ALLETE, Inc. (NYSE:ALE) Q4 2017 Earnings Conference Call Transcript

Feb 15, 2018 • 10:00 am ET

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ALLETE, Inc. (NYSE:ALE) Q4 2017 Earnings Conference Call Transcript

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Presentation
Executive
Alan R. Hodnik

2016 general rate review, including, among other items, a return on common equity of 9.25% and a 53.81% equity ratio.

Another key item in the rate review was Minnesota Power's request to extend the depreciable lives of its Boswell Energy Center facilities. The MPUC agreed with our request to extend the depreciable lives of Boswell Unit 3, Boswell Unit 4 and Boswell common facilities while shortening the depreciable lives of Boswell Units one and two.

The Minnesota Public Utilities Commission also resolved the Energy Intensive Trade Exposed, or EITE rate, design question. The Boswell depreciation and EITE determinations were important customer outcomes in the rate review as Minnesota Power worked closely with the legislature, Governor Dayton, economic regulators and its price-sensitive large industrial customers. In recent years, unfairly trade at steel and other factors have pressured these major regional employers as they compete in highly competitive global markets.

While EITE is about maintaining existing natural resources operations, it is equally important to the development of new opportunities such as PolyMet and Chippewa Capital, which are moving from the drawing board to final construction. While EITE brings about higher rates for other Minnesota Power customers, it is our view that Northeastern Minnesota is better off in total when industrial mining and paper operations remain strong and vibrant. Boswell depreciation, EITE, and now a measure of Trump tax reform serve as rate-mitigating tools and lessen the overall impact of any rate increases on all Minnesota Power customers.

Given Minnesota Power's long-standing and unique customer mix, it has always approached rate reviews with a balanced stakeholder perspective. While several key customer objectives were met during the rate review, Minnesota Power is disappointed, however, that the overall rate review decision was below its original request from a credit market support and investor perspective.

Minnesota Power has worked in full partnership with state policy and regulatory leaders to thoughtfully and creatively execute various ways of state energy policy, including retiring coal plants, boosting renewables and modernizing its grid. In doing so, Minnesota Power has worked hard to keep rates reasonable for all customers while striving to ensure investors earn a fair return on their investment. Minnesota Power is evaluating options and next steps relative to treatment of certain disallowed expenses and assets excluded from rate base by regulators in the rate review.

Next steps may include clarification and/or reconsideration of certain items in the review following the Commission's order on March 12. Minnesota Power fully intends to earn its 9.25% return and it will be reviewing all dimensions within the enterprise as it rescales and repositions the business. Following the Minnesota Public Utilities Commission rate review decision, Standard & Poor's moved to downgrade their rating outlook for ALLETE to negative from stable. At the same time, they did affirm ratings on our issuer credit. S&P cited the rate review outcome, coupled with revenue impacts from President Trump's Tax Cuts and Jobs Act, as their basis for the negative watch. S&P views the combination of the