Otter Tail Corporation

08/05/2026 | Press release | Distributed by Public on 08/05/2026 10:59

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our interim financial statements and the related notes appearing under Item 1 of this Quarterly Report on Form 10-Q, and our annual financial statements and the related notes along with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 10-K for the year ended December 31, 2025.
Otter Tail Corporation and its subsidiaries form a diverse group of businesses with operations classified into three segments: Electric, Manufacturing and Plastics. Our Electric segment business is a vertically integrated, regulated utility with generation, transmission and distribution facilities to serve our customers in western Minnesota, eastern North Dakota and northeastern South Dakota. Our Manufacturing segment provides metal fabrication for custom machine parts and metal components and manufactures extruded and thermoformed plastic products. Our Plastics segment manufactures PVC pipe for use in, among other applications, municipal and rural water, wastewater and water reclamation projects.
RESULTS OF OPERATIONS - QUARTER TO DATE
Provided below are a summary and discussion of our operating results on a consolidated basis followed by a discussion of the operating results of each of our segments: Electric, Manufacturing and Plastics. In addition to the segment results, we provide an overview of our Corporate costs. Our Corporate costs do not constitute a reportable segment, but rather consist of unallocated general corporate expenses, such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of segment performance. Corporate costs are added to operating segment totals to reconcile to totals on our consolidated statements of operations.
CONSOLIDATED RESULTS
The following table summarizes consolidated operating results for the three months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
Operating Revenues $ 334,383 $ 333,043 $ 1,340 0.4 %
Operating Expenses 255,085 235,585 19,500 8.3
Legal Settlement Expenses 103,500 - 103,500 n/m
Operating Income (Loss) (24,202) 97,458 (121,660) (124.8)
Interest Expense (12,890) (11,720) (1,170) 10.0
Nonservice Components of Postretirement Benefits 1,050 854 196 23.0
Other Income (Expense), net 7,278 4,788 2,490 52.0
Income (Loss) Before Income Taxes (28,764) 91,380 (120,144) (131.5)
Income Tax (Benefit) Expense (21,157) 13,652 (34,809) n/m
Net Income (Loss) $ (7,607) $ 77,728 $ (85,335) (109.8) %
Operating Revenues increased $1.3 million primarily due to higher sales volumes in our Plastics and Manufacturing segments, higher steel costs passed through to customers in our Manufacturing segment and increased electric rates in our Electric segment. These increases were largely offset by lower sales prices in the Plastics segment, and higher PTCs, the benefit of which is passed on to customers, and lower fuel recovery revenues in the Electric segment. See the segment discussions below for additional information regarding period-over-period changes in operating revenues.
Operating Expenses increased $19.5 million primarily due to increased operating and maintenance expenses in the Electric segment and additional expenses driven by higher sales volumes in the Plastics and Manufacturing segments. These factors were partially offset by lower fuel and purchased power costs in the Electric segment. See our segment disclosures below for additional discussion of items impacting operating expenses.
Legal Settlement Expenses reflect a $103.5 million estimated loss contingency recognized in the Plastics segment related to the ongoing U.S. PVC pipe antitrust class action lawsuit and settlement agreements entered into during the period. See Note 10 to the consolidated financial statements for additional information regarding the lawsuit and related settlements.
Other Income (Expense), net increased $2.5 million primarily due to an increase in allowance for funds used during construction (AFUDC) in our Electric segment, driven by our continued investments in our Abercrombie and Solway solar projects.
Income Tax (Benefit) Expense was a benefit of $23.3 million for the three months ended June 30, 2026, compared to income tax expense of $13.7 million for the same period in 2025. The change was primarily attributable to a $26.3 million tax benefit recognized as a result of the litigation settlements executed during the period, as referenced above. The Company's effective tax rate for the
period also benefited from increased PTCs generated by our wind facilities following the completion of repowering projects in late 2025 and early 2026.
ELECTRIC SEGMENT RESULTS
The following table summarizes Electric segment operating results for the three months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
Operating Revenues
$ 121,320 $ 128,731 $ (7,411) (5.8) %
Production Fuel 10,613 16,292 (5,679) (34.9)
Purchased Power 13,270 15,497 (2,227) (14.4)
Operating and Maintenance Expenses 54,692 46,804 7,888 16.9
Depreciation and Amortization 24,223 22,278 1,945 8.7
Property Taxes 5,121 4,227 894 21.1
Operating Income 13,401 23,633 (10,232) (43.3)
Interest Expense
(11,990) (10,822) (1,168) 10.8
Nonservice Components of Postretirement Benefits
1,332 1,127 205 18.2
Other Income (Expense), net
2,851 788 2,063 n/m
Income Before Income Taxes 5,594 14,726 (9,132) (62.0)
Income Tax Benefit
(13,104) (4,469) (8,635) 193.2
Net Income $ 18,698 $ 19,195 $ (497) (2.6) %
2026 2025 change % change
Electric kilowatt-hour (kwh) Sales (in thousands)
Retail kwh Sales 1,400,638 1,337,696 62,942 4.7 %
Wholesale kwh Sales - Company Generation 1,275 71,477 (70,202) (98.2)
Heating Degree Days 602 460 142 30.9
Cooling Degree Days 164 145 19 13.1 %
The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating degree days and cooling degree days as a percent of normal for the three months ended June 30, 2026 and 2025.
2026 2025
Heating Degree Days 112.7 % 86.5 %
Cooling Degree Days 127.1 % 114.2 %
The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions for the three months ended June 30, 2026 and 2025, and between those periods.
2026 vs
Normal
2026 vs
2025
2025 vs
Normal
Effect on Diluted Earnings Per Share $ 0.01 $ 0.01 $ -
Operating Revenues decreased $7.4 million primarily due to:
•A $6.5 million decrease in fuel recovery revenues, driven by a planned outage at one of our coal-fired facilities, which resulted in lower coal consumption. In addition, lower market energy prices, as described below, also contributed to reduced fuel recovery revenues.
•A $6.2 million increase in PTCs, the benefit of which is passed on to customers, as described below.
•A decrease in wholesale revenue due to lower excess generation available to sell into the wholesale market driven by a planned outage at one of our coal-fired facilities, and a decrease in rider revenue due to certain non-recurring benefits recognized in the same period last year and changes in jurisdictional allocation factors.
These decreases were partially offset by:
•A $6.4 million increase from higher rates, reflecting interim and final base rate increases in Minnesota and South Dakota. Interim rates in Minnesota and South Dakota became effective in January 2026 and December 2025, respectively, and final base rates in South Dakota went into effect in April 2026.
•The recovery of additional rate base investments, higher commercial and industrial sales volumes, and the impact of favorable weather.
Production Fuel costs decreased $5.7 million primarily driven by lower generation from our coal-fired facilities, as a planned outage at one of our facilities during the period resulted in lower fuel consumption.
Purchased Power costs decreased $2.2 million primarily due to a 36% decrease in the price of purchased power, driven by lower market energy costs, partially offset by a 33% increase in purchased power volumes primarily driven by the planned outage at one of our facilities.
Operating and Maintenance expenses increased $7.9 million primarily due to higher labor costs, increased vegetative management expenses, plant outage-related expenses and an increase in insurance costs.
Depreciation and Amortization expense increased $1.9 million as additional assets, including certain wind generation, distribution and transmission assets, were placed in service.
Interest Expense increased $1.2 million primarily due to the issuance of additional long-term debt in the current year totaling $170.0 million, the proceeds of which were primarily used to fund our capital investments.
Other Income (Expense), net increased $2.1 million primarily due to an increase in AFUDC driven by our continued investments in our Abercrombie and Solway solar projects.
Income Tax Benefit increased $8.6 million primarily due to an increase in PTCs driven by increased wind generation that qualified for PTCs compared to the same period last year. Our wind repowering projects were completed in the first quarter of 2026. The completion of these facility repowering projects resulted in the commencement of PTCs earned from the generation from these facilities as they were placed back into service. PTCs are credited to customers, resulting in a reduction of both operating revenue and income taxes.
MANUFACTURING SEGMENT RESULTS
The following table summarizes Manufacturing segment operating results for the three months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
Operating Revenues $ 88,461 $ 78,726 $ 9,735 12.4 %
Cost of Products Sold (excluding depreciation) 65,748 59,037 6,711 11.4
Selling, General, and Administrative Expenses
11,453 9,101 2,352 25.8
Depreciation and Amortization 4,762 5,523 (761) (13.8)
Operating Income 6,498 5,065 1,433 28.3
Interest Expense (591) (627) 36 (5.7)
Other Income (Expense), net
- 1 (1) (100.0)
Income Before Income Taxes 5,907 4,439 1,468 33.1
Income Tax Expense
1,336 958 378 39.5
Net Income $ 4,571 $ 3,481 $ 1,090 31.3 %
Operating Revenues increased $9.7 million primarily due to steel cost increases, which drove a 9% revenue increase, as steel costs are passed on to customers, as well as a 3% increase in sales volumes. Demand improved in certain markets we serve, including the construction, recreational vehicle and horticulture markets, compared to softer demand and tighter inventory management efforts during the same period last year.
Cost of Products Sold increased $6.7 million primarily due to higher steel costs and sales volumes, partially offset by improved absorption of fixed manufacturing costs attributable to the higher production volumes.
Selling, General, and Administrative Expenses increased $2.4 million, driven by variable compensation costs associated with financial results during the period and expectations for full-year performance.
PLASTICS SEGMENT RESULTS
The following table summarizes Plastics segment operating results for the three months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
Operating Revenues $ 124,602 $ 125,586 $ (984) (0.8) %
Cost of Products Sold (excluding depreciation) 52,661 46,929 5,732 12.2
Selling, General, and Administrative Expenses 6,124 5,035 1,089 21.6
Depreciation and Amortization 1,750 1,588 162 10.2
Legal Settlement Expenses 103,500 - 103,500 n/m
Operating Income (Loss) (39,433) 72,034 (111,467) (154.7)
Interest Expense (325) (246) (79) 32.1
Other Income (1) - (1) n/m
Income (Loss) Before Income Taxes (39,759) 71,788 (111,547) (155.4)
Income Tax (Benefit) Expense (9,678) 18,684 (28,362) n/m
Net Income (Loss) $ (30,081) $ 53,104 $ (83,185) (156.6) %
Operating Revenues decreased $1.0 million compared to the same period last year, primarily due to a 14% decrease in average sales prices. The impact of lower pricing was largely offset by a 15% increase in sales volumes, primarily driven by customer purchasing activity ahead of announced PVC resin cost increases and additional production capacity recently added at our Phoenix facility.
Cost of Products Sold increased $5.7 million primarily due to an increase in sales volumes, as described above. The impact of increased sales volumes was partially offset by a 2% decrease in the cost of input materials, including PVC resin.
Legal Settlement Expenses reflect an estimated loss contingency recognized in the period. In the second quarter of 2026, we entered into settlement agreements with each of the three putative classes in the ongoing U.S. PVC pipe antitrust class action lawsuit. In connection with these matters, we recognized an estimated pre-tax loss in the amount of $103.5 million during the period. See Note 10 to the consolidated financial statements for additional information regarding the lawsuit and related settlements.
Income Tax (Benefit) Expense was a $9.7 million tax benefit in the current year compared to an $18.7 million tax expense in the same period last year. Income tax benefit for the three months ended June 30, 2026 included discrete tax benefits of $26.3 million recognized in connection with the settlement agreements executed in the period.
CORPORATE RESULTS
The following table summarizes Corporate operating results for the three months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
General and Administrative Expenses
$ 4,592 $ 3,216 $ 1,376 42.8 %
Depreciation and Amortization 76 58 18 31.0
Operating Loss 4,668 3,274 1,394 42.6
Interest Income (Expense) 16 (25) 41 n/m
Nonservice Cost Components of Postretirement Benefits (282) (273) (9) 3.3
Other Income (Expense), net
4,428 3,999 429 10.7
Income (Loss) Before Income Taxes (506) 427 (933) n/m
Income Tax (Benefit) Expense 289 (1,521) 1,810 n/m
Net Income (Loss) $ (795) $ 1,948 $ (2,743) n/m
General and Administrative Expenses increased $1.4 million primarily driven by higher employee compensation costs.
Income Tax (Benefit) Expense reflected income tax expense of $0.3 million for the three months ended June 30, 2026, compared to income tax benefit of $1.5 million in the same period last year due to the internal allocation of interim tax expense.
RESULTS OF OPERATIONS - YEAR TO DATE
CONSOLIDATED RESULTS
The following table summarizes consolidated operating results for the six months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
Operating Revenues $ 681,409 $ 670,396 $ 11,013 1.6 %
Operating Expenses 516,874 488,939 27,935 5.7
Legal Settlement Expenses 103,500 - 103,500 n/m
Operating Income 61,035 181,457 (120,422) (66.4)
Interest Expense (25,526) (23,273) (2,253) 9.7
Nonservice Components of Postretirement Benefits 1,494 2,136 (642) (30.1)
Other Income (Expense), net 11,720 9,244 2,476 26.8
Income Before Income Taxes 48,723 169,564 (120,841) (71.3)
Income Tax (Benefit) Expense (16,280) 23,737 (40,017) n/m
Net Income $ 65,003 $ 145,827 $ (80,824) (55.4) %
Operating Revenues increased $11.0 million primarily due to higher sales volumes in our Plastics segment and increased revenues from our Electric segment driven by recent rate increases. In addition, higher steel costs, which are passed on to customers, and increased sales volumes in our Manufacturing segment also contributed to the increase in operating revenues. These increases were largely offset by lower sales prices in our Plastics segment and increased PTCs in our Electric segment, the benefit of which is passed on to customers. See our segment disclosures below for additional discussion of items impacting operating revenues.
Operating Expenses increased $27.9 million primarily due to increased operating and maintenance expenses in the Electric segment, as well as increased expenses driven by higher sales volumes in the Plastics segment and higher material costs in the Manufacturing segment. These factors were partially offset by lower purchased power costs in the Electric segment. See our segment disclosures below for additional discussion of items impacting operating expenses.
Legal Settlement Expenses reflect a $103.5 million estimated loss contingency recognized in the Plastics segment related to the ongoing U.S. PVC pipe antitrust class action lawsuit and settlement agreements entered into during the period. See Note 10 to the consolidated financial statements for additional information regarding the lawsuit and related settlements.
Other Income (Expense), net increased $2.5 million primarily due to an increase in AFUDC in our Electric segment, driven by our continued investments in our Abercrombie and Solway solar projects.
Income Tax (Benefit) Expense was a benefit of $18.4 million for the six months ended June 30, 2026, compared to income tax expense of $23.7 million for the same period in 2025. The change was primarily attributable to a $26.3 million tax benefit recognized as a result of the litigation settlements executed during the period, as referenced above. Our effective tax rate decreased in 2026 compared with 2025 primarily as a result of the discrete tax benefits described above. The decrease was also attributable to higher PTCs generated by the Company's wind generation facilities following the completion of repowering projects at certain facilities in late 2025 and early 2026.
ELECTRIC SEGMENT RESULTS
The following table summarizes Electric segment operating results for the six months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
Operating Revenues $ 287,188 $ 278,451 $ 8,737 3.1 %
Production Fuel 31,385 30,613 772 2.5
Purchased Power 40,282 46,367 (6,085) (13.1)
Operating and Maintenance Expenses 104,948 95,685 9,263 9.7
Depreciation and Amortization 47,669 44,655 3,014 6.7
Property Taxes 9,583 8,455 1,128 13.3
Operating Income 53,321 52,676 645 1.2
Interest Expense (23,726) (21,479) (2,247) 10.5
Nonservice Cost Components of Postretirement Benefits 2,057 2,682 (625) (23.3)
Other Income 4,010 1,547 2,463 159.2
Income Before Income Taxes 35,662 35,426 236 0.7
Income Tax Benefit (18,286) (8,477) (9,809) n/m
Net Income $ 53,948 $ 43,903 $ 10,045 22.9 %
2026 2025 change % change
Electric kilowatt-hour (kwh) Sales (in thousands)
Retail kwh Sales 3,116,362 3,010,700 105,662 3.5 %
Wholesale kwh Sales - Company Generation 22,589 127,652 (105,063) (82.3)
Heating Degree Days 3,755 3,911 (156) (4.0)
Cooling Degree Days 164 145 19 13.1 %
The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating and cooling degree days as a percent of normal for the six months ended June 30, 2026 and 2025.
2026 2025
Heating Degree Days 94.9 % 98.9 %
Cooling Degree Days 127.1 % 114.2 %
The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions for the six months ended June 30, 2026 and 2025, and between those periods.
2026 vs
Normal
2026 vs
2025
2025 vs
Normal
Effect on Diluted Earnings Per Share $ (0.03) $ (0.03) $ -
Operating Revenues increased $8.7 million primarily due to:
•A $14.2 million increase from higher rates, reflecting interim and final base rate increases in Minnesota and South Dakota. Interim rates in Minnesota and South Dakota became effective in January 2026 and December 2025, respectively, and final base rates in South Dakota went into effect in April 2026.
•A $6.4 million increase from the recovery of our additional rate base investments.
•A $5.4 million increase from higher commercial and industrial sales volumes.
These increases were partially offset by:
•A $9.6 million increase in PTCs, the benefit of which is passed on to customers, as described below.
•A decrease in wholesale revenue due to lower excess generation available to sell into the wholesale market driven by a planned outage at one of our coal-fired facilities, as well as lower fuel recovery revenues as a result of the outage, and the impact of unfavorable weather.
Purchased Power costs decreased $6.1 million primarily due to an 11% decrease in the price of purchased power due to decreased market energy costs.
Operating and Maintenance expenses increased $9.3 million, primarily due to higher labor costs, driven by a lower level of labor capitalization resulting from the timing of construction project activity, as well as higher insurance and vegetation management costs.
Depreciation and Amortization increased $3.0 million due to additional assets, including certain wind, transmission and distribution assets, being placed in service.
Interest Expense increased $2.2 million primarily due to the issuance of additional long-term debt in the current year, totaling $170.0 million, the proceeds of which were primarily used to fund our capital investments.
Income Tax Benefit increased $9.8 million primarily due to an increase in PTCs driven by increased wind generation that qualified for PTCs compared to the same period last year. Our wind repowering projects were completed in the first quarter of 2026. The completion of these facility repowering projects resulted in the commencement of PTCs earned from the generation from these facilities as they were placed back into service. PTCs are credited to customers, resulting in a reduction of both operating revenue and income taxes.
MANUFACTURING SEGMENT RESULTS
The following table summarizes Manufacturing segment operating results for the six months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
Operating Revenues $ 178,021 $ 160,412 $ 17,609 11.0 %
Cost of Products Sold (excluding depreciation) 133,269 123,337 9,932 8.1
Selling, General, and Administrative Expenses
22,575 18,637 3,938 21.1
Depreciation and Amortization 9,549 10,946 (1,397) (12.8)
Operating Income 12,628 7,492 5,136 68.6
Interest Expense
(1,190) (1,249) 59 (4.7)
Other Income 1 - 1 n/m
Income Before Income Taxes 11,439 6,243 5,196 83.2
Income Tax Expense
2,585 1,230 1,355 110.2
Net Income $ 8,854 $ 5,013 $ 3,841 76.6 %
Operating Revenues increased $17.6 million primarily due to steel cost increases which drove a 7% revenue increase, as steel costs are passed on to customers, as well as a 4% increase in sales volumes. Demand improved in certain markets we serve, including the construction, recreational vehicle and horticulture markets, compared to softer demand and tighter inventory management efforts during the same period last year.
Cost of Products Sold increased $9.9 million primarily due to higher steel costs and sales volumes, partially offset by improved absorption of fixed manufacturing costs attributable to the higher production volumes.
Income Tax Expense increased $1.4 million primarily due to the increase in income before income taxes.
PLASTICS SEGMENT RESULTS
The following table summarizes Plastics segment operating results for the six months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
Operating Revenues $ 216,200 $ 231,533 $ (15,333) (6.6) %
Cost of Products Sold (excluding depreciation) 92,678 87,016 5,662 6.5
Selling, General, and Administrative Expenses 11,330 10,473 857 8.2
Depreciation and Amortization 3,422 3,135 287 9.2
Legal Settlement Expenses 103,500 - 103,500 n/m
Operating Income 5,270 130,909 (125,639) (96.0)
Interest Expense (472) (392) (80) 20.4
Other Income 2 3 (1) (33.3)
Income Before Income Taxes 4,800 130,520 (125,720) (96.3)
Income Tax Expense 1,941 33,977 (32,036) (94.3)
Net Income $ 2,859 $ 96,543 $ (93,684) (97.0) %
Operating Revenues decreased $15.3 million compared to the same period last year, primarily reflecting a 16% decrease in average sales prices. The impact of lower pricing was partially offset by an 11% increase in sales volumes. Higher sales volumes were primarily driven by customer purchasing activity ahead of announced PVC resin cost increases and leveraging the additional capacity recently added at our Phoenix facility.
Cost of Products Sold increased $5.7 million primarily due to an increase in sales volumes, as described above. The cost of input materials, including PVC resin, decreased 7% compared to the prior year, driven by global supply and demand dynamics which resulted in elevated resin supply, partially offsetting the impact of increased sales volumes.
Legal Settlement Expenses reflect an estimated loss contingency recognized in the period. In the second quarter of 2026, we entered into settlement agreements with each of the three putative classes in the ongoing U.S. PVC pipe antitrust class action lawsuit. In connection with these matters, we recognized an estimated pre-tax loss in the amount of $103.5 million during the period. See Note 10 to the consolidated financial statements for additional information regarding the lawsuit and related settlements.
Income Tax Expense decreased $32.0 million compared to the same period last year. Income tax expense for the six months ended June 30, 2026, included discrete tax benefits of $26.3 million recognized in connection with the settlement agreements executed in the period.
CORPORATE COSTS
The following table summarizes Corporate operating results for the six months ended June 30, 2026 and 2025:
(in thousands) 2026 2025 $ change % change
General and Administrative Expenses $ 10,035 $ 9,534 $ 501 5.3 %
Depreciation and Amortization 149 86 63 73.3 %
Operating Loss (10,184) (9,620) (564) 5.9 %
Interest Expense (138) (153) 15 (9.8) %
Nonservice Cost Components of Postretirement Benefits (563) (546) (17) 3.1 %
Other Income 7,707 7,694 13 0.2 %
Net Loss Before Income Taxes (3,178) (2,625) (553) 21.1 %
Income Tax Benefit (2,520) (2,993) 473 (15.8) %
Net Income (Loss) $ (658) $ 368 $ (1,026) n/m
REGULATORY MATTERS
The following provides a summary of general rates, rate rider and other regulatory filings that have or are expected to have a material impact on our operating results, financial position or cash flows.
GENERAL RATES
South Dakota Rate Case
On June 4, 2025, OTP filed a request with the SDPUC for an increase in revenue recoverable under general rates in South Dakota. In its filing, OTP requested a net increase in annual revenue of $5.7 million, or 12.50%, based on an allowed rate of return on rate base of 8.29%. Interim rates went into effect on December 1, 2025, and were subject to potential refund until the finalization of the rate case.
On March 10, 2026, the SDPUC approved a settlement agreement between OTP and the commission staff in the general rate case. The key provisions of the order included a net increase in annual revenue of $3.3 million, or 7.7%, based on a return on rate base of 7.09%. Through the settlement of the case, the parties also agreed to a moratorium on increases to base rates until December 1, 2029, with certain exceptions. New base rates in South Dakota went into effect on April 1, 2026, and interim rate refunds totaling $0.8 million were refunded to customers during the three months ended June 30, 2026.
Minnesota Rate Case
On October 31, 2025, OTP filed a request with the MPUC for an increase in revenue recoverable under general rates in Minnesota. In its filing, OTP requested a net increase in annual revenue of $44.8 million, or 17.7%, based on an allowed rate of return on rate base of 7.92% and an allowed ROE of 10.65% on an equity ratio of 53.5% of total capital. The request includes, among other items, accelerated recovery of the remaining investment of the jurisdictionally allocated share of Coyote Station, which has a $4.3 million annual impact. The request for accelerated recovery is driven by the MPUC's order in OTP's most recent IRP to discontinue serving Minnesota customers with capacity and energy from Coyote Station by December 2031. If this part of the request is granted, we
anticipate the amounts collected would be deferred and recognized over the remaining estimated useful life of the plant, which extends until 2041. The filing also included an interim rate request for a net increase in annual revenue of $31.8 million, or 12.6%.
On December 23, 2025, the MPUC approved the interim rate request with a modification to exclude the impact of the accelerated recovery of the remaining investment of the jurisdictionally allocated share of Coyote Station from interim rates. The resulting interim net increase in annual revenue is $28.6 million, or 11.3%. Interim rates went into effect on January 1, 2026, and are subject to potential refund until the finalization of the rate case.
In a filing submitted to the MPUC on July 30, 2026, OTP revised its requested net annual revenue increase to $42.3 million to reflect updates and adjustments made since the initial filing.
We currently anticipate the case will be finalized in April 2027, and that final rates will go into effect in the second half of 2027.
RATE RIDERS
The following table includes a summary of pending and recently concluded rate rider proceedings with a significant revenue impact:
Recovery Filing Amount Effective
Mechanism Jurisdiction Status Date (in millions) Date Notes
RRR - 2026
MN
Requested
02/25/26 42.7 10/01/26
Recovery of Solway Solar costs, Abercrombie Solar costs, Hoot Lake Solar costs, Ashtabula III costs, wind upgrade project costs at our four owned wind facilities, and true up of PTCs related to Merricourt.
ECO - 2026
MN
Requested
04/01/26 10.6 12/01/26
Recovery of energy conservation improvement costs as well as a demand-side management financial incentive.
ECO - 2025 MN
Approved
04/01/25 9.5 12/01/25
Recovery of energy conservation improvement costs as well as a demand-side management financial incentive.
TCR - 2026
MN
Requested
03/23/26 7.4 01/01/27 Recovery of transmission project costs.
EUIC - 2025 MN Approved 05/03/24 4.1 02/01/25
Recovery of advanced metering infrastructure, outage management system, geographic information system, and demand-response projects.
TCR - 2026 ND
Approved
09/15/25 5.1 02/01/26 Recovery of transmission project costs.
MDT - 2026 ND
Approved
08/01/25 3.7 01/01/26
Recovery of advanced metering infrastructure and demand-response projects.
TCR - 2025 ND Approved 09/16/24 3.1 01/01/25 Recovery of transmission project costs.
PIR - 2025 SD
Approved
12/20/24 3.2 09/01/25
Recovery of Ashtabula III, Merricourt, Astoria Station, wind upgrade projects, advanced grid infrastructure project costs, addition of Solway Solar and Abercrombie Solar, and impact of load growth credits.
INTEGRATED RESOURCE PLAN
On May 15, 2026, OTP filed its 2026 Integrated Resource Plan (2026 IRP) with the MPUC. The 2026 IRP includes OTP's preferred plan for meeting customers' anticipated capacity and energy needs over the next 15 years.
The major requests in the plan include:
•The addition of a 50 megawatt natural gas plant, expected to be placed into service in 2031 or 2032;
•The addition of a 50 megawatt wind generation facility, expected to be placed in service in 2035; and
•The addition of a 50 megawatt wind generation facility, expected to be placed in service in 2040.
We currently anticipate the MPUC will hold deliberations and render a decision on the IRP in 2027.
LIQUIDITY
LIQUIDITY OVERVIEW
We believe our financial condition is strong and our cash and cash equivalents, other liquid assets, operating cash flows, existing lines of credit, access to capital markets and borrowing ability because of investment-grade credit ratings, when taken together, provide us ample liquidity to conduct our business operations, fund our capital expenditure program and satisfy our obligations as they become due. Our liquidity, including our operating cash flows and access to capital markets, could be impacted by macroeconomic factors outside of our control, including higher interest rates and debt capital costs, and diminished credit
availability. In addition, our liquidity could be impacted by non-compliance with certain financial covenants under our various debt instruments.
During the second quarter of 2026, the Company entered into settlement agreements with each of the three putative classes in the ongoing U.S. PVC pipe antitrust class action lawsuit. Subject to the satisfaction of certain conditions and final court approval, the Company agreed to pay an aggregate of $103.5 million to resolve all claims against it in the litigation.
In June 2026, the Company deposited $73.5 million into settlement fund escrow accounts, which was classified as restricted cash on the consolidated balance sheets as of June 30, 2026. In July 2026, the Company deposited the remaining $30.0 million into a settlement fund escrow account. The deposits were funded with available cash and will remain restricted pending finalization of the settlement agreements.
Despite the aggregate settlement payments made during the period, we believe our liquidity position remains strong due to available cash balances and borrowing capacity under our credit facilities. The related settlement expenses also did not materially affect debt covenant calculations under the Company's financing agreements. As of June 30, 2026, we were in compliance with all financial covenants (see the Financial Covenants section under Capital Resources below).
The following table presents the status of our lines of credit as of June 30, 2026:
2026
(in thousands) Borrowing Limit Amount Outstanding Letters
of Credit 		Amount Available
OTC Credit Agreement $ 170,000 $ - $ - $ 170,000
OTP Credit Agreement 220,000 53,847 13,126 153,027
Total $ 390,000 $ 53,847 $ 13,126 $ 323,027
OTC and OTP are each party to separate credit agreements (the OTC Credit Agreement and OTP Credit Agreement, respectively) which provide for unsecured revolving lines of credit. Should additional liquidity be needed, the OTC Credit Agreement includes an accordion feature allowing us to increase the amount available to $290.0 million, subject to certain terms and conditions. The OTP Credit Agreement also includes an accordion feature allowing OTP to increase that facility to $300.0 million, subject to certain terms and conditions.
As of June 30, 2026, we had $323.0 million of available liquidity under our credit facilities and $278.4 million of available cash and cash equivalents, resulting in total available liquidity of $601.4 million.
CASH FLOWS
The following is a discussion of our cash flows for the six months ended June 30, 2026 and 2025:
(in thousands) 2026 2025
Net Cash Provided by Operating Activities $ 182,711 $ 159,379
Net Cash Provided by Operating Activities increased $23.3 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, primarily due to a decrease in working capital requirements, largely driven by the timing of vendor payments and the recovery of fuel cost and rider revenues from our utility customers. Net cash provided by operating activities in our Electric segment is regularly affected by the timing of payments made for operating costs and the various mechanisms used to recover costs from or return amounts to our utility customers. The timing of recoveries and refunds can vary by the recovery or refund mechanism. Due to the numerous factors that impact the timing of our cash receipts and cash payments, our cash provided by operating activities can vary significantly from our net income for the period.
(in thousands) 2026 2025
Net Cash Used in Investing Activities $ 326,605 $ 127,026
Net Cash Used in Investing Activities increased $199.6 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025, primarily reflecting higher capital expenditures. Capital expenditures increased $200.5 million, including a $196.6 million increase in our Electric segment primarily related to investments in our Abercrombie and Solway solar projects, as well as investments in various transmission and other infrastructure projects.
(in thousands) 2026 2025
Net Cash Provided by (Used in) Financing Activities $ 109,584 $ (19,763)
Net Cash Provided by Financing Activities for the six months ended June 30, 2026 included the issuance of $170.0 million of long-term debt at OTP, the proceeds of which were used to repay short-term borrowings under the OTP credit agreement, fund Electric segment construction expenditures and support operating activities. We manage the capital structure of OTP independent from our consolidated financial position to ensure compliance with the capital structure approved through regulation; therefore, our decision to issue long-term debt at OTP is not impacted by our consolidated cash and cash equivalent position.
Financing activities for the six months ended June 30, 2026 also included dividend payments of $48.5 million. Financing activities for the six months ended June 30, 2025 included the issuance of $100.0 million of long-term debt at OTP, net repayments of short-term debt of $69.6 million and dividend payments of $44.0 million.
CAPITAL REQUIREMENTS
CONTRACTUAL OBLIGATIONS
Our contractual obligations primarily include principal and interest payments due under our outstanding debt obligations, commitments to acquire coal, energy and capacity commitments, payments to meet our postretirement benefit obligations, and payment obligations under land easements and leasing arrangements.
In connection with our Abercrombie Solar project, which is currently under development in southeastern North Dakota, we have entered into multiple land lease agreements for the property on which the facility will be constructed. The leases commenced on May 1, 2026, and have an initial term of 35 years, with options to extend the lease term for up to an additional 10 years. Annual lease payments vary based on the acreage subject to each lease, and total contractual lease payments over the initial 35-year term of the leases are $53.9 million.
During the second quarter of 2026, the Company entered into agreements with each of the three putative classes in the ongoing U.S. PVC pipe antitrust class action lawsuit. Under the terms of the agreements, the Company agreed to pay an aggregate of $103.5 million to resolve all claims asserted against it in the litigation. The Company deposited $73.5 million into settlement fund escrow accounts in June 2026, and the remaining $30.0 million in July 2026. The deposited funds remain restricted in escrow pending final court approval and completion of the settlement process.
Our contractual obligations as of December 31, 2025 are included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2025. There were no material changes in our contractual obligations outside of the ordinary course of business during the six months ended June 30, 2026, except for the land leases and settlement payments described above.
COMMON STOCK DIVIDENDS
We paid dividends to our shareholders totaling $48.5 million, or $1.155 per share, in the first six months of 2026. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, our actual or expected level of earnings and cash flows from operations, the level of our capital expenditures and our future business prospects. As a result of certain statutory limitations or regulatory or financing agreements, the amount of dividends we are allowed to pay could be restricted. See Note 11 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. The decision to declare dividends is reviewed quarterly by our Board of Directors.
CAPITAL RESOURCES
Financial flexibility is provided by operating cash flows, unused lines of credit and access to capital markets, and is aided by strong financial coverages and investment-grade credit ratings. Debt financing will be required in the next five years to refinance maturing debt and to finance our capital investments. Our financing plans are subject to change and are impacted by our planned level of capital investments and decisions to reduce borrowings under our lines of credit, to refund or retire early any of our outstanding debt, to complete acquisitions or to use capital for other corporate purposes.
REGISTRATION STATEMENTS
On May 3, 2024, we filed two registration statements with the SEC, replacing two previously filed registration statements upon their expiration. The first statement, a shelf registration, allows us to offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the registration statement. No new debt or equity has been issued pursuant to the registration statement. The second registration statement allows for the issuance of up to 1,500,000 common shares
under our Automatic Dividend Reinvestment and Share Purchase Plan, which provides our common shareholders, retail customers of OTP and other interested investors a method of purchasing our common shares by reinvesting their dividends and/or making optional cash investments. Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. As of June 30, 2026, there were 1,282,756 shares available for purchase or issuance under the plan. Both registration statements expire in May 2027.
SHORT-TERM DEBT
OTC and OTP are each party to a credit agreement (the OTC Credit Agreement and the OTP Credit Agreement, respectively) which each provides for unsecured revolving lines of credit. The following is a summary of key provisions and borrowing information as of and for the six months ended June 30, 2026:
(in thousands, except interest rates) OTC Credit Agreement OTP Credit Agreement
Borrowing Limit $ 170,000 $ 220,000
Borrowing Limit if Accordion Exercised1
290,000 300,000
Amount Restricted Due to Outstanding Letters of Credit as of June 30, 2026
- 13,126
Amount Outstanding as of June 30, 2026
- 53,847
Average Amount Outstanding During the Six Months Ended June 30, 2026
- 59,947
Maximum Amount Outstanding During the Six Months Ended June 30, 2026
$ - $ 127,338
Interest Rate as of June 30, 2026
5.15 % 4.95 %
Maturity Date December 11, 2030 December 11, 2030
1Each facility includes an accordion featuring allowing the borrower to increase the borrowing limit if certain terms and conditions are met.
LONG-TERM DEBT
On March 19, 2026, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $170.0 million of senior unsecured notes consisting of (a) $100.0 million of 5.33% Series 2026A Senior Unsecured Notes due March 19, 2036, and (b) $70.0 million of 6.04% Series 2026B Senior Unsecured Notes due June 4, 2056. The Series 2026A Notes were issued on March 19, 2026, upon entering into the agreement. The Series 2026B Notes were issued on June 4, 2026.
As of June 30, 2026, we had $1.2 billion of principal outstanding under long-term debt arrangements. These instruments generally provide for unsecured borrowings at fixed rates of interest with maturities ranging from 2026 to 2056. Note 7 to our consolidated financial statements included in this Quarterly Report on Form 10-Q includes additional information regarding these long-term debt instruments.
Financial Covenants
Certain of our short- and long-term debt agreements require OTC and OTP to maintain certain financial covenants. As of June 30, 2026, we were in compliance with these financial covenants as further described below:
OTC, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00 or 0.65 to 1.00, depending on the debt agreement, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00 and may not permit its priority indebtedness to exceed 10 percent of its total capitalization. As of June 30, 2026, OTC's interest-bearing debt to total capitalization was 0.41 to 1.00, OTC's interest and dividend coverage ratio was 5.17 to 1.00 and OTC had no priority indebtedness outstanding.
OTP, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00 or 0.65 to 1.00, depending on the debt agreement, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00 and may not permit its priority indebtedness to exceed 20 percent of its total capitalization. As of June 30, 2026, OTP's interest-bearing debt to total capitalization was 0.49 to 1.00, OTP's interest and dividend coverage ratio was 2.87 to 1.00 and OTP had no priority indebtedness outstanding.
None of our debt agreements include any provisions that would trigger an acceleration of the related debt as a result of changes in the credit rating levels assigned to the related obligor by rating agencies.
Credit Ratings
The current credit ratings of OTC and OTP are summarized below:
Otter Tail Corporation Otter Tail Power Company
Moody's Fitch S&P Moody's Fitch S&P
Long-Term Issuer Default Rating Baa2 BBB BBB Baa1 BBB+ BBB+
Senior Unsecured Debt n/a BBB n/a n/a A- n/a
Outlook Stable Stable Positive Stable Stable Stable
CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES
The discussion and analysis of our results of operations are based on financial statements prepared in accordance with generally accepted accounting principles in the United States of America. Certain of our accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the preparation of our consolidated financial statements. We have disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025 the critical accounting policies that affect our most significant estimates and assumptions used in preparing our consolidated financial statements. There have been no material changes to our critical accounting policies and estimates from those disclosed in the most recent Annual Report on Form 10-K.
Otter Tail Corporation published this content on August 05, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on August 05, 2026 at 16:59 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]