Otter Tail Corporation · NASDAQ:OTTR
Otter Tail — 2022 EEI Financial Conference
38 slides from Otter Tail's conference presentation, Nov 13, 2022
Slide 1: 2022 EEI Financial Conference
2022 EEI FINANCIAL CONFERENCE November 13-15, 2022
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 Expected 2022 Earnings Mix Long-term Earnings Mix Manufacturing Platform • Competitive low-cost • Long-term growth operations potential • Constructive • Capacity utilization regulatory
Slide 4: Q3 2022 Financial Summary and Highlights
Q3 2022 FINANCIAL SUMMARY AND HIGHLIGHTS • Q3 2022 diluted earnings per share of $2.01, up 60% from 2021 • 2022 diluted earnings per share guidance range of $6.42-$6.72 Q3 2022 Q3 2021 which reflects a 52%-59% increase from the 2021 reported annual diluted earnings per share of $4.23. Operating Reve
Slide 5: Earnings Per Share Growth
Earnings Per Share Growth $7.00 $6.57 29.4% 5-YR CAGR $6.50 $6.00 $5.50 $5.00 $4.50 $4.23 $4.00 $3.50 $3.00 $2.34 $2.50 $2.06 $2.17 $2.03 9.8% 5-YR CAGR $1.81 $1.89 $2.00 $1.66 $1.67 $1.46 $1.50 $1.27 $1.00 $0.50 $— 2017 2018 2019 2020 2021 2022 Mid Point Consolidated EPS Consolidated EPS w/o Plasti
Slide 6: CO2 Emissions
CLEANER ENERGY FUTURE OTP Energy Resource Mix Otter Tail Power Company CO2 Trend (Owned Resources) 2005 - 2025 Coal Renewable Purchased Gas/Oil 5.0 4.3 3.9 (million short tons) 3.7 CO2 Emissions 1% 4% 3% 2.9 2.6 2.5 2.1 23% 45% 30% 28% 9% 19% 45% 0.13 68% 69% 0.0 35% 2005 2009 2013 2017 2021 2025 20
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 2005 levels. market purchases). Carbon emission reductions targeted to be 97% bel
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 extend of our employees and hav
Slide 9: Electric Platform
ELECTRIC PLATFORM OrEnian POWER COMPANY
Slide 10: Electric Operations
ELECTRIC OPERATIONS Operating Revenue (in millions) $600 $535.8 $480.3 $446.1 $400 $200 Highlights • Rate base growth opportunities: $0 • Renewable generation - Hoot Lake Solar, Ashtabula Wind III 2020 2021 09/30/22 LTM purchase, and wind repowering Net Income (in millions) • Technology & infrastruc
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 ~ $60 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 Expected closing in early 2023 Otter Tail Power Cost ~ $50 million Project Summary • Purchase power agreement (PPA) with NextEra Energy began in 2013 • Exercised option to purchase operational assets of AWI
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 ~$330 million Project Summary • MISO recently approved its Long Range Transmission Plan with includes two projects in Otter Tail Power service
Slide 14: MN Integrated Resource Plan/ND Regional Haze Plan
MN INTEGRATED RESOURCE PLAN/ND REGIONAL HAZE PLAN Project Summary • Filed September 2021, jointly in MN, ND, & SD • Required filing in Minnesota. North Dakota recently passed legislation requiring an IRP filing, but specific rulemaking is not complete. • Preferred 5-year plan, requested authority to
Slide 15: Rate Base Projects
RATE BASE PROJECTS Our Investment Project (millions) In Service % Complete Recovery Mechanisms Hoot Lake Solar ~ $60 2023 ~ 55% 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 16: Rate Base Growth
RATE BASE GROWTH Rate Base $1,057M of Capital Spending from 2023 to 2027 Renewables & Natural Gas, 36% $2.21 in billions $2.11 $1.99 $1.85 $1.75 Transformative $1.62 Other, 12% 2023-2027 Technology & Total Infrastructure, 7% 6 .4% AGR of Distribution 27 C Replacement, 18% 2 - 20 202 Transmission (in
Slide 17: 2022 Key Regulatory Matters
2022 KEY REGULATORY MATTERS Estimated Regulatory Matter MN ND SD Date Minnesota Electric Utility Infrastructure Costs (EUIC) Rider for Advanced Metering X Q3 2022 Infrastructure & Outage Management System Minnesota Rate Review Finalized/Final Rate Implemented X Q3 2022 Fuel Clause Adjustment Forecas
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 Transmission Riders Rider recovery / Rate case Rider recovery / Rate case Rider recovery / Rate case A constructive regulatory environment In sta
Slide 19: Electric Rates Cents per KWH
Electric Rates Average Summer Residential Rate per KWH 15.0 Otter Tail Power has maintained rates 13.1 13.2 13.2 13.1 13.5 lower than the national average in 13.0 recent years while major projects 12.5 have been constructed and put in Cents per KWH service. 10.0 10.5 10.0 10.2 9.8 9.5 9.7 Continuous
Slide 20: Manufacturing Platform
MANUFACTURING PLATFORM BTD TO. PLASTICS p northern pipe products VINYLTECH Vil EV Gerlee 20
Slide 21: Manufacturing Operations
MANUFACTURING OPERATIONS Operating Revenue (in millions) • Contract metal fabrication – stamping, machining, tube bending, tool & die, laser cutting, welding, painting, assembly. A one stop shop for customer needs. $500 • Growth opportunities with existing customer base and expansion with new $393.1
Slide 22: Manufacturing Sales by End Markets
MANUFACTURING SALES BY END MARKETS Agriculture, 13% Energy, 3% 2020 Agriculture, 15% Energy, 1% 2021 Rec. Vehicle, 34% Rec. Vehicle, 41% Lawn & Garden, 16% Lawn & Garden, 20% Construction, 14% Industrial, 12% Industrial, 13% Construction, 18% 2020 2021 Other, 1% Other, 1% Industrial, 4% Industrial,
Slide 23: Plastics Operations
PLASTICS OPERATIONS Operating Revenue (in millions) $600 $563.1 • Manufactures and sells PVC (polyvinyl chloride) pipe to 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 24: Historical Resin, Pipe Price and Spreads
Sales price remained HISTORICAL RESIN, PIPE PRICE AND SPREADS Continued strong domestic demand strong while resin prices decreased and demand soften and increased export market demand drive further margin expansion. Resin shortages, driven by Hurricane Ida, COVID and a polar vortex, drives margins t
Slide 25: Annual U.S. Housing Starts
ANNUAL U.S. HOUSING STARTS 2,500 2022-2024 data from Wells Fargo 2,000 U.S. Economic Outlook report dated October 14, 2022 1,500 50-Year Average 1,000 500 — 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2001-2021 Source: www.c
Slide 26: Financial Update
FINANCIAL UPDATE 26
Slide 27: Financial Overview
FINANCIAL OVERVIEW Operating Revenues Operating Income Net Income in millions in millions in millions $1,750 $500 $350 2021 and 2022 earnings mix are impacted by strong Plastic $1,492.0 segment performance. $293.8 $1,500 $406.7 $300 $400 $1,250 $1,196.8 $250 $300 $1,000 $956.2 $200 $890.1 $249.7 $17
Slide 28: Diluted EPS: Q3 2021 vs Q3 2022
DILUTED EPS: Q3 2021 vs Q3 2022 Electric Manufacturing Plastics Corporate Total Q3 2021 DILUTED EARNINGS PER SHARE $ 0.54 $ 0.10 $ 0.68 $ (0.06) $ 1.26 Commercial & industrial sales volumes and increased rates in Minnesota 0.08 — — — 0.08 Q3 2021 interim rate refund adjustment 0.05 — — — 0.05 Decrea
Slide 29: Diluted EPS: YTD 2021 vs YTD 2022
DILUTED EPS: YTD 2021 vs YTD 2022 Electric Manufacturing Plastics Corporate Total YTD 2021 DILUTED EARNINGS PER SHARE $ 1.33 $ 0.36 $ 1.44 $ (0.14) $ 2.99 Commercial & industrial sales volumes and increased rates in Minnesota 0.20 — — — 0.20 Finalization of Minnesota interim rates 0.07 — — — 0.07 Im
Slide 30: Liquidity, Cap Structure & Credit Ratings
LIQUIDITY, CAP STRUCTURE & CREDIT RATINGS Liquidity: Line of Credit Availability Consolidated Capital Structure & ROE Otter Tail Corporation Otter Tail Power Company 120% ROE is TTM at 9/30/22 30% 27.8% Borrowing Capacity of $170M in millions 90% 25% Equity / Debt Percentage 41.0% Return on Equity 4
Slide 31: 2022 Earnings Guidance
2022 EARNINGS GUIDANCE 2022 Guidance 2022 Guidance 2022 Guidance % Change Actual February 14, 2022 August 1, 2022 October 31, 2022 Feb to Oct Diluted EPS 2021 Low High Low High Low High Guidance Midpoint Electric $ 1.73 $ 1.81 $ 1.85 $ 1.84 $ 1.88 $ 1.90 $ 1.94 4.9 % Manufacturing 0.41 0.42 0.46 0.4
Slide 32: Pension Assumptions and Recovery
Pension Assumptions and Recovery Actuarial EPS Projected Allocation Assumptions Sensitivity Contributions ($mm) Funding Risk Return Discount Discount Status Management Enhancement Other Rate RoR Rate RoR 2022 2023 2024 93% 50% 47% 3% 3.03% 6.3% $0.03/25bps $0.02/25bps $20 NA NA Consideration Minneso
Slide 33: Five Year Financing Plan
FIVE YEAR FINANCING PLAN Long-Term Financing 2022 2023-2026 in millions (Actual) (Planned) LONG-TERM DEBT Otter Tail Power Issuances $ 90.0 $ 190.0 Retirements (30.0) — Otter Tail Corporation (Parent) Issuances $ — $ 80.0 Retirements — (80.0) Net Debt Increase $ 60.0 $ 190.0 EQUITY - No material ext
Slide 34: 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 35: Capital Expenditures
CAPITAL EXPENDITURES Total in millions 2022 2023 2024 2025 2026 2027 2023-2027 Electric Segment Renewables & Natural Gas Generation $ 33 $ 88 $ 119 $ 88 $ 79 $ 10 $ 384 Technology & Infrastructure 9 33 30 6 5 1 75 Distribution Plant Replacements 40 33 37 38 38 43 189 Transmission (incl. replacements
Slide 36: History of Dividend Growth
HISTORY OF DIVIDEND GROWTH Our Dividend Story Dividend Growth & Payout Ratio CAGR = 5.2% • Paid annual dividend without interruption $1.65 since 1938 $1.56 $1.48 $1.40 $1.34 $1.28 • 5.8% increase, or $0.09/share, indicated for $1.21 $1.23 $1.25 2022 • Strong balance sheet, ample liquidity, history 7
Slide 37: 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 Defined as EPS growth rate plus dividend yield 2 New target using 20
Slide 38: www.ottertail.com
S OTIERTAIL W CORPORATION www.ottertail.com