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, 2021.Otter Tail Corporation and its subsidiaries form a diverse group of businesses with operations classified into three segments: Electric, Manufacturing and Plastics. Our Electric 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.
COVID-19
We continue to monitor the progression of COVID-19 and its impact on our business. As this pandemic continues, we are following the directives and advice of government leaders and medical professionals and have adopted practices to help curtail the spread of the virus and mitigate its impact on our employees, customers, vendors and other business partners, and communities in which we live and work. While the impact of COVID-19 did not materially impact our operating results in 2021 or the first quarter of 2022, uncertainty remains regarding the magnitude and duration of the pandemic and the resulting potential future financial effects. Increased infection rates and any future responses to mitigate the spread of the virus, including any potential vaccination mandates that would apply to our employees, could impact our business and our financial results in future periods. We continue to monitor developments involving our workforce, customers, construction contractors, suppliers and vendors, and the financial effects on our business. However, due to the unprecedented and evolving nature of this pandemic, we cannot predict the full extent of the impact COVID-19 will have on our operating results, financial condition and liquidity. RESOURCE MATERIAL AVAILABILITY AND PRICING The cost of steel and PVC resin, two key material inputs to our Manufacturing and Plastics segments, respectively, significantly impacted our operating results in the first quarter of 2022. Steel prices increased rapidly throughout 2021 and remained elevated in the first quarter of 2022. The increase in steel prices has led to increased sale prices 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. Consistent with steel prices, scrap metal prices also increased throughout 2021 and remained elevated in the first quarter of 2022. Steel costs remain elevated as mill prices and supply chain costs remain significantly higher than historical levels. While steel costs are expected to moderate through 2022, they are expected to remain historically high through the year. Scrap metal prices are also expected to moderate throughout the year. PVC resin is the primary material input of the PVC pipe manufactured by our Plastics segment businesses. Resin supply disruptions throughout 2021, along with robust domestic and global demand for PVC resin, led to significantly increased resin prices. Resin supply disruptions also resulted in reduced manufacturing of PVC pipe and low pipe inventories across the industry. The combination of disrupted PVC resin supply and the resulting low PVC pipe inventories along with robust demand for PVC pipe led to rapidly increasing sale prices for PVC pipe throughout 2021, which continued in the first quarter of 2022. The increase in sale prices has outpaced the increase in PVC resin costs, leading to expanding gross profit margins and a significant increase in earnings in our Plastics segment. While PVC resin supplies have improved, the price of PVC resin is now increasing again, driven by rising feedstock prices from energy supply disruptions resulting from the conflict inUkraine . This has created an environment forU.S. resin producers to raise domestic prices and a strengthening of the export markets for PVC resin. In addition, beginning in the second half of 2021 and continuing in the first quarter of 2022, supply constraints for additives and other ingredients aside from PVC resin used to manufacture PVC pipe prevented PVC pipe manufacturers from being able to build inventory levels. We currently expect the unique market dynamics we experienced in 2021 and the first quarter of 2022 to continue through the second quarter of 2022, but begin to subside in the second half of 2022 due to anticipated resin price declines and slowing demand, thus impacting our gross profit margins. Should current market conditions continue through the second half of 2022, our Plastics segment financial results could exceed current expectations.
The marketplace dynamics impacting both our Manufacturing and Plastics segments are fluid and subject to change which 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.
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CONSOLIDATED RESULTS
The following table summarizes consolidated operating results for the three
months ended
(in thousands) 2022 2021 $ change % change Operating Revenues$ 374,904 $ 261,710 $ 113,194 43.3 % Operating Expenses 276,605 217,511 59,094 27.2 Operating Income 98,299 44,199 54,100 122.4 Interest Charges 8,948 9,398 (450) (4.8) Nonservice Cost Components of Postretirement Benefits (22) 383 (405) (105.7) Other Income 260 1,160 (900) (77.6) Income Before Income Taxes 89,633 35,578 54,055 151.9 Income Tax Expense 17,630 5,249 12,381 235.9 Net Income$ 72,003 $ 30,329 $ 41,674 137.4 % Operating Revenues increased$113.2 million primarily due to rising PVC pipe prices within our Plastics segment and increased material costs leading to increased sales prices in our Manufacturing segment. Increased retail revenues partially offset by decreased wholesales revenues within our Electric segment also contributed to higher operating revenues in the first quarter of 2021 compared to the same period last year. See our segment disclosures below for additional discussion of items impacting operating revenues. Operating Expenses increased$59.1 million primarily due to increased costs of products sold in our Plastics and Manufacturing segments due to increased raw material costs. Operating expenses in our Electric segment increased primarily due to higher operating and maintenance expenses and increased purchased power costs. See our segment disclosures below for additional discussion of items impacting operating expenses. Interest Charges decreased$0.5 million due to a decrease in the interest rate on our$140.0 million of fixed-rate long-term debt that was refinanced inDecember 2021 , and a lower level of average short-term borrowings outstanding in 2022 compared to 2021. Nonservice Cost Components of Postretirement Benefits decreased$0.4 million primarily due to the amortization of actuarial gains resulting from the increase in the discount rates used to measure our pension benefit and postretirement benefit liabilities as ofDecember 31, 2021 .
Other Income decreased
Income Tax Expense increased$12.4 million primarily due to increased income before income taxes. Our effective tax rate was 19.7% in the first quarter of 2022 and 14.8% in the first quarter of 2021. The increase in our effective tax rate was driven by an increase in our income before income taxes without a corresponding increase in tax credits and other permanent differences that impact our effective tax rate. 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 2022 and 2021. ELECTRIC SEGMENT RESULTS The following table summarizes Electric segment operating results for the three months endedMarch 31, 2022 and 2021: (in thousands) 2022 2021 $ change % change Retail Revenues$ 113,639 $ 105,706 $ 7,933 7.5 % Transmission Services Revenues 12,556 11,944 612 5.1 Wholesale Revenues 2,463 4,507 (2,044) (45.4) Other Electric Revenues 1,758 1,542 216 14.0 Total Operating Revenues 130,416 123,699 6,717 5.4 Production Fuel 14,853 14,714 139 0.9 Purchased Power 20,529 19,260 1,269 6.6 Operating and Maintenance Expenses 44,278 41,421 2,857 6.9 Depreciation and Amortization 18,382 17,308 1,074 6.2 Property Taxes 4,432 4,320 112 2.6 Operating Income$ 27,942 $ 26,676 $ 1,266 4.7 % 2022 2021 change % change Electric kilowatt-hour (kwh) Sales (in thousands) Retail kwh Sales 1,515,297 1,348,519 166,778 12.4 % Wholesale kwh Sales - Company Generation 66,187 80,423 (14,236) (17.7) Heating Degree Days 3,821 3,078 743 24.1 20
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The operating results of our Electric segment are impacted by fluctuations in weather conditions and the resulting demand for electricity for heating and cooling. The following table shows heating degree days as a percent of normal for the three months endedMarch 31, 2022 and 2021. 2022 2021 Heating Degree Days 111.8 % 89.5 % 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 2022 and 2021, and between years. 2022 vs 2022 vs 2021 vs Normal 2021 Normal
Effect on Diluted Earnings Per Share
Retail Revenues increased
•A
•A$3.6 million increase in fuel recovery revenues primarily due to increased production fuel and purchase power costs and a decrease in credits provided to retail customers from decreased margins recognized on wholesale sales.
•A
•A$2.4 million decrease in interim rate revenue inMinnesota as a result of ourApril 2021 filing with the MPUC in which we lowered our requested net annual revenue increase, primarily due to a reduction in operating costs from amounts included in our original filing. Wholesale Revenues decreased$2.0 million as a result of a 18% decrease in wholesale sales volumes and a 34% decrease in wholesale prices. Wholesale energy sales in the first quarter of 2021 were comparatively higher due to high prices driven by high market demand and availability constraints caused by winter storm activity, which drove up spot market prices for electricity. Production Fuel costs increased$0.1 million as a result of increased fuel cost per kwh, which was largely offset by a 15% decrease in kwhs generated from our fuel-burning plants due to the retirement of our coal-burning HootLake Plant inMay 2021 .
Operating and Maintenance Expense increased$2.9 million due to increased operating and maintenance costs as a result of Merricourt andAstoria Station because the facilities were fully operational in the first quarter of 2022 and were ramping up in the previous year because they had recently been placed into service; increased incentive compensation costs related to current year financial and operational performance; increased travel costs resulting from eased COVID restrictions; and increased insurance costs. These increased costs were partially offset by a decrease in CIP expenses as CIP spending decreased compared to the previous year.
Depreciation and Amortization expense increased
MANUFACTURING SEGMENT RESULTS The following table summarizes Manufacturing segment operating results for the three months endedMarch 31, 2022 and 2021: (in thousands) 2022 2021 $ change % change Operating Revenues$ 104,957 $ 75,825 $ 29,132 38.4 % Cost of Products Sold (excluding depreciation) 86,161 56,311 29,850 53.0 Other Operating Expenses 8,847 8,212 635 7.7 Depreciation and Amortization 4,014 3,757 257 6.8 Operating Income$ 5,935 $ 7,545 $ (1,610) (21.3) % Operating Revenues increased$29.1 million primarily due to a$29.3 million increase in material costs at BTD, which are passed through to customers, as a result of higher steel prices. Steel prices increased rapidly throughout 2021 and remained elevated in the first quarter of 2022, which resulted in increased revenues as we sell through high-priced inventory. Operating revenues also increased slightly due to price increases related to inflationary costs being experienced across the business. The increase in operating revenues was partially offset by a 5% decrease in sales volumes. End market demand has remained strong, however, supply chain disruptions experienced by our OEM customers have led to unpredictable shipments of products as customers have delayed or adjusted their shipment timing in response to other supply chain challenges they are experiencing, which has negatively impacted our sales volumes. Increases in sales prices and volumes at T.O. Plastics, due to strong customer demand in the horticulture sector, also contributed to the segment increase in operating revenues. Cost of Products Sold increased$29.9 million primarily due to higher material, labor and freight costs at BTD. The increase in material cost was largely driven by increased steel prices as mentioned above. The increases in labor and freight costs, and lower productivity resulted in lower gross profit margins compared to the same period in 2021. Aligning labor with unpredictable demand led to lower production efficiency which had a
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Table of Contents negative impact on gross profit margins. Increases in sales volumes at T.O. Plastics also impacted costs of products sold, and gross profit margins were negatively impacted by product mix and increased maintenance and freight costs. Other Operating Expenses increased$0.6 million due to increases in various cost categories including salaries and wages, due to increases in headcount compared to the previous year, and software and service provider costs, partially offset by lower incentive compensation. PLASTICS SEGMENT RESULTS The following table summarizes Plastics segment operating results for the three months endedMarch 31, 2022 and 2021: (in thousands) 2022 2021 $ change % change Operating Revenues$ 139,531 $ 62,186 $ 77,345 124.4 % Cost of Products Sold (excluding depreciation) 65,598 45,666 19,932 43.6 Other Operating Expenses 3,964 2,944 1,020 34.6 Depreciation and Amortization 1,107 990 117 11.8 Operating Income$ 68,862 $ 12,586 $ 56,276 447.1 % Operating Revenues increased$77.3 million primarily due to a 125% increase in the price per pound of PVC pipe sold. The increase in sale prices was primarily due to continued strong demand for PVC pipe products and limited PVC pipe inventories. The unique supply and demand market conditions in the first quarter of 2022 were a continuation of the market dynamics experienced throughout 2021. In the first quarter of 2022, we, along with other PVC pipe manufacturers, experienced supply constraints of additives and other ingredients used to make PVC pipe, which prevented us and others from being able to build inventory levels. PVC resin supply disruptions improved during the quarter. Expected declines in the price of PVC resin did not materialize and resin prices continued to increase in March due to increasing feedstock prices and stronger than expected export markets. Sales volumes in the first quarter of 2022 were consistent with sales volumes in the first quarter of 2021. Cost of Products Sold increased$19.9 million primarily due to increased PVC resin and other input material costs, which increased 52% due to the market conditions described above. Labor, freight and various non-resin material costs also increased from the previous year.
Other Operating Expenses increased
CORPORATE COSTS The following table summarizes Corporate operating results for the three months endedMarch 31, 2022 and 2021: (in thousands) 2022 2021 $ change % change
Other Operating Expenses
71 (26) (36.6)
Operating Loss $ 4,440 $ 2,608 $ 1,832 70.2 %
Other Operating Expenses increased $1.9 million primarily due to increased
compensation expenses, including stock and incentive compensation, in the first
quarter of 2022 which were higher than the amount recognized in the same period
in the previous year due to our current year financial performance.
REGULATORY RATE MATTERS
The following provides a summary of general rate case filings, 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.
GENERAL RATES Minnesota Rate Case: OnNovember 2, 2020 , OTP filed a request with the MPUC for an increase in revenue recoverable through base rates inMinnesota . In its filing, OTP requested a net increase in annual revenue of approximately$14.5 million , or 6.77%, based on an allowed rate of return on rate base of 7.59% and an allowed rate of return on equity of 10.20% on an equity ratio of 52.5% of total capital. Through this proceeding, OTP had proposed changes to the mechanism of cost recovery, with some costs moving from riders into base rates and fuel, purchased power, and conservation program costs moving out of base rates and into riders. The filing also included a revenue decoupling mechanism proposal. Such mechanisms are designed to separate a utility's revenue from changes in energy sales. The decoupling mechanism uses a tracker balance through which authorized customer margins are subject to a true-up mechanism to maintain or cap a given level of revenues. OnDecember 3, 2020 , the MPUC approved an interim annual rate increase of$6.9 million , or 3.2%, effectiveJanuary 1, 2021 . This approval was provided after an alternative recovery proposal was submitted by OTP which, among other changes, requested the extension of depreciable lives of certain wind-related assets and proposed deferral of certain cost recovery decisions to the final rate determination. In the aggregate, this alternative recovery proposal reduced operating costs and delayed recovery of certain other costs by approximately$7.0 million to lessen the interim rate impact on customers. In a filing submitted to the MPUC onApril 30, 2021 , OTP lowered its initially requested net annual revenue increase from$14.5 million to$8.2 million , primarily due to a reduction in operating costs from amounts included in itsNovember 2020 filing. Among other items, the cost reductions included lower depreciation expense on our wind generation assets due to the extension of depreciable lives from 25 to 35 years and a reduction in postretirement benefit costs. 22
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Table of Contents OnFebruary 1, 2022 , the MPUC issued its written order. The key provisions of the order include a revenue requirement of$209.0 million , based on a return on rate base of 7.18% and an allowed return on equity of 9.48% on an equity ratio of 52.5%. The order also authorizes recovery of our remaining HootLake Plant net asset over a five-year period, and approves the requested decoupling mechanism for most residential and commercial customer rate groups with a cap of 4% of annual base revenues. OnMarch 8, 2022 , OTP filed its final rate case compliance filing, which included final revenue calculations, rate design and resulting tariff revisions, along with a proposal for interim rate refunds. The final calculations included a revision to the calculation of interim rates. If approved by the MPUC, this revision could increase interim revenues in the period the filing is approved by an amount of approximately$4.0 million . We expect the MPUC will issue its order and implement final rates in mid-2022. 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 Notes Includes recovery of energy conservation CIP - 2022 MN Requested 04/01/22 $ 10.8 10/01/22 improvement costs as well as a demand side management financial incentive. Includes recovery of energy conservation CIP - 2021 MN Approved 04/01/21 9.4 12/01/21 improvement costs as well as a demand side management financial incentive. TCR - 2021 MN Requested 11/23/21 7.2 07/01/22 Includes recovery of two new transmission projects. Includes return on Hoot Lake Solar RRR - 2021 MN Requested 12/06/21 7.0 07/01/22 construction costs and costs associated with the acquisition of the Ashtabula III wind farm. RRR - 2021 ND Approved 03/07/21 11.8 04/01/21 Includes recovery of Merricourt investment and operating costs. Includes Merricourt recovery, the proposed RRR - 2022 ND Approved 01/05/22 7.8 04/01/22 purchase of Ashtabula III and credits related to deferred taxes and production tax credits. TCR - 2021 ND Approved 09/15/21 6.1 01/01/22 Includes recovery of three new transmission projects/programs. TCR - 2020 ND Approved 11/18/20 5.6 01/01/21 Includes recovery of eight new transmission projects. Includes recovery of Astoria Station, net GCR - 2021 ND Approved 03/01/21 5.2 07/01/21 of anticipated savings associated with the retirement of Hoot Lake Plant. GCR - 2022 ND Requested 03/01/22 3.3 07/01/22 Annual update to generation cost recovery rider. TCR - 2020 SD Approved 01/29/20 2.3 03/02/20 Annual update to transmission cost recovery rider. TCR - 2021 SD Approved 10/29/21 2.2 03/01/22 Annual update to transmission cost recovery rider. TCR - 2021 SD Approved 02/19/21 2.2 03/01/21 Includes recovery of two new transmission projects. INTEGRATED RESOURCE PLAN OnSeptember 1, 2021 , OTP filed its 2022 Integrated Resource Plan (IRP) concurrently with regulators in the three states where OTP operates,Minnesota ,North Dakota andSouth Dakota . The 2022 IRP includes OTP's preferred plan for meeting customers' anticipated capacity and energy needs while maintaining system reliability and low electric service rates.
The components of OTP's preferred plan include:
-the addition of dual fuel capability at our
-the addition of 150 megawatts of solar generation in 2025;
-the addition of 100 megawatts of wind generation in 2027;
-the commencement of the process of withdrawing from our 35 percent ownership interest inCoyote Station , a jointly owned, coal-fired generation plant, byDecember 31, 2028 ; and
-the addition of 50 megawatts of solar generation in 2033.
Although the 2022 IRP includes planned actions beyond 2026, regulators will not act upon or approve planned actions in periods beyond 2026 as part of our 2022 IRP filing. Subject to regulatory approval, the preferred plan proposes to create a regulatory asset as a vehicle to recover costs related to a future withdrawal fromCoyote Station , including the net book value of the plant on the withdrawal date, anticipated decommissioning costs and any required costs incurred as a result of an early termination of the existing lignite sales agreement, under whichCoyote Station acquires all of its lignite coal from a nearby mine. As part of the filing, OTP developed an estimate of the reasonably foreseeable costs of withdrawing fromCoyote Station at the end of 2028 of$68.5 million . These costs may differ from actual results due to the uncertainty and timing of future events associated with the terms and conditions of a withdrawal.
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Table of Contents We currently anticipate the MPUC, barring any delays in the procedural schedule, will hold deliberations and render a decision on the IRP by the end of 2022. There currently is no procedural schedule established for this IRP by theNorth Dakota Public Service Commission .
LIQUIDITY
LIQUIDITY OVERVIEW We believe our financial condition is strong and our cash, other liquid assets, operating cash flows, existing lines of credit, access to capital markets and borrowing ability, because of investment-grade credit ratings, when taken together provide us ample liquidity to conduct our business operations, fund our short-term and long-term capital expenditure plans and satisfy our obligations as they become due. Our liquidity, including our operating cash flows and access to capital markets, can be impacted by macroeconomic factors outside of our control. In addition, our liquidity could be impacted by non-compliance with covenants under our various debt instruments. As ofMarch 31, 2022 , we were in compliance with all financial covenants (see the Financial Covenants section under Capital Resources below). The following table presents the status of our lines of credit as ofMarch 31, 2022 andDecember 31, 2021 : 2022 2021 Amount Letters Amount Amount (in thousands) Line Limit Outstanding of Credit Available Available OTC Credit Agreement$ 170,000 $ 43,281 $ -$ 126,719 $ 147,363 OTP Credit Agreement 170,000 54,489 7,844 107,667 88,315 Total$ 340,000 $ 97,770 $ 7,844 $ 234,386 $ 235,678 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.
CASH FLOWS
The following is a discussion of our cash flows for the three months ended
(in thousands) 2022 2021
Net Cash Provided by Operating Activities
Net Cash Provided by Operating Activities increased$30.1 million for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The increase in cash provided by operating activities was primarily the result of increased earnings during the year, which was partially offset by increased working capital needs. Our level of working capital increased year over year and was impacted by increased accounts receivables within our Manufacturing and Plastics segments, due to strong sales volumes and significantly increased sales prices in 2022, partially offset by increased accounts payable due to increased material costs in our Manufacturing and Plastics segments in 2022. Operating cash flows were also reduced by a discretionary contribution to our pension plan of$20.0 million during the three months endedMarch 31, 2022 , compared to a contribution of$10.0 million in 2021. (in thousands) 2022 2021
Net Cash Used in Investing Activities decreased$17.6 million for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 . The decrease in capital expenditures was primarily related to costs incurred in 2021 by OTP to complete ourAstoria Station project, and other one-time projects. Capital investment spending in our Manufacturing and Plastics segments also decreased from the previous year. (in thousands) 2022
2021
Net Cash (Used in) Provided by Financing Activities decreased$47.9 million for the three months endedMarch 31, 2022 compared to the three months endedMarch 31, 2021 , primarily as a result of a decrease in financing needs given the lower level of capital spending in our Electric segment and the increase in cash provided by operating activities. 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 . Financing activities for the three months endedMarch 31, 2021 included net proceeds from short-term borrowings of$53.9 million , primarily incurred to fund major construction projects, and dividend payments of$16.2 million . CAPITAL REQUIREMENTS 24
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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 in our electric segment are investments in electric generation facilities, including wind and solar investments, environmental upgrades, transmission lines and distribution systems, and computer hardware and information systems. Our electric segment capital expenditure program is subject to review and regulatory approval and is revised in light of changes in demands for energy, technology, environmental laws, regulatory changes, business expansion opportunities, the costs of labor, materials and equipment and our financial condition. Our future capital expenditure plans also include investments in manufacturing facilities and facility upgrades, manufacturing equipment additions and upgrades and additional technology assets to be used in our manufacturing operations. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Form 10-K for the year ended December 31, 2021 for our capital expenditure plan for the five year period from 2022 through 2026. 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 easement and leasing arrangements. Our contractual obligations as ofDecember 31, 2021 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, 2021 . There were no material changes in our contractual obligations outside of the ordinary course of our business during the three months endedMarch 31, 2022 . Off-Balance Sheet Arrangements As ofMarch 31, 2022 , we have outstanding letters of credit totaling$11.0 million , a portion of which reduces our borrowing capacity under our lines of credit. No outstanding letters of credit are reflected in outstanding short-term debt on our consolidated balance sheets. We do not have any other off-balance-sheet arrangements or any relationships with unconsolidated entities or financial partnerships that have, or are reasonably likely to have, a material current or future effect on our financial condition. These entities are often referred to as structured finance special purpose entities or variable interest entities, which are established for the purpose of facilitating off-balance-sheet arrangements or for other contractually narrow or limited purposes. We are not exposed to any financing, liquidity, market or credit risk that could arise if we had such relationships. COMMON STOCK DIVIDENDS We paid dividends to our common stockholders totaling$17.2 million , or$0.4125 per share, in the first three months of 2022. The determination of the amount of future cash dividends to be paid will depend on, among other things, our financial condition, improvement in earnings per share, 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, restrictions could occur on the amount of distributions allowed to be made by our subsidiaries. See Note 10 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. The decision to declare a dividend 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, which is aided by strong financial coverages and investment grade credit ratings. Debt financing will be required in the five-year period from 2022 through 2026 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, decisions to reduce borrowings under our lines of credit, to refund or retire early any of our presently 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 a 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, 2022 , there was 1,348,716 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 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, 2022 :
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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
- 7,844
Amount Outstanding as of March 31, 2022 43,281 54,489
Average Amount Outstanding During the Three Months Ended
35,493 66,098
Maximum Amount Outstanding During the Three Months Ended
58,715 74,519
Interest Rate as of March 31, 2022 1.92 % 1.64 %
September 30,
Maturity Date September 30, 2026 2026
1Each facility includes an accordion featuring allowing the borrower to increase the borrowing limit if certain terms and conditions are met.
LONG-TERM DEBT AtMarch 31, 2022 , we had$767.0 million of principal outstanding under long-term debt arrangements. These instruments generally provide for unsecured borrowings at fixed rates of interest with maturities ranging from 2022 to 2051. Pursuant to a Note Purchase Agreement executed inJune 2021 , OTP intends to issue its Series 2022A notes dueMay 20, 2052 , inMay 2022 for aggregate proceeds of$90.0 million , subject to the satisfaction of certain customary conditions to closing, and use a portion of the proceeds to repay the$30.0 million Series 2007B Notes which are maturing inAugust 2022 . 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.
Financial Covenants
Certain of our short- and long-term debt agreements require OTC and OTP to
maintain certain financial covenants. As of
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% of our total capitalization. As ofMarch 31, 2022 , our interest-bearing debt to total capitalization was 0.45 to 1.00, our interest and dividend coverage ratio was 8.35 to 1.00, and we had no priority indebtedness outstanding. OTP, under its financial covenants, may not permit its ratio of 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 debt to exceed 20% of its total capitalization. As ofMarch 31, 2022 , OTP's interest-bearing debt to total capitalization was 0.47 to 1.00, its interest and dividend coverage ratio was 3.33 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 accounting principles generally accepted 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 disclosure 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, 2021 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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