Otter Tail Corp

2. Segment Information

Our business is comprised ofthree reportable segments: Electric, Manufacturing and Plastics, consistent with our business strategy, organizational structure, and internal reporting and review processes. Segment net income is the primary measure of segment profit or loss used by our chief operating decision maker in assessing segment performance and allocating resources to our segments.

Segment Profit or Loss

Information about each segment, including significant expenses and net income of each segment, for the three and six months ended June 30, 2026 and 2025 are as follows:

Electric Segment

Manufacturing Segment

Plastics Segment

Capital Expenditures and Identifiable Assets

The following provides capital expenditures for each reportable segment and our corporate cost center for the six months ended June 30, 2026 and 2025:

The following provides the identifiable assets by segment and corporate assets as of June 30, 2026 and December 31, 2025:

Corporate assets consist primarily of cash and cash equivalents, investments, and prepaid expenses.

Reconciliation to Consolidated Amounts

Certain costs are not allocated to our operating segments. Corporate operating costs include items such as corporate staff and overhead costs, the results of our captive insurance company and other items excluded from the measurement of operating segment performance. Corporate is not an operating segment, rather it is added to operating segment totals to reconcile to consolidated amounts.

Included below are a reconciliation of certain segment information and our unallocated corporate costs to consolidated amounts for the three and six months ended June 30, 2026 and 2025:

3. Revenue

The following presents our operating revenues from external customers, in total and by amounts arising from contracts with customers and alternative revenue program (ARP) arrangements, disaggregated by revenue source and segment for the three and six months ended June 30, 2026 and 2025:

4. Select Balance Sheet Information

Cash, Cash Equivalents and Restricted Cash

The following table reconciles the amounts presented for cash, both unrestricted and restricted, in the consolidated balance sheets to the amounts presented in the consolidated statements of cash flows as of June 30, 2026 and December 31, 2025:

Receivables and Allowance for Credit Losses

Receivables as of June 30, 2026 and December 31, 2025 are as follows:

The following is a summary of activity in the allowance for credit losses for the six months ended June 30, 2026 and 2025:

Inventories

Inventories consist of the following as of June 30, 2026 and December 31, 2025:

Investments

The following is a summary of our investments as of June 30, 2026 and December 31, 2025:

Debt Securities. The following table summarizes the amortized cost and fair value of available-for-sale debt securities and the corresponding amounts of gross unrealized gains and losses as of June 30, 2026 and December 31, 2025:

As of June 30, 2026 and December 31, 2025, no unrealized losses on debt securities were deemed to be credit related.

The following table summarizes the fair value of available-for-sale debt securities by contractual maturity date as of June 30, 2026:

Equity Securities. The amount of net unrealized gains and losses during the three and six months ended June 30, 2026 and 2025 on marketable equity securities still held as of June 30, 2026 and 2025 was not material.

Property, Plant and Equipment

Major classes of property, plant and equipment as of June 30, 2026 and December 31, 2025 include:

Leases

Land Leases. In connection with our Abercrombie Solar project, which is currently under construction in southeastern North Dakota, we have entered into multiple land lease agreements for the property on which the facility will be constructed. The leases commenced on May 1, 2026, and have an initial term of 35 years, with options to extend the lease term for up to an additional 10 years. Total contractual lease payments over the initial 35-year term are $53.9 million. Upon commencement of the leases, we recognized operating lease right-of-use assets and corresponding lease liabilities of $20.1 million during the three months ended June 30, 2026.

5. Regulatory Matters

Regulatory Assets and Liabilities

The following presents our current and long-term regulatory assets and liabilities as of June 30, 2026 and December 31, 2025 and the period we expect to recover or refund such amounts:

South Dakota Rate Case

On June 4, 2025, Otter Tail Power Company (OTP) filed a request with the South Dakota Public Utilities Commission (SDPUC) for an increase in revenue recoverable under general rates in South Dakota. In its filing, OTP requested a net increase in annual revenue of $5.7 million, or 12.50%, based on an allowed rate of return on rate base of 8.29%. Interim rates went into effect on December 1, 2025, and were subject to potential refund until the finalization of the rate case.

On March 10, 2026, the SDPUC approved a settlement agreement between OTP and the commission staff in the general rate case. The key provisions of the order included a net increase in annual revenue of $3.3 million, or 7.7%, based on a return on rate base of 7.09%. Through the settlement of the case, the parties also agreed to a moratorium on increases to base rates until December 1, 2029, with certain exceptions. New base rates in South Dakota went into effect on April 1, 2026, and interim rate refunds totaling $0.8 million were refunded to customers during the three months ended June 30, 2026.

Minnesota Rate Case

On October 31, 2025, OTP filed a request with the Minnesota Public Utilities Commission (MPUC) for an increase in revenue recoverable under general rates in Minnesota. In its filing, OTP requested a net increase in annual revenue of $44.8 million, or 17.7%, based on an allowed rate of return on rate base of 7.92% and an allowed return on equity (ROE) of 10.65% on an equity ratio of 53.5% of total capital. The request includes, among other items, accelerated recovery of the remaining investment of the jurisdictionally allocated share of Coyote Station, which has a $4.3 million annual impact. The request for accelerated recovery is driven by the MPUC’s order in OTP’s most recent Integrated Resource Plan (IRP) to discontinue serving Minnesota customers with capacity and energy from Coyote Station by December 2031. If this part of the request is granted, we anticipate the amounts collected would be deferred and recognized over the remaining estimated useful life of the plant, which extends until 2041. The filing also included an interim rate request for a net increase in annual revenue of $31.8 million, or 12.6%.

On December 23, 2025, the MPUC approved the interim rate request with a modification to exclude the impact of the accelerated recovery of the remaining investment of the jurisdictionally allocated share of Coyote Station from interim rates. The resulting interim net increase in annual revenue is $28.6 million, or 11.3%. Interim rates went into effect on January 1, 2026, and are subject to potential refund until the finalization of the rate case.

In a filing submitted to the MPUC on July 30, 2026, OTP revised its requested net annual revenue increase to $42.3 million to reflect updates and adjustments made since the initial filing.

6. Asset Retirement Obligations

We have recognized Asset Retirement Obligations (AROs) related to our wind turbines, coal-fired generation plants, solar facilities and natural gas combustion turbines. The cost of AROs includes items such as site restoration, closure of ash landfills, monitoring activities and the removal of certain structures.

A reconciliation of the carrying amounts of AROs for the six months ended June 30, 2026:

During the six months ended June 30, 2026, we completed our wind repowering project, which consisted of the replacement or upgrades of hubs, gearboxes, blades, generators and other components at several of our wind facilities. The completion of the project resulted in the extension of the estimated useful lives of these facilities, which directly impacts the timing and amount of the expected cash flows to be incurred to settle the associated retirement obligations. As such, we adjusted our estimated cash flows related to these facilities during the period, which resulted in a $6.1 million reduction in our estimated ARO liabilities, as well as related reduction to property, plant and equipment.

As of June 30, 2026 and December 31, 2025, $0.1 million was included in other current liabilities, and $38.7 million and $43.9 million, respectively, were included in other noncurrent liabilities in the consolidated balance sheets related to AROs.

7. Short-Term and Long-Term Borrowings

Short-Term Debt

The following is a summary of our lines of credit as of June 30, 2026 and December 31, 2025:

Borrowings under each credit facility are subject to a variable rate of interest on outstanding balances and a commitment fee is charged based on the average unused amount available to be drawn under the respective facility. The variable rate of interest to be charged is based on a benchmark interest rate, either the Secured Overnight Financing Rate or a Base Rate, as defined in the credit agreements, selected by the borrower at the time of an advance, subject to the conditions of each agreement, plus an applicable credit spread. The credit spread ranges from zero to 2.00%, depending on the benchmark interest rate selected, and is subject to adjustment based on the credit ratings of the relevant borrower. The weighted-average interest rate on all outstanding borrowings as of June 30, 2026 and December 31, 2025 was 4.95% and 5.08%.

Letters of Credit

As of June 30, 2026, we had a total of $16.7 million of unused letters of credit outstanding, including the amounts issued under our credit facilities.

Long-Term Debt

The following is a summary of outstanding long-term debt by borrower as of June 30, 2026 and December 31, 2025:

On March 19, 2026, OTP entered into a Note Purchase Agreement pursuant to which OTP issued, in a private placement transaction, $170.0 million of senior unsecured notes consisting of (a) $100.0 million of 5.33% Series 2026A Senior Unsecured Notes due March 19, 2036, and (b) $70.0 million of 6.04% Series 2026B Senior Unsecured Notes due June 4, 2056. The Series 2026A Notes were issued on March 19, 2026, upon entering into the agreement. The Series 2026B Notes were issued on June 4, 2026.

Pursuant to the terms of the agreement, OTP may prepay all or any portion of the notes (in an amount not less than 10% of the aggregate principal amount of the notes then outstanding in the case of a partial prepayment) at 100% of the principal amount so prepaid, together with unpaid accrued interest and a make-whole amount, as defined in the agreement, provided that no default or event of default exists under the agreement. Any prepayment of the Series 2026A Notes then outstanding on or after December 19, 2035, or the Series 2026B Notes then outstanding on or after December 4, 2055, will be made without any make-whole amount. Consistent with other of our borrowings, the agreement contains a number of restrictions on the business of OTP, including restrictions and limitations on OTP’s ability to merge, sell substantially all assets, create or incur liens on assets, guarantee the obligations of any other party and engage in certain transactions with affiliates.

Financial Covenants

Certain of OTC's and OTP's short- and long-term debt agreements require the borrower, whether OTC or OTP, to maintain certain financial covenants, including a maximum debt to total capitalization ratio of 0.60 to 1.00 or 0.65 to 1.00, depending on the debt agreement, a minimum interest and dividend coverage ratio of 1.50 to 1.00, and a maximum level of priority indebtedness. As of June 30, 2026, OTC and OTP were in compliance with these financial covenants.

8. Employee Postretirement Benefits

The Company sponsors a noncontributory funded pension plan (the Pension Plan), an unfunded, nonqualified Executive Survivor and Supplemental Retirement Plan (ESSRP), both accounted for as defined benefit pension plans, and a postretirement healthcare plan accounted for as an other postretirement benefit plan.

The following table includes the components of net periodic benefit cost (income) related to our defined benefit pension plans and other postretirement benefits for the three and six months ended June 30, 2026 and 2025:

The following table includes the impact of regulation on the recognition of periodic benefit cost (income) arising from pension and other postretirement benefits for the three and six months ended June 30, 2026 and 2025:

We had no minimum funding requirements for our Pension Plan or any other postretirement benefit plans as of December 31, 2025. We didnot make any contributions to our Pension Plan during the six months ended June 30, 2026 and 2025.

9. Income Taxes

During the three and six months ended June 30, 2026, the Company recorded an income tax benefit of $21.2 million and $16.3 million, compared with income tax expense of $13.7 million and $23.7 million for the corresponding periods in 2025. The Company's effective tax rate was a tax benefit of 73.6% and 33.4% for the three and six months ended June 30, 2026 and tax expense at an effective rate of 14.9% and 14.0% for the three and six months ended June 30, 2025.

Income tax benefit for the three and six months ended June 30, 2026 included discrete income tax benefits of $26.3 million related to losses recognized from the settlement agreements executed during the period in connection with the ongoing U.S. PVC pipe antitrust class action litigation. Additional information regarding these matters is included in Note 10 to the consolidated financial statements.

The rates for all periods presented differ from the federal statutory rate of 21% primarily due to the impact of production tax credits (PTCs) associated with the energy generation of our wind and solar assets, partially offset by the impact of state taxes. In 2026, the effective tax rate was also significantly impacted by the discrete tax benefits described above.

The Company's effective tax rate decreased in 2026 compared with 2025 primarily as a result of the discrete tax benefits described above. The decrease was also attributable to higher PTCs generated by the Company's wind generation facilities following the completion of repowering projects at certain facilities in late 2025 and early 2026. Completion of these projects initiated new ten-year periods for earning PTCs on qualifying generation. PTCs are generally credited to customers through rider mechanisms and are reflected as reductions to both operating revenues and income tax expense.

10. Commitments and Contingencies

Contingencies

Self-Funding of Transmission Upgrades for Generator Interconnections. The Federal Energy Regulatory Commission (FERC) has granted transmission owners within Midcontinent Independent System Operator, Inc. (MISO) and other regional transmission organizations (RTOs) the unilateral authority to determine the funding mechanism for interconnection transmission upgrades that are necessary to accommodate new generation facilities connecting to the electrical grid. Under existing FERC orders, transmission owners can unilaterally determine whether the generator pays the transmission owner in advance for the transmission upgrade or, alternatively, the transmission owner can elect to fund the upgrade and recover over time from the generator the cost of and a return on the upgrade investment (a self-funding). FERC’s orders granting transmission owners this unilateral funding authority have been judicially contested on the basis that transmission owners may be motivated to discriminate among generators in making funding determinations. In the most recent judicial proceedings, the petitioners argued to the U.S. Court of Appeals for the District of Columbia that FERC did not comply with a previous judicial order to fully develop a record regarding the risk of discrimination and the financial risk absorbed by transmission owners for generator-funded upgrades. In December 2022, the Court of Appeals ruled in favor of the petitioners remanding the matter to FERC, instructing the agency to adequately explain the basis of its orders. The Court of Appeals decision did not vacate the transmission owners’ unilateral funding authority.

In June 2024, FERC issued an Order to Show Cause proceeding against four RTOs, including MISO. Within its order, FERC indicates that the transmission tariffs of the RTOs appear to be unjust, unreasonable, and unduly discriminatory or preferential because they allow transmission owners to unilaterally elect transmission owner self-funding, which may increase costs, impose barriers to transmission interconnection and result in undue discrimination among interconnection customers.

The order required each RTO to submit filings to either 1) show cause as to why the transmission tariff remains just and reasonable and not duly discriminatory or preferential, or 2) to explain what changes to the tariff it believes would remedy the identified concerns. FERC has received a number of responses to its Order to Show Cause. In September 2024, in separate filings, MISO and transmission owners within MISO, including OTP, filed responses outlining the reasons why the self-funding option remains just and reasonable and not unduly discriminatory or preferential. Other responses have been provided by other RTOs, individual transmission owners, developers of renewable generation facilities and other interested parties.

OTP, as a transmission owner in MISO, has exercised its authority and elected to self-fund transmission upgrades necessary to accommodate new system generation. Under such an election, OTP is recovering the cost of the transmission upgrade and a return on that investment from the generator over a contractual period of time. Should the resolution of this matter eliminate transmission owners’ unilateral funding authority on either a prospective or retrospective basis, our financial results would be impacted. We cannot at this time reasonably predict the outcome of this matter given the uncertainty as to how FERC may ultimately decide on the matter.

Class Action Lawsuits and Related Matters. Beginning in August of 2024, a series of putative federal class action lawsuits, now consolidated under the caption In re: PVC Pipe Antitrust Litigation (Case No. 1:24-cv-07639), were filed in the United States District Court for the Northern District of Illinois against Northern Pipe Products, Vinyltech Corporation, Otter Tail Corporation and more than twenty other PVC pipe manufacturers, as well as Oil Price Information Systems, LLC (OPIS), a reporting service that provides pricing and market information in various industries, including the PVC pipe industry during the relevant period. The Court permitted plaintiffs to proceed through three putative class complaints: a Direct Purchaser Class (DPPs), a Non-Converter Seller Purchaser Class (NCSPs) and an End-User Class (EUPs).

In August of 2025, thethree putative classes each filed a first or an amended complaint alleging, among other things, that the defendants and alleged co-conspirators conspired to fix, raise, maintain and stabilize the price of PVC municipal pipe, PVC plumbing pipe, PVC electrical pipe and PVC pipe fittings in violation of U.S. federal and state antitrust laws. The complaints alleged that PVC pipe manufacturers improperly exchanged confidential information through OPIS and engaged in other indirect and direct communications with each other. The plaintiffs were seeking treble damages, injunctive relief, pre- and post-judgment interest, costs and attorneys' fees on behalf of the putative classes.

On May 28, 2026, the Company entered into settlement agreements with the DPPs and NCSPs, individually and on behalf of the putative DPP and NCSP class members. Subject to the satisfaction of certain conditions, the Company’s subsidiaries, Northern Pipe Products, Inc. and Vinyltech Corporation, agreed to pay $39.5 million to resolve all claims asserted, or that could have been asserted, by the DPPs against the Company, and $34.0 million to resolve all claims asserted, or that could have been asserted, by the NCSPs against the Company, in each case relating to the alleged conduct at issue in the PVC pipe antitrust litigation. During the second quarter of 2026, Northern Pipe Products and Vinyltech Corporation paid an aggregate amount of $73.5 million into settlement fund escrow accounts utilizing available cash. As of June 30, 2026, the $73.5 million was included as restricted cash on our consolidated balance sheet pending the final court approval of the DPP and NCSP settlement agreements.

On June 17, 2026, the Company entered into a settlement agreement with the EUPs, individually and on behalf of the putative class members. Subject to the satisfaction of certain conditions, the Company’s subsidiaries, Northern Pipe Products, Inc. and Vinyltech Corporation, agreed to pay $30.0 million to resolve all claims asserted, or that could have been asserted, by the EUPs against the Company, relating to the alleged conduct at issue in the PVC pipe antitrust litigation. In July 2026, Northern Pipe Products and Vinyltech Corporation paid $30.0 million into a settlement fund escrow account utilizing available cash. The amount will be reflected as restricted cash on our consolidated balance sheet pending final court approval of the settlement agreement.

The settlement agreements remain subject to the satisfaction of certain conditions, including final approval by the Court. Following preliminary approval of each settlement by the Court, the settlement administrators began notice campaigns to inform potential class members of the settlements and advise them of their right to request exclusion from, or opt out of the applicable settlement. To be valid, exclusion requests must be received before the end of the applicable notice period. The NCSP notice period ends August 7, 2026, the DPP notice period ends August 25, 2026, and the EUP notice period ends September 8, 2026. The DPP and NCSP settlement agreements contain provisions allowing the Company to terminate the respective settlement agreement if opt outs exceed certain thresholds.

In connection with the class action lawsuits in the United States, we have recognized an estimated loss in the amount of $103.5 million, which was included in other current liabilities on our consolidated balance sheet as of June 30, 2026.

The execution of the settlement agreements does not constitute an admission by the Company of any wrongdoing, fault, or liability, and the Company does not admit any wrongdoing, fault, or liability. Although the Company believes it has factual and legal defenses and was prepared to continue litigating, the Company determined that resolving these claims was in its best interests. The settlements meaningfully reduce the uncertainty, distraction, and potential costs and exposure associated with protracted and complex class action antitrust litigation and allow the Company to maintain its focus on executing its business strategy.

On September 26, 2025, a putative nation-wide class action complaint (Case No. S-257310) was filed in the Supreme Court of British Columbia, Canada against Northern Pipe, Vinyltech Corporation, Otter Tail Corporation and several other PVC pipe manufacturers, as well as OPIS. The complaint alleges that the defendants conspired to fix, raise, maintain, and stabilize the price of PVC pipe through an information exchange, OPIS, breaching Canada's Competition Act. The plaintiffs seek general damages, injunctive relief, pre- and post-judgment interest, punitive damages, costs, and attorneys' fees on behalf of the putative class. The Company believes there are factual and legal defenses to the allegations in the complaint and is defending itself accordingly.

In August 2024, the Company received a grand jury subpoena issued by the U.S. District Court for the Northern District of California, from the U.S. Department of Justice (DOJ) Antitrust Division. The subpoena calls for production of documents regarding the manufacturing, selling and pricing of PVC pipe. The Company has responded to the subpoena and intends to comply with its obligations thereunder. On October 7, 2025, the DOJ filed a motion to intervene and for a partial stay of document discovery in In Re: PVC Pipe Antitrust Litigation. On July 1, 2026, the DOJ moved to extend the discovery stay until December 31, 2026, and narrow the terms of the stay.

As it pertains to the unresolved complaint in Canada and the DOJ investigation, the Company believes there are factual and legal defenses and is defending itself accordingly. There remains considerable uncertainty regarding the timing or ultimate resolution of the litigation in Canada and the DOJ investigation. At this time, we are unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any, arising from these matters. The resolution of these matters could have a material impact on the Company’s financial position, operating results and liquidity, and it is reasonably possible that our assessment of losses arising from these matters could change in the near term.

On May 20, 2025, the Otter Tail Corporation Board of Directors received a letter from counsel submitted on behalf of a shareholder, demanding the Board investigate and take legal action against certain current and former directors and officers of the Company. The derivative demand letter alleges securities law violations, breaches of fiduciary duties, and unjust enrichment by certain current and former officers and directors of the Company in connection with the matters at issue in the pending civil antitrust cases. At this time, we are unable to determine the likelihood of any outcome related to this matter.

Other Contingencies. We are involved in claims, legal proceedings, investigations and regulatory matters arising in the normal course of business. We regularly analyze relevant information and, as necessary, estimate and record accrued liabilities for legal, regulatory enforcement and other matters in which a loss or range of loss is probable of occurring and can be reasonably estimated. We believe the effect on our consolidated operating results, financial position and cash flows, if any, for the disposition of all matters pending as of June 30, 2026, other than those discussed above, will not be material.

11. Shareholders' Equity

Registration Statements

On May 3, 2024, we filed a shelf registration statement with the SEC under which we may offer for sale, from time to time, either separately or together in any combination, equity, debt or other securities described in the shelf registration statement. No new debt or equity has been issued pursuant to the registration statement. The registration statement expires in May 2027.

On May 3, 2024, we filed a second registration statement with the SEC for the issuance of up to 1,500,000 common shares under an Automatic Dividend Reinvestment and Share Purchase Plan, which provides shareholders, retail customers of OTP and other interested investors methods of purchasing our common shares by reinvesting their dividends or making optional cash investments. Shares purchased under the plan may be newly issued common shares or common shares purchased on the open market. During the six months ended June 30, 2026, we issued 48,065 shares under this plan. We repurchased a sufficient number of shares on the open market to satisfy all issuances under the plan; accordingly, no proceeds were received as a result of the issuance of these shares. As of June 30, 2026, there were 1,282,756 shares available for purchase or issuance under the plan. The registration statement expires in May 2027.

Dividend Restrictions

OTC is a holding company with no significant operations of its own. The primary source of funds for payments of dividends to OTC's shareholders is from dividends paid or distributions made by OTC's subsidiaries. As a result of certain statutory limitations or regulatory or financing agreements, the amount of distributions allowed to be made by OTC's subsidiaries or the amount of dividends paid by OTC could be restricted. Both the OTC Credit Agreement and the OTP Credit Agreement contain restrictions on the payment of cash dividends upon a default or event of default, including failure to maintain certain financial covenants. As of June 30, 2026, we were in compliance with these financial covenants.

Under the Federal Power Act, a public utility may not pay dividends from any funds properly included in a capital account. What constitutes “funds properly included in a capital account” is undefined in the Federal Power Act or the related regulations; however, the FERC has consistently interpreted the provision to allow dividends to be paid as long as i) the source of the dividends is clearly disclosed, ii) the dividend is not excessive and iii) there is no self-dealing on the part of corporate officials.

The MPUC indirectly limits the amount of dividends OTP can pay to OTC by requiring an equity-to-total-capitalization ratio between 46.7% and 57.1% based on OTP’s current capital structure requirements. As of June 30, 2026, OTP’s equity-to-total-capitalization ratio, including short-term debt, was 51.4% and its net assets restricted from distribution totaled approximately $1.0 billion. Under the MPUC order, total capitalization for OTP cannot exceed $2.4 billion.

12. Accumulated Other Comprehensive Income (Loss)

The following presents the changes in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2026 and 2025:

13. Share-Based Payments

Stock Compensation Expense

Stock-based compensation expense arising from our employee stock purchase plan and share-based compensation plans recognized within operating expenses in the consolidated statements of operations amounted to $2.1 million and $1.6 million for the three months ended June 30, 2026 and 2025 and $8.5 million and $7.4 million for the six months ended June 30, 2026 and 2025.

Restricted Stock Awards. Restricted stock awards are granted to executive officers and other key employees and members of the Company's Board of Directors. The awards vest, depending on award recipient, either ratably over a period ofthree orfour years or cliff vest after four years. Vesting is accelerated in certain circumstances, including upon retirement. Awards granted to members of the Board of Directors are issued and outstanding upon grant and carry the same voting and dividend rights of unrestricted outstanding common stock. Awards granted to executive officers are eligible to receive dividend equivalent payments during the vesting period, subject to forfeiture under the terms of the agreement, but such awards are not issued or outstanding upon grant and do not provide for voting rights. Certain awards will be settled in cash at the time of vesting rather than shares of common stock. The amount of cash paid upon settlement is equal to the value of the shares which otherwise would have been issued on the vesting date.

The grant-date fair value of each restricted stock award is determined based on the market price of the Company's common stock on the date of grant adjusted to exclude the value of dividends for those awards that do not receive dividend or dividend equivalent payments during the vesting period. Awards that will be settled in cash are liability‑classified awards, which are remeasured at fair value each reporting period until settlement, with changes in fair value recognized in earnings. As of June 30, 2026, the estimated fair value of liability-classified awards was $1.3 million, which is included in accrued salaries and wages on our consolidated balance sheet. There wereno liability-classified awards outstanding as of December 31, 2025.

The following is a summary of award activity for the six months ended June 30, 2026:

The fair value of vested awards was $4.3 million and $3.5 million during the six months ended June 30, 2026 and 2025, and all awards were settled in shares of common stock.

Stock Performance Awards. Stock performance awards are granted to executive officers and certain other key employees. The awards vest at the end of athree-year performance period. The number of common shares awarded, if any, at the end of the performance period ranges from zero to 150% of the target amount based ontwo performance measures: i) total shareholder return relative to a peer group and ii) ROE. Vesting of the awards is accelerated in certain circumstances, including upon retirement. The number of common shares awarded on an accelerated vesting is based on actual performance at the end of the performance period. Certain awards will be settled in cash at the time of vesting rather than shares of common stock. The amount of cash paid upon settlement is equal to the value of the shares which otherwise would have been issued on the vesting date. Awards that will be settled in cash are liability‑classified awards, which are remeasured at fair value each reporting period until settlement, with changes in fair value recognized in earnings. As of June 30, 2026, the estimated fair value of liability-classified awards was $4.0 million, which is included in other noncurrent liabilities on our consolidated balance sheet. There wereno liability-classified awards outstanding as of December 31, 2025.

The grant-date fair value of stock performance awards granted during the six months ended June 30, 2026 and 2025 was determined using a Monte Carlo fair value simulation model incorporating the following assumptions:

The risk-free interest rate was derived from yields on U.S. government bonds of a similar term. The expected term of the award is equal to thethree-year performance period. Expected volatility was estimated based on actual historical volatility of our common stock. Dividend yield was estimated based on historical and future yield estimates.

The following is a summary of performance award activity for the six months ended June 30, 2026 (unit/share amounts reflect awards at target):

The fair value of vested awards was $6.8 million and $5.5 million during the six months ended June 30, 2026 and 2025, and all awards were settled in shares of common stock.

14. Earnings Per Share

The numerator used in the calculation of both basic and diluted earnings per share is net income (loss). The denominator used in the calculation of basic earnings per share is the weighted-average number of shares outstanding during the period. The denominator used in the calculation of diluted earnings per share is derived by adjusting basic shares outstanding for the dilutive effect of potential shares outstanding, which consist of time- and performance-based stock awards and employee stock purchase plan shares. Basic net loss per share was the same as diluted net loss per share for the three months ended June 30, 2026, as a result of our net loss position for the period.

The following includes the computation of the denominator for basic and diluted weighted-average shares outstanding for the three and six months ended June 30, 2026 and 2025:

For the three months ended June 30, 2026,197,007 shares were excluded from the computation of diluted weighted-average common shares outstanding because such shares were anti-dilutive. The number of shares excluded from diluted weighted-average common shares outstanding because such shares were anti-dilutive was not material for the six months ended June 30, 2026, or the three and six months ended June 30, 2025.

15. Derivative Instruments

OTP enters into derivative instruments to manage its exposure to future market energy price variability and reduce price volatility for retail customers. These derivative instruments are not designated as qualifying hedging transactions but provide for an economic hedge against future market energy price variability. The instruments are recorded at fair value on the consolidated balance sheets. In accordance with ratemaking and cost recovery processes, we recognize a regulatory asset or liability to defer losses or gains from derivative activity until settlement of the associated derivative instrument.

As of June 30, 2026, OTP had multiple outstanding pay-fixed, receive-variable swap agreements with various settlement dates extending to December 31, 2027. The following presents the notional amounts and fair value of our derivative instruments as of June 30, 2026 and December 31, 2025:

During the six months ended June 30, 2026 and 2025, contracts matured and were settled resulting in a gain of $1.5 million and a loss of $2.6 million, respectively. Gains and losses recognized on the settlement of derivative instruments are returned to or recovered from our electric customers through fuel recovery mechanisms in each state. When recognized in the consolidated statements of operations, these gains or losses are included in electric purchased power. Gains or losses related to the settlement of derivative instruments are included in cash flows from operations in the consolidated statements of cash flows.

16. Fair Value Measurements

The following tables present our assets and liabilities measured at fair value on a recurring basis as of June 30, 2026 and December 31, 2025 classified by the input method used to measure fair value:

Level 1 fair value measurements are based on quoted prices (unadjusted) in active markets for identical assets that we have the ability to access at the measurement date.

The level 2 fair value measurements for government and corporate debt securities are determined based on valuations provided by third parties which utilize industry-accepted valuation models and observable market inputs to determine valuation. Some valuations or model inputs used by the pricing service may be based on broker quotes.

The level 2 fair value measurements for derivative instruments are determined by using inputs such as forward electric commodity prices, adjusted for location differences. These inputs are observable in the marketplace throughout the full term of the instrument, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.

In addition to assets recorded at fair value on a recurring basis, we also hold financial instruments that are not recorded at fair value in the consolidated balance sheets but for which disclosure of the fair value of these financial instruments is provided.

The following reflects the carrying value and estimated fair value of these assets and liabilities as of June 30, 2026 and December 31, 2025:

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Cash Equivalents: The carrying amount approximates fair value because of the short-term maturity of these instruments. Fair value is determined based on quoted prices in active markets, a Level 1 fair value input.

Short-Term Debt: The carrying amount approximates fair value because the debt obligations are short-term in nature and balances outstanding are subject to variable rates of interest which reset frequently, a Level 2 fair value input.

Long-Term Debt: The fair value of long-term debt is estimated based on current market indications for borrowings of similar maturities with similar terms, a Level 2 fair value input.