Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — 2023 EEI Financial Conference
40 slides from Otter Tail's conference presentation, Nov 12, 2023
Slide 1: 2023 EEI Financial Conference
2023 EEI Financial Conference November 12-14, 2023
Slide 2: Forward-Looking Statement
Forward-Looking Statement Except for historical information contained here, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “f
Slide 3: Company Overview
Company Overview MANUFACTURING PLATFORM ELECTRIC PLATFORM MANUFACTURING SEGMENT PLASTICS SEGMENT Electric Platform Expected 2023 Earnings Mix Long-Term Earnings Mix Manufacturing Platform • Competitive low-cost • Long-term organic operations growth potential • Constructive • Diversification regulato
Slide 4: Financial Summary and Highlights
Financial Summary and Highlights Q3 2023 Diluted EPS Up 9% Q3 2023 Q3 2022 • Strong financial performance within Manufacturing and Plastics (down 3% YTD) (in millions, except per share data) Electric segment earnings Down 1% Operating Revenues $ 358.1 $ 383.9 • Higher operating and maintenance expen
Slide 5: Earnings Per Share Growth
Earnings Per Share Growth $8.00 $6.78 $6.86 5YR CAGR = 27.2% Plastics segment earnings decline $6.00 offset by strong performance within the Electric and Manufacturing segments, as well as Corporate costs improving $4.23 $4.00 $2.34 5YR CAGR = 11.0% $2.06 $2.17 $2.00 $2.46 $2.12 $1.89 $1.66 $1.67 $1
Slide 6: Cleaner Energy Future
Cleaner Energy Future Otter Tail Power CO2 Trend Otter Tail Power Energy Resource Mix 6.0 Coal Renewable Purchased Gas/Oil 4.3 (million short tons) 3.9 3% 3% CO2 Emissions 4.0 3.7 4% 2.9 23% 28% 2.6 30% 9% 42% 2.1 2.0 25% 45% 0.13 68% 69% 0.0 30% 2005 2009 2013 2017 2022 2025 2050 21% Target Target
Slide 7: ESG Highlights
ESG Highlights By 2025, We are Targeting: 50% 50% Our owned and contracted Our carbon emissions from energy generation will be owned generation more than 50% renewable resources will be 50% below (Does not include MISO market purchases) 2005 levels Carbon emission reductions targeted to be 97% below
Slide 8: ESG Highlights - Human Capital
ESG Highlights - Human Capital We are focused on the health and safety of our employees and creating a culture of inclusion, excellence, and learning Safety - Safety is one of our core values. We focus on the safety Leadership Development and Succession Planning - We invest in of our employees and h
Slide 9: Electric Platform
Electric Platform OrEnian POWER COMPANY
Slide 10: Electric Operations
Electric Operations Operating Revenue (in millions) • Vertically integrated, regulated utility with generation, transmission and $600 $549.7 $541.6 distribution facilities $480.3 • Serve more than 133,000 residential, commercial and industrial customers • Service area encompasses approximately 70,00
Slide 11: Integrated Resource Plan & Environmental Regulation
Integrated Resource Plan & Environmental Regulation Integrated Resource Plan (IRP) • Supplemental IRP filed March 2023, jointly in MN, ND, & SD • Preferred 5-year plan, requested authority to: ◦ Add on-site LNG fuel storage at Astoria Station ◦ Add 200 MW of solar generation in 2027-2028 ◦ Commence
Slide 12: Rate Base Projects
Rate Base Projects Our Investment Project (millions) In Service % Complete Recovery Mechanisms Hoot Lake Solar ~ $62 2023 100% Rider/General Rate Case - MN Advanced Metering Infrastructure and Grid Modernization ~ $145 2019 - 2028 ~ 25% Rider/General Rate Case - MN, ND, & SD (Innovation 2030) Rider/
Slide 13: Hoot Lake Solar
Hoot Lake Solar Project Hoot Lake Solar Description 49-MW self-build solar Schedule 2020-2023 Otter Tail Power Cost ~ $62 million Project Summary • Eligible to meet utility scale portion of MN Solar Energy Standard (1.5% of retail sales) • MPUC approved 100% of costs and benefits to be assigned thro
Slide 14: MISO Long Range Transmission Planning (LRTP)
MISO Long Range Transmission Planning (LRTP) Project MISO LRTP Description LRTP Tranche 1 Transmission Projects Schedule In development Otter Tail Power Cost ~$420 million Project Summary • MISO recently approved its Long Range Transmission Plan which includes two 345kV projects in Otter Tail Power
Slide 15: Wind Repowering
Wind Repowering Project Wind Repowering Description Equipment upgrades at wind facilities Schedule In development Otter Tail Power Cost ~$230 million Project Summary • Upgrade and refurbishment of wind turbines at the Langdon, Ashtabula, Luverne, and Ashtabula III wind energy facilities in 2024 and
Slide 16: Rate Base Growth
Rate Base Growth Rate Base $1.1B of Capital Spending from 2023 to 2027 Renewables & Natural Gas, 39% $2.23 $2.11 $1.99 $1.85 Other, 12% 2023-2027 Transformative $1.75 Total Technology & $1.62 Infrastructure, 6% 6 .5% AG R of Distribution 7C 202 Replacement, 17% 2- 202 Transmission (incl. replacement
Slide 17: Key Regulatory Filings
Key Regulatory Filings Status / Regulatory Filing MN ND SD Est. Date Supplemental IRP Filing X X X P Astoria Dual Fuel Advance Determination of Prudence (ADP) Filing X P Energy Conservation and Optimization (ECO) Triennial Filing (2024-2026)* X P Fuel Clause Adjustment Forecast Filing X P General Ra
Slide 18: North Dakota Rate Case
North Dakota Rate Case North Dakota Rate Case • Filed with the North Dakota Public Service Commission on November 2, 2023 • Proposed to increase net revenues from North Dakota rates by approximately $17 million, or 8.4%. Even with this requested increase, Otter Tail Power Company will continue to ha
Slide 19: Regulatory Framework
Regulatory Framework Minnesota North Dakota South Dakota Renewable Riders Rider recovery / Rate case Rider recovery / Rate case Phase-in rider / Rate case A constructive regulatory environment Transmission Riders Rider recovery / Rate case Rider recovery / Rate case Rider recovery / Rate case provid
Slide 20: Electric Rates
Electric Rates Average Summer Residential Rate per KWH 14.4 15.0 13.5 Otter Tail Power has maintained rates 13.1 13.2 13.2 13.1 lower than the national average in 12.5 recent years while major projects Cents per KWH 11.7 have been constructed and put in 10.0 10.5 service 10.0 10.2 9.8 9.7 7.5 Contin
Slide 21: Manufacturing Platform
Manufacturing Platform we @®) VINYLTECH TO. PLASTICS Vill BT D northern pipe PVCePIPE products 21
Slide 22: Manufacturing Operations
Manufacturing Operations Operating Revenue (in millions) • Contract metal fabrication – stamping, machining, tube bending, tool & die, $500 laser cutting, welding, painting, assembly. A one stop shop for customer needs $398.0 $401.0 • Growth opportunities with existing customer base and expansion wi
Slide 23: Manufacturing Sales by End Market
Manufacturing Sales by End Market Agriculture, 15% Energy, 1% 2021 Agriculture, 18% Energy, 1% 2022 Rec. Vehicle, 34% Rec. Vehicle, 34% Lawn & Garden, 20% Lawn & Garden, 19% Industrial, 12% Industrial, 10% Construction, 18% Construction, 18% 2021 2022 Other, 1% Industrial, 4% Industrial, 6% Medical,
Slide 24: End Market Outlook - Manufacturing Segment
End Market Outlook - Manufacturing Segment 2023 Outlook 2023 Outlook End Market (Previous) (Current) Comments BTD Manufacturing • Dealer inventory at healthy levels, except for premium models (still low inventory for these models) Recreational Vehicles • Inflation and interest rate environment impac
Slide 25: Plastics Operations
Plastics Operations Operating Revenue (in millions) $600 • Manufactures and sells polyvinyl chloride (PVC) pipe to $512.5 distributors. Pipe is used in municipal water, rural water, wastewater, and storm drainage systems $380.2 $393.7 $400 • Plants located Fargo, ND & Phoenix, AZ • Approximate produ
Slide 26: Historical Resin, Pipe Price and Spreads
Historical Resin, Pipe Price and Spreads Resin prices begin to decline, but sales prices for PVC pipe remain elevated despite lower demand Resin shortages and strong demand for PVC pipe drives spread expansion Hurricane Harvey, followed by a series of resin disruptions, reset margins for several Dow
Slide 27: Annual U.S. Housing Starts
Annual U.S. Housing Starts in millions 2.5 2.0 1.5 1.40 1.40 1.39 50-Year Average 1.0 0.5 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E 2024E 2025E Source: U.S. Census Bureau, U.S. Department of Commerce and Wells Fargo Econom
Slide 28: Financial Update
FINANCIAL UPDATE 28
Slide 29: Financial Overview
Financial Overview Elevated Plastics segment earnings impacting Operating Income & Net Income in all periods presented $ in millions Operating Revenues Operating Income Net Income $1,750 $500 $300 $284.2 $278.4 $1,500 $1,460.2 $250 $1,336.3 $400 $390.4 $362.8 $1,250 $1,196.8 $200 $176.8 $300 $204.2
Slide 30: Diluted EPS: Q3 2022 vs Q3 2023
Diluted EPS: Q3 2022 vs Q3 2023 Electric Manufacturing Plastics Corporate Total Q3 2022 DILUTED EARNINGS PER SHARE $ 0.59 $ 0.15 $ 1.33 $ (0.06) $ 2.01 Rider revenues 0.05 — — — 0.05 Pension plan costs 0.04 — — — 0.04 Commercial & industrial sales volumes 0.01 — — — 0.01 Electric O&M expense (0.07)
Slide 31: Diluted EPS: YTD 2022 vs YTD 2023
Diluted EPS: YTD 2022 vs YTD 2023 Electric Manufacturing Plastics Corporate Total YTD 2022 DILUTED EARNINGS PER SHARE $ 1.50 $ 0.43 $ 4.07 $ (0.22) $ 5.78 Rider revenues 0.12 — — — 0.12 Pension plan costs 0.11 — — — 0.11 Commercial & industrial sales volumes 0.09 — — — 0.09 Electric Transmission ser
Slide 32: Liquidity, Cap Structure and Credit Ratings
Liquidity, Cap Structure and Credit Ratings Liquidity: Line of Credit Availability Consolidated Capital Structure & ROE Otter Tail Corporation Otter Tail Power Company 120% 25.6% 26% in millions 90% 24% Equity / Debt Percentage 40.6% 38.4% Return on Equity 46.3% 21.8% $108.9 60% 22% Available $152.2
Slide 33: 2023 Earnings Guidance
2023 Earnings Guidance 2023 Guidance 2023 Guidance Actual July 31, 2023 October 30, 2023 Diluted EPS 2022 Low High Low High Electric $ 1.91 $ 2.00 $ 2.04 $ 2.01 $ 2.04 Manufacturing 0.50 0.47 0.51 0.49 0.52 Plastics 4.66 3.40 3.59 4.34 4.45 Corporate (0.29) (0.17) (0.14) (0.08) (0.05) Total $ 6.78 $
Slide 34: Pension Assumptions and Recovery
Pension Assumptions and Recovery Actuarial EPS Actual / Projected Contributions Asset Allocation Assumptions Sensitivity (in millions) Funded Risk Return Discount Discount Status Management Enhancement Other Rate RoR Rate RoR 2022 2023(1) 2024 102% 51% 48% 1% 5.51% 7.00% $0.03 $0.02 $ 20.0 $ — $ — (
Slide 35: Five Year Financing Plan
Five Year Financing Plan Long-Term Financing 2022 2023-2027 $ in millions (Actual) (Planned) LONG-TERM DEBT Otter Tail Power Issuances $ 90.0 $ 290.0 Retirements (30.0) (42.0) Otter Tail Corporation (Parent) Issuances — 80.0 Retirements — (80.0) Net Debt Increase $ 60.0 $ 248.0 EQUITY - No material
Slide 36: Bond Maturity Schedule
Bond Maturity Schedule $150 in millions Balanced and manageable maturity schedule 7.00% 6.47% Weighted average interest 6.37% rate of 4.23% $125 6.00% 5.47% $100 5.00% Debt Maturity Interest Rate 4.45% $75 4.07% 3.92% 3.82% 3.77% 4.00% 3.62% 3.69% 3.55% 3.52% $50 3.22% 2.74% 3.00% $25 $0 // // // //
Slide 37: Capital Expenditures
Capital Expenditures Total in millions 2022 2023 2024 2025 2026 2027 2023-2027 Electric Segment Renewables & Natural Gas Generation $ 106 $ 119 $ 88 $ 85 $ 49 $ 447 Technology & Infrastructure 21 30 6 5 1 63 Distribution Plant Replacements 42 37 38 38 43 198 Transmission (incl. replacements) 52 36 4
Slide 38: History of Dividend Growth
History of Dividend Growth Our Dividend Story Dividend Growth & Payout Ratio CAGR = 5.4% • Paid annual dividend without interruption since 1938 $1.65 $1.75 $1.56 $1.48 • 6.1% increase, or $0.10 per share, indicated $1.23 $1.25 $1.28 $1.34 $1.40 for 2023 • Strong balance sheet, ample liquidity, histo
Slide 39: OTTR Investment Theme
OTTR Investment Theme Financial Performance Targets Total Shareholder Return1 8-10% Long-Term EPS Growth Rate 5-7% Dividend Yield ~ 3% Long-Term Targeted Dividend Payout Ratio 55-65% Dividend Growth Rate 5-7% Equity Layer 55-60% 1 Defined as EPS growth rate plus dividend yield Balanced Growth & Inco
Slide 40: www.ottertail.com
S OTIERTAIL W CORPORATION www.ottertail.com