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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 |
For the quarterly period ended September 30, 2022
or
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☐ |
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 |
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For the transition period from ______________ to
______________ |
Commission File Number
1-3548
ALLETE, Inc.
(Exact name of registrant as specified in its charter)
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Minnesota |
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41-0418150 |
(State or other jurisdiction of incorporation or
organization) |
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(IRS Employer Identification No.) |
30 West Superior Street
Duluth, Minnesota 55802-2093
(Address of principal executive offices)
(Zip Code)
(218) 279-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading symbol |
Name of each exchange on which registered |
Common Stock, without par value |
ALE |
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. ☒
Yes ☐
No
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files). ☒
Yes ☐
No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large Accelerated
Filer ☒
Accelerated Filer ☐
Non-Accelerated
Filer ☐
Smaller Reporting
Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). ☐
Yes ☒
No
Common Stock, without par value,
57,161,878 shares outstanding
as of September 30, 2022
Index
ALLETE, Inc. Third Quarter 2022 Form 10-Q
2
Definitions
The following abbreviations or acronyms are used in the text.
References in this report to “we,” “us” and “our” are to ALLETE,
Inc., and its subsidiaries, collectively.
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Abbreviation or Acronym |
Term |
AFUDC |
Allowance for Funds Used During Construction – the cost of both
debt and equity funds used to finance regulated utility plant
additions during construction periods |
ALLETE |
ALLETE, Inc. |
ALLETE Clean Energy |
ALLETE Clean Energy, Inc. and its subsidiaries |
ALLETE Properties |
ALLETE Properties, LLC and its subsidiaries |
ALLETE South Wind |
ALLETE South Wind, LLC |
ALLETE Transmission Holdings |
ALLETE Transmission Holdings, Inc. |
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ArcelorMittal |
ArcelorMittal S.A. |
ATC |
American Transmission Company LLC |
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Bison |
Bison Wind Energy Center |
BNI Energy |
BNI Energy, Inc. and its subsidiary |
Boswell |
Boswell Energy Center |
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Cliffs |
Cleveland-Cliffs Inc. |
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Company |
ALLETE, Inc. and its subsidiaries |
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COVID-19 |
2019 novel coronavirus |
CSAPR |
Cross-State Air Pollution Rule |
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EPA |
United States Environmental Protection Agency |
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ESOP |
Employee Stock Ownership Plan |
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FERC |
Federal Energy Regulatory Commission |
Form 10-K |
ALLETE Annual Report on Form 10-K |
Form 10-Q |
ALLETE Quarterly Report on Form 10-Q |
GAAP |
Generally Accepted Accounting Principles in the United States of
America |
GHG |
Greenhouse Gases |
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Hibbing Taconite |
Hibbing Taconite Co. |
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Invest Direct |
ALLETE’s Direct Stock Purchase and Dividend Reinvestment
Plan |
IRP |
Integrated Resource Plan |
Item ___ |
Item ___ of this Form 10-Q |
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kWh |
Kilowatt-hour(s)
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Laskin |
Laskin Energy Center |
Lampert Capital Markets |
Lampert Capital Markets, Inc. |
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Manitoba Hydro |
Manitoba Hydro-Electric Board |
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Minnesota Power |
An operating division of ALLETE, Inc. |
Minnkota Power |
Minnkota Power Cooperative, Inc. |
MISO |
Midcontinent Independent System Operator, Inc. |
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Moody’s |
Moody’s Investors Service, Inc. |
MPCA |
Minnesota Pollution Control Agency |
MPUC |
Minnesota Public Utilities Commission |
MW |
Megawatt(s) |
NAAQS |
National Ambient Air Quality Standards |
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|
New Energy |
New Energy Equity LLC |
Nobles 2 |
Nobles 2 Power Partners, LLC |
NOL |
Net Operating Loss |
|
|
NOX
|
Nitrogen Oxides |
|
|
ALLETE, Inc. Third Quarter 2022 Form 10-Q
3
|
|
|
|
|
|
Abbreviation or Acronym |
Term |
Northshore Mining |
Northshore Mining Company, a wholly-owned subsidiary of
Cleveland-Cliffs Inc. |
Note ___ |
Note ___ to the Consolidated Financial Statements in this Form
10-Q |
NPDES |
National Pollutant Discharge Elimination System |
NTEC |
Nemadji Trail Energy Center |
|
|
|
|
|
|
|
|
PPA / PSA |
Power Purchase Agreement / Power Sales Agreement |
PPACA |
Patient Protection and Affordable Care Act of 2010 |
PSCW |
Public Service Commission of Wisconsin |
SEC |
Securities and Exchange Commission |
Silver Bay Power |
Silver Bay Power Company, a wholly-owned subsidiary of
Cleveland-Cliffs Inc. |
|
|
SO2
|
Sulfur Dioxide |
Square Butte |
Square Butte Electric Cooperative, a North Dakota cooperative
corporation |
South Shore Energy |
South Shore Energy, LLC |
ST Paper |
ST Paper LLC |
SWL&P |
Superior Water, Light and Power Company |
Taconite Harbor |
Taconite Harbor Energy Center |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
United States of America |
USS Corporation |
United States Steel Corporation |
|
|
ALLETE, Inc. Third Quarter 2022 Form 10-Q
4
Forward-Looking Statements
Statements in this report that are not statements of historical
facts are considered “forward-looking” and, accordingly, involve
risks and uncertainties that could cause actual results to differ
materially from those discussed. Although such forward-looking
statements have been made in good faith and are based on reasonable
assumptions, there can be no assurance that the expected results
will be achieved. Any statements that express, or involve
discussions as to, future expectations, risks, beliefs, plans,
objectives, assumptions, events, uncertainties, financial
performance, or growth strategies (often, but not always, through
the use of words or phrases such as “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “plans,” “projects,” “likely,”
“will continue,” “could,” “may,” “potential,” “target,” “outlook”
or words of similar meaning) are not statements of historical facts
and may be forward-looking.
In connection with the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, we are providing this
cautionary statement to identify important factors that could cause
our actual results to differ materially from those indicated in
forward-looking statements made by or on behalf of ALLETE in this
Form 10-Q, in presentations, on our website, in response to
questions or otherwise. These statements are qualified in their
entirety by reference to, and are accompanied by, the following
important factors, in addition to any assumptions and other factors
referred to specifically in connection with such forward-looking
statements that could cause our actual results to differ materially
from those indicated in the forward-looking
statements:
•our
ability to successfully implement our strategic
objectives;
•global
and domestic economic conditions affecting us or our
customers;
•changes
in and compliance with laws and regulations or changes in tax rates
or policies;
•changes
in rates of inflation or availability of key materials and
supplies;
•the
outcome of legal and administrative proceedings (whether civil or
criminal) and settlements;
•weather
conditions, natural disasters and pandemic diseases, including the
ongoing COVID-19 pandemic;
•our
ability to access capital markets, bank financing and other
financing sources;
•changes
in interest rates and the performance of the financial
markets;
•project
delays or changes in project costs;
•changes
in operating expenses and capital expenditures and our ability to
raise revenues from our customers;
•the
impacts of commodity prices on ALLETE and our
customers;
•our
ability to attract and retain qualified, skilled and experienced
personnel;
•effects
of emerging technology;
•war,
acts of terrorism and cybersecurity attacks;
•our
ability to manage expansion and integrate
acquisitions;
•population
growth rates and demographic patterns;
•wholesale
power market conditions;
•federal
and state regulatory and legislative actions that impact regulated
utility economics, including our allowed rates of return, capital
structure, ability to secure financing, industry and rate
structure, acquisition and disposal of assets and facilities,
operation and construction of plant facilities and utility
infrastructure, recovery of purchased power, capital investments
and other expenses, including present or prospective environmental
matters;
•effects
of competition, including competition for retail and wholesale
customers;
•effects
of restructuring initiatives in the electric industry;
•the
impacts on our businesses of climate change and future regulation
to restrict the emissions of GHG;
•effects
of increased deployment of distributed low-carbon electricity
generation resources;
•the
impacts of laws and regulations related to renewable and
distributed generation;
•pricing,
availability and transportation of fuel and other commodities and
the ability to recover the costs of such commodities;
•our
current and potential industrial and municipal customers’ ability
to execute announced expansion plans;
•real
estate market conditions where our legacy Florida real estate
investment is located may deteriorate; and
•the
success of efforts to realize value from, invest in, and develop
new opportunities.
Additional disclosures regarding factors that could cause our
results or performance to differ from those anticipated by this
report are discussed in Part I, Item 1A. Risk Factors of our 2021
Form 10-K and Part II, Item 1A. Risk Factors of this Form 10-Q. Any
forward-looking statement speaks only as of the date on which such
statement is made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after
the date on which that statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for management to predict all of these
factors, nor can it assess the impact of each of these factors on
the businesses of ALLETE or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statement.
Readers are urged to carefully review and consider the various
disclosures made by ALLETE in this Form 10-Q and in other
reports filed with the SEC that attempt to identify the risks and
uncertainties that may affect ALLETE’s business.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
5
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ALLETE
CONSOLIDATED BALANCE SHEET
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
Millions |
|
|
|
Assets |
|
|
|
Current Assets |
|
|
|
Cash and Cash Equivalents |
$42.1 |
|
|
$45.1 |
|
Accounts Receivable (Less Allowance of $1.5 and $1.8) |
120.5 |
|
|
123.7 |
|
Inventories – Net |
472.2 |
|
|
97.7 |
|
Prepayments and Other |
87.4 |
|
|
24.8 |
|
Total Current Assets |
722.2 |
|
|
291.3 |
|
Property, Plant and Equipment – Net |
5,011.0 |
|
|
5,100.2 |
|
Regulatory Assets |
447.1 |
|
|
511.8 |
|
Equity Investments |
320.3 |
|
|
318.0 |
|
|
|
|
|
Goodwill and Intangible Assets – Net |
155.8 |
|
|
0.8 |
|
Other Non-Current Assets |
201.6 |
|
|
212.9 |
|
Total Assets |
$6,858.0 |
|
|
$6,435.0 |
|
Liabilities and Equity |
|
|
|
Liabilities |
|
|
|
Current Liabilities |
|
|
|
Accounts Payable |
$124.3 |
|
|
$111.0 |
|
Accrued Taxes |
69.5 |
|
|
65.1 |
|
Accrued Interest |
15.1 |
|
|
20.1 |
|
Long-Term Debt Due Within One Year |
308.6 |
|
|
214.2 |
|
|
|
|
|
Other |
188.5 |
|
|
133.0 |
|
Total Current Liabilities |
706.0 |
|
|
543.4 |
|
Long-Term Debt |
1,653.0 |
|
|
1,763.2 |
|
Deferred Income Taxes |
177.0 |
|
|
185.7 |
|
Regulatory Liabilities |
527.4 |
|
|
536.1 |
|
Defined Benefit Pension and Other Postretirement Benefit
Plans |
171.9 |
|
|
179.5 |
|
Other Non-Current Liabilities |
268.8 |
|
|
280.8 |
|
Total Liabilities |
3,504.1 |
|
|
3,488.7 |
|
Commitments, Guarantees and Contingencies (Note 7) |
|
|
|
Equity |
|
|
|
ALLETE Equity |
|
|
|
Common Stock Without Par Value, 80.0 Shares Authorized, 57.2 and
53.2 Shares Issued and Outstanding |
1,777.2 |
|
|
1,536.7 |
|
|
|
|
|
Accumulated Other Comprehensive Loss |
(23.8) |
|
|
(23.8) |
|
Retained Earnings |
929.2 |
|
|
900.2 |
|
Total ALLETE Equity |
2,682.6 |
|
|
2,413.1 |
|
Non-Controlling Interest in Subsidiaries |
671.3 |
|
|
533.2 |
|
Total Equity |
3,353.9 |
|
|
2,946.3 |
|
Total Liabilities and Equity |
$6,858.0 |
|
|
$6,435.0 |
|
The accompanying notes are an integral part of these
statements.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
6
ALLETE
CONSOLIDATED STATEMENT OF INCOME
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2022 |
2021 |
|
2022 |
2021 |
Millions Except Per Share Amounts |
|
|
|
|
|
Operating Revenue |
|
|
|
|
|
Contracts with Customers – Utility |
$322.6 |
|
$304.8 |
|
|
$960.3 |
|
$888.2 |
|
Contracts with Customers – Non-utility |
64.5 |
|
37.7 |
|
|
178.3 |
|
123.4 |
|
Other – Non-utility |
1.2 |
|
2.9 |
|
|
6.3 |
|
8.6 |
|
|
|
|
|
|
|
Total Operating Revenue |
388.3 |
|
345.4 |
|
|
1,144.9 |
|
1,020.2 |
|
Operating Expenses |
|
|
|
|
|
Fuel, Purchased Power and Gas – Utility |
136.8 |
|
140.1 |
|
|
417.4 |
|
389.4 |
|
Transmission Services – Utility |
19.3 |
|
19.2 |
|
|
57.5 |
|
56.1 |
|
Cost of Sales – Non-utility |
38.4 |
|
15.2 |
|
|
96.9 |
|
47.8 |
|
Operating and Maintenance |
83.2 |
|
66.7 |
|
|
238.1 |
|
200.1 |
|
Depreciation and Amortization |
58.7 |
|
57.5 |
|
|
181.4 |
|
173.4 |
|
Taxes Other than Income Taxes |
18.5 |
|
15.6 |
|
|
53.1 |
|
52.1 |
|
Total Operating Expenses |
354.9 |
|
314.3 |
|
|
1,044.4 |
|
918.9 |
|
Operating Income |
33.4 |
|
31.1 |
|
|
100.5 |
|
101.3 |
|
Other Income (Expense) |
|
|
|
|
|
Interest Expense |
(18.4) |
|
(17.3) |
|
|
(55.3) |
|
(51.8) |
|
Equity Earnings |
2.3 |
|
4.4 |
|
|
13.1 |
|
14.3 |
|
|
|
|
|
|
|
Other |
2.3 |
|
1.0 |
|
|
16.4 |
|
6.1 |
|
Total Other Expense |
(13.8) |
|
(11.9) |
|
|
(25.8) |
|
(31.4) |
|
Income Before Income Taxes |
19.6 |
|
19.2 |
|
|
74.7 |
|
69.9 |
|
Income Tax Benefit |
(7.2) |
|
(4.9) |
|
|
(19.4) |
|
(19.3) |
|
Net Income |
26.8 |
|
24.1 |
|
|
94.1 |
|
89.2 |
|
Net Loss Attributable to Non-Controlling Interest |
(6.9) |
|
(3.5) |
|
|
(43.5) |
|
(18.1) |
|
Net Income Attributable to ALLETE |
$33.7 |
|
$27.6 |
|
|
$137.6 |
|
$107.3 |
|
Average Shares of Common Stock |
|
|
|
|
|
Basic |
57.1 |
|
52.4 |
|
|
55.5 |
|
52.3 |
|
Diluted |
57.2 |
|
52.5 |
|
|
55.6 |
|
52.3 |
|
Basic Earnings Per Share of Common Stock |
$0.59 |
|
$0.53 |
|
|
$2.48 |
|
$2.05 |
|
Diluted Earnings Per Share of Common Stock |
$0.59 |
|
$0.53 |
|
|
$2.48 |
|
$2.05 |
|
The accompanying notes are an integral part of these
statements.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
7
ALLETE
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Millions |
|
|
|
|
|
|
|
Net Income |
$26.8 |
|
|
$24.1 |
|
|
$94.1 |
|
|
$89.2 |
|
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Loss on Securities |
|
|
|
|
|
|
|
Net of Income Tax Expense of $–, $–, $(0.2) and $– |
— |
|
|
— |
|
|
(0.4) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Benefit Pension and Other Postretirement Benefit
Plans |
|
|
|
|
|
|
|
Net of Income Tax Expense of $0.1, $0.1, $0.2 and $0.4 |
0.1 |
|
|
0.4 |
|
|
0.4 |
|
|
1.2 |
|
Total Other Comprehensive Income |
0.1 |
|
|
0.4 |
|
|
— |
|
|
1.2 |
|
Total Comprehensive Income |
26.9 |
|
|
24.5 |
|
|
94.1 |
|
|
90.4 |
|
Net Loss Attributable to Non-Controlling Interest |
(6.9) |
|
|
(3.5) |
|
|
(43.5) |
|
|
(18.1) |
|
Total Comprehensive Income Attributable to ALLETE |
$33.8 |
|
|
$28.0 |
|
|
$137.6 |
|
|
$108.5 |
|
The accompanying notes are an integral part of these
statements.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
8
ALLETE
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
September 30, |
|
2022 |
|
2021 |
Millions |
|
|
|
Operating Activities |
|
|
|
Net Income |
$94.1 |
|
|
$89.2 |
|
Adjustments to Reconcile Net Income to Cash provided by Operating
Activities: |
|
|
|
AFUDC – Equity |
(2.4) |
|
|
(1.7) |
|
Income from Equity Investments – Net of Dividends |
3.8 |
|
|
1.8 |
|
Loss (Gain) on Investments and Property, Plant and
Equipment |
2.1 |
|
|
(0.7) |
|
Depreciation Expense |
181.3 |
|
|
173.4 |
|
Amortization of PSAs |
(6.3) |
|
|
(8.6) |
|
Amortization of Other Intangible Assets and Other
Assets |
6.3 |
|
|
7.4 |
|
Deferred Income Tax Benefit |
(19.7) |
|
|
(19.4) |
|
Share-Based and ESOP Compensation Expense |
4.2 |
|
|
4.6 |
|
|
|
|
|
Defined Benefit Pension and Postretirement Benefit Expense
(Benefit) |
(2.2) |
|
|
3.3 |
|
|
|
|
|
|
|
|
|
Fuel Adjustment Clause |
(3.5) |
|
|
(30.1) |
|
Bad Debt Expense |
1.4 |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
Residential Interim Rate Adjustment |
(5.9) |
|
|
— |
|
Changes in Operating Assets and Liabilities |
|
|
|
Accounts Receivable |
3.2 |
|
|
0.8 |
|
Inventories |
(261.4) |
|
|
(15.4) |
|
Prepayments and Other |
(7.7) |
|
|
7.9 |
|
Accounts Payable |
8.0 |
|
|
4.0 |
|
Other Current Liabilities |
63.5 |
|
|
20.7 |
|
Cash Contributions to Defined Benefit Pension Plans |
— |
|
|
(10.3) |
|
Changes in Regulatory and Other Non-Current Assets |
28.0 |
|
|
(11.2) |
|
Changes in Regulatory and Other Non-Current Liabilities |
(5.6) |
|
|
(7.4) |
|
Cash provided by Operating Activities |
81.2 |
|
|
209.2 |
|
Investing Activities |
|
|
|
Proceeds from Sale of Available-for-sale Securities |
1.7 |
|
|
3.3 |
|
Payments for Purchase of Available-for-sale Securities |
(1.7) |
|
|
(3.0) |
|
Acquisition of Subsidiaries - Net of Cash & Restricted Cash
Acquired |
(155.0) |
|
|
— |
|
Payments for Equity Method Investments |
(5.1) |
|
|
(17.4) |
|
|
|
|
|
|
|
|
|
Additions to Property, Plant and Equipment |
(152.0) |
|
|
(384.3) |
|
|
|
|
|
|
|
|
|
Other Investing Activities |
1.0 |
|
|
4.3 |
|
Cash used in Investing Activities |
(311.1) |
|
|
(397.1) |
|
Financing Activities |
|
|
|
Proceeds from Issuance of Common Stock |
244.4 |
|
|
31.0 |
|
Equity Issuance Costs |
(8.1) |
|
|
— |
|
Proceeds from Issuance of Short-Term and Long-Term Debt |
720.5 |
|
|
510.6 |
|
|
|
|
|
Repayments of Short-Term and Long-Term Debt |
(771.0) |
|
|
(280.9) |
|
Proceeds from Non-Controlling Interest in Subsidiaries -
Net |
155.7 |
|
|
28.9 |
|
|
|
|
|
|
|
|
|
Dividends on Common Stock |
(108.6) |
|
|
(98.7) |
|
Other Financing Activities |
(2.1) |
|
|
(2.8) |
|
Cash provided by Financing Activities |
230.8 |
|
|
188.1 |
|
Change in Cash, Cash Equivalents and Restricted Cash |
0.9 |
|
|
0.2 |
|
Cash, Cash Equivalents and Restricted Cash at Beginning of
Period |
47.7 |
|
|
65.2 |
|
Cash, Cash Equivalents and Restricted Cash at End of
Period |
$48.6 |
|
|
$65.4 |
|
The accompanying notes are an integral part of these
statements.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
9
ALLETE
CONSOLIDATED STATEMENT OF EQUITY
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2022 |
2021 |
|
2022 |
2021 |
Millions Except Per Share Amounts |
|
|
|
|
|
Common Stock |
|
|
|
|
|
Balance, Beginning of Period |
$1,771.7 |
|
$1,474.1 |
|
|
$1,536.7 |
|
$1,460.9 |
|
Common Stock Issued |
5.5 |
|
22.4 |
|
|
240.5 |
|
35.6 |
|
|
|
|
|
|
|
Balance, End of Period |
1,777.2 |
|
1,496.5 |
|
|
1,777.2 |
|
1,496.5 |
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss |
|
|
|
|
|
Balance, Beginning of Period |
(23.9) |
|
(30.3) |
|
|
(23.8) |
|
(31.1) |
|
Other Comprehensive Income - Net of Income Taxes |
|
|
|
|
|
Unrealized Loss on Debt Securities |
— |
|
— |
|
|
(0.4) |
|
— |
|
Defined Benefit Pension and Other Postretirement Plans |
0.1 |
|
0.4 |
|
|
0.4 |
|
1.2 |
|
Balance, End of Period |
(23.8) |
|
(29.9) |
|
|
(23.8) |
|
(29.9) |
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
Balance, Beginning of Period |
932.6 |
|
878.8 |
|
|
900.2 |
|
864.8 |
|
Net Income Attributable to ALLETE |
33.7 |
|
27.6 |
|
|
137.6 |
|
107.3 |
|
Common Stock Dividends |
(37.1) |
|
(33.0) |
|
|
(108.6) |
|
(98.7) |
|
|
|
|
|
|
|
Balance, End of Period |
929.2 |
|
873.4 |
|
|
929.2 |
|
873.4 |
|
|
|
|
|
|
|
Non-Controlling Interest in Subsidiaries |
|
|
|
|
|
Balance, Beginning of Period |
678.5 |
|
519.3 |
|
|
533.2 |
505.6 |
Proceeds from Non-Controlling Interest in Subsidiaries -
Net |
— |
|
— |
|
|
182.9 |
|
28.9 |
|
Net Loss Attributable to Non-Controlling Interest |
(6.9) |
|
(3.5) |
|
|
(43.5) |
|
(18.1) |
|
|
|
|
|
|
|
Distributions to Non-Controlling Interest |
(0.3) |
|
(1.3) |
|
|
(1.3) |
|
(1.9) |
|
Balance, End of Period |
671.3 |
|
514.5 |
|
|
671.3 |
|
514.5 |
|
|
|
|
|
|
|
Total Equity |
$3,353.9 |
|
$2,854.5 |
|
|
$3,353.9 |
|
$2,854.5 |
|
|
|
|
|
|
|
Dividends Per Share of Common Stock |
$0.65 |
|
$0.63 |
|
|
$1.95 |
|
$1.89 |
|
The accompanying notes are an integral part of these
statements.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
The accompanying unaudited Consolidated Financial Statements have
been prepared in accordance with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X, and do not
include all of the information and notes required by GAAP for
complete financial statements. Similarly, the December 31,
2021, Consolidated Balance Sheet was derived from audited financial
statements, but does not include all disclosures required by GAAP.
The presentation of certain prior period amounts on the
Consolidated Financial Statements have been adjusted for
comparative purposes. In management’s opinion, these unaudited
financial statements include all adjustments necessary for a fair
statement of financial results. All adjustments are of a normal,
recurring nature, except as otherwise disclosed. Operating results
for the nine months ended September 30, 2022, are
not necessarily indicative of results that may be expected for any
other interim period or for the year ending December 31, 2022.
For further information, refer to the Consolidated Financial
Statements and notes included in our 2021 Form 10-K.
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES
Cash, Cash Equivalents and Restricted Cash.
We consider all investments purchased with original maturities of
three months or less to be cash equivalents. As of
September 30, 2022, restricted cash amounts included in
Prepayments and Other on the Consolidated Balance Sheet include
collateral deposits required under ALLETE Clean Energy loan and tax
equity financing agreements. The restricted cash amounts included
in Other Non-Current Assets represent collateral deposits required
under an ALLETE Clean Energy loan agreement as well as PSAs. The
following table provides a reconciliation of cash, cash equivalents
and restricted cash reported within the Consolidated Balance Sheet
that aggregate to the amounts presented in the Consolidated
Statement of Cash Flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, Cash Equivalents and Restricted Cash |
September 30,
2022 |
|
December 31,
2021 |
|
September 30,
2021 |
|
December 31,
2020 |
Millions |
|
|
|
|
|
|
|
Cash and Cash Equivalents |
$42.1 |
|
|
$45.1 |
|
|
$59.0 |
|
|
$44.3 |
|
Restricted Cash included in Prepayments and Other |
4.2 |
|
|
0.3 |
|
|
4.1 |
|
|
0.8 |
|
Restricted Cash included in Other Non-Current Assets |
2.3 |
|
|
2.3 |
|
|
2.3 |
|
|
20.1 |
|
Cash, Cash Equivalents and Restricted Cash on the Consolidated
Statement of Cash Flows |
$48.6 |
|
|
$47.7 |
|
|
$65.4 |
|
|
$65.2 |
|
Inventories – Net.
Inventories are stated at the lower of cost or net realizable
value. Inventories in our Regulated Operations segment are carried
at an average cost or first-in, first-out basis. Inventories in our
ALLETE Clean Energy segment and Corporate and Other businesses are
carried at an average cost, first-in, first-out or specific
identification basis.
|
|
|
|
|
|
|
|
|
|
|
|
Inventories – Net |
September 30,
2022 |
|
December 31,
2021 |
Millions |
|
|
|
Fuel
(a)
|
$36.2 |
|
|
$18.7 |
|
Materials and Supplies |
70.6 |
|
|
56.1 |
|
Renewable Energy Facilities Under Development
(b)
|
365.4 |
|
|
22.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Inventories – Net |
$472.2 |
|
|
$97.7 |
|
(a) Fuel consists primarily of coal
inventory at Minnesota Power.
(b) Renewable Energy Facilities Under
Development consists primarily of project costs related to ALLETE
Clean Energy’s Northern Wind, Rock Aetna, and Red Barn wind
projects which are expected to be sold in late 2022 and early 2023,
respectively. (See Other Current Liabilities.)
ALLETE, Inc. Third Quarter 2022 Form 10-Q
11
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
Other Non-Current Assets |
September 30,
2022 |
|
December 31,
2021 |
Millions |
|
|
|
Contract Assets
(a)
|
$21.5 |
|
|
$23.3 |
|
|
|
|
|
Operating Lease Right-of-use Assets |
13.9 |
|
|
16.4 |
|
ALLETE Properties |
17.6 |
|
|
19.4 |
|
Restricted Cash |
2.3 |
|
|
2.3 |
|
Other Postretirement Benefit Plans |
66.5 |
|
|
64.8 |
|
Other |
79.8 |
|
|
86.7 |
|
Total Other Non-Current Assets |
$201.6 |
|
|
$212.9 |
|
(a) Contract Assets consist of payments made
to customers as an incentive to execute or extend service
agreements. The contract payments are being amortized over the term
of the respective agreements as a reduction to revenue.
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities |
September 30,
2022 |
|
December 31,
2021 |
Millions |
|
|
|
|
|
|
|
Customer Deposits
(a)
|
$111.7 |
|
|
$27.2 |
|
PSAs |
6.1 |
|
|
12.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufactured Gas Plant
(b)
|
17.8 |
|
|
12.8 |
|
Fuel Adjustment Clause |
— |
|
|
5.0 |
|
Operating Lease Liabilities |
3.7 |
|
|
4.8 |
|
Redeemable Non-Controlling Interest
(c)
|
— |
|
|
30.6 |
|
Other |
49.2 |
|
|
40.0 |
|
Total Other Current Liabilities |
$188.5 |
|
|
$133.0 |
|
(a) Primarily related to deposits received by ALLETE Clean Energy
for the Northern Wind, Rock Aetna and Red Barn wind projects which
are expected to be sold in late 2022 and early 2023, respectively.
(See Inventories – Net.)
(b) The manufactured gas plant represents the current liability for
remediation of a former manufactured gas plant site located in
Superior, Wisconsin, and formerly operated by
SWL&P.
(c) Amount reclassified from Non-Controlling Interest in
Subsidiaries resulting from the exercise of an option to buy out a
non-controlling interest, which was paid in the first quarter of
2022.
|
|
|
|
|
|
|
|
|
|
|
|
Other Non-Current Liabilities |
September 30,
2022 |
|
December 31,
2021 |
Millions |
|
|
|
Asset Retirement Obligation
(a)
|
$197.2 |
|
|
$184.5 |
|
PSAs |
28.4 |
|
|
39.5 |
|
|
|
|
|
Manufactured Gas Plant
(b)
|
0.2 |
|
|
5.2 |
|
Operating Lease Liabilities |
10.0 |
|
|
11.6 |
|
Other |
33.0 |
|
|
40.0 |
|
Total Other Non-Current Liabilities |
$268.8 |
|
|
$280.8 |
|
(a)The
asset retirement obligation is primarily related to our Regulated
Operations and is funded through customer rates over the life of
the related assets. Additionally, BNI Energy funds its obligation
through its cost-plus coal supply agreements for which BNI Energy
has recorded a receivable of $28.5 million in Other
Non-Current Assets on the Consolidated Balance Sheet as of
September 30, 2022, ($28.5 million as of
December 31, 2021).
(b)The
manufactured gas plant represents the non-current liability for
remediation of a former manufactured gas plant site located in
Superior, Wisconsin, and formerly operated by
SWL&P.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
12
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
Other Income |
2022 |
2021 |
|
2022 |
2021 |
Millions |
|
|
|
|
|
Pension and Other Postretirement Benefit Plan Non-Service
Credits
(a)
|
$1.9 |
|
$1.6 |
|
|
$7.2 |
|
$4.4 |
|
Interest and Investment Income (Loss) |
(0.4) |
|
(0.1) |
|
|
(1.3) |
|
1.7 |
|
AFUDC - Equity |
0.7 |
|
0.6 |
|
|
2.4 |
|
1.7 |
|
PSA Liability
(b)
|
— |
|
— |
|
|
10.2 |
|
— |
|
Other |
0.1 |
|
(1.1) |
|
|
(2.1) |
|
(1.7) |
|
Total Other Income |
$2.3 |
|
$1.0 |
|
|
$16.4 |
|
$6.1 |
|
(a)These
are components of net periodic pension and other postretirement
benefit cost other than service cost. (See Note 10. Pension and
Other Postretirement Benefit Plans.)
(b)The
gain on removal of the PSA liability for the Northern Wind project
upon decommissioning of the legacy wind energy facility assets,
which was fully offset by a reserve for an anticipated loss on the
sale of the Northern Wind project.
Supplemental Statement of Cash Flows Information.
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
2022 |
|
2021 |
Millions |
|
|
|
Cash Paid for Interest – Net of Amounts Capitalized |
$60.5 |
|
$54.9 |
|
|
|
|
Noncash Investing and Financing Activities |
|
|
|
|
|
|
|
Increase (Decrease) in Accounts Payable for Capital Additions to
Property, Plant and Equipment |
$2.4 |
|
$(12.1) |
Reclassification of Property, Plant and Equipment to
Inventory
(a)
|
$99.8 |
|
— |
Capitalized Asset Retirement Costs |
$9.0 |
|
$3.5 |
AFUDC–Equity |
$2.4 |
|
$1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)The
decommissioning of the existing Northern Wind assets resulted in a
reclassification from Property, Plant and Equipment – Net to
Inventories – Net in the second quarter of 2022 as they are being
sold to a subsidiary of Xcel Energy Inc. In the third quarter of
2022, safe harbor equipment was transferred to the project entity
resulting in an additional reclassification from Property, Plant
and Equipment - Net to Inventories - Net.
Non-Controlling Interest in Subsidiaries.
Non-controlling interest in subsidiaries on the Consolidated
Balance Sheet and net loss attributable to non-controlling interest
on the Consolidated Statement of Income represent the portion of
equity ownership and earnings, respectively, of subsidiaries that
are not attributable to equity holders of ALLETE. These amounts are
primarily related to the tax equity financing structures for ALLETE
Clean Energy’s 106 MW Glen Ullin, 80 MW South Peak, 303 MW
Diamond Spring and 303 MW Caddo wind energy facilities as well as
ALLETE’s equity investment in the 250 MW Nobles 2 wind energy
facility.
Subsequent Events.
The Company performed an evaluation of subsequent events for
potential recognition and disclosure through the date of the
financial statements issuance.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
13
NOTE 2. REGULATORY MATTERS
Regulatory matters are summarized in Note 4. Regulatory Matters to
the Consolidated Financial Statements in our
2021 Form 10-K, with additional disclosure provided in
the following paragraphs.
Electric Rates.
Entities within our Regulated Operations segment file for periodic
rate revisions with the MPUC, PSCW or FERC. As authorized by the
MPUC, Minnesota Power also recognizes revenue under cost recovery
riders for transmission, renewable, and environmental investments
and expenditures. Revenue from cost recovery riders was $19.5
million for the nine months ended September 30, 2022
($29.2 million for the nine months ended
September 30, 2021).
2022 Minnesota General Rate Case.
On November 1, 2021, Minnesota Power filed a retail rate increase
request with the MPUC seeking an average increase of approximately
18 percent for retail customers. The rate filing seeks a return on
equity of 10.25 percent and a 53.81 percent equity ratio. On an
annualized basis, the requested final rate increase would generate
approximately $108 million in additional revenue. In orders
dated December 30, 2021, the MPUC accepted the filing as complete
and authorized an annual interim rate increase beginning January 1,
2022, with approximately $80 million expected to be collected
in cash and approximately $8 million of interim rates for
residential customers deferred with a final determination on
recovery at the end of the rate case.
On September 1, 2022, the administrative law judge (ALJ) issued a
report containing recommendations that if adopted in whole by the
MPUC would result in an increase in rates of approximately
$76 million on an annualized basis. On September 23, 2022,
Minnesota Power filed exceptions totaling approximately
$30 million to the ALJ’s report contesting certain
recommendations. A final decision by the MPUC is expected in
early 2023. Management has evaluated the need for a reserve
for interim rate refunds and concluded that a reserve is not
necessary as of September 30, 2022. We cannot predict the level of
final rates that may be authorized by the MPUC.
2022 Wisconsin General Rate Case.
On June 1, 2022, SWL&P refiled its rate increase request with
the PSCW seeking an average increase of 3.6 percent for retail
customers. The filing seeks an overall return on equity of 10.4
percent and a 55 percent equity ratio. On an annualized basis,
the requested final rate increase would generate approximately
$4.3 million in additional revenue.
Renewable Cost Recovery Rider.
Minnesota Power has an approved cost recovery rider in place to
charge retail customers on a current basis for the costs of certain
renewable investments and expenditures, including a return on the
capital invested. Current customer billing rates for the renewable
cost recovery rider were approved by the MPUC in a 2020 order. On
February 2, 2022, Minnesota Power submitted its 2022 renewable
factor filing, which included a request to recover a regulatory
asset of $3.8 million related to the recognition of production
tax credits due to a metering error at Bison. If the filing is
approved, Minnesota Power would be authorized to include updated
billing rates on customer bills; any portion disallowed would be
charged to earnings.
Fuel Adjustment Clause.
In 2020, Minnesota Power filed its fuel adjustment forecast for
2021, which was approved by the MPUC in a December 2020 order,
subject to the annual prudence review and true-up filing in 2022.
During 2021, Minnesota Power incurred higher fuel and purchased
power costs than those forecasted in its May 2020 filing, which
resulted in the recognition of an approximately $56 million
regulatory asset through December 31, 2021. Minnesota Power
submitted its annual true-up filing and a significant events filing
in March 2022 requesting recovery of these under-collected fuel
adjustment clause recoveries. No parties objected to the request;
recovery of the regulatory asset began in April 2022 and will
continue through mid-2023. The MPUC approved recovery of the
regulatory asset in an order dated July 5, 2022.
Minnesota Power has also incurred higher fuel and purchased power
costs in 2022 than those factored in its fuel adjustment forecast
filed in May 2021 for 2022, which resulted in the recognition of an
approximately $23 million regulatory asset as of September 30,
2022. Minnesota Power filed a significant events filing in June
2022 requesting recovery of the under-collected fuel adjustment
clause recoveries that are expected for 2022 from August 2022
through December 2022. No parties objected to the request and
higher rates were implemented in August 2022 to recover the
expected under-collection of fuel adjustment clause recoveries,
subject to final approval by the MPUC which is expected in
2023.
Conservation Improvement Program.
On April 1, 2022, Minnesota Power submitted its 2021 consolidated
filing detailing Minnesota Power’s CIP program results and
requesting a CIP financial incentive of $1.9 million based
upon MPUC procedures, which was recognized in the second quarter of
2022 upon approval by the MPUC at a hearing on June 30, 2022. In
2021, a CIP financial incentive of $2.4 million was recognized
in the third quarter upon approval by the MPUC of Minnesota Power’s
2020 CIP consolidated filing. CIP financial incentives are
recognized in the period in which the MPUC approves the
filing.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
14
NOTE 2. REGULATORY MATTERS (Continued)
2021 Integrated Resource Plan.
On February 1, 2021, Minnesota Power filed its latest IRP with the
MPUC, which outlines its clean-energy transition plans through
2035. These plans include expanding its renewable energy supply,
achieving coal-free operations at its facilities by 2035, and
investing in a resilient and flexible transmission and distribution
grid. As part of these plans, Minnesota Power anticipates adding
approximately 400 MW of new wind and solar energy resources,
retiring Boswell Unit 3 by 2030 and transforming Boswell Unit 4 to
be coal-free by 2035. Minnesota Power’s plans recognize that
advances in technology will play a significant role in completing
its transition to carbon-free energy supply, reliably and
affordably. A final decision on the IRP is expected in the fourth
quarter of 2022.
Regulatory Assets and Liabilities.
Our regulated utility operations are subject to accounting guidance
for the effect of certain types of regulation. Regulatory assets
represent incurred costs that have been deferred as they are
probable for recovery in customer rates. Regulatory liabilities
represent obligations to make refunds to customers and amounts
collected in rates for which the related costs have not yet been
incurred. The Company assesses quarterly whether regulatory assets
and liabilities meet the criteria for probability of future
recovery or deferral. The recovery, refund or credit to rates for
these regulatory assets and liabilities will occur over the periods
either specified by the applicable regulatory authority or over the
corresponding period related to the asset or
liability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Assets and Liabilities |
September 30,
2022 |
|
December 31,
2021 |
|
|
Millions |
|
|
|
|
|
Current Regulatory Assets
(a)
|
|
|
|
|
|
Fuel Adjustment Clause |
$38.7 |
|
|
— |
|
|
|
Total Current Regulatory Assets |
38.7 |
|
|
— |
|
|
|
Non-Current Regulatory Assets |
|
|
|
|
|
Defined Benefit Pension and Other Postretirement Benefit
Plans |
217.0 |
|
|
$226.4 |
|
|
|
Income Taxes |
99.3 |
|
|
104.7 |
|
|
|
Cost Recovery Riders |
39.6 |
|
|
63.2 |
|
|
|
Asset Retirement Obligations |
34.9 |
|
|
33.1 |
|
|
|
Fuel Adjustment Clause |
22.9 |
|
|
56.4 |
|
|
|
Manufactured Gas Plant
|
17.7 |
|
|
17.0 |
|
|
|
PPACA Income Tax Deferral |
4.2 |
|
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Customer Interim Rate Adjustment |
5.9 |
|
|
— |
|
|
|
Other |
5.6 |
|
|
6.7 |
|
|
|
Total Non-Current Regulatory Assets |
447.1 |
|
|
511.8 |
|
|
|
Total Regulatory Assets |
$485.8 |
|
|
$511.8 |
|
|
|
|
|
|
|
|
|
Current Regulatory Liabilities
(b)
|
|
|
|
|
|
Fuel Adjustment Clause |
— |
|
|
$5.0 |
|
|
|
|
|
|
|
|
|
Transmission Formula Rates Refund |
$5.1 |
|
|
3.1 |
|
|
|
Other |
0.1 |
|
|
0.5 |
|
|
|
Total Current Regulatory Liabilities |
5.2 |
|
|
8.6 |
|
|
|
Non-Current Regulatory Liabilities |
|
|
|
|
|
Income Taxes |
338.0 |
|
|
353.4 |
|
|
|
Wholesale and Retail Contra AFUDC |
81.5 |
|
|
83.7 |
|
|
|
Plant Removal Obligations |
58.8 |
|
|
52.6 |
|
|
|
North Dakota Investment Tax Credits |
13.4 |
|
|
12.2 |
|
|
|
Defined Benefit Pension and Other Postretirement Benefit
Plans |
23.5 |
|
|
28.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boswell Units 1 and 2 Net Plant and Equipment |
5.1 |
|
|
0.4 |
|
|
|
Regulated Land Sales |
2.2 |
|
|
— |
|
|
|
Other |
4.9 |
|
|
5.7 |
|
|
|
Total Non-Current Regulatory Liabilities |
527.4 |
|
|
536.1 |
|
|
|
Total Regulatory Liabilities |
$532.6 |
|
|
$544.7 |
|
|
|
(a)Current
regulatory assets are presented within Prepayments and Other on the
Consolidated Balance Sheet.
(b)Current
regulatory liabilities are presented within Other Current
Liabilities on the Consolidated Balance Sheet.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
15
NOTE 3. ACQUISITIONS
2022 Activity
New Energy.
On April 15, 2022, a wholly-owned subsidiary of ALLETE acquired 100
percent of the membership interests of New Energy for a purchase
price of $165.5 million. Total consideration of approximately
$158.8 million was paid in cash on the acquisition date, which
is net of cash acquired and debt assumed. New Energy, which is
headquartered in Annapolis, Maryland, is a renewable energy
development company with a primary focus on solar and storage
facilities while also offering comprehensive operations,
maintenance and asset management services. The acquisition of New
Energy is consistent with ALLETE’s stated strategy of additional
investment in renewable energy and related infrastructure across
North America to support the Company’s sustainability-in-action
strategy while providing potential long-term earnings
growth.
The acquisition was accounted for as a business combination and the
purchase price was allocated based on the preliminary estimated
fair values of the assets acquired and the liabilities assumed at
the date of acquisition, as shown in the following table. The
allocation of the purchase price is subject to judgment and the
preliminary estimated fair value of the assets acquired and the
liabilities assumed may be adjusted when the valuation analysis is
complete in subsequent periods. Preliminary estimates subject to
adjustment in subsequent periods relate primarily to working
capital; subsequent adjustments could impact the amount of goodwill
recorded. Fair value measurements were valued primarily using the
discounted cash flow method and replacement cost basis. The
goodwill recorded is primarily attributable to the highly skilled
workforce of New Energy and synergies expected to arise as a result
of the acquisition.
Since the acquisition in April 2022, aggregate revenue was
$39.9 million. The Company has not presented separate results
of operations since closing or combined pro forma financial
information of the Company and New Energy since the beginning of
2021, as the results of operations for New Energy are not material
to the Company's consolidated financials.
|
|
|
|
|
|
|
|
|
Millions |
|
|
|
|
Assets Acquired |
|
|
|
|
Cash and Cash Equivalents |
|
|
|
$3.9 |
|
Accounts Receivable |
|
|
|
1.4 |
|
Inventory
(a)
|
|
|
|
25.3 |
|
Other Current Assets |
|
|
|
12.6 |
|
Property, Plant and Equipment - Net |
|
|
|
16.4 |
|
Goodwill
(b)
|
|
|
|
155.1 |
|
Other Non-Current Assets |
|
|
|
2.1 |
|
Total Assets Acquired |
|
|
|
$216.8 |
|
Liabilities Assumed |
|
|
|
|
Current Liabilities |
|
|
|
$23.6 |
|
Long-Term Debt Due Within One Year |
|
|
|
28.3 |
|
Long-Term Debt |
|
|
|
5.9 |
|
Other Non-Current Liabilities |
|
|
|
0.2 |
|
Total Liabilities Assumed |
|
|
|
$58.0 |
|
Net Identifiable Assets Acquired |
|
|
|
$158.8 |
|
(a)Includes
$11.6 million of purchase price accounting for certain
projects under development at the time of acquisition.
(b)For
tax purpose, the purchase price allocation resulted in
$155.1 million of deductible goodwill.
During the third quarter of 2022, the Company recorded purchase
accounting adjustments related to the acquisition of New Energy
which resulted in an increase to net liabilities of
$6.2 million, current assets increased by $1.4 million
and goodwill increased by $4.8 million.
Acquisition-related costs were $2.6 million after-tax,
expensed as incurred during 2022 and recorded in Operating and
Maintenance on the Consolidated Statement of Income.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
16
NOTE 4. EQUITY INVESTMENTS
Investment in ATC.
Our wholly-owned subsidiary, ALLETE Transmission Holdings, owns
approximately 8 percent of ATC, a Wisconsin-based utility that owns
and maintains electric transmission assets in portions of
Wisconsin, Michigan, Minnesota and Illinois. We account for our
investment in ATC under the equity method of
accounting.
|
|
|
|
|
|
ALLETE’s Investment in ATC |
|
Millions |
|
Equity Investment Balance as of December 31, 2021 |
$154.5 |
|
Cash Investments |
5.1 |
|
Equity in ATC Earnings |
13.8 |
|
Distributed ATC Earnings |
(13.1) |
|
Amortization of the Remeasurement of Deferred Income
Taxes |
1.0 |
|
Equity Investment Balance as of September 30, 2022 |
$161.3 |
|
ATC’s authorized return on equity was 10.02 percent, or 10.52
percent including an incentive adder for participation in a
regional transmission organization, based on a 2020 FERC order
which was subject to various outstanding legal challenges related
to the return on equity calculation and refund period ordered by
the FERC. On August 9, 2022, the U.S. Court of Appeals for the
District of Columbia Circuit vacated and remanded the 2020 FERC
order back to FERC. As a result of this decision, ATC recorded a
reserve in the third quarter of 2022 for anticipated refunds to its
customers for approximately $31 million of which our share was
$2.4 million pre-tax. We cannot predict the return on equity
FERC will ultimately authorize in the remanded
proceeding.
In addition, the FERC issued a Notice of Proposed Rulemaking in
April 2021 proposing to limit the 50 basis point incentive adder
for participation in a regional transmission organization to only
the first three years of membership in such an organization. If
this proposal is adopted, our equity in earnings from ATC would be
reduced by approximately $1 million pre-tax
annually.
Investment in Nobles 2.
Our subsidiary, ALLETE South Wind, owns 49 percent of Nobles 2, the
entity that owns and operates a 250 MW wind energy facility in
southwestern Minnesota pursuant to a 20-year PPA with Minnesota
Power. We account for our investment in Nobles 2 under the equity
method of accounting.
|
|
|
|
|
|
ALLETE’s Investment in Nobles 2 |
|
Millions |
|
Equity Investment Balance as of December 31, 2021 |
$163.5 |
|
|
|
Equity in Nobles 2 Earnings
(a)
|
(0.7) |
|
Distributed Nobles 2 Earnings |
(3.8) |
|
Equity Investment Balance as of September 30, 2022 |
$159.0 |
|
(a)The
Company also recorded net loss attributable to non-controlling
interest of $7.5 million related to its investment in Nobles
2.
NOTE 5. FAIR VALUE
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date (exit price). We
utilize market data or assumptions that market participants would
use in pricing the asset or liability, including assumptions about
risk and the risks inherent in the inputs to the valuation
technique. These inputs can be readily observable, market
corroborated or generally unobservable. We primarily apply the
market approach for recurring fair value measurements and endeavor
to utilize the best available information. Accordingly, we utilize
valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. These inputs, which are
used to measure fair value, are prioritized through the fair value
hierarchy. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement). Descriptions of the three levels of
the fair value hierarchy are discussed in Note 6. Fair Value to the
Consolidated Financial Statements in our 2021 Form
10-K.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
17
NOTE 5. FAIR VALUE (Continued)
The following tables set forth, by level within the fair value
hierarchy, our assets and liabilities that were accounted for at
fair value on a recurring basis as of September 30, 2022, and
December 31, 2021. Each asset and liability is classified
based on the lowest level of input that is significant to the fair
value measurement. Our assessment of the significance of a
particular input to the fair value measurement requires judgment,
which may affect the valuation of these assets and liabilities and
their placement within the fair value hierarchy levels. The
estimated fair value of Cash and Cash Equivalents on the
Consolidated Balance Sheet approximates the carrying amount and
therefore is excluded from the recurring fair value measures in the
following tables.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of September 30, 2022 |
Recurring Fair Value Measures |
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Millions |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Investments
(a)
|
|
|
|
|
|
|
|
Available-for-sale – Equity Securities |
$6.9 |
|
|
— |
|
|
— |
|
|
$6.9 |
|
Available-for-sale – Corporate and Governmental Debt
Securities
(b)
|
— |
|
|
$5.4 |
|
|
— |
|
|
5.4 |
|
Cash Equivalents |
3.4 |
|
|
— |
|
|
— |
|
|
3.4 |
|
Total Fair Value of Assets |
$10.3 |
|
|
$5.4 |
|
|
— |
|
|
$15.7 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Deferred Compensation
(c)
|
— |
|
|
$14.8 |
|
|
— |
|
|
$14.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value of Liabilities |
— |
|
|
$14.8 |
|
|
— |
|
|
$14.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value as of December 31, 2021 |
Recurring Fair Value Measures |
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Millions |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Investments
(a)
|
|
|
|
|
|
|
|
Available-for-sale – Equity Securities |
$8.9 |
|
|
— |
|
|
— |
|
|
$8.9 |
|
Available-for-sale – Corporate and Governmental Debt
Securities |
— |
|
|
$6.2 |
|
|
— |
|
|
6.2 |
|
Cash Equivalents |
2.5 |
|
|
— |
|
|
— |
|
|
2.5 |
|
Total Fair Value of Assets |
$11.4 |
|
|
$6.2 |
|
|
— |
|
|
$17.6 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Deferred Compensation
(c)
|
— |
|
|
$18.0 |
|
|
— |
|
|
$18.0 |
|
|
|
|
|
|
|
|
|
Total Fair Value of Liabilities |
— |
|
|
$18.0 |
|
|
— |
|
|
$18.0 |
|
|
|
|
|
|
|
|
|
(a)Included
in Other Non-Current Assets on the Consolidated Balance
Sheet.
(b)As
of September 30, 2022, the aggregate amount of available-for-sale
corporate and governmental debt securities maturing in one year or
less was $0.7 million, in one year to less than three years was
$2.6 million, in three years to less than five years was $1.4
million and in five or more years was $0.6 million.
(c)Included
in Other Non-Current Liabilities on the Consolidated Balance
Sheet.
Fair Value of Financial Instruments.
With the exception of the item listed in the following table, the
estimated fair value of all financial instruments approximates the
carrying amount. The fair value of the item listed in the following
table was based on quoted market prices for the same or similar
instruments (Level 2).
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments |
Carrying Amount |
|
Fair Value |
Millions |
|
|
|
Short-Term and Long-Term Debt
(a)
|
|
|
|
September 30, 2022 |
$1,970.2 |
|
$1,804.1 |
December 31, 2021 |
$1,986.4 |
|
$2,192.6 |
(a)Excludes
unamortized debt issuance costs.
Assets and Liabilities Measured at Fair Value on a Nonrecurring
Basis.
Non-financial assets such as equity method investments, land
inventory, and property, plant and equipment are measured at fair
value when there is an indicator of impairment and recorded at fair
value only when an impairment is recognized. For the quarter and
nine months ended September 30, 2022, and
the year ended December 31, 2021, there were no
indicators of impairment for these non-financial
assets.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
18
NOTE 5. FAIR VALUE (Continued)
We continue to monitor changes in the broader energy markets along
with wind resource expectations that could indicate impairment at
ALLETE Clean Energy wind energy facilities upon contract
expirations. A continued decline in energy prices or lower wind
resource expectations could result in a future
impairment.
NOTE 6. SHORT-TERM AND LONG-TERM DEBT
The following tables present the Company’s short-term and long-term
debt as of September 30, 2022, and December 31,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022 |
Principal |
|
Unamortized Debt Issuance Costs |
|
Total |
Millions |
|
|
|
|
|
Short-Term Debt |
$308.8 |
|
|
$(0.2) |
|
$308.6 |
|
Long-Term Debt |
1,661.4 |
|
|
(8.4) |
|
1,653.0 |
|
Total Debt |
$1,970.2 |
|
|
$(8.6) |
|
$1,961.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
Principal |
|
Unamortized Debt Issuance Costs |
|
Total |
Millions |
|
|
|
|
|
Short-Term Debt |
$214.4 |
|
|
$(0.2) |
|
$214.2 |
|
Long-Term Debt |
1,772.0 |
|
|
(8.8) |
|
1,763.2 |
|
Total Debt |
$1,986.4 |
|
|
$(9.0) |
|
$1,977.4 |
|
We had $33.2 million outstanding in standby letters of credit and
$92.0 million outstanding draws under our lines of credit as of
September 30, 2022 ($31.5 million in standby letters of credit
and $159.7 million outstanding draws as of December 31,
2021).
On
February 28, 2022, ALLETE entered into an unsecured term loan
agreement (February Term Loan) to borrow up to $175 million.
No draws were made on the February Term Loan, which was
subsequently terminated in April 2022.
On
March 24, 2022, ALLETE entered into a $170 million unsecured
term loan agreement (March Term Loan). The Term Loan is due
March 23, 2023, and may be repaid at any time. Interest
is payable monthly at a rate per annum equal to SOFR plus
0.75 percent. Proceeds from the Term Loan were used for
general corporate purposes.
On August 9, 2022, ALLETE issued $75 million of its First
Mortgage Bonds (Bonds) to certain institutional buyers in the
private placement market. The Bonds, which bear interest at 4.54
percent, will mature in August 2032 and pay interest semi-annually
in February and August of each year, commencing on February 9,
2023. ALLETE has the option to prepay all or a portion of the Bonds
at its discretion, subject to a make-whole provision. The Bonds are
subject to additional terms and conditions which are customary for
these types of transactions. Proceeds from the sale of the Bonds
were used to fund utility capital investment and for general
corporate purposes. The Bonds were sold in reliance on an exemption
from registration under Section 4(a)(2) of the Securities Act of
1933, as amended, to institutional accredited
investors.
Financial Covenants.
Our long-term debt arrangements contain customary covenants. In
addition, our lines of credit and letters of credit supporting
certain long-term debt arrangements contain financial covenants.
Our compliance with financial covenants is not dependent on debt
ratings. The most restrictive financial covenant requires
ALLETE to maintain a ratio of indebtedness to total
capitalization (as the amounts are calculated in accordance with
the respective long-term debt arrangements) of less than or equal
to 0.65 to 1.00, measured quarterly. As of September 30, 2022, our
ratio was approximately 0.39 to 1.00. Failure to meet this covenant
would give rise to an event of default if not cured after notice
from the lender, in which event ALLETE may need to pursue
alternative sources of funding. Some of ALLETE’s debt arrangements
contain “cross-default” provisions that would result in an event of
default if there is a failure under other financing arrangements to
meet payment terms or to observe other covenants that would result
in an acceleration of payments due. ALLETE has no significant
restrictions on its ability to pay dividends from retained earnings
or net income. As of September 30, 2022, ALLETE was in compliance
with its financial covenants.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
19
NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES
Power Purchase and Sale Agreements.
Our long-term PPAs have been evaluated under the accounting
guidance for variable interest entities. We have determined that
either we have no variable interest in the PPAs or, where we do
have variable interests, we are not the primary beneficiary;
therefore, consolidation is not required. These conclusions are
based on the fact that we do not have both control over activities
that are most significant to the entity and an obligation to absorb
losses or receive benefits from the entity’s performance. Our
financial exposure relating to these PPAs is limited to our
capacity and energy payments.
Our PPAs are summarized in Note 8. Commitments, Guarantees and
Contingencies to the Consolidated Financial Statements in our 2021
Form 10-K, with additional disclosure provided in the following
paragraphs.
Square Butte PPA.
As of September 30, 2022, Square Butte had total debt outstanding
of $192.7 million. Fuel expenses are recoverable through
Minnesota Power’s fuel adjustment clause and include the cost of
coal purchased from BNI Energy under a long-term contract.
Minnesota Power’s cost of power purchased from Square Butte during
the nine months ended September 30, 2022, was
$63.8 million ($60.3 million for the same period in
2021). This reflects Minnesota Power’s pro rata share of total
Square Butte costs based on the 50 percent output entitlement.
Included in this amount was Minnesota Power’s pro rata share of
interest expense of $3.7 million ($4.3 million for the
same period in 2021). Minnesota Power’s payments to Square Butte
are approved as a purchased power expense for ratemaking purposes
by both the MPUC and the FERC.
Minnkota Power PSA.
Minnesota Power has a PSA with Minnkota Power, which commenced
in 2014. Under the PSA, Minnesota Power is selling a portion
of its entitlement from Square Butte to Minnkota Power, resulting
in Minnkota Power’s net entitlement increasing and Minnesota
Power’s net entitlement decreasing until Minnesota Power’s share is
eliminated at the end of 2025. Of Minnesota Power’s 50 percent
output entitlement, Minnesota Power sold to Minnkota Power
approximately 32 percent in 2022 and 28 percent in
2021.
Coal, Rail and Shipping Contracts.
Minnesota Power has coal supply agreements providing for the
purchase of a significant portion of its coal requirements through
December 2025. Minnesota Power also has coal transportation
agreements in place for the delivery of a significant portion of
its coal requirements through December 2024. The costs of fuel and
related transportation costs for Minnesota Power’s generation are
recoverable from Minnesota Power’s retail and municipal utility
customers through the fuel adjustment clause.
Environmental Matters.
Our businesses are subject to regulation of environmental matters
by various federal, state and local authorities. A number of
regulatory changes to the Clean Air Act, the Clean Water Act and
various waste management requirements have been promulgated by both
the EPA and state authorities over the past several years.
Minnesota Power’s facilities are subject to additional requirements
under many of these regulations. Minnesota Power is reshaping its
generation portfolio, over time, to reduce its reliance on coal,
has installed cost-effective emission control technology, and
advocates for sound science and policy during rulemaking
implementation.
We consider our businesses to be in substantial compliance with
currently applicable environmental regulations and believe all
necessary permits have been obtained. We anticipate that with many
state and federal environmental regulations and requirements
finalized, or to be finalized in the near future, potential
expenditures for future environmental matters may be material and
require significant capital investments. Minnesota Power has
evaluated various environmental compliance scenarios using possible
outcomes of environmental regulations to project power supply
trends and impacts on customers.
We review environmental matters on a quarterly basis. Accruals for
environmental matters are recorded when it is probable that a
liability has been incurred and the amount of the liability can be
reasonably estimated based on current law and existing
technologies. Accruals are adjusted as assessment and remediation
efforts progress, or as additional technical or legal information
becomes available. Accruals for environmental liabilities are
included in the Consolidated Balance Sheet at undiscounted amounts
and exclude claims for recoveries from insurance or other third
parties. Costs related to environmental contamination treatment and
cleanup are expensed unless recoverable in rates from
customers.
Air.
The electric utility industry is regulated both at the federal and
state level to address air emissions. Minnesota Power’s thermal
generating facilities mainly burn low-sulfur western sub-bituminous
coal. All of Minnesota Power’s coal-fired generating facilities are
equipped with pollution control equipment such as scrubbers,
baghouses and low NOX
technologies. Under currently applicable environmental regulations,
these facilities are substantially compliant with emission
requirements.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
20
NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Continued)
Environmental Matters (Continued)
Cross-State Air Pollution Rule (CSAPR).
The CSAPR requires certain states in the eastern half of the U.S.,
including Minnesota, to reduce power plant emissions that
contribute to ozone or fine particulate pollution in other states.
The CSAPR does not require installation of controls but does
require facilities have sufficient allowances to cover their
emissions on an annual basis. These allowances are allocated to
facilities from each state’s annual budget, and can be bought and
sold. Based on our review of the NOX
and SO2
allowances issued and pending issuance, we currently expect
generation levels and emission rates will result in continued
compliance with the CSAPR. The EPA’s CSAPR Update Rule issued in
March 2021 revising the 2016 CSAPR Update does not apply to the
state of Minnesota and is therefore not currently projected to
affect Minnesota Power’s CSAPR compliance. Minnesota Power will
continue to monitor ongoing CSAPR rulemakings and compliance
implementation, including the EPA’s Good Neighbor Rule proposed on
April 6, 2022, to modify certain aspects of the CSAPR’s program
scope and extent.
National Ambient Air Quality Standards (NAAQS).
The EPA is required to review the NAAQS every five years. If the
EPA determines that a state’s air quality is not in compliance with
the NAAQS, the state is required to adopt plans describing how it
will reduce emissions to attain the NAAQS. Minnesota Power actively
monitors NAAQS developments and compliance costs for existing
standards or proposed NAAQS revisions are not currently expected to
be material. The EPA is currently reviewing the secondary NAAQS for
NOx
and SO2,
as well as particulate matter. In June 2021, the EPA announced it
will reconsider the December 2020 final rule retaining the 2012
particulate matter NAAQS. A proposed rulemaking was anticipated in
August 2022, with a final rule in March 2023, but none has
been issued at this time. The EPA also announced in October 2021
that it was reconsidering the 2020 Ozone NAAQS rule finalized in
December 2020, and issued a policy assessment on
April 28, 2022, recommending retention of the current
standard. A proposed Ozone NAAQS rule is expected in the first half
of 2023.
EPA Good Neighbor Plan for 2015 Ozone NAAQS.
On April 6, 2022, the EPA published a proposed rule, the Good
Neighbor Plan, to address regional ozone transport for the 2015
Ozone NAAQS by reducing NOx
emissions during the period of May 1 through September 30 (ozone
season). This rule is intended to address certain good neighbor or
interstate transport provisions of the Clean Air Act relative to
the 2015 Ozone NAAQS. In the justification for the proposed rule,
the EPA asserted that 26 states, including Minnesota, are
modeled as significant contributors to downwind states’ challenges
in attaining or maintaining ozone NAAQS compliance within their
state borders. The Good Neighbor Plan proposes to resolve this
interstate transport issue by implementing a variety of
NOx
reduction strategies, including federal implementation plan
requirements, NOx
emission limitations, and ozone season allowance program
requirements, beginning with the 2023 ozone season. The proposed
rule would apply to fossil-fuel fired power plants in
25 states and certain other industrial sources in 23 states.
Implementation of the rule would occur in part through changes to
the existing CSAPR program.
Minnesota Power reviewed the proposed rule, assessed its potential
impacts and submitted public comments to the EPA on June 21,
2022. Concerns noted by Minnesota Power and other entities included
the technical accuracy of the EPA’s assumptions and methods used to
identify Minnesota as a significant contributor state, as well as
the proposed rule’s intended timeline. Anticipated compliance costs
related to the Good Neighbor Plan cannot yet be estimated; however,
the costs could be material, including costs of additional
NOx
controls, emission allowance program participation, or operational
changes, if any are required. Minnesota Power would seek recovery
of additional costs through a rate proceeding. The EPA intends to
issue a final rule in early 2023.
EPA National Emission Standards for Hazardous Air Pollutants for
Major Sources: Industrial, Commercial and Institutional Boilers and
Process Heaters (Industrial Boiler MACT) Rule.
A final rule issued by the EPA for Industrial Boiler MACT became
effective in 2012 with compliance required at major existing
sources in 2016. Minnesota Power’s Hibbard Renewable Energy Center
and Rapids Energy Center are subject to this rule. Compliance with
the Industrial Boiler MACT Rule consisted largely of adjustments to
fuels and operating practices and compliance costs were not
material. Subsequent to this initial rulemaking, litigation from
2016 through 2018 resulted in court orders directing that the EPA
reconsider certain aspects of the regulation including the basis
for and numerical value of several different emission limits. On
October 6, 2022, the EPA published a final rule in the Federal
Register incorporating these changes. The rule will become
effective on December 5, 2022 and impose a 3-year compliance
deadline of December 5, 2025. Minnesota Power is actively reviewing
this new regulation to assess if any changes are needed to achieve
compliance. Compliance costs associated with the new Industrial
Boiler MACT Rule cannot yet be estimated; however, the costs could
be material. Minnesota Power would seek recovery of additional
costs through a rate proceeding.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
21
NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Continued)
Environmental Matters (Continued)
Climate Change.
The scientific community generally accepts that emissions of GHG
are linked to global climate change which creates physical and
financial risks. Physical risks could include, but are not limited
to: increased or decreased precipitation and water levels in lakes
and rivers; increased or other changes in temperatures; and changes
in the intensity and frequency of extreme weather events. These all
have the potential to affect the Company’s business and operations.
We are addressing climate change by taking the following steps that
also ensure reliable and environmentally compliant generation
resources to meet our customers’ requirements:
•Expanding
renewable power supply for both our operations and the operations
of others;
•Providing
energy conservation initiatives for our customers and engaging in
other demand side management efforts;
•Improving
efficiency of our generating facilities;
•Supporting
research of technologies to reduce carbon emissions from generating
facilities and carbon sequestration efforts;
•Evaluating
and developing less carbon intensive future generating assets such
as efficient and flexible natural gas-fired generating
facilities;
•Managing
vegetation on right-of-way corridors to reduce potential wildfire
or storm damage risks; and
•Practicing
sound forestry management in our service territories to create
landscapes more resilient to disruption from climate-related
changes, including planting and managing long-lived conifer
species.
EPA Regulation of GHG Emissions.
In 2019, the EPA finalized several separate rulemakings regarding
regulating carbon emissions from electric utility generating units.
These rulemakings included repealing the Clean Power Plan (CPP) and
adopting the Affordable Clean Energy Rule under Section 111(d) of
the Clean Air Act (CAA) to regulate CO2 emissions at existing
coal-fired power plants. The CPP was first announced as a proposed
rule under Section 111(d) of the CAA for existing power plants
entitled “Carbon Pollution Emission Guidelines for Existing
Stationary Sources: Electric Generating Units”. The Affordable
Clean Energy Rule established emissions guidelines for states to
use when developing plans to limit CO2 coal-fired power plants. The
EPA also published regulations for the state implementation of the
Affordable Clean Energy Rule and other Section 111(d) rules.
Affected facilities for Minnesota Power included Boswell Units 3
and 4, and Taconite Harbor Units 1 and 2, which are currently
economically idled.
On January 19, 2021, the D.C. Circuit issued an opinion vacating
the Affordable Clean Energy Rule and remanded the Affordable Clean
Energy Rule back to the EPA for further consideration, consistent
with the D.C. Circuit’s finding that the EPA erred in interpreting
the CAA, pending rehearing or appeal. Four petitions for review of
the D.C. Circuit’s opinion were subsequently granted by the U.S.
Supreme Court on October 29, 2021, consolidated under West Virginia
v. EPA et al. On June 30, 2022, the U.S. Supreme Court
released its opinion in favor of West Virginia and aligned parties.
The Supreme Court found the EPA’s CPP structure of generation
shifting to be disallowed under Section 111(d) of the CCA on
grounds of the major questions doctrine. The court did not opine
upon the regulatory approach the EPA proposed in the Affordable
Clean Energy Rule. The petitions were remanded to the D.C. Circuit.
The EPA has indicated that it intends to issue a proposed rule in
early 2023 with a new set of emission guidelines for states to
follow in submitting state plans to establish and implement
standards of performance for GHG emissions from existing fossil
fuel-fired electric generating units. Minnesota Power will continue
to monitor any related guidelines and rulemakings issued by the EPA
or state regulatory authorities.
On April 22, 2021, the Biden Administration announced a goal to
reach 100 percent carbon pollution-free electricity by 2035 as part
of the Nationally Determined Contributions pledge, which is part of
an international effort to limit global warming. At this time, no
specific regulatory pathway to achieve these reductions has been
proposed. Minnesota Power will continue to monitor these
developments.
Minnesota had already initiated several measures consistent with
those called for under the now repealed CPP and vacated Affordable
Clean Energy Rule. Minnesota Power continues implementing its
EnergyForward strategic plan that provides for significant emission
reductions and diversifying its electricity generation mix to
include more renewable and natural gas energy. We are unable to
predict the GHG emission compliance costs we might incur as a
result of a replacement for the Affordable Clean Energy Rule or
other future laws, regulations or administrative policies; however,
the costs could be material. Minnesota Power would seek recovery of
additional costs through a rate proceeding.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
22
NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Continued)
Environmental Matters (Continued)
Additionally on January 13, 2021, the EPA issued a rulemaking to
apply CO2
emission New Source Performance Standards (NSPS) to new, modified
and reconstructed fossil fuel-fired electric generating units under
Section 111(b) of the CAA. Currently, the EPA is a performing a
comprehensive review of the Section 111(b) GHG NSPS for electric
generating units, with a notice of proposed rulemaking expected in
early 2023. Minnesota Power is monitoring the NSPS final rule and
any further Section 111(b) developments including their potential
impact to the Company. The proposed combined-cycle natural
gas-fired generating facility, NTEC, is expected to meet these NSPS
requirements.
Water.
The Clean Water Act requires NPDES permits be obtained from the EPA
(or, when delegated, from individual state pollution control
agencies) for any wastewater discharged into navigable waters. We
have obtained all necessary NPDES permits, including NPDES storm
water permits for applicable facilities, to conduct our
operations.
Steam Electric Power Generating Effluent Limitations
Guidelines.
In 2015, the EPA issued revised federal effluent limitation
guidelines (ELG) for steam electric power generating stations under
the Clean Water Act. It set effluent limits and prescribed BACT for
several wastewater streams, including flue gas desulphurization
(FGD) water, bottom ash transport water and coal combustion
landfill leachate. In 2017, the EPA announced a two-year
postponement of the ELG compliance date of November 1, 2018,
to November 1, 2020, while the agency reconsidered the bottom ash
transport water (BATW) and FGD wastewater provisions. On April 12,
2019, the U.S. Court of Appeals for the Fifth Circuit vacated and
remanded back to the EPA portions of the ELG that allowed for
continued discharge of legacy wastewater and leachate. On October
13, 2020, the EPA published a final ELG Rule allowing re-use of
bottom ash transport water in FGD scrubber systems with limited
discharges related to maintaining system water balance. The rule
sets technology standards and numerical pollutant limits for
discharges of bottom ash transport water and FGD wastewater.
Compliance deadlines depend on subcategory, with compliance
generally required as soon as possible, beginning after October 13,
2021, but no later than December 31, 2025, or
December 31, 2028, in some specific cases. The rule also
established new subcategories for retiring high-flow and
low-utilization units, and established a voluntary incentives
program for FGD wastewater. In accordance with the January 2021
Executive Order 13990, the EPA was mandated to conduct a review of
actions and polices taken during the prior administration,
including the 2020 ELG Rule. On September 14, 2021, the EPA
published a notice of availability for preliminary effluent
guidelines program plan. In the plan, the EPA confirmed the agency
is initiating a rulemaking process to strengthen wastewater
pollution limitations from FGD and bottom ash transport water
discharges while the 2020 ELG Rule remains in effect. The EPA is
expected to publish a proposed rule in November 2022.
Under the 2020 ELG rule, most bottom ash transport water discharge
to surface waters must cease no later than
December 31, 2025, except for small discharges needed to
retain water balance. The majority of bottom ash transport will
either need to be re-used in a closed-loop process or routed to a
FGD scrubber. FGD wastewater is required to meet stringent water
quality standards for discharge to surface water.
Bottom ash transport and FGD wastewater ELG’s are not currently
expected to have a significant impact on Minnesota Power
operations. Boswell Energy Center, where ELG’s are primarily
applicable, completed conversion to dry bottom ash handling and
installed a FGD dewatering system in September 2022. The dry
conversion projects eliminated bottom ash transport water and
minimized wastewater from the FGD system. Re-use and onsite
consumption is planned for the remaining FGD waste stream and for
dewatering legacy wastewater from Boswell’s existing impoundments.
Water re-use and consumption activities are expected to eliminate
the need for surface water discharges prior to the current ELG Rule
deadline of December 31, 2025.
The EPA’s additional reconsideration of legacy wastewater and
leachate discharge requirements has the potential to impact
leachate discharges associated with the closed impoundment at the
Laskin and Taconite Harbor Energy Center Dry Ash Landfill. In its
spring 2022 Unified Agenda, the EPA announced it intends to
consolidate consideration of legacy wastewater and leachate with
the ELG/FGD and BATW proposed rulemaking expected in
November 2022. It is unknown at this time if the rule
revisions will include new requirements for these waste
streams.
At this time, we estimate no additional material compliance costs
for ELG bottom ash water and FGD requirements. Compliance costs we
might incur related to other ELG waste streams (e.g., leachate) or
other potential future water discharge regulations at Minnesota
Power facilities cannot be estimated; however, the costs could be
material, including costs associated with wastewater treatment and
re-use. Minnesota Power would seek recovery of additional costs
through a rate proceeding.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
23
NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Continued)
Environmental Matters (Continued)
Permitted Water Discharges – Sulfate.
In 2017, the MPCA released a draft water quality standard in an
attempt to update Minnesota’s existing 10 mg/L sulfate limit for
waters used for the production of wild rice with the proposed
rulemaking heard before an administrative law judge (ALJ). In 2018,
the ALJ rejected significant portions of the proposed rulemaking
and the MPCA subsequently withdrew the rulemaking. The existing 10
mg/L limit remains in place, but the MPCA is currently prohibited
under state law from listing wild rice waters as impaired or
requiring sulfate reduction technology.
In April 2021, the MPCA’s proposed list of impaired waters
submitted pursuant to the Clean Water Act was partially rejected by
the EPA due to the absence of wild rice waters listed for sulfate
impairment. The EPA transmitted a final list of 32 EPA-added wild
rice waters to the MPCA on November 5, 2021. This list could
subsequently be used to set sulfate limits in discharge permits for
power generation facilities and municipal and industrial customers,
including paper and pulp facilities, and mining operations. At this
time we are unable to determine the specific impacts these
developments may have on Minnesota Power operations, if any.
Minnesota Power would seek recovery of additional costs through a
rate proceeding.
Solid and Hazardous Waste.
The Resource Conservation and Recovery Act of 1976 regulates the
management and disposal of solid and hazardous wastes. We are
required to notify the EPA of hazardous waste activity and,
consequently, routinely submit reports to the EPA.
Coal Ash Management Facilities.
Minnesota Power produces the majority of its coal ash at Boswell,
with small amounts of ash generated at Hibbard Renewable Energy
Center. Ash storage and disposal methods include storing ash in
clay-lined onsite impoundments (ash ponds), disposing of dry ash in
a lined dry ash landfill, applying ash to land as an approved
beneficial use, and trucking ash to state permitted
landfills.
Coal Combustion Residuals from Electric Utilities (CCR).
In 2015, the EPA published the final rule regulating CCR as
nonhazardous waste under Subtitle D of the Resource Conservation
and Recovery Act (RCRA) in the Federal Register. The rule includes
additional requirements for new landfill and impoundment
construction as well as closure activities related to certain
existing impoundments. Costs of compliance for Boswell and Laskin
are expected to be incurred primarily over the next 15 years and be
between approximately $65 million and $120 million. Compliance
costs for CCR at Taconite Harbor are not expected to be material.
Minnesota Power would seek recovery of additional costs through a
rate proceeding.
Minnesota Power continues to work on minimizing costs through
evaluation of beneficial re-use and recycling of CCR and
CCR-related waters. In 2017, the EPA announced its intention to
formally reconsider the CCR rule under Subtitle D of the RCRA. In
March 2018, the EPA published the first phase of the proposed rule
revisions in the Federal Register. In 2018, the EPA finalized
revisions to elements of the CCR rule, including extending certain
deadlines by two years, the establishment of alternative
groundwater protection standards for certain constituents and the
potential for risk-based management options at facilities based on
site characteristics. In 2018, a U.S. District Court for the
District of Columbia decision vacated specific provisions of the
CCR rule. The court decision resulted in a change to the status of
three existing clay-lined impoundments at Boswell that must now be
considered unlined. The EPA proposed additional rule revisions in
2019 to address outstanding issues from litigation and closure
timelines for unlined impoundments, respectively. The first of
these rules, CCR Part A Rule, was finalized in September 2020. The
Part A Rule revision requires unlined impoundments to cease
disposal of waste as soon as technically feasible but no later than
April 11, 2021. Minnesota Power sought EPA approval under the Part
A Rule to extend the closure date for two active Boswell
impoundments in November 2020. Upon completion of dry ash
conversion activities, Boswell ceased disposal in both impoundments
on September 17, 2022 and formally withdrew the CCR Part A
Application. The EPA acknowledged the Part A variance application
withdrawal on September 20, 2022, and indicated it has updated the
webpage to show Boswell has ceased waste disposal in impoundments.
The EPA also indicated that no further EPA review of Boswell’s Part
A variance application will occur. Both impoundments are now
inactive and have initiated closure.
Additionally, the EPA released a proposed Part B rulemaking in
February 2020 addressing options for beneficial reuse of CCR
materials, alternative liner demonstrations, and other CCR
regulatory revisions. Portions of the Part B Rule addressing
alternative liner equivalency standards were finalized in November
2020. According to the EPA’s spring 2022 regulatory agenda,
finalization of the remainder of the proposed Part B Rule is
expected in early 2023. Expected compliance costs at Boswell due to
the court decision and subsequent rule revisions are reflected in
our estimate of compliance costs for the CCR rule noted previously.
Minnesota Power would seek recovery of additional costs through a
rate proceeding.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
24
NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES
(Continued)
Environmental Matters (Continued)
Other Environmental Matters.
Manufactured Gas Plant Site.
We are reviewing and addressing environmental conditions at a
former manufactured gas plant site located in Superior, Wisconsin,
and formerly operated by SWL&P. SWL&P has been working with
the Wisconsin Department of Natural Resources (WDNR) in determining
the extent and location of contamination at the site and
surrounding properties. As of September 30, 2022, we have
recorded a liability of approximately $18 million for remediation
costs at this site. SWL&P has recorded the site as an
associated regulatory asset as we expect recovery of these
remediation costs to be allowed by the PSCW. Remediation costs are
expected to be incurred through 2024.
Other Matters.
Letters of Credit and Surety Bonds.
We have multiple credit facility agreements in place that provide
the ability to issue standby letters of credit to satisfy
contractual security requirements across our businesses. As of
September 30, 2022, we had $227.6 million of outstanding
letters of credit issued, including those issued under our
revolving credit facility.
Regulated Operations.
As of September 30, 2022, we had $18.1 million outstanding in
standby letters of credit at our Regulated Operations which are
pledged as security to MISO and a state agency.
ALLETE Clean Energy.
ALLETE Clean Energy’s wind energy facilities have various PSAs in
place for some or all of their output that expire in various years
between 2024 and 2039. As of September 30, 2022, ALLETE Clean
Energy has $173.8 million outstanding in standby letters of
credit, the majority of which are pledged as security under these
PSAs and PSAs for wind energy facilities under development. ALLETE
Clean Energy does not believe it is likely that any of these
outstanding letters of credit will be drawn upon.
Corporate and Other.
BNI Energy.
As of September 30, 2022, BNI Energy had surety bonds outstanding
of $82.4 million related to the reclamation liability for
closing costs associated with its mine and mine facilities.
Although its coal supply agreements obligate the customers to
provide for the closing costs, additional assurance is required by
federal and state regulations. BNI Energy’s total reclamation
liability is currently estimated at $82.1 million. BNI Energy
does not believe it is likely that any of these outstanding surety
bonds will be drawn upon.
Investment in Nobles 2.
The Nobles 2 wind energy facility requires standby letters of
credit as security for certain contractual obligations. As of
September 30, 2022, ALLETE South Wind has $11.8 million outstanding
in standby letters of credit, related to its portion of the
security requirements relative to its ownership in Nobles 2. We do
not believe it is likely that any of these outstanding letters of
credit will be drawn upon.
South Shore Energy.
As of September 30, 2022, South Shore Energy had $23.9 million
outstanding in standby letters of credit pledged as security in
connection with the development of NTEC. South Shore Energy does
not believe it is likely that any of these outstanding letters of
credit will be drawn upon.
Legal Proceedings.
We are involved in litigation arising in the normal course of
business. Also in the normal course of business, we are involved in
tax, regulatory and other governmental audits, inspections,
investigations and other proceedings that involve state and federal
taxes, safety, and compliance with regulations, rate base and cost
of service issues, among other things. We do not expect the outcome
of these matters to have a material effect on our financial
position, results of operations or cash flows.
Minnesota Power was named in a lawsuit where a contractor
performing work at one of its facilities experienced an injury and
subsequently filed a lawsuit seeking compensatory damages. In the
second quarter of 2022, Minnesota Power reached an agreement to
settle the lawsuit with the plaintiff. The settlement was covered
by the Company’s insurance coverage, subject to a deductible which
has been previously expensed. The settlement, which was recorded in
the financial statements for the quarter ended March 31, 2022, did
not have a material impact on our financial position or results of
operations.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
25
NOTE 8. EARNINGS PER SHARE AND COMMON STOCK
We compute basic earnings per share using the weighted average
number of shares of common stock outstanding during each period.
The difference between basic and diluted earnings per share, if
any, arises from non-vested restricted stock units and performance
share awards granted under our Executive Long-Term Incentive
Compensation Plan.
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2022 |
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2021 |
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Reconciliation of Basic and Diluted |
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Dilutive |
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Dilutive |
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Earnings Per Share |
Basic |
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Securities |
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Diluted |
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Basic |
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Securities |
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Diluted |
Millions Except Per Share Amounts |
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Quarter ended September 30, |
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Net Income Attributable to ALLETE |
$33.7 |
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$33.7 |
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$27.6 |
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$27.6 |
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Average Common Shares |
57.1 |
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0.1 |
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57.2 |
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52.4 |
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0.1 |
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52.5 |
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Earnings Per Share |
$0.59 |
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$0.59 |
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$0.53 |
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$0.53 |
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Nine Months Ended September 30, |
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Net Income Attributable to ALLETE |
$137.6 |
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$137.6 |
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$107.3 |
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$107.3 |
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Average Common Shares |
55.5 |
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0.1 |
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55.6 |
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52.3 |
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— |
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52.3 |
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Earnings Per Share |
$2.48 |
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$2.48 |
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$2.05 |
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$2.05 |
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On April 5, 2022, ALLETE issued and sold approximately
3.7 million shares of ALLETE common stock. Net proceeds of
approximately $224 million were received from the sale of
shares. Proceeds were used primarily to fund the acquisition of New
Energy and capital investments at ALLETE Clean Energy.
NOTE 9. INCOME TAX EXPENSE
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Quarter Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
Millions |
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Current Income Tax Expense
(a)
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Federal |
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— |
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— |
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— |
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— |
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State |
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$0.2 |
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$0.1 |
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$0.3 |
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$0.1 |
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Total Current Income Tax Expense |
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$0.2 |
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$0.1 |
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$0.3 |
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$0.1 |
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Deferred Income Tax Expense (Benefit) |
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Federal
(b)
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$(8.4) |
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$(5.8) |
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$(20.7) |
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$(26.3) |
State
(c)
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1.1 |
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0.9 |
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1.4 |
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7.3 |
Investment Tax Credit Amortization |
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(0.1) |
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(0.1) |
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(0.4) |
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(0.4) |
Total Deferred Income Tax Benefit |
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$(7.4) |
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$(5.0) |
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$(19.7) |
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$(19.4) |
Total Income Tax Benefit |
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$(7.2) |
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$(4.9) |
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$(19.4) |
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$(19.3) |
(a)For
the three and nine months ended September 30, 2022 and 2021, the
federal and state current tax expense was minimal due to NOLs which
resulted from the bonus depreciation provisions of certain tax
legislation. Federal and state NOLs are being carried forward to
offset current and future taxable income.
(b)For
the three and nine months ended September 30, 2022 and 2021, the
federal income tax benefit is primarily due to production tax
credits.
(c)For
the nine months ended September 30, 2022, the state impact includes
the benefit of deferred repricing as a result of the New Energy
acquisition.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
26
NOTE 9. INCOME TAX EXPENSE (Continued)
The Company's tax provision for interim periods is determined using
an estimate of its annual effective tax rate, adjusted for discrete
items arising in that quarter. In each quarter, the Company updates
its estimate of the annual effective tax rate and if the estimated
annual effective tax rate changes, the Company would make a
cumulative adjustment in that quarter.
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Quarter Ended |
Nine Months Ended |
Reconciliation of Taxes from Federal Statutory |
September 30, |
September 30, |
Rate to Total Income Tax Expense |
2022 |
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2021 |
2022 |
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2021 |
Millions |
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Income Before Income Taxes |
$19.6 |
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$19.2 |
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$74.7 |
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$69.9 |
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Statutory Federal Income Tax Rate |
21 |
% |
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21 |
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21 |
% |
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21 |
% |
Income Taxes Computed at Statutory Federal Rate |
$4.1 |
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$4.0 |
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$15.7 |
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$14.7 |
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Increase (Decrease) in Income Tax Due to: |
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State Income Taxes (Credit) – Net of Federal Income Tax
Benefit |
1.1 |
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0.7 |
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6.6 |
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5.8 |
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Deferred Revaluation – Net of Federal Income Tax
Benefit |
— |
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— |
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(5.2) |
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— |
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Production Tax Credits |
(9.7) |
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(9.5) |
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(34.4) |
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(36.6) |
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Investment Tax Credits |
(3.2) |
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— |
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(3.2) |
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— |
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Regulatory Differences – Excess Deferred Tax |
(1.5) |
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(2.1) |
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(6.7) |
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(6.7) |
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Non-Controlling Interest in Subsidiaries |
1.4 |
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0.8 |
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8.4 |
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3.9 |
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Other |
0.6 |
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1.2 |
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(0.6) |
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(0.4) |
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Total Income Tax Benefit |
$(7.2) |
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$(4.9) |
$(19.4) |
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$(19.3) |
For the nine months ended September 30, 2022, the
effective tax rate was a benefit of 26.0 percent (benefit of 27.6
percent for the nine months ended
September 30, 2021). The effective tax rate for 2022 and
2021 was primarily impacted by production tax credits.
Uncertain Tax Positions.
As of September 30, 2022, we had gross unrecognized tax benefits of
$1.3 million ($1.3 million as of December 31, 2021).
Of the total gross unrecognized tax benefits, $0.6 million
represents the amount of unrecognized tax benefits included on the
Consolidated Balance Sheet that, if recognized, would favorably
impact the effective income tax rate. The unrecognized tax benefit
amounts have been presented as reductions to the tax benefits
associated with NOL and tax credit carryforwards on the
Consolidated Balance Sheet.
ALLETE and its subsidiaries file a consolidated federal income tax
return as well as combined and separate state income tax returns in
various jurisdictions. ALLETE has no open federal or state audits,
and is no longer subject to federal examination for years before
2018, or state examination for years before 2017. Additionally, the
statute of limitations related to the federal tax credit
carryforwards will remain open until those credits are utilized in
subsequent returns.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
27
NOTE 10. PENSION AND OTHER POSTRETIREMENT BENEFIT
PLANS
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Pension |
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Other
Postretirement |
Components of Net Periodic Benefit Cost (Credit) |
2022 |
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2021 |
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2022 |
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2021 |
Millions |
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Quarter Ended September 30, |
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Service Cost |
$2.1 |
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$2.7 |
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$0.8 |
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$0.9 |
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Non-Service Cost Components
(a)
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Interest Cost |
6.9 |
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6.1 |
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1.1 |
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1.1 |
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Expected Return on Plan Assets |
(10.4) |
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(10.8) |
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(2.4) |
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(2.4) |
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Amortization of Prior Service Credits |
— |
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— |
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(1.8) |
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(1.9) |
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Amortization of Net Loss |
2.8 |
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4.7 |
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0.1 |
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0.7 |
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Net Periodic Benefit Cost (Credit) |
$1.4 |
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$2.7 |
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$(2.2) |
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$(1.6) |
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Nine Months Ended September 30, |
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Service Cost |
$6.9 |
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$8.2 |
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$2.3 |
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|
$2.7 |
|
Non-Service Cost Components
(a)
|
|
|
|
|
|
|
|
Interest Cost |
20.4 |
|
|
18.4 |
|
|
3.3 |
|
|
3.3 |
|
Expected Return on Plan Assets |
(31.1) |
|
|
(32.5) |
|
|
(7.2) |
|
|
(7.3) |
|
Amortization of Prior Service Credits |
(0.1) |
|
|
(0.1) |
|
|
(5.6) |
|
|
(5.7) |
|
Amortization of Net Loss |
8.6 |
|
|
14.1 |
|
|
0.3 |
|
|
2.2 |
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost (Credit) |
$4.7 |
|
|
$8.1 |
|
|
$(6.9) |
|
$(4.8) |
(a)These
components of net periodic benefit cost (credit) are included in
the line item “Other” under Other Income (Expense) on the
Consolidated Statement of Income.
Employer Contributions.
For the nine months ended September 30, 2022, we
made no contributions to the defined benefit pension plans
($10.3 million for the nine months ended
September 30, 2021); we do not expect to make any
contributions to our defined benefit pension plans in 2022. For the
nine months ended September 30, 2022 and 2021, we
made no contributions to our other postretirement benefit plans; we
do not expect to make any contributions to our other postretirement
benefit plans in 2022.
NOTE 11. BUSINESS SEGMENTS
We present two reportable segments: Regulated Operations and ALLETE
Clean Energy. We measure performance of our operations through
budgeting and monitoring of contributions to consolidated net
income by each business segment.
Regulated Operations includes three operating segments which
consist of our regulated utilities, Minnesota Power and SWL&P,
as well as our investment in ATC. ALLETE Clean Energy is our
business focused on developing, acquiring and operating clean and
renewable energy projects. We also present Corporate and Other
which includes BNI Energy, our coal mining operations in North
Dakota, New Energy, a renewable energy development company, ALLETE
Properties, our legacy Florida real estate investment, along with
our investment in Nobles 2, South Shore Energy, our non-rate
regulated, Wisconsin subsidiary developing NTEC, other business
development and corporate expenditures, unallocated interest
expense, a small amount of non-rate base generation, land holdings
in Minnesota, and earnings on cash and investments.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
28
NOTE 11. BUSINESS SEGMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
September 30, |
|
September 30, |
|
2022 |
2021 |
|
2022 |
2021 |
Millions |
|
|
|
|
|
Operating Revenue |
|
|
|
|
|
Regulated Operations |
|
|
|
|
|
Residential |
$40.1 |
|
$37.0 |
|
|
$136.7 |
|
$118.0 |
|
Commercial |
49.0 |
|
44.3 |
|
|
141.7 |
|
124.7 |
|
Municipal |
9.8 |
|
14.4 |
|
|
31.9 |
|
38.5 |
|
Industrial |
147.3 |
|
139.7 |
|
|
445.7 |
|
407.8 |
|
Other Power Suppliers |
46.7 |
|
41.2 |
|
|
124.6 |
|
116.9 |
|
|
|
|
|
|
|
Other |
29.7 |
|
28.2 |
|
|
79.7 |
|
82.3 |
|
Total Regulated Operations |
322.6 |
|
304.8 |
|
|
960.3 |
|
888.2 |
|
|
|
|
|
|
|
ALLETE Clean Energy |
|
|
|
|
|
Long-term PSA |
14.4 |
|
14.0 |
|
|
58.7 |
|
50.8 |
|
Other |
1.2 |
|
2.9 |
|
|
6.3 |
|
8.6 |
|
Total ALLETE Clean Energy |
15.6 |
|
16.9 |
|
|
65.0 |
|
59.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
|
|
|
|
|
Long-term Contract |
23.5 |
|
20.3 |
|
|
67.5 |
|
63.4 |
|
Sale of Renewable Development Projects |
22.1 |
|
— |
|
|
36.6 |
|
— |
|
Other |
4.5 |
|
3.4 |
|
|
15.5 |
|
9.2 |
|
Total Corporate and Other |
50.1 |
|
23.7 |
|
|
119.6 |
|
72.6 |
|
|
|
|
|
|
|
Total Operating Revenue |
$388.3 |
|
$345.4 |
|
|
$1,144.9 |
|
$1,020.2 |
|
Net Income (Loss) Attributable to ALLETE |
|
|
|
|
|
Regulated Operations |
$38.3 |
|
$32.9 |
|
|
$119.4 |
|
$99.4 |
|
|
|
|
|
|
|
ALLETE Clean Energy |
(7.3) |
|
(0.8) |
|
|
15.0 |
|
11.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other
(a)
|
2.7 |
|
(4.5) |
|
|
3.2 |
|
(3.8) |
|
Total Net Income Attributable to ALLETE |
$33.7 |
|
$27.6 |
|
|
$137.6 |
|
$107.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
(a)Net
Income in 2022 includes a $5.7 million after-tax expense as a
result of purchase price accounting related to projects under
development at the time of acquisition and $2.6 million
after-tax of transaction costs related to the acquisition of New
Energy.
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
December 31,
2021 |
Millions |
|
|
Assets |
|
|
Regulated Operations |
$4,307.3 |
|
$4,289.4 |
|
|
|
|
ALLETE Clean Energy |
1,893.2 |
|
1,719.4 |
|
|
|
|
Corporate and Other |
657.5 |
|
426.2 |
|
Total Assets |
$6,858.0 |
|
$6,435.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
ALLETE, Inc. Third Quarter 2022 Form 10-Q
29
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with our
Consolidated Financial Statements and notes to those statements,
Management’s Discussion and Analysis of Financial Condition and
Results of Operations from our 2021 Form 10-K, and the other
financial information appearing elsewhere in this report. In
addition to historical information, the following discussion and
other parts of this Form 10-Q contain forward-looking information
that involves risks and uncertainties. Readers are cautioned that
forward-looking statements should be read in conjunction with our
disclosures in this Form 10-Q, including Part II, Item 1A Risk
Factors, and our 2021 Form 10-K under the headings:
“Forward-Looking Statements” located on page 6 and “Risk Factors”
located in Part I, Item 1A, beginning on page 24 of our 2021
Form 10-K. The risks and uncertainties described in this Form
10-Q and our 2021 Form 10-K are not the only risks facing our
Company. Additional risks and uncertainties that we are not
presently aware of, or that we currently consider immaterial, may
also affect our business operations. Our business, financial
condition or results of operations could suffer if the risks are
realized.
Regulated Operations
includes our regulated utilities, Minnesota Power and SWL&P, as
well as our investment in ATC, a Wisconsin-based regulated utility
that owns and maintains electric transmission assets in portions of
Wisconsin, Michigan, Minnesota and Illinois. Minnesota Power
provides regulated utility electric service in northeastern
Minnesota to approximately 150,000 retail customers. Minnesota
Power also has 14 non-affiliated municipal customers in Minnesota.
SWL&P is a Wisconsin utility and a wholesale customer of
Minnesota Power. SWL&P provides regulated utility electric,
natural gas and water service in northwestern Wisconsin to
approximately 15,000 electric customers, 13,000 natural gas
customers and 10,000 water customers. Our regulated utility
operations include retail and wholesale activities under the
jurisdiction of state and federal regulatory
authorities.
(See Note 2. Regulatory Matters.)
ALLETE Clean Energy
focuses on developing, acquiring, and operating clean and renewable
energy projects. ALLETE Clean Energy currently owns and operates,
in seven states, more than 1,300 MW of nameplate capacity wind
energy generation that is contracted under PSAs of various
durations. In addition, ALLETE Clean Energy also engages in the
development of wind energy facilities to operate under long-term
PSAs or for sale to others upon completion. ALLETE Clean Energy
currently has approximately 200 MW wind energy facilities under
contract to be sold to others.
Corporate and Other
is comprised of BNI Energy, our coal mining operations in North
Dakota; New Energy, a renewable development company; our investment
in Nobles 2, an entity that owns and operates a 250 MW wind
energy facility in southwestern Minnesota; South Shore Energy, our
non-rate regulated, Wisconsin subsidiary developing NTEC, an
approximately 600 MW proposed combined-cycle natural gas-fired
generating facility; ALLETE Properties, our legacy Florida real
estate investment; other business development and corporate
expenditures; unallocated interest expense; a small amount of
non-rate base generation; land holdings in Minnesota; and earnings
on cash and investments.
ALLETE is incorporated under the laws of Minnesota. Our corporate
headquarters are in Duluth, Minnesota. Statistical information is
presented as of September 30, 2022, unless otherwise indicated. All
subsidiaries are wholly-owned unless otherwise specifically
indicated. References in this report to “we,” “us” and “our” are to
ALLETE and its subsidiaries, collectively.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
30
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Financial Overview
The following net income discussion summarizes a comparison of the
nine months ended September 30, 2022, to the
nine months ended September 30, 2021.
Net income attributable to ALLETE for the nine months ended
September 30, 2022, was $137.6 million, or $2.48 per
diluted share, compared to $107.3 million, or $2.05 per
diluted share, for the same period in 2021. Net income in 2022
included transaction costs of $2.6 million after-tax, or $0.05
per share, related to the acquisition of New Energy. Net income in
2021 included an approximately $5 million after-tax, or
$0.10 per share, negative impact related to ALLETE Clean
Energy’s Diamond Spring wind energy facility due to an extreme
winter storm event in the southwest United States in February 2021.
Earnings per share dilution in 2022 was $0.15 due to additional
shares of common stock outstanding as of September 30,
2022.
Regulated Operations
net income attributable to ALLETE was $119.4 million for the
nine months ended September 30, 2022, compared to
$99.4 million for the same period in 2021. Net income at Minnesota
Power was higher than 2021 primarily due to the implementation of
interim rates on January 1, 2022. These increases were partially
offset by higher costs under a PPA with Manitoba Hydro, higher
operating and maintenance expense, and lower kWh sales to
industrial customers. Our after-tax equity earnings in ATC were
lower than 2021 primarily due to period over period changes in
ATC’s estimate of a refund liability related to the appeals court
decision on MISO return on equity complaints. (See Note 5. Equity
Investments.)
ALLETE Clean Energy
net income attributable to ALLETE was $15.0 million for the
nine months ended September 30, 2022, compared to
$11.7 million for the same period in 2021. Net income in 2022
reflected higher wind resources compared to 2021, partially offset
by lower realized pricing under the Caddo and Diamond Spring wind
energy facilities’ power sales agreements resulting from extreme
market volatility and transmission congestion in the Southwest
Power Pool. Net income in 2022 also included a reserve for an
anticipated loss on sale of ALLETE Clean Energy’s project to
repower and sell its Northern Wind project. Net income in 2021
included an approximately $5 million after-tax negative impact
related to ALLETE Clean Energy’s Diamond Spring wind energy
facility due to an extreme winter storm event in the southwest
United States in February 2021. This winter storm event caused
volatility in power prices in the regional power market resulting
in losses being incurred under the facility’s power sales
agreements during portions of the winter storm event.
Corporate and Other
net income attributable to ALLETE was $3.2 million for the
nine months ended September 30, 2022, compared to a
net loss of $3.8 million for the same period in 2021. Net
income in 2022 reflects higher earnings from our investment in
Nobles 2 due to higher wind resources in 2022, higher land sales at
ALLETE Properties, higher tons sold at BNI Energy, and lower income
taxes. Net income in 2022 also reflects net income from New Energy
of $0.2 million, which included a $5.7 million after-tax
expense as a result of purchase price accounting related to
projects under development at the time of acquisition. These
increases were partially offset by transaction costs of
$2.6 million after-tax related to the acquisition of New
Energy, and higher other expenses compared to 2021.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
31
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2022 AND
2021
(See Note 11. Business Segments for financial results by
segment.)
Regulated Operations
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
2022 |
2021 |
Millions |
|
|
Operating Revenue – Utility |
$322.6 |
|
$304.8 |
|
Fuel, Purchased Power and Gas – Utility |
136.8 |
|
140.1 |
|
Transmission Services – Utility |
19.3 |
|
19.2 |
|
|
|
|
Operating and Maintenance |
62.2 |
|
53.2 |
|
Depreciation and Amortization |
41.5 |
|
42.6 |
|
Taxes Other than Income Taxes |
15.1 |
|
13.5 |
|
Operating Income |
47.7 |
|
36.2 |
|
Interest Expense |
(14.3) |
|
(14.5) |
|
Equity Earnings |
3.1 |
|
5.3 |
|
Other Income |
2.3 |
|
1.4 |
|
Income Before Income Taxes |
38.8 |
|
28.4 |
|
Income Tax Benefit (Expense) |
0.5 |
|
(4.5) |
|
|
|
|
|
|
|
Net Income Attributable to ALLETE |
$38.3 |
|
$32.9 |
|
Operating Revenue
–
Utility
increased $17.8 million from 2021 primarily due to the
implementation of interim rates at Minnesota Power on January 1,
2022, as well as increased recoveries under the Minnesota
conservation improvement program. These increases were partially
offset by lower fuel adjustment clause recoveries, lower revenue
from kWh sales and the timing of financial incentives.
Interim retail rates for Minnesota Power, subject to refund, were
approved by the MPUC and became effective
January 1, 2022, resulting in revenue of $24.9 million.
(See Note 2. Regulatory Matters.)
Conservation improvement program recoveries increased $1.9 million
from 2021 primarily due to an increase in related expenditures.
(See
Operating Expenses - Operating and Maintenance.)
Fuel adjustment clause revenue decreased $6.6 million due to lower
fuel and purchased power costs attributable to retail and municipal
customers, and lower kWh sales to retail and municipal customers.
(See
Fuel, Purchased Power and Gas – Utility.)
Lower kWh sales reduced revenue $4.1 million from 2021 reflecting
lower sales to retail and municipal customers as well as other
power suppliers. Sales to industrial customers decreased primarily
due to lower sales to taconite customers resulting from less
taconite production in 2022 compared to 2021, reflecting Cliffs’
Northshore mine being temporarily idled in 2022. (See
Outlook - Customers - Northshore Mining.)
Sales to residential, commercial and municipal customers decreased
from 2021 primarily due to milder weather in the third quarter of
2022 compared to 2021. Sales to other power suppliers, which are
sold at market-based prices into the MISO market on a daily basis
or through PSAs of various durations, decreased in 2022 compared to
2021 primarily due to additional kWh sales made in 2021 to mitigate
the uncertainty of customers’ energy needs and potential load loss
due to the COVID-19 pandemic.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
32
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2022 AND 2021
(Continued)
Regulated Operations (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kilowatt-hours Sold |
|
|
|
|
Variance |
Quarter Ended September 30, |
2022 |
|
2021 |
|
Quantity |
|
% |
Millions |
|
|
|
|
|
|
|
Regulated Utility |
|
|
|
|
|
|
|
Retail and Municipal |
|
|
|
|
|
|
|
Residential |
251 |
|
|
268 |
|
|
(17) |
|
|
(6.3) |
% |
Commercial |
353 |
|
|
360 |
|
|
(7) |
|
|
(1.9) |
% |
Industrial |
1,665 |
|
|
1,778 |
|
|
(113) |
|
|
(6.4) |
% |
Municipal |
130 |
|
|
147 |
|
|
(17) |
|
|
(11.6) |
% |
Total Retail and Municipal |
2,399 |
|
|
2,553 |
|
|
(154) |
|
|
(6.0) |
% |
Other Power Suppliers |
769 |
|
|
1,253 |
|
|
(484) |
|
|
(38.6) |
% |
Total Regulated Utility Kilowatt-hours Sold |
3,168 |
|
|
3,806 |
|
|
(638) |
|
|
(16.8) |
% |
Revenue from electric sales to taconite customers accounted for 31
percent of regulated operating revenue in 2022 (32 percent in
2021). Revenue from electric sales to paper, pulp and secondary
wood product customers accounted for 6 percent of regulated
operating revenue in 2022 (5 percent in 2021). Revenue from
electric sales to pipelines and other industrial customers
accounted for 9 percent of regulated operating revenue in 2022
(8 percent in 2021).
Financial incentives under the Minnesota conservation improvement
program were $2.4 million lower than 2021 due to the timing of MPUC
approval, which was received in the second quarter in 2022 compared
to the third quarter in 2021. (See Note 2. Regulatory
Matters.)
Operating Expenses
increased $6.3 million, or 2 percent, from 2021.
Fuel, Purchased Power and Gas – Utility
expense decreased $3.3 million, or 2 percent, from 2021
primarily due to lower kWh sales, partially offset by higher
purchased power prices and fuel costs. Fuel and purchased power
expense related to our retail and municipal customers is recovered
through the fuel adjustment clause.
Operating and Maintenance
expense
increased $9.0 million, or 17 percent, from 2021 primarily due to
more professional services and materials purchased for generation
facilities as well as higher conservation improvement program
expenses and labor expenses. In addition, 2022 included rate
case-related expenses for Minnesota Power’s ongoing rate case. (See
Note 2. Regulatory Matters.)
Taxes Other than Income Taxes
increased $1.6 million, or 12 percent from 2021 primarily due to
higher property tax expense resulting from the impact of an updated
estimate of taxable market values and rates recorded in
2021.
Equity Earnings
decreased $2.2 million, or 42 percent, from 2021 primarily due to
period over period changes in ATC’s estimate of a refund liability
related to the appeals court decision on MISO return on equity
complaints. (See Note 4. Equity Investments.)
Income Tax Benefit
was lower than 2021 due to higher pre-tax income and lower
production tax credits. We expect our annual effective tax rate in
2022 to be a lower income tax benefit than in 2021 primarily due to
higher pre-tax income and lower production tax
credits.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
33
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2022 AND 2021
(Continued)
ALLETE Clean Energy
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
2022 |
2021 |
Millions |
|
|
Operating Revenue |
|
|
Contracts with Customers – Non-utility |
$14.4 |
|
$14.0 |
|
Other – Non-utility
(a)
|
1.2 |
|
2.9 |
|
Cost of Sales – Non-utility |
4.0 |
|
— |
|
Operating and Maintenance |
12.7 |
|
10.2 |
|
Depreciation and Amortization |
14.3 |
|
12.2 |
|
Taxes Other than Income Taxes |
2.9 |
|
1.8 |
|
Operating Loss |
(18.3) |
|
(7.3) |
|
Interest Expense |
(0.2) |
|
(0.3) |
|
Other Income |
0.2 |
|
— |
|
Loss Before Income Taxes |
(18.3) |
|
(7.6) |
|
Income Tax Benefit |
(5.4) |
|
(4.2) |
|
Net Loss |
(12.9) |
|
(3.4) |
|
Net Loss Attributable to Non-Controlling Interest |
(5.6) |
|
(2.6) |
|
Net Loss Attributable to ALLETE |
$(7.3) |
$(0.8) |
(a)Represents
non-cash amortization of differences between contract prices and
estimated market prices on assumed PSAs.
Operating Revenue
decreased $1.3 million, or 8 percent compared to 2021.
Operating revenue reflected the absence of revenue from Northern
Wind as part of ALLETE Clean Energy’s project to repower and sell
the wind energy facilities. Operating revenue in 2022 was also
impacted by lower realized pricing under the Caddo and Diamond
Spring wind energy facilities’ power sales agreements resulting
from extreme market volatility and transmission congestion in the
Southwest Power Pool.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
2022 |
2021 |
Production and Operating Revenue |
kWh |
Revenue |
kWh |
Revenue |
Millions |
|
|
|
|
Wind Energy Regions |
|
|
|
|
East |
38.8 |
|
$3.5 |
|
39.8 |
|
$3.6 |
|
Midwest |
100.9 |
|
4.3 |
|
148.7 |
|
6.5 |
|
South |
373.3 |
|
4.4 |
|
152.6 |
|
2.4 |
|
West |
151.7 |
|
3.4 |
|
180.0 |
|
4.4 |
|
|
|
|
|
|
Total Production and Operating Revenue |
664.7 |
|
$15.6 |
|
521.1 |
|
$16.9 |
|
Cost of Sales – Non-utility
increased $4.0 million from 2021 reflecting a reserve for an
anticipated loss on sale of ALLETE Clean Energy’s project to
repower and sell its Northern Wind project.
Operating and Maintenance
expense increased $2.5 million, or 25 percent, from 2021 primarily
due to operating and maintenance expenses related to the Caddo
wind energy facility, which commenced operations in December
2021.
Depreciation and Amortization
expense increased $2.1 million, or 17 percent, from 2021 primarily
due to additional property, plant and equipment in service
related to the Caddo wind energy facility.
Taxes Other than Income Taxes
increased $1.1 million from 2021 primarily due to higher property
tax expense related to the Caddo wind energy facility.
Income Tax Benefit
increased $1.2 million from 2021 primarily due to higher pre-tax
loss, partially offset by higher production tax credits and higher
net loss attributable to non-controlling interest.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
34
COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2022 AND 2021
(Continued)
ALLETE Clean Energy (Continued)
Net Loss Attributable to Non-Controlling Interest
increased $3.0 million from 2021 reflecting higher net losses
attributable to non-controlling interest for the Diamond Spring
wind energy facility resulting from a higher PTC value in 2022
compared to 2021 as well as net losses attributable to
non-controlling interest for the Caddo wind energy
facility.
Corporate and Other
Operating Revenue
increased $26.4 million from 2021 reflecting revenue from New
Energy, which was acquired in April 2022, and higher revenue
at BNI Energy, which operates under cost-plus fixed fee contracts,
as a result of higher expenses in 2022 compared to
2021.
Net Income Attributable to ALLETE
of $2.7 million in 2022 compared to a net loss of $4.5 million in
2021. Net income in 2022 reflects higher earnings from our
investment in Nobles 2 due to higher wind resources in 2022, net
income from New Energy of $1.3 million, which included a
$1.7 million after-tax expense as a result of purchase price
accounting related to projects under development at the time of
acquisition, and a benefit from the timing of income
taxes.
Income Taxes – Consolidated
For the quarter ended September 30, 2022, the effective tax rate
was a benefit of 36.7 percent (benefit of 25.5 percent for the
quarter ended September 30, 2021). The effective tax rate for 2022
was a higher benefit primarily due to the timing of income
taxes.
We expect our annual effective tax rate in 2022 to be a lower
income tax benefit than in 2021 primarily due to higher
non-controlling interests in subsidiaries, higher pre-tax income,
and lower production tax credits, partially offset by investment
tax credits. The estimated annual effective tax rate can differ
from what a quarterly effective tax rate would otherwise be on a
standalone basis, and this may cause quarter to quarter differences
in the timing of income taxes.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
35
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND
2021
(See Note 11. Business Segments for financial results by
segment.)
Regulated Operations
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
2022 |
2021 |
Millions |
|
|
Operating Revenue – Utility |
$960.3 |
|
$888.2 |
|
Fuel, Purchased Power and Gas – Utility |
417.4 |
|
389.4 |
|
Transmission Services – Utility |
57.5 |
|
56.1 |
|
|
|
|
Operating and Maintenance |
177.7 |
|
158.9 |
|
Depreciation and Amortization |
128.5 |
|
128.2 |
|
Taxes Other than Income Taxes |
42.2 |
|
45.1 |
|
Operating Income |
137.0 |
|
110.5 |
|
Interest Expense |
(42.6) |
|
(43.1) |
|
Equity Earnings |
13.8 |
|
15.8 |
|
Other Income |
6.9 |
|
4.5 |
|
Income Before Income Taxes |
115.1 |
|
87.7 |
|
Income Tax Benefit |
(4.3) |
|
(11.7) |
|
|
|
|
|
|
|
Net Income Attributable to ALLETE |
$119.4 |
|
$99.4 |
|
Operating Revenue
–
Utility
increased $72.1 million from 2021 primarily due to the
implementation of interim rates at Minnesota Power on January 1,
2022, increased conservation improvement program recoveries,
increased gas sales and higher fuel adjustment clause recoveries.
These increases were partially offset by lower cost recovery rider
revenue and lower revenue from kWh sales.
Interim retail rates for Minnesota Power, subject to refund, were
approved by the MPUC and became effective
January 1, 2022, resulting in revenue of $70.5 million.
(See Note 2. Regulatory Matters.)
Conservation improvement program recoveries increased $5.6 million
from 2021 primarily due to an increase in related expenditures.
(See
Operating Expenses - Operating and Maintenance.)
Gas sales at SWL&P increased $3.4 million as a result of colder
weather and higher gas prices in 2022 compared to 2021. (See
Fuel, Purchased Power and Gas – Utility.)
Fuel adjustment clause revenue increased $3.2 million due to higher
fuel and purchased power costs attributable to retail and municipal
customers. (See
Fuel, Purchased Power and Gas – Utility.)
Cost recovery rider revenue decreased $9.6 million primarily due to
additional production tax credits recognized by Minnesota Power. If
production tax credits are recognized at a level above those
assumed in Minnesota Power’s retail rates, a decrease in cost
recovery rider revenue is recognized to offset the impact of higher
production tax credits on income tax expense.
ALLETE, Inc. Third Quarter 2022 Form 10-Q
36
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Continued)
Regulated Operations (Continued)
Lower kWh sales reduced revenue $4.7 million from 2021 reflecting
lower sales to industrial customers and other power suppliers,
partially offset by higher sales to residential and commercial
customers as well as higher pricing on sales to other power
suppliers. Sales to residential and commercial customers increased
from 2021 primarily due to colder weather in 2022 compared to 2021.
Sales to industrial customers decreased primarily due to lower
sales to taconite customers resulting from less taconite production
in 2022 compared to 2021, reflecting Cliffs’ Northshore mine being
temporarily idled in 2022. (See
Outlook - Customers - Northshore Mining.)
Sales to other power suppliers, which are sold at market-based
prices into the MISO market on a daily basis or through PSAs of
various durations, decreased in 2022 compared to 2021 primarily due
to additional kWh sales made in 2021 to mitigate the uncertainty of
customers’ energy needs and potential load loss due to the COVID-19
pandemic.
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Kilowatt-hours Sold |
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|
Variance |
Nine Months Ended September 30, |
2022 |
|
2021 |
|
Quantity |
|
% |
Millions |
|
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|
Regulated Utility |
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Retail and Municipal |
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