Good morning, and welcome to Otter Tail Corporation's 2018 Second Quarter Earnings Conference Call. Today's call is being recorded and we will host a question-and-answer 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 Loren Hanson, and I manage Otter Tail's Investor Relations area. Last night, we announced our second quarter results and increased our 2018 earnings per share guidance range. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A replay of the call will be available on our website later today. With me on the call today are Chuck MacFarlane, Otter Tail Corporation's President and CEO; and Kevin Moug, Otter Tail Corporation's Senior Vice President and Chief Financial Officer. Before we begin, I want to remind you that we will be making forward-looking statements during this call. As noted on Slide 2, these statements represent our current judgment or opinion of what the future holds. They are subject to risks and uncertainties that may cause actual results to differ materially. So please be advised about placing undue reliance on any of these statements. Our forward-looking statements are described in more detail in our filings with the Securities and Exchange Commission, which we encourage you to review. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements due to new information, future events, developments or otherwise. For opening remarks, I will now turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane.

Thanks Loren. Good morning, everyone. Last night we released our second quarter results. For the quarter, net income from continuing operations was $18.7 million or $0.47 a share compared with $16.7 from continuing operations at $0.42 a share last year. All operating segments improved net income quarter-over-quarter contributing to positive results, our electric segment had favorable weather across the service area and interim rates in place in North Dakota. Our manufacturing segment experienced increased revenue and our plastic segment delivered improved operating margins. Lower tax rates also contributed to earnings increases in both manufacturing and plastics. Allow me to briefly discuss each segment. We mentioned during our last call that Otter Tail Power received authority to reduce interim rates in North Dakota effective March 1st to accommodate lower federal tax rates. This decreased our overall request from 13.1 million to 7.1 million. In July, we reached a proposed settlement agreement with the North Dakota public service commission staff and interveners in the case. The proposed settlement results in an annual revenue increase of 5.4 million and allowed return on equity of 9.77% and future eligibility for costs associated with the natural gas generation project – Astoria and natural gas generation project to be covered in riders. We expect the North Dakota Commission to decide on the case by the end of the third quarter. The South Dakota Public Utilities Commission established Otter Tail’s current rates in 2011 based on 2009 cost. Since then, the costs we incurred to serve customers have increased. On April 20, we requested a rate review on South Dakota. As a result of tax reform, we are able to reduce the overall rate request by more than a million. This is a multiyear request; the first step would be to increase nonfuel rates by approximately 3.3…

Thanks, Chuck and good morning, everyone. All of our business has delivered another solid quarter resulting in increased revenues and earnings. Please refer to slide 16 through 18 as I discuss our second quarter results. The Electric segment net earnings increased $466,000 quarter-over-quarter. Key drivers contributing to these 4.6% increase were $2.5 million as a result of an increase in kilowatt-hour sales due to colder weather in April and warmer weather in May and June compared to the same time frame a year ago. Weather positively impacted earnings per share by approximately $0.05 quarter-over-quarter and compared to normal, weather also positively impact their earnings by approximately $0.04 per share for the quarter. $1.9 million as result of increased megawatt-hour sales to an industrial customer, $1.4 million increase in retail revenues net of an estimated refund related to interim rates that went into effect in January of 2018 in conjunction with the 2017 North Dakota general rate increase request. Also positively impacting earnings were increased, renewable resource, rider revenues in Minnesota and North Dakota along with conservation improvement program incentives in Minnesota. These items were offset in part by the $2.4 million reduction in revenues related to a provision for refunds to recognize that current retail rates in Minnesota and South Dakota are recovering federal income taxes which are more than the reduced tax rate from tax reform, $1.3 million reduction in revenues related to final rates implemented in Minnesota that were lower than interim rates in effect during the second quarter of 2017. Lower North Dakota and South Dakota Environmental cost recovery rider revenue due to the impact from the lower tax rate and the lower investment balance subject to recovery resulting from depreciation. Also impacting earnings were higher O&M and depreciation expenses. And income tax expense decreased $1.8 million…

Thank you. [Operator Instructions] Our first question comes from the line of Paul Ridzon with KeyBanc. Your line is open. Please go ahead.

Good morning, guys.

Good morning, Paul.

You mention the Tax Cuts and Jobs Act a couple of times in your utility commentary. Did that all flush to zero from an EPS standpoint when it works through your income statement?

Yes. I mean, there is – Paul, this is Kevin and we're seeing obviously a reduction in revenues as we anticipate the amount of dollars that's go back from the benefit of the taxes, but then that is offset down in the tax expense line. So they're netting to zero.

Thank you. And is the strength in Plastics, is any of that related to follow on from the hurricanes or is that well behind us?

No, Paul, Kevin again. There is – the impact of the hurricanes had pretty well subsided back in the probably by November or so of 2017 and then we've just continue to see strong sales prices hold and continue through in the 2018 and some of the announced resin increases that were expected during the first three, four months of 2018 haven't fully materialized and so we've been benefiting by the strong prices and not as high as expected resin costs which are really driving the performance of the segment.

And then lastly, because they are comparative businesses, have we started to get any sense that the benefit of tax reform is going to get competed away?

While, we've not seen any pressure at all to-date from customers asking to get that benefit of tax reform passed through to them in the form of pricing. I don't -- from that perspective I think we're probably just would worry more about particularly in Plastics, competitors doing something to just reduce prices, but I don't think it would necessarily be related to anything having to do with tax reform. And that's just based on historical experience in the business where some competitors will, from time to time take a different strategy with pricing and reduce their prices which then certainly impact our margins. On the manifest -- and that I would say the same thing would be similar for T.O. Plastics and at BTD, we've not seen any pressure to give that back. And then the other thing that of course is driving particularly BTD is the labor market, and the labor market is certainly positive in terms of unemployment. There's lots of jobs available for people and of course we're seeing wage pressure on the expense side at BTD and so that too we're something we're cognizant of and trying to make sure that we are able to get that wage rate pressure passed on into our prices as well.

And then at PVC, is it just housing starts that's kind of the volume there?

That is tends to be the best indicator, Paul. This is Chuck. So there are other major infrastructure projects, road and highway that type of deal, but the best indicator we look at is new home starts and they have to be in our regions that we serve.

And how much of that business is residential?

A large percentage of it.

Thanks again.

Thank you. [Operator Instructions] I’m showing no further questions at this time. And I would like to turn the conference back over to Mr. Chuck MacFarlane for any further remarks.

Thank you. Well to summarize, earnings per share increased $0.05 or 12% quarter-over-quarter in part due to a favorable weather at Otter Tail Power service area and the interim rate revenues in North Dakota. Increased volumes and lower taxes at B2B and T.O. Plastics and improved sales margins and lower taxes at Vinyltech and Northern Pipe Products. I like to extend our appreciation to employees across our organization for their hard work and the second quarter results. Looking ahead, we have the right long term strategy in place supported by a solid capital growth plan. We remain on track to deliver shareholder value in 2018 and have increased our full year guidance range. Thank you for joining our call. We appreciate your interest in Otter Tail Corporation and look forward to speaking with you next quarter

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.