Good morning and welcome to Otter Tail Corporation’s Second Quarter 2019 Earnings Conference Call. Today’s call is being recorded and we will hold a question-and-answer session after prepared remarks. I will now turn the call over to the company for opening comments.

Good morning, everyone, and welcome to our call. My name is Loren Hanson and I manage Otter Tail’s Investor Relations area. Last night, we announced our second quarter 2019 earnings results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A replay of the call will be available on our website later today. With me on the call today are Chuck MacFarlane, Otter Tail Corporation’s President and CEO; and Kevin Moug, Otter Tail Corporation’s Senior Vice President and Chief Financial Officer. Before we begin, I want to remind you that we will be making forward-looking statements during this call. 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. 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 due to new information, future events, developments or otherwise. For opening remarks, I will now turn the call over to Otter Tail Corporation’s President and CEO, Mr. Chuck MacFarlane.

Thank you, Loren. Good morning, everyone. Last night, we released our second quarter results. Please refer to Slide 5 as I begin my comments. Operating revenues increased slightly quarter-over-quarter, while net income and earnings per share decreased compared to second quarter 2018. Our financial performance is in line with our expectations and we are reaffirming our 2019 guidance range of $2.10 to $2.25. Our Electric segment quarter-over-quarter earnings decreased mainly due to the planned outage at Coyote Station, unexpected turbine repairs at our Hoot Lake Plant and milder weather. As anticipated, our Plastics segment’s second quarter results were lower than 2018, due to lower sales prices on slightly higher volumes. We expect our financial performance for the second half of 2019 to remain in line with our forecast. Recall, the last half of 2018 included a planned outage at Big Stone Plant, costs associated with the establishment of foundations at Otter Tail Corporation and Otter Tail Power, and the increased expense related to certain tax matters. We don’t expect these costs to reoccur in the second half of 2019. Let’s take a closer look at Otter Tail Power. Investments on Slide 11, including the Merricourt Wind Energy Center and Astoria Station, along with our South Dakota Transmission Reliability project will produce some annual rate base growth of 8.6% between 2018 and 2023, in a constructive regulatory environment. I’ll touch briefly on a few of these projects. On Slide 14, you’ll see that July 16 marked a significant milestone for the Merricourt Wind Energy Center, when Otter Tail Power closed on the purchase of development assets and issued a notice to proceed for construction. The project has received Minnesota Renewable Resource Rider and North Dakota Advance Determination of Prudence approvals. We estimate the project will cost approximately $270 million and will…

Thanks, Chuck, and good morning. Consolidated earnings per share for the quarter were in line with our expectations, despite the extended planned outage at Coyote Station, the unplanned outage at Hoot Lake Plant and milder weather compared with the second quarter last year. Our Manufacturing segment had another solid quarter with net earnings up 11%. In our Plastics segment, earnings were in line with expectations. Please refer to Slide 22 and 23, as I discuss our second quarter results. Electric segment net earnings decreased $3 million quarter-over-quarter. The key items causing this decline were higher O&M expenses, primarily related to the $2.6 million increase in maintenance and material costs associated with the extended outage at our Coyote Station and an unplanned outage at our Hoot Lake Plant related to turbine repairs; lower revenues related to milder weather quarter-over-quarter. Weather negatively impacted earnings by $0.03 a share compared to the second quarter of 2018 and compared to normal, weather had a positive impact of a $0.01 a share. Other items affecting the quarter are increased retail revenues in Minnesota, due to a reduction in expected refunds associated with the Tax Cut and Jobs Act. The effect of lower tax expense recovery requirement was rolled into base rates starting in June of 2019. Interim rates, net of estimated refunds associated with our South Dakota rate case, they went into effect in October of 2018, increased renewable resource, transmission and conservation improvement cost recovery revenues in Minnesota and increased revenues due to the establishment of a generation cost recovery rider in North Dakota related to the Astoria Station, while under construction. These items were offset in part by increased property and depreciation expense and income tax expense increased, despite lower pre-tax earnings due to the decrease in federal Production Tax Credits, which expired…

Thank you. [Operator Instructions] Our first question comes from Tate Sullivan of Maxim Group. Your line is open.

Hi, thank you. Thank you. Good morning and thank you for those comments. Real quickly, I have a couple of follow-ups on utility. Kevin, I’m sorry, if you went over it a little earlier, the higher CapEx guidance for materials, what causes the estimate revision in that? And I assume it’s all rate based too.

Yeah, thanks for the question, Tate. The revision in the CapEx is additional wind related. We have an option to purchase the Ashtabula wind farm. That is now included in our 2022 timeframe of CapEx. That’s been moved forward from 2023. And then also, there is additional technology kind of related investments that we are looking at, that have been included in the revised CapEx as well.

Okay. Thank you. And then manufacturing, Chuck, did I hear you earlier say that you added employees in 2Q or did I hear later that it was a stable headcount in the Atlanta region facility, in BTD?

Yeah, Tate, in BTD, the reference was to BTD. And in 2018, we increased employee levels about 15%. And that varies by location. But it was primarily the Georgia and one of the Minnesota locations. And the comment was that in 2019, we are at sort of static employee levels. We have not increased or decreased employee levels through the first half of 2019.

Okay. And then, I don’t think I missed it early. I saw your comments and heard about the lower scrap prices in BTD. What are the drivers behind that, in general?

Yeah, I mean there has been lower steel pricing in the market, Tate. And so, then as a result, as those lower steel prices have come down and scrap metal prices have come down as well.

And is that dynamic still in place for this current quarter too, the…?

The dynamic, we expect the dynamic to be in place for the rest of the year like we said in our comments.

Okay.

It was in place in the second quarter and we continue to expect in our guidance, our forecast reflects those lower scrap prices through the rest of the year.

Okay, thank you. And last for me, on Plastics and the pricing versus the volumes, and I understand, is it consistent to how has it worked in the last couple of years? Was it a delay to factor in lower resin prices on the pricing side for the PVC, please?

Sorry, maybe just to clarify, are you referring to sales prices, resin prices, or both?

Sales prices, excuse me. Yeah. What drove the lower sales prices specifically?

I think that there – 2018 was our record year for us in terms of earnings and sales prices and operating margins. And as we headed into 2019, Tate, based on where we expected resin prices to move up and we were seeing some softening in sales prices, we just didn’t expect the sales price levels in 2018 could hold through all of 2019 and that you’ve seen a softening in sales prices in the first 6 months of the year. And they are slightly lower throughout 2019 compared to 2018. On the resin price, as we headed into the year, we expected that there were going to be increased resin prices coming from our suppliers. And while we’ve seen some increases, we now think that there is going to be moderation in those increases the rest of the year. And so, as a result, that uplift in the guidance from the first quarter and the second quarter is being driven by that moderation in expected resin price increases.

Okay. Okay. Thank you for that and have a good rest of the day.

Thanks, Tate.

Thanks, Tate.

Thank you. And our next question comes from Chris Ellinghaus of Williams Capital. Your line is open.

Hey guys, Good afternoon.

Hey, Chris.

Kevin, I appreciate Slide 27. But it kind of ruined half of my question. The...

[Right, but thank you to you] [ph], Chris.

I knew you were. How do we think about the foundation and win, and so future contribution timing?

Yeah, we had a – it was a $2 million contribution to the parent company foundation last year to – and to get it on good footing and establish it on a go-forward basis. Every year, in our budget plans we anticipate that we would contribute to the foundation. And as we go throughout the year, we look at where we’re at in terms of the foundation and how it’s proceeding with its activities and its needs. And so, we will evaluate that on an annual basis. This year, we think we’re in good shape with the $2 million contribution that we’ve made to it and don’t see a need to put any additional funds into it this year.

Okay, great. Chuck, you were talking about the interconnection opportunity. Can you just make or clarify, is that money in the CapEx now? And is it completely in the CapEx?

It would be in the $1.1 billion estimate. The range I gave of the 30% to 55% is in there. There could be a future – each time an interconnection customer, which is generally not Otter Tail Power, it’s somebody else hooking up a wind-farm that interconnects or has network upgrade implications to our system, adds that. So as renewables grow in our region, we anticipate there could more in future years. But we have not included anything other than known projects in the $37 million estimate that’s on Page 12 over the deck.

Okay. So that’s your best current guess?

Correct. But we anticipate there’ll be more to show, but we don’t – some of these customers haven’t even made interconnection request that could show up within the 2023 or 2018 to 2023 timeframe. But we haven’t included anything on projects where we aren’t aware of it, I guess.

Okay. PVC, the Plastics segment, your guidance is still suggesting that you would be at a level that’s consistent with or slightly higher than 2017, that was – it got the hurricane benefit. Is this sort of your thought process? Is 2019 sort of the new-normal for the Plastics segment? This will be maybe the second best year ever down from the spike in 2018, but is this the new-normal?

Chris, this is Kevin. I think we’re still not expecting that, call it, the $20 million range. It might be, and I’d say, the high-end of the new normal. I think we still -- as we look and see the dynamics in the industry, a range of normal, I would say is – I’m going to say in that $16 million to $20 million range.

Okay. The Hoot Lake outage, can you give us a number for what that costs?

It was a $0.01 a share, so roughly above a little – a little over $300,000.

Okay. And lastly, with the Merricourt scheduled to start construction this month, would -- have you got any update or change in thought process on when you think it will be complete?

No real change. We continue to believe it will be in the late third or fourth quarter of 2020. It’s a fully 100% PTC safe harbored project, so it has to be in and operational before the end of 2020.

Great. Okay, great. Thanks for the details, guys.

Thanks, Chris.

Thank you. [Operator Instructions] And at this time, I’m showing no other callers in the queue for questions. I’d like to turn the call back over to Mr. MacFarlane for closing remarks.

Thank you. Our financial performance continues to demonstrate the value, of employee actions to grow our business, achieve operational and commercial excellence and develop talent. We are excited to have Astoria and Merricourt projects moving to construction. And we are reaffirming our 2019 earnings per share guidance range of $2.10 to $2.25. Thank you for your continued interest in Otter Tail Corporation. We appreciate you joining our call and we look forward to speaking with you next quarter.

Ladies and gentlemen, thank you for participation in today’s conference. You may now disconnect. Everyone, have a wonderful day.