ALLETE(ALE) - 2023 Q4 - Annual Report

Revenue and Financial Performance - Consolidated operating revenue for 2023 was $1,879.8 million, a 19.7% increase from $1,570.7 million in 2022[17] - ALLETE Clean Energy's revenue contribution increased to 22% in 2023, up from 8% in 2022[17] - Minnesota Power's 2022 general rate case resulted in an allowed return on equity of 9.65 percent and an equity ratio of 52.50 percent, generating approximately $60 million in additional revenue from base rates and $10 million from cost recovery riders annually[50] - SWL&P's 2022 general rate case resulted in an allowed return on equity of 10.00 percent and an equity ratio of 55.00 percent, generating an annual increase of $3.3 million[55] - Minnesota Power recorded a reserve for an interim rate refund of approximately $39 million pre-tax as of September 30, 2023, which was refunded to customers during the fourth quarter of 2023[51] - Minnesota Power has a regulatory liability of $30.2 million related to land sales, with net proceeds to be refunded to ratepayers[52] Customer and Sales Breakdown - Industrial customers accounted for 55% of total regulated utility kWh sales in 2023, with taconite customers representing 70% of industrial sales[19][20] - Residential and commercial customers represented 19% of total regulated utility kWh sales in 2023[29] - Municipal customers accounted for 4% of total regulated utility kWh sales in 2023[29] - Minnesota Power has eight Large Power Customer contracts, with the earliest termination date being December 31, 2027[27][28] - ST Paper became a Large Power Customer in Q1 2023 and announced an asset purchase agreement to sell its Duluth Mill to Sofidel in January 2024[24][28] Energy Production and Supply - Minnesota Power's taconite customers produced 35 million tons in 2023, up from 32 million tons in 2022[23] - Minnesota Power has a PSA with Silver Bay Power through 2031 to supply its full energy requirements, serving approximately 90 MW of load to Northshore Mining[29] - Minnesota Power sold approximately 37% of its 50% output entitlement to Minnkota Power in 2023, increasing Minnkota Power's net entitlement to 41% in 2024, 46% in 2025, and 50% in 2026[30] - Approximately 50% of Minnesota Power's power supply for retail and municipal customers in Minnesota has been provided by renewable energy sources since 2020, enabled by the completion of the 250 MW Nobles 2 wind energy facility and the GNTL[32] - Minnesota Power's annual net peak load was 1,551 MW on August 3, 2023, with total regulated utility power supply reaching 13,206,148 MWh in 2023[33][34] - Coal consumption for electric generation at Minnesota Power's coal-fired generating stations remained steady at 2.7 million tons in 2023, with coal inventories at 0.7 million tons as of December 31, 2023[36] - The average price per ton of coal increased to $41.23 in 2023 from $39.98 in 2022 and $39.51 in 2021[38] - Minnesota Power has long-term PPAs with Manitoba Hydro, including a 250 MW capacity and energy purchase agreement through May 2035 and a 133 MW energy purchase agreement through June 2040[39] - Minnesota Power constructed the Great Northern Transmission Line (GNTL) at a cost of approximately $310 million, with total project costs reaching $660 million, enabling the 250 MW PPA with Manitoba Hydro[42] - Non-rate base generation includes 29 MW of natural gas and hydro generation and approximately 20 MW of solar energy facilities[75] Renewable Energy and Sustainability - Minnesota Power plans to add up to 700 MW of new wind and solar energy resources and cease coal operations at Boswell Units 3 and 4 by 2030 and 2035, respectively[53] - Minnesota Power aims to deliver 100 percent carbon-free energy to customers by 2050, with 50 percent of its power supply already provided by renewable energy sources as of 2020[53][61] - Minnesota legislation requires electric utilities to source 100 percent carbon-free energy by 2040, with interim targets of 80 percent by 2030 and 90 percent by 2035[60] - ALLETE Clean Energy owns and operates more than 1,200 MW of wind energy generation capacity across seven states, with the majority contracted under power purchase agreements[65] - ALLETE Clean Energy's wind operations are primarily located on properties owned by others, with easement rights or governmental consents, and some facilities are subject to tax equity financing structures[67] - ALLETE acquired 100% of New Energy for $165.5 million, which has a project pipeline of over 2,000 MW of renewable projects across 20 states[69] - ALLETE South Wind owns a 49% equity interest in Nobles 2, a 250 MW wind energy facility, with an equity investment of $151.5 million as of December 31, 2023[70] Transmission and Infrastructure - ALLETE Transmission Holdings owns approximately 8% of ATC, with an equity investment of $179.7 million as of December 31, 2023, and ATC's 10-year transmission assessment identifies a need for $6.6 billion to $8.1 billion in transmission system investments[43][44] - South Shore Energy is developing a 600 MW natural gas-fired facility, with an estimated total project cost of $700 million, of which South Shore Energy will fund approximately 20%[71] Regulatory and Rate Changes - Minnesota Power filed a retail rate increase request with the MPUC seeking an average increase of approximately 12.00 percent for retail customers, which would generate approximately $89 million in additional revenue annually[48] - The MPUC approved an interim rate increase of approximately $64 million starting January 1, 2024, subject to refund[48] Coal and Natural Resources - BNI Energy produces approximately 4 million tons of lignite coal annually and has an estimated 650 million tons of reserves, with a total reclamation liability of $82.1 million as of December 31, 2023[72] Real Estate and Land Holdings - ALLETE Properties has approximately 200 acres in the Town Center at Palm Coast project and 500 acres of other land available for sale, with $2.9 million in outstanding finance receivables as of December 31, 2023[73] Workforce and Human Resources - ALLETE has 1,560 employees as of December 31, 2023, with 479 covered under collective bargaining agreements[80] - ALLETE's Human Rights Policy and Code of Business Conduct emphasize integrity, health, safety, and diversity, equity, and inclusion[81][86] - ALLETE supports veterans and military members through its Yellow Ribbon Program, which focuses on recruiting and retaining military-connected employees[87] Executive Leadership - Bethany M. Owen has been Chair, President, and CEO since May 11, 2021, and previously held the role of President and CEO since February 3, 2020[90] - Patrick L. Cutshall has been Vice President and Corporate Treasurer since December 18, 2017[90] - Nicole R. Johnson was Vice President – Human Resources before her current role as Vice President and President of ALLETE Clean Energy[91] - Steven W. Morris has been Senior Vice President and CFO since February 9, 2022, and previously served as Vice President and Chief Accounting Officer[90] - Joshua J. Skelton was Chief Operating Officer of Minnesota Power and Vice President Generation Operations before his current role as Vice President and COO of Minnesota Power[91] - Margaret A. Thickens has been Vice President, Chief Legal Officer, and Corporate Secretary since February 13, 2019[90] - All executive officers have been employed by the company for more than five years in executive or management positions[90] - The current term of office for executive officers extends to the first Board of Directors meeting after the next annual shareholders' meeting, scheduled for May 14, 2024[91] - No family relationships exist between any of the executive officers[91] Market Risk and Disclosures - Quantitative and qualitative disclosures about market risk are discussed in Item 7 of the Management's Discussion and Analysis section[266]