OTTER TAIL CORPORATION You should read the following discussion and analysis of our financial condition and results of operations together with our interim financial statements and the related notes appearing under Item 1 of this Quarterly Report on Form 10-Q, and our annual financial statements and the related notes along with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 10-K for the year ended December 31, 2022.Otter Tail Corporation and its subsidiaries form a diverse group of businesses with operations classified into three segments: Electric, Manufacturing and Plastics. Our Electric segment business is a vertically integrated, regulated utility with generation, transmission and distribution facilities to serve our customers in westernMinnesota , easternNorth Dakota and northeasternSouth Dakota . Our Manufacturing segment provides metal fabrication for custom machine parts and metal components and manufactures extruded and thermoformed plastic products. Our Plastics segment manufactures PVC pipe for use in, among other applications, municipal and rural water, wastewater and water reclamation projects. PVC PIPE SUPPLY AND DEMAND CONDITIONS Extraordinary supply and demand conditions in the PVC industry beginning in 2021 have led to a significant expansion in operating margins and elevated earnings in our Plastics segment. Periodic disruptions in the supply of resin, the primary material input used in the manufacturing of PVC pipe, coupled with robust demand for resin, led to a significant increase in the cost of resin. Low industry volumes of PVC pipe and robust end market demand for the product led to a rapid and significant increase in sales prices for PVC pipe, significantly outpacing the increase in resin input costs, leading to widening margins within our Plastics segment. Demand for PVC pipe began to soften in the second half of 2022 and continued through the first quarter of 2023 as distributors and contractors have reduced purchase volumes and inventory levels in response to changing market conditions. Resin prices have declined and stabilized at near historical levels but sales prices for PVC pipe remain elevated, continuing to produce expanded operating margins. These unique market dynamics impacting our Plastics segment resulted in a significant increase in earnings in 2022 compared to prior periods. We currently expect earnings of our Plastics segment to remain elevated in 2023 compared to pre-2021 levels, but as the industry supply and demand conditions normalize, we expect segment earnings to normalize beginning in 2024. STEEL PRICING Volatility in the price of steel, a key material input to our Manufacturing segment, significantly impacted our operating results in 2022. Steel prices, which were highly volatile in 2022, were elevated at the beginning of 2022 but began to steadily decline at the end of the second quarter and returned to near historical levels by the end of the year. Elevated steel prices led to increased sales prices in 2022 for our products atBTD Manufacturing, Inc. (BTD), our metal fabrication business within our Manufacturing segment, as we passed along material cost increases to our customers. Scrap metal prices, which typically follow steel prices, were also elevated from historical levels in the first half of 2022, positively impacting our 2022 financial results. While steel and scrap metal prices began to increase late in the first quarter of 2023, pricing did not reach the level present in the first quarter of 2022, thereby impacting our comparative operating results.
The marketplace dynamics impacting both our Manufacturing and Plastics segments are fluid and subject to change and may impact our operating results prospectively.
RESULTS OF OPERATIONS - QUARTER TO DATE
Provided below is a summary and discussion of our operating results on a consolidated basis followed by a discussion of the operating results of each of our segments: Electric, Manufacturing and Plastics. In addition to the segment results, we provide an overview of our Corporate costs. Our Corporate costs do not constitute a reportable segment but rather consist of unallocated general corporate expenses, such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of segment performance. Corporate costs are added to operating segment totals to reconcile to totals on our consolidated statements of income.
CONSOLIDATED RESULTS
The following table summarizes consolidated operating results for the three
months ended
(in thousands) 2023 2022 $ change % change Operating Revenues$ 339,081 $ 374,904 $ (35,823) (9.6) % Operating Expenses 258,411 276,605 (18,194) (6.6) Operating Income 80,670 98,299 (17,629) (17.9) Interest Expense (9,415) (8,948) (467) 5.2 Nonservice Components of Postretirement Benefits 2,412 22 2,390 n/m Other Income (Expense) 2,118 260 1,858 714.6 Income Before Income Taxes 75,785 89,633 (13,848) (15.4) Income Tax Expense 13,304 17,630 (4,326) (24.5) Net Income$ 62,481 $ 72,003 $ (9,522) (13.2) %
Operating Revenues decreased
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Manufacturing segment and increased operating revenues within our Electric segment. PVC pipe sale volumes decreased as customer demand softened from the same period a year ago amid changing market conditions. Decreased sales prices in our Manufacturing segment were primarily due to decreased steel prices, which are passed through to customers. In our Electric segment, increased fuel recovery revenues, driven by higher purchased power costs and volumes, and increased commercial and industrial sales volumes, contributed to increased operating revenues. See our segment disclosures below for additional discussion of items impacting operating revenues. Operating Expenses decreased$18.2 million primarily due to lower sales volumes in our Plastics segment and lower material costs in our Manufacturing segment. These decreases were partially offset by an increase in operating expenses in our Electric segment, due to higher purchased power costs and volumes. See our segment disclosures below for additional discussion of items impacting operating expenses.
Interest Expense increased
Nonservice Components of Postretirement Benefits increased$2.4 million , having a positive impact on net income, primarily due to a change in actuarial assumptions used to measure our pension benefit and postretirement benefit obligations, including an increase in the discount rate applied and an increase in the expected return on assets assumption.
Other Income increased
Income Tax Expense decreased$4.3 million primarily due to decreased income before income taxes. Our effective tax rate was 17.6% in the first quarter of 2023 and 19.7% in the first quarter of 2022. The decrease in our effective tax rate was driven by an increase in production tax credits from our wind generation assets in the current period. See Note 8 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information regarding factors impacting our effective tax rate in 2023 and 2022. ELECTRIC SEGMENT RESULTS The following table summarizes Electric segment operating results for the three months endedMarch 31, 2023 and 2022: (in thousands) 2023 2022 $ change % change Retail Revenues$ 136,453 $ 113,639 $ 22,814 20.1 % Transmission Services Revenues 12,107 12,556 (449) (3.6) Wholesale Revenues 1,838 2,463 (625) (25.4) Other Electric Revenues 1,511 1,758 (247) (14.1) Total Operating Revenues 151,909 130,416 21,493 16.5 Production Fuel 11,492 14,853 (3,361) (22.6) Purchased Power 41,825 20,529 21,296 103.7 Operating and Maintenance Expenses 45,549 44,278 1,271 2.9 Depreciation and Amortization 18,326 18,382 (56) (0.3) Property Taxes 4,621 4,432 189 4.3 Operating Income$ 30,096 $ 27,942 $ 2,154 7.7 % 2023 2022 change % change Electric kilowatt-hour (kwh) Sales (in thousands) Retail kwh Sales 1,635,246 1,515,297 119,949 7.9 % Wholesale kwh Sales - Company Generation 61,854 66,187 (4,333) (6.5) Heating Degree Days 3,732 3,821 (89) (2.3) The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating. The following table shows heating degree days as a percent of normal for the three months endedMarch 31, 2023 and 2022. 2023 2022 Heating Degree Days 108.2 % 111.8 % The following table summarizes the estimated effect on diluted earnings per share of the difference in retail kwh sales under actual weather conditions and expected retail kwh sales under normal weather conditions in 2023 and 2022, and between years. 2023 vs 2023 vs 2022 vs Normal 2022 Normal
Effect on Diluted Earnings Per Share
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Retail Revenues increased
•A$16.5 million increase in fuel recovery revenues due to increased purchased power costs and volumes, partially offset by lower production fuel costs due to lower volumes, as described below. •A$5.4 million increase in retail revenues from increased sales volumes from commercial and industrial customers, including the impact of a new commercial customer load inNorth Dakota that came online during the first quarter of 2022.
•A
Retail revenues in the first quarter of 2023 were negatively impacted
Production Fuel costs decreased$3.4 million primarily as a result of an outage at Big Stone Plant in the first quarter of 2023, which resulted in lower volumes of coal consumption.Purchased Power costs to serve retail customers increased$21.3 million due to a 42% increase in the price of purchased power per kwh, primarily due to increased market energy costs, and a 43% increase in the volume of purchased power due to the outage at Big Stone Plant and increased customer demand. Operating and Maintenance Expenses increased$1.3 million primarily due to an increase in maintenance activities, including the outage at Big Stone Plant and incremental costs associated with the Ashtabula III wind farm facility. MANUFACTURING SEGMENT RESULTS The following table summarizes Manufacturing segment operating results for the three months endedMarch 31, 2023 and 2022: (in thousands) 2023 2022 $ change % change Operating Revenues$ 106,782 $ 104,957 $ 1,825 1.7 % Cost of Products Sold (excluding depreciation) 82,227 86,161 (3,934) (4.6) Other Operating Expenses 10,578 8,847 1,731 19.6 Depreciation and Amortization 4,468 4,014 454 11.3 Operating Income$ 9,509 $ 5,935 $ 3,574 60.2 % Operating Revenues increased$1.8 million due to increased sales volumes atBTD Manufacturing , our contract metal fabricator, as strong customer and end market demand in the Energy, Agriculture, Power Generation, and Construction markets contributed to a 19% increase in sales volumes. Sales price increases also contributed to the growth in operating revenues. These were implemented in response to labor and non-steel material cost inflation. Increased sales volumes and price increases were largely offset by a 21% decrease in material costs, which are passed through to customers, as steel prices have declined from the same time a year ago. Scrap revenues were lower in the first quarter due to lower scrap metal prices. Operating revenues at T.O. Plastics, our plastics thermoforming manufacturer, also increased compared to last year, primarily due to sales price increases. Cost of Products Sold decreased$3.9 million primarily due to decreased material costs, as described above, largely offset by increased sales volumes, as well as increased labor and other production costs.
Other Operating Expenses increased
PLASTICS SEGMENT RESULTS The following table summarizes Plastics segment operating results for the three months endedMarch 31, 2023 and 2022: (in thousands) 2023 2022 $ change % change Operating Revenues$ 80,390 $ 139,531 $ (59,141) (42.4) % Cost of Products Sold (excluding depreciation) 30,142 65,598 (35,456) (54.1) Other Operating Expenses 3,529 3,964 (435) (11.0) Depreciation and Amortization 1,036 1,107 (71) (6.4) Operating Income$ 45,683 $ 68,862 $ (23,179) (33.7) % Operating Revenues decreased$59.1 million due to a 46% decrease in sales volumes, partially offset by a 7% increase in the price per pound of PVC pipe sold compared to the same period last year. Sales volume decreases were attributable to distributor customer inventory management as distributors continue to closely manage their inventory levels amid changing market conditions, overall economic uncertainty, including uncertainty in the housing market, and the impact of unfavorable weather conditions during the first quarter of 2023. Sales prices declined from the fourth quarter of 2022 but remained elevated compared to pre-2021 levels. Cost of Products Sold decreased$35.5 million primarily due to decreased sales volumes, as described above. PVC resin and other input material costs decreased 20% compared to the same period in the previous year as the unique supply and demand conditions which caused significant increases in resin costs have subsided and resin costs have stabilized.
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CORPORATE COSTS The following table summarizes Corporate operating results for the three months endedMarch 31, 2023 and 2022: (in thousands) 2023 2022 $ change % change Other Operating Expenses$ 4,592 $ 4,395 $ 197 4.5 % Depreciation and Amortization 26 45 (19) (42.2) Operating Loss$ 4,618 $ 4,440 $ 178 4.0 % REGULATORY MATTERS
The following provides a summary of rate rider filings and other regulatory filings that have or are expected to have a material impact on our operating results, financial position or cash flows.
RATE RIDERS
The following table includes a summary of pending and recently concluded rate
rider proceedings:
Recovery Filing Amount Effective
Mechanism Jurisdiction Status Date (in millions) Date Description
Recovery of Hoot Lake Solar costs,
RRR - 2022 MN Requested 11/01/22 $ 17.5 07/01/23 Ashtabula III costs, and true up for PTCs
from Merricourt.
Recovery of energy conservation
CIP - 2022 MN Approved 04/01/22 10.8 10/01/22 improvement costs as well as a demand side
management financial incentive.
Recovery of energy conservation
CIP - 2023 MN Requested 04/03/23 9.7 10/01/23 improvement costs as well as a demand side
management financial incentive.
TCR - 2021 MN Approved 11/23/21 7.2 08/01/22 Recovery of transmission project costs.
RRR - 2021 MN Approved 12/06/21 7.0 08/01/22 Recovery of Hoot Lake Solar and Ashtabula
III costs.
EITE - 2023 MN Requested 04/14/23 2.2 01/01/24 Biennial update to Energy-Intensive,
Trade-Exposed rider.
TCR - 2023 MN Requested 04/07/23 1.7 01/01/24 Recovery of transmission project costs.
Recovery of advanced metering
EUIC - 2023 MN Requested 03/20/23 1.3 07/01/23 infrastructure, outage management and
demand response system projects.
RRR - 2023 ND Approved 04/27/23 12.2 05/01/23 Recovery of Ashtabula III and other costs.
Recovery of Merricourt costs, Ashtabula
RRR - 2022 ND Approved 01/05/22 7.8 04/01/22 III costs, and deferred taxes and
production tax credits.
TCR - 2022 ND Approved 09/15/22 7.5 01/01/23 Recovery of transmission project costs.
TCR - 2021 ND Approved 09/15/21 6.1 01/01/22 Recovery of transmission project costs.
GCR - 2022 ND Approved 03/01/22 3.3 07/01/22 Annual update to generation cost recovery
rider.
Recovery of advanced metering
AMDT - 2022 ND Approved 07/08/22 3.1 01/01/23 infrastructure, outage management system
and demand response projects.
Recovery of Astoria Station, net of
GCR - 2023 ND Requested 03/03/23 2.2 07/01/23 anticipated savings associated with the
retirement of Hoot Lake Plant.
Recovery of Ashtabula III, Merricourt,
PIR - 2022 SD Approved 06/01/22 3.0 09/01/22 Astoria Station, Advanced Grid
Infrastructure project costs, and impact
of load growth credits.
TCR - 2022 SD Approved 11/01/22 3.0 03/01/23 Recovery of transmission project costs.
TCR - 2021 SD Approved 10/29/21 2.2 03/01/22 Recovery of transmission project costs.
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Table of Contents Renewable Resource Rider (RRR) and Energy Adjustment Rider (EAR): InDecember 2022 , OTP filed an update to its North Dakota RRR. The update included, among other items, a request to modify load allocation factors inNorth Dakota given the large new load added in the state in 2022. InJanuary 2023 , OTP filed an update to its North Dakota EAR proposing to refund MISO planning resource auction revenues toNorth Dakota customers if theNorth Dakota Public Service Commission (NDPSC) approves the load allocation factor modification as filed in the RRR docket. InApril 2023 , the NDPSC denied the request to modify load allocation factors and approved the modification to the EAR allowing for planning resource auction revenues to be refunded to customers. OTP will begin incorporating the planning resource auction revenue refunds in May of 2023. MISO PLANNING RESOURCE AUCTION OTP offered 88-megawatts of excess capacity into the annual MISO planning resource auction for the period June, 2022 through May, 2023. As a result of a capacity shortage in the MISO region, capacity prices cleared the auction at maximum pricing. As a result, the 88-megawatts of auctioned capacity will generate approximately$9.3 million of net capacity auction revenues over the twelve-month period ending in May, 2023. TheMinnesota andNorth Dakota allocated portion of net capacity auction revenues will be returned to customers through theFCA mechanism and EAR, respectively. TheMinnesota andNorth Dakota commission have also each ruled that in future periods any capacity auction revenues or costs are to be passed on to customers. INTEGRATED RESOURCE PLAN OnMarch 31, 2023 , OTP submitted a supplemental resource plan filing to the MPUC, the NDPSC, and theSouth Dakota Public Utilities Commission . The supplemental filing updates OTP's original 2022 Integrated Resource Plan (2022 IRP), which was filed onSeptember 1, 2021 . In the supplemental filing, OTP outlined its updated plan for meeting customers' anticipated capacity and energy needs while maintaining system reliability and low electric service rates, in light of several changes that have occurred since the original filing, including significant winter and spring reserve planning margins adopted by MISO, tax credits made available for renewable energy projects under the Inflation Reduction Act, the enactment of the Clean Energy Bill inMinnesota , and recent volatility in energy and capacity markets.
The major requests in OTP's supplemental filing include:
•the addition of on-site liquefied natural gas fuel storage at our
•the addition of approximately 200 megawatts of solar generation in 2027-2028;
•undertaking the initial steps necessary to add approximately 200 megawatts of wind generation in 2029; and
•a withdrawal from our 35 percent ownership interest in
Consistent with the original 2022 IRP, the supplemental filing proposes to, subject to regulatory approval, create a regulatory asset to recover costs related to any future withdrawal fromCoyote Station . Should such a withdrawal occur, we anticipate the regulatory asset would include the net book value of the plant on the withdrawal date, anticipated decommissioning costs, and any costs incurred if the existing lignite sales agreement, under whichCoyote Station acquires all of its lignite coal, must be terminated. As part of an economic analysis included in the filing, OTP developed an estimate of the reasonably foreseeable costs of withdrawing fromCoyote Station , which was determined to be$68.5 million , assuming a withdrawal at the end of 2028. These costs may differ from actual results due to the uncertainty and timing of future events which could result in a withdrawal fromCoyote Station .
LIQUIDITY
LIQUIDITY OVERVIEW We believe our financial condition is strong and our cash and cash equivalents, other liquid assets, operating cash flows, existing lines of credit, access to capital markets and borrowing ability, because of investment-grade credit ratings, when taken together provide us ample liquidity to conduct our business operations, fund our short-term and long-term capital expenditure plans and satisfy our obligations as they become due. Our liquidity, including our operating cash flows and access to capital markets, could be impacted by macroeconomic factors outside of our control, including higher interest rates and debt capital costs and diminished credit availability. In addition, our liquidity could be impacted by non-compliance with certain financial covenants under our various debt instruments. As ofMarch 31, 2023 , we were in compliance with all financial covenants (see the Financial Covenants section under Capital Resources below). The following table presents the status of our lines of credit as ofMarch 31, 2023 andDecember 31, 2022 : 2023 2022 Borrowing Amount Letters Amount Amount (in thousands) Limit Outstanding of Credit Available Available OTC Credit Agreement$ 170,000 $ - $ -$ 170,000 $ 170,000 OTP Credit Agreement 170,000 60,854 9,573 99,573 152,223 Total$ 340,000 $ 60,854 $ 9,573 $ 269,573 $ 322,223 We have an internal risk tolerance metric to maintain a minimum of$50 million of liquidity under the OTC Credit Agreement. Should additional liquidity be needed, this agreement includes an accordion feature allowing us to increase the amount available to$290 million , subject to certain terms and conditions. The OTP Credit Agreement also includes an accordion feature allowing OTP to increase that facility to$250 million , subject to certain terms and conditions.
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CASH FLOWS
The following is a discussion of our cash flows for the three months ended
(in thousands) 2023 2022
Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities increased$10.1 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 , primarily due to the absence of a pension plan contribution in 2023 due to the plan's funded status, whereas a$20.0 million discretionary contribution was made inFebruary 2022 , as well as a lower level of working capital needs compared to the same period in the previous year. (in thousands) 2023 2022
Net Cash Used in Investing Activities increased$68.9 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . The increase in cash used in investing activities was primarily due to a higher amount of Electric segment capital investment compared to last year, including the purchase of the Ashtabula III wind farm inJanuary 2023 for$50.6 million . (in thousands) 2023 2022
Net Cash Provided by (Used in) Financing Activities
Net Cash Provided by (Used in) Financing Activities increased$44.0 million for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 . Financing activities for the three months endedMarch 31, 2023 included net proceeds from short-term borrowings of$52.7 million which were primarily used to fund the acquisition of Ashtabula III, and dividend payments of$18.3 million . Financing activities for the three months endedMarch 31, 2022 included net proceeds from short-term borrowings of$6.6 million and dividend payments of$17.2 million . CAPITAL REQUIREMENTS CAPITAL EXPENDITURES We have a capital expenditure program for expanding, upgrading and improving our plants and operating equipment. Typical uses of cash for capital expenditures are investments in electric generation facilities and environmental upgrades, transmission and distribution lines, manufacturing facilities and upgrades, equipment used in the manufacturing process, and computer hardware and information systems. Our capital expenditure program is subject to review and regulatory approval and is revised in light of changes in demands for energy, technology, environmental laws, tax laws, regulatory changes, business expansion opportunities, the costs of labor, materials and equipment, and our financial condition.
We have increased our Electric segment five-year capital expenditure plan by
approximately
The following provides a summary of actual capital expenditures for the year endedDecember 31, 2022 , anticipated annual capital expenditures for the current year endingDecember 31, 2023 , and the subsequent four years, along with electric utility average rate base and annual rate base growth: Total (in millions) 2022 2023(1) 2024 2025 2026 2027 2023 - 2027 Electric Segment:Renewables and Natural Gas Generation$ 88 $ 119 $ 88 $ 85 $ 49 $
429
Technology and Infrastructure 33 30 6 5 1
75
Distribution Plant Replacements 33 37 38 38 43 189 Transmission (includes replacements) 34 36 46 87 78 281 Other 26 25 30 24 23 128 Total Electric Segment$ 148 $ 214 $ 247 $ 208 $ 239 $ 194 $ 1,102 Manufacturing and Plastics Segments 23 48 53 29 25 24 179 Total Capital Expenditures$ 171 $ 262 $ 300 $ 237 $ 264 $ 218 $ 1,281 Total Electric Utility Average Rate Base$ 1,624 $ 1,748
3.1 % 7.6 % 5.9 % 7.5 % 6.1 % 5.6 %
(1) Includes actual results for the three months ended
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CONTRACTUAL OBLIGATIONS Our contractual obligations primarily include principal and interest payments due under our outstanding debt obligations, commitments to acquire coal, energy and capacity commitments, payments to meet our postretirement benefit obligations, and payment obligations under land easements and leasing arrangements. Our contractual obligations as ofDecember 31, 2022 are included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year endedDecember 31, 2022 . Except for the obligations arising from new land easements assumed in connection with the purchase of Ashtabula III, there were no material changes in our contractual obligations outside of the ordinary course of our business during the three months endedMarch 31, 2023 .
In connection with the purchase of the Ashtabula III wind farm in
COMMON STOCK DIVIDENDS We paid dividends to our common stockholders totaling$18.3 million , or$0.4375 per share, in the first three months of 2023. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, our actual or expected level of earnings and cash flows from operations, the level of our capital expenditures and our future business prospects. As a result of certain statutory limitations or regulatory or financing agreements, the amount of dividends we are allowed to pay could be restricted. See Note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. The decision to declare dividends is reviewed quarterly by our Board of Directors.
CAPITAL RESOURCES
Financial flexibility is provided by operating cash flows, unused lines of credit and access to capital markets and is aided by strong financial coverages and investment grade credit ratings. Debt financing will be required in the five-year period from 2023 through 2028 to refinance maturing debt and to finance our capital investments. Our financing plans are subject to change and are impacted by our planned level of capital investments, and decisions to reduce borrowings under our lines of credit, to refund or retire early any of our outstanding debt, to complete acquisitions, or to use capital for other corporate purposes. REGISTRATION STATEMENTS OnMay 3, 2021 , we filed a shelf registration statement with theSEC under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement. No new debt or equity has been issued pursuant to the registration statement. The registration statement expires inMay 2024 . OnMay 3, 2021 , we filed a second registration statement with theSEC for the issuance of up to 1,500,000 common shares under an Automatic Dividend Reinvestment and Share Purchase Plan, which provides shareholders, retail customers of OTP and other interested investors methods of purchasing our common shares by reinvesting their dividends or making optional cash investments. Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. As ofMarch 31, 2023 , there were 1,220,100 shares available for purchase or issuance under the plan. The registration statement expires inMay 2024 . SHORT-TERM DEBT OTC and OTP are each party to a credit agreement (the OTC Credit Agreement and the OTP Credit Agreement, respectively) which each provide for unsecured revolving lines of credit. The following is a summary of key provisions and borrowing information as of, and for the three months ended,March 31, 2023 : OTC Credit OTP Credit (in thousands, except interest rates) Agreement Agreement Borrowing Limit$ 170,000 $ 170,000 Borrowing Limit if Accordion Exercised1 290,000 250,000
Amount Restricted Due to Outstanding Letters of Credit as of
- 9,573
Amount Outstanding as of March 31, 2023 - 60,854
Average Amount Outstanding During the Three Months Ended
- 51,226
Maximum Amount Outstanding During the Three Months Ended
- 61,006
Interest Rate as of March 31, 2023 6.30 % 6.01 %
Maturity Date October
29, 2027
1Each facility includes an accordion featuring allowing the borrower to increase the borrowing limit if certain terms and conditions are met.
LONG-TERM DEBT
As of
Note 6 to our consolidated financial statements included in this Quarterly
Report on Form 10-Q includes additional information regarding these short-term
and long-term debt instruments.
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Table of Contents Financial Covenants Certain of our short- and long-term debt agreements require OTC and OTP to maintain certain financial covenants. As ofMarch 31, 2023 , we were in compliance with these financial covenants as further described below: OTC, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00, and may not permit its priority indebtedness to exceed 10 percent of its total capitalization. As ofMarch 31, 2023 , OTC's interest-bearing debt to total capitalization was 0.412 to 1.00, OTC's interest and dividend coverage ratio was 10.62 to 1.00, and OTC had no priority indebtedness outstanding. OTP, under its financial covenants, may not permit its ratio of interest-bearing debt to total capitalization to exceed 0.60 to 1.00, may not permit its interest and dividend coverage ratio to be less than 1.50 to 1.00, and may not permit its priority indebtedness to exceed 20 percent of its total capitalization. As ofMarch 31, 2023 , OTP's interest-bearing debt to total capitalization was 0.467 to 1.00, OTP's interest and dividend coverage ratio was 3.73 to 1.00, and OTP had no priority indebtedness outstanding.
CRITICAL ACCOUNTING POLICIES INVOLVING SIGNIFICANT ESTIMATES
The discussion and analysis of our results of operations are based on financial statements prepared in accordance with generally accepted accounting principles inthe United States of America . Certain of our accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the preparation of our consolidated financial statements. We have disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2022 the critical accounting policies that affect our most significant estimates and assumptions used in preparing our consolidated financial statements. There have been no material changes to our critical accounting policies and estimates from those disclosed in the most recent Annual Report on Form 10-K .
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