Slide 1: 2022 Earnings Conference Call
2022 Earnings Conference Call February 14, 2023
Slide 2: Forward-Looking Statement
Forward-Looking Statement Except for historical information contained here, the statements in this presentation 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
Slide 3: Company Overview
Company Overview MANUFACTURING PLATFORM ELECTRIC PLATFORM MANUFACTURING SEGMENT PLASTICS SEGMENT Electric Platform Manufacturing Platform 2022 Earnings Mix Long-Term Earnings Mix • Competitive low-cost (Beginning in 2024) • Long-term growth operations potential • Constructive • Capacity utilization
Slide 4: 2022 Financial Summary and Highlights
2022 Financial Summary and Highlights FINANCIAL RESULTS 2022 ITEMS OF NOTE In thousands, expect per share amounts 2022 2021 • Record Financial Results We produced record earnings in 2022. All segments produced double digit earnings growth Operating Revenues $ 1,460,209 $ 1,196,844 from 2021; Electri
Slide 5: Earnings Per Share Growth
Earnings Per Share Growth $8.00 5YR CAGR = 30.2% $6.78 $7.00 $6.00 $5.00 $4.23 $4.00 $3.00 $2.06 $2.17 $2.34 5YR CAGR = 10.8% $1.81 $2.00 $2.12 $1.89 $1.66 $1.67 $1.00 $1.46 $1.27 $— 2017 2018 2019 2020 2021 2022 *Consolidated EPS w/o Plastics is a non-GAAP financial Consolidated EPS Consolidated EP
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% 4% 3% CO2 Emissions 4.0 3.7 2.9 23% 2.6 30% 28% 9% 42% 2.1 2.0 25% 45% 68% 69% 0.13 0.0 30% 21% 2005 2009 2013 2017 2022 2025 2050 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
Slide 9: Electric Platform
ELECTRIC PLATFORM OrEnian POWER COMPANY
Slide 10: Electric Operations
Electric Operations Operating Revenue (in millions) $600 $549.7 $480.3 $446.1 $400 $200 Highlights • Rate base growth opportunities: $0 • Renewable generation - Hoot Lake Solar, Ashtabula Wind III 2020 2021 2022 purchase, and wind repowering Net Income (in millions) • Technology & infrastructure - A
Slide 11: 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 • Qualifies for investment tax credit of 40% after IRA passage; safe harbor equipment secured • Eligible to meet utility scale portion of MN Solar Energy
Slide 12: Ashtabula Wind III Purchase
Ashtabula Wind III Purchase Project Ashtabula Wind III Description 62.4-MW wind farm Schedule Completed purchase in January 2023 Otter Tail Power Cost $50.6 million Project Summary • Purchase power agreement (PPA) with NextEra Energy began in 2013 • Exercised option to purchase operational assets of
Slide 13: 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 ~$390 million Project Summary • MISO recently approved its Long Range Transmission Plan with includes two 345kV projects in Otter Tail Power s
Slide 14: Integrated Resource Plan & ND Regional Haze Plan
Integrated Resource Plan & ND Regional Haze Plan Integrated Resource Plan (IRP) • Original IRP filed September 2021, jointly in MN, ND, & SD • Required filing in Minnesota and North Dakota. • Preferred 5-year plan, requested authority to: ◦ Add dual fuel capability at Astoria Station. ◦ Add 150 MW o
Slide 15: Rate Base Growth
Rate Base Growth Rate Base $1.1B of Capital Spending from 2023 to 2027 Renewables & Natural Gas, 36% in billions $2.21 $2.11 $1.99 Transformative $1.85 Other, 12% 2023-2027 Technology & $1.75 Total Infrastructure, 7% $1.62 6 .4% GR of Distribution 02 7 CA Replacement, 18% -2 2 022 Transmission (incl
Slide 16: Rate Base Projects
Rate Base Projects Our Investment Project (millions) In Service % Complete Recovery Mechanisms Hoot Lake Solar ~ $62 2023 ~ 65% Rider/General Rate Case - MN Advanced Metering Infrastructure and Grid Modernization ~ $145 2019 - 2024 ~ 25% Rider/General Rate Case - MN, ND, & SD (Innovation 2030) Rider
Slide 17: Key Regulatory Matters
Key Regulatory Matters Estimated Regulatory Matter MN ND SD Date Astoria Dual Fuel ADP X Q1 2023 Conservation Improvement (CIP) Triennial Filing (2024-2026) X Q2 2023 Fuel Clause Adjustment Forecast Filing X Q2 2023 Updated IRP Filing X X X Q1 2023 Annual Updates to Capital Recovery Riders X X X 202
Slide 18: 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 19: 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 Conti
Slide 20: Manufacturing Platform
Manufacturing Platform we @®) VINYLTECH TO. PLASTICS Vill BT D northern pipe PVCePIPE products 20
Slide 21: 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. • Growth opportunities with existing customer base and expansion with new $398.0
Slide 22: 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 23: End Market Outlook - Manufacturing Segment
End Market Outlook - Manufacturing Segment 2023 End Market Outlook Comments BTD Manufacturing • Dealer inventory remains below historic levels creating production demand for restocking Recreational Vehicles • Inflation and interest rate environment expected to impact discretionary spending • Demand
Slide 24: Plastics Operations
Plastics Operations Operating Revenue (in millions) $600 • Manufactures and sells PVC (polyvinyl chloride) pipe to $512.5 distributors. Pipe is used in municipal water, rural water, wastewater, and storm drainage systems. $400 $380.2 • Plants located Fargo ND & Phoenix AZ. • Approximate production c
Slide 25: Historical Resin, Pipe Price and Spreads
Historical Resin, Pipe Price and Spreads Sales prices remained strong while resin prices decreased and demand soften Continued strong domestic demand and increased export market demand drive further margin expansion. Resin shortages, driven by Hurricane Ida, COVID and a polar vortex, drives margins
Slide 26: Annual U.S. Housing Starts
Annual U.S. Housing Starts 2.5 in millions 2.0 1.54 1.5 50-Year Average 1.28 1.30 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 2022E 2023E 2024E Source: U.S. Census Bureau, U.S. Department of Commerce and Wells Fargo Economics 2
Slide 27: Financial Update
FINANCIAL UPDATE 27
Slide 28: Financial Overview
Financial Overview Operating Revenues Operating Income Net Income in millions in millions in millions $1,750 $500 $300 $284.2 2021 and 2022 earnings mix are impacted by strong Plastic $1,500 $1,460.2 segment performance. $250 $400 $390.4 $1,250 $1,196.8 $200 $176.8 $300 $204.2 $1,000 $910.5 $890.1 $
Slide 29: Diluted EPS: Q4 2021 vs Q4 2022
Diluted EPS: Q4 2021 vs Q4 2022 Electric Manufacturing Plastics Corporate Total Q4 2021 DILUTED EARNINGS PER SHARE $ 0.40 $ 0.05 $ 0.90 $ (0.12) $ 1.23 Commercial & industrial sales volumes 0.05 — — — 0.05 Impact of favorable weather conditions 0.04 — — — 0.04 Increase in transmission services reven
Slide 30: Diluted EPS: 2021 vs 2022
Diluted EPS: 2021 vs 2022 Electric Manufacturing Plastics Corporate Total 2021 DILUTED EARNINGS PER SHARE $ 1.73 $ 0.41 $ 2.34 $ (0.25) $ 4.23 Commercial & industrial sales volumes 0.26 — — — 0.26 Impact of favorable weather conditions 0.10 — — — 0.10 Finalization of Minnesota interim rates 0.07 — —
Slide 31: 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% 32% Borrowing Capacity of $170M in millions 25.6% 90% 24% Equity / Debt Percentage 40.6% Return on Equity 49.3% 46.3% $88.3 Ava
Slide 32: 2023 Earnings Guidance
2023 Earnings Guidance Actual 2023 Guidance Diluted EPS 2021 2022 Low High Electric $ 1.73 $ 1.91 $ 2.00 $ 2.04 Manufacturing 0.41 0.50 0.43 0.47 We anticipate 2023 Plastics segment earnings will recede Plastics 2.34 4.66 1.57 1.76 from historic highs in 2022 as industry conditions begin to Corporat
Slide 33: 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 34: 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 ex
Slide 35: 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 36: Capital Expenditures
Capital Expenditures Total in millions 2022 2023 2024 2025 2026 2027 2023-2027 Electric Segment Renewables & Natural Gas Generation $ 88 $ 119 $ 88 $ 79 $ 10 $ 384 Technology & Infrastructure 33 30 6 5 1 75 Distribution Plant Replacements 33 37 38 38 43 189 Transmission (incl. replacements) 34 36 46
Slide 37: 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 $1.75 $1.65 $1.56 $1.48 • 6.1% increase, or $0.10 per share, indicated $1.25 $1.28 $1.34 $1.40 $1.23 for 2023 • Strong balance sheet, ample liquidity, histo
Slide 38: OTTR Investment Theme
OTTR Investment Theme Financial Performance Targets Total Shareholder Return1 8-10% Long-Term EPS Growth Rate2 5-7% Dividend Yield ~ 3% Long-Term Targeted Dividend Payout Ratio 55-65% Dividend Growth Rate 5-7% Equity Layer 55-60% 1 2 Defined as EPS growth rate plus dividend yield; 2024 as the base y
Slide 39: www.ottertail.com
S OTIERTAIL W CORPORATION www.ottertail.com