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, ~~2023~~2024


☐			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,

~~57,316,155~~57,666,069 shares outstanding

as of March 31, ~~2023~~2024

Index




Definitions			3

Forward-Looking Statements			5

Part I.	Financial Information

	Item 1.	Consolidated Financial Statements - Unaudited	67

		Consolidated Balance Sheet	67


		Consolidated Statement of Income	78


		Consolidated Statement of Comprehensive Income	89


		Consolidated Statement of Cash Flows	910


		Consolidated Statement of Equity	1011


		Notes to Consolidated Financial Statements	1112

		Note 1. Operations and Significant Accounting Policies	1112

		Note 2. Regulatory Matters	14

		Note 3 .3. Equity Investments	1617

		Note 4 .4. Fair Value	1617
		Note 5 .5. Short-Term and Long-Term Debt	1819
		Note 6 .6. Commitments, Guarantees and Contingencies	1920
		Note 7 .7. Earnings Per Share and Common Stock	2625
		Note 8 .8. Income Tax Expense	26

		Note 9 .9. Pension and Other Postretirement Benefit Plans	2827
		Note 1 0 .10. Business Segments	2827
		Note 11. Subsequent Event – Agreement and Plan of Merger	29
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

		Comparison of the Three Months Ended	31
		Critical Accounting Policies	34
		Outlook	3534
		Liquidity and Capital Resources	3738
		Other	3940
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3940

	Item 4.	Controls and Procedures	4041

Part II.	Other Information

	Item 1.	Legal Proceedings	4041

	Item 1A.	Risk Factors	41

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4142

	Item 3.	Defaults Upon Senior Securities	4142

	Item 4.	Mine Safety Disclosures	4143

	Item 5.	Other Information	4143

	Item 6.	Exhibits	4143

Signatures			4244

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

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 South Wind			ALLETE South Wind, LLC
ALLETE Transmission Holdings			ALLETE Transmission Holdings, Inc.

Alloy Merger Sub			Alloy Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Alloy Parent.
Alloy Parent			Alloy Parent LLC, a Delaware limited liability company which, upon closing, will be jointly owned by a wholly owned subsidiary of Canada Pension Plan Investment Board and affiliates of investment vehicles affiliated with one or more funds, accounts, or other entities managed or advised by Global Infrastructure Management, LLC.
ATC			American Transmission Company LLC


~~Bison~~			~~Bison Wind Energy Center~~
BNI Energy			BNI Energy, Inc. and its subsidiary
Boswell			Boswell Energy Center
Caddo			ALLETE Clean Energy’s Caddo Wind Energy Facility


Cliffs			Cleveland-Cliffs Inc.

Company			ALLETE, Inc. and its subsidiaries

~~COVID-19~~			~~2019 novel coronavirus~~
CSAPR			Cross-State Air Pollution Rule

Diamond Spring			ALLETE Clean Energy’s Diamond Spring Wind Energy Facility


ECO			Energy Conservation and Optimization Plan
EPA			United States Environmental Protection Agency

ESOP			Employee Stock Ownership Plan

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




HVDC			High-Voltage Direct-Current
IBEW

			International Brotherhood of Electrical Workers
Invest Direct			ALLETE’s Direct Stock Purchase and Dividend Reinvestment Plan
Item ___			Item ___ of this Form 10-Q
kV			Kilovolt(s)
kWh			Kilowatt-hour(s)
Laskin			Laskin Energy Center
Lampert Capital Markets			Lampert Capital Markets, Inc.



Merger			Pursuant to the Merger Agreement, on the terms and subject to the conditions set forth therein, Alloy Merger Sub will merge with and into ALLETE (the “Merger”), with ALLETE continuing as the surviving corporation in the Merger and becoming a subsidiary of Alloy Parent.
Merger Agreement
			Agreement and Plan of Merger, dated as of May 5, 2024, by and among ALLETE, Alloy Parent, and Alloy Merger Sub.
Minnesota Power			An operating division of ALLETE, Inc.
Minnkota Power			Minnkota Power Cooperative, Inc.

ALLETE, Inc. First Quarter 2024 Form 10-Q


Abbreviation or Acronym			Term
MISO			Midcontinent Independent System Operator, Inc.


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
NDPSC			North Dakota Public Service Commission
New Energy			New Energy Equity LLC
Nippon Steel			Nippon Steel Corporation
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

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~


~~Abbreviation or Acronym~~			~~Term~~
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
Sofidel			The Sofidel Group
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. First Quarter ~~2023~~2024 Form 10-Q

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;~~diseases;

•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.~~opportunities;

•the risk that Alloy Parent or ALLETE may be unable to obtain governmental and regulatory approvals required for the Merger, or that required governmental and regulatory approvals or agreements with other parties interested therein may delay the Merger, may subject the Merger to or impose adverse conditions or costs or may cause the parties to abandon the Merger; and

•that the announcement and pendency of the Merger, during which the Company is subject to certain operating restrictions, could have an adverse effect on the Company’s businesses, results of operations, financial condition or cash flows.

ALLETE, Inc. First Quarter 2024 Form 10-Q

Forward-Looking Statements (Continued)

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 ~~2022~~2023 Form ~~10-K and Part II, Item 1A. Risk Factors of this Form 10-Q.~~10-K. 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 ~~2023~~2024 Form 10-Q

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ALLETE

CONSOLIDATED BALANCE SHEET

Unaudited

March 31,
2023

December 31,
2022

March 31,
2024

December 31,
2023

Millions

Assets

Current Assets

Cash and Cash Equivalents

$29.9

$36.4

Accounts Receivable (Less Allowance of $1.7 and $1.6)

120.3

137.9

Inventories – Net

346.9

455.9

Prepayments and Other

72.6

87.8

Total Current Assets

569.7

718.0

Property, Plant and Equipment – Net

4,979.3

5,004.0

Regulatory Assets

469.1

441.0

Equity Investments

323.9

322.7

Goodwill and Intangible Assets – Net

155.5

155.6

Goodwill and Intangible Assets – Net

Other Non-Current Assets

207.0

204.3

Total Assets

$6,704.5

$6,845.6

Liabilities and Equity

Liabilities, Redeemable Non-Controlling Interest and Equity

Liabilities

Current Liabilities

Accounts Payable

$84.9

$103.0

Accrued Taxes

81.4

69.1

Accrued Interest

14.9

20.5

Long-Term Debt Due Within One Year

176.4

272.6

Other

106.8

251.0

Total Current Liabilities

464.4

716.2

Long-Term Debt

1,755.5

1,648.2

Deferred Income Taxes

156.3

158.1

Regulatory Liabilities

526.4

526.1

Defined Benefit Pension and Other Postretirement Benefit Plans

173.8

179.7

Other Non-Current Liabilities

270.4

269.0

Total Liabilities

3,346.8

3,497.3

Commitments, Guarantees and Contingencies (Note 6)

Redeemable Non-Controlling Interest

Equity

ALLETE Equity

Common Stock Without Par Value, 80.0 Shares Authorized, 57.3 and 57.2 Shares Issued and Outstanding

1,785.6

1,781.5

Common Stock Without Par Value, 80.0 Shares Authorized, 57.7 and 57.6 Shares Issued and Outstanding

Accumulated Other Comprehensive Loss

(24.3)

(24.4)

Retained Earnings

954.2

934.8

Total ALLETE Equity

2,715.5

2,691.9

Non-Controlling Interest in Subsidiaries

642.2

656.4

Total Equity

3,357.7

3,348.3

Total Liabilities and Equity

$6,704.5

$6,845.6

Total Liabilities, Redeemable Non-Controlling Interest and Equity

The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

ALLETE

CONSOLIDATED STATEMENT OF INCOME

Unaudited


			Three Months Ended
			March 31
			Three Months Ended
			Three Months Ended
			Three Months Ended
		March 31,						March 31,
				2023	2022	2024	2023
Millions Except Per Share Amounts	Millions Except Per Share Amounts
Operating Revenue	Operating Revenue
Operating Revenue
Operating Revenue
Contracts with Customers – Utility
Contracts with Customers – Utility
Contracts with Customers – Utility	Contracts with Customers – Utility			$312.6	$329.0
Contracts with Customers – Non-utility	Contracts with Customers – Non-utility			251.0	51.7
Other – Non-utility	Other – Non-utility			1.3	2.8

Total Operating Revenue	Total Operating Revenue			564.9	383.5
Total Operating Revenue
Total Operating Revenue
Operating Expenses	Operating Expenses
Fuel, Purchased Power and Gas – Utility
Fuel, Purchased Power and Gas – Utility
Fuel, Purchased Power and Gas – Utility	Fuel, Purchased Power and Gas – Utility			118.6	137.4
Transmission Services – Utility	Transmission Services – Utility			20.1	19.9
Cost of Sales – Non-utility	Cost of Sales – Non-utility			210.5	17.0
Operating and Maintenance	Operating and Maintenance			85.7	75.3
Depreciation and Amortization	Depreciation and Amortization			62.3	61.7
Taxes Other than Income Taxes	Taxes Other than Income Taxes			19.4	18.8
Total Operating Expenses	Total Operating Expenses			516.6	330.1
Operating Income	Operating Income			48.3	53.4
Other Income (Expense)	Other Income (Expense)
Interest Expense	Interest Expense			(19.3)	(18.3)
Interest Expense
Interest Expense
Equity Earnings	Equity Earnings			6.0	5.5

Other	Other			4.1	2.0
Other
Other
Total Other Expense	Total Other Expense			(9.2)	(10.8)
Income Before Income Taxes	Income Before Income Taxes			39.1	42.6
Income Tax Expense (Benefit)				1.5	(3.9)
Income Tax Expense
Net Income	Net Income			37.6	46.5
Net Loss Attributable to Non-Controlling Interest	Net Loss Attributable to Non-Controlling Interest			(20.6)	(19.8)
Net Income Attributable to ALLETE	Net Income Attributable to ALLETE			$58.2	$66.3
Average Shares of Common Stock	Average Shares of Common Stock
Basic	Basic			57.3	53.3
Basic
Basic
Diluted	Diluted			57.3	53.3
Basic Earnings Per Share of Common Stock	Basic Earnings Per Share of Common Stock			$1.02	$1.24
Diluted Earnings Per Share of Common Stock	Diluted Earnings Per Share of Common Stock			$1.02	$1.24

The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

ALLETE

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Unaudited

Three Months Ended

March 31,

2023

2022

Three Months Ended

March 31,

2024

2023

Millions

Net Income

$37.6

$46.5

Other Comprehensive Income (Loss)

Unrealized Gain (Loss) on Securities

Net of Income Tax Expense of $0.1 and $–

0.1

(0.3)

Unrealized Gain on Securities

Net of Income Tax Expense of $– and $0.1

Defined Benefit Pension and Other Postretirement Benefit Plans

Net of Income Tax Expense of $– and $0.1

—

0.1

Defined Benefit Pension and Other Postretirement Benefit Plans

Net of Income Tax Expense of $0.1 and $–

Total Other Comprehensive Income (Loss)

0.1

(0.2)

Total Comprehensive Income

37.7

46.3

Net Loss Attributable to Non-Controlling Interest

(20.6)

(19.8)

Total Comprehensive Income Attributable to ALLETE

$58.3

$66.1

The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

ALLETE

CONSOLIDATED STATEMENT OF CASH FLOWS

Unaudited

Three Months Ended

March 31

Three Months Ended

March 31,

2023

2022

2024

2023

Millions

Operating Activities

Net Income

$37.6

$46.5

Adjustments to Reconcile Net Income to Cash provided by (used in) Operating Activities:

AFUDC – Equity

(0.5)

(0.9)

Income from Equity Investments – Net of Dividends

—

0.4

Loss on Investments and Property, Plant and Equipment

0.4

0.1

AFUDC – Equity

Loss (Income) on Investments and Property, Plant and Equipment

Depreciation Expense

62.3

61.7

Amortization of PSAs

(1.3)

(2.8)

Amortization of Other Intangible Assets and Other Assets

1.9

2.1

Deferred Income Tax Benefit

(6.3)

(4.0)

Share-Based and ESOP Compensation Expense

0.8

1.3

Defined Benefit Pension and Postretirement Benefit

(0.8)

(0.4)

Defined Benefit Pension and Other Postretirement Plan Benefit

Fuel Adjustment Clause

15.3

(1.9)

Bad Debt Expense

0.3

0.4

Provision for Interim Rate Refund

5.1

—

Changes in Operating Assets and Liabilities

Accounts Receivable

17.3

4.9

Inventories

109.0

(98.9)

Prepayments and Other

11.0

(7.4)

Accounts Payable

(10.7)

(10.6)

Other Current Liabilities

(142.2)

(1.0)

Cash Contributions to Defined Benefit Pension Plans

(6.5)

—

Changes in Regulatory and Other Non-Current Assets

(0.7)

3.9

Changes in Regulatory and Other Non-Current Liabilities

0.4

1.8

Cash provided by (used in) Operating Activities

92.4

(4.8)

Cash provided by Operating Activities

Investing Activities

Proceeds from Sale of Available-for-sale Securities

—

0.5

Payments for Purchase of Available-for-sale Securities

—

(0.4)

Payments for Equity Method Investments

(0.8)

(2.7)

Payments for Equity Method Investments

Additions to Property, Plant and Equipment

(70.0)

(57.7)

Additions to Property, Plant and Equipment

Other Investing Activities

(3.9)

0.2

Cash used in Investing Activities

(74.7)

(60.1)

Financing Activities

Proceeds from Issuance of Common Stock

3.3

Proceeds from Issuance of Short-Term and Long-Term Debt

238.5

228.9

Proceeds from Issuance of Short-Term and Long-Term Debt

Repayments of Short-Term and Long-Term Debt

(227.8)

(259.2)

Proceeds from Non-Controlling Interest in Subsidiaries – Net

6.7

154.1

Distributions to Non-Controlling Interest

Dividends on Common Stock

(38.8)

(34.5)

Other Financing Activities

(0.2)

(0.4)

Cash provided by (used in) Financing Activities

(18.3)

92.2

Cash used in Financing Activities

Change in Cash, Cash Equivalents and Restricted Cash

(0.6)

27.3

Cash, Cash Equivalents and Restricted Cash at Beginning of Period

40.2

47.7

Cash, Cash Equivalents and Restricted Cash at End of Period

$39.6

$75.0

The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

910

ALLETE

CONSOLIDATED STATEMENT OF EQUITY

Unaudited

Three Months Ended

March 31

2023

2022

Three Months Ended

March 31,

2024

2023

Millions Except Per Share Amounts

Equity

Common Stock

Balance, Beginning of Period

$1,781.5

$1,536.7

Common Stock Issued

4.1

4.6

Balance, End of Period

1,785.6

1,541.3

Balance, End of Period

Accumulated Other Comprehensive Loss

Balance, Beginning of Period

(24.4)

(23.8)

Other Comprehensive Income – Net of Income Taxes

Unrealized Gain (Loss) on Debt Securities

0.1

(0.3)

Unrealized Gain on Debt Securities

Defined Benefit Pension and Other Postretirement Plans

—

0.1

Balance, End of Period

(24.3)

(24.0)

Retained Earnings

Balance, Beginning of Period

934.8

900.2

Net Income Attributable to ALLETE

58.2

66.3

Common Stock Dividends

(38.8)

(34.5)

Balance, End of Period

954.2

932.0

Balance, End of Period

Non-Controlling Interest in Subsidiaries

Balance, Beginning of Period

656.4

533.2

597.0

656.4

Proceeds from Non-Controlling Interest in Subsidiaries – Net

6.7

181.2

Net Loss Attributable to Non-Controlling Interest

(20.6)

(19.8)

Distributions to Non-Controlling Interest

(0.3)

(0.4)

Distributions to Non-Controlling Interest

Balance, End of Period

642.2

694.2

Total Equity

$3,357.7

$3,143.5

Total Equity

Redeemable Non-Controlling Interest

Balance, Beginning of Period

Proceeds from Non-Controlling Interest in Subsidiaries

Net Loss Attributable to Non-Controlling Interest

Total Redeemable Non-Controlling Interest

Dividends Per Share of Common Stock

$0.6775

$0.65

Dividends Per Share of Common Stock

The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

1011

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.~~statements pursuant to such rules and regulations. Similarly, the December 31, ~~2022,~~2023, 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 three months ended March 31, ~~2023,~~2024, are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, ~~2023.~~2024. For further information, refer to the Consolidated Financial Statements and notes included in our ~~2022~~2023 Form 10-K.

NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Subsequent Events. The Company performed an evaluation of subsequent events for potential recognition and disclosure through the date of the financial statements issuance.

On May 5, 2024, ALLETE entered into the Merger Agreement. (See Note 11. Subsequent Event – Agreement and Plan of Merger.)

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, ~~2023,~~2024, restricted cash amounts included in Prepayments and Other on the Consolidated Balance Sheet include collateral deposits required under an ALLETE Clean Energy loan. 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	Cash, Cash Equivalents and Restricted Cash	March 31, 2023	December 31, 2022	March 31, 2022	December 31, 2021	Cash, Cash Equivalents and Restricted Cash	March 31, 2024	December 31, 2023	March 31, 2023	December 31, 2022
Millions	Millions
Cash and Cash Equivalents	Cash and Cash Equivalents	$29.9	$36.4	$60.1	$45.1
Cash and Cash Equivalents
Cash and Cash Equivalents
Restricted Cash included in Prepayments and Other	Restricted Cash included in Prepayments and Other	7.4	1.5	7.1	0.3
Restricted Cash included in Other Non-Current Assets	Restricted Cash included in Other Non-Current Assets	2.3	2.3	7.8	2.3
Cash, Cash Equivalents and Restricted Cash on the Consolidated Statement of Cash Flows	Cash, Cash Equivalents and Restricted Cash on the Consolidated Statement of Cash Flows	$39.6	$40.2	$75.0	$47.7

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,
2023

December 31,
2022

Inventories – Net

March 31,
2024

December 31,
2023

Millions

Fuel (a)

$39.6

$33.4

Materials and Supplies

119.2

75.1

Renewable Energy Facilities Under Development (b)

188.1

347.4

Total Inventories – Net

$346.9

$455.9

Total Inventories – Net

(a) Fuel consists primarily of coal inventory at Minnesota Power.

(b) Renewable Energy Facilities Under Development as of March 31, 2024, consists primarily of project costs related to ~~ALLETE Clean Energy’s Northern Wind project sold in the first quarter of 2023 and Red Barn wind project sold in April 2023. (See Other Current Liabilities.)~~renewable energy development projects at New Energy.

Goodwill. The aggregate carrying amount of goodwill was $154.9 million as of March 31, ~~2023~~2024 ($154.9 million as of December 31, ~~2022)~~2023). There have been no changes to goodwill by reportable segment for the quarter and three months ended March 31, ~~2023.~~

2024.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

1112

NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other Non-Current Assets

March 31,
2023

December 31,
2022

Other Non-Current Assets

March 31,
2024

December 31,
2023

Millions

Other Postretirement Benefit Plans

59.6

58.8

Finance Lease Right-of-use Assets

Other

93.5

90.4

Total Other Non-Current Assets

$207.0

$204.3

(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 March 31,
2023 December 31,
2022
Millions
Customer Deposits (a)
$10.3 $150.7
PSAs 6.1 6.1
Provision for Interim Rate Refund 23.5 18.4
Manufactured Gas Plant (b)
14.5 14.7
Operating Lease Liabilities 3.0 3.2
Other 49.4 57.9
Total Other Current Liabilities $106.8 $251.0

(a) Primarily related to deposits received by ALLETE Clean Energy for the Northern Wind and Red Barn wind projects sold in the first quarter of 2023 and April 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.~~


Other Current Liabilities	March 31, 2024	December 31, 2023
Millions

PSAs	$6.0	$6.0
Customer Deposits	5.7	7.4

Provision for Interim Rate Refund	5.5	—


Operating Lease Liabilities	3.1	3.0

Finance Lease Liabilities	0.4	0.4
Other	59.5	75.1
Total Other Current Liabilities	$80.2	$91.9

Other Non-Current Liabilities March 31,
2023 December 31,
2022
Millions
Asset Retirement Obligation (a)
$204.4 $200.4
PSAs 25.4 26.9
Operating Lease Liabilities 8.8 9.3
Other 31.8 32.4
Total Other Non-Current Liabilities $270.4 $269.0


Other Non-Current Liabilities	March 31, 2024	December 31, 2023
Millions
Asset Retirement Obligation (a)	$206.1	$202.9
PSAs	19.5	20.9


Operating Lease Liabilities	8.3	7.7
Finance Lease Liabilities	1.5	1.6
Other	32.6	31.2
Total Other Non-Current Liabilities	$268.0	$264.3

(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 ~~$32.4~~$37.2 million in Other Non-Current Assets on the Consolidated Balance Sheet as of March 31, ~~2023,~~2024 ($~~32.4~~37.2 million as of December 31, ~~2022)~~2023).

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

1213

NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Three Months Ended

March 31

Three Months Ended

March 31,

Other Income

2023

2022

Other Income

2024

2023

Millions

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

$2.0

$2.6

Interest and Investment Income

1.1

0.1

AFUDC - Equity

0.5

0.9

Other

0.5

(1.6)

Total Other Income

$4.1

$2.0

(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~~


	Three Months Ended
	March 31,
Supplemental Statement of Cash Flows Information	2024	2023
Millions
Cash Paid for Interest – Net of Amounts Capitalized	$25.7	$24.6

Noncash Investing and Financing Activities

Decrease in Accounts Payable for Capital Additions to Property, Plant and Equipment	$(5.9)	$(7.1)

Capitalized Asset Retirement Costs	$2.2	$2.4
AFUDC–Equity	$1.2	$0.5

New Accounting Pronouncements and Disclosure Rules.

SEC Climate-related Disclosures Rule. On March 6, 2024, the SEC issued the final rules regarding the enhancement and standardization of ~~Cash Flows Information.~~

Three Months Ended March 31, 2023 2022
Millions
Cash Paid for Interest – Net of Amounts Capitalized $24.6 $22.4
Cash Paid for Income Taxes — $0.3
Noncash Investing and Financing Activities
Decrease in Accounts Payable for Capital Additions to Property, Plant and Equipment $(7.1) $(24.5)
Capitalized Asset Retirement Costs $2.4 $3.0
AFUDC–Equity $0.5 $0.9

~~Non-Controlling Interest~~climate-related disclosures for investors (Rule). The Rule requires registrants to provide certain climate-related information in ~~Subsidiaries.~~ ~~Non-controlling interest in subsidiaries on the Consolidated Balance Sheet~~their annual reports and ~~net loss attributable~~registration statements. These requirements include disclosing climate-related risks that materially affect or are reasonably likely to ~~non-controlling interest on the Consolidated Statement~~materially affect a registrant’s business strategy, results 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 facilitiesoperations, or financial condition as well as ~~ALLETE’s equity investment~~certain disclosures related to greenhouse-gas emissions, and the effects of severe weather events and other natural conditions. The disclosure requirements will begin phasing in for annual periods beginning in 2025. The Company is evaluating the ~~250 MW Nobles 2 wind energy facility.~~final rule to determine its impact on the Company’s disclosures. The Rule is currently being challenged before the U.S. Court of Appeals, and the SEC issued a voluntary stay of the Rule on April 4, 2024, pending judicial review.

~~Subsequent Events.~~ ~~The Company performed an evaluation of subsequent events for potential recognition and disclosure through the date of the financial statements issuance.~~

~~On April 5, 2023, ALLETE Clean Energy closed~~There are no other new accounting pronouncements or rules that we anticipate having a material effect on the ~~sale~~presentation of ~~the Red Barn wind project and received cash proceeds of approximately $160 million.~~ALLETE’s consolidated financial statements.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

NOTE 2. REGULATORY MATTERS

Regulatory matters are summarized in Note 4. Regulatory Matters to the Consolidated Financial Statements in our ~~2022~~2023 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 ~~$16.4~~$8.3 million for the three months ended March 31, ~~2023~~2024 ($~~6.5~~16.4 million for the three months ended March 31, ~~2022)~~2023).

~~2022~~

ALLETE, Inc. First Quarter 2024 Form 10-Q

NOTE 2. REGULATORY MATTERS (Continued)

2024 Minnesota General Rate Case. On November 1, ~~2021,~~2023, Minnesota Power filed a retail rate increase request with the MPUC seeking an average increase of approximately 1812.00 percent for retail ~~customers.~~customers, net of rider revenue incorporated into base rates. The rate filing ~~sought~~seeks a return on equity of ~~10.25~~10.30 percent and a ~~53.81~~53.00 percent equity ratio. On an annualized basis, the requested final rate increase would generate approximately ~~$108~~$89 million in additional revenue. In separate orders dated December 19, 2023, the MPUC accepted the filing as complete and approved an annual interim rate increase of approximately $64 million, net of rider revenue, beginning January 1, 2024, subject to refund.

InOn May 3, 2024, Minnesota Power entered into a settlement agreement with the Minnesota Department of Commerce, Minnesota Office of the Attorney General, Residential Utilities Division, and Large Power Intervenors to settle the retail rate increase request. The settlement agreement is subject to approval by the MPUC. As part of the settlement agreement, the parties have agreed on all issues, including an ~~order dated February 28, 2023,~~overall rate increase of $33.97 million, net of rider revenue and amounts transferring to the ~~MPUC made determinations regarding Minnesota Power’s general rate case including allowing~~fuel adjustment clause, a return on ~~common~~ equity of ~~9.65~~9.78 percent, all non-financial items and cost allocation. As a 52.50 percent equity ratio. Upon commencement of final rates, we expect additional revenue from base rates of approximately $60 million and an additional $10 million in revenue recognized under cost recovery riders on an annualized basis, subject to final written order and reconsideration. On March 20, 2023, Minnesota Power filed a petition for reconsideration with the MPUC requesting reconsideration and clarification of certain decisions in the MPUC’s order. Minnesota Power’s petition included requesting reconsiderationresult of the ratemaking treatment of the Taconite Harbor Energy Center and the Company’s prepaid pension asset as well as clarification on interim rate treatment for sales to certain customers that did not operate during 2022. The MPUC denied the requests for reconsideration at a hearing on April 27, 2023, and provided clarification in support ofsettlement, Minnesota Power’s treatment of certain customers that did not operate during 2022. Final rates are expected to commence in the third quarter of 2023; interim rates will be collected through this period with reserves recorded as necessary. Minnesota Power ~~has~~ recorded a reserve for an interim rate refund of ~~$23.5~~$5.5 million pre-tax as of March 31, ~~2023 ($18.4 million as of December 31, 2022),~~2024, which is subject to MPUC approval of the settlement agreement and Minnesota Power’s refund calculation.

2022 Minnesota General Rate Case. Minnesota Power is appealing with the Minnesota Court of Appeals (Court) specific aspects of the MPUC’s February 2023 and May 2023 rate case orders for the ratemaking treatment of Taconite Harbor and Minnesota Power’s prepaid pension asset. Oral arguments on the appeal are expected to be heard by the Court in the second quarter of 2024 with a decision expected in the third quarter of 2024. We are unable to predict the outcome of this proceeding.

2024 Wisconsin General Rate Case. On March 29, 2024, SWL&P filed a rate increase request for its electric, gas and water utilities with the PSCW. The filing seeks an overall return on equity of 10.00 percent and a 55.00 percent equity ratio. On an annualized basis, the requested change would increase rates by approximately 5.90 percent for retail customers and generate an estimated $7.3 million of additional revenue. The change to SWL&P customers’ rates will be determined by the PSCW later this year. Any rate adjustments are anticipated to become effective in January 2025.

Transmission Cost Recovery Rider. Minnesota Power has an approved cost recovery rider in place to charge retail customers on a current basis for certain transmission investments and expenditures, including a return on the capital invested. Current customer billing rates are based on an MPUC order dated December 19, 2023, which provisionally approved Minnesota Power’s latest transmission factor filing submitted on October 24, 2023. Updated billing rates were included on customer bills starting in the first quarter of 2024, and the MPUC approved Minnesota Power’s transmission factor filing with no changes in an order dated March 5, 2024.

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 an order dated ~~January 24,~~October 3, 2023. On March ~~29, 2023,~~27, 2024, Minnesota Power submitted its latest renewable factor filing. If the filing is approved, Minnesota Power would be authorized to include updated billing rates on customer ~~bills.~~bills beginning October 1, 2024.

Solar Cost Recovery Rider. Minnesota Power has an approved cost recovery rider in place to charge retail customers on a current basis for solar costs related to investments and expenditures for meeting the state of Minnesota’s solar energy standard. Current customer billing rates were approved by the MPUC in an order dated December 26, 2023. Updated billing rates were included on customer bills starting in the first quarter of 2024.

Fuel Adjustment Clause. Minnesota Power incurred ~~higher~~lower fuel and purchased power costs in ~~2022~~2023 than those factored in its fuel adjustment forecast filed in May ~~2021~~2022 for ~~2022,~~2023, which resulted in the recognition of an approximately $13 million regulatory ~~asset~~liability as of March 31, ~~2023,~~2024, and December 31, ~~2022.~~2023. Minnesota Power requested ~~recovery of~~to refund the regulatory ~~asset~~liability beginning in the third quarter of 2024 as part of its annual true-up filing submitted to the MPUC on March 1, ~~2023.~~2024.

ALLETE, Inc. First Quarter 2024 Form 10-Q

NOTE 2. REGULATORY MATTERS (Continued)

Energy Conservation ~~Improvement Program.~~and Optimization (ECO) Plan. On April ~~3, 2023,~~1, 2024, Minnesota Power submitted its ~~2022 consolidated~~2023 ECO annual filing (formerly the Conservation Improvement Plan) detailing Minnesota Power’s ~~CIP program~~ECO plan results and requesting a ~~CIP~~ financial incentive of $2.2 million, ~~based upon MPUC procedures,~~ which will be recognized upon approval by the MPUC. In ~~2022,~~2023, a ~~CIP~~ financial incentive of ~~$1.9~~$2.2 million was recognized in the ~~second~~third quarter upon approval by the MPUC of ~~Minnesota Power’s 2021 CIP consolidated~~the 2022 ECO annual filing. ~~CIP~~The financial incentives are recognized in the period in which the MPUC approves the filing.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

~~NOTE 2. REGULATORY MATTERS (Continued)~~

Regulatory Assets and Liabilities. Our regulated utility operations are subject to accounting standards for the effects 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

March 31,
2023

December 31,
2022

Regulatory Assets and Liabilities

Millions

Current Regulatory Assets (a)

Fuel Adjustment Clause

$15.3

$25.6

Fuel Adjustment Clause

Other

Total Current Regulatory Assets

$15.3

$25.6

Non-Current Regulatory Assets

Defined Benefit Pension and Other Postretirement Plans

$225.2

$225.9

Income Taxes

95.3

97.6

Income Taxes

Asset Retirement Obligations

Cost Recovery Riders

42.2

41.2

Asset Retirement Obligations

36.1

35.6

Taconite Harbor Energy Center (b)

29.7

—

Fuel Adjustment Clause

15.5

14.5

Cost Recovery Riders

Taconite Harbor

Manufactured Gas Plant

14.5

15.1

PPACA Income Tax Deferral

4.1

PPACA Income Tax Deferral

Fuel Adjustment Clause

Other

6.5

7.0

Total Non-Current Regulatory Assets

$469.1

$441.0

Total Non-Current Regulatory Assets

Current Regulatory Liabilities (c)

Current Regulatory Liabilities (b)

Provision for Interim Rate Refund (d)

$23.5

$18.4

Current Regulatory Liabilities (b)

Fuel Adjustment Clause

Provision for Interim Rate Refund

Transmission Formula Rates Refund

$3.7

4.9

Other

3.1

0.1

Other

Total Current Regulatory Liabilities

$30.3

$23.4

Non-Current Regulatory Liabilities

Income Taxes

$326.2

$332.5

Wholesale and Retail Contra AFUDC

80.0

80.7

Wholesale and Retail Contra AFUDC

Plant Removal Obligations

61.6

60.0

North Dakota Investment Tax Credits

16.8

16.9

Plant Removal Obligations

Defined Benefit Pension and Other Postretirement Benefit Plans

15.7

17.6

Defined Benefit Pension and Other Postretirement Benefit Plans

Non-Jurisdictional Land Sales

Investment Tax Credits

Fuel Adjustment Clause

5.3

—

Boswell Units 1 and 2 Net Plant and Equipment

6.7

Non-Jurisdictional Land Sales

9.2

7.5

Boswell Units 1 and 2 Net Plant and Equipment

Other

4.9

4.2

Total Non-Current Regulatory Liabilities

$526.4

$526.1

Total Non-Current Regulatory Liabilities

(a)Current regulatory assets are presented within Prepayments and Other on the Consolidated Balance Sheet.

(b)In the first quarter of 2023, Minnesota Power retired Taconite Harbor Units 1 and 2. The remaining net book value was reclassified from property, plant and equipment to a regulatory asset on the Consolidated Balance Sheet when the units were retired. Minnesota Power expects to receive recovery of the remaining net book value from customers.

~~(c)~~Current regulatory liabilities are presented within Other Current Liabilities on the Consolidated Balance Sheet.

~~(d)See 2022 Minnesota General Rate Case.~~

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

1516

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.


ALLETE’s Investment in ATC
Millions
Equity Investment Balance as of December 31, ~~2022~~2023			$~~165.4~~179.7
Cash Investments			~~0.8~~1.6
Equity in ATC Earnings			~~6.0~~5.7
Distributed ATC Earnings			~~(4.8)~~(4.6)
Amortization of the Remeasurement of Deferred Income Taxes			~~0.4~~0.3
Equity Investment Balance as of March 31, ~~2023~~2024			$~~167.8~~182.7

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 is subject to various outstanding legal challenges related to the return on equity calculation and refund period ordered by the FERC. In August 2022, the U.S. Court of Appeals for the District of Columbia Circuit vacated and remanded the 2020 FERC order back to FERC. We cannot predict the return on equity the FERC will ultimately authorize in the remanded proceeding.

In addition, the FERC issued a Notice of Proposed Rulemaking in 2021 proposing to limit the ~~50 basis point~~0.50 percent 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, ~~2022~~2023			$~~157.3~~151.5

Equity in Nobles 2 Earnings (a)			— (0.2)
Distributed Nobles 2 Earnings			~~(1.2)~~(0.9)
Equity Investment Balance as of March 31, ~~2023~~2024			$~~156.1~~150.4

(a)The Company also recorded earnings from net loss attributable to non-controlling interest of ~~$3.3~~$3.0 million related to its investment in Nobles 2.

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 ~~2022~~2023 Form 10-K.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

1617

NOTE 4. 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 March 31, ~~2023,~~2024, and December 31, ~~2022.~~2023. 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 March 31, 2023

Fair Value as of March 31, 2024

Recurring Fair Value Measures

Level 1

Level 2

Level 3

Total

Recurring Fair Value Measures

Level 1

Level 2

Level 3

Total

Millions

Assets

Investments (a)

Available-for-sale – Equity Securities

$8.3

—

$8.3

Available-for-sale – Equity Securities

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

—

$5.7

—

5.7

Cash Equivalents

4.5

—

4.5

Total Fair Value of Assets

$12.8

$5.7

—

$18.5

Liabilities

Deferred Compensation (c)

—

$15.0

—

$15.0

Total Fair Value of Liabilities

—

$15.0

—

$15.0

Total Fair Value of Liabilities

Fair Value as of December 31, 2022

Fair Value as of December 31, 2023

Recurring Fair Value Measures

Level 1

Level 2

Level 3

Total

Recurring Fair Value Measures

Level 1

Level 2

Level 3

Total

Millions

Assets

Investments (a)

Available-for-sale – Equity Securities

$7.7

—

$7.7

Available-for-sale – Corporate and Governmental Debt Securities

—

$5.7

—

5.7

Cash Equivalents

4.2

—

4.2

Total Fair Value of Assets

$11.9

$5.7

—

$17.6

Liabilities

Deferred Compensation (c)

—

$15.0

—

$15.0

Total Fair Value of Liabilities

—

$15.0

—

$15.0

Total Fair Value of Liabilities

(a)Included in Other Non-Current Assets on the Consolidated Balance Sheet.

(b)As of March 31, ~~2023,~~2024, the aggregate amount of available-for-sale corporate and governmental debt securities maturing in one year or less was ~~$1.2~~$1.7 million, in one year to less than three years was ~~$2.4~~$2.7 million, in three years to less than five years was ~~$1.7~~$1.6 million and in five or more years was ~~$0.4~~$0.5 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

Financial Instruments

Carrying Amount

Fair Value

Millions

Short-Term and Long-Term Debt (a)

March 31, 2023

$1,939.9

$1,835.9

December 31, 2022

$1,929.1

$1,782.7

March 31, 2024

$1,797.3

$1,646.8

December 31, 2023

$1,799.4

$1,670.6

(a)Excludes unamortized debt issuance costs.

ALLETE, Inc. First Quarter 2024 Form 10-Q

NOTE 4. FAIR VALUE (Continued)

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 three months ended March 31, ~~2023,~~2024, and the year ended December 31, ~~2022,~~2023, there were no indicators of impairment for these non-financial assets.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

~~NOTE 4. 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 or for facilities without long-term contracts for their entire output. A continued decline or volatility in energy prices or lower wind resource expectations could result in a future impairment.

NOTE 5. SHORT-TERM AND LONG-TERM DEBT

The following tables present the Company’s short-term and long-term debt as of March 31, ~~2023,~~2024, and December 31, ~~2022:~~2023:

March 31, 2023

Principal

Unamortized Debt Issuance Costs

Total

March 31, 2024

Principal

Unamortized Debt Issuance Costs

Total

Millions

Short-Term Debt

$176.5

$(0.1)

$176.4

Long-Term Debt

1,763.4

(7.9)

1,755.5

Total Debt

$1,939.9

$(8.0)

$1,931.9

December 31, 2022

Principal

Unamortized Debt Issuance Costs

Total

December 31, 2023

Principal

Unamortized Debt Issuance Costs

Total

Millions

Short-Term Debt

$272.7

$(0.1)

$272.6

Long-Term Debt

1,656.4

(8.2)

1,648.2

Total Debt

$1,929.1

$(8.3)

$1,920.8

We had ~~$25.3~~$19.4 million outstanding in standby letters of credit and ~~$211.2~~$94.0 million outstanding draws under our lines of credit as of March 31, ~~2023~~2024 ($~~32.8~~19.4 million in standby letters of credit and ~~$31.3~~$34.1 million outstanding draws as of December 31, ~~2022)~~2023). We also have standby letters of credit outstanding under other letter of credit facilities. (See Note 6. Commitments, Guarantees and Contingencies.)

On April ~~27, 2023,~~23, 2024, ALLETE issued ~~$125~~$100 million of its First Mortgage Bonds (Bonds) to certain institutional buyers in the private placement market. The Bonds, which bear interest at ~~4.98~~5.72 percent, will mature in April ~~2033~~2039 and pay interest semi-annually in ~~May~~April and ~~November~~October of each year, commencing on ~~November 1, 2023.~~October 30, 2024. 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 refinance existing indebtedness 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 March 31, ~~2023,~~2024, our ratio was approximately ~~0.38~~0.36 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 March 31, ~~2023,~~2024, ALLETE was in compliance with its financial covenants.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

1819

NOTE 6. 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 9. Commitments, Guarantees and Contingencies to the Consolidated Financial Statements in our ~~2022~~2023 Form 10-K, with additional disclosure provided in the following paragraphs.

Square Butte PPA. As of March 31, ~~2023,~~2024, Square Butte had total debt outstanding of ~~$187.0~~$162.6 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 three months ended March 31, ~~2023,~~2024, was ~~$22.1~~$22.9 million ($~~20.3~~22.1 million for the same period in ~~2022)~~2023). 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 $1.3 million ($~~1.0~~1.3 million for the same period in ~~2022)~~2023). 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 41 percent in 2024 and 37 percent in ~~2023 and 32 percent in 2022.~~2023.

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 ~~2023.~~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. First Quarter ~~2023~~2024 Form 10-Q

1920

NOTE 6. 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. ~~The EPA’s CSAPR Update Rule~~Based on our review of the NOX and SO2 allowances issued and pending issuance as well as consideration of current rules, we currently expect generation levels and emission rates will result in ~~March 2021 revising~~continued compliance with 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.~~CSAPR. Minnesota Power will continue to monitor ongoing CSAPR rulemakings and compliance implementation, including the EPA’s ~~new~~ Good Neighbor Rule ~~finalized on March 15, 2023, to modify~~which modifies certain aspects of the CSAPR’s program scope and ~~extent.~~extent (see EPA Good Neighbor Plan for 2015 Ozone NAAQS).

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~~the EPA is currently reviewing the primary or secondary NAAQS for NOx, ~~and~~ SO2, ~~as well as particulate matter. In June 2021, the EPA announced it would reconsider the December 2020 final rule retaining the 2012 particulate matter NAAQS.~~and ozone. On ~~January 6, 2023,~~February 7, 2024, the EPA announced a ~~proposed~~final rule ~~to revise~~lowering the annual primary ~~annual~~standard for fine particulate matter ~~NAAQS from its current level~~ while retaining ~~the~~ other existing primary and secondary standards such as those for coarse particulate ~~matter NAAQS. A final rule~~matter. The Company is ~~expected by~~reviewing the ~~end of 2023. The EPA also announced in October 2021 that it was reconsidering the 2020 Ozone NAAQS rule finalized in December 2020,~~new standard to determine potential impacts. Anticipated timelines and issued an initial draft policy assessment on April 28, 2022, recommending retention of the current standard. A second version of the draft policy assessment was then published for public comment, and a proposed ozone NAAQS rule is expected in the first half of 2023. Anticipated compliance costs related to ~~the proposed~~this new standard and ~~expected~~other potential NAAQS revisions cannot yet be estimated; however, costs could be material. Minnesota Power would seek recovery of additional costs through a rate proceeding.

EPA Good Neighbor Plan for 2015 Ozone NAAQS. On ~~March 15,~~June 5, 2023, after disapproving state implementation plans, the EPA published a final Federal Implementation Plan (FIP) rule in the Federal Register, the Good Neighbor Plan, to address regional ozone transport for the 2015 Ozone NAAQS by reducing NOxNOx emissions during the period of May 1 through September 30 (ozone season). ~~This rule addresses certain good neighbor or interstate transport provisions of the Clean Air Act relative to the 2015 Ozone NAAQS.~~ In ~~the~~its justification for the final rule, the EPA ~~asserts~~asserted that 23 states, including Minnesota, ~~are~~were modeled as significant contributors to downwind states’ challenges in attaining or maintaining ozone NAAQS compliance within their state borders. The Good Neighbor Plan is designed to resolve this interstate transport issue by implementing a variety of NOxNOx reduction strategies, including federal implementation plan requirements, NOxNOx emission limitations, and ozone season allowance program ~~requirements, beginning during the 2023 ozone season and sixty days after the final rule is published in the Federal Register.~~requirements. The final rule ~~imposes~~imposed restrictions on fossil-fuel fired power plants in 22 states and on certain industrial sources in 20 ~~states. Implementation of the rule will occur in part~~states, with implementation occurring through changes to the existing CSAPR program for power plants.

~~Minnesota Power previously submitted public comments to~~Since the EPA on the April 2022 proposed Good Neighbor Rule. 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. The Company is now reviewing the EPA’s final rule in light of previously expressed concerns with the draft rule, while preparing to comply when the rule becomes effective during the 2023 ozone season. Anticipated compliance costs related to the final Good Neighbor Rule cannot yet be estimated due to uncertainties about allowance costs and facility emissions during the ozone season; 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. On February 13, 2023, the EPA also published its final rule to partially ~~disapprove~~disapproved the Good Neighbor State Implementation Plans (SIPs) for the states of Minnesota and Wisconsin, ~~and to disapprove 19 other SIP submissions. The SIP final action subjects~~among others, Minnesota is subject to the final Good Neighbor ~~Plan and associated compliance costs will be known when the final SIP rule evaluation and implementation has been completed. On April 14, 2023,~~Plan. However, Minnesota Power and a coalition of other Minnesota utilities and industry ~~(“the parties”)~~(the parties) co-filed challenges to the EPA’s final Minnesota SIP disapproval, submitting a petition for reconsideration and stay to the EPA, and a petition for judicial review to the ~~United States~~U.S. Court of Appeals for the Eighth ~~Circuit.~~Circuit (Eighth Circuit Court). The parties are challenging and requesting reconsideration of certain technical components of the EPA’s review and subsequent partial disapproval of the state of Minnesota’s SIP. On July 5, 2023, the Eighth Circuit Court granted a stay of the SIP disapproval preventing the Good Neighbor Plan from taking effect in Minnesota. On March 28, 2024, the EPA issued a partial denial of several administrative reconsideration and stay petitions, including from the ~~rulemaking process, air modeling practices~~Minnesota coalition.

On September 29, 2023, the EPA issued an updated final interim rule addressing the stays in Minnesota and five other states, formally delaying the effective date of the final FIP for states with active stays in place. The state of Minnesota was therefore not subject to compliance obligations for the 2023 ozone season. Future compliance obligations will depend on resolution of the stay. Additionally, challenges have been filed against the final FIP rule by the Minnesota coalition parties and other entities, although the Minnesota coalition FIP challenge is currently in abeyance pending resolution of the SIP disapproval case. On February 21, 2024, the U.S. Supreme Court heard arguments from several states and industry groups requesting a national stay of the FIP rule. Anticipated compliance costs related to final Good Neighbor Plan compliance cannot yet be estimated due to uncertainties about SIP approval resolution, implementation timing, FIP rule outcome, and allowance costs and facility emissions ~~inventory aspects.~~

during the ozone season. However, the costs could be material, including costs of additional NO
x controls, emission allowance program participation, or operational changes, if any are required. Minnesota Power would seek recovery of additional costs through a rate proceeding.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

2021

NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)

Environmental Matters (Continued)

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 2013 with compliance required at major existing sources in ~~2016.~~2016, which applied to Minnesota Power’s Hibbard Renewable Energy Center and Rapids Energy ~~Center are subject to this rule.~~Center. Compliance ~~with the Industrial Boiler MACT Rule~~ consisted largely of adjustments to fuels and operating practices and compliance costs were not material. ~~Subsequent to~~After 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~~regulation. A final rule ~~in the Federal Register~~ incorporating these ~~changes. The rule~~revisions became effective onin December 5, 2022, ~~imposing~~with a ~~3-year~~ compliance deadline of October 6, 2025. ~~Minnesota Power’s initial review of this new rule indicates that the revisions should not significantly impact the Company’s affected units. As such, compliance~~Compliance costs ~~associated with the new Industrial Boiler MACT Rule~~ are not ~~currently~~ expected to be ~~material; however, Minnesota Power would seek recovery of additional costs through a rate proceeding.~~material.

EPA Mercury and Air Toxics Standards (MATS) Rule. On April ~~5, 2023,~~25, 2024, the EPA ~~released~~published a ~~proposed revision~~final rule to revise the existing 2012 MATS Rule, ~~as part~~which regulates air emissions of ~~its mandatory 2020~~hazardous air pollutants from coal- and oil-fired electric generating units (EGUs). The final rule eliminates certain MATS ~~review. In this proposed~~compliance flexibility, lowers the particulate emission standard for all coal-fired EGUs, and reduces the mercury emission standard for lignite-fired EGUs. The rule the EPA is proposing to alter certain compliance and operational requirements, and to lower several emission limits including filterable particulate matter as well as mercury for lignite units. Compliance would be duewill become effective 60 days after publication in the ~~2026 to 2027 timeframe.~~Federal Register, with compliance beginning in 2027. The MATS regulation applies at Minnesota Power’s Boswell ~~Energy Center,~~facility, which is currently well-controlled for these emissions and ~~is in full compliance~~already complying with ~~existing~~some of the new requirements. The Company is ~~currently reviewing~~analyzing the ~~proposed rule. Compliance~~new rule but anticipates that its impacts to Boswell may be minimal. However, compliance costs cannot yet be ~~estimated; however,~~estimated, and recovery of any additional costs would be sought through a rate proceeding.

Climate Change. The scientific community generally accepts that emissions of GHGs 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; increased risk of wildfires; 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,~~On April 25, 2024, the EPA ~~finalized~~issued several ~~separate rulemakings regarding regulating carbon~~final greenhouse gas regulations to establish emissions ~~from~~standards and guidelines for fossil fuel-fired electric ~~utility~~ generating ~~units. These rulemakings included repealing the Clean Power Plan (CPP) and adopting the Affordable Clean Energy Rule~~units (EGUs) under Section ~~111(d)~~111 of the Clean Air Act (CAA) ~~to regulate CO~~2 ~~emissions at~~. The final rules revise new source performance standards (NSPS) for new, modified and reconstructed EGUs (Section 111(b) of the CAA) and creates new emission guidelines for existing ~~coal-fired power plants. The CPP was first announced as a proposed rule under Section~~EGUs (Section 111(d) of the ~~CAA~~CAA). The action also officially repeals the predecessor regulation “Affordable Clean Energy Rule”, first issued in 2019 and later vacated in 2021. Compliance will be required beginning January 1, 2030 for existing ~~power plants entitled “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Generating Units”.~~sources, and upon commencing operation of new units. The ~~Affordable Clean Energy Rule established emissions guidelines for~~111(d) rule also requires states to ~~use when developing~~submit plans to ~~limit CO~~2 ~~from coal-fired power plants. The EPA also published regulations~~provide for the ~~state~~establishment, implementation and enforcement of standards of performance for existing sources. States must submit their plans to the EPA within 24 months after publication of the Affordable Clean Energy Rule and other Section 111(d) rules. Affected facilities for Minnesota Power included Boswell Units 3 and 4, Hibbard Units 3 and 4, and Taconite Harbor Units 1 and 2; however, Taconite Harbor Units 1 and 2 are now retired.final emissions guidelines.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

~~NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)~~

~~Environmental Matters (Continued)~~

~~In January 2021,~~The final 111 rules apply to several Company assets, including existing EGUs at the ~~United States Court of Appeals~~Boswell and Laskin facilities as well as the proposed combined cycle natural gas-fired generating facility, NTEC. The Company is reviewing the new rule, but anticipates compliance may require operational or planning adjustments. The state implementation plan process for the District of Columbia Circuit (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 in October 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~~existing units will also be a factor 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 the first half of 2023 with a new set of emission guidelines for states to follow in submitting state plans to establishdetermining specific requirements 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.

In April 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.~~timing. 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;~~at this time; however, the costs could be material. Minnesota Power would seek recovery of additional costs through a rate proceeding.

~~Additionally in January 2021, the EPA issued a rulemaking to apply CO~~2 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. 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.

On March 15, 2023, the EPA sent a proposed new CAA Section 111 regulation to the United States Office of Management and Budget (OMB) for interagency review, where OMB documentation now indicates this proposal may include proposed regulations for both new, modified and reconstructed sources (Section 111(b) of the CCA) as well as existing (Section 111(d) of the CCA) sources). The EPA’s Fall 2022 unified agenda identified the EPA’s goal of issuing draft regulations in April 2023 and final regulations by June 2024. Minnesota Power will continue to closely track this GHG rulemaking and analyze its potential impacts to our existing and proposed thermal generating facilities.

Water. The Clean Water Act requires NPDES permits be obtained from the EPA ~~(or, when~~or delegated ~~from individual~~ state ~~pollution control agencies)~~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.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)

Environmental Matters (Continued)

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~~Best Available Control Technology (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~~set 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 its 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.

On ~~March 29, 2023,~~April 25, 2024, the EPA ~~published~~released a ~~proposed new~~pre-publication version of a final ELG rule ~~in the Federal Register~~ to update the 2020 ~~ELGs; the public comment period is open until May 30, 2023.~~ELGs. In the ~~proposed~~final rule, the EPA is revising ELGs for existing sources, including establishing zero discharge limitations for ~~BATW~~bottom ash transport water, FGD wastewater, and ~~FGD wastewater; new limits for~~ combustion residual ~~leachate;~~leachate, and allowing states to set discharge limits for legacy wastewater in surface impoundments based on best professional ~~judgement.~~judgment. The rule proposes to ~~preserve flexibility and~~ maintain exemptions for units permanently ceasing coal combustion by 2028, and adds a new ~~category~~subcategory for units that have already complied with either the 2015 or 2020 ELG ~~rule~~rules and which will retire by 2032. ~~Additionally, the EPA is encouraging state permitting authorities to conduct functional equivalency tests~~The final ELG rule also establishes mercury and arsenic limitations for ~~facilities with landfills or CCR surface impoundments to identify~~functionally equivalent discharges of leachate via groundwater to surface ~~water point source discharges. More stringent limitations would apply where point source discharges occur.~~water. Compliance deadlines are determined by the applicable state permitting authority. Compliance deadlines could be required as soon as 60 days after the final rule is published in the Federal Register, but no later than December 31, 2029.

Bottom ash transport and FGD wastewater ELGs are not expected to have a significant impact on Minnesota Power operations. Boswell Energy Center, where these ELGs are 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.

~~The EPA’s reconsideration of legacy wastewater and~~Zero leachate discharge requirements ~~has~~have the potential to impact dewatering associated with the closed ~~impoundment at Laskin Energy Center and the closed~~ Taconite Harbor ~~Energy Center~~ dry ash ~~landfill.~~landfill and Laskin’s closed Cell E impoundment. New limitations for arsenic and mercury related to functionally equivalent (groundwater to surface water) discharges are not currently anticipated to impact Minnesota Power facilities.

~~At this time, we~~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.

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.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

~~NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)~~

~~Environmental Matters (Continued)~~

~~In April 2021, the MPCA’s proposed list of impaired waters submitted pursuant to the~~The federal Clean Water Act ~~was partially rejected~~requires the MPCA to update the state's impaired water list every two years. Beginning in 2021 through the latest draft approved by the EPA ~~due to the absence of~~in April 2024, this list now includes Minnesota lakes and streams identified as wild rice waters that are listed for sulfate impairment. The ~~EPA transmitted a final list of 32 EPA-added wild rice waters to the MPCA in November 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 or its customers, 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.

ALLETE, Inc. First Quarter 2024 Form 10-Q

NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)

Environmental Matters (Continued)

Coal Combustion Residuals from Electric Utilities (CCR). In 2015, the EPA published ~~the~~a final rule (2015 Rule) regulating CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act (RCRA) in the Federal Register. The rule ~~includes~~included 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 1512 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 compliance 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.CCR. 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, thea U.S. District Court for the District of Columbia decision vacated specific provisions of the CCR ~~rule. The court decision~~rule, which resulted in a change to the status of ~~three~~several existing clay-lined impoundments at Boswell ~~that must now be~~being considered unlined. ~~The~~In September 2020, 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,~~finalized the CCR Part A Rule, ~~was finalized in September 2020. The Part A Rule revision requires~~which required all 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.and initiate closure. Upon completion of dry ash conversion activities, Boswell ceased disposal in both impoundments onin 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 that no further EPA review of Boswell’s Part A variance application will occur.2022. Both impoundments are now inactive and have initiated closure.

On April 25, 2024, the EPA finalized the CCR Legacy Impoundment Rule. The final rule expands the scope of units regulated under the CCR rule to include legacy ponds (inactive surface impoundments at inactive facilities) and creates a new category of units called CCR management units, which includes inactive and closed impoundments and landfills as well as other non-containerized accumulations of CCR. The rule requires all regulated generating facilities to evaluate and identify past deposits of CCR materials on their sites and close or re-close existing CCR units to meet current closure standards, as well as install groundwater monitoring systems, conduct groundwater monitoring, and implement groundwater corrective actions as necessary. Additionally, the EPA finalized portions of the proposed CCR Part B Rule, which allows CCR Units to certify closure while conducting groundwater remediation activities. This rule is currently under review; however impacts to previously closed CCR Units at Boswell and Laskin are anticipated. Compliance costs for Minnesota Power facilities cannot be estimated at this time; however, the costs could be material. Minnesota Power would seek recovery of additional costs through a rate proceeding.

Additionally, the EPA released a proposed CCR 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~~rule addressing alternative liner equivalency standards were finalized in November 2020. ~~According to the EPA’s updated fall 2022 regulatory agenda, finalization~~Finalization of the ~~remainder of the proposed Part B Rule~~remaining beneficial reuse requirements are expected in late 2024. The final CCR federal permit rule is expected in ~~late 2023. Two additional rulemakings are also expected in mid-2023,~~ the ~~proposed Legacy Impoundment Rule and the Final Federal Permit Rule.~~first half of 2026. The Legacy Impoundment Rule will include a revised definition for legacy CCR impoundments which could regulate impoundments that had closed prior to the effective date of the 2015 Rule. The Final Federal Permit Rulefinal federal permit rule will finalize procedures for implementing a CCR Federal Permit Program. Expected compliance costs at Boswell due to the 2018 court decision and subsequent rule revisions are reflected in our estimate of compliance costs for the CCR rule noted previously.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

~~NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)~~

~~Environmental Matters (Continued)~~federal permit program.

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 March 31, ~~2023, we have~~2024, SWL&P has recorded a liability of approximately ~~$15~~$1 million for remediation costs at this site. SWL&P has recorded the recovery of the remediation costs associated with the site as ~~an associated~~a 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, Surety Bonds and ~~Surety Bonds.~~Other Indemnifications.

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 March 31, ~~2023,~~2024, we had ~~$178.3~~$150.1 million of outstanding letters of credit issued, including those issued under our revolving credit facility. We do not believe it is likely that any of these outstanding letters of credit will be drawn upon.

In April 2024, under the tax credit transferability provision of the Inflation Reduction Act, we entered into an agreement with a third party to sell a portion of our production tax credits. ALLETE has indemnified the third party for the value of production tax credits sold to date of approximately $14 million.

Regulated Operations. As of March 31, ~~2023,~~2024, we had ~~$28.2~~$25.4 million outstanding in standby letters of credit at our Regulated Operations which are pledged as security to MISO, the NDPSC and a state ~~agency.~~agencies.

ALLETE, Inc. First Quarter 2024 Form 10-Q

NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)

Other Matters (Continued)

ALLETE Clean Energy. ALLETE Clean ~~Energy’s wind energy facilities have various~~Energy is party to PSAs ~~in place for some or all of their output~~ that expire in various years between 2024 and 2039. As of March 31, ~~2023,~~2024, ALLETE Clean Energy has ~~$110.3~~$80.6 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.~~PSAs.

Corporate and Other.

~~New Energy~~. As of March 31, 2023, New Energy had $4.2 million outstanding in standby letters of credit pledged as security in connection with the acquisition of solar equipment for projects under development. New Energy does not believe it is likely that any of these outstanding letters of credit will be drawn upon.

BNI Energy. As of March 31, ~~2023,~~2024, 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 March 31, ~~2023,~~2024, ALLETE South Wind has ~~$11.7~~$10.1 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 March 31, ~~2023,~~2024, South Shore Energy had ~~$23.9~~$29.7 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.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

~~NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)~~

~~Legal Proceedings (Continued)~~

In the first quarter of 2023, an ALLETE Clean Energy subsidiary initiated arbitration proceedings seeking damages against a counterparty for non-performance under a contract. Arbitration hearings are expected to be held in the second quarter of 2023 with a decision expected in the third quarter of 2023. We are unable to predict the outcome of the arbitration proceedings.

NOTE 7. 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.

2023

2022

Three Months Ended March 31,

2024

2023

Reconciliation of Basic and Diluted

Dilutive

Reconciliation of Basic and Diluted

Dilutive

Earnings Per Share

Basic

Securities

Diluted

Basic

Securities

Diluted

Earnings Per Share

Basic

Securities

Diluted

Basic

Securities

Diluted

Millions Except Per Share Amounts

Three Months Ended March 31,

Net Income Attributable to ALLETE

$58.2

$66.3

Average Common Shares

57.3

—

57.3

53.3

—

53.3

Earnings Per Share

$1.02

$1.24

ALLETE, Inc. First Quarter 2024 Form 10-Q

NOTE 8. INCOME TAX EXPENSE


			Three Months Ended
			March 31
			Three Months Ended
			Three Months Ended
			Three Months Ended
		March 31,						March 31,
				2023	2022		2024		2023
Millions	Millions					Millions
Current Income Tax Expense (a)
Federal				$5.6	—
Current Income Tax Expense						Current Income Tax Expense
Federal (a)						Federal (a)	$3.5		$5.6
State	State			2.2	$0.1	State	3.4		2.2
Total Current Income Tax Expense	Total Current Income Tax Expense			$7.8	$0.1	Total Current Income Tax Expense	$6.9		$7.8
Deferred Income Tax Expense (Benefit)	Deferred Income Tax Expense (Benefit)					Deferred Income Tax Expense (Benefit)
Federal (b)	Federal (b)			$(8.3)	$(8.6)	Federal (b)	$(5.0)		$(8.3)
State	State			2.1	4.8	State	2.4		2.1
Investment Tax Credit Amortization	Investment Tax Credit Amortization			(0.1)	(0.2)	Investment Tax Credit Amortization	(0.3)		(0.1)
Total Deferred Income Tax Benefit	Total Deferred Income Tax Benefit			$(6.3)	$(4.0)	Total Deferred Income Tax Benefit	$(2.9)		$(6.3)
Total Income Tax Expense (Benefit)				$1.5	$(3.9)
Total Income Tax Expense						Total Income Tax Expense	$4.0		$1.5

(a)For the three months ended March 31, ~~2022, the federal~~2024 and ~~state current tax expense was minimal due to NOLs which resulted from the bonus depreciation provisions of certain tax legislation. For the three months ended March 31,~~ 2023, the federal current tax expense was partially offset by production tax credits.

(b)For the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, the federal income tax benefit is primarily due to production tax credits.

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.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

~~NOTE 8. INCOME TAX EXPENSE (Continued)~~


		Three Months Ended
		Three Months Ended
		Three Months Ended
		Three Months Ended
Reconciliation of Taxes from Federal Statutory	Reconciliation of Taxes from Federal Statutory	March 31			Reconciliation of Taxes from Federal Statutory				March 31,
Rate to Total Income Tax Expense	Rate to Total Income Tax Expense		2023			2022		Rate to Total Income Tax Expense		2024		2023
Millions	Millions							Millions
Income Before Income Taxes	Income Before Income Taxes		$39.1			$42.6

Statutory Federal Income Tax Rate	Statutory Federal Income Tax Rate		21	%		21	%

Statutory Federal Income Tax Rate

Statutory Federal Income Tax Rate										21	%	21	%
Income Taxes Computed at Statutory Federal Rate	Income Taxes Computed at Statutory Federal Rate		$8.2			$8.9
Increase (Decrease) in Income Tax Due to:	Increase (Decrease) in Income Tax Due to:
State Income Taxes (Credit) – Net of Federal Income Tax Benefit			3.4			3.9
State Income Taxes – Net of Federal Income Tax Benefit
State Income Taxes – Net of Federal Income Tax Benefit
State Income Taxes – Net of Federal Income Tax Benefit

Production Tax Credits (a)

Production Tax Credits (a)

Production Tax Credits (a)	Production Tax Credits (a)		(10.4)			(17.6)
Investment Tax Credits (a)	Investment Tax Credits (a)		(2.2)			—
Regulatory Differences – Excess Deferred Tax	Regulatory Differences – Excess Deferred Tax		(2.8)			(3.8)
Non-Controlling Interest in Subsidiaries	Non-Controlling Interest in Subsidiaries		3.8			3.8

AFUDC – Equity
Other	Other		1.5			0.9
Total Income Tax Expense (Benefit)			$1.5			$(3.9)
Total Income Tax Expense

(a)For the three months ended March 31, 2024 and 2023, the credits are presented net of any estimated discount on the sale of certain credits.

For the three months ended March 31, ~~2023,~~2024, the effective tax rate was ~~an expense of 3.8~~9.7 percent ~~(benefit of 9.2~~(3.8 percent for the three months ended March 31, ~~2022)~~2023). The effective tax ~~rate~~rates for 2024 and 2023 ~~and 2022 was~~were primarily impacted by production tax credits.

Uncertain Tax Positions. As of March 31, ~~2023,~~2024, we had gross unrecognized tax benefits of $1.1 million ($~~1.3~~1.1 million as of December 31, ~~2022)~~2023). 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 an increase to the net deferred tax liability 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. ~~The~~ALLETE is currently under examination by the state of ~~Wisconsin~~Minnesota for the tax years ~~2018~~2020 through ~~2020 has been closed with no findings.~~2022. ALLETE has no open federal ~~or state~~ audits and is no longer subject to federal examination for years before ~~2019,~~2021 or state examination for years before ~~2018.~~2020. 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. First Quarter ~~2023~~2024 Form 10-Q

2726

NOTE 9. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS


		Pension		Other Postretirement
Components of Net Periodic Benefit Cost (Credit)	Components of Net Periodic Benefit Cost (Credit)	2023	2022	2023	2022	Components of Net Periodic Benefit Cost (Credit)	Pension		Other Postretirement
Three Months Ended March 31,						Three Months Ended March 31,	2024	2023		2024	2023
Millions	Millions					Millions

Three Months Ended March 31,
Service Cost

Service Cost

Service Cost	Service Cost	$1.6	$2.4	$0.6	$0.8
Non-Service Cost Components (a)	Non-Service Cost Components (a)
Interest Cost
Interest Cost
Interest Cost	Interest Cost	10.1	6.7	1.5	1.1
Expected Return on Plan Assets	Expected Return on Plan Assets	(10.9)	(10.4)	(2.8)	(2.4)
Amortization of Prior Service Credits	Amortization of Prior Service Credits	—	—	(1.8)	(1.9)
Amortization of Net Loss	Amortization of Net Loss	1.4	3.2	(0.5)	0.1

Net Periodic Benefit Cost (Credit)	Net Periodic Benefit Cost (Credit)	$2.2	$1.9	$(3.0)	$(2.3)
Net Periodic Benefit Cost (Credit)
Net Periodic Benefit Cost (Credit)							$1.7	$2.2		$(5.1)	$(3.0)

(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 three months ended March 31, ~~2023,~~2024, we contributed ~~$6.5~~$25.0 million in cash to the defined benefit pension plans ~~(none~~($6.5 million for the three months ended March 31, ~~2022)~~2023); we do not expect to ~~contribute an~~make additional ~~approximately $10 million~~contributions to our defined benefit pension plans in ~~2023.~~2024. For the three months ended March 31, ~~2023~~2024 and ~~2022,~~2023, 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 ~~2023.~~2024.

NOTE 10. 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 New Energy, a renewable energy development company, BNI Energy, our coal mining operations in North Dakota, 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. First Quarter ~~2023~~2024 Form 10-Q

2827

NOTE 10. BUSINESS SEGMENTS (Continued)

Three Months Ended

March 31

Three Months Ended

March 31,

2023

2022

2024

2023

Millions

Operating Revenue

Regulated Operations

Residential

$49.4

$56.0

Commercial

47.7

48.3

Municipal

8.9

12.1

Industrial

144.9

147.8

Other Power Suppliers

35.9

41.0

Other

25.8

23.8

Other

Total Regulated Operations

312.6

329.0

ALLETE Clean Energy

Long-term PSA

18.4

25.4

Sale of Wind Energy Facility

181.8

—

Long-term PSA

Sale of Wind Energy Facilities

Other

1.3

2.8

Total ALLETE Clean Energy

201.5

28.2

Corporate and Other

Long-term Contract

25.5

22.6

Sale of Renewable Development Projects

19.8

—

Other

5.5

3.7

Total Corporate and Other

50.8

26.3

Total Operating Revenue

$564.9

$383.5

Net Income (Loss) Attributable to ALLETE

Total Operating Revenue

Net Income Attributable to ALLETE

Regulated Operations

$40.6

$51.5

ALLETE Clean Energy

8.5

16.5

ALLETE Clean Energy

Corporate and Other

9.1

(1.7)

Total Net Income Attributable to ALLETE

$58.2

$66.3

March 31,
2023

December 31,
2022

March 31,
2024

December 31,
2023

Millions

Assets

Regulated Operations

$4,268.8

$4,291.4

ALLETE Clean Energy

1,697.3

1,873.3

ALLETE Clean Energy

Corporate and Other

738.4

680.9

Corporate and Other

Total Assets

$6,704.5

$6,845.6

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

NOTE 11. SUBSEQUENT EVENT – AGREEMENT AND PLAN OF MERGER

On May 5, 2024, ALLETE entered into the Merger Agreement. Pursuant to the Merger Agreement, on the terms and subject to the conditions set forth therein, Alloy Merger Sub will merge with and into ALLETE, with ALLETE continuing as the surviving corporation in the Merger and becoming a subsidiary of Alloy Parent.

Subject to the terms and conditions set forth in the Merger Agreement, which has been unanimously approved by the board of directors of ALLETE, at the effective time of the Merger (Effective Time), each share of common stock, without par value, of ALLETE (ALLETE common stock) issued and outstanding immediately prior to the Effective Time (other than shares of ALLETE common stock held by any holder who properly exercises dissenters’ rights under Minnesota law in respect of such shares and any shares of ALLETE common stock held by an affiliate of Alloy Parent) shall be converted into the right to receive $67.00 in cash, without interest (Merger Consideration). The aggregate equity value of the ALLETE common stock acquired by Parent will be approximately $3.9 billion as calculated as of May 5, 2024.

In addition, at the Effective Time, each restricted stock unit with respect to ALLETE common stock subject to time-based vesting that is outstanding immediately prior to the Effective Time (RSU) will be cancelled and converted into a contingent right to receive an amount in cash, without interest, equal to the Merger Consideration, payable (i) in the case of such right converted from unvested RSUs, upon the same vesting conditions as applied to the corresponding RSU or (ii) in the case of such right converted from vested RSUs, as soon as reasonably practicable following the closing date of the Merger (the Closing Date). Each performance share award with respect to ALLETE common stock that is outstanding and unvested immediately prior to the Effective Time will be cancelled and converted into a right to receive, without interest, the Merger Consideration multiplied by the number of shares of ALLETE common stock subject to the award, determined based on attainment of the greater of target and actual performance as of the last business day immediately preceding the Closing Date. A pro rata portion (based on the elapsed portion of the performance period at that time) of the converted performance share awards will be paid out as soon as reasonably practicable following the Closing Date, with the remainder of the award being subject to time-vesting for the remainder of the applicable performance period. Further, purchase rights accumulated during the offering period in effect under the Company’s Employee Stock Purchase Plan (ESPP) immediately prior to closing will be automatically exercised into shares of ALLETE common stock no later than five business days prior to the Closing Date, and the ESPP will be terminated as of immediately prior to the Closing Date.

Consummation of the Merger is subject to various closing conditions, including: (1) approval of the shareholders of the Company; (2) receipt of all required regulatory approvals without the imposition of a Burdensome Condition (as defined in the Merger Agreement); (3) absence of any law or order prohibiting the consummation of the Merger; (4) subject to materiality qualifiers, the accuracy of each party’s representations and warranties; (5) each party’s compliance in all material respects with its obligations and covenants under the Merger Agreement; and (6) the absence of a material adverse effect with respect to the Company.The Merger Agreement contains certain termination rights for ALLETE and Alloy Parent, which were described in a Current Report of Form 8-K filed by ALLETE on May 6, 2024. In the Merger Agreement, among other things, ALLETE has agreed, subject to certain exceptions, to, and to cause each of its subsidiaries to conduct its business in the ordinary course, consistent with past practice, from the date of the Merger Agreement until the Effective Time, and not to take certain actions prior to the closing of the Merger without the prior written consent of Alloy Parent (which consent shall not be unreasonably withheld, conditioned or delayed, except where ALLETE seeks Alloy Parent’s consent to enter into a material new line of business or cease operations of an existing material line of business). The Merger Agreement also provides that the Company may request that Alloy Parent purchase up to a total of $300 million of preferred stock of the Company in the second half of 2025, subject to certain parameters. If Alloy Parent declines to purchase the preferred stock, the Company will have the right to issue Company common stock up to certain limits.

ALLETE, Inc. First Quarter 2024 Form 10-Q

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 ~~2022~~2023 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 ~~2022~~2023 Form 10-K under the headings: “Forward-Looking Statements” located on page 67 and “Risk Factors” located in Part I, Item 1A, beginning on page 2425 of our ~~2022~~2023 Form 10-K. The risks and uncertainties described in this Form 10-Q and our ~~2022~~2023 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.

On May 5, 2024, ALLETE entered into the Merger Agreement. (See Note 11. Subsequent Event – Agreement and Plan of Merger.)

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 1,200 MW of nameplate capacity wind energy generation with a majority 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.

Corporate and Other is comprised of 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; BNI Energy, our coal mining operations in North Dakota; 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 March 31, ~~2023,~~2024, 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.

Financial Overview

The following net income discussion summarizes a comparison of the three months ended March 31, ~~2023,~~2024, to the three months ended March 31, ~~2022.~~2023.

Net income attributable to ALLETE for the three months ended March 31, ~~2023,~~2024, was ~~$58.2~~$50.7 million, or ~~$1.02~~$0.88 per diluted share, compared to ~~$66.3~~$58.2 million, or ~~$1.24~~$1.02 per diluted share, for the same period in ~~2022. Earnings~~2023. Net income in 2024 includes interim rate refund reserves of $3.9 million after-tax, or $0.07 per share, ~~dilution in 2023 was $0.08~~ due to ~~additional shares~~Minnesota Power’s rate case settlement. (See Note 2. Regulatory Matters.) Net income in 2024 also includes transaction costs of ~~common stock outstanding as~~$1.2 million after-tax, or $0.02 per share, related to the Merger. (See Note 11. Subsequent Event – Agreement and Plan of ~~March 31, 2023.~~Merger.)

~~Regulated Operations~~ net income attributable to ALLETE was $40.6 million for the three months ended March 31, 2023, compared to $51.5 million for the same period in 2022. Net income at Minnesota Power was lower than 2022 primarily due to lower kWh sales to retail and municipal customers, interim rate refund reserves recognized during 2023 as result of Minnesota Power’s 2022 general rate case, and higher operating and maintenance expense. Net income at SWL&P was lower than 2022 primarily due to higher operating and maintenance expense. Our after-tax equity earnings in ATC were similar to 2022. (See Note 3. Equity Investments.)

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Regulated Operations net income attributable to ALLETE was $44.2 million for the three months ended March 31, 2024, compared to $40.6 million for the same period in 2023. Net income at Minnesota Power was higher than 2023 primarily due to the implementation of interim rates on January 1, 2024, net of reserves related to Minnesota Power’s rate case settlement. (See Note 2. Regulatory Matters.) This increase was partially offset by higher operating and maintenance and depreciation expenses. Net income at SWL&P and our after-tax equity earnings in ATC were similar to 2023. (See Note 3. Equity Investments.)

ALLETE Clean Energy net income attributable to ALLETE was ~~$8.5~~$3.8 million for the three months ended March 31, ~~2023,~~2024, compared to ~~$16.5~~$8.5 million for the same period in ~~2022.~~2023. Net income in ~~2023~~2024 reflected a forced outage located near its Caddo wind energy facility and a transformer outage at its Diamond Spring wind energy facility resulting in lower ~~wind resources and availability, and higher~~earnings. These decreases were partially offset by lower operating and maintenance expense compared to 2022. Net income in 2022 included earnings from the legacy Northern Wind facilities, which were decommissioned in April 2022 as part of ALLETE Clean Energy’s project to repower and sell the Northern Wind project.expense.

Corporate and Other net income attributable to ALLETE was ~~$9.1~~$2.7 million for the three months ended March 31, ~~2023,~~2024, compared to ~~a net loss of $1.7~~$9.1 million for the same period in ~~2022.~~2023. Net income in 2024 reflects lower earnings from Minnesota solar projects as investment tax credits were recognized in 2023 for the projects. Net income in 2024 also reflects ~~net income from New Energy of $4.1 million, which was acquired in April 2022, and lower~~higher income taxes and interest expense compared to ~~2022. The net loss~~2023. Net income in ~~2022~~2024 also includes transaction costs of ~~$1.4~~$1.2 million after-tax related to the ~~acquisition~~Merger. (See Note 11. Subsequent Event – Agreement and Plan of Merger.) Net income at New ~~Energy.~~Energy was $4.0 million in 2024 compared to $4.1 million in 2023.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, ~~2023~~2024 AND ~~2022~~2023

(See Note 10. Business Segments for financial results by segment.)

Regulated Operations

Three Months Ended March 31, 2023 2022
Millions
Operating Revenue – Utility $312.6 $329.0
Fuel, Purchased Power and Gas – Utility 118.6 137.4
Transmission Services – Utility 20.1 19.9
Operating and Maintenance 61.9 58.4
Depreciation and Amortization 44.5 43.4
Taxes Other than Income Taxes 15.9 15.2
Operating Income 51.6 54.7
Interest Expense (15.5) (13.9)
Equity Earnings 6.0 5.4
Other Income 2.5 1.8
Income Before Income Taxes 44.6 48.0
Income Tax Expense (Benefit) 4.0 (3.5)
Net Income Attributable to ALLETE $40.6 $51.5


Three Months Ended March 31,	2024	2023
Millions
Operating Revenue – Utility	$338.3	$312.6
Fuel, Purchased Power and Gas – Utility	133.7	118.6
Transmission Services – Utility	22.7	20.1

Operating and Maintenance	66.8	61.9
Depreciation and Amortization	46.4	44.5
Taxes Other than Income Taxes	15.7	15.9
Operating Income	53.0	51.6
Interest Expense	(16.0)	(15.5)
Equity Earnings	5.7	6.0
Other Income	6.4	2.5
Income Before Income Taxes	49.1	44.6
Income Tax Expense	4.9	4.0


Net Income Attributable to ALLETE	$44.2	$40.6

ALLETE, Inc. First Quarter 2024 Form 10-Q

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 (Continued)

Regulated Operations (Continued)

Operating Revenue – Utility ~~decreased $16.4~~increased $25.7 million from ~~2022~~2023 primarily due to ~~lower kWh sales,~~the implementation of interim ~~rate revenue and~~rates on January 1, 2024, as well as higher fuel adjustment clause recoveries and kWh sales, partially offset by ~~higher~~lower cost recovery rider ~~revenue.~~revenue and gas sales.

Interim retail rates for Minnesota Power, subject to refund, were approved by the MPUC and became effective January 1, 2024, resulting in revenue of $11.2 million, net of reserves related to Minnesota Power’s rate case settlement and rider revenue incorporated into base rates. (See Note 2. Regulatory Matters.)

~~Lower~~

Fuel adjustment clause revenue increased $8.4 million due to higher fuel and purchased power costs attributable to retail and municipal customers. (See Fuel, Purchased Power and Gas – Utility.)

Higher kWh sales ~~reduced~~increased revenue ~~$19.3~~by $7.8 million from ~~2022~~2023 reflecting higher sales to industrial customers and other power suppliers as well as higher market prices, partially offset by lower sales to residential, commercial ~~municipal and industrial customers as well as lower sales to other power suppliers. Sales to residential, commercial~~ and municipal customers decreased from 2022 primarily due to warmer weather in 2023 compared to 2022. Sales to municipal customers also decreased as a result of a new contract entered into with Hibbing Public Utilities in April 2022 with sales under the new contract classified under other power suppliers.customers. Sales to industrial customers ~~decreased~~increased primarily due to ~~lower~~higher sales to taconite customers reflecting ~~Cliffs’~~Cliff’s Northshore mine operating in 2024 compared to being idled in the first quarter of 2023. ~~(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~~increased reflecting more market sales and higher market prices in ~~2023~~2024 compared to ~~2022~~2023. Sales to residential, commercial and municipal customers decreased from 2023 primarily due to warmer weather in 2024 compared to 2023.


Kilowatt-hours Sold			Variance
Three Months Ended March 31,	2024	2023	Quantity	%
Millions
Regulated Utility
Retail and Municipal
Residential	306	321	(15)	(4.7)	%
Commercial	338	347	(9)	(2.6)	%
Industrial	1,798	1,658	140	8.4	%
Municipal	125	128	(3)	(2.3)	%
Total Retail and Municipal	2,567	2,454	113	4.6	%
Other Power Suppliers	757	696	61	8.8	%
Total Regulated Utility Kilowatt-hours Sold	3,324	3,150	174	5.5	%

Revenue from electric sales to taconite customers accounted for 32 percent of regulated operating revenue in 2024 (30 percent in 2023). Revenue from electric sales to paper, pulp and secondary wood product customers accounted for 5 percent of regulated operating revenue in 2024 (4 percent in 2023). Revenue from electric sales to pipelines and other industrial customers accounted for 10 percent of regulated operating revenue in 2024 (11 percent in 2023).

Revenue from gas sales at SWL&P decreased $4.2 million reflecting fewer ~~market~~gas sales resulting from warmer weather and lower gas prices in 2024 compared to 2023. (See Fuel, Purchased Power and Gas – Utility.)

Operating Expenses increased $24.3 million, or 9 percent, from 2023.

Fuel, Purchased Power and Gas – Utility expense increased $15.1 million, or 13 percent, from 2023 primarily due to higher kWh sales, purchased power prices and fuel costs. These increases were partially offset by lower gas sales and ~~lower market prices in 2023 compared to 2022.~~prices.

Transmission Services – Utility expense increased $2.6 million, or 13 percent, from 2023 primarily due to higher MISO-related expense.

Operating and Maintenance expenseincreased $4.9 million, or 8 percent, from 2023 primarily due to higher salaries and wages, benefit costs, and contract and professional services.

Depreciation and Amortization expense increased $1.9 million, or 4 percent, from 2023 primarily due to a higher plant in service balance in 2024.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

3132

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, ~~2023~~2024 AND ~~2022~~2023 (Continued)

Regulated Operations (Continued)

Kilowatt-hours Sold Variance
Three Months Ended March 31, 2023 2022 Quantity %
Millions
Regulated Utility
Retail and Municipal
Residential 321 355 (34) (9.6) %
Commercial 347 360 (13) (3.6) %
Industrial 1,658 1,766 (108) (6.1) %
Municipal 128 158 (30) (19.0) %
Total Retail and Municipal 2,454 2,639 (185) (7.0) %
Other Power Suppliers 696 981 (285) (29.1) %
Total Regulated Utility Kilowatt-hours Sold 3,150 3,620 (470) (13.0) %

Other Income

~~Revenue~~ increased $3.9 million from ~~electric sales to taconite customers accounted for 30 percent of regulated operating revenue in~~ 2023 (31 percent in 2022). Revenue from electric sales to paper, pulp and secondary wood product customers accounted for 4 percent of regulated operating revenue in 2023 (4 percent in 2022). Revenue from electric sales to pipelinesreflecting lower pension and other ~~industrial customers accounted for 11 percent of regulated operating revenue in 2023 (9 percent in 2022).~~

Interim retail rate revenue for Minnesota Power, subject to refund, decreased $6.5 million from 2022 primarily due to interim refund reserves recognized during 2023 as a result of Minnesota Power’s 2022 general rate case. (See Note 2. Regulatory Matters.)

~~Fuel adjustment clause revenue decreased $4.7 million due to lower fuel and purchased power costs attributable to retail and municipal customers. (See~~ ~~Fuel, Purchased Power and Gas – Utility.~~)

Cost recovery rider revenue increased $9.8 million primarily due to fewer production tax credits recognized by Minnesota Power. If production tax credits are recognized at a level below those assumed in Minnesota Power’s retail rates, an increase in cost recovery rider revenue is recognized to offset the impact of lower production tax credits on income tax expense.

~~Operating Expenses~~ ~~decreased $13.3 million, or 5 percent, from 2022.~~

~~Fuel, Purchased Power and Gas – Utility~~ ~~expense decreased $18.8 million, or 14 percent, from 2022 primarily due to lower kWh sales, purchased power prices and fuel~~postretirement benefit plan non-service costs.

~~Operating and Maintenance~~ ~~expenseincreased $3.5 million, or 6 percent, from 2022 primarily due to higher salaries and wages, vegetation management costs, software maintenance and materials purchased for use in generation facilities.~~

~~Depreciation and Amortization~~ ~~expense increased $1.1 million, or 3 percent, from 2022 primarily due to a higher plant in service balance in 2023.~~

Income Tax Expense increased ~~$7.5~~$0.9 million from ~~2022~~2023 primarily due to ~~lower production tax credits. We expect our annual effective tax rate in 2023 to be an income tax expense compared to a benefit in 2022 primarily due to lower production tax credits.~~higher pre-tax income.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

~~COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 (Continued)~~

ALLETE Clean Energy


Three Months Ended March 31,	Three Months Ended March 31,	2023	2022	Three Months Ended March 31,	2024	2023
Millions	Millions			Millions
Operating Revenue	Operating Revenue
Contracts with Customers – Non-utility
Contracts with Customers – Non-utility
Contracts with Customers – Non-utility	Contracts with Customers – Non-utility	$200.2	$25.4
Other – Non-utility (a)	Other – Non-utility (a)	1.3	2.8
Cost of Sales – Non-utility	Cost of Sales – Non-utility	181.6	—
Operating and Maintenance	Operating and Maintenance	14.3	11.4
Depreciation and Amortization	Depreciation and Amortization	14.4	15.4
Taxes Other than Income Taxes	Taxes Other than Income Taxes	2.9	3.0
Operating Loss	Operating Loss	(11.7)	(1.6)
Interest Expense	Interest Expense	(0.3)	(1.1)
Other Income	Other Income	0.2	0.1
Loss Before Income Taxes	Loss Before Income Taxes	(11.8)	(2.6)
Income Tax Benefit	Income Tax Benefit	(3.0)	(2.5)
Net Loss	Net Loss	(8.8)	(0.1)
Net Loss Attributable to Non-Controlling Interest	Net Loss Attributable to Non-Controlling Interest	(17.3)	(16.6)
Net Income Attributable to ALLETE	Net Income Attributable to ALLETE	$8.5	$16.5

(a)Represents non-cash amortization of differences between contract prices and estimated market prices on assumed PSAs.

Operating Revenue ~~increased $173.3~~decreased $182.4 million from ~~2022 primarily due to~~2023. Operating revenue in 2023 reflected the sale of ALLETE Clean Energy’s Northern Wind project. ~~This increase~~In addition, operating revenue in 2024 was ~~partially offset~~negatively impacted by ~~lower wind resources and availability at other~~a network outage located near ALLETE Clean Energy’s Caddo wind energy ~~facilities~~facility. The network outage began in ~~our East, Midwest~~the fourth quarter of 2023 resulting from a forced outage of a substation and ~~West regions. In 2022, operating revenue included revenue~~the transmission lines feeding that substation. This forced outage increased congestion experienced by the Caddo wind energy facility resulting in lower kWh sales and pricing. (See Outlook - ALLETE Clean Energy.)


	Three Months Ended March 31,
	2024		2023
Production and Operating Revenue	kWh	Revenue	kWh	Revenue
Millions
Wind Energy Regions
East	73.4	$7.1	79.4	$7.4
Midwest	163.1	5.1	155.2	4.9
South	284.1	3.2	618.9	3.4
West	186.9	3.7	197.1	4.0
Sale of Wind Energy Facility	—	—	—	181.8
Total Production and Operating Revenue	707.5	$19.1	1,050.6	$201.5

Cost of Sales – Non-utility decreased $181.6 million from 2023. Cost of sales – Non-utility in 2023 reflected the ~~legacy Northern Wind facilities, which were decommissioned in April 2022 as part~~sale of ALLETE Clean Energy’s Northern Wind project.

Three Months Ended March 31,
2023 2022
Production and Operating Revenue kWh Revenue kWh Revenue
Millions
Wind Energy Regions
East 79.4 $7.4 87.3 $8.0
Midwest 155.2 4.9 287.6 9.6
South 618.9 3.4 602.9 4.6
West 197.1 4.0 258.3 6.0
Sale of Wind Energy Facility — 181.8 — —
Total Production and Operating Revenue 1,050.6 $201.5 1,236.1 $28.2

~~Cost of Sales – Non-utility~~Other Income increased ~~$181.6~~$1.4 million from ~~2022 reflecting the sale of ALLETE Clean Energy’s Northern Wind project~~2023 primarily due to higher interest income in ~~the first quarter of~~2024 compared to 2023.

~~Operating and Maintenance~~Income Tax Benefit ~~expense~~ increased ~~$2.9~~$2.5 million ~~or 25 percent,~~ from ~~2022~~2023 primarily due to ~~higher contract and professional services.~~

~~Depreciation and Amortizationexpense decreased $1.0 million, or 6 percent, from 2022 reflecting the decommissioning of the legacy Northern Wind facilities in April 2022 as part of ALLETE Clean Energy’s project~~lower net losses attributable to ~~repower and sell the Northern Wind project.~~

non-controlling interest.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 ~~AND 2022~~ (Continued)

ALLETE Clean Energy (Continued)

Net Loss Attributable to Non-Controlling Interest decreased $9.4 million from 2023 reflecting lower availability at ALLETE Clean Energy’s tax equity financed wind energy facilities resulting from the impacts of a network outage near the Caddo wind energy facility and a transformer outage at the Diamond Spring wind energy facility.

Corporate and Other

Operating Revenue ~~increased $24.5~~decreased $4.9 million, or 9310 percent, from ~~2022 reflecting~~2023 primarily due to lower revenue from sales of renewable energy projects at 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 and more tons sold in 2023~~2024 compared to ~~2022.~~2023 reflecting the timing of project closings.

Net Income Attributable to ALLETE was $2.7 million in 2024 compared to $9.1 million in ~~2023 compared to a net loss of $1.7 million in 2022.~~2023. Net income in 2024 reflects lower earnings from Minnesota solar projects as investment tax credits were recognized in 2023 for the projects. Net income in 2024 also reflects ~~net income from New Energy of $4.1 million, which was acquired in April 2022, and lower~~higher income taxes and interest expense compared to ~~2022. The net loss~~2023. Net income in ~~2022~~2024 also includes transaction costs of ~~$1.4~~$1.2 million after-tax related to the ~~acquisition~~Merger. (See Note 11. Subsequent Event – Agreement and Plan of Merger.) Net income at New ~~Energy.~~Energy was $4.0 million in 2024 compared to $4.1 million in 2023.

Income Taxes – Consolidated

For the three months ended March 31, ~~2023,~~2024, the effective tax rate was an expense of ~~3.8~~9.7 percent ~~(benefit of 9.2~~(3.8 percent for the three months ended March 31, ~~2022). The effective tax rate for 2023 was an expense~~2023) primarily due to ~~lower production tax credits.~~higher pre-tax income.

We expect our annual effective tax rate in ~~2023~~2024 to be ~~an expense~~lower than 2023 primarily due to lower ~~production tax credits and higher~~ estimated pre-tax income. 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. (See Note 8. Income Tax Expense.)

CRITICAL ACCOUNTING POLICIES

Certain accounting measurements under GAAP involve management’s judgment about subjective factors and estimates, the effects of which are inherently uncertain. Accounting measurements that we believe are most critical to our reported results of operations and financial condition include: regulatory accounting, pension and postretirement health and life actuarial assumptions, goodwill, impairment of long-lived assets, and taxation. These policies are reviewed with the Audit Committee of our Board of Directors on a regular basis and summarized in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our ~~2022~~2023 Form 10-K.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

OUTLOOK

For additional information see our ~~2022~~2023 Form 10-K.

On May 5, 2024, ALLETE entered into the Merger Agreement. (See Note 11. Subsequent Event – Agreement and Plan of Merger.) As a result of the Merger, transaction costs are expected to be material for the remainder of 2024.

ALLETE is an energy company committed to earning a financial return that rewards our shareholders, allows for reinvestment in our businesses, and sustains growth. The Company has a long-term objective of achieving consolidated earnings per share growth within a range of 5 percent to 7 percent.

ALLETE is predominately a regulated utility through Minnesota Power, SWL&P, and an investment in ATC. ALLETE’s strategy is to remain predominately a regulated utility while investing in ALLETE Clean Energy and New Energy and its Corporate and Other businesses to complement its regulated businesses, balance exposure to the utility’s industrial customers, and provide potential long-term earnings growth. ALLETE expects net income from Regulated Operations to be approximately 75 percent of total consolidated net income in ~~2023.~~2024. ALLETE expects its businesses to generally provide regulated, contracted or recurring revenues, and to support sustained growth in net income and cash flow.

ALLETE, Inc. First Quarter 2024 Form 10-Q

OUTLOOK (Continued)

Minnesota Carbon-Free Legislation. On February 7, 2023, the Minnesota Governor signed into law legislation that updates the state’s renewable energy standard and requires Minnesota electric utilities to source retail sales with 100 percent carbon-free energy by 2040. The law increases the renewable energy standard from 25 percent renewable by 2025 to 55 percent renewable by 2035, and requires investor-owned Minnesota utilities to provide 80 percent carbon-free energy by 2030, 90 percent carbon-free energy by 2035 and 100 percent carbon-free energy by 2040. The law utilizes renewable energy credits as the means to demonstrate compliance with both the carbon-free and renewable standards, includes an off-ramp provision that enables the MPUC to protect reliability and customer costs through modification or delay of either the renewable energy standard, the carbon-free standard, or both, and streamlines development and construction of wind energy projects and transmission in Minnesota. The Company is evaluating the law to identify challenges and opportunities it could present.

Regulated Operations. Minnesota Power’s long-term strategy is to be the leading electric energy provider in northeastern Minnesota by providing safe, reliable and cost-competitive electric energy, while complying with environmental permit conditions and renewable energy requirements. Keeping the cost of energy production competitive enables Minnesota Power to effectively compete in the wholesale power markets and minimizes retail rate increases to help maintain customer viability. As part of maintaining cost competitiveness, Minnesota Power intends to reduce its exposure to possible future carbon and GHG legislation by reshaping its generation portfolio, over time, to reduce its reliance on coal. In 2021, Minnesota Power ~~has a goal~~announced its vision of delivering 100 percent carbon-free energy by 2050. ~~(See~~ ~~EnergyForward~~.) We will monitor and review proposed environmental regulations and may challenge those that add considerable cost with limited environmental benefit. Minnesota Power will continue to pursue customer growth opportunities and cost recovery rider approvals for transmission, renewable and environmental investments, as well as work with regulators to earn a fair rate of return.

~~2022~~2024 Minnesota General Rate Case. On November 1, ~~2021,~~2023, Minnesota Power filed a retail rate increase request with the MPUC seeking an average increase of approximately 1812.00 percent for retail ~~customers.~~customers, net of rider revenue incorporated into base rates. The rate filing ~~sought~~seeks a return on equity of ~~10.25~~10.30 percent and a ~~53.81~~53.00 percent equity ratio. On an annualized basis, the requested final rate increase would generate approximately ~~$108~~$89 million in additional revenue. In separate orders dated December 19, 2023, the MPUC accepted the filing as complete and approved an annual interim rate increase of approximately $64 million, net of rider revenue, beginning January 1, 2024, subject to refund. We cannot predict the level of final rates that may be authorized by the MPUC.

2024 Wisconsin General Rate Case. On March 29, 2024, SWL&P filed a rate increase request for its electric, gas and water utilities with the PSCW. The filing seeks an overall return on equity of 10.00 percent and a 55.00 percent equity ratio. On an annualized basis, the requested change would increase revenue by approximately 5.90 percent for retail customers and generate an estimated $7.3 million of additional revenue. The change to SWL&P customers’ rates will be determined by the PSCW later this year. Any rate adjustments are anticipated to become effective in January 2025.

Solar Energy Request For Proposals. On October 2, 2023, Minnesota Power ~~plans~~filed a notice with the MPUC of its intent to ~~file~~issue a request for proposals for up to 300 MW of solar energy resources. Minnesota Power issued the request for proposals on November 15, 2023, which were accepted through January 17, 2024. The proposals are currently being evaluated.

Wind Energy Request For Proposals. On December 15, 2023, Minnesota Power filed a notice with the MPUC of its ~~next rate case in~~intent to issue a request for proposals for up to 400 MW of wind energy resources. Minnesota Power issued the ~~fourth quarter of 2023.~~request for proposals on February 15, 2024, which were accepted through April 11, 2024.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

OUTLOOK (Continued)

Industrial ~~and Municipal Customers and Prospective Additional Load.~~Customers.

Industrial Customers. Electric power is one of several key inputs in the taconite mining, paper, pulp and secondary wood products, pipeline and other industries. Approximately 5354 percent of our regulated utility kWh sales in the three months ended March 31, ~~2023,~~2024, were made to our industrial customers ~~(49~~(53 percent in the three months ended March 31, ~~2022)~~2023).

Taconite.

~~Northshore Mining~~. Cliffs idled all production at its Northshore mine in 2022. Northshore Mining resumed partial pellet plant production in April 2023. Cliffs indicated it will continue to utilize Northshore Mining as a swing facility and does not expect it to operate at full production in 2023. Northshore Mining has the capability to produce approximately 6 million tons annually. Minnesota Power has a PSA through 2031 with Silver Bay Power, which provides the majority of the electric service requirements for Northshore Mining.

USS Corporation. USS Corporation has announced plans to invest approximately $150 million to construct a system dedicated to producing direct reduced-grade (DR-grade) pellets at its Keetac plant. USS Corporation broke ground on the project in the third quarter of 2022, which is expected to be completed in late 2023. This will enable the existing pelletizing plant to not only create DR-grade pellets for use as a feedstock for a direct reduced iron (DRI) or hot briquetted iron (HBI) process that ultimately supplies electric arc furnace steelmaking but also maintains the optionality to continue producing blast furnace-grade pellets. USS Corporation’s Minntac and Keetac plants are large power industrial customers of Minnesota Power. ~~USS Corporation has~~These plants have the combined capability to produce approximately ~~15 million and 5~~22 million tons of iron ore pellets annually which includes 4 million tons of direct-reduced grade pellets.

On December 18, 2023, USS Corporation announced it entered into a definitive agreement in which Nippon Steel will acquire all of the shares of USS Corporation. On April 12, 2024, USS Corporation shareholders approved the proposed acquisition. USS Corporation expects the transaction to close in the second half of 2024, subject to regulatory approvals, at which time USS Corporation stated it will continue to operate under the U.S. Steel brand name and will maintain its ~~Minntac and Keetac plants, respectively.~~headquarters in Pittsburgh, Pennsylvania.

Paper, Pulp and Secondary Wood Products.

ST Paper. ~~In May 2021,~~ ST Paper, a Large Power Customer of Minnesota Power, announced on January 3, 2024, that it had entered into an agreement to sell the Duluth Mill to Sofidel, a privately held Italian multinational company that is currently the seventh largest manufacturer of tissue paper in the world. Sofidel completed the ~~purchase~~acquisition of the Duluth Mill from Verso Corporation. ST Paper completed a project at the Duluth Mill to produce tissue and began production early in 2023. In January 2022, Minnesota Power entered into an electric service agreement with ST Paper that would begin Large Power Customer service with a minimum term of six years upon start-up of operations Upon start-up of operations, ST Paper became a Large Power Customer.

~~Pipeline and Other Industries~~.

~~Cenovus Energy~~. In 2018, a fire at Cenovus Energy’s refinery in Superior, Wisconsin, which was owned by Husky Energy at that time, disrupted operations at the facility. Under normal operating conditions, SWL&P provides approximately 14 MW of average monthly demand to the refinery in addition to water service. The Company announced in April 2023 that it had commenced restart of the facility, and the refinery is expected to resume normal operations in the ~~second~~first quarter of ~~2023.~~2024.

Transmission.

Investment in ATC. ATC’s most recent 10-year transmission assessment, which covers the years 2023 through 2032, identifies a need for between $6.6 billion and $8.1 billion in transmission system investments. These investments by ATC, if undertaken, are expected to be funded through a combination of internally generated cash, debt and investor contributions. As opportunities arise, we plan to make additional investments in ATC through general capital calls based upon our pro rata ownership interest in ATC.

North Plains Connector Development Agreement. In December 2023, ALLETE and Grid United LLC, an independent transmission company, signed development agreements for the North Plains Connector project. The project is a new, approximately 400-mile high-voltage direct-current (HVDC) transmission line from central North Dakota, to Colstrip, Montana that will be the first transmission connection between three regional U.S. electric energy markets: MISO, the Western Interconnection and the Southwest Power Pool. This new link, open to all sources of electric generation, would create 3,000 MW of transfer capacity between the middle of the country and the West Coast, easing congestion on the transmission system, increasing resiliency and reliability in all three energy markets, and enabling fast sharing of renewable energy across a vast area with diverse weather patterns. The project capital cost is expected to be approximately $3.2 billion. ALLETE expects to pursue up to 35 percent ownership and would oversee the line’s operation. The companies began project permitting in 2023 as they work toward a planned in-service date as early as 2029, pending regulatory and other necessary approvals.

Duluth Loop Reliability Project. In October 2021, Minnesota Power submitted an application for a certificate of need for the Duluth Loop Reliability Project. This transmission project was proposed to enhance reliability in and around Duluth, Minnesota. The project includes the construction of a new 115-kV transmission line; construction of an approximately one-mile extension of an existing 230-kV transmission line; and upgrades to several substations. A certificate of need was granted and a route permit was issued by the MPUC on April 3, 2023. The Duluth Loop Reliability Project is expected to be completed and in service by ~~2025,~~late 2026 to early 2027, with an estimated cost of $50 million to $70 million.

ALLETE, Inc. First Quarter 2024 Form 10-Q

OUTLOOK (Continued)

Transmission (Continued)

HVDC Transmission System Project. On June 1, 2023, Minnesota Power submitted an application for a certificate of need and route permit with the MPUC to replace aging critical infrastructure and modernize the terminal stations of its HVDC transmission line. Minnesota Power uses the 465-mile, 250-kV HVDC transmission line that runs from Center, North Dakota, to Duluth, Minnesota, to transport wind energy from North Dakota while gradually phasing out coal-based electricity delivered to its system over this transmission line from Square Butte’s lignite coal-fired generating unit. The HVDC transmission system project is expected to improve reliability of the transmission system, improve system resiliency, expand the operating capacity of the HVDC terminals, and replace critical infrastructure. Pending regulatory approvals in Minnesota and North Dakota, construction could begin as early as 2024, with an in-service date expected between 2028 and 2030. The project is estimated to cost between $800 million and $900 million. On October 18, 2023, the U.S. Department of Energy awarded a $50 million grant to Minnesota Power for this project, which will be used to prepare the HVDC transmission system for future expansion and help reduce project costs to customers. In addition, this project was awarded $15 million in state funding as part of an energy and climate budget bill passed by the Minnesota Legislature in 2023. Further, Minnesota Power’s application to the Minnesota Department of Commerce (DOC) State Competitiveness Fund Match Program received notification the DOC is reserving $10 million as a cost share for the project. In total, Minnesota Power has been awarded $75 million in federal and state dollars in support of the project.

Northland Reliability Project. Minnesota Power and Great River Energy announced in July 2022 their intent to build a 150-mile, 345-kV transmission line, connecting northern Minnesota to central Minnesota to support continued reliability in the Upper Midwest. Great River Energy, a wholesale electric power cooperative, and Minnesota Power filed a Notice of Intent to Construct, Own and Maintain the transmission line with the MPUC in August 2022. This joint project is part of a portfolio of transmission projects approved in July 2022 by MISO as part of the first phase of its Long Range Transmission Plan. Planning for the approximately $970 million to $1,350 million transmission line is in its early stages with the route anticipated to generally follow existing rights of way in an established power line corridor. The MPUC will determine the final route as well as cost recovery for Minnesota Power’s approximately 50 percent estimated share of the project. On August 4, 2023, Minnesota Power and Great River Energy submitted an application for a certificate of need and route permit with the MPUC. On March 13, 2024, Minnesota Power submitted a filing with the FERC requesting to recover on construction work in progress related to this project from Minnesota Power’s wholesale customers. Subject to regulatory approvals, the transmission line is expected to be in service in 2030.

Big Stone South Transmission Project. Northern States Power, Great River Energy, Minnesota Power, Otter Tail Power Company, and Missouri River Energy Resources (Project Developers) announced in July 2022 their intent to build a 150-mile, 345-kV transmission line to improve reliability in North Dakota and South Dakota, and western and central Minnesota. This joint project is part of a portfolio of transmission projects approved in July 2022 by MISO as part of the first phase of its Long Range Transmission Plan. A Notice of Intent to Construct, Own and Maintain the transmission line was filed with the MPUC in October 2022. On September 29, 2023, the Project Developers submitted an application for a certificate of need and route permit with the MPUC. The project is in its early stages and is expected to cost between $600 million and $700 million. The MPUC will determine the final route for the Minnesota portion as well as cost recovery for Minnesota Power’s approximately $20 million estimated share of the project. On March 13, 2024, Minnesota Power submitted a filing with the FERC requesting to recover on construction work in progress related to this project from Minnesota Power’s wholesale customers. Subject to regulatory approvals, the transmission line is expected to be in service in 2027.

ALLETE Clean Energy.

ALLETE Clean Energy will pursue growth through acquisitions or project development. ALLETE Clean Energy is targeting acquisitions of existing operating portfolios which have a mix of long-term PSAs in place and/or available for repowering and recontracting. Further, ALLETE Clean Energy will evaluate actions that will lead to the addition of complimentary clean energy products and services. At this time, ALLETE Clean Energy is focused on actions that will optimize its clean energy project portfolio of operating and development projects, which may include recontracting, repowering, entering into partnerships and divestitures along with continued acquisitions or development of new projects including wind, solar, energy storage or storage ready facilities across North America.

Since September 20, 2023, a substation and the transmission lines feeding that substation located near ALLETE Clean Energy’s Caddo wind energy facility, and operated by another party, have experienced a forced outage. This forced outage has increased congestion experienced by the Caddo wind energy facility and is expected to have a negative impact on ALLETE Clean Energy’s results in the first half of 2024. We will continue to monitor this development for timing of repairs and impact going forward.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

3637

OUTLOOK (Continued)

~~ALLETE Clean Energy (Continued)~~

In 2021, ALLETE Clean Energy announced that it acquired the rights to the approximately 92 MW Red Barn wind development project and the approximately 68 MW Whitetail renewable development project in southwestern Wisconsin. ALLETE Clean Energy also signed an asset sale agreement for the completed Red Barn wind project with Wisconsin Public Service Corporation and Madison Gas and Electric Company. The PSCW approved the sale of the Red Barn wind project, which closed in April 2023 at which time ALLETE Clean Energy received cash proceeds of approximately $160 million. We expect to record a gain on the sale in the second quarter of 2023.

Corporate and Other.

Corporate and Other includes New Energy, a renewable energy development company, BNI Energy, our coal mining operations in North Dakota and 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 in Minnesota, and earnings on cash and investments.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Position. ALLETE is well-positioned to meet the Company’s liquidity needs. As of March 31, ~~2023,~~2024, we had cash and cash equivalents of ~~$29.9~~$32.0 million, ~~$231.6~~$248.6 million in available consolidated lines of credit, 2.1 million original issue shares of common stock available for issuance through a distribution agreement with Lampert Capital Markets and a debt-to-capital ratio of 3735 percent. ~~In addition,~~Pursuant to the Merger Agreement, ALLETE ~~Clean Energy received approximately $160 million~~has agreed, subject to certain exceptions, to, and to cause each of its subsidiaries to, conduct its business in ~~proceeds~~the ordinary course, consistent with past practice, from the ~~sale~~date of ~~its Red Barn project~~the Merger Agreement until the effective time of the Merger, and not to take certain actions prior to the closing of the Merger without the prior written consent of Alloy Parent (which consent shall not be unreasonably withheld, conditioned or delayed, except where ALLETE ~~issued $125 million in first mortgage bonds in April 2023.~~seeks Alloy Parent’s consent to enter into a material new line of business or cease operations of an existing material line of business). (See ~~Working Capital~~. Note 11. Subsequent Event – Agreement and Plan of Merger.)

Capital Structure. ALLETE’s capital structure is as follows:


		March 31, 2023	%	December 31, 2022	%
	March 31, 2024						March 31, 2024	%	December 31, 2023	%
Millions	Millions					Millions
ALLETE Equity	ALLETE Equity	$2,715.5	51	$2,691.9	51
Non-Controlling Interest in Subsidiaries	Non-Controlling Interest in Subsidiaries	642.2	12	656.4	12
Short-Term and Long-Term Debt (a)	Short-Term and Long-Term Debt (a)	1,939.9	37	1,929.1	37
Redeemable Non-Controlling Interest

		$5,297.6	100	$5,277.4	100

(a)Excludes unamortized debt issuance costs.

Cash Flows. Selected information from the Consolidated Statement of Cash Flows is as follows:


For the Three Months Ended March 31		2023	2022
For the Three Months Ended March 31,				For the Three Months Ended March 31,	2024	2023
Millions	Millions			Millions
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	Cash, Cash Equivalents and Restricted Cash at Beginning of Period	$40.2	$47.7
Cash Flows provided by (used in)	Cash Flows provided by (used in)			Cash Flows provided by (used in)
Operating Activities	Operating Activities	92.4	(4.8)
Investing Activities	Investing Activities	(74.7)	(60.1)
Financing Activities	Financing Activities	(18.3)	92.2
Change in Cash, Cash Equivalents and Restricted Cash	Change in Cash, Cash Equivalents and Restricted Cash	(0.6)	27.3
Cash, Cash Equivalents and Restricted Cash at End of Period	Cash, Cash Equivalents and Restricted Cash at End of Period	$39.6	$75.0

Operating Activities. Cash provided by operating activities was ~~higher~~lower in ~~2023~~2024 compared to ~~2022. Cash provided by operating activities~~2023 reflecting higher cash contributions to defined benefit pension in ~~2023 reflected lower payments for inventories compared to 2022 primarily related to fewer payments for ALLETE Clean Energy’s Northern Wind~~2024, and ~~Red Barn projects which were sold to third parties in the first quarter of 2023 and April 2023, respectively. Cash provided by operating activities in 2023~~ also ~~increased~~decreased due to the timing of recovery under Minnesota Power’s fuel adjustment clause.

Investing Activities. Cash used in investing activities was ~~higher~~lower in ~~2023~~2024 compared to ~~2022. Cash used in investing activities in~~ 2023 ~~reflected higher cash~~reflecting fewer payments for additions to property, plant and equipment compared to ~~2022.~~2023.

Financing Activities. Cash used in financing activities in 2024 reflected lower proceeds from the issuance of long-term debt compared to 2023.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

3738

LIQUIDITY AND CAPITAL RESOURCES (Continued)

~~Cash Flows (Continued)~~

~~Financing Activities.~~ Cash used in financing activities in 2023 was higher compared to 2022. Cash used in financing activities in 2023 reflected lower proceeds from non-controlling interest in subsidiaries compared to 2022.

Working Capital. Additional working capital, if and when needed, generally is provided by consolidated bank lines of credit and the issuance of securities, including long-term debt, common stock and commercial paper. As of March 31, ~~2023,~~2024, we had consolidated bank lines of credit aggregating ~~$468.1~~$362.0 million ($~~475.7~~423.1 million as of December 31, ~~2022)~~2023), the majority of which expire in January ~~2026.~~2027. (See Note 5. Short-Term and Long-Term Debt.) We had ~~$25.3~~$19.4 million outstanding in standby letters of credit and ~~$211.2~~$94.0 million outstanding draws under our lines of credit as of March 31, ~~2023~~2024 ($~~32.8~~19.4 million in standby letters of credit and ~~$31.3~~$34.1 million outstanding draws as of December 31, ~~2022)~~2023). ~~We also have other credit facility agreements in place that provide the ability to issue up to $264.0 million in standby letters of credit.~~ As of March 31, ~~2023,~~2024, we also had ~~$153.0~~$130.7 million outstanding in standby letters of credit under ~~these~~other credit facility agreements.

ALLETE Clean Energy also received approximately $160 million in proceeds from the sale of its Red Barn project in April 2023, which was primarily used to repay a portion of outstanding draws under our consolidated bank lines of credit.

In addition, as of March 31, ~~2023,~~2024, we had ~~2.8~~2.6 million original issue shares of our common stock available for issuance through Invest Direct, our direct stock purchase and dividend reinvestment plan, and 2.1 million original issue shares of common stock available for issuance through a distribution agreement with Lampert Capital Markets. (See ~~Securities.~~Securities.) The amount and timing of future sales of our securities will depend upon market conditions and our specific needs.

Securities. During the three months ended March 31, ~~2023,~~2024, we issued 0.1 million shares of common stock through Invest Direct, the Employee Stock Purchase Plan, and the Retirement Savings and Stock Ownership Plan, resulting in net proceeds of ~~$3.3~~$2.0 million (0.1 million shares were issued for the three months ended March 31, ~~2022,~~2023, resulting in net proceeds of $3.3 million).

Financial Covenants. See Note 5. Short-Term and Long-Term Debt for information regarding our financial covenants.

Pension and Other Postretirement Benefit Plans. Management considers various factors when making funding decisions, such as regulatory requirements, actuarially determined minimum contribution requirements and contributions required to avoid benefit restrictions for the defined benefit pension plans. (See Note 9. Pension and Other Postretirement Benefit Plans.)

Off-Balance Sheet Arrangements. Off-balance sheet arrangements are summarized in our ~~2022~~2023 Form 10-K, with additional disclosure in Note 6. Commitments, Guarantees and Contingencies.

Credit Ratings. Access to reasonably priced capital markets is dependent in part on credit and ratings. Our securities have been rated by S&P Global Ratings and by Moody’s. Rating agencies use both quantitative and qualitative measures in determining a company’s credit rating. These measures include business risk, liquidity risk, competitive position, capital mix, financial condition, predictability of cash flows, management strength and future direction. Some of the quantitative measures can be analyzed through a few key financial ratios, while the qualitative ones are more subjective. Our current credit ratings are listed in the following table:


Credit Ratings	S&P Global Ratings(a)	Moody’s
Issuer Credit Rating	BBB	Baa1
Commercial Paper	A-2	P-2
First Mortgage Bonds	~~(a)~~(b)	A2

(a) On May 7, 2024, S&P Global Ratings revised its outlook on ALLETE to negative from stable and affirmed all of its ratings on ALLETE. S&P Global Ratings cited the possibility for higher leverage and weaker financial measures because of the Merger as its rationale for issuing the negative outlook.

(b) Not rated by S&P Global Ratings.

The disclosure of these credit ratings is not a recommendation to buy, sell or hold our securities. Ratings are subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

Capital Requirements. For the three months ended March 31, ~~2023,~~2024, capital expenditures totaled ~~$58.4~~$51.8 million ($~~34.2~~58.4 million for the three months ended March 31, ~~2022)~~2023). The expenditures were primarily made in the Regulated Operations segment.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

3839

OTHER

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. (See Note 6. Commitments, Guarantees and Contingencies.)

Employees.

As of March 31, ~~2023,~~2024, ALLETE had ~~1,514~~1,583 employees, of which ~~1,482~~1,544 were full-time.

Minnesota Power and SWL&P have an aggregate of ~~487~~492 employees covered under collective bargaining agreements, of which most are members of International Brotherhood of Electrical Workers (IBEW) Local 31. The current labor ~~agreement~~agreements with IBEW Local 31 expires on January 31, 2024, for SWL&P. The labor agreement with IBEW Local 31 expired on April 30, 2023, for Minnesota Power. Minnesota Power and IBEW Local 31 have reached a tentative agreement that is expected to be ratified and expire on April 30, ~~2026.~~2026, for Minnesota Power and January 31, 2027, for SWL&P.

BNI Energy has ~~170~~179 employees, of which ~~126~~129 are subject to a labor agreement with IBEW Local 1593. The current labor agreement with IBEW Local 1593 expires on March 31, 2026.

NEW ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements are discussed in Note 1. Operations and Significant Accounting Policies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SECURITIES INVESTMENTS

Available-for-Sale Securities. As of March 31, ~~2023,~~2024, our available-for-sale securities portfolio consisted primarily of securities held in other postretirement plans to fund employee benefits.

COMMODITY PRICE RISK

Our regulated utility operations incur costs for power and fuel (primarily coal and related transportation) in Minnesota, and power and natural gas purchased for resale in our regulated service territory in Wisconsin. Minnesota Power’s exposure to price risk for these commodities is significantly mitigated by the current ratemaking process and regulatory framework, which allows recovery of fuel costs in excess of those included in base rates or distribution of savings in fuel costs to ratepayers. SWL&P’s exposure to price risk for natural gas is significantly mitigated by the current ratemaking process and regulatory framework, which allows the commodity cost to be passed through to customers. We seek to prudently manage our customers’ exposure to price risk by entering into contracts of various durations and terms for the purchase of power and coal and related transportation costs (Minnesota Power), and natural gas (SWL&P).

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)~~

POWER MARKETING

Minnesota Power’s power marketing activities consist of: (1) purchasing energy in the wholesale market to serve its regulated service territory when energy requirements exceed generation output; and (2) selling excess available energy and purchased power. From time to time, Minnesota Power may have excess energy that is temporarily not required by retail and municipal customers in our regulated service territory. Minnesota Power actively sells any excess energy to the wholesale market to optimize the value of its generating facilities.

We are exposed to credit risk primarily through our power marketing activities. We use credit policies to manage credit risk, which includes utilizing an established credit approval process and monitoring counterparty limits.

ALLETE, Inc. First Quarter 2024 Form 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

INTEREST RATE RISK

We are exposed to risks resulting from changes in interest rates as a result of our issuance of variable rate debt. We manage our interest rate risk by varying the issuance and maturity dates of our fixed rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. We may also enter into derivative financial instruments, such as interest rate swaps, to mitigate interest rate exposure. Interest rates on variable rate long-term debt are reset on a periodic basis reflecting prevailing market conditions. Based on the variable rate debt outstanding as of March 31, ~~2023,~~2024, an increase of 100 basis points in interest rates would impact the amount of pre-tax interest expense by ~~$2.3~~$1.2 million. This amount was determined by considering the impact of a hypothetical 100 basis point increase to the average variable interest rate on the variable rate debt outstanding as of March 31, ~~2023.~~2024.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of March 31, ~~2023,~~2024, evaluations were performed, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, on the effectiveness of the design and operation of ALLETE’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act)). Based upon those evaluations, our principal executive officer and principal financial officer have concluded that such disclosure controls and procedures are effective to provide assurance that information required to be disclosed in ALLETE’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding material legal and regulatory proceedings, see Note 4. Regulatory Matters and Note 9. Commitments, Guarantees and Contingencies to the Consolidated Financial Statements in our ~~2022~~2023 Form 10-K and Note 2. Regulatory Matters and Note 6. Commitments, Guarantees and Contingencies herein. Such information is incorporated herein by reference.

~~ALLETE, Inc. First Quarter 2023 Form 10-Q~~

ITEM 1A. RISK FACTORS

~~There have been no material changes from~~Our 2023 Form 10-K includes a detailed discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in Part I, Item 1A. Risk Factors of our ~~2022~~2023 Form 10-K.

Risks Relating to the Merger

On May 5, 2024, ALLETE entered into the Merger Agreement. (See Note 11. Subsequent Event – Agreement and Plan of Merger.)

ALLETE, Inc. First Quarter 2024 Form 10-Q

ITEM 1A. RISK FACTORS (Continued)

There is no assurance when or if the Merger will be completed.

Consummation of the Merger is subject to various closing conditions, including: (1) approval of the shareholders of ALLETE; (2) receipt of all required regulatory approvals without the imposition of a Burdensome Condition; (3) absence of any law or order prohibiting the consummation of the Merger; (4) subject to materiality qualifiers, the accuracy of each party’s representations and warranties; (5) each party’s compliance in all material respects with its obligations and covenants under the Merger Agreement; and (6) the absence of a material adverse effect with respect to the Company. The Merger Agreement also contains certain termination rights for both ALLETE and Alloy Parent, including if the Merger is not consummated by August 5, 2025 (subject to extension for an additional two successive three-month periods if all of the conditions to closing, other than the conditions related to obtaining regulatory approvals, have been satisfied). There can be no assurance that the conditions to completion of the Merger will be satisfied or waived or that other events will not intervene to delay or result in the failure to close the proposed Merger. The Merger Agreement also provides for certain termination rights for each of ALLETE and Alloy Parent. If the Merger Agreement is terminated, there may be various material, adverse consequences to the Company, including that the Company could be required to pay Alloy Parent a termination fee of $116 million under certain specified circumstances.

The announcement and pendency of the Merger, during which the Company is subject to certain operating restrictions, could have an adverse effect on the Company’s businesses, results of operations, financial condition or cash flows.

The announcement and pendency of the Merger could disrupt the Company’s businesses, and uncertainty about the effect of the Merger may have an adverse effect on the Company. These uncertainties could affect existing employee relationships, disrupt the business of the Company, and could cause suppliers, vendors, partners, lenders and others that deal with the Company to: (1) defer entering into contracts with the Company; or (2) making other decisions concerning the Company or seek to change or cancel existing business relationships with the Company.

The Merger Agreement also requires the Company to obtain Parent’s consent prior to taking certain specified actions while the Merger is pending. These restrictions may prevent the Company from pursuing otherwise attractive business opportunities or making other changes to its business prior to the completion of the Merger.

The Company will incur substantial transaction fees and costs in connection with the Merger.

The Company has incurred transaction costs of $1.2 million after-tax through March 31, 2024, and expects to incur additional material expenses in connection with the Merger and completion of the transactions contemplated by the Merger Agreement. Further, even if the proposed Merger is not completed, the Company will need to pay certain costs relating to the proposed Merger incurred prior to the date the proposed Merger was abandoned, such as legal, accounting, financial advisory, filing and printing fees.

We may be the target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs to us and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Merger, then that injunction may delay or prevent the Merger from being completed.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ALLETE, Inc. First Quarter 2024 Form 10-Q

ITEM 4. MINE SAFETY DISCLOSURES

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires issuers to include in periodic reports filed with the SEC certain information relating to citations or orders for violations of standards under the Federal Mine Safety and Health Act of 1977 (Mine Safety Act). Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and this Item are included in Exhibit 95 to this Form 10-Q.

ITEM 5. OTHER INFORMATION

~~None.~~

Trading Plans. During the quarter ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

ITEM 6. EXHIBITS

Exhibit

Description

~~Exhibit~~

~~Number~~2

Agreement and Plan of Merger by and among ALLETE, Inc., Alloy Parent LLC and Alloy Merger Sub LLC, dated as of May 5, 2024 (filed as Exhibit 2.1 to the May 6, 2024, Form 8-K, File No. 1-3548).*

Forty-Fifth Supplemental Indenture, dated as of April 1, 2024, between ALLETE, Inc. and The Bank of New York Mellon, as corporate trustee, and Sherma Thomas, as co-trustee.

31(a)

Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31(b)

Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Section 1350 Certification of Periodic Report by the Chief Executive Officer and the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Mine Safety.

ALLETE News Release dated May ~~3, 2023,~~9, 2024, announcing ~~2023~~2024 first quarter earnings. (This exhibit has been furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.)

101.INS

XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Schema

101.CAL

XBRL Calculation

101.DEF

XBRL Definition

101.LAB

XBRL Label

101.PRE

XBRL Presentation

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished.

ALLETE agrees to furnish to the SEC upon request any instrument with respect to long-term debt that ALLETE has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

4143

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						ALLETE, INC.




May ~~3, 2023~~9, 2024						/s/ Steven W. Morris
						Steven W. Morris
						Senior Vice President and Chief Financial Officer
						(Principal Financial Officer and Principal Accounting Officer)

ALLETE, Inc. First Quarter ~~2023~~2024 Form 10-Q

4244