Allete, Inc.

Good day, and welcome to the Elite Second Quarter 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 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 put undue reliance on forward-looking statements which reflect management reviews only as of 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. Again, welcome to Elite's conference call announcing second quarter 2022 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you'll need to press star 1 1 on your phone. Again, as a reminder, this call is being recorded, and I would now like to turn the call over to Bethany Owen, Chair, President, and CEO. You may begin.

Thank you, and good morning, everyone, and thanks for joining us today. With me are Elite Senior Vice President and Chief Financial Officer Steve Morris 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 2022 earnings of 67 cents per share compared to 53 cents per share in 2021. The financial results for the quarter were impacted by transaction fees of 3 cents per share and purchase price accounting effects of 7 cents per share, both related to the recent acquisition of new energy equity. Steve will be providing more financial details from the quarter in a moment. We're very pleased with our progress on key initiatives already in 2022. New energy equity is off to a great start. As one of the nation's leading distributed solar developers, the talented New Energy team brings significant distributed and community solar expertise and experience to a lead, along with a proven track record of financial success and a strong pipeline of future projects. The New Energy quarter was in line with expectations, and they are on track with our original projections for the year. They closed on 15 megawatts of projects, and with strong originations, they've maintained their total pipeline of prospective projects well above 2,000 megawatts. This solid execution and strong pipeline of future projects have only enhanced our great confidence in the new energy team and our belief in the resiliency and strength of this business. Our regulated businesses are also in execution mode as they firm up plans for further investment in the clean energy transformation, including significant regulatory engagement with Minnesota Power and Superior Water, Light, and Power rate cases well underway. Just last week, we shared significant and really exciting news for Minnesota Power. Please refer to slide three. MISO approved the first set of projects in their long-range transmission plans and included in Tranche 1 is a joint transmission project to be constructed and owned by Minnesota Power and Great River Energy. This transformative project is a $970 million 150-mile transmission line connecting northern and central Minnesota. We filed a notice of intent with the Minnesota Public Utilities Commission on Monday, and a combined certificate of need and route permit filing will follow within the next 18 months. We expect to have the transmission line in service in 2030, supporting and strengthening the reliability and resilience of the grid in the Upper Midwest as we continue our clean energy transition. This transmission investment is in addition to Minnesota Power's plans to expand and modernize our existing 550 megawatt HVDC transmission line and Elite's investment in the American Transmission Company, all important examples of our significant transmission investment strategy already in motion. Regarding Minnesota Power's customers, On June 28th, U.S. Steel announced plans to invest approximately $150 million to enable production of direct reduced or DR grade pellets. These pellets will be feedstock for direct reduced iron or hot briquetted iron processes to satisfy the growing demand for steel making in electric arc furnaces. Then just last week, U.S. Steel announced that it will break ground on this upgrade at its Keewatin taconite facility this fall. Following the upgrade, Keetac will be able to produce DR grade pellets while maintaining the optionality to continue producing blast furnace grade pellets. The Keetac facility is a large power industrial customer of Minnesota Power and we congratulate U.S. Steel on this exciting new investment in northern Minnesota. We're also very encouraged by the proposed Inflation Reduction Act bill, which largely maintains core tax credits included in last year's House-passed legislation. Transferability of tax credits could unlock additional value as elites businesses continue to develop clean energy projects. The standalone storage investment tax credit, optionality for both investment and production tax credits for solar, advanced manufacturing credits, and domestic content incentives for wind, solar, batteries, and critical minerals are all in the latest version of the bill, with batteries and minerals being a major new addition. We believe this bill bodes well for elite businesses and for our customers and our current projects and provides potentially significant benefits for our future clean energy projects. Like everyone, we'll continue to closely follow developments in the bill as it works its way through the legislative process. Elite's family of businesses described on slide four 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 second quarter 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 five and six for significant variances and other items for comparison considerations. Today, Elite reported second quarter 2022 earnings of 67 cents per share on net income of $37.6 million. Earnings in 2021 were $0.53 per share on net income of $27.9 million. Net income this quarter included transaction costs of $1.6 million after tax or $0.03 per share and purchase price accounting impacts of $4 million after tax or $0.07 per share related to the acquisition of new energy. A few details from our business segments. Elite's regulated operation segment recorded second quarter 2022 net income of $29.6 million compared to $21.5 million in 2021. Earnings reflect higher net income at Minnesota Power primarily due to the implementation of interim rates on January 1st, 2022. This increase was partially offset by higher costs under a 250 megawatt purchase power agreement and lower kilowatt hour sales to industrial customers. Our taconite customers started the year with full production. However, Cleveland Cliffs announced an idling of its North Shore mining facility that commenced in May and is now expected to continue through April of 2023. As a result, as we factored such variability into the Minnesota Power Rate case, taconite production is expected to be slightly lower than our sales forecast estimates of approximately 35 million tons. Our remaining taconite customers have nominated at full production levels for the rest of the year. Elite Clean Energy recorded second quarter 2022 net income of $5.8 million compared to $5.1 million in 2021. Net income in 2022 reflects higher wind resources compared to 2021, partially offset by losses under the CATA Wind Energy Facility's power sales agreement resulting from market volatility and transmission congestion in the southwest power pool. Our corporate and other businesses, which includes New Energy, B&I Energy, our investment in the Nobles II Wind Energy Facility and Elite Properties recorded net income of $2.2 million compared to net income of $1.3 million in 2021. Results in 2022 reflect higher earnings from our investment in the Nobles II Wind Energy Facility, reflecting higher wind resources and higher land sales at Elite Properties. These increases were offset by a partial quarter net loss from new energy of $1.1 million after tax, including purchase price accounting impacts, which negatively affected results by $4 million after tax. The purchase price accounting impacts are expected to be largely completed by the end of this year. Net income for the second quarter also included transaction fees of $1.6 million after tax related to the new energy acquisition. Earnings per share dilution in the second quarter was approximately $0.05 due to additional shares of common stock outstanding as of June 30th. Next, I'll turn to our 2022 earnings guidance. We are reaffirming our full year 2022 earnings guidance of $3.60 to $3.90 per share. Please refer to slide seven for a view of new energy. Keep in mind that under ELEATS ownership, new energy's partial year financial results for 2022 will be affected by transaction costs and purchase price accounting. And overall, we expect immaterial earnings this year. Excluding these items, New Energy is expected to be accretive this year, and we anticipate meaningful accretion in their first full year of ownership in 2023. Turning to Elite Clean Energy, which is busy executing on its strategic initiatives. In July, Elite Clean Energy entered into amended purchase and sale agreements with a subsidiary of Xcel Energy to sell two separate wind energy facilities, the Northern Wind Project and the Rock Etna Project for approximately $215 million in total. This is previously referred to as Project Nord. The Northern Wind Project entails a repowering expansion and sale of Elite Clean Energy's 98 megawatt Shantarambe Viking wind energy facility. Construction commenced in the second quarter of 2022 and is expected to be completed later this year. The Rock Etna project will be a new 22 megawatt wind energy facility, which has begun construction and is expected to be completed in 2023. The purchase and sales agreements are subject to MPUC approval. Elite Clean Energy also continues to advance the 92 megawatt red barn build transfer project and is on track for a 2023 closing. Finally, Elite's financial position is supported by a strong balance sheet that includes cash and cash equivalents, of $75 million, $377 million in available consolidated lines of credit, and a debt-to-capital ratio of 37% as of June 30, 2022. I'll now turn it back to Bethany for her closing remarks. Bethany?