Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — Sidoti Virtual Investor Conference September 2020
45 slides from Otter Tail's conference presentation, Sep 23, 2020
Slide 1: Sidoti Virtual Investor Conference September 23-24, 2020
Sidoti Virtual Investor Conference September 23-24, 2020
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: Agenda
AGENDA • Business Overview • COVID-19 Impacts & Mitigation Efforts • 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 • Long-term growth potential 75% 25% • 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 • 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 customers. • No immediate disruptions to our supply chain.
Slide 9: Managing COVID-19
MANAGING COVID-19 Employees Customers Communities • Implemented social distancing and • Temporarily suspending utility shut- • T.O. Plastics making plastic face physical barrier policies. offs. shields for health care workers. • Activated internal preparedness • Temporarily waiving late-payment • Ho
Slide 10: Q2 2020 Financial Summary and Highlights
Q2 2020 FINANCIAL SUMMARY AND HIGHLIGHTS • Based on our YTD performance and our updated view of the Q2 2020 Q2 2019 impacts from COVID-19, we are raising our 2020 earnings per share (EPS) guidance range to $2.10-$2.30 from $2.00-$2.25 per diluted share. Operating Revenues $192.8 $229.2 • Electric Se
Slide 11: Key COVID-19 Financial Risks
KEY COVID-19 FINANCIAL RISKS Potential Impacts Mitigation Factors • Lower commercial and industrial sales • Higher margin residential usage volumes • O&M expense reductions • Increased bad debt expense and waived late • Rigorous COVID-19 safety programs and fees project management Electric Segment •
Slide 12: ESG Highlights
ESG HIGHLIGHTS Environmental Social Governance https://www.ottertail.com/annual-report-and- proxy-statement/Index?KeyGenPage=1073752420 https://www.ottertail.com/custompage/Index?KeyGenPage=351348 These 3 documents provide details of Otter Tail Corporation’s ESG practices 12
Slide 13: ESG Highlights 2022 Projections
ESG HIGHLIGHTS ESG Highlights 2022 Projections By 2022 we 30% 30% 30% expect our carbon dioxide emissions RENEWABLE CARBON LOWER from owned RESOURCES REDUCTION RATES resources to that we own or secure from 2005 levels compared to the through power national 33% lower beresidential purchase agreements
Slide 14: Cleaner Energy Future
CLEANER ENERGY FUTURE Energy Resource Mix Typical Residential Bills Lower then 20 National Average 2002 2012 2022 13.62 13.16 11.65 Cents per kwh 10.4 9 10.12 9.32 9.73 13% 12% 20% 9% 0 78% 14% 31% 53% MN ND SD U.S. Average 64% OTP State Average 2% 4% Source: Typical Bills and Average Rates Report,
Slide 15: Electric Platform
ELECTRIC PLATFORM OrEnian POWER COMPANY
Slide 16: Electric Operations
ELECTRIC OPERATIONS Net Revenue ($ in millions) $500 $434.5 $450.3 $459.1 $446.7 $400 $300 Highlights $200 • Rate base growth opportunities $100 • Merricourt Wind Energy Center $0 • Astoria Station natural gas-fired plant 2017 2018 2019 6/30/20 • South Dakota transmission reliability project LTM • S
Slide 17: 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% Filing in place for all jurisdictions to request Q2 Annual COVID-19 related cost treatment order (Weather Normalized) (YoY) (YoY) 2019 Annual Deprecation Filing R
Slide 18: Electric Operations
ELECTRIC OPERATIONS Energy by Source - 2019 Service Area* Wind, 15.0% Coal, 46.0% Purchased, 37.0% Gas, Hydro, 1.0% 1.0% Revenues by State - 2019 Revenues by Customer - 2019 Other, Residential, ND, 2.3% 32.3% 37.7% Industrial, 30.0% MN, 52.3% Commercial, SD, 10.0% 35.4% 18
Slide 19: 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 32% 11% $1.73 $1.77 $1.59 $1.67 $113 Other System $1.42 $166 13% Replacements $140 and Additions
Slide 20: 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 21: Rate Base Projects
RATE BASE PROJECTS Percent Our Investment Complete ( As Recovery Project In Service (Millions) of the end of Mechanisms Q2, 2020) Big Stone South – Ellendale (MVP) $115 2019 100% Rider Merricourt Wind Energy Center $260 2020 60% Rider/General Rate Case Phase I 2019 100% SD transmission reliability p
Slide 22: 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. • ND PSC approved Advance Determination of Prudence.
Slide 23: 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 $154 million • MN PUC approved 2017 Resource Plan. • ND PSC approved Advance Determination of Prudence and use of Generation Cost Recovery Rider. • SD PUC issued si
Slide 24: Advancing Economic Recovery
ADVANCING ECONOMIC RECOVERY Minnesota Relief and Recovery Proposal – Potential Projects. • 12 projects submitted with estimated total cost of $153-173 million Renewable Generation ~$60 million Infrastructure and Reliability Improvements ~$18 million Technology Advancement ~$71 million Electric Vehic
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 ~$50 million • Approximately 23 different transmission upgrades identified. • 11 upgrades completed (mos
Slide 26: Coyote Station Regional Haze Update
COYOTE STATION REGIONAL HAZE UPDATE • Continue to monitor progress on Federal Regional Haze Rule compliance planning process in North Dakota. • North Dakota Department of Environmental Quality (DEQ) and State of North Dakota have many milestones to reach before the State submits its Implementation P
Slide 27: Manufacturing Platform
MANUFACTURING PLATFORM S, @ northern pipe products VINYLTECH Sone Vil TO. PLASTICS PVCePIPE
Slide 28: Manufacturing
MANUFACTURING • Contract metal fabrication – stamping, machining, Net Revenues ($ in millions) tube bending, welding, painting, assembly $300 $268.4 $277.2 • Growth opportunities with existing customer base $229.7 $240.3 $250 and expansion with new customers $200 $150 $100 • Manufacturer of plastic
Slide 29: Manufacturing Locations
MANUFACTURING LOCATIONS hen 29
Slide 30: Manufacturing Sales by End Markets
MANUFACTURING SALES BY END MARKETS 2019 BTD 2018 BTD L&G, 15% L&G, 15% Rec, 37% Rec, 35% Energy, 4% Transp, 0% Energy, 5% Transp, 0% Ag, 14% Ag, 15% Ind./Other, Const, 16% Ind./Other, Const, 17% 14% 13% 2019 T.O. Plastics, Inc. 2018 T.O. Plastics, Inc. Medical, 22% Medical, 20% Industrial, 11% Indus
Slide 31: Plastics
PLASTICS • Manufactures PVC (polyvinyl chloride) pipe in ND • Approximate production capacity of 150 mm lbs Net Revenue ($ in millions) of PVC (~ 2.5% of total market) $250 $185.1 $197.8 $183.3 $184.7 $200 $150 • Manufactures PVC pipe in AZ $100 • Current capacity of 150 mm lbs (~ 2.5% of total $50
Slide 32: Plastics Locations
PLASTICS LOCATIONS 32
Slide 33: Financial Update
FINANCIAL UPDATE 33
Slide 34: Q2 EPS 2019 vs. Q2 EPS 2020
Q2 EPS 2019 VS. Q2 EPS 2020 Q2 EPS 2019 vs. Q2 EPS 2020 Electric Manufacturing Plastics Corporate Consolidated Q2 2019 Diluted Earnings per Share $ 0.19 $ 0.10 $ 0.15 $ (0.05) $ 0.39 Decrease in O&M expense 0.07 0.07 Costs for extended maintenance outage at Coyote Station in 2019 0.05 0.05 Increase
Slide 35: YTD EPS 2019 vs. YTD EPS 2020
YTD EPS 2019 VS. YTD EPS 2020 YTD June EPS 2019 vs. YTD June EPS 2020 Electric Manufacturing Plastics Corporate Consolidated YTD June 2019 Diluted Earnings per Share $ 0.66 $ 0.22 $ 0.24 $ (0.07) $ 1.05 Increase in renewable and generation rider revenue 0.12 0.12 Costs for extended maintenance outag
Slide 36: 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 37: COVID-19 Strong Liquidity Position
COVID-19 STRONG LIQUIDITY POSITION December 31, 2019 July 31, 2020 OTC OTP OTC OTP Total Credit Capacity $170.0 $170.0 $170.0 $170.0 Outstanding Borrowings (6.0) (45.9) Letters of Credit (15.5) (7.7) Unused $164.0 $154.5 $124.1 $162.3 Expiration Date October 31, 2024 October 31, 2024 37
Slide 38: 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 39: Bond Maturity Schedule
BOND MATURITY SCHEDULE $160,000 5 ~ 7.00% 6.15% 5.37% a oO a4 $140,000 « + 6.00% 5.47% $120,000 | . 4.639 4.68% + 5.00% $100,000 | 3.55% 3.52% 3.62% 7 4.00% $80,000 | 3.07% 3.22% 2? ° + 3.00% $60,000 | $40,000 yp 2.00% $20,000 y 1.00% so 4 + 0.00% 39
Slide 40: 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% 67% (5.7%). • Strong balance sheet, liquidity, cash generation profile, and c
Slide 41: 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 42: 2020 Earnings Guidance
2020 EARNINGS GUIDANCE 2019 EPS by Segment 2020 Guidance 2020 Guidance 2020 Guidance February 17, 2020 May 5, 2020 August 3, 2020 Diluted Earnings Per Share Low High Low High Low High Electric $1.48 $1.67 $1.70 $1.65 $1.70 $1.67 $1.70 Manufacturing $0.32 $0.31 $0.35 $0.14 $0.23 $0.15 $0.23 Plastics
Slide 43: 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 44: 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% 44
Slide 45: 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
Otter Tail — Sidoti Virtual Investor Conference September 2020 on 6ix