What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-14 compared with 2023-02-15 · 257 added, 161 removed, 1117 unchanged (27% of the section changed)

8 unchanged sentences

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report Regarding Internal Controls Over Financial Reporting.

Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

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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.

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

Critical Audit Matter Description

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This guidance also provides 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.

The Company is subject to rate regulation by state and federal regulatory agencies (collectively, the “Commissions”), which have jurisdiction with respect to the rates of electric distribution companies in Minnesota, North Dakota and South Dakota.

The Company is subject to regulation of rates and other matters by state and federal regulatory agencies (collectively, the “Commissions”), which have jurisdiction with respect to the rates of electric distribution companies in Minnesota, North Dakota and South Dakota.

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 that 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.

There is a risk that the Commissions will not approve full recovery of the costs of providing utility service or full recovery of all amounts invested in the utility business and a reasonable return on that investment.

As a result, we identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements.

Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, (2) a disallowance of capital expenditures or operating costs that management believes were prudently incurred, and (3) a refund to customers.

Given that management’s accounting judgements are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due its inherent complexities.

Management judgments include the recording of regulatory assets for certain costs which otherwise would be recognized in the statement of income or comprehensive income based on an expectation that the costs will be recovered in future rates and the recording of regulatory liabilities for certain credits which would otherwise be recognized in the statement of income or comprehensive income based on an expectation that the amount will be returned to customers in future rates.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the Commissions included the following, among others:

• We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities.

We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment;

regulatory assets or liabilities;

and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.

• We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities.

We also tested the effectiveness of management’s controls over the initial recognition of amounts as regulatory assets or liabilities, the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates, and the related disclosures in the notes to the financial statements.

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

• We inquired of management about property, plant, and equipment that may be abandoned.

We inspected the capital-projects budget and construction-in-process listings and inquired of management to identify projects that are designed to replace assets that may be retired prior to the end of the useful life.

We inspected minutes of the board of directors and regulatory orders and other filings with the Commissions to identify any evidence that may contradict management’s assertion regarding probability of an abandonment.

• We compared actual spend for projects that have been capitalized to property, plant, and equipment to budget.

We evaluated regulatory filings for any evidence that intervenors are challenging full recovery of the cost of any capital projects.

• 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.

• We obtained an analysis from management 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.

/s/ Deloitte & Touche LLP

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We have served as the Company's auditor since 1944.

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OTTER TAIL CORPORATION

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Short-Term Debt $ 81,422 $ 8,204

Current Maturities of Long-Term Debt — 29,983

Accounts Payable 94,428 104,400

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Noncurrent Liabilities and Deferred Credits

Pensions Benefit Liability 33,210 73,973

Pension Benefit Liability

33,101 33,210

Other Postretirement Benefits Liability 27,676 46,977

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Capitalization

Long-Term Debt, net of current maturities 823,821 734,014

Long-Term Debt

824,059 823,821

Shareholders' Equity

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Retained Earnings 806,342 585,212

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

Accumulated Other Comprehensive Income

Total Shareholders' Equity 1,443,006 1,217,317

2 unchanged sentences

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

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Cost of Products Sold (excluding depreciation) 454,122 542,944 488,370

Other Nonelectric Expenses 69,718 65,394 55,051

Nonelectric Selling, General, and Administrative Expenses

72,663 69,718 65,394

Depreciation and Amortization 97,954 92,597 91,358

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Other Income and Expense

Interest Charges 36,016 37,771 34,447

Interest Expense

( 37,677 ) ( 36,016 ) ( 37,771 )

Nonservice Cost Components of Postretirement Benefits 10,597 1,075 ( 2,016 )

10 unchanged sentences

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

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Other Comprehensive Income (Loss):

Unrealized (Loss) Gain on Available-for-Sale Securities, net of tax benefit (expense) of $ 115 , $ 52 and $( 42 )

Unrealized Gain (Loss) on Available-for-Sale Securities, net of tax (expense) benefit of $( 51 ), $ 115 and $ 52

192 ( 432 ) ( 196 )

Pension and Other Postretirement Benefit Plan, net of tax (expense) benefit of ($ 2,769 ), $( 766 ) and $ 796

Pension and Other Postretirement Benefit Plan, net of tax expense of $ 14 , $ 2,769 and $ 766

41 7,871 2,179

Total Other Comprehensive Income (Loss)

Total Other Comprehensive Income

233 7,439 1,983

1 unchanged sentence

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

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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, Net of Expenses 11,540 58 446 — — 504

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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

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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, Net of Expenses 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 )

14 unchanged sentences

See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

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Discretionary Contribution to Pension Plan — ( 20,000 ) ( 10,000 )

Allowance for Equity Funds Used During Construction ( 1,690 ) ( 822 ) ( 4,063 )

Investment (Gains) Losses

( 7,222 ) 3,296 ( 4,524 )

Stock Compensation Expense 7,753 6,814 6,908

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Other, net ( 904 ) ( 2,123 ) ( 3,681 )

Net Cash (Used in) Provided by Financing Activities ( 96,779 ) ( 59,359 ) 143,695

Net Cash Used in Financing Activities

( 3,835 ) ( 96,779 ) ( 59,359 )

Net Change in Cash and Cash Equivalents 111,377 117,459 374

8 unchanged sentences

See accompanying notes to consolidated financial statements

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OTTER TAIL CORPORATION

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Summary of Significant Accounting Policies

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.

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.

We classify our business into three segments:

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

Reclassifications

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

Other, net operating cash flows previously reported for the years ended December 31, 2022 and 2021, included $ 3.3 million of investment losses and $ 4.5 million of investment gains, respectively, which are presented separately in the current year, and excluded $ 1.7 million and $ 0.8 million of allowance for equity funds used during construction (AFUDC), which were previously presented separately.

The reclassifications had no impact on previously reported net cash provided by operating activities, net cash used in investing activities, net cash used in financing activities, or cash and cash equivalents.

Certain prior period amounts related to deferred tax assets and deferred tax liabilities included in footnote 12 have been reclassified to conform to the current year presentation.

Regulatory Accounting

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.

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 FERC for certain interstate operations.

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

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Amounts recorded as regulatory assets and regulatory liabilities are generally recognized in the statements of income at the time they are reflected in customer rates.

In the event OTP ceases to meet the criteria to apply the guidance for regulated operations, the regulatory assets and liabilities that no longer meet such criteria would be removed from the consolidated balance sheet and included in the consolidated statement of income as an expense or income item in the period in which the application of this guidance ceases.

In the event OTP ceases to meet the criteria to apply the guidance for regulated operations, the regulatory assets and liabilities that no longer meet such criteria would be removed from the consolidated balance sheets and included in the consolidated statement of income as an expense or income item, or in the consolidated statement of comprehensive income as a loss or gain item, in the period in which the application of this guidance ceases.

Cash Equivalents

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

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

Concentration of Deposits

We hold deposits with financial institutions which potentially subject us to a concentration risk.

These deposits are guaranteed by the Federal Deposit Insurance Corporation up to an insurance limit of $250,000.

Currently, our cash deposits exceed federally insured levels.

Revenue from Contracts with Customers

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Depending on the product produced and sold or service performed and the terms of the agreement with the customer, we recognize revenue either over time, in the case of delivery or transmission of electricity or related services or the production and storage of certain custom-made products, or at a point in time for the delivery of standardized products and other products made to customer specifications where the terms of the contract require transfer of the completed product.

Provisions for sales returns, early payment terms discounts, and volume-based variable pricing incentives are recorded as reductions to revenue at the time revenue is recognized based on customer history, historical information and current trends.

Provisions for sales returns, early payment discounts, and volume-based variable pricing incentives are recorded as reductions to revenue at the time revenue is recognized based on customer history, historical information and current trends.

We include revenues received for shipping and handling in operating revenues.

Expenses paid for shipping and handling are recorded as part of cost of goods sold.

Expenses paid for shipping and handling are recorded as part of cost of products sold.

Sales or other taxes collected from customers are excluded from operating revenues.

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Electric Segment Revenues.

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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 kwh of energy delivered to the customer.

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 amount of energy delivered to the customer.

Manufacturing Segment Revenues.

Our Manufacturing segment businesses earn revenue predominantly from the production and delivery of custom-made or standardized parts to customers across several industries and certain businesses also earn revenue from the production and sale of tools and dies to other manufacturers.

Our Manufacturing segment businesses earn revenue predominantly from the production and delivery of custom-made or standardized parts and products to customers across several industries and from the production and sale of tools and dies to other manufacturers.

For the production and delivery of standardized products and other products made to customer specifications where the terms of the contract require transfer of the completed product, we have met our performance obligation and recognize revenue at the point in time when the product is shipped.

At this point we have no further obligation to provide services related to such products.

The shipping terms used in these transactions are FOB shipping point.

The shipping terms used in these transactions are free on board (FOB) shipping point.

Plastics Segment Revenues.

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Ownership of the pipe transfers to the customer prior to delivery and we are paid a negotiated fee for storage of the pipe.

Revenue for storage of the pipe is also recognized over time as the pipe is stored.

Revenue for storage of the pipe is recognized over time as the pipe is stored.

Alternative Revenue

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Total Inventories $ 149,701 $ 145,952

We invest in and hold, through a rabbi trust, corporate-owned life insurance policies to provide future funding for obligations under our supplemental pension plan and a non-qualified deferred compensation plan.

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We invest in and hold, through rabbi trusts, corporate-owned life insurance policies to provide future funding for obligations under our supplemental pension plan and a nonqualified deferred compensation plan.

The polices are recorded at cash surrender value and there are no restrictions on our ability to surrender the policies.

We hold debt, mutual fund investments and money market funds either as investments within our captive insurance entity or to provide future funding for obligations under non-qualified deferred compensation plans.

We hold debt, mutual fund, and money market fund investments either as investments within our captive insurance entity or to provide future funding for obligations under nonqualified deferred compensation plans.

These investments are recorded at fair value.

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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 (AFUDC).

The cost of additions includes contracted work, direct labor and materials, allocable overheads and AFUDC.

The amount of interest capitalized to electric plant was $ 1.9 million in 2023, $ 0.9 million in 2022 and $ 0.6 million in 2021.

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The provisions for utility depreciation for financial reporting purposes are made on the straight-line method based on the estimated remaining service lives of the properties.

Gains or losses on group asset dispositions are taken to the accumulated provision for depreciation reserve and impact current and future depreciation rates.

Gains or losses on group asset dispositions are recorded to accumulated depreciation and impact current and future depreciation rates.

Property, plant and equipment of nonelectric operations are carried at historical cost and are depreciated on a straight-line basis over the assets’ estimated useful lives.

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Goodwill is recognized and initially measured as any excess of the acquisition-date consideration transferred in a business combination over amounts recognized for the net identifiable assets acquired.

Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill.

Goodwill is not amortized, but is tested for impairment annually, or more frequently if

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an event occurs or circumstances change that would more likely than not result in an impairment of goodwill.

Impairment testing is performed at the reporting unit level, which is defined as an operating segment or one level below an operating segment.

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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.

The costs of the intangible assets are amortized over their estimated useful lives, which generally range from 15 to 20 years.

Cloud Computing Costs

We capitalize implementation costs incurred in cloud computing arrangements that are service contracts consistent with capitalized implementation costs incurred to develop or obtain internal-use software.

Costs are amortized on a straight-line basis over the life of the associated contract.

Capitalized implementation costs are amortized over periods up to ten years .

Capitalized costs and related accumulated amortization are included in other noncurrent assets on the consolidated balance sheets.

Below are the amounts of capitalized cost and related accumulated amortization as of December 31, 2023 and 2022:

(in thousands) 2023 2022

Cloud Computing Costs

$ 12,782 $ 9,024

Accumulated Amortization

$ ( 1,505 ) $ ( 897 )

Cloud Computing Costs, net

$ 11,277 $ 8,127

Amortization expense of capitalized implementation costs for each of the years ended December 31, 2023, 2022 and 2021 totaled $ 1.3 million, $ 1.4 million, and $ 0.5 million.

We recognize right-of-use lease assets and a corresponding lease liability at the lease commencement date.

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

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We recognize the tax effects of all tax positions that are more-likely-than-not to be sustained on audit based solely on the technical merits of those positions as of the balance sheet date.

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

We have elected to account for transferable tax credits as a component of our income tax provision.

We recognize the benefit of PTCs as a reduction of income tax expense in the period the credit is generated, which corresponds to the period the energy production occurs.

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.

Deferred Compensation Plans

The Company sponsors two nonqualified deferred compensation plans for the benefit of executive officers and other select employees.

Each plan allows participants to defer a specified amount or percentage of base wages or incentive compensation into the plan, subject to certain limitations.

The Company, at its discretion, may make employer contributions to either plan during any annual period.

Participant and employer deferred amounts are segregated into one or more accounts chosen by the participant.

Participants earn a return on deferred amounts based on notional investments in the segregated accounts.

Participants can elect lump sum distributions or annual installments of deferred balances during the participant's employment or upon retirement.

As of December 31, 2023 and 2022, our liability to participants under these deferred compensation plans was $ 24.6 million and $ 20.6 million.

Company contributions to these plans were $ 1.2 million, $ 0.9 million and $ 1.1 million for the years ended December 31, 2023, 2022 and 2021.

Gains or (losses) recognized due to changes in our payment obligations in connection with these plans amounted to ($ 3.3 million), $ 3.1 million, and ($ 2.2 million) for the years ended December 31, 2023, 2022 and 2021.

Stock-Based Compensation

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In instances where the determination of the fair value measurement is based on inputs from different levels within the hierarchy, the level in the hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Related Parties

The Otter Tail Corporation Foundation and Otter Tail Power Company Foundation are independent not-for-profit charitable entities affiliated with the Company and are not included in the consolidated financial statements of Otter Tail Corporation.

Contribution obligations to the two foundations totaling $ 5.5 million and $ 4.3 million were recognized as of December 31, 2023 and 2022.

Cash contributions paid to the two foundations during the years ended December 31, 2023, 2022 and 2021 were $ 4.3 million, $ 4.5 million, and $ 3.8 million.

Variable Interest Entity

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.

In October 2012, the Coyote Station owners, including OTP, entered into an LSA with Coyote Creek Mining Company, LLC, 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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No single owner of Coyote Station owns a majority interest in Coyote Station and none, individually, has the power to direct the activities that most significantly impact CCMC.

Therefore, none of the owners individually, including OTP, is considered a primary beneficiary of the VIE and the Company is not required to include CCMC in its consolidated financial statements.

Therefore, none of the owners individually, including OTP, is considered the primary beneficiary of the VIE and the Company is not required to include CCMC in its consolidated financial statements.

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If the LSA terminates prior to the expiration of its term or the production period terminates prior to December 31, 2040 and the Coyote Station owners purchase all of the outstanding membership interests of CCMC, the owners will satisfy or, if permitted by CCMC’s applicable lenders, assume all of CCMC’s obligations owed to CCMC’s lenders under its loans and leases.

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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 $ 40 million, or OTP’s 35 % share of CCMC’s unrecovered costs as of December 31, 2023, if recovery of such a loss is denied by regulatory authorities.

Recent Accounting Pronouncements

Segment Reporting.

In November 2023, the Financial Accounting Standards Board (FASB) issued amended authoritative guidance codified in Accounting Standards Codification (ASC) 280, Segment Reporting.

The amended guidance expands annual and interim disclosure requirements for reportable segments, primarily through expanded disclosures about significant segment expenses.

The updated standard is effective for our annual periods beginning in 2024 and interim periods beginning in the first quarter of fiscal 2025.

Adoption of the amended guidance must be applied retrospectively to all prior periods presented in the financial statements.

We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

Income Taxes.

In December 2023, the FASB issued amended authoritative guidance codified in ASC 740, Income Taxes.

The amended guidance requires additional disaggregated information in effective tax rate reconciliation disclosures and additional disaggregated information about income taxes paid.

The updated standard is effective for our annual periods beginning in 2025.

The amended guidance is to be applied on a prospective basis with the option to apply the standard retrospectively.

We are currently evaluating the impact that the updated standard will have on our financial statement disclosures.

Segment Information

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The PVC pipe is sold primarily in the western half of the United States and Canada.

Certain assets and costs are not allocated to our operating segments.

Corporate operating costs include items such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of operating segment performance.

Corporate assets consist primarily of cash, prepaid expenses, investments and fixed assets.

Certain assets, income and expenses are not allocated to our operating segments.

Corporate operating results include items such as corporate staff and overhead costs, the results of our captive insurance company, gains or losses on our investments and returns on our cash equivalent investments.

These items and others are excluded from the measurement of operating segment performance.

Corporate assets consist primarily of cash, investments, prepaid expenses, and fixed assets.

Corporate is not an operating segment, rather it is added to operating segment totals to reconcile to consolidated amounts.

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Information for each segment and our unallocated corporate costs for the years ended December 31, 2023, 2022 and 2021 are as follows:

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Total 377,919 390,439 249,708

Interest Charges

Interest Expense

Electric 33,864 31,950 33,043

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Total $ 3,242,568 $ 2,901,661

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Concentrations

Our Plastics segment businesses use PVC resin as a critical component within their PVC pipe manufacturing process.

There are a limited number of PVC resin suppliers in the U.S., and in 2022, we sourced all of our PVC resin needs from two vendors.

There are a limited number of PVC resin suppliers in the U.S., and in 2023, we sourced all of our PVC resin needs from three vendors.

Although there are a limited number of PVC resin suppliers, we believe that other suppliers could provide PVC resin on comparable terms.

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Receivables, net of allowance for credit losses $ 157,143 $ 144,393

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The following is a summary of activity in the allowance for credit losses for the years ended December 31, 2023 and 2022:

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Reductions for Amounts Written Off, Net of Recoveries

( 1,140 ) ( 1,097 )

Ending Balance $ 2,522 $ 1,648

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Asset lives — 87 — 1,467

ISO Cost Recovery Trackers 1

Up to 2 years

575 314 — 1,342

Unrecovered Project Costs 1

Up to 5 years

320 990 2,136 1,455

Deferred Rate Case Expenses 1

Up to 2 years

377 754 607 1,131

Debt Reacquisition Premiums 1

Up to 10 years

25 216 100 240

Deferred Income Taxes Asset lives — 6,940 — —

Fuel Clause Adjustments 1

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Derivative Instruments 1

4,210 — 7,130 —

Various 750 2,396 1,297 2,326

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11,350 — 365 —

Alternative Revenue Program Riders Various 2,504 7,136 5,772 3,336

Pension and Other Postretirement Benefit Plans Up to 1 year

Alternative Revenue Program Riders Up to 1 year

6,885 — 2,504 —

Derivative Instruments Up to 1 year

North Dakota PTC Refunds

Asset lives — 12,011 — 7,136

Pension and Other Postretirement Benefit Plans See below 6,138 11,307 5,589 —

Other Various 1,035 177 333 148

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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 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 collected from or returned to customers.

Fuel Clause Adjustments represent the under- or over-collection of fuel costs relative to the estimated cost of fuel included in customer rates, which will be collected from or returned 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.

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

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

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.

North Dakota PTC Refunds represent PTCs earned from the Merricourt Wind Energy Center.

These amounts are being allocated to customers over the life of the asset.

Other regulatory assets and liabilities include other amounts that we expect to recover from, or return to, customers in future periods, such as

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the cost of abandoned projects, costs incurred in connection with recent rate cases, and other items.

North Dakota Rate Case

On November 2, 2023, OTP filed a request with the NDPSC for an increase in revenue recoverable under general rates in North Dakota.

In its filing, OTP requested a net increase in annual revenue of $ 17.4 million, or 8.4 %, based on an allowed rate of return on rate base of 7.85 % and an allowed rate of return on equity of 10.6 % on an equity ratio of 53.5 % of total capital.

Through this proceeding, OTP has proposed changes to the mechanism of cost and investment recovery, with recovery moving from riders into base rates.

The filing also includes a proposal to implement a sales adjustment mechanism to address potential significant load additions or losses.

The filing included an interim rate request of a net increase in annual revenue of $ 12.4 million, or 6.0 %, which was approved by the NDPSC on December 13, 2023, and interim rates went into effect on January 1, 2024.

These interim rate revenues, when collected, are subject to potential refund until the finalization of the rate case.

Property, Plant and Equipment

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Depreciation expense for the years ended December 31, 2023, 2022 and 2021 totaled $ 90.8 million, $ 84.4 million and $ 85.8 million.

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The following table provides OTP’s ownership percentages and amounts included in the December 31, 2023 and 2022 consolidated balance sheets for OTP’s share of each of these jointly owned facilities:

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Bemidji–Grand Rapids 230 kV line 14.8 % 16,331 — ( 3,568 ) 12,763

Jamestown– Ellendale 345 kV line 50.0 % — 1,121 — 1,121

Big Stone South–Alexandria 345 kV line 40.0 % — 555 — 555

Alexandria–Big Oaks 345 kV line

14.2 % — 343 — 343

December 31, 2022

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Amortization Expense $ 1,100 $ 1,100 $ 1,092 $ 1,090 $ 554

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

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

All leases are classified as operating leases.

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Weighted-Average Discount Rate 5.40 % 4.73 %

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Short-Term and Long-Term Borrowings

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Total $ 340,000 $ 81,422 $ 9,132 $ 249,446 $ 322,223

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.

OTC is party to a Fifth Amended and Restated Credit Agreement (the OTC Credit Agreement) and OTP is party to a Fourth Amended and Restated Credit Agreement (the OTP Credit Agreement).

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.

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

Each credit facility expires on October 29, 2027.

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Long-Term Debt

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

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

OTP Series 2007C Senior Unsecured Notes 6.37 % 08/02/27 42,000 42,000

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Total 827,000 827,000

Current Maturities Net of Unamortized Debt Issuance Costs — 29,983

Unamortized Long-Term Debt Issuance Costs 2,941 3,179

Total Long-Term Debt Net of Unamortized Debt Issuance Costs $ 824,059 $ 823,821

On June 10, 2021, OTP entered into a Note Purchase Agreement pursuant to which OTP agreed to issue, in a private placement transaction, $ 230.0 million of senior unsecured notes consisting of (a) $ 40.0 million of 2.74 % Series 2021A Senior Unsecured Notes due November 29, 2031, (b) $ 100.0 million of 3.69 % Series 2021B Senior Unsecured Notes due November 29, 2051 and (c) $ 90.0 million of 3.77 % Series 2022A Senior Unsecured Notes due May 20, 2052.

During the year ended December 31, 2021, OTP issued its Series 2021A and Series 2021B notes for aggregate proceeds of $ 140.0 million, which were used to repay the Series 2011A notes.

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.

These notes provide for prepayment options allowing for a full or partial prepayment at 100 % of the principal amount so prepaid, together with unpaid accrued interest and a make-whole amount, as defined.

These notes also include restrictions on the borrowers, including its ability to merge, sell assets, create or incur liens on assets, guarantee the obligations of any other party and engage in transactions with related parties.

These notes also include restrictions on the borrower, including its ability to merge, sell assets, create or incur liens on assets, guarantee the obligations of any other party and engage in transactions with related parties.

Aggregate maturities of long-term debt obligations at December 31, 2023 for each of the next five years are as follows:

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As of December 31, 2023, OTC and OTP were in compliance with these financial covenants.

OTC's obligations under the terms of its Guaranteed Senior Notes are unconditionally and irrevocably guaranteed by its subsidiaries, Varistar Corporation, BTD Manufacturing, Inc., Northern Pipe Products, Inc., and Vinyltech Corporation.

Employee Postretirement Benefits

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The ESSRP, an unfunded plan, provides for defined benefit payments to executive officers and certain key management employees on their retirement for life, or to their beneficiaries on their death.

The ESSRP was amended and restated in 2019 to i) freeze the participation in the restoration retirement benefit component of the plan and ii) freeze benefit accruals under the restoration retirement benefit component of the plan for all participants of the plan except any participants deemed to be grandfathered participants.

The ESSRP was amended and restated in 2019 to i) freeze the participation in the

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restoration retirement benefit component of the plan and ii) freeze benefit accruals under the restoration retirement benefit component of the plan for all participants of the plan except any participants deemed to be grandfathered participants.

The postretirement healthcare plan, closed to new participants in 2010, provides a portion of health insurance benefits for retired and covered corporate and OTP employees.

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energy companies which trade at a discount to fair value.

Redemptions are allowed semi-annually with a 95 -day notice period, subject to fund director consent and certain gate, holdback and suspension restrictions.

Redemptions are allowed semi-annually with a 95 -day notice

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period, subject to fund director consent and certain gate, holdback and suspension restrictions.

Subscriptions are allowed monthly with a three-year lock up on subscriptions.

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Plan Amendments — — — — ( 17,493 ) —

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

Actuarial (Gain) Loss

8,126 ( 110,632 ) 392 ( 10,547 ) ( 2,123 ) ( 20,450 )

Benefit Obligation at December 31 318,801 308,055 35,780 35,624 30,145 49,947

Funded Status $ 11,678 $ 5,742 $ ( 35,780 ) $ ( 35,624 ) $ ( 30,145 ) $ ( 49,947 )

Amounts Recognized in Consolidated Balance Sheet at December 31:

Amounts Recognized in Consolidated Balance Sheets at December 31:

Noncurrent Assets $ 11,678 $ 5,742 $ — $ — $ — $ —

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The accumulated benefit obligation of our ESSRP was $ 35.8 million and $ 35.6 million as of December 31, 2023 and 2022.

In 2023, the Company amended its postretirement healthcare plan to eliminate, for Medicare-eligible participants, the employer-sponsored group waiver medical plan and instead allow participants to select an individual medical plan through a private marketplace exchange.

The Company now provides these plan participants with an annual reimbursement to subsidize their medical premiums.

The effect of the plan amendment reduced the Company’s projected benefit obligation by $ 20.1 million.

The reduced benefit obligation included a $ 2.6 million reduction attributable to an increase in the discount rate used to measure the plan liability, which was 6.06 % at the time of the amendment, compared to 5.52 % used at December 31, 2022.

The $ 17.5 million of savings attributable to the plan change is being recognized as a reduction to expense over 4.8 years, the expected remaining service period to retirement-age eligibility for active participants.

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The following assumptions were used to determine benefit obligations as of December 31, 2023 and 2022:

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

Participants to Age 39 (1)

Participants up to Age 39 (1)

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

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

(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.

(1) Amount reflects rate of compensation increases for both union and non-union employees.

(2) Amount reflects rate of compensation increases for union employees.

The rate of compensation increases for non-union employees is 3.50 %.

(3) Amount reflects rate of compensation increases for union employees.

The rate of compensation increases for non-union employees is 3.00 %.

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 2023 and 2022 reduced our obligation by $ 2.2 million and $ 117.1 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.

Changes in retirement rate, percentage married, spouse age, benefit election, benefit commencement age and wage assumptions increased our benefit obligation in 2023 by $ 7.9 million.

Changes in plan participant census data increased our benefit obligation by $ 3.1 million in 2023.

Actual returns on Pension Plan assets in 2023 were $ 34.2 million, compared to an expected return of $ 25.9 million, impacting our obligation by $ 8.3 million.

• For the ESSRP, an increase in the discount rate in 2023 and 2022 reduced our obligation by $ 0.1 million and $ 10.2 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.

• For the postretirement healthcare plan, a plan amendment during 2023, as described above, decreased our benefit obligation by $ 17.5 million.

An increase in the discount rate in 2023 and 2022 reduced our obligation by $ 1.3 million and $ 17.9 million.

Revised estimates of healthcare cost trends and participant contribution assumptions increased the benefit obligation by $ 1.1 million in 2023.

Net Periodic Benefit Cost.

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Net Periodic Benefit Cost $ ( 7,487 ) $ 5,913 $ 11,366

Net Amount Amortized (Deferred) Due to the Effect of Regulation 1,121 21 ( 533 )

Net Amount Amortized Due to the Effect of Regulation

1,225 1,121 21

Net Periodic Benefit Cost Recognized $ ( 6,262 ) $ 7,034 $ 11,387

The following assumptions were used to determine net periodic benefit cost for the years ended December 31, 2023, 2022 and 2021:

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Pension Benefits (Pension Plan) Pension Benefits (ESSRP) Postretirement Benefits

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Unrecognized Prior Service Cost

$ — $ — $ — $ — $ ( 18,845 ) $ ( 8,400 )

Unrecognized Actuarial Loss 85,227 85,367 1,061 979 1,759 3,993

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Unrecognized Prior Service Cost

— — — — 498 99

Unrecognized Actuarial Gain (Loss)

1,994 1,978 ( 1,403 ) ( 1,093 ) 707 818

Total Accumulated Other Comprehensive Income (Loss) $ 1,994 $ 1,978 $ ( 1,403 ) $ ( 1,093 ) $ 1,205 $ 917

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

We did not make any contributions to our Pension Plan in 2023.

We made discretionary contributions of $ 20.0 million and $ 10.0 million in 2022 and 2021.

As of December 31, 2023, we had no minimum funding requirements for our Pension Plan.

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Asset Retirement Obligations

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

We have recognized Asset Retirement Obligations (AROs) related to our coal-fired generation plants, natural gas combustion turbines, solar facility, 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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We have no assets legally restricted for the settlement of any AROs.

As of December 31, 2023 and 2022, $ 0.1 million and $ 2.7 million, respectively, was included in other current liabilities and $ 36.4 million and $ 22.5 million, respectively, was included in other noncurrent liabilities in the consolidated balance sheets related to AROs.

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A reconciliation of the carrying amounts of AROs for the years ended December 31, 2023 and 2022 is as follows:

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Beginning Balance $ 25,182 $ 24,191

New Obligations Recognized 4,506 —

Adjustments Due to Revisions in Cash Flow Estimates 8,394 —

Accrued Accretion 1,191 991

Settlements ( 2,796 ) —

Ending Balance $ 36,477 $ 25,182

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North Dakota Wind Tax Credit Amortization, Net of Federal Tax ( 586 ) ( 0.2 ) ( 586 ) ( 0.2 ) ( 586 ) ( 0.3 )

Allowance for Equity Funds Used During Construction ( 440 ) ( 0.1 ) ( 214 ) ( 0.1 ) ( 796 ) ( 0.7 )

Other, Net ( 1,278 ) ( 0.3 ) 416 0.2 ( 1,251 ) ( 0.6 )

Income Taxes at Effective Tax Rate $ 69,298 19.1 % $ 73,351 20.5 % $ 36,052 16.9 %

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.

PTCs, North Dakota wind tax credits, and excess deferred income taxes related to the federal tax rate reduction in the 2017 Tax Cuts and Jobs Act are returned to customers as a reduction of the rates they are charged and result in a reduction of operating revenues.

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Deferred tax assets and liabilities were composed of the following on December 31, 2023 and 2022:

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Regulatory Liabilities 56,479 57,353

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

Tax Credit Carryforwards

21,836 20,209

Cost of Removal 32,993 37,360

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

Asset Retirement Obligations

Net Operating Loss Carryforward

Other 11,310 5,550

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Balance on January 1 $ 923 $ 827 $ 771

Increases (decreases) for tax positions taken during a prior period 44 11 ( 178 )

Increases for tax positions taken during a prior period

Increases for tax positions taken during the current period 163 260 189

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Commitments and Contingencies

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.

As of December 31, 2023, we had commitments under contracts for construction project materials, equipment, plant maintenance, and other services extending into 2046 which totaled approximately $ 17.1 million.

Electric Utility Capacity and Energy Requirements.

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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.

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

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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.

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.

There is no fixed minimum purchase requirement, and no amounts for this agreement have been included in the table below;

however, under this agreement all of Big Stone Plant’s coal requirements for the period covered must be purchased under this agreement.

Coal purchase costs under these two agreements totaled $ 43.7 million, $ 45.1 million and $ 40.4 million for the years ended December 31, 2023, 2022 and 2021.

Land Easement Payments.

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

OTP has commitments to make payments for land easements not classified as leases.

The contractual terms of these easements are generally 99 years or do not have a stated maturity date, however, per the terms of the agreements, our requirement to make payment ends once we cease use of the land.

As such, in the table below, we have included payments under these easements through the estimated useful lives of the facilities associated with the easement.

The commitments under these arrangements extend into 2055 and total approximately $ 62.4 million.

Land easement costs under these agreements totaled $ 1.8 million, $ 1.4 million and $ 1.3 million for the years ended December 31, 2023, 2022 and 2021.

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

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

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

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

States are required to submit a state implementation plan to assess reasonable progress with the RHR and determine what additional emission reductions are appropriate, if any.

Coyote Station, OTP's jointly-owned coal-fired power plant in North Dakota, is subject to assessment in the second implementation period under the North Dakota state implementation plan.

The NDDEQ submitted its state implementation plan to the EPA for approval in August 2022.

States are required to submit a state implementation plan (SIP) to assess reasonable progress with the RHR and determine what additional emission reductions are appropriate, if any.

Coyote Station, OTP's jointly owned coal-fired power plant in North Dakota, is subject to assessment in the second implementation period under the North Dakota SIP.

The NDDEQ submitted its SIP 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.

We cannot predict with certainty the impact the SIP may have on our business until the SIP 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.

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

We cannot estimate the ultimate financial effects such a retirement or sale may have on our consolidated operating results, financial position or cash flows, but such amounts could be material and the recovery of such costs in rates would be subject to regulatory approval.

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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.

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

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funding determinations.

In the most recent judicial hearing, the petitioners argued to the U.S.

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No shares were issued pursuant to the shelf registration in 2023.

On May 3, 2021, upon the expiration of a second prior shelf registration, we filed a second registration statement with the SEC for the issuance of up to 1,500,000 common shares under an Automatic Dividend Reinvestment and Share Purchase Plan, which provides shareholders, retail customers of OTP and other interested investors a method of purchasing our common shares by reinvesting their dividends and/or making optional cash investments.

On May 3, 2021, upon the expiration of a prior shelf registration, we filed a registration statement with the SEC for the issuance of up to 1,500,000 common shares under an Automatic Dividend Reinvestment and Share Purchase Plan, which provides shareholders, retail customers of OTP and other interested investors a method of purchasing our common shares by reinvesting their dividends and/or making optional cash investments.

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

In 2023, we issued 105,663 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.

As of December 31, 2023, 1,145,330 shares remained available for purchase or issuance under the plan.

The shelf registration for the plan expires in May 2024.

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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 OTC's subsidiaries.

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

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.

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As of December 31, 2023, OTP’s equity-to-total-capitalization ratio including short-term debt was 54.2 % and its net assets restricted from distribution totaled approximately $ 771.3 million.

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Accumulated Other Comprehensive Income (Loss)

The Company's other comprehensive income consists of unamortized actuarial losses and prior service costs related to pension and other postretirement benefits and unrealized gains and losses on marketable securities classified as available-for-sale.

The Company's other comprehensive income (loss) consists of unamortized actuarial losses and prior service costs related to pension and other postretirement benefits and unrealized gains and losses on marketable securities classified as available-for-sale.

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.

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$ ( 8,716 ) $ 209 $ ( 8,507 )

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

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

1,638 ( 132 ) 1,506

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) 541 (1)

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1,334 ( 419 ) 915

Other Comprehensive Income (Loss) Before Reclassifications, net of tax 7,331 ( 433 ) 6,898

Other Comprehensive Income Before Reclassifications, net of tax

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) ( 18 ) (1)

Total Other Comprehensive Income (Loss) 7,871 ( 432 ) 7,439

Total Other Comprehensive Income

Balance, December 31, 2023

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A participant may not purchase more than 2,000 shares in a given six month purchase period under the plan and may not purchase more than $ 25,000 (fair market value) of common shares under the plan and all other purchase plans (if any) in a calendar year.

A participant may withdraw from the plan at any time and elect to receive the balance of their contributions to the plan that have not yet been used to purchase shares in cash.

A participant may withdraw from the plan at any time and elect to receive the balance of their contributions to the plan that have not yet been used to purchase shares.

Shares purchased under the plan are automatically enrolled in the Company's dividend reinvestment plan.

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Share-Based Compensation Plan

The 2014 Stock Incentive Plan, which was approved by our shareholders in April 2014, authorizes the issuance of 1,900,000 common shares for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock and stock-based awards.

The 2023 Stock Incentive Plan, which was approved by our shareholders in April 2023, authorizes the issuance of 979,891 common shares, including 500,000 newly requested common shares, for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance awards and other stock-based awards.

In addition, common shares subject to any outstanding awards under our prior stock incentive plans that are forfeited, canceled or reacquired by the Company will become available for re-issuance under the 2023 Stock Incentive Plan.

As of December 31, 2023, 943,192 shares were available for issuance under the plan.

The plan terminates on December 31, 2023.

The plan terminates on April 17, 2033.

We grant restricted stock awards to our employees and members of our Board of Directors and stock performance awards to our executive officers and certain other key employees as part of our long-term compensation and retention program.

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The related income tax benefit recognized for these periods amounted to $ 1.6 million, $ 1.7 million and $ 1.8 million.

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Restricted Stock Awards.

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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 $ 3.1 million, $ 3.0 million and $ 2.1 million during the years ended December 31, 2023, 2022 and 2021.

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.

As of December 31, 2023, there was $ 3.4 million of unrecognized compensation cost for unvested restricted stock awards to be recognized over a weighted-average period of 1.7 years.

Stock Performance Awards.

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Vesting of the awards is accelerated in certain circumstances, including upon retirement.

The amount of common shares awarded on an accelerated vesting is based either on actual performance at the end of the performance period or the amount of common shares earned at target.

The amount of common shares awarded on an accelerated vesting is based on actual performance at the end of the performance period.

The grant-date fair value of the ROE component of the stock performance awards granted during the years ended December 31, 2023, 2022 and 2021 was determined using the grant date stock price and a discounted cash flow analysis to adjust for expected unearned dividends during the vesting period.

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The expected term of the award is equal to the three-year performance period.

Expected volatility was estimated based on actual historical volatility of our common stock over a three - or five-year period.

Expected volatility was estimated based on actual historical volatility of our common stock over a five-year period.

Dividend yield was estimated based on historic and future yield estimates.

8 unchanged sentences

The fair value of vested awards was $ 5.3 million, $ 5.1 million and $ 2.5 million during the years ended December 31, 2023, 2022 and

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.

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As of December 31, 2023, there was $ 0.4 million of unrecognized compensation cost of unvested stock performance awards to be recognized over a weighted-average period of 0.67 years.

Earnings Per Share

1 unchanged sentence

The denominator used in the calculation of basic earnings per share is the weighted-average number of shares outstanding during the period.

The denominator used in the calculation of diluted earnings per share is derived by adjusting basic shares outstanding for the dilutive effect of potential shares outstanding, which consist of time and performance based stock awards and employee stock purchase plan shares.

The denominator used in the calculation of diluted earnings per share is derived by adjusting basic shares outstanding for the dilutive effect of potential shares outstanding, which consist of shares associated with time and performance based stock awards and our employee stock purchase plan.

The following includes the computation of the denominator for basic and diluted weighted-average shares outstanding for the years ended December 31, 2023, 2022 and 2021:

9 unchanged sentences

Derivative Instruments

OTP enters into derivative instruments to manage its exposure to future commodity price variability and reduce volatility in prices for our retail electric customers.

OTP enters into derivative instruments to manage its exposure to future commodity price variability, specifically future wholesale energy and natural gas prices, and reduce volatility in prices for our retail electric customers.

These derivative instruments are not designated as qualifying hedging transactions but provide for an economic hedge against future price variability.

3 unchanged sentences

The contracts outstanding as of December 31, 2023 had various settlement dates throughout 2024.

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.

As of December 31, 2023 and 2022, the fair value of these derivative instruments was $ 4.2 million and $ 7.1 million, which are included in other current liabilities on the consolidated balance sheets.

During the years ended December 31, 2023 and 2022, contracts matured and were settled in an aggregate amount of a $ 16.5 million loss and a $ 1.0 million gain, respectively.

Gains and losses recognized on the settlement of derivative instruments are returned to, or recovered from, our electric customers through fuel recovery mechanisms in each state.

When recognized in the statement of income, these gains or losses are included in electric purchased power .

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Fair Value Measurements

5 unchanged sentences

Corporate Debt Securities — 1,579 —

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

Government Debt Securities

Total Assets 10,896 9,303 —

5 unchanged sentences

Corporate Debt Securities — 1,434 —

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

Derivative Instruments — 6,214 —

Government Debt Securities

Total Assets $ 7,063 $ 8,761 $ —

The level 2 fair value measurements for government-backed and government-sponsored enterprises’ and corporate debt securities are determined on the basis of valuations provided by a third-party pricing service which utilizes industry accepted valuation models and observable market inputs to determine valuation.

Derivative Instruments — 7,130 —

Total Liabilities

$ — $ 7,130 $ —

The level 2 fair value measurements for government and corporate debt securities are determined on the basis of valuations provided by a third-party pricing service which utilizes industry accepted valuation models and observable market inputs to determine valuation.

Some valuations or model inputs used by the pricing service may be based on broker quotes.

17 unchanged sentences

The carrying amount approximates fair value because the debt obligations are short-term in nature and balances outstanding are subject to variable rates of interest which reset frequently, a Level 2 fair value input.

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Long-Term Debt:

2 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