ALLETE(ALE) - 2025 Q1 - Quarterly Report

Part I. Financial Information Consolidated Financial Statements - Unaudited ALLETE's Q1 2025 unaudited consolidated financial statements report net income attributable to ALLETE of $56.1 million, an increase from $50.7 million in Q1 2024 Consolidated Balance Sheet (Unaudited) | (Millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $477.9 | $435.2 | | Total Assets | $6,866.3 | $6,754.3 | | Total Current Liabilities | $380.6 | $404.2 | | Total Liabilities | $3,477.5 | $3,363.8 | | Total ALLETE Equity | $2,866.0 | $2,848.0 | | Total Equity | $3,388.3 | $3,390.1 | | Total Liabilities, Redeemable Non-Controlling Interest and Equity | $6,866.3 | $6,754.3 | Consolidated Statement of Income (Unaudited) | (Millions Except Per Share Amounts) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total Operating Revenue | $400.2 | $403.3 | | Operating Income | $53.0 | $47.3 | | Income Before Income Taxes | $42.2 | $41.0 | | Net Income | $34.7 | $37.0 | | Net Income Attributable to ALLETE | $56.1 | $50.7 | | Diluted Earnings Per Share | $0.97 | $0.88 | Consolidated Statement of Cash Flows (Unaudited) | (Millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Cash provided by Operating Activities | $110.2 | $60.1 | | Cash used in Investing Activities | ($160.2) | ($60.8) | | Cash provided by (used in) Financing Activities | $89.2 | ($38.4) | | Change in Cash, Cash Equivalents and Restricted Cash | $39.2 | ($39.1) | Note 1. Operations and Significant Accounting Policies This note outlines the basis of preparation for unaudited financial statements and details key accounting policies for cash, inventories, and goodwill Inventories – Net | (Millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Fuel | $22.3 | $22.5 | | Materials and Supplies | 122.2 | 107.6 | | Renewable Energy Facilities Under Development | 26.6 | 24.5 | | Total Inventories – Net | $171.1 | $154.6 | - The carrying amount of goodwill was $154.9 million as of March 31, 2025, with no changes during the quarter[38] Note 2. Regulatory Matters This note details regulatory activities, including a $33.97 million rate increase approval, a $27.9 million interim rate refund reserve, and the 2025 IRP for future energy capacity - In the 2024 Minnesota General Rate Case, a settlement was approved for a $33.97 million rate increase, a 9.78% return on equity, and a $27.9 million pre-tax reserve for an interim rate refund as of March 31, 2025[48] - The 2025 Integrated Resource Plan (IRP) filed on March 3, 2025, proposes adding 400 MW of new wind, 100 MW of energy storage, and ~1,000 MW of natural gas capacity by 2035, aiming to cease coal use at the Boswell Energy Center[55] Regulatory Assets and Liabilities Summary | (Millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Non-Current Regulatory Assets | $364.6 | $371.7 | | Total Non-Current Regulatory Liabilities | $580.6 | $570.5 | Note 3. Equity Investments This note details ALLETE's equity method investments in ATC and Nobles 2, with balances of $199.5 million and $144.5 million respectively as of March 31, 2025 ALLETE's Investment in ATC | (Millions) | Amount | | :--- | :--- | | Equity Investment Balance as of December 31, 2024 | $194.4 | | Cash Investments | 5.5 | | Equity in ATC Earnings | 6.5 | | Distributed ATC Earnings | (7.2) | | Equity Investment Balance as of March 31, 2025 | $199.5 | ALLETE's Investment in Nobles 2 | (Millions) | Amount | | :--- | :--- | | Equity Investment Balance as of December 31, 2024 | $145.7 | | Equity in Nobles 2 Earnings | (0.5) | | Distributed Nobles 2 Earnings | (0.7) | | Equity Investment Balance as of March 31, 2025 | $144.5 | Note 4. Fair Value This note describes fair value measurements for ALLETE's financial assets and liabilities, with recurring assets totaling $25.8 million and debt fair value at $1.82 billion Recurring Fair Value Measures as of March 31, 2025 | (Millions) | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Total Fair Value of Assets | $19.4 | $6.4 | — | $25.8 | | Total Fair Value of Liabilities | — | $18.8 | — | $18.8 | Fair Value of Financial Instruments | (Millions) | Carrying Amount | Fair Value | | :--- | :--- | :--- | | Short-Term and Long-Term Debt (March 31, 2025) | $1,936.1 | $1,820.1 | - No indicators of impairment were identified for non-financial assets such as goodwill, intangible assets, and property, plant and equipment for the three months ended March 31, 2025[74] Note 5. Short-Term and Long-Term Debt This note details ALLETE's debt structure, including $1.936 billion in total debt and the issuance of $150 million in senior unsecured notes, with covenant compliance maintained Total Debt Summary | (Millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Short-Term Debt | $94.2 | $94.7 | | Long-Term Debt | $1,832.8 | $1,704.7 | | Total Debt (Principal) | $1,936.1 | $1,808.0 | - On March 25, 2025, ALLETE issued $150 million of senior unsecured notes, consisting of $120 million at 5.38% due 2030 and $30 million at 5.82% due 2035[76] - As of March 31, 2025, ALLETE's ratio of indebtedness to total capitalization was approximately 0.38 to 1.00, compliant with the covenant limit of 0.65 to 1.00[77] Note 6. Commitments, Guarantees and Contingencies This note covers significant commitments and contingencies, including environmental compliance costs for the CCR Rule and $142.8 million in outstanding letters of credit - The EPA's final CCR Legacy Impoundment Rule is estimated to result in compliance costs for Minnesota Power's Boswell and Laskin facilities between $50 million and $85 million over the next 10 years[108] - A wastewater spill at the Boswell facility in July 2024 resulted in remediation costs of approximately $2 million pre-tax in the first quarter of 2025, with total costs potentially being material[105] - As of March 31, 2025, ALLETE had $142.8 million of outstanding letters of credit and $133.2 million in outstanding surety bonds across its businesses[110] Note 7. Earnings Per Share and Common Stock This note provides basic and diluted EPS calculations, reporting $0.97 for Q1 2025 based on $56.1 million net income attributable to ALLETE Reconciliation of Basic and Diluted Earnings Per Share | (Millions Except Per Share Amounts) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Income Attributable to ALLETE | $56.1 | $50.7 | | Average Common Shares - Basic | 57.9 | 57.6 | | Dilutive Securities | 0.1 | 0.1 | | Average Common Shares - Diluted | 58.0 | 57.7 | | Earnings Per Share - Basic | $0.97 | $0.88 | | Earnings Per Share - Diluted | $0.97 | $0.88 | Note 8. Income Tax Expense This note details income tax expense, with Q1 2025 total expense of $7.5 million and an effective tax rate of 17.8%, primarily impacted by tax credits - The effective tax rate for Q1 2025 was 17.8%, compared to 9.7% for Q1 2024. The rates for both periods were primarily impacted by tax credits[124] Income Tax Expense Summary | (Millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total Current Income Tax Expense | $7.8 | $6.9 | | Total Deferred Income Tax Benefit | $(0.3) | $(2.9) | | Total Income Tax Expense | $7.5 | $4.0 | Note 9. Pension and Other Postretirement Benefit Plans This note outlines net periodic benefit costs and employer contributions for pension and postretirement plans, with $19.1 million contributed to pension plans in Q1 2025 - For the three months ended March 31, 2025, ALLETE contributed $19.1 million in cash to its defined benefit pension plans and expects to make no further contributions in 2025[129] Net Periodic Benefit Cost (Credit) for Q1 2025 | (Millions) | Pension | Other Postretirement | | :--- | :--- | :--- | | Net Periodic Benefit Cost (Credit) | $2.5 | $(3.4) | Note 10. Business Segments This note details updated reportable segments: Regulated Operations, ALLETE Clean Energy, and New Energy, with New Energy showing significant growth in Q1 2025 net income - In Q1 2025, the company updated its reportable segments to: Regulated Operations, ALLETE Clean Energy, and New Energy, reflecting New Energy's increased contribution to net income[130] Net Income (Loss) Attributable to ALLETE by Segment | (Millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Regulated Operations | $38.4 | $44.2 | | ALLETE Clean Energy | 7.4 | 3.8 | | New Energy | 9.2 | 4.0 | | Corporate and Other | 1.1 | (1.3) | | Total Net Income Attributable to ALLETE | $56.1 | $50.7 | Total Assets by Segment | (Millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Regulated Operations | $4,560.2 | $4,489.4 | | ALLETE Clean Energy | 1,464.2 | 1,477.4 | | New Energy | 351.4 | 335.7 | | Corporate and Other | 490.5 | 451.8 | | Total Assets | $6,866.3 | $6,754.3 | Note 11. Agreement and Plan of Merger This note describes the May 2024 merger agreement for ALLETE's acquisition by Alloy Parent for $3.9 billion, with shareholder and key regulatory approvals received - On May 5, 2024, ALLETE entered into a merger agreement to be acquired by Alloy Parent for $67.00 per share in cash, an aggregate equity value of approximately $3.9 billion[136][137] - Shareholders approved the merger on August 21, 2024. ALLETE has received approvals from FERC, PSCW, and CFIUS[141][142] - The MPUC has referred the merger for a contested case proceeding, with an Administrative Law Judge's report and recommendation requested by July 15, 2025[142] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Q1 2025 financial results, highlighting increased net income driven by ALLETE Clean Energy and New Energy segments - Q1 2025 net income attributable to ALLETE was $56.1 million ($0.97 per diluted share), up from $50.7 million ($0.88 per diluted share) in Q1 2024. Results include after-tax transaction expenses of $2.1 million related to the pending merger[150] - Growth was driven by ALLETE Clean Energy (net income up to $7.4M from $3.8M) and New Energy (net income up to $9.2M from $4.0M), while Regulated Operations net income declined to $38.4M from $44.2M[150][151] Comparison of the Three Months Ended This subsection provides a detailed segment-by-segment analysis of Q1 2025 financial performance, noting decreased Regulated Operations net income offset by growth in other segments - Regulated Operations' net income decreased by $5.8 million, primarily due to lower sales to industrial customers (down 12.5% in kWh) and higher O&M and depreciation expenses[153][156] - ALLETE Clean Energy's net income increased by $3.6 million, driven by higher production at tax equity financed wind facilities and recovery from a 2024 network outage near its Caddo facility[150][164][165] - New Energy's net income increased by $5.2 million, reflecting higher sales of renewable energy projects and investment tax credits compared to 2024[169] Critical Accounting Policies This section confirms no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K - The company's critical accounting policies, which are regularly reviewed by the Audit Committee, remain unchanged from those disclosed in the 2024 Form 10-K[171] Outlook The company maintains a long-term objective of 5% to 7% consolidated EPS growth, with Regulated Operations expected to contribute 75% of net income, supported by the 2025 IRP and transmission investments - ALLETE has a long-term objective of achieving 5% to 7% consolidated EPS growth and expects Regulated Operations to comprise approximately 75% of total consolidated net income in 2025[174][175] - Minnesota Power filed its 2025 IRP to align with the state's 100% carbon-free energy by 2040 law, planning significant additions of wind, solar, storage, and natural gas generation[179] - A key transmission project is the modernization of the HVDC line, estimated to cost between $800 million and $940 million, with construction beginning in 2025[187] Liquidity and Capital Resources ALLETE reports strong liquidity with $92.0 million in cash and $341.8 million in available credit, alongside increased 2025 capital expenditures of approximately $900 million - As of March 31, 2025, ALLETE had $92.0 million in cash and $341.8 million available under consolidated lines of credit[192] Capital Structure as of March 31, 2025 | (Millions) | Amount | % | | :--- | :--- | :--- | | ALLETE Equity | $2,866.0 | 54 | | Non-Controlling Interest in Subsidiaries | 522.3 | 10 | | Short-Term and Long-Term Debt | 1,936.1 | 36 | | Total | $5,324.9 | 100 | - Capital expenditures for 2025 are now expected to be approximately $900 million, an increase reflecting higher spending at Minnesota Power, mainly for the HVDC transmission project[202] Other This section covers environmental matters, including efforts to reduce coal reliance, and employee relations, noting 1,638 employees with collective bargaining agreements in place - As of March 31, 2025, ALLETE had 1,638 employees, with 502 at Minnesota Power and SWL&P, and 134 at BNI Energy covered by collective bargaining agreements[205][206] Quantitative and Qualitative Disclosures about Market Risk This section discusses market risks, including commodity prices and interest rates, noting mitigation strategies and a $0.3 million impact from a 100 basis point interest rate increase - The company's exposure to commodity price risk (coal, natural gas) is largely mitigated by regulatory frameworks that allow for cost recovery from customers[210] - Based on variable rate debt outstanding as of March 31, 2025, a 100 basis point increase in interest rates would result in a pre-tax interest expense increase of $0.3 million[213] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - Based on an evaluation as of March 31, 2025, the principal executive and financial officers concluded that the company's disclosure controls and procedures are effective[215] - No changes occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[216] Part II. Other Information Legal Proceedings This section incorporates legal and regulatory proceedings by reference, stating that normal course litigation is not expected to materially affect financial position or results - Information regarding material legal and regulatory proceedings is detailed in Note 2 (Regulatory Matters) and Note 6 (Commitments, Guarantees and Contingencies)[217] - The company does not expect the outcome of litigation arising in the normal course of business to have a material effect on its financial position, results of operations, or cash flows[218] Risk Factors This section confirms no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K - There have been no material changes from the risk factors disclosed in Part I, Item 1A of the 2024 Form 10-K[219] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[220] Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[221] Mine Safety Disclosures This section indicates that mine safety violation information, as required by the Dodd-Frank Act, is included in Exhibit 95 - Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act is included in Exhibit 95 to this Form 10-Q[222] Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - During the quarter ended March 31, 2025, no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement[223] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Merger Agreement, Note Purchase Agreement, and CEO/CFO certifications - Key exhibits filed include the Agreement and Plan of Merger, a Note Purchase Agreement dated March 25, 2025, CEO/CFO certifications, and Mine Safety disclosures (Exhibit 95)[224]