Slide 1: 2020 Third Quarter Earnings Conference Call
2020 Third Quarter Earnings Conference Call
Slide 2: Forward-Looking Statement
FORWARD-LOOKING STATEMENT This presentation contains statements that may be considered forward-looking statements. Such statements contain the word “expect,” “anticipates” or words of similar meaning, or speak to management’s expectations regarding the EPS growth goals, sales, total shareholder retu
Slide 3: Management Team
MANAGEMENT TEAM • Chuck MacFarlane President and Chief Executive Officer • Kevin Moug Senior Vice President and Chief Financial Officer 3
Slide 4: Company Overview
COMPANY OVERVIEW MANUFACTURING PLATFORM MANUFACTURING SEGMENT PLASTICS SEGMENT Target earnings contributions Electric Manufacturing Electric Manufacturing • Competitive low-cost operations • Long-term growth potential 75% 25% • Constructive regulatory environment • Capacity utilization • Attractive
Slide 5: Managing COVID-19 | Well-Positioned Operationally
MANAGING COVID-19 | WELL-POSITIONED OPERATIONALLY • Employee and public safety remains our top priority. • Mitigation efforts in place across the organization. • Utility disconnects suspended and late payment fees waived temporarily for our Minnesota customers. Disconnects reinstated in North Dakota
Slide 6: Q3 2020 Financial Summary and Highlights
Q3 2020 FINANCIAL SUMMARY AND HIGHLIGHTS • Based on our YTD performance and our updated view of the impacts Q3 2020 Q3 2019 from COVID-19, we are raising and narrowing our 2020 earnings per share (EPS) guidance range to $2.26-$2.36 from $2.10-$2.30 per diluted share. Operating Revenues $235.8 $228.7
Slide 7: ESG Highlights
ESG HIGHLIGHTS Environmental Social Governance https://www.ottertail.com/annual-report-and- proxy-statement/Index?KeyGenPage=1073752420 https://www.ottertail.com/custompage/Index?KeyGenPage=351348 These 3 documents provide details of Otter Tail Corporation’s ESG practices 7
Slide 8: Consolidated Revenues from Coal Assets
CONSOLIDATED REVENUES FROM COAL ASSETS 2019 2022 14% 11% 86% 89% Footnotes: 1. Consolidated revenues include estimated returns on coal generation facility rate base investment, fuel expenses, O&Ms, depreciation, property taxes, and coal conversion taxes. 2. By 2022 the Hoot Lake Plant retirement com
Slide 9: Electric Platform
ELECTRIC PLATFORM OrzEnian POWER COMPANY
Slide 10: Electric Operations
ELECTRIC OPERATIONS Net Revenue ($ in millions) $500 $434.5 $450.3 $459.1 $447.6 Highlights $400 $300 • Rate base growth opportunities $200 • Merricourt Wind Energy Center $100 • Astoria Station natural gas-fired plant $0 • South Dakota transmission reliability project 2017 2018 2019 9/30/20 • Hoot
Slide 11: Customer Mix and Regulation – COVID Update
CUSTOMER MIX AND REGULATION – COVID UPDATE Revenues by Customer Regulatory Matters Estimated 2020 Electric Revenue Impact Other, 2.3% Filings submitted for all jurisdictions to request Annual Annual COVID-19 related cost treatment order (Weather Normalized) (YoY) (YoY) % EPS Updated Transmission Cos
Slide 12: Minnesota Rate Case
MINNESOTA RATE CASE • Filed last Minnesota rate case in 2016. • Requested permission to increase revenue by approximately $14.5 million, or 6.8 percent. • Requested ROE 10.2%. • Requested approval to implement decoupling on customer bills to stabilize Filed November 2, 2020. revenue apart from energ
Slide 13: Rate Base Growth
RATE BASE GROWTH Capital spending of $898 million from 2020 to 2024 divided among: Natural Gas Renewable Generation Resource Addition Technology and Additions Infrastructure $289 $87 Investments 10% $103 $1.73 $1.77 32% 11% $1.59 $1.67 $113 Other System $1.42 13% Replacements $166 $140 and Additions
Slide 14: Regulatory Framework
REGULATORY FRAMEWORK A constructive Riders Minnesota North Dakota South Dakota regulatory Rider recovery / Rate environment Wind Projects Rider recovery / Rate case Phase-In Rider / Rate case provides for timely case Rider recovery / Rate recovery of capital Transmission Rider recovery / Rate case R
Slide 15: Rate Base Projects
RATE BASE PROJECTS Our Investment Percent Recovery Project In Service (Millions) Complete Mechanisms Merricourt Wind Energy Center $260 2020 85% Rider/General Rate Case Astoria Station $152.5 2020-2021 85% Rider/General Rate Case 245 MW natural gas simple-cycle combustion turbine Phase I 2019 100% S
Slide 16: Merricourt Wind Energy Center
MERRICOURT WIND ENERGY CENTER Project 150 MWs Description Capacity factor ~ 50% to 55% 2017 – 2020 Schedule Construction started Q3 2019 OTP Cost $260 million • MN PUC approved 2017 Resource Plan. • MN PUC approved rider recovery with a cost cap ($270 million) • ND PSC approved Advance Determination
Slide 17: Astoria Station Natural Gas Plant
ASTORIA STATION NATURAL GAS PLANT Project Description 245-MW simple cycle unit 2020-2021 Schedule Construction started Q2 2019 OTP Cost $152.5 million • MN PUC approved 2017 Resource Plan. • ND PSC approved Advance Determination of Prudence and use of Generation Cost Recovery Rider. Norther Border N
Slide 18: Advancing Economic Recovery
ADVANCING ECONOMIC RECOVERY Minnesota Relief and Recovery Proposal Projects Category Project Hoot Lake Solar 12 projects submitted with estimated total cost of $153-173 million SIRI Projects Renewable Generation: ~$60 million Accelerated D&T Vegetation Management Infrastructure and Reliability Impro
Slide 19: Hoot Lake Solar Project
HOOT LAKE SOLAR PROJECT Project 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). • Currently completin
Slide 20: 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 ~$50 million • Approximately 23 different transmission upgrades identified. • 11 upgrades completed (mos
Slide 21: Coyote Station Regional Haze Update
COYOTE STATION REGIONAL HAZE UPDATE • Continue to monitor progress on Federal Regional Haze Rule compliance planning process in North Dakota. • DEQ will begin the Public Comment Period regarding its recommendation on Coyote Station compliance strategy in early 2021. • State of North Dakota will subm
Slide 22: Manufacturing Platform
MANUFACTURING PLATFORM northern pipe products VINYLTECH Sone Vil TO. PLASTICS PVCePIPE
Slide 23: Manufacturing
MANUFACTURING • Contract metal fabrication – stamping, machining, Net Revenues ($ in millions) tube bending, welding, painting, assembly $300 $268.4 $277.2 • Growth opportunities with existing customer base $229.7 $234.4 $250 and expansion with new customers $200 $150 $100 • Manufacturer of plastic
Slide 24: Plastics
PLASTICS • Manufactures and sells PVC (polyvinyl chloride) pipe to distributors. Pipe is used in municipal water, rural Net Revenue ($ in millions) $250 water, wastewater and storm drainage systems. $185.1 $197.8 $183.3 $196.9 $200 • Plants located Fargo ND & Phoenix AZ $150 • Approximate production
Slide 25: Financial Update
FINANCIAL UPDATE 25
Slide 26: Q3 EPS 2019 vs. Q3 EPS 2020
Q3 EPS 2019 VS. Q3 EPS 2020 Q3 Diluted EPS 2019 vs. Q3 Diluted EPS 2020 Electric Manufacturing Plastics Corporate Consolidated Q3 2019 Diluted Earnings per Share $ 0.44 $ 0.08 $ 0.14 $ (0.04) $ 0.62 Increase in renewable and generation rider revenue 0.08 0.08 Decrease in O&M expense 0.06 0.06 Increa
Slide 27: YTD EPS 2019 vs. YTD EPS 2020
YTD EPS 2019 VS. YTD EPS 2020 YTD September Diluted EPS 2019 vs. YTD September Diluted EPS 2020 Electric Manufacturing Plastics Corporate Consolidated YTD September 2019 Diluted Earnings per Share $ 1.10 $ 0.30 $ 0.38 $ (0.11) $ 1.67 Increase in renewable and generation rider revenue 0.20 0.20 Decre
Slide 28: COVID-19 Business Impacts
COVID-19 BUSINESS IMPACTS Earnings & dividend impact CapX Plan Liquidity 2020 Guidance Revised Unchanged Sufficient • Liquidity modeling continues to show we have sufficient • Based on our YTD performance • Continue to execute utility rate liquidity based on our current assumptions of how COVID- and
Slide 29: COVID-19 Strong Liquidity Position
COVID-19 STRONG LIQUIDITY POSITION December 31, 2019 October 31, 2020 OTC OTP OTC OTP Total Credit Capacity $170.0 $170.0 $170.0 $170.0 Outstanding Borrowings (6.0) (40.2) Letters of Credit (15.5) (14.0) Unused $164.0 $154.5 $129.8 $156.0 Expiration Date October 31, 2024 October 31, 2024 29
Slide 30: Credit Ratings
CREDIT RATINGS Otter Tail Corporation Moody’s Fitch S&P Otter Tail Power Company Moody’s Fitch S&P Corporate Credit/Long-term Baa2 BBB- BBB Corporate Credit/Long-term Issuer A3 BBB BBB+ Issuer Default Rating Default Rating Senior Unsecured Debt N.A. BBB- N.A. Senior Unsecured Debt N.A. BBB+ BBB+ Out
Slide 31: Bond Maturity Schedule
BOND MATURITY SCHEDULE $160,000 5 ~ 7.00% 6.15% 8.37% eam ° 4 $140,000 o | cox 5.47% $120,000 | . 4.639 4.68% + 5.00% $100,000 | 3.55% 3.52% 3.62% + 4.00% $80,000 3.07% 3.22% oe ° + 3.00% $60,000 | $40,000 + 2.00% $20,000 + 1.00% oe | 0.00% 31
Slide 32: History of Dividend Growth
HISTORY OF DIVIDEND GROWTH Dividend Growth • Consecutive annual dividends $1.23 $1.25 $1.34 $1.40 $1.48 without interruption paid since $1.19 $1.21 $1.28 1938. • Indicated increase of $.08/share 79% 78% 79% 78% 71% 65% 65% 64% (5.7%). • Strong balance sheet, liquidity, cash generation profile, and c
Slide 33: Capital Expenditures
CAPITAL EXPENDITURES (in millions) 2019 2020 2021 2022 2023 2024 Total Capital Expenditures: Electric Segment: Renewables and Natural Gas Generation $ 258 $ 65 $ 53 $ -- $ -- $ 376 Technology and Infrastructure -- 11 28 32 28 99 Distribution Plant Replacements 20 25 28 31 30 134 Transmission (includ
Slide 34: 2020 Earnings Guidance
2020 EARNINGS GUIDANCE 2020 Guidance 2020 Guidance 2020 Guidance 2020 Guidance 2019 EPS February 20, 2020 May 5, 2020 August 3, 2020 November 2, 2020 by Segment Low High Low High Low High Low High Diluted Earnings Per Share Electric $1.48 $1.67 $1.70 $1.65 $1.70 $1.67 $1.70 $1.67 $1.69 Manufacturing
Slide 35: Pension Exposure
OTTER TAIL CORPORATION Pension Exposure Funded Status Asset Allocation Actuarial Assumptions EPS Sensitivity Recovery Projected Contributions (millions) Dec 31, 2019 Equity Fixed Inc Other Dis Rate LTROR Dis Rate LTROR Mechanism 2020 2021 2022 85% 52% 45% 3% 3.47% 6.88% 25bps change - +/- $.02/share
Slide 36: Investment Highlights
INVESTMENT HIGHLIGHTS Dividend yield ~ 4% Total EPS growth 5-7% Dividend growth in line Shareholder based on 2019 EPS with EPS growth while Return maintaining a payout ~ 8-10% ratio of 60-70% 36
Slide 37: Investment Highlights
INVESTMENT HIGHLIGHTS Strong and stable regulated electric Competitive, low cost integrated electric operations provide cash flow to operations support dividends Balanced Stable and Regulated rate base capex over the next 5 Manufacturing businesses provide above- Growth and Growing years will drive