[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)

Financial Data and Key Metrics Changes - ALLETE reported second quarter 2022 earnings of $0.67 per share compared to $0.53 per share in 2021, with net income of $37.6 million versus $27.9 million in the prior year [5][12] - The net income for the quarter included transaction costs of $1.6 million after tax and purchase price accounting impacts of $4 million after tax related to the acquisition of New Energy Equity [12][16] Business Segment Data and Key Metrics Changes - The Regulated Operations segment recorded net income of $29.6 million in Q2 2022, up from $21.5 million in 2021, primarily due to higher net income at Minnesota Power from interim rate implementation [13] - ALLETE Clean Energy's net income was $5.8 million in Q2 2022, compared to $5.1 million in 2021, reflecting higher wind resources [14] - Corporate and Other businesses, including New Energy, reported net income of $2.2 million, up from $1.3 million in 2021, despite a partial quarter net loss from New Energy of $1.1 million after tax [15] Market Data and Key Metrics Changes - Minnesota Power's taconite customers started the year with full production, but Cleveland-Cliffs announced idling of its Northshore Mining facility, affecting production forecasts [14] - The anticipated production for taconite is slightly lower than the sales forecast of approximately 35 million tons due to the idling [14][28] Company Strategy and Development Direction - ALLETE is focused on clean energy transformation, with significant investments in transmission projects, including a $970 million transmission line project approved by MISO [8][20] - The company is optimistic about the proposed Inflation Reduction Act, which could enhance the value of clean energy projects and tax credits [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the execution of ALLETE's strategy and the positive impact of the Inflation Reduction Act on future projects [10][21] - The company is actively engaged in rate case proceedings to support infrastructure upgrades and maintain service quality [19] Other Important Information - ALLETE's financial position is strong, with cash and cash equivalents of $75 million and a debt-to-capital ratio of 37% as of June 30, 2022 [17] - The company welcomed Charles Matthews to the Board of Directors, bringing extensive energy industry experience [20] Q&A Session Summary Question: Impact of the IRA Act on credit metrics - Management is still evaluating the overall credit metric impact but believes it could be positive, especially since they are not affected by the minimum tax [22][23] Question: Tracking of New Energy's performance against full year expectations - New Energy is on track with expectations for the quarter and projections for the remainder of the year [24][25] Question: Sales to industrial customers and production forecasts - Production is expected to be slightly lower than the forecast of 35 million tons, but generally in line with forecasting assumptions [27][28] Question: Value of the transmission line strategy - The DC line and planned expansion are critical for enhancing the reliability and resiliency of the Upper Midwestern grid [30][31] Question: Capability to serve new large power customers - The company has a robust transmission system and is prepared to serve new mining projects as they develop [38]

[Part I. Financial Information](index=6&type=section&id=Part%20I.%20Financial%20Information) This section presents unaudited financial statements, management's analysis, market risk disclosures, and internal controls [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, including balance sheet, income, and cash flows, highlighting asset growth and increased net income [Consolidated Balance Sheet](index=6&type=section&id=Consolidated%20Balance%20Sheet) ALLETE's total assets grew to **$6.84 billion** by June 30, 2022, driven by the New Energy acquisition, with total equity increasing to **$3.36 billion** Consolidated Balance Sheet Highlights (Millions) | Account | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $660.0 | $291.3 | | **Property, Plant and Equipment – Net** | $5,027.1 | $5,100.2 | | **Goodwill and Intangible Assets – Net** | $151.1 | $0.8 | | **Total Assets** | **$6,839.0** | **$6,435.0** | | **Total Current Liabilities** | $709.0 | $543.4 | | **Total Liabilities** | **$3,480.1** | **$3,488.7** | | **Total Equity** | **$3,358.9** | **$2,946.3** | | **Total Liabilities and Equity** | **$6,839.0** | **$6,435.0** | [Consolidated Statement of Income](index=7&type=section&id=Consolidated%20Statement%20of%20Income) Net income attributable to ALLETE increased to **$37.6 million** in Q2 2022 and **$103.9 million** for the six-month period, driven by higher operating revenues Statement of Income Highlights (Millions, Except Per Share) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total Operating Revenue** | $373.1 | $335.6 | $756.6 | $674.8 | | **Operating Income** | $13.7 | $28.2 | $67.1 | $70.2 | | **Net Income Attributable to ALLETE** | $37.6 | $27.9 | $103.9 | $79.7 | | **Diluted Earnings Per Share** | $0.67 | $0.53 | $1.89 | $1.53 | [Consolidated Statement of Cash Flows](index=9&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) Cash used in operating activities totaled **$7.9 million** for the six months ended June 30, 2022, while financing activities provided **$289.1 million** Cash Flow Summary (Millions) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Cash (used in) provided by Operating Activities** | $(7.9) | $105.7 | | **Cash used in Investing Activities** | $(247.2) | $(305.7) | | **Cash provided by Financing Activities** | $289.1 | $202.1 | | **Change in Cash, Cash Equivalents and Restricted Cash** | $34.0 | $2.1 | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail significant accounting policies, the New Energy acquisition, regulatory rate cases, environmental compliance costs, and segment performance - On April 15, 2022, ALLETE acquired New Energy for **$165.5 million** in cash and assumed debt[40](index=40&type=chunk) - Minnesota Power filed for an **18% retail rate increase** in Minnesota, with an interim increase effective January 1, 2022, while SWL&P sought a **3.6% increase** in Wisconsin[30](index=30&type=chunk)[31](index=31&type=chunk) - Compliance costs for Coal Combustion Residuals (CCR) are estimated between **$65 million and $120 million** over the next 15 years[82](index=82&type=chunk) Net Income Attributable to ALLETE by Segment (Millions) | Segment | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | | Regulated Operations | $81.1 | $66.5 | | ALLETE Clean Energy | $22.3 | $12.5 | | Corporate and Other | $0.5 | $0.7 | | **Total** | **$103.9** | **$79.7** | [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) Management discusses financial results, highlighting increased net income per diluted share to **$1.89**, driven by interim rates and improved clean energy performance, alongside strategic acquisitions and capital plans [Comparison of the Quarters Ended June 30, 2022 and 2021](index=34&type=section&id=Comparison%20of%20the%20Quarters%20Ended) Q2 2022 saw increased net income across Regulated Operations, ALLETE Clean Energy, and Corporate and Other segments, driven by interim rates and strategic gains - Regulated Operations utility revenue increased by **$18.3 million** in Q2 2022, primarily due to **$21.4 million** from Minnesota Power's interim rates[118](index=118&type=chunk)[119](index=119&type=chunk) - Regulated utility kWh sales to industrial customers decreased **9.0%** in Q2 2022 due to the temporary idling of Cliffs' Northshore mine[119](index=119&type=chunk)[121](index=121&type=chunk) - ALLETE Clean Energy's Other Income increased by **$10.2 million** due to a gain from removing a PSA liability for the Northern Wind project[127](index=127&type=chunk) [Comparison of the Six Months Ended June 30, 2022 and 2021](index=40&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended) Six-month net income increased for Regulated Operations and ALLETE Clean Energy, driven by interim rates and higher wind resources, while Corporate and Other saw a slight decline due to acquisition costs - Regulated Operations utility revenue increased by **$54.3 million** for the six-month period, primarily from **$45.7 million** in Minnesota Power interim rates[133](index=133&type=chunk)[134](index=134&type=chunk) - ALLETE Clean Energy's operating revenue increased by **$6.9 million**, or **16%**, due to higher wind resources and no prior-year winter storm impact[140](index=140&type=chunk) - Corporate and Other net income included a **$1.1 million net loss** from New Energy, incorporating **$4.0 million** in accounting adjustments and **$3.0 million** in transaction costs[145](index=145&type=chunk) [Critical Accounting Policies](index=44&type=section&id=Critical%20Accounting%20Policies) Management identifies critical accounting policies, including regulatory accounting and impairment, adding 'Valuation of Business Combinations and Resulting Goodwill' post-acquisition - The New Energy acquisition on April 15, 2022, made **valuation of business combinations and goodwill** a critical accounting policy[147](index=147&type=chunk) - Goodwill impairment testing is performed annually in Q4 or when impairment is indicated, requiring significant fair value estimates based on projected cash flows[149](index=149&type=chunk) [Outlook](index=45&type=section&id=Outlook) ALLETE targets **5-7%** annual EPS growth, focusing on regulated utility operations, clean energy expansion, and a major transmission line project - The company targets **5% to 7%** average annual earnings per share growth long-term[150](index=150&type=chunk) - Minnesota Power and Great River Energy plan a **$970 million**, 150-mile, 345-kV transmission line, with ALLETE's share at approximately **50%**, in service by 2030[161](index=161&type=chunk) - The New Energy acquisition adds a development pipeline of over **2,000 MW** of renewable projects across 26 states[166](index=166&type=chunk) [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) ALLETE maintains strong liquidity with **$74.6 million** cash and **$377.3 million** available credit, projecting **$210 million** in 2022 capital expenditures and holding investment-grade credit ratings Liquidity Position as of June 30, 2022 | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $74.6 million | | Available consolidated lines of credit | $377.3 million | | Debt-to-capital ratio | 37% | - Capital expenditures for 2022 are projected at approximately **$210 million**, with **$94.0 million** incurred through June 30, 2022[177](index=177&type=chunk) Credit Ratings | Agency | Issuer Credit Rating | | :--- | :--- | | S&P Global Ratings | BBB | | Moody's | Baa1 | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=51&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company manages commodity price, power marketing credit, and interest rate risks, with regulatory mechanisms mitigating commodity exposure and limited variable rate debt - Commodity price risk in regulated operations is significantly mitigated by regulatory cost recovery frameworks[182](index=182&type=chunk) - A 100 basis point increase in interest rates would raise annual pre-tax interest expense by approximately **$3.0 million** based on June 30, 2022, variable rate debt[184](index=184&type=chunk) [Item 4. Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - Disclosure controls and procedures were deemed effective by management as of June 30, 2022[185](index=185&type=chunk) - No material changes to internal control over financial reporting occurred during Q2 2022[186](index=186&type=chunk) [Part II. Other Information](index=53&type=section&id=Part%20II.%20Other%20Information) This section provides updates on legal proceedings, risk factors, equity sales, mine safety disclosures, and a list of exhibits [Item 1. Legal Proceedings](index=53&type=section&id=Item%201.%20Legal%20Proceedings) The company refers to Notes 2 and 7 for information on material legal and regulatory proceedings, with no new material disclosures in this section - Material legal and regulatory proceedings are referenced in Note 2 and Note 7 of the Consolidated Financial Statements[188](index=188&type=chunk) [Item 1A. Risk Factors](index=53&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, highlighting new concerns regarding volatile electricity prices impacting ALLETE Clean Energy's wind facilities with contracts for differences - A new risk factor addresses volatile electricity prices impacting ALLETE Clean Energy's wind facilities with commercial and industrial customer contracts[189](index=189&type=chunk) - Diamond Spring and Caddo facilities' contracts for differences expose them to adverse financial impacts from market price volatility and settlement differences[190](index=190&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None [Item 4. Mine Safety Disclosures](index=53&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety violations and regulatory matters, as required by the Dodd-Frank Act, are detailed in Exhibit 95 of this Form 10-Q - Mine safety violation information, as required by the Dodd-Frank Act, is included in Exhibit 95 to this Form 10-Q[192](index=192&type=chunk) [Item 6. Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications, mine safety disclosures, earnings release, and XBRL data - Required certifications by the CEO and CFO, mine safety disclosures, the Q2 2022 earnings news release, and XBRL data files are included as exhibits[193](index=193&type=chunk)

ALLETE, Inc. (NYSE:ALE) Q1 2022 Results Conference Call May 5, 2022 10:00 AM ET Company Participants Bethany Owen - President & Chief Executive Officer Steve Morris - Senior Vice President and Chief Financial Officer Frank Frederickson - Vice President of Customer Experience, Minnesota Power Jeff Scissons - Chief Financial and Strategy Officer, ALLETE Clean Energy's Operator Good day, and welcome to the ALLETE First Quarter 2022 Financial Results Call. Today's call is being recorded. Certain statements cont ...