Good morning. And welcome to Otter Tail Corporation Fourth Quarter 2016 Earnings Conference Call. Today’s call is being recorded and there will be a question-and-answer session after the prepared remarks. I will now turn the call over to the company.

Good morning, everyone, and welcome to our call. My name is Loren Hanson, and I manage the Investor Relations area at Otter Tail Corporation. Last night, we announced our 2016 quarter and issued 2017 guidance. Our complete earnings release and the slides accompanying this earnings call are available on our Web site at www.ottertail.com. A replay of the call will be available on our website later today. Commenting this morning will be Chuck MacFarlane, Otter Tail Corporation’s President and Chief Executive Officer; and Kevin Moug, Otter Tail Corporation’s Senior Vice President and Chief Financial Officer. Before we begin today’s call, I’d like to remind you that during the course of the call, we will be making forward-looking statements. As noted on Slide 2, these statements represent our current judgment or opinion of what the future holds. They are subject to risks and uncertainties that may cause actual results to differ materially from forward-looking statements made today. So please be advised about placing undue reliance on any of these statements. 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 as a result of new information, future events, developments or otherwise. For opening remarks, I would now like to turn the call over to our President and CEO, Mr. Chuck MacFarlane. Chuck?

Thanks Loren and good morning everyone. Last night we released our 2016 results, earnings per share from continuing operations for the year were at $1.60, a 2.6% increase over 2015 earnings per share with $1.56. We accomplished this despite weather challenges in our electric platform and difficult market conditions in our manufacturing platform. Employees across the organization remain focused on driving results and we appreciate the leadership they demonstrate. Our stock performed well compared to major utility and broad market indexes, the total return was 59 -- or 57.9%, and our yearend dividend yield is 3.1%. Otter Tail Power employees had a number of accomplishments in 2016, in addition to overcoming a negative weather impact to net income of 2.4 million compared to normal, they had a record safety here achieving a lowest OSHA rate in company history, they again achieved the top electric utility residential satisfaction score in the nation as measured by the American Customer Satisfaction index. They battled tough conditions for more than five days to restore power to customers in North and South Dakota after a Christmas ice storm broke more than 250 poles. And they continue to manage several large projects, including a general rate case in Minnesota, project agreements for new wind farm, a resource plan filling and two regional transmission projects; here is a brief update on each. As we've discussed on previous calls, Otter Tail Power filed a Minnesota general rate case in February last year. The Public Utilities Commission granted interim rates in April. The administrative law judge issued his report a month ago, recommending a return on equity of 9.54%. While that's lower than we requested, the judge agreed with a majority of our positions and he supported an ROE at the high end of the Minnesota Department of Commerce's…

Good morning. Let me cover with you the following items, a review of 2016 financial results, our liquidity position, strength of our balance sheet in senior unsecured credit ratings, our view of potential tax reform and a preview of our 2017 business outlook. First, based on our solid 2016 performance and our 2017 outlook, Board of Directors increased our indicated annualized dividend rate from $1.25 a common share to $1.28. We have paid dividends on our common stock for 78 years or 313 consecutive quarters. 2016 strong results represent another year of executing on our strategies. Despite continued challenges with soft end markets, base of manufacturing companies and milder than normal weather impacting our electrics utility. Our consolidated net income from continuing operations was up 5.8% and our earnings per share from continuing operations increased 2.6%. Now I will provide a detailed review of 2016 earnings as shown on Slide 11 through 14. The electric segment increased earnings in 2016 despite being inversely impacted by milder weather. Key items of the $1.5 million increase in net earnings were, increased retail revenues of $7.4 million which is net of an estimated refund related to interim effect that we went into effect in April of 2016, increased environmental and transmission writers, the increased conservation improvement program incentive revenue, increased MISO transmission tariff revenue related increased investments in regional transmission projects, and also positively impacting earnings or increased sales pipeline customers. These items were offset by lower retail revenue due to milder weather in 2016, year-over-year weather was a drag on earnings per share of $0.02 and $0.07 compared to normal. Other items negatively impacting earnings were higher operating and maintenance expenses, and higher depreciation and amortization expense related to our increased rate based investments. Our manufacturing segment's earnings increased year-over-year driven by…

[Operator Instructions]. Our first question comes from Chris Ellinghaus with Williams Capital. You may begin.

Looking at the CapEx slide, this should encompass the wind farm purchase the combustion turbine and the solar, right. So if I look across the years [ph] the renewable in natural gas generation, it doesn't necessarily appear that it totals to their remainder if you back out the wind farm. So have you spent significant dollars on development of the solar and the gas plant at this point that are not included in these numbers?

No, we have not.

Okay. So it's about 460-ish million, so if you back out the 250 for the winds, do you really get to the 250, plus 200 for the gas plant plus 50-60 for the solar, does that total? Looks a little short.

Do you have the transmission projection in there Chris?

I'm just looking at the generation line.

Okay.

So it looks like, not adding it up completely, it's about 460. So I would expect that I will be closer to 500, if I took those three generation projects. Is there a reason there is discrepancy there or are you coming in underbudget on something?

Chris, I'm not sure, I'm following where you're looking at here.

I follow up with Loren on that one. Can we assume that in '19 you'll be making progress payment on the wind farm?

Yes.

And can you just walk us through the three quarters with the interim reserve in it, I didn’t see anything about a fourth quarter reserve.

Chris, this is Kevin, we at the end of the year for '16, we did work additional reserves for the potential estimated refund in Q4, the effect on the year is about -- for the total year was $0.06 a share and we had 3.6 million of reserves on our books for an estimated refund at the end of the year.

So that would make the fourth quarter something like 1.4 million?

Right.

Kevin, can you discuss after 2017, what's your thoughts on equity are?

Sure, so when we look out now in terms of our financing plans over the 2021 timeframe, we're looking to see a pretty healthy growth and retained earnings based on growing earnings across the respective companies, and our current financing plans would put us in a range of equity from probably 90 million to 110 million right now, that assumes that we would just using our current programs available to us, the aftermarket dividend reinvestment, employee stock purchase plans. We will have to renew the aftermarket shelf in May of '18 to continue on with that. And then we do have long term debt at the parent which has been used solely for the utility during this time frame to support capital structure, and to -- literally to maintain its utility, kind of that 51% to 53% equity to total cap range.

Okay, I'm sorry, I didn’t catch the -- what term was that? Was that through 2021 or 2020?

2021.

Okay, one more question and then I'll jump back in the queue. Can you just discuss how you are booking the interim in 2016? Where you using a volume metric approach, was it more of a straight-line approach?

In terms of how we booked it, Chris?

Yes.

Yes, Chris, what we did was, at the end of the second quarter we booked a reserves specific to a correction we had to make in our original filing that was, there was an error related to one of the components of the rate case. So it was a pretty small amount, I think it was a couple of hundred thousand. In the third quarter is when we received all of the intervener testimonies. And so based on the feedback from the intervener testimonies then, we recorded an additional, I think 2.1 million of accrual to reflect where we were at with our rebuttal testimony and then how the direct intervener testimonies had come in. And then we continued to book in the fourth quarter along those lines and then the ALJ report was issued in early January. We then made a comparison of our positions of where we had been accruing compared to where the ALJ report came out and felt that our accrual, that 3.6 million that I referred to, felt that was a pretty appropriate place to be based on the ALJ's report.

Okay, great thanks.

Maybe Chris just a follow up on your initial question on the capital budget on the natural gas and renewable generation. I think probably that line is misleading, that is our total generation CapEx and you can assume about $10 million a year of maintenance CapEx on the plants and existing wind farms in that line.

Okay great, thank you.

That should balance it off.

Thank you, our next question comes from Paul Ridzon with KeyBanc, you may begin.

Just a clarification, did you say, you have a $343 million deferred tax after utility and that would all be refunded to customers under tax reform.

No Paul, it's Kevin. I'm just trying to give you a scope. We have 343 million of property related deferred tax items for the utility at the end of the year. So I'm just trying to give you a scope of how big the number is, I mean if you had a revaluation of the -- that reserve based on a lower effective tax rate that would, based on the change in your effective tax rates, that would be kind of the impact to the revaluing of that amount of the liabilities.

Got it, got it, okay, just wasn't clear on that. And then, you had looks like about $0.065-$0.07 of weather versus normal headwind, but you're assuming normal weather for '17 I presume, but you're not getting that -- picked up where the big headwinds there in '17. Or were you doing some cost cutting during the year to help offset, that'll come back in '17?

Well we certainly -- there was lots of efforts in '16 and despite the weather to help deliver the earnings we had, so there was certainly cost reductions that were made, we had stronger than expected CIP revenue that we had in '16. And then also, as you look at headwinds in the '17 we are seeing some higher O&Ms given the change in the Minnesota program, for CIPs there is a reduction there that we're expecting that we're not going to have the same levels of CIP incentives in '17 as we did in '16. We've got some capacity purchases, are going to -- costs that are going to increase and so there is headwinds there as well to offset the $0.07 normal that's in our plan.

How much was the CIP in '16?

Yes, you know had a $1.7 million increase in CIP incentives year-over-year and the impact for '17 is expected to be about $0.04 a share from '16 to '17, negative.

Got it.

It's called out in the press release.

What are you seeing -- are you seeing any pickup in the end markets for energy at manufacturing or is that just not got any traction yet. You talked about increased drilling activity after the OPEC cut, but does it take a while to trickle down?

Paul this is Chuck. It's a very slight increase, I would not say that we would call it any sort of a step change in the type of equipment that we were selling two or three years ago. Those vendors likely have their own inventory that they have to work through before putting in new.

Okay. Thank you very much.

Thank you. [Operator Instructions]. Our next question comes from Chris Ellinghaus with Williams Capital. You may begin.

Versus the guidance at the end of the year for manufacturing, it looks like the fourth quarter was a little weaker than you expected. Can you just talk about that a little bit?

Sure, in Q4 -- Chris, it's Kevin. We did see softer than expected Hoot [ph] sales at T.O. Plastics. We did see some softer -- some continued softness in the end markets at BTD that certainly impacted where we thought fourth quarter was going to finish up for them. We did get some pickup offsetting that at BTD as it related to shipping these wind tower components out of our Illinois facility. We had stronger than expected shipments there that help to offset some of the end market softness that continued in the fourth quarter with recreational vehicle, ag and oil and gas.

Do you have the heating degree days versus normal for the fourth quarter?

Just for the fourth quarter?

Yeah just the fourth quarter.

Chris, it's on Page 4 of the press release, in the table. The heating degrees in -- I'm sorry that's for the full year. We're going to have to get you that, we don't have that here in front of us.

Okay. I'll talk to Loren about that. Can I also gather that versus the number that you show in the table for the year in terms of the weather impact, does that mean that the fourth quarter was a $0.015 or $0.02?

Yes.

Okay. And as far as the guidance, I just want to make sure I understand. You're assuming in the guidance that you get the interim as it stood?

Yes.

Okay. Included in your comments in the guidance about normal weather, does that include what looks to be like maybe a pretty weak January as well?

It doesn't, the $0.07 was based off of the actual results it compared to our budget. Weather right in -- weather started out favorable in the first part of January, but then turned unfavorable at the last half. But that's one month, it doesn't make the year.

Right. Just want to make sure it hasn’t taken effect for -- with what looked to be a pretty miserable January really. So as far as numbers looking at Fargo as sort of the benchmark for your service territory, looks like it was down slightly, so there really was no net pickup versus last year's January?

I think that's fair, yes.

Okay. The fourth quarter in Plastics actually looked like it was maybe a little better then you were expecting, can you give us a little color on that?

Sure, so in terms of the fourth quarter, the quarter-over-quarter comparison, we did have about 6% more pounds that were shipped in the fourth quarter of '16 compared to '15. However, that was offset by about a 6% decline in the price of pipes sold between the quarters. So margins were down slightly and were we saw a pickup was the -- we ended up with higher than forecasted taxable earnings. And so we had a stronger Section 199 deduction that came through in the fourth quarter of '16 compared to the fourth quarter of '15, we didn’t get the Section 199 deduction and that helped drive the stronger quarter as well.

Okay, what were the benefits in Texas and California at Plastics for 2016, that you don’t expect to recur?

Well the Texas markets we had some opportunities we were able to take advantage of to ship pipe into favorably in '16. As we head into '17, we’re not expecting to have the same types of opportunities to move volume in Texas that we had in '16. If the markets change we'll certainly be able to take advantage of that and then in terms of we look -- as we look at our customers in California, we are expecting that we will see some more volumes from some of our customers that had bigger years in '16, and then what they are saying in '17.

One more thing Kevin, you have had occasion to talk about what you think normal earnings levels should look like manufacturing and plastics. And now that you've added the capacity and you've worked on cost and efficiency, have you got a new base level that you could talk about in those two segments?

Sure, in terms of manufacturing we certainly believed that we should -- consolidated basis as most of this is driven BTD, that we should be able to return to a return on sales level of 5%. And plastics we typically believe we should be able to make kind $0.045 a pound in that business. And we were a little bit below that here in '16 and so that’s kind of our metric that we keep holding the business accountable to and like I said, we were off a little bit in '16, but as we look at planning for the business, we certainly will look to make $0.045 a pound kind of number.

Okay great. Thanks for the color guys. I appreciate it.

Thank you. I'm showing no further question at this time, I'd like to turn the call back over to Chuck MacFarlane for closing remarks.

Thank you, during the last several years Otter Tail Corporation has been moving toward a business model with two platforms. The result is a focused manufacturing platform combined with a core utility platform. All of our operating companies focused on our long term compound annual earnings per share growth goal that Kevin has just described. While we are currently below this goal we are confident we will be back in a range given our pipeline of rate based projects and our efforts to return our companies to historic return on sales levels, when the current down cycle in manufacturing segment improves. We expect 2017 earnings to be in the range of a $1.60 to a $1.75 per share as we execute on our objectives to grow the businesses, achieve operation excellence and develop our employees. We want to thank all of our employees of their hard work and we want to thank you for joining our call and for your interest in Otter Tail Corporation. We look forward to speaking with you next quarter.

Ladies and gentlemen, this concludes today's conference, thanks for your participation, have a wonderful day.