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What changed in Otter Tail Corp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Otter Tail Corp's 2023 and 2024 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 2024 report.

+378 added−369 removedSource: 10-K (2025-02-19) vs 10-K (2024-02-14)

Top changes in Otter Tail Corp's 2024 10-K

378 paragraphs added · 369 removed · 260 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

94 edited+43 added−26 removed30 unchanged
Biggest changeThe 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.
Biggest changeELECTRIC Contribution to Operating Revenues: 39% (2024), 39% (2023), 38% (2022) OTP, headquartered in Fergus Falls, Minnesota, is a vertically integrated, regulated utility with generation, transmission and distribution facilities to serve its approximately 134,000 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.
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.
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.
Renewable Energy Standard Minnesota has a renewable energy standard requiring utilities to generate or procure sufficient renewable generation such that the following percentages of total retail electric sales to Minnesota customers come from qualifying renewable sources: 25% by 2025 and 55% by 2035. Qualifying renewable sources are classified as wind, hydropower, hydrogen, and certain biomass generation.
Renewable Energy Standard Minnesota has adopted a renewable energy standard requiring utilities to generate or procure sufficient renewable generation such that the following percentages of total retail electric sales to Minnesota customers come from qualifying renewable sources: 25% by 2025 and 55% by 2035. Qualifying renewable sources are classified as wind, hydropower, hydrogen and certain biomass generation.
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.
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, 2024 and 2023: Under the 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.
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.
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 to periodically evaluate whether those goals and progress are on track or whether additional emission reductions are necessary.
In addition to PVC resin, we use certain other materials, such as stabilizers, gaskets and lumber, in the process of manufacturing and shipping our PVC pipe products.
In addition to PVC resin, we use certain other materials, such as stabilizers, waxes, gaskets and lumber, in the process of manufacturing and shipping our PVC pipe products.
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.
As of December 31, 2024, 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.
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.
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 costs between rate cases.
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.
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 2026 and 2040, respectively.
Combustion of fossil fuels for the generation of electricity is a considerable source of CO 2 emissions, which is the primary GHG emitted by our utility operations. The federal government and many states are pursuing climate policies to regulate GHG emissions as part of a broad-based effort to limit global warming.
Combustion of fossil fuels for the generation of electricity is a considerable source of CO 2 emissions, which is the primary GHG emitted by our utility operations. The federal government, many states and international organizations are pursuing climate policies to regulate GHG emissions as part of a broad-based effort to limit global warming.
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.
Minnesota Clean Energy Law In February 2023, Minnesota enacted the Clean Energy Law, 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.
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.
Employee and Leadership Development, Succession Planning and Training Programs - We invest in training and professional development for 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.
We met the current solar requirement with a combination of owned solar generation and solar renewable energy certificate (REC) purchases. We plan to comply with the requirements of this standard in the future through a combination of our existing and projected renewable generation fleet and the purchase of RECs.
We met the current solar requirement with a combination of owned solar generation and solar renewable energy certificate (REC) purchases. We plan to comply with the requirements of this standard in the future through a combination of our existing and projected renewable generation fleet.
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.
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.
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.
In Minnesota, fuel and purchased power costs are estimated on an annual basis and the accumulated difference between actual and estimated cost is refunded or recovered, subject to regulatory approval, in subsequent periods.
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.
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 recent investments within our Manufacturing and Plastics segments.
While the future financial impact of any current, proposed, or pending litigation or regulation of GHG or other emissions is unknown at this time, any capital or operating costs incurred for additional pollution control equipment or emission reduction measures could materially adversely impact our future operating results, financial position, and liquidity unless such costs could be recovered through related rates and/or future market prices for energy.
While the future financial impact of any current, proposed or pending regulation of GHG or other emissions is unknown at this time, any capital or operating costs incurred for additional pollution control equipment or emission reduction measures could materially 14 Table of Contents adversely impact our future operating results, financial position and liquidity unless such costs could be recovered through related rates and/or future market prices for energy.
An IRP is a set of resource options a utility could use to meet the service needs of its customers over the forecast period, including an explanation of the utility’s supply and demand circumstances, and the extent to which each resource option would be used to meet those service needs.
An IRP is a set of resource options a utility could use to meet the service needs of its customers over the forecast period, including an explanation of the utility’s supply and demand circumstances, and the extent to 12 Table of Contents which each resource option would be used to meet those service needs.
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.
Emerging Environmental Regulation Regional Haze Rule (RHR). The Environmental Protection Agency (EPA) adopted the RHR in an effort to improve visibility in national parks and wilderness areas.
Big Stone South-Alexandria-Big Oaks includes the construction of a new 345 kV transmission line in eastern South Dakota and western Minnesota and the addition of a second circuit to an existing 345 kV line in central Minnesota. The new transmission line will span approximately 100 miles between Big Stone, South Dakota and Alexandria, Minnesota.
Big Stone South-Alexandria-Big Oaks includes the construction of a new 345 kV transmission line in eastern South Dakota and western Minnesota and the addition of a second circuit to an existing 345 kV line in central Minnesota. The new transmission 10 Table of Contents line will span approximately 100 miles between Big Stone, South Dakota and Alexandria, Minnesota.
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.
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. Transmission Additions MISO Tranche 1.0.
Our long-term financial objectives include achieving a compounded annual growth rate in earnings per share in the range of 5 - 7%, with a long-term earnings mix of approximately 65% from our Electric segment and 35% from our manufacturing platform. We also are targeting an annual increase in our dividend to be in the range of 5 - 7%.
Our long-term financial objectives include achieving a compounded annual growth rate in earnings per share in the range of 6 to 8%, with a long-term earnings mix of approximately 65% from our Electric segment and 35% from our Manufacturing Platform. We also are targeting an annual increase in our dividend to be in the range of 6 to 8%.
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.
PVC pipe is manufactured through an extrusion process, during which PVC compound (a dry powder-like substance) is blended with other materials and introduced into an extrusion machine, where it is heated to a molten state and then forced through a sizing apparatus to produce the pipe.
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.
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 primary business since 1907, serves approximately 134,000 customers in more than 400 communities across a predominantly rural and agricultural service territory.
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.
As of December 31, 2024, 371 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.
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.
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, including the three states in our service territory, have laws which provide the incumbent transmission owner the right of first refusal to construct and own new transmission facilities.
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.
We currently own or contract energy generation that is 37% renewable. 9 Table of Contents The following chart depicts our energy resource mix, which is the electricity we used to serve our customers in 2005 and 2024, and the projected mix in 2030 and 2050.
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.
The Minnesota Clean Energy Law, passed in 2023, 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.
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 T able 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. 18 Table of Contents
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.
The following table presents our average retail rate per kilowatt-hour (kwh) by customer class and in total for the years ended December 31, 2024 and 2023: Revenue per kwh 2024 2023 Residential 11.38 ¢ 10.82 ¢ Commercial & Industrial 7.03 ¢ 7.02 ¢ Total Retail 7.98 ¢ 7.90 ¢ 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.
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 monitor various metrics and objectives associated with i) employee safety, ii) workforce stability, iii) management and workforce demographics, iv) leadership development and succession planning v) productivity, and vi) employee engagement. We have established the following in furtherance of these efforts: Safety - Safety is one of our core values.
COMPETITIVE CONDITIONS Retail electric sales are made to customers in assigned service territories. As a result, most retail customers do not have the ability to choose their electric supplier. Competition is present in some areas from municipally owned systems, rural electric cooperatives and, in certain respects, from on-site generators and co-generators. Electricity also competes with other forms of energy.
As a result, most retail customers do not have the ability to choose their electric supplier. Competition is present in some areas from municipally owned systems, rural electric cooperatives and, in certain respects, from on-site generators and co-generators. Electricity also competes with other forms of energy.
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.
New cases are reported and evaluated for corrective action during monthly safety meetings attended by safety professionals at all locations. Our 2024 Total Recordable Incident Rate was 1.64, compared to 1.70 in 2023 and our Lost Time Incident Rate was 0.16 in 2024, compared to 0.53 in 2023.
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.
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.
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.
Financial Impacts For the five-year period ended December 31, 2024, OTP invested approximately $4.8 million in environmental control equipment, including $1.7 million in 2024. Our capital budget for the next five years includes approximately $9.0 million of capital investments in environmental control equipment. The timing and amount of our expenditures may change as the regulatory environment changes.
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.
PLASTICS Contribution to Operating Revenues: 35% (2024), 31% (2023), 35% (2022) Our Plastics businesses produce 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 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.
The following charts summarize our retail electric revenues by state and by customer segment for the years ended December 31, 2024 and 2023: 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. 6 Table of Contents COMPETITIVE CONDITIONS Retail electric sales are made to customers in assigned service territories.
The supply of PVC resin may also be limited primarily due to manufacturing capacity and the limited availability of raw material components. Most U.S. resin production plants are located in the Gulf Coast region.
The supply of PVC resin may also be limited due to manufacturing capacity and the limited availability of raw material components, along with rail transportation disruptions from PVC resin plants to our facilities. Most U.S. resin production plants are located in the Gulf Coast region.
Tariff rates are designed to recover plant investments, a return on those investments, and operating costs. In addition to determining rate tariffs, state regulatory commissions also authorize return on equity (ROE), capital structure, and depreciation rates of our plant investments. Decisions by our regulators significantly impact our operating results, financial position, and cash flows.
Tariff rates are designed to recover plant investments, a return on those investments and operating costs. In addition to determining rate tariffs, state regulatory commissions also authorize return on equity (ROE), capital structure and depreciation rates of our capital investments.
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.
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.
Below is a summary of the regulatory agencies with jurisdiction of electric rates over OTP covered by each regulatory agency: Regulatory Agency Areas of Regulation Minnesota Public Utilities Commission (MPUC) Retail rates, issuance of securities, depreciation rates, capital structure, public utility services, construction of major facilities, establishment of exclusive assigned service areas, contracts with subsidiaries and other affiliated interests and other matters.
Decisions by our regulators significantly impact our operating results, financial position and cash flows. 11 Table of Contents Below is a summary of the regulatory agencies with jurisdiction over OTP covered by each regulatory agency: Regulatory Agency Areas of Regulation Minnesota Public Utilities Commission (MPUC) Retail rates, issuance of securities, depreciation rates, capital structure, public utility services, construction of major facilities, establishment of exclusive assigned service areas, contracts with subsidiaries and other affiliated interests and other matters.
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.
The second RHR implementation period covers the years 2018-2028. Coyote Station, OTP's jointly owned coal-fired power plant in North Dakota, is subject to assessment in the second implementation period under the North Dakota SIP. The North Dakota Department of Environmental Quality (NDDEQ) submitted its SIP to the EPA in August 2022.
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.
Plastics 162 Segment Total 1,122 Plastics Segment Northern Pipe 93 Vinyltech 82 Segment Total 175 Corporate 38 Total 2,133 (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.
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.
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 with wholesale market energy being utilized when it is determined to be beneficial to customers. 7 Table of Contents As of December 31, 2024, 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) 264,700 Coyote Station (2) 151,200 Total Baseload Plants 415,900 Combustion Turbine and Small Diesel Units Astoria Station 288,800 Solway 50,000 All Other 77,900 Total Combustion Turbine and Small Diesel Units 416,700 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 (rated at nameplate) 49,900 Hydroelectric Facilities 1,000 Total Owned Generation Capacity 1,233,900 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 1,274,400 (1) Reflects OTP's 53.9% ownership percentage of jointly owned facility.
We believe we have good relationships with our key raw material vendors. Due to the commodity nature of PVC resin and PVC pipe and the dynamic supply and demand factors worldwide, historically the markets for both PVC resin and PVC pipe have been very cyclical with significant fluctuations in prices and gross margins.
We believe we have good relationships with our key raw material vendors. Due to the commodity nature of PVC resin and the dynamic supply and demand factors worldwide, historically the market for PVC resin has been cyclical and subject to significant fluctuations in price.
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.
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 July 30, 2024, allows for an equity-to-total-capitalization ratio between 47.2% and 57.7%, with total capitalization not to exceed $2.2 billion.
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.
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 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.
There are four vendors from which we can source our PVC resin requirements and in 2024 we utilized all four vendors to source our PVC resin. 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 following table depicts our three segments and the subsidiary entities included within each segment: ELECTRIC SEGMENT MANUFACTURING SEGMENT PLASTICS SEGMENT Otter Tail Power Company (OTP) BTD Manufacturing, Inc. (BTD) Northern Pipe Products, Inc. (Northern Pipe) T.O. Plastics, Inc. (T.O.
We classify our five operating companies into three reportable segments consistent with our business strategy and management structure. The following table depicts our three segments, and the subsidiary entities included within each segment: ELECTRIC SEGMENT MANUFACTURING SEGMENT PLASTICS SEGMENT Otter Tail Power Company (OTP) BTD Manufacturing, Inc. (BTD) Northern Pipe Products, Inc. (Northern Pipe) T.O. Plastics, Inc. (T.O.
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.
However, we will divest of businesses which no longer fit into our strategy and risk profile over the long term. 4 Table of Contents We maintain a set of criteria used in evaluating the strategic fit of our operating businesses.
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.
(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. BTD is a full-service contract metal fabricator with capabilities in metal stamping and fabrication, tool and die, machining, tube bending, welding, assembly and product painting. T.O. Plastics, Inc. (T.O.
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.
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 other emission reduction measures which may require future capital investments or ongoing operating and monitoring costs.
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.
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.
The implementation of climate change programs, such as the Paris Agreement, the Minnesota Clean Energy Bill, and other federal or state regulations targeting GHG emissions may have a significant impact on our utility business. Specific regulatory measures to address climate change continue to evolve.
The implementation of climate change programs, such as the Minnesota Clean Energy Law, regulations under the Clean Air Act and other existing or future federal or state regulations targeting GHG emissions, may have a significant impact on our utility business.
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.
We generally source these materials from a limited number of suppliers, and supply chain constraints or disruptions related to these materials could disrupt our ability to manufacture or ship products and could result in increased costs. 17 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.
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.
From 2005 through 2024, we have reduced our carbon dioxide (CO 2 ) emissions approximately 40% and increased the amount of renewable generation resources we own or purchase through power purchase agreements by approximately 420 MW.
We will continue to review our business portfolio to identify additional opportunities to improve our risk profile, enhance our credit metrics and generate additional sources of cash to support the organic growth opportunities in our Electric, Manufacturing, and Plastics segments. We will also evaluate opportunities to allocate capital to potential acquisitions.
Once these industry conditions have normalized, we expect to achieve our long-term financial objectives as outlined above. We will continue to review our business portfolio to identify additional opportunities to improve our risk profile, enhance our credit metrics and generate additional sources of cash to support the organic growth opportunities in our Electric, Manufacturing, and Plastics segments.
Managing price volatility and ensuring raw material availability are important aspects of our business. We attempt to pass increases in the costs of these raw materials through to our customers. Increases in the costs of raw materials that cannot be passed on to customers could have a negative effect on profit margins.
We attempt to pass increases in the costs of these raw materials through to our customers. Increases in the costs of raw materials that cannot be passed on to customers could have a negative effect on profit margins. Additionally, a certain amount of residual material (scrap) is a by-product of the manufacturing and production processes.
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.
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.
OTP will have a varying level of ownership interest in these projects, which will be completed over several years and are at various stages of planning and development: Jamestown-Ellendale includes the construction of a new 345 kV transmission line in southeastern North Dakota spanning approximately 95 miles from Jamestown, North Dakota to Ellendale, North Dakota.
Jamestown-Ellendale includes the construction of a new 345 kV transmission line in southeastern North Dakota spanning approximately 95 miles from Jamestown, North Dakota to Ellendale, North Dakota. This project is in the initial stages of planning and development and is expected to be completed in 2028.
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.
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.
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.
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.
We will also refer to our Electric, Manufacturing and Plastics segments and our individual subsidiaries as indicated above. INVESTMENT AND GROWTH STRATEGY We maintain a moderate risk profile by investing in rate base growth opportunities in our Electric segment and organic growth opportunities in our Manufacturing and Plastics segments (collectively, our manufacturing platform).
We will also refer to our Electric, Manufacturing and Plastics segments and our individual subsidiaries as indicated above. INVESTMENT AND GROWTH STRATEGY Our investment and growth strategy is focused on our electric utility as our foundational business, complemented by our investments in our Manufacturing and Plastics segments (collectively, our Manufacturing Platform).
As they do, we expect earnings and cash flow generation within our Plastics segment to moderate from current levels. Once these industry conditions have normalized, we expect to achieve our long-term financial objectives as outlined above.
These conditions have led to significant revenue, earnings and cash flow growth in our Plastics segment. Currently, we expect these industry conditions to gradually normalize through 2027. As they do, we expect earnings and cash flow generation within our Plastics segment to moderate from current levels.
COMPETITIVE CONDITIONS We compete in a highly fragmented market with competition from both domestic and international entities. Our competitors vary in size, ranging from small companies focused on certain end markets or geographical area, to large companies with broad manufacturing capabilities and geographical reach.
Our competitors vary in size, ranging from small companies focused on certain end markets or geographical area, to large companies with broad manufacturing capabilities and domestic and international geographical reach. Competition can be geographically regionalized as customers procure products locally to manage cost and minimize logistical complexities.
A second circuit will be added to the existing transmission line spanning from Alexandria, Minnesota to Big Oaks, Minnesota. This project is in the initial stages of planning and development. This jointly owned project is expected to be completed in 2031 and our capital investment is estimated to be approximately $190 million.
A second circuit will be added to the existing transmission line spanning from Alexandria, Minnesota to Big Oaks, Minnesota. This project is in the initial stages of planning and development and is expected to be completed in 2032. MISO Tranche 2.1. In December 2024, MISO approved several projects within the second tranche of its long-range transmission plan.
Competition also arises from customers supplying their own power through distributed generation, which is the generation of electricity on-site or close to where it is needed in small facilities designed to meet local needs. Distributed energy resources can include combined heat and power, solar photovoltaic, wind, battery storage, thermal storage and demand-response technologies.
Competition also arises from customers supplying their own power through distributed generation, which is the generation of electricity on-site or close to where it is needed, designed to meet specific, local needs. The adoption of distributed generation can be impacted by the availability of tax credits associated with the development and use of distributed energy.
Additionally, a certain amount of residual material (scrap) is a by-product of the manufacturing and production processes. Declines in commodity prices for these scrap materials due to weakened demand or excess supply can negatively impact the profitability of our Manufacturing segment as it reduces their ability to mitigate the costs associated with excess material.
Declines in commodity prices for these scrap materials due to weakened demand or excess supply can negatively impact the profitability of our Manufacturing segment.
However, two customers, both of which are distributors of PVC pipe, combined to account for 36% of segment operating revenues for the year ended December 31, 2023 and 46% for the year ended December 31, 2022.
In 2024, two customers, both of which are distributors of PVC pipe, combined to account for 52% of segment operating revenues.
We anticipate the repowering of our Langdon facility will be completed in 2024 and the remaining facilities to be completed in 2025. Once complete, the energy production from each of these facilities is eligible for production tax credits (PTCs) over a ten-year period.
Once complete, the energy production from each of these facilities is eligible for production tax credits (PTCs) over a ten-year period. We expect these projects will lower customer costs through a combination of fuel savings and the tax credit benefits afforded to our customers.
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.
South Dakota does not have a formal advance IRP process. 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.
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.
The recovery of the costs of this project remains subject to regulatory approval. ENERGY TRANSITION OTP is transitioning to a lower-carbon and increasingly clean energy future, while maintaining affordable and reliable electricity to serve our customers.
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 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. Under North Dakota law, utilities are required to submit for approval by the North Dakota Public Service Commission (NDPSC) a 15-year advance IRP every three years.
ITEM 1. BUSINESS Otter Tail Corporation (OTC) has interests in diversified operations that include an electric utility and manufacturing and plastic pipe businesses with corporate offices located in Fergus Falls, Minnesota and Fargo, North Dakota. We classify our five operating companies into three reportable segments consistent with our business strategy and management structure.
ITEM 1. BUSINESS Otter Tail Corporation (OTC) is a holding company which has strategically invested in a portfolio of diversified operations including an electric utility and manufacturing and plastic pipe businesses with corporate offices located in Fergus Falls, Minnesota and Fargo, North Dakota.
CUSTOMERS Our service territory is predominantly rural and agricultural and includes over 400 communities, most of which have populations of less than 10,000.
CUSTOMERS Our service territory is predominantly rural and agricultural and includes over 400 communities, most of which have populations of less than 10,000. While our customer base includes relatively few large customers, sales to commercial and industrial customers are significant and in 2024 two customers combined accounted for 19% of segment operating revenues.
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.
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.
Until the EPA takes final action on this rulemaking, we are unable to predict the ultimate impact, however, there could be a cost of compliance which could have a material impact on our operating results, financial condition and liquidity. Climate Change and Greenhouse Gas Regulation Global climate change presents a significant energy and environmental policy challenge.
We continue to review and evaluate the overall impact this regulation may have on our business, including potential impacts to our operating results, financial condition and liquidity. Climate Change and Greenhouse Gas Regulation Global climate change presents a significant energy and environmental policy challenge.
COMPETITIVE CONDITIONS The plastic pipe industry is fragmented and competitive due to the number of producers, the small number of raw material suppliers and the fungible nature of the product. Due to shipping costs, competition is usually regional instead of national in scope. The principal factors of competition are price, customer service and product performance.
Due to shipping costs, competition is usually regional instead of national in scope. The principal factors of competition are price, customer service, product availability, shipping costs and product performance. Industry competition is characterized by a limited number of competitors, with the three largest competitors capturing a significant portion of the overall market.
The degree of competition may vary from time to time depending on relative costs and supplies of other forms of energy and advances in technology. Irrespective of the competitive environment, we are focused on providing value to our customers and ensuring our retail rates remain among the lowest in the region and in the nation.
Irrespective of the competitive environment, we are focused on providing value to our customers and ensuring our retail rates remain among the lowest in the region and in the nation. In 2024, our summer residential rates were 16% below the regional average and 30% below the national average.
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).
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).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSuch 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.
Biggest changeEnvironmental 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. We are subject to federal, state and local environmental laws and regulations relating to air quality, water quality, waste management, natural resources and health safety.
There can be no assurance that we would be authorized by any of our state utility commissions to recover any costs or losses associated with the early closure of or sale of our interest in a generating facility.
There can be no assurance that we would be authorized by any of our state utility commissions to recover any costs or losses associated with the early closure or sale of our interest in a generating facility.
These factors include: • seasonality of demand for our customers’ products which may cause our manufacturing capacity to be underutilized for periods of time; • our customers’ failure to successfully market their products, gain or retain widespread commercial acceptance of their products or compete effectively in their industries; • loss of market share for our customers’ products which may lead our customers to reduce or discontinue purchasing our products and components and to reduce prices, thereby exerting pricing pressure on us; • economic conditions in the markets in which our customers operate, the United States in particular, including recessionary periods such as a global economic downturn; • our customers’ decisions to bring the production of components in-house that have traditionally been outsourced to us; and • product design changes or manufacturing process changes that may reduce or eliminate demand for the components we supply.
These factors include: • our customers’ failure to successfully market their products, gain or retain widespread commercial acceptance of their products or compete effectively in their industries; • loss of market share for our customers’ products, which may lead our customers to reduce or discontinue purchasing our products and components and to reduce prices, thereby exerting pricing pressure on us; • economic conditions in the markets in which our customers operate, the United States in particular, including recessionary periods such as a global economic downturn; • our customers’ decisions to bring the production of components in-house that have traditionally been outsourced to us; and • seasonality of demand for our customers’ products, which may cause our manufacturing capacity to be underutilized for periods of time; • product design changes or manufacturing process changes that may reduce or eliminate demand for the components we supply.
Current and future federal, state, regional and international regulations to address global climate change and reduce GHG emissions, including measures such as mandated levels of renewable generation, mandatory reductions in CO 2 emission levels, taxes on CO 2 emissions, or cap-and-trade regimes, could require us to incur significant costs which could negatively impact our financial condition, operating results and liquidity if such costs cannot be recovered through rates granted by rate-making authorities or through increased market prices for electricity.
Current and future federal, state, regional and international legislation and regulations to address global climate change and reduce GHG emissions, including measures such as mandated levels of renewable generation, mandatory reductions in CO 2 emission levels, taxes on CO 2 emissions, or cap-and-trade regimes, could require us to incur significant costs, which could negatively impact our financial condition, operating results and liquidity if such costs cannot be recovered through rates granted by rate-making authorities or through increased market prices for electricity.
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.
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 and could impact our ability to provide service to our customers or require us to seek alternative sources for these products and services, if available.
Changes in regulations or the imposition of additional regulations could have a material adverse impact on our financial condition, operating results and liquidity. Our transmission and generation facilities could be vulnerable to cyber and physical attack. OTP owns electric transmission and generation facilities subject to mandatory and enforceable standards advanced by the NERC.
Changes in regulations or the imposition of additional regulations could have a material adverse impact on our financial condition, operating results and liquidity. Our generation, transmission and distribution facilities could be vulnerable to cyber and physical attack. OTP owns electric transmission, distribution and generation facilities subject to mandatory and enforceable standards advanced by the NERC.
We generally source these materials from a limited number of suppliers and any significant supply chain constraints or disruptions related to these materials could also disrupt our ability to manufacture or ship products and could result in increased costs. We compete against many other manufacturers of PVC pipe and manufacturers of alternative products.
We generally source these materials from a limited number of suppliers and any significant supply chain constraints or disruptions related to these materials could also disrupt our ability to manufacture or ship products and could result in increased costs. We compete against other manufacturers of PVC pipe and manufacturers of alternative products.
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.
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 additional repair or replacement costs, due to downed wires and poles or damage to other operating equipment.
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.
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 planning period of the RHR as part of the state of North Dakota's RHR SIP.
If OTP were subjected to such litigation, the costs of such litigation could be significant and an adverse outcome could require substantial capital expenditures, changes in operations and possible payment of penalties or damages which could affect our financial condition, operating results and liquidity if the costs are not recoverable in rates or covered by insurance.
If we were subjected to such litigation, the costs of such litigation could be significant and an adverse outcome could require substantial capital expenditures, changes in operations and possible payment of penalties or damages, which could affect our financial condition, operating results and liquidity if the costs are not recoverable in rates or covered by insurance.
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.
Information systems, both ours and those of third parties, are vulnerable to security breaches by computer hackers and cyber terrorists, system failures, the negligent or intentional breach of established controls and procedures or mismanagement of confidential information by employees.
Revised or additional regulations which result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from customers, could have a material effect on our financial condition, operating results and liquidity, making the operation of some of our facilities no longer economically viable.
Revised 22 Table of Contents or additional regulations which result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from customers, could have a material effect on our financial condition, operating results and liquidity, making the operation of some of our facilities no longer economically viable.
Our ability to make determinations on our IRP in order to best navigate changing environmental regulations and economic conditions may be impacted by our rights and obligations under the co-ownership agreements and related agreements, and our ability to reconcile a divergence in the interests of OTP and the co-owners of these generation facilities.
Our ability to make determinations to best navigate changing environmental regulations and economic conditions may be impacted by our rights and obligations under the co-ownership and related agreements, and our ability to reconcile a divergence in the interests of OTP and the co-owners of these generation facilities.
An 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.
An 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. Inflationary cost pressures have increased the cost of constructing our utility assets and operating our utility business.
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.
Competitive and economic factors could adversely 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.
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.
Alternatively, such investments may prove to be uneconomic and result in the early closure, 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.
We rely on our subsidiaries to provide sufficient earnings and cash flows to allow us to meet our financial obligations and pay dividends to our shareholders. Otter Tail Corporation is a holding company with no significant operations of its own.
We rely on our subsidiaries to provide sufficient earnings and cash flows to allow us to meet our financial obligations and pay dividends to our shareholders. OTC is a holding company with no significant operations of its own.
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.
Our electric business is subject to the risks associated with energy and capacity markets, including changes in market supply, energy and capacity prices. If we need to procure market energy and 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.
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.
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.
Several factors, many of which are beyond our control, may contribute to reduced demand for energy from our customers or increase the cost of providing energy to our customers.
General economic and industry conditions impact our business. Several factors, many of which are beyond our control, may contribute to reduced demand for energy from our customers or increase the cost of providing energy to our customers.
In the event of a sale of our interest in a generating facility, we may not be able to negotiate the sale on favorable terms, which could result in the recognition of a loss on the sale and other potential liabilities.
In the event of a sale of our interest in a generating facility, we may be unable to negotiate the sale on favorable terms, which could result in the recognition of a loss on the sale.
We rely on our investment grade credit ratings to provide acceptable costs for accessing the capital markets. A downgrade of our credit ratings could result in higher borrowing costs thereby negatively impacting our operating results and limiting our ability to access capital markets, which may negatively impact our ability to implement our business plans.
A downgrade of our credit ratings could result in higher borrowing costs thereby negatively impacting our operating results and limiting our ability to access capital markets, which may negatively impact our ability to implement our business plans.
In addition, OTP is a party to contracts that require the posting of collateral or settlement of applicable contracts if credit ratings fall below certain levels. Our pension and other postretirement benefit plans are subject to investment and interest rate risks. The financial obligations and related costs of our pension and other postretirement benefit plans are affected by numerous factors.
In addition, OTP is a party to contracts that require the posting of collateral or settlement of applicable contracts if credit ratings fall below certain levels, which may negatively impact our financial condition or liquidity. Our pension and other postretirement benefit plans are subject to investment and interest rate risks.
These laws and regulations significantly influence our operations and may affect our ability to recover costs from our customers. We are required to have numerous permits, licenses, approvals and certificates from the agencies and other organizations that regulate our business.
However, there is no guarantee our compliance program will be sufficient to ensure against violations. These laws and regulations significantly influence our operations and may affect our ability to recover costs from our customers. We are required to have numerous permits, licenses, approvals and certificates from the agencies and other organizations that regulate our business.
This could increase the risk of a shortage of resin in the event of a hurricane, other extreme weather events and other natural disasters in that region.
Most U.S. resin production plants are located in the Gulf Coast region. This could increase the risk of a shortage of resin in the event of a hurricane, other extreme weather events and other natural disasters in that region.
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.
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. External factors beyond our control can cause volatility in demand for our products and sales prices impacting our operating margins.
Assumptions related to future costs, investment returns, actuarial estimates and interest rates have a significant effect on our funding obligations and the cost recognized related to these plans.
The financial obligations and related costs of our pension and other postretirement benefit plans are affected by numerous factors. Assumptions related to future costs, investment returns, actuarial estimates and interest rates have a significant effect on our funding obligations and the cost recognized related to these plans.
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.
For example, we may face challenges with the adoption of new technologies, meeting changing customer expectations, ensuring reliability of electric service, 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. 19 Table of Contents Our operations are subject to environmental, health and safety laws and regulations.
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.
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. In addition, higher market interest rates on outstanding variable-rate indebtedness could also impact our operating results.
We expect future sales will continue to depend on the success of our customers. If economic conditions or demand for our customers’ products deteriorates, we may experience a material adverse effect on our financial condition, operating results and liquidity. Our business may be adversely affected if we are not able to maintain our manufacturing, engineering and technological expertise.
We expect future sales will continue to depend on the success of our customers. If economic conditions or demand for our customers’ products deteriorates, we may experience a material adverse effect on our financial condition, operating results and liquidity. The price and availability of raw materials could adversely impact our 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.
Tax law changes that reduce or eliminate production or investment tax credits (ITCs), or the ability to transfer or sell these credits, or a failure to meet the compliance requirements to receive 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. 21 Table of Contents ELECTRIC SEGMENT RISKS Our utility business is significantly impacted by government legislation and regulation.
In addition to property and casualty insurance, which may cover restoration of data, certain physical damage or third-party injuries, we have cybersecurity insurance related to a breach event. However, damage and claims arising from such incidents may not be covered or may exceed the amount of any available insurance.
In addition to property and casualty insurance, which may cover restoration of data, certain physical damage or third-party injuries, we have cybersecurity insurance related to a breach event.
However, all these measures and technology may not adequately prevent security breaches, ransomware attacks or other cyber-attacks, or enable us to recover effectively from such a breach or attack.
We also take prudent and reasonable steps to protect the physical security of our transmission, distribution and generation facilities. However, all these measures and technology may not adequately prevent security breaches, ransomware attacks or other cyber-attacks, or enable us to recover effectively from such a breach or attack.
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.
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.
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.
GENERAL RISK FACTORS Changes in economic conditions and economic policies could negatively impact our businesses. Our businesses are affected by local, national and worldwide economic conditions. Economic recessions, inflation, changes in commodity prices, changes in interest rates and tightening of credit in financial markets could adversely affect our operating results, financial condition and liquidity.
Legislation, regulation, litigation or other actions related to climate change and greenhouse gas emissions could materially impact us.
Actions to address climate change and greenhouse gas emissions could materially impact us.
A prolonged failure to perform by one or more of our current suppliers or service providers could lead to increased costs or other consequences which could negatively impact our financial condition, operating results and liquidity. We are subject to risks associated with energy markets.
A prolonged failure to perform by one or more of our current suppliers or service providers could lead to increased costs or other consequences, which could negatively impact our financial condition, operating results and liquidity. 24 Table of Contents MANUFACTURING SEGMENT RISKS We are impacted by our customers' strategies, operational decisions and conditions in the end markets they serve .
In the event of an early closure, a significant asset impairment charge could be required, and we would be obligated to pay for our share of the costs of closure of the generating facility, including costs associated with decommissioning, remediation, reclamation and restoration of the property, and any costs of terminating contracts associated with the generating facility, such as coal supply arrangements.
In the event of an early closure, a significant asset impairment charge could be required, and we would be obligated to pay for our share of the costs of closure of the generating facility.
Economic conditions in the end markets in which our customers operate could have an adverse impact on our operating results and liquidity . Our manufacturing businesses derive a large amount of their revenues from customers in the following industry sectors: recreational vehicle/powersports, lawn and garden, construction, agriculture, energy and horticulture.
Our manufacturing businesses derive a large amount of their revenues from customers in the following industry sectors: recreational vehicle/powersports, lawn and garden, construction, agriculture, industrial, energy and horticulture.
OTP implements the NERC standards for operating its transmission and generation assets and remains abreast of best practices within the business and the utility industry to protect its computers and computer-controlled systems from outside attack. We rely on industry-accepted security measures and technology to securely maintain confidential and proprietary information necessary for the operation of our systems.
OTP implements the NERC standards for operating its transmission and generation assets and remains abreast of best practices within the business and the utility industry to 23 Table of Contents protect its computers and computer-controlled systems from outside attack.
If the amount of insurance is insufficient or otherwise unavailable, and if we are unable to fully recover in rates the costs of uninsured losses, our financial condition, operating results and liquidity could be materially affected. 20 T able of Contents We are subject to risks associated with the procurement and transportation of fuel to our coal and natural gas powered generation facilities.
If the amount of insurance is insufficient or otherwise unavailable, and if we are unable to fully recover in rates the costs of uninsured losses, our financial condition, operating results and liquidity could be materially affected. Joint ownership of coal-fired generation facilities could impact our ability to manage changing regulations and economic conditions.
Joint ownership of coal-fired generation facilities could impact our ability to manage changing regulations and economic conditions. We own our coal-fired generation facilities jointly with other co-owners with varying ownership interests in such facilities.
We own our coal-fired generation facilities jointly with other co-owners with varying ownership interests in such facilities.
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).
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). 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.
In an effort to reduce the likelihood and severity of cyber intrusions, we have cybersecurity processes and controls and disaster recovery plans designed to protect and preserve the confidentiality, integrity and availability of data and systems. We also take prudent and reasonable steps to protect the physical security of our generation and transmission facilities.
We rely on industry-accepted security measures and technology to securely maintain confidential and proprietary information necessary for the operation of our systems. In an effort to reduce the likelihood and severity of cyber intrusions, we have cybersecurity processes and controls, and disaster recovery plans designed to protect and preserve the confidentiality, integrity and availability of data and systems.
We are subject to federal, state and local environmental laws and regulations relating to air quality, water quality, waste management, natural resources and health safety. These laws and regulations regulate the modification and operation of existing facilities, the construction and operation of new facilities and the proper storage, handling, cleanup and disposal of hazardous waste and toxic substances.
These laws and regulations regulate the modification and operation of existing facilities, the construction and operation of new facilities and the proper storage, handling, cleanup and disposal of hazardous waste and toxic substances.
A decrease in revenues or an increase in expenses related to our electric operations could negatively impact our financial condition, operating results and liquidity. Our utility business is significantly impacted by government legislation and regulation.
A decrease in revenues or an increase in expenses related to our electric operations could negatively impact our financial condition, operating results and liquidity. Violations of extensive legal and regulatory compliance requirements could have a negative impact on our business and results of operations.
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.
Failure to anticipate and adapt to customers’ changing technological needs and requirements and to 25 Table of Contents maintain manufacturing, engineering and technological expertise may have material adverse effects on our financial condition, operating results and liquidity. PLASTICS SEGMENT RISKS External factors beyond our control could cause fluctuations in demand for and pricing of our PVC pipe products.
The loss of, or significant reduction in revenue from, any of our key customers could have an adverse effect on our operating results. While no single customer provided more than 10% of our consolidated operating revenues, each of our segments have customers which accounted for over 10% of the segment’s operating revenues.
In 2024, a single customer provided more than 10% of our consolidated operating revenues, and each of our segments have customers which accounted for over 10% of the segment’s operating revenues.
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.
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.
The pace and magnitude of the decline in product pricing could materially impact our operating results. Changes in PVC resin prices could negatively affect our plastics business. The PVC pipe industry is highly sensitive to commodity raw material pricing volatility.
We expect sales prices for PVC pipe to continue to decline, which will cause a decline in operating margins and cash generation prospectively. The pace and magnitude of the decline in product pricing could materially impact our operating results and liquidity. Changes in PVC resin prices could negatively affect our plastics business.
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.
We rely on a limited number of vendors to supply the PVC resin used in our plastics businesses. In 2024, we sourced all of our PVC resin needs from four vendors. In addition, the supply of PVC resin may be limited primarily due to manufacturing capacity and the limited availability of raw material components.
The markets for our manufacturing businesses are characterized by changing technology and evolving process development.
Our business may be adversely affected if we are not able to maintain our manufacturing, engineering and technological expertise. The markets for our manufacturing businesses are characterized by changing technology and evolving process development.
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.
These factors can magnify the impact of economic cycles on our business and results of operations.
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.
In 2024, two customers combined to account for 19% of Electric segment revenues, two customers combined to account for 36% of Manufacturing segment operating revenues and two customers combined to account for 52% of Plastics segment operating revenues, with one of those customers providing more than 10% of our consolidated operating revenues.
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.
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. Claims, litigation, government investigations and other proceedings may adversely affect our business, operating results and liquidity.
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.
We may be unable to fully recover costs of our co-owned coal-fired generating facilities. Changes in regulatory, operational or economic factors could result in the early closure or sale of or withdrawal from our interest in a coal-fired generating facility.
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.
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.
As a part of achieving these targets, the EPA proposed new regulations in May 2023 under Section 111 of the Clean Air Act to regulate GHG emissions from existing and new fossil fuel-based EGUs. As detailed above, this proposal would require states to implement stringent emissions standards for most coal-fired steam generating units and certain larger natural gas combustion plants.
In May 2024, the EPA finalized new regulations under Section 111 of the Clean Air Act to regulate GHG emissions from existing and new fossil fuel-based power plants. The new regulations require existing coal-fired power plants to achieve certain CO 2 emissions reduction levels, with the amount of reduction dependent upon the remaining operating life of the facility.
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.
This could force us to obtain alternative energy or fuel supplies at higher costs or suffer increased liabilities for unfulfilled contractual obligations. Changes in our own generation capacity or market capacity, including from changes in capacity accreditation, could lead to increased capacity prices.
Due to shipping costs, competition is usually regional instead of national in scope and the principal areas of competition are a combination of price, service, warranty and product performance. Our inability to compete effectively in each of these areas and to distinguish our plastic pipe products from competing products may adversely affect the financial performance of our plastics businesses.
In addition to competing with other plastic pipe manufacturers, our products also complete against similar products serving the same end markets, including ductile iron, HDPE, steel and concrete pipe. Our inability to compete effectively on product price, customer service and product performance may adversely affect the financial performance of our plastics businesses.
Until the EPA takes final action on this rulemaking, we are unable to evaluate the precise impacts; however, the proposed rule has the potential to impact the emissions controls needed at OTP’s coal-fired power plants, which could have an impact on our operating results, financial condition and liquidity.
The new regulation has the potential to materially impact the operations of our coal-fired power plants, which could have a material impact on our operating results, financial condition and liquidity. In addition to complying with legislation and regulation, we could be subject to litigation related to climate change.
Removed
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.
Added
We may not have sufficient insurance coverage to avoid adverse impacts to our operating results or financial condition from damage to our facilities or an interruption in our business.
Removed
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.
Added
We are periodically subject to actual and threatened claims, litigation, investigations and other proceedings, including proceedings by governments and regulatory authorities, involving utilities regulation, competition and antitrust, product quality matters, and liability claims.
Removed
Our acquisition or divestiture strategies are subject to risk and could adversely impact our financial position and operating results. As part of our business strategy, we continually assess our mix of businesses and potential strategic acquisitions or divestitures.
Added
Any of these proceedings, including the currently ongoing proceedings related to our Plastics segment businesses, could have an adverse effect on our financial condition, operating results and liquidity.
Removed
This investment strategy is subject to various risks, including the ability to identify appropriate acquisition candidates, or successfully negotiate and finance any acquisitions.
Added
It is possible that a resolution of one or more proceedings, including as a result of a settlement, could involve damages, sanctions, consent decrees or orders requiring us to make substantial future payments, prevent us from offering certain products or services, require us to change our business practices in a manner materially adverse to our business, otherwise disrupt our business, divert management resources, damage our reputation or otherwise have a material effect on our operations.
Removed
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.
Added
The outcomes of these matters are inherently unpredictable and subject to significant uncertainties, and we are unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any, arising from the proceedings at this time. A cyber incident, security breach or system failure could adversely affect our business and operating results.
Removed
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.
Added
A system failure could result in a disruption to our business including, but not limited to, the inability to produce products or serve our customers. A prolonged system failure could negatively impact our operating results.
Removed
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.
Added
However, damage and claims arising from such incidents may not be covered or may exceed the amount of any available insurance. 20 Table of Contents The loss of or significant reduction in revenue from any of our key customers could have an adverse effect on our operating results.
Removed
State utility commissions regulate, among other matters, the establishment of assigned service areas, the siting and construction of major facilities, the capital structure of the utility business, and the allowed rates to charge customers for providing energy and utility service.
Added
A decrease in our credit ratings could increase our borrowing costs and result in additional contractual costs. We rely on our investment grade credit ratings to provide acceptable costs for accessing the capital markets.
Removed
Each state utility commission operates independent of one another; therefore, OTP is subject to and must adhere to the decisions of each independent state commission. The FERC regulates, among other matters, wholesale energy transactions, hydroelectric licensing, transmission and sale of electric energy in interstate commerce, and the interconnection of electric facilities.
Added
Our IRP, approved in Minnesota by the MPUC in May 2024, directs OTP to commence activities to no longer serve Minnesota customers with capacity or energy from Coyote Station as early as 2029. The discontinuation of service to Minnesota customers from Coyote Station could result in stranded costs, which may significantly impact our operating results, financial condition and liquidity.
Removed
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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe ICSP group is in charge of developing, maintaining, and measuring compliance with the information and cybersecurity governance program, as well as monitoring cyber incidents and implementing mitigation measures as part of an evolving, dynamic external environment.
Biggest changeThe ICSP group is in charge of developing, maintaining and measuring compliance with the information and cybersecurity governance program, as well as monitoring cyber incidents and implementing mitigation measures as part of an evolving, dynamic external environment. Our approach to cybersecurity incident reporting and response planning is governed by our incident response plans established for each of our business units.
Our business risk management group works closely with our ICSP group to regularly assess and identify possible material risks from cybersecurity threats, including, but not limited to, financial, operations, reputational and regulatory impact to the Company, as well as impacts on our employees and customers. Their risk assessment results are reported to the Executive Risk Committee on a quarterly basis.
Our business risk management group works closely with our ICSP group to regularly assess and identify possible material risks from cybersecurity threats, including but not limited to, financial, operations, reputational and regulatory impact to the Company, as well as impacts on our employees and customers. Their risk assessment results are reported to our Executive Risk Committee on a quarterly basis.
Our strategy includes employee training and awareness on cybersecurity risks and related best practices, required password complexity, the use of multi-factor authentication, information security protocols, anti-virus and anti-ransomware software, a patch management program, the execution of tabletop exercises on a periodic basis, established policies and protocols for cyber incident response planning and reporting, and ongoing internal cybersecurity testing.
Our strategy includes employee training and awareness on cybersecurity risks and related best practices, required 27 Table of Contents password complexity, the use of multi-factor authentication, information security protocols, anti-virus and anti-ransomware software, a patch management program, the execution of tabletop exercises on a periodic basis, established policies and protocols for cyber incident response planning and reporting, and ongoing internal cybersecurity testing.
We perform a corporate risk assessment annually, which includes specific consideration and assessment of cybersecurity risk. As part of our risk assessment process, we incorporate results from procedures performed by third-party consultants. We utilize third-party consultants to complete risk quantification analysis and perform penetration and vulnerability testing and monitoring, as well as overall cybersecurity control testing.
We perform a corporate risk assessment annually, which includes specific consideration and assessment of cybersecurity risk. As part of our risk assessment process, we incorporate results from procedures performed by third-party consultants. We utilize third-party consultants to perform penetration and vulnerability testing and monitoring, as well as overall cybersecurity control testing.
Our Board of Directors provides oversight of our cybersecurity program through quarterly and annual risk review and cybersecurity reporting.
Our Board of Directors provides oversight of our cybersecurity program through quarterly and annual risk reviews and cybersecurity reporting.
Annually, our Vice President of IT provides an overview of our cybersecurity program to the Board of Directors, including a review of key strategies, emerging risks and a summary of key performance indicators. In addition, annually the Board of Directors reviews the results of our penetration and vulnerability testing.
At least annually, our Vice President of IT provides an overview of our cybersecurity program to the Board of Directors, including a review of key strategies, emerging risks and a summary of key performance indicators. In addition, annually the Board of Directors reviews the results of our penetration and vulnerability testing. 28 Table of Contents
Removed
Our approach to cybersecurity incident reporting and response planning is governed by our incident response plans established for 23 T able of Contents each of our business units.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest change(2) As of December 31, 2024, OTP held a 14.8% ownership interest of 70 miles of the 230 kV transmission lines, with the remaining miles being wholly owned. 29 Table of Contents MANUFACTURING AND PLASTICS SEGMENTS The following reflects the properties of our Manufacturing and Plastic segments as of December 31, 2024 which are significant to our operations: Segment/Location Owned/Leased Facility Type/Use Approximate Square Feet Manufacturing Segment Otsego, MN Leased Manufacturing/Warehouse 86,000 Clearwater, MN Owned Office/Manufacturing/Warehouse 204,000 Washington, IL Leased Office/Manufacturing/Warehouse 218,000 Sauk Rapids, MN Leased Warehouse 278,000 Dawsonville, GA Owned Office/Manufacturing/Warehouse 334,000 Detroit Lakes, MN Owned Office/Manufacturing/Warehouse 354,000 Lakeville, MN Leased Office/Manufacturing/Warehouse 413,000 Plastics Segment Fargo, ND Owned Office/Manufacturing/Warehouse 122,000 Phoenix, AZ Owned Office/Manufacturing/Warehouse 149,000 We believe the facilities described above are adequate for our present business.
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.
ELECTRIC SEGMENT The following reflects our wholly or jointly owned material electric generation facilities as of December 31, 2024: 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 (3) Barnes County, ND 2023 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.
ITEM 2. PROPERTIES The following provides a summary of our properties which are material to our operations, by segment, as of December 31, 2023.
ITEM 2. PROPERTIES The following provides a summary of our properties which are material to our operations, by segment, as of December 31, 2024.
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.
In addition to our generation facilities, we wholly or jointly own transmission and distribution lines as of December 31, 2024 as follows: Miles Transmission 345 kV (1) 890 230 kV (2) 496 115 kV 974 Less than 115 kV 3,998 Distribution Less than 115 kV 7,870 (1) As of December 31, 2024, 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.
Removed
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 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+1 added−1 removed0 unchanged
Biggest changeSee Note 13 , Commitments and Contingencies , to the consolidated financial statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations, Regulatory Matters , which information is incorporated herein by reference, for discussion of certain legal, environmental and other regulatory proceedings to which we are a party.
Biggest changeSee Note 1 4 , Commitments and Contingencies, to the consolidated financial statements, which information is incorporated herein by reference, for further discussion of this matter.
Removed
ITEM 3. LEGAL PROCEEDINGS We are the subject of various legal and regulatory proceedings in the ordinary course of our business.
Added
ITEM 3. LEGAL PROCEEDINGS Several class action complaints have been filed against certain PVC pipe manufacturers, including OTC, alleging, among other things, that the defendants conspired to fix, raise, maintain, and stabilize the price of PVC municipal water and electrical conduit pipe in violation of United States antitrust laws.

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, 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]
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, 2019, and reinvestment of all dividends). 2019 2020 2021 2022 2023 2024 OTTR $ 100.00 $ 85.52 $ 147.06 $ 125.37 $ 185.62 $ 166.48 EEI $ 100.00 $ 98.84 $ 115.76 $ 117.09 $ 106.90 $ 127.32 Nasdaq $ 100.00 $ 121.27 $ 152.67 $ 122.55 $ 154.93 $ 192.86 ITEM 6. [RESERVED]
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.
We do not have a publicly announced stock repurchase program and we did not repurchase any equity securities during the quarter ended December 31, 2024.
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.
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, 2024, there were 10,245 holders of record of our common stock.

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) 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
Biggest changeFinancial Statements: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 47 Consolidated Balance Sheets 49 Consolidated Statements of Income 50 Consolidated Statements of Comprehensive Income 51 Consolidated Statements of Shareholders’ Equity 52 Consolidated Statements of Cash Flows 53 Notes to Consolidated Financial Statements 54
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 6. [Reserved] 31 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 45 ITEM 8.

Item 7. Management's Discussion & Analysis

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

81 edited+56 added−52 removed24 unchanged
Biggest changeSee 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.
Biggest changeSee Note 1 3 to our consolidated financial statements included in this report on Form 10-K for additional information regarding factors impacting our effective tax rate. 33 Table of Contents ELECTRIC SEGMENT RESULTS The following table summarizes the operating results of our Electric segment for the years ended December 31, 2024 and 2023: (in thousands) 2024 2023 $ change % change Retail Revenue $ 453,214 $ 455,840 $ (2,626) (0.6) % Transmission Services Revenue 53,517 52,555 962 1.8 Wholesale Revenue 11,077 12,459 (1,382) (11.1) Other Electric Revenues 6,707 7,505 (798) (10.6) Total Operating Revenue 524,515 528,359 (3,844) (0.7) Production Fuel 60,945 60,339 606 1.0 Purchased Power 61,561 78,292 (16,731) (21.4) Operating and Maintenance Expenses 190,422 191,263 (841) (0.4) Depreciation and Amortization 82,136 75,330 6,806 9.0 Property Taxes 15,662 16,614 (952) (5.7) Operating Income 113,789 106,521 7,268 6.8 Interest Expense (38,216) (33,864) (4,352) 12.9 Nonservice Cost Components of Postretirement Benefits 10,578 11,661 (1,083) (9.3) Other Income 3,268 1,754 1,514 86.3 Income Before Income Taxes 89,419 86,072 3,347 3.9 Income Tax (Benefit) Expense (1,544) 1,648 (3,192) (193.7) Net Income $ 90,963 $ 84,424 $ 6,539 7.7 % Electric kwh Sales (in thousands) 2024 2023 kwh change % change Retail kwh Sales 5,681,268 5,772,215 (90,947) (1.6) % Wholesale kwh Sales 273,365 351,729 (78,364) (22.3) Heating Degree Days 5,313 6,259 (946) (15.1) Cooling Degree Days 440 590 (150) (25.4) % Our Electric segment operating results are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling.
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.
Periodic disruptions in the supply of PVC 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.
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.
CAPITAL REQUIREMENTS CAPITAL EXPENDITURES Our capital expenditure plan includes investments in electric generation facilities, transmission and distribution lines and facilities, manufacturing facilities and upgrades, equipment used in the manufacturing process, and computer hardware and information systems.
See Note 10 to our consolidated financial statements included in this report on Form 10-K for additional information on our pension and postretirement benefit plans and related assumptions. These benefits, for any individual employee, can be earned and related expenses can be recognized and a liability accrued over periods of up to 30 or more years.
See Note 1 1 to our consolidated financial statements included in this report on Form 10-K for additional information on our pension and postretirement benefit plans and related assumptions. These benefits, for any individual employee, can be earned and related expenses can be recognized and a liability accrued over periods of up to 30 or more years.
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.
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.
In its filing, OTP requested a net increase in annual revenue of $17.4 million, or 8.4%, based on an allowed rate of return on rate base of 7.85% and an allowed rate of return on equity of 10.6% on an equity ratio of 53.5% of total capital.
In its filing, OTP requested a net increase in annual revenue of $17.4 million, or 8.4%, based on an allowed rate of return on rate base of 7.85% and an allowed rate of ROE of 10.6% on an equity ratio of 53.5% of total capital.
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.
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 statements of income as an expense or income item, or in the consolidated statements of comprehensive income as a loss or gain, in the period in which this accounting treatment is no longer applicable.
Accordingly, our utility business must adhere to the accounting requirements of regulated operations, which requires the recognition of regulatory assets and regulatory liabilities for amounts that otherwise would impact the statement of income or comprehensive income when it is probable that such amounts will be collected from customers or credited to customers through the rate-making process.
Accordingly, our utility business must adhere to the accounting requirements of regulated operations, which requires the recognition of regulatory assets and regulatory liabilities for amounts that otherwise would impact the statements of income or comprehensive income when it is probable that such amounts will be collected from customers or credited to customers through the rate-making process.
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.
Our goodwill impairment testing performed in the fourth quarter of 2024 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.
The filing included an interim rate request of a net increase in annual revenue of $12.4 million, or 6.0%, which was approved by the NDPSC on December 13, 2023, and interim rates went into effect on January 1, 2024.
The filing also included an interim rate request of a net increase in annual revenue of $12.4 million, or 6.0%, which was approved by the NDPSC on December 13, 2023. Interim rates went into effect on January 1, 2024.
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.
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. 43 Table 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.
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 capital expenditure plan is subject to review and is revised in light of changes in demands for energy, technology, environmental laws, regulatory approvals, business expansion opportunities, the costs of labor, materials and equipment, and our overall financial condition.
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.
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 $300 million, subject to certain terms and conditions.
Our discounted cash flow methodology incorporates significant estimates, which include assumptions of future operating results and cash flows, which are impacted by economic and industry conditions, the amount and timing of estimated capital expenditures, an estimated terminal growth rate and the selection of an appropriate weighted-average cost of capital, among others.
Our discounted cash flow methodology incorporates significant estimates, which include assumptions of future operating results and cash flows, which are impacted by economic and industry conditions, the amount and timing of estimated capital expenditures, an 44 Table of Contents estimated terminal growth rate and the selection of an appropriate weighted-average cost of capital, among others.
The weighted-average interest rate on all outstanding borrowings as of December 31, 2023 and 2022 was 6.70% and 5.61%.
The weighted-average interest rate on all outstanding borrowings as of December 31, 2024 and 2023 was 5.61% and 6.70%.
PVC PIPE SUPPLY AND DEMAND CONDITIONS Extraordinary supply and demand conditions in the PVC industry beginning in 2021 have led to a significant expansion in operating margins and elevated earnings in our Plastics segment over the past three years.
PVC PIPE MARKET CONDITIONS Extraordinary supply and demand conditions in the PVC industry beginning in 2021 have led to a significant expansion in operating margins and elevated earnings in our Plastics segment over the past four years.
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.
See additional information at Note 11 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.
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.
Our financing plans are subject to change and are impacted by our planned level of capital investments, decisions to reduce borrowings under our lines of credit, to refund or retire early any of our presently outstanding debt, to complete acquisitions or to use capital for other purposes.
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 and cash equivalents, 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, fund our capital expenditure program and satisfy our obligations as they become due.
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.
As of December 31, 2024, 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 or 0.65 to 1.00, depending on the debt agreement, 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.
PENSION AND OTHER POSTRETIREMENT BENEFITS OBLIGATIONS AND COSTS Pension and postretirement benefit liabilities and expenses are determined by actuaries using assumptions about the discount rate, expected return on plan assets, rate of compensation increase and healthcare cost-trend rates.
PENSION AND OTHER POSTRETIREMENT BENEFITS OBLIGATIONS AND COSTS Pension and postretirement benefit liabilities and expenses are determined by actuaries using numerous assumptions, including a discount rate, an expected return on plan assets, a rate of compensation increase and healthcare cost-trend rates.
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.
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.
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.
The second registration statement allows for the issuance of up to 1,500,000 common shares under our Automatic Dividend Reinvestment and Share Purchase Plan, which provides our common 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.
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%.
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 (1)(2) 03/15/25 225.6 7.53 10.10 53.50 South Dakota (3) 08/01/19 35.5 7.09 8.75 52.92 (1) Includes an earnings sharing mechanism to share with North Dakota customers any earnings above an ROE of 10.20%.
GOODWILL IMPAIRMENT Goodwill is required to be evaluated annually for impairment and more frequently as events or circumstances require. Goodwill is tested for impairment at the reporting unit level. We have identified two reporting units which carry a material amount of goodwill.
GOODWILL IMPAIRMENT Goodwill is required to be evaluated annually for impairment and more frequently as events or circumstances require. Goodwill is tested for impairment at the reporting unit level. We have identified two reporting units which carry a material amount of goodwill, BTD Manufacturing, our contract metal fabrication business, and our Plastics segment.
OTP, under its financial covenants, may not permit its ratio of 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 Debt to exceed 20% of its Total Capitalization.
OTP, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00 or 0.65 to 1.00, depending on the debt agreement, 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 20% of its total capitalization.
An optional qualitative impairment assessment may be performed prior to and may eliminate the need to perform the quantitative assessment. Estimating the fair value of a reporting unit under the quantitative impairment method requires significant judgments and estimates.
An optional qualitative impairment assessment may be performed prior to, and may eliminate the need to perform, the quantitative assessment. Estimating the fair value of a reporting unit under the quantitative impairment method requires significant judgments and estimates. We estimate the fair value of our reporting units using income and market approaches.
We estimate the fair value of our reporting units primarily using an income approach, which includes a discounted cash flow methodology to arrive at a fair value estimate by determining the present value of projected future cash flows over a specified period plus a terminal value to reflect cash flows beyond the projection period.
Our income approach uses a discounted cash flow methodology to arrive at a fair value estimate by determining the present value of projected future cash flows over a specified period plus a terminal value to reflect cash flows beyond the projection period.
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.
The following table summarizes the impact on 2024 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 $ (96) $ 931 Rate of Increase in Future Compensation 573 (424) Long-Term Return on Plan Assets (911) 911 Other Postretirement Benefits: Discount Rate (14) 15 For 2025, we expect pension and other postretirement benefit income to be $4.3 million compared to $8.5 million of income in 2024 due to the impacts of updated actuarial assumptions.
The mechanism requires 50% of any weather-normalized revenue creating annual earnings in excess of the authorized ROE up to a maximum of 9.50% be returned to customers and 100% returns of revenue creating annual earnings above 9.50%.
(3) Includes an earnings sharing mechanism to share with South Dakota customers any weather-normalized earnings above the authorized ROE of 8.75%. The mechanism requires 50% of any weather-normalized revenue creating annual earnings in excess of the authorized ROE up to a maximum of 9.50% be returned to customers and 100% returns of revenue creating annual earnings above 9.50%.
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.
As of December 31, 2024, OTP's interest-bearing debt to total capitalization was 0.47 to 1.00, OTP's interest and dividend coverage ratio was 3.34 to 1.00 and OTP had no priority indebtedness outstanding.
Low industry volumes of PVC pipe and robust end market demand for the product led to a rapid and significant increase in sales prices for PVC pipe, significantly outpacing the increase in resin input costs, leading to increased operating margins within our Plastics segment.
During this time, robust end market demand for PVC pipe led to a rapid and significant increase in sales prices for the product, significantly outpacing the increase in resin input costs, leading to increased operating margins within our Plastics segment. PVC pipe prices and resin costs reached historic levels, peaking in 2022.
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.
As of December 31, 2024, OTC's interest-bearing debt to total capitalization was 0.38 to 1.00, OTC's interest and dividend coverage ratio was 10.00 to 1.00 and OTC had no priority indebtedness outstanding.
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.
Our market approach includes estimating the fair value of our reporting units by reference to various market indications of value, including fair value estimates using multiples derived from comparable enterprise values to earnings before interest, taxes, depreciation and amortization (EBITDA) of select peer companies, and, if available, comparable sales transactions for comparative peer companies.
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 1 5 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. On February 4, 2025, our Board of Directors approved a quarterly dividend of $0.525 per common share.
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.
REGISTRATION STATEMENTS On May 3, 2024, we filed two registration statements with the SEC, replacing two previously filed registration statements upon their expiration. The first statement, a shelf registration, allows us to offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the registration statement.
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. Other assumptions are developed by reference to available trend or historical data adjusted as necessary for future expectations.
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.
The following is a summary of key provisions and borrowing information as of and for the year ended December 31, 2024: (in thousands, except interest rates) OTC Credit Agreement OTP Credit Agreement Borrowing Limit $ 170,000 $ 220,000 Borrowing Limit if Accordion Exercised 1 290,000 300,000 Amount Restricted Due to Outstanding Letters of Credit at Year-End — 8,772 Amount Outstanding at Year-End — 69,615 Average Amount Outstanding During Year — 38,475 Maximum Amount Outstanding During the Year — 102,024 Interest Rate at Year-End 5.83 % 5.61 % Expiration Date December 11, 2029 December 11, 2029 1 Each facility includes an accordion feature allowing the borrower to increase the borrowing limit if certain terms and conditions are met.
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 following table presents heating and cooling degree days as a percent of normal for the years ended December 31, 2024 and 2023: 2024 2023 Heating Degree Days 83.7 % 98.4 % Cooling Degree Days 93.8 % 127.2 % 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, 2024 and 2023, and between years: 2024 vs Normal 2024 vs 2023 2023 vs Normal Effect on Diluted Earnings Per Share $ (0.13) $ (0.15) $ 0.02 Retail Revenue decreased $2.6 million primarily due to the following: • A $13.4 million decrease in fuel recovery revenues, primarily due to lower purchased power costs, as described below. • A $8.1 million decrease in base revenues from the unfavorable impact of weather compared to last year.
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.
As of December 31, 2024 and 2023, we had regulatory assets of $108.6 million and $111.8 million and regulatory liabilities of $318.2 million and $302.0 million.
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.
Market dynamics experienced by our Plastics segment businesses in 2024 and 2023 resulted in a significant increase in our overall cash from operations compared to prior periods.
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.
The following table presents the status of our lines of credit as of December 31, 2024: 2024 (in thousands) Line Limit Amount Outstanding Letters of Credit Amount Available OTC Credit Agreement $ 170,000 $ — $ — $ 170,000 OTP Credit Agreement 220,000 69,615 8,772 141,613 Total $ 390,000 $ 69,615 $ 8,772 $ 311,613 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.
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.
The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, our actual or expected level of earnings and cash flows from operations, the level of our capital expenditures and our future business prospects.
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.
TCR - 2025 ND Approved 09/16/24 3.1 01/01/25 Recovery of transmission project costs. PIR - 2024 SD Approved 06/03/24 3.2 09/01/24 Recovery of Ashtabula III, Merricourt, Astoria Station, wind upgrade projects, Advanced Grid Infrastructure project costs, and impact of load growth credits.
As of December 31, 2023, we had $249.4 million of available liquidity under our credit facilities and $230.4 million of available cash and cash equivalents, resulting in total available liquidity of $479.8 million, compared to total available liquidity of $441.2 million as of December 31, 2022.
As of December 31, 2024, we had $311.6 million of available liquidity under our credit agreements and $294.7 million of available cash and cash equivalents, resulting in total available liquidity of $606.3 million, compared to total available liquidity of $479.8 million as of December 31, 2023.
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.
The OTP Credit Agreement was also amended to increase the borrowing limit. 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 borrower.
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).
Our liquidity, including our operating cash flows and access to capital markets, could be impacted by macroeconomic factors outside of our control, including higher interest rates and debt capital costs, and diminished credit availability. In addition, our liquidity could be impacted by non-compliance with certain financial covenants under our various debt instruments.
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.
RESULTS OF OPERATIONS For a comparison of fiscal year 2023 to 2022, 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, 2023, filed with the SEC on February 14, 2024.
(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.
(in millions) Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Debt Obligations $ 1,017 $ 70 $ 122 $ 70 $ 755 Interest on Debt Obligations 700 42 81 71 506 Coal Contracts 441 24 50 53 314 Land Easements 62 2 4 4 52 Postretirement Benefit Obligations 65 5 11 11 38 Operating Lease Obligations 35 6 10 6 13 Other Obligations 11 2 2 1 6 Total Contractual Obligations $ 2,331 $ 151 $ 280 $ 216 $ 1,684 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.
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.
On December 31, 2024, the discount rates used to measure our pension plan and postretirement healthcare obligations were 5.70% and 5.61%, a thirteen and eight basis point increase, respectively, from the estimates used on December 31, 2023.
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.
Through the settlement of the case, the parties also agreed to establish an earnings sharing mechanism, whereby 70% of actual earnings in excess of a 10.20% ROE would be returned to customers, with OTP retaining the remaining 30%. 37 Table 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.
Electric segment operating revenues decreased 4% primarily due to decreased fuel recovery and wholesale revenues and the impact of unfavorable weather, partially offset by increased rider revenues and increased commercial and industrial sales. Manufacturing segment operating revenues increased 1% primarily due to higher sales volumes in our metal fabrication business.
Electric segment operating revenues decreased 1% primarily due to decreased fuel recovery and wholesale revenues and the impact of unfavorable weather, partially offset by retail revenue increases due to an interim rate increase in North Dakota in connection with our most recent rate case, as well as increased commercial and industrial sales volumes, and increased rider revenue.
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.
CASH FLOWS The following is a discussion of our cash flows for the years ended December 31, 2024 and 2023: (in thousands) 2024 2023 Net Cash Provided by Operating Activities $ 452,731 $ 404,499 Net Cash Provided by Operating Activities increased $48.2 million primarily due to a decrease in working capital and increased net income.
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.
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.
Our Manufacturing segment provides metal fabrication for custom machine parts and metal components, and manufactures extruded and thermoformed plastic products. Our Plastics segment manufactures PVC pipe for use in, among other applications, municipal and rural water, wastewater and water reclamation projects.
Our Manufacturing segment provides metal fabrication for custom machine parts and metal components, and manufactures extruded and thermoformed plastic products.
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.
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. ECO - 2024 MN Approved 04/01/24 8.8 10/01/24 Recovery of energy conservation improvement costs as well as a demand side management financial incentive.
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.
Operating Expenses decreased $20.9 million in 2024. Electric segment operating expenses decreased primarily due to decreased purchased power costs resulting from lower market energy prices. Operating expenses in our Manufacturing segment decreased primarily due to decreased sales volumes, as discussed above. Operating expenses in our Plastics segment increased primarily due to increased sales volumes, as discussed above.
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.
Other Income increased $4.6 million primarily due to an increase in investment income earned on our short-term cash equivalent investments and our long-term fixed income investments, primarily due to additional investments made during the year driven by an increase in cash available for investment. 36 Table of Contents 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.
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.
CONSOLIDATED RESULTS The following table summarizes our consolidated results of operations for the years ended December 31, 2024 and 2023: (in thousands) 2024 2023 $ change % change Operating Revenues $ 1,330,548 $ 1,349,166 $ (18,618) (1.4) % Operating Expenses 950,298 971,247 (20,949) (2.2) Operating Income 380,250 377,919 2,331 0.6 Interest Expense (41,815) (37,677) (4,138) 11.0 Nonservice Components of Postretirement Benefits 9,609 10,597 (988) (9.3) Other Income 18,848 12,650 6,198 49.0 Income Before Income Taxes 366,892 363,489 3,403 0.9 Income Tax Expense 65,230 69,298 (4,068) (5.9) Net Income $ 301,662 $ 294,191 $ 7,471 2.5 % Operating Revenues decreased $18.6 million on a consolidated basis in 2024.
Working capital increased primarily due to an increase in receivables in our Plastics segment, due to increased sales volumes in the fourth quarter of the current year, and a decrease in payables due to the timing of capital investment spending in our Electric segment and inventory purchases in our Plastics segment compared to last year.
Working capital also decreased due to an increase in payables in our Electric segment, due to the timing of capital investment spending, and decreases in receivables and inventories in our Manufacturing segment, due to decreased sales and production volumes during the later part of the current year.
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.
Credit Ratings The current credit ratings of OTC and OTP 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 Negative Stable Stable 42 Table of Contents CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES The discussion and analysis of our results of operations are based on financial statements prepared in accordance with generally accepted accounting principles in the United States of America.
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.
The proceeds of the notes were used to repay existing short-term borrowings, fund capital expenditures and for general corporate purposes. As of December 31, 2024, we had $947.0 million of principal outstanding under long-term debt arrangements. Note 10 to our consolidated financial statements included in this report on Form 10-K includes information regarding these instruments.
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.
Our estimates used to determine benefit cost for 2024 included a discount rate of 5.57% for pension benefits and 5.53% for postretirement healthcare costs, a six and one basis point increase, respectively, from 2023 estimates. In addition, we estimated our assumed rate of return on pension assets to be 7.00% for 2024, which was unchanged from our 2023 estimate.
The 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.
The following provides a summary of capital expenditures for the years ended December 31, 2024 and 2023 for our Electric segment and non-electric businesses and anticipated capital expenditures for the five-year period 2025 through 2029: (in millions) 2023 2024 2025 2026 2027 2028 2029 Total 2025 - 2029 Electric Segment: Renewable Generation $ 106 $ 134 $ 101 $ 127 $ 118 $ 179 $ 4 $ 529 Transmission 49 60 59 93 162 114 100 528 Distribution 45 46 37 37 36 37 34 181 Other 41 61 54 51 31 27 25 188 Total Electric Segment 241 301 251 308 347 357 163 1,426 Manufacturing and Plastics Segments 46 58 27 27 27 25 23 129 Total Capital Expenditures $ 287 $ 359 $ 278 $ 335 $ 374 $ 382 $ 186 $ 1,555 40 Table of Contents CONTRACTUAL AND OTHER OBLIGATIONS The following table summarizes our contractual obligations on December 31, 2024 and the effect these obligations are expected to have on our liquidity and cash flow in future periods.
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.
Our earnings mix in 2024 was 30% from our Electric segment and 70% from the combination of our Manufacturing and Plastics segments including unallocated corporate costs. Since 2021, our earnings mix has diverged from our long-term target of 65% from our Electric segment and 35% from our Manufacturing Platform primarily due to market conditions within the PVC pipe industry.
Income Tax Expense decreased $4.1 million in 2023 primarily due to an increase in PTCs produced by our wind and solar generation assets. Our effective tax rate was 19.1% in 2023 and 20.5% in 2022.
Income Tax Expense decreased $3.2 million due to an increase in PTCs produced by our wind and solar generation assets, partially attributable to Hoot Lake Solar going into service in August 2023.
Financial Covenants Certain of our short- and long-term debt agreements require OTC and OTP to maintain certain financial covenants.
The agreements generally provide for unsecured borrowings at fixed rates of interest with maturities ranging from 2026 to 2054. Financial Covenants Our short- and long-term debt agreements require OTC and OTP to maintain certain financial covenants.
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.
A 3% decrease in projected operating revenues, a one hundred basis point decrease in projected gross profit margins, a one hundred basis point decrease in projected terminal growth rate, a 50 basis point increase in weighted-average cost of capital or a 1.0x decrease in the assumed EBITDA multiple would not lead to a goodwill impairment charge for either reporting unit.
Selling, General, and Administrative Expenses increased $7.2 million primarily due to increased employee compensation from an increase in headcount, inflationary cost pressure and variable compensation driven by current year financial performance. Depreciation and Amortization increased $2.3 million due to capital expenditures during the year, which included investments in facility improvements and purchases of equipment.
Selling, General, and Administrative Expenses decreased $9.3 million primarily due to decreased employee compensation costs resulting from a decrease in headcount and lower variable compensation driven by financial performance in the current year.
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.
Manufacturing segment operating revenues decreased 15% primarily due to lower sales volumes due to soft end market demand across most end markets. Plastics segment operating revenues increased 11% primarily due to increased sales volumes driven by strong customer demand, partially offset by a decrease in sales prices. See our segment disclosures below for additional discussion of items impacting operating revenues.
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.
CAPITAL RESOURCES Financial flexibility is provided by operating cash flows, unused lines of credit, access to capital markets and alternative financing arrangements such as leasing. Debt financing will be required in the five-year period from 2025 through 2029 to refinance maturing debt and to finance our planned capital investments.
Our financing activities in 2023 included net short-term borrowings of $73.2 million compared to net short-term repayments of $83.0 million in 2022. There was no change in our long-term debt in 2023.
Financing activities during the year also included net repayments of short-term debt of $11.8 million compared to net short-term borrowings of $73.2 million in 2023, and in 2024, we made dividend payments of $78.3 million compared to $73.1 million in 2023.
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.
Other Income increased $6.2 million in 2024 primarily due to an increase in investment income earned on our short-term cash equivalent investments and our long-term fixed income investments. Income Tax Expense decreased $4.1 million in 2024 primarily due to an increase in PTCs produced by our wind and solar generation assets.
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.
MANUFACTURING SEGMENT RESULTS The following table summarizes the operating results of our Manufacturing segment for the years ended December 31, 2024 and 2023: (in thousands) 2024 2023 $ change % change Operating Revenues $ 342,592 $ 402,781 $ (60,189) (14.9) % Cost of Products Sold (excluding depreciation) 267,904 310,601 (42,697) (13.7) Selling, General, and Administrative Expenses 35,203 44,545 (9,342) (21.0) Depreciation and Amortization 20,393 18,495 1,898 10.3 Operating Income 19,092 29,140 (10,048) (34.5) Interest Expense (2,516) (2,295) (221) 9.6 Other Income — (1) 1 (100.0) Income Before Income Taxes 16,576 26,844 (10,268) (38.3) Income Tax Expense 2,895 5,390 (2,495) (46.3) Net Income $ 13,681 $ 21,454 $ (7,773) (36.2) % Operating Revenues decreased $60.2 million primarily due to a 15% decrease in sales volumes, with declines experienced in the recreational vehicle, agriculture, construction, lawn and garden, and horticulture end markets.
The unique market dynamics impacting our Plastics segment resulted in a significant increase in earnings in the last three years compared to historical levels. We expect these market conditions to gradually normalize over the course of 2024 and into 2025. The marketplace dynamics impacting our Plastics segments are fluid and subject to change and may impact our operating results prospectively.
We anticipate PVC pipe prices will gradually normalize through 2027. The marketplace dynamics impacting our Plastics segments are fluid and subject to change and may impact our operating results prospectively.
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.
Our financial results for the year were driven by earnings growth in our Electric and Plastics segments, partially offset by a decline in our Manufacturing segment earnings. In 2024, we paid an annual dividend of $1.87 per share, or $78.3 million, completing our 86th consecutive year of dividend payments to our shareholders.
Our Electric segment produced earnings growth of 6% in 2023, from $80.0 million in 2022 to $84.4 million in 2023, primarily due to increased rider revenue, increased commercial and industrial sales, and lower pension and other postretirement benefit costs, partially offset by increased operating and maintenance expenses and the impact of unfavorable weather.
Our Electric segment produced earnings growth of 8% in 2024, from $84.4 million in 2023 to $91.0 million in 2024, primarily due to increased retail revenue resulting from an interim rate increase in North Dakota and increased rider revenue, partially offset by the investment and financing costs associated with our rate base investments, resulting in increased depreciation and interest expense compared to the prior year.
Our Manufacturing segment produced earnings growth of 2% in 2023, from $21.0 million in 2022 to $21.5 million in 2023, primarily due to increased sales volumes at our metal fabrication business driven by strong end market demand across several markets we serve, and incremental volumes from additional work with existing customers.
Decreased profit margins were primarily due to reduced leveraging of fixed manufacturing costs resulting from decreased production and sales volumes. Our Plastics segment produced earnings growth of 7%, from $187.7 million in 2023 to $200.7 million in 2024, primarily due to the impact of increased sales volumes, driven by strong customer and end market demand.
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.
Depreciation and Amortization increased $1.9 million due to capital expenditures during the year, which included investments in facility improvements and purchases of equipment. 35 Table of Contents PLASTICS SEGMENT RESULTS The following table summarizes the operating results for our Plastics segment for the years ended December 31, 2024 and 2023: (in thousands) 2024 2023 $ change % change Operating Revenues $ 463,441 $ 418,026 $ 45,415 10.9 % Cost of Products Sold (excluding depreciation) 166,628 143,521 23,107 16.1 Selling, General, and Administrative Expenses 20,414 16,076 4,338 27.0 Depreciation and Amortization 4,494 4,027 467 11.6 Operating Income 271,905 254,402 17,503 6.9 Interest Expense (590) (602) 12 (2.0) Other Income 76 14 62 442.9 Income Before Income Taxes 271,391 253,814 17,577 6.9 Income Tax Expense 70,644 66,066 4,578 6.9 Net Income $ 200,747 $ 187,748 $ 12,999 6.9 % Operating Revenues increased $45.4 million primarily due to a 27% increase in sales volumes driven by customer sales volume growth and strong distributor and end market demand.
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.
Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. As of December 31, 2024, there were 1,429,531 shares available for purchase or issuance under the plan.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−2 removed6 unchanged
Biggest changeWe 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
Biggest changeWe 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 45 Table of Contents 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. 46 Table of Contents
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the potential loss arising from adverse changes in market rates and prices. We are primarily exposed to interest rate and commodity price risk. Commodity Price Risk Our Electric segment business is exposed to market risk arising from changes in commodity prices for wholesale energy and natural gas.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the potential loss arising from adverse changes in market rates and prices. We are primarily exposed to commodity price and interest rate risk. Commodity Price Risk Our Electric segment business is exposed to market risk arising from changes in commodity prices for wholesale energy and natural gas.
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.
All of our outstanding long-term debt obligations as of December 31, 2024 and 2023 had fixed interest rates and were not subject to material interest rate risk.
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.
Holding other variables constant, a ten percent change in energy prices would have had an approximate $0.9 million impact on the fair value of these instruments. Our Manufacturing and Plastics segment businesses are exposed to market risk arising from changes in commodity prices for certain raw material inputs, including steel, aluminum and PVC and other plastic resins.
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.
We manage commodity price risk by attempting to pass 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 and Plastics segment could be impacted.
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.
As of December 31, 2024 and 2023, we had $69.6 million and $81.4 million of short-term debt outstanding. Holding other variables constant, a 100 basis point change in interest rates during 2024 would have had an approximate $0.4 million impact to interest expense in 2024 based on our average outstanding short-term debt during the year.
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, 2024, OTP was party to financial swap agreements with an aggregate notional amount of 167,200 megawatt-hours of electricity with various settlement dates throughout 2025. As of December 31, 2024, the aggregate fair value of these instruments was $2.0 million, reflected as a liability on our consolidated balance sheets.
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.
As of December 31, 2024 and 2023, we had $282.0 million and $219.7 million invested in cash equivalent investments. Holding other variables constant, a 100 basis point change in the average interest rates during 2024 would have had an approximate $2.3 million impact to our investment income in 2024, based on our average outstanding investment balance during the year.
Removed
Our Plastics segment businesses are exposed to market risk arising from changes in prices for PVC resin, the primary raw material commodity used to manufacture PVC pipe. The PVC pipe industry as a whole is highly sensitive to volatility in PVC resin prices, with frequent adjustments to PVC pipe sale prices to reflect volatility in PVC resin costs.
Removed
Historically, when resin prices are rising or stable, sales volumes have been higher. In contrast, when resin prices are falling, sales volumes have been lower. Due to the commodity nature of PVC resin and dynamic supply and demand factors worldwide, gross profit margins can fluctuate significantly from period to period.

Other OTTR 10-K year-over-year comparisons