(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, 2022
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
(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 classTrading symbolName of each exchange on which registered
Common Stock, without par valueALENew 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,
53,308,809 shares outstanding
as of March 31, 2022

ALLETE, Inc. First Quarter 2022 Form 10-Q


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 AcronymTerm
AFUDCAllowance for Funds Used During Construction – the cost of both debt and equity funds used to finance regulated utility plant additions during construction periods
ALLETE Clean EnergyALLETE Clean Energy, Inc. and its subsidiaries
ALLETE PropertiesALLETE Properties, LLC and its subsidiaries
ALLETE South WindALLETE South Wind, LLC
ALLETE Transmission HoldingsALLETE Transmission Holdings, Inc.
ArcelorMittalArcelorMittal S.A.
ATCAmerican Transmission Company LLC
BasinBasin Electric Power Cooperative, a North Dakota cooperative corporation
BisonBison Wind Energy Center
BNI EnergyBNI Energy, Inc. and its subsidiary
BoswellBoswell Energy Center
Camp RipleyCamp Ripley Solar Array
CliffsCleveland-Cliffs Inc.
CompanyALLETE, Inc. and its subsidiaries
COVID-192019 novel coronavirus
CSAPRCross-State Air Pollution Rule
DCDirect Current
EPAUnited States Environmental Protection Agency
ESOPEmployee Stock Ownership Plan
FERCFederal Energy Regulatory Commission
Form 10-KALLETE Annual Report on Form 10-K
Form 10-QALLETE Quarterly Report on Form 10-Q
GAAPGenerally Accepted Accounting Principles in the United States of America
GHGGreenhouse Gases
GNTLGreat Northern Transmission Line
Hibbing TaconiteHibbing Taconite Co.
Husky EnergyHusky Energy Inc.
Invest DirectALLETE’s Direct Stock Purchase and Dividend Reinvestment Plan
IRPIntegrated Resource Plan
Item ___Item ___ of this Form 10-Q
kW / kWh
Kilowatt(s) / Kilowatt-hour(s)
LaskinLaskin Energy Center
Lampert Capital MarketsLampert Capital Markets, Inc.
Manitoba HydroManitoba Hydro-Electric Board
Minnesota PowerAn operating division of ALLETE, Inc.
Minnkota PowerMinnkota Power Cooperative, Inc.
MISOMidcontinent Independent System Operator, Inc.
MMTPManitoba-Minnesota Transmission Project
Moody’sMoody’s Investors Service, Inc.
MPCAMinnesota Pollution Control Agency
ALLETE, Inc. First Quarter 2022 Form 10-Q

Abbreviation or AcronymTerm
MPUCMinnesota Public Utilities Commission
MW / MWhMegawatt(s) / Megawatt-hour(s)
NAAQSNational Ambient Air Quality Standards
NDPSCNorth Dakota Public Service Commission
New EnergyNew Energy Equity LLC
Nobles 2Nobles 2 Power Partners, LLC
NOLNet Operating Loss
Nitrogen Oxides
Northshore MiningNorthshore Mining Company, a wholly-owned subsidiary of Cleveland-Cliffs Inc.
Note ___Note ___ to the Consolidated Financial Statements in this Form 10-Q
NPDESNational Pollutant Discharge Elimination System
NTECNemadji Trail Energy Center
Oliver Wind IOliver Wind I Energy Center
Oliver Wind IIOliver Wind II Energy Center
PPA / PSAPower Purchase Agreement / Power Sales Agreement
PPACAPatient Protection and Affordable Care Act of 2010
PSCWPublic Service Commission of Wisconsin
SECSecurities and Exchange Commission
Silver Bay PowerSilver Bay Power Company, a wholly-owned subsidiary of Cleveland-Cliffs Inc.
Sulfur Dioxide
Square ButteSquare Butte Electric Cooperative, a North Dakota cooperative corporation
South Shore EnergySouth Shore Energy, LLC
ST PaperST Paper LLC
SWL&PSuperior Water, Light and Power Company
Taconite HarborTaconite Harbor Energy Center
U.S.United States of America
USS CorporationUnited States Steel Corporation
WTGWind Turbine Generator

ALLETE, Inc. First Quarter 2022 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;
changes in tax rates or policies or in rates of inflation;
the outcome of legal and administrative proceedings (whether civil or criminal) and settlements;
weather conditions, natural disasters and pandemic diseases, including the ongoing COVID-19 pandemic;
our ability to access capital markets, bank financing and other financing sources;
changes in interest rates and the performance of the financial markets;
project delays or changes in project costs;
changes in operating expenses and capital expenditures and our ability to raise revenues from our customers;
the impacts of commodity prices on ALLETE and our customers;
our ability to attract and retain qualified, skilled and experienced personnel;
effects of emerging technology;
war, acts of terrorism and cybersecurity attacks;
our ability to manage expansion and integrate acquisitions;
population growth rates and demographic patterns;
wholesale power market conditions;
federal and state regulatory and legislative actions that impact regulated utility economics, including our allowed rates of return, capital structure, ability to secure financing, industry and rate structure, acquisition and disposal of assets and facilities, operation and construction of plant facilities and utility infrastructure, recovery of purchased power, capital investments and other expenses, including present or prospective environmental matters;
effects of competition, including competition for retail and wholesale customers;
effects of restructuring initiatives in the electric industry;
the impacts on our businesses of climate change and future regulation to restrict the emissions of GHG;
effects of increased deployment of distributed low-carbon electricity generation resources;
the impacts of laws and regulations related to renewable and distributed generation;
pricing, availability and transportation of fuel and other commodities and the ability to recover the costs of such commodities;
our current and potential industrial and municipal customers’ ability to execute announced expansion plans;
real estate market conditions where our legacy Florida real estate investment is located may deteriorate; and
the success of efforts to realize value from, invest in, and develop new opportunities.

Additional disclosures regarding factors that could cause our results or performance to differ from those anticipated by this report are discussed in Part I, Item 1A. Risk Factors of our 2021 Form 10-K. 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 2022 Form 10-Q



March 31,
December 31,
Current Assets  
Cash and Cash Equivalents$60.1 $45.1 
Accounts Receivable (Less Allowance of $1.9 and $1.8)118.4 123.7 
Inventories – Net196.6 97.7 
Prepayments and Other105.4 24.8 
Total Current Assets480.5 291.3 
Property, Plant and Equipment – Net5,078.3 5,100.2 
Regulatory Assets464.2 511.8 
Equity Investments320.6 318.0 
Other Non-Current Assets212.4 213.7 
Total Assets$6,556.0 $6,435.0 
Liabilities and Equity  
Current Liabilities  
Accounts Payable$75.9 $111.0 
Accrued Taxes78.5 65.1 
Accrued Interest15.3 20.1 
Long-Term Debt Due Within One Year278.1 214.2 
Other108.8 133.0 
Total Current Liabilities556.6 543.4 
Long-Term Debt1,669.4 1,763.2 
Deferred Income Taxes188.3 185.7 
Regulatory Liabilities533.4 536.1 
Defined Benefit Pension and Other Postretirement Benefit Plans177.2 179.5 
Other Non-Current Liabilities287.6 280.8 
Total Liabilities3,412.5 3,488.7 
Commitments, Guarantees and Contingencies (Note 6)
Common Stock Without Par Value, 80.0 Shares Authorized, 53.3 and 53.2 Shares Issued and Outstanding1,541.3 1,536.7 
Accumulated Other Comprehensive Loss(24.0)(23.8)
Retained Earnings932.0 900.2 
Total ALLETE Equity2,449.3 2,413.1 
Non-Controlling Interest in Subsidiaries694.2 533.2 
Total Equity3,143.5 2,946.3 
Total Liabilities and Equity$6,556.0 $6,435.0 
The accompanying notes are an integral part of these statements.
ALLETE, Inc. First Quarter 2022 Form 10-Q

Three Months Ended
March 31,
Millions Except Per Share Amounts
Operating Revenue
Contracts with Customers – Utility$329.0 $293.0 
Contracts with Customers – Non-utility51.7 43.4 
Other – Non-utility2.8 2.8 
Total Operating Revenue383.5 339.2 
Operating Expenses
Fuel, Purchased Power and Gas – Utility137.4 120.4 
Transmission Services – Utility19.9 17.7 
Cost of Sales – Non-utility17.0 16.8 
Operating and Maintenance75.3 66.3 
Depreciation and Amortization61.7 58.0 
Taxes Other than Income Taxes18.8 18.0 
Total Operating Expenses330.1 297.2 
Operating Income53.4 42.0 
Other Income (Expense)
Interest Expense(18.3)(17.1)
Equity Earnings5.5 4.8 
Other2.0 3.3 
Total Other Expense(10.8)(9.0)
Income Before Income Taxes42.6 33.0 
Income Tax Benefit(3.9)(10.4)
Net Income46.5 43.4 
Net Loss Attributable to Non-Controlling Interest(19.8)(8.4)
Net Income Attributable to ALLETE$66.3 $51.8 
Average Shares of Common Stock
Basic53.3 52.1 
Diluted53.3 52.2 
Basic Earnings Per Share of Common Stock$1.24 $0.99 
Diluted Earnings Per Share of Common Stock$1.24 $0.99 
The accompanying notes are an integral part of these statements.
ALLETE, Inc. First Quarter 2022 Form 10-Q

Three Months Ended
March 31,
Net Income$46.5 $43.4 
Other Comprehensive Income (Loss)  
Unrealized Loss on Securities
Net of Income Tax Expense of $– and $–(0.3) 
Defined Benefit Pension and Other Postretirement Benefit Plans
Net of Income Tax Expense of $0.1 and $0.10.1 0.4 
Total Other Comprehensive Income (Loss)(0.2)0.4 
Total Comprehensive Income46.3 43.8 
Net Loss Attributable to Non-Controlling Interest(19.8)(8.4)
Total Comprehensive Income Attributable to ALLETE$66.1 $52.2 
The accompanying notes are an integral part of these statements.

ALLETE, Inc. First Quarter 2022 Form 10-Q

Three Months Ended
March 31,
Operating Activities  
Net Income$46.5 $43.4 
AFUDC – Equity(0.9)(0.5)
Income from Equity Investments – Net of Dividends0.4 1.0 
Loss (Gain) on Investments and Property, Plant and Equipment0.1 (0.5)
Depreciation Expense61.7 58.0 
Amortization of PSAs(2.8)(2.8)
Amortization of Other Intangible Assets and Other Assets2.1 2.5 
Deferred Income Tax Benefit(4.0)(10.4)
Share-Based and ESOP Compensation Expense1.3 1.7 
Defined Benefit Pension and Postretirement Benefit Expense (Benefit)(0.4)1.1 
Bad Debt Expense0.4 0.4 
Changes in Operating Assets and Liabilities  
Accounts Receivable4.9 (2.2)
Prepayments and Other(7.4)(1.3)
Accounts Payable(10.6)(8.6)
Other Current Liabilities(1.0)23.5 
Cash Contributions to Defined Benefit Pension Plans (10.3)
Changes in Regulatory and Other Non-Current Assets2.0 (0.6)
Changes in Regulatory and Other Non-Current Liabilities1.8 (6.1)
Cash (used in) provided by Operating Activities(4.8)88.5 
Investing Activities  
Proceeds from Sale of Available-for-sale Securities0.5 1.2 
Payments for Purchase of Available-for-sale Securities(0.4)(0.6)
Payments for Equity Method Investments(2.7)(1.0)
Additions to Property, Plant and Equipment(57.3)(134.4)
Other Investing Activities(0.2)3.9 
Cash used in Investing Activities(60.1)(130.9)
Financing Activities  
Proceeds from Issuance of Common Stock3.3 5.0 
Proceeds from Issuance of Short-Term and Long-Term Debt228.9 194.9 
Repayments of Short-Term and Long-Term Debt(259.2)(41.4)
Proceeds from Non-Controlling Interest in Subsidiaries - Net154.1 28.9 
Dividends on Common Stock(34.5)(32.8)
Other Financing Activities(0.4)(0.4)
Cash provided by Financing Activities92.2 154.2 
Change in Cash, Cash Equivalents and Restricted Cash27.3 111.8 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period47.7 65.2 
Cash, Cash Equivalents and Restricted Cash at End of Period$75.0 $177.0 
The accompanying notes are an integral part of these statements.
ALLETE, Inc. First Quarter 2022 Form 10-Q

Three Months Ended
March 31,
Millions Except Per Share Amounts
Common Stock
Balance, Beginning of Period$1,536.7 $1,460.9 
Common Stock Issued4.6 6.7 
Balance, End of Period1,541.3 1,467.6 
Accumulated Other Comprehensive Loss
Balance, Beginning of Period(23.8)(31.1)
Other Comprehensive Income - Net of Income Taxes
Unrealized Loss on Debt Securities(0.3) 
Defined Benefit Pension and Other Postretirement Plans0.1 0.4 
Balance, End of Period(24.0)(30.7)
Retained Earnings
Balance, Beginning of Period900.2 864.8 
Net Income Attributable to ALLETE66.3 51.8 
Common Stock Dividends (34.5)(32.8)
Balance, End of Period932.0 883.8 
Non-Controlling Interest in Subsidiaries
Balance, Beginning of Period533.2505.6
Proceeds from Non-Controlling Interest in Subsidiaries - Net of Issuance Costs181.2 28.9 
Net Loss Attributable to Non-Controlling Interest(19.8)(8.4)
Distributions to Non-Controlling Interest(0.4)(0.4)
Balance, End of Period694.2 525.7 
Total Equity$3,143.5 $2,846.4 
Dividends Per Share of Common Stock$0.65 $0.63 
The accompanying notes are an integral part of these statements.
ALLETE, Inc. First Quarter 2022 Form 10-Q


The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and do not include all of the information and notes required by GAAP for complete financial statements. Similarly, the December 31, 2021, Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. 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, 2022, are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2022. For further information, refer to the Consolidated Financial Statements and notes included in our 2021 Form 10-K.


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, 2022, restricted cash amounts included in Prepayments and Other on the Consolidated Balance Sheet include collateral deposits required under ALLETE Clean Energy loan and tax equity financing agreements. The restricted cash amounts included in Other Non-Current Assets represent collateral deposits required under an ALLETE Clean Energy loan agreement as well as PSAs. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheet that aggregate to the amounts presented in the Consolidated Statement of Cash Flows.
Cash, Cash Equivalents and Restricted CashMarch 31,
December 31,
March 31,
December 31,
Cash and Cash Equivalents$60.1 $45.1 $159.0 $44.3 
Restricted Cash included in Prepayments and Other 7.1 0.3 7.1 0.8 
Restricted Cash included in Other Non-Current Assets7.8 2.3 10.9 20.1 
Cash, Cash Equivalents and Restricted Cash on the Consolidated Statement of Cash Flows$75.0 $47.7 $177.0 $65.2 

Inventories – Net. Inventories are stated at the lower of cost or net realizable value. Inventories in our Regulated Operations segment are carried at an average cost or first-in, first-out basis. Inventories in our ALLETE Clean Energy segment and Corporate and Other businesses are carried at an average cost, first-in, first-out or specific identification basis.

Inventories – NetMarch 31,
December 31,
Fuel (a)
$17.4 $18.7 
Materials and Supplies60.0 56.1 
Construction of Wind Energy Facilities (b)
119.2 22.9 
Total Inventories – Net$196.6 $97.7 
(a)    Fuel consists primarily of coal inventory at Minnesota Power.
(b)    Project costs related to ALLETE Clean Energy’s Northern Wind and Red Barn wind projects which are expected to be sold in late 2022 and 2023, respectively. (See Other Current Liabilities.)

ALLETE, Inc. First Quarter 2022 Form 10-Q


Other Non-Current AssetsMarch 31,
December 31,
Contract Assets (a)
$22.7 $23.3 
Operating Lease Right-of-use Assets15.4 16.4 
ALLETE Properties19.4 19.4 
Restricted Cash7.8 2.3 
Other Postretirement Benefit Plans65.4 64.8 
Other81.7 87.5 
Total Other Non-Current Assets$212.4 $213.7 
(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 LiabilitiesMarch 31,
December 31,
Customer Deposits (a)
$28.9 $27.2 
PSAs12.6 12.6 
Manufactured Gas Plant (b)
1.9 12.8 
Fuel Adjustment Clause4.1 5.0 
Operating Lease Liabilities4.4 4.8 
Redeemable Non-Controlling Interest (c)
Other56.9 40.0 
Total Other Current Liabilities$108.8 $133.0 
(a) Primarily related to deposits received by ALLETE Clean Energy for the Northern Wind and Red Barn wind projects which are expected to be sold in late 2022 and 2023, respectively. (See Inventories – Net.)
(b) The manufactured gas plant represents the current liability for remediation of a former manufactured gas plant site located in Superior, Wisconsin, and formerly operated by SWL&P.
(c) Amount reclassified from Non-Controlling Interest in Subsidiaries resulting from the exercise of an option to buy out a non-controlling interest, which was paid in the first quarter of 2022.

Other Non-Current LiabilitiesMarch 31,
December 31,
Asset Retirement Obligation (a)
$189.1 $184.5 
PSAs36.3 39.5 
Manufactured Gas Plant (b)
16.1 5.2 
Operating Lease Liabilities10.9 11.6 
Other35.2 40.0 
Total Other Non-Current Liabilities$287.6 $280.8 
(a)The asset retirement obligation is primarily related to our Regulated Operations and is funded through customer rates over the life of the related assets. Additionally, BNI Energy funds its obligation through its cost-plus coal supply agreements for which BNI Energy has recorded a receivable of $28.5 million in Other Non-Current Assets on the Consolidated Balance Sheet as of March 31, 2022, ($28.5 million as of December 31, 2021).
(b)The manufactured gas plant represents the non-current liability for remediation of a former manufactured gas plant site located in Superior, Wisconsin, and formerly operated by SWL&P.
ALLETE, Inc. First Quarter 2022 Form 10-Q

Other Income
Three Months Ended March 31, 20222021
Pension and Other Postretirement Benefit Plan Non-Service Credits (a)
$2.6 $1.9 
Interest and Investment Income0.1 1.1 
AFUDC - Equity0.9 0.5 
Total Other Income$2.0 $3.3 
(a)These are components of net periodic pension and other postretirement benefit cost other than service cost. (See Note 9. Pension and Other Postretirement Benefit Plans.)

Supplemental Statement of Cash Flows Information.
Three Months Ended March 31, 20222021
Cash Paid for Interest – Net of Amounts Capitalized$22.4$21.2
Noncash Investing and Financing Activities  
Increase (Decrease) in Accounts Payable for Capital Additions to Property, Plant and Equipment$(24.5)$5.6
Capitalized Asset Retirement Costs$3.0$3.5

Non-Controlling Interest in Subsidiaries. Non-controlling interest in subsidiaries on the Consolidated Balance Sheet and net loss attributable to non-controlling interest on the Consolidated Statement of Income represent the portion of equity ownership and earnings, respectively, of subsidiaries that are not attributable to equity holders of ALLETE. These amounts are primarily related to the tax equity financing structures for ALLETE Clean Energy’s 106 MW Glen Ullin, 80 MW South Peak, 303 MW Diamond Spring and 303 MW Caddo wind energy facilities as well as ALLETE’s equity investment in the 250 MW Nobles 2 wind energy facility.

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

On April 5, 2022, ALLETE issued and sold approximately 3.7 million shares of ALLETE common stock. Net proceeds of approximately $224 million were received from the sale of shares. Proceeds were used primarily to fund the acquisition of New Energy and capital investments at ALLETE Clean Energy.

On April 15, 2022, a wholly-owned subsidiary of ALLETE acquired 100 percent of the membership interests of New Energy for a purchase price of $165.5 million. Total consideration of approximately $158.7 million was paid in cash on the acquisition date, which is net of cash acquired, debt assumed and subject to a working capital adjustment. New Energy, which is headquartered in Annapolis, Maryland, is a renewable energy development and finance company with a primary focus on solar and storage facilities while also offering comprehensive operations, maintenance and asset management services. The acquisition of New Energy is consistent with ALLETE’s stated strategy of additional investment in renewable energy and related infrastructure across North America to support the Company’s sustainability-in-action strategy while providing potential long-term earnings growth. Due to the limited amount of time since the acquisition date, the preliminary acquisition valuation for the business combination is incomplete at this time. As a result, we are unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including goodwill. Transaction costs related to the acquisition were expensed as incurred and were not material to results presented in the Consolidated Statement of Income.

ALLETE, Inc. First Quarter 2022 Form 10-Q


Regulatory matters are summarized in Note 4. Regulatory Matters to the Consolidated Financial Statements in our 2021 Form 10-K, with additional disclosure provided in the following paragraphs.

Electric Rates. Entities within our Regulated Operations segment file for periodic rate revisions with the MPUC, PSCW or FERC. As authorized by the MPUC, Minnesota Power also recognizes revenue under cost recovery riders for transmission, renewable, and environmental investments and expenditures. Revenue from cost recovery riders was $6.5 million for the three months ended March 31, 2022 ($9.6 million for the three months ended March 31, 2021).

2022 Minnesota General Rate Case. On November 1, 2021, Minnesota Power filed a retail rate increase request with the MPUC seeking an average increase of approximately 18 percent for retail customers. The rate filing seeks a return on equity of 10.25 percent and a 53.81 percent equity ratio. On an annualized basis, the requested final rate increase would generate approximately $108 million in additional revenue. In orders dated December 30, 2021, the MPUC accepted the filing as complete and authorized an annual interim rate increase beginning January 1, 2022, with approximately $80 million expected to be collected in cash and approximately $8 million of interim rates for residential customers deferred with a final determination on recovery at the end of the rate case. We cannot predict the level of final rates that may be authorized by the MPUC.

2022 Wisconsin General Rate Case. On April 29, 2022, SWL&P filed a rate increase request with the PSCW seeking an average increase of 2.7 percent for retail customers. The filing seeks an overall return on equity of 10.4 percent and a 55 percent equity ratio. On an annualized basis, the requested final rate increase would generate approximately $3.3 million in additional revenue.

Renewable Cost Recovery Rider. Minnesota Power has an approved cost recovery rider in place to charge retail customers on a current basis for the costs of certain renewable investments and expenditures, including a return on the capital invested. Current customer billing rates for the renewable cost recovery rider were approved by the MPUC in a 2020 order. On February 2, 2022, Minnesota Power submitted its 2022 renewable factor filing, which included a request to recover a regulatory asset of $3.8 million related to the recognition of production tax credits due to a metering error at Bison. If the filing is approved, Minnesota Power would be authorized to include updated billing rates on customer bills; any portion disallowed would be charged to earnings.

Fuel Adjustment Clause. In 2020, Minnesota Power filed its fuel adjustment forecast for 2021, which was approved by the MPUC in a December 2020 order, subject to the annual prudence review and true-up filing in 2022. During 2021, Minnesota Power incurred higher fuel and purchased power costs than those forecasted in its May 2020 filing, which resulted in the recognition of an approximately $56 million regulatory asset through December 31, 2021. Minnesota Power submitted its annual true-up filing and a significant events filing in March 2022 requesting recovery of these under-collected fuel adjustment clause recoveries. No parties objected to the request; recovery of the regulatory asset began in April 2022 and will continue through mid-2023, subject to final approval by the MPUC which is expected in mid-2022.

2021 Integrated Resource Plan. On February 1, 2021, Minnesota Power filed its latest IRP with the MPUC, which outlines its clean-energy transition plans through 2035. These plans include expanding its renewable energy supply, achieving coal-free operations at its facilities by 2035, and investing in a resilient and flexible transmission and distribution grid. As part of these plans, Minnesota Power anticipates adding approximately 400 MW of new wind and solar energy resources, retiring Boswell Unit 3 by 2030 and transforming Boswell Unit 4 to be coal-free by 2035. Minnesota Power’s plans recognize that advances in technology will play a significant role in completing its transition to carbon-free energy supply, reliably and affordably. A final decision on the IRP is expected in the second half of 2022.

ALLETE, Inc. First Quarter 2022 Form 10-Q


Regulatory Assets and Liabilities. Our regulated utility operations are subject to accounting guidance for the effect of certain types of regulation. Regulatory assets represent incurred costs that have been deferred as they are probable for recovery in customer rates. Regulatory liabilities represent obligations to make refunds to customers and amounts collected in rates for which the related costs have not yet been incurred. The Company assesses quarterly whether regulatory assets and liabilities meet the criteria for probability of future recovery or deferral. With the exception of the regulatory asset for Boswell Units 1 and 2 net plant and equipment, no other regulatory assets are currently earning a return. The recovery, refund or credit to rates for these regulatory assets and liabilities will occur over the periods either specified by the applicable regulatory authority or over the corresponding period related to the asset or liability.

Regulatory Assets and LiabilitiesMarch 31,
December 31,
Current Regulatory Assets (a)
Fuel Adjustment Clause $39.8  
Total Current Regulatory Assets39.8  
Non-Current Regulatory Assets  
Defined Benefit Pension and Other Postretirement Benefit Plans223.2 $226.4 
Income Taxes101.5 104.7 
Cost Recovery Riders60.6 63.2 
Asset Retirement Obligations 33.5 33.1 
Fuel Adjustment Clause 18.5 56.4 
Manufactured Gas Plant
17.4 17.0 
PPACA Income Tax Deferral4.3 4.3 
Residential Customer Interim Rate Adjustment2.0  
Other3.2 6.7 
Total Non-Current Regulatory Assets464.2 511.8 
Total Regulatory Assets$504.0 $511.8 
Current Regulatory Liabilities (b)
Fuel Adjustment Clause$4.1 $5.0 
Transmission Formula Rates Refund2.9 3.1 
Other0.7 0.5 
Total Current Regulatory Liabilities 7.7 8.6 
Non-Current Regulatory Liabilities  
Income Taxes 344.8 353.4 
Wholesale and Retail Contra AFUDC 83.0 83.7 
Plant Removal Obligations54.2 52.6 
North Dakota Investment Tax Credits 13.7 12.2 
Defined Benefit Pension and Other Postretirement Benefit Plans26.5 28.1 
Boswell Units 1 and 2 Net Plant and Equipment1.6 0.4 
Other9.6 5.7 
Total Non-Current Regulatory Liabilities533.4 536.1 
Total Regulatory Liabilities$541.1 $544.7 
(a)Current regulatory assets are presented within Prepayments and Other on the Consolidated Balance Sheet.
(b)Current regulatory liabilities are presented within Other Current Liabilities on the Consolidated Balance Sheet.
ALLETE, Inc. First Quarter 2022 Form 10-Q


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 
Equity Investment Balance as of December 31, 2021$154.5 
Cash Investments2.7 
Equity in ATC Earnings5.4 
Distributed ATC Earnings(4.4)
Amortization of the Remeasurement of Deferred Income Taxes0.3 
Equity Investment Balance as of March 31, 2022$158.5 

ATC’s authorized return on equity is 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 refund period ordered by the FERC. If these legal challenges are successful, ATC may be required to provide refunds to its customers of up to approximately $66 million of which our share would be approximately $5 million pre-tax. In addition, the FERC issued a Notice of Proposed Rulemaking in April 2021 proposing to limit the 50 basis point incentive adder for participation in a regional transmission organization to only the first three years of membership in such an organization. If this proposal is adopted, our equity in earnings from ATC would be reduced by approximately $1 million pre-tax annually.

Investment in Nobles 2. Our subsidiary, ALLETE South Wind, owns 49 percent of Nobles 2, the entity that owns and operates a 250 MW wind energy facility in southwestern Minnesota pursuant to a 20-year PPA with Minnesota Power. We account for our investment in Nobles 2 under the equity method of accounting.

ALLETE’s Investment in Nobles 2
Equity Investment Balance as of December 31, 2021$163.5 
Equity in Nobles 2 Earnings (a)
Distributed Nobles 2 Earnings(1.5)
Equity Investment Balance as of March 31, 2022$162.1 
(a)The Company also recorded net loss attributable to non-controlling interest of $3.2 million related to its investment in Nobles 2.


Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs, which are used to measure fair value, are prioritized through the fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Descriptions of the three levels of the fair value hierarchy are discussed in Note 6. Fair Value to the Consolidated Financial Statements in our 2021 Form 10-K.

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, 2022, and December 31, 2021. Each asset and liability is classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of these assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value of Cash and Cash Equivalents listed on the Consolidated Balance Sheet approximates the carrying amount and therefore is excluded from the recurring fair value measures in the following tables.

ALLETE, Inc. First Quarter 2022 Form 10-Q

NOTE 4. FAIR VALUE (Continued)
 Fair Value as of March 31, 2022
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Investments (a)
Available-for-sale – Equity Securities$8.9   $8.9 
Available-for-sale – Corporate and Governmental Debt Securities (b)
 $5.5  5.5 
Cash Equivalents3.4   3.4 
Total Fair Value of Assets$12.3 $5.5  $17.8 
Deferred Compensation (c)
 $16.5  $16.5 
Total Fair Value of Liabilities $16.5  $16.5 
 Fair Value as of December 31, 2021
Recurring Fair Value MeasuresLevel 1Level 2Level 3Total
Investments (a)
Available-for-sale – Equity Securities$8.9   $8.9 
Available-for-sale – Corporate and Governmental Debt Securities $6.2  6.2 
Cash Equivalents2.5   2.5 
Total Fair Value of Assets$11.4 $6.2  $17.6 
Deferred Compensation (c)
 $18.0  $18.0 
Total Fair Value of Liabilities $18.0  $18.0 
(a)Included in Other Non-Current Assets on the Consolidated Balance Sheet.
(b)As of March 31, 2022, the aggregate amount of available-for-sale corporate and governmental debt securities maturing in one year or less was $0.8 million, in one year to less than three years was $2.7 million, in three years to less than five years was $1.5 million and in five or more years was $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 InstrumentsCarrying AmountFair Value
Short-Term and Long-Term Debt (a)
March 31, 2022$1,956.1$1,962.9
December 31, 2021$1,986.4$2,192.6
(a)Excludes unamortized debt issuance costs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis. Non-financial assets such as equity method investments, land inventory, and property, plant and equipment are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. For the three months ended March 31, 2022, and the year ended December 31, 2021, there were no indicators of impairment for these non-financial assets.

We continue to monitor changes in the broader energy markets along with wind resource expectations that could indicate impairment at ALLETE Clean Energy wind energy facilities upon contract expirations. A continued decline in energy prices or lower wind resource expectations could result in a future impairment.
ALLETE, Inc. First Quarter 2022 Form 10-Q


The following tables present the Company’s short-term and long-term debt as of March 31, 2022, and December 31, 2021:
March 31, 2022PrincipalUnamortized Debt Issuance CostsTotal
Short-Term Debt$278.3 $(0.2)$278.1 
Long-Term Debt1,677.8 (8.4)1,669.4 
Total Debt$1,956.1 $(8.6)$1,947.5 
December 31, 2021PrincipalUnamortized Debt Issuance CostsTotal
Short-Term Debt $214.4 $(0.2)$214.2 
Long-Term Debt1,772.0 (8.8)1,763.2 
Total Debt$1,986.4 $(9.0)$1,977.4 

We had $33.2 million outstanding in standby letters of credit and $70.6 million outstanding draws under our lines of credit as of March 31, 2022 ($31.5 million in standby letters of credit and $159.7 million outstanding draws as of December 31, 2021).

On February 28, 2022, ALLETE entered into an unsecured term loan agreement (February Term Loan) to borrow up to $175 million. No draws were made on the February Term Loan, which was subsequently terminated in April 2022.

On March 24, 2022, ALLETE entered into a $170 million unsecured term loan agreement (March Term Loan). The Term Loan is due March 23, 2023, and may be repaid at any time. Interest is payable monthly at a rate per annum equal to SOFR plus 0.75 percent. Proceeds from the Term Loan were used for general corporate purposes.

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, 2022, our ratio was approximately 0.40 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, 2022, ALLETE was in compliance with its financial covenants.

ALLETE, Inc. First Quarter 2022 Form 10-Q


Power Purchase and Sale Agreements. Our long-term PPAs have been evaluated under the accounting guidance for variable interest entities. We have determined that either we have no variable interest in the PPAs or, where we do have variable interests, we are not the primary beneficiary; therefore, consolidation is not required. These conclusions are based on the fact that we do not have both control over activities that are most significant to the entity and an obligation to absorb losses or receive benefits from the entity’s performance. Our financial exposure relating to these PPAs is limited to our capacity and energy payments.

Our PPAs are summarized in Note 8. Commitments, Guarantees and Contingencies to the Consolidated Financial Statements in our 2021 Form 10-K, with additional disclosure provided in the following paragraphs.

Square Butte PPA. As of March 31, 2022, Square Butte had total debt outstanding of $218.3 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, 2022, was $20.3 million ($19.6 million for the same period in 2021). This reflects Minnesota Power’s pro rata share of total Square Butte costs based on the 50 percent output entitlement. Included in this amount was Minnesota Power’s pro rata share of interest expense of $1.0 million ($1.5 million for the same period in 2021). Minnesota Power’s payments to Square Butte are approved as a purchased power expense for ratemaking purposes by both the MPUC and the FERC.

Minnkota Power PSA. Minnesota Power has a PSA with Minnkota Power, which commenced in 2014. Under the PSA, Minnesota Power is selling a portion of its entitlement from Square Butte to Minnkota Power, resulting in Minnkota Power’s net entitlement increasing and Minnesota Power’s net entitlement decreasing until Minnesota Power’s share is eliminated at the end of 2025. Of Minnesota Power’s 50 percent output entitlement, Minnesota Power sold to Minnkota Power approximately 32 percent in 2022 and 28 percent in 2021.

Coal, Rail and Shipping Contracts. Minnesota Power has coal supply agreements providing for the purchase of a significant portion of its coal requirements through December 2022. 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 2022 Form 10-Q

Environmental Matters (Continued)

Cross-State Air Pollution Rule (CSAPR). The CSAPR requires certain states in the eastern half of the U.S., including Minnesota, to reduce power plant emissions that contribute to ozone or fine particulate pollution in other states. The CSAPR does not require installation of controls but does require facilities have sufficient allowances to cover their emissions on an annual basis. These allowances are allocated to facilities from each state’s annual budget, and can be bought and sold. Based on our review of the NOX and SO2 allowances issued and pending issuance, we currently expect generation levels and emission rates will result in continued compliance with the CSAPR. The EPA’s CSAPR Update Rule issued in March 2021, to revise the 2016 CSAPR Update does not apply to the state of Minnesota and is therefore not currently projected to affect Minnesota Power’s CSAPR compliance. Minnesota Power will continue to monitor ongoing CSAPR rulemakings and compliance implementation.

National Ambient Air Quality Standards (NAAQS). The EPA is required to review the NAAQS every five years. If the EPA determines that a state’s air quality is not in compliance with the NAAQS, the state is required to adopt plans describing how it will reduce emissions to attain the NAAQS. Minnesota Power actively monitors NAAQS developments and compliance costs for existing standards or proposed NAAQS revisions are not currently expected to be material. The EPA is currently reviewing the secondary NAAQS for NOx and SO2, as well as particulate matter. In June 2021, the EPA announced it will reconsider the December 2020 final rule retaining the 2012 particulate matter NAAQS, with a proposed rulemaking anticipated in mid-2022. The EPA has not stated its intent with regard to the 2020 Ozone NAAQS rule finalized in December 2020.

EPA Good Neighbor Plan for 2015 Ozone NAAQS. On April 6, 2022, the EPA published a proposed rule, the Good Neighbor Plan, to address regional ozone transport for the 2015 Ozone NAAQS by reducing NOx emissions during the period of May 1st through September 30th (ozone season). This rule is intended to address certain good neighbor or interstate transport provisions of the Clean Air Act relative to the 2015 Ozone NAAQS. In the justification for the proposed rule, the EPA asserted that 26 states, including Minnesota, are modeled as significant contributors to downwind states’ challenges in attaining or maintaining ozone NAAQS compliance within their state borders. The Good Neighbor Plan proposes to resolve this interstate transport issue by implementing a variety of NOx reduction strategies, including federal implementation plan requirements, NOx emission limitations, and ozone season allowance program requirements, beginning with the 2023 ozone season. The proposed rule would apply to fossil-fuel fired power plants in 25 states and certain other industrial sources in 23 states. Implementation of the rule would occur in part through changes to the existing CSAPR program.

Minnesota Power is reviewing the proposed rule and assessing its potential impacts. Comments are due to the EPA by June 6, 2022. Anticipated compliance costs related to the Good Neighbor Plan cannot yet be estimated; however, the costs could be material, including costs of additional NOx controls, emission allowance program participation, or operational changes, if any are required. Minnesota Power would seek recovery of additional costs through a rate proceeding.

Climate Change. The scientific community generally accepts that emissions of GHG are linked to global climate change which creates physical and financial risks. Physical risks could include, but are not limited to: increased or decreased precipitation and water levels in lakes and rivers; increased or other changes in temperatures; and changes in the intensity and frequency of extreme weather events. These all have the potential to affect the Company’s business and operations. We are addressing climate change by taking the following steps that also ensure reliable and environmentally compliant generation resources to meet our customers’ requirements:

Expanding renewable power supply for both our operations and the operations of others;
Providing energy conservation initiatives for our customers and engaging in other demand side management efforts;
Improving efficiency of our generating facilities;
Supporting research of technologies to reduce carbon emissions from generating facilities and carbon sequestration efforts;
Evaluating and developing less carbon intensive future generating assets such as efficient and flexible natural gas-fired generating facilities;
Managing vegetation on right-of-way corridors to reduce potential wildfire or storm damage risks; and
Practicing sound forestry management in our service territories to create landscapes more resilient to disruption from climate-related changes, including planting and managing long-lived conifer species.

ALLETE, Inc. First Quarter 2022 Form 10-Q

Environmental Matters (Continued)

EPA Regulation of GHG Emissions. In 2019, the EPA finalized several separate rulemakings regarding regulating carbon emissions from electric utility generating units. These rulemakings included repealing the Clean Power Plan (CPP) and adopting the Affordable Clean Energy Rule under Section 111(d) of the Clean Air Act (CAA) to regulate CO2 emissions at existing coal-fired power plants. The CPP was first announced as a proposed rule under Section 111(d) of the CAA for existing power plants entitled “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Generating Units”. The Affordable Clean Energy Rule established emissions guidelines for states to use when developing plans to limit CO2 coal-fired power plants. The EPA also published regulations for the state implementation of the Affordable Clean Energy Rule and other Section 111(d) rules. Affected facilities for Minnesota Power included Boswell Units 3 and 4, and Taconite Harbor Units 1 and 2, which are currently economically idled.

On January 19, 2021, the D.C. Circuit issued an opinion vacating the Affordable Clean Energy Rule and remanded the Affordable Clean Energy Rule back to the EPA for further consideration, consistent with the D.C. Circuit’s finding that the EPA erred in interpreting the CAA, pending rehearing or appeal. Four petitions for review of the D.C. Circuit’s opinion were subsequently granted by the U.S. Supreme Court on October 29, 2021. Oral arguments were held on February 28, 2022, with a decision expected in mid-2022. In 2021, the EPA also indicated that it intends to issue a proposed rule in July 2022 and a final rule in July 2023 with a new set of emission guidelines for states to follow in submitting state plans to establish and implement standards of performance for GHG emissions from existing fossil fuel-fired electric generating units. Minnesota Power will continue to monitor any related guidelines and rulemakings issued by the EPA or state regulatory authorities.

On April 22, 2021, the Biden Administration announced a goal to reach 100 percent carbon pollution-free electricity by 2035 as part of the Nationally Determined Contributions pledge, which is part of an international effort to limit global warming. At this time, no specific regulatory pathway to achieve these reductions has been proposed. Minnesota Power will continue to monitor these developments.

Minnesota had already initiated several measures consistent with those called for under the now repealed CPP and vacated Affordable Clean Energy Rule. Minnesota Power continues implementing its EnergyForward strategic plan that provides for significant emission reductions and diversifying its electricity generation mix to include more renewable and natural gas energy. We are unable to predict the GHG emission compliance costs we might incur as a result of a replacement for the Affordable Clean Energy Rule or other future laws, regulations or administrative policies; however, the costs could be material. Minnesota Power would seek recovery of additional costs through a rate proceeding.

Additionally on January 13, 2021, the EPA issued a rulemaking to apply CO2 emission New Source Performance Standards (NSPS) to new, modified and reconstructed fossil fuel-fired electric generating units under Section 111(b) of the CAA. Minnesota Power is monitoring the NSPS final rule and any further Section 111(b) developments including their potential impact to the Company. The proposed combined-cycle natural gas-fired generating facility, NTEC, is expected to meet these NSPS requirements.

Water. The Clean Water Act requires NPDES permits be obtained from the EPA (or, when delegated, from individual state pollution control agencies) for any wastewater discharged into navigable waters. We have obtained all necessary NPDES permits, including NPDES storm water permits for applicable facilities, to conduct our operations.

ALLETE, Inc. First Quarter 2022 Form 10-Q

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 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 and FGD wastewater provisions. On April 12, 2019, the U.S. Court of Appeals for the Fifth Circuit vacated and remanded back to the EPA portions of the ELG that allowed for continued discharge of legacy wastewater and leachate. On October 13, 2020, the EPA published a final ELG Rule allowing re-use of bottom ash transport water in FGD scrubber systems with limited discharges related to maintaining system water balance. The rule sets technology standards and numerical pollutant limits for discharges of bottom ash transport water and FGD wastewater. Compliance deadlines depend on subcategory, with compliance generally required as soon as possible, beginning after October 13, 2021, but no later than December 31, 2025, or December 31, 2028, in some specific cases. The rule also established new subcategories for retiring high-flow and low-utilization units, and established a voluntary incentives program for FGD wastewater. In accordance with the January 2021 Executive Order 13990, the EPA was mandated to conduct a review of actions and polices taken during the prior administration, including the 2020 ELG Rule. On September 14, 2021, the EPA published a notice of availability for preliminary effluent guidelines program plan. In the plan, the EPA confirmed the agency is initiating a rulemaking process to strengthen wastewater pollution limitations from FGD and bottom ash transport water discharges while the 2020 ELG Rule remains in effect. The EPA is expected to publish a proposed rule in the fall of 2022.

The ELG's potential impact on Minnesota Power operations is primarily at Boswell. Boswell currently discharges bottom ash contact water through its NPDES permit, and also has a closed-loop FGD system that does not discharge to surface waters, but may do so in the future. With Boswell’s planned conversion to dry FGD handling and storage, ongoing FGD water generation will be reduced, and the majority of FGD waters will be legacy waters to be dewatered from existing impoundments. Re-use and onsite consumption for the majority of FGD waters is planned at Boswell.

Under the new ELG rule, most bottom ash transport water discharge to surface waters must cease no later than December 31, 2025, except for small discharges needed to retain water balance. The majority of bottom ash transport water will either need to be re-used in a closed-loop process or routed to a FGD scrubber. At Boswell, the bottom ash handling systems are planned to be converted to a dry process, which will eliminate the discharge of bottom ash transport water.

The EPA’s additional reconsideration of legacy wastewater discharge requirements has the potential to reduce timelines for dewatering Boswell’s existing ponds. The timing of a draft rule addressing legacy wastewater and leachate is currently unknown.

At this time, we estimate that the planned dry conversion of bottom ash handling and storage at Boswell in response to the CCR revisions requiring closure of clay-lined impoundments, as well as other water re-use practices, will reduce or eliminate the need for additional significant compliance costs for ELG bottom ash water and FGD requirements. Compliance costs we might incur related to other ELG waste streams (e.g., legacy leachate) or other potential future water discharge regulations 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.

In April 2021, the MPCA’s proposed list of impaired waters submitted pursuant to the Clean Water Act was partially rejected by the EPA due to the absence of wild rice waters listed for sulfate impairment. The EPA transmitted a final list of 32 EPA-added wild rice waters to the MPCA on November 5, 2021. This list could subsequently be used to set sulfate limits in discharge permits for power generation facilities and municipal and industrial customers, including paper and pulp facilities, and mining operations. At this time we are unable to determine the specific impacts these developments may have on Minnesota Power operations, if any. Minnesota Power would seek recovery of additional costs through a rate proceeding.

ALLETE, Inc. First Quarter 2022 Form 10-Q

Environmental Matters (Continued)

Solid and Hazardous Waste. The Resource Conservation and Recovery Act of 1976 regulates the management and disposal of solid and hazardous wastes. We are required to notify the EPA of hazardous waste activity and, consequently, routinely submit reports to the EPA.

Coal Ash Management Facilities. Minnesota Power produces the majority of its coal ash at Boswell, with small amounts of ash generated at Hibbard Renewable Energy Center. Ash storage and disposal methods include storing ash in clay-lined onsite impoundments (ash ponds), disposing of dry ash in a lined dry ash landfill, applying ash to land as an approved beneficial use, and trucking ash to state permitted landfills.

Coal Combustion Residuals from Electric Utilities (CCR). In 2015, the EPA published the final rule regulating CCR as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act (RCRA) in the Federal Register. The rule includes additional requirements for new landfill and impoundment construction as well as closure activities related to certain existing impoundments. Costs of compliance for Boswell and Laskin are expected to be incurred primarily over the next 15 years and be between approximately $65 million and $120 million. Compliance costs for CCR at Taconite Harbor are not expected to be material. Minnesota Power would seek recovery of additional costs through a rate proceeding.

Minnesota Power continues to work on minimizing costs through evaluation of beneficial re-use and recycling of CCR and CCR-related waters. In 2017, the EPA announced its intention to formally reconsider the CCR rule under Subtitle D of the RCRA. In March 2018, the EPA published the first phase of the proposed rule revisions in the Federal Register. In 2018, the EPA finalized revisions to elements of the CCR rule, including extending certain deadlines by two years, the establishment of alternative groundwater protection standards for certain constituents and the potential for risk-based management options at facilities based on site characteristics. In 2018, a U.S. District Court for the District of Columbia decision vacated specific provisions of the CCR rule. The court decision resulted in a change to the status of three existing clay-lined impoundments at Boswell that must now be considered unlined. The EPA proposed additional rule revisions in 2019 to address outstanding issues from litigation and closure timelines for unlined impoundments, respectively. The first of these rules, CCR Part A Rule, was finalized in September 2020. The Part A Rule revision requires unlined impoundments to cease disposal of waste as soon as technically feasible but no later than April 11, 2021. This deadline has tolled forward as the EPA did not make any variance application determinations by that date. Minnesota Power sought EPA approval to extend the closure date for the two active Boswell impoundments in November 2020 through a variance application, and continues to operate the impoundments pending a final determination by the EPA. Additionally, the EPA released a proposed Part B rulemaking in February 2020 that addressed options for beneficial reuse of CCR materials, alternative liner demonstrations, and other CCR regulatory revisions. Portions of the Part B Rule addressing alternative liner equivalency standards were finalized in November 2020. According to the EPA’s regulatory agenda, finalization of the remainder of the proposed Part B Rule was expected in mid-2021, but has not yet been published. Expected compliance costs at Boswell due to the court decision and subsequent rule revisions are reflected in our estimate of compliance costs for the CCR rule noted previously. Minnesota Power would seek recovery of additional costs through a rate proceeding.