Allete, Inc.

Good day and welcome to the ELEC first quarter 2022 financial results call. Today's call is being recorded. Certain statements contained in this conference call that are not descriptions of historical facts are forward-looking statements such as terms defined in the Private Securities Litigation Reform Act of 1995. Because such statements can include risks 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 the 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 reflect management 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. Welcome to the Allat First Quarter 2022 Financial Results Call. For opening remarks and introductions, I'd now like to turn the conference over to ELIT Chair, President and Chief Executive Officer, Ms. Bethany Owen. Please go ahead.

Good morning, everyone, and thanks for joining us today. With me are ELIT's Senior Vice President and Chief Financial Officer, Steve Morris, Jeff Sisson, Elite Clean Energy's Chief Financial and Strategy Officer, 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 first quarter 2022 earnings of $1.24 per share on net income of $66.3 million. Last year's results were $0.99 per share on net income of $51.8 million. Our financial results for the quarter were firmly in line with our expectations and support Elite's full year earnings guidance range of $3.60 to $3.90 per share, which we originally shared in February. Steve will be providing more financial details from the quarter in a moment. Please refer to slides three through five. We are in full execution mode on LEED's sustainability in action strategy, including advancing renewables, reducing carbon, strengthening the electric grid, and developing innovative sustainability solutions. We're proud to be recognized as a leader in advancing clean energy, and we're not just talking about the importance of sustainability, we're putting sustainability into action. And slide four proves that. As a recent independent study ranked Elite as the number one largest investor in renewable energy as a percentage of market cap among all investor-owned energy companies in the country. And that doesn't even include the latest exciting milestone in Elite's strategy. our significant entry into the solar space with the acquisition of New Energy Equity, one of the nation's leading distributed solar developers. We've signaled our plan to move into the solar industry for some time, and we know we've found the right company to position us well. The talented New Energy team brings significant distributed and community solar expertise and experience to elites. along with a proven track record of financial success and a strong pipeline of future projects. We believe the distributed solar space has tremendous optionality for future growth, as solar plays an increasingly important role in the country's clean energy transformation. New Energy's distributed-scale projects have higher returns than larger utility-scale projects, also helping to mitigate supply chain risk. The company has a proven ability to grow organically through greenfield development and strategic partnerships, enabling New Energy to establish a meaningful presence in new and existing markets. The addition of New Energy solidifies and even enhances the drivers of Elite's long-term average annual EPS growth objective of 5% to 7%. It enhances our strong portfolio of companies and capabilities and brings new growth opportunities, and we could not be more excited about Elite's future. Elite's family of businesses, all listed on slide five, provides unique value, supporting long-term earnings and dividend growth. Sustainability is the very foundation of our strategy, and each of our businesses is playing an important role as we lead the way to a sustainable, clean energy future. Now I'll turn it over to Steve for further details on our Q1 financial results and our full-year earnings guidance. 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 6 and 7 for significant variances and other items for comparison considerations. Today, Elite reported first quarter 2022 earnings of $1.24 per share on net income of $66.3 million, earnings in 2021 were $0.99 per share on net income of $51.8 million. Net income in 2022 included transaction costs of $1.4 million after tax or $0.03 per share related to the acquisition of new energy. Net income in 2021 included an approximately $5 million after-tax or 10 cents per share negative impact related to Elite Clean Energy's Diamond Spring Wind Energy Facility due to an extreme winter storm event in the southwestern United States in February 2021. A few details from our business segments. Elite's regulated operations segment recorded first quarter 2022 net income of $51.5 million in compared to $45 million in 2021. Earnings reflect higher net income at Minnesota Power, primarily due to the implementation of interim rates on January 1st, 2022, and higher kilowatt-hour sales to residential and commercial customers due to colder weather conditions as compared to last year. These increases were partially offset by higher costs under a power purchase agreement, higher operating and maintenance expense, and lower kilowatt-hour sales to industrial customers. Our taconite customers started the year with full production. However, one customer experienced some operational curtailments in the first quarter, and another announced an idling at one facility that commenced in May and is expected to continue through this fall. As a result, and as we factored such variability into the Minnesota power rate case, taconite production is expected to be in line with our sales forecast estimates of approximately 35 million tons. On average, Taconite production over the years is approximately at the 35 million ton level. As you might recall, Minnesota Power has asked for a large power sales true-up mechanism in its recently filed rate case to fairly balance this type of variation in sales between customers and investors. Elite Clean Energy recorded first quarter 2022 net income of $16.5 million in compared to $7.4 million in 2021. Net income in 2022 reflects higher wind resources compared to last year. Net income in 2021 included an approximately $5 million after-tax negative impact at Elite Clean Energy's Diamond Spring Wind Energy Facility related to an extreme winter storm event in February 2021. Our corporate and other businesses, which includes B&I Energy, Elite Properties, and our investment in the Nobles II wind energy facility recorded a net loss of $1.7 million compared to net loss of $600,000 in 2021. Results this quarter reflect $1.4 million after tax of transaction costs related to the new energy acquisition and higher expenses as compared to 2021, partially offset by higher earnings from our investment in the Nobles II wind energy facility this quarter, reflecting higher wind resources. I'll now turn to our 2022 earnings guidance. As you know, in April, we executed on significant initiatives in support of our long-term growth objectives, the acquisition of new energy and the equity financing which funded this acquisition and previously anticipated amounts related to the cattle project, all considered we are affirming our full year 2022 earnings guidance of $3.60 to $3.90 per share and anticipate immaterial net impacts on consolidated 2022 earnings from these initiatives. Please refer to slide eight for a view of new energy. Keep in mind that under a lease ownership, new energy's partial year financial results for 2022 will be impacted by transaction costs and purchase price accounting. Excluding these items, the acquisition of new energy is expected to be accretive to ELITE this year, and we anticipate meaningful accretion in the first full year of our ownership in 2023. New energy has successfully completed more than 250 distributed solar projects across the nation, totaling more than 330 megawatts. and we are confident in New Energy's ability to replicate successful execution and profitability on future projects as the company has a robust and diversified development pipeline of over 2 gigawatts across 26 states that positions the company to achieve profitable growth over the next several years. We anticipate providing you with additional details from New Energy's financial results beginning in the second quarter of this year. In addition, we would be remiss if we did not address the supply chain challenges currently facing the solar industry and recent focus by the U.S. Department of Commerce on imported solar components. The U.S. Department of Commerce investigation is having a material impact on the solar market broadly, and new energy is not immune. We were well aware of supply chain concerns and inflationary pressures during our diligence and spent a considerable amount of time and resources on research. The current market for modules is in the range of sensitivities that allows new energy to meet their financial targets, and the distributed solar development model continues to be well positioned with flexibility around the timing of monetization and higher margin projects relative to utility scale. Over the long term, we do expect a supportive operating environment for renewable and solar to enable the clean energy transition, and we will continue to navigate the current challenges in a disciplined manner. Please refer to slide 9 for a view of projects in the pipeline at Elite Clean Energy. Elite Clean Energy continues to seek opportunities to optimize its existing PTC safe harbor wind turbines and enhance future return of the existing portfolio. The 92-megawatt red barn build transfer project not only provides an opportunity to utilize safe harbor turbines, but also expands our customer base and presence in another geographic region of the country. This project is on track for a closing in 2023. Also in Wisconsin, the 67-megawatt whitetail development project is positioned to move forward and has optionality in the region for either a longer-term PPA or build-on transfer project. The Northern Wind Project with Xcel Energy entails a repowering, expansion, and planned sale of Elite Clean Energy's Shannarambi Viking Wind Energy Facilities, and construction is poised to begin soon. Elite Clean Energy continues to navigate supply chain and inflationary pressures on this project to maximize the value upon closing later this year. Finally, Elite's financial position is supported by a strong balance sheet that includes cash and cash equivalents, of $60 million, $330 million in available consolidated lines of credit, and our debt-to-capital ratio was 38% as of March 31, 2022. I'll now turn it back to Bethany for her closing remarks. Bethany?