Allete, Inc.

Good day and welcome to the all lead second quarter 2021 financial results call. Today's call is being recorded. Certain statements contained in this conference call that are not descriptions of historical facts or forward looking statements, such as terms defined in the Private Securities Litigation Reform Act of 1995. Because the statements can include risk and uncertainties, actual results may differ materially from those expressed or implied by such forward looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to those discussed in filings made by the company with the Securities and Exchange Commission. Many of the factors that will determine the company's future results are beyond the ability of management to control or predict. Listeners should not place undue reliance on forward-looking statements, which reflects management's views only as the date hereof. The company undertakes no obligation to revise or update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events, or otherwise. I will now turn the conference over to your host, Ms. Bethany Owen, our lead chair, president, and CEO. You may begin.

Thank you. Good morning, everyone, and thanks for joining us today. With me are Elite's Senior Vice President and Chief Financial Officer, Bob Adams, and Vice President, Controller, and Chief Accounting Officer, Steve Morris. Also with us this morning are Jeff Sissons, Elite's Director of Corporate Development, and Frank Fredrickson, Minnesota Power's Vice President of Customer Experience. Corresponding slides for this morning's call can be found on our website at Elite.com in the Investor section. To follow along, we'll call out each slide number as we go through today's presentation. This morning, Elite reported second quarter 2021 earnings of 53 cents per share on net income of $27.9 million. These results are generally in line with our internal expectations for the current quarter, and we remain confident in our ability to achieve our original earnings guidance range of $3 to $3.30 per share for the year. In a few minutes, Steve and Bob will provide additional insights into key financial drivers for the remainder of the year. At the highest level, I'd like to provide a few comments and updates on our strategy. As we've shared previously, 2021 is a positioning year for Elite. Following the challenges of 2020, we are full-on executing our strategy, improving the returns of our businesses, focusing on our customers, positioning for additional growth, and advancing sustainability in all its forms. This transitional year will serve as a strong foundation for further clean energy transformation while supporting our growth objectives. We're excited about the future as it's increasingly clear that clean energy is the place to be. Elite is in the front end of the curve when it comes to sustainability, and we're confident in our strategies. We're actively working to address climate change at our elite companies with all stakeholders in mind, our customers, our communities, our coworkers, and our shareholders. We anticipate significant investments in elites regulated and non-regulated businesses in the coming years, all to continue serving our customers with excellence. We believe we're in a good position to align with yet to be finalized national and state clean energy goals. Our sustainability in action strategy provides optionality and allows time for advances in technology and an equitable transition of our communities to a secure and carbon-free energy economy. Turning to slide three, as we highlighted earlier this year, a significant step forward in our commitment to sustainability is Minnesota Power's recently announced vision to provide 100% carbon-free energy to customers by 2050. This bold vision and its timing reflect how seriously we take our responsibilities to the climate, our customers, and our communities. Minnesota Power is the first and only Minnesota utility to provide 50% renewable energy today to our customers, and we're continuing to move forward to address climate change while advancing systems and programs that will support all of our customers in this critical journey. Starting with our most vulnerable customers, Minnesota Power truly cares for those individuals and families who are economically challenged. And especially during these difficult times, we're grateful for the support and approval of the Minnesota Public Utilities Commission as we've enhanced our programs that provide outreach and affordability discounts to support those who are most in need in the regions we serve. As transportation electrifies across the country, Minnesota Power has launched programs to support residential customers with electric vehicle charging and sought regulatory approval to deploy fast charging stations throughout our service territory to facilitate EV travel across the region. Minnesota Power and Superior Water Light and Power are also leaders in the deployment of advanced metering infrastructure and the related systems to utilize these investments to benefit our customers. Again, we appreciate the close work with our stakeholders and the recent approval by the Minnesota Public Utilities Commission of Minnesota Power's plan to incorporate a dynamic rate design that supports engagement from our residential customers in the clean energy future. and we're proud to be the first in the state to do so. Finally, Minnesota Power's renewable energy supply includes a diverse mix of wind, hydro, solar, and biomass resources. We believe that diversity is important in so many ways, and when it comes to energy, having a diverse supply of renewable resources is the most responsible way to transition to a clean energy future because customers and communities expect reliable energy around the clock. This is especially true for Minnesota Power's industrial customers as they progress on their own sustainability journeys while maintaining 24-7 operations for their customers. As for those largest customers, we're so pleased that they've rebounded and that the steel industry is strong. In fact, both Cleveland Cliffs and U.S. Steel recently increased their guidance for the year, driven by strong ore and steel markets. In addition, we're excited to welcome two new industrial customers to Minnesota Power's region. Last quarter, ST Paper acquired the Duluth, Minnesota paper manufacturing plant with plans to produce recycled tissue products. and Huber Engineered Woods announced their plans for a new state-of-the-art oriented strandboard manufacturing facility in Cohasset, Minnesota. These are important signals that Minnesota is open for business as the economy recovers, and all of these customers are important to the economic health of our entire region. We look forward to serving them well into the future with reliable, competitive, and increasingly clean energy. Minnesota Power's sustainability journey won't stop at 50% renewable. As described in our last conference call, Minnesota Power filed its Integrated Resource Plan with the Minnesota Public Utilities Commission in February. This IRP outlines our plans to further transform Minnesota Power's energy supply to 70% renewable by 2030 and to be coal-free and 80% lower carbon by 2035. Throughout this IRP process, we'll continue our close and transparent engagement with our many stakeholders, and we anticipate a commission decision in the first quarter of 2022. Finally, as mentioned previously, Minnesota Power is finalizing its plans and forecasts in support of an early November rate case filing. Meanwhile, Elite Clean Energy recently celebrated its 10th anniversary. In this short time, it has become the second largest business in the Elite family, with 100% renewable generation serving some of the largest utilities and C&I customers in the country. Elite Clean Energy is focused on successfully executing its current projects, including Caddo, Red Barn, and Northern Wind, improving financial returns by optimizing its existing portfolio, and advancing its strategy to move into additional clean energy spaces, such as solar and storage, building on the company's strong track record and reputation. This strategy has been well received by key stakeholders, and we look forward to sharing more details in the near future. Elite Clean Energy's investment growth and improved financial returns will add earnings growth and will position the company for continued success in the decades to come. Elite's family of businesses offers unique value to our investors. We're committed to achieving our 5% to 7% average annual EPS growth objective, along with an attractive dividend. We're answering society's call for increasingly clean energy, and our businesses will continue to grow while delivering the services that are essential to the quality of life of our customers and our communities. Elite has been recognized by external research firms as a top-tier company in several ESG dimensions, and we couldn't be more proud of the fact that we are making a difference in the things that truly matter. Now I'll turn it over to Steve and Bob for additional details on our 2021 second quarter financial results, as well as Elite's growth outlook. Steve?

Thanks, Bethany, and good morning, everyone. I would like to remind you that we filed our 10-Q this morning, and I encourage you to refer to it for more details. Please refer to slides 4 and 5 for significant variances and other items for comparison considerations. Today, Elite reported second quarter 2021 earnings of 53 cents per share on net income of $27.9 million. Earnings in 2020 were 39 cents per share on net income of $20.1 million. Results in the second quarter of 2020 included an $8.3 million after-tax charge, or 16 cents per share, for the Minnesota Power 2020 rate case resolution. A few details from our business segments. Elite'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 $21.5 million, compared to $11.1 million in the second quarter of 2020. Results in the second quarter of 2020 included the $8.3 million after-tax charge for the Minnesota Power 2020 rate case resolution, of which $6.5 million related to the first quarter of 2020. Earnings reflected higher net income at Minnesota Power as compared to 2020 also due to higher kilowatt-hour sales to commercial and municipal customers, higher cost recovery rider revenue, and the timing of income tax expense. These increases were partially offset by lower margins resulting from the expiration of a power sales contract in April of 2020 and higher operating and maintenance and property tax expense. Elite Clean Energy recorded the second quarter of 2021 in income of $5.1 million compared to $4 million in 2020. Net income in 2021 reflected earnings from the Diamond Spring Wind Energy Facility, which commenced operations in December 2020. Like others in the industry, Elite Clean Energy's wind energy facilities were negatively impacted by lower wind resources, especially in the Midwest, which were approximately 15% lower expectations during the quarter. The impact of lower wind resources was mostly offset by lower operating costs resulting from Elite Clean Energy's expense management efforts. Our corporate and other businesses recorded net income of $1.3 million in 2021 compared to net income of $5 million in 2020. Net income in 2021 included lower earnings from marketable equity securities and higher income tax expense as compared to 2020, which varies quarter to quarter based on an estimated annual effective tax rate. These decreases were partially offset by earnings from our investment in the Nobles II wind energy facility, which commenced operations in December 2020. I'll now turn to our 2021 earnings guidance. We remain confident in achieving our 2021 earnings guidance of $3 to $3.30 per share. As noted in the previous quarter, the timing of expenses in the first half of the year negatively impacted results, the majority of which are expected to reverse in the second half of the year. Consistent with the robust steel market recovery, we expect production from Minnesota Power's Tadkinite customers to be near full production for the remainder of the year, a significant increase from our projection earlier this year. Primarily driven by this positive development, we anticipate our regulated operations will be at the higher end of our guidance range of $2.30 to $2.50 per share. Also, as disclosed in the first quarter, Elite Clean Energy and our corporate and other businesses are expected to be at the lower end of our guidance range of $0.70 to $0.80 per share. This is primarily due to the negative impacts of the extreme winter weather event at the Diamond Spring Wind Energy Facility in the first quarter and lower than expected wind resources at our other wind energy facilities. In addition, from a guidance perspective, due to the broader trend of lower-than-expected wind resources so far in 2021, we are factoring in approximately 5 cents per share for the impact of lower-projected wind resources for the remainder of the year. Elite's financial position is supported by a strong balance sheet that includes a cash balance of $63 million, and our debt-to-capital ratio was 43 percent as of June 30, 2021. And I'll turn it over to Bob comments on our longer-term growth outlook.