[Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) This section outlines statements regarding future expectations and events, which are subject to risks and uncertainties [Part I. Financial Information](index=6&type=section&id=Part%20I.%20Financial%20Information) This part presents the company's unaudited consolidated financial statements and related disclosures for the reporting period [ITEM 1. Consolidated Financial Statements - Unaudited](index=6&type=section&id=ITEM%201.%20Consolidated%20Financial%20Statements%20-%20Unaudited) This section presents ALLETE, Inc.'s unaudited consolidated financial statements for the quarter and nine months ended September 30, 2023, including the balance sheet, income statement, comprehensive income statement, cash flow statement, and statement of equity, along with detailed notes on operations, regulatory matters, equity investments, fair value, debt, commitments, earnings per share, income taxes, pension plans, and business segments [Consolidated Balance Sheet](index=6&type=section&id=Consolidated%20Balance%20Sheet) This statement provides a snapshot of the company's assets, liabilities, and equity for the reporting periods Consolidated Balance Sheet (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 ($ Millions) | Dec 31, 2022 ($ Millions) | | :--------------------------- | :------------------------ | :------------------------ | | Total Current Assets | $503.2 | $718.0 | | Total Assets | $6,644.8 | $6,845.6 | | Total Current Liabilities | $413.5 | $716.2 | | Total Liabilities | $3,248.1 | $3,497.3 | | Total Equity | $3,396.7 | $3,348.3 | [Consolidated Statement of Income](index=7&type=section&id=Consolidated%20Statement%20of%20Income) This statement details the company's revenues, expenses, and net income for the reporting periods Consolidated Statement of Income (Quarter and Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | Q3 2023 ($ Millions) | Q3 2022 ($ Millions) | 9M 2023 ($ Millions) | 9M 2022 ($ Millions) | | :-------------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Total Operating Revenue | $378.8 | $388.3 | $1,477.1 | $1,144.9 | | Operating Income | $36.0 | $33.4 | $137.8 | $100.5 | | Net Income Attributable to ALLETE | $85.9 | $33.7 | $195.6 | $137.6 | | Basic Earnings Per Share of Common Stock| $1.50 | $0.59 | $3.41 | $2.48 | | Diluted Earnings Per Share of Common Stock| $1.49 | $0.59 | $3.41 | $2.48 | [Consolidated Statement of Comprehensive Income](index=8&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) This statement presents net income and other comprehensive income components for the reporting periods Consolidated Statement of Comprehensive Income (Quarter and Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | Q3 2023 ($ Millions) | Q3 2022 ($ Millions) | 9M 2023 ($ Millions) | 9M 2022 ($ Millions) | | :-------------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Net Income | $69.6 | $26.8 | $147.9 | $94.1 | | Total Other Comprehensive Income (Loss) | $(0.1) | $0.1 | $(0.1) | $— | | Total Comprehensive Income Attributable to ALLETE | $85.8 | $33.8 | $195.5 | $137.6 | [Consolidated Statement of Cash Flows](index=9&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) This statement summarizes cash flows from operating, investing, and financing activities for the reporting periods Consolidated Statement of Cash Flows (Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | 9M 2023 ($ Millions) | 9M 2022 ($ Millions) | | :-------------------------------------- | :------------------- | :------------------- | | Cash provided by Operating Activities | $520.0 | $81.2 | | Cash used in Investing Activities | $(200.6) | $(311.1) | | Cash provided by (used in) Financing Activities | $(228.4) | $230.8 | | Change in Cash, Cash Equivalents and Restricted Cash | $91.0 | $0.9 | | Cash, Cash Equivalents and Restricted Cash at End of Period | $131.2 | $48.6 | [Consolidated Statement of Equity](index=10&type=section&id=Consolidated%20Statement%20of%20Equity) This statement details changes in the company's equity components, including common stock and retained earnings, for the reporting periods Consolidated Statement of Equity (Quarter and Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | Q3 2023 ($ Millions) | Q3 2022 ($ Millions) | 9M 2023 ($ Millions) | 9M 2022 ($ Millions) | | :-------------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Common Stock, End of Period | $1,797.2 | $1,777.2 | $1,797.2 | $1,777.2 | | Retained Earnings, End of Period | $1,013.9 | $929.2 | $1,013.9 | $929.2 | | Total Equity, End of Period | $3,396.7 | $3,353.9 | $3,396.7 | $3,353.9 | | Dividends Per Share of Common Stock | $0.6775 | $0.65 | $2.0325 | $1.95 | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures and explanations for the unaudited consolidated financial statements, covering significant accounting policies, regulatory matters, equity investments, fair value measurements, debt, commitments, earnings per share, income taxes, pension plans, and segment reporting [Note 1. Operations and Significant Accounting Policies](index=11&type=section&id=Note%201.%20Operations%20and%20Significant%20Accounting%20Policies) This note details the company's business operations and significant accounting policies applied in preparing the financial statements - Total cash, cash equivalents, and restricted cash increased to **$131.2 million** as of September 30, 2023, from $40.2 million as of December 31, 2022[19](index=19&type=chunk) - Total inventories decreased to **$180.3 million** as of September 30, 2023, from $455.9 million as of December 31, 2022, primarily due to a significant reduction in Renewable Energy Facilities Under Development[20](index=20&type=chunk) - Total Other Income for the nine months ended September 30, 2023, was **$75.3 million**, significantly up from $16.4 million in the same period of 2022, largely driven by a **$58.4 million gain** on an arbitration award[24](index=24&type=chunk) - A **$5.7 million increase** in Net Loss Attributable to Non-Controlling Interest was recognized in Q3 2023 for a prior period error correction, deemed immaterial to affected periods[26](index=26&type=chunk) [Note 2. Regulatory Matters](index=14&type=section&id=Note%202.%20Regulatory%20Matters) This note discusses regulatory filings, rate cases, and their financial implications for the company's regulated operations - Minnesota Power filed for an average retail rate increase of approximately **12.00%** (net of rider revenue) on November 1, 2023, seeking **$89 million** in additional annual revenue and expecting an interim rate increase of **$64 million** within 60 days[28](index=28&type=chunk) - The MPUC approved a **9.65% return on common equity** and **52.50% equity ratio** for the 2022 Minnesota General Rate Case, expecting **$60 million** in additional base rate revenue and **$10 million** from cost recovery riders annually. Minnesota Power is appealing specific aspects of the MPUC's orders[30](index=30&type=chunk)[31](index=31&type=chunk) - Minnesota Power recorded a pre-tax reserve of **$39.4 million** as of September 30, 2023, for an interim rate refund to customers, which will begin in Q4 2023[31](index=31&type=chunk) - A **$28.3 million regulatory liability** was recognized as of September 30, 2023, due to lower fuel and purchased power costs in 2023, leading to lower rates implemented in October 2023 to refund over-collected amounts[35](index=35&type=chunk) Regulatory Assets and Liabilities (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 ($ Millions) | Dec 31, 2022 ($ Millions) | | :-------------------------------------- | :------------------------ | :------------------------ | | Total Current Regulatory Assets | $13.9 | $25.6 | | Total Non-Current Regulatory Assets | $443.3 | $441.0 | | Total Current Regulatory Liabilities | $41.9 | $23.4 | | Total Non-Current Regulatory Liabilities| $549.3 | $526.1 | [Note 3. Equity Investments](index=18&type=section&id=Note%203.%20Equity%20Investments) This note provides details on the company's equity method investments, including ownership stakes and related financial impacts - ALLETE Transmission Holdings owns approximately **8% of ATC**, with an equity investment balance of **$176.5 million** as of September 30, 2023. ATC's authorized return on equity is **10.02%** (**10.52%** with incentive adder), but this is subject to legal challenges and potential FERC rule changes[43](index=43&type=chunk)[44](index=44&type=chunk) - ALLETE South Wind owns **49% of Nobles 2**, a **250 MW** wind energy facility, with an equity investment balance of **$153.2 million** as of September 30, 2023[45](index=45&type=chunk)[46](index=46&type=chunk) [Note 4. Fair Value](index=18&type=section&id=Note%204.%20Fair%20Value) This note describes the fair value measurements of financial instruments and other assets and liabilities - As of September 30, 2023, total fair value of assets measured on a recurring basis was **$19.7 million**, primarily consisting of available-for-sale equity securities (**$8.1 million**) and corporate/governmental debt securities (**$5.8 million**)[49](index=49&type=chunk) - Deferred compensation liabilities measured at fair value on a recurring basis totaled **$15.9 million** as of September 30, 2023[49](index=49&type=chunk) - The fair value of Short-Term and Long-Term Debt was **$1,582.5 million** as of September 30, 2023, compared to a carrying amount of **$1,805.5 million**[51](index=51&type=chunk) [Note 5. Short-Term and Long-Term Debt](index=20&type=section&id=Note%205.%20Short-Term%20and%20Long-Term%20Debt) This note details the company's short-term and long-term debt obligations, including changes and covenant compliance - Total debt (principal) decreased to **$1,805.5 million** as of September 30, 2023, from $1,929.1 million as of December 31, 2022[54](index=54&type=chunk) - ALLETE amended its **$400 million credit facility** to **$355 million** and extended its expiration to January 10, 2027, on October 17, 2023[54](index=54&type=chunk) - ALLETE issued **$125 million of First Mortgage Bonds** at **4.98% interest**, maturing in April 2033, to refinance existing debt and for general corporate purposes[55](index=55&type=chunk) - ALLETE was in compliance with its most restrictive financial covenant, maintaining an indebtedness to total capitalization ratio of approximately **0.36 to 1.00** as of September 30, 2023 (covenant limit: <= 0.65 to 1.00)[56](index=56&type=chunk) [Note 6. Commitments, Guarantees and Contingencies](index=21&type=section&id=Note%206.%20Commitments%2C%20Guarantees%20and%20Contingencies) This note outlines the company's contractual commitments, guarantees, and potential contingent liabilities, including environmental matters - The company is subject to extensive environmental regulations (Clean Air Act, Clean Water Act, waste management) and anticipates potential material expenditures for future environmental matters, which it would seek to recover through rate proceedings[61](index=61&type=chunk)[62](index=62&type=chunk) - The EPA's Good Neighbor Plan for 2015 Ozone NAAQS, aiming to reduce NOx emissions, was stayed for Minnesota on July 5, 2023, preventing compliance obligations for the 2023 ozone season. Future compliance costs could be material[66](index=66&type=chunk)[67](index=67&type=chunk) - ALLETE is addressing climate change by expanding renewable power, implementing energy conservation, improving generation efficiency, supporting carbon reduction research, and developing less carbon-intensive assets[70](index=70&type=chunk) - An ALLETE Clean Energy subsidiary won a favorable arbitration ruling in September 2023, awarding **$68.3 million**, including **$5.1 million** in prejudgment interest and **$3.6 million** in arbitration costs, resulting in a **$58.4 million pre-tax gain**[90](index=90&type=chunk) - As of September 30, 2023, ALLETE had **$163.6 million** in outstanding letters of credit and BNI Energy had **$82.4 million** in surety bonds for reclamation liability[85](index=85&type=chunk)[87](index=87&type=chunk) [Note 7. Earnings Per Share and Common Stock](index=28&type=section&id=Note%207.%20Earnings%20Per%20Share%20and%20Common%20Stock) This note presents the calculation of basic and diluted earnings per share and information on common stock Earnings Per Share (Quarter and Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 | | :-------------------------------------- | :------ | :------ | :------ | :------ | | Basic Earnings Per Share of Common Stock| $1.50 | $0.59 | $3.41 | $2.48 | | Diluted Earnings Per Share of Common Stock| $1.49 | $0.59 | $3.41 | $2.48 | [Note 8. Income Tax Expense](index=28&type=section&id=Note%208.%20Income%20Tax%20Expense) This note provides details on the company's income tax expense, effective tax rates, and unrecognized tax benefits Total Income Tax Expense (Benefit) (Quarter and Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | Q3 2023 ($ Millions) | Q3 2022 ($ Millions) | 9M 2023 ($ Millions) | 9M 2022 ($ Millions) | | :-------------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Total Current Income Tax Expense | $5.1 | $0.2 | $19.1 | $0.3 | | Total Deferred Income Tax Expense (Benefit)| $14.2 | $(7.4) | $1.3 | $(19.7) | | Total Income Tax Expense (Benefit) | $19.3 | $(7.2) | $20.4 | $(19.4) | - For the nine months ended September 30, 2023, the effective tax rate was an expense of **12.1%**, compared to a benefit of 26.0% for the same period in 2022, primarily due to lower production tax credits[96](index=96&type=chunk) - Gross unrecognized tax benefits were **$1.1 million** as of September 30, 2023[97](index=97&type=chunk) [Note 9. Pension and Other Postretirement Benefit Plans](index=30&type=section&id=Note%209.%20Pension%20and%20Other%20Postretirement%20Benefit%20Plans) This note outlines the net periodic benefit costs and funding for the company's pension and other postretirement plans Net Periodic Benefit Cost (Credit) (Nine Months Ended Sep 30, 2023 vs. 2022) | Metric | 9M 2023 Pension ($ Millions) | 9M 2022 Pension ($ Millions) | 9M 2023 Other Postretirement ($ Millions) | 9M 2022 Other Postretirement ($ Millions) | | :-------------------------------------- | :--------------------------- | :--------------------------- | :---------------------------------------- | :---------------------------------------- | | Service Cost | $4.9 | $6.9 | $1.7 | $2.3 | | Net Periodic Benefit Cost (Credit) | $6.7 | $4.7 | $(9.2) | $(6.9) | - Contributed **$17.3 million** in cash to defined benefit pension plans for the nine months ended September 30, 2023, with no further contributions expected in 2023. No contributions were made to other postretirement benefit plans in 2023[100](index=100&type=chunk) [Note 10. Business Segments](index=30&type=section&id=Note%2010.%20Business%20Segments) This note provides financial information disaggregated by the company's operating segments, including revenue and net income Operating Revenue by Segment (9M 2023 vs. 9M 2022) | Segment | 9M 2023 ($ Millions) | 9M 2022 ($ Millions) | | :---------------------- | :------------------- | :------------------- | | Regulated Operations | $919.1 | $960.3 | | ALLETE Clean Energy | $396.8 | $65.0 | | Corporate and Other | $161.2 | $119.6 | | Total Operating Revenue | $1,477.1 | $1,144.9 | Net Income (Loss) Attributable to ALLETE by Segment (9M 2023 vs. 9M 2022) | Segment | 9M 2023 ($ Millions) | 9M 2022 ($ Millions) | | :------------------------------------ | :------------------- | :------------------- | | Regulated Operations | $112.4 | $119.4 | | ALLETE Clean Energy | $66.4 | $15.0 | | Corporate and Other | $16.8 | $3.2 | | Total Net Income Attributable to ALLETE | $195.6 | $137.6 | - ALLETE Clean Energy net income in 2023 includes a **$44.3 million after-tax gain** recognized for a favorable arbitration ruling[104](index=104&type=chunk) - Corporate and Other net income in 2023 includes **$12.0 million** from New Energy, compared to $0.2 million in 2022 (which included a $5.7 million after-tax expense from purchase price accounting)[104](index=104&type=chunk) [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on ALLETE, Inc.'s financial condition and results of operations, offering a detailed comparison of performance for the quarter and nine months ended September 30, 2023, against the prior year, alongside discussions on critical accounting policies, future outlook, liquidity, and capital resources [Overview](index=32&type=section&id=Overview) This overview summarizes the company's financial performance and key drivers for the reporting period - Net income attributable to ALLETE for the nine months ended September 30, 2023, increased to **$195.6 million** (**$3.41 diluted EPS**) from $137.6 million ($2.48 diluted EPS) in 2022, driven by a **$40.5 million after-tax arbitration gain**, partially offset by low wind resources and interim rate reserves[111](index=111&type=chunk) - Regulated Operations net income decreased to **$112.4 million** in 9M 2023 from $119.4 million in 9M 2022, primarily due to interim rate refund reserves and higher expenses, partially offset by higher industrial sales and lower property tax[113](index=113&type=chunk) - ALLETE Clean Energy net income significantly increased to **$66.4 million** in 9M 2023 from $15.0 million in 9M 2022, largely due to a **$44.3 million after-tax arbitration gain** and Red Barn project sale gain, despite lower wind resources[113](index=113&type=chunk) - Corporate and Other net income increased to **$16.8 million** in 9M 2023 from $3.2 million in 9M 2022, reflecting higher earnings from New Energy due to more project closures and earnings from new Minnesota solar projects[114](index=114&type=chunk) [Comparison of the Quarter Ended September 30, 2023 and 2022](index=33&type=section&id=Comparison%20of%20the%20Quarter%20Ended%20September%2030%2C%202023%20and%202022) This section analyzes the company's financial results for the third quarter of 2023 compared to the same period in 2022 - Regulated Operations' Operating Revenue – Utility decreased by **$8.3 million** from 2022, mainly due to lower kWh sales and interim rate revenue, partially offset by higher fuel adjustment clause recoveries and cost recovery rider revenue[115](index=115&type=chunk) - Total regulated utility kWh sales decreased by **5.8%** (**183 million kWh**) in Q3 2023 compared to Q3 2022, primarily due to lower sales to other power suppliers, while industrial sales increased by **4.6%**[118](index=118&type=chunk) - ALLETE Clean Energy's Operating Revenue decreased by **$1.4 million** compared to 2022, primarily due to lower wind resources across most regions[125](index=125&type=chunk) - ALLETE Clean Energy's Other Income increased by **$65.0 million** from 2022, driven by a **$58.4 million gain** from a favorable arbitration ruling and **$5.1 million** in related interest income[128](index=128&type=chunk) - The consolidated effective tax rate was an expense of **21.7%** in Q3 2023, compared to a benefit of 36.7% in Q3 2022, due to higher pre-tax income and lower production tax credits[131](index=131&type=chunk) [Comparison of the Nine Months Ended September 30, 2023 and 2022](index=39&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030%2C%202023%20and%202022) This section analyzes the company's financial results for the nine months ended September 30, 2023, compared to the same period in 2022 - Regulated Operations' Operating Revenue – Utility decreased by **$41.2 million** from 2022, primarily due to lower kWh sales, fuel adjustment clause recoveries, and interim rate revenue, partially offset by higher cost recovery rider revenue[133](index=133&type=chunk) - Total regulated utility kWh sales decreased by **5.2%** (**518 million kWh**) in 9M 2023 compared to 9M 2022, mainly due to lower sales to residential, commercial, municipal, and other power suppliers, despite a **2.6% increase** in industrial sales[134](index=134&type=chunk)[135](index=135&type=chunk) - ALLETE Clean Energy's Operating Revenue increased by **$331.8 million** from 2022, primarily due to the sales of Northern Wind and Red Barn projects in 2023, partially offset by lower wind resources and availability[142](index=142&type=chunk) - ALLETE Clean Energy's Cost of Sales – Non-utility increased by **$328.1 million** from 2022, reflecting the sales of Northern Wind and Red Barn projects[145](index=145&type=chunk) - Corporate and Other Operating Revenue increased by **$41.6 million** (**35%**) from 2022, driven by higher revenue from New Energy (acquired April 2022) and BNI Energy[147](index=147&type=chunk) - The consolidated effective tax rate was an expense of **12.1%** in 9M 2023, compared to a benefit of 26.0% in 9M 2022, primarily due to higher pre-tax income and lower production tax credits[149](index=149&type=chunk) [Critical Accounting Policies](index=44&type=section&id=Critical%20Accounting%20Policies) This section discusses accounting policies requiring significant management judgment and estimates - Critical accounting policies involve management's judgment on subjective factors and estimates, including regulatory accounting, pension and postretirement actuarial assumptions, goodwill, impairment of long-lived assets, and taxation[150](index=150&type=chunk) [Outlook](index=44&type=section&id=Outlook) This section provides the company's future expectations, strategic objectives, and planned capital investments - ALLETE has a long-term objective of achieving consolidated earnings per share growth within a range of **5% to 7%**[151](index=151&type=chunk) - ALLETE expects net income from Regulated Operations to be approximately **60% of total consolidated net income** in 2023, reflecting the impact of ALLETE Clean Energy's arbitration award[152](index=152&type=chunk) - New Minnesota state law requires electric utilities to source retail sales with **100% carbon-free energy by 2040**, with interim targets including **80% carbon-free by 2030**[153](index=153&type=chunk) - Minnesota Power aims to be the leading electric energy provider in northeastern Minnesota, focusing on safe, reliable, and cost-competitive service, reducing reliance on coal, and achieving **100% carbon-free energy by 2050**[154](index=154&type=chunk) - Significant transmission investments are planned, including the Duluth Loop Reliability Project (**$50-70 million**, in service by 2025), HVDC Transmission System Project (**$800-900 million**, in service 2028-2030, with a **$50 million DOE grant**), Northland Reliability Project (**$970-1,350 million**, in service 2030), and Big Stone South Transmission Project (**$600-700 million**, in service 2027)[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk)[169](index=169&type=chunk) - ALLETE Clean Energy focuses on optimizing its clean energy project portfolio through recontracting, repowering, partnerships, divestitures, and new acquisitions/development of wind, solar, and energy storage projects across North America[170](index=170&type=chunk) - A forced outage at a substation near ALLETE Clean Energy's Caddo wind energy facility is expected to negatively impact results by approximately **$7.5 million pre-tax** through the remainder of 2023[171](index=171&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to meet its financial obligations and fund operations and investments - As of September 30, 2023, ALLETE's liquidity position included **$125.5 million** in cash and cash equivalents, **$370.1 million** in available consolidated lines of credit, **2.1 million common stock shares** available for issuance, and a debt-to-capital ratio of **35%**[173](index=173&type=chunk) Capital Structure (September 30, 2023) | Component | Amount ($ Millions) | Percentage | | :----------------------------- | :------------------ | :--------- | | ALLETE Equity | $2,786.6 | 53% | | Non-Controlling Interest | $610.1 | 12% | | Short-Term and Long-Term Debt | $1,805.5 | 35% | | Total | $5,202.2 | 100% | - For the nine months ended September 30, 2023, cash provided by operating activities was **$520.0 million**, cash used in investing activities was **$200.6 million**, and cash used in financing activities was **$228.4 million**[176](index=176&type=chunk) - ALLETE's credit ratings include Issuer Credit Rating of **BBB** (S&P Global Ratings) and **Baa1** (Moody's), Commercial Paper of **A-2** (S&P) and **P-2** (Moody's), and First Mortgage Bonds of **A2** (Moody's)[182](index=182&type=chunk) - Capital expenditures for the nine months ended September 30, 2023, totaled **$182.0 million**, primarily in Regulated Operations, plus **$26 million** for ALLETE Clean Energy's wind energy facility development projects[183](index=183&type=chunk) [Other](index=49&type=section&id=Other%20%28MD%26A%29) This section covers additional information pertinent to the company's operations, including environmental regulations and employee matters - The company's businesses are subject to various federal, state, and local environmental regulations, and Minnesota Power is actively reshaping its generation portfolio to reduce reliance on coal and comply with environmental requirements[184](index=184&type=chunk) - As of September 30, 2023, ALLETE had **1,556 employees**, with significant portions covered by collective bargaining agreements expiring between January 2024 and March 2026[185](index=185&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures about Market Risk](index=50&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section discusses ALLETE, Inc.'s exposure to market risks, including securities investments, commodity price risk, power marketing credit risk, and interest rate risk, and outlines the strategies employed to manage these exposures - Regulated utility operations' exposure to power and fuel price risk is significantly mitigated by ratemaking processes that allow recovery of fuel costs or distribution of savings to ratepayers[188](index=188&type=chunk) - The company is exposed to credit risk through power marketing activities and manages this using established credit approval processes and counterparty limits[189](index=189&type=chunk) - Interest rate risk is managed by varying issuance and maturity dates of fixed-rate debt, limiting variable-rate debt, and monitoring market changes; a **100 basis point increase** in interest rates would impact pre-tax interest expense by **$0.5 million** based on Q3 2023 variable rate debt[190](index=190&type=chunk) [ITEM 4. Controls and Procedures](index=51&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management, including the principal executive and financial officers, concluded that ALLETE, Inc.'s disclosure controls and procedures were effective as of September 30, 2023, and reported no material changes in internal control over financial reporting during the quarter - As of September 30, 2023, disclosure controls and procedures were deemed **effective** by management, including the CEO and CFO[192](index=192&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[193](index=193&type=chunk) [Part II. Other Information](index=51&type=section&id=Part%20II.%20Other%20Information) This part includes other required disclosures not covered in the financial information section, such as legal proceedings and risk factors [ITEM 1. Legal Proceedings](index=51&type=section&id=ITEM%201.%20Legal%20Proceedings) This section refers to disclosures in the notes to consolidated financial statements regarding material legal and regulatory proceedings, indicating no new material information beyond what is already incorporated by reference - Information on material legal and regulatory proceedings is incorporated by reference from Note 2 (Regulatory Matters) and Note 6 (Commitments, Guarantees and Contingencies) of the current 10-Q and the 2022 Form 10-K[194](index=194&type=chunk) [ITEM 1A. Risk Factors](index=51&type=section&id=ITEM%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in Part I, Item 1A. Risk Factors of the company's 2022 Form 10-K - No material changes from the risk factors disclosed in the 2022 Form 10-K[195](index=195&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item reports that there were no unregistered sales of equity securities or use of proceeds to disclose for the period - No unregistered sales of equity securities or use of proceeds to report[195](index=195&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=51&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) This item indicates that there were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[195](index=195&type=chunk) [ITEM 4. Mine Safety Disclosures](index=51&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) Information regarding mine safety violations and other regulatory matters, as required by the Dodd-Frank Act, is included in Exhibit 95 to this Form 10-Q - Information on mine safety violations is provided in Exhibit 95, as required by the Dodd-Frank Act[196](index=196&type=chunk) [ITEM 5. Other Information](index=51&type=section&id=ITEM%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended September 30, 2023 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q3 2023[197](index=197&type=chunk) [ITEM 6. Exhibits](index=52&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including amendments to credit agreements, certifications by executive officers, mine safety disclosures, news releases, and XBRL interactive data files - Key Exhibits include the Third Amendment to Credit Agreement (Exhibit 10), CEO/CFO Certifications (Exhibits 31a, 31b, 32), Mine Safety (Exhibit 95), and ALLETE News Release (Exhibit 99)[198](index=198&type=chunk) [Signatures](index=53&type=section&id=Signatures) This section contains the required certifications and signatures for the official filing of the report

Financial Performance - ALLETE reported second quarter 2023 results of $74 million[11] - The company is on track to achieve or slightly exceed $16 million - $17 million full year earnings[11] - Net income attributable to ALLETE in the second quarter of 2023 was $515 million, compared to $376 million in the second quarter of 2022[14] - Diluted earnings per share of common stock were $090 in the second quarter of 2023, compared to $067 in the second quarter of 2022[14] Strategic Initiatives - ALLETE is ranked 1 among investor-owned utilities for investment in renewable energy based on market capitalization[5] - Minnesota Power had 50% renewable energy supply at the end of 2020, with a goal of 70% by 2030[7] - Minnesota Power aims to be coal-free by 2035 and achieve 100% carbon-free vision by 2050[7] Project Pipeline - ALLETE Clean Energy has an established renewable platform of over 1500 MW[5] - ALLETE Clean Energy has closed 475 MW+ projects[13] - ALLETE Clean Energy has a development pipeline of >2 GW[13]

ALLETE, Inc. (NYSE:ALE) Q2 2023 Earnings Conference Call August 8, 2023 10:00 AM ET Company Participants Bethany Owen - Chair, CEO & President Steve Morris - CFO Jeff Scissons - Director of Corporate Development Conference Call Participants Richard Sunderland - JPMorgan Alex Mortimer - Mizuho Securities Brian Russo - Sidoti Operator Good day, and welcome to the ALLETE Second Quarter 2023 Financial Results Call. Today's call is being recorded. Certain statements contained in this conference call that ar ...

[Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) This section outlines the nature of forward-looking statements, emphasizing that actual results may differ due to risks and uncertainties - Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from expectations[5](index=5&type=chunk) - Key risk factors include the ability to implement strategic objectives, global and domestic economic conditions, regulatory changes, inflation, legal proceedings, weather, access to capital markets, interest rates, project delays, operating expenses, commodity prices, personnel retention, emerging technology, geopolitical events, cybersecurity, acquisition integration, population trends, wholesale power market conditions, and climate change impacts[6](index=6&type=chunk) [PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. Consolidated Financial Statements - Unaudited](index=6&type=section&id=ITEM%201.%20Consolidated%20Financial%20Statements%20-%20Unaudited) This section presents ALLETE's unaudited consolidated financial statements and detailed notes on operations, policies, and segments [Consolidated Balance Sheet](index=6&type=section&id=Consolidated%20Balance%20Sheet) Consolidated Balance Sheet Highlights (Millions USD) | Item | June 30, 2023 | Dec 31, 2022 | Change (2023 vs 2022) | | :------------------------ | :------------ | :----------- | :-------------------- | | Total Current Assets | $446.2 | $718.0 | $(271.8) | | Property, Plant & Equipment – Net | $4,973.9 | $5,004.0 | $(30.1) | | Total Assets | $6,567.9 | $6,845.6 | $(277.7) | | Total Current Liabilities | $380.3 | $716.2 | $(335.9) | | Total Liabilities | $3,199.4 | $3,497.3 | $(297.9) | | Total Equity | $3,368.5 | $3,348.3 | $20.2 | [Consolidated Statement of Income](index=7&type=section&id=Consolidated%20Statement%20of%20Income) Consolidated Statement of Income Highlights (Millions USD, Except Per Share) | Item | Q2 2023 | Q2 2022 | Change (QoQ) | 6M 2023 | 6M 2022 | Change (YoY) | | :---------------------------------- | :-------- | :-------- | :----------- | :---------- | :---------- | :----------- | | Total Operating Revenue | $533.4 | $373.1 | $160.3 | $1,098.3 | $756.6 | $341.7 | | Operating Income | $53.5 | $13.7 | $39.8 | $101.8 | $67.1 | $34.7 | | Net Income Attributable to ALLETE | $51.5 | $37.6 | $13.9 | $109.7 | $103.9 | $5.8 | | Basic Earnings Per Share of Common Stock | $0.90 | $0.67 | $0.23 | $1.91 | $1.89 | $0.02 | | Diluted Earnings Per Share of Common Stock | $0.90 | $0.67 | $0.23 | $1.91 | $1.89 | $0.02 | [Consolidated Statement of Comprehensive Income](index=8&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) Consolidated Statement of Comprehensive Income Highlights (Millions USD) | Item | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :---------------------------------------- | :------ | :------ | :------ | :------ | | Net Income | $40.7 | $20.8 | $78.3 | $67.3 | | Total Other Comprehensive Income (Loss) | $(0.1) | $0.1 | $— | $(0.1) | | Total Comprehensive Income | $40.6 | $20.9 | $78.3 | $67.2 | | Total Comprehensive Income Attributable to ALLETE | $51.4 | $37.7 | $109.7 | $103.8 | [Consolidated Statement of Cash Flows](index=9&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Consolidated Statement of Cash Flows Highlights (Millions USD) | Item | 6M 2023 | 6M 2022 | | :---------------------------------------- | :-------- | :-------- | | Cash provided by (used in) Operating Activities | $331.6 | $(7.9) | | Cash used in Investing Activities | $(131.3) | $(247.2) | | Cash provided by (used in) Financing Activities | $(189.4) | $289.1 | | Change in Cash, Cash Equivalents and Restricted Cash | $10.9 | $34.0 | | Cash, Cash Equivalents and Restricted Cash at End of Period | $51.1 | $81.7 | [Consolidated Statement of Equity](index=10&type=section&id=Consolidated%20Statement%20of%20Equity) Consolidated Statement of Equity Highlights (Millions USD, Except Per Share) | Item | 6M 2023 | 6M 2022 | | :----------------------------------------- | :-------- | :-------- | | Common Stock Balance, End of Period | $1,791.6 | $1,771.7 | | Retained Earnings Balance, End of Period | $966.9 | $932.6 | | Non-Controlling Interest in Subsidiaries Balance, End of Period | $634.4 | $678.5 | | Total Equity | $3,368.5 | $3,358.9 | | Dividends Per Share of Common Stock | $1.355 | $1.30 | [Note 1. Operations and Significant Accounting Policies](index=11&type=section&id=Note%201.%20Operations%20and%20Significant%20Accounting%20Policies) Cash, Cash Equivalents and Restricted Cash (Millions USD) | Item | June 30, 2023 | Dec 31, 2022 | | :---------------------------------------------------------------- | :------------ | :----------- | | Cash and Cash Equivalents | $47.9 | $36.4 | | Restricted Cash included in Prepayments and Other | $0.8 | $1.5 | | Restricted Cash included in Other Non-Current Assets | $2.4 | $2.3 | | Cash, Cash Equivalents and Restricted Cash on the Consolidated Statement of Cash Flows | $51.1 | $40.2 | Inventories – Net (Millions USD) | Item | June 30, 2023 | Dec 31, 2022 | | :------------------------------------ | :------------ | :----------- | | Fuel | $37.7 | $33.4 | | Materials and Supplies | $122.3 | $75.1 | | Renewable Energy Facilities Under Development | $34.3 | $347.4 | | Total Inventories – Net | $194.3 | $455.9 | - Goodwill remained stable at **$154.9 million** as of June 30, 2023, with no changes by reportable segment[20](index=20&type=chunk) Other Non-Current Assets (Millions USD) | Item | June 30, 2023 | Dec 31, 2022 | | :---------------------------------- | :------------ | :----------- | | Contract Assets | $19.7 | $21.0 | | Operating Lease Right-of-use Assets | $11.1 | $12.7 | | ALLETE Properties | $19.4 | $19.1 | | Restricted Cash | $2.4 | $2.3 | | Other Postretirement Benefit Plans | $60.4 | $58.8 | | Other | $97.3 | $90.4 | | Total Other Non-Current Assets | $210.3 | $204.3 | Other Current Liabilities (Millions USD) | Item | June 30, 2023 | Dec 31, 2022 | | :---------------------------------- | :------------ | :----------- | | Customer Deposits | $9.6 | $150.7 | | PSAs | $6.0 | $6.1 | | Provision for Interim Rate Refund | $31.8 | $18.4 | | Manufactured Gas Plant | $9.1 | $14.7 | | Operating Lease Liabilities | $3.0 | $3.2 | | Other | $53.1 | $57.9 | | Total Other Current Liabilities | $112.6 | $251.0 | Other Non-Current Liabilities (Millions USD) | Item | June 30, 2023 | Dec 31, 2022 | | :---------------------------------- | :------------ | :----------- | | Asset Retirement Obligation | $203.6 | $200.4 | | PSAs | $23.9 | $26.9 | | Operating Lease Liabilities | $8.1 | $9.3 | | Other | $32.4 | $32.4 | | Total Other Non-Current Liabilities | $268.0 | $269.0 | [Note 2. Regulatory Matters](index=14&type=section&id=Note%202.%20Regulatory%20Matters) - Minnesota Power's 2022 General Rate Case resulted in an MPUC order allowing a **9.65% return on common equity** and a **52.50% equity ratio**, expected to generate approximately **$70 million** in additional annualized revenue (**$60M base rates**, **$10M cost recovery riders**)[31](index=31&type=chunk) - Minnesota Power recorded a pre-tax interim rate refund reserve of **$31.8 million** as of June 30, 2023, subject to MPUC approval[32](index=32&type=chunk) - Minnesota Power appealed specific aspects of the MPUC's rate case orders to the Minnesota Court of Appeals, challenging the ratemaking treatment of Taconite Harbor and its prepaid pension asset[32](index=32&type=chunk) - A regulatory liability of **$17.8 million** was recognized as of June 30, 2023, due to lower fuel and purchased power costs in 2023 compared to forecast[34](index=34&type=chunk) - Minnesota Power recognized **$2.2 million** in revenue for the approved 2022 Energy Conservation and Optimization (ECO) financial incentive in Q3 2023[35](index=35&type=chunk) Regulatory Assets and Liabilities (Millions USD) | Item | June 30, 2023 | Dec 31, 2022 | | :----------------------------------------- | :------------ | :----------- | | Total Current Regulatory Assets | $15.7 | $25.6 | | Total Non-Current Regulatory Assets | $454.5 | $441.0 | | Total Current Regulatory Liabilities | $36.4 | $23.4 | | Total Non-Current Regulatory Liabilities | $538.0 | $526.1 | [Note 3. Equity Investments](index=16&type=section&id=Note%203.%20Equity%20Investments) ALLETE's Investment in ATC (Millions USD) | Item | Amount | | :----------------------------------------- | :----------- | | Equity Investment Balance as of Dec 31, 2022 | $165.4 | | Cash Investments | $4.3 | | Equity in ATC Earnings | $11.6 | | Distributed ATC Earnings | $(9.3) | | Amortization of the Remeasurement of Deferred Income Taxes | $0.7 | | Equity Investment Balance as of June 30, 2023 | $172.7 | - ATC's authorized return on equity (ROE) of **10.02%** (**10.52%** with incentive adder) is subject to legal challenges and FERC reconsideration, with a potential reduction of **$1 million** pre-tax annually if the incentive adder is limited[40](index=40&type=chunk)[41](index=41&type=chunk) ALLETE's Investment in Nobles 2 (Millions USD) | Item | Amount | | :----------------------------------------- | :----------- | | Equity Investment Balance as of Dec 31, 2022 | $157.3 | | Equity in Nobles 2 Earnings | $(0.2) | | Distributed Nobles 2 Earnings | $(2.3) | | Equity Investment Balance as of June 30, 2023 | $154.8 | [Note 4. Fair Value](index=16&type=section&id=Note%204.%20Fair%20Value) Recurring Fair Value Measures – Assets (Millions USD) | Item | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------------------------- | :------ | :------ | :------ | :---- | | **June 30, 2023** | | | | | | Available-for-sale – Equity Securities | $8.4 | — | — | $8.4 | | Available-for-sale – Corporate and Governmental Debt Securities | — | $5.7 | — | $5.7 | | Cash Equivalents | $5.8 | — | — | $5.8 | | Total Fair Value of Assets | $14.2 | $5.7 | — | $19.9 | | **December 31, 2022** | | | | | | Available-for-sale – Equity Securities | $7.7 | — | — | $7.7 | | Available-for-sale – Corporate and Governmental Debt Securities | — | $5.7 | — | $5.7 | | Cash Equivalents | $4.2 | — | — | $4.2 | | Total Fair Value of Assets | $11.9 | $5.7 | — | $17.6 | Recurring Fair Value Measures – Liabilities (Millions USD) | Item | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------------------------- | :------ | :------ | :------ | :---- | | **June 30, 2023** | | | | | | Deferred Compensation | — | $16.2 | — | $16.2 | | Total Fair Value of Liabilities | — | $16.2 | — | $16.2 | | **December 31, 2022** | | | | | | Deferred Compensation | — | $15.0 | — | $15.0 | | Total Fair Value of Liabilities | — | $15.0 | — | $15.0 | Fair Value of Financial Instruments (Millions USD) | Item | Carrying Amount | Fair Value | | :---------------------------------- | :-------------- | :--------- | | **June 30, 2023** | | | | Short-Term and Long-Term Debt | $1,801.3 | $1,647.9 | | **December 31, 2022** | | | | Short-Term and Long-Term Debt | $1,929.1 | $1,782.7 | [Note 5. Short-Term and Long-Term Debt](index=19&type=section&id=Note%205.%20Short-Term%20and%20Long-Term%20Debt) Short-Term and Long-Term Debt (Millions USD) | Item | June 30, 2023 (Principal) | June 30, 2023 (Total) | Dec 31, 2022 (Principal) | Dec 31, 2022 (Total) | | :---------------- | :------------------------ | :-------------------- | :----------------------- | :------------------- | | Short-Term Debt | $106.8 | $106.7 | $272.7 | $272.6 | | Long-Term Debt | $1,694.5 | $1,685.9 | $1,656.4 | $1,648.2 | | Total Debt | $1,801.3 | $1,792.6 | $1,929.1 | $1,920.8 | - ALLETE issued **$125 million** of First Mortgage Bonds in April 2023, bearing **4.98% interest** and maturing in April 2033, to refinance existing debt and for general corporate purposes[52](index=52&type=chunk) - As of June 30, 2023, ALLETE's ratio of indebtedness to total capitalization was approximately **0.37 to 1.00**, well within the covenant limit of **0.65 to 1.00**[53](index=53&type=chunk) [Note 6. Commitments, Guarantees and Contingencies](index=19&type=section&id=Note%206.%20Commitments%2C%20Guarantees%20and%20Contingencies) - Minnesota Power's cost of power purchased from Square Butte was **$44.0 million** for the six months ended June 30, 2023, up from **$41.0 million** in 2022[55](index=55&type=chunk) - Minnesota Power sold approximately **37%** of its **50%** output entitlement from Square Butte to Minnkota Power in 2023, with its share to be eliminated by the end of 2025[56](index=56&type=chunk) - The EPA's new Good Neighbor Plan, published June 5, 2023, aims to reduce NOX emissions for regional ozone transport, potentially imposing compliance obligations on Minnesota Power, though a stay was granted on July 5, 2023, preventing immediate effect in Minnesota[63](index=63&type=chunk) - The EPA's proposed GHG emissions regulations under Section 111 of the Clean Air Act could apply to several Company assets, including existing EGUs and proposed natural gas-fired facilities, with potential material compliance costs[67](index=67&type=chunk) - Minnesota Power estimates compliance costs for Coal Combustion Residuals (CCR) at Boswell and Laskin to be between **$65 million** and **$120 million** over the next 12 years[76](index=76&type=chunk) - As of June 30, 2023, ALLETE had **$161.9 million** in outstanding letters of credit and BNI Energy had **$82.4 million** in surety bonds related to reclamation liability[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) [Note 7. Earnings Per Share and Common Stock](index=25&type=section&id=Note%207.%20Earnings%20Per%20Share%20and%20Common%20Stock) Reconciliation of Basic and Diluted Earnings Per Share (Millions Except Per Share Amounts) | Item | Q2 2023 (Basic) | Q2 2023 (Diluted) | Q2 2022 (Basic) | Q2 2022 (Diluted) | 6M 2023 (Basic) | 6M 2023 (Diluted) | 6M 2022 (Basic) | 6M 2022 (Diluted) | | :---------------------------------- | :-------------- | :---------------- | :-------------- | :---------------- | :-------------- | :---------------- | :-------------- | :---------------- | | Net Income Attributable to ALLETE | $51.5 | $51.5 | $37.6 | $37.6 | $109.7 | $109.7 | $103.9 | $103.9 | | Average Common Shares | 57.3 | 57.4 | 56.1 | 56.1 | 57.3 | 57.4 | 54.9 | 54.9 | | Earnings Per Share | $0.90 | $0.90 | $0.67 | $0.67 | $1.91 | $1.91 | $1.89 | $1.89 | [Note 8. Income Tax Expense](index=26&type=section&id=Note%208.%20Income%20Tax%20Expense) Income Tax Expense (Benefit) (Millions USD) | Item | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :---------------------------------- | :------ | :------ | :------ | :------ | | Current Income Tax Expense – Federal | $3.0 | $— | $8.6 | $— | | Current Income Tax Expense – State | $3.2 | $— | $5.4 | $0.1 | | Total Current Income Tax Expense | $6.2 | $— | $14.0 | $0.1 | | Deferred Income Tax Benefit – Federal | $(7.8) | $(3.7) | $(16.1) | $(12.3) | | Deferred Income Tax Benefit – State | $1.3 | $(4.5) | $3.4 | $0.3 | | Investment Tax Credit Amortization | $(0.1) | $(0.1) | $(0.2) | $(0.3) | | Total Deferred Income Tax Benefit | $(6.6) | $(8.3) | $(12.9) | $(12.3) | | Total Income Tax Expense (Benefit) | $(0.4) | $(8.3) | $1.1 | $(12.2) | Reconciliation of Taxes from Federal Statutory Rate to Total Income Tax Expense (Millions USD) | Item | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :----------------------------------------- | :------ | :------ | :------ | :------ | | Income Before Income Taxes | $40.3 | $12.5 | $79.4 | $55.1 | | Statutory Federal Income Tax Rate | 21% | 21% | 21% | 21% | | Income Taxes Computed at Statutory Federal Rate | $8.5 | $2.6 | $16.7 | $11.6 | | State Income Taxes – Net of Federal Income Tax Benefit | $3.6 | $1.6 | $7.0 | $5.5 | | Production Tax Credits | $(10.2) | $(7.1) | $(20.6) | $(24.7) | | Investment Tax Credits | $(1.4) | $— | $(3.6) | $— | | Non-Controlling Interest in Subsidiaries | $2.1 | $3.2 | $5.9 | $7.0 | | Total Income Tax Expense (Benefit) | $(0.4) | $(8.3) | $1.1 | $(12.2) | - The effective tax rate for the six months ended June 30, 2023, was an expense of **1.4%**, compared to a benefit of **22.1%** in 2022, primarily due to lower production tax credits[92](index=92&type=chunk) [Note 9. Pension and Other Postretirement Benefit Plans](index=29&type=section&id=Note%209.%20Pension%20and%20Other%20Postretirement%20Benefit%20Plans) Components of Net Periodic Benefit Cost (Credit) (Millions USD) | Item | Q2 2023 (Pension) | Q2 2022 (Pension) | Q2 2023 (Other Postretirement) | Q2 2022 (Other Postretirement) | | :---------------------------------- | :---------------- | :---------------- | :----------------------------- | :----------------------------- | | Service Cost | $1.6 | $2.4 | $0.5 | $0.7 | | Non-Service Cost Components | | | | | | Interest Cost | $10.1 | $6.8 | $1.5 | $1.1 | | Expected Return on Plan Assets | $(11.0) | $(10.3) | $(2.8) | $(2.4) | | Amortization of Prior Service Credits | $— | $(0.1) | $(1.7) | $(1.9) | | Amortization of Net Loss | $1.5 | $2.6 | $(0.6) | $0.1 | | Net Periodic Benefit Cost (Credit) | $2.2 | $1.4 | $(3.1) | $(2.4) | - ALLETE contributed **$6.5 million** in cash to defined benefit pension plans for the six months ended June 30, 2023, and expects to contribute an additional **$10 million** in 2023[97](index=97&type=chunk) [Note 10. Business Segments](index=29&type=section&id=Note%2010.%20Business%20Segments) Operating Revenue by Segment (Millions USD) | Segment | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :---------------------- | :------ | :------ | :-------- | :-------- | | Regulated Operations | $292.2 | $308.7 | $604.8 | $637.7 | | ALLETE Clean Energy | $181.1 | $21.2 | $382.6 | $49.4 | | Corporate and Other | $60.1 | $43.2 | $110.9 | $69.5 | | Total Operating Revenue | $533.4 | $373.1 | $1,098.3 | $756.6 | Net Income Attributable to ALLETE by Segment (Millions USD) | Segment | Q2 2023 | Q2 2022 | 6M 2023 | 6M 2022 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Regulated Operations | $37.8 | $29.6 | $78.4 | $81.1 | | ALLETE Clean Energy | $3.1 | $5.8 | $11.6 | $22.3 | | Corporate and Other | $10.6 | $2.2 | $19.7 | $0.5 | | Total Net Income Attributable to ALLETE | $51.5 | $37.6 | $109.7 | $103.9 | Assets by Segment (Millions USD) | Segment | June 30, 2023 | Dec 31, 2022 | | :---------------------- | :------------ | :----------- | | Regulated Operations | $4,259.8 | $4,291.4 | | ALLETE Clean Energy | $1,557.9 | $1,873.3 | | Corporate and Other | $750.2 | $680.9 | | Total Assets | $6,567.9 | $6,845.6 | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=ITEM%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses ALLETE's financial condition and results, comparing performance for Q2 and 6M 2023, outlining policies, outlook, and liquidity [Overview](index=31&type=section&id=OVERVIEW) - Net income attributable to ALLETE for the six months ended June 30, 2023, was **$109.7 million** (**$1.91 per diluted share**), up from **$103.9 million** (**$1.89 per diluted share**) in 2022[108](index=108&type=chunk) - Regulated Operations net income decreased to **$78.4 million** (6M 2023) from **$81.1 million** (6M 2022), primarily due to interim rate refund reserves and higher operating expenses, partially offset by higher industrial sales and lower property tax[109](index=109&type=chunk) - ALLETE Clean Energy net income decreased to **$11.6 million** (6M 2023) from **$22.3 million** (6M 2022), driven by lower wind resources and availability, partially offset by a gain on the Red Barn project sale[111](index=111&type=chunk) - Corporate and Other net income significantly increased to **$19.7 million** (6M 2023) from **$0.5 million** (6M 2022), mainly due to higher earnings from New Energy's renewable development projects and Minnesota solar projects[112](index=112&type=chunk) [Comparison of the Quarter Ended June 30, 2023 and 2022](index=32&type=section&id=COMPARISON%20OF%20THE%20QUARTER%20ENDED%20JUNE%2030%2C%202023%20AND%202022) Regulated Operations - Q2 Financial Highlights (Millions USD) | Item | Q2 2023 | Q2 2022 | Change | | :---------------------------------- | :------ | :------ | :----- | | Operating Revenue – Utility | $292.2 | $308.7 | $(16.5) | | Fuel, Purchased Power and Gas – Utility | $107.6 | $143.2 | $(35.6) | | Operating and Maintenance | $61.5 | $57.1 | $4.4 | | Taxes Other than Income Taxes | $5.6 | $11.9 | $(6.3) | | Net Income Attributable to ALLETE | $37.8 | $29.6 | $8.2 | - Regulated Operations utility revenue decreased by **$16.5 million**, primarily due to lower fuel adjustment clause recoveries (**$25.7M decrease**) and interim rate revenue (**$6.6M decrease**), partially offset by higher cost recovery rider revenue (**$9.8M increase**) and industrial kWh sales (**$3.9M increase**)[113](index=113&type=chunk)[115](index=115&type=chunk) Regulated Utility Kilowatt-hours Sold (Millions kWh) - Q2 | Customer Type | Q2 2023 | Q2 2022 | Variance Quantity | % Change | | :------------------------ | :------ | :------ | :---------------- | :------- | | Residential | 241 | 245 | (4) | (1.6)% | | Commercial | 320 | 314 | 6 | 1.9% | | Industrial | 1,778 | 1,616 | 162 | 10.0% | | Municipal | 110 | 131 | (21) | (16.0)% | | Total Retail and Municipal | 2,449 | 2,306 | 143 | 6.2% | | Other Power Suppliers | 786 | 794 | (8) | (1.0)% | | Total Regulated Utility | 3,235 | 3,100 | 135 | 4.4% | - ALLETE Clean Energy operating revenue increased by **$159.9 million**, primarily due to the sale of the Red Barn project in 2023, despite lower wind resources and availability[119](index=119&type=chunk) ALLETE Clean Energy - Q2 Production and Operating Revenue (Millions) | Wind Energy Regions | Q2 2023 kWh | Q2 2023 Revenue | Q2 2022 kWh | Q2 2022 Revenue | | :------------------ | :---------- | :-------------- | :---------- | :-------------- | | East | 41.8 | $4.5 | 58.0 | $5.2 | | Midwest | 148.7 | $4.6 | 203.5 | $7.3 | | South | 377.7 | $2.5 | 574.8 | $3.9 | | West | 156.0 | $2.9 | 214.4 | $4.8 | | Sale of Wind Energy Facility | — | $166.6 | — | — | | Total | 724.2 | $181.1 | 1,050.7 | $21.2 | - Corporate and Other net income increased to **$10.6 million** (Q2 2023) from **$2.2 million** (Q2 2022), driven by higher earnings from New Energy's renewable development project sales and fewer impacts from purchase price accounting[126](index=126&type=chunk) - Consolidated income tax effective rate was a benefit of **1.0%** for Q2 2023, compared to a benefit of **66.4%** for Q2 2022, primarily due to higher pre-tax income and lower production tax credits[127](index=127&type=chunk) [Comparison of the Six Months Ended June 30, 2023 and 2022](index=37&type=section&id=COMPARISON%20OF%20THE%20SIX%20MONTHS%20ENDED%20JUNE%2030%2C%202023%20AND%202022) Regulated Operations - 6M Financial Highlights (Millions USD) | Item | 6M 2023 | 6M 2022 | Change | | :---------------------------------- | :------ | :------ | :----- | | Operating Revenue – Utility | $604.8 | $637.7 | $(32.9) | | Fuel, Purchased Power and Gas – Utility | $226.2 | $280.6 | $(54.4) | | Operating and Maintenance | $123.4 | $115.5 | $7.9 | | Taxes Other than Income Taxes | $21.5 | $27.1 | $(5.6) | | Net Income Attributable to ALLETE | $78.4 | $81.1 | $(2.7) | | Income Tax Expense (Benefit) | $7.6 | $(4.8) | $12.4 | - Regulated Operations utility revenue decreased by **$32.9 million**, mainly due to lower fuel adjustment clause recoveries (**$30.4M decrease**), lower kWh sales (**$16.0M decrease**) from milder weather and municipal contract reclassification, and interim rate revenue (**$13.2M decrease**), partially offset by higher cost recovery rider revenue (**$19.6M increase**)[129](index=129&type=chunk)[131](index=131&type=chunk)[133](index=133&type=chunk) Regulated Utility Kilowatt-hours Sold (Millions kWh) - 6M | Customer Type | 6M 2023 | 6M 2022 | Variance Quantity | % Change | | :------------------------ | :------ | :------ | :---------------- | :------- | | Residential | 562 | 600 | (38) | (6.3)% | | Commercial | 667 | 674 | (7) | (1.0)% | | Industrial | 3,436 | 3,382 | 54 | 1.6% | | Municipal | 238 | 289 | (51) | (17.6)% | | Total Retail and Municipal | 4,903 | 4,945 | (42) | (0.8)% | | Other Power Suppliers | 1,482 | 1,775 | (293) | (16.5)% | | Total Regulated Utility | 6,385 | 6,720 | (335) | (5.0)% | ALLETE Clean Energy - 6M Financial Highlights (Millions USD) | Item | 6M 2023 | 6M 2022 | Change | | :---------------------------------- | :------ | :------ | :----- | | Operating Revenue | $382.6 | $49.4 | $333.2 | | Cost of Sales – Non-utility | $342.3 | $10.2 | $332.1 | | Operating and Maintenance | $28.6 | $23.9 | $4.7 | | Net Income Attributable to ALLETE | $11.6 | $22.3 | $(10.7) | | Net Loss Attributable to Non-Controlling Interest | $(25.5) | $(30.4) | $4.9 | - ALLETE Clean Energy operating revenue increased by **$333.2 million**, primarily due to the sales of Northern Wind and Red Barn projects in 2023, despite lower wind resources and availability[138](index=138&type=chunk) ALLETE Clean Energy - 6M Production and Operating Revenue (Millions) | Wind Energy Regions | 6M 2023 kWh | 6M 2023 Revenue | 6M 2022 kWh | 6M 2022 Revenue | | :------------------ | :---------- | :-------------- | :---------- | :-------------- | | East | 121.2 | $11.9 | 145.3 | $13.2 | | Midwest | 303.9 | $9.5 | 491.1 | $16.9 | | South | 996.6 | $5.9 | 1,177.7 | $8.5 | | West | 353.1 | $6.9 | 472.7 | $10.8 | | Sale of Wind Energy Facility | — | $348.4 | — | — | | Total | 1,774.8 | $382.6 | 2,286.8 | $49.4 | - Corporate and Other operating revenue increased by **$41.4 million**, reflecting higher revenue from New Energy (acquired April 2022) and BNI Energy due to higher expenses[142](index=142&type=chunk) - Corporate and Other net income increased to **$19.7 million** (6M 2023) from **$0.5 million** (6M 2022), driven by higher earnings from New Energy's renewable development project sales and Minnesota solar projects, with fewer impacts from purchase price accounting[143](index=143&type=chunk) - Consolidated income tax effective rate was an expense of **1.4%** for 6M 2023, compared to a benefit of **22.1%** for 6M 2022, primarily due to higher pre-tax income and lower production tax credits[144](index=144&type=chunk) [Critical Accounting Policies](index=44&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) - Critical accounting policies include regulatory accounting, pension and postretirement health and life actuarial assumptions, goodwill, impairment of long-lived assets, and taxation[145](index=145&type=chunk) [Outlook](index=44&type=section&id=OUTLOOK) - ALLETE aims for consolidated earnings per share growth of **5% to 7%** and expects Regulated Operations to contribute approximately **75%** of total consolidated net income in 2023[146](index=146&type=chunk)[147](index=147&type=chunk) - Minnesota legislation requires electric utilities to source **100% carbon-free energy by 2040**, with interim targets of **80% by 2030** and **90% by 2035**[148](index=148&type=chunk) - Minnesota Power plans to file its next rate case in Q4 2023 and continues to reshape its generation portfolio to reduce reliance on coal, aiming for **100% carbon-free energy by 2050**[149](index=149&type=chunk) - Industrial customers account for approximately **54%** of regulated utility kWh sales for the six months ended June 30, 2023[153](index=153&type=chunk) - Key industrial customer updates include Northshore Mining resuming partial pellet plant production in April 2023, USS Corporation investing **$150 million** for DR-grade pellets at Keetac, Hibbing Taconite securing mineral leases for over two decades of reserves, ST Paper becoming a large power customer in early 2023, and Cenovus Energy's refinery expected to resume normal operations in 2023[154](index=154&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - Major transmission projects include the Duluth Loop Reliability Project (expected completion 2025, **$50M-$70M**), HVDC Transmission System Project (expected in-service 2028-2030, **$800M-$900M**), and Northland Reliability Project (expected in-service 2030, **~$970M estimated share**)[159](index=159&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk) - ALLETE Clean Energy's strategy focuses on optimizing its clean energy portfolio through acquisitions, development, recontracting, repowering, partnerships, and divestitures, including the sale of the Red Barn wind project in Q2 2023 for approximately **$160 million** cash proceeds and a **$4.3 million** after-tax gain[162](index=162&type=chunk)[163](index=163&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) - As of June 30, 2023, ALLETE had **$47.9 million** in cash and cash equivalents, **$421.0 million** in available consolidated lines of credit, **2.1 million** common stock shares available for issuance, and a debt-to-capital ratio of **35%**[165](index=165&type=chunk) Capital Structure (Millions USD) | Item | June 30, 2023 | % | Dec 31, 2022 | % | | :--------------------------------- | :------------ | :-- | :----------- | :-- | | ALLETE Equity | $2,734.1 | 53 | $2,691.9 | 51 | | Non-Controlling Interest in Subsidiaries | $634.4 | 12 | $656.4 | 12 | | Short-Term and Long-Term Debt | $1,801.3 | 35 | $1,929.1 | 37 | | Total | $5,169.8 | 100 | $5,277.4 | 100 | Cash Flows (Millions USD) - 6M | Item | 6M 2023 | | :---------------------------------------- | :-------- | | Cash provided by (used in) Operating Activities | $331.6 | | Cash used in Investing Activities | $(131.3) | | Cash provided by (used in) Financing Activities | $(189.4) | | Change in Cash, Cash Equivalents and Restricted Cash | $10.9 | - Cash provided by operating activities was higher in 2023 due to proceeds from sales of ALLETE Clean Energy's Northern Wind and Red Barn projects and lower inventory payments[167](index=167&type=chunk) Credit Ratings | | S&P Global Ratings | Moody's | | :----------------------- | :----------------- | :------ | | Issuer Credit Rating | BBB | Baa1 | | Commercial Paper | A-2 | P-2 | | First Mortgage Bonds | (a) | A2 | - Capital expenditures totaled **$110.6 million** for the six months ended June 30, 2023, primarily in Regulated Operations, plus **$25 million** for ALLETE Clean Energy's wind energy facility development[173](index=173&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures about Market Risk](index=49&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details ALLETE's exposure to market risks from securities, commodity prices, and interest rates, outlining risk management strategies - Available-for-sale securities primarily fund employee benefits in other postretirement plans[178](index=178&type=chunk) - Commodity price risk for utility operations (power, fuel, natural gas) is significantly mitigated by ratemaking processes that allow recovery of costs or distribution of savings to ratepayers[179](index=179&type=chunk) - Credit risk from power marketing activities is managed through established credit approval processes and monitoring counterparty limits[180](index=180&type=chunk) - An increase of **100 basis points** in interest rates would impact pre-tax interest expense by **$0.4 million**, based on variable rate debt outstanding as of June 30, 2023[182](index=182&type=chunk) [ITEM 4. Controls and Procedures](index=51&type=section&id=ITEM%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of ALLETE's disclosure controls and procedures, with no material changes in internal control over financial reporting - ALLETE's disclosure controls and procedures were deemed effective as of June 30, 2023[183](index=183&type=chunk) - There have been no material changes in internal control over financial reporting during the most recent fiscal quarter[184](index=184&type=chunk) [PART II. OTHER INFORMATION](index=51&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. Legal Proceedings](index=51&type=section&id=ITEM%201.%20Legal%20Proceedings) This section refers to other notes for detailed information on material legal and regulatory proceedings - Information on material legal and regulatory proceedings is incorporated by reference from Note 2. Regulatory Matters and Note 6. Commitments, Guarantees and Contingencies[185](index=185&type=chunk) [ITEM 1A. Risk Factors](index=51&type=section&id=ITEM%201A.%20Risk%20Factors) This section states no material changes to risk factors previously disclosed in the company's 2022 Form 10-K - No material changes from the risk factors disclosed in Part I, Item 1A. Risk Factors of the 2022 Form 10-K[186](index=186&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities during the period - No unregistered sales of equity securities and use of proceeds[186](index=186&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=51&type=section&id=ITEM%203.%20Defaults%20Upon%20Senior%20Securities) This section reports no defaults upon senior securities during the period - No defaults upon senior securities[186](index=186&type=chunk) [ITEM 4. Mine Safety Disclosures](index=52&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This section indicates mine safety violation information is provided in Exhibit 95, as required by the Dodd-Frank Act - Mine safety disclosures are included in Exhibit 95 to this Form 10-Q[187](index=187&type=chunk) [ITEM 5. Other Information](index=52&type=section&id=ITEM%205.%20Other%20Information) This section updates on Board decisions regarding shareholder advisory votes on executive compensation and confirms no changes in trading plans - The Board of Directors determined to hold future non-binding shareholder advisory votes on executive compensation on an annual basis[188](index=188&type=chunk) - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2023[188](index=188&type=chunk) [ITEM 6. Exhibits](index=52&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including indentures, certifications, and XBRL data - Key exhibits include the Forty-Fourth Supplemental Indenture, Rule 13a-14(a)/15d-14(a) Certifications by CEO and CFO, Section 1350 Certification, Mine Safety disclosures, ALLETE News Release, and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation documents[190](index=190&type=chunk) [Signatures](index=53&type=section&id=SIGNATURES) This section contains the formal signatures of authorized officers, certifying the Form 10-Q report submission - The report was signed by Steven W. Morris, Senior Vice President and Chief Financial Officer, on August 8, 2023[191](index=191&type=chunk)

ALLETE, Inc. (NYSE:ALE) Q1 2023 Earnings Conference Call May 3, 2023 10:00 AM ET Company Participants Bethany Owen - Chair, President, and Chief Executive Officer Steve Morris - Senior Vice President and Chief Financial Officer Frank Frederickson - Minnesota Power's Vice President of Customer Experience and Engineering Services Jeff Scissons - ALLETE Clean Energy's Chief Financial and Strategy Officer Conference Call Participants Richard Sunderland - J.P. Morgan Dariusz Lozny - Bank of America Brian Russo - ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2023 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to ______________ Commission File Number 1-3548 ALLETE, Inc. (Exact name of registrant as specified in its charter) Minnesota 41-0418150 (State ...

ALLETE, Inc. (NYSE:ALE) Q4 2022 Earnings Conference Call February 16, 2023 10:00 AM ET Company Representatives Bethany Owen - Chair, President & CEO Steve Morris - Senior Vice President, Chief Financial Officer Frank Frederickson - Minnesota Power's Vice President of Customer Experience and Engineering Services Jeff Scissons - ALLETE Clean Energy's Chief Financial and Strategy Officer Conference Call Participants Richard Sunderland - J.P. Morgan Brian Russo - Sidoti Alex Mortimer - Mizuho Operator Good day, ...

United States Securities and Exchange Commission Washington, D.C. 20549 Form 10-K (Mark One) ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the year ended December 31, 2022 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to ______________ Commission File Number 1-3548 ALLETE, Inc. (Exact name of registrant as specified in its charter) Minnesota 41-0418150 (State or other juris ...

Financial Data and Key Metrics Changes - ALLETE reported Q3 2022 earnings of $0.59 per share, compared to $0.53 per share in Q3 2021, reflecting a net income increase from $27.6 million to $33.7 million [4][16] - The regulated operations segment net income increased to $38.3 million from $32.9 million year-over-year, primarily due to interim rate revenue at Minnesota Power [17] - ALLETE Clean Energy recorded a net loss of $7.3 million in Q3 2022, compared to a net loss of $800,000 in Q3 2021, impacted by a reserve for the Northern Wind project and market volatility [18] Business Line Data and Key Metrics Changes - The regulated operations segment saw higher earnings due to interim rates, but was partially offset by lower retail sales and higher costs from a purchase power agreement [17] - ALLETE Clean Energy's losses were attributed to congestion issues and lower wind resources compared to the previous year [18] - Corporate and Other businesses, including New Energy, reported net income of $2.7 million, a recovery from a net loss of $4.5 million in 2021, driven by higher earnings from the Nobles 2 wind energy facility [19] Market Data and Key Metrics Changes - Minnesota Power's proposed agreement aims to significantly increase renewable energy supply, adding up to 400 megawatts of wind and 300 megawatts of solar energy over the next 15 years [5][6] - The Inflation Reduction Act is expected to benefit ALLETE's businesses by providing new investment options and improving cash flow through tax credit monetization [10][11] Company Strategy and Development Direction - ALLETE's strategy focuses on sustainability, with a commitment to providing 100% carbon-free energy by 2050 [7] - The company plans significant capital investments, estimating approximately $2.7 billion through 2027 for clean energy projects and transmission upgrades [22] - ALLETE aims to leverage its geographical position to advance interregional transmission projects that support reliability and clean energy transformation [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the midpoint of the earnings guidance range of $3.60 to $3.90 per share for the full year [4][20] - The company anticipates strong fourth-quarter earnings driven by New Energy's project pipeline and favorable performance in regulated operations [20] - Management highlighted the importance of the upcoming decision on Minnesota Power's integrated resource plan, which could influence future capital expenditure plans [39] Other Important Information - ALLETE's financial position is supported by a strong balance sheet, with cash and cash equivalents of $42 million and a debt-to-capital ratio of 37% as of September 30, 2022 [23] - The company is actively addressing congestion issues at its Caddo wind energy facility and is focused on infrastructure upgrades to mitigate these challenges [14][65] Q&A Session Summary Question: Insights on fourth-quarter expectations - Management indicated that fourth-quarter earnings will benefit from contributions from New Energy, higher earnings from Nobles, and improved performance in regulated operations [28] Question: Profile of New Energy's project pipeline - The 2,000 megawatt pipeline includes projects at various stages of development, with confidence in their ability to meet plans [30] Question: Clarification on capital expenditure increases - The increase in capital expenditures is related to the original IRP projects, pending regulatory approval [31][33] Question: Stakeholders involved in the IRP settlement - A diverse coalition of stakeholders, including clean energy organizations and local communities, is involved in the proposed agreement [35] Question: Cost expectations for solar and wind projects - Current costs are reflected in the updated capital plan, but inflation could impact future projects [38] Question: Additional transmission needs for new resources - Management acknowledged the need for additional infrastructure to support the transition to more renewables [43] Question: Financing considerations and equity needs - The company aims to maintain a balanced capital structure and leverage IRA benefits to reduce equity needs [55] Question: Overall market sentiment for new project development - The market remains robust for clean energy projects, with strong demand and opportunities for redevelopment of the legacy fleet [67]

[Part I. Financial Information](index=6&type=section&id=Part%20I.%20Financial%20Information) This section provides a comprehensive overview of the company's financial performance, condition, market risks, and internal controls [Item 1. Consolidated Financial Statements](index=6&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) Total assets increased to **$6.86 billion** from **$6.44 billion** at year-end 2021, with nine-month operating revenue rising to **$1.14 billion** and net income attributable to ALLETE reaching **$137.6 million** Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2022 (Millions USD) | Dec 31, 2021 (Millions USD) | | :--- | :--- | :--- | | **Total Current Assets** | $722.2 | $291.3 | | **Total Assets** | $6,858.0 | $6,435.0 | | **Total Current Liabilities** | $706.0 | $543.4 | | **Total Liabilities** | $3,504.1 | $3,488.7 | | **Total ALLETE Equity** | $2,682.6 | $2,413.1 | | **Total Liabilities and Equity** | $6,858.0 | $6,435.0 | Consolidated Income Statement Highlights (Unaudited) | Account | Nine Months Ended Sep 30, 2022 (Millions USD) | Nine Months Ended Sep 30, 2021 (Millions USD) | | :--- | :--- | :--- | | **Total Operating Revenue** | $1,144.9 | $1,020.2 | | **Operating Income** | $100.5 | $101.3 | | **Net Income** | $94.1 | $89.2 | | **Net Income Attributable to ALLETE** | $137.6 | $107.3 | | **Diluted EPS** | $2.48 | $2.05 | Consolidated Cash Flow Highlights (Unaudited) | Activity | Nine Months Ended Sep 30, 2022 (Millions USD) | Nine Months Ended Sep 30, 2021 (Millions USD) | | :--- | :--- | :--- | | **Cash from Operating Activities** | $81.2 | $209.2 | | **Cash used in Investing Activities** | $(311.1) | $(397.1) | | **Cash from Financing Activities** | $230.8 | $188.1 | | **Change in Cash** | $0.9 | $0.2 | [Note 2. Regulatory Matters](index=13&type=section&id=Note%202.%20Regulatory%20Matters) Key regulatory activities include a pending 2022 Minnesota general rate case seeking an approximate 18% increase, with interim rates effective January 1, 2022, and a final MPUC decision expected in early 2023 - Minnesota Power filed for an **18% retail rate increase** with the MPUC, projected to generate approximately **$108 million** in additional annual revenue, with an interim rate increase of about **$80 million** annually effective January 1, 2022[27](index=27&type=chunk) - An administrative law judge recommended a rate increase of approximately **$76 million**, with Minnesota Power filing exceptions and a final MPUC decision expected in early 2023[28](index=28&type=chunk) - The company recognized a regulatory asset of approximately **$23 million** as of September 30, 2022, due to higher fuel and purchased power costs, with higher rates implemented in August 2022 to recover this expected under-collection, pending final MPUC approval[32](index=32&type=chunk) [Note 3. Acquisitions](index=16&type=section&id=Note%203.%20Acquisitions) ALLETE acquired New Energy for **$165.5 million** on April 15, 2022, recording **$155.1 million** in goodwill, as part of its strategy to expand renewable energy investments New Energy Acquisition Details | Item | Amount (Millions USD) | | :--- | :--- | | **Purchase Price** | $165.5 | | **Cash Paid (Net)** | $158.8 | | **Goodwill Recorded** | $155.1 | | **Total Assets Acquired** | $216.8 | | **Total Liabilities Assumed** | $58.0 | - The acquisition aligns with ALLETE's strategy of investing in renewable energy to support its sustainability-in-action goals and drive long-term earnings growth[37](index=37&type=chunk) [Note 7. Commitments, Guarantees and Contingencies](index=20&type=section&id=Note%207.%20Commitments%2C%20Guarantees%20and%20Contingencies) The company faces environmental compliance costs of **$65 million to $120 million** for the EPA's CCR rule and has **$227.6 million** in outstanding letters of credit for operational and development security - Compliance costs for the EPA's CCR rule at the Boswell and Laskin facilities are estimated to be between **$65 million and $120 million** over the next 15 years[84](index=84&type=chunk) - The EPA's proposed Good Neighbor Plan to address ozone transport could have a material cost impact on Minnesota Power, which would seek recovery through rate proceedings, with a final rule expected in early 2023[68](index=68&type=chunk) - As of September 30, 2022, the company had **$227.6 million** in outstanding letters of credit, primarily to provide security for Power Sales Agreements (PSAs) at ALLETE Clean Energy and for MISO requirements[88](index=88&type=chunk) [Note 11. Business Segments](index=28&type=section&id=Note%2011.%20Business%20Segments) Regulated Operations drove earnings with net income increasing to **$119.4 million**, while ALLETE Clean Energy and Corporate and Other segments also showed improved net income for the first nine months of 2022 Operating Revenue by Segment (Nine Months Ended Sep 30) | Segment | 2022 (Millions USD) | 2021 (Millions USD) | | :--- | :--- | :--- | | **Regulated Operations** | $960.3 | $888.2 | | **ALLETE Clean Energy** | $65.0 | $59.4 | | **Corporate and Other** | $119.6 | $72.6 | | **Total Operating Revenue** | $1,144.9 | $1,020.2 | Net Income (Loss) Attributable to ALLETE by Segment (Nine Months Ended Sep 30) | Segment | 2022 (Millions USD) | 2021 (Millions USD) | | :--- | :--- | :--- | | **Regulated Operations** | $119.4 | $99.4 | | **ALLETE Clean Energy** | $15.0 | $11.7 | | **Corporate and Other** | $3.2 | $(3.8) | | **Total Net Income** | $137.6 | $107.3 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Nine-month net income grew to **$137.6 million** due to interim rates and improved clean energy performance, supporting a long-term target of 5-7% consolidated EPS growth - Net income for the first nine months of 2022 was **$137.6 million** (**$2.48/share**), up from **$107.3 million** (**$2.05/share**) in 2021, including **$2.6 million** in after-tax transaction costs for the New Energy acquisition[116](index=116&type=chunk) - The company has a long-term objective of achieving **5% to 7% consolidated EPS growth** and expects Regulated Operations to contribute approximately **80%** of total consolidated net income in 2022[155](index=155&type=chunk)[156](index=156&type=chunk) - The Inflation Reduction Act of 2022 is expected to benefit the company's businesses through the extension and transferability of production and investment tax credits[157](index=157&type=chunk) [Comparison of the Quarters Ended September 30, 2022 and 2021](index=31&type=section&id=Comparison%20of%20the%20Quarters%20Ended%20September%2030%2C%202022%20and%202021) Q3 2022 saw Regulated Operations net income rise to **$38.3 million** due to interim rates, while ALLETE Clean Energy reported a wider net loss of **$7.3 million** due to pricing and project sale impacts - Regulated Operations revenue increased by **$17.8 million**, primarily due to **$24.9 million** from interim retail rates, partially offset by a **$4.1 million** revenue reduction from lower kWh sales, especially to industrial customers[119](index=119&type=chunk)[120](index=120&type=chunk) - ALLETE Clean Energy's results were negatively impacted by lower realized pricing at its Caddo and Diamond Spring facilities and a **$4.0 million** reserve for an anticipated loss on the sale of its Northern Wind project[126](index=126&type=chunk)[127](index=127&type=chunk) [Comparison of the Nine Months Ended September 30, 2022 and 2021](index=36&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030%2C%202022%20and%202021) Nine-month Regulated Operations net income increased by **$20.0 million** due to interim rates, with ALLETE Clean Energy and Corporate and Other segments also showing improved performance - Regulated Operations revenue increased by **$72.1 million**, primarily driven by **$70.5 million** from the implementation of interim rates at Minnesota Power[135](index=135&type=chunk)[136](index=136&type=chunk) - ALLETE Clean Energy's Cost of Sales included a **$14.2 million** increase, reflecting a reserve for an anticipated loss on the sale of the Northern Wind project, partially offset by a gain on the removal of the related PSA liability[143](index=143&type=chunk) - Corporate and Other net income in 2022 reflects contributions from the New Energy acquisition (**$0.2 million** net income, after a **$5.7 million** purchase accounting expense), higher earnings from Nobles 2, and **$2.6 million** in transaction costs[149](index=149&type=chunk) [Outlook](index=42&type=section&id=Outlook) ALLETE focuses on regulated utility growth and clean energy expansion, including a **$970 million** transmission line and a **2,000 MW** renewable project pipeline from the New Energy acquisition - A final decision by the MPUC on Minnesota Power's general rate case is expected in early 2023[160](index=160&type=chunk) - Minnesota Power and Great River Energy intend to build a **$970 million**, 150-mile, 345-kV transmission line as part of MISO's Long Range Transmission Plan, with an expected in-service date of 2030[168](index=168&type=chunk) - The acquisition of New Energy brings a development pipeline of over **2,000 MW** of renewable projects across 26 states, supporting ALLETE's growth strategy in clean energy[174](index=174&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2022, ALLETE maintained **$42.1 million** in cash and **$400.1 million** in available credit, with planned capital expenditures of approximately **$2.93 billion** through 2027 Capital Structure | Component | Sep 30, 2022 (%) | Dec 31, 2021 (%) | | :--- | :--- | :--- | | **ALLETE Equity** | 50 | 49 | | **Non-Controlling Interest** | 13 | 11 | | **Debt** | 37 | 40 | - On April 5, 2022, ALLETE issued approximately **3.7 million shares** of common stock, raising net proceeds of about **$224 million** to fund the New Energy acquisition and other capital investments[183](index=183&type=chunk) - ALLETE updated its capital expenditure forecast, now expecting to spend approximately **$2.93 billion** between 2022 and 2027, with significant increases in 2024 and 2025, driven by projects like the new transmission line[188](index=188&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages market risks from commodity prices, power marketing, and interest rates, with a **100 basis point** interest rate increase impacting pre-tax interest expense by **$2.8 million** - Exposure to fuel and natural gas price risk in regulated operations is significantly mitigated by ratemaking processes that allow for cost recovery from customers[194](index=194&type=chunk) - Based on variable rate debt outstanding as of September 30, 2022, a **100 basis point increase** in interest rates would increase annual pre-tax interest expense by **$2.8 million**[197](index=197&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[198](index=198&type=chunk) - There were no changes in internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[199](index=199&type=chunk) [Part II. Other Information](index=49&type=section&id=Part%20II.%20Other%20Information) This section details updated risk factors that could impact the company's operations and financial performance [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors highlight the adverse impact of volatile electricity market prices on ALLETE Clean Energy and the potential negative effects of changes in renewable energy incentives or tariffs - ALLETE Clean Energy faces financial risk from volatile electricity market prices, as its contracts for differences at the Diamond Spring and Caddo facilities can result in adverse impacts when market prices fluctuate[201](index=201&type=chunk)[202](index=202&type=chunk) - Changes to or elimination of government incentives for renewable energy, or the imposition of new tariffs on equipment, could negatively impact the market for new projects and reduce returns on both current and future investments[203](index=203&type=chunk)[204](index=204&type=chunk)