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Item 1A. Risk Factors

2024-02-14 compared with 2023-02-15 · 110 added, 146 removed, 203 unchanged (56% of the section changed)

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Additional risks and uncertainties we are not presently aware of or that we currently consider immaterial may also affect our business, operating results, financial condition and liquidity.

Oversight of Risk and Related Processes

A key accountability of the Board of Directors is the oversight of material risk.

Management and the Board of Directors have responsibility for overseeing the identification and mitigation of significant and emerging risks.

Management identifies and analyzes risks to determine the impact and other attributes such as timing, likelihood and management control.

Identification and analysis occur formally through an assessment of significant and emerging risks conducted by senior management, the financial disclosure process, and internal auditing and compliance with financial and operational controls.

Management also identifies and analyzes risk through the development of goals and key performance indicators, which include risk identification to determine barriers to implementing our strategy.

We promote a culture of compliance, including tone at the top.

The process for risk mitigation includes adherence to our code of business ethics and compliance policies, operation of formal risk management structures and overall business management to mitigate the risks inherent in the implementation of strategy.

We manage and further mitigate risks through formal risk management structures, including a management executive risk committee and internal business functions such as internal audit/business risk management and legal.

Management communicates regularly with our Board of Directors and key stakeholders regarding risk.

Senior management presents and communicates a periodic risk assessment to our Board of Directors which provides information on the risks management believes are material, including the earnings impact, timing, likelihood and management control.

The Board of Directors approaches oversight, management and mitigation of risk as an integral and continuous part of its governance of Otter Tail Corporation.

The Board of Directors regularly reviews management’s top risk assessment and analyzes areas of existing and future risks and opportunities.

Finally, the Board of Directors conducts an annual strategy session where our future plans and initiatives are reviewed.

OPERATIONAL RISKS

Our strategy includes large capital investments, which are subject to risks.

Our business strategy includes major capital investments at our existing companies.

Our capital investment program planned for the next five years includes Electric segment investments in renewable generation, transmission asset additions and upgrades, and technology and infrastructure projects, and Manufacturing and Plastics segments investments in facilities, equipment and machinery.

Our business strategy includes major capital investments at our operating companies.

These capital projects are planned years in advance of their in-service dates and are subject to various risks including:

obtaining necessary permits, licenses and timely approvals;

adverse changes in regulatory treatment or public policy;

changes in commodity pricing, equipment and construction costs;

technology changes;

delivery delays of critical materials and components;

delays caused by construction accidents, injuries or public health crises;

adverse weather conditions;

unforeseen product defects;

limited access to capital;

changes in commodity pricing or construction costs;

delivery of critical materials;

obtaining necessary permits and licenses;

and other adverse conditions.

Capital investments in our Electric segment require regulatory approval and are subject to the risks of not being granted timely or allowed to be fully recovered.

The inability to complete capital projects on budget and in a timely manner could adversely impact our operating results and financial condition.

Our acquisition or divestiture strategies are subject to risk and could adversely impact our financial position and operating results.

As part of our business strategy, we continually assess our mix of businesses and potential strategic acquisitions or divestitures.

This investment strategy is subject to various risks including the ability to identify appropriate acquisition candidates or successfully negotiate and finance any acquisitions.

In addition, difficulties in integrating the operations, services, products and personnel of the acquired business, and the potential loss of key employees, customers and suppliers of the acquired business could adversely impact our financial condition and operating results.

The sale of any of our businesses may result in the recognition of a loss if the business is sold for less than its book value and may expose us to risk arising from indemnification obligations that arose out of the conduct of the business prior to the sale.

These obligations may include warranty and environmental obligations or the recoverability of certain assets sold as part of the transaction.

Unforeseen costs related to these obligations could impact our operating results.

Weather impacts, including normal seasonal fluctuation and extreme weather events, could adversely affect our operating results.

Our Electric segment business is seasonal and weather patterns can have a material impact on our financial performance.

Capital investments in our Electric segment require regulatory approval and are subject to the risks of not being granted timely approval or allowed to be fully recovered.

In addition, our ability to construct and own utility assets may be impacted by regulatory requirements to competitively bid such investments, which could impact the amount and timing of our capital investments.

A lack of direct ownership, or the inability to complete capital projects on budget and in a timely manner could impact our ability to achieve our strategic financial goals and could adversely impact our operating results and financial condition.

Weather impacts, including seasonal fluctuations, could adversely affect our operating results.

Our Electric segment business is seasonal and weather patterns have had an impact on our financial performance in the past and may again in the future.

Demand for electricity is normally greater in the winter and summer months.

Unusually mild summers and winters could have an adverse effect on our financial condition and results of operations.

Weather can also have a significant impact on our Plastics segment businesses as most U.S.

PVC resin production plants are located in the Gulf Coast region, which is prone to seasonal hurricane activity and other extreme weather events.

Our access to PVC resin may be impacted by the volume and magnitude of hurricane and storm activity in this region.

In addition, our Plastics segment businesses can be affected by weather prohibiting or delaying construction projects at any time of the year in any geography, but specifically times of the year when frozen ground and cold temperatures in many parts of the country can delay construction projects, all of which can result in reduced customer demand.

Our businesses are located in areas that could be subject to natural disasters such as severe snow and ice storms, tornadoes, flooding and fires.

These factors could result in interruption of our business and damage to our facilities.

An extreme weather event within our utility service area could directly affect our capital assets, causing disruption in service to customers and result in repair or replacement costs, due to downed wires and poles or damage to other operating equipment.

In addition to variations in seasonal weather patterns, more widespread climate change may also create physical and financial risk to our businesses.

Physical risks of climate change, such as more frequent or more extreme weather events, changes in temperature and precipitation

patterns, changes to ground and surface water availability and other phenomena, could affect some or all of our operations.

Severe weather or other natural disasters related to climate change could be destructive and result in increased costs and disruptions in our operations.

Extreme weather conditions, such as uncommonly long periods of high or low ambient temperature, generally require more utility system backup, adding to costs and contributing to increased system stress on our utility infrastructure, which could cause service interruptions.

Our Plastics segment businesses can be affected by seasonal weather prohibiting or delaying construction projects at any time of the year in any geography, but specifically times of the year when frozen ground and cold temperatures in many parts of the country can delay construction projects, all of which can result in reduced customer demand and could have an adverse effect on our financial condition, operating results and liquidity.

We are subject to physical and transition risks associated with climate change and extreme weather events.

Longer term shifts in climate patterns may impact our customers' demand for electricity, interrupt our business operations and damage our facilities;

reduce the availability of natural resources, such as water;

and cause disruptions in our supply chains.

Climate change may increase the frequency and severity of extreme weather events, such as prolonged periods of extreme cold or heat, and natural disasters, such as severe snow and ice storms, tornadoes, flooding and wildfires.

These acute events could result in the interruption of our business operations and damage to our facilities.

An extreme weather event within our utility service area could directly affect our capital assets, causing disruption in service to customers, and result in reduced operating revenues and repair or replacement costs, due to downed wires and poles or damage to other operating equipment.

In the past, severe weather events in the Gulf Coast region of the U.S.

have disrupted the supply of PVC resin, the primary material input of our Plastics segment businesses.

PVC resin production plants are located in the Gulf Coast region, an area prone to seasonal hurricane activity and other extreme weather events, our access to PVC resin may be impacted by the volume and magnitude of hurricane and storm activity in this region, which could impact our Plastics segment businesses.

Increased risk of natural disasters, such as wildfires, could have financial consequences, including limiting our ability to secure sufficient insurance coverage, or lead to increased insurance cost.

While we carry liability insurance, given an extreme event, if we were found to be liable for damages, amounts that exceed our coverage limit could negatively impact our financial condition, operating results and liquidity.

These risks may also negatively impact our credit ratings, which may limit our access to capital markets and increase our borrowing costs.

In addition, to the extent investors view climate change, fossil fuel combustion and GHG emissions as a financial risk, our stock price or our ability to access capital markets on favorable terms and conditions could be adversely impacted.

We may experience transition risks in moving towards low carbon generation and manufacturing.

For example, we may face challenges with the adoption of new technologies, meeting changing customer expectations and committing to voluntary GHG emissions reduction goals, as well as complying with evolving local, state or federal regulatory requirements intended to reduce GHG emissions.

The loss of, or significant reduction in revenue from, any of our key customers could have an adverse effect on our operating results.

While no single customer provided more than 10% of our consolidated operating revenues, each of our segments have customers which accounted for over 10% of the segment’s operating revenues.

In 2022, one customer accounted for 11% of Electric segment revenues, three customers combined to account for 50% of Manufacturing segment operating revenues and two customers combined to account for 46% of Plastics segment operating revenues.

In 2023, two customers accounted for 21% of Electric segment revenues, two customers combined to account for 30% of Manufacturing segment operating revenues and two customers combined to account for 36% of Plastics segment operating revenues.

The loss of any one of these customers or a significant decline in sales to these customers, would have a significant negative impact on the segment's financial condition and operating results, and could have a significant negative impact on the Company’s consolidated financial condition, operating results and liquidity.

Electric segment operating revenues also include sales to a customer that is a developer and operator of data centers which serve the high performance computing industry, with a concentration of customers involved in cryptocurrency mining and related activities.

Customer demand from their cryptocurrency mining customers can directly impact our customer's demand for electricity.

The cryptocurrency industry is highly volatile, and a significant decrease in cryptocurrency mining demand could have a negative impact on our customer's demand for electricity, and therefore negatively impact our operating revenues.

We are subject to counterparty credit risk.

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Increased customer delinquencies and bad debts could adversely impact our operating results and liquidity.

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Our operations are subject to environmental, health and safety laws and regulations.

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Our businesses continue to be subject to additional and changing environmental, health and safety laws and regulations, and we could incur additional costs complying with requirements that are promulgated in the future.

New laws or regulations or changes to existing laws and regulations in the future may result in disruptions to our business, changes in customer preferences, or changes in customer demand, which could adversely impact our financial condition, operating results and liquidity.

Recently, various federal and state agencies have heightened their scrutiny of per- and polyfluoroalkyl substances (PFAS), which are manufactured chemicals used in a variety of consumer and industrial products.

In August 2022, the U.S.

EPA proposed to designate perfluorooctanesulfonic acid (PFOS) and perfluorooctanoic acid (PFOA), two of the most common PFAS chemicals, as hazardous substances, which could have wide-ranging impacts on companies across various industries, including ours.

Regulators have recently proposed additional chemicals be designated as hazardous substances, including a proposal to designate perfluorooctanesulfonic acid and perfluorooctanoic acid, two of the most common PFAS chemicals, as hazardous substances, which could have wide-ranging impacts on companies across various industries, including ours.

We are investigating whether PFAS compounds are used in our manufacturing or operating processes that occur in our various businesses.

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A cyber incident, security breach or system failure could adversely affect our business and operating results.

The operation of our business is dependent on the secure functioning of our computer hardware and software systems.

Furthermore, all our businesses require us to collect and maintain sensitive customer data, as well as confidential employee and shareholder information, which is subject to electronic theft or loss.

We also use third-party vendors to electronically process certain of our business transactions.

The operation of our business is dependent on the secure functioning of our computer hardware and software systems, as well as that of third-party service providers and vendors we use to electronically process certain of our business transactions.

Information systems, both ours and those of third parties, are vulnerable to security breaches by computer hackers and cyber terrorists, and the negligent or intentional breach of established controls and procedures, or mismanagement of confidential information by employees.

We may also be impacted by attacks and data security breaches of financial institutions, merchants or third-party service providers.

Cyber-attacks or other security breaches may also be perpetrated through the use of artificial intelligence, which could introduce additional complexity to such an attack or breach.

While we employ a defense-in-depth strategy and regularly conduct cybersecurity assessments, we cannot be certain our information security systems and protocols and those of our vendors and other third parties are sufficient to withstand a cyber-attack or other security breach.

A major cyber incident could result in significant expenses to investigate and repair security breaches or system damage, and could lead to litigation, fines, other remedial action, heightened regulatory scrutiny and damage to our reputation.

For example, we may be subject to liability under various federal, state and international data protection laws.

For example, we may be subject to liability under various federal, state and international disclosure laws and data protection laws.

These laws are subject to change and expansion and may require additional operational changes and costs to comply.

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The inability to attract and retain a skilled and stable workforce at necessary staffing levels, whether due to decreases in hiring rates, increases in employee retirements, increases in terminations, or any combination thereof, may negatively affect our ability to service our customers, manufacture products or successfully manage our business and achieve our objectives.

In 2022, we faced labor challenges within our Manufacturing segment businesses including difficulty attracting and retaining employees.

In response, we offered increased compensation and hiring and retention incentives, which led to increased costs in our business.

Should these challenges persist or exacerbate, our financial results could be impacted.

If we are unable to maintain our desired staffing levels our ability to meet customer demand and achieve our growth targets could be negatively impacted.

Our acquisition or divestiture strategies are subject to risk and could adversely impact our financial position and operating results.

As part of our business strategy, we continually assess our mix of businesses and potential strategic acquisitions or divestitures.

This investment strategy is subject to various risks, including the ability to identify appropriate acquisition candidates, or successfully negotiate and finance any acquisitions.

FINANCIAL RISKS

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However, the impact to our operating results was not significant due to our low level of outstanding borrowings on our short-term indebtedness.

Our operating results could be impacted if we significantly increase our short-term borrowings or issue new long-term debt, and interest rates remain elevated or continue to increase.

Our operating results could be

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impacted if we significantly increase our short-term borrowings or issue new long-term debt, and interest rates remain elevated or continue to increase.

A decrease in our credit ratings could increase our borrowing costs and result in additional contractual costs.

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Changes in tax laws, regulations and interpretations could have an adverse effect on our financial condition and operating results.

Tax law changes that reduce or eliminate production or investment tax credits may impact the economics of constructing certain electric generation resources, which may impact our planned investments and could adversely affect our financial condition and operating results.

A significant impairment of our goodwill would negatively impact our financial position and operating results.

As of December 31, 2022, we had $37.6 million of goodwill recorded on our consolidated balance sheet related to businesses within our Manufacturing and Plastics segments.

Goodwill is tested for impairment annually or whenever events or changes in circumstances indicate impairment may have occurred.

The goodwill impairment test requires us to estimate the fair value of the businesses being tested.

Estimating the fair value of a business unit requires significant judgments and estimates, including estimates of future operating results and cash flows, among others.

These estimates can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, changes in competition or changes in technologies.

Any changes in key assumptions or material differences between actual and forecasted financial performance could affect our fair value estimates and lead to a goodwill impairment charge that could adversely affect our financial condition and operating results, as well as impact compliance with financing agreement covenants.

Tax law changes that reduce or eliminate production or investment tax credits (ITCs), or the ability to transfer or sell these credits, may impact the economics of constructing certain electric generation resources, which may impact our planned investments, and could adversely affect our financial condition and operating results.

ELECTRIC SEGMENT RISKS

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In addition, customer demand could be impacted by increased competition in our service territories or the loss of a service territory or franchise.

Other risks include increased transmission or interconnection costs, generation curtailment and changes in the

manner in which wholesale power is purchased and sold.

Other risks include increased transmission or interconnection costs, generation curtailment and changes in the manner in which wholesale power is purchased and sold.

A decrease in revenues or an increase in expenses related to our electric operations could negatively impact our financial condition, operating results and liquidity.

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In addition, changes in the federal or state regulatory framework could impair our ability to recover utility costs historically collected from our customers.

In addition, prolonged inflationary cost pressures would increase the cost of constructing our utility assets and operating our utility business.

Rising fuel costs in 2022 have increased the cost of providing energy to our customers.

In each instance, there can be no assurance that our state regulatory commissions will authorize recovery of these rising costs.

Diverging public policy priorities across the jurisdictions we serve, and a lack of inter-jurisdictional consensus, may impact our ability to recover the cost of, and return on, our capital investments and our operating costs;

it may impact our future capital investment opportunities;

and may result in inefficiencies which could negatively impact our financial position, operating results and liquidity.

In addition to the recovery of our utility costs, our profitability is impacted by our authorized ROE, which can be impacted by macroeconomic factors such as interest rates.

There can be no assurance that each state utility commission or the FERC will authorize a rate of return which allows us to achieve our financial goals.

An adverse decision by one or more regulatory authorities concerning the level or method of determining electric utility rates;

the authorized returns on equity;

the authority to self-fund transmission upgrades;

recoverability of fuel, purchase power and other costs;

the allocation of costs between jurisdictions, approval of depreciation rates;

implementation of enforceable federal reliability standards or other regulatory matters;

permitted business activities, such as ownership or operation of nonelectric businesses;

or any prolonged delay in rendering a decision in a rate or other proceeding could adversely impact our financial condition, operating results and liquidity.

An adverse decision by one or more regulatory authorities or any prolonged delay in rendering a decision in a rate or other proceeding could adversely impact our financial condition, operating results and liquidity.

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Inflationary cost pressures have increased the cost of constructing our utility assets and operating our utility business.

There can be no assurance that our state regulatory commissions will authorize recovery of rising costs.

Regulatory commissions may also limit future capital investments or the rate of return allowed on such investments in response to inflationary cost pressures and customer bill impacts.

Such limitations could negatively impact our financial position, operating results and liquidity.

Our generating facilities are subject to risks that could result in early closure or the sale of our ownership interest.

Changes in operational or economic factors, environmental regulation or risks of litigation could result in the early closure of or the sale of our interest in a generating facility.

Changes in operational or economic factors, environmental regulation or risks of litigation could result in the early closure or the sale of our interest in a generating facility.

In the event of an early closure, a significant asset impairment charge could be required, and we would be obligated to pay for our share of the costs of closure of the generating facility, including costs associated with decommissioning, remediation, reclamation and restoration of the property, and any costs of terminating contracts associated with the generating facility, such as coal supply arrangements.

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There can be no assurance that we would be authorized by any of our state utility commissions to recover any costs or losses associated with the early closure of or sale of our interest in a generating facility.

The loss of a major generating facility would require OTP to identify and obtain approval for other sources of generation for its customers, if available, and expose it to higher purchased power costs.

The loss of a major generating facility would require OTP to identify and obtain approval for other sources of generation for its customers, if available, and potentially expose us to higher purchased power costs.

In addition, OTP may not be able to obtain timely regulatory approval for new generation resources to replace closed or sold facilities.

In September 2021, our IRP filed in the three jurisdictions in which we operate outlined our plan to withdraw from our 35 percent ownership interest in Coyote Station, a jointly-owned coal-fired generation plant, by December 31, 2028.

If we proceed with the withdrawal under the updated IRP which we expect to file in March 2023, we will seek to recover all costs related to the future withdrawal from Coyote Station, however, there can be no assurance that we will be granted recovery of any such costs.

Our IRP, as revised in two supplemental filings in 2023, outlined our plan to withdraw from our 35% ownership interest in Coyote Station, a jointly owned coal-fired generation plant, in the event we are required to make a major, non-routine capital investment in the plant.

In the event we were to withdraw from our ownership, we will seek to recover all costs related to the withdrawal from Coyote Station;

however, there is a risk we may not be granted recovery of such costs.

A full or partial denial of recovery of the costs of withdrawal could significantly impact our operating results, financial condition and liquidity.

Joint ownership of coal-fired generation facilities could impact our ability to manage changing regulations and economic conditions.

We own our coal-fired generation facilities jointly with other co-owners with varying ownership interests in such facilities.

Our ability to make determinations on our IRP in order to best navigate changing environmental regulations and economic conditions may be impacted by our rights and obligations under the co-ownership agreements and related agreements, and our ability to reconcile a divergence in the interests of OTP and the co-owners of these generation facilities.

Such a divergence could impair our ability to effectively manage these changing conditions to meet our strategic objectives and could adversely impact our financial condition, operating results and liquidity.

Federal and state environmental regulation could require us to incur substantial capital expenditures, increased operating costs or make it no longer economically viable to operate some of our facilities.

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Failure to comply with environmental laws and regulations, even if caused by factors beyond our control, may result in civil or criminal liabilities, penalties and fines.

Coyote Station, one of OTP's jointly-owned coal-fired power plants, is subject to assessment under the second implementation period of RHR as part of the state of North Dakota's state implementation plan, or SIP.

Coyote Station, one of OTP's jointly owned coal-fired power plants, is subject to assessment under the second implementation period of RHR as part of the state of North Dakota's RHR SIP.

We cannot predict with certainty the impact the SIP may have on our business until the plan has been approved or otherwise acted on by the EPA, including its potential implementation of an alternative federal implementation plan.

However, significant emission control investments could be required.

Alternatively, investments in emission control equipment may prove to be uneconomic and result in the early closure of or the sale of our interest in Coyote Station.

Alternatively, investments in emission control equipment may prove to be uneconomic and result in the early closure or the sale of, or withdrawal from, our interest in Coyote Station.

Existing environmental laws or regulations may be revised and new laws or regulations may be adopted or become applicable to us.

The multiple jurisdictions that govern our electric utility business may not agree as to the appropriate resource mix, which may lead to costs incurred to comply

with one jurisdiction that are not recoverable across all jurisdictions served by the same assets.

The multiple jurisdictions that govern our electric utility business may not agree as to the appropriate resource mix, which may lead to costs incurred to comply with one jurisdiction that are not recoverable across all jurisdictions served by the same assets.

Revised or additional regulations which result in increased compliance costs or additional operating restrictions, particularly if those costs are not fully recoverable from customers, could have a material effect on our financial condition, operating results and liquidity, making the operation of some of our facilities no longer economically viable.

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Current and future federal, state, regional and international regulations to address global climate change and reduce GHG emissions, including measures such as mandated levels of renewable generation, mandatory reductions in CO 2 emission levels, taxes on CO 2 emissions, or cap-and-trade regimes, could require us to incur significant costs which could negatively impact our financial condition, operating results and liquidity if such costs cannot be recovered through rates granted by rate-making authorities or through increased market prices for electricity.

In 2021, the Biden Administration introduced new targets aimed at reducing economy-wide net GHG emissions by 50 to 52 percent from 2005 levels by 2030.

In addition, the Administration set a goal to reach 100 percent carbon pollution-free electricity by 2035.

To achieve these targets the Administration may implement new regulations targeting GHG emissions from existing fossil fuel-fired power plants.

While the precise nature and implications of any new regulations are uncertain, such regulations could impose substantial costs on and impact the operations of our utility business, which may materially impact our financial condition, operating results and liquidity.

In 2021, the Biden Administration introduced new targets aimed at reducing economy-wide net GHG emissions by 50% to 52% from 2005 levels by 2030.

In addition, the Administration set a goal to reach 100% carbon pollution-free electricity by 2035.

As a part of achieving these targets, the EPA proposed new regulations in May 2023 under Section 111 of the Clean Air Act to regulate GHG emissions from existing and new fossil fuel-based EGUs.

As detailed above, this proposal would require states to implement stringent emissions standards for most coal-fired steam generating units and certain larger natural gas combustion plants.

Until the EPA takes final action on this rulemaking, we are unable to evaluate the precise impacts;

however, the proposed rule has the potential to impact the emissions controls needed at OTP’s coal-fired power plants, which could have an impact on our operating results, financial condition and liquidity.

The EPA may implement additional new regulations targeting power plants to

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support its aforementioned economy-wide GHG reduction goals, which could impose substantial costs on and impact the operations of our utility business, which may materially impact our financial condition, operating results and liquidity.

In addition to complying with legislation and regulation, we could be subject to litigation related to climate change.

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If OTP were subjected to such litigation, the costs of such litigation could be significant and an adverse outcome could require substantial capital expenditures, changes in operations and possible payment of penalties or damages which could affect our financial condition, operating results and liquidity if the costs are not recoverable in rates or covered by insurance.

To the extent investors view climate change, fossil fuel combustion and GHG emissions as a financial risk, our stock price or our ability to access capital markets on favorable terms and conditions could be adversely impacted.

Violations of extensive legal and regulatory compliance requirements could have a negative impact on our business and results of operations.

We are subject to an extensive legal and regulatory framework imposed under federal and state laws and regulatory agencies, including the FERC and the NERC.

We are subject to an extensive legal and regulatory framework imposed under federal and state laws and regulatory agencies, including the FERC and the North American Electric Reliability Corporation (NERC).

We could be subject to potential financial penalties for compliance violations.

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Any significant interruption or failure of our information systems or any significant breach of security due to cyber-attacks, hacking or internal security breaches or physical attack of our generation or transmission facilities could adversely affect our business and our financial condition, operating results and liquidity.

Our generating facilities and transmission assets are subject to operational risks that could result in unscheduled outages and increased costs.

The operation of electric generating facilities and transmission assets involves many risks including facility shutdowns due to equipment or process failures;

aging equipment and sourcing replacement parts;

labor disputes;

operator error;

catastrophic events such as fires, explosions and floods;

the dependence on a specific fuel source;

increased costs or delayed receipt of materials due to supply chain disruptions;

and the risk of performance below expected levels of output or efficiency.

We could be subject to costs associated with any unexpected failure to produce or deliver power, including failures caused by a breakdown or forced outage, as well as damages to facilities or other assets.

We rely on a limited number of suppliers to provide coal and coal transportation to our facilities.

A failure to perform by any of these counterparties may arise due to liquidity challenges or insolvency, operational deficiencies or other circumstances such as severe weather or natural disasters, which could impact our ability to provide service to our customers or require us to seek alternative sources for these products and services, if available, which could lead to increased costs adversely impacting our financial condition, operating results and liquidity.

Joint ownership of coal-fired generation facilities could impact our ability to manage changing regulations and economic conditions.

We own our coal-fired generation facilities jointly with other co-owners with varying ownership interests in such facilities.

Our generation, transmission, and distribution facilities are subject to operational risks which include circumstances that could result in injuries, loss of life, property damage, and fires.

The operation of our generation, transmission, and distribution facilities involves many risks including equipment failures, accidents and workforce safety matters, environmental damage, property damage, operator error, and the occurrence of catastrophic events such as fires, explosions and floods.

Diminished availability or performance of those facilities could result in facility shutdowns, reduced customer satisfaction, reputational harm, and regulatory inquiries and fines.

Accidents, fires, explosions, catastrophic failures, general system damage or dysfunction, intentional acts of destruction, and other unplanned events related to our infrastructure would increase repair costs and may expose us to liability for personal injury, loss of life, and property damage.

Fires alleged to have been caused by our transmission, distribution, or generation infrastructure, or that allegedly result from our contractors’ operating or maintenance practices, could also expose us to claims for fire suppression and clean-up costs, evacuation costs, fines and penalties, and liability for economic damages, personal injury, loss of life, property damage, and environmental pollution, whether based on claims of negligence, trespass, or otherwise.

We maintain insurance coverage for such operating and event risks, but insurance coverage is subject to the terms and limitations of the available policies and may not be sufficient in amount to cover our ultimate liability.

We may be unable to fully recover costs in excess of insurance through customer rates or regulatory mechanisms.

If the amount of insurance is insufficient or otherwise unavailable, and if we are unable to fully recover in rates the costs of uninsured losses, our financial condition, operating results and liquidity could be materially affected.

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We are subject to risks associated with the procurement and transportation of fuel to our coal and natural gas powered generation facilities.

We rely on a limited number of suppliers to provide coal and a limited number of service providers to transport coal and natural gas to our facilities.

A counterparty's failure to perform their obligations may arise due to liquidity challenges or insolvency, operational deficiencies or other circumstances such as severe weather or natural disasters, which could impact our ability to provide service to our customers or require us to seek alternative sources for these products and services, if available.

A prolonged failure to perform by one or more of our current suppliers or service providers could lead to increased costs or other consequences which could negatively impact our financial condition, operating results and liquidity.

We are subject to risks associated with energy markets.

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Declines in commodity prices for these scrap materials due to weakened demand or excess supply can negatively impact the profitability of our manufacturing companies as it reduces their ability to mitigate the cost associated with excess material.

Competition from foreign and domestic manufacturers could affect the revenues and earnings of our manufacturing businesses.

Our manufacturing businesses are subject to intense competition from foreign and domestic manufacturers, many of whom have broader product lines, greater distribution capabilities, greater capital resources, larger marketing, research and development personnel and facilities, and other capabilities.

Competition from domestic and foreign manufacturers could affect the revenues and earnings of our manufacturing businesses.

Our manufacturing businesses are subject to intense competition from domestic and foreign manufacturers, many of whom have broader product lines, greater distribution capabilities, greater capital resources, larger marketing, research and development personnel and facilities, and other capabilities.

Our ability to compete on product performance, competitive pricing, technological innovation and customer service is critical to our ongoing success.

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The acquisition and implementation of new technologies and equipment may require us to incur significant expense and capital investment, which could reduce our margins and affect our operating results.

When we establish or acquire new facilities, we may not be able to maintain or develop our manufacturing, engineering and technological expertise due to a lack of trained personnel, ineffective training of new staff or technical difficulties with machinery.

When we establish or acquire new facilities, we may not be able to maintain or develop our manufacturing, engineering and technological expertise due to a lack of trained

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personnel, ineffective training of new staff or technical difficulties with machinery.

Failure to anticipate and adapt to customers’ changing technological needs and requirements and to maintain manufacturing, engineering and technological expertise may have material adverse effects on our financial condition, operating results and liquidity.

PLASTICS SEGMENT RISKS

External factors beyond our control could cause fluctuations in demand for our PVC pipe products and changes in our prices and margins, which could adversely impact our operating results.

Our PVC pipe products, sold through distributors and wholesalers, are primarily used in municipal and rural water projects, wastewater projects, storm drainage systems and reclamation systems.

External factors beyond our control can cause volatility in demand for our products and sales prices impacting our operating margins.

These factors can magnify the impact of economic cycles on our business and results of operations.

Examples of external factors include:

• general economic conditions including housing and construction markets which can be cyclical;

• increases in interest rates;

• severe weather and natural disasters;

• governmental regulation in the United States;

• funding shortages for municipal water and wastewater projects.

Extraordinary industry supply and demand dynamics beginning in 2021 and continuing through 2023 led to a rapid and significant increase in sales prices for PVC pipe and led to a significant expansion in our operating margins.

As industry conditions normalize, sales prices for PVC pipe are expected to moderate from current levels resulting in decreased operating margins prospectively.

The pace and magnitude of the decline in product pricing could materially impact our operating results.

Changes in PVC resin prices could negatively affect our plastics business.

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Changes in PVC resin prices can negatively affect PVC pipe prices, profit margins on PVC pipe sales and the value of our finished goods inventory.

Periodic shortages of PVC resin coupled with robust domestic and global demand for PVC resin led to significantly increased resin pricing throughout 2021 and the first half of 2022, which resulted in higher input costs in our Plastics segment during these years.

Resin prices started to decline in the last half of 2022 and we anticipate resin prices will moderate in 2023 as these market conditions normalize.

Our operating results could be impacted by the timing and degree to which resin prices stabilize.

Our plastics operations are highly dependent on a limited number of vendors and a limited supply of PVC resin and other materials.

We rely on a limited number of vendors to supply the PVC resin used in our plastics business.

In 2022 we sourced all of our PVC resin needs from two vendors.

We rely on a limited number of vendors to supply the PVC resin used in our plastics businesses.

In 2023, we sourced all of our PVC resin needs from three vendors.

In addition, the supply of PVC resin may be limited primarily due to manufacturing capacity and the limited availability of raw material components.

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Our inability to compete effectively in each of these areas and to distinguish our plastic pipe products from competing products may adversely affect the financial performance of our plastics businesses.

External factors beyond our control could cause fluctuations in demand for our PVC pipe products and changes in our prices and margins, which could adversely impact our operating results.

Our PVC pipe products, sold through distributors and wholesalers, are primarily used in municipal and rural water projects, wastewater projects, storm drainage systems and reclamation systems.

External factors beyond our control can cause volatility in raw material costs, demand for our products, sales prices, and deterioration in operating margins.

These factors can magnify the impact of economic cycles on our business and results of operations.

Examples of external factors include:

• general economic conditions including housing and construction markets which can be cyclical;

• increases in interest rates;

• severe weather and natural disasters;

• governmental regulation in the United States;

• funding shortages for municipal water and wastewater projects;

• pandemics and other public health threats.

Our financial results in 2021 and 2022 were impacted by unique market conditions within the PVC pipe industry, including a significant increase in the price of PVC resin, and periodic shortages of certain additives and ingredients used in the manufacturing of PVC pipe which limited the manufacturing of PVC pipe.

Strong demand for PVC pipe along with limited manufacturing output led to low inventories across the industry.

The combination of these factors resulted in extraordinary growth in earnings and cash flows from our Plastic segment in these years.

As these industry conditions begin to normalize in 2023 and beyond, we anticipate our operating results and cash flows will moderate, returning to more stable levels.

Our operating results and cash flows could be impacted by the timing under which conditions normalize and the level of stabilized resin and PVC pipe prices.

GENERAL RISK FACTORS

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To achieve the organic growth we expect, we must have access to the capital markets, be successful with capital expansion programs related to organic growth, develop new products and services, expand our markets and increase efficiencies in our businesses.

Competitive and economic factors could adversely affect our ability to do this.

Competitive and economic factors could adversely

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affect our ability to do this.

If we are unable to achieve and sustain consistent organic growth, we will be less likely to meet our earnings growth targets, which may adversely affect the market price of our common shares.

The economic effects of the coronavirus (COVID-19) pandemic and any other epidemic or pandemic, and measures taken to reduce and slow the spread of the disease could adversely impact our business.

The outbreak and global spread of COVID-19 has had widespread impacts on society, economies, financial markets and businesses everywhere since early 2020.

The COVID-19 pandemic has impacted our business operations, including our employees, customers, construction contractors, suppliers and vendors, and some uncertainty in the nature and degree of the continued effects over time still remains.

In 2022, our business was impacted by supply chain disruptions and labor shortages resulting from the pandemic, and the associated costs and inflation related thereto.

The extent to which COVID-19 impacts our business going forward, if at all, remains uncertain.

We continue to monitor developments involving our workforce, customers, construction contractors, suppliers and vendors and take steps to mitigate against additional impacts, but given the unprecedented and evolving nature of these circumstances, we cannot predict the full extent of the impact that COVID-19 will have on our operating results, financial condition and liquidity.

The effects of a major public health crisis, such as an epidemic or pandemic, and measures taken to reduce and slow the spread of the disease could adversely impact our business.

A future widespread outbreak of an infectious disease, which affects a large percentage of the population regionally, nationally, or globally could impact our business operations, including our employees, customers, construction contractors, suppliers and vendors, and could impact our operating results, financial condition and liquidity.

UNRESOLVED STAFF COMMENTS

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 1A. Risk Factors