2016 Stewardship Report

Balance

Stewardship Report

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Customer Service 800-257-4044 Idea Center 800-493-3299 Media inquiries 218-739-8297 Headquarters 218-739-8200 215 South Cascade Street Fergus Falls, MN 56537

7/17

Luverne Wind Farm in Griggs and Steele Counties, North Dakota

A letter from President Tim Rogelstad Our 2016 Stewardship Report—titled Balance—tells the story of Otter Tail Power Company’s ongoing commitment to environmental, economic, and community responsibility. It highlights our balanced approach to the decisions we make and the actions we take to produce and deliver electricity to the rural communities we serve.

In these pages you’ll find a clear picture of the responsible ways in which we meet diverse needs.

You’ll find that the values that drive our company— integrity, safety, customer focus, resourcefulness, and community—are embedded in all we do to carefully manage the impacts we have on the people, communities, and resources around us.

I invite you to read our 2016 Stewardship Report to understand our commitment to responsible corporate citizenship. The balanced approach we take is testament to our long-standing dedication to improving the quality of life in the areas in which we do business.

Timothy J. Rogelstad President Otter Tail Power Company

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Letter from the president

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1

Big Stone South-Ellendale 345-kV Transmission Line

Table of contents 4 8

20

ABOUT THIS REPORT Materiality assessment

4

32

GETTING TO KNOW US Vision, mission, and values Governance Ethics and integrity Operations About our supply chain Generation mix Transmission and distribution

9 10 10 10 11 12 18

ENVIRONMENTAL STEWARDSHIP Air quality Efficiency improvements and emission reductions

20 21

Renewable energy Water resources Biodiversity Spills, fines, and sanctions Energy resources and fuel suppliers Regulatory proposals and public policy engagement

24 24 25 26 27 27

Energy efficiency

29

36 46 47

ECONOMIC STEWARDSHIP Charitable contributions Economic development Direct economic value Local sourcing opportunities Indirect economic value Manageable rates Load management New customer information system

32 33 34 34 34 35 35 35

COMMUNITY STEWARDSHIP Community commitment Open involvement Customer satisfaction Reliability Preparedness planning Employee health and safety Employee commitment Employee training

36 37 38 39 40 41 42 44

Workforce

45

INITIATIVE ADHERENCE Letter from Lynnette McIntire

46

GLOBAL REPORTING INITIATIVE INDEX

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Table of contents

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About this report

This is Otter Tail Power Company’s sixth biennial Stewardship Report. We selected its content based on the environmental, economic, community, and other standard disclosures outlined in the Global Reporting Initiative (GRI) Standards reporting guidelines released in 2016.

We comply with the GRI Standards at the “core” level. The GRI guidelines provide a voluntary reporting framework used worldwide to communicate meaningful information about issues that impact reporting organizations and their stakeholders.

As in our five previous biennial reports, our reporting boundaries include the business areas on which Otter Tail Power Company, and no other subsidiary of Otter Tail Corporation, has direct impact or significant influence.

We’re reporting 2016 information throughout this report, unless we indicate otherwise due to data availability. At the end of the report you’ll find the GRI Index that shows what we reported relative to the guidelines. For questions about the report, contact Sarah Casey, Otter Tail Power Company Communications Specialist, at pr@otpco.com.

MATERIALITY ASSESSMENT

We conducted this materiality assessment to learn what stakeholders view as important in the areas of environmental, economic, and community stewardship and governance. This assessment helped us define the contents of our Stewardship Report published in 2017.

We collected feedback in 2016. The assessment includes Otter Tail Power Company, a subsidiary of Otter Tail Corporation (NASDAQ:OTTR). This is our first materiality assessment, and we followed the guidance of the Global Reporting Initiative (GRI) Standards released in 2016.

Stakeholder feedback and engagement We included feedback from the following stakeholders: • Residential, commercial, and industrial customers.

• Community Advisory Boards.

• Employees.

• Shareholders.

• Regulators and regulatory agencies.

• Legislators.

• Stakeholders specifically interested in our Resource Plan, a strategic document that outlines the resources required to meet our customers’ needs for reliable service during the next 15 years.

The boundary of our feedback and assessment, where our impact occurs as defined by GRI, encompasses the geography where we provide service in Minnesota, North Dakota, and South Dakota.

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Feedback sources by stakeholder As a public electric utility, we’re required to engage with our stakeholders and solicit feedback. We also proactively reach out to our stakeholders to ensure they’re satisfied with our service, that our operations are safe and responsible, and that we deliver financial returns.

Residential, commercial, and industrial customers We collected feedback at open houses and public forums. And we reviewed complaints from our toll-free customer service phone line. We also used online and social media comments to solicit feedback. We have approximately 3,000 followers on our social media accounts and review comments on a regular basis.

We solicited feedback on specific projects. For our hydro-relicensing project, approximately 30 landowners and 7 other entities participated in an open house, including the Federal Energy Regulatory Commission and the Minnesota Department of Natural Resources.

For our request to adjust rates in Minnesota, only one customer attended one of our four public forums and one customer commented in Speak-Up online.

We surveyed our customers for customer satisfaction twice in 2016 using the independent vendor American Customer Satisfaction Index (ACSI). ACSI compared our satisfaction rating with those of the top electric or dual electric/gas investor-owned utilities. The organization surveyed 500 residential customers.

Key metrics included customer expectations and perceptions about the value and quality of their experiences with our services, personnel, and website.

ACSI also asked customers about experiences with power outages and restoration.

We engaged Bellomy Research, Inc., to evaluate satisfaction with service provided by customer service representatives and field service technicians. Bellomy contacted 3,000 customers and delivered in-depth reports that help us respond to emerging issues that may require operational improvements.

Community Advisory Boards

These boards include community leaders from healthcare facilities, K–12 school systems, colleges, chambers of commerce, and businesses, as well as Otter Tail Power Company representatives from customer service, operations, sales, economic development, and public relations. They meet two to three times a year to discuss local topics of interest, including upcoming projects, economic development, and business partnerships.

Employees

We held several employee events to share information about our company’s performance and goals and encouraged employees to ask questions and voice concerns aloud or anonymously on paper. Events included, but were not limited to, Executive Forums, during which senior management reached all employees; Customer Care Conferences, during which customer service leadership reached almost all of our approximately 40 customer service representatives and administrative support staff; and Managers’ Meetings, during which subject matter experts reached almost all of our approximately 60 managers. Otter Tail Corporation, our parent organization, offers an anonymous ethics hotline for all employees.

Shareholders

Investors contacted the Investor Relations Department at Otter Tail Corporation, which also invites investors to the Annual Meeting of Shareholders. In 2016 Otter Tail Power Company’s revenues represented approximately 53 percent of Otter Tail Corporation’s consolidated operating revenues.

Regulators and regulatory agencies

We continued to work with regulatory agencies on the local, state, and federal levels. Through agency and public meetings, our unified efforts helped to implement procedures that were transparent and encouraged participation from interested parties.

Community Advisory Board meeting in Bemidji, Minnesota

Legislators

Otter Tail Power Company has a Legislative Affairs team that works in each of the states we serve. The team reaches out to elected officials to share information about topics and pending legislation related to electric power generation and delivery.

Stakeholders interested in our Resource Plan

Our 2017–2031 Resource Plan identifies the most cost-effective combination of resources for meeting our customers’ needs for reliable service during the next 15 years. This plan was available online for review and comment. We also had stakeholder engagement meetings to review our progress and plans. Stakeholder groups that participated in these meetings included the Minnesota Public Utilities Commission, North Dakota Public Service Commission, South Dakota Public Utilities Commission, Minnesota Department of Commerce, Minnesota Chamber of Commerce, Minnesota Large Industrial Group, Wind on the Wires, Izaak Walton League, Sierra Club, Fresh Energy, Minnesota Center for Environmental Advocacy, Center for Energy and Environment, and the Great Plains Institute.

If you have questions or comments about the report, email pr@otpco.com.

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Material topics reflecting feedback We deemed issues material when they rose to the surface in three or more stakeholder groups.

Reliability

1

2

While we have a solid reliability record, we continue to seek ways to improve outage response. We’re researching technology that will allow us to more quickly locate, inform customers about, and restore electrical outages. This research is part of a long-term technology and infrastructure program on which planning efforts began in 2016.

Customer satisfaction Otter Tail Power Company customer satisfaction is among the highest in the nation. To keep it there, we’re installing a new Customer Information System that will allow us to keep pace with evolving customer expectations. In 2016 we began configuring and testing the new system. We expect it to go live in 2018.

Economic impact (direct and indirect)

4

3

Our Community Advisory Boards and other community leaders are interested in the local economic impact Otter Tail Power Company has on the communities we serve. In 2016 we held these meetings in five communities. In 2017 we’ll expand to more communities.

5

Cost In 2016 we asked the Minnesota Public Utilities Commission for permission to increase rates so that we can recover costs associated with our investments in new technologies and infrastructure—investments that will help keep the price our customers pay among the lowest in the region.

Energy efficiency We educate customers about energy efficiency and no- or low-cost ways to use less of our product, because the less electricity our customers use, the more money they save, and the longer we can delay adding more generation resources to our mix. In 2016 we encouraged customer participation in energy-saving programs.

Methodology for ranking topics and stakeholders’ feedback We deemed issues material when they rose to the surface in three or more stakeholder groups. While stakeholders raised other topics of interest, fewer than ten topics had trending feedback. When defining our key topics and issues, we also reviewed material issues presented specifically for electric utilities by GRI’s Sector Guidance, the Sustainability Accounting Standards Board, Ceres, industry organizations, and other electric utilities.

Per GRI’s guidance, we’ve identified material topics based on the two dimensions of the materiality principle:

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1. the significance of the organization’s economic, environmental, and social impacts and 2. their substantive influence on the assessments and decisions of stakeholders.

Our Stewardship Report team reviewed stakeholder feedback documents and created the initial list of issues.

The team then shared the issues with relevant subject matter experts and finally with members of our senior management team, including our president, to secure final approval.

6

Emissions

7

Industry trends show growing concern over the emissions associated with electricity generation.

In 2016 stakeholders expressed appreciation for our (then new) air-quality control system at Big Stone Plant in South Dakota, where we’ve been able to reduce sulfur dioxide and nitrogen oxides emissions by 90 percent and mercury emissions by 80 percent. Because this is a topic of great interest, we dedicated a section of this report to covering it in detail.

8

Community engagement We serve 422 communities in a 70,000-squaremile service area in rural Minnesota, North Dakota, and South Dakota. In many of these communities our employees serve on the city council, fire department, school board, or in other prominent roles. We’re an important part of the communities we serve. That’s why our company’s vision statement includes growth and success for our company and the rural communities we serve. We continue to work with local officials and citizen groups to support economic development and improve the quality of life in the areas we serve.

Workforce investments including training and education In preparation for significant employee turnover, primarily due to retirements, we work with area institutions of higher learning on career pathing and recruiting to ensure we have a ready workforce over the next ten-plus years.

We also provide training and continuing education opportunities for existing employees to build our bench strength in-house.

9

Charitable contributions Stakeholders in small communities expect large employers to contribute to local charities. In a service area dominated by rural communities, we recognize that our charitable contributions are more important than they might be in larger, more prosperous communities. We connect with our rural communities to support young minds, invest in our current and future workforce, create vibrant culture and vital communities, improve health and human services, and protect our natural resources. We receive countless thankyou letters throughout the year from community organizations expressing their appreciation for our support.

Facebook.com/OtterTailPowerCo Twitter.com/OtterTailPwrCo YouTube.com/OtterTailPowerCo

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Picture

Company headquarters in Fergus Falls, Minnesota

Getting to know us Our company is named after the Otter Tail River, which provided our first source of electricity when we became an operating utility in 1909. Hundreds of years ago the Ojibwe noted that a large sandspit follows the contour of the shoreline of a lake where the river flows into it.

Because they thought this sandspit resembled the tail of an otter, the Native Americans named the lake Nigagwanoe, Otter Tail. By doing so, they also named a river, a village, a township, a county, and a power company.

Otter Tail Power Company is a subsidiary of Otter Tail Corporation (NASDAQ:OTTR). Otter Tail Power Company reported $427 million in revenues in 2016, which represents 53 percent of Otter Tail Corporation’s consolidated operating revenues. Both entities are headquartered in Fergus Falls, Minnesota.

Otter Tail Power Company provides electricity to more than 131,000 customers in a service area that spans 70,000 square miles in western Minnesota, eastern North Dakota, and northeastern South Dakota. In 2016 Otter Tail Power Company employed 796 people.

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ELECTRIC

VARISTAR—MANUFACTURING PLASTICS

1909 131,000+ 796

Year we became an operating utility

Customers we serve in Minnesota, North Dakota, and South Dakota Picture and info

Employees in 2016

Our service area is predominantly rural and agricultural.

We generate about one-third of revenues from residential customers, and the remaining revenues come from industrial and commercial customers. In 2016 our generation nameplate capacity was 760 megawatts (MWs). Our generation fleet generated approximately 2,820 gigawatt-hours (GWhs) of energy. This energy was produced from three baseload coal-burning plants, which generated approximately 2,265 GWhs of energy; combustion turbine and small diesel units (40 GWhs); hydroelectric facilities (25 GWhs); and three companyowned wind facilities (490 GWhs). We provide more details about each owned facility and our other generation sources starting on page 12.

VISION, MISSION, AND VALUES Our vision

Growth and success—for our company and the rural communities we serve. We collaborate and prosper through responsible, resourceful action.

We balance community, economic, and environmental commitments. Always.

Our mission To produce and deliver electricity as reliably, economically, and environmentally responsibly as possible to the balanced benefit of customers, shareholders, and employees and to improve the quality of life in the areas in which we do business.

Our values Integrity: We conduct business responsibly and honestly.

Safety: We provide safe workplaces and require safe work practices.

Customer focus: We provide reliable electricity and timely, courteous customer service.

Resourcefulness: We draw on the ingenuity and expertise of various resources to create strategic, balanced plans.

Community: We improve the quality of life in the areas in which we do business.

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GOVERNANCE

Otter Tail Corporation, our parent company, and its Board of Directors are committed to accountability and good corporate governance. Directors use governance guidelines to perform their duties, exercise their responsibilities, and insure that Otter Tail Corporation and its subsidiaries operate in an open, honest, and ethical manner. You can read Otter Tail Corporation’s Corporate Governance Guidelines—which includes compensation, term limits, committee structure, and code of conduct—at ottertail.com.

Otter Tail Power Company’s Chief Financial Officer is the top executive responsible for our economic impact; our Vice President, Planning and Strategy, oversees our environmental impact; our Vice President, Public Relations, is responsible for our social impact that includes charitable contributions; our Vice President, Customer Service, oversees our social impact that affects community relations; and our Director, Human Resources and Safety, manages the company’s impact on our workforce and suppliers.

ETHICS AND INTEGRITY

Otter Tail Power Company believes in integrity and honesty in all workplace activity. We’re committed to ethical behavior and expect our directors, officers, and employees to have the same commitment. We’ve built a reputation for trust and excellence with our customers. The decisions we make and the actions we take are vitally important in maintaining our reputation.

To emphasize our commitment to integrity and honesty, we require faithful compliance with Otter Tail Corporation’s Code of Conduct. Each year our employees receive new copies of the code to review. Newly hired employees must watch a Corporate Code of Conduct video.

OPERATIONS Our employees

We’re a team that serves customers who depend on us for electricity when they want it and need it. We operate power plants, build and maintain electric lines, troubleshoot service issues, and provide the support services needed to keep our company running smoothly.

We also employ contractors when needed for special assignments, such as transmission line, power plant, and customer information system projects.

Otter Tail Power Company employees Total employees

796

Minnesota

472

North Dakota

205

South Dakota

119

Includes temporary and part-time employees and our employees shared with other plant co-owners, as of December 31, 2016. Plant co-owners’ shares are defined by the percentage of ownership between NorthWestern Energy, Montana-Dakota Utilities Co., Northern Municipal Power Agency, and Otter Tail Power Company at our Big Stone Plant and Coyote Station. They are Otter Tail Power Company employees, but their costs are shared with plant co-owners.

Employees by category FEMALE Regular Temporary

Full-time

148

Part-time

16

Full-time

1

Part-time

0

Full-time

620

Part-time

1

Full-time

8

Part-time

2

MALE Regular Temporary

As of December 31, 2016

All employees are required to review Otter Tail Corporation’s Code of Conduct annually. As stated in the introduction of the booklet, “We expect our directors, officers and employees to abide by not only the ‘letter,’ but also the ‘spirit’ of the Code of Conduct.”

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2016

Our customers

58,609 North Dakota

Our customers

11,571

3. Purchased power: Capacity and energy from counterparties and the Midcontinent Independent System Operator, Inc., (MISO) energy market.

131,551

Minnesota

61,371

North Dakota

58,609

South Dakota

11,571

Customers by category Residential

101,435

Seasonal

2,135

Farms

2,823

Commercial

Minnesota

South Dakota

Otter Tail Power Company customers Total customers

61,371

22,220

Large commercial

1,931

Streetlighting

410

Other public authorities

597

ABOUT OUR SUPPLY CHAIN

For the purposes of this report, we’re defining our supply chain to include major suppliers in five primary areas across our three-state service area.

1. Wind farm and combustion turbine sites: Software and information technology hardware, consulting and maintenance services, and parts and equipment repair.

4. Transmission and distribution materials: Poles, conductor wire, connecting and insulating hardware, transformers, and meters.

5. Companywide services: Software and information technology hardware, consulting services, contract labor (including project-based construction workers), recycling and disposal services, and communications and miscellaneous equipment.

Supplier engagement Otter Tail Power Company purchasing agreements require suppliers to abide by federal Equal Employment Opportunity requirements; conform to applicable governmental permits, licenses, and applicable laws; meet or exceed all OSHA requirements; and meet or exceed all reporting requirements for the accidental release of hazardous materials. For large projects we screen construction contractors based on their last five years of safety performance. Software and information technology hardware suppliers are required to adhere to cybersecurity requirements. All suppliers must provide proof of insurance for workers compensation, employer’s liability, auto insurance, and general liability.

2. Coal-fired power plant sites: Fuel, fuel transportation, fuel reagents (pebble lime, powdered carbon, and anhydrous ammonia), operations monitoring and maintenance services, engineering services, and plant upgrades.

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2016

Our generation mix balances reliability, affordability, and environmental responsibility.

Purchases

Coal

44

%

GENERATION MIX

Resource Plan filed in 2016 In June 2016 we submitted our 2017-2031 Resource Plan to the Minnesota Public Utilities Commission (MPUC) seeking authorization to add approximately 250 MW of natural gas, up to 300 MW of wind, and approximately 30 MW of solar resources.

The plan identifies research and development projects and the most cost-effective combination of resources for meeting our customers’ needs for reliable electric service during the next 15 years. To develop, we evaluate available generation resources and select a plan based on reliability, affordability, and environmental responsibility. The MPUC approved the plan in April 2017.

We continue to make existing generating facilities as efficient and economical as possible. Because existing resources alone can’t meet our customers’ future energy needs, the Resource Plan provides a mix of additional resources. While this filing is required only in Minnesota, we develop a strategy for our system as a whole and file the plan with the North Dakota and South Dakota regulatory commissions.

With the resources already in service and the planned resources included in our Resource Plan, we expect to have wind energy in excess of our states’ standards.

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Generation resources

36

%

Wind

18

%

Hydro

Natural gas/oil

1

1

%

%

Owned and purchased fuel sources that serve our customers In 2016, mostly due to low natural gas prices, we could buy energy from the Midcontinent Independent System Operator, Inc., energy market for less than it would take for us to generate the energy. This led to an unusually high percentage of “Purchases� in our energy mix.

2001 81% Coal 9% Purchases 7% Hydro 3% Fuel oil, biomass, solid waste

2016 44% Coal 36% Purchases

46% coal, 27% natural gas, 16% nuclear, 8% wind, 2% hydro, 1% other

18% Wind 1% Hydro 1% Natural gas/oil otpco.com

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Coal-fired plants

Combustion turbines

We operate three coal-fired plants that produced about 44 percent of the electrical energy our customers used in 2016.

Combustion turbines produce less than 1 percent of our company’s energy. Because they operate with more expensive fuels, these compact power plants generate energy only when prices for purchasing energy on the energy market are high, typically during periods of high demand or system emergencies.

Coal-fired plant details BIG STONE PLANT Location

Big Stone City, SD

Age

On line since 1975

Capacity

475 MW

SOLWAY, MINNESOTA

2016 net energy output

2,084,287 MWh

Capacity

43.1 MW

2016 availability

76.15%

2016 net energy output

39,509 MWh

Fuel source

Subbituminous

Fuel source

Natural gas or fuel oil

Ownership

53.9% Otter Tail Power Company 23.4% NorthWestern Energy 22.7% Montana-Dakota Utilities Co.

JAMESTOWN, NORTH DAKOTA

COYOTE STATION Location

Beulah, ND

Age

On line since 1981

Capacity

427 MW

2016 net energy output

2,447,569 MWh

2016 availability

76.15%

Fuel source

Lignite

Ownership

35% Otter Tail Power Company 30% Northern Municipal Power Agency 25% Montana-Dakota Utilities Co. 10% NorthWestern Energy

Combustion turbine details

Capacity

41.5 MW

2016 net energy output

317 MWh

Fuel source

Fuel oil

LAKE PRESTON, SOUTH DAKOTA Capacity

19.7 MW

2016 net energy output

410 MWh

Fuel source

Fuel oil

Capacities listed are Net Dependable Capacity value according to Midcontinent Independent System Operator, Inc.

HOOT LAKE PLANT Location

Fergus Falls, MN

Age

Unit 2 on line since 1959 Unit 3 on line since 1964

Capacity

139 MW

2016 net energy output

216,278 MWh

2016 availability

98.3%

Fuel source

Subbituminous

Ownership

100% Otter Tail Power Company

Capacities listed are installed capacity ratings according to the Midcontinent Independent System Operator, Inc.

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Hydropower We own six small hydroelectric plants in Minnesota that account for about 1 percent of our energy. The Bemidji hydro plant is on the Mississippi River, and the other hydro plants are on the Otter Tail River near Fergus Falls as illustrated below.

Otter Tail River

Otter Tail Lake

Friberg (Taplin Gorge) 0.6 MW

Pisgah 0.5 MW

Hoot Lake 1 MW

Wright (Central Dam) 0.4 MW Dayton Hollow 1 MW

In June 2016 we filed our Pre-Application Document with the Federal Energy Regulatory Commission to begin the process of relicensing our five hydroelectric plants along the Otter Tail River. The existing license will expire on November 30, 2021. Hydroelectric power has been part of our company’s energy resource mix since 1909 and is the technology on which our founders built the company. We value the hydroelectric plants for their longevity, reliability, and ability to provide renewable energy to our customers.

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Dayton Hollow in Fergus Falls, Minnesota otpco.com

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2021

Our renewable resources forecast

By 2021 we project that our customers will receive more than 30 percent of their energy from renewable resources.

Wind power

We own or purchase approximately 250 MW of installed capacity, or about 18 percent of our retail sales, from wind farms in North Dakota, Minnesota, and South Dakota. In our 2017–2031 Resource Plan, we were authorized to add up to 200 MW of cost-effective windgenerated electricity in the 2018 to 2020 timeframe.

Wind farm details

Owned

Purchased

MINNESOTA 4.0 MW

NORTH DAKOTA

TailWinds

Since 2002 our TailWinds program has been available to commercial and residential customers who are interested in supporting an even greater level of investment in wind energy. In 2016 the approximately 450 customers who were enrolled in TailWinds purchased 171,300 kilowatt-hours (kWh) of windgenerated energy in monthly 100-kWh blocks.

North Dakota Wind II (Edgeley)

21.0 MW

Langdon Wind Energy Center

40.5 MW

Ashtabula Wind Energy Center

48.0 MW

Luverne Wind Farm

49.5 MW

Ashtabula III Wind Energy Center

19.5 MW

62.4 MW

SOUTH DAKOTA 0.1 MW

Our Publicly Owned Property Solar (POP Solar) program is one strategy we’re using to meet the state of Minnesota’s requirement for small-scale solar energy.

The program provides incentives to tax-exempt public entities to help address system installation costs. The first POP Solar project, finished in 2016, is a 19.5-kW rooftop solar PV system installed at the University of Minnesota-Crookston (UMC) Wellness Center. UMC received a $24,700 incentive to complete the system, which will produce 23,000 kWh annually, or about 6 to 10 percent of the building’s energy requirements.

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Rooftop solar at University of Minnesota-Crookston

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Thermal generation efficiency Improved operational efficiency contributes to sustainable development by reducing costs and emissions. We always look for ways to maximize the efficiency of our existing thermal generators to ensure we’re operating as economically and environmentally responsibly as possible. In 2016 we improved efficiencies at Big Stone Plant by installing a new variable-frequency drive compressor and upgrading to LED lighting in the boiler building. Coyote Station also underwent LED lighting upgrades for coal conveyor belts and outside areas. Below are 2016 thermal generator efficiencies by fuel type. We calculate efficiency by taking the electric energy produced by our thermal generating units and dividing it by the total energy content of the fuel burned.

2016 thermal generator efficiency by fuel type COAL

NATURAL GAS

OIL

30.92%

34.34%

26.28%

Hoot Lake Plant retirement In 2012 we completed a baseload diversification study with a focus on evaluating retirement and repower options for our 1950s-era Hoot Lake Plant. Our study results showed that the lowest-cost option would be to add equipment to comply with Mercury and Air Toxics Standards by 2015 and retire the plant in 2021.

We recommended those measures in our subsequent Resource Plans. We’re working collaboratively with the City of Fergus Falls to manage the impact of the planned retirement.

Merricourt wind project

In November 2016 we announced an agreement to purchase a 150-MW wind farm in southeastern North Dakota that EDF Renewable Energy will design and build in 2019. We expect the Merricourt wind project to cost more than $250 million and the wind farm to generate enough electricity to power more than 65,000 homes. The wind energy paired with capacity from a new 250-MW simple-cycle natural gas-fired facility in Astoria, South Dakota, are part of our company’s plan to prepare for the retirement of Hoot Lake Plant, meet our customers’ growing energy needs, and replace expiring power purchase agreements.

When the Merricourt wind project is complete, customers will receive approximately 28 percent of their energy from wind. The wind farm will be our company’s largest-ever capital investment.

Hoot Lake Plant in Fergus Falls, Minnesota

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TRANSMISSION AND DISTRIBUTION

We invest in transmission and distribution upgrades and new construction to meet our customers’ needs and to maintain our system’s reliability.

CapX2020

Miles in operation 2014

2016

2017 proposed additions

TRANSMISSION LINES 345 kV*

438.5

534.9

72.0

230 kV*

485.8

478.7

4.0

115 kV

875.5

877.9

69 kV

209.3

209.3

41.6 kV

3,753.1

3,763.2

2,720.8

2,627.1

CapX2020 is an effort of 11 transmission-owning utilities in Minnesota and the surrounding region to: • Expand the electric transmission grid.

• Ensure continued reliable and affordable service.

• Enable renewable and other generation sources to connect to the system.

We’ve been involved with four of the five CapX2020 projects. In 2016 we continued construction on the Big Stone South-Brookings County 345-kV line.

We expect the line to be in service in 2017.

DISTRIBUTION LINES 24 kV and below

Our studies indicate that Otter Tail Power Company’s transmission and distribution losses as a percentage of our total energy is approximately 9.6 percent.

Determined by customer needs

CapX2020.com

*Mileage includes our joint ownership in CapX2020 transmission projects.

On September 1, 2016, the Big Stone South-Ellendale 345-kV Transmission Line project kicked off construction during an event in Webster, South Dakota. Approximately 100 people attended, including federal congressional representatives, state regulatory and legislative officials, wind industry and contractor representatives, county and township chairs, and city and tribal leaders.

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Line construction will require an average of 75 crew members, with a peak of 150 crew members during the height of construction. Local and regional contractors are working on the project, including in South Dakota: Webster-based Webster Scale, Inc.; Rapid City-based Brink Constructors, Inc.; and Sioux Falls-based Jacobsen Tree Experts, and in Minnesota: Hamel-based Tri-State Drilling and Rosemount-based Dahn Construction.

Multivalue projects We’ve been involved as either investor/owner or owner/project manager with three Midcontinent Independent System Operator, Inc. (MISO) multivalue projects (MVPs), including the two projects highlighted below. MISO defines MVPs as transmission projects that have regional benefits and are part of a regional transmission plan. MISO cost-allocation mechanisms allow recovering project costs from all customers who benefit from them, not only from our customers.

Big Stone South-Brookings County 345-kV line

Construction on the Big Stone South-Brookings County 345-kV Transmission Line project continued in 2016, and we expect it to be in service in 2017.

The line will extend 70 miles from Big Stone City, South Dakota, to Brookings, South Dakota. Xcel Energy is the lead developer and is managing construction of this project that’s estimated to cost $120 to $150 million.

Big Stone South-Ellendale 345-kV line

We began construction on the Big Stone South-Ellendale 345-kV Transmission Line project in 2016. As the lead developer, we anticipate the line to be energized in 2019. It will extend 163 miles from Big Stone City, South Dakota, to Ellendale, North Dakota. Our company and Montana-Dakota Utilities Co. own this project that’s estimated to cost $240 million to $300 million.

BSSETransmissionLine.com

Other 2016 projects MISO wind interconnection

In June crews from our company and Aevenia completed a ten-week project to replace two 345-kV transformers, expand the 345-kV bay, and add a new breaker at our Jamestown Substation as part of a MISO wind interconnection. After completion, our Jamestown crew, pictured at right, worked with Xcel Energy to install the 115-kV interconnection transmission line.

Western North Dakota Transmission Initiative We completed four projects as part of the Western North Dakota Transmission Initiative. They included adding 41.6-kV breakers at the Rugby 230-kV Substation, installing 41.6-kV breakers at the Drake Substation and the Coleharbor Substation, and installing a 41.6-kV breaker station at Granville.

Substation in Jamestown, North Dakota otpco.com

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Big Stone Plant in Big Stone City, South Dakota

Environmental stewardship We recognize the value of this area’s natural resources and concerns regarding climate change and take a balanced approach to these issues by encouraging informed decision making. Because a wholesome environment is essential to a satisfying quality of life, we place respect for the environment at the forefront of our operations. We want our communities and their surroundings to have clean air, land, and water resources. We want them to support wildlife, wildflowers, fish, and local parks. Those are some of the reasons our Environmental Services Department ensures we comply with all environmental laws.

AIR QUALITY

Our company has a long-standing commitment to reduce air emissions. Since 1985 we’ve invested more than $300 million in environmental-control upgrades and efficiency improvements at our fossil fuel plants.

By 2020 we project we’ll invest another $8.2 million to comply with U.S. Environmental Protection Agency (EPA) regulations. Since 2007 we’ve invested more than $300 million in wind energy, a zero-emission resource that further reduces our emission intensities systemwide.

In November 2016 we announced an agreement to purchase a 150-MW wind farm in southeastern North Dakota that EDF Renewable Energy will design and build 20

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in 2019, strengthening our commitment to lowering emissions. Read more about the Merricourt wind project on page 17.

The Big Stone Plant air-quality control system (AQCS) saw its first full year of operations in 2016, well ahead of the spring 2017 compliance deadline. We installed the $384 million system to comply with federal and state requirements. Otter Tail Power Company owns 53.9 percent of the plant, so our share of the investment was approximately $207 million. The project resulted in an approximately 90 percent reduction in sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions and an 80 percent decrease in mercury emissions.

$300M+ 60M+ 65,000 $8M+

Amount we’ve invested in wind energy since 2007

Record-breaking customer kWh savings in 2016 Picture and info

Number of homes the Merricourt wind project could power Amount we spent to provide our customers with energy-efficiency programs in 2016

The graphs in this section illustrate our past, present, and future commitment to reducing emissions and improving our power-production efficiency.

The graphs reflect the total production rate of our system, which includes all of our fossil fuel plants and renewable energy resources. Emissions data are presented in terms of both emissions intensity— pounds of substance emitted per megawatt-hour (MWh) of electricity produced—and tons emitted.

From 2000 to 2016 we’ve improved our system average NPHR by more than 27 percent, from 11,044 Btu/kWh to 8,047 Btu/kWh. That average includes owned generation sources and long-term wind power purchase agreements.

Net plant heat rate

NPHR (Btu/kWh)

EFFICIENCY IMPROVEMENTS AND EMISSION REDUCTIONS

12,000

5,000 4,500

11,000

2000

2004

2008

System average NPHR

2012

2016

1,000

6,974

6,000

1,500

8,047

7,000

2,000

Generation (GWh)

2,500

9,168

8,000

3,000

10,130

9,000

3,500

10,784

10,000

4,000

11,044

Improving power plant efficiency reduces emissions by using less fuel to produce the same amount of energy.

Net plant heat rate (NPHR), most commonly expressed as Btu/kWh, represents a measure of the amount of energy it takes to produce one kilowatt-hour of electricity. Our adoption of renewables has contributed to recent improvements in NPHR. Future additions of wind and solar generation will continue this trend.

Net plant heat rate

2021

500 0

Net generation

System average includes all owned generation sources plus long-term wind power purchase agreements.

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2016

We’re committed to reducing emissions and improving our power-production efficiency.

NPHR Net plant heat rate

8,047

2016 level and projected 2021 level

2021

Btu/kWh 6,974 Btu/kWh

Sulfur dioxide

Nitrogen oxides

Since 2000 our tons of SO2 emissions and our SO2 emissions intensity have declined significantly.

Total emissions have decreased by 63 percent, and emissions intensity has decreased by nearly 58 percent.

Installing a scrubber as part of the AQCS project at Big Stone Plant and continuing the operation of Coyote Station’s scrubber have contributed to the trend along with other plant efficiency projects. Replacing Hoot Lake Plant with wind and natural gas-fired generation will lead to further reductions in SO2 emissions.

Hoot Lake Plant reduced its NOx emissions by approximately 60 percent by installing low-NOx burners and a separated over-fire air (SOFA) system for Unit 3 in 2006 and Unit 2 in 2008. These projects led to a clear improvement in our NOx emissions intensity. The AQCS project at Big Stone Plant and a SOFA installation at Coyote Station in 2016 led to further reductions of plant emissions by 90 percent and 30 percent, respectively. Replacing Hoot Lake Plant in 2021 with wind and natural gas-fired generation will serve to continue our trend of reducing NOx emissions.

Sulfur dioxide emissions trend

Nitrogen oxides emissions trend

8.3

6 5 4 3 2 1 0

2000

2004

7.1

2008

12,000 10,500

7.1

2012

System average intensity

9,000 7,500 6,000 4,500

3.5

2.5

2016

2021

3,000 1,500 0

Tons Historical capacity factor

System average includes all owned generation sources plus long-term wind power purchase agreements. In 2016 Big Stone Plant and Coyote Station operated at lower capacities than usual. If they had operated at historical capacities, 2016 sulfur dioxide emissions would be 6,100 tons.

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8.5

8.2 6.4

5.4 2.3

2000

2004

2008

System average intensity

18,000 16,500 15,000 13,500 12,000 10,500 9,000 7,500 6,000 4,500 3,000 1,500 0

Tons

8.3

12 11 10 9 8 7 6 5 4 3 2 1 0

Emissions intensity lb/MWh

18,000 16,500 15,000 13,500

Tons

Emissions intensity lb/MWh

12 11 10 9 8 7

2012

2016

1.6 2021

Tons Historical capacity factor

System average includes all owned generation sources plus long-term wind power purchase agreements. In 2016 Big Stone Plant and Coyote Station operated at lower capacities than usual. If they had operated at historical capacities, 2016 nitrogen oxides emissions would be 4,050 tons.

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ystem verage intensity

SO2 NOx CO2 Sulfur dioxide

Nitrogen oxides

3.5

2.3

lb/MWh 2.5 lb/MWh

2021

Carbon dioxide Our efforts to increase plant efficiency and our early renewable energy additions reduced our carbon dioxide (CO2) intensity. Between 2000 and 2016 we decreased our overall system average CO2 intensity by 31 percent.

We plan to reduce it further by replacing Hoot Lake Plant with wind and natural gas-fired generation.

2021

lb/MWh 1,431 lb/MWh

Mercury and hazardous air pollutants Since 2000 our total mercury emissions and mercury emissions intensity declined sharply. Total emissions decreased by 90 percent, and emissions intensity decreased by 89 percent. We’ve achieved mercury reductions by installing mercury emission-control equipment at all coal-fired plants.

Mercury emissions trend

Carbon dioxide emissions trend 5.0

0.10

300

2,650

4.5

0.09

270

2,500

4.0

0.08

240

0.07

210

2,350

2,508

2,437

2,200

3.5 3.0

2,201

2,050

2.5

1,982

1,900

1,719

1,450 1,300

1,431 2000

2004

2008

2012

2016

2021

System average intensity

Tons

Historical capacity factor

Historical capacity factor

0.064

0.05

180

0.063

0.062

150 120

0.03

90

1.0

0.02

60

0.5

0.01

0.0

0.00

1.5

1,600

0.06 0.04

2.0

1,750

lbs/GWh

2,800

Tons (millions)

Emissions intensity lb/MWh

1,719

lb/MWh 1.6 lb/MWh

System average includes all owned generation sources plus long-term wind power purchase agreements. In 2016 Big Stone Plant and Coyote Station operated at lower capacities than usual. If they had operated at historical capacities, 2016 carbon dioxide tons would be 3.2 million tons and emissions intensity would be 1,799 lbs/MWh.

0.007 2000

2006

2010

System average intensity

2016

0.005 2021

Pounds

2021

Carbon dioxide

30 0

Pounds

System average includes all owned generation sources plus long-term wind power purchase agreements. In 2016 Big Stone Plant and Coyote Station operated at lower capacities than usual. If they had operated at historical capacities, 2016 mercury emissions would be 26 pounds.

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RENEWABLE ENERGY

Our power generation includes wind (18 percent) and hydro (1 percent). We also are investing in solar. For details on our current operations and future plans, go to pages 15–17.

WATER RESOURCES

Steam generation requires access to large volumes of water. Our plants fully comply with regulations governing the use of regional water resources as set forth in our water permits. We take great care to ensure we don’t negatively impact the rights of other users. That policy has served us well and has helped ensure a balance between environmental and economic interests.

We employ several strategies to conserve water and preserve water quality at our plants, including implementing water-efficient closed-cycle cooling systems at two locations and using dry ash-handling equipment at all generating facilities. We manage water quality to ensure that levels of certain parameters—such as total suspended solids, oil and grease, and metals—in the outflow stay within permit limits to protect environmental and human health.

Our company estimates water use through various means, including calculations based on pump ratings and physical methods such as water meters.

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Coyote Station Coyote Station appropriates water from the Missouri River under a permit issued by the North Dakota State Water Commission. The plant uses a closedcycle cooling tower to meet its cooling needs. A small portion of the water appropriated for cooling tower operation is discharged to the Missouri River under a permit approved by the North Dakota Department of Health. This thermally heated water travels through an underground pipeline for nearly 25 miles before returning to the river, giving it ample time to cool down. For this reason our state discharge permit doesn’t have a thermal limitation. In 2016 Coyote Station appropriated 4,242 acre-feet of water from the Missouri River and discharged 343 acre-feet back into the river. Over three-quarters of the water appropriated at Coyote Station evaporates after going through various plant processes. The remaining one- quarter is used and recycled within the plant.

Heated water is used for oil extraction in western North Dakota. An independent and unaffiliated company, Central Dakota Water Works (CDWW), obtained its own water-appropriations permit from the North Dakota State Water Commission, and Coyote Station uses a water transfer station built in 2012 to fill trucks with water heated by waste heat from our generation process.

Coyote Station provided almost 114,000 gallons of heated water to CDWW in 2016.

Big Stone Plant Big Stone Plant withdraws water from Big Stone Lake under a permit granted by the South Dakota Department of Environment and Natural Resources. The permit includes restrictions that limit water withdrawals when the lake is below prescribed levels. During 2016 we withdrew 3,031 acre-feet of water from Big Stone Lake.

Virtually all water used at Big Stone Plant is treated and eventually recycled. Big Stone Plant’s unique cooling-water design eliminates the need to discharge heated water or process water into any natural body of surface water. As a zero-discharge facility, Big Stone Plant doesn’t require an industrial wastewater discharge permit from the state.

Since 2002 Big Stone Plant has provided the adjacent POET Biorefining ethanol plant some of its process steam to use in the plant’s ethanol production. This is one of the region’s first and largest combined heat and power arrangement of its kind. The arrangement benefits both plants by lowering production costs at the facilities.

Hoot Lake Plant The Minnesota Pollution Control Agency oversees water-quality programs and discharge regulations at Hoot Lake Plant. The Minnesota Department of Natural Resources (DNR) administers water appropriations.

Most of the water appropriated for the plant comes from nearby Wright Lake and is classified as either consumptive or nonconsumptive. Consumptive water is consumed within the plant, while nonconsumptive water is returned to the Otter Tail River under the plant’s water discharge permit. Nonconsumptive water generally is used in the plant’s once-through cooling system, where it’s thermally heated by condensers and doesn’t come into contact with any other industrial processes. The plant complies with strict thermal limitations in its discharge permit to protect the aquatic environment.

Additionally, the plant’s thermal mixing zone moderates water temperatures immediately after discharge. During 2016 nonconsumptive use totaled 17,904.8 acre-feet of water, and consumptive use totaled 0.7 acre-feet. A total of 17,905 acre-feet was appropriated from Wright Lake, while 0.5 acre-feet was appropriated from groundwater.

BIODIVERSITY

Otter Tail Power Company’s service area is environmentally diverse—from the lakes and forested regions in Minnesota to the plains in North Dakota and South Dakota. Our 5,800 miles of transmission lines and 2,600 miles of distribution lines run through protected areas such as the Chippewa National Forest and can be found adjacent to several federal wildlife refuges and waterfowl production areas. In our commitment to producing and delivering electricity as environmentally responsibly as possible, we use several techniques to protect biodiversity. We conduct environmental assessments and prepare environmental impact statements as required by law when building new assets.

Avian Protection Plan Interactions with power lines and structures have the potential to kill birds, disrupt electric service, violate bird protection laws, and project a poor company image.

We’re responsible for minimizing bird interactions with power lines and committed to reducing the number and consequences of these interactions. Our service area includes many species of resident raptors (such as hawks and owls) and smaller birds. The area also plays an important role as a staging, breeding, and nesting ground for many migratory waterfowl species, shorebirds (including the endangered piping plover), and raptors (such as bald eagles and ospreys). Endangered whooping cranes also migrate through our region.

National Pollutant Discharge Elimination System permits National Pollutant Discharge Elimination System (NPDES) permits cover the return of public waters to their watersheds. The states where we do business issue the required NPDES permits. We remain in compliance with all our NPDES permits. Industrial use of public waters is essential to our operations, and compliance with our permits is critical.

Osprey otpco.com

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Transmission and distribution lines that have experienced avian electrocutions are assessed for risk of future electrocutions. Certain structures may be determined to be suitable for retrofitting. Retrofitting may consist of altering the structure framing by isolation, insulation, installation of perch discouragers or similar apparatus, or a combination of these actions. Agencies such as the U.S. Fish and Wildlife Service and state game and fish departments also may offer recommendations. All new transmission lines are constructed to avian-safe standards.

We’ll continue to monitor for high bird use areas based on scientific literature, input from federal and state environmental professionals, and observations from company field personnel. We’ll also continue to evaluate and implement measures that reduce or eliminate the risk of collision and electrocution, such as insulating and separating equipment and lines, marking power lines, and providing substitute perches and nest sites.

Wind farms and birds Wind is a low-cost, clean, and renewable source of power that is abundant in our service area. Wind farms have the potential to affect migratory bird populations. Birds may inadvertently fly into turbine blades, resulting in injury or death, known as “take.”

See page 16 to view the locations of our wind turbines.

As the operator of our wind facilities, NextEra Energy regularly inspects our turbines, records all avian take, and reports mortalities of threatened, endangered, or otherwise protected birds to the U.S. Fish and Wildlife Service. Over the last decade of operation, our turbines have resulted in the take of fewer than ten migratory birds a year, of which none have been identified as threatened, endangered, or otherwise protected. Most of these birds were waterfowl species, such as ducks. In 2016 only one reported incident of take occurred at our wind turbines. Developers will design the Merricourt wind project to minimize impacts to birds to the greatest extent possible.

Osprey nest removal permits

In 2016 we relocated approximately five osprey nests from power structures in northern Minnesota.

Ospreys build large nests on high structures with views of the surrounding environment. We work with the Minnesota DNR to obtain nest removal permits to relocate these nests. We usually erect artificial nesting platforms near the original nest to provide a safer environment for the ospreys to raise their young.

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Other endangered species Although the endangered pallid sturgeon hasn’t been found in the stretch of the Missouri River from which Coyote Station appropriates water, it’s a potential habitat. We employ a closed-cycle cooling system, which the EPA has classified as a Best Available Technology for reducing fish mortality at cooling water intake structures.

Restoring other habitat In 2016 we continued to relocate existing ash near Hoot Lake Plant and restore riparian habitat by widening the river channel in certain areas and creating a flood plain along the Otter Tail River. As part of the restoration project, we’re working with the Minnesota DNR to provide suitable spawning and nesting habitat.

Restoration activities still are underway. When the project is complete in 2017, we’ll have restored habitat along approximately 3,300 feet of the Otter Tail River.

SPILLS, FINES, AND SANCTIONS

Despite our commitment to sound environmental stewardship, rare mistakes and uncontrollable events occur. When they do, we correct them as quickly as possible. The Environmental Services Department ensures compliance with our environmental permits and regulations. In the event of noncompliance, we work with regulators to ensure the instance is mitigated and the noncompliance event is not repeated. We train our employees to be aware of our environmental permit requirements and the steps they need to take to stay in compliance.

Spills In 2016 equipment failures caused minor oil spills.

The most significant one involved approximately 100 gallons of non-polychlorinated biphenyl (non-PCB) transformer oil that spilled during an ice storm. We promptly reported the spill to the appropriate authorities and hired a contractor to clean up and restore the area to its original condition.

Fines and sanctions In 2016 no fines, sanctions, or notices of violation were assessed to our company for environmental infractions.

Waste by type and disposal method Fly and bottom ash

The process of generating electricity produces wastes as byproducts. Almost all of the wastes are classified as nonhazardous, and we dispose of them in on-site landfills. We donate or sell other nonhazardous wastes to consumers for various uses, including stabilization and roofing or sandblasting grit.

2016 waste disposals Disposal

Tons

HOOT LAKE PLANT Fly ash

On-site landfills

2,170 tons

Bottom ash

On-site landfills

840 tons

Other materials (recovered historic ashes)

On-site landfills

137,400 tons

FGD product

On-site landfills

54,423 tons

Boiler slag

On-site landfills

43,590 tons

Other materials (pond waste, construction or remodeling debris)

On-site landfills

3,072 tons

Volume beneficially used

Donated or sold

634 tons

Other non-coal wastes

Incineration

100 tons

BIG STONE PLANT

COYOTE STATION FGD product

On-site landfills

Boiler slag

On-site landfills 104,280 tons

Other materials (construction or remodeling debris)

On-site landfills

52.6 tons

Volume beneficially used

Donated or sold

7,438 tons

Management of PCB materials

117,774 tons

Electricity distribution systems require oil-containing transformers. Although we’ve taken steps to remove PCB oil from our larger substation transformers and regulators, a small percentage of electrical equipment within our distribution system does contain PCBs. When old equipment is retired, we test for PCBs and dispose of them properly. In 2016 we disposed of approximately 11,481 pounds of PCB material. Should a leak or release occur from a unit potentially containing PCBs, it’s our policy to test the released material for the presence of PCBs and promptly clean up and dispose of any contamination according to state and federal standards.

ENERGY RESOURCES AND FUEL SUPPLIERS

We examine new energy resources and fuel suppliers to ensure they have a history of compliance with all regulatory and legal environmental requirements and have a record of responsible business practices. We often procure short-term energy from a supplier without identifying a specific generating resource, so environmental criteria isn’t applicable. In 2016 we engaged in two notable supplier agreements, which we worked to ensure met all environmental requirements.

In May Coyote Creek Mining Company, LLC, a subsidiary of North American Coal Corporation, began supplying lignite coal to Coyote Station. In November we announced an agreement to purchase a 150-MW wind farm in southeastern North Dakota that EDF Renewable Energy will design and build in 2019.

REGULATORY PROPOSALS AND PUBLIC POLICY ENGAGEMENT

Fossil fuel-fired plants are subject to many regulations that the EPA either has promulgated recently or is in the process of revising. The exact impact of these rules is difficult to predict because challengers typically question through court action whether the EPA is adhering to key restrictions and obligations. The outcome of these challenges notwithstanding, regulatory uncertainty will continue to impact our planning and operations. We’re paying particular attention to the following rules that the EPA is developing or has developed recently.

Coal Combustion Residuals Rule Regulatory background

In June 2010 the EPA proposed regulating coal combustion residuals (CCR) as either hazardous or nonhazardous waste. In December 2014 the EPA signed a final rule categorizing CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act (RCRA). The new rule is self-implementing, which means the rule relies on citizen and state involvement with no federal enforcement. Highlights of the rule include: • Establishing a webpage with information about the design, operation, environmental monitoring, and corrective actions required at CCR landfills and surface impoundments.

• Installing additional environmental monitoring equipment, such as groundwater monitoring wells.

• Evaluating previously unpermitted sites to ensure their conformance with the new rule.

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• Designing landfill and surface impoundment liners and capping systems to one national standard.

• Closing unlined surface impoundments if groundwater monitoring indicates a statistically significant increase of chemical concentrations above the background levels for the unit.

We completed the tasks necessary for rule compliance to date and are well prepared for adherence to the future requirements the regulation will phase in over the next few years. Even though the EPA has chosen to regulate CCR under Subtitle D, it reserves the right to regulate the material under Subtitle C as more data becomes available. We continue planning and investing resources to maintain compliance with this rule, including plans for capital projects at Coyote Station and Big Stone Plant.

Otter Tail Power Company impact

and 111(d) rules and, if appropriate, to suspend, revise, or rescind the rules. Given the change in EPA administration in 2017, uncertainty regarding the status of carbon dioxide regulations likely will continue.

Otter Tail Power Company impact

We’ve taken significant steps to reduce our systemwide CO2 emissions intensity. We were concerned about the disproportionate impacts the final CPP would have had on the states that we serve and that the final rule didn’t recognize the lawful authority of individual states to establish 111(d) standards of performance.

Challenges

We continue to monitor the status of litigation and political changes and their effect on CO2 regulations.

Effluent Limit Guidelines Rule

We evaluated our CCR units, both landfills and surface impoundments, to ensure conformance with the new rule. In 2016 we developed new webpages (ccr-cs.net, ccr-bsp.net, ccr-hlp.net) that allows the public to quickly access information about the design, operation, maintenance, and environmental monitoring of our CCR units. We’ve installed additional environmental monitoring at several sites. As we expand landfills or ponds, we’ll incorporate national standards in the units’ designs.

Regulatory background

Challenges

No discharges from any of the waste streams regulated by this new rule occur at any of our generating plants.

This means we should see no impact to operations or NPDES permits resulting from this rule. The new requirements are based on the Best Available Technology Economically Achievable (BATEA) for controlling discharges of pollutants. At Hoot Lake Plant, we already use the BATEA for flue gas mercury control, fly ash transport, and bottom ash transport, which is dry handling. At Coyote Station and Big Stone Plant, the scrubber systems, flue gas mercury controls, and fly ash transport systems already use the BATEA (dry handling).

Both plants use wet sluicing systems for bottom ash transport, which is not the BATEA. However, these waste streams are not discharged from our sites. The EPA has specifically stated that internal waste streams for the above categories of wastewater are acceptable as long as those streams never are discharged.

The EPA’s withholding of the final classification of CCR is our most significant challenge. By not making a final determination, the EPA still may propose more stringent and expensive disposal options. Restrictions on beneficial use will limit the amount of CCR able to be recycled. We continue to evaluate options for operational changes to better position ourselves for rule compliance.

Greenhouse gas regulations Regulatory background

In October 2015 the EPA published final New Source Performance Standards (NSPS) under Section 111(b) of the Clean Air Act to limit carbon dioxide emissions from new power plants. On the same day the EPA published a final rule regulating carbon dioxide emissions under Section 111(d) of the Clean Air Act affecting existing power plants. The 111(d) rule, often termed the Clean Power Plan (CPP), set individual CO2 emissions intensity limits on each state. In February 2016 the U.S. Supreme Court granted a stay of the rule.

In March 2017 President Trump issued an Executive Order requiring the EPA to review both the 111(b)

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In November 2015 the EPA published the first significant revision of the steam electric effluent limitation guidelines under the Clean Water Act in more than 30 years. The rule sets technology-based effluent limitations on certain types of discharges at steamelectric-generating facilities. Most of the revisions set limits on water discharge that has come into contact with various types of coal combustion byproducts.

Otter Tail Power Company impact

Challenges

We’ll continue to manage water onsite to ensure that regulated waste streams at Big Stone Plant and Coyote Station never are discharged.

ENERGY EFFICIENCY

An electric utility should share employee expertise with its customers and communities. We offer customers education about proven energy-efficient technology options, rate information to help them calculate their operating costs, and energy-efficiency programs to meet their goals and needs.

We continue to pursue aggressive energy-conservation goals and in 2016 again offered a portfolio of conservation programs in Minnesota and South Dakota.

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Minnesota Conservation Improvement Program Our Minnesota Conservation Improvement Program (CIP) offers customers the opportunity to save energy and money. Benefits extend to all customers through deferred utility infrastructure investments and less energy consumed.

We designed our 2016 CIP programs to comply with The Next Generation Energy Act of 2007. The act sets an aggressive statewide energy-conservation goal of 1.5 percent of average annual Minnesota utility retail sales.

During 2016 we invested more than $7.8 million in CIP and returned more than $49.7 million in lifetime net benefits to customers. Energy savings reached a recordbreaking high for us at 57.6 million annual kWh of energy and more than 17.3 MW of demand. For the year, that is 2.75 percent of our annual retail sales. At a lifetime cost of less than 14 cents per kWh conserved, our energyefficiency programs continue to be a cost-effective resource for customers.

In addition to designing programs to meet conservation goals, we’re working to ensure that savings estimates are measurable and verifiable to meet stringent state program requirements. We highlight below some of the more than 30 Minnesota programs offered in our CIP portfolio.

Energy-efficient lighting

Our commercial lighting retrofit program continues as one of our most successful commercial energy-efficiency programs. In 2016 more than 1,085 participants installed systems that are expected to save approximately 17.51 million kWh annually during the life of the technology. With our Be Bright program, we partner with local retailers to offer our residential customers point-of-sale rebates on Energy Star-qualified compact fluorescent lightbulbs (CFLs) and LED lighting.

Heat pump rebates

Rebates encourage customers to install energy-efficient air-source or geothermal heat pumps. The program, which saved nearly 5.87 million kWh in energy sales for the year, is designed to reduce both winter and summer peak demands as well as overall energy use.

Energy-efficient equipment grants

Our custom grant program taps the conservation and efficiency potential of commercial and industrial operations by partially funding cost-effective energyconservation projects. During 2016 we provided 61 custom grants to customers with a total projected savings of approximately 7.37 million kWh of energy and 1,298 kW of demand.

The American Council for an Energy-Efficient Economy spotlighted our company as a Top Performer in its 2016 report Big Savers: Experiences and Recent History of Program Administrators Achieving High Levels of Energy Savings. We were one of 14 energy-efficiency program leaders featured in the study. The report noted our highly cost-effective and expanding energy-savings program despite the rural and expansive nature of our service area. ACEEE deemed our demand response and behavioral energy savings programs as innovative sources of energy savings. The report is available at aceee.org/research-report/u1601.

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Motor and adjustable-speed drive rebates

Replacing used or burned-out standard-efficiency motors with energy-efficient motors reduces energy use and operating costs in industrial plants and commercial buildings. Installing adjustable-speed drives (ASDs) can improve system performance and energy efficiency. During 2016 our customers installed and received rebates for approximately 260 efficient new, replacement, or retrofit motors and 290 ASDs with projected savings of approximately 7.45 million kWh of energy and 1,185 kW of demand.

CoolSavings

Residential customers enrolled in CoolSavings earn a $7-a-month bill credit June through September in exchange for permitting us to cycle their central air conditioners 15 minutes on and 15 minutes off during peak periods of energy use. During 2016 approximately 115 of our Minnesota customers, including approximately ten units for commercial customers, enrolled in the program. Across the three states we serve, approximately 1,860 customers are enrolled.

Appliance recycling

Our appliance recycling program encourages customers to recycle working but inefficient refrigerators and freezers to receive a $50 rebate. In 2016 the program recycled and rebated approximately 465 appliances.

House therapy

Our house therapy program offers income-qualified customers LED bulbs, controlled water-heating equipment, and refrigerator and freezer replacement.

Customers with electricity as their primary heat source also are eligible for home weatherization services, including weather stripping and insulation. Offered through a partnership with Minnesota Community Action Agencies, this program served approximately 125 homes in 2016.

Student energy kits

In 2016 we distributed approximately 430 energy kits to middle school students. The home kits contained LED bulbs, engine block heater timers, as well as information about these products, installation instructions, and energy saving tips. Through this program our customers saved approximately 240,310 kWh and 14.45 kW of demand, and students deepened their awareness of energy conservation.

Energy feedback

Our energy feedback program delivers energy-use information to customers by mail and online. It’s a successful and significant part of our residential portfolio of conservation programs. With approximately 36,000 residential customers in the program, each household in 2016 received up to six reports that

In addition to benefiting industrial and manufacturing customers, our custom grant program provides a way to improve public facilities. The Morris Area School District combined a lighting retrofit with custom grant programs for an annual energy-cost savings of $85,000.

Additional savings came from lower maintenance costs and the program rebate.

Morris Area School District Board Chair Dick Metzger (center) and Superintendent Rick Lahn (right) received a $124,877 CIP rebate check from Morris Energy Management Representative Bill Klyve. (Photo courtesy of Morris Sun Tribune.)

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outlined how its energy use compared with similar homes in the area. Customer savings averaged 300 kWh per household.

Home Energy Analyzer is an online service that residential customers opt to use. It incorporates bill history and calculator tools that help customers find personalized ways to save. In 2016 approximately 1,330 Minnesota customers saved an average of 625 kWh per household.

In 2016 overall savings with these two energy feedback programs totaled almost 11.7 million kWh.

Energy efficiency filings in Minnesota Our Minnesota CIP triennial program, approved in November 2016, established new portfolio programs and an energy savings goal of 1.7 percent for 2017-2019.

Because the Minnesota Public Utilities Commission recognizes energy efficiency as a resource in planning to meet future energy needs, the new energy savings goal supports our 2017-2031 Resource Plan. See page 12 for more information about our Resource Plan.

South Dakota Energy Efficiency Plan Our South Dakota residential and business customers continue to require less electricity thanks to energyefficient technologies available to them through our Energy Efficiency Plan (EEP). This conservation plan encourages businesses to install energy-efficient lighting, motors and drives, air-source and geothermal heat pumps, and custom efficiency improvements.

The plan encourages our residential customers to take advantage of our CoolSavings air-conditioning control program and offers incentives for installing energy-efficient lighting and air-source and geothermal heat pumps.

Results for 2016 show that we invested approximately $362,300, returning more than $3.3 million in lifetime net benefits for customers. Customer energy savings reached 2.84 million kWh, which was 101 percent of our 2016 EEP goal.

Regulatory requirements included completing a triennial program filing in May 2016. The plan established a new program portfolio and goals for 2017-2019 and was approved in November 2016.

North Dakota energy conservation We continue to offer demand-response programs and incentives to our North Dakota customers. North Dakota regulators have not approved an energy-efficiency plan.

To expand the network of electric vehicle charging stations available to drivers in our service area, in July 2016 we worked with the City of Bemidji, Bemidji State University, and North Country Electrical Services, Inc., to purchase and install three level-two charging stations. They are near City Hall, Paul Bunyan Park, and Bemidji State University. In addition, we offer our customers rebates and off-peak rates when they install qualified charging stations for their electric vehicles.

Electric vehicle charging station in Bemidji, Minnesota otpco.com

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Downtown Battle Lake, Minnesota

Economic stewardship We’re a small electric utility providing exceptional electric service. We measure our success by monitoring key performance indicators such as safety, service, reliability, customer satisfaction, and financial responsibility. We understand our role as sole provider of electricity to our customers. And we have industrious employees helping to build the economic strength and viability of the communities we serve. By means of business planning, risk mitigation, cost containment, and cost-effective operations we provide competitive rates that are structured and suited for the residential and business customers we serve.

CHARITABLE CONTRIBUTIONS

Our company provides financial support to a broad range of activities and organizations. We focus our resources on the rural communities we serve.

Community Connections Through our Community Connections giving program we donate to the following priority areas: • Education.

• Workforce development.

• Health and human services.

• Arts and culture.

• Community enhancement.

• Environmental stewardship.

Collaborative efforts and initiatives that fit more than one of our company’s priority areas receive greater consideration for funding.

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21,000+ 1/3 $569,000+

The number of jobs our economic development consultants, grants, and loan pools have helped create since 1989 The portion of our customers who partner Picture and info with us in load management Total charitable contributions in 2016

Employee and company contributions Our company supports our communities, and our employees choose to contribute as well. Through several campaigns held throughout the year, we’re helping to make our communities better places to work and to live.

2016 charitable contributions EMPLOYEE COMPANY CONTRIBUTIONS CONTRIBUTIONS United Way Children’s Miracle Network

$26,395

$15,000

$4,150

$2,075

Other Community Connections donations

$402,850

Total Community Connections donations

$419,925

Customer Service Center and other donations

$149,299

Total charitable contributions

$30,545

$569,224

ECONOMIC DEVELOPMENT

Protecting and improving the quality of life in our communities means helping them remain vibrant, attractive places to live and do business. Throughout our history we’ve used various tools to accomplish this.

Since 1989 our economic development consultants and resources have helped create about 21,300 jobs and save about 4,600 jobs.

We’ll continue to be involved in the economicdevelopment efforts of our communities through dedicated employees who live and volunteer in the communities we serve. We’ll also continue to build strong city, state, and federal partnerships and continue to work with companies looking to locate or expand in our service area through economic-development assistance that involves financial strategies and other needed advice.

The greatest impact we have on attracting and retaining businesses in our communities comes from providing reliable electric service at affordable rates. The investments we make to carry out our mission have significant direct and indirect economic value.

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DIRECT ECONOMIC VALUE

We continued our role as a corporate citizen by making the following economic impact in 2016.

2016 economic impact Property taxes paid to local jurisdictions

$14,266,000

Wages and benefits paid to utility employees

$97,050,000

Common and preferred dividends paid to shareholders*

$38,553,000

Interest paid

$24,817,000

Amount paid to suppliers and vendors

$410,009,000

Total direct economic value generated

$584,695,000

*Visit ottertail.com for more investor information.

LOCAL SOURCING OPPORTUNITIES

We positively impact the communities we serve by using local vendors when appropriate. The table below details our 2016 expenditures with vendors in our tri-state service area.

INDIRECT ECONOMIC VALUE

During 2016 we engaged in construction and replacement projects as well as ongoing maintenance and operations support that created more than $158 million in indirect economic value. These projects include transmission line upgrades, airquality control equipment, and various equipment replacement projects. The table below details the economic impact of the projects.

2016 indirect economic impact Capital additions to plant in service Labor spending on construction

$17,891,000

New/replacement construction property

$125,038,000

Total

$142,929,000

Labor spending on maintenance Rent

$14,275,000 $1,166,000

Economic development spending Total indirect economic value generated

$232,000 $158,602,000

2016 tri-state vendor expenditures % OF TOTAL Minnesota

$165,846,000

40%

South Dakota

$26,359,000

6%

North Dakota

$141,699,000

35%

Total for local vendors

$333,904,000

81%

Total payments to all vendors

$410,009,000

In February 2016 we submitted an electric rate case to the Minnesota Public Utilities Commission (MPUC). A rate case is a regulatory proceeding to determine the cost our company incurs to provide our customers with electric service and how much we should charge customers for that service. Key drivers for the rate case included new environmental technologies, a strengthened delivery system, and overall rising costs. In March 2017 the MPUC granted a $12.3 million increase to our base electric rates.

The average residential customer will see an overall average increase of approximately $5.10 a month. The average business customer will see an overall average increase of approximately $9.40 a month. Even with this increase, our rates remain among the lowest in the region and in the nation.

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MANAGEABLE RATES

LOAD MANAGEMENT

Cost projections

We’re taking proactive steps to keep the price our customers pay for electricity as economical as possible.

New technologies and infrastructure investments, which cost less than other options to produce and move lowcost energy, will help to keep our prices affordable.

And our programs, some of which are mentioned on pages 29-31, can help customers use electricity wisely and save even more.

While we’ve selected low-cost options to meet customer needs, they still come with a price. We anticipate that all customers averaged together will see a bill increase of about 3 to 4 percent a year through 2020. The increases will vary by state, year, and size.

otpco.com/MyRates

Rate comparisons

We work to ensure that the energy we provide remains a value to our customers and that our rates remain among the lowest in the region and in the nation.

2016 average rate comparisons (cents per kWh) NORTH DAKOTA STATE AVERAGE

OTTER TAIL POWER COMPANY

Residential

9.74

8.87

Commercial

9.30

8.99

Industrial

7.75

7.29

MINNESOTA STATE AVERAGE

OTTER TAIL POWER COMPANY

Residential

12.47

10.09

Commercial

9.60

9.28

Industrial

7.22

6.77

SOUTH DAKOTA STATE AVERAGE

OTTER TAIL POWER COMPANY

Residential

11.57

9.35

Commercial

10.25

9.18

6.97

6.68

UNITED STATES AVERAGE

OTTER TAIL POWER COMPANY TOTAL SYSTEM

Residential

12.99

9.44

Commercial

10.74

9.43

6.92

6.92

Industrial

Industrial

High customer participation in our direct load-control rates makes our company unique among utilities. With one-third of our customers partnering with us in load management, we’re able to curtail a portion of their electrical load during periods of high demand, high energy prices, or system maintenance. Participating customers save on their energy bills with rates that are less than our standard electric rates.

We accredited with the Midcontinent Independent System Operator (MISO) a portion of our direct loadcontrol capacity, making it available on a limited basis during MISO system peaks. The amount accredited varies monthly and is set as 90 MW in January, February, and December; 55 MW in March, April, and November; 25 MW in October; 18 MW in June, July, August, and September; and 15 MW in May. Accrediting a portion of the demand resources is a step to further enhance regional transmission reliability.

Our Resource Plan calls for demand-side management resources to increase annually to reach approximately 8 MW of additional summer-season peak-load-reduction capability through 2031. To achieve this, during 2016 we connected an additional 12.7 MW of controlled winter-season load and 3.6 MW of controlled summerseason load.

NEW CUSTOMER INFORMATION SYSTEM

Our Customer Information System (CIS) performs billing, processes payments, and manages customer account information such as account balances, payment programs, and participation in demand-side management. After we named the CISone project team members in January 2016, we began implementation with our vendor, Cayenta, in February. The new system will provide better workflow, integrate with other company systems, provide more automation, and give our customers easier access to online options. We’re targeting an in-service date in 2018.

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Winter storm restoration in North Dakota and South Dakota

Community stewardship One element of our mission is to improve the quality of life in the areas in which we do business.

To that end, we have open, honest, and timely communication with customers, regulators, employees, shareholders, and others. We participate in our communities to strengthen the viability of our region. We place reliability, cost-effectiveness, and environmental responsibility at the forefront. We’re active in the processes that shape utility industry changes. And we use fair business practices that comply with regulatory and legislative policy.

COMMUNITY COMMITMENT Public safety

Contributions and volunteer work

Helping keep customers and the public safe always has been paramount to our company. Our Safety Services Department staff, field personnel, and power plant employees give electrical safety presentations for schools, fire departments, and other organizations throughout our service area. These presentations, along with several public notices distributed throughout the year, educate the public about the hazards of electricity and about proper electrical safety measures.

We volunteer our time and skills to make our communities better places to live. Our employees volunteered for a wide range of nonprofit organizations and charitable causes in 2016. They served on boards of directors, organized volunteer projects, and made financial contributions.

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1949 14,783 32 1.52

Year we established a formal safety department, proving to be one of the nation’s first among electric utilities Number of training courses employees completed in 2016 Picture and info

Approximate years of service of average employee upon retirement

Record-low OSHA recordable injury rate in 2016

Power of Two matching gifts program

Our Power of Two program furthers this volunteer spirit. Each employee who contributes a minimum of 24 hours of personal volunteer time within the year to a single nonprofit organization is eligible for a $100 donation to that organization. Otter Tail Power Company contributed $5,600 to 56 organizations in 2016 on behalf of our employees.

Community Connections giving program

While we provide financial support to a broad array of activities and organizations, we focus our resources on the rural communities we serve. Read page 32 to learn more about this program.

OPEN INVOLVEMENT

We continue to work with regulatory agencies on the local, state, and federal levels to obtain required project approvals. Through agency and public meetings, project teams make a unified effort to implement processes that are as transparent as possible. We hope that one-on-one relationships and communication with our customers and local governing officials help to simplify processes and encourage customer participation. For example, in 2016 approximately 40 individuals participated in public meetings related to our Minnesota Rate Case and relicensing our five hydroelectric plants on the Otter Tail River.

otpco.com/MNRateCase and otpco.com/Hydro

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How do we rate?

The American Customer Satisfaction Index measures satisfaction, customer expectations, overall quality, perceived value, customer loyalty, reliability, and service restoration.

75 79 84 out of

out of

out of

Industry average

Highest-rated in comparison group

Otter Tail Power Company

100

CUSTOMER SATISFACTION Relationship survey

Our overall relationship satisfaction score among residential customers for 2016 was 84 points out of 100.

This was 5 points higher than the highest-rated electric or dual electric/gas investor-owned utility (IOU) in ACSI’s public report and meets our company’s goal of being in ACSI’s top-five rated utilities. We scored high in every key driver that ACSI measures, including satisfaction, customer expectations, overall quality, perceived value, customer loyalty, reliability, and service restoration.

Otter Tail Power Company

84

Highest-rated electric or dual electric/gas IOU in the comparison group

79

Industry average

75

Numbers are on a scale of 0 – 100

Beginning in 2017 J.D. Power will conduct our relationship survey to measure customer satisfaction.

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We conduct transaction surveys with customers who have contacted our company within a defined period of time. The survey measures transactionspecific customer satisfaction and issue resolution.

The survey targets all customer contacts—phone, web, mail, in-person visits, and after-hours calls—and measures the specific aspects of service provided. In 2016 our customers were satisfied with their contact experiences, rating us 9.2 on a 10-point scale.

2016 transaction survey results Overall contact experience satisfaction (10-pt scale)—Average

9.2

Overall Customer Service Representative handling satisfaction (10-pt scale)—Average

9.4

Concern resolved (Yes)

91%

First-contact resolution (resolved in first contact)

82%

Overall quality of service (scores 4 and 5 on a 5-point scale)

2016 ACSI relationship survey results

|

100

Transaction survey

We engaged the American Customer Satisfaction Index (ACSI) research program to conduct an independent survey among random residential customers. ACSI asked them about all aspects of their service relationships with our company and compared our customer satisfaction ratings with those of the largest energy utilities in the country, which, combined, serve most of the nation’s residential customers.

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100

92.3%

Results from both surveys indicate high customer satisfaction. We can apply our knowledge of how customers feel about the service we provide to ensure that they continue to have positive experiences with our company.

RELIABILITY

We minimize the frequency and duration of service interruptions. As part of a long-term reliability strategy, we perform critical analyses of our transmission and distribution systems to identify areas requiring proactive maintenance. We track our response to interruptions using four reliability performance indicators. Here are our 2015 and 2016 storm-normalized reliability results as recorded by our interruption monitoring system.

System Average Interruption Frequency Index (SAIFI)

The number of interruptions lasting more than five minutes that an average customer experienced during the year.

SAIFI 2015

2016

2017

Goal

<1.3

<1.3

<1.3

Actual

1.72

1.68

System Average Interruption Duration Index (SAIDI)

The average minutes of sustained interruption per customer during a year.

SAIDI 2015

2016

2017

Goal

<80 minutes

<80 minutes

<80 minutes

Actual

100.6 minutes

100.54 minutes

Momentary Average Interruption Frequency Index (MAIFI)

The number of interruptions lasting five minutes or less that an average customer experienced during the year.

MAIFI Goal Actual

Customer Average Interruption Duration Index (CAIDI)

The average length of time a customer was without service during a sustained interruption.

CAIDI 2015

2016

2017

Goal

<62 minutes

<62 minutes

<62 minutes

Actual

58.4 minutes

65.74 minutes

2015

2016

2017

<6.5

<6.5

<6.5

7.5

9.08

Plans for improving reliability include integrating geographic information system data, implementing a new interruption monitoring system and customer information system, strengthening the electrical system, and developing continuous improvement workshops to improve efficiencies and processes.

A late December 2016 storm showed that our customers and employees are resilient. The dangerous storm produced wicked winds, blinding snow, and terrifying ice that broke power lines and laid flat the poles that carry power to many customers in South Dakota and North Dakota. Crews braved the elements night and day to restore power as safely and efficiently as possible.

We received the Edison Electric Instituteâ&#x20AC;&#x2122;s Emergency Recovery Award for our restoration efforts during and after the storm. The award recognizes member companies that faced difficult circumstances as a result of extraordinary events and put forth an outstanding effort to restore service promptly to the public.

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Cybersecurity

Compromises to cybersecurity pose a serious threat to the privacy of customer data and to the reliable operation of the bulk electric system. To mitigate risk, we continue to secure systems and software and to educate and train employees on security and awareness. In addition, the Federal Energy Regulatory Commission approved Version 5 of the Critical Infrastructure Protection Cybersecurity Standards. To comply with these standards, we’re securing software, identifying impacted facilities, and drafting supporting policies.

The standards require us to categorize our cyber assets as high, medium, and low impact.

• On July 1, 2016, our high- and medium-impact cyber assets were in compliance. These cyber assets must be programmable and located at certain control centers and generation and transmission facilities identified in the standards.

• On April 1, 2017, our low-impact cyber assets for incident response/cybersecurity awareness were in compliance.

• By September 1, 2018, our low-impact cyber assets must be in compliance for physical and electronic access controls. We are on track to comply.

Vegetation management Pruning and removing trees on a five-year systemwide cycle reduces vegetation- and animal-related outages.

In 2016 we spent about $1.1 million on vegetation management for our transmission system and about $1.95 million for our distribution system.

Asset Replacement Plan We’re enhancing our Asset Replacement Plan for our critical assets to improve system reliability, reduce the median age of our assets, and establish adequate funding levels for the plan to be successful. These critical assets include substation transformers and voltage regulators, circuit breakers, poles, and underground cable.

PREPAREDNESS PLANNING

Our company has approximately 20 situation-specific documents that provide a systematic approach to managing crises without causing major disruption to normal activities. These documents, some of which are outlined below, are general guidelines we supplement with employee education and training. Our company’s various preparedness plans incorporate recommendations and compliance measures from: • Federal Emergency Management Agency.

• Midcontinent Independent System Operator, Inc. • North American Electric Reliability Corporation.

• Federal Energy Regulatory Commission.

• Other key agencies.

Emergency-response guidelines

Each employee has a copy of our company’s emergencyresponse guidelines, which we provide to help ensure employee safety should an emergency or disaster occur.

Emergency procedures that we cover in the guidelines include medical, fire, tornado, workplace violence, building evacuation, bomb threat, and suspicious mail and objects. Our Safety Services Department periodically reviews the emergency-response guidelines.

Crisis Response Communication Plan

Our Crisis Response Communication Plan is a thorough, step-by-step checklist that includes a first-hour response plan, key contacts, and situation-specific procedures for major crises. We review and distribute the plan annually.

System-restoration plans

In the spring and fall of each year we and our neighboring utilities run drills based on our respective system-restoration plans. The purpose is to exercise the procedures and processes required to restore the bulk electric system from a blackout condition. By understanding system behavior and having jointly developed and proven procedures in place, Otter Tail Power Company and neighboring utilities help ensure continued system reliability for the region. Because reliability is one of our primary concerns, we also maintain a backup control center, which would allow us to work with neighboring utilities if our primary control center were to become unusable.

Enterprise Incident Response Plan

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Our Enterprise Incident Response Plan outlines an organized approach to address and manage the detection, response, and recovery of an incident that may range from a system failure to a cybersecurity attack or a physical security breach. It defines what constitutes an incident and provides a process to follow in a way that minimizes system recovery time and limits the impact of an incident.

OSHA recordable injury rate Our OSHA recordable injury rate of 1.52 made 2016 a record-setting safety year.

2016 goal

2.0 1.68 1.52

2016 actual

2015 average

or below

Otter Tail Power Company EMPLOYEE HEALTH AND SAFETY

Safety is one of our company’s core values— and the safety of our employees is of utmost importance. Our comprehensive safety program includes employee representatives. We provide safe working conditions, extensive safety training, and appropriate protective equipment. We inspect and upgrade equipment and continue to upgrade work methods. We investigate accidents and incidents to determine causes and preventive measures. And we encourage managers to begin all meetings with a safety message. With these principles and practices, we make safety a commitment on every job site and a focus for every employee. In 2016 we did not have any fatalities; our last fatality occurred in 1987.

We established a formal safety department in 1949— one of the nation’s first among electric utilities. We consistently have received awards from safety councils in the states we serve for exceptional workplace safety performance. These awards represent the achievements of all employees across all three states. In 2016 we received the following awards for our 2015 safety record.

• Hoot Lake Plant: Minnesota Governor’s Meritorious Achievement Award • Big Stone Plant: South Dakota Governor’s Meritorious Achievement Award • Coyote Station: North Dakota Safety Council’s Safety Achievement Award • Coyote Station: North Dakota Safety Council’s Occupational Safety Merit Award • Coyote Station: Lignite Energy Council’s 2015 Distinguished Safety Award • Otter Tail Power Company: Minnesota Governor’s Meritorious Achievement Award

EEI PEER

We’re proud of our safety tradition, which yielded a lower accident and injury rate than our industry peers, according to the Edison Electric Institute (EEI).

Safety performance comparison OTTER TAIL POWER COMPANY 2016 goal

EEI PEERS

2016 actual 2015 average

Lost-time injury rate

0.26 or below

0.38

0.48

OSHA recordable injury rate

2.0 or below

1.52

1.68

Preventable vehicle accidents

2.13 or below

3.62

2.74

OSHA standard recordable injury calculation: Total number of cases x 200,000 ÷ total number of hours worked. Preventable vehicle accident rate calculation: Total number of accidents x 1,000,000 ÷ total number of miles driven.

Safety rule book

Management and representatives of our bargaining employees work together on our safety program and rule book. The rule book covers health and safety topics developed by a union-management committee.

Among the rule book topics are: • Blood-borne pathogens exposure control plan.

• Working on or near energized equipment sites.

• Hazard communications.

• Confined space.

• Forklifts, cranes, and hoisting equipment.

• Lineman practices.

• Switching, tagging, and grounding.

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Best Operating Practices Committee

The Best Operating Practices Committee improves cross-departmental communication related to operations, equipment, and training. This committee assists company decision makers by providing research on procedures, policies, equipment, and regulations to support decisions and is composed of ten employees from various areas in our company.

Facilities Security Team Our Facilities Security Team researches physical security policies and procedures, identifies possible security threats, recommends improvements to company leaders, and guides implementation.

Power plant emergency training programs Safety is a priority at all of our facilities, particularly at generating plants, where hazards increase the potential for injury. When hired, all company power plant workers receive intensive safety training, which is followed by ongoing refresher sessions and monthly safety meetings.

All power plant employees hold first aid and CPR certifications. In addition, Big Stone Plant and Coyote Station have emergency response teams composed of volunteers who receive monthly training on hazardous material handling, firefighting, emergency medical technician/advanced first aid, high-angle rescue, and confined-space rescue. These emergency response teams also are available to contractors working on the respective plant sites.

Field safety We have approximately 235 employees working in the field who participate in monthly safety meetings, daily tailgate sessions, and other training opportunities to discuss safe work practices. Approximately 400 employees companywide are trained in CPR and first aid.

Annual Safety Roundtable We hold an Annual Safety Roundtable for approximately 90 Safety Committee members, which is more than 10 percent of all employees, to discuss ways to improve safety. Internal and external speakers address safetyrelated topics. We expect employees who attend the Safety Roundtables to share the information they learn with other employees and work groups.

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EMPLOYEE COMMITMENT

We offer our employees competitive compensation and benefits, promote a safe work environment, and challenge employees to excel. Our Human Resources Department administers a compensation and benefits program that helps us attract and retain a quality workforce to provide our customers with reliable and economical service. We endorse our Affirmative Action and Equal Employment Opportunity Plans.

And we provide open channels of communication with our employees. For our bargaining unit employees (50 percent of our workforce), we define a grievance process within our Collective Bargaining Agreements.

Our 796 employees in Minnesota, North Dakota, and South Dakota expect and deserve a safe workplace where they are challenged, rewarded, and respected. Company leadership works to ensure this. Upon retirement, the average employee has approximately 32 years of service.

Otter Tail Women Networking and Integrating Talent

Women in executive and management positions comprise Otter Tail Women Networking and Integrating Talentâ&#x20AC;&#x201D;OWN IT. In concert with our companyâ&#x20AC;&#x2122;s employee development program, the group provides formal and informal support channels for women in our company and works to increase awareness of unintended bias in the workplace. In 2016 the group facilitated two events that included small-group discussion among non-managerial women and company leaders on resilience, gender equality, and work-life balance. Area business leaders provided keynotes followed by question-answer sessions and networking opportunities. OWN IT also facilitated an opportunity for 12 women leaders from Otter Tail Corporation companies to meet astronaut Karen Nyberg to discuss workplace gender equality and the role of art with science, technology, engineering, and math in preparing tomorrowâ&#x20AC;&#x2122;s workforce.

Our workplace diversity

Weâ&#x20AC;&#x2122;re an Equal Opportunity Employer with policies and practices that are nondiscriminatory. Our workforceâ&#x20AC;&#x2122;s ethnic diversity reflects the demographics of the population we serve. For example, ethnic minorities represent approximately 5 percent of the population of Fergus Falls, Minnesota, where approximately 400 of our employees work. Our Human Resources Department ensures that we comply with all laws regarding labor practices and that we have an inclusive work environment where talented people thrive. We respect and value diversity among our employees and all those with whom we do business, and we hold every employee accountable for guaranteeing a workplace free of discrimination and harassment. The table below compares female versus male employees in each job category.

2016 Affirmative Action analysis JOB GROUP NAME

FEMALE

MALE

TOTAL*

Employee compensation and benefits

To help retain a skilled workforce through competitive benefits, we routinely benchmark our compensation policy.

Our most recent study, conducted by Mercer Consulting in 2015, benchmarked approximately 100 nonunion positions in the energy industry sector with similar revenue size to Otter Tail Power Company to accurately reflect the market value of total compensation (base salary plus incentive).

On aggregate, our total compensation was 1 percent above the competitive market median.

In addition to vacation, paid holidays, and sick leave, we offer our employees the following benefits: 2016 employee benefits BENEFIT

FULL TIME

PART TIME

401(k) retirement savings plan and/or pension plan

X

X

Employee Stock Ownership Plan (ESOP)

X

X

Health plan

X

X*

Dental plan

X

Group/supplemental life insurance

X

Personal Accidental Death and Dismemberment insurance

X

X*

Health Savings Account

X

X*

Flexible benefit plan

X

X

Long-term disability plan

X

X*

Employee Assistance Program

X

X

Employee self-improvement

X

X

Adoption assistance

X

Travel accident insurance

X

X

Officers

3

8

11

Managers

6

54

60

Supervisors

7

34

41

Senior professionals

11

55

66

Mid-level professionals

23

40

63

Entry-level professionals

24

20

44

0

5

5

86

10

96

Senior craft workers

1

176

177

Mid-level craft workers

0

126

126

Entry-level craft workers

1

84

85

Operatives

2

4

6

Stock purchase plan

X

X

Service workers

0

3

3

Safety eyeglasses plan

X*

X**

Laborers

0

2

2

Safety shoes plan

X*

X**

164

621

785

Fire-retardant clothing allowance

X*

X**

Technicians Administrative support

TOTAL

*Of the 796 total employees in 2016, 785 are required to be reported in the Affirmative Action reporting. The remaining 11 employees were temporary.

*Eligibility based on hours-worked requirement. **Eligibility based on exposure.

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Tuition reimbursement

Employees receive reimbursement for 80 percent of tuition and book costs for company-related accredited coursework. In 2016 five employees took advantage of this opportunity.

Performance evaluations

Our company requires managers and supervisors to evaluate their employees’ performances annually.

Specifically, these evaluations include setting goals, recognizing employee strengths, and planning for employee development. In 2016 our completion rate was 99 percent.

EMPLOYEE TRAINING

Companywide online safety and employment law training We use an online training program to allow employees to complete their assigned annual training modules as their schedules allow during the calendar year. Employees are enrolled in safety- and human resources-related courses based on job classifications. The table below lists the human resources and employment law courses that we require.

2016 online human resources and employment law training

COURSE TITLE

NUMBER OF EMPLOYEES TO TAKE COURSE

PERCENTAGE COMPLETED

Required Completed Discrimination-free workplace

846

804

95.0%

Drug- and alcoholfree workplace

846

803

94.9%

Ethics

846

802

94.8%

Hiring and lawful termination

125

118

94.4%

Sexual harassment for employees

723

684

94.6%

Sexual harassment for managers

125

118

94.4%

Violence in the workplace

846

801

94.7%

Computer security

766

726

94.8%

FERC Standards of Conduct

791

750

94.8%

Actual completion rates may be higher. Most incomplete courses are due to employees’ changing positions and no longer being required to complete the courses.

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In 2016, 778 employees enrolled in 15,555 courses; employees completed 14,783 courses, or 95.0 percent.

The following table lists the 2016 average hours of online training completed per employee by classification.

Average hours of online safety and employment law training completed TOTAL AVERAGE EMPLOYEE NUMBER OF TRAINING HOURS PER CLASSIFICATION EMPLOYEES HOURS EMPLOYEE Professional

813.0

172

4.7

Craftworker

2,190.3

388

5.6

Manager

525.0

102

5.1

Office/Clerical

653.9

100

6.5

Operative

44.0

5

8.8

Technical

18.8

5

3.8

Service worker

34.9

4

8.7

11.2

2

5.6

Laborer

Leadership training Developing highly capable employees is key to the long-term success of our organization. Our Leading the Enterprise, Leading Leaders, Leading Others, and Leading Self development programs are designed to build a common understanding of our company’s culture, strategy, and processes among all our employees.

In 2016 approximately 115 executives, managers, and supervisors either completed or participated in the Leading the Enterprise or Leading Others programs.

In 2017 we’ll roll out a Management Essentials program for managers participating in Leading Leaders.

WORKFORCE

We typically have a low employee turnover rate compared with other industries. The 2016 employee turnover rate was 7.66 percent, including retirements.

Below is a further breakdown by age group.

2016 Otter Tail Power Company workforce turnover Age group

Termed

Total

Rate

MEN Under 30

5

90

5.56%

30–50

8

292

2.74%

Over 50 (mostly retirements)

30

249

12.05%

TOTAL

43

631

6.81%

WOMEN Under 30

0

21

0%

30–50

7

74

9.46%

Over 50 (mostly retirements)

11

70

15.71%

TOTAL

18

165

10.91%

MIDWEST REGION (MN, ND, AND SD) Under 30

5

111

4.51%

30–50

15

366

4.10%

Over 50

41

319

12.85%

TOTAL

61

796

7.66%

We anticipate 35 percent to 40 percent of our workforce will reach our average retirement age within the next ten years, taking precious skills and expertise with them.

We continue to address this projected labor shortage in our internal succession planning process and by working with current employees to improve efficiencies. And in 2016 we hired to fill 105 positions.

We provide recruitment materials to educational institutions and other sources as outreach to potential employees. For example, we distribute Powerful Possibilities, our career guide, to area high school and college career services offices. It features overviews of jobs in customer service, engineering, and plant and field operations.

We also support scholarship programs and internships, participate in job fairs, and accept speaking engagements.

We have ties to post-secondary programs and employee involvement in multiple advisory committees at area institutions of higher learning, including: • Bismarck State College Bismarck, North Dakota • Lake Area Technical Institute Watertown, South Dakota • Minnesota State Community and Technical College Fergus Falls and Wadena, Minnesota • Mitchell Technical Institute Mitchell, South Dakota • North Dakota State College of Science Wahpeton, North Dakota • North Dakota State University Fargo, North Dakota • Northwest Technical College Bemidji, Minnesota • South Dakota State University Brookings, South Dakota • University of Minnesota Crookston and Morris, Minnesota • University of North Dakota Grand Forks, North Dakota

2016 Otter Tail Power Company rehires and new hires Regular

79

Temporary

26

TOTAL

105

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Community stewardship

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45

Independent Consultant confirms Otter Tail Power Company’s Stewardship Report is aligned with Global Reporting Initiative Standards at the “Core” level.

Otter Tail Power Company retained Silver Birch Communications LLC to provide a third-party check of the company’s 2016 Stewardship Report and its accordance with the Global Reporting Initiative (GRI) Standards at the “Core” level.

The objective of the third-party check process was to provide Otter Tail Power Company’s stakeholders confidence that the company has followed the GRI Standards guidelines, including those recommended for the Electric Utility Sector.

Silver Birch’s review included content, structure, and presentation of the reported data and information.

When needed, Silver Birch also provided counsel to Otter Tail Power Company to enhance conformity to the guidelines. The GRI Content Index provides direction for where readers can find specific content within the report and/or in public documents available online.

As per the guidelines, the report includes a materiality assessment section to indicate how the company developed the content based on stakeholder feedback. Relevant omissions or data shortcomings are noted within the text of the report and in the index.

Silver Birch confirms that this report follows the applicable GRI principles, GRI Standards guidelines, and Electric Utilities Sector Supplement guidelines. Otter Tail Power Company’s report team prepared the content within the Stewardship Report. The company’s management approved the content and retain responsibility.

Lynnette McIntire CEO, Silver Birch Communications GRI Certified Trainer

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OTTER TAIL POWER COMPANY

GRI Content Index The following disclosures are included as required to be in accordance with GRI Standards at the Core level.

BRIEF DESCRIPTION

GRI STANDARD

PAGE NUMBER OR LOCATION

GENERAL STANDARD DISCLOSURES General Disclosures Name of the organization

102-1

4

Activities, brands, products, and services

102-2

8–10

Location of headquarters

102-3

8

Location of operations

102-4

8

Ownership and legal form

102-5

8

Markets served

102-6

11

Scale of the organization

102-7

10–11

Information about employees and other workers

102-8

10, 43

Collective bargaining agreements

102-41

42

Supply chain

102-9

11

Significant changes to the organization and its supply chain

102-10

None

Precautionary principle or approach

102-11

Otter Tail Corporation 2016 Annual Report, Risk factors, 24–28

External initiatives

102-12

Not applicable

Membership of associations

102-13

Our top-four industry membership associations are Lignite Energy Council, Edison Electric Institute, North Central Electric Association, and Electric Power Research Institute, Inc.

Statement from senior decision-maker

102-14

1

Key impacts, risks, and opportunities

102-15

Otter Tail Corporation 2016 Annual Report, Risk factors, 24–28

Entities included in the consolidated financial statements

102-45

4

Defining report content and topic boundaries

102-46

4

List of material topics

102-47

6–7

Restatements of information

102-48

None

Changes in reporting

102-49

GRI Standards replaced GRI G3

List of stakeholder groups

102-40

4–5

Identifying and selecting stakeholders

102-42

4–5

Approach to stakeholder engagement

102-43

4–5, 37

Key topics and concerns raised

102-44

4–5, 38

Reporting period

102-55

2016

Date of most recent report

102-51

2014

Reporting cycle

102-52

4

Contact for questions regarding the report

102-53

4

Claims of reporting in accordance with the GRI Standards

102-54

4

GRI accordance

102-55

46

Governance structure

102-56

10

Values, principles, standards, and norms of behavior

102-16

9–10

103-1

4–7

103-2

See following material topics

Management Approach Explanation of the material topic and its boundary The management approach and its components Reliability

Management approach

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BRIEF DESCRIPTION

GRI STANDARD Management approach Management approach Management approach Management approach Management approach Management approach Management approach Management approach

Customer satisfaction Cost Economic impact Energy efficiency Emissions Workforce investments Community engagement Charitable contributions Evaluation of the management approach

PAGE NUMBER OR LOCATION 6, 38 34, 35 32, 34 6, 20–21 7, 20–23 7, 41–42, 44–45 36–37, 32–34 33

103-3

See 103-2

102-17

5

Delegating authority

102-19

10

Executive-level responsibility for economic, environmental, and social topics

102-20

10

Consulting stakeholders on economic, environmental, and social topics

102-21

4–5

Composition of the highest governance body and its committees

102-22

www.otpco.com, Executive Committee; Otter Tail Corporation 2016 Annual Report, Risk factors, 24–28

Chair of the highest governance body

102-23

Otter Tail Corporation 2016 Proxy, Board of Directors, 5–7

Nominating and selecting the highest governance body

102-24

Otter Tail Corporation 2016 Proxy, 6

Role of highest governance body in setting purpose, values, and strategy

102-26

10

Collective knowledge of highest governance body

102-27

Evaluating the highest governance body’s performance

102-28

Identifying and managing economic, environmental, and social impacts

102-29

10

Effectiveness of risk management processes

102-30

Otter Tail Corporation 2016 Annual Report, Risk factors, 24–28

Review of economic, environmental, and social topics

102-31

10

Highest governance body’s role in sustainability reporting

102-32

10

Communicating critical concerns

102-33

5

Remuneration policies

102-35

Otter Tail Corporation 2016 Proxy, Director Compensation, 10, Executive Compensation, 13–23

Process for determining remuneration

102-36

Otter Tail Corporation 2016 Proxy, Director Compensation, 10, Executive Compensation, 13–23

Stakeholders’ involvement in remuneration

102-37

Otter Tail Corporation 2016 Proxy, Director Compensation, 10, Executive Compensation, 13–23

Mechanisms for advice and concerns about ethics

102-17

5

Direct economic value generated and distributed

201-1

32-35

Financial implications and other risks and opportunities due to climate change

201-2

www.otpco.com, Environmental Commitment, Climate Change

Defined benefit plan obligations and other retirement plans

201-3

Otter Tail Corporation 2016 Annual Report, 78

Financial assistance received from government

201-4

Otter Tail Corporation 2016 Annual Report, Income Taxes, 83–84

The following General Disclosures are not required but are included in this report.

General Disclosures Mechanisms for advice and concerns about ethics

Otter Tail Corporation 2016 Proxy, Board of Directors, 10–12 Otter Tail Corporation 2016 Proxy, Compensation Discussion and Analysis, 12–23

ECONOMIC Economic performance 2016

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BRIEF DESCRIPTION

GRI STANDARD

PAGE NUMBER OR LOCATION

Market presence 202-1

We don’t track salary by gender. However, we’ve included work levels by gender to provide some insight.

Infrastructure investments and services supported

203-1

34, 17–19

Significant indirect economic impacts

203-2

34

204-1

34

Communication and training about anti-corruption policies and procedures

205-2

10, 44

Confirmed incidents of corruption and actions taken

205-3

None

Materials used by weight or volume

301-1

12–15

Recycled input materials used

301-2

26–27

Energy intensity

302-3

21

Reduction of energy consumption

302-4

29–31

Reductions in energy requirements of products and services

302-5

21, 29–31

Water withdrawal by source

303-1

24–25

Water sources significantly affected by withdrawal of water

303-2

24–25

Water recycled and reused

303-3

24–25

304-1

25–26

Significant impacts of activities, products, and services on biodiversity

304-2

25–26

Habitats protected or restored

304-3

25–26

Direct (Scope 1) GHG emissions

305-1

Reported as 1b/MWh, 22–23

Energy indirect (Scope 2) GHG emissions

305-2

Data not available

Other indirect (Scope 3) GHG emissions

305-3

Data not available

GHG emissions intensity

305-4

22–23

Reduction of GHG emissions

305-5

22–23

Nitrogen oxides (NOx), sulfur oxides (SOx), and other significant air emissions

305-7

22–23

Water discharge by quality and destination

306-1

24–25

Waste by type and disposal method

306-2

24–27

Significant spills

306-3

26

Transport of hazardous waste

306-4

None

Water bodies affected by water discharges and/or runoff

306-5

24–25

307-1

None

New suppliers that were screened using environmental criteria

308-1

27–28

Negative environmental impacts in the supply chain and actions taken

308-2

None

Ratios of standard entry level wage by gender compared to local minimum wage Indirect economic impacts

Procurement practices Proportion of spending on local suppliers

ANTI-CORRUPTION Anti-corruption

ENVIRONMENT Materials

Energy

Water

Biodiversity Operational sites owned, leased, and managed in or adjacent to protected areas and areas of high biodiversity value outside protected areas

Emissions

Effluents and waste

Environmental compliance Noncompliance with environmental laws and regulations Supplier Environmental Assessment

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BRIEF DESCRIPTION

GRI STANDARD

PAGE NUMBER OR LOCATION

SOCIAL Employment New employee hires and employee turnover

401-1

45

Benefits provided to full-time employees that are not provided to temporary or part-time employees

401-2

43

Parental leave

401-3

Available as defined by state and federal law

402-1

We do not include notice periods in our bargaining agreements.

Worker representation in formal joint management–worker health and safety committees

403-1

41–42

Types of injury and rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities

403-2

41

Health and safety topics covered in formal agreements with trade unions

403-4

41

Average hours of training per year per employee

404-1

44

Programs for upgrading employee skills and transition assistance programs

404-2

44

Percentage of employees receiving regular performance and career development reviews

404-3

44

Diversity of governance bodies and employees

405-1

43

Ratio of basic salary and remuneration of women to men

405-2

Data not available

414-1

11

406-1

None

407-1

None

Operations with local community engagement, impact assessments, and development programs

413-1

4

Operations with significant actual and potential negative impacts on local communities

413-2

None

415-1

None

Assessment of the health and safety impacts of product and service categories

416-1

41–42

Incidents of noncompliance concerning the health and safety impacts of products and services

416-2

None

418-1

None

419-1

None

Labor/Management Relations Minimum notice periods regarding operational changes Occupational Health and Safety

Training and Education

Diversity and Equal Opportunity

Supplier Social Assessment New suppliers that were screened using social criteria Nondiscrimination Incidents of discrimination and corrective actions taken Freedom of Association and Collective Bargaining Operations and suppliers in which the right to freedom of association and collective bargaining may be at risk Local Communities

Public Policy Political contributions Customer Health and Safety

Customer Privacy Substantiated complaints concerning breaches of customer privacy and losses of customer data Socioeconomic Compliance Noncompliance with laws and regulations in the social and economic areas

The following are GRI indicators cited in the Electric Utilities Sector guidance document and therefore are considered material.

Organization Profile Report on total contractor workforce (contractor, subcontractor, independent contractor) by employment type, employment contract, and regulatory regime Report on percentage of contractor employees (contractor, subcontractor, independent contractor) working for the reporting organization covered by collective bargaining agreements by country or regulatory regime

G4-10

10, Total number not available

G4-11

Data not available

Installed Capacity by primary energy source and regulatory regime

EU-1

12–15

Net energy output by primary energy source and regulatory regime

EU-2

12–15

Number of residential, industrial, institutional, and commercial customer accounts

EU-3

11

Length of above and underground transmission and distribution

EU-4

18–19

Allocation of CO2 emissions allowances or equivalent by carbon trading framework

EU-5

None

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BRIEF DESCRIPTION

GRI STANDARD

PAGE NUMBER OR LOCATION

Availability and Reliability Planned capacity against projected electricity demand over the long term by energy source and regulatory regime

EU-10

12, 16–19

Demand Side Management Demand-side management programs, including residential, commercial, institutional, and industrial programs

Management approach/EU-7

29–31

Management approach

16–19

Management approach

Not applicable in 2016

Research and Development Research and development activity and expenditure aimed at providing reliable electricity and promoting sustainable development Plant Decommissioning Management approach to plant decommissioning System Efficiency Average generation efficiency of thermal plants by energy source and regulatory regime

EU-11

17

Transmission and distribution losses as a percentage of total energy

EU-12

18

Long-term strategy for managing and phasing out high-level and low-level in-service PCBs

Management approach

27

In-use inventory of solid and liquid high-level and low-level PCBs contained in equipment

EN-1

27

Collaborative approaches to managing watersheds and reservoirs for multiple uses (irrigation, drinking water, and water resources for meeting the needs of the utility and other stakeholders)

Management approach

24

Overall water use for processing, cooling, and consumption in thermal and nuclear power plants

EN-8

24–25

Management approach

25–26

Significant impacts of activities, products, and services on biodiversity in protected areas and areas of biodiversity value outside protected areas

EN-12

25–26

Biodiversity of offset habitats compared to the biodiversity of the affected area

EU-13

25–26

Direct GHG emissions (SCOPE 1) by regulatory regime for net generation from all generating capacity, net generation from all fossil fuel generation, and estimated net delivery to end users

EN-15

23

Energy GHG emissions (SCOPE 2) MWh broken down by regulatory regime

EN-16

Data not available

Emissions per MWh for net generation from all generating capacity and net generation from all combustion power plants

EN-21

22–23

Thermal discharges as part of the total volume of planned and unplanned water discharges

EN-22

24–25

PCB waste as part of the total weight of hazardous and nonhazardous waste

EN-23

27

ENVIRONMENTAL Materials

Water

Biodiversity See guidance

Emissions

Effluents and Waste

SOCIAL Labor Practices and Decent Work Employment Programs and processes to ensure a skilled workforce; Policies and requirements regarding health and safety of employees and employees of contractors and subcontractors

Management approach

43–45

The average length of tenure of employees leaving during the reporting period by gender and age group

LA-1

45

Percentage of employees eligible to retire in the next 5 and 10 years by job category and region

EU-15

45

EU-17

Data not available

EU-18

Data not available

Days worked by contractor and subcontractor workers involved in construction, operation, and maintenance activities Percentage of contractor and subcontractor workers that have undergone relevant health and safety training Occupational Health and Safety Health and safety performance of contractors and subcontractors working onsite or on behalf of the reporting organization offsite

Management Data not available approach/LA-6

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BRIEF DESCRIPTION

GRI STANDARD

PAGE NUMBER OR LOCATION

Management approach

We follow all U.S. laws regarding union organizing and operating.

Management approach

32

Human Rights Freedom of Association Management mechanisms to address the right to organize, bargain, and strike Society Local Communities See guidance Number of people physically or economically displaced and compensation broken down by type of project

EU-22

Zero

Disaster/Emergency Planning & Response Contingency planning measures, disaster/emergency management plan and training programs, and recovery/restoration plans Customer health and safety Number of injuries and fatalities to the public involving company assets, including legal judgments, settlements, and pending legal cases of diseases

Management approach Management approach EU-25

40 36 Zero

Access Programs, including those in partnership with government to improve or maintain access to electricity and customer support services Percentage of population unserved in licensed distribution or service areas

Management Not applicable approach /EU-23 EU-26

Data not available

Number of residential disconnections for non-payment broken down by duration of disconnection and by regulatory regime

EU-27

In 2016 we disconnected approximately 1,920 residential customers for nonpayment.

Of those, approximately 490 had service restored within 24 hours, and 1,430 were disconnected for more than 24 hours.

Power outage frequency

EU-28

39

Average power outage duration

EU-29

39

Average plant availability factor by energy source and by regulatory regime

EU-30

39

Provision of Information Practices to address language, cultural, low literacy, and disability related barriers to accessing and safely using electricity and customer support services

52

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Management approach

None

Balance

Stewardship Report

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Customer Service 800-257-4044 Idea Center 800-493-3299 Media inquiries 218-739-8297 Headquarters 218-739-8200 215 South Cascade Street Fergus Falls, MN 56537

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