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What changed in Otter Tail Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Otter Tail Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+339 added−360 removedSource: 10-K (2024-02-14) vs 10-K (2023-02-15)

Top changes in Otter Tail Corp's 2023 10-K

339 paragraphs added · 360 removed · 239 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

83 edited+25 added−36 removed42 unchanged
Biggest changeAs part of our investment plan to meet our future energy needs, the following significant projects are at various stages of planning and construction or have been recently completed: Merricourt Wind Energy Center (Merricourt) is a 150-megawatt wind farm located in southeastern North Dakota.
Biggest changeCurrent planning reserve margin requirements range between 7.4% and 25.5%, depending on the season. 8 T able of Contents The following charts summarize the percentage of retail kwh sold by source during the years ended December 31, 2023 and 2022: Capacity Additions As part of our investment plan to meet our future energy needs, the following projects have been recently undertaken, completed, or acquired: Ashtabula III Wind Farm is a 62-megawatt (MW) wind farm located in eastern North Dakota.
We are a committed long-term owner and do not acquire companies in pursuit of short-term gains. However, we will divest businesses which no longer fit into our strategy and risk profile over the long term. We maintain a set of criteria used in evaluating the strategic fit of our operating businesses.
We are a committed long-term owner and do not acquire companies in pursuit of short-term gains. However, we will divest of businesses which no longer fit into our strategy and risk profile over the long term. We maintain a set of criteria used in evaluating the strategic fit of our operating businesses.
Approval of site and routes for new electric generating facilities (>500 kW for wind generating facilities; >50,000 kW for non-wind generating facilities) and high voltage transmission lines (>115 kV). Review and approval of fifteen-year Integrated Resource Plan. South Dakota Public Utilities Commission (SDPUC) Retail rates, public utility services, construction of major facilities, establishment of assigned service areas and other matters.
Approval of site and routes for new electric generating facilities (>500 kW for wind generating facilities; >50,000 kW for non-wind generating facilities) and high voltage transmission lines (>115 kV). Review of fifteen-year Integrated Resource Plan. South Dakota Public Utilities Commission (SDPUC) Retail rates, public utility services, construction of major facilities, establishment of assigned service areas and other matters.
Manufacturing consists of businesses in the following manufacturing activities: contract machining; metal parts stamping; fabrication and painting; and production of plastic thermoformed horticultural containers, life science and industrial packaging, material handling components and extruded raw material stock. These businesses have manufacturing facilities in Georgia, Illinois and Minnesota and sell products primarily in the United States.
Manufacturing consists of businesses engaged in the following manufacturing activities: contract machining; metal parts stamping; fabrication and painting; and production of plastic thermoformed horticultural containers, life science and industrial packaging, material handling components and extruded raw material stock. These businesses have manufacturing facilities in Georgia, Illinois and Minnesota and sell products primarily in the United States.
We continually monitor the Occupational Safety and Health Administration (OSHA) Total Recordable Incident Rate (number of work-related injuries per 100 employees for a one-year period) and Lost Time Incident Rate (number of employees who lost time due to work-related injuries per 100 employees for a one-year period).
We continually monitor the Occupational Safety and Health Administration Total Recordable Incident Rate (number of work-related injuries per 100 employees for a one-year period) and Lost Time Incident Rate (number of employees who lost time due to work-related injuries per 100 employees for a one-year period).
In Minnesota, fuel and purchased power costs are estimated on an annual basis and the accumulated difference between actual and estimated cost per kwh are refunded or recovered, subject to regulatory approval, in subsequent periods.
In Minnesota, fuel and purchased power costs are estimated on an annual basis and the accumulated difference between actual and estimated cost per kwh is refunded or recovered, subject to regulatory approval, in subsequent periods.
The RHR requires states, in coordination with the EPA and other governmental agencies, to develop and implement state implementation plans (SIPs) which work towards achieving natural visibility conditions by the year 2064, to set goals to ensure reasonable progress is being made, and to periodically evaluate whether those goals and progress are on track or whether additional emission reductions are appropriate.
The RHR requires states, in coordination with the EPA and other governmental agencies, to develop and implement state implementation plans (SIPs) that work towards achieving natural visibility conditions by the year 2064; to set goals to ensure reasonable progress is being made; and periodically evaluate whether those goals and progress are on track or whether additional emission reductions are appropriate.
Minnesota Clean Energy Bill In February 2022, Minnesota enacted the Clean Energy Bill, which requires electric utilities to generate or procure sufficient electricity from carbon-free resources, to provide retail customers in Minnesota with at least the following percentages of carbon-free electric energy: 80% by 2030, 90% by 2035, and 100% by 2040.
Minnesota Clean Energy Bill In February 2023, Minnesota enacted the Clean Energy Bill, which requires electric utilities to generate or procure sufficient electricity from carbon-free resources, to provide retail customers in Minnesota with at least the following percentages of carbon-free electric energy: 80% by 2030, 90% by 2035, and 100% by 2040.
In February 2022, Minnesota enacted the Clean Energy Bill, which requires electric utilities to generate or procure sufficient electricity from carbon-free resources to provide retail customers in Minnesota with at least the following percentages of carbon-free electric energy: 80% by 2030, 90% by 2035, and 100% by 2040.
In February 2023, Minnesota enacted the Clean Energy Bill, which requires electric utilities to generate or procure sufficient electricity from carbon-free resources to provide retail customers in Minnesota with at least the following percentages of carbon-free electric energy: 80% by 2030, 90% by 2035, and 100% by 2040.
Plastics) Vinyltech Corporation (Vinyltech) Electric includes the generation, purchase, transmission, distribution and sale of electric energy in western Minnesota, eastern North Dakota and northeastern South Dakota. OTP, our largest operating subsidiary and primary business since 1907, serves more than 133,000 customers in more than 400 communities across a predominantly rural and agricultural service territory.
Plastics) Vinyltech Corporation (Vinyltech) Electric includes the generation, purchase, transmission, distribution and sale of electric energy in western Minnesota, eastern North Dakota and northeastern South Dakota. Otter Tail Power (OTP), our largest operating subsidiary and primary business since 1907, serves more than 133,000 customers in more than 400 communities across a predominantly rural and agricultural service territory.
Carbon-free resources include wind, solar, hydropower, and nuclear generation. To provide flexibility, the law allows electric utilities to use renewable energy credits (RECs) to offset carbon emissions and for the MPUC to consider whether a regulated utility's requirement to meet established standards should be delayed due to affordability or reliability impacts.
Carbon-free resources include wind, solar, hydropower, and nuclear generation. To provide flexibility, the law allows electric utilities to use RECs to offset carbon emissions and for the MPUC to consider whether a regulated utility's requirement to meet established standards should be delayed due to affordability or reliability impacts.
In 2021, the North Dakota Legislative Assembly enacted a provision requiring investor-owned electric utilities to submit an IRP to the NDPSC and granted the NDPSC the authority to adopt rules and regulations for the preparation and submission of IRPs. The NDPSC's rules and regulations were finalized and became effective on January 1, 2023.
In 2021, the North Dakota Legislative Assembly enacted a provision requiring investor-owned electric utilities to submit an IRP to the North Dakota Public Service Commission (NDPSC) and granted the NDPSC the authority to adopt rules and regulations for the preparation and submission of IRPs. The NDPSC's rules and regulations were finalized and became effective on January 1, 2023.
MANUFACTURING Contribution to Operating Revenues: 27% (2022), 28% (2021), 27% (2020) Manufacturing consists of businesses engaged in the following activities: contract machining, metal parts stamping, fabrication and painting, and production of plastic thermoformed horticultural containers, life science and industrial packaging, and material handling components and extruded raw material stock.
MANUFACTURING Contribution to Operating Revenues: 30% (2023), 27% (2022), 28% (2021) Manufacturing consists of businesses engaged in the following activities: contract machining, metal parts stamping, fabrication and painting, and production of plastic thermoformed horticultural containers, life science and industrial packaging, and material handling components and extruded raw material stock.
The operating company should: • Maintain a minimum level of net earnings and a return on invested capital in excess of the Company’s weighted-average cost of capital, • Have a strategic differentiation from competitors and a sustainable cost advantage, • Operate within a stable and growing industry and be able to quickly adapt to changing economic cycles, and • Have a strong management team committed to operational and commercial excellence. 3 Table of Contents Our actual mix of earnings for the years ended December 31, 2022, 2021, and 2020 was as follows: HUMAN CAPITAL Our employees are a critical resource and an integral part of our success.
The operating company should: • Maintain a minimum level of net earnings and a return on invested capital in excess of the Company’s weighted-average cost of capital, • Have a strategic differentiation from competitors and a sustainable cost advantage, • Operate within a stable and growing industry and be able to quickly adapt to changing economic cycles, and • Have a strong management team committed to operational and commercial excellence. 4 T able of Contents Our actual mix of earnings for the years ended December 31, 2023, 2022 and 2021 was as follows: HUMAN CAPITAL Our employees are a critical resource and an integral part of our success.
At December 31, 2022, 354 employees of OTP were represented by local unions of the International Brotherhood of Electrical Workers under two separate collective bargaining agreements expiring on August 31, 2023 and October 31, 2023. OTP has not experienced any strike, work stoppage or strike vote, and considers its present relations with employees to be good.
At December 31, 2023, 378 employees of OTP were represented by local unions of the International Brotherhood of Electrical Workers under two separate collective bargaining agreements expiring on August 31, 2026 and October 31, 2026. OTP has not experienced any strike, work stoppage or strike vote, and considers its present relations with employees to be good.
The following is a brief description of each of these businesses: BTD Manufacturing, Inc. (BTD), with headquarters located in Detroit Lakes, Minnesota, provides metal fabrication services for custom machine parts and metal components through metal stamping, tool and die, machining, tube bending, welding and assembly in its facilities in Detroit Lakes and Lakeville, Minnesota, Washington, Illinois and Dawsonville, Georgia. T.O.
The following is a brief description of each of these businesses: BTD Manufacturing, Inc. (BTD), with facilities in Detroit Lakes and Lakeville, Minnesota, Washington, Illinois and Dawsonville, Georgia, provides metal fabrication services for custom machine parts and metal components through metal stamping, tool and die, machining, tube bending, welding and assembly. T.O. Plastics, Inc. (T.O.
Advanced Meter and Distribution Technology Cost Recovery Rider (AMDT) ND Provides for the recovery of costs for advanced metering infrastructure, outage management systems and demand response projects. Generation Cost Recovery Rider (GCR) ND Provides for the recovery of costs outside of a general rate case for investments in new generation facilities.
Metering and Distribution Technology Cost Recovery Rider (MDT) ND Provides for the recovery of costs for advanced metering infrastructure, outage management systems and demand response projects. Generation Cost Recovery Rider (GCR) ND Provides for the recovery of costs outside of a general rate case for investments in new generation facilities.
The following table presents our average retail rate per kilowatt-hour (kwh) by customer class and in total for the years ended December 31, 2022 and 2021: Revenue per kwh 2022 2021 Residential 10.99 ¢ 10.90 ¢ Commercial & Industrial 7.54 ¢ 7.52 ¢ Total Retail 8.41 ¢ 8.47 ¢ Wholesale electricity markets are competitive under the Federal Energy Regulatory Commission (FERC) open access transmission tariffs, which require utilities to provide nondiscriminatory access to all wholesale users.
The following table presents our average retail rate per kilowatt-hour (kwh) by customer class and in total for the years ended December 31, 2023 and 2022: Revenue per kwh 2023 2022 Residential 10.82 ¢ 10.99 ¢ Commercial & Industrial 7.02 ¢ 7.54 ¢ Total Retail 7.90 ¢ 8.41 ¢ Wholesale electricity markets are competitive under the Federal Energy Regulatory Commission (FERC) open access transmission tariffs, which require utilities to provide nondiscriminatory access to all wholesale users.
PLASTICS Contribution to Operating Revenues: 35% (2022), 32% (2021), 23% (2020) Plastics consists of businesses producing PVC pipe at plants in North Dakota and Arizona. The following is a brief description of these businesses: Northern Pipe Products, Inc.
PLASTICS Contribution to Operating Revenues: 31% (2023), 35% (2022), 32% (2021) Plastics consists of businesses producing PVC pipe at plants in North Dakota and Arizona. The following is a brief description of these businesses: Northern Pipe Products, Inc.
The following charts summarize the percentage of our generating capacity by source, including owned and jointly-owned facilities and through power purchase arrangements, as of December 31, 2022 and 2021: Under MISO requirements, OTP is required to provide sufficient capacity through wholly- or jointly-owned generating capacity or power purchase agreements to meet its monthly weather-normalized forecast demand, plus a reserve obligation.
The following charts summarize the percentage of our generating capacity by source, including owned and jointly owned facilities and through power purchase arrangements, as of December 31, 2023 and 2022: Under Midcontinent Independent System Operator (MISO) requirements, OTP is required to provide sufficient capacity through wholly or jointly owned generating capacity or power purchase agreements to meet its monthly weather-normalized forecast demand, plus a reserve obligation.
Our human capital management efforts include monitoring various metrics and objectives associated with i) employee safety, ii) workforce stability, iii) management and workforce demographics, including gender, racial and ethnic diversity, iv) leadership development and succession planning and v) productivity. We have established the following programs in furtherance of these efforts: Safety - Safety is one of our core values.
We monitor various metrics and objectives associated with i) employee safety, ii) workforce stability, iii) management and workforce demographics, including gender, racial and ethnic diversity, iv) leadership development and succession planning and v) productivity. We have established the following in furtherance of these efforts: Safety - Safety is one of our core values.
We intend to continue to compete based on high-performance products, innovative production technologies, cost-effective manufacturing techniques, close customer relations and support, and increasing product offerings. 13 Table of Contents RESOURCE MATERIALS We use raw materials in the products we manufacture, including, among others, steel, aluminum, and polystyrene and other plastics resins.
We intend to continue to compete based on high quality products, innovative production technologies, cost-effective manufacturing techniques, close customer relations and support, and increasing product offerings. RESOURCE MATERIALS We use raw materials in the products we manufacture, including, among others, steel, aluminum, and polystyrene and other plastics resins.
New cases are reported and evaluated for corrective action during monthly safety meetings attended by safety professionals at all locations. Our 2022 Total Recordable Incident Rate was 2.08, compared to 1.86 in 2021 and our Lost Time Incident Rate was 0.49, compared to 0.57 in 2021.
New cases are reported and evaluated for corrective action during monthly safety meetings attended by safety professionals at all locations. Our 2023 Total Recordable Incident Rate was 1.70, compared to 2.08 in 2022 and our Lost Time Incident Rate was 0.53 in 2023, compared to 0.49 in 2022.
Compliance with North American Electric Reliability Corporation (NERC) reliability standards, including standards on cybersecurity and protection of critical infrastructure. 10 Table of Contents In addition to base rates, which are established through periodic rate case proceedings within each state jurisdiction, there are other mechanisms for recovery of plant investments, including a return on investment and operating expenses, between rate cases.
Compliance with North American Electric Reliability Corporation (NERC) reliability standards, including standards on cybersecurity and protection of critical infrastructure. In addition to base rates, which are established through periodic rate case proceedings within each state jurisdiction, there are other mechanisms for recovery of our capital investments and operating expenses between rate cases.
This strategy and risk profile are designed to provide a more predictable earnings stream, maintain our credit quality and preserve our ability to fund our dividend payments. Our long-term focus remains on executing our strategy to grow our business and achieving operational, commercial and talent excellence to strengthen our position in the markets we serve.
This strategy and risk profile are designed to provide a more predictable and growing earnings stream, support quality credit ratings, and provide for dividend payments. Our long-term focus remains on executing our strategy to grow our business and achieving operational, commercial and talent excellence to strengthen our position in the markets we serve.
We expect our earnings growth beyond 2024 to be driven by rate base investments in our Electric segment and from existing capacities and planned investments within our Manufacturing and Plastics segments.
We expect our earnings growth and cash flow generation to be driven by rate base investments in our Electric segment and from existing capacities and planned investments within our Manufacturing and Plastics segments.
The MPUC’s findings of fact and conclusions regarding IRPs are considered to be prima facie evidence, subject to rebuttal, in future rate reviews and other proceedings. Typically, IRPs are submitted every two years.
The MPUC’s findings of fact and conclusions regarding IRPs are considered to be prima facie evidence, subject to rebuttal, in future rate reviews and other proceedings.
The Biden Administration has announced the goal of reducing GHG emissions by 50 to 52 percent from 2005 levels in 2030 and to reach 100 percent carbon pollution-free electricity by 2035 as part of the U.S. plan to achieve the goals under the Paris Agreement.
The Biden Administration set goals of reducing GHG emissions by 50% to 52% from 2005 levels in 2030 and reaching 100% carbon pollution-free electricity by 2035 as part of the U.S. plan to achieve the goals under the Paris Agreement.
Code of Business Ethics - We require employees to complete training on several topics associated with our code of business ethics to reinforce our commitment to compliance with laws, regulations and values that guide who we are and how we do business. 4 Table of Contents As of December 31, 2022, we employed 2,422 full-time employees as shown in the table below: Segment/Organization Employees Electric Segment OTP (1) 728 Manufacturing Segment BTD 1,281 T.O.
Code of Business Ethics - We require employees to complete training on several topics associated with our code of business ethics to reinforce our commitment to compliance with laws, regulations and values that guide who we are and how we do business. 5 T able of Contents As of December 31, 2023, we employed 2,655 full-time employees as shown in the table below: Segment/Organization Employees Electric Segment OTP (1) 790 Manufacturing Segment BTD 1,458 T.O.
We strive to provide an environment of opportunity and accountability where people are valued and empowered to do their best work. We are focused on the health and safety of our employees and creating a culture of inclusion, excellence and learning.
We strive to provide an environment of opportunity and accountability where people are valued and empowered to do their best work. We are focused on the health and safety of our employees and creating a culture of inclusion, excellence and learning, and our executive annual incentive plan reflects those commitments.
The Environmental Protection Agency (EPA) adopted the RHR in 1999 as an effort to improve visibility in national parks and wilderness areas.
Emerging Regulation The Environmental Protection Agency (EPA) adopted the Regional Haze Rule (RHR) in 1999 as an effort to improve visibility in national parks and wilderness areas.
Vinyltech Corporation (Vinyltech) , located in Phoenix, Arizona, manufactures and sells PVC pipe for municipal water, wastewater, water reclamation systems and other uses in the western, northwest and south-central regions of the United States. PVC pipe is manufactured through a process known as extrusion.
Vinyltech Corporation (Vinyltech) , located in Phoenix, Arizona, manufactures and sells PVC pipe for municipal water, wastewater, water reclamation systems and other uses in the western, northwest and south-central regions of the United States.
Most U.S. resin production plants are located in the Gulf Coast region. These plants are subject to the risk of damage and production shutdowns because of exposure to hurricanes or other extreme weather events that occur in this part of the United States.
These plants are subject to the risk of damage and production shutdowns because of exposure to hurricanes or other extreme weather events that occur in this part of the United States.
Our mix of owned generation and wholesale market energy purchases to meet customer demand are impacted by wholesale energy prices and the relative cost of each energy source. 6 Table of Contents As of December 31, 2022, OTP’s wholly- or jointly-owned plants and facilities, as well as in place power purchase agreements, and their dependable kilowatt (kW) capacity were: Capacity / Purchased Power in kW Owned Generation: Baseload Plants Big Stone Plant (1) 258,000 Coyote Station (2) 148,200 Total Baseload Plants 406,200 Combustion Turbine and Small Diesel Units Astoria Station 242,200 All Other 101,500 Total Combustion Turbine and Small Diesel Units 343,700 Owned Wind Facilities (rated at nameplate) Merricourt Wind Energy Center 150,000 Luverne Wind Farm 49,500 Ashtabula Wind Center 48,000 Langdon Wind Center 40,500 Total Owned Wind Facilities 288,000 Hydroelectric Facilities 2,500 Total Owned Generation Capacity 1,040,400 Power Purchase Agreements: Purchased Wind Power (rated at nameplate and greater than 2,000 kW) Ashtabula Wind III (3) 62,400 Edgeley 21,000 Langdon 19,500 Total Purchased Wind 102,900 Total Generating Capacity 1,143,300 (1) Reflects OTP's 53.9% ownership percentage of jointly-owned facility.
Our mix of owned generation and wholesale market energy purchases to meet customer demand are impacted by wholesale energy prices and the relative cost of each energy source. 7 T able of Contents As of December 31, 2023, OTP’s wholly or jointly owned plants and facilities, as well as in place power purchase agreements, and their dependable kilowatt (kW) capacity were: Capacity / Purchased Power in kW Owned Generation: Baseload Plants Big Stone Plant (1) 256,900 Coyote Station (2) 148,400 Total Baseload Plants 405,300 Combustion Turbine and Small Diesel Units Astoria Station 249,700 All Other 102,800 Total Combustion Turbine and Small Diesel Units 352,500 Owned Wind Facilities (rated at nameplate) Merricourt 150,000 Ashtabula III 62,400 Luverne 49,500 Ashtabula 48,000 Langdon 40,500 Total Owned Wind Facilities 350,400 Hoot Lake Solar 49,900 Hydroelectric Facilities 2,600 Total Owned Generation Capacity 1,160,700 Power Purchase Agreements: Purchased Wind Power (rated at nameplate and greater than 2,000 kW) Edgeley 21,000 Langdon 19,500 Total Purchased Wind 40,500 Total Generating Capacity 1,201,200 (1) Reflects OTP's 53.9% ownership percentage of jointly owned facility.
The following table summarizes these recovery mechanisms: Recovery Mechanism Jurisdiction(s) Additional Information Fuel Clause Adjustment (FCA) MN, ND, SD Provides for periodic billing adjustments for changes in prudently incurred costs of fuel and purchased power.
The following table summarizes these recovery mechanisms: Recovery Mechanism Jurisdiction(s) Additional Information Fuel Clause Adjustment (FCA) MN, ND, SD Provides for periodic billing adjustments for changes in prudently incurred costs of fuel and purchased power. In North and South Dakota, fuel and purchased power costs are generally adjusted on a monthly basis.
No franchises are required to serve unincorporated communities in any of the three states OTP serves. GENERATION AND PURCHASED POWER OTP primarily relies on company-owned generation, supplemented by power purchase agreements, to supply the energy to meet our customer needs. Wholesale market purchases and sales of electricity are used as necessary to balance supply and demand.
GENERATION AND PURCHASED POWER OTP primarily relies on company-owned generation, supplemented by power purchase agreements, to supply the energy to meet our customer needs. Wholesale market purchases and sales of electricity are used as necessary to balance supply and demand.
MISO seeks to optimize the efficiency of the interconnected system, provide solutions to regional planning needs and minimize risk to reliability through its security coordination, long-term regional planning, market monitoring, scheduling and tariff administration functions.
MISO has operational control of our transmission facilities above 100 kilovolts (kV). MISO seeks to optimize the efficiency of the interconnected system, provide solutions to regional planning needs and minimize risk to reliability through its security coordination, long-term regional planning, market monitoring, scheduling and tariff administration functions.
Electric Utility Infrastructure Costs Rider (EUIC) MN Provides for the recovery of costs for investments made to replace or modify existing infrastructure if the replacement or modification conserves energy or uses energy more efficiently.
Recovery of these costs outside of a general rate case occurs through the ECO rider. Electric Utility Infrastructure Costs Rider (EUIC) MN Provides for the recovery of costs for investments made to replace or modify existing infrastructure if the replacement or modification conserves energy or uses energy more efficiently.
Plastics 204 Segment Total 1,485 Plastics Segment Northern Pipe 95 Vinyltech 78 Segment Total 173 Corporate 36 Total 2,422 (1) Includes all full-time employees of Otter Tail Power Company, including employees working at jointly-owned facilities. Labor costs associated with employees working at jointly-owned facilities are allocated to each of the co-owners based on their ownership interest.
Plastics 192 Segment Total 1,650 Plastics Segment Northern Pipe 98 Vinyltech 80 Segment Total 178 Corporate 37 Total 2,655 (1) Includes all full-time employees of Otter Tail Power Company, including employees working at jointly owned facilities. Labor costs associated with employees working at jointly owned facilities are allocated to each of the co-owners based on their ownership interest.
However, new or amended laws and regulations or changes in interpretations of current laws and regulations may require additional pollution control equipment or emission reduction measures and there can be no assurance that our facilities will remain economic to operate.
OTP's facilities have been designed, constructed and, as necessary, updated to operate in compliance with applicable environmental regulations. However, new or amended laws and regulations or changes in interpretations of current laws and regulations may require additional pollution control equipment or emission reduction measures, and there can be no assurance that our facilities will remain economic to operate.
We compete not only against other plastic pipe manufacturers, but also ductile iron, high-density polyethylene, steel and concrete pipe producers. Pricing pressure will continue to affect our operating margins in the future. We will continue to compete based on our high-quality products, cost-effective production techniques and close customer relations and support.
We compete not only against other plastic pipe manufacturers, but also ductile iron, high-density polyethylene, steel and concrete pipe producers. Pricing pressure will continue to affect our operating margins in the future.
In 2022, MISO approved several projects within the first tranche of its long-range transmission plan, which includes two new 345 kV transmission projects and a project to upgrade an existing transmission line.
Transmission Additions In 2022, MISO approved several projects within the first tranche of its long-range transmission plan, which includes two new 345 kV transmission projects.
See below and Note 1 to our consolidated financial statements included in this report on Form 10-K for additional information. Coal is transported to our non-mine-mouth facility, Big Stone Plant, by rail and is provided under a common carrier rate which includes a mileage-based fuel surcharge.
See below and Note 1 to our consolidated financial statements included in this report on Form 10-K for additional information. Coal is transported to Big Stone Plant by rail and is provided under a common carrier rate which includes a mileage-based fuel surcharge. We purchase natural gas for use at our combustion turbine facilities based on anticipated short-term resource needs.
Over the past two years, we delivered earnings growth well in excess of our five to seven percent target due to unique industry conditions within the PVC pipe industry which led to extraordinary revenue, earnings and cash flow growth in our Plastics Segment.
Over the past three years, we delivered earnings growth well in excess of our 5 - 7% target due to unique industry conditions within the PVC pipe industry, which led to extraordinary revenue, earnings and cash flow growth in our Plastics Segment. We expect these industry conditions to gradually normalize over the course of 2024 and into 2025.
While our customer base includes relatively few large customers, sales to commercial and industrial customers are significant, with one industrial customer accounting for 11% and 10%, respectively, of segment operating revenues for the years ended December 31, 2022 and 2021. 5 Table of Contents The following charts summarize our retail electric revenues by state and by customer segment for the years ended December 31, 2022 and 2021: In addition to retail revenue, our Electric segment also generates operating revenues from the transmission of electricity for others over the transmission assets we wholly or jointly own with other transmission service providers, and from the sale of electricity we generate and sell into the wholesale electricity market.
The following charts summarize our retail electric revenues by state and by customer segment for the years ended December 31, 2023 and 2022: 6 T able of Contents In addition to retail revenue, our Electric segment also generates operating revenues from the transmission of electricity for others over the transmission assets we wholly or jointly own with other transmission service providers, and from the sale of electricity we generate and sell into the wholesale electricity market.
Big Stone Plant burns western subbituminous coal transported by rail. We source coal for our coal-fired power plants through requirements contracts which do not include minimum purchase requirements but do require all coal necessary for the operation of the respective plant to be purchased from the counterparty.
We source coal for our coal-fired power plants through requirements contracts which do not include minimum purchase requirements but do require all coal necessary for the operation of the respective plant to be purchased from the counterparty. Our coal supply contracts for our Big Stone Plant and Coyote Station have expiration dates in 2024 and 2040, respectively.
Conservation Improvement Program (CIP) MN Under Minnesota law, OTP is required to save 1.75% of its gross retail energy revenues through the energy conservation and optimization program. Recovery of these costs outside of a general rate case occurs through the CIP rider.
Renewable Resource Rider (RRR) MN, ND Provides for the recovery of costs outside of a general rate case for investments in certain new renewable energy projects. Energy Conservation and Optimization Rider (ECO) MN Under Minnesota law, OTP is required to save 1.75% of its gross retail energy revenues through the energy conservation and optimization program.
The North Dakota Department of Environmental Quality (NDDEQ) submitted its proposed SIP 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. The EPA submitted comments during the development of the SIP requesting NDDEQ to reassess its determination for Coyote Station.
In its plan, the NDDEQ concluded it is not reasonable to require additional emission controls during this planning period. The EPA submitted comments during the development of the SIP requesting NDDEQ to reassess its determination for Coyote Station. See Note 13 to our consolidated financial statements for additional information.
During this process, PVC compound (a dry powder-like substance) is introduced into an extrusion machine, where it is heated to a molten state and then forced through a sizing apparatus to produce the pipe. The newly extruded pipe is pulled through a series of water-cooling tanks, marked to identify the type of pipe and cut to finished lengths.
PVC pipe is manufactured through an extrusion process, during which PVC compound (a dry powder-like substance) is introduced into an extrusion machine, where it is heated to a molten state and then forced through a sizing apparatus to produce the pipe.
ELECTRIC Contribution to Operating Revenues: 38% (2022), 40% (2021), 50% (2020) OTP, headquartered in Fergus Falls, Minnesota, is a vertically integrated, regulated utility with generation, transmission and distribution facilities to serve its more than 133,000 residential, commercial and industrial customers in a service area encompassing approximately 70,000 square miles of western Minnesota, eastern North Dakota and northeastern South Dakota.
The demographics of our workforce, including our Board of Directors, as of December 31, 2023 was as follows: % Female % Racially and Ethnically Diverse Board of Directors 36 % 9 % CEO Direct Reports 33 % — % Management 21 % 4 % Non-Management Employees 15 % 15 % ELECTRIC Contribution to Operating Revenues: 39% (2023), 38% (2022), 40% (2021) OTP, headquartered in Fergus Falls, Minnesota, is a vertically integrated, regulated utility with generation, transmission and distribution facilities to serve its more than 133,000 residential, commercial and industrial customers in a service area encompassing approximately 70,000 square miles of western Minnesota, eastern North Dakota and northeastern South Dakota.
SEASONALITY Demand for our PVC pipe products can be impacted by seasonal weather differences, with generally lower sales volumes realized in the first quarter of the year when cold temperatures and frozen ground across the northern portion of our footprint can delay or prevent construction activity and consequently delay or prevent customer orders of PVC pipe. 14 Table of Contents ENVIRONMENTAL REGULATION Our plastics businesses are subject to environmental, health and safety laws and regulations, including those governing discharges to air and water, the management and disposal of hazardous substances, the cleanup of contaminated sites and health and safety matters. 15 Table of Contents
SEASONALITY Demand for our PVC pipe products can be impacted by seasonal weather differences, with generally lower sales volumes realized in the first quarter of the year when cold temperatures and frozen ground across the northern portion of our footprint can delay or prevent construction activity and consequently delay or prevent customer orders of PVC pipe.
In both 2022 and 2021 these rates were favorable when compared to the rates of our peers. Employee and Leadership Development, Succession Planning and Training Programs - We invest in leadership development for various levels of employees, management and leaders throughout the Company to build enterprise-wide understanding of our culture, strategy and processes.
Employee and Leadership Development, Succession Planning and Training Programs - We invest in training and professional development for various levels of employees, management and leaders throughout the Company to ensure all have the necessary training and skills to perform their work well, and to build enterprise-wide understanding of our culture, strategy and processes.
As it relates to our jointly-owned facilities, we may determine it is necessary to transfer, sell or otherwise divest of our ownership, or the ownership group may determine the early closure or repurposing of a facility is necessary. For the five-year period ended December 31, 2022, OTP invested approximately $10.4 million in environmental control facilities, including $0.4 million in 2022.
As it relates to our jointly owned facilities, we may determine it is necessary to transfer, sell or otherwise divest of our ownership, or the ownership group may determine the early closure or repurposing of a facility is necessary.
As a result, our Electric segment operating results regularly fluctuate on a seasonal basis. In addition, fluctuations in electricity demand within the same season but between years can impact our operating results. We monitor the level of heating and cooling degree days in a period to assess the impact of weather-related effects on our operating results between periods.
We monitor the level of heating and cooling degree days in a period to assess the impact of weather-related effects on our operating results between periods.
Midcontinent Independent System Operator MISO is an independent, non-profit organization that operates the transmission facilities owned by other entities, including OTP, within its regional jurisdiction and administers energy and generation capacity markets. MISO has operational control of our transmission facilities above 100 kilovolts (kV).
As of December 31, 2023, we were the sole or joint owner of approximately 14,000 miles of transmission and distribution lines. Midcontinent Independent System Operator MISO is an independent, non-profit organization that operates the transmission facilities owned by other entities, including OTP, within its regional jurisdiction and administers energy and generation capacity markets.
CUSTOMERS Our metal fabrication business primarily serves Midwestern and Southeastern U.S. manufacturers in the recreational vehicle, lawn and garden, agricultural, construction, and industrial and energy equipment end markets. Our plastic products business serves primarily U.S. customers in the horticulture, medical and life sciences, industrial, recreational and electronics industries.
Plastics) , with facilities in Otsego and Clearwater, Minnesota, manufactures thermoformed plastics products, including its own line of horticulture containers and custom packaging products for the medical and industrial product markets. CUSTOMERS Our metal fabrication business primarily serves Midwestern and Southeastern U.S. manufacturers in the recreational vehicle, lawn and garden, agricultural, construction, and industrial and energy equipment end markets.
We have implemented education initiatives for all employees, aimed at inclusive leadership and a respectful workplace, focused on identities and culture, unconscious bias, the power of diverse teams and culturally sensitive conversations. We have implemented initiatives to improve upon our demographic profile, including revised hiring processes and a commitment to diverse interview slates.
We hold every employee accountable for their behavior in maintaining a workplace free of discrimination and harassment. We have implemented education initiatives for all employees, aimed at inclusive leadership and a respectful workplace, focused on identities and culture, unconscious bias, the power of diverse teams and culturally sensitive conversations.
Our contractual arrangements to acquire resin generally include estimated annual order quantities with no required minimum purchases, and include variable pricing based on market prices for resin. The supply of PVC resin may also be limited primarily due to manufacturing capacity and the limited availability of raw material components.
In 2023 we sourced all of our PVC resin from three vendors. Our contractual arrangements to acquire resin generally include estimated annual order quantities with no required minimum purchases, and include variable pricing based on market prices for resin.
We purchase natural gas for use at our combustion turbine facilities based on anticipated short-term resource needs. We procure natural gas from multiple vendors at spot prices in a liquid market primarily under firm delivery contracts. TRANSMISSION AND DISTRIBUTION Our transmission and distribution assets deliver energy from energy generation sources to our customers.
We procure natural gas from multiple vendors at spot prices in a liquid market primarily under firm delivery contracts. TRANSMISSION AND DISTRIBUTION Our transmission and distribution assets deliver energy from energy generation sources to our customers. In addition, we earn revenue from the transmission of electricity over our wholly or jointly owned transmission assets for others under approved rate tariffs.
The principal method of production distribution is by direct shipment to our customers through direct customer pick-up or common carrier ground transportation. No single customer or product of our Manufacturing segment businesses accounted for 10% or more of our consolidated operating revenues in 2022.
Customers for our PVC pipe products consist primarily of wholesalers and distributors, and the principal method for distribution of our products is by common carrier ground transportation. No single customer of the PVC pipe companies accounted for 10% or more of our consolidated operating revenues in 2023.
No single customer of the PVC pipe companies accounted for 10% or more of our consolidated operating revenues in 2022. However, two customers, both of which are distributors of PVC pipe, combined to account for 46% and 50% of our 2022 and 2021 Plastics segment operating revenues, respectively.
No single customer or product of our Manufacturing segment businesses accounted for 10% or more of our consolidated operating revenues in 2023. However, two customers combined to account for 30% of segment operating revenues for the year ended December 31, 2023 and 40% for the year ended December 31, 2022.
Hoot Lake Solar is a 49-megawatt solar farm under construction on and around our Hoot Lake Plant property in Fergus Falls, Minnesota, with an anticipated cost of approximately $60 million. We anticipate the facility will be in commercial operation by the end of 2023. Ashtabula III Wind Farm is a 62-megawatt wind farm located in eastern North Dakota.
Hoot Lake Solar is a 49-MW solar farm constructed on and around our Hoot Lake Plant property in Fergus Falls, Minnesota, with a total cost of approximately $60 million. The facility was placed into commercial operation in August 2023.
Our construction budget for the next five years includes approximately $6.1 million of capital investments in environmental control equipment. The timing and amount of our expenditures may change as the regulatory environment changes. Among current regulatory requirements, the federal Regional Haze Rule (RHR) could have the most significant impact on our operating results, financial condition and liquidity.
Financial Impacts For the five-year period ended December 31, 2023, OTP invested approximately $6.6 million in environmental control facilities, including $1.4 million in 2023. Our construction budget for the next five years includes approximately $7.5 million of capital investments in environmental control equipment. The timing and amount of our expenditures may change as the regulatory environment changes.
RESOURCE MATERIALS PVC resins are acquired in bulk and shipped to our facilities by rail. There are four vendors from which we can source our PVC resin requirements. In 2022 we sourced all of our PVC resin from two vendors.
We will continue to compete based on our high-quality products, cost-effective production techniques and close customer relations and support, including our responsiveness and reliability. 14 T able of Contents RESOURCE MATERIALS PVC resins are acquired in bulk and shipped to our facilities by rail. There are four vendors from which we can source our PVC resin requirements.
While the ultimate regulatory outcome is uncertain at this time, changes to the regulatory framework could impact future transmission investments. Franchises OTP has franchises to operate as an electric utility in substantially all of the incorporated municipalities it serves. Franchise rights generally require periodic renewal.
OTP has franchises to operate as an electric utility in substantially all of the incorporated municipalities it serves. Franchise rights generally require periodic renewal. No franchises are required to serve unincorporated communities in any of the three states OTP serves.
(2) Reflects OTP's 35.0% ownership percentage of jointly-owned facility. (3) OTP acquired the assets of the Ashtabula III wind farm on January 3, 2023.
(2) Reflects OTP's 35.0% ownership percentage of jointly owned facility.
Energy Efficiency Plan (EEP) SD Provides for the recovery of costs from energy efficiency investments. Phase-In Rider (PIR) SD Provides for the recovery of costs outside of a general rate case for investments in new generation facilities and advanced grid infrastructure.
Phase-In Rider (PIR) SD Provides for the recovery of costs outside of a general rate case for investments in new generation facilities and advanced grid infrastructure. 11 T able of Contents Resource Planning Under Minnesota law, utilities are required to submit for approval by the Minnesota Public Utilities Commission (MPUC) a 15-year advance Integrated Resource Plan (IRP).
Diversity, Equity, and Inclusion - We expect, and are committed to, diversity, equity and inclusion as part of who we are, what we value and how we achieve individual, business and community success. We hold every employee accountable for their behavior in maintaining a workplace free of discrimination and harassment.
Human Rights - We are committed to the protection of our employee’s freedom of expression and freedom of organization and assembly. Diversity, Equity, and Inclusion - We expect, and are committed to, diversity, equity and inclusion as part of who we are, what we value, and how we achieve individual, business and community success.
Capital Structure Petition Minnesota law requires an annual filing of a capital structure petition with the MPUC. In this filing the MPUC reviews and approves OTP's capital structure. Once approved, OTP may issue securities without further petition or approval, provided the issuance is consistent with the purposes and amounts set forth in the approved petition.
Once approved, OTP may issue securities without further petition or approval, provided the issuance is consistent with the purposes and amounts set forth in the approved petition. OTP’s current capital structure approved by the MPUC on August 29, 2023, allows for an equity-to-total-capitalization ratio between 48.3% and 59.1%, with total capitalization not to exceed $1.958 billion.
These markets have many established manufacturers with broader product lines, greater distribution capabilities, greater capital resources, excess capacity, labor advantages and larger marketing, research and development staffs and facilities than our own. We believe the principal competitive factors in our Manufacturing segment are product performance, quality, price, technical innovation, cost effectiveness, customer service and breadth of product line.
Competition can be geographically regionalized as customers procure products locally to manage cost and minimize logistical complexities. Certain competitors may have broader product lines, more manufacturing capacity, and greater distribution capabilities than we do. We believe the principal competitive factors in our Manufacturing segment are product performance, quality, price, technical innovation, cost effectiveness, customer service and breadth of product line.
In addition, the FERC has established a competitive process for the construction and operation of certain new electric transmission facilities whereby electric transmission providers, including the Midcontinent Independent System Operator, Inc.
In addition, the FERC has established a competitive process for the construction and operation of certain new electric transmission facilities under federal regulation. Certain states have laws which provide the incumbent transmission owner the right of first refusal to construct and own new transmission facilities.
ENERGY TRANSITION OTP is committed to transitioning to a lower-carbon and increasingly clean energy future, while maintaining affordable and reliable electricity to serve our customers. We have developed the following goals in furtherance of our efforts to support the energy transition: Own or purchase energy generation that’s more than 50% renewable by 2025 .
We expect these projects will lower customer costs through a combination of fuel savings and the tax credit benefits afforded to our customers. ENERGY TRANSITION OTP is committed to transitioning to a lower-carbon and increasingly clean energy future, while maintaining affordable and reliable electricity to serve our customers.
Our initiatives include increasing the efficiency of our plants, retiring Hoot Lake Plant, adding renewable energy to our resource mix and sponsoring energy conservation programs. From 2005 through 2022, we have reduced our carbon dioxide (CO 2 ) emissions approximately 43% and increased the amount of renewable generation resources we own or purchase through power purchase agreements by approximately 370-megawatts.
We anticipate our Minnesota retail sales will be 80% carbon free by 2030, in compliance with Minnesota clean energy requirements. From 2005 through 2023, we have reduced our carbon dioxide (CO 2 ) emissions approximately 39% and increased the amount of renewable generation resources we own or purchase through power purchase agreements by approximately 420-MW.
CUSTOMERS PVC pipe products are marketed through a combination of independent sales representatives, company salespersons and customer service representatives. Customers for our PVC pipe products consist primarily of wholesalers and distributors and the principal method for distribution of our products is by common carrier ground transportation.
The newly extruded pipe is pulled through a series of water-cooling tanks, marked to identify the type of pipe and cut to finished lengths. CUSTOMERS PVC pipe products are marketed through a combination of independent sales representatives, company salespersons and customer service representatives.
See the Integrated Resource Plan (IRP) section below for additional details on how the passage of the IRA has impacted our recently filed IRP. RESOURCE MATERIALS Coal is the principal fuel burned at our jointly-owned Big Stone and Coyote Station generating plants. Coyote Station, a mine-mouth facility, burns North Dakota lignite coal.
The amounts include energy generated from owned resources, procured through power purchase agreements and energy purchased in the wholesale market: RESOURCE MATERIALS Coal is the principal fuel burned at our jointly owned Big Stone and Coyote Station generating plants. Coyote Station, a mine-mouth facility, burns North Dakota lignite coal. Big Stone Plant burns western subbituminous coal transported by rail.
Under the finalized regulation, utilities are required to submit, for approval by the NDPSC, a 15-year advance IRP every three years. On September 1, 2021, OTP filed its 2022 IRP concurrently with regulators in Minnesota, North Dakota and South Dakota.
Under the finalized regulation, utilities are required to submit a 15-year advance IRP every three years. Capital Structure Petition Minnesota law requires an annual filing of a capital structure petition with the MPUC. In this filing the MPUC reviews and approves OTP's capital structure.
Reduce carbon emissions from owned generation resources 50% by 2025 from 2005 levels. Reduce carbon emissions from owned generation resources 97% by 2050 from 2005 levels. To date, we have undertaken numerous initiatives to reduce our carbon footprint and mitigate greenhouse gas (GHG) emissions in the process of generating electricity for our customers.
We have undertaken numerous initiatives to reduce our carbon footprint and mitigate greenhouse gas (GHG) emissions in the process of generating electricity for our customers. Our recent initiatives include retiring the 140-MW coal-fired Hoot Lake Plant, adding the 150-MW Merricourt Wind Energy Center and the 49-MW Hoot Lake Solar facility to our resource mix and sponsoring energy conservation programs.
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 is subject to assessment in the second implementation period under the North Dakota SIP for the RHR.
The second RHR implementation period covers the years 2018-2028. Coyote Station is subject to assessment in the second implementation period under the North Dakota SIP for the RHR. The North Dakota Department of Environmental Quality (NDDEQ) submitted its proposed RHR SIP to the EPA for approval in August 2022.
OTP is in the process of reviewing its plan for compliance with the newly enacted law. ENVIRONMENTAL REGULATION OTP is subject to stringent federal and state environmental standards and regulations regarding, among other things, air, water and solid waste pollution. OTP's facilities have been designed, constructed and, as necessary, updated to operate in compliance with applicable environmental regulations.
We expect to meet these requirements based on our existing and projected renewable generation fleet and the purchase of RECs. ENVIRONMENTAL REGULATION OTP is subject to stringent federal and state environmental standards and regulations regarding, among other things, air, water and solid waste pollution.
Our future resource plans to deliver affordable, reliable, and increasingly clean energy to our customers include the addition of 49-megawatts of solar energy from Hoot Lake Solar in 2023 and repowering various wind farm assets to increase their efficiency and output. 8 Table of Contents The following chart depicts our energy resource mix, which is the electricity we use to serve our customers, in 2005 and 2022 and the projected mix in 2030 and 2050.
We currently own or contract energy generation that is 37% renewable. 9 T able of Contents The following chart depicts our energy resource mix, which is the electricity we used to serve our customers in 2005 and 2023, and the projected mix in 2030 and 2050.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAn adverse decision by one or more regulatory authorities concerning the level or method of determining electric utility rates; the authorized returns on equity; the authority to self-fund transmission upgrades; recoverability of fuel, purchase power and other costs; the allocation of costs between jurisdictions, approval of depreciation rates; implementation of enforceable federal reliability standards or other regulatory matters; permitted business activities, such as ownership or operation of nonelectric businesses; or any prolonged delay in rendering a decision in a rate or other proceeding could adversely impact our financial condition, operating results and liquidity.
Biggest changeAn adverse decision by one or more regulatory authorities or any prolonged delay in rendering a decision in a rate or other proceeding could adversely impact our financial condition, operating results and liquidity. 18 T able of Contents Inflationary cost pressures have increased the cost of constructing our utility assets and operating our utility business.
Our generating facilities are subject to risks that could result in early closure or the sale of our ownership interest. Changes in operational or economic factors, environmental regulation or risks of litigation could result in the early closure of or the sale of our interest in a generating facility.
Our generating facilities are subject to risks that could result in early closure or the sale of our ownership interest. Changes in operational or economic factors, environmental regulation or risks of litigation could result in the early closure or the sale of our interest in a generating facility.
Competition from foreign and domestic manufacturers could affect the revenues and earnings of our manufacturing businesses. Our manufacturing businesses are subject to intense competition from foreign and domestic manufacturers, many of whom have broader product lines, greater distribution capabilities, greater capital resources, larger marketing, research and development personnel and facilities, and other capabilities.
Competition from domestic and foreign manufacturers could affect the revenues and earnings of our manufacturing businesses. Our manufacturing businesses are subject to intense competition from domestic and foreign manufacturers, many of whom have broader product lines, greater distribution capabilities, greater capital resources, larger marketing, research and development personnel and facilities, and other capabilities.
Failure to comply with environmental laws and regulations, even if caused by factors beyond our control, may result in civil or criminal liabilities, penalties and fines. Coyote Station, one of OTP's jointly-owned coal-fired power plants, is subject to assessment under the second implementation period of RHR as part of the state of North Dakota's state implementation plan, or SIP.
Failure to comply with environmental laws and regulations, even if caused by factors beyond our control, may result in civil or criminal liabilities, penalties and fines. Coyote Station, one of OTP's jointly owned coal-fired power plants, is subject to assessment under the second implementation period of RHR as part of the state of North Dakota's RHR SIP.
A major cyber incident could result in significant expenses to investigate and repair security breaches or system damage and could lead to litigation, fines, other remedial action, heightened regulatory scrutiny and damage to our reputation. For example, we may be subject to liability under various federal, state and international data protection laws.
A major cyber incident could result in significant expenses to investigate and repair security breaches or system damage, and could lead to litigation, fines, other remedial action, heightened regulatory scrutiny and damage to our reputation. For example, we may be subject to liability under various federal, state and international disclosure laws and data protection laws.
An extreme weather event within our utility service area could directly affect our capital assets, causing disruption in service to customers and result in repair or replacement costs, due to downed wires and poles or damage to other operating equipment.
An extreme weather event within our utility service area could directly affect our capital assets, causing disruption in service to customers, and result in reduced operating revenues and repair or replacement costs, due to downed wires and poles or damage to other operating equipment.
Alternatively, investments in emission control equipment may prove to be uneconomic and result in the early closure of or the sale of our interest in Coyote Station. Existing environmental laws or regulations may be revised and new laws or regulations may be adopted or become applicable to us.
Alternatively, investments in emission control equipment may prove to be uneconomic and result in the early closure or the sale of, or withdrawal from, our interest in Coyote Station. Existing environmental laws or regulations may be revised and new laws or regulations may be adopted or become applicable to us.
The loss of a major generating facility would require OTP to identify and obtain approval for other sources of generation for its customers, if available, and expose it to higher purchased power costs. In addition, OTP may not be able to obtain timely regulatory approval for new generation resources to replace closed or sold facilities.
The loss of a major generating facility would require OTP to identify and obtain approval for other sources of generation for its customers, if available, and potentially expose us to higher purchased power costs. In addition, OTP may not be able to obtain timely regulatory approval for new generation resources to replace closed or sold facilities.
External factors beyond our control could cause fluctuations in demand for our PVC pipe products and changes in our prices and margins, which could adversely impact our operating results. Our PVC pipe products, sold through distributors and wholesalers, are primarily used in municipal and rural water projects, wastewater projects, storm drainage systems and reclamation systems.
PLASTICS SEGMENT RISKS External factors beyond our control could cause fluctuations in demand for our PVC pipe products and changes in our prices and margins, which could adversely impact our operating results. Our PVC pipe products, sold through distributors and wholesalers, are primarily used in municipal and rural water projects, wastewater projects, storm drainage systems and reclamation systems.
In addition, customer demand could be impacted by increased competition in our service territories or the loss of a service territory or franchise. Other risks include increased transmission or interconnection costs, generation curtailment and changes in the 18 Table of Contents manner in which wholesale power is purchased and sold.
In addition, customer demand could be impacted by increased competition in our service territories or the loss of a service territory or franchise. Other risks include increased transmission or interconnection costs, generation curtailment and changes in the manner in which wholesale power is purchased and sold.
The continued success of our businesses will depend on our ability to: • maintain technological leadership in our industry; 21 Table of Contents • implement new and expand on current robotics, automation and tooling technologies; and • anticipate or respond to changes in manufacturing processes in a cost-effective and timely manner.
The continued success of our businesses will depend on our ability to: • maintain technological leadership in our industry; • implement new and expand on current robotics, automation and tooling technologies; and • anticipate or respond to changes in manufacturing processes in a cost-effective and timely manner.
When we establish or acquire new facilities, we may not be able to maintain or develop our manufacturing, engineering and technological expertise due to a lack of trained personnel, ineffective training of new staff or technical difficulties with machinery.
When we establish or acquire new facilities, we may not be able to maintain or develop our manufacturing, engineering and technological expertise due to a lack of trained 21 T able of Contents personnel, ineffective training of new staff or technical difficulties with machinery.
The multiple jurisdictions that govern our electric utility business may not agree as to the appropriate resource mix, which may lead to costs incurred to comply 19 Table of Contents with one jurisdiction that are not recoverable across all jurisdictions served by the same assets.
The multiple jurisdictions that govern our electric utility business may not agree as to the appropriate resource mix, which may lead to costs incurred to comply with one jurisdiction that are not recoverable across all jurisdictions served by the same assets.
Examples of external factors include: • general economic conditions including housing and construction markets which can be cyclical; • increases in interest rates; • severe weather and natural disasters; • governmental regulation in the United States; • funding shortages for municipal water and wastewater projects; and • pandemics and other public health threats.
Examples of external factors include: • general economic conditions including housing and construction markets which can be cyclical; • increases in interest rates; • severe weather and natural disasters; • governmental regulation in the United States; and • funding shortages for municipal water and wastewater projects.
Our operating results could be impacted if we significantly increase our short-term borrowings or issue new long-term debt, and interest rates remain elevated or continue to increase. A decrease in our credit ratings could increase our borrowing costs and result in additional contractual costs.
Our operating results could be 17 T able of Contents impacted if we significantly increase our short-term borrowings or issue new long-term debt, and interest rates remain elevated or continue to increase. A decrease in our credit ratings could increase our borrowing costs and result in additional contractual costs.
A future widespread outbreak of an infectious disease, which affects a large percentage of the population regionally, nationally, or globally could impact our business operations, including our employees, customers, construction contractors, suppliers and vendors, and could impact our operating results, financial condition and liquidity.
A future widespread outbreak of an infectious disease, which affects a large percentage of the population regionally, nationally, or globally could impact our business operations, including our employees, customers, construction contractors, suppliers and vendors, and could impact our operating results, financial condition and liquidity. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
External factors beyond our control can cause volatility in raw material costs, demand for our products, sales prices, and deterioration in operating margins. These factors can magnify the impact of economic cycles on our business and results of operations.
External factors beyond our control can cause volatility in demand for our products and sales prices impacting our operating margins. These factors can magnify the impact of economic cycles on our business and results of operations.
Recently, various federal and state agencies have heightened their scrutiny of per- and polyfluoroalkyl substances (PFAS), which are manufactured chemicals used in a variety of consumer and industrial products. In August 2022, the U.S.
Recently, various federal and state agencies have heightened their scrutiny of per- and polyfluoroalkyl substances (PFAS), which are manufactured chemicals used in a variety of consumer and industrial products.
The loss of any one of these customers or a significant decline in sales to these customers, would have a significant negative impact on the segment's financial condition and operating results, and could have a significant negative impact on the Company’s consolidated financial condition, operating results and liquidity.
The loss of any one of these customers or a significant decline in sales to these customers, would have a significant negative impact on the segment's financial condition and operating results, and could have a significant negative impact on the Company’s consolidated financial condition, operating results and liquidity. We are subject to counterparty credit risk.
Our plastics operations are highly dependent on a limited number of vendors and a limited supply of PVC resin and other materials. We rely on a limited number of vendors to supply the PVC resin used in our plastics business. In 2022 we sourced all of our PVC resin needs from two vendors.
Our plastics operations are highly dependent on a limited number of vendors and a limited supply of PVC resin and other materials. We rely on a limited number of vendors to supply the PVC resin used in our plastics businesses. In 2023, we sourced all of our PVC resin needs from three vendors.
Our Electric segment business is seasonal and weather patterns can have a material impact on our financial performance. Demand for electricity is normally greater in the winter and summer months. Unusually mild summers and winters could have an adverse effect on our financial condition and results of operations.
Our Electric segment business is seasonal and weather patterns have had an impact on our financial performance in the past and may again in the future. Demand for electricity is normally greater in the winter and summer months. Unusually mild summers and winters could have an adverse effect on our financial condition and results of operations.
In addition, higher market interest rates on outstanding variable-rate, short-term indebtedness could also impact our operating results. In 2022, rising market interest rates caused the applicable rate of interest on our short-term indebtedness to increase significantly. However, the impact to our operating results was not significant due to our low level of outstanding borrowings on our short-term indebtedness.
In 2023, rising market interest rates caused the applicable rate of interest on our short-term indebtedness to increase significantly. However, the impact to our operating results was not significant due to our low level of outstanding borrowings on our short-term indebtedness.
In addition, our Plastics segment businesses can be affected by weather prohibiting or delaying construction projects at any time of the year in any geography, but specifically times of the year when frozen ground and cold temperatures in many parts of the country can delay construction projects, all of which can result in reduced customer demand.
Our Plastics segment businesses can be affected by seasonal weather prohibiting or delaying construction projects at any time of the year in any geography, but specifically times of the year when frozen ground and cold temperatures in many parts of the country can delay construction projects, all of which can result in reduced customer demand and could have an adverse effect on our financial condition, operating results and liquidity.
In addition, difficulties in integrating the operations, services, products and personnel of the acquired business, and the potential loss of key employees, customers and suppliers of the acquired business could adversely impact our financial condition and operating results.
In addition, difficulties in integrating the operations, services, products and personnel of the acquired business, and the potential loss of key employees, customers and suppliers of the acquired business could adversely impact our financial condition and operating results. FINANCIAL RISKS We are subject to capital market and interest rate risks.
In 2021, the Biden Administration introduced new targets aimed at reducing economy-wide net GHG emissions by 50 to 52 percent from 2005 levels by 2030. In addition, the Administration set a goal to reach 100 percent carbon pollution-free electricity by 2035. To achieve these targets the Administration may implement new regulations targeting GHG emissions from existing fossil fuel-fired power plants.
In 2021, the Biden Administration introduced new targets aimed at reducing economy-wide net GHG emissions by 50% to 52% from 2005 levels by 2030. In addition, the Administration set a goal to reach 100% carbon pollution-free electricity by 2035.
Weather can also have a significant impact on our Plastics segment businesses as most U.S. PVC resin production plants are located in the Gulf Coast region, which is prone to seasonal hurricane activity and other extreme weather events. Our access to PVC resin may be impacted by the volume and magnitude of hurricane and storm activity in this region.
PVC resin production plants are located in the Gulf Coast region, an area prone to seasonal hurricane activity and other extreme weather events, our access to PVC resin may be impacted by the volume and magnitude of hurricane and storm activity in this region, which could impact our Plastics segment businesses.
If we are unable to achieve and sustain consistent organic growth, we will be less likely to meet our earnings growth targets, which may adversely affect the market price of our common shares.
Competitive and economic factors could adversely 22 T able of Contents affect our ability to do this. If we are unable to achieve and sustain consistent organic growth, we will be less likely to meet our earnings growth targets, which may adversely affect the market price of our common shares.
A failure to perform by any of these counterparties may arise due to liquidity challenges or insolvency, operational deficiencies or other circumstances such as severe weather or natural disasters, which could impact our ability to provide service to our customers or require us to seek alternative sources for these products and services, if available, which could lead to increased costs adversely impacting our financial condition, operating results and liquidity.
A counterparty's failure to perform their obligations may arise due to liquidity challenges or insolvency, operational deficiencies or other circumstances such as severe weather or natural disasters, which could impact our ability to provide service to our customers or require us to seek alternative sources for these products and services, if available.
The inability to attract and retain a skilled and stable workforce at necessary staffing levels, whether due to decreases in hiring rates, increases in employee retirements, increases in terminations, or any combination thereof, may negatively affect our ability to service our customers, manufacture products or successfully manage our business and achieve our objectives. 17 Table of Contents In 2022, we faced labor challenges within our Manufacturing segment businesses including difficulty attracting and retaining employees.
The inability to attract and retain a skilled and stable workforce at necessary staffing levels, whether due to decreases in hiring rates, increases in employee retirements, increases in terminations, or any combination thereof, may negatively affect our ability to service our customers, manufacture products or successfully manage our business and achieve our objectives.
Information systems, both ours and those of third parties, are vulnerable to security breaches by computer hackers and cyber terrorists and the negligent or intentional breach of established controls and procedures or mismanagement of confidential information by employees. We may also be impacted by attacks and data security breaches of financial institutions, merchants or third-party service providers.
Information systems, both ours and those of third parties, are vulnerable to security breaches by computer hackers and cyber terrorists, and the negligent or intentional breach of established controls and procedures, or mismanagement of confidential information by employees.
However, there is no guarantee our compliance program will be sufficient to ensure against violations. In addition, energy policy initiatives at the state or federal level could increase incentives for distributed generation, or authorize municipal utility formation or acquisition of service territory, or local initiatives could introduce generation or distribution requirements that could change the current integrated utility model.
In addition, energy policy initiatives at the state or federal level could increase incentives for distributed generation, or authorize municipal utility formation or acquisition of service territory, or local initiatives could introduce generation or distribution requirements that could change the current integrated utility model.
These capital projects are planned years in advance of their in-service dates and are subject to various risks including: obtaining necessary permits, licenses and timely approvals; adverse changes in regulatory treatment or public policy; changes in commodity pricing, equipment and construction costs; technology changes; delivery delays of critical materials and components; delays caused by construction accidents, injuries or public health crises; adverse weather conditions; unforeseen product defects; limited access to capital; and other adverse conditions.
These capital projects are planned years in advance of their in-service dates and are subject to various risks including: adverse changes in regulatory treatment or public policy; changes in commodity pricing or construction costs; delivery of critical materials; obtaining necessary permits and licenses; and other adverse conditions.
Our operating results and liquidity would be adversely impacted if we were unable to recover these increased costs from our customers. Tightening of credit in financial markets could adversely affect the ability of customers to finance purchases of our goods and services, resulting in decreased orders, cancelled or deferred orders, slower payment cycles, and increased bad debt and customer bankruptcies.
Tightening of credit in financial markets could adversely affect the ability of customers to finance purchases of our goods and services, resulting in decreased orders, cancelled or deferred orders, slower payment cycles, and increased bad debt and customer bankruptcies. If we are unable to achieve the organic growth we expect, our financial performance may be adversely affected.
Any significantly higher than expected energy or fuel costs could negatively affect our financial condition, operating results and liquidity. MANUFACTURING SEGMENT RISKS The price and availability of raw materials could adversely impact our operating results.
This could force us to obtain alternative energy or fuel supplies at higher costs, or suffer increased liabilities for unfulfilled contractual obligations. Any significantly higher than expected energy or fuel costs could negatively affect our financial condition, operating results and liquidity. MANUFACTURING SEGMENT RISKS The price and availability of raw materials could adversely impact our operating results.
FINANCIAL RISKS We are subject to capital market and interest rate risks. We rely on access to debt and equity capital markets as a source of liquidity to fund our investment initiatives, including rate base growth investments in our Electric segment and opportunities for investment, including acquisitions, in our Manufacturing and Plastics segments.
We rely on access to debt and equity capital markets as a source of liquidity to fund our investment initiatives, including rate base growth investments in our Electric segment and opportunities for investment, including acquisitions, in our Manufacturing and Plastics segments. Capital markets are impacted by global and domestic economic conditions, monetary policy, commodity prices, geopolitical events and other factors.
Our businesses are affected by local, national and worldwide economic conditions, including the impact of inflation, tightening of credit in financial markets, economic recessions or other changes in economic conditions. Our businesses may be adversely affected by decreases in the general level of economic activity, such as decreases in business and consumer spending.
GENERAL RISK FACTORS Economic conditions could negatively impact our businesses. Our businesses are affected by local, national and worldwide economic conditions, including the impact of inflation, tightening of credit in financial markets, economic recessions or other changes in economic conditions.
A full or partial denial of recovery of the costs of withdrawal could significantly impact our operating results, financial condition and liquidity. Federal and state environmental regulation could require us to incur substantial capital expenditures, increased operating costs or make it no longer economically viable to operate some of our facilities.
Such a divergence could impair our ability to effectively manage these changing conditions to meet our strategic objectives and could adversely impact our financial condition, operating results and liquidity. Federal and state environmental regulation could require us to incur substantial capital expenditures, increased operating costs or make it no longer economically viable to operate some of our facilities.
In 2022, one customer accounted for 11% of Electric segment revenues, three customers combined to account for 50% of Manufacturing segment operating revenues and two customers combined to account for 46% of Plastics segment operating revenues.
In 2023, two customers accounted for 21% of Electric segment revenues, two customers combined to account for 30% of Manufacturing segment operating revenues and two customers combined to account for 36% of Plastics segment operating revenues.
Changes in tax laws, regulations and interpretations could have an adverse effect on our financial condition and operating results. Tax law changes that reduce or eliminate production or investment tax credits may impact the economics of constructing certain electric generation resources, which may impact our planned investments and could adversely affect our financial condition and operating results.
Tax law changes that reduce or eliminate production or investment tax credits (ITCs), or the ability to transfer or sell these credits, may impact the economics of constructing certain electric generation resources, which may impact our planned investments, and could adversely affect our financial condition and operating results. ELECTRIC SEGMENT RISKS General economic and industry conditions impact our business.
To achieve the organic growth we expect, we must have access to the capital markets, be successful with capital expansion programs related to organic growth, develop new products and services, expand our markets and increase efficiencies in our businesses. Competitive and economic factors could adversely affect our ability to do this.
We expect much of our growth in the next few years will come from major capital investments at existing companies. To achieve the organic growth we expect, we must have access to the capital markets, be successful with capital expansion programs related to organic growth, develop new products and services, expand our markets and increase efficiencies in our businesses.
To the extent investors view climate change, fossil fuel combustion and GHG emissions as a financial risk, our stock price or our ability to access capital markets on favorable terms and conditions could be adversely impacted. Violations of extensive legal and regulatory compliance requirements could have a negative impact on our business and results of operations.
In addition, to the extent investors view climate change, fossil fuel combustion and GHG emissions as a financial risk, our stock price or our ability to access capital markets on favorable terms and conditions could be adversely impacted. We may experience transition risks in moving towards low carbon generation and manufacturing.
In recent years, there has been an increase in litigation against electric utilities and fossil fuel producers.
In addition to complying with legislation and regulation, we could be subject to litigation related to climate change. In recent years, there has been an increase in litigation against electric utilities and fossil fuel producers.
EPA proposed to designate perfluorooctanesulfonic acid (PFOS) and perfluorooctanoic acid (PFOA), two of the most common PFAS chemicals, as hazardous substances, which could have wide-ranging impacts on companies across various industries, including ours. We are investigating whether PFAS compounds are used in our manufacturing or operating processes that occur in our various businesses.
Regulators have recently proposed additional chemicals be designated as hazardous substances, including a proposal to designate perfluorooctanesulfonic acid and perfluorooctanoic acid, two of the most common PFAS chemicals, as hazardous substances, which could have wide-ranging impacts on companies across various industries, including ours.
Failure to anticipate and adapt to customers’ changing technological needs and requirements and to maintain manufacturing, engineering and technological expertise may have material adverse effects on our financial condition, operating results and liquidity. PLASTICS SEGMENT RISKS Changes in PVC resin prices could negatively affect our plastics business. The PVC pipe industry is highly sensitive to commodity raw material pricing volatility.
Failure to anticipate and adapt to customers’ changing technological needs and requirements and to maintain manufacturing, engineering and technological expertise may have material adverse effects on our financial condition, operating results and liquidity.
A decline in the level of economic activity and uncertainty regarding energy and commodity prices could adversely affect our results of operations and our future growth. Inflationary pressures may lead to rising material and commodity costs and increased labor costs.
Our businesses may be adversely affected by decreases in the general level of economic activity, such as decreases in business and consumer spending. A decline in the level of economic activity and uncertainty regarding energy and commodity prices could adversely affect our results of operations and our future growth.
Additional risks and uncertainties we are not presently aware of or that we currently consider immaterial may also affect our business, operating results, financial condition and liquidity. Oversight of Risk and Related Processes A key accountability of the Board of Directors is the oversight of material risk.
Additional risks and uncertainties we are not presently aware of or that we currently consider immaterial may also affect our business, operating results, financial condition and liquidity. OPERATIONAL RISKS Our strategy includes large capital investments, which are subject to risks. Our business strategy includes major capital investments at our operating companies.
We are subject to an extensive legal and regulatory framework imposed under federal and state laws and regulatory agencies, including the FERC and the NERC. We could be subject to potential financial penalties for compliance violations. Our transmission systems and electric generation facilities are subject to the NERC mandatory reliability standards, including cybersecurity standards.
Violations of extensive legal and regulatory compliance requirements could have a negative impact on our business and results of operations. We are subject to an extensive legal and regulatory framework imposed under federal and state laws and regulatory agencies, including the FERC and the North American Electric Reliability Corporation (NERC).
If we are faced with shortages in market supply, we may be unable to fulfill our contractual obligations to our retail, wholesale and other customers at previously anticipated costs. This could force us to obtain alternative energy or fuel supplies at higher costs, or suffer increased liabilities for unfulfilled contractual obligations.
Our electric business is subject to the risks associated with energy markets, including market supply and changing energy prices. If we are faced with shortages in market supply, we may be unable to fulfill our contractual obligations to our retail, wholesale and other customers at previously anticipated costs.
At this time, we cannot predict the outcome or the severity of the impact, if any, of future laws or regulations enacted to address PFAS. A cyber incident, security breach or system failure could adversely affect our business and operating results. The operation of our business is dependent on the secure functioning of our computer hardware and software systems.
A cyber incident, security breach or system failure could adversely affect our business and operating results. The operation of our business is dependent on the secure functioning of our computer hardware and software systems, as well as that of third-party service providers and vendors we use to electronically process certain of our business transactions.
Capital investments in our Electric segment require regulatory approval and are subject to the risks of not being granted timely or allowed to be fully recovered. The inability to complete capital projects on budget and in a timely manner could adversely impact our operating results and financial condition.
Capital investments in our Electric segment require regulatory approval and are subject to the risks of not being granted timely approval or allowed to be fully recovered. In addition, our ability to construct and own utility assets may be impacted by regulatory requirements to competitively bid such investments, which could impact the amount and timing of our capital investments.
Our customers' ability to pay depends on a variety of factors including macroeconomic conditions, local economic conditions including unemployment rates, and industry conditions in which our customers operate. Increased customer delinquencies and bad debts could adversely impact our operating results and liquidity. Our operations are subject to environmental, health and safety laws and regulations.
Increased customer delinquencies and bad debts could adversely impact our operating results and liquidity. 16 T able of Contents Our operations are subject to environmental, health and safety laws and regulations.
If a serious reliability incident were to occur, it could have a material effect on our operations or financial results. Some states have the authority to impose substantial penalties in the event of non-compliance. We attempt to mitigate the risk of regulatory penalties through formal training.
Some states have the authority to impose substantial penalties in the event of non-compliance. We attempt to mitigate the risk of regulatory penalties through formal training. However, there is no guarantee our compliance program will be sufficient to ensure against violations.
Our businesses are located in areas that could be subject to natural disasters such as severe snow and ice storms, tornadoes, flooding and fires. These factors could result in interruption of our business and damage to our facilities.
Climate change may increase the frequency and severity of extreme weather events, such as prolonged periods of extreme cold or heat, and natural disasters, such as severe snow and ice storms, tornadoes, flooding and wildfires. These acute events could result in the interruption of our business operations and damage to our facilities.
In September 2021, our IRP filed in the three jurisdictions in which we operate outlined our plan to withdraw from our 35 percent ownership interest in Coyote Station, a jointly-owned coal-fired generation plant, by December 31, 2028.
Our IRP, as revised in two supplemental filings in 2023, outlined our plan to withdraw from our 35% ownership interest in Coyote Station, a jointly owned coal-fired generation plant, in the event we are required to make a major, non-routine capital investment in the plant.
Our generating facilities and transmission assets are subject to operational risks that could result in unscheduled outages and increased costs.
Our generation, transmission, and distribution facilities are subject to operational risks which include circumstances that could result in injuries, loss of life, property damage, and fires.
Capital markets are impacted by global and domestic economic conditions, monetary policy, commodity prices, geopolitical events and other factors. If we are unable to access capital on acceptable terms and at reasonable costs, our ability to implement our business plans may be adversely affected.
If we are unable to access capital on acceptable terms and at reasonable costs, our ability to implement our business plans may be adversely affected. In addition, higher market interest rates on outstanding variable-rate, short-term indebtedness could also impact our operating results.
The economic effects of the coronavirus (COVID-19) pandemic and any other epidemic or pandemic, and measures taken to reduce and slow the spread of the disease could adversely impact our business. The outbreak and global spread of COVID-19 has had widespread impacts on society, economies, financial markets and businesses everywhere since early 2020.
The effects of a major public health crisis, such as an epidemic or pandemic, and measures taken to reduce and slow the spread of the disease could adversely impact our business.
While the precise nature and implications of any new regulations are uncertain, such regulations could impose substantial costs on and impact the operations of our utility business, which may materially impact our financial condition, operating results and liquidity. In addition to complying with legislation and regulation, we could be subject to litigation related to climate change.
The EPA may implement additional new regulations targeting power plants to 19 T able of Contents support its aforementioned economy-wide GHG reduction goals, which could impose substantial costs on and impact the operations of our utility business, which may materially impact our financial condition, operating results and liquidity.
In addition, prolonged inflationary cost pressures would increase the cost of constructing our utility assets and operating our utility business. Rising fuel costs in 2022 have increased the cost of providing energy to our customers. In each instance, there can be no assurance that our state regulatory commissions will authorize recovery of these rising costs.
There can be no assurance that our state regulatory commissions will authorize recovery of rising costs. Regulatory commissions may also limit future capital investments or the rate of return allowed on such investments in response to inflationary cost pressures and customer bill impacts. Such limitations could negatively impact our financial position, operating results and liquidity.
Removed
Management and the Board of Directors have responsibility for overseeing the identification and mitigation of significant and emerging risks. Management identifies and analyzes risks to determine the impact and other attributes such as timing, likelihood and management control.
Added
A lack of direct ownership, or the inability to complete capital projects on budget and in a timely manner could impact our ability to achieve our strategic financial goals and could adversely impact our operating results and financial condition. Weather impacts, including seasonal fluctuations, could adversely affect our operating results.
Removed
Identification and analysis occur formally through an assessment of significant and emerging risks conducted by senior management, the financial disclosure process, and internal auditing and compliance with financial and operational controls. Management also identifies and analyzes risk through the development of goals and key performance indicators, which include risk identification to determine barriers to implementing our strategy.
Added
We are subject to physical and transition risks associated with climate change and extreme weather events. Longer term shifts in climate patterns may impact our customers' demand for electricity, interrupt our business operations and damage our facilities; reduce the availability of natural resources, such as water; and cause disruptions in our supply chains.
Removed
We promote a culture of compliance, including tone at the top. The process for risk mitigation includes adherence to our code of business ethics and compliance policies, operation of formal risk management structures and overall business management to mitigate the risks inherent in the implementation of strategy.
Added
In the past, severe weather events in the Gulf Coast region of the U.S. have disrupted the supply of PVC resin, the primary material input of our Plastics segment businesses. As most U.S.
Removed
We manage and further mitigate risks through formal risk management structures, including a management executive risk committee and internal business functions such as internal audit/business risk management and legal. Management communicates regularly with our Board of Directors and key stakeholders regarding risk.
Added
Increased risk of natural disasters, such as wildfires, could have financial consequences, including limiting our ability to secure sufficient insurance coverage, or lead to increased insurance cost.
Removed
Senior management presents and communicates a periodic risk assessment to our Board of Directors which provides information on the risks management believes are material, including the earnings impact, timing, likelihood and management control. The Board of Directors approaches oversight, management and mitigation of risk as an integral and continuous part of its governance of Otter Tail Corporation.
Added
While we carry liability insurance, given an extreme event, if we were found to be liable for damages, amounts that exceed our coverage limit could negatively impact our financial condition, operating results and liquidity. These risks may also negatively impact our credit ratings, which may limit our access to capital markets and increase our borrowing costs.
Removed
The Board of Directors regularly reviews management’s top risk assessment and analyzes areas of existing and future risks and opportunities. Finally, the Board of Directors conducts an annual strategy session where our future plans and initiatives are reviewed. OPERATIONAL RISKS Our strategy includes large capital investments, which are subject to risks.
Added
For example, we may face challenges with the adoption of new technologies, meeting changing customer expectations and committing to voluntary GHG emissions reduction goals, as well as complying with evolving local, state or federal regulatory requirements intended to reduce GHG emissions.
Removed
Our business strategy includes major capital investments at our existing companies. Our capital investment program planned for the next five years includes Electric segment investments in renewable generation, transmission asset additions and upgrades, and technology and infrastructure projects, and Manufacturing and Plastics segments investments in facilities, equipment and machinery.
Added
We extend credit to our customers in the ordinary course of business in each of our operating segments. Our customers' ability to pay depends on a variety of factors including macroeconomic conditions, local economic conditions including unemployment rates, and industry conditions in which our customers operate.
Removed
The sale of any of our businesses may result in the recognition of a loss if the business is sold for less than its book value and may expose us to risk arising from indemnification obligations that arose out of the conduct of the business prior to the sale.
Added
New laws or regulations or changes to existing laws and regulations in the future may result in disruptions to our business, changes in customer preferences, or changes in customer demand, which could adversely impact our financial condition, operating results and liquidity.
Removed
These obligations may include warranty and environmental obligations or the recoverability of certain assets sold as part of the transaction. Unforeseen costs related to these obligations could impact our operating results. Weather impacts, including normal seasonal fluctuation and extreme weather events, could adversely affect our operating results.
Added
We are investigating whether PFAS compounds are used in our manufacturing or operating processes that occur in our various businesses. At this time, we cannot predict the outcome or the severity of the impact, if any, of future laws or regulations enacted to address PFAS.
Removed
In addition to variations in seasonal weather patterns, more widespread climate change may also create physical and financial risk to our businesses.
Added
Cyber-attacks or other security breaches may also be perpetrated through the use of artificial intelligence, which could introduce additional complexity to such an attack or breach.
Removed
Physical risks of climate change, such as more frequent or more extreme weather events, changes in temperature and precipitation 16 Table of Contents patterns, changes to ground and surface water availability and other phenomena, could affect some or all of our operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeMANUFACTURING AND PLASTICS SEGMENTS The following reflects the material properties of our Manufacturing and Plastic segments as of December 31, 2022: Segment/Location Owned/Leased Facility Type/Use Approximate Square Feet Manufacturing Segment Washington, IL Leased Office/Manufacturing/Warehouse 217,508 Detroit Lakes, MN Owned Office/Manufacturing/Warehouse 353,812 Lakeville, MN Leased Office/Manufacturing/Warehouse 413,000 Dawsonville, GA Owned Office/Manufacturing/Warehouse 172,000 Buford, GA Leased Warehouse 71,357 Clearwater, MN Owned Office/Manufacturing/Warehouse 203,840 Otsego, MN Leased Manufacturing/Warehouse 86,400 Plastics Segment Fargo, ND Owned Office/Manufacturing/Warehouse 122,441 Fargo, ND Leased Warehouse 239,580 Phoenix, AZ Owned Office/Manufacturing/Warehouse 86,066 We believe the facilities described above are adequate for our present business.
Biggest change(4) As of December 31, 2023, OTP held a 14.8% ownership interest of 70 miles of the 230 kV transmission lines, with the remaining miles being wholly owned. 24 T able of Contents MANUFACTURING AND PLASTICS SEGMENTS The following reflects the material properties of our Manufacturing and Plastic segments as of December 31, 2023: Segment/Location Owned/Leased Facility Type/Use Approximate Square Feet Manufacturing Segment Washington, IL Leased Office/Manufacturing/Warehouse 217,508 Detroit Lakes, MN Owned Office/Manufacturing/Warehouse 353,812 Lakeville, MN Leased Office/Manufacturing/Warehouse 413,000 Dawsonville, GA Owned Office/Manufacturing/Warehouse 172,000 Buford, GA Leased Warehouse 71,357 Clearwater, MN Owned Office/Manufacturing/Warehouse 203,840 Otsego, MN Leased Manufacturing/Warehouse 86,400 Plastics Segment Fargo, ND Owned Office/Manufacturing/Warehouse 122,441 Phoenix, AZ Owned Office/Manufacturing/Warehouse 87,336 We are currently undertaking an expansion project at our Georgia location which will add approximately 162,000 square feet of manufacturing and warehouse space, and will replace the warehouse facility that is currently being leased.
ITEM 2. PROPERTIES The following provides a summary of our properties which are material to our operations, by segment, as of December 31, 2022.
ITEM 2. PROPERTIES The following provides a summary of our properties which are material to our operations, by segment, as of December 31, 2023.
ELECTRIC SEGMENT The following reflects our wholly- or jointly-owned material electric generation facilities as of December 31, 2022: Description Location Year Placed in Service Fuel Type Capacity - kW (Nameplate Rating) Big Stone Plant (1) Big Stone City, SD 1975 Subbituminous Coal 223,146 Coyote Station (2) Beulah, ND 1981 Lignite Coal 144,900 Jamestown Combustion Turbine Jamestown, ND 1975 Fuel Oil 48,108 Lake Preston Combustion Turbine Lake Preston, SD 1978 Fuel Oil 24,100 Solway Combustion Turbine Solway, MN 2003 Natural Gas/Fuel Oil 44,500 Astoria Station Astoria, SD 2021 Natural Gas 245,000 Langdon Wind Center Cavalier County, ND 2007 Wind 40,500 Ashtabula Wind Center Barnes County, ND 2008 Wind 48,000 Luverne Wind Farm Griggs and Steele Counties, ND 2009 Wind 49,500 Merricourt Wind Energy Center McIntosh and Dickey Counties, ND 2020 Wind 150,000 (1) OTP holds a 53.9% joint ownership interest in this jointly-owned facility.
ELECTRIC SEGMENT The following reflects our wholly or jointly owned material electric generation facilities as of December 31, 2023: Description Location Year Placed in Service Fuel Type Capacity - kW (Nameplate Rating) Big Stone Plant (1) Big Stone City, SD 1975 Subbituminous Coal 223,146 Coyote Station (2) Beulah, ND 1981 Lignite Coal 144,900 Jamestown Combustion Turbines Jamestown, ND 1975 Fuel Oil 48,108 Lake Preston Combustion Turbine Lake Preston, SD 1978 Fuel Oil 24,100 Solway Combustion Turbine Solway, MN 2003 Natural Gas/Fuel Oil 44,500 Astoria Station Astoria, SD 2021 Natural Gas 245,000 Langdon Wind Energy Center Cavalier County, ND 2007 Wind 40,500 Ashtabula Wind Energy Center Barnes County, ND 2008 Wind 48,000 Luverne Wind Energy Center Griggs and Steele Counties, ND 2009 Wind 49,500 Merricourt Wind Energy Center McIntosh and Dickey Counties, ND 2020 Wind 150,000 Ashtabula III Wind Energy Center Barnes County, ND 2023 (3) Wind 62,400 Hoot Lake Solar Otter Tail County, MN 2023 Solar 49,900 (1) OTP holds a 53.9% joint ownership interest in this jointly owned facility.
On January 3, 2023, OTP purchased the Ashtabula III wind farm, a 62.4-megawatt wind farm located in eastern North Dakota. 23 Table of Contents In addition to our generation facilities, we wholly or jointly own transmission and distribution lines as of December 31, 2022 as follows: Miles Transmission 345 kV (3) 875 230 kV (4) 484 115 kV 960 Less than 115 kV 4,028 Distribution Less than 115 kV 8,413 (3) As of December 31, 2022, OTP held a 14.2% ownership interest of 242 miles, a 4.8% ownership interest of 250 miles, and a 50.0% ownership interest of 234 miles of the 345 kV transmission lines, with the remaining miles being wholly-owned.
In addition to our generation facilities, we wholly or jointly own transmission and distribution lines as of December 31, 2023 as follows: Miles Transmission 345 kV (3) 891 230 kV (4) 496 115 kV 961 Less than 115 kV 4,005 Distribution Less than 115 kV 7,998 (3) As of December 31, 2023, OTP held a 14.2% ownership interest of 242 miles, a 4.8% ownership interest of 250 miles, and a 50.0% ownership interest of 234 miles of the 345 kV transmission lines, with the remaining miles being wholly owned.
The nameplate capacity indicated reflects OTP's ownership percentage. (2) OTP holds a 35.0% joint ownership interest in this jointly-owned facility. The nameplate capacity indicated reflects OTP's ownership percentage.
The nameplate capacity indicated reflects OTP's ownership percentage. (2) OTP holds a 35.0% joint ownership interest in this jointly owned facility. The nameplate capacity indicated reflects OTP's ownership percentage. (3) Originally placed in service in 2010 and owned by an unrelated third party. OTP acquired this facility in 2023.
Removed
(4) As of December 31, 2022, OTP held a 14.8% ownership interest of 70 miles of the 230 kV transmission lines, with the remaining miles being wholly-owned.
Added
We anticipate the project will be completed in 2025. We are also undertaking an expansion project at our Arizona location which will add approximately 65,000 square feet of manufacturing, warehouse, and office space. We anticipate the project will be completed in 2024. We believe the facilities described above, along with the planned expansions, are adequate for our present business.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePERFORMANCE GRAPH COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN This graph compares the cumulative total shareholder return on our common shares for the last five years with the cumulative return of the Nasdaq Stock Market Index and the Edison Electric Institute (EEI) Index over the same period (assuming the investment of $100 in each vehicle on December 31, 2017, and reinvestment of all dividends). 2017 2018 2019 2020 2021 2022 OTTR $ 100.00 $ 114.80 $ 121.54 $ 104.56 $ 179.79 $ 153.27 EEI $ 100.00 $ 103.67 $ 130.41 $ 128.89 $ 150.96 $ 152.70 Nasdaq $ 100.00 $ 94.56 $ 124.03 $ 150.41 $ 189.36 $ 152.00 ITEM 6. [RESERVED]
Biggest changePERFORMANCE GRAPH COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN This graph compares the cumulative total shareholder return on our common shares for the last five years with the cumulative return of the Nasdaq Stock Market Index and the Edison Electric Institute (EEI) Index over the same period (assuming the investment of $100 in each vehicle on December 31, 2018, and reinvestment of all dividends). 2018 2019 2020 2021 2022 2023 OTTR $ 100.00 $ 105.64 $ 90.88 $ 156.27 $ 133.22 $ 197.24 EEI $ 100.00 $ 125.79 $ 124.33 $ 145.61 $ 147.29 $ 134.47 Nasdaq $ 100.00 $ 131.17 $ 159.07 $ 200.26 $ 160.75 $ 203.23 ITEM 6. [RESERVED]
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Global Select Market under the Nasdaq symbol “OTTR”. As of December 31, 2022, there were 11,748 holders of record of our common stock.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Global Select Market under the Nasdaq symbol “OTTR”. As of December 31, 2023, there were 10,650 holders of record of our common stock.
We do not have a publicly announced stock repurchase program and we did not repurchase any equity securities during the year ended December 31, 2022.
We do not have a publicly announced stock repurchase program and we did not repurchase any equity securities during the quarter ended December 31, 2023.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFinancial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 39 Consolidated Balance Sheets 41 Consolidated Statements of Income 42 Consolidated Statements of Comprehensive Income 43 Consolidated Statements of Shareholders’ Equity 44 Consolidated Statements of Cash Flows 45 Notes to Consolidated Financial Statements 46
Biggest changeFinancial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 40 Consolidated Balance Sheets 42 Consolidated Statements of Income 43 Consolidated Statements of Comprehensive Income 44 Consolidated Statements of Shareholders’ Equity 45 Consolidated Statements of Cash Flows 46 Notes to Consolidated Financial Statements 47
ITEM 6. [Reserved] 26 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 38 ITEM 8.
ITEM 6. [Reserved] 27 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 39 ITEM 8.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following provides a summary of capital expenditures for the years ended December 31, 2022 and 2021 for our Electric segment and non-electric businesses and anticipated capital expenditures for the five year period 2023 through 2027: (in millions) 2021 2022 2023 2024 2025 2026 2027 Total Electric Segment: Renewables and Natural Gas Generation $ 88 $ 119 $ 88 $ 79 $ 10 $ 384 Technology and Infrastructure 33 30 6 5 1 75 Distribution Plant Replacements 33 37 38 38 43 189 Transmission (includes replacements) 34 36 46 87 78 281 Other 26 25 30 25 22 128 Total Electric Segment $ 140 $ 148 $ 214 $ 247 $ 208 $ 234 $ 154 $ 1,057 Manufacturing and Plastics Segments 32 23 48 53 29 25 24 179 Total Capital Expenditures $ 172 $ 171 $ 262 $ 300 $ 237 $ 259 $ 178 $ 1,236 Total Electric Utility Average Rate Base $ 1,575 $ 1,624 $ 1,750 $ 1,850 $ 1,990 $ 2,110 $ 2,210 Rate Base Growth 13.7 % 3.1 % 7.8 % 5.7 % 7.6 % 6.0 % 4.7 % CONTRACTUAL OBLIGATIONS The following table summarizes our contractual obligations at December 31, 2022 and the effect these obligations are expected to have on our liquidity and cash flow in future periods.
Biggest changeThe following provides a summary of capital expenditures for the years ended December 31, 2023 and 2022 for our Electric segment and non-electric businesses and anticipated capital expenditures for the five year period 2024 through 2028: (in millions) 2022 2023 2024 2025 2026 2027 2028 Total Electric Segment: Renewables $ 118 $ 93 $ 33 $ 113 $ 129 $ 486 Transmission 51 85 111 98 100 445 Distribution 38 39 36 38 39 190 Other 67 37 30 27 25 186 Total Electric Segment 148 241 274 254 210 276 293 1,307 Manufacturing and Plastics Segments 23 46 79 35 27 25 26 192 Total Capital Expenditures $ 171 $ 287 $ 353 $ 289 $ 237 $ 301 $ 319 $ 1,499 CONTRACTUAL OBLIGATIONS The following table summarizes our contractual obligations at December 31, 2023 and the effect these obligations are expected to have on our liquidity and cash flow in future periods.
On May 3, 2021, 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 a method of purchasing our common shares by reinvesting their dividends and/or making optional cash investments.
On May 3, 2021, 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 a method of purchasing our common shares by reinvesting their dividends or making optional cash investments.
GENERAL RATES The following includes a summary of electric base rates as determined in OTP's most recent general rate case in each state: Revenue Allowed Implementation Requirement Return on Return Equity Jurisdiction Date (in millions) Rate Base on Equity Ratio Minnesota 07/01/22 $ 209.0 7.18 % 9.48 % 52.50 % North Dakota 02/01/19 153.1 7.64 9.77 52.50 South Dakota (1) 08/01/19 35.5 7.09 8.75 52.92 (1) Includes an earnings sharing mechanism to share with South Dakota customers any weather-normalized earnings above the authorized ROE of 8.75%.
RATE CASES The following includes a summary of electric rate cases as determined in OTP's most recent general rate case in each state: Revenue Allowed Implementation Requirement Return on Return Equity Jurisdiction Date (in millions) Rate Base on Equity Ratio Minnesota 07/01/22 $ 209.0 7.18 % 9.48 % 52.50 % North Dakota 02/01/19 153.1 7.64 9.77 52.50 South Dakota (1) 08/01/19 35.5 7.09 8.75 52.92 (1) Includes an earnings sharing mechanism to share with South Dakota customers any weather-normalized earnings above the authorized ROE of 8.75%.
LONG-TERM DEBT At December 31, 2022, we had $827.0 million of principal outstanding under long-term debt arrangements. Note 9 to our consolidated financial statements included in this report on Form 10-K includes information regarding these instruments. The agreements generally provide for unsecured borrowings at fixed rates of interest with maturities ranging from 2026 to 2052.
LONG-TERM DEBT At December 31, 2023, we had $827.0 million of principal outstanding under long-term debt arrangements. Note 9 to our consolidated financial statements included in this report on Form 10-K includes information regarding these instruments. The agreements generally provide for unsecured borrowings at fixed rates of interest with maturities ranging from 2026 to 2052.
As of December 31, 2022, we were in compliance with these financial covenants as further described below: OTC, under its financial covenants, may not permit its ratio of Interest-Bearing Debt to Total Capitalization to exceed 0.60 to 1.00, may not permit its Interest and Dividend Coverage Ratio to be less than 1.50 to 1.00, and may not permit its Priority Indebtedness to exceed 10% of our Total Capitalization.
As of December 31, 2023, we were in compliance with these financial covenants as further described below: OTC, under its financial covenants, may not permit its ratio of Interest-Bearing Debt to Total Capitalization to exceed 0.60 to 1.00, may not permit its Interest and Dividend Coverage Ratio to be less than 1.50 to 1.00, and may not permit its Priority Indebtedness to exceed 10% of our Total Capitalization.
Our goodwill impairment testing performed in the fourth quarter of 2022 indicated no impairment was present for either reporting unit and the estimated fair value of each reporting unit substantially exceeded the respective carrying value. As part of our testing we perform various sensitivity analyses to understand if our conclusions are sensitive to changes in certain assumptions.
Our goodwill impairment testing performed in the fourth quarter of 2023 indicated no impairment was present for either reporting unit and the estimated fair value of each reporting unit substantially exceeded the respective carrying value. As part of our testing, we perform various sensitivity analyses to understand if our conclusions are sensitive to changes in certain assumptions.
Unique market dynamics experienced by our Plastics segment businesses in 2022 and 2021 resulted in a significant increase in our overall cash from operations compared to prior periods, and we do not expect cash from operations at these levels to continue in future years.
Unique market dynamics experienced by our Plastics segment businesses in 2023 and 2022 resulted in a significant increase in our overall cash from operations compared to prior periods, and we do not expect cash from operations at these levels to continue in future years.
REGISTRATION STATEMENTS On May 3, 2021, 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. The registration statement expires in May, 2024.
REGISTRATION STATEMENTS On May 3, 2021, 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.
Should additional liquidity be needed, this agreement includes an accordion feature allowing us to increase the amount available to $290 million, subject to certain terms and conditions. The OTP Credit Agreement also includes an accordion feature allowing OTP to increase that facility to $250 million, subject to certain terms and conditions.
Should additional liquidity be needed, the OTC Credit Agreement includes an accordion feature allowing us to increase the amount available to $290 million, subject to certain terms and conditions. The OTP Credit Agreement also includes an accordion feature allowing OTP to increase that facility to $250 million, subject to certain terms and conditions.
Our capital expenditure program is subject to review and is revised in light of changes in demands for energy, technology, environmental laws, regulatory changes, business expansion opportunities, the costs of labor, materials and equipment and our financial condition.
Our capital expenditure plan is subject to review and is revised in light of changes in demands for energy, technology, environmental laws, regulatory changes, business expansion opportunities, the costs of labor, materials and equipment and our financial condition.
Our liquidity, including our operating cash flows and access to capital markets, can be impacted by macroeconomic factors outside of our control. In addition, our liquidity could be impacted by non-compliance with covenants under our various debt instruments. As of December 31, 2022, we were in compliance with all debt covenants (see the Financial Covenant section under Capital Resources below).
Our liquidity, including our operating cash flows and access to capital markets, could be impacted by macroeconomic factors outside of our control. In addition, our liquidity could be impacted by non-compliance with covenants under our various debt instruments. As of December 31, 2023, we were in compliance with all debt covenants (see the Financial Covenant section under Capital Resources below).
None of our debt agreements include any provisions that would trigger an acceleration of the related debt as a result of changes in the credit rating levels assigned to the related obligor by rating agencies. 35 Table of Contents Credit Ratings The credit ratings of OTC and OTP as of December 31, 2022 are summarized below: Otter Tail Corporation Otter Tail Power Company Moody's Fitch S&P Moody's Fitch S&P Corporate Credit/Long-Term Issuer Default Rating Baa2 BBB- BBB A3 BBB BBB+ Senior Unsecured Debt n/a BBB- n/a n/a BBB+ BBB+ Outlook Stable Stable Stable Stable Stable Stable CRITICAL ACCOUNTING ESTIMATES Preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and the Company’s discussion and analysis of its financial condition and operating results requires management to make assumptions, estimates and judgments that affect the reported amounts.
None of our debt agreements include any provisions that would trigger an acceleration of the related debt as a result of changes in the credit rating levels assigned to the related obligor by rating agencies. 36 T able of Contents Credit Ratings The credit ratings of OTC and OTP as of December 31, 2023 are summarized below: Otter Tail Corporation Otter Tail Power Company Moody's Fitch S&P Moody's Fitch S&P Corporate Credit/Long-Term Issuer Default Rating Baa2 BBB BBB A3 BBB+ BBB+ Senior Unsecured Debt n/a BBB n/a n/a A- n/a Outlook Stable Stable Stable Stable Stable Stable CRITICAL ACCOUNTING ESTIMATES Preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and the Company’s discussion and analysis of its financial condition and operating results requires management to make assumptions, estimates and judgments that affect the reported amounts.
Our financing plans are subject to change and 34 Table of Contents are impacted by our planned level of capital investments, a decision to reduce borrowings under our lines of credit, to refund or retire early any of our presently outstanding debt, to complete acquisitions or for other corporate purposes.
Our financing plans are subject to change and are impacted by our planned level of capital investments, a decision to reduce borrowings under our lines of credit, to refund or retire early any of our presently outstanding debt, to complete acquisitions or for other corporate purposes.
REGULATORY MATTERS The following provides a summary of OTP's current general rates and a summary of recent rate case filings and rate rider filings that have or are expected to have a material impact on our operating results, financial position, or cash flows.
REGULATORY MATTERS The following provides a summary of OTP's current and recent rate case filings, rate rider filings, and other regulatory filings that have or are expected to have a material impact on our operating results, financial position, or cash flows.
Postretirement benefit obligations include estimated cash expenditures for the payment of retiree medical and life insurance benefits and supplemental pension benefits under our unfunded Executive Survivor and Supplemental Retirement Plan (ESSRP), but do not include amounts to fund our noncontributory funded pension plan, as we are not currently required to make a contribution to that plan.
Postretirement benefit obligations include estimated cash expenditures for the payment of retiree medical and life insurance benefits and supplemental pension benefits under our unfunded Executive Survivor and Supplemental Retirement Plan (ESSRP), but do not include amounts to fund our noncontributory funded pension plan, as we are not currently required to make any contributions to that plan.
If future recovery of amounts recorded as regulatory assets was no longer probable we would be required to recognize expense or other comprehensive loss in the period in which recovery was deemed to no longer be probable.
If future recovery of amounts recorded as regulatory assets was no longer probable we would be required to recognize an expense or loss in the period in which recovery was deemed to no longer be probable.
Further, if we determine that all or a portion of our utility business no longer meets the criteria for continued application of regulatory accounting, or our regulators disallow recovery of a previously incurred cost or eliminate a regulatory liability, we would be required to remove the associated regulatory assets and liabilities from our consolidated balance sheet and recognize in the consolidated statement of income as an expense or income item in the period in which this accounting treatment is no longer applicable.
Further, if we determine that all or a portion of our utility business no longer meets the criteria for continued application of regulatory accounting, or our regulators disallow recovery of a previously incurred cost or eliminate a regulatory liability, we would be required to remove the associated regulatory assets and liabilities from our consolidated balance sheets and recognize those amounts in the consolidated statement of income as an expense or income item, or in the consolidated statement of comprehensive income as a loss or gain item, in the period in which this accounting treatment is no longer applicable.
Our Electric segment is complemented by our Manufacturing and Plastics segment businesses, which we expect to contribute to earnings growth by capitalizing 26 Table of Contents on market expansion opportunities and increasing utilization of existing capacities, along with planned investments to create additional capacity and increased efficiencies.
Our Electric segment is complemented by our Manufacturing and Plastics segment businesses, which we expect to contribute to earnings growth by capitalizing 27 T able of Contents on market expansion opportunities and increasing utilization of existing capacities, along with planned investments to create additional capacity and increased efficiencies.
All shares issued under the plan to date have been open market purchases and there have been no new issue shares, resulting in no proceeds received by the Company. As of December 31, 2022, 1,250,993 shares remained available for purchase or issuance under the Plan.
All shares issued under the plan to date have been open market purchases and there have been no new issue shares, resulting in no proceeds received by the Company. As of December 31, 2023, 1,145,330 shares remained available for purchase or issuance under the plan.
Debt financing will be required in the five-year period from 2023 through 2027 to refinance maturing debt and to finance our capital investments within our Electric segment.
Debt financing will be required in the five-year period from 2024 through 2028 to refinance maturing debt and to finance our capital investments within our Electric segment.
To supplement our income approach, we reference various market indications of fair value, where available, and include fair value estimates using multiples derived from comparable enterprise values to EBITDA, comparable price earnings ratios and, if available, comparable sales transactions for comparative peer companies.
To supplement our income approach, we reference various market indications of fair value, where available, and include fair value estimates using multiples derived from comparable enterprise values to earnings before interest, taxes, depreciation, and amortization (EBITDA), and, if available, comparable sales transactions for comparative peer companies.
As of December 31, 2022, OTP's Interest-Bearing Debt to Total Capitalization was 0.45 to 1.00, its Interest and Dividend Coverage Ratio was 3.66 to 1.00 and it had no Priority Indebtedness outstanding.
As of December 31, 2023, OTP's Interest-Bearing Debt to Total Capitalization was 0.46 to 1.00, its Interest and Dividend Coverage Ratio was 3.54 to 1.00 and it had no Priority Indebtedness outstanding.
On February 3, 2023, our Board of Directors increased the quarterly dividend from $0.4125 to $0.4375 per common share. CAPITAL RESOURCES Financial flexibility is provided by operating cash flows, borrowing capacity under our lines of credit, strong financial coverages, investment grade credit ratings and alternative financing arrangements such as leasing.
On February 5, 2024, our Board of Directors increased the quarterly dividend from $0.4375 to $0.4675 per common share. 35 T able of Contents CAPITAL RESOURCES Financial flexibility is provided by operating cash flows, borrowing capacity under our lines of credit, strong financial coverages, investment grade credit ratings and alternative financing arrangements such as leasing.
COMMON STOCK DIVIDENDS We paid dividends to our shareholders totaling $68.8 million, or $1.65 per share, in 2022. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, improvement in earnings per share, cash flows from operations, the level of our capital expenditures and our future business prospects.
COMMON STOCK DIVIDENDS We paid dividends to our shareholders totaling $73.1 million, or $1.75 per share, in 2023. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, level of earnings and cash flows from operations, our capital expenditure plan and our future business prospects.
Subsequent increases or decreases in actual rates of return on plan assets over assumed rates, increases or decreases in the discount rate, increases in future compensation levels, and increases in retiree healthcare cost inflation rates could significantly change projected costs.
See additional information at footnote 10 of the consolidated financial statements. Subsequent increases or decreases in actual rates of return on plan assets over assumed rates, increases or decreases in the discount rate, increases in future compensation levels, and increases in retiree healthcare cost inflation rates could significantly change projected costs.
As of December 31, 2022, our Interest-Bearing Debt to Total Capitalization was 0.41 to 1.00, our Interest and Dividend Coverage Ratio was 11.12 to 1.00 and we had no Priority Indebtedness outstanding.
As of December 31, 2023, our Interest-Bearing Debt to Total Capitalization was 0.39 to 1.00, our Interest and Dividend Coverage Ratio was 10.85 to 1.00 and we had no Priority Indebtedness outstanding.
Significant adverse changes in our expectations for any of these estimates could result in an impairment charge in a future period which may materially impact our operating results and financial position. 37 Table of Contents
However, these estimates and assumptions include an inherent degree of uncertainty. Significant adverse changes in our expectations for any of these estimates could result in an impairment charge in a future period which may materially impact our operating results and financial position.
Normal weather conditions are defined as the 20-year average of actual historical weather conditions. This measure is commonly used in calculations relating to the energy consumption required to heat buildings. Cooling Degree Days (CDDs) is a measure of how much (in degrees), and for how long (in days), the outside air temperature was above a certain normalized level.
This measure is commonly used in calculations relating to the energy consumption required to heat buildings. Cooling Degree Days (CDDs) is a measure of how much (in degrees), and for how long (in days), the outside air temperature was above a certain normalized level. This measure is commonly used in calculations relating to the energy consumption required to cool buildings.
The following is a summary of key provisions and borrowing information as of and for the year ended December 31, 2022: (in thousands, except interest rates) OTC Credit Agreement OTP Credit Agreement Borrowing Limit $ 170,000 $ 170,000 Borrowing Limit if Accordion Exercised 1 290,000 250,000 Amount Restricted Due to Outstanding Letters of Credit at Year-End — 9,573 Amount Outstanding at Year-End — 8,204 Average Amount Outstanding During Year 11,686 22,698 Maximum Amount Outstanding During the Year 58,715 74,519 Interest Rate at Year-End 5.9 % 5.6 % Expiration Date October 29, 2027 October 29, 2027 1 Each facility includes an accordion feature allowing the borrower to increase the borrowing limit if certain terms and conditions are met.
The following is a summary of key provisions and borrowing information as of and for the year ended December 31, 2023: (in thousands, except interest rates) OTC Credit Agreement OTP Credit Agreement Borrowing Limit $ 170,000 $ 170,000 Borrowing Limit if Accordion Exercised 1 290,000 250,000 Amount Restricted Due to Outstanding Letters of Credit at Year-End — 9,132 Amount Outstanding at Year-End — 81,422 Average Amount Outstanding During Year — 50,883 Maximum Amount Outstanding During the Year — 87,788 Interest Rate at Year-End 6.85 % 6.70 % Expiration Date October 29, 2027 October 29, 2027 1 Each facility includes an accordion feature allowing the borrower to increase the borrowing limit if certain terms and conditions are met.
Our earnings mix in 2022 was 28% from our Electric segment and 72% from the combination of our Manufacturing and Plastics segments net of unallocated corporate costs. Electric segment earnings as a percentage of our total earnings were less than our long-term target of 65% due to the unique market conditions that occurred in our Plastics segment.
Our earnings mix in 2023 was 29% from our Electric segment and 71% from the combination of our Manufacturing and Plastics segments excluding unallocated corporate costs. Electric segment earnings as a percentage of our total earnings were less than our long-term target of 65% due to the unique market conditions occurring in the plastics industry.
At December 31, 2022, we set the discount rate used to measure our pension plan obligations at 5.51% and at 5.52% to measure postretirement healthcare obligations, a 248 and 251 basis point increase, respectively, from the estimates used at December 31, 2021.
At December 31, 2023, we set the discount rate used to measure our pension plan obligations at 5.57% and at 5.53% to measure postretirement healthcare obligations, a six and one basis point increase, respectively, from the estimates used at December 31, 2022.
In addition, we estimated our assumed rate of return on pension assets to be 6.30% for 2022, a 21 basis point decrease from our 2021 estimate.
In addition, we estimated our assumed rate of return on pension assets to be 7.00% for 2023, a 70 basis point increase from our 2022 estimate.
PIR - 2022 SD Approved 06/01/22 3.0 09/01/22 Includes recovery of the Ashtabula III wind farm purchase, Merricourt, Astoria Station, and the Advanced Grid Infrastructure project, as well as load growth credits. TCR - 2023 SD Requested 11/01/22 3.0 03/01/23 Includes the recovery of one new and four previously approved transmission projects.
PIR - 2022 SD Approved 06/01/22 3.0 09/01/22 Recovery of Ashtabula III, Merricourt, Astoria Station, Advanced Grid Infrastructure project costs, and impact of load growth credits. TCR - 2023 SD Approved 11/01/22 3.0 03/01/23 Recovery of transmission project costs.
GCR - 2022 ND Approved 03/01/22 3.3 07/01/22 Annual update to generation cost recovery rider. AMDT - 2022 ND Approved 07/08/22 3.1 01/01/23 Includes recovery of the advanced metering infrastructure, outage management system, and demand response projects.
TCR - 2024 ND Approved 11/02/23 4.5 01/01/24 Recovery of transmission project costs. GCR - 2022 ND Approved 03/01/22 3.3 07/01/22 Annual update to generation cost recovery rider. MDT - 2023 ND Approved 07/08/22 3.1 01/01/23 Recovery of advanced metering infrastructure, outage management system and demand response projects.
Also, a change in the expected rate of return on pension plan assets in our funded pension plan or realized rates of return on plan assets that are well above or below assumed rates of return or a change in the anticipated life expectancy of plan participants could result in significant increases or decreases in recognized pension benefit expenses in the year of the change or for many years thereafter because actuarial losses can be amortized over the average remaining service lives of active employees.
Also, a change in the expected rate of return on pension plan assets in our funded pension plan or realized rates of return on plan assets that are well above or below assumed rates of return or a change in the anticipated life expectancy of plan participants could result in significant increases or decreases in recognized pension benefit expenses in the year of the change or for many years thereafter because actuarial losses can be amortized over the average remaining service lives of active employees. 37 T able of Contents We estimate the discount rate through the use of a hypothetical bond portfolio method, which incorporates yields on a collection of high credit quality bonds that produce cash flows similar to our anticipated future benefit payments.
The following table summarizes the impact on 2022 pension and postretirement costs for a 25 basis point increase or decrease, holding all other variables constant, on certain key assumptions: (in thousands) +0.25 -0.25 Pension Plan: Discount Rate $ (1,147) $ 1,207 Rate of Increase in Future Compensation 801 (757) Long-Term Return on Plan Assets (940) 940 Other Postretirement Benefits: Discount Rate (310) 326 For 2023, we expect pension benefit income for our pension plan to be $5.8 million compared to $3.1 million of pension benefit expense in 2022, due to an increase in the discount rate used to determine benefit costs and an increase in the expected return on plan assets, partially offset by an increase in expected future compensation costs.
The following table summarizes the impact on 2023 pension and postretirement costs for a 25 basis point increase or decrease, holding all other variables constant, on certain key assumptions: (in thousands) +0.25 -0.25 Pension Plan: Discount Rate $ 65 $ (72) Rate of Increase in Future Compensation 259 245 Long-Term Return on Plan Assets (926) 926 Other Postretirement Benefits: Discount Rate 13 3 For 2024, we expect pension and other postretirement benefit income to be $8.5 million compared to $9.5 million of income in 2023, due to the impacts of updated actuarial assumptions.
As of December 31, 2022 and 2021, we had regulatory assets of $119.7 million and $152.9 million and regulatory liabilities of $261.8 million and $259.3 million.
As of December 31, 2023 and 2022, we had regulatory assets of $111.8 million and $119.7 million and regulatory liabilities of $302.0 million and $261.8 million.
Typical uses of cash for capital expenditures are investments in electric generation facilities and environmental upgrades, transmission and distribution lines, manufacturing facilities and upgrades, equipment used in the manufacturing process, and computer hardware and information systems.
CAPITAL REQUIREMENTS CAPITAL EXPENDITURES Our capital expenditure plan includes investments in electric generation facilities, transmission and distribution lines, manufacturing facilities and upgrades, equipment used in the manufacturing process, and computer hardware and information systems.
Shares purchased under the plan may be new issue common shares or common shares purchased on the open market. The registration statement expires in May 2024. In 2022, we issued 133,827 shares under the plan.
Shares purchased under the plan may be new issue common shares or common shares purchased on the open market. The registration statement expires in May 2024, at which time we plan to file a new registration statement. In 2023, we issued 105,663 shares under the plan.
Our estimates used to determine benefit cost for 2022 included a discount rate of 3.03% for pension benefits and 3.01% for postretirement healthcare costs, a 25 and 26 basis point decrease, respectively, from 2021 estimates.
Our estimates used to determine benefit cost for 2023 included a discount rate of 5.51% for pension benefits and 5.52% for postretirement healthcare costs, a 248 and 251 basis point increase, respectively, from 2022 estimates.
A 1% decrease in projected operating revenues, a one hundred basis point decrease in projected gross profit margins and a twenty five basis point increase in the discount rate would not lead to a goodwill impairment charge for either reporting unit.
A 1% decrease in projected operating revenues, a one hundred basis point decrease in projected gross profit margins and a twenty five basis point increase in the discount rate would not lead to a goodwill impairment charge for either reporting unit. 38 T able of Contents We believe the estimates and assumptions used in our impairment assessments are reasonable and based on the best information available.
As a result of certain statutory limitations or regulatory or financing agreements, restrictions could occur on the amount of distributions allowed to be made by OTC subsidiaries. See Note 14 to our consolidated financial statements included in this report on Form 10-K for additional information. The decision to declare a dividend is reviewed quarterly by our Board of Directors.
See Note 14 to our consolidated financial statements included in this report on Form 10-K for additional information. The decision to declare a dividend is reviewed quarterly by our Board of Directors.
Cost of products sold also increased due to higher labor and overhead costs, partially offset by lower freight costs. • Cost of products sold at T.O. Plastics increased $5.6 million primarily due to higher sales volumes, primarily in horticulture product sales, partially offset by favorable cost absorption.
The impacts of higher sales volumes and increased labor and overhead costs were largely offset by decreased material costs, as discussed above. • Cost of products sold at T.O. Plastics decreased $5.6 million primarily due to lower sales volumes of horticulture products, as discussed above.
Collectively, our mix of businesses is expected to contribute to the achievement of our targeted annual growth in earnings per share of five to seven percent over the next several years, using 2024 as the base for measurement. 2022 FINANCIAL RESULTS In 2022, our diversified business model generated record financial results, producing net income of $284.2 million, or $6.78 per diluted share, an increase of 61% from $176.8 million, or $4.23 per diluted share, in 2021.
Collectively, our mix of businesses is expected to contribute to the achievement of our long-term targeted annual growth in earnings per share of 5 - 7%. 2023 FINANCIAL RESULTS In 2023, our diversified business model generated record financial results, producing net income of $294.2 million, or $7.00 per diluted share, an increase of 4% from $284.2 million, or $6.78 per diluted share, in 2022.
Operating expenses in our Plastics segment were consistent year over year due to lower sales volumes which were offset by higher costs of products sold from higher resin costs and increased operating costs. See our segment disclosures below for additional discussion of items impacting operating expenses.
Operating expenses in our Plastics segment decreased primarily due to lower sales volumes and decreased PVC resin costs. See our segment disclosures below for additional discussion of items impacting operating expenses.
(in millions) Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Debt Obligations $ 835 $ 8 $ — $ 122 $ 705 Interest on Debt Obligations 637 35 70 67 465 Coal Contracts 527 24 49 52 402 Capacity and Energy Requirements 5 — 1 — 4 Postretirement Benefit Obligations 86 5 12 13 56 Other Purchase Obligations (including land easements) 55 14 4 4 33 Operating Lease Obligations 21 6 10 4 1 Total Contractual Cash Obligations $ 2,166 $ 92 $ 146 $ 262 $ 1,666 Coal contract obligations are based on estimated coal consumption and costs for the delivery of coal to Coyote Station from Coyote Creek Mining Company (CCMC) under the LSA that ends in 2040.
(in millions) Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Debt Obligations $ 908 $ 81 $ 80 $ 42 $ 705 Interest on Debt Obligations 602 35 70 62 435 Coal Contracts 485 24 49 52 360 Capacity and Energy Requirements 4 — — — 4 Postretirement Benefit Obligations 66 5 11 11 39 Other Purchase Obligations (including land easements) 79 6 9 5 59 Operating Lease Obligations 17 6 8 3 — Total Contractual Cash Obligations $ 2,161 $ 157 $ 227 $ 175 $ 1,602 Coal contract obligations are based on estimated coal consumption and costs for the delivery of coal to Coyote Station from Coyote Creek Mining Company (CCMC) under the Lignite Sales Agreement (LSA) that ends in 2040.
RESULTS OF OPERATIONS For a comparison of fiscal year 2021 to 2020, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 16, 2022.
We present actual and forecasted levels of utility rate base to provide an indication of expected investments on which we expect to earn future returns. 28 T able of Contents RESULTS OF OPERATIONS For a comparison of fiscal year 2022 to 2021, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 15, 2023.
A change to our preferred plan could ultimately impact the nature, timing and amount of future capital investments, as well as the potential for OTP's withdrawal from Coyote Station, and could have a material impact on our operating results, financial position or cash flows. 32 Table of Contents LIQUIDITY LIQUIDITY OVERVIEW We believe our financial condition is strong and our cash, other liquid assets, operating cash flows, existing lines of credit, access to capital markets, and borrowing ability because of investment-grade credit ratings, when taken together, provide us ample liquidity to conduct business operations and fund our capital expenditure program.
LIQUIDITY LIQUIDITY OVERVIEW We believe our financial condition is strong and our cash, other liquid assets, operating cash flows, existing lines of credit, access to capital markets, and borrowing ability, because of investment-grade credit ratings, when taken together, provide us ample liquidity to conduct business operations and fund our capital expenditure program.
MANUFACTURING SEGMENT RESULTS The following table summarizes operating results of our Manufacturing segment for the years ended December 31, 2022 and 2021: (in thousands) 2022 2021 $ change % change Operating Revenues $ 397,983 $ 336,294 $ 61,689 18.3 % Cost of Products Sold 315,375 259,581 55,794 21.5 Other Operating Expenses 37,341 37,163 178 0.5 Depreciation and Amortization 16,202 15,436 766 5.0 Operating Income $ 29,065 $ 24,114 $ 4,951 20.5 % Operating Revenues increased $61.7 million primarily due to the following: • At BTD, operating revenues increased $52.8 million due to a combination of higher sales volumes and increased pricing.
MANUFACTURING SEGMENT RESULTS The following table summarizes the operating results of our Manufacturing segment for the years ended December 31, 2023 and 2022: (in thousands) 2023 2022 $ change % change Operating Revenues $ 402,781 $ 397,983 $ 4,798 1.2 % Cost of Products Sold (excluding depreciation) 310,601 315,375 (4,774) (1.5) Selling, General, and Administrative Expenses 44,545 37,341 7,204 19.3 Depreciation and Amortization 18,495 16,202 2,293 14.2 Operating Income $ 29,140 $ 29,065 $ 75 0.3 % Operating Revenues increased $4.8 million primarily due to the combination of the following: • At BTD, operating revenues increased $12.5 million primarily due to a combination of higher sales volumes and increased pricing.
See Note 12 to our consolidated financial statements included in the report on Form 10-K for additional information regarding factors impacting our effective tax rate. 28 Table of Contents ELECTRIC SEGMENT RESULTS The following table summarizes the operating results of our Electric segment for the years ended December 31, 2022 and 2021: (in thousands) 2022 2021 $ change % change Retail Sales Revenue $ 470,300 $ 405,484 $ 64,816 16.0 % Transmission Services Revenues 52,213 48,835 3,378 6.9 Wholesale Revenues 18,539 17,936 603 3.4 Other Electric Revenues 8,647 8,066 581 7.2 Total Operating Revenue 549,699 480,321 69,378 14.4 Production Fuel 65,110 59,327 5,783 9.7 Purchased Power 100,281 65,409 34,872 53.3 Operating and Maintenance Expenses 181,378 159,669 21,709 13.6 Depreciation and Amortization 72,050 71,343 707 1.0 Property Taxes 17,742 17,609 133 0.8 Operating Income $ 113,138 $ 106,964 $ 6,174 5.8 % Electric kwh Sales (in thousands) Retail kwh Sales 5,592,368 4,789,879 802,489 16.8 % Wholesale kwh Sales 267,184 420,044 (152,860) (36.4) Heating Degree Days 7,122 5,794 1,328 22.9 Cooling Degree Days 531 704 (173) (24.6) Our Electric segment operating results are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling.
See Note 12 to our consolidated financial statements included in this report on Form 10-K for additional information regarding factors impacting our effective tax rate. 29 T able of Contents ELECTRIC SEGMENT RESULTS The following table summarizes the operating results of our Electric segment for the years ended December 31, 2023 and 2022: (in thousands) 2023 2022 $ change % change Retail Sales Revenue $ 455,840 $ 470,300 $ (14,460) (3.1) % Transmission Services Revenues 52,555 52,213 342 0.7 Wholesale Revenues 12,459 18,539 (6,080) (32.8) Other Electric Revenues 7,505 8,647 (1,142) (13.2) Total Operating Revenue 528,359 549,699 (21,340) (3.9) Production Fuel 60,339 65,110 (4,771) (7.3) Purchased Power 78,292 100,281 (21,989) (21.9) Operating and Maintenance Expenses 191,263 181,378 9,885 5.4 Depreciation and Amortization 75,330 72,050 3,280 4.6 Property Taxes 16,614 17,742 (1,128) (6.4) Operating Income $ 106,521 $ 113,138 $ (6,617) (5.8) % Electric kwh Sales (in thousands) Retail kwh Sales 5,772,215 5,592,368 179,847 3.2 % Wholesale kwh Sales 351,729 267,184 84,545 31.6 Heating Degree Days 6,259 7,122 (863) (12.1) Cooling Degree Days 590 531 59 11.1 Our Electric segment operating results are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling.
Increased or decreased levels of consumption for certain customer classifications are attributed to deviation from the norms and are a significant factor influencing consumption of electricity across our service territory. We present HDDs and CDDs to provide an indication of the impact of weather on kwh sales, revenues and earnings relative to forecast and on period-to-period results.
OTP generally bases its forecasted kwh sales and rates on expected consumption under a normal level of HDDs and CDDs over a given period of time in its service territory. Increased or decreased levels of consumption for certain customer classifications are attributed to deviation from the norms and are a significant factor influencing consumption of electricity across our service territory.
RRR - 2022 ND Approved 01/05/22 7.8 04/01/22 Includes Merricourt recovery, the proposed purchase of Ashtabula III, and credits related to deferred taxes and PTCs. TCR - 2022 ND Approved 09/15/22 7.5 01/01/23 Includes recovery of three new transmission projects, one transmission rebuild project, and six transmission projects related to extending the useful life of transmission assets.
RRR - 2023 ND Approved 12/30/22 12.2 05/01/23 Recovery of Merricourt, Ashtabula III and other costs. RRR - 2022 ND Approved 01/05/22 7.8 04/01/22 Recovery of Merricourt costs, Ashtabula III costs, and deferred taxes and PTCs. TCR - 2023 ND Approved 09/15/22 7.5 01/01/23 Recovery of transmission project costs.
We estimate the discount rate through the use of a hypothetical bond portfolio method, which incorporates yields on a collection of high credit quality bonds that produce cash flows similar to our anticipated future benefit payments. 36 Table of Contents We estimate the assumed long-term rate of return on plan assets based on asset category studies using historical market returns achieved by our asset portfolio allocation over long-term periods, as well as long-term projected return levels.
We estimate the assumed long-term rate of return on plan assets based on asset category studies using historical market returns achieved by our asset portfolio allocation over long-term periods, as well as long-term projected return levels.
Utility Rate Base is the value of property on which a public utility is permitted to earn a specified rate of return in accordance with rules set by a regulatory agency. In general, rate base consists of the value of property used by the utility in providing service.
We present HDDs and CDDs to provide an indication of the impact of weather on kwh sales, revenues and earnings relative to forecast, and on period-to-period results. Utility Rate Base is the value of property on which a public utility is permitted to earn a specified rate of return in accordance with rules set by a regulatory agency.
The following table presents heating and cooling degree days as a percent of normal for the years ended December 31, 2022 and 2021: 2022 2021 Heating Degree Days 112.5 % 91.3 % Cooling Degree Days 113.5 % 151.7 % The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions for the years ended December 31, 2022 and 2021, and between years: 2022 vs Normal 2022 vs 2021 2021 vs Normal Effect on Diluted Earnings Per Share $ 0.11 $ 0.10 $ 0.01 Retail Revenues increased $64.8 million primarily due to the following: • A $42.5 million increase in fuel recovery revenues primarily due to increased purchased power volumes and pricing to recover production fuel costs, as described below. • A $12.8 million increase in retail revenues from increased sales volumes from commercial and industrial customers, including the impact of a new commercial customer load in North Dakota. • A $5.4 million increase in revenues from the favorable impact of weather compared to last year. • A $4.1 million increase in interim rate revenue due to the finalization of the interim rate refund, as approved by the MPUC in the second quarter of 2022.
The following table presents heating and cooling degree days as a percent of normal for the years ended December 31, 2023 and 2022: 2023 2022 Heating Degree Days 98.4 % 112.5 % Cooling Degree Days 127.2 % 113.5 % The following table summarizes the estimated effect on diluted earnings per share of the difference in retail sales under actual weather conditions and expected retail sales under normal weather conditions for the years ended December 31, 2023 and 2022, and between years: 2023 vs Normal 2023 vs 2022 2022 vs Normal Effect on Diluted Earnings Per Share $ 0.02 $ (0.09) $ 0.11 Retail Revenues decreased $14.5 million primarily due to the following: • A $26.2 million decrease in fuel recovery revenues, primarily due to lower purchased power and fuel costs arising from decreased market energy costs and natural gas prices, as described below. • A $5.2 million decrease in revenues from the unfavorable impact of weather compared to last year. • Our Minnesota rate case, which was finalized in 2022, included a determination of the final interim rate refund and resulted in an additional $4.1 million of retail revenue last year.
The agreements generally bear interest at the Secured Overnight Financing Rate (SOFR) plus an applicable credit spread, which is subject to adjustment based on the credit ratings of the issuer. The weighted-average interest rate on all outstanding borrowings as of December 31, 2022 and 2021 was 5.61% and 1.42%.
SHORT-TERM DEBT The OTC Credit Agreement and OTP Credit Agreement provide for unsecured revolving lines of credit. The agreements generally bear interest at the Secured Overnight Financing Rate (SOFR) plus an applicable credit spread, which is subject to adjustment based on the credit ratings of the issuer.
Rate base can also include cash, working capital, materials and supplies, deductions for accumulated provisions for depreciation, contributions in aid of construction, customer advances for construction, accumulated deferred income taxes, and accumulated deferred investment tax credits dependent on the method that is used in the calculation, which can vary from jurisdiction to jurisdiction.
In general, rate base consists of the value of property used by the utility in providing service. Rate base can also include cash, working capital, materials and supplies, construction work in progress, deductions for accumulated provisions for depreciation, contributions in aid of construction, customer advances for construction, accumulated deferred income taxes, and, in some cases, accumulated deferred ITCs.
Final rates took effect on July 1, 2022, and interim rate refunds of $15.3 million were completed in the third quarter of 2022. 31 Table of Contents RATE RIDERS The following table includes a summary of pending and recently concluded rate rider proceedings: Recovery Filing Amount Effective Mechanism Jurisdiction Status Date (in millions) Date Notes RRR - 2022 MN Requested 11/01/22 $17.5 07/01/23 Includes the recovery of the Hoot Lake Solar Project, the purchase of the Ashtabula III wind farm, and true up PTCs in base rates to actual PTCs generated at the Merricourt wind farm.
These interim rate revenues, when collected, are subject to potential refund until the finalization of the rate case. 32 T able of Contents RATE RIDERS The following table includes a summary of substantial pending and recently concluded rate rider proceedings: Recovery Filing Amount Effective Mechanism Jurisdiction Status Date (in millions) Date Notes RRR - 2023 MN Approved 11/01/22 $17.5 07/01/23 Recovery of Hoot Lake Solar costs, Ashtabula III costs, and true up for PTCs from Merricourt.
The marketplace dynamics impacting both our Manufacturing and Plastics segments are fluid and subject to change which may impact our operating results prospectively. FINANCIAL AND OTHER METRICS Heating Degree Days (HDDs) is a measure of how much (in degrees), and for how long (in days), the outside air temperature was below a certain normalized level.
FINANCIAL AND OTHER METRICS Heating Degree Days (HDDs) is a measure of how much (in degrees), and for how long (in days), the outside air temperature was below a certain normalized level. Normal weather conditions are defined as the 20-year average of actual historical weather conditions.
CASH FLOWS The following is a discussion of our cash flows for the years ended December 31, 2022 and 2021: (in thousands) 2022 2021 Net Cash Provided by Operating Activities $ 389,309 $ 231,243 Net Cash Provided by Operating Activities increased $158.1 million primarily due to a $107.4 million increase in net income and a lower level of working capital needs compared to the previous year.
CASH FLOWS The following is a discussion of our cash flows for the years ended December 31, 2023 and 2022: (in thousands) 2023 2022 Net Cash Provided by Operating Activities $ 404,499 $ 389,309 Net Cash Provided by Operating Activities increased $15.2 million primarily due to an increase in net income, the absence of any pension contribution in 2023 due to the plan's funded status, and the timing of customer collections of forecasted fuel costs, partially offset by increased working capital.
Sales prices increased 16% and sales volumes increased 7% due to strong customer demand primarily in horticulture product sales. Cost of Products Sold increased $55.8 million due to the following: • Cost of products sold at BTD increased $50.2 million primarily due to higher sales volumes and increased material costs, as discussed above.
Cost of Products Sold decreased $4.8 million primarily due to the combination of the following: • Cost of products sold at BTD increased $0.8 million primarily due to higher sales volumes, as discussed above. Cost of products sold also increased due to lower productivity and inflationary cost pressures which resulted in higher non-steel material, labor and overhead costs.
CONSOLIDATED RESULTS The following table summarizes our consolidated results of operations for the years ended December 31, 2022 and 2021: (in thousands) 2022 2021 $ change % change Operating Revenues $ 1,460,209 $ 1,196,844 $ 263,365 22.0 % Operating Expenses 1,069,770 947,136 122,634 12.9 Operating Income 390,439 249,708 140,731 56.4 Interest Charges 36,016 37,771 (1,755) (4.6) Nonservice Cost Components of Postretirement Benefits (1,075) 2,016 (3,091) (153.3) Other Income 2,037 2,900 (863) (29.8) Income Before Income Taxes 357,535 212,821 144,714 68.0 Income Tax Expense 73,351 36,052 37,299 103.5 Net Income $ 284,184 $ 176,769 $ 107,415 60.8 % Operating Revenues increased $263.4 million on a consolidated basis in 2022.
CONSOLIDATED RESULTS The following table summarizes our consolidated results of operations for the years ended December 31, 2023 and 2022: (in thousands) 2023 2022 $ change % change Operating Revenues $ 1,349,166 $ 1,460,209 $ (111,043) (7.6) % Operating Expenses 971,247 1,069,770 (98,523) (9.2) Operating Income 377,919 390,439 (12,520) (3.2) Interest Expense (37,677) (36,016) (1,661) 4.6 Nonservice Components of Postretirement Benefits 10,597 1,075 9,522 n/m Other Income 12,650 2,037 10,613 n/m Income Before Income Taxes 363,489 357,535 5,954 1.7 Income Tax Expense 69,298 73,351 (4,053) (5.5) Net Income $ 294,191 $ 284,184 $ 10,007 3.5 % Operating Revenues decreased $111.0 million on a consolidated basis in 2023.
Plastics segment operating revenues increased 35% due to an increase in the price per pound of PVC pipe sold, partially offset by decreased sales volumes. See our segment disclosures below for additional discussion of items impacting operating revenues. Operating Expenses increased $122.6 million in 2022.
Plastics segment operating revenues decreased 18% due to a combination of decreased sales volumes and sales prices. See our segment disclosures below for additional discussion of items impacting operating revenues. Operating Expenses decreased $98.5 million in 2023.
Interest Charges decreased $1.8 million in 2022 primarily due to a decrease in our average short-term borrowings, partially offset by increased interest rates on our short-term borrowings and a net increase in our long-term debt of $60.0 million. The increase in our long-term debt was largely used to finance rate base investments in our Electric segment.
Interest Expense increased $1.7 million in 2023 due to an increase in our average short-term borrowings, primarily used to fund capital investments in our Electric segment, and increased interest rates on our short-term borrowings.
As further described below, increases in the price of resin, the primary raw material used in the manufacturing of PVC pipe, coupled with robust end market demand for PVC pipe led to a rapid escalation in PVC pipe prices and gross margins in 2021 and into 2022.
Periodic disruptions in the supply of resin, the primary material input used in the manufacturing of PVC pipe, coupled with robust demand for resin, led to a significant increase in the cost of resin beginning in 2021.
The following table presents the status of our lines of credit as of December 31, 2022 and 2021: 2022 2021 (in thousands) Line Limit Amount Outstanding Letters of Credit Amount Available Amount Available Otter Tail Corporation Credit Agreement $ 170,000 $ — $ — $ 170,000 $ 147,363 OTP Credit Agreement 170,000 8,204 9,573 152,223 88,315 Total $ 340,000 $ 8,204 $ 9,573 $ 322,223 $ 235,678 We have an internal risk tolerance metric to maintain a minimum of $50 million of liquidity under the OTC Credit Agreement.
The following table presents the status of our lines of credit as of December 31, 2023 and 2022: 2023 2022 (in thousands) Line Limit Amount Outstanding Letters of Credit Amount Available Amount Available OTC Credit Agreement $ 170,000 $ — $ — $ 170,000 $ 170,000 OTP Credit Agreement 170,000 81,422 9,132 79,446 152,223 Total $ 340,000 $ 81,422 $ 9,132 $ 249,446 $ 322,223 OTC and OTP are each party to separate credit agreements (the OTC Credit Agreement and OTP Credit Agreement, respectively) which provide for unsecured revolving lines of credit.
PLASTICS SEGMENT RESULTS The following table summarizes operating results for our Plastics segment for the years ended December 31, 2022 and 2021: (in thousands) 2022 2021 $ change % change Operating Revenues $ 512,527 $ 380,229 $ 132,298 34.8 % Cost of Products Sold 227,569 228,789 (1,220) (0.5) Other Operating Expenses 16,175 14,326 1,849 12.9 Depreciation and Amortization 4,205 4,354 (149) (3.4) Operating Income $ 264,578 $ 132,760 $ 131,818 99.3 % Operating Revenues increased $132.3 million primarily due to a 66% increase in the price per pound of PVC pipe sold, as sales prices remained high and continued to increase in 2022, due to a continuation of extraordinary market conditions first experienced in the previous year.
PLASTICS SEGMENT RESULTS The following table summarizes the operating results for our Plastics segment for the years ended December 31, 2023 and 2022: (in thousands) 2023 2022 $ change % change Operating Revenues $ 418,026 $ 512,527 $ (94,501) (18.4) % Cost of Products Sold (excluding depreciation) 143,521 227,569 (84,048) (36.9) Selling, General, and Administrative Expenses 16,076 16,175 (99) (0.6) Depreciation and Amortization 4,027 4,205 (178) (4.2) Operating Income $ 254,402 $ 264,578 $ (10,176) (3.8) % 31 T able of Contents Operating Revenues decreased $94.5 million primarily due to a 14% decrease in sales volumes.
No shares were issued pursuant to the registration statement in 2022.
The registration statement expires in May 2024, at which time we anticipate filing a new shelf registration statement. No shares were issued pursuant to the registration statement in 2023.
Production Fuel costs increased $5.8 million due to a 22% increase in fuel cost per kwh, which was partially offset by a decrease in kwhs generated from our fuel-burning plants due to an outage at Coyote Station in 2022, and the retirement of Hoot Lake Plant in May 2021.
Wholesale Revenues decreased $6.1 million primarily due to a 49% decrease in wholesale electric prices driven by decreased fuel costs. Production Fuel costs decreased $4.8 million due to a 17% decrease in fuel cost per kwh resulting from decreases in natural gas prices, partially offset by an increase in kwhs generated from our natural gas-burning plants.
Resin prices declined from peak levels in the second half of the year, and pipe distributors and contractors reduced purchase volumes and inventory levels in response to changing market conditions. Despite softening demand in the second half of the year, strong pipe sales prices and profit margins resulted in earnings growth of 100% in 2022.
Demand for PVC pipe began to soften in the second half of 2022, as distributors and contractors reduced purchase volumes in response to uncertain and competitive market conditions. Softening demand continued through the first half of 2023, but sales volumes in the second half of the year exceeded those in the previous year.
Cost of Products Sold decreased $1.2 million primarily due to a 19% decrease in sales volumes, partially offset by a 22% increase in the cost per pound of PVC pipe sold, largely due to higher resin costs. Other Operating Expenses increased $1.8 million due to increases in various cost categories including compensation costs and sales commissions.
Cost of Products Sold decreased $84.0 million due to a 26% decrease in the cost per pound of PVC pipe sold, primarily due to lower resin costs, as well as the 14% decrease in sales volumes discussed above.
Other Income decreased $0.9 million in 2022 primarily due to investment losses on our corporate-owned life insurance policies and the investments of our captive insurance entity. Income Tax Expense increased $37.3 million in 2022 primarily due to an increase in income before income taxes. Our effective tax rate was 20.5% in 2022 and 16.9% in 2021.
Other Income increased $10.6 million in 2023 primarily due to an increase in investment income earned on our short-term cash equivalent investments and investment gains from our corporate-owned life insurance policies compared to investment losses in the previous year.
Increases in sales volumes and prices were partially offset by a $2.5 million decrease in scrap revenues due to a decrease in both scrap metal prices and scrap volumes. • At T.O. Plastics, revenues increased $8.8 million due to a combination of increased sales prices and higher sales volumes.
Sales price increases and sales volume growth were partially offset by decreased steel prices, resulting in an 11% decrease in material costs, which are passed through to customers. • At T.O. Plastics, operating revenues decreased $7.7 million primarily due to lower sales volumes.
These expense increases were partially offset by, among other items, a $2.1 million reduction in CIP expenses compared to the previous year.
These expense increases were partially offset by, among other items, decreased outage-related costs and travel costs compared to the previous year. Depreciation and Amortization expense increased $3.3 million primarily due to the acquisition of Ashtabula III and continued investment in distribution facilities during the year.
CORPORATE COSTS The following table summarizes Corporate results of operations for the years ended December 31, 2022 and 2021: 30 Table of Contents (in thousands) 2022 2021 $ change % change Other Operating Expenses $ 16,202 $ 13,905 $ 2,297 16.5 % Depreciation and Amortization 140 225 (85) (37.8) Operating Loss $ 16,342 $ 14,130 $ 2,212 15.7 % Other Operating Expenses increased $2.3 million primarily due to increased external service costs during the year, as well as increased employee compensation and other costs.
CORPORATE The following table summarizes Corporate results of operations for the years ended December 31, 2023 and 2022: (in thousands) 2023 2022 $ change % change Selling, General, and Administrative Expenses $ 12,042 $ 16,202 $ (4,160) (25.7) % Depreciation and Amortization 102 140 (38) (27.1) Operating Loss $ 12,144 $ 16,342 $ (4,198) (25.7) % Selling, General, and Administrative Expenses decreased $4.2 million primarily due to lower health care costs related to our self-funded health insurance program in 2023 compared to higher claim costs in 2022.
INTEGRATED RESOURCE PLAN The MPUC recently approved a change to the procedural schedule for our 2022 IRP, which was originally filed in September 2021, and we plan to file an updated IRP in March 2023.
RESOURCE PLANNING On March 31, 2023, OTP submitted a supplemental resource plan filing to the MPUC, the NDPSC, and the South Dakota Public Utilities Commission (SDPUC). The supplemental filing updated OTP’s original 2022 Integrated Resource Plan (2022 IRP), which was filed on September 1, 2021.
Electric segment operating expenses increased 17% primarily due to increased purchased power costs resulting from increased purchase volumes and higher operating and maintenance expenses. Operating expenses in our Manufacturing segment increased 18%, driven by increased cost of products sold, which resulted from higher material input costs and increased sales volumes.
Electric segment operating expenses decreased primarily due to decreased purchased power costs resulting from lower market energy prices and lower fuel costs due to decreased natural gas prices. Operating expenses in our Manufacturing segment increased primarily due to increased sales volumes in our metal fabrication business and an increase in certain variable compensation costs.
Minnesota Rate Case: On November 2, 2020, OTP filed an initial request with the MPUC for an increase in revenue recoverable through base rates in Minnesota, and on December 3, 2020, the MPUC approved an interim annual rate increase of $6.9 million, or 3.2%, effective January 1, 2021.
North Dakota Rate Case: On November 2, 2023, OTP filed a request with the NDPSC for an increase in revenue recoverable under general rates in North Dakota.
In 2022, we paid an annual dividend of $1.65 per share, or $68.8 million, completing our 84th consecutive year of dividend payments to our shareholders.
Our Plastics segment again produced extraordinary financial results as we continued to capitalize on favorable industry dynamics; however, earnings in this segment did decline modestly from the record level achieved in 2022. In 2023, we paid an annual dividend of $1.75 per share, or $73.1 million, completing our 85th consecutive year of dividend payments to our shareholders.
CIP - 2022 MN Approved 04/01/22 10.8 10/01/22 Includes recovery of energy conservation improvement costs as well as a demand side management financial incentive. CIP - 2021 MN Approved 04/01/21 9.4 12/01/21 Includes recovery of energy conservation improvement costs as well as a demand side management financial incentive.
ECO - 2023 MN Approved 04/03/23 9.7 10/01/23 Recovery of energy conservation improvement costs as well as a demand side management financial incentive. RRR - 2024 MN Requested 12/04/23 8.0 07/01/24 Recovery of Hoot Lake Solar costs, Ashtabula III costs, wind upgrade project costs at our four owned wind facilities, and true up of PTCs for Merricourt.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe do not engage in any hedging activities within our Manufacturing and Plastics segments to manage our commodity price risk. Interest Rate Risk Our exposure to interest rate risk arises from outstanding short-term debt which is subject to variable rates of interest based on benchmark interest rates, primarily SOFR.
Biggest changeWe do not engage in any hedging activities within our Manufacturing and Plastics segments to manage our commodity price risk.
We attempt to manage commodity price risk by passing changes in the cost of these input materials through to our customers. If our efforts to manage commodity price risk are unsuccessful, the operating revenues and earnings of our Manufacturing segment could be impacted.
We manage commodity price risk by passing changes in the cost of these input materials through to our customers. If our efforts to manage commodity price risk are unsuccessful, the operating revenues and earnings of our Manufacturing segment could be impacted.
Holding other variables constant, a ten percent change in energy prices would have had an approximate $1.8 million impact on the fair value of these instruments. Our Manufacturing segment businesses are exposed to market risk arising from changes in commodity prices for certain raw material inputs, including steel, aluminum, and polystyrene and other plastics resins.
Holding other variables constant, a ten percent change in energy prices would have had an approximate $0.7 million impact on the fair value of these instruments. Our Manufacturing segment businesses are exposed to market risk arising from changes in commodity prices for certain raw material inputs, including steel, aluminum, and polystyrene and other plastics resins.
All of our outstanding long-term debt obligations as of December 31, 2022 and 2021 had fixed interest rates and were not subject to material interest rate risk.
All of our outstanding long-term debt obligations as of December 31, 2023 and 2022 had fixed interest rates and were not subject to material interest rate risk.
We maintain a ratio of fixed-rate debt to total debt within a certain range. It is our policy to enter into interest rate transactions and other financial instruments only to the extent considered necessary to meet our stated objectives. We do not enter into interest rate transactions for speculative or trading purposes. 38 Table of Contents
We maintain a ratio of fixed-rate debt to total debt within a certain range. It is our policy to enter into interest rate transactions and other financial instruments only to the extent considered necessary to meet our stated objectives. We do not enter into interest rate transactions for speculative or trading purposes. 39 T able of Contents
As of December 31, 2022, OTP was party to financial swap agreements with an aggregate notional amount of 295,000 megawatt-hours of electricity with various settlement dates throughout 2023. As of December 31, 2022, the aggregate fair value of these instruments was $7.1 million, reflected as a liability on our consolidated balance sheet.
As of December 31, 2023, OTP was party to financial swap agreements with an aggregate notional amount of 187,400 megawatt-hours of electricity with various settlement dates throughout 2024. As of December 31, 2023, the aggregate fair value of these instruments was $4.2 million, reflected as a liability on our consolidated balance sheets.
As of December 31, 2022 and 2021, we had $8.2 million and $91.2 million of short-term debt outstanding. Holding other variables constant, a one percentage point change in interest rates would have had an approximate $0.3 million impact to interest charges in 2022 based on our average outstanding short-term debt during the year.
As of December 31, 2023 and 2022, we had $81.4 million and $8.2 million of short-term debt outstanding. Holding other variables constant, a 100 basis point change in interest rates during 2023 would have had an approximate $0.5 million impact to interest expense in 2023 based on our average outstanding short-term debt during the year.
Added
Interest Rate Risk Our exposure to interest rate risk arises from our outstanding short-term debt which is subject to variable rates of interest based on benchmark interest rates, primarily SOFR, and our cash equivalent investments, which earn income at a rate that fluctuates daily, based on changes in U.S. treasury rates.
Added
As of December 31, 2023 and 2022, we had $219.7 million and $105.8 million invested in cash equivalent investments. Holding other variables constant, a 100 basis point change in the average interest rates during 2023 would have had an approximate $1.5 million impact to our investment income in 2023 based on our average outstanding investment balance during the year.

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