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spk02: 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.
spk00: 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?
spk01: 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?
spk00: Thank you for that update, Steve. As I mentioned, we're pleased with our progress executing Elite's strategy through the first half of 2022. It's been a busy start to the year, to say the least, and we have much yet to do. We're looking forward to sharing more in the coming quarters. Before we open the line for your questions, I'd like to make a few additional comments. Both Minnesota Power and Superior Water, Light and Power are in the midst of rate case proceedings in their respective states. On June 1st, Superior Water, Light and Power refiled its rate case with the Public Service Commission of Wisconsin, seeking an average increase of 3.6% for retail customers. an overall return on equity of 10.4%, and a 55% equity ratio. On an annualized basis, the requested final rate increase would generate approximately $4.3 million of additional revenue beginning in January 2023. All of this will support Superior's plans to continue to upgrade infrastructure and maintain the resilience, reliability, and high quality of services for customers. On the Minnesota Power side, the current rate case and integrated resource plan are proceeding through Minnesota's regulatory processes with anticipated MPUC hearings this fall. We're confident in the quality of the case Minnesota Power filed, and with interim rates in effect the beginning of this year, we believe we are off to a constructive start that supports Minnesota Power's financial health and ability to continue the clean energy transition while delivering safe, resilient, reliable, and affordable service to our customers. This clean energy transition detailed in Minnesota Power's Integrated Resource Plan reflects our commitment to the climate, our customers, and our communities. MISO's Long Range Transmission Plan also supports Minnesota Power's Energy Forward Strategy with projects that are critical to the reliability and resiliency of the regional power grid As renewable energy is added, existing power plants are retired, extreme weather events become more frequent, and electrification of our economy advances. One last but important call-out. On July 6th, Elite welcomed Charles Matthews to the Board of Directors. Charles brings more than 40 years of extensive energy industry experience, leadership, and expertise, and we couldn't be more pleased to welcome him to the Elite Board. We're very pleased with our execution and positioning already in 2022, setting the stage for future growth with much more to come as the year plays out. Two important rate cases, the results of Minnesota Power's IRP, the addition of significant solar capabilities from New Energy, and Elite Clean Energy's progress on build transfer projects and optimization of its portfolio. As investors and others continue to expect more transparency and sustainability commitments and progress, we are delivering. Please refer to slide nine, which contains several links to important sustainability information, including our recently updated corporate sustainability report for 2021. We look forward to sharing more with you throughout the year as Elite continues putting sustainability into action. leading the way to a sustainable clean energy future. Thank you for your interest and your investment in ELITE. At this time, I'll ask the operator to open the line for your questions.
spk02: Thank you. As a reminder, to ask a question, you'll need to press Star 1-1 on your phone. Please stand by as we compile the Q&A roster. Our first question comes from Julian Dumoulin-Smith of Bank of America. Your line is open.
spk04: Hey, good morning. This is Darius for Julian. Thank you for taking my question. Just wanted to touch on the comments you made during the opening remarks about the potential pending legislation, the IRA Act. Can you maybe talk a little bit about it? I realize it's preliminary, but maybe address any kind of work you've done around potential impact on your credit metrics, What specific provisions you see as particularly applicable or beneficial as you look through the legislation?
spk01: Yeah. Hi, Jerry. Steve Morris here. Yeah, we're still evaluating our overall credit metric impact. We think it actually could be a positive thing for us. Of course, we're not going to be impacted by the minimum tax either, which many companies are. It's also a positive, but still evaluating the pieces and parts and how that may impact us.
spk04: Got it. Certainly, I can appreciate that, and thank you for the color. One more, if I can, on some of the additional disclosures you guys have around new energy. Looks like you disclosed closing 15 megawatts and gave some – updates on the net loss, inclusive of some one-time items. Can you talk a little bit about how that tracks against your full-year expectations? I think you guys in a couple of prior updates have indicated that the 21 run rate EBITDA, you're looking at 10% growth. Just wondering how your early experiences are tracking versus those targets.
spk00: Yeah, thanks for the question. Yeah, as I mentioned, New Energy is definitely on track with our expectations both for the quarter but also projections for the remainder of the year. So they're doing a great job.
spk01: Yeah, keep in mind it is a partial quarter, so don't read too much in trying to extrapolate this quarter to the rest of the year.
spk04: Okay, certainly. Thank you for clarifying. If I could just ask one more on the utility side of things. As you mentioned in the opening remarks, I think there were some moving parts that caused your sales to industrials to be lower on a year-on-year basis. Can you comment on how that compares against what's embedded in your full-year forecast? I realize that you reaffirmed your full-year guidance, but just curious if there were any moving parts within that full-year guidance as you're incorporating the Q2 results.
spk05: Yeah, thanks, Darius. Frank Fredrickson here. I'll take that. And, you know, we forecasted, as Steve mentioned, about 35 million tons production out of taconite this year, and that's also a factor into the test year forecast for the company's rate case that we filed So the changes that have happened throughout the year have resulted in production being just slightly lower than our forward estimates of about 35 million ton, but generally I'd say in line with our forecasting and our assumptions.
spk01: And also what we filed in our rate case, too. Yeah.
spk04: Excellent. Well, thank you very much. I will leave it there.
spk00: Thank you.
spk02: Thank you. Thank you. And again, to ask a question, please press star 11 on your phone. One moment for our next question. And our next question will come from Brian Russo of Sedoti. Your line is open.
spk03: Hi, good morning. Good morning, Brian. Hey, the recently 18 projects by MISO and the Tranche 1, certainly highlights, you know, the value of a lot of transmission, especially the line you discussed, you know, 970 million per 150 miles. I'm just curious, how do you see the value in this DC expansion strategy, transmission line strategy, you know, that you have? And does it at all alter or change or, you know, enhance, you know, the expansion of that?
spk00: Brian, this is Bethany. You know, it doesn't alter. It only enhances the grid. I would just say the upper Midwest is going to need all of the above, and the DC line and our planned expansion of the DC line is a critical part of enhancing the reliability and the resiliency of the upper Midwestern grid. So it's not – it's in addition to, in addition to.
spk03: Okay. And then on the large power customers and – the 35 million tons of production. Just to clarify, does that include Ketak with its new investment in the facility? Is that going to be idled or offline or ratcheted down in use of power until that investment is completed through later this year?
spk05: Hey, Brian, Frank Frederickson here. I appreciate that question. So, you know, we're excited, as Bethany mentioned, about U.S. Steel's investment in Key Tech, where they'll be able to enhance the products that they can make out of that facility so that they'll not only make what they make today in blast furnace pellets, but also be capable of making an advanced DR-grade pellet to feed electric arc furnaces. And as their announcement said, they're going to break ground on the project this fall, and they're going to do that at the same time as they're operating. So it's not going to impact any of their operation as they add on some of the necessary processing components in the facility so that they can be able to make that advanced DR-grade product. I think they've put out in their investor deck that they're
spk03: looking at this project breaking ground and continuing work through 23 and 24. okay got it and so how do we try to triangulate all of that with you know whatever the the latest nominations by the large power customers uh were you know obviously less than 100 yeah thanks for the follow-up so the
spk05: Nominations that we got in August 1st indicate, you know, other than what we've shared with Cleveland Cliffs' North Shore facility extending their outage through April of 2023, the nominations indicate that the remaining taconite facilities will be right at full production throughout the rest of 2022. So when you add it all together, it floats in at a total estimated production level this year just slightly lower than our 35 million ton budget that we had in our guidance and just slightly lower than what we also filed for our budgeted taconite sales in the rate case. So relatively close, I'll just say, but slightly lower.
spk03: Sorry. Understood. And then just lastly, there was some news out of PolyMet and some joint venture, and I think They're assuming initial production in 2026. I know this has been in development for many years, but I'm just wondering, I don't think this project is included in the IRP, but do you have enough generation capacity to serve a new customer of that size if and when that project ever proceeds?
spk05: Yeah, so thanks for the question. So it is an exciting announcement of PolyMet and Tech Resources kind of joining together as a new range, copper mining and copper nickel, so that they'll be able to kind of join forces on the business end. But as they mentioned, the two projects, the one PolyMet was pursuing and the one Tech was pursuing, are independent projects that are now going to be managed, operated by one entity. Getting to the root of your question, we have a robust transmission system up in this area. We've been supplying mining for over a century, and we are fully prepared and capable as they continue to develop these resources, which really are bringing forward necessary minerals for the green energy sector. transition, you know, both in copper and nickel. It's a significant resource and one of the only resources of nickel in America, in the United States. So it's an important customer and announcement, and yes, to answer your question, we have the capability to serve them as they bring these projects to fruition.
spk03: Okay, great. Thank you very much.
spk00: Thanks, Brian.
spk02: Thank you. And remember, to ask a question or make a comment, please press star 1 1 on your phone. One moment as we compile the Q&A roster. And I'm seeing no further questions in the queue. I would now like to turn the conference back to Bethany Owen for closing remarks.
spk00: Thank you. Steve, Frank, and I thank you again for being with us this morning and for your investment and interest in ELEAD. We look forward to speaking with many of you at investor venues in the coming months, and we hope you enjoy the rest of your day.
spk02: This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.
spk04: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
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