credited to customers and result in a reduction of operating revenue as well as income taxes.

MANUFACTURING SEGMENT RESULTS

The following table summarizes Manufacturing segment operating results for the nine months ended September 30, 2025 and 2024:

(in thousands)

Operating Revenues decreased $38.6 million primarily due to a 12% decrease in sales volumes at our metal fabrication business, with declines experienced across several end markets, including recreational vehicles, agriculture, and lawn and garden. Sales volumes were negatively impacted by continued soft demand and inventory management efforts by manufacturers and dealers. A 3% decrease in steel costs, which are passed through to customers, also contributed to the decrease in operating revenues.

Cost of Products Sold decreased $32.7 million primarily due to decreased sales volumes, as described above.

Depreciation and Amortization increased $1.2 million due to an increase in our capital investments in manufacturing equipment and facilities.

Income Tax Expense decreased $1.2 million primarily due to a decrease in income before income taxes.

PLASTICS SEGMENT RESULTS

The following table summarizes Plastics segment operating results for the nine months ended September 30, 2025 and 2024:

(in thousands)

Operating Revenues decreased $25.2 million primarily due to a 14% decrease in sales prices compared to the same period last year, continuing the steady decline in product pricing from peak pricing in late 2022. The impact of decreased sales prices was partially offset by a 9% increase in sales volumes, driven by strong demand for our products, coupled with increased production capacity after the completion of the first phase of our expansion project at Vinyltech in late 2024.

Cost of Products Sold increased $1.3 million primarily due to increased sales volumes, as described above. The cost of input materials, including PVC resin decreased 13% compared to the prior year, driven by global supply and demand dynamics which continues to result in elevated resin supply, partially offsetting the impact of increased sales volumes.

Selling, General, and Administrative Expenses increased $1.3 million primarily due to costs associated with ongoing litigation and related matters regarding the pricing of PVC pipe, which is further described in Note 9 to the consolidated financial statements. There is considerable uncertainty regarding the timing of significant developments or the resolution of these matters. As such, it is reasonably possible that our estimate of a loss, if any, arising from these matters could change in the near term and have a material impact on our future operating results.

Depreciation and Amortization Expense increased $1.5 million primarily due to our capital investments in new and expanded equipment and facilities at Vinyltech, which were placed into service in late 2024.

Income Tax Expense decreased $7.6 million due to a decrease in income before income taxes.

CORPORATE COSTS

The following table summarizes Corporate operating results for the nine months ended September 30, 2025 and 2024:

(in thousands)

Income Tax Benefit increased $1.8 million primarily due to the internal allocation of interim tax expense to arrive at the appropriate consolidated effective tax rate.

REGULATORY MATTERS

The following provides a summary of general rates, 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 December 30, 2024, the North Dakota Public Service Commission approved a settlement agreement between OTP and certain interested parties in their general rate case and issued its written order on final rates. The key provisions of the order include a revenue requirement of $225.6 million, based on a return on rate base of 7.53%, and an allowed ROE of 10.10% on an equity ratio of 53.50%. The net annual revenue requirement includes a net increase of $13.1 million or 6.18%. OTP’s revenue requirement was reduced by approximately $3.0 million primarily due to the inclusion of forecasted PTCs plus adjustments for new customer load additions, which were not included in OTP’s updated request filed on July 3, 2024. Through the settlement of the case, the parties also agreed to establish an earnings-sharing mechanism, whereby 70% of actual earnings in excess of a 10.20% ROE would be returned to customers, with OTP retaining the remaining 30%. New base rates in North Dakota went into effect on March 15, 2025.

South Dakota Rate Case

On June 4, 2025, OTP filed a request with the SDPUC for an increase in revenue recoverable under general rates in South Dakota. In its filing, OTP requested a net increase in annual revenue of $5.7 million, or 12.50%, based on an allowed rate of return on rate base of 8.29% and an allowed ROE of 10.80% on an equity ratio of 53.54% of total capital. Through this proceeding, OTP has proposed changes to the mechanism of certain cost and investment recovery, with recovery moving from riders into base rates. If the SDPUC does not issue its decision on OTP's request within 180 days, OTP can increase rates on an interim basis beginning December 1, 2025. These interim rate revenues, when collected, are subject to potential refund until the finalization of the rate case.

Minnesota Rate Case

On October 31, 2025, OTP filed a request with the Minnesota Public Utilities Commission (MPUC) for an increase in revenue recoverable under general rates in Minnesota. In its filing, OTP requested a net increase in annual revenue of $44.8 million, or 17.7%, based on an allowed rate of return on rate base of 7.92% and an allowed ROE of 10.65% on an equity ratio of 53.5% of total capital. The request includes, among other items, accelerated recovery of the remaining investment of the jurisdictionally allocated share of Coyote Station, which has a $4.3 million annual impact. The request for accelerated recovery is driven by the MPUC’s order in OTP’s most recent Integrated Resource Plan to discontinue serving Minnesota customers with capacity and energy from Coyote Station by December 2031. If this part of the request is granted, we anticipate the amounts collected would be deferred and recognized over the remaining estimated useful life of the plant, which extends until 2041.

The filing also included an interim rate request for a net increase in annual revenue of $31.8 million, or 12.6%. We anticipate interim rates will commence on January 1, 2026, and will be subject to potential refund until the finalization of the rate case.

RATE RIDERS

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

(in millions)

ENVIRONMENTAL REGULATION

Clean Air Act

In May 2024, the Environmental Protection Agency (EPA) finalized new regulations under Section 111 of the Clean Air Act to regulate greenhouse gas (GHG) emissions from new and existing fossil fuel-fired power plants. The rule establishes carbon dioxide emission reduction requirements for existing coal-fired power plants based on the date the plant will cease operations. Coyote Station and Big Stone Plant are both within the scope of the regulation.

In June 2025, the EPA published a proposed rule that would repeal the existing GHG emission standards for fossil fuel-fired power plants. The proposal includes a finding that GHG emissions from such sources do not significantly contribute to dangerous air pollution, which the EPA asserts is a necessary legal predicate for regulation under the Clean Air Act. As an alternative, the EPA is also proposing to repeal only the emission guidelines applicable to existing fossil fuel-fired steam generating units.

Mercury and Air Toxics Standards

In May 2024, the EPA finalized new amendments to strengthen Mercury and Air Toxics Standards (MATS) for coal-fired power plants, including tightening emission standards for particulate matter and reducing the standard for mercury. In June 2025, the EPA published a proposed rule to repeal the 2024 MATS for coal-fired power plants.

Regional Haze Rule (RHR)

The EPA adopted the RHR in an effort to improve visibility in certain national parks and wilderness areas. The RHR requires states, in coordination with federal agencies, to develop and implement state implementation plans (SIPs) that work towards achieving natural visibility conditions by the year 2064; to set goals to ensure reasonable progress is being made; and to periodically evaluate whether those goals and progress are on track or whether additional emission reductions are necessary. The second RHR implementation period under the rule covers the years 2018-2028, and Coyote Station is subject to assessment in the second implementation period.

The North Dakota Department of Environmental Quality submitted the North Dakota SIP in August 2022. In December 2024, the EPA published its ruling on the North Dakota SIP, partially approving and partially disapproving of the plan. The EPA has two years from the date of publication of its partial disapproval to publish a Federal Implementation Plan, which could include additional emission controls at Coyote Station.

On April 30, 2025, the EPA granted a request to reconsider the December 2024 rule, which included the partial disapproval of the North Dakota SIP.

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- 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, 2025, 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, 2025:

(in thousands)

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 $290.0 million, subject to certain terms and conditions. The OTP Credit Agreement also includes an accordion feature allowing OTP to increase that facility to $300.0 million, subject to certain terms and conditions.

As of September 30, 2025, we had $379.5 million of available liquidity under our credit facilities and $325.8 million of available cash and cash equivalents, resulting in total available liquidity of $705.3 million.

CASH FLOWS

The following is a discussion of our cash flows for the nine months ended September 30, 2025 and 2024:

(in thousands)

Net Cash Provided by Operating Activities decreased $33.8 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to the timing of fuel cost and rider recoveries from our utility customers and a decrease in earnings. Net cash provided by operating activities in our Electric segment is regularly affected by the timing of payments made for operating costs and the various mechanisms used to recover costs from or return amounts to our utility customers. The timing of recoveries and refunds can vary by the recovery or refund mechanism. Due to the numerous factors that impact the timing of our cash receipts and cash payments, our cash provided by operating activities can vary significantly from our net income for the period.

(in thousands)

Net Cash Used in Investing Activities decreased $96.2 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The decrease in cash used in investing activities included a $46.4 million decrease in capital expenditures. Capital expenditures in our Electric segment decreased $15.4 million primarily due to the timing of investments under our five-year capital spending plan. Our expansion projects at Vinyltech and BTD Manufacturing were completed in late 2024, which also contributed to the decrease in our capital expenditures compared to last year. Investing activities during the nine months ended September 30, 2024, also included a $50.1 million investment in U.S. treasuries made to secure a fixed rate of return until their maturity in September 2026.

(in thousands)

Net Cash (Used in) Provided by Financing Activities for the nine months ended September 30, 2025 included the issuance of $100.0 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, 2025 also included net repayments of short-term borrowings of $69.6 million and dividend payments of $66.0 million. Financing activities for the nine months ended September 30, 2024 included the issuance of $120.0 million of long-term debt at OTP, net repayments of short-term debt of $14.0 million and dividend payments of $58.7 million.

CAPITAL REQUIREMENTS

CAPITAL EXPENDITURES

Our capital expenditure plan includes investments in electric generation facilities, transmission and distribution lines and facilities, 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, changes in legislation or regulation, regulatory approvals, business expansion opportunities, the costs of labor, materials and equipment, and our financial condition.

The following provides a summary of actual capital expenditures for the year ended December 31, 2024, and anticipated annual capital expenditures for the current year ending December 31, 2025, and the subsequent five years:

(in millions)

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, 2024 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, 2024. There were no material changes in our contractual obligations outside of the ordinary course of business during the nine months ended September 30, 2025.

COMMON STOCK DIVIDENDS

We paid dividends to our shareholders totaling $66.0 million, or $1.58 per share, in the first nine months of 2025. 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 10 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, 2025, there were 1,354,358 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, 2025:

(in thousands, except interest rates)

LONG-TERM DEBT

On March 27, 2025, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $100.0 million of senior unsecured notes consisting of (a) $50.0 million of 5.49% Series 2025A Senior Unsecured Notes due March 27, 2035, and (b) $50.0 million of 5.98% Series 2025B Senior Unsecured Notes due June 5, 2055. The Series 2025A Notes were issued on March 27, 2025, upon entering into the agreement. The Series 2025B Notes were issued on June 5, 2025. We do not anticipate or plan to issue any additional long-term debt in 2025.

As of September 30, 2025, we had $1.0 billion 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 2055. Note 6 to our consolidated financial statements included in this Quarterly Report on Form 10-Q includes additional information regarding these 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, 2025, 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 or 0.65 to 1.00, depending on the debt agreement, 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, 2025, OTC's interest-bearing debt to total capitalization was 0.37 to 1.00, OTC's interest and dividend coverage ratio was 8.3 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 or 0.65 to 1.00, depending on the debt agreement, 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, 2025, OTP's interest-bearing debt to total capitalization was 0.45 to 1.00, OTP's interest and dividend coverage ratio was 2.93 to 1.00 and OTP had no priority indebtedness outstanding.

None of our debt agreements include any provisions that would trigger an acceleration of the related debt as a result of changes in the credit rating levels assigned to the related obligor by rating agencies.

Credit Ratings

The current credit ratings of OTC and OTP are summarized below:

During the three months ended September 30, 2025, Moody's revised their long-term issuer default rating of OTP from A3 to Baa1 and revised their outlook from negative to stable. We do not expect this rating revision will materially impact OTP's borrowing costs or its future access to capital.

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, 2024 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.

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, 2024.

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, the Company evaluated the effectiveness of the design and operation of its 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, 2025, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2025.

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, 2025 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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, 2024.