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 March 31, ~~2022~~2023 or

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

Commission File Number 0-53713

OTTER TAIL CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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


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

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

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

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

Large Accelerated Filer ☑

Accelerated Filer ☐

Non-Accelerated Filer ☐

Smaller Reporting Company ☐

Emerging Growth Company ☐

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

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

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

~~41,630,655~~41,710,621 Common Shares ($5 par value) as of April ~~27, 2022.~~28, 2023.

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TABLE OF CONTENTS

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DEFINITIONS

The following abbreviations or acronyms are used in the text.

~~AFUDC~~AMDT

~~Allowance for Funds Used During Construction~~

~~MISO~~

~~Midcontinent Independent System Operator, Inc.~~

~~ARP~~

~~Alternative Revenue Program~~Advanced Meter and Distribution Technology

MPUC

Minnesota Public Utilities Commission

ARP

Alternative Revenue Program

NDDEQ

North Dakota Department of Environmental Quality

BTD

BTD Manufacturing, Inc.

NDPSC

North Dakota Public Service Commission

CIP

Conservation Improvement Program

OTC

Otter Tail Corporation

~~CIP~~EAR

~~Conservation Improvement Program~~Energy Adjustment Rider

OTP

Otter Tail Power Company

EITE

Energy Intensive, Trade Exposed Rider

PIR

Phase-In Rider

EPA

Environmental Protection Agency

~~PTCs~~PSLRA

~~Production tax credits~~Private Securities Litigation Reform Act of 1995

ESSRP

Executive Survivor and Supplemental Retirement Plan

~~PVC~~PTC

~~Polyvinyl chloride~~Production Tax Credits

FERC

Federal Energy Regulatory Commission

~~RHR~~PVC

~~Regional Haze Rule~~Polyvinyl chloride

GCR

Generation Cost Recovery Rider

~~ROE~~RHR

~~Return on equity~~Regional Haze Rule

ISO

Independent System Operator

ROE

Return on equity

IRP

Integrated Resource Plan

RRR

Renewable Resource Rider

~~IRP~~kwh

~~Integrated Resource Plan~~kilowatt-hour

SEC

Securities and Exchange Commission

~~kwh~~Merricourt

~~kilowatt-hour~~Merricourt Wind Energy Center

T.O. Plastics

T.O. Plastics, Inc.

~~Merricourt~~MISO

~~Merricourt Wind Energy Center~~Midcontinent Independent System Operator, Inc.

TCR

Transmission Cost Recovery Rider


FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the ~~Act)~~"PSLRA"). When used in this Form 10-Q and in future filings by ~~the Company~~Otter Tail Corporation (the "Company") with the 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, health and safety 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 cost pressures, 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 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)	March 31, 2022		December 31, 2021		(in thousands, except share data)	March 31, 2023		December 31, 2022

Assets	Assets					Assets
Current Assets	Current Assets					Current Assets
Cash and Cash Equivalents	Cash and Cash Equivalents	$	1,371	$	1,537	Cash and Cash Equivalents	$	104,080	$	118,996
Receivables, net of allowance for credit losses	Receivables, net of allowance for credit losses	218,896		174,953		Receivables, net of allowance for credit losses	175,442		144,393
Inventories	Inventories	145,857		148,490		Inventories	144,767		145,952
Regulatory Assets	Regulatory Assets	21,770		27,342		Regulatory Assets	16,566		24,999
Other Current Assets	Other Current Assets	14,497		17,032		Other Current Assets	13,510		18,412
Total Current Assets	Total Current Assets	402,391		369,354		Total Current Assets	454,365		452,752
Noncurrent Assets	Noncurrent Assets					Noncurrent Assets
Investments	Investments	57,893		56,690		Investments	58,058		54,845
Property, Plant and Equipment, net of accumulated depreciation	Property, Plant and Equipment, net of accumulated depreciation	2,128,344		2,124,605		Property, Plant and Equipment, net of accumulated depreciation	2,289,491		2,212,717
Regulatory Assets	Regulatory Assets	124,413		125,508		Regulatory Assets	97,179		94,655
Intangible Assets, net of accumulated amortization	Intangible Assets, net of accumulated amortization	8,768		9,044		Intangible Assets, net of accumulated amortization	7,668		7,943
Goodwill	Goodwill	37,572		37,572		Goodwill	37,572		37,572
Other Noncurrent Assets	Other Noncurrent Assets	32,360		32,057		Other Noncurrent Assets	43,077		41,177
Total Noncurrent Assets	Total Noncurrent Assets	2,389,350		2,385,476		Total Noncurrent Assets	2,533,045		2,448,909
Total Assets	Total Assets	$	2,791,741	$	2,754,830	Total Assets	$	2,987,410	$	2,901,661

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity					Liabilities and Shareholders' Equity
Current Liabilities	Current Liabilities					Current Liabilities
Short-Term Debt	Short-Term Debt	$	97,770	$	91,163	Short-Term Debt	$	60,854	$	8,204
Current Maturities of Long-Term Debt		29,990		29,983

Accounts Payable	Accounts Payable	119,022		135,089		Accounts Payable	93,543		104,400
Accrued Salaries and Wages	Accrued Salaries and Wages	19,846		31,704		Accrued Salaries and Wages	20,149		32,327
Accrued Taxes	Accrued Taxes	21,879		19,245		Accrued Taxes	23,415		19,340
Regulatory Liabilities	Regulatory Liabilities	27,211		24,844		Regulatory Liabilities	20,526		17,300
Other Current Liabilities	Other Current Liabilities	57,437		55,671		Other Current Liabilities	43,977		56,065
Total Current Liabilities	Total Current Liabilities	373,155		387,699		Total Current Liabilities	262,464		237,636
Noncurrent Liabilities	Noncurrent Liabilities					Noncurrent Liabilities
Pension Benefit Liability	Pension Benefit Liability	53,153		73,973		Pension Benefit Liability	33,185		33,210
Other Postretirement Benefits Liability	Other Postretirement Benefits Liability	66,383		66,481		Other Postretirement Benefits Liability	47,469		46,977
Regulatory Liabilities	Regulatory Liabilities	233,989		234,430		Regulatory Liabilities	245,071		244,497
Deferred Income Taxes	Deferred Income Taxes	203,877		188,268		Deferred Income Taxes	230,393		221,302
Deferred Tax Credits	Deferred Tax Credits	16,475		16,661		Deferred Tax Credits	15,730		15,916
Other Noncurrent Liabilities	Other Noncurrent Liabilities	63,497		62,527		Other Noncurrent Liabilities	65,439		60,985
Total Noncurrent Liabilities	Total Noncurrent Liabilities	637,374		642,340		Total Noncurrent Liabilities	637,287		622,887
Commitments and Contingencies (Note 9)	Commitments and Contingencies (Note 9)	0		0		Commitments and Contingencies (Note 9)
Capitalization	Capitalization					Capitalization
Long-Term Debt, net of current maturities		734,074		734,014
Long-Term Debt						Long-Term Debt	823,882		823,821
Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Common Shares: 50,000,000 shares authorized, $5 par value; 41,605,884 and 41,551,524 outstanding at March 31, 2022 and December 31, 2021		208,029		207,758
Common Shares: 50,000,000 shares authorized, $5 par value; 41,684,526 and 41,631,113 outstanding at March 31, 2023 and December 31, 2022						Common Shares: 50,000,000 shares authorized, $5 par value; 41,684,526 and 41,631,113 outstanding at March 31, 2023 and December 31, 2022	208,423		208,156
Additional Paid-In Capital	Additional Paid-In Capital	421,449		419,760		Additional Paid-In Capital	424,948		423,034
Retained Earnings	Retained Earnings	424,605		369,783		Retained Earnings	629,437		585,212
Accumulated Other Comprehensive Loss		(6,945)		(6,524)
Accumulated Other Comprehensive Income						Accumulated Other Comprehensive Income	969		915
Total Shareholders' Equity	Total Shareholders' Equity	1,047,138		990,777		Total Shareholders' Equity	1,263,777		1,217,317
Total Capitalization	Total Capitalization	1,781,212		1,724,791		Total Capitalization	2,087,659		2,041,138
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	2,791,741	$	2,754,830	Total Liabilities and Shareholders' Equity	$	2,987,410	$	2,901,661

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (unaudited)


		Three Months Ended March 31,				Three Months Ended March 31,
(in thousands, except per-share amounts)	(in thousands, except per-share amounts)	2022		2021			(in thousands, except per-share amounts)	2023		2022

Operating Revenues	Operating Revenues						Operating Revenues
Electric	Electric	$	130,416	$	123,699		Electric	$	151,909	$	130,416
Product Sales	Product Sales	244,488		138,011			Product Sales	187,172		244,488
Total Operating Revenues	Total Operating Revenues	374,904		261,710			Total Operating Revenues	339,081		374,904
Operating Expenses	Operating Expenses						Operating Expenses
Electric Production Fuel	Electric Production Fuel	14,853		14,714			Electric Production Fuel	11,492		14,853
Electric Purchased Power	Electric Purchased Power	20,529		19,260			Electric Purchased Power	41,825		20,529
Electric Operating and Maintenance Expenses	Electric Operating and Maintenance Expenses	44,278		41,421			Electric Operating and Maintenance Expenses	45,549		44,278
Cost of Products Sold (excluding depreciation)	Cost of Products Sold (excluding depreciation)	151,759		101,977			Cost of Products Sold (excluding depreciation)	112,369		151,759
Other Nonelectric Expenses	Other Nonelectric Expenses	17,206		13,693			Other Nonelectric Expenses	18,699		17,206
Depreciation and Amortization	Depreciation and Amortization	23,548		22,126			Depreciation and Amortization	23,856		23,548
Electric Property Taxes	Electric Property Taxes	4,432		4,320			Electric Property Taxes	4,621		4,432
Total Operating Expenses	Total Operating Expenses	276,605		217,511			Total Operating Expenses	258,411		276,605
Operating Income	Operating Income	98,299		44,199			Operating Income	80,670		98,299
Other Income and Expense
Interest Charges		8,948		9,398
Nonservice Cost Components of Postretirement Benefits		(22)		383
Other Income and (Expense)							Other Income and (Expense)
Interest Expense							Interest Expense	(9,415)		(8,948)
Nonservice Components of Postretirement Benefits							Nonservice Components of Postretirement Benefits	2,412		22
Other Income (Expense), net	Other Income (Expense), net	260		1,160			Other Income (Expense), net	2,118		260
Income Before Income Taxes	Income Before Income Taxes	89,633		35,578			Income Before Income Taxes	75,785		89,633
Income Tax Expense	Income Tax Expense	17,630		5,249			Income Tax Expense	13,304		17,630
Net Income	Net Income	$	72,003	$	30,329		Net Income	$	62,481	$	72,003

Weighted-Average Common Shares Outstanding:	Weighted-Average Common Shares Outstanding:						Weighted-Average Common Shares Outstanding:
Basic	Basic	41,548		41,455			Basic	41,632		41,548
Diluted	Diluted	41,871		41,700			Diluted	41,977		41,871
Earnings Per Share:	Earnings Per Share:						Earnings Per Share:
Basic	Basic	$	1.73	$	0.73		Basic	$	1.50	$	1.73
Diluted	Diluted	$	1.72	$	0.73		Diluted	$	1.49	$	1.72

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
Three Months Ended March 31,
(in thousands) 2022 2021
Net Income $ 72,003 $ 30,329
Other Comprehensive (Loss) Income:
Unrealized (Loss) on Available-for-Sale Securities, net of tax benefit of $61 and $10 (231) (35)
Pension and Other Postretirement Benefits, net of tax benefit (expense) of $67 and $(53) (190) 150
Total Other Comprehensive (Loss) Income $ (421) $ 115
Total Comprehensive Income $ 71,582 $ 30,444


	Three Months Ended March 31,
(in thousands)	2023		2022

Net Income	$	62,481	$	72,003
Other Comprehensive Income (Loss):
Unrealized Gain (Loss) on Available-for-Sale Securities, net of tax (expense) benefit of $(21) and $61	80		(231)
Pension and Other Postretirement Benefits, net of tax benefit of $9 and $67	(26)		(190)
Total Other Comprehensive Income (Loss)	54		(421)
Total Comprehensive Income	$	62,535	$	71,582

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

Balance, December 31, 2022													Balance, December 31, 2022	41,631,113	$	208,156	$	423,034	$	585,212	$	915	$	1,217,317

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes													Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	53,413	267		(3,355)		—		—		(3,088)

Net Income													Net Income	—	—		—		62,481		—		62,481
Other Comprehensive Income													Other Comprehensive Income	—	—		—		—		54		54
Stock Compensation Expense													Stock Compensation Expense	—	—		5,269		—		—		5,269
Common Dividends ($0.4375 per share)													Common Dividends ($0.4375 per share)	—	—		—		(18,256)		—		(18,256)
Balance, March 31, 2023													Balance, March 31, 2023	41,684,526	$	208,423	$	424,948	$	629,437	$	969	$	1,263,777

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

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	54,360	271		(3,215)		—		—		(2,944)		Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes	54,360	271		(3,215)		—		—		(2,944)

Net Income	Net Income	—	—		—		72,003		—		72,003		Net Income	—	—		—		72,003		—		72,003
Other Comprehensive Loss	Other Comprehensive Loss	—	—		—		—		(421)		(421)		Other Comprehensive Loss	—	—		—		—		(421)		(421)
Stock Compensation Expense	Stock Compensation Expense	—	—		4,904		—		—		4,904		Stock Compensation Expense	—	—		4,904		—		—		4,904
Common Dividends ($0.4125 per share)	Common Dividends ($0.4125 per share)	—	—		—		(17,181)		—		(17,181)		Common Dividends ($0.4125 per share)	—	—		—		(17,181)		—		(17,181)
Balance, March 31, 2022	Balance, March 31, 2022	41,605,884	$	208,029	$	421,449	$	424,605	$	(6,945)	$	1,047,138	Balance, March 31, 2022	41,605,884	$	208,029	$	421,449	$	424,605	$	(6,945)	$	1,047,138

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

Stock Issued Under Share-Based Compensation Plans, net of shares withheld for employee taxes		40,576	203		(1,710)		—		—		(1,507)
Stock Issued Under Dividend Reinvestment and Stock Purchase Plans, net of expenses and repurchased shares		—	—		(25)		—		—		(25)
Net Income		—	—		—		30,329		—		30,329
Other Comprehensive Income		—	—		—		—		115		115
Stock Compensation Expense		—	—		4,197		—		—		4,197
Common Dividends ($0.39 per share)		—	—		—		(16,208)		—		(16,208)
Balance, March 31, 2021		41,510,455	$	207,552	$	416,708	$	271,999	$	(8,392)	$	887,867

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022

Operating Activities	Operating Activities					Operating Activities
Net Income	Net Income	$	72,003	$	30,329	Net Income	$	62,481	$	72,003
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:	Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:					Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization	Depreciation and Amortization	23,548		22,126		Depreciation and Amortization	23,856		23,548
Deferred Tax Credits	Deferred Tax Credits	(186)		(186)		Deferred Tax Credits	(186)		(186)
Deferred Income Taxes	Deferred Income Taxes	14,342		5,697		Deferred Income Taxes	8,028		14,342
Discretionary Contribution to Pension Plan	Discretionary Contribution to Pension Plan	(20,000)		(10,000)		Discretionary Contribution to Pension Plan	—		(20,000)
Allowance for Equity Funds Used During Construction	Allowance for Equity Funds Used During Construction	(260)		(45)		Allowance for Equity Funds Used During Construction	(174)		(260)
Stock Compensation Expense	Stock Compensation Expense	4,904		4,197		Stock Compensation Expense	5,269		4,904
Other, Net	Other, Net	866		(1,407)		Other, Net	(1,562)		866
Changes in Operating Assets and Liabilities:	Changes in Operating Assets and Liabilities:					Changes in Operating Assets and Liabilities:
Receivables	Receivables	(43,943)		(20,431)		Receivables	(31,049)		(43,943)
Inventories	Inventories	3,403		(261)		Inventories	1,460		3,403
Regulatory Assets	Regulatory Assets	4,468		703		Regulatory Assets	7,147		4,468
Other Assets	Other Assets	3,729		(6,421)		Other Assets	5,278		3,729
Accounts Payable	Accounts Payable	(12,533)		2,245		Accounts Payable	(7,387)		(12,533)
Accrued and Other Liabilities	Accrued and Other Liabilities	(7,859)		(8,890)		Accrued and Other Liabilities	(19,617)		(7,859)
Regulatory Liabilities	Regulatory Liabilities	2,812		(3,850)		Regulatory Liabilities	4,420		2,812
Pension and Other Postretirement Benefits	Pension and Other Postretirement Benefits	122		1,464		Pension and Other Postretirement Benefits	(2,411)		122
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	45,416		15,270		Net Cash Provided by Operating Activities	55,553		45,416
Investing Activities	Investing Activities					Investing Activities
Capital Expenditures	Capital Expenditures	(28,710)		(50,076)		Capital Expenditures	(98,101)		(28,710)
Proceeds from Disposal of Noncurrent Assets	Proceeds from Disposal of Noncurrent Assets	878		3,244		Proceeds from Disposal of Noncurrent Assets	1,030		878
Cash Used for Investments and Other Assets	Cash Used for Investments and Other Assets	(3,617)		(2,188)		Cash Used for Investments and Other Assets	(3,308)		(3,617)
Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(31,449)		(49,020)		Net Cash Used in Investing Activities	(100,379)		(31,449)
Financing Activities	Financing Activities					Financing Activities
Net Borrowings on Short-Term Debt	Net Borrowings on Short-Term Debt	6,608		53,854		Net Borrowings on Short-Term Debt	52,650		6,608

Payments for Retirement of Long-Term Debt		—		(169)

Dividends Paid	Dividends Paid	(17,181)		(16,208)		Dividends Paid	(18,256)		(17,181)
Payments for Shares Withheld for Employee Tax Obligations	Payments for Shares Withheld for Employee Tax Obligations	(2,942)		(1,507)		Payments for Shares Withheld for Employee Tax Obligations	(3,088)		(2,942)
Other, net	Other, net	(618)		(2,171)		Other, net	(1,396)		(618)
Net Cash (Used in) Provided by Financing Activities		(14,133)		33,799
Net Cash Provided by (Used in) Financing Activities						Net Cash Provided by (Used in) Financing Activities	29,910		(14,133)
Net Change in Cash and Cash Equivalents	Net Change in Cash and Cash Equivalents	(166)		49		Net Change in Cash and Cash Equivalents	(14,916)		(166)
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	1,537		1,163		Cash and Cash Equivalents at Beginning of Period	118,996		1,537
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	1,371	$	1,212	Cash and Cash Equivalents at End of Period	$	104,080	$	1,371

Supplemental Disclosure of Noncash Investing Activities	Supplemental Disclosure of Noncash Investing Activities					Supplemental Disclosure of Noncash Investing Activities
Accrued Property, Plant and Equipment Additions	Accrued Property, Plant and Equipment Additions	$	9,165	$	18,962	Accrued Property, Plant and Equipment Additions	$	10,346	$	9,165

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 polyvinyl chloride (PVC) pipe products. We classify our business into 3three segments: Electric, Manufacturing and Plastics.

Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the SEC for interim reporting. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles. In the opinion of management, we have included all adjustments, including normal recurring accruals, necessary for a fair presentation of the consolidated financial statements for the periods presented. The consolidated financial statements and condensed notes thereto should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~2022.

Because of the seasonality of our businesses and other factors, the earnings for the three months ended March 31, ~~2022~~2023 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~~Concentration of Deposits and Investments

~~Certain reclassifications of amounts previously reported have been made~~The Company has financial instruments that potentially subject us 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) provided by financing activities, ora concentration risk, including cash and cash ~~equivalents.~~equivalents held in deposit and money market accounts with various financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation up to an insurance limit of $250,000. Currently, our cash and cash equivalents significantly exceed federally insured levels.

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 months ended March 31, ~~2022~~2023 and ~~2021~~2022 are as follows:


		Three Months Ended March 31,				Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2023		2022

Operating Revenue	Operating Revenue						Operating Revenue
Electric	Electric	$	130,416	$	123,699		Electric	$	151,909	$	130,416
Manufacturing	Manufacturing	104,957		75,825			Manufacturing	106,782		104,957
Plastics	Plastics	139,531		62,186			Plastics	80,390		139,531
Total	Total	$	374,904	$	261,710		Total	$	339,081	$	374,904
Net Income (Loss)	Net Income (Loss)						Net Income (Loss)
Electric	Electric	$	19,233	$	17,587		Electric	$	23,221	$	19,233
Manufacturing	Manufacturing	4,084		5,385			Manufacturing	6,862		4,084
Plastics	Plastics	50,846		9,147			Plastics	33,686		50,846
Corporate	Corporate	(2,160)		(1,790)			Corporate	(1,288)		(2,160)
Total	Total	$	72,003	$	30,329		Total	$	62,481	$	72,003

Table of Contents

The following provides the identifiable assets by segment and corporate assets as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022

Identifiable Assets	Identifiable Assets					Identifiable Assets
Electric	Electric	$	2,278,337	$	2,283,776	Electric	$	2,418,544	$	2,351,961
Manufacturing	Manufacturing	269,833		251,044		Manufacturing	256,451		245,869
Plastics	Plastics	184,865		162,565		Plastics	149,256		126,318
Corporate	Corporate	58,706		57,445		Corporate	163,159		177,513
Total	Total	$	2,791,741	$	2,754,830	Total	$	2,987,410	$	2,901,661

3. Revenue

~~We present~~Presented below are our operating revenues to external customers, in total and by amounts arising from contracts with customers and alternative revenue program (ARP) arrangements, disaggregated by revenue source and segment for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended March 31,				Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2023		2022

Operating Revenues	Operating Revenues						Operating Revenues
Electric Segment	Electric Segment						Electric Segment
Retail: Residential	Retail: Residential	$	40,561	$	37,485		Retail: Residential	$	43,972	$	40,561
Retail: Commercial and Industrial	Retail: Commercial and Industrial	71,171		66,403			Retail: Commercial and Industrial	90,489		71,171
Retail: Other	Retail: Other	1,907		1,818			Retail: Other	1,992		1,907
Total Retail	Total Retail	113,639		105,706			Total Retail	136,453		113,639
Transmission	Transmission	12,556		11,944			Transmission	12,107		12,556
Wholesale	Wholesale	2,463		4,507			Wholesale	1,838		2,463
Other	Other	1,758		1,542			Other	1,511		1,758
Total Electric Segment	Total Electric Segment	130,416		123,699			Total Electric Segment	151,909		130,416
Manufacturing Segment	Manufacturing Segment						Manufacturing Segment
Metal Parts and Tooling	Metal Parts and Tooling	89,573		62,673			Metal Parts and Tooling	90,068		89,573
Plastic Products and Tooling	Plastic Products and Tooling	12,445		10,295			Plastic Products and Tooling	14,142		12,445
Scrap Metal Sales	Scrap Metal Sales	2,939		2,857			Scrap Metal Sales	2,572		2,939
Total Manufacturing Segment	Total Manufacturing Segment	104,957		75,825			Total Manufacturing Segment	106,782		104,957
Plastics Segment	Plastics Segment						Plastics Segment
PVC Pipe	PVC Pipe	139,531		62,186			PVC Pipe	80,390		139,531
Total Operating Revenue	Total Operating Revenue	374,904		261,710			Total Operating Revenue	339,081		374,904
Less: Non-contract Revenues Included Above	Less: Non-contract Revenues Included Above						Less: Non-contract Revenues Included Above
Electric Segment - ARP Revenues	Electric Segment - ARP Revenues	(2,460)		(975)			Electric Segment - ARP Revenues	(1,210)		(2,460)
Total Operating Revenues from Contracts with Customers	Total Operating Revenues from Contracts with Customers	$	377,364	$	262,685		Total Operating Revenues from Contracts with Customers	$	340,291	$	377,364

4. Select Balance Sheet Information

Receivables and Allowance for Credit Losses

Receivables as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 are as follows:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022

Receivables	Receivables					Receivables
Trade	Trade	$	192,315	$	142,297	Trade	$	145,337	$	112,126
Other	Other	8,139		10,591		Other	8,918		9,983
Unbilled Receivables	Unbilled Receivables	20,229		23,901		Unbilled Receivables	23,378		23,932
Total Receivables	Total Receivables	220,683		176,789		Total Receivables	177,633		146,041
Less: Allowance for Credit Losses	Less: Allowance for Credit Losses	(1,787)		(1,836)		Less: Allowance for Credit Losses	2,191		1,648
Receivables, net of allowance for credit losses	Receivables, net of allowance for credit losses	$	218,896	$	174,953	Receivables, net of allowance for credit losses	$	175,442	$	144,393

Table of Contents

The following is a summary of activity in the allowance for credit losses for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


		March 31,		March 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022

Beginning Balance, January 1	Beginning Balance, January 1	$	1,836	$	3,215	Beginning Balance, January 1	$	1,648	$	1,836
Additions Charged to Expense	Additions Charged to Expense	210		211		Additions Charged to Expense	737		210
Reductions for Amounts Written Off, Net of Recoveries	Reductions for Amounts Written Off, Net of Recoveries	(259)		(443)		Reductions for Amounts Written Off, Net of Recoveries	(194)		(259)
Ending Balance, March 31	Ending Balance, March 31	$	1,787	$	2,983	Ending Balance, March 31	$	2,191	$	1,787

Inventories

Inventories consist of the following as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022

Raw Material, Fuel and Supplies						Raw Material, Fuel and Supplies	$	73,860	$	70,374
Work in Process						Work in Process	30,602		31,766
Finished Goods	Finished Goods	$	37,195	$	39,903	Finished Goods	40,305		43,812
Work in Process		33,962		35,705
Raw Material, Fuel and Supplies		74,700		72,882
Total Inventories	Total Inventories	$	145,857	$	148,490	Total Inventories	$	144,767	$	145,952

Investments

The following is a summary of our investments as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022

Corporate-Owned Life Insurance Policies	Corporate-Owned Life Insurance Policies	$	40,722	$	41,078	Corporate-Owned Life Insurance Policies	$	39,781	$	38,991
Debt Securities		8,959		9,202
Corporate and Government Debt Securities						Corporate and Government Debt Securities	8,971		8,761
Money Market Funds	Money Market Funds	1,893		949		Money Market Funds	2,148		1,560
Mutual Funds	Mutual Funds	6,285		5,432		Mutual Funds	7,128		5,503
Other Investments	Other Investments	34		29		Other Investments	30		30
Total Investments	Total Investments	$	57,893	$	56,690	Total Investments	$	58,058	$	54,845

The amount of unrealized gains and losses on debt securities as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 was not material.

Property, Plant and Equipment

Major classes of property, plant and equipment as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 include:


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022

Electric Plant	Electric Plant					Electric Plant
Electric Plant in Service	Electric Plant in Service	$	2,776,778	$	2,758,445	Electric Plant in Service	$	2,917,699	$	2,844,379
Construction Work in Progress	Construction Work in Progress	72,347		74,926		Construction Work in Progress	128,328		113,932
Total Gross Electric Plant	Total Gross Electric Plant	2,849,125		2,833,371		Total Gross Electric Plant	3,046,027		2,958,311
Less Accumulated Depreciation and Amortization	Less Accumulated Depreciation and Amortization	829,499		817,302		Less Accumulated Depreciation and Amortization	876,330		859,988
Net Electric Plant	Net Electric Plant	2,019,626		2,016,069		Net Electric Plant	2,169,697		2,098,323
Nonelectric Property, Plant and Equipment	Nonelectric Property, Plant and Equipment					Nonelectric Property, Plant and Equipment
Nonelectric Property, Plant and Equipment in Service	Nonelectric Property, Plant and Equipment in Service	278,729		273,950		Nonelectric Property, Plant and Equipment in Service	295,548		293,928
Construction Work in Progress	Construction Work in Progress	14,365		16,611		Construction Work in Progress	22,840		15,170
Total Gross Nonelectric Property, Plant and Equipment	Total Gross Nonelectric Property, Plant and Equipment	293,094		290,561		Total Gross Nonelectric Property, Plant and Equipment	318,388		309,098
Less Accumulated Depreciation and Amortization	Less Accumulated Depreciation and Amortization	184,376		182,025		Less Accumulated Depreciation and Amortization	198,594		194,704
Net Nonelectric Property, Plant and Equipment	Net Nonelectric Property, Plant and Equipment	108,718		108,536		Net Nonelectric Property, Plant and Equipment	119,794		114,394
Net Property, Plant and Equipment	Net Property, Plant and Equipment	$	2,128,344	$	2,124,605	Net Property, Plant and Equipment	$	2,289,491	$	2,212,717

On January 3, 2023, we purchased the Ashtabula III wind farm, located in eastern North Dakota, which consists of 39 wind turbines and the related infrastructure, adding 62.4 megawatts of nameplate capacity to our owned generation assets. The total purchase price of the acquisition was $50.6 million. In addition to the acquired assets, we also recognized a $3.3 million asset retirement obligation liability associated with the wind farm and became party to the land easement agreements with the landowners of the wind farm.

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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 March 31, ~~2022~~2023 and December 31, ~~2021~~2022 and the period we expect to recover or refund such amounts:


		Period of	March 31, 2022				December 31, 2021					Period of	March 31, 2023				December 31, 2022
(in thousands)	(in thousands)	Recovery/Refund	Current		Long-Term		Current		Long Term		(in thousands)	Recovery/Refund	Current		Long-Term		Current		Long Term

Regulatory Assets	Regulatory Assets										Regulatory Assets
Pension and Other Postretirement Benefit Plans1	Pension and Other Postretirement Benefit Plans1	Various	$	7,791	$	113,663	$	7,791	$	114,961	Pension and Other Postretirement Benefit Plans1	See Below	$	—	$	89,474	$	—	$	88,354
Alternative Revenue Program Riders2	Alternative Revenue Program Riders2	Up to 2 years	9,280		5,713		11,889		5,564		Alternative Revenue Program Riders2	Up to 2 years	3,705		3,272		5,679		2,508
Asset Retirement Obligations1	Asset Retirement Obligations1	Asset lives	—		1,098		—		742		Asset Retirement Obligations1	Asset lives	—		1,670		—		1,467

Deferred Income Taxes											Deferred Income Taxes	Asset lives	—		729		—		—
ISO Cost Recovery Trackers1	ISO Cost Recovery Trackers1	Up to 2 years	220		950		—		1,342		ISO Cost Recovery Trackers1	Up to 2 years	432		201		575		314
Unrecovered Project Costs1	Unrecovered Project Costs1	Up to 5 years	1,086		1,456		2,136		1,455		Unrecovered Project Costs1	Up to 5 years	319		916		320		990
Deferred Rate Case Expenses1	Deferred Rate Case Expenses1	Various	542		1,037		607		1,131		Deferred Rate Case Expenses1	Up to 3 years	377		660		377		754
Debt Reacquisition Premiums1		Up to 11 years	68		234		100		240
Fuel Clause Adjustments1	Fuel Clause Adjustments1	Up to 1 year	2,767		—		4,819		—		Fuel Clause Adjustments1	Up to 1 year	11,361		—		10,893		—
Derivative Instruments1											Derivative Instruments1	Up to 1 year	347		—		7,130		—
Other1	Other1	Various	16		262		—		73		Other1	Various	25		257		25		268
Total Regulatory Assets	Total Regulatory Assets		$	21,770	$	124,413	$	27,342	$	125,508	Total Regulatory Assets		$	16,566	$	97,179	$	24,999	$	94,655
Regulatory Liabilities	Regulatory Liabilities										Regulatory Liabilities
Deferred Income Taxes	Deferred Income Taxes	Asset lives	$	—	$	128,042	$	—	$	129,437	Deferred Income Taxes	Asset lives	$	—	$	130,429	$	—	$	131,480
Plant Removal Obligations	Plant Removal Obligations	Asset lives	8,561		101,850		8,306		101,595		Plant Removal Obligations	Asset lives	8,492		106,181		8,509		105,733
Fuel Clause Adjustments	Fuel Clause Adjustments	Up to 1 year	5,386		—		1,554		—		Fuel Clause Adjustments	Up to 1 year	3,654		—		365		—
Alternative Revenue Program Riders	Alternative Revenue Program Riders	Various	6,215		3,986		5,772		3,336		Alternative Revenue Program Riders	Up to 1 year	2,326		—		2,504		—
North Dakota PTC Refunds											North Dakota PTC Refunds	Asset lives	—		8,254		—		7,136
Pension and Other Postretirement Benefit Plans	Pension and Other Postretirement Benefit Plans	Up to 1 year	2,603		—		2,603		—		Pension and Other Postretirement Benefit Plans	Up to 1 year	5,589		—		5,589		—

Derivative Instruments		Various	4,179		—		6,214		—

Other	Other	Various	267		111		395		62		Other	Various	465		207		333		148
Total Regulatory Liabilities	Total Regulatory Liabilities		$	27,211	$	233,989	$	24,844	$	234,430	Total Regulatory Liabilities		$	20,526	$	245,071	$	17,300	$	244,497

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.

6. Short-Term and Long-Term Borrowings

The following is a summary of our outstanding short- and long-term borrowings by borrower, OTC or Otter Tail Power Company (OTP), as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:

Short-Term Debt

The following is a summary of our lines of credit as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


				March 31, 2022						December 31, 2021					March 31, 2023						December 31, 2022
(in thousands)	(in thousands)	Line Limit		Amount Outstanding		Letters of Credit		Amount Available		Amount Available		(in thousands)	Borrowing Limit		Amount Outstanding		Letters of Credit		Amount Available		Amount Available

OTC Credit Agreement	OTC Credit Agreement	$	170,000	$	43,281	$	—	$	126,719	$	147,363	OTC Credit Agreement	$	170,000	$	—	$	—	$	170,000	$	170,000
OTP Credit Agreement	OTP Credit Agreement	170,000		54,489		7,844		107,667		88,315		OTP Credit Agreement	170,000		60,854		9,573		99,573		152,223
Total	Total	$	340,000	$	97,770	$	7,844	$	234,386	$	235,678	Total	$	340,000	$	60,854	$	9,573	$	269,573	$	322,223

Table of Contents

Long-Term Debt

The following is a summary of outstanding long-term debt by borrower as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:

(in thousands)
Entity Debt Instrument Rate Maturity March 31,
2022 December 31,
2021
OTC Guaranteed Senior Notes 3.55% 12/15/26 $ 80,000 $ 80,000
OTP Series 2007B Senior Unsecured Notes 6.15% 08/20/22 30,000 30,000
OTP Series 2007C Senior Unsecured Notes 6.37% 08/02/27 42,000 42,000
OTP Series 2013A Senior Unsecured Notes 4.68% 02/27/29 60,000 60,000
OTP Series 2019A Senior Unsecured Notes 3.07% 10/10/29 10,000 10,000
OTP Series 2020A Senior Unsecured Notes 3.22% 02/25/30 10,000 10,000
OTP Series 2020B Senior Unsecured Notes 3.22% 08/20/30 40,000 40,000
OTP Series 2021A Senior Unsecured Notes 2.74% 11/29/31 40,000 40,000
OTP Series 2007D Senior Unsecured Notes 6.47% 08/20/37 50,000 50,000
OTP Series 2019B Senior Unsecured Notes 3.52% 10/10/39 26,000 26,000
OTP Series 2020C Senior Unsecured Notes 3.62% 02/25/40 10,000 10,000
OTP Series 2013B Senior Unsecured Notes 5.47% 02/27/44 90,000 90,000
OTP Series 2018A Senior Unsecured Notes 4.07% 02/07/48 100,000 100,000
OTP Series 2019C Senior Unsecured Notes 3.82% 10/10/49 64,000 64,000
OTP Series 2020D Senior Unsecured Notes 3.92% 02/25/50 15,000 15,000
OTP Series 2021B Senior Unsecured Notes 3.69% 11/29/51 100,000 100,000
Total $ 767,000 $ 767,000
Less: Current Maturities, Net of Unamortized Debt Issuance Costs 29,990 29,983
Unamortized Long-Term Debt Issuance Costs 2,936 3,003
Total Long-Term Debt, Net of Unamortized Debt Issuance Costs $ 734,074 $ 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, $230.0 million of senior unsecured notes consisting of (a) $40.0 million of 2.74% Series 2021A Senior Unsecured Notes due November 29, 2031, (b) $100.0 million of 3.69% Series 2021B Senior Unsecured Notes due November 29, 2051 and (c) $90.0 million of 3.77% Series 2022A Senior Unsecured Notes due May 20, 2052. During the year ended December 31, 2021, OTP issued its Series 2021A and Series 2021B notes for aggregate proceeds of $140.0 million, which were used to repay the Series 2011A notes. The issuance of the Series 2022A notes is scheduled to close, subject to the satisfaction of certain customary conditions to closing, in May 2022.


					(in thousands)
Borrower		Debt Instrument	Rate	Maturity	March 31, 2023		December 31, 2022

OTC		Guaranteed Senior Notes	3.55%	12/15/26	$	80,000	$	80,000
OTP		Series 2007C Senior Unsecured Notes	6.37%	08/02/27	42,000		42,000
OTP		Series 2013A Senior Unsecured Notes	4.68%	02/27/29	60,000		60,000
OTP		Series 2019A Senior Unsecured Notes	3.07%	10/10/29	10,000		10,000
OTP		Series 2020A Senior Unsecured Notes	3.22%	02/25/30	10,000		10,000
OTP		Series 2020B Senior Unsecured Notes	3.22%	08/20/30	40,000		40,000
OTP		Series 2021A Senior Unsecured Notes	2.74%	11/29/31	40,000		40,000
OTP		Series 2007D Senior Unsecured Notes	6.47%	08/20/37	50,000		50,000
OTP		Series 2019B Senior Unsecured Notes	3.52%	10/10/39	26,000		26,000
OTP		Series 2020C Senior Unsecured Notes	3.62%	02/25/40	10,000		10,000
OTP		Series 2013B Senior Unsecured Notes	5.47%	02/27/44	90,000		90,000
OTP		Series 2018A Senior Unsecured Notes	4.07%	02/07/48	100,000		100,000
OTP		Series 2019C Senior Unsecured Notes	3.82%	10/10/49	64,000		64,000
OTP		Series 2020D Senior Unsecured Notes	3.92%	02/25/50	15,000		15,000
OTP		Series 2021B Senior Unsecured Notes	3.69%	11/29/51	100,000		100,000
OTP		Series 2022A Senior Unsecured Notes	3.77%	05/20/52	90,000		90,000
Total					$	827,000	$	827,000

Less:	Unamortized Long-Term Debt Issuance Costs				3,118		3,179
Total Long-Term Debt, Net of Unamortized Debt Issuance Costs					$	823,882	$	823,821

Financial Covenants

Certain of OTC's and OTP's short- and long-term debt agreements require the borrower, whether OTC or OTP, to maintain certain financial covenants, including a maximum debt to total capitalization ratio of 0.60 to 1.00, a minimum interest and dividend coverage ratio of 1.50 to 1.00, and a maximum level of priority indebtedness. As of March 31, ~~2022,~~2023, OTC and OTP were in compliance with these financial covenants.

7. Employee Postretirement Benefits

Pension Plan and Other Postretirement Benefits

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

The following table includes the components of net periodic benefit cost of(income) related to our defined benefit pension plans and other postretirement benefits for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:



	Three Months Ended March 31,
	Pension Benefits (Pension Plan)				Pension Benefits (ESSRP)				Postretirement Benefits
(in thousands)	2023		2022		2023		2022		2023		2022

Service Cost	$	925	$	1,644	$	18	$	49	$	153	$	335
Interest Cost	4,109		3,086		314		335		669		510
Expected Return on Assets	(6,479)		(5,921)		—		—		—		—
Amortization of Prior Service Cost	—		—		—		—		(1,433)		(1,433)
Amortization of Net Actuarial Loss	—		1,966		—		142		—		766
Net Periodic Benefit Cost (Income)	$	(1,445)	$	775	$	332	$	526	$	(611)	$	178

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Pension Benefits (Pension Plan) Pension Benefits (ESSRP) Postretirement Benefits
(in thousands) 2022 2021 2022 2021 2022 2021
Service Cost $ 1,644 $ 1,866 $ 49 $ 47 $ 335 $ 430
Interest Cost 3,086 2,915 335 307 510 473
Expected Return on Assets (5,921) (5,590) — — — —
Amortization of Prior Service Cost — — — — (1,433) (1,433)
Amortization of Net Actuarial Loss 1,966 2,728 142 155 766 943
Net Periodic Benefit Cost $ 775 $ 1,919 $ 526 $ 509 $ 178 $ 413

The following table includes the impact of regulation on the recognition of periodic benefit cost (income) arising from pension and other postretirement benefits for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


							Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022

Net Periodic Benefit Cost		$	1,479	$	2,841
Net Periodic Benefit Cost (Income)						Net Periodic Benefit Cost (Income)	$	(1,724)	$	1,479
Net Amount Amortized (Deferred) Due to the Effect of Regulation	Net Amount Amortized (Deferred) Due to the Effect of Regulation	527		(115)		Net Amount Amortized (Deferred) Due to the Effect of Regulation	408		527
Net Periodic Benefit Cost Recognized		$	2,006	$	2,726
Net Periodic Benefit Cost (Income) Recognized						Net Periodic Benefit Cost (Income) Recognized	$	(1,316)	$	2,006

We had no minimum funding requirements for our ~~pension plan~~Pension Plan or any other postretirement benefit plans as of December 31, ~~2021, but~~2022. We did not make any contributions to our Pension Plan during the three months ended March 31, 2023. We made a discretionary ~~contribution~~contributions to our Pension Plan of $20.0 million ~~to our pension plan in February~~during the three months ended March 31, 2022.

8. Income Taxes

The reconciliation of the statutory federal income tax rate to our effective tax rate for each of the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 is as follows:


		Three Months Ended March 31,				Three Months Ended
		2022		2021				2023				2022

Federal Statutory Rate		21.0	%	21.0	%
Income Taxes at Federal Statutory Rate							Income Taxes at Federal Statutory Rate	$	15,915	21.0	%	$	18,823	21.0	%
Increases (Decreases) in Tax from:	Increases (Decreases) in Tax from:						Increases (Decreases) in Tax from:
State Taxes on Income, Net of Federal Tax	State Taxes on Income, Net of Federal Tax	5.0		5.0			State Taxes on Income, Net of Federal Tax	3,789		5.0		4,482		5.0
Production Tax Credits (PTCs)	Production Tax Credits (PTCs)	(4.4)		(7.6)			Production Tax Credits (PTCs)	(4,655)		(6.1)		(3,967)		(4.4)
Amortization of Excess Deferred Income Taxes	Amortization of Excess Deferred Income Taxes	(1.3)		(2.9)			Amortization of Excess Deferred Income Taxes	(798)		(1.1)		(1,177)		(1.3)
Excess Tax Deduction on Stock Awards		(0.5)		(0.1)
North Dakota Wind Tax Credit Amortization, Net of Federal Tax	North Dakota Wind Tax Credit Amortization, Net of Federal Tax	(0.2)		(0.4)			North Dakota Wind Tax Credit Amortization, Net of Federal Tax	(164)		(0.2)		(200)		(0.2)
Corporate-Owned Life Insurance		0.2		(0.5)

Allowance for Equity Funds Used During Construction							Allowance for Equity Funds Used During Construction	(51)		(0.1)		(93)		(0.1)
Other, Net	Other, Net	(0.1)		0.3			Other, Net	(732)		(0.9)		(238)		(0.3)
Effective Tax Rate		19.7	%	14.8	%
Income Tax Expense / Effective Tax Rate							Income Tax Expense / Effective Tax Rate	$	13,304	17.6	%	$	17,630	19.7	%

9. Commitments and Contingencies

Commitments

Land Easements. Since 2013, we had purchased the wind-generated electricity from the Ashtabula III wind farm pursuant to a power purchase agreement. That agreement granted us the option to purchase the wind farm and on January 3, 2023, we completed the purchase for $50.6 million. In connection with the purchase, we assumed 51 land easements, not classified as leases, which require annual payments. The remaining payments to be made under the easements total $4.2 million and the remaining terms of the agreements extend into 2034.

Contingencies

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

Significant uncertainty exists as to how FERC will proceed upon remand and there is ~~subject to judicial review.~~no prescribed timeline under which FERC must act. We have deferred recognition and recorded a refund liability of ~~$2.4~~$2.6 million as of March 31, ~~2022.~~2023. This refund liability reflects our best estimate of amounts previously collected from customers under the MISO tariff rate that may be required ~~refunds~~to be refunded to customers once all regulatory and judicial proceedings are ~~completed.~~complete and a final ROE is established for the periods outlined above.

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

Coyote Station, OTP's jointly owned coal-fired power plant in North Dakota, is subject to assessment in the second implementation period under the North Dakota state implementation plan. ~~In September 2021, the~~The North Dakota Department of Environmental Quality (NDDEQ) ~~made public a draft of~~submitted its state implementation ~~plan. The~~ plan to the EPA for approval in August, 2022. In its plan, the NDDEQ concluded it is not reasonable to require additional emission controls during ~~this planning period. In January 2022, prior to the submission to the EPA by the NDDEQ, the EPA provided preliminary comments on the draft North Dakota state~~

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~~implementation plan in which it~~this planning period. The EPA has previously expressed disagreement with the NDDEQ's recommendation to forgo additional emission ~~controls. Following~~controls and has indicated that such a ~~consultation and public comment period, and any subsequent modifications~~plan is not likely to ~~the plan, the NDDEQ will submit its state implementation plan to the EPA for approval.~~be accepted.

We cannot predict with certainty the impact the state implementation plan may have on our business until the ~~state implementation~~ plan has been approved or otherwise acted on by the EPA. However, significant emission control investments could be required and the recovery of such costs from customers would require regulatory approval. Alternatively, investments in emission control equipment may prove to be uneconomic and result in the 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 in rates would be subject to regulatory approval.

Self-Funding of Transmission Upgrades. The FERChas granted transmission owners within MISO the unilateral authority to determine the funding mechanism for interconnection transmission upgrades that are necessary to accommodate new generation facilities connecting to the electrical grid. Under existing FERC orders, transmission owners can unilaterally determine whether the generator pays the transmission owner in advance for the transmission upgrade or, alternatively, the transmission owner can elect to fund the upgrade and recover over time from the generator the cost of and a return on the upgrade investment (a self-funding). FERC’s orders granting transmission owners this unilateral funding authority has been judicially contested on the basis that transmission owners may be motivated to discriminate among generators in making funding determinations. In the most recent judicial proceedings, the petitioners argued to the U.S. Court of Appeals for the District of Columbia that FERC did not comply with a previous judicial order to fully develop a record regarding the risk of discrimination and the financial risk absorbed by transmission owners for generator-funded upgrades. On December 2, 2022, the Court of Appeals ruled in favor of the petitioners remanding the matter to FERC, instructing the agency to adequately explain the basis of its orders. The Court of Appeals decision did not vacate transmission owners’ unilateral funding authority.

OTP, as a transmission owner in MISO, has exercised its authority and elected to self-fund previous transmission upgrades necessary to accommodate new system generation. Under such an election, OTP is recovering the cost of the transmission upgrade and a return on that investment from the generator over a contractual period of time. Should FERC, on remand from the Court of Appeals, eliminate transmission owners’ unilateral funding authority, on either a prospective or retrospective basis, our financial results would be impacted. We cannot at this time reasonably predict the outcome of this matter given the uncertainty as to how and when FERC may respond to the judicial remand.

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 March 31, ~~2022,~~2023, other than those discussed above, will not be material.

10. Stockholders' Equity

Registration Statements

On May 3, 2021, we filed a shelf registration statement with the SEC under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement. 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 methods of purchasing our common shares, by reinvesting their dividends or making optional cash investments. Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. During the three months ended March 31, ~~2022,~~2023, we issued ~~36,104~~30,893 shares under this ~~program.~~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 March 31, ~~2022,~~2023, there ~~was 1,348,716~~were 1,220,100 shares available for purchase or issuance under the plan. The registration statement expires in May 2024.

Dividend Restrictions

OTC is a holding company with no significant operations of its own. The primary source of funds for payments of dividends to ~~our~~OTC's shareholders is from dividends paid or distributions made by ~~our~~OTC's subsidiaries. As a result of certain statutory limitations or regulatory or financing agreements, ~~restrictions could occur on~~ the amount of distributions allowed to be made by ~~our subsidiaries.~~OTC's subsidiaries or the amount of dividends paid by OTC could be restricted. Both the OTC Credit Agreement and OTP Credit Agreement contain restrictions on the payment of cash dividends upon a default or event of default, including failure to maintain certain financial covenants. As of March 31, ~~2022,~~2023, 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 Minnesota Public Utilities Commission (MPUC) indirectly limits the amount of dividends OTP can pay to ~~the Company~~OTC by requiring an equity-to-total-capitalization ratio between ~~48.0%~~47.5% and ~~58.7%~~58.0% based on OTP’s ~~most recent~~ capital structure petition effective by order of the MPUC on ~~January 26,~~November 8, 2022. As of March 31, ~~2022,~~2023, OTP’s equity-to-total-capitalization ratio, including short-term debt, was ~~53.2%~~53.3% and its net assets restricted from distribution totaled approximately ~~$682.0~~$758.1 million. Under the MPUC order, ~~relating to the Company's 2021 capital structure petition,~~ total capitalization for OTP cannot exceed ~~$1.7~~$1.8 billion.

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11. Accumulated Other Comprehensive Income (Loss)

The following ~~shows~~presents the changes in accumulated other comprehensive loss for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:
(in thousands) Pension and Other Postretirement Benefits Net Unrealized Gain (Losses) on Available-for-Sale Securities Total
Balance, December 31, 2021 $ (6,537) $ 13 $ (6,524)
Other Comprehensive Loss Before Reclassifications, net of tax — (231) (231)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) (190) (1) — (2) (190)
Total Other Comprehensive Income (Loss) (190) (231) (421)
Balance, March 31, 2022 $ (6,727) $ (218) $ (6,945)
Balance, December 31, 2020 $ (8,716) $ 209 $ (8,507)
Other Comprehensive Loss Before Reclassifications, net of tax — (32) (32)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) 150 (1) (3) (2) 147
Total Other Comprehensive Income (Loss) 150 (35) 115
Balance, March 31, 2021 $ (8,566) $ 174 $ (8,392)
(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.


	Three Months Ended March 31,
	2023							2022
(in thousands)	Pension and Other Postretirement Benefits			Net Unrealized Gains (Losses) on Available-for-Sale Securities		Total		Pension and Other Postretirement Benefits			Net Unrealized Gains (Losses) on Available-for-Sale Securities		Total
Balance, Beginning of Period	$	1,334		$	(419)	$	915	$	(6,537)		$	13	$	(6,524)
Other Comprehensive Income (Loss) Before Reclassifications, net of tax	—			80		80		—			(231)		(231)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	(26)		(1)	—		(26)		(190)		(1)	—		(190)
Total Other Comprehensive Income (Loss)	(26)			80		54		(190)			(231)		(421)
Balance, End of Period	$	1,308		$	(339)	$	969	$	(6,727)		$	(218)	$	(6,945)









(1) Included in the computation of net periodic pension and other postretirement benefit costs. See Note 7.

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 ~~$4.9~~$5.3 million and ~~$4.2~~$4.9 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Restricted Stock Awards. We grant restricted stock awards to members of our Board of Directors and restricted stock units to certain key employees. The awards vest, depending on award type and recipient, either ratably over periods of three or four years or cliff vest after four years. Vesting is accelerated in certain circumstances, including on retirement.

The following is a summary of stock award activity for the three months ended March 31, ~~2022:~~2023:


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

Nonvested, January 1, 2022		138,093	$	44.48
Nonvested, January 1, 2023					Nonvested, January 1, 2023	141,551	$	49.83
Granted	Granted	15,842	61.39		Granted	17,900	64.65
Vested	Vested	(18,969)	46.49		Vested	(18,600)	50.94
Forfeited	Forfeited	—	—		Forfeited	—	—
Nonvested, March 31, 2022		134,966	$	46.18
Nonvested, March 31, 2023					Nonvested, March 31, 2023	140,851	$	51.57

The fair value of vested awards was $1.2 million ~~and $0.7 million~~ during the three months ended March 31, ~~2022~~2023 and ~~2021, respectively.~~2022.

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~~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. 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 three months ended March 31, ~~2022~~2023 and ~~2021~~2022 was determined using a Monte Carlo fair value simulation model incorporating the following assumptions:


		2022		2021			2023		2022

Risk-free interest rate	Risk-free interest rate	1.52	%	0.18	%	Risk-free interest rate	4.15	%	1.52	%
Expected term (in years)	Expected term (in years)	3.00		3.00		Expected term (in years)	3.00		3.00
Expected volatility	Expected volatility	32.00	%	32.00	%	Expected volatility	34.00	%	32.00	%
Dividend yield	Dividend yield	2.90	%	3.60	%	Dividend yield	2.50	%	2.90	%

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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 three months ended March 31, ~~2022~~2023 (share amounts reflect awards at target):


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

Nonvested, January 1, 2022		189,600	$	42.54
Nonvested, January 1, 2023					Nonvested, January 1, 2023	189,800	$	45.95
Granted	Granted	55,800	54.91		Granted	59,400	61.97
Vested	Vested	(55,600)	43.30		Vested	(55,000)	47.79
Forfeited	Forfeited	—	—		Forfeited	—	—
Nonvested, March 31, 2022		189,800	$	45.95
Nonvested, March 31, 2023					Nonvested, March 31, 2023	194,200	$	50.33

The fair value of vested awards was ~~$5.1~~$5.3 million and ~~$2.5~~$5.1 million during the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

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.

The following includes the computation of the denominator for basic and diluted weighted-average shares outstanding for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended March 31,		Three Months Ended March 31,
(in thousands)	(in thousands)	2022	2021		(in thousands)	2023	2022

Weighted Average Common Shares Outstanding – Basic	Weighted Average Common Shares Outstanding – Basic	41,548	41,455		Weighted Average Common Shares Outstanding – Basic	41,632	41,548
Effect of Dilutive Securities:	Effect of Dilutive Securities:				Effect of Dilutive Securities:
Stock Performance Awards	Stock Performance Awards	219	143		Stock Performance Awards	241	219
Restricted Stock Awards	Restricted Stock Awards	102	85		Restricted Stock Awards	102	102
Employee Stock Purchase Plan Shares and Other	Employee Stock Purchase Plan Shares and Other	2	17		Employee Stock Purchase Plan Shares and Other	2	2
Dilutive Effect of Potential Common Shares	Dilutive Effect of Potential Common Shares	323	245		Dilutive Effect of Potential Common Shares	345	323
Weighted Average Common Shares Outstanding – Diluted	Weighted Average Common Shares Outstanding – Diluted	41,871	41,700		Weighted Average Common Shares Outstanding – Diluted	41,977	41,871

The ~~amount~~number of shares excluded from diluted weighted-average common shares outstanding because such shares were anti-dilutive was not material for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

14. Derivative Instruments

OTP enters into derivative instruments to manage its exposure to future market energy 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 market energy price variability. The instruments are recorded at fair value on the consolidated balance sheets. In accordance with ~~rate-making~~ratemaking 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 March 31, ~~2022,~~2023, OTP had one outstanding pay-fixed, receive-variable swap ~~agreements~~agreement with an aggregate notional amount of ~~156,800~~8,000 megawatt-hours of electricity, ~~which will be settled periodically throughout 2022 and~~with a settlement date of December 31, 2023. As of March 31, ~~2022,~~2023, the fair value of ~~these~~this derivative ~~instruments~~instrument was ~~$4.2~~$0.3 million, which is included in other current ~~assets, and $0.2 million, which is included in other noncurrent~~ liabilities, on the consolidated balance sheets. As of December 31, ~~2021,~~2022, the fair value of these types of derivative contracts was ~~$6.2~~$7.1 million, which is included in other current ~~assets.~~liabilities. During the three months ended March 31, 2023 and 2022, contracts matured and were settled in an aggregate amount of a $16.0 million loss and a $2.8 ~~million.~~million gain, respectively. Gains and losses recognized on the settlement of derivative instruments are recorded in electric purchased power in the consolidated statements of income. Such settlement gains and losses are returned to or recovered from our electric customers through fuel recovery mechanisms in each state.

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15. Fair Value Measurements

The following tables present our assets and liabilities measured at fair value on a recurring basis as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 classified by the input method used to measure fair value:


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

March 31, 2022
March 31, 2023								March 31, 2023
Assets:	Assets:							Assets:
Investments:	Investments:							Investments:
Money Market Funds	Money Market Funds	$	1,893	$	—	$	—	Money Market Funds	$	2,148	$	—	$	—
Mutual Funds	Mutual Funds	6,285		—		—		Mutual Funds	7,128		—		—
Corporate Debt Securities	Corporate Debt Securities	—		1,367		—		Corporate Debt Securities	—		1,450		—
Government-Backed and Government-Sponsored Enterprises’ Debt Securities	Government-Backed and Government-Sponsored Enterprises’ Debt Securities	—		7,592		—		Government-Backed and Government-Sponsored Enterprises’ Debt Securities	—		7,521		—
Derivative Instruments		—		4,179		—

Total Assets	Total Assets	$	8,178	$	13,138	$	—	Total Assets	$	9,276	$	8,971	$	—
Liabilities:	Liabilities:							Liabilities:
Derivative Instruments	Derivative Instruments	$	—	$	198	$	—	Derivative Instruments	$	—	$	347	$	—
Total Liabilities	Total Liabilities	$	—	$	198	$	—	Total Liabilities	$	—	$	347	$	—

December 31, 2021
December 31, 2022								December 31, 2022
Assets:	Assets:							Assets:
Investments:	Investments:							Investments:
Money Market Funds	Money Market Funds	$	949	$	—	$	—	Money Market Funds	$	1,560	$	—	$	—
Mutual Funds	Mutual Funds	5,432		—		—		Mutual Funds	5,503		—		—
Corporate Debt Securities	Corporate Debt Securities	—		1,333		—		Corporate Debt Securities	—		1,434		—
Government-Backed and Government-Sponsored Enterprises’ Debt Securities	Government-Backed and Government-Sponsored Enterprises’ Debt Securities	—		7,869		—		Government-Backed and Government-Sponsored Enterprises’ Debt Securities	—		7,327		—

Total Assets								Total Assets	$	7,063	$	8,761	$	—
Liabilities:								Liabilities:
Derivative Instruments	Derivative Instruments	—		6,214		—		Derivative Instruments	—		7,130		—
Total Assets		$	6,381	$	15,416	$	—
Total Liabilities								Total Liabilities	$	—	$	7,130	$	—

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 based 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.

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.

The following reflects the carrying value and estimated fair value of these assets and liabilities as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


		March 31, 2022				December 31, 2021					March 31, 2023				December 31, 2022
(in thousands)	(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Assets:	Assets:									Assets:
Cash and Cash Equivalents	Cash and Cash Equivalents	$	1,371	$	1,371	$	1,537	$	1,537	Cash and Cash Equivalents	$	104,080	$	104,080	$	118,996	$	118,996
Total	Total	1,371		1,371		1,537		1,537		Total	104,080		104,080		118,996		118,996
Liabilities:	Liabilities:									Liabilities:
Short-Term Debt	Short-Term Debt	97,770		97,770		91,163		91,163		Short-Term Debt	60,854		60,854		8,204		8,204
Long-Term Debt	Long-Term Debt	764,064		781,531		763,997		878,272		Long-Term Debt	823,882		702,129		823,821		681,615
Total	Total	$	861,834	$	879,301	$	855,160	$	969,435	Total	$	884,736	$	762,983	$	832,025	$	689,819

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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, ~~2021.~~2022.

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

~~COVID-19~~PVC PIPE SUPPLY AND DEMAND CONDITIONS

~~We continue to monitor~~Extraordinary supply and demand conditions in the progression of COVID-19 and its impact on our business. 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 employees, customers, vendors and other business partners, and communities in which we live and work.

~~While the impact of COVID-19 did not materially impact our operating results~~PVC industry beginning in 2021 orhave led to a significant expansion in operating margins and elevated earnings in our Plastics segment. Periodic disruptions in the supply of resin, the primary material input used in the manufacturing of PVC pipe, coupled with robust demand for resin, led to a significant increase in the cost of resin. Low industry volumes of PVC pipe and robust end market demand for the product led to a rapid and significant increase in sales prices for PVC pipe, significantly outpacing the increase in resin input costs, leading to widening margins within our Plastics segment.

Demand for PVC pipe began to soften in the second half of 2022 and continued through the first quarter of 2023 as distributors and contractors have reduced purchase volumes and inventory levels in response to changing market conditions. Resin prices have declined and stabilized at near historical levels but sales prices for PVC pipe remain elevated, continuing to produce expanded operating margins.

These unique market dynamics impacting our Plastics segment resulted in a significant increase in earnings in 2022 ~~uncertainty remains regarding the magnitude and duration of the pandemic and the resulting potential future financial effects. Increased infection rates and any future responses~~compared 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~~prior periods. We ~~continue~~currently expect earnings of our Plastics segment to ~~monitor developments involving our workforce, customers, construction contractors, suppliers~~remain elevated in 2023 compared to pre-2021 levels, but as the industry supply and ~~vendors, and~~demand conditions normalize, we expect segment earnings to normalize beginning in 2024.

STEEL PRICING

Volatility in 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~~

~~The cost~~price of steel, ~~and PVC resin, two~~a key material ~~inputs~~input to our Manufacturing ~~and Plastics segments, respectively,~~segment, significantly impacted our operating results in ~~the first quarter of~~ 2022.

Steel prices, ~~increased rapidly throughout 2021~~which were highly volatile in 2022, were elevated at the beginning of 2022 but began to steadily decline at the end of the second quarter and ~~remained elevated in~~returned to near historical levels by the ~~first quarter~~end of ~~2022. The increase in~~the year. Elevated steel prices ~~has~~ led to increased ~~sale~~sales prices in 2022 for our products at BTD Manufacturing, Inc. (BTD), our metal fabrication business within our Manufacturing segment, as we passed along material cost increases to our customers. ~~Consistent with~~Scrap metal prices, which typically follow steel prices, were also elevated from historical levels in the first half of 2022, positively impacting our 2022 financial results. While steel and scrap metal prices ~~also increased throughout 2021 and remained elevated~~began to increase late in the first quarter of 2022. Steel costs remain elevated as mill prices and supply chain costs remain significantly higher than historical levels. While steel costs are expected to moderate through 2022, they are expected to remain historically high through2023, pricing did not reach the ~~year. Scrap metal prices are also expected to moderate throughout the year.~~

PVC resin is the primary material input of the PVC pipe manufactured by our Plastics segment businesses. Resin supply disruptions throughout 2021, along with robust domestic and global demand for PVC resin, led to significantly increased resin prices. Resin supply disruptions also resulted in reduced manufacturing of PVC pipe and low pipe inventories across the industry. The combination of disrupted PVC resin supply and the resulting low PVC pipe inventories along with robust demand for PVC pipe led to rapidly increasing sale prices for PVC pipe throughout 2021, which continued in the first quarter of 2022. The increase in sale prices has outpaced the increase in PVC resin costs, leading to expanding gross profit margins and a significant increase in earnings in our Plastics segment. While PVC resin supplies have improved, the price of PVC resin is now increasing again, driven by rising feedstock prices from energy supply disruptions resulting from the conflict in Ukraine. This has created an environment for U.S. resin producers to raise domestic prices and a strengthening of the export markets for PVC resin. In addition, beginning in the second half of 2021 and continuinglevel present in the first quarter of 2022, ~~supply constraints for additives and other ingredients aside from PVC resin used to manufacture PVC pipe prevented PVC pipe manufacturers from being able to build inventory levels.~~

We currently expect the unique market dynamics we experienced in 2021 and the first quarter of 2022 to continue through the second quarter of 2022, but begin to subside in the second half of 2022 due to anticipated resin price declines and slowing demand, thusthereby impacting our ~~gross profit margins. Should current market conditions continue through the second half of 2022, our Plastics segment financial results could exceed current expectations.~~comparative operating results.

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


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.

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CONSOLIDATED RESULTS

The following table summarizes consolidated operating results for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


(in thousands)	(in thousands)	2022		2021		$ change		% change		(in thousands)	2023		2022		$ change		% change

Operating Revenues	Operating Revenues	$	374,904	$	261,710	$	113,194	43.3	%	Operating Revenues	$	339,081	$	374,904	$	(35,823)	(9.6)	%
Operating Expenses	Operating Expenses	276,605		217,511		59,094		27.2		Operating Expenses	258,411		276,605		(18,194)		(6.6)
Operating Income	Operating Income	98,299		44,199		54,100		122.4		Operating Income	80,670		98,299		(17,629)		(17.9)
Interest Charges		8,948		9,398		(450)		(4.8)
Nonservice Cost Components of Postretirement Benefits		(22)		383		(405)		(105.7)
Other Income		260		1,160		(900)		(77.6)
Interest Expense										Interest Expense	(9,415)		(8,948)		(467)		5.2
Nonservice Components of Postretirement Benefits										Nonservice Components of Postretirement Benefits	2,412		22		2,390		n/m
Other Income (Expense)										Other Income (Expense)	2,118		260		1,858		714.6
Income Before Income Taxes	Income Before Income Taxes	89,633		35,578		54,055		151.9		Income Before Income Taxes	75,785		89,633		(13,848)		(15.4)
Income Tax Expense	Income Tax Expense	17,630		5,249		12,381		235.9		Income Tax Expense	13,304		17,630		(4,326)		(24.5)
Net Income	Net Income	$	72,003	$	30,329	$	41,674	137.4	%	Net Income	$	62,481	$	72,003	$	(9,522)	(13.2)	%

Operating Revenues ~~increased $113.2~~decreased $35.8 million primarily due to ~~rising PVC pipe prices~~decreased sales volumes within our Plastics segment and ~~increased material costs leading to increased~~decreased sales prices in our Manufacturing segment. ~~Increased retail revenues~~These decreases were partially offset by ~~decreased wholesales~~increased sales prices in our Plastics segment, increased sales volumes in our

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Manufacturing segment and increased operating revenues within our Electric ~~segment also contributed to higher operating revenues in the first quarter of 2021 compared to~~segment. PVC pipe sale volumes decreased as customer demand softened from the same period ~~last year.~~a year ago amid changing market conditions. Decreased sales prices in our Manufacturing segment were primarily due to decreased steel prices, which are passed through to customers. In our Electric segment, increased fuel recovery revenues, driven by higher purchased power costs and volumes, and increased commercial and industrial sales volumes, contributed to increased operating revenues. See our segment disclosures below for additional discussion of items impacting operating revenues.

Operating Expenses ~~increased $59.1~~decreased $18.2 million primarily due to ~~increased costs of products sold~~lower sales volumes in our Plastics segment and lower material costs in our Manufacturing ~~segments due to increased raw material costs. Operating~~segment. These decreases were partially offset by an increase in operating expenses in our Electric segment, ~~increased primarily~~ due to higher ~~operating and maintenance expenses and increased~~ purchased power ~~costs.~~costs and volumes. See our segment disclosures below for additional discussion of items impacting operating expenses.

Interest ~~Charges~~Expense ~~decreased~~increased $0.5 million due to ~~a decrease in the~~increased interest ~~rate~~rates on our ~~$140.0 million of fixed-rate long-term debt that was refinanced in December 2021, and a lower level of average~~ short-term ~~borrowings outstanding in 2022 compared to 2021.~~variable rate debt.

Nonservice ~~Cost~~ Components of Postretirement Benefits ~~decreased $0.4~~increased $2.4 million, having a positive impact on net income, primarily due to ~~the amortization of~~a change in actuarial ~~gains resulting from the increase in the discount rates~~assumptions used to measure our pension benefit and postretirement benefit ~~liabilities as of December 31, 2021.~~obligations, including an increase in the discount rate applied and an increase in the expected return on assets assumption.

Other Income ~~decreased $0.9~~increased $1.9 million primarily due to ~~investment losses~~income earned on our short-term cash equivalent investments and gains on our corporate-owned life insurance policies during the first quarter of ~~2022~~2023 compared to investment ~~gains~~losses in the same period of the previous year.

Income Tax Expense ~~increased $12.4~~decreased $4.3 million primarily due to ~~increased~~decreased income before income taxes. Our effective tax rate was 17.6% in the first quarter of 2023 and 19.7% in the first quarter of ~~2022 and 14.8% in the first quarter of 2021.~~2022. The ~~increase~~decrease in our effective tax rate was driven by an increase in ~~our income before income taxes without a corresponding increase in~~production tax credits ~~and other permanent differences that impact~~from our ~~effective tax rate.~~wind generation assets in the current period. 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 ~~2022~~2023 and ~~2021.~~2022.

ELECTRIC SEGMENT RESULTS

The following table summarizes Electric segment operating results for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:

(in thousands) 2022 2021 $ change % change
Retail Revenues $ 113,639 $ 105,706 $ 7,933 7.5 %
Transmission Services Revenues 12,556 11,944 612 5.1
Wholesale Revenues 2,463 4,507 (2,044) (45.4)
Other Electric Revenues 1,758 1,542 216 14.0
Total Operating Revenues 130,416 123,699 6,717 5.4
Production Fuel 14,853 14,714 139 0.9
Purchased Power 20,529 19,260 1,269 6.6
Operating and Maintenance Expenses 44,278 41,421 2,857 6.9
Depreciation and Amortization 18,382 17,308 1,074 6.2
Property Taxes 4,432 4,320 112 2.6
Operating Income $ 27,942 $ 26,676 $ 1,266 4.7 %
2022 2021 change % change
Electric kilowatt-hour (kwh) Sales (in thousands)

Retail kwh Sales 1,515,297 1,348,519 166,778 12.4 %
Wholesale kwh Sales – Company Generation 66,187 80,423 (14,236) (17.7)
Heating Degree Days 3,821 3,078 743 24.1

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(in thousands)	2023		2022		$ change		% change

Retail Revenues	$	136,453	$	113,639	$	22,814	20.1	%
Transmission Services Revenues	12,107		12,556		(449)		(3.6)
Wholesale Revenues	1,838		2,463		(625)		(25.4)
Other Electric Revenues	1,511		1,758		(247)		(14.1)
Total Operating Revenues	151,909		130,416		21,493		16.5
Production Fuel	11,492		14,853		(3,361)		(22.6)
Purchased Power	41,825		20,529		21,296		103.7
Operating and Maintenance Expenses	45,549		44,278		1,271		2.9
Depreciation and Amortization	18,326		18,382		(56)		(0.3)
Property Taxes	4,621		4,432		189		4.3
Operating Income	$	30,096	$	27,942	$	2,154	7.7	%

	2023		2022		change		% change

Electric kilowatt-hour (kwh) Sales (in thousands)
Retail kwh Sales	1,635,246		1,515,297		119,949		7.9	%
Wholesale kwh Sales – Company Generation	61,854		66,187		(4,333)		(6.5)
Heating Degree Days	3,732		3,821		(89)		(2.3)

The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for ~~heating and cooling.~~heating. The following table shows heating degree days as a percent of normal for the three months ended March 31, ~~2022~~2023 and ~~2021.~~2022.

2022 2021
Heating Degree Days 111.8 % 89.5 %


	2023		2022

Heating Degree Days	108.2	%	111.8	%

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 ~~2022~~2023 and ~~2021,~~2022, and between years.

2022 vs
Normal
2022 vs
2021
2021 vs
Normal
Effect on Diluted Earnings Per Share $ 0.04 $ 0.08 $ (0.04)


	2023 vs Normal		2023 vs 2022		2022 vs Normal

Effect on Diluted Earnings Per Share	$	0.03	$	(0.01)	$	0.04

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Retail Revenues increased ~~$7.9~~$22.8 million primarily due to the following:

•A ~~$4.4 million increase in revenues from the favorable impact of weather in the first quarter of 2022 compared to the same period last year.~~

•~~A $3.6~~$16.5 million increase in fuel recovery revenues ~~primarily~~ due to increased ~~production fuel and purchase~~purchased power costs and ~~a decrease in credits provided~~volumes, partially offset by lower production fuel costs due to ~~retail customers from decreased margins recognized on wholesale sales.~~lower volumes, as described below.

•A ~~$2.3~~$5.4 million increase in retail revenues from increased sales volumes from commercial and industrial ~~customers.~~customers, including the impact of a new commercial customer load in North Dakota that came online during the first quarter of 2022.

•A ~~$2.4~~$1.4 million ~~decrease~~increase in ~~interim rate~~renewable resource rider revenue, ~~in Minnesota as a result~~including recovery of costs related to our ~~April 2021 filing with~~Hoot Lake Solar project and the ~~MPUC in which we lowered our requested net annual revenue increase, primarily due to a reduction in operating costs from amounts included in our original filing.~~acquisition of the Ashtabula III wind farm.

~~Wholesale Revenues~~ ~~decreased $2.0 million as a result of a 18% decrease in wholesale sales volumes and a 34% decrease in wholesale prices. Wholesale energy sales~~Retail revenues in the first quarter of ~~2021~~2023 were ~~comparatively higher due to high prices driven~~negatively impacted $0.6 million by ~~high market demand and availability constraints caused by winter storm activity, which drove up spot market prices for electricity.~~unfavorable weather.

Production Fuel costs~~increased $0.1~~ decreased $3.4 million primarily as a result of ~~increased fuel cost per kwh, which was largely offset by a 15% decrease in kwhs generated from our fuel-burning plants due to the retirement of our coal-burning Hoot Lake~~an outage at Big Stone Plant in ~~May 2021.~~the first quarter of 2023, which resulted in lower volumes of coal consumption.

Purchased Power costs to serve retail customers increased ~~$1.3~~$21.3 million due to a 42% increase in the price of purchased power per kwh, primarily due to increased market energy costs, and a ~~59%~~43% increase in the volume of purchased power ~~resulting from~~due to the ~~retirement of Hoot Lake~~outage at Big Stone Plant and increased ~~demand due to cold weather, partially offset by a decrease in the price of purchased power.~~customer demand.

Operating and Maintenance ~~Expense~~Expenses increased $2.9 million due to increased operating and maintenance costs as a result of Merricourt and Astoria Station because the facilities were fully operational in the first quarter of 2022 and were ramping up in the previous year because they had recently been placed into service; increased incentive compensation costs related to current year financial and operational performance; increased travel costs resulting from eased COVID restrictions; and increased insurance costs. These increased costs were partially offset by a decrease in CIP expenses as CIP spending decreased compared to the previous year.

~~Depreciation and Amortization~~ ~~expense increased $1.1~~$1.3 million primarily due to ~~Astoria Station being placed~~an increase in ~~service in February of 2021.~~maintenance activities, including the outage at Big Stone Plant and incremental costs associated with the Ashtabula III wind farm facility.

MANUFACTURING SEGMENT RESULTS

The following table summarizes Manufacturing segment operating results for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


(in thousands)	(in thousands)	2022		2021		$ change		% change		(in thousands)	2023		2022		$ change		% change

Operating Revenues	Operating Revenues	$	104,957	$	75,825	$	29,132	38.4	%	Operating Revenues	$	106,782	$	104,957	$	1,825	1.7	%
Cost of Products Sold (excluding depreciation)	Cost of Products Sold (excluding depreciation)	86,161		56,311		29,850		53.0		Cost of Products Sold (excluding depreciation)	82,227		86,161		(3,934)		(4.6)
Other Operating Expenses	Other Operating Expenses	8,847		8,212		635		7.7		Other Operating Expenses	10,578		8,847		1,731		19.6
Depreciation and Amortization	Depreciation and Amortization	4,014		3,757		257		6.8		Depreciation and Amortization	4,468		4,014		454		11.3
Operating Income	Operating Income	$	5,935	$	7,545	$	(1,610)	(21.3)	%	Operating Income	$	9,509	$	5,935	$	3,574	60.2	%

Operating Revenuesincreased ~~$29.1~~$1.8 million ~~primarily~~ due to increased sales volumes at BTD Manufacturing, our contract metal fabricator, as strong customer and end market demand in the Energy, Agriculture, Power Generation, and Construction markets contributed to a ~~$29.3 million~~19% increase in sales volumes. Sales price increases also contributed to the growth in operating revenues. These were implemented in response to labor and non-steel material cost inflation. Increased sales volumes and price increases were largely offset by a 21% decrease in material costs, ~~at BTD,~~ which are passed through to customers, as steel prices have declined from the same time a ~~result of higher steel prices. Steel prices increased rapidly throughout 2021 and remained elevated~~year ago. Scrap revenues were lower in the first quarter ~~of 2022, which resulted in increased revenues as we sell through high-priced inventory.~~due to lower scrap metal prices. Operating revenues also increased slightly due to price increases related to inflationary costs being experienced across the business. The increase in operating revenues was partially offset by a 5% decrease in sales volumes. End market demand has remained strong, however, supply chain disruptions experienced by our OEM customers have led to unpredictable shipments of products as customers have delayed or adjusted their shipment timing in response to other supply chain challenges they are experiencing, which has negatively impacted our sales volumes. Increases in sales prices and volumes at T.O. Plastics, our plastics thermoforming manufacturer, also increased compared to last year, primarily due to ~~strong customer demand in the horticulture sector, also contributed to the segment increase in operating revenues.~~sales price increases.

Cost of Products Sold ~~increased $29.9~~decreased $3.9 million primarily due to ~~higher~~decreased material costs, as described above, largely offset by increased sales volumes, as well as increased labor and freight costs at BTD. The increase in material cost was 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 2021. Aligning labor with unpredictable demand led to lowerother production ~~efficiency which had a~~costs.

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negative impact on gross profit margins. Increases in sales volumes at T.O. Plastics also impacted costs of products sold, and gross profit margins were negatively impacted by product mix and increased maintenance and freight costs.

Other Operating Expenses increased ~~$0.6~~$1.7 million due to ~~increases in various cost categories including salaries~~variable costs associated with increased business activity and ~~wages, due to increases in headcount compared to~~financial performance during the ~~previous year, and software and service provider costs, partially offset by lower incentive compensation.~~period.

PLASTICS SEGMENT RESULTS

The following table summarizes Plastics segment operating results for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


(in thousands)	(in thousands)	2022		2021		$ change		% change		(in thousands)	2023		2022		$ change		% change

Operating Revenues	Operating Revenues	$	139,531	$	62,186	$	77,345	124.4	%	Operating Revenues	$	80,390	$	139,531	$	(59,141)	(42.4)	%
Cost of Products Sold (excluding depreciation)	Cost of Products Sold (excluding depreciation)	65,598		45,666		19,932		43.6		Cost of Products Sold (excluding depreciation)	30,142		65,598		(35,456)		(54.1)
Other Operating Expenses	Other Operating Expenses	3,964		2,944		1,020		34.6		Other Operating Expenses	3,529		3,964		(435)		(11.0)
Depreciation and Amortization	Depreciation and Amortization	1,107		990		117		11.8		Depreciation and Amortization	1,036		1,107		(71)		(6.4)
Operating Income	Operating Income	$	68,862	$	12,586	$	56,276	447.1	%	Operating Income	$	45,683	$	68,862	$	(23,179)	(33.7)	%

Operating Revenues ~~increased $77.3~~decreased $59.1 million ~~primarily~~ due to a ~~125%~~46% decrease in sales volumes, partially offset by a 7% increase in the price per pound of PVC pipe ~~sold. The increase in sale prices was primarily due~~sold compared to ~~continued strong demand for PVC pipe products and limited PVC pipe inventories. The unique supply and demand~~the same period last year. Sales volume decreases were attributable to distributor customer inventory management as distributors continue to closely manage their inventory levels amid changing market conditions, overall economic uncertainty, including uncertainty in the housing market, and the impact of unfavorable weather conditions during the first quarter of ~~2022 were a continuation of~~2023. Sales prices declined from the ~~market dynamics experienced throughout 2021. In the first~~fourth quarter of 2022 ~~we, along with other PVC pipe manufacturers, experienced supply constraints of additives and other ingredients used~~but remained elevated compared to ~~make PVC pipe, which prevented us and others from being able to build inventory~~pre-2021 levels. PVC resin supply disruptions improved during the quarter. Expected declines in the price of PVC resin did not materialize and resin prices continued to increase in March due to increasing feedstock prices and stronger than expected export markets. Sales volumes in the first quarter of 2022 were consistent with sales volumes in the first quarter of 2021.

Cost of Products Sold ~~increased $19.9~~decreased $35.5 million primarily due to ~~increased~~decreased sales volumes, as described above. PVC resin and other input material costs ~~which increased 52% due~~decreased 20% compared to the ~~market conditions described above. Labor, freight and various non-resin material costs also increased from~~same period in the previous ~~year.~~

~~Other Operating Expenses~~ ~~increased $1.0 million due to~~year as the unique supply and demand conditions which caused significant increases in ~~various cost categories including compensation~~resin costs have subsided and ~~sales commissions.~~resin costs have stabilized.

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CORPORATE COSTS

The following table summarizes Corporate operating results for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:

(in thousands) 2022 2021 $ change % change
Other Operating Expenses $ 4,395 $ 2,537 $ 1,858 73.2 %
Depreciation and Amortization 45 71 (26) (36.6)
Operating Loss $ 4,440 $ 2,608 $ 1,832 70.2 %

~~Other Operating Expenses~~ increased $1.9 million primarily due to increased compensation expenses, including stock and incentive compensation, in the first quarter of 2022 which were higher than the amount recognized in the same period in the previous year due to our current year financial performance.


(in thousands)	2023		2022		$ change		% change

Other Operating Expenses	$	4,592	$	4,395	$	197	4.5	%
Depreciation and Amortization	26		45		(19)		(42.2)
Operating Loss	$	4,618	$	4,440	$	178	4.0	%


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 a request with the MPUC for an increase in revenue recoverable through base rates in Minnesota. In its filing, OTP requested a net increase in annual revenue of approximately $14.5 million, or 6.77%, based 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 had 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 an alternative recovery proposal was submitted by OTP which, among other changes, requested the extension of depreciable lives of certain wind-related assets and proposed deferral of certain cost recovery decisions to the final rate determination. In the aggregate, this alternative recovery proposal reduced operating costs and delayed recovery of certain other costs by approximately $7.0 million to lessen the interim rate impact on customers.

In a filing submitted to the MPUC on April 30, 2021, OTP lowered its initially requested net annual revenue increase from $14.5 million to $8.2 million, primarily due to a reduction in operating costs from amounts included in its November 2020 filing. Among other items, the cost reductions included 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.

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On February 1, 2022, the MPUC issued its written order. The key provisions of the order include 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 authorizes recovery of our remaining Hoot Lake Plant net asset over a five-year period, and approves the requested decoupling mechanism for most residential and commercial customer rate groups with a cap of 4% of annual base revenues.

On March 8, 2022, OTP filed its final rate case compliance filing, which included final revenue calculations, rate design and resulting tariff revisions, along with a proposal for interim rate refunds. The final calculations included a revision to the calculation of interim rates. If approved by the MPUC, this revision could increase interim revenues in the period the filing is approved by an amount of approximately $4.0 million. We expect the MPUC will issue its order and implement final rates in mid-2022.

RATE RIDERS

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

Recovery

Filing

Amount

Effective

Mechanism

Jurisdiction

Status

Date

(in millions)

Date

~~Notes~~Description

~~CIP~~RRR - 2022

Requested

~~04/~~11/01/22

17.5

07/01/23

Recovery of Hoot Lake Solar costs, Ashtabula III costs, and true up for PTCs from Merricourt.

CIP - 2022

Approved

04/01/22

10.8

10/01/22

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

CIP - ~~2021~~2023

~~Approved~~Requested

04/~~01/21~~03/23

~~9.4~~9.7

~~12/~~10/01/2123

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

TCR - 2021

~~Requested~~Approved

11/23/21

7.2

~~07/~~08/01/22

~~Includes recovery~~Recovery of ~~two new~~ transmission ~~projects.~~project costs.

RRR - 2021

~~Requested~~Approved

12/06/21

7.0

~~07/~~08/01/22

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

EITE - 2023

Requested

04/14/23

2.2

01/01/24

Biennial update to Energy-Intensive, Trade-Exposed rider.

TCR - 2023

Requested

04/07/23

1.7

01/01/24

Recovery of transmission project costs.

EUIC - 2023

Requested

03/20/23

1.3

07/01/23

Recovery of advanced metering infrastructure, outage management and demand response system projects.

RRR - ~~2021~~2023

Approved

~~03/07/21~~04/27/23

~~11.8~~12.2

~~04/~~05/01/2123

~~Includes recovery~~Recovery of ~~Merricourt investment~~Ashtabula III and ~~operating~~other costs.

RRR - 2022

Approved

01/05/22

7.8

04/01/22

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

TCR - 2022

Approved

09/15/22

7.5

01/01/23

Recovery of transmission project costs.

TCR - 2021

Approved

09/15/21

6.1

01/01/22

~~Includes recovery~~Recovery of ~~three new~~ transmission ~~projects/programs.~~

~~TCR - 2020~~

~~Approved~~

~~11/18/20~~

~~5.6~~

~~01/01/21~~

~~Includes recovery of eight new transmission projects.~~

~~GCR - 2021~~

~~Approved~~

~~03/01/21~~

~~5.2~~

~~07/01/21~~

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

GCR - 2022

~~Requested~~Approved

03/01/22

3.3

07/01/22

Annual update to generation cost recovery rider.

~~TCR~~AMDT - ~~2020~~2022

Approved

07/08/22

3.1

01/01/23

Recovery of advanced metering infrastructure, outage management system and demand response projects.

GCR - 2023

Requested

03/03/23

2.2

07/01/23

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

PIR - 2022

Approved

06/01/~~29/20~~22

~~2.3~~3.0

~~03/02/20~~09/01/22

~~Annual update to~~Recovery of Ashtabula III, Merricourt, Astoria Station, Advanced Grid Infrastructure project costs, and impact of load growth credits.

TCR - 2022

Approved

11/01/22

3.0

03/01/23

Recovery of transmission ~~cost recovery rider.~~project costs.

TCR - 2021

Approved

10/29/21

2.2

03/01/22

~~Annual update to~~Recovery of transmission ~~cost recovery rider.~~

~~TCR - 2021~~

~~Approved~~

~~02/19/21~~

~~2.2~~

~~03/01/21~~

~~Includes recovery of two new transmission projects.~~project costs.

Table of Contents

Renewable Resource Rider (RRR) and Energy Adjustment Rider (EAR): In December 2022, OTP filed an update to its North Dakota RRR. The update included, among other items, a request to modify load allocation factors in North Dakota given the large new load added in the state in 2022. In January 2023, OTP filed an update to its North Dakota EAR proposing to refund MISO planning resource auction revenues to North Dakota customers if the North Dakota Public Service Commission (NDPSC) approves the load allocation factor modification as filed in the RRR docket. In April 2023, the NDPSC denied the request to modify load allocation factors and approved the modification to the EAR allowing for planning resource auction revenues to be refunded to customers. OTP will begin incorporating the planning resource auction revenue refunds in May of 2023.

MISO PLANNING RESOURCE 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 ending in May, 2023. The Minnesota and North Dakota allocated portion of net capacity auction revenues will be returned to customers through the FCA mechanism and EAR, respectively. The Minnesota and North Dakota commission have also each ruled that in future periods any capacity auction revenues or costs are to be passed on to customers.

INTEGRATED RESOURCE PLAN

On ~~September 1, 2021,~~March 31, 2023, OTP ~~filed its~~submitted a supplemental resource plan filing to the MPUC, the NDPSC, and the South Dakota Public Utilities Commission. The supplemental filing updates OTP’s original 2022 Integrated Resource Plan ~~(IRP) concurrently with regulators in~~(2022 IRP), which was filed on September 1, 2021. In the ~~three states where~~supplemental filing, OTP ~~operates, Minnesota, North Dakota and South Dakota. The 2022 IRP includes OTP’s preferred~~outlined its updated plan for meeting customers’ anticipated capacity and energy needs while maintaining system reliability and low electric service ~~rates.~~rates, in light of several changes that have occurred since the original filing, including significant winter and spring reserve planning margins adopted by MISO, tax credits made available for renewable energy projects under the Inflation Reduction Act, the enactment of the Clean Energy Bill in Minnesota, and recent volatility in energy and capacity markets.

The ~~components of~~major requests in OTP's ~~preferred plan~~supplemental filing include:

–•the addition of ~~dual~~on-site liquefied natural gas fuel ~~capability~~storage at our Astoria Station natural gas ~~plant;~~plant in 2026;

–•the addition of ~~150~~approximately 200 megawatts of solar generation in ~~2025;~~2027-2028;

–•undertaking the ~~addition of 100~~initial steps necessary to add approximately 200 megawatts of wind generation in ~~2027;~~2029; and

–•~~the commencement of the process of withdrawing~~a withdrawal from our 35 percent ownership interest in Coyote Station, a ~~jointly owned,~~jointly-owned coal-fired generation plant, ~~by December 31, 2028; and~~in the event we are required to make a major, non-routine capital investment in the plant.

–Consistent with the ~~addition of 50 megawatts of solar generation in 2033.~~

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

~~Subject~~the supplemental filing proposes to, subject to regulatory approval, ~~the preferred plan proposes to~~ create a regulatory asset ~~as a vehicle~~ to recover costs related to aany future withdrawal from Coyote ~~Station, including~~Station. Should such a withdrawal occur, we anticipate the regulatory asset would include the net book value of the plant on the withdrawal date, anticipated decommissioning costs, and any ~~required~~ costs incurred ~~as a result of an early termination of~~if the existing lignite sales agreement, under which Coyote Station acquires all of its lignite coal, ~~from a nearby mine.~~must be terminated. As part of an economic analysis included in the filing, OTP developed an estimate of the reasonably foreseeable costs of withdrawing from Coyote Station, which was determined to be $68.5 million, assuming a withdrawal at the end of ~~2028 of $68.5 million.~~2028. These costs may differ from actual results due to the uncertainty and timing of future events ~~associated with the terms and conditions of~~which could result in a ~~withdrawal.~~

~~Table of Contents~~

We currently anticipate the MPUC, barring any delays in the procedural schedule, will hold deliberations and render a decision on the IRP by the end of 2022. There currently is no procedural schedule established for this IRP by the North Dakota Public Service Commission.withdrawal from Coyote Station.


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, fund our short-term and long-term capital expenditure plans and satisfy our obligations as they become due. Our liquidity, including our operating cash flows and access to capital markets, ~~can~~could be impacted by macroeconomic factors outside of our ~~control.~~control, including higher interest rates and debt capital costs and diminished credit availability. In addition, our liquidity could be impacted by non-compliance with certain financial covenants under our various debt instruments. As of March 31, ~~2022,~~2023, we were in compliance with all financial covenants (see the Financial Covenants section under Capital Resources below).

The following table presents the status of our lines of credit as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


				2022						2021					2023						2022
(in thousands)	(in thousands)	Line Limit		Amount Outstanding		Letters of Credit		Amount Available		Amount Available		(in thousands)	Borrowing Limit		Amount Outstanding		Letters of Credit		Amount Available		Amount Available

OTC Credit Agreement	OTC Credit Agreement	$	170,000	$	43,281	$	—	$	126,719	$	147,363	OTC Credit Agreement	$	170,000	$	—	$	—	$	170,000	$	170,000
OTP Credit Agreement	OTP Credit Agreement	170,000		54,489		7,844		107,667		88,315		OTP Credit Agreement	170,000		60,854		9,573		99,573		152,223
Total	Total	$	340,000	$	97,770	$	7,844	$	234,386	$	235,678	Total	$	340,000	$	60,854	$	9,573	$	269,573	$	322,223

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.

Table of Contents

CASH FLOWS

The following is a discussion of our cash flows for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022

Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	$	45,416	$	15,270	Net Cash Provided by Operating Activities	$	55,553	$	45,416

Net Cash Provided by Operating Activities increased ~~$30.1~~$10.1 million for the three months ended March 31, ~~2022~~2023 compared to the three months ended March 31, ~~2021. The increase~~2022, primarily due to the absence of a pension plan contribution in ~~cash provided by operating activities~~2023 due to the plan's funded status, whereas a $20.0 million discretionary contribution was ~~primarily the result of increased earnings during the year, which was partially offset by increased working capital needs. Our~~made in February 2022, as well as 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 2022, partially offset by increased accounts payable due to increased material costs in our Manufacturing and Plastics segments in 2022. Operating cash flows were also reduced by a discretionary contribution to our pension plan of $20.0 million during the three months ended March 31, 2022,needs compared to ~~a contribution of $10.0 million~~the same period in ~~2021.~~the previous year.
(in thousands) 2022 2021
Net Cash Used in Investing Activities $ 31,449 $ 49,020


(in thousands)	2023		2022

Net Cash Used in Investing Activities	$	100,379	$	31,449

Net Cash Used in Investing Activities ~~decreased $17.6~~increased $68.9 million for the three months ended March 31, ~~2022~~2023 compared to the three months ended March 31, ~~2021.~~2022. The ~~decrease~~increase in ~~capital expenditures~~cash used in investing activities was primarily ~~related~~due to ~~costs incurred~~a higher amount of Electric segment capital investment compared to last year, including the purchase of the Ashtabula III wind farm in ~~2021 by OTP to complete our Astoria Station project, and other one-time projects. Capital investment spending in our Manufacturing and Plastics segments also decreased from the previous year.~~January 2023 for $50.6 million.


(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022

Net Cash (Used in) Provided by Financing Activities		$	(14,133)	$	33,799
Net Cash Provided by (Used in) Financing Activities						Net Cash Provided by (Used in) Financing Activities	$	29,910	$	(14,133)

Net Cash Provided by (Used in) ~~Provided by~~ Financing Activities ~~decreased $47.9~~increased $44.0 million for the three months ended March 31, ~~2022~~2023 compared to the three months ended March 31, ~~2021,~~2022. Financing activities for the three months ended March 31, 2023 included net proceeds from short-term borrowings of $52.7 million which were primarily ~~as a result~~used to fund the acquisition of ~~a decrease in financing needs given the lower level~~Ashtabula III, and dividend payments of ~~capital spending in our Electric segment and the increase in cash provided by operating activities.~~$18.3 million. Financing activities for the three months ended March 31, 2022 included net proceeds from short-term borrowings of $6.6 million and dividend payments of $17.2 million. Financing activities for the three months ended March 31, 2021 included net proceeds from short-term borrowings of $53.9 million, primarily incurred to fund major construction projects, and dividend payments of $16.2 million.


CAPITAL REQUIREMENTS

~~Table of Contents~~

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 ~~in our electric segment~~ are investments in electric generation facilities ~~including wind~~ and ~~solar investments,~~ environmental upgrades, transmission ~~lines~~ and distribution ~~systems,~~lines, manufacturing facilities and upgrades, equipment used in the manufacturing process, and computer hardware and information systems. Our ~~electric segment~~ capital expenditure program is subject to review and regulatory approval and is revised in light of changes in demands for energy, technology, environmental laws, tax laws, regulatory changes, business expansion opportunities, the costs of labor, materials and equipment, and our financial condition. ~~Our future~~

We have increased our Electric segment five-year capital expenditure ~~plans also include~~plan by approximately $45 million to incorporate the proposed capital investments through 2027 that are included in ~~manufacturing facilities and facility upgrades, manufacturing equipment additions and upgrades and additional technology assets to be used in our manufacturing operations. Refer to Item 7,~~ OTP's supplemental IRP filed on March 31, 2023.

~~Management's Discussion and Analysis~~The following provides a summary of ~~Financial Condition and Results of Operations, of our~~ ~~Form 10-K~~actual capital expenditures for the year ended December 31, ~~2021 for our~~2022, anticipated annual capital ~~expenditure plan~~expenditures for the ~~five~~current year ~~period from 2022 through 2026.~~ending December 31, 2023, and the subsequent four years, along with electric utility average rate base and annual rate base growth:


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

Electric Segment:
Renewables and Natural Gas Generation				$	88		$	119		$	88		$	85		$	49		$	429
Technology and Infrastructure				33			30			6			5			1			75
Distribution Plant Replacements				33			37			38			38			43			189
Transmission (includes replacements)				34			36			46			87			78			281
Other				26			25			30			24			23			128
Total Electric Segment	$	148		$	214		$	247		$	208		$	239		$	194		$	1,102
Manufacturing and Plastics Segments	23			48			53			29			25			24			179
Total Capital Expenditures	$	171		$	262		$	300		$	237		$	264		$	218		$	1,281

Total Electric Utility Average Rate Base	$	1,624		$	1,748		$	1,851		$	1,990		$	2,111		$	2,230
Annual Rate Base Growth	3.1		%	7.6		%	5.9		%	7.5		%	6.1		%	5.6		%

(1) Includes actual results for the three months ended March 31, 2023, and anticipated capital expenditures for the remaining nine months of 2023.

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CONTRACTUAL OBLIGATIONS

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

Our contractual obligations as of December 31, ~~2021~~2022 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, ~~2021. There~~2022. Except for the obligations arising from new land easements assumed in connection with the purchase of Ashtabula III, there were no material changes in our contractual obligations outside of the ordinary course of our business during the three months ended March 31, ~~2022.~~2023.

~~Off-Balance Sheet Arrangements~~

AsIn connection with the purchase of ~~March 31, 2022,~~the Ashtabula III wind farm in January 2023, we ~~have outstanding letters~~assumed 51 land easements not classified as leases, which require annual payments. The remaining payments to be made under the easements total $4.2 million and the remaining terms of credit totaling $11.0 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.agreements extend into 2034.

COMMON STOCK DIVIDENDS

We paid dividends to our common stockholders totaling ~~$17.2~~$18.3 million, or ~~$0.4125~~$0.4375 per share, in the first three months of ~~2022.~~2023. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, ~~improvement in~~our actual or expected level of earnings ~~per share,~~and cash flows from operations, the level of our capital expenditures and our future business prospects. As a result of certain statutory limitations or regulatory or financing agreements, ~~restrictions could occur on~~ the amount of ~~distributions~~dividends we are allowed to pay could be ~~made by our subsidiaries.~~restricted. See Note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. The decision to declare ~~a dividend~~dividends is reviewed quarterly by our Board of Directors.


CAPITAL RESOURCES

Financial flexibility is provided by operating cash flows, unused lines of credit and access to capital markets ~~which~~and is aided by strong financial coverages and investment grade credit ratings. Debt financing will be required in the five-year period from ~~2022~~2023 through ~~2026~~2028 to refinance maturing debt and to finance our capital investments. Our financing plans are subject to change and are impacted by our planned level of capital investments, and decisions to reduce borrowings under our lines of credit, to refund or retire early any of our ~~presently~~ outstanding debt, to complete acquisitions, or to use capital for other corporate purposes.

REGISTRATION STATEMENTS

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 methods of purchasing our common shares by reinvesting their dividends or making optional cash investments. Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. As of March 31, ~~2022,~~2023, there ~~was 1,348,716~~were 1,220,100 shares available for purchase or issuance under the plan. The registration statement expires in May 2024.

SHORT-TERM DEBT

OTC and OTP are each party to a credit agreement (the OTC Credit Agreement and the OTP Credit Agreement, respectively) which each provide for unsecured revolving lines of credit. The following is a summary of key provisions and borrowing information as of, and for the three months ended, March 31, ~~2022:~~2023:

~~Table of Contents~~


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

Borrowing Limit	Borrowing Limit	$	170,000		$	170,000		Borrowing Limit	$	170,000		$	170,000
Borrowing Limit if Accordion Exercised1	Borrowing Limit if Accordion Exercised1	290,000			250,000			Borrowing Limit if Accordion Exercised1	290,000			250,000
Amount Restricted Due to Outstanding Letters of Credit as of March 31, 2022		—			7,844
Amount Outstanding as of March 31, 2022		43,281			54,489
Average Amount Outstanding During the Three Months Ended March 31, 2022		35,493			66,098
Maximum Amount Outstanding During the Three Months Ended March 31, 2022		58,715			74,519
Interest Rate as of March 31, 2022		1.92		%	1.64		%
Amount Restricted Due to Outstanding Letters of Credit as of March 31, 2023								Amount Restricted Due to Outstanding Letters of Credit as of March 31, 2023	—			9,573
Amount Outstanding as of March 31, 2023								Amount Outstanding as of March 31, 2023	—			60,854
Average Amount Outstanding During the Three Months Ended March 31, 2023								Average Amount Outstanding During the Three Months Ended March 31, 2023	—			51,226
Maximum Amount Outstanding During the Three Months Ended March 31, 2023								Maximum Amount Outstanding During the Three Months Ended March 31, 2023	—			61,006
Interest Rate as of March 31, 2023								Interest Rate as of March 31, 2023	6.30		%	6.01		%
Maturity Date	Maturity Date	September 30, 2026			September 30, 2026			Maturity Date	October 29, 2027			October 29, 2027

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.

LONG-TERM DEBT

AtAs of March 31, ~~2022,~~2023, 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 ~~2022~~2026 to 2051. Pursuant to a Note Purchase Agreement executed in June 2021, OTP intends to issue its Series 2022A notes due May 20, 2052, in May 2022 for aggregate proceeds of $90.0 million, subject to the satisfaction of certain customary conditions to closing, and use a portion of the proceeds to repay the $30.0 million Series 2007B Notes which are maturing in August 2022.

2052. 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.

Table of Contents

Financial Covenants

Certain of our short- and long-term debt agreements require OTC and OTP to maintain certain financial covenants. As of March 31, ~~2022,~~2023, we were in compliance with these financial covenants as further described below:

OTC, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00, and may not permit its priority indebtedness to exceed ~~10%~~10 percent of ~~our~~its total capitalization. As of March 31, ~~2022, our~~2023, OTC's interest-bearing debt to total capitalization was ~~0.45~~0.412 to 1.00, ~~our~~OTC's interest and dividend coverage ratio was ~~8.35~~10.62 to 1.00, and weOTC had no priority indebtedness outstanding.

OTP, 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 ~~debt~~indebtedness to exceed ~~20%~~20 percent of its total capitalization. As of March 31, ~~2022,~~2023, OTP's interest-bearing debt to total capitalization was ~~0.47~~0.467 to 1.00, ~~its~~OTP's interest and dividend coverage ratio was ~~3.33~~3.73 to 1.00, and OTP had no priority indebtedness outstanding.


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~~disclosures of contingent assets and liabilities in the preparation of our consolidated financial statements. We have disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 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.~~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, ~~2021.~~2022.


ITEM 4.			CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of March 31, ~~2022,~~2023, 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 March 31, ~~2022.~~2023.

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 March 31, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Table of Contents~~

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, ~~2021.~~2022.

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ITEM 6.

EXHIBITS

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



No.									Description
31.1									—Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2									—Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1									—Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2									—Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.SCH									—Inline XBRL Taxonomy Extension Schema Document
101.CAL									—Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB									—Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE									—Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF									—Inline XBRL Taxonomy Extension Definition Linkbase Document
104									—Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			OTTER TAIL CORPORATION

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

						Dated: May ~~4, 2022~~3, 2023


	Description	Page

	Definitions	2
	Forward Looking Information	2
PART I
ITEM 1.	Financial Statements:
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Condensed Notes to Consolidated Financial Statements	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26
ITEM 4.	Controls and Procedures	26
PART II
ITEM 1.	Legal Proceedings	2726
ITEM 1A.	Risk Factors	2726

ITEM 6.	Exhibits	27
Signatures		28


					(in thousands)
Entity		Debt Instrument	Rate	Maturity	March 31, 2022		December 31, 2021

OTC		Guaranteed Senior Notes	3.55%	12/15/26	$	80,000	$	80,000
OTP		Series 2007B Senior Unsecured Notes	6.15%	08/20/22	30,000		30,000
OTP		Series 2007C Senior Unsecured Notes	6.37%	08/02/27	42,000		42,000
OTP		Series 2013A Senior Unsecured Notes	4.68%	02/27/29	60,000		60,000
OTP		Series 2019A Senior Unsecured Notes	3.07%	10/10/29	10,000		10,000
OTP		Series 2020A Senior Unsecured Notes	3.22%	02/25/30	10,000		10,000
OTP		Series 2020B Senior Unsecured Notes	3.22%	08/20/30	40,000		40,000
OTP		Series 2021A Senior Unsecured Notes	2.74%	11/29/31	40,000		40,000
OTP		Series 2007D Senior Unsecured Notes	6.47%	08/20/37	50,000		50,000
OTP		Series 2019B Senior Unsecured Notes	3.52%	10/10/39	26,000		26,000
OTP		Series 2020C Senior Unsecured Notes	3.62%	02/25/40	10,000		10,000
OTP		Series 2013B Senior Unsecured Notes	5.47%	02/27/44	90,000		90,000
OTP		Series 2018A Senior Unsecured Notes	4.07%	02/07/48	100,000		100,000
OTP		Series 2019C Senior Unsecured Notes	3.82%	10/10/49	64,000		64,000
OTP		Series 2020D Senior Unsecured Notes	3.92%	02/25/50	15,000		15,000
OTP		Series 2021B Senior Unsecured Notes	3.69%	11/29/51	100,000		100,000
Total					$	767,000	$	767,000
Less:	Current Maturities, Net of Unamortized Debt Issuance Costs				29,990		29,983
	Unamortized Long-Term Debt Issuance Costs				2,936		3,003
Total Long-Term Debt, Net of Unamortized Debt Issuance Costs					$	734,074	$	734,014


(in thousands)	Pension and Other Postretirement Benefits			Net Unrealized Gain (Losses) on Available-for-Sale Securities			Total
Balance, December 31, 2021	$	(6,537)		$	13		$	(6,524)
Other Comprehensive Loss Before Reclassifications, net of tax	—			(231)			(231)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	(190)		(1)	—		(2)	(190)
Total Other Comprehensive Income (Loss)	(190)			(231)			(421)
Balance, March 31, 2022	$	(6,727)		$	(218)		$	(6,945)

Balance, December 31, 2020	$	(8,716)		$	209		$	(8,507)
Other Comprehensive Loss Before Reclassifications, net of tax	—			(32)			(32)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)	150		(1)	(3)		(2)	147
Total Other Comprehensive Income (Loss)	150			(35)			115
Balance, March 31, 2021	$	(8,566)		$	174		$	(8,392)
(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.


	2022 vs Normal		2022 vs 2021		2021 vs Normal

Effect on Diluted Earnings Per Share	$	0.04	$	0.08	$	(0.04)