Otter Tail Corporation

Good morning and welcome to Otter Tail Corporation's second quarter 2025 earnings conference call. Today's call is being recorded. We will hold a question and answer session after the prepared remarks. I'll now turn the call over to the company for their opening comments.

Good morning and welcome to our second quarter 2025 earnings conference call. My name is Beth Eichen and I'm Otter Tail Corporation's manager of investor relations. Last night we announced our second quarter financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of this call will be available on our website later today. With me on the call are Chuck McFarland, Otter Tail Corporation's president and CEO, and Todd Walland, Otter Tail Corporation's vice president and CFO. Before we begin, I want to remind you that we will be making forward-looking statements during the course of this call. As noted on slide two, these statements represent our current views and expectations of future events. They are subject to risks and uncertainties which may cause actual results to differ from those presented here. So please be advised against placing undue reliance on any of these statements. Our forward-looking statements are described in more detail in our filings with the Securities and Exchange Commission, which we encourage you to review. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements due to new information, future events, developments, or otherwise. I will now turn the call over to Otter Tail Corporation's president and CEO, Mr. Chuck McFarland.

Thank you, Beth. Good morning and welcome to our second quarter earnings call. Please refer to slide four as I begin my remarks with a summary of quarterly highlights. We are pleased with our Q2 financial results as they outpaced our expectations. Our team members continue to perform well and remain committed to our mission of delivering value by building strong electric and manufacturing platforms. In June, severe weather moved through our service territory, resulting in significant infrastructure and property damage. Nearly one in three of our customers experienced a sustained interruption to their electric service due to the storms. I'm appreciative of our team members' efforts in working to restore power for our customers as safely and quickly as possible. Beyond our storm response, we continue to deliver upon a significant rate-based growth plan and regulatory priorities. We secured regulatory approval from the Minnesota and South Dakota commissions to direct assignment of our two solar projects under development and filed our South Dakota rate case. Across our manufacturing platform, our team members are capitalizing on our recent expansion projects to better serve and grow with our customers. We continue ramping up the new BTD Georgia facility to full production capability. And Vinyl Tech continues to benefit from its enhanced facilities, as well as its new line capable of producing large diameter pipe. Slide five provides a summary of our quarter and -to-date earnings. We produced diluted earnings per share of $1.85 in the second quarter, compared to $2.07 last year. Despite the expected decline in earnings, we are increasing the midpoint of our 2025 earnings guidance to $6.26 from $5.88 as the plastic segment is performing better than we anticipated. We are maintaining the earnings guidance range for all other segments. In a moment, Todd will provide a more detailed discussion of our second quarter financial results and our updated 2025 outlook. On slide seven, we highlight legislative and regulatory changes impacting the utility industry. The legislation known as the One Big Beautiful Bill Act was enacted on July 4th. This broad spending and tax legislation, among many other things, introduced a phase out of renewable energy credits under the Inflation Reduction Act for wind and solar investments. The legislation also created new foreign entity of concern rules, which may restrict tax credit eligibility for certain investments. While we continue to work through the final legislation and monitor for any changes to regulation, we expect our current five-year capital investment spending plan totaling $1.4 billion to remain intact. Our wind repowering project is expected to be unaffected by the new law. Our two solar development projects are expected to receive full production tax credits. However, renewable projects included in our $650 million incremental investment opportunity as well as other future renewable resources are under review to determine the potential impact of the legislation. Further, the EPA is reconsidering recent environmental regulations impacting fossil fuel-based power plants. In June, the EPA proposed to repeal the greenhouse gas emission standard under section 111 of the Clean Air Act, along with recent amendments made to the mercury and air toxin standards. In addition, the EPA granted the request to reconsider its previous partial disapproval of North Dakota's regional Hays State Implementation Plan. The EPA had disapproved of North Dakota's conclusion that emissions controls at Coyote Station were unnecessary. We will continue to monitor the EPA's action, but think these developments could potentially extend the availability of our two coal facilities to support grid reliability. Transitioning now to an operational update for otter tail power, as noted on slide eight, we filed a request with the South Dakota Public Utilities Commission for permission to increase our base electric rates for the first time since 2018. In our request, we proposed to increase net revenues by approximately 5.7 million, based on a requested ROE of .8% on an equity layer of 53.5%. New rates would go into effect upon the earlier of either the South Dakota Commission issuing its decision or December 1st of 2025. Even with this requested increase in electric rates, we continue to be one of the lowest cost providers in the region. Separately, we are finalizing our Minnesota cost of service analysis and anticipate filing a rate case in Minnesota later this year. Turning to slide nine, after review of recent legislation, we are reaffirming our electric segment capital investment and rate-based growth projections through 2029. We continue to expect this customer-focused investment plan to produce a rate-based compounded annual growth rate of 9% and anticipate our utility earnings to grow at a similar rate over this timeframe. Slides 10 and 11 provide an overview of ongoing and future capital projects. Project development work and regulatory planning continue on our two solar projects, which together will add 345 megawatts of cost-effective solar generation to our portfolio. In the second quarter, we secured regulatory approval to directly assign and recover the capital investment associated with Abercrombie Solar and Solway Solar to our Minnesota and South Dakota customers. These customers will receive the energy and the benefits from the new facilities. Development work continues on three MISO Tronch 1 projects Otter Till Power will co-own. We continue to work through landowner and local government resistance associated with siting and certain permits for one of the projects. Development work also continues on our MISO Tronch 2.1 projects. We are working closely with our co-owners on project planning and regulatory matters. FERC approved construction work in progress and abandoned plant in July for the MISO Tronch 2.1 portfolio projects, allowing for timely recovery of our capital investment. Our transmission capital investment under MISO's Tronch 1 and 2.1 remain critical for supporting grid reliability in the years to come. We continue to expect these investments to have a limited impact on our retail customer rates as the costs are allocated across the entire MISO footprint, of which our customers comprise a small percentage. Additionally, our JTIQ project, which received a DOE grant, continues to be under development. The DOE has been reevaluating previously awarded grants, and we will continue to monitor these developments. Turning to slide 12, -of-tail power remains positioned to attract and support large loads. Throughout the second quarter, we continue to engage with companies looking to add new load, large loads to our system. We reached a term sheet with a potential customer, providing a general framework for offering electric service to a new 430 megawatt load. While the term sheet is non-binding and additional work and negotiations are required to secure the load, it does represent a possible opportunity for us. Additionally, we continue to target bringing the 155 megawatt load secured in Q1 online later this year. As a reminder, the 155 megawatt load is comprised of 3 megawatts of firm load and approximately 152 megawatts of non-firm load. We obtained approval for the electric service agreement from the South Dakota Commission in July of 2025 and continue to make progress on constructing the distribution assets needed to serve the load. We have and will continue to be thoughtful in our negotiations to ensure we are appropriately mitigating any potential adverse implications of adding large new loads to our existing customer base. Adding new loads, if appropriately managed, not only benefit us, but also our current customers, as it enables us to spread out our existing fixed costs. We remain committed to maintaining affordable electric service for our customers. We have demonstrated the ability to do so for many years. As slide 13 illustrates, Otter Tail Power is some of the lowest electric rates in the nation, with our 2024 rates 30 percent below the national average and 16 percent below our regional peers. Further, S&P recently published a report noting that we have the lowest overall electric rates of all investor-owned utilities in the U.S. Transitioning to our manufacturing platform, slide 15, provides an overview of the industry conditions impacting our manufacturing segment. BGD continues to navigate soft end market demand. The construction and lawn and garden end markets are improving as dealer inventory levels are normalizing. However, recreational vehicle and agricultural end markets continue to be negatively impacted by higher levels of new and used inventory amidst challenging macroeconomic conditions and tariff uncertainty. The horticulture market served by TOP plastics has improved, but the extent and timing of sales volume recovery remains unclear. During Q2, we saw an increase in volumes compared to the same time last year. However, increased import competition continues to be a challenge for our team. We continue to monitor industry conditions, including the potential impact of tariffs, and will remain well positioned to respond when demand improves. In the meantime, we are focused on managing costs and have a tenured management team with experience operating through down cycles and uncertain market conditions. Slide 16 provides an overview of our plastic segment pricing and volume trends. Our sales pricing of PVC pipe continue to steadily decline, decreasing 15 percent in the second quarter of 2025 compared to the same time last year. Sales volumes increased 11 percent due to strong distributor and end market demand for our products. We also benefited from lower material input costs, including resin. The cost of PVC resin has decreased from the same time last year due to global supply and demand dynamics resulting in continued elevated domestic supply. Returning to slide 17, our manufacturing platform remains well positioned for future growth opportunities. The BTD Georgia facility is scaling up to full production capability. Work also continues on phase two of our vinyl tech expansion, which is expected to increase our production capacity by another 26 million pounds. Once phase two is complete in early 2026, our annual production capacity for the plastic segment will total approximately 400 million pounds. I will now turn it over to Todd to provide his financial update.