Slide 1: 2019 Earnings Conference Call
2019 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: 2019 Financial Summary & Highlights
2019 Financial Summary & Highlights • Consolidated EPS of $2.17, up 5.3%. 2019 2018 • Increased the annual dividend rate 4.5% from $1.34 to $1.40. Annual indicated rate for 2020 is $1.48 or 5.7% increase over the 2019 rate. Operating Revenues (in millions) $919.5 $916.4 • Total shareholder return ha
Slide 6: ESG Highlights
ESG HighlightsESG Highlights 2022 Projections By 2022 we 30% 30% 30% expect our carbon dioxide emissions RENEWABLE CARBON LOWER from owned RESOURCES REDUCTION RATES resources to that we own or secure from 2005 levels compared to the through power beresidential national 33% lower purchase agreements
Slide 7: Cleaner Energy Future at Lower-than-average Rates
Cleaner Energy Future at Lower-than-average Rates Energy Resource Mix 2002 2012 2022 12% 13% 20% 9% 0% 14% 31% 53% 78% 64% 2% 4% OTP has significantly diversified its fuel mix, is a national leader in renewables, and is implementing plans to further diversify with 7 near-term wind, solar, and natura
Slide 8: ESG Highlights: Asset Profile – Otter Tail Power
ESG Highlights Cleaner Energy Future at Lower-than-average Rates Asset Profile – Otter Tail Power Net property and equipment as of December 31, 2019 2018 2022 8
Slide 9: ESG Highlights: Residential rates
ESG Highlights Cleaner Energy Future at Lower-than-average Rates Residential rates (Cents per kWh) By 2022 we Minnesota North Dakota expectSouth ourDakota State average 13.62 10.12 carbon dioxide 11.65 Otter Tail Power Company 10.40 9.00 emissions9.32 from owned Residential rates (Cents per kWh) res
Slide 10: Consolidated Revenues from Coal Assets
Consolidated Revenues from Coal Assets 2019 2022 13.7% 11.0% 86.3% 89.0% Footnotes: 1. Consolidated revenues include estimated returns on coal generation facility rate base investment, fuel expenses, O&Ms, depreciation, property taxes, and coal conversion taxes. 2. By 2022, the Hoot Lake Plant retir
Slide 11: Electric Platform
Electric Platform Orenian POWER COMPANY
Slide 12: Electric Operations
ElectricOperations Electric Operations Net Revenue ($ in millions) $500 $434.5 $450.3 $459.1 $427.4 $400 $300 Highlights $200 ▪ Rate base growth opportunities $100 ▪ Merricourt Wind Energy Center $0 2016 2017 2018 2019 ▪ Astoria Station natural gas-fired plant ▪ SD transmission reliability project N
Slide 13: Rate Base Growth
Rate Base Growth Capital spending of $897 million from 2020 to 2024 divided among: Technology Other system and replacements infrastructure and additions investments $118 $169 (13%) Routine $1.69 $1.74 (19%) $1.57 $1.63 Natural gas $134 distribution $1.42 $99 replacements generation (15%) (11%) and a
Slide 14: Rate Base Projects
Rate Base Projects Recovery Our investment Percent mechanisms Project (Millions) In service complete Big Stone South – Ellendale (MVP) $115 2019 100% Rider Merricourt Wind Energy Center $258 2020 19% Rider/General Rate Case Phase I 2019 100% SD transmission reliability project $39 Rider/General Rate
Slide 15: 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 16: Merricourt Wind Energy Center
Merricourt Wind Energy Center Project Merricourt Wind Energy Center 150 MWs Description Capacity factor ~ 50% to 55% Schedule 2017 - 2020 OTP cost $258 million • MN PUC approved 2017 Resource Plan. • MN PUC approved rider recovery with a cost cap. • ND PSC approved Advance Determination of Prudence.
Slide 17: Astoria Station
Astoria Station Project Astoria Station Natural Gas Plant Description 245-MW simple cycle unit Schedule 2020-2021 OTP cost $158 million • MN PUC approved 2017 Resource Plan. • ND PSC approved Advance Determination of Prudence and use of generation cost recovery rider. • SD PUC issued site permit and
Slide 18: 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 19: 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 $45 million • Facility Service Agreement (FSA) allows Otter Tail to recover cost of transmission upgrade
Slide 20: Manufacturing Platform
MANUFACTURING PLATFORM BTD VINYLTECH TO. PLASTICS V PV Gs PIPE
Slide 21: Manufacturing
Manufacturing Net Revenues ($ in millions) ◼ Contract metal fabrication – stamping, machining, $300 $268.4 $277.2 tube bending, welding, painting, assembly $250 $221.3 $229.7 ◼ Growth opportunities with existing customer base $200 and expansion with new customers $150 $100 $50 ◼ Manufacturer of plas
Slide 22: Plastics
Plastics ◼ Manufactures PVC (polyvinyl chloride) pipe in ND Net Revenue ($ in millions) ◼ Approximate production capacity of 150 mm lbs of $250 $185.1 $197.8 PVC (~ 2.5% of total market) $200 $183.3 $154.9 $150 ◼ Manufactures PVC pipe in AZ $100 ◼ Current capacity of 150 mm lbs $50 (~ 2.5% of total
Slide 23: Financial Update
FINANCIAL UPDATE
Slide 24: YE 2018 compared with YE 2019
YE 2018 compared with YE 2019 YTD EPS 2018 vs. YTD EPS 2019 Electric Manufacturing Plastics Corporate Consolidated 2018 Diluted EPS $1.36 $0.32 $0.60 ($0.22) $2.06 Transmission cost recovery riders 0.19 0.19 Fuel and purchase power (net) 0.06 0.06 SD rate case and reversal of SD TCJA refund 0.06 0.0
Slide 25: Q4 EPS 2018 vs. Q4 EPS 2019
Q4 EPS 2018 VS. Q4 EPS 2019 Q4 EPS 2018 vs. Q4 EPS 2019 Electric Manufacturing Plastics Corporate Consolidated Q4 2018 Diluted Earnings per Share $0.31 $0.05 $0.11 ($0.12) $0.35 Fuel and purchase power (Net) 0.06 0.06 MN transmission rider 0.05 0.05 2018 Big Stone Plant Outage Costs 0.05 0.05 Renewa
Slide 26: Liquidity, Cap Structure & Credit Ratings
Liquidity, Cap Structure & Credit Ratings OTP OTC Consolidated Capital Structure 100% 11.6% 12.0% Line of Credit Facilities $ 170,000,000 $ 170,000,000 11.5% 80% 10.6% 11.5% 46.4% 45.5% Outstanding 47.1% 11.0% Equity/Debt 60% ROE Borrowings - 6,000,000 10.5% 40% 10.0% Letters of Credit 15,476,139 -
Slide 27: Bond Maturity Schedule
Bond Maturity Schedule ($ in thousands) $160,000 5 6.15% $140,000 + a4 $120,000 4 4.63! $100,000 + $80,000 + $60,000 + 4.68% 3.55% 3.22% 3.07% S 6.47% > 3.52% 3.62% oo? 5.47% 4 + 3.00% + 2.00% 27
Slide 28: History of Dividend Growth
History of Dividend Growth Dividend Growth ▪ Consecutive annual dividends $1.23 $1.25 $1.34 $1.40 $1.48 $1.19 $1.21 $1.28 without interruption paid since 1938 ▪ Indicated increase of $.08/share 79% 78% 79% 78% 71% 65% 65% (5.7%) 64% ▪ Strong balance sheet, liquidity, cash generation profile and our
Slide 29: Capital Expenditures
Capital Expenditures (in millions) 2019 2020 2021 2022 2023 2024 Total Capital Expenditures: Electric Segment: Renewables and Natural Gas Generation $ 260 $ 18 $ 51 $ 30 $ -- $ 359 Technology and Infrastructure 7 18 47 54 43 169 Distribution Plant Replacements 22 27 34 25 26 134 Transmission (includ
Slide 30: 2020 Earnings Guidance
2020 Earnings Guidance 2019 EPS by 2020 EPS Guidance Segment Low High Electric $1.48 $1.67 $1.70 Manufacturing $0.32 $0.31 $0.35 Plastics $0.51 $0.43 $0.47 Corporate ($0.14) ($0.19) ($0.15) Total $2.17 $2.22 $2.37 Return on Equity 11.6% 11.0% 11.7% 30
Slide 31: Investment Highlights
Investment Highlights Total Dividend yield ~ 3% 5-7% EPS growth- Shareholder Dividend growth in based off from 2019 EPS Return line with EPS growth while maintaining a ~ 8-10% payout ratio of 60-70% 31
Slide 32: 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 Gr