Otter Tail Corp 10-K

ITEM 8. FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Otter Tail Corporation 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, 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). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report Regarding Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we 47 Table of Contents 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 Critical Audit Matter Description The Company’s regulated Electric segment accounts for the financial effects of regulation in accordance with ASC 980, Regulated Operations. This guidance allows for the recording of a regulatory asset or liability for certain costs or credits which otherwise would be recognized in the statement of income or comprehensive income based on an expectation that the cost will be recovered or returned in future rates. This guidance also provides for adjustments to rates outside of a general rate case proceeding to encourage or incentivize investments in certain areas such as conservation, renewable energy, pollution reduction or control, improved infrastructure of the transmission grid or other programs that provide benefits to the general public under public policy, laws or regulations. The Company is subject to regulation of rates and other matters by state and federal regulatory agencies (collectively, the “Commissions”), which have jurisdiction with respect to the rates of electric distribution companies in Minnesota, North Dakota and South Dakota. The Company assesses the probability of recovery of regulatory assets and the obligations arising from regulatory liabilities on a quarterly basis. Probability estimates incorporate numerous factors, including recent rate making decisions, historical precedents for similar matters, the regulatory environments in which the Company operates, and the impact that incurred costs may have on customers. There is a risk that the Commissions will not approve full recovery of the costs of providing utility service or full recovery of all amounts invested in the utility business and a reasonable return on that investment. As a result, we identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include the recording of regulatory assets for certain costs which otherwise would be recognized in the statement of income or comprehensive income based on an expectation that the costs will be recovered in future rates and the recording of regulatory liabilities for certain credits which would otherwise be recognized in the statement of income or comprehensive income based on an expectation that the amount will be returned to customers in future rates. Given that management’s accounting judgements are based on assumptions about the outcome of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the uncertainty of future decisions by the Commissions included the following, among others: • We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as regulatory assets or liabilities, the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates, and the related disclosures in the notes to the financial statements. • We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments. • We read relevant regulatory orders issued by the Commissions for the Company, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness. • We obtained an analysis from management regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates. /s/ Deloitte & Touche LLP Minneapolis, Minnesota February 19, 2025 We have served as the Company's auditor since 1944. 48 Table of Contents OTTER TAIL CORPORATION CONSOLIDATED BALANCE SHEETS December 31, (in thousands, except share data) 2024 2023 Assets Current Assets Cash and Cash Equivalents $ 294,651 $ 230,373 Receivables, net of allowance for credit losses 145,964 157,143 Inventories 148,885 149,701 Regulatory Assets 9,962 16,127 Other Current Assets 30,579 16,826 Total Current Assets 630,041 570,170 Noncurrent Assets Investments 121,177 62,516 Property, Plant and Equipment, net of accumulated depreciation 2,692,460 2,418,375 Regulatory Assets 98,673 95,715 Intangible Assets, net of accumulated amortization 5,743 6,843 Goodwill 37,572 37,572 Other Noncurrent Assets 66,416 51,377 Total Noncurrent Assets 3,022,041 2,672,398 Total Assets $ 3,652,082 $ 3,242,568 Liabilities and Shareholders' Equity Current Liabilities Short-Term Debt $ 69,615 $ 81,422 Accounts Payable 113,574 94,428 Accrued Salaries and Wages 34,398 38,134 Accrued Taxes 17,314 26,590 Regulatory Liabilities 29,307 25,408 Other Current Liabilities 45,582 43,775 Total Current Liabilities 309,790 309,757 Noncurrent Liabilities and Deferred Credits Pension Benefit Liability 32,614 33,101 Other Postretirement Benefits Liability 27,385 27,676 Regulatory Liabilities 288,928 276,547 Deferred Income Taxes 267,745 237,273 Deferred Tax Credits 14,990 15,172 Other Noncurrent Liabilities 98,397 75,977 Total Noncurrent Liabilities and Deferred Credits 730,059 665,746 Commitments and Contingencies (Note 14) Capitalization Long-Term Debt 943,734 824,059 Shareholders' Equity Common Stock: 50,000,000 shares authorized of $ 5 par value; 41,827,967 and 41,710,521 outstanding at December 31, 2024 and 2023 209,140 208,553 Additional Paid-In Capital 429,089 426,963 Retained Earnings 1,029,738 806,342 Accumulated Other Comprehensive Income 532 1,148 Total Shareholders' Equity 1,668,499 1,443,006 Total Capitalization 2,612,233 2,267,065 Total Liabilities and Shareholders' Equity $ 3,652,082 $ 3,242,568 See accompanying notes to consolidated financial statements. 49 Table of Contents OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, (in thousands, except per-share amounts) 2024 2023 2022 Operating Revenues Electric $ 524,515 $ 528,359 $ 549,699 Product Sales 806,033 820,807 910,510 Total Operating Revenues 1,330,548 1,349,166 1,460,209 Operating Expenses Electric Production Fuel 60,945 60,339 65,110 Electric Purchased Power 61,561 78,292 100,281 Electric Operating and Maintenance Expenses 190,422 191,263 181,378 Cost of Products Sold (excluding depreciation) 434,522 454,122 542,944 Nonelectric Selling, General, and Administrative Expenses 80,065 72,663 69,718 Depreciation and Amortization 107,121 97,954 92,597 Electric Property Taxes 15,662 16,614 17,742 Total Operating Expenses 950,298 971,247 1,069,770 Operating Income 380,250 377,919 390,439 Other Income and (Expense) Interest Expense ( 41,815 ) ( 37,677 ) ( 36,016 ) Nonservice Cost Components of Postretirement Benefits 9,609 10,597 1,075 Other Income (Expense), net 18,848 12,650 2,037 Income Before Income Taxes 366,892 363,489 357,535 Income Tax Expense 65,230 69,298 73,351 Net Income $ 301,662 $ 294,191 $ 284,184 Weighted-Average Common Shares Outstanding: Basic 41,778 41,668 41,586 Diluted 42,072 42,039 41,931 Earnings Per Share: Basic $ 7.22 $ 7.06 $ 6.83 Diluted $ 7.17 $ 7.00 $ 6.78 See accompanying notes to consolidated financial statements. 50 Table of Contents OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, (in thousands) 2024 2023 2022 Net Income $ 301,662 $ 294,191 $ 284,184 Other Comprehensive Income (Loss): Unrealized Gain (Loss) on Available-for-Sale Securities, net of tax (expense) benefit of $( 128 ), $( 51 ) and $ 115 386 192 ( 432 ) 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 (Loss) ( 616 ) 233 7,439 Total Comprehensive Income $ 301,046 $ 294,424 $ 291,623 See accompanying notes to consolidated financial statements. 51 Table of Contents OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except common stock outstanding) Common Stock Outstanding Par Value, Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders' Equity Balance, December 31, 2021 41,551,524 $ 207,758 $ 419,760 $ 369,783 $ ( 6,524 ) $ 990,777 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 Common Dividends ($ 1.65 per share) — — — ( 68,755 ) — ( 68,755 ) Balance, December 31, 2022 41,631,113 $ 208,156 $ 423,034 $ 585,212 $ 915 $ 1,217,317 Employee Stock Purchase Plan Expenses — — ( 339 ) — — ( 339 ) 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 Common Dividends ($ 1.75 per share) — — — ( 73,061 ) — ( 73,061 ) Balance, December 31, 2023 41,710,521 $ 208,553 $ 426,963 $ 806,342 $ 1,148 $ 1,443,006 Employee Stock Purchase Plan Expenses — — ( 359 ) — — ( 359 ) Stock Issued Under Share-Based Compensation Plans, Net of Shares Withheld for Employee Taxes 117,446 587 ( 7,044 ) — — ( 6,457 ) Stock Compensation Expense — — 9,529 — — 9,529 Net Income — — — 301,662 — 301,662 Other Comprehensive Loss — — — — ( 616 ) ( 616 ) Common Dividends ($ 1.87 per share) — — — ( 78,266 ) — ( 78,266 ) Balance, December 31, 2024 41,827,967 $ 209,140 $ 429,089 $ 1,029,738 $ 532 $ 1,668,499 See accompanying notes to consolidated financial statements. 52 Table of Contents OTTER TAIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, (in thousands) 2024 2023 2022 Operating Activities Net Income $ 301,662 $ 294,191 $ 284,184 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 107,121 97,954 92,597 Deferred Tax Credits ( 182 ) ( 744 ) ( 745 ) Deferred Income Taxes 23,057 13,508 32,424 Discretionary Contribution to Pension Plan — — ( 20,000 ) Investment (Gains) Losses ( 5,482 ) ( 7,222 ) 3,296 Stock Compensation Expense 9,529 7,753 6,814 Other, net ( 3,111 ) ( 423 ) ( 1,473 ) Changes in Operating Assets and Liabilities: Receivables 11,179 ( 12,750 ) 30,560 Inventories 3,691 ( 2,450 ) 5,339 Regulatory Assets 5,194 12,479 ( 2,464 ) Other Assets ( 11,640 ) 2,817 ( 368 ) Accounts Payable 14,826 ( 9,988 ) ( 29,763 ) Accrued and Other Liabilities ( 10,371 ) 6 ( 5,490 ) Regulatory Liabilities 16,821 20,973 ( 6,846 ) Pension and Other Postretirement Benefits ( 9,563 ) ( 11,605 ) 1,244 Net Cash Provided by Operating Activities 452,731 404,499 389,309 Investing Activities Capital Expenditures ( 358,650 ) ( 287,134 ) ( 171,134 ) Proceeds from Disposal of Noncurrent Assets 8,849 6,225 4,346 Purchases of Investments and Other Assets ( 61,573 ) ( 8,378 ) ( 8,283 ) Net Cash Used in Investing Activities ( 411,374 ) ( 289,287 ) ( 175,071 ) Financing Activities Net (Repayments) Borrowings on Short-Term Debt ( 11,807 ) 73,218 ( 82,959 ) Proceeds from Issuance of Long-Term Debt 120,000 — 90,000 Payments for Retirement of Long-Term Debt — — ( 30,000 ) Dividends Paid ( 78,266 ) ( 73,061 ) ( 68,755 ) Payments for Shares Withheld for Employee Tax Obligations ( 6,457 ) ( 3,088 ) ( 2,942 ) Other, net ( 549 ) ( 904 ) ( 2,123 ) Net Cash Provided by (Used in) Financing Activities 22,921 ( 3,835 ) ( 96,779 ) Net Change in Cash and Cash Equivalents 64,278 111,377 117,459 Cash and Cash Equivalents at Beginning of Period 230,373 118,996 1,537 Cash and Cash Equivalents at End of Period $ 294,651 $ 230,373 $ 118,996 Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest, net of amount capitalized $ 39,484 $ 36,956 $ 35,699 Income Taxes $ 57,614 $ 46,284 $ 43,411 Supplemental Disclosure of Noncash Investing Activities Accrued Property, Plant and Equipment Additions $ 20,281 $ 13,001 $ 12,420 See accompanying notes to consolidated financial statements 53 Table of Contents OTTER TAIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Overview Otter Tail Corporation (OTC) and its subsidiaries (collectively, the "Company," "us," "our" or "we") form a diverse, multi-platform business consisting of a vertically integrated, regulated utility with generation, transmission and distribution facilities complemented by manufacturing businesses providing metal fabrication for custom machine parts and metal components, manufacturing of extruded and thermoformed plastic products, and manufacturing of PVC pipe products. We classify our business into three segments: Electric, Manufacturing and Plastics. Note 2 includes an additional description of the segments and financial information regarding each segment. Principles of Consolidation These consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles and include the accounts of OTC and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation except, as applicable, profits on sales to our regulated electric utility company from our nonregulated businesses, which is in accordance with the accounting requirements of regulated operations. Use of Estimates We use estimates based on the best information available in recording transactions and balances resulting from business operations. As better information becomes available or actual amounts are known, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. Regulatory Accounting 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 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 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 We consider all highly liquid investments purchased with maturity dates of 90 days or less to be cash equivalents. Concentration of Deposits We hold deposits with financial institutions which potentially subject us to a concentration risk. These deposits are guaranteed by the Federal Deposit Insurance Corporation up to an insurance limit of $250,000. Currently, our cash deposits exceed federally insured levels. Revenue from Contracts with Customers Due to our diverse business operations, the recognition of revenue from contracts with customers depends on the product produced and sold or service performed. We recognize revenue from contracts with customers at prices that are fixed or determinable as evidenced by an agreement with the customer, when we have met our performance obligation under the contract and it is probable that we will collect the amount to which we are entitled in exchange for the goods or services transferred or to be transferred to the customer. Depending on the product produced and sold or service performed and the terms of the agreement with the customer, we recognize revenue either over time, in the case of delivery or transmission of electricity or related services or the production and storage of certain custom-made products, or at a point in time for the delivery of standardized products and other products made to customer specifications where the terms of the contract require transfer of the completed product. Provisions for sales returns, early payment discounts and volume-based variable pricing incentives are recorded as reductions to revenue at the time revenue is recognized based on customer history, historical information and current trends. We include revenues received for shipping and handling in operating revenues. Expenses paid for shipping and handling are recorded as part of cost of products sold. Sales or other taxes collected from customers are excluded from operating revenues. 54 Table of Contents 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 FERC. A third source of revenue for OTP comes from the generation and sale of electricity to wholesale customers at contract or market rates. Revenues from all these sources meet the criteria to be classified as revenue from contracts with customers and are recognized over time as energy is delivered or transmitted. 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 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. Our Manufacturing segment businesses earn revenue predominantly from the production and delivery of custom-made or standardized parts and products to customers across several industries and from the production and sale of tools and dies to other manufacturers. For the production and delivery of standardized products and other products made to customer specifications where the terms of the contract require transfer of the completed product, we have met our performance obligation and recognize revenue at the point in time when the product is shipped. At this point we have no further obligation to provide services related to such products. The shipping terms used in these transactions are free on board (FOB) shipping point. Plastics Segment Revenues. Our Plastics segment businesses earn revenue predominantly from the sale and delivery of standardized PVC pipe products produced at their manufacturing facilities. Revenue from the sale of these products is recognized at the point in time when the product is shipped as there is no further obligation to provide services related to such products and the shipping terms are FOB shipping point. We have one customer within our Plastics segment for which we produce and store a product made to the customer’s specifications and design under a build and hold agreement. For sales to this customer, we recognize revenue as the custom-made product is produced, adjusting the amount of revenue for volume rebate variable pricing considerations we expect the customer will earn and applicable early payment discounts we expect the customer will take. Ownership of the pipe transfers to the customer prior to delivery and we are paid a negotiated fee for storage of the pipe. Revenue for storage of the pipe is recognized over time as the pipe is stored. Alternative Revenue In addition to recognizing revenue from contracts with customers, our Electric segment business also records revenue under alternative revenue program (ARP) requirements. Certain rate rider mechanisms qualify as ARP revenues as they provide for adjustments to rates outside of a general rate case proceeding to encourage or incentivize investments in certain areas such as conservation, renewable energy, pollution reduction or control, improved infrastructure of the transmission grid or other programs that provide benefits to the general public under public policy, laws or regulations. 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 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. Receivables and Allowance for Credit Losses We grant credit to our customers in the normal course of business with repayment terms generally ranging from 30 to 90 days after the invoice date. Late fees are assessed on certain receivables once they are 30 days past due. Unbilled receivables represent estimates of energy delivered to customers but not yet billed. Receivables are stated at the billed or estimated unbilled amount less an allowance for estimated credit losses. An allowance for credit losses is established based on losses expected to occur over the contractual life of the receivable. We estimate an allowance for credit losses on our trade and unbilled receivables by evaluating historical aging and write-off history, adjusted for current and forecasted economic conditions, for groups of receivables that share similar economic characteristics. Other receivables are evaluated by reviewing individual accounts, considering aging, financial condition of the debtor, recent payment history and other relevant factors. Account balances are written off in the period they are deemed to be uncollectible. Inventories Inventories are valued at the lower of cost or net realizable value. Costs for fuel, material and supply inventories of our Electric segment are determined on an average cost basis. Costs for raw material, work in process and finished goods inventories of our Manufacturing and Plastics segments are determined on a first-in first-out (FIFO) basis. 55 Table of Contents Inventories consist of the following as of December 31, 2024 and 2023: (in thousands) 2024 2023 Finished Goods $ 43,345 $ 47,614 Work in Process 22,637 26,354 Raw Material, Fuel and Supplies 82,903 75,733 Total Inventories $ 148,885 $ 149,701 Investments 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, 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 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. Property, Plant and Equipment 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. 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. 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. Maintenance and repairs are expensed as incurred. Gains or losses on asset dispositions are included in the determination of operating income. The estimated service lives for rate-regulated electric assets and nonelectric assets are included below: Service Life Range (years) Low High Electric Assets: Production Plant 21 114 Transmission Plant 51 80 Distribution Plant 10 72 General Plant 5 56 Nonelectric Assets: Equipment 2 20 Buildings and Leasehold Improvements 2 40 Jointly Owned Facilities OTP is a joint owner in two coal-fired steam-powered electric generation plants: 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 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 56 Table of Contents 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. Goodwill and Other Intangible Assets Goodwill is recognized and initially measured as any excess of the acquisition-date consideration transferred in a business combination over amounts recognized for the net identifiable assets acquired. Goodwill is not amortized, but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill. 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. 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. Intangible assets with finite lives, which primarily consist of customer relationships, are carried at estimated fair value at the time of acquisition less accumulated amortization. The costs of the intangible assets are amortized over their estimated useful lives, which generally range from 15 to 20 years. Cloud Computing Costs We capitalize implementation costs incurred in cloud computing arrangements that are service contracts consistent with capitalized implementation costs incurred to develop or obtain internal-use software. Costs are amortized on a straight-line basis over the life of the associated contract. Capitalized implementation costs are amortized over periods up to ten years . Capitalized costs and related accumulated amortization are included in other noncurrent assets on the consolidated balance sheets. Below are the amounts of capitalized cost and related accumulated amortization as of December 31, 2024 and 2023: (in thousands) 2024 2023 Cloud Computing Costs $ 15,741 $ 12,782 Accumulated Amortization ( 3,796 ) ( 1,505 ) Cloud Computing Costs, net $ 11,945 $ 11,277 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. Leases 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 . We have elected to not record lease assets and liabilities for leases with a lease term at commencement of 12 months or less; such leases are expensed on a straight-line basis over the lease term. 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 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 57 Table of Contents recoverable. 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. If the sum of the expected future net cash flows is less than the carrying amount of the assets, an impairment loss would be recognized. 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 Legal obligations related to the future retirement of long-lived assets are recognized as asset retirement obligations (ARO). An ARO is recognized in the period in which the legal obligation is incurred and the amount of the obligation can be reasonably estimated, with an offsetting increase to the associated long-lived asset. AROs are initially recognized at fair value and increased with the passage of time (accretion). ARO estimates are revised periodically with any adjustments reflected in the ARO and associated long-lived asset. Income Taxes We use the asset and liability method to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of all temporary differences between the carrying amounts of assets and liabilities and their respective tax bases. Deferred taxes are recorded using the tax rates scheduled by tax law to be in effect in the periods when the temporary differences reverse. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that a portion or all of the deferred tax assets will not be realized. The realizability of deferred tax assets is determined by taking into consideration forecasts of future taxable income, the reversal of other existing temporary differences, available net operating loss carryforwards and available tax planning strategies. Changes in valuation allowances are included in the provision for income taxes in the period of the changes. 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 within the consolidated statements of income. We have elected to account for transferable tax credits as a component of our income tax provision. We recognize the benefit of PTCs as a reduction of income tax expense in the period the credit is generated, which corresponds to the period the energy production occurs. We apply the deferral method of accounting for ITCs and state wind energy credits. Under this method, ITCs and state wind energy credits are amortized as a reduction to income tax expense over the estimated useful lives of the underlying property that gave rise to the credit. Deferred Compensation Plans The Company sponsors two nonqualified deferred compensation plans for the benefit of executive officers and other select employees. Each plan allows participants to defer a specified amount or percentage of base wages or incentive compensation into the plan, subject to certain limitations. The Company, at its discretion, may make employer contributions to either plan during any annual period. Participant and employer deferred amounts are segregated into one or more accounts chosen by the participant. Participants earn a return on deferred amounts based on notional investments in the segregated accounts. Participants can elect lump sum distributions or annual installments of deferred balances during the participant's employment or upon retirement. As of December 31, 2024 and 2023, our liability to participants under these deferred compensation plans was $ 29.1 million and $ 24.6 million. Company contributions to these plans were $ 1.3 million, $ 1.2 million and $ 0.9 million for the years ended December 31, 2024, 2023 and 2022. Gains or (losses) recognized due to changes in our payment obligations in connection with these plans amounted to ($ 3.3 million), ($ 3.3 million) and $ 3.1 million for the years ended December 31, 2024, 2023 and 2022. Stock-Based Compensation 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 58 Table of Contents 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. We recognize the effects of award forfeitures as they occur. Fair Value Measurements Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Three levels of inputs may be used to measure fair value: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange and commodity derivative contracts listed on the New York Mercantile Exchange. Level 2 – Pricing inputs are other than quoted prices in active markets but are either directly or indirectly observable as of the reported date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models using highly observable inputs, such as commodity options priced using observable forward prices and volatilities. Level 3 – Significant inputs to pricing have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation and may include complex and subjective models and forecasts. In instances where the determination of the fair value measurement is based on inputs from different levels within the hierarchy, the level in the hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Related Parties The Otter Tail Corporation Foundation and Otter Tail Power Company Foundation are independent not-for-profit charitable entities affiliated with the Company and are not included in OTC's consolidated financial statements. Contribution obligations to the two foundations totaling $ 5.5 million and $ 5.5 million were recognized as of December 31, 2024 and 2023. Cash contributions paid to the two foundations during the years ended December 31, 2024, 2023 and 2022 were $ 5.5 million, $ 4.3 million, and $ 4.5 million. Variable Interest Entity 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. CCMC was formed for the purpose of mining coal to meet the coal fuel supply requirements of Coyote Station from May 2016 through December 2040 and, based on the terms of the LSA, is considered a variable interest entity (VIE) due to the transfer of all operating and economic risk to the Coyote Station owners, as the agreement is structured so that the price of the coal would cover all costs of operations as well as future reclamation costs. The Coyote Station owners are required to buy certain assets of CCMC at book value should they terminate the contract prior to the end of the contract term and are providing a guarantee of the value of the equity of CCMC because the Coyote Station owners are required to buy the membership interests of CCMC at the end of the contract term at equity value. Under current accounting standards, the primary beneficiary of a VIE is required to include the assets, liabilities, results of operations and cash flows of the VIE in its consolidated financial statements. No single owner of Coyote Station owns a majority interest in Coyote Station and none, individually, has the power to direct the activities that most significantly impact CCMC. Therefore, none of the owners individually, including OTP, is considered the primary beneficiary of the VIE and the Company is not required to include CCMC in its consolidated financial statements. 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. The Coyote Station owners have limited rights to assign their rights and obligations under the LSA without the consent of CCMC’s lenders during any period in which CCMC’s obligations to its lenders remain outstanding. In the event the contract is terminated prior to the end of the term due to certain events, OTP’s maximum 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. Recently Adopted Accounting Pronouncements Segment Reporting. In November 2023, the Financial Accounting Standards Board (FASB) issued amended authoritative guidance codified in Accounting Standards Codification (ASC) 280, Segment Reporting. The amended guidance expands annual and interim disclosure requirements for reportable segments, primarily through expanded disclosures about significant segment expenses. We adopted this updated standard in the 2024 annual period on a retrospective basis, as required by the updated 59 Table of Contents standard. 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. In December 2023, the FASB issued amended authoritative guidance codified in ASC 740, Income Taxes. The amended guidance requires additional disaggregated information in effective tax rate reconciliation disclosures and additional disaggregated information about income taxes paid. The updated standard is effective for our annual periods beginning in 2025. The amended guidance is to be applied on a prospective basis with the option to apply the standard retrospectively. We 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. 2. Segment Information 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. In addition, OTP is a participant in the MISO markets. OTP’s operations have been our primary business since 1907. Manufacturing consists of businesses in the following manufacturing activities: contract machining, metal parts stamping, fabrication and painting, and production of plastic thermoformed horticultural containers, life science and industrial packaging, and material handling components. These businesses have manufacturing facilities in Georgia, Illinois and Minnesota and sell products primarily in the United States. Plastics consists of businesses producing PVC pipe at plants in North Dakota and Arizona. The PVC pipe is sold primarily in the western half of the United States and Canada. 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 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 Property Taxes 15,662 16,614 17,742 Interest Expense 38,216 33,864 31,950 Income Tax Expense (Benefit) ( 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). 60 Table of Contents 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 Manufacturing 32,159 23,284 17,954 Plastics 24,749 23,029 5,245 Corporate 288 126 66 Total $ 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 Manufacturing 254,445 251,343 Plastics 186,043 164,179 Corporate 426,072 293,215 Total $ 3,652,082 $ 3,242,568 Corporate assets consist primarily of cash and cash equivalents, prepaid expenses, investments and fixed assets. 61 Table of Contents 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 Depreciation and Amortization Electric $ 82,136 $ 75,330 $ 72,050 Manufacturing 20,393 18,495 16,202 Plastics 4,494 4,027 4,205 Corporate 98 102 140 Total 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 Total 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 ) Total 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 ) Total 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 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. Additionally, most U.S. resin production plants are located in the Gulf Coast region. These plants are subject to the risk of damage and production shutdowns because of exposure to hurricanes or other extreme weather events that occur in this region. 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 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. 62 Table of Contents 3. Revenue We present our operating revenues from external customers, in total and by amounts arising from contracts with customers and ARP arrangements, disaggregated by revenue source and segment for the years ended December 31, 2024, 2023 and 2022: (in thousands) 2024 2023 2022 Operating Revenues Electric Segment Retail: Residential $ 133,408 $ 135,570 $ 143,888 Retail: Commercial and Industrial 311,968 312,551 318,494 Retail: Other 7,838 7,719 7,918 Total Retail 453,214 455,840 470,300 Transmission 53,517 52,555 52,213 Wholesale 11,077 12,459 18,539 Other 6,707 7,505 8,647 Total Electric Segment 524,515 528,359 549,699 Manufacturing Segment Metal Parts and Tooling 303,077 351,267 338,865 Plastic Products and Tooling 32,210 41,395 49,080 Scrap Metal 7,305 10,119 10,038 Total Manufacturing Segment 342,592 402,781 397,983 Plastics Segment PVC Pipe 463,441 418,026 512,527 Total Operating Revenue 1,330,548 1,349,166 1,460,209 Less: Noncontract Revenues Included Above Electric Segment - ARP Revenues 575 ( 4,310 ) ( 9,266 ) Total Operating Revenues from Contracts with Customers $ 1,329,973 $ 1,353,476 $ 1,469,475 4. Receivables Receivables as of December 31, 2024 and 2023 are as follows: (in thousands) 2024 2023 Receivables Trade $ 112,169 $ 129,257 Other 13,799 9,084 Unbilled Receivables 21,916 21,324 Total Receivables 147,884 159,665 Less Allowance for Credit Losses 1,920 2,522 Receivables, net of allowance for credit losses $ 145,964 $ 157,143 The following is a summary of activity in the allowance for credit losses for the years ended December 31, 2024 and 2023: (in thousands) 2024 2023 Beginning Balance $ 2,522 $ 1,648 Additions Charged to Expense 1,242 2,014 Reductions for Amounts Written Off, Net of Recoveries ( 1,844 ) ( 1,140 ) Ending Balance $ 1,920 $ 2,522 63 Table of Contents 5. Investments 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 $ 753 $ — Long-term Investments Corporate-Owned Life Insurance Policies 47,895 42,287 Government Debt Securities 60,378 7,724 Corporate Debt Securities 1,628 1,579 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) Fair Value 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 $ 753 Due in one to five years 62,006 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. 6. Regulatory Matters Regulatory Assets and Liabilities The following presents our current and long-term regulatory assets and liabilities as of December 31, 2024 and 2023 and the period we expect to recover or refund such amounts: 64 Table of Contents Period of 2024 2023 (in thousands) Recovery/Refund Current Long-Term Current Long-Term Regulatory Assets Pension and Other Postretirement Benefit Plans 1 See below $ — $ 88,161 $ 154 $ 86,134 Alternative Revenue Program Riders 2 Up to 2 years 4,257 195 3,719 158 Deferred Income Taxes Asset lives — 8,944 — 6,940 Fuel Clause Adjustments 1 Up to 1 year 2,218 — 7,294 — Derivative Instruments 1 Up to 1 year 1,989 — 4,210 — Other 1 Various 1,498 1,373 750 2,483 Total Regulatory Assets 9,962 98,673 16,127 95,715 Regulatory Liabilities Deferred Income Taxes Asset lives — 130,387 — 136,022 Plant Removal Obligations Asset lives — 126,263 — 117,030 Fuel Clause Adjustments Up to 1 year 11,432 — 11,350 — Alternative Revenue Program Riders Up to 1 year 14,255 — 6,885 — 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 Other Various 1,073 1,421 1,035 177 Total Regulatory Liabilities $ 29,307 $ 288,928 $ 25,408 $ 276,547 1 Costs subject to recovery without a rate of return. 2 Amount eligible for recovery includes an incentive or rate of return. Pension and Other Postretirement Benefit Plans represent benefit costs and actuarial losses and gains subject to recovery or refund through rates as they are expensed or amortized. 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 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 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 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 65 Table of Contents $ 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 %. 7. Property, Plant and Equipment Major classes of property, plant and equipment as of December 31, 2024 and 2023 include: (in thousands) 2024 2023 Electric Plant in Service Production $ 1,469,008 $ 1,412,826 Transmission 820,415 777,613 Distribution 726,159 654,704 General 165,361 144,738 Electric Plant in Service 3,180,943 2,989,881 Construction Work in Progress 231,890 137,212 Total Gross Electric Plant 3,412,833 3,127,093 Less Accumulated Depreciation 899,049 851,148 Net Electric Plant 2,513,784 2,275,945 Nonelectric Property, Plant and Equipment Equipment 260,307 233,571 Buildings and Leasehold Improvements 88,680 64,753 Land 13,578 13,600 Nonelectric Property, Plant and Equipment 362,565 311,924 Construction Work in Progress 40,536 38,062 Total Gross Nonelectric Property, Plant and Equipment 403,101 349,986 Less Accumulated Depreciation 224,425 207,556 Net Nonelectric Property, Plant and Equipment 178,676 142,430 Net Property, Plant and Equipment $ 2,692,460 $ 2,418,375 Depreciation expense for the years ended December 31, 2024, 2023 and 2022 totaled $ 99.4 million, $ 90.8 million and $ 84.4 million. 66 Table of Contents 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: (dollars in thousands) Ownership Percentage Electric Plant in Service Construction Work in Progress Accumulated Depreciation Net Plant December 31, 2024 Big Stone Plant 53.9 % $ 345,990 $ 459 $ ( 135,065 ) $ 211,384 Coyote Station 35.0 % 188,066 813 ( 118,268 ) 70,611 Big Stone South–Ellendale 345 kV line 50.0 % 106,185 — ( 8,445 ) 97,740 Fargo–Monticello 345 kV line 14.2 % 78,184 — ( 12,247 ) 65,937 Big Stone South–Brookings 345 kV line 50.0 % 53,167 — ( 5,822 ) 47,345 Brookings–Southeast Twin Cities 345 kV line 4.8 % 28,013 1,131 ( 3,941 ) 25,203 Bemidji–Grand Rapids 230 kV line 14.8 % 16,331 — ( 3,693 ) 12,638 Jamestown– Ellendale 345 kV line 50.0 % — 5,509 — 5,509 Big Stone South–Alexandria 345 kV line 40.0 % — 2,418 — 2,418 Alexandria–Big Oaks 345 kV line 14.2 % — 417 — 417 Oslo - Lake Ardoch 115 kV line 72.0 % — 2,646 — 2,646 December 31, 2023 Big Stone Plant 53.9 % $ 341,683 $ 820 $ ( 126,904 ) $ 215,599 Coyote Station 35.0 % 188,656 104 ( 115,306 ) 73,454 Big Stone South–Ellendale 345 kV line 50.0 % 106,185 — ( 7,181 ) 99,004 Fargo–Monticello 345 kV line 14.2 % 78,184 — ( 11,238 ) 66,946 Big Stone South–Brookings 345 kV line 50.0 % 53,170 — ( 5,207 ) 47,963 Brookings–Southeast Twin Cities 345 kV line 4.8 % 26,409 83 ( 3,617 ) 22,875 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 8. Intangible Assets The following table summarizes our goodwill by segment as of December 31, 2024 and 2023: (in thousands) 2024 2023 Manufacturing $ 18,270 $ 18,270 Plastics 19,302 19,302 Total Goodwill $ 37,572 $ 37,572 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 as of December 31, 2024 and 2023: (in thousands) Gross Amount Accumulated Amortization Net Carrying Amount December 31, 2024 Customer Relationships $ 22,491 $ 16,766 $ 5,725 Other 26 8 18 Total $ 22,517 $ 16,774 $ 5,743 December 31, 2023 Customer Relationships $ 22,491 $ 15,667 $ 6,824 Other 26 7 19 Total $ 22,517 $ 15,674 $ 6,843 Amortization expense for these intangible assets for each of the years ended December 31, 2024, 2023 and 2022 totaled $ 1.1 million. 67 Table of Contents Annual amortization expense for these intangible assets for the next five years is: (in thousands) 2025 2026 2027 2028 2029 Amortization Expense $ 1,100 $ 1,092 $ 1,090 $ 554 $ 285 9. Leases We lease rail cars, warehouse and office space, land, and certain office, manufacturing, material handling and other equipment under varying terms and conditions. All leases are classified as operating leases. The components of lease cost and lease cash flows for the years ended December 31, 2024, 2023, and 2022 are as follows: (in thousands) 2024 2023 2022 Lease Cost Operating Lease Cost $ 6,688 $ 6,309 $ 5,606 Variable Lease Cost 1,460 1,433 1,386 Short-Term Lease Cost 2,746 2,525 1,517 Total Lease Cost $ 10,894 $ 10,267 $ 8,509 Lease Cash Flows Operating Cash Flows from Operating Leases $ 6,762 $ 6,424 $ 5,592 A summary of operating lease right-of-use lease assets and lease liabilities as of December 31, 2024 and 2023 is as follows: (in thousands) 2024 2023 Right of Use Lease Assets 1 $ 28,179 $ 16,788 Lease Liabilities Current 2 4,776 5,756 Long-Term 3 23,567 11,258 Total Lease Liabilities $ 28,343 $ 17,014 1 Included in Other Noncurrent Assets in the consolidated balance sheets. 2 Included in Other Current Liabilities in the consolidated balance sheets. 3 Included in Other Noncurrent Liabilities in the consolidated balance sheets. 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: (in thousands) Operating Leases 2025 $ 6,350 2026 5,638 2027 4,785 2028 3,604 2029 2,750 Thereafter 12,921 Total Lease Payments 36,048 Less: Interest 7,705 Present Value of Lease Liabilities $ 28,343 68 Table of Contents The weighted-average remaining lease term and the weighted-average discount rate as of December 31, 2024 and 2023 are as follows: 2024 2023 Weighted-Average Remaining Lease Term (in years) 7.9 3.4 Weighted-Average Discount Rate 6.37 % 5.40 % 10. Short-Term and Long-Term Borrowings The following is a summary of our outstanding short- and long-term borrowings by borrower, OTC or OTP, as of December 31, 2024 and 2023: 2024 2023 (in thousands) OTC OTP Total OTC OTP Total Short-Term Debt $ — $ 69,615 $ 69,615 $ — $ 81,422 $ 81,422 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 Short-Term Debt The following is a summary of our lines of credit as of December 31, 2024 and 2023: 2024 2023 (in thousands) Line Limit Amount Outstanding Letters of Credit Amount Available Amount Available OTC Credit Agreement $ 170,000 $ — $ — $ 170,000 $ 170,000 OTP Credit Agreement 220,000 69,615 8,772 141,613 79,446 Total $ 390,000 $ 69,615 $ 8,772 $ 311,613 $ 249,446 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. Borrowings under each credit facility are subject to a variable rate of interest on outstanding balances and a commitment fee is charged based on the average unused amount available to be drawn under the respective facility. The variable rate of interest to be charged is based on a benchmark interest rate, either SOFR or a Base Rate, as defined in the credit agreements, selected by the borrower at the time of an advance, subject to the conditions of each agreement, plus an applicable credit spread. The credit spread ranges from zero to 2.00 %, depending on the benchmark interest rate selected, and is subject to adjustment based on the credit ratings of the relevant borrower. The weighted-average interest rate on all outstanding borrowings as of December 31, 2024 and 2023 was 5.61 % and 6.70 %. Each credit facility contains a number of restrictions on the borrower, including restrictions on the ability to merge, sell assets, make investments, create or incur liens on assets, guarantee the obligations of any other party and engage in transactions with related parties. The agreements also require the borrower to maintain various financial covenants, as further described below. 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. 69 Table of Contents Long-Term Debt The following is a summary of outstanding long-term debt by borrower as of December 31, 2024 and 2023: (in thousands) Entity Debt Instrument Rate Maturity 2024 2023 OTC Guaranteed Senior Notes 3.55 % 12/15/26 $ 80,000 $ 80,000 OTP Series 2007C Senior Unsecured Notes 6.37 % 08/02/27 42,000 42,000 OTP Series 2013A Senior Unsecured Notes 4.68 % 02/27/29 60,000 60,000 OTP Series 2019A Senior Unsecured Notes 3.07 % 10/10/29 10,000 10,000 OTP Series 2020A Senior Unsecured Notes 3.22 % 02/25/30 10,000 10,000 OTP Series 2020B Senior Unsecured Notes 3.22 % 08/20/30 40,000 40,000 OTP Series 2021A Senior Unsecured Notes 2.74 % 11/29/31 40,000 40,000 OTP Series 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 OTP Series 2019B Senior Unsecured Notes 3.52 % 10/10/39 26,000 26,000 OTP Series 2020C Senior Unsecured Notes 3.62 % 02/25/40 10,000 10,000 OTP Series 2013B Senior Unsecured Notes 5.47 % 02/27/44 90,000 90,000 OTP Series 2018A Senior Unsecured Notes 4.07 % 02/07/48 100,000 100,000 OTP Series 2019C Senior Unsecured Notes 3.82 % 10/10/49 64,000 64,000 OTP Series 2020D Senior Unsecured Notes 3.92 % 02/25/50 15,000 15,000 OTP Series 2021B Senior Unsecured Notes 3.69 % 11/29/51 100,000 100,000 OTP Series 2022A Senior Unsecured Notes 3.77 % 05/20/52 90,000 90,000 OTP Series 2024B Senior Unsecured Notes 5.77 % 04/01/54 60,000 — Total 947,000 827,000 Less: Unamortized Long-Term Debt Issuance Costs 3,266 2,941 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. These notes provide for prepayment options allowing for a full or partial prepayment at 100 % of the principal amount so prepaid, together with unpaid accrued interest and a make-whole amount, as defined. These notes also include restrictions on the 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. 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 Debt Maturities $ — $ 80,000 $ 42,000 $ — $ 70,000 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 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. 70 Table of Contents Guaranties 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. 11. Employee Postretirement Benefits Pension Plan and Other Postretirement Benefits The Company sponsors a noncontributory funded pension plan (the Pension Plan), an unfunded, nonqualified Executive Survivor and Supplemental Retirement Plan (ESSRP), both accounted for as defined benefit pension plans, and a postretirement healthcare plan accounted for as an other postretirement benefit plan. The Pension Plan, which previously covered substantially all corporate and OTP employees, was closed to new employees in 2013. The plan provides retirement compensation to all covered employees at age 65 , with reduced compensation in cases of retirement prior to age 62 . Participants are fully vested after completing five years of vesting service. The plan assets consist of equity funds, fixed income funds, cash and cash equivalents and alternative investments. None of the plan assets are invested in common stock or debt securities of the Company. The ESSRP, an unfunded plan, provides for defined benefit payments to executive officers and certain key management employees on their retirement for life, or to their beneficiaries on their death. The ESSRP was amended and restated in 2019 to i) freeze the participation in the restoration retirement benefit component of the plan and ii) freeze benefit accruals under the restoration retirement benefit component of the plan for all participants of the plan except any participants deemed to be grandfathered participants. The postretirement healthcare plan, closed to new participants in 2010, provides a portion of health insurance benefits for retired and covered corporate and OTP employees. To be eligible for retiree health insurance benefits, the employee must be 55 years of age with a minimum of 10 years of service. The plan is an unfunded plan and accordingly holds no plan assets. Pension Plan Assets. We have established a Retirement Plans Administration Committee to develop and monitor our investment strategy for our Pension Plan assets. Our investment strategy includes the following objectives: • The assets of the plan will be invested in accordance with all applicable laws in a manner consistent with fiduciary standards including Employee Retirement Income Security Act standards of 1974 (ERISA) (if applicable). Specifically: ◦ The safeguards and diversity that a prudent investor would adhere to must be present in the investment program. ◦ All transactions undertaken on behalf of the Pension Plan must be in the best interest of plan participants and their beneficiaries. • The primary objective is to provide a source of retirement income for its participants and beneficiaries. • The near-term primary financial objective is to improve and protect the funded status of the plan. • A secondary financial objective is to minimize pension funding and expense volatility where possible. We have developed an asset allocation target, measured at investment market value, to provide guideline percentages of investment mix. This investment mix is intended to achieve the financial objectives of the plan. The permitted range is a guide and will at times not reflect the actual asset allocation due to market conditions, actions of our investment managers and required cash flows to and from the Pension Plan. The following table presents our target asset allocation permitted range along with the actual asset allocation as of December 31, 2024 and 2023: Permitted Actual Allocation Asset Class Range 2024 2023 Return Enhancement 35 – 60 % 41 % 48 % Risk Management 40 – 80 % 59 51 Alternatives 0 – 20 % — 1 Total 100 % 100 % Return Enhancement investments are those that seek to provide equity-like, long-term capital appreciation. Examples include equity securities, including dynamic asset allocation funds, and higher yielding fixed income securities, such as high yield bonds and emerging market debt. Risk Management investments seek to decrease downside risk or act as a hedge against plan liabilities. Examples are cash and fixed income instruments. 71 Table of Contents Alternative investments seek to either provide return enhancement through long-term appreciation or risk management through decreased downside risk. The defining characteristic of these asset types is uncorrelated source of returns, less liquidity and private market access. Examples include investments in the SEI Energy Debt Collective Fund. The following presents the fair value inputs classified within the fair value hierarchy used to measure Pension Plan assets at December 31, 2024 and 2023 and assets measured using the net asset value (NAV) practical expedient: (in thousands) Level 1 Level 2 Level 3 NAV Total December 31, 2024 Equity Funds $ 116,889 $ — $ — $ — $ 116,889 Fixed Income Funds 175,310 — — — 175,310 Hybrid Funds 10,106 — — — 10,106 U.S. Treasury Securities 23,909 — — — 23,909 SEI Energy Debt Collective Fund — — — 1,061 1,061 Total $ 326,214 $ — $ — $ 1,061 $ 327,275 December 31, 2023 Equity Funds $ 127,159 $ — $ — $ — $ 127,159 Fixed Income Funds 167,604 — — — 167,604 Hybrid Funds 10,980 — — — 10,980 U.S. Treasury Securities 23,218 — — — 23,218 SEI Energy Debt Collective Fund — — — 1,518 1,518 Total $ 328,961 $ — $ — $ 1,518 $ 330,479 The investments held by the SEI Energy Debt Collective Fund on December 31, 2024 and 2023 consist mainly of below investment grade high yield bonds and loans of U.S. energy companies which trade at a discount to fair value. Redemptions are allowed semi-annually with a 95 -day notice period, subject to fund director consent and certain gate, holdback and suspension restrictions. Subscriptions are allowed monthly with a three-year lock up on subscriptions. The fund’s assets are valued in accordance with valuations reported by the fund’s sub-advisor or the fund’s underlying investments or other independent third-party sources, although SEI, in its discretion, may use other valuation methods, subject to compliance with ERISA, as applicable. On an annual basis, as determined by the investment manager in its sole discretion, an independent valuation agent is retained to provide a valuation of the illiquid assets of the fund and of any other asset of the fund. 72 Table of Contents Funded Status. The following table provides a reconciliation of the changes in the fair value of plan assets and the actuarially computed benefit obligation for the years ended December 31, 2024 and 2023 and the funded status of the plans as of December 31, 2024 and 2023: Pension Benefits (Pension Plan) Pension Benefits (ESSRP) Postretirement Benefits (in thousands) 2024 2023 2024 2023 2024 2023 Change in Fair Value of Plan Assets: Fair Value of Plan Assets at January 1 $ 330,479 $ 313,797 $ — $ — $ — $ — Actual Return on Plan Assets 14,976 34,196 — — — — Company Contributions — — 2,694 2,197 1,568 3,167 Benefit Payments ( 18,180 ) ( 17,514 ) ( 2,694 ) ( 2,197 ) ( 3,734 ) ( 8,900 ) Participant Premium Payments — — — — 2,166 5,733 Fair Value of Plan Assets at December 31 $ 327,275 $ 330,479 $ — $ — $ — $ — Change in Benefit Obligation: Benefit Obligation at January 1 $ 318,801 $ 308,055 $ 35,780 $ 35,624 $ 30,145 $ 49,947 Service Cost 3,886 3,698 — 72 490 565 Interest Cost 17,189 16,436 1,897 1,889 1,600 2,416 Benefit Payments ( 18,180 ) ( 17,514 ) ( 2,694 ) ( 2,197 ) ( 3,734 ) ( 8,900 ) Participant Premium Payments — — — — 2,166 5,733 Plan Amendments — — — — — ( 17,493 ) Actuarial (Gain) Loss ( 7,686 ) 8,126 331 392 ( 664 ) ( 2,123 ) Benefit Obligation at December 31 314,010 318,801 35,314 35,780 30,003 30,145 Funded Status $ 13,265 $ 11,678 $ ( 35,314 ) $ ( 35,780 ) $ ( 30,003 ) $ ( 30,145 ) Amounts Recognized in Consolidated Balance Sheets at December 31: Noncurrent Assets $ 13,265 $ 11,678 $ — $ — $ — $ — Current Liabilities — — ( 2,700 ) ( 2,679 ) ( 2,618 ) ( 2,469 ) 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 ) The accumulated benefit obligation of our Pension Plan was $ 288.5 million and $ 288.8 million as of December 31, 2024 and 2023. The accumulated benefit obligation of our ESSRP was $ 35.3 million and $ 35.8 million as of December 31, 2024 and 2023. The following assumptions were used to determine benefit obligations as of December 31, 2024 and 2023: Pension Benefits (Pension Plan) Pension Benefits (ESSRP) Postretirement Benefits 2024 2023 2024 2023 2024 2023 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 Participants up to Age 39 (1) 4.50 % 4.50 % n/a n/a n/a n/a Participants Ages 40 to 49 (2) 4.50 % 4.50 % n/a n/a n/a n/a Participants Age 50 and Older (3) 3.75 % 3.75 % n/a n/a n/a n/a Healthcare Cost Immediate Trend Rate n/a n/a n/a n/a 6.44 % 6.97 % Healthcare Cost Ultimate Trend Rate n/a n/a n/a n/a 4.00 % 4.00 % Year the Rate Reaches the Ultimate Trend Rate n/a n/a n/a n/a 2048 2048 (1) Amount reflects rate of compensation increases for both union and non-union employees. (2) Amount reflects rate of compensation increases for union employees. The rate of compensation increases for non-union employees is 3.50 %. (3) Amount reflects rate of compensation increases for union employees. The rate of compensation increases for non-union employees is 3.00 %. The measurement of the plan asset or benefit obligation recognized for our Pension Plan, ESSRP and postretirement healthcare benefit plan included the following significant actuarial adjustments: • For the Pension Plan, an increase in the discount rate in 2024 and 2023 reduced our obligation by $ 4.7 million and $ 2.2 million. Changes in plan participant census data decreased our benefit obligation by $ 3.0 million in 2024. Actual 73 Table of Contents 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, 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. A portion of service cost may be capitalized as a cost of self-constructed property, plant and equipment. When recognized in the consolidated statements of income, service cost is recognized within one of the components of operating expenses. Nonservice cost components of net periodic benefit cost may be deferred and recognized as a regulatory asset under the accounting guidance for regulated operations. When recognized in the consolidated statements of income, nonservice cost components are recognized as nonservice cost components of postretirement benefits. The following table lists the components of net periodic benefit cost of our defined benefit pension plans and other postretirement benefits for the years ended December 31, 2024, 2023 and 2022: Pension Benefits (Pension Plan) Pension Benefits (ESSRP) Postretirement Benefits (in thousands) 2024 2023 2022 2024 2023 2022 2024 2023 2022 Service Cost $ 3,886 $ 3,698 $ 6,576 $ — $ 72 $ 195 $ 490 $ 565 $ 1,338 Interest Cost 17,189 16,436 12,344 1,897 1,889 1,341 1,600 2,416 2,041 Expected Return on Assets ( 25,518 ) ( 25,914 ) ( 23,684 ) — — — — — — Amortization of Prior Service Cost — — — — — — ( 6,302 ) ( 6,649 ) ( 5,733 ) Amortization of Net Actuarial Loss 158 — 7,865 — — 567 — — 3,063 Net Periodic Benefit Cost $ ( 4,285 ) $ ( 5,780 ) $ 3,101 $ 1,897 $ 1,961 $ 2,103 $ ( 4,212 ) $ ( 3,668 ) $ 709 The following table includes the impact of regulation on the recognition of periodic benefit cost arising from pension and other postretirement benefits for the years ended December 31, 2024, 2023 and 2022: (in thousands) 2024 2023 2022 Net Periodic Benefit Cost $ ( 6,600 ) $ ( 7,487 ) $ 5,913 Net Amount Amortized Due to the Effect of Regulation 1,367 1,225 1,121 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: Pension Benefits (Pension Plan) Pension Benefits (ESSRP) Postretirement Benefits 2024 2023 2022 2024 2023 2022 2024 2023 2022 Discount Rate 5.57 % 5.51 % 3.03 % 5.53 % 5.51 % 2.93 % 5.53 % 5.52 % 3.01 % Long-Term Rate of Return on Plan Assets 7.00 % 7.00 % 6.30 % n/a n/a n/a n/a n/a n/a Long-Term Rate of Compensation Increase n/a n/a n/a 3.00 % 3.00 % 3.00 % n/a n/a n/a Participants to Age 39 4.50 % 4.50 % 4.50 % n/a n/a n/a n/a n/a n/a Participants Ages 40 to 49 4.00 % 3.50 % 3.50 % n/a n/a n/a n/a n/a n/a Participants Age 50 and Older 3.38 % 2.75 % 2.75 % n/a n/a n/a n/a n/a n/a We develop our estimated discount rate through the use of a hypothetical bond portfolio method. This method derives the discount rate from the average yield of a collection of high credit quality bonds which produce cash flows similar to our anticipated future benefit payments. We estimate the assumed long-term rate of return on plan assets based primarily on asset category studies using historical market return and volatility data with forward-looking estimates based on existing financial market conditions and forecasts of capital markets. Modest excess return expectations versus some market indices are incorporated into the return projections based on the actively managed structure of the investment programs and their records of achieving such returns historically. 74 Table of Contents The following table presents the amounts not yet recognized as components of net periodic benefit cost as of December 31, 2024 and 2023: Pension Benefits (Pension Plan) Pension Benefits (ESSRP) Postretirement Benefits (in thousands) 2024 2023 2024 2023 2024 2023 Regulatory Assets (Liabilities): Unrecognized Prior Service Cost $ — $ — $ — $ — $ ( 12,703 ) $ ( 18,845 ) Unrecognized Actuarial Loss 87,868 85,227 292 1,061 1,121 1,759 Net Regulatory Assets (Liabilities) $ 87,868 $ 85,227 $ 292 $ 1,061 $ ( 11,582 ) $ ( 17,086 ) Accumulated Other Comprehensive Income (Loss): Unrecognized Prior Service Cost $ — $ — $ — $ — $ 339 $ 498 Unrecognized Actuarial Gain (Loss) 1,937 1,994 ( 2,502 ) ( 1,403 ) 732 707 Total Accumulated Other Comprehensive Income (Loss) $ 1,937 $ 1,994 $ ( 2,502 ) $ ( 1,403 ) $ 1,071 $ 1,205 Cash Flows. 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. Contributions to our ESSRP and postretirement healthcare plan are equal to the benefits paid to plan participants. The following reflects anticipated benefit payments to be paid in each of the next five years and in the aggregate for the five-year period thereafter under our pension plans and postretirement healthcare plan: (in thousands) 2025 2026 2027 2028 2029 2030-2034 Projected Pension Plan Benefit Payments $ 19,274 $ 19,804 $ 20,284 $ 20,859 $ 21,420 $ 111,275 Projected ESSRP Benefit Payments 2,769 2,899 3,059 2,999 3,070 14,275 Projected Postretirement Benefit Payments 2,618 2,614 2,576 2,488 2,517 12,019 Total $ 24,661 $ 25,317 $ 25,919 $ 26,346 $ 27,007 $ 137,569 401K Plan We sponsor a 401K plan for the benefit of all corporate and subsidiary company employees. Contributions made to these plans totaled $ 9.3 million for 2024, $ 7.8 million for 2023 and $ 6.7 million for 2022. 12. Asset Retirement Obligations 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 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. We have no assets legally restricted for the settlement of any AROs. 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. A reconciliation of the carrying amounts of AROs for the years ended December 31, 2024 and 2023 is as follows: (in thousands) 2024 2023 Beginning Balance $ 36,477 $ 25,182 New Obligations Recognized 2,991 4,506 Adjustments Due to Revisions in Cash Flow Estimates 1,098 8,394 Accrued Accretion 1,676 1,191 Settlements ( 79 ) ( 2,796 ) 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 75 Table of Contents 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. 13. Income Taxes Income before income taxes for the years ended December 31, 2024, 2023 and 2022 consists entirely of domestic earnings. The provision for income taxes charged to income for the years ended December 31, 2024, 2023 and 2022 consisted of the following: (in thousands) 2024 2023 2022 Current Federal Income Taxes $ 36,238 $ 41,253 $ 31,949 State Income Taxes 6,533 15,126 9,568 Deferred Federal Income Taxes 13,078 9,832 22,480 State Income Taxes 9,979 3,676 9,943 Tax Credits North Dakota Wind Tax Credit Amortization, Net of Federal Tax ( 586 ) ( 586 ) ( 586 ) Investment Tax Credit Amortization ( 12 ) ( 3 ) ( 3 ) Total $ 65,230 $ 69,298 $ 73,351 The reconciliation of the statutory federal income tax rate to our effective tax rate for each of the years ended December 31, 2024, 2023 and 2022 is as follows: 2024 2023 2022 Income Taxes at Federal Statutory Rate $ 77,047 21.0 % $ 76,332 21.0 % $ 75,082 21.0 % Increases (Decreases) in Tax from: State Taxes on Income, Net of Federal Tax 14,360 3.9 14,429 4.0 15,049 4.2 Production Tax Credits (PTCs) ( 20,106 ) ( 5.5 ) ( 17,394 ) ( 4.8 ) ( 14,985 ) ( 4.2 ) Amortization of Excess Deferred Income Taxes ( 2,788 ) ( 0.8 ) ( 2,205 ) ( 0.6 ) ( 1,625 ) ( 0.5 ) North Dakota Wind Tax Credit Amortization, Net of Federal Tax ( 586 ) ( 0.2 ) ( 586 ) ( 0.2 ) ( 586 ) ( 0.2 ) Other, Net ( 2,697 ) ( 0.6 ) ( 1,278 ) ( 0.3 ) 416 0.2 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 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. 76 Table of Contents Deferred tax assets and liabilities were composed of the following on December 31, 2024 and 2023: (in thousands) 2024 2023 Deferred Tax Assets Employee Benefits $ 37,456 $ 39,959 Regulatory Liabilities 52,664 56,479 Tax Credit Carryforwards 18,268 21,836 Cost of Removal 35,374 32,993 Asset Retirement Obligations 10,948 9,494 Net Operating Loss Carryforward 2,289 2,336 Other 19,449 11,310 Total Deferred Tax Assets $ 176,448 $ 174,407 Deferred Tax Liabilities Differences Related to Property $ ( 375,120 ) $ ( 347,885 ) Retirement Benefits Regulatory Asset ( 22,892 ) ( 22,458 ) Pension Expense ( 26,034 ) ( 24,875 ) Other ( 20,147 ) ( 16,462 ) Total Deferred Tax Liabilities ( 444,193 ) ( 411,680 ) Deferred Income Taxes $ ( 267,745 ) $ ( 237,273 ) 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: (in thousands) 2024 2023 2022 Balance on January 1 $ 1,489 $ 923 $ 827 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 Decreases due to settlements with taxing authorities — — — Decreases as a result of a lapse of applicable statutes of limitations ( 363 ) ( 193 ) ( 208 ) Balance on December 31 $ 1,125 $ 1,489 $ 923 The balance of unrecognized tax benefits as of December 31, 2024 would reduce our effective tax rate if recognized. The total amount of unrecognized tax benefits as of December 31, 2024 is not expected to change significantly within the next 12 months. The Company and its subsidiaries file a consolidated U.S. federal income tax return and various state income tax returns. As of December 31, 2024, with limited exceptions, we are no longer subject to examinations by taxing authorities for tax years prior to 2021 for federal and North Dakota income taxes and prior to 2020 for Minnesota state income taxes. 14. Commitments and Contingencies Commitments 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, 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. Coal Purchase Commitments. OTP has contracts providing for the purchase and delivery of its coal requirements. OTP’s current coal purchase agreement with CCMC for Coyote Station expires 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 mine reclamation costs. In the table below, we have estimated the future payments to be made under the terms of the agreement until its maturity. OTP has an agreement for the purchase of Big Stone Plant’s coal requirements through December 31, 2026. 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 77 Table of Contents 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. Land Easement Payments. OTP has commitments to make payments for land easements not classified as leases. The contractual terms of these easements are generally 99 years or do not have a stated maturity date; however, per the terms of the agreements, our requirement to make payment ends once we cease use of the land. As such, in the table below, we have included payments under these easements through the estimated useful lives of the facilities associated with the easement. The commitments under these arrangements extend into 2055 and total approximately $ 62.0 million. 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) Coal Purchase Commitments Land Easement Payments Other Commitments 2025 $ 24,192 $ 1,897 $ 1,817 2026 24,416 1,902 1,518 2027 25,127 1,941 661 2028 25,859 1,981 544 2029 27,102 2,021 272 Beyond 2029 314,713 52,261 5,758 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 FERC ROE. 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 and remanded the matter to FERC to reopen the proceedings. 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. 78 Table of Contents 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 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. 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 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 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. 79 Table of Contents 15. Stockholders' Equity Capital Structure In addition to authorized and outstanding common stock, the Company has 1,500,000 authorized no par value cumulative preferred shares and 1,000,000 authorized no par value cumulative preference shares. No cumulative preferred or cumulative preference shares were outstanding at December 31, 2024 or 2023. 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 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. In 2024, we issued 70,469 common shares under this program and no proceeds were received, as all shares issued were purchased on the open market. As of December 31, 2024, 1,429,531 shares remained available for purchase or issuance under the plan. The registration statement expires in May 2027. Dividend Restrictions OTC is a holding company with no significant operations of its own. The primary source of funds for payments of dividends to our 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 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. As of December 31, 2024, we were in compliance with these financial covenants. Under the Federal Power Act, a public utility may not pay dividends from any funds properly included in a capital account. What constitutes “funds properly included in a capital account” is undefined in the Federal Power Act and the related regulations; however, the FERC has consistently interpreted the provision to allow dividends to be paid as long as i) the source of the dividends is clearly disclosed, ii) the dividend is not excessive and iii) there is no self-dealing on the part of corporate officials. The MPUC indirectly limits the amount of dividends OTP can pay to OTC by requiring an equity-to-total-capitalization ratio between 47.2 % and 57.7 %, with total capitalization not to exceed $ 2.2 billion based on OTP’s capital structure requirements as of December 31, 2024. 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. 80 Table of Contents 16. 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 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: (in thousands) Pension and Other Postretirement Benefits Net Unrealized Gain (Losses) on Available-for-Sale Securities Total Balance, December 31, 2021 $ ( 6,537 ) $ 13 $ ( 6,524 ) Other Comprehensive Income (Loss) Before Reclassifications, net of tax 7,331 ( 433 ) 6,898 Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) 540 (1) 1 (2) 541 Total Other Comprehensive Income (Loss) 7,871 ( 432 ) 7,439 Balance, December 31, 2022 1,334 ( 419 ) 915 Other Comprehensive Income Before Reclassifications, net of tax 59 180 239 Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) ( 18 ) (1) 12 (2) ( 6 ) Total Other Comprehensive Income 41 192 233 Balance, December 31, 2023 1,375 ( 227 ) 1,148 Other Comprehensive Income Before Reclassifications, net of tax 501 407 908 Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) ( 1,503 ) (1) ( 21 ) (2) ( 1,524 ) Total Other Comprehensive Income (Loss) ( 1,002 ) 386 ( 616 ) Balance, December 31, 2024 $ 373 $ 159 $ 532 (1) Included in the computation of net periodic pension and other postretirement benefit costs. See Note 11 for further information. (2) Included in other income (expense), net on the accompanying consolidated statements of income. 17. Share-Based Payments Employee Stock Purchase Plan The 1999 Employee Stock Purchase Plan authorizes the issuance of 1,400,000 common shares, allowing eligible employees to purchase our common shares through payroll withholding at a discount of up to 15 % off the market price at the end of each six-month purchase period. Employee withholding amounts may not be less than $ 10 or more than $ 2,000 per month, subject to certain limitations, as described in the plan. A plan participant may cease making payroll deductions at any time. A participant may not purchase more than 2,000 shares in a given six-month purchase period under the plan and may not purchase more than $ 25,000 (fair market value) of common shares under the plan and all other purchase plans (if any) in a calendar year. A participant may withdraw from the plan at any time and elect to receive the balance of their contributions to the plan that have not yet been used to purchase shares. Shares purchased under the plan are automatically enrolled in the Company's dividend reinvestment plan. Shares purchased under the plan may not be assigned, transferred, pledged, or otherwise disposed, except for certain situations allowed by the plan, such as upon death, for a period of 18 months after purchase. At our discretion, shares purchased under the plan can be either new issue shares or shares purchased in the open market. The plan shall automatically terminate when all of the shares authorized under the plan have been issued. We recognize the 15 % discount to the fair market value of the purchased shares as stock-based compensation expense, which amounted to $ 0.4 million, $ 0.3 million and $ 0.3 million for the years ended December 31, 2024, 2023 and 2022. For the years ended December 31, 2024, 2023 and 2022, the amount of shares issued under the plan amounted to 31,252 , 26,348 and 26,420 shares. As of December 31, 2024, there were 206,115 shares available for purchase under the plan. 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 81 Table of Contents stock, restricted stock units, dividend equivalents, performance awards and other stock-based awards. In addition, common shares subject to any outstanding awards under our prior stock incentive plans that are forfeited, canceled or reacquired by the Company will become available for re-issuance under the 2023 Stock Incentive Plan. As of December 31, 2024, 828,761 shares were available for issuance under the plan. The plan terminates on April 17, 2033. We grant restricted stock awards to our employees and members of our Board of Directors and stock performance awards to our executive officers and certain other key employees as part of our long-term compensation and retention program. Stock-based compensation cost, recognized within operating expenses in the consolidated statements of income, amounted to $ 9.1 million, $ 7.4 million and $ 6.6 million for the years ended December 31, 2024, 2023 and 2022. The related income tax benefit recognized for these periods amounted to $ 2.7 million, $ 1.6 million and $ 1.7 million. Restricted Stock Awards. Restricted stock awards are granted to executive officers and other key employees and members of the Company's Board of Directors. The awards vest, depending on award recipient, either ratably over a period of three to four years or cliff vest after four years . Vesting is accelerated in certain circumstances, including upon retirement. Awards granted to members of the Board of Directors are issued and outstanding upon grant and carry the same voting and dividend rights of unrestricted outstanding common stock. Awards granted to 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. The following is a summary of restricted stock award activity for the year ended December 31, 2024: Shares Weighted-Average Grant-Date Fair Value Nonvested, Beginning of Year 148,913 $ 56.48 Granted 52,425 85.25 Vested ( 57,771 ) 52.78 Forfeited ( 150 ) 66.39 Nonvested, End of Year 143,417 $ 68.47 The weighted-average grant-date fair value of granted awards was $ 85.25 , $ 68.03 and $ 59.95 during the years ended December 31, 2024, 2023 and 2022. The fair value of vested awards was $ 5.1 million, $ 3.1 million and $ 3.0 million during the years ended December 31, 2024, 2023 and 2022. As of December 31, 2024, there was $ 3.7 million of unrecognized compensation cost for unvested restricted stock awards to be recognized over a weighted-average period of 1.5 years. Stock Performance Awards. Stock performance awards are granted to executive officers and certain other key employees. The awards vest at the end of a three-year 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 awards have no voting or dividend rights during the vesting period. Vesting of the awards is accelerated in certain circumstances, including upon retirement. 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. The grant-date fair value of the TSR component of the stock performance awards granted during the years ended December 31, 2024, 2023 and 2022 was determined using a Monte Carlo fair value simulation model incorporating the following assumptions: 2024 2023 2022 Risk-free interest rate 4.16 % 4.15 % 1.52 % Expected term (in years) 3.00 3.00 3.00 Expected volatility 35.10 % 34.00 % 32.00 % Dividend yield 2.40 % 2.50 % 2.90 % 82 Table of Contents The risk-free interest rate was derived from yields on U.S. government bonds of a similar term. The expected term of the award is equal to the three-year performance period. Expected volatility was estimated based on actual historical volatility of our common stock over a five-year period. Dividend yield was estimated based on historic and future yield estimates. The following is a summary of stock performance award activity for the year ended December 31, 2024 (share amounts reflect awards at target): Shares Weighted-Average Grant-Date Fair Value Nonvested, Beginning of Year 194,200 $ 50.33 Granted 43,400 94.45 Vested ( 92,800 ) 42.06 Forfeited — — Nonvested, End of Year 144,800 $ 68.85 The weighted-average grant-date fair value of granted awards was $ 94.45 , $ 61.97 and $ 54.91 during the years ended December 31, 2024, 2023 and 2022. 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. 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. 18. Earnings Per Share The numerator used in the calculation of both basic and diluted earnings per share is net income. The denominator used in the calculation of basic earnings per share is the weighted-average number of shares outstanding during the period. The denominator used in the calculation of diluted earnings per share is derived by adjusting basic shares outstanding for the dilutive effect of potential shares outstanding, which consist of shares associated with time- and performance-based stock awards and our employee stock purchase plan. The following includes the computation of the denominator for basic and diluted weighted-average shares outstanding for the years ended December 31, 2024, 2023 and 2022: (in thousands) 2024 2023 2022 Weighted Average Common Shares Outstanding – Basic 41,778 41,668 41,586 Effect of Dilutive Securities: Stock Performance Awards 196 269 248 Restricted Stock Awards 96 100 95 Employee Stock Purchase Plan Shares and Other 2 2 2 Dilutive Effect of Potential Common Shares 294 371 345 Weighted Average Common Shares Outstanding – Diluted 42,072 42,039 41,931 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. 19. Derivative Instruments OTP enters into derivative instruments to manage its exposure to future commodity price variability, specifically future wholesale energy and natural gas prices, and reduce volatility in prices for our retail electric customers. These derivative instruments are not designated as qualifying hedging transactions but provide for an economic hedge against future price variability. The instruments are recorded at fair value on the consolidated balance sheets on a gross basis with assets and liabilities presented separately. In 83 Table of Contents 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. 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 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. 20. Fair Value Measurements 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 December 31, 2024 Assets Investments: Money Market Funds $ 596 $ — $ — Mutual Funds 10,653 — — Corporate Debt Securities — 1,628 — Government Debt Securities — 61,131 — Total Assets 11,249 62,759 — Liabilities Derivative Instruments — 1,989 — Total Liabilities $ — $ 1,989 $ — (in thousands) Level 1 Level 2 Level 3 December 31, 2023 Assets Investments: Money Market Funds $ 3,125 $ — $ — Mutual Funds 7,771 — — Corporate Debt Securities — 1,579 — Government Debt Securities — 7,724 — Total Assets $ 10,896 $ 9,303 $ — Liabilities Derivative Instruments $ — $ 4,210 $ — Total Liabilities $ — $ 4,210 $ — 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. 84 Table of Contents 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. These inputs are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. In addition to assets recorded at fair value on a recurring basis, we also hold financial instruments that are not recorded at fair value in the consolidated balance sheets but for which disclosure of the fair value of these financial instruments is provided. The following reflects the carrying value and estimated fair value of these assets and liabilities as of December 31, 2024 and 2023: December 31, 2024 December 31, 2023 (in thousands) Carrying Amount Fair Value Carrying Amount Fair Value Assets: Cash and Cash Equivalents $ 294,651 $ 294,651 $ 230,373 $ 230,373 Total 294,651 294,651 230,373 230,373 Liabilities: Short-Term Debt 69,615 69,615 81,422 81,422 Long-Term Debt 943,734 806,826 824,059 710,839 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 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. Long-Term Debt: The fair value of long-term debt is estimated based on current market indications for borrowings of similar maturities with similar terms, a Level 2 fair value input. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.