Slide 1: 2020 Earnings Conference Call
2020 Earnings Conference Call
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: 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 • 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 6: 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 $919.5 • Total shareholder return has grown at a comp
Slide 7: ESG Highlights
ESG HIGHLIGHTS Environmental Social Governance These 3 documents provide details of Otter Tail Corporation’s ESG practices. 7
Slide 8: Cleaner Energy Future
CLEANER ENERGY FUTURE OTP Energy Resource Mix Typical Residential Bills – Price Per KWH 2005 2022 20 2020 13.2 11.7 13.1 Cents per kwh 10.6 9.5 10.1 10.5 10.2 10 23% 25% 35% 34% 45% 68% 9% 8% 0 MN ND SD U.S. 19% 1% 33% OTP State Average Source: Typical Bills and Average Rates Report, Edison Electric
Slide 9: Electric Platform
ELECTRIC PLATFORM OrzEnian POWER COMPANY
Slide 10: Electric Operations
ELECTRIC OPERATIONS Net Revenue ($ in millions) $500 $450.3 $459.1 $446.1 $400 Highlights $300 $200 • Rate base growth opportunities. $100 • Renewable generation. $0 2018 2019 2020 • Technology & infrastructure. • Transmission assets. $80 Net Income ($ in millions) • Filed MN rate case in November 2
Slide 11: Customer Mix and Regulation – COVID Update
CUSTOMER MIX AND REGULATION – COVID UPDATE Revenues by Customer Regulatory Matters 2020 Electric Revenue Impact Other, 2.3% Filings submitted in all jurisdictions to request Annual Annual COVID-19-related cost treatment order. (Weather Normalized) (YoY) (YoY) % EPS Updated Transmission Cost Recovery
Slide 12: 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 13: 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 Infrastructure Resource Addition Investments Additions $125 $16 $109 19% 2% 17% $1.72 $1.75 $1.77 $128 Other System $1.59 $1.63 $138 20% Replacements and Addition
Slide 14: Regulatory Framework
REGULATORY FRAMEWORK A constructive Minnesota North Dakota South Dakota regulatory environment Renewable Riders Rider recovery / Rate case Rider recovery / Rate case Phase-In Rider / Rate case provides for timely recovery of capital Transmission Riders Rider recovery / Rate case Rider recovery / Rat
Slide 15: 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 90% 245-MW natural gas simple-cycle combustion turbine AFUDC/Ge
Slide 16: Completed Merricourt Wind Energy Center
COMPLETED MERRICOURT WIND ENERGY CENTER Otter Tail Power’s Wind Portfolio Wind Resource Megawatts Merricourt 150.0 Langdon 40.5 Luverne 49.5 Ashtabula I 48.0 Ashtabula III (PPA w/ purchase option) 62.4 Total 350.4 • Merricourt was the single largest capital project in OTP’s history at ~$260 million.
Slide 17: Astoria Station Natural Gas Plant
ASTORIA STATION NATURAL GAS PLANT Project Astoria Station Description 245-MW simple-cycle combustion turbine 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 Re
Slide 18: Hoot Lake Solar Project
HOOT LAKE SOLAR PROJECT Project Hoot Lake Solar Description 49-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). Seeking
Slide 19: South Dakota Transmission Reliability Project
SOUTH DAKOTASouth Dakota Transmission TRANSMISSION RELIABILITYReliability PROJECT 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 reliabi
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 ~$50 million • Approximately 23 different transmission upgrades identified. All transmission network upg
Slide 21: Coyote Station Regional Haze Update
COYOTE STATION REGIONAL HAZE UPDATE • Continue to monitor progress on Round 2 of Federal Regional Haze Rule compliance planning process in North Dakota. • North Dakota Department of Environmental Quality (DEQ) is expected to begin the Public Comment Period regarding its recommendation on Coyote Stat
Slide 22: Manufacturing Platform
MANUFACTURING PLATFORM northern pipe products VINYLTECH Sone Vil TO. PLASTICS PVCePIPE
Slide 23: Manufacturing
MANUFACTURING • Contract metal fabrication – stamping, machining, Net Revenues ($ in millions) tube bending, welding, painting, assembly. $268.4 $277.2 $300 $238.8 • Growth opportunities with existing customer base $250 and expansion with new customers. $200 $150 $100 • Manufacturer of plastic therm
Slide 24: Manufacturing Sales by End Markets
MANUFACTURING SALES BY END MARKETS 2020 BTD 2019 BTD Energy, Energy, 2% 4% AGR, AGR, 12% 14% RV, 41% RV, 37% L&G, L&G, 15% 14% Const, Const, 14% Industrial, 19% Industrial, 14% 14% 2020 T.O. Plastics 2019 T.O. Plastics Medical, 18% Medical, 22% Industrial, 8% Extrusion/Food, Industrial, 9% 1% Hortic
Slide 25: Plastics
PLASTICS • Manufactures and sells PVC (polyvinyl chloride) pipe to distributors. Pipe is used in municipal water, rural Net Revenue ($ in millions) water, wastewater, and storm drainage systems. $250 $197.8 $205.2 • Plants located Fargo ND & Phoenix AZ. $200 $183.3 • Approximate production capacity
Slide 26: Financial Update
FINANCIAL UPDATE 26
Slide 27: Q4 EPS 2019 vs. Q4 EPS 2020
Q4 EPS 2019 VS. Q4 EPS 2020 Q4 Diluted EPS 2019 vs. Q4 Diluted EPS 2020 Electric Manufacturing Plastics Corporate Consolidated Q4 2019 Diluted Earnings per Share $ 0.38 $ 0.02 $ 0.14 $ (0.03) $ 0.51 Fuel and purchase power, net (0.07) (0.07) Increase in O&M expense (0.07) (0.07) Weather related reve
Slide 28: 2019 EPS vs. 2020 EPS
2019 EPS VS. 2020 EPS Year-End 2019 vs. Year-End 2020 Electric Manufacturing Plastics Corporate Consolidated Year-End 2019 Diluted Earnings per Share $ 1.48 $ 0.32 $ 0.51 $ (0.14) $ 2.17 Increase in renewable resource and generation rider revenue 0.26 0.26 Increase in transmission service revenue 0.
Slide 29: 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% 47.1% 49.0% 11.0% Equity/Debt 60% Outstanding ROE 10.5% Borrowings 15,830,771 65,166,054 40% 10.0% Letters of Credit 14,
Slide 30: 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 31: 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 generation profi
Slide 32: 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 Transmission (includes replacements) 23 25 31
Slide 33: Financing Plans
FINANCING PLANS Long-Term Financing 2020 2021-2025 Long-Term Debt (Actual) (Planned) * LT Debt Retirements (OTP) -- $170M LT Debt Issuances (OTP) $75M $230M OTC (Parent) Issuances/Retirements -- -- New Equity Issuances ~$50M -- * Financing plans are subject to change 33
Slide 34: 2021 Earnings Guidance
2021 EARNINGS GUIDANCE 2020 EPS 2021 EPS Guidance by Segment Low High Electric $ 1.63 $ 1.80 $ 1.83 Manufacturing 0.27 0.28 0.32 Plastics 0.67 0.52 0.56 Corporate (0.23) (0.21) (0.17) Total $ 2.34 $ 2.39 $ 2.54 Return on Equity 11.6 % 11.1 % 11.8 % 34
Slide 35: Investment Highlights
INVESTMENT HIGHLIGHTS Dividend yield ~ 3-4% Total EPS growth 5-7% Dividend growth in line Shareholder based on 2020 EPS with EPS growth while Return maintaining a payout ~ 8-10% ratio of 60-70% 35
Slide 36: 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