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 September 30, ~~2021~~2022 or

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

Commission File Number 0-53713

OTTER TAIL CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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


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

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

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

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

Large Accelerated Filer ☑

Accelerated Filer ☐

Non-Accelerated Filer ☐

Smaller Reporting Company ☐

Emerging Growth Company ☐

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

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

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

~~41,539,984~~41,630,952 Common Shares ($5 par value) as of October ~~29, 2021.~~25, 2022.

Table of Contents


TABLE OF CONTENTS

Table of Contents


DEFINITIONS

The following abbreviations or acronyms are used in the text.

~~AFUDC~~AGI

~~Allowance for Funds Used During Construction~~

~~MPUC~~

~~Minnesota Public Utilities Commission~~

~~ARP~~

~~Alternative Revenue Program~~

~~NDPSC~~

~~North Dakota Public Service Commission~~

~~BTD~~

~~BTD Manufacturing, Inc.~~

~~Northern Pipe~~

~~Northern Pipe Products, Inc.~~

~~CIP~~

~~Conservation Improvement Program~~Advanced Grid Infrastructure Rider

OTC

Otter Tail Corporation

~~ECR~~ARP

~~Environmental Cost Recovery Rider~~Alternative Revenue Program

OTP

Otter Tail Power Company

~~EEP~~BTD

BTD Manufacturing, Inc.

NDDEQ

North Dakota Department of Environmental Quality

CIP

Conservation Improvement Program

PIR

Phase-In Rider

EAR

Energy ~~Efficiency Plan~~Adjustment Rider

~~PACE~~PSLRA

~~Partnership in Assisting Community Expansion~~Private Securities Litigation Reform Act of 1995

EPA

Environmental Protection Agency

~~PIR~~PTC

~~Phase-In Rider~~Production Tax Credits

ESSRP

Executive Survivor and Supplemental Retirement Plan

~~PTCs~~

~~Production tax credits~~

~~EUIC~~

~~Electric Utility Infrastructure Cost Recovery Rider~~

PVC

Polyvinyl chloride

~~FCA~~

~~Fuel Clause Adjustment~~

~~RHR~~

~~Regional Haze Rule~~

FERC

Federal Energy Regulatory Commission

~~ROE~~RHR

~~Return on equity~~Regional Haze Rule

GCR

Generation Cost Recovery Rider

~~RRR~~ROE

~~Renewable Resource Rider~~Return on equity

ISO

Independent System Operator

~~SDPUC~~RRR

~~South Dakota Public Utilities Commission~~Renewable Resource Rider

IRP

Integrated Resource Plan

SEC

Securities and Exchange Commission

~~kiloWatt~~

~~T.O. Plastics~~

~~T.O. Plastics, Inc.~~

kwh

kilowatt-hour

~~TCR~~SOFR

~~Transmission Cost Recovery Rider~~Secured Overnight Funds Rate

Merricourt

Merricourt Wind Energy Center

~~Vinyltech~~T.O. Plastics

~~Vinyltech Corporation~~T.O. Plastics, Inc.

MISO

Midcontinent Independent System Operator, Inc.

TCR

Transmission Cost Recovery Rider

MPUC

Minnesota Public Utilities Commission


FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the ~~Act)~~"PSLRA"). When used in this Form 10-Q and in future filings by ~~the Company~~Otter Tail Corporation (the "Company") with the ~~SEC,~~Securities and Exchange Commission (SEC), in the Company’s press releases and in oral statements, words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” "future," "goal," “intend,” "likely," “may,” “outlook,” “plan,” “possible,” “potential,” "probable," "projected," “should,” "target," “will,” “would” or similar expressions are intended to identify forward-looking statements within the meaning of the ~~Act.~~PSLRA. Such statements are based on current expectations and assumptions and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. The Company’s risks and uncertainties include, among other things, uncertainty of the impact and duration of the COVID-19 pandemic, uncertainty of future investments and capital expenditures, rate base levels and rate base growth, long-term investment risk, seasonal weather patterns and extreme weather events, counterparty credit risk, future business volumes with key customers, reductions in our credit ratings, our ability to access capital markets on favorable terms, assumptions and costs relating to funding our employee benefit plans, our subsidiaries’ ability to make dividend payments, cyber security threats or data breaches, the impact of government legislation and regulation including foreign trade policy and environmental laws and regulations, the impact of climate change including compliance with legislative and regulatory changes to address climate change, operational and economic risks associated with our electric generating and manufacturing facilities, risks associated with energy markets, the availability and pricing of resource materials, inflation rates, attracting and maintaining a qualified and stable workforce, expectations regarding regulatory proceedings, and changing macroeconomic and industry conditions. These and other risks and uncertainties are more fully described in our filings with the ~~Securities and Exchange Commission,~~SEC, including our most recently filed Annual Report on Form 10-K. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information.

PART I. FINANCIAL INFORMATION


ITEM 1.			FINANCIAL STATEMENTS

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OTTER TAIL CORPORATION

CONSOLIDATED BALANCE SHEETS (unaudited)


(in thousands, except share data)	(in thousands, except share data)	September 30, 2021		December 31, 2020		(in thousands, except share data)	September 30, 2022		December 31, 2021

Assets	Assets					Assets
Current Assets	Current Assets					Current Assets
Cash and Cash Equivalents	Cash and Cash Equivalents	$	1,272	$	1,163	Cash and Cash Equivalents	$	72,987	$	1,537
Receivables, net of allowance for credit losses	Receivables, net of allowance for credit losses	178,759		113,959		Receivables, net of allowance for credit losses	193,797		174,953
Inventories	Inventories	114,615		92,165		Inventories	146,376		148,490
Regulatory Assets	Regulatory Assets	22,517		21,900		Regulatory Assets	29,921		27,342
Other Current Assets	Other Current Assets	17,804		5,645		Other Current Assets	17,412		17,032
Total Current Assets	Total Current Assets	334,967		234,832		Total Current Assets	460,493		369,354
Noncurrent Assets	Noncurrent Assets					Noncurrent Assets
Investments	Investments	55,456		51,856		Investments	52,966		56,690
Property, Plant and Equipment, net of accumulated depreciation	Property, Plant and Equipment, net of accumulated depreciation	2,083,223		2,049,273		Property, Plant and Equipment, net of accumulated depreciation	2,186,643		2,124,605
Regulatory Assets	Regulatory Assets	158,515		168,395		Regulatory Assets	116,593		125,508
Intangible Assets, net of accumulated amortization	Intangible Assets, net of accumulated amortization	9,319		10,144		Intangible Assets, net of accumulated amortization	8,218		9,044
Goodwill	Goodwill	37,572		37,572		Goodwill	37,572		37,572
Other Noncurrent Assets	Other Noncurrent Assets	34,096		26,282		Other Noncurrent Assets	35,419		32,057
Total Noncurrent Assets	Total Noncurrent Assets	2,378,181		2,343,522		Total Noncurrent Assets	2,437,411		2,385,476
Total Assets	Total Assets	$	2,713,148	$	2,578,354	Total Assets	$	2,897,904	$	2,754,830

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity					Liabilities and Shareholders' Equity
Current Liabilities	Current Liabilities					Current Liabilities
Short-Term Debt	Short-Term Debt	$	97,857	$	80,997	Short-Term Debt	$	—	$	91,163
Current Maturities of Long-Term Debt	Current Maturities of Long-Term Debt	169,962		140,087		Current Maturities of Long-Term Debt	—		29,983
Accounts Payable	Accounts Payable	135,437		130,805		Accounts Payable	121,995		135,089
Accrued Salaries and Wages	Accrued Salaries and Wages	28,455		26,908		Accrued Salaries and Wages	27,454		31,704
Accrued Taxes	Accrued Taxes	17,972		18,831		Accrued Taxes	25,635		19,245
Regulatory Liabilities	Regulatory Liabilities	25,323		16,663		Regulatory Liabilities	21,114		24,844
Other Current Liabilities	Other Current Liabilities	35,081		22,495		Other Current Liabilities	45,655		55,671
Total Current Liabilities	Total Current Liabilities	510,087		436,786		Total Current Liabilities	241,853		387,699
Noncurrent Liabilities and Deferred Credits
Pensions Benefit Liability		101,446		114,055
Noncurrent Liabilities						Noncurrent Liabilities
Pension Benefit Liability						Pension Benefit Liability	50,489		73,973
Other Postretirement Benefits Liability	Other Postretirement Benefits Liability	68,090		67,359		Other Postretirement Benefits Liability	67,352		66,481
Regulatory Liabilities	Regulatory Liabilities	230,733		233,973		Regulatory Liabilities	240,545		234,430
Deferred Income Taxes	Deferred Income Taxes	176,502		153,376		Deferred Income Taxes	212,838		188,268
Deferred Tax Credits	Deferred Tax Credits	16,847		17,405		Deferred Tax Credits	16,102		16,661
Other Noncurrent Liabilities	Other Noncurrent Liabilities	62,342		60,002		Other Noncurrent Liabilities	60,942		62,527
Total Noncurrent Liabilities and Deferred Credits		655,960		646,170
Total Noncurrent Liabilities						Total Noncurrent Liabilities	648,268		642,340
Commitments and Contingencies (Note 9)	Commitments and Contingencies (Note 9)	0		0		Commitments and Contingencies (Note 9)
Capitalization	Capitalization					Capitalization
Long-Term Debt, net of current maturities	Long-Term Debt, net of current maturities	594,619		624,432		Long-Term Debt, net of current maturities	823,760		734,014
Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Common Shares: 50,000,000 shares authorized of $5 par value; 41,539,984 and 41,469,879 outstanding at September 30, 2021 and December 31, 2020		207,700		207,349
Common Shares: 50,000,000 shares authorized, $5 par value; 41,630,952 and 41,551,524 outstanding at September 30, 2022 and December 31, 2021						Common Shares: 50,000,000 shares authorized, $5 par value; 41,630,952 and 41,551,524 outstanding at September 30, 2022 and December 31, 2021	208,155		207,758
Additional Paid-In Capital	Additional Paid-In Capital	418,568		414,246		Additional Paid-In Capital	422,448		419,760
Retained Earnings	Retained Earnings	334,385		257,878		Retained Earnings	560,398		369,783
Accumulated Other Comprehensive Loss	Accumulated Other Comprehensive Loss	(8,171)		(8,507)		Accumulated Other Comprehensive Loss	(6,978)		(6,524)
Total Shareholders' Equity	Total Shareholders' Equity	952,482		870,966		Total Shareholders' Equity	1,184,023		990,777
Total Capitalization	Total Capitalization	1,547,101		1,495,398		Total Capitalization	2,007,783		1,724,791
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	2,713,148	$	2,578,354	Total Liabilities and Shareholders' Equity	$	2,897,904	$	2,754,830

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per-share amounts)	(in thousands, except per-share amounts)	2021		2020		2021		2020		(in thousands, except per-share amounts)	2022		2021		2022		2021

Operating Revenues	Operating Revenues									Operating Revenues
Electric	Electric	$	118,775	$	115,213	$	348,629	$	333,213	Electric	$	142,747	$	118,775	$	404,112	$	348,629
Product Sales	Product Sales	197,519		120,542		514,983		330,045		Product Sales	241,109		197,519		754,688		514,983
Total Operating Revenues	Total Operating Revenues	316,294		235,755		863,612		663,258		Total Operating Revenues	383,856		316,294		1,158,800		863,612
Operating Expenses	Operating Expenses									Operating Expenses
Electric Production Fuel	Electric Production Fuel	17,698		11,554		44,576		34,077		Electric Production Fuel	24,972		17,698		54,538		44,576
Electric Purchased Power	Electric Purchased Power	9,878		13,428		40,273		45,940		Electric Purchased Power	19,913		9,878		64,604		40,273
Electric Operating and Maintenance Expenses	Electric Operating and Maintenance Expenses	36,465		32,845		114,615		106,639		Electric Operating and Maintenance Expenses	39,799		36,465		126,460		114,615
Cost of Products Sold (excluding depreciation)	Cost of Products Sold (excluding depreciation)	134,212		86,856		358,767		246,567		Cost of Products Sold (excluding depreciation)	139,361		134,212		443,586		358,767
Other Nonelectric Expenses	Other Nonelectric Expenses	16,224		13,615		45,587		36,277		Other Nonelectric Expenses	16,524		16,224		50,981		45,587
Depreciation and Amortization	Depreciation and Amortization	22,815		20,395		68,109		61,230		Depreciation and Amortization	22,716		22,815		69,829		68,109
Electric Property Taxes	Electric Property Taxes	4,474		4,333		13,136		12,601		Electric Property Taxes	4,438		4,474		13,304		13,136
Total Operating Expenses	Total Operating Expenses	241,766		183,026		685,063		543,331		Total Operating Expenses	267,723		241,766		823,302		685,063
Operating Income	Operating Income	74,528		52,729		178,549		119,927		Operating Income	116,133		74,528		335,498		178,549
Other Income and Expense	Other Income and Expense									Other Income and Expense
Interest Charges	Interest Charges	9,648		8,568		28,601		25,353		Interest Charges	9,259		9,648		27,198		28,601
Nonservice Cost Components of Postretirement Benefits	Nonservice Cost Components of Postretirement Benefits	505		842		1,511		2,581		Nonservice Cost Components of Postretirement Benefits	(52)		505		(824)		1,511
Other Income (Expense), net	Other Income (Expense), net	203		1,712		2,095		3,733		Other Income (Expense), net	(174)		203		(802)		2,095
Income Before Income Taxes	Income Before Income Taxes	64,578		45,031		150,532		95,726		Income Before Income Taxes	106,752		64,578		308,322		150,532
Income Tax Expense	Income Tax Expense	11,824		9,097		25,380		18,543		Income Tax Expense	22,513		11,824		66,143		25,380
Net Income	Net Income	$	52,754	$	35,934	$	125,152	$	77,183	Net Income	$	84,239	$	52,754	$	242,179	$	125,152

Weighted-Average Common Shares Outstanding:	Weighted-Average Common Shares Outstanding:									Weighted-Average Common Shares Outstanding:
Basic	Basic	41,504		40,914		41,487		40,548		Basic	41,600		41,504		41,582		41,487
Diluted	Diluted	41,869		41,078		41,795		40,733		Diluted	41,974		41,869		41,930		41,795
Earnings Per Share:	Earnings Per Share:									Earnings Per Share:
Basic	Basic	$	1.27	$	0.88	$	3.02	$	1.90	Basic	$	2.02	$	1.27	$	5.82	$	3.02
Diluted	Diluted	$	1.26	$	0.87	$	2.99	$	1.89	Diluted	$	2.01	$	1.26	$	5.78	$	2.99

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Net Income $ 52,754 $ 35,934 $ 125,152 $ 77,183
Other Comprehensive Income (Loss):
Unrealized Gain (Loss) on Available-for-Sale Securities:
Reversal of Previously Recognized Losses (Gains) Realized on Sale of Investments and Included in Other Income (Expense) — (21) (43) 13
Unrealized Gains (Losses) (33) (13) (85) 205
Income Tax (Expense) Benefit 7 7 27 (46)
Available-for-Sale Securities, net of tax (26) (27) (101) 172
Pension and Postretirement Benefit Plans:
Amortization of Unrecognized Postretirement Benefit Losses and Costs 197 138 591 413
Income Tax Expense (51) (36) (154) (108)
Pension and Postretirement Benefit Plan, net of tax 146 102 437 305
Total Other Comprehensive Income
120 75 336 477
Total Comprehensive Income $ 52,874 $ 36,009 $ 125,488 $ 77,660


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021

Net Income	$	84,239	$	52,754	$	242,179	$	125,152
Other Comprehensive Income (Loss):
Unrealized Loss on Available-for-Sale Securities, net of tax benefit of $46, $7, $127, and $27	(171)		(26)		(476)		(101)
Pension and Other Postretirement Benefits, net of tax expense of $(37), $(51), $(8), and $(154)	106		146		22		437
Total Other Comprehensive Income (Loss)	(65)		120		(454)		336
Total Comprehensive Income	$	84,174	$	52,874	$	241,725	$	125,488

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited)
(in thousands, except common shares outstanding) Common
Shares
Outstanding Par Value,
Common
Shares Additional Paid-In Capital Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)1
Total Shareholders' Equity
Balance, June 30, 2021 41,538,709 $ 207,694 $ 417,870 $ 297,850 $ (8,291) $ 915,123
Common Stock Issuances, Net of Expenses 1,275 6 (6) — — —
Common Stock Retirements and Forfeitures — — (126) — — (126)
Net Income — — — 52,754 — 52,754
Other Comprehensive Income — — — — 120 120
Stock Compensation Expense — — 830 — — 830
Common Dividends ($0.39 per share) — — — (16,219) — (16,219)
Balance, September 30, 2021 41,539,984 $ 207,700 $ 418,568 $ 334,385 $ (8,171) $ 952,482
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
Stock Compensation 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, December 31, 2020 41,469,879 $ 207,349 $ 414,246 $ 257,878 $ (8,507) $ 870,966
Common Stock Issuances, Net of Expenses 105,806 530 (578) — — (48)
Common Stock Retirements and Forfeitures (35,701) (179) (1,454) — — (1,633)
Net Income — — — 125,152 — 125,152
Other Comprehensive Income — — — — 336 336
Stock Compensation Expense — — 6,354 — — 6,354
Common Dividends ($1.17 per share) — — — (48,645) — (48,645)
Balance, September 30, 2021 41,539,984 $ 207,700 $ 418,568 $ 334,385 $ (8,171) $ 952,482
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 and Forfeitures (38,217) (191) (1,878) — — (2,069)
Net Income — — — 77,183 — 77,183
Other Comprehensive Income — — — — 477 477
Stock Compensation 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

~~Table of~~ ~~Contents~~

1Accumulated Other Comprehensive Income (Loss) as of September 30, 2021 and December 31, 2020 is comprised of the following:
(in thousands) September 30,
2021 December 31,
2020
Unrealized Gain on Available-for-Sale Debt Securities:
Before Tax $ 137 $ 265
Tax Effect (29) (56)
Unrealized Gain on Available-for-Sale Debt, net of tax 108 209
Unamortized Actuarial Losses and Prior Service Costs Related to Pension and Postretirement Benefits:
Before Tax (11,202) (11,793)
Tax Effect 2,923 3,077
Unamortized Actuarial Losses and Prior Service Costs Related to Pension and Postretirement Benefits, net of tax (8,279) (8,716)
Accumulated Other Comprehensive Loss:
Before Tax (11,065) (11,528)
Tax Effect 2,894 3,021
Net Accumulated Other Comprehensive Loss $ (8,171) $ (8,507)


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

Balance, June 30, 2022	41,630,799	$	208,154	$	421,951	$	493,351	$	(6,913)	$	1,116,543

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	153	1		(1)		—		—		—
Stock Issued Under Dividend Reinvestment and Stock Purchase Plans, net of expenses and repurchased shares	—	—		(132)		—		—		(132)
Net Income	—	—		—		84,239		—		84,239
Other Comprehensive Loss	—	—		—		—		(65)		(65)
Stock Compensation Expense	—	—		630		—		—		630
Common Dividends ($0.4125 per share)	—	—		—		(17,192)		—		(17,192)
Balance, September 30, 2022	41,630,952	$	208,155	$	422,448	$	560,398	$	(6,978)	$	1,184,023

Balance, June 30, 2021	41,538,709	$	207,694	$	417,870	$	297,850	$	(8,291)	$	915,123

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	1,275	6		(132)		—		—		(126)

Net Income	—	—		—		52,754		—		52,754
Other Comprehensive Income	—	—		—		—		120		120
Stock Compensation Expense	—	—		830		—		—		830
Common Dividends ($0.39 per share)	—	—		—		(16,219)		—		(16,219)
Balance, September 30, 2021	41,539,984	$	207,700	$	418,568	$	334,385	$	(8,171)	$	952,482

Balance, December 31, 2021	41,551,524	$	207,758	$	419,760	$	369,783	$	(6,524)	$	990,777

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	79,428	397		(3,321)		—		—		(2,924)
Stock Issued Under Dividend Reinvestment and Stock Purchase Plans, net of expenses and repurchased shares	—	—		(132)		—		—		(132)
Net Income	—	—		—		242,179		—		242,179
Other Comprehensive Loss	—	—		—		—		(454)		(454)
Stock Compensation Expense	—	—		6,141		—		—		6,141
Common Dividends ($1.2375 per share)	—	—		—		(51,564)		—		(51,564)
Balance, September 30, 2022	41,630,952	$	208,155	$	422,448	$	560,398	$	(6,978)	$	1,184,023

Balance, December 31, 2020	41,469,879	$	207,349	$	414,246	$	257,878	$	(8,507)	$	870,966

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	70,105	351		(1,965)		—		—		(1,614)
Stock Issued Under Dividend Reinvestment and Stock Purchase Plans, net of expenses and repurchased shares	—	—		(67)		—		—		(67)
Net Income	—	—		—		125,152		—		125,152
Other Comprehensive Income	—	—		—		—		336		336
Stock Compensation Expense	—	—		6,354		—		—		6,354
Common Dividends ($1.17 per share)	—	—		—		(48,645)		—		(48,645)
Balance, September 30, 2021	41,539,984	$	207,700	$	418,568	$	334,385	$	(8,171)	$	952,482

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021

Operating Activities	Operating Activities					Operating Activities
Net Income	Net Income	$	125,152	$	77,183	Net Income	$	242,179	$	125,152
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:	Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:					Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization	Depreciation and Amortization	68,109		61,230		Depreciation and Amortization	69,829		68,109
Deferred Tax Credits	Deferred Tax Credits	(558)		(986)		Deferred Tax Credits	(558)		(558)
Deferred Income Taxes	Deferred Income Taxes	18,835		20,353		Deferred Income Taxes	23,648		18,835
Change in Deferred Debits and Other Assets		6,166		3,439
Discretionary Contribution to Pension Plan	Discretionary Contribution to Pension Plan	(10,000)		(11,200)		Discretionary Contribution to Pension Plan	(20,000)		(10,000)
Change in Noncurrent Liabilities and Deferred Credits		2,662		3,237
Allowance for Equity Funds Used During Construction	Allowance for Equity Funds Used During Construction	(427)		(3,104)		Allowance for Equity Funds Used During Construction	(938)		(427)
Stock Compensation Expense	Stock Compensation Expense	6,354		5,282		Stock Compensation Expense	6,141		6,354
Other, Net	Other, Net	(3,480)		(176)		Other, Net	5,477		(2,747)
Cash (Used for) Provided by Current Assets and Current Liabilities:
Change in Receivables		(64,800)		(20,025)
Change in Inventories		(22,450)		15,980
Change in Other Current Assets		(12,159)		2,023
Change in Payables and Other Current Liabilities		40,574		(12,063)
Change in Interest Payable and Income Taxes Receivable/Payable		774		103
Changes in Operating Assets and Liabilities:						Changes in Operating Assets and Liabilities:
Receivables						Receivables	(18,845)		(64,800)
Inventories						Inventories	3,632		(22,450)
Regulatory Assets						Regulatory Assets	170		5,301
Other Assets						Other Assets	1,789		(18,708)
Accounts Payable						Accounts Payable	(10,681)		30,921
Accrued and Other Liabilities						Accrued and Other Liabilities	(13,970)		12,027
Regulatory Liabilities						Regulatory Liabilities	(1,208)		2,350
Pension and Other Postretirement Benefits						Pension and Other Postretirement Benefits	1,308		5,393
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	154,752		141,276		Net Cash Provided by Operating Activities	287,973		154,752
Investing Activities	Investing Activities					Investing Activities
Capital Expenditures	Capital Expenditures	(117,312)		(220,630)		Capital Expenditures	(123,227)		(117,312)
Proceeds from Disposal of Noncurrent Assets	Proceeds from Disposal of Noncurrent Assets	5,819		4,617		Proceeds from Disposal of Noncurrent Assets	3,803		5,819
Cash Used for Investments and Other Assets	Cash Used for Investments and Other Assets	(5,591)		(6,372)		Cash Used for Investments and Other Assets	(8,132)		(5,591)
Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(117,084)		(222,385)		Net Cash Used in Investing Activities	(127,556)		(117,084)
Financing Activities	Financing Activities					Financing Activities
Change in Checks Written in Excess of Cash		(3,133)		90
Net Short-Term Borrowings		16,860		42,600
Proceeds from Issuance of Common Stock		—		35,219
Common Stock Issuance Expenses		(67)		(465)
Payments for Shares Withheld for Employee Tax Obligations		(1,633)		(2,069)
Net Borrowings (Repayments) on Short-Term Debt						Net Borrowings (Repayments) on Short-Term Debt	(91,163)		16,860

Proceeds from Issuance of Long-Term Debt	Proceeds from Issuance of Long-Term Debt	—		75,000		Proceeds from Issuance of Long-Term Debt	90,000		—
Debt Issuance Expenses		(772)		(369)
Payments for Retirement of Long-Term Debt	Payments for Retirement of Long-Term Debt	(169)		(136)		Payments for Retirement of Long-Term Debt	(30,000)		(169)
Dividends Paid	Dividends Paid	(48,645)		(45,056)		Dividends Paid	(51,564)		(48,645)
Net Cash (Used in) Provided by Financing Activities		(37,559)		104,814
Payments for Shares Withheld for Employee Tax Obligations						Payments for Shares Withheld for Employee Tax Obligations	(2,942)		(1,633)
Other, net						Other, net	(3,298)		(3,972)
Net Cash Used in Financing Activities						Net Cash Used in Financing Activities	(88,967)		(37,559)
Net Change in Cash and Cash Equivalents	Net Change in Cash and Cash Equivalents	109		23,705		Net Change in Cash and Cash Equivalents	71,450		109
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	1,163		21,199		Cash and Cash Equivalents at Beginning of Period	1,537		1,163
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	1,272	$	44,904	Cash and Cash Equivalents at End of Period	$	72,987	$	1,272

Supplemental Disclosure of Noncash Investing Activities	Supplemental Disclosure of Noncash Investing Activities					Supplemental Disclosure of Noncash Investing Activities
Accrued Property, Plant, and Equipment Additions		$	14,358	$	112,314
Accrued Property, Plant and Equipment Additions						Accrued Property, Plant and Equipment Additions	$	12,438	$	14,358

See accompanying notes to consolidated financial statements

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OTTER TAIL CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Summary of Significant Accounting Policies

Overview

Otter Tail Corporation (OTC) and its subsidiaries (collectively, the "Company", "us", "our" or "we") form a diverse, multi-platform business consisting of a vertically integrated, regulated utility with generation, transmission and distribution facilities complemented by manufacturing businesses providing metal fabrication for custom machine parts and metal components, manufacturing of extruded and thermoformed plastic products, and manufacturing of ~~PVC~~polyvinyl chloride (PVC) pipe products. We classify our business into 3three segments: Electric, Manufacturing and Plastics.

Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the SEC for interim reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles. In the opinion of management, we have included all adjustments, including normal recurring accruals, necessary for a fair presentation of the consolidated financial statements for the periods presented. The consolidated financial statements and condensed notes thereto should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-Kfor the fiscal year ended December 31, ~~2020.~~2021.

Because of ~~the coronavirus (COVID-19) pandemic,~~ the seasonality of our businesses and other factors, the earnings for the three and nine months ended September 30, ~~2021~~2022 should not be taken as an indication of earnings for all or any part of the balance of the current year or as an indication of earnings for future years.

Use of Estimates

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

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated statements of shareholders' equity and consolidated statements of cash flows to maintain consistency and comparability between periods presented. The reclassifications had no impact on previously reported shareholders' equity, net cash provided by operating activities, net cash used in investing activities, net cash used in financing activities, or cash and cash equivalents.

2. Segment Information

We classify our business into 3three segments, Electric, Manufacturing and Plastics, consistent with our business strategy, organizational structure and our internal reporting and review processes used by our chief operating decision maker to make decisions regarding allocation of resources, to assess operating performance and to make strategic decisions.

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

Information for each segment and our unallocated corporate costs for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 are as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021

Operating Revenue1
Operating Revenue										Operating Revenue
Electric	Electric	$	118,775	$	115,213	$	348,629	$	333,213	Electric	$	142,747	$	118,775	$	404,112	$	348,629
Manufacturing	Manufacturing	89,977		59,849		250,085		174,276		Manufacturing	98,767		89,977		306,921		250,085
Plastics	Plastics	107,542		60,693		264,898		155,769		Plastics	142,342		107,542		447,767		264,898
Total	Total	$	316,294	$	235,755	$	863,612	$	663,258	Total	$	383,856	$	316,294	$	1,158,800	$	863,612
Net Income (Loss)	Net Income (Loss)									Net Income (Loss)
Electric	Electric	$	22,528	$	24,737	$	55,547	$	54,225	Electric	$	24,847	$	22,528	$	62,938	$	55,547
Manufacturing	Manufacturing	4,200		3,311		15,290		8,476		Manufacturing	6,219		4,200		17,858		15,290
Plastics	Plastics	28,410		10,343		60,102		20,922		Plastics	55,982		28,410		170,788		60,102
Corporate	Corporate	(2,384)		(2,457)		(5,787)		(6,440)		Corporate	(2,809)		(2,384)		(9,405)		(5,787)
Total	Total	$	52,754	$	35,934	$	125,152	$	77,183	Total	$	84,239	$	52,754	$	242,179	$	125,152

1Amounts reflect operating revenues to external customers. Intersegment operating revenues are not material for any period presented.

Table of Contents

The following provides the identifiable assets by segment and corporate assets as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021

Identifiable Assets	Identifiable Assets					Identifiable Assets
Electric	Electric	$	2,271,636	$	2,233,399	Electric	$	2,347,461	$	2,283,776
Manufacturing	Manufacturing	242,414		191,005		Manufacturing	253,819		251,044
Plastics	Plastics	143,615		99,767		Plastics	179,925		162,565
Corporate	Corporate	55,483		54,183		Corporate	116,699		57,445
Total	Total	$	2,713,148	$	2,578,354	Total	$	2,897,904	$	2,754,830

3. Revenue

~~We present~~Presented below are our operating revenues to external customers, in total and by amounts arising from contracts with customers and alternative revenue program (ARP) arrangements, disaggregated by revenue source and segment for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021

Operating Revenues	Operating Revenues									Operating Revenues
Electric Segment	Electric Segment									Electric Segment
Retail: Residential	Retail: Residential	$	33,902	$	32,734	$	100,067	$	96,440	Retail: Residential	$	35,122	$	33,902	$	108,883	$	100,067
Retail: Commercial and Industrial	Retail: Commercial and Industrial	60,557		64,918		185,376		189,771		Retail: Commercial and Industrial	83,022		60,557		232,532		185,376
Retail: Other	Retail: Other	1,979		1,953		5,687		5,550		Retail: Other	2,033		1,979		6,004		5,687
Total Retail	Total Retail	96,438		99,605		291,130		291,761		Total Retail	120,177		96,438		347,419		291,130
Transmission	Transmission	13,300		12,288		37,085		32,802		Transmission	13,156		13,300		37,409		37,085
Wholesale	Wholesale	6,944		1,500		14,711		3,141		Wholesale	7,196		6,944		13,196		14,711
Other	Other	2,093		1,820		5,703		5,509		Other	2,218		2,093		6,088		5,703
Total Electric Segment	Total Electric Segment	118,775		115,213		348,629		333,213		Total Electric Segment	142,747		118,775		404,112		348,629
Manufacturing Segment	Manufacturing Segment									Manufacturing Segment
Metal Parts and Tooling	Metal Parts and Tooling	76,455		50,957		210,141		145,435		Metal Parts and Tooling	84,054		76,455		261,923		210,141
Plastic Products and Tooling	Plastic Products and Tooling	10,198		7,600		30,624		25,323		Plastic Products and Tooling	12,723		10,198		36,584		30,624
Scrap Metal Sales	Scrap Metal Sales	3,324		1,292		9,320		3,518		Scrap Metal Sales	1,990		3,324		8,414		9,320
Total Manufacturing Segment	Total Manufacturing Segment	89,977		59,849		250,085		174,276		Total Manufacturing Segment	98,767		89,977		306,921		250,085
Plastics Segment	Plastics Segment									Plastics Segment
PVC Pipe	PVC Pipe	107,542		60,693		264,898		155,769		PVC Pipe	142,342		107,542		447,767		264,898
Total Operating Revenue	Total Operating Revenue	316,294		235,755		863,612		663,258		Total Operating Revenue	383,856		316,294		1,158,800		863,612
Less: Non-contract Revenues Included Above	Less: Non-contract Revenues Included Above									Less: Non-contract Revenues Included Above
Electric Segment - ARP Revenues	Electric Segment - ARP Revenues	(33)		2,778		(2,790)		2,900		Electric Segment - ARP Revenues	(548)		(33)		(7,937)		(2,790)
Total Operating Revenues from Contracts with Customers	Total Operating Revenues from Contracts with Customers	$	316,327	$	232,977	$	866,402	$	660,358	Total Operating Revenues from Contracts with Customers	$	384,404	$	316,327	$	1,166,737	$	866,402

4. Select Balance Sheet Information

Receivables and Allowance for Credit Losses

Receivables as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 are as follows:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021

Receivables	Receivables					Receivables
Trade	Trade	$	152,906	$	87,048	Trade	$	167,480	$	142,297
Other	Other	11,182		8,939		Other	9,052		10,591
Unbilled Receivables	Unbilled Receivables	17,003		21,187		Unbilled Receivables	18,813		23,901
Total Receivables	Total Receivables	181,091		117,174		Total Receivables	195,345		176,789
Less: Allowance for Credit Losses	Less: Allowance for Credit Losses	2,332		3,215		Less: Allowance for Credit Losses	(1,548)		(1,836)
Receivables, net of allowance for credit losses	Receivables, net of allowance for credit losses	$	178,759	$	113,959	Receivables, net of allowance for credit losses	$	193,797	$	174,953

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Table of Contents

The following is a summary of activity in the allowance for credit losses for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021

Beginning Balance, January 1	Beginning Balance, January 1	$	3,215	$	1,339	Beginning Balance, January 1	$	1,836	$	3,215
Additions Charged to Expense	Additions Charged to Expense	177		1,845		Additions Charged to Expense	518		177
Reductions for Amounts Written Off, Net of Recoveries	Reductions for Amounts Written Off, Net of Recoveries	(1,060)		(923)		Reductions for Amounts Written Off, Net of Recoveries	(806)		(1,060)
Ending Balance, September 30	Ending Balance, September 30	$	2,332	$	2,261	Ending Balance, September 30	$	1,548	$	2,332

Inventories

Inventories consist of the following as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021

Raw Material, Fuel and Supplies						Raw Material, Fuel and Supplies	$	74,249	$	72,882
Work in Process						Work in Process	33,765		35,705
Finished Goods	Finished Goods	$	25,727	$	22,046	Finished Goods	38,362		39,903
Work in Process		29,932		16,210
Raw Material, Fuel and Supplies		58,956		53,909
Total Inventories	Total Inventories	$	114,615	$	92,165	Total Inventories	$	146,376	$	148,490

Investments

The following is a summary of our investments as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021

Corporate-Owned Life Insurance Policies	Corporate-Owned Life Insurance Policies	$	40,096	$	36,825	Corporate-Owned Life Insurance Policies	$	37,288	$	41,078
Debt Securities	Debt Securities	9,208		9,260		Debt Securities	8,710		9,202
Money Market Funds	Money Market Funds	953		4,075		Money Market Funds	1,854		949
Mutual Funds	Mutual Funds	5,170		1,662		Mutual Funds	5,084		5,432
Other Investments	Other Investments	29		34		Other Investments	30		29
Total Investments	Total Investments	$	55,456	$	51,856	Total Investments	$	52,966	$	56,690

The amount of unrealized gains and losses on debt securities as of September 30, ~~2021~~2022 and December 31, ~~2020 are~~2021 was not material and no unrealized losses were deemed to be other-than-temporary. In addition, the amount of unrealized gains and losses on marketable equity securities still held as of September 30, ~~2021~~2022 and December 31, ~~2020 are~~2021 was not material.

Property, Plant and Equipment

Major classes of property, plant and equipment as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 include:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021

Electric Plant in Service
Electric Plant						Electric Plant
Electric Plant in Service	Electric Plant in Service	$	2,705,778	$	2,531,352	Electric Plant in Service	$	2,795,649	$	2,758,445
Construction Work in Progress	Construction Work in Progress	100,495		203,078		Construction Work in Progress	130,486		74,926
Total Gross Electric Plant	Total Gross Electric Plant	2,806,273		2,734,430		Total Gross Electric Plant	2,926,135		2,833,371
Less Accumulated Depreciation and Amortization	Less Accumulated Depreciation and Amortization	822,441		778,988		Less Accumulated Depreciation and Amortization	850,741		817,302
Net Electric Plant	Net Electric Plant	1,983,832		1,955,442		Net Electric Plant	2,075,394		2,016,069
Nonelectric Property, Plant and Equipment	Nonelectric Property, Plant and Equipment					Nonelectric Property, Plant and Equipment
Nonelectric Property, Plant and Equipment in Service	Nonelectric Property, Plant and Equipment in Service	263,880		258,730		Nonelectric Property, Plant and Equipment in Service	281,584		273,950
Construction Work in Progress	Construction Work in Progress	15,564		9,290		Construction Work in Progress	20,746		16,611
Total Gross Nonelectric Property, Plant and Equipment	Total Gross Nonelectric Property, Plant and Equipment	279,444		268,020		Total Gross Nonelectric Property, Plant and Equipment	302,330		290,561
Less Accumulated Depreciation and Amortization	Less Accumulated Depreciation and Amortization	180,053		174,189		Less Accumulated Depreciation and Amortization	191,081		182,025
Net Nonelectric Property, Plant and Equipment	Net Nonelectric Property, Plant and Equipment	99,391		93,831		Net Nonelectric Property, Plant and Equipment	111,249		108,536
Net Property, Plant and Equipment	Net Property, Plant and Equipment	$	2,083,223	$	2,049,273	Net Property, Plant and Equipment	$	2,186,643	$	2,124,605

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Table of Contents

5. Regulatory Matters

Regulatory Assets and Liabilities

The following presents our current and long-term regulatory assets and liabilities as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 and the period we expect to recover or refund such amounts:


		Period of	September 30, 2021				December 31, 2020					Period of	September 30, 2022				December 31, 2021
(in thousands)	(in thousands)	Recovery/Refund	Current		Long-Term		Current		Long Term		(in thousands)	Recovery/Refund	Current		Long-Term		Current		Long Term

Regulatory Assets	Regulatory Assets										Regulatory Assets
Pension and Other Postretirement Benefit Plans1	Pension and Other Postretirement Benefit Plans1	Various	$	11,037	$	139,467	$	11,037	$	146,071	Pension and Other Postretirement Benefit Plans1	Various	$	7,791	$	110,183	$	7,791	$	114,961
Alternative Revenue Program Riders2	Alternative Revenue Program Riders2	Up to 3 years	7,229		8,225		8,871		9,373		Alternative Revenue Program Riders2	Up to 2 years	7,528		1,988		11,889		5,564
Asset Retirement Obligations1	Asset Retirement Obligations1	Asset lives	—		7,065		—		8,462		Asset Retirement Obligations1	Asset lives	—		1,323		—		742

ISO Cost Recovery Trackers1	ISO Cost Recovery Trackers1	Up to 2 years	270		1,027		1,079		867		ISO Cost Recovery Trackers1	Up to 2 years	660		740		—		1,342
Unrecovered Project Costs1	Unrecovered Project Costs1	Up to 3 years	3,227		1,456		361		2,989		Unrecovered Project Costs1	Up to 5 years	320		1,063		2,136		1,455
Deferred Rate Case Expenses1	Deferred Rate Case Expenses1	Various	637		936		360		230		Deferred Rate Case Expenses1	Various	412		848		607		1,131
Debt Reacquisition Premiums1	Debt Reacquisition Premiums1	Up to 12 years	117		262		192		341		Debt Reacquisition Premiums1	10 years	25		222		100		240
Fuel Clause Adjustments1											Fuel Clause Adjustments1	Up to 1 year	13,185		—		4,819		—
Other1	Other1	Various	—		77		—		62		Other1	Various	—		226		—		73
Total Regulatory Assets	Total Regulatory Assets		$	22,517	$	158,515	$	21,900	$	168,395	Total Regulatory Assets		$	29,921	$	116,593	$	27,342	$	125,508
Regulatory Liabilities	Regulatory Liabilities										Regulatory Liabilities
Deferred Income Taxes	Deferred Income Taxes	Asset lives	$	—	$	130,555	$	—	$	134,719	Deferred Income Taxes	Asset lives	$	—	$	128,397	$	—	$	129,437
Plant Removal Obligations	Plant Removal Obligations	Asset lives	5,893		96,734		—		98,707		Plant Removal Obligations	Asset lives	8,526		106,008		8,306		101,595
Fuel Clause Adjustments	Fuel Clause Adjustments	Up to 1 year	5,692		—		10,947		—		Fuel Clause Adjustments	Up to 1 year	—		—		1,554		—
Alternative Revenue Program Riders	Alternative Revenue Program Riders	Various	5,265		2,507		3,581		470		Alternative Revenue Program Riders	Various	4,178		6,048		5,772		3,336
Pension and Other Postretirement Benefit Plans	Pension and Other Postretirement Benefit Plans	Up to 1 year	1,959		—		1,959		—		Pension and Other Postretirement Benefit Plans	Up to 1 year	2,603		—		2,603		—

Derivative Instruments	Derivative Instruments	Various	6,136		787		—		—		Derivative Instruments	Various	5,532		—		6,214		—
Other	Other	Various	378		150		176		77		Other	Various	275		92		395		62
Total Regulatory Liabilities	Total Regulatory Liabilities		$	25,323	$	230,733	$	16,663	$	233,973	Total Regulatory Liabilities		$	21,114	$	240,545	$	24,844	$	234,430

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

Minnesota Rate Case

On November 2, 2020, Otter Tail Power Company (OTP) filed an initial request with the Minnesota Public Utilities Commission (MPUC) for an increase in revenue recoverable through base rates in Minnesota, and on December 3, 2020, the MPUC approved an interim annual rate increase of $6.9 million, or 3.2%, effective January 1, 2021.

On February 1, 2022, the MPUC issued its written order on final rates. The key provisions of the order included a revenue requirement of $209.0 million, based on a return on rate base of 7.18% and an allowed return on equity of 9.48% on an equity ratio of 52.5%. The order also authorized recovery of our remaining Hoot Lake Plant net asset over a five-year period and approved the requested decoupling mechanism for most residential and commercial customer rate groups with a cap of 4% of annual base revenues.

On May 12, 2022, OTP's final rate case compliance filing was approved by the MPUC. The filing included final revenue calculations, rate design and resulting tariff revisions, along with a determination of the interim rate refund, which resulted in an increase in revenues during the second quarter of 2022 of $4.1 million. Final rates took effect on July 1, 2022, and interim rate refunds of $15.3 million were applied to customer accounts in the third quarter of 2022.

6. Short-Term and Long-Term Borrowings

The following is a summary of our outstanding ~~short~~short- and long-term borrowings by borrower, ~~Otter Tail Corporation (OTC)~~OTC or ~~Otter Tail Power Company (OTP),~~OTP, as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

Table of Contents

Short-Term Debt

The following is a summary of our lines of credit as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


				September 30, 2021						December 31, 2020					September 30, 2022						December 31, 2021
(in thousands)	(in thousands)	Line Limit		Amount Outstanding		Letters of Credit		Amount Available		Amount Available		(in thousands)	Borrowing Limit		Amount Outstanding		Letters of Credit		Amount Available		Amount Available

OTC Credit Agreement	OTC Credit Agreement	$	170,000	$	36,624	$	—	$	133,376	$	104,834	OTC Credit Agreement	$	170,000	$	—	$	—	$	170,000	$	147,363
OTP Credit Agreement	OTP Credit Agreement	170,000		61,233		13,159		95,608		140,068		OTP Credit Agreement	170,000		—		9,919		160,081		88,315
Total	Total	$	340,000	$	97,857	$	13,159	$	228,984	$	244,902	Total	$	340,000	$	—	$	9,919	$	330,081	$	235,678

On ~~September 30, 2021,~~October 31, 2022, OTC entered into a Fifth Amended and Restated Credit Agreement and OTP entered into a Fourth Amended and Restated Credit Agreement, ~~(the OTC Credit Agreement) and OTP entered into a Third Amended and Restated Credit Agreement (the OTP Credit Agreement)~~in each case amending and restating the previously existing credit agreements to extend the maturity date of each ~~agreement to~~credit facility from September 30, ~~2026. The agreements both provide for $170 million revolving lines of credit~~2026 to ~~support operations,~~October 29, 2027, and ~~borrowings which may be used for working capital needs and other capital requirements,~~ to refinance certain indebtedness and for the issuance of letters of credit in an aggregate not to exceed $40 million for the OTC Credit Agreement and $50 million for the OTP Credit Agreement. Each credit facility includes an accordion provision allowing the borrower to increase the available borrowing capacity, subject to certain terms and conditions. The borrowing capacity of the OTC Credit Agreement can be increased to $290 million and the OTP Credit Agreement can be increased to $250 million. Borrowings under each credit facility are subject toreplace LIBOR as a variable rate of interest on outstanding balances and a commitment fee is applied based on the average unused amount available to be drawn under the respective facility. The variable rate of interest to be charged is based on either LIBOR or a Base Rate, as defined in the agreement, selected by the borrower at the time of an advance, subject to the conditions of each agreement, plus an applicable credit spread. The credit spread ranges from 0.125% to 2.00% for the OTC Credit Agreement and from zero to 1.75% for the OTP Credit Agreement, depending on the benchmark interest rate ~~selected and~~with the Secured Overnight Finance Rate (SOFR). The adoption of SOFR as a benchmark interest rate is ~~subject to adjustment~~

~~Table of~~ ~~Contents~~

~~based on the credit ratings~~in advance of the ~~borrower. As~~scheduled elimination of ~~September 30, 2021, the weighted-average~~ LIBOR ~~Rate based~~as a benchmark interest rate ~~was 1.59%~~on June 30, 2023. No other significant terms or conditions, including borrowing capacity, credit spreads or financial covenants, were modified under these amendments and ~~1.33% under the OTC Credit Agreement and OTP Credit Agreement, respectively.~~

Each credit facility contains a number of restrictions on the borrower, including restrictions on their ability to merge, sell assets, make investments, create or incur liens on assets, guarantee the obligations of any other party and engage in transactions with related parties. The agreements also contain certain financial and non-financial covenants and defined events of default, and include provisions for the replacement of the LIBOR benchmark rate in the event that LIBOR is no longer available.restatements.

Long-Term Debt

The following is a summary of outstanding long-term debt by borrower as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


						(in thousands)									(in thousands)
Entity			Debt Instrument	Rate	Maturity	September 30, 2021		December 31, 2020
Borrower										Borrower		Debt Instrument	Rate	Maturity	September 30, 2022		December 31, 2021

OTC	OTC		Guaranteed Senior Notes	3.55%	12/15/26	$	80,000	$	80,000	OTC		Guaranteed Senior Notes	3.55%	12/15/26	$	80,000	$	80,000
OTP	OTP		Series 2011A Senior Unsecured Notes	4.63%	12/01/21	140,000		140,000		OTP		Series 2007B Senior Unsecured Notes	6.15%	08/20/22	—		30,000
OTP	OTP		Series 2007B Senior Unsecured Notes	6.15%	08/20/22	30,000		30,000		OTP		Series 2007C Senior Unsecured Notes	6.37%	08/02/27	42,000		42,000
OTP	OTP		Series 2007C Senior Unsecured Notes	6.37%	08/02/27	42,000		42,000		OTP		Series 2013A Senior Unsecured Notes	4.68%	02/27/29	60,000		60,000
OTP	OTP		Series 2013A Senior Unsecured Notes	4.68%	02/27/29	60,000		60,000		OTP		Series 2019A Senior Unsecured Notes	3.07%	10/10/29	10,000		10,000
OTP	OTP		Series 2019A Senior Unsecured Notes	3.07%	10/10/29	10,000		10,000		OTP		Series 2020A Senior Unsecured Notes	3.22%	02/25/30	10,000		10,000
OTP	OTP		Series 2020A Senior Unsecured Notes	3.22%	02/25/30	10,000		10,000		OTP		Series 2020B Senior Unsecured Notes	3.22%	08/20/30	40,000		40,000
OTP	OTP		Series 2020B Senior Unsecured Notes	3.22%	08/20/30	40,000		40,000		OTP		Series 2021A Senior Unsecured Notes	2.74%	11/29/31	40,000		40,000
OTP	OTP		Series 2007D Senior Unsecured Notes	6.47%	08/20/37	50,000		50,000		OTP		Series 2007D Senior Unsecured Notes	6.47%	08/20/37	50,000		50,000
OTP	OTP		Series 2019B Senior Unsecured Notes	3.52%	10/10/39	26,000		26,000		OTP		Series 2019B Senior Unsecured Notes	3.52%	10/10/39	26,000		26,000
OTP	OTP		Series 2020C Senior Unsecured Notes	3.62%	02/25/40	10,000		10,000		OTP		Series 2020C Senior Unsecured Notes	3.62%	02/25/40	10,000		10,000
OTP	OTP		Series 2013B Senior Unsecured Notes	5.47%	02/27/44	90,000		90,000		OTP		Series 2013B Senior Unsecured Notes	5.47%	02/27/44	90,000		90,000
OTP	OTP		Series 2018A Senior Unsecured Notes	4.07%	02/07/48	100,000		100,000		OTP		Series 2018A Senior Unsecured Notes	4.07%	02/07/48	100,000		100,000
OTP	OTP		Series 2019C Senior Unsecured Notes	3.82%	10/10/49	64,000		64,000		OTP		Series 2019C Senior Unsecured Notes	3.82%	10/10/49	64,000		64,000
OTP	OTP		Series 2020D Senior Unsecured Notes	3.92%	02/25/50	15,000		15,000		OTP		Series 2020D Senior Unsecured Notes	3.92%	02/25/50	15,000		15,000
OTC			PACE Note	2.54%	03/18/21	—		169
OTP										OTP		Series 2021B Senior Unsecured Notes	3.69%	11/29/51	100,000		100,000
OTP										OTP		Series 2022A Senior Unsecured Notes	3.77%	05/20/52	90,000		—
Total	Total					$	767,000	$	767,169	Total					$	827,000	$	767,000
Less:	Less:	Current Maturities Net of Unamortized Debt Issuance Costs				169,962		140,087		Less:	Current Maturities, Net of Unamortized Debt Issuance Costs				—		29,983
		Unamortized Long-Term Debt Issuance Costs				2,419		2,650			Unamortized Long-Term Debt Issuance Costs				3,240		3,003
Total Long-Term Debt Net of Unamortized Debt Issuance Costs						$	594,619	$	624,432
Total Long-Term Debt, Net of Unamortized Debt Issuance Costs										Total Long-Term Debt, Net of Unamortized Debt Issuance Costs					$	823,760	$	734,014

On June 10, 2021, OTP entered into a Note Purchase Agreement pursuant to which OTP agreed to issue, in a private placement transaction, ~~$230~~$230.0 million ~~aggregate principal amount~~ of senior unsecured notes consisting of (a) ~~$40~~$40.0 million of 2.74% Series 2021A Senior Unsecured Notes due November 29, 2031, (b) ~~$100~~$100.0 million of 3.69% Series 2021B Senior Unsecured Notes due November 29, 2051 and (c) ~~$90~~$90.0 million of 3.77% Series 2022A Senior Unsecured Notes due May 20, 2052. ~~As of September 30, 2021, there were no amounts outstanding. The funding of the notes will occur in 2 issuances, $140 million in~~In November 2021, OTP issued its Series 2021A and ~~$90~~Series 2021B Notes for aggregate proceeds of $140.0 million, which were used to repay the Series 2011A Notes in full. In May ~~2022. The issuance~~2022, OTP issued its Series 2022A Notes for proceeds of $90.0 million, which were used to repay the ~~notes is subject~~Series 2007B Senior Unsecured Notes at their maturity in August 2022, to ~~the satisfaction of certain customary conditions~~repay short-term borrowings, to ~~closing.~~fund capital expenditures, and for other general corporate purposes.

Financial Covenants

Certain of OTC's and OTP's ~~short-term~~short- and long-term debt agreements require the borrower, whether OTC or OTP, to maintain certain financial covenants, including a maximum debt to total capitalization ratio of 0.60 to 1.00, a minimum interest and dividend coverage ratio of 1.50 to 1.00, and a maximum level of priority indebtedness. As of September 30, ~~2021,~~2022, OTC and OTP were in compliance with these financial covenants.

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7. Employee Postretirement Benefits

Pension Plan and Other Postretirement Benefits

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

~~Components~~The following tables include the components of net periodic ~~pension~~ benefit cost of our defined benefit pension plans and other postretirement benefits for the three and nine months ended September 30, ~~2021~~2022 and ~~2020 are as follows:~~2021:

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Service Cost–Benefit Earned During the Period $ 1,866 $ 1,655 $ 5,597 $ 4,966
Interest Cost on Projected Benefit Obligation 2,915 3,264 8,745 9,790
Expected Return on Assets (5,590) (5,506) (16,769) (16,516)
Amortization of Net Actuarial Loss:
From Regulatory Asset 2,660 2,231 7,981 6,693
From Other Comprehensive Income 68 55 204 165
Net Periodic Pension Cost $ 1,919 $ 1,699 $ 5,758 $ 5,098



	Three Months Ended September 30,
	Pension Benefits (Pension Plan)				Pension Benefits (ESSRP)				Postretirement Benefits
(in thousands)	2022		2021		2022		2021		2022		2021

Service Cost	$	1,644	$	1,866	$	48	$	47	$	335	$	430
Interest Cost	3,086		2,915		335		307		510		472
Expected Return on Assets	(5,921)		(5,590)		—		—		—		—
Amortization of Prior Service Cost	—		—		—		—		(1,433)		(1,432)
Amortization of Net Actuarial Loss	1,966		2,728		141		154		765		943
Net Periodic Benefit Cost	$	775	$	1,919	$	524	$	508	$	177	$	413

	Nine Months Ended September 30,
	Pension Benefits (Pension Plan)				Pension Benefits (ESSRP)				Postretirement Benefits
(in thousands)	2022		2021		2022		2021		2022		2021

Service Cost	$	4,932	$	5,597	$	146	$	140	$	1,004	$	1,291
Interest Cost	9,258		8,745		1,006		921		1,531		1,418
Expected Return on Assets	(17,763)		(16,769)		—		—		—		—
Amortization of Prior Service Cost	—		—		—		—		(4,300)		(4,299)
Amortization of Net Actuarial Loss	5,899		8,185		425		465		2,297		2,830
Net Periodic Benefit Cost	$	2,326	$	5,758	$	1,577	$	1,526	$	532	$	1,240

We~~had no minimum funding requirement as~~The following table includes the impact of ~~December 31, 2020 but made a discretionary plan contribution~~regulation on the recognition of ~~$10.0 million in January 2021.~~

~~Executive Survivor and Supplemental Retirement Plan (ESSRP)~~

~~Components of net~~ periodic ~~pension~~ benefit cost arising from pension and other postretirement benefits for the three and nine months ended September 30, ~~2021~~2022 and ~~2020 are as follows:~~2021:

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Service Cost–Benefit Earned During the Period $ 47 $ 45 $ 140 $ 134
Interest Cost on Projected Benefit Obligation 307 362 921 1,086
Amortization of Net Actuarial Loss:
From Regulatory Asset 30 24 92 71
From Other Comprehensive Income 124 85 373 256
Net Periodic Pension Cost $ 508 $ 516 $ 1,526 $ 1,547


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021

Net Periodic Benefit Cost	$	1,476	$	2,840	$	4,435	$	8,524
Net Amount Amortized (Deferred) Due to the Effect of Regulation	499		8		823		15
Net Periodic Benefit Cost Recognized	$	1,975	$	2,848	$	5,258	$	8,539

~~Other Postretirement Benefits~~

~~Components of net periodic~~Wehad no minimum funding requirements for our Pension Plan or any other postretirement benefit ~~cost for the three and nine months ended September 30,~~plans as of December 31, 2021, ~~and 2020 are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Service Cost–Benefit Earned During the Period $ 430 $ 461 $ 1,291 $ 1,385
Interest Cost on Projected Benefit Obligation 472 598 1,418 1,795
Amortization of Prior Service Cost
From Regulatory Asset (1,397) (1,169) (4,192) (3,508)
From Other Comprehensive Income (35) (28) (107) (86)
Amortization of Net Actuarial Loss
From Regulatory Asset 919 1,051 2,759 3,154
From Other Comprehensive Income 24 26 71 78
Net Periodic Postretirement Benefit Cost $ 413 $ 939 $ 1,240 $ 2,818
but made a discretionary contribution of $20.0 million to our Pension Plan in February 2022.

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8. Income Taxes

The reconciliation of the statutory federal income tax rate to our effective tax rate for each of the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Federal Statutory Rate 21.0 % 21.0 % 21.0 % 21.0 %
Increases (Decreases) in Tax from:
State Taxes on Income, Net of Federal Tax 5.0 5.0 5.0 5.0
Production Tax Credits (PTCs) (5.0) — (6.0) —
Amortization of Excess Deferred Income Taxes (1.6) (2.9) (2.0) (3.4)
North Dakota Wind Tax Credit Amortization, Net of Federal Tax (0.2) (0.6) (0.3) (0.8)
Excess Tax Deduction on Stock Awards — 0.3 — (0.4)
Allowance for Equity Funds Used During Construction (0.1) (0.7) (0.1) (0.8)
Other, Net (0.8) (1.9) (0.7) (1.2)
Effective Tax Rate 18.3 % 20.2 % 16.9 % 19.4 %

We began generating PTCs from our Merricourt wind farm placed in service in the fourth quarter of 2020. No PTCs were generated during the nine months ended September 30, 2020. Income tax benefits arising from PTCs are offset by corresponding operating revenue reductions.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Federal Statutory Rate	21.0	%	21.0	%	21.0	%	21.0	%
Increases (Decreases) in Tax from:
State Taxes on Income, Net of Federal Tax	5.0		5.0		5.0		5.0
Production Tax Credits (PTCs)	(3.6)		(5.0)		(4.1)		(6.0)
Amortization of Excess Deferred Income Taxes	(0.9)		(1.6)		(0.7)		(2.0)

North Dakota Wind Tax Credit Amortization, Net of Federal Tax	(0.1)		(0.2)		(0.2)		(0.3)
Corporate-Owned Life Insurance	0.2		(0.3)		0.4		(0.6)

Other, Net	(0.5)		(0.6)		0.1		(0.2)
Effective Tax Rate	21.1	%	18.3	%	21.5	%	16.9	%

9. Commitments and Contingencies

Commitments

~~Construction and Other Purchase Commitments.~~ Ashtabula III Purchase. On June 23, 2022, OTP exercised its option to acquire the Ashtabula III wind farm, a 62.4 megawatt wind farm located in eastern North Dakota, for $49.7 million, subject to certain closing adjustments. Since 2013, OTP has ~~commitments under contracts, including its share of construction program and other commitments associated with its jointly-owned facilities, extending into 2046.~~

~~Electric Utility Capacity and Energy Requirements and Coal Purchase and Delivery Contracts.~~ ~~OTP has commitments for~~purchased the purchase of capacity and energy requirements under agreements extending into 2044. OTP also has contracts providing for the purchase and delivery of a significant portion of its current coal requirements, with expiration dates ranging from 2022 through 2040. Certain contracts do not include minimum purchase requirements but do require all coal necessary for the operation of the respective plant to be purchasedwind-generated electricity from the ~~counterparty.~~

~~Land Easements.~~ Ashtabula III wind farm pursuant to a purchase power agreement, and that agreement granted OTP the option to purchase the wind farm. The purchase has ~~commitments~~received regulatory approval. We anticipate the transaction will close, subject to ~~make future payments under land easements extending into 2050.~~ certain customary closing conditions, in January 2023.

Contingencies

FERC ROE. In November 2013 and February 2015, customers filed complaints with ~~FERC~~the Federal Energy Regulatory Commission (FERC) seeking to reduce the ~~ROE~~return on equity (ROE) component of the transmission rates that ~~MISO~~Midcontinent Independent System Operator, Inc. (MISO) transmission owners, including OTP, may collect under the MISO tariff rate. FERC's most recent order, issued on November 19, 2020, adopted a revised ROE methodology and set the base ROE at 10.02% (10.52% with an adder) effective for the fifteen-month period from November 2013 to February 2015 and on a prospective basis beginning in September 2016. The order also dismissed any complaints covering the period from February 2015 to May 2016. ~~The~~On August 9, 2022, the U.S. Court of Appeals for the District of Columbia Circuit vacated the FERC order citing a lack of reasoned explanation by FERC in its adoption of its revised ROE methodology as outlined in its November 2020 ~~opinion~~order. The U.S. Court of Appeals remanded the matter to FERC to reopen the proceedings.

Significant uncertainty exists as to how FERC will proceed upon remand and there is ~~subject to judicial review.~~no prescribed timeline under which FERC must act. We have deferred recognition and recorded a refund liability of ~~$3.0~~$2.5 million as of September 30, ~~2021.~~2022. This refund liability reflects our best estimate of amounts previously collected from customers under the MISO tariff rate that may be required ~~refunds~~to be refunded to customers once all regulatory and judicial proceedings are ~~completed.~~complete and a final ROE is established for the periods outlined above.

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

Coyote Station, OTP's jointly owned coal-fired power plant in North Dakota, is subject to assessment in the second implementation period under the North Dakota state implementation plan. ~~In September 2021, the~~The North Dakota Department of Environmental Quality (NDDEQ) ~~made public a draft of~~submitted its state implementation ~~plan. The~~ plan to the EPA for approval in August 2022. In its plan, the NDDEQ concluded it is not reasonable to require additional emission controls during this planning period. ~~Following~~The EPA has previously expressed disagreement with the NDDEQ's recommendation to forgo additional emission controls and has indicated that such a ~~consultation and public comment period, and any subsequent modifications~~plan is not likely to ~~the plan, the NDDEQ will submit its state implementation plan to the EPA for approval.~~be accepted.

We cannot predict with certainty the impact the state implementation plan may have on our business until the state implementation plan has been approved or otherwise acted on by the EPA. However, significant emission control investments could be required and the recovery of such costs from customers would require regulatory approval. Alternatively, investments in emission control equipment may prove to be uneconomic and result in anthe early retirement of or the sale of our interest in Coyote Station, subject to regulatory approval. We cannot estimate the ultimate financial effects such a retirement or sale may have on our consolidated operating results, financial position or cash flows, but such amounts could be material and the recovery of such costs ~~from customers~~in rates would be subject to regulatory approval.

~~Table of~~ ~~Contents~~

~~Westmoreland Coal Company (Westmoreland) Arbitration.~~ In December 2018, insurers for Westmoreland, Westmoreland and its affiliated companies filed an arbitration demand against the co-owners of Coyote Station, including OTP, a 35% co-owner. The claimant insurers are pursuing recovery in the amount of $5.5 million, plus prejudgment interest to recover business interruption insurance proceeds paid to Westmoreland or its affiliates arising from a boiler feed pump explosion in December 2014 at the facility. The explosion and ensuing repairs reduced the amount of coal purchased from a Westmoreland affiliate under an existing coal purchase agreement. The Westmoreland insurers claim the co-owners breached the minimum purchase obligations in the coal purchase agreement. As of September 30, 2021, we have recorded an estimated liability for losses to be incurred related to this matter based upon the most recent information available, however, ultimate losses could be in excess of the amount recorded. Any losses incurred from this matter could be eligible for recovery through typical cost recovery processes of our electric utility business. The potential cost recovery would be subject to regulatory approval.

Other Contingencies. We are party to litigation and regulatory matters arising in the normal course of business. We regularly analyze relevant information and, as necessary, estimate and record accrued liabilities for legal, regulatory enforcement and other matters in which a loss is probable of occurring and can be reasonably estimated. We believe the effect on our consolidated operating results, financial position and cash flows, if any, for the disposition of all matters pending as of September 30, ~~2021,~~2022, other than those discussed above, will not be material.

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10. Stockholders' Equity

Registration Statements

On May 3, 2021, we filed a shelf registration statement with the ~~Securities and Exchange Commission (SEC)~~SEC under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement. No new debt or equity has been issued pursuant to the registration statement. The registration statement expires in May 2024.

On May 3, 2021, we filed a second registration statement with the SEC for the issuance of up to 1,500,000 common shares under an Automatic Dividend Reinvestment and a Share Purchase Plan, which provides shareholders, retail customers of OTP and other interested investors ~~a method~~methods of purchasing our common shares, by reinvesting their dividends ~~and/~~or making optional cash investments. Shares purchased under the plan may be ~~new issue~~newly issued common shares or common shares purchased on the open market. During the nine months ended September 30, 2022, we issued 97,046 shares under this plan. We repurchased a sufficient number of shares on the open market to satisfy issuance under the plan; accordingly no proceeds from the issuance were received. As of September 30, 2022, there were 1,287,774 shares available for purchase or issuance under the plan. The registration statement expires in May 2024.

Dividend Restrictions

~~Otter Tail Corporation~~OTC is a holding company with no significant operations of its own. The primary source of funds for payments of dividends to ~~our~~OTC's shareholders is from dividends paid or distributions made by ~~our~~OTC'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 ~~our subsidiaries.~~OTC's subsidiaries or the amount of dividends paid by OTC could be restricted. Both the OTC Credit Agreement and OTP Credit Agreement contain restrictions on the payment of cash dividends upon a default or event of default, including failure to maintain certain financial covenants. As of September 30, ~~2021,~~2022, we were in compliance with these financial covenants.

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

The MPUC indirectly limits the amount of dividends OTP can pay to ~~the Company~~OTC by requiring an equity-to-total-capitalization ratio between ~~47.5%~~48.0% and ~~58.1%~~58.7% based on OTP’s ~~2020~~ capital structure petition effective by order of the MPUC on ~~July 15, 2020.~~January 26, 2022. As of September 30, ~~2021,~~2022, OTP’s equity-to-total-capitalization ratio, including short-term debt, was ~~52.6%~~54.9% and its net assets restricted from distribution totaled approximately ~~$674.9~~$686.6 million. Under the ~~2020 capital structure petition,~~MPUC order, total capitalization for OTP cannot exceed $1.7 billion.

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11. Accumulated Other Comprehensive Income (Loss)

The following shows the changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,
	2022								2021
(in thousands)	Pension and Other Postretirement Benefits			Net Unrealized Gains (Losses) on Available-for-Sale Securities			Total		Pension and Other Postretirement Benefits			Net Unrealized Gains (Losses) on Available-for-Sale Securities			Total
Balance, Beginning of Period	$	(6,621)		$	(292)		$	(6,913)	$	(8,425)		$	134		$	(8,291)
Other Comprehensive Loss Before Reclassifications, net of tax	—			(172)			(172)		—			(26)			(26)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	106		(1)	1		(2)	107		146		(1)	—		(2)	146
Total Other Comprehensive Income (Loss)	106			(171)			(65)		146			(26)			120
Balance, End of Period	$	(6,515)		$	(463)		$	(6,978)	$	(8,279)		$	108		$	(8,171)

	Nine Months Ended September 30,
	2022								2021
(in thousands)	Pension and Other Postretirement Benefits			Net Unrealized Gains (Losses) on Available-for-Sale Securities			Total		Pension and Other Postretirement Benefits			Net Unrealized Gains (Losses) on Available-for-Sale Securities			Total
Balance, Beginning of Period	$	(6,537)		$	13		$	(6,524)	$	(8,716)		$	209		$	(8,507)
Other Comprehensive Loss Before Reclassifications, net of tax	—			(477)			(477)		—			(58)			(58)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	22		(1)	1		(2)	23		437		(1)	(43)		(2)	394
Total Other Comprehensive Income (Loss)	22			(476)			(454)		437			(101)			336
Balance, End of Period	$	(6,515)		$	(463)		$	(6,978)	$	(8,279)		$	108		$	(8,171)
(1) Included in the computation of net periodic pension and other postretirement benefit costs. See Note 7.
(2) Included in other income (expense), net on the accompanying consolidated statements of income.

12. Share-Based Payments

Stock Compensation Expense

Stock-based compensation expense arising from our employee stock purchase plan and share-based compensation plans, recognized within operating expenses in the consolidated statements of income, amounted to ~~$0.8~~$0.6 million and ~~$1.3~~$0.8 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$6.4~~$6.1 million and ~~$5.3~~$6.4 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Restricted Stock Awards. We grant restricted stock awards to members of our Board of Directors and restricted stock units to ~~our~~certain key employees. The awards vest, depending on award type and recipient, either ratably over periods of three ~~and~~or four years or cliff vest after four years. Vesting is accelerated in certain circumstances, including on retirement. Restricted stock awards granted to members of the Board of Directors are issued and outstanding on grant and carry the same voting and dividend rights of unrestricted outstanding common stock. Restricted stock units are not issued or outstanding on grant and do not provide for voting or dividend rights. Certain restricted stock unit award recipients are eligible to receive dividend equivalent payments during the vesting period, subject to forfeiture under the terms of the agreement.

The grant date fair value of each stock award is determined based on the market price of our common stock on the date of grant adjusted to exclude the value of dividends for those awards that do not receive dividend or dividend equivalent payments during the vesting period.

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The following is a summary of stock award activity for the nine months ended September 30, ~~2021:~~2022:


		Shares	Weighted Average Grant-Date Fair Value			Shares	Weighted Average Grant-Date Fair Value

Nonvested, January 1, 2021		128,664	$	44.30
Nonvested, January 1, 2022					Nonvested, January 1, 2022	138,093	$	44.48
Granted	Granted	57,650	43.10		Granted	51,439	59.96
Vested	Vested	(47,646)	42.98		Vested	(47,981)	45.30
Forfeited	Forfeited	(2,075)	40.95		Forfeited	—	—
Nonvested, September 30, 2021		136,593	$	44.30
Nonvested, September 30, 2022					Nonvested, September 30, 2022	141,551	$	49.83

The fair value of vested awards was ~~$2.1~~$3.0 million and ~~$2.8~~$2.1 million during the nine months ended September 30, 2022 and 2021, ~~and 2020.~~respectively.

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Stock Performance Awards. Stock performance awards are granted to executive officers and certain other key employees. The awards vest at the end of a three-year performance period. The number of common shares awarded, if any, at the end of the performance period ranges from zero to 150% of the target amount based on two performance measures: i) total shareholder return relative to a peer group and ii) return on equity. ~~The awards have no voting or dividend rights during the vesting period.~~ Vesting of the awards is accelerated in certain circumstances, including on retirement. The amount of common shares awarded on an accelerated vesting is based either on actual performance at the end of the performance period or the amount of common shares earned at target.

The grant date fair value of stock performance awards granted during the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 was determined using a Monte Carlo fair value simulation model incorporating the following assumptions:


		2021		2020			2022		2021

Risk-free interest rate	Risk-free interest rate	0.18	%	1.42	%	Risk-free interest rate	1.52	%	0.18	%
Expected term (in years)	Expected term (in years)	3.00		3.00		Expected term (in years)	3.00		3.00
Expected volatility	Expected volatility	32.00	%	19.00	%	Expected volatility	32.00	%	32.00	%
Dividend yield	Dividend yield	3.60	%	2.80	%	Dividend yield	2.90	%	3.60	%

The risk-free interest rate was derived from yields on U.S. government bonds of a similar term. The expected term of the award is equal to the three-year performance period. Expected volatility was estimated based on actual historical volatility of our common stock. Dividend yield was estimated based on historic and future yield estimates.

The following is a summary of stock performance award activity for the nine months ended September 30, ~~2021~~2022 (share amounts reflect awards at target):


		Shares	Weighted Average Grant-Date Fair Value			Shares	Weighted Average Grant-Date Fair Value

Nonvested, January 1, 2021		164,600	$	42.32
Nonvested, January 1, 2022					Nonvested, January 1, 2022	189,600	$	42.54
Granted	Granted	79,000	38.34		Granted	55,800	54.91
Vested	Vested	(54,000)	35.73		Vested	(55,600)	43.30
Forfeited	Forfeited	—	—		Forfeited	—	—
Nonvested, September 30, 2021		189,600	$	42.54
Nonvested, September 30, 2022					Nonvested, September 30, 2022	189,800	$	45.95

The fair value of vested awards was ~~$2.5~~$5.1 million and ~~$3.4~~$2.5 million during the nine months ended September 30, 2022 and 2021, ~~and 2020.~~respectively.

~~12.~~13. Earnings Per Share

The numerator used in the calculation of both basic and diluted earnings per common share is net income. The denominator used in the calculation of basic earnings per common share is the weighted average number of common shares outstanding during the period. The denominator used in the calculation of diluted earnings per common share is derived by adjusting basic shares outstanding for the dilutive effect of potential common shares outstanding, which consist of time and performance based stock awards and employee stock purchase plan shares.

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The following includes the computation of the denominator for basic and diluted weighted-average shares outstanding for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended September 30,		Nine Months Ended September 30,
(in thousands)	(in thousands)	2021	2020	2021	2020	(in thousands)	2022	2021	2022	2021

Weighted Average Common Shares Outstanding – Basic	Weighted Average Common Shares Outstanding – Basic	41,504	40,914	41,487	40,548	Weighted Average Common Shares Outstanding – Basic	41,600	41,504	41,582	41,487
Effect of Dilutive Securities:	Effect of Dilutive Securities:					Effect of Dilutive Securities:
Stock Performance Awards	Stock Performance Awards	262	98	209	107	Stock Performance Awards	276	262	251	209
Stock Awards		88	49	82	53
Restricted Stock Awards						Restricted Stock Awards	97	88	96	82
Employee Stock Purchase Plan Shares and Other	Employee Stock Purchase Plan Shares and Other	15	17	17	25	Employee Stock Purchase Plan Shares and Other	1	15	1	17
Dilutive Effect of Potential Common Shares	Dilutive Effect of Potential Common Shares	365	164	308	185	Dilutive Effect of Potential Common Shares	374	365	348	308
Weighted Average Common Shares Outstanding – Diluted	Weighted Average Common Shares Outstanding – Diluted	41,869	41,078	41,795	40,733	Weighted Average Common Shares Outstanding – Diluted	41,974	41,869	41,930	41,795

The amount of shares excluded from diluted weighted-average common shares outstanding because such shares were anti-dilutive was not material for the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

~~13.~~

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14. Derivative Instruments

OTP enters into derivative instruments to manage its exposure to future price variability and reduce volatility in prices for our retail customers. These derivative instruments are not designated as qualifying hedging transactions but provide for an economic hedge against future price variability. The instruments are recorded at fair value on the consolidated balance ~~sheets, with changes in fair value recorded in the consolidated statements of income. However, in~~sheets. In accordance with rate-making and cost recovery processes, we recognize a regulatory asset or liability to defer losses or gains from derivative activity until settlement of the associated derivative instrument.

As of September 30, ~~2021,~~2022, OTP had outstanding pay-fixed, receive-variable swap agreements with an aggregate notional amount of ~~356,200~~156,800 megawatt-hours of electricity, which will be settled periodically ~~through 2022.~~throughout 2022 and 2023. As of September 30, ~~2021,~~2022, the ~~aggregate~~ fair value of these ~~contracts~~derivative instruments was ~~$6.9~~$5.4 million, of which ~~$6.1~~$5.5 million is included in other current assets and ~~$0.8~~$0.1 million, which is included in other noncurrent ~~assets~~liabilities, on the consolidated balance sheets. As of December 31, 2021, the fair value of these types of derivative contracts was $6.2 million, which is included in other current assets. No contracts settled during the three months ended September 30, 2022. During the nine months ended September 30, 2022, contracts matured and were settled in an aggregate amount of $2.8 million. There were no contracts settled during the three or nine months ended September 30, 2021.

~~14.~~15. Fair Value Measurements

The following tables present our assets and liabilities measured at fair value on a recurring basis as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 classified by the input method used to measure fair value:


(in thousands)								(in thousands)	Level 1		Level 2		Level 3
		Level 1		Level 2		Level 3

September 30, 2021
September 30, 2022								September 30, 2022
Assets:								Assets:
Investments:	Investments:							Investments:
Money Market Funds	Money Market Funds	$	953	$	—	$	—	Money Market Funds	$	1,854	$	—	$	—
Mutual Funds	Mutual Funds	5,170		—		—		Mutual Funds	5,084		—		—
Corporate Debt Securities	Corporate Debt Securities	—		2,377		—		Corporate Debt Securities	—		1,424		—
Government-Backed and Government-Sponsored Enterprises’ Debt Securities	Government-Backed and Government-Sponsored Enterprises’ Debt Securities	—		6,831		—		Government-Backed and Government-Sponsored Enterprises’ Debt Securities	—		7,286		—
Derivative Instruments	Derivative Instruments	—		6,923		—		Derivative Instruments	—		5,532		—
Total Assets	Total Assets	$	6,123	$	16,131	$	—	Total Assets	$	6,938	$	14,242	$	—
December 31, 2020
Liabilities:								Liabilities:
Derivative Instruments								Derivative Instruments	$	—	$	169	$	—
Total Liabilities								Total Liabilities	$	—	$	169	$	—

December 31, 2021								December 31, 2021
Assets:								Assets:
Investments:	Investments:							Investments:
Money Market Funds	Money Market Funds	$	4,075	$	—	$	—	Money Market Funds	$	949	$	—	$	—
Mutual Funds	Mutual Funds	1,662		—		—		Mutual Funds	5,432		—		—
Corporate Debt Securities	Corporate Debt Securities	—		2,627		—		Corporate Debt Securities	—		1,333		—
Government-Backed and Government-Sponsored Enterprises’ Debt Securities	Government-Backed and Government-Sponsored Enterprises’ Debt Securities	—		6,633		—		Government-Backed and Government-Sponsored Enterprises’ Debt Securities	—		7,869		—
Derivative Instruments								Derivative Instruments	—		6,214		—
Total Assets	Total Assets	$	5,737	$	9,260	$	—	Total Assets	$	6,381	$	15,416	$	—

Level 1 fair value measurements are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

The level 2 fair value measurements for government-backed and government-sponsored enterprises and corporate debt securities 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.

The level 2 fair value measurements for derivative instruments are determined by using inputs such as forward electric commodity prices, adjusted for location differences. These inputs are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.

~~Table of~~ ~~Contents~~

In addition to assets recorded at fair value on a recurring basis, we also hold financial instruments that are not recorded at fair value in the consolidated balance sheets but for which disclosure of the fair value of these financial instruments is provided.

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The following reflects the carrying value and estimated fair value of these assets and liabilities as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


		September 30, 2021				December 31, 2020					September 30, 2022				December 31, 2021
(in thousands)	(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Assets:	Assets:									Assets:
Cash and Cash Equivalents	Cash and Cash Equivalents	$	1,272	$	1,272	$	1,163	$	1,163	Cash and Cash Equivalents	$	72,987	$	72,987	$	1,537	$	1,537
Total	Total	1,272		1,272		1,163		1,163		Total	72,987		72,987		1,537		1,537
Liabilities:	Liabilities:									Liabilities:
Short-Term Debt	Short-Term Debt	97,857		97,857		80,997		80,997		Short-Term Debt	—		—		91,163		91,163
Long-Term Debt	Long-Term Debt	764,581		873,632		764,519		858,455		Long-Term Debt	823,760		679,360		763,997		878,272
Total	Total	$	862,438	$	971,489	$	845,516	$	939,452	Total	$	823,760	$	679,360	$	855,160	$	969,435

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 are subject to variable rates of interest which reset frequently, a Level 2 fair value input.

Long-Term Debt: The fair value of long-term debt is estimated based on current market indications for borrowings of similar maturities, a Level 2 fair value input.

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ITEM 2.			MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our interim financial statements and the related notes appearing under Item 1 of this Quarterly Report on Form 10-Q, and our annual financial statements and the related notes along with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Otter Tail Corporation and its subsidiaries form a diverse group of businesses with operations classified into three segments: Electric, Manufacturing and Plastics. Our Electric segment business is a vertically integrated, regulated utility with generation, transmission and distribution facilities to serve our customers in western Minnesota, eastern North Dakota and northeastern South Dakota. Our Manufacturing segment provides metal fabrication for custom machine parts and metal components and manufactures extruded and thermoformed plastic products. Our Plastics segment manufactures PVC pipe for use in, among other applications, municipal and rural water, wastewater, and water reclamation projects.

~~COVID-19~~STEEL AVAILABILITY AND PRICING

~~We continue~~Steel is a key material input to ~~monitor the progression of the novel coronavirus (COVID-19) and its impact on~~BTD Manufacturing, Inc. (BTD), 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 andmetal fabrication business ~~operations.~~

~~Beginning in March 2020, COVID-19 and the resulting economic conditions negatively impacted operating results of~~within our Manufacturing ~~segment as customer demand declined significantly~~segment. Steel prices increased rapidly throughout 2021, peaking in the fourth quarter at historically high levels. Steel prices have been highly volatile in 2022, but began to steadily decline at the end of the second quarter of 2020. Sales volumes strengthened in the third and fourth quarters of 2020 due to strong recreational vehicle and lawn and garden end-market demand. Our Electric and Plastics segments operating results were also impacted in 2020. Within our Electric segment, we experienced reduced demand from commercial and industrial customers and increased costs for bad debts. In our Plastics segment, we experienced lower sales volumes in the second quarter of 2020 as distributors of our products reduced inventory levels given the uncertainty of the potential impact of COVID-19. Sales volumes recovered and gross profit margins increased in the third and fourth quarters of 2020, and have continued to increase in 2021, due to increased demand and supply disruptions.

~~The impact of COVID-19 and the resulting macroeconomic conditions on our business and financial results began to ease in the first quarter of 2021~~ and continued to ~~do so through~~decline throughout the third quarter of 2021. However, uncertainty remains regarding the magnitude and duration of the pandemic and resulting financial effects. Increased infection rates and any future responses to mitigate the spread of the virus, including any potential vaccination mandates that would apply to our employees, could impact our business and our financial results in future periods.

Recently, the Department of Labor’s Occupational Safety and Health Administration (“OSHA”) drafted an emergency temporary standard requiring all employers with at least 100 employees to ensure their employees are fully vaccinated or require weekly testing for unvaccinated employees. On October 12, 2021, OSHA sent a draft of the standard to the White House regulatory office for approval and it is anticipated to be acted upon soon. Additionally, President Biden issued an executive order on September 9, 2021, which requires employees of certain federal contractors and covered subcontractors to be vaccinated, with no weekly testing option, unless they have an approved disability or religious exemption. We expect one, or both, of these new regulations will apply to at least some, and possibly all, of our businesses. The exact impact the new regulations could have on our companies is uncertain at this time. However, it could result in employee attrition, difficulty fulfilling future labor needs, additional costs related to compliance and may have an adverse effect on our future operating results.

We continue to monitor developments involving our workforce, customers, construction contractors, suppliers and vendors and the financial effects on our business. However, due to the unprecedented and evolving nature of this pandemic, we cannot predict the full extent of the impact COVID-19 will have on our operating results, financial condition and liquidity.

~~RESOURCE MATERIAL AVAILABILITY AND PRICING~~

~~Supply shortages of steel and resin, two key material inputs to our Manufacturing and Plastics segments, respectively, have impacted our operating results in 2021.~~

Steel supply shortages arose primarily due to steel mill capacity reductions in 2020 in response to lower steel demand due to COVID-19. Production and availability of steel have begun to improve as steel mill facilities have increased production capacities in response to strong market demand for steel products. The combination of steel supply shortages and strong demand has led to significantly increased steel prices.quarter. The increase in steel prices ~~has~~in the first half of 2022 led to increased sale prices for our products at BTD ~~our metal fabrication business within our Manufacturing segment,~~ as we ~~pass~~passed along material cost increases to our customers. ~~In addition, limited steel availability has led to increased complexity in managing our business, including our production schedules, and other increased costs. We anticipate increased~~Consistent with steel prices, ~~will continue~~scrap metal prices also increased throughout ~~the remainder of~~ 2021 and ~~into 2022.~~

~~Resin shortages initially arose as a result of production plant shutdowns due to abnormally low temperatures and ice storms in the Gulf Coast region of the United States~~remained elevated in the first half of 2022, positively impacting our financial results during this period, but began to decline at the end of the second quarter ~~of 2021~~ and ~~have been exacerbated by hurricane activity~~declined sharply in the third quarter of 2022. We expect steel and scrap metal prices to decline modestly in the fourth quarter of 2022 and be near historical levels by the end of the year. ~~These~~

PVC PIPE SUPPLY AND DEMAND CONDITIONS

PVC resin is the primary material input of the PVC pipe manufactured by our Plastics segment businesses. Resin supply ~~constraints,~~disruptions throughout 2021, along with robust domestic and global demand for PVC resin, ~~have~~ led to significantly increased resin prices. ~~The increase~~Supply disruptions for resin and other additives and ingredients used in the ~~price~~manufacturing process also resulted in reduced manufacturing of ~~resin, the primary material input into the PVC pipe manufactured by our Plastics segment businesses, along with strong customer demand for~~ PVC pipe and low pipe inventories ~~due to~~across the ~~resin~~industry. This combination of disrupted raw material supply ~~constraints, have~~and the resulting low PVC pipe inventories along with robust demand for PVC pipe led to rapidly ~~increased sales~~increasing sale prices for PVC ~~pipe.~~pipe throughout 2021 and the first half of 2022. The increase in sale prices has outpaced the increase in PVC resin costs, leading to expanding gross profit ~~margins~~margins. Beginning in the third quarter of 2022, demand for PVC pipe began to decline as multiple, larger than anticipated, resin price reductions caused PVC pipe distributors and contractors to reduce purchase volumes in an effort to reduce inventory levels.

The unique market dynamics experienced by our Plastics segment businesses in 2021 and thus far in 2022 have resulted in a significant increase in ~~net~~ earnings ~~in our Plastics segment. We anticipate these market dynamics will persist through the remainder of 2021 and continue during the first half of 2022.~~compared to prior periods. We currently expect ~~these~~earnings of our Plastics segment to remain elevated relative to historical levels through the end of 2022 and into 2023, but as the industry supply and demand conditions normalize we expect segment earnings to ~~subside~~normalize beginning in ~~the second half of 2022.~~2024.

The marketplace dynamics impacting both our Manufacturing and Plastics segments are fluid and subject to change which may impact our operating results prospectively.

~~Table of~~ ~~Contents~~


RESULTS OF OPERATIONS – QUARTER TO DATE

Provided below is a summary and discussion of our operating results on a consolidated basis followed by a discussion of the operating results of each of our segments: Electric, Manufacturing and Plastics. In addition to the segment results, we provide an overview of our Corporate costs. Our Corporate costs do not constitute a reportable segment but rather consist of unallocated general corporate expenses, such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of segment performance. Corporate costs are added to operating segment totals to reconcile to totals on our consolidated statements of income.

~~Intersegment transactions were not material in 2021 or 2020 and amounted to less than $0.1 million~~

Table of ~~operating revenues and operating expenses for each period.~~Contents

CONSOLIDATED RESULTS

The following table summarizes consolidated operating results for the three months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Operating Revenues	Operating Revenues	$	316,294	$	235,755	$	80,539	34.2	%	Operating Revenues	$	383,856	$	316,294	$	67,562	21.4	%
Operating Expenses	Operating Expenses	241,766		183,026		58,740		32.1		Operating Expenses	267,723		241,766		25,957		10.7
Operating Income	Operating Income	74,528		52,729		21,799		41.3		Operating Income	116,133		74,528		41,605		55.8
Interest Charges	Interest Charges	9,648		8,568		1,080		12.6		Interest Charges	9,259		9,648		(389)		(4.0)
Nonservice Cost Components of Postretirement Benefits	Nonservice Cost Components of Postretirement Benefits	505		842		(337)		(40.0)		Nonservice Cost Components of Postretirement Benefits	(52)		505		(557)		(110.3)
Other Income		203		1,712		(1,509)		(88.1)
Other Income (Expense)										Other Income (Expense)	(174)		203		(377)		(185.7)
Income Before Income Taxes	Income Before Income Taxes	64,578		45,031		19,547		43.4		Income Before Income Taxes	106,752		64,578		42,174		65.3
Income Tax Expense	Income Tax Expense	11,824		9,097		2,727		30.0		Income Tax Expense	22,513		11,824		10,689		90.4
Net Income	Net Income	$	52,754	$	35,934	$	16,820	46.8	%	Net Income	$	84,239	$	52,754	$	31,485	59.7	%

Operating Revenues increased ~~$80.5~~$67.6 million primarily due to ~~rising~~increases in PVC pipe sale prices ~~and increased sales volumes~~ within our Plastics segment and increased ~~volumes and material cost, leading to increased sales prices, in our Manufacturing segment. Increased transmission services and wholesale revenues, partially offset by decreased~~ retail revenues within our Electric segment. PVC pipe sale prices increased due to the unique industry supply and demand dynamics described above. In our Electric segment, ~~also~~increased fuel recovery revenues, driven by higher fuel and purchased power costs, and increased commercial and industrial sales volumes contributed to higher operating revenues. In addition, increased sales volumes resulted in increased operating revenues in ~~the third quarter of 2021 compared to the same period last year.~~our Manufacturing segment. See our segment disclosures below for additional discussion of items impacting operating revenues.

Operating Expenses increased ~~$58.7~~$26.0 million primarily due to increased purchased power and fuel costs ~~of products sold~~ in our ~~Manufacturing and Plastics segments due to increased raw material costs and higher sales volumes, as well as increased labor costs.~~Electric segment. Operating expenses in our ~~Electric~~Manufacturing segment increased primarily due to ~~higher depreciation and amortization expense arising from~~increased sales volumes. These increases were partially offset by a decrease in operating expenses in our ~~recent rate base investments and higher operating and maintenance expenses.~~Plastics segment, due to lower sales volumes. See our segment disclosures below for additional discussion of items impacting operating expenses.

Interest Charges ~~increased $1.1~~decreased $0.4 million due to a decrease in the interest ~~expense from~~rate on our ~~$40.0~~$140.0 million of fixed-rate long-term debt ~~issuance~~that was refinanced in ~~August 2020,~~December 2021, and a ~~higher~~lower level of average short-term borrowings outstanding in ~~2021~~2022 compared to ~~2020 and a decrease in capitalized interest in 2021 following~~2021.

Nonservice Cost Components of Postretirement Benefits decreased $0.6 million primarily due to the ~~completion and placement in service~~amortization of ~~Astoria Station~~actuarial gains resulting from the increase in the ~~first quarter~~discount rates used to measure our pension benefit and postretirement benefit liabilities as of December 31, 2021.

Other Income decreased ~~$1.5~~$0.4 million primarily due to ~~lower earned equity AFUDC due~~investment losses on our corporate-owned life insurance policies and other investments during the third quarter of 2022 compared to ~~the completion and placement in-service of Astoria Station~~investment gains in the ~~first quarter~~same period of ~~2021. During~~ the ~~construction of Astoria Station we earned AFUDC in our Minnesota jurisdiction.~~previous year.

Income Tax Expense increased ~~$2.7~~$10.7 million primarily due to increased income before income taxes. Our effective tax rate was 21.1% in the third quarter of 2022 and 18.3% in the third quarter of ~~2021 and 20.2% in the third quarter of 2020.~~2021. The ~~decrease~~increase in our effective tax rate was driven by ~~PTCs earned~~an increase in ~~the third quarter of 2021 from~~ our ~~Merricourt wind farm, which was placed~~income before income taxes without a corresponding increase in ~~service in the fourth quarter of 2020, partially offset by~~tax credits and other permanent ~~differences.~~differences that impact our effective tax rate. See Note 8 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding factors impacting our effective tax rate in ~~2021~~2022 and ~~2020.~~2021.

Table of Contents

ELECTRIC SEGMENT RESULTS

The following table summarizes Electric segment operating results for the three months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Retail Revenues	Retail Revenues	$	96,438	$	99,605	$	(3,167)	(3.2)	%	Retail Revenues	$	120,177	$	96,438	$	23,739	24.6	%
Transmission Services Revenues	Transmission Services Revenues	13,300		12,288		1,012		8.2		Transmission Services Revenues	13,156		13,300		(144)		(1.1)
Wholesale Revenues	Wholesale Revenues	6,944		1,500		5,444		362.9		Wholesale Revenues	7,196		6,944		252		3.6
Other Electric Revenues	Other Electric Revenues	2,093		1,830		263		14.4		Other Electric Revenues	2,218		2,093		125		6.0
Total Operating Revenues	Total Operating Revenues	118,775		115,223		3,552		3.1		Total Operating Revenues	142,747		118,775		23,972		20.2
Production Fuel	Production Fuel	17,698		11,554		6,144		53.2		Production Fuel	24,972		17,698		7,274		41.1
Purchased Power	Purchased Power	9,878		13,428		(3,550)		(26.4)		Purchased Power	19,913		9,878		10,035		101.6
Operating and Maintenance Expenses	Operating and Maintenance Expenses	36,465		32,845		3,620		11.0		Operating and Maintenance Expenses	39,799		36,465		3,334		9.1
Depreciation and Amortization	Depreciation and Amortization	17,874		15,647		2,227		14.2		Depreciation and Amortization	17,669		17,874		(205)		(1.1)
Property Taxes	Property Taxes	4,474		4,333		141		3.3		Property Taxes	4,438		4,474		(36)		(0.8)
Operating Income	Operating Income	$	32,386	$	37,416	$	(5,030)	(13.4)	%	Operating Income	$	35,956	$	32,386	$	3,570	11.0	%

		2021		2020		change		% change			2022		2021		change		% change

Electric kilowatt-hour (kwh) Sales (in thousands)	Electric kilowatt-hour (kwh) Sales (in thousands)									Electric kilowatt-hour (kwh) Sales (in thousands)
Retail kwh Sales	Retail kwh Sales	1,076,580		1,075,336		1,244		0.1	%	Retail kwh Sales	1,275,051		1,076,580		198,471		18.4	%
Wholesale kwh Sales – Company Generation	Wholesale kwh Sales – Company Generation	174,187		75,884		98,303		129.5		Wholesale kwh Sales – Company Generation	99,890		174,187		(74,297)		(42.7)
Heating Degree Days	Heating Degree Days	3		61		(58)		(95.1)		Heating Degree Days	22		3		19		633.3
Cooling Degree Days	Cooling Degree Days	463		363		100		27.5		Cooling Degree Days	376		463		(87)		(18.8)

The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating and cooling degree days as a percent of normal for the three months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


		2021		2020			2022		2021

Heating Degree Days	Heating Degree Days	5.8	%	115.1	%	Heating Degree Days	43.1	%	5.8	%
Cooling Degree Days	Cooling Degree Days	132.7	%	104.6	%	Cooling Degree Days	108.4	%	132.7	%

The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions in ~~2021~~2022 and ~~2020,~~2021, and between years.

2021 vs
Normal
2021 vs
2020
2020 vs
Normal
Effect on Diluted Earnings Per Share $ 0.03 $ 0.02 $ 0.01


	2022 vs Normal		2022 vs 2021		2021 vs Normal

Effect on Diluted Earnings Per Share	$	0.01	$	(0.02)	$	0.03

Retail Revenues ~~decreased $3.2~~increased $23.7 million primarily due to the following:

•~~The recognition~~A $16.0 million increase in fuel recovery revenues due to increased production fuel and purchased power costs as described below.

•A $4.3 million increase in retail revenues from increased sales volumes from commercial and industrial customers, including the impact of ~~$2.6 million of Minnesota transmission rider revenue~~a new commercial customer load in ~~the third quarter of 2020 resulting from a favorable judicial decision regarding the state jurisdictional treatment of federally approved transmission projects.~~North Dakota.

•A $1.2 million decrease in ~~fuel recovery revenues largely due to lower purchased power costs and credits provided to retail customers~~consumption from ~~increased margins on wholesale sales, but partially offset by increased recovery of higher production fuel costs.~~

•~~A decrease in revenue from the combination of reduced demand from residential and commercial and industrial customers, exclusive of~~ the impact of ~~weather, net of the effect of a change in customer usage mix.~~

~~These decreases in revenue were partially offset by a $1.2 million increase in consumption from the favorable impact of~~unfavorable weather in the third quarter of ~~2021~~2022 compared to the same period last year.

~~Transmission Services Revenues~~ ~~increased $1.0 million primarily due to increased generator interconnection revenues.~~

~~Wholesale Revenues~~ ~~increased $5.4 million as a result~~Retail revenues in the third quarter of ~~a 129.5% increase in wholesale sales volumes and a 101.7% increase in wholesale prices driven~~2021 were negatively impacted by ~~increased fuel costs and market demand for wholesale energy.~~adjustments to our estimated interim rate refund.

Production Fuel costs increased ~~$6.1~~$7.3 million ~~mainly~~primarily as a result of a ~~41.4%~~28% increase in ~~kwhs generated~~fuel cost per kwh. Increased generation from our fuel-burning plants ~~due to higher demand and favorable prices for energy in wholesale markets. In addition, increased fuel cost per kwh also contributed to higher production fuel costs~~ in the third quarter of ~~2021.~~2022, as compared to the same period last year, also contributed to the increase in production fuel costs.

Purchased Power costs to serve retail customers ~~decreased $3.6~~increased $10.0 million ~~primarily~~ due to a ~~48.9% decrease~~45% increase in the price of purchased power per kwh, resulting from increased natural gas and market energy prices, and a 39% increase in the volume of purchased power ~~as our recent capacity additions provide additional generation resources~~due to ~~serve~~increased customer ~~demand and market conditions led to operating our~~demand.

~~Table of~~ ~~Contents~~

existing facilities at higher capacity factors in lieu of purchasing power at higher market prices, but partially offset by an increase in the cost of purchased power per kwh in the third quarter of 2021.

Operating and Maintenance Expense increased ~~$3.6~~$3.3 million ~~mainly~~primarily due ~~to:~~

•~~$1.4 million of Merricourt and Astoria Station operating and~~to an increase in maintenance ~~expenses incurred in the third quarter of 2021 as these facilities are now commercially operational.~~

•~~$2.1 million of maintenance costs arising from~~activities, including our planned outage at ~~Big Stone plant, which began in the third quarter of 2021~~Coyote Station, maintenance at our wind farm facilities, and ~~we expect will be completed in the fourth quarter of the year.~~

•~~Other additional expenses include an increase in~~vegetation management, as well as increased transmission tariff ~~expense from higher transmission volumes and increased travel costs as business travel recovers from the impact~~expenses.

Table of ~~COVID-19.~~Contents

These expense increases were partially offset by, among other items, lower operating costs following the closure of Hoot Lake Plant in May 2021 and lower bad debt expense due to improving customer collections as the economic impact of COVID-19 has eased.

~~Depreciation and Amortization~~ ~~expense increased $2.2 million primarily due to Merricourt and Astoria Station being placed in service in the fourth quarter of 2020 and the first quarter of 2021, respectively.~~

MANUFACTURING SEGMENT RESULTS

The following table summarizes Manufacturing segment operating results for the three months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Operating Revenues	Operating Revenues	$	89,977	$	59,849	$	30,128	50.3	%	Operating Revenues	$	98,767	$	89,977	$	8,790	9.8	%
Cost of Products Sold (excluding depreciation)	Cost of Products Sold (excluding depreciation)	70,148		44,444		25,704		57.8		Cost of Products Sold (excluding depreciation)	77,764		70,148		7,616		10.9
Other Operating Expenses	Other Operating Expenses	10,161		6,901		3,260		47.2		Other Operating Expenses	8,627		10,161		(1,534)		(15.1)
Depreciation and Amortization	Depreciation and Amortization	3,794		3,759		35		0.9		Depreciation and Amortization	3,996		3,794		202		5.3
Operating Income	Operating Income	$	5,874	$	4,745	$	1,129	23.8	%	Operating Income	$	8,380	$	5,874	$	2,506	42.7	%

Operating Revenuesincreased ~~$30.1~~$8.8 million primarily due to a 41.3% increase in material costs at BTD, which is passed through to customers, as steel prices increased significantly from the previous year. Steel prices have increased as steel mill production has not matched customer demand as mill capacity recovers from shutdowns in 2020 resulting from the COVID-19 pandemic. A 4.0%17% increase in sales volumes ~~and an increase~~at BTD, partially offset by lower steel prices, which resulted in a $5.4 million decrease in material costs that are passed through to customers. Declines in scrap ~~revenues, primarily~~metal prices resulted in a $1.3 million decrease in scrap revenue. End market demand remains strong, however, supply chain disruptions experienced by our customers have continued to cause unpredictable shipments of our products to our customers. Increases in sales prices and volumes at T.O. Plastics, due to ~~higher scrap metal prices,~~continued strong customer demand, also contributed to the segment increase in operating revenues. We anticipate steel prices will remain elevated for the remainder of 2021 and into 2022. Increased horticultural product sales volumes at T.O. Plastics in 2021, driven by increasing customer demand, as well as increased sales prices also contributed to increased operating revenues in 2021 as compared to 2020.

Cost of Products Sold increased ~~$25.7~~$7.6 million primarily due to ~~increased volumes and~~ higher material, labor and freight costs at BTD. The increase in material cost is largely driven by increased steel prices as mentioned above. The increases in labor and freight costs and lower productivity resulted in lower gross profit margins compared to the same period in 2020. Lower productivity during the period was primarily the result of recent increases in headcount and the time required for new employee to achieve peak productivity. Increased sales volumes, as described above, as well as increased labor costs, partially offset by favorable cost absorption and ~~production activity at T.O. Plastics also contributed~~decreased material costs related to ~~the increase in cost of products sold in 2021.~~lower steel prices.

Other Operating Expenses ~~increased $3.3~~decreased $1.5 million ~~in the third quarter of 2021 compared~~primarily due to ~~2020. In the third quarter of 2021 other operating expenses were impacted by increased~~decreased incentive compensation costs based ~~compensation and other costs necessary~~on current year financial performance relative to ~~support higher business volumes.~~established targets.

PLASTICS SEGMENT RESULTS

The following table summarizes Plastics segment operating results for the three months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Operating Revenues	Operating Revenues	$	107,542	$	60,693	$	46,849	77.2	%	Operating Revenues	$	142,342	$	107,542	$	34,800	32.4	%
Cost of Products Sold (excluding depreciation)	Cost of Products Sold (excluding depreciation)	64,064		42,415		21,649		51.0		Cost of Products Sold (excluding depreciation)	61,597		64,064		(2,467)		(3.9)
Other Operating Expenses	Other Operating Expenses	3,832		3,250		582		17.9		Other Operating Expenses	3,921		3,832		89		2.3
Depreciation and Amortization	Depreciation and Amortization	1,099		905		194		21.4		Depreciation and Amortization	1,023		1,099		(76)		(6.9)
Operating Income	Operating Income	$	38,547	$	14,123	$	24,424	172.9	%	Operating Income	$	75,801	$	38,547	$	37,254	96.6	%

Operating Revenues increased ~~$46.8~~$34.8 million ~~primarily~~ due to a ~~103.6%~~57% increase in the price per pound of PVC pipe ~~sold. The increase in sale~~sold, as sales prices ~~was largely~~remain high due to ~~the combination of PVC resin supply constraints, which has led to limited PVC pipe inventory, and strong demand~~extraordinary market conditions. Demand for PVC pipe ~~products. Resin supply in~~began to soften during the third quarter as customers started to consume high priced inventory instead of ~~2021 was negatively impacted by disruptions caused by Hurricane Ida in~~buying additional PVC pipe. Sales volumes for the ~~Gulf Coast region, which compounded supply constraints that began in the first~~ quarter ~~of 2021 as a result of plant shutdowns caused by extreme winter weather. Pounds of pipe sold in the third quarter of 2021~~ decreased ~~13.0% from the same period last year. We anticipate sales prices will remain elevated throughout the remainder of 2021 and into 2022, as resin suppliers work~~15% due to ~~fulfill purchase allotments and pipe manufacturers continue to replenish depleted inventories while~~softening customer ~~demand remains strong.~~demand.

Cost of Products Sold ~~increased $21.6~~decreased $2.5 million primarily due to decreased sales volumes, as described above, partially offset by increased PVC resin and other input material costs, ~~per pound,~~ which increased ~~91.7%~~14.5% due to the market conditions described above. Resin prices in the third quarter of 2022 increased compared to the same period in the previous ~~year. Increases in labor and freight costs in 2021 also contributed~~year, but decreased compared to the ~~increase in cost~~second quarter of ~~products sold.~~

~~Table of~~ ~~Contents~~

~~Other Operating Expenses~~ ~~increased $0.6 million as a result of an increase in variable costs associated with the increased financial results in 2021.~~2022.

CORPORATE COSTS

The following table summarizes Corporate operating results for the three months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Other Operating Expenses	Other Operating Expenses	$	2,231	$	3,471	$	(1,240)	(35.7)	%	Other Operating Expenses	$	3,976	$	2,231	$	1,745	78.2	%
Depreciation and Amortization	Depreciation and Amortization	48		84		(36)		(42.9)		Depreciation and Amortization	28		48		(20)		(41.7)
Operating Loss	Operating Loss	$	2,279	$	3,555	$	(1,276)	(35.9)	%	Operating Loss	$	4,004	$	2,279	$	1,725	75.7	%

Other Operating Expenses ~~decreased $1.2~~increased $1.7 million primarily due to ~~decreased stock~~increased employee health care costs and ~~incentive based compensation cost as a result~~increased professional service costs.

Table of ~~the timing of expense recognition, which can fluctuate due to changes in estimates of annual financial performance relative to targeted amounts.~~Contents


RESULTS OF OPERATIONS – YEAR TO DATE

~~Intersegment transactions were not material in 2021 or 2020 and amounted to less than $0.1 million of operating revenues and operating expenses for each period.~~

CONSOLIDATED RESULTS

The following table summarizes consolidated operating results for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Operating Revenues	Operating Revenues	$	863,612	$	663,258	$	200,354	30.2	%	Operating Revenues	$	1,158,800	$	863,612	$	295,188	34.2	%
Operating Expenses	Operating Expenses	685,063		543,331		141,732		26.1		Operating Expenses	823,302		685,063		138,239		20.2
Operating Income	Operating Income	178,549		119,927		58,622		48.9		Operating Income	335,498		178,549		156,949		87.9
Interest Charges	Interest Charges	28,601		25,353		3,248		12.8		Interest Charges	27,198		28,601		(1,403)		(4.9)
Nonservice Cost Components of Postretirement Benefits	Nonservice Cost Components of Postretirement Benefits	1,511		2,581		(1,070)		(41.5)		Nonservice Cost Components of Postretirement Benefits	(824)		1,511		(2,335)		(154.5)
Other Income	Other Income	2,095		3,733		(1,638)		(43.9)		Other Income	(802)		2,095		(2,897)		(138.3)
Income Before Income Taxes	Income Before Income Taxes	150,532		95,726		54,806		57.3		Income Before Income Taxes	308,322		150,532		157,790		104.8
Income Tax Expense	Income Tax Expense	25,380		18,543		6,837		36.9		Income Tax Expense	66,143		25,380		40,763		160.6
Net Income	Net Income	$	125,152	$	77,183	$	47,969	62.1	%	Net Income	$	242,179	$	125,152	$	117,027	93.5	%

Operating Revenues increased ~~$200.4~~$295.2 million primarily due to higher PVC pipe prices within our Plastics segment and increased sales volumes and material costs, ~~leading to~~which resulted in higher sales prices, in our Manufacturing segment. Increased ~~transmission services and wholesale~~retail revenues within our Electric segment due to increased fuel recovery revenues, increased sales volumes from commercial and industrial customers, and favorable weather impacts also contributed to the higher operating revenues in ~~2021.~~2022. See our segment disclosures below for additional discussion of items impacting operating revenues.

Operating Expenses increased ~~$141.7~~$138.2 million ~~in 2021 primarily~~ due to increased ~~costs~~expenses across all three of ~~products sold in~~ our ~~Plastics and Manufacturing segments due to higher raw material costs and sales volumes.~~operating segments. Operating expenses in our Electric segment increased primarily from higher purchased power costs due to an increase in the volume and cost of purchased power, increased production fuel costs, and higher operating and maintenance expenses, due to increased planned outage maintenance costs, increased labor costs related to various maintenance activities, and ~~depreciation and amortization~~increased transmission tariff expenses. Operating expenses in ~~each case~~our Manufacturing segment increased primarily due to higher material costs, largely ~~the result of~~driven by higher steel prices and higher sales volumes at BTD. Operating expenses in our ~~recent rate base investments~~Plastics segment increased primarily due to increased PVC resin and ~~the associated operating~~other input costs, ~~of such investments.~~partially offset by decreased sales volumes. See our segment disclosures below for additional discussion of items impacting operating expenses.

Interest Charges ~~increased $3.2~~decreased $1.4 million ~~in 2021~~ due to a lowering of our average interest rate on our long-term debt ~~issuance~~as a result of refinancing activity in our Electric segment in the third quarter of 2020, increased outstanding borrowings under our short-term debt arrangements, both of which were largely used to finance rate base investments in our Electric segment,2021 and 2022, and a decrease in ~~capitalized interest in 2021 due~~our average short-term borrowings compared to the ~~completion and placement in service of Astoria Station in the first quarter of 2021.~~previous year.

Nonservice Cost Components of Postretirement Benefits decreased ~~$1.1~~$2.3 million ~~in 2021~~primarily due to ~~a change in how prescription drug coverage is provided to retirees and~~ the ~~impact~~amortization of ~~nonservice costs~~actuarial gains resulting from ~~a decrease~~the increase in the discount ~~rate from 2020~~rates used to measure our pension benefit and postretirement benefit liabilities as of December 31, 2021.

Other Income decreased ~~$1.6~~$2.9 million ~~in 2021~~primarily due to a $2.7 million decrease in earned equity AFUDC due primarily to the completion and placement in service of Astoria Station in the first quarter of 2021, but partially offset by increases in the values ofinvestment losses on our corporate-owned life insurance policies and other investments ~~in 2021~~during the nine months ended September 30, 2022 compared to ~~2020.~~investment gains in the same period last year.

Income Tax Expense increased ~~$6.8~~$40.8 million ~~in 2021~~ primarily due to increased income before income taxes. Our effective tax rate was 21.5% for the nine months ended September 30, 2022 and 16.9% for the same period in ~~2021 and 19.4%~~the previous year. The increase in ~~2020 with the decrease primarily~~our effective tax rate was driven by ~~PTCs earned~~an increase in ~~2021 from~~ our ~~Merricourt wind farm, which was placed~~income before income taxes without a corresponding increase in ~~service in the fourth quarter of 2020.~~tax credits and other permanent differences that impact our effective tax rate. See Note 8 to our consolidated financial statements included in the report on Form 10-Q for additional information regarding factors impacting our effective tax rate.

Table of Contents

ELECTRIC SEGMENT RESULTS

The following table summarizes Electric segment operating results for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Retail Revenues	Retail Revenues	$	291,130	$	291,761	$	(631)	(0.2)	%	Retail Revenues	$	347,419	$	291,130	$	56,289	19.3	%
Transmission Services Revenues	Transmission Services Revenues	37,085		32,802		4,283		13.1		Transmission Services Revenues	37,409		37,085		324		0.9
Wholesale Revenues	Wholesale Revenues	14,711		3,141		11,570		368.4		Wholesale Revenues	13,196		14,711		(1,515)		(10.3)
Other Electric Revenues	Other Electric Revenues	5,703		5,548		155		2.8		Other Electric Revenues	6,088		5,703		385		6.8
Total Operating Revenues	Total Operating Revenues	348,629		333,252		15,377		4.6		Total Operating Revenues	404,112		348,629		55,483		15.9
Production Fuel	Production Fuel	44,576		34,077		10,499		30.8		Production Fuel	54,538		44,576		9,962		22.3
Purchased Power	Purchased Power	40,273		45,940		(5,667)		(12.3)		Purchased Power	64,604		40,273		24,331		60.4
Operating and Maintenance Expenses	Operating and Maintenance Expenses	114,615		106,639		7,976		7.5		Operating and Maintenance Expenses	126,460		114,615		11,845		10.3
Depreciation and Amortization	Depreciation and Amortization	53,335		47,063		6,272		13.3		Depreciation and Amortization	54,441		53,335		1,106		2.1
Property Taxes	Property Taxes	13,136		12,601		535		4.2		Property Taxes	13,304		13,136		168		1.3
Operating Income	Operating Income	$	82,694	$	86,932	$	(4,238)	(4.9)	%	Operating Income	$	90,765	$	82,694	$	8,071	9.8	%

											2022		2021		change		% change

Electric kilowatt-hour (kwh) Sales (in thousands)	Electric kilowatt-hour (kwh) Sales (in thousands)									Electric kilowatt-hour (kwh) Sales (in thousands)
Retail kwh Sales	Retail kwh Sales	3,511,730		3,538,299		(26,569)		(0.8)	%	Retail kwh Sales	4,076,769		3,511,730		565,039		16.1	%
Wholesale kwh Sales – Company Generation	Wholesale kwh Sales – Company Generation	358,761		156,948		201,813		128.6		Wholesale kwh Sales – Company Generation	222,591		358,761		(136,170)		(38.0)
Heating Degree Days	Heating Degree Days	3,614		3,968		(354)		(8.9)		Heating Degree Days	4,559		3,614		945		26.1
Cooling Degree Days	Cooling Degree Days	700		533		167		31.3		Cooling Degree Days	530		700		(170)		(24.3)

The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating and cooling degree days as a percent of normal for the nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.


		2021		2020			2022		2021

Heating Degree Days	Heating Degree Days	89.9	%	99.3	%	Heating Degree Days	114.0	%	89.9	%
Cooling Degree Days	Cooling Degree Days	150.9	%	116.9	%	Cooling Degree Days	113.7	%	150.9	%

2021 vs
Normal
2021 vs
2020
2020 vs
Normal
Effect on Diluted Earnings Per Share $ 0.02 $ 0.01 $ 0.01


	2022 vs Normal		2022 vs 2021		2021 vs Normal

Effect on Diluted Earnings Per Share	$	0.08	$	0.06	$	0.02

Retail Revenues ~~decreased $0.6~~increased $56.3 million primarily due to the following:

•A ~~$4.7~~$35.0 million ~~decrease~~increase in fuel recovery revenues ~~largely~~primarily due to ~~lower~~increased purchased power and production fuel costs, as described below, and a decrease in credits provided to retail customers from ~~increased~~decreased margins recognized on wholesale ~~sales, but partially offset by increased recovery of higher production fuel costs.~~

•The recognition of $2.6 million of Minnesota transmission rider revenue in the third quarter of 2020 resulting from a favorable judicial decision regarding the state jurisdictional treatment of federally approved transmission projects.sales.

•A ~~$1.6~~$11.5 million ~~decrease~~increase in ~~revenue~~retail revenues from ~~the combination of reduced demand~~increased sales volumes from ~~residential and~~ commercial and industrial customers, ~~exclusive of~~including the impact of ~~weather, net of the effect of~~ a ~~change~~new commercial customer load in ~~customer usage mix.~~North Dakota.

~~These decreases in revenue were partially offset by the following:~~

•A ~~$3.6~~$4.1 million increase in ~~rider revenues primarily related~~interim rate revenue due to the ~~recovery~~finalization of ~~Merricourt and Astoria Station project costs and operating expenses.~~the interim rate refund, as approved by the MPUC in the second quarter of 2022.

•A $3.0 million increase in ~~new revenue~~revenues from ~~an interim rate increase~~the favorable impact of weather in ~~Minnesota, net~~the first nine months of ~~estimated refunds, effective January 1, 2021 in connection with our rate case filed in November 2020.~~2022 compared to the same period last year.

•~~A $2.1 million increase in revenue~~Retail revenues also benefited from ~~transmission rider recovery, due to~~ increased transmission, ~~investments,~~renewable and ~~increased~~phase-in rider revenue in the first nine months of 2022. These increases were partially offset by a decrease in conservation improvement program ~~spending.~~(CIP) revenue as a result of decreased CIP spending and related cost recovery. Retail revenues in 2021 were negatively impacted by adjustments to our estimated interim rate refund.

Production Fuel costsincreased $10.0 million due to a 32% increase in fuel cost per kwh, which was partially offset by a decrease in kwhs generated from our fuel-burning plants due to our planned outage at Coyote Station in 2022 and the retirement of Hoot Lake Plant in May 2021.

~~Transmission Services Revenues~~Purchased Power costs to serve retail customers increased ~~$4.3~~$24.3 million ~~primarily~~ due to ~~increased recovery~~a 44% increase in the volume of ~~higher transmission costs~~purchased power, resulting from the planned outage at Coyote Station, the retirement of Hoot Lake Plant and increased ~~transmission investment as well as~~customer demand, and an 11% increase in the price of purchased power per kwh, resulting from increased ~~generator interconnection revenues.~~natural gas and market energy prices.

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~~Wholesale Revenues~~ increased $11.6 million as a result of a 128.6% increase in wholesale sales volumes and a 104.9% increase in wholesale electric prices, primarily driven by increased fuel costs and high market demand for wholesale energy, which serves to drive up spot market prices for electricity.

~~Production Fuel~~ ~~costsincreased $10.5 million primarily as a result of a 30.8% increase in kwhs generated from our fuel-burning plants due to higher demand and favorable prices for energy in wholesale markets.~~

~~Purchased Power~~ costs to serve retail customers decreased $5.7 million mainly due to a 26.7% decrease in the volume of purchased power as our recent capacity additions provide additional generation resources to serve customer demand and market conditions led to operating our existing facilities at higher capacity factors in lieu of purchasing power at higher market prices.

Operating and Maintenance Expense increased ~~$8.0~~$11.8 million, ~~which was~~ primarily due the ~~result of:~~following:

•~~$4.0 million of Merricourt and Astoria Station operating and~~Higher maintenance ~~expenses incurred in 2021 as these facilities are now commercially operational.~~

•~~$2.1 million of maintenance~~ costs primarily arising from our planned outage at ~~Big Stone plant, which began in the third quarter of 2021~~Coyote Station and ~~we expect will be completed in the fourth quarter of the year.~~increased maintenance costs at our wind generation assets.

•~~Other additional costs including a $1.6 million increase in~~Increased transmission tariff ~~expenses, a $1.0 million increase in~~expenses.

•Higher labor costs associated with increased maintenance activities, including vegetative ~~maintenance cost,~~management and ~~an increase in conservation program expenditures.~~other activities.

~~These expense~~•Increased travel costs driven by higher fuel costs for our vehicle fleet and increased travel activities.

Partially offsetting these increases were ~~partially offset by, among other items, $1.7 million of~~ lower ~~bad debt expense due~~CIP expenses compared to ~~improving customer collections as~~ the ~~economic impact of COVID-19 has eased~~previous year and ~~lower operating costs following the closure of Hoot Lake Plant~~a decrease in ~~May~~expenses from our Minnesota rate case compared to 2021.

~~Depreciation and Amortization~~ ~~expense increased $6.3 million primarily due to Merricourt and Astoria Station being placed in service in the fourth quarter of 2020 and in February 2021, respectively.~~

MANUFACTURING SEGMENT RESULTS

The following table summarizes Manufacturing segment operating results for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Operating Revenues	Operating Revenues	$	250,085	$	174,276	$	75,809	43.5	%	Operating Revenues	$	306,921	$	250,085	$	56,836	22.7	%
Cost of Products Sold (excluding depreciation)	Cost of Products Sold (excluding depreciation)	189,183		131,145		58,038		44.3		Cost of Products Sold (excluding depreciation)	242,440		189,183		53,257		28.2
Other Operating Expenses	Other Operating Expenses	28,109		19,678		8,431		42.8		Other Operating Expenses	27,363		28,109		(746)		(2.7)
Depreciation and Amortization	Depreciation and Amortization	11,395		11,244		151		1.3		Depreciation and Amortization	12,101		11,395		706		6.2
Operating Income	Operating Income	$	21,398	$	12,209	$	9,189	75.3	%	Operating Income	$	25,017	$	21,398	$	3,619	16.9	%

Operating Revenues increased ~~$75.8~~$56.8 million primarily due to ~~higher revenues at BTD, which was largely driven by~~ a ~~15.6% increase in sales volumes and a 25.5%~~$35.6 million increase in material costs at BTD, which are passed through to customers, as a result of higher steel prices. Steel prices have been highly volatile in 2022 and were higher on average compared to the previous year, which resulted in increased revenues as we sold through high-priced inventory. Operating revenues also increased ~~sales prices. The~~due to a 7.6% increase in ~~material~~sales volumes and price increases related to inflationary costs ~~is largely~~being experienced across the ~~result of historically high steel~~business. Increases in sales prices due to supply shortages as steel mill capacity rebounds from capacity reductions in 2020. Sales volumes in 2020 were negatively impacted by COVID-19 as customers implemented temporary plant shutdowns due to the pandemic. Sales volumes in 2021 have rebounded as customer demand across most end markets has been robust. An increase in horticultural product salesand volumes at T.O. Plastics, ~~in 2021, driven by increasing~~primarily due to strong customer demand ~~as well as increased sales prices,~~in the horticulture sector, also contributed to ~~increased~~the increase in operating ~~revenues in 2021.~~revenues.

Cost of Products Sold increased ~~$58.0~~$53.3 million primarily due to ~~increased volumes and~~ higher material ~~labor~~costs and ~~freight costs~~sales volumes at BTD. The increase in material cost iswas largely ~~the result of high~~driven by increased steel prices as mentioned above. ~~Year~~Cost of products sold at BTD was positively impacted by favorable cost absorption in the first nine months of 2022 compared to ~~date gross profit margins are consistent with~~ the prior year as increases in labor and freight costs and lower productivity in the third quarter of 2021 have been offset by higher sales volumes, as higher volumes have resulted in greater leveraging of fixed production costs.year. Increased sales volumes and ~~production activity~~material costs at T.O. Plastics ~~has~~ also contributed to the increase in cost of products sold in 2021. Year to date gross profit margins at T.O. Plastics increased compared to the same period in 2020, as higher production activities have resulted in greater leveraging of fixed production costs and sales prices have increased, resulting from input material cost inflation.sold.

~~Other Operating Expenses~~ increased $8.4 million in 2021 compared to 2020. Other operating expenses in 2020 were reduced by initiatives taken to reduce costs in an effort to mitigate the impact of declining sales volumes from the effects of COVID-19. Other operating expenses in 2021 were impacted by an increase in incentive based compensation arising from the improvement in financial results, and an increase in costs necessary to support the increase in business volumes.

~~Table of~~ ~~Contents~~

PLASTICS SEGMENT RESULTS

The following table summarizes Plastics segment operating results for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Operating Revenues	Operating Revenues	$	264,898	$	155,769	$	109,129	70.1	%	Operating Revenues	$	447,767	$	264,898	$	182,869	69.0	%
Cost of Products Sold (excluding depreciation)	Cost of Products Sold (excluding depreciation)	169,584		115,432		54,152		46.9		Cost of Products Sold (excluding depreciation)	201,146		169,584		31,562		18.6
Other Operating Expenses	Other Operating Expenses	10,450		8,990		1,460		16.2		Other Operating Expenses	12,225		10,450		1,775		17.0
Depreciation and Amortization	Depreciation and Amortization	3,200		2,667		533		20.0		Depreciation and Amortization	3,173		3,200		(27)		(0.8)
Operating Income	Operating Income	$	81,664	$	28,680	$	52,984	184.7	%	Operating Income	$	231,223	$	81,664	$	149,559	183.1	%

Operating Revenues increased ~~$109.1~~$182.9 million, primarily due to a ~~71.1%~~83% increase in the price per pound of PVC pipe sold. As discussed above, PVC pipe sale prices ~~have rapidly~~ increased ~~in 2021~~ due to ~~the combination of PVC resin supply constraints, which has led to limited PVC pipe inventory, and~~ strong demand for PVC pipe ~~products.~~products, limited PVC pipe inventories, and increases in the cost of resin. Resin and other material input supply constraints ~~has~~negatively impacted our production ~~and~~volumes, which coupled with low inventory levels, impacted sales volumes, which were down ~~slightly~~7.5% compared to the previous year.

Cost of Products Sold increased ~~$54.2~~$31.6 million primarily due to increased PVC resin and other input costs, which increased ~~60.3% compared~~29% due to the ~~same period in~~market conditions described above, partially offset by decreased sales volumes. Labor and overhead costs also increased from the previous year. ~~Increases in labor and freight costs in 2021 also contributed to the increase in cost of products sold.~~

Other Operating Expenses increased ~~$1.5~~$1.8 million primarily due to increased incentive compensation costs and sales commissions, which increased as a result of ~~an increase in variable costs associated with~~ increased ~~financial results in 2021.~~operating revenues and earnings compared to the previous year.

CORPORATE COSTS

The following table summarizes Corporate operating results for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		$ change		% change		(in thousands)	2022		2021		$ change		% change

Other Operating Expenses	Other Operating Expenses	$	7,028	$	7,638	$	(610)	(8.0)	%	Other Operating Expenses	$	11,393	$	7,028	$	4,365	62.1	%
Depreciation and Amortization	Depreciation and Amortization	179		256		(77)		(30.1)		Depreciation and Amortization	114		179		(65)		(36.3)
Operating Loss	Operating Loss	$	7,207	$	7,894	$	(687)	(8.7)	%	Operating Loss	$	11,507	$	7,207	$	4,300	59.7	%

Other Operating Expenses ~~decreased $0.6~~increased $4.4 million primarily due to ~~net decreases in corporate overhead~~increased employee health care costs, increased professional service costs, increased incentive compensation costs based on the current year financial and operating performance, and increased travel costs.

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REGULATORY RATE MATTERS

The following provides a summary of general rate case filings, rate rider filings and other regulatory filings that have or are expected to have a material impact on our operating results, financial position or cash flows.

GENERAL RATES

Minnesota Rate Case: On November 2, 2020, OTP filed aan initial request with the MPUC for an increase in revenue recoverable through base rates in ~~Minnesota. In its filing, OTP requested a net increase in annual revenue of approximately $14.5 million, or 6.77%, based~~Minnesota, and 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 proceeding, OTP has proposed changes to the mechanism of cost recovery, with some costs moving from riders into base rates and fuel, purchased power, and conservation program costs moving out of base rates and into riders. The filing also included a revenue decoupling mechanism proposal. Such mechanisms are designed to separate a utility's revenue from changes in energy sales. The decoupling mechanism uses a tracker balance through which authorized customer margins are subject to a true-up mechanism to maintain or cap a given level of revenues.

On December 3, 2020, the MPUC approved an interim annual rate increase of $6.9 million, or 3.2%, effective January 1, 2021. ~~This approval was provided after~~

On February 1, 2022, the MPUC issued its written order on final rates. The key provisions of the order included a revenue requirement of $209.0 million, based on a return on rate base of 7.18% and an ~~alternative~~allowed return on equity of 9.48% on an equity ratio of 52.5%. The order also authorized recovery ~~proposal was submitted by OTP, which, among other changes,~~of our remaining Hoot Lake Plant net asset over a five-year period and approved the requested ~~the extension~~decoupling mechanism for most residential and commercial customer rate groups with a cap of ~~depreciable lives~~4% of ~~certain wind-related assets and deferred certain cost recovery decisions to the~~annual base revenues.

On May 12, 2022, OTP's final rate ~~determination. In~~case compliance filing was approved by the ~~aggregate, this alternative recovery proposal reduced operating costs~~MPUC. The filing included final revenue calculations, rate design and ~~delayed recovery~~resulting tariff revisions, along with a determination of ~~certain other costs by approximately $7.0 million to lessen~~ the interim rate ~~impact~~refund, which resulted in an increase in revenues during the second quarter of 2022 of $4.1 million. Final rates took effect on ~~customers.~~

~~In a filing submitted to~~July 1, 2022, and interim rate refunds of $15.3 million were completed in the ~~MPUC on April 30, 2021, OTP lowered its requested net annual revenue increase from its initial request~~third quarter of $14.5 million to $8.2 million, primarily due to a reduction in operating costs from amounts included in its November 2020 filing. The cost reductions include, among other items, lower depreciation expense on our wind generation assets due to the extension of depreciable lives from 25 to 35 years and a reduction in postretirement benefit costs.

On September 20, 2021, the Administrative Law Judge assigned to our rate case issued his recommendations to the MPUC, and the MPUC is expected to hold deliberations in early November with a written order expected to be issued by the end of January 2022. ~~We anticipate final rates will be implemented by mid-2022.~~

~~Table of~~ ~~Contents~~

RATE RIDERS

The following table includes a summary of pending and recently concluded rate rider proceedings:

Recovery Filing Amount Effective
Mechanism Jurisdiction Status Date (in millions) Date Notes
RRR 2019 MN Approved 06/21/19 $ 12.5 01/01/20 Includes return on Merricourt construction costs.
TCR 2018 MN Approved 05/07/20 10.3 01/21/20 See below for additional details.
EUIC 2021 MN Requested 06/07/21 1.3 01/01/22 Includes recovery of new infrastructure costs, including advanced metering, outage management and demand response systems.
RRR 2021 ND Approved 03/07/21 11.8 04/01/21 Includes return on Merricourt construction costs.
GCR 2020 ND Approved 06/10/20 6.2 07/01/20 Includes return on Astoria Station construction costs.
TCR 2022 ND Requested 09/15/21 6.1 01/01/22 Includes recovery of three new transmission projects/programs.
RRR 2020 ND Approved 03/18/20 5.8 04/01/20 Includes return on Merricourt construction costs.
TCR 2020 ND Approved 08/31/20 5.6 01/21/20 Includes recovery of new transmission assets.
TCR 2021 ND Approved 11/18/20 5.6 01/01/21 Includes recovery of eight new transmission projects.
GCR 2021 ND Approved 03/01/21 5.2 07/01/21 Includes recovery of Astoria Station, net of anticipated savings associated with the retirement of Hoot Lake Plant.
TCR 2020 SD Approved 01/29/20 2.3 03/02/20 Annual update to transmission cost recovery rider.
TCR 2021 SD Approved 02/19/21 2.2 03/01/21 Includes recovery of two new transmission projects.
PIR 2020 SD Approved 05/31/20 1.6 09/01/20 Includes return on Merricourt and Astoria Station construction costs.

Recovery

Filing

Amount

Effective

Mechanism

Jurisdiction

Status

Date

(in millions)

Date

Notes

CIP - 2022

Approved

04/01/22

10.8

10/01/22

Includes recovery of energy conservation improvement costs as well as a demand side management financial incentive.

CIP - 2021

Approved

04/01/21

9.4

12/01/21

Includes recovery of energy conservation improvement costs as well as a demand side management financial incentive.

TCR - 2021

Approved

11/23/21

7.2

08/01/22

Includes recovery of two new transmission projects.

RRR - 2021

Approved

12/06/21

7.0

08/01/22

Includes return on Hoot Lake Solar construction costs and costs associated with the acquisition of the Ashtabula III wind farm.

RRR - 2021

Approved

03/07/21

11.8

04/01/21

Includes recovery of Merricourt investment and operating costs.

RRR - 2022

Approved

01/05/22

7.8

04/01/22

Includes Merricourt recovery, the proposed purchase of Ashtabula III and credits related to deferred taxes and production tax credits.

TCR - 2022

Requested

09/15/22

7.5

01/01/23

Includes recovery of three new transmission projects, one transmission rebuild project and six transmission projects related to extending the useful life of transmission assets.

TCR - 2021

Approved

09/15/21

6.1

01/01/22

Includes recovery of three new transmission projects/programs.

TCR - 2020

Approved

11/18/20

5.6

01/01/21

Includes recovery of eight new transmission projects.

GCR - 2021

Approved

03/01/21

5.2

07/01/21

Includes recovery of Astoria Station, net of anticipated savings associated with the retirement of Hoot Lake Plant.

GCR - 2022

Approved

03/01/22

3.3

07/01/22

Annual update to generation cost recovery rider.

AGI - 2022

Requested

07/08/22

3.1

01/01/23

Includes recovery of the advanced metering infrastructure, outage management system and demand response projects.

PIR - 2022

Approved

06/01/22

3.0

09/01/22

Includes recovery of the Ashtabula III wind farm purchase, Merricourt, Astoria Station, and the Advanced Grid Infrastructure project, as well as load growth credits.

TCR - 2020

Approved

01/29/20

2.3

03/02/20

Annual update to transmission cost recovery rider.

TCR - 2022

Approved

10/29/21

2.2

03/01/22

Annual update to transmission cost recovery rider.

TCR - 2021

Approved

02/19/21

2.2

03/01/21

Includes recovery of two new transmission projects.

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~~Minnesota TCR.~~Energy Adjustment Rider: On ~~May 1, 2017, the MPUC ordered~~October 20, 2022, OTP ~~to include~~filed supplemental comments in the ~~TCR rider retail rate base~~Minnesota 2023 Energy Adjustment Rider (EAR) docket. As part of this filing, OTP proposed to refund the Minnesota ~~jurisdictional share~~portion of ~~OTP's investments~~capacity auction revenues (see below for further details) through this rider and proposed a mechanism to address load reallocation due to the impact of a recent load addition in ~~certain transmission assets~~North Dakota. The filing proposed an assessment in 2022 and ~~all~~2023 to determine whether actual, weather normalized earnings, as measured based on ROE, including the crediting of capacity auction revenues, ~~received~~are above or below our authorized ROE in Minnesota (9.48%). Under our proposal, should OTP under or over earn its authorized ROE, an adjustment to recover amounts from, ~~other utilities under MISO's tariffed rates as~~or refund amounts to, Minnesota customers would be effectuated through the EAR. OTP proposed three ROE ranges above or below the allowed ROE for which a ~~credit~~surcharge or refund would be calculated, including a 20 basis point range in ~~its TCR revenue requirement calculations. The order had the effect of diverting interstate wholesale revenues that have been approved by the FERC~~which no surcharge or refund would be assessed, a 21 to ~~offset the FERC-approved expenses, effectively reducing OTP's recovery of FERC-approved expense levels.~~

~~On August 18, 2017, OTP filed an appeal~~100 basis point range in which 50% of the ~~MPUC order with~~over or under earning in this range would be collected from or refunded to customers, and a range above 100 basis points in which 100% of the ~~Minnesota Court~~over or under earning in this range would be collected from or refunded to customers. Our proposal is still pending before the MPUC. Should our proposal be accepted without modification, as of ~~Appeals to contest~~September 30, 2022, we estimated no refund or surcharge would be assessed under the requested mechanism.

MISO CAPACITY AUCTION

OTP offered 88 megawatts of excess capacity into the annual MISO planning resource auction for the period June 2022 through May 2023. As a result of a capacity shortage in the MISO region, capacity prices cleared the auction at maximum pricing. As a result, the 88 megawatts of auctioned capacity will generate approximately $9.3 million of net capacity auction revenues over the twelve month period beginning in June 2022. Through September 30, 2022, OTP has received approximately $2.9 million of excess capacity auction revenues. We anticipate a portion of the order requiring OTP to jurisdictionally allocate costs of the FERC transmission projects in the TCR rider. On June 11, 2018, the Minnesota Court of Appeals reversed the MPUC's order. On July 11, 2018, the MPUC filed a petition for review of the decision to the Minnesota Supreme Court, which granted review of the appellate court decision. The Minnesota Supreme Court issued its opinion on April 22, 2020, concluding the MPUC lacked authority to amend an existing TCR rider approved under Minnesota state law to include the costs andcapacity auction revenues ~~associated with these transmission projects 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 the exclusion of these transmission projects. In addition, the MPUC approved the inclusion of three new projects previously requested in the Minnesota TCR rider eligibility petition. Updated rates went into effect in January 2021. With this decision, one-half of the projected TCR rider tracker balance at December 2020 of $13.4 million will be included in the 2021 TCR rider annual revenue requirement, with the remainder included in the next annual update. The annual updates provide for recovery of approximately $2.6 million in MISO revenues creditsused to ~~Minnesota~~mitigate customer rate increases or returned to customers through ~~the TCR rider prior to September 30, 2020. As a result, OTP recognized additional rider revenue of $2.6 million during the third quarter of 2020.~~various mechanisms in each jurisdiction.

INTEGRATED RESOURCE PLAN

Minnesota law requires utilities to submit to the MPUC for approval a 15-year advance IRP. A resource plan is a set of resource options a utility could use to meet the service needs of its customers over a forecast period, including an explanation of the utility’s supply and demand circumstances, and the extent to which each resource option would be used to meet those service needs. Typically, the filings are submitted every two years.

On September 1, 2021, OTP filed its 2022 ~~IRP~~Integrated Resource Plan (2022 IRP) concurrently with regulators in the three states where OTP operates, Minnesota, North Dakota and South Dakota. The 2022 IRP ~~includes~~included OTP’s preferred plan for meeting customers’ anticipated capacity and energy needs while maintaining system reliability and low electric service rates.

The components of OTP's preferred plan include:

–the addition of dual fuel capability at our Astoria Station natural gas ~~plant, allowing for the plant to burn fuel oil in addition to natural gas;~~plant;

–the addition of 150 megawatts of solar generation in 2025;

–the addition of 100 megawatts of wind generation in 2027;

–the commencement of the process of withdrawing from our 35 percent ownership interest in Coyote Station, a jointly owned, coal-fired generation plant, by December 31, 2028; and

–the addition of 50 megawatts of solar generation in 2033.

~~The~~Although the 2022 IRP ~~requests~~includes planned actions beyond 2026, regulators will not act on or approve planned actions in periods beyond 2026 as part of our 2022 IRP filing.

Subject to regulatory approval, ~~for certain activities planned to commence within~~ the next five years, which include the addition of dual fuel capacity at our Astoria Station natural gas plant, the addition of 150 megawatts of solar generation, and the withdrawal from our ownership interest in Coyote Station.

~~Table of~~ ~~Contents~~

~~The~~ preferred plan proposes to ~~subject to regulatory approval,~~ create a regulatory asset as a vehicle to recover costs related to ~~the~~a future withdrawal from Coyote Station, including the net book value of the plant on the withdrawal date, anticipated decommissioning costs and any required costs incurred ifas a result of an early termination of the existing lignite sales agreement, under which Coyote Station acquires all of its lignite coal ~~fuel~~ from a nearby ~~mine is necessary. For its economic analysis,~~mine. As part of the filing, OTP developed an estimate of the reasonably foreseeable costs of withdrawing from Coyote Station at the end of 2028 of $68.5 million. These costs may differ from actual results due to the uncertainty and timing of future events associated with the terms and conditions of a withdrawal.

On October 14, 2022, OTP submitted a supplemental filing to update its 2022 IRP, requesting the procedural schedule in Minnesota be amended to allow for additional time to update our resource modeling given significant changes in the energy industry since the original 2022 IRP filing, while maintaining the original procedural schedule as it relates to adding dual fuel capability at Astoria Station. Our original filing proposed fuel oil as the secondary on-site fuel at Astoria Station and our supplemental filing reflects revised cost estimates and liquified natural gas as the most cost-effective secondary fuel source. The recent changes which led to our request include FERC’s approval of MISO’s new seasonal resource adequacy construct, MISO’s proposal to significantly increase winter and spring planning reserve margins, and enactment of the Inflation Reduction Act. On November 1, 2022, the MPUC approved OTP's requested changes to the procedural schedule for the 2022 IRP. OTP plans to file an updated resource plan in March 2023, as approved under the amended schedule. In conjunction with the updated resource plan, OTP's preferred plan could change based on the results of the updated resource modeling incorporating the factors listed above, as well as other changes. A change to the preferred plan could ultimately impact the nature, timing and amount of future capital investments, as well as the potential for OTP's withdrawal from Coyote Station. A notice of the request submitted to the MPUC was also provided to the North Dakota Public Service Commission and South Dakota Public Utilities Commission.


LIQUIDITY

LIQUIDITY OVERVIEW

We believe our financial condition is strong and our cash and cash equivalents, other liquid assets, operating cash flows, existing lines of credit, access to capital markets and borrowing ability, because of investment-grade credit ratings, when taken together provide us ample liquidity to conduct our business operations, ~~and~~ fund our short-term and long-term capital expenditure ~~plans.~~plans and satisfy our obligations as they become due. 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.~~including higher interest rates and debt capital costs and diminished credit availability. In addition, our liquidity could be impacted by ~~non-compliance~~non-

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compliance with certain financial covenants under our various debt instruments. As of September 30, ~~2021,~~2022, we were in compliance with all ~~debt~~financial covenants (see the Financial Covenants section under Capital Resources below).

The following table presents the status of our lines of credit as of September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


				2021						2020					2022						2021
(in thousands)	(in thousands)	Line Limit		Amount Outstanding		Letters of Credit		Amount Available		Amount Available		(in thousands)	Borrowing Limit		Amount Outstanding		Letters of Credit		Amount Available		Amount Available

OTC Credit Agreement	OTC Credit Agreement	$	170,000	$	36,624	$	—	$	133,376	$	104,834	OTC Credit Agreement	$	170,000	$	—	$	—	$	170,000	$	147,363
OTP Credit Agreement	OTP Credit Agreement	170,000		61,233		13,159		95,608		140,068		OTP Credit Agreement	170,000		—		9,919		160,081		88,315
Total	Total	$	340,000	$	97,857	$	13,159	$	228,984	$	244,902	Total	$	340,000	$	—	$	9,919	$	330,081	$	235,678

We have an internal risk tolerance metric to maintain a minimum of $50 million of liquidity under the OTC 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.

CASH FLOWS

The following is a discussion of our cash flows for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021

Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	$	154,752	$	141,276	Net Cash Provided by Operating Activities	$	287,973	$	154,752

Net Cash Provided by Operating Activities increased ~~$13.5~~$133.2 million for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020. The~~2021, due primarily to the $117.0 million increase in ~~cash provided by operating activities was the result of~~net income, largely due to increased earnings ~~during the year, which was partially offset by increased working capital needs. Our~~from our Plastics segment, and a lower level of working capital increased year over year, and was impacted by increased accounts receivables within our Manufacturing and Plastics segments, due to strong sales volumes and significantly increased sales prices in 2021, and higher inventory levels within our Manufacturing segment due to higher production volumes and increased material costs in 2021, but partially offset by increased accounts payable due to higher production volumes and increased costs in our Manufacturing and Plastics segments in 2021. We made a discretionary contribution to our pension plan of $10.0 millionneeds in the first nine months ~~ended September 30, 2021~~of 2022 compared to ~~a contribution of $11.2 million in 2020.~~the prior year.


(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021

Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	$	117,084	$	222,385	Net Cash Used in Investing Activities	$	127,556	$	117,084

Net Cash Used in Investing Activities ~~decreased $105.3~~increased $10.5 million for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020.~~2021. The ~~decrease is~~increase in cash used in investing activities was primarily ~~the result~~due to a higher amount of ~~lower~~Electric segment capital investment ~~within our Electric segment as capital spending on our large generation assets, Merricourt and Astoria Station, occurred throughout 2020 and was largely completed by the fourth quarter of 2020.~~compared to last year.

~~Table of~~ ~~Contents~~


(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021

Net Cash (Used in) Provided by Financing Activities		$	(37,559)	$	104,814
Net Cash Used in Financing Activities						Net Cash Used in Financing Activities	$	88,967	$	37,559

Net Cash ~~(Used in) Provided by~~Used in Financing Activities ~~decreased $142.4~~increased $51.4 million for the nine months ended September 30, ~~2021~~2022 compared to the nine months ended September 30, ~~2020, primarily as a result of a decrease in financing needs given the lower level of capital spending in our Electric segment in 2021 compared to 2020.~~2021. Financing activities for the nine months ended September 30, 2022 included the issuance of $90.0 million of long-term debt at OTP, which was used to repay $30.0 million of long-term debt that matured in August 2022, to repay short-term borrowings, fund capital expenditures, and for other general corporate purposes. Financing activities for the nine months ended September 30, 2022, also included net repayments of short-term borrowings of $91.2 million and dividend payments of $51.6 million. Financing activities for the nine months ended September 30, 2021 included a net ~~borrowing increase~~proceeds from short-term borrowings of $16.9 million ~~under our line of credit facilities~~ and dividend payments of $48.6 ~~million ($1.17 per share).~~million.

Financing activities in the nine months ended September 30, 2020 included proceeds of $75.0 million from the issuance of long-term debt, a net borrowing increase of $42.6 million under our line of credit facilities and $34.8 million in proceeds raised from the issuance of common stock, net of issuance costs. We paid dividends of $45.1 million ($1.11 per share) in the nine months ended September 30, 2020.


CAPITAL REQUIREMENTS

CAPITAL EXPENDITURES

We have a capital expenditure program for expanding, upgrading and improving our plants and operating equipment. Typical uses of cash for capital expenditures are investments in electric generation facilities and environmental upgrades, transmission and distribution lines, manufacturing facilities and upgrades, equipment used in the manufacturing process, and computer hardware and information systems. Our capital expenditure program is subject to review and regulatory approval and is revised in light of changes in demands for energy, technology, environmental laws, regulatory changes, business expansion opportunities, the costs of labor, materials and equipment and our financial condition.

~~Our 2022 IRP, filed with~~We have updated our capital expenditure plans in our Electric segment in light of recent changes in the ~~MPUC on September 1, 2021, outlined our preferred~~energy industry and recent regulatory actions, including FERC’s approval of MISO’s new seasonal resource adequacy construct, MISO’s proposal to significantly increase winter and spring planning reserve margins, MISO's approval of certain projects as part of its long-range transmission plan, ~~for meeting our electric customers’ anticipated energy needs while maintaining system reliability, which included~~and the enactment of the Inflation Reduction Act. The significant ~~planned additions and enhancements~~changes to our ~~electric fleet~~anticipated capital investments over the next five years include additional investment in multiple transmission projects, the modification of ~~assets.~~ investments in wind generation, including the incorporation of wind repowering into our current capital investment plan, and a reduction in planned solar generation. The table below reflects these changes, as well as all other currently anticipated capital investments over the next five years in our Electric, Manufacturing, and Plastics segments.

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The following provides a summary of ~~the~~ actual capital expenditures for the year ended December 31, ~~2020,~~2021, anticipated annual capital expenditures for the current year ending December 31, 2022, and ~~the~~ anticipated capital expenditures for the ~~period 2021 through 2026, for our Electric segment, inclusive of the additions outlined in our 2022 IRP,~~next five years, along with electric utility average rate base and ~~our non-electric businesses:~~

(in millions) 2020
2021(1)
2022 2023 2024 2025 2026 Total
2022 - 2026
Electric Segment:
Renewables and Natural Gas Generation 23 30 80 92 92 160 454
Technology and Infrastructure 2 26 30 18 — — 74
Distribution Plant Replacements 31 37 35 35 35 33 175
Transmission (includes replacements) 27 26 28 24 20 27 125
Other 34 30 29 32 36 23 150
Total Electric Segment $ 357 $ 117 $ 149 $ 202 $ 201 $ 183 $ 243 $ 978
Manufacturing and Plastics Segments 15 36 33 46 31 21 22 153
Total Capital Expenditures $ 372 $ 153 $ 182 $ 248 $ 232 $ 204 $ 265 $ 1,131
Total Electric Utility Average Rate Base $ 1,385 $ 1,570 $ 1,630 $ 1,750 $ 1,860 $ 1,980 $ 2,100
Annual Rate Base Growth 13.4 % 3.8 % 7.4 % 6.3 % 6.5 % 6.1 %
(1) Includes actual results for the nine months ended September 30, 2021, and anticipated capital expenditures for the fourth quarter of 2021.
annual rate base growth:


(in millions)	2021		2022(1)			2023			2024			2025			2026			2027			Total 2023 - 2027

Electric Segment:
Renewables and Natural Gas Generation			$	33		$	88		$	119		$	88		$	79		$	10		$	384
Technology and Infrastructure			9			33			30			6			5			1			75
Distribution Plant Replacements			40			33			37			38			38			43			189
Transmission (includes replacements)			38			34			36			46			87			78			281
Other			30			26			25			30			25			22			128
Total Electric Segment	$	140	$	150		$	214		$	247		$	208		$	234		$	154		$	1,057
Manufacturing and Plastics Segments	32		34			48			53			29			25			24			179
Total Capital Expenditures	$	172	$	184		$	262		$	300		$	237		$	259		$	178		$	1,236

Total Electric Utility Average Rate Base	$	1,575	$	1,620		$	1,750		$	1,850		$	1,990		$	2,110		$	2,210
Annual Rate Base Growth			2.9		%	8.0		%	5.7		%	7.6		%	6.0		%	4.7		%

(1) Includes actual results for the nine months ended September 30, 2022, and anticipated capital expenditures for the fourth quarter of 2022.

CONTRACTUAL OBLIGATIONS

Our contractual obligations primarily include principal and interest payments due under our outstanding debt obligations, commitments to acquire coal, energy and capacity commitments, payments to meet our postretirement benefit obligations, and payment obligations under land ~~easement~~easements and leasing arrangements.

On June 23, 2022, OTP exercised its option to acquire the Ashtabula III wind farm, a 62.4 megawatt wind farm located in eastern North Dakota, for $49.7 million, subject to certain closing adjustments. The purchase has received regulatory approval. We anticipate the transaction will close, subject to certain customary closing conditions, in January 2023.

Our contractual obligations as of December 31, ~~2020~~2021 are included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, ~~2020. There~~2021. Except for the Ashtabula III wind farm purchase described above, there were no material changes in our contractual obligations outside of the ordinary course of our business during the nine months ended September 30, ~~2021.~~2022.

Off-Balance Sheet Arrangements

As of September 30, 2022, we have outstanding letters of credit totaling $13.0 million, a portion of which reduces our borrowing capacity under our lines of credit. No outstanding letters of credit are reflected in outstanding short-term debt on our consolidated balance sheets. We do not have any other off-balance sheet arrangements or any relationships with unconsolidated entities or financial partnerships that have, or are reasonably likely to have, a material current or future effect on our financial condition. 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.

COMMON STOCK DIVIDENDS

We paid dividends to our common stockholders totaling ~~$48.6~~$51.6 million, or ~~$1.17~~$1.2375 per share, in the first nine months of ~~2021.~~2022. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, ~~improvement in~~our actual or expected level of earnings ~~per share,~~and 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~~dividends we are allowed to pay could be ~~made by our subsidiaries.~~restricted. See Note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. The decision to declare a dividend is reviewed quarterly by our Board of Directors.

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CAPITAL RESOURCES

Financial flexibility is provided by operating cash flows, unused lines of credit and access to capital markets, which is aided by strong financial coverages and investment grade credit ratings. ~~Equity or debt~~Debt financing will be required in the five-year period ~~2021~~from 2022 through ~~2025~~2026 to ~~support~~refinance maturing debt and to finance our capital investments. Our financing plans are subject to change and are impacted by our planned level of capital investments, ~~primarily within our Electric segment~~and decisions to ~~fund construction of new rate base and transmission investments. In addition, we may issue equity or debt financing to opportunistically~~ reduce borrowings under our lines of credit, to ~~satisfy~~refund or retire early ~~retire~~any of our outstanding ~~long-term~~ debt, to complete acquisitions, or to ~~finance potential acquisition opportunities or~~use capital for other corporate purposes.

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REGISTRATION STATEMENTS

On May 3, 2021, we filed ~~two registration statements with the SEC. The first statement,~~ a shelf registration ~~allows us to~~statement with the SEC under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement. No new debt or equity has been issued pursuant to the registration statement. The registration statement expires in May 2024.

On May 3, 2021, we filed a second registration statement ~~allows~~with the SEC for the issuance of up to 1,500,000 common shares under ~~our~~an Automatic Dividend Reinvestment and Share Purchase Plan, which provides ~~our common~~ shareholders, retail customers of OTP and other interested investors ~~a method~~methods of purchasing our common shares by reinvesting their dividends ~~and/~~or making optional cash investments. Shares purchased under the plan may be ~~new issue~~newly issued common shares or common shares purchased on the open market. ~~Both~~As of September 30, 2022, there were 1,287,774 shares available for purchase or issuance under the plan. The registration ~~statements expire~~statement expires in May 2024.

SHORT-TERM DEBT

~~Otter Tail Corporation~~OTC and ~~Otter Tail Power Company~~OTP are each party to a credit agreement (the OTC Credit Agreement and OTP Credit Agreement, respectively) which each provide for unsecured revolving lines of credit. On September 30, 2021, Otter Tail Corporation entered into a Fourth Amended and Restated Credit Agreement and Otter Tail Power Company entered into a Third Amended and Restated Credit Agreement, amending and restating the previously existing credit agreements to extend the maturity date of each agreement to September 30, 2026. The borrowing capacity and other significant terms of the agreements remained unchanged from the previous credit agreements. The following is a summary of key provisions and borrowing information as of, and for the nine months ended, September 30, ~~2021:~~2022:


(in thousands, except interest rates)	(in thousands, except interest rates)	OTC Credit Agreement			OTP Credit Agreement			(in thousands, except interest rates)	OTC Credit Agreement			OTP Credit Agreement

Borrowing Limit	Borrowing Limit	$	170,000		$	170,000		Borrowing Limit	$	170,000		$	170,000
Borrowing Limit if Accordion Exercised1	Borrowing Limit if Accordion Exercised1	290,000			250,000			Borrowing Limit if Accordion Exercised1	290,000			250,000
Amount Restricted Due to Outstanding Letters of Credit as of September 30, 2021		—			13,159
Amount Outstanding as of September 30, 2021		36,624			61,233
Average Amount Outstanding During the Nine Months Ended September 30, 2021		58,703			51,911
Maximum Amount Outstanding During the Nine Months Ended September 30, 2021		79,718			72,471
Interest Rate as of September 30, 2021		1.59		%	1.33		%
Amount Restricted Due to Outstanding Letters of Credit as of September 30, 2022								Amount Restricted Due to Outstanding Letters of Credit as of September 30, 2022	—			9,919
Amount Outstanding as of September 30, 2022								Amount Outstanding as of September 30, 2022	—			—
Average Amount Outstanding During the Nine Months Ended September 30, 2022								Average Amount Outstanding During the Nine Months Ended September 30, 2022	15,625			30,235
Maximum Amount Outstanding During the Nine Months Ended September 30, 2022								Maximum Amount Outstanding During the Nine Months Ended September 30, 2022	58,715			74,519
Interest Rate as of September 30, 2022								Interest Rate as of September 30, 2022	4.64		%	4.39		%
Maturity Date	Maturity Date	September 30, 2026			September 30, 2026			Maturity Date	September 30, 2026			September 30, 2026

1Each facility includes an accordion featuring allowing the borrower to increase the borrowing limit if certain terms and conditions are met.	1Each facility includes an accordion featuring allowing the borrower to increase the borrowing limit if certain terms and conditions are met.							1Each facility includes an accordion featuring allowing the borrower to increase the borrowing limit if certain terms and conditions are met.

On October 31, 2022, OTC entered into a Fifth Amended and Restated Credit Agreement and OTP entered into a Fourth Amended and Restated Credit Agreement, in each case amending and restating the previously existing credit agreements to extend the maturity date of each agreement from September 30, 2026 to October 29, 2027 and to replace LIBOR as a benchmark interest rate with the Secured Overnight Finance Rate (SOFR). The adoption of SOFR as a benchmark interest rate is in advance of the scheduled elimination of LIBOR as a benchmark interest rate on June 30, 2023. We do not expect this change in benchmark interest rates will have a material impact on our operating results or cash flows. No other significant terms or conditions, including borrowing capacity, credit spreads or financial covenants, were modified under these amendments and restatements.

LONG-TERM DEBT

AtAs of September 30, ~~2021,~~2022, we had ~~$767.0~~$827.0 million of principal outstanding under long-term debt arrangements. These instruments generally provide for unsecured borrowings at fixed rates of interest with maturities ranging from ~~2021~~2026 to ~~2050.~~

~~On June 10, 2021, OTP entered into~~2052. Pursuant to a Note Purchase Agreement ~~pursuant to which~~executed in June 2021, OTP agreed to issue, in a private placement transaction, $230 million aggregate principal amount of senior unsecured notes. The funding of the notes will occur in two issuances, $140 million in November 2021 and $90 millionissued its Series 2022A Notes due May 20, 2052, in May ~~2022. The issuance of the notes is subject to the satisfaction of certain customary conditions to closing. We intend to use the~~2022 for aggregate proceeds of $90.0 million, a portion of which was used to repay the ~~notes to refinance existing long-term indebtedness, including long-term debt instruments with outstanding principal balances of $140~~$30.0 million ~~and $30 million, which mature~~Series 2007B Notes at their maturity in ~~December 2021 and~~ August ~~2022, respectively, and for general corporate purposes.~~2022.

Note 6 to our consolidated financial statements included in this Quarterly Report on Form 10-Q includes additional information regarding these short-term and long-term debt instruments.

Financial Covenants

Certain of our short- and ~~long-debt~~long-term debt agreements require ~~Otter Tail Corporation~~OTC and OTP to maintain certain financial covenants. As of September 30, ~~2021,~~2022, we were in compliance with these financial covenants as further described below:

~~Otter Tail Corporation~~OTC, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00, and may not permit its priority indebtedness to exceed ~~10%~~10 percent of ~~our~~its total capitalization. As of September 30, ~~2021, our~~2022, OTC's interest-bearing debt to total capitalization was ~~0.47~~0.41 to 1.00, ~~our~~OTC's interest and dividend coverage ratio was ~~5.73~~11.37 to 1.00, and weOTC had no priority indebtedness outstanding.

OTP, under its financial covenants, may not permit its ratio of debt to total capitalization to exceed 0.60 to 1.00, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00, and may not permit its priority debt to exceed ~~20%~~20 percent of its total capitalization. As of September 30, ~~2021,~~2022, OTP's interest-bearing debt to total capitalization was ~~0.47~~0.45 to 1.00, ~~its~~OTP's interest and dividend coverage ratio was ~~3.16~~3.65 to 1.00, and OTP had no priority indebtedness outstanding.

~~Table of~~ ~~Contents~~


~~OFF-BALANCE-SHEET ARRANGEMENTS~~

As of September 30, 2021 we have outstanding letters of credit totaling $16.9 million, a portion of which reduces our borrowing capacity under our lines of credit. No outstanding letters of credit are reflected in outstanding short-term debt on our consolidated balance sheets. 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.


CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES

The discussion and analysis of our results of operations are based on financial statements prepared in accordance with generally accepted accounting principles ~~generally accepted~~ in the United States of America. Certain of our accounting policies require 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 in the

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preparation of our consolidated financial statements. We have disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 the critical accounting policies that affect our most significant estimates and assumptions used in preparing our consolidated financial statements. There have been no material changes to our critical accounting policies and estimates from those disclosed in the most recent Annual Report on Form 10-K.


ITEM 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk from those disclosed in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.


ITEM 4.			CONTROLS AND PROCEDURES

Evaluation of ~~Disclosures~~Disclosure Controls and Procedures. Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the 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 (the Exchange Act)) as of September 30, ~~2021,~~2022, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, ~~2021.~~2022.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended September 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


ITEM 1.			LEGAL PROCEEDINGS

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 9, Commitments and Contingencies, to the consolidated financial statements, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, Regulatory Rate Matters.

ITEM 1A.

RISK FACTORS

There have been no material changes from the risk factors disclosed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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ITEM 6.

EXHIBITS

The following Exhibits are filed as part of, or incorporated by reference into, this report.



No.									Description
10.1									—~~Fourth~~Fifth Amended And Restated Credit Agreement, dated as of ~~September 30, 2021,~~October 31, 2022, by and between Otter Tail Corporation, as Borrower, and the banks named therein, with U.S. Bank National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the F o rm Form 8-K filed by Otter Tail Corporation on ~~October 4, 2021)~~November 1, 2022)
10.2									—~~Third~~Fourth Amended And Restated Credit Agreement, dated as of ~~September 30, 2021,~~October 31, 2022, by and between Otter Tail Power Company, as Borrower, and the banks named therein, with U.S. Bank National Association, as Administrative Agent ~~(incorporated~~ (incorporated by reference to Exhibit ~~10.~~2 10.2 to the Form 8-K filed by Otter Tail Corporation on ~~October 4, 2021)~~November 1, 2022)
31.1									—Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2									—Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1									—Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2									—Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.SCH									—Inline XBRL Taxonomy Extension Schema Document
101.CAL									—Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB									—Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE									—Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF									—Inline XBRL Taxonomy Extension Definition Linkbase Document
104									—Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.


			OTTER TAIL CORPORATION

			By:			/s/ Kevin G. Moug
						Kevin G. Moug Chief Financial Officer and Senior Vice President (duly authorized officer and principal financial officer)

						Dated: November ~~3, 2021~~2, 2022


	Description	Page

	Definitions	2
	Forward Looking Information	2
PART I
ITEM 1.	Financial Statements:
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	87
	Condensed Notes to Consolidated Financial Statements	98
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	32
ITEM 4.	Controls and Procedures	32
PART II
ITEM 1.	Legal Proceedings	32
ITEM 1A.	Risk Factors	32

ITEM 6.	Exhibits	33
Signatures		34


	2021 vs Normal		2021 vs 2020		2020 vs Normal

Effect on Diluted Earnings Per Share	$	0.03	$	0.02	$	0.01


(in millions)	2020		2021(1)			2022			2023			2024			2025			2026			Total 2022 - 2026

Electric Segment:
Renewables and Natural Gas Generation			23			30			80			92			92			160			454
Technology and Infrastructure			2			26			30			18			—			—			74
Distribution Plant Replacements			31			37			35			35			35			33			175
Transmission (includes replacements)			27			26			28			24			20			27			125
Other			34			30			29			32			36			23			150
Total Electric Segment	$	357	$	117		$	149		$	202		$	201		$	183		$	243		$	978
Manufacturing and Plastics Segments	15		36			33			46			31			21			22			153
Total Capital Expenditures	$	372	$	153		$	182		$	248		$	232		$	204		$	265		$	1,131

Total Electric Utility Average Rate Base	$	1,385	$	1,570		$	1,630		$	1,750		$	1,860		$	1,980		$	2,100
Annual Rate Base Growth			13.4		%	3.8		%	7.4		%	6.3		%	6.5		%	6.1		%
(1) Includes actual results for the nine months ended September 30, 2021, and anticipated capital expenditures for the fourth quarter of 2021.