OTTR 10-K & 10-Q changes, risk factors and insider trading
Otter Tail Corp · Nasdaq · Electric Services · CIK 1466593 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “We are subject to risks associated with our supply chain and trade regulations and tariffs.”
New heading “Our electric facilities could be vulnerable to cyber and physical attack.”
New heading “Our electric facilities are subject to operational risks, which could result in injuries, loss of life, property damage and liability claims.”
Removed heading “Our generation, transmission and distribution facilities could be vulnerable to cyber and physical attack.”
Removed heading “Our generation, transmission and distribution facilities are subject to operational risks, which include circumstances that could result in injuries, loss of life, property damage and fires.”
Removed heading “We are subject to risks associated with the procurement and transportation of fuel to our coal and natural gas-powered generation facilities.”
Removed heading “GENERAL RISK FACTORS”
Removed heading “Changes in economic conditions and economic policies could negatively impact our businesses.”
Removed heading “If we are unable to achieve the organic growth we expect, our financial performance may be adversely affected.”
Removed heading “The effects of a major public health crisis, such as an epidemic or pandemic, and measures taken to reduce and slow the spread of the disease could adversely impact our business.”
Largest changes
“Our businesses are affected by local, national and worldwide economic conditions. Economic recessions, inflation, changes in commodity prices, changes in interest rates and tightening of credit in financial markets could adversely affect our operating results, financial condition and liquidity. …”see in full comparison
“We are subject to risks associated with our supply chain and trade regulations and tariffs.”see in full comparison
“OTP is subject to mandatory cybersecurity and physical security regulatory requirements. OTP implements the NERC standards for operating its transmission and generation assets and remains abreast of best practices within the business and the utility industry to protect its computers and computer-controlled systems from outside attack. We rely on industry-accepted security measures and technology to securely maintain confidential and proprietary information necessary for the operation of our systems. …”see in full comparison
“OTP is subject to mandatory cybersecurity and physical security regulatory requirements. OTP implements the NERC standards for operating its transmission and generation assets and remains abreast of best practices within the business and the utility industry to protect its computers and computer-controlled systems from outside attack. We rely on industry-accepted security measures and technology to securely maintain confidential and proprietary information necessary for the operation of our systems. …”see in full comparison
“Accidents, fires, explosions, catastrophic failures, general system damage or dysfunction, intentional acts of destruction and other unplanned events related to our infrastructure would increase repair costs and may expose us to liability for personal injury, loss of life and property damage. …”see in full comparison
“The effects of a major public health crisis, such as an epidemic or pandemic, and measures taken to reduce and slow the spread of the disease could adversely impact our business.”see in full comparison
Full comparison: every changed paragraph (82)
Our businesses are subject to various risks and uncertainties. Any of the risks described below or elsewhere in this report on Form 10-K or in our other SEC filings could materially adversely affect our business, operating results, financial condition and liquidity. AdditionalUnforeseen risks and uncertainties we are not presently aware ofuncertainties, or those that we currently consider immaterialimmaterial, maycould also affect our business, operating results, financial condition and liquidity.
Our business strategy includes major capital investments at our operating companies. These capital projects are planned years in advance of their in-service dates and are subject to various risks including adverse changes in regulatory treatment or public policy; changes in commodity pricing or construction costs; delivery of critical materials; obtaining necessary permits and licenses; and other adverse conditions. Capital investments in our Electric segment require regulatory approval and are subject to the risks of not being granted timely approval or allowed to be fully recovered. InIf addition,we ourare abilityunable to constructmanage these risks and own utility assets may be impacted by regulatory requirements to competitively bid such investments, which could impact the amount and timing ofcomplete our capital investments. A lack of direct ownership, or the inability to complete capitalinvestment projects on budget and in a timely mannermanner, it could have negative impact on our ability to achieve our strategic financial goals and could adversely impact ourcondition, operating results and financial condition.liquidity.
Our Electric segment business is seasonal, and weather patterns have had an impact on our financial performance in the past and may again in the future. Demand for electricity is normally greater in the winter and summer months. Unusually mild summerstemperatures andnegatively wintersimpact coulddemand for electricity which can have an adverse effect on our financial condition and results of operations. Our Plastics segment businesses can be affected by seasonal weather prohibiting or delaying construction projects at any time of the year in any geography, but specifically times of the year when frozen ground and cold temperatures in many parts of the country can delay construction projects, all of which can result in reduced customer demand and could have an adverse effect on our financial condition, operating results and liquidity.
Our Plastics segment businesses can be affected by seasonal weather prohibiting or delaying construction projects at any time of the year in any geography, but specifically times of the year when frozen ground and cold temperatures in many parts of the country can delay construction projects, all of which can result in reduced customer demand and could have an adverse effect on our financial condition, operating results and liquidity.
We are subject to physical risks and transition risks associated with climate change and extreme weather events.
Longer termLonger-term shifts in climate patterns may impact our customers' demand for electricity,electricity; interrupt our business operations and damage our facilities; reduce the availability of natural resources, such as water; and cause disruptions in our supply chains.
Climate change may increase the frequency and severity of extreme weather events, such as prolonged periods of extreme cold or heat, and natural disasters, such as severe snow and ice storms, tornadoes, flooding and wildfires. These acute events could result in the interruption of our business operations and damage to our facilities. We may not have sufficient insurance coverage to avoid adverse impacts to our operating results or financial condition from damage to our facilities or an interruption in our business. An extreme weather event within our utility service area could directly affect our capital assets, causing disruption in service to customers, and result in reduced operating revenues and additional repair or replacement costs, due to downed wires and poles or damage to other operating equipment.costs.
Increased risk of natural disasters, such as wildfires,wildfires and severe convective storms, could have negative financial consequences, including limiting our ability to secure sufficient insurance coverage, or leadleading to increased insurance cost.costs. While we carry liability insurance, given an extreme event, if we were found to be liable for damages,damages caused by the event, amounts that exceed our coverage limit could negatively impact our financial condition, operating results and liquidity.
OurAs our businesses continue to be subject to additional and changing environmental, health and safety laws and regulations, and we could incur additional costs complying with requirements that are promulgated in the future. New laws or regulationsregulations, or changes to existing laws and regulations in the futurefuture, may result in disruptions to our business, changes in customer preferences or changes in customer demand, which could adversely impact our financial condition, operating results and liquidity.
Recently, various federal and state agencies have heightened their scrutiny of per- and polyfluoroalkyl substances (PFAS), which are manufactured chemicals used in a variety of consumer and industrial products. Regulators have recently proposed additional chemicals be designated as hazardous substances, including a proposal to designate perfluorooctanesulfonic acid and perfluorooctanoic acid, two of the most common PFAS chemicals, as hazardous substances, which could have wide-ranging impacts on companies across various industries, including ours. At this time, we cannot predict the outcome or the severity of the impact, if any, of future laws or regulations enacted to address PFAS.
We are periodically subject to actual and threatened claims, litigation, investigations and other proceedings, including proceedings by governments and regulatory authorities, involving utilities regulation, competition and antitrust, product quality matters,matters and liability claims.
Any of these threatened or actual claims, proceedings, or investigations, including the currently ongoing proceedings and investigations related to our Plastics segment businesses,businesses and OTC, could have an adverse effect on our financial condition, operating results and liquidity. It is possible that a resolution of one or more proceedings, including as a result of aresulting settlement, could involve damages, sanctions, consent decrees or orders requiring us to make substantial future payments, preventpreventing us from offering certain products or services, requirerequiring us to change our business practices in a manner materially adverse to our business, otherwise disruptdisrupting our business, divertdiverting management resources, damagedamaging our reputation or otherwise havehaving a material effect on our operations. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties, and we are unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any, arising from the proceedings at this time.uncertainties.
The operation of our business is dependent on the secure functioning of our computer hardware and software systems, as well as that of third-party service providers and vendors. Information systems, both ours and those of third parties, are vulnerable to security breaches by computer hackers and cyber terrorists, system failures, the negligent or intentional breach of established controls and procedures or the mismanagement of confidential information by employees. Cyber-attacksCyber attacks or other security breaches may also be perpetrated through the use of artificial intelligence, which could introduce additional complexity to such an attack or breach. While we employ a defense-in-depth strategy and regularly conduct cybersecurity assessments, we cannot be certain our information security systems and protocols and those of our vendors and other third parties are sufficient to withstand a cyber-attackcyber attack or other security breach.
A system failure could result in a disruption to our business including,including but not limited to,to the inability to produce products or serve our customers. A prolonged system failure could negatively impact our operating results. A major cyber incident could result in significant expenses to investigate and repair security breaches or system damage, and could lead to litigation, fines, other remedial action, heightened regulatory scrutiny and damage to our reputation. For example, we may be subject to liability under various federal, state and international disclosure laws and data protection laws. These laws are subject to change and expansion and may require additional operational changes and costs to comply.
The misappropriation, corruption or loss of personally identifiable information and other confidential data could lead to significant monetary damages, regulatory enforcement actions and breach notification and mitigation expenses, such as credit monitoring, and result in reputational damage affecting relations with shareholders, customers, regulators and others. In addition to property and casualty insurance, which may cover restoration of data,data and certain physical damage or third-party injuries, we have cybersecurity insurance related to a breach event. However, damage and claims arising from such incidents may not be covered or may exceed the amount of any available insurance.
The loss ofof, or significant reduction in revenue fromfrom, any of our key customers could have an adverse effect on our operating results.
In 2024,2025, ano single customer provided more than 10% of our consolidated operating revenues, andhowever, each of our segments havehad customers which accounted for over 10% of the segment’s operating revenues. In 2024,2025, two customers combined to account for 19%16% of Electric segment revenues, twothree customers combined to account for 36%44% of Manufacturing segment operating revenues and two customers combined to account for 52%47% of Plastics segment operating revenues, with one of those customers providing more than 10% of our consolidated operating revenues. The loss of any one of these customers or a significant decline in sales to these customers,customers would have a significant negative impact on the segment's financial condition and operating results,results and could have a significant negative impact on the Company’s consolidated financial condition, operating results and liquidity.
We are subject to risks associated with our supply chain and trade regulations and tariffs.
Our operations depend on the timely and cost-effective procurement and transportation of raw materials, including coal, natural gas, steel and aluminum, PVC resin and other materials. Global and domestic supply chain disruptions, which may be caused by numerous factors outside of our control, may affect the availability and pricing of critical materials and equipment.
Changes in trade policies, including tariffs and anti-dumping and countervailing duties, could increase the cost of certain materials used in constructing and maintaining our utility assets and impact the cost of raw materials used in our manufacturing processes. Specifically, tariffs arising from recent or ongoing anti-dumping and countervailing duty investigations could impact the cost of components necessary in constructing certain renewable generation assets. The imposition of such tariffs could increase the cost of our capital investments for which we are not guaranteed recovery. Alternatively, modifications to our material sourcing may delay our project plans and lead to increased costs.
Recent federal legislation restricting the use of "foreign entities of concern" in the supply chain for energy-related projects may limit our ability to source certain components, particularly for renewable generation projects. Compliance with these requirements could result in higher project costs, longer lead times, the need to identify alternative suppliers and project delays.
We face risks related to transportation logistics, including rail availability for coal and PVC resin, pipeline capacity and availability for natural gas and trucking capacity for steel and aluminum and other materials. Disruptions in these transportation systems, which can be caused by many factors outside of our control, could increase our costs or disrupt our operations.
If we are unable to effectively manage our supply chain and trade-related risks, our operations could be adversely impacted, which may have a material impact on our operating results, financial position and liquidity.
We rely on access to debt and equity capital markets as a source of liquidity to fund our strategic investment initiatives, including rate base growth investments in our Electric segment and opportunities for investment, including acquisitions, in our Manufacturing and Plastics segments.initiatives. Capital markets are impacted by global and domestic economic conditions, monetary policy, commodity prices, geopolitical events and other factors. If we are unable to access capital on acceptable terms and at reasonable costs, our ability to implement our business plans may be adversely affected. In addition, higher market interest rates on outstanding variable-rate indebtedness could also impact our operating results.
The financial obligations and related costs of our pension and other postretirement benefit plans are affected by numerous factors.factors, Assumptionsincluding relatedinterest to future costs,rates, investment returns, actuarialfuture estimatesemployee compensation levels, healthcare cost trends and interestmortality ratesrates. Changes in any, or a combination, of these factors could have a significant effect on our funding obligations and the costcosts recognized related tofor these plans. If our pension plan assets do not achieve our estimated long-term rate of return or if our other estimates prove to be inaccurate, our operating results, financial condition and liquidity may be adversely impacted. In addition, our funding requirements could be impacted by changes to the Pension Protection Act.
OTC is a holding company with no significant operations of its own. The primary source of funds for payment of our financial obligations and dividends to our shareholders is from cash provided by our subsidiary companies. Our ability to meet our financial obligations and pay dividends on our common stock principally depends on the earnings, cash flows, capital requirements and general financial positionsposition of our subsidiary companies. In addition, OTP is subject to federal and state regulations which may restrict its ability to pay dividends. Finally, we are also reliant on our subsidiary companies to maintain compliance with financial covenants under our various short- and long-term debt agreements. Our debt agreements include restrictions on the payment of cash dividends upon an event of default.
Changes in tax lawslaws, or failures to comply with tax credit eligibility requirements, could materially affect our financial condition and operating results.
Our provision for income taxes and tax obligations are impacted by various tax laws and regulations, including the availability of various tax credits, IRS tax policies such as tax normalization and, at times, the ability to carryforwardcarry forward net operating losses and tax credits. Changes in tax laws, regulations and interpretations could have an adverse effect on our financial conditioncondition, operating results and operating results.liquidity. Tax law changes that reduce or eliminate production or investment tax credits (ITCs), or the ability to transfer or sell these credits, or a failure to meet the compliance requirements to receive these credits, may impact the economics of constructing certain electric generation resources, which may impact our planned investments, and could adversely affect our financial condition and operating results.
Failure to meet initial and ongoing tax credit eligibility requirements could also adversely impact our financial condition, operating results and liquidity.
Our financial condition, operating results and liquidity are significantly impacted byby, and dependent uponupon, our ability to recover the costs associated with providing utility service and earnearning a return on our utility capital investments. There is no assurance that each state utility commission will judge our utility costs to have been prudently incurred or that rates will produce full recovery of such costs. In addition, changesthere inis theno federalassurance orthat statewe regulatorywill frameworkbe could impair our abilityauthorized to recover utility costs historically collected from our customers. Diverging public policy priorities across the jurisdictions we serve and a lackrate of inter-jurisdictional consensus may impact our ability to recover the cost of and return on our capital investments andthat allows us to achieve our operatingfinancial costs;goals. itAn mayadverse impactdecision ourby futureone capitalor investmentmore opportunities;regulatory andauthorities mayor resultany prolonged delay in inefficienciesrendering whicha decision in a rate case or other proceeding could negativelyadversely impact our financial position,condition, operating results and liquidity.
Changes in the federal or state regulatory framework could impair our ability to recover utility costs historically collected from our customers. Diverging public policy priorities across the jurisdictions we serve, and a lack of inter-jurisdictional consensus may impact our ability to recover the cost of and return on our capital investments and our operating costs. Recently, the NDPSC and North Dakota’s federal legislators have opposed cost recovery for projects in MISO Tranche 2.1, challenging renewable energy goals built into MISO’s benefits calculation for the projects. Federal and state opposition may impact our future capital investment opportunities; and may result in inefficiencies which could negatively impact our financial position, operating results and liquidity.
Regulatory requirements to competitively bid capital projects could impact our ability to construct and own utility assets. A lack of direct ownership of such investments could impact our ability to achieve our strategic financial goals and adversely impact our operating results.
In addition to the recovery of our utility costs, our profitability is impacted by our authorized ROE, which can be impacted by macroeconomic factors such as interest rates. There can be no assurance that each state utility commission or the FERC will authorize a rate of return which allows us to achieve our financial goals. An adverse decision by one or more regulatory authorities or any prolonged delay in rendering a decision in a rate or other proceeding could adversely impact our financial condition, operating results and liquidity.
Inflationary cost pressures have increased the cost of constructing our utility assets and operating our utility business. There can be no assurance that our state or federal regulatory commissions will authorize recovery of rising costs. Regulatory commissions may also limit future capital investments, or the rate of return allowed on such investments in response to inflationary cost pressures and customer bill impacts. Such limitations could negatively impact our financial position, operating results and liquidity.
Changes in regulatory, operational or economic factors could result in the early closure orclosure, sale ofof, or withdrawal from our interest in a coal-fired generating facility. In the event of an early closure, a significant asset impairment charge could be required, and we would be obligated to pay for our share of the costs of closure of the generating facility. In the event of a sale of our interest in a generating facility, we may be unable to negotiate the sale on favorable terms, which could result in the recognition of a loss on the sale. There can be no assurance that we would be authorized by any of our state utility commissions to recover any costs or losses associated with the early closure or sale of our interest in a generating facility.
Our latest IRP, approved in Minnesota by the MPUC in May 2024, directs OTP to commence activities to no longer serve Minnesota customers with capacity or energy from Coyote Station as early as 2029. The discontinuation of service to Minnesota customers from Coyote Station could result in stranded costs, which may significantly impact our operating results, financial condition and liquidity.
Environmental regulation could require us to incur substantial capital expenditures,expenditures or increased operating costscosts, or make it no longer economically viable to operate some of our facilities.
Coyote Station, one of OTP's jointly owned coal-fired power plants, is subject to assessment under the second planning period of the RHR as part of the state of North Dakota's RHR SIP. In December 2024, the EPA partially disapproved the North Dakota SIP related to Coyote Station and now must promulgate a Federal Implementation Plan. The federal plan may include emission controls required to satisfy the requirements of the RHR. We cannot predict with certainty the final resolution of regional haze compliance in North Dakota and specifically the impact, if any, on the operations of Coyote Station. However, significant emission control investments could be requiredrequired, which may have a material impact on our operating results, financial condition and liquidity. Alternatively, such investments may prove to be uneconomic and result in the early closure, sale of, or withdrawal from, our interest in Coyote Station.
Current and future federal, state, regional and international legislation and regulations to address global climate change and reduce GHG emissions, including measures such as mandated levels of renewable generation, mandatory reductions in CO2 emission levels, taxes on CO2 emissions, or cap-and-trade regimes, could require us to incur significant costs,costs which could negatively impact our financial condition, operating results and liquidity if such costs cannot be recovered through rates granted by rate-making authorities or through increased market prices for electricity.
InNew Mayregulations 2024,recently finalized by the EPA finalized new regulations under Section 111 of the Clean Air Act to regulate GHG emissions from existing and new fossil fuel-based power plants. The new regulations require existing coal-fired power plants to achieve certain CO2 emissions reduction levels, with the amountlevel of reduction dependent upon the remaining operating life of the facility. TheAt newthis regulationtime, haswe cannot determine how this may impact our power plants and the potential to materially impact the operations ofon our coal-firedoperating powerresults, plants,financial condition and liquidity. However, significant emission control investments could be required, which couldmay have a material impact on our operating results, financial condition and liquidity. Alternatively, such investments may prove to be uneconomic and result in the early closure, sale of or withdrawal from our interest in a coal-fired plant.
We are subject to an extensive legal and regulatory framework imposed under federal and state laws and regulatory agencies, including the FERC and the North American Electric Reliability Corporation (NERC). We could be subject to potential financial penalties for compliance violations. Our transmission systems and electric generation facilities are subject to the NERC mandatory reliability standards, including cybersecurity standards. If a serious reliability incident were to occur, it could have a material effect on our operations or financial results. We attempt to mitigate the risk of regulatory penalties through our compliance program. However, there is no guarantee our program will be sufficient to prevent compliance violations.
Our electric facilities could be vulnerable to cyber and physical attack.
OTP owns electric transmission, distribution and generation facilities subject to mandatory and enforceable standards advanced by the NERC. These bulk electric system facilities provide the framework for the electrical infrastructure of OTP’s service territory and interconnected systems, the operation of which is dependent on information technology (IT) systems. Further, the information systems that operate OTP’s electric system are interconnected to external networks. Parties that wish to disrupt the U.S. bulk power system or OTP’s operations could view OTP’s computer systems, software or networks as attractive targets for cyber attack.
OTP is subject to mandatory cybersecurity and physical security regulatory requirements. OTP implements the NERC standards for operating its transmission and generation assets and remains abreast of best practices within the business and the utility industry to protect its computers and computer-controlled systems from outside attack. We rely on industry-accepted security measures and technology to securely maintain confidential and proprietary information necessary for the operation of our systems. In an effort to reduce the likelihood and severity of cyber intrusions, we have cybersecurity processes and controls, and disaster recovery plans designed to protect and preserve the confidentiality, integrity and availability of data and systems. We also take prudent and reasonable steps to protect the physical security of our transmission, distribution and generation facilities. However, all these measures and technology may not adequately prevent security breaches, ransomware attacks or other cyber attacks, or enable us to recover effectively from such a breach or attack. Any significant interruption or failure of our information systems or any significant breach of security due to cyber attacks, hacking or internal security breaches or physical attacks on our generation or transmission facilities could adversely affect our business and our financial condition, operating results and liquidity.
Our electric business is subject to the risks associated with energy and capacity markets, including changes in market supply, and energy and capacity prices. If we need to procure market energy and are faced with shortages in market supply, we may be unable to fulfill our obligations to our retail, wholesale and other customers at previously anticipated costs. This could force us to obtain alternative energy or fuel supplies at higher costs or suffer increased liabilities for unfulfilled contractual obligations. Changes in our own generation capacity or market capacity, including from changes in capacity accreditation or other factors, could lead to increased capacity prices. Significantly higher than expected energy or capacity costs could negatively affect our financial condition, operating results and liquidity.
Our electric facilities are subject to operational risks, which could result in injuries, loss of life, property damage and liability claims.
The operation of our generation, transmission and distribution facilities involves many risks including the potential for equipment failures, accidents and workforce safety matters, environmental damage, property damage, operator error and the occurrence of catastrophic events such as fires, explosions and floods. Diminished availability or performance of those facilities could result in facility shutdowns, reduced customer satisfaction, reputational harm and regulatory inquiries and fines.
Accidents, fires, explosions, catastrophic failures, general system damage or dysfunction, intentional acts of destruction and other unplanned events related to our infrastructure would increase repair costs and may expose us to liability for personal injury, loss of life and property damage. Fires alleged to have been caused by our transmission, distribution or generation infrastructure, or that allegedly result from our contractors’ operating or maintenance practices, could also expose us to claims for fire suppression and clean-up costs, evacuation costs, fines and penalties, and liability for economic damages, personal injury, loss of life, property damage and environmental pollution, whether based on claims of negligence, trespass or otherwise.
We maintain insurance coverage for such operating and event risks, but insurance coverage is subject to the terms and limitations of the available policies and may not be sufficient in amount to cover our ultimate liability. We may be unable to fully recover costs in excess of insurance through customer rates or regulatory mechanisms. If the amount of insurance is insufficient or otherwise unavailable, and if we are unable to fully recover in rates the costs of uninsured losses, our financial condition, operating results and liquidity could be materially affected.
We own our coal-fired generation facilities jointly with other co-owners with varying ownership interests in such facilities. Our ability to make determinations to best navigate changing environmental regulations and economic conditions may be impacted by our rights and obligations under the co-ownership and related agreements, and our ability to reconcile a divergence in the interests of OTP and the co-owners of these facilities. Such a divergence could impair our ability to effectively manage these changing conditions to meet our strategic objectives, and could adversely impact our financial condition, operating results and liquidity.
Several factors, many of which are beyond our control, may contribute to reduced demand for energy from our customers or increase the cost of providing energy to our customers. These risks include economic growth or decline in our service areas, demographic changes in our customer base and changes in customer demand or load growth due to, among other items, proliferation of distributed generation, energy efficiency initiatives and technological advancements. In addition, customer demand could be impacted by increased competition in our service territories or the loss of a service territory or franchise. Other risks include increased transmission or interconnection costs, generation curtailment and changes in the manner in which wholesale power is purchased and sold. A decrease in revenues or an increase in expenses related to our electric operations could negatively impact our financial condition, operating results and liquidity.
We are subject to an extensive legal and regulatory framework imposed under federal and state laws and regulatory agencies, including the FERC and the North American Electric Reliability Corporation (NERC). We could be subject to potential financial penalties for compliance violations. Our transmission systems and electric generation facilities are subject to the NERC mandatory reliability standards, including cybersecurity standards. If a serious reliability incident were to occur, it could have a material effect on our operations or financial results. Some states have the authority to impose substantial penalties in the event of non-compliance. We attempt to mitigate the risk of regulatory penalties through formal training. However, there is no guarantee our compliance program will be sufficient to ensure against violations.
Our generation, transmission and distribution facilities could be vulnerable to cyber and physical attack.
OTP owns electric transmission, distribution and generation facilities subject to mandatory and enforceable standards advanced by the NERC. These bulk electric system facilities provide the framework for the electrical infrastructure of OTP’s service territory and interconnected systems, the operation of which is dependent on information technology systems. Further, the information systems that operate OTP’s electric system are interconnected to external networks. Parties that wish to disrupt the U.S. bulk power system or OTP’s operations could view OTP’s computer systems, software or networks as attractive targets for cyber-attack.
OTP is subject to mandatory cybersecurity and physical security regulatory requirements. OTP implements the NERC standards for operating its transmission and generation assets and remains abreast of best practices within the business and the utility industry to protect its computers and computer-controlled systems from outside attack. We rely on industry-accepted security measures and technology to securely maintain confidential and proprietary information necessary for the operation of our systems. In an effort to reduce the likelihood and severity of cyber intrusions, we have cybersecurity processes and controls, and disaster recovery plans designed to protect and preserve the confidentiality, integrity and availability of data and systems. We also take prudent and reasonable steps to protect the physical security of our transmission, distribution and generation facilities. However, all these measures and technology may not adequately prevent security breaches, ransomware attacks or other cyber-attacks, or enable us to recover effectively from such a breach or attack. Any significant interruption or failure of our information systems or any significant breach of security due to cyber-attacks, hacking or internal security breaches or physical attack of our generation or transmission facilities could adversely affect our business and our financial condition, operating results and liquidity.
Our generation, transmission and distribution facilities are subject to operational risks, which include circumstances that could result in injuries, loss of life, property damage and fires.
The operation of our generation, transmission and distribution facilities involves many risks including equipment failures, accidents and workforce safety matters, environmental damage, property damage, operator error and the occurrence of catastrophic events such as fires, explosions and floods. Diminished availability or performance of those facilities could result in facility shutdowns, reduced customer satisfaction, reputational harm and regulatory inquiries and fines.
Accidents, fires, explosions, catastrophic failures, general system damage or dysfunction, intentional acts of destruction and other unplanned events related to our infrastructure would increase repair costs and may expose us to liability for personal injury, loss of life and property damage. Fires alleged to have been caused by our transmission, distribution or generation infrastructure, or that allegedly result from our contractors’ operating or maintenance practices, could also expose us to claims for fire suppression and clean-up costs, evacuation costs, fines and penalties, and liability for economic damages, personal injury, loss of life, property damage and environmental pollution, whether based on claims of negligence, trespass or otherwise. We maintain insurance coverage for such operating and event risks, but insurance coverage is subject to the terms and limitations of the available policies and may not be sufficient in amount to cover our ultimate liability. We may be unable to fully recover costs in excess of insurance through customer rates or regulatory mechanisms. If the amount of insurance is insufficient or otherwise unavailable, and if we are unable to fully recover in rates the costs of uninsured losses, our financial condition, operating results and liquidity could be materially affected.
We own our coal-fired generation facilities jointly with other co-owners with varying ownership interests in such facilities. Our ability to make determinations to best navigate changing environmental regulations and economic conditions may be impacted by our rights and obligations under the co-ownership and related agreements, and our ability to reconcile a divergence in the interests of OTP and the co-owners of these generation facilities. Such a divergence could impair our ability to effectively manage these changing conditions to meet our strategic objectives, and could adversely impact our financial condition, operating results and liquidity.
Our electric business is subject to the risks associated with energy and capacity markets, including changes in market supply, energy and capacity prices. If we need to procure market energy and are faced with shortages in market supply, we may be unable to fulfill our contractual obligations to our retail, wholesale and other customers at previously anticipated costs. This could force us to obtain alternative energy or fuel supplies at higher costs or suffer increased liabilities for unfulfilled contractual obligations. Changes in our own generation capacity or market capacity, including from changes in capacity accreditation, could lead to increased capacity prices. Significantly higher than expected energy or capacity costs could negatively affect our financial condition, operating results and liquidity.
Management's Discussion & Analysis (MD&A)
New heading “South Dakota Rate Case”
New heading “Minnesota Rate Case”
Removed heading “PVC PIPE MARKET CONDITIONS”
Removed heading “RESOURCE PLANNING”
Largest changes
“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.”see in full comparison
“Earnings in our Manufacturing segment decreased 16% in 2025 to $11.5 million. Our sales volumes in the year were negatively impacted by soft end-market demand and customer inventory management efforts within many of the end markets we serve. Weak farm economics, persistently elevated interest rates, a cautious consumer and tariff uncertainty led to demand headwinds. We were able to partially mitigate the financial effects of lower sales volumes through cost-management efforts aligning our cost structure with the current demand environment, and enhanced production efficiencies.”see in full comparison
“Operating and Maintenance Expense decreased $0.8 million primarily due to decreased vegetative maintenance, outage, transmission tariff and insurance costs, partially offset by increased labor, software and environmental protection costs.”see in full comparison
“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 following table summarizes the discount rates used to measure our pension plan and other postretirement obligations, as well as the assumed rate of return on pension plan assets for our funded pension plan, as of December 31, 2025 and 2024:”see in full comparison
Full comparison: every changed paragraph (123)
In 2025, our diversified business model generated strong financial results, producing net income of $275.9 million, or $6.55 per diluted share. As expected, our earnings declined from the record level achieved in 2024 when we generated earnings of $301.7 million, or $7.17 per diluted share. As we anticipated, product prices within our Plastics segment continued to decline in 2025 leading to the reduction in earnings compared to the prior year. We anticipate earnings from our Plastics segment will continue to decline through 2027 until such time that product pricing is expected to stabilize.
We generated $386.0 million of cash from operations in 2025 and ended the year with total available liquidity of $705.5 million. Our year-end equity ratio to total capital was 62.8%. We paid dividends totaling $2.10 per share, or $88.1 million, marking our 87th consecutive year of dividend payments to our shareholders.
Our Electric segment generated 7% earnings growth in 2025, producing earnings of $97.6 million. Our earnings growth was driven by the recovery of our rate base investments, which include investments in new generation and enhancements to our transmission and distribution system to promote reliable electric service. We also benefited from increased sales volumes in 2025, partially the result of favorable weather conditions compared to last year which impacted our customers' demand for energy, and lower operating and maintenance costs.
Earnings in our Manufacturing segment decreased 16% in 2025 to $11.5 million. Our sales volumes in the year were negatively impacted by soft end-market demand and customer inventory management efforts within many of the end markets we serve. Weak farm economics, persistently elevated interest rates, a cautious consumer and tariff uncertainty led to demand headwinds. We were able to partially mitigate the financial effects of lower sales volumes through cost-management efforts aligning our cost structure with the current demand environment, and enhanced production efficiencies.
Our Plastics segment earnings decreased 15% in 2025 to $170.4 million. As anticipated, sales prices for our PVC pipe products, after peaking in 2022, have gradually declined, including in 2025 when average prices declined 15% compared to the prior year. This pricing decline was the primary driver of our lower earnings in 2025. Partially offsetting the decline in product pricing was reduced material input costs and higher sales volumes. Our sales volumes in 2025 benefited from the additional production capacity and large diameter pipe capability installed at our Phoenix location in late 2024.
In 2024, our diversified business model generated record financial results, producing net income of $301.7 million, or $7.17 per diluted share, an increase of 3% from $294.2 million, or $7.00 per diluted share, in 2023. Our financial results for the year were driven by earnings growth in our Electric and Plastics segments, partially offset by a decline in our Manufacturing segment earnings. In 2024, we paid an annual dividend of $1.87 per share, or $78.3 million, completing our 86th consecutive year of dividend payments to our shareholders.
Our Electric segment produced earnings growth of 8% in 2024, from $84.4 million in 2023 to $91.0 million in 2024, primarily due to increased retail revenue resulting from an interim rate increase in North Dakota and increased rider revenue, partially offset by the investment and financing costs associated with our rate base investments, resulting in increased depreciation and interest expense compared to the prior year.
Our Manufacturing segment earnings decreased 36% in 2024, from $21.5 million in 2023 to $13.7 million in 2024, primarily due to soft end market demand, which resulted in lower sales volumes and a decrease in gross profit margins in our plastics thermoforming business, partially offset by reduced general and administrative expenses. Decreased profit margins were primarily due to reduced leveraging of fixed manufacturing costs resulting from decreased production and sales volumes.
Our Plastics segment produced earnings growth of 7%, from $187.7 million in 2023 to $200.7 million in 2024, primarily due to the impact of increased sales volumes, driven by strong customer and end market demand. Increased operating revenues, driven by increased sales volumes, were partially offset by a decrease in gross profit margins. Gross profit margins decreased primarily due to decreases in sales prices, which outpaced decreases in the cost of PVC resin and other input materials.
OurIn 2025, our earnings mix in 2024 was 30%35% from our Electric segment and 70%65% from the combination of our Manufacturing and Plastics segments including unallocated corporate costs. Since 2021, our earningsthis mix has diverged from our long-termlong‑term target of 65% from our70% Electric segment and 35% from our30% Manufacturing PlatformPlatform, primarilylargely due to market conditions withinin the PVC pipe industry. These conditions have ledresulted toin significantelevated revenue, earningsearnings, and cash flow growth in our Plastics segment. Currently, we expect these industry conditions to gradually normalize through 2027. As they do, we expect earnings and cash flow generation within our Plastics segment to moderate from current levels and our earnings mix to return to our long-term targeted mix.
We currently expect industry conditions within the PVC pipe market to gradually normalize through 2027. As this normalization occurs, we anticipate that earnings and cash flow from our Plastics segment will moderate from current levels and that our earnings mix will shift back toward our long‑term target.
PVC PIPE MARKET CONDITIONS
Extraordinary supply and demand conditions in the PVC industry beginning in 2021 have led to a significant expansion in operating margins and elevated earnings in our Plastics segment over the past four years. Periodic disruptions in the supply of PVC resin, the primary material input used in the manufacturing of PVC pipe, coupled with robust demand for resin, led to a significant increase in the cost of resin beginning in 2021. During this time, robust end market demand for PVC pipe led to a rapid and significant increase in sales prices for the product, significantly outpacing the increase in resin input costs, leading to increased operating margins within our Plastics segment. PVC pipe prices and resin costs reached historic levels, peaking in 2022. Sales prices have steadily declined since the third quarter of 2022, a trend that continued throughout 2024; however, operating margins remain elevated relative to historical levels.
In the second half of 2022, our sales volumes declined in response to uncertain and competitive market conditions, which continued through the first half of 2023. Robust infrastructure investment plans, particularly in water supply, sewage, and drainage systems, and increased construction activity drove strong distributor and end market demand for PVC pipe beginning in the second half of 2023 and those trends continued throughout 2024.
The market dynamics impacting our Plastics segment resulted in a significant increase in earnings in the last four years compared to historical levels. We anticipate PVC pipe sales prices will continue to decline over time; however, future supply and demand dynamics, as well as other factors, could impact future product prices. We anticipate PVC pipe prices will gradually normalize through 2027. The marketplace dynamics impacting our Plastics segments are fluid and subject to change and may impact our operating results prospectively.
OTP generally bases its forecasted kwh sales and rates on expected consumption under a normal level of HDDs and CDDs over a given period of time in its service territory. Increased or decreased levels of consumption for certain customer classifications are attributed to deviation from the norms and are a significant factor influencing consumption of electricity across our service territory. We present HDDs and CDDs to provide an indication of the impact of weather on kwh sales, revenues and earnings relative to forecast, and on period-to-period results.
Operating Revenues decreased $18.6 million on a consolidated basis in 2024. Electric segment operating revenues decreased 1% primarily due to decreased fuel recovery and wholesale revenues and the impact of unfavorable weather, partially offset by retail revenue increases due to an interim rate increase in North Dakota in connection with our most recent rate case, as well as increased commercial and industrial sales volumes, and increased rider revenue. Manufacturing segment operating revenues decreased 15% primarily due to lower sales volumes due to soft end market demand across most end markets. Plastics segment operating revenues increased 11% primarily due to increased sales volumes driven by strong customer demand, partially offset by a decrease in sales prices. See our segment disclosures below for additional discussion of items impacting operating revenues.
Operating ExpensesRevenues decreased $20.9$26.5 million in 2024. Electric segment operating expenses decreased primarily due to decreased purchased power costs resulting from lower market energy prices. Operating expenses in our Manufacturing segment decreased2025 primarily due to decreased sales volumes, as discussed above. Operating expensesprices in our Plastics segment increasedand primarilydecreased duesales tovolumes in our Manufacturing segment, partially offset by increased sales volumes,volumes in our Plastics segment as discussedwell above.as increased fuel recovery revenues and sales volumes in our Electric segment. See our segment disclosures below for additional discussion of items impacting operating expenses.revenues.
Operating Expenses increased $8.1 million in 2025 primarily due to an increase in purchased power costs, production fuel costs, and depreciation expense in our Electric segment, partially offset by lower cost of goods sold driven by decreased sales volumes in our Manufacturing segment and the impact of lower material costs in our Plastics segment, as well as lower operating and maintenance expenses in our Electric segment. See our segment disclosures below for additional discussion of items impacting operating expenses.
Interest Expense increased $4.1$5.4 million in 20242025 primarily due to the issuance of an additional $120.0$100.0 million of long-term debt at OTP induring March,the year, the proceeds of which were used to repay short-term borrowings, fund capital expenditures and support operating activities.
Nonservice Components of Postretirement Benefits decreased by $6.3 million in 2025, having a negative impact on net income, primarily due to a decrease in the amortization of postretirement plan amendment-related gains and an increase in the amortization of actuarial losses.
Income Tax Expense decreased $18.8 million in 2025 primarily due to a decrease in income before income taxes, as well as an increase in PTCs at OTP. The increase in PTCs was the result of increased wind generation that qualified for tax credits. We completed the first of our wind facility upgrades in late 2024 and completed additional upgrades throughout 2025. The completion of these upgrades resulted in the commencement of PTCs earned from the generation at these facilities. Our effective tax rate was 14.4% in 2025 and 17.8% in 2024, with the decrease primarily driven by the increase in PTCs.
Other Income increased $6.2 million in 2024 primarily due to an increase in investment income earned on our short-term cash equivalent investments and our long-term fixed income investments.
Income Tax Expense decreased $4.1 million in 2024 primarily due to an increase in PTCs produced by our wind and solar generation assets. Our effective tax rate was 17.8% in 2024 and 19.1% in 2023. See Note 13 to our consolidated financial statements included in this report on Form 10-K for additional information regarding factors impacting our effective tax rate.
Retail Revenue decreasedincreased $2.6$30.8 million primarily due to the following:
•A $13.4$21.7 million decreaseincrease in fuel recovery revenues, primarilyrevenues due to lowerhigher purchased power and fuel costs, as described below.
•An $8.7 million increase primarily from recovery of rate base investments.
•A $8.1$6.1 million decreaseincrease in basesales revenuesvolumes, fromexclusive of the unfavorable impact of weatherweather, comparedprimarily todriven lastby year.increased customer usage.
•A $5.7 million increase from the impact of favorable weather compared to last year.
These increases were partially offset by a net decrease in rider revenues resulting from higher PTCs during the year following the completion of certain of our wind facility upgrades. PTCs generated during the year increased $9.6 million. These credits are generally passed through to customers, reducing retail revenue.
The decreases in retail revenue described above were partially offset by the following:
• A $12.4 million increase from an interim rate increase in North Dakota, effective January 1, 2024, in connection with our most recent rate case.
• A $3.2 million increase in rider revenues, including recovery of our continued investments in advanced metering and outage management systems and wind repowering projects.
•Increased sales volumes to commercial and industrial customers, the mix of customer rates compared to the prior year and other factors.
PurchasedWholesale PowerRevenues costsincreased to serve retail customers decreased $16.7$10.0 million due to a 17%29% decreaseincrease in thewholesale priceprices ofdriven purchasedby power,increased primarilyfuel duecosts to decreasedand market energydemand costs,for wholesale energy, as well as a 5%48% decreaseincrease in thewholesale volumesales volumes. Wholesale revenues, net of purchasedwholesale powerfuel primarilycosts, dueare generally returned to decreasedcustomers demandand resultingresult fromin unfavorablea weather.reduction of retail revenue.
Production Fuel costs increased $14.1 million driven by higher fuel consumption associated with increased generation at Big Stone Plant and our natural gas facilities in response to increased customer demand. Higher natural gas prices also contributed to the increase in production fuel costs.
Purchased Power costs to serve retail customers increased $17.1 million due to a 20% increase in the price of purchased power, primarily due to increased market energy costs, as well as a 7% increase in the volume of purchased power driven by increased customer demand.
Operating and Maintenance Expenses decreased $6.1 million primarily due to decreased labor costs. Compared to the last year, a greater percentage of labor hours were dedicated to capital investment projects, which resulted in an increase in capitalized labor costs and a corresponding reduction in operating and maintenance expenses. External service provider costs also decreased compared to last year. These decreases were partially offset by expenses related to a planned outage at Coyote Station during the year.
Operating and Maintenance Expense decreased $0.8 million primarily due to decreased vegetative maintenance, outage, transmission tariff and insurance costs, partially offset by increased labor, software and environmental protection costs.
Depreciation and Amortization expense increased $6.8 million primarily due to the placing in service of our metering infrastructure project throughout the year, a full year of depreciation recognized for Hoot Lake Solar, which was placed in service in August 2023, and continued investments in distribution facilities during the year.
Property Taxes decreased $1.0 million due to lower taxes associated with certain wind farm facilities in North Dakota due to a revision of the tax methodology applied to the property and lower taxes in Minnesota.
Interest Expense increased $4.4 million due to the issuance of an additional $120.0 million of long-term debt in March, partially offset by lower interest on short-term borrowings due to lower average borrowings and interest rates compared to the prior year.
IncomeDepreciation Taxand ExpenseAmortization decreasedexpense $3.2increased $8.0 million due to anadditional increaseassets, inincluding PTCs produced by ourcertain wind generation, transmission and solar generationdistribution assets, partiallybeing attributable to Hoot Lake Solar goingplaced into service induring Augustthe 2023.year.
Interest Expense increased $5.4 million primarily due to the issuance of an additional $100.0 million of long-term debt during the year, the proceeds of which were primarily used to repay short-term debt and fund our capital investments.
Nonservice Cost Components of Postretirement Benefits decreased by $6.2 million, having a negative impact on net income, due to a decrease in the amortization of plan amendment-related gains and an increase in the amortization of actuarial losses.
Income Tax Benefit increased $10.3 million primarily due to an increase in PTCs driven by increased wind generation that qualified for tax credits compared to last year. PTCs are generally credited to customers and result in a reduction of operating revenue as well as income taxes.
Operating Revenues decreased $60.2$28.0 million primarily duedriven toby a 15%7% decreasedecline in sales volumes,volumes at our metal fabrication business, with declinesreductions experiencedacross inseveral theend recreationalmarkets, vehicle,including agriculture, construction, lawn and garden,garden and horticulturerecreational end markets.vehicles. Sales volumes decreasedwere duenegatively toaffected lowerby endsoft marketend-market demand and inventory management efforts by manufacturers, distributorsmanufacturers and dealers.dealers throughout much of the year, continuing a trend that began in the third quarter of 2024. A 28%1% declinedecrease in scrapsteel metalcosts, revenues,which largelyare drivenpassed bythrough lowerto production volumes,customers, also contributed to the decrease in operating revenues.
Cost of Products Sold decreased $29.1 million primarily due to lower sales volumes. Our gross profit margin increased to 24.1% in 2025 from 21.8% in the prior year. This improvement was driven by cost management efforts made to align our cost structure with the current demand environment, and improved labor productivity and production efficiencies.
Cost of Products Sold decreased $42.7 million primarily due to lower sales volumes, as described above. In response to declines in end market demand and decreased sales volumes, we reduced our headcount and operating hours and placed employees on temporary furlough during the year, which also reduced our costs. These decreases were partially offset by reduced leveraging of fixed manufacturing costs resulting from the decreased production and sales volumes.
Selling, General, and Administrative Expenses decreasedincreased $9.3$2.4 million primarily due to decreased employee compensation costs resulting from a decrease in headcount and lower variable compensation driven by financial performance in the current year.costs.
Depreciation and Amortization expense increased $0.9 million, largely driven by our facility expansion and new equipment at our BTD location in Georgia, which were placed into service in early 2025.
Depreciation and Amortization increased $1.9 million due to capital expenditures during the year, which included investments in facility improvements and purchases of equipment.
Operating Revenues decreased $40.7 million primarily driven by a 15% decline in sales prices compared to last year. Prices have been declining for several years after peaking in late 2022. The impact of lower sales prices was partially offset by an 8% increase in sales volumes, largely driven by additional production capacity following the completion of the first phase of our expansion project at Vinyltech in late 2024.
Cost of Products Sold decreased $2.8 million primarily reflecting a 14% reduction in the cost of input materials, including PVC resin. The reduction in PVC resin cost was driven by global supply and demand dynamics which has resulted in elevated resin supply. This decrease was partially offset by higher sales volumes, as discussed above.
Operating Revenues increased $45.4 million primarily due to a 27% increase in sales volumes driven by customer sales volume growth and strong distributor and end market demand. Sales volumes in 2023 were negatively impacted by distributors and contractors reducing purchase volumes in response to uncertain and competitive market conditions. Although market conditions remain somewhat uncertain, infrastructure investment and active construction across our sales territories contributed to increased distributor and end market demand in 2024. The impact of increased sales volumes was partially offset by decreased sales prices. Our sales prices have steadily declined after peaking in late 2022 and decreased 12% in 2024 compared to the prior year due to continuing changes in market conditions.
Cost of Products Sold increased $23.1 million primarily due to increased sales volumes, as described above. The supply and demand conditions for PVC resin experienced in recent years appear to have normalized and resin costs were less volatile throughout the year than they were in the recent past. The cost of PVC resin and other input materials decreased 13% compared to the prior year, partially offsetting the impact of increased sales volumes.
Selling, General, and Administrative Expenses increased $4.3$1.0 million primarily due to costs associated with ongoing litigation and related matters regarding the pricing of PVC pipe, which is further described in Note 14 to the consolidated financial statements,statements. asThere wellis asconsiderable increaseduncertainty variableregarding coststhe associatedtiming withof significant developments or the resolution of these matters. As such, it is reasonably possible that our increaseestimate of a loss, if any, arising from these matters could change in salesthe volumesnear term and currenthave yeara financialmaterial performance.impact on our future operating results.
Depreciation and Amortization expense increased $1.9, largely driven by our facility expansion and new equipment at Vinyltech, which were placed into service in late 2024.
Income Tax Expense decreased $10.6 million due to a decrease in income before taxes.
Selling, General, and Administrative Expenses increased $12.4 million primarily due to increased insurance expense driven by higher claims costs associated with our self-funded insurance programs, as well as increased variable compensation based on the current year financial performance.
What changed in the latest 10-Q
Risk Factors
There have been no material changes from the risk factors disclosed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2025.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “MANUFACTURING SEGMENT RESULTS”
New heading “PLASTICS SEGMENT RESULTS”
New heading “CORPORATE RESULTS”
New heading “CONSOLIDATED RESULTS”
New heading “ELECTRIC SEGMENT RESULTS”
New heading “INTEGRATED RESOURCE PLAN”
Largest changes
“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.”see in full comparison
“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.”see in full comparison
“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.”see in full comparison
“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.”see in full comparison
“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.”see in full comparison
“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.”see in full comparison
Full comparison: every changed paragraph (117)
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 income.operations.
The following table summarizes consolidated operating results for the three months ended MarchJune 31,30, 2026 and 2025:
Operating Revenues increased $9.7$1.3 million primarily due to increased revenues from our Electric segment driven by recent rate increases and higher sales volumes in our ManufacturingPlastics and PlasticsManufacturing segments, partiallyhigher 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 ourthe Plastics segment, and higher PTCs, the benefit of which is passed on to customers, and lower fuel recovery revenues in the Electric segment. See ourthe segment disclosuresdiscussions below for additional discussioninformation ofregarding itemsperiod-over-period impactingchanges in operating revenues.
Operating Expenses increased $8.4$19.5 million primarily due to anincreased increaseoperating and maintenance expenses in production fuel costs in ourthe Electric segment, increased material costssegment and additional expenses driven by higher sales volumes in ourthe Plastics and Manufacturing segment,segments. andThese increasedfactors sales volumes in our Plastics segment,were partially offset by alower decreasefuel inand materialpurchased power costs in ourthe PlasticsElectric 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.
Nonservice Components of Postretirement Benefits decreased by $0.8 million, having a negative impact on net income, primarily due to a decrease in the amortization of plan amendment-related gains and an increase in the amortization of actuarial losses.
Income Tax Expense decreased $5.2 million primarily due to an increase in PTCs at OTP driven by increased wind generation which qualified for credits. Our effective tax rate was 6.3% for the three months ended March 31, 2026 and 12.9% for the same period last year.
The following table summarizes Electric segment operating results for the three months ended MarchJune 31,30, 2026 and 2025:
The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating.heating and cooling. The following table shows heating degree days and cooling degree days as a percent of normal for the three months ended MarchJune 31,30, 2026 and 2025.
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 MarchJune 31,30, 2026 and 2025, and between those periods.
Operating Revenues increaseddecreased $16.2$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 $9.2 million increase from higher rates, reflecting interim rates in Minnesota and South Dakota and updated base rates in North Dakota. Interim rates in Minnesota and South Dakota became effective in January 2026 and December 2025, respectively, and updated base rates in North Dakota went into effect in March 2025.
•A $4.3$6.2 million increase in fuelPTCs, recoverythe revenues,benefit drivenof bywhich higheris productionpassed fuelon costs,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.
•A $3.5 million increase from the recovery of additional rate base investments.
•AThe $3.2recovery millionof increaseadditional fromrate base investments, higher commercial and industrial sales volumes.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:
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:
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:
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.
CONSOLIDATED RESULTS
The following table summarizes consolidated operating results for the six months ended June 30, 2026 and 2025:
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:
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.
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.
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.
•A $3.3$9.6 million increase in PTCs, the benefit of which is providedpassed 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.
OTTR insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 2 filings (1 insider, 3 trade dates, 4,225 shares, about $394.0K). Net open-market shares: -4,225 (purchases minus sales); net value about -$394.0K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-11 | Knutson Paul L |
Open-market sale | 475 | $94.63 | $44.9K |
| 2026-08-10 | Knutson Paul L |
Open-market sale | 250 | $92.84 | $23.2K |
| 2026-08-07 | Knutson Paul L |
Gift | 250 | — | — |
| 2026-08-07 | Knutson Paul L |
Gift | 475 | — | — |
| 2026-08-07 | Knutson Paul L |
Gift | 725 | — | — |
| 2026-08-07 | Knutson Paul L |
Open-market sale | 3,500 | $93.11 | $325.9K |
| 2026-04-13 | Johnson Kathryn O |
Grant/award | 1,500 | — | — |
| 2026-04-13 | Ludford Mary E |
Grant/award | 1,500 | — | — |
| 2026-04-13 | Erickson John D |
Grant/award | 1,500 | — | — |
| 2026-04-13 | Crain Jeanne H |
Grant/award | 1,500 | — | — |
| 2026-04-13 | Webb Thomas J |
Grant/award | 1,500 | — | — |
| 2026-04-13 | Rasche Steven P |
Grant/award | 1,900 | — | — |
| 2026-04-13 | Clark Christopher B |
Grant/award | 1,900 | — | — |
| 2026-04-13 | Lebeau Michael E |
Grant/award | 1,500 | — | — |
| 2026-04-13 | Partain Nathan I |
Grant/award | 2,000 | — | — |
Well-known investors holding OTTR (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Two Sigma Investments | 2026-06-30 | 725,769 | $65.3M | 0.05% | Added 9% |
| D. E. Shaw & Co. | 2026-06-30 | 447,021 | $40.2M | 0.02% | Added 12% |
| Millennium Management (Israel Englander) | 2026-06-30 | 71,147 | $6.4M | 0.0% | Reduced 45% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 36,053 | $3.2M | 0.0% | Reduced 30% |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 29,182 | $2.6M | 0.0% | Added 32% |
| Renaissance Technologies | 2026-06-30 | 23,310 | $2.1M | 0.0% | Added 253% |
| Bridgewater Associates | 2026-06-30 | 8,549 | $769.2K | 0.0% | Reduced 44% |
| Gotham Asset Management (Joel Greenblatt) | 2026-06-30 | 4,007 | $360.6K | 0.0% | Reduced 18% |