Note 9 - Commitments and Contingencies	3 Months Ended
Mar. 31, 2020
Notes to Financial Statements
Commitments and Contingencies Disclosure [Text Block]	9. Commitments and Contingencies Construction and Other Purchase Commitments At March 31, 2020 OTP had commitments under contracts, including its share of construction program commitments and other commitments, extending into 2021 of approximately $250 million. At December 31, 2019 OTP had commitments under contracts, including its share of construction program commitments and other nonlease commitments, extending into 2021 of approximately $317 million. On October 1, 2019 T.O. Plastics entered into a new six-year resin supply agreement that commenced on January 1, 2020. Under the new resin supply agreement, there are no minimum purchase requirements, but T.O. Plastics is required to purchase all of a specified class of regrind resin delivered by the supplier at a set price per pound. Based on current forecasted production levels, T.O. Plastics anticipates the quantity of resin delivered under the supply agreement will not exceed its requirements over the six-year term of the supply agreement or exceed the market cost of alternative sources of the resin. T.O. Plastics estimates it will pay the supplier approximately $1.9 million annually under this agreement. Electric Utility Capacity and Energy Requirements and Coal Purchase and Delivery Contracts OTP has commitments for the purchase of capacity and energy requirements under agreements extending into 2043. OTP also has contracts providing for the purchase and delivery of a significant portion of its current coal requirements. OTP’s current coal purchase agreements for Coyote Station expire at the end of 2040. OTP’s current coal purchase agreement for Big Stone Plant expire at the end of 2020. OTP has an agreement with Peabody COALSALES, LLC for the purchase of subbituminous coal for Big Stone Plant’s coal requirements through December 31, 2020. There is no fixed minimum purchase requirement under this agreement but all of Big Stone Plant’s coal requirements for the period covered must be purchased under this agreement. OTP has an all-requirements agreement with Navajo Transitional Energy Co. (NTEC) for the purchase of subbituminous coal for Hoot Lake Plant through December 31, 2023, with no fixed minimum purchase requirement. OTP Land Easements OTP has commitments to make future payments for land easements not classified as leases, extending into 2034 of approximately $10.1 million. Contingencies OTP had a $3.0 million refund liability on its balance sheet as of March 31, 2020. This represents its best estimate of the refund obligations that would arise net of amounts that would be subject to recovery under state jurisdictional TCR riders. This is based on the outcome of the appeals of the FERC ruling reducing the ROE component of the MISO Tariff and ordering MISO to refund amounts charged in excess of the lower rate. As discussed in note 3 in greater detail, OTP believes its estimated accrued refund liability is appropriate based on the current facts and circumstances and is awaiting results of the appeal before determining if a change in this estimate will be needed. Contingencies, by their nature, relate to uncertainties that require the Company’s management to exercise judgment both in assessing the likelihood a liability has been incurred as well as in estimating the amount of potential loss. In addition to the potential ROE refund described above, the most significant contingencies that could impact the Company’s consolidated financial statements are those related to environmental remediation, risks associated with warranty claims relating to divested businesses that could exceed established reserve amounts, risks associated with adverse regulatory decisions that could impact the recovery of fixed asset costs in future rates and litigation matters. On August 30, 2019 OTP submitted a depreciation technical update to the MPUC for approval. MPUC approval of OTP’s depreciation technical update is currently pending resolution of a disagreement with the MNDOC over the remaining lives assigned to certain of OTP’s fixed assets, including Hoot Lake Plant and seven hydroelectric plants. Resolution of the disagreement could result in an increase in depreciation expense without provision for recovery of a portion of the unrecovered costs of those assets. OTP cannot determine at this time what portion, if any, of the current unrecovered costs of these assets would be lost as a result of resolving the disagreement over remaining lives, but estimates that the remaining useful lives recommended by the MNDOC could result in an asset impairment charge and after-tax reduction in net income of up to $1.1 million. State implementation of pollution control plans to improve visibility and air quality at national parks under the EPA’s Regional Haze Rule (RHR) could require OTP to incur significant new costs, which could, dependent on determinations by state regulatory commissions on approval to recover such costs from customers, negatively impact OTP’s and the Company’s net income, financial position and cash flows. OTP understands that the North Dakota Department of Environmental Quality (NDDEQ) intends to require sources subject to RHR Round 2 reasonable progress determinations, including Coyote Station, to undertake emissions control measures that are reasonably consistent with those required of sources during Round 1. While this process is still in the early stages, if the NDDEQ maintains its initial position, OTP anticipates that significant emissions controls would be required at Coyote Station by December 31, 2028 in order to maintain compliance with the RHR. Plans are due to be submitted to the EPA by July 2021. On March 3, 2020 the NDDEQ provided initial recommendation for Round 2 Coyote Station control recommendations to the Western Regional Air Partnership. OTP expects the NDDEQ to begin drafting a state implementation plan in mid-2020. In light of the costs for such emissions control equipment, there are scenarios where it may not be economically feasible to invest in such equipment and an early retirement of the Coyote Station would therefore be necessary. The costs related to an early retirement of Coyote Station would be material to OTP and the Company and would be subject to state commission approval for recovery from customers. Other The Company is a party to litigation and regulatory enforcement matters arising in the normal course of business. The Company regularly analyzes current information and, as necessary, provides accruals for liabilities that are probable of occurring and that can be reasonably estimated. The Company believes the effect on its consolidated results of operations, financial position and cash flows, if any, for the disposition of all matters pending as of March 31, 2020, other than those relating to the RHR, will not be material.

Note 9 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Text Block]

9. Commitments and Contingencies

Construction and Other Purchase Commitments

At March 31, 2020 OTP had commitments under contracts, including its share of construction program commitments and other commitments, extending into 2021 of approximately $250 million. At December 31, 2019 OTP had commitments under contracts, including its share of construction program commitments and other nonlease commitments, extending into 2021 of approximately $317 million.

On October 1, 2019 T.O. Plastics entered into a new six-year resin supply agreement that commenced on January 1, 2020. Under the new resin supply agreement, there are no minimum purchase requirements, but T.O. Plastics is required to purchase all of a specified class of regrind resin delivered by the supplier at a set price per pound. Based on current forecasted production levels, T.O. Plastics anticipates the quantity of resin delivered under the supply agreement will not exceed its requirements over the six-year term of the supply agreement or exceed the market cost of alternative sources of the resin. T.O. Plastics estimates it will pay the supplier approximately $1.9 million annually under this agreement.

Electric Utility Capacity and Energy Requirements and Coal Purchase and Delivery Contracts

OTP has commitments for the purchase of capacity and energy requirements under agreements extending into 2043. OTP also has contracts providing for the purchase and delivery of a significant portion of its current coal requirements. OTP’s current coal purchase agreements for Coyote Station expire at the end of 2040. OTP’s current coal purchase agreement for Big Stone Plant expire at the end of 2020. OTP has an agreement with Peabody COALSALES, LLC for the purchase of subbituminous coal for Big Stone Plant’s coal requirements through December 31, 2020. There is no fixed minimum purchase requirement under this agreement but all of Big Stone Plant’s coal requirements for the period covered must be purchased under this agreement. OTP has an all-requirements agreement with Navajo Transitional Energy Co. (NTEC) for the purchase of subbituminous coal for Hoot Lake Plant through December 31, 2023, with no fixed minimum purchase requirement.

OTP Land Easements

OTP has commitments to make future payments for land easements not classified as leases, extending into 2034 of approximately $10.1 million.

Contingencies

OTP had a $3.0 million refund liability on its balance sheet as of March 31, 2020. This represents its best estimate of the refund obligations that would arise net of amounts that would be subject to recovery under state jurisdictional TCR riders. This is based on the outcome of the appeals of the FERC ruling reducing the ROE component of the MISO Tariff and ordering MISO to refund amounts charged in excess of the lower rate. As discussed in note 3 in greater detail, OTP believes its estimated accrued refund liability is appropriate based on the current facts and circumstances and is awaiting results of the appeal before determining if a change in this estimate will be needed.

Contingencies, by their nature, relate to uncertainties that require the Company’s management to exercise judgment both in assessing the likelihood a liability has been incurred as well as in estimating the amount of potential loss. In addition to the potential ROE refund described above, the most significant contingencies that could impact the Company’s consolidated financial statements are those related to environmental remediation, risks associated with warranty claims relating to divested businesses that could exceed established reserve amounts, risks associated with adverse regulatory decisions that could impact the recovery of fixed asset costs in future rates and litigation matters.

On August 30, 2019 OTP submitted a depreciation technical update to the MPUC for approval. MPUC approval of OTP’s depreciation technical update is currently pending resolution of a disagreement with the MNDOC over the remaining lives assigned to certain of OTP’s fixed assets, including Hoot Lake Plant and seven hydroelectric plants. Resolution of the disagreement could result in an increase in depreciation expense without provision for recovery of a portion of the unrecovered costs of those assets. OTP cannot determine at this time what portion, if any, of the current unrecovered costs of these assets would be lost as a result of resolving the disagreement over remaining lives, but estimates that the remaining useful lives recommended by the MNDOC could result in an asset impairment charge and after-tax reduction in net income of up to $1.1 million.

State implementation of pollution control plans to improve visibility and air quality at national parks under the EPA’s Regional Haze Rule (RHR) could require OTP to incur significant new costs, which could, dependent on determinations by state regulatory commissions on approval to recover such costs from customers, negatively impact OTP’s and the Company’s net income, financial position and cash flows. OTP understands that the North Dakota Department of Environmental Quality (NDDEQ) intends to require sources subject to RHR Round 2 reasonable progress determinations, including Coyote Station, to undertake emissions control measures that are reasonably consistent with those required of sources during Round 1. While this process is still in the early stages, if the NDDEQ maintains its initial position, OTP anticipates that significant emissions controls would be required at Coyote Station by December 31, 2028 in order to maintain compliance with the RHR. Plans are due to be submitted to the EPA by July 2021. On March 3, 2020 the NDDEQ provided initial recommendation for Round 2 Coyote Station control recommendations to the Western Regional Air Partnership. OTP expects the NDDEQ to begin drafting a state implementation plan in mid-2020. In light of the costs for such emissions control equipment, there are scenarios where it may not be economically feasible to invest in such equipment and an early retirement of the Coyote Station would therefore be necessary. The costs related to an early retirement of Coyote Station would be material to OTP and the Company and would be subject to state commission approval for recovery from customers.

Other

The Company is a party to litigation and regulatory enforcement matters arising in the normal course of business. The Company regularly analyzes current information and, as necessary, provides accruals for liabilities that are probable of occurring and that can be reasonably estimated. The Company believes the effect on its consolidated results of operations, financial position and cash flows, if any, for the disposition of all matters pending as of March 31, 2020, other than those relating to the RHR, will not be material.