-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ilP9mzarVcveBj0miRxxWxYvyGVIJe8plwc8/C/Cd8441YwgOSc23XxC+Xq9u/6d jcVg0MGt1pTy/CxlWYkpaw== 0000075129-94-000020.txt : 19940817 0000075129-94-000020.hdr.sgml : 19940817 ACCESSION NUMBER: 0000075129-94-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OTTER TAIL POWER CO CENTRAL INDEX KEY: 0000075129 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 410462685 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00368 FILM NUMBER: 94543319 BUSINESS ADDRESS: STREET 1: 215 S CASCADE ST STREET 2: PO BOX 496 CITY: FERGUS FALLS STATE: MN ZIP: 56538-0496 BUSINESS PHONE: 2187398200 10-Q 1 2ND QUARTER 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-368 OTTER TAIL POWER COMPANY (Exact name of registrant as specified in its charter) Minnesota 41-0462685 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 215 South Cascade Street, Box 496, Fergus Falls, Minnesota 56538-0496 (Address of principal executive offices) (Zip Code) 218-739-8200 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date: August 1, 1994 - 11,180,136 Common Shares ($5 par value) OTTER TAIL POWER COMPANY INDEX Part I. Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheets - June 30, 1994 and December 31, 1993 (Unaudited) 2 & 3 Consolidated Statements of Income - Three and Six Months Ended June 30, 1994 and 1993 (Unaudited) 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1994 and 1993 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 & 8 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 9 Item 6. Exhibits and Reports on Form 8-K 9 Signatures 10
PART I. FINANCIAL INFORMATION Item 1. Financial Statements OTTER TAIL POWER COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited) -ASSETS- June 30, December 31, 1994 1993 _______ ___________ (Thousands of Dollars) PLANT: Electric Plant in Service $685,214 $679,282 Other 35,991 34,626 ________ ________ Total 721,205 713,908 Less Accumulated Depreciation and Amortization 280,564 270,385 ________ _______ 440,641 443,523 Construction Work in Progress 13,929 8,341 ________ _______ Net Plant 454,570 451,864 ________ _______ INVESTMENTS AND OTHER ASSETS: 43,068 43,853 ________ _______ CURRENT ASSETS: Cash and Cash Equivalents 1,529 3,808 Temporary Cash Investments 329 451 Accounts Receivable: Trade - Net 24,817 19,531 Other 2,653 3,361 Materials and Supplies: Fuel 3,754 3,667 Inventory, Materials and Operating Supplies 15,241 14,552 Deferred Income Taxes 4,300 4,482 Accrued Utility Revenues 3,146 4,368 Other 2,726 2,477 _______ _______ Total Current Assets 58,495 56,697 _______ _______ DEFERRED DEBITS: Unamortized Debt Expense and Reacquisition Premiums 5,405 5,611 Other 5,559 5,880 _______ _______ Total Deferred Debits 10,964 11,491 _______ _______ TOTAL $567,097 $563,905 ======== ======== See Accompanying Notes to Consolidated Financial Statements - 2 -
OTTER TAIL POWER COMPANY CONSOLIDATED BALANCE SHEETS (Unaudited) -LIABILITIES- June 30, December 31, 1994 1993 _______ ________ (Thousands of Dollars) CAPITALIZATION: Common Shares, Par Value $5 Per Share - Authorized 25,000,000 Shares; Outstanding 1994 and 1993, 11,180,136 Shares $55,901 $55,901 Premium on Common Shares 30,335 30,336 Retained Earnings 87,948 84,209 _______ _______ Total 174,184 170,446 Cumulative Preferred Shares - Authorized 1,500,000 Shares Without Par Value; Outstanding 1994 and 1993, 388,311 Shares: Subject to Mandatory Redemption 18,000 18,000 Other 20,831 20,831 Cumulative Preference Shares - Authorized 1,000,000 Shares Without Par Value; Outstanding - None -- -- Long-Term Debt 165,530 166,563 _______ _______ Total Capitalization 378,545 375,840 _______ _______ CURRENT LIABILITIES: Short-Term Debt 800 -- Sinking Fund Requirements and Current Maturities 10,293 9,356 Accounts Payable 15,639 15,987 Federal and State Income Taxes Accrued 1,843 -- Other Taxes Accrued 8,458 11,187 Interest Accrued 3,489 3,522 Other 4,594 5,687 _______ _______ Total Current Liabilities 45,116 45,739 _______ _______ NONCURRENT LIABILITIES: 7,617 5,690 _______ _______ DEFERRED CREDITS: Accumulated Deferred Income Taxes 93,477 92,940 Accumulated Deferred Investment Tax Credit 22,902 23,518 Regulatory Liability 16,151 16,046 Other 3,289 4,132 _______ _______ Total Deferred Credits 135,819 136,636 _______ _______ TOTAL $567,097 $563,905 ======= ======= See Accompanying Notes to Consolidated Financial Statements - 3 -
OTTER TAIL POWER COMPANY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended June 30 June 30 1994 1993 1994 1993 Restated Restated ____ ________ ____ ________ (Thousands of Dollars) (Thousands of Dollars) OPERATING REVENUES Electric $46,881 $45,848 $101,770 $99,665 Health Services 11,021 15,517 21,941 16,570 Diversified Operations 11,015 9,818 18,642 13,662 ______ ______ _______ ______ Total Operating Revenues 68,917 71,183 142,353 129,897 OPERATING EXPENSES Production Fuel 7,981 7,400 16,639 15,270 Purchased Power 7,404 7,565 14,117 15,293 Electric Operation Expenses 10,991 10,522 22,694 21,712 Electric Maintenance 3,920 3,987 6,957 6,747 Cost of Health Services Sold 7,799 10,255 15,222 10,255 Other Health Services Expenses 2,820 3,843 5,604 4,823 Diversified Cost of Goods Sold 6,561 6,463 11,364 8,431 Other Diversified Expenses 2,117 1,910 4,116 3,226 Depreciation and Amortization 5,314 5,060 10,547 9,838 Property Taxes 2,955 2,866 5,937 5,735 Income Taxes 2,788 2,874 8,542 7,872 ______ ______ ______ ______ Total Operating Expenses 60,650 62,745 121,739 109,202 ______ ______ _______ _______ OPERATING INCOME 8,267 8,438 20,614 20,695 Allowance For Equity (Other) Funds Used During Construction 36 25 67 38 Other Income and Deductions and Applicable Taxes 391 411 703 370 ______ ______ ______ ______ INCOME BEFORE INTEREST CHARGES 8,694 8,874 21,384 21,103 Interest Charges 3,311 3,438 6,659 6,684 Allowance For Borrowed Funds Used During Construction - Credit (14) (11) (28) (18) ______ ______ ______ ______ NET INCOME 5,397 5,447 14,753 14,437 Preferred Dividend Requirements 589 617 1,179 1,234 ______ ______ ______ ______ EARNINGS AVAILABLE FOR COMMON SHARES $4,808 $4,830 $13,574 $13,203 ====== ====== ======= ======= Earnings Per Average Common Share $0.43 $0.43 $1.21 $1.18 ====== ====== ======= ======= Average Number of Common Shares Outstanding 11,180,136 11,180,136 11,180,136 11,180,136 Dividends Per Common Share $0.43 $0.42 $0.86 $0.84 See Accompanying Notes to Consolidated Financial Statements -4-
OTTER TAIL POWER COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1994 1993 Restated ____ ________ Restated (Thousands of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $14,753 $14,437 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 12,603 11,313 Deferred Investment Tax Credit - Net (616) (614) Deferred Income Taxes 1,187 1,620 Change in Deferred Debits and Other Assets 1,117 88 Change in Noncurrent Liabilities and Deferred Credits 785 4,980 Allowance for Equity (Other) Funds Used During Construction (67) (38) Loss on Disposal of Noncurrent Assets 68 243 Cash Provided by (Used for) Current Assets & Current Liabilities: Change in Receivables, Materials and Supplies (5,004) (2,864) Change in Other Current Assets 990 (2,824) Change in Payables and Other Current Liabilities (4,034) (4,473) Change in Interest and Income Taxes Payable 1,804 1,030 ______ ______ Net Cash Provided by Operating Activities 23,586 22,898 CASH FLOWS FROM INVESTING ACTIVITIES: Gross Capital Expenditures (16,169) (12,524) Proceeds from Disposal of Noncurrent Assets 1,579 Purchase of Subsidiaries, Net of Cash Acquired (574) (3,964) Change in Temporary Cash Investments 122 2,255 Change in Marketable Securities (618) (3,613) _______ _______ Net Cash Used in Investing Activities (15,660) (17,846) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Issuance of Short-Term Debt 800 -- Proceeds from Issuance of Long-Term Debt 2,917 17,871 Payments for Retirement of Long-Term Debt (3,072) (13,662) Payments for Debt Issuance Expenses (56) -- Dividends Paid (10,794) (10,625) ______ ______ Net Cash Used in Financing Activities (10,205) (6,416) Net Change in Cash and Cash Equivalents (2,279) (1,364) Cash and Cash Equivalents at Beginning of Year 3,808 8,369 ______ ______ Cash and Cash Equivalents at June 30 $1,529 $7,005 ====== ====== Supplemental Cash Flow Information Cash Paid for Interest and Income Taxes: Interest $6,458 $6,551 Income Taxes $6,630 $5,803 See Accompanying Notes to Consolidated Financial Statements - 5 -
OTTER TAIL POWER COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Company, in its opinion, has included all adjustments (including normal recurring accruals) necessary for a fair presentation of the results of operations for the periods. The financial statements for 1994 are subject to adjustment at the end of the year when they will be audited by independent accountants. The financial statements and notes thereto should be read in conjunction with the financial statements and notes for the years ended December 31, 1993, 1992 and 1991 included in the Company's 1993 Annual Report to the Securities and Exchange Commission on Form 10-K. Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 112 - Employers' Accounting for Postemployment Benefits and SFAS No. 115 - Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 112 establishes standards of financial accounting and reporting for the estimated cost of benefits provided by an employer to former or inactive employees after employment but before retirement. SFAS No. 115 establishes standards of financial accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. The Company's marketable securities are classified as available-for-sale and are included in Investments and Other Assets at the fair value amount of $17,178,000. The cost basis of the investment is $17,545,000 and the unrealized loss is $367,000. The adoption of SFAS No. 112 and SFAS No. 115 did not have a material impact on the Company's financial statements. On September 22, 1993, the North Dakota Public Service Commission entered an Order approving an Agreement for Incentive Regulation for 1993. As part of the Order, the Company is required to accrue the North Dakota portion of unbilled revenue as of January 1, 1993, ($4.4 million) and to amortize it over a 36-month period beginning in January 1993. The Company's financial statements for the three and six-month periods ended June 30, 1993, have been restated to reflect this change. The effects of the restatement are considered immaterial. Because of seasonal and other factors, the earnings for the three and six- month periods ended June 30, 1994, should not be taken as an indication of earnings for all or any part of the balance of the year. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Material Changes in Financial Position Cash provided by operating activities of $23,586,000 as shown on the Consolidated Statement of Cash Flows for the six months ended June 30, 1994, together with Cash and Temporary Cash Investments on hand at December 31, 1993, allowed the Company to finance its construction program, pay dividends, and invest in an additional nonutility business. At June 30, 1994, the Company had $17,178,000 in marketable securities included in Investments and Other Assets which could be used to supplement cash needs. The Company estimates that funds internally generated, combined with funds on hand, will be sufficient to provide for all of its 1994-1998 electric construction program expenditures (including allowance for funds used during construction) and to meet all sinking fund payments for First Mortgage Bonds in the next five years. Additional short or long-term financing could be required in the period 1994-1998 in connection with the maturity of First Mortgage Bonds and a Long-Term Lease Obligation ($21,000,000), in the event the Company decides to refund or retire early any of its presently outstanding debt or cumulative preferred shares, complete its common stock repurchase program or for other corporate purposes. The increase in Construction Work in Progress reflects new construction related to electric utility operations, principally in production, general, and distribution plant. The decrease in Cash and Cash Equivalents is because the cash provided from operating activities was less than what was used in investing and financing activities. The bulk of the increase in Trade Accounts Receivable is due to increased seasonal subsidiary sales. The decrease in Accrued Utility Revenue is due to normal changes in seasonal demand for electricity. The increase in the current liability for Federal and State Income Taxes Accrued and decrease in Other Taxes Accrued were caused by the timing of tax payments. Noncurrent Liabilities increased due primarily to an increase in the accrual of postretirement benefits other than pensions costs. The decrease in Other Deferred Credits is principally due to the amortizing of the North Dakota unbilled revenue. Material Changes in Results of Operations The increase in Electric Operating Revenues was 2.3% and 2.1%, respectively for the quarter and six months ended June 30, 1994, as compared to the same periods in 1993. Revenues increased primarily due to an increase in retail revenue (3.3% and 4.0%, respectively for the quarter and six months ended), offset by a decrease in power pool sales (4.3% and 13.9%, respectively for the quarter and six months ended). Retail revenue increased primarily due to an increase in kwh sold. Most of the increase in retail revenue is due to added load primarily in the commercial category. Power pool sales decreased due to a reduction in kwh sold, offset by an increase in revenue per kwh sold. The decrease in power pool kwh sales can be attributed to the unusually high level of power pool sales in 1993. The increase in Production Fuel for both the quarter and six months ended June 30, 1994, as compared to the same periods in 1993, is primarily due to an increase in generation which correlates to the increase in retail kwh sales. The decrease in Purchased Power for the six months ended June 30, 1994, as compared to the six months ended June 30, 1993, is due to a 24.5% decrease in kwh purchases for resale, which corresponds to the decrease in power pool sales, offset by a 9.9% increase in cost per kwh. The cost per kwh purchased increased because the lower cost plants in the power pool were down for maintenance. The decrease in Health Services Operating Revenues, Cost of Health Services Sold, and Other Health Services Expenses for the quarter ended June 30, 1994, as compared to the quarter ended June 30, 1993, is primarily due to an unusually large amount of equipment sales at one of the Health Services subsidiaries in the second quarter of 1993. The increase in Health Services Operating Revenues, Cost of Health Services Sold, and Other Health Services Expenses for the six months ended June 30, 1994, as compared to the six months ended June 30, 1993, is principally due to including the results of a new Health Services subsidiary acquired by the Company toward the end of the first quarter of 1993. The increase in Diversified Operations Operating Revenues, Diversified Cost of Goods Sold, and Other Diversified Expenses for the quarter ended June 30, 1994, as compared to the quarter ended June 30, 1993, is primarily due to the increase of existing product lines in the manufacturing subsidiaries. The increase in Diversified Operations Operating Revenues, Diversified Cost of Goods Sold, and Other Diversified Expenses in the first six months of 1994, as compared to the same period in 1993, was primarily caused by including six months of subsidiary operations in 1994, as compared to only five months in 1993. The majority of the increase in Depreciation and Amortization for the quarter and six months ended June 30, 1994, as compared to the same periods in 1993, is due to higher depreciation rates and more property placed in service at the electric utility. The increase in Income Taxes for the six months ended June 30, 1994, as compared to the same period in 1993, is primarily due to higher taxable income, a SFAS 109 adjustment made in 1993, and Federal tax law changes. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The annual meeting of Shareholders of the Company was held on April 11, 1994, for the purpose of electing three nominees to the Board of Directors with terms expiring in 1997, approving the appointment of auditors, and amending the Company's Restated Articles of Incorporation to increase the authorized common shares to 25,000,000 shares. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended, and there was no solicitation in opposition to management's solicitations. All nominees for directors as listed in the proxy statement were elected. The voting results were as follows: Shares Shares Voted Election of Directors Voted For Withheld Authority Thomas M. Brown 9,683,041 122,238 Maynard D. Helgaas 9,711,665 93,614 Robert N. Spolum 9,708,733 96,546 Shares Shares Shares Approval of Auditors Voted For Voted Against Voted Abstain Deloitte & Touche 9,519,877 71,917 213,485 Proposal to Increase 8,975,615 478,553 351,111 Common Shares Item 6. Exhibits and Reports on Form 8-K. a) Exhibits: 10 Purchased Power and Interconnection Agreement between the Company and Potlatch Corporation dated June 8, 1994. b) Report on Form 8-K. No reports on Form 8-K were filed during the fiscal quarter ended June 30, 1994. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OTTER TAIL POWER COMPANY By: /s/A.E. Anderson Andrew E. Anderson Controller/Chief Accounting Officer Authorized Officer Dated: August 11, 1994 Exhibit Index to Quarterly Report on Form 10-Q For Quarter Ended June 30, 1994 Exhibit Number 10 Purchased Power and Interconnection Agreement between the Company and Potlatch Corporation dated June 8, 1994. EX-10 2 MATERIAL CONTRACT Ex-10 PURCHASED POWER & INTERCONNECTION AGREEMENT This Agreement is entered into as of the ______8th______________ day of _____June_______________, 1994____ by and between OTTER TAIL POWER COMPANY, a corporation organized and existing under the laws of the State of Minnesota ("Otter Tail") and POTLATCH CORPORATION, a corporation organized and existing under the laws of the State of Delaware ("Potlatch"), hereinafter sometimes referred to collectively as "Parties" and individually as "Party." RECITALS A. Potlatch owns and operates an oriented strand board mill and a lumber mill located in Hubbard County, Minnesota (the "Plants"); B. Potlatch has installed a wood waste disposal facility ("Facility") consisting in part of a 140,000 pound per hour wood waste fired boiler and nominally rated 10 megawatt turbine generator system. C. Otter Tail, and Beltrami Electric Cooperative, a wholesale customer of Minnkota Power Cooperative ("Minnkota"), are the electric utilities providing retail electric power to the Plants, and Potlatch wishes to remain a retail customer under a separate service agreement. D. Otter Tail and Minnkota have entered into a separate agreement authorizing Otter Tail to act as Minnkota's agent in completing an Agreement with Potlatch. E. Potlatch will generate and wishes to sell, and Otter Tail and Minnkota wish to purchase, electric power from the facility. NOW THEREFORE, In consideration of the mutual covenants and agreements hereinafter set forth, the Parties agree as follows: 1. Definitions. Terms in this Agreement requiring definition are found in Exhibit A or elsewhere in the Agreement. Capitalization of words or phrases other than proper nouns indicates these words are headings or defined terms. 2. Sale of Electric Power. Potlatch agrees to sell and deliver, and Otter Tail and Minnkota agree to purchase and accept delivery of, all of the Energy and Capacity, each as hereinafter defined, of the Facility in accordance with Paragraph 4 and in the approximate amounts indicated below: (A) Energy of 71,400,000 kilowatt-hours/year; and (B) Capacity of 10,000 kilowatts 3. Term of Agreement. This Agreement shall be binding upon execution and shall remain in effect for two (2) years commencing at one minute after midnight on June 8, 1994. 4. Purchase Price. The price under which Otter Tail and Minnkota shall purchase Capacity and Energy from Potlatch consists of two components: (A) Capacity. For Capacity, Otter Tail and Minnkota shall pay to Potlatch an aggregate amount each month equal to $8.20 per kW for the first 200 kW and $6.95 per kW for the remainder of Monthly Billing Capacity per month. The Station Service Requirements of the Facility during maintenance and outage periods will be measured by the metering for the oriented strand board mill and will be included in the calculation of Monthly Billing Capacity. It is the intent of this Agreement that Otter Tail and Minnkota shall pay for the Monthly Billing Capacity the rate shown for primary service shown in Exhibit H, Retail Electric Service Schedule for the Plants. If the retail demand charge rate paid by Potlatch is changed during the period of this Agreement, the rates paid by Otter Tail and Minnkota for the Monthly Billing Capacity under this Agreement shall be changed in the same manner. (B) Energy. For Energy, Otter Tail and Minnkota shall pay to Potlatch an aggregate amount equal to (i) 1.5515 cents per kilowatt-hour, which includes compensation for Average System Loss, for all kilowatt-hours up to the amount of retail kilowatt-hours consumed by the Plants on a monthly basis, plus (ii) 1.45 cents per kilowatt-hour for all kilowatt-hours delivered to Otter Tail and Minnkota in excess of the amount consumed by the Plants. The Station Service Requirements of the Facility during maintenance and outage periods will be measured by the metering for the oriented strand board mill and will be included in the calculation of monthly retail kilowatt-hours. 5. Interconnection. Potlatch has provided the facilities required to interconnect the Facility to Otter Tail's system in order to assure proper parallel operation thereof and to accommodate the delivery of Energy and Capacity as required in Paragraphs 2 and 6. 6. Service Requirements. In order to qualify for the purchase price in Paragraph 4, Potlatch shall: (A) Supply generating capability which can be credited to Otter Tail and Minnkota in accordance with Section 5.2 (Use of Generating Capability of Associate Participants or Other Electric Suppliers) of the current Mid-Continent Area Power Pool Engineering Handbook attached as Exhibit C; provided, however for purposes of calculating the generating capability credited to Otter Tail and Minnkota pursuant to Exhibit C, the supply of electric power to the Plants shall be deemed to be a retail load of Otter Tail and Minnkota and not part of the load of the Facility. (B) Be in compliance with Section 4 (System Design Standards) of the current Mid-Continent Area Power Pool Engineering Handbook, attached as Exhibit D, and allow Otter Tail and Minnkota to satisfy obligations to the Mid-Continent Area Power Pool under the same Section 4; (C) Follow the procedures in Section J (MAPP Procedure for the Uniform Rating of Generating Equipment) of the current Mid-Continent Area Power Pool Engineering Handbook, attached as Exhibit E, to determine the Facility rating; (D) Provide Otter Tail with all necessary information and performance data to satisfy reporting requirements of the Mid-Continent Area Power Pool and any other regulatory agency which Otter Tail and Minnkota are required to supply; (E) Provide planned hourly generation scheduling to Otter Tail's System Operations Center. Planned generation schedules for any day shall be provided no later than noon of the previous normal working day for Otter Tail personnel; provided, however that failure to deliver as planned will not constitute a breach of this Agreement; and (F) Provide, at its own expense, an Otter Tail-approved telemetered signal of its net Facility input into Otter Tail's system to said System Operations Center. 7. Facility and Equipment Operation and Maintenance. Potlatch shall operate and maintain the Facility and related equipment according to those practices, methods, and procedures, as changed from time to time, that are commonly used in prudent electrical practice. Potlatch will also operate the Facility and related equipment lawfully and with safety. Further, Potlatch shall generate such Reactive Power as may be reasonably necessary under Emergency or Abnormal Conditions to maintain voltage levels as reasonably instructed by Otter Tail's system dispatcher or a designated representative, so long as such emergency does not prevent Potlatch from so doing. If Potlatch is unwilling to provide such Reactive Power, Otter Tail may do so at Potlatch's expense; provided that the provision of such Reactive Power by Potlatch will not impose a hardship or danger of equipment damage or failure to the Facility, and that the Facility is in operation at the time such Reactive Power is needed. If Otter Tail provides such Reactive Power, Potlatch shall pay to Otter Tail an aggregate amount equal to the actual quantifiable cost to Otter Tail to provide the Reactive Power, or in lieu of actual costs, the cost of excess Reactive Power requirements as specified in the retail rate, attached as Exhibit H, under which the Plants receive electrical power. Potlatch shall generate such Energy as may be reasonably necessary under Emergency or Abnormal Conditions as reasonably directed by Otter Tail's system dispatcher, so long as such emergency does not prevent Potlatch from so doing. Potlatch must provide Otter Tail at least 30 days' prior notice, if practical, before scheduling Scheduled Maintenance. Potlatch will coordinate Scheduled Maintenance with Otter Tail's System Operations Department. In the event the Facility experiences a major equipment failure, Potlatch shall provide Otter Tail with sufficient information to file Form L-1 Extended Accreditation Request, attached as Exhibit F, to allow accreditation of the Facility's Capacity Rating to continue even though the Facility is unavailable due to the failure. 8. Reduction or Termination of Capacity Component. It is intended that Potlatch operate the Facility with dependability commensurate with typical baseload utility generation resources. The monthly payment for Capacity shall be subject to a Monthly Capacity Factor adjustment. The operational goal for the Monthly Capacity Factor is 65%, excluding periods of Scheduled Maintenance, Forced Outage, and Facility Modification. The payment for capacity will be adjusted by the ratio of the monthly Energy generated by the Facility, divided by the Capacity Rating of the Facility multiplied by the Facility Availability Hours, except that the ratio used for adjustment shall not exceed 1. Potlatch will provide Otter Tail with the number of hours the Facility experienced due to Scheduled Maintenance, Forced Outage, and Facility Modification. In the event Capacity Rating of the Facility is no longer credited to Otter Tail and Minnkota by the Mid-Continent Area Power Pool, the Capacity component of the price in Paragraph 4 will no longer be in effect, unless the loss of credit of Capacity Rating is due to negligence on the part of Otter Tail or Minnkota. 9. System Compatibility. The Facility output shall be at the voltage, frequency, and phase relationship designated by Otter Tail, and at a power factor as specified within the limits of the retail rate under which the Plants are served, except when otherwise requested by Otter Tail under Paragraph 6 or Paragraph 18. Otter Tail reserves the right to disconnect the Facility from its system if it causes Interference with the operation of Otter Tail's equipment or that of its customers, or if it creates a hazard to the integrity and reliability of Otter Tail's electrical system, and Potlatch fails to eliminate the Interference. Otter Tail shall notify Potlatch in writing of any Interference problems created by the Facility. Potlatch shall have six weeks after notification in which to correct any Interference problem caused by the Facility; provided that the Interference does not create a risk of equipment failure or cause disruption or interruption of electrical power or the use of electrical power by Otter Tail or its customers. The elimination or correction of an Interference problem may occur after the six week period if Otter Tail and Potlatch have reached agreement on a solution, and Otter Tail agrees delaying the correction is acceptable. 10. Indemnity. Each Party shall indemnify the other Party, its officers, agents, and employees against all loss, damage, expense, and liability to third persons for injury to or death of persons or injury to property, proximately caused by the indemnifying Party's construction, ownership, operation, or maintenance of, or by failure of, any of such Party's works or facilities used in connection with this Agreement. The indemnifying Party shall pay all costs that may be incurred by the other Party in enforcing this indemnity. 11. Land Rights. Potlatch agrees to provide to Otter Tail, upon request, all necessary rights of way, easements to install, operate, maintain, replace, and remove Otter Tail's metering and other special facilities, including adequate and continuing access rights on property of Potlatch and Potlatch agrees to execute such documents as Otter Tail may reasonably require to enable it to record such rights of way and easements. 12. Facility and Equipment Design and Construction. Potlatch agrees to change its Facility and associated equipment as may be reasonably required by Otter Tail to maintain compatibility with Otter Tail's facilities used to take delivery of Capacity and Energy from Potlatch or to provide retail electric power to Potlatch, provided that Otter Tail gives Potlatch 30 days notice of any changes to Otter Tail's facilities which may require Potlatch to make changes to its Facility and associated equipment. 13. Deliveries. Potlatch shall deliver the Energy or Energy and Capacity designated in the Agreement, at the point where the Facility's net kilowatt-hour output is metered by Otter Tail, located between the generator and line circuit breakers, as indicated in Exhibit B. 14. Meters. All meters used to determine the billing hereunder shall be sealed, and the seal shall be broken only upon occasions when the meters are to be inspected, tested, or adjusted. Otter Tail shall inspect and test all meters upon their installation and at least once every two years thereafter. If requested to do so by Potlatch, Otter Tail shall inspect or test a meter more frequently than every two years, but the expense of such inspection or test shall be paid by Potlatch, unless upon being inspected or tested, the meter is found to register inaccurately by more than 2% of full scale. Each party shall give reasonable notice of the time when any inspection or test shall take place to the other Party, and that Party may have representatives present at the test or inspection. If a meter fails to register, or if the measurement made by a meter during a test varies by more than 2% from the measurement made by the standard meter used in the test, adjustment shall be made correcting all measurements made by the inaccurate meter for: (1) The actual period during which inaccurate measurements were made, if the period can be determined, or if not (2) The period immediately preceding the test of the meter equal to one-half time from the date of the last previous test of the meter; provided, that the period covered by the correction shall not exceed six (6) months. Each Party, after reasonable notice to the other Party, shall have the right of access to all metering and related records. 15. Billing. The retail meters serving the Plants shall be read by Otter Tail as close to the 20th day of the month as possible. The metering for the Facility will be read at the same time the retail metering is read. Otter Tail shall provide meter reading data to Potlatch by the fifth working day following the meter reading date. The data will include peak metered demands and energy usage for the Plants, and net Energy delivered to Otter Tail and Minnkota by the Facility. Potlatch shall use the data to compute charges for Energy or Energy and Capacity delivered to Otter Tail and Minnkota. Potlatch shall then send a monthly statement to Otter Tail which states the aggregate amount for all Energy or Energy and Capacity charges. A sample procedure for constructing the billing is attached as Exhibit G. 16. Payment. Otter Tail shall make payment to Potlatch on or before the fifteenth (15th) day after the billing statement is mailed to Otter Tail. 17. Adjustments. In the event adjustments to billing statements are required as a result of corrective measurements made by inaccurate meters, the Parties shall use the adjustments described in Paragraph 14 to recompute the amounts due from or to Otter Tail for the Energy or Energy and Capacity delivered under this Agreement during the period of inaccuracy. If the total amount, as recomputed, due from a Party for the period of inaccuracy varies from the total amount due as previously computed, and payment of the previously computed amount has been made, the difference in the amounts shall be paid to the Party entitled to it within 30 days after the paying Party is notified of the recomputation. 18. Continuity of Service. Otter Tail and Minnkota shall not be obligated to accept and Potlatch shall not be obligated to deliver, and Otter Tail may require Potlatch to and Potlatch may curtail, interrupt or reduce deliveries of Energy or Energy and Capacity, in order to construct, install, maintain, repair, replace, remove, investigate, or inspect the Facility and related equipment or any relevant part of Otter Tail's system, or if Otter Tail reasonably determines that curtailment, interruption or reduction is necessary because of emergencies, forced outages, operating conditions on its system, or as otherwise required by prudent electrical practices. In the event of force majeure, as defined in Paragraph 19, Potlatch shall not be obligated to deliver, and may curtail, interrupt, or reduce deliveries of Energy to Otter Tail, and Otter Tail shall not be obligated to accept and may require Potlatch to curtail, interrupt, or reduce deliveries of Energy. Except in case of emergency, the curtailing, interrupting, or reducing Party shall give the other Party reasonable prior notice of any curtailment, interruption, or reduction, the reason for its occurrence, and its probable duration. Potlatch shall notify Otter Tail promptly of any complete or partial Facility outage, and the anticipated duration of the outage. 19. Force Majeure. The term "force majeure" as used herein means unforeseeable events beyond the reasonable control of and without the fault or negligence of the Party claiming force majeure. If either Party, because of force majeure, is rendered wholly or partially unable to perform its obligations under this Agreement, except for the obligation to make payments of money, that Party shall be excused from whatever performance is affected by the force majeure to the extent so affected provided that: (a) the nonperforming Party gives the other Party oral notice as soon as reasonably possible and written notice describing the particulars of the occurrence within 48 hours after the occurrence of the force majeure; (b) the suspension of performance is of no greater scope and of no longer duration than is required by the force majeure; and (c) the nonperforming Party uses its best efforts to remedy its inability to perform. This subparagraph shall not require the settlement of any strike, walkout, lockout, or other labor dispute on terms which, in the sole judgment of the Party involved in the dispute, are contrary to its interest. It is understood and agreed that the settlement of strikes, walkouts, or other labor disputes shall be entirely within the discretion of the Party having the difficulty. 20. Liabilities. Potlatch shall indemnify, defend and save harmless Otter Tail from any liability, loss or expense arising from or growing out of injury to persons, including death, or property damages for persons other than the Parties, which may occur on the electric system of Potlatch or in its Facility unless such loss is solely due to the negligence of Otter Tail. Where such claim or loss is caused by the concurrent negligence of Potlatch, its agents or employees, and Otter Tail, its agents or employees, Potlatch hereby agrees to indemnify, defend and save Otter Tail harmless from all such claims or losses to the extent that such claim or loss was caused by the negligence of Potlatch, its agents or employees. Otter Tail shall indemnify, defend and save harmless Potlatch from any liability, loss or expense arising from or growing out of injury to persons, including death, or property damages for persons other than the Parties, which may occur on the electric system of Otter Tail or in any of its facilities unless such loss is solely due to the negligence of Potlatch. Where such claim or loss is caused by the concurrent negligence of Otter Tail, its agents or employees, and Potlatch, its agents or employees, Otter Tail hereby agrees to indemnify, defend and save Potlatch harmless from all such claims or losses to the extent that such claim or loss was caused by the negligence of Otter Tail, its agents or employees. 21. Several Obligations. Except as where specifically stated in this Agreement to be otherwise, the duties, obligations, and liabilities of the Parties are intended to be several and not joint or collective. Nothing contained in this Agreement shall ever be construed to create an association, trust, partnership, or joint venture, or impose a trust or partnership duty, obligation, or liability on or with regard to either Party. 22. Waiver. Any waiver at any time by either Party of its rights with respect to a default under this Agreement, or with respect to any other matters arising in connection with this Agreement, shall not be deemed a waiver with respect to any subsequent default or other matter. 23. Assignment. Neither Party shall voluntarily assign its rights nor delegate its duties under this Agreement or any such part of such rights or duty, without the written consent of the other Party, except in connection with the sale of the Plants by Potlatch or the merger or sale of all or a substantial portion of either Party's properties, and any such assignment or delegation made without such written consent shall be null and void. Consent for assignment shall not be withheld unreasonably. The sale of the interconnection facilities described in this Agreement shall be deemed to be a sale of a substantial portion of either Party's properties for purposes of this Section 23. 24. Captions. All indexes, titles, subject headings, section titles, and similar items are provided for the purpose of reference and convenience and are not intended to be inclusive, definitive, or to affect the meaning of the contents or scope of this Agreement. 25. Choice of Laws. This Agreement shall be construed and interpreted in accordance with laws of the State of Minnesota, excluding any choice-of-law rules which may direct the application of the laws of another jurisdiction. 26. Governmental Jurisdiction and Authorization. This Agreement is subject to the jurisdiction of those governmental agencies having authority over either Party to this Agreement, including the Federal Energy Regulatory Commission and the Minnesota Public Utility Commission. This Agreement will also be filed with the Rural Electrification Administration on behalf of Minnkota. The Parties know of no other governmental agencies having jurisdiction over this Agreement of the Parties hereto. This Agreement shall not become effective until all required governmental authorizations and permits are first obtained and copies thereof are submitted to each Party; provided that this Agreement shall not become effective unless it, and all provisions thereof, is authorized and permitted by such governmental agencies without material change or condition. The Parties have obtained all required governmental authorizations and permits and shared copies thereof with each other. If, after this Agreement becomes effective, any governmental agency having jurisdiction over this Agreement or either Party requires any change in this Agreement or imposes any condition or obligation on either Party, which either Party, in its sole and absolute discretion, deems unreasonably burdensome, such Party shall have six weeks following such change requirement in which it may terminate this Agreement. Should this Agreement not be terminated within the said six weeks, the change is deemed acceptable. 27. Notices. Any notice, demand, or request required or permitted to be given by either Party to the other and any instrument required or permitted to be tendered or delivered by either Party to the other may be so given, tendered, or delivered as the case may be, by depositing the same in any United States Post Office with postage prepaid for transmission by certified or registered mail, addressed to the Party, or personally delivered to the Party at the address contained in this Agreement. Changes in such designation may be made by notice similarly given. Potlatch Corporation Otter Tail Power Company Route #3 Box 455 215 South Cascade Street Bemidji, MN 56601 Fergus Falls, MN 56537 Telephone: 218/751-1708 Telephone: 218/739-8269 Telecopy: 218/751-1709 Telecopy: 218/739-8218 28. Governance of Text over Exhibits in the Agreement. Where there are differences between the text of this Agreement and the exhibits attached hereto, the text shall govern. IN WITNESS WHEREOF, The Parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the last date hereinabove set forth. POTLATCH CORPORATION OTTER TAIL POWER COMPANY By:Kenneth W. Peterson By: John MacFarlane Kenneth W. Peterson John MacFarlane Vice President President & CEO And:Ron S. Salisbury And: Ward Uggerud Ron S. Salisbury Ward Uggerud Plant Manager Vice President, Operations EXHIBIT A DEFINED TERMS Agreement - This Electric Power Purchase and Interconnection Agreement including all exhibits, attachments, and modifications thereof. Average System Loss - The average loss of electricity in the transmission and distribution in the Otter Tail system, assumed for purposes of this Agreement to be 7% of the total energy in the system. The Average System Loss used in this Agreement is a percentage increase applied to the rate paid for Energy produced by the Facility up to the amount of electricity purchased by the Plants from Otter Tail and Minnkota. Billing Capacity - The lesser of the Monthly Billing Capacity or the Capacity Rating. Billing Period - The approximately one month (30 days) period between meter readings, which are to take place about the twentieth day of each month. Capacity - A measure in kilowatts of the capability of the Facility to produce Energy. Capacity Rating - A measure of the electrical output capability of the Facility, as defined by test according to procedures of the Mid-Continent Area Power Pool (MAPP). Emergency or Abnormal Conditions - A situation where the normally configured electrical system used to serve Potlatch and other retail customers has suffered a failure or is no longer intact, and corrective procedures are required to prevent outages of electrical service or damage to equipment of Potlatch or other retail customers, or an emergency situation has been declared by MAPP. Energy - The electrical output of the Facility measured in kilowatthours. Facility Availability Hours - The number of hours during the Billing Period the Facility was capable of operating. This is calculated by subtracting the number of hours the Facility was in Scheduled Maintenance, Forced Outage, and Facility Modification from the total number of hours in the Billing Period. Facility Modification - A major equipment addition, conversion, or modification that is necessary for the Facility and prevents the Facility from operating. Forced Outage - A period in which the Facility is non-operational due to mechanical failure, imminent mechanical failure, or some other operational failure that prevents the Facility from operating. Permit requirements and failure of the underground or overhead electric distribution system are examples of operational failures. Lack of fuel for the Facility would not be considered a Forced Outage, unless such lack of fuel is the result of force majeure. A Forced Outage period shall only last as long as the time required to repair or correct the condition causing the Forced Outage. Interference - A condition that causes incorrect operation, unsafe operation, or prevents operation of equipment owned by Otter Tail or other utility customers, or causes the quality of electricity being delivered by Otter Tail to other utility customers to be in noncompliance with requirements of the National Electric Safety Code or any governmental agency with jurisdictional authority over Otter Tail. The normal period of equipment adjustment typical with startup of new generating facilities to finetune equipment settings shall not be considered Interference; provided that it does not cause a safety hazard to personnel or provide the potential for equipment damage, or cause outages to customers of Otter Tail. Monthly Billing Capacity - Monthly Billing Capacity is the sum of the monthly Non-coincident Metered Demands of the Plants, provided however the Monthly Billing Capacity shall not exceed the Mid-Continent Area Power Pool (MAPP) Capacity Rating credited to Otter Tail and Minnkota in accordance with Paragraph 6. Monthly Capacity Factor - The ratio of the actual kilowatthour output of the Facility compared to the maximum possible output of the Facility during Facility Availability Hours. The value is calculated by dividing the Billing Period Energy by the result of multiplying the Capacity Rating by the Facility Availability Hours. Non-coincident Metered Demand - The maximum electrical metered demand in kW during the Billing Period without consideration of when the demand occurred during the Billing Period. The Non-coincident Metered Demands of the Plants, served by two separate metering systems, are used in the determination of the Billing Capacity. The maximum metered demand registered by each of the two metering systems for the Plants is added together, even though the maximum demands are not likely to occur at the same time. Scheduled Maintenance - Periods when the Facility is unavailable for operation due to periodic required maintenance of the Facility and associated equipment that cannot be accomplished with the Facility operating. Such periods are scheduled in advance and are not caused by failure or imminent failure of equipment or components of the Facility. Reactive Power - Inductive or capacitive power measured in kilovolt-amps-reactive. Such power does not do measurable work such as kWh, but is necessary to control the voltage level of the electrical system and for energizing electrical equipment such as motors and transformers. Station Service Requirements - Incremental electric power used by the Facility for Facility service such as pumping, generator excitation, cooling, and step-up transformation losses where applicable. EXHIBIT B POINT OF DELIVERY EXHIBIT C SECTION 5 OF THE MID-CONTINENT AREA POWER POOL ENGINEERING HANDBOOK EXHIBIT D SECTION 4 OF THE MID-CONTINENT AREA POWER POOL ENGINEERING HANDBOOK EXHIBIT E EXHIBIT J OF THE MID-CONTINENT AREA POWER POOL ENGINEERING HANDBOOK EXHIBIT F EXHIBIT L OF THE MID-CONTINENT AREA POWER POOL ENGINEERING HANDBOOK EXHIBIT G PROCEDURE FOR DEVELOPING CAPACITY AND ENERGY BILLING EXHIBIT H RETAIL ELECTRIC SERVICE SCHEDULE FOR THE PLANTS -----END PRIVACY-ENHANCED MESSAGE-----