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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 20212022 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 classTrading Symbol(s)Name of each exchange on which registered
Common Shares, par value $5.00 per shareOTTRThe 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:
41,539,98441,630,952 Common Shares ($5 par value) as of October 29, 2021.25, 2022. 



Table of Contents
TABLE OF CONTENTS
 DescriptionPage
 
  
ITEM 1. 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 1.
ITEM 1A.
ITEM 6.
 

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DEFINITIONS
The following abbreviations or acronyms are used in the text.
AFUDCAGIAllowance for Funds Used During ConstructionMPUCMinnesota Public Utilities Commission
ARPAlternative Revenue ProgramNDPSCNorth Dakota Public Service Commission
BTDBTD Manufacturing, Inc.Northern PipeNorthern Pipe Products, Inc.
CIPConservation Improvement ProgramAdvanced Grid Infrastructure RiderOTCOtter Tail Corporation
ECRARPEnvironmental Cost Recovery RiderAlternative Revenue ProgramOTPOtter Tail Power Company
EEPBTDBTD Manufacturing, Inc.NDDEQNorth Dakota Department of Environmental Quality
CIPConservation Improvement ProgramPIRPhase-In Rider
EAREnergy Efficiency PlanAdjustment RiderPACEPSLRAPartnership in Assisting Community ExpansionPrivate Securities Litigation Reform Act of 1995
EPAEnvironmental Protection AgencyPIRPTCPhase-In RiderProduction Tax Credits
ESSRPExecutive Survivor and Supplemental Retirement PlanPTCsProduction tax credits
EUICElectric Utility Infrastructure Cost Recovery RiderPVCPolyvinyl chloride
FCAFuel Clause AdjustmentRHRRegional Haze Rule
FERCFederal Energy Regulatory CommissionROERHRReturn on equityRegional Haze Rule
GCRGeneration Cost Recovery RiderRRRROERenewable Resource RiderReturn on equity
ISOIndependent System OperatorSDPUCRRRSouth Dakota Public Utilities CommissionRenewable Resource Rider
IRPIntegrated Resource PlanSECSecurities and Exchange Commission
kWkiloWattT.O. PlasticsT.O. Plastics, Inc.
kwhkilowatt-hourTCRSOFRTransmission Cost Recovery RiderSecured Overnight Funds Rate
MerricourtMerricourt Wind Energy CenterVinyltechT.O. PlasticsVinyltech CorporationT.O. Plastics, Inc.
MISOMidcontinent Independent System Operator, Inc.TCRTransmission Cost Recovery Rider
MPUCMinnesota 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 CompanyOtter 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
AssetsAssets  Assets  
Current AssetsCurrent Assets  Current Assets  
Cash and Cash EquivalentsCash and Cash Equivalents$1,272 $1,163 Cash and Cash Equivalents$72,987 $1,537 
Receivables, net of allowance for credit lossesReceivables, net of allowance for credit losses178,759 113,959 Receivables, net of allowance for credit losses193,797 174,953 
InventoriesInventories114,615 92,165 Inventories146,376 148,490 
Regulatory AssetsRegulatory Assets22,517 21,900 Regulatory Assets29,921 27,342 
Other Current AssetsOther Current Assets17,804 5,645 Other Current Assets17,412 17,032 
Total Current AssetsTotal Current Assets334,967 234,832 Total Current Assets460,493 369,354 
Noncurrent AssetsNoncurrent AssetsNoncurrent Assets
InvestmentsInvestments55,456 51,856 Investments52,966 56,690 
Property, Plant and Equipment, net of accumulated depreciationProperty, Plant and Equipment, net of accumulated depreciation2,083,223 2,049,273 Property, Plant and Equipment, net of accumulated depreciation2,186,643 2,124,605 
Regulatory AssetsRegulatory Assets158,515 168,395 Regulatory Assets116,593 125,508 
Intangible Assets, net of accumulated amortizationIntangible Assets, net of accumulated amortization9,319 10,144 Intangible Assets, net of accumulated amortization8,218 9,044 
GoodwillGoodwill37,572 37,572 Goodwill37,572 37,572 
Other Noncurrent AssetsOther Noncurrent Assets34,096 26,282 Other Noncurrent Assets35,419 32,057 
Total Noncurrent AssetsTotal Noncurrent Assets2,378,181 2,343,522 Total Noncurrent Assets2,437,411 2,385,476 
Total AssetsTotal Assets$2,713,148 $2,578,354 Total Assets$2,897,904 $2,754,830 
Liabilities and Shareholders' EquityLiabilities and Shareholders' EquityLiabilities and Shareholders' Equity
Current LiabilitiesCurrent LiabilitiesCurrent Liabilities
Short-Term DebtShort-Term Debt$97,857 $80,997 Short-Term Debt$ $91,163 
Current Maturities of Long-Term DebtCurrent Maturities of Long-Term Debt169,962 140,087 Current Maturities of Long-Term Debt 29,983 
Accounts PayableAccounts Payable135,437 130,805 Accounts Payable121,995 135,089 
Accrued Salaries and WagesAccrued Salaries and Wages28,455 26,908 Accrued Salaries and Wages27,454 31,704 
Accrued TaxesAccrued Taxes17,972 18,831 Accrued Taxes25,635 19,245 
Regulatory LiabilitiesRegulatory Liabilities25,323 16,663 Regulatory Liabilities21,114 24,844 
Other Current LiabilitiesOther Current Liabilities35,081 22,495 Other Current Liabilities45,655 55,671 
Total Current LiabilitiesTotal Current Liabilities510,087 436,786 Total Current Liabilities241,853 387,699 
Noncurrent Liabilities and Deferred Credits
Pensions Benefit Liability101,446 114,055 
Noncurrent LiabilitiesNoncurrent Liabilities
Pension Benefit LiabilityPension Benefit Liability50,489 73,973 
Other Postretirement Benefits LiabilityOther Postretirement Benefits Liability68,090 67,359 Other Postretirement Benefits Liability67,352 66,481 
Regulatory LiabilitiesRegulatory Liabilities230,733 233,973 Regulatory Liabilities240,545 234,430 
Deferred Income TaxesDeferred Income Taxes176,502 153,376 Deferred Income Taxes212,838 188,268 
Deferred Tax CreditsDeferred Tax Credits16,847 17,405 Deferred Tax Credits16,102 16,661 
Other Noncurrent LiabilitiesOther Noncurrent Liabilities62,342 60,002 Other Noncurrent Liabilities60,942 62,527 
Total Noncurrent Liabilities and Deferred Credits655,960 646,170 
Total Noncurrent LiabilitiesTotal Noncurrent Liabilities648,268 642,340 
Commitments and Contingencies (Note 9)
Commitments and Contingencies (Note 9)
00
Commitments and Contingencies (Note 9)
CapitalizationCapitalizationCapitalization
Long-Term Debt, net of current maturitiesLong-Term Debt, net of current maturities594,619 624,432 Long-Term Debt, net of current maturities823,760 734,014 
Shareholders' EquityShareholders' EquityShareholders' 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 CapitalAdditional Paid-In Capital418,568 414,246 Additional Paid-In Capital422,448 419,760 
Retained EarningsRetained Earnings334,385 257,878 Retained Earnings560,398 369,783 
Accumulated Other Comprehensive LossAccumulated Other Comprehensive Loss(8,171)(8,507)Accumulated Other Comprehensive Loss(6,978)(6,524)
Total Shareholders' EquityTotal Shareholders' Equity952,482 870,966 Total Shareholders' Equity1,184,023 990,777 
Total CapitalizationTotal Capitalization1,547,101 1,495,398 Total Capitalization2,007,783 1,724,791 
Total Liabilities and Shareholders' EquityTotal 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)2021202020212020(in thousands, except per-share amounts)2022202120222021
Operating RevenuesOperating Revenues  Operating Revenues  
ElectricElectric$118,775 $115,213 $348,629 $333,213 Electric$142,747 $118,775 $404,112 $348,629 
Product SalesProduct Sales197,519 120,542 514,983 330,045 Product Sales241,109 197,519 754,688 514,983 
Total Operating RevenuesTotal Operating Revenues316,294 235,755 863,612 663,258 Total Operating Revenues383,856 316,294 1,158,800 863,612 
Operating ExpensesOperating ExpensesOperating Expenses
Electric Production FuelElectric Production Fuel17,698 11,554 44,576 34,077 Electric Production Fuel24,972 17,698 54,538 44,576 
Electric Purchased PowerElectric Purchased Power9,878 13,428 40,273 45,940 Electric Purchased Power19,913 9,878 64,604 40,273 
Electric Operating and Maintenance ExpensesElectric Operating and Maintenance Expenses36,465 32,845 114,615 106,639 Electric Operating and Maintenance Expenses39,799 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 ExpensesOther Nonelectric Expenses16,224 13,615 45,587 36,277 Other Nonelectric Expenses16,524 16,224 50,981 45,587 
Depreciation and AmortizationDepreciation and Amortization22,815 20,395 68,109 61,230 Depreciation and Amortization22,716 22,815 69,829 68,109 
Electric Property TaxesElectric Property Taxes4,474 4,333 13,136 12,601 Electric Property Taxes4,438 4,474 13,304 13,136 
Total Operating ExpensesTotal Operating Expenses241,766 183,026 685,063 543,331 Total Operating Expenses267,723 241,766 823,302 685,063 
Operating IncomeOperating Income74,528 52,729 178,549 119,927 Operating Income116,133 74,528 335,498 178,549 
Other Income and ExpenseOther Income and ExpenseOther Income and Expense
Interest ChargesInterest Charges9,648 8,568 28,601 25,353 Interest Charges9,259 9,648 27,198 28,601 
Nonservice Cost Components of Postretirement BenefitsNonservice Cost Components of Postretirement Benefits505 842 1,511 2,581 Nonservice Cost Components of Postretirement Benefits(52)505 (824)1,511 
Other Income (Expense), netOther Income (Expense), net203 1,712 2,095 3,733 Other Income (Expense), net(174)203 (802)2,095 
Income Before Income TaxesIncome Before Income Taxes64,578 45,031 150,532 95,726 Income Before Income Taxes106,752 64,578 308,322 150,532 
Income Tax ExpenseIncome Tax Expense11,824 9,097 25,380 18,543 Income Tax Expense22,513 11,824 66,143 25,380 
Net IncomeNet 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:
BasicBasic41,504 40,914 41,487 40,548 Basic41,600 41,504 41,582 41,487 
DilutedDiluted41,869 41,078 41,795 40,733 Diluted41,974 41,869 41,930 41,795 
Earnings Per Share:Earnings Per Share:Earnings Per Share:
BasicBasic$1.27 $0.88 $3.02 $1.90 Basic$2.02 $1.27 $5.82 $3.02 
DilutedDiluted$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)2021202020212020
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) Benefit7 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 Costs197 138 591 413 
Income Tax Expense(51)(36)(154)(108)
Pension and Postretirement Benefit Plan, net of tax146 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)2022202120222021
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 CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)1
Total Shareholders' Equity
Balance, June 30, 202141,538,709 $207,694 $417,870 $297,850 $(8,291)$915,123 
Common Stock Issuances, Net of Expenses1,275 (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, 202141,539,984 $207,700 $418,568 $334,385 $(8,171)$952,482 
Balance, June 30, 202040,848,828 $204,244 $390,141 $233,705 $(6,035)$822,055 
Common Stock Issuances, Net of Expenses203,337 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, 202041,052,165 $205,261 $398,301 $254,468 $(5,960)$852,070 
Balance, December 31, 202041,469,879 $207,349 $414,246 $257,878 $(8,507)$870,966 
Common Stock Issuances, Net of Expenses105,806 530 (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, 202141,539,984 $207,700 $418,568 $334,385 $(8,171)$952,482 
Balance, December 31, 201940,157,591 $200,788 $364,790 $222,341 $(6,437)$781,482 
Common Stock Issuances, Net of Expenses932,791 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, 202041,052,165 $205,261 $398,301 $254,468 $(5,960)$852,070 
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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 $265 
Tax Effect(29)(56)
Unrealized Gain on Available-for-Sale Debt, net of tax108 209 
Unamortized Actuarial Losses and Prior Service Costs Related to Pension and Postretirement Benefits:
Before Tax(11,202)(11,793)
Tax Effect2,923 3,077 
Unamortized Actuarial Losses and Prior Service Costs Related to Pension and Postretirement Benefits, net of tax(8,279)(8,716)
Accumulated Other Comprehensive Loss:
Before Tax(11,065)(11,528)
Tax Effect2,894 3,021 
Net Accumulated Other Comprehensive Loss$(8,171)$(8,507)
(in thousands, except common shares outstanding)Common
Shares
Outstanding
Par Value,
Common
Shares
Additional Paid-In CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total Shareholders' Equity
Balance, June 30, 202241,630,799 $208,154 $421,951 $493,351 $(6,913)$1,116,543 
Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes153 (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, 202241,630,952 $208,155 $422,448 $560,398 $(6,978)$1,184,023 
Balance, June 30, 202141,538,709 $207,694 $417,870 $297,850 $(8,291)$915,123 
Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes1,275 (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, 202141,539,984 $207,700 $418,568 $334,385 $(8,171)$952,482 
Balance, December 31, 202141,551,524 $207,758 $419,760 $369,783 $(6,524)$990,777 
Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes79,428 397 (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, 202241,630,952 $208,155 $422,448 $560,398 $(6,978)$1,184,023 
Balance, December 31, 202041,469,879 $207,349 $414,246 $257,878 $(8,507)$870,966 
Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes70,105 351 (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, 202141,539,984 $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)20212020(in thousands)20222021
Operating ActivitiesOperating Activities  Operating Activities  
Net IncomeNet 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 AmortizationDepreciation and Amortization68,109 61,230 Depreciation and Amortization69,829 68,109 
Deferred Tax CreditsDeferred Tax Credits(558)(986)Deferred Tax Credits(558)(558)
Deferred Income TaxesDeferred Income Taxes18,835 20,353 Deferred Income Taxes23,648 18,835 
Change in Deferred Debits and Other Assets6,166 3,439 
Discretionary Contribution to Pension PlanDiscretionary Contribution to Pension Plan(10,000)(11,200)Discretionary Contribution to Pension Plan(20,000)(10,000)
Change in Noncurrent Liabilities and Deferred Credits2,662 3,237 
Allowance for Equity Funds Used During ConstructionAllowance for Equity Funds Used During Construction(427)(3,104)Allowance for Equity Funds Used During Construction(938)(427)
Stock Compensation ExpenseStock Compensation Expense6,354 5,282 Stock Compensation Expense6,141 6,354 
Other, NetOther, Net(3,480)(176)Other, Net5,477 (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 Liabilities40,574 (12,063)
Change in Interest Payable and Income Taxes Receivable/Payable774 103 
Changes in Operating Assets and Liabilities:Changes in Operating Assets and Liabilities:
ReceivablesReceivables(18,845)(64,800)
InventoriesInventories3,632 (22,450)
Regulatory AssetsRegulatory Assets170 5,301 
Other AssetsOther Assets1,789 (18,708)
Accounts PayableAccounts Payable(10,681)30,921 
Accrued and Other LiabilitiesAccrued and Other Liabilities(13,970)12,027 
Regulatory LiabilitiesRegulatory Liabilities(1,208)2,350 
Pension and Other Postretirement BenefitsPension and Other Postretirement Benefits1,308 5,393 
Net Cash Provided by Operating ActivitiesNet Cash Provided by Operating Activities154,752 141,276 Net Cash Provided by Operating Activities287,973 154,752 
Investing ActivitiesInvesting ActivitiesInvesting Activities
Capital ExpendituresCapital Expenditures(117,312)(220,630)Capital Expenditures(123,227)(117,312)
Proceeds from Disposal of Noncurrent AssetsProceeds from Disposal of Noncurrent Assets5,819 4,617 Proceeds from Disposal of Noncurrent Assets3,803 5,819 
Cash Used for Investments and Other AssetsCash 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 ActivitiesNet Cash Used in Investing Activities(117,084)(222,385)Net Cash Used in Investing Activities(127,556)(117,084)
Financing ActivitiesFinancing ActivitiesFinancing Activities
Change in Checks Written in Excess of Cash(3,133)90 
Net Short-Term Borrowings16,860 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 DebtNet Borrowings (Repayments) on Short-Term Debt(91,163)16,860 
Proceeds from Issuance of Long-Term DebtProceeds from Issuance of Long-Term Debt 75,000 Proceeds from Issuance of Long-Term Debt90,000 — 
Debt Issuance Expenses(772)(369)
Payments for Retirement of Long-Term DebtPayments for Retirement of Long-Term Debt(169)(136)Payments for Retirement of Long-Term Debt(30,000)(169)
Dividends PaidDividends 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 ObligationsPayments for Shares Withheld for Employee Tax Obligations(2,942)(1,633)
Other, netOther, net(3,298)(3,972)
Net Cash Used in Financing ActivitiesNet Cash Used in Financing Activities(88,967)(37,559)
Net Change in Cash and Cash EquivalentsNet Change in Cash and Cash Equivalents109 23,705 Net Change in Cash and Cash Equivalents71,450 109 
Cash and Cash Equivalents at Beginning of PeriodCash and Cash Equivalents at Beginning of Period1,163 21,199 Cash and Cash Equivalents at Beginning of Period1,537 1,163 
Cash and Cash Equivalents at End of PeriodCash 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 ActivitiesSupplemental Disclosure of Noncash Investing ActivitiesSupplemental Disclosure of Noncash Investing Activities
Accrued Property, Plant, and Equipment Additions$14,358 $112,314 
Accrued Property, Plant and Equipment AdditionsAccrued 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 PVCpolyvinyl 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, 20212022 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, 20212022 and 20202021 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)2021202020212020(in thousands)2022202120222021
Operating Revenue1
Operating RevenueOperating Revenue
ElectricElectric$118,775 $115,213 $348,629 $333,213 Electric$142,747 $118,775 $404,112 $348,629 
ManufacturingManufacturing89,977 59,849 250,085 174,276 Manufacturing98,767 89,977 306,921 250,085 
PlasticsPlastics107,542 60,693 264,898 155,769 Plastics142,342 107,542 447,767 264,898 
TotalTotal$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)
ElectricElectric$22,528 $24,737 $55,547 $54,225 Electric$24,847 $22,528 $62,938 $55,547 
ManufacturingManufacturing4,200 3,311 15,290 8,476 Manufacturing6,219 4,200 17,858 15,290 
PlasticsPlastics28,410 10,343 60,102 20,922 Plastics55,982 28,410 170,788 60,102 
CorporateCorporate(2,384)(2,457)(5,787)(6,440)Corporate(2,809)(2,384)(9,405)(5,787)
TotalTotal$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.
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The following provides the identifiable assets by segment and corporate assets as of September 30, 20212022 and December 31, 2020:2021:
(in thousands)(in thousands)September 30,
2021
December 31,
2020
(in thousands)September 30,
2022
December 31,
2021
Identifiable AssetsIdentifiable AssetsIdentifiable Assets
ElectricElectric$2,271,636 $2,233,399 Electric$2,347,461 $2,283,776 
ManufacturingManufacturing242,414 191,005 Manufacturing253,819 251,044 
PlasticsPlastics143,615 99,767 Plastics179,925 162,565 
CorporateCorporate55,483 54,183 Corporate116,699 57,445 
TotalTotal$2,713,148 $2,578,354 Total$2,897,904 $2,754,830 
3. Revenue
We presentPresented 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, 20212022 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)2021202020212020(in thousands)2022202120222021
Operating RevenuesOperating RevenuesOperating Revenues
Electric SegmentElectric SegmentElectric Segment
Retail: ResidentialRetail: Residential$33,902 $32,734 $100,067 $96,440 Retail: Residential$35,122 $33,902 $108,883 $100,067 
Retail: Commercial and IndustrialRetail: Commercial and Industrial60,557 64,918 185,376 189,771 Retail: Commercial and Industrial83,022 60,557 232,532 185,376 
Retail: OtherRetail: Other1,979 1,953 5,687 5,550 Retail: Other2,033 1,979 6,004 5,687 
Total Retail Total Retail96,438 99,605 291,130 291,761  Total Retail120,177 96,438 347,419 291,130 
TransmissionTransmission13,300 12,288 37,085 32,802 Transmission13,156 13,300 37,409 37,085 
WholesaleWholesale6,944 1,500 14,711 3,141 Wholesale7,196 6,944 13,196 14,711 
OtherOther2,093 1,820 5,703 5,509 Other2,218 2,093 6,088 5,703 
Total Electric SegmentTotal Electric Segment118,775 115,213 348,629 333,213 Total Electric Segment142,747 118,775 404,112 348,629 
Manufacturing SegmentManufacturing SegmentManufacturing Segment
Metal Parts and ToolingMetal Parts and Tooling76,455 50,957 210,141 145,435 Metal Parts and Tooling84,054 76,455 261,923 210,141 
Plastic Products and ToolingPlastic Products and Tooling10,198 7,600 30,624 25,323 Plastic Products and Tooling12,723 10,198 36,584 30,624 
Scrap Metal SalesScrap Metal Sales3,324 1,292 9,320 3,518 Scrap Metal Sales1,990 3,324 8,414 9,320 
Total Manufacturing SegmentTotal Manufacturing Segment89,977 59,849 250,085 174,276 Total Manufacturing Segment98,767 89,977 306,921 250,085 
Plastics SegmentPlastics SegmentPlastics Segment
PVC PipePVC Pipe107,542 60,693 264,898 155,769 PVC Pipe142,342 107,542 447,767 264,898 
Total Operating RevenueTotal Operating Revenue316,294 235,755 863,612 663,258 Total Operating Revenue383,856 316,294 1,158,800 863,612 
Less: Non-contract Revenues Included AboveLess: Non-contract Revenues Included AboveLess: Non-contract Revenues Included Above
Electric Segment - ARP RevenuesElectric 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 CustomersTotal 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, 20212022 and December 31, 20202021 are as follows:
(in thousands)(in thousands)September 30,
2021
December 31,
2020
(in thousands)September 30,
2022
December 31,
2021
ReceivablesReceivablesReceivables
TradeTrade$152,906 $87,048 Trade$167,480 $142,297 
OtherOther11,182 8,939 Other9,052 10,591 
Unbilled ReceivablesUnbilled Receivables17,003 21,187 Unbilled Receivables18,813 23,901 
Total ReceivablesTotal Receivables181,091 117,174 Total Receivables195,345 176,789 
Less: Allowance for Credit LossesLess: Allowance for Credit Losses2,332 3,215 Less: Allowance for Credit Losses(1,548)(1,836)
Receivables, net of allowance for credit lossesReceivables, 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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The following is a summary of activity in the allowance for credit losses for the nine months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020(in thousands)20222021
Beginning Balance, January 1Beginning Balance, January 1$3,215 $1,339 Beginning Balance, January 1$1,836 $3,215 
Additions Charged to ExpenseAdditions Charged to Expense177 1,845 Additions Charged to Expense518 177 
Reductions for Amounts Written Off, Net of RecoveriesReductions for Amounts Written Off, Net of Recoveries(1,060)(923)Reductions for Amounts Written Off, Net of Recoveries(806)(1,060)
Ending Balance, September 30Ending 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, 20212022 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 SuppliesRaw Material, Fuel and Supplies$74,249 $72,882 
Work in ProcessWork in Process33,765 35,705 
Finished GoodsFinished Goods$25,727 $22,046 Finished Goods38,362 39,903 
Work in Process29,932 16,210 
Raw Material, Fuel and Supplies58,956 53,909 
Total InventoriesTotal Inventories$114,615 $92,165 Total Inventories$146,376 $148,490 
Investments
The following is a summary of our investments as of September 30, 20212022 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 PoliciesCorporate-Owned Life Insurance Policies$40,096 $36,825 Corporate-Owned Life Insurance Policies$37,288 $41,078 
Debt SecuritiesDebt Securities9,208 9,260 Debt Securities8,710 9,202 
Money Market FundsMoney Market Funds953 4,075 Money Market Funds1,854 949 
Mutual FundsMutual Funds5,170 1,662 Mutual Funds5,084 5,432 
Other InvestmentsOther Investments29 34 Other Investments30 29 
Total InvestmentsTotal 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, 20212022 and December 31, 2020 are2021 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, 20212022 and December 31, 2020 are2021 was not material.
Property, Plant and Equipment
Major classes of property, plant and equipment as of September 30, 20212022 and December 31, 20202021 include:
(in thousands)(in thousands)September 30,
2021
December 31,
2020
(in thousands)September 30,
2022
December 31,
2021
Electric Plant in Service  
Electric PlantElectric Plant  
Electric Plant in ServiceElectric Plant in Service$2,705,778 $2,531,352 Electric Plant in Service$2,795,649 $2,758,445 
Construction Work in ProgressConstruction Work in Progress100,495 203,078 Construction Work in Progress130,486 74,926 
Total Gross Electric PlantTotal Gross Electric Plant2,806,273 2,734,430 Total Gross Electric Plant2,926,135 2,833,371 
Less Accumulated Depreciation and AmortizationLess Accumulated Depreciation and Amortization822,441 778,988 Less Accumulated Depreciation and Amortization850,741 817,302 
Net Electric PlantNet Electric Plant1,983,832 1,955,442 Net Electric Plant2,075,394 2,016,069 
Nonelectric Property, Plant and EquipmentNonelectric Property, Plant and EquipmentNonelectric Property, Plant and Equipment
Nonelectric Property, Plant and Equipment in ServiceNonelectric Property, Plant and Equipment in Service263,880 258,730 Nonelectric Property, Plant and Equipment in Service281,584 273,950 
Construction Work in ProgressConstruction Work in Progress15,564 9,290 Construction Work in Progress20,746 16,611 
Total Gross Nonelectric Property, Plant and EquipmentTotal Gross Nonelectric Property, Plant and Equipment279,444 268,020 Total Gross Nonelectric Property, Plant and Equipment302,330 290,561 
Less Accumulated Depreciation and AmortizationLess Accumulated Depreciation and Amortization180,053 174,189 Less Accumulated Depreciation and Amortization191,081 182,025 
Net Nonelectric Property, Plant and EquipmentNet Nonelectric Property, Plant and Equipment99,391 93,831 Net Nonelectric Property, Plant and Equipment111,249 108,536 
Net Property, Plant and EquipmentNet 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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5. Regulatory Matters
Regulatory Assets and Liabilities
The following presents our current and long-term regulatory assets and liabilities as of September 30, 20212022 and December 31, 20202021 and the period we expect to recover or refund such amounts:
Period ofSeptember 30, 2021December 31, 2020Period ofSeptember 30, 2022December 31, 2021
(in thousands)(in thousands)Recovery/RefundCurrentLong-TermCurrentLong Term(in thousands)Recovery/RefundCurrentLong-TermCurrentLong Term
Regulatory AssetsRegulatory AssetsRegulatory 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 years7,229 8,225 8,871 9,373 
Alternative Revenue Program Riders2
Up to 2 years7,528 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 years270 1,027 1,079 867 
ISO Cost Recovery Trackers1
Up to 2 years660 740 — 1,342 
Unrecovered Project Costs1
Unrecovered Project Costs1
Up to 3 years3,227 1,456 361 2,989 
Unrecovered Project Costs1
Up to 5 years320 1,063 2,136 1,455 
Deferred Rate Case Expenses1
Deferred Rate Case Expenses1
Various637 936 360 230 
Deferred Rate Case Expenses1
Various412 848 607 1,131 
Debt Reacquisition Premiums1
Debt Reacquisition Premiums1
Up to 12 years117 262 192 341 
Debt Reacquisition Premiums1
10 years25 222 100 240 
Fuel Clause Adjustments1
Fuel Clause Adjustments1
Up to 1 year13,185  4,819 — 
Other1
Other1
Various 77 — 62 
Other1
Various 226 — 73 
Total Regulatory AssetsTotal Regulatory Assets$22,517 $158,515 $21,900 $168,395 Total Regulatory Assets$29,921 $116,593 $27,342 $125,508 
Regulatory LiabilitiesRegulatory LiabilitiesRegulatory Liabilities
Deferred Income TaxesDeferred Income TaxesAsset lives$ $130,555 $— $134,719 Deferred Income TaxesAsset lives$ $128,397 $— $129,437 
Plant Removal ObligationsPlant Removal ObligationsAsset lives5,893 96,734 — 98,707 Plant Removal ObligationsAsset lives8,526 106,008 8,306 101,595 
Fuel Clause AdjustmentsFuel Clause AdjustmentsUp to 1 year5,692  10,947 — Fuel Clause AdjustmentsUp to 1 year  1,554 — 
Alternative Revenue Program RidersAlternative Revenue Program RidersVarious5,265 2,507 3,581 470 Alternative Revenue Program RidersVarious4,178 6,048 5,772 3,336 
Pension and Other Postretirement Benefit PlansPension and Other Postretirement Benefit PlansUp to 1 year1,959  1,959 — Pension and Other Postretirement Benefit PlansUp to 1 year2,603  2,603 — 
Derivative InstrumentsDerivative InstrumentsVarious6,136 787 — — Derivative InstrumentsVarious5,532  6,214 — 
OtherOtherVarious378 150 176 77 OtherVarious275 92 395 62 
Total Regulatory LiabilitiesTotal 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 shortshort- and long-term borrowings by borrower, Otter Tail Corporation (OTC)OTC or Otter Tail Power Company (OTP),OTP, as of September 30, 20212022 and December 31, 2020:2021:
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Short-Term Debt
The following is a summary of our lines of credit as of September 30, 20212022 and December 31, 2020:2021:
September 30, 2021December 31,
2020
September 30, 2022December 31,
2021
(in thousands)(in thousands)Line LimitAmount OutstandingLetters
of Credit
Amount AvailableAmount Available(in thousands)Borrowing LimitAmount OutstandingLetters
of Credit
Amount AvailableAmount Available
OTC Credit AgreementOTC Credit Agreement$170,000 $36,624 $— $133,376 $104,834 OTC Credit Agreement$170,000 $ $ $170,000 $147,363 
OTP Credit AgreementOTP Credit Agreement170,000 61,233 13,159 95,608 140,068 OTP Credit Agreement170,000  9,919 160,081 88,315 
TotalTotal$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 tocredit facility from September 30, 2026. The agreements both provide for $170 million revolving lines of credit2026 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 andwith the Secured Overnight Finance Rate (SOFR). The adoption of SOFR as a benchmark interest rate is subject to adjustment
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based on the credit ratingsin advance of the borrower. Asscheduled elimination of September 30, 2021, the weighted-average LIBOR Rate basedas 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, 20212022 and December 31, 2020:2021: 
(in thousands)(in thousands)
EntityDebt InstrumentRateMaturitySeptember 30,
2021
December 31,
2020
BorrowerBorrowerDebt InstrumentRateMaturitySeptember 30,
2022
December 31,
2021
OTCOTCGuaranteed Senior Notes3.55%12/15/26$80,000 $80,000 OTCGuaranteed Senior Notes3.55%12/15/26$80,000 $80,000 
OTPOTPSeries 2011A Senior Unsecured Notes4.63%12/01/21140,000 140,000 OTPSeries 2007B Senior Unsecured Notes6.15%08/20/22 30,000 
OTPOTPSeries 2007B Senior Unsecured Notes6.15%08/20/2230,000 30,000 OTPSeries 2007C Senior Unsecured Notes6.37%08/02/2742,000 42,000 
OTPOTPSeries 2007C Senior Unsecured Notes6.37%08/02/2742,000 42,000 OTPSeries 2013A Senior Unsecured Notes4.68%02/27/2960,000 60,000 
OTPOTPSeries 2013A Senior Unsecured Notes4.68%02/27/2960,000 60,000 OTPSeries 2019A Senior Unsecured Notes3.07%10/10/2910,000 10,000 
OTPOTPSeries 2019A Senior Unsecured Notes3.07%10/10/2910,000 10,000 OTPSeries 2020A Senior Unsecured Notes3.22%02/25/3010,000 10,000 
OTPOTPSeries 2020A Senior Unsecured Notes3.22%02/25/3010,000 10,000 OTPSeries 2020B Senior Unsecured Notes3.22%08/20/3040,000 40,000 
OTPOTPSeries 2020B Senior Unsecured Notes3.22%08/20/3040,000 40,000 OTPSeries 2021A Senior Unsecured Notes2.74%11/29/3140,000 40,000 
OTPOTPSeries 2007D Senior Unsecured Notes6.47%08/20/3750,000 50,000 OTPSeries 2007D Senior Unsecured Notes6.47%08/20/3750,000 50,000 
OTPOTPSeries 2019B Senior Unsecured Notes3.52%10/10/3926,000 26,000 OTPSeries 2019B Senior Unsecured Notes3.52%10/10/3926,000 26,000 
OTPOTPSeries 2020C Senior Unsecured Notes3.62%02/25/4010,000 10,000 OTPSeries 2020C Senior Unsecured Notes3.62%02/25/4010,000 10,000 
OTPOTPSeries 2013B Senior Unsecured Notes5.47%02/27/4490,000 90,000 OTPSeries 2013B Senior Unsecured Notes5.47%02/27/4490,000 90,000 
OTPOTPSeries 2018A Senior Unsecured Notes4.07%02/07/48100,000 100,000 OTPSeries 2018A Senior Unsecured Notes4.07%02/07/48100,000 100,000 
OTPOTPSeries 2019C Senior Unsecured Notes3.82%10/10/4964,000 64,000 OTPSeries 2019C Senior Unsecured Notes3.82%10/10/4964,000 64,000 
OTPOTPSeries 2020D Senior Unsecured Notes3.92%02/25/5015,000 15,000 OTPSeries 2020D Senior Unsecured Notes3.92%02/25/5015,000 15,000 
OTCPACE Note2.54%03/18/21 169 
OTPOTPSeries 2021B Senior Unsecured Notes3.69%11/29/51100,000 100,000 
OTPOTPSeries 2022A Senior Unsecured Notes3.77%05/20/5290,000 — 
TotalTotal$767,000 $767,169 Total$827,000 $767,000 
Less:Less:Current Maturities Net of Unamortized Debt Issuance Costs169,962 140,087 Less:Current Maturities, Net of Unamortized Debt Issuance Costs 29,983 
Unamortized Long-Term Debt Issuance Costs2,419 2,650 Unamortized Long-Term Debt Issuance Costs3,240 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 CostsTotal 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 inIn November 2021, OTP issued its Series 2021A and $90Series 2021B Notes for aggregate proceeds of $140.0 million, which were used to repay the Series 2011A Notes in full. In May 2022. The issuance2022, OTP issued its Series 2022A Notes for proceeds of $90.0 million, which were used to repay the notes is subjectSeries 2007B Senior Unsecured Notes at their maturity in August 2022, to the satisfaction of certain customary conditionsrepay short-term borrowings, to closing.fund capital expenditures, and for other general corporate purposes.
Financial Covenants
Certain of OTC's and OTP's short-termshort- 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
PensionThe 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.
ComponentsThe 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, 20212022 and 2020 are as follows:2021:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Service Cost–Benefit Earned During the Period$1,866 $1,655 $5,597 $4,966 
Interest Cost on Projected Benefit Obligation2,915 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 Asset2,660 2,231 7,981 6,693 
From Other Comprehensive Income68 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)202220212022202120222021
Service Cost$1,644 $1,866 $48 $47 $335 $430 
Interest Cost3,086 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 Loss1,966 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)202220212022202120222021
Service Cost$4,932 $5,597 $146 $140 $1,004 $1,291 
Interest Cost9,258 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 Loss5,899 8,185 425 465 2,297 2,830 
Net Periodic Benefit Cost$2,326 $5,758 $1,577 $1,526 $532 $1,240 
Wehad no minimum funding requirement asThe following table includes the impact of December 31, 2020 but made a discretionary plan contributionregulation 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, 20212022 and 2020 are as follows:2021:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Service Cost–Benefit Earned During the Period$47 $45 $140 $134 
Interest Cost on Projected Benefit Obligation307 362 921 1,086 
Amortization of Net Actuarial Loss:
From Regulatory Asset30 24 92 71 
From Other Comprehensive Income124 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)2022202120222021
Net Periodic Benefit Cost$1,476 $2,840 $4,435 $8,524 
Net Amount Amortized (Deferred) Due to the Effect of Regulation499 823 15 
Net Periodic Benefit Cost Recognized$1,975 $2,848 $5,258 $8,539 
Other Postretirement Benefits
Components of net periodicWehad 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)2021202020212020
Service Cost–Benefit Earned During the Period$430 $461 $1,291 $1,385 
Interest Cost on Projected Benefit Obligation472 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 Asset919 1,051 2,759 3,154 
From Other Comprehensive Income24 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, 20212022 and 20202021 is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Federal Statutory Rate21.0 %21.0 %21.0 %21.0 %
Increases (Decreases) in Tax from:
State Taxes on Income, Net of Federal Tax5.0 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 Rate18.3 %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,
2022202120222021
Federal Statutory Rate21.0 %21.0 %21.0 %21.0 %
Increases (Decreases) in Tax from:
State Taxes on Income, Net of Federal Tax5.0 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 Insurance0.2 (0.3)0.4 (0.6)
Other, Net(0.5)(0.6)0.1 (0.2)
Effective Tax Rate21.1 %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 forpurchased 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 commitmentsreceived 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 FERCthe Federal Energy Regulatory Commission (FERC) seeking to reduce the ROEreturn on equity (ROE) component of the transmission rates that MISOMidcontinent 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. TheOn 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 opinionorder. 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 refundsto 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 EPAEnvironmental 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, theThe North Dakota Department of Environmental Quality (NDDEQ) made public a draft ofsubmitted 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. FollowingThe 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 modificationsplan 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 customersin rates would be subject to regulatory approval.
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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 methodmethods of purchasing our common shares, by reinvesting their dividends and/or making optional cash investments. Shares purchased under the plan may be new issuenewly 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 CorporationOTC is a holding company with no significant operations of its own. The primary source of funds for payments of dividends to ourOTC's shareholders is from dividends paid or distributions made by ourOTC'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 CompanyOTC 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 $1.7 billion.
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11. Accumulated Other Comprehensive Income (Loss)
The following shows the changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,
20222021
(in thousands)Pension and Other Postretirement BenefitsNet Unrealized Gains (Losses) on Available-for-Sale SecuritiesTotalPension and Other Postretirement BenefitsNet Unrealized Gains (Losses) on Available-for-Sale SecuritiesTotal
Balance, Beginning of Period$(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 $(8,171)
Nine Months Ended September 30,
20222021
(in thousands)Pension and Other Postretirement BenefitsNet Unrealized Gains (Losses) on Available-for-Sale SecuritiesTotalPension and Other Postretirement BenefitsNet Unrealized Gains (Losses) on Available-for-Sale SecuritiesTotal
Balance, Beginning of Period$(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, 20212022 and 2020,2021, respectively, and $6.4$6.1 million and $5.3$6.4 million for the nine months ended September 30, 20212022 and 2020,2021, respectively.
Restricted Stock Awards. We grant restricted stock awards to members of our Board of Directors and restricted stock units to ourcertain key employees. The awards vest, depending on award type and recipient, either ratably over periods of three andor 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:
SharesWeighted Average
Grant-Date
Fair Value
SharesWeighted Average
Grant-Date
Fair Value
Nonvested, January 1, 2021128,664 $44.30 
Nonvested, January 1, 2022Nonvested, January 1, 2022138,093 $44.48 
GrantedGranted57,650 43.10 Granted51,439 59.96 
VestedVested(47,646)42.98 Vested(47,981)45.30 
ForfeitedForfeited(2,075)40.95 Forfeited— — 
Nonvested, September 30, 2021136,593 $44.30 
Nonvested, September 30, 2022Nonvested, September 30, 2022141,551 $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, 20212022 and 20202021 was determined using a Monte Carlo fair value simulation model incorporating the following assumptions:
2021202020222021
Risk-free interest rateRisk-free interest rate0.18 %1.42 %Risk-free interest rate1.52 %0.18 %
Expected term (in years)Expected term (in years)3.003.00Expected term (in years)3.003.00
Expected volatilityExpected volatility32.00 %19.00 %Expected volatility32.00 %32.00 %
Dividend yieldDividend yield3.60 %2.80 %Dividend yield2.90 %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, 20212022 (share amounts reflect awards at target):
SharesWeighted Average
Grant-Date
Fair Value
SharesWeighted Average
Grant-Date
Fair Value
Nonvested, January 1, 2021164,600 $42.32 
Nonvested, January 1, 2022Nonvested, January 1, 2022189,600 $42.54 
GrantedGranted79,000 38.34 Granted55,800 54.91 
VestedVested(54,000)35.73 Vested(55,600)43.30 
ForfeitedForfeited— — Forfeited— — 
Nonvested, September 30, 2021189,600 $42.54 
Nonvested, September 30, 2022Nonvested, September 30, 2022189,800 $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, 20212022 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)2021202020212020(in thousands)2022202120222021
Weighted Average Common Shares Outstanding – BasicWeighted Average Common Shares Outstanding – Basic41,504 40,914 41,487 40,548 Weighted Average Common Shares Outstanding – Basic41,600 41,504 41,582 41,487 
Effect of Dilutive Securities:Effect of Dilutive Securities:Effect of Dilutive Securities:
Stock Performance AwardsStock Performance Awards262 98 209 107 Stock Performance Awards276 262 251 209 
Stock Awards88 49 82 53 
Restricted Stock AwardsRestricted Stock Awards97 88 96 82 
Employee Stock Purchase Plan Shares and OtherEmployee Stock Purchase Plan Shares and Other15 17 17 25 Employee Stock Purchase Plan Shares and Other1 15 1 17 
Dilutive Effect of Potential Common SharesDilutive Effect of Potential Common Shares365 164 308 185 Dilutive Effect of Potential Common Shares374 365 348 308 
Weighted Average Common Shares Outstanding – DilutedWeighted Average Common Shares Outstanding – Diluted41,869 41,078 41,795 40,733 Weighted Average Common Shares Outstanding – Diluted41,974 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, 20212022 and 2020.2021.
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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, insheets. 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 356,200156,800 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 contractsderivative 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 assetsliabilities, 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, 20212022 and December 31, 20202021 classified by the input method used to measure fair value:
(in thousands)(in thousands)Level 1Level 2Level 3
Level 1Level 2Level 3
September 30, 2021
September 30, 2022September 30, 2022
Assets:Assets:
Investments:Investments:Investments:
Money Market FundsMoney Market Funds$953 $ $ Money Market Funds$1,854 $ $ 
Mutual FundsMutual Funds5,170   Mutual Funds5,084   
Corporate Debt SecuritiesCorporate Debt Securities 2,377  Corporate Debt Securities 1,424  
Government-Backed and Government-Sponsored Enterprises’ Debt SecuritiesGovernment-Backed and Government-Sponsored Enterprises’ Debt Securities 6,831  Government-Backed and Government-Sponsored Enterprises’ Debt Securities 7,286  
Derivative InstrumentsDerivative Instruments 6,923  Derivative Instruments 5,532  
Total AssetsTotal Assets$6,123 $16,131 $ Total Assets$6,938 $14,242 $ 
December 31, 2020
Liabilities:Liabilities:
Derivative InstrumentsDerivative Instruments$ $169 $ 
Total LiabilitiesTotal Liabilities$ $169 $ 
December 31, 2021December 31, 2021
Assets:Assets:
Investments:Investments:Investments:
Money Market FundsMoney Market Funds$4,075 $— $— Money Market Funds$949 $— $— 
Mutual FundsMutual Funds1,662 — — Mutual Funds5,432 — — 
Corporate Debt SecuritiesCorporate Debt Securities— 2,627 — Corporate Debt Securities— 1,333 — 
Government-Backed and Government-Sponsored Enterprises’ Debt SecuritiesGovernment-Backed and Government-Sponsored Enterprises’ Debt Securities— 6,633 — Government-Backed and Government-Sponsored Enterprises’ Debt Securities— 7,869 — 
Derivative InstrumentsDerivative Instruments— 6,214 — 
Total AssetsTotal 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.
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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, 20212022 and December 31, 2020:2021:
September 30, 2021December 31, 2020 September 30, 2022December 31, 2021
(in thousands)(in thousands)Carrying
Amount
Fair ValueCarrying
Amount
Fair Value(in thousands)Carrying
Amount
Fair ValueCarrying
Amount
Fair Value
Assets:Assets:Assets:
Cash and Cash EquivalentsCash and Cash Equivalents$1,272 $1,272 $1,163 $1,163 Cash and Cash Equivalents$72,987 $72,987 $1,537 $1,537 
TotalTotal1,272 1,272 1,163 1,163 Total72,987 72,987 1,537 1,537 
Liabilities:Liabilities:Liabilities:
Short-Term DebtShort-Term Debt97,857 97,857 80,997 80,997 Short-Term Debt  91,163 91,163 
Long-Term DebtLong-Term Debt764,581 873,632 764,519 858,455 Long-Term Debt823,760 679,360 763,997 878,272 
TotalTotal$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-19STEEL AVAILABILITY AND PRICING
We continueSteel is a key material input to monitor the progression of the novel coronavirus (COVID-19) and its impact onBTD 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 ofwithin our Manufacturing segment as customer demand declined significantlysegment. 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 throughdecline 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 hasin 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 passpassed 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 increasedConsistent with steel prices, will continuescrap 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 Statesremained 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 activitydeclined 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 increaseSupply disruptions for resin and other additives and ingredients used in the pricemanufacturing 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 toacross the resinindustry. This combination of disrupted raw material supply constraints, haveand the resulting low PVC pipe inventories along with robust demand for PVC pipe led to rapidly increased salesincreasing 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 marginsmargins. 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 theseearnings 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 subsidenormalize 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.
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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 $0.1 million
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CONSOLIDATED RESULTS    
The following table summarizes consolidated operating results for the three months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Operating RevenuesOperating Revenues$316,294 $235,755 $80,539 34.2 %Operating Revenues$383,856 $316,294 $67,562 21.4 %
Operating ExpensesOperating Expenses241,766 183,026 58,740 32.1 Operating Expenses267,723 241,766 25,957 10.7 
Operating IncomeOperating Income74,528 52,729 21,799 41.3 Operating Income116,133 74,528 41,605 55.8 
Interest ChargesInterest Charges9,648 8,568 1,080 12.6 Interest Charges9,259 9,648 (389)(4.0)
Nonservice Cost Components of Postretirement BenefitsNonservice Cost Components of Postretirement Benefits505 842 (337)(40.0)Nonservice Cost Components of Postretirement Benefits(52)505 (557)(110.3)
Other Income203 1,712 (1,509)(88.1)
Other Income (Expense)Other Income (Expense)(174)203 (377)(185.7)
Income Before Income TaxesIncome Before Income Taxes64,578 45,031 19,547 43.4 Income Before Income Taxes106,752 64,578 42,174 65.3 
Income Tax ExpenseIncome Tax Expense11,824 9,097 2,727 30.0 Income Tax Expense22,513 11,824 10,689 90.4 
Net IncomeNet 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 risingincreases 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, alsoincreased 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 ElectricManufacturing segment increased primarily due to higher depreciation and amortization expense arising fromincreased 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 $1.1decreased $0.4 million due to a decrease in the interest expense fromrate on our $40.0$140.0 million of fixed-rate long-term debt issuancethat was refinanced in August 2020,December 2021, and a higherlower level of average short-term borrowings outstanding in 20212022 compared to 2020 and a decrease in capitalized interest in 2021 following2021.
Nonservice Cost Components of Postretirement Benefits decreased $0.6 million primarily due to the completion and placement in serviceamortization of Astoria Stationactuarial gains resulting from the increase in the first quarterdiscount 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 dueinvestment 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 Stationinvestment gains in the first quartersame period of 2021. During the construction of Astoria Station we earned AFUDC in our Minnesota jurisdiction.previous year.
Income Tax Expense increased $2.7$10.7 million primarily due to increased income before income taxes. Our effective tax rate was 21.1% in the third quarter of 2022 and 18.3% in the third quarter of 2021 and 20.2% in the third quarter of 2020.2021. The decreaseincrease in our effective tax rate was driven by PTCs earnedan increase in the third quarter of 2021 from our Merricourt wind farm, which was placedincome before income taxes without a corresponding increase in service in the fourth quarter of 2020, partially offset bytax credits and other permanent differences.differences that impact our effective tax rate. See Note 8 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding factors impacting our effective tax rate in 20212022 and 2020.2021.
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ELECTRIC SEGMENT RESULTS
The following table summarizes Electric segment operating results for the three months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Retail RevenuesRetail Revenues$96,438 $99,605 $(3,167)(3.2)%Retail Revenues$120,177 $96,438 $23,739 24.6 %
Transmission Services RevenuesTransmission Services Revenues13,300 12,288 1,012 8.2 Transmission Services Revenues13,156 13,300 (144)(1.1)
Wholesale RevenuesWholesale Revenues6,944 1,500 5,444 362.9 Wholesale Revenues7,196 6,944 252 3.6 
Other Electric RevenuesOther Electric Revenues2,093 1,830 263 14.4 Other Electric Revenues2,218 2,093 125 6.0 
Total Operating RevenuesTotal Operating Revenues118,775 115,223 3,552 3.1 Total Operating Revenues142,747 118,775 23,972 20.2 
Production FuelProduction Fuel17,698 11,554 6,144 53.2 Production Fuel24,972 17,698 7,274 41.1 
Purchased PowerPurchased Power9,878 13,428 (3,550)(26.4)Purchased Power19,913 9,878 10,035 101.6 
Operating and Maintenance ExpensesOperating and Maintenance Expenses36,465 32,845 3,620 11.0 Operating and Maintenance Expenses39,799 36,465 3,334 9.1 
Depreciation and AmortizationDepreciation and Amortization17,874 15,647 2,227 14.2 Depreciation and Amortization17,669 17,874 (205)(1.1)
Property TaxesProperty Taxes4,474 4,333 141 3.3 Property Taxes4,438 4,474 (36)(0.8)
Operating IncomeOperating Income$32,386 $37,416 $(5,030)(13.4)%Operating Income$35,956 $32,386 $3,570 11.0 %
20212020change% change20222021change% change
Electric kilowatt-hour (kwh) Sales (in thousands)
Electric kilowatt-hour (kwh) Sales (in thousands)
  
Electric kilowatt-hour (kwh) Sales (in thousands)
  
Retail kwh SalesRetail kwh Sales1,076,580 1,075,336 1,244 0.1 %Retail kwh Sales1,275,051 1,076,580 198,471 18.4 %
Wholesale kwh Sales – Company GenerationWholesale kwh Sales – Company Generation174,187 75,884 98,303 129.5 Wholesale kwh Sales – Company Generation99,890 174,187 (74,297)(42.7)
Heating Degree DaysHeating Degree Days3 61 (58)(95.1)Heating Degree Days22 19 633.3 
Cooling Degree DaysCooling Degree Days463 363 100 27.5 Cooling Degree Days376 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, 20212022 and 2020.2021.
20212020 20222021
Heating Degree DaysHeating Degree Days5.8 %115.1 %Heating Degree Days43.1 %5.8 %
Cooling Degree DaysCooling Degree Days132.7 %104.6 %Cooling Degree Days108.4 %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 20212022 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 $3.2increased $23.7 million primarily due to the following:
The recognitionA $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 revenuea 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 customersconsumption 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 ofunfavorable weather in the third quarter of 20212022 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 resultRetail revenues in the third quarter of a 129.5% increase in wholesale sales volumes and a 101.7% increase in wholesale prices driven2021 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 mainlyprimarily as a result of a 41.4%28% increase in kwhs generatedfuel 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 $3.6increased $10.0 million primarily due to a 48.9% decrease45% 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 resourcesdue to serveincreased customer demand and market conditions led to operating ourdemand.
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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 mainlyprimarily due to:
$1.4 million of Merricourt and Astoria Station operating andto 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 fromactivities, including our planned outage at Big Stone plant, which began in the third quarter of 2021Coyote 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 invegetation management, as well as increased transmission tariff expense from higher transmission volumes and increased travel costs as business travel recovers from the impactexpenses.
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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 $2.2 million primarily due to Merricourt and Astoria Station being placed in service in the fourth quarter of 2020 and the first quarter of 2021, respectively.
MANUFACTURING SEGMENT RESULTS
The following table summarizes Manufacturing segment operating results for the three months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Operating RevenuesOperating 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 ExpensesOther Operating Expenses10,161 6,901 3,260 47.2 Other Operating Expenses8,627 10,161 (1,534)(15.1)
Depreciation and AmortizationDepreciation and Amortization3,794 3,759 35 0.9 Depreciation and Amortization3,996 3,794 202 5.3 
Operating IncomeOperating 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 increaseat 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, primarilymetal 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 contributeddecreased material costs related to the increase in cost of products sold in 2021.lower steel prices.
Other Operating Expenses increased $3.3decreased $1.5 million in the third quarter of 2021 comparedprimarily due to 2020. In the third quarter of 2021 other operating expenses were impacted by increaseddecreased incentive compensation costs based compensation and other costs necessaryon current year financial performance relative to support higher business volumes.established targets.
PLASTICS SEGMENT RESULTS
The following table summarizes Plastics segment operating results for the three months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Operating RevenuesOperating 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 ExpensesOther Operating Expenses3,832 3,250 582 17.9 Other Operating Expenses3,921 3,832 89 2.3 
Depreciation and AmortizationDepreciation and Amortization1,099 905 194 21.4 Depreciation and Amortization1,023 1,099 (76)(6.9)
Operating IncomeOperating 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 salesold, as sales prices was largelyremain high due to the combination of PVC resin supply constraints, which has led to limited PVC pipe inventory, and strong demandextraordinary market conditions. Demand for PVC pipe products. Resin supply inbegan 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 inbuying 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 work15% due to fulfill purchase allotments and pipe manufacturers continue to replenish depleted inventories whilesoftening customer demand remains strong.demand.
Cost of Products Sold increased $21.6decreased $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 contributedyear, but decreased compared to the increase in costsecond quarter of products sold.
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Other Operating Expenses increased $0.6 million as a result of an increase in variable costs associated with the increased financial results in 2021.2022.
CORPORATE COSTS
The following table summarizes Corporate operating results for the three months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Other Operating ExpensesOther Operating Expenses$2,231 $3,471 $(1,240)(35.7)%Other Operating Expenses$3,976 $2,231 $1,745 78.2 %
Depreciation and AmortizationDepreciation and Amortization48 84 (36)(42.9)Depreciation and Amortization28 48 (20)(41.7)
Operating LossOperating Loss$2,279 $3,555 $(1,276)(35.9)%Operating Loss$4,004 $2,279 $1,725 75.7 %
Other Operating Expenses decreased $1.2increased $1.7 million primarily due to decreased stockincreased employee health care costs and incentive based compensation cost as a resultincreased professional service costs.
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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 $0.1 million of operating revenues and operating expenses for each period.
CONSOLIDATED RESULTS
The following table summarizes consolidated operating results for the nine months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Operating RevenuesOperating Revenues$863,612 $663,258 $200,354 30.2 %Operating Revenues$1,158,800 $863,612 $295,188 34.2 %
Operating ExpensesOperating Expenses685,063 543,331 141,732 26.1 Operating Expenses823,302 685,063 138,239 20.2 
Operating IncomeOperating Income178,549 119,927 58,622 48.9 Operating Income335,498 178,549 156,949 87.9 
Interest ChargesInterest Charges28,601 25,353 3,248 12.8 Interest Charges27,198 28,601 (1,403)(4.9)
Nonservice Cost Components of Postretirement BenefitsNonservice Cost Components of Postretirement Benefits1,511 2,581 (1,070)(41.5)Nonservice Cost Components of Postretirement Benefits(824)1,511 (2,335)(154.5)
Other IncomeOther Income2,095 3,733 (1,638)(43.9)Other Income(802)2,095 (2,897)(138.3)
Income Before Income TaxesIncome Before Income Taxes150,532 95,726 54,806 57.3 Income Before Income Taxes308,322 150,532 157,790 104.8 
Income Tax ExpenseIncome Tax Expense25,380 18,543 6,837 36.9 Income Tax Expense66,143 25,380 40,763 160.6 
Net IncomeNet 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 towhich resulted in higher sales prices, in our Manufacturing segment. Increased transmission services and wholesaleretail 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 costsexpenses 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 amortizationincreased transmission tariff expenses. Operating expenses in each caseour Manufacturing segment increased primarily due to higher material costs, largely the result ofdriven by higher steel prices and higher sales volumes at BTD. Operating expenses in our recent rate base investmentsPlastics segment increased primarily due to increased PVC resin and the associated operatingother 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 $3.2decreased $1.4 million in 2021 due to a lowering of our average interest rate on our long-term debt issuanceas 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 dueour 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 2021primarily due to a change in how prescription drug coverage is provided to retirees and the impactamortization of nonservice costsactuarial gains resulting from a decreasethe increase in the discount rate from 2020rates used to measure our pension benefit and postretirement benefit liabilities as of December 31, 2021.
Other Income decreased $1.6$2.9 million in 2021primarily 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 2021during the nine months ended September 30, 2022 compared to 2020.investment gains in the same period last year.
Income Tax Expense increased $6.8$40.8 million in 2021 primarily due to increased income before income taxes. Our effective tax rate was 21.5% for the nine months ended September 30, 2022 and 16.9% for the same period in 2021 and 19.4%the previous year. The increase in 2020 with the decrease primarilyour effective tax rate was driven by PTCs earnedan increase in 2021 from our Merricourt wind farm, which was placedincome before income taxes without a corresponding increase in service in the fourth quarter of 2020.tax credits and other permanent differences that impact our effective tax rate. See Note 8 to our consolidated financial statements included in the report on Form 10-Q for additional information regarding factors impacting our effective tax rate.
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ELECTRIC SEGMENT RESULTS
The following table summarizes Electric segment operating results for the nine months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Retail RevenuesRetail Revenues$291,130 $291,761 $(631)(0.2)%Retail Revenues$347,419 $291,130 $56,289 19.3 %
Transmission Services RevenuesTransmission Services Revenues37,085 32,802 4,283 13.1 Transmission Services Revenues37,409 37,085 324 0.9 
Wholesale RevenuesWholesale Revenues14,711 3,141 11,570 368.4 Wholesale Revenues13,196 14,711 (1,515)(10.3)
Other Electric RevenuesOther Electric Revenues5,703 5,548 155 2.8 Other Electric Revenues6,088 5,703 385 6.8 
Total Operating RevenuesTotal Operating Revenues348,629 333,252 15,377 4.6 Total Operating Revenues404,112 348,629 55,483 15.9 
Production FuelProduction Fuel44,576 34,077 10,499 30.8 Production Fuel54,538 44,576 9,962 22.3 
Purchased PowerPurchased Power40,273 45,940 (5,667)(12.3)Purchased Power64,604 40,273 24,331 60.4 
Operating and Maintenance ExpensesOperating and Maintenance Expenses114,615 106,639 7,976 7.5 Operating and Maintenance Expenses126,460 114,615 11,845 10.3 
Depreciation and AmortizationDepreciation and Amortization53,335 47,063 6,272 13.3 Depreciation and Amortization54,441 53,335 1,106 2.1 
Property TaxesProperty Taxes13,136 12,601 535 4.2 Property Taxes13,304 13,136 168 1.3 
Operating IncomeOperating Income$82,694 $86,932 $(4,238)(4.9)%Operating Income$90,765 $82,694 $8,071 9.8 %
20222021change% change
Electric kilowatt-hour (kwh) Sales (in thousands)
Electric kilowatt-hour (kwh) Sales (in thousands)
  
Electric kilowatt-hour (kwh) Sales (in thousands)
  
Retail kwh SalesRetail kwh Sales3,511,730 3,538,299 (26,569)(0.8)%Retail kwh Sales4,076,769 3,511,730 565,039 16.1 %
Wholesale kwh Sales – Company GenerationWholesale kwh Sales – Company Generation358,761 156,948 201,813 128.6 Wholesale kwh Sales – Company Generation222,591 358,761 (136,170)(38.0)
Heating Degree DaysHeating Degree Days3,614 3,968 (354)(8.9)Heating Degree Days4,559 3,614 945 26.1 
Cooling Degree DaysCooling Degree Days700 533 167 31.3 Cooling Degree Days530 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, 20212022 and 2020.2021.
20212020 20222021
Heating Degree DaysHeating Degree Days89.9 %99.3 %Heating Degree Days114.0 %89.9 %
Cooling Degree DaysCooling Degree Days150.9 %116.9 %Cooling Degree Days113.7 %150.9 %
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 20212022 and 2020,2021, and between years.
 
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 $0.6increased $56.3 million primarily due to the following:
A $4.7$35.0 million decreaseincrease in fuel recovery revenues largelyprimarily due to lowerincreased purchased power and production fuel costs, as described below, and a decrease in credits provided to retail customers from increaseddecreased 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 decreaseincrease in revenueretail revenues from the combination of reduced demandincreased sales volumes from residential and commercial and industrial customers, exclusive ofincluding the impact of weather, net of the effect of a changenew 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 relatedinterim rate revenue due to the recoveryfinalization 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 revenuerevenues from an interim rate increasethe favorable impact of weather in Minnesota, netthe 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 revenueRetail revenues also benefited from transmission rider recovery, due to increased transmission, investments,renewable and increasedphase-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 RevenuesPurchased Power costs to serve retail customers increased $4.3$24.3 million primarily due to increased recoverya 44% increase in the volume of higher transmission costspurchased power, resulting from the planned outage at Coyote Station, the retirement of Hoot Lake Plant and increased transmission investment as well ascustomer 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 andHigher 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 2021Coyote 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 inIncreased transmission tariff expenses, a $1.0 million increase inexpenses.
Higher labor costs associated with increased maintenance activities, including vegetative maintenance cost,management and an increase in conservation program expenditures.other activities.
These expenseIncreased 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 dueCIP expenses compared to improving customer collections as the economic impact of COVID-19 has easedprevious year and lower operating costs following the closure of Hoot Lake Planta decrease in Mayexpenses from our Minnesota rate case compared to 2021.
Depreciation and Amortization expense increased $6.3 million primarily due to Merricourt and Astoria Station being placed in service in the fourth quarter of 2020 and in February 2021, respectively.
MANUFACTURING SEGMENT RESULTS
The following table summarizes Manufacturing segment operating results for the nine months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Operating RevenuesOperating 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 ExpensesOther Operating Expenses28,109 19,678 8,431 42.8 Other Operating Expenses27,363 28,109 (746)(2.7)
Depreciation and AmortizationDepreciation and Amortization11,395 11,244 151 1.3 Depreciation and Amortization12,101 11,395 706 6.2 
Operating IncomeOperating 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. Thedue to a 7.6% increase in materialsales volumes and price increases related to inflationary costs is largelybeing experienced across the result of historically high steelbusiness. 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 increasingprimarily due to strong customer demand as well as increased sales prices,in the horticulture sector, also contributed to increasedthe 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 laborcosts and freight costssales volumes at BTD. The increase in material cost iswas largely the result of highdriven by increased steel prices as mentioned above. YearCost 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 activitymaterial 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 $8.4 million in 2021 compared to 2020. Other operating expenses in 2020 were reduced by initiatives taken to reduce costs in an effort to mitigate the impact of declining sales volumes from the effects of COVID-19. Other operating expenses in 2021 were impacted by an increase in incentive based compensation arising from the improvement in financial results, and an increase in costs necessary to support the increase in business volumes.
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PLASTICS SEGMENT RESULTS
The following table summarizes Plastics segment operating results for the nine months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Operating RevenuesOperating 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 ExpensesOther Operating Expenses10,450 8,990 1,460 16.2 Other Operating Expenses12,225 10,450 1,775 17.0 
Depreciation and AmortizationDepreciation and Amortization3,200 2,667 533 20.0 Depreciation and Amortization3,173 3,200 (27)(0.8)
Operating IncomeOperating 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 hasnegatively impacted our production andvolumes, which coupled with low inventory levels, impacted sales volumes, which were down slightly7.5% 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% compared29% due to the same period inmarket 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$1.8 million primarily due to increased incentive compensation costs and sales commissions, which increased as a result of an increase in variable costs associated with increased financial results in 2021.operating revenues and earnings compared to the previous year.
CORPORATE COSTS
The following table summarizes Corporate operating results for the nine months ended September 30, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020$ change% change(in thousands)20222021$ change% change
Other Operating ExpensesOther Operating Expenses$7,028 $7,638 $(610)(8.0)%Other Operating Expenses$11,393 $7,028 $4,365 62.1 %
Depreciation and AmortizationDepreciation and Amortization179 256 (77)(30.1)Depreciation and Amortization114 179 (65)(36.3)
Operating LossOperating Loss$7,207 $7,894 $(687)(8.7)%Operating Loss$11,507 $7,207 $4,300 59.7 %
Other Operating Expenses decreased $0.6increased $4.4 million primarily due to net decreases in corporate overheadincreased 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%, basedMinnesota, 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 alternativeallowed 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 extensiondecoupling mechanism for most residential and commercial customer rate groups with a cap of depreciable lives4% of certain wind-related assets and deferred certain cost recovery decisions to theannual base revenues.
On May 12, 2022, OTP's final rate determination. Incase compliance filing was approved by the aggregate, this alternative recovery proposal reduced operating costsMPUC. The filing included final revenue calculations, rate design and delayed recoveryresulting tariff revisions, along with a determination of certain other costs by approximately $7.0 million to lessen the interim rate impactrefund, 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 toJuly 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 requestthird 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.
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RATE RIDERS
The following table includes a summary of pending and recently concluded rate rider proceedings:
RecoveryFilingAmountEffective
MechanismJurisdictionStatusDate(in millions)DateNotes
RRR2019MNApproved06/21/19$12.5 01/01/20Includes return on Merricourt construction costs.
TCR2018MNApproved05/07/2010.3 01/21/20See below for additional details.
EUIC2021MNRequested06/07/211.3 01/01/22Includes recovery of new infrastructure costs, including advanced metering, outage management and demand response systems.
RRR2021NDApproved03/07/2111.804/01/21Includes return on Merricourt construction costs.
GCR2020NDApproved06/10/206.2 07/01/20Includes return on Astoria Station construction costs.
TCR2022NDRequested09/15/216.1 01/01/22Includes recovery of three new transmission projects/programs.
RRR2020NDApproved03/18/205.8 04/01/20Includes return on Merricourt construction costs.
TCR2020NDApproved08/31/205.6 01/21/20Includes recovery of new transmission assets.
TCR2021NDApproved11/18/205.601/01/21Includes recovery of eight new transmission projects.
GCR2021NDApproved03/01/215.207/01/21Includes recovery of Astoria Station, net of anticipated savings associated with the retirement of Hoot Lake Plant.
TCR2020SDApproved01/29/202.303/02/20Annual update to transmission cost recovery rider.
TCR2021SDApproved02/19/212.203/01/21Includes recovery of two new transmission projects.
PIR2020SDApproved05/31/201.609/01/20Includes return on Merricourt and Astoria Station construction costs.
RecoveryFilingAmountEffective
MechanismJurisdictionStatusDate(in millions)DateNotes
CIP - 2022MNApproved04/01/22$10.8 10/01/22Includes recovery of energy conservation improvement costs as well as a demand side management financial incentive.
CIP - 2021MNApproved04/01/219.4 12/01/21Includes recovery of energy conservation improvement costs as well as a demand side management financial incentive.
TCR - 2021MNApproved11/23/217.2 08/01/22Includes recovery of two new transmission projects.
RRR - 2021MNApproved12/06/217.0 08/01/22Includes return on Hoot Lake Solar construction costs and costs associated with the acquisition of the Ashtabula III wind farm.
RRR - 2021NDApproved03/07/2111.8 04/01/21Includes recovery of Merricourt investment and operating costs.
RRR - 2022NDApproved01/05/227.8 04/01/22Includes Merricourt recovery, the proposed purchase of Ashtabula III and credits related to deferred taxes and production tax credits.
TCR - 2022NDRequested09/15/227.5 01/01/23Includes recovery of three new transmission projects, one transmission rebuild project and six transmission projects related to extending the useful life of transmission assets.
TCR - 2021NDApproved09/15/216.1 01/01/22Includes recovery of three new transmission projects/programs.
TCR - 2020NDApproved11/18/205.6 01/01/21Includes recovery of eight new transmission projects.
GCR - 2021NDApproved03/01/215.2 07/01/21Includes recovery of Astoria Station, net of anticipated savings associated with the retirement of Hoot Lake Plant.
GCR - 2022NDApproved03/01/223.3 07/01/22Annual update to generation cost recovery rider.
AGI - 2022NDRequested07/08/223.1 01/01/23Includes recovery of the advanced metering infrastructure, outage management system and demand response projects.
PIR - 2022SDApproved06/01/223.0 09/01/22Includes recovery of the Ashtabula III wind farm purchase, Merricourt, Astoria Station, and the Advanced Grid Infrastructure project, as well as load growth credits.
TCR - 2020SDApproved01/29/202.3 03/02/20Annual update to transmission cost recovery rider.
TCR - 2022SDApproved10/29/212.2 03/01/22Annual update to transmission cost recovery rider.
TCR - 2021SDApproved02/19/212.2 03/01/21Includes recovery of two new transmission projects.
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Minnesota TCR.Energy Adjustment Rider: On May 1, 2017, the MPUC orderedOctober 20, 2022, OTP to includefiled supplemental comments in the TCR rider retail rate baseMinnesota 2023 Energy Adjustment Rider (EAR) docket. As part of this filing, OTP proposed to refund the Minnesota jurisdictional shareportion of OTP's investmentscapacity 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 assetsNorth Dakota. The filing proposed an assessment in 2022 and all2023 to determine whether actual, weather normalized earnings, as measured based on ROE, including the crediting of capacity auction revenues, receivedare 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 asor 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 creditsurcharge 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 FERCwhich 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 appeal100 basis point range in which 50% of the MPUC order withover 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 Courtover 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 contestSeptember 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 Minnesotamitigate 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 IRPIntegrated Resource Plan (2022 IRP) concurrently with regulators in the three states where OTP operates, Minnesota, North Dakota and South Dakota. The 2022 IRP includesincluded 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.
TheAlthough the 2022 IRP requestsincludes 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.
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The preferred plan proposes to subject to regulatory approval, create a regulatory asset as a vehicle to recover costs related to thea 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-compliancenon-
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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 debtfinancial 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, 20212022 and December 31, 2020:2021:
2021202020222021
(in thousands)(in thousands)Line LimitAmount OutstandingLetters
of Credit
Amount AvailableAmount Available(in thousands)Borrowing LimitAmount OutstandingLetters
of Credit
Amount AvailableAmount Available
OTC Credit AgreementOTC Credit Agreement$170,000 $36,624 $— $133,376 $104,834 OTC Credit Agreement$170,000 $— $— $170,000 $147,363 
OTP Credit AgreementOTP Credit Agreement170,000 61,233 13,159 95,608 140,068 OTP Credit Agreement170,000 — 9,919 160,081 88,315 
TotalTotal$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, 20212022 and 2020:2021:
(in thousands)(in thousands)20212020(in thousands)20222021
Net Cash Provided by Operating ActivitiesNet 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, 20212022 compared to the nine months ended September 30, 2020. The2021, due primarily to the $117.0 million increase in cash provided by operating activities was the result ofnet income, largely due to increased earnings during the year, which was partially offset by increased working capital needs. Ourfrom 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, 2021of 2022 compared to a contribution of $11.2 million in 2020.the prior year.
(in thousands)(in thousands)20212020(in thousands)20222021
Net Cash Used in Investing ActivitiesNet 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 $105.3increased $10.5 million for the nine months ended September 30, 20212022 compared to the nine months ended September 30, 2020.2021. The decrease isincrease in cash used in investing activities was primarily the resultdue to a higher amount of lowerElectric segment capital investment within our Electric segment as capital spending on our large generation assets, Merricourt and Astoria Station, occurred throughout 2020 and was largely completed by the fourth quarter of 2020.compared to last year.
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(in thousands)(in thousands)20212020(in thousands)20222021
Net Cash (Used in) Provided by Financing Activities$(37,559)$104,814 
Net Cash Used in Financing ActivitiesNet Cash Used in Financing Activities$88,967 $37,559 
Net Cash (Used in) Provided byUsed in Financing Activities decreased $142.4increased $51.4 million for the nine months ended September 30, 20212022 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 increaseproceeds 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 withWe have updated our capital expenditure plans in our Electric segment in light of recent changes in the MPUC on September 1, 2021, outlined our preferredenergy 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 includedand the enactment of the Inflation Reduction Act. The significant planned additions and enhancementschanges to our electric fleetanticipated 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)
20222023202420252026Total
2022 - 2026
Electric Segment:
Renewables and Natural Gas Generation23 30 80 92 92 160 454 
Technology and Infrastructure26 30 18 — — 74 
Distribution Plant Replacements31 37 35 35 35 33 175 
Transmission (includes replacements)27 26 28 24 20 27 125 
Other34 30 29 32 36 23 150 
Total Electric Segment$357 $117 $149 $202 $201 $183 $243 $978 
Manufacturing and Plastics Segments15 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 Growth13.4 %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)
20232024202520262027Total
2023 - 2027
Electric Segment:
Renewables and Natural Gas Generation$33 $88 $119 $88 $79 $10 $384 
Technology and Infrastructure33 30 75 
Distribution Plant Replacements40 33 37 38 38 43 189 
Transmission (includes replacements)38 34 36 46 87 78 281 
Other30 26 25 30 25 22 128 
Total Electric Segment$140 $150 $214 $247 $208 $234 $154 $1,057 
Manufacturing and Plastics Segments32 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 Growth2.9 %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 easementeasements 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, 20202021 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. There2021. 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 inour 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 distributionsdividends 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 debtDebt financing will be required in the five-year period 2021from 2022 through 20252026 to supportrefinance 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 segmentand 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 satisfyrefund or retire early retireany of our outstanding long-term debt, to complete acquisitions, or to finance potential acquisition opportunities oruse 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 tostatement 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 allowswith the SEC for the issuance of up to 1,500,000 common shares under ouran Automatic Dividend Reinvestment and Share Purchase Plan, which provides our common shareholders, retail customers of OTP and other interested investors a methodmethods of purchasing our common shares by reinvesting their dividends and/or making optional cash investments. Shares purchased under the plan may be new issuenewly issued common shares or common shares purchased on the open market. BothAs of September 30, 2022, there were 1,287,774 shares available for purchase or issuance under the plan. The registration statements expirestatement expires in May 2024.
SHORT-TERM DEBT
Otter Tail CorporationOTC and Otter Tail Power CompanyOTP 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 AgreementOTP Credit Agreement(in thousands, except interest rates)OTC Credit AgreementOTP Credit Agreement
Borrowing LimitBorrowing 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, 202136,624 61,233 
Average Amount Outstanding During the Nine Months Ended September 30, 202158,703 51,911 
Maximum Amount Outstanding During the Nine Months Ended September 30, 202179,718 72,471 
Interest Rate as of September 30, 20211.59 %1.33 %
Amount Restricted Due to Outstanding Letters of Credit as of September 30, 2022Amount Restricted Due to Outstanding Letters of Credit as of September 30, 2022— 9,919 
Amount Outstanding as of September 30, 2022Amount Outstanding as of September 30, 2022— — 
Average Amount Outstanding During the Nine Months Ended September 30, 2022Average Amount Outstanding During the Nine Months Ended September 30, 202215,625 30,235 
Maximum Amount Outstanding During the Nine Months Ended September 30, 2022Maximum Amount Outstanding During the Nine Months Ended September 30, 202258,715 74,519 
Interest Rate as of September 30, 2022Interest Rate as of September 30, 20224.64 %4.39 %
Maturity DateMaturity DateSeptember 30, 2026September 30, 2026Maturity DateSeptember 30, 2026September 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 20212026 to 2050.
On June 10, 2021, OTP entered into2052. Pursuant to a Note Purchase Agreement pursuant to whichexecuted 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 the2022 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 matureSeries 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-debtlong-term debt agreements require Otter Tail CorporationOTC 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 CorporationOTC, 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 ourits total capitalization. As of September 30, 2021, our2022, OTC's interest-bearing debt to total capitalization was 0.470.41 to 1.00, ourOTC's interest and dividend coverage ratio was 5.7311.37 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 0.470.45 to 1.00, itsOTP's interest and dividend coverage ratio was 3.163.65 to 1.00, and OTP had no priority indebtedness outstanding.
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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, 20202021 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 DisclosuresDisclosure 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, 20212022 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
10.2
31.1
31.2
32.1
32.2
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, 20212, 2022
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