Slide 1: 2020 First Quarter Earnings Conference Call
2020 First Quarter Earnings Conference Call
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: 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 • Employee and public safety remains our top priority. • Mitigation efforts in place across the organization. • Utility shut-offs temporarily suspended and late-payment fees waived for our customers. • No immediate disruptions to our supply chain. •
Slide 6: 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 7: Q1 2020 Financial Summary and Highlights
Q1 2020 FINANCIAL SUMMARY AND HIGHLIGHTS • Due to impacts of COVID-19, we are revising and Q1 2020 Q1 2019 widening our 2020 earnings per share (EPS) guidance range to $2.00-$2.25 from $2.22-$2.37 per diluted share. Operating Revenues (in millions) • Electric and Plastics Segments remain on plan. $2
Slide 8: Key COVID-19 Financial Risks
KEY COVID-19 FINANCIAL RISKS Potential Impacts Mitigation Factors • Lower commercial and industrial sales • Higher margin residential usage volumes • O&M expense reductions • Increased bad debt expense and waived late • Rigorous COVID-19 safety programs and fees project management Electric Segment •
Slide 9: ESG Highlights
ESG HIGHLIGHTS ESG Highlights 2022 Projections By 2022 we 30% 30% 30% expect our carbon dioxide emissions RENEWABLE CARBON LOWER from owned RESOURCES REDUCTION RATES resources to that we own or secure from 2005 levels compared to the through power beresidential national 33% lower purchase agreements
Slide 10: ESG Highlights
ESG Highlights CLEANER ENERGY FUTURE | LOWER-THAN-AVERAGE RATES Residential rates (Cents per kWh) By 2022 we Minnesota North Dakota expectSouth ourDakota State average 13.62 10.12 carbon dioxide 11.65 Otter Tail Power Company 10.40 9.00 emissions9.32 from owned Residential rates (Cents per kWh) reso
Slide 11: Consolidated Revenues from Coal Assets
CONSOLIDATED REVENUES FROM COAL ASSETS 2019 2022 13.7% 11.0% 86.3% 89.0% Footnotes: 1. Consolidated revenues include estimated returns on coal generation facility rate base investment, fuel expenses, O&Ms, depreciation, property taxes, and coal conversion taxes. 2. By 2022 the Hoot Lake Plant retire
Slide 12: Electric Platform
ELECTRIC PLATFORM OrzEnian POWER COMPANY
Slide 13: Electric Operations
ELECTRIC OPERATIONS Net Revenue ($ in millions) $500 $434.5 $450.3 $459.1 $450.9 $400 $300 Highlights $200 • Rate base growth opportunities $100 • Merricourt Wind Energy Center $0 • Astoria Station natural gas-fired plant 2017 2018 2019 3/31/20 • South Dakota transmission reliability project LTM • I
Slide 14: Customer Mix and Regulation - Update
CUSTOMER MIX AND REGULATION - UPDATE Revenues by Customer Regulatory Matters EPS Sensitivity for every 1% change Other, 2.3% Regulatory Calendar Residential 2₵ Filing in place for all jurisdictions to request Commercial 1₵ COVID-19 related cost treatment order Residential, 2019 Annual Petition for D
Slide 15: 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 16: Rate Base Projects
RATE BASE PROJECTS Our Investment Percent Recovery Project In Service (Millions) Complete Mechanisms Big Stone South – Ellendale (MVP) $115 2019 100% Rider Merricourt Wind Energy Center $258 2020 34% Rider/General Rate Case Phase I 2019 100% SD transmission reliability project $39 Rider/General Rate
Slide 17: 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 18: 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 19: 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 20: 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 $39 million • Transmission line to improve reliabi
Slide 21: 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 ~$45 million • Approximately 23 different transmission upgrades identified. • 8 upgrades completed (most
Slide 22: Manufacturing Platform
MANUFACTURING PLATFORM northern pipe products VINYLTECH Sone Vi TO. PLASTICS PVCePIPE
Slide 23: Manufacturing
MANUFACTURING • Contract metal fabrication – stamping, machining, Net Revenues ($ in millions) tube bending, welding, painting, assembly $277.2 $300 $268.4 $267.9 • Growth opportunities with existing customer base $250 $229.7 and expansion with new customers $200 $150 $100 • Manufacturer of plastic
Slide 24: Plastics
PLASTICS • Manufactures PVC (polyvinyl chloride) pipe in ND • Approximate production capacity of 150 mm lbs Net Revenue ($ in millions) of PVC (~ 2.5% of total market) $250 $185.1 $197.8 $183.3 $189.6 $200 $150 • Manufactures PVC pipe in AZ $100 • Current capacity of 150 mm lbs (~ 2.5% of total $50
Slide 25: Financial Update
FINANCIAL UPDATE 25
Slide 26: Q1 EPS 2019 vs. Q1 EPS 2020
Q1 EPS 2019 VS. Q1 EPS 2020 Q1 EPS 2019 vs. Q1 EPS 2020 Electric Manufacturing Plastics Corporate Consolidated Q1 2019 Diluted Earnings per Share $ 0.47 $ 0.12 $ 0.09 $ (0.02) $ 0.66 Weather related revenue decrease (0.09) (0.09) Increase in O&M expense (0.04) (0.04) Increase in depreciation and amo
Slide 27: COVID-19 Business Impacts
COVID-19 BUSINESS IMPACTS Earnings & dividend impact CapX Plan Liquidity 2020 Guidance Range Revised Unchanged Sufficient • Liquidity modeling continues to show we have sufficient • Due to the anticipated impacts • Continue to execute utility rate liquidity based on our current assumptions of how CO
Slide 28: COVID-19 Strong Liquidity Position
COVID-19 STRONG LIQUIDITY POSITION December 31, 2019 May 4, 2020 OTC OTP OTC OTP Total Credit Capacity $170.0 $170.0 $170.0 $170.0 Outstanding Borrowings (6.0) (42.0) Letters of Credit (15.5) (14.1) Unused $164.0 $154.5 $128.0 $155.9 Expiration Date October 31, 2024 October 31, 2024 28
Slide 29: 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 30: Bond Maturity Schedule
BOND MATURITY SCHEDULE $160,000 5 ~ 7.00% 6.15% 8.37% eam ° 4 $140,000 o | cox 5.47% $120,000 | . 4.639 4.68% + 5.00% $100,000 | 3.55% 3.52% 3.62% + 4.00% $80,000 3.07% 3.22% oe ° + 3.00% $60,000 | $40,000 + 2.00% $20,000 + 1.00% oe | 0.00% 30
Slide 31: 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% 64% (5.7%). • Strong balance sheet, liquidity, cash generation profile, and c
Slide 32: 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 33: 2020 Earnings Guidance
2020 EARNINGS GUIDANCE 2019 EPS 2020 Guidance 2020 Guidance Diluted Earnings Per Share by February 17, 2020 May 5, 2020 Segment Low High Low High Electric $1.48 $1.67 $1.70 $1.65 $1.70 Manufacturing $0.32 $0.31 $0.35 $0.14 $0.23 Plastics $0.51 $0.43 $0.47 $0.43 $0.47 Corporate ($0.14) ($0.19) ($0.15
Slide 34: 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 35: Investment Highlights
INVESTMENT HIGHLIGHTS Dividend yield ~ 3% 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% 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