UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended

~~June~~September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from

Commission file number

0-53713

OTTER TAIL CORPORATION

(Exact name of registrant as specified in its charter)

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

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

866-410-8780

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

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

Large accelerated filer ☑	Accelerated filer ☐

Non-accelerated filer ☐	Smaller reporting company ��☐	Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date:

~~July~~October 31, 2020 – ~~40,872,064~~41,064,051 Common Shares ($5 par value)

Table of Contents

(in thousands)	June 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019

Assets

Current Assets
Cash and Cash Equivalents	$	39,512	$	21,199	$	44,904	$	21,199
Accounts Receivable:
Trade—Net		84,197		77,947		100,423		77,947
Other		6,452		8,773		6,322		8,773
Inventories		89,754		97,851		81,871		97,851
Unbilled Receivables		19,019		20,911		16,409		20,911
Income Taxes Receivable		-		1,487		0		1,487
Regulatory Assets		19,958		21,650		17,435		21,650
Other		8,031		5,042		7,552		5,042
Total Current Assets		266,923		254,860		274,916		254,860

Investments		10,581		9,894		10,791		9,894
Other Assets		40,138		40,196		42,316		40,196
Goodwill		37,572		37,572		37,572		37,572
Other Intangibles—Net		10,703		11,290		10,419		11,290
Regulatory Assets		141,063		144,138		145,977		144,138

Right of Use Assets - Operating Leases		20,571		21,851		19,713		21,851

Plant
Electric Plant in Service		2,211,082		2,212,884		2,221,785		2,212,884
Nonelectric Operations		252,933		247,356		256,480		247,356
Construction Work in Progress		321,621		185,238		454,128		185,238
Total Gross Plant		2,785,636		2,645,478		2,932,393		2,645,478
Less Accumulated Depreciation and Amortization		923,948		891,684		939,590		891,684
Net Plant		1,861,688		1,753,794		1,992,803		1,753,794

Total Assets	$	2,389,239	$	2,273,595	$	2,534,507	$	2,273,595

(in thousands, except share data)	June 30, 2020			December 31, 2019			September 30, 2020			December 31, 2019

Liabilities and Equity

Current Liabilities
Short-Term Debt	$	41,239		$	6,000		$	48,600		$	6,000
Current Maturities of Long-Term Debt		261			183			215			183
Accounts Payable		133,967			120,775			189,327			120,775
Accrued Salaries and Wages		16,891			22,730			20,933			22,730
Accrued Taxes		12,193			17,525			14,283			17,525
Regulatory Liabilities		13,023			7,480			12,870			7,480
Current Operating Lease Liabilities		4,543			4,136			4,581			4,136
Other Accrued Liabilities		10,806			10,912			8,927			10,912
Total Current Liabilities		232,923			189,741			299,736			189,741

Pensions Benefit Liability		86,657			98,970			86,101			98,970
Other Postretirement Benefits Liability		71,845			71,437			72,508			71,437
Long-Term Operating Lease Liabilities		16,584			18,193			15,778			18,193
Other Noncurrent Liabilities		34,647			30,833			35,146			30,833

Commitments and Contingencies (note 9)

Deferred Credits
Deferred Income Taxes		141,538			131,941			152,448			131,941
Deferred Tax Credits		17,969			18,626			17,640			18,626
Regulatory Liabilities		238,160			239,906			236,892			239,906
Other		2,472			2,885			1,914			2,885
Total Deferred Credits		400,139			393,358			408,894			393,358

Capitalization
Long-Term Debt—Net		724,389			689,581			764,274			689,581

Cumulative Preferred Shares – Authorized 1,500,000 Shares Without Par Value; Outstanding – None		-			-			0			0

Cumulative Preference Shares – Authorized 1,000,000 Shares Without Par Value; Outstanding – None		-			-			0			0

Common Shares, Par Value $5 Per Share—Authorized, 50,000,000 Shares; Outstanding, 2020—40,848,828 Shares; 2019—40,157,591 Shares		204,244			200,788
Common Shares, Par Value $5 Per Share—Authorized, 50,000,000 Shares; Outstanding, 2020—41,052,165 Shares; 2019—40,157,591 Shares								205,261			200,788
Premium on Common Shares		390,141			364,790			398,301			364,790
Retained Earnings		233,705			222,341			254,468			222,341
Accumulated Other Comprehensive Loss		(6,035	)		(6,437	)		(5,960	)		(6,437	)
Total Common Equity		822,055			781,482			852,070			781,482
Total Capitalization		1,546,444			1,471,063			1,616,344			1,471,063
Total Liabilities and Equity	$	2,389,239		$	2,273,595		$	2,534,507		$	2,273,595

	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands, except share and per-share amounts)	2020		2019			2020		2019
Operating Revenues
Electric:
Revenues from Contracts with Customers	$	112,435	$	115,285		$	330,313	$	346,291
Changes in Accrued Revenues under Alternative Revenue Programs		2,778		(921	)		2,900		(1,601	)
Total Electric Revenues		115,213		114,364			333,213		344,690
Product Sales from Contracts with Customers		120,542		114,288			330,045		359,137
Total Operating Revenues		235,755		228,652			663,258		703,827
Operating Expenses
Production Fuel – Electric		11,554		18,331			34,077		45,547
Purchased Power – Electric System Use		13,428		13,163			45,940		54,748
Electric Operation and Maintenance Expenses		32,845		35,869			106,639		114,107
Cost of Products Sold (depreciation included below)		86,856		88,747			246,567		277,325
Other Nonelectric Expenses		13,615		11,665			36,277		38,404
Depreciation and Amortization		20,395		19,657			61,230		58,229
Property Taxes – Electric		4,333		3,965			12,601		11,824
Total Operating Expenses		183,026		191,397			543,331		600,184
Operating Income		52,729		37,255			119,927		103,643
Interest Charges		8,568		7,539			25,353		23,190
Nonservice Cost Components of Postretirement Benefits		842		1,055			2,581		3,165
Other Income		1,712		1,020			3,733		3,114
Income Before Income Taxes		45,031		29,681			95,726		80,402
Income Tax Expense		9,097		4,936			18,543		13,907
Net Income		35,934	$	24,745			77,183	$	66,495

Average Number of Common Shares Outstanding – Basic		40,913,972		39,714,672			40,548,133		39,694,677
Average Number of Common Shares Outstanding – Diluted		41,077,689		39,946,739			40,732,928		39,922,580

Basic Earnings Per Common Share	$	0.88	$	0.62		$	1.90	$	1.68

Diluted Earnings Per Common Share	$	0.87	$	0.62		$	1.89	$	1.67

Three Months Ended
June 30,

Six Months Ended
June 30,

(in thousands, except share and per-share amounts)

2020

2019

2020

2019

Operating Revenues

Electric:

Revenues from Contracts with Customers
$ 97,921 $ 101,861 $ 217,878 $ 231,006
Changes in Accrued Revenues under Alternative Revenue Programs
209 369 122 (680 )
Total Electric Revenues
98,130 102,230 218,000 230,326
Product Sales from Contracts with Customers
94,626 126,973 209,503 244,849
Total Operating Revenues
192,756 229,203 427,503 475,175
Operating Expenses

Production Fuel – Electric
8,788 8,296 22,523 27,216
Purchased Power – Electric System Use
13,682 19,633 32,512 41,585
Electric Operation and Maintenance Expenses
33,179 39,856 73,794 78,238
Cost of Products Sold (depreciation included below)
73,832 97,996 159,711 188,578
Other Nonelectric Expenses
10,762 13,262 22,662 26,739
Depreciation and Amortization
20,436 19,441 40,835 38,572
Property Taxes – Electric
4,168 3,900 8,268 7,859
Total Operating Expenses
164,847 202,384 360,305 408,787
Operating Income
27,909 26,819 67,198 66,388
Interest Charges
8,662 7,825 16,785 15,651
Nonservice Cost Components of Postretirement Benefits
868 1,075 1,739 2,110
Other Income
2,410 850 2,021 2,094
Income Before Income Taxes
20,789 18,769 50,695 50,721
Income Tax Expense
3,808 3,343 9,446 8,971
Net Income
16,981 15,426 41,249 41,750

Average Number of Common Shares Outstanding – Basic
40,513,286 39,712,036 40,365,214 39,684,679
Average Number of Common Shares Outstanding – Diluted
40,676,761 39,917,831 40,560,549 39,910,499

Basic Earnings Per Common Share
$ 0.42 $ 0.39 $ 1.02 $ 1.05

Diluted Earnings Per Common Share
$ 0.42 $ 0.39 $ 1.02 $ 1.05

~~For the~~ ~~Three- and Six~~~~-Month Periods Ended~~ ~~June 30~~~~, 20~~20 ~~and 201~~9

(in thousands, except common shares outstanding)

Common
Shares
Outstanding

Par Value,
Common
Shares

Premium
on
Common
Shares

Retained
Earnings

Accumulated
Other
Comprehensive
Income/(Loss)

Total
Common
Equity

Balance, March 31, 2020
40,376,448 $ 201,882 $ 372,669 $ 231,702 $ (6,234 ) $ 800,019
Common Stock Issuances, Net of Expenses
472,380 2,362 16,235 18,597
Net Income
16,981 16,981
Other Comprehensive Income
199 199
Employee Stock Incentive Plan Expense
1,237 1,237
Common Dividends ($0.37 per share)
(14,978 ) (14,978 )
Balance, June 30, 2020
40,848,828 $ 204,244 $ 390,141 $ 233,705 $ (6,035 ) $ 822,055

Balance, March 31, 2019
39,729,708 $ 198,649 $ 342,991 $ 203,619 $ (4,760 ) $ 740,499
Common Stock Issuances, Net of Expenses
25,194 126 (109 ) 17
Net Income
15,426 15,426
Other Comprehensive Income
145 145
Employee Stock Incentive Plan Expense
2,148 2,148
Common Dividends ($0.35 per share)
(13,930 ) (13,930 )
Balance, June 30, 2019
39,754,902 $ 198,775 $ 345,030 $ 205,115 $ (4,615 ) $ 744,305

Balance, December 31, 2019
40,157,591 $ 200,788 $ 364,790 $ 222,341 $ (6,437 ) $ 781,482
Common Stock Issuances, Net of Expenses
729,454 3,647 23,222 26,869
Common Stock Retirements
(38,217 ) (191 ) (1,878 ) (2,069 )
Net Income
41,249 41,249
Other Comprehensive Income
402 402
Employee Stock Incentive Plan Expense
4,007 4,007
Common Dividends ($0.74 per share)
(29,885 ) (29,885 )
Balance, June 30, 2020
40,848,828 $ 204,244 $ 390,141 $ 233,705 $ (6,035 ) $ 822,055

Balance, December 31, 2018
39,664,884 $ 198,324 $ 344,250 $ 190,433 $ (4,144 ) $ 728,863
Common Stock Issuances, Net of Expenses
145,242 727 (710 ) 17
Common Stock Retirements
(55,224 ) (276 ) (2,454 ) (2,730 )
Net Income
41,750 41,750
Other Comprehensive Income
313 313
ASU 2018-02 2017 TCJA Stranded Tax Transfer
784 (784 ) -
Employee Stock Incentive Plan Expense
3,944 3,944
Common Dividends ($0.70 per share)
(27,852 ) (27,852 )
Balance, June 30, 2019
39,754,902 $ 198,775 $ 345,030 $ 205,115 $ (4,615 ) $ 744,305

(in thousands, except common shares outstanding)	Common Shares Outstanding			Par Value, Common Shares			Premium on Common Shares			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Common Equity
Balance, June 30, 2020		40,848,828		$	204,244		$	390,141		$	233,705		$	(6,035	)	$	822,055
Common Stock Issuances, Net of Expenses		203,337			1,017			6,885									7,902
Net Income											35,934						35,934
Other Comprehensive Income														75			75
Employee Stock Incentive Plan Expense								1,275									1,275
Common Dividends ($0.37 per share)											(15,171	)					(15,171	)
Balance, September 30, 2020		41,052,165		$	205,261		$	398,301		$	254,468		$	(5,960	)	$	852,070

Balance, June 30, 2019		39,754,902		$	198,775		$	345,030		$	205,115		$	(4,615	)	$	744,305
Common Stock Issuances, Net of Expenses		375			1			(37	)								(36	)
Net Income											24,745						24,745
Other Comprehensive Income														119			119
Employee Stock Incentive Plan Expense								1,301									1,301
Common Dividends ($0.35 per share)											(13,929	)					(13,929	)
Balance, September 30, 2019		39,755,277		$	198,776		$	346,294		$	215,931		$	(4,496	)	$	756,505

Balance, December 31, 2019		40,157,591		$	200,788		$	364,790		$	222,341		$	(6,437	)	$	781,482
Common Stock Issuances, Net of Expenses		932,791			4,664			30,107									34,771
Common Stock Retirements		(38,217	)		(191	)		(1,878	)								(2,069	)
Net Income											77,183						77,183
Other Comprehensive Income														477			477
Employee Stock Incentive Plan Expense								5,282									5,282
Common Dividends ($1.11 per share)											(45,056	)					(45,056	)
Balance, September 30, 2020		41,052,165		$	205,261		$	398,301		$	254,468		$	(5,960	)	$	852,070

Balance, December 31, 2018		39,664,884		$	198,324		$	344,250		$	190,433		$	(4,144	)	$	728,863
Common Stock Issuances, Net of Expenses		145,617			728			(747	)								(19	)
Common Stock Retirements		(55,224	)		(276	)		(2,454	)								(2,730	)
Net Income											66,495						66,495
Other Comprehensive Income														432			432
ASU 2018-02 2017 TCJA Stranded Tax Transfer											784			(784	)		-
Employee Stock Incentive Plan Expense								5,245									5,245
Common Dividends ($1.05 per share)											(41,781	)					(41,781	)
Balance, September 30, 2019		39,755,277		$	198,776		$	346,294		$	215,931		$	(4,496	)	$	756,505

	Nine Months Ended September 30,
(in thousands)	2020			2019
Operating Activities
Net Income	$	77,183		$	66,495
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		61,230			58,229
Deferred Tax Credits		(986	)		(1,011	)
Deferred Income Taxes		20,353			3,487
Change in Deferred Debits and Other Assets		3,439			7,142
Discretionary Contribution to Pension Plan		(11,200	)		(22,500	)
Change in Noncurrent Liabilities and Deferred Credits		3,237			10,344
Allowance for Equity/Other Funds Used During Construction		(3,104	)		(1,602	)
Stock Compensation Expense		5,282			5,245
Other—Net		(176	)		312
Cash (Used for) Provided by Current Assets and Current Liabilities:
Change in Receivables		(20,025	)		(16,213	)
Change in Inventories		15,980			9,218
Change in Other Current Assets		2,023			2,974
Change in Payables and Other Current Liabilities		(12,063	)		(20,744	)
Change in Interest and Income Taxes Receivable/Payable		103			3,773
Net Cash Provided by Operating Activities		141,276			105,149
Investing Activities
Capital Expenditures		(220,630	)		(149,695	)
Proceeds from Disposal of Noncurrent Assets		4,617			4,111
Cash Used for Investments and Other Assets		(6,372	)		(5,546	)
Net Cash Used in Investing Activities		(222,385	)		(151,130	)
Financing Activities
Change in Checks Written in Excess of Cash		90			383
Net Short-Term Borrowings		42,600			90,398
Proceeds from Issuance of Common Stock		35,219			0
Common Stock Issuance Expenses		(465	)		(35	)
Payments for Shares Withheld for Employee Tax Obligations		(2,069	)		(2,730	)
Proceeds from Issuance of Long-Term Debt		75,000			0
Short-Term and Long-Term Debt Issuance Expenses		(369	)		(66	)
Payments for Retirement of Long-Term Debt		(136	)		(128	)
Dividends Paid		(45,056	)		(41,781	)
Net Cash Provided by Financing Activities		104,814			46,041
Net Change in Cash and Cash Equivalents		23,705			60
Cash and Cash Equivalents at Beginning of Period		21,199			861
Cash and Cash Equivalents at End of Period	$	44,904		$	921

Six Months Ended
June 30,

(in thousands)

2020

2019

Operating Activities

Net Income
$ 41,249 $ 41,750
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation and Amortization
40,835 38,572
Deferred Tax Credits
(657 ) (674 )
Deferred Income Taxes
9,472 960
Change in Deferred Debits and Other Assets
5,565 3,884
Discretionary Contribution to Pension Plan
(11,200 ) (10,000 )
Change in Noncurrent Liabilities and Deferred Credits
5,178 11,942
Allowance for Equity/Other Funds Used During Construction
(1,858 ) (688 )
Stock Compensation Expense
4,007 3,944
Other—Net
(147 ) 276
Cash (Used for) Provided by Current Assets and Current Liabilities:

Change in Receivables
(3,929 ) (30,478 )
Change in Inventories
8,097 410
Change in Other Current Assets
(1,066 ) 2,870
Change in Payables and Other Current Liabilities
(23,562 ) 222
Change in Interest and Income Taxes Receivable/Payable
1,917 6,297
Net Cash Provided by Operating Activities
73,901 69,287
Investing Activities

Capital Expenditures
(119,830 ) (54,012 )
Proceeds from Disposal of Noncurrent Assets
3,953 3,405
Cash Used for Investments and Other Assets
(5,128 ) (4,776 )
Net Cash Used in Investing Activities
(121,005 ) (55,383 )
Financing Activities

Change in Checks Written in Excess of Cash
550 (1,120 )
Net Short-Term Borrowings
35,239 18,003
Proceeds from Issuance of Common Stock
27,225 -
Common Stock Issuance Expenses
(374 ) -
Payments for Shares Withheld for Employee Tax Obligations
(2,069 ) (2,730 )
Proceeds from Issuance of Long-Term Debt
35,000 -
Short-Term and Long-Term Debt Issuance Expenses
(179 ) -
Payments for Retirement of Long-Term Debt
(90 ) (84 )
Dividends Paid
(29,885 ) (27,852 )
Net Cash Provided by (Used in) Financing Activities
65,417 (13,783 )
Net Change in Cash and Cash Equivalents
18,313 121
Cash and Cash Equivalents at Beginning of Period
21,199 861
Cash and Cash Equivalents at End of Period
$ 39,512 $ 982

In the opinion of management, Otter Tail Corporation (the Company) has included all adjustments (including normal recurring accruals) necessary for a fair presentation of the consolidated financial statements for the periods presented. The consolidated financial statements and condensed notes thereto should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Because of the coronavirus (COVID-19) pandemic, the seasonality of our businesses and other factors, the earnings for the three and ~~six~~nine months ended ~~June~~September 30, 2020 should not be taken as an indication of earnings for all or any part of the balance of the year.

Due to the diverse business operations of the Company, recognition of revenue from contracts with customers depends on the product produced and sold or service performed. The Company recognizes revenue from contracts with customers at prices that are fixed or determinable as evidenced by an agreement with the customer, when the Company has met its performance obligation under the contract and it is probable that the Company will collect the amount to which it is entitled in exchange for the goods or services transferred or to be transferred to the customer. Depending on the product produced and sold or service performed and the terms of the agreement with the customer, the Company recognizes revenue either over time, in the case of delivery or transmission of electricity or related services or the production and storage of certain custom-made products, or at a point in time for the delivery of standardized products and other products made to the customer’s specifications where the terms of the contract require transfer of the completed product. Provisions for sales returns, early payment terms discounts, volume-based variable pricing incentives and warranty costs are recorded as reductions to revenue at the time revenue is recognized based on customer history, historical information and current trends.

In addition to recognizing revenue from contracts with customers under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606), the Company also records adjustments to Electric segment revenues for amounts subject to future collection under alternative revenue programs (ARPs) as defined in ASC Topic 980, Regulated Operations (ASC 980). The ARP revenue adjustments are recorded on the basis of recoverable costs incurred and returns earned under rate riders on a separate line on the face of the Company’s consolidated statements of income as they do not meet the criteria to be classified as revenue from contracts with customers.

Electric Segment Revenues—In the Electric segment, the Company recognizes revenue in two categories: (1) revenues from contracts with customers and (2) adjustments to revenues for amounts collectible under ARPs.

Most Electric segment revenues are earned from the generation, transmission and sale of electricity to retail customers at rates approved by regulatory commissions in the states where Otter Tail Power Company (OTP) provides service. OTP also earns revenue from the transmission of electricity for others over the transmission assets it owns separately, or jointly with other transmission service providers, under rate tariffs established by the independent transmission system operator and approved by the Federal Energy Regulatory Commission (FERC). A third source of revenue for OTP comes from the generation and sale of electricity to wholesale customers at contract or market rates. Revenues from all these sources meet the criteria to be classified as revenue from contracts with customers and are recognized over time as energy is delivered or transmitted. Revenue is recognized based on the metered quantity of electricity delivered or transmitted at the applicable rates. For electricity delivered and consumed after a meter is read but prior to the end of the reporting period, OTP records revenue and an unbilled receivable based on estimates of the kilowatt-hours (kwh) of energy delivered to the customer.

ARPs provide for adjustments to rates outside of a general rate case proceeding, usually as a surcharge applied to future billings typically through the use of rate riders subject to periodic adjustments, to encourage or incentivize investments in certain areas such as conservation, renewable energy, pollution reduction or control, improved infrastructure of the transmission grid or other programs that provide benefits to the general public under public policy, laws or regulations. ARP riders generally provide for the recovery of specified costs and investments and include an incentive component to provide the regulated utility with a return on amounts invested.

OTP has recovered costs and earned incentives or returns on investments subject to recovery under several ARP rate riders, including:

OTP accrues ARP revenue based on costs incurred, investments made and returns on those investments that qualify for recovery through established riders. Amounts billed under riders in effect at the time of the billing are included in revenues from contracts with customers net of amounts billed that are subject to refund through future rider adjustments. Amounts accrued and subject to recovery through future rider rate updates and adjustments are reported as changes in accrued revenues under ARPs on a separate line in the revenue section of the Company’s consolidated statement of income. See table in note 3 for total revenues billed and accrued under ARP riders for the three- and ~~six~~nine-month periods ended ~~June~~September 30, 2020 and 2019.

Manufacturing Segment Revenues—Companies in the Manufacturing segment, BTD Manufacturing, Inc. (BTD) and T.O. Plastics, Inc. (T.O. Plastics), earn revenue predominantly from the production and delivery of custom-made or standardized parts to customers across several industries. BTD also earns revenue from the production and sale of tools and dies to other manufacturers. For the production and delivery of standardized products and other products made to customer specifications where the terms of the contract require transfer of the completed product, the operating company has met its performance obligation and recognizes revenue at the point in time when the product is shipped. For revenue recognized on products when shipped, the operating companies have no further obligation to provide services related to such products. The shipping terms used in these instances are FOB shipping point.

Plastics Segment Revenues—Companies in our Plastics segment earn revenue predominantly from the sale and delivery of standardized polyvinyl chloride (PVC) pipe products produced at their manufacturing facilities. Revenue from the sale of these products is recognized at the point in time when the product is shipped based on prices agreed to in a purchase order. For revenue recognized on shipped products, there is no further obligation to provide services related to such products. The shipping terms used in these instances are FOB shipping point. The Plastics segment has one customer for which it produces and stores a product made to the customer’s specifications and design under a build and hold agreement. For sales to this customer, the operating company recognizes revenue as the custom-made product is produced, adjusting the amount of revenue for volume rebate variable pricing considerations the operating company expects the customer will earn and applicable early payment discounts the company expects the customer will take. Ownership of the pipe transfers to the customer prior to delivery and the operating company is paid a negotiated fee for storage of the pipe.

See operating revenue table in note 2 for a disaggregation of the Company’s revenues by business segment for the three- and ~~six~~nine-month periods ended ~~June~~September 30, 2020 and 2019.

OTP has certain derivative contracts that are designated as normal purchases. Individual counterparty exposures for these contracts can be offset according to legally enforceable netting arrangements. The Company does not offset assets and liabilities under legally enforceable netting arrangements on the face of its consolidated balance sheet.

The Company follows ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), for recurring fair value measurements. ASC 820 provides a single definition of fair value, requires enhanced disclosures about assets and liabilities measured at fair value and establishes a hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value. The three levels defined by the hierarchy and examples of each level are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed by the New York Stock Exchange and commodity derivative contracts listed on the New York Mercantile Exchange.

Level 2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models using highly observable inputs, such as commodity options priced using observable forward prices and volatilities.

Level 3 – Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation and may include complex and subjective models and forecasts.

The following tables present, for each of the hierarchy levels, the Company’s assets and liabilities that are measured at fair value on a recurring basis as of ~~June~~September 30, 2020 and December 31, 2019:

June 30, 2020 (in thousands)	Level 1		Level 2		Level 3
September 30, 2020 (in thousands)						Level 1		Level 2		Level 3
Assets:
Investments:
Equity Funds – Held by Captive Insurance Company	$	1,450				$	1,665
Corporate Debt Securities – Held by Captive Insurance Company			$	3,062				$	2,887
Government-Backed and Government-Sponsored Enterprises’ Debt Securities – Held by Captive Insurance Company				5,960					6,131
Other Assets:
Money Market and Mutual Funds –Retirement Plans		1,560					1,582
Total Assets	$	3,010	$	9,022		$	3,247	$	9,018

The level 2 fair values for Government-Backed and Government-Sponsored Enterprises’ and Corporate Debt Securities Held by the Company’s Captive Insurance Company are determined on the basis of valuations provided by a third-party pricing service which utilizes industry accepted valuation models and observable market inputs to determine valuation. Some valuations or model inputs used by the pricing service may be based on broker quotes.

In October 2012 the Coyote Station owners, including OTP, entered into a lignite sales agreement (LSA) with Coyote Creek Mining Company, L.L.C. (CCMC), a subsidiary of The North American Coal Corporation, for the purchase of lignite coal to meet the coal supply requirements of Coyote Station for the period beginning in May 2016 and ending in December 2040. The price per ton paid by the Coyote Station owners under the LSA reflects the cost of production, along with an agreed profit and capital charge. CCMC was formed for the purpose of mining coal to meet the coal fuel supply requirements of Coyote Station from May 2016 through December 2040 and, based on the terms of the LSA, is considered a variable interest entity (VIE) due to the transfer of all operating and economic risk to the Coyote Station owners, as the agreement is structured so that the price of the coal would cover all costs of operations as well as future reclamation costs. The Coyote Station owners are required to buy certain assets of CCMC at book value should they terminate the contract prior to the end of the contract term and are providing a guarantee of the value of the equity of CCMC because the Coyote Station owners are required to buy the membership interests of CCMC at the end of the contract term at equity value. No single owner of Coyote Station owns a majority interest in Coyote Station or has the power to direct the activities that most significantly impact CCMC. Therefore, none of the owners individually, including OTP, is considered a primary beneficiary of the VIE and the Company is not required to include CCMC in its consolidated financial statements.

If the LSA terminates prior to the expiration of its term or the production period terminates prior to December 31, 2040 and the Coyote Station owners purchase all of the outstanding membership interests of CCMC, the owners will satisfy (or if permitted by CCMC’s applicable lender assume) all of CCMC’s obligations owed to CCMC’s lenders under its loans and leases. The Coyote Station owners have limited rights to assign their rights and obligations under the LSA without the consent of CCMC’s lenders during any period in which CCMC’s obligations to its lenders remain outstanding. In the event the contract is terminated prior to the end of the term due to certain events, OTP’s maximum exposure to additional costs, as a result of its involvement with CCMC, and potential impairment loss if recovery of those costs is denied by regulatory authorities, could be as high as approximately ~~$50.0~~$50 million, OTP’s 35% share of CCMC’s unrecovered costs as of ~~June~~September 30, 2020.

Inventories, valued at the lower of cost or net realizable value, consist of the following:

	June 30,		December 31,		September 30,		December 31,
(in thousands)	2020		2019		2020		2019
Finished Goods	$	26,190	$	31,863	$	18,901	$	31,863
Work in Process		14,418		16,508		14,480		16,508
Raw Material, Fuel and Supplies		49,146		49,480		48,490		49,480
Total Inventories	$	89,754	$	97,851	$	81,871	$	97,851

Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment in accordance with requirements under ASC Topic 360-10-35, Property, Plant, and Equipment—Overall—Subsequent Measurement.

The following table summarizes the components of the Company’s intangible assets at ~~June~~September 30, 2020 and December 31, 2019:

June 30, 2020 (in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Remaining Amortization Periods (months)
September 30, 2020 (in thousands)										Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Remaining Amortization Periods (months)
Amortizable Intangible Assets:
Customer Relationships	$	22,491	$	11,820	$	10,671	82	-	182	$	22,491	$	12,095	$	10,396	79-179
Other		179		147		32	2	-	39		26		3		23	216
Total	$	22,670	$	11,967	$	10,703				$	22,517	$	12,098	$	10,419

December 31, 2019 (in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Remaining Amortization Periods (months)			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Remaining Amortization Periods (months)
Amortizable Intangible Assets:
Customer Relationships	$	22,491	$	11,259	$	11,232	88	-	188	$	22,491	$	11,259	$	11,232	88-188
Other		179		121		58	8	-	45		179		121		58	8-45
Total	$	22,670	$	11,380	$	11,290				$	22,670	$	11,380	$	11,290

	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in thousands)	2020		2019		2020		2019		2020		2019		2020		2019
Amortization Expense – Intangible Assets	$	291	$	296	$	587	$	592	$	284	$	296	$	871	$	888

The estimated annual amortization expense for these intangible assets for the next ~~five~~51 ~~years~~months is:

(in thousands)		2020				2021				2022				2023				2024				2020				2021				2022				2023				2024
Estimated Amortization Expense – Intangible Assets		$	1,140			$	1,105			$	1,105			$	1,104			$	1,099			$	275			$	1,100			$	1,100			$	1,100			$	1,100

	As of June 30,				As of September 30,
(in thousands)	2020		2019		2020		2019
Noncash Investing Activities:
Transactions Related to Capital Additions not Settled in Cash	$	61,925	$	16,841	$	112,314	$	15,893

ASU 2016-13—In June 2016 the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (ASC 326), which changes how entities account for credit losses on receivables and certain other assets effective for interim and annual periods beginning on or after December 31, 2019. The guidance requires use of a current expected credit loss model, which may result in earlier recognition of credit losses than under previous accounting standards. The Company adopted ASC 326 in the first quarter of 2020. Adoption of the new standard did not have a material impact on the Company’s consolidated financial statements, and the Company did not record a cumulative effect adjustment to retained earnings on adoption.

Trade account and unbilled receivables reflected in the Company’s consolidated balance sheets represent the net amounts expected to be collected. An allowance for credit losses is established based on expected losses. Expected losses are estimated by reviewing individual accounts, considering aging, financial condition of the debtor for certain accounts, recent payment history, current and forecasted economic conditions and other relevant factors.

Following is a summary of activity in allowances for credit losses on trade and unbilled accounts receivable across the Company:

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
(in thousands)	2020			2019			2020			2019			2020			2019			2020			2019
Beginning Balance	$	1,681		$	1,533		$	1,339		$	1,407		$	2,100		$	1,691		$	1,339		$	1,407
Additions Charged to Expense (net of recoveries)		736			216			1,371			463			474			86			1,845			549
Reductions for Amounts Written Off		(317	)		(58	)		(610	)		(179	)		(313	)		(225	)		(923	)		(404	)
Ending Balance	$	2,100		$	1,691		$	2,100		$	1,691		$	2,261		$	1,552		$	2,261		$	1,552

ASU 2018-15—In August 2018 the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which amends ASC 350-40, Internal-Use Software, to address a customer's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). Accordingly, the amendments in ASU 2018-15 require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in ASC 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments in ASU 2018-15 also require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of income as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The amendments in ASU 2018-15 were effective for interim and annual periods beginning on or after December 15, 2019 with early adoption permitted in any interim period. The Company adopted the amendments in ASU 2018-15 in the first quarter of 2020. There was no impact to its consolidated financial statements on adoption, but the Company will begin capitalizing implementation costs incurred in cloud computing arrangements post-adoption.

The accounting policies of the segments are described under note 1 – Summary of Significant Accounting Policies. The Company's businesses have been classified into three segments to be consistent with its business strategy and the reporting and review process used by the Company’s chief operating decision maker. These businesses sell products and provide services to customers primarily in the United States. The Company’s business structure currently includes the following 3 segments: Electric, Manufacturing and Plastics. The chart below indicates the companies included in each segment.

Electric includes the production, transmission, distribution and sale of electric energy in Minnesota, North Dakota and South Dakota by OTP. In addition, OTP is a participant in the Midcontinent Independent System Operator, Inc. (MISO) markets. OTP’s operations have been the Company’s primary business since 1907.

Manufacturing consists of businesses in the following manufacturing activities: contract machining, metal parts stamping, fabrication and painting, and production of plastic thermoformed horticultural containers, life science and industrial packaging, and material handling components. These businesses have manufacturing facilities in Georgia, Illinois and Minnesota and sell products primarily in the United States.

Plastics consists of businesses producing PVC pipe at plants in North Dakota and Arizona. The PVC pipe is sold primarily in the United States, west of the Mississippi River.

OTP is a wholly owned subsidiary of the Company. All of the Company’s other businesses are owned by its wholly owned subsidiary, Varistar Corporation. The Company’s Corporate operating costs include items such as corporate staff and overhead costs, the results of the Company’s captive insurance company and other items excluded from the measurement of operating segment performance. Corporate assets consist primarily of cash, prepaid expenses, investments and fixed assets. Corporate is not an operating segment. Rather, it is added to operating segment totals to reconcile to totals on the Company’s consolidated financial statements.

While 0 single customer accounted for over 10% of consolidated revenue in 2019, certain customers provided a significant portion of each business segment’s 2019 revenue. The Electric segment has 1 customer that provided 11.9% of 2019 segment revenues. The Manufacturing segment has 1 customer that manufactures and sells recreational vehicles that provided 23.8% of 2019 segment revenues and 1 customer that manufactures and sells lawn and garden equipment that provided 11.1% of 2019 segment revenues. The Manufacturing segment’s top 5 revenue-generating customers provided over 54% of 2019 segment revenues. The Plastics segment has 2 customers that individually provided 25.3% and 20.4% of 2019 segment revenues. The loss of any one of these customers would have a significant negative impact on the financial position and results of operations of the respective business segment and the Company.

All of the Company’s long-lived assets are within the United States and sales within the United States accounted for 98.9% and 98.5% of operating revenues for the respective three-month periods ended ~~June~~September 30, 2020 and 2019, and 99.0% and ~~98.8%~~98.7% of operating revenues for the respective ~~six~~nine-month periods ended ~~June~~September 30, 2020 and 2019.

The Company evaluates the performance of its business segments and allocates resources to them based on earnings contribution and return on total invested capital. Information for the business segments for the three- and ~~six~~nine-month periods ended ~~June~~September 30, 2019 and 2020 and total assets by business segment as of ~~June~~September 30, 2020 and December 31, 2019 are presented in the following tables:

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
(in thousands)	2020			2019			2020			2019			2020			2019			2020			2019
Electric Segment:
Retail Sales Revenue from Contracts with Customers	$	85,344		$	87,976		$	192,034		$	202,931		$	96,827		$	100,345		$	288,861		$	303,276
Changes in Accrued ARP Revenues		209			369			122			(680	)		2,778			(921	)		2,900			(1,601	)
Total Retail Sales Revenue		85,553			88,345			192,156			202,251			99,605			99,424			291,761			301,675
Transmission Services Revenue		9,673			11,469			20,514			22,331			12,288			11,692			32,802			34,023
Wholesale Revenues – Company Generation		765			941			1,641			2,468			1,500			1,631			3,141			4,099
Other Revenues		2,162			1,489			3,718			3,303			1,830			1,626			5,548			4,929
Total Electric Segment Revenues		98,153			102,244			218,029			230,353			115,223			114,373			333,252			344,726
Manufacturing Segment:
Metal Parts and Tooling		37,267			62,541			94,478			129,265			50,957			56,255			145,435			185,520
Plastic Products and Tooling		7,840			9,353			17,723			18,398			7,600			8,088			25,323			26,486
Other		841			1,602			2,226			3,655			1,292			1,379			3,518			5,034
Total Manufacturing Segment Revenues		45,948			73,496			114,427			151,318			59,849			65,722			174,276			217,040
Plastics Segment – Sale of PVC Pipe Products		48,679			53,476			95,076			93,534			60,693			48,566			155,769			142,100
Intersegment Eliminations		(24	)		(13	)		(29	)		(30	)		(10	)		(9	)		(39	)		(39	)
Total	$	192,756		$	229,203		$	427,503		$	475,175		$	235,755		$	228,652		$	663,258		$	703,827

	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
(in thousands)	2020		2019		2020		2019		2020		2019		2020		2019
Electric	$	7,348	$	6,625	$	14,732	$	13,266	$	7,334	$	6,300	$	22,066	$	19,566
Manufacturing		554		646		1,108		1,230		553		561		1,661		1,791
Plastics		186		215		334		364		163		197		497		561
Corporate and Intersegment Eliminations		574		339		611		791		518		481		1,129		1,272
Total	$	8,662	$	7,825	$	16,785	$	15,651	$	8,568	$	7,539	$	25,353	$	23,190

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
(in thousands)	2020			2019			2020			2019			2020			2019			2020			2019
Electric	$	2,579		$	1,037		$	6,199		$	5,808		$	6,048		$	4,066		$	12,247		$	9,874
Manufacturing		(189	)		1,149			1,272			2,603			891			285			2,163			2,888
Plastics		1,818			2,044			3,735			3,373			3,638			1,914			7,373			5,287
Corporate		(400	)		(887	)		(1,760	)		(2,813	)		(1,480	)		(1,329	)		(3,240	)		(4,142	)
Total	$	3,808		$	3,343		$	9,446		$	8,971		$	9,097		$	4,936		$	18,543		$	13,907

	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,						June 30,						September 30,						September 30,
(in thousands)	2020			2019			2020			2019			2020			2019			2020			2019
Electric	$	13,306		$	7,502		$	29,488		$	26,202		$	24,737		$	17,682		$	54,225		$	43,884
Manufacturing		238			3,990			5,165			8,832			3,311			3,155			8,476			11,987
Plastics		5,130			5,792			10,579			9,521			10,343			5,397			20,922			14,918
Corporate		(1,693	)		(1,858	)		(3,983	)		(2,805	)		(2,457	)		(1,489	)		(6,440	)		(4,294	)
Total	$	16,981		$	15,426		$	41,249		$	41,750		$	35,934		$	24,745		$	77,183		$	66,495

	June 30,		December 31,		September 30,		December 31,
(in thousands)	2020		2019		2020		2019
Electric	$	2,054,523	$	1,931,525	$	2,191,215	$	1,931,525
Manufacturing		184,462		195,742		189,525		195,742
Plastics		102,285		92,049		104,661		92,049
Corporate		47,969		54,279		49,106		54,279
Total	$	2,389,239	$	2,273,595	$	2,534,507	$	2,273,595

Below are descriptions of OTP’s major capital expenditure projects that are expected to have a significant impact on OTP’s revenue requirements, rates and alternative revenue recovery mechanisms, followed by summaries of specific electric rate or rider proceedings with the Minnesota Public Utilities Commission (MPUC), the North Dakota Public Service Commission (NDPSC), the South Dakota Public Utilities Commission (SDPUC) and the FERC, impacting OTP’s revenues in 2020 and 2019.

Merricourt Wind Energy Center (Merricourt)—On November 16, 2016 OTP entered into an Asset Purchase Agreement (the Purchase Agreement) with EDF Renewable Development, Inc. and certain of its affiliated companies (collectively, EDF) to purchase the development assets and assume certain specified liabilities associated with Merricourt, a 150-megawatt (MW) wind farm in southeastern North Dakota, for a purchase price of approximately $34.7 million, subject to adjustments for interconnection costs. Also on November 16, 2016, OTP entered into a Turnkey Engineering, Procurement and Construction Services Agreement (the TEPC Agreement) with EDF-RE US Development, LLC (EDF-USD) pursuant to which EDF-USD will develop, design, procure, construct, interconnect, test and commission the wind farm with a targeted completion date in 2020 for consideration of approximately $200.5 million, subject to certain adjustments, payable following the closing of the Purchase Agreement in installments in connection with certain project construction milestones. In connection with action by the FERC, OTP and EDF-US agreed, in the First Amendment to the Purchase Agreement and the TEPC Agreement dated June 11, 2019, to change the purchase price to $37.7 million and to make a related reallocation of responsibility for interconnection costs and liabilities. On July 16, 2019 OTP closed on the purchase of substantially all of the development assets and assumed certain specified liabilities from EDF related to Merricourt pursuant to the Purchase Agreement, as amended, for a purchase price of approximately $37.7 million, subject to certain adjustments, and issued the notice to EDF-USD to begin construction in August 2019. The agreements contain customary representations, warranties, covenants and indemnities for this type of transaction. The Merricourt generator interconnection agreement with MISO was approved by the FERC in April 2019.

OTP is earning a return in all three states served by OTP on amounts invested in Merricourt while the project is under construction. Returns are recovered in Minnesota and North Dakota through RRA riders and in South Dakota through the Phase-In Rate Plan ~~rider.~~Rider. As of ~~June~~September 30, 2020, OTP had capitalized approximately ~~$131.7~~$231.1 million in project costs and allowance for funds used during construction (AFUDC) associated with Merricourt. While ~~construction~~work on ~~site~~the project continues and commissioning of the wind turbines is in process, OTP has received Notices of Force Majeure from EDF-USD claiming rights to an extension of guaranteed project completion dates and adjustments to the consideration agreed upon in the TEPC Agreement due to COVID-19 impacts. While details regarding these claims and the related impacts to the project remain uncertain, OTP currently ~~expects~~anticipates Merricourt towill be ~~completed before~~in commercial operation by the end of December ~~31,~~ 2020.

Astoria Station—OTP is constructing this 245 MW simple-cycle natural gas-fired combustion turbine generation facility near Astoria, South Dakota as part of its plan to reliably meet customers’ electric needs, replace expiring capacity purchase agreements and prepare for the planned retirement of its Hoot Lake Plant in 2021. A final order granting an Advanced Determination of Prudence for Astoria Station was issued by the NDPSC on November 3, 2017, subject to certain qualifications and compliance obligations. On August 3, 2018 the SDPUC issued an order granting a site permit for Astoria Station. In a September 26, 2018 hearing the NDPSC established a GCR ~~rider~~Rider for future recovery of costs incurred for Astoria Station. On March 6, 2019 the SDPUC issued an order approving a settlement that allows a phase-in rider which includes recovery of Astoria Station costs. The interconnection agreement for Astoria Station was executed by MISO in December 2018 and accepted by the FERC in January 2019. Site preparation and excavation began in May 2019, and construction is occurring on the site. As of ~~June~~September 30, 2020, OTP had capitalized approximately ~~$108.0~~$131.6 million in project costs and AFUDC associated with Astoria Station. OTP currently expects this project ~~will be completed~~to begin commercial operation in ~~late~~the ~~2020~~first ~~or early~~quarter of 2021.

Minnesota—The MPUC rendered its final decision in OTP’s 2016 general rate case in March 2017 and issued its written order on May 1, 2017. Pursuant to the order, OTP’s allowed rate of return on rate base is 7.5056% and its allowed rate of return on equity (ROE) is 9.41%.

The MPUC’s order also included: (1) the determination that all costs (including FERC allocated costs and revenues) of the Big Stone South–Brookings and Big Stone South–Ellendale ~~MVPs~~Multi-Value Projects (MVPs) will be included in the Minnesota TCR ~~rider~~Rider and jurisdictionally allocated to OTP’s Minnesota customers (see discussion under Minnesota Transmission Cost Recovery Rider below), and (2) approval of OTP’s proposal to transition rate base, expenses and revenues from ECR and TCR ~~riders~~Riders to base rate recovery, which occurred when final rates were implemented on November 1, 2017. Certain MISO expenses and revenues remain in the TCR ~~rider~~Rider to allow for the ongoing refund or recovery of these variable revenues and costs.

On November 2, 2020 OTP filed a request with the MPUC for an increase in revenue recoverable under general rates in Minnesota. In its filing, OTP requested a net increase in annual revenue of approximately $14.5 million, or 6.77%, based on an allowed rate of return on rate base of 7.59% and an allowed rate of return on equity of 10.20% on an equity ratio of 52.5% of total capital. Through this rate case proceeding, OTP is proposing to recover, at the start of interim rates, revenue currently subject to recovery under Minnesota RRA and TCR riders. OTP is also proposing to move the cost of energy from base rates to full recovery under the Energy Adjustment Rider per a prior MPUC order. OTP is also proposing to move recovery of all CIP expenditures out of base rates to the CIP Rider with the implementation of final rates. An interim rate increase is expected to go into effect in January 2021.

North Dakota—On March 23, 2018 OTP made a supplemental filing to its initial request for a rate review, reducing its request for an annual revenue increase from $13.1 million to $7.1 million, a 4.8% annual increase. The $6.0 million decrease included $4.8 million related to tax reform and $1.2 million related to other updates.

In a September 26, 2018 hearing the NDPSC approved an overall annual revenue increase of $4.6 million (3.1%) and a ROE of 9.77% on a 52.5% equity capital structure. The NDPSC’s approval established a GCR ~~rider~~Rider for future recovery of costs incurred for Astoria Station. The net revenue increase reflected a reduction in income tax recovery requirements related to the 2017 Tax Cuts and Jobs Act (TCJA) and decreases in rider revenue recovery requirements. Final rates were effective February 1, 2019, with refunds of excess revenues collected under interim rates applied to customers’ April 2019 bills, including $0.8 million for amounts collected reflecting the higher tax rates under interim rates in effect in January and February 2018.

South Dakota—On April 20, 2018 OTP filed a request with the SDPUC to increase non-fuel rates in South Dakota by approximately $3.3 million annually, or 10.1%, as the first step in a two-step request. Interim rates were effective October 18, 2018. The second step in the request was an additional 1.7% revenue increase to recover costs for Merricourt when the wind generation facility goes into service. The SDPUC approved a partial settlement on March 1, 2019 on all issues of the rate case except ROE. The partial settlement included approval of a phase-in plan to provide for a return on amounts invested in Astoria Station and Merricourt, which addressed the second step of the request for increased rates in South Dakota. The partial settlement also included a moratorium on filing another general rate case in South Dakota until the new generation projects have been in service for a year. The partial settlement also allowed OTP to retain the impact of lower tax rates related to the TCJA from January 1, 2018 through October 17, 2018 resulting in the reversal of an accrued refund liability and recognition of $1.0 million in revenue in the first quarter of 2019. The SDPUC approved the ROE portion of the rate case on May 14, 2019 and pursuant to the SDPUC’s May 30, 2019 order, OTP’s allowed ROE was set at 8.75%, resulting in an annual revenue increase of approximately $2.2 million. Final rates went into effect August 1, 2019. An interim rate refund for the lower ROE going back to October 18, 2018 was applied to South Dakota customers’ October 2019 bills.

On July 9, 2019 the SDPUC approved a stipulation agreement entered into by OTP with SDPUC staff. The revenue requirement stated in the SDPUC’s final order dated May 30, 2019 understated the amount of OTP's South Dakota share of electric transmission plant in service, resulting in an annual revenue requirement shortfall of approximately $341,000. To address the shortfall, the parties agreed that OTP would file an update to its South Dakota TCR ~~rider.~~Rider. OTP was authorized full recovery of the transmission rate base correction reflected in the TCR ~~rider~~Rider tracker beginning as of the first date of interim rates, October 18, 2018, with the TCR ~~rider~~Rider rate update going into effect on October 1, 2019.

To ensure rates are appropriately set under the stipulation, the parties agreed to establish an earnings sharing mechanism to share with customers any weather-normalized earnings above the authorized ROE of 8.75%. OTP's annual weather-normalized earnings are reported each year by June 1 in its jurisdictional annual report, which will be used to determine the earnings level for purposes of calculating any refund. The earnings sharing mechanism requires that OTP will refund to customers 50% of

any weather-normalized revenue that corresponds to the earnings in excess of its authorized ROE, up to a maximum of 9.50% ROE for a particular year. OTP will refund 100% of any earnings above 9.50% each year. In the event a refund is due under this provision, OTP will notify the SDPUC of the refund amount and plan for crediting customers within 30 days of filing its South Dakota jurisdictional annual report.

In addition to general rates, OTP has several rate riders in place in each of its state jurisdictional service areas. These rate riders are designed to recover expenses, costs and returns on rate base investments not currently being recovered in base, or general, rates. In addition to fuel cost recovery riders in each state, OTP has recovered costs and earned incentives or returns on investments subject to recovery under several rate riders, including:

Following is a brief summary of recent proceedings of riders in place in each state served by OTP, followed by tables showing revenues recorded under rate riders for the three- and ~~six~~nine-month periods ended ~~June~~September 30, 2020 and ~~June~~September 30, 2019 and a listing of rate rider updates impacting revenues in 2020 and 2019. Additional information and background on these rate riders is provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

Minnesota Conservation Improvement Programs (MNCIP)—On May 1, 2020 OTP filed a request for approval of its 2019 energy savings, recovery of $2.7 million in accrued financial incentives and recovery of 2019 program costs not included in base rates. OTP’s request was approved by order of the MPUC on August 18, 2020.

Transmission Cost Recovery Rider—In OTP’s 2016 general rate case order issued on May 1, 2017, the MPUC ordered OTP to include, in the TCR ~~rider~~Rider retail rate base, Minnesota’s jurisdictional share of OTP’s investment in the Big Stone South–Brookings and Big Stone South–Ellendale ~~Multi-Value Projects (MVPs)~~MVPs and all revenues received from other utilities under MISO’s tariffed rates as a credit in its TCR revenue requirement calculations. In doing so, the MPUC’s order diverted interstate wholesale revenues that have been approved by the FERC to offset FERC-approved expenses, effectively reducing OTP’s recovery of those FERC-approved expense levels. The MPUC-ordered treatment resulted in the projects being treated as retail investments for Minnesota retail ratemaking purposes. Because the FERC’s revenue requirements and authorized returns vary from the MPUC revenue requirements and authorized returns for the project investments over the lives of the projects, the impact of this decision can vary over time and be dependent on the differences between the revenue requirements and returns in the two jurisdictions at any given time. On August 18, 2017 OTP filed an appeal of the MPUC general rate case order with the Minnesota Court of Appeals to contest the portion of the order requiring OTP to jurisdictionally allocate costs of the FERC MVP transmission projects in the TCR ~~rider.~~Rider.

On June 11, 2018 the Minnesota Court of Appeals reversed the MPUC’s order related to the inclusion of Minnesota’s jurisdictional share of OTP’s investment in the Big Stone South–Brookings and Big Stone South–Ellendale MVPs and all revenues received from other utilities under MISO’s tariffed rates as a credit in ~~OTP~~OTP’s Minnesota TCR revenue requirement calculations. On July 11, 2018 the MPUC filed a petition for review of the MVP decision to the Minnesota Supreme Court, which granted review of the Minnesota Court of Appeals decision.

On ~~November 30, 2018~~ ~~OTP filed its annual update and supplemental filing to the Minnesota TCR rider. In this filing~~ ~~two~~ scenarios were submitted based on whether the Minnesota Supreme Court affirmed the original decision by the Minnesota Court of Appeals to exclude the MVP projects from the TCR rider or overturned the Minnesota Court of Appeals decision and includes the ~~two~~ ~~MVP projects in the TCR rider. In addition, on~~ ~~April 1, 2019,~~ ~~the MNDOC filed comments in OTP’s TCR rider docket, opposing OTP’s proposal for TCR rider recovery of these costs.~~ The Minnesota Supreme Court issued its opinion on April 22, 2020, concluding ~~that~~ the MPUC lacked authority to amend an existing transmission cost-recovery rider approved under Minnesota state law to include the costs and revenues associated with the Big Stone South–Brookings and Big Stone South–Ellendale MVPs and affirming the decision of the Minnesota Court of Appeals.

On October 22, 2020 the MPUC approved OTP’s request for a Minnesota TCR Rider update with exclusion of the Big Stone South–Brookings and Big Stone South–Ellendale projects and inclusion of three projects previously requested in the Minnesota TCR Rider eligibility petition. Updated rates go into effect in January 2021. With the decision, one-half of OTP’s Minnesota TCR December 2020 projected tracker balance of $13.4 million will be included in the 2021 TCR annual revenue requirement with the remainder included in the next annual update. The annual updates provide for recovery of approximately $2.6 million in excess MISO revenues credited to Minnesota customers through the TCR Rider prior to September 30, 2020. As a result, OTP recognized additional rider revenue of $2.6 million in the three-month period ended September 30, 2020.

On ~~May 7, 2020~~ ~~OTP filed reply comments in the docket within~~ 15 ~~days of the Minnesota Supreme Court ruling as required by the MPUC. OTP filed updated revenue requirements excluding the Brookings and Big Stone–Ellendale projects and including~~ ~~three~~ ~~projects previously requested in the Minnesota TCR rider eligibility petition. OTP requested new rates be implemented~~ ~~January 1, 2021~~ ~~with the~~ ~~three~~ ~~new projects deemed eligible for TCR rider recovery effective~~ ~~January 1, 2020.~~ ~~OTP also requested~~ ~~one~~~~-half of the~~ ~~December 2020~~ ~~tracker balance of $13.4 million be included in the~~ ~~January 1, 2021~~ ~~revenue requirement with the remainder included in the next annual update. OTP also requested a carrying charge be included as of~~ ~~January 1, 2021.~~ On ~~June 4, 2020~~ ~~the MPUC filed a Notice of Combined and Extended Comment Period for both the Minnesota TCR rider and TCR rider eligibility filing with the comment period closing on~~ ~~July 6, 2020~~ ~~and the reply comment period closing on~~ ~~July 21, 2020.~~ ~~In the MNDOC's comments regarding eligibility for recovery of investments in the~~ ~~three~~ ~~new projects through the Minnesota TCR rider, the MNDOC recommended the MPUC reject OTP’s petition for inclusion of the~~ ~~three~~ ~~projects. In the matter of OTP’s petition for approval of a TCR annual adjustment, at the request of the MNDOC the MPUC extended the deadlines for filing initial and reply comments to~~ ~~August~~ ~~14,~~~~2020~~ ~~and~~ ~~August 24, 2020,~~ ~~respectively. The estimated amount of higher MISO ROE revenues credited to Minnesota customers through the TCR rider through~~ ~~June 30, 2020,~~ ~~which OTP is now seeking recovery of through its Minnesota TCR rider update request, is approximately $2.6 million.~~

Renewable Resource Adjustment—On June 21, 2019 OTP filed its annual update to the Minnesota RRA requesting approval for recovery of the difference in PTCs in base rates and the actual PTCs generated, as well as recovery of Merricourt. On December 19, 2019 the MPUC approved a revised request which included changes related to Merricourt capitalized costs.

Fuel and Purchased Power Costs Recovery—In a December 2017 order, the MPUC adopted a program to implement certain procedural reforms to Minnesota utilities’ automatic fuel adjustment clause (FAC) for fuel and purchased power cost recovery. With this order, the method of accounting for all Minnesota electric utilities changed to a monthly budgeted, forward-looking FAC with annual prudence review and true-up to actual allowed costs. On October 31, 2019 the MPUC approved the forecasted monthly fuel cost rates submitted by OTP for 2020 and the rates became effective on January 1, 2020. This mechanism could result in reductions in Electric segment operating income margins, increase variability in consolidated net income in future periods if costs per kwh vary from forecasted costs per kwh, and cause an increase in working capital and short-term borrowings in the event recovery of all or a portion of excess costs is delayed or denied by the MPUC.

Renewable Resource Adjustment—On December 31, 2019 OTP filed its annual update to the North Dakota RRA requesting approval for recovery of the difference in PTCs in base rates and the actual PTCs generated, as well as a return on Merricourt costs incurred while under construction. This update also included a credit for the remaining unrefunded credit balance in the North Dakota ECR ~~rider~~Rider tracker on November 30, 2019. On February 25, 2020 OTP filed a revised request which was approved by the NDPSC on March 18, 2020. Part of the NDPSC’s approval included adopting a levelized utilization of PTCs from the Merricourt project over the expected 25-year life of the project for rate-making purposes. PTCs on prior projects were passed back to customers through lower rates as they were generated over 10 years.

Generation Cost Recovery Rider—On May 15, 2019 the NDPSC approved OTP’s request to establish an initial GCR ~~rider~~Rider rate for recovery of OTP’s North Dakota jurisdictional share of the revenue requirements on its investment in Astoria Station, effective on bills rendered after July 1, 2019. On June 10, 2020 the NDPSC approved the 2020 annual update request with an effective date of July 1, 2020.

Phase-In Rate Plan Rider—On May 31, 2019 OTP petitioned the SDPUC for approval of its initial rate for the Phase-In Rate Plan Rider as described in OTP’s most recent South Dakota general rate case settlement stipulation and was approved by the SDPUC’s order in that rate case. The petition was OTP’s initial filing for the rider to recover OTP’s South Dakota share of actual and forecasted costs for Astoria Station and Merricourt, and to refund forecasted net benefits associated with additional load growth in the Lake Norden area. On August ~~21, 2019~~6, 2020 the SDPUC approved OTP’s ~~supplemental filing~~request for ~~its South Dakota~~an updated Phase-In ~~Rate Plan~~ Rider Factor effective September 1, ~~2019.~~ On ~~June 1, 2020~~ ~~OTP filed its~~ ~~first~~ ~~annual update request to the rider with a proposed effective date of~~ ~~September 1,~~ 2020.

The following table presents revenue recorded by OTP under rate riders in place in Minnesota, North Dakota, and South Dakota.

The following table provides summary information on the status of updates since January 1, 2018 for the rate riders described above:

Rate Rider

R - Request Date

A - Approval Date

Effective Date

Requested or
Approved

Annual
Revenue

($000s)

Rate

R - Request Date

A - Approval Date

Effective Date

Requested or

Approved

Annual

Revenue

($000s)

Rate

Minnesota

Conservation Improvement Program

2019 Incentive and Cost Recovery

R –

May 1, 2020

October 1, 2020

8,247

$0.00485

/kwh

A –

August 18, 2020

October 1, 2020

8,247

$0.00485

/kwh

2018 Incentive and Cost Recovery

A –

December 27, 2019

January 1, 2020

11,926

$0.00710

/kwh

A –

December 27, 2019

January 1, 2020

11,926

$0.00710

/kwh

2017 Incentive and Cost Recovery

A –

October 4, 2018

November 1, 2018

10,283

$0.00600

/kwh

A –

October 4, 2018

November 1, 2018

10,283

$0.00600

/kwh

Transmission Cost Recovery

2018 Annual Update–Updated Request

R –

May 7, 2020

January 1, 2021

10,264

Various

A –

October 22, 2020

January 1, 2021

10,260

Various

2017 Rate Reset

A –

October 30, 2017

November 1, 2017

(3,311

)

Various

A –

October 30, 2017

November 1, 2017

(3,311

)

Various

Environmental Cost Recovery

2018 Annual Update

A –

November 29, 2018

December 1, 2018

of base

A –

November 29, 2018

December 1, 2018

of base

Renewable Resource Adjustment

2019 Annual Update – Revised

A –

December 19, 2019

January 1, 2020

12,506

$0.00467

/kwh

A –

December 19, 2019

January 1, 2020

12,506

$0.00467

/kwh

2018 Annual Update

A –

August 29, 2018

November 1, 2018

5,886

$0.00219

/kwh

A –

August 29, 2018

November 1, 2018

5,886

$0.00219

/kwh

North Dakota

Renewable Resource Adjustment

2020 Annual Update

A –

March 18, 2020

April 1, 2020

5,762

5.637%

of base

A –

March 18, 2020

April 1, 2020

5,762

5.637%

of base

2019 Annual Update

A –

May 1, 2019

June 1, 2019

(235

)

-0.224%

of base

A –

May 1, 2019

June 1, 2019

(235

)

-0.224%

of base

2018 Rate Reset for effect of TCJA

A –

February 27, 2018

March 1, 2018

9,650

7.493%

of base

A –

February 27, 2018

March 1, 2018

9,650

7.493%

of base

Transmission Cost Recovery

2020 Annual Update

R –

August 31, 2020

January 1, 2021

5,570

Various

2019 Annual Update

A –

December 18, 2019

January 1, 2020

5,739

Various

A –

December 18, 2019

January 1, 2020

5,739

Various

2018 Supplemental Update

A –

December 6, 2018

February 1, 2019

4,801

Various

A –

December 6, 2018

February 1, 2019

4,801

Various

2018 Rate Reset for effect of TCJA

A –

February 27, 2018

March 1, 2018

7,469

Various

A –

February 27, 2018

March 1, 2018

7,469

Various

Environmental Cost Recovery

2019 Update

A –

October 22, 2019

November 1, 2019

of base

A –

October 22, 2019

November 1, 2019

of base

2018 Update

A –

December 19, 2018

February 1, 2019

(378

)

-0.310%

of base

A –

December 19, 2018

February 1, 2019

(378

)

-0.310%

of base

2018 Rate Reset for effect of TCJA

A –

February 27, 2018

March 1, 2018

7,718

5.593%

of base

A –

February 27, 2018

March 1, 2018

7,718

5.593%

of base

Generation Cost Recovery

2020 Annual Update

A –

June 10, 2020

July 1, 2020

6,184

6.041%

of base

A –

June 10, 2020

July 1, 2020

6,184

6.041%

of base

2019 Initial Request

A –

May 15, 2019

July 1, 2019

2,720

2.547%

of base

A –

May 15, 2019

July 1, 2019

2,720

2.547%

of base

South Dakota

Transmission Cost Recovery

2020 Annual Update

A –

February 19, 2020

March 1, 2020

2,327

Various

A –

February 19, 2020

March 1, 2020

2,327

Various

2019 Rate Reset

A –

September 17, 2019

October 1, 2019

2,046

Various

A –

September 17, 2019

October 1, 2019

2,046

Various

2019 Annual Update

A –

February 20, 2019

March 1, 2019

1,638

Various

A –

February 20, 2019

March 1, 2019

1,638

Various

2018 Interim Rate Reset

A –

October 18, 2018

1,171

Various

A –

October 18, 2018

1,171

Various

Environmental Cost Recovery

2018 Interim Rate Reset

A –

October 18, 2018

(189

)

-$0.00075

/kwh

A –

October 18, 2018

(189

)

-$0.00075

/kwh

Phase-In Rate Plan Recovery

2020 Annual Update

R –

June 1, 2020

September 1, 2020

1,931

7.753%

of base

A –

August 6, 2020

September 1, 2020

1,625

6.521%

of base

2019 Initial Request

A –

August 21, 2019

September 1, 2019

864

3.345%

of base

A –

August 21, 2019

September 1, 2019

864

3.345%

of base

~~The following table presents revenue recorded by OTP under rate riders in place in Minnesota, North Dakota and South Dakota.~~

Wholesale power sales and transmission rates are subject to the jurisdiction of the FERC under the Federal Power Act of 1935 (Federal Power Act). The FERC is an independent agency with jurisdiction over rates for wholesale electricity sales, transmission and sale of electric energy in interstate commerce, interconnection of facilities, and accounting policies and practices. Filed rates are effective after a suspension period, subject to ultimate approval by the FERC.

MVPs—MVPs are designed to enable the MISO region to comply with energy policy mandates and to address reliability and economic issues affecting multiple transmission zones within the MISO region. The cost allocation is designed to ensure that the costs of transmission projects with regional benefits are properly assigned to those who benefit from the MVP.

ROE—In November 2013 and February 2015, customers filed complaints with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including OTP, may collect under the MISO tariff. OTP has deferred recognition and recorded a liability of ~~$2.9~~$2.8 million as of ~~June~~September 30, 2020 as a result of the disputed ROE awaiting FERC action. The provision includes:

Various FERC orders have been made that remain under appeal. All or some of the current liability will be refunded to customers or reversed and recognized as revenue depending on various factors including MISO’s determination of refund amounts and FERC’s final determination of the reasonableness of base ROE over various periods.

As a regulated entity, OTP accounts for the financial effects of regulation in accordance with ASC 980. This accounting standard allows for the recording of a regulatory asset or liability for costs that will be collected or refunded in the future as required under regulation. Additionally, ASC 980-605-25 provides for the recognition of revenues authorized for recovery outside of a general rate case under alternative revenue programs which provide for recovery of costs and incentives or returns on investment in such items as transmission infrastructure, renewable energy resources or conservation initiatives. The following tables indicate the amount of regulatory assets and liabilities recorded on the Company’s consolidated balance sheets:

²~~Amount eligible for recovery under an alternative revenue program which includes an incentive or rate of return.~~

The regulatory asset and liability related to prior service costs and actuarial losses on pensions and other postretirement benefits represents benefit costs and actuarial losses and gains subject to recovery or refund through rates as they are expensed. These unrecognized benefit costs and actuarial losses and gains are required to be recognized as components of Accumulated Other Comprehensive Income in equity under ASC Topic 715, Compensation—Retirement Benefits, but are eligible for treatment as regulatory assets or liabilities based on their probable inclusion in future retail electric rates.

The ~~Accumulated ARO Accretion/Depreciation Adjustment will accrete and be amortized over the lives of property with asset retirement obligations.~~

~~The~~ Minnesota Transmission Cost Recovery Rider Accrued Revenues relate to revenues earned on qualifying transmission system facilities and operating costs incurred to serve Minnesota customers that were recoverable from Minnesota customers as of the balance sheet date.

The Accumulated ARO Accretion/Depreciation Adjustment will accrete and be amortized over the lives of property with asset retirement obligations.

Conservation Improvement Program Costs and Incentives represent mandated conservation expenditures and incentives recoverable through retail electric rates.

The Nonservice Costs Components of Postretirement Benefits Capitalized for Ratemaking Purposes and Subject to Deferred Recovery are employee benefit-related costs that are required to be capitalized for ratemaking purposes and are recovered over the depreciable lives of the assets to which the related labor costs were applied.

MISO Schedule 26/26A Transmission Cost Recovery Rider True-ups relate to the over/under collection of revenue based on comparison of the expected versus actual construction on eligible projects in the period. The true-ups also include the state jurisdictional portion of MISO Schedule 26/26A for regional transmission cost recovery that was included in the calculation of the state transmission riders and subsequently adjusted to reflect actual billing amounts in the schedule.

~~The Nonservice~~Unrecovered Project Costs ~~Components~~– Minnesota are the Minnesota share of ~~Postretirement Benefits Capitalized~~generation and transmission plant-related costs incurred by OTP related to its participation in the abandoned Big Stone II project and excess unrecovered depreciation expense for ~~Ratemaking Purposes~~Hoot Lake Plant and ~~Subject~~OTP’s hydroelectric plants related to ~~Deferred Recovery are employee benefit-related costs that are required to be capitalized for ratemaking purposes and are recovered over the~~acceleration of their remaining depreciable ~~lives of the assets to which the related labor costs were applied.~~lives.

The Minnesota Renewable Resource Recovery Rider Accrued Revenues relate to revenues earned on qualifying renewable resource costs incurred to serve Minnesota customers that were recoverable from Minnesota customers as of the balance sheet date.

~~Debt Reacquisition Premiums are being recovered from OTP customers over the remaining original lives of the reacquired debt issues, the longest of which is~~ ~~147~~ ~~months.~~

~~Big Stone II~~ Unrecovered Project Costs – ~~Minnesota~~North Dakota are the ~~Minnesota~~North Dakota share of ~~generation~~excess unrecovered depreciation expense for Hoot Lake Plant and ~~transmission plant-related costs incurred by OTP~~OTP’s hydroelectric plants related to ~~its participation in the abandoned Big Stone II project.~~acceleration of their remaining depreciable lives.

The Minnesota SPP Transmission Cost Recovery Tracker regulatory asset relates to costs incurred to serve Minnesota customers that are subject to recovery but that had not been billed to Minnesota customers as of the balance sheet date.

~~All Deferred Marked-to-Market Losses recorded as~~Debt Reacquisition Premiums are being recovered from OTP customers over the remaining original lives of the ~~balance sheet date relate to forward purchases~~reacquired debt issues, the longest of ~~energy scheduled for delivery through~~which is ~~December 2020.~~147 months.

~~Big Stone II~~ Unrecovered Project Costs – South Dakota are the South Dakota share of generation and transmission plant-related costs incurred by OTP related to its participation in the abandoned Big Stone II ~~project.~~project and excess unrecovered depreciation expense for Hoot Lake Plant and OTP’s hydroelectric plants related to acceleration of their remaining depreciable lives.

South Dakota Deferred Rate Case Expenses Subject to Recovery relate to costs incurred in conjunction with OTP’s most recent rate case in South Dakota and are currently being recovered beginning with the establishment of interim rates in October 2018.

North Dakota Deferred Rate Case Expenses Subject to Recovery relate to costs incurred in conjunction with OTP’s most recent rate case in North Dakota currently being recovered beginning with the establishment of interim rates in January 2018.

All Deferred Marked-to-Market Losses recorded as of the balance sheet date relate to forward purchases of energy scheduled for delivery through December 2020.

The North Dakota Generation Cost Recovery Rider Accrued Revenues relate to revenues earned under the rider on recoverable costs incurred for the North Dakota share of OTP’s investment in Astoria Station, a natural gas-fired combustion turbine generation facility under construction near Astoria, South Dakota. The balance represents amounts subject to recovery from North Dakota customers that had not been billed to North Dakota customers as of the balance sheet date.

Deferred Lease Expenses: Under ASC 842 accounting rules for leases with scheduled escalating payments, rent expense is required to be recognized on a straight-line basis over the life of the lease based on the sum of those payments. Rate-regulated entities are generally only allowed to recover the amount of actual cash payments on leases and FERC accounting rules require that rent expense be recognized on the basis of cash payments. The balance in the deferred lease expense regulatory asset account represents operating lease right of use asset cumulative amortization and interest costs in excess of cumulative lease payments that are subject to recovery in future periods under regulatory accounting treatment as cash payments are rendered.

The Minnesota Environmental Cost Recovery Rider Accrued Revenues relate to revenues earned on the Minnesota share of OTP’s investment in the Big Stone Plant AQCS project that were recoverable from Minnesota customers as of the balance sheet date.

The South Dakota Transmission Cost Recovery Rider Accrued Revenues relate to revenues earned on qualifying transmission system facilities and operating costs incurred to serve South Dakota customers that were recoverable from South Dakota customers as of the balance sheet date.

The regulatory liability related to Deferred Income Taxes results from changes in statutory tax rates accounted for in accordance with ASC Topic 740, Income Taxes.

The Accumulated Reserve for Estimated Removal Costs – Net of Salvage is reduced as actual removal costs, net of salvage revenues, are incurred.

The North Dakota Transmission Cost Recovery Rider Accrued Refund relates to amounts collected for qualifying transmission system facilities and operating costs incurred to serve North Dakota customers that were refundable to North Dakota customers as of the balance sheet date.

The South Dakota Phase-In Rate Plan Rider Accrued Refund relates to amounts collected for actual and forecasted costs for Astoria Station, Merricourt, and additional load growth that were refundable to South Dakota customers as of the balance sheet date.

Revenue for Rate Case Expenses Subject to Refund – Minnesota relates to revenues collected under general rates to recover costs related to prior rate case proceedings in excess of the actual costs incurred.

The ~~Minnesota Energy Intensive Trade Exposed~~North Dakota Renewable Resource Recovery Rider Accrued Refund relates to ~~over-collected~~ amounts ~~from Minnesota retail~~collected for qualifying renewable resource costs incurred to serve North Dakota customers ~~for fuel and purchased power costs reductions provided to customers in energy intensive trade exposed industries~~ that were ~~subject~~refundable to ~~refund to Minnesota~~North Dakota customers as of the balance sheet date.

The South Dakota Transmission Cost Recovery Rider Accrued Refund relates to amounts collected for qualifying transmission system facilities and operating costs incurred to serve South Dakota customers that were refundable to South Dakota customers as of the balance sheet date.

The ~~North Dakota Renewable Resource Recovery~~Minnesota Energy Intensive Trade Exposed Rider Accrued Refund relates to over-collected amounts ~~collected~~from Minnesota retail customers for ~~qualifying renewable resource~~fuel and purchased power costs ~~incurred~~reductions provided to ~~serve North Dakota~~ customers in energy intensive trade exposed industries that were ~~refundable~~subject to ~~North Dakota~~refund to Minnesota customers as of the balance sheet date.

The North Dakota Generation Cost Recovery Rider Accrued Refund relates to revenues collected under the rider in excess of returns allowed on recoverable costs incurred for the North Dakota share of OTP’s investment in Astoria Station, a natural gas-fired combustion turbine generation facility under construction near Astoria, South Dakota. The balance represents amounts subject to refund to North Dakota customers that had been billed to North Dakota customers as of the balance sheet date.

If for any reason OTP ceases to meet the criteria for application of guidance under ASC 980 for all or part of its operations, the regulatory assets and liabilities that no longer meet such criteria would be removed from the consolidated balance sheet and included in the consolidated statement of income as an expense or income item in the period in which the application of guidance under ASC 980 ceases.

On May 3, 2018 the Company filed a shelf registration statement with the Securities and Exchange Commission (SEC) under which the Company 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, which expires on May 3, 2021.

On November 8, 2019, the Company entered into a Distribution Agreement with KeyBanc Capital Markets Inc. (KeyBanc Capital Markets). Pursuant to the terms of the Distribution Agreement, the Company may offer and sell its common shares from time to time through KeyBanc, as the Company’s distribution agent for the offer and sale of the shares, up to an aggregate sales price of $75,000,000.

Under the Distribution Agreement, the Company will designate the minimum price and maximum number of common shares to be sold through KeyBanc on any given trading day or over a specified period of trading days, and KeyBanc will use commercially reasonable efforts to sell such shares on such days, subject to certain conditions. Sales of the shares, if any, will be made by means of ordinary brokers’ transactions on the Nasdaq Global Select Market at market prices or as otherwise agreed with KeyBanc. The Company may also agree to sell shares to KeyBanc, as principal for its own account, on terms agreed to by the Company and KeyBanc in a separate agreement at the time of sale. KeyBanc will receive from the Company a commission of up to 2% of the gross sales price per share for any shares sold through it as the Company’s distribution agent under the Distribution Agreement. The Company is not obligated to sell and KeyBanc is not obligated to buy or sell any of the shares under the Distribution Agreement. The shares, if issued, will be issued pursuant to the Company’s existing shelf registration statement.

Following is a reconciliation of the Company’s common shares outstanding from December 31, 2019 through ~~June~~September 30, 2020:

The numerator used in the calculation of both basic and diluted earnings per common share is net income with no adjustments for the three- and ~~six~~nine-month periods ended ~~June~~September 30, 2020 and 2019. The denominator used in the calculation of basic earnings per common share is the weighted average number of common shares outstanding during the period excluding nonvested restricted shares granted to the Company’s directors, which are considered contingently returnable and not outstanding for the purpose of calculating basic earnings per share. The denominator used in the calculation of diluted earnings per common share is derived by adjusting basic shares outstanding for the items listed in the following reconciliation for the three- and ~~six~~nine-month periods ended ~~June~~September 30:

	Three Months ended June 30				Six Months ended June 30				Three Months ended September 30				Nine Months ended September 30
	2020		2019		2020		2019		2020		2019		2020		2019
Weighted Average Common Shares Outstanding – Basic		40,513,286		39,712,036		40,365,214		39,684,679		40,913,972		39,714,672		40,548,133		39,694,677
Plus Outstanding Share Awards net of Share Reductions for Unrecognized Stock-Based Compensation Expense and Excess Tax Benefits:
Shares Expected to be Awarded for Stock Performance Awards Granted to Executive Officers based on Measurement Period-to-Date Performance		97,401		134,137		111,519		146,148		98,012		149,023		107,017		147,106
Underlying Shares Related to Nonvested Restricted Stock Units Granted to Employees		47,331		60,168		55,614		61,783		48,682		68,138		53,303		63,902
Shares Expected to be Issued Under the Employee Stock Purchase Plan		15,833		-		15,905		-		13,182		0		14,997		0
Nonvested Restricted Shares		1,637		9,657		10,749		15,790		2,603		13,107		8,033		14,896
Shares Expected to be Issued Under the Deferred Compensation Program for Directors		1,273		1,833		1,548		2,099		1,238		1,799		1,445		1,999
Total Dilutive Shares		163,475		205,795		195,335		225,820		163,717		232,067		184,795		227,903
Weighted Average Common Shares Outstanding – Diluted		40,676,761		39,917,831		40,560,549		39,910,499		41,077,689		39,946,739		40,732,928		39,922,580

The following stock incentive awards were granted under the 2014 Stock Incentive Plan during the ~~six~~nine months ended ~~June~~September 30, 2020.

The vesting of restricted stock units is accelerated in the event of a change in control, disability, death or retirement, subject to proration in certain cases, and subject to forfeiture under the terms of the restricted stock unit award agreements. Certain restricted stock units granted to executive officers and certain key employees are eligible to receive dividend equivalent payments on all unvested awards over the awards respective vesting periods. The grant-date fair value of each restricted stock unit paying a dividend equivalent was the average of the high and low market price per share on the date of grant. The grant-date fair value of each restricted stock unit that does not pay a dividend equivalent was the average of the high and low market price per share on the date of grant, discounted for the value of the dividend exclusion on those restricted stock units over the unit’s vesting period.

Under the performance share awards the aggregate award for performance at target is 55,000 shares. For target performance the participants would earn an aggregate of 27,500 common shares for achieving the target set for the Company’s 3-year average adjusted ROE. The participants would also earn an aggregate of 27,500 common shares based on the Company’s total shareholder return relative to the total shareholder return of the companies that comprise the Edison Electric Institute Index over the performance measurement period of January 1, 2020 through December 31, 2022, with the beginning and ending share values based on the average closing price of a share of the Company’s common stock for the 20 trading days immediately following January 1, 2020 and the average closing price for the 20 trading days immediately preceding January 1, 2023. Actual payment may range from zero to 150% of the target amount, or up to 82,500 common shares. There are no voting or dividend rights related to these shares until the shares, if any, are issued at the end of the performance measurement period. The terms of these awards are such that the entire award will be classified and accounted for as equity, as required under ASC 718, Compensation – Stock Compensation, and will be measured over the performance period based on the grant-date fair value of the award. The grant-date fair value of each performance share award was determined using a Monte Carlo fair valuation simulation model.

Under the 2020 Performance Award Agreements, payment and the amount of payment in the event of retirement, resignation for good reason or involuntary termination without cause is to be made at the end of the performance period based on actual performance, subject to proration in certain cases, except that the payment of performance awards granted to an officer who is party to an Executive Employment Agreement with the Company is to be made at target at the date of any such event. The vesting of these awards is accelerated and paid at target in the event of a change in control.

The restricted shares granted to the Company’s nonemployee directors are eligible for full dividend and voting rights. Restricted shares not vested and dividends on those restricted shares are subject to forfeiture under the terms of the restricted stock award agreements. The grant-date fair value of each restricted share was the average of the high and low market price per share on the date of grant.

The end of the period over which compensation expense is recognized for the above share-based awards for the individual grantees is the earlier of the indicated vesting period for the respective awards or the date the grantee becomes eligible for retirement as defined in their award agreement.

As of ~~June~~September 30, 2020, the remaining unrecognized compensation expense related to outstanding, unvested stock-based compensation was approximately ~~$4.8~~$3.9 million (before income taxes) which will be amortized over a weighted-average period of ~~2.3~~1.9 years.

Amounts of compensation expense recognized under the Company’s stock-based payment programs for the three- and ~~six~~nine-month periods ended ~~June~~September 30, 2020 and 2019 are presented in the table below:

	Three months ended				Six months ended				Three months ended				Nine months ended
	June 30,				June 30,				September 30,				September 30,
(in thousands)	2020		2019		2020		2019		2020		2019		2020		2019
Stock Performance Awards Granted to Executive Officers	$	712	$	1,418	$	2,412	$	2,531	$	758	$	743	$	3,170	$	3,274
Restricted Stock Dividend Equivalent Units Granted to Executive Officers and Key Employees		106		383		785		810		106		189		891		999
Restricted Stock Granted to Nonemployee Directors		236		204		440		369		237		203		677		572
Restricted Stock Units Granted to Nonexecutive Employees		141		143		275		234		133		112		408		346
ESPP (15% discount)		42		-		95		-		41		54		136		54
Totals	$	1,237	$	2,148	$	4,007	$	3,944	$	1,275	$	1,301	$	5,282	$	5,245

The Company is a holding company with no significant operations of its own. The primary source of funds for payments of dividends to the Company’s shareholders is from dividends paid or distributions made by the Company’s subsidiaries. As a result of certain statutory limitations or regulatory or financing agreements, restrictions could occur on the amount of distributions allowed to be made by the Company’s subsidiaries.

Both the Company and OTP credit agreements contain restrictions on the payment of cash dividends upon a default or event of default. An event of default would be considered to have occurred if the Company did not meet certain financial covenants. As of ~~June~~September 30, 2020, the Company was in compliance with these financial covenants.

Under the Federal Power Act, a public utility may not pay dividends from any funds properly included in a capital account. What constitutes “funds properly included in a capital account” is undefined in the Federal Power Act or the related regulations; however, the FERC has consistently interpreted the provision to allow dividends to be paid as long as (1) the source of the dividends is clearly disclosed, (2) the dividend is not excessive and (3) there is no self-dealing on the part of corporate officials.

The MPUC indirectly limits the amount of dividends OTP can pay to the Company by requiring an equity-to-total-capitalization ratio between 47.5% and 58.1% based on OTP’s 2020 capital structure petition effective by order of the MPUC on July 15, 2020. As of ~~June~~September 30, 2020, OTP’s equity-to-total-capitalization ratio including short-term debt was ~~52.9%~~52.8% and its net assets restricted from distribution totaled approximately ~~$549~~$619 million. Under the 2020 capital structure petition, OTP’s total capitalization cannot exceed $1,704,607,000.

At ~~June~~September 30, 2020 OTP had commitments under contracts, including its share of construction program commitments and other commitments, extending into 2022 of approximately ~~$185~~$58 million. At December 31, 2019 OTP had commitments under contracts, including its share of construction program commitments and other nonlease commitments, extending into 2021 of approximately $317 million.

On October 1, 2019 T.O. Plastics entered into a ~~new~~ six-year resin supply agreement that commenced on January 1, 2020. Under the ~~new~~ resin supply agreement, there are no minimum purchase requirements, but T.O. Plastics is required to purchase all of a specified class of regrind resin delivered by the supplier at a set price per pound. Based on current forecasted production levels, T.O. Plastics anticipates the quantity of resin delivered under the supply agreement will not exceed its requirements over the six-year term of the supply agreement or exceed the market cost of alternative sources of the resin. T.O. Plastics estimates it will pay the supplier approximately $1.9 million annually under this agreement.

Electric Utility Capacity and Energy Requirements and Coal Purchase and Delivery Contracts

OTP has commitments for the purchase of capacity and energy requirements under agreements extending into 2043. OTP also has contracts providing for the purchase and delivery of a significant portion of its current coal requirements. OTP’s current coal purchase agreements for Coyote Station expire at the end of 2040. OTP has agreements with Peabody COALSALES, LLC (Peabody) for the purchase of subbituminous coal for Big Stone Plant’s coal requirements through December 31, 2022. There are no fixed minimum purchase requirements under these agreements but all of Big Stone Plant’s coal requirements for the period covered must be purchased exclusively from Peabody. OTP has an all-requirements agreement with Navajo Transitional Energy Co. for the purchase of subbituminous coal for Hoot Lake Plant through December 31, 2023, with no fixed minimum purchase requirement. OTP plans to discontinue generation at Hoot Lake Plant in May 2021.

OTP has commitments to make future payments for land easements not classified as leases, extending into 2034 of approximately ~~$9.9~~$9.7 million.

In September 2020, in connection with Merricourt and in accordance with the Merricourt amended and restated generator interconnection agreement, OTP entered into a 20-year Facilities Service Agreement (FSA) with an owner of adjacent transmission assets to pay for upgrades and additions to the owner’s transmission facilities required to accommodate the transmission of electricity generated by Merricourt’s wind turbines. OTP estimates it will pay approximately $675,000 annually through October 2040 under the FSA. The annual payment requirements are subject to adjustments for changes in income tax rates, rates of return on assets and other variable factors included in the MISO tariff.

OTP had a ~~$2.9~~$2.8 million refund liability on its balance sheet as of ~~June~~September 30, 2020. This represents its best estimate of the refund obligations that would arise net of amounts that would be subject to recovery under state jurisdictional TCR riders. This is based on the outcome of the appeals of the FERC ruling reducing the ROE component of the MISO Tariff and ordering MISO to refund amounts charged in excess of the lower rate. As discussed in note 3 in greater detail, OTP believes its estimated accrued refund liability is appropriate based on the current facts and circumstances and is awaiting results of the appeal before determining if a change in this estimate will be needed.

Contingencies, by their nature, relate to uncertainties that require the Company’s management to exercise judgment both in assessing the likelihood a liability has been incurred as well as in estimating the amount of potential loss. In addition to the potential ROE refund described above, the most significant contingencies that could impact the Company’s consolidated financial statements are those related to environmental remediation, risks associated with warranty claims relating to divested businesses that could exceed established reserve amounts, risks associated with adverse regulatory decisions that could impact the recovery of fixed asset costs in future rates and litigation matters.

On July 30, 2020 the MPUC ordered a reduction in the remaining depreciable lives of OTP’s Hoot Lake Plant and seven hydroelectric plants. The MPUC stipulated recoverability of the resulting increase in depreciation expense, which we estimate will be approximately $1.4 million on an annual basis, would be determined in OTP’s next rate case. Based on the relevant facts and circumstances, OTP has concluded the additional depreciation expense is probable of recovery and ~~will recognize~~has recognized a regulatory asset for the amount of incremental expense recognized in 2020.

State implementation of pollution control plans to improve visibility and air quality at national parks under the EPA’s Regional Haze Rule (RHR) could require OTP to incur significant new costs, which could, dependent on determinations by state regulatory commissions on approval to recover such costs from customers, negatively impact OTP’s and the Company’s net income, financial position and cash flows. The North Dakota Department of Environmental Quality (NDDEQ) must submit a state implementation plan to the EPA by July 2021. While this process is still in the early stages, if the NDDEQ and/or the EPA requires sources subject to RHR Round 2 reasonable progress determinations, including Coyote Station, to undertake emissions control measures that are reasonably consistent with those required of sources during Round 1, OTP anticipates that significant emissions controls would be required at Coyote Station by December 31, 2028. In light of the costs for emissions control equipment, there are scenarios where it may not be economically feasible to invest in such equipment and an early retirement of the Coyote Station would therefore be necessary. The costs related to an early retirement of Coyote Station would be material to OTP and the Company and would be subject to state commission approval for recovery from customers.

In October 2020, during testing and commissioning of Merricourt, a defect in a turbine blade was identified. The Company is investigating the defect along with additional blades to determine if other blades have similar defects. Depending on the extent of the defect and repair and replacement alternatives, the date of commercial operation of the project, or a portion thereof, may be delayed beyond December 2020. The cost of the project could also be impacted, but the risk of loss on assets of the project only transfers to Otter Tail Power Company at commercial operation. Considering this along with the commercial and contractual provisions in place, the Company does not anticipate this issue will have a material financial impact on the Company.

The Company is a party to litigation and regulatory enforcement matters arising in the normal course of business. The Company regularly analyzes current information and, as necessary, provides accruals for liabilities that are probable of occurring and that can be reasonably estimated. The Company believes the effect on its consolidated results of operations, financial position and cash flows, if any, for the disposition of all matters pending as of ~~June~~September 30, 2020, other than those relating to the RHR, will not be material.

The following table presents the status of the Company’s lines of credit as of ~~June~~September 30, 2020 and December 31, 2019:

(in thousands)	Line Limit		In Use on June 30, 2020		Restricted due to Outstanding Letters of Credit		Available on June 30, 2020		Available on December 31, 2019		Line Limit		In Use on September 30, 2020		Restricted due to Outstanding Letters of Credit		Available on September 30, 2020		Available on December 31, 2019
Otter Tail Corporation Credit Agreement	$	170,000	$	41,239	$	-	$	128,761	$	164,000	$	170,000	$	48,600	$	0	$	121,400	$	164,000
OTP Credit Agreement		170,000		-		7,670		162,330		154,524		170,000		0		7,670		162,330		154,524
Total	$	340,000	$	41,239	$	7,670	$	291,091	$	318,524	$	340,000	$	48,600	$	7,670	$	283,730	$	318,524

On September 12, 2019, OTP entered into a Note Purchase Agreement (the 2019 Note Purchase Agreement) with the purchasers named therein (the Purchasers), pursuant to which OTP agreed to issue to the Purchasers, in a private placement transaction, $175 million aggregate principal amount of OTP’s senior unsecured notes consisting of (a) $10,000,000 aggregate principal amount of its 3.07% Series 2019A Senior Unsecured Notes due October 10, 2029 (the Series 2019A Notes), (b) $26,000,000 aggregate principal amount of its 3.52% Series 2019B Senior Unsecured Notes due October 10, 2039 (the Series 2019B Notes), (c) $64,000,000 aggregate principal amount of its 3.82% Series 2019C Senior Unsecured Notes due October 10, 2049 (the Series 2019C Notes), (d) $10,000,000 aggregate principal amount of its 3.22% Series 2020A Senior Unsecured Notes due February 25, 2030 (the Series 2020A Notes), (e) $40,000,000 aggregate principal amount of its 3.22% Series 2020B Senior Unsecured Notes due August 20, 2030 (the Series 2020B Notes), (f) $10,000,000 aggregate principal amount of its 3.62% Series 2020C Senior Unsecured Notes due February 25, 2040 (the Series 2020C Notes) and (g) $15,000,000 aggregate principal amount of its 3.92% Series 2020D Senior Unsecured Notes due February 25, 2050 (the Series 2020D Notes; and together with the Series 2019A Notes, the Series 2019B Notes, the Series 2019C Notes, the Series 2020A Notes, the Series 2020B Notes and the Series 2020C Notes, the Notes).

On February 25, 2020, OTP issued the Series 2020A Notes, the Series 2020C Notes and the Series 2020D Notes pursuant to the 2019 Note Purchase Agreement. On August 20, 2020, OTP issued the Series 2020B Notes pursuant to the 2019 Note Purchase Agreement. OTP used the ~~$35~~$75 million proceeds from the ~~issuance~~issuances to pay for capital expenditures and for other corporate purposes. The Series 2019A Notes, Series 2019B Notes and Series 2019C Notes were issued by the Company on October 10, 2019.~~The remaining unissued notes of the Note Purchase Agreement, Series~~ ~~2020B,~~ ~~are expected to be issued on~~ ~~August 20, 2020,~~ ~~subject to the satisfaction of certain customary conditions to closing.~~

OTP may prepay all or any part of the Notes (in an amount not less than 10% of the aggregate principal amount of the Notes then outstanding in the case of a partial prepayment) at 100% of the principal amount so prepaid, together with unpaid accrued interest and a make-whole amount; provided that if no default or event of default exists under the 2019 Note Purchase Agreement, any prepayment made by OTP of all of the (a) Series 2020A Notes then outstanding on or after August 25, 2029, (b) Series 2020C Notes then outstanding on or after August 25, 2039 or (c) Series 2020D Notes then outstanding on or after August 25, 2049 will be made without any make-whole amount. The 2019 Note Purchase Agreement also requires OTP to offer to prepay all outstanding Notes at 100% of the principal amount together with unpaid accrued interest in the event of a Change of Control (as defined in the 2019 Note Purchase Agreement) of OTP.

The 2019 Note Purchase Agreement contains a number of restrictions on the business of OTP. These include restrictions on OTP’s abilities to merge, sell assets, create or incur liens on assets, guarantee the obligations of any other party, and engage in transactions with related parties. The 2019 Note Purchase Agreement also contains other negative covenants and events of default, as well as certain financial covenants. Specifically, OTP may not permit its Interest-bearing Debt (as defined in the 2019 Note Purchase Agreement) to exceed 60% of Total Capitalization (as defined in the 2019 Note Purchase Agreement), determined as of the end of each fiscal quarter. OTP is also restricted from allowing its Priority Indebtedness (as defined in the Note Purchase Agreement) to exceed 20% of Total Capitalization, determined as of the end of each fiscal quarter. The 2019 Note Purchase Agreement does not include provisions for the termination of the agreement or the acceleration of repayment of amounts outstanding due to changes in OTP’s credit ratings. The 2019 Note Purchase Agreement includes a “most favored lender” provision generally requiring that in the event OTP’s existing credit agreement or any renewal, extension or replacement thereof, at any time contains any financial covenant or other provision providing for limitations on interest

expense and such a covenant is not contained in the 2019 Note Purchase Agreement under substantially similar terms or would be more beneficial to the holders of the Notes than any analogous provision contained in the 2019 Note Purchase Agreement (an Additional Covenant), then unless waived by the Required Holders (as defined in the 2019 Note Purchase Agreement), the Additional Covenant will be deemed to be incorporated into the 2019 Note Purchase Agreement. The 2019 Note Purchase Agreement also provides for the amendment, modification or deletion of an Additional Covenant if such Additional Covenant is amended or modified under or deleted from the credit agreement, provided that no default or event of default has occurred and is continuing.

The following tables provide a breakdown of the assignment of the Company’s consolidated short-term and long-term debt outstanding as of ~~June~~September 30, 2020 and December 31, 2019:

June 30, 2020 (in thousands)		OTP		Otter Tail Corporation		Consolidated
September 30, 2020 (in thousands)									OTP		Otter Tail Corporation		Consolidated
Short-Term Debt		$	-	$	41,239	$	41,239		$	-	$	48,600	$	48,600
Long-Term Debt:
3.55% Guaranteed Senior Notes, due December 15, 2026				$	80,000	$	80,000				$	80,000	$	80,000
Senior Unsecured Notes 4.63%, Series 2011A, due December 1, 2021		$	140,000				140,000
Senior Unsecured Notes 6.15%, Series 2007B, due August 20, 2022			30,000				30,000
Senior Unsecured Notes 6.37%, Series 2007C, due August 20, 2027			42,000				42,000
Senior Unsecured Notes 4.68%, Series 2013A, due February 27, 2029			60,000				60,000
Senior Unsecured Notes 3.07%, Series 2019A, due October 10, 2029¹			10,000				10,000
Senior Unsecured Notes 3.22%, Series 2020A, due February 25, 2030			10,000				10,000
Senior Unsecured Notes 6.47%, Series 2007D, due August 20, 2037			50,000				50,000
Senior Unsecured Notes 3.52%, Series 2019B, due October 10, 2039			26,000				26,000
Senior Unsecured Notes 3.62%. Series 2020C, due February 25, 2040			10,000				10,000
Senior Unsecured Notes 5.47%, Series 2013B, due February 27, 2044			90,000				90,000
Senior Unsecured Notes 4.07%, Series 2018A, due February 7, 2048			100,000				100,000
Senior Unsecured Notes 3.82%, Series 2019C, due October 10, 2049			64,000				64,000
Senior Unsecured Notes 3.92%, Series 2020D, due February 25, 2050			15,000				15,000
PACE Note, 2.54%, due March 18, 2021					261		261
Senior Unsecured Notes 4.63%, Series 2011A, due December 1, 2021									$	140,000				140,000
Senior Unsecured Notes 6.15%, Series 2007B, due August 20, 2022										30,000				30,000
Senior Unsecured Notes 6.37%, Series 2007C, due August 20, 2027										42,000				42,000
Senior Unsecured Notes 4.68%, Series 2013A, due February 27, 2029										60,000				60,000
Senior Unsecured Notes 3.07%, Series 2019A, due October 10, 2029¹										10,000				10,000
Senior Unsecured Notes 3.22%, Series 2020A, due February 25, 2030										10,000				10,000
Senior Unsecured Notes 3.22%, Series 2020B, due August 20, 2030¹										40,000				40,000
Senior Unsecured Notes 6.47%, Series 2007D, due August 20, 2037										50,000				50,000
Senior Unsecured Notes 3.52%, Series 2019B, due October 10, 2039										26,000				26,000
Senior Unsecured Notes 3.62%. Series 2020C, due February 25, 2040										10,000				10,000
Senior Unsecured Notes 5.47%, Series 2013B, due February 27, 2044										90,000				90,000
Senior Unsecured Notes 4.07%, Series 2018A, due February 7, 2048										100,000				100,000
Senior Unsecured Notes 3.82%, Series 2019C, due October 10, 2049										64,000				64,000
Senior Unsecured Notes 3.92%, Series 2020D, due February 25, 2050										15,000				15,000
PACE Note, 2.54%, due March 18, 2021												215		215
Total		$	647,000	$	80,261	$	727,261		$	687,000	$	80,215	$	767,215
Less: Current Maturities net of Unamortized Debt Issuance Costs			-		261		261			-		215		215
Unamortized Long-Term Debt Issuance Costs			2,281		330		2,611			2,408		318		2,726
Total Long-Term Debt net of Unamortized Debt Issuance Costs		$	644,719	$	79,670	$	724,389		$	684,592	$	79,682	$	764,274
Total Short-Term and Long-Term Debt (with current maturities)		$	644,719	$	121,170	$	765,889		$	684,592	$	128,497	$	813,089
December 31, 2019 (in thousands)	December 31, 2019 (in thousands)							December 31, 2019 (in thousands)
Short-Term Debt		$	-	$	6,000	$	6,000		$	-	$	6,000	$	6,000
Long-Term Debt:
3.55% Guaranteed Senior Notes, due December 15, 2026				$	80,000	$	80,000				$	80,000	$	80,000
Senior Unsecured Notes 4.63%, Series 2011A, due December 1, 2021		$	140,000				140,000
Senior Unsecured Notes 6.15%, Series 2007B, due August 20, 2022			30,000				30,000
Senior Unsecured Notes 6.37%, Series 2007C, due August 20, 2027			42,000				42,000
Senior Unsecured Notes 4.68%, Series 2013A, due February 27, 2029			60,000				60,000
Senior Unsecured Notes 3.07%, Series 2019A, due October 10, 2029¹			10,000				10,000
Senior Unsecured Notes 6.47%, Series 2007D, due August 20, 2037			50,000				50,000
Senior Unsecured Notes 3.52%, Series 2019B, due October 10, 2039			26,000				26,000
Senior Unsecured Notes 5.47%, Series 2013B, due February 27, 2044			90,000				90,000
Senior Unsecured Notes 4.07%, Series 2018A, due February 7, 2048			100,000				100,000
Senior Unsecured Notes 3.82%, Series 2019C, due October 10, 2049			64,000				64,000
PACE Note, 2.54%, due March 18, 2021					351		351
Senior Unsecured Notes 4.63%, Series 2011A, due December 1, 2021									$	140,000				140,000
Senior Unsecured Notes 6.15%, Series 2007B, due August 20, 2022										30,000				30,000
Senior Unsecured Notes 6.37%, Series 2007C, due August 20, 2027										42,000				42,000
Senior Unsecured Notes 4.68%, Series 2013A, due February 27, 2029										60,000				60,000
Senior Unsecured Notes 3.07%, Series 2019A, due October 10, 2029¹										10,000				10,000
Senior Unsecured Notes 6.47%, Series 2007D, due August 20, 2037										50,000				50,000
Senior Unsecured Notes 3.52%, Series 2019B, due October 10, 2039										26,000				26,000
Senior Unsecured Notes 5.47%, Series 2013B, due February 27, 2044										90,000				90,000
Senior Unsecured Notes 4.07%, Series 2018A, due February 7, 2048										100,000				100,000
Senior Unsecured Notes 3.82%, Series 2019C, due October 10, 2049										64,000				64,000
PACE Note, 2.54%, due March 18, 2021												351		351
Total		$	612,000	$	80,351	$	692,351		$	612,000	$	80,351	$	692,351
Less: Current Maturities net of Unamortized Debt Issuance Costs			-		183		183			-		183		183
Unamortized Long-Term Debt Issuance Costs			2,231		356		2,587			2,231		356		2,587
Total Long-Term Debt net of Unamortized Debt Issuance Costs		$	609,769	$	79,812	$	689,581		$	609,769	$	79,812	$	689,581
Total Short-Term and Long-Term Debt (with current maturities)		$	609,769	$	85,995	$	695,764		$	609,769	$	85,995	$	695,764

¹~~Holder is COBANK, a cooperative lender. Interest payments are subject to cash credits which~~ ~~may~~ ~~result in a lower effective interest rate.~~

Pension Plan—Components of net periodic pension benefit cost of the Company's noncontributory funded pension plan are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019			2020			2019			2020			2019
Service Cost—Benefit Earned During the Period	$	1,656		$	1,373		$	3,311		$	2,746		$	1,655		$	1,373		$	4,966		$	4,119
Interest Cost on Projected Benefit Obligation		3,263			3,603			6,526			7,206			3,264			3,603			9,790			10,809
Expected Return on Assets		(5,505	)		(5,324	)		(11,010	)		(10,649	)		(5,506	)		(5,324	)		(16,516	)		(15,973	)
Amortization of Prior-Service Cost:
From Regulatory Asset		-			2			-			3			0			1			0			4
From Other Comprehensive Income¹		-			2			-			4			0			2			0			6
Amortization of Net Actuarial Loss:
From Regulatory Asset		2,231			1,162			4,462			2,325			2,231			1,163			6,693			3,488
From Other Comprehensive Income¹		55			26			110			53			55			26			165			79
Net Periodic Pension Cost²	$	1700		$	844		$	3,399		$	1,688		$	1,699		$	844		$	5,098		$	2,532
¹Corporate cost included in nonservice cost components of postretirement benefits.
²Allocation of costs:
Service costs included in OTP capital expenditures	$	432		$	336		$	855		$	726		$	516		$	333		$	1,371		$	1,059
Service costs included in electric operation and maintenance expenses		1,185			1,004			2,377			1,954			1,099			1,007			3,476			2,961
Service costs included in other nonelectric expenses		39			33			79			66			40			33			119			99
Nonservice costs capitalized as regulatory assets		12			(130	)		23			(280	)		13			(128	)		36			(408	)
Nonservice costs included in nonservice cost components of postretirement benefits		32			(399	)		65			(778	)		31			(401	)		96			(1,179	)

Cash flows—The Company had no minimum funding requirement as of December 31, 2019 but made a discretionary plan contribution of $11.2 million in January 2020.

Executive Survivor and Supplemental Retirement Plan—Components of net periodic pension benefit cost of the Company’s unfunded, nonqualified benefit plan for executive officers and certain key management employees are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019		2020		2019		2020		2019
Service Cost—Benefit Earned During the Period	$	44	$	104	$	89	$	209	$	45	$	104	$	134	$	313
Interest Cost on Projected Benefit Obligation		362		434		724		868		362		433		1,086		1,301
Amortization of Prior Service Cost:
From Regulatory Asset		-		1		-		2		0		2		0		4
From Other Comprehensive Income¹		-		4		-		8		0		4		0		12
Amortization of Net Actuarial Loss:
From Regulatory Asset		24		31		47		62		24		31		71		93
From Other Comprehensive Income¹		85		88		171		175		85		87		256		262
Net Periodic Pension Cost²	$	515	$	662	$	1,031	$	1,324	$	516	$	661	$	1,547	$	1,985
¹Amortization of prior service costs and net actuarial losses from other comprehensive income are included in nonservice cost components of postretirement benefits.
²Allocation of Costs:
Service costs included in electric operation and maintenance expenses	$	-	$	26	$	-	$	52	$	0	$	26	$	0	$	78
Service costs included in other nonelectric expenses		44		78		89		157		45		78		134		235
Nonservice costs included in nonservice cost components of postretirement benefits		471		558		942		1,115		471		557		1,413		1,672

Other Postretirement Benefits—Components of net periodic postretirement benefit cost for health insurance benefits for retired OTP and corporate employees, net of the effect of Medicare Part D Subsidy:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019			2020			2019			2020			2019
Service Cost—Benefit Earned During the Period	$	462		$	322		$	924		$	643		$	461		$	321		$	1,385		$	964
Interest Cost on Projected Benefit Obligation		599			772			1,197			1,542			598			770			1,795			2,312
Amortization of Prior-Service Cost:
From Regulatory Asset		(1,170	)		-			(2,339	)		-			(1,169	)		0			(3,508	)		0
From Other Comprehensive Income¹		(29	)		-			(58	)		-			(28	)		0			(86	)		0
Amortization of Net Actuarial Loss:
From Regulatory Asset		1,052			392			2,103			785			1,051			393			3,154			1,178
From Other Comprehensive Income¹		26			9			52			19			26			10			78			29
Net Periodic Postretirement Benefit Cost²	$	940		$	1,495		$	1,879		$	2,989		$	939		$	1,494		$	2,818		$	4,483
Effect of Medicare Part D Subsidy	$	280		$	(44	)	$	561		$	(89	)	$	281		$	(45	)	$	842		$	(134	)
¹Corporate cost included in nonservice cost components of postretirement benefits.
²Allocation of Costs:
Service costs included in OTP capital expenditures	$	120		$	79		$	238		$	170		$	144		$	78		$	382		$	248
Service costs included in electric operation and maintenance expenses		331			235			664			458			306			235			970			693
Service costs included in other nonelectric expenses		11			8			22			15			11			8			33			23
Nonservice costs capitalized as regulatory assets		124			288			246			621			150			284			396			905
Nonservice costs included in nonservice cost components of postretirement benefits		354			885			709			1,725			328			889			1,037			2,614

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash Equivalents—The carrying amount approximates fair value because of the short-term maturity of those instruments.

Short-Term Debt—The carrying amount approximates fair value because the debt obligations are short-term and the balances outstanding as of ~~June~~September 30, 2020 and December 31, 2019 related to the Otter Tail Corporation Credit Agreement were subject to variable interest rates of LIBOR plus 1.50%, which approximate market rates.

Long-Term Debt including Current Maturities—The fair value of the Company's and OTP’s long-term debt is estimated based on the current market indications of rates available to the Company for the issuance of debt. The fair value measurements of the Company’s long-term debt issues fall into level 2 of the fair value hierarchy set forth in ASC 820.

	June 30, 2020						December 31, 2019						September 30, 2020						December 31, 2019
(in thousands)	Carrying Amount			Fair Value			Carrying Amount			Fair Value			Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash and Cash Equivalents	$	39,512		$	39,512		$	21,199		$	21,199		$	44,904		$	44,904		$	21,199		$	21,199
Short-Term Debt		(41,239	)		(41,239	)		(6,000	)		(6,000	)		(48,600	)		(48,600	)		(6,000	)		(6,000	)
Long-Term Debt including Current Maturities		(724,650	)		(795,995	)		(689,764	)		(742,279	)		(764,489	)		(867,972	)		(689,764	)		(742,279	)

The following table provides a reconciliation of income tax expense calculated at the net composite federal and state statutory rate on income before income taxes and income tax expense reported on the Company’s consolidated statements of income for the three- and ~~six~~nine-month periods ended ~~June~~September 30, 2020 and 2019:

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019			2020			2019			2020			2019
Income Before Income Taxes	$	20,789		$	18,769		$	50,695		$	50,721		$	45,031		$	29,681		$	95,726		$	80,402
Tax Computed at Company’s Net Composite Federal and State Statutory Rate (26%)	$	5,405		$	4,879		$	13,181		$	13,187
Tax Computed at Company’s Net Composite Federal and State Statutory Rate (26%)													$	11,708		$	7,717		$	24,889		$	20,905
(Decreases) Increases in Tax from:
Differences Reversing in Excess of Federal Rates		(543	)		(774	)		(1,772	)		(1,757	)		(1,678	)		(933	)		(3,450	)		(2,690	)
Allowance for Funds Used During Construction – Equity		(248	)		(94	)		(560	)		(180	)		(388	)		(239	)		(948	)		(419	)
Excess Tax Deduction – Equity Method Stock Awards		-			-			(535	)		(827	)
North Dakota Wind Tax Credit Amortization – Net of Federal Taxes		(258	)		(258	)		(516	)		(516	)		(259	)		(258	)		(775	)		(774	)
Research and Development and Other Tax Credits		(333	)		(187	)		(387	)		(375	)		(263	)		(612	)		(649	)		(987	)
Excess Tax Deduction – Equity Method Stock Awards														0			0			(535	)		(827	)
Corporate Owned Life Insurance		(193	)		(150	)		14			(559	)		(155	)		(50	)		(141	)		(609	)
Reconciliation and Prior Period Adjustments														172			(688	)		172			(722	)
Other Items – Net		(22	)		(73	)		21			(2	)		(40	)		(1	)		(20	)		30
Income Tax Expense	$	3,808		$	3,343		$	9,446		$	8,971		$	9,097		$	4,936		$	18,543		$	13,907
Effective Income Tax Rate		18.3	%		17.8	%		18.6	%		17.7	%		20.2	%		16.6	%		19.4	%		17.3	%

The following table summarizes the activity related to the Company’s unrecognized tax benefits:

(in thousands)	2020			2019			2020			2019
Balance on January 1	$	1,488		$	1,282		$	1,488		$	1,282
Decreases Related to Tax Positions for Prior Years		(42	)		-
(Decreases) Increases Related to Tax Positions for Prior Years								(27	)		37
Increases Related to Tax Positions for Current Year		81			75			123			153
Uncertain Positions Resolved During Year		-			(42	)		(586	)		0
Balance on June 30	$	1,527		$	1,315
Decrease from the Expiration of Statute of Limitations								(139	)		(170	)
Balance on September 30							$	859		$	1,302

The balance of unrecognized tax benefits as of ~~June~~September 30, 2020 would reduce the Company’s effective tax rate if recognized. The total amount of unrecognized tax benefits as of ~~June~~September 30, 2020 could be reduced by as much as ~~$725,000~~$139,000 within the next 12 months due to expected settlement. The Company classifies interest and penalties on tax uncertainties as components of the provision for income taxes in its consolidated statement of income.

The Company and its subsidiaries file a consolidated U.S. federal income tax return and various state income tax returns. As of ~~August~~November 1, 2020, with limited exceptions, the Company is no longer subject to examinations by taxing authorities for tax years prior to 2017 for federal and North Dakota income taxes and prior to 2016 for ~~federal,~~ Minnesota ~~and North Dakota~~ income taxes.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Otter Tail Corporation (the Company, we, us and our) continues to monitor the progression of the ~~novel~~ coronavirus disease 2019 (COVID-19) and its impact on our businesses, employees, customers, construction contractors and vendors. As this pandemic continues, we are following the directives and advice of government leaders and medical professionals and have adopted practices to help curtail the spread of the virus and mitigate its impact on our communities, employees, construction contractors, customers and business operations. Our Electric segment business provides a critical service to our customers and our manufacturing platform businesses provide products and support to critical infrastructure industries. All of our operating companies have been deemed critical infrastructure businesses. Accordingly, we continue to operate our businesses in a manner that is safe for our employees and our customers.

COVID-19 and the resulting economic conditions have had a material negative impact on the results of operations in our Manufacturing segment, and, to a lesser extent, also impacted the results of operations of our Electric and Plastics segments, but have not had a material impact on our consolidated financial position or liquidity. We ~~began to see~~saw a reduction in customer demand in our Manufacturing segment in late March 2020 and ~~have~~ experienced significantly lower levels of customer demand in ~~this~~our Manufacturing segment through the end of June 2020 but began to see some recovery in demand in the third quarter of 2020. ~~We anticipate this~~A moderate level of reduced demand ~~will~~may continue in our Manufacturing segment over the near term. Within our Electric segment, we have experienced reduced demand from commercial and industrial customers, and the risk of disruptions for our capital projects, including Merricourt and Astoria Station, also continues. With over 250 individuals working on the Astoria Station site at times during various stages of construction, 26 have tested positive for COVID-19. Continued or additional incidence of infection at the Astoria Station or Merricourt sites, may result in delayed completion schedules and increased costs for these projects.customers. In our Plastics segment, we experienced lower sales in the second quarter as distributors reduced inventory levels due to uncertainty over the impact of ~~COVID-19.~~COVID-19, but experienced a recovery in sales and increased margins in the third quarter due to higher PVC pipe prices relative to lower-cost inventory.

Beginning in April 2020, in response to the actual and anticipated impact of COVID-19 on our business operations, we ~~have~~ implemented a variety of policies, including furloughs, shift and pay reductions, wage and hiring freezes, suspension of certain employee benefits, a workforce reduction and other cost reduction efforts to mitigate the negative impact to our financial results. We continue to monitor the impacts of the pandemic on our businesses and will adjust our response as circumstances evolve.

Heating Degree Days (HDDs) is a measure of how much (in degrees), and for how long (in days), the outside air temperature was below a certain normalized level. 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.

Otter Tail Power Company (OTP) generally bases its forecasted kilowatt-hour (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. 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.

Backlog, expressed in dollars, is the level of sales orders received but not yet completed by a company or operating segment. The Company discloses these figures for its Manufacturing segment as an indication of future business volume within the segment.

Utility Rate Base is the value of property on which a public utility is permitted to earn a specified rate of return in accordance with rules set by a regulatory agency. In general, the rate base consists of the value of property used by the utility in providing service. Rate base can include: cash, working capital, materials and supplies, deductions for accumulated provisions for depreciation, contributions in aid of construction, customer advances for construction, accumulated deferred income taxes, and accumulated deferred investment tax credits, dependent on the method that is used in the calculation, which can vary from jurisdiction to jurisdiction. The Company presents actual and forecasted levels of utility rate base in its outlook to provide an indication of expected investments on which the Company expects to earn future returns.

Following is an analysis of the Company’s operating results by business segment for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 followed by a discussion of changes in our consolidated financial position during the ~~six~~nine months ended ~~June~~September 30, 2020 and our business outlook for the remainder of 2020.

Consolidated operating revenues were ~~$192.8~~$235.8 million for the three months ended ~~June~~September 30, 2020 compared with ~~$229.2~~$228.7 million for the three months ended ~~June~~September 30, 2019. Operating income was ~~$27.9~~$52.7 million for the three months ended ~~June~~September 30, 2020 compared with ~~$26.8~~$37.3 million for the three months ended ~~June~~September 30, 2019. The Company recorded diluted earnings per share of ~~$0.42~~$0.87 for the three months ended ~~June~~September 30, 2020 compared with ~~$0.39~~$0.62 for the three months ended ~~June~~September 30, 2019.

Amounts presented in the segment tables that follow for operating revenues, cost of products sold and other nonelectric operating expenses for the three-month periods ended ~~June~~September 30, 2020 and 2019 will not agree with amounts presented in the consolidated statements of income due to the elimination of intersegment transactions. The amounts of intersegment eliminations by income statement line item are listed below:

Intersegment Eliminations (in thousands)	June 30, 2020		June 30, 2019			September 30, 2020		September 30, 2019
Operating Revenues:
Electric	$	23	$	14		$	10	$	9
Nonelectric		1		(1	)		--		--
Costs of Products Sold		2		3			3		5
Other Nonelectric Expenses		22		10			7		4

	Three Months Ended										Three Months Ended
	June 30,							%			September 30,								%
(in thousands)	2020		2019		Change			Change			2020		2019			Change			Change
Retail Sales Revenues from Contracts with Customers	$	85,344	$	87,976	$	(2,632	)		(3.0	)	$	96,827	$	100,345		$	(3,518	)		(3.5	)
Changes in Accrued Revenues under Alternative Revenue Programs		209		369		(160	)		(43.4	)		2,778		(921	)		3,699			401.6
Total Retail Sales Revenue	$	85,553	$	88,345	$	(2,792	)		(3.2	)	$	99,605	$	99,424		$	181			0.2
Transmission Services Revenue		9,673		11,469		(1,796	)		(15.7	)		12,288		11,692			596			5.1
Wholesale Revenues – Company Generation		765		941		(176	)		(18.7	)		1,500		1,631			(131	)		(8.0	)
Other Revenues		2,162		1,489		673			45.2			1,830		1,626			204			12.5
Total Operating Revenues	$	98,153	$	102,244	$	(4,091	)		(4.0	)	$	115,223	$	114,373		$	850			0.7
Production Fuel		8,788		8,296		492			5.9			11,554		18,331			(6,777	)		(37.0	)
Purchased Power – System Use		13,682		19,633		(5,951	)		(30.3	)		13,428		13,163			265			2.0
Electric Operation and Maintenance Expenses		33,179		39,856		(6,677	)		(16.8	)		32,845		35,869			(3,024	)		(8.4	)
Depreciation and Amortization		15,740		15,082		658			4.4			15,647		15,198			449			3.0
Property Taxes		4,168		3,900		268			6.9			4,333		3,965			368			9.3
Operating Income	$	22,596	$	15,477		7,119			46.0		$	37,416	$	27,847			9,569			34.4
Electric Megawatt-hour (mwh) Sales
Retail mwh Sales		1,033,053		1,088,052		(54,999	)		(5.1	)		1,075,336		1,091,427			(16,091	)		(1.5	)
Wholesale mwh Sales – Company Generation		42,140		42,805		(665	)		(1.6	)		75,884		71,506			4,378			6.1
HDDs		635		580		55			9.5
HDDs												61		42			19			45.2
CDDs		170		104		66			63.5			363		288			75			26.0

The following table shows heating and cooling degree days as a percent of normal:

	Three Months ended June 30,						Three Months ended September 30,
	2020			2019			2020			2019
HDDs		122.1	%		112.6	%		115.1	%		76.4	%
CDDs		156.0	%		95.4	%		104.6	%		83.0	%

The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions in the ~~second~~third quarters of 2020 and 2019 and between quarters:

Transmission services revenue ~~decreased $1.8~~increased $0.6 million mainly due to ~~lower tariffs and decreased~~an increase in facility service agreement revenues related to transmission ~~volume resulting from lower electrical demand partially attributable~~upgrades made to accommodate independent generator access to the ~~impact of COVID-19.~~

The $0.7 million increase in other revenue includes $1.0 million from a commercial customer in the second quarter of 2020, partially offset by a $0.3 million decrease in revenue from steam sales to an ethanol producer due to Big Stone Plant being on economic dispatch and not producing steam at certain times during the second quarter of 2020.transmission grid.

Production fuel costs ~~increased $0.5~~decreased $6.8 million ~~despite an 11.7%~~due to a 24.0% decrease in kwhs generated from our fuel-burning plants ~~mainly as~~and a ~~result of a 20.0% increase~~21.7% decrease in ~~fuel-cost~~fuel cost per kwh of generation, weighted heavily by higher fuel costs per kwh of generation at Coyote Station in the ~~second~~third quarter of ~~2020.~~2019. Coyote Station was down for maintenance in the second quarter of 2019 and mine operating costs incurred during the second quarter and absorbed in inventory were expensed as fuel costs when Coyote Station resumed operations in the third quarter of 2019.

The cost of purchased power to serve retail customers ~~decreased $6.0~~increased $0.3 million as a result of an 18.7% increase in kwh purchases, mostly offset by a ~~26.2%~~14.1% decrease in the cost per kwh purchased. The increase in purchased power volume was a function of reduced generation at Big Stone Plant, which went offline for scheduled maintenance in September 2020, and the availability of low-priced energy in the wholesale market. The decrease in purchased power prices was driven mainly by low prices for natural gas-fired ~~generation, and a 5.6% decrease in kwhs purchased. The decrease in purchased power volume is due, in part, to COVID-19-related declines in electricity use by commercial and industrial customers.~~generation.

Electric operating and maintenance expense decreased ~~$6.7~~$3.0 million, including:

Property tax expense increased $0.4 million ~~decrease in travel-related expenses related to COVID-19 travel restrictions was offset by a $0.4 million increase in customer bad debt expense provisions~~ due to ~~adoption of COVID-19-related service suspension~~property additions and ~~debt collection policies.~~

~~Depreciation expense~~ increased ~~$0.7 million mainly due to 2019 capital additions for generation and transmission plant.~~jurisdictional valuations.

Depreciation expense increased $0.4 million mainly due to 2019 capital additions for generation and transmission plant.

	Three Months Ended										Three Months Ended
	June 30,							%			September 30,							%
(in thousands)	2020		2019		Change			Change			2020		2019		Change			Change
Operating Revenues	$	45,948	$	73,496	$	(27,548	)		(37.5	)	$	59,849	$	65,722	$	(5,873	)		(8.9	)
Cost of Products Sold		36,087		56,364		(20,277	)		(36.0	)		44,444		51,399		(6,955	)		(13.5	)
Operating Expenses		5,499		7,954		(2,455	)		(30.9	)		6,901		6,846		55			0.8
Depreciation and Amortization		3,739		3,419		320			9.4			3,759		3,505		254			7.2
Operating Income	$	623	$	5,759	$	(5,136	)		(89.2	)	$	4,745	$	3,972	$	773			19.5

The ~~$27.5~~$5.9 million decrease in revenues in our Manufacturing segment includes the following:

The ~~$20.3~~$7.0 million decrease in cost of products sold in our Manufacturing segment includes the following:

The $2.5 million decrease in operating expenses in our Manufacturing segment includes a $2.3 million decrease in operating expenses at BTD related to initiatives taken at BTD to mitigate the negative impacts on sales related to COVID-19, mainly reductions in salaries, incentives and benefits, travel and outside services expenditures. Operating expenses at T.O. Plastics decreased $0.2 million, mainly due to decreases in salaries and incentives.

BTD incurred $1.0 million in termination costs in the second quarter of 2020, with $0.9 million charged to cost of products sold and $0.1 million charged to operating expense, related to headcount reductions across all its sites in response to the ongoing reduction in sales volume.

We estimate COVID-19 issues at BTD negatively impacted our second quarter earnings by approximately $0.08 per share. This relates to reduced sales, as customers initiated or continued temporary plant shutdowns which caused lost labor productivity, and costs related to personal protective equipment. BTD also continued to pay health care costs for furloughed employees.

	Three Months Ended										Three Months Ended
	June 30,							%			September 30,						%
(in thousands)	2020		2019		Change			Change			2020		2019		Change		Change
Operating Revenues	$	48,679	$	53,476	$	(4,797	)		(9.0	)	$	60,693	$	48,566	$	12,127		25.0
Cost of Products Sold		37,747		41,635		(3,888	)		(9.3	)		42,415		37,353		5,062		13.6
Operating Expenses		2,970		2,949		21			0.7			3,250		2,872		378		13.2
Depreciation and Amortization		872		861		11			1.3			905		865		40		4.6
Operating Income	$	7,090	$	8,031	$	(941	)		(11.7	)	$	14,123	$	7,476	$	6,647		88.9

Plastics segment revenues and operating income ~~decreased $4.8~~increased $12.1 million and ~~$0.9~~$6.6 million, respectively, primarily due to a ~~5.8% decrease~~21.2% increase in pounds of polyvinyl chloride (PVC) pipe sold driven by distributors rebuilding inventory in ~~combination with~~the third quarter of 2020 after reducing inventory levels in the second quarter of 2020 due to uncertainty over the impact of COVID-19 on sales. Cost of products sold increased $5.1 million due to the increase in sales volume, partially offset by a ~~3.3%~~6.3% decrease in the cost per pound of PVC pipe ~~prices.~~sold. The decrease in the cost per pound of PVC pipe sold is primarily due to lower material input costs. The $0.4 million increase in segment operating expenses is mainly due to increased employee benefit costs.

sales volume is attributed to a drop in sales to distributors who reduced inventory levels due to uncertainty over the impact of COVID-19 on sales and expectations of PVC pipe prices decreasing in light of declining resin prices in the second quarter of 2020. Cost of products sold decreased $3.9 million due to the decrease in sales volume and a 3.7% decrease in the cost per pound of PVC pipe sold mainly due to a decrease in resin costs. The decrease in pipe prices partially offset by a decrease in resin prices resulted in a 2.0% decrease in gross margin per pound of PVC pipe sold.

Corporate includes items such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of operating segment performance. Corporate is not an operating segment. Rather it is added to operating segment totals to reconcile to totals on our consolidated statements of income.

	Three Months Ended										Three Months Ended
	June 30,							%			September 30,							%
(in thousands)	2020		2019		Change			Change			2020		2019		Change			Change
Operating Expenses	$	2,315	$	2,369	$	(54	)		(2.3	)	$	3,471	$	1,951	$	1,520			77.9
Depreciation and Amortization		85		79		6			7.6			84		89		(5	)		(5.6	)

The $1.5 million increase in corporate operating expenses is mainly due to an increase in performance incentive accruals driven by improved quarter-over-quarter results.

Interest charges increased to ~~$8.7~~$8.6 million in the three months ended ~~June~~September 30, 2020 from ~~$7.8~~$7.5 million in the three months ended ~~June~~September 30, 2019. The ~~$0.9~~$1.1 million increase in interest charges is primarily due to an increase in interest expense at OTP related to debt issuances of $100 million in October of 2019, ~~and~~ $35 million in February of 2020 and $40 million in August 2020 under OTP’s 2019 Note Purchase Agreement.

Other income increased to ~~$2.4~~$1.7 million in the three months ended ~~June~~September 30, 2020 from ~~$0.8~~$1.0 million in the three months ended ~~June~~September 30, 2019. The ~~$1.6~~$0.7 million increase in other income includes:

Income tax expense increased ~~$0.5~~$4.2 million in the three months ended ~~June~~September 30, 2020 compared with the three months ended ~~June~~September 30, 2019, mainly due to the tax effect of a ~~$2.0~~$15.3 million increase in income before income taxes. The following table provides a reconciliation of income tax expense calculated at our net composite federal and state statutory rate on income before income taxes on our consolidated statements of income.

	Three Months Ended June 30,						Three Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Income Before Income Taxes	$	20,789		$	18,769		$	45,031		$	29,681
Tax Computed at Company’s Net Composite Federal and State Statutory Rate (26%)	$	5,405		$	4,879		$	11,708		$	7,717
(Decreases) Increases in Tax from:
Differences Reversing in Excess of Federal Rates		(543	)		(774	)		(1,678	)		(933	)
Allowance for Funds Used During Construction – Equity								(388	)		(239	)
Research and Development and Other Tax Credits		(333	)		(187	)		(263	)		(612	)
North Dakota Wind Tax Credit Amortization – Net of Federal Taxes		(258	)		(258	)		(259	)		(258	)
Allowance for Funds Used During Construction – Equity		(248	)		(94	)
Corporate Owned Life Insurance		(193	)		(150	)		(155	)		(50	)
Reconciliation and Prior Period Adjustments								172			(688	)
Other Items – Net		(22	)		(73	)		(40	)		(1	)
Income Tax Expense	$	3,808		$	3,343		$	9,097		$	4,936
Effective Income Tax Rate		18.3	%		17.8	%		20.2	%		16.6	%

Consolidated operating revenues were ~~$427.5~~$663.3 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared with ~~$475.2~~$703.8 million for the ~~six~~nine months ended ~~June~~September 30, 2019. Operating income was ~~$67.2~~$119.9 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared with ~~$66.4~~$103.6 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The Company recorded diluted earnings per share of ~~$1.02~~$1.89 for the ~~six~~nine months ended ~~June~~September 30, 2020 compared with ~~$1.05~~$1.67 for the ~~six~~nine months ended ~~June~~September 30, 2019.

Amounts presented in the segment tables that follow for operating revenues, cost of products sold and other nonelectric operating expenses for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 and 2019 will not agree with amounts presented in the consolidated statements of income due to the elimination of intersegment transactions. The amounts of intersegment eliminations by income statement line item are listed below:

Intersegment Eliminations (in thousands)	June 30, 2020		June 30, 2019		September 30, 2020		September 30, 2019
Operating Revenues:
Electric	$	29	$	27	$	39	$	36
Nonelectric		--		3		--		3
Costs of Products Sold		7		20		10		25
Other Nonelectric Expenses		22		10		29		14

	Six Months Ended											Nine Months Ended
	June 30,								%			September 30,								%
(in thousands)	2020		2019			Change			Change			2020		2019			Change			Change
Retail Sales Revenues from Contracts with Customers	$	192,034	$	202,931		$	(10,897	)		(5.4	)	$	288,861	$	303,276		$	(14,415	)		(4.8	)
Changes in Accrued Revenues under Alternative Revenue Programs		122		(680	)		802			117.9			2,900		(1,601	)		4,501			281.1
Total Retail Sales Revenue	$	192,156	$	202,251		$	(10,095	)		(5.0	)	$	291,761	$	301,675		$	(9,914	)		(3.3	)
Transmission Services Revenue		20,514		22,331			(1,817	)		(8.1	)		32,802		34,023			(1,221	)		(3.6	)
Wholesale Revenues – Company Generation		1,641		2,468			(827	)		(33.5	)		3,141		4,099			(958	)		(23.4	)
Other Revenues		3,718		3,303			415			12.6			5,548		4,929			619			12.6
Total Operating Revenues	$	218,029	$	230,353		$	(12,324	)		(5.4	)	$	333,252	$	344,726		$	(11,474	)		(3.3	)
Production Fuel		22,523		27,216			(4,693	)		(17.2	)		34,077		45,547			(11,470	)		(25.2	)
Purchased Power – System Use		32,512		41,585			(9,073	)		(21.8	)		45,940		54,748			(8,808	)		(16.1	)
Other Operation and Maintenance Expenses		73,794		78,238			(4,444	)		(5.7	)		106,639		114,107			(7,468	)		(6.5	)
Depreciation and Amortization		31,416		29,567			1,849			6.3			47,063		44,765			2,298			5.1
Property Taxes		8,268		7,859			409			5.2			12,601		11,824			777			6.6
Operating Income	$	49,516	$	45,888		$	3,628			7.9		$	86,932	$	73,735		$	13,197			17.9
Electric mwh Sales
Retail mwh Sales		2,462,963		2,566,191			(103,228	)		(4.0	)		3,538,299		3,657,618			(119,319	)		(3.3	)
Wholesale mwh Sales – Company Generation		81,064		82,139			(1,075	)		(1.3	)		156,948		153,645			3,303			2.1
HDDs		3,907		4,650			(743	)		(16.0	)		3,968		4,692			(724	)		(15.4	)
CDDs		170		104			66			63.5			533		392			141			36.0

The following table shows heating and cooling degree days as a percent of normal:

	Six Months ended June 30,						Nine Months ended September 30,
	2020			2019			2020			2019
HDDs		99.1	%		118.6	%		99.3	%		118.0	%
CDDs		156.0	%		95.4	%		116.9	%		86.0	%

The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions in the first ~~six~~nine months of 2020 and 2019 and between the periods:

Transmission services revenue decreased ~~$1.8~~$1.2 million mainly due to a $2.1 million reduction in transmission tariff revenues related to decreased transmission volume resulting from lower electrical demand ~~partially~~partly attributable to the impact of ~~COVID-19.~~COVID-19, partially offset by a $0.8 million increase in facility service agreement revenues related to transmission upgrades made to accommodate independent generator access to the transmission grid.

Wholesale electric revenues decreased ~~$0.8~~$1.0 million, ~~due to lower wholesale electric prices and~~despite a ~~1.3% decrease~~2.1% increase in wholesale kwh ~~sales.~~sales, due to a 25% decrease in revenue per kwh sold. The lower wholesale prices per kwh resulted in a ~~$0.2~~$0.4 million decrease in margins on wholesale energy sales from OTP’s generating units in the first ~~six~~nine months of 2020 compared with the first ~~six~~nine months of 2019.

Production fuel costs decreased ~~$4.7~~$11.5 million due to a ~~23.2%~~23.5% decrease in kwhs generated at OTP’s fuel-burning generation plants ~~partially offset by~~and a ~~7.8% increase~~2.2% decrease in fuel costs per kwh generated. ~~A 69.7% increase~~Decreases in generation ~~at Coyote Station, which was offline for maintenance during the entire second quarter~~ of ~~2019, was more than offset by decreases in generation~~41.5% at ~~both~~ Big Stone Plant and 46.1% at Hoot Lake Plant, which were curtailed due to economic dispatch as reduced demand and lower prices for alternative fuels and generation sources drove market prices for electricity down in in the first nine months of 2020, were only partially offset by a 25.7% increase in generation at Coyote Station, which was offline for maintenance during the entire second quarter of ~~2020.~~2019.

The cost of purchased power to serve retail customers decreased ~~$9.1~~$8.8 million as a result of a ~~25.6%~~22.8% decrease in purchased power prices, partially offset by ~~a 5.1%~~an 8.8% increase in kwhs purchased. The increase in kwhs purchased was mainly due to the decrease in market prices for electricity ~~was~~ driven by low prices for natural gas-fired generation in combination with lower demand in the second quarter of 2020 due to COVID-19-related declines in electricity use by commercial and industrial consumers.

Electric operating and maintenance expense decreased ~~$4.4~~$7.5 million, including:

~~A $0.7 million decrease in travel and employee education expenses related to COVID-19 travel restrictions and social distancing requirements was offset by a $0.7~~$1.1 million increase in customer bad debt expense provisions, mainly due to adoption of COVID-19-related service suspension and debt collection policies.

Depreciation expense increased ~~$1.8~~$2.3 million mainly due to 2019 capital additions for generation and transmission plant, the new customer information system that went into service during the first quarter of 2019 and new service vehicles.

Property tax expense increased ~~$0.4~~$0.8 million due to property additions and increased jurisdictional valuations.

	Six Months Ended										Nine Months Ended
	June 30,							%			September 30,							%
(in thousands)	2020		2019		Change			Change			2020		2019		Change			Change
Operating Revenues	$	114,427	$	151,318	$	(36,891	)		(24.4	)	$	174,276	$	217,040	$	(42,764	)		(19.7	)
Cost of Products Sold		86,701		115,603		(28,902	)		(25.0	)		131,145		167,002		(35,857	)		(21.5	)
Operating Expenses		12,777		16,034		(3,257	)		(20.3	)		19,678		22,880		(3,202	)		(14.0	)
Depreciation and Amortization		7,485		7,101		384			5.4			11,244		10,606		638			6.0
Operating Income	$	7,464	$	12,580	$	(5,116	)		(40.7	)	$	12,209	$	16,552	$	(4,343	)		(26.2	)

The ~~$36.9~~$42.8 million decrease in revenues in our Manufacturing segment includes the following:

The ~~$28.9~~$35.9 million decrease in cost of products sold in our Manufacturing segment includes the following:

The ~~$3.3~~$3.2 million decrease in operating expenses in our Manufacturing segment includes a ~~$2.5~~$2.3 million decrease in operating expenses at BTD related to initiatives taken at BTD to mitigate the negative impacts on sales related to COVID-19, mainly reductions in ~~salaries, incentives and benefits,~~ travel and outside services expenditures. Operating expenses at T.O. Plastics decreased ~~$0.8~~$0.9 million, including $0.4 million as a result of the receipt of insurance settlement proceeds in the first quarter of 2020 and a $0.3 million write off of the value of destroyed property in 2019 related to the March 2019 partial roof collapse. T.O, Plastics travel and other selling expenses decreased by ~~$0.1~~$0.2 million due to restrictions on activity in response to COVID-19-related safety initiatives.

We estimate COVID-19 issues at BTD negatively impacted our earnings by approximately ~~$0.09~~$0.08 per share in the first ~~six~~nine months of 2020. This relates to reduced sales as customers initiated or continued temporary plant shutdowns which caused lost labor productivity, and costs related to personal protective equipment. BTD also continued to pay health care costs for furloughed employees.

	Six Months Ended								Nine Months Ended
	June 30,						%		September 30,						%
(in thousands)	2020		2019		Change		Change		2020		2019		Change		Change
Operating Revenues	$	95,076	$	93,534	$	1,542		1.6	$	155,769	$	142,100	$	13,669		9.6
Cost of Products Sold		73,017		72,995		22		--		115,432		110,348		5,084		4.6
Operating Expenses		5,740		5,614		126		2.2		8,990		8,486		504		5.9
Depreciation and Amortization		1,762		1,752		10		0.6		2,667		2,617		50		1.9
Operating Income	$	14,557	$	13,173	$	1,384		10.5	$	28,680	$	20,649	$	8,031		38.9

Plastics segment revenues and operating income increased ~~$1.5~~$13.7 million and ~~$1.4~~$8.0 million, respectively, due to a ~~4.4%~~10.2% increase in pounds of PVC pipe sold ~~partially offset by~~in combination with a ~~2.6%~~ decrease in ~~PVC~~cost per pound of pipe ~~prices.~~sold. The sales volume increase resulted ~~mainly~~ from ~~weather~~a combination of factors including improved market conditions ~~that negatively impacted sales across our sales territory in~~during the ~~first~~third quarter of ~~2019.~~2020 due to limited effects of COVID-19 and concerns over raw material supply and product availability due to two resin suppliers invoking force majeure, anticipated impacts from hurricanes, significant global demand for PVC resin and limited pipe inventory across the country. Cost of products sold ~~remained unchanged despite~~increased $5.1 million due to the increase in sales volume, ~~due to~~partially offset by a ~~4.2%~~5.0% decrease in the cost per pound of PVC pipe sold ~~mainly~~primarily due to ~~decreased resin~~lower material input costs. ~~These items resulted in a 2.9%~~The $0.5 million increase in ~~gross margin per pound of PVC pipe sold.~~segment operating expenses is due to increases in salary and benefit expenses, contracted service costs and corporate management fees.

	Six Months Ended										Nine Months Ended
	June 30,							%			September 30,						%
(in thousands)	2020		2019		Change			Change			2020		2019		Change		Change
Operating Expenses	$	4,167	$	5,101	$	(934	)		(18.3	)	$	7,638	$	7,052	$	586		8.3
Depreciation and Amortization		172		152		20			13.2			256		241		15		6.2

Corporate operating expenses ~~decreased $0.9~~increased $0.6 million mainly as a result of a ~~net~~$0.4 million decrease in ~~incentive~~corporate costs charged to subsidiaries, a $0.4 million increase in labor costs and ~~benefit~~a $0.2 million increase in insurance costs, ~~of $0.5 million and~~partially offset by a $0.3 million decrease in contracted service expenditures.

Interest charges increased to ~~$16.8~~$25.4 million in the ~~six~~nine months ended ~~June~~September 30, 2020 from ~~$15.7~~$23.2 million in the ~~six~~nine months ended ~~June~~September 30, 2019. The ~~$1.1~~$2.2 million increase in interest charges is primarily due to an increase in interest expense at OTP related to debt issuances of $100 million in October of 2019, ~~and~~ $35 million in February of 2020 and $40 million in August 2020 under OTP’s 2019 Note Purchase Agreement.

Other income increased to $3.7 million in the nine months ended September 30, 2020 from $3.1 million in the nine months ended September 30, 2019. The $0.6 million increase in other income includes a $1.5 million increase in allowance for equity funds used during construction (AFUDC) at OTP, mostly related to the Minnesota share of construction work in progress on OTP’s Astoria Station project, partially offset by a $0.8 million decrease in the cash surrender value of corporate-owned life insurance policies held by the Company.

Income tax expense increased ~~$0.5~~$4.6 million in the ~~six~~nine months ended ~~June~~September 30, 2020 compared with the ~~six~~nine months ended ~~June~~September 30, ~~2019.~~2019, mainly due to the tax effect of a $15.3 million increase in income before income taxes. The following table provides a reconciliation of income tax expense calculated at our net composite federal and state statutory rate on income before income taxes on our consolidated statements of income.

	Six Months Ended June 30,						Nine Months Ended September 30,
(in thousands)	2020			2019			2020			2019
Income Before Income Taxes	$	50,695		$	50,721		$	95,726		$	80,402
Tax Computed at Company’s Net Composite Federal and State Statutory Rate (26%)	$	13,181		$	13,187		$	24,889		$	20,905
(Decreases) Increases in Tax from:
Differences Reversing in Excess of Federal Rates		(1,772	)		(1,757	)		(3,450	)		(2,690	)
Allowance for Funds Used During Construction – Equity		(560	)		(180	)		(948	)		(419	)
North Dakota Wind Tax Credit Amortization – Net of Federal Taxes								(775	)		(774	)
Research and Development Tax Credits								(649	)		(987	)
Excess Tax Deduction – Equity Method Stock Awards		(535	)		(827	)		(535	)		(827	)
North Dakota Wind Tax Credit Amortization – Net of Federal Taxes		(516	)		(516	)
Research and Development and Other Tax Credits		(387	)		(375	)
Corporate Owned Life Insurance		14			(559	)		(141	)		(609	)
Reconciliation and Prior Period Adjustments								172			(722	)
Other Items – Net		21			(2	)		(20	)		30
Income Tax Expense	$	9,446		$	8,971		$	18,543		$	13,907
Effective Income Tax Rate		18.6	%		17.7	%		19.4	%		17.3	%

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 capital expenditures related to expansion of existing businesses and development of new projects. Our liquidity, including our operating cash flows and access to capital markets, can be impacted by macroeconomic factors outside of our control, such as those which may be caused by COVID-19. In addition, our liquidity could be impacted by non-compliance with covenants under our various debt instruments. As of ~~June~~September 30, 2020, we were in compliance with all debt covenants (see the Financial Covenant section under Capital Resources below).

As of ~~June~~September 30, 2020, COVID-19 and the resulting deteriorating economic conditions had not had a material impact on our liquidity. We continue to have sufficient liquidity under our credit facilities to support our operating companies based on the current economic environment. We are closely monitoring our liquidity and capital market conditions given the uncertainty surrounding the impact of COVID-19, which could have an adverse effect on the availability and terms of future debt and equity financing.

The following table presents the status of our lines of credit as of ~~June~~September 30, 2020 and December 31, 2019:

(in thousands)	Line Limit		In Use on June 30, 2020		Restricted due to Outstanding Letters of Credit		Available on June 30, 2020		Available on December 31, 2019		Line Limit		In Use on September 30, 2020		Restricted due to Outstanding Letters of Credit		Available on September 30, 2020		Available on December 31, 2019
Otter Tail Corporation Credit Agreement	$	170,000	$	41,239	$	--	$	128,761	$	164,000	$	170,000	$	48,600	$	--	$	121,400	$	164,000
OTP Credit Agreement		170,000		--		7,670		162,330		154,524		170,000		--		7,670		162,330		154,524
Total	$	340,000	$	41,239	$	7,670	$	291,091	$	318,524	$	340,000	$	48,600	$	7,670	$	283,730	$	318,524

We have adopted an internal risk tolerance metric to maintain a minimum of $50 million of liquidity under the Otter Tail Corporation Credit Agreement. Should additional liquidity be needed, this agreement includes an accordion feature allowing us to increase the amount available to $290 million, subject to certain terms and conditions. The OTP Credit Agreement also includes an accordion feature allowing OTP to increase that facility to $250 million, subject to certain terms and conditions.

~~We expect to issue our Series 2020B Notes on August 20, 2020 to provide an additional $40.0 million of liquidity.~~ Our At-the-Market equity offering program, which allows us to sell common shares up to an aggregate sales price of $75 million, remains in effect. We issued ~~$27.0~~$35.0 million of common equity under our At-the-Market offering program, Dividend Reinvestment and Employee Stock Purchase plans in the first ~~six~~nine months of 2020. We expect to issue up to an additional ~~$28~~$20 million in common equity under these programs ~~barring any further deteriorations of~~into 2021 depending on conditions in the equity capital markets ~~from~~caused by the COVID-19 pandemic or other factors. If weakened economic conditions persist for a prolonged period of time, we are prepared to add additional liquidity as necessary, including exercising the accordion features under our lines of credit to increase our available borrowing capacity under the lines by a combined $200 million.

Equity and debt financing will be required in the period 2020 through 2024 given the expansion plans related to our Electric segment to fund construction of new rate base investments. Also, such financing will be required should we decide to reduce borrowings under our lines of credit or refund or retire early any of our presently outstanding debt, to complete acquisitions or for other corporate purposes. The terms and conditions and the timing of our equity and debt financing activities could be impacted by the economic effects of COVID-19 and the resulting market volatility. In addition, our borrowing costs can be impacted by changing interest rates on short-term and long-term debt and ratings assigned to us by independent rating agencies, which in part are based on certain credit measures such as interest coverage and leverage ratios.

The determination of the amount of future cash dividends to be declared and paid will depend on, among other things, our financial condition, improvement in earnings per share, cash flows from operations, the level of our capital expenditures and our future business prospects. As a result of certain statutory limitations or regulatory or financing agreements, restrictions could occur on the amount of distributions allowed to be made by our subsidiaries. See note 7 to consolidated financial statements for additional information. The decision to declare a dividend is reviewed quarterly by the board of directors. On February 4, 2020 our board of directors increased the quarterly dividend from $0.35 to $0.37 per common share.

Cash provided by operating activities was ~~$73.9~~$141.3 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared with cash provided by operating activities of ~~$69.3~~$105.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The primary reasons for the ~~$4.6~~$36.2 million increase in cash provided by operations between the ~~quarters~~periods were an $11.3 million decrease in discretionary pension fund contributions, a ~~$2.3~~$10.7 million increase in net income, a $7.0 million reduction in cash used for working capital items and a $3.0 million increase in the non-cash depreciation expense ~~and a $2.1 million decrease~~between the periods. The reduction in cash used for working capital items ~~between the quarters.~~was mainly due to an $8.1 million decrease in cash used for trade accounts payable at BTD mostly related to lower material purchases resulting from a reduction in business activity in 2020 related to COVID-19.

Net cash used in investing activities was ~~$121.0~~$222.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared with ~~$55.4~~$151.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019. The ~~$65.6~~$71.3 million increase is mainly due to a ~~$70.3~~$77.1 million increase in cash used for construction expenditures at OTP, partially offset by a ~~$4.5~~$6.2 million net decrease in capital expenditures in our nonutility businesses. OTP’s cash used for capital expenditures totaled ~~$113.9~~$210.0 million in the first ~~six~~nine months of 2020 compared with ~~$43.6~~$132.9 million in the first ~~six~~nine months of 2019. The majority of the 2020 expenditures at OTP related to the construction of Astoria Station and Merricourt.

Net cash provided by financing activities was ~~$65.4~~$104.8 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared with net cash ~~used in~~provided by financing activities of ~~$13.8~~$46.0 million for the ~~six~~nine months ended ~~June~~September 30, 2019. Financing activities in the first ~~six~~nine months of 2020 included ~~$35.0~~$75.0 million in ~~proceed~~proceeds from the issuance of long-term debt at OTP under its 2019 Note Purchase Agreement to fund its current construction program expenditures. Further information on the debt issuance is provided below under “Capital Resources.” We also borrowed ~~$35.2~~$42.6 million under the Otter Tail Corporation Credit Agreement and raised net proceeds of ~~$24.8~~$32.7 million from the issuance of common stock. The proceeds from the line borrowings and stock issuances provided the majority of funds for ~~$78~~$105 million in equity contributions to OTP to fund its construction program expenditures. Financing activities in the ~~six~~first nine months of 2020 also included ~~$29.9~~$45.1 million in common dividend payments.

Financing activities in the first ~~six~~nine months of 2019 included proceeds of ~~$13.4~~$90.4 million from borrowings under the OTP ~~credit agreement to fund OTP capital expenditures~~ and ~~$4.6 million under the~~ Otter Tail Corporation ~~Credit Agreement~~credit agreements which were used, together with cash flows from operations, to ~~provide working~~fund OTPs capital ~~for our manufacturing companies.~~expenditures. The ~~line of credit borrowings were more than offset by $27.9~~Company also paid $41.8 million in common ~~dividend payments.~~dividends in the first nine months of 2019.

In June 2020, we updated our 2020-2024 anticipated capital expenditures, shifting the timing of expenditures between years and projects as a result of more definitive plans with no material impact on the $1.0 billion five-year expenditure total. The following table shows our 2019 capital expenditures and June 30, 2020 revised 2020 through 2024 anticipated capital expenditures and electric utility average rate base:

Execution on the anticipated electric utility capital expenditure plan is expected to grow rate base 8.6% and be a key driver in increasing utility earnings over the 2020 through 2024 timeframe.

As of ~~June~~September 30, 2020, OTP had capitalized approximately ~~$131.7~~$231.1 million in project costs and ~~allowances for funds used during construction (AFUDC)~~AFUDC associated with Merricourt. OTP estimates its direct generation and transmission capital costs for the Merricourt project will be approximately $260 million. Additional transmission system upgrades for the project amounting to approximately ~~$6.5~~$6.4 million will be made by a neighboring MISO transmission owner. OTP has received Notices of Force Majeure from EDF-RE US Development, LLC claiming rights to an extension of guaranteed project completion dates and adjustments to the consideration agreed upon in the TEPC Agreement due to COVID-19 impacts. While details regarding these claims and impact to the project remain uncertain, OTP currently ~~expects~~anticipates Merricourt towill be ~~completed~~in commercial operation before the end of December ~~31,~~ 2020. These and other potential impacts of COVID-19-related disruptions continue to present risks for the ~~schedule,~~ costs and timing of payments related to the project.

As of ~~June~~September 30, 2020, OTP had capitalized approximately ~~$108.0~~$131.6 million in project costs and AFUDC associated with Astoria Station. OTP estimates its direct generation and transmission capital costs for the Astoria Station project will be approximately ~~$154~~$152.5 million and anticipates the plant will ~~be online~~begin commercial operation in ~~late 2020 or early~~the first quarter of 2021, prior to the planned retirement of Hoot Lake Plant in May 2021.

In September 2020, OTP ~~has not altered~~announced plans for the construction ~~schedule~~of the $60 million Hoot Lake Solar project. This is a 49-megawatt project OTP expects to build on land around Hoot Lake Plant in Fergus Falls, Minnesota. The project is expected to include up to 170,000 solar panels and to generate enough energy to power approximately 10,000 homes each year. The project is targeted for Astoria Station due to COVID-19. However, COVID-19-related disruptions have increased risks for the project workforce given, among other factors, that it involves more than 250 construction workers on site and 26 have tested positive for COVID-19. Circumstances continue to evolve which could resultcompletion in ~~a delay in completion and increased costs for the project.~~

As of June 30, 2020, our capital expenditure activities had not been materially impacted by COVID-19. However, future supply chain, workforce, contractor or other disruptions could result in added costs and lead to delayed completion of certain of our capital expenditure projects. We are actively monitoring our supply chains and working with our contractors to ensure the continued safety of all parties.2022.

In the first ~~six~~nine months of 2020, OTP paid down a portion of its $317 million in obligations for commitments under contracts in place as of December 31, 2019, reducing its obligations for commitments under contracts to ~~$185~~$58 million as of ~~June~~September 30, 2020. This includes commitments related to the construction of Astoria Station and Merricourt of ~~$163~~$39 million for the remainder of 2020 and $6 million for 2021. In the first ~~quarter~~nine months of 2020, OTP increased its debt obligations by ~~$35~~$75 million in the years beyond 2024. In September 2020, OTP entered into a 20-year Facilities Service Agreement with an owner of adjacent transmission assets to pay for upgrades and additions to the owner’s transmission facilities required to accommodate the transmission of electricity generated by Merricourt’s wind turbines, increasing its other purchase obligations by $1.4 million in each of the two-year periods 2021-2022 and 2023-2024, and $10.8 million beyond 2024.

On May 3, 2018 we filed a shelf registration statement with the Securities and Exchange Commission (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, which expires on May 3, 2021. On May 3, 2018 we also filed a shelf registration statement with the SEC for the issuance of up to 1,500,000 common shares under our Automatic Dividend Reinvestment and Share Purchase Plan (the Plan), which permits shares purchased by participants in the Plan to be either new issue common shares or common shares purchased in the open market. The shelf registration for the Plan expires on May 3, 2021. On November 8, 2019 the Company entered into a Distribution Agreement with KeyBanc under which we may offer and sell our common shares from time to time through KeyBanc, as our distribution agent, up to an aggregate sales price of $75 million through an At-the-Market offering program. In the ~~second~~third quarter of 2020, we received proceeds of ~~$16,331,139,~~$3,523,311, net of ~~$206,723~~$44,599 in commissions, from the issuance of ~~388,304~~87,400 common shares under this program.

~~Following are brief~~Brief descriptions of the short-term and long-term credit and debt agreements currently in place at Otter Tail Corporation and ~~OTP.~~OTP are presented below. See note 10 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information on the terms, provisions, restrictions and covenants under these agreements.

On October 29, 2012 we entered into a Third Amended and Restated Credit Agreement (the OTC Credit Agreement), which provided for an unsecured $130 million revolving credit facility that could be increased subject to certain terms and conditions. On October 31, 2019 the OTC Credit Agreement was amended to extend its expiration date by one year from October 31, 2023 to October 31, 2024, and to increase the amount of the revolving credit facility to $170 million. The amendment also provides this facility can be increased to $290 million subject to certain terms and conditions. Borrowings under the OTC Credit Agreement bear interest at LIBOR plus 1.50%, subject to adjustment based on our senior unsecured credit ratings or the issuer rating if a rating is not provided for the senior unsecured credit.

On October 29, 2012 OTP entered into a Second Amended and Restated Credit Agreement (the OTP Credit Agreement), providing for an unsecured $170 million revolving credit facility that may be increased to $250 million subject to certain terms and conditions. On October 31, 2019 the OTP Credit Agreement was amended to extend its expiration date by one year from October 31, 2023 to October 31, 2024. OTP can draw on this credit facility to support the working capital needs and other capital requirements of its operations, including letters of credit in an aggregate amount not to exceed $50 million outstanding at any time. Borrowings under this line of credit bear interest at LIBOR plus 1.25%, subject to adjustment based on the ratings of OTP’s senior unsecured debt or the issuer rating if a rating is not provided for the senior unsecured debt.

On September 12, 2019,OTP entered into a Note Purchase Agreement (the 2019 Note Purchase Agreement) with the purchasers named therein, pursuant to which OTP agreed to issue to the purchasers, in a private placement transaction, $175 million aggregate principal amount of OTP’s senior unsecured notes consisting of (a) $10,000,000 aggregate principal amount of its 3.07% Series 2019A Senior Unsecured Notes due October 10, 2029 (the Series 2019A Notes), (b) $26,000,000 aggregate principal amount of its 3.52% Series 2019B Senior Unsecured Notes due October 10, 2039 (the Series 2019B Notes), (c) $64,000,000 aggregate principal amount of its 3.82% Series 2019C Senior Unsecured Notes due October 10, 2049 (the Series 2019C Notes), (d) $10,000,000 aggregate principal amount of its 3.22% Series 2020A Senior Unsecured Notes due February 25, 2030 (the Series 2020A Notes), (e) $40,000,000 aggregate principal amount of its 3.22% Series 2020B Senior Unsecured Notes due August 20, 2030 (the Series 2020B Notes), (f) $10,000,000 aggregate principal amount of its 3.62% Series 2020C Senior Unsecured Notes due February 25, 2040 (the Series 2020C Notes) and (g) $15,000,000 aggregate principal amount of its 3.92% Series 2020D Senior Unsecured Notes due February 25, 2050 (the Series 2020D Notes).

On February 25, 2020, OTP issued the Series 2020A Notes, the Series 2020C Notes and the Series 2020D Notes pursuant to the 2019 Note Purchase Agreement. On August 20, 2020, OTP issued the Series 2020B Notes pursuant to the 2019 Note Purchase Agreement. OTP used the ~~$35~~$75 million proceeds from the ~~issuance~~issuances to pay for capital expenditures and for other corporate purposes. The Series 2019A Notes, Series 2019B Notes and Series 2019C Notes were issued by OTP on October 10, 2019. The remaining notes to be issued under the 2019 Note Purchase Agreement, Series 2020B Notes, are expected to be issued on August 20, 2020, subject to the satisfaction of certain customary conditions to closing.

On February 27, 2018 OTP issued $100 million aggregate principal amount of its 4.07% Series 2018A Senior Unsecured Notes due February 7, 2048 pursuant to a Note Purchase Agreement dated as of November 14, 2017 (the 2018 Note Purchase Agreement).

On December 13, 2016 Otter Tail Corporation issued $80 million aggregate principal amount of its 3.55% Guaranteed Senior Notes due December 15, 2026 (the 2026 Notes) pursuant to a Note Purchase Agreement dated as of September 23, 2016 (the 2016 Note Purchase Agreement). Our obligations under the 2016 Note Purchase Agreement and the 2026 Notes are guaranteed by our Material Subsidiaries (as defined in the 2016 Note Purchase Agreement, but specifically excluding OTP).

On February 27, 2014 OTP issued $60 million aggregate principal amount of its 4.68% Series A Senior Unsecured Notes due February 27, 2029 and $90 million aggregate principal amount of its 5.47% Series B Senior Unsecured Notes due February 27, 2044 pursuant to a Note Purchase Agreement dated as of August 14, 2013 (the 2013 Note Purchase Agreement).

On December 1, 2011 OTP issued $140 million aggregate principal amount of its 4.63% Senior Unsecured Notes due December 1, 2021 pursuant to a Note Purchase Agreement dated as of July 29, 2011 (the 2011 Note Purchase Agreement).

OTP also has outstanding its $122 million senior unsecured notes issued in three series consisting of $30 million aggregate principal amount of 6.15% Senior Unsecured Notes, Series B, due 2022; $42 million aggregate principal amount of 6.37% Senior Unsecured Notes, Series C, due 2027; and $50 million aggregate principal amount of 6.47% Senior Unsecured Notes, Series D, due 2037 (collectively, the 2007 Notes). The 2007 Notes were issued pursuant to a Note Purchase Agreement dated as of August 20, 2007 (the 2007 Note Purchase Agreement).

We were in compliance with the financial covenants in our debt agreements as of ~~June~~September 30, 2020.

No Credit Agreement or Note Purchase Agreement contains 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.

Our borrowing agreements are subject to certain financial covenants. Specifically:

As of ~~June~~September 30, 2020, our ratio of Interest-bearing Debt to Total Capitalization was ~~0.48~~0.49 to 1.00 on a consolidated basis and 0.47 to 1.00 for OTP. Neither Otter Tail Corporation nor OTP had any Priority Indebtedness outstanding as of ~~June~~September 30, 2020.

We and our subsidiary companies have outstanding letters of credit totaling $12.1 million, but our line of credit borrowing limits are only restricted by $7.7 million in outstanding letters of credit. We do not have any other off-balance-sheet arrangements or any relationships with unconsolidated entities or financial partnerships. These entities are often referred to as structured finance special purpose entities or variable interest entities, which are established for the purpose of facilitating off-balance-sheet arrangements or for other contractually narrow or limited purposes. We are not exposed to any financing, liquidity, market or credit risk that could arise if we had such relationships.

We are raising and narrowing our 2020 ~~overall~~ diluted earnings per share guidance range based on our ~~first half~~ financial results through the first nine months of 2020 and updated view of ~~the anticipated effects of the COVID-19 pandemic on~~current business conditions in our ~~operating companies.~~Plastics and Manufacturing segments. We now expect our 2020 diluted earnings per share to be in the range of $2.26 to $2.36 instead of $2.10 to $2.30. This ~~improvement~~revision in guidance is primarily driven by strong ~~first half~~ performance in our Plastics segment along with continued favorable business conditions in this segment expected through the rest of 2020. Also, the impact of COVID-19 on our Electric segment has been less than previously expected. Our 2020 diluted earnings per share guidance includes $0.04 of dilution associated with actual and planned issuances of common shares under our At-the-Market Offering Program and Dividend Reinvestment and Employee Stock Purchase Plans to help fund construction projects at OTP.

We ~~also have taken into consideration strategies for improving future operating results, the cyclical nature of some of our businesses, and current regulatory factors facing our Electric segment. We~~ currently expect capital ~~expenditures for 2020~~additions to be $380 million ~~compared~~in 2020, with ~~actual cash used for capital expenditures of $207 million in 2019. Our~~our Electric segment ~~accounts~~accounting for 96% of ~~our 2020 planned capital expenditures. The increase in our planned expenditures for 2020 is~~those additions, largely driven by the Merricourt and Astoria Station rate base projects. In June 2020, we updated our 2020-2024 anticipated capital expenditures, shifting the timing of expenditures between years and projects as a result of more definitive plans with no material impact on the $1.0 billion five-year expenditure total. A ~~revised~~ five-year anticipated capital expenditures table is provided above on page 45.

Our current assumptions for our updated Business Outlook assume our Electric and Plastics segments are in a gradual recovery as reflected in our updated guidance ranges. Our Manufacturing segment is under a slow recovery. BTD’s customers reduced production levels in the second quarter in response to COVID-19, causing a sharp decline in orders and revenue. We are planning for our Manufacturing segment plants to run at higher levels of capacity in the third and fourth quarters as customer forecasts are indicating increased demand as production plants are being brought back online. We continue to believe our assumptions are reasonable based on current business and economic conditions. We recognize these assumptions may prove to be inaccurate given the recent flare-up in COVID cases, which could result in a further slowing of the broader economic recovery. If our assumptions are not correct and we experience a prolonged negative economic impact from COVID-19, our outlook will be revised accordingly.

Segment components of our revised 2020 diluted earnings per share guidance range compared with 2019 actual earnings and with our previously issued guidance are as follows.

		2019 EPS by		2020 Guidance February 20, 2020						2020 Guidance May 5, 2020						2020 Guidance August 3, 2020						2019 EPS by			2020 Guidance February 20, 2020						2020 Guidance May 5, 2020						2020 Guidance August 3, 2020						2020 Guidance November 2, 2020
Diluted Earnings Per Share		Segment		Low			High			Low			High			Low			High				Segment		Low			High			Low			High			Low			High			Low			High
Electric	$	1.48		$	1.67		$	1.70		$	1.65		$	1.70		$	1.67		$	1.70		$	1.48		$	1.67		$	1.70		$	1.65		$	1.70		$	1.67		$	1.70		$	1.67		$	1.69
Manufacturing	$	0.32		$	0.31		$	0.35		$	0.14		$	0.23		$	0.15		$	0.23		$	0.32		$	0.31		$	0.35		$	0.14		$	0.23		$	0.15		$	0.23		$	0.23		$	0.25
Plastics	$	0.51		$	0.43		$	0.47		$	0.43		$	0.47		$	0.50		$	0.54		$	0.51		$	0.43		$	0.47		$	0.43		$	0.47		$	0.50		$	0.54		$	0.64		$	0.66
Corporate	$	(0.14	)	$	(0.19	)	$	(0.15	)	$	(0.22	)	$	(0.15	)	$	(0.22	)	$	(0.17	)	$	(0.14	)	$	(0.19	)	$	(0.15	)	$	(0.22	)	$	(0.15	)	$	(0.22	)	$	(0.17	)	$	(0.28	)	$	(0.24	)
Total	$	2.17		$	2.22		$	2.37		$	2.00		$	2.25		$	2.10		$	2.30		$	2.17		$	2.22		$	2.37		$	2.00		$	2.25		$	2.10		$	2.30		$	2.26		$	2.36
Return on Equity		11.6	%		11.0	%		11.7	%		9.9	%		11.1	%		10.4	%		11.4	%		11.6	%		11.0	%		11.7	%		9.9	%		11.1	%		10.4	%		11.4	%		11.2	%		11.7	%

~~Our~~The estimates and assumptions underlying our latest 2020 guidance ~~issued~~(issued on ~~August 3, 2020,~~November 2, 2020) as compared to earlier guidance ~~issued~~(issued on ~~May 5, 2020, is~~August 3, 2020) are summarized below.

The discussion and analysis of the financial statements and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

We use estimates based on the best information available in recording transactions and balances resulting from business operations. Estimates are used for such items as depreciable lives, asset impairment evaluations, tax provisions, collectability of trade accounts receivable, self-insurance programs, unbilled electric revenues, interim rate refunds, warranty reserves and actuarially determined benefits costs and liabilities. As better information becomes available or actual amounts are known, estimates are revised. Operating results can be affected by revised estimates. Actual results may differ from these estimates under different assumptions or conditions. Management has discussed the application of these critical accounting policies and the development of these estimates with the Audit Committee of the board of directors. A discussion of critical accounting policies is included under the caption “Critical Accounting Policies Involving Significant Estimates” on pages 57 through 59 of our Annual Report on Form 10-K for the year ended December 31, 2019. Aside from an interim test of goodwill impairment performed for our BTD reporting unit, which was performed during the quarter ended March 31, 2020 and is further described below, there ~~were~~have been no material changes in critical accounting policies or ~~estimates during the quarter ended June 30, 2020.~~estimates.

Goodwill is required to be tested annually for impairment and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Examples of such events or circumstances may include, among others, a significant adverse change in business climate, weakness in an industry in which a reporting unit operates or recent significant cash or operating losses with expectations that those losses will continue. Goodwill is tested for impairment at the reporting unit level. A reporting unit is defined as an operating segment or one level below an operating segment (referred to as a component). A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component.

During the quarter ended March 31, 2020, the Company concluded an interim impairment test of goodwill of its BTD reporting unit, which carries a goodwill balance of $18.1 million, was warranted. This conclusion was reached based on the deteriorating economic conditions resulting from COVID-19 that led to lower product demand across all end markets beginning in the last half of March 2020 and the anticipation of subsequent further reduced demand resulting from temporary plant shutdowns of our original equipment manufacturer customers. In response to this reduced demand, BTD has reduced its operating levels and implemented certain cost reduction efforts, including temporary furloughs of production employees.

We estimated the fair value of the BTD reporting unit 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 related to cash flows beyond the projection period. The discount rate applied to the estimated future cash flows reflects our estimate of the weighted-average cost of capital of comparable companies. To supplement our income approach, we reference various market indications of fair value, where available. Our market approach includes fair value estimates using multiples derived from comparable enterprise values to EBITDA and revenue multiples, comparable price earnings ratios and, if available, comparable sales transactions for comparative peer companies.

The impairment assessment indicated no impairment was present as the estimated fair value of the reporting unit exceeded the carrying value by approximately 20%. The most significant assumption impacting our fair value estimate under the income approach is the anticipated duration and severity of reduced demand and the resulting impact on revenue levels given the uncertainty of economic conditions in light of COVID-19. Our assumptions included significantly reduced demand in the second quarter of 2020 followed by recovering levels of demand in the third and fourth quarters of 2020. Other significant assumptions included operating expense levels and our ability to manage costs during the anticipated period of reduced demand, the terminal growth rate which impacts estimated cash flow generation beyond our discrete projection period, and the discount rate applied to our estimated future cash flows.

Our estimates and assumptions inherently include a degree of uncertainty, and these estimates and assumptions could be significantly impacted by factors such as the duration and severity of reduced economic activity and industry conditions within the recreational vehicle, lawn and garden, construction, agricultural, and industrial and energy equipment end markets. A significant change in our estimates and assumptions could result in an impairment charge in a future period which could materially impact our results of operations and financial position.

Forward Looking Information - Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 (the Act), we have filed cautionary statements identifying important factors that could cause our actual results to differ materially from those discussed in forward-looking statements made by or on behalf of the Company. When used in this Form 10-Q and in future filings by the Company with the Securities and Exchange Commission, in our press releases and in oral statements, words such as "may", "will", "expect", "anticipate", "continue", "estimate", "project", "believes" or similar expressions are intended to identify forward-looking statements within the meaning of the Act and are included, along with this statement, for purposes of complying with the safe harbor provision of the Act. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among other factors, the risks and uncertainties described in the section entitled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the ~~quarter~~quarters ended ~~March 31,~~June 30, 2020 and ~~in Part II, Item 1A of this report on Form 10-Q,~~September 30, 2020, as well as the various factors described below:

At ~~June~~September 30, 2020 we had exposure to market risk associated with interest rates because we had ~~$41.2~~$48.6 million in short-term debt outstanding subject to variable interest rates indexed to LIBOR plus 1.50% under the OTC Credit Agreement.

All of our remaining consolidated long-term debt outstanding on ~~June~~September 30, 2020 has fixed interest rates. We manage our interest rate risk through the issuance of fixed-rate debt with varying maturities, through economic refunding of debt through optional refundings, limiting the amount of variable interest rate debt, and the utilization of short-term borrowings to allow flexibility in the timing and placement of long-term debt.

We have not used interest rate swaps to manage net exposure to interest rate changes related to our portfolio of borrowings. We maintain a ratio of fixed-rate debt to total debt within a certain range. It is our policy to enter into interest rate transactions and other financial instruments only to the extent considered necessary to meet our stated objectives. We do not enter into interest rate transactions for speculative or trading purposes.

The companies in our Manufacturing segment are exposed to market risk related to changes in commodity prices for steel, aluminum, and polystyrene and other plastics resins. The price and availability of these raw materials could affect the revenues and earnings of our Manufacturing segment.

The PVC pipe companies are exposed to market risk related to changes in commodity prices for PVC resins, the raw material used to manufacture PVC pipe. The PVC pipe industry is highly sensitive to commodity raw material pricing volatility. Historically, when resin prices are rising or stable, sales volume has been higher and when resin prices are falling, sales volume has been lower. Operating income may decline when the supply of PVC pipe increases faster than demand. Due to the commodity nature of PVC resin and the dynamic supply and demand factors worldwide, it is very difficult to predict gross margin percentages or to assume that historical trends will continue.

Under the supervision and with the participation of company management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of ~~June~~September 30, 2020, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June~~September 30, 2020.

During the fiscal quarter ended ~~June~~September 30, 2020, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We are the subject of various legal and regulatory proceedings in the ordinary course of our business. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance. We record a liability in our consolidated financial statements for costs related to claims, including future legal costs, settlements and judgments, where we have assessed that a loss is probable, and an amount can be reasonably estimated. Material proceedings are described under note 3, “Rate and Regulatory Matters” and note 9, "Commitments and Contingencies" to the consolidated financial statements.

Aside from the additional risk factor described below and in Part II, Item 1A of our Quarterly Report on Form ~~10 Q~~10-Q for the quarter ended ~~March 31,~~June 30, 2020, there has been no material change in the risk factors set forth under Part I, Item 1A, “Risk Factors” on pages 29 through 39 of our Annual Report on Form 10-K for the year ended December 31, 2019.

The economic effects of the COVID-19 ~~outbreak~~pandemic and measures taken to arrest its spread,as well as any emergency measures we take in response, could continue toadversely impact our business, including our results of operations, financial condition and liquidity.

The outbreak and global spread of COVID-19, which has been declared a pandemic by the World Health Organization, has adversely impacted economic activity and conditions worldwide and is currently impacting our business operations. The extent to which COVID-19 will continue to impact our business is highly uncertain and will depend on future developments and the extent of federal, state and local government responses affecting ~~economic recovery.~~the economy. In particular, the COVID-19 pandemic could, among other things:

We continue to monitor developments involving our workforce, customers, construction contractors, suppliers and vendors and take steps to mitigate against additional impacts, but given the unprecedented and dynamic nature of these circumstances, we cannot predict the full extent of the impact that COVID-19 will have on our results of operations, financial condition and liquidity. The situation continues to change, and the magnitude of the impact will depend, in part, on the length and severity of the pandemic. However, the effects could have a material impact on our results of operations, financial condition and liquidity and heighten many of the known risks described under Part I, Item 1A, “Risk Factors” on pages 29 through 39 of our Annual Report on Form 10-K for the year ended December 31, 2019.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Kevin G. Moug
Chief Financial Officer and Senior Vice President
(Chief Financial Officer/Authorized Officer)

Part I. Financial Information		Page No.

Item 1.	Financial Statements

	Consolidated Balance Sheets – ~~June~~September 30, 2020 and December 31, 2019 (not audited)	2 & 3

	Consolidated Statements of Income – Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2020 and 2019 (not audited)	4

	Consolidated Statements of Comprehensive Income – Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2020 and 2019 (not audited)	5

	Consolidated Statements of Common Shareholders’ Equity – Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2020 and 2019 (not audited)	6

	Consolidated Statements of Cash Flows – ~~Six~~Nine Months Ended ~~June~~September 30, 2020 and 2019 (not audited)	7

	Condensed Notes to Consolidated Financial Statements (not audited)	8-33

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34-52

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5352

Item 4.	Controls and Procedures	5352

Part II. Other Information

Item 1.	Legal Proceedings	5453

Item 1A.	Risk Factors	5453

Item 6.	Exhibits	5554

Signatures		5554

	September 30, 2020								Remaining Recovery/
(in thousands)	Current		Long-Term			Total				Refund Period (months)
Regulatory Assets:
Prior Service Costs and Actuarial Losses on Pensions and Other Postretirement Benefits¹	$	9,018	$	122,765		$	131,783		see below
Minnesota Transmission Cost Recovery Rider Accrued Revenues²		3,676		6,126			9,802			27
Accumulated Asset Retirement Obligation (ARO) Accretion/Depreciation Adjustment¹		0		8,481			8,481		asset lives
Conservation Improvement Program Costs and Incentives²		1,040		2,094			3,134			24
Nonservice Costs Components of Postretirement Benefits Capitalized for Ratemaking Purposes and Subject to Deferred Recovery¹		0		2,149			2,149		asset lives
MISO Schedule 26/26A Transmission Cost Recovery Rider True-ups¹		1,234		559			1,793			27
Unrecovered Project Costs – Minnesota¹		401		1,092			1,493			21
Minnesota Renewable Resource Rider Accrued Revenues²		1,203		0			1,203			12
Unrecovered Project Costs – North Dakota¹		0		856			856			21
Minnesota SPP Transmission Cost Recovery Tracker¹		0		759			759		see below
Debt Reacquisition Premiums¹		204		379			583			144
Unrecovered Project Costs – South Dakota¹		144		357			501			24
South Dakota Deferred Rate Case Expenses Subject to Recovery¹		137		143			280			25
North Dakota Deferred Rate Case Expenses Subject to Recovery¹		122		152			274			27
Deferred Marked-to-Market Losses¹		186		-			186			3
North Dakota Generation Cost Recovery Rider Accrued Revenue²		66		0			66			9
Deferred Lease Expenses¹		0		65			65			56
Minnesota Environmental Cost Recovery Rider Accrued Revenues²		4		0			4			12
Total Regulatory Assets	$	17,435	$	145,977		$	163,412
Regulatory Liabilities:
Deferred Income Taxes	$	0	$	136,630		$	136,630		asset lives
Accumulated Reserve for Estimated Removal Costs – Net of Salvage		0		99,617			99,617		asset lives
Refundable Fuel Clause Adjustment Revenues		9,208		0			9,208			12
North Dakota Transmission Cost Recovery Rider Accrued Refund		1,233		0			1,233			3
South Dakota Phase-In Rate Plan Rider Accrued Refund		1,090		0			1,090			11
Revenue for Rate Case Expenses Subject to Refund – Minnesota		0		577			577		see below
Prior Service Costs and Actuarial Gains on Postretirement Benefits		471		0			471			12
North Dakota Renewable Resource Recovery Rider Accrued Refund		444		0			444			6
South Dakota Transmission Cost Recovery Rider Accrued Refund		232		0			232			5
Minnesota Energy Intensive Trade Exposed Rider Accrued Refund		186		0			186			12
Other		6		68			74			159
Total Regulatory Liabilities	$	12,870	$	236,892		$	249,762
Net Regulatory Asset/(Liability) Position	$	4,565	$	(90,915	)	$	(86,350	)

Common Shares Outstanding, December 31, 2019	40,157,591
Issuances:
At-the-Market Offering	~~500,684~~588,084
Automatic Dividend Reinvestment and Share Purchase Plan:
Dividends Reinvested	~~63,929~~102,042
Cash Invested	~~30,345~~88,636
Executive Stock Performance Awards (2017 awards earned)	62,497
Vesting of Restricted Stock Units	35,720
Employee Stock Purchase Plan:
Cash Invested	~~13,432~~29,894
Dividends Reinvested	~~4,835~~7,906
Restricted Stock Issued to Directors	17,400
Directors Deferred Compensation	612
Retirements:
Shares Withheld for Individual Income Tax Requirements	(38,217	)
Common Shares Outstanding, ~~June~~September 30, 2020	~~40,848,828~~41,052,165

Award	Grant Date	Shares/ Units Granted		Weighted Average Grant-Date Fair Value per Award		Vesting
Restricted Stock Units Granted:
With Dividend Equivalent:
To Key Management Employees	February 3, 2020		3,000	$	54.0450	25% per year through February 6, 2024
To Executive Officers	February 12, 2020		15,300	$	54.0607	25% per year through February 6, 2024
Without Dividend Equivalent:
To Nonexecutive Employees	April 20, 2020		14,975	$	40.18	100% April 8, 2024
Stock Performance Awards Granted:
Under Executive Agreement	February 12, 2020		47,600	$	47.10	December 31, 2022
Under Legacy Agreement	February 12, 2020		7,400	$	52.20	December 31, 2022
Restricted Stock Granted to Nonemployee Directors	April 20, 2020		17,400	$	44.85	33% per year through April 8, 2023

Otter Tail Corporation
Consolidated Balance Sheets
(not audited)

Otter Tail Corporation
Consolidated Statements of Income
(not audited)

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except share and per-share amounts)	2020		2019		2020		2019
Operating Revenues
Electric:
Revenues from Contracts with Customers	$	97,921	$	101,861	$	217,878	$	231,006
Changes in Accrued Revenues under Alternative Revenue Programs		209		369		122		(680	)
Total Electric Revenues		98,130		102,230		218,000		230,326
Product Sales from Contracts with Customers		94,626		126,973		209,503		244,849
Total Operating Revenues		192,756		229,203		427,503		475,175
Operating Expenses
Production Fuel – Electric		8,788		8,296		22,523		27,216
Purchased Power – Electric System Use		13,682		19,633		32,512		41,585
Electric Operation and Maintenance Expenses		33,179		39,856		73,794		78,238
Cost of Products Sold (depreciation included below)		73,832		97,996		159,711		188,578
Other Nonelectric Expenses		10,762		13,262		22,662		26,739
Depreciation and Amortization		20,436		19,441		40,835		38,572
Property Taxes – Electric		4,168		3,900		8,268		7,859
Total Operating Expenses		164,847		202,384		360,305		408,787
Operating Income		27,909		26,819		67,198		66,388
Interest Charges		8,662		7,825		16,785		15,651
Nonservice Cost Components of Postretirement Benefits		868		1,075		1,739		2,110
Other Income		2,410		850		2,021		2,094
Income Before Income Taxes		20,789		18,769		50,695		50,721
Income Tax Expense		3,808		3,343		9,446		8,971
Net Income		16,981		15,426		41,249		41,750

Average Number of Common Shares Outstanding – Basic		40,513,286		39,712,036		40,365,214		39,684,679
Average Number of Common Shares Outstanding – Diluted		40,676,761		39,917,831		40,560,549		39,910,499

Basic Earnings Per Common Share	$	0.42	$	0.39	$	1.02	$	1.05

Diluted Earnings Per Common Share	$	0.42	$	0.39	$	1.02	$	1.05

(in thousands, except common shares outstanding)	Common Shares Outstanding			Par Value, Common Shares			Premium on Common Shares			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Common Equity
Balance, March 31, 2020		40,376,448		$	201,882		$	372,669		$	231,702		$	(6,234	)	$	800,019
Common Stock Issuances, Net of Expenses		472,380			2,362			16,235									18,597
Net Income											16,981						16,981
Other Comprehensive Income														199			199
Employee Stock Incentive Plan Expense								1,237									1,237
Common Dividends ($0.37 per share)											(14,978	)					(14,978	)
Balance, June 30, 2020		40,848,828		$	204,244		$	390,141		$	233,705		$	(6,035	)	$	822,055

Balance, March 31, 2019		39,729,708		$	198,649		$	342,991		$	203,619		$	(4,760	)	$	740,499
Common Stock Issuances, Net of Expenses		25,194			126			(109	)								17
Net Income											15,426						15,426
Other Comprehensive Income														145			145
Employee Stock Incentive Plan Expense								2,148									2,148
Common Dividends ($0.35 per share)											(13,930	)					(13,930	)
Balance, June 30, 2019		39,754,902		$	198,775		$	345,030		$	205,115		$	(4,615	)	$	744,305

Balance, December 31, 2019		40,157,591		$	200,788		$	364,790		$	222,341		$	(6,437	)	$	781,482
Common Stock Issuances, Net of Expenses		729,454			3,647			23,222									26,869
Common Stock Retirements		(38,217	)		(191	)		(1,878	)								(2,069	)
Net Income											41,249						41,249
Other Comprehensive Income														402			402
Employee Stock Incentive Plan Expense								4,007									4,007
Common Dividends ($0.74 per share)											(29,885	)					(29,885	)
Balance, June 30, 2020		40,848,828		$	204,244		$	390,141		$	233,705		$	(6,035	)	$	822,055

Balance, December 31, 2018		39,664,884		$	198,324		$	344,250		$	190,433		$	(4,144	)	$	728,863
Common Stock Issuances, Net of Expenses		145,242			727			(710	)								17
Common Stock Retirements		(55,224	)		(276	)		(2,454	)								(2,730	)
Net Income											41,750						41,750
Other Comprehensive Income														313			313
ASU 2018-02 2017 TCJA Stranded Tax Transfer											784			(784	)		-
Employee Stock Incentive Plan Expense								3,944									3,944
Common Dividends ($0.70 per share)											(27,852	)					(27,852	)
Balance, June 30, 2019		39,754,902		$	198,775		$	345,030		$	205,115		$	(4,615	)	$	744,305

Otter Tail Corporation
Consolidated Statements of Cash Flows
(not audited)

	Six Months Ended June 30,
(in thousands)	2020			2019
Operating Activities
Net Income	$	41,249		$	41,750
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		40,835			38,572
Deferred Tax Credits		(657	)		(674	)
Deferred Income Taxes		9,472			960
Change in Deferred Debits and Other Assets		5,565			3,884
Discretionary Contribution to Pension Plan		(11,200	)		(10,000	)
Change in Noncurrent Liabilities and Deferred Credits		5,178			11,942
Allowance for Equity/Other Funds Used During Construction		(1,858	)		(688	)
Stock Compensation Expense		4,007			3,944
Other—Net		(147	)		276
Cash (Used for) Provided by Current Assets and Current Liabilities:
Change in Receivables		(3,929	)		(30,478	)
Change in Inventories		8,097			410
Change in Other Current Assets		(1,066	)		2,870
Change in Payables and Other Current Liabilities		(23,562	)		222
Change in Interest and Income Taxes Receivable/Payable		1,917			6,297
Net Cash Provided by Operating Activities		73,901			69,287
Investing Activities
Capital Expenditures		(119,830	)		(54,012	)
Proceeds from Disposal of Noncurrent Assets		3,953			3,405
Cash Used for Investments and Other Assets		(5,128	)		(4,776	)
Net Cash Used in Investing Activities		(121,005	)		(55,383	)
Financing Activities
Change in Checks Written in Excess of Cash		550			(1,120	)
Net Short-Term Borrowings		35,239			18,003
Proceeds from Issuance of Common Stock		27,225			-
Common Stock Issuance Expenses		(374	)		-
Payments for Shares Withheld for Employee Tax Obligations		(2,069	)		(2,730	)
Proceeds from Issuance of Long-Term Debt		35,000			-
Short-Term and Long-Term Debt Issuance Expenses		(179	)		-
Payments for Retirement of Long-Term Debt		(90	)		(84	)
Dividends Paid		(29,885	)		(27,852	)
Net Cash Provided by (Used in) Financing Activities		65,417			(13,783	)
Net Change in Cash and Cash Equivalents		18,313			121
Cash and Cash Equivalents at Beginning of Period		21,199			861
Cash and Cash Equivalents at End of Period	$	39,512		$	982

	Three Months Ended September 30,						Nine Months Ended September 30,
Rate Rider (in thousands)	2020			2019			2020			2019
Minnesota
Renewable Resource Recovery	$	3,318		$	1,316		$	9,660		$	3,949
Conservation Improvement Program Costs and Incentives		2,096			1,518			4,703			4,246
Transmission Cost Recovery		2,001			(284	)		2,402			301
Environmental Cost Recovery		0			0			0			(1	)
North Dakota
Renewable Resource Adjustment		1,256			(20	)		3,455			616
Transmission Cost Recovery		809			908			3,131			3,554
Generation Cost Recovery		1,187			137			3,035			607
Environmental Cost Recovery		0			(7	)		0			556
South Dakota
Transmission Cost Recovery		450			743			1,383			1,587
Conservation Improvement Program Costs and Incentives		194			100			748			440
Environmental Cost Recovery		0			(2	)		0			(29	)
Phase-In Rate Plan		(53	)		(10	)		(77	)		(10	)
Total	$	11,258		$	4,399		$	28,440		$	15,816

		2020 vs Normal				2019 vs Normal				2020 vs 2019
Effect on Diluted Earnings Per Share		$	0.03			$	0.01			$	0.02

(in millions)	2019		2020			2021			2022			2023			2024			Total
Capital Expenditures:
Electric Segment:
Renewables and Natural Gas Generation			$	258		$	65		$	53		$	--		$	--		$	376
Technology and Infrastructure				--			11			28			32			28			99
Distribution Plant Replacements				20			25			28			31			30			134
Transmission (includes replacements)				62			14			30			30			30			166
Other				26			23			25			25			24			123
Total Electric Segment	$	187	$	366		$	138		$	164		$	118		$	112		$	898
Manufacturing and Plastics Segments		20		14			17			17			19			17			84
Total Capital Expenditures	$	207	$	380		$	155		$	181		$	137		$	129		$	982
Total Electric Utility Average Rate Base	$	1,170	$	1,415		$	1,587		$	1,664		$	1,726		$	1,765
Rate Base Growth				20.9	%		12.2	%		4.9	%		3.7	%		2.3	%