UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, ~~2021~~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

ALLETE, Inc.

(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 class	Trading symbol	Name of each exchange on which registered
Common Stock, without par value	ALE	New 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,

~~52,572,466~~57,161,878 shares outstanding

as of September 30, ~~2021~~2022

Index




Definitions			3

Forward-Looking Statements			5

Part I.	Financial Information

	Item 1.	Consolidated Financial Statements - Unaudited	6

		Consolidated Balance Sheet	6


		Consolidated Statement of Income	7


		Consolidated Statement of Comprehensive Income	8


		Consolidated Statement of Cash Flows	9


		Consolidated Statement of Equity	10


		Notes to Consolidated Financial Statements	11

		Note 1. Operations and Significant Accounting Policies	11


		Note 2. Regulatory Matters	1314
		Note 3. Acquisitions	16
		Note 4. Equity Investments	17

		Note 4.5. Fair Value	17
		Note 5.6. Short-Term and Long-Term Debt	19
		Note 6.7. Commitments, Guarantees and Contingencies	20
		Note 7.8. Earnings Per Share and Common Stock	2526
		Note 8.9. Income Tax Expense	26

		Note 9.10. Pension and Other Postretirement Benefit Plans	2728
		Note ~~10.~~11. Business Segments	2728
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2930

		Comparison of the Quarters Ended	3132
		Comparison of the Nine Months Ended	3436
		Critical Accounting Policies	3739
		Outlook	3840
		Liquidity and Capital Resources	4643
		Other	4845
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4945

	Item 4.	Controls and Procedures	4946

Part II.	Other Information

	Item 1.	Legal Proceedings	5046

	Item 1A.	Risk Factors	5047

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5047

	Item 3.	Defaults Upon Senior Securities	5047

	Item 4.	Mine Safety Disclosures	5047

	Item 5.	Other Information	5148

	Item 6.	Exhibits	5248

Signatures			5349

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

Definitions

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 Acronym			Term
AFUDC			Allowance for Funds Used During Construction – the cost of both debt and equity funds used to finance regulated utility plant additions during construction periods
ALLETE			ALLETE, Inc.
ALLETE Clean Energy			ALLETE Clean Energy, Inc. and its subsidiaries
ALLETE Properties			ALLETE Properties, LLC and its subsidiaries
ALLETE South Wind			ALLETE South Wind, LLC
ALLETE Transmission Holdings			ALLETE Transmission Holdings, Inc.

ArcelorMittal			ArcelorMittal S.A.
ATC			American Transmission Company LLC

~~Basin~~			~~Basin Electric Power Cooperative, a North Dakota cooperative corporation~~
Bison			Bison Wind Energy Center
BNI Energy			BNI Energy, Inc. and its subsidiary
Boswell			Boswell Energy Center
~~Camp Ripley~~			~~Camp Ripley Solar Array~~

Cliffs			Cleveland-Cliffs Inc.

Company			ALLETE, Inc. and its subsidiaries

COVID-19			2019 novel coronavirus
CSAPR			Cross-State Air Pollution Rule
DC			~~Direct Current~~
~~EIS~~			~~Environmental Impact Statement~~

EPA			United States Environmental Protection Agency

ESOP			Employee Stock Ownership Plan

FERC			Federal Energy Regulatory Commission
Form 10-K			ALLETE Annual Report on Form 10-K
Form 10-Q			ALLETE Quarterly Report on Form 10-Q
GAAP			Generally Accepted Accounting Principles in the United States of America
GHG			Greenhouse Gases
~~GNTL~~			~~Great Northern Transmission Line~~


Hibbing Taconite			Hibbing Taconite Co.
~~Husky Energy~~			~~Husky Energy Inc.~~
Invest Direct			ALLETE’s Direct Stock Purchase and Dividend Reinvestment Plan
IRP			Integrated Resource Plan
Item ___			Item ___ of this Form 10-Q
kV			~~Kilovolt(s)~~
~~kW /~~ kWh			~~Kilowatt(s) /~~ Kilowatt-hour(s)
Laskin			Laskin Energy Center
Lampert Capital Markets			Lampert Capital Markets, Inc.

Manitoba Hydro			Manitoba Hydro-Electric Board


Minnesota Power			An operating division of ALLETE, Inc.
Minnkota Power			Minnkota Power Cooperative, Inc.
MISO			Midcontinent Independent System Operator, Inc.
~~MMTP~~			~~Manitoba-Minnesota Transmission Project~~

Moody’s			Moody’s Investors Service, Inc.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~


~~Abbreviation or Acronym~~			~~Term~~
MPCA			Minnesota Pollution Control Agency
MPUC			Minnesota Public Utilities Commission
MW ~~/ MWh~~			Megawatt(s) ~~/ Megawatt-hour(s)~~
NAAQS			National Ambient Air Quality Standards

~~NDPSC~~New Energy			~~North Dakota Public Service Commission~~New Energy Equity LLC
Nobles 2			Nobles 2 Power Partners, LLC
NOL			Net Operating Loss

NOX			Nitrogen Oxides

ALLETE, Inc. Third Quarter 2022 Form 10-Q


Abbreviation or Acronym			Term
Northshore Mining			Northshore Mining Company, a wholly-owned subsidiary of Cleveland-Cliffs Inc.
Note ___			Note ___ to the Consolidated Financial Statements in this Form 10-Q
NPDES			National Pollutant Discharge Elimination System
NTEC			Nemadji Trail Energy Center
~~Oliver Wind I~~			~~Oliver Wind I Energy Center~~
~~Oliver Wind II~~			~~Oliver Wind II Energy Center~~

~~PolyMet~~			~~PolyMet Mining Corp.~~

PPA / PSA			Power Purchase Agreement / Power Sales Agreement
PPACA			Patient Protection and Affordable Care Act of 2010
PSCW			Public Service Commission of Wisconsin
SEC			Securities and Exchange Commission
Silver Bay Power			Silver Bay Power Company, a wholly-owned subsidiary of Cleveland-Cliffs Inc.

SO2			Sulfur Dioxide
Square Butte			Square Butte Electric Cooperative, a North Dakota cooperative corporation
South Shore Energy			South Shore Energy, LLC
ST Paper			ST Paper LLC
SWL&P			Superior Water, Light and Power Company
Taconite Harbor			Taconite Harbor Energy Center




~~Town Center District~~			~~Town Center at Palm Coast Community Development District in Florida~~

U.S.			United States of America
USS Corporation			United States Steel Corporation
~~WTG~~			~~Wind Turbine Generator~~

ALLETE, Inc. Third Quarter ~~2021~~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;~~regulations or changes in tax rates or policies;

•changes in ~~tax rates or policies or in~~ rates of ~~inflation;~~inflation or availability of key materials and supplies;

•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 ~~not improve;~~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 ~~2020~~2021 Form 10-K and Part II, Item 1A. Risk Factors of this Form 10-Q. 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. Third Quarter ~~2021~~2022 Form 10-Q

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ALLETE

CONSOLIDATED BALANCE SHEET

Unaudited


		September 30, 2021	December 31, 2020		September 30, 2022	December 31, 2021
Millions	Millions			Millions
Assets	Assets			Assets
Current Assets	Current Assets			Current Assets
Cash and Cash Equivalents	Cash and Cash Equivalents	$59.0	$44.3	Cash and Cash Equivalents	$42.1	$45.1
Accounts Receivable (Less Allowance of $2.1 and $2.5)		110.2	111.9
Accounts Receivable (Less Allowance of $1.5 and $1.8)				Accounts Receivable (Less Allowance of $1.5 and $1.8)	120.5	123.7
Inventories – Net	Inventories – Net	89.6	74.2	Inventories – Net	472.2	97.7
Prepayments and Other	Prepayments and Other	19.9	24.5	Prepayments and Other	87.4	24.8
Total Current Assets	Total Current Assets	278.7	254.9	Total Current Assets	722.2	291.3
Property, Plant and Equipment – Net	Property, Plant and Equipment – Net	5,053.1	4,840.8	Property, Plant and Equipment – Net	5,011.0	5,100.2
Regulatory Assets	Regulatory Assets	502.9	480.9	Regulatory Assets	447.1	511.8
Equity Investments	Equity Investments	317.8	301.2	Equity Investments	320.3	318.0

Goodwill and Intangible Assets – Net				Goodwill and Intangible Assets – Net	155.8	0.8
Other Non-Current Assets	Other Non-Current Assets	179.7	206.8	Other Non-Current Assets	201.6	212.9
Total Assets	Total Assets	$6,332.2	$6,084.6	Total Assets	$6,858.0	$6,435.0
Liabilities and Equity	Liabilities and Equity			Liabilities and Equity
Liabilities	Liabilities			Liabilities
Current Liabilities	Current Liabilities			Current Liabilities
Accounts Payable	Accounts Payable	$101.9	$110.0	Accounts Payable	$124.3	$111.0
Accrued Taxes	Accrued Taxes	67.4	59.4	Accrued Taxes	69.5	65.1
Accrued Interest	Accrued Interest	15.3	19.8	Accrued Interest	15.1	20.1
Long-Term Debt Due Within One Year	Long-Term Debt Due Within One Year	377.4	203.7	Long-Term Debt Due Within One Year	308.6	214.2

Other	Other	84.0	66.7	Other	188.5	133.0
Total Current Liabilities	Total Current Liabilities	646.0	459.6	Total Current Liabilities	706.0	543.4
Long-Term Debt	Long-Term Debt	1,649.4	1,593.2	Long-Term Debt	1,653.0	1,763.2
Deferred Income Taxes	Deferred Income Taxes	187.1	195.7	Deferred Income Taxes	177.0	185.7
Regulatory Liabilities	Regulatory Liabilities	509.5	524.8	Regulatory Liabilities	527.4	536.1
Defined Benefit Pension and Other Postretirement Benefit Plans	Defined Benefit Pension and Other Postretirement Benefit Plans	207.6	225.8	Defined Benefit Pension and Other Postretirement Benefit Plans	171.9	179.5
Other Non-Current Liabilities	Other Non-Current Liabilities	278.1	285.3	Other Non-Current Liabilities	268.8	280.8
Total Liabilities	Total Liabilities	3,477.7	3,284.4	Total Liabilities	3,504.1	3,488.7
Commitments, Guarantees and Contingencies (Note 6)		0	0
Commitments, Guarantees and Contingencies (Note 7)				Commitments, Guarantees and Contingencies (Note 7)
Equity	Equity			Equity
ALLETE Equity	ALLETE Equity			ALLETE Equity
Common Stock Without Par Value, 80.0 Shares Authorized, 52.6 and 52.1 Shares Issued and Outstanding		1,496.5	1,460.9
Common Stock Without Par Value, 80.0 Shares Authorized, 57.2 and 53.2 Shares Issued and Outstanding				Common Stock Without Par Value, 80.0 Shares Authorized, 57.2 and 53.2 Shares Issued and Outstanding	1,777.2	1,536.7

Accumulated Other Comprehensive Loss	Accumulated Other Comprehensive Loss	(29.9)	(31.1)	Accumulated Other Comprehensive Loss	(23.8)	(23.8)
Retained Earnings	Retained Earnings	873.4	864.8	Retained Earnings	929.2	900.2
Total ALLETE Equity	Total ALLETE Equity	2,340.0	2,294.6	Total ALLETE Equity	2,682.6	2,413.1
Non-Controlling Interest in Subsidiaries	Non-Controlling Interest in Subsidiaries	514.5	505.6	Non-Controlling Interest in Subsidiaries	671.3	533.2
Total Equity	Total Equity	2,854.5	2,800.2	Total Equity	3,353.9	2,946.3
Total Liabilities and Equity	Total Liabilities and Equity	$6,332.2	$6,084.6	Total Liabilities and Equity	$6,858.0	$6,435.0

The accompanying notes are an integral part of these statements.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

ALLETE

CONSOLIDATED STATEMENT OF INCOME

Unaudited


		Quarter Ended		Nine Months Ended			Quarter Ended		Nine Months Ended
		September 30,		September 30,			September 30,		September 30,
		2021	2020	2021	2020		2022	2021	2022	2021
Millions Except Per Share Amounts	Millions Except Per Share Amounts					Millions Except Per Share Amounts
Operating Revenue	Operating Revenue					Operating Revenue
Contracts with Customers – Utility	Contracts with Customers – Utility	$304.8	$255.1	$888.2	$721.2	Contracts with Customers – Utility	$322.6	$304.8	$960.3	$888.2
Contracts with Customers – Non-utility	Contracts with Customers – Non-utility	37.7	35.9	123.4	119.0	Contracts with Customers – Non-utility	64.5	37.7	178.3	123.4
Other – Non-utility	Other – Non-utility	2.9	2.9	8.6	8.5	Other – Non-utility	1.2	2.9	6.3	8.6

Total Operating Revenue	Total Operating Revenue	345.4	293.9	1,020.2	848.7	Total Operating Revenue	388.3	345.4	1,144.9	1,020.2
Operating Expenses	Operating Expenses					Operating Expenses
Fuel, Purchased Power and Gas – Utility	Fuel, Purchased Power and Gas – Utility	140.1	93.4	389.4	251.7	Fuel, Purchased Power and Gas – Utility	136.8	140.1	417.4	389.4
Transmission Services – Utility	Transmission Services – Utility	19.2	14.9	56.1	49.8	Transmission Services – Utility	19.3	19.2	57.5	56.1
Cost of Sales – Non-utility	Cost of Sales – Non-utility	15.2	15.4	47.8	48.6	Cost of Sales – Non-utility	38.4	15.2	96.9	47.8
Operating and Maintenance	Operating and Maintenance	66.7	61.9	200.1	181.9	Operating and Maintenance	83.2	66.7	238.1	200.1
Depreciation and Amortization	Depreciation and Amortization	57.5	53.4	173.4	161.3	Depreciation and Amortization	58.7	57.5	181.4	173.4
Taxes Other than Income Taxes	Taxes Other than Income Taxes	15.6	13.3	52.1	40.9	Taxes Other than Income Taxes	18.5	15.6	53.1	52.1
Total Operating Expenses	Total Operating Expenses	314.3	252.3	918.9	734.2	Total Operating Expenses	354.9	314.3	1,044.4	918.9
Operating Income	Operating Income	31.1	41.6	101.3	114.5	Operating Income	33.4	31.1	100.5	101.3
Other Income (Expense)	Other Income (Expense)					Other Income (Expense)
Interest Expense	Interest Expense	(17.3)	(16.3)	(51.8)	(47.9)	Interest Expense	(18.4)	(17.3)	(55.3)	(51.8)
Equity Earnings	Equity Earnings	4.4	5.1	14.3	16.7	Equity Earnings	2.3	4.4	13.1	14.3

Other	Other	1.0	2.9	6.1	9.1	Other	2.3	1.0	16.4	6.1
Total Other Expense	Total Other Expense	(11.9)	(8.3)	(31.4)	(22.1)	Total Other Expense	(13.8)	(11.9)	(25.8)	(31.4)
Income Before Income Taxes	Income Before Income Taxes	19.2	33.3	69.9	92.4	Income Before Income Taxes	19.6	19.2	74.7	69.9
Income Tax Benefit	Income Tax Benefit	(4.9)	(5.5)	(19.3)	(27.8)	Income Tax Benefit	(7.2)	(4.9)	(19.4)	(19.3)
Net Income	Net Income	24.1	38.8	89.2	120.2	Net Income	26.8	24.1	94.1	89.2
Net Loss Attributable to Non-Controlling Interest	Net Loss Attributable to Non-Controlling Interest	(3.5)	(1.9)	(18.1)	(6.9)	Net Loss Attributable to Non-Controlling Interest	(6.9)	(3.5)	(43.5)	(18.1)
Net Income Attributable to ALLETE	Net Income Attributable to ALLETE	$27.6	$40.7	$107.3	$127.1	Net Income Attributable to ALLETE	$33.7	$27.6	$137.6	$107.3
Average Shares of Common Stock	Average Shares of Common Stock					Average Shares of Common Stock
Basic	Basic	52.4	51.9	52.3	51.8	Basic	57.1	52.4	55.5	52.3
Diluted	Diluted	52.5	52.0	52.3	51.9	Diluted	57.2	52.5	55.6	52.3
Basic Earnings Per Share of Common Stock	Basic Earnings Per Share of Common Stock	$0.53	$0.78	$2.05	$2.45	Basic Earnings Per Share of Common Stock	$0.59	$0.53	$2.48	$2.05
Diluted Earnings Per Share of Common Stock	Diluted Earnings Per Share of Common Stock	$0.53	$0.78	$2.05	$2.45	Diluted Earnings Per Share of Common Stock	$0.59	$0.53	$2.48	$2.05

The accompanying notes are an integral part of these statements.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

ALLETE

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Unaudited


		Quarter Ended		Nine Months Ended			Quarter Ended		Nine Months Ended
		September 30,		September 30,			September 30,		September 30,
		2021	2020	2021	2020		2022	2021	2022	2021
Millions	Millions					Millions
Net Income	Net Income	$24.1	$38.8	$89.2	$120.2	Net Income	$26.8	$24.1	$94.1	$89.2
Other Comprehensive Income
Other Comprehensive Income (Loss)						Other Comprehensive Income (Loss)

Unrealized Loss on Securities						Unrealized Loss on Securities
Net of Income Tax Expense of $–, $–, $(0.2) and $–						Net of Income Tax Expense of $–, $–, $(0.2) and $–	—	—	(0.4)	—

Defined Benefit Pension and Other Postretirement Benefit Plans	Defined Benefit Pension and Other Postretirement Benefit Plans					Defined Benefit Pension and Other Postretirement Benefit Plans
Net of Income Tax Expense of $0.1, $0.1, $0.4 and $0.2		0.4	0.2	1.2	0.5
Net of Income Tax Expense of $0.1, $0.1, $0.2 and $0.4						Net of Income Tax Expense of $0.1, $0.1, $0.2 and $0.4	0.1	0.4	0.4	1.2
Total Other Comprehensive Income	Total Other Comprehensive Income	0.4	0.2	1.2	0.5	Total Other Comprehensive Income	0.1	0.4	—	1.2
Total Comprehensive Income	Total Comprehensive Income	24.5	39.0	90.4	120.7	Total Comprehensive Income	26.9	24.5	94.1	90.4
Net Loss Attributable to Non-Controlling Interest	Net Loss Attributable to Non-Controlling Interest	(3.5)	(1.9)	(18.1)	(6.9)	Net Loss Attributable to Non-Controlling Interest	(6.9)	(3.5)	(43.5)	(18.1)
Total Comprehensive Income Attributable to ALLETE	Total Comprehensive Income Attributable to ALLETE	$28.0	$40.9	$108.5	$127.6	Total Comprehensive Income Attributable to ALLETE	$33.8	$28.0	$137.6	$108.5

The accompanying notes are an integral part of these statements.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

ALLETE

CONSOLIDATED STATEMENT OF CASH FLOWS

Unaudited


		Nine Months Ended			Nine Months Ended
		September 30,			September 30,
		2021	2020		2022	2021
Millions	Millions			Millions
Operating Activities	Operating Activities			Operating Activities
Net Income	Net Income	$89.2	$120.2	Net Income	$94.1	$89.2
Adjustments to Reconcile Net Income to Cash provided by Operating Activities:				Adjustments to Reconcile Net Income to Cash provided by Operating Activities:
AFUDC – Equity	AFUDC – Equity	(1.7)	(1.8)	AFUDC – Equity	(2.4)	(1.7)
Income from Equity Investments – Net of Dividends	Income from Equity Investments – Net of Dividends	1.8	(2.3)	Income from Equity Investments – Net of Dividends	3.8	1.8

Gain on Investments and Property, Plant and Equipment		(0.7)	—
Loss (Gain) on Investments and Property, Plant and Equipment				Loss (Gain) on Investments and Property, Plant and Equipment	2.1	(0.7)
Depreciation Expense	Depreciation Expense	173.4	161.3	Depreciation Expense	181.3	173.4
Amortization of PSAs	Amortization of PSAs	(8.6)	(8.5)	Amortization of PSAs	(6.3)	(8.6)
Amortization of Other Intangible Assets and Other Assets	Amortization of Other Intangible Assets and Other Assets	7.4	7.5	Amortization of Other Intangible Assets and Other Assets	6.3	7.4
Deferred Income Tax Benefit	Deferred Income Tax Benefit	(19.4)	(27.9)	Deferred Income Tax Benefit	(19.7)	(19.4)
Share-Based and ESOP Compensation Expense	Share-Based and ESOP Compensation Expense	4.6	4.7	Share-Based and ESOP Compensation Expense	4.2	4.6

Defined Benefit Pension and Postretirement Benefit Expense		3.3	0.1
Provision for Interim Rate Refund		—	5.2
Payments for Tax Reform Refund		—	(0.1)
Defined Benefit Pension and Postretirement Benefit Expense (Benefit)				Defined Benefit Pension and Postretirement Benefit Expense (Benefit)	(2.2)	3.3

Fuel Adjustment Clause				Fuel Adjustment Clause	(3.5)	(30.1)
Bad Debt Expense	Bad Debt Expense	0.9	1.6	Bad Debt Expense	1.4	0.9

Residential Interim Rate Adjustment				Residential Interim Rate Adjustment	(5.9)	—
Changes in Operating Assets and Liabilities	Changes in Operating Assets and Liabilities			Changes in Operating Assets and Liabilities
Accounts Receivable	Accounts Receivable	0.8	2.8	Accounts Receivable	3.2	0.8
Inventories	Inventories	(15.4)	(2.0)	Inventories	(261.4)	(15.4)
Prepayments and Other	Prepayments and Other	7.9	8.8	Prepayments and Other	(7.7)	7.9
Accounts Payable	Accounts Payable	4.0	2.2	Accounts Payable	8.0	4.0
Other Current Liabilities	Other Current Liabilities	20.7	12.5	Other Current Liabilities	63.5	20.7
Cash Contributions to Defined Benefit Pension Plans	Cash Contributions to Defined Benefit Pension Plans	(10.3)	(10.7)	Cash Contributions to Defined Benefit Pension Plans	—	(10.3)
Changes in Regulatory and Other Non-Current Assets	Changes in Regulatory and Other Non-Current Assets	(41.3)	(23.5)	Changes in Regulatory and Other Non-Current Assets	28.0	(11.2)
Changes in Regulatory and Other Non-Current Liabilities	Changes in Regulatory and Other Non-Current Liabilities	(7.4)	(8.2)	Changes in Regulatory and Other Non-Current Liabilities	(5.6)	(7.4)
Cash from Operating Activities		209.2	241.9
Cash provided by Operating Activities				Cash provided by Operating Activities	81.2	209.2
Investing Activities	Investing Activities			Investing Activities
Proceeds from Sale of Available-for-sale Securities	Proceeds from Sale of Available-for-sale Securities	3.3	6.8	Proceeds from Sale of Available-for-sale Securities	1.7	3.3
Payments for Purchase of Available-for-sale Securities	Payments for Purchase of Available-for-sale Securities	(3.0)	(7.2)	Payments for Purchase of Available-for-sale Securities	(1.7)	(3.0)
Acquisition of Subsidiaries - Net of Cash & Restricted Cash Acquired				Acquisition of Subsidiaries - Net of Cash & Restricted Cash Acquired	(155.0)	—
Payments for Equity Method Investments	Payments for Equity Method Investments	(17.4)	(91.0)	Payments for Equity Method Investments	(5.1)	(17.4)

Additions to Property, Plant and Equipment	Additions to Property, Plant and Equipment	(384.3)	(540.8)	Additions to Property, Plant and Equipment	(152.0)	(384.3)

Other Investing Activities	Other Investing Activities	4.3	1.0	Other Investing Activities	1.0	4.3
Cash for Investing Activities		(397.1)	(631.2)
Cash used in Investing Activities				Cash used in Investing Activities	(311.1)	(397.1)
Financing Activities	Financing Activities			Financing Activities
Proceeds from Issuance of Common Stock	Proceeds from Issuance of Common Stock	31.0	12.8	Proceeds from Issuance of Common Stock	244.4	31.0
Equity Issuance Costs				Equity Issuance Costs	(8.1)	—
Proceeds from Issuance of Short-Term and Long-Term Debt	Proceeds from Issuance of Short-Term and Long-Term Debt	510.6	607.4	Proceeds from Issuance of Short-Term and Long-Term Debt	720.5	510.6

Repayments of Short-Term and Long-Term Debt	Repayments of Short-Term and Long-Term Debt	(280.9)	(207.4)	Repayments of Short-Term and Long-Term Debt	(771.0)	(280.9)
Proceeds from Non-Controlling Interest in Subsidiaries		28.9	67.8
Proceeds from Non-Controlling Interest in Subsidiaries - Net				Proceeds from Non-Controlling Interest in Subsidiaries - Net	155.7	28.9

Dividends on Common Stock	Dividends on Common Stock	(98.7)	(96.0)	Dividends on Common Stock	(108.6)	(98.7)
Other Financing Activities	Other Financing Activities	(2.8)	(2.7)	Other Financing Activities	(2.1)	(2.8)
Cash from Financing Activities		188.1	381.9
Cash provided by Financing Activities				Cash provided by Financing Activities	230.8	188.1
Change in Cash, Cash Equivalents and Restricted Cash	Change in Cash, Cash Equivalents and Restricted Cash	0.2	(7.4)	Change in Cash, Cash Equivalents and Restricted Cash	0.9	0.2
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	Cash, Cash Equivalents and Restricted Cash at Beginning of Period	65.2	92.5	Cash, Cash Equivalents and Restricted Cash at Beginning of Period	47.7	65.2
Cash, Cash Equivalents and Restricted Cash at End of Period	Cash, Cash Equivalents and Restricted Cash at End of Period	$65.4	$85.1	Cash, Cash Equivalents and Restricted Cash at End of Period	$48.6	$65.4

The accompanying notes are an integral part of these statements.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

ALLETE

CONSOLIDATED STATEMENT OF EQUITY

Unaudited


		Quarter Ended		Nine Months Ended			Quarter Ended		Nine Months Ended
		September 30,		September 30,			September 30,		September 30,
		2021	2020	2021	2020		2022	2021	2022	2021
Millions Except Per Share Amounts	Millions Except Per Share Amounts					Millions Except Per Share Amounts
Common Stock	Common Stock					Common Stock
Balance, Beginning of Period	Balance, Beginning of Period	$1,474.1	$1,447.7	$1,460.9	$1,436.7	Balance, Beginning of Period	$1,771.7	$1,474.1	$1,536.7	$1,460.9
Common Stock Issued	Common Stock Issued	22.4	6.5	35.6	17.5	Common Stock Issued	5.5	22.4	240.5	35.6

Balance, End of Period	Balance, End of Period	1,496.5	1,454.2	1,496.5	1,454.2	Balance, End of Period	1,777.2	1,496.5	1,777.2	1,496.5

Accumulated Other Comprehensive Loss	Accumulated Other Comprehensive Loss					Accumulated Other Comprehensive Loss
Balance, Beginning of Period	Balance, Beginning of Period	(30.3)	(23.3)	(31.1)	(23.6)	Balance, Beginning of Period	(23.9)	(30.3)	(23.8)	(31.1)
Other Comprehensive Income - Net of Income Taxes	Other Comprehensive Income - Net of Income Taxes					Other Comprehensive Income - Net of Income Taxes

Unrealized Loss on Debt Securities						Unrealized Loss on Debt Securities	—	—	(0.4)	—
Defined Benefit Pension and Other Postretirement Plans	Defined Benefit Pension and Other Postretirement Plans	0.4	0.2	1.2	0.5	Defined Benefit Pension and Other Postretirement Plans	0.1	0.4	0.4	1.2
Balance, End of Period	Balance, End of Period	(29.9)	(23.1)	(29.9)	(23.1)	Balance, End of Period	(23.8)	(29.9)	(23.8)	(29.9)

Retained Earnings	Retained Earnings					Retained Earnings
Balance, Beginning of Period	Balance, Beginning of Period	878.8	841.3	864.8	818.8	Balance, Beginning of Period	932.6	878.8	900.2	864.8
Net Income Attributable to ALLETE	Net Income Attributable to ALLETE	27.6	40.7	107.3	127.1	Net Income Attributable to ALLETE	33.7	27.6	137.6	107.3
Common Stock Dividends	Common Stock Dividends	(33.0)	(32.1)	(98.7)	(96.0)	Common Stock Dividends	(37.1)	(33.0)	(108.6)	(98.7)

Balance, End of Period	Balance, End of Period	873.4	849.9	873.4	849.9	Balance, End of Period	929.2	873.4	929.2	873.4

Non-Controlling Interest in Subsidiaries	Non-Controlling Interest in Subsidiaries					Non-Controlling Interest in Subsidiaries
Balance, Beginning of Period	Balance, Beginning of Period	519.3	166.5	505.6	103.7	Balance, Beginning of Period	678.5	519.3	533.2	505.6
Proceeds from Non-Controlling Interest in Subsidiaries		—	—	28.9	67.8
Proceeds from Non-Controlling Interest in Subsidiaries - Net						Proceeds from Non-Controlling Interest in Subsidiaries - Net	—	—	182.9	28.9
Net Loss Attributable to Non-Controlling Interest	Net Loss Attributable to Non-Controlling Interest	(3.5)	(1.9)	(18.1)	(6.9)	Net Loss Attributable to Non-Controlling Interest	(6.9)	(3.5)	(43.5)	(18.1)

Distributions to Non-Controlling Interest	Distributions to Non-Controlling Interest	(1.3)	—	(1.9)	—	Distributions to Non-Controlling Interest	(0.3)	(1.3)	(1.3)	(1.9)
Balance, End of Period	Balance, End of Period	514.5	164.6	514.5	164.6	Balance, End of Period	671.3	514.5	671.3	514.5

Total Equity	Total Equity	$2,854.5	$2,445.6	$2,854.5	$2,445.6	Total Equity	$3,353.9	$2,854.5	$3,353.9	$2,854.5

Dividends Per Share of Common Stock	Dividends Per Share of Common Stock	$0.63	$0.6175	$1.89	$1.8525	Dividends Per Share of Common Stock	$0.65	$0.63	$1.95	$1.89

The accompanying notes are an integral part of these statements.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

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, ~~2020,~~2021, Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. The presentation of certain prior period amounts on the Consolidated Financial Statements have been adjusted for comparative purposes. 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 nine months ended September 30, ~~2021,~~2022, are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, ~~2021.~~2022. For further information, refer to the Consolidated Financial Statements and notes included in our ~~2020~~2021 Form 10-K.

NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

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 September 30, ~~2021,~~2022, restricted cash amounts included in Prepayments and Other on the Consolidated Balance Sheet include collateral deposits required under an ALLETE Clean Energy loan ~~agreement.~~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 ~~and tax equity financing agreements~~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 Cash	Cash, Cash Equivalents and Restricted Cash	September 30, 2021	December 31, 2020	September 30, 2020	December 31, 2019	Cash, Cash Equivalents and Restricted Cash	September 30, 2022	December 31, 2021	September 30, 2021	December 31, 2020
Millions	Millions					Millions
Cash and Cash Equivalents	Cash and Cash Equivalents	$59.0	$44.3	$79.0	$69.3	Cash and Cash Equivalents	$42.1	$45.1	$59.0	$44.3
Restricted Cash included in Prepayments and Other	Restricted Cash included in Prepayments and Other	4.1	0.8	3.2	2.8	Restricted Cash included in Prepayments and Other	4.2	0.3	4.1	0.8
Restricted Cash included in Other Non-Current Assets	Restricted Cash included in Other Non-Current Assets	2.3	20.1	2.9	20.4	Restricted Cash included in Other Non-Current Assets	2.3	2.3	2.3	20.1
Cash, Cash Equivalents and Restricted Cash on the Consolidated Statement of Cash Flows	Cash, Cash Equivalents and Restricted Cash on the Consolidated Statement of Cash Flows	$65.4	$65.2	$85.1	$92.5	Cash, Cash Equivalents and Restricted Cash on the Consolidated Statement of Cash Flows	$48.6	$47.7	$65.4	$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 – Net September 30,
2021 December 31,
2020
Millions
Fuel (a)
$12.4 $23.1
Materials and Supplies 55.2 51.1
Construction of Wind Energy Facilities (b)
22.0 —
Total Inventories – Net $89.6 $74.2


Inventories – Net	September 30, 2022	December 31, 2021
Millions
Fuel (a)	$36.2	$18.7
Materials and Supplies	70.6	56.1
Renewable Energy Facilities Under Development (b)	365.4	22.9



Total Inventories – Net	$472.2	$97.7

(a) Fuel consists primarily of coal inventory at Minnesota Power.

(b) ~~Project~~Renewable Energy Facilities Under Development consists primarily of project costs related to ALLETE Clean Energy’s Northern Wind, Rock Aetna, and Red Barn wind projects which are expected to be sold in late ~~2022.~~2022 and early 2023, respectively. (See Other Current Liabilities.)

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)


Other Non-Current Assets	Other Non-Current Assets	September 30, 2021	December 31, 2020	Other Non-Current Assets	September 30, 2022	December 31, 2021
Millions	Millions			Millions
Contract Assets (a)	Contract Assets (a)	$23.4	$25.5	Contract Assets (a)	$21.5	$23.3

Operating Lease Right-of-use Assets	Operating Lease Right-of-use Assets	17.7	22.4	Operating Lease Right-of-use Assets	13.9	16.4
ALLETE Properties	ALLETE Properties	17.6	18.2	ALLETE Properties	17.6	19.4
Restricted Cash	Restricted Cash	2.3	20.1	Restricted Cash	2.3	2.3
Other Postretirement Benefit Plans	Other Postretirement Benefit Plans	35.8	34.2	Other Postretirement Benefit Plans	66.5	64.8
Other	Other	82.9	86.4	Other	79.8	86.7
Total Other Non-Current Assets	Total Other Non-Current Assets	$179.7	$206.8	Total Other Non-Current Assets	$201.6	$212.9

(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 Liabilities	Other Current Liabilities	September 30, 2021	December 31, 2020	Other Current Liabilities	September 30, 2022	December 31, 2021
Millions	Millions			Millions

Customer Deposits (a)	Customer Deposits (a)	$27.5	$7.4	Customer Deposits (a)	$111.7	$27.2
PSAs	PSAs	12.6	12.5	PSAs	6.1	12.6

Manufactured Gas Plant (b)				Manufactured Gas Plant (b)	17.8	12.8
Fuel Adjustment Clause	Fuel Adjustment Clause	2.6	3.7	Fuel Adjustment Clause	—	5.0
Operating Lease Liabilities	Operating Lease Liabilities	5.0	5.9	Operating Lease Liabilities	3.7	4.8
Redeemable Non-Controlling Interest (c)				Redeemable Non-Controlling Interest (c)	—	30.6
Other	Other	36.3	37.2	Other	49.2	40.0
Total Other Current Liabilities	Total Other Current Liabilities	$84.0	$66.7	Total Other Current Liabilities	$188.5	$133.0

(a) Primarily related to deposits received by ALLETE Clean Energy for the Northern Wind, Rock Aetna and Red Barn wind projects which are expected to be sold in late ~~2022.~~2022 and early 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 Liabilities	Other Non-Current Liabilities	September 30, 2021	December 31, 2020	Other Non-Current Liabilities	September 30, 2022	December 31, 2021
Millions	Millions			Millions
Asset Retirement Obligation (a)	Asset Retirement Obligation (a)	$170.9	$166.6	Asset Retirement Obligation (a)	$197.2	$184.5
PSAs	PSAs	42.6	52.1	PSAs	28.4	39.5

Manufactured Gas Plant (b)				Manufactured Gas Plant (b)	0.2	5.2
Operating Lease Liabilities	Operating Lease Liabilities	12.7	16.5	Operating Lease Liabilities	10.0	11.6
Other	Other	51.9	50.1	Other	33.0	40.0
Total Other Non-Current Liabilities	Total Other Non-Current Liabilities	$278.1	$285.3	Total Other Non-Current Liabilities	$268.8	$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 ~~$25.0~~$28.5 million in Other Non-Current Assets on the Consolidated Balance Sheet as of September 30, ~~2021, and~~2022, ($28.5 million as of December 31, ~~2020.~~2021).

Other Income
Nine Months Ended September 30, 2021 2020
Millions
Pension and Other Postretirement Benefit Plan Non-Service Credits (a)
$4.4 $6.5
Interest and Investment Income 1.7 0.4
AFUDC - Equity 1.7 1.8
Other (1.7) 0.4
Total Other Income $6.1 $9.1
(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. Third Quarter 2022 Form 10-Q

NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)


	Quarter Ended		Nine Months Ended
	September 30,		September 30,
Other Income	2022	2021	2022	2021
Millions
Pension and Other Postretirement Benefit Plan Non-Service Credits (a)	$1.9	$1.6	$7.2	$4.4
Interest and Investment Income (Loss)	(0.4)	(0.1)	(1.3)	1.7
AFUDC - Equity	0.7	0.6	2.4	1.7
PSA Liability (b)	—	—	10.2	—
Other	0.1	(1.1)	(2.1)	(1.7)
Total Other Income	$2.3	$1.0	$16.4	$6.1

(a)These are components of net periodic pension and other postretirement benefit cost other than service cost. (See Note 9.10. Pension and Other Postretirement Benefit Plans.)

(b)

The gain on removal of the PSA liability for the Northern Wind project upon decommissioning of the legacy wind energy facility assets, which was fully offset by a reserve for an anticipated loss on the sale of the Northern Wind project.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)~~

Supplemental Statement of Cash Flows Information.


Nine Months Ended September 30,	Nine Months Ended September 30,	2021	2020	Nine Months Ended September 30,	2022	2021
Millions	Millions			Millions
Cash Paid for Interest – Net of Amounts Capitalized	Cash Paid for Interest – Net of Amounts Capitalized	$54.9	$48.8	Cash Paid for Interest – Net of Amounts Capitalized	$60.5	$54.9

Noncash Investing and Financing Activities	Noncash Investing and Financing Activities			Noncash Investing and Financing Activities

Increase in Accounts Payable for Capital Additions to Property, Plant and Equipment		$(12.1)	$(88.4)

Increase (Decrease) in Accounts Payable for Capital Additions to Property, Plant and Equipment				Increase (Decrease) in Accounts Payable for Capital Additions to Property, Plant and Equipment	$2.4	$(12.1)
Reclassification of Property, Plant and Equipment to Inventory (a)				Reclassification of Property, Plant and Equipment to Inventory (a)	$99.8	—
Capitalized Asset Retirement Costs	Capitalized Asset Retirement Costs	$3.5	$2.1	Capitalized Asset Retirement Costs	$9.0	$3.5
AFUDC–Equity	AFUDC–Equity	$1.7	$1.8	AFUDC–Equity	$2.4	$1.7

(a)The decommissioning of the existing Northern Wind assets resulted in a reclassification from Property, Plant and Equipment – Net to Inventories – Net in the second quarter of 2022 as they are being sold to a subsidiary of Xcel Energy Inc. In the third quarter of 2022, safe harbor equipment was transferred to the project entity resulting in an additional reclassification from Property, Plant and Equipment - Net to Inventories - Net.

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, ~~and~~ 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 September 22, 2021, South Shore Energy, ALLETE’s non-rate regulated, Wisconsin subsidiary, entered into an agreement with a wholly-owned subsidiary of Basin pursuant to which South Shore Energy agreed to sell to Basin a portion of its interest in NTEC for approximately $20 million representing reimbursement of current costs plus a fee for prior development costs and risks incurred. Pursuant to this transaction, which closed on October 1, 2021, South Shore Energy sold a portion of its undivided ownership interest in NTEC to Basin, such that, South Shore Energy now owns a 20 percent undivided ownership interest in NTEC, Basin owns a 30 percent undivided ownership interest in NTEC and Dairyland Power Cooperative continues to own a 50 percent undivided ownership interest in NTEC. The closing of the transaction resulted in the recognition of an approximately $8.5 million after-tax gain recorded in Corporate and Other in the fourth quarter of 2021, related to prior development costs and risks incurred. NTEC is an approximately 600 MW proposed combined-cycle natural gas-fired generating facility to be built in Superior, Wisconsin. Construction of NTEC is subject to obtaining additional permits from local, state and federal authorities. The total project cost is estimated to be approximately $700 million, of which South Shore Energy’s portion is expected to be approximately $140 million. South Shore Energy’s portion of NTEC project costs incurred through September 30, 2021, is approximately $15 million of which approximately $8 million related to development costs sold to Basin.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 2. REGULATORY MATTERS

Regulatory matters are summarized in Note 4. Regulatory Matters to the Consolidated Financial Statements in our ~~2020~~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 ~~$29.2~~$19.5 million for the nine months ended September 30, ~~2021~~2022 ($~~22.6~~29.2 million for the nine months ended September 30, ~~2020)~~2021).

~~2020 MinnesotaGeneral Rate Case.~~ In November 2019, Minnesota Power filed a retail rate increase request with the MPUC seeking an average increase of approximately 10.6 percent for retail customers. The rate filing sought a return on equity of 10.05 percent and a 53.81 percent equity ratio. On an annualized basis, the requested final rate increase would have generated approximately $66 million in additional revenue. In December 2019 orders, the MPUC accepted the filing as complete and authorized an annual interim rate increase of $36.1 million beginning January 1, 2020.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~NOTE 2. REGULATORY MATTERS (Continued)~~

~~Electric Rates (Continued)~~

In April 2020, Minnesota Power filed a request with the MPUC that proposed a resolution of Minnesota Power’s 2020 general rate case. Key components of our proposal included removing the power marketing margin credit in base rates and reflecting actual power marketing margins in the fuel adjustment clause effective May 1, 2020; refunding to customers interim rates collected through April 2020; increasing customer rates 4.1 percent compared to the 5.8 percent increase reflected in interim rates; and a provision that Minnesota Power would not file another rate case until at least November 1, 2021, unless certain events occur. In a June 2020 order, the MPUC approved Minnesota Power’s petition and proposal to resolve and withdraw the general rate case. Effective May 1, 2020, customer rates were set at an increase of 4.1 percent with the removal of the power marketing margin credit from base rates. Actual power marketing margins will be reflected in the fuel adjustment clause. Reserves for interim rates of $11.7 million were recorded in the second quarter of 2020 and refunded in the third and fourth quarters of 2020.

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. ~~Once~~In orders dated December 30, 2021, the MPUC accepted the filing ~~is accepted~~ as complete and authorized an annual interim rate increase ofbeginning January 1, 2022, with approximately ~~$87~~$80 million ~~subject to refund, which would be an average increase of approximately 14 percent for retail customers, is~~ expected to be ~~implemented within 60 days, subject~~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.

On September 1, 2022, the administrative law judge (ALJ) issued a report containing recommendations that if adopted in whole by the MPUC would result in an increase in rates of approximately $76 million on an annualized basis. On September 23, 2022, Minnesota Power filed exceptions totaling approximately $30 million to the ALJ’s report contesting certain recommendations. A final decision by the MPUC ~~adjustment~~is expected in early 2023. Management has evaluated the need for a reserve for interim rate refunds and ~~authorization.~~concluded that a reserve is not necessary as of September 30, 2022. We cannot predict the level of ~~interim or~~ final rates that may be authorized by the MPUC.

2022 Wisconsin General Rate Case. On June 1, 2022, SWL&P refiled its rate increase request with the PSCW seeking an average increase of 3.6 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 $4.3 million in additional revenue.

~~Minnesota Power Land Sales.~~ In August 2020, Minnesota Power filed a petition with the MPUC for approval to sell land that surrounds several reservoirs on its hydroelectric system and is no longer required to maintain its operations. The land has an estimated value of approximately $100 million, and Minnesota Power proposed to credit ratepayers the net proceeds from the sales in a future rate case or through its renewable resources rider to mitigate future rate increases. At a hearing on October 14, 2021, the MPUC decided to allow the land sales to occur and the proceeds refunded to ratepayers subject to certain conditions and required compliance filings.

~~Environmental Improvement~~Renewable Cost Recovery Rider. Minnesota Power has an approved ~~environmental improvement~~cost recovery rider in place to charge retail customers on a current basis for the costs of certain renewable investments and expenditures, ~~related to~~including a return on the ~~implementation of the Boswell Unit 4 mercury emissions reduction plan completed in 2015. Updated~~capital invested. Current customer billing rates for the ~~environmental improvement~~renewable cost recovery rider were approved by the MPUC in a ~~November 2018~~2020 order. On ~~January 19, 2021, Minnesota Power filed a petition seeking MPUC approval to end the environmental improvement rider, which was approved in an order dated April 20, 2021.~~

~~Solar Cost Recovery Rider~~. In June 2020, Minnesota Power filed a petition seeking MPUC approval of a customer billing rate for solar costs related to investments and expenditures for meeting the state of Minnesota’s solar energy standard, which was approved by the MPUC in an order dated April 20, 2021. New customer billing rates for the solar cost recovery rider were implemented on June 1, 2021. On October 21, 2021,February 2, 2022, Minnesota Power submitted its 2022 ~~solar~~renewable factor ~~filing. Upon approval~~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 ~~will~~would be authorized to include updated billing rates on customer ~~bills.~~

~~Electric Vehicle Charging Infrastructure Petition.~~ ~~On April 8, 2021, Minnesota Power filed a petition seeking approval~~bills; any portion disallowed would be charged to install and own DC fast charger stations for electric vehicles across its service territory, implement accompanying rates for those stations, and track and recover investments and expenses for the project. In an order dated October 22, 2021, the MPUC approved Minnesota Power’s petition.earnings.

~~COVID-19 Related Deferred Accounting~~. In an order dated March 24, 2020, the PSCW authorized public utilities, including SWL&P, to defer expenditures incurred by the utility resulting from its compliance with state government or regulator orders during Wisconsin’s declared public health emergency for COVID-19. On April 20, 2020, Minnesota Power along with other regulated electric and natural gas service providers in Minnesota filed a joint petition to request MPUC authorization to track incremental costs and expenses incurred as a result of the COVID-19 pandemic, and to defer and record such costs as a regulatory asset, subject to recovery in a future proceeding. In an order dated May 22, 2020, the MPUC approved the joint petition requiring the joint petitioners to track cost and revenue impacts resulting from the COVID-19 pandemic with review for recovery in a future rate proceeding. As of September 30, 2021, Minnesota Power has not deferred any costs or lost revenue, and SWL&P has deferred an immaterial amount of costs.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~NOTE 2. REGULATORY MATTERS (Continued)~~

~~Electric Rates (Continued)~~

Minnesota Power submitted a petition in November 2020 to the MPUC requesting authority to track and record as a regulatory asset lost large industrial customer revenue resulting from the idling of USS Corporation’s Keetac plant and Verso Corporation’s paper mill in Duluth, Minnesota. Keetac and Verso Corporation represent revenue of approximately $30 million annually, net of associated expense savings such as fuel costs. Minnesota Power proposed in this petition to defer any lost revenue related to the idling of the Keetac facility and the Verso Corporation paper mill to its next general rate case or other proceeding for review for recovery by the MPUC. In an order dated May 13, 2021, the MPUC denied Minnesota Power’s request.

Fuel Adjustment Clause. In ~~March~~ 2020, Minnesota Power filed its fuel adjustment ~~clause report covering~~forecast for 2021, which was approved by the ~~period July 2018~~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 2019. In a September 2020 order, the MPUC referred the review of Minnesota Power’s forced outage costs during the period of the report, which totaled approximately $8 million, to an administrative law judge (ALJ) for a contested case hearing to recommend to the MPUC if any of those costs should be returned to customers. On August 11, 2021, the ALJ recommended that Minnesota Power refund approximately $5 million to ratepayers; the ALJ’s recommendation is not binding on the MPUC.31, 2021. Minnesota Power submitted ~~exceptions~~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 ~~ALJ’s report~~request; recovery of the regulatory asset began in April 2022 and will continue through mid-2023. The MPUC approved recovery of the regulatory asset in an order dated July 5, 2022.

Minnesota Power has also incurred higher fuel and purchased power costs in 2022 than those factored in its fuel adjustment forecast filed in May 2021 for 2022, which resulted in the recognition of an approximately $23 million regulatory asset as of September 30, 2022. Minnesota Power filed a significant events filing in June 2022 requesting recovery of the under-collected fuel adjustment clause recoveries that are expected for 2022 from August 2022 through December 2022. No parties objected to the ~~MPUC stating that it disagreed with~~request and higher rates were implemented in August 2022 to recover the ~~ALJ’s recommendation and that no refund should be made as the Company operated its facilities in accordance with good utility practice. A decision from~~expected under-collection of fuel adjustment clause recoveries, subject to final approval by the MPUC which is expected in ~~the fourth quarter of 2021.~~2023.

Conservation Improvement Program. On April 1, ~~2021,~~2022, Minnesota Power submitted its ~~2020~~2021 consolidated filing detailing Minnesota Power’s CIP program results and requesting a CIP financial incentive of ~~$2.4~~$1.9 million based upon MPUC procedures, which was recognized in the ~~third~~second quarter of ~~2021~~2022 upon approval by the MPUC ~~in an order dated September 7, 2021.~~at a hearing on June 30, 2022. In ~~2020,~~2021, a CIP financial incentive of $2.4 million was recognized in the third quarter upon approval by the MPUC of Minnesota Power’s ~~2019~~2020 CIP consolidated filing. CIP financial incentives are recognized in the period in which the MPUC approves the filing.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 2. REGULATORY MATTERS (Continued)

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 ~~mid-2022.~~

~~Nemadji Trail Energy Center.~~ ~~In 2017, Minnesota Power submitted a resource package to~~ the ~~MPUC which included requesting approval~~fourth quarter of a natural gas capacity dedication and other affiliated-interest agreements for NTEC, an approximately 600 MW proposed combined-cycle natural gas-fired generating facility to be built in Superior, Wisconsin, which will be jointly owned by Dairyland Power Cooperative, Basin and South Shore Energy, ALLETE’s non-rate regulated, Wisconsin subsidiary. Minnesota Power is expected to purchase approximately 20 percent of the facility's output starting in 2025 pursuant to the capacity dedication agreement. (See Note 1. Operations and Significant Accounting Policies – Subsequent Events.) In a January 2019 order, the MPUC approved Minnesota Power’s request for approval of the NTEC natural gas capacity dedication and other affiliated-interest agreements. In 2019, the Minnesota Court of Appeals reversed and remanded the MPUC’s decision to approve certain affiliated-interest agreements. On April 21, 2021, the Minnesota Supreme Court reversed the Minnesota Court of Appeal’s decision by ruling that the MPUC is not required to conduct a review under the Minnesota Environmental Policy Act before approving affiliated-interest agreements that govern construction and operation of a Wisconsin power plant by a Minnesota utility, and remanded the case back to the Minnesota Court of Appeals for review of remaining issues on appeal. On August 23, 2021, the Minnesota Court of Appeals affirmed the decision by the MPUC to approve certain affiliated-interest agreements.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~NOTE 2. REGULATORY MATTERS (Continued)~~

~~Verso Corporation Electric Service Agreement.~~ On August 2, 2021, Minnesota Power filed a petition with the MPUC requesting the MPUC to interpret the electric service agreement (ESA) between Minnesota Power and Verso Corporation finding that Verso Corporation has tariff obligations and owes minimum firm demand payments during the term of the ESA. Minnesota Power filed this petition in response to Verso Corporation ceasing to make its minimum firm demand payments under the ESA. At a hearing on October 14, 2021, the MPUC agreed with Minnesota Power’s petition and concluded that the MPUC has jurisdiction to interpret the relevant provisions of the ESA, and the ESA requires Verso Corporation to continue full minimum firm demand payments for a period of two years from the January 29, 2021, notice of termination, regardless of Minnesota Power’s electricity sales to a new customer at the former Verso Corporation facility. Minnesota Power has a receivable related to the ESA of approximately $1.2 million as of September 30, 2021. In addition, Verso Corporation owes Minnesota Power payments under a steam agreement, which is proceeding through arbitration. Minnesota Power has a receivable under the steam agreement of approximately $2.4 million as of September 30, 2021. Minnesota Power expects to fully collect these outstanding account receivable balances as well as Verso Corporation’s remaining obligations under the ESA.2022.

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 Liabilities	Regulatory Assets and Liabilities	September 30, 2021	December 31, 2020	Regulatory Assets and Liabilities	September 30, 2022	December 31, 2021
Millions	Millions			Millions

Current Regulatory Assets (a)				Current Regulatory Assets (a)
Fuel Adjustment Clause				Fuel Adjustment Clause	$38.7	—
Total Current Regulatory Assets				Total Current Regulatory Assets	38.7	—
Non-Current Regulatory Assets	Non-Current Regulatory Assets			Non-Current Regulatory Assets
Defined Benefit Pension and Other Postretirement Benefit Plans	Defined Benefit Pension and Other Postretirement Benefit Plans	$247.6	$259.7	Defined Benefit Pension and Other Postretirement Benefit Plans	217.0	$226.4
Income Taxes	Income Taxes	107.2	113.7	Income Taxes	99.3	104.7
Cost Recovery Riders	Cost Recovery Riders	61.8	54.0	Cost Recovery Riders	39.6	63.2
Asset Retirement Obligations	Asset Retirement Obligations	31.4	31.6	Asset Retirement Obligations	34.9	33.1
Fuel Adjustment Clause	Fuel Adjustment Clause	30.1	—	Fuel Adjustment Clause	22.9	56.4
Manufactured Gas Plant	Manufactured Gas Plant	11.9	8.8	Manufactured Gas Plant	17.7	17.0
PPACA Income Tax Deferral	PPACA Income Tax Deferral	4.4	4.5	PPACA Income Tax Deferral	4.2	4.3
Boswell Units 1 and 2 Net Plant and Equipment		3.2	5.0

Residential Customer Interim Rate Adjustment				Residential Customer Interim Rate Adjustment	5.9	—
Other	Other	5.3	3.6	Other	5.6	6.7
Total Non-Current Regulatory Assets	Total Non-Current Regulatory Assets	$502.9	$480.9	Total Non-Current Regulatory Assets	447.1	511.8
Total Regulatory Assets				Total Regulatory Assets	$485.8	$511.8

Current Regulatory Liabilities (a)
Current Regulatory Liabilities (b)				Current Regulatory Liabilities (b)
Fuel Adjustment Clause	Fuel Adjustment Clause	$2.6	$3.7	Fuel Adjustment Clause	—	$5.0

Transmission Formula Rates Refund	Transmission Formula Rates Refund	3.1	2.9	Transmission Formula Rates Refund	$5.1	3.1
Other	Other	3.3	1.0	Other	0.1	0.5
Total Current Regulatory Liabilities	Total Current Regulatory Liabilities	9.0	7.6	Total Current Regulatory Liabilities	5.2	8.6
Non-Current Regulatory Liabilities	Non-Current Regulatory Liabilities			Non-Current Regulatory Liabilities
Income Taxes	Income Taxes	359.3	375.3	Income Taxes	338.0	353.4
Wholesale and Retail Contra AFUDC	Wholesale and Retail Contra AFUDC	84.4	86.6	Wholesale and Retail Contra AFUDC	81.5	83.7
Plant Removal Obligations	Plant Removal Obligations	47.4	41.2	Plant Removal Obligations	58.8	52.6
North Dakota Investment Tax Credits	North Dakota Investment Tax Credits	12.3	12.0	North Dakota Investment Tax Credits	13.4	12.2
Defined Benefit Pension and Other Postretirement Benefit Plans	Defined Benefit Pension and Other Postretirement Benefit Plans	1.4	4.4	Defined Benefit Pension and Other Postretirement Benefit Plans	23.5	28.1

Conservation Improvement Program		—	1.5

Boswell Units 1 and 2 Net Plant and Equipment				Boswell Units 1 and 2 Net Plant and Equipment	5.1	0.4
Regulated Land Sales				Regulated Land Sales	2.2	—
Other	Other	4.7	3.8	Other	4.9	5.7
Total Non-Current Regulatory Liabilities	Total Non-Current Regulatory Liabilities	509.5	524.8	Total Non-Current Regulatory Liabilities	527.4	536.1
Total Regulatory Liabilities	Total Regulatory Liabilities	$518.5	$532.4	Total Regulatory Liabilities	$532.6	$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. Third Quarter 2022 Form 10-Q

NOTE 3. ACQUISITIONS

2022 Activity

New 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 $158.8 million was paid in cash on the acquisition date, which is net of cash acquired and debt assumed. New Energy, which is headquartered in Annapolis, Maryland, is a renewable energy development 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.

The acquisition was accounted for as a business combination and the purchase price was allocated based on the preliminary estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition, as shown in the following table. The allocation of the purchase price is subject to judgment and the preliminary estimated fair value of the assets acquired and the liabilities assumed may be adjusted when the valuation analysis is complete in subsequent periods. Preliminary estimates subject to adjustment in subsequent periods relate primarily to working capital; subsequent adjustments could impact the amount of goodwill recorded. Fair value measurements were valued primarily using the discounted cash flow method and replacement cost basis. The goodwill recorded is primarily attributable to the highly skilled workforce of New Energy and synergies expected to arise as a result of the acquisition.

Since the acquisition in April 2022, aggregate revenue was $39.9 million. The Company has not presented separate results of operations since closing or combined pro forma financial information of the Company and New Energy since the beginning of 2021, as the results of operations for New Energy are not material to the Company's consolidated financials.


Millions
Assets Acquired
Cash and Cash Equivalents												$3.9
Accounts Receivable												1.4
Inventory (a)												25.3
Other Current Assets												12.6
Property, Plant and Equipment - Net												16.4
Goodwill (b)												155.1
Other Non-Current Assets												2.1
Total Assets Acquired												$216.8
Liabilities Assumed
Current Liabilities												$23.6
Long-Term Debt Due Within One Year												28.3
Long-Term Debt												5.9
Other Non-Current Liabilities												0.2
Total Liabilities Assumed												$58.0
Net Identifiable Assets Acquired												$158.8

(a)Includes $11.6 million of purchase price accounting for certain projects under development at the time of acquisition.

(b)For tax purpose, the purchase price allocation resulted in $155.1 million of deductible goodwill.

During the third quarter of 2022, the Company recorded purchase accounting adjustments related to the acquisition of New Energy which resulted in an increase to net liabilities of $6.2 million, current assets increased by $1.4 million and goodwill increased by $4.8 million.

Acquisition-related costs were $2.6 million after-tax, expensed as incurred during 2022 and recorded in Operating and Maintenance on the Consolidated Statement of Income.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 3.4. EQUITY INVESTMENTS


ALLETE’s Investment in ATC
Millions
Equity Investment Balance as of December 31, ~~2020~~2021			$~~149.0~~154.5
Cash Investments			5.1
Equity in ATC Earnings			~~15.8~~13.8
Distributed ATC Earnings			~~(12.8)~~(13.1)
Amortization of the Remeasurement of Deferred Income Taxes			1.0
Equity Investment Balance as of September 30, ~~2021~~2022			$~~153.0~~161.3

ATC’s authorized return on equity iswas 10.02 percent, or 10.52 percent including an incentive adder for participation in a regional transmission organization, based on a ~~May~~ 2020 FERC order ~~that granted rehearing of a 2019 FERC order. These FERC orders are~~which was subject to various outstanding legal challenges related to the return on equity calculation and refund period ordered by the FERC. ~~If these legal challenges are successful,~~On August 9, 2022, the U.S. Court of Appeals for the District of Columbia Circuit vacated and remanded the 2020 FERC order back to FERC. As a result of this decision, ATC ~~may be required to provide~~recorded a reserve in the third quarter of 2022 for anticipated refunds to its customers ~~of up to~~for approximately ~~$66~~$31 million of which our share was $2.4 million pre-tax. We cannot predict the return on equity FERC will ultimately authorize in the remanded proceeding.

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 $5$1 million ~~pre-tax.~~pre-tax annually.

Investment in Nobles 2. Our subsidiary, ALLETE South Wind, owns 49 percent of Nobles 2, the entity that owns and operates ~~the~~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
Millions
Equity Investment Balance as of December 31, ~~2020~~2021			$~~152.2~~163.5
~~Cash Investments~~			~~17.4~~
Equity in Nobles 2 Earnings (a)			~~(1.5)~~(0.7)
Distributed Nobles 2 Earnings			~~(3.3)~~(3.8)
Equity Investment Balance as of September 30, ~~2021~~2022			$~~164.8~~159.0

(a)The Company also recorded net loss attributable to non-controlling interest of ~~$4.4~~$7.5 million related to its investment in Nobles 2.

NOTE 4.5. FAIR VALUE

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 ~~2020~~2021 Form 10-K.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 5. FAIR VALUE (Continued)

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 September 30, ~~2021,~~2022, and December 31, ~~2020.~~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. Third Quarter 2021 Form 10-Q~~

~~NOTE 4. FAIR VALUE (Continued)~~


		Fair Value as of September 30, 2021					Fair Value as of September 30, 2022
Recurring Fair Value Measures	Recurring Fair Value Measures	Level 1	Level 2	Level 3	Total	Recurring Fair Value Measures	Level 1	Level 2	Level 3	Total
Millions	Millions					Millions
Assets	Assets					Assets
Investments (a)	Investments (a)					Investments (a)
Available-for-sale – Equity Securities	Available-for-sale – Equity Securities	$9.2	—	—	$9.2	Available-for-sale – Equity Securities	$6.9	—	—	$6.9
Available-for-sale – Corporate and Governmental Debt Securities (b)	Available-for-sale – Corporate and Governmental Debt Securities (b)	—	$8.4	—	8.4	Available-for-sale – Corporate and Governmental Debt Securities (b)	—	$5.4	—	5.4
Cash Equivalents	Cash Equivalents	2.8	—	—	2.8	Cash Equivalents	3.4	—	—	3.4
Total Fair Value of Assets	Total Fair Value of Assets	$12.0	$8.4	—	$20.4	Total Fair Value of Assets	$10.3	$5.4	—	$15.7

Liabilities	Liabilities					Liabilities
Deferred Compensation (c)	Deferred Compensation (c)	—	$21.5	—	$21.5	Deferred Compensation (c)	—	$14.8	—	$14.8

Total Fair Value of Liabilities	Total Fair Value of Liabilities	—	$21.5	—	$21.5	Total Fair Value of Liabilities	—	$14.8	—	$14.8
Total Net Fair Value of Assets (Liabilities)		$12.0	$(13.1)	—	$(1.1)

		Fair Value as of December 31, 2020					Fair Value as of December 31, 2021
Recurring Fair Value Measures	Recurring Fair Value Measures	Level 1	Level 2	Level 3	Total	Recurring Fair Value Measures	Level 1	Level 2	Level 3	Total
Millions	Millions					Millions
Assets	Assets					Assets
Investments (a)	Investments (a)					Investments (a)
Available-for-sale – Equity Securities	Available-for-sale – Equity Securities	$7.2	—	—	$7.2	Available-for-sale – Equity Securities	$8.9	—	—	$8.9
Available-for-sale – Corporate and Governmental Debt Securities	Available-for-sale – Corporate and Governmental Debt Securities	—	$10.4	—	10.4	Available-for-sale – Corporate and Governmental Debt Securities	—	$6.2	—	6.2
Cash Equivalents	Cash Equivalents	5.5	—	—	5.5	Cash Equivalents	2.5	—	—	2.5
Total Fair Value of Assets	Total Fair Value of Assets	$12.7	$10.4	—	$23.1	Total Fair Value of Assets	$11.4	$6.2	—	$17.6

Liabilities	Liabilities					Liabilities
Deferred Compensation (c)	Deferred Compensation (c)	—	$21.0	—	$21.0	Deferred Compensation (c)	—	$18.0	—	$18.0

Total Fair Value of Liabilities	Total Fair Value of Liabilities	—	$21.0	—	$21.0	Total Fair Value of Liabilities	—	$18.0	—	$18.0
Total Net Fair Value of Assets (Liabilities)		$12.7	$(10.6)	—	$2.1

(a)Included in Other Non-Current Assets on the Consolidated Balance Sheet.

(b)As of September 30, ~~2021,~~2022, the aggregate amount of available-for-sale corporate and governmental debt securities maturing in one year or less was ~~$1.5~~$0.7 million, in one year to less than three years was ~~$3.4~~$2.6 million, in three years to less than five years was ~~$3.0~~$1.4 million and in five or more years was ~~$0.5~~$0.6 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 Instruments

Carrying Amount

Fair Value

Financial Instruments

Carrying Amount

Fair Value

Millions

Short-Term and Long-Term Debt (a)

September 30, 2021

$2,036.1

$2,262.2

December 31, 2020

$1,806.4

$2,122.0

September 30, 2022

$1,970.2

$1,804.1

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 quarter and nine months ended September 30, ~~2021,~~2022, and the year ended December 31, ~~2020,~~2021, there were no indicators of impairment for these non-financial assets.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 5. FAIR VALUE (Continued)

We continue to monitor changes in the broader energy markets along with wind ~~resources~~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 ~~resources~~resource expectations could result in a future impairment.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

NOTE 5.6. SHORT-TERM AND LONG-TERM DEBT

The following tables present the Company’s short-term and long-term debt as of September 30, ~~2021,~~2022, and December 31, ~~2020:~~2021:


September 30, 2021		Principal	Unamortized Debt Issuance Costs	Total
September 30, 2022					September 30, 2022	Principal	Unamortized Debt Issuance Costs	Total
Millions	Millions				Millions
Short-Term Debt	Short-Term Debt	$377.6	$(0.2)	$377.4	Short-Term Debt	$308.8	$(0.2)	$308.6
Long-Term Debt	Long-Term Debt	1,658.5	(9.1)	1,649.4	Long-Term Debt	1,661.4	(8.4)	1,653.0
Total Debt	Total Debt	$2,036.1	$(9.3)	$2,026.8	Total Debt	$1,970.2	$(8.6)	$1,961.6


December 31, 2020		Principal	Unamortized Debt Issuance Costs	Total
December 31, 2021					December 31, 2021	Principal	Unamortized Debt Issuance Costs	Total
Millions	Millions				Millions
Short-Term Debt	Short-Term Debt	$204.0	$(0.3)	$203.7	Short-Term Debt	$214.4	$(0.2)	$214.2
Long-Term Debt	Long-Term Debt	1,602.4	(9.2)	1,593.2	Long-Term Debt	1,772.0	(8.8)	1,763.2
Total Debt	Total Debt	$1,806.4	$(9.5)	$1,796.9	Total Debt	$1,986.4	$(9.0)	$1,977.4

We had ~~$26.2~~$33.2 million outstanding in standby letters of credit and ~~$25.2~~$92.0 million outstanding draws under our lines of credit as of September 30, ~~2021~~2022 ($~~22.3~~31.5 million in standby letters of credit and no$159.7 million outstanding draws as of December 31, ~~2020)~~2021).

OnFebruary 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 ~~25, 2021,~~24, 2022, ALLETE entered into a ~~$150~~$170 million unsecured term loan agreement ~~(Term~~(March Term Loan). An additional draw of $35 million through the exercise of an accordion feature was made during the second quarter of 2021. As of September 30, 2021, we have borrowed the full amount of $185 million. The Term Loan is due March ~~24, 2022,~~23, 2023, and may be repaid at any time. Interest is payable monthly at a rate per annum equal to ~~LIBOR~~SOFR plus 0.75 percent. Proceeds from the Term Loan were used for general corporate purposes.

On ~~September 1, 2021,~~August 9, 2022, ALLETE issued ~~$100~~$75 million of its First Mortgage Bonds (Bonds) to certain institutional buyers in the private placement market. The Bonds, which bear interest at ~~2.79~~4.54 percent, will mature in ~~September 2031~~August 2032 and pay interest semi-annually in ~~March~~February and ~~September~~August of each year, commencing on ~~March 1, 2022.~~February 9, 2023. ALLETE has the option to prepay all or a portion of the Bonds at its discretion, subject to a make-whole provision. The Bonds are subject to additional terms and conditions which are customary for these types of transactions. Proceeds from the sale of the Bonds were used to fund utility capital investment and for general corporate purposes. The Bonds were sold in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, to institutional accredited investors.

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 September 30, ~~2021,~~2022, our ratio was approximately ~~0.43~~0.39 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 September 30, ~~2021,~~2022, ALLETE was in compliance with its financial covenants.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

NOTE 6.7. COMMITMENTS, GUARANTEES AND CONTINGENCIES

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 ~~2020~~2021 Form 10-K, with additional disclosure provided in the following paragraphs.

Square Butte PPA. As of September 30, ~~2021,~~2022, Square Butte had total debt outstanding of ~~$256.9~~$192.7 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 nine months ended September 30, ~~2021,~~2022, was ~~$60.3~~$63.8 million ($~~59.9~~60.3 million for the same period in ~~2020)~~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 ~~$4.3~~$3.7 million ($~~5.4~~4.3 million for the same period in ~~2020)~~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 and in 2020.~~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 ~~2021.~~2025. Minnesota Power also has coal transportation agreements in place for the delivery of a significant portion of its coal requirements through December ~~2021.~~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. Third Quarter ~~2021~~2022 Form 10-Q

NOTE 6.7. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)

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 onin March ~~15,~~ 2021 ~~to revise~~revising 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. The State of Minnesota has not been identified in litigation as a culpable upwind emission source to downwind states, and previous EPA air quality modeling has demonstrated that Minnesota is not a significant contributor to downwind air quality attainment challenges. Minnesota Power will continue to monitor ongoing CSAPR rulemakings and compliance ~~implementation.~~implementation, including the EPA’s Good Neighbor Rule proposed on April 6, 2022, to modify certain aspects of the CSAPR’s program scope and extent.

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. OnIn June ~~10,~~ 2021, the EPA announced it will reconsider the December 2020 final rule retaining the 2012 particulate matter ~~NAAQS,~~NAAQS. A proposed rulemaking was anticipated in August 2022, with a ~~proposed rulemaking anticipated~~final rule in ~~mid-2022.~~March 2023, but none has been issued at this time. The EPA ~~has not stated its intent with regard to~~also announced in October 2021 that it was reconsidering the 2020 Ozone NAAQS rule finalized in December ~~2020.~~2020, and issued a policy assessment on April 28, 2022, recommending retention of the current standard. A proposed Ozone NAAQS rule is expected in the first half of 2023.

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 1 through September 30 (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 reviewed the proposed rule, assessed its potential impacts and submitted public comments to the EPA on June 21, 2022. Concerns noted by Minnesota Power and other entities included the technical accuracy of the EPA’s assumptions and methods used to identify Minnesota as a significant contributor state, as well as the proposed rule’s intended timeline. 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. The EPA intends to issue a final rule in early 2023.

EPA National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial and Institutional Boilers and Process Heaters (Industrial Boiler MACT) Rule. A final rule issued by the EPA for Industrial Boiler MACT became effective in 2012 with compliance required at major existing sources in 2016. Minnesota Power’s Hibbard Renewable Energy Center and Rapids Energy Center are subject to this rule. Compliance with the Industrial Boiler MACT Rule consisted largely of adjustments to fuels and operating practices and compliance costs were not material. Subsequent to this initial rulemaking, litigation from 2016 through 2018 resulted in court orders directing that the EPA reconsider certain aspects of the regulation including the basis for and numerical value of several different emission limits. On October 6, 2022, the EPA published a final rule in the Federal Register incorporating these changes. The rule will become effective on December 5, 2022 and impose a 3-year compliance deadline of December 5, 2025. Minnesota Power is actively reviewing this new regulation to assess if any changes are needed to achieve compliance. Compliance costs associated with the new Industrial Boiler MACT Rule cannot yet be estimated; however, the costs could be material. Minnesota Power would seek recovery of additional costs through a rate proceeding.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)

Environmental Matters (Continued)

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.

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, consolidated under West Virginia v. EPA et al. On June 30, 2022, the U.S. Supreme Court released its opinion in favor of West Virginia and aligned parties. The Supreme Court found the EPA’s CPP structure of generation shifting to be disallowed under Section 111(d) of the CCA on grounds of the major questions doctrine. The court did not opine upon the regulatory approach the EPA proposed in the Affordable Clean Energy Rule. The petitions were remanded to the D.C. Circuit. The EPA has indicated that it ~~is working on~~intends to issue a proposed rule in early 2023 with a new set of emission guidelines for states to follow in submitting state plans to establish ~~a Best System~~and implement standards of ~~Emissions Reduction~~performance for GHG emissions from existing fossil fuel-fired electric generating ~~units to direct states in regulating GHGs within their borders; however, no timeline has been disclosed.~~units. Minnesota Power will continue to monitor any related guidelines and rulemakings issued by the EPA or state regulatory authorities.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)~~

~~Environmental Matters (Continued)~~

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.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)

Environmental Matters (Continued)

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. Currently, the EPA is a performing a comprehensive review of the Section 111(b) GHG NSPS for electric generating units, with a notice of proposed rulemaking expected in early 2023. Minnesota Power is monitoring the NSPS final rule and any further Section 111(b) developments including their potential impact to the Company. The ~~Company’s~~ 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.

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 (BATW) 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~~November 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~~2020 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. AtFGD wastewater is required to meet stringent water quality standards for discharge to surface water.

Bottom ash transport and FGD wastewater ELG’s are not currently expected to have a significant impact on Minnesota Power operations. Boswell ~~the~~Energy Center, where ELG’s are primarily applicable, completed conversion to dry bottom ash handling ~~systems are planned to be converted to~~and installed a FGD dewatering system in September 2022. The dry ~~process, which will eliminate the discharge of~~conversion projects eliminated bottom ash transport ~~water.~~water and minimized wastewater from the FGD system. Re-use and onsite consumption is planned for the remaining FGD waste stream and for dewatering legacy wastewater from Boswell’s existing impoundments. Water re-use and consumption activities are expected to eliminate the need for surface water discharges prior to the current ELG Rule deadline of December 31, 2025.

The EPA’s additional reconsideration of legacy wastewater and leachate discharge requirements has the potential to ~~reduce timelines for dewatering Boswell’s existing ponds. The timing~~impact leachate discharges associated with the closed impoundment at the Laskin and Taconite Harbor Energy Center Dry Ash Landfill. In its spring 2022 Unified Agenda, the EPA announced it intends to consolidate consideration of ~~a draft rule addressing~~ legacy wastewater and leachate with the ELG/FGD and BATW proposed rulemaking expected in November 2022. It is ~~currently unknown.~~

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)~~

~~Environmental Matters (Continued)~~unknown at this time if the rule revisions will include new requirements for these waste streams.

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 forno additional ~~significant~~material 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 at Minnesota Power facilities 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.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)

Environmental Matters (Continued)

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 ~~subsequently proposed~~transmitted a final list of 3032 EPA-added wild rice waters ~~in a separate listing process~~to the MPCA on ~~April 29, 2021, followed by a~~November 5, 2021. This list ~~of three additional wild rice waters proposed separately on September 1, 2021. A final impaired waters listing is expected to follow, which~~ 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.

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.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)~~

~~Environmental Matters (Continued)~~

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 under the Part A Rule to extend the closure date for ~~the~~ two active Boswell impoundments in November ~~2020 through a~~2020. Upon completion of dry ash conversion activities, Boswell ceased disposal in both impoundments on September 17, 2022 and formally withdrew the CCR Part A Application. The EPA acknowledged the Part A variance application withdrawal on September 20, 2022, and ~~continues~~indicated it has updated the webpage to ~~operate the~~show Boswell has ceased waste disposal in impoundments. The EPA also indicated that no further EPA review of Boswell’s Part A variance application will occur. Both impoundments ~~pending a final determination by the EPA.~~ are now inactive and have initiated closure.

Additionally, the EPA released a proposed Part B rulemaking in February 2020 ~~that addressed~~addressing 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 spring 2022 regulatory agenda, finalization of the remainder of the proposed Part B Rule ~~was~~is expected in ~~mid-2021, but has not yet been published.~~early 2023. 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.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 7. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)

Environmental Matters (Continued)

Other Environmental ~~Matters~~Matters.

Manufactured Gas Plant Site. We are reviewing and addressing environmental conditions at a former manufactured gas plant site located in Superior, Wisconsin, and formerly operated by SWL&P. SWL&P has been working with the Wisconsin Department of Natural Resources (WDNR) in determining the extent and location of contamination at the site and surrounding properties. As of September 30, ~~2021,~~2022, we have recorded a liability of approximately ~~$13~~$18 million for remediation costs at this ~~site after incorporating detailed design components specific to~~site. SWL&P has recorded the site ~~(approximately $7 million~~ as ~~of December 31, 2020); however, SWL&P continues to work with the WDNR on the extent of contamination which may result in additional remediation costs being identified. SWL&P has also recorded~~ an associated regulatory asset as we expect recovery of these remediation costs to be allowed by the PSCW. Remediation costs are expected to be incurred through ~~2023.~~2024.

Other Matters.

Letters of Credit and Surety Bonds.

We have multiple credit facility agreements in place that provide the ability to issue standby letters of credit to satisfy contractual security requirements across our businesses. As of September 30, ~~2021,~~2022, we had ~~$123.9~~$227.6 million of outstanding letters of credit issued, including those issued under our revolving credit facility.

Regulated Operations. As of September 30, ~~2021,~~2022, we had ~~$4.9~~$18.1 million outstanding in standby letters of credit at our Regulated Operations which are pledged as security to MISO and a state agency.

ALLETE Clean Energy. ALLETE Clean Energy’s wind energy facilities have various PSAs in place for some or all of their ~~entire~~ output ~~and~~that expire in various years between ~~2022~~2024 and 2039. As of September 30, ~~2021,~~2022, ALLETE Clean Energy has ~~$81.9~~$173.8 million outstanding in standby letters of credit, the majority of which are pledged as security under these PSAs and PSAs for wind energy facilities under development. ALLETE Clean Energy does not believe it is likely that any of these outstanding letters of credit will be drawn upon.

Corporate and Other.

~~South Shore Energy.~~ As of September 30, 2021, South Shore Energy had $23.9 million outstanding in standby letters of credit pledged as security in connection with the development of NTEC. South Shore Energy does not believe it is likely that any of these outstanding letters of credit will be drawn upon.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)~~

~~Other Matters (Continued)~~

~~Investment in Nobles 2~~.The Nobles 2 wind energy facility requires standby letters of credit as security for certain contractual obligations. As of September 30, 2021, ALLETE South Wind has $13.2 million outstanding in standby letters of credit, related to its portion of the security requirements relative to its ownership in Nobles 2. We do not believe it is likely that any of these outstanding letters of credit will be drawn upon.

BNI Energy. As of September 30, ~~2021,~~2022, BNI Energy had surety bonds outstanding of ~~$71.2~~$82.4 million related to the reclamation liability for closing costs associated with its mine and mine facilities. Although its coal supply agreements obligate the customers to provide for the closing costs, additional assurance is required by federal and state regulations. BNI Energy’s total reclamation liability is currently estimated at ~~$70.7~~$82.1 million. BNI Energy does not believe it is likely that any of these outstanding surety bonds will be drawn upon.

Investment in Nobles 2.The Nobles 2 wind energy facility requires standby letters of credit as security for certain contractual obligations. As of September 30, 2022, ALLETE ~~Properties~~South Wind has $11.8 million outstanding in standby letters of credit, related to its portion of the security requirements relative to its ownership in Nobles 2. We do not believe it is likely that any of these outstanding letters of credit will be drawn upon.

South Shore Energy. As of September 30, ~~2021, ALLETE Properties~~2022, South Shore Energy had ~~surety bonds~~$23.9 million outstanding ~~and~~in standby letters of credit ~~to governmental entities totaling $2.0 million primarily related to~~pledged as security in connection with the development ~~and maintenance obligations for various projects. The estimated cost~~ of ~~the remaining development work is $1.0 million. ALLETE Properties~~NTEC. South Shore Energy does not believe it is likely that any of these outstanding ~~surety bonds or~~ letters of credit will be drawn upon.

~~Community Development District Obligations.~~ As of September 30, 2021, we owned 48 percent of the assessable land in the Town Center District (48 percent as of December 31, 2020). As of September 30, 2021, ownership levels, our annual assessments related to capital improvement and special assessment bonds for the ALLETE Properties project within the district is approximately $1.8 million. As we sell property at this project, the obligation to pay special assessments will pass to the new landowners. In accordance with accounting guidance, these bonds are not reflected as debt on our Consolidated Balance Sheet.

Legal Proceedings.

We are involved in litigation arising in the normal course of business. Also in the normal course of business, we are involved in tax, regulatory and other governmental audits, inspections, investigations and other proceedings that involve state and federal taxes, safety, and compliance with regulations, rate base and cost of service issues, among other things. We do not expect the outcome of these matters to have a material effect on our financial position, results of operations or cash flows.

Minnesota Power was named in a lawsuit where a contractor performing work at one of its facilities experienced an injury and subsequently filed a lawsuit seeking compensatory damages. In the second quarter of 2022, Minnesota Power reached an agreement to settle the lawsuit with the plaintiff. The settlement was covered by the Company’s insurance coverage, subject to a deductible which has been previously expensed. The settlement, which was recorded in the financial statements for the quarter ended March 31, 2022, did not have a material impact on our financial position or results of operations.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 7.8. EARNINGS PER SHARE AND COMMON STOCK

We compute basic earnings per share using the weighted average number of shares of common stock outstanding during each period. The difference between basic and diluted earnings per share, if any, arises from non-vested restricted stock units and performance share awards granted under our Executive Long-Term Incentive Compensation Plan.


			2021			2020				2022			2021
Reconciliation of Basic and Diluted	Reconciliation of Basic and Diluted		Dilutive			Dilutive		Reconciliation of Basic and Diluted		Dilutive			Dilutive
Earnings Per Share	Earnings Per Share	Basic	Securities	Diluted	Basic	Securities	Diluted	Earnings Per Share	Basic	Securities	Diluted	Basic	Securities	Diluted
Millions Except Per Share Amounts	Millions Except Per Share Amounts							Millions Except Per Share Amounts
Quarter ended September 30,	Quarter ended September 30,							Quarter ended September 30,
Net Income Attributable to ALLETE	Net Income Attributable to ALLETE	$27.6		$27.6	$40.7		$40.7	Net Income Attributable to ALLETE	$33.7		$33.7	$27.6		$27.6
Average Common Shares	Average Common Shares	52.4	0.1	52.5	51.9	0.1	52.0	Average Common Shares	57.1	0.1	57.2	52.4	0.1	52.5
Earnings Per Share	Earnings Per Share	$0.53		$0.53	$0.78		$0.78	Earnings Per Share	$0.59		$0.59	$0.53		$0.53
Nine Months Ended September 30,	Nine Months Ended September 30,							Nine Months Ended September 30,
Net Income Attributable to ALLETE	Net Income Attributable to ALLETE	$107.3		$107.3	$127.1		$127.1	Net Income Attributable to ALLETE	$137.6		$137.6	$107.3		$107.3
Average Common Shares	Average Common Shares	52.3	—	52.3	51.8	0.1	51.9	Average Common Shares	55.5	0.1	55.6	52.3	—	52.3
Earnings Per Share	Earnings Per Share	$2.05		$2.05	$2.45		$2.45	Earnings Per Share	$2.48		$2.48	$2.05		$2.05

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.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

NOTE 8.9. INCOME TAX EXPENSE


		Quarter Ended		Nine Months Ended			Quarter Ended		Nine Months Ended
		September 30,		September 30,			September 30,		September 30,
		2021	2020	2021	2020		2022	2021	2022	2021
Millions	Millions					Millions
Current Income Tax Expense (a)	Current Income Tax Expense (a)					Current Income Tax Expense (a)
Federal	Federal	—	—	—	—	Federal	—	—	—	—
State	State	$0.1	$0.1	$0.1	$0.1	State	$0.2	$0.1	$0.3	$0.1
Total Current Income Tax Expense	Total Current Income Tax Expense	$0.1	$0.1	$0.1	$0.1	Total Current Income Tax Expense	$0.2	$0.1	$0.3	$0.1
Deferred Income Tax Expense (Benefit)	Deferred Income Tax Expense (Benefit)					Deferred Income Tax Expense (Benefit)
Federal (b)	Federal (b)	$(5.8)	$(8.3)	$(26.3)	$(34.5)	Federal (b)	$(8.4)	$(5.8)	$(20.7)	$(26.3)
State		0.9	2.9	7.3	7.1
State (c)						State (c)	1.1	0.9	1.4	7.3
Investment Tax Credit Amortization	Investment Tax Credit Amortization	(0.1)	(0.2)	(0.4)	(0.5)	Investment Tax Credit Amortization	(0.1)	(0.1)	(0.4)	(0.4)
Total Deferred Income Tax Benefit	Total Deferred Income Tax Benefit	$(5.0)	$(5.6)	$(19.4)	$(27.9)	Total Deferred Income Tax Benefit	$(7.4)	$(5.0)	$(19.7)	$(19.4)
Total Income Tax Benefit	Total Income Tax Benefit	$(4.9)	$(5.5)	$(19.3)	$(27.8)	Total Income Tax Benefit	$(7.2)	$(4.9)	$(19.4)	$(19.3)

(a)For ~~each of~~ the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the federal and state current tax expense was minimal due to NOLs which resulted from the bonus depreciation provisions of certain tax legislation. Federal and state NOLs are being carried forward to offset current and future taxable income.

(b)For ~~each of~~ the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, the federal income tax benefit is primarily due to production tax credits.

(c)For the nine months ended September 30, 2022, the state impact includes the benefit of deferred repricing as a result of the New Energy acquisition.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

NOTE 9. INCOME TAX EXPENSE (Continued)

The Company's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter. In each quarter, the Company updates its estimate of the annual effective tax rate and if the estimated annual effective tax rate changes, the Company would make a cumulative adjustment in that quarter.


		Quarter Ended				Nine Months Ended					Quarter Ended				Nine Months Ended
Reconciliation of Taxes from Federal Statutory	Reconciliation of Taxes from Federal Statutory	September 30,								Reconciliation of Taxes from Federal Statutory	September 30,
Rate to Total Income Tax Expense	Rate to Total Income Tax Expense	2021		2020		2021		2020		Rate to Total Income Tax Expense	2022		2021		2022		2021
Millions	Millions									Millions
Income Before Income Taxes	Income Before Income Taxes	$19.2		$33.3		$69.9		$92.4		Income Before Income Taxes	$19.6		$19.2		$74.7		$69.9

Statutory Federal Income Tax Rate	Statutory Federal Income Tax Rate	21	%	21	%	21	%	21	%	Statutory Federal Income Tax Rate	21	%	21	%	21	%	21	%
Income Taxes Computed at Statutory Federal Rate	Income Taxes Computed at Statutory Federal Rate	$4.0		$7.0		$14.7		$19.4		Income Taxes Computed at Statutory Federal Rate	$4.1		$4.0		$15.7		$14.7
Increase (Decrease) in Income Tax Due to:	Increase (Decrease) in Income Tax Due to:									Increase (Decrease) in Income Tax Due to:
State Income Taxes (Credit) – Net of Federal Income Tax Benefit	State Income Taxes (Credit) – Net of Federal Income Tax Benefit	0.7		2.4		5.8		5.7		State Income Taxes (Credit) – Net of Federal Income Tax Benefit	1.1		0.7		6.6		5.8

Deferred Revaluation – Net of Federal Income Tax Benefit										Deferred Revaluation – Net of Federal Income Tax Benefit	—		—		(5.2)		—

Production Tax Credits	Production Tax Credits	(9.5)		(12.5)		(36.6)		(45.9)		Production Tax Credits	(9.7)		(9.5)		(34.4)		(36.6)
Investment Tax Credits										Investment Tax Credits	(3.2)		—		(3.2)		—
Regulatory Differences – Excess Deferred Tax	Regulatory Differences – Excess Deferred Tax	(2.1)		(3.2)		(6.7)		(8.5)		Regulatory Differences – Excess Deferred Tax	(1.5)		(2.1)		(6.7)		(6.7)
Non-Controlling Interest in Subsidiaries										Non-Controlling Interest in Subsidiaries	1.4		0.8		8.4		3.9

Non-Controlling Interest in Subsidiaries		0.8		0.4		3.9		1.5
Share-Based Compensation		—		—		0.5		(0.1)
Other	Other	1.2		0.4		(0.9)		0.1		Other	0.6		1.2		(0.6)		(0.4)
Total Income Tax Benefit	Total Income Tax Benefit	$(4.9)		$(5.5)		$(19.3)		$(27.8)		Total Income Tax Benefit	$(7.2)		$(4.9)		$(19.4)		$(19.3)

For the nine months ended September 30, ~~2021,~~2022, the effective tax rate was a benefit of ~~27.6~~26.0 percent (benefit of ~~30.1~~27.6 percent for the nine months ended September 30, ~~2020)~~2021). The effective tax rate for ~~2021~~2022 and ~~2020~~2021 was primarily impacted by production tax credits.

Uncertain Tax Positions. As of September 30, ~~2021,~~2022, we had gross unrecognized tax benefits of ~~$1.5~~$1.3 million ($~~1.4~~1.3 million as of December 31, ~~2020)~~2021). Of the total gross unrecognized tax benefits, $0.6 million represents the amount of unrecognized tax benefits included on the Consolidated Balance Sheet that, if recognized, would favorably impact the effective income tax rate. The unrecognized tax benefit amounts have been presented as reductions to the tax benefits associated with NOL and tax credit carryforwards on the Consolidated Balance Sheet.

ALLETE and its subsidiaries file a consolidated federal income tax return as well as combined and separate state income tax returns in various jurisdictions. ALLETE has no open federal or state audits, and is no longer subject to federal examination for years before ~~2017,~~2018, or state examination for years before ~~2016.~~2017. Additionally, the statute of limitations related to the federal tax credit carryforwards will remain open until those credits are utilized in subsequent returns.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

2627

NOTE 9.10. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS


		Pension		Other Postretirement			Pension		Other Postretirement
Components of Net Periodic Benefit Cost (Credit)	Components of Net Periodic Benefit Cost (Credit)	2021	2020	2021	2020	Components of Net Periodic Benefit Cost (Credit)	2022	2021	2022	2021
Millions	Millions					Millions
Quarter Ended September 30,	Quarter Ended September 30,					Quarter Ended September 30,
Service Cost	Service Cost	$2.7	$2.7	$0.9	$0.8	Service Cost	$2.1	$2.7	$0.8	$0.9
Non-Service Cost Components (a)	Non-Service Cost Components (a)					Non-Service Cost Components (a)
Interest Cost	Interest Cost	6.1	6.9	1.1	1.2	Interest Cost	6.9	6.1	1.1	1.1
Expected Return on Plan Assets	Expected Return on Plan Assets	(10.8)	(10.6)	(2.4)	(2.4)	Expected Return on Plan Assets	(10.4)	(10.8)	(2.4)	(2.4)
Amortization of Prior Service Credits	Amortization of Prior Service Credits	—	—	(1.9)	(2.0)	Amortization of Prior Service Credits	—	—	(1.8)	(1.9)
Amortization of Net Loss	Amortization of Net Loss	4.7	3.2	0.7	0.3	Amortization of Net Loss	2.8	4.7	0.1	0.7

Net Periodic Benefit Cost (Credit)	Net Periodic Benefit Cost (Credit)	$2.7	$2.2	$(1.6)	$(2.1)	Net Periodic Benefit Cost (Credit)	$1.4	$2.7	$(2.2)	$(1.6)

Nine Months Ended September 30,	Nine Months Ended September 30,					Nine Months Ended September 30,
Service Cost	Service Cost	$8.2	$8.0	$2.7	$2.5	Service Cost	$6.9	$8.2	$2.3	$2.7
Non-Service Cost Components (a)	Non-Service Cost Components (a)					Non-Service Cost Components (a)
Interest Cost	Interest Cost	18.4	20.9	3.3	3.7	Interest Cost	20.4	18.4	3.3	3.3
Expected Return on Plan Assets	Expected Return on Plan Assets	(32.5)	(32.0)	(7.3)	(7.3)	Expected Return on Plan Assets	(31.1)	(32.5)	(7.2)	(7.3)
Amortization of Prior Service Credits	Amortization of Prior Service Credits	(0.1)	(0.1)	(5.7)	(6.0)	Amortization of Prior Service Credits	(0.1)	(0.1)	(5.6)	(5.7)
Amortization of Net Loss	Amortization of Net Loss	14.1	9.6	2.2	0.8	Amortization of Net Loss	8.6	14.1	0.3	2.2

Net Periodic Benefit Cost (Credit)	Net Periodic Benefit Cost (Credit)	$8.1	$6.4	$(4.8)	$(6.3)	Net Periodic Benefit Cost (Credit)	$4.7	$8.1	$(6.9)	$(4.8)

(a)These components of net periodic benefit cost (credit) are included in the line item “Other” under Other Income (Expense) on the Consolidated Statement of Income.

Employer Contributions. For the nine months ended September 30, ~~2021,~~2022, we ~~contributed $10.3 million in cash~~made no contributions to the defined benefit pension plans ($~~10.7~~10.3 million for the nine months ended September 30, ~~2020)~~2021); we do not expect to make ~~additional~~any contributions to our defined benefit pension plans in ~~2021.~~2022. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, we made no contributions to our other postretirement benefit plans; we do not expect to make any contributions to our other postretirement benefit plans in ~~2021.~~2022.

NOTE ~~10.~~11. BUSINESS SEGMENTS

We present two reportable segments: Regulated Operations and ALLETE Clean Energy. We measure performance of our operations through budgeting and monitoring of contributions to consolidated net income by each business segment.

Regulated Operations includes 3three operating segments which consist of our regulated utilities, Minnesota Power and SWL&P, as well as our investment in ATC. ALLETE Clean Energy is our business focused on developing, acquiring and operating clean and renewable energy projects. We also present Corporate and Other which includes ~~2 operating segments,~~ BNI Energy, our coal mining operations in North Dakota, ~~and~~New Energy, a renewable energy development company, ALLETE Properties, our legacy Florida real estate investment, along with our investment in Nobles 2, South Shore Energy, our non-rate regulated, Wisconsin subsidiary developing NTEC, other business development and corporate expenditures, unallocated interest expense, a small amount of non-rate base generation, ~~approximately 4,000 acres of~~ land holdings in Minnesota, and earnings on cash and investments.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

2728

NOTE ~~10.~~11. BUSINESS SEGMENTS (Continued)

Quarter Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Millions
Operating Revenue
Regulated Operations
Residential $37.0 $34.2 $118.0 $102.5
Commercial 44.3 37.1 124.7 103.2
Municipal 14.4 11.2 38.5 30.5
Industrial 139.7 109.6 407.8 316.4
Other Power Suppliers 41.2 30.9 116.9 96.6
CIP Financial Incentive (a)
2.4 2.4 2.4 2.4
Other 25.8 29.7 79.9 69.6
Total Regulated Operations 304.8 255.1 888.2 721.2
ALLETE Clean Energy
Long-term PSA 14.0 11.9 50.8 44.0
Other 2.9 2.9 8.6 8.5
Total ALLETE Clean Energy 16.9 14.8 59.4 52.5
Corporate and Other
Long-term Contract 20.3 20.7 63.4 65.6
Other 3.4 3.3 9.2 9.4
Total Corporate and Other 23.7 24.0 72.6 75.0
Total Operating Revenue $345.4 $293.9 $1,020.2 $848.7
Net Income (Loss) Attributable to ALLETE
Regulated Operations $32.9 $42.4 $99.4 $111.0
ALLETE Clean Energy (0.8) 1.1 11.7 16.8
Corporate and Other (4.5) (2.8) (3.8) (0.7)
Total Net Income Attributable to ALLETE $27.6 $40.7 $107.3 $127.1


	Quarter Ended		Nine Months Ended
	September 30,		September 30,
	2022	2021	2022	2021
Millions
Operating Revenue
Regulated Operations
Residential	$40.1	$37.0	$136.7	$118.0
Commercial	49.0	44.3	141.7	124.7
Municipal	9.8	14.4	31.9	38.5
Industrial	147.3	139.7	445.7	407.8
Other Power Suppliers	46.7	41.2	124.6	116.9

Other	29.7	28.2	79.7	82.3
Total Regulated Operations	322.6	304.8	960.3	888.2

ALLETE Clean Energy
Long-term PSA	14.4	14.0	58.7	50.8
Other	1.2	2.9	6.3	8.6
Total ALLETE Clean Energy	15.6	16.9	65.0	59.4







Corporate and Other
Long-term Contract	23.5	20.3	67.5	63.4
Sale of Renewable Development Projects	22.1	—	36.6	—
Other	4.5	3.4	15.5	9.2
Total Corporate and Other	50.1	23.7	119.6	72.6

Total Operating Revenue	$388.3	$345.4	$1,144.9	$1,020.2
Net Income (Loss) Attributable to ALLETE
Regulated Operations	$38.3	$32.9	$119.4	$99.4

ALLETE Clean Energy	(7.3)	(0.8)	15.0	11.7



Corporate and Other (a)	2.7	(4.5)	3.2	(3.8)
Total Net Income Attributable to ALLETE	$33.7	$27.6	$137.6	$107.3

(a)~~See Note 2. Regulatory Matters.~~Net Income in 2022 includes a $5.7 million after-tax expense as a result of purchase price accounting related to projects under development at the time of acquisition and $2.6 million after-tax of transaction costs related to the acquisition of New Energy.


		September 30, 2021	December 31, 2020		September 30, 2022	December 31, 2021
Millions	Millions			Millions
Assets	Assets			Assets
Regulated Operations	Regulated Operations	$4,207.4	$4,196.8	Regulated Operations	$4,307.3	$4,289.4

ALLETE Clean Energy	ALLETE Clean Energy	1,691.4	1,483.3	ALLETE Clean Energy	1,893.2	1,719.4

Corporate and Other	Corporate and Other	433.4	404.5	Corporate and Other	657.5	426.2
Total Assets	Total Assets	$6,332.2	$6,084.6	Total Assets	$6,858.0	$6,435.0

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

2829

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion should be read in conjunction with our Consolidated Financial Statements and notes to those statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations from our ~~2020~~2021 Form 10-K, and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion and other parts of this Form 10-Q contain forward-looking information that involves risks and uncertainties. Readers are cautioned that forward-looking statements should be read in conjunction with our disclosures in this Form 10-Q, including Part II, Item 1A Risk Factors, and our ~~2020~~2021 Form 10-K under the headings: “Forward-Looking Statements” located on page 6 and “Risk Factors” located in Part I, Item 1A, beginning on page 2324 of our ~~2020~~2021 Form 10-K. The risks and uncertainties described in this Form 10-Q and our ~~2020~~2021 Form 10-K are not the only risks facing our Company. Additional risks and uncertainties that we are not presently aware of, or that we currently consider immaterial, may also affect our business operations. Our business, financial condition or results of operations could suffer if the risks are realized.

The COVID-19 pandemic has had widespread impacts on the global economy and on our employees, customers, contractors, and suppliers. Additional disclosures regarding the impacts of the COVID-19 pandemic are located in our 2020 Form 10-K located in Outlook – Regulated Operations – Industrial Customers and Prospective Additional Load, Liquidity and Capital Resources – Liquidity Position and Part I, Item 1A. Risk Factors.

Regulated Operations includes our regulated utilities, Minnesota Power and SWL&P, as well as our investment in ATC, a Wisconsin-based regulated utility that owns and maintains electric transmission assets in portions of Wisconsin, Michigan, Minnesota and Illinois. Minnesota Power provides regulated utility electric service in northeastern Minnesota to approximately ~~145,000~~150,000 retail customers. Minnesota Power also has 1514 non-affiliated municipal customers in Minnesota. SWL&P is a Wisconsin utility and a wholesale customer of Minnesota Power. SWL&P provides regulated utility electric, natural gas and water service in northwestern Wisconsin to approximately 15,000 electric customers, 13,000 natural gas customers and 10,000 water customers. Our regulated utility operations include retail and wholesale activities under the jurisdiction of state and federal regulatory authorities. (See Note 2. Regulatory Matters.)

ALLETE Clean Energy focuses on developing, acquiring, and operating clean and renewable energy projects. ALLETE Clean Energy currently owns and operates, in seven states, more than ~~1,000~~1,300 MW of nameplate capacity wind energy generation that is contracted under PSAs of various durations. In addition, ~~ALLETE Clean Energy currently has an approximately 300 MW wind energy facility under construction.~~ ALLETE Clean Energy also engages in the development of wind energy facilities to operate under long-term PSAs or for sale to others upon completion. ALLETE Clean Energy currently has approximately 200 MW wind energy facilities under contract to be sold to others.

Corporate and Other is comprised of BNI Energy, our coal mining operations in North Dakota; New Energy, a renewable development company; our investment in Nobles 2, an entity that owns and operates a 250 MW wind energy facility in southwestern Minnesota; South Shore Energy, our non-rate regulated, Wisconsin subsidiary developing NTEC, an approximately 600 MW proposed combined-cycle natural gas-fired generating facility; ALLETE Properties, our legacy Florida real estate investment; other business development and corporate expenditures; unallocated interest expense; a small amount of non-rate base generation; ~~approximately 4,000 acres of~~ land holdings in ~~Minnesota,~~Minnesota; and earnings on cash and investments.

ALLETE is incorporated under the laws of Minnesota. Our corporate headquarters are in Duluth, Minnesota. Statistical information is presented as of September 30, ~~2021,~~2022, unless otherwise indicated. All subsidiaries are wholly-owned unless otherwise specifically indicated. References in this report to “we,” “us” and “our” are to ALLETE and its subsidiaries, collectively.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

2930

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Financial Overview

The following net income discussion summarizes a comparison of the nine months ended September 30, ~~2021,~~2022, to the nine months ended September 30, ~~2020.~~2021.

Net income attributable to ALLETE for the nine months ended September 30, ~~2021,~~2022, was ~~$107.3~~$137.6 million, or ~~$2.05~~$2.48 per diluted share, compared to ~~$127.1~~$107.3 million, or ~~$2.45~~$2.05 per diluted share, for the same period in ~~2020.~~2021. Net income in 2022 included transaction costs of $2.6 million after-tax, or $0.05 per share, related to the acquisition of New Energy. Net income in 2021 included an approximately $5 million after-tax, or $0.10 per share, negative impact related to ALLETE Clean Energy’s Diamond Spring wind energy facility due to an extreme winter storm event in the southwest United States in February 2021. Earnings per share dilution in 2022 was $0.15 due to additional shares of common stock outstanding as of September 30, 2022.

Regulated Operations net income attributable to ALLETE was $119.4 million for the nine months ended September 30, 2022, compared to $99.4 million for the same period in 2021. Net income at Minnesota Power was higher than 2021 primarily due to the implementation of interim rates on January 1, 2022. These increases were partially offset by higher costs under a PPA with Manitoba Hydro, higher operating and maintenance expense, and lower kWh sales to industrial customers. Our after-tax equity earnings in ATC were lower than 2021 primarily due to period over period changes in ATC’s estimate of a refund liability related to the appeals court decision on MISO return on equity complaints. (See Note 5. Equity Investments.)

ALLETE Clean Energy net income attributable to ALLETE was $15.0 million for the nine months ended September 30, 2022, compared to $11.7 million for the same period in 2021. Net income in 2022 reflected higher wind resources compared to 2021, partially offset by lower realized pricing under the Caddo and Diamond Spring wind energy facilities’ power sales agreements resulting from extreme market volatility and transmission congestion in the Southwest Power Pool. Net income in 2022 also included a reserve for an anticipated loss on sale of ALLETE Clean Energy’s project to repower and sell its Northern Wind project. Net income in 2021 included an approximately $5 million after-tax negative impact related to ALLETE Clean Energy’s Diamond Spring wind energy facility due to an extreme winter storm event in the southwest United States in February 2021. This winter storm event caused volatility in power prices in the regional power market resulting in losses being incurred under ~~one of~~ the facility’s power sales agreements during portions of the winter storm event. Net income in 2020 included margins of $10.2 million after-tax, or $0.20 per share, in Regulated Operations for sales under a 100 MW PSA which expired in April 2020. Net income in 2020 also included reserves for interim rates of $8.3 million after-tax, or $0.16 per share, for the refund of interim rates collected between January 1, 2020, and April 30, 2020.

~~Regulated Operations~~ net income attributable to ALLETE was $99.4 million for the nine months ended September 30, 2021, compared to $111.0 million for the same period in 2020. Net income at Minnesota Power was lower than 2020 primarily due to: lower margins from Other Power Suppliers resulting from the expiration of a PSA; and higher operating and maintenance, property tax and depreciation expenses. These negative impacts were partially offset by increased earnings related to the GNTL; and higher kWh sales to residential, commercial and municipal customers. Net income in 2020 also included reserves for interim rates of $8.3 million after-tax for the refund of interim rates collected between January 1, 2020, and April 30, 2020. Net income at SWL&P was lower than 2020 primarily due to higher operating expenses. Our after-tax equity earnings in ATC were lower compared to 2020 primarily due to period over period changes in ATC’s estimate of a refund liability related to the FERC decision on MISO return on equity complaints in 2020.

~~ALLETE Clean Energy~~ net income attributable to ALLETE was $11.7 million for the nine months ended September 30, 2021, compared to $16.8 million for the same period in 2020. Net income in 2021 included an approximately $5 million after-tax negative impact related to ALLETE Clean Energy’s Diamond Spring wind energy facility due to an extreme winter storm event in the southwest United States in February 2021 as well as a lower wind resources at other wind energy facilities. These negative impacts were partially offset by expense management efforts.

Corporate and Other net ~~loss~~income attributable to ALLETE was ~~$3.8~~$3.2 million for the nine months ended September 30, ~~2021,~~2022, compared to a net loss of ~~$0.7~~$3.8 million for the same period in ~~2020. The net loss~~2021. Net income in ~~2021 included~~2022 reflects higher ~~expenses and additional income tax expense recorded in 2021 as GAAP requires the recognition of income taxes at the estimated annual effective tax rate. These negative impacts were partially offset by~~ earnings from our investment in Nobles 2 due to higher wind resources in 2022, higher land sales at ALLETE Properties, higher tons sold at BNI Energy, and lower income taxes. Net income in 2022 also reflects net income from New Energy of $0.2 million, which ~~commenced operations in December 2020.~~included a $5.7 million after-tax expense as a result of purchase price accounting related to projects under development at the time of acquisition. These increases were partially offset by transaction costs of $2.6 million after-tax related to the acquisition of New Energy, and higher other expenses compared to 2021.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

3031

COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, ~~2021~~2022 AND ~~2020~~2021

(See Note ~~10.~~11. Business Segments for financial results by segment.)

Regulated Operations


Quarter Ended September 30,	Quarter Ended September 30,	2021	2020	Quarter Ended September 30,	2022	2021
Millions	Millions			Millions
Operating Revenue – Utility	Operating Revenue – Utility	$304.8	$255.1	Operating Revenue – Utility	$322.6	$304.8
Fuel, Purchased Power and Gas – Utility	Fuel, Purchased Power and Gas – Utility	140.1	93.4	Fuel, Purchased Power and Gas – Utility	136.8	140.1
Transmission Services – Utility	Transmission Services – Utility	19.2	14.9	Transmission Services – Utility	19.3	19.2

Operating and Maintenance	Operating and Maintenance	53.2	48.1	Operating and Maintenance	62.2	53.2
Depreciation and Amortization	Depreciation and Amortization	42.6	41.3	Depreciation and Amortization	41.5	42.6
Taxes Other than Income Taxes	Taxes Other than Income Taxes	13.5	11.9	Taxes Other than Income Taxes	15.1	13.5
Operating Income	Operating Income	36.2	45.5	Operating Income	47.7	36.2
Interest Expense	Interest Expense	(14.5)	(14.4)	Interest Expense	(14.3)	(14.5)
Equity Earnings	Equity Earnings	5.3	5.1	Equity Earnings	3.1	5.3
Other Income	Other Income	1.4	1.6	Other Income	2.3	1.4
Income Before Income Taxes	Income Before Income Taxes	28.4	37.8	Income Before Income Taxes	38.8	28.4
Income Tax Benefit		(4.5)	(4.6)
Income Tax Benefit (Expense)				Income Tax Benefit (Expense)	0.5	(4.5)

Net Income Attributable to ALLETE	Net Income Attributable to ALLETE	$32.9	$42.4	Net Income Attributable to ALLETE	$38.3	$32.9

Operating Revenue – Utility increased ~~$49.7~~$17.8 million from ~~2020~~2021 primarily due to ~~higher~~the implementation of interim rates at Minnesota Power on January 1, 2022, as well as increased recoveries under the Minnesota conservation improvement program. These increases were partially offset by lower fuel adjustment clause recoveries, lower revenue from kWh sales and ~~higher kWh sales.~~the timing of financial incentives.

Interim retail rates for Minnesota Power, subject to refund, were approved by the MPUC and became effective January 1, 2022, resulting in revenue of $24.9 million. (See Note 2. Regulatory Matters.)

Conservation improvement program recoveries increased $1.9 million from 2021 primarily due to an increase in related expenditures. (See Operating Expenses - Operating and Maintenance.)

Fuel adjustment clause revenue ~~increased $27.4~~decreased $6.6 million due to ~~higher~~lower fuel and purchased power costs attributable to retail and municipal customers, and lower kWh sales to retail and municipal customers. (See Fuel, Purchased Power and Gas – Utility.)

~~Revenue from~~Lower kWh sales ~~increased $23.6~~reduced revenue $4.1 million from ~~2020~~2021 reflecting ~~higher~~lower sales to ~~commercial~~retail and ~~industrial~~municipal customers as well as other power suppliers. Sales to ~~commercial and~~ industrial customers ~~increased~~decreased primarily due to ~~improving business conditions related~~lower sales to ~~the COVID-19 pandemic and its impact on customer operations. Many~~taconite customers resulting from less taconite production in 2022 compared to 2021, reflecting Cliffs’ Northshore mine being temporarily idled in 2022. (See Outlook - Customers - Northshore Mining.) Sales to residential, commercial and ~~industrial~~municipal customers ~~operated at reduced levels or were temporarily closed or idled during~~decreased from 2021 primarily due to milder weather in the third quarter of ~~2020 as a result of the COVID-19 pandemic and related governmental responses while business conditions have improved in~~2022 compared to 2021. These higher sales to commercial and industrial customers were partially offset by lower sales to Verso Corporation which indefinitely idled its paper mill in Duluth, Minnesota in 2020. (See Outlook – Regulated Operations – Industrial Customers and Prospective Additional Load.) Sales to other power suppliers, which are sold at market-based prices into the MISO market on a daily basis or through PSAs of various durations, ~~increased~~decreased in 2022 compared to 2021 primarily due to additional kWh sales made in 2021 to mitigate the uncertainty of customers’ energy needs and potential load loss due to the COVID-19 pandemic.

Kilowatt-hours Sold Variance
Quarter Ended September 30, 2021 2020 Quantity %
Millions
Regulated Utility
Retail and Municipal
Residential 268 268 — —
Commercial 360 345 15 4.3 %
Industrial 1,778 1,410 368 26.1 %
Municipal 147 147 — —
Total Retail and Municipal 2,553 2,170 383 17.6 %
Other Power Suppliers 1,253 967 286 29.6 %
Total Regulated Utility Kilowatt-hours Sold 3,806 3,137 669 21.3 %

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

3132

COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, ~~2021~~2022 AND ~~2020~~2021 (Continued)

Regulated Operations (Continued)


Kilowatt-hours Sold			Variance
Quarter Ended September 30,	2022	2021	Quantity	%
Millions
Regulated Utility
Retail and Municipal
Residential	251	268	(17)	(6.3)	%
Commercial	353	360	(7)	(1.9)	%
Industrial	1,665	1,778	(113)	(6.4)	%
Municipal	130	147	(17)	(11.6)	%
Total Retail and Municipal	2,399	2,553	(154)	(6.0)	%
Other Power Suppliers	769	1,253	(484)	(38.6)	%
Total Regulated Utility Kilowatt-hours Sold	3,168	3,806	(638)	(16.8)	%

Revenue from electric sales to taconite customers accounted for 3231 percent of regulated operating revenue in ~~2021 (29~~2022 (32 percent in ~~2020)~~2021). Revenue from electric sales to paper, pulp and secondary wood product customers accounted for 56 percent of regulated operating revenue in ~~2021 (6~~2022 (5 percent in ~~2020)~~2021). Revenue from electric sales to pipelines and other industrial customers accounted for 89 percent of regulated operating revenue in ~~2021~~2022 (8 percent in ~~2020)~~2021).

Financial incentives under the Minnesota conservation improvement program were $2.4 million lower than 2021 due to the timing of MPUC approval, which was received in the second quarter in 2022 compared to the third quarter in 2021. (See Note 2. Regulatory Matters.)

Operating Expenses increased ~~$59.0~~$6.3 million, or 282 percent, from ~~2020.~~2021.

Fuel, Purchased Power and Gas – Utility expense ~~increased $46.7~~decreased $3.3 million, or 502 percent, from ~~2020~~2021 primarily due to lower kWh sales, partially offset by higher purchased power prices ~~kWh sales~~ and fuel costs. Fuel and purchased power expense related to our retail and municipal customers is recovered through the fuel adjustment clause.

~~Transmission Services – Utility~~ ~~expense increased $4.3 million, or 29 percent, from 2020 primarily due to higher MISO-related expense.~~

Operating and Maintenance expense increased ~~$5.1~~$9.0 million, or 1117 percent, from ~~2020~~2021 primarily due to ~~an increase in contract and~~more professional services and materials purchased for generation facilities as well as higher conservation improvement program expenses and ~~higher vegetation management~~labor expenses. In addition, ~~2021~~2022 included ~~higher labor and benefit~~rate case-related expenses ~~as compared to 2020.~~

~~Depreciation and Amortization~~ ~~expense increased $1.3 million, or 3 percent, from 2020 primarily due to additional property, plant and equipment in service.~~for Minnesota Power’s ongoing rate case. (See Note 2. Regulatory Matters.)

Taxes Other than Income Taxes increased $1.6 million, or 1312 percent from ~~2020~~2021 primarily due to higher property tax expense resulting from ~~higher estimated~~the impact of an updated estimate of taxable market ~~values.~~values and rates recorded in 2021.

Equity Earnings decreased $2.2 million, or 42 percent, from 2021 primarily due to period over period changes in ATC’s estimate of a refund liability related to the appeals court decision on MISO return on equity complaints. (See Note 4. Equity Investments.)

Income Tax Benefit was ~~similar~~lower than 2021 due to ~~2020 reflecting~~higher pre-tax income and lower production tax credits and the timing of income taxes in 2021 compared to 2020, mostly offset by lower pre-tax income. The income tax benefit in 2021 included less income tax benefit recorded in 2021 as GAAP requires the recognition of income taxes at the estimated annual effective tax rate.

credits. We expect our annual effective tax rate in ~~2021~~2022 to be a lower income tax benefit than in ~~2020~~2021 primarily due to higher pre-tax income and lower production tax credits.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2022 AND 2021 (Continued)

ALLETE Clean Energy


Quarter Ended September 30,	Quarter Ended September 30,	2021	2020	Quarter Ended September 30,	2022	2021
Millions	Millions			Millions
Operating Revenue	Operating Revenue			Operating Revenue
Contracts with Customers – Non-utility	Contracts with Customers – Non-utility	$14.0	$11.9	Contracts with Customers – Non-utility	$14.4	$14.0
Other – Non-utility (a)	Other – Non-utility (a)	2.9	2.9	Other – Non-utility (a)	1.2	2.9
Cost of Sales – Non-utility				Cost of Sales – Non-utility	4.0	—
Operating and Maintenance	Operating and Maintenance	10.2	10.8	Operating and Maintenance	12.7	10.2
Depreciation and Amortization	Depreciation and Amortization	12.2	9.3	Depreciation and Amortization	14.3	12.2
Taxes Other than Income Taxes	Taxes Other than Income Taxes	1.8	0.8	Taxes Other than Income Taxes	2.9	1.8
Operating Income (Loss)		(7.3)	(6.1)
Operating Loss				Operating Loss	(18.3)	(7.3)
Interest Expense	Interest Expense	(0.3)	(0.4)	Interest Expense	(0.2)	(0.3)

Other Income				Other Income	0.2	—
Loss Before Income Taxes	Loss Before Income Taxes	(7.6)	(6.5)	Loss Before Income Taxes	(18.3)	(7.6)
Income Tax Benefit	Income Tax Benefit	(4.2)	(5.7)	Income Tax Benefit	(5.4)	(4.2)
Net Loss	Net Loss	(3.4)	(0.8)	Net Loss	(12.9)	(3.4)
Net Loss Attributable to Non-Controlling Interest	Net Loss Attributable to Non-Controlling Interest	(2.6)	(1.9)	Net Loss Attributable to Non-Controlling Interest	(5.6)	(2.6)
Net Income (Loss) Attributable to ALLETE		$(0.8)	$1.1
Net Loss Attributable to ALLETE				Net Loss Attributable to ALLETE	$(7.3)	$(0.8)

(a)Represents non-cash amortization of differences between contract prices and estimated market prices on assumed PSAs.

Operating Revenue decreased $1.3 million, or 8 percent compared to 2021. Operating revenue reflected the absence of revenue from Northern Wind as part of ALLETE Clean Energy’s project to repower and sell the wind energy facilities. Operating revenue in 2022 was also impacted by lower realized pricing under the Caddo and Diamond Spring wind energy facilities’ power sales agreements resulting from extreme market volatility and transmission congestion in the Southwest Power Pool.


	Quarter Ended September 30,
	2022		2021
Production and Operating Revenue	kWh	Revenue	kWh	Revenue
Millions
Wind Energy Regions
East	38.8	$3.5	39.8	$3.6
Midwest	100.9	4.3	148.7	6.5
South	373.3	4.4	152.6	2.4
West	151.7	3.4	180.0	4.4

Total Production and Operating Revenue	664.7	$15.6	521.1	$16.9

Cost of Sales – Non-utility increased $4.0 million from 2021 reflecting a reserve for an anticipated loss on sale of ALLETE Clean Energy’s project to repower and sell its Northern Wind project.

Operating and Maintenanceexpense increased $2.5 million, or 25 percent, from 2021 primarily due to operating and maintenance expenses related to the Caddo wind energy facility, which commenced operations in December 2021.

Depreciation and Amortizationexpense increased $2.1 million, or 17 percent, from 2021 primarily due to additional property, plant and equipment in service related to the Caddo wind energy facility.

Taxes Other than Income Taxesincreased $1.1 million from 2021 primarily due to higher property tax expense related to the Caddo wind energy facility.

Income Tax Benefit increased $1.2 million from 2021 primarily due to higher pre-tax loss, partially offset by higher production tax credits and higher net loss attributable to non-controlling interest.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

3234

COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, ~~2021~~2022 AND ~~2020~~2021 (Continued)

ALLETE Clean Energy (Continued)

~~Operating Revenue~~ ~~increased $2.1 million, or 14 percent, from 2020 primarily due to revenue from the Diamond Spring wind energy facility which commenced operations in December 2020.~~

Quarter Ended September 30,
2021 2020
Production and Operating Revenue kWh Revenue kWh Revenue
Millions
Wind Energy Regions
East 39.8 $3.6 41.6 $3.7
Midwest 148.7 6.5 182.5 7.0
South 152.6 2.4 — —
West 180.0 4.4 166.3 4.1
Total Production and Operating Revenue 521.1 $16.9 390.4 $14.8

~~Operating and Maintenance~~expense decreased $0.6 million, or 6 percent, from 2020 primarily due to expense management efforts, partially offset by operating and maintenance expenses related to the Diamond Spring wind energy facility.

~~Depreciation and Amortizationexpense increased $2.9 million, or 31 percent, from 2020 primarily due to additional property, plant and equipment in service related to the Diamond Spring wind energy facility.~~

~~Taxes Other than Income Taxesincreased $1.0 million from 2020 primarily due to higher property tax expense related to the Diamond Spring wind energy facility.~~

~~Income Tax Benefit~~ ~~decreased $1.5 million from 2020 primarily due to lower production tax credits.~~

Net Loss Attributable to Non-Controlling Interest increased ~~$0.7~~$3.0 million from ~~2020~~2021 reflecting higher net losses attributable to non-controlling interest for the Diamond Spring wind energy facility ~~and~~resulting from a higher PTC value in 2022 compared to 2021 as well as net losses attributable to non-controlling interest for the ~~Glen Ullin and South Peak~~Caddo wind energy ~~facilities.~~facility.

Corporate and Other

Operating Revenue increased $26.4 million from 2021 reflecting revenue from New Energy, which was acquired in ~~2021 was similar~~April 2022, and higher revenue at BNI Energy, which operates under cost-plus fixed fee contracts, as a result of higher expenses in 2022 compared to ~~the same period in 2020.~~2021.

Net ~~Loss~~Income Attributable to ALLETE of ~~$4.5~~$2.7 million in ~~2021~~2022 compared to a net loss of ~~$2.8~~$4.5 million in ~~2020. The net loss in 2021 included higher expenses.~~2021. Net income in 2022 reflects higher earnings from our investment in Nobles 2 due to higher wind resources in 2022, net income from New Energy of $1.3 million, which included a $1.7 million after-tax expense as a result of purchase price accounting related to projects under development at ~~BNI Energy was $1.8 million in 2021 compared to $2.1 million in 2020. The net loss at ALLETE Properties was $0.5 million in 2021 compared to~~the time of acquisition, and a ~~net loss~~benefit from the timing of ~~$0.7 million in 2020.~~income taxes.

Income Taxes – Consolidated

For the quarter ended September 30, ~~2021,~~2022, the effective tax rate was a benefit of ~~25.5~~36.7 percent (benefit of ~~16.5~~25.5 percent for the quarter ended September 30, ~~2020)~~2021). The effective tax rate for ~~2021~~2022 was a higher benefit primarily due to ~~lower pre-tax~~the timing of income ~~partially offset by lower production tax credits.~~taxes.

We expect our annual effective tax rate in ~~2021~~2022 to be a lower income tax benefit than in ~~2020~~2021 primarily due to higher non-controlling interests in subsidiaries, higher pre-tax income, and lower production tax credits, partially offset by investment tax credits. The estimated annual effective tax rate can differ from what a quarterly effective tax rate would otherwise be on a standalone basis, and this may cause quarter to quarter differences in the timing of income taxes.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

3335

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, ~~2021~~2022 AND ~~2020~~2021

(See Note ~~10.~~11. Business Segments for financial results by segment.)

Regulated Operations


Nine Months Ended September 30,	Nine Months Ended September 30,	2021	2020	Nine Months Ended September 30,	2022	2021
Millions	Millions			Millions
Operating Revenue – Utility	Operating Revenue – Utility	$888.2	$721.2	Operating Revenue – Utility	$960.3	$888.2
Fuel, Purchased Power and Gas – Utility	Fuel, Purchased Power and Gas – Utility	389.4	251.7	Fuel, Purchased Power and Gas – Utility	417.4	389.4
Transmission Services – Utility	Transmission Services – Utility	56.1	49.8	Transmission Services – Utility	57.5	56.1

Operating and Maintenance	Operating and Maintenance	158.9	145.4	Operating and Maintenance	177.7	158.9
Depreciation and Amortization	Depreciation and Amortization	128.2	124.9	Depreciation and Amortization	128.5	128.2
Taxes Other than Income Taxes	Taxes Other than Income Taxes	45.1	36.5	Taxes Other than Income Taxes	42.2	45.1
Operating Income	Operating Income	110.5	112.9	Operating Income	137.0	110.5
Interest Expense	Interest Expense	(43.1)	(43.7)	Interest Expense	(42.6)	(43.1)
Equity Earnings	Equity Earnings	15.8	16.7	Equity Earnings	13.8	15.8
Other Income	Other Income	4.5	8.3	Other Income	6.9	4.5
Income Before Income Taxes	Income Before Income Taxes	87.7	94.2	Income Before Income Taxes	115.1	87.7
Income Tax Benefit	Income Tax Benefit	(11.7)	(16.8)	Income Tax Benefit	(4.3)	(11.7)

Net Income Attributable to ALLETE	Net Income Attributable to ALLETE	$99.4	$111.0	Net Income Attributable to ALLETE	$119.4	$99.4

Operating Revenue – Utility increased ~~$167.0~~$72.1 million from ~~2020~~2021 primarily due to the implementation of interim rates at Minnesota Power on January 1, 2022, increased conservation improvement program recoveries, increased gas sales and higher fuel adjustment clause ~~recoveries, higher kWh sales, increased transmission revenue related to the GNTL, higher~~recoveries. These increases were partially offset by lower cost recovery rider revenue and ~~higher FERC formula-based rates. Revenue in 2020 also included reserves~~lower revenue from kWh sales.

Interim retail rates for Minnesota Power, subject to refund, were approved by the ~~refund of interim rates collected between~~MPUC and became effective January 1, ~~2020,~~2022, resulting in revenue of $70.5 million. (See Note 2. Regulatory Matters.)

Conservation improvement program recoveries increased $5.6 million from 2021 primarily due to an increase in related expenditures. (See Operating Expenses - Operating and ~~April 30, 2020.~~Maintenance.)

Gas sales at SWL&P increased $3.4 million as a result of colder weather and higher gas prices in 2022 compared to 2021. (See Fuel, Purchased Power and Gas – Utility.)

Fuel adjustment clause revenue increased ~~$83.6~~$3.2 million due to higher fuel and purchased power costs attributable to retail and municipal customers. (See Fuel, Purchased Power and Gas – Utility.)

~~Revenue from~~Cost recovery rider revenue decreased $9.6 million primarily due to additional production tax credits recognized by Minnesota Power. If production tax credits are recognized at a level above those assumed in Minnesota Power’s retail rates, a decrease in cost recovery rider revenue is recognized to offset the impact of higher production tax credits on income tax expense.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 (Continued)

Regulated Operations (Continued)

Lower kWh sales ~~increased $42.6~~reduced revenue $4.7 million from ~~2020~~2021 reflecting lower sales to industrial customers and other power suppliers, partially offset by higher sales to residential ~~commercial, industrial~~ and ~~municipal~~commercial customers as well as higher pricing on sales to other power suppliers. These increases were partially offset by lower revenue related to the expiration of a 100 MW PSA in April 2020. Sales to commercial and industrial customers increased primarily due to improving business conditions related to the COVID-19 pandemic and its impact on customer operations. Many commercial and industrial customers operated at reduced levels or were temporarily closed or idled during 2020 as a result of the COVID-19 pandemic and related governmental responses while business conditions have improved in 2021. These higher sales to commercial and industrial customers were partially offset by lower sales to and demand revenue from Verso Corporation which indefinitely idled its paper mill in Duluth, Minnesota in 2020. (See Outlook – Regulated Operations – Industrial Customers and Prospective Additional Load.) Sales to residential and ~~municipal~~commercial customers increased from ~~2020~~2021 primarily due to ~~more favorable~~colder weather ~~conditions~~ in ~~2021~~2022 compared to ~~2020.~~2021. Sales to industrial customers decreased primarily due to lower sales to taconite customers resulting from less taconite production in 2022 compared to 2021, reflecting Cliffs’ Northshore mine being temporarily idled in 2022. (See Outlook - Customers - Northshore Mining.) Sales to other power suppliers, which are sold at market-based prices into the MISO market on a daily basis or through PSAs of various durations, ~~increased~~decreased in 2022 compared to 2021 primarily due to additional kWh sales made in 2021 to mitigate the uncertainty of customers’ energy needs and potential load loss due to the COVID-19 pandemic.

Kilowatt-hours Sold Variance
Nine Months Ended September 30, 2021 2020 Quantity %
Millions
Regulated Utility
Retail and Municipal
Residential 846 835 11 1.3 %
Commercial 1,018 983 35 3.6 %
Industrial 5,351 4,547 804 17.7 %
Municipal 445 434 11 2.5 %
Total Retail and Municipal 7,660 6,799 861 12.7 %
Other Power Suppliers 3,695 2,495 1,200 48.1 %
Total Regulated Utility Kilowatt-hours Sold 11,355 9,294 2,061 22.2 %

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (Continued)~~

~~Regulated Operations (Continued)~~


Kilowatt-hours Sold			Variance
Nine Months Ended September 30,	2022	2021	Quantity	%
Millions
Regulated Utility
Retail and Municipal
Residential	851	846	5	0.6	%
Commercial	1,027	1,018	9	0.9	%
Industrial	5,047	5,351	(304)	(5.7)	%
Municipal	419	445	(26)	(5.8)	%
Total Retail and Municipal	7,344	7,660	(316)	(4.1)	%
Other Power Suppliers	2,544	3,695	(1,151)	(31.2)	%
Total Regulated Utility Kilowatt-hours Sold	9,888	11,355	(1,467)	(12.9)	%

Revenue from electric sales to taconite customers accounted for 32 percent of regulated operating revenue in ~~2021 (29~~2022 (32 percent in ~~2020)~~2021). Revenue from electric sales to paper, pulp and secondary wood product customers accounted for 5 percent of regulated operating revenue in ~~2021 (6~~2022 (5 percent in ~~2020)~~2021). Revenue from electric sales to pipelines and other industrial customers accounted for 9 percent of regulated operating revenue in ~~2021~~2022 (9 percent in ~~2020)~~2021).

~~Revenue in 2020 included reserves of $11.7 million for the refund of interim rates collected between January 1, 2020, and April 30, 2020. (See Note 2. Regulatory Matters.)~~

~~Transmission revenue related to GNTL increased $13.5 million primarily due to recovery of related expenses resulting from the GNTL being placed into service in June 2020.~~

Cost recovery rider revenue increased $6.6 million primarily due to fewer production tax credits recognized by Minnesota Power. If production tax credits are recognized at a level below those assumed in Minnesota Power’s base rates, an increase in cost recovery rider revenue is recognized to offset the impact of lower production tax credits on income tax expense.

~~Revenue from wholesale customers under FERC formula-based rates increased $4.5 million primarily due to higher rates.~~

Operating Expenses increased ~~$169.4~~$45.6 million, or 286 percent, from ~~2020.~~2021.

Fuel, Purchased Power and Gas – Utility expense increased ~~$137.7~~$28.0 million, or 557 percent, from ~~2020~~2021 primarily due to higher purchased power prices ~~kWh sales~~ and fuel ~~costs.~~costs as well as increased gas prices and sales, partially offset by lower kWh sales. Fuel and purchased power expense related to our retail and municipal customers is recovered through the fuel adjustment clause.

Operating and Maintenance expenseincreased $18.8 million, or 12 percent, from 2021 primarily due to higher conservation improvement program expenses, professional services and materials purchased for generation facilities, labor expenses and higher vegetation management expenses. These increases were partially offset by lower pension and other postretirement benefit expenses. In addition, 2022 included rate case-related expenses for Minnesota Power’s ongoing rate case. (See Note 2. Regulatory Matters.)

Transmission Services – Utility expense increased ~~$6.3~~$1.4 million, or 132 percent, from ~~2020~~2021 primarily due to higher MISO-related expense.

~~Operating and Maintenance~~ ~~expense~~increased $13.5 million, or 9 percent, from 2020 primarily due to an increase in contract and professional services and materials purchased for generation facilities and higher vegetation management expenses. In addition, 2021 included higher labor and benefit expenses as compared to 2020.

~~Depreciation and Amortization~~ ~~expense increased $3.3 million, or 3 percent, from 2020 primarily due to additional property, plant and equipment in service resulting from the GNTL being placed into service in June 2020.~~

Taxes Other than Income Taxes ~~increased $8.6~~decreased $2.9 million, or 246 percent, from ~~2020~~2021 primarily due to ~~higher~~lower property tax expense resulting from ~~the GNTL being placed into service in June 2020 as well as higher estimated~~an updated estimate of taxable market ~~values.~~values and rates in 2022.

Equity Earnings decreased ~~$0.9~~$2.0 million, or 513 percent, from ~~2020~~2021 primarily due to period over period changes in ATC’s estimate of a refund liability related to the ~~FERC~~appeals court decision on MISO return on equity ~~complaints in 2020.~~

~~Other Incomedecreased $3.8 million, or 46 percent, from 2020 primarily due to lower pension and other postretirement plan non-service credits.~~complaints. (See Note ~~1. Operations and Significant Accounting Policies.~~4. Equity Investments.)

Income Tax Benefit decreased ~~$5.1~~$7.4 million from ~~2020 primarily~~2021 due to higher pre-tax income and lower production tax ~~credits, partially offset by lower pre-tax income.~~

credits. We expect ~~the~~our annual effective tax rate ~~for Regulated Operations~~ in ~~2021~~2022 to be a lower income tax benefit than in ~~2020~~2021 primarily due to higher pre-tax income and lower production tax credits.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

3537

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, ~~2021~~2022 AND ~~2020~~2021 (Continued)

ALLETE Clean Energy


Nine Months Ended September 30,	Nine Months Ended September 30,	2021	2020	Nine Months Ended September 30,	2022	2021
Millions	Millions			Millions
Operating Revenue	Operating Revenue			Operating Revenue
Contracts with Customers – Non-utility	Contracts with Customers – Non-utility	$50.8	$44.0	Contracts with Customers – Non-utility	$58.7	$50.8
Other – Non-utility (a)	Other – Non-utility (a)	8.6	8.5	Other – Non-utility (a)	6.3	8.6
Cost of Sales – Non-utility				Cost of Sales – Non-utility	14.2	—
Operating and Maintenance	Operating and Maintenance	31.6	26.8	Operating and Maintenance	36.6	31.6
Depreciation and Amortization	Depreciation and Amortization	36.5	26.4	Depreciation and Amortization	44.2	36.5
Taxes Other than Income Taxes	Taxes Other than Income Taxes	5.3	2.4	Taxes Other than Income Taxes	9.0	5.3
Operating Income (Loss)		(14.0)	(3.1)
Operating Loss				Operating Loss	(39.0)	(14.0)
Interest Expense	Interest Expense	(1.1)	(1.4)	Interest Expense	(2.0)	(1.1)
Other Income	Other Income	0.3	0.2	Other Income	10.6	0.3
Loss Before Income Taxes	Loss Before Income Taxes	(14.8)	(4.3)	Loss Before Income Taxes	(30.4)	(14.8)
Income Tax Benefit	Income Tax Benefit	(12.7)	(14.2)	Income Tax Benefit	(9.4)	(12.7)
Net Income (Loss)		(2.1)	9.9
Net Loss				Net Loss	(21.0)	(2.1)
Net Loss Attributable to Non-Controlling Interest	Net Loss Attributable to Non-Controlling Interest	(13.8)	(6.9)	Net Loss Attributable to Non-Controlling Interest	(36.0)	(13.8)
Net Income Attributable to ALLETE	Net Income Attributable to ALLETE	$11.7	$16.8	Net Income Attributable to ALLETE	$15.0	$11.7

(a)Represents non-cash amortization of differences between contract prices and estimated market prices on assumed PSAs.

Operating Revenue increased ~~$6.9~~$5.6 million, or 139 percent, from ~~2020~~2021 primarily due to ~~revenue from~~ the ~~South Peak and Diamond Spring wind energy facilities which commenced operations in April 2020 and December 2020, respectively, partially offset by~~absence of the negative impact related to ALLETE Clean Energy’s Diamond Spring wind energy facility ~~due to~~resulting from an extreme winter storm event in the southwest United States in February ~~2021.~~2021 as well as higher wind resources at other wind energy facilities. Operating revenue in 2022 was also impacted by lower realized pricing under the Caddo and Diamond Spring wind energy facilities’ power sales agreements resulting from extreme market volatility and transmission congestion in the Southwest Power Pool.


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Production and Operating Revenue	Production and Operating Revenue	kWh	Revenue	kWh	Revenue	Production and Operating Revenue	kWh	Revenue	kWh	Revenue
Millions	Millions					Millions
Wind Energy Regions	Wind Energy Regions					Wind Energy Regions
East	East	167.1	$15.1	177.3	$15.9	East	184.1	$16.7	167.1	$15.1
Midwest	Midwest	610.3	23.0	634.3	23.2	Midwest	592.0	21.2	610.3	23.0
South	South	666.4	5.8	—	—	South	1,550.9	12.9	666.4	5.8
West	West	569.5	15.5	510.6	13.4	West	624.4	14.2	569.5	15.5

Total Production and Operating Revenue	Total Production and Operating Revenue	2,013.3	$59.4	1,322.2	$52.5	Total Production and Operating Revenue	2,951.4	$65.0	2,013.3	$59.4

Cost of Sales – Non-utility increased $14.2 million from 2021 reflecting a $10.2 million reserve in the second quarter of 2022 related to the sale of ALLETE Clean Energy’s project to repower and sell its Northern Wind project, which was fully offset by a gain on removal of the PSA liability for the Northern Wind project upon decommissioning of the wind energy facilities. (See Other Income and Outlook – ALLETE Clean Energy.) In addition, Cost of Sales – Non-utility in 2022 reflected an additional $4.0 million reserve in the third quarter of 2022 for an anticipated loss on sale of ALLETE Clean Energy’s Northern Wind project resulting from inflationary increases and significant cost pressures.

Operating and Maintenance expense increased ~~$4.8~~$5.0 million, or 1816 percent, from ~~2020~~2021 primarily due to operating and maintenance expenses related to the ~~South Peak and Diamond Spring~~Caddo wind energy ~~facilities. These increases were offset by expense management efforts.~~facility, which commenced operations in December 2021.

Depreciation and Amortization expense increased ~~$10.1~~$7.7 million, or 3821 percent, from ~~2020~~2021 primarily due to additional property, plant and equipment in service related to the ~~South Peak and Diamond Spring~~Caddo wind energy ~~facilities.~~facility.

Taxes Other than Income Taxes increased ~~$2.9~~$3.7 million from ~~2020~~2021 primarily due to higher property tax expense related to the ~~Diamond Spring~~Caddo wind energy facility.

~~Income Tax Benefit~~ ~~decreased $1.5 million from 2020 primarily due to lower production tax credits.~~

~~Net Loss Attributable to Non-Controlling Interest~~ ~~increased $6.9 million from 2020 primarily due to net losses attributable to non-controlling interest for the Diamond Spring wind energy facility.~~

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

3638

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 ~~AND 2020~~(Continued)

ALLETE Clean Energy (Continued)

Other Incomeincreased $10.3 million from 2021 primarily due to a gain on removal of the PSA liability for the Northern Wind project upon decommissioning of the wind energy facilities. (See Cost of Sales – Non-utility and Outlook – ALLETE Clean Energy.)

Income Tax Benefit decreased $3.3 million from 2021 primarily due to higher net loss attributable to non-controlling interest.

Net Loss Attributable to Non-Controlling Interest increased $22.2 million from 2021 reflecting net losses attributable to non-controlling interest for the Caddo wind energy facility as well as higher net losses attributable to non-controlling interests for the Glen Ullin, South Peak and Diamond Spring wind energy facilities resulting from higher wind resources and a higher PTC value in 2022 compared to 2021.

Corporate and Other

Operating Revenue ~~decreased $2.4~~increased $47.0 million, or 365 percent, from ~~2020 primarily due~~2021 reflecting revenue from New Energy, which was acquired in April 2022, higher land sales at ALLETE Properties compared to ~~lower~~2021 and higher revenue at BNI Energy, which operates under cost-plus fixed fee contracts, as a result of ~~lower~~higher expenses and ~~fewer~~more tons sold in ~~2021~~2022 compared to ~~2020 as well as lower land sales at ALLETE Properties in~~ 2021.

Net ~~Loss~~Income Attributable to ALLETE was ~~$3.8~~$3.2 million in ~~2021~~2022 compared to a net loss of ~~$0.7~~$3.8 million in ~~2020. The net loss~~2021. Net income in ~~2021 included~~2022 reflects higher ~~expenses and additional income tax expense recorded in 2021 as GAAP requires the recognition of income taxes at the estimated annual effective tax rate. These negative impacts were partially offset by~~ earnings from our investment in Nobles 2 ~~which commenced operations~~due to higher wind resources in ~~December 2020. Net income~~2022, higher land sales at ALLETE Properties, higher tons sold at BNI Energy, ~~was $5.2~~and lower income taxes. Net income in 2022 also reflects net income from New Energy of $0.2 million, ~~in 2021~~which included a $5.7 million after-tax expense as a result of purchase price accounting related to projects under development at the time of acquisition. These increases were partially offset by transaction costs of $2.6 million after-tax related to the acquisition of New Energy, and higher other expenses compared to ~~net income of $5.3 million in 2020. The net loss at ALLETE Properties was $1.5 million in 2021 compared to a net loss of $1.7 million in 2020.~~2021.

Income Taxes – Consolidated

For the nine months ended September 30, ~~2021,~~2022, the effective tax rate was a benefit of ~~27.6~~26.0 percent (benefit of ~~30.1~~27.6 percent for the nine months ended September 30, ~~2020)~~2021). The effective tax rate for ~~2021~~2022 was a lower benefit primarily due to higher pre-tax income and higher net losses attributable to non-controlling ~~interest and lower production tax credits.~~interests in subsidiaries.

We expect our annual effective tax rate in ~~2021~~2022 to be a lower income tax benefit ~~as compared to 2020~~than in 2021 primarily due to higher net losses attributable to non-controlling ~~interest~~interests in subsidiaries, higher pre-tax income and lower production tax credits, partially offset by investment tax credits. The estimated annual effective tax rate can differ from what a quarterly effective tax rate would otherwise be on a standalone basis, and this may cause quarter to quarter differences in the timing of income taxes. (See Note 8.9. Income Tax Expense.)

CRITICAL ACCOUNTING POLICIES

Certain accounting measurements under GAAP involve management’s judgment about subjective factors and estimates, the effects of which are inherently uncertain. Accounting measurements that we believe are most critical to our reported results of operations and financial condition include: regulatory accounting, pension and postretirement health and life actuarial assumptions, valuation of business combinations and resulting goodwill, impairment of long-lived assets, and taxation. These policies are reviewed with the Audit Committee of our Board of Directors on a regular basis and summarized in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our ~~2020~~2021 Form 10-K. As a result of our acquisition of New Energy on April 15, 2022, the valuation of business combination and resulting goodwill is considered a critical accounting policy.

Valuation of Business Combinations and Resulting Goodwill. When we acquire a business, the assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition date. Determining the fair value of intangible assets acquired as part of a business combination requires us to make significant estimates. These estimates may include the amount and timing of projected future cash flows, the discount rate used to discount those cash flows to present value, the assessment of the asset’s life cycle, and the consideration of legal, technical, regulatory, economic and competitive risks.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

3739

CRITICAL ACCOUNTING POLICIES (Continued)

Goodwill. Goodwill is the excess of the purchase price (consideration transferred) over the estimated fair value of net assets of acquired businesses. In accordance with GAAP, goodwill is not amortized. The Company assesses whether there has been an impairment of goodwill annually in the fourth quarter and whenever an event occurs or circumstances change that would indicate the carrying amount may be impaired. Impairment testing for goodwill is done at the reporting unit level. An impairment loss is recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows. Our estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on our Consolidated Balance Sheet and the judgment required in determining fair value, including projected future cash flows.

OUTLOOK

For additional information see our ~~2020~~2021 Form 10-K.

ALLETE is an energy company committed to earning a financial return that rewards our shareholders, allows for reinvestment in our businesses, and sustains growth. The Company has a long-term objective of achieving consolidated ~~average annual~~ earnings per share growth within a range of 5 percent to 7 percent.

ALLETE is predominately a regulated utility through Minnesota Power, SWL&P, and an investment in ATC. ALLETE’s strategy is to remain predominately a regulated utility while investing in ALLETE Clean Energy and New Energy and its Corporate and Other businesses to complement its regulated businesses, balance exposure to the utility’s industrial customers, and provide potential long-term earnings growth. ALLETE expects net income from Regulated Operations to be approximately 80 percent of total consolidated net income in ~~2021.~~2022. Over the next several years, ~~the contribution of~~ALLETE expects increased contributions to net income from ALLETE Clean Energy, New Energy, and its Corporate and Other businesses ~~to net income is expected to increase~~ as ALLETE grows these operations. ALLETE expects its businesses to generally provide regulated, contracted or recurring revenues, and to support sustained growth in net income and cash flow.

On August 16, 2022, the Inflation Reduction Act was signed into law. We believe our businesses will benefit from certain provisions of the legislation including from the extension and transferability of production tax credits and investment tax credits, among others. We do not anticipate any impact from the new alternative minimum tax. We will continue to assess the impact of the legislation as additional implementation guidance becomes available.

Regulated Operations. Minnesota Power’s long-term strategy is to be the leading electric energy provider in northeastern Minnesota by providing safe, reliable and cost-competitive electric energy, while complying with environmental permit conditions and renewable energy requirements. Keeping the cost of energy production competitive enables Minnesota Power to effectively compete in the wholesale power markets and minimizes retail rate increases to help maintain customer viability. As part of maintaining cost competitiveness, Minnesota Power intends to reduce its exposure to possible future carbon and GHG legislation by reshaping its generation portfolio, over time, to reduce its reliance on coal. Minnesota Power has a goal of delivering 100 percent carbon-free energy by 2050. (See EnergyForward.) We will monitor and review proposed environmental regulations and may challenge those that add considerable cost with limited environmental benefit. Minnesota Power will continue to pursue customer growth opportunities and cost recovery rider approvals for transmission, renewable and environmental investments, as well as work with regulators to earn a fair rate of return.

~~Minnesota Power also submitted its IRP with the MPUC on February 1, 2021. The outcome of this IRP is likely to be instrumental in the evolution of our~~ ~~EnergyForward~~ strategic plan that provides for significant emission reductions and diversifying our electricity generation mix to include more renewables, and is expected to provide potential earnings growth over the long-term. (See ~~EnergyForward~~.)

~~Regulatory Matters.~~ Entities within our Regulated Operations segment are under the jurisdiction of the MPUC, FERC, PSCW and NDPSC. See Note 2. Regulatory Matters for discussion of regulatory matters within these jurisdictions.

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. ~~Once~~In orders dated December 30, 2021, the MPUC accepted the filing ~~is accepted~~ as complete and authorized an annual interim rate increase ofbeginning January 1, 2022, with approximately ~~$87~~$80 million ~~subject to refund, which would be an average increase of approximately 14 percent for retail customers, is~~ expected to be ~~implemented within 60 days, subject to MPUC adjustment~~collected in cash and ~~authorization. We cannot predict the level~~approximately $8 million of interim orrates for residential customers deferred with a final ~~rates that may be authorized by~~determination on recovery at the ~~MPUC.~~end of the rate case.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

3840

OUTLOOK (Continued)

Regulated Operations (Continued)

On September 1, 2022, the administrative law judge (ALJ) issued a report containing recommendations that if adopted in whole by the MPUC would result in an increase in rates of approximately $76 million on an annualized basis. On September 23, 2022, Minnesota Power filed exceptions totaling approximately $30 million to the ALJ’s report contesting certain recommendations. A final decision by the MPUC is expected in early 2023. Management has evaluated the need for a reserve for interim rate refunds and concluded that a reserve is not necessary as of September 30, 2022. We cannot predict the level of final rates that may be authorized by the MPUC.

Industrial and Municipal Customers and Prospective Additional Load.

Industrial Customers. Electric power is one of several key inputs in the taconite mining, paper, pulp and secondary wood products, pipeline and other industries. Approximately 4751 percent of our regulated utility kWh sales in the nine months ended September 30, ~~2021,~~2022, were made to our industrial customers ~~(49~~(47 percent in the nine months ended September 30, ~~2020)~~2021).

~~Taconite~~. Minnesota Power’s taconite customers are capable of producing up to approximately 41 million tons of taconite pellets annually. Taconite pellets produced in Minnesota are primarily shipped to North American steel making facilities that are part of the integrated steel industry, which continue to lead the world in environmental performance among steelmaking countries. According to the U.S. Department of Energy, steel production in the U.S. is the most energy efficient of any major steel producing country. Steel produced from these North American facilities is used primarily in the manufacture of automobiles, appliances, tubular applications for all industries, and in the construction industry. Steel is also a critical component of the clean energy transformation underway today. Meeting the demand for more renewable energy and the need for additional infrastructure to transport green energy from the point of generation to the end user both require steel. Historically, less than 10 percent of Minnesota taconite production has been exported outside of North America.

There has been a general historical correlation between U.S. steel production and Minnesota taconite production. The American Iron and Steel Institute, an association of North American steel producers, reported that U.S. raw steel production operated at approximately 81 percent of capacity during the first nine months of 2021 compared to 66 percent in the first nine months of 2020. The World Steel Association, an association of steel producers, national and regional steel industry associations, and steel research institutes representing approximately 85 percent of world steel production, projected in October 2021 that U.S. steel consumption will increase in 2021 by approximately 15 percent compared to 2020 as well as increase in 2022 by approximately 6 percent compared to 2021.

Minnesota Power’s taconite customers may experience annual variations in production levels due to such factors as economic conditions, short-term demand changes or maintenance outages. We estimate that a one million ton change in Minnesota Power’s taconite customers’ production would impact our annual earnings per share by approximately $0.04, net of expected power marketing sales at current prices. Changes in wholesale electric prices or customer contractual demand nominations could impact this estimate. Minnesota Power proactively sells power in the wholesale power markets that is temporarily not required by industrial customers to optimize the value of its generating facilities. Long-term reductions in taconite production or a permanent shut down of a taconite customer may lead Minnesota Power to file a general rate case to recover lost revenue.

~~USS Corporation~~. In April 2020, USS Corporation stated it would idle its Keetac facility in Keewatin, Minnesota, in response to the sudden and dramatic decline in business conditions resulting from the COVID-19 pandemic. In addition, in May 2020, USS Corporation announced that production was expected to be temporarily reduced at its Minntac Plant in Mountain Iron, Minnesota. USS Corporation resumed normal production at its Minntac Plant beginning in late July 2020 and resumed operations at its Keetac facility in December 2020. In October 2021, USS Corporation announced that it will be increasing its blast furnace operating rates at its Gary, Indiana steel mill through the installation of a 500,000 ton per year pig iron caster.When completed in early 2023, this pig iron produced from Minnesota iron ore would be used at USS Corporation’s Big River steel making facility in Osceola, Arkansas. USS Corporation has the capability to produce approximately 15 million and 5 million tons annually at its Minntac and Keetac plants, respectively.

Cliffs. In ~~December~~ 2020, Cliffs announced that it had completed the previously announced acquisition of substantially all of the operations of ArcelorMittal USA LLC and its subsidiaries. Cliffs had stated that upon closure of the acquisition Cliffs would be the largest flat-rolled steel producer and the largest iron ore pellet producer in North America. The acquisition included ArcelorMittal’s Minorca mine in Virginia, Minnesota, and its ownership share of Hibbing Taconite in Hibbing, Minnesota, which are both large industrial customers of Minnesota Power. Cliffs is ~~now~~ Minnesota Power’s largest customer. The acquisition has increased customer concentration risk for the Company and could lead to further capacity consolidation for both steel blast furnaces and ~~the~~ related Minnesota iron ore production.

Cliffs completed construction of a hot briquetted iron production plant in Toledo, Ohio, in 2020, which has utilized direct reduced-grade pellets from Northshore Mining. In October 2021, Cliffs indicated it plans to move direct reduced-grade pellet production to its Minorca mine and that Northshore Mining would become a “swing facility” due to the ~~high~~higher royalty rates at ~~its Babbitt, Minnesota~~that mine. ~~No announcement was made on the timing of this change in operation or the amount of investment required at Minorca to transition to this new product for ultimate use in its blast furnaces.~~

(See
Northshore Mining

.).

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~OUTLOOK (Continued)~~

~~Industrial Customers and Prospective Additional Load (Continued)~~

Northshore Mining. ~~Cliffs completed construction of a hot briquetted iron production plant in Toledo, Ohio, in 2020, which utilizes direct reduced-grade pellets from Northshore Mining. In April 2020,~~On February 11, 2022, Cliffs announced that ~~based on market conditions, it would be temporarily idling Northshore Mining.~~with the use of additional scrap in its basic oxygen furnaces, its iron ore needs are not as high as before. In determining where to adjust production, Cliffs ~~idled~~decided to idle all production at its Northshore ~~Mining in~~mine until at least April ~~2020 and resumed normal production at~~2023. Cliffs has also indicated that going forward it will be limiting the ~~facility in August 2020.~~tonnage of iron ore pellets sold to third parties. Northshore Mining has the capability to produce approximately 6 million tons annually. Minnesota Power has a PSA through 2031 with Silver Bay Power, which provides the majority of the electric service requirements for Northshore Mining. (See ~~Silver Bay Power~~Cliffs.)

~~Silver Bay Power~~USS Corporation. ~~In 2016, Minnesota Power and Silver Bay Power entered into~~ USS Corporation has announced plans to invest approximately $150 million to construct a ~~PSA through 2031. Silver Bay Power supplies approximately 90 MW of load~~system dedicated to ~~Northshore Mining, an affiliate of Silver Bay Power, which had previously been served predominately through self-generation by Silver Bay Power. Starting~~producing direct reduced-grade (DR-grade) pellets at its Keetac plant. USS Corporation broke ground on the project in 2016, Minnesota Power supplied Silver Bay Power with at least 50 MW of energy and Silver Bay Power had the option to purchase additional energy from Minnesota Power as it transitioned away from self-generation. In the third quarter of ~~2019, Silver Bay Power ceased self-generation and Minnesota Power began supplying the full energy requirements for Silver Bay Power.~~

~~Hibbing Taconite~~. In April 2020, ArcelorMittal announced that Hibbing Taconite in Hibbing, Minnesota, would idle production due to the COVID-19 pandemic. Hibbing Taconite resumed normal production in August 2020. Hibbing Taconite’s current mineable ore reserves are2022, which is expected to be ~~exhausted~~completed and producing DR-grade pellets in ~~2025. Cliffs, which in December 2020 became majority owner~~2024. This will enable the existing pelletizing plant to not only create DR-grade pellets for use as a feedstock for a direct reduced iron (DRI) or hot briquetted iron (HBI) process that ultimately supplies electric arc furnace steelmaking but also maintains the optionality to continue producing blast furnace-grade pellets. USS Corporation’s Minntac and ~~resumed management~~Keetac plants are large power industrial customers of ~~Hibbing Taconite, has stated that it has a plan to extend the mine life of Hibbing Taconite with ore reserves already under control of Cliffs. There are ample ore reserves in northeastern~~ Minnesota ~~that could supply operations for decades to come, and Minnesota Power’s taconite customers routinely develop and extend their mine plans to optimize assets. Hibbing Taconite~~Power. USS Corporation has the capability to produce approximately 815 million and 5 million tons ~~annually.~~annually at its Minntac and Keetac plants, respectively.

~~Minnesota Sulfate Wild Rice Water Quality Standard~~. On April 29, 2021, the EPA identified rivers and lakes in Minnesota in which wild rice grows that have sulfate levels that exceed Minnesota’s sulfate limit for wild rice waters. On September 1, 2021, three additional wild rice waters with sulfate levels that exceed Minnesota’s sulfate limit were identified. The EPA directed the MPCA to add these rivers and lakes to its list of impaired waters which can be used to set limits in discharge permits for industrial activities such as mining. Minnesota Power’s taconite customers could be adversely impacted if they are required to significantly reduce sulfate discharges.

ST Paper ~~Pulp and Secondary Wood Products~~. The North American paper and pulp industry faces declining demand due to the impact of electronic substitution for print and changing customer needs. As a result, certain paper and pulp customers have reduced their existing operations in recent years and have pursued or are pursuing product changes in response to the declining demand. We expect operating levels in 2021 at the four major paper and pulp mills we serve to be lower than 2020 primarily due to the indefinite idling of Verso Corporation’s paper mill in Duluth, Minnesota. (See ~~Verso Corporation~~.)

~~Verso Corporation~~. In ~~June 2020, Verso Corporation indefinitely idled its paper mill in Duluth, Minnesota (Duluth Mill). Verso Corporation stated~~May 2021, ST Paper announced it had completed the decision was due to the accelerated decline in graphic paper demand resulting from the COVID-19 pandemic and has disclosed it is considering options for the Duluth Mill, including marketing for a sale. On January 29, 2021, Verso Corporation provided notice of termination for its contract effective in January 2025, with no demand charge expected after February 2023 (minimal demand charge through January 2023). On May 17, 2021, Verso Corporation announced the completion of the salepurchase of the Duluth Mill tofrom Verso Corporation. ST Paper ~~LLC. At that time, ST Paper LLC~~has stated it plans to convert the Duluth Mill to produce tissue. In January 2022, Minnesota Power entered into an electric service agreement with ST Paper that would begin Large Power customer service with a minimum term of six years upon start-up of operations, which is anticipated in 2023. A petition for approval of the electric service agreement was approved by the MPUC in February 2022. Upon start-up of operations, ST Paper will become a Large Power customer as we expect to serve requirements of at least 10 MW of customer load.

~~On August 2, 2021,~~Hibbing Public Utilities. In April 2022, Minnesota Power ~~filed~~entered into a ~~petition~~new long-term Power Purchase and Market Energy Service Agreement with the MPUC requesting the MPUC to interpret the electric service agreement (ESA) between Minnesota Power and Verso Corporation finding that Verso Corporation has tariff obligations and owes minimum firm demand payments during the term of the ESA. Minnesota Power filed this petition in response to Verso Corporation ceasing to make its minimum firm demand payments under the ESA. At a hearing on October 14, 2021, the MPUC agreed with Minnesota Power’s petition and concluded that the MPUC has jurisdiction to interpret the relevant provisions of the ESA, and the ESA requires Verso Corporation to continue full minimum firm demand paymentsHibbing Public Utilities for athe period of ~~two years from~~June 1, 2022, through May 31, 2027. The agreement replaces the ~~January 29, 2021, notice of termination, regardless of~~2015 Electric Services Agreement between Hibbing Public Utilities and Minnesota Power’s electricity sales to a new customer at the former Verso Corporation facility. Minnesota Power has a receivable related to the ESA of approximately $1.2 million as of September 30, 2021. In addition, Verso Corporation owes Minnesota Power payments under a steam agreement, which is proceeding through arbitration. Minnesota Power has a receivable under the steam agreement of approximately $2.4 million as of September 30, 2021. Minnesota Power expects to fully collect these outstanding account receivable balances as well as Verso Corporation’s remaining obligations under the ESA.

Power.

ALLETE, Inc. Third Quarter ~~2021 Form 10-Q~~

~~OUTLOOK (Continued)~~

~~Industrial Customers and Prospective Additional Load (Continued)~~

~~Pipeline and Other Industries~~.

~~Husky Energy~~. In 2018, a fire at Husky Energy’s refinery in Superior, Wisconsin, disrupted operations at the facility. Under normal operating conditions, SWL&P provides approximately 14 MW of average monthly demand to Husky Energy in addition to water service. In 2019, Husky Energy announced that it had received the required permit approvals to begin reconstruction. In June 2020, Husky Energy announced that rebuild construction at the refinery had resumed following a suspension in March 2020 due to the COVID-19 pandemic. The facility remains at minimal operations, and the refinery is not expected to resume normal operations until 2023. In October 2020, Husky Energy announced a transaction to combine with Cenovus Energy Inc., which closed in the first quarter of 2021.

~~Prospective Additional Load.~~Minnesota Power is pursuing new wholesale and retail loads in and around its service territory. Currently, several companies in northeastern Minnesota continue to progress in the development of natural resource-based projects that represent long-term growth potential and load diversity for Minnesota Power. We cannot predict the outcome of these projects.

~~PolyMet~~. PolyMet is planning to start a new copper-nickel and precious metal (non-ferrous) mining operation in northeastern Minnesota. In 2015, PolyMet announced the completion of the final EIS by state and federal agencies, which was subsequently published in the Federal Register and Minnesota Environmental Quality Board Monitor. The Minnesota Department of Natural Resources (DNR) and the U.S. Army Corps of Engineers have both issued final Records of Decision, finding the final EIS adequate.

PolyMet was issued all necessary permits to construct and operate its new mining operation; however, in early 2020, the Minnesota Court of Appeals reversed decisions granting PolyMet’s permit to mine, dam-safety permits and air permits. PolyMet filed petitions for further review with the Minnesota Supreme Court seeking to overturn the Minnesota Court of Appeals decisions. In February 2021, the Minnesota Supreme Court overturned a decision by the Minnesota Court of Appeals that had remanded the air permit back to the MPCA and returned the case to the Minnesota Court of Appeals. On July 19, 2021, the Minnesota Court of Appeals remanded PolyMet’s air permit to the MPCA seeking additional explanation supporting the MPCA’s permitting decision. On March 8, 2021, the U.S. District Court of Minnesota granted an EPA request to conduct a 90-day review of downstream water quality under Section 401(a)(2) of the Clean Water Act. Given the EPA's downstream water quality determination is necessary for PolyMet's federal Section 404 wetlands permit, on March 17, 2021, the U.S. Army Corps of Engineers notified PolyMet it had suspended the permit for the duration of the EPA's review. On April 28, 2021, the Minnesota Supreme Court reversed the Minnesota Court of Appeals decision on the dam-safety permits while also upholding its decision on PolyMet’s permit to mine. The decision requires the DNR to hold a contested case hearing regarding the effectiveness of bentonite clay capping for eventual closure of PolyMet’s planned tailings basin and to also determine a fixed term for the permit to mine. Minnesota Power could supply between 45 MW and 50 MW of load under a 10-year power supply contract with PolyMet that would begin upon start-up of operations.

~~EnergyForward.~~ ~~Minnesota Power is executing~~ ~~EnergyForward~~, its strategy assuring reliability, protecting affordability and further improving environmental performance. The plan includes completed and planned investments in wind, solar, natural gas and hydroelectric power, construction of additional transmission capacity, the installation of emissions control technology and the idling and retirement of certain coal-fired generating facilities. Minnesota Power has a vision to deliver 100 percent carbon-free energy to customers by 2050, continuing its commitment to climate, customers and communities through its ~~EnergyForward~~ ~~strategy. This vision builds on Minnesota Power’s recent achievement of now providing 50 percent renewable energy to its customers.~~

~~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 to 70 percent by 2030, achieving coal-free operations at its facilities by 2035, and investing in a resilient and flexible transmission and distribution grid. Minnesota Power has also set a target to achieve an 80 percent reduction in carbon emissions by 2035 compared to 2005 levels. 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 mid-2022.

~~ALLETE, Inc. Third Quarter 2021~~2022 Form 10-Q

OUTLOOK (Continued)

~~EnergyForward (Continued)~~

In recent years, Minnesota Power has transformed its energy supply from more than a 95 percent reliance on coal to become a leader in the nation’s clean-energy transformation. Since 2013, the company has closed or converted seven of its nine coal-fired units and added nearly 900 megawatts of renewable energy sources. Additionally, Minnesota Power has been a leader in energy conservation, surpassing the state’s conservation goals each year for the past decade.

~~Nemadji Trail Energy Center.~~Transmission.In 2017, Minnesota Power submitted a resource package to the MPUC which included requesting approval of a natural gas capacity dedication and other affiliated-interest agreements for NTEC, an approximately 600 MW proposed combined-cycle natural gas-fired generating facility to be built in Superior, Wisconsin, which will be jointly owned by Dairyland Power Cooperative, Basin and South Shore Energy, ALLETE’s non-rate regulated, Wisconsin subsidiary. Minnesota Power is expected to purchase approximately 20 percent of the facility's output starting in 2025 pursuant to the capacity dedication agreement.

~~Renewable Energy.~~ Minnesota Power continues to execute its renewable energy strategy and expects approximately 50 percent of its energy will be supplied by renewable energy sources in 2021. Minnesota Power also has a goal of delivering 100 percent carbon-free energy by 2050. (See ~~EnergyForward~~.)

~~Wind Energy~~. Minnesota Power’s wind energy facilities consist of Bison (497 MW) located in North Dakota, and Taconite Ridge (25 MW) located in northeastern Minnesota. Minnesota Power also has two long-term wind energy PPAs with an affiliate of NextEra Energy, Inc. to purchase the output from Oliver Wind I (50 MW) and Oliver Wind II (48 MW) located in North Dakota.

Minnesota Power uses the 465-mile, 250-kV DC transmission line that runs from Center, North Dakota, to Duluth, Minnesota, to transport wind energy from North Dakota while gradually phasing out coal-based electricity delivered to its system over this transmission line from Square Butte’s lignite coal-fired generating unit. Minnesota Power is currently pursuing a modernization and capacity upgrade of its DC transmission system to continue providing reliable operations and additional system capabilities.

Minnesota Power has an approved cost recovery rider for certain renewable investments and expenditures. The cost recovery rider allows Minnesota Power to charge retail customers on a current basis for the costs of certain renewable investments plus a return on the capital invested. Updated customer billing rates were approved by the MPUC in an order dated December 10, 2020.

~~Nobles 2 PPA~~. Minnesota Power has a long-term PPA with Nobles 2 that provides for Minnesota Power to purchase the energy and associated capacity from a 250 MW wind energy facility in southwestern Minnesota through 2040. The agreement provides for the purchase of output from the facility at fixed energy prices. There are no fixed capacity charges, and Minnesota Power will only pay for energy as it is delivered. (See ~~Corporate and Other – Investment in Nobles 2~~.)

~~Manitoba Hydro~~.MISO Long Range Transmission Plan. Minnesota Power ~~has three long-term PPAs with Manitoba Hydro. Under~~and Great River Energy announced on July 25, 2022, their intent to build a 150-mile, 345-kV transmission line, connecting northern Minnesota to central Minnesota to support continued reliability in the first PPA, Minnesota Power is purchasing surplus energy through April 2022. This energy-only agreement primarily consists of surplus hydro energy on Manitoba Hydro’s system that is delivered to Minnesota Power onUpper Midwest. Great River Energy, a non-firm basis. Under this agreement, Minnesota Power will purchase at least one million MWh of energy over the contract term. The second PPA provides for Minnesota Power to purchase 250 MW of capacitywholesale electric power cooperative, and ~~energy from Manitoba Hydro through May 2035. The third PPA provides for Minnesota Power to purchase up to 133 MW of energy from Manitoba Hydro through June 2040.~~

~~Solar Energy~~. Minnesota Power’s solar energy supply consists of Camp Ripley, a 10 MW solar energy facility at the Camp Ripley Minnesota Army National Guard base and training facility near Little Falls, Minnesota, and a community solar garden in northeastern Minnesota, which is comprised of a 1 MW solar array owned and operated by a third party with the output purchased by Minnesota Power and a 40 kW solar array that is owned and operated by Minnesota Power. SWL&P also plans to construct a 470 kW solar array as part of a community solar garden in Superior, Wisconsin, which was approved by the PSCW in October 2020.

~~In June 2020,~~ Minnesota Power filed a ~~proposal~~Notice of Intent to Construct, Own and Maintain the transmission line with the MPUC on August 1, 2022. This joint project is part of a portfolio of transmission projects approved on July 25, 2022, by MISO, as part of the first phase of its Long Range Transmission Plan. Planning for the $970 million transmission line is in its early stages with the route anticipated to ~~accelerate plans for solar energy with an estimated $40 million investment in approximately 20 MW~~generally follow existing rights of ~~solar energy projects in Minnesota which was approved~~way in an ~~order dated June 29, 2021.~~

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~OUTLOOK (Continued)~~

~~EnergyForward (Continued)~~

~~Minnesota Power has approval for current~~established power line corridor. The two utilities expect to seek a combined Certificate of Need and Route Permit from the MPUC. The MPUC will determine the final route as well as cost recovery for Minnesota Power’s approximately 50 percent estimated share of ~~investments and expenditures related~~the project. Subject to compliance with the Minnesota Solar Energy Standard. In June 2020, Minnesota Power filed a petition seeking MPUC approval of a customer billing rate for solar costs related to investments and expenditures for meeting the state of Minnesota’s solar energy standard, which were approved by the MPUC at a hearing on April 14, 2021. New customer billing rates for the solar cost recovery rider were implemented on June 1, 2021.

~~Transmission.~~ ~~We continue to make investments in transmission opportunities that strengthen or enhance~~regulatory approvals, the transmission ~~grid or take advantage of our geographical location between sources of renewable energy and end users. These include the GNTL, investments~~line is expected to ~~enhance our own transmission facilities, investments~~be in ~~other transmission assets (individually or~~service in ~~combination with others) and our investment in ATC.~~

~~Great Northern Transmission Line.~~ As a condition of the 250 MW long-term PPA entered into with Manitoba Hydro, construction of additional transmission capacity was required. As a result, Minnesota Power constructed the GNTL, an approximately 220‑mile 500-kV transmission line between Manitoba and Minnesota’s Iron Range that was proposed by Minnesota Power and Manitoba Hydro in order to strengthen the electric grid, enhance regional reliability and promote a greater exchange of sustainable energy. In June 2020, Minnesota Power placed the GNTL into service with project costs of approximately $310 million incurred by Minnesota Power. Total project costs, including those costs contributed by a subsidiary of Manitoba Hydro, totaled approximately $660 million. Also in June 2020, Manitoba Hydro placed the MMTP into service. The 250 MW PPA with Manitoba Hydro commenced when the GNTL was placed into service.2030.

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. (See Note 3. Equity Investments.) As of September 30, 2021, our equity investment in ATC was $153.0 million ($149.0 million as of December 31, 2020).

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 May 2020 FERC order that granted rehearing of a 2019 FERC order. These FERC orders are 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.

ATC’s 10-year transmission assessment, which covers the years ~~2020~~2022 through ~~2029,~~2031, identifies a need for between ~~$2.9~~$5.1 billion and ~~$3.5~~$6.2 billion in transmission system investments. These investments by ATC, if undertaken, are expected to be funded through a combination of internally generated cash, debt and investor contributions. As opportunities arise, we plan to make additional investments in ATC through general capital calls based upon our pro rata ownership interest in ATC.

ALLETE Clean Energy.

ALLETE Clean Energy focuses on developing, acquiring, and operating clean and renewable energy projects. ALLETE Clean Energy currently owns and operates, in seven states, more than 1,000 MW of nameplate capacity wind energy generation that is contracted under PSAs of various durations. In addition, ALLETE Clean Energy currently has an approximately 300 MW wind energy facility under construction. ALLETE Clean Energy also engages in the development of wind energy facilities to operate under long-term PSAs or for sale to others upon completion.

ALLETE Clean Energy believes the market for renewable energy in North America is robust, driven by several factors including environmental regulation, tax incentives such as the extension of production tax credit and investment tax credits, societal expectations and continual technology advances. State renewable portfolio standards, state or federal regulations to limit GHG emissions and the extension of production tax credit and investment tax credits are examples of environmental regulation or public policy that we believe will drive renewable energy development.

ALLETE Clean Energy’s strategy includes the safe, reliable, optimal and profitable operation of its existing facilities. This includes a strong safety culture, the continuous pursuit of operational efficiencies at existing facilities and cost controls. ALLETE Clean Energy generally acquires facilities in liquid power markets and its strategy includes the exploration of PSA extensions upon expiration of existing contracts, production tax credit requalification of existing facilities or the sale of facilities.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~OUTLOOK (Continued)~~

~~ALLETE Clean Energy (Continued)~~

ALLETE Clean Energy will pursue growth through acquisitions or project development. ALLETE Clean Energy is targeting acquisitions of existing operating portfolios which have a mix of long-term PSAs in place and/or available for repowering and recontracting. Further, ALLETE Clean Energy will evaluate actions that will lead to the addition of complimentary clean energy products and services. At this time, ALLETE Clean Energy ~~expects~~is focused on actions that will optimize its clean energy project portfolio of operating and development projects, which may include recontracting, repowering, entering into partnerships and divestitures along with continued acquisitions or development of new ~~facilities will be primarily~~projects including wind, solar, energy storage or storage ready facilities across North America. ~~ALLETE Clean Energy is also targeting the development of new facilities up to 300 MW each, which will have long-term PSAs in place for the output or may be sold upon completion.~~

Portions of our ALLETE Clean Energy business are experiencing return pressures that are impacting our earnings per share growth from increased competition, and lower forward price curves, as a growing amount of investment capital is being directed into wind generation opportunities. In addition, current and potential new project developments can be negatively affected by a lower ALLETE stock price, which may result in such projects not being accretive, or otherwise unable to satisfy our financial objectives criteria to proceed. In response to these market pressures, we are actively evaluating additional growth opportunities to deliver more comprehensive clean energy solutions for customers at ALLETE Clean Energy, which may include solar, storage solutions, and related energy infrastructure investments and services. We believe that the renewable energy industry is entering a new phase of growth and that we are well-positioned to serve customers and drive future growth at ALLETE. ALLETE Clean Energy will continue to optimize its existing wind energy facility portfolio, seek development of its remaining safe harbor inventory of tax credit qualified turbines, and explore other renewable energy opportunities to expand its service offerings to further enhance its growth and profitability.

Federal production tax credit qualification is important to the economics of project development, and ALLETE Clean Energy has invested in equipment to meet production tax credit safe harbor provisions which provides an opportunity to seek development of its remaining safe harbor production tax credit qualified equipment through 2025 based on the most recent PTC safe harbor extension by the IRS. ALLETE Clean Energy has completed its investment of approximately $80 million for production tax credit requalification of approximately 470 WTGs at its Storm Lake I, Storm Lake II, Lake Benton and Condon wind energy facilities. We anticipate annual production tax credits relating to these projects of approximately $20 million annually through 2027 and decreasing thereafter through 2030. Disruptions in our supply chains or a lack of available financing resulting from the ongoing COVID-19 pandemic, if they occur, could jeopardize our ability to complete certain capital projects in time to qualify them for production tax credits. To date we have not experienced disruptions in our supply chains related to the COVID-19 pandemic.

In March 2020, ALLETE Clean Energy acquired the rights to the approximately 300 MW Caddo wind development project in Oklahoma from Apex Clean Energy. The Caddo wind project is fully contracted to sell wind power under long-term power sales agreements. Construction is expected to be completed in late 2021.

~~On February 4, 2021,~~July 2022, ALLETE Clean Energy entered into aamended purchase and sale ~~agreement~~agreements with a subsidiary of Xcel Energy Inc. to sell ~~a 120 MW~~two separate wind energy ~~facility~~facilities for a combined total sales price of approximately ~~$210~~$215 million. As part of the transaction, ALLETE Clean Energy will repower ~~and expand~~ its Northern Wind project, consisting of its 98 MW Chanarambie and Viking wind energy facilities as well as develop and construct a new 22 MW facility, all of which are located in southwest ~~Minnesota, as part~~Minnesota. Construction commenced in the second quarter of ~~the transaction. Construction~~2022 and is expected to ~~begin~~be completed in late ~~2021 with the Northern Wind project expected~~2022. The amended purchase and sale agreements are subject to ~~continue operating until early 2022. At a hearing on June 10, 2021, the~~ MPUC ~~approved the sale, which is~~approval, and are expected to close in late 2022 ~~subject~~and early 2023, respectively. ALLETE Clean Energy continues to ~~receipt~~experience inflationary increases and significant cost pressures related to this project and as a result now anticipates an additional loss on sale of ~~permits.~~the project, which resulted in an approximately $2.9 million after-tax charge in the third quarter of 2022.

OnIn May 5, 2021, ALLETE Clean Energy announced that it ~~has~~ acquired the rights to the approximately 92 MW Red Barn wind development project and the approximately 68 MW Whitetail renewable development project in southwestern Wisconsin. ALLETE Clean Energy also signed an asset sale agreement for the completed Red Barn wind project with Wisconsin Public Service Corporation and Madison Gas and Electric Company. ~~Construction and~~At a hearing in January 2022, the PSCW approved the sale of the Red Barn wind project, which is expected to ~~be completed~~close in ~~late 2022,~~2023, subject to ~~receipt~~completion of ~~regulatory approvals~~construction.

Corporate and ~~permits.~~Other.

Corporate and Other includes BNI Energy, our coal mining operations in North Dakota, New Energy, a renewable energy development company, and ALLETE Properties, our legacy Florida real estate investment, along with our investment in Nobles 2, South Shore Energy, our non-rate regulated, Wisconsin subsidiary developing NTEC, other business development and corporate expenditures, unallocated interest expense, a small amount of non-rate base generation, land in Minnesota, and earnings on cash and investments.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

~~OUTLOOK (Continued)~~

~~ALLETE Clean Energy (Continued)~~

ALLETE Clean Energy manages risk by having a diverse portfolio of assets, which includes PSA expiration, technology and geographic diversity. The current operating portfolio is subject to typical variations in seasonal wind with higher wind resources typically available in the winter months. The majority of its planned maintenance leverages this seasonality and is performed during lower wind periods. ALLETE Clean Energy’s current operating portfolio is as follows:

Region Wind Energy Facility Capacity MW PSA MW PSA Expiration
East Armenia Mountain 101 100% 2024
Midwest
Chanarambie/Viking (a)
98
PSA 1 12% 2023
PSA 2 88% 2023
Lake Benton 104 100% 2028
Storm Lake I 108 100% 2027
Storm Lake II 77
PSA 1 90% 2022
PSA 2 10% 2032
Other 17 100% 2028
South Diamond Spring 303
PSA 1 58% 2035
PSA 2 25% 2032
PSA 3 16% 2035
West Condon 50 100% 2022
Glen Ullin 106 100% 2039
South Peak 80 100% 2035

~~(a)~~Under contract for sale to a subsidiary of Xcel Energy Inc. The sale is expected to close in late 2022, subject to receipt of permits. ALLETE Clean Energy will repower and expand the wind energy facilities as part of the transaction.

~~Corporate and Other.~~

~~BNI Energy.~~BNI Energy anticipates selling 3.6 million tons of lignite coal in 2021 (4.2 million tons were sold in 2020) and has sold 2.9 million tons for the nine months ended September 30, 2021 (3.1 million tons were sold for the nine months ended September 30, 2020). BNI Energy operates under cost-plus fixed fee agreements extending through December 31, 2037.

~~Investment in Nobles 2~~.Our subsidiary, ALLETE South Wind, owns a 49 percent equity interest in Nobles 2, the entity that owns and operates the 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. (See Note 3. Equity Investments.) As of September 30, 2021, our equity investment in Nobles 2 was $164.8 million ($152.2 million at December 31, 2020).

~~South Shore Energy.~~South Shore Energy, ALLETE’s non-rate regulated, Wisconsin subsidiary, is developing NTEC, an approximately 600 MW proposed combined-cycle natural gas-fired generating facility to be built in Superior, Wisconsin, which will be jointly owned by Dairyland Power Cooperative, Basin and South Shore Energy. Minnesota Power is expected to purchase approximately 20 percent of the facility's output starting in 2025 pursuant to a capacity dedication agreement. Construction of NTEC is subject to obtaining additional permits from local, state and federal authorities. The total project cost is estimated to be approximately $700 million, of which South Shore Energy’s portion is expected to be approximately $140 million. South Shore Energy’s portion of NTEC project costs incurred through September 30, 2021, is approximately $15 million of which approximately $8 million related to development costs sold to Basin.

On September 22, 2021, South Shore Energy entered into an agreement with a wholly-owned subsidiary of Basin pursuant to which South Shore Energy agreed to sell to Basin a portion of its interest in NTEC for approximately $20 million representing reimbursement of current costs plus a fee for prior development costs and risks incurred. Pursuant to this transaction, which closed on October 1, 2021, South Shore Energy sold a portion of its undivided ownership interest in NTEC to Basin, such that, South Shore Energy now owns a 20 percent undivided ownership interest in NTEC, Basin owns a 30 percent undivided ownership interest in NTEC and Dairyland Power Cooperative continues to own a 50 percent undivided ownership interest in NTEC. The closing of the transaction resulted in the recognition of an approximately $8.5 million after-tax gain recorded in Corporate and Other in the fourth quarter of 2021, related to prior development costs and risks incurred.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

4542

OUTLOOK (Continued)

Corporate and Other (Continued)

New Energy. On April 15, 2022, a wholly-owned subsidiary of ALLETE ~~Properties.~~ALLETE Properties represents our legacy Florida real estate investment. ALLETE Properties’ primary project in Florida is Town Center at Palm Coast, with approximately 700 acres of land available for sale. In addition to this project, ALLETE Properties has approximately 600 acres of other land available for sale. Market conditions can impact land sales and could result in our inability to cover our cost basis and operating expenses including fixed carrying costs such as community development district assessments and property taxes.

~~Our strategy incorporates the possibility of a bulk sale~~acquired 100 percent of the ~~entire ALLETE Properties portfolio. Proceeds from~~membership interests of New Energy for a ~~bulk sale would be strategically deployed~~purchase price of $165.5 million. New Energy, which is headquartered in Annapolis, Maryland, is a renewable energy development company with a primary focus on solar and storage facilities while also offering comprehensive operations, maintenance and asset management services. New Energy is a leading developer of community, commercial and industrial, and small utility-scale renewable energy projects that has completed more than 250 projects across the nation totaling more than 330 MW. New Energy currently has a robust project pipeline with greater than 2,000 MW of renewable projects in development across 26 different states. New Energy adds value through cost effective development and economies of scale on project implementation, bringing national capabilities to support growth initiatives at our Regulated Operations and ALLETE Clean Energy. ALLETE Properties also continues to pursue sales of individual parcels over time and will continue to maintain key entitlements and infrastructure.

~~Income Taxes.~~

~~ALLETE’s aggregate federal and multi-state statutory tax rate~~regional co-development partners. New Energy is approximately 28 percent for 2021. ALLETE also has tax credits and other tax adjustments that reduce the combined statutory rate to the effective tax rate. These tax credits and adjustments historically have included items such as investment tax credits, production tax credits, non-controlling interest, AFUDC-Equity, depletion,involved in greenfield development as well as ~~other items.~~acquiring and completing mid-stage and late-stage renewable energy projects. The ~~annual effective rate can also be impacted by such items as changes~~acquisition of New Energy is consistent with ALLETE’s stated strategy of additional investment in ~~income before income taxes, state~~renewable energy and ~~federal tax law changes that become effective during~~related infrastructure across North America to support the ~~year, business combinations, tax planning initiatives~~Company’s sustainability-in-action strategy while providing potential long-term earnings growth. New Energy will continue its current strategy of developing and resolution of prior years’ tax matters. We expect our effective tax rate to be a benefit of approximately 25 to 30 percent for 2021 primarily due to federal production tax credits as a result of windoperating renewable energy ~~generation. We also expect that our effective tax rate will be lower than the combined statutory rate over the next 10 years due to production tax credits attributable to our wind energy generation.~~projects.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Position. ALLETE is well-positioned to meet the Company’s liquidity needs. As of September 30, ~~2021,~~2022, we had cash and cash equivalents of ~~$59.0~~$42.1 million, ~~$380.6~~$400.1 million in available consolidated lines of credit, ~~2.6~~2.1 million original issue shares of common stock available for issuance through a distribution agreement with Lampert Capital Markets and a debt-to-capital ratio of 4237 percent. (See Working Capital.)

Capital Structure. ALLETE’s capital structure is as follows:


		September 30, 2021	%	December 31, 2020	%		September 30, 2022	%	December 31, 2021	%
Millions	Millions					Millions
ALLETE Equity	ALLETE Equity	$2,340.0	47	$2,294.6	50	ALLETE Equity	$2,682.6	50	$2,413.1	49
Non-Controlling Interest in Subsidiaries	Non-Controlling Interest in Subsidiaries	514.5	11	505.6	11	Non-Controlling Interest in Subsidiaries	671.3	13	533.2	11
Short-Term and Long-Term Debt (a)	Short-Term and Long-Term Debt (a)	2,036.1	42	1,806.4	39	Short-Term and Long-Term Debt (a)	1,970.2	37	1,986.4	40

		$4,890.6	100	$4,606.6	100		$5,324.1	100	$4,932.7	100

(a)Excludes unamortized debt issuance costs.

Cash Flows. Selected information from the Consolidated Statement of Cash Flows is as follows:


For the Nine Months Ended September 30,	For the Nine Months Ended September 30,	2021	2020	For the Nine Months Ended September 30,	2022	2021
Millions	Millions			Millions
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	Cash, Cash Equivalents and Restricted Cash at Beginning of Period	$65.2	$92.5	Cash, Cash Equivalents and Restricted Cash at Beginning of Period	$47.7	$65.2
Cash Flows from (used for)
Cash Flows provided by (used in)				Cash Flows provided by (used in)
Operating Activities	Operating Activities	209.2	241.9	Operating Activities	81.2	209.2
Investing Activities	Investing Activities	(397.1)	(631.2)	Investing Activities	(311.1)	(397.1)
Financing Activities	Financing Activities	188.1	381.9	Financing Activities	230.8	188.1
Change in Cash, Cash Equivalents and Restricted Cash	Change in Cash, Cash Equivalents and Restricted Cash	0.2	(7.4)	Change in Cash, Cash Equivalents and Restricted Cash	0.9	0.2
Cash, Cash Equivalents and Restricted Cash at End of Period	Cash, Cash Equivalents and Restricted Cash at End of Period	$65.4	$85.1	Cash, Cash Equivalents and Restricted Cash at End of Period	$48.6	$65.4

Operating Activities. Cash provided by operating activities was lower in 2022 compared to 2021. Cash used in operating activities in 2022 reflected higher payments for inventories compared to 2021 primarily related to ALLETE Clean Energy’s Northern Wind and Red Barn projects which will be sold to third parties in late 2022 and early 2023, respectively.

Investing Activities. Cash used in investing activities was lower in 2022 compared to 2021. Cash used in investing activities in 2022 reflected lower cash payments for additions to property, plant and equipment compared to 2021, partially offset by cash payments for the acquisition of New Energy.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

4643

LIQUIDITY AND CAPITAL RESOURCES (Continued)

Cash Flows (Continued)

~~Operating Activities.~~ Cash from operating activities was lower in 2021 compared to 2020. Cash from operating activities in 2021 included lower net income compared to 2020, higher payments for inventories and timing in recovery and refund of the fuel adjustment clause. Cash from operating activities in 2020 included provision of payments for interim rates collected as part of the 2020 general rate case.

~~Investing Activities.~~ Cash used for investing activities was lower in 2021 compared to 2020. Cash used for investing activities in 2021 reflected lower additions to property, plant and equipment and fewer payments for equity method investments compared to 2020.

Financing Activities. Cash ~~from~~provided by financing activities was ~~lower~~higher in ~~2021~~2022 compared to ~~2020 primarily due to~~2021. 2022 reflected higher ~~repayments~~proceeds from the issuance of ~~short-term and long-term debt, lower~~common stock, proceeds from the issuance of short-term and long-term debt, and ~~lower~~ proceeds from non-controlling interest in subsidiaries incompared to 2021. These ~~decreases~~ were partially offset by higher ~~proceeds from the issuance~~repayments of ~~common stock in 2021.~~short-term and long-term debt.

Working Capital. Additional working capital, if and when needed, generally is provided by consolidated bank lines of credit and the issuance of securities, including long-term debt, common stock and commercial paper. As of September 30, ~~2021,~~2022, we had consolidated bank lines of credit aggregating ~~$432.0~~$525.3 million ($~~407.0~~432.0 million as of December 31, ~~2020)~~2021), the majority of which expire in January ~~2024.~~2026. We had ~~$26.2~~$33.2 million outstanding in standby letters of credit and ~~$25.2~~$92.0 million outstanding draws under our lines of credit as of September 30, ~~2021~~2022 ($~~22.3~~31.5 million in standby letters of credit and no$159.7 million outstanding draws as of December 31, ~~2020)~~2021). We also have other credit facility agreements in place that provide the ability to issue up to ~~$100.0~~$250.0 million in standby letters of credit. As of September 30, ~~2021,~~2022, we had ~~$85.7~~$182.4 million outstanding in standby letters of credit under these agreements.

In addition, as of September 30, ~~2021,~~2022, we had ~~3.2~~2.9 million original issue shares of our common stock available for issuance through Invest Direct, our direct stock purchase and dividend reinvestment plan, and ~~2.6~~2.1 million original issue shares of common stock available for issuance through a distribution agreement with Lampert Capital ~~Markets, as amended most recently in May 2020.~~Markets. (See Securities.) The amount and timing of future sales of our securities will depend upon market conditions and our specific needs.

Securities. During the nine months ended September 30, ~~2021,~~2022, we issued ~~0.3~~0.2 million shares of common stock through Invest Direct, the Employee Stock Purchase Plan, and the Retirement Savings and Stock Ownership Plan, resulting in net proceeds of ~~$14.6~~$12.6 million (0.3 million shares were issued for the nine months ended September 30, ~~2020,~~2021, resulting in net proceeds of ~~$12.8~~$14.6 million).

~~For the nine months ended September 30, 2021, 0.2~~On April 5, 2022, ALLETE issued and sold approximately 3.7 million shares of ALLETE common ~~stock were issued under the agreement with Lampert Capital Markets, resulting in net~~stock. Net proceeds of ~~$16.4~~approximately $224 million ~~(no shares~~ were ~~issued for~~received from the ~~nine months ended September 30, 2020).~~sale of shares. Proceeds were used primarily to fund the acquisition of New Energy and capital investments at ALLETE Clean Energy.

Financial Covenants. See Note 5.6. Short-Term and Long-Term Debt for information regarding our financial covenants.

Pension and Other Postretirement Benefit Plans. Management considers various factors when making funding decisions, such as regulatory requirements, actuarially determined minimum contribution requirements and contributions required to avoid benefit restrictions for the defined benefit pension plans. (See Note 9.10. Pension and Other Postretirement Benefit Plans.)

Off-Balance Sheet Arrangements. Off-balance sheet arrangements are summarized in our ~~2020~~2021 Form 10-K, with additional disclosure in Note 6.7. Commitments, Guarantees and Contingencies.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

~~LIQUIDITY AND CAPITAL RESOURCES (Continued)~~

Credit Ratings. Access to reasonably priced capital markets is dependent in part on credit and ratings. Our securities have been rated by S&P Global Ratings and by Moody’s. Rating agencies use both quantitative and qualitative measures in determining a company’s credit rating. These measures include business risk, liquidity risk, competitive position, capital mix, financial condition, predictability of cash flows, management strength and future direction. Some of the quantitative measures can be analyzed through a few key financial ratios, while the qualitative ones are more subjective. Our current credit ratings are listed in the following table:


Credit Ratings	S&P Global Ratings	Moody’s
Issuer Credit Rating	BBB	Baa1
Commercial Paper	A-2	P-2
First Mortgage Bonds	(a)	A2

(a) Not rated by S&P Global Ratings.

The disclosure of these credit ratings is not a recommendation to buy, sell or hold our securities. Ratings are subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

LIQUIDITY AND CAPITAL RESOURCES (Continued)

Capital Requirements. ~~Our capital expenditures for 2021 are expected to be approximately $500 million.~~ For the nine months ended September 30, ~~2021,~~2022, capital expenditures totaled ~~$378.1~~$155.3 million ($~~457.1~~378.1 million for the nine months ended September 30, ~~2020)~~2021). The expenditures were primarily made in the ~~ALLETE Clean Energy and~~ Regulated Operations ~~segments.~~

segment. Minnesota Power and Great River Energy announced on July 25, 2022, their intent to build a 150-mile, 345-kV transmission line from Itasca County in northern Minnesota to Benton County in central Minnesota, which is expected to be in service in 2030. As a result, Minnesota Power expects capital expenditures related to the project for its approximately 50 percent estimated share of the approximately $970 million project through 2030. (See Outlook – Regulated Operations – Transmission.) As a result of ~~the sale of a portion of NTEC by South Shore Energy to Basin, the expected~~this project and other additional capital projects anticipated, ALLETE now expects capital expenditures ~~for NTEC by South Shore Energy for the years 2021 through~~of approximately $240 million in 2022, $290 million in 2023, $685 million in 2024, $725 million in 2025, ~~are now expected to be approximately $140 million. (See Outlook – Corporate~~$465 million in 2026 and ~~Other – South Shore Energy.)~~$525 million in 2027.

OTHER

Environmental Matters.

Employees.

As of September 30, ~~2021,~~2022, ALLETE had ~~1,373~~1,490 employees, of which ~~1,341~~1,461 were full-time.

Minnesota Power and SWL&P have an aggregate of ~~468~~482 employees covered under collective bargaining agreements, of which most are members of International Brotherhood of Electrical Workers (IBEW) Local 31. The current labor agreements with IBEW Local 31 expire on April 30, 2023, for Minnesota Power and on January 31, ~~2022,~~2024, for SWL&P.

BNI Energy has ~~175~~174 employees, of which ~~129~~126 are subject to a labor agreement with IBEW Local 1593. The current labor agreement with IBEW Local 1593 expires on March 31, 2023.

NEW ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements are discussed in Note 1. Operations and Significant Accounting Policies.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SECURITIES INVESTMENTS

Available-for-Sale Securities. As of September 30, ~~2021,~~2022, our available-for-sale securities portfolio consisted primarily of securities held in other postretirement plans to fund employee benefits.

COMMODITY PRICE RISK

Our regulated utility operations incur costs for power and fuel (primarily coal and related transportation) in Minnesota, and power and natural gas purchased for resale in our regulated service territory in Wisconsin. Minnesota Power’s exposure to price risk for these commodities is significantly mitigated by the current ratemaking process and regulatory framework, which allows recovery of fuel costs in excess of those included in base rates or distribution of savings in fuel costs to ratepayers. SWL&P’s exposure to price risk for natural gas is significantly mitigated by the current ratemaking process and regulatory framework, which allows the commodity cost to be passed through to customers. We seek to prudently manage our customers’ exposure to price risk by entering into contracts of various durations and terms for the purchase of power and coal and related transportation costs (Minnesota Power), and natural gas (SWL&P).

ALLETE, Inc. Third Quarter 2022 Form 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)

POWER MARKETING

Minnesota Power’s power marketing activities consist of: (1) purchasing energy in the wholesale market to serve its regulated service territory when energy requirements exceed generation output; and (2) selling excess available energy and purchased power. From time to time, Minnesota Power may have excess energy that is temporarily not required by retail and municipal customers in our regulated service territory. Minnesota Power actively sells any excess energy to the wholesale market to optimize the value of its generating facilities.

We are exposed to credit risk primarily through our power marketing activities. We use credit policies to manage credit risk, which includes utilizing an established credit approval process and monitoring counterparty limits.

INTEREST RATE RISK

We are exposed to risks resulting from changes in interest rates as a result of our issuance of variable rate debt. We manage our interest rate risk by varying the issuance and maturity dates of our fixed rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. We may also enter into derivative financial instruments, such as interest rate swaps, to mitigate interest rate exposure. Interest rates on variable rate long-term debt are reset on a periodic basis reflecting prevailing market conditions. Based on the variable rate debt outstanding as of September 30, ~~2021,~~2022, an increase of 100 basis points in interest rates would impact the amount of pre-tax interest expense by ~~$3.4~~$2.8 million. This amount was determined by considering the impact of a hypothetical 100 basis point increase to the average variable interest rate on the variable rate debt outstanding as of September 30, ~~2021.~~2022.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of September 30, ~~2021,~~2022, evaluations were performed, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, on the effectiveness of the design and operation of ALLETE’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act)). Based upon those evaluations, our principal executive officer and principal financial officer have concluded that such disclosure controls and procedures are effective to provide assurance that information required to be disclosed in ALLETE’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding material legal and regulatory proceedings, see Note 4. Regulatory Matters and Note 8. Commitments, Guarantees and Contingencies to the Consolidated Financial Statements in our ~~2020~~2021 Form 10-K and Note 2. Regulatory Matters and Note 6.7. Commitments, Guarantees and Contingencies herein. Such information is incorporated herein by reference.

ALLETE, Inc. Third Quarter 2022 Form 10-Q

ITEM 1A. RISK FACTORS

Our ~~2020~~2021 Form 10-K includes a detailed discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in Part I, Item 1A. Risk Factors of our ~~2020~~2021 Form 10-K.

~~ALLETE Clean Energy / Corporate and Other Risks~~

The price of electricity may be volatile, which may impact results of operations at ALLETE Clean Energy wind energy facilities under certain contracts with ~~customer~~commercial and industrial (C&I) customers.

Unusual, adverse weather conditions or other natural events and different settlement prices between hub and node can cause volatility in market prices for electricity and adversely affect our financial position, results of operations and cash flows. ALLETE Clean Energy’s power sales agreements with ~~its three~~ C&I customers at its Diamond Spring and Caddo wind energy ~~facility~~facilities are contracts for differences where power is delivered to the market, and a fixed price is paid by the customers to ALLETE Clean Energy, and differences between the market price and the fixed price are paid to or received from the customers. ~~One of these power sales agreements~~Certain contracts also settle with the market at the hub price whereas ALLETE Clean Energy settles with the customer at the node price which can vary significantly based on ~~day-ahead electricity prices, while deliveries to the market are settled based on real-time electricity prices. This~~multiple factors. These settlement ~~provision~~provisions can result in an adverse impact ~~to the Company~~on our financial position, results of operations and cash flows when market prices are ~~extremely volatile as happened~~volatile.

Our results of operations could be adversely affected by changes in ~~February 2021 during~~governmental incentives or policies that support renewable energy or changes in taxes, tariffs, duties or other assessments on renewable energy or the equipment necessary to generate and deliver it.

Any reductions or modifications to, or the elimination of, governmental incentives or policies that support renewable energy, or the imposition of additional or increased sourcing of components subject to taxes, tariffs, duties or other assessments on renewable energy or the equipment necessary to generate and deliver it, could result in, among other items, the lack of a satisfactory market for the development or financing of new renewable energy projects and reduced project returns on current or future projects.

The U.S. government currently imposes antidumping and countervailing duties on certain imported photovoltaic (PV) cells and modules from China and Taiwan. Such duties can change over time pursuant to annual reviews conducted by the U.S. Department of Commerce (DOC). In March 2022, the U.S. DOC launched an ~~extreme winter weather event~~investigation into alleged circumvention of these duties by imports of certain PV cells and modules assembled and completed in Cambodia, Malaysia, Thailand, and Vietnam. In June 2022, the U.S. President declared an emergency with respect to threats to electricity generation capacity and authorized the U.S. Secretary of Commerce to consider permitting the importation of certain PV products from those four countries free of antidumping and countervailing duties for 24 months, or until the emergency has terminated. The U.S. DOC has issued final regulations designed to implement that moratorium in the ~~southwest United States. This winter weather~~ event ~~caused extreme volatility,~~that it finds circumvention in its ongoing inquiries. We cannot predict what further actions the U.S. DOC will take with ~~large differences~~respect to these circumvention inquiries. Our operating results could be adversely impacted if the U.S. DOC makes circumvention determinations that result in duties assessed on future purchases made by our businesses after the ~~day-ahead and real-time market prices; the settlement provision resulted in an approximately $5 million after-tax negative impact related to the Diamond Spring wind energy facility.~~moratorium ends.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires issuers to include in periodic reports filed with the SEC certain information relating to citations or orders for violations of standards under the Federal Mine Safety and Health Act of 1977 (Mine Safety Act). Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and this Item are included in Exhibit 95 to this Form 10-Q.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

5047

ITEM 5. OTHER INFORMATION

The proxy statement for ALLETE’s 2021 Annual Meeting of Shareholders, which was filed with the SEC on March 25, 2021, contained typographical errors in the section entitled “Other Business—Shareholder Proposals for the 2022 Annual Meeting” related to the dates by which a shareholder must (a) submit a shareholder proposal to be considered for inclusion in the proxy materials for ALLETE’s 2022 annual meeting of shareholders (2022 Annual Meeting) and (b) provide notice to ALLETE if a shareholder would like to bring business before the 2022 Annual Meeting. The corrected information is set forth below:

~~Shareholder Proposals for the 2022 Annual Meeting~~

All proposals from shareholders submitted pursuant to SEC Rule 14a-8 under the Exchange Act to be considered for inclusion in the proxy statement relating to the 2022 Annual Meeting scheduled for May 10, 2022, must be received by the Secretary of ALLETE at 30 West Superior Street, Duluth, MN 55802-2093 not later than November 25, 2021.

In addition, ALLETE’s Bylaws provide that for proposals, other than those described in the preceding paragraph, including nominations for director and other shareholder proposals to be properly brought before an annual meeting by a shareholder, the shareholder must have delivered timely notice to ALLETE’s Secretary. To be timely, notice for business to be brought before an annual meeting of shareholders generally must be received not less than 90 days nor more than 120 days prior to the anniversary of the immediately preceding annual meeting. Therefore, for the 2022 Annual Meeting scheduled for May 10, 2022, ALLETE must receive notice between January 11, 2022, and February 10, 2022. Notice must also comply with the applicable informational and other requirements set forth in ALLETE’s Bylaws.

The persons to be named as proxies in the proxy card relating to the 2022 Annual Meeting may have the discretion to vote their proxies in accordance with their judgment on any matter as to which ALLETE did not have advance notice in accordance with the notice provisions in ALLETE’s Bylaws, without discussion of such matter in the proxy statement relating to the 2022 Annual Meeting of shareholders.None.

~~ALLETE, Inc. Third Quarter 2021 Form 10-Q~~

ITEM 6. EXHIBITS


Exhibit Number
4						~~Forty-Second~~Forty-Third Supplemental Indenture, dated as of ~~September~~August 1, ~~2021,~~2022, between ALLETE, Inc. and The Bank of New York Mellon, as corporate trustee, and ~~Eva Waite,~~Janet Lee, as ~~co-trustee.~~co-trustee..
31(a)						Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31(b)						Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32						Section 1350 Certification of Periodic Report by the Chief Executive Officer and the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
95						Mine Safety.
99						ALLETE News Release dated November 49 , ~~2021,~~2022, announcing ~~2021~~2022 third quarter earnings. (This exhibit has been furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.)
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Schema
101.CAL						XBRL Calculation
101.DEF						XBRL Definition
101.LAB						XBRL Label
101.PRE						XBRL Presentation
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

ALLETE agrees to furnish to the SEC upon request any instrument with respect to long-term debt that ALLETE has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

5248

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						ALLETE, INC.




November ~~4, 2021~~9, 2022						/s/ ~~Robert J. Adams~~Steven W. Morris
						~~Robert J. Adams~~Steven W. Morris
						Senior Vice President and Chief Financial Officer
						(Principal Financial Officer and Principal Accounting Officer)




~~November 4, 2021~~						~~/s/ Steven W. Morris~~
						~~Steven W. Morris~~
						~~Vice President and Chief Accounting Officer~~
						~~(Principal Accounting Officer)~~

ALLETE, Inc. Third Quarter ~~2021~~2022 Form 10-Q

5349


Region	Wind Energy Facility	Capacity MW	PSA MW	PSA Expiration
East	Armenia Mountain	101	100%	2024
Midwest	Chanarambie/Viking (a)	98
	PSA 1		12%	2023
	PSA 2		88%	2023
	Lake Benton	104	100%	2028
	Storm Lake I	108	100%	2027
	Storm Lake II	77
	PSA 1		90%	2022
	PSA 2		10%	2032
	Other	17	100%	2028
South	Diamond Spring	303
	PSA 1		58%	2035
	PSA 2		25%	2032
	PSA 3		16%	2035
West	Condon	50	100%	2022
	Glen Ullin	106	100%	2039
	South Peak	80	100%	2035