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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
or
☐ 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 shares outstanding
as of September 30, 2021



Index
     
3
5
 
 
6
 
6
 
7
8
 
9
10
 
11
11
13
17
17
19
20
25
26
27
27
 
29
31
34
37
38
46
48
 
49
 
49
 
 
50
 
50
 
50
 
50
 
50
 
51
 
52
53
ALLETE, Inc. Third Quarter 2021 Form 10-Q
2


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
3


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 North Dakota Public Service Commission
Nobles 2 Nobles 2 Power Partners, LLC
NOL Net Operating Loss
NOX
Nitrogen Oxides
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
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 Form 10-Q
4


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;
•changes in tax rates or policies or in rates of inflation;
•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; 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 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 Form 10-Q
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PART I.  FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

ALLETE
CONSOLIDATED BALANCE SHEET
Unaudited
September 30,
2021 		December 31,
2020
Millions
Assets    
Current Assets    
Cash and Cash Equivalents $59.0  $44.3 
Accounts Receivable (Less Allowance of $2.1 and $2.5) 110.2  111.9 
Inventories – Net 89.6  74.2 
Prepayments and Other 19.9  24.5 
Total Current Assets 278.7  254.9 
Property, Plant and Equipment – Net 5,053.1  4,840.8 
Regulatory Assets 502.9  480.9 
Equity Investments 317.8  301.2 
Other Non-Current Assets 179.7  206.8 
Total Assets $6,332.2  $6,084.6 
Liabilities and Equity    
Liabilities    
Current Liabilities    
Accounts Payable $101.9  $110.0 
Accrued Taxes 67.4  59.4 
Accrued Interest 15.3  19.8 
Long-Term Debt Due Within One Year 377.4  203.7 
Other 84.0  66.7 
Total Current Liabilities 646.0  459.6 
Long-Term Debt 1,649.4  1,593.2 
Deferred Income Taxes 187.1  195.7 
Regulatory Liabilities 509.5  524.8 
Defined Benefit Pension and Other Postretirement Benefit Plans 207.6  225.8 
Other Non-Current Liabilities 278.1  285.3 
Total Liabilities 3,477.7  3,284.4 
Commitments, Guarantees and Contingencies (Note 6)
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 
Accumulated Other Comprehensive Loss (29.9) (31.1)
Retained Earnings 873.4  864.8 
Total ALLETE Equity 2,340.0  2,294.6 
Non-Controlling Interest in Subsidiaries 514.5  505.6 
Total Equity 2,854.5  2,800.2 
Total Liabilities and Equity $6,332.2  $6,084.6 
The accompanying notes are an integral part of these statements.
ALLETE, Inc. Third Quarter 2021 Form 10-Q
6


ALLETE
CONSOLIDATED STATEMENT OF INCOME
Unaudited
Quarter Ended Nine Months Ended
September 30, September 30,
  2021 2020 2021 2020
Millions Except Per Share Amounts
Operating Revenue
Contracts with Customers – Utility $304.8  $255.1  $888.2  $721.2 
Contracts with Customers – Non-utility 37.7  35.9  123.4  119.0 
Other – Non-utility 2.9  2.9  8.6  8.5 
Total Operating Revenue 345.4  293.9  1,020.2  848.7 
Operating Expenses    
Fuel, Purchased Power and Gas – Utility 140.1  93.4  389.4  251.7 
Transmission Services – Utility 19.2  14.9  56.1  49.8 
Cost of Sales – Non-utility 15.2  15.4  47.8  48.6 
Operating and Maintenance 66.7  61.9  200.1  181.9 
Depreciation and Amortization 57.5  53.4  173.4  161.3 
Taxes Other than Income Taxes 15.6  13.3  52.1  40.9 
Total Operating Expenses 314.3  252.3  918.9  734.2 
Operating Income 31.1  41.6  101.3  114.5 
Other Income (Expense)    
Interest Expense (17.3) (16.3) (51.8) (47.9)
Equity Earnings 4.4  5.1  14.3  16.7 
Other 1.0  2.9  6.1  9.1 
Total Other Expense (11.9) (8.3) (31.4) (22.1)
Income Before Income Taxes 19.2  33.3  69.9  92.4 
Income Tax Benefit (4.9) (5.5) (19.3) (27.8)
Net Income 24.1  38.8  89.2  120.2 
Net Loss Attributable to Non-Controlling Interest (3.5) (1.9) (18.1) (6.9)
Net Income Attributable to ALLETE $27.6  $40.7  $107.3  $127.1 
Average Shares of Common Stock    
Basic 52.4  51.9  52.3  51.8 
Diluted 52.5  52.0  52.3  51.9 
Basic Earnings Per Share of Common Stock $0.53  $0.78  $2.05  $2.45 
Diluted Earnings Per Share of Common Stock $0.53  $0.78  $2.05  $2.45 
The accompanying notes are an integral part of these statements.
ALLETE, Inc. Third Quarter 2021 Form 10-Q
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ALLETE
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited
Quarter Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Millions        
Net Income $24.1  $38.8  $89.2  $120.2 
Other Comprehensive Income        
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 
Total Other Comprehensive Income 0.4  0.2  1.2  0.5 
Total Comprehensive Income 24.5  39.0  90.4  120.7 
Net Loss Attributable to Non-Controlling Interest (3.5) (1.9) (18.1) (6.9)
Total Comprehensive Income Attributable to ALLETE $28.0  $40.9  $108.5  $127.6 
The accompanying notes are an integral part of these statements.

ALLETE, Inc. Third Quarter 2021 Form 10-Q
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ALLETE
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
Nine Months Ended
September 30,
  2021 2020
Millions
Operating Activities    
Net Income $89.2  $120.2 
AFUDC – Equity (1.7) (1.8)
Income from Equity Investments – Net of Dividends 1.8  (2.3)
Gain on Investments and Property, Plant and Equipment (0.7) — 
Depreciation Expense 173.4  161.3 
Amortization of PSAs (8.6) (8.5)
Amortization of Other Intangible Assets and Other Assets 7.4  7.5 
Deferred Income Tax Benefit (19.4) (27.9)
Share-Based and ESOP Compensation Expense 4.6  4.7 
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)
Bad Debt Expense 0.9  1.6 
Changes in Operating Assets and Liabilities    
Accounts Receivable 0.8  2.8 
Inventories (15.4) (2.0)
Prepayments and Other 7.9  8.8 
Accounts Payable 4.0  2.2 
Other Current Liabilities 20.7  12.5 
Cash Contributions to Defined Benefit Pension Plans (10.3) (10.7)
Changes in Regulatory and Other Non-Current Assets (41.3) (23.5)
Changes in Regulatory and Other Non-Current Liabilities (7.4) (8.2)
Cash from Operating Activities 209.2  241.9 
Investing Activities    
Proceeds from Sale of Available-for-sale Securities 3.3  6.8 
Payments for Purchase of Available-for-sale Securities (3.0) (7.2)
Payments for Equity Method Investments (17.4) (91.0)
Additions to Property, Plant and Equipment (384.3) (540.8)
Other Investing Activities 4.3  1.0 
Cash for Investing Activities (397.1) (631.2)
Financing Activities    
Proceeds from Issuance of Common Stock 31.0  12.8 
Proceeds from Issuance of Short-Term and Long-Term Debt 510.6  607.4 
Repayments of Short-Term and Long-Term Debt (280.9) (207.4)
Proceeds from Non-Controlling Interest in Subsidiaries 28.9  67.8 
Dividends on Common Stock (98.7) (96.0)
Other Financing Activities (2.8) (2.7)
Cash from Financing Activities 188.1  381.9 
Change in Cash, Cash Equivalents and Restricted Cash 0.2  (7.4)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period 65.2  92.5 
Cash, Cash Equivalents and Restricted Cash at End of Period $65.4  $85.1 
The accompanying notes are an integral part of these statements.
ALLETE, Inc. Third Quarter 2021 Form 10-Q
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ALLETE
CONSOLIDATED STATEMENT OF EQUITY
Unaudited
Quarter Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Millions Except Per Share Amounts
Common Stock
Balance, Beginning of Period $1,474.1  $1,447.7  $1,460.9  $1,436.7 
Common Stock Issued 22.4  6.5  35.6  17.5 
Balance, End of Period 1,496.5  1,454.2  1,496.5  1,454.2 
Accumulated Other Comprehensive Loss
Balance, Beginning of Period (30.3) (23.3) (31.1) (23.6)
Other Comprehensive Income - Net of Income Taxes
Defined Benefit Pension and Other Postretirement Plans 0.4  0.2  1.2  0.5 
Balance, End of Period (29.9) (23.1) (29.9) (23.1)
Retained Earnings
Balance, Beginning of Period 878.8  841.3  864.8  818.8 
Net Income Attributable to ALLETE 27.6  40.7  107.3  127.1 
Common Stock Dividends (33.0) (32.1) (98.7) (96.0)
Balance, End of Period 873.4  849.9  873.4  849.9 
Non-Controlling Interest in Subsidiaries
Balance, Beginning of Period 519.3  166.5  505.6  103.7 
Proceeds from Non-Controlling Interest in Subsidiaries —  —  28.9  67.8 
Net Loss Attributable to Non-Controlling Interest (3.5) (1.9) (18.1) (6.9)
Distributions to Non-Controlling Interest (1.3) —  (1.9) — 
Balance, End of Period 514.5  164.6  514.5  164.6 
Total Equity $2,854.5  $2,445.6  $2,854.5  $2,445.6 
Dividends Per Share of Common Stock $0.63  $0.6175  $1.89  $1.8525 
The accompanying notes are an integral part of these statements.
ALLETE, Inc. Third Quarter 2021 Form 10-Q
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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, Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. 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, are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2021. For further information, refer to the Consolidated Financial Statements and notes included in our 2020 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, restricted cash amounts included in Prepayments and Other on the Consolidated Balance Sheet include collateral deposits required under an ALLETE Clean Energy loan agreement. The restricted cash amounts included in Other Non-Current Assets represent collateral deposits required under ALLETE Clean Energy loan and tax equity financing agreements 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 September 30,
2021 		December 31,
2020 		September 30,
2020 		December 31,
2019
Millions    
Cash and Cash Equivalents $59.0  $44.3  $79.0  $69.3 
Restricted Cash included in Prepayments and Other 4.1  0.8  3.2  2.8 
Restricted Cash included in Other Non-Current Assets 2.3  20.1  2.9  20.4 
Cash, Cash Equivalents and Restricted Cash on the Consolidated Statement of Cash Flows $65.4  $65.2  $85.1  $92.5 

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 
(a)    Fuel consists primarily of coal inventory at Minnesota Power.
(b) Project costs related to ALLETE Clean Energy’s Northern Wind and Red Barn wind projects which are expected be sold in late 2022. (See Other Current Liabilities.)
ALLETE, Inc. Third Quarter 2021 Form 10-Q
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NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other Non-Current Assets September 30,
2021 		December 31,
2020
Millions
Contract Assets (a)
$23.4  $25.5 
Operating Lease Right-of-use Assets 17.7  22.4 
ALLETE Properties 17.6  18.2 
Restricted Cash 2.3  20.1 
Other Postretirement Benefit Plans 35.8  34.2 
Other 82.9  86.4 
Total Other Non-Current Assets $179.7  $206.8 
(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 September 30,
2021 		December 31,
2020
Millions    
Customer Deposits (a)
$27.5  $7.4 
PSAs 12.6  12.5 
Fuel Adjustment Clause 2.6  3.7 
Operating Lease Liabilities 5.0  5.9 
Other 36.3  37.2 
Total Other Current Liabilities $84.0  $66.7 
(a) Primarily related to deposits received by ALLETE Clean Energy for the Northern Wind and Red Barn wind projects which are expected be sold in late 2022. (See Inventories – Net.)

Other Non-Current Liabilities September 30,
2021 		December 31,
2020
Millions    
Asset Retirement Obligation (a)
$170.9  $166.6 
PSAs 42.6  52.1 
Operating Lease Liabilities 12.7  16.5 
Other 51.9  50.1 
Total Other Non-Current Liabilities $278.1  $285.3 
(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 million in Other Non-Current Assets on the Consolidated Balance Sheet as of September 30, 2021, and December 31, 2020.
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 
(a)These are components of net periodic pension and other postretirement benefit cost other than service cost. (See Note 9. Pension and Other Postretirement Benefit Plans.)


ALLETE, Inc. Third Quarter 2021 Form 10-Q
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NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Supplemental Statement of Cash Flows Information.
Nine Months Ended September 30, 2021 2020
Millions    
Cash Paid for Interest – Net of Amounts Capitalized $54.9 $48.8
Noncash Investing and Financing Activities    
Increase in Accounts Payable for Capital Additions to Property, Plant and Equipment $(12.1) $(88.4)
Capitalized Asset Retirement Costs $3.5 $2.1
AFUDC–Equity $1.7 $1.8

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 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.


NOTE 2. REGULATORY MATTERS

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

2020 Minnesota General 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
13


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 the filing is accepted as complete, an annual interim rate increase of approximately $87 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 and authorization. We cannot predict the level of interim or final rates that may be authorized by the MPUC.

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 Rider. Minnesota Power has an approved environmental improvement rider for investments and expenditures related to the implementation of the Boswell Unit 4 mercury emissions reduction plan completed in 2015. Updated customer billing rates for the environmental improvement rider were approved by the MPUC in a November 2018 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, Minnesota Power submitted its 2022 solar factor filing. Upon approval of the filing, Minnesota Power will 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 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.

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
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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 the period July 2018 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. Minnesota Power submitted exceptions to the ALJ’s report to the MPUC stating that it disagreed with 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 the MPUC is expected in the fourth quarter of 2021.

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

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 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
15


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.

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 September 30,
2021 		December 31,
2020
Millions  
Non-Current Regulatory Assets    
Defined Benefit Pension and Other Postretirement Benefit Plans $247.6  $259.7 
Income Taxes 107.2  113.7 
Cost Recovery Riders 61.8  54.0 
Asset Retirement Obligations 31.4  31.6 
Fuel Adjustment Clause 30.1  — 
Manufactured Gas Plant
11.9  8.8 
PPACA Income Tax Deferral 4.4  4.5 
Boswell Units 1 and 2 Net Plant and Equipment 3.2  5.0 
Other 5.3  3.6 
Total Non-Current Regulatory Assets $502.9  $480.9 
Current Regulatory Liabilities (a)
   
Fuel Adjustment Clause $2.6  $3.7 
Transmission Formula Rates Refund 3.1  2.9 
Other 3.3  1.0 
Total Current Regulatory Liabilities 9.0  7.6 
Non-Current Regulatory Liabilities    
Income Taxes 359.3  375.3 
Wholesale and Retail Contra AFUDC 84.4  86.6 
Plant Removal Obligations 47.4  41.2 
North Dakota Investment Tax Credits 12.3  12.0 
Defined Benefit Pension and Other Postretirement Benefit Plans 1.4  4.4 
Conservation Improvement Program —  1.5 
Other 4.7  3.8 
Total Non-Current Regulatory Liabilities 509.5  524.8 
Total Regulatory Liabilities $518.5  $532.4 
(a)Current regulatory liabilities are presented within Other Current Liabilities on the Consolidated Balance Sheet.
ALLETE, Inc. Third Quarter 2021 Form 10-Q
16


NOTE 3. EQUITY INVESTMENTS

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.
ALLETE’s Investment in ATC  
Millions  
Equity Investment Balance as of December 31, 2020 $149.0 
Equity in ATC Earnings 15.8 
Distributed ATC Earnings (12.8)
Amortization of the Remeasurement of Deferred Income Taxes 1.0 
Equity Investment Balance as of September 30, 2021 $153.0 

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.

Investment in Nobles 2. Our subsidiary, ALLETE South Wind, owns 49 percent of 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.

ALLETE’s Investment in Nobles 2
Millions
Equity Investment Balance as of December 31, 2020 $152.2 
Cash Investments 17.4 
Equity in Nobles 2 Earnings (a)
(1.5)
Distributed Nobles 2 Earnings (3.3)
Equity Investment Balance as of September 30, 2021 $164.8 
(a)The Company also recorded net loss attributable to non-controlling interest of $4.4 million related to its investment in Nobles 2.


NOTE 4. 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 Form 10-K.

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, and December 31, 2020. 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
17


NOTE 4. FAIR VALUE (Continued)
  Fair Value as of September 30, 2021
Recurring Fair Value Measures Level 1 Level 2 Level 3 Total
Millions        
Assets        
Investments (a)
Available-for-sale – Equity Securities $9.2  —  —  $9.2 
Available-for-sale – Corporate and Governmental Debt Securities (b)
—  $8.4  —  8.4 
Cash Equivalents 2.8  —  —  2.8 
Total Fair Value of Assets $12.0  $8.4  —  $20.4 
Liabilities        
Deferred Compensation (c)
—  $21.5  —  $21.5 
Total Fair Value of Liabilities —  $21.5  —  $21.5 
Total Net Fair Value of Assets (Liabilities) $12.0  $(13.1) —  $(1.1)
  Fair Value as of December 31, 2020
Recurring Fair Value Measures Level 1 Level 2 Level 3 Total
Millions
Assets
Investments (a)
Available-for-sale – Equity Securities $7.2  —  —  $7.2 
Available-for-sale – Corporate and Governmental Debt Securities —  $10.4  —  10.4 
Cash Equivalents 5.5  —  —  5.5 
Total Fair Value of Assets $12.7  $10.4  —  $23.1 
Liabilities
Deferred Compensation (c)
—  $21.0  —  $21.0 
Total Fair Value of Liabilities —  $21.0  —  $21.0 
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, the aggregate amount of available-for-sale corporate and governmental debt securities maturing in one year or less was $1.5 million, in one year to less than three years was $3.4 million, in three years to less than five years was $3.0 million and in five or more years was $0.5 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
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
(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, and the year ended December 31, 2020, there were no indicators of impairment for these non-financial assets.

We continue to monitor changes in the broader energy markets along with wind resources that could indicate impairment at ALLETE Clean Energy wind energy facilities upon contract expirations. A continued decline in energy prices or lower wind resources could result in a future impairment.
ALLETE, Inc. Third Quarter 2021 Form 10-Q
18


NOTE 5. SHORT-TERM AND LONG-TERM DEBT

The following tables present the Company’s short-term and long-term debt as of September 30, 2021, and December 31, 2020:
September 30, 2021 Principal Unamortized Debt Issuance Costs Total
Millions    
Short-Term Debt $377.6  $(0.2) $377.4 
Long-Term Debt 1,658.5  (9.1) 1,649.4 
Total Debt $2,036.1  $(9.3) $2,026.8 
December 31, 2020 Principal Unamortized Debt Issuance Costs Total
Millions    
Short-Term Debt $204.0  $(0.3) $203.7 
Long-Term Debt 1,602.4  (9.2) 1,593.2 
Total Debt $1,806.4  $(9.5) $1,796.9 

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

On March 25, 2021, ALLETE entered into a $150 million unsecured term loan agreement (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, and may be repaid at any time. Interest is payable monthly at a rate per annum equal to LIBOR plus 0.75 percent. Proceeds from the Term Loan were used for general corporate purposes.

On September 1, 2021, ALLETE issued $100 million of its First Mortgage Bonds (Bonds) to certain institutional buyers in the private placement market. The Bonds, which bear interest at 2.79 percent, will mature in September 2031 and pay interest semi-annually in March and September of each year, commencing on March 1, 2022. 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, our ratio was approximately 0.43 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, ALLETE was in compliance with its financial covenants.


ALLETE, Inc. Third Quarter 2021 Form 10-Q
19


NOTE 6. 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 Form 10-K, with additional disclosure provided in the following paragraphs.

Square Butte PPA. As of September 30, 2021, Square Butte had total debt outstanding of $256.9 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, was $60.3 million ($59.9 million for the same period in 2020). 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 million ($5.4 million for the same period in 2020). 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 28 percent in 2021 and in 2020.

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. Minnesota Power also has coal transportation agreements in place for the delivery of a significant portion of its coal requirements through December 2021. 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 Form 10-Q
20


NOTE 6. 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 on March 15, 2021, to revise 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.

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. On June 10, 2021, the EPA announced it will reconsider the December 2020 final rule retaining the 2012 particulate matter NAAQS, with a proposed rulemaking anticipated in mid-2022. The EPA has not stated its intent with regard to the 2020 Ozone NAAQS rule finalized in December 2020.

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. The EPA has indicated that it is working on a new set of emission guidelines to establish a Best System of Emissions Reduction for existing fossil fuel-fired electric generating units to direct states in regulating GHGs within their borders; however, no timeline has been disclosed. 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
21


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.

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. 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 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 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 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. At Boswell, the bottom ash handling systems are planned to be converted to a dry process, which will eliminate the discharge of bottom ash transport water.

The EPA’s additional reconsideration of legacy wastewater discharge requirements has the potential to reduce timelines for dewatering Boswell’s existing ponds. The timing of a draft rule addressing legacy wastewater and leachate is currently unknown.

ALLETE, Inc. Third Quarter 2021 Form 10-Q
22


NOTE 6. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)
Environmental Matters (Continued)

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 for additional significant 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 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.

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 a list of 30 wild rice waters in a separate listing process on April 29, 2021, followed by a 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
23


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 to extend the closure date for the two active Boswell impoundments in November 2020 through a variance application, and continues to operate the impoundments pending a final determination by the EPA. Additionally, the EPA released a proposed Part B rulemaking in February 2020 that addressed 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 regulatory agenda, finalization of the remainder of the proposed Part B Rule was expected in mid-2021, but has not yet been published. 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.

Other Environmental 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, we have recorded a liability of approximately $13 million for remediation costs at this site after incorporating detailed design components specific to 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.

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, we had $123.9 million of outstanding letters of credit issued, including those issued under our revolving credit facility.

Regulated Operations. As of September 30, 2021, we had $4.9 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 PSAs in place for their entire output and expire in various years between 2022 and 2039. As of September 30, 2021, ALLETE Clean Energy has $81.9 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
24


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, BNI Energy had surety bonds outstanding of $71.2 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 million. BNI Energy does not believe it is likely that any of these outstanding surety bonds will be drawn upon.

ALLETE Properties. As of September 30, 2021, ALLETE Properties had surety bonds outstanding and letters of credit to governmental entities totaling $2.0 million primarily related to development and maintenance obligations for various projects. The estimated cost of the remaining development work is $1.0 million. ALLETE Properties 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.


NOTE 7. 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  
Reconciliation of Basic and Diluted   Dilutive     Dilutive  
Earnings Per Share Basic Securities Diluted Basic Securities Diluted
Millions Except Per Share Amounts            
Quarter ended September 30,            
Net Income Attributable to ALLETE $27.6  $27.6  $40.7  $40.7 
Average Common Shares 52.4  0.1  52.5  51.9  0.1  52.0 
Earnings Per Share $0.53  $0.53  $0.78  $0.78 
Nine Months Ended September 30,      
Net Income Attributable to ALLETE $107.3  $107.3  $127.1  $127.1 
Average Common Shares 52.3  —  52.3  51.8  0.1  51.9 
Earnings Per Share $2.05  $2.05  $2.45  $2.45 


ALLETE, Inc. Third Quarter 2021 Form 10-Q
25



NOTE 8. INCOME TAX EXPENSE
Quarter Ended Nine Months Ended
September 30, September 30,
  2021 2020 2021 2020
Millions        
Current Income Tax Expense (a)
       
Federal —  —  —  — 
State $0.1  $0.1  $0.1  $0.1 
Total Current Income Tax Expense $0.1  $0.1  $0.1  $0.1 
Deferred Income Tax Expense (Benefit)        
Federal (b)
$(5.8) $(8.3) $(26.3) $(34.5)
State 0.9 2.9 7.3 7.1
Investment Tax Credit Amortization (0.1) (0.2) (0.4) (0.5)
Total Deferred Income Tax Benefit $(5.0) $(5.6) $(19.4) $(27.9)
Total Income Tax Benefit $(4.9) $(5.5) $(19.3) $(27.8)
(a)For each of the three and nine months ended September 30, 2021 and 2020, 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 and 2020, the federal income tax benefit is primarily due to production tax credits.

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
Reconciliation of Taxes from Federal Statutory September 30, September 30,
Rate to Total Income Tax Expense 2021 2020 2021 2020
Millions    
Income Before Income Taxes $19.2  $33.3  $69.9  $92.4 
Statutory Federal Income Tax Rate 21  % 21  % 21  % 21  %
Income Taxes Computed at Statutory Federal Rate $4.0  $7.0  $14.7  $19.4 
Increase (Decrease) in Income Tax Due to:
State Income Taxes (Credit) – Net of Federal Income Tax Benefit 0.7  2.4  5.8  5.7 
Production Tax Credits (9.5) (12.5) (36.6) (45.9)
Regulatory Differences – Excess Deferred Tax (2.1) (3.2) (6.7) (8.5)
Non-Controlling Interest in Subsidiaries 0.8  0.4  3.9  1.5 
Share-Based Compensation —  —  0.5  (0.1)
Other 1.2  0.4  (0.9) 0.1 
Total Income Tax Benefit $(4.9) $(5.5) $(19.3) $(27.8)

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

Uncertain Tax Positions. As of September 30, 2021, we had gross unrecognized tax benefits of $1.5 million ($1.4 million as of December 31, 2020). 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, or state examination for years before 2016.
ALLETE, Inc. Third Quarter 2021 Form 10-Q
26


NOTE 9. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
  Pension Other
Postretirement
Components of Net Periodic Benefit Cost (Credit) 2021 2020 2021 2020
Millions        
Quarter Ended September 30,        
Service Cost $2.7  $2.7  $0.9  $0.8 
Non-Service Cost Components (a)
Interest Cost 6.1  6.9  1.1  1.2 
Expected Return on Plan Assets (10.8) (10.6) (2.4) (2.4)
Amortization of Prior Service Credits —  —  (1.9) (2.0)
Amortization of Net Loss 4.7  3.2  0.7  0.3 
Net Periodic Benefit Cost (Credit) $2.7  $2.2  $(1.6) $(2.1)
Nine Months Ended September 30,
Service Cost $8.2  $8.0  $2.7  $2.5 
Non-Service Cost Components (a)
Interest Cost 18.4  20.9  3.3  3.7 
Expected Return on Plan Assets (32.5) (32.0) (7.3) (7.3)
Amortization of Prior Service Credits (0.1) (0.1) (5.7) (6.0)
Amortization of Net Loss 14.1  9.6  2.2  0.8 
Net Periodic Benefit Cost (Credit) $8.1  $6.4  $(4.8) $(6.3)
(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, we contributed $10.3 million in cash to the defined benefit pension plans ($10.7 million for the nine months ended September 30, 2020); we do not expect to make additional contributions to our defined benefit pension plans in 2021. For the nine months ended September 30, 2021 and 2020, 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.


NOTE 10. 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 three 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 two operating segments, BNI Energy, our coal mining operations in North Dakota, 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, approximately 4,000 acres of land in Minnesota, and earnings on cash and investments.


ALLETE, Inc. Third Quarter 2021 Form 10-Q
27


NOTE 10. 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 
(a)See Note 2. Regulatory Matters.

September 30,
2021 		December 31,
2020
Millions
Assets
Regulated Operations $4,207.4  $4,196.8 
ALLETE Clean Energy 1,691.4  1,483.3 
Corporate and Other 433.4  404.5 
Total Assets $6,332.2  $6,084.6 
ALLETE, Inc. Third Quarter 2021 Form 10-Q
28


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 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 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 23 of our 2020 Form 10-K. The risks and uncertainties described in this Form 10-Q and our 2020 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 retail customers. Minnesota Power also has 15 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 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.

Corporate and Other is comprised of BNI Energy, our coal mining operations in North Dakota; 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 in 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, 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 Form 10-Q
29


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, to the nine months ended September 30, 2020.

Net income attributable to ALLETE for the nine months ended September 30, 2021, was $107.3 million, or $2.05 per diluted share, compared to $127.1 million, or $2.45 per diluted share, for the same period in 2020. 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. 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 attributable to ALLETE was $3.8 million for the nine months ended September 30, 2021, compared to a net loss of $0.7 million for the same period in 2020. The net loss in 2021 included 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 in December 2020.



ALLETE, Inc. Third Quarter 2021 Form 10-Q
30


COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2021 AND 2020

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

Regulated Operations
Quarter Ended September 30, 2021 2020
Millions    
Operating Revenue – Utility $304.8  $255.1 
Fuel, Purchased Power and Gas – Utility 140.1  93.4 
Transmission Services – Utility 19.2  14.9 
Operating and Maintenance 53.2  48.1 
Depreciation and Amortization 42.6  41.3 
Taxes Other than Income Taxes 13.5  11.9 
Operating Income 36.2  45.5 
Interest Expense (14.5) (14.4)
Equity Earnings 5.3  5.1 
Other Income 1.4  1.6 
Income Before Income Taxes 28.4  37.8 
Income Tax Benefit (4.5) (4.6)
Net Income Attributable to ALLETE $32.9  $42.4 

Operating Revenue – Utility increased $49.7 million from 2020 primarily due to higher fuel adjustment clause recoveries and higher kWh sales.

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

Revenue from kWh sales increased $23.6 million from 2020 reflecting higher sales to commercial and industrial customers as well as other power suppliers. 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 the third quarter of 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 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 primarily due to additional kWh sales made 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 Form 10-Q
31


COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2021 AND 2020 (Continued)
Regulated Operations (Continued)

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

Operating Expenses increased $59.0 million, or 28 percent, from 2020.

Fuel, Purchased Power and Gas – Utility expense increased $46.7 million, or 50 percent, from 2020 primarily due to 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 million, or 11 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 $1.3 million, or 3 percent, from 2020 primarily due to additional property, plant and equipment in service.

Taxes Other than Income Taxes increased $1.6 million, or 13 percent, from 2020 primarily due to higher property tax expense resulting from higher estimated taxable market values.

Income Tax Benefit was similar to 2020 reflecting 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.

We expect our annual effective tax rate in 2021 to be a lower income tax benefit than in 2020 primarily due to lower production tax credits.

ALLETE Clean Energy
Quarter Ended September 30, 2021 2020
Millions    
Operating Revenue
Contracts with Customers – Non-utility $14.0  $11.9 
Other – Non-utility (a)
2.9  2.9 
Operating and Maintenance 10.2  10.8 
Depreciation and Amortization 12.2  9.3 
Taxes Other than Income Taxes 1.8  0.8 
Operating Income (Loss) (7.3) (6.1)
Interest Expense (0.3) (0.4)
Loss Before Income Taxes (7.6) (6.5)
Income Tax Benefit (4.2) (5.7)
Net Loss (3.4) (0.8)
Net Loss Attributable to Non-Controlling Interest (2.6) (1.9)
Net Income (Loss) Attributable to ALLETE $(0.8) $1.1 
(a)Represents non-cash amortization of differences between contract prices and estimated market prices on assumed PSAs.


ALLETE, Inc. Third Quarter 2021 Form 10-Q
32


COMPARISON OF THE QUARTER ENDED SEPTEMBER 30, 2021 AND 2020 (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 Amortization expense 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 Taxes increased $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 million from 2020 reflecting net losses attributable to non-controlling interest for the Diamond Spring wind energy facility and higher net losses attributable to non-controlling interest for the Glen Ullin and South Peak wind energy facilities.

Corporate and Other

Operating Revenue in 2021 was similar to the same period in 2020.

Net Loss Attributable to ALLETE of $4.5 million in 2021 compared to a net loss of $2.8 million in 2020. The net loss in 2021 included higher expenses. Net income 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 a net loss of $0.7 million in 2020.

Income Taxes – Consolidated

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

We expect our annual effective tax rate in 2021 to be a lower income tax benefit than in 2020 primarily due to lower production 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 Form 10-Q
33


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

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

Regulated Operations
Nine Months Ended September 30, 2021 2020
Millions    
Operating Revenue – Utility $888.2  $721.2 
Fuel, Purchased Power and Gas – Utility 389.4  251.7 
Transmission Services – Utility 56.1  49.8 
Operating and Maintenance 158.9  145.4 
Depreciation and Amortization 128.2  124.9 
Taxes Other than Income Taxes 45.1  36.5 
Operating Income 110.5  112.9 
Interest Expense (43.1) (43.7)
Equity Earnings 15.8  16.7 
Other Income 4.5  8.3 
Income Before Income Taxes 87.7  94.2 
Income Tax Benefit (11.7) (16.8)
Net Income Attributable to ALLETE $99.4  $111.0 

Operating Revenue – Utility increased $167.0 million from 2020 primarily due to higher fuel adjustment clause recoveries, higher kWh sales, increased transmission revenue related to the GNTL, higher cost recovery rider revenue and higher FERC formula-based rates. Revenue in 2020 also included reserves for the refund of interim rates collected between January 1, 2020, and April 30, 2020.

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

Revenue from kWh sales increased $42.6 million from 2020 reflecting higher sales to residential, commercial, industrial and municipal customers as well as 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 customers increased from 2020 primarily due to more favorable weather conditions in 2021 compared to 2020. 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 primarily due to additional kWh sales made 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
34


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

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

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 million, or 28 percent, from 2020.

Fuel, Purchased Power and Gas – Utility expense increased $137.7 million, or 55 percent, from 2020 primarily due to 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 $6.3 million, or 13 percent, from 2020 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 million, or 24 percent, from 2020 primarily due to higher property tax expense resulting from the GNTL being placed into service in June 2020 as well as higher estimated taxable market values.

Equity Earnings decreased $0.9 million, or 5 percent, from 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.

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

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

We expect the annual effective tax rate for Regulated Operations in 2021 to be a lower income tax benefit than in 2020 primarily due to lower production tax credits.

ALLETE, Inc. Third Quarter 2021 Form 10-Q
35


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

ALLETE Clean Energy
Nine Months Ended September 30, 2021 2020
Millions    
Operating Revenue
Contracts with Customers – Non-utility $50.8 $44.0
Other – Non-utility (a)
8.6  8.5 
Operating and Maintenance 31.6  26.8 
Depreciation and Amortization 36.5  26.4 
Taxes Other than Income Taxes 5.3  2.4 
Operating Income (Loss) (14.0) (3.1)
Interest Expense (1.1) (1.4)
Other Income 0.3  0.2 
Loss Before Income Taxes (14.8) (4.3)
Income Tax Benefit (12.7) (14.2)
Net Income (Loss) (2.1) 9.9 
Net Loss Attributable to Non-Controlling Interest (13.8) (6.9)
Net Income Attributable to ALLETE $11.7  $16.8 
(a)Represents non-cash amortization of differences between contract prices and estimated market prices on assumed PSAs.

Operating Revenue increased $6.9 million, or 13 percent, from 2020 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 the 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.

Nine Months Ended September 30,
2021 2020
Production and Operating Revenue kWh Revenue kWh Revenue
Millions
Wind Energy Regions
East 167.1  $15.1  177.3  $15.9 
Midwest 610.3  23.0  634.3  23.2 
South 666.4  5.8  —  — 
West 569.5  15.5  510.6  13.4 
Total Production and Operating Revenue 2,013.3  $59.4  1,322.2  $52.5 

Operating and Maintenance expense increased $4.8 million, or 18 percent, from 2020 primarily due to operating and maintenance expenses related to the South Peak and Diamond Spring wind energy facilities. These increases were offset by expense management efforts.

Depreciation and Amortization expense increased $10.1 million, or 38 percent, from 2020 primarily due to additional property, plant and equipment in service related to the South Peak and Diamond Spring wind energy facilities.

Taxes Other than Income Taxes increased $2.9 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 $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 Form 10-Q
36


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

Corporate and Other

Operating Revenue decreased $2.4 million, or 3 percent, from 2020 primarily due to lower revenue at BNI Energy, which operates under cost-plus fixed fee contracts, as a result of lower expenses and fewer tons sold in 2021 compared to 2020 as well as lower land sales at ALLETE Properties in 2021.

Net Loss Attributable to ALLETE was $3.8 million in 2021 compared to a net loss of $0.7 million in 2020. The net loss in 2021 included 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 in December 2020. Net income at BNI Energy was $5.2 million in 2021 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.

Income Taxes – Consolidated

For the nine months ended September 30, 2021, the effective tax rate was a benefit of 27.6 percent (benefit of 30.1 percent for the nine months ended September 30, 2020). The effective tax rate for 2021 was a lower benefit primarily due to higher non-controlling interest and lower production tax credits.

We expect our annual effective tax rate in 2021 to be a lower benefit as compared to 2020 primarily due to higher non-controlling interest and lower production tax credits. (See Note 8. 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, 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 Form 10-K.


ALLETE, Inc. Third Quarter 2021 Form 10-Q
37


OUTLOOK

For additional information see our 2020 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 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. Over the next several years, the contribution of ALLETE Clean Energy and its Corporate and Other businesses to net income is expected to increase as ALLETE grows these operations. ALLETE expects its businesses to provide regulated, contracted or recurring revenues, and to support sustained growth in net income and cash flow.

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 the filing is accepted as complete, an annual interim rate increase of approximately $87 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 and authorization. We cannot predict the level of interim or final rates that may be authorized by the MPUC.

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.
ALLETE, Inc. Third Quarter 2021 Form 10-Q
38


OUTLOOK (Continued)

Industrial 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 47 percent of our regulated utility kWh sales in the nine months ended September 30, 2021, were made to our industrial customers (49 percent in the nine months ended September 30, 2020).

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.

In October 2021, Cliffs indicated it plans to move direct reduced-grade pellet production to its Minorca mine and Northshore Mining would become a “swing facility” due to the high royalty rates at its Babbitt, Minnesota 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.



ALLETE, Inc. Third Quarter 2021 Form 10-Q
39


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, Cliffs announced that, based on market conditions, it would be temporarily idling Northshore Mining. Cliffs idled production at Northshore Mining in April 2020 and resumed normal production at the facility in August 2020. 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.)

Silver Bay Power. In 2016, Minnesota Power and Silver Bay Power entered into a PSA through 2031. Silver Bay Power supplies approximately 90 MW of load to Northshore Mining, an affiliate of Silver Bay Power, which had previously been served predominately through self-generation by Silver Bay Power. Starting 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 are expected to be exhausted in 2025. Cliffs, which in December 2020 became majority owner and resumed management 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 has the capability to produce approximately 8 million tons annually.

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.

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 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 sale of the Duluth Mill to ST Paper LLC. At that time, ST Paper LLC stated it plans to convert the Duluth Mill to produce tissue.

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.

ALLETE, Inc. Third Quarter 2021 Form 10-Q
40


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 Form 10-Q
41


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. 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. Minnesota Power has three long-term PPAs with Manitoba Hydro. Under 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 on 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 capacity 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 with the MPUC to accelerate plans for solar energy with an estimated $40 million investment in approximately 20 MW of solar energy projects in Minnesota which was approved in an order dated June 29, 2021.


ALLETE, Inc. Third Quarter 2021 Form 10-Q
42


OUTLOOK (Continued)
EnergyForward (Continued)

Minnesota Power has approval for current cost recovery of investments and expenditures related 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 the transmission grid or take advantage of our geographical location between sources of renewable energy and end users. These include the GNTL, investments to enhance our own transmission facilities, investments in other transmission assets (individually or 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.

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 through 2029, identifies a need for between $2.9 billion and $3.5 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 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
43


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 acquisitions or development of new facilities will be primarily 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, ALLETE Clean Energy entered into a purchase and sale agreement with a subsidiary of Xcel Energy Inc. to sell a 120 MW wind energy facility for approximately $210 million. ALLETE Clean Energy will repower and expand its Northern Wind project, consisting of its 98 MW Chanarambie and Viking wind energy facilities located in southwest Minnesota, as part of the transaction. Construction is expected to begin in late 2021 with the Northern Wind project expected to continue operating until early 2022. At a hearing on June 10, 2021, the MPUC approved the sale, which is expected to close in late 2022, subject to receipt of permits.

On May 5, 2021, ALLETE Clean Energy announced 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 sale of the Red Barn wind project is expected to be completed in late 2022, subject to receipt of regulatory approvals and permits.


ALLETE, Inc. Third Quarter 2021 Form 10-Q
44


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
45


OUTLOOK (Continued)
Corporate and Other (Continued)

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 of the entire ALLETE Properties portfolio. Proceeds from a bulk sale would be strategically deployed 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 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, as well as other items. The annual effective rate can also be impacted by such items as changes in income before income taxes, state and federal tax law changes that become effective during the year, business combinations, tax planning initiatives 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 wind 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.


LIQUIDITY AND CAPITAL RESOURCES

Liquidity Position. ALLETE is well-positioned to meet the Company’s liquidity needs. As of September 30, 2021, we had cash and cash equivalents of $59.0 million, $380.6 million in available consolidated lines of credit, 2.6 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 42 percent. (See Working Capital.)

Capital Structure. ALLETE’s capital structure is as follows:
September 30,
2021 		% December 31,
2020 		%
Millions        
ALLETE Equity $2,340.0  47  $2,294.6  50 
Non-Controlling Interest in Subsidiaries 514.5  11  505.6  11 
Short-Term and Long-Term Debt (a)
2,036.1  42  1,806.4  39 
  $4,890.6  100  $4,606.6  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, 2021 2020
Millions    
Cash, Cash Equivalents and Restricted Cash at Beginning of Period $65.2  $92.5 
Cash Flows from (used for)    
Operating Activities 209.2  241.9 
Investing Activities (397.1) (631.2)
Financing Activities 188.1  381.9 
Change in Cash, Cash Equivalents and Restricted Cash 0.2  (7.4)
Cash, Cash Equivalents and Restricted Cash at End of Period $65.4  $85.1 

ALLETE, Inc. Third Quarter 2021 Form 10-Q
46


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

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, we had consolidated bank lines of credit aggregating $432.0 million ($407.0 million as of December 31, 2020), the majority of which expire in January 2024. We had $26.2 million outstanding in standby letters of credit and $25.2 million outstanding draws under our lines of credit as of September 30, 2021 ($22.3 million in standby letters of credit and no outstanding draws as of December 31, 2020). We also have other credit facility agreements in place that provide the ability to issue up to $100.0 million in standby letters of credit. As of September 30, 2021, we had $85.7 million outstanding in standby letters of credit under these agreements.

In addition, as of September 30, 2021, we had 3.2 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 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. 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, we issued 0.3 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 million (0.3 million shares were issued for the nine months ended September 30, 2020, resulting in net proceeds of $12.8 million).

For the nine months ended September 30, 2021, 0.2 million shares of common stock were issued under the agreement with Lampert Capital Markets, resulting in net proceeds of $16.4 million (no shares were issued for the nine months ended September 30, 2020).

Financial Covenants. See Note 5. 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. Pension and Other Postretirement Benefit Plans.)

Off-Balance Sheet Arrangements. Off-balance sheet arrangements are summarized in our 2020 Form 10-K, with additional disclosure in Note 6. Commitments, Guarantees and Contingencies.


ALLETE, Inc. Third Quarter 2021 Form 10-Q
47


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.

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

As a result of the sale of a portion of NTEC by South Shore Energy to Basin, the expected capital expenditures for NTEC by South Shore Energy for the years 2021 through 2025 are now expected to be approximately $140 million. (See Outlook – Corporate and Other – South Shore Energy.)


OTHER

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. (See Note 6. Commitments, Guarantees and Contingencies.)

Employees.

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

Minnesota Power and SWL&P have an aggregate of 468 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, for SWL&P.

BNI Energy has 175 employees, of which 129 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
48


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SECURITIES INVESTMENTS

Available-for-Sale Securities. As of September 30, 2021, 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).

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, an increase of 100 basis points in interest rates would impact the amount of pre-tax interest expense by $3.4 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.


ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of September 30, 2021, 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
49


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 Form 10-K and Note 2. Regulatory Matters and Note 6. Commitments, Guarantees and Contingencies herein. Such information is incorporated herein by reference.


ITEM 1A.  RISK FACTORS

Our 2020 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 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 contracts with customer and industrial (C&I) customers.

Unusual, adverse weather conditions or other natural events 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 wind energy facility 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 settles with the customer based on day-ahead electricity prices, while deliveries to the market are settled based on real-time electricity prices. This settlement provision can result in an adverse impact to the Company when market prices are extremely volatile as happened in February 2021 during an extreme winter weather event in the southwest United States. This winter weather event caused extreme volatility, with large differences in 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.


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 Form 10-Q
50


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.


ALLETE, Inc. Third Quarter 2021 Form 10-Q
51


ITEM 6.  EXHIBITS
Exhibit
Number
4
32
95
99
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 Form 10-Q
52


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   /s/ Robert J. Adams
    Robert J. Adams
    Senior Vice President and Chief Financial Officer
    (Principal Financial 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 Form 10-Q
53
Exhibit 4




ALLETE, Inc.
(formerly Minnesota Power & Light Company
and formerly Minnesota Power, Inc.)
TO
THE BANK OF NEW YORK MELLON
(formerly The Bank of New York
(formerly Irving Trust Company))
AND
Eva Waite
(successor to Richard H. West, J. A. Austin, E. J. McCabe, D. W. May, J. A. Vaughan, W. T. Cunningham, Douglas J. MacInnes, Ming Ryan, Philip L. Watson and Andres Serrano)
As Trustees under ALLETE, Inc.’s Mortgage and Deed of Trust dated as of September 1, 1945

Forty-second Supplemental Indenture
Providing, among other things, for

First Mortgage Bonds, 2.79% Series due September 1, 2031
(Sixty-second Series),



Dated as of September 1, 2021
{00454906.DOCX; 3}
Exhibit 4
FORTY-SECOND SUPPLEMENTAL INDENTURE
THIS INDENTURE, dated as of September 1, 2021, by and between ALLETE, Inc. (formerly Minnesota Power & Light Company and formerly Minnesota Power, Inc.), a corporation of the State of Minnesota, whose post office address is 30 West Superior Street, Duluth, Minnesota 55802 (hereinafter sometimes called the “Company”), and The Bank of New York Mellon (formerly The Bank of New York (formerly Irving Trust Company)), a corporation of the State of New York, whose post office address is 240 Greenwich Street, New York, New York 10286 (hereinafter sometimes called the “Corporate Trustee”), and Eva Waite (successor to Richard H. West, J. A. Austin, E. J. McCabe, D. W. May, J. A. Vaughan, W. T. Cunningham, Douglas J. MacInnes, Ming Ryan, Philip L. Watson and Andres Serrano), whose post office address is c/o The Bank of New York Mellon, 240 Greenwich Street, New York, New York 10286 (said Eva Waite being hereinafter sometimes called the “Co-Trustee” and the Corporate Trustee and the Co-Trustee being hereinafter together sometimes called the “Trustees”), as Trustees under the Mortgage and Deed of Trust, dated as of September 1, 1945, between the Company and Irving Trust Company and Richard H. West, as Trustees, securing bonds issued and to be issued as provided therein (hereinafter sometimes called the “Mortgage”), reference to which Mortgage is hereby made, this indenture (hereinafter sometimes called the “Forty-second Supplemental Indenture”) being supplemental thereto:
Whereas, the Mortgage was filed and recorded in various official records in the State of Minnesota; and
Whereas, an instrument, dated as of October 16, 1957, was executed and delivered under which J. A. Austin succeeded Richard H. West as Co-Trustee under the Mortgage, and such instrument was filed and recorded in various official records in the State of Minnesota; and
Whereas, an instrument, dated as of April 4, 1967, was executed and delivered under which E. J. McCabe in turn succeeded J. A. Austin as Co-Trustee under the Mortgage, and such instrument was filed and recorded in various official records in the State of Minnesota; and
Whereas, under the Sixth Supplemental Indenture, dated as of August 1, 1975, to which reference is hereinafter made, D. W. May in turn succeeded E. J. McCabe as Co-Trustee under the Mortgage; and
Whereas, an instrument, dated as of June 25, 1984, was executed and delivered under which J. A. Vaughan in turn succeeded D. W. May as Co-Trustee under the Mortgage, and such instrument was filed and recorded in various official records in the State of Minnesota; and
Whereas, an instrument, dated as of July 27, 1988, was executed and delivered under which W. T. Cunningham in turn succeeded J. A. Vaughan as Co-Trustee under the Mortgage, and such instrument was filed and recorded in various official records in the State of Minnesota; and
Whereas, on May 12, 1998, the Company filed Amended and Restated Articles of Incorporation with the Secretary of State of the State of Minnesota changing its name from Minnesota Power & Light Company to Minnesota Power, Inc. effective May 27, 1998; and
Whereas, an instrument, dated as of April 15, 1999, was executed and delivered under which Douglas J. MacInnes in turn succeeded W. T. Cunningham as Co-Trustee under the Mortgage, and such instrument was filed and recorded in various official records in the State of Minnesota; and
Whereas, on May 8, 2001, the Company filed Amended and Restated Articles of Incorporation with the Secretary of State of the State of Minnesota changing its name from Minnesota Power, Inc. to ALLETE, Inc.; and
2

Exhibit 4

Whereas, under the Thirty-second Supplemental Indenture, dated as of August 1, 2010, to which reference is hereinafter made, Ming Ryan in turn succeeded Douglas J. MacInnes as Co-Trustee under the Mortgage; and
Whereas, an instrument, dated as of August 1, 2012, was executed and delivered under which Philip L. Watson in turn succeeded Ming Ryan as Co-Trustee under the Mortgage effective at the close of business on August 6, 2012, and such instrument was filed and recorded in various official records in the State of Minnesota and the State of North Dakota; and
Whereas, an instrument, dated as of July 31, 2015, was executed and delivered under which Andres Serrano in turn succeeded Philip L. Watson as Co-Trustee under the Mortgage effective at the close of business on August 14, 2015, and such instrument was filed and recorded in various official records in the State of Minnesota and the State of North Dakota; and
Whereas, an instrument, dated as of July 29, 2021, was executed and delivered under which Eva Waite in turn succeeded Andres Serrano as Co-Trustee under the Mortgage effective at the close of business on July 29, 2021, and such instrument was filed and recorded in various official records in the State of Minnesota and the State of North Dakota; and
Whereas, by the Mortgage the Company covenanted, among other things, that it would execute and deliver such supplemental indenture or indentures and such further instruments and do such further acts as might be necessary or proper to carry out more effectually the purposes of the Mortgage and to make subject to the lien of the Mortgage any property thereafter acquired and intended to be subject to the lien thereof; and
Whereas, for said purposes, among others, the Company executed and delivered the following indentures supplemental to the Mortgage:
3
Exhibit 4

Designation
Dated as of
First Supplemental Indenture March 1, 1949
Second Supplemental Indenture July 1, 1951
Third Supplemental Indenture March 1, 1957
Fourth Supplemental Indenture January 1, 1968
Fifth Supplemental Indenture April 1, 1971
Sixth Supplemental Indenture August 1, 1975
Seventh Supplemental Indenture September 1, 1976
Eighth Supplemental Indenture September 1, 1977
Ninth Supplemental Indenture April 1, 1978
Tenth Supplemental Indenture August 1, 1978
Eleventh Supplemental Indenture December 1, 1982
Twelfth Supplemental Indenture April 1, 1987
Thirteenth Supplemental Indenture March 1, 1992
Fourteenth Supplemental Indenture June 1, 1992
Fifteenth Supplemental Indenture July 1, 1992
Sixteenth Supplemental Indenture July 1, 1992
Seventeenth Supplemental Indenture February 1, 1993
Eighteenth Supplemental Indenture July 1, 1993
Nineteenth Supplemental Indenture February 1, 1997
Twentieth Supplemental Indenture November 1, 1997
Twenty-first Supplemental Indenture October 1, 2000
Twenty-second Supplemental Indenture July 1, 2003
Twenty-third Supplemental Indenture August 1, 2004
Twenty-fourth Supplemental Indenture March 1, 2005
Twenty-fifth Supplemental Indenture December 1, 2005
Twenty-sixth Supplemental Indenture October 1, 2006
Twenty-seventh Supplemental Indenture February 1, 2008
Twenty-eighth Supplemental Indenture May 1, 2008
Twenty-ninth Supplemental Indenture November 1, 2008
Thirtieth Supplemental Indenture January 1, 2009
Thirty-first Supplemental Indenture February 1, 2010
Thirty-second Supplemental Indenture August 1, 2010
Thirty-third Supplemental Indenture July 1, 2012
Thirty-fourth Supplemental Indenture April 1, 2013
Thirty-fifth Supplemental Indenture March 1, 2014
Thirty-sixth Supplemental Indenture June 1, 2014
Thirty-seventh Supplemental Indenture September 1, 2014
Thirty-eighth Supplemental Indenture    
Thirty-ninth Supplemental Indenture    
Fortieth Supplemental Indenture    
Forty-first Supplemental Indenture    
September 1, 2015
April 1, 2018
March 1, 2019
August 1, 2020
which supplemental indentures were filed and recorded in various official records in the State of Minnesota and the State of North Dakota; and
Whereas, the Company has heretofore issued, in accordance with the provisions of the Mortgage, as heretofore supplemented, the following series of First Mortgage Bonds:
4
Exhibit 4

Series
Principal
Amount
  Issued  
Principal
Amount
Outstanding
3-1/8% Series due 1975 $26,000,000 None
3-1/8% Series due 1979 4,000,000 None
3-5/8% Series due 1981 10,000,000 None
4-3/4% Series due 1987 12,000,000 None
6-1/2% Series due 1998 18,000,000 None
81/8% Series due 2001 23,000,000 None
101/2% Series due 2005 35,000,000 None
8.70% Series due 2006 35,000,000 None
8.35% Series due 2007 50,000,000 None
9-1/4% Series due 2008 50,000,000 None
Pollution Control Series A 111,000,000 None
Industrial Development Series A 2,500,000 None
Industrial Development Series B 1,800,000 None
Industrial Development Series C 1,150,000 None
Pollution Control Series B 13,500,000 None
Pollution Control Series C 2,000,000 None
Pollution Control Series D 3,600,000 None
7-3/4% Series due 1994 55,000,000 None
7-3/8% Series due March 1, 1997 60,000,000 None
7-3/4% Series due June 1, 2007 55,000,000 None
7-1/2% Series due August 1, 2007 35,000,000 None
Pollution Control Series E 111,000,000 None
7% Series due March 1, 2008 50,000,000 None
6-1/4% Series due July 1, 2003 25,000,000 None
7% Series due February 15, 2007 60,000,000 None
6.68% Series due November 15, 2007 20,000,000 None
Floating Rate Series due October 20, 2003 250,000,000 None
Collateral Series A 255,000,000 None
Pollution Control Series F 111,000,000 None
5.28% Series due August 1, 2020 35,000,000 None
5.69% Series due March 1, 2036 50,000,000 50,000,000
5.99% Series due February 1, 2027 60,000,000 60,000,000
4.86% Series due April 1, 2013 60,000,000 None
6.02% Series due May 1, 2023 75,000,000 75,000,000
6.94% Series due January 15, 2014 18,000,000 None
7.70% Series due January 15, 2016 20,000,000 None
8.17% Series due January 15, 2019 42,000,000 None
4.85% Series due April 15, 2021 15,000,000 None
5.10% Series due April 15, 2025 30,000,000 30,000,000
6.00% Series due April 15, 2040 35,000,000 35,000,000
4.90% Series due October 15, 2025 30,000,000 30,000,000
5.82% Series due April 15, 2040 45,000,000 45,000,000
3.20% Series due July 15, 2026 75,000,000 75,000,000
4.08% Series due July 15, 2042 85,000,000 85,000,000
1.83% Series due April 15, 2018 50,000,000 None
3.30% Series due October 15, 2028 40,000,000 40,000,000
5
Exhibit 4

4.21% Series due October 15, 2043 60,000,000 60,000,000
3.69% Series due March 15, 2024 60,000,000 60,000,000
4.95% Series due March 15, 2044 40,000,000 40,000,000
3.40% Series due July 15, 2022 75,000,000 75,000,000
5.05% Series due July 15, 2044 40,000,000 40,000,000
3.02% Series due September 15, 2021 60,000,000 60,000,000
3.74% Series due September 15, 2029 50,000,000 50,000,000
4.39% Series due September 15, 2044 50,000,000 50,000,000
2.80% Series due September 15, 2020 40,000,000 None
3.86% Series due September 16, 2030    
4.07% Series due April 16, 2048    
4.08% Series due March 1, 2029    
4.47% Series due March 1, 2049    
2.50% Series due August 1, 2030    
3.30% Series due August 1, 2050    
60,000,000
60,000,000
70,000,000
30,000,000
46,000,000
94,000,000
60,000,000
60,000,000
70,000,000
30,000,000
46,000,000
94,000,000
which bonds are also hereinafter sometimes called bonds of the First through Sixty-first Series, respectively; and
Whereas, Section 8 of the Mortgage provides that the form of each series of bonds (other than the First Series) issued thereunder and of coupons to be attached to coupon bonds of such series shall be established by Resolution of the Board of Directors of the Company and that the form of such series, as established by said Board of Directors, shall specify the descriptive title of the bonds and various other terms thereof, and may also contain such provisions not inconsistent with the provisions of the Mortgage as the Board of Directors may, in its discretion, cause to be inserted therein expressing or referring to the terms and conditions upon which such bonds are to be issued and/or secured under the Mortgage; and
Whereas, Section 120 of the Mortgage provides, among other things, that any power, privilege or right expressly or impliedly reserved to or in any way conferred upon the Company by any provision of the Mortgage, whether such power, privilege or right is in any way restricted or is unrestricted, may (to the extent permitted by law) be in whole or in part waived or surrendered or subjected to any restriction if at the time unrestricted or to additional restriction if already restricted, and the Company may enter into any further covenants, limitations or restrictions for the benefit of any one or more series of bonds issued thereunder, or the Company may cure any ambiguity contained therein, or in any supplemental indenture, or may establish the terms and provisions of any series of bonds (other than said First Series) by an instrument in writing executed and acknowledged by the Company in such manner as would be necessary to entitle a conveyance of real estate to record in all of the states in which any property at the time subject to the lien of the Mortgage shall be situated; and
Whereas, the Company now desires to create one new series of bonds and (pursuant to the provisions of Section 120 of the Mortgage) to add to its covenants and agreements contained in the Mortgage, as heretofore supplemented, certain other covenants and agreements to be observed by it and to alter and amend in certain respects the covenants and provisions contained in the Mortgage, as heretofore supplemented; and
Whereas, the execution and delivery by the Company of this Forty-second Supplemental Indenture, and the terms of the bonds of the Sixty-second Series, hereinafter referred to, have been duly
6
Exhibit 4

authorized by the Board of Directors of the Company by appropriate resolutions of said Board of Directors;
Now, Therefore, This Indenture Witnesseth:
That the Company, in consideration of the premises and of One Dollar to it duly paid by the Trustees at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in further evidence of assurance of the estate, title and rights of the Trustees and in order further to secure the payment of both the principal of and interest and premium, if any, on the bonds from time to time issued under the Mortgage, as heretofore supplemented, according to their tenor and effect and the performance of all the provisions of the Mortgage (including any instruments supplemental thereto and any modification made as in the Mortgage provided) and of said bonds, hereby grants, bargains, sells, releases, conveys, assigns, transfers, mortgages, pledges, sets over and confirms (subject, however, to Excepted Encumbrances) unto The Bank of New York Mellon and Eva Waite, as Trustees under the Mortgage, and to their successor or successors in said trust, and to said Trustees and their successors and assigns forever, all property, real, personal and mixed, of the kind or nature specifically mentioned in the Mortgage, as heretofore supplemented, or of any other kind or nature acquired by the Company after the date of the execution and delivery of the Mortgage, as heretofore supplemented (except any herein or in the Mortgage, as heretofore supplemented, expressly excepted), now owned or, subject to the provisions of subsection (I) of Section 87 of the Mortgage, hereafter acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) and wheresoever situated, including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing or of any general description contained in this Forty-second Supplemental Indenture) all lands, power sites, flowage rights, water rights, water locations, water appropriations, ditches, flumes, reservoirs, reservoir sites, canals, raceways, dams, dam sites, aqueducts, and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity by steam, water and/or other power; all power houses, gas plants, street lighting systems, standards and other equipment incidental thereto, telephone, radio and television systems, air-conditioning systems and equipment incidental thereto, water works, water systems, steam heat and hot water plants, substations, lines, service and supply systems, bridges, culverts, tracks, ice or refrigeration plants and equipment, offices, buildings and other structures and the equipment thereof; all machinery, engines, boilers, dynamos, electric, gas and other machines, regulators, meters, transformers, generators, motors, electrical, gas and mechanical appliances, conduits, cables, water, steam heat, gas or other pipes, gas mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, wires, cables, tools, implements, apparatus, furniture and chattels; all municipal and other franchises, consents or permits; all lines for the transmission and distribution of electric current, gas, steam heat or water for any purpose including towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith; all real estate, lands, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to real estate or the occupancy of the same and (except as herein or in the Mortgage, as heretofore supplemented, expressly excepted) all the right, title and interest of the Company in and to all other property of any kind or nature appertaining to and/or used and/or occupied and/or enjoyed in connection with any property hereinbefore or in the Mortgage, as heretofore supplemented, described.
Together with all and singular the tenements, hereditaments, prescriptions, servitudes and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and (subject to the provisions of Section 57 of the Mortgage) the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, which the Company now
7
Exhibit 4

has or may hereafter acquire in and to the aforesaid property and franchises and every part and parcel thereof.
It is hereby agreed by the Company that, subject to the provisions of subsection (I) of Section 87 of the Mortgage, all the property, rights, and franchises acquired by the Company (by purchase, consolidation, merger, donation, construction, erection or in any other way) after the date hereof, except any herein or in the Mortgage, as heretofore supplemented, expressly excepted, shall be and are as fully granted and conveyed hereby and by the Mortgage and as fully embraced within the lien hereof and the lien of the Mortgage as if such property, rights and franchises were now owned by the Company and were specifically described herein or in the Mortgage and conveyed hereby or thereby.
Provided that the following are not and are not intended to be now or hereafter granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, hypothecated, affected, pledged, set over or confirmed hereunder and are hereby expressly excepted from the lien and operation of this Forty-second Supplemental Indenture and from the lien and operation of the Mortgage, namely: (1) cash, shares of stock, bonds, notes and other obligations and other securities not hereafter specifically pledged, paid, deposited, delivered or held under the Mortgage or covenanted so to be; (2) merchandise, equipment, apparatus, materials or supplies held for the purpose of sale or other disposition in the usual course of business; fuel, oil and similar materials and supplies consumable in the operation of any of the properties of the Company; all aircraft, rolling stock, trolley coaches, buses, motor coaches, automobiles and other vehicles and materials and supplies held for the purpose of repairing or replacing (in whole or part) any of the same; all timber, minerals, mineral rights and royalties; (3) bills, notes and accounts receivable, judgments, demands and choses in action, and all contracts, leases and operating agreements not specifically pledged under the Mortgage or covenanted so to be; the Company’s contractual rights or other interest in or with respect to tires not owned by the Company; (4) the last day of the term of any lease or leasehold which may hereafter become subject to the lien of the Mortgage; (5) electric energy, gas, steam, ice, and other materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course of its business; (6) the Company’s franchise to be a corporation; and (7) any property heretofore released pursuant to any provisions of the Mortgage; provided, however, that the property and rights expressly excepted from the lien and operation of this Forty-second Supplemental Indenture and from the lien and operation of the Mortgage in the above subdivisions (2) and (3) shall (to the extent permitted by law) cease to be so excepted in the event and as of the date that either or both of the Trustees or a receiver or trustee shall enter upon and take possession of the Mortgaged and Pledged Property in the manner provided in Article XIII of the Mortgage by reason of the occurrence of a Default as defined in Section 65 thereof.
To have and to hold all such properties, real, personal and mixed, granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged, pledged, set over or confirmed by the Company as aforesaid, or intended so to be, unto the Trustees and their successors and assigns forever.
In trust nevertheless, for the same purposes and upon the same terms, trusts and conditions and subject to and with the same provisos and covenants as are set forth in the Mortgage, as supplemented, this Forty-second Supplemental Indenture being supplemental thereto.
And it is hereby covenanted by the Company that all the terms, conditions, provisos, covenants and provisions contained in the Mortgage, as heretofore supplemented, shall affect and apply to the property hereinbefore described and conveyed and to the estate, rights, obligations and duties of the Company and Trustees and the beneficiaries of the trust with respect to said property, and to the Trustees and their successors in the trust in the same manner and with the same effect as if said property had been
8
Exhibit 4

owned by the Company at the time of the execution of the Mortgage, and had been specifically and at length described in and conveyed to said Trustees by the Mortgage as a part of the property therein stated to be conveyed.
The Company further covenants and agrees to and with the Trustees and their successors in said trust under the Mortgage as follows:
ARTICLE I
Sixty-second Series of Bonds
Section 1. There shall be a series of bonds designated “2.79% Series due September 1, 2031” (herein sometimes referred to as the “Sixty-second Series”), each of which shall also bear the descriptive title “First Mortgage Bond”, and the form thereof, which shall be established by Resolution of the Board of Directors of the Company, shall contain suitable provisions with respect to the matters hereinafter in this Section specified. Bonds of the Sixty-second Series shall be dated as in Section 10 of the Mortgage provided, mature on September 1, 2031 (the “Sixty-second Series Stated Maturity”), be issued as fully registered bonds in denominations of One Thousand Dollars and, at the option of the Company, in any multiple or multiples of One Thousand Dollars (the exercise of such option to be evidenced by the execution and delivery thereof) and bear interest from September 1, 2021 (computed on the basis of a 360-day year of twelve thirty-day months) at the rate of 2.79% per annum, payable semi-annually on March 1 and September 1 of each year, commencing March 1, 2022, the principal of and interest on each said bond to be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for public and private debts.
Any payment of principal of or interest on any bond of the Sixty-second Series that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day; provided that if the maturity date of any such bond of the Sixty-second Series is a date other than a Business Day, the payment otherwise due on such maturity date shall be made on the next succeeding Business Day and shall include the additional days elapsed in the computation of interest payable on such next succeeding Business Day.
(I)    Optional Prepayment. At any time prior to June 1, 2031 (three months prior to the Sixty-second Series Stated Maturity) the Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the bonds of the Sixty-second Series at 100% of the principal amount so prepaid, and the Make-Whole Amount determined for the Settlement Date specified by the Company in such notice with respect to such principal amount. The Company will give each registered owner of bonds of the Sixty-second Series written notice (by first class mail or such other method as may be agreed upon by the Company and such registered owner) of each optional prepayment under this subsection (I) mailed or otherwise given not less than 30 days and not more than 60 days prior to the date fixed for such prepayment, to each such registered owner at his, her or its last address appearing on the registry books. Each such notice shall specify the Settlement Date (which shall be a Business Day), the aggregate principal amount of the bonds of the Sixty-second Series to be prepaid on such date, the principal amount of each bond held by such registered owner to be prepaid (determined in accordance with subsection (II) of this section), and the interest to be paid on the Settlement Date with respect to such principal amount being prepaid, and shall be accompanied by a certificate signed by a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such
9
Exhibit 4

prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such Settlement Date, the Company shall send to each registered owner of bonds of the Sixty-second Series (by first class mail or by such other method as may be agreed upon by the Company and such registered owner) a certificate signed by a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified Settlement Date. As promptly as practicable after the giving of the notice and the sending of the certificates provided in this subsection, the Company shall provide a copy of each to the Corporate Trustee. The Trustees shall be under no duty to inquire into, may conclusively presume the correctness of, and shall be fully protected in relying upon the information set forth in any such notice or certificate.
At any time on or after June 1, 2031, the bonds of the Sixty-second Series will be redeemable at the option of the Company, in whole or in part, on not less than 30 nor more than 60 days’ notice prior to the Settlement Date, at a redemption price equal to 100% of the principal amount of the bonds of the Sixty-second Series to be redeemed, plus accrued and unpaid interest thereon to the Settlement Date.
The bonds of the Sixty-second Series are not otherwise subject to voluntary or optional prepayment.
    (II)    Allocation of Partial Prepayments. In the case of each partial prepayment of the bonds of the Sixty-second Series, the principal amount of the bonds of the Sixty-second Series to be prepaid shall be allocated by the Company among all of the bonds of the Sixty-second Series at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment.
    (III)     Maturity; Surrender, Etc.     In the case of each notice of prepayment of bonds of the Sixty-second Series pursuant to this section, if cash sufficient to pay the principal amount to be prepaid on the Settlement Date (which shall be a Business Day), together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any, is not paid as agreed upon by the Company and each registered owner of the affected bonds, or, to the extent that there is no such agreement entered into with one or more such owners, deposited with the Corporate Trustee on or before the Settlement Date, then such notice of prepayment shall be of no effect. If such cash is so paid or deposited, such principal amount of the bonds of the Sixty-second Series shall be deemed paid for all purposes and interest on such principal amount shall cease to accrue. In case the Company pays any registered owner pursuant to an agreement with that registered owner, the Company shall notify the Corporate Trustee as promptly as practicable of such agreement and payment, and shall furnish the Corporate Trustee with a copy of such agreement; in case the Company deposits any cash with the Corporate Trustee, the Company shall provide therewith a list of the registered owners and the amount of such cash each registered owner is to receive. The Trustees shall be under no duty to inquire into, may conclusively presume the correctness of, and shall be fully protected in relying upon the information set forth in any such notice, list or agreement, and shall not be chargeable with knowledge of any of the contents of any such agreement. Any bond prepaid in full shall be surrendered to the Company or the Corporate Trustee for cancellation on or before the Settlement Date or, with respect to cash deposited with the Corporate Trustee, before payment of such cash by the Corporate Trustee; any bond prepaid in part shall be surrendered to the Company or the Corporate Trustee on or before the Settlement Date (unless otherwise agreed between the Company and the registered owner) or, with respect to cash deposited with the Corporate Trustee before payment of such cash by the Corporate Trustee, for a substitute bond in the principal amount remaining unpaid.
10
Exhibit 4

    (IV)    Make-Whole Amount.
The term “Make-Whole Amount” means, with respect to any bond of the Sixty-second Series, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such bond of the Sixty-second Series over the amount of such Called Principal, provided that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings:
“Business Day” means any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed.
“Called Principal” means, with respect to any bond of the Sixty-second Series, the principal of such bond that is to be prepaid pursuant to subsection (I) of this section.
“Discounted Value” means, with respect to the Called Principal of any bond of the Sixty-second Series, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the bonds of the Sixty-second Series is payable) equal to the Reinvestment Yield with respect to such Called Principal.
“Reinvestment Yield” means, with respect to the Called Principal of any bond of the Sixty-second Series, the sum of (a) 0.50% plus (b) the yield to maturity implied by the “Ask Yield(s)” reported as of 10:00 a.m. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as “Page PX1” (or such other display as may replace Page PX1) on Bloomberg Financial Markets for the most recently issued actively traded on-the-run benchmark U.S. Treasury securities (“Reported”) having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. If there are no such U.S. Treasury securities Reported having a maturity equal to such Remaining Average Life, then such implied yield to maturity will be determined by (i) converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted financial practice and (ii) interpolating linearly between the “Ask Yields” Reported for the applicable most recently issued actively traded on-the-run benchmark U.S. Treasury securities with the maturities (1) closest to and greater than such Remaining Average Life and (2) closest to and less than such Remaining Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears in the interest rate of the applicable bond of the Sixty-second Series.
If such yields are not Reported or the yields Reported as of such time are not ascertainable (including by way of interpolation), then “Reinvestment Yield” means, with respect to the Called Principal of any bond of the Sixty-second Series, the sum of (x) 0.50% plus (y) the yield to maturity implied by the U.S. Treasury constant maturity yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (or any comparable successor publication) for the U.S. Treasury constant maturity having a term equal to the Remaining Average Life of such Called Principal as of such Settlement Date. If there is no such U.S. Treasury constant maturity having a term equal to such Remaining Average Life, such implied yield to maturity will be determined by interpolating linearly between (1) the U.S. Treasury constant maturity so reported with the term closest to and greater than such Remaining Average Life and (2) the U.S. Treasury constant maturity so reported with the term closest to and less than such Remaining Average Life. The Reinvestment Yield shall be
11
Exhibit 4

rounded to the number of decimal places as appears in the interest rate of the applicable bond of the Sixty-second Series.
“Remaining Average Life” means, with respect to any Called Principal, the number of years obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years, computed on the basis of a 360-day year comprised of twelve 30-day months and calculated to two decimal places, that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled.
“Remaining Scheduled Payments” means, with respect to the Called Principal of any Bond of the Sixty-second Series, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the bonds of the Sixty-second Series, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to subsection (I) of this section.
“Settlement Date” means, with respect to the Called Principal of any Bond of the Sixty-second Series, the date on which such Called Principal is to be prepaid pursuant to subsection (I) of this section.
“Senior Financial Officer” means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company.
(V)    At the option of the registered owner, any bonds of the Sixty-second Series, upon surrender thereof for cancellation at the office or agency of the Company in the Borough of Manhattan, The City of New York, together with a written instrument of transfer wherever required by the Company duly executed by the registered owner or by his duly authorized attorney, shall (subject to the provisions of Section 12 of the Mortgage) be exchangeable for a like aggregate unpaid principal amount of bonds of the same series of other authorized denominations.
Bonds of the Sixty-second Series shall be transferable (subject to the provisions of Section 12 of the Mortgage) at the office or agency of the Company in the Borough of Manhattan, The City of New York. The Company shall not be required to make transfers or exchanges of bonds of the Sixty-second Series for a period of ten (10) days next preceding any interest payment date for bonds of such series, or next preceding any designation of bonds of said series to be prepaid, and the Company shall not be required to make transfers or exchanges of any bonds of said series designated in whole or in part for prepayment.
Upon any exchange or transfer of bonds of the Sixty-second Series, the Company may make a charge therefor sufficient to reimburse it for any tax or taxes or other governmental charge, as provided in Section 12 of the Mortgage, but the Company hereby waives any right to make a charge in addition thereto for any exchange or transfer of bonds of the Sixty-second Series.
After the delivery of this Forty-second Supplemental Indenture and upon compliance with the applicable provisions of the Mortgage and receipt of consideration therefor by the Company, there shall be an initial issue of bonds of the Sixty-second Series for the aggregate principal amount of $100,000,000.


12
Exhibit 4

ARTICLE II
Consent to Amendments


Section 1.  Consent to Amendments  Each initial and future holder of bonds of the Sixty-second Series, by its acquisition of an interest in such bonds, irrevocably (a) consents to the amendments set forth in Article IV of the Thirty-first Supplemental Indenture, dated as of February 1, 2010, without any other or further action by any holder of such bonds, and (b) designates the Corporate Trustee, and its successors, as its proxy with irrevocable instructions to vote and deliver written consents on behalf of such holder in favor of such amendments at any bondholder meeting, in lieu of any bondholder meeting, in any consent solicitation or otherwise.

ARTICLE III
Reservation of Right to Amend Sections 35(a) and 101 of the Mortgage

Section 1. The Company reserves the right, without any vote, consent or other action by the holders of bonds of the Sixty-second Series, or any subsequent series, to amend the Mortgage, as herein or heretofore supplemented as follows:
        (A) By deleting from Section 35(a) the phrase “having its principal office and place of business in the Borough of Manhattan, The City of New York” and the word “such” at the location in said Section 35(a) at which such word first appears.
        (B) By adding the following at the end of the first sentence of Section 101:
“; provided however, that if all of the bonds at that time Outstanding are registered as to principal and interest or as to principal only, such notice shall be sufficiently given if mailed, postage prepaid to each such registered owner of bonds at his/her last address appearing on the registry books, on or before the date of on which the first publication of such notice would otherwise have been required.”
ARTICLE IV
Miscellaneous Provisions
Section 1. Section 126 of the Mortgage, as heretofore amended, is hereby further amended by adding the words “and September 1, 2031” after the words “and August 1, 2030 and August 1, 2050.”
Section 2. Subject to the amendments provided for in this Forty-second Supplemental Indenture, the terms defined in the Mortgage, as heretofore supplemented, shall, for all purposes of this Forty-second Supplemental Indenture, have the meanings specified in the Mortgage, as heretofore supplemented.
Section 3. The holders of bonds of the Sixty-second Series consent that the Company may, but shall not be obligated to, fix a record date for the purpose of determining the holders of bonds of the Sixty-second Series entitled to consent to any amendment, supplement or waiver. If a record date is fixed, those persons who were holders at such record date (or their duly designated proxies), and only
13
Exhibit 4

those persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date.
Section 4. The Trustees hereby accept the trusts herein declared, provided, created or supplemented and agree to perform the same upon the terms and conditions herein and in the Mortgage set forth and upon the following terms and conditions:
The Trustees shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Forty-second Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. In general, each and every term and condition contained in Article XVII of the Mortgage shall apply to and form part of this Forty-second Supplemental Indenture with the same force and effect as if the same were herein set forth in full with such omissions, variations and insertions, if any, as may be appropriate to make the same conform to the provisions of this Forty-second Supplemental Indenture.
Section 5. Whenever in this Forty-second Supplemental Indenture any party hereto is named or referred to, this shall, subject to the provisions of Articles XVI and XVII of the Mortgage, as heretofore supplemented, be deemed to include the successors or assigns of such party, and all the covenants and agreements in this Forty-second Supplemental Indenture contained by or on behalf of the Company, or by or on behalf of the Trustees shall, subject as aforesaid, bind and inure to the benefit of the respective successors and assigns of such party whether so expressed or not.
Section 6. Nothing in this Forty-second Supplemental Indenture, expressed or implied, is intended, or shall be construed, to confer upon, or give to, any person, firm or corporation, other than the parties hereto and the holders of the bonds and coupons Outstanding under the Mortgage, any right, remedy, or claim under or by reason of this Forty-second Supplemental Indenture or any covenant, condition, stipulation, promise or agreement hereof, and all the covenants, conditions, stipulations, promises and agreements in this Forty-second Supplemental Indenture contained by and on behalf of the Company shall be for the sole and exclusive benefit of the parties hereto, and of the holders of the bonds and of the coupons Outstanding under the Mortgage.
Section 7. This Forty-second Supplemental Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
Section 8. The Company, the mortgagor named herein, by its execution hereof acknowledges receipt of a full, true and complete copy of this Forty-second Supplemental Indenture.
14
Exhibit 4
In witness whereof, ALLETE, Inc. has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by its President, one of its Vice Presidents, or its Treasurer, and its corporate seal to be attested by its Secretary or one of its Assistant Secretaries for and in its behalf, all in the City of Duluth, Minnesota, and The Bank of New York Mellon has caused its corporate name to be hereunto affixed, and this instrument to be signed by one of its Vice Presidents or one of its Assistant Vice Presidents, and Eva Waite has hereunto set her hand, all in The City of New York, as of the day and year first above written.
ALLETE, Inc.
By    
Patrick L. Cutshall
Vice President and Corporate Treasurer


Attest:
    
Margaret A. Thickens
Vice President, Chief Legal Officer
and Corporate Secretary






Trustees’ Signature Pages Follow

{00454906.DOCX; 3}    15
Exhibit 4



The Bank of New York Mellon,
as Trustee

By    
Rick Fierro
Vice President

























Forty-second Supplemental Indenture dated as of September 1, 2021
to Mortgage and Deed of Trust dated as of September 1, 1945



16
Exhibit 4

Corporate Trustee’s Signature Page
    
    Eva Waite







































Forty-second Supplemental Indenture dated as of September 1, 2021
to Mortgage and Deed of Trust dated as of September 1, 1945



17

Exhibit 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


I, Bethany M. Owen, of ALLETE, Inc. (ALLETE), certify that:

1.I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2021, of ALLETE;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 4, 2021 /s/ Bethany M. Owen
Bethany M. Owen
Chair, President and Chief Executive Officer
 




Exhibit 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


I, Robert J. Adams, of ALLETE, Inc. (ALLETE), certify that:

1.I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2021, of ALLETE;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): 
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 4, 2021 /s/ Robert J. Adams
Robert J. Adams
Senior Vice President and Chief Financial Officer
 



Exhibit 32


Section 1350 Certification of Periodic Report
By the Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, each of the undersigned officers of ALLETE, Inc. (ALLETE), does hereby certify that:

1.The Quarterly Report on Form 10-Q of ALLETE for the period ended September 30, 2021, (Report) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of ALLETE.
 

November 4, 2021
/s/ Bethany M. Owen
Bethany M. Owen
Chair, President and Chief Executive Officer
 


November 4, 2021
/s/ Robert J. Adams
Robert J. Adams
Senior Vice President and Chief Financial Officer
 


This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability pursuant to that section. Such certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that ALLETE specifically incorporates it by reference.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to ALLETE and will be retained by ALLETE and furnished to the Securities and Exchange Commission or its staff upon request.


Exhibit 95

Mine Safety Disclosure
Mine or Operating Name/MSHA Identification Number Section 104 S&S Citations (#) Section 104(b) Orders (#) Section 104(d) Citations and Orders (#) Section 110(b)(2) Violations (#) Section 107(a) Orders (#) Total Dollar Value of MSHA Assessments Proposed ($) Total Number of Mining Related Fatalities (#) Received Notice of Pattern of Violation Under Section 104(e) (yes/no) Received Notice of Potential to Have Pattern Under Section 104(e) (yes/no) Legal Actions Pending as of Last Day of Period (#) Legal Actions Initiated During Period (#) Legal Actions Resolved During Period (#)
Center Mine / 3200218 — — — — — — — No No — — —
For the nine months ended September 30, 2021, BNI Energy, owner of Center Mine, received six citations under Section 104(a) of the Mine Safety Act, none were significant and substantial (S&S) citations. For the nine months ended September 30, 2021, BNI Energy paid $1,103 in penalties for citations closed during the period. For the nine months ended September 30, 2021, there were no citations, orders, violations or notices under Sections 104(b), 104(d), 107(a), 104(e) or 110(b)(2) of the Mine Safety Act and there were no fatalities.








LOGOALLETE201510KA14.JPG
Exhibit 99
For Release: November 4, 2021
Investor Contact: Vince Meyer
218-723-3952
NEWS vmeyer@allete.com
ALLETE, Inc. reports third quarter earnings of 53 cents
Reaffirms 2021 earnings guidance range
DULUTH, Minn. - ALLETE, Inc. (NYSE: ALE) today reported third quarter 2021 earnings of 53 cents per share on net income of $27.6 million. Last year’s results were 78 cents per share on net income of $40.7 million.

“ALLETE is making significant progress on strategic initiatives, which will result in future earnings growth, driven by improved returns at our businesses and from our ongoing transformation to cleaner energy,” said ALLETE Chair, President and CEO Bethany Owen. “We are excited about the future as all of our ALLETE businesses execute ALLETE’s sustainability in action strategy, including Minnesota Power’s vision to provide carbon-free energy by 2050 and ALLETE Clean Energy’s strategy to expand beyond wind, enabling its customers to achieve their sustainability goals.”

ALLETE’s Regulated Operations segment, which includes Minnesota Power, Superior Water, Light and Power and the Company’s investment in the American Transmission Co., recorded net income of $32.9 million, compared to $42.4 million in the third quarter of 2020. Third quarter 2021 earnings reflect lower net income at Minnesota Power primarily due to increased operating and maintenance expense, higher property taxes and negative timing impacts related to the recording of income tax expense compared to 2020, which vary quarter to quarter based on an estimated annual effective tax rate and are expected to reverse during the fourth quarter. Results from 2021 also reflect higher kilowatt-hour sales to residential, commercial and municipal customers, and higher industrial customer margins, partially offset by lower revenue from the idled Verso paper facility.

ALLETE Clean Energy recorded a third quarter 2021 net loss of $800,000 compared to net income of $1.1 million in 2020. Net income in 2021 reflects lower wind resources and availability.

Corporate and Other, which includes BNI Energy and ALLETE Properties, recorded a third quarter net loss of $4.5 million in 2021 compared to a net loss of $2.8 million in 2020. The increased net loss is primarily due to higher expenses.

“Our consolidated financial results are as expected for the quarter,” said ALLETE Senior Vice President and Chief Financial Officer Bob Adams. “ALLETE’s 2021 full year results are anticipated to be in the range of $3.00 to $3.30 per share, on a consolidated basis, transitioning to increased earnings in 2022 and beyond.”

Live Webcast on November 4, 2021; conference call slides posted on company website

ALLETE’s earnings conference call will be at 10:00 a.m. (EST), November 4, 2021, at which time management will discuss the third quarter of 2021 financial results. Interested parties may listen live by calling 877-303-5852, pass code 8090438, ten minutes prior to the start time, or may listen to the live audio-only webcast and view supporting slides, which will be available on ALLETE’s Investor Relations website http://investor.allete.com/events-presentations. A replay of the call will be available through November 11, 2021 by calling (855) 859-2056, pass code 8090438. The webcast will be accessible for one year at www.allete.com.


Page 1 of 4
ALLETE · 30 West Superior Street, Duluth, Minnesota 55802


ALLETE is an energy company headquartered in Duluth, Minn. In addition to its electric utilities, Minnesota Power and Superior Water, Light and Power of Wisconsin, ALLETE owns ALLETE Clean Energy, based in Duluth, BNI Energy in Bismarck, N.D., and has an eight percent equity interest in the American Transmission Co. More information about ALLETE is available at www.allete.com. ALE-CORP

The statements contained in this release and statements that ALLETE may make orally in connection with this release that are not historical facts, are forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties and investors are directed to the risks discussed in documents filed by ALLETE with the Securities and Exchange Commission.

ALLETE's press releases and other communications may include certain non-Generally Accepted Accounting Principles (GAAP) financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP in the company's financial statements.

Non-GAAP financial measures utilized by the company include presentations of earnings (loss) per share. ALLETE's management believes that these non-GAAP financial measures provide useful information to investors by removing the effect of variances in GAAP reported results of operations that are not indicative of changes in the fundamental earnings power of the company's operations, such as the charge for the recent Minnesota Power rate case resolution. Management believes that the presentation of non-GAAP financial measures is appropriate and enables investors and analysts to more accurately compare the company's ongoing financial performance over the periods presented. See page 4 in this release for a reconciliation of 2020 annual GAAP earnings guidance range to 2020 annual adjusted earnings guidance range (Non-GAAP).



















Page 2 of 4
ALLETE · 30 West Superior Street, Duluth, Minnesota 55802


ALLETE, Inc.
Consolidated Statement of Income
Millions Except Per Share Amounts - Unaudited
Quarter Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Operating Revenue
Contracts with Customers – Utility $304.8  $255.1  $888.2  $721.2 
Contracts with Customers – Non-utility 37.7  35.9  123.4  119.0 
Other – Non-utility 2.9  2.9  8.6  8.5 
Total Operating Revenue 345.4  293.9  1,020.2  848.7 
Operating Expenses
Fuel, Purchased Power and Gas – Utility 140.1  93.4  389.4  251.7 
Transmission Services – Utility 19.2  14.9  56.1  49.8 
Cost of Sales – Non-utility 15.2  15.4  47.8  48.6 
Operating and Maintenance 66.7  61.9  200.1  181.9 
Depreciation and Amortization 57.5  53.4  173.4  161.3 
Taxes Other than Income Taxes 15.6  13.3  52.1  40.9 
Total Operating Expenses 314.3  252.3  918.9  734.2 
Operating Income 31.1  41.6  101.3  114.5 
Other Income (Expense)    
Interest Expense (17.3) (16.3) (51.8) (47.9)
Equity Earnings 4.4  5.1  14.3  16.7 
Other 1.0  2.9  6.1  9.1 
Total Other Expense (11.9) (8.3) (31.4) (22.1)
Income Before Income Taxes 19.2  33.3  69.9  92.4 
Income Tax Benefit (4.9) (5.5) (19.3) (27.8)
Net Income 24.1  38.8  89.2  120.2 
Net Loss Attributable to Non-Controlling Interest (3.5) (1.9) (18.1) (6.9)
Net Income Attributable to ALLETE $27.6  $40.7  $107.3  $127.1 
Average Shares of Common Stock
Basic 52.4  51.9  52.3  51.8 
Diluted 52.5  52.0  52.3  51.9 
Basic Earnings Per Share of Common Stock $0.53  $0.78  $2.05  $2.45 
Diluted Earnings Per Share of Common Stock $0.53  $0.78  $2.05  $2.45 
Dividends Per Share of Common Stock $0.63  $0.6175  $1.89  $1.8525 

Consolidated Balance Sheet
Millions - Unaudited
Sep. 30 Dec. 31, Sep. 30 Dec. 31,
2021 2020 2021 2020
Assets Liabilities and Equity
Cash and Cash Equivalents $59.0 $44.3 Current Liabilities $646.0 $459.6
Other Current Assets 219.7 210.6 Long-Term Debt 1,649.4 1,593.2
Property, Plant and Equipment – Net 5,053.1 4,840.8 Deferred Income Taxes 187.1 195.7
Regulatory Assets 502.9 480.9 Regulatory Liabilities 509.5 524.8
Equity Investments 317.8 301.2 Defined Benefit Pension and Other Postretirement Benefit Plans 207.6 225.8
Other Non-Current Assets 179.7 206.8 Other Non-Current Liabilities 278.1 285.3
Equity 2,854.5 2,800.2
Total Assets $6,332.2 $6,084.6 Total Liabilities and Equity $6,332.2 $6,084.6

Page 3 of 4
ALLETE · 30 West Superior Street, Duluth, Minnesota 55802


Quarter Ended Nine Months Ended
ALLETE, Inc. September 30, September 30,
Income (Loss) 2021 2020 2021 2020
Millions
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)
Net Income Attributable to ALLETE $27.6  $40.7  $107.3  $127.1 
Diluted Earnings Per Share $0.53  $0.78  $2.05  $2.45 

Statistical Data
Corporate
Common Stock
High $73.10 $61.32 $73.10 $84.71
Low $58.89 $49.91 $58.89 $48.22
Close $59.52 $51.74 $59.52 $51.74
Book Value $44.51 $43.89 $44.51 $43.89

Kilowatt-hours Sold
Millions
Regulated Utility
Retail and Municipal
Residential 268 268 846 835
Commercial 360 345 1,018 983
Industrial 1,778 1,410 5,351 4,547
Municipal 147 147 445 434
Total Retail and Municipal 2,553 2,170 7,660 6,799
Other Power Suppliers 1,253 967 3,695 2,495
Total Regulated Utility Kilowatt-hours Sold 3,806 3,137 11,355 9,294

Regulated Utility Revenue
Millions
Regulated Utility Revenue
Retail and Municipal Electric Revenue
Residential $34.8 $32.2 $107.3 $93.3
Commercial 43.2 36.5 119.6 99.5
Industrial 139.2 109.3 405.7 315.0
Municipal 14.4 11.2 38.5 30.5
Total Retail and Municipal Electric Revenue 231.6 189.2 671.1 538.3
Other Power Suppliers 41.2 30.9 116.9 96.6
Other (Includes Water and Gas Revenue) 32.0 35.0 100.2 86.3
Total Regulated Utility Revenue $304.8 $255.1 $888.2 $721.2



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.


Page 4 of 4
ALLETE · 30 West Superior Street, Duluth, Minnesota 55802