ALLETE(US:ALE)2025-02-13 00:11Part I Item 1. Business ALLETE is an energy company pursuing a clean-energy transformation and a pending merger into a private entity - ALLETE is undergoing a significant clean-energy transition, aiming for 70% renewable energy by 2030 and 100% carbon-free energy by 2040; in 2024, it delivered 55% renewable energy to its Minnesota customers272895 - On May 5, 2024, ALLETE entered into a merger agreement with Alloy Parent LLC; upon completion, ALLETE will become a private subsidiary of Alloy Parent30 Consolidated Operating Revenue by Segment | Percentage of Consolidated Operating Revenue | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Regulated Operations | 81% | 66% | 80% | | ALLETE Clean Energy | 6% | 22% | 8% | | Corporate and Other | 13% | 12% | 12% | Regulated Operations This largest segment serves 150,000 retail customers, with industrial clients comprising 56% of kWh sales Regulated Utility Kilowatt-hours (kWh) Sold (Millions) | Customer Type | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Residential | 1,069 | 1,089 | 1,148 | | Commercial | 1,322 | 1,347 | 1,359 | | Industrial | 7,022 | 7,044 | 6,745 | | Municipal | 469 | 466 | 540 | | Total Retail and Municipal | 9,882 | 9,946 | 9,792 | | Other Power Suppliers | 2,680 | 2,819 | 3,149 | | Total kWh Sold | 12,562 | 12,765 | 12,941 | - Industrial customers, primarily taconite mining, are critical, representing 56% of total regulated utility kWh sales in 2024; a one-million-ton change in taconite production is estimated to impact annual EPS by approximately $0.073943 - On January 27, 2025, major customer USS Corporation provided a four-year notice of termination for its electric service agreement, effective January 202950 Power Supply The company's power supply was 55% renewable in 2024 and is actively transitioning away from coal operations Regulated Utility Power Supply (2024) | Source | Net Capability (MW) | Generation & Purchases (MWh) | % of Total | | :--- | :--- | :--- | :--- | | Total Generation (Owned) | 1,630 | 5,832,105 | 44.9% | | - Coal-Fired | 820 | 3,794,254 | 29.2% | | - Wind | 522 | 1,279,468 | 9.9% | | Total Purchased Power | - | 7,147,244 | 55.1% | | - Long-Term Purchased Power | - | 4,348,790 | 33.5% | | Total Regulated Utility Power Supply | - | 12,979,349 | 100.0% | - Coal consumption for electric generation at Minnesota Power's stations was 2.3 million tons in 2024, down from 2.7 million tons in 202363 - Minnesota Power has long-term PPAs to purchase 250 MW of hydro capacity from Manitoba Hydro through 2035 and the output from a 250 MW wind facility (Nobles 2) through 20406768 Regulatory Matters The company is regulated by state and federal commissions, with recent rate cases supporting its financial structure - The 2024 Minnesota General Rate Case was settled, resulting in an MPUC-approved rate increase of $33.97 million, a 9.78% ROE, and a 53.00% equity ratio80 - The 2021 IRP, approved by the MPUC, outlines plans to add up to 700 MW of new wind and solar resources and achieve coal-free operations by 203585 - The 2024 Wisconsin General Rate Case for SWL&P was approved, resulting in a $5.5 million annual rate increase and a 9.80% ROE87 ALLETE Clean Energy This segment develops and operates over 1,600 MW of wind generation across eight states under long-term contracts ALLETE Clean Energy Operating Wind Portfolio | Wind Energy Facility | Capacity (MW) | PSA Expiration | | :--- | :--- | :--- | | Armenia Mountain | 101 | 2031 | | Lake Benton | 104 | 2028 | | Storm Lake I | 108 | 2027 | | Storm Lake II | 77 | 2032 (10% PSA) | | Caddo | 303 | 2034 | | Diamond Spring | 303 | 2032-2035 | | Condon | 50 | 2028 | | Glen Ullin | 106 | 2039 | | South Peak | 80 | 2035 | Corporate and Other This segment includes renewable development, lignite coal supply, and development of a natural gas facility - New Energy, acquired in 2022, is a key growth driver with a development pipeline of over 2,000 MW of renewable projects104 - South Shore Energy is developing the NTEC, an approximately 600 MW natural gas facility, with an estimated total project cost of $700 million106 - BNI Energy produces approximately 4 million tons of lignite coal annually under cost-plus fixed fee agreements extending through 2037107 Human Capital Management ALLETE employed 1,616 people at year-end 2024, with a significant portion of its workforce unionized - As of year-end 2024, ALLETE had 1,616 employees, with 1,564 being full-time116 - 490 employees at Minnesota Power and SWL&P are covered under collective bargaining agreements, mostly with IBEW Local 31, with agreements expiring in 2026 and 2027116 Item 1A. Risk Factors The company faces risks from customer concentration, regulatory compliance, operations, and its pending merger - A primary risk is customer concentration in the cyclical taconite industry, which accounted for 27% of consolidated operating revenue in 2024133134 - The company is subject to extensive environmental laws, with potential for material costs related to GHG emissions, coal ash management, and water discharge regulations143145146 - Risks related to the pending merger include potential delays, business disruptions, and substantial transaction costs, of which $22.6 million after-tax were incurred in 2024197198200 Item 1C. Cybersecurity Cybersecurity risk is managed via a multilayered approach based on the NIST framework with board-level oversight - The company's cybersecurity program is based on the NIST framework and is managed by a dedicated team with oversight from the CTO and the Audit Committee of the Board of Directors204206207 - Defenses include a comprehensive cybersecurity policy, required annual employee training, random phishing tests, and multiple cyber event simulation exercises per year205 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock underperformed peers, and the pending merger restricts share repurchases and dividend increases - A quarterly dividend of $0.73 per share is payable on March 1, 2025; the pending Merger Agreement restricts share repurchases and limits dividend increases217340 Cumulative Total Shareholder Return (2019-2024) | Index | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | ALLETE | $100 | $80 | $88 | $90 | $89 | $99 | | S&P 500 Index | $100 | $118 | $152 | $125 | $157 | $197 | | Philadelphia Utility Index | $100 | $103 | $121 | $122 | $111 | $134 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Net income decreased to $179.3 million in 2024, impacted by merger costs and the absence of a prior-year gain 2024 Compared to 2023 Net income fell due to lower results in clean energy and corporate segments, despite growth in regulated operations Net Income Attributable to ALLETE by Segment (Millions) | Segment | 2024 | 2023 | | :--- | :--- | :--- | | Regulated Operations | $160.9 | $147.2 | | ALLETE Clean Energy | $17.8 | $71.7 | | Corporate and Other | $0.6 | $28.2 | | Total | $179.3 | $247.1 | - The decrease in 2024 net income was primarily due to $22.6 million after-tax merger expenses and the absence of a 2023 after-tax gain of $40.5 million from a favorable arbitration ruling229 Regulated Operations Financial Summary (Millions) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Operating Revenue – Utility | $1,242.7 | $1,238.3 | | Operating Income | $199.6 | $195.0 | | Net Income Attributable to ALLETE | $160.9 | $147.2 | Critical Accounting Policies Key policies involve significant estimates for regulatory accounting, pensions, business combinations, and taxation - Regulatory Accounting allows the deferral of certain costs as regulatory assets based on the probability of future recovery through customer rates258 - Pension expense calculations in 2024 used a weighted average expected long-term rate of return on assets of 6.84% and a discount rate of 5.38%258259 - Goodwill of $154.9 million related to the New Energy acquisition is tested for impairment annually; the 2024 test indicated no impairment262 Outlook ALLETE targets 5-7% long-term EPS growth, driven by significant investments in regulated and renewable projects - The company has a long-term objective of 5% to 7% consolidated EPS growth and expects Regulated Operations to comprise about 75% of consolidated net income in 2025267268 - Major transmission projects are underway, including the North Plains Connector (~$3.2B HVDC line) and an $800M-$940M modernization of its existing HVDC system302305306 - Minnesota Power is advancing its clean energy goals with RFPs for up to 400 MW of wind and 300 MW of solar resources297299 Liquidity and Capital Resources The company maintains a strong liquidity position and plans $5.0 billion in capital expenditures through 2029 Capital Structure (as of Dec 31) | Category (Millions) | 2024 | 2023 | | :--- | :--- | :--- | | ALLETE Equity | $2,848.0 | $2,809.6 | | Short-Term and Long-Term Debt | $1,808.0 | $1,799.4 | | Debt-to-Capital Ratio | 35% | 35% | Projected Capital Expenditures 2025-2029 (Millions) | Segment | 2025-2029 Total | | :--- | :--- | | Regulated Operations | $4,610 | | ALLETE Clean Energy | $40 | | Corporate and Other | $355 | | Total Capital Expenditures | $5,005 | - The company's dividend payout ratio was 91% in 2024, above its target range of 60% to 70%339 Item 8. Financial Statements and Supplementary Data The audited financial statements show 2024 operating revenues of $1.53 billion and net income of $179.3 million Consolidated Statement of Income Highlights (Millions, except per share data) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Total Operating Revenue | $1,529.8 | $1,879.8 | $1,570.7 | | Operating Income | $160.1 | $180.9 | $134.2 | | Net Income Attributable to ALLETE | $179.3 | $247.1 | $189.3 | | Diluted EPS | $3.10 | $4.30 | $3.38 | Consolidated Balance Sheet Highlights (Millions) | As of December 31 | 2024 | 2023 | | :--- | :--- | :--- | | Total Current Assets | $435.2 | $468.1 | | Property, Plant and Equipment – Net | $5,181.5 | $5,013.4 | | Total Assets | $6,754.3 | $6,656.4 | | Total Current Liabilities | $404.2 | $377.6 | | Long-Term Debt | $1,704.7 | $1,679.9 | | Total Liabilities | $3,363.8 | $3,249.3 | | Total ALLETE Equity | $2,848.0 | $2,809.6 | Consolidated Statement of Cash Flows Highlights (Millions) | Activity | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Cash from Operating Activities | $457.1 | $585.3 | $221.3 | | Cash used in Investing Activities | $(340.7) | $(283.6) | $(384.0) | | Cash used in Financing Activities | $(140.6) | $(262.5) | $155.2 | Part III Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of year-end 2024, 783,025 securities remained available for issuance under equity compensation plans Equity Compensation Plan Information (as of Dec 31, 2024) | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Approved by Security Holders | 227,422 | — | 783,025 | | Not Approved by Security Holders | — | — | — | | Total | 227,422 | — | 783,025 | Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all filed documents and includes Schedule II detailing valuation and qualifying account activity Schedule II – Valuation and Qualifying Accounts and Reserves (Millions) | Reserve Type | Balance at Beg. of 2024 | Additions Charged to Income | Deductions | Balance at End of 2024 | | :--- | :--- | :--- | :--- | :--- | | Reserve For Uncollectible Accounts | $1.6 | $1.4 | $1.3 | $1.7 | | Deferred Tax Asset Valuation Allowance | $58.0 | $(13.1) | — | $44.9 |