10-K: ALLETE Reports 2023 Earnings of $4.30 Per Share, Unveils $4.3 Billion Clean Energy Investment Plan

ALLETE, Inc. reported 2023 earnings of $4.30 per share, driven by a clean energy transition and a favorable arbitration ruling, and announced a $4.3 billion capital investment plan over the next five years.

Summary

• ALLETE, Inc. reported 2023 earnings of $4.30 per diluted share on net income of $247.1 million and operating revenue of $1.9 billion.
• 2022 results were $3.38 per diluted share, net income of $189.3 million, and operating revenue of $1.6 billion.
• The company announced a $4.3 billion capital expenditure plan for 2024-2028, focused on renewable energy and transmission projects.
• ALLETE aims for 5-7% annual earnings per share growth starting in 2025.
• Minnesota Power, ALLETE's largest business, achieved its goal of 50% renewable energy supply in 2023 and aims for 100% carbon-free energy by 2050.
• ALLETE Clean Energy owns and operates over 1,600 MW of wind generation.
• New Energy, acquired in 2022, develops community and commercial renewable energy projects.

Sentiment

Score: 7

Explanation: The overall sentiment is positive, reflecting strong earnings, strategic acquisitions, and a significant capital investment plan. While challenges from weather and outages are acknowledged, management expresses confidence in the long-term growth outlook.

Positives

• 2023 earnings exceeded 2022 earnings.
• A favorable arbitration ruling resulted in a significant after-tax gain.
• ALLETE Clean Energy successfully sold its Red Barn wind project.
• New Energy performed above expectations and has a strong project pipeline.
• Minnesota Power achieved its 50% renewable energy target.
• A constructive regulatory environment supports ALLETE's growth objectives.

Negatives

• Unusually low wind resources and warmer weather negatively impacted earnings.
• A network outage near ALLETE Clean Energy's Caddo facility reduced output.
• ALLETE Clean Energy experienced lower wind resources and availability at its wind energy facilities in 2023.

Risks

• Economic downturn or operational changes at industrial customers could impact ALLETE's revenue.
• Changes in laws and regulations, especially regarding environmental matters, could increase costs and restrict operations.
• Climate change poses physical and financial risks to ALLETE's infrastructure and operations.
• The unpredictable nature of wind and solar resources can affect renewable energy generation.
• Counterparty risks in power purchase agreements and other contracts could disrupt operations or revenue streams.
• Competition in the renewable energy market could pressure returns.
• Real estate market conditions could affect the value of ALLETE Properties' assets.

Future Outlook

ALLETE projects achieving its 5-7% annual earnings per share growth objective starting in 2025 through 2028 and beyond, supported by a robust pipeline of clean energy and transmission opportunities, a constructive regulatory environment, and skilled employees. The company expects net income from Regulated Operations to be approximately 75% of total consolidated net income in 2024.

Management Comments

• 'We are very pleased with our solid financial results in 2023 and our team\'s execution of strategic initiatives that will drive strong earnings growth and investment in clean energy for years to come,' said ALLETE Chair, President, and Chief Executive Officer Bethany Owen.
• 'ALLETE\'s Sustainability in Action strategy is gaining momentum, with important regulatory decisions in 2024, that will further support Minnesota Power\'s EnergyForward clean energy transformation.'
• 'Our updated five-year capital expenditure plan of $4.3 billion reflects the tremendous growth opportunities at Minnesota Power,' said Owen.
• 'Our consolidated 2023 earnings were in line with our revised and higher earnings guidance for the year, including negative weather impacts of approximately 5 cents per share in the fourth quarter,' said ALLETE Senior Vice President and Chief Financial Officer Steve Morris.

Industry Context

ALLETE's focus on clean energy aligns with broader industry trends and societal expectations for sustainable energy solutions. The company's investments in wind, solar, and transmission infrastructure position it to benefit from government incentives and policies supporting renewable energy. The increasing demand for renewable energy and the need for a modernized grid create growth opportunities for ALLETE.

Comparison to Industry Standards

• ALLETE's 2023 total shareholder return was compared to the S&P 500 Index and the Philadelphia Utility Index, showing a cumulative return of $98 compared to $207 for the S&P 500 and $141 for the Philadelphia Utility Index since 2018.
• Minnesota Power's industrial customers, primarily in taconite mining, paper, and pipelines, are compared to national industry trends and production levels. Six taconite facilities served by Minnesota Power made up approximately 70% of 2022 iron ore pellet production in the U.S.
• The American Iron and Steel Institute reported that U.S. raw steel production operated at approximately 75% of capacity in 2023, influencing taconite demand.
• The World Steel Association projected a 2% increase in U.S. steel consumption in 2024.

Legal Proceedings

• ALLETE is involved in various legal proceedings, including regulatory matters, environmental compliance, and an appeal to the Minnesota Court of Appeals regarding ratemaking decisions.
• An ALLETE Clean Energy subsidiary won an arbitration case resulting in a $68.3 million award.

Related Party Transactions

• Minnesota Power has a power purchase agreement with Nobles 2, a related party, for the output of a 250 MW wind energy facility.
• BNI Energy sells lignite coal to Square Butte, a related party, under a cost-plus fixed fee contract.

Stakeholder Impact

• Shareholders are expected to benefit from ALLETE's projected earnings growth and dividend policy.
• Customers will be impacted by rate adjustments and the transition to cleaner energy sources.
• Employees will be affected by workforce planning and talent development initiatives.
• Communities will benefit from ALLETE's investments in renewable energy and economic development projects.

Next Steps

• Minnesota Power will continue its clean energy transition, including ceasing coal operations at Boswell Units 3 and 4 by 2030 and 2035, respectively.
• The company will invest $4.3 billion in capital expenditures from 2024-2028, focusing on renewable energy and transmission projects.
• ALLETE Clean Energy will optimize its existing portfolio and pursue new renewable energy opportunities.
• New Energy will continue developing community and commercial renewable energy projects.
• Minnesota Power expects to file its next Integrated Resource Plan by March 1, 2025.
• SWL&P expects to file its next general rate case with the PSCW in the first quarter of 2024.

Key Dates

Keywords

renewable energy, wind energy, solar energy, utility, earnings, investment, transmission, regulation, Minnesota Power, ALLETE Clean Energy, New Energy, coal, environmental compliance, capital expenditures