ALLETE, Inc. (NYSE:ALE) Q3 2020 Results Earnings Conference Call November 9, 2020 10:00 AM ET Company Participants Bethany Owen - President, Chief Executive Officer Steve Morris - Vice President, Controller, Chief Accounting Officer Bob Adams - Chief Financial Officer, Senior Vice President Frank Frederickson - Vice President of Customer Experience at Minnesota Power Conference Call Participants Chris Ellinghaus - Siebert Williams Brian Russo - Sidoti Kevin Fallon - Citadel Operator Good day and welcome to ...

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 September 30, 2020 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 (S ...

ALLETE, Inc. (NYSE:ALE) Q2 2020 Results Conference Call August 5, 2020 10:00 AM ET Company Participants Bethany Owen - President and Chief Executive Officer Robert Adams - Senior Vice President and Chief Financial Officer Steve Morris - Vice President, Controller and Chief Accounting Officer Frank Frederickson - Minnesota Power's Vice President of Customer Experience Conference Call Participants Brian Russo - Sidoti Operator Good day, and welcome to ALLETE Second Quarter 2020 Financial Results Call. Today's ...

Part I [Consolidated Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20-%20Unaudited) The unaudited consolidated financial statements for the period ended June 30, 2020, show a decrease in net income and earnings per share, with total assets increasing due to investments in property, plant, and equipment, and lower operating revenues due to reduced industrial demand [Consolidated Balance Sheet](index=6&type=section&id=Consolidated%20Balance%20Sheet) ALLETE's total assets increased to **$5.76 billion** as of June 30, 2020, primarily driven by growth in Property, Plant and Equipment, while total liabilities also rose due to increased short-term debt Consolidated Balance Sheet Highlights (Millions) | Assets & Liabilities | June 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $223.0 | $269.5 | | **Property, Plant and Equipment – Net** | $4,644.5 | $4,377.0 | | **Total Assets** | **$5,760.4** | **$5,482.8** | | **Total Current Liabilities** | $727.7 | $507.4 | | **Total Liabilities** | **$3,328.2** | **$3,147.2** | | **Total ALLETE Equity** | $2,265.7 | $2,231.9 | | **Total Liabilities and Equity** | **$5,760.4** | **$5,482.8** | [Consolidated Statement of Income](index=7&type=section&id=Consolidated%20Statement%20of%20Income) ALLETE reported a significant decrease in net income and diluted earnings per share for Q2 and the six months ended June 30, 2020, primarily due to lower operating revenue from utility contracts Consolidated Statement of Income Highlights (Unaudited, Millions except per share) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | **Total Operating Revenue** | $243.2 | $290.4 | $554.8 | $647.6 | | **Operating Income** | $12.7 | $36.2 | $72.9 | $93.0 | | **Net Income Attributable to ALLETE** | $20.1 | $34.2 | $86.4 | $104.7 | | **Diluted Earnings Per Share** | $0.39 | $0.66 | $1.67 | $2.02 | [Consolidated Statement of Cash Flows](index=9&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Cash from operating activities increased for the six months ended June 30, 2020, while investing activities saw a significant outflow for capital additions, contrasting with the prior year's proceeds from asset sales Cash Flow Summary (Six Months Ended June 30, Millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | **Cash from Operating Activities** | $144.5 | $95.2 | | **Cash from (for) Investing Activities** | $(487.4) | $46.0 | | **Cash from (for) Financing Activities** | $287.8 | $(13.6) | | **Change in Cash, Cash Equivalents and Restricted Cash** | $(55.1) | $127.6 | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail regulatory matters, significant clean energy investments, new debt issuances, and segment performance, highlighting the impact of the U.S. Water Services sale and ALLETE Clean Energy's growth - In the 2020 Minnesota General Rate Case, the MPUC approved a resolution resulting in a **4.1% rate increase** effective May 1, 2020, and a refund of **$11.7 million** in interim rates collected through April 2020[33](index=33&type=chunk) - ALLETE Clean Energy acquired the rights to the **~300 MW Caddo wind project** in Oklahoma from Apex Clean Energy for approximately **$8 million**[26](index=26&type=chunk) - The company entered into two new unsecured term loan agreements in Q1 and Q2 2020, totaling **$315 million**, to fund construction-related expenditures and for general corporate purposes[56](index=56&type=chunk)[58](index=58&type=chunk) Net Income by Business Segment (Six Months Ended June 30, Millions) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | **Regulated Operations** | $68.6 | $81.8 | | **ALLETE Clean Energy** | $15.7 | $7.7 | | **U.S. Water Services** | — | $(1.1) | | **Corporate and Other** | $2.1 | $16.3 | | **Total Net Income** | **$86.4** | **$104.7** | [Management's Discussion and Analysis (MD&A)](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results, attributing a decrease in net income to lower industrial kWh sales, interim rate refunds, and the absence of prior year asset sale gains, while maintaining a long-term focus on regulated utility and clean energy growth - Net income for the first six months of 2020 was **$86.4 million** ($1.67/share), compared to **$104.7 million** ($2.02/share) in 2019, with 2019 results including an **$11.1 million** after-tax gain on the sale of U.S. Water Services[120](index=120&type=chunk) - Regulated Operations' net income fell to **$68.6 million** from **$81.8 million** in H1 2019, primarily due to lower kWh sales and an **$8.3 million** after-tax reserve for interim rate refunds[121](index=121&type=chunk) - ALLETE Clean Energy's net income grew to **$15.7 million** from **$7.7 million** in H1 2019, driven by new wind facilities and increased production tax credits[121](index=121&type=chunk) - The company maintains its long-term annual EPS growth objective of **5% to 7%**, despite short-term negative impacts expected from the COVID-19 pandemic[160](index=160&type=chunk) [Comparison of Quarters Ended June 30, 2020 and 2019](index=31&type=section&id=Comparison%20of%20the%20Quarters%20Ended) Q2 2020 saw a **20%** decrease in Regulated Operations revenue due to reduced industrial kWh sales, while ALLETE Clean Energy's net income increased from new wind facilities and higher production tax credits Regulated Utility kWh Sold (Millions) | Customer Type | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | Residential | 246 | 232 | 6.0% | | Commercial | 286 | 317 | (9.8)% | | Industrial | 1,235 | 1,773 | (30.3)% | | **Total Regulated Utility** | **2,604** | **3,206** | **(18.8)%** | - Regulated Operations revenue decreased by **$49.0 million (20%)** in Q2 2020, primarily due to lower kWh sales and a **$5.5 million** revenue reduction from reserves for interim rate refunds[124](index=124&type=chunk)[127](index=127&type=chunk) - ALLETE Clean Energy's operating revenue increased by **$2.2 million (14%)** in Q2 2020, driven by the new Glen Ullin and South Peak wind facilities[132](index=132&type=chunk) [Comparison of Six Months Ended June 30, 2020 and 2019](index=34&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended) For the first six months of 2020, Regulated Operations revenue decreased due to lower industrial kWh sales, while ALLETE Clean Energy's net income more than doubled, and Corporate and Other net income fell sharply due to the absence of a prior year asset sale gain Regulated Utility kWh Sold (Millions) | Customer Type | Six Months 2020 | Six Months 2019 | % Change | | :--- | :--- | :--- | :--- | | Industrial | 3,137 | 3,587 | (12.5)% | | **Total Regulated Utility** | **6,157** | **6,760** | **(8.9)%** | - ALLETE Clean Energy's income tax benefit increased by **$4.3 million** in H1 2020, primarily due to production tax credits rising to **$8.0 million** from **$4.2 million** in H1 2019[150](index=150&type=chunk) - Corporate and Other net income dropped from **$16.3 million** in H1 2019 to **$2.1 million** in H1 2020, largely because the 2019 figure included an **$11.1 million** after-tax gain on the sale of U.S. Water Services[156](index=156&type=chunk) [Outlook](index=37&type=section&id=Outlook) ALLETE anticipates short-term negative impacts from COVID-19 but maintains its long-term EPS growth target, continuing its 'EnergyForward' strategy with significant capital expenditures for clean energy projects - Industrial customers have been significantly impacted by COVID-19, with USS Corporation idling its Keetac plant and Verso Corporation idling its Duluth paper mill indefinitely[166](index=166&type=chunk)[171](index=171&type=chunk)[175](index=175&type=chunk) - The company's next Integrated Resource Plan (IRP) filing has been extended to February 1, 2021, and will evaluate the potential early retirement of Boswell Units 3 and 4[182](index=182&type=chunk) - ALLETE Clean Energy is advancing major wind projects, including the **~300 MW Diamond Spring project** (completion late 2020) and the newly acquired **~300 MW Caddo project**[202](index=202&type=chunk)[203](index=203&type=chunk) - The company expects its 2020 effective tax rate to be a benefit of approximately **35% to 40%**, primarily due to federal production tax credits from wind energy generation[209](index=209&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2020, ALLETE maintained solid liquidity with available cash and credit lines, but faced a credit rating downgrade due to debt coverage concerns and increased capital expenditures for 2020 Capital Structure (Millions) | Component | June 30, 2020 | % of Total | | :--- | :--- | :--- | | ALLETE Equity | $2,265.7 | 52% | | Non-Controlling Interest | $166.5 | 4% | | Short-Term and Long-Term Debt | $1,899.0 | 44% | | **Total Capitalization** | **$4,331.2** | **100%** | - Capital expenditures for 2020 are expected to be approximately **$635 million**, an increase primarily due to the Caddo wind project[224](index=224&type=chunk) - On April 22, 2020, S&P Global Ratings downgraded ALLETE's long-term issuer credit rating to **BBB stable** from BBB+ outlook negative[222](index=222&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages commodity price risk through regulatory recovery mechanisms, credit risk through policies, and interest rate risk by limiting variable rate debt, with a **100 basis point** increase impacting pre-tax interest expense by **$4.3 million** - Exposure to price risk for coal, power, and natural gas is significantly mitigated by regulatory frameworks that allow for cost recovery from customers[230](index=230&type=chunk) - A hypothetical **100 basis point (1%)** increase in interest rates would increase annual pre-tax interest expense by approximately **$4.3 million** based on variable rate debt outstanding at June 30, 2020[233](index=233&type=chunk) [Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, 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 June 30, 2020[234](index=234&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[235](index=235&type=chunk) Part II. Other Information [Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, primarily focusing on the uncertain and material adverse effects of the COVID-19 pandemic on sales, revenue, capital markets, and supply chains, which could jeopardize project completion and tax credit qualification - The primary updated risk is the material adverse effect of the ongoing COVID-19 pandemic, whose extent and duration are uncertain[237](index=237&type=chunk) - The pandemic has led to reduced sales and revenue from commercial and industrial customers, including the indefinite idling of the Keetac plant (USS Corp) and the Duluth paper mill (Verso Corp)[239](index=239&type=chunk) - Potential disruptions in capital markets could increase borrowing costs or limit access to financing, and supply chain disruptions could adversely impact operations and jeopardize the ability to complete capital projects in time to qualify for production tax credits[241](index=241&type=chunk)

ALLETE, Inc. (NYSE:ALE) Q1 2020 Earnings Conference Call May 6, 2020 10:00 AM ET Company Participants Bethany Owen – President and Chief Executive Officer Bob Adams – Senior Vice President and Chief Financial Officer Steve Morris – Vice President, Controller and Chief Accounting Officer Frank Frederickson – Minnesota Power's Vice President of Customer Experience Conference Call Participants Brian Russo – Sidoti Sarah Akers – Wells Fargo Richard Sunderland – JPMorgan Operator Good day, and welcome to ALLETE ...

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, 2020 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 2019 Earnings Conference Call February 13, 2020 10:00 AM ET Company Participants Alan Hodnik – Executive Chairman Bethany Owen – President and Chief Executive Officer Steve Morris – Vice President, Controller and Chief Accounting Officer Bob Adams – Senior Vice President and Chief Financial Officer Conference Call Participants Brian Russo – Sidoti Agostina Colaco – Mizuho Securities Chris Ellinghaus – Siebert Williams Vedula Murti – Avon Capital Kevin Fallon – Citadel Operator Goo ...

Part I [Business Overview](index=8&type=section&id=Item%201.%20Business) ALLETE, Inc. is an energy company with core operations in regulated utilities and renewable energy Consolidated Operating Revenue by Segment | Segment | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Regulated Operations | 84% | 71% | 75% | | ALLETE Clean Energy | 5% | 11% | 6% | | U.S. Water Services | 3% | 11% | 11% | | Corporate and Other | 8% | 7% | 8% | - On March 26, 2019, the company sold its U.S. Water Services segment for approximately **$270 million** in cash, net of costs[12](index=12&type=chunk)[69](index=69&type=chunk) [Regulated Operations](index=9&type=section&id=Regulated%20Operations) This segment serves retail and industrial customers, with industrial sales representing **54%** of total regulated utility kWh sales in 2019, and is transitioning to **50%** renewable energy by 2021 Regulated Utility Kilowatt-hours Sold (Millions) | Customer Type | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Residential | 1,130 | 1,140 | 1,096 | | Commercial | 1,390 | 1,426 | 1,420 | | Industrial | 7,277 | 7,261 | 7,327 | | Municipal | 672 | 798 | 799 | | Other Power Suppliers | 3,185 | 3,953 | 4,039 | | **Total** | **13,654** | **14,578** | **14,681** | - Industrial customers, primarily in taconite mining, paper, and pipeline industries, accounted for **54%** of total regulated utility kWh sales in 2019. Taconite customers alone represented **69%** of industrial sales[16](index=16&type=chunk)[17](index=17&type=chunk) - The company is constructing the Great Northern Transmission Line (GNTL), a 500-kV line to connect with Manitoba Hydro, expected to be in-service by mid-2020 with a total project cost of approximately **$700 million**[42](index=42&type=chunk)[43](index=43&type=chunk) - Minnesota Power filed a retail rate increase request in November 2019 seeking an average increase of **10.6%**, which would generate approximately **$66 million** in additional annual revenue. An interim increase of **$36.1 million** was authorized effective January 1, 2020[50](index=50&type=chunk) [ALLETE Clean Energy](index=17&type=section&id=ALLETE%20Clean%20Energy) This segment develops and operates renewable energy projects, owning **660 MW** of wind capacity with an additional **380 MW** under construction, all supported by long-term Power Sales Agreements - The segment owns and operates approximately **660 MW** of wind energy and has another **380 MW** under construction, all with long-term Power Sales Agreements (PSAs) in place[64](index=64&type=chunk) Operating Wind Energy Facilities (as of Dec 31, 2019) | Facility | Region | Capacity (MW) | PSA Expiration | | :--- | :--- | :--- | :--- | | Armenia Mountain | East | 101 | 2024 | | Chanarambie/Viking | Midwest | 98 | 2023 | | Condon | West | 50 | 2022 | | Glen Ullin | West | 106 | 2039 | | Lake Benton | Midwest | 104 | 2028 | | Storm Lake I | Midwest | 108 | 2027 | | Storm Lake II | Midwest | 77 | 2020 / 2032 | | Other | Midwest | 17 | 2028 | [U.S. Water Services](index=18&type=section&id=U.S.%20Water%20Services) The U.S. Water Services segment, which provided integrated water management solutions, was sold on March 26, 2019, for **$270 million** in cash, resulting in a **$13.2 million** after-tax gain - The company completed the sale of U.S. Water Services on March 26, 2019, for approximately **$270 million** in cash, resulting in a **$13.2 million** after-tax gain[69](index=69&type=chunk) [Corporate and Other](index=18&type=section&id=Corporate%20and%20Other) This segment includes BNI Energy, a lignite coal supplier with long-term contracts, a **49%** equity investment in the Nobles 2 wind project, and ALLETE Properties' real estate investments - BNI Energy produces about **4 million tons** of lignite coal annually under cost-plus fixed fee agreements that extend through December 31, 2037[70](index=70&type=chunk) - The company holds a **49%** equity interest in Nobles 2, a **250 MW** wind energy facility under construction in Minnesota, with an expected completion in late 2020[71](index=71&type=chunk) - ALLETE Properties holds approximately **807 acres** in its Town Center at Palm Coast project and an additional **600 acres** of other land available for sale in Florida[72](index=72&type=chunk)[73](index=73&type=chunk) [Environmental Matters](index=19&type=section&id=Environmental%20Matters) The company is subject to extensive environmental regulations and is reshaping its generation portfolio to reduce coal reliance, anticipating potentially material future environmental expenditures - The company is reshaping its generation portfolio to reduce reliance on coal and has installed cost-effective emission control technology to comply with environmental regulations[76](index=76&type=chunk) - Accruals for environmental matters are recorded when a liability is probable and reasonably estimable. The company anticipates that future environmental expenditures may be material and require significant capital investments[77](index=77&type=chunk)[78](index=78&type=chunk) [Employees](index=20&type=section&id=Employees) As of December 31, 2019, ALLETE had **1,339 employees**, with a significant portion at Minnesota Power, SWL&P, and BNI Energy represented by IBEW labor agreements - As of year-end 2019, ALLETE had **1,339 employees**. **465 employees** at Minnesota Power and SWL&P are represented by IBEW Local 31, and **133 employees** at BNI Energy are represented by IBEW Local 1593[79](index=79&type=chunk)[80](index=80&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A.%20Risk%20Factors) ALLETE faces entity-wide, operational, and business-specific risks, including capital market access, economic downturns, extensive regulation, cybersecurity threats, industrial customer reliance, and renewable energy variability - A significant risk is the concentration of revenue from eight Large Power Customers, which accounted for **28%** of 2019 consolidated operating revenue. An economic downturn affecting these customers, particularly in the taconite industry, could negatively impact results[106](index=106&type=chunk)[107](index=107&type=chunk) - The company is subject to extensive federal and state regulation regarding rates, capital structure, and environmental compliance. Future laws limiting GHG emissions could require significant capital expenditures or the closure of coal-fired facilities[110](index=110&type=chunk)[119](index=119&type=chunk) - ALLETE Clean Energy's performance is highly dependent on suitable wind conditions, which are variable. Unfavorable weather could cause electricity generation and revenue to be substantially below expectations[137](index=137&type=chunk) - The company is vulnerable to cybersecurity attacks which could disrupt utility service, compromise sensitive data, and negatively impact its reputation and financial results[99](index=99&type=chunk)[101](index=101&type=chunk) [Unresolved Staff Comments](index=29&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[147](index=147&type=chunk) [Properties](index=29&type=section&id=Item%202.%20Properties) A discussion of the company's properties is included by reference in Item 1 of this report - The discussion of properties is incorporated by reference from Item 1. Business[148](index=148&type=chunk) [Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine litigation, but does not expect material effects on its financial position, results of operations, or cash flows - The company does not expect the outcome of litigation arising in the normal course of business to have a material effect on its financial condition[150](index=150&type=chunk) [Mine Safety Disclosures](index=29&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures required by the Dodd-Frank Act are included in Exhibit 95 to this Form 10-K - Mine safety disclosures required by the Dodd-Frank Act are included in Exhibit 95 of the Form 10-K[151](index=151&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) ALLETE's common stock is listed on the NYSE under ALE, has paid continuous dividends since 1948, and achieved a **74%** cumulative total shareholder return over five years - The company has paid uninterrupted dividends on its common stock since 1948. A quarterly dividend of **$0.6175 per share** was declared payable on March 1, 2020[152](index=152&type=chunk) Cumulative Total Shareholder Return (2014-2019) | Year | ALLETE | S&P 500 Index | Philadelphia Utility Index | | :--- | :--- | :--- | :--- | | 2014 | $100 | $100 | $100 | | 2015 | $96 | $101 | $94 | | 2016 | $126 | $113 | $110 | | 2017 | $150 | $138 | $124 | | 2018 | $158 | $132 | $129 | | 2019 | $174 | $174 | $163 | [Selected Financial Data](index=31&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes five-year financial data, highlighting 2019 operating revenue of **$1,240.5 million**, net income of **$185.6 million**, and diluted EPS of **$3.59** Five-Year Selected Financial Data (Millions, Except Per Share Amounts) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Revenue | $1,240.5 | $1,498.6 | $1,419.3 | $1,339.7 | $1,486.4 | | Net Income Attributable to ALLETE | $185.6 | $174.1 | $172.2 | $155.3 | $141.1 | | Diluted Earnings Per Share | $3.59 | $3.38 | $3.38 | $3.14 | $2.92 | | Total Assets | $5,482.8 | $5,165.0 | $5,080.0 | $4,876.9 | $4,864.4 | | Long-Term Debt | $1,400.9 | $1,428.5 | $1,439.2 | $1,370.4 | $1,556.7 | | Total Capital Expenditures | $626.6 | $318.6 | $266.5 | $247.8 | $251.8 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) ALLETE's 2019 net income was **$185.6 million**, with 5-7% EPS growth and **$1.885 billion** in capital expenditures projected 2019 vs. 2018 Financial Highlights | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Income Attributable to ALLETE | $185.6M | $174.1M | | Diluted EPS | $3.59 | $3.38 | - The increase in 2019 net income was primarily driven by a **$13.2 million** after-tax gain from the sale of the U.S. Water Services segment[164](index=164&type=chunk)[168](index=168&type=chunk) - The company has a long-term objective of achieving average annual earnings per share growth of **5% to 7%**[218](index=218&type=chunk) - Projected capital expenditures for 2020-2024 total approximately **$1.885 billion**, with significant investments in Regulated Operations (**$1.415 billion**) and ALLETE Clean Energy (**$370 million**)[278](index=278&type=chunk) [2019 Compared to 2018](index=33&type=section&id=2019%20Compared%20to%202018) Net income increased to **$185.6 million** in 2019, driven by higher Regulated Operations income and the U.S. Water Services sale gain, despite a decline in ALLETE Clean Energy's net income Net Income Attributable to ALLETE by Segment (Millions) | Segment | 2019 | 2018 | | :--- | :--- | :--- | | Regulated Operations | $154.4 | $131.0 | | ALLETE Clean Energy | $12.4 | $33.7 | | U.S. Water Services | $(1.1) | $3.2 | | Corporate and Other | $19.9 | $6.2 | - Regulated Operations revenue decreased by **$17.1 million** primarily due to lower kWh sales, but operating income increased by **$20.7 million** due to lower operating & maintenance and property tax expenses[169](index=169&type=chunk)[177](index=177&type=chunk) - ALLETE Clean Energy's revenue dropped by **$100.3 million**, largely because 2018 revenue included the sale of a wind energy facility. 2019 results were also impacted by lower wind resources and availability[180](index=180&type=chunk) [2018 Compared to 2017](index=37&type=section&id=2018%20Compared%20to%202017) Net income slightly increased in 2018 to **$174.1 million**, with Regulated Operations benefiting from tax reform, while ALLETE Clean Energy and U.S. Water Services saw declines due to the absence of prior year's one-time tax benefits Net Income Attributable to ALLETE by Segment (Millions) | Segment | 2018 | 2017 | | :--- | :--- | :--- | | Regulated Operations | $131.0 | $128.4 | | ALLETE Clean Energy | $33.7 | $41.5 | | U.S. Water Services | $3.2 | $10.7 | | Corporate and Other | $6.2 | $(8.4) | - The 2017 results for ALLETE Clean Energy, U.S. Water Services, and Corporate and Other included significant one-time impacts from the remeasurement of deferred tax assets and liabilities due to the Tax Cuts and Jobs Act (TCJA)[204](index=204&type=chunk)[206](index=206&type=chunk)[208](index=208&type=chunk) - Regulated Operations depreciation expense increased by **$25.4 million** in 2018, primarily due to modifications of the depreciable lives for the Boswell energy center[197](index=197&type=chunk) [Critical Accounting Policies](index=42&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies involve significant management judgment in Regulatory Accounting, Pension and Postretirement Benefit Assumptions, Impairment of Long-Lived Assets, and Taxation - Key critical accounting policies involve significant management judgment and include: Regulatory Accounting, Pension and Postretirement Benefit Assumptions, Impairment of Long-Lived Assets, and Taxation[211](index=211&type=chunk) [Outlook](index=43&type=section&id=Outlook) ALLETE targets **5-7%** average annual EPS growth, with Regulated Operations expected to contribute **80%** of 2020 net income, and significant investments planned for renewable energy expansion - The company's long-term objective is to achieve average annual earnings per share growth of **5% to 7%**[218](index=218&type=chunk) - Minnesota Power's 'EnergyForward' strategy is targeting approximately **50%** of its energy to be supplied by renewable sources by 2021[237](index=237&type=chunk) - ALLETE Clean Energy is developing new projects, including the **~300 MW** Diamond Spring wind project in Oklahoma, expected to be completed in late 2020[249](index=249&type=chunk)[360](index=360&type=chunk) - The company expects its effective tax rate for 2020 to be a benefit of approximately **15% to 20%**, primarily due to federal production tax credits from wind energy generation[254](index=254&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) ALLETE maintains strong liquidity with **$69.3 million** cash and **$345.0 million** available credit, projecting **$1.885 billion** in capital expenditures for 2020-2024, funded by internal funds, debt, and equity Capital Structure (as of Dec 31) | Component | 2019 | 2018 | | :--- | :--- | :--- | | ALLETE Equity | 56% | 59% | | Non-Controlling Interest | 3% | 0% | | Long-Term Debt | 41% | 41% | Projected Capital Expenditures (2020-2024, Millions) | Segment | 2020-2024 Total | | :--- | :--- | | Regulated Operations | $1,415 | | ALLETE Clean Energy | $370 | | Corporate and Other | $100 | | **Total** | **$1,885** | - Cash from operating activities decreased from **$433.1 million** in 2018 to **$249.5 million** in 2019, primarily due to the refund of provisions for tax reform and interim rates to customers[257](index=257&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=55&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section refers to Item 7 for market risk disclosures, covering interest rate and commodity price risks managed through debt mix and regulatory recovery mechanisms - Information related to market risk is provided in Item 7 of the report[286](index=286&type=chunk) [Financial Statements and Supplementary Data](index=55&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This item refers to the Consolidated Financial Statements and supplementary data, indexed in Item 15(a) of this report - Refers to the Consolidated Financial Statements indexed under Item 15(a)[287](index=287&type=chunk) [Controls and Procedures](index=55&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, confirmed by PricewaterhouseCoopers LLP - Management concluded that disclosure controls and procedures, as well as internal control over financial reporting, were effective as of December 31, 2019[288](index=288&type=chunk)[289](index=289&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=56&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement and Part I of this Form 10-K - Most information required by this item is incorporated by reference from the 2020 Proxy Statement[292](index=292&type=chunk) [Executive Compensation](index=57&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2020 Proxy Statement - Information is incorporated by reference from the 2020 Proxy Statement[296](index=296&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=57&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Security ownership information is incorporated by reference from the 2020 Proxy Statement, with **857,656** securities available for future issuance under approved equity plans Equity Compensation Plan Information (as of Dec 31, 2019) | Plan Category | Securities to be Issued Upon Exercise | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | | Approved by Security Holders | 150,181 | 857,656 | | Not Approved by Security Holders | — | — | [Certain Relationships and Related Transactions, and Director Independence](index=57&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related party transactions and director independence is incorporated by reference from the 2020 Proxy Statement - Information is incorporated by reference from the 2020 Proxy Statement[299](index=299&type=chunk) [Principal Accounting Fees and Services](index=58&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement - Information is incorporated by reference from the 2020 Proxy Statement[301](index=301&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=58&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K, including Consolidated Financial Statements, auditor reports, and various exhibits - Lists all financial statements, schedules, and exhibits filed with the Form 10-K[302](index=302&type=chunk) [Form 10-K Summary](index=66&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that there is no Form 10-K summary - None[310](index=310&type=chunk) Consolidated Financial Statements [Report of Independent Registered Public Accounting Firm](index=69&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified opinion on ALLETE's financial statements and internal controls, identifying regulatory accounting as a critical audit matter due to judgment in cost recoverability - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on both the financial statements and the effectiveness of internal control over financial reporting[315](index=315&type=chunk) - A critical audit matter was identified related to the accounting for regulatory matters, specifically the significant judgment required by management to determine the recoverability of deferred costs (regulatory assets)[324](index=324&type=chunk)[325](index=325&type=chunk) [Consolidated Financial Statements - Audited](index=71&type=section&id=Consolidated%20Financial%20Statements%20-%20Audited) Audited financial statements show **$5.48 billion** total assets, **$3.15 billion** total liabilities, and **$185.6 million** net income Consolidated Balance Sheet Highlights (Millions) | Account | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $269.5 | $334.3 | | Property, Plant and Equipment – Net | $4,377.0 | $3,904.4 | | Total Assets | $5,482.8 | $5,165.0 | | Total Current Liabilities | $507.4 | $405.1 | | Long-Term Debt | $1,400.9 | $1,428.5 | | Total Liabilities | $3,147.2 | $3,009.2 | | Total ALLETE Equity | $2,231.9 | $2,155.8 | Consolidated Statement of Income Highlights (Millions) | Account | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total Operating Revenue | $1,240.5 | $1,498.6 | $1,419.3 | | Operating Income | $179.8 | $201.2 | $225.9 | | Net Income Attributable to ALLETE | $185.6 | $174.1 | $172.2 | | Diluted EPS | $3.59 | $3.38 | $3.38 | [Notes to Consolidated Financial Statements](index=76&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on accounting policies, segment information, regulatory matters, debt, commitments, and employee benefit plans, including the U.S. Water Services sale and rate case specifics - **Note 1:** Details the sale of U.S. Water Services on March 26, 2019, for approximately **$270 million** in cash[345](index=345&type=chunk) - **Note 4:** Outlines the 2020 Minnesota General Rate Case, seeking a **10.6%** retail rate increase, and details various cost recovery riders for transmission, renewable, and environmental investments[417](index=417&type=chunk)[422](index=422&type=chunk)[423](index=423&type=chunk) - **Note 9:** Describes major commitments, including the Square Butte PPA through 2026 and multiple PPAs with Manitoba Hydro. It also estimates coal ash (CCR) compliance costs at the Boswell facility to be between **$65 million** and **$120 million** over the next 15 years[469](index=469&type=chunk)[498](index=498&type=chunk) - **Note 12:** Reports the funded status of benefit plans as of year-end 2019, with the pension plan being underfunded by **$154.4 million** and the postretirement health and life plan being overfunded by **$23.9 million**[527](index=527&type=chunk)[534](index=534&type=chunk)

ALLETE, Inc. (NYSE:ALE) Q3 2019 Earnings Conference Call November 6, 2019 5:00 PM ET Company Participants Alan Hodnik - President and Chief Executive Officer Bethany Owen - President Steven Morris - Vice President, Controller and Chief Accounting Officer Robert Adams - Senior Vice President and Chief Financial Officer Conference Call Participants Christopher Turner - JP Morgan Brian Russo - Sidoti Vedula Murti - Avon Capital Paul Fremont - Mizuho Operator Good day, and welcome to the ALLETE Third Quarter 2 ...