Otter Tail Corp [OTTR] Filings

10-Q 1 ottr-20240630.htm 10-Q ottr-20240630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2024 or

☐ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 0-53713

OTTER TAIL CORPORATION

(Exact name of registrant as specified in its charter)


Minnesota (State or other jurisdiction of incorporation or organization)			27-0383995 (I.R.S. Employer Identification No.)

215 South Cascade Street, Box 496, Fergus Falls, Minnesota (Address of principal executive offices)			56538-0496 (Zip Code)

Registrant's telephone number, including area code: 866-410-8780

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, par value $5.00 per share	OTTR	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ☑

Accelerated Filer ☐

Non-Accelerated Filer ☐

Smaller Reporting Company ☐

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:

41,827,967 Common Shares ($5 par value) as of July 31, 2024.

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TABLE OF CONTENTS


	Description	Page

	Definitions	2
	Forward Looking Information	2
PART I
ITEM 1.	Financial Statements:
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Condensed Notes to Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	34
ITEM 4.	Controls and Procedures	34
PART II
ITEM 1.	Legal Proceedings	34
ITEM 1A.	Risk Factors	34

ITEM 5.	Other Information	34
ITEM 6.	Exhibits	35
Signatures		36

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DEFINITIONS

The following abbreviations or acronyms are used in the text.

ADP

Advanced Determination of Prudence

MISO

Midcontinent Independent System Operator, Inc.

AME

Available Maximum Emergency

NDDEQ

North Dakota Department of Environmental Quality

ARO

Asset Retirement Obligation

NDPSC

North Dakota Public Service Commission

ARP

Alternative Revenue Program

OTC

Otter Tail Corporation

BTD

BTD Manufacturing, Inc.

OTP

Otter Tail Power Company

CCR

Coal Combustion Residual

PIR

Phase-In Rider

CO2

Carbon Dioxide

PSLRA

Private Securities Litigation Reform Act of 1995

ECO

Energy Conservation and Optimization Rider

PTC

Production Tax Credits

EPA

Environmental Protection Agency

PVC

Polyvinyl chloride

ESSRP

Executive Survivor and Supplemental Retirement Plan

RHR

Regional Haze Rule

EUIC

Electric Utility Infrastructure Costs Rider

ROE

Return on equity

FERC

Federal Energy Regulatory Commission

RRR

Renewable Resource Rider

GHG

Greenhouse Gas

RTO

Regional Transmission Organizations

IRP

Integrated Resource Plan

SEC

Securities and Exchange Commission

kwh

kilowatt-hour

T.O. Plastics

T.O. Plastics, Inc.

MDT

Meter and Distribution Technology

TCR

Transmission Cost Recovery Rider

Merricourt

Merricourt Wind Energy Center


FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). When used in this Form 10-Q and in future filings by Otter Tail Corporation (the "Company") with the Securities and Exchange Commission ("SEC"), in the Company’s press releases and in oral statements, words such as “anticipate,” “believe,” “can," "could,” “estimate,” “expect,” "future," "goal," “intend,” "likely," “may,” “outlook,” “plan,” “possible,” “potential,” "predict," "probable," "projected," “should,” "target," “will,” “would” or similar expressions are intended to identify forward-looking statements within the meaning of the PSLRA. Such statements are based on current expectations and assumptions and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. The Company’s risks and uncertainties include, among other things, uncertainty of future investments and capital expenditures, rate base levels and rate base growth, long-term investment risk, seasonal weather patterns and extreme weather events, counterparty credit risk, future business volumes with key customers, reductions in our credit ratings, our ability to access capital markets on favorable terms, assumptions and costs relating to funding our employee benefit plans, our subsidiaries’ ability to make dividend payments, cyber security threats or data breaches, the impact of government legislation and regulation including foreign trade policy and environmental, health and safety laws and regulations, the impact of climate change including compliance with legislative and regulatory changes to address climate change, operational and economic risks associated with our electric generating and manufacturing facilities, risks associated with energy markets, the availability and pricing of resource materials, inflation cost pressures, attracting and maintaining a qualified and stable workforce, expectations regarding regulatory proceedings, including state utility commission approval of resource plans, assigned service areas, the siting and construction of major facilities, capital structure, and allowed customer rates, and changing macroeconomic and industry conditions that impact demand for our products, pricing and margins. These and other risks and uncertainties are more fully described in our filings with the SEC, including our most recently filed Annual Report on Form 10-K. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information.

PART I. FINANCIAL INFORMATION


ITEM 1.			FINANCIAL STATEMENTS

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OTTER TAIL CORPORATION

CONSOLIDATED BALANCE SHEETS (unaudited)


(in thousands, except share data)	June 30, 2024		December 31, 2023

Assets
Current Assets
Cash and Cash Equivalents	$	230,672	$	230,373
Receivables, net of allowance for credit losses	191,946		157,143
Inventories	161,787		149,701
Regulatory Assets	8,172		16,127
Other Current Assets	21,551		16,826
Total Current Assets	614,128		570,170
Noncurrent Assets
Investments	117,062		62,516
Property, Plant and Equipment, net of accumulated depreciation	2,538,841		2,418,375
Regulatory Assets	95,605		95,715
Intangible Assets, net of accumulated amortization	6,293		6,843
Goodwill	37,572		37,572
Other Noncurrent Assets	51,282		51,377
Total Noncurrent Assets	2,846,655		2,672,398
Total Assets	$	3,460,783	$	3,242,568

Liabilities and Shareholders' Equity
Current Liabilities
Short-Term Debt	$	12,809	$	81,422

Accounts Payable	126,926		94,428
Accrued Salaries and Wages	25,972		38,134
Accrued Taxes	20,608		26,590
Regulatory Liabilities	45,183		25,408
Other Current Liabilities	39,454		43,775
Total Current Liabilities	270,952		309,757
Noncurrent Liabilities
Pension Benefit Liability	32,781		33,101
Other Postretirement Benefits Liability	27,759		27,676
Regulatory Liabilities	275,068		276,547
Deferred Income Taxes	249,489		237,273
Deferred Tax Credits	14,799		15,172
Other Noncurrent Liabilities	80,691		75,977
Total Noncurrent Liabilities	680,587		665,746
Commitments and Contingencies (Note 10)
Capitalization
Long-Term Debt	943,592		824,059
Shareholders' Equity
Common Shares: 50,000,000 shares authorized, $5 par value; 41,814,425 and 41,710,521 outstanding at June 30, 2024 and December 31, 2023	209,072		208,553
Additional Paid-In Capital	427,264		426,963
Retained Earnings	928,553		806,342
Accumulated Other Comprehensive Income	763		1,148
Total Shareholders' Equity	1,565,652		1,443,006
Total Capitalization	2,509,244		2,267,065
Total Liabilities and Shareholders' Equity	$	3,460,783	$	3,242,568

See accompanying condensed notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per-share amounts)	2024		2023		2024		2023

Operating Revenues
Electric	$	112,828	$	113,763	$	254,317	$	265,671
Product Sales	229,508		223,953		435,087		411,126
Total Operating Revenues	342,336		337,716		689,404		676,797
Operating Expenses
Electric Production Fuel	12,324		14,833		30,018		26,326
Electric Purchased Power	9,249		5,212		31,771		47,037
Electric Operating and Maintenance Expenses	44,652		45,522		92,630		91,070
Cost of Products Sold (excluding depreciation)	116,795		120,658		231,518		233,027
Nonelectric Selling, General, and Administrative Expenses	18,154		16,870		37,067		35,568
Depreciation and Amortization	26,632		24,232		52,528		48,089
Electric Property Taxes	3,619		4,336		7,986		8,957
Total Operating Expenses	231,425		231,663		483,518		490,074
Operating Income	110,911		106,053		205,886		186,723
Other Income and (Expense)
Interest Expense	(10,202)		(9,696)		(20,052)		(19,111)
Nonservice Components of Postretirement Benefits	2,388		2,421		4,830		4,833
Other Income (Expense), net	4,490		3,253		9,069		5,370
Income Before Income Taxes	107,587		102,031		199,733		177,815
Income Tax Expense	20,592		20,062		38,400		33,365
Net Income	$	86,995	$	81,969	$	161,333	$	144,450

Weighted-Average Common Shares Outstanding:
Basic	41,784		41,678		41,754		41,655
Diluted	42,068		42,053		42,051		42,035
Earnings Per Share:
Basic	$	2.08	$	1.97	$	3.86	$	3.47
Diluted	$	2.07	$	1.95	$	3.84	$	3.44

See accompanying condensed notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023

Net Income	$	86,995	$	81,969	$	161,333	$	144,450
Other Comprehensive Loss:
Unrealized Gain (Loss) on Available-for-Sale Securities, net of tax benefit (expense) of $71, $16, $74 and $(5)	(269)		(61)		(282)		19
Pension and Other Postretirement Benefits, net of tax benefit of $10, $9, $36 and $19	(29)		(27)		(103)		(53)
Total Other Comprehensive Loss	(298)		(88)		(385)		(34)
Total Comprehensive Income	$	86,697	$	81,881	$	160,948	$	144,416

See accompanying condensed notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)


(in thousands, except common shares outstanding)	Common Shares Outstanding	Par Value, Common Shares		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Shareholders' Equity

Balance, March 31, 2024	41,783,750	$	208,918	$	426,358	$	861,127	$	1,061	$	1,497,464

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	30,675	154		(154)		—		—		—
Stock Issued Under Stock Purchase Plan, net of expenses	—	—		(250)		—		—		(250)
Net Income	—	—		—		86,995		—		86,995
Other Comprehensive Loss	—	—		—		—		(298)		(298)
Stock Compensation Expense	—	—		1,310		—		—		1,310
Common Dividends ($0.4675 per share)	—	—		—		(19,569)		—		(19,569)
Balance, June 30, 2024	41,814,425	$	209,072	$	427,264	$	928,553	$	763	$	1,565,652

Balance, March 31, 2023	41,684,526	$	208,423	$	424,948	$	629,437	$	969	$	1,263,777

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	25,995	130		(130)		—		—		—
Stock Issued Under Stock Purchase Plan, net of expenses	—	—		(167)		—		—		(167)
Net Income	—	—		—		81,969		—		81,969
Other Comprehensive Loss	—	—		—		—		(88)		(88)
Stock Compensation Expense	—	—		1,216		—		—		1,216
Common Dividends ($0.4375 per share)	—	—		—		(18,268)		—		(18,268)
Balance, June 30, 2023	41,710,521	$	208,553	$	425,867	$	693,138	$	881	$	1,328,439

Balance, December 31, 2023	41,710,521	$	208,553	$	426,963	$	806,342	$	1,148	$	1,443,006

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	103,904	519		(6,272)		—		—		(5,753)
Stock Issued Under Stock Purchase Plan, net of expenses	—	—		(251)		—		—		(251)
Net Income	—	—		—		161,333		—		161,333
Other Comprehensive Loss	—	—		—		—		(385)		(385)
Stock Compensation Expense	—	—		6,824		—		—		6,824
Common Dividends ($0.9350 per share)	—	—		—		(39,122)		—		(39,122)
Balance, June 30, 2024	41,814,425	$	209,072	$	427,264	$	928,553	$	763	$	1,565,652

Balance, December 31, 2022	41,631,113	$	208,156	$	423,034	$	585,212	$	915	$	1,217,317

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	79,408	397		(3,485)		—		—		(3,088)
Stock Issued Under Stock Purchase Plan, net of expenses	—	—		(166)		—		—		(166)
Net Income	—	—		—		144,450		—		144,450
Other Comprehensive Loss	—	—		—		—		(34)		(34)
Stock Compensation Expense	—	—		6,484		—		—		6,484
Common Dividends ($0.8750 per share)	—	—		—		(36,524)		—		(36,524)
Balance, June 30, 2023	41,710,521	$	208,553	$	425,867	$	693,138	$	881	$	1,328,439

See accompanying condensed notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


	Six Months Ended June 30,
(in thousands)	2024		2023

Operating Activities
Net Income	$	161,333	$	144,450
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization	52,528		48,089
Deferred Tax Credits	(372)		(372)
Deferred Income Taxes	9,492		8,708

Investment Gains	(3,111)		(4,295)
Stock Compensation Expense	6,824		6,484
Other, Net	(1,251)		161
Changes in Operating Assets and Liabilities:
Receivables	(34,803)		(50,558)
Inventories	(11,551)		2,396
Regulatory Assets	7,361		7,320
Other Assets	(3,951)		3,561
Accounts Payable	41,239		1,037
Accrued and Other Liabilities	(19,312)		(4,271)
Regulatory Liabilities	23,863		27,169
Pension and Other Postretirement Benefits	(4,828)		(5,382)
Net Cash Provided by Operating Activities	223,461		184,497
Investing Activities
Capital Expenditures	(175,528)		(151,516)
Proceeds from Disposal of Noncurrent Assets	5,124		2,970
Cash Used for Investments and Other Assets	(57,661)		(5,079)
Net Cash Used in Investing Activities	(228,065)		(153,625)
Financing Activities
Net Borrowings (Repayments) of Short-Term Debt	(68,612)		41,993

Proceeds from Issuance of Long-Term Debt	120,000		—

Dividends Paid	(39,122)		(36,524)
Payments for Shares Withheld for Employee Tax Obligations	(5,753)		(3,088)
Other, net	(1,610)		(1,671)
Net Cash Provided by Financing Activities	4,903		710
Net Change in Cash and Cash Equivalents	299		31,582
Cash and Cash Equivalents at Beginning of Period	230,373		118,996
Cash and Cash Equivalents at End of Period	$	230,672	$	150,578





Supplemental Disclosure of Noncash Investing Activities
Accrued Property, Plant and Equipment Additions	$	9,198	$	13,149

See accompanying condensed notes to consolidated financial statements

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OTTER TAIL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Summary of Significant Accounting Policies

Overview

Otter Tail Corporation (OTC) and its subsidiaries (collectively, the "Company", "us", "our" or "we") form a diverse, multi-platform business consisting of a vertically integrated, regulated utility with generation, transmission and distribution facilities complemented by manufacturing businesses providing metal fabrication for custom machine parts and metal components, manufacturing of extruded and thermoformed plastic products, and manufacturing of polyvinyl chloride (PVC) pipe products. We classify our business into three segments: Electric, Manufacturing and Plastics.

Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the SEC for interim reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles. In the opinion of management, we have included all adjustments, including normal recurring accruals, necessary for a fair presentation of the consolidated financial statements for the periods presented. The consolidated financial statements and condensed notes thereto should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Because of the seasonality of our businesses and other factors, the earnings for the three and six months ended June 30, 2024 should not be taken as an indication of earnings for all or any part of the balance of the current year or as an indication of earnings for future years.

Use of Estimates

We use estimates based on the best information available in recording transactions and balances resulting from business operations. As better information becomes available or actual amounts are known, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates.

Recent Accounting Pronouncements

Segment Reporting. In November 2023, the Financial Accounting Standards Board (FASB) issued amended authoritative guidance codified in Accounting Standards Codification (ASC) 280, Segment Reporting. The amended guidance expands annual and interim disclosure requirements for reportable segments, primarily through expanded disclosures about significant segment expenses. The updated standard is effective for our annual periods beginning in 2024 and interim periods beginning in the first quarter of fiscal year 2025. Adoption of the amended guidance must be applied retrospectively to all prior periods presented in the financial statements. Beginning with the filing of our 2024 Form 10-K, we will provide the additional disclosures required by the updated standard, including the disclosure of additional expense details for each of our identified reportable segments.

Income Taxes. In December 2023, the FASB issued amended authoritative guidance codified in ASC 740, Income Taxes. The amended guidance requires additional disaggregated information in effective tax rate reconciliation disclosures and additional disaggregated information about income taxes paid. The updated standard is effective for our annual periods beginning in 2025. The amended guidance is to be applied on a prospective basis with the option to apply the standard retrospectively. We anticipate adopting the updated standard in our Form 10-K for the year ended December 31, 2025 and electing to apply the standard on a retrospective basis for all periods presented.

2. Segment Information

The classification of our business into three segments, Electric, Manufacturing and Plastics, is consistent with our business strategy, organizational structure and our internal reporting and review processes used by our chief operating decision maker to make decisions regarding allocation of resources, to assess operating performance and to make strategic decisions.

Certain assets and costs are not allocated to our operating segments. Corporate operating costs include items such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of operating segment performance. Corporate assets consist primarily of cash and cash equivalents, prepaid expenses, investments and fixed assets. Corporate is not an operating segment, rather it is added to operating segment totals to reconcile to consolidated amounts.

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Information for each segment and our unallocated corporate costs for the three and six months ended June 30, 2024 and 2023 are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023

Operating Revenue
Electric	$	112,828	$	113,763	$	254,317	$	265,671
Manufacturing	96,684		102,475		196,065		209,257
Plastics	132,824		121,478		239,022		201,869
Total	$	342,336	$	337,716	$	689,404	$	676,797
Net Income (Loss)
Electric	$	18,485	$	19,634	$	40,956	$	42,854
Manufacturing	6,835		5,969		12,096		12,831
Plastics	60,612		55,392		107,350		89,078
Corporate	1,063		974		931		(313)
Total	$	86,995	$	81,969	$	161,333	$	144,450

The following provides the identifiable assets by segment and corporate assets as of June 30, 2024 and December 31, 2023:


(in thousands)	June 30, 2024		December 31, 2023

Identifiable Assets
Electric	$	2,634,116	$	2,533,831
Manufacturing	261,219		251,343
Plastics	215,795		164,179
Corporate	349,653		293,215
Total	$	3,460,783	$	3,242,568

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3. Revenue

Presented below are our operating revenues from external customers, in total and by amounts arising from contracts with customers and alternative revenue program (ARP) arrangements, disaggregated by revenue source and segment for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023

Operating Revenues
Electric Segment
Retail: Residential	$	26,369	$	26,974	$	65,824	$	70,951
Retail: Commercial and Industrial	68,191		64,989		151,221		155,474
Retail: Other	1,822		1,752		3,826		3,743
Total Retail	96,382		93,715		220,871		230,168
Transmission	12,440		14,829		24,654		26,936
Wholesale	1,669		2,670		5,134		4,508
Other	2,337		2,549		3,658		4,059
Total Electric Segment	112,828		113,763		254,317		265,671
Manufacturing Segment
Metal Parts and Tooling	88,152		89,396		176,067		179,463
Plastic Products and Tooling	6,467		10,068		15,453		24,211
Scrap Metal	2,065		3,011		4,545		5,583
Total Manufacturing Segment	96,684		102,475		196,065		209,257
Plastics Segment
PVC Pipe	132,824		121,478		239,022		201,869
Total Operating Revenue	342,336		337,716		689,404		676,797
Less: Non-contract Revenues Included Above
Electric Segment - ARP Revenues	(62)		(334)		(234)		(1,545)
Total Operating Revenues from Contracts with Customers	$	342,398	$	338,050	$	689,638	$	678,342

4. Select Balance Sheet Information

Receivables and Allowance for Credit Losses

Receivables as of June 30, 2024 and December 31, 2023 are as follows:


(in thousands)	June 30, 2024		December 31, 2023

Receivables
Trade	$	164,098	$	129,257
Other	9,725		9,084
Unbilled Receivables	20,149		21,324
Total Receivables	193,972		159,665
Less: Allowance for Credit Losses	2,026		2,522
Receivables, net of allowance for credit losses	$	191,946	$	157,143

The following is a summary of activity in the allowance for credit losses for the six months ended June 30, 2024 and 2023:


(in thousands)	2024		2023

Beginning Balance, January 1	$	2,522	$	1,648
Additions Charged to Expense	471		1,001
Reductions for Amounts Written Off, Net of Recoveries	(967)		(435)
Ending Balance, June 30	$	2,026	$	2,214

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Inventories

Inventories consist of the following as of June 30, 2024 and December 31, 2023:


(in thousands)	June 30, 2024		December 31, 2023

Raw Material, Fuel and Supplies	$	85,795	$	75,733
Work in Process	27,435		26,354
Finished Goods	48,557		47,614
Total Inventories	$	161,787	$	149,701

Investments

The following is a summary of our investments as of June 30, 2024 and December 31, 2023:


(in thousands)	June 30, 2024		December 31, 2023

Short-term Investments
Government Debt Securities	$	469	$	—
Corporate Debt Securities	590		—
Total Short-term Investments	$	1,059	$	—
Long-term Investments
Corporate-Owned Life Insurance Policies	$	44,534	$	42,287
Government Debt Securities	58,749		7,724
Corporate Debt Securities	1,025		1,579
Money Market Funds	2,606		3,125
Mutual Funds	10,121		7,771
Other Investments	27		30
Total Long-term Investments	117,062		62,516
Total Investments	$	118,121	$	62,516

The amount of unrealized gains and losses on debt securities as of June 30, 2024 and December 31, 2023 was not material and no unrealized losses were deemed to be other-than-temporary. In addition, the amount of unrealized gains and losses on marketable equity securities still held as of June 30, 2024 and December 31, 2023 was not material.

Property, Plant and Equipment

Major classes of property, plant and equipment as of June 30, 2024 and December 31, 2023 include:


(in thousands)	June 30, 2024		December 31, 2023

Electric Plant
Electric Plant in Service	$	3,055,265	$	2,989,881
Construction Work in Progress	199,338		137,212
Total Gross Electric Plant	3,254,603		3,127,093
Less Accumulated Depreciation and Amortization	879,268		851,148
Net Electric Plant	2,375,335		2,275,945
Nonelectric Property, Plant and Equipment
Nonelectric Property, Plant and Equipment in Service	325,067		311,924
Construction Work in Progress	54,054		38,062
Total Gross Nonelectric Property, Plant and Equipment	379,121		349,986
Less Accumulated Depreciation and Amortization	215,615		207,556
Net Nonelectric Property, Plant and Equipment	163,506		142,430
Net Property, Plant and Equipment	$	2,538,841	$	2,418,375

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5. Regulatory Matters

Regulatory Assets and Liabilities

The following presents our current and long-term regulatory assets and liabilities as of June 30, 2024 and December 31, 2023 and the period we expect to recover or refund such amounts:


	Period of	June 30, 2024				December 31, 2023
(in thousands)	Recovery/Refund	Current		Long-Term		Current		Long-Term

Regulatory Assets
Pension and Other Postretirement Benefit Plans1	Various	$	154	$	86,057	$	154	$	86,134
Alternative Revenue Program Riders2	Up to 2 years	3,548		95		3,719		158
Deferred Income Taxes	Asset lives	—		7,187		—		6,940
Fuel Clause Adjustments1	Up to 1 year	1,663		—		7,294		—
Derivative Instruments1	Up to 2 years	1,516		462		4,210		—
Other1	Various	1,291		1,804		750		2,483
Total Regulatory Assets		$	8,172	$	95,605	$	16,127	$	95,715
Regulatory Liabilities
Deferred Income Taxes	Asset lives	$	—	$	133,412	$	—	$	136,022
Plant Removal Obligations	Asset lives	—		117,499		—		117,030
Fuel Clause Adjustments	Up to 1 year	24,055		—		11,350		—
Alternative Revenue Program Riders	Up to 1 year	13,879		—		6,885		—
North Dakota PTC Refunds	Asset lives	—		14,612		—		12,011
Pension and Other Postretirement Benefit Plans	Various	6,138		8,894		6,138		11,307



Other	Various	1,111		651		1,035		177
Total Regulatory Liabilities		$	45,183	$	275,068	$	25,408	$	276,547

1Costs subject to recovery without a rate of return.
2Amounts eligible for recovery includes an incentive or rate of return.

6. Asset Retirement Obligations

We have recognized Asset Retirement Obligations (AROs) related to our coal-fired generation plants, natural gas combustion turbines, solar facility and wind turbines. The cost of AROs include items such as site restoration, closure of ash pits and removal of certain structures, generators, asbestos and storage tanks. We have other legal obligations associated with the retirement of a variety of other long-lived tangible assets used in electric operations where the estimated settlement costs are individually and collectively immaterial. We have no assets legally restricted for the settlement of any AROs.

As of June 30, 2024 and December 31, 2023, $0.1 million and $0.1 million, respectively, was included in other current liabilities and $38.4 million and $36.4 million, respectively, was included in other noncurrent liabilities in the consolidated balance sheets related to AROs.

Coal Combustion Residual Regulations

In May 2024, the EPA published a final rule amending coal combustion residual (CCR) regulations which introduces new requirements for the management of coal ash at active coal-fired power plants and inactive coal-fired power plants with a legacy surface impoundment. The regulations impose new requirements including groundwater monitoring, closure standards, post-closure care obligations, and potential remediation activities.

As of June 30, 2024, we have not recognized an ARO for any liabilities which may be incurred because of the EPA’s final CCR rule as we cannot reasonably estimate the fair value of such a liability. We continue to review and assess the complex regulation to determine whether and to what extent, if any, our facilities will be impacted. Specifically, we are evaluating certain definitional matters within the regulation to determine the boundaries of an active facility and the closure standards at an active facility. In addition, we are evaluating whether existing equivalent regulatory authority is present for any of our facilities which may reduce or eliminate compliance obligations.

If it is determined that any of our facilities are impacted and new requirements are imposed by the regulation, we will recognize an ARO as soon as we are able to reasonably estimate the fair value of the liability.

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7. Short-Term and Long-Term Borrowings

The following is a summary of our outstanding short- and long-term borrowings by borrower, OTC or OTP, as of June 30, 2024 and December 31, 2023:

Short-Term Debt

The following is a summary of our lines of credit as of June 30, 2024 and December 31, 2023:


			June 30, 2024						December 31, 2023
(in thousands)	Borrowing Limit		Amount Outstanding		Letters of Credit		Amount Available		Amount Available

OTC Credit Agreement	$	170,000	$	—	$	—	$	170,000	$	170,000
OTP Credit Agreement	170,000		12,809		9,132		148,059		79,446
Total	$	340,000	$	12,809	$	9,132	$	318,059	$	249,446

Long-Term Debt

The following is a summary of outstanding long-term debt by borrower as of June 30, 2024 and December 31, 2023:


						(in thousands)
Borrower		Debt Instrument	Rate		Maturity	June 30, 2024		December 31, 2023

OTC		Guaranteed Senior Notes	3.55	%	12/15/26	$	80,000	$	80,000
OTP		Series 2007C Senior Unsecured Notes	6.37	%	08/02/27	42,000		42,000
OTP		Series 2013A Senior Unsecured Notes	4.68	%	02/27/29	60,000		60,000
OTP		Series 2019A Senior Unsecured Notes	3.07	%	10/10/29	10,000		10,000
OTP		Series 2020A Senior Unsecured Notes	3.22	%	02/25/30	10,000		10,000
OTP		Series 2020B Senior Unsecured Notes	3.22	%	08/20/30	40,000		40,000
OTP		Series 2021A Senior Unsecured Notes	2.74	%	11/29/31	40,000		40,000
OTP		Series 2024A Senior Unsecured Notes	5.48	%	04/01/34	60,000		—
OTP		Series 2007D Senior Unsecured Notes	6.47	%	08/20/37	50,000		50,000
OTP		Series 2019B Senior Unsecured Notes	3.52	%	10/10/39	26,000		26,000
OTP		Series 2020C Senior Unsecured Notes	3.62	%	02/25/40	10,000		10,000
OTP		Series 2013B Senior Unsecured Notes	5.47	%	02/27/44	90,000		90,000
OTP		Series 2018A Senior Unsecured Notes	4.07	%	02/07/48	100,000		100,000
OTP		Series 2019C Senior Unsecured Notes	3.82	%	10/10/49	64,000		64,000
OTP		Series 2020D Senior Unsecured Notes	3.92	%	02/25/50	15,000		15,000
OTP		Series 2021B Senior Unsecured Notes	3.69	%	11/29/51	100,000		100,000
OTP		Series 2022A Senior Unsecured Notes	3.77	%	05/20/52	90,000		90,000
OTP		Series 2024B Senior Unsecured Notes	5.77	%	04/01/54	60,000		—
Total						$	947,000	$	827,000

Less:	Unamortized Long-Term Debt Issuance Costs					3,408		2,941
Total Long-Term Debt, Net of Unamortized Debt Issuance Costs						$	943,592	$	824,059

On March 28, 2024, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $120.0 million of senior unsecured notes consisting of (a) $60.0 million of 5.48% Series 2024A Senior Unsecured Notes due April 1, 2034, and (b) $60.0 million of 5.77% Series 2024B Senior Unsecured Notes due April 1, 2054.

Per the terms of the agreement, OTP may prepay all or any part of the notes (in an amount not less than 10% of the aggregate principal amount of the notes then outstanding in the case of a partial prepayment) at 100% of the principal amount so prepaid, together with unpaid accrued interest and a make-whole amount, as defined in the agreement; provided that no default or event of default exists under the agreement. Any prepayment made by the Company of all of the Series 2024A Notes then outstanding on or after January 1, 2034, or the Series 2024B Notes then outstanding on or after October 1, 2053, will be made without any make-whole amount. Consistent with other borrowings, the agreement contains a number of restrictions on the business of OTP, including

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restrictions on OTP’s ability to merge, sell substantially all assets, create or incur liens on assets, guarantee the obligations of any other party, and engage in certain transactions with affiliates.

Financial Covenants

Certain of OTC's and OTP's short- and long-term debt agreements require the borrower, whether OTC or OTP, to maintain certain financial covenants, including a maximum debt to total capitalization ratio of 0.60 to 1.00, a minimum interest and dividend coverage ratio of 1.50 to 1.00, and a maximum level of priority indebtedness. As of June 30, 2024, OTC and OTP were in compliance with these financial covenants.

8. Employee Postretirement Benefits

Pension Plan and Other Postretirement Benefits

The Company sponsors a noncontributory funded pension plan (the "Pension Plan"), an unfunded, nonqualified Executive Survivor and Supplemental Retirement Plan (the "ESSRP"), both accounted for as defined benefit pension plans, and a postretirement healthcare plan accounted for as an other postretirement benefit plan.

The following tables include the components of net periodic benefit cost (income) related to our defined benefit pension plans and other postretirement benefits for the three and six months ended June 30, 2024 and 2023:



	Three Months Ended June 30,
	Pension Benefits (Pension Plan)				Pension Benefits (ESSRP)				Postretirement Benefits
(in thousands)	2024		2023		2024		2023		2024		2023

Service Cost	$	971	$	924	$	—	$	18	$	122	$	153
Interest Cost	4,297		4,109		474		473		400		669
Expected Return on Assets	(6,379)		(6,478)		—		—		—		—
Amortization of Prior Service Cost	—		—		—		—		(1,575)		(1,434)
Amortization of Net Actuarial Loss	39		—		—		—		—		—
Net Periodic Benefit Cost (Income)	$	(1,072)	$	(1,445)	$	474	$	491	$	(1,053)	$	(612)

	Six Months Ended June 30,
	Pension Benefits (Pension Plan)				Pension Benefits (ESSRP)				Postretirement Benefits
(in thousands)	2024		2023		2024		2023		2024		2023

Service Cost	$	1,943	$	1,849	$	—	$	36	$	245	$	306
Interest Cost	8,594		8,218		948		945		800		1,338
Expected Return on Assets	(12,759)		(12,957)		—		—		—		—
Amortization of Prior Service Cost	—		—		—		—		(3,151)		(2,867)
Amortization of Net Actuarial Loss	79		—		—		—		—		—
Net Periodic Benefit Cost (Income)	$	(2,143)	$	(2,890)	$	948	$	981	$	(2,106)	$	(1,223)

The following table includes the impact of regulation on the recognition of periodic benefit cost (income) arising from pension and other postretirement benefits for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023

Net Periodic Benefit Cost (Income)	$	(1,651)	$	(1,566)	$	(3,301)	$	(3,132)
Net Amount Amortized Due to the Effect of Regulation	356		240		659		490
Net Periodic Benefit Cost (Income) Recognized	$	(1,295)	$	(1,326)	$	(2,642)	$	(2,642)

We had no minimum funding requirements for our Pension Plan or any other postretirement benefit plans as of December 31, 2023. We did not make any contributions to our Pension Plan during the six months ended June 30, 2024 and 2023.

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9. Income Taxes

The Company's effective tax rate was 19.2%, and 19.7% for the three months ended June 30, 2024 and 2023 and 19.2% and 18.8% for the six months ended June 30, 2024 and 2023. These rates differed from the federal statutory rate of 21% primarily due to the impact of production tax credits (PTCs) associated with the energy generation of our wind and solar assets, partially offset by state taxes.

10. Commitments and Contingencies

Contingencies

FERC Return on Equity (ROE). In November 2013 and February 2015, customers filed complaints with the Federal Energy Regulatory Commission (FERC) seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including OTP, may collect under the MISO tariff rate. FERC's most recent order, issued on November 19, 2020, adopted a revised ROE methodology and set the base ROE at 10.02% (10.52% with an adder) effective for the fifteen-month period from November 2013 to February 2015 and on a prospective basis beginning in September 2016. The order also dismissed any complaints covering the period from February 2015 to May 2016. On August 9, 2022, the U.S. Court of Appeals for the District of Columbia Circuit vacated the FERC order citing a lack of reasoned explanation by FERC in its adoption of its revised ROE methodology as outlined in its November 2020 order and remanded the matter to FERC to reopen the proceedings. In July 2024, FERC counsel indicated that the FERC plans to act within 120 days on the U.S. Court of Appeals remand and that the expectation is there will be no further briefings on the matter; rather, FERC intends to issue an order based on the record developed to date to resolve the ROE matter and remand proceedings.

Although FERC has indicated they will act on the remand before the end of the year, uncertainty remains as to what specific actions FERC will take in their final order. As a result, we have continued to defer recognition of certain revenues and recognize a refund liability related to this matter. The balance of the recorded refund liability was $2.9 million as of June 30, 2024, which is included in other current liabilities on the consolidated balance sheets. This refund liability reflects our best estimate of amounts previously collected from customers under the MISO tariff rate that may be required to be refunded to customers once all regulatory and judicial proceedings are complete and a final ROE is established for the periods outlined above.

Regional Haze Rule (RHR). The RHR was adopted in an effort to improve visibility in national parks and wilderness areas. The RHR requires states, in coordination with the Environmental Protection Agency (EPA) and other governmental agencies, to develop and implement plans to achieve natural visibility conditions. The second RHR implementation period covers the years 2018-2028. States are required to submit a state implementation plan to assess reasonable progress with the RHR and determine what additional emission reductions are appropriate, if any.

Coyote Station, OTP's jointly owned coal-fired power plant in North Dakota, is subject to assessment in the second implementation period under the North Dakota state implementation plan. The North Dakota Department of Environmental Quality (NDDEQ) submitted its state implementation plan to the EPA for approval in August 2022. In its plan, the NDDEQ concluded it is not reasonable to require additional emission controls during this planning period.

In June 2023, a coalition of environmental organizations filed a lawsuit against the EPA for failing to enforce the RHR. In response, the EPA proposed, through a consent decree filed in the U.S. District Court for the District of Columbia in March 2024, a timeline for it to act on 34 outstanding state implementation plans. Under the consent decree, which was issued on July 12, 2024, the EPA would approve, deny, partially approve or issue a federal implementation plan at assigned dates between 2024 and 2026, including a final decision on the North Dakota state implementation plan by November 2024.

In July 2024, the EPA published its proposed rule for North Dakota’s state implementation plan, in which the EPA proposed to approve certain aspects of the state implementation plan and disapprove of other aspects of the plan. The EPA proposes to find that North Dakota failed to submit a long-term strategy that includes enforceable emissions limitations, compliance schedules, and other measures necessary to make reasonable progress on national visibility goals. Specific to Coyote Station, the EPA contends North Dakota relied on non-statutory visibility modeling to reject the installation of emission controls. The EPA also proposes to find the North Dakota plan does not adequately demonstrate that existing limits for NOx and SO2 at Coyote Station are sufficient to ensure progress towards the national visibility goals. The proposed rule remains subject to a 30-day comment period. We continue to anticipate final EPA action by November 2024.

We cannot predict with certainty the final resolution of regional haze compliance in North Dakota and specifically the impact, if any, on the operations of Coyote Station. However, significant emission control investments could be required and the recovery of such costs from customers would require regulatory approval. Alternatively, investments in emission control equipment may prove to be uneconomic and result in the early retirement, or sale, of our interest in Coyote Station, which would be subject to regulatory approval. We cannot estimate the ultimate financial effects such a retirement or sale may have on our consolidated operating

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results, financial position or cash flows, but such amounts could be material and the recovery of such costs in rates would be subject to regulatory approval.

Self-Funding of Transmission Upgrades for Generator Interconnections. The FERC has granted transmission owners within MISO the unilateral authority to determine the funding mechanism for interconnection transmission upgrades that are necessary to accommodate new generation facilities connecting to the electrical grid. Under existing FERC orders, transmission owners can unilaterally determine whether the generator pays the transmission owner in advance for the transmission upgrade or, alternatively, the transmission owner can elect to fund the upgrade and recover over time from the generator the cost of and a return on the upgrade investment (a self-funding). FERC’s orders granting transmission owners this unilateral funding authority have been judicially contested on the basis that transmission owners may be motivated to discriminate among generators in making funding determinations. In the most recent judicial proceedings, the petitioners argued to the U.S. Court of Appeals for the District of Columbia that FERC did not comply with a previous judicial order to fully develop a record regarding the risk of discrimination and the financial risk absorbed by transmission owners for generator-funded upgrades. In December 2022, the Court of Appeals ruled in favor of the petitioners remanding the matter to FERC, instructing the agency to adequately explain the basis of its orders. The Court of Appeals decision did not vacate transmission owners’ unilateral funding authority.

On June 13, 2024, FERC issued an Order to Show Cause proceeding against four Regional Transmission Organizations (RTOs), including MISO. Within its order, FERC indicates that the transmission tariffs of the RTOs appear to be unjust, unreasonable, and unduly discriminatory or preferential because they allow transmission owners to unilaterally elect transmission owner self-funding, which may increase costs, impose barriers to transmission interconnection and result in undue discrimination among interconnection customers.

The order requires each RTO to submit filings to either 1) show cause as to why the transmission tariff remains just and reasonable and not duly discriminatory or preferential, or 2) to explain what changes to the tariff it believes would remedy the identified concerns. The RTO filings are due 90 days after the order was issued and interested entities may file within 30 days thereafter to address the RTOs filings. The order also stipulates that if no final decision is reached by the conclusion of a 180-day period from the issuance of the order, FERC shall state the reasons why it did not act and provide its best estimate when it expects to issue a decision. FERC contemporaneously issued an order suspending the pending remand on the related case.

On July 15, 2024, a group of utilities, not including OTP, submitted to FERC a request for rehearing of the order on the basis of the legal and statutory authority of the order. In the alternative, the utilities also requested FERC rescind or withdraw the order.

OTP, as a transmission owner in MISO, has exercised its authority and elected to self-fund previous transmission upgrades necessary to accommodate new system generation. Under such an election, OTP is recovering the cost of the transmission upgrade and a return on that investment from the generator over a contractual period of time. Should the resolution of this matter eliminate transmission owners’ unilateral funding authority on either a prospective or retrospective basis, our financial results would be impacted. We cannot at this time reasonably predict the outcome of this matter given the uncertainty as to how FERC may ultimately decide on the matter after RTO's filings in response to the Order to Show Cause.

Other Contingencies. We are party to litigation and regulatory matters arising in the normal course of business. We regularly analyze relevant information and, as necessary, estimate and record accrued liabilities for legal, regulatory enforcement and other matters in which a loss is probable of occurring and can be reasonably estimated. We believe the effect on our consolidated operating results, financial position and cash flows, if any, for the disposition of all matters pending as of June 30, 2024, other than those discussed above, will not be material.

11. Stockholders' Equity

Registration Statements

On May 3, 2024, we filed a shelf registration statement with the SEC under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement. No new debt or equity has been issued pursuant to the registration statement. The registration statement expires in May 2027.

On May 3, 2024, we filed a second registration statement with the SEC for the issuance of up to 1,500,000 common shares under an Automatic Dividend Reinvestment and Share Purchase Plan, which provides shareholders, retail customers of OTP and other interested investors methods of purchasing our common shares by reinvesting their dividends or making optional cash investments. Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. During the six months ended June 30, 2024, we issued 46,003 shares under this plan. We repurchased a sufficient number of shares on the open market to satisfy issuance under the plan; accordingly, no proceeds from the issuance were received. As of June 30, 2024, there were 1,099,327 shares available for purchase or issuance under the plan. The registration statement expires in May 2027.

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Dividend Restrictions

OTC is a holding company with no significant operations of its own. The primary source of funds for payments of dividends to OTC's shareholders is from dividends paid or distributions made by OTC's subsidiaries. As a result of certain statutory limitations or regulatory or financing agreements, the amount of distributions allowed to be made by OTC's subsidiaries or the amount of dividends paid by OTC could be restricted. Both the OTC Credit Agreement and the OTP Credit Agreement contain restrictions on the payment of cash dividends upon a default or event of default, including failure to maintain certain financial covenants. As of June 30, 2024, we were in compliance with these financial covenants.

Under the Federal Power Act, a public utility may not pay dividends from any funds properly included in a capital account. What constitutes “funds properly included in a capital account” is undefined in the Federal Power Act or the related regulations; however, the FERC has consistently interpreted the provision to allow dividends to be paid as long as i) the source of the dividends is clearly disclosed, ii) the dividend is not excessive and iii) there is no self-dealing on the part of corporate officials.

The Minnesota Public Utilities Commission indirectly limits the amount of dividends OTP can pay to OTC by requiring an equity-to-total-capitalization ratio between 48.3% and 59.1% based on OTP’s current capital structure requirements. As of June 30, 2024, OTP’s equity-to-total-capitalization ratio, including short-term debt, was 52.9% and its net assets restricted from distribution totaled approximately $819 million. Under the MPUC order, total capitalization for OTP cannot exceed $2.0 billion.

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12. Accumulated Other Comprehensive Income (Loss)

The following presents the changes in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,
	2024								2023
(in thousands)	Pension and Other Postretirement Benefits			Net Unrealized Losses on Available-for-Sale Securities			Total		Pension and Other Postretirement Benefits		Net Unrealized Gains (Losses) on Available-for-Sale Securities		Total

Balance, Beginning of Period	$	1,301		$	(240)		$	1,061	$	1,308	$	(339)	$	969
Other Comprehensive Loss Before Reclassifications, net of tax	—			(220)			(220)		—		(62)		(62)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	(29)		(1)	(49)		(2)	(