2020 First Quarter Earnings Conference Call
R FORWARD-LOOKING STATEMENT This presentation contains statements that may be considered forward-looking statements. Such statements contain the word “expect,” “anticipates” or words of similar meaning, or speak to management’s expectations regarding the EPS growth goals, sales, total shareholder returns, financing activities and rate base growth. These statements speak of Otter Tail’s plans and expectations. Actual results could differ materially, because the realization of those results is subject to many uncertainties including: regulatory approvals and results; the direct or indirect impacts from the novel coronavirus (COVID-19) pandemic on our sales, our operations and our ability to complete construction projects; unanticipated construction costs or delays; economic conditions in the states we do business in; and other factors, some of which are discussed in more detail in Otter Tail’s Form 10-K for the year ended December 31, 2019 or in our other SEC Filings. The information in this presentation was prepared as of May 5, 2020. Otter Tail undertakes no obligation to update any forward-looking information statement to reflect developments after the statement is made. 2
R MANAGEMENT TEAM • Chuck MacFarlane President and Chief Executive Officer • Kevin Moug Senior Vice President and Chief Financial Officer 3
R COMPANY OVERVIEW MANUFACTURING PLATFORM MANUFACTURING SEGMENT PLASTICS SEGMENT Target earnings contributions Electric Manufacturing Electric Manufacturing • Competitive low-cost operations • Long-term growth potential 75% 25% • Constructive regulatory environment • Capacity utilization • Attractive rate base growth • Diversification 4
R MANAGING COVID-19 | WELL POSITIONED OPERATIONALLY • Employee and public safety remains our top priority. • Mitigation efforts in place across the organization. • Utility shut-offs temporarily suspended and late-payment fees waived for our customers. • No immediate disruptions to our supply chain. • No current general rate case involvement. • Expected $385 million in capital expenditures for 2020. • Electric Segment accounts for 96% driven by renewable and natural gas-fired generation. • No current plan to limit capital expenditures. • Strong balance sheet, ample liquidity, constructive regulatory environment, and commitment to maintaining strong credit ratings and metrics. 5
R MANAGING COVID-19 Communities Employees Customers • • • T.O. Plastics making plastic face Implemented social distancing and Temporarily suspending utility shut- shields for health care workers. physical barrier policies. offs. • • Hosted first virtual-only shareholder • Temporarily waiving late-payment Activated internal preparedness meeting. fees for utility customers. teams across all operating companies. • • Otter Tail Corporation Foundation Informing utility customers about Donated the dollars typically energy assistance programs. • Shifted in-person meetings to spent on meeting meal to Fergus technology-based meetings and • Updating utility customers about Falls Food Shelf. encouraging employees to work possible COVID-19 phone, email, • Responding to outages safely and from home where possible. and web scams. quickly. • Requiring sick employees or those • Providing relevant energy-saving • Continuing critical maintenance and who have tested for the virus to tips through social networking. construction work to maintain the stay home. • Sharing employee videos and stability of our national electric grid • Eliminating non-essential travel, other messages through social work. including between operating networking. #OTPResilient • Supporting the communities we companies. serve through Otter Tail Corporation and Otter Tail Power Company charitable giving foundations. 6
R Q1 2020 FINANCIAL SUMMARY AND HIGHLIGHTS • Due to impacts of COVID-19, we are revising and Q1 2020 Q1 2019 widening our 2020 earnings per share (EPS) guidance range to $2.00-$2.25 from $2.22-$2.37 per diluted share. • Electric and Plastics Segments remain on plan. Operating Revenues (in millions) $234.7 $246.0 • Maintaining long-term 5-7% EPS Growth Rate based on 2019 $2.17 EPS. • Electric Segment EPS declined $0.07 primarily driven by a $0.09 reduction from milder weather. Continuing to Net Income (in millions) $24.3 $26.3 execute rate base growth projects. • Manufacturing Segment earnings flat between quarters. BTD’s EPS down $0.01 primarily due to softening demand in their end markets from COVID-19-related Diluted EPS $.60 $.66 impacts in last half March. • Plastics Segment EPS increased $0.05 driven by higher volumes of pipe sold. • Increased corporate costs negatively impact EPS $0.04 driven by volatile equity markets in March resulting in losses in our corporate-owned life insurance and captive insurance investments. 7
KEY COVID-19 FINANCIAL RISKS Potential Impacts Mitigation Factors • Lower commercial and industrial sales • Higher margin residential usage • O&M expense reductions volumes • Increased bad debt expense and waived late • Rigorous COVID-19 safety programs and fees project management Electric Segment • Personal protection equipment costs • Filing for COVID-19 Cost Treatment Orders in • Sequestration/quarantine-related costs all three jurisdictions • Potential capital project delays • Decreased revenue due to temporary • BTD has implemented temporary rotating customer plant shutdowns and lower sell- furloughs Manufacturing Segment • O&M expense reductions through • Lower scrap revenue • Declining sales volumes • O&M expense reductions Plastic Segment • Lower resin prices • Volatile capital markets • No 2020 debt maturities • Adequate liquidity under credit facilities if volatile capital markets continue Parent/Liquidity • No further 2020 pension contributions • $40-$45 million of remaining equity needs 8 under ATM, DRIP, and ESPP
ESG Highlights R ESG HIGHLIGHTS 2022 Projections By 2022 we 30% 30% 30% expect our carbon dioxide emissions RENEWABLE LOWER CARBON from owned RESOURCES RATES REDUCTION resources to that we own or secure compared to the from 2005 levels be 33% lower through power national residential than 2005 purchase agreements average levels. 9
ESG Highlights R CLEANER ENERGY FUTURE | LOWER-THAN-AVERAGE RATES Residential rates (Cents per kWh ) By 2022 we Minnesota North Dakota South Dakota expect our carbon dioxide State average 13.62 10.12 11.65 emissions Otter Tail Power Company 10.40 9.00 9.32 from owned Residential rates resources to (Cents per kWh ) be 33% lower United States residential average 13.16 than 2005 Otter Tail Power Company weighted average 9.73 levels. Source: Typical Bills and Average Rates Report, EEI, Winter 2019. Report surveys typical electric bills for investor-owned utility companies in the United States. 10
R CONSOLIDATED REVENUES FROM COAL ASSETS 2019 2022 11.0% 13.7% 89.0% 86.3% Footnotes: 1. Consolidated revenues include estimated returns on coal generation facility rate base investment, fuel expenses, O&Ms, depreciation, property taxes, and coal conversion taxes. 2. By 2022 the Hoot Lake Plant retirement combined with the Merricourt Wind Energy Center and Astoria Station result in a reduction in revenue and earnings from coal. 11
R ELECTRIC PLATFORM
R ELECTRIC OPERATIONS Net Revenue ($ in millions ) $459.1 $450.3 $450.9 $434.5 $500 $400 $300 Highlights $200 • Rate base growth opportunities $100 • Merricourt Wind Energy Center $0 • Astoria Station natural gas-fired plant 2017 2018 2019 3/31/20 • South Dakota transmission reliability project LTM • Industrial load growth Net Income ($ in millions) • $80 Constructive regulatory environment • $54.4 $59.0 Softening commercial and industrial load resulting $49.4 $56.5 $60 from COVID-19 beginning in Q2 $40 • Temporarily suspend disconnects for late payments and waive late-payment fees for residential and $20 small business customers during COVID-19 pandemic. $0 • 2017 2018 2019 3/31/20 Weather negatively impacted Q1 2020 by LTM $.09/share 13
R CUSTOMER MIX AND REGULATION - UPDATE Regulatory Matters Revenues by Customer EPS Sensitivity for every 1% change Other, Regulatory Calendar Residential 2₵ 2.3% Filing in place for all jurisdictions to request Commercial 1 ₵ COVID-19 related cost treatment order Industrial 1 ₵ Residential, 2019 Annual Petition for Deprecation Industrial, 32.3% 30.0% Updated TCRR eligibility filing relating to MN Total 4 ₵ Supreme Court Decision Commercial, 35.4% November 2019 filing for MN rate case Estimated 2020 EPS Impact Decoupling Weather Bad Debt Residential 1₵ Normalization Trackers Commercial - 2₵ No No No Industrial -7 ₵ Total -8 ₵ 14
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