Company Quick10K Filing
Allete
Price87.29 EPS4
Shares52 P/E23
MCap4,522 P/FCF26
Net Debt1,492 EBIT242
TEV6,013 TEV/EBIT25
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-06
10-K 2019-12-31 Filed 2020-02-13
10-Q 2019-09-30 Filed 2019-11-06
10-Q 2019-06-30 Filed 2019-08-01
10-Q 2019-03-31 Filed 2019-05-02
10-K 2018-12-31 Filed 2019-02-14
10-Q 2018-09-30 Filed 2018-11-01
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-02
10-K 2017-12-31 Filed 2018-02-15
10-Q 2017-09-30 Filed 2017-11-01
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-02-15
10-Q 2016-09-30 Filed 2016-11-04
10-Q 2016-06-30 Filed 2016-08-03
10-Q 2016-03-31 Filed 2016-05-03
10-K 2015-12-31 Filed 2016-02-22
10-Q 2015-09-30 Filed 2015-11-03
10-Q 2015-06-30 Filed 2015-08-04
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-02-17
10-Q 2014-09-30 Filed 2014-11-03
10-Q 2014-06-30 Filed 2014-08-01
10-Q 2014-03-31 Filed 2014-05-07
10-K 2013-12-31 Filed 2014-02-14
10-Q 2013-09-30 Filed 2013-11-01
10-Q 2013-06-30 Filed 2013-08-01
10-Q 2013-03-31 Filed 2013-05-08
10-Q 2012-09-30 Filed 2012-10-31
10-Q 2012-06-30 Filed 2012-08-02
10-Q 2012-03-31 Filed 2012-05-02
10-K 2011-12-31 Filed 2012-02-15
10-Q 2011-09-30 Filed 2011-11-02
10-Q 2011-06-30 Filed 2011-08-05
10-Q 2011-03-31 Filed 2011-04-29
10-K 2010-12-31 Filed 2011-02-16
10-Q 2010-09-30 Filed 2010-10-29
10-Q 2010-06-30 Filed 2010-08-04
10-Q 2010-03-31 Filed 2010-04-30
10-K 2009-12-31 Filed 2010-02-12
8-K 2020-07-28 Officers, Exhibits
8-K 2020-05-12
8-K 2020-04-13
8-K 2020-04-08
8-K 2020-03-26
8-K 2020-02-13
8-K 2020-01-30
8-K 2019-12-05
8-K 2019-05-16
8-K 2019-05-03
8-K 2019-04-05
8-K 2019-03-27
8-K 2019-03-06
8-K 2019-02-14
8-K 2019-02-14
8-K 2019-02-08
8-K 2019-02-04
8-K 2019-01-16
8-K 2018-12-27
8-K 2018-11-30
8-K 2018-10-03
8-K 2018-05-08
8-K 2018-02-15
8-K 2018-01-16

ALE 10Q Quarterly Report

Part I. Financial Information
Item 1. Consolidated Financial Statements
Note 1. Operations and Significant Accounting Policies
Note 2. Regulatory Matters
Note 3. Equity Investments
Note 4. Fair Value
Note 5. Short - Term and Long - Term Debt
Note 6. Commitments, Guarantees and Contingencies
Note 7. Earnings per Share and Common Stock
Note 8. Income Tax Expense
Note 9. Pension and Other Postretirement Benefit Plans
Note 10. Business Segments
Item 2. Management's Discussion and Analysis of Financial
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-4 ale3-31x202010xqexx4.htm
EX-31.A ale3-31x2020exx31a.htm
EX-31.B ale3-31x2020exx31b.htm
EX-32 ale3-31x2020exx32.htm
EX-95 ale3-31x2020exx95.htm
EX-99 ale3-31x2020exx99.htm

Allete Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
0.50.40.30.20.10.02014201620182020
Rev, G Profit, Net Income
0.20.10.0-0.1-0.2-0.32012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2020
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from ______________ to ______________
Commission File Number 1-3548
ALLETE, Inc.
(Exact name of registrant as specified in its charter)
Minnesota
 
41-0418150
(State or other jurisdiction of incorporation or organization)
 
(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:
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,
51,787,412 shares outstanding
as of March 31, 2020

ALLETE, Inc. First Quarter 2020 Form 10-Q
1




Index
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

ALLETE, Inc. First Quarter 2020 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.
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 Transmission Holdings
ALLETE Transmission Holdings, Inc.
ArcelorMittal
ArcelorMittal S.A.
ATC
American Transmission Company LLC
Bison
Bison Wind Energy Center
BNI Energy
BNI Energy, Inc. and its subsidiary
Boswell
Boswell Energy Center
Camp Ripley
Camp Ripley Solar Array
Cliffs
Cleveland-Cliffs Inc.
Company
ALLETE, Inc. and its subsidiaries
COVID-19
2019 novel coronavirus
CSAPR
Cross-State Air Pollution Rule
DC
Direct Current
EIS
Environmental Impact Statement
EPA
United States Environmental Protection Agency
ESOP
Employee Stock Ownership Plan
FASB
Financial Accounting Standards Board
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
GNTL
Great Northern Transmission Line
Hibbing Taconite
Hibbing Taconite Co.
Husky Energy
Husky Energy Inc.
Invest Direct
ALLETE’s Direct Stock Purchase and Dividend Reinvestment Plan
IRP
Integrated Resource Plan
Item ___
Item ___ of this Form 10-Q
kV
Kilovolt(s)
kW / kWh
Kilowatt(s) / Kilowatt-hour(s)
Laskin
Laskin Energy Center
Lampert Capital Markets
Lampert Capital Markets, Inc.
Manitoba Hydro
Manitoba Hydro-Electric Board
Minnesota Power
An operating division of ALLETE, Inc.
Minnkota Power
Minnkota Power Cooperative, Inc.
MISO
Midcontinent Independent System Operator, Inc.
MMTP
Manitoba-Minnesota Transmission Project
Moody’s
Moody’s Investors Service, Inc.

ALLETE, Inc. First Quarter 2020 Form 10-Q
3




Abbreviation or Acronym
Term
MPCA
Minnesota Pollution Control Agency
MPUC
Minnesota Public Utilities Commission
MW / MWh
Megawatt(s) / Megawatt-hour(s)
NAAQS
National Ambient Air Quality Standards
NDPSC
North Dakota Public Service Commission
Nobles 2
Nobles 2 Power Partners, LLC
NOL
Net Operating Loss
NOX
Nitrogen Oxides
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
Oliver Wind I
Oliver Wind I Energy Center
Oliver Wind II
Oliver Wind II Energy Center
PolyMet
PolyMet Mining Corp.
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
SWL&P
Superior Water, Light and Power Company
Taconite Harbor
Taconite Harbor Energy Center
Town Center District
Town Center at Palm Coast Community Development District in Florida
U.S.
United States of America
U.S. Water Services
U.S. Water Services Holding Company and its subsidiaries
USS Corporation
United States Steel Corporation
WTG
Wind Turbine Generator



ALLETE, Inc. First Quarter 2020 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;
changes in tax rates or policies or in rates of inflation;
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 not improve; 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 ALLETE’s 2019 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. First Quarter 2020 Form 10-Q
5




PART I.  FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

ALLETE
CONSOLIDATED BALANCE SHEET
Unaudited
 
March 31,
2020

 
December 31,
2019

Millions
 
 
 
Assets
 
 
 
Current Assets
 
 
 
Cash and Cash Equivalents

$67.0

 

$69.3

Accounts Receivable (Less Allowance of $1.2 and $0.9)
99.4

 
96.4

Inventories – Net
79.0

 
72.8

Prepayments and Other
29.4

 
31.0

Total Current Assets
274.8

 
269.5

Property, Plant and Equipment – Net
4,496.3

 
4,377.0

Regulatory Assets
423.8

 
420.5

Equity Investments
225.7

 
197.6

Other Non-Current Assets
198.9

 
218.2

Total Assets

$5,619.5

 

$5,482.8

Liabilities and Equity
 
 
 
Liabilities
 
 
 
Current Liabilities
 
 
 
Accounts Payable

$164.4

 

$165.2

Accrued Taxes
63.0

 
50.8

Accrued Interest
15.1

 
18.1

Long-Term Debt Due Within One Year
323.0

 
212.9

Other
57.6

 
60.4

Total Current Liabilities
623.1

 
507.4

Long-Term Debt
1,399.9

 
1,400.9

Deferred Income Taxes
207.0

 
212.8

Regulatory Liabilities
566.4

 
560.3

Defined Benefit Pension and Other Postretirement Benefit Plans
161.4

 
172.8

Other Non-Current Liabilities
288.7

 
293.0

Total Liabilities
3,246.5

 
3,147.2

Commitments, Guarantees and Contingencies (Note 6)

 

Equity
 
 
 
ALLETE Equity
 
 
 
Common Stock Without Par Value, 80.0 Shares Authorized, 51.8 and 51.7 Shares Issued and Outstanding
1,441.7

 
1,436.7

Accumulated Other Comprehensive Loss
(23.8
)
 
(23.6
)
Retained Earnings
853.2

 
818.8

Total ALLETE Equity
2,271.1

 
2,231.9

Non-Controlling Interest in Subsidiaries
101.9

 
103.7

Total Equity
2,373.0

 
2,335.6

Total Liabilities and Equity

$5,619.5

 

$5,482.8

The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter 2020 Form 10-Q
6




ALLETE
CONSOLIDATED STATEMENT OF INCOME
Unaudited
 
Three Months Ended
 
March 31,
 
2020
2019
Millions Except Per Share Amounts
 
 
Operating Revenue
 
 
Contracts with Customers – Utility

$265.3


$282.2

Contracts with Customers – Non-utility
43.5

72.1

Other – Non-utility
2.8

2.9

Total Operating Revenue
311.6

357.2

Operating Expenses
 
 
Fuel, Purchased Power and Gas – Utility
89.0

109.8

Transmission Services – Utility
18.5

18.3

Cost of Sales – Non-utility
16.9

30.6

Operating and Maintenance
61.0

76.2

Depreciation and Amortization
53.4

51.9

Taxes Other than Income Taxes
12.6

13.6

Total Operating Expenses
251.4

300.4

Operating Income
60.2

56.8

Other Income (Expense)
 
 
Interest Expense
(15.7
)
(16.5
)
Equity Earnings
5.2

5.6

Gain on Sale of U.S. Water Services

20.1

Other
1.0

7.4

Total Other Income (Expense)
(9.5
)
16.6

Income Before Income Taxes
50.7

73.4

Income Tax Expense (Benefit)
(13.8
)
2.9

Net Income
64.5

70.5

Net Loss Attributable to Non-Controlling Interest
(1.8
)

Net Income Attributable to ALLETE

$66.3


$70.5

Average Shares of Common Stock
 
 
Basic
51.7

51.6

Diluted
51.8

51.7

Basic Earnings Per Share of Common Stock

$1.28


$1.37

Diluted Earnings Per Share of Common Stock

$1.28


$1.37

The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter 2020 Form 10-Q
7




ALLETE
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited
 
Three Months Ended
 
March 31,
 
2020
 
2019
Millions
 
 
 
Net Income

$64.5

 

$70.5

Other Comprehensive Income (Loss)
 
 
 
Unrealized Gain (Loss) on Securities
 
 
 
Net of Income Tax Expense (Benefit) of $(0.1) and $–
(0.4
)
 
0.1

Defined Benefit Pension and Other Postretirement Benefit Plans
 
 
 
Net of Income Tax Expense of $0.1 and $0.1
0.2

 

Total Other Comprehensive Income (Loss)
(0.2
)
 
0.1

Total Comprehensive Income
64.3

 
70.6

Net Loss Attributable to Non-Controlling Interest
(1.8
)
 

Total Comprehensive Income Attributable to ALLETE

$66.1

 

$70.6

The accompanying notes are an integral part of these statements.


ALLETE, Inc. First Quarter 2020 Form 10-Q
8




ALLETE
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
 
Three Months Ended
 
March 31,
 
2020
 
2019
Millions
 
 
 
Operating Activities
 
 
 
Net Income

$64.5

 

$70.5

AFUDC – Equity
(0.5
)
 
(0.6
)
Income from Equity Investments – Net of Dividends

 
(1.2
)
Realized and Unrealized (Gain) Loss on Investments and Property, Plant and Equipment
3.1

 
(2.2
)
Depreciation Expense
53.4

 
50.7

Amortization of PSAs
(2.8
)
 
(2.9
)
Amortization of Other Intangible Assets and Other Assets
2.6

 
3.8

Deferred Income Tax Expense (Benefit)
(13.8
)
 
2.6

Share-Based and ESOP Compensation Expense
1.7

 
1.8

Defined Benefit Pension and Postretirement Benefit Expense

 
1.1

Provision for Interim Rate Refund

 
0.6

Payments for Tax Reform Refund

 
(10.2
)
Bad Debt Expense
0.4

 
0.4

Gain on Sale of U.S. Water Services

 
(20.1
)
Changes in Operating Assets and Liabilities
 
 
 
Accounts Receivable
(3.4
)
 
20.9

Inventories
(6.2
)
 
(5.1
)
Prepayments and Other
4.0

 
2.9

Accounts Payable
(5.5
)
 
(5.5
)
Other Current Liabilities
7.1

 
(9.1
)
Cash Contributions to Defined Benefit Pension Plans
(10.7
)
 
(10.4
)
Changes in Regulatory and Other Non-Current Assets
(11.4
)
 

Changes in Regulatory and Other Non-Current Liabilities
6.3

 
(8.9
)
Cash from Operating Activities
88.8

 
79.1

Investing Activities
 
 
 
Proceeds from Sale of Available-for-sale Securities
0.9

 
2.7

Payments for Purchase of Available-for-sale Securities
(1.1
)
 
(2.6
)
Payments for Equity Investments
(27.8
)
 
(0.5
)
Return of Capital from Equity Investments

 
8.3

Proceeds from Sale of U.S. Water Services – Net of Transaction Costs and Cash Retained

 
264.7

Additions to Property, Plant and Equipment
(154.3
)
 
(89.3
)
Other Investing Activities
(0.2
)
 
1.8

Cash from (for) Investing Activities
(182.5
)
 
185.1

Financing Activities
 
 
 
Proceeds from Issuance of Common Stock
3.3

 
0.8

Proceeds from Issuance of Long-Term Debt
110.0

 
100.0

Repayments of Long-Term Debt
(1.4
)
 
(43.8
)
Acquisition-Related Contingent Consideration Payments

 
(3.8
)
Dividends on Common Stock
(31.9
)
 
(30.3
)
Other Financing Activities
0.1

 
(0.9
)
Cash from Financing Activities
80.1

 
22.0

Change in Cash, Cash Equivalents and Restricted Cash
(13.6
)
 
286.2

Cash, Cash Equivalents and Restricted Cash at Beginning of Period
92.5

 
79.0

Cash, Cash Equivalents and Restricted Cash at End of Period

$78.9

 

$365.2

The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter 2020 Form 10-Q
9




ALLETE
CONSOLIDATED STATEMENT OF EQUITY
Unaudited
 
Three Months Ended
 
March 31,
 
2020
2019
Millions Except Per Share Amounts
 
 
Common Stock
 
 
Balance, Beginning of Period

$1,436.7


$1,428.5

Common Stock Issued
5.0

2.6

Balance, End of Period
1,441.7

1,431.1

 
 
 
Accumulated Other Comprehensive Loss
 
 
Balance, Beginning of Period
(23.6
)
(27.3
)
Other Comprehensive Income - Net of Income Taxes
 
 
Unrealized Gain (Loss) on Debt Securities
(0.4
)
0.1

Defined Benefit Pension and Other Postretirement Plans
0.2


Balance, End of Period
(23.8
)
(27.2
)
 
 
 
Retained Earnings
 
 
Balance, Beginning of Period
818.8

754.6

Net Income Attributable to ALLETE
66.3

70.5

Common Stock Dividends
(31.9
)
(30.3
)
Balance, End of Period
853.2

794.8

 
 
 
Non-Controlling Interest in Subsidiaries
 
 
Balance, Beginning of Period
103.7


Net Loss Attributable to Non-Controlling Interest
(1.8
)

Balance, End of Period
101.9


 
 
 
Total Equity

$2,373.0


$2,198.7

 
 
 
Dividends Per Share of Common Stock

$0.6175


$0.5875


The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter 2020 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, 2019, Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. 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 three months ended March 31, 2020, are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2020. For further information, refer to the Consolidated Financial Statements and notes included in our 2019 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 March 31, 2020, restricted cash amounts included in Prepayments and Other on the Consolidated Balance Sheet include collateral deposits required under an ALLETE Clean Energy loan agreement. In prior period balances presented, the amounts also include U.S. Water Services' standby letters of credit. The restricted cash amounts included in Other Non-Current Assets represent collateral deposits required under an ALLETE Clean Energy loan agreement, PSAs and construction projects. In prior period balances presented, the amounts also include deposits from a SWL&P customer in aid of future capital expenditures. 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
March 31,
2020

 
December 31,
2019

 
March 31,
2019

 
December 31,
2018

Millions
 
 
 
 
 
 
 
Cash and Cash Equivalents

$67.0

 

$69.3

 

$353.3

 

$69.1

Restricted Cash included in Prepayments and Other
6.1

 
2.8

 
7.2

 
1.3

Restricted Cash included in Other Non-Current Assets
5.8

 
20.4

 
4.7

 
8.6

Cash, Cash Equivalents and Restricted Cash on the Consolidated Statement of Cash Flows

$78.9

 

$92.5

 

$365.2

 

$79.0



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
March 31,
2020

 
December 31,
2019

Millions
 
 
 
Fuel (a)

$31.4

 

$25.9

Materials and Supplies
47.6

 
46.9

Total Inventories – Net

$79.0

 

$72.8


(a)
Fuel consists primarily of coal inventory at Minnesota Power.
Other Non-Current Assets
March 31,
2020

 
December 31,
2019

Millions
 
 
 
Contract Assets (a)

$27.3

 

$28.0

Operating Lease Right-of-use Assets
26.8

 
28.6

ALLETE Properties
21.5

 
21.9

Restricted Cash
5.8

 
20.4

Other Postretirement Benefit Plans
38.0

 
37.5

Other
79.5

 
81.8

Total Other Non-Current Assets

$198.9

 

$218.2


(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.     

ALLETE, Inc. First Quarter 2020 Form 10-Q
11




NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Current Liabilities
March 31,
2020

 
December 31,
2019

Millions
 
 
 
PSAs

$12.4

 

$12.3

Operating Lease Liabilities
6.9

 
6.9

Other
38.3

 
41.2

Total Other Current Liabilities

$57.6

 

$60.4



Other Non-Current Liabilities
March 31,
2020

 
December 31,
2019

Millions
 
 
 
Asset Retirement Obligation

$163.2

 

$160.3

PSAs
61.5

 
64.6

Operating Lease Liabilities
20.0

 
21.8

Other
44.0

 
46.3

Total Other Non-Current Liabilities

$288.7

 

$293.0


Other Income
 
 
Three Months Ended March 31,
2020

2019

Millions
 
 
Pension and Other Postretirement Benefit Plan Non-Service Credits (a)

$2.6


$2.0

Interest and Investment Income (Loss)
(2.6
)
1.0

AFUDC - Equity
0.5

0.6

Gain on Land Sales
0.1

1.8

Other
0.4

2.0

Total Other Income

$1.0


$7.4


(a)
These are components of net periodic pension and other postretirement benefit cost other than service cost. (See Note 9. Pension and Other Postretirement Benefit Plans.)

Supplemental Statement of Cash Flows Information.
Three Months Ended March 31,
2020

 
2019

Millions
 
 
 
Cash Paid for Interest – Net of Amounts Capitalized

$18.3

 

$19.7

Recognition of Right-of-use Assets and Lease Liabilities

 

$34.0

Noncash Investing and Financing Activities
 

 
 

Increase (Decrease) in Accounts Payable for Capital Additions to Property, Plant and Equipment
$4.7
 
$(1.1)
Capitalized Asset Retirement Costs

$1.6

 

$1.6

AFUDC–Equity

$0.5

 

$0.6



Sale of U.S. Water Services. In February 2019, the Company entered into a stock purchase agreement providing for the sale of U.S. Water Services to a subsidiary of Kurita Water Industries Ltd. In March 2019, ALLETE completed the sale and received approximately $270 million in cash, net of transaction costs and cash retained. The Company recognized a gain on the sale of U.S. Water Services of $9.9 million after-tax in the first quarter of 2019. The full year gain on sale of U.S. Water Services in 2019 was $13.2 million after-tax.


ALLETE, Inc. First Quarter 2020 Form 10-Q
12




NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

ALLETE Clean Energy Asset Acquisition. On March 10, 2020, ALLETE Clean Energy acquired the rights to the Caddo wind project in Oklahoma from Apex Clean Energy for approximately $8 million with additional payments required to be made at defined milestones. The full development of this approximately 300 MW wind project would involve the sale of energy to corporate customers under long-term power sales agreements.

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 as of and during the three months ended March 31, 2020, related to the tax equity financing structure for ALLETE Clean Energy’s 106 MW Glen Ullin wind energy facility.

On April 16, 2020, ALLETE Clean Energy commenced operations of South Peak, an 80 MW wind energy facility in Montana, and on April 29, 2020, received approximately $70 million in cash from a third-party investor as part of a tax equity financing for the 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.

New Accounting Pronouncements.

Credit Losses. In 2016, the FASB issued an accounting standard update that requires entities to recognize an allowance for expected credit losses for financial instruments within its scope. Examples of financial instruments within the scope include trade receivables, certain financial guarantees, and held-to-maturity debt securities. The allowance for expected credit losses should be based on historical information, current conditions and reasonable and supportable forecasts. The new standard also revises the other-than-temporary impairment model for available-for-sale debt securities. The new guidance became effective January 1, 2020, and was adopted by the Company in the first quarter of 2020. Adoption of this standard did not have a material impact on our Consolidated Financial Statements.


NOTE 2. REGULATORY MATTERS

Regulatory matters are summarized in Note 4. Regulatory Matters to the Consolidated Financial Statements in our 2019 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 $9.6 million for the three months ended March 31, 2020 ($7.4 million for three months ended March 31, 2019).

2020 Minnesota General Rate Case. On November 1, 2019, Minnesota Power filed a retail rate increase request with the MPUC seeking an average increase of approximately 10.6 percent for retail customers. The rate filing seeks a return on equity of 10.05 percent and a 53.81 percent equity ratio. On an annualized basis, the requested final rate increase would generate approximately $66 million in additional revenue. In orders dated December 23, 2019, the MPUC accepted the filing as complete and authorized an annual interim rate increase of $36.1 million that began January 1, 2020. We cannot predict the level of final rates that may be authorized by the MPUC.

On April 23, 2020, Minnesota Power filed a request with the MPUC that proposes a resolution for Minnesota Power’s 2020 general rate case. Key components of our proposal include removing the current power marketing margin credit in base rates and reflecting actual power marketing margins in the fuel adjustment clause effective May 1, 2020; refunding to customers interim rates collected through April 2020 of approximately $12 million ($9 million as of March 31, 2020,); increasing ongoing customer rates 4.1 percent compared to the 5.8 percent increase reflected in current interim rates; and a provision that Minnesota Power would not file another rate case until at least March 1, 2021, unless certain events occur. Minnesota Power would withdraw its general rate case upon approval of this filing and proposed resolution by the MPUC. At a hearing on April 30, 2020, the MPUC approved lowering current interim rates to 4.1 percent effective May 1, 2020, as requested by Minnesota Power in this filing. A final decision on Minnesota Power’s full proposal in this filing is expected in June 2020. At this time, we are unable to predict whether the MPUC will ultimately approve this filing and proposed resolution, and thus, as of March 31, 2020, we have not recorded reserves for interim rates.

ALLETE, Inc. First Quarter 2020 Form 10-Q
13




NOTE 2. REGULATORY MATTERS (Continued)
Electric Rates (Continued)

Transmission Cost Recovery Rider. Minnesota Power has an approved cost recovery rider in place for certain transmission investments and expenditures. In a 2016 order, the MPUC approved Minnesota Power’s updated customer billing rates allowing Minnesota Power to charge retail customers on a current basis for the costs of constructing certain transmission facilities plus a return on the capital invested. On July 9, 2019, Minnesota Power filed a petition seeking MPUC approval to update the customer billing factor to include investments made for the GNTL. (See Note 6. Commitments, Guarantees and Contingencies.)

Renewable Cost Recovery Rider. Minnesota Power has an approved cost recovery rider for certain renewable investments and expenditures. The cost recovery rider allows Minnesota Power to charge retail customers on a current basis for the costs of certain renewable investments plus a return on the capital invested. Current customer billing rates for the renewable cost recovery rider were approved by the MPUC in a November 2018 order. On August 15, 2019, Minnesota Power filed a petition seeking MPUC approval to update the customer billing factor.

Fuel Adjustment Clause Reform. In a 2017 order, the MPUC adopted a program to implement certain procedural reforms to Minnesota utilities’ automatic fuel adjustment clause (FAC) for fuel and purchased power. With this order, the method of accounting for all Minnesota electric utilities changed to a monthly budgeted, forward-looking FAC with annual prudence review and true-up to actual allowed costs. On May 1, 2019, Minnesota Power filed its fuel adjustment forecast for 2020, which was accepted by the MPUC in an order dated November 14, 2019, for purposes of setting fuel adjustment clause rates for 2020, subject to a true-up filing in 2021.

COVID-19 Related Costs. In an order dated March 24, 2020, the PSCW authorized public utilities, which includes SWL&P, to defer expenditures incurred by the utility resulting from its compliance with state government or regulator orders, and as otherwise required to ensure the provision of safe, reliable and affordable access to utility services during Wisconsin’s declared public health emergency for COVID-19. On April 20, 2020, Minnesota Power along with other regulated electric and natural gas service providers in Minnesota filed a joint petition to request MPUC authorization to track incremental costs and expenses incurred as a result of COVID-19, and to defer and record such costs as a regulatory asset, subject to recovery in a future proceeding. 

Integrated Resource Plan. In a 2016 order, the MPUC approved Minnesota Power’s 2015 IRP with modifications. The order accepted Minnesota Power’s plans for the economic idling of Taconite Harbor Units 1 and 2 and the ceasing of coal-fired operations at Taconite Harbor in 2020, directed Minnesota Power to retire Boswell Units 1 and 2 no later than 2022, required an analysis of generation and demand response alternatives to be filed with a natural gas resource proposal, and required Minnesota Power to conduct requests for proposal for additional wind, solar and demand response resource additions. Minnesota Power retired Boswell Units 1 and 2 in the fourth quarter of 2018. Minnesota Power’s next IRP filing is due October 1, 2020.

Nemadji Trail Energy Center. In 2017, Minnesota Power submitted a resource package to the MPUC which included requesting approval of a 250 MW natural gas capacity dedication agreement. The natural gas capacity dedication agreement was subject to MPUC approval of the construction of NTEC, a 525 MW to 550 MW combined-cycle natural gas‑fired generating facility which will be jointly owned by Dairyland Power Cooperative and a subsidiary of ALLETE. Minnesota Power would purchase approximately 50 percent of the facility's output starting in 2025. In an order dated January 24, 2019, the MPUC approved Minnesota Power’s request for approval of the NTEC natural gas capacity dedication agreement. Separately, the MPUC required a baseload retirement evaluation in Minnesota Power’s next IRP filing analyzing its existing fleet, including potential early retirement scenarios of Boswell Units 3 and 4, as well as a securitization plan. On December 23, 2019, the Minnesota Court of Appeals reversed and remanded the MPUC’s decision to approve certain affiliated-interest agreements. The MPUC was ordered to determine whether NTEC may have the potential for significant environmental effects and, if so, to prepare an environmental assessment worksheet before reassessing the agreements. On January 22, 2020, Minnesota Power filed a petition for further review with the Minnesota Supreme Court requesting that it review and overturn the Minnesota Court of Appeals decision, which petition was accepted for review by the Minnesota Supreme Court on March 18, 2020. On January 8, 2019, an application for a certificate of public convenience and necessity for NTEC was submitted to the PSCW, which was approved by the PSCW at a hearing on January 16, 2020. Construction of NTEC is subject to obtaining additional permits from local, state and federal authorities. The total project cost is estimated to be approximately $700 million, of which ALLETE’s portion is expected to be approximately $350 million. ALLETE’s portion of NTEC project costs incurred through March 31, 2020, is approximately $13 million.

MISO Return on Equity Complaint. MISO transmission owners, including ALLETE and ATC, have an authorized return on equity of 9.88 percent, or 10.38 percent including an incentive adder for participation in a regional transmission organization, based on a November 2019 FERC order. In this order, the FERC reduced the base return on equity for regional transmission organizations as recommended by an administrative law judge with refunds ordered for prior periods, which are immaterial to ALLETE. Multiple parties to the complaint have filed requests for rehearing of the FERC order.

ALLETE, Inc. First Quarter 2020 Form 10-Q
14




NOTE 2. REGULATORY MATTERS (Continued)

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. With the exception of the regulatory asset for Boswell Units 1 and 2 net plant and equipment, no other regulatory assets are currently earning a return. 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
March 31,
2020

 
December 31,
2019

Millions
 
 
 
Non-Current Regulatory Assets
 
 
 
Defined Benefit Pension and Other Postretirement Benefit Plans

$211.1

 

$212.9

Income Taxes
121.0

 
123.4

Cost Recovery Riders
34.1

 
24.7

Asset Retirement Obligations
31.8

 
32.0

Boswell Units 1 and 2 Net Plant and Equipment
9.3

 
10.7

Manufactured Gas Plant 
8.3

 
8.2

PPACA Income Tax Deferral
4.7

 
4.8

Other
3.5

 
3.8

Total Non-Current Regulatory Assets

$423.8

 

$420.5

 
 
 
 
Current Regulatory Liabilities (a)
 
 
 
Transmission Formula Rates Refund

$1.3

 

$1.7

Provision for Tax Reform Refund
0.2

 
0.2

Total Current Regulatory Liabilities
1.5

 
1.9

Non-Current Regulatory Liabilities
 
 
 
Income Taxes
397.1

 
407.2

Wholesale and Retail Contra AFUDC
84.2

 
79.3

Plant Removal Obligations
37.4

 
35.5

Defined Benefit Pension and Other Postretirement Benefit Plans
15.6

 
17.0

North Dakota Investment Tax Credits
12.3

 
12.3

Fuel Adjustment Clause (b)
8.4

 

Conservation Improvement Program
7.4

 
5.4

Other
4.0

 
3.6

Total Non-Current Regulatory Liabilities
566.4

 
560.3

Total Regulatory Liabilities

$567.9

 

$562.2


(a)
Current regulatory liabilities are presented within Other Current Liabilities on the Consolidated Balance Sheet.
(b)
Fuel adjustment clause regulatory liability represents the amount expected to be refunded to customers for the over-collection of fuel adjustment clause recoveries. (See Fuel Adjustment Clause Reform.)



ALLETE, Inc. First Quarter 2020 Form 10-Q
15




NOTE 3. 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. In the three months ended March 31, 2020, we invested $0.4 million in ATC, and on April 30, 2020, we invested an additional $0.8 million. We expect to make additional investments of $1.6 million in 2020.
ALLETE’s Investment in ATC
 
Millions
 
Equity Investment Balance as of December 31, 2019

$141.6

Cash Investments
0.4

Equity in ATC Earnings
5.2

Distributed ATC Earnings
(5.2
)
Amortization of the Remeasurement of Deferred Income Taxes
0.3

Equity Investment Balance as of March 31, 2020

$142.3



ATC’s authorized return on equity is 9.88 percent, or 10.38 percent including an incentive adder for participation in a regional transmission organization based on a November 2019 FERC order. (See Note 2. Regulatory Matters.)

Investment in Nobles 2. Our wholly-owned subsidiary, ALLETE South Wind, owns 49 percent of Nobles 2, the entity that will own and operate 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. As of March 31, 2020, our equity investment in Nobles 2 was $83.4 million ($56.0 million at December 31, 2019). In the three months ended March 31, 2020, we invested $27.4 million in Nobles 2, and in April 2020 we invested an additional $21.7 million. We expect to make approximately $65 million in additional investments in 2020.


NOTE 4. 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 7. Fair Value to the Consolidated Financial Statements in our 2019 Form 10-K.

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 March 31, 2020, and December 31, 2019. 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 listed on the Consolidated Balance Sheet approximates the carrying amount and therefore is excluded from the recurring fair value measures in the following tables.

ALLETE, Inc. First Quarter 2020 Form 10-Q
16




NOTE 4. FAIR VALUE (Continued)
 
Fair Value as of March 31, 2020
Recurring Fair Value Measures
Level 1

 
Level 2

 
Level 3

 
Total

Millions
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments (a)
 
 
 
 
 
 
 
Available-for-sale – Equity Securities

$8.4

 

 

 

$8.4

Available-for-sale – Corporate and Governmental Debt Securities (b)

 

$9.3

 

 
9.3

Cash Equivalents
0.8

 

 

 
0.8

Total Fair Value of Assets

$9.2

 

$9.3

 

 

$18.5

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Deferred Compensation (c)

 

$19.3

 

 

$19.3

Total Fair Value of Liabilities

 

$19.3

 

 

$19.3

Total Net Fair Value of Assets (Liabilities)

$9.2

 
$(10.0)
 

 
$(0.8)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value as of December 31, 2019
Recurring Fair Value Measures
Level 1

 
Level 2

 
Level 3

 
Total

Millions
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Investments (a)
 
 
 
 
 
 
 
Available-for-sale – Equity Securities

$11.1

 

 

 

$11.1

Available-for-sale – Corporate and Governmental Debt Securities

 

$9.7

 

 
9.7

Cash Equivalents
0.9

 

 

 
0.9

Total Fair Value of Assets

$12.0

 

$9.7

 

 

$21.7

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Deferred Compensation (c)

 

$21.2

 

 

$21.2

Total Fair Value of Liabilities

 

$21.2

 

 

$21.2

Total Net Fair Value of Assets (Liabilities)

$12.0

 
$(11.5)
 
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