Q1 2021 Otter Tail Corp Earnings Call

Good morning, and welcome to the Otter tail corporations Q1, 2021 earnings conference call. Today's call is being recorded and we will hold a question I didn't answer session. After the prepared remarks.

I will now turn the call there would you be 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 first quarter 2021 earnings results are.

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 Moog 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 they are subject to risks and uncertainties that may cause.

Actual results to differ materially so.

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 tail Corporation disclaims any duty to update or revise our forward looking statements due to new information future events developments or otherwise.

For opening remarks, I will now turn the call over to Otter tail Corporation's President and CEO, Mr. Chuck Macfarlane.

Thank you Lauren and good morning, everyone welcome to our first quarter 2021 earnings call.

Corp continues to support all the locations, we serve with collective efforts to mitigate the spread of COVID-19, 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.

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 10% of our employees continue to work remotely.

We continue to monitor this dynamic event and how it is impacting the economy and our electric and manufacturing platforms.

Please refer to slide four as I begin my comments on Q1 results.

We earned <unk> 73 per share for the quarter, a 22% increase over the <unk> 60 per share earned in Q1 of 2020.

This increase was largely driven by outstanding results in our plastics segment.

Kevin will provide a more detailed discussion of our financial performance in his comments, but a brief overview of Q1 results or the electric segment earnings per share increased to <unk>, which is primarily driven by recovery of now the now operational Americorp wind farm.

An approved interim rates going into effect January 1st in conjunction with Otter tail powers, Minnesota General rate case filing this was offset in part by negative weather and a decrease in C&I sales due to COVID-19.

Our manufacturing segment earnings per share increased one Sam.

<unk> continues to see a rebound in sales in most of their end markets as major oem's rebuild depleted inventories created by the pandemic.

Our plastics segment had a record breaking quarter with earnings per share increasing eight.

This was driven by slightly higher sales volumes and higher PVC pipe prices and improved operating margins.

As shown on slide five we are now on track to meet or exceed our original annual EPS guidance every year since 2016.

With a projected nine eight EPS compound annual growth rate over the 2016 to 2021 time frame.

We continue to grow otter tail power through capital investments from generation transmission and technology projects on.

On slide 11, Murra <unk> wind Energy Center concluded construction and began commercial operation at the end of 2020, the facility generates enough energy to power more than 65000 homes at.

At a cost of $260 million, it's the largest capital project in company history.

Yeah.

On slide 12 after years of planning and two years of construction and testing a story of station is now part of the mid continent independent system, operator, or MISO energy market.

Allowing MISO that economically dispatch the unit.

The $152 million investment complements our wind generation by providing a reliable backstop when the wind does not willing.

As flexible operating options and low emissions.

The story of station provides 240 megawatts.

Of dispatch of book capacity compared to Hoot Lake plants 140 megawatts.

With projected 85% less carbon emissions from historic Hoot Lake plant levels.

We announced in September of 2020 the.

The $60 million Hoot Lake Solar project is shown on slide 13.

This is a 49 megawatt project we plan to build on previously owned and newly purchased land around Hoot Lake plant in Fergus Falls, Minnesota.

Hoot Lake solar will generate enough energy to power approximately 10000 homes each year. This.

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 in 2021.

In March the city of Fergus Falls accepted the environmental assessment Worksheet. The city also approved our annexation request for the project property, we own in adjoining townships.

We expect to submit our conditional use permit request during the second quarter.

We have secured safe harbor equipment and currently anticipate the project to be completed in 2023.

Additionally, the Minnesota Public Utilities Commission approved our request to authorize 100% of Hoot Lake soldiers output to be allocated for use by Minnesota customers in 100% of our investment in the Hoot Lakes solar.

To be eligible for future cost recovery from Minnesota customers through our renewable resource cost recovery rider.

We filed our Minnesota General rate case on November 2nd 2020 as shown on slide 15.

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 our story of station placed in base rates in Minnesota.

This project was approved in our most recent IRB and has been earning a few D C. During the construction period.

Additionally, our new customer information system, which focuses on enhancing the customer experience by allowing customers more access and options related to their energy use and services was also a driver for this request.

Recognizing the economic impact of customers of the ongoing pandemic and with input from Commission staff, we agreed to reduce our interim rate request by approximately half to $6 9 million or three 2%.

This was done in conjunction with anticipated lower depreciation expense associated with extending our wind assets from 25 to 35 year lives.

In December the Commission approved our interim request beginning in January 2021.

On Friday April 30th.

While the substantial reduction in our original request incorporating these lower depreciation rates approved by the commission.

Lower borrowing rates lower pension and benefit costs and other refinements identified during the discovery phase of the case.

The new request is for $8 2 million or three 8% increase versus the original request of $14 5 million or six 8% request.

We anticipate a decision in late 2021 or early 2022.

Even with this increase otter tail power residential customers will continue to have some of the lowest rates in the country.

As shown on slide 16, the utilities rate base is expected to grow by an annual rate of 5% between 2020, and 2025 and a constructive regulatory environment and will be a key driver for future earnings growth.

We will be filing our next Minnesota integrated resource plan in September of 2021 as noted on slide 19.

This plan will identify the most cost effective combination of resources to reliably meet customers' needs. During the next 15 years.

Well the filing is required in Minnesota, we develop a strategy for our integrated system and also filed a plan with the North Dakota, and South Dakota regulatory commissions.

As required by the Minnesota PUC the plan will speak to the North Dakota Regional haze compliance.

Our last integrated resource plan was filed in June.

20 of 2016 and approved in April 27th.

We expect the updated ERP and MISO regional transmission plans underdevelop to favorably impact our long term rate base growth forecast.

In April FERC issued a supplemental notice of proposed rulemaking or no per for transmission incentives.

And its supplemental no burford focuses on the ROE adder for electric utilities, the joined transmission organizations.

First notice proposes to sunset the ROE at or after three years from when the utility transfers control of its transmission assets to the regional transmission organization.

Right now this incentive increases our base PRC Roe by a half a percent.

We estimate a negative impact to ongoing EPS, starting in 2022 of up to two sense. If the R. T O incentive is eliminated and FERC final rule.

The Biden administrations infrastructure plan proposal was approximately two trillion in investment this decade.

Plan highlights infrastructure improvements, including electric grid resilience, the electric vehicle market and energy efficiency.

And reiterate the admission administrations call for net zero carbon emissions from the electric sector by 2035.

It also calls for a 10 year extension and phase down of clean energy generation and storage production tax credits and investment tax credits as.

As well as the possibility of direct pay in lieu of the tax credit utilization.

We continue to monitor both the FERC and infrastructure plan proposals.

Turning to our manufacturing segment.

T D. Our contract metal fabricator continues to experience increased demand and improved sales for most of their end markets as major Oems rebuild depleted inventories.

They are currently being challenged from securing staffing levels to keep up with the increased demand.

Industry wide demand from manufacturing talent has increased and lingering COVID-19 impacts have reduced the number of available applicants.

Also steel prices are exceeding historic levels, driven by strong demand and limited product availability as mills are slow to recover from capacity reductions in 2020 related to COVID-19.

Even though <unk> is able to pass the increased material cost on the customer.

Product availability could impact production for some OEM manufacturers.

Our plastics segment continues to deliver strong results as they benefit from a tight PVC.

Pipe market due to PVC resin supplier constraints that have significantly driven a PVC pipe prices.

<unk> RASM constraints, resulting from abnormally cold weather in February and that impacted the golf coast region, resulting in several resin suppliers and Bulking force measure.

RASM constraints remain due to high demand as PVC resin plants still do not have.

For operational capability.

While we expect PVC resin supply constraints to extend into the second quarter, both of our PVC companies remain agile and reliable with on time deliveries.

Looking ahead, we continue to be innovative as we modernize our energy grid enhanced customer experiences and work toward a cleaner energy future.

We projected by 2023, our customers will receive approximately 35% of their energy from renewable resources by 2025, we projected our carbon emissions will be 50% below 2005 levels.

All while keeping residential rates among the lowest in the nation.

With growing investor concern about companies generating more than 25% of revenues from thermal coal.

It's reassuring to note that otter tail corporation's percentage of revenue from coal assets is significantly below that threshold.

The percentage of consolidated revenues from our coal assets was 12% in 2020.

Now I'll turn it over to Kevin for the financial perspective.

Well, thanks, Chuck and good morning, everyone.

We had an exceptionally strong first quarter with consolidated revenues up 11, 5% and net earnings up 25%.

This was driven primarily by the outstanding performance in our plastics segment.

We also experienced quarter over quarter earnings growth.

Our electric and manufacturing segments.

And please refer to slide 25, as I discuss our first quarter results.

The electric segment net earnings increased $1 $4 million.

All of the elements that impacted the electric segments quarter over quarter earnings are discussed in the release, but key items include.

$2 3 million dollar increase in new net retail revenues.

Related to the interim rate increase in Minnesota.

Effective January one of 2021 associated with the Minnesota rate case that was filed last November.

Or increased conservation rider revenues related to the recovery of increased CIP program spending in Minnesota and South Dakota.

Increased rider revenues in North Dakota related to the recovery of Mirror Corp, operating expenses and returns on increased investment in the project.

As well as an increase in rider revenues in North Dakota, and South Dakota for recovery of Astoria, and transmission project costs.

There is also increased transmission service revenues.

From the recovery of interconnected generators in MISO transmission tariffs.

These items were offset by lower retail revenues from commercial and industrial customers due to the lingering impacts of COVID-19.

COVID-19 did not impact revenues in the first quarter of 2020.

There was also lower retail revenues due to milder weather that was experienced quarter over quarter.

Weather negatively impacted the quarter over quarter results by <unk> <unk> a share.

There were increased operating expenses due to the murra <unk> wind farm being commercially operational at the start of the year.

Increased CIP expenditures, which are being recovered through rate riders in Minnesota.

In South Dakota.

Higher depreciation and property tax expense due to recent capital additions.

Higher interest expense due to the new long term debt issuances in 2020.

And a reduction in other income due to the discontinue once a day a few D C on the Minnesota share of Astoria station construction costs.

This is due to the project now being recovered in Minnesota interim rates.

These items were offset in part by decreased plant maintenance and operating expenses a decrease in bad debt expense due to improved customer collections in the quarter.

And income taxes were favorably impacted mainly due to PTC credits earned on Merit court in the first quarter.

Net earnings for the manufacturing segment increased $500000 and was driven by higher parts revenues at DTD due to increases in material costs, which were passed onto customers.

And improved sales volumes and pricing driven by increased sales to recreational vehicle agricultural lawn and garden and construction end markets.

Scrap revenues were mostly higher due to increases in scrap metal pricing as well as increases in scrap volumes.

And cost of goods sold were higher due to increased sales volumes and higher material costs passed onto customers along with increased labor related costs and slightly higher operating expenses.

At T O plastics net earnings increased modestly between the quarters.

Our plastics segment earnings increased $3 $7 million due to higher pipe sales prices and slightly more sales volume.

The pipe prices were driven in part by PVC resin supply constraints due to resin plant shutdowns feedstock shortages related to the abnormally cold weather in the Gulf Coast region of the United States.

Continued significant global demand for PVC resin and limited pipe inventory across the country.

Our corporate costs net of tax decreased $500000, mainly due to increased values on our corporate on life insurance captive insurance investments that were realized during the quarter.

We continue to generate strong cash flows and have the appropriate levels of liquidity under our credit facilities to support our business operations.

Our current liquidity position under our two credit agreements as shown on slide 24.

And these facilities are in place until October 31 of 2024.

Moving on to slide 27.

We are raising our 2021 overall diluted earnings per share guidance range to $2 47 to $2 62.

The midpoint of the revised 2021 earnings per share guidance range of $2 55, a share.

Reflects an approximate 9% growth rate off 2020 diluted earnings per share of $2 34.

This is being driven in large part by expected performance in our plastics segment.

The key drivers of the downward revision to the electric segment guidance from our original 2021 guidance.

Our unfavorable weather experienced during the quarter, which negatively impacted first quarter earnings by <unk> <unk> compared to normal.

And we plan for normal weather the remainder of the year.

Our commercial and industrial revenues are expected to be lower based on the continuing impacts from COVID-19.

The level of self funded inner connection projects is now expected to be lower resulting in a lower level of earnings than originally expected due to FERC delays in the approval process.

And lower MISO revenues due to lower revenue requirements.

Despite the decrease in the electric segment guidance, we continue to expect electric segment earnings in 2021 to exceed 2020 earnings.

Driven by the Americorp and a story of projects being commercially operational.

And our $405 million total investment in these projects being fully reflected in rate base.

Both projects have recovery mechanisms in all three of our jurisdictions, partially offset by increased O&M depreciation and property tax expense associated with these investments and increased expense due to debt issuances in 2020.

Also the impact of the Minnesota rate case filed in November of 2020.

The Minnesota Public Utilities Commission has approved an interim rate increase of three 2% or $6 $9 million.

These items were partially offset by increased non labor O&M expenses related to planned outages at big Stone plant <unk>.

And increased post retirement expense related to a decrease in the discount rate.

In the long term rate of return on plan assets.

We are maintaining our original 2021 earnings guidance for our manufacturing segment and.

And continue to expect net income to be higher than 2020.

This is based on an unexpected 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 also expected to improve based on higher scrap metal prices.

Decreased steel mill capacity due to COVID-19 has created product availability issues mill.

Mills are struggling to keep up with demand, which has created concerns over our ability to get the steel needed to meet customer demands.

And continues to keep steel prices elevated above historic levels.

We continue to work on increasing staffing levels to keep up with demand and being impacted by lower productivity and increasing expedited freight costs.

We expect higher earnings at T O plastics, mainly due to increased sales to horticultural and life science end markets.

The backlog for the manufacturing segment is approximately $201 million for 2021, compared with $127 million a year ago.

We are raising the 2021 guidance for our plastics segment from the original guidance and now expect net earnings to be higher than 2020.

Sales prices of PVC pipe in the first quarter were stronger than expected.

And we expect prices to remain high for the rest of the year.

Resin suppliers continue to increase raw material prices in response to market conditions, such as availability constraints related to feedstock suppliers for resin.

And a strong export market, which has higher resin prices in the domestic market.

Pounds of pipe sold in 2021 are still expected to be lower than what was sold in 2020.

And our corporate costs net of tax are expected to be in line with 2020.

This was driven by higher employee benefit costs and likely contributions to otter tail Corporation's Foundation.

We are extremely pleased with our strong first quarter results.

Results, along with our updated view for the remainder of the year position us to achieve.

Our updated earnings per share guidance range of $2 47 to $2 60, 62 a share.

The key drivers in achieving this 2021 guidance for the utility include.

Our capital spend on Meera CT in a story of capital projects being fully reflected in rate base and a 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.

While also maintaining appropriate staffing levels to position them to fully utilize existing capacity.

In operational and productivity improvements across all locations to further improve our return on sales margins and invested capital.

We continue to monitor the risks related to decreased mill capacity that has created product availability issues and how that will impact operations for the remainder of the year.

As for our plastics segment PVC resin plants still are not fully operational from the impacts of February winter storms.

We continue to expect supply constraints through the end of the second quarter.

And while these constraints have favorably impacted our first quarter results.

We need to be mindful of the negative impact this could have on our production capabilities and on operating margins during the second half of 2021.

Despite these challenges this segment is well positioned to provide another excellent year in earnings returns on invested capital and cash flows.

Over time, the electric utility will deliver reliable performance along with rate based investment opportunities over the next five years to allow for growing revenues earnings and cash flows.

The electric businesses is expected to contribute approximately 75% of our overall earnings.

Factoring in plastics segments will also provide organic growth over the long term. These.

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 earnings per share growth in.

And maintaining a dividend payout ratio between 60% to 70%.

Our diversified business model continues to serve us well and we remained positioned.

To fund our rate base growth opportunities at the utility with our strong balance sheet ample.

Ample liquidity to support our businesses and strong investment grade corporate credit ratings.

We're now ready to take your questions.

Ladies and gentlemen, if you have a question. Please press Star then the number one on your Touchtone telephone.

Question has been answered or you wish to remove yourself from the queue. Please press the pound key.

And your first question comes from Chris Allen.

With starboard Williams.

Alright, Hey, guys how are you.

Good morning, Chris.

Can you talk a little bit about the delays that you mentioned in the electric segment discussion.

On the <unk>.

<unk> projects.

Sure Chris It's Chuck.

We have been doing a number of the self fund and these are the projects were effectively a generator generally a wind generator could be a neighboring utility or an IPP.

Request interconnection, we do upgrades on our transmission system to allow them to interconnect and then we recover that over 20 years.

From the interconnection customer.

We've done about $50 million of upgrades and theirs.

Series of projects, which are referred to as interim projects kind of there were a number of different for quarters automation. These interim projects tend to be about five years old theyre already built and in service.

And they are reviewing those for movement into this.

Sort of category, where we're going to get recovery of those over 20 years versus when they were completed we were.

<unk> by the interconnection customer the full amount.

So those.

Rulings on those have been delayed.

And we don't anticipate that we'll get.

He was here in 2021.

Okay, but they they refer to projects about $9 million worth of projects that are in service were.

In connection customer.

Paid us the full amount we would refund that and then we would set up a 20 years of schedule those are the.

With four or five projects that are.

Or not.

I haven't been heard or we don't expect an order from FERC this year.

Okay.

Chuck you were talking about the buys an infrastructure plan.

Alright, what elements do you see there I think.

The one about Ptc's is kind of interesting elements in that plan sort of intrigue you for your own opportunities.

I think you've touched on the.

Extension of Ptc's or Itc's.

And as we're doing our current integrated resource plan.

Runs for a September 21 filing.

Yeah.

Ptc's or extended on wind or solar new solar new wind for 10 years that will impact I believe the amount of renewables become cost effective and that plant I think that's the biggest.

Rollout, we do have plans on an EV infrastructure, that's been reviewed and.

And.

Approved by the Minnesota Commission and so effectively.

11 large.

Tier three Chargers.

Approximately the same tier too spread out.

In our service territory in Minnesota.

But I think the biggest ones would be the tax credit and any requirement on carbon reduction.

With the alternative schemes and the Biden plan be helpful to you in terms of your tax appetite.

The.

I mean the direct.

Pay in lieu of the tax credit yes.

Okay.

As far as PVC goes this is it really kind of a confusing time.

We've got enormous demand for construction materials and yet.

We will have.

And supply constraints.

How do we think about debt back ended the year.

How do we think about the supply demand dynamic.

Particularly with.

Presumably the rest of the world is seeing some similar.

Construction demand so.

As those plants come back to full capacity will some of that be utilized for the export market. So there could still remain from.

Supply demand imbalances in the U S. How do we think about this in the Grand scheme and if.

There were.

Supply constraints for a good piece of 2021 does that leave a backlog of demand for 2022 that suggests the strong 2022 pipe market as well.

It was a long question Chris.

Yes.

Other pieces there.

Thank you.

Sure.

Well, we'll take we'll answer what we Miss just we'll come back to but as it relates to will there still be as the plants come back online will there still be a fair amount of this that would go export and the answer to that is yes.

The export market is still is expected to remain strong and continue to create that.

Imbalanced.

Challenge for domestic PVC capacity.

Right now we're seeing hearing that the plant should be back fully operational by the end of the quarter. We are currently expecting that our shipments of resident to the plants will be back to what we would consider more normal levels.

<unk> and <unk>.

So to the extent, we're concerned as you know.

This supply constraint has gone longer than we would have originally expected.

So to the extent that the plants don't come back to normal capacity the resin plants.

Puts.

Pressure on the last half of the year.

To your question.

If supplies remain resin supply has remained short through this year does that put pressure on 2022 projects I think it does I think that to the extent that we can't get back to normal that will certainly push projects back into 2022, if there isn't enough supply.

Hi.

Four.

And our presence supply to make the PVC pipe for the projects.

Right now announced resin price increases are.

I think its force for May and three cents for June so that we are expecting.

74 cents per pound for resin.

At the by the end of the second quarter, we have not seen any announced.

Resin price changes in Q3, I think debt.

Could still yet happened potentially later in the quarter.

I don't know if that covers all your questions are not crisp fire back if it didn't.

Yes.

There is still a million questions that debt.

Go into this sort of equation of what the PVC pipe price market might look like so even though there might be.

Price increases for PVC resin.

The demand for construction materials seems such that they are being able to absorb cost increases with prices.

What would your.

Thought process be for pipe prices and margin sort of in this very strong demand market.

The second half of the year and for 2022.

It seems like the environment that you're in might suggest that.

And prices.

<unk> support.

Payable high margin.

I think thats right, Chris I mean, we're seeing today.

Obviously in the first quarter, we saw higher PVC sales prices driven by this supply constraint concern.

Resin prices like I said are expected to be around 74, <unk> by the end of the second quarter and we continue to see strong sales prices here in the second quarter.

Despite some of the constraints that are there.

Projects still need to be done and completed and the typically the cost of the PVC pipe for these projects are not a significant portion of the overall construction cost of these projects and so.

Sales prices have been rising.

Much more than what resin prices have been.

Think of that as we continue to go through the rest of the year to the extent that there is still that.

Shortage that is out there because the plants aren't full capacity.

We would certainly expected sales prices would still continue to be strong.

Through the rest of the year.

Of course, we're going to be heading into the third quarter that always introduces the elements of hurricanes.

And the impacts that hurricanes could have on this dynamic as well and that of course, we're not going to know the result of that until we get to the third quarter and see what type of weather conditions, we have.

Thing were.

We're watching and guarding against as we've been in this business long enough to know that.

Things can turn quickly.

To the extent that resin supply does get back to normal levels.

There is plenty of it available that could cause margin erosion for us in the last half of the year.

As you know.

Availability of raw materials, there there could be downward pressure down on the sales prices and we look to see some margin erosion as we head into the last half of the year.

So in other words, you're saying, it's a complicated scenario.

Yeah, Yeah, and I think that we're going to I mean as we're looking at this we're going to have we expect to have a whole lot better visibility.

At the end of the second quarter once we see what happens with it.

If these.

The petrochemical plants are fully back online as they are expecting.

Okay.

Thing.

You mentioned the foundation.

Corporate and other segment can we assume that that force.

<unk> to the guidance is for dedicated for that piece alone.

It's in part dedicated to that Chris, but given the uplift in the guidance because of the strong performance. We're also seeing that part of it is being driven by incentive costs and our incentive plans as well got you.

Thanks, So much I appreciate the details guys.

Your next question comes from Brian Russo with Sidoti.

Hi, good morning.

Thanks, Brian.

Just to quickly follow up on on the plastics segment and Cigna.

Significant outperformance to say, the least first quarter and your increased Scott.

Okay.

First quarter is it safe to say that PVC prices were rising at a faster.

Then your resin prices, despite supply constraints, which cause.

Operating margins too.

Expand significantly more than what say the historical kind of run rate is in the low teens.

Yes.

That's a fair statement.

And when we get.

I think this is the second year in a row, where you've had tailwind I guess.

In the plastics segment, and I guess things can go the other way, but we.

In se.

New.

PVC environment, where not only can you retain margins, but you can expand.

Your margins.

On a sustainable basis over the next say.

Two years, despite supply constraints are running out of resin inventory sales.

Your cost of goods sold will increase.

Maybe suggested in half of the year.

Are we in a new realm.

I think we've been saying here Brian for the last.

Couple of three years that we think normal earnings in this business or somewhere in that 20% to $25 million range in that.

Yes.

Now here here we go.

Were taken guidance up pretty healthily from from where we started and it's again being driven by a.

Constraint or a market factor that.

I think we're able to predict I mean these.

Winter weather and how cold it was having to shut down the plants I mean, we certainly didn't expect to see that.

On your earlier comment about sales prices, starting to rise faster than the announced resin price increases.

Exactly.

Right.

People need the pipe.

And there have been willing to pay the price prices have been moving up to get the product for.

There are projects now.

The margins we see today are those the margins we expect over the next couple of years.

I think today, we'd say no we wouldn't expect to see these kinds of margins over the next two years, because we would expect market forces to come back to be more in line, where once the resin plants have the supply are there operating and they have their full supply we'd start to expect to come back to some more.

Normal spreads of sales prices over the resin prices.

Mhm.

Got it that makes sense.

Just to switch gears to manufacturing and specific to BTG.

You maintained.

The February guidance.

Just curious since February we've seen a couple of your larger end market customers increasing their sales.

Outlook and.

And earnings outlook.

While also acknowledging.

Slide constraints on that side of the business and rising steel prices, which you pass through so I'm just wondering are there any more assumptions.

Any any assumption on sales growth.

At BCD.

Embedded in the new guidance, which is unchanged.

There is there is there is some sales growth embedded in there, Brian but what we're seeing and is this the steel availability issues that are there and then of course, we're having labor issues because.

We laid off a number of people in the second quarter last year and now we're having difficulty getting people back so we need.

R R.

Our productivity is being impacted by not having the right level of staffing and then with this <unk>.

Product availability issue on the steel side, we've seen our expedited freight costs go up so that's been eroding into our margin as well and so despite.

We were able to obviously, we pass through the steel price, but we've seen some price increases we've seen that offset by the labor productivity and then this expedited freight.

And that as we look at the guidance and keeping it where it is.

No.

Despite.

The good first quarter performance, we're being cautious because of the impact that the labor and the expedited freight costs are having on the business right now.

Okay got it.

Switching gears to the electric utility I think it's roughly 90%.

Downward revision.

The EPS guidance range and I think you attributed to poor weather can you break down the other six cents, which is C&I vs.

Those delayed.

MISO projects.

Sure.

C&I is about <unk>.

The low.

The delays in FERC approval is a penny to two pennies.

And then the lower MISO revenues would kind of be the rest.

Okay.

Okay, and then just one last question.

Thanks for the sensitivity on the on the FERC <unk> can you give us a sense of what percent of your overall rate base is.

PRC jurisdiction.

Yeah.

This is Chuck Bryan.

The total amount under FERC the vast majority of our transmission is under.

State.

Mhm regulation.

I would guess it is in.

About 10% 10%.

Which is why the sensitivity I guess is it seems manageable on a 50 basis point change yeah. Okay.

Okay, great Brian. Thank you very much thanks to revenue from FERC is 10%.

Okay.

Okay very good thank you.

As a reminder to ask a question price.

And the number one on your Touchtone phone.

And your next question comes from Chris Allen with Sabic Williams.

Chris Your line is open.

Sorry, I did it again in Bluffton mute on.

But I want to beat this horse a little bit more because it's really important.

The first quarter can you differentiate if possible how much.

Much of.

Good.

Margin dynamic is the.

Supply constraint for the resin vs.

We've seen.

What an extraordinary spike in construction demand so.

My thought is some of these other markets the prices have skyrocketed for construction materials.

And prices and margins have been good there as well so.

Would you have seen a really strong PVC pipe market.

Prices, even in the absence of the resin issues.

I think we would have seen a strong.

Quarter it wouldn't have been as strong had it not been for the constraint issues Chris.

Right those.

As our volumes, our volumes quarter over quarter or basically flat.

But you also had constraints to how much can you differentiate.

How much.

The flat volumes was a function of the strength.

How much more could you have produced if there were no constraints.

Not much in the first quarter okay.

Has.

I guess there is a question here about whether there's maybe been somewhat of a demand shift.

Over the last few years has the first quarter dynamics, giving you any thoughts about.

That 20% to 25 million that you've kind of been expecting a normal trend to develop at some point.

Is that.

Number that range.

Been adjusted in your mind at all.

The totality of what you've seen over the last day five years.

I would say answer that Chris.

We're looking at it again.

Okay.

I wanted to ask geographies.

She has questions about.

The ability of the company to forecast, what what what that range will be but.

I guess I'll ask them at the end of the year weather.

The chief Forecaster of PVC dynamics needs to make some adjustments.

Well look into that Chris I mean, I think we're in an unusual market you cant look at any construction material now that's following.

Our normal pattern right. So.

And I think Theres, a number of people that.

Would love to have been long a lumber or something.

In that area you know, we'll look at it.

Do think.

We've got to look at this total global resin supply, there's more export pressure and Kevin mentioned that from there has been historically too just.

The ability for the U S to produce.

Resin using natural gas versus other feedstocks in the other parts of the world.

<unk> is continuing to put pressure on the export market for this resin.

U S produced RASM.

Right so.

Well you know like like Kevin said, you'll know more at the end of the second quarter when supply returns to normal somewhat but.

It seems like the same dynamics in many other countries are similar to what we're seeing on the construction materials side. So will you have a sense of how much more of the resin supply is being siphoned off for international markets at that point.

We will give updates to it yes, Chris.

Okay well this is a very very interesting set of equations for the PVC market.

Thanks, so much I appreciate it.

Thank you thanks, Chris.

And there are no further questions I will now turn the call back over to Chuck <unk> for closing remarks.

Thank you for your questions and interest in Otter tail Corporation.

With continued execution on our rate base growth and efficiency improvement opportunities at the utility.

And emphasis on operational and commercial performance and our manufacturing platform.

We remain confident in our ability to deliver long term shareholder value.

On our strong first quarter performance and our updated view of the remainder of the year. We are raising our 2021 diluted earnings per share to $2 47 to $2 62.

From our previous guidance 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.

This concludes today's conference call you may now disconnect.

Okay.

Yes.

Okay.

Okay.

Okay.

Okay.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Yes.

Yes.

Okay.

Hi.

Yes.

Yes.