Slide 1: 2019 Third Quarter Earnings Conference Call
2019 THIRD QUARTER EARNINGS CONFERENCE CALL
Slide 2: Forward-looking Statement
Forward-looking Statement Except for historical information, all other information provided in this presentation consists of “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These “forward-looking statements” are subject to risks and uncertaint
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 Manufacturing Electric 25% Electric 75% Manufacturing ▪ Competitive low-cost operations ▪ Long-term growth potential ▪ Constructive regulatory environment ▪ Capacity utilization ▪ Attractive
Slide 5: Q3 2019 Financial Summary
Q3 2019 Financial Summary • Narrowed 2019 consolidated earnings per share guidance range to $2.10-$2.20 from $2.10-$2.25 per Q3 2019 Q3 2018 diluted share. • Electric segment’s earnings increased primarily due to final rates implemented from the South Dakota Operating Revenues (in millions) $228.7 $
Slide 6: ESG Highlights
ESG HighlightsESG Highlights 2022 Projections By 2022 we 30% 30% 30% expect our carbon dioxide emissions RENEWABLE CARBON LOWER from owned RESOURCES REDUCTION RATES resources to that we own or secure from 2005 levels compared to the through power beresidential national 33% lower purchase agreements
Slide 7: ESG Highlights
ESG Highlights ENERGY RESOURCE MIX 2005 2022 * 7 * More than 99% of this is natural gas. Less than 1% is oil. Otter Tail Power Company does not own all the renewable energy certificates (RECs) generated by contracted wind and solar, and periodically sells its own RECs with proceeds benefiting retail
Slide 8: ESG Highlights
ESG HighlightsESG Highlights ASSET PROFILE Net property and equipment as of December 31, 2018 2018 2022 8
Slide 9: Electric Platform
Electric Platform Orenian POWER COMPANY
Slide 10: Electric Operations
ElectricOperations Electric Operations Net Revenue ($ in millions) $500 $427.4 $434.5 $450.3 $462.8 $400 $300 Highlights $200 $100 $0 ▪ Rate base growth opportunities 2016 2017 2018 9/30/19 ▪ Merricourt wind project LTM ▪ Astoria gas plant Net Income ($ in millions) ▪ SD transmission reliability pro
Slide 11: Rate Base Growth
Rate Base Growth CapitalCapital spending of $1.0 spending billion of $1.0 billionfor for2019 to2023 2019 to 2023is divided among: divided among: Technology and Other system infrastructure replacements and investments $103 additions $128 (10%) Routine (13%) distribution Natural gas $147 replacements
Slide 12: Rate Base Projects
Rate Base Projects Our investment Percent Recovery mechanisms Project (Millions) In service complete Big Stone South – Brookings Co. $73 2017 100% Rider/Base Rates (CapX2020 and MVP) Big Stone South – Ellendale (MVP) $115 2019 100% Rider Merricourt Wind Energy Center $258 2020 19% Rider/General Rate
Slide 13: Regulatory Framework
Regulatory Framework A constructive regulatory Riders Minnesota North Dakota South Dakota environment Wind projects Rider recovery / Rate case Rider recovery / Rate case Phase-in rider / Rate case provides for timely recovery Transmission Rider recovery / Rate case Rider recovery / Rate case Rider r
Slide 14: Merricourt Wind Energy Center
Merricourt Wind Energy Center Project Merricourt Wind Energy Center Description 150 MWs Schedule 2017 - 2020 OTP cost $258 million • MN Resource Plan approved on March 16, 2017, allows up to 200 MW’s of wind by 2020. • Anticipate a capacity factor between 50% and 55%. • Turbines qualify for safe har
Slide 15: Astoria Station
Astoria Station Project Astoria Station Natural Gas Plant Description 245-MW simple cycle unit Schedule 2019 - 2021 OTP cost $158 million • Location intersects Big Stone–Brookings 345-KV line and Northern Border Pipeline. • MN Resource Plan approved in March 2017. • ND PSC approved Advance Determina
Slide 16: South Dakota Transmission Reliability Project
South DakotaSouth Dakota Transmission Reliability Project 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 $39 million • Transmission line to improve reliab
Slide 17: Manufacturing Platform
MANUFACTURING PLATFORM BTD VINYLTECH TO. PLASTICS V PV Gs PIPE
Slide 18: Manufacturing
Manufacturing ◼ Contract metal fabrication – stamping, machining, Net Revenues ($ in millions) $300 $268.4 $281.6 tube bending, welding, painting, assembly $250 $221.3 $229.7 ◼ Growth opportunities with existing customer base $200 and expansion with new customers $150 $100 $50 ◼ Manufacturer of plas
Slide 19: Manufacturing Sales by End Markets - BTD
Manufacturing Sales by End Markets - BTD 2019 YTD 2018 YTD Const, 16% Const, 14% Energy, 4% Energy, 8% Rec, 37% Rec, 36% Ind./Other, Ind./Other, 13% 13% AG, 15% AG, 14% L&G, 15% L&G, 15% 19
Slide 20: Plastics
Plastics ◼ Manufactures PVC (polyvinyl chloride) pipe in ND Net Revenue ($ in millions) ◼ Approximate production capacity of 150 mm lbs of $250 $185.1 $197.8 PVC (~ 2.5% of total market) $200 $180.6 $154.9 $150 ◼ Manufactures PVC pipe in AZ $100 ◼ Current capacity of 150 mm lbs $50 (~ 2.5% of total
Slide 21: Financial Update
FINANCIAL UPDATE
Slide 22: Q3 2018 compared with Q3 2019
Q3 2018 compared with Q3 2019 Q3 EPS 2018 vs. Q3 EPS 2019 Electric Manufacturing Plastics Corporate Consolidated Q3 2018 Diluted Earnings per Share $0.37 $0.07 $0.16 ($0.02) $0.58 Increase in electric base rates 0.05 0.05 Increase kwh sales, non weather related 0.02 0.02 Increased cost recovery requ
Slide 23: YTD EPS 2018 vs. YTD EPS 2019
YTD EPS 2018 VS. YTD EPS 2019 YTD September EPS 2018 vs. YTD September EPS 2019 Electric Manufacturing Plastics Corporate Consolidated YTD September 2018 Diluted EPS $1.05 $0.27 $0.49 ($0.10) $1.71 Increased cost recovery requirement in base rates and renewable riders from expired PTC's 0.06 0.06 In
Slide 24: Costs in fourth quarter 2018 not expected in fourth quarter 2019
Costs in fourth quarter 2018 not expected in fourth quarter 2019 Costs in fourth quarter of 2018 EPS Key items: Electric segment Big Stone Plant outage $ 0.04 OTP Foundation contribution 0.01 Corporate OTC Foundation contribution 0.04 OTC Uncertain tax positions 0.02 OTC Valuation allowance 0.02 Tot
Slide 25: Liquidity, Cap Structure & Credit Ratings
Liquidity, Cap Structure & Credit Ratings OTP OTC Consolidated Capital Structure Line of Credit Facilities $ 170,000,000 $ 130,000,000 100% 12.0% Outstanding 80% 11.5% 11.5% 46.5% 46.4% Borrowings 73,160,050 35,837,258 45.5% 11.0% Equity/Debt Letters of Credit 16,561,050 - 60% ROE 10.6% 10.5% Unused
Slide 26: Bond Maturity Schedule
Bond Maturity Schedule ($ in thousands) Coupon Rate $160,000 5 + 7.00% 6.15% 8.37% og” 15% > $140,000 + ° + 6.00% 5.47% 47% $120,000 4 463 468% + 5.00% $100,000 4 3.55% 3.52% 3.62% 4.00% $80,000 3.07% 3.22% ind ° 3.00% $60,000 +4 2.00% $40,000 4 1.00% 26
Slide 27: 2019 Earnings Guidance
2019 Earnings Guidance 2018 EPS by 2019 Guidance 2019 Guidance 2019 Guidance 2019 Guidance Segment February 18, 2019 May 6, 2019 August 5, 2019 November 4, 2019 Diluted Earnings Per Share Low High Low High Low High Low High Electric $1.36 $1.46 $1.49 $1.48 $1.51 $1.48 $1.51 $1.48 $1.50 Manufacturing
Slide 28: Capital Expenditures
Capital Expenditures (in millions) 2018 2019 2020 2021 2022 2023 Total Capital Expenditures: Electric Segment: Renewables and Natural Gas Generation $125 $ 264 $ 15 $ 82 $ 0 $ 486 Transformative Technology and Infrastructure 2 7 18 47 54 128 Transmission (includes replacements) 43 42 21 19 17 142 Ot
Slide 29: History of Dividend Growth
History of Dividend Growth Dividend Growth ▪ Consecutive annual dividends $1.21 $1.23 $1.25 $1.28 $1.34 $1.40 $1.19 without interruption paid since 1938 ▪ Indicated increase of $.06/share 79% 78% 79% 78% 71% 65% 65% (4.5%) ▪ Strong balance sheet, liquidity, cash generation profile and our commitment
Slide 30: Investment Highlights
Investment Highlights Total Dividend yield ~ 3% 5-7% EPS growth- Shareholder Dividend growth in based off from 2018 EPS Return line with EPS growth while maintaining a ~ 8-10% payout ratio of 60-70% 30
Slide 31: Investment Highlights
Investment Highlights Strong and stable regulated electric operations provide cash flow to Competitive, low cost integrated electric support dividends operations Manufacturing businesses provide above Balanced Stable and Regulated rate base capex over the next 5 average earnings growth potential Gro