Good morning, and welcome to Otter Tail Corporation’s Q2 2022 earnings conference call. Today's call is being recorded and we will hold a question-and-session after the prepared remarks. I will now turn the call over to the company for their opening comments.

Good morning, everyone, and welcome to our call. My name is Tyler Akerman. I'm the Manager of Investor Relations at Otter Tail. Last night, we announced our second quarter 2022 financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of the call will be available on our website later today. With me today on the call 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 views and expectations of future events. They are subject to risks and uncertainties, which may cause actual results to differ from those presented here. So, please be advised while 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, Tyler. Good morning, and welcome to our second quarter 2022 earnings call. Otter Tail Corporation achieved record financial results in the second quarter, led primarily by another outstanding quarter in our plastics segment. Please refer to Slide 4 as I begin my comments on our second quarter results. We achieved diluted earnings per share of $2.05, which is an increase of 103% over the second quarter of 2021. A more detailed discussion of our Q2 financial performance will be provided by Kevin, but here is an overview. Our electric segment increased earnings by $3.4 million or 22% over Q2 2021, driven by increased commercial and industrial sales and the finalization of the Minnesota Rate Case interim rate refunds. Our manufacturing segment, earnings increased by $1.85 million or 32% over Q2 2021. The increase in earnings was due to increases in sales prices and volumes, as well as favorable cost absorption. Our plastics segment quarterly earnings increased $41.4 million over Q2 2021, which was primarily due to an 86% increase in the price per pound of PVC pipe sold. Slide 5 reflects the earnings profiles of our business with and without the impact of the plastics segment. Our electric segment is a well-run, fully integrated electric utility, which has delivered continued steady earnings growth and has a solid capital plan that is forecast to deliver 6% rate base growth. This has been accomplished with support of regulatory environments and a demonstrated ability to successfully execute on large-scale capital projects. Our consolidated earnings per share without the plastics segment reflects both the dependable growing earnings of the electric segment, as well as the steady growth we've experienced from BTD and T.O. Plastics, resulting in a historic 8.8% compound annual growth rate, excluding the plastics companies Northern Pipe and Vinyltech. The additional earnings and cash flows generated by the plastics segments in 2021 and 2022 provide additional support to our already strong credit metrics, liquidity, and capital structure. Otter Tail Power continues to work toward a cleaner energy future. As shown on Slide 7, assuming forecast dispatch occurs, we are targeting to reduce carbon emissions from our own generation resources approximately 50% from 2005 levels by 2025 and 97% by 2050. Additionally, our owned and contracted energy generation will be more than 50% renewable by 2025. We continue to execute on our plan to grow Otter Tail Power through capital investments in generation, transmission, distribution, and technology projects. As shown on Slide 11, progress continues on Otter Tail Power's 49-megawatt Hoot Lake Solar project. The project is expected to be completed in 2023. We have contracts in place for thin-film panels, which reduced supply chain risks associated with the United States' restriction on goods from the Xinjiang region of China and the U.S. Department of Commerce circumvent investigation. All costs and benefits of the project are assigned to Minnesota customers. Recovery for the $60 million investment has been approved through the renewable rider. Last month, Otter Tail Power exercised its option to purchase the Ashtabula III wind farm, which is located in Eastern North Dakota. We had a purchase power agreement in place to purchase the wind-generated electricity from Ashtabula III since 2013. That agreement granted us the option to purchase the wind farm after 10 years. We anticipate closing on the transaction in January of 2023. The purchase is subject to customary regulatory approvals. Slide 13 provides the map of tranche 1 portfolio of projects, the MISO Board of Directors approved on July 25. The tranche 1 portfolio includes 18 projects and represents approximately $10.3 billion of new transmission development in the MISO Midwest subregion. It is important to note that the estimated cost for the projects is provided by MISO. Otter Tail Power's internal planning level estimates are still being completed, and we plan to provide more insight on the estimates on our next quarterly call. The Jamestown to Ellendale and the Big Stone South to Alexandria transmission projects are located in Otter Tail Power's service territory and Otter Tail owns two of the endpoint substations. The majority of the investment in these projects will be outside of our current five-year capital investment plan. Otter Tail Power's integrated resource plan filed in September of 2021 continues to move forward. The Minnesota Public Utilities Commission hearing on the IRP is expected to occur during Q1 of 2023. As shown on Slide 14, the preferred plan requests authority to add dual fuel capability to Astoria Station; 150 megawatts of solar are yet to be determined site and to commence the process of withdrawing from our 35% ownership interest in coal-fired Coyote generating plant. We anticipate the North Dakota Department of Environmental Quality will file a state implementation plan for the 2028 Regional Haze compliance with the EPA in August that does not require additional emissions controls. In the preliminary comments provided by EPA to the DEQ, additional significant controls at Coyote Station are viewed as being cost-effective. As reflected on Slide 17, we are projecting an approximate 6% annual rate base growth over the 2021 to 2026 time frame. From 2022 to 2026, Otter Tail Power is forecasting capital expenditures of nearly $1 billion. Rider recovery is expected for nearly half of the forecasted capital spend. Slide 20 shows that even with significant capital investment in recent years, Otter Tail Power has maintained rates lower than the national average. Otter Tail Power continues to monitor fuel costs and works to provide low-cost generation of electricity for its customers through its own generation fleet, as well as market purchases. Our manufacturing segment continues to experience a volatile steel market. Steel prices are declining from the peak in the fourth quarter of 2021. We have managed the high-priced finished goods inventory, as well as steel supply, during the first six months of 2022. T.O. Plastics has increased sales prices, favorable cost absorption and decreased freight costs, which led to increased gross profit margins despite higher material costs in the second quarter. And our plastics segment again delivered record quarterly results as demand for PVC pipe continues to outpace supply. Sales prices continue to increase at a rate higher than raw material price increases. The continued high demand and favorable sales prices for PVC pipe are the main factors for the revised 2022 earnings guidance Kevin will expand on. I'll now turn it over to Kevin to provide an overview of our second quarter results and our updated business outlook for 2022.

Thank you, Chuck, and good morning everyone. Another outstanding quarter with consolidated revenues up 40% and net earnings up 104% over the second quarter of 2021. All of our reporting segments showed quarter-over-quarter earnings growth with the biggest increase driven by the plastics segment. Please refer to Slide 28 as I provide an overview of our second quarter 2022 segment earnings. The electric segment net earnings increased $3.4 million or approximately 22% over the second quarter of 2021. The increase in earnings was primarily driven by increased retail sales volumes from commercial and industrial customers, primarily due to a new commercial customer in North Dakota, a revision in the interim rate revenue calculation, which was approved by the Minnesota PUC in the second quarter of 2022. These items were partially offset by higher O&M costs related to increases in maintenance costs from the planned outage at Coyote Station. There wasn't a planned outage in the second quarter of 2021. Labor costs resulting from storm restoration work. Travel costs resulting from eased COVID restrictions. And these increases were partially offset by decreases in expenses related to our Minnesota rate case and lower SIP expenses compared to the second quarter of 2021. Net earnings for the manufacturing segment increased $1.85 million from the same quarter a year ago, driven by an 8% increase in sales volumes at BTD as end market demand remains strong and our customers' supply chains have begun to improve. Our gross profit margins were positively impacted by increased sales volumes and favorable cost absorption, increased operating revenues related to the increase in material costs, which were also passed through to our customers. T.O. Plastics had sales price increases, driven by strong customer demand in the horticultural sector. Material costs were also higher at T.O. Plastics, but gross profit margins increased as a result of increased sales prices, favorable cost absorption, and decreased freight costs due to passing through freight surcharges to customers. Both BTD and T.O. Plastics have done an excellent job of managing through the challenges associated with the current inflationary environment. The BTD management team continues to demonstrate the ability to manage through challenging and volatile steel markets and have successfully obtained price recovery with higher-priced steel. They have also managed through the high-priced finished goods inventory at the end of 2021 and have been able to increase prices related to our value-add services to offset increasing cost structures related to inflation. T.O. Plastics began implementing product price increases in 2021, recognizing the impact inflation was going to have on its cost structure. They also implemented freight surcharges to customers in the second quarter of 2022 to offset the impact of rising freight costs. Net earnings from the plastics segment increased $41.4 million, compared to the second quarter of 2021. An 86% increase in the price per pound of PVC pipe sold resulted in increased operating revenues and net income. Sales prices continued to increase due to the increase in the cost of resin, strong demand for PVC pipe products and limited PVC pipe inventories. The supply and demand conditions in the second quarter were a continuation of the unique market dynamics experienced throughout 2021. Various supply constraints continued in the second quarter, which impacted the availability of PVC resin additives or other ingredients used to make PVC pipe. This prevented us and other PVC pipe manufacturers from being able to build inventory levels. These supply chain constraints, along with the low inventory levels unfavorably impacted sales volumes, which decreased 6% from the same quarter a year ago. Our corporate costs increased primarily due to investment losses on corporate-owned life insurance policies, other investments, and increases in our health insurance claim costs during the second quarter of 2022, as compared to investment gains in the same quarter of 2021. Moving on to our business outlook. Our updated business outlook on Slide 31 reflects a 2022 diluted earnings per share range of $6.83 to $7.13, compared to the $5.15 to $5.45 range we previously issued. We are increasing our previous 2022 electric segment earnings guidance due to favorable weather for the first half of 2022. We are assuming normal weather for the remainder of the year. Another driver of the increased guidance is increased interim rate revenue from the Minnesota rate case, which was approved by the commission in the second quarter of 2022. We continue to maintain our May 2, 2022 guidance for our manufacturing segment. The majority of the increase in earnings guidance comes from the plastics segment and is based on the following: the demand for PVC pipe for the last half of 2022 is now expected to be much stronger than our previous expectations. This has resulted in expectations of higher sales volumes, sales prices, and related operating margins for the last half of 2022 as compared to our May 2, 2022 guidance. Resin prices are now expected to decline for the last half of 2022 based on recent announcements. This is expected to put downward pressure on sales prices during the last half of the year, resulting in lower operating margins, as compared to the first half of 2022. The updated guidance still reflects a lower volume of pipes sold in 2022, driven by the extremely low levels of finished goods inventory at the beginning of the year and the inability to build inventory levels in 2022. Our corporate costs are now expected to increase in 2022, driven by the investment losses and lower gains on our investments in 2022, compared to 2021. We continue to monitor various economic indicators, such as single and multi-family housing starts, mortgage rates, and consumer confidence levels to ensure we are well-positioned when changes occur. Additionally, we are actively managing the impacts of inflation across all of our operating companies. We expect our 2022 earnings mix from our manufacturing platform to be 73%, compared to 59% in 2021. This change from our long-term goal of 70% electric and 30% manufacturing platform continues to be driven by our plastics segment and the unique market conditions in 2021 and 2022. We still expect to see a higher mix of earnings from our manufacturing platform in 2023 with a higher level of earnings to be generated from our electric segment thereafter. We did complete our strategic planning process during the second quarter. Part of this process was looking at long-term trends in our plastics segment to determine what we believe the long-term earnings profile of this business will be. Based on independent market data, we now expect the normalized earnings of this segment to be in the range of $36 million to $41 million beginning in 2024. This compares with our previous view of $27 million to $35 million. This increase causes a change to our long-term targeted earnings mix of 70% electric and 30% manufacturing platform to 65% and 35%, respectively. As a result of this change, we believe it is appropriate to adjust the amount of equity we maintain in our consolidated capital structure. We are increasing our equity to total capitalization ratio to 55% to 60%. We continue to expect our long-term earnings per share growth rate to be 5% to 7% beginning in 2024 after the plastics segment returns to a normal level of earnings. We also expect our dividend growth rate to be in the upper end of the 5% to 7% stated range. In order for this to occur, we are adjusting our long-term dividend payout ratio to be in the range of 55% to 65% from the 60% to 70% current range. Our business model continues to serve us well. We remain well-positioned to fund our rate base growth opportunities at the utility with our strong balance sheet, ample liquidity to support our businesses, and our strong investment-grade corporate credit ratings. We are now ready to take your questions.

Our first question comes from Tate Sullivan with Maxim.

Hi, guys. Thank you. Good morning. First, Kevin, first, on Slide 37, as you were going over it. Can you just repeat what you said about a normalized level? I think you said of net income for the manufacturing businesses or did I mishear that, please?

Hey, Tate, thanks for the question. The comment was that we've had this 5% to 7% compounded annual growth rate in earnings per share over the long-term. And that's been based off our 2020 $2.34 a share as we've gone through the strategic planning and are dealing with this high level of earnings from the plastics segment. And as we look forward to what we think normal is going to be, we expect we're going to be able to continue to grow 5% to 7% earnings per share over the long-term. But there will be a reset, and it will have to be off at 2024 when we get back to that level of normalized earnings. It's just – we're trying to communicate this unique time in between here because we've got this significantly high level in 2021 of earnings that's even higher in 2022. And we're just communicating, we're not changing the 5% to 7%. We're going to continue to be able to do that. We're just – it's going to have to be, once we return back to a normal level of earnings is what we're saying. Does that help?

Yes. I just thought I heard you say a range starting with 36 million, and I wasn't sure what that was trying to…

Oh, I'm sorry. I'm sorry. That was for the plastics segment. So, we've been saying that we thought normal earnings for the plastics segment once we came through this cycle would be $27 million to $35 million. As we went through our strategic planning process and we're able to obtain some good outside independent market data that looked at longer-term trends in PVC industry, not only for the resin suppliers, but for the PVC pipe converters, we now believe that range is going to be in the $36 million to $41 million level of earnings beginning in that 2024 time frame.

Okay. Okay. Thank you very much. And then when I first read your comment in the press release about manufacturing platform into 2023 still being at an elevated level of earnings, is that still mostly plastics, but is some of that the visibility that you have in BTD?

It's primarily driven by plastics, Tate.

Alright. Please stand by for our next question. Our next question comes from the line of Chris Ellinghaus with Siebert Williams. Your line is open.

Hey, guys. How are you?

Good.

What are you guys thinking in terms of the economy for manufacturing? What are you thinking for consumer demand for some of your products and elasticity? And how do you see that affecting the manufacturing business?

Hey, Chris, Kevin. We are continuing to watch, kind of what the strength of the consumer is and what's happening with our end markets, particularly rec vehicle, lawn, and garden as it relates to Polaris and Toro and John Deere products. And we're still seeing – in terms of what we're sending or shipping of product to our customers relating to those types of consumer products, the demand continues to be strong. The dealers, for example, with Polaris are still in a pretty low level of inventories in their dealerships. And so, they're still working to continue to build those inventory levels back up. They have a backlog of orders that they – if you want to order an ATV, you’ve got to get on a list and get your name on and it will get delivered to you when they can finally get it built. So, the conditions – and then as I mentioned, the supply chain on the rest of their supply side is starting to improve. So, the current view looks pretty good, but we recognize that the consumers' balance sheet is probably starting to get a little softer. They're starting to peel in or break into some of that savings they've built up here over the last couple of years. And as we look forward into 2023, we're certainly cautious as to what happens to the consumer as it relates to this current economic environment and the turn we're starting to see as we move from this strong economy to potentially a recession that, you know whether it's here right now or whether it starts here in the early part of 2023. We're cautious on what happens and we're making sure that we're trying to better understand our customers' forecast for inventory levels that they need from us, and making sure that they have good visibility into what they're asking us to deliver and that we don't get ahead of ourselves in terms of overbuilding our inventory levels to support customers heading into the next year.

Okay. And …

We're also spending a fair amount of effort monitoring the new home construction. That impacts, of course, plastics and to a certain degree manufacturing. And so, we've been at a $1.6 million clip that's now forecast to be down to $1.5 million in 2023. And if we look at the numbers between 2017 and – or 2016, 2019, they were more in this 1.2 million to 1.4 million new units per year. So, we continue to watch that and consumer confidence, so…

So, you're still expecting, sort of above normal construction levels to be having a favorable impact on the supply/demand dynamics?

Even with the increased mortgage rates and the prices, we anticipate they're still going to be sort of above this 1.2, 1.3 number and forecast to be 1.5 new units.

Chris, maybe a little – a couple of comments in addition to that. We have had or our management team has had some conversations with our customers in terms of who we sell the PVC pipe to in terms of what they're seeing, because they're the ones that are ultimately selling that to the construction companies that are putting the PVC pipe in the ground. And what we're hearing today is that they aren't getting a lot of pushback on pricing. It seems that the market – their view, as well as ours, is that the market has been more disciplined in terms of pricing the products. They haven't seen much pushback from contractors on that in terms of price down pressure, but they have mentioned that they are starting to see some jobs that are getting put on hold and being moved into 2023. And so that aligns with Chuck's comments in terms of looking at single and multifamily housing starts and that there's certainly downward pressure into 2023. And we would expect to see that as we move into that new year.

Kevin, you were talking about the normalization of the plastics earnings level. Is that, sort of 2023 that transitional phase? Does that include some inventory build? And that's why you think 2024 is more like a normal level?

Yeah. And it's a pretty fair – that's an accurate comment, Chris. We expect that the demand – the strong demand will start – certainly, into 2023 would start to subside. In terms of PVC resin, those supplies are in good shape. Some of these other supply constraints or I should say, material supply chain constraints with tin stabilizer and such have started to improve here as well in the third quarter. And so we expect we should be able to start to build, not only us, but other PVC converters to build inventories into 2023. And would start to see those by the time we get to 2024 is when we would expect to be back to, kind of a newer level of those normal earnings.

Okay. And one last thing. The new transmission spend, can you, sort of talk about what you see as the timeline for that?

Sure, Chris. This is Chuck. I think in the MISO, we would anticipate that these lines would be a 2028 to 2030 construction completion timeframe. The line we're involved with in North Dakota will likely be completed before the others or the other one we're involved in. And we're primarily involved with the line between Big Stone South and Alexandria. It indicates Alexandra to Cassie's Crossing in the cost estimate on, I believe, Slide 13. We're a minority player in the Alexandria to Cassie's Crossing. That's got a number of utilities involved with it. So, that's the timeframe from an amount of capital in our first five-year forecast that we've got out there that approaches $1 billion. We think there's approximately 50 million to 60 million of these transmission lines are involved in the outer years. And there'll be additional CapEx in the years after 2026 to 2030.

Okay. Thanks for all the new details, guys. It was great.

Alright. Please stand by for our next question. Our next question comes from the line of Sophie Karp with KeyBanc. Your line is open.

Hi, good morning. Thank you for taking my question and congratulations on a great quarter.

Good morning, Sophie.

Yes. So, I don't know where to begin with this. The performance of your plastics segment has obviously been quite gravity defying here, and it's interesting to see that actually being the majority of the earnings this year. I guess you made it clear that your expectation is that it will still normalize and over time will be – the earnings revert to the majority utility. My question is, could you help us quantify the associated cash flow windfall, if any? And what are your plans for that extra cash that's coming out of the plastics excess earnings, if you will? How does it factor into your financing plan or capital plan going forward?

Yeah, Sophie. Thanks for that. This is Kevin. We do have a slide. It’s Slide 33, shows our current five-year financing plan. Of course, we didn't – we have no need for any equity here over this five-year time frame given the strong earnings and cash flows that are being generated. I mean we were in that position as we headed into the year before this continued additional earnings and cash flows that are coming in from plastics in the current year. So, it just further strengthens our cash flows, our liquidity and supports that we don't have any equity needs to support the $1 billion of CapEx that we have in our five-year plan. And some of these are already uses of cash that I think we've talked about previously. But we did use some of this cash to buy land in Phoenix for the Vinyltech expansion. That was about $7 million – a little over $7 million there for – to do that. And we're continuing to move forward on the Vinyltech expansion. We expect collectively between the five-year – and then there's a second phase to the project that's outside the five-year plan. That is about a $58 million project, the Vinyltech expansion. So, we'll certainly – there's plenty of cash to pay for that through this – the cash that's being generated here. We did put $20 million into the pension plan in February. Our pension plan is in good shape and well-funded. And then as we continue to look forward, we're going to continue to look at – Chuck referred to the MISO tranche 1 announcement. Of course, a lot of that comes outside this five-year plan, but we continue to look at using cash for additional rate base growth opportunities for the utility. We expect that we should be able to continue to use this cash and grow the rate base for new opportunities that we're looking at.

Thank you. And just for – maybe is it possible to quantify for each like dollar of earnings from the Plastics segment? What's the cash conversion to that, like roughly, how much cash you're getting per dollar of earnings there?

Cash – did you say earnings to cash conversion? Yeah, for plastics. I don't have that specifically in front of me, but if you look at our cash flow statements, our consolidated cash flow statement, we – on a six-month basis, $157 million consolidated earnings to $176 million of cash from operations. I would expect the plastics is at a stronger level than that ratio that we see in terms of cash conversion just because of the fact that we don't have some of the other – certainly, the pension plan doesn't affect the plastics business. Some of the stuff that comes through the utility wouldn't impact that. They're having a much stronger conversion ratio there. I don't have it in front of me for the year. It's something we could get back to you on.

Perfect. Thank you so much. And then if I may, a quick question on MISO plan. Are you satisfied with your level of wind play, which is the two projects that you highlighted or would you consider going and bidding for more projects competitively?

Hi, Sophie. This is Chuck. We're focused on the projects in our area. We do have rights of first refusal legislation in both the Dakotas and Minnesota. And so, we're involved with those plans. We currently aren't looking at any of the competitive projects outside of those that we're directly involved with.

Awesome. Thank you so much that's all for me.

Alright. So our next question comes from the line of Brian Russo with Sidoti. Your line is open.

Hi, good morning.

Good morning, Brian.

A lot of my questions have been asked and answered, but maybe just – I appreciate the kind of new normal earnings profile for the plastics in 2024, which implies about maybe $0.90 plus in earnings in a normalized year. Yet you're still targeting second half of 2022 based on your updated guidance of over $2.30. So, I'm just trying to get a feel for what kind of – the quarterly dispersion will look like through the end of this year and into 2023? And what market indicators can we, kind of track to follow whether you're running behind those trends or exceeding those trends?

Yeah, Brian. Let me start on that in terms of maybe just a little bit more color to – when we had our call in May and was updating our guidance for plastics, we had good visibility into April and May at that time and pretty good visibility into June. And April and May were in line with what we were expecting and then June ended up being stronger than what we had planned in that updated guidance level, but then we – given that we were so far out, we took a conservative view in terms of what we thought would happen in the rest of the year for plastics. And given the economy and kind of the view of where it was headed, we expected volumes to come back the last half of the year and compared to the first half, even compared to the same time in the last half of 2021. And we expected to see more of a decline in sales prices and spreads as a part of that. As we've now come through the first six months and have visibility into the third quarter and where we think the fourth quarter is, there's been, kind of a real reset that's occurred in terms of the view of resin – or sales prices for PVC pipe and the related spreads for that as well. And so, that's a little bit of a backdrop in terms of what's caused the, kind of the significant change in terms of where we think the reasons for the updated view of the guidance. In terms of the rest of the year and in terms of how it, kind of lays out over the quarter, we don't give – obviously, we don't give quarterly guidance. We certainly expect the third quarter to be stronger probably and that, I'll say, 25% to 30% of the earnings would come in the third quarter and then probably – and that 18% to 20% in the fourth quarter.

Okay. Got it. And just on the IRP, did I hear you say that you're expecting a hearing in the first quarter of 2023? And has there been any discussions with interveners or other interested parties, even staff maybe in terms of the plan, including the early exit from Coyote?

Sure, Brian. This is Chuck. We have not received – we've only filed direct testimony and answered the information requests. The reply testimony from the interveners has not been received and is not expected until at least September. So, we haven't had any discussions there in Minnesota. A lot of times these proceedings are delayed or there's request of delays by different parties, and those are generally accepted. So, we have not had any feedback in terms of formal reply comments from the interveners at this point.

Okay, great. Thank you very much.

Alright. Our next question comes from the line of Tate Sullivan with Maxim Corp. Your line is open, Tate.

I think she said Tate Sullivan. Just following up on Ashtabula Wind III purchase on Slide 12, do you have other options to purchase operational assets from other utilities that you have disclosed before, please?

Hi Tate, this is Chuck. We do not have any other similar PPA buyouts, if you will, on any of the other wind assets that we have or are contracted with.

Okay, thank you. And then as part of your spending on grid, what you call grid modernization, from 2019 to 2024, is some of that energy storage systems or backup batteries for your solar projects as well or could that be incremental?

Yeah, Tate. We do not have any battery or storage systems in our IRP or in our five-year forecast. The majority of the dollars in those – in that line item would pertain to our automated metering. We do not have automated metering at this point, and we're rolling out that project across our service territory in addition to some system reliability improvements. Over the last decade, we have focused a lot of attention on generation emissions upgrades, renewable build-out. And sort of the end of the first tranche of – the first round of MISO investments, a lot of which were completed in the 2015 to 2018 time frame. And we are now putting more capital into the delivery system. That was not our focus in that time frame. So that's what's driving those. There is no battery storage involved in those numbers currently.

Thank you very much, Chuck.

Thank you. Our next question comes from the line of Timothy Winter with Gabelli.

Good morning, gentlemen, and congrats on the quarter and the year to date. I was wondering if you could talk a little bit more about the review that you took about – with the non-regulated businesses? And whether you considered perhaps other alternatives with the businesses to get the business mix more back to what your longer-term targets were?

Sure, Tim. This is Chuck. We do an annual review. We look through discounted cash flows and all our projections on each of the businesses. And really, the incremental issue or the item you can't really get complete hands around is the long-term forecast in plastics. So, we spent a fair amount of time with that and with consultants trying to derive that value. And we came at this – to come up with the range, which I know Kevin has covered a couple of times here, and use that as our development. Now that doesn't mean there aren't scenarios where it stays higher or goes back down, and we have to be prepared for those. But we – our best information tells us this is where we think it's going to come back into, and that isn't an earnings mix that we think fits for our long-term plan and provides the optimal shareholder return over that time frame. So that tends to be – the plastics forecast tends to be the biggest unknown. And – but we've, sort of settled in. And I think the most probable is the numbers that we've provided here today and that is the basis for our baseline strategic plan.

And did you guys consider selling the business or spinning it off or has there been interest in the business?

Tim, it's Kevin. As a part of our portfolio review and looking at are the companies meeting our criteria to be an Otter Tail company. And then we look at our forward five-year plans and the businesses and use an outside bank to look at the valuation of the businesses and walk the board through that. And as we – the big challenge, and Chuck alluded to this, is what – from a valuation perspective on plastics, what do you think normal looks like and what's somebody going to be – what's their view of normal going forward? And what are they going to – what would they be willing to pay for a business that today is generating certainly stronger than normal earnings and cash flows, but the current view of the industry is that over the long term, next five, six years, it's going to revert back to more like it was historically. And so as we look at the valuations and take that into consideration and look at more historical like trends, I mentioned this independent market data we looked at in terms of what changes do they expect happen long-term to the business. Our valuations would come up and say that to the extent you looked at selling the business, there's still – in terms of the range of valuations we have, it's a dilutive transaction to our shareholders to monetize the plastics assets. So, we've looked at it, but given the challenges around valuation and what our outside advisors and our – certainly, our internal – our management team and others where we think it's headed, even to monetize the asset, it's a dilutive transaction. And so, we certainly continue to expect to have it be a part of the portfolio. It doesn't mean that if someone came in and had a different view of valuation that would be much higher than where we think it is, we'd certainly have to look at it, but that's where we're at right now. And some of the – maybe some additional colors we looked at, additional market data going forward, certainly, there is expected to be continued strong demand growth in North America, new capacity being – coming on from resin suppliers. So that's helping over the longer-term to expect that prices, you know resin prices are going to be higher, which results – based on higher resin prices, typically, sales prices are higher. So that would certainly be supportive of a higher normal level of earnings going forward. The global supply and demand outlook still supports stronger PVC resin prices over the next five years, six years. Certainly, we have this infrastructure investment and JOBS ACT. I think it was put in place last year that provides support for growth. And then just the fact that in 2021 and 2022, this whole supply versus demand challenge we've been experiencing, I think there's a general view that there's a reset that's occurred in PVC profitability on a go-forward basis that leads us to believe that we're going to see a higher level of earnings going forward in that $36 million to $41 million range I mentioned.

Okay, great. Thanks for the comprehensive answer, and congrats again on the earnings.

Thank you, Tim.

Alright. I'm not showing any further questions at this time. I will now like to turn the conference back to Chuck for a few closing remarks.

Thank you for joining our call and your interest in Otter Tail Corporation. Our strategic initiatives to grow our business and achieve operational, commercial, and talent excellence continue to strengthen our position in the markets we serve. We remain confident in our ability to grow earnings per share in the 5% to 7% compound annual growth rate off a base of $2.34 in 2020. Based on our strong second quarter performance and our updated view for the remainder of the year, we are raising our 2022 diluted earnings per share guidance range to $6.83 to $7.13 from our previous guidance range of $5.15 to $5.45. We look forward to talking with you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.