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Item 8. Financial Statements and Supplementary Data

2025-02-19 compared with 2024-02-14 · 345 added, 286 removed, 1088 unchanged (37% of the section changed)

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Otter Tail Corporation and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of Otter Tail Corporation and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2024, the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements").

We also have audited the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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

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

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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.

Regulatory Matters—Impact of Rate Regulation on the Financial Statements—Refer to Notes 1 and 6 to the financial statements

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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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Pension Benefit Liability 32,614 33,101

33,101 33,210

Other Postretirement Benefits Liability 27,385 27,676

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Long-Term Debt 943,734 824,059

824,059 823,821

Shareholders' Equity

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See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

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Nonelectric Selling, General, and Administrative Expenses 80,065 72,663 69,718

72,663 69,718 65,394

Depreciation and Amortization 107,121 97,954 92,597

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Interest Expense ( 41,815 ) ( 37,677 ) ( 36,016 )

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

Nonservice Cost Components of Postretirement Benefits 9,609 10,597 1,075

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See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

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386 192 ( 432 )

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

Unrealized Gain (Loss) on Pension and Other Postretirement Benefit Plans, net of tax (expense) benefit of $ 352 , $( 14 ) and $( 2,769 )

( 1,002 ) 41 7,871

Total Other Comprehensive Income

Total Other Comprehensive Income (Loss)

( 616 ) 233 7,439

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See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

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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 )

Stock Compensation Expense — — 6,814 — — 6,814

Net Income — — — 284,184 — 284,184

Other Comprehensive Income — — — — 7,439 7,439

— — — — 1,983 1,983

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

Common Dividends ($ 1.65 per share)

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Employee Stock Purchase Plan Expenses — — ( 339 ) — — ( 339 )

— — ( 219 ) — — ( 219 )

Stock Issued Under Share-Based Compensation Plans, Net of Shares Withheld for Employee Taxes 79,408 397 ( 3,485 ) — — ( 3,088 )

Stock Compensation Expense — — 7,753 — — 7,753

Net Income — — — 294,191 — 294,191

Other Comprehensive Income — — — — 233 233

Stock Compensation Expense — — 6,814 — — 6,814

Common Dividends ($ 1.75 per share)

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Stock Issued Under Share-Based Compensation Plans, Net of Shares Withheld for Employee Taxes 117,446 587 ( 7,044 ) — — ( 6,457 )

Net Income — — — 294,191 — 294,191

Other Comprehensive Income — — — — 233 233

Stock Compensation Expense — — 9,529 — — 9,529

Net Income — — — 301,662 — 301,662

Other Comprehensive Loss

— — — — ( 616 ) ( 616 )

Common Dividends ($ 1.87 per share)

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See accompanying notes to consolidated financial statements.

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OTTER TAIL CORPORATION

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Investment (Gains) Losses ( 5,482 ) ( 7,222 ) 3,296

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

Stock Compensation Expense 9,529 7,753 6,814

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Financing Activities

Net Borrowings (Repayments) on Short-Term Debt 73,218 ( 82,959 ) 10,166

Proceeds from Issuance of Common Stock — — 696

Net (Repayments) Borrowings on Short-Term Debt

( 11,807 ) 73,218 ( 82,959 )

Proceeds from Issuance of Long-Term Debt 120,000 — 90,000

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Other, net ( 549 ) ( 904 ) ( 2,123 )

Net Cash Used in Financing Activities

Net Cash Provided by (Used in) Financing Activities

22,921 ( 3,835 ) ( 96,779 )

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See accompanying notes to consolidated financial statements

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OTTER TAIL CORPORATION

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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 (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.

Our regulated electric utility 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.

This guidance allows for the recording of a regulatory asset for certain costs which otherwise would be recognized in the statement of income or comprehensive income based on an expectation that the cost will be recovered in future rates.

This guidance also requires the recording of a regulatory liability 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.

This guidance allows for the recording of a regulatory asset for certain costs which otherwise would be recognized in the statements of income or comprehensive income based on an expectation that the cost will be recovered in future rates.

This guidance also requires the recording of a regulatory liability for certain credits which would otherwise be recognized in the statements of income or comprehensive income based on an expectation that the amount will be returned to customers in future rates.

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 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.

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 statements of income as an expense or income item, or in the consolidated statements of comprehensive income as a loss or gain item, in the period in which the application of this guidance ceases.

Cash Equivalents

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

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Electric Segment Revenues.

Most Electric segment revenues are earned from the generation, transmission and sale of electricity to retail customers at rates approved by state regulatory commissions.

OTP also earns revenue from the transmission of electricity for others over the transmission assets it owns separately, or jointly with other transmission service providers, under rate tariffs established by the independent transmission system operator and approved by the FERC.

OTP also earns revenue from the transmission of electricity for others over the transmission assets it owns separately or jointly with other transmission service providers, under rate tariffs established by the independent transmission system operator and approved by FERC.

A third source of revenue for OTP comes from the generation and sale of electricity to wholesale customers at contract or market rates.

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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 amount of energy delivered to the customer.

For electricity delivered and consumed after a meter is read but not yet billed to a customer, OTP records revenue and an unbilled receivable based on estimates of the amount of energy delivered and a composite rate per kwh consumed.

Manufacturing Segment Revenues.

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ARP riders generally provide for the recovery of specified costs and investments and include an incentive component to provide the regulated utility with a return on amounts invested.

We accrue ARP revenue on the basis of cost incurred, investments made and returns on those investments that qualify for recovery through established riders.

We accrue ARP revenue on the basis of costs incurred, investments made and returns on those investments that qualify for recovery through established riders.

ARP revenue is disclosed separately from revenue from contracts with customers and we have elected to report ARP revenue on a net basis, whereby amounts initially recorded as ARP revenue in a period are presented net of the reversal of amounts previously recognized as ARP revenue that are reclassified and recorded as revenue from contracts with customers when such amounts are included in the price of electricity to customers.

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Total Inventories $ 148,885 $ 149,701

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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, 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.

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

These investments are recorded at fair value.

Debt securities are deemed to be available-for-sale securities, accordingly unrealized gains and losses are generally excluded from earnings and recognized in accumulated other comprehensive income.

We evaluate whether declines in fair value of debt securities below the cost basis are other-than-temporary.

We evaluate whether declines in the fair value of debt securities below the cost basis are other-than-temporary.

Declines in fair value deemed to be other-than-temporary result in the recognition of unrealized losses, or a portion thereof, in earnings.

Unrealized gains and losses on mutual and money market funds are recognized in earnings immediately.

The following is a summary of our investments at December 31, 2023 and 2022:

(in thousands) 2023 2022

Corporate-Owned Life Insurance Policies $ 42,287 $ 38,991

Corporate and Government Debt Securities

Mutual Funds 7,771 5,503

Money Market Funds 3,125 1,560

Other Investments 30 30

Total Investments $ 62,516 $ 54,845

The amount of unrealized gains and losses on debt securities as of December 31, 2023 and 2022 is not material and no unrealized losses were deemed to be other-than-temporary.

In addition, the amount of unrealized gains and losses on marketable equity securities still held as of December 31, 2023 and 2022 is not material.

Property, Plant and Equipment

Electric plant is stated at original cost.

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

Electric plant is stated at original cost less accumulated depreciation.

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

The amount of interest capitalized to electric plant was $ 1.9 million in 2024, $ 1.9 million in 2023 and $ 0.9 million in 2022.

The cost of depreciable units of property retired less salvage is charged to accumulated depreciation.

Significant additions or improvements that extend an asset's useful life are capitalized, while repairs and maintenance costs are expensed as incurred.

Depreciation is recognized on a straight-line basis over the asset's estimated useful life.

For certain asset classes, we employ a group or composite method of depreciation in which certain assets are combined and depreciated over the average life of the combined asset group.

Actuarial studies are periodically performed to assess the remaining useful lives and salvage values of our assets, with any changes in these estimates incorporated into depreciation on a prospective basis.

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

Amounts recovered in rates for future removal costs are recorded as regulatory liabilities.

Removal costs, when incurred, are charged against the regulatory liability.

Maintenance, repairs and replacement of minor items are charged to operating expenses as incurred.

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 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.

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

Property, plant and equipment of our nonelectric operations are carried at historical cost less accumulated depreciation.

Depreciation is recognized on a straight-line basis over the asset's estimated useful life.

The cost of additions includes purchased assets, contracted work, direct labor and materials, allocable overheads and capitalized interest, as applicable.

No interest was capitalized in 2024, 2023 or 2022.

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Big Stone Plant near Big Stone City, South Dakota and Coyote Station near Beulah, North Dakota.

OTP is also a joint owner, with other regional utilities, in five major transmission lines.

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

OTP is also a joint owner, with other regional utilities, in several major transmission lines.

OTP's interest in each jointly owned facility is reflected in the consolidated balance sheets on a pro-rata basis and OTP's share

of direct revenue and expenses are included in operating revenues and expenses in the consolidated statements of income.

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

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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

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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 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.

We perform our impairment testing in the fourth quarter of each year and have identified three reporting units that carry a goodwill balance.

Our impairment testing includes both an optional qualitative assessment and the quantitative impairment assessment.

Our qualitative assessment includes an analysis of relevant events and circumstances to determine if it is more likely than not that the fair value of the reporting unit exceeds its book value.

If, after this assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, no additional analysis is necessary.

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.

We historically tested goodwill for impairment as of December 31st each year;

however, in 2024, we elected to change the date of our annual goodwill impairment test to October 1st.

We believe this new testing date allows us to better align our annual goodwill impairment testing procedures with our year-end financial reporting, as well as our annual budgeting and forecasting process.

This change did not delay, accelerate or avoid the recognition of an impairment charge.

We perform a quantitative impairment assessment, electing to forgo the optional qualitative assessment.

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.

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Cloud Computing Costs $ 15,741 $ 12,782

$ 12,782 $ 9,024

Accumulated Amortization ( 3,796 ) ( 1,505 )

$ ( 1,505 ) $ ( 897 )

Cloud Computing Costs, net $ 11,945 $ 11,277

$ 11,277 $ 8,127

Amortization expense of capitalized implementation costs for each of the years ended December 31, 2024, 2023 and 2022 totaled $ 3.0 million, $ 1.3 million, and $ 1.4 million.

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

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

The length of our lease agreements varies from less than one year to approximately ten years .

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such leases are expensed on a straight-line basis over the lease term.

If a lease contains an option to extend the lease term and there is reasonable certainty the option will be exercised, the option is considered in the lease term at inception.

Certain of our leases contain options to renew or extend the lease term at our discretion if certain conditions are met.

If a lease contains an option to extend the lease term and there is reasonable certainty the option will be exercised, the option is considered in the lease term at inception, or at such time when an event occurs which triggers the remeasurement of a lease, as applicable.

In the determination of the lease term for one of our leased manufacturing facilities, we have incorporated the future lease renewals which we believe are reasonably certain to be exercised in the associated right-of-use asset and liability values.

We have elected to not separate non-lease components (e.g., common area maintenance) from lease components on real estate leases, accordingly the recognized lease asset and lease liability incorporate in their measurement payments for non-lease components.

Certain leases include variable lease payments as the amounts are subject to change over the lease term;

such amounts are not incorporated into the measurement of the right-of-use lease asset or lease liability.

We are unable to determine the interest rate implicit in our leases, thus we apply our incremental borrowing rate to capitalize the right-of-use asset and lease liability.

We estimate our incremental borrowing rate by incorporating considerations of lease term and lessee entity.

We estimate our incremental borrowing rate by reference to market interest rates on long-term debt, incorporating considerations of the credit quality of the lessee and the term of lease.

Recoverability of Long-Lived Assets

We review our long-lived assets including, among other assets, property, plant and equipment, amortizing intangible assets and right-of-use lease assets, whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable.

We review our long-lived assets including, among other assets, property, plant and equipment, amortizing intangible assets and right-of-use lease assets whenever events or changes in circumstances indicate the carrying amount of the assets may not be

We determine potential impairment by comparing the carrying amount of the assets with the net cash flows expected to be provided by operating activities of the business or related assets.

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Such an impairment loss would be measured as the amount by which the carrying amount exceeds the fair value of the asset.

Pension Plans and Other Postretirement Benefits

We maintain pension and postretirement benefit plans for eligible employees.

Recognizing the cost of providing benefits and measuring the projected benefit obligation of these plans requires management to make various assumptions and estimates.

Certain unrecognized actuarial gains and losses and unrecognized prior service costs or credits are deferred as regulatory assets and liabilities, rather than recorded as other comprehensive income, based on regulatory recovery mechanisms.

We have elected to apply a minimum amortization method for determining the amount of amortization of net cumulative gains or losses to be included as a component of net periodic benefit cost for any annual period.

Cumulative gains and losses recognized in accumulated other comprehensive income or as a deferred regulatory asset or liability that are in excess of 10% of the projected benefit obligation or the market value of pension plan assets are amortized over the expected remaining future service period of active plan participants.

In periods in which the cumulative gains and losses do not exceed 10%, no amortization to net period benefit cost is recognized.

Asset Retirement Obligations

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

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

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

We use the asset and liability method to account for income taxes.

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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.

Changes in the recognition or measurement of such positions are recognized in the provision for income taxes in the period of the changes.

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

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

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

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Stock-based compensation awards are measured at the grant-date fair value of the award and compensation expense is recognized on a straight-line basis over the applicable service or performance period.

The service period may be limited to the period until such time that a recipient is retirement eligible as determined under the award agreement.

The service period may be limited to the period until such

time that a recipient is retirement eligible as determined under the award agreement.

Awards granted to employees eligible for retirement on the date of grant are expensed in the period of grant.

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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 $ 5.5 million were recognized as of December 31, 2024 and 2023.

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Variable Interest Entity

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.

In October 2012, the Coyote Station owners, including OTP, entered into an LSA with Coyote Creek Mining Company, LLC (CCMC), a subsidiary of The North American Coal Corporation, for the purchase of lignite coal to meet the coal supply requirements of Coyote Station for the period beginning in May 2016 and ending in December 2040.

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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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, 2024, if recovery of such a loss is denied by regulatory authorities.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Segment Reporting.

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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.

We adopted this updated standard in the 2024 annual period on a retrospective basis, as required by the updated

The adoption of this updated standard resulted in additional disclosures related to our reportable segments and did not have an impact on our consolidated financial position or operating results.

Recent Accounting Pronouncements

Income Taxes.

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

We anticipate adopting the updated standard in our Form 10-K for the year ended December 31, 2025 and electing to apply the standard on a retrospective basis for all periods presented.

Disaggregated Income Statement Expenses.

In November 2024, the FASB issued authoritative guidance codified in ASC 220, Income Statement—Reporting Comprehensive Income, which will require additional disclosure of certain costs and expenses within the notes to the financial statements.

The updated standard is effective for our annual periods beginning in 2027 and interim periods beginning in the first quarter of fiscal 2028 and can be applied on either a prospective or retrospective basis.

Early adoption is permitted.

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

Segment Information

We classify our business into three segments, Electric, Manufacturing and Plastics, consistent with our business strategy, organizational structure and our internal reporting and review processes used by our chief operating decision maker to make decisions regarding allocation of resources, to assess operating performance and to make strategic decisions.

Our business is comprised of three reportable segments, Electric, Manufacturing and Plastics, consistent with our business strategy, organizational structure and our internal reporting and review processes.

Our chief operating decision maker (CODM) is our Chief Executive Officer.

Segment net income is the sole measure of segment profit or loss used by our CODM in assessing segment performance and allocating resources to our segments.

Our CODM uses segment net income in assessing financial performance on a monthly basis, reviewing and approving annual operating budgets and periodic forecasts, allocating capital or financial resources to our segments, making strategic decisions and measuring returns on equity in comparison to internal thresholds or peer entities.

The operations of our three reportable segments are further described below.

We have aggregated two operating segments within our Manufacturing reportable segment based on the similarity between these businesses and their economic characteristics.

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

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

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:

Segment Profit or Loss

Information about each segment, including significant expenses and net income of each segment, for the years ended December 31, 2024, 2023 and 2022 are as follows:

Electric Segment

(in thousands) 2024 2023 2022

Operating Revenue $ 524,515 $ 528,359 $ 549,699

Electric $ 528,359 $ 549,699 $ 480,321

Manufacturing 402,781 397,983 336,294

Plastics 418,026 512,527 380,229

Total 1,349,166 1,460,209 1,196,844

Production Fuel and Purchased Power 122,506 138,631 165,391

Operating and Maintenance Expenses 190,422 191,263 181,378

Depreciation and Amortization 82,136 75,330 72,050

Electric 75,330 72,050 71,343

Manufacturing 18,495 16,202 15,436

Plastics 4,027 4,205 4,354

Corporate 102 140 225

Total 97,954 92,597 91,358

Operating Income (Loss)

Electric 106,521 113,138 106,964

Manufacturing 29,140 29,065 24,114

Plastics 254,402 264,578 132,760

Corporate ( 12,144 ) ( 16,342 ) ( 14,130 )

Total 377,919 390,439 249,708

Property Taxes 15,662 16,614 17,742

Interest Expense 38,216 33,864 31,950

Electric 33,864 31,950 33,043

Manufacturing 2,295 2,796 2,239

Plastics 602 585 587

Corporate 916 685 1,902

Total 37,677 36,016 37,771

Income Tax Expense (Benefit)

Electric 1,648 5,065 1,663

Manufacturing 5,390 5,321 4,704

Plastics 66,066 68,688 34,374

Corporate ( 3,806 ) ( 5,723 ) ( 4,689 )

Total 69,298 73,351 36,052

Net Income (Loss)

( 1,544 ) 1,648 5,065

Other Segment Items (1)

( 13,846 ) ( 13,415 ) ( 3,851 )

Net Income $ 90,963 $ 84,424 $ 79,974

(1) Other segment items includes nonservice components of postretirement benefits, allowance for funds used during construction, and other expenses (income).

Manufacturing Segment

(in thousands) 2024 2023 2022

Operating Revenue $ 342,592 $ 402,781 $ 397,983

Cost of Goods Sold 283,390 324,245 327,228

Selling, General, and Administrative Expenses 40,110 49,396 41,690

Interest Expense 2,516 2,295 2,796

Income Tax Expense 2,895 5,390 5,321

Other Segment Items — 1 ( 2 )

Net Income $ 13,681 $ 21,454 $ 20,950

Plastics Segment

(in thousands) 2024 2023 2022

Operating Revenue $ 463,441 $ 418,026 $ 512,527

Cost of Goods Sold 166,628 143,521 227,571

Selling, General, and Administrative Expenses 24,908 20,103 20,378

Interest Expense 590 602 585

Income Tax Expense 70,644 66,066 68,688

Other Segment Items ( 76 ) ( 14 ) ( 69 )

Net Income $ 200,747 $ 187,748 $ 195,374

Capital Expenditures and Identifiable Assets

The following provides capital expenditures for each reportable segment and our corporate cost center for the years ended December 31, 2024, 2023 and 2022:

(in thousands) 2024 2023 2022

Capital Expenditures

Electric 301,454 240,695 147,869

2 unchanged sentences

Corporate 288 126 66

Total 294,191 284,184 176,769

Capital Expenditures

$ 358,650 $ 287,134 $ 171,134

The following provides the identifiable assets by segment and corporate assets as of December 31, 2024 and 2023:

(in thousands) 2024 2023

Identifiable Assets

Electric $ 2,785,522 $ 2,533,831

2 unchanged sentences

Corporate 426,072 293,215

Total $ 287,134 $ 171,134 $ 171,829

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

$ 3,652,082 $ 3,242,568

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

Reconciliation to Consolidated Amounts

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

Included below is a reconciliation of certain segment information and our unallocated corporate costs to consolidated amounts for the years ended December 31, 2024, 2023 and 2022:

(in thousands) 2024 2023 2022

Identifiable Assets

Depreciation and Amortization

Electric $ 82,136 $ 75,330 $ 72,050

2 unchanged sentences

Corporate 98 102 140

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

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107,121 97,954 92,597

Interest Expense

Total Interest Expense of Reportable Segments 41,322 36,761 35,331

Corporate Interest Expense 493 916 685

41,815 37,677 36,016

Income Tax Expense (Benefit)

Total Income Tax Expense of Reportable Segments 71,995 73,104 79,074

Corporate Income Tax Benefit ( 6,765 ) ( 3,806 ) ( 5,723 )

65,230 69,298 73,351

Net Income (Loss)

Total Net Income of Reportable Segments 305,391 293,626 296,298

Corporate Net Income (Loss) ( 3,729 ) 565 ( 12,114 )

301,662 294,191 284,184

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

There are a limited number of PVC resin suppliers in the U.S., and in 2024 we sourced all of our PVC resin needs from four 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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The loss of a key vendor, or any interruption or delay in the supply of PVC resin could cause production delays, a possible loss of sales or result in increased costs to secure resin, all of which would adversely affect our operating results.

For the year ended December 31, 2024, two customers combined accounted for 19 % of Electric segment operating revenues, two customers combined to account for 36 % of Manufacturing segment operating revenues and two customers combined to account for 52 % of Plastics segment operating revenues, with one of those customers providing 11 % of our consolidated operating revenues.

Entity-Wide Information

No single customer accounted for over 10% of our consolidated operating revenues for the years ended December 31, 2023, 2022 and 2021.

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

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Receivables, net of allowance for credit losses $ 145,964 $ 157,143

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The following is a summary of activity in the allowance for credit losses for the years ended December 31, 2024 and 2023:

3 unchanged sentences

Reductions for Amounts Written Off, Net of Recoveries ( 1,844 ) ( 1,140 )

( 1,140 ) ( 1,097 )

Ending Balance $ 1,920 $ 2,522

The following is a summary of our investments as of December 31, 2024 and 2023:

(in thousands) 2024 2023

Short-term Investments

Government Debt Securities

Long-term Investments

Corporate-Owned Life Insurance Policies 47,895 42,287

Government Debt Securities

Corporate Debt Securities

Mutual Funds 10,653 7,771

Money Market Funds 596 3,125

Other Investments 27 30

Total Long-term Investments 121,177 62,516

Total Investments $ 121,930 $ 62,516

In April 2024, we made a $ 50.1 million investment in U.S.

treasuries which mature in September 2026.

As of December 31, 2024, our government and corporate debt securities had maturity dates ranging from May 2025 to August 2029.

During the years ended December 31, 2024 and 2023, our investment income, which consisted primarily of interest on our cash equivalent and debt security investments and gains on our corporate-owned life insurance policy investments, totaled $ 19.8 million and $ 15.2 million, which is included in other income in our consolidated statements of income.

Debt Securities

The following table summarizes the amortized cost and fair value of debt securities available for sale and the corresponding amounts of gross unrealized gains and losses as of December 31, 2024:

December 31, 2024

(in thousands) Amortized Cost

Gross Unrealized Gains

Gross Unrealized (Losses)

Government Debt Securities $ 60,891 $ 424 $ ( 184 ) $ 61,131

Corporate Debt Securities 1,629 9 ( 10 ) 1,628

Total $ 62,520 $ 433 $ ( 194 ) $ 62,759

Unrealized gains and losses on available-for-sale debt securities as of December 31, 2023 were not material.

As of December 31, 2024 and December 31, 2023, no unrealized losses on debt securities were deemed to be other-than-temporary.

The following table summarizes the fair value of debt securities available for sale by contractual maturity date as of December 31, 2024:

(in thousands) December 31, 2024

Due in one year or less

Due in one to five years

Total $ 62,759

Equity Securities

The amount of net unrealized gains and losses during the years ended December 31, 2024 and 2023 on marketable equity securities still held as of December 31, 2024 and 2023, respectively, was not material.

Regulatory Matters

9 unchanged sentences

4,257 195 3,719 158

Asset Retirement Obligations 1

Asset lives — 87 — 1,467

Deferred Income Taxes Asset lives — 8,944 — 6,940

12 unchanged sentences

14,255 — 6,885 —

North Dakota PTC Refunds

Asset lives — 12,011 — 7,136

North Dakota PTC Refunds Asset lives — 20,099 — 12,011

Pension and Other Postretirement Benefit Plans See below 2,547 10,758 6,138 11,307

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

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

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

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.

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

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

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

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 in future periods.

Derivative Instruments represent unrealized losses recognized on derivative instruments.

On final settlement of such instruments, any realized losses are recovered from customers.

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

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 PTC Refunds represent PTCs earned from our wind energy facilities.

These amounts are being allocated to customers over the lives of the assets generating the credits.

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

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 ROE of 10.6 % on an equity ratio of 53.5 % of total capital.

The filing also 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.

Interim rates went into effect on January 1, 2024.

On July 3, 2024, OTP filed an update to the original request increasing the amount of the net annual revenue requirement from $ 17.4 million to $ 22.5 million, or a net increase of 10.9 % in annual revenue, to account for certain items identified throughout the regulatory process.

On December 30, 2024, the NDPSC approved a settlement agreement between OTP and certain interested parties in the general rate case and issued its written order on final rates.

The key provisions of the order include a revenue requirement of $ 225.6 million, based on a return on rate base of 7.53 %, and an allowed ROE of 10.10 % on an equity ratio of 53.5 %.

The net annual revenue requirement includes a net increase of $ 13.1 million, or 6.18 %.

OTP’s revenue requirement was reduced by approximately

$ 3.0 million primarily due to the inclusion of forecasted PTCs plus adjustments for new customer load additions, which were not included in OTP’s updated request filed on July 3, 2024.

Through the settlement of the case, the parties also agreed to establish an earnings sharing mechanism, whereby 70 % of actual earnings in excess of a 10.20 % ROE would be returned to customers, with OTP retaining the remaining 30 %.

Property, Plant and Equipment

9 unchanged sentences

Total Gross Electric Plant 3,412,833 3,127,093

Less Accumulated Depreciation and Amortization 851,148 859,988

Less Accumulated Depreciation

899,049 851,148

Net Electric Plant 2,513,784 2,275,945

6 unchanged sentences

Total Gross Nonelectric Property, Plant and Equipment 403,101 349,986

Less Accumulated Depreciation and Amortization 207,556 194,704

Less Accumulated Depreciation

224,425 207,556

Net Nonelectric Property, Plant and Equipment 178,676 142,430

1 unchanged sentence

Depreciation expense for the years ended December 31, 2024, 2023 and 2022 totaled $ 99.4 million, $ 90.8 million and $ 84.4 million.

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The following table provides OTP’s ownership percentages and amounts included in the December 31, 2024 and 2023 consolidated balance sheets for OTP’s share of each of these jointly owned facilities:

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Alexandria–Big Oaks 345 kV line 14.2 % — 417 — 417

14.2 % — 343 — 343

Oslo - Lake Ardoch 115 kV line 72.0 % — 2,646 — 2,646

December 31, 2023

6 unchanged sentences

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

Intangible Assets

5 unchanged sentences

Our annual goodwill impairment testing, performed in the fourth quarters of 2024 and 2023, indicated no impairment existed as of the test date.

The following table summarizes the components of our intangible assets at December 31, 2023 and 2022:

The following table summarizes the components of our intangible assets as of December 31, 2024 and 2023:

(in thousands) Gross

13 unchanged sentences

Amortization Expense $ 1,100 $ 1,092 $ 1,090 $ 554 $ 285

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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.

18 unchanged sentences

3 Included in Other Noncurrent Liabilities in the consolidated balance sheets.

Operating lease assets obtained in exchange for new operating liabilities amounted to $ 3.6 million and $ 3.7 million for the years ended December 31, 2023 and 2022.

Operating lease assets obtained in exchange for new operating lease liabilities amounted to $ 17.6 million and $ 3.6 million for the years ended December 31, 2024 and 2023.

Maturities of lease liabilities as of December 31, 2024 for each of the next five years and in the aggregate thereafter are as follows:

7 unchanged sentences

Weighted-Average Discount Rate 6.37 % 5.40 %

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Short-Term and Long-Term Borrowings

2 unchanged sentences

Short-Term Debt $ — $ 69,615 $ 69,615 $ — $ 81,422 $ 81,422

Current Maturities of Long-Term Debt — — — — — —

Long-Term Debt, net of current maturities 79,849 744,210 824,059 79,798 744,023 823,821

Long-Term Debt 79,900 863,834 943,734 79,849 744,210 824,059

Total $ 79,900 $ 933,449 $ 1,013,349 $ 79,849 $ 825,632 $ 905,481

6 unchanged sentences

Total $ 390,000 $ 69,615 $ 8,772 $ 311,613 $ 249,446

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.

On December 11, 2024, OTC entered into a Sixth Amended and Restated Credit Agreement (the OTC Credit Agreement) and OTP entered into a Fifth Amended and Restated Credit Agreement (the OTP Credit Agreement), in each case amending and restating the previously existing credit agreements, to extend the maturity date of each credit facility and adjust the maximum debt to total capitalization covenant.

The OTP Credit Agreement was also amended to increase the maximum borrowing capacity.

The OTC agreement provides for a $ 170.0 million unsecured revolving line of credit and the OTP agreement provides for a $ 220.0 million unsecured revolving line of credit to support operations, fund capital expenditures, refinance certain indebtedness and provide for the issuance of letters of credit in an aggregate amount not to exceed $ 40.0 million under the OTC Credit Agreement and $ 50.0 million under the OTP Credit Agreement.

Each credit facility includes an accordion provision allowing the borrower to increase the borrowing capacity under the facility, subject to certain conditions, up to $ 290.0 million and $ 300.0 million under the OTC Credit Agreement and OTP Credit Agreement, respectively.

5 unchanged sentences

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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Each credit facility includes a cross-default provision whereby an event of default of other outstanding indebtedness will trigger an event of default under the agreement.

Each credit facility expires on December 11, 2029.

Long-Term Debt

9 unchanged sentences

OTP Series 2021A Senior Unsecured Notes 2.74 % 11/29/31 40,000 40,000

OTP Series 2024A Senior Unsecured Notes 5.48 % 04/01/34 60,000 —

OTP Series 2007D Senior Unsecured Notes 6.47 % 08/20/37 50,000 50,000

7 unchanged sentences

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

OTP Series 2024B Senior Unsecured Notes 5.77 % 04/01/54 60,000 —

Total 947,000 827,000

1 unchanged sentence

Total Long-Term Debt Net of Unamortized Debt Issuance Costs $ 943,734 $ 824,059

On March 28, 2024, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $ 120.0 million of senior unsecured notes consisting of (a) $ 60.0 million of 5.48 % Series 2024A Senior Unsecured Notes due April 1, 2034, and (b) $ 60.0 million of 5.77 % Series 2024B Senior Unsecured Notes due April 1, 2054.

Per the terms of the agreement, OTP may prepay all or any part of the notes (in an amount not less than 10 % of the aggregate principal amount of the notes then outstanding in the case of a partial prepayment) at 100 % of the principal amount so prepaid, together with unpaid accrued interest and a make-whole amount, as defined in the agreement;

provided that no default or event of default exists under the agreement.

Any prepayment of the Series 2024A Notes then outstanding on or after January 1, 2034, or the Series 2024B Notes then outstanding on or after October 1, 2053, will be made without any make-whole amount.

Consistent with other of our borrowings, the agreement contains a number of restrictions on the business of OTP, including restrictions on OTP’s ability to merge, sell substantially all assets, create or incur liens on assets, guarantee the obligations of any other party, and engage in certain transactions with affiliates.

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

1 unchanged sentence

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:

The notes include a cross-default provision whereby an event of default of other outstanding indebtedness will trigger an event of default under the note.

Aggregate maturities of long-term debt obligations on December 31, 2024 for each of the next five years are as follows:

(in thousands) 2025 2026 2027 2028 2029

1 unchanged sentence

Financial Covenants

Certain of OTC's and OTP's short-term and long-term debt agreements require the borrower, whether OTC or OTP, to maintain certain financial covenants, including a maximum debt to total capitalization of 0.60 to 1.00, a minimum interest and dividend coverage ratio of 1.50 to 1.00, and a maximum level of priority indebtedness.

Certain of OTC's and OTP's short-term and long-term debt agreements require the borrower, whether OTC or OTP, to maintain certain financial covenants, including a maximum debt to total capitalization of either 0.60 to 1.00 or 0.65 to 1.00, depending on the debt agreement, a minimum interest and dividend coverage ratio of 1.50 to 1.00, and a maximum level of priority indebtedness.

As of December 31, 2024, 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.

and Vinyltech Corporation.

Employee Postretirement Benefits

7 unchanged sentences

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

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

46 unchanged sentences

energy companies which trade at a discount to fair value.

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.

Redemptions are allowed semi-annually with a 95 -day notice 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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Actuarial (Gain) Loss ( 7,686 ) 8,126 331 392 ( 664 ) ( 2,123 )

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

Benefit Obligation at December 31 314,010 318,801 35,314 35,780 30,003 30,145

3 unchanged sentences

Current Liabilities — — ( 2,700 ) ( 2,679 ) ( 2,618 ) ( 2,469 )

Noncurrent Liabilities and Deferred Credits — — ( 33,101 ) ( 33,210 ) ( 27,676 ) ( 46,977 )

Noncurrent Liabilities

— — ( 32,614 ) ( 33,101 ) ( 27,385 ) ( 27,676 )

Net Asset (Liability) $ 13,265 $ 11,678 $ ( 35,314 ) $ ( 35,780 ) $ ( 30,003 ) $ ( 30,145 )

1 unchanged sentence

The accumulated benefit obligation of our ESSRP was $ 35.3 million and $ 35.8 million as of December 31, 2024 and 2023.

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, 2024 and 2023:

2 unchanged sentences

Discount Rate 5.70 % 5.57 % 5.60 % 5.53 % 5.61 % 5.53 %

Long-Term Rate of Compensation Increase

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

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

Participants up to Age 39 (1)

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• For the Pension Plan, an increase in the discount rate in 2024 and 2023 reduced our obligation by $ 4.7 million and $ 2.2 million.

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.

Changes in plan participant census data decreased our benefit obligation by $ 3.0 million in 2024.

returns on Pension Plan assets in 2024 were $ 15.0 million, compared to an expected return of $ 25.5 million, impacting our net obligation by $ 10.5 million.

• For the ESSRP, an increase in the discount rate in 2024 and 2023 reduced our obligation by $ 0.2 million and $ 0.1 million.

• 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.

• For the postretirement healthcare plan, an increase in the discount rate in 2024 and 2023 reduced our obligation by $ 0.2 million and $ 1.3 million.

Revised estimates of healthcare cost trends and participant contribution assumptions increased the benefit obligation by $ 0.4 million in 2024.

Changes in plan participant census data decreased our benefit obligation by $ 0.9 million in 2024.

Net Periodic Benefit Cost.

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Net Amount Amortized Due to the Effect of Regulation 1,367 1,225 1,121

1,225 1,121 21

Net Periodic Benefit Cost Recognized $ ( 5,233 ) $ ( 6,262 ) $ 7,034

The following assumptions were used to determine net periodic benefit cost for the years ended December 31, 2024, 2023 and 2022:

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

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Unrecognized Prior Service Cost $ — $ — $ — $ — $ ( 12,703 ) $ ( 18,845 )

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

Unrecognized Actuarial Loss 87,868 85,227 292 1,061 1,121 1,759

2 unchanged sentences

Unrecognized Prior Service Cost $ — $ — $ — $ — $ 339 $ 498

— — — — 498 99

Unrecognized Actuarial Gain (Loss) 1,937 1,994 ( 2,502 ) ( 1,403 ) 732 707

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

Total Accumulated Other Comprehensive Income (Loss) $ 1,937 $ 1,994 $ ( 2,502 ) $ ( 1,403 ) $ 1,071 $ 1,205

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.

We did not make any contributions to our Pension Plan in 2024 or 2023.

We made a discretionary contribution of $ 20.0 million in in 2022.

As of December 31, 2024, we had no minimum funding requirements for our Pension Plan.

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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.

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

We have other legal obligations associated with the retirement of a variety of other long-lived tangible assets used in electric operations where the estimated settlement costs are individually and collectively immaterial.

1 unchanged sentence

As of December 31, 2024 and 2023, $ 0.1 million and $ 0.1 million, respectively, was included in other current liabilities and $ 42.1 million and $ 36.4 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, 2024 and 2023 is as follows:

6 unchanged sentences

Ending Balance $ 42,163 $ 36,477

Coal Combustion Residual Regulations

In May 2024, the Environmental Protection Agency (EPA) published a final rule amending coal combustion residual (CCR) regulations.

The final rule introduces new requirements for the management of coal ash at active coal-fired power plants and inactive coal-fired

power plants with a legacy surface impoundment.

The regulations impose new requirements including groundwater monitoring, closure standards, post-closure care obligations and potential remediation activities.

At this time, we do not believe there are any significant new requirements which are applicable to our coal-fired power plants, except for Big Stone Plant.

During the fourth quarter of 2024, a site evaluation was performed at Big Stone Plant to assess the presence and estimated volumes of coal ash stored at the facility.

Based on this and our assessment of the regulations, we believe the plant will be impacted by the new requirements.

As of December 31, 2024, we recognized $ 3.0 million of additional liabilities for new obligations resulting from the EPA's final CCR rule for costs associated with coal ash removal and groundwater monitoring we expect to incur in the future.

The final rule requires facility evaluations to be performed in the future.

Revisions to our estimated compliance costs or further obligations could be identified through the process of performing the additional evaluations.

Should such revisions be necessary or if additional cost obligations are identified, we will update our cash flow estimates and resulting retirement obligation at that time.

Income before income taxes for the years ended December 31, 2024, 2023 and 2022 consists entirely of domestic earnings.

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Income Taxes at Effective Tax Rate $ 65,230 17.8 % $ 69,298 19.1 % $ 73,351 20.5 %

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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PTCs, North Dakota wind tax credits and excess deferred income taxes arising from 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.

Deferred tax assets and liabilities were composed of the following on December 31, 2024 and 2023:

4 unchanged sentences

Tax Credit Carryforwards 18,268 21,836

21,836 20,209

Cost of Removal 35,374 32,993

10 unchanged sentences

Deferred Income Taxes $ ( 267,745 ) $ ( 237,273 )

The following is a schedule of tax credits and tax net operating losses available as of December 31, 2023 and the respective periods of expiration:

(in thousands) Amount 2024-2029 2030-2037 2038-2043

State Net Operating Losses $ 2,336 $ 211 $ 2,125 $ —

State Tax Credits 21,836 — — 21,836

As of December 31, 2024, we had net operating loss carryforwards for state tax purposes totaling $ 2.3 million that expire between 2029 and 2037, and state tax credits totaling $ 18.3 million which expire between 2040 and 2043.

The following table summarizes the activity for unrecognized tax benefits for the years ended December 31, 2024, 2023 and 2022:

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Balance on January 1 $ 1,489 $ 923 $ 827

Increases for tax positions taken during a prior period

Increases (Decreases) for tax positions taken during a prior period

( 189 ) 596 44

Increases for tax positions taken during the current period 188 163 260

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The total amount of unrecognized tax benefits as of December 31, 2024 is not expected to change significantly within the next 12 months.

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

The Company and its subsidiaries file a consolidated U.S.

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Commitments and Contingencies

Construction and Other Commitments.

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.

OTP has commitments for the purchase of capacity and energy requirements under contractual agreements, including wind power purchase agreements extending into 2048.

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

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

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

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

Capacity and energy requirement costs under these agreements totaled $ 6.0 million, $ 5.6 million and $ 13.1 million for the years ended December 31, 2024, 2023 and 2022.

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

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

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

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

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

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mine reclamation costs.

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

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

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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.

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 $ 44.7 million, $ 43.7 million and $ 45.1 million for the years ended December 31, 2024, 2023 and 2022.

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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.

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.

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Land easement costs under these agreements totaled $ 1.8 million, $ 1.8 million and $ 1.4 million for the years ended December 31, 2024, 2023 and 2022.

Other Commitments.

As of December 31, 2024, we had commitments under contracts for plant maintenance, software subscriptions and other services extending into 2046 which totaled approximately $ 10.6 million.

Our future commitments as of December 31, 2024 were as follows:

(in thousands) Construction Program

and Other Commitments Capacity and Energy

Requirements Coal Purchase

(in thousands) Coal Purchase

Commitments Land

Payments Other Commitments

2025 $ 24,192 $ 1,897 $ 1,817

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Total $ 441,409 $ 62,003 $ 10,570

Solar Development.

On October 30, 2024, OTP entered into an agreement to acquire the assets of a solar facility currently under development.

The assets to be acquired include real property rights and interests, interconnection agreements, state and local permits, and other development assets.

Per the agreement, the purchase price is equal to $ 23.6 million, plus the reimbursement of certain interconnection costs and costs to purchase and store the main power transformer.

Closing of the transaction is expected to occur in late 2025 or early 2026, and remains subject to certain conditions to close, including regulatory and other approvals.

OTP would be subject to a termination fee of up to $ 5.0 million if the seller has satisfied all required conditions to close but the transaction is not consummated.

Contingencies

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

FERC's most recent order, issued on November 19, 2020, adopted a revised ROE methodology and set the base ROE at 10.02% (10.52% with an adder) effective for the fifteen-month period from November 2013 to February 2015 and on a prospective basis beginning in September 2016.

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

FERC issued an order on November 19, 2020, which adopted a revised ROE methodology and set the base ROE at 10.02% (10.52% with an adder) effective for the fifteen-month period from November 2013 to February 2015 and on a prospective basis beginning in September 2016.

The order also dismissed any complaints covering the period from February 2015 to May 2016.

On August 9, 2022, the U.S.

Court of Appeals for the District of Columbia Circuit vacated the FERC order citing a lack of reasoned explanation by FERC in its adoption of its revised ROE methodology as outlined in its November 2020 order.

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

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

We have deferred recognition and recorded a refund liability of $ 2.8 million as of December 31, 2023.

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

Regional Haze Rule (RHR).

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

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

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

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 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 or the sale of our interest in Coyote Station, subject to regulatory approval.

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

Self-Funding of Transmission Upgrades.

The FERC has granted transmission owners within MISO the unilateral authority to determine the funding mechanism for interconnection transmission upgrades that are necessary to accommodate new generation facilities connecting to the electrical grid.

On October 17, 2024, FERC issued an Order on Remand modifying its ROE methodology and establishing a base ROE of 9.98% (10.48% with an adder) effective for the fifteen-month period from November 2013 to February 2015 and on a prospective basis beginning in September 2016, and required MISO transmission owners to provide refunds to customers for collections in excess of the base ROE of 9.98% for the applicable period, plus interest.

In addition, FERC concluded the evidentiary record continues to support the ROE established for the period from February 2015 to May 2016.

Prior to FERC's Order on Remand, we had deferred recognition of certain revenues and recognized a refund liability which reflected the amount previously collected under the MISO tariff rate that we anticipated would be refunded to customers.

Our previous estimated refund amount was larger than the actual amount ordered by FERC in the Order on Remand and was therefore reduced, which resulted in a pre-tax benefit of $ 2.5 million recognized in our consolidated statements of income for the year ended December 31, 2024.

The balance of the recorded refund liability as of December 31, 2024 was $ 0.5 million.

Self-Funding of Transmission Upgrades for Generator Interconnections.

FERC has granted transmission owners within MISO and other regional transmission organizations (RTOs) the unilateral authority to determine the funding mechanism for interconnection transmission upgrades that are necessary to accommodate new generation facilities connecting to the electrical grid.

Under existing FERC orders, transmission owners can unilaterally determine whether the generator pays the transmission owner in advance for the transmission upgrade or, alternatively, the transmission owner can elect to fund the upgrade and recover over time from the generator the cost of and a return on the upgrade investment (a self-funding).

FERC’s orders granting transmission owners this unilateral funding authority has been judicially contested on the basis that transmission owners may be motivated to discriminate among generators in making

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funding determinations.

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

FERC’s orders granting transmission owners this unilateral funding authority have been judicially contested on the basis that transmission owners may be motivated to discriminate among generators in making funding determinations.

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

Court of Appeals for the District of Columbia that FERC did not comply with a previous judicial order to fully develop a record regarding the risk of discrimination and the financial risk absorbed by transmission owners for generator-funded upgrades.

On December 2, 2022, the Court of Appeals ruled in favor of the petitioners remanding the matter to FERC, instructing the agency to adequately explain the basis of its orders.

In December 2022, the Court of Appeals ruled in favor of the petitioners remanding the matter to FERC, instructing the agency to adequately explain the basis of its orders.

The Court of Appeals decision did not vacate transmission owners’ unilateral funding authority.

In June 2024, FERC issued an Order to Show Cause proceeding against four RTOs, including MISO.

Within its order, FERC indicates that the transmission tariffs of the RTOs appear to be unjust, unreasonable, and unduly discriminatory or preferential because they allow transmission owners to unilaterally elect transmission owner self-funding, which may increase costs, impose barriers to transmission interconnection and result in undue discrimination among interconnection customers.

The order required each RTO to submit filings to either 1) show cause as to why the transmission tariff remains just and reasonable and not duly discriminatory or preferential, or 2) to explain what changes to the tariff it believes would remedy the identified concerns.

FERC has received a number of responses to its Order to Show Cause.

In September 2024, in separate filings, MISO and transmission owners within MISO, including OTP, filed responses outlining the reasons why the self-funding option remains just and reasonable and not unduly discriminatory or preferential.

Other responses have been provided by other RTOs, individual transmission owners, developers of renewable generation facilities and other interested parties.

OTP, as a transmission owner in MISO, has exercised its authority and elected to self-fund previous transmission upgrades necessary to accommodate new system generation.

Under such an election, OTP is recovering the cost of the transmission upgrade and a return on that investment from the generator over a contractual period of time.

Should FERC, on remand from the Court of Appeals, eliminate transmission owners’ unilateral funding authority, on either a prospective or retrospective basis, our financial results would be impacted.

We cannot at this time reasonably predict the outcome of this matter given the uncertainty as to how and when FERC may respond to the judicial remand.

Should the resolution of this matter eliminate transmission owners’ unilateral funding authority on either a prospective or retrospective basis, our financial results would be impacted.

We cannot at this time reasonably predict the outcome of this matter given the uncertainty as to how FERC may ultimately decide on the matter after RTOs' filings in response to the Order to Show Cause.

Class Action Lawsuits.

Several class action complaints against certain PVC pipe manufacturers, including OTC, have been filed in the U.S.

District Court for the Northern District of Illinois alleging violations of antitrust laws.

The first of the complaints was filed on August 23, 2024.

The various complaints have been consolidated under the caption In re:

PVC Pipe Antitrust Litigation (Case No.

1:24-cv-07639).

Specifically, the complaints allege, among other things, that beginning in at least January 2021, the defendants conspired and combined to fix, raise, maintain and stabilize the price of PVC municipal water and electrical conduit pipe in violation of U.S.

antitrust laws.

The plaintiffs are seeking treble damages, injunctive relief, pre- and post-judgment interest, costs and attorneys’ fees.

In addition, on August 27, 2024, the Company received a grand jury subpoena issued by the U.S.

District Court for the Northern District of California, from the U.S.

Department of Justice (DOJ) Antitrust Division.

The subpoena calls for production of documents regarding the manufacturing, selling and pricing of PVC pipe.

The Company is responding to the subpoena and intends to comply with its obligations under the subpoena.

At this time, we are unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any, arising from the class action complaints or the DOJ investigation.

However, if an antitrust violation by the Company is found, it could have a material impact on the Company’s financial condition, operating results and liquidity.

The Company believes that there are factual and legal defenses to the allegations in the complaints and intends to defend itself accordingly.

Other Contingencies.

We are party to litigation and regulatory enforcement matters arising in the normal course of business.

We regularly analyze relevant information and, as necessary, estimate and record accrued liabilities for matters in which a loss is probable of occurring and can be reasonably estimated.

We believe the effect on our consolidated operating results, financial position and cash flows, if any, for the disposition of all matters pending as of December 31, 2023 will not be material.

We are party to litigation and regulatory matters arising in the normal course of business.

We regularly analyze relevant information and, as necessary, estimate and record accrued liabilities for legal, regulatory enforcement and other matters in which a loss is probable of occurring and can be reasonably estimated.

We believe the effect on our consolidated operating results, financial position and cash flows, if any, for the disposition of all matters pending as of December 31, 2024, other than those discussed above, will not be material.

Stockholders' Equity

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No cumulative preferred or cumulative preference shares were outstanding at December 31, 2024 or 2023.

Shelf Registrations

On May 3, 2021, upon the expiration of a prior shelf registration, we filed a shelf registration statement with the SEC under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement.

Registration Statements

On May 3, 2024, we filed a shelf registration statement with the SEC under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement.

The registration statement expires in May 2027.

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

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.

No shares were issued pursuant to the shelf registration statement in 2024.

On May 3, 2024, 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 methods of purchasing our common shares by reinvesting their dividends or making optional cash investments.

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

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As of December 31, 2024, 1,429,531 shares remained available for purchase or issuance under the plan.

The shelf registration for the plan expires in May 2024.

The registration statement expires in May 2027.

Dividend Restrictions

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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.

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, as further described below:

Both the OTC Credit Agreement and OTP Credit Agreement contain restrictions on the payment of cash dividends upon a default or event of default, including failure to maintain certain financial covenants.

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As of December 31, 2024, OTP’s equity-to-total-capitalization ratio including short-term debt was 53.1 % and its net assets restricted from distribution totaled approximately $ 834.5 million.

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Accumulated Other Comprehensive Income (Loss)

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.

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

The following table shows the changes in accumulated other comprehensive Income (loss) for the years ended December 31, 2024, 2023 and 2022:

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

1,638 ( 132 ) 1,506

Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) 540 (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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Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) ( 1,503 ) (1)

Total Other Comprehensive Income

Total Other Comprehensive Income (Loss)

( 1,002 ) 386 ( 616 )

Balance, December 31, 2024

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Share-Based Compensation Plan

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.

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.

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The related income tax benefit recognized for these periods amounted to $ 2.7 million, $ 1.6 million and $ 1.7 million.

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Restricted Stock Awards.

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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.

Awards granted to executive officers 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.

The grant-date fair value of each restricted stock award is determined based on the market price of the Company's common stock on the date of grant adjusted to exclude the value of dividends for those awards that do not receive dividend or dividend equivalent payments during the vesting period.

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The awards vest at the end of a three-year performance period.

The number of common shares awarded, if any, at the end of the performance period ranges from zero to 150 % of the target amount based on two performance measures:

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

The number of common shares awarded, if any, at the end of the performance period ranges from zero to 150 % of the target amount based on two performance measures i) total shareholder return relative to a peer group (TSR component) and ii) return on equity (ROE component).

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

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

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

The number 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, 2024, 2023 and 2022 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 fair value of vested awards was $ 12.3 million, $ 5.3 million and $ 5.1 million during the years ended December 31, 2024, 2023 and 2022.

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As of December 31, 2024, there was $ 0.5 million of unrecognized compensation cost of unvested stock performance awards to be recognized over a weighted-average period of 0.65 years.

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Weighted Average Common Shares Outstanding – Diluted 42,072 42,039 41,931

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

The number of shares excluded from diluted weighted-average common shares outstanding because such shares were anti-dilutive was not material for the years ended December 31, 2024, 2023 and 2022.

Derivative Instruments

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

The instruments are recorded at fair value on the consolidated balance sheets, with changes in fair value recorded in the consolidated statements of income.

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

As of December 31, 2023 and 2022 OTP had outstanding pay-fixed, receive-variable swap agreements with an aggregate notional amount of 187,400 and 295,000 megawatt-hours of electricity.

The instruments are recorded at fair value on the consolidated balance sheets on a gross basis with assets and liabilities presented separately.

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

As of December 31, 2024 and 2023, OTP had multiple outstanding pay-fixed, receive-variable swap agreements.

The contracts outstanding as of December 31, 2024 had various settlement dates throughout 2025.

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.

The following presents the notional amounts and fair value of our derivative instruments as of December 31, 2024 and 2023:

(in thousands) 2024 2023

Megawatt hours of electricity 167 187

Derivative Liabilities:

Other Current Liabilities $ 1,989 $ 4,210

Other Noncurrent Liabilities — —

Total Derivative Liabilities $ 1,989 $ 4,210

During the years ended December 31, 2024 and 2023, contracts matured and were settled in an aggregate amount of a $ 3.5 million loss and a $ 16.5 million loss, 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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When recognized in the consolidated statements of income, these gains or losses are included in electric purchased power.

Gains or losses related to the settlement of derivative instruments are included in cash flows from operations in the consolidated statements of cash flows.

Fair Value Measurements

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

The following tables present our assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023 classified by the input method used to measure fair value:

Level 1 Level 2 Level 3

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Total Liabilities $ — $ 1,989 $ —

(in thousands) Level 1 Level 2 Level 3

December 31, 2023

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Total Liabilities $ — $ 4,210 $ —

$ — $ 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.

Level 1 fair value measurements are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.

The level 2 fair value measurements for government and corporate debt securities are determined based on valuations provided by third parties which utilize industry accepted valuation models and observable market inputs to determine valuation.

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

The level 2 fair value measurements for derivative instruments are determined by using inputs such as forward electric commodity prices, adjusted for location differences.

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Total $ 1,013,349 $ 876,441 $ 905,481 $ 792,261

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that fair value:

Cash Equivalents:

The carrying amount approximates fair value because of the short-term maturity of these instruments.

Fair value is determined based on quoted prices in active markets, a Level 1 fair value input.

Short-Term Debt:

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:

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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