Q4 2020 Otter Tail Corp Earnings Call
Good morning, and welcome to Otter tail corporations are plenty plenty earnings conference call. Today's call is being recorded and we will hold a question and answer session. After the prepared remarks, I will now turn the call over to the company for their opening comments.
Good morning, everyone and welcome to our call. My name is Loren Hanson and I manage otter Tail's Investor Relations area.
Last night, we announced our 2020 earnings results and our 'twenty 'twenty one earnings per share guidance range, our complete earnings release and slides accompanying this call are available on our website at otter tail Dot com.
A recording of the call will be available on our website later today.
With me on the call today are Chuck Macfarlane Otter tail corporations, President and CEO.
And Kevin <unk> Otter tail corporations, senior Vice President and Chief Financial Officer.
Before we begin I want to remind you that we will be making forward looking statements. During this call as noted on slide two these statements represent our current judgment or opinion of what the future holds.
Are subject to certain risks and uncertainties that may cause actual results to differ materially.
So please be advised about placing undue reliance on any of these statements are forward looking statements are described in more detail in our filings with the Securities and Exchange Commission, which we encourage you to review otter.
Otter tail Corporation disclaims any duty to update or revise our forward looking statements due to new information future events developments or otherwise for.
For opening remarks, I will now turn the call over to Otter tail Corporation's President and CEO, Mr. Chuck Macfarlane.
Thank you Lorne and good morning, everyone welcome to our 2020 year end earnings call.
Looking back on 2020, it was a year of both unprecedented challenges and unique opportunities.
Our core values of integrity safety people performance and community <unk>.
To guide the way, we do business and allow us to remain focused on executing our growth strategies. Despite the economic turmoil of the global pandemic.
Otter tail Corporation continues to support all the locations, we serve with collective efforts to mitigate the spread of COVID-19 are.
Our business continuity plans put the health and safety of our employees and our communities at the forefront and are designed to help ensure continued electric reliability and operational excellence across our companies.
We remain diligent in our precautionary health and safety efforts based on the recommendations from the CDC regional health organizations and state and local government orders.
Currently 16% of our employees continue to work remotely.
We continue to monitor this dynamic and how it is impacting the economy and our electric and manufacturing platforms.
Please refer to slide six as I begin my comments on last year's results.
Through combined efforts, we achieved earnings per share of $2.34, which is an increase of seven 8% over 2019.
These results were primarily driven by increasing investments in energy generation and regional transmission projects in our electric segment.
And a record year in our plastic segment, driven by strong construction markets, coupled with favorable market conditions due to supply constraints and rising prices.
Our manufacturing segment earnings decreased primarily due to a negative impact on sales from COVID-19, especially at B T D in Q2.
However, BTB experienced a rebound in sales of the recreational vehicle and lawn and garden end markets in the second half from 2020 as major Oems rebuilt depleted inventories created by the pandemic.
And our corporate costs were higher primarily due to an increased contribution to otter tail corporations charitable foundation.
Now, let me share some of our major accomplishments from last year.
Throughout the pandemic otter tail power delivered on our role as an essential service provider, we closely manage and monitor workforce availability to ensure reliable electric service when it was needed most.
We also suspended disconnects for late payments and waived late payment fees for residential and small business customers negatively impacted by the pandemic.
As shown on slide 12, we focused our minutes or we filed our Minnesota General rate case on November 2nd.
Our last Minnesota rate review was filed in 2016.
Investment in cleaner energy generation as the primary driver for this request as we seek to get the Astoria station placed in our base rates in Minnesota.
This project was approved in our most recent IR P and has been earning a a few D C. During the construction period.
And our new customer information system, which focuses on enhancing the customer experience by allowing customers more access and options to related to their energy use and services was also a driver for this request.
In December the commission approved our interim request to begin recovering $6 9 million or three 2% increase beginning in January of 2021.
As it considers our overall request to increase revenues $14 5 million or 677% we.
We anticipate a decision in late 'twenty or 'twenty, one or early 'twenty 'twenty two.
Even with this increase otter tail power will continue to have some of the lowest rates in the country.
Otter tail power continues to grow through capital investment in generation transmission and technology projects.
As shown on slide 13, our rate base is expected to grow in line annual rate of 5% between 2020 and 2025 in a constructive regulatory environment.
It will be a key driver for future earnings growth.
We will be filing our next Minnesota integrated resource plan in September of 'twenty 'twenty one.
This plan will identify the most cost effective combinations of resources to reliably meet customers' needs. During the next 15 years.
While this filing is required only in Minnesota, we develop a strategy for integrated system and file a plan with North Dakota, and South Dakota regulatory commissions.
As required by the Minnesota PUC. The plan will provide additional insight on the Companys expected path forward with Coyote station relative to regional haze compliance our last integrated resource plan was filed in June of 2016 and approved in April.
2017, we expect the updated IR Pete to favorably impact our long term rate base growth.
On slide 16.
Merit Corp, Wind Energy Center concluded construction and began commercial operation at the end of December.
The facility generates enough energy to power more than 65000 homes at a cost of 260 million. It is the largest capital project in company history.
On slide 17 storey station construction is substantially complete and we are in the final stages of testing, which is expected to be complete in the first quarter of 2021.
This 152, and a half million dollar investment complements our wind generation by providing a reliable backstop when the wind is not blowing.
And it has flexible operating options and low emissions.
A story of station provides 245 megawatts of dispatch level capacity.
Compared to Hoot Lake plants hundred and 40 megawatts.
And this project is projected to have 85% less carbon emissions compared to Hoot Lake plants historic levels.
On slide 18, Otter tail power announced in September the $60 million Hoot Lake Solar project.
This is a 49 megawatt project, we plan to build on previously owned and newly purchase land around Hoot Lake plant in Fergus Falls, Minnesota.
The project will generate enough energy to power approximately 10000 homes.
This project offers us a unique opportunity to reuse our existing hoot Lake transmission interconnection, along with substation and plant land after retiring the Hoot Lake coal plant.
Later this year once the project is complete up to 35 per cent of our customer's energy will come from renewable resources.
As shown on slide 19, we are enhancing our transmission infrastructure, we're investing approximately $35 million to improve reliability.
And increased capacity for customers in the southern portion of our service area.
Phase one of this two phase project is complete and we expect phase two to be in service from 'twenty 'twenty one.
Contractors on site installing conductor we have approximately 40 of 43 total miles of structures set.
Slide 20 outlines an opportunity to grow rate base and increase earnings self fund is an election by the MISO transmission owner in this case otter tail power.
To fund the initial network upgrades associated with new generator interconnections and recover the investment from the interconnection customer through a monthly revenue requirement over 20 years.
The company has secured 28 of 33 facility service agreements.
And 100 per cent of the construction has been completed.
We continue to monitor progress of the federal regional haze rule process in North Dakota.
The North Dakota Department of environmental quality D Q.
And the state of North Dakota have additional milestones to reach before the state submits its implementation plan for the environmental Protection Agency.
Coyote station owners continue to analyze the data and decisions that will impact the plant and our employees customers and communities.
We'll know more this year when the day EQ.
The public comment period regarding its recommendation on Coyote station compliance strategy.
The state of North Dakota is expected to submit it state implementation plan for the EPA in July of 'twenty 'twenty one.
Each of the Coyote station owners is uniquely positioned to serve its stakeholders today and in the future.
Our shared priorities are to continue serving customers with reliable low cost electricity.
I'd like to give special recognition to otter tail power employees, who continue to put safety first achieving a record safety performance for the second year in a row.
B T D. Our contract metal fabricator had revenues declined due to a drop off in end market demand primarily in the second quarter.
Widespread temporary customer plant shutdowns caused by the pandemic.
The management team of B T D effectively managed costs in inventory to help mitigate the impact COVID-19 had on sales.
Customer orders improved in the second half of 2020 with some end markets exceeding pre pandemic levels be TD continues to have excellent safety quality and on time delivery.
Our plastics segment performed extremely well in 2020.
And benefited from a tight pipe market, resulting from major pipe converters reduce production in the second quarter of 2020, while the residential new home construction market remains strong.
Two resin suppliers invoke force measure, which limited availability of resin.
PVC resin supplies.
Additionally, concerns over hurricanes positively impacted PVC sales prices and increased adult global demand for PVC resin.
Looking ahead, we continue to enhance our balanced electric generation mix.
We anticipate by 2022 otter tail power customers will receive over 30% of their energy from renewable resources.
Our carbon emissions will be at least 40% below 2005 levels.
All while keeping average residential rates well below the national average.
With growing concern investor concern about companies generating more than 25 per cent of revenues from thermal coal.
It's assuring to know Otter tail corporation's percentage of revenue from coal assets is significantly below that threshold.
As a percentage of consolidated revenues from our coal assets was 12% in 2020.
We continue to be innovative as we modernize our energy grid.
Enhance customers' experiences and work toward a cleaner energy future.
I'll now turn it over to Kevin for the financial perspective.
Thanks, Chuck and good morning, everyone.
2020 was an outstanding year for us in light of the challenges we experienced due to the pandemic.
Our earnings per share of $2 30 for <unk> was seven 8% increase over 2019.
This increase was driven by our electric segment supported in large part by our continued investments in our growing rate base.
This is impressive when considering that 2020 was impacted by unfavorable weather and the significant negative impact of Covid on commercial and industrial sales and increased bad debt expense.
Our plastics segment had an exceptional year with net earnings increasing 34%.
In our manufacturing segment earnings were down year over year.
Primarily due to the impacts from COVID-19, especially at BTT.
Customers implemented temporary plant shutdowns during the second quarter, while attempting to understand how COVID-19 was going to impact their respective businesses.
And our 22020 return on equity was 11, 6%.
On an equity ratio of 51%.
Our two platform strategy continues to deliver strong returns on equity.
Please refer to slides 27, and 28 as I provide an overview of 2020 earnings by segment.
Electric segment net earnings increased $7 $7 million.
Key drivers include increased Minnesota, and North Dakota renewable resource rider revenue is related to the Mirror Corp, Wind Energy Center project.
It was under construction.
And from the generation cost recovery rider in North Dakota in conjunction with the construction of the Astoria station.
Increased revenues due to a positive price variance from sales under very tariffs.
Increased Minnesota, CIP revenues and an increase in transmission cost recovery revenues.
These increased revenues were offset in part by unfavorable weather of eight cents a share in 2020 compared to 2019.
Lower kilowatt hour sales to commercial and industrial customers, mainly due to COVID-19 related impacts that affected the last nine months of 2020.
Other items favorably impacting electric segment earnings for.
Increased transmission service revenues from the recovery of infrastructure investment costs and inter connected generators.
Decreased operating and maintenance expenses due to lower contracted services and material and supply expense.
Related to the extended plant outages at Coyote and Hoot Lake in 2019 with no comparable expense in 2020.
Lower transmission tariff expenses related to decreased rates.
There was a decrease in other expenses due to cost management initiatives to address the impacts of COVID-19.
These decreases were offset in part by an increase in bad debt expense.
Due to adoption of COVID-19 related service suspensions and debt collection policies.
A million dollar increase in contribution starter tail powers charitable foundation.
Higher CIP expenditures and increased labor and employee benefit costs.
Other other impacts to electric earnings include.
Higher depreciation and property tax expense due to our recent capital additions.
Higher interest expense due to new long term debt issuances.
And income taxes were favorably impacted mainly due to production tax credits earned on mirror court as it became commercially operational in the fourth quarter of 'twenty 2020.
Net earnings for the manufacturing segment decreased $1 $8 million year over year.
Driven by lower revenues of $37 $3 million of B T D. Due to a decline in material prices in 2020.
Compared with 2019, and a drop in sales volumes, mostly due to customers implementing temporary plant shutdowns in the second quarter in response to the COVID-19 pandemic.
These items were partially offset by an increase in revenues due to a change in product mix.
Lucid them the pass through of material price reduction.
And reduce cost of goods sold resulting from lower material costs and lower sales volumes.
With lower operating and depreciation expense.
And at T O plastics net earnings were lower primarily due to a $1 $1 million decline in revenues.
Our plastic segment earnings increased $7 million year over year higher sales volumes.
And higher pipe sales prices resulted from improved market conditions during the second half of the year driven by strong construction markets.
And concerns over raw material supply and product availability.
And our corporate costs net of tax increased $3 $8 million due to a $2 5 million contribution to otter tail Corporation's charitable foundation.
2021, with a $1 $5 million increase in labor and employee benefit expenses.
Moving to slide 29.
Our 2020 financing activity consisted of the following items.
We issued the remaining tranche of $75 million of senior unsecured notes under a delayed draw from the $175 million private placement notes issued in October of 2019.
We issued approximately $50 million of common equity in 2020.
This along with the equity issuance in the fourth quarter of 2019.
<unk> successfully completed the amount of equity we had planned to issue and our financing plans.
Both the debt and equity raised were in connection with our rate base growth projects at the utility.
And we currently.
We do not currently expect to have any additional equity needs in our financing plans over the 2021 through 2025 time frame.
Our two credit agreements are in place until October 31 of 2024.
Between expected cash flow generated from 2021 operating activities and these credit facilities.
We have the appropriate levels of liquidity to support our businesses.
Sloan shown on slide 31, the board of directors increased our indicated annualized dividend rate from $1 48 per share to $1 56 a share.
This five 4% increase reflects our strong 2020 performance and our 2021 outlook the.
The company's strong balance sheet liquidity cash generation profile and our commitment to enhancing shareholder returns.
We expect future dividend increases to be in line with earnings growth, while maintaining a targeted payout ratio of 60% to 70%.
This will be the 82nd year that we have paid dividends on our common stock.
Slide 32 highlights our capital expenditure plans for the 2020 ones for 2025 timeframe.
We expect capital expenditures for 2021.
To be $133 million of which 85% zero marked for our electric segment.
Planned expenditures for this year includes investments in renewable generation technology and infrastructure.
The five year capital expenditure plan calls for approximately $653 million in utility projects of which approximately 35% will be recovered through riders.
The plan also includes $109 million for our manufacturing and plastics segments.
Our 2021 business outlook on slide 34 is predicated on the continued deployment of vaccines being ramped up across the country.
And the assumption new strains of COVID-19, do not cause the pandemic to get out of control and cause more shutdowns across the country.
Our 2021 diluted earnings per share guidance is $2 39 to $2 50 for since the midpoint of this guidance range reflects a five 6% growth off our 2020 diluted earnings per share of $2 34.
This guidance equates to a return on equity range of 11, 1% to 11, 8%.
Based on an estimated equity to total cap ratio of 51%.
We expect our electric segment to provide approximately 74% of our consolidated earnings in 2021.
With an increase over 2020 segment net income based on.
Our <unk> story of projects being commercially operational in our rate base being reflective of the total capital spend on these investments.
<unk> court as rider recovery mechanisms in all three of our jurisdictions.
Story of station has rider recovery mechanisms in South Dakota, and North Dakota.
This project, which has been earning AFDC in Minnesota.
Now I'll be recovered through a rate case in Minnesota and has already been approved in our integrated resource plan.
We expect increased revenues related to $22 million in anticipated capital spending for self funded generator interconnection agreements.
The successful outcome of our Minnesota rate case filed in November of 2020.
The Minnesota Public utility Commission approved an interim rate increase of $6 9 million or three 2%.
This approval was provided after we submitted an alternative recovery proposal.
Which among other changes requested.
For the extension of Depreciable lives.
Of certain wind related assets.
And deferred cost recovery decisions to the final rate decision.
In the aggregate this alternative recovery proposal reduced operating costs and delayed recovery of certain other costs by approximately $7 million to.
To lessen the interim rate impact on customers.
2021.
Plan for normal weather.
And there are no planned contributions to the Otter tail power Foundation in 2021.
The above items are partially offset by increased operating and maintenance expense related to the planned outage.
At our Big Stone plant as well as having mirror Corp, and a story of fully operational in 2021.
There will be increased expenses in large part due to higher pension expense or.
Our discount rate for 2021 is $2, 78% compared to 347% last year.
Each 25 basis point decline in the discount rate.
And an increase of pension expense by approximately $1 $2 million.
Also our long term rate of return for 2021.
Is $6 five 1% compared to six 8% last year.
Each 25 basis point decline in this rate results in approximately an $800000 increase in pension expense.
There'll be higher depreciation and property tax expense due to the large capital projects being put into service.
And increased interest costs associated with a full year of interest expense on the $75 million of debt financing that we completed in 2020.
We expect earnings from our manufacturing segment to increased 12, 3%.
Due to an expected increase in sales at BTT driven mostly.
By improving end markets as our customers continue to rebuild inventories to fill the shortages created by the pandemic.
Scrap revenues are expected to be.
Improved based on anticipated improvement in scrap metal prices.
And we expect higher earnings at T O plastics, mainly due to increased sales to order cultural and life science end markets.
And our backlog for the manufacturing segment is approximately $204 million for 2021, compared with 179 million one year ago.
Our plastics segment net income for 2021 is expected to be lower than 2020.
An increase in pipe sales prices is expected to be offset by a decrease in the pounds of pipe sold.
Resin suppliers have also announced price increases in the first quarter of 2021.
Based on strong market conditions, such as tight supply of resin.
And strong export markets that have higher resin prices in the domestic market.
We expect this to reduce our operating margins in 2021.
Also there is no planned contribution to Otter tail Corporation's Foundation from this segment for 2021.
And our corporate costs net of tax are expected to be lower than 2020, primarily due to lower employee benefit.
And health care costs.
No planned contributions.
To Otter tail Corporation's Foundation.
Our strategic objectives to grow our business and achieve operational excellence positions us to achieve a 5% to 7% compounded annual growth rate and earnings per share.
<unk> $2022 34.
Sure.
Key drivers in achieving our 2021 guidance for the utility include.
But our capital spend on <unk> and a story of projects will be fully reflected in our rate base.
The successful outcome of our Minnesota rate case.
For <unk> key drivers will be continued recovery in their end markets.
From the pandemic as our customers look to have full plant capacity.
To rebuild low inventory levels.
Also the continued utilization of existing capacity and operational improvements across all locations to further improve our return on sales margins and invested capital.
We continue to monitor the current pricing in the steel market as prices have risen to approximately <unk>.
$100, a ton, which are being driven by strong demand and limited supply.
This could produce some headwinds for domestic manufacturers, but the current belief as steel prices peaked and we will start to subside throughout the year as steel inventories expected to increase over the next several months.
In our plastics segment is again well positioned to provide another strong year in earnings and continues to provide us.
Standing returns on invested capital and strong cash flows to support our common dividend.
Over time, the electric utility will deliver reliable performance.
With rate base investment opportunities over the next five years to allow for growing revenues earnings and cash flows the.
The electric business is expected to contribute approximately 75% of our overall earnings.
Manufacturing and plastics segment will also provide organic growth over the long term.
These two segments are expected to provide around 25% of our earnings over time.
We expect to deliver total shareholder return of 8% to 10% over the long term <unk>.
Consisting of our expected, 5% to 7% compounded annual growth rate in earnings per share.
And our current dividend yield.
Looking forward, we would expect to grow the dividend.
Along with the earnings per share and maintain a dividend payout ratio between 60 and 70%.
Our business model, whether it all of the adversity of the COVID-19, pandemic, well and as we move into 2021, we are positioned with our strong balance sheet ample liquidity to support our businesses and strong investment grade corporate credit ratings.
We are now ready to take your questions.
Thank you, Sir ladies and gentlemen, if you have a question. Please press Star then one on your Touchtone telephone line.
Austin has been answered or you wish to remove yourself from the queue beef price dependent.
Okay.
Your first question will come from the line of Sophie Karp from Keybanc capital markets. Your line is now line for helpful.
Hi, Good morning, guys and congrats on the solid results despite the pandemic disruptions.
Yeah, a couple of questions. If I may I wanted to hear you may be comment on the weather impacts that we've seen across the country right now and Uh huh.
How are your territories that position.
With regard then but what do you think is maybe the need that.
Oh, the greed, specifically in your territory that you might be looking into addressing in the future. If this impact.
No control.
Alright.
I'll take that this is true.
So thanks for the question.
Otter tail powers.
Member of the MISO market, you've heard a lot about ERCOT in Texas and the other issues with with capacity icing natural gas supply and then we do border the SPP market.
But we are a MISO market participant and we are on the western edge of that.
You know through the recent cold weather, we have approximately 800 to 850 megawatts of load and a similar amount of generation that has been cleared into the day ahead market and while the MISO market prices have had been escalated during this cold weather event.
We have generation resources that are approximately equal to our low so.
Our exposure to market price is very limited.
Arises if we have.
Load forecasting issues between the day ahead, and real time pricing or if we have generation issues in that timeframe.
So from our generation.
I can't speak for all of the regional resources, but all of our resources coal plants are running we have had at times, 10% of our wind resources that are offline due to temperature.
Over the last three days, but those do come back and make depending on the model and the age or manufacturer.
These wind facilities do go off line somewhere between 20, and 30 below and we have reached that at some times during the.
For the last three days so.
And I would be.
Any follow up questions would be welcome also.
Yeah, Yeah very helpful. So you don't see any generation shortages at this book at this time on the Arrow system, that's basically at the bottom line.
Yeah, Yeah. The MISO market is different than SPP, which is getting a lot of the attention. We are bordering that and theres. No question that the MISO market prices are elevated over normal, but as long as you have.
Generation resources that are bid in equal to or above your load you are effectively covered for those prices and it drops back to essentially your your marginal cost for your fuel cost on those resources. So.
To date, we are in a good position there.
Got it. Thank you and my second question was about the Capex. It looks like you've maybe shifted from Capex from 'twenty to 'twenty, one to 'twenty to 'twenty. Two if you could comment a little bit on that maybe I is that driven by just the timing of projects or COVID-19 situation kind of what drives that.
Sure I think there's been a slight change.
And our timing with the Hoot Lake Solar project and so that in total the project has not changed but there is some.
From a movement between 2021 and 2022.
Anticipating a little later construction start on that project.
Got it.
Thank you that's all I have.
I will jump back into the queue.
Thank you.
Thank you Ma'am. Your next question will come from the line of Brian Russo from Sidoti. Your line is now right go ahead Paul.
Hi, good morning.
Hi, Brian.
Are there any other assumptions if you could provide us for BTG.
Sales growth.
In 2021 versus 'twenty.
Sure.
<unk>.
Hi, Brian.
Everyone's looking through his papers.
Mhm.
And then along those lines.
Several of the larger <unk>.
Yes.
In <unk> end markets.
Recreational vehicle agriculture.
We have been forecasting.
Fairly bullish outlooks.
For 2021, and I'm just curious is the guidance that you've laid out today.
It could prove conservative if the trends that we've been seeing in this fourth quarter.
We continue.
For all of 283 one.
Yes, Brian this is Kevin.
That's a fair statement I mean, there is we're seeing some pretty robust activity as you referred to in the fourth quarter and as we head into the first part of 2021.
Theres certainly some headwinds here and like I mentioned in my script notes about the steel prices we are seeing some.
Some concerns over that but we think that that will subside back I think right now as we look at our guidance there is.
Some concerns that we could start to see a pullback in the last half of 2021, that's reflected here.
To the extent that this activity you referred to continues to be robust through the through the rest of the year.
There is upside.
Okay, Great and then.
Any sales growth assumption, yes.
Our sales growth assumptions.
No. It was based on sales steel.
Steel prices at the time, but we're probably in that 5% to 7% sales growth assumption for the year.
Okay, Great and then just to clarify on the.
Steel.
Price headwinds that might.
Be alleviated.
Steel.
Raw material cost pass through for BCP.
The rising steel prices impact.
The end markets.
Great.
Yes, I mean, there is there.
There are certainly risks for example, with these high steel prices that.
Some customers in the end markets it could cause them to perhaps not build certain types of inventory because the price points to the end consumer could be too high.
So their share.
Depending on how this how long it were to go would certainly cause some of that to be a risk as we head into the year.
Okay.
Okay.
You mentioned depleted inventories.
And some of your end markets.
Driving some of the growth in 2021.
Experienced any supply chain issues.
Bottlenecks on your side of the business.
No, Brian we really haven't we.
Obviously, there are some concerns right now with the steel.
Limited supply in the steel market, but we have not seen we didn't have any real supply.
Supply constraints in 2020, and we've been able to successfully.
Get our steel supply here as we head into 2021.
Certainly paying attention to what's going on in the steel market.
Okay.
Okay, and then the plastics outlook that you consider for 2021.
Good day.
Normalized.
Type of operating environment for plastics or are there.
Theres still couple of variables at play which could make it.
Higher than normal or less.
Annualized I guess from a margin perspective.
Yeah, Brian as we look at that 52 to 56 cents per share that we've guided for for 2021.
We look back over the last say five years or so that would be kind of in that.
<unk> range of earnings we would expect.
Yeah.
Yes.
Obviously, there will be as we go through the year, there's always risk.
Our risk to risk and upside to margins, depending on what's happening with the dynamics in the.
The resident in the PVC sales prices.
But we would look to say this is to affirm. Your question. Yes. This is in a more normal range of earnings we would expect.
And we've got a great interest.
As we go through the year based on market conditions and as they are changing we would look to potentially update the guidance based on any new changes.
That have occurred in those in the markets.
Mhm.
Okay, Great and then just lastly on the.
The electric segment you mentioned.
Various initiatives.
That would be.
Enhancing to your rate base CAGR.
Yeah.
I'm just curious.
For the growing at over 8%.
Net report was a big drive for that from the other.
Generate for resources.
If you are too.
Convinced for 5% to 7% EPS CAGR and regulated rate base growing at 5%.
Okay.
Yes.
That range do you need incremental capex that could be identified.
Minnesota Iron.
Yes, Brian This is Chuck and thanks for the question. If you look back at our last five years for <unk>.
Capex, it's largely tied to sort of a first round of MISO transmission and otter tails 2017 I RP.
We believe that there will be additional regional transmission.
Projects that impact Otp and Thats, our IOP that is going to be filed in 2021 here in September we'll have the potential to increase the rate base growth. We normally don't include projects in our capital five year capital forecast until they are at a minimum.
Identified in an IRR or identified by MISO.
And so the IOP is underdevelopment, it's going to be impacted by the North Dakota Regional haze plan and.
Any potential change in renewable tax incentives or extensions renewable energy or.
Clean energy legislation.
Natural gas prices market prices and then the timing of these MISO plants. So.
We just we normally don't put the projects and until we've.
Put them in an IOP and that's going to occur in September.
Okay, just to follow up on that so when we look at the five year Capex really the upside probably in 2020 for 2025 just given.
Timing of when projects for RFP for when needed for how to look at it.
Yes, I would look the later years.
To get a project approval, you know identification plans and project approval.
It was more weighted toward the out years.
Okay.
Great. Thanks, a lot.
Yeah.
Thank you for your next question will come from the line of Paul Sullivan from Maxim Group. Your line is a line kind of helpful.
Thank you Kevin just starting with the balance sheet can you review your comments on I mean, you don't foresee additional equity needs and then just related to the current maturities of long term debt.
About $140 million is that just timing related to the maturity on one of your credit facilities or can you talk a little about that.
Yes, I mean as it relates to the $140 million, Brian that you know as you note that comes due in December we expect that we will start.
Had some initial discussions with some of our investment banks on what the markets look like we would expect to.
Two is our past practice to do a private placement of debt to replace that refinance that.
And we would expect to probably be starting that here sometime in the.
Late first quarter early second quarter.
Okay. Thank you and then just a follow up on beef on the manufacturing segment too I think historically, you've mentioned a margin target.
Of around 5% is that does that still one of your internal targets for that business or has that changed yeah youre, referring to the return on sales.
Margin in that.
Continue to look to drive the business collectively the segment to that.
To that return.
For the around 5%, but that's still the case.
Yep.
Okay great.
Thank you have a question on the equity piece to that I didn't answer.
Just to clear you you you indicated earlier that you don't you work you do not anticipate additional equity needs through 25, yes.
Yeah right in this current five year Capex plan.
We feel good we successfully completed our equity needs that we had come out a couple three years ago, and said, we needed to add $70 million to $75 million of equity we wrap that up here in December.
As we look at this five year current five year plan.
There is no need for any equity and of course to the extent that.
The integrated resource plan.
We referred to Chuck's comments follow on Bryan's question, if there were significant.
Capital investments coming out of that.
Towards the end of this five year period that could potentially change, but as we stand the day no no plans.
Okay. Thank you both have a good day.
Thanks, Steve.
Thank you Sir ladies.
Ladies and gentlemen, if you have a question. Please press star one on your Touchtone telephone.
I'm from seeing no further questions from the phone line I would like to turn the call over back to Mr. Chuck Macfarlane for closing remarks.
Well. Thank you for your questions and your interest in Otter tail Corporation.
Our strength exceptionally strong 2020 financial results reflect the collective efforts of the people of Otter tail Corporation.
Despite the ongoing challenges presented by the pandemic, we remain focused on our strategic initiatives to grow our businesses achieve operational and commercial excellence and develop our people to continue to provide value to shareholders and to position us for long term success.
In 2021, we will focus on executing and expanding our rate base growth opportunities at the utility continue.
Continue to improve profitability at BCD and further refine long term growth strategies for northern pipe final tack from T O plastics.
We believe this will allow us to deliver on our 2021 earnings per share guidance range of $2 39 to $2 54.
Thank you for joining our call. We appreciate your interest in Otter tail Corporation, and we look forward to speaking with you next quarter.
Thank you. Thank you so much for that and then again. Thank you everyone for participating. This concludes today's conference you may now disconnect stay safe and have a lovely Paul.
[music].
Yeah.
Okay.
[music].
Okay.
Yes.
Okay.
Yes.
[music].
Yeah.
Okay.
Okay.
True.
[music].
Great.
[music] accounts.
And then.
[music].
Yeah.
[music].