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Text: This past year was a time of great challenges, as well as incredible accomplishments at ALLETE.
ALLETE not only weathered the global pandemic through a tremendous amount of hard work by our team.
We also delivered solid financial and operational results, which Steve Morris will describe later in the call.
And we did so while keeping the safety and health of our coworkers, our families, our customers, and our communities, our highest priority.
I'm so grateful to our employees across our family of businesses in many different states, all of whom demonstrated their incredible resilience and steadfast commitment to our customers, our communities, and each other during this most challenging time.
We certainly saw this past year that we truly are stronger together.
As I shared with you last quarter, we know that especially during trying times like these, our commitment to transparency is even more important to all of our stakeholders.
Last quarter, we reiterated our commitment to ALLETE's long-term five-year objective of achieving consolidated average annual earnings-per-share growth of 5% to 7%.
While on that conference call, we were transparent regarding the challenges we were seeing with our October 2020 projections falling slightly below that range.
As Bob will discuss in more detail later in the call, we're very pleased to report that we are now projecting growth within our average annual 5% to 7% earnings per share objective range.
So as we move on from 2020, ALLETE is well-positioned for the future.
We intend to build on our strong foundation of integrity, our extensive track record of success, and our long-standing reputation as a company trusted by our many stakeholders.
Through our sustainability and action strategy, we will continue to deliver value to our customers, our communities, and our investors while providing opportunities for our employees as together, we build a clean energy future.
A significant step forward in this commitment is Minnesota Power's recently announced vision to deliver 100% carbon-free energy to customers by 2050.
We're proud that Minnesota Power is already the first Minnesota utility to provide 50% renewable energy.
But as we said when we reach this exciting milestone in December, we have more work to do.
We're taking concrete actions to address climate change while working to ensure the reliable and affordable energy that our customers and our communities expect.
The IRP was developed through a best-in-class process with strong engagement over the past year from a broad range of stakeholders, from customers to consumer and environmental advocates, to communities, to regulators, to employees, and many others.
In the IRP, we identified plans to increase Minnesota Power's renewable energy supply to 70% by 2030 and to achieve a coal-free energy supply and 80% less carbon by 2035.
These steps include adding an estimated 400 megawatts of additional wind and solar energy; retiring Boswell Energy Center Unit 3 by 2030; transforming Minnesota Power's Boswell Unit 4 to be coal-free by 2035; and investing in a modern, flexible transmission and distribution grid.
These are significant and meaningful changes to Minnesota Power's entire system, and it's critically important to us that this transition truly be sustainable.
Meaning it goes above and beyond addressing climate change to care for our customers, our communities, and our employees throughout this transition.
This plan and our 2050 vision allow time for advances in technology and for our communities and our employees to transition to a secure and carbon-free energy future.
Also making significant progress in ALLETE's sustainability and action strategy is our second largest company in the ALLETE family.
With current operations in seven States, ALLETE Clean Energy is well-positioned to drive additional clean energy sector growth, as Al Rudeck will discuss in a moment.
As highlighted in our third-quarter conference call, ALLETE Clean Energy's growth has exceeded our original expectations from when we founded the company just 10 years ago.
Building on ALLETE Clean Energy's reputation and its strong track record of success, we believe it is the optimal time to expand its focus beyond wind to additional opportunities within the clean energy space.
Obviously, for competitive reasons, we can't share too many details right now, but we're confident that our strategy to expand and diversify the business through new geographic regions, customers, and clean energy technologies will extend and grow our earnings as part of ALLETE's value proposition for investors.
The combination of our regulated businesses, significant initiatives, and those already completed and under way at ALLETE Clean Energy will further advance ALLETE as a leader in sustainability.
We've been an early mover in this transition, and we're well-positioned for the clean energy future.
Today, ALLETE reported 2020 earnings of $3.35 per share, a net income of $174.2 million.
Earnings for 2019 were $3.59 per share on net income of $185.6 million.
Results for the year ended 2020 were negatively impacted by lower sales due to the ongoing COVID-19 pandemic and related disruptions.
Net income in 2020 also included reserves for interim rates of $8.3 million or $0.16 per share due to the resolution of Minnesota Power 2020 General Rate Case.
A few details from our business segments.
ALLETE's regulated operations segment, which includes Minnesota Power, Superior Water, Light and Power, and the company's investment in the American transmission company, recorded net income of $136.3 million, compared to $154.4 million in 2019.
Earnings reflected lower net income at Minnesota Power primarily due to lower megawatt-hour sales to retail customers due to the COVID-19 pandemic; lower revenue resulting from the expiration of certain municipal and power sales contracts; higher depreciation expense; and lower fuel adjustment clause recoveries with the adoption of a new fuel adjustment clause methodology in 2020.
Overall, we estimate that the COVID-19 pandemic negatively affected revenues by approximately $0.25 per share for the year ended 2020 from our expectations.
These decreases were partially offset by eight months of higher retail rates resulting from Minnesota Power's 2020 rate case settlement.
ALLETE Clean Energy recorded 2020 net income of $29.9 million, compared to $12.4 million in 2019.
Net income in 2020 reflected additional production tax credits, increased earnings from Glen Ullin, South Peak, and Diamond Spring wind energy facilities, and higher megawatt-hour sales due to higher wind resources as compared to 2019.
Our corporate and other businesses, which includes BNI Energy, our investment in Nobles 2, and ALLETE properties, recorded net income of $8 million in 2020, compared to net income of $19.9 million in 2019.
Net income in 2020 included earnings from the company's investment in the Nobles 2 wind energy facility, which commenced operations in December of 2020.
Net income in 2019 included the gain on the sale of U.S. Water Services of $13.2 million.
I'll now turn to our 2021 earnings guidance.
Today, we initiated 2021 earnings guidance of $3 to $3.30 per share on net income of $160 million to $175 million.
This guidance range is comprised of our regulated operations within a range of $2.30 to $2.50 per share and ALLETE Clean Energy and corporate and other businesses within a range of $0.70 to $0.80 per share.
A few comments on our regulated operations outlook for 2021.
Our 2021 guidance reflects a full year of the Minnesota Power retail rate increase from last year's rate case settlement compared to eight months in 2020.
Minnesota Power's 2021 Industrial sales are expected to range between 6 million to 6.5 million megawatt hours, which reflects anticipated production from our taconite customers of approximately 35 million tons.
Our estimated industrial sales reflect a partial recovery of the domestic steel industry, which has rebounded from the 2020 impact of various industry shutdowns and idling due to this ongoing COVID-19 pandemic.
However, steel production rates remain nearly 10% below pre-pandemic level.
We are pleased to begin the year with full production nominations through April for all of our large power industrial customers with the exception of Verso Duluth paper mill, which we expect to remain idled all year.
Our 2021 guidance reflects continued impacts from the ongoing COVID-19 pandemic affecting commercial, other industrial, and municipal sales.
Minnesota Power will also realize lower revenue due to a power sales agreement that expired in April of 2020.
We expect slightly higher operating and maintenance expense of approximately 3% as compared to 2020 and higher depreciation and property tax expenses due to additional plant in service.
We expect slightly lower net income at Superior Water, Light, and Power due to additional operating and maintenance expense, as well as slightly lower earnings from our investment in the American Transmission Company, as 2020 earnings included a favorable MISO ROE outcome and related true-ups.
Our guidance for our regulated operations assumes we will achieve reasonable outcomes in regulatory proceedings.
A few highlights from our 2021 guidance regarding ALLETE Clean Energy.
ALLETE Clean Energy expects approximately 3.2 million megawatt hours in total wind generation in 2021, with the expectation of normal wind resources compared to 2.1 million megawatt hours in 2020.
Our guidance includes South Peak and Diamond Spring in service for a full year.
These facilities were in service in April and December of 2020, respectively.
We anticipate the Caddo wind project to be completed by the end of 2021, with no impact to earnings this year.
Our 2021 guidance does not include the impacts, if any, of possible acquisitions of renewable energy facilities, additional construction and sale projects, or additional requalification projects.
At a high level, we view 2021 as a transition year with lingering economic impacts from the ongoing COVID-19 pandemic, having the most notable effect on our regulated operations.
Looking forward to 2022, ALLETE also provided its preliminary 2022 estimated earnings guidance range of $3.70 to $4 per share, which ALLETE anticipates formally initiating in early 2022.
The we expect Minnesota Power will follow a general rate case in November of 2021 based on a 2022 test year, with interim rates expected in the beginning of 2022.
2020 was, without question, a very challenging year, rooted in the impacts of the global pandemic.
Our successful track record and ability in managing severe economic downturns was directly evident again by the strong results that Steve just shared with you, and I'm very proud of our team.
Although we are all not out of the woods yet and will remain diligent in 2021, we are very optimistic about the future and believe ALLETE is very well-positioned to execute and deliver a solid value proposition for our customers and investors alike over the long run.
I am particularly proud of our employees who work hard to ensure our essential services were provided in a reliable and safe manner across our eight-state footprint, something we achieved in space.
At the same time, we did not lose focus or momentum, in advancing our clean energy growth strategy and associated investments.
Indeed, 2020 represented one of the largest capital programs in our history with more than $650 million being invested, including the completion of approximately 500 megawatts of new wind farms in the Great Northern Transmission Line.
Overall, our execution and discipline was outstanding, especially when considering the challenges created by the pandemic.
We entered 2021 with a strong balance sheet, conservative capital structure at approximately 39% total debt and now generate in excess of $300 million in total operating cash flow.
This positions us well as we continue to advance our sustainable clean energy strategy.
A notable achievement on the financing side was our ability to secure approximately $400 million in tax equity financing under very competitive terms.
These key financings were related to the South Peak, Nobles 2, and Diamond Spring wind projects, which came online at the end of the year.
Now, I would like to turn to 2021 and beyond.
ALLETE is highly focused on providing reliable and competitive services to our customers, and we work hard every day to ensure our operations are efficient and safe.
At the same time, we are also keenly aware of the need to provide an attractive value proposition for our investors to ensure the company has continued access to low-cost capital to fund its operations.
Toward that end, several years ago, we established an average annual long-term earnings per share growth objective of 5% to 7%, which, when combined with a competitive dividend, would provide an attractive total return proposition to investors.
I want to be clear upfront that we remain committed to that objective.
Consistent with last year, this growth target is comprised of 4% to 5% from the regulated utility businesses and at least 15% for the nonregulated businesses.
In third quarter of last year, however, I caution that meeting our growth objectives may be challenged in the short term, given the significant impact COVID-19 was having on a regulated utility business, and competitive pressures we were beginning to see in the wind segment of our renewable business.
In full transparency, I indicated that the five-year average annual earnings per share growth outlook for our consolidated operations, using 2019 as a base year, was currently below the 5% to 7% range at approximately 4%, with the regulated utility growth closer to approximately 3% versus the 4% to 5% targeted rate.
At positive note, I also indicated at that time that our nonregulated business segment, which is comprised primarily of ALLETE Clean Energy, was expected to continue to significantly exceed our 15% growth objective.
And that, even despite some potential challenges in the wind segment longer term, we were confident that this highly successful platform would be able to leverage its reputation, scale, and strong capabilities into new, complementary, and higher returning segments of the clean energy market.
And we committed to you, we will be providing investors an update in early 2021 and upon conclusion of our strategy development work.
With this anchoring in mind, I will now provide an update on our financial outlook for each of the major business segments.
Before I dive into the details, however, I'm pleased to report that our consolidated company 5-year outlook using 2019 as a base year, is projecting growth, which is now back within the average annual 5% to 7% targeted range.
Though our regulated operations are still projected to grow approximately 3% on average, our ALLETE Clean and corporate and other businesses are now projecting average annual growth in the 30% to 40% range, well above the 15% target originally established.
The actual growth of our regulated operations will be impacted by three main drivers.
The first of these are the Minnesota Power's energy forward initiatives detailed by Bethany earlier.
Obviously, there are sensitive and confidential details to these plans yet to finalize, but we anticipate sharing what we can regarding size, scope, and timing with these projects and keeping you paced on our progress as the IRP moves forward.
Make no mistake, however, that the transformation of our generation fleet into cleaner forms of energy is truly historic in size and scope for our company.
And will require significant investment, not only on the generation side but in supporting transmission and distribution over the next decade or so.
Secondly, we will seek out other regulated opportunities, particularly in the transmission area as the MISO region continues to be challenged with constraints on the grid as renewable generation continues to expand.
Our planned expansion of our 550-megawatt DC transmission line is a prime example of that type of investment.
Obviously, the ultimate timing of all such investments described will have a material impact on our growth in coming years, and we will continue to navigate this clean energy transition as we have in the past with customer rates and overall competitiveness in mind.
A final major driver of our regulated utility performance is dependent on our ability to achieve acceptable rates of return.
Despite our best efforts to manage our costs and improve efficiencies, COVID-19 has had a material impact on our business and our ability to earn our authorized 9.25% rate of return at Minnesota Power.
With COVID impact and the health of our customers in mind, we decided to act quickly and settle the Minnesota Power 2020 rate case.
This provided an important relief in the form of an interim rate refund of approximately $12 million in 2020.
Given our expectation that COVID impacts will continue to be material to our customers in 2021, we have also decided to delay a much-needed rate filing from March of 2021 to November of 2021.
Though we continue to believe those actions were merited and will be key to helping our customers regain a solid footing, it has had a very material impact on our 2021 earnings outlook with returns well below authorized levels.
As a result, we will be working closely with our state regulators on a fair and reasonable outcome in our next rate filing, which will enable the company to achieve earnings outcomes more in line with authorized return levels.
On our nonregulated businesses, which is predominantly made up of ALLETE Clean Energy, we have made significant progress over the past few quarters, assessing various strategic options for expanding the business and diversifying its clean energy product offerings.
Indeed, we are very excited about the new chapter ahead as we expand into utility-scale solar, storage, optimize our current wind portfolio, and pursue other potential service offerings.
This strategy work, which will be further described by Al Rudeck in a few moments, was supported by outside advisors and was ultimately approved by the ALLETE board in early February.
The strategy is highly actionable, complementary to our existing offerings, and leverages unique capabilities of the business.
Moreover, we are confident it will result in even higher annual rates of growth beyond the 30% projection inherent in our wind-only strategy.
Hence, we are expanding our average annual earnings per share growth outlook to as high as 40% growth over the next five years.
The nature of investments contemplated by the new strategy will provide for attractive rates of return and by virtue of the recurring or contracted nature of the revenues, plus strong cash flows, will support our strong credit ratings.
Our execution of the new strategy is in full swing already as evidenced by yesterday's announcement of an agreement with a subsidiary of Xcel Energy to sell 120-megawatt wind energy facility for approximately $210 million.
This transaction will involve us repowering the 100-megawatt Chanarambie and Viking wind projects, as well as developing an additional 20-megawatt fleet.
The project is expected to be completed in late 2022, subject to regulatory approval by the MPUC and receipt of permits.
Cash received from the transaction will be reallocated to opportunities presented by the new strategy, thereby reducing the potential for future equity needs, another classic example of ALLETE's disciplined approach to capital allocation and action.
In closing, we were pleased in our ability to increase our annual dividend to $2.52 per share from $2.47 per share, even despite the challenges we see in 2021.
All based on strong confidence in our 2022 and beyond outlook.
We are very bullish about ALLETE's strategic positioning and overall growth prospects and are particularly proud of how this growth will continue to advance our sustainability objectives across our company.
I'll now hand it off to Al Rudeck for his update and outlook for ALLETE Clean Energy.
I would refer you to Slide 8, which illustrates how we at ALLETE Clean Energy are driving growth by leveraging our strong platform and capabilities in a growing clean energy market to meet customer demands for more sustainable energy products and services.
I'm excited to share our view of the market, and specifically why we, at ALLETE, believe the company is so well-positioned for future growth and to diversify its position as a leader in the clean energy landscape.
We are now entering the next stage of America's energy transformation as our country continues to be fertile ground for additional clean energy innovation, opportunity, and investment.
ALLETE Clean Energy sizes of strength because we are nimble and able to adapt to the markets and tailor our solutions to give customers what they want.
As importantly, a small percentage of the market share delivers meaningful growth for ALLETE.
The ability to establish and maintain relationships as a hallmark of hall ALLETE Clean Energy succeeds in the market, as seen by our repeat transactions and consistent positive feedback from our community host and landowner partners.
Through these partnerships and our combined capabilities of project development, construction, long-term operation, and asset optimization are differentiators enable us to secure high-quality investments.
As introduced in ALLETE's third-quarter 2020 conference call, we have been crafting a strategy to deliver more comprehensive energy solutions for our customers.
I will refer you to Slide 9, which outlines the core elements of our growth, vision, and strategy.
ALLETE Clean Energy's new strategy will expand our capabilities, our technologies, and our market investments likely to move to solar, storage solutions, and related energy infrastructure investments and services.
We believe that our customers and industry relationships, diverse portfolio of assets located in some of the best wind resources in America, and a creative and adaptable team will provide a strong foundation for growth.
You'll see more from us in the coming quarters as these plans unfold.
ALLETE Clean Energy will continue to optimize its existing wind portfolio and seek development for our remaining safe harbor qualified equipment and explore other renewable energy opportunities to expand our service offerings to provide more solutions that customers demand and frankly deserve.
The northern wind repowering expansion project with Xcel Energy announced yesterday is a prime example of our strategy in action, delivering sustainability on many levels, going beyond the environment to include supporting communities and the people where we do business.
This project meets all of our sustainability goals while also supporting ALLETE's future investments in new clean energy projects.
Businesses and communities with ambitious climate action commitments are raising demand for renewable energy solutions, and leak energy strategy is designed to meet those growing needs, while also continuing to service our traditional utility and cooperative and even federal power customers.
The 300-megawatt Diamond Spring project became operational in the fourth quarter of last year and is already serving three new Fortune 500 customers: Walmart, Starbucks, and Smithfield Fluids.
And represents its largest single renewables project investing in leads history, successfully completed during the global pandemic.
Diamond Spring is projected to generate more than 1 million-megawatt hours of energy annually and provide great diversity to our northern tier projects that is currently operating and expands coast to coast.
We found Oklahoma to be a friendly business environment and welcoming to new investments.
It represents a key part of our strategy to diversify ALLETE into the Southwest Power Pool market and expand operations into the wind-rich Southern Great Plains region.
Similarly, as Steve mentioned, we're pleased with our ongoing progress of the 300-megawatt Caddo wind project located in Caddo County, Oklahoma.
Last week, we announced that Hormel and Oshkosh as our newest customers at Caddo, this project is on track to be online by the end of 2021.
We're excited and see renewable energy growth opportunities across multiple regions of the country and can be selective and strategic in when and where we invest.
Today, ALLETE Clean Energy's portfolio operates in five North American electric markets, and we're looking to either build or add new PTC qualifying projects or repower projects and/or require existing operating assets while expanding products and services in solar, storage, and related clean energy services.
We are confident ALLETE Clean Energy will become a comprehensive national clean energy solutions provider, as our country is clearly on an expedited path to advance cleaner and more efficient energy forms.
I appreciate being here with you today and look forward to sharing more details on our strategy and on our success in the future.
And now, I'll hand it back to Bethany.
We're pleased with all that our team has accomplished in 2020 and look forward to another year of strong execution of our sustainability and action strategy.
As Al and Bob stated, we're especially excited to share more with you as we execute ALLETE Clean Energy's growth strategy beyond wind.
We're confident that ALLETE Clean Energy will play an increasingly important role in ALLETE's success well into the future.
Sustainability in all of its dimensions has long been a foundation of ALLETE's strategy.
We recognize that if not addressed, climate change poses physical and transitional risks.
We've taken and will continue to take concrete actions not only to mitigate these risks but to build a clean energy future through just and meaningful change.
As Society's energy needs and expectations evolve ALLETE's family of businesses is well-positioned for the future.
Consistent with our commitment to transparency, in the coming months, we plan to release a corporate sustainability report that is aligned with the Sustainability Accounting Standards Board, or SASB, and Task Force on Climate-related Financial Disclosures, or TCFD, reporting requirements.
This report will also contain additional information regarding our commitment to diversity, equity, and inclusion in our workforce, our supply chain, and our communities.
It will mark the first of many reports over the years as we work to effectuate what is personally important to us at ALLETE and to meet and exceed expectations for sustainability disclosures and increased transparency.
As I've shared with you in previous quarters, we are committed to providing value to our customers and our investors and as part of that commitment, we have a responsibility to do what we can to make the regions where we operate, even better places to live and to work for everyone.
For all of us at ALLETE that is sustainability in action.

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compname reports 2020 earnings of $3.35 per share; initiates 2021 earnings guidance; anticipates further improvement in 2022.
allete inc - expects continued impacts of covid-19 pandemic in 2021.

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