Commitments and Contingencies

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies (note 9)

9. Commitments and Contingencies

Construction and Other Purchase Commitments

At December 31, 2012 OTP had commitments under contracts in connection with construction programs aggregating approximately $79.4 million. At June 30, 2013 OTP had commitments under contracts in connection with construction programs aggregating approximately $154.3 million. The increase in construction commitments from December 31, 2012 to June 30, 2013 is mainly for OTP’s share of commitments related to the construction of a new air quality control system at Big Stone Plant.

Electric Utility Capacity and Energy Requirements and Coal and Delivery Contracts

As of December 31, 2012 OTP had commitments for the purchase of capacity and energy requirements under agreements extending through 2032 totaling $170.1 million. In the second quarter of 2013, OTP entered into a 25-year agreement with Ashtabula Wind III, LLC for the purchase of wind generated electricity from the LLC’s 39 wind turbines located in Barnes County, North Dakota. OTP is not required to take energy under this agreement until it receives an affirmative determination from the MPUC that OTP’s execution of this agreement is reasonable, in the public interest, and that all costs incurred under this agreement to serve OTP’s Minnesota customers are recoverable from OTP’s retail customers in Minnesota. As of August 9, 2013 OTP had not received this affirmative determination. Therefore, OTP currently has no financial commitment related to this agreement.

As of December 31, 2012 OTP had contracts providing for the purchase and delivery of a significant portion of its then current coal requirements totaling $797.0 million. OTP’s current coal purchase agreements, under which OTP is committed to the minimum purchase amounts or to make payments in lieu thereof, expire in 2014, 2016 and 2040. In February and May of 2013, OTP entered into agreements for the purchase of additional coal to meet a portion of Big Stone Plant’s remaining coal requirements for 2013 and 2014. OTP’s share of the additional commitments subsequent to June 30, 2013 total $2.5 million for 2013 and $3.2 million for 2014.

Contingencies

Contingencies, by their nature, relate to uncertainties that require the Company’s management to exercise judgment both in assessing the likelihood a liability has been incurred as well as in estimating the amount of potential loss. The most significant contingencies impacting the Company’s consolidated financial statements are those related to, environmental remediation, litigation matters and the resolution of matters related to open tax years. Should all of these known items result in liabilities being incurred, the loss could be as high as $2.9 million. Additionally, the Company may become subject to significant claims of which its management is unaware, or the claims of which its management is aware, such as possible warranty claims on products that are beyond their warranty period but where a customer may claim to have provided notice of a defect while the product was under warranty. If these claims were to occur, it could result in the Company incurring a significantly greater liability than it anticipates.

Other

The Company is a party to litigation arising in the normal course of business. The Company regularly analyzes current information and, as necessary, provides accruals for liabilities that are probable of occurring and that can be reasonably estimated. The Company believes the effect on its consolidated results of operations, financial position and cash flows, if any, for the disposition of all matters pending as of June 30, 2013 will not be material.