Q4 2023 Otter Tail Corp Earnings Call
Operator: Good morning, and welcome to Otter Tail Corporation's 2023 Earnings Conference Call. This call is being recorded.
Good morning, and what was the Otter tail Corporation's 2023 earnings conference call.
Today's call is being recorded.
Operator: We will hold a question and answer session after the prepared remarks. I will now turn the call over to the company for opening comments. Good morning, everyone, and welcome to our 2023 Earnings Conference Call. My name is Beth Eichen, and I'm Otter Tail Corporation's Manager of Investor Relations.
We'll hold a question and answer session. After the prepared remarks, I will now turn the call over to the company for opening comments.
Good morning, everyone and welcome to our 2023 earnings Conference call. My name is Beth icon and on Otter tail Corporation's manager of Investor Relations.
Beth Eichen: Last night, we announced our 2023 fourth quarter and annual 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.
We announced our 2023 fourth quarter and annual financial results.
Our complete earnings release and slides accompanying this call are available on our website at otter tail Dot com a recording of this call will be available on our website later today.
Beth Eichen: With me on the call today are Chuck MacFarlane, 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 2, 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 about placing undue reliance on any of these statements.
With me on the call today are Chuck Macfarlane Otter tail corporations, President and CEO and Todd wall into 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.
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 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.
Beth Eichen: 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 MacFarlane. Thank you, Beth.
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 Macfarlane.
Charles S. MacFarlane: Good morning and welcome to our 2023 year-end earnings call. Please refer to slide four as I begin my comments on our annual results. Otter Tail Corporation delivered record-setting earnings in 2023, driven by strong financial performance across all of our segments, as well as significant corporate cost savings. We generated diluted earnings per share of $7, beating the record of $6.78 set last year and significantly exceeding our original expectations for the year.
Thank you Beth good morning, and welcome to our 2023 year end earnings call.
Please refer to slide four as I begin my comments on our annual results.
Otter tail Corporation delivered record setting earnings in 2023.
Driven by strong financial performance across all of our segments as well as a significant corporate cost savings.
We generated diluted earnings per share of $7, beating the record of $6.78 last year.
Significantly exceeding our original expectations for the year.
Charles S. MacFarlane: The electric segment earnings increased 6% from 2022, primarily driven by higher commercial and industrial sales, lower pension costs, and the recovery of rate-based investment. Manufacturing segment earnings increased modestly from 2022. Plastic segment earnings decreased 4% primarily due to decreased sales volume. Our corporate cost center generated earnings in 2023 due to the returns earned on our short-term investments funded by the significant cash flows generated over the last few years. In a moment, Todd will provide a more detailed discussion of our 2023 financial results as well as our expectations for 2024 earnings. Slide 5 shows our 5-year compounded annual growth rate in earnings per share with and without the impact of our plastic segment. Even without the impact of the extraordinary results generated by our plastic segment over the last few years, we have achieved a compounded annual growth rate in earnings per share of nearly 12%. With the impact of the plastic segment included, this jumps to approximately 28%.
The electric segment earnings increased 6% from 2022.
Primarily driven by higher commercial and industrial sales lower pension costs.
And the recovery of rate based investments.
Manufacturing segment earnings increased modestly from 2022.
Plastics segment earnings decreased 4%, primarily due to decreased.
Sales volume, our corporate cost center generated earnings in 2023 due to the returns earned on our short term investments.
And by the significant cash flows generated over the last few years.
In a moment Todd will provide a more detailed discussion of our 2023 financial results as well as our expectations for 'twenty for earnings.
Slide five shows our five year compounded annual growth rate in earnings per share with and without the impact of our plastics segment.
Even without the impact of the extraordinary results generated by our plastics segment over the last few years.
We produced a compounded annual growth rate in earnings per share of nearly 12%.
With the impact of plastics segment included this jumps to approximately 28%.
Charles S. MacFarlane: Turning to slide six, Otter Tail Power is committed to transitioning to a lower carbon and increasingly clean energy future while maintaining affordable and reliable electric service to our customers. We have undertaken numerous initiatives in recent years to reduce our carbon footprint, including retiring our Hoot Lake coal plant, constructing and placing into service our Maricorp Wind Energy Center, and our Hoot Lake Solar Facility. Despite taking these initiatives, we modified our near-term carbon reduction targets in response to changing market conditions, including higher natural gas prices and higher than originally forecast dispatch levels of our co-owned coal facilities. Our updated carbon reduction targets are to own and contract energy generation that is 55% renewable by 2030, to reduce our carbon emissions from owned generation resources by 50% from 2005 levels by 2030, and to reduce our carbon emissions from owned generation resources by 97% from 2005 levels by 20. Slide 5 provides a few examples of the way in which we act upon our values, focusing on safety, people, and community.
Turning to slide six otter tail powers committed to transitioning to a lower carbon and increasingly clean energy future.
Maintaining affordable and reliable electric service to our customers.
We have undertaken numerous initiatives in recent years to reduce our carbon footprint.
Including retiring our Hoot Lake coal plant and constructing and placing into service, our <unk> wind Energy Center and our Hoot Lake.
<unk> facility.
Despite taking these initiatives, we modified our near term carbon reduction targets in response to changing market conditions.
<unk> higher natural gas prices and higher than originally forecast dispatch levels of our coal on coal facilities.
Our updated carbon reduction targets are to own and contract energy generation that is 55% renewable by 2032.
To reduce our carbon emissions from one generation resources by 50% from 2005 levels by 2030.
And to reduce our carbon emissions from one generation resources by 97% from 2005 levels.
By 2050.
Slide five provides a few examples of the way in which we act upon our values focusing on safety people and community we.
Charles S. MacFarlane: We are proud to share that in 2023, our two foundations gave nearly 1.2 million to strengthen the communities in which our team members work and live. capital investment over the next five-year period, and is expected to produce annual rate-based growth of 7.7%. Otter Tail Power has a strong record for translating rate-based growth into earnings. In the previous five-year period, we converted average rate-based growth into earnings growth at a one-to-one ratio.
We are proud to share that in 2023 or two foundations gave nearly $1 2 million to strengthen the communities in which our team members work and live.
Slide 10 provides an over view of otter tail Power's updated five year capital spending plan. The updated plan includes $1 3 billion of capital investment over the next five year period.
And is expected to produce annual rate base growth of seven 7%.
Otter tail power has a strong record for translating rate base growth and the earnings in.
In the previous five year period, we converted average rate base growth into earnings growth at a one to one ratio.
Charles S. MacFarlane: I'll now provide a few details on several projects within the existing five-year planning period and beyond. Slide 11 summarizes Otter Tail Power's advanced metering infrastructure project, which lays the groundwork necessary for improved outage response and communication.
I'll now provide a few details on several projects within the existing five year planning period and beyond.
Slide 11 summarizes otter tail powers advanced metering infrastructure project with a total investment of approximately $60 million.
Advanced metering infrastructure or AMRI lays the groundwork necessary for improved outage response and communication.
Charles S. MacFarlane: improves our customers' experience. Additionally, the infrastructure is able to integrate data and systems, allowing us to better understand peak energy use and offer energy and cost-saving options to customers. We are targeting to upgrade more than 174,000 meters across our service territory and anticipate completing the project in 2025. We believe this project will reduce operating expenses through technology-enabled savings. Turning to slide 12, we have commenced repowering our four legacy wind farms with an investment of approximately $230 million, which includes replacing hubs, rotors, and blades on the existing wind towers. Once complete, this project is expected to be equivalent to adding 40 megawatts of new wind generation with a 50% capacity. This project qualifies for renewed production tax credits with the passage of the Inflation Reduction Act and is anticipated to lower customer bills, demonstrating our continued focus and commitment to customer affordability.
Which approves our customers experience.
Additionally, the infrastructure is able to integrate data and systems.
Allowing us to better understand peak energy use and offer energy and cost saving options to customers.
We are targeting to upgrade more than a 174000 meters across our service territory and anticipate completing the project in 2025.
We believe this project will reduce operating expenses through technology enabled savings.
Turning to slide 12, we have commenced repowering are for legacy wind farms within <unk>.
Investment of approximately $230 million, which includes replacing hubs rotors and blades on the existing wind towers.
Once complete this project is expected to be equivalent to adding 40 megawatts of new wind generation with a 50% capacity factor.
This project qualifies for renewed production tax credits with the passage of the inflation reduction Act.
And is anticipated to lower customer bills, demonstrating our continued focus and commitment to customer affordability.
Charles S. MacFarlane: Slide 13 summarizes Otter Tail Power's investment under Tronch 1 of MISO's Long Range Transmission. Otter Tail Power will co-own two Tronch One projects, the Jamestown-Ellendale, The Big Stone South, Alexandria, Big Oaks, 345 kV transmission. Our team is focused on project development and coordinating these complex projects with our co-owners. All projects have FERC approval for construction work in progress recovery, ensuring the timely recovery of our capital investment.
Slide 13 summarizes otter tail Power's investment under tranche one of MISO is long range transmission plan.
Otter tail power will call on two tranche one projects the Jamestown Allendale and.
And the Big Stone, South Alexandria, <unk>, $3 45 kv transmission projects.
Our team is focused on project development and coordinating these complex projects with our co owners.
Both projects have FERC approval for construction work in progress recovery, ensuring the timely recovery of our capital investment.
Charles S. MacFarlane: In total, we estimate our capital investment in these projects to be approximately $420 million, with 70% of the capital investment to occur before 2029. These investments are expected to have a very limited impact on our retail customer rates as they are allocated across the entire MISO Midwest footprint. The team continues to monitor developments at MISO regarding potential TRONCH2 transmission. MISO continues to indicate that TRANSTU projects will be approved sometime in mid-2024. While we expect some investment opportunities arising from Tranche II projects, our updated five-year capital plan does not include any estimates of future investments for these potential projects, although in addition to transmission investment opportunities available through MISO's Long-Range Transmission Plan. MISO and Southwest Power Pool, or SPP, partnered to develop the Joint Targeted Interconnection Queue portfolio projects focused on improving the interconnection queue and backlog along the MISO-SVP scene. The Minnesota Department of Commerce, on behalf of MISO and SPP, applied to the U.S. Department of Energy for funding to support the JTIQ project.
In total we estimate our capital investment in these projects to be approximately $420 million with 70% of the capital investment to occur before 2029.
These investments are expected to have a very limited impact on our retail customer rates as they are allocated across the entire MISO Midwest footprint.
Our team continues to monitor developments at MISO regarding potential tranche two transmission projects.
MISO continues to indicate tranche two projects will be approved sometime in mid 2024.
While we expect some investment opportunities arising from tranche two projects our updated five year capital plan does not include any estimates of future investments for these potential projects.
In addition to transmission investment opportunities available through MISO is long range transmission plan.
MISO and southwest power pool or SPP.
Partner to develop the joint targeted interconnection queue portfolio of projects focused on improving the interconnection queue.
Backlog, along the MISO SPP scene.
The Minnesota Department of Commerce on behalf of MISO and SPP applied to the U S Department of energy for funding to support the <unk> projects.
Charles S. MacFarlane: The U.S. Department of Energy awarded $464 million, or 25% of the estimated cost, to five of these projects, one of which we are expecting to co-develop with Xcel Energy. While the recovery of these projects still needs approval from FERC, we are optimistic about the eventual outcome of the potential investment opportunity, which currently falls outside of our five-year planning. Turning to slide 14, while we continue to focus on identifying opportunities for capital investments to support safe, reliable, and increasingly clean electric service to our customers, affordability remains one of our top priorities. From 2018 to 2023, Otter Tail Power's electric rates have consistently remained well below the national and regional averages, even during a time in which Otter Tail Power placed significant capital investments into service. In 2023, specifically, Otter Tail's residential rates were 30% below the national average and 15% below the regional average.
The U S Department of energy awarded $464 million or 25% of the estimated cost to five of these projects.
One of which we are expecting to co developed with <unk> energy.
While the recovery of these projects still needs approval from FERC, we are optimistic about the eventual outcome of the potential investment opportunity, which currently falls outside of our five year planning period.
Turning to slide 14, while we continue to focus on identifying opportunities for capital investments to support safe reliable and increasingly clean electric service to our customers.
Affordability remains one of our top priorities.
From 2018 to 2023 Otter tail powers electric rates have consistently remained well below the national and regional averages.
Even during a time in which otter tail power place significant capital investment into service.
In 2023, specifically otter Tail's residential rates were 30% below the national average and 15% below the regional average.
Charles S. MacFarlane: Slide 5 summarizes Otter Tail Power's key regulatory matters for 2024. Next, I will give a more detailed update on our integrated resource plan and North Dakota rate. Turning to slide 16, Otter Tail Power submitted an additional supplemental resource plan filing to the Minnesota Public Utilities Commission in December of 2023. In this supplemental filing, we outlined our updated plan to meet the needs of our Minnesota customers and included a proposal to modify our resource modeling methodology. This new method may lead to directly assigning certain new generation resources to a single jurisdiction as needed.
Slide five summarizes otter tail powers key regulatory matters in 2024 next I will give a more detailed update on our integrated resource plan and North Dakota rate case.
Turning to slide 16, Otter tail power submitted an additional supplemental resource plan filing to the Minnesota Public Utilities Commission in December 2023.
In the supplemental filing we outlined our updated plan to meet the needs of our Minnesota customers and included a proposal to modify our resource modeling methodology.
This new method may lead to directly assigning certain new generation resources to a single jurisdiction as needed.
Charles S. MacFarlane: This is expected to provide additional flexibility in adding new generation resources that meet the needs of our customers in each jurisdiction we serve. A Preferred Plan for Minnesota Customers, as outlined in our December filing, includes the addition of solar and wind investments and requests to designate the Minnesota portion of Coyote Station as an available maximum energy resource starting in 2029. The Minnesota portion of Coyote Station would only operate in limited emergency situations if our request is approved by the Minnesota Commission, which will reduce the output of the facility and its greenhouse gas emissions while preserving reliability for our customers.
This is expected to provide additional flexibility and adding new generation resources that meet the needs of our customers in each jurisdiction we serve.
Our preferred plan for Minnesota customers as outlined in our December filing includes the addition of solar and wind investments and a request to designate the Minnesota portion of Coyote station as an available maximum energy resource starting in 2029.
The Minnesota portion of Coyote station would only operate and eliminate emergency situations. If our request is approved by the Minnesota Commission, which.
Which will reduce the output of the facility and its greenhouse gas emissions, while preserving reliability for our customers.
Charles S. MacFarlane: We expect increased clarity on our five-year resource additions following IRP and related regulatory actions in 2020. Turning to slide 17. For the first time since 2017, we filed a general rate case with the North Dakota Public Service Commission in November of 2020. In our rate case filing, we propose to increase net revenues by approximately 17 million, or 8.4 percent, based on a requested ROE of 10.6% on an equity layer of 53.5%. In December, the Public Service Commission approved our interim rate request, with the interim rates taking effect on January 1st, 2024.
We expect increased clarity on our five year resource additions.
Following <unk> ERP and related regulatory actions in 2024.
Turning to slide 17 for.
For the first time since 2017, we filed a general rate case in the North Dakota Public service with the North Dakota Public Service Commission in November of 2023.
In our rate case filing we posted proposed to increase net revenues by approximately $17 million or eight 4%.
Based on a requested ROE of 10, 6% on an equity layer of 53, 5%.
In December the public Service Commission approved our interim rate request with interim rates taking effect on January one 2024.
Charles S. MacFarlane: Customers will see an average net increase of approximately 6 percent. Turning to our manufacturing segment, on slide 20. Our BTV Georgia expansion project is progressing well, and we expect to complete the project in early 2025. Looking to our end market outlook on slide 22, we expect many of the end markets our manufacturing segment serves to soften in 2024. Despite this softness, we continue to win additional work with existing customers as they look to us to add value.
Customers will see an average net increase of approximately 6%.
Turning to our manufacturing segment on slide 20.
Our BTB, Georgia expansion project is progressing well and we expect to complete the project in early 2025.
Looking to our end market outlook on slide 22, we expect many of the end markets. Our manufacturing segment serves to soften in 2024.
Despite the softness we continue to win additional work with existing customers as they look to us to add value.
Charles S. MacFarlane: Over the past two years, we have been awarded major programs with existing customers, which are scheduled to come to market in 2024 and should allow BTD to maintain or grow revenue even with softer OEM outlays in the Recreational Vehicle, Lawn and Garden, Construction, and Agricultural, and Market segments. Dealer inventory has largely normalized to pre-pandemic levels, and lawn and garden end markets continue to be impacted by lower consumer discretionary spending. The construction and agriculture end markets are forecasting to be down 5 to 10 percent. Power generation, however, continues to be a healthy end market for us as demand remains strong. The outlook for the horticulture end market continues to be relatively stable as the channel works through the inventory purchased in 2022 and early 2023 in response to scarcity concerns. Teoplastic sales volumes decreased in 2023 as compared to 2022 as customers reduced their inventory levels and are returning to normal seasonal buying patterns.
Over the past two years, we have been awarded major programs with existing customers, which.
Which are scheduled to come to market in 2024, and should allow <unk> to maintain or grow revenue, even with softer or OEM outlooks.
With a recreational vehicle lawn and garden construction and agricultural end markets dealer inventory has largely normalized to pre pandemic levels.
The recreational vehicle and lawn and garden end markets continue to be impacted by lower consumer discretionary spending in response to inflation and the higher interest rates.
The construction and agriculture end markets or markets are forecasting to be down 5% to 10% this year.
Power generation, however continues to be a healthy end market for us.
As demand remains strong.
The outlook for the horticulture end market continues to be relatively stable as the channel works through the inventory purchased in 2022 in early 2023 and response to scarcity concerns teal.
T O plastics sales volumes decreased in 2023 as compared to 2022 as customers reduced their inventory levels.
And are returning to normal seasonal buying patterns.
Charles S. MacFarlane: Slide 23 provides an overview of our plastic segment. However, plastic earnings declined slightly from our extraordinary results in 2022. Our plastic business continues to capitalize on favorable industry conditions and produce strong financial results compared to pre-pandemic lows. Slide 24 highlights historical resin costs and PVC sales pipe prices. Profit margins were higher in 2023 as compared to 2022 as the cost of PVC resin and other input costs fell more rapidly than the sales price of PVC pipes. The sales price of PVC pipes continues to decline steadily from historic highs reached in 2022.
Slide 23 provides an overview of our plastic segment.
Our plastic earnings declined slightly from our extraordinary results in 2022.
Our plastic business continues to capitalize on favorable industry conditions and produce strong financial results compared to pre pandemic levels.
Slide 24 highlights historical resin costs and PVC sales pipe pricing.
Profit margins were higher in 2023 as compared to 2022 as the cost of PVC resin and other input costs fell more rapidly than the sales price of PVC pipe.
The sales price of PVC pipe continues to decline steadily from historic highs reached in 2022.
Charles S. MacFarlane: The Vinyl Tech Site Improvement and Expansion Project is underway, and we project to increase capacity by approximately 8%, or 26 million pounds. We expect to bring this new capacity online in the second half of 2024 at a total cost of approximately $50 million. Additionally, we are planning to add another line to Vinyl Tech, which is expected to add £26 million as well and should become fully operational in early 2026. I'll now turn it over to Todd to provide additional commentary on our 23 financial results and our expectations for 2020. Thank you, Chuck, and good morning, everyone.
The vinyl Tech site improvement and expansion project is underway.
And we project to increase capacity by approximately 8% or 26 million pounds.
We expect to bring this new capacity online in the second half of 2024 at a total cost of approximately $50 million.
Additionally, we are planning to add another line to vinyl tech, which is expected to add 26 million pounds as well and should become fully operational in early 2026.
I'll now turn it over to Todd to provide additional commentary on our 'twenty three financial results and our expectations for 2024.
Thank you Chuck and good morning, everyone.
Todd Walland: 2023 was another remarkable year for Otter Tail. We delivered record-breaking earnings with a looted earnings per share of $7, beating the record previously set last year. 2023 also marked the 85th consecutive year of paying dividends to our shareholders. Earlier this month, we announced our 2024 indicated annual dividend of $1.87 per share, which is a 6.9% increase from the 2023 annual dividend. I will now provide an overview of our 2023 financial results. Please follow along on slide 29. Electric segment earnings increased approximately $4.5 million, or 6% over 2022, driven by higher commercial and industrial sales, a reduction in pension expenses and other post-retirement plan costs, and the recovery of rate-based investment. These are partially offset by increased operating and maintenance expenses and the impact of unfavorable weather.
2023 was another remarkable year for otter tail.
We delivered record breaking earnings with diluted earnings per share of $7, beating a record previously previously set last year.
2023 also marked the 85th consecutive year of paying dividends to our shareholders.
Earlier this month, we announced our 2024 indicated annual dividend of $1 87 per share, which is at six 9% increase from the 2023 annual dividend.
I will now provide an overview of our 2023 financial results.
Please follow along on slide 29.
Electric segment earnings increased approximately $4 $5 million or 6% over 2022, driven.
Driven by higher commercial and industrial sales a reduction in pension expenses and other post retirement plan cost.
And the recovery of rate base investments.
These are partially offset by increased operating and maintenance expenses and the impact of unfavorable weather.
Todd Walland: The manufacturing segment earnings increased approximately $500,000 or 2% compared to 2022. Sales volumes for BTD Manufacturing increased in 2023, as compared to 2022, driven by the construction, industrial, and agriculture end markets, as well as incremental volumes from being awarded additional work with existing customers. Partially offsetting this increase, teal plastic sales volumes within the horticulture end market declined in 2023 compared to last year as customers worked to reduce their built-up inventory levels and return to more normal seasonal buying patterns.
Manufacturing segment earnings increased approximately $500000 or 2% compared to 2022.
Sales volumes for BCD manufacturing increase in 2023 as compared to 2022, driven by the construction industrial and agriculture end markets as well as incremental volumes from being awarded additional work with existing customers.
Partially offsetting this increase T O plastics sales volumes within the horticulture end market declined in 2023 compared to last year as customers work to reduce their built up inventory levels and returned to more normal seasonal buying patterns.
Our manufacturing segment businesses work to adjust sales prices in response to labor and non steel material cost inflation.
Plastics segment earnings decreased $7 $6 million in 2023 or approximately 4% from 2022.
Todd Walland: Our manufacturing segment businesses work to adjust sales prices in response to labor and non-steel material costs in place. Plastic segment earnings decreased $7.6 million in 2023, or approximately 4% from 2022. The decrease was primarily driven by a decline in sales volumes, partially offset by higher gross profit margins. The decrease in sales volumes was largely driven by distributor inventory management efforts and softer end market demand.
The decrease was primarily driven by a decline in sales volumes, partially offset by higher gross profit margins.
The decrease in sales volumes was largely driven by distributor inventory management efforts and softer end market demand.
Distributors work to destock or reduce their inventory levels. During the first half of 2023 after building up their inventory levels in previous years in response to market uncertainty and supply chain challenges.
Gross profit margins were higher in 2023 as compared to 2022, driven by the sales price to the cost of resin spread.
Todd Walland: Distributors worked to destock or reduce their inventory levels during the first half of 2023 after building up their inventory levels in previous years in response to market uncertainty and supply chain challenges. Gross profit margins were higher in 2023 as compared to 2022, driven by the sales price compared to the cost of resin spread. While sales prices of PVC pipe remain elevated as compared to historic levels, they have receded from the unprecedented highs reached in 2022 and continue to steadily decline. Corporate costs declined $12.7 million in 2023 as compared to 2022, primarily driven by the returns earned on our short-term investments funded by the significant cash flows generated by our businesses over the last three years. Market-based gains on our corporate investments in 2023 and lower employee health care claims have also contributed to decreased corporate costs. The higher level of earnings and free cash flow generated by our diversified business model in recent years has also helped to strengthen our balance sheet. Turning to slide 30, our consolidated equity layer as of December 31st, 2023 was 61.4% as compared to 59.4% as of December 31st, 2021. 22
While sales prices of PVC pipe remain elevated as compared to historic levels. They have receded from the unprecedented highs reached in 2022 and continued to steadily decline.
Corporate costs declined $12 $7 million in 2023 as compared to 2022.
Primarily driven by the returns earned on our short term investments funded by the significant cash flows generated by our businesses over the last three years.
Market base gains on our corporate investments in 2023, and lower employee health care claims also contributed to decreased corporate costs.
The higher level of earnings and free cash flow generated by our diversified business model. In recent years has also helped to strengthen our balance sheet.
Turning to slide 30, our consolidated equity layer as of December 31, 2023 was 61, 4% as compared to 59, 4% as of December 31 2022.
And 53, 7% as of December 31, 2021.
Further in response to our strengthened balance sheet and credit metrics Fitch ratings upgraded both otter tail Corporation and Otter tail power during 2023.
With the close of 2023, we are ending the year in an enviable position with our balance sheet capable of supporting future growth opportunities in 2024 and beyond.
Looking to 2024 and turning to slide 31, we are initiating our 2024 diluted earnings per share guidance range of $5 13 to $5 43.
Todd Walland: 53.7% as of December 31st, 2021. Furthermore, in response to our strengthened balance sheet and credit metrics, Fitch Ratings upgraded both Otter Tail Corporation and Otter Tail Power in 2023. With the close of 2023, we are ending the year in an enviable position with a balance sheet capable of supporting future growth opportunities in 2024 and beyond. Looking to 2024 and turning to slide 31, we are initiating our 2024 diluted earnings per share guidance range of $5.13 to $5.43, which assumes an earnings mix of approximately 41% from our electric segment and 59% from our manufacturing and plastic segment and Corporate Cost. This anticipated mix deviates from our long-term expected earnings mix of approximately 65 percent electric and 35 percent non-electric as we anticipate plastic segment earnings to remain elevated in 2024 compared to our long-term view of normal earnings for this segment.
Which assumes an earnings mix of approximately 41% from our electric segment and 59% from our manufacturing and plastics segments net of corporate costs.
This anticipated mix deviates from our long term expected earnings mix of approximately 65% electric and 35% non electric as we anticipate plastics segment earnings to remain elevated in 2024 compared to our long term view of normal earnings for this segment.
So the plastics segment, we projected an eventual normal level of earnings between 45 and $50 million.
Due to an expected continuing downward trend of sales prices and resin spreads occurring throughout 2024 and end of 2025.
Our 2024 guidance is premised on the following assumptions by segment.
Electric segment earnings are expected to increase 7% from 2023 levels due to returns generated from an eight 5% increase in average rate base.
Recovery of interim revenues, resulting from the general rate case filed in North Dakota, and lower operating and maintenance expenses.
Partially offset by forecasted higher depreciation and interest expense.
Manufacturing segment earnings are anticipated to increase 4% from 2023 earnings due to higher sales volumes, a favorable product mix improved productivity and lower costs at BT Bdd manufacturing.
Todd Walland: For the plastic segment, we project an eventual normal level of earnings between $45 and $50 million due to an expected continuing downward trend of sales prices and resin spreads occurring throughout 2024 and into 2025. Our 2024 guidance is premised on the following assumptions by segment. Electric segment earnings are expected to increase 7% from 2023 levels due to returns generated from an 8.5% increase in average rate base, the recovery of interim revenues resulting from the general rate case filed in North Dakota and lower operating and maintenance expenses, partially offset by forecasted higher depreciation and interest. Manufacturing segment earnings are anticipated to increase 4% from 2023 levels due to higher sales volumes, a favorable product mix, to improve productivity, and lower costs at BTD Manufacturing Partially offset by product pricing pressures and higher manufacturing costs at Teoplast.
Partially offset by product pricing pressures and higher manufacturing costs at T O plastics.
We expect DTD sales volumes to modestly increase in 2024 as compared to 2023 due to continued growth with existing customers despite end market softness.
Additionally, in 2023, BTB was very focused on hiring and added 200, new team members throughout the year.
Our focus has shifted from hiring to retain and train.
And I expect to see productivity gains in 2024, as our new employees gained more experience.
Plastics segment earnings are expected to decrease in 2024 as compared to 2023.
This assumes a sales price of PVC pipe will continue to decline from current levels throughout the year, causing margin compression.
We expect this resulting margin compression to be partially offset by an increase in sales volumes.
We believe customers have returned to more normal buying patterns as customers are through their destocking efforts, which impacted sales volumes in 2023.
Todd Walland: We expect VTD sales volumes to modestly increase in 2024, as compared to 2023, due to continued growth with existing customers, despite and market softness. Additionally, in 2023, BTD was very focused on hiring and added 200 new team members throughout the year. Our focus has shifted from hiring to retention and training, and we expect to see productivity gains in 2024 as our new employees gain more experience. Plastic segment earnings are expected to decrease in 2024 as compared to 2023.
Lastly, we expect corporate costs will increase in 2024 due to lower market base gains on our corporate owned life insurance policies and increased expenses associated with our self insured health plan.
Partially offset by lower incentive compensation costs and higher earnings on short term cash investments.
Our updated five year capital spending plan, which is a key driver of earnings growth for our electric segment is included in more detail on slide 32.
Relative to the previous plan, our updated five year capital spending plan includes additional solar generation investment as well as more transmission investment.
Todd Walland: This assumes the sales price of PVC pipe will continue to decline from current levels throughout the year, causing margin compression. We expect this resulting margin compression to be partially offset by an increase in sales volume. We believe customers have returned to more normal buying patterns as they are through their destocking efforts, which should impact sales volumes in 2023.
Resulting in a projected compounded annual growth rate on rate base of seven 7%.
Compared to the previous plan at six 5%.
Our electric utility Otter tail power has many opportunities for growth over the next five year period and beyond.
<unk> continues to execute well on its growth plans, while keeping customer rates low.
Todd Walland: Lastly, we expect corporate costs to increase in 2024 due to lower market-based gains on our corporate-owned life insurance policies and increased expenses associated with our self-insured health plan, partially offset by lower incentive compensation costs and higher earnings on short-term cash investments. Our updated five-year capital spending plan, which is a key driver of earnings growth for our electric segment, is included in more detail on slide 32. Relative to the previous plan, our updated five-year capital spending plan includes additional solar generation investment as well as more transmission investment, resulting in a projected compounded annual growth rate on the rate base of 7.7%, compared to their previous plan at 6.5%. Our electric utility, Otter Tail Power, has many opportunities for growth over the next five-year period and beyond, and continues to execute well on its growth plans while keeping customer rates low. In order to finance this growth at Otter Tail Power, we project issuing debt on an annual basis for the next five years. Slide 33 provides a summary of our five-year financing plan. We expect to retire and not replace our $80 million parent level debt when it matures in 2026. Our exposure to increased barring costs continues to be low risk.
In order to finance this growth at Otter tail power, we project issuing debt on an annual basis for the next five years slide.
Slide 33 provides a summary of our five year financing plan.
We expect to retire and not replace our $80 million parent level debt when it matures in 2026.
Our exposure to increased borrowing costs continues to be low risk, we do not have any outstanding borrowings on our credit facility and the amounts drawn on the utility facility, primarily relate to capital projects, which we expect to largely replace with long term debt in the first quarter of 2024.
The impact of these borrowings is fully considered in our 2020 for guidance.
Additionally, due to the significant amount of cash and earnings generated over the past few years, we have no external equity needs over the five year period.
Differentiating us from many of our peers within the utility space, who will look to access the market in order to fund their rate base growth.
We feel well positioned to deliver upon our earnings guidance in 2024 as well as meet our long term investment targets as summarized on slide 36.
Our diversified business model continues to produce significant total shareholder return.
Todd Walland: We do not have any outstanding borrowings on our parent credit facility, and the amounts drawn on the utility facility primarily relate to capital projects, which we expect to largely replace with long-term debt in the first quarter of 2024. The impact of these borrowings is fully considered in our 2024 guidance. Additionally, due to the significant amount of cash and earnings generated over the past few years, we have no external equity needs over the five-year period, differentiating us from many of our peers within the utility space who will look to access the market in order to fund their rate-based growth. We feel well positioned to deliver upon our earnings guidance in 2024, as well as meet our long-term investment targets, as summarized on slide 36.
<unk> us and our stakeholders well.
We enter this new year with a sizeable five year capital spending plan.
Allowing for additional investment into our businesses to support future growth. So that we are best positioned to serve our customers.
We are in an excellent position to support this growth with our strong balance sheet ample liquidity and investment grade credit ratings.
We are now ready to take your questions.
As a reminder, please press star one one on your telephone and wait for your name to be announced.
Alan Please press star one.
Yes.
Our first question comes from the line of Chris <unk> with Siebert Williams <unk> Company LLC. Your line is now open.
Todd Walland: Our diversified business model continues to produce significant total shareholder return, serving us and our stakeholders well. We enter this new year with a sizable five-year capital spending plan allowing for additional investment into our businesses to support future growth so that we are best positioned to serve our customers. We are in an excellent position to support this growth with our strong balance sheet, ample liquidity, and investment grade credit rating. We are now ready to take your questions. As a reminder, please press Star 1-1 on your telephone and wait for your name to be announced.
Hey, everybody good day.
Okay.
Chuck can you talk about the AARP in Minnesota.
What kind of progress that's been made with the meeting and do you have a firm date for we're going back.
Sure Chris Thanks for the question. So we had a hearing on January four.
And.
We will we and other parties will be providing supplemental comments.
On our proposed plan that was put in in December of <unk>.
Of 23, specifically.
Specifically talking about.
Two parts one the direct assignment of some new renewables to the Minnesota jurisdiction. This is.
Operator: To withdraw your question, please press star 1 once again. Our first question comes from the line of Chris Ellinghaus with Siebert, Williams, Schenck & Co., LLC. Your line is now open. Hey everybody, good day.
Associated with meeting both.
The carbon free standard and.
Their use of externalities and planning.
Chris Ellinghaus: Thank you. Thank you. Chuck, can you talk about the IRP in Minnesota and, you know, what kind of progress has been made since the meeting, and do you have a firm date for going back? Sure, Chris.
The Dakotas do not.
And then the concept of our Coyote coal plant.
Sure.
Partial owner with other utilities in that facility and we're at 35% total owner so.
Roughly.
Charles S. MacFarlane: Thanks for the question. So we had a hearing on January 4th, and we and other parties will be providing supplemental comments on our proposed plan that was put in on December 23, specifically talking about two parts, one, the direct assignment of some new renewables to the Minnesota jurisdiction associated with meeting both the carbon-free standard and their use of externalities in planning, which the Dakotas do not use, and then the concept of our coyote coal plant. We, you know, we're a. Partial owner with other utilities in that facility.
Half of that or 17% of the plant output goes to our Minnesota customers in.
And we would put that on a.
Particular program that MISO has that they can dispatch that.
In times.
Extreme.
Lode.
But it would it would limit his.
Historically, that's been called on maybe a couple of three days a year and that would allow.
Continued capacity accreditation and reliability afforded by that but but limit the amount of <unk>.
<unk> emissions attributable to Minnesota under that.
We anticipate that the comments will come in and that we will have a.
Charles S. MacFarlane: We're 35% of the total owner. So roughly half of that or 17% of the plant output goes to our Minnesota customers. And we would put that on a particular program that MISO has that they can dispatch that, in times of, you know, peak, but it would limit it, you know, historically that's been called on maybe a couple, three days a year.
Another hearing scheduled sometime in April with probably a decision in the may timeframe.
Okay great.
What are your thoughts on the plastics business at this point you gave us some <unk>.
<unk> thoughts on what normal.
Charles S. MacFarlane: And that would allow continued capacity, accreditation, and reliability afforded by that but limit the amount of CO2 emissions attributable to Minnesota. We anticipate that the comments will come in and that we will have another hearing scheduled sometime in April with probably a decision in May. You know, what are your thoughts on the plastics business at this point? gave us. Revise thoughts on what normal looks like, but do you have any visibility into what your outlook is for next year at this point? Chris.
But do you have any visibility into what your outlook is for next year at this point.
Chris.
I think there is.
I tried to articulate in the text here in the script.
Our belief is that at all.
The major distributors, we sell to distributors.
And these distributors would in turn sell to contractors that they put in.
Residential projects work on highway projects those to anything that would need sewer and water pipe.
And.
Charles S. MacFarlane: Thank you. Thank you. You know, I think as we, I tried to articulate in the text here, in the script. Our belief is that, you know...
We feel that those distributors because it was a scarcity issue I mean, we were on resident curtailment and other things in 'twenty, one and 'twenty two there was.
Charles S. MacFarlane: The major distributors, we sell to distributors and these distributors would in turn sell to contractors that put in, residential projects, work on highway projects, anything that would need sewer and water pipes, and, You know, we feel that those distributors, because it was a scarcity issue, I mean, we were on resin curtailment and other things in 21 and 22, simply a pipe shortage and, They bought up significant amounts, both at the end-use contractor, and Distributor Levels, which they had to de-stock and.., in 2020, three effectively and so we believe that volumes will go back up from 23 levels as a lot of that inventory out in the other channels is has been put in the ground effectively. And, you know, if we maintain a new housing start level at the $1.4 million, which is down from a few years prior but really is, A pretty good pace when you look back, we've got it on a slide, slide 25, the At that level, we continue to see pretty good, pipe volume.
Simply a pipe shortage.
<unk>.
They bought up significant amounts of both at the end use contractor.
And distributor levels, which they had a destocking.
In 2020.
Three effectively.
And so we believe that the volumes will go back up from 23 levels.
A lot of that inventory out in the other channels as has been put in the ground effectively.
And.
We maintain a new housing start level at the one 4 million.
Which is down.
From a few years prior but really is.
A pretty good pace when you look back we've got it on a slide.
On slide 25.
Yes.
At that level.
We continue to see pretty good.
Charles S. MacFarlane: So I don't know if that's helpful, but we anticipate volume to go up in 24 from 24. Chuck, you were pointing out that earnings and rate base have grown, you know, pretty linearly with your new. Kager for rate base, you know, absent plastic, you know, variability in the future. Shouldn't we be thinking that you're kind of at or above the upper end of your five to seven percent, you know? At this point, you know, have you got any thoughts on where you're in that range at this point? Sure, Chris.
Pipe volume, so I don't I don't know if thats helpful, but we anticipate.
Volume to go up in 'twenty four from 23.
Okay.
Chuck.
Pointing out that.
Earnings and rate base of growth.
Pretty linearly with your new.
CAGR for rate base.
Absence of plastics.
Variability in the future Shouldnt, we be thinking that youre kind of.
At or above the upper end of your 5% to 7%.
At this point have you got any thoughts on where you are in that range at this point.
Charles S. MacFarlane: Well, you know, historically, we made the point that we did a pretty good conversion of rate base into earnings growth. We do think that that will be a little more difficult as we go forward. It will require more additional rate cases, and there's also a concern that the inflation we've seen in O&M costs over the past period would tend to have us push the earnings growth now a little bit below our rate base growth. One last simple one, you know, where did you stand on cash at the end? We were for just over $200 million.
Sure Chris well historically, we made the point that we did.
We did a pretty good conversion of rate base into earnings growth. We do think that that will be a little more difficult as we go forward it will require.
So more additional rate cases.
There's also a concern of the inflation, we've seen in in O&M costs over the past period.
Would tend to have us.
Push earnings growth now a little bit below our rate base growth level.
Okay.
One last simple one.
Where did you stand on cash at the end of the year.
As we were just over $200 million.
Charles S. MacFarlane: And, you know, part of, I suppose, part of the earnings growth story also will be as you utilize that extra cash for utility CapEx, you'll lose some of that interest earnings. Is that sort of part of your thinking there? That is correct. I mean, we don't have any equity financing needs.
And so part of it.
I suppose part of the earnings growth story also will be as you utilize.
That extra cash for four.
Utility capex, you'll lose some of those.
Interest earnings as that.
Part of your thinking there.
That is correct I mean, we don't have any equity financing needs. So to maintain our capital structure for otp, we would need to provide some equity infusions to maintain that so that would reduce our capital.
Charles S. MacFarlane: So to maintain our capital structure for OTP, we would need to provide some equity infusions to maintain that. So that would reduce our capital and cash investments at Otter Tail Corp. Okay, thanks for the details. I appreciate it.
Our cash and investments at Otter tail Corporation.
Okay. Thanks for the detail I appreciate it.
Thank you.
Operator: Thank you. Our next question comes from the line of Brian Russo with Sidoti. Your line is now open. All right, good morning. Hi Brian.
Thank you.
Our next question comes from the line of Brian Russo with Sidoti. Your line is now open.
Yes, hi, good morning.
Good morning, Brian Hi, Brian.
Hey, just on.
Brian Russo: Hey, just on the utility. I appreciate the added information on the supplemental IRP. Are the supplemental IRP investments included in the five-year CapEx yet? So Brian, what we have in our CapEx plan for the next five years is we've got the wind repowers. That's in the early part of the five-year plan. We also do have a portion of the solar investment in the five-year plan. However, our Astoria on-site fuel is not currently in the 1.3.
The utility I appreciate the added.
Information on the supplemental <unk>.
Is the supplemental IOP investments.
Included in the five year Capex yet.
So Brian what we have in our Capex plan for the five years is we've got the wind Repowering. That's in the early part of the five year plan. We also do have a portion of the solar investment in the five year plan.
Myra Storia onsite feel is not currently in the one three.
Charles S. MacFarlane: $1.5 billion. And the additional wind that we have out in the 20-29 time period, there is a small portion that is in there in that 27-28 time period. Okay, got it. So the 200 million increase, is that mostly the myso transmission projects as you just kind of move forward a year and those investments pick up? Or, you know, is there a scenario where the supplemental IRP is driving, you know, incremental utility investments versus the prior IRP? So the $1.3 billion versus the $1.1 billion in the previous plan is driven primarily by the addition of solar and also the additional MISO transmission, you know, bringing in that year 2028 where we've got a little more. Okay, great.
$1 billion and then the additional win that we have out in the 2029 time period. There is a small portion that is in there in that 27% 28 time period.
Okay got it so the $201 million increase is that mostly the MISO transmission projects that you're just kind of move forward a year and that those investments pick up or is there a scenario where the supplemental ERP is driving incremental.
Utility investments versus the prior RFP, yet so the $1 3 billion versus the $1. One in the previous plan is driven primarily by the addition of the solar and then also the additional MISO transmission, bringing in that year 2028, where we've got a little more spend.
Charles S. MacFarlane: And the scenario that you just discussed in response to the question on the 5 to 7% growth with the accelerated rate-based growth. Is that why you're forecasting 7%? utility EPS growth in 2024 versus a rate-based growth of 8.5%, or is, you know, is there something else driving that? Yeah, I would say overall, over the long term, we tend to be closer to that one-to-one. We do have some variations by year, whether it be because of weather or just timing on recovery.
Okay, great and the scenario that you just discussed in response to the question on the <unk>.
Up to 7% growth.
The accelerated.
Rate base growth is that why youre forecasting 7%.
Utility EPS growth in 2024 versus a rate base growth of eight 5% or.
Is there something else.
Driving that.
Yes, I would say overall over the long term, we intend to be closer to that one to one we do have some variations by year, whether it be because of the weather or just timing on recovery.
Charles S. MacFarlane: So I. The 7% is just driven by a number of factors, and I would expect we would be closer to the one-to-one ratio as we go over the line. Okay, great. And just curious, was Coyote coal plant dispatched this past January, you know, with the, you know, well below average temperatures? Yeah, Brian, Kyle is dispatched at a fairly high level all the time.
So.
The 7% is driven by a number of factors and I would expect we would.
Be closer to the one to one ratio as we go over the long term.
Okay, Great and just curious was coyote.
Coal plant dispatch this past January.
With the well below average temperatures.
Yeah.
Yes, Brian Kyle is dispatched.
A fairly high level all the time.
Charles S. MacFarlane: Okay, understood, um, and you're switching to plastics. So the new normalized earnings of $45 to $50 million, you know, versus I think your prior normalized earnings of 36 to 41 million. Does that include the vinyl tech capacity?
Okay.
Understood.
Okay.
And.
Switching to plastics.
So the new normalized earnings of <unk> $45 million to $50 million.
Versus I think your prior.
Normalized earnings of $36 million to $41 million does that include the vinyl tech capacity.
Brian Russo: expansion, in the second half of this year. That includes both the Phase I and Phase II expansions at vinyl. So, in fact, within our volume projections, as well as forecasted resin and the spreads, and the volume projection does include the... Okay, I got it.
Expansion.
Second half of.
This year.
That includes both the phase one and phase two expansions at vinyl Tech.
Okay.
Our volume projections as well as forecasted resin and the spreads and the volume projection does include the expansion.
Charles S. MacFarlane: So in this 6535..., and then unregulated earnings Mixed, um, that's, you know, the 35 percent, that's where the 45 to 50 million of plastics, normalized margins, and normalized earnings are included, correct? The Bulletproof Executive 2013, And do you think that normalized earnings will be realized for the full year of 2025, or just given the kind of trajectory you're conveying on PVC prices that, you know, margins might stay elevated through year-end 2024 and into 2025? Yeah, at this point, we see a gradual decline in the spread over 24 and into 2025. So ultimately, based upon our current projection, we wouldn't realize that normal level of earnings until 2026. 2025 currently in our projections is elevated. If you look at the midpoint of our guidance, it would be about $2.72 for plastics in 2024. Forty-five to fifty million dollars of earnings would be about a dollar ten, and we expect it will gradually decline. 24, and Okay, great.
Okay got it so in the $65 to 35 utility.
And then on regulated.
Earnings mix.
That that's.
35%, that's where the $45 million to $50 million of plastics normalized more normalized earnings are included correct.
That is correct.
And do you think that normalized.
Earnings.
Will be realized for full year of 2025, or just given kind of the trajectory.
You are conveying on PV.
<unk> prices.
Margins Mike.
Stay elevated through year end 2024 and into 2025.
Yes at this point, we see the gradual decline in the spread over 'twenty four and into 2025. So ultimately based upon our current projection, we wouldnt realize that normal level of earnings until 2026.
So 2025 currently in our projections is elevated.
If you look at the midpoint of our guidance it would be about $2 72 for plastics in 2024 of $45 million to $50 million of earnings would be about $1 10.
So we.
We expect it will gradually decline between 24 and 26.
Brian Russo: Thank you very much. Thank you. Our next question comes from the line of Sophie Karp with KeyBank.
Okay, great. Thank you very much.
Thank you.
Our next question comes from the line of Sophie Karp with Keybanc. Your line is now open.
Operator: Your line is now open. And guys, good morning, congratulations on the results, and thank you for taking my questions. I have three.
Hey, guys. Good morning, Congrats on the results and thank you for taking my question.
Okay.
Sophie Karp: The first question I have is... I wonder if you have any opinion on the EPA, the new proposed initiative to replace lead pipes in the next 10 years. Would that be beneficial to your PVC business? And what do you think are the odds of this kind of taking shape? Hi Sophie, this is Chuck.
Alright.
First question I have is.
Yeah.
I Wonder if you have any opinion on the E P.
Thank you proposed trop two yes.
So our initiative to replace lead pipe.
In the next 10 years would that be beneficial to your PVC business.
What do you think the odds of.
Taken shape.
Hi, Sophie.
Charles S. MacFarlane: What we look at is most of the lead pipe issues in the EPA are service lines. We do very little PVC on service lines. But we think that a lot of municipalities will look at the economics of having to replace service lines on an aging main, the water main in the street, if you will, and that we anticipate some impact, not a lot, some impact of, you know, just overall water system upgrades, including main and service laterals, which are the lead pipes, are the.., homes from the main to the surf. We do see that, you know, the Our feeling is that this has not yet made its way into the and no actual projects yet. A lot of that money has not been allocated to the states yet.
As Chuck.
Well, we look at it as most of the lead pipe.
Issues and the EPA our service lines, we do very little PVC on service lines.
But we think that a lot of municipalities will look at.
<unk>.
Economics of having to replace service lines on an aged Maine water main and the street, if you will and we anticipate some impact not a lot some impact of.
Just overall water system upgrades, including main and service laterals, which are the are the lead pipes or the year.
From the main to the service.
Do see that AIG had about.
$55 billion in and funds associated for water and wastewater improvement our feeling is that has not yet.
Made its way into the.
And the.
Actual projects yet a lot of that money has not been allocated to the states yet so we.
Charles S. MacFarlane: We anticipate that that will have some support in the coming years, but we're not looking at it as a major increase. Got it, got it. Thank you. And then my other question was, could you, like your regulatory lag, well, I guess the lack of regulatory lag is very impressive here. Could you remind us just how much of your CapEx is going through riders and other mechanisms like that, as opposed to rate cases?
We anticipate that that will have some support in the out years.
But we're not looking at it as a.
Major increase in PVC volumes.
Got it got it thank you.
And then my other question was could you Tony.
Tony lag or I guess lack of regulatory lag is very impressive here.
Could you remind us just how much of your capex is going through riders.
Unlike other mechanisms like that as opposed to rate cases.
Charles S. MacFarlane: The five-year plan, about 50% of it is planned to be through riders, and only about 10%... Actually, under 10% is projected to be recovered through... Got it, got it. Thank you. And then lastly, a little bit of an open-ended question, but maybe could you describe what kind of distribution and opportunities you are seeing in your five-year plan? So I guess we understand the generation and MISO transmission, but when it comes to distribution plans, given the specifics of your service territory, what are you focusing your attention on?
Hello.
Five year plan about 50% of it is planned to be through riders and only about 10% actually under 10% is projected to be recovered through rate cases.
Got it got it. Thank you and then lastly, a little bit of an open ended question, but maybe could you describe what kind of distribution opportunities.
Dan in your five year plan. So I guess, we understand the generation in MISO transmission, but when it comes to distribution plans.
Given the specifics of your service territory, what are you focusing your attention on.
Charles S. MacFarlane: Our distribution spending is more on upgrade or replacements. We've been increasing our capital spending on distribution assets significantly over the last few years, and that's projected to continue over these five years. I believe, of the $1.3 billion, close to $350,000, $400,000 million is just, and it's mostly just upgrades to the existing infrastructure, upgrades, and replacements.
So our distribution spending is more.
Upgrade are replacements.
We've been increasing our capital spending on distribution assets significantly over the last few years and Thats projected to continue over these five years I believe of the $1 3 billion.
Close to three.
350 $400 million is distribution.
And it's mostly just upgrades to the existing.
And infrastructure.
Upgrades and replacements.
Charles S. MacFarlane: Got it. Well, thank you. So I had to go.
Got it. Thank you that's all I had.
Operator: Thank you. As a reminder, to ask a question at this time, please press star 11 or your touchtone telephone. With no additional questions, I will now turn the call back over to Chuck for his closing remarks. Thank you for joining our call about the interests of Otter Tail Corporation. Over the long term, I believe we are well-positioned with our diversified business model, which provides the opportunity for enhanced returns, to achieve our financial targets. We expect to produce long-term compounded growth in diluted earnings per share of 5 to 7 percent and to increase our dividend by 5 percent. 7% annual.
Thank you as a reminder to ask a question at this time. Please press star one one are you touched on telephones.
With no additional questions I will now turn the call back over to Chuck for his closing remarks.
Thank you for joining our call in the office and Lauderdale Corporation.
Over the long term I believe we are well positioned with our diversified business model, which provides the opportunity for enhanced returns to achieve our financial targets were.
We expect to produce long term compounded growth in diluted earnings per share of 5% to 7% and to increase our dividend in the range of 5% to 7% annually.
Charles S. MacFarlane: Thank you again for joining our call. If you have any questions, please reach out to Investor Relations, and we look forward to speaking with you next quarter. This concludes today's conference call. Thank you for your participation. You may now disconnect.
Thank you again for joining our call. If you have any questions. Please reach out to Investor Relations and we look forward to speaking with you next quarter.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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Yeah.
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Okay.
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