Otter Tail Power Company Completes Rate Review in North Dakota

Rhea-AI Summary

Otter Tail Power Company has received approval from the North Dakota Public Service Commission for a $13.1 million net increase in electric service rates, representing a 6.18% average increase. The PSC set the company's return on equity at 10.10%, up from the previous 9.77%. If annual returns exceed 10.20%, the company will return 70% of additional earnings to customers. Despite the increase, rates remain among the lowest nationally. The company implemented interim rates on January 1, 2024, with final approved rates expected to be implemented in Q1 2025, approximately 120 days after the PSC order becomes effective.

Positive

• Rate increase approval of $13.1 million secured from North Dakota PSC
• Return on equity increased to 10.10% from 9.77%
• Electric service rates remain among the lowest in the nation
• 70% profit-sharing mechanism with customers for returns above 10.20%

Negative

• 6.18% rate increase impact on customers
• Approximately one-year delay for final rate implementation (Q1 2025)

Insights

Utility Rate Analyst

The $13.1 million rate increase approval for Otter Tail Power represents a calculated strategic achievement in the current economic landscape. The 6.18% net increase, while notable, maintains competitive positioning in the national utility market. The approved 10.10% return on equity (ROE), up from 9.77%, reflects a reasonable balance between shareholder returns and customer interests. The 70/30 earnings sharing mechanism above 10.20% ROE demonstrates regulatory pragmatism, providing both upside potential and consumer protection. Particularly noteworthy is the minimal customer impact due to the alignment between interim and final rates, suggesting effective rate case management and regulatory relationship. This rate case outcome provides improved earnings visibility and regulatory certainty through 2025.

Financial Analyst

This rate case resolution brings material positive implications for OTTR's financial outlook. The $13.1 million revenue increase will directly enhance the company's earnings potential, while the improved ROE of 10.10% strengthens the utility's ability to attract capital at favorable terms. The regulatory framework's stability, evidenced by the measured approach to rate increases and earning sharing mechanisms, supports continued infrastructure investment. The timing of implementation in Q1 2025 allows for precise financial planning. For context, this represents the first rate increase since 2017, demonstrating the company's operational efficiency in managing costs over an extended period. The moderate increase structure helps mitigate regulatory and political risks while ensuring sustainable returns.

FERGUS FALLS, Minn.--(BUSINESS WIRE)-- On December 30^th, the North Dakota Public Service Commission (PSC) approved a $13.1 million net increase to Otter Tail Power Company’s, a wholly-owned subsidiary of Otter Tail Corporation (Nasdaq: OTTR), electric service rates.

While overall costs of living have increased since the company’s last North Dakota rate review, filed in 2017, this average net increase of 6.18 percent keeps the company’s electric service rates among the lowest in the nation. “We’re committed to providing reliable, cost-effective electricity for our customers,” said Otter Tail Power President Tim Rogelstad. “And because interim rates closely match final approved rates, customers won’t see a significant bill impact when we implement final rates.”

Otter Tail Power filed its original request for a rate review on November 2, 2023. In the initial filing, the company increased rates for North Dakota customers on an interim basis beginning January 1, 2024. Otter Tail Power will propose to implement approved rates approximately 120 days after the PSC final order becomes effective, likely in the first quarter of 2025.

The PSC set Otter Tail Power’s return on equity at 10.10 percent, which is an increase from the 9.77 percent return approved in the last rate review. If Otter Tail Power earns an annual return on equity above 10.20 percent, the company will return 70 percent of those additional earnings to customers. “We appreciate the Commissioners’ recognition of the increased costs associated with safely and reliably serving our customers,” said Rogelstad. “Our employees continue to focus on operational excellence, working to keep costs as low as possible. We’ll also continue providing options to help customers manage their energy use.”

Forward-Looking Statements

Except for historical information contained here, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “future,” “goal,” “intend,” “likely,” “may,” “outlook,” “plan,” “possible,” “potential,” “predict,” “probable,” “projected,” “should,” “target,” “will,” “would” and similar words and expressions are intended to identify forward-looking statements. Such statements are based upon the current beliefs and expectations of management. Forward-looking statements made herein, which may include statements regarding 2024 earnings and earnings per share, long-term earnings, earnings per share growth and earnings mix, anticipated levels of energy generation from renewable resources, anticipated reductions in carbon dioxide emissions, future investments and capital expenditures, rate base levels and rate base growth, future raw materials costs, future raw materials availability and supply constraints, future operating revenues and operating results, and expectations regarding regulatory proceedings, as well as other assumptions and statements, involve known and unknown risks and uncertainties that may cause our actual results in current or future periods to differ materially from the forecasted assumptions and expected results. The Company’s risks and uncertainties include, among other things, uncertainty of future investments and capital expenditures; rate base levels and rate base growth; risks associated with energy markets; the availability and pricing of resource materials; inflationary cost pressures; attracting and maintaining a qualified and stable workforce; changing macroeconomic and industry conditions that impact the demand for our products, pricing and margin; long-term investment risk; seasonal weather patterns and extreme weather events; counterparty credit risk; future business volumes with key customers; reductions in our credit ratings; our ability to access capital markets on favorable terms; assumptions and costs relating to funding our employee benefit plans; our subsidiaries’ ability to make dividend payments; cybersecurity threats or data breaches; the impact of government legislation and regulation including foreign trade policy and environmental; health and safety laws and regulations; changes in tax laws and regulations; the impact of climate change including compliance with legislative and regulatory changes to address climate change; expectations regarding regulatory proceedings, including state utility commission approval of resource plans, assigned service areas, the siting and construction of major facilities, capital structure, and allowed customer rates; actual and threatened claims or litigation; and operational and economic risks associated with our electric generating and manufacturing facilities. These and other risks are more fully described in our filings with the Securities and Exchange Commission, including our most recently filed Annual Report on Form 10-K, as updated in subsequently filed Quarterly Reports on Form 10-Q, as applicable. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any obligation to update any forward-looking information.

About the Corporation

Otter Tail Corporation, a member of the S&P SmallCap 600 Index, has interests in diversified operations that include an electric utility and manufacturing businesses. Otter Tail Corporation stock trades on the Nasdaq Global Select Market under the symbol OTTR. The latest investor and corporate information is available at www.ottertail.com. Corporate offices are in Fergus Falls, Minnesota, and Fargo, North Dakota.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241230426823/en/

Media Contact: Stephanie Hoff, Director of Corporate Communications, (218) 739-8535

Investor Contact: Beth Eiken, Manager of Investor Relations, (701) 451-3571

Source: Otter Tail Corporation

FAQ

What is the approved rate increase for Otter Tail Power (OTTR) in North Dakota?

The North Dakota PSC approved a $13.1 million net increase, representing a 6.18% average increase in electric service rates.

When will OTTR implement the final approved rates in North Dakota?

The final approved rates are expected to be implemented in the first quarter of 2025, approximately 120 days after the PSC order becomes effective.

What is Otter Tail Power's (OTTR) new approved return on equity?

The North Dakota PSC set Otter Tail Power's return on equity at 10.10%, increased from the previous 9.77%.

How will OTTR's profit-sharing mechanism work for returns above 10.20%?

If Otter Tail Power earns an annual return on equity above 10.20%, the company will return 70% of those additional earnings to customers.

When did OTTR implement interim rates for North Dakota customers?

Otter Tail Power implemented interim rates for North Dakota customers beginning January 1, 2024.