What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-15 compared with 2022-02-16 · 181 added, 173 removed, 1097 unchanged (24% of the section changed)

6 unchanged sentences

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

4 unchanged sentences

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

11 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Rate and Regulatory Matters—Impact of Rate Regulation on the Financial Statements—Refer to Notes 1 and 5 to the financial statements.

5 unchanged sentences

The Company assesses the probability of recovery of regulatory assets and the obligations arising from regulatory liabilities on a quarterly basis.

Probability estimates incorporate numerous factors, including recent rate making decisions, historical precedents for similar matters, the regulatory environments in which the Company operates, and the impact these incurred costs may have on customers.

Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment, regulatory assets and liabilities, operating revenues and expenses, depreciation expense, income taxes and multiple disclosures in the notes to the financial statements.

10 unchanged sentences

• We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.

• We read relevant regulatory orders issued by the Commissions for the Company, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances.

• We read relevant regulatory orders issued by the Commissions for the Company, regulatory statutes, interpretations, procedural memorandums, filings made by intervenors, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances.

We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.

5 unchanged sentences

• We obtained an analysis from management and letters from internal and external legal counsel, as appropriate, regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.

Goodwill—Manufacturing Reporting Unit—Refer to Notes 1 and 7 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value.

The Company performs quantitative assessments of goodwill annually as of December 31 (the “measurement date”) and more frequently as events or circumstances require.

The Company estimates the fair value of its Manufacturing reporting unit by primarily using the discounted cash flow model.

The determination of the fair value using the discounted cash flow model requires management to make significant estimates and assumptions related to forecasts of future operating results and cash flows.

The Manufacturing reporting unit’s operating results and cash flows are sensitive to changes in demand.

The goodwill balance was $37.6 million as of December 31, 2021, of which $18.3 million relates to the Manufacturing reporting unit.

The fair value of the Manufacturing reporting unit exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.

We identified goodwill for the Manufacturing reporting unit as a critical audit matter because of the significant judgments made by management to estimate its fair value and the difference between its fair value and carrying value and the sensitivity of the Manufacturing reporting unit’s operations to changes in demand.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to forecasts of future operating results and cash flows.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to forecasts of future operating results and cash flows used by management to estimate the fair value of the Manufacturing reporting unit included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the Manufacturing reporting unit, such as controls related to forecasts of future operating results and cash flows.

• We evaluated management’s ability to accurately forecast future operating results and cash flows by comparing actual results to management’s historical forecasts.

• We evaluated the reasonableness of management’s operating results and cash flow forecasts by comparing the forecasts to:

– Historical operating results and cash flows.

– Internal communications between management and the Board of Directors.

– Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.

/s/ Deloitte & Touche LLP

50 unchanged sentences

Retained Earnings 585,212 369,783

Accumulated Other Comprehensive Loss ( 6,524 ) ( 8,507 )

Accumulated Other Comprehensive Income (Loss) 915 ( 6,524 )

Total Shareholders' Equity 1,217,317 990,777

58 unchanged sentences

Stock Issuances, Net of Expenses 868,484 4,342 32,466 — — 36,808

Stock Issued Under Dividend Reinvestment and Stock Purchase Plans 53,339 267 2,391 — — 2,658

Stock Issued Under Dividend Reinvestment and Stock Purchase Plans, Net of Expenses 365,267 1,826 13,221 — — 15,047

Stock Issued Under Share-Based Compensation Plans, Net of Shares Withheld for Employee Taxes 78,537 393 ( 2,515 ) — — ( 2,122 )

1 unchanged sentence

Other Comprehensive Loss — — — — ( 2,070 ) ( 2,070 )

Stranded Tax Transfer — — — 784 ( 784 ) —

Stock Compensation Expense — — 6,284 — — 6,284

2 unchanged sentences

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

Stock Issuances, Net of Expenses 868,484 4,342 32,466 — — 36,808

Stock Issued Under Dividend Reinvestment and Stock Purchase Plans 365,267 1,826 13,221 — — 15,047

Stock Issued Under Dividend Reinvestment and Stock Purchase Plans, Net of Expenses 11,540 58 446 — — 504

Stock Issued Under Share-Based Compensation Plans, Net of Shares Withheld for Employee Taxes 70,105 351 ( 1,840 ) — — ( 1,489 )

Net Income — — — 176,769 — 176,769

Other Comprehensive Loss — — — — ( 2,070 ) ( 2,070 )

Other Comprehensive Income — — — — 1,983 1,983

Stock Compensation Expense — — 6,908 — — 6,908

2 unchanged sentences

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

Stock Issued Under Dividend Reinvestment and Stock Purchase Plans 11,540 58 446 — — 504

Employee Stock Purchase Plan Expenses — — ( 219 ) — — ( 219 )

Stock Issued Under Share-Based Compensation Plans, Net of Shares Withheld for Employee Taxes 79,589 398 ( 3,321 ) — — ( 2,923 )

57 unchanged sentences

Summary of Significant Accounting Policies

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

Otter Tail Corporation and its subsidiaries (collectively, the "Company", "us", "our" or "we") form a diverse, multi-platform business consisting of a vertically integrated, regulated utility with generation, transmission and distribution facilities complemented by manufacturing businesses providing metal fabrication for custom machine parts and metal components, manufacturing of extruded and thermoformed plastic products, and manufacturing of PVC pipe products.

We classify our business into three segments:

9 unchanged sentences

Consequently, operating results can be affected by revisions to prior accounting estimates.

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated balance sheets and statements of cash flows to maintain consistency and comparability between periods presented.

The reclassifications had no impact on previously reported current assets, total assets, current liabilities, noncurrent liabilities and deferred credits, shareholders' equity, net cash provided by operating activities, net cash used in investing activities, net cash (used in) provided by financing activities, or cash and cash equivalents.

Regulatory Accounting

Our regulated electric utility company, Otter Tail Power Company (OTP), is subject to regulation of rates and other matters by state utility commissions in Minnesota, North Dakota and South Dakota and by the Federal Energy Regulatory Commission (FERC) for certain interstate operations.

Our regulated electric utility company, Otter Tail Power Company, is subject to regulation of rates and other matters by state utility commissions in Minnesota, North Dakota and South Dakota and by the FERC for certain interstate operations.

OTP accounts for the financial effects of regulation in accordance with accounting guidance for regulated operations.

4 unchanged sentences

Cash Equivalents

We consider all highly liquid debt instruments purchased with maturity of 90 days or less to be cash equivalents.

We consider all highly liquid investments purchased with maturity of 90 days or less to be cash equivalents.

Revenue from Contracts with Customers

12 unchanged sentences

Revenue is recognized based on the metered quantity of electricity delivered or transmitted at the applicable rates.

For electricity delivered and consumed after a meter is read but prior to the end of the reporting period, OTP records revenue and an unbilled receivable based on estimates of the kilowatt-hours (kwh) of energy delivered to the customer.

Manufacturing Segment Revenues.

11 unchanged sentences

Alternative Revenue

In addition to recognizing revenue from contracts with customers, our Electric segment business also records revenue under alternative revenue program (ARPs) requirements.

In addition to recognizing revenue from contracts with customers, our Electric segment business also records revenue under alternative revenue program (ARP) requirements.

Certain rate rider mechanisms qualify as ARP revenues as they provide for adjustments to rates outside of a general rate case proceeding to encourage or incentivize investments in certain areas such as conservation, renewable energy, pollution reduction or control, improved infrastructure of the transmission grid or other programs that provide benefits to the general public under public policy, laws or regulations.

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Electric plant is stated at original cost.

The cost of additions includes contracted work, direct labor and materials, allocable overheads and allowance for funds used during construction.

The cost of additions includes contracted work, direct labor and materials, allocable overheads and allowance for funds used during construction (AFUDC).

The amount of interest capitalized to electric plant was $ 0.9 million in 2022, $ 0.6 million in 2021 and $ 2.1 million in 2020.

26 unchanged sentences

OTP's interest in each jointly-owned facility is reflected in the consolidated balance sheets on a pro-rata basis and OTP's share of direct revenue and expenses are included in operating revenues and expenses in the consolidated statements of income.

Each participant in the jointly owned facilities finances its own investment.

Each participant in the jointly-owned facilities finances their own investments.

Goodwill and Other Intangible Assets

7 unchanged sentences

In contrast, if after the assessment we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect to skip the optional qualitative assessment, the quantitative impairment assessment is performed.

The quantitative assessment is a single-step test that identifies both the existence of impairment and the amount of impairment loss by comparing the estimated fair value of a reporting unit to its carrying value, with any excess carrying value over the fair value being recognized as an impairment loss.

The quantitative assessment is a single-step test that identifies both the existence of impairment and the amount of impairment loss by

comparing the estimated fair value of a reporting unit to its carrying value, with any excess carrying value over the fair value being recognized as an impairment loss.

Intangible assets with finite lives, which primarily consist of customer relationships, are carried at estimated fair value at the time of acquisition less accumulated amortization.

17 unchanged sentences

An ARO is recognized in the period in which the legal obligation is incurred and the amount of the obligation can be reasonably estimated, with an offsetting increase to the associated long-lived asset.

AROs are initially recognized at fair value and increased with the passage of time (accretion), with accretion expense recognized in the consolidated statements of income.

AROs are initially recognized at fair value and increased with the passage of time (accretion).

ARO estimates are revised periodically with any adjustment reflected in the ARO and associated long-lived asset.

3 unchanged sentences

Deferred tax assets are reduced by a valuation allowance when it is more likely than not that a portion or all of the deferred tax assets will not be realized.

The realizability of deferred tax assets takes into consideration forecasts of future taxable income, the reversal of other existing temporary differences, available net operating loss carryforwards and available tax planning strategies.

The realizability of deferred tax assets is determined by taking into consideration forecasts of future taxable income, the reversal of other existing temporary differences, available net operating loss carryforwards and available tax planning strategies.

Changes in valuation allowances are included in the provision for income taxes in the period of the changes.

2 unchanged sentences

We classify interest and penalties on tax uncertainties as components of the provision for income taxes.

We amortize investment tax credits and state wind energy credits over the estimated lives of the related property.

We apply the deferral method of accounting for ITCs and state wind energy credits.

Under this method, ITCs and state wind energy credits are amortized as a reduction to income tax expense over the estimated useful lives of the underlying property that gave rise to the credit.

Stock-Based Compensation

7 unchanged sentences

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed by the New York Stock Exchange and commodity derivative contracts listed on the New York Mercantile Exchange.

The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange and commodity derivative contracts listed on the New York Mercantile Exchange.

Level 2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date.

4 unchanged sentences

Variable Interest Entity

In October 2012, the Coyote Station owners, including OTP, entered into a lignite sales agreement (LSA) with Coyote Creek Mining Company, L.L.C.

(CCMC), a subsidiary of The North American Coal Corporation, for the purchase of lignite coal to meet the coal supply requirements of Coyote Station for the period beginning in May 2016 and ending in December 2040.

In October 2012, the Coyote Station owners, including OTP, entered into an LSA with Coyote Creek Mining Company, L.L.C.

, a subsidiary of The North American Coal Corporation, for the purchase of lignite coal to meet the coal supply requirements of Coyote Station for the period beginning in May 2016 and ending in December 2040.

The price per ton paid by the Coyote Station owners under the LSA reflects the cost of production, along with an agreed upon profit and capital charge.

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The Coyote Station owners have limited rights to assign their rights and obligations under the LSA without the consent of CCMC’s lenders during any period in which CCMC’s obligations to its lenders remain outstanding.

In the event the contract is terminated prior to the end of the term due to certain events, OTP’s maximum exposure to additional costs, as a result of its involvement with CCMC, and potential impairment loss if recovery of those costs is denied by regulatory authorities, could be as high as $ 45.0 million, OTP’s 35 % share of CCMC’s unrecovered costs as of December 31, 2021.

In the event the contract is terminated prior to the end of the term due to certain events, OTP’s maximum loss exposure, as a result of its involvement with CCMC, could be as high as $ 45 million, or OTP’s 35 % share of CCMC’s unrecovered costs as of December 31, 2022, if recovery of such a loss is denied by regulatory authorities.

Segment Information

1 unchanged sentence

Electric includes the production, transmission, distribution and sale of electric energy in Minnesota, North Dakota and South Dakota by OTP.

In addition, OTP is a participant in the Midcontinent Independent System Operator, Inc.

(MISO) markets.

In addition, OTP is a participant in the MISO markets.

OTP’s operations have been our primary business since 1907.

51 unchanged sentences

Total $ 171,134 $ 171,829 $ 371,553

1 Amounts reflect operating revenues to external customers.

Intersegment operating revenues are not material for any period presented.

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

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No single customer accounted for over 10% of our consolidated operating revenues for the years ended December 31, 2022, 2021 and 2020.

All of our long-lived assets are located within the United States and substantially all of our operating revenues are to customers located within the United States.

We present our operating revenues to external customers, in total and by amounts arising from contracts with customers and ARP arrangements, disaggregated by revenue source and segment for the years ended December 31, 2021, 2020 and 2019:

All of our long-lived assets are located within the United States and substantially all of our operating revenues are from customers located within the United States.

We present our operating revenues from external customers, in total and by amounts arising from contracts with customers and ARP arrangements, disaggregated by revenue source and segment for the years ended December 31, 2022, 2021 and 2020:

(in thousands) 2022 2021 2020

12 unchanged sentences

Plastic Products and Tooling 49,080 40,231 34,055

Other 12,536 5,252 5,999

Scrap Metal 10,038 12,536 5,252

Total Manufacturing Segment 397,983 336,294 238,770

39 unchanged sentences

Deferred Rate Case Expenses 1

Various 607 1,131 360 230

Up to 2 years

377 754 607 1,131

Debt Reacquisition Premiums 1

2 unchanged sentences

Fuel Clause Adjustments 1

10,893 — 4,819 —

Derivative Instruments 1

Various — 52 — 73

15 unchanged sentences

These unrecognized benefit costs and actuarial losses and gains are eligible for treatment as regulatory assets or liabilities based on their probable inclusion in future electric rates.

Alternative Revenue Program Riders regulatory assets and liabilities are revenues not yet collected from customers or amounts subject to

refund, respectively, primarily due to investments in qualifying transmission, conservation, renewable resource, environmental and other generation assets.

Alternative Revenue Program Riders regulatory assets and liabilities are revenues not yet collected from customers or amounts subject to refund, respectively, primarily due to investments in qualifying transmission, conservation, renewable resource, environmental and other generation assets, and the impact of decoupling.

Asset Retirement Obligations represent the difference in timing of recognition of expense arising from these obligations and the amount recovered from customers.

Independent System Operator (ISO) Cost Recovery Trackers represent costs incurred to serve Minnesota customers or the under-collection of revenue based on expected versus actual construction costs on eligible projects.

Unrecovered Project Costs reflect costs incurred for abandoned generation and transmission assets and accelerated depreciation expense on a to-be-retired generation asset expected to be recovered from customers.

Deferred Rate Case Expenses relate to costs incurred in conjunction with recent rate cases that are currently or are expected to be recovered from customers.

Independent System Operator (ISO) Cost Recovery Trackers represent costs incurred to serve Minnesota customers for the under-collection of revenue based on expected versus actual construction costs on eligible projects.

Unrecovered Project Costs reflect costs incurred for abandoned generation and transmission assets and accelerated depreciation expense on a retired generation asset being recovered from customers.

Deferred Rate Case Expenses relate to costs incurred in conjunction with recent rate cases that are currently being recovered, or are expected to be recovered, from customers.

Debt Reacquisition Premiums represent costs to retire debt which are being recovered from customers over the remaining original lives of the reacquired debt.

Fuel Clause Adjustments represent the under- or over-collection of fuel costs to be returned to or collected from customers.

Deferred Income Taxes represent income tax benefits, arising primarily from property-related timing differences, that will be refunded to customers as these timing differences reverse.

Fuel Clause Adjustments represent the under- or over-collection of fuel costs to be collected from or returned to customers.

Deferred Income Taxes represent the revaluation of accumulated deferred income taxes arising from the change in the federal income tax rate in 2017.

This amount is being refunded to customers over the estimated lives of the property assets from which the deferred income taxes originated.

Plant Removal Obligations represent amounts collected from customers to be used to cover actual removal costs as incurred.

Derivative Instruments represent unrealized gains recognized on derivative instruments.

On final settlement of such instruments, any realized gains or losses are recovered from or paid to customers.

Derivative Instruments represent unrealized gains and losses recognized on derivative instruments.

On final settlement of such instruments, any realized gains or losses are paid to or recovered from customers.

Minnesota Rate Case

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

On February 1, 2022, the MPUC issued its written order on final rates.

The key provisions of the order included a revenue requirement of $ 209.0 million, based on a return on rate base of 7.18 % and an allowed ROE of 9.48 % on an equity ratio of 52.5 %.

The order also authorized recovery of our remaining Hoot Lake Plant net asset over a five-year period and approved the requested decoupling mechanism for most residential and commercial customer rate groups with a cap of 4 % of annual base revenues.

On May 12, 2022, OTP's final rate case compliance filing was approved by the MPUC.

The filing included final revenue calculations, rate design and resulting tariff revisions, along with a determination of the interim rate refund, which resulted in an increase in revenues during 2022 of $ 4.1 million.

Final rates took effect on July 1, 2022, and interim rate refunds of $ 15.3 million were applied to customer accounts.

MISO Resource Planning Auction

In 2022, we offered 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.

During the year ended December 31, 2022, OTP recorded approximately $ 5.3 million of excess capacity auction revenues.

We anticipate the Minnesota allocated portion of net capacity auction revenues will be returned to customers through the FCA mechanism in the state, and a portion of the net capacity auction revenues allocated to our other jurisdictions will be used to mitigate customer rate increases or returned to customers through various mechanisms.

At December 31, 2022, we recognized a reduction of a regulatory asset of $ 2.6 million and a refund liability of $ 1.8 million for net capacity auction revenues we anticipate will be refunded to customers.

Property, Plant and Equipment

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Total $ 22,517 $ 13,473 $ 9,044

Amortization expense for these intangible assets for the years ended December 31, 2021, 2020 and 2019 totaled $ 1.1 million, $ 1.1 million, and $ 1.2 million.

Amortization expense for these intangible assets for each of the years ended December 31, 2022, 2021 and 2020 totaled $ 1.1 million.

Annual amortization expense for these intangible assets for the next five years is:

1 unchanged sentence

Amortization Expense $ 1,100 $ 1,100 $ 1,100 $ 1,092 $ 1,090

We lease coal rail cars, warehouse and office space, land and certain office, manufacturing and material handling equipment under varying terms and conditions.

We lease rail cars, warehouse and office space, land and certain office, manufacturing and material handling equipment under varying terms and conditions.

All leases are classified as operating leases.

3 unchanged sentences

Variable Lease Cost 1,386 1,020

Short-Term Lease Cost 1,517 1,465

Total Lease Cost 8,509 7,783

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Total $ 340,000 $ 8,204 $ 9,573 $ 322,223 $ 235,678

On September 30, 2021, OTC entered into a Fourth Amended and Restated Credit Agreement (the OTC Credit Agreement) and OTP entered into a Third Amended and Restated Credit Agreement (the OTP Credit Agreement) amending and restating the previously existing credit agreements to extend the maturity date of each credit facility to September 30, 2026.

On October 31, 2022, OTC entered into a Fifth Amended and Restated Credit Agreement and OTP entered into a Fourth Amended and Restated Credit Agreement, in each case amending and restating the previously existing credit agreements to extend the maturity date of each credit facility from September 30, 2026 to October 29, 2027, and to replace LIBOR as a benchmark interest rate with SOFR.

The adoption of SOFR as a benchmark interest rate is in advance of the scheduled elimination of LIBOR as a benchmark interest rate on June 30, 2023.

No other significant terms or conditions, including borrowing capacity, credit spreads or financial covenants, were modified under these amendments and restatements.

The agreements both provide for $ 170.0 million unsecured revolving lines of credit to support operations, fund capital expenditures, refinance certain indebtedness and provide for the issuance of letters of credit in an aggregate amount not to exceed $ 40.0 million under the OTC Credit Agreement and $ 50.0 million under the OTP Credit Agreement.

Each credit facility includes an accordion provision allowing the borrower, subject to certain conditions, to increase the borrowing capacity under the facility;

up to $ 290.0 million under the OTC Credit Agreement and up to $ 250.0 million under the OTP Credit Agreement.

Each credit facility includes an accordion provision allowing the borrower to increase the borrowing capacity under the facility, subject to certain conditions, up to $ 290.0 million and $ 250.0 million under the OTC Credit Agreement and OTP Credit Agreement, respectively.

Borrowings under each credit facility are subject to a variable rate of interest on outstanding balances and a commitment fee is charged based on the average unused amount available to be drawn under the respective facility.

The variable rate of interest to be charged is based on a benchmark interest rate, either LIBOR or a Base Rate, as defined in the credit agreements, selected by the borrower at the time of an advance, subject to the conditions of each agreement, plus an applicable credit spread.

The credit spread ranges from zero to 2.00 %, depending on the benchmark interest rate selected and is subject to adjustment based on the credit ratings of the relevant borrowers.

The variable rate of interest to be charged is based on a benchmark interest rate, either SOFR or a Base Rate, as defined in the credit agreements, selected by the borrower at the time of an advance, subject to the conditions of each agreement, plus an applicable credit spread.

The credit spread ranges from zero to 2.00 %, depending on the benchmark interest rate selected and is subject to adjustment based on the credit ratings of the relevant borrower.

The weighted-average interest rate on all outstanding borrowings as of December 31, 2022 and 2021 was 5.61 % and 1.42 %.

Each credit facility contains a number of restrictions on the borrower, including restrictions on the ability to merge, sell assets, make investments, create or incur liens on assets, guarantee the obligations of any other party and engage in transactions with related parties.

The agreements also contain certain financial and non-financial covenants and defined events of default.

Both the OTC Credit Agreement and the OTP Credit Agreement include interest rates determined by a reference to LIBOR.

The applicable LIBOR tenors are currently scheduled to be eliminated on June 30, 2023.

In the event that LIBOR is no longer available, both credit agreements contain provisions for the replacement of LIBOR as the benchmark rate with the Secured Overnight Finance Rate (SOFR).

The transition to SOFR may be triggered by the discontinuation or loss of representativeness of the applicable LIBOR tenors or as earlier elected by the borrowers, subject to approval by the lender.

The agreements also require the borrower to maintain various financial covenants, as further described below.

Long-Term Debt

3 unchanged sentences

OTC Guaranteed Senior Notes 3.55 % 12/15/26 $ 80,000 $ 80,000

OTP Series 2011A Senior Unsecured Notes 4.63 % 12/01/21 — 140,000

OTP Series 2007B Senior Unsecured Notes 6.15 % 08/20/22 — 30,000

13 unchanged sentences

OTP Series 2021B Senior Unsecured Notes 3.69 % 11/29/51 100,000 100,000

OTC PACE Note 2.54 % 03/18/21 — 169

OTP Series 2022A Senior Unsecured Notes 3.77 % 05/20/52 90,000 —

Total 827,000 767,000

4 unchanged sentences

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.

During the year ended December 31, 2022, OTP issued its Series 2022A notes for aggregate proceeds of $ 90.0 million, which were used to repay the Series 2007B notes, to repay short-term borrowings, to fund capital expenditures, and for other general corporate purposes.

Our guaranteed and unsecured notes require the borrower to maintain various financial covenants, as further described below.

57 unchanged sentences

December 31, 2021

Cash Equivalents $ 4 $ — $ — $ — $ 4

Equity Funds 149,479 — — — 149,479

1 unchanged sentence

Hybrid Funds 11,776 — — — 11,776

Treasury Securities 28,173 — — — 28,173

SEI Energy Debt Collective Fund — — — 12,797 12,797

24 unchanged sentences

Plan Amendments — — — — — —

Actuarial Loss (Gain) ( 14,539 ) 39,714 ( 907 ) 3,805 ( 1,792 ) 1,061

Actuarial Loss ( 110,632 ) ( 14,539 ) ( 10,547 ) ( 907 ) ( 20,450 ) ( 1,792 )

Benefit Obligation at December 31 308,055 416,697 35,624 46,840 49,947 69,311

1 unchanged sentence

Amounts Recognized in Consolidated Balance Sheet at December 31:

Noncurrent Assets $ 5,742 $ — $ — $ — $ — $ —

Current Liabilities — — ( 2,414 ) ( 2,352 ) ( 2,970 ) ( 2,830 )

Noncurrent Liabilities and Deferred Credits — ( 29,485 ) ( 33,210 ) ( 44,488 ) ( 46,977 ) ( 66,481 )

Total Liabilities $ ( 29,485 ) $ ( 67,718 ) $ ( 46,840 ) $ ( 47,894 ) $ ( 69,311 ) $ ( 70,185 )

Net Asset (Liability) $ 5,742 $ ( 29,485 ) $ ( 35,624 ) $ ( 46,840 ) $ ( 49,947 ) $ ( 69,311 )

The accumulated benefit obligation of our Pension Plan was $ 283.2 million and $ 378.3 million as of December 31, 2022 and 2021.

4 unchanged sentences

Discount Rate 5.51 % 3.03 % 5.51 % 2.93 % 5.52 % 3.01 %

Rate of Increase in Future Compensation n/a n/a 3.00 % 3.00 % n/a n/a

Participants to Age 39 4.50 % 4.50 % n/a n/a n/a n/a

Participants Ages 40 to 49 3.50 % 3.50 % n/a n/a n/a n/a

Participants Age 50 and Older 2.75 % 2.75 % n/a n/a n/a n/a

Long-Term Rate of Compensation Increase (1)

n/a n/a 3.00 % 3.00 % n/a n/a

Participants to Age 39 (1)

4.50 % 4.50 % n/a n/a n/a n/a

Participants Ages 40 to 49 (1)

3.50 % 3.50 % n/a n/a n/a n/a

Participants Age 50 and Older (1)

2.75 % 2.75 % n/a n/a n/a n/a

Healthcare Cost Immediate Trend Rate n/a n/a n/a n/a 7.50 % 6.16 %

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Year the Rate Reaches the Ultimate Trend Rate n/a n/a n/a n/a 2048 2038

The pension benefit liability of our Pension Plan decreased $ 38.2 million from December 31, 2020 to December 31, 2021 primarily due to an increase in the discount rate used to measure the obligation, from 2.78 % to 3.03 %, respectively, and from actual returns on Pension Plan investments in 2021 exceeding the expected return for the year.

(1) The estimated rate of compensation increase for 2023 and 2024, as estimated as of December 31, 2022, is equal to 4.00 % for all participants, reflecting higher anticipated compensation changes during these years.

The measurement of the plan asset or benefit obligation recognized for our Pension Plan, ESSRP and postretirement healthcare benefit plan included the following significant actuarial adjustments:

• For the Pension Plan, an increase in the discount rate in 2022 and 2021 reduced our obligation by $ 117.1 million and $ 15.7 million.

A short-term increase in expected future compensation increased the benefit obligation in 2022 by $ 6.8 million.

The difference between actual and expected returns on Pension Plan assets also impacted our obligation in 2022 and 2021.

• For the ESSRP, an increase in the discount rate in 2022 and 2021 reduced our obligation by $ 10.2 million and $ 1.7 million.

• For the postretirement healthcare plan, an increase in the discount rate in 2022 and 2021 reduced our obligation by $ 17.9 million and $ 2.6 million.

Revised estimates of healthcare cost trends and participant contribution assumptions decreased the benefit obligation by $ 2.4 million in 2022.

Net Periodic Benefit Cost.

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Net Periodic Benefit Cost $ 3,101 $ 7,677 $ 6,797 $ 2,103 $ 2,035 $ 2,062 $ 709 $ 1,654 $ 3,758

The following table includes the impact of regulation on the recognition of periodic benefit cost arising from pension and other postretirement benefits for the years ended December 31, 2021, 2020, 2019:

(in thousands) 2022 2021 2020

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Long-Term Rate of Return on Plan Assets 6.30 % 6.51 % 6.88 % n/a n/a n/a n/a n/a n/a

Rate of Increase in Future Compensation n/a n/a n/a 3.00 % 3.50 % 3.40 % n/a n/a n/a

Long-Term Rate of Compensation Increase n/a n/a n/a 3.00 % 3.00 % 3.50 % n/a n/a n/a

Participants to Age 39 4.50 % 4.50 % 4.50 % n/a n/a n/a n/a n/a n/a

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We estimate the assumed long-term rate of return on plan assets based primarily on asset category studies using historical market return and volatility data with forward-looking estimates based on existing financial market conditions and forecasts of capital markets.

Modest excess return expectations versus

some market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically.

Modest excess return expectations versus some market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically.

The following table presents the amounts not yet recognized as components of net periodic benefit cost as of December 31, 2022 and 2021:

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(in thousands) 2022 2021 2022 2021 2022 2021

Regulatory Assets:

Regulatory Assets (Liabilities):

Unrecognized Prior Service Cost $ — $ — $ — $ — $ ( 8,400 ) $ ( 13,989 )

Unrecognized Actuarial Loss 85,367 102,737 979 2,525 3,993 26,852

Total Regulatory Assets $ 102,737 $ 137,500 $ 2,525 $ 2,681 $ 12,863 $ 12,659

Accumulated Other Comprehensive Loss:

Net Regulatory Assets (Liabilities) 85,367 102,737 979 2,525 ( 4,407 ) 12,863

Accumulated Other Comprehensive Income (Loss):

Unrecognized Prior Service Cost — — — — ( 99 ) ( 242 )

Unrecognized Actuarial (Gain) Loss ( 1,978 ) ( 1,020 ) 1,093 10,660 ( 818 ) ( 160 )

Total Accumulated Other Comprehensive Loss $ ( 1,020 ) $ 128 $ 10,660 $ 12,031 $ ( 402 ) $ ( 365 )

We made discretionary contributions to our Pension Plan of $ 10.0 million, $ 11.2 million and $ 22.5 million in 2021, 2020 and 2019, respectively.

As of December 31, 2021, we had no minimum funding requirements for our Pension Plan, but made a discretionary contribution of $ 20.0 million in February 2022.

Total Accumulated Other Comprehensive Income (Loss) $ ( 1,978 ) $ ( 1,020 ) $ 1,093 $ 10,660 $ ( 917 ) $ ( 402 )

We made discretionary contributions to our Pension Plan of $ 20.0 million, $ 10.0 million and $ 11.2 million in 2022, 2021 and 2020.

As of December 31, 2022, we had no minimum funding requirements for our Pension Plan.

Contributions to our ESSRP and postretirement healthcare plan are equal to the benefits paid to plan participants.

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Contributions made to these plans totaled $ 6.7 million for 2022, $ 6.5 million for 2021 and $ 5.3 million for 2020.

Asset Retirement Obligations (AROs)

We have recognized AROs related to our coal-fired generation plants, natural gas combustion turbines and wind turbines.

Asset Retirement Obligations

We have recognized Asset Retirement Obligations (AROs) related to our coal-fired generation plants, natural gas combustion turbines and wind turbines.

The cost of AROs include items such as site restoration, closure of ash pits, and removal of certain structures, generators, asbestos and storage tanks.

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Beginning Balance $ 24,191 $ 23,821

New Obligations Recognized — 8,062

Adjustments Due to Revisions in Cash Flow Estimates — ( 568 )

Accrued Accretion 991 938

Settlements — ( 577 )

Ending Balance $ 25,182 $ 24,191

The new AROs recognized during the year ended December 31, 2020 arose from obligations associated with our Merricourt wind farm and Astoria Station natural gas plant.

Income before income taxes for the years ended December 31, 2022, 2021 and 2020 consists entirely of domestic earnings.

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2022 2021 2020

Federal Statutory Rate 21.0 % 21.0 % 21.0 %

Income Taxes at Federal Statutory Rate $ 75,082 21.0 % $ 44,692 21.0 % $ 24,372 21.0 %

Increases (Decreases) in Tax from:

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Other, Net 856 0.3 ( 1,037 ) ( 0.5 ) ( 1,517 ) ( 1.3 )

Effective Tax Rate 16.9 % 17.4 % 16.7 %

Income Taxes at Effective Tax Rate $ 73,351 20.5 % $ 36,052 16.9 % $ 20,206 17.4 %

We began to generate PTCs from our Merricourt wind farm in the fourth quarter of 2020, once the asset was placed in service and commenced operations.

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Deferred Tax Assets

Benefit Liabilities $ 41,724 $ 41,292

Retirement Benefits Liabilities 40,766 40,650

Tax Credit Carryforward 32,420 35,132

Regulatory Tax Liability 34,527 33,124

Employee Benefits $ 39,216 $ 41,842

Regulatory Liabilities 57,353 75,293

Tax Credit Carryforwards, net of federal impact 20,209 27,965

Cost of Removal 37,360 26,512

Differences Related to Property 10,251 7,486

Net Operating Loss Carryforward 1,323 1,379

Net Operating Loss Carryforward, net of federal impact 1,853 1,323

Other 12,107 11,067

Valuation Allowance — ( 800 )

Total Deferred Tax Assets 168,098 184,002

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Retirement Benefits Regulatory Asset ( 22,789 ) ( 40,766 )

Excess Tax Over Book Pension ( 24,578 ) ( 18,696 )

Pension Expense ( 24,269 ) ( 24,578 )

Other ( 8,141 ) ( 8,945 )

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Deferred Income Taxes $ ( 221,302 ) $ ( 188,268 )

At December 31, 2021, we concluded, based upon all available evidence, it was more likely than not that we will generate sufficient future taxable income to realize certain of our state deferred tax assets.

As a result, we released the $ 0.8 million valuation allowance associated with these deferred tax assets and recognized a corresponding benefit from income taxes in the consolidated statements of income for the year ended

December 31, 2021.

Our conclusions regarding the realizability of such deferred tax assets was based on anticipated future taxable income within the respective state jurisdiction and the recent extension of the net operating loss carryforward period in this state.

The following is a schedule of tax credits and tax net operating losses available as of December 31, 2022 and the respective periods of expiration:

(in thousands) Amount 2023-2029 2030-2037 2038-2043

Federal Tax Credits $ 9,136 $ — $ — $ 9,136

State Net Operating Losses $ 2,348 $ — $ 2,348 $ —

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Commitments and Contingencies

Construction and Other Purchase Commitments:

As of December 31, 2021, OTP had commitments under contracts, including its share of construction program and other commitments, extending into 2023 of approximately $ 68 million.

OTP’s other commitments charged to rent expense totaled $ 0.3 million, $ 0.1 million and $ 0.3 million in 2021, 2020 and 2019, respectively.

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

OTP has commitments for the purchase of capacity and energy requirements under agreements extending into 2044.

OTP also has contracts providing for the purchase and delivery of a significant portion of its current coal requirements.

OTP’s current coal purchase agreements for Coyote Station expire at the end of 2040.

Ashtabula III Purchase.

Since 2013, OTP had purchased the wind-generated electricity from the Ashtabula III, a 62.4 -megawatt wind farm located in eastern North Dakota, pursuant to a power purchase agreement.

That agreement granted OTP the option to purchase the wind farm, and in June 2022, OTP exercised its option.

On January 3, 2023, OTP acquired Ashtabula III for $ 50.6 million.

Construction and Other Commitments.

As of December 31, 2022, OTP had commitments under contracts for construction project materials, plant maintenance, and other services extending into 2046 which totaled approximately $ 21.5 million.

Electric Utility Capacity and Energy Requirements.

OTP has commitments for the purchase of capacity and energy requirements under contractual agreements, including wind power purchase agreements extending into 2033.

Generally, the terms of OTP's wind power purchase agreements require OTP to purchase all of the electricity generated by a particular wind farm and do not include fixed or minimum payments.

The required payments are variable and the amounts due are determined based upon the amount of electricity generated.

Capacity and energy requirement costs under these agreements totaled $ 13.1 million, $ 11.5 million and $ 11.3 million for the years ended December 31, 2022, 2021 and 2020.

Coal Purchase Commitments.

OTP has contracts providing for the purchase and delivery of its coal requirements.

OTP’s current coal purchase agreement with CCMC for Coyote Station expires December 31, 2040.

All of Coyote Station’s coal requirements for the period covered must be purchased under this agreement.

The agreement is structured so that the price of the coal covers all of CCMC's operating, financing, and future mine reclamation costs.

In the table below we have estimated the future payments to be made under the terms of the agreement until its maturity.

OTP has an agreement for the purchase of Big Stone Plant’s coal requirements through December 31, 2024.

There is no fixed minimum purchase requirement under this agreement but all of Big Stone Plant’s coal requirements for the period covered must be purchased under this agreement.

OTP Land Easements:

OTP has commitments to make future payments for land easements not classified as leases, extending into 2050, of approximately $ 34.5 million.

Land easement payments charged to rent expense totaled $ 1.3 million, $ 1.3 million and $ 0.6 million in 2021, 2020 and 2019, respectively.

Our future construction program and other commitments, capacity and energy agreement commitments, coal purchase and coal delivery contract commitments and contractual land easements payments as of December 31, 2021 are as follows:

Coal purchase costs under these agreements totaled $ 45.1 million, $ 40.4 million and $ 37.9 million for the years ended December 31, 2022, 2021 and 2020.

Land Easement Payments.

OTP has commitments to make payments for land easements not classified as leases, extending into 2050 of approximately $ 33.1 million.

Land easement costs under these agreements totaled $ 1.4 million, $ 1.3 million and $ 1.3 million for the years ended December 31, 2022, 2021 and 2020.

Our future commitments as of December 31, 2022 were as follows:

(in thousands) Construction Program

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In November 2013 and February 2015, customers filed complaints with the FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including OTP, may collect under the MISO tariff rate.

The 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.

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 November 2020 opinion is subject to judicial review.

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 order.

Court of Appeals remanded the matter to FERC to reopen the proceedings.

Significant uncertainty exists as to how FERC will proceed on remand and there is no prescribed timeline under which FERC must act.

We have deferred recognition and recorded a refund liability of $ 2.6 million as of December 31, 2022.

This refund liability reflects our best estimate of required refunds to customers once all regulatory and judicial proceedings are finalized.

This refund liability reflects our best estimate of amounts previously collected from customers under the MISO tariff rate that may be required to be refunded to customers once all regulatory and judicial proceedings are complete and a final ROE is established for the periods outlined above.

Regional Haze Rule (RHR).

The RHR was adopted in an effort to improve visibility in national parks and wilderness areas.

The RHR requires states, in coordination with the EPA and other governmental agencies, to develop and implement plans to achieve natural visibility conditions.

The RHR requires states, in coordination with the Environmental Protection Agency and other governmental agencies, to develop and implement plans to achieve natural visibility conditions.

The second RHR implementation period covers the years 2018-2028.

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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 North Dakota Department of Environmental Quality (NDDEQ) made public a draft of its state implementation plan.

The plan concluded it is not reasonable to require additional emission controls during this planning period.

Following a consultation and public comment period, and any subsequent modifications to the plan, the NDDEQ will submit its state implementation plan to the EPA for approval.

In January 2022, prior to the submission to the EPA by the NDDEQ, the EPA provided preliminary comments on the draft North Dakota state implementation plan in which it expressed disagreement with the NDDEQ's recommendation to forgo additional emission controls.

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 fully acted on by the EPA.

The NDDEQ submitted its state implementation 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.

The EPA has previously expressed disagreement with the NDDEQ's recommendation to forgo additional emission controls and has indicated that such a plan is not likely to 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 financial effects such a retirement or sale may have on our consolidated operating results, financial position or cash flows, but such amounts could be material and the recovery of such costs from customers would be subject to regulatory approval.

Westmoreland Coal Company (Westmoreland) Arbitration.

In December 2018, insurers for Westmoreland, Westmoreland and its affiliated companies filed an arbitration demand against the co-owners of Coyote Station, including OTP, a 35 % co-owner.

The claimant insurers were pursuing recovery in the amount of $ 5.5 million, plus prejudgment interest to recover business interruption insurance proceeds paid to Westmoreland or its affiliates arising from a boiler feed pump explosion in December 2014 at the facility.

The explosion and ensuing repairs reduced the amount of coal purchased from a Westmoreland affiliate under an existing coal purchase agreement.

The Westmoreland insurers claimed the co-owners breached the minimum purchase obligations in the coal purchase agreement.

As of December 31, 2021, an agreement to settle the matter was reached, and OTP's proportionate share of the settlement payment did not have a material effect on its 2021 financial results.

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 FERC has 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 hearing, 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.

1 unchanged sentence

We regularly analyze relevant information and, as necessary, estimate and record accrued liabilities for 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 December 31, 2021, other than those relating to the RHR, will not be material.

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 December 31, 2022 will not be material.

Stockholders' Equity

8 unchanged sentences

Shares purchased under the plan may be new issue common shares or common shares purchased on the open market.

In 2021, we issued 115,180 shares under this program and no proceeds were received, as all shares issued were purchased on the open market.

In 2022, we issued 133,827 common shares under this program and no proceeds were received, as all shares issued were purchased on the open market.

As of December 31, 2022, 1,250,993 shares remain available for purchase or issuance under the Plan.

2 unchanged sentences

OTC is a holding company with no significant operations of its own.

The primary source of funds for payments of dividends to our shareholders is from dividends paid or distributions made by our 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.

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.

The primary source of funds for payments of dividends to our shareholders is from dividends paid or distributions made by 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 OTC's subsidiaries.

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 December 31, 2022, we were in compliance with these financial covenants.

2 unchanged sentences

however, the FERC has consistently interpreted the provision to allow dividends to be paid as long as i) the source of the dividends is clearly disclosed, ii) the dividend is not excessive and iii) there is no self-dealing on the part of corporate officials.

The MPUC indirectly limits the amount of dividends OTP can pay to the Company by requiring an equity-to-total-capitalization ratio between 47.5 % and 58.1 % based on OTP’s capital structure requirements as of December 31, 2021.

The MPUC indirectly limits the amount of dividends OTP can pay to OTC by requiring an equity-to-total-capitalization ratio between 47.5 % and 58.0 %, with total capitalization not to exceed $ 1.8 billion based on OTP’s capital structure requirements as of December 31, 2022.

As of December 31, 2022, OTP’s equity-to-total-capitalization ratio including short-term debt was 54.7 % and its net assets restricted from distribution totaled approximately $ 737.4 million.

Under the current capital structure requirement as of December 31, 2021, total capitalization for OTP could not exceed $ 1.7 billion.

The MPUC approved OTP’s most recent capital structure petition on January 26, 2022, allowing for an equity-to-total-capitalization ratio between 48.0 % and 58.7 %, with total capitalization not to exceed $ 1.7 billion.

Accumulated Other Comprehensive Income (Loss)

1 unchanged sentence

The income tax expense or benefit associated with amounts reclassified from accumulated other comprehensive income (loss) and reflected in the consolidated statement of income are recognized in the same period as the amounts are reclassified.

The following table shows the changes in accumulated other comprehensive loss for the years ended December 31, 2021, 2020 and 2019:

The following table shows the changes in accumulated other comprehensive Income (loss) for the years ended December 31, 2022, 2021 and 2020:

(in thousands) Pension and Other Postretirement Benefits Net Unrealized Gain (Losses) on Available-for-Sale Securities Total

1 unchanged sentence

$ ( 6,491 ) $ 54 $ ( 6,437 )

Other Comprehensive Income (Loss) Before Reclassifications, net of tax 418 116 534

Other Comprehensive Income Before Reclassifications, net of tax 418 145 563

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) ( 2,643 ) (1)

Total Other Comprehensive Income (Loss) ( 2,225 ) 155 ( 2,070 )

Stranded Tax Transfer ( 794 ) 10 ( 784 )

Balance, December 31, 2020

22 unchanged sentences

Shares purchased under the plan may not be assigned, transferred, pledged, or otherwise disposed, except for certain situations allowed by the plan, such as upon death, for a period of 18 months after purchase.

For purchase periods between January 1, 2018 and June 30, 2019, the purchase price was 100 % of the market price at the end of each six-month purchase period.

For purchase periods beginning after June 30, 2019, the purchase price is 85 % of the market price at the end of each six-month purchase period.

At our discretion, shares purchased under the plan can be either new issue shares or shares purchased in the open market.

2 unchanged sentences

For the years ended December 31, 2022, 2021, and 2020 the amount of shares issued under the plan amounted to 26,420 , 27,975 and 31,661 shares.

As of December 31, 2021, there was 290,127 shares available for purchase under the plan.

As of December 31, 2022, there were 263,706 shares available for purchase under the plan.

Share-Based Compensation Plan

6 unchanged sentences

Restricted Stock Awards.

Restricted stock awards are granted to employees and members of the Company's Board of Directors.

Restricted stock awards are granted to executive officers and other key employees and members of the Company's Board of Directors.

The awards vest, depending on award recipient, either ratably over a period of three to four years or cliff vest after four years .

Vesting is accelerated in certain circumstances, including upon retirement.

Awards granted to members of the Board of Directors are issued and outstanding upon grant and carry the same voting and dividend rights of unrestricted outstanding common stock.

Awards granted to members of the Board of Directors are issued and

outstanding upon grant and carry the same voting and dividend rights of unrestricted outstanding common stock.

Awards granted to executive officers and other key employees are eligible to receive dividend equivalent payments during the vesting period, subject to forfeiture under the terms of the agreement, but such awards are not issued or outstanding upon grant and do not provide for voting rights.

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The fair value of vested awards was $ 3.0 million, $ 2.1 million and $ 2.8 million during the years ended December 31, 2022, 2021 and 2020.

As of December 31, 2021, there was $ 2.4 million of unrecognized compensation costs for non-vested restricted stock awards to be recognized over a weighted-average period of 1.83 years.

As of December 31, 2022, there was $ 2.9 million of unrecognized compensation costs for unvested restricted stock awards to be recognized over a weighted-average period of 1.84 years.

Stock Performance Awards.

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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.

i) total shareholder return relative to a peer group (TSR component) and ii) return on equity (ROE component).

The awards have no voting or dividend rights during the vesting period.

1 unchanged sentence

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 years ended December 31, 2021, 2020 and 2019 was determined using a Monte Carlo fair value simulation model incorporating the following assumptions:

The grant-date fair value of the ROE component of the stock performance awards granted during the years ended December 31, 2022, 2021 and 2020 was determined using the grant date stock price and a discounted cash flow analysis to adjust for expected unearned dividends during the vesting period.

The grant-date fair value of the TSR component of the stock performance awards granted during the years ended December 31, 2022, 2021 and 2020 was determined using a Monte Carlo fair value simulation model incorporating the following assumptions:

2022 2021 2020

17 unchanged sentences

The fair value of vested awards was $ 5.1 million, $ 2.5 million and $ 3.4 million during the years ended December 31, 2022, 2021 and 2020.

As of December 31, 2021, there was $ 0.4 million of unrecognized compensation costs of non-vested stock performance awards to be recognized over a weighted-average period of 1.19 years.

As of December 31, 2022, there was $ 0.4 million of unrecognized compensation costs of unvested stock performance awards to be recognized over a weighted-average period of 0.91 years.

Earnings Per Share

17 unchanged sentences

However, in accordance with rate-making and cost recovery processes, we recognize a regulatory asset or liability to defer losses or gains from derivative activity until settlement of the associated derivative instrument.

As of December 31, 2021, OTP had outstanding pay-fixed, receive-variable swap agreements with an aggregate notional amount of 263,400 megawatt-hours of electricity, and various settlement dates throughout 2022.

As of December 31, 2021, the aggregate fair value of these contracts was $ 6.2 million, which is included in other current assets on the consolidated balance sheets.

During the year ended December 31, 2021, contracts matured and were settled in an aggregate amount of $ 3.1 million.

As of December 31, 2022 and 2021, OTP had outstanding pay-fixed, receive-variable swap agreements with an aggregate notional amount of 295,000 and 263,400 megawatt-hours of electricity.

The contracts outstanding as of December 31, 2022 had various settlement dates throughout 2023.

As of December 31, 2022 and 2021, the fair value of these derivative instruments was $ 7.1 million, which is included in other current liabilities , and 6.2 million, which is included in other current assets , on the consolidated balance sheets.

During the years ended December 31, 2022 and 2021, contracts matured and were settled in an aggregate amount of $ 1.0 million and $ 3.1 million.

Fair Value Measurements

6 unchanged sentences

Government-Backed and Government-Sponsored Enterprises’ Debt Securities — 7,327 —

Derivative Instruments — 6,214 —

Total Assets 7,063 8,761 —

Derivative Instruments — 7,130 —

Total Liabilities $ — $ 7,130 $ —

December 31, 2021

3 unchanged sentences

Government-Backed and Government-Sponsored Enterprises’ Debt Securities — 7,869 —

Derivative Instruments — 6,214 —

Total Assets $ 6,381 $ 15,416 $ —

23 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data