Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — Siebert Williams Shank West Coast Utilities Virtual Conference 2021
41 slides from Otter Tail's conference presentation, Mar 17, 2021
Slide 1: West Coast Utilities Virtual Conference
SIEBERT WILLIAMS SHANK & CO WEST COAST UTILITIES VIRTUAL CONFERENCE March 17-18, 2021
Slide 2: Forward-Looking Statement
FORWARD-LOOKING STATEMENT This presentation contains statements that may be considered forward-looking statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “possible,” “potential,” “should,” “will,” “would” and similar words and expression
Slide 3: Agenda
AGENDA • Business Overview • Managing COVID-19 Impacts • ESG Highlights • Electric Platform • Manufacturing Platform • Financial Update 3
Slide 4: Business Overview
BUSINESS OVERVIEW 4
Slide 5: Company Overview
COMPANY OVERVIEW MANUFACTURING PLATFORM MANUFACTURING SEGMENT PLASTICS SEGMENT Target earnings contributions Electric Manufacturing Electric Manufacturing • Competitive low-cost operations 75% 25% • Long-term growth potential • Constructive regulatory environment • Capacity utilization • Attractive
Slide 6: Strategic Outlook
STRATEGIC OUTLOOK • High performing electric utility • Strong pipeline of rate base growth for at least 5 years • Supportive regulatory treatment • Solid management in place • History of excellence • Disciplined, focused set of manufacturing companies • Incremental earnings growth • Premium return •
Slide 7: COVID-19 Overview
COVID-19 OVERVIEW 7
Slide 8: Managing COVID-19 | Well-Positioned Operationally
MANAGING COVID-19 | WELL-POSITIONED OPERATIONALLY • Health and safety of employees and communities remains top priority. • Strong financial results despite global pandemic challenges. • Utility suspended disconnects for late payments and waived late- payment fees for customers affected by pandemic,
Slide 9: 2020 Financial Summary and Highlights
2020 FINANCIAL SUMMARY AND HIGHLIGHTS 2020 2019 • Consolidated EPS of $2.34, up 7.8%. • Increased the annual dividend 5.7% from $1.40 to $1.48. Annual indicated rate for 2021 is $1.56 or 5.4% increase over the 2020 rate. Operating Revenues $890.1 $919.5 • Total shareholder return has grown at a comp
Slide 10: ESG Highlights
ESG HIGHLIGHTS Environmental Social Governance EEI Sustainability Templates These documents provide details of Otter Tail Corporation’s ESG practices. 10
Slide 11: Cleaner Energy Future
CLEANER ENERGY FUTURE Average Residential Rate per KWH OTP Energy Resource Mix 2005 2020 2023 15 13.0 13.0 13.3 13.2 13.1 12.8 23% 27% Cents Per KWH 35% 34% 10.2 9.5 9.7 9.7 9.9 45% 10 9.0 9% 68% 10% 19% 1% 35% 5 2015 2016 2017 2018 2019 2020 OTP USA Source: Typical Bills and Average Rates Report, E
Slide 12: Cleaner Energy Future
CLEANER ENERGY FUTURE CO₂ 47% 2023 carbon reductions 391 MW of wind in service ~ 50 MW of solar in compared to 2005 (Includes owned and PPA service by end of 2023 generation) 12
Slide 13: Electric Platform
ELECTRIC PLATFORM oS im q POWER COMPANY
Slide 14: Electric Operations
ELECTRIC OPERATIONS Net Revenue ($ in millions) $500 $450.3 $459.1 $446.1 $400 Highlights $300 $200 • Rate base growth opportunities. $100 • Renewable generation. $0 • Technology & infrastructure. 2018 2019 2020 Net Income ($ in millions) • Transmission assets. $80 • Filed MN rate case in November 2
Slide 15: Electric Operations
ELECTRIC OPERATIONS Energy by Source - 2020 Service Area* Wind, Coal, 17.0% 38.0% Gas, 1.0% Purchased, 44.0% Hydro, 1.0% Revenues by State - 2020 Revenues by Customer - 2020 Residential, ND, Other, 1.9% 32.7% 37.9% MN, 52.6% Commercial & Industiral, SD, 9.5% 65.4% 15
Slide 16: 2021 Key Regulatory Matters
2021 KEY REGULATORY MATTERS Regulatory Matters MN ND SD Estimated Dates North Dakota Advance Determination of Prudence for AMI Filing X Q1 2021 Minnesota Depreciation Order X Q1 2021 Minnesota Hoot Lake Solar Filing Rate Review Evidentiary Hearing X Q1 2021 Minnesota Rate Review Evidentiary Hearing
Slide 17: Minnesota Rate Case
MINNESOTA RATE CASE • Filed last Minnesota rate case in 2016. • Request driven by new Astoria Station (MN IRP approved) and CIS system. Total request of $14.5 million, a 6.8% increase. • Requested 10.2% ROE on a 52.5% equity layer. Filed November 2, 2020. • Requested approval to implement decoupling
Slide 18: Rate Base Growth
RATE BASE GROWTH Capital spending of $653 million from 2021 to 2025 Rate Base In Billions Natural Gas Technology and Renewable Generation Addition Infrastructure Resource Investments Additions $125 $16 $109 $1.75 $1.77 19% 2% 17% $1.72 Other System $1.63 $128 $1.59 Replacements 20% $138 and Addition
Slide 19: Regulatory Framework
REGULATORY FRAMEWORK Minnesota North Dakota South Dakota A constructive Renewable Riders Rider recovery / Rate case Rider recovery / Rate case Phase-In Rider / Rate case regulatory environment Transmission Riders Rider recovery / Rate case Rider recovery / Rate case Rider recovery / Rate case provid
Slide 20: Rate Base Projects
RATE BASE PROJECTS Our Investment Percent Project In Service Recovery Mechanisms (Millions) Complete Merricourt Wind Energy Center $260 2020 100% Rider/General Rate Case Astoria Station Rider/General Rate Case - ND & SD $152.5 2020-2021 95% 245-MW natural gas simple-cycle combustion turbine AFUDC/Ge
Slide 21: Completed Merricourt Wind Energy Center
COMPLETED MERRICOURT WIND ENERGY CENTER Otter Tail Power’s Wind Portfolio Wind Resources Megawatts Merricourt 150.0 Langdon 40.5 Luverne 49.5 Ashtabula I 48.0 PPA’s 102.9 Total 390.9 • Merricourt was the single largest capital project in OTP’s history at ~$260 million. • 150 MWs with an estimated ca
Slide 22: Astoria Station Natural Gas Plant
ASTORIA STATION NATURAL GAS PLANT Project Astoria Station Description 245-MW simple-cycle combustion turbine Schedule Estimated completion April 1, 2021 OTP Cost $152.5 million • MN PUC approved 2017 Resource Plan. • ND PSC approved Advance Determination of Prudence and use of Generation Cost Recove
Slide 23: Hoot Lake Solar Project
HOOT LAKE SOLAR PROJECT Project Hoot Lake Solar Description 49.9-MW self-build solar Schedule 2020-2023 OTP Cost $60 million • Qualifies for investment tax credit of 26%. Safe-harbor equipment secured. • Eligible to meet utility-scale portion of MN Solar Energy Standard (1.5% of retail sales). Seeki
Slide 24: South Dakota Transmission Reliability Project
South Dakota Transmission Reliability Project SOUTH DAKOTA TRANSMISSION RELIABILITY PROJECT Project South Dakota Reliability Project Description 115-KV transmission line Phase I - In service March 2019 Schedule Phase II - In service June 2021 OTP Cost $35 million • Transmission line to improve relia
Slide 25: Self-Fund Transmission Projects
SELF-FUND TRANSMISSION PROJECTS Project Self-Fund Transmission Projects Description OTP to fund transmission upgrades associated with new generator interconnections. Schedule 2019 - 2021 OTP Cost ~$50 million • Approximately 23 different transmission upgrades identified. All transmission network upg
Slide 26: Coyote Station Regional Haze Update
COYOTE STATION REGIONAL HAZE UPDATE • Continue to monitor progress on Round 2 of Federal Regional Haze Rule compliance planning process in North Dakota. • North Dakota Department of Environmental Quality (DEQ) is expected to begin the Public Comment Period regarding its recommendation on Coyote Stat
Slide 27: Manufacturing Platform
MANUFACTURING PLATFORM PLATFORM MANUFACTURING ELECTRIC PLATFORM
Slide 28: Manufacturing
MANUFACTURING • Contract metal fabrication – stamping, machining, tube Net Revenues ($ in millions) bending, tool & die making, welding, painting, assembly. (One stop shop for customer needs) $300 $268.4 $277.2 $238.8 • Growth opportunities with existing customer base and $250 expansion with new cus
Slide 29: Manufacturing Locations
MANUFACTURING LOCATIONS je- 29
Slide 30: Manufacturing Sales by End Markets
MANUFACTURING SALES BY END MARKETS 2020 BTD 2019 BTD Energy, 2% Energy, 4% AGR, 12% AGR, 14% RV, 41% RV, 37% L&G, 14% L&G, 15% Const, 14% Const, 19% Industrial, 14% Industrial, 14% 2020 T.O. Plastics 2019 T.O. Plastics Medical, 18% Medical, 22% Industrial, 8% Industrial, 9% Extrusion/Food, 1% Hortic
Slide 31: Plastics
PLASTICS • Manufactures and sells PVC (polyvinyl chloride) pipe to Net Revenue ($ in millions) distributors. Pipe is used in municipal water, rural water, wastewater, and storm drainage systems. $250 $197.8 $205.2 • Plants located Fargo ND & Phoenix AZ. $200 $183.3 • Approximate production capacity
Slide 32: Plastics Locations
PLASTICS LOCATIONS NPP 17 States Served: East Idaho, Montana, © Wyoming, Colorado, North & South Dakota, Nebraska, Kansas, Oklahoma, Minnesota, lowa, Missouri, East Texas, Wisconsin, Illinois, Michigan & Indiana. 3 Canadian Provinces Served: Alberta, Saskatchewan, Manitoba
Slide 33: Financial Update
FINANCIAL UPDATE 33
Slide 34: Financial Overview ($ in millions)
FINANCIAL OVERVIEW ($ IN MILLIONS) Revenue Sources Operating Income Net Income $160 $147.9 $120 $916.4 $919.5 $1,000 $890.1 $129.4 $135.2 $140 $95.9 $900 $100 $86.8 $800 40.8 $82.3 $120 36.7 $700 466.2 460.4 41.4 $80 29.1 444.0 $100 27.8 $600 27.9 $500 $80 $60 $400 $60 $300 107.1 $40 98.4 88.0 66.8
Slide 35: EPS Compared with Original EPS Guidance Ranges
EPS COMPARED WITH ORIGINAL EPS GUIDANCE RANGES $2.70 ↑ 5.6% $2.60 Plastics Segment Out $2.47E $2.50 Performs Guidance ↑ 7.8% ’21 Midpoint $2.40 $2.34A $2.30 Strong Performance in ↑ 5.3% Plastics Segment & $2.17A $2.20 ↑ 13.2% Impacts of Tax Reform $2.06A Initiated 2021 EPS Guidance $2.10 range of
Slide 36: Liquidity, Cap Structure & Credit Ratings
LIQUIDITY, CAP STRUCTURE & CREDIT RATINGS Consolidated Capital Structure OTP OTC 100% 11.6% 11.6% 12.0% 11.5% Line of Credit Facilities $ 170,000,000 $ 170,000,000 80% 11.5% 45.5% 49.0% 47.1% 11.0% Equity/Debt 60% Outstanding ROE 10.5% Borrowings 15,830,771 65,166,054 40% 10.0% Letters of Credit 14,
Slide 37: 2021 Earnings Guidance & Financing Plans
2021 EARNINGS GUIDANCE & FINANCING PLANS Long-Term Financing 2020 EPS 2021 EPS 2020 2021-2025 by Low High Long-Term Debt (Actual) (Planned) Segment Guidance LT Debt Retirements (OTP) -- $170M Electric $ 1.63 $ 1.80 $ 1.83 LT Debt Issuances (OTP) $75M $230M Manufacturing 0.27 0.28 0.32 OTC (Parent) I
Slide 38: Bond Maturity Schedule
BOND MATURITY SCHEDULE $160,000 7.00% 6.47% 6.37% 6.15% $140,000 6.00% 5.47% $120,000 4.68% 5.00% 4.63% $100,000 4.07% 3.92% 3.52% 3.62% 4.00% 3.55% 2019 Senior Unsecured Notes $80,000 3.82% $10M at 3.07% 3.07% 3.22% 3.00% $60,000 2013 Senior Unsecured Notes $60M at 4.68% 2.00% $40,000 $20,000 1.00%
Slide 39: Capital Expenditures
CAPITAL EXPENDITURES (in millions) 2020 2021 2022 2023 2024 2025 Total Electric Segment: Renewables and Natural Gas Generation $ 31 $ 104 $ 3 $ 1 $ 1 $ 140 Technology and Infrastructure 6 25 32 28 18 109 Distribution Plant Replacements 24 27 30 30 27 138 Utility spend Transmission (includes replacem
Slide 40: History of Dividend Growth
HISTORY OF DIVIDEND GROWTH Dividend Growth • Consecutive annual dividends without $1.48 $1.56 $1.40 interruption paid since 1938. $1.19 $1.21 $1.23 $1.25 $1.28 $1.34 • Indicated 5.4 % increase of $.08/share. 79% 78% 78% 78% 65% 65% 65% 63% 64% • Strong balance sheet, liquidity, cash 2013 2014 2015 2
Slide 41: OTTR Investment Theme
OTTR INVESTMENT THEME Total Shareholder Return 8%-10%* EPS growth rate 5-7% Dividend Yield ~ 3% Dividend Payout Ratio 60-70% Dividend growth rate Align with earnings Balanced Growth and Income Strategy Stable and Growing Utility Base Strong and stable regulated electric operations provide cash flow
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