Q4 2019 Earnings Call
Good day and welcome to the elite full year 2019 financial results call.
Today's call is being recorded.
Certain statements contained in this conference call that are not descriptions of historical facts are forward looking statements such as.
Defined in the private Securities Litigation Reform Act of 1995.
Because such statements can include risks and uncertainties actual results may differ materially from those expressed or implied by such forward looking statements.
Factors that could cause results to differ materially from those expressed or implied by such forward. Looking statements include but are not limited to dose discussed and filings made by the company with the Securities and Exchange Commission.
Many of the factors there will determine the company's future results are beyond the ability of management to control or predict.
That should not place undue reliance on forward looking statements, which reflect management's views only as the date hereof.
The company undertakes no obligation to revise or update any forward looking statements or to make any other forward looking statements, whether it's the results of new information future events or otherwise.
For opening remarks, and introductions I would now like to turn the conference over to elite President and Chief Executive Officer, Alan R. Hodnik. Please go ahead.
Good morning, everyone and thanks for joining us today.
Let me or at least president and Chief Executive Officer, that's any Olin.
Senior Vice President and Chief Financial Officer, Bob Adam.
And Vice President Controller, and Chief Accounting Officer, Steve Moore.
Before we get into the detailed financial results in our outlook for 2020. This morning.
I want to again congratulate Bethany Olin on your election Ideally board of directors.
Keep executive officer.
Got any strong values based leadership style her proven ability to deliver results will effectively positioning against when's the change.
That are laser focused on talent development well this year a leap forward threats continues.
The new decade Dawn.
Look for great things from Bethany and her elite team in the years ahead.
I will remain elites executive chairman until the spring of 2021.
And we'll partner closely with the elite board and Bethany to ensure a continued smooth transition.
It is my hope to see many of you out in New York at our upcoming Investor Breakfast at which time I will be more personally able to thank you.
I'd say farewell.
This morning, ALLETE reported full year 2019 financial result of $3 in 59 cents per share.
Net income of $185.6 million.
These results are within our previously issued 2019 earnings guidance I.
Our new 40 year of many accomplishments, while solidly positioning a leap for further clean energy growth.
Well I would highlight alletes differentiated strategy and sustainable positioning.
Use of course, all driven by our dedicated innovative and hard working employees.
I've been feel privileged to lead over my long career.
Given the continued execution by Bethany and her team.
And in full recognition of the clean energy positioning.
The board of directors has once again demonstrated its confidence by raising the elite common stock dividend.
On an annual rate of $2.47 per share, reflecting an increase of 5%.
For further details on Alletes outlook and an update on its growth initiative I will now turn the call over to will lead to President and Chief Executive Officer Anthony on.
Happening.
Thank you al I.
I'd like to take a moment to congratulate elite executive Chairman Al Hodnik on as recently announced retirement from the company planned for May have 2021.
At the time of his retirement al will have dedicated 40 years of service to the company.
Well, it's been a tire with leader of a lead growth strategy and our shared purpose of answering the call to transform the nation's energy landscape.
Under ALS right result, right way leadership elite has developed a new generation of exceptionally talented employees and has experienced tremendous growth and diversification with the company in a position of strength or a clean energy future.
I'm proud of the accomplishments of our entirely team in 2019, a year and strong execution with record levels of construction and significant progress on key initiatives across the company.
Minnesota powers Energyforward strategy is one of the most significant and transformative initiatives in the long history of our organization.
The company continues to balance the interest I mean, its many stakeholders well positioning well with respect to emerging environmental and regulatory policy renewable energy expansion and modernization of the energy grid.
The company plans to make strategic investments in its transmission and distribution system to ensure clean safe reliable and affordable service to all of our customers.
To that end, we're pleased to report that just a few weeks ago, Minnesota power completed construction of the great Northern transmission line ahead of schedule and under budget.
This milestone capped a decade of hard work and ingenuity.
The 224 mile transmission line was built to the Canadian border and now awaits, Manitoba hydro its completion events, Manitoba to Minnesota transmission line expected later this year.
The great Northern transmission line is a one of a kind north American renewable energy project. It will facilitate an innovative form of storage much like a massive battery, allowing minnesota power to enhance reliability by balancing is abundant, but intermittent wind resources in north Dakota with too.
Hundred 50 megawatts of carbon free renewable base load hydro energy from Manitoba Hydro.
Another transformative Energyforward initiative is an imagine trail energy center or intact.
Planned to be built in partnership with dairy Olin power co-operative. This 525 to 625 megawatts state of the yard combined cycle natural gas plant will enable Minnesota power to add even more renewable generation to its significant existing renewable energy capability.
We're pleased that the public service Commission of Wisconsin recently approved the project. This approval recognizes the important role that this plant plays and reliability at Minnesota power continues its transition to a cleaner energy future.
As part of as part of Wisconsin's robust review and regulatory process. The project must next to obtain air and water permit.
Minnesota Power also received Minnesota public Utilities Commission approval for intact. However, more recently, the Minnesota Court of Appeals determined that the Minnesota Commission should have applied Minnesota Environmental review bonds to this Wisconsin based project.
We believe the court of Appeals aired and we filed a petition with the Minnesota Supreme Court Rugelach requesting review of that decision.
Meanwhile, were considering options with our INTECH partnered airline and we're confident we will successfully navigate this recent challenge.
Minnesota Power's also adding 250 megawatts of carbon free wind energy through a power purchase agreement beginning later in 2020.
Joint venture between the no leap subsidiary into NASCAR will own and operate the noble two wind farm in southwestern Minnesota with a lead chair of the project investment estimated to be $170 million.
Upon completion the state of the art wind facility will deliver low cost carbon free energy to Minnesota Power's customers for decades to come.
Briefly on the customer fried, Minnesota powers Taconite customers finished 2019 at near full production and we anticipate that strong performance to continue as we begin 2020.
These high levels of production along with significant investments by these customers and their operation support our view that there is a bright future for Minnesota Power's customers here in northeastern Minnesota.
Our Wisconsin based utility companies superior water light and power is also planning significant investments in projects and systems to benefit its customers, including a community Solar Garden project, which is currently being considered by the public service Commission of Wisconsin.
Superior water light and power anticipates filing a general rate case in the second quarter of this year.
The second largest company in <unk> in the elite family ALLETE clean energy completed the year, a significant new project construction and fleet optimization. The company also began work on large wind generation projects that are scheduled to be completed later this year.
ALLETE clean energy recorded a milestone of its own a few weeks ago setting an all time record for energy production, all renewable and carbon free.
Production reached 503 megawatts. The first time ALLETE clean energy registered over 500 megawatt driven by strong wins across the fleet excellent turbos availability at all sites and full production at the new Glenn All in Energy Center in North Dakota.
We're also pleased to report that the 80 megawatt South peak when site in Montana began delivering test energy to its customers yesterday and is expected to be fully operational in the coming week.
In addition, construction began a few weeks ago when ALLETE clean Energy's 300 megawatt Diamond Spring project in Oklahoma.
This project is fully contracted to Threed fortune 500 customers and is expected to be online at the end of 2020 at which point ALLETE clean Energy's portfolio will expand to more than 1000 megawatts of installed capacity.
ALLETE clean Energy's Safe Harbor turbans continue to be a differentiator.
In addition, the company's current operating and development portfolio includes strategic land and access rights strong landowner relationship and hard to obtain interconnection right as well as the permits are already in hand.
With all of that and the fact that we expect higher renewable standards across the country in the coming years ALLETE clean energy is well positioned to materially expand its operation and earnings into the future.
I'll provide a few additional thoughts in or closing remarks, but first I'll ask Steve to go through the 2019 financial results and 2020 earnings guidance Steve.
Thanks, Bethany and good morning, everyone I'd like to remind you that we filed our 10-K. This morning, along with an 8-K that provides details over 2020 earnings guidance I encourage you to refer to them for more details.
For the year ended 2019, ALLETE reported earnings of $3, a 59 cents per share on net income of $185.6 million earnings for 2018 were $3.38 per share on net income of $174.1 million.
Before I discuss segment details I will point out several significant year over year timing variances and other items for comparison consideration.
We have also included further details of these items in our first for slides for your reference at our website at <unk> Dot com and the Investor section.
For the year on a 2019 earnings included a gain on the sale of U.S. water services [noise].
Excuse me of 26 cents per share of which four cents per share was recognized in the fourth quarter of 2019.
For the favorable settlement of a U.S. water services patent infringement case offset by two cents per share for U.S. water services first quarter operating results. Prior to this sale for the year ended 2018 earnings included 30 cents per share in total for ALLETE clean Energy's gain on the sale of a wind energy.
Facility contributions from U.S. water services operating results for the year any change in fair value of the contingent consideration liability with most of these impacts recognized in the fourth quarter of 2000 any team.
If you details from our business segments elites regulated operations segment, which includes Minnesota power superior water light and power and the company's investment in the American transmission company recorded net income of $154.4 million.
Paired to $131 million in 2018.
Earnings reflected higher net income at Minnesota power, primarily due to lower operating and maintenance and property tax expense increased cost recovery rider revenue higher transmission margins and fuel adjustment clause recoveries.
These increases were partially offset by lower kilowatt hour sales and associated margins from retail and municipal customers.
Net income at superior water light and power increased over last year due to higher rates implemented in early 2019.
<unk> earnings in the American transmission company were higher than 2018, primarily due to additional equity investments in period over period changes in an estimated refund liability related to MISO return on equity complaints.
ALLETE clean energy recorded net income in 2019 of $12.4 million compared to $33.7 million in 2018.
Earnings in 2018 included the sale of a wind energy facility of $10.2 million after tax.
And $3 million of production tax credits that resulted from the retrospective qualification of additional wind turbines in 2016 and 2017.
Net income in 2019 included lower revenue, resulting from non lower non cash amortization related to the expiration of power sales agreements and higher depreciation expense.
These decreases were partially offset by $5.3 million of additional production tax credits generated in 2019 compared to production tax credits generated in 2018 as ALLETE clean energy continues to execute on its refurbishment strategy.
Our corporate and other businesses, which includes being high energy and ALLETE properties recorded net income of $19.9 million in 2019 compared to net income of $6.2 million in 2018.
Net income in 2019 included the gain on sale of U.S. water services, a $13.2 million after tax and higher earnings on cash and short term investments.
I'll now turn to our 2020 guidance I would ask that you referred to the slide titled 2020 guidance highlights for further referenced in our full 2020 guidance 8-K filed with the FCC earlier this morning.
Today, we initiated 2020 earnings guidance of $3.40 to $3.70 per share on net income of $180 million to $190 million. This guidance range is comprised of a regulator operations segment within a range of $2.75 to $2.
95 cents per share and ALLETE clean energy and corporate another within a range of 65 cents to 75 cents per share.
Our guidance includes interim rate revenue from Minnesota power as part of the ongoing rate case filed in late 2019 of approximately $36 million beginning January Onest, 2020, which is subject to refund.
On November Onest, 2019, Minnesota power, while the retail rate increase requests seeking an increase of $66 million in total additional annual revenue.
We anticipate and administrative law Judge report in September followed by a written order from the commission in December of this year.
We anticipate final rates would be implemented sometime in mid 2021.
Our 2020 guidance assumes that we will achieve reasonable all comes in regulatory proceedings.
We expect increased cost recovery rider revenue from the great Northern transmission line with $26 million of additional capital investments in 2020, as we complete all related projects and commissioning.
Industrial sales from Minnesota power are expected to be at approximately seven to 7.5 million megawatt hours, reflecting taconite customer production levels of approximately 39 million ton.
Minnesota power will realize lower revenue due to an expiring power marketing agreement.
And then expired municipal customer contract. In addition, we expect increased operating and maintenance property taxes, and depreciation expenses of approximately 5% as compared to 2019.
A few highlights from our 2020 guidance regarding ALLETE clean energy and our corporate and other businesses.
ALLETE clean energy expects to generate approximately 2.3 million megawatt hours in 2020 versus 1.1 million megawatt hours in 2019 with the expectation of normal wind resources and 2020, 2019 generation was 20% below our expectations or.
2020 guidance includes the going all in wind facility in service for the full year and the South peak wind facility beginning in the first quarter of 2020.
We anticipate Diamond spring wind project to be in service in late 2020 with minimal earnings expected this year.
ALLETE clean energy expects additional business development in operating expenses.
Due to investment and growth initiatives.
We expect production tax credits related to ALLETE clean energy's refurbishment projects to be approximately $20 million in 2020.
We anticipate similar results said being <unk> energy and ALLETE properties as compared to.
<unk> 2019.
As mentioned earlier the noble's to win facility is expected to begin commercial operations in late 2000, Tony with minimal earnings expected this year.
I'll now hand, it off the bottom for additional comments on our 2019 financial performance and our 2020 outlook Bob.
Thanks, Dave and good morning, everyone. Let me begin by saying how pleased I am with progress on our strategic initiatives in 2019.
Further positioning a lead for significant growth in 2020, well into the future.
Alletes ongoing execution translates to cleaner energy and sustainability, while supporting earnings growth robust dividends and expanding cast walls for our valued investors.
Before I share more details of our 2020 earnings guidance I want to highlight a few points and accomplishments from 2019.
Earlier in 2019, we sold our industrial water services company for a significant premium and soon after redeployed the $270 million in cash proceeds to fund clean energy growth initiatives.
The sale proceeds effectively mitigated the need for new equity financing and supportive ALLETE clean energy is diamond spring project and clearly demonstrates the discipline, we have around capital allocation more broadly.
We completed significant construction on approximately $1 billion of clean energy supporting investments. This included brand new wind farms refurbishment of existing wind generation projects, a renewable energy enabling transmission investments.
In December 20 of 19, ALLETE clean energy became began commercial operations of its 106 megawatt Glenn Olin Energy Center.
Successfully closed on tax equity financing.
Indeed, we're pleased to report that the acid is performing quite well.
Selling energy to excel under a 20 year power sales agreement.
Construction of the 80 megawatt South we can wind project is expected to be completed in the first quarter of this year and tax equity financing will close shortly after operations began.
We expect the full year of earnings from Glenn on an earnings for three quarters of a year from self pig and Twentytwenty.
The construction of ALLETE clean Energy's Diamond Spring project started in the fourth quarter of 2019 is advancing as planned.
At this time to substation is complete and turbine deliveries are expected this month.
The 303 megawatt wind generation project with a total cost of approximately $430 million.
As expected to be operational in late 2020.
Corporate customers and utilities alike have accelerated their sustainability commitments to achieving carbon free energy between now and 2050.
With its unique investment and PTC qualified wind turbines.
Lead clean energy remains poised to secure another five to 600 megawatts in new PDC projects.
Though transmission limitations or a challenge to overcome in the MISO region.
The challenge I reported on in last quarter, we remain confident in our ability to secure additional projects and our particularly focused on projects, which would contribute to earnings in the post 2021 time period.
Taken as a whole we're highly confident ALLETE clean Energy's wind generation portfolio will reach 1500 megawatts by the end of 2022.
Based on PTC qualified projects alone.
As I've expressed previously the company has also pursuing acquisitions of existing assets and high quality wind regimes across the country, which would further augment this growth.
ALLETE clean energy strategy is contemplative and highly customer centric in nature and the company is currently evaluating several additional clean energy product service offerings, which will further differentiate itself and the market.
Well that we will be providing more color on their evolving strategy as the year progresses.
Importantly, the company remains highly focused on operational effectiveness and overall efficiency as we scale the business.
Indeed overall availability of the fleet has continued to improve as we implement new technology systems and complete our refurbishment projects.
Overall elite has approximately $2 billion of projects scheduled to enter Capex plan for the next five years of which clean energy projects represent the vast majority.
As our history demonstrates we conservatively and thoughtfully only include capital projects that have a very high the likelihood of could come into fruition as part of our Capex table.
We continue to expect only minimal equity issuances, which would be required to fund the 2 billion and projected investments.
In addition to the schedule projects, we fully expect additional project announcements from ALLETE clean energy.
Along with other potential renewable supporting projects at our regulated segment that would expand and extend our capex levels over the next five to 10 years as the region transitions further to a clean energy future and we advance efforts to harden the grid and enhance overall reliability.
We were pleased and our ability to increase our annual dividend to $2.47 per share from 235 per share.
Just north of a 5% increase over 2019 again delivering on our objective to align future dividend increases with our 5% to 7% average annual earnings growth objectives, while maintaining healthy dividend payout ratios.
ALLETE is in full execution mode, and 2020 with newer earnings and cash flow streams and with additional growth drivers.
We are excited about projects already underway and emerging new clean energy opportunities yet to be announced.
Our differentiated growth strategy as well supported by a lead solid fundamentals.
And a longer runway of credit headroom, which will enable further non regulated growth.
As Steve mentioned, our 2020 guidance ranges $3 and 42 to $3.70 per share the midpoint of our 2020 earnings guidance implies an increase of 6% over 2019 results.
When normalized for the U.S. water services sale going in 2019.
And is within our 5% to 7% annual average long term earnings objectives.
As we look forward to 2021, we expect growth to accelerate even further as ALLETE clean Energys largest wind farm Diamond spring.
And the noble two when projects are expected to be operational near the end of this year generating a full year of financial contributions and 2021.
At ALLETE clean energy, we anticipate minimum average annual earnings growth of approximately 30% to 40% over the next two years.
In closing, we remain very bullish about the lead strategic positioning and overall growth prospects and our particularly proud of how this growth will continue to advance our sustainability objectives across our company Bethany.
Thank you Stephen Bob for the financial update and guidance highlight.
Elite has thrived through many decades of change and I'm confident in our talented team of employees and the opportunities that lie ahead.
Look forward to another year of strong execution on our strategic initiatives, including projects already underway as well as new projects yet to be announced.
Societies demands for a clean energy future is increasing and Alletes family of businesses is well positioned to deliver excellence to all of our customers. In addition, we believe leads diversified multi year growth platform, along with our proven ability to execute offer an attractive and.
Differentiated value proposition to investors I couldn't be more proud of the elite team or more excited about the opportunities ahead for our company.
Thank you for your interest and for your investment in a leap at this time I will ask the operator to open up the line for your question.
Thank you as a reminder to ask a question you would need to press star one on your telephone.
Question first Apache please standby we've compiled the Q.
I sure first question comes from Shar Pourreza.
<unk> partners. Please go ahead.
Good morning, guys, it's actually James for sure Congrats on a quarter and congrats Bethany now and the transition.
Thank you good morning, Thank you.
So my first question is actually in regards to the ongoing integrated distribution plan process, that's Minnesota power.
Specifically, how should we think about the potential incremental capex opportunities there from the <unk> versus what you have in your base five year plan already.
I realize you added a little bit to Threeq, you, but could there be more there and what would the timing.
Yes, James This is Bob Adams, So we have not incorporated or any of the approximately $150 million that's reflected in that plan filing.
So that's and its associated with hardening and a grid reliability et cetera. So and we're also working on sort of the timing of that hundred 50 million you know over that 10 year period attainments scoped out over 10 years, so solve more to come on that front.
Gotcha, perfect and then on the state energy policy side I realize the Minnesota Legislative session. Just started on Tuesday, but it sounded like kind of Republicans have already been discussing some legislation.
Any expectations at this time for something like an Rps updates pass this spring and there's a lot of discussion last year.
Yes. This is al I I've been working down there and saying Paul in the last couple of weeks and spending time with the various leaders of.
Energy policy transformation, both in the Republican and Democratic side considerable conversation early on about doing something governor wall decor as wants to certainly advance the energy policy in a further away a lot of discussion about electric vehicles, and the transportation sector, along with sort of the energy.
Thank you recall the energy sector has been the focus over the last five to 10 years, though.
Of course on the advent of a session as lock the conversation about what should be done how it all plays out and maybe more to come.
The capital bonding build probably the top focus and then negotiations around that often lead to.
What might be able to get done with an election year coming in the fall on energy and other sorts of critical issues that are facing the state. So yeah, while the conversation, but very early right now.
Gotcha. Thanks.
Thank you.
Next question comes from Brian So from Sidoti. Please go ahead.
Hi, good morning.
Right.
Hey, just the.
The regulated operations guidance and the midpoint than that assumes 36 million.
Interim rate.
An absence of.
Recovery for the expiring.
Well so contract.
Is that the midpoint net of any optimization opportunities. There you know meeting sell it elsewhere in the Palomar acute or short term contracts et cetera.
Yeah, Hi, Brian you might yeah, it's that's on that in there.
So in our interim rates. We do include a significantly lower power marketing sales. So that contract is out of there except for the four months that we are getting in 2000 in a in 2020.
So we expect when the rate case, we file we expect about $10 million of power marketing margins on a go forward basis, we expect about 20 million in 2020.
Okay got it and why final rates would be implemented in mid 2021.
Not early 2021.
Yes, so we expect to get an order.
In December and then there is various reconsideration requests that could come forward and then various after that various compliance filings that need to happen based on just rates and and the like and so that just takes some time.
Okay. That's helpful. Thank you and then just on.
The new Capex disclosure so there's some.
You know movement in the regulated operations I think it looks like 20 Twentys down.
About a 30 minute million well total capex is often 2022.
It.
It seems to be up at the rig operations, but down at the.
Other offer operational Capex can you just.
Some more color into the updated five your capex and and what are the moving parts there.
Yeah, so on Oh, well take that one here, Brian So yeah, 2020 is down a little bit.
You see in the base. Another 2021 and later reflects work on the DC line.
So that cranks up in 2021 threw out there it's going to be a significantly less than 2020.
They see the transmission current cost recovery, that's the completion of the great Northern transmission line.
And then you see obviously in the Matchy Trail Energy Center the Antech.
Really starts a construction and.
Okay, and then your comment earlier on 30, 40%.
Yes key here at Ace over the next two years.
What's the base you, we should be using 2018 or 2019 or.
2020.
Yeah I would use.
We're still using 2018.
And that number we haven't we've helped deal with the slides on that and if you do the math you data be gets real eight.
Okay.
And then also.
Some color in your your confidence level of having a total 1500 megawatts of renewable generation AD age by 2022, it implies quite a bit of incremental project.
Announcements to come.
Yeah. So Brian this is Bob So obviously, we have the diamond spraying 300 megawatt projects Oh, that's going to be completed this year beyond that that's going to get us to the thousand megawatts.
And then we have the five to 600 megawatts of PTC Safe Harbor turbans that are driving a lot of that confidence there, but in addition, remember when we talk about two to three projects.
We're also looking at exact acquisitions of existing wind farms in the expressed over the last couple of quarters, we have really ramped up.
Our efforts in origination team on that so so our confidence is very high that we will be able to accomplish that.
Okay, Great and just you know it seems that Jonathan.
It appears in negotiations and I know, they're highly confidential on new projects, but we've yet to see.
Any announcements just any color on you know the negotiations and what you know what might be the just sticking points and signing contracts.
Thank you probably saw it yeah. Thanks, Brian again, it is I've said here I think over the last quarter too.
So we've got I mean from a demand standpoint customer demand an interest in our projects. There is substantial interest. So it's not that the biggest challenge weve had for projects that are in the upper mid west.
Which is which is really.
Around the couple of projects I referred to there has been to 100 megawatt projects. We've been highly focused on have been running into some transmission challenges given what's going on in terms of transmission challenges generally in MISO.
So so that's been you know this the sticking point, if you're well there's significant cost of upgrade to transmission.
Even given the nature of what's going on with my so and the sharing of those costs or the risk of what those transmission costs would ultimately be has been the the challenge between us and the Counterparties and you know one of the things I've said many times is that we.
No, we're not going to we're going to a middle whole tied to our underwriting criteria on these projects. We're in a very solid position and 2020 and 2021 already with regard to where earnings.
My comment earlier with regard to our focus I'm you know, it's not that we wouldn't take more projects in 2020 and 2021.
But I'm really more focused on earnings in 2022. So we can be selective will be selective you know on these projects as we go forward and having said all that I do believe that these transmission challenges notwithstanding that those are projects that's still have <unk>.
Central potential there we can get done.
Okay. Thank you very much.
Thank you next question comes from Augustine Colossal from Mizuho Securities. Please go ahead.
Hi, everyone and congrats Tony So I just wanted to better understand the long term growth and clarify the starting point. So when we think about the 5% to 7% right is the right base to be using a the 2018 normalized number of we'll wait.
Yeah I would so the answer is yes on 2018 as a base, but I would tell you also this is Bob that as we look at adding another year know when we look at the numbers that we just penciled on a normalized basis for 2019.
We're solidly with them that that ranch run the higher end of that range. So whether you use 18 or 19 at the highest level, where we are still very confident in the range and being at the higher into that range.
Perfect. Okay. Thank you that's it.
Thank you.
Thank you. My next question comes from Chris Ellinghaus from Cyber. Please go ahead.
Hey, everybody how are you.
Morning, guys and.
Congrats to Alan Bethany.
I'm sure.
Everything's can be Warner for going forward.
The immensely trail legal challenge how do you have any sense of how long you think that timeline will be before you get some greater clarity or resolution.
Yeah. Thanks, Chris. This is Bethany you know we expect to you know as we mentioned that we have filed on requested review at the Minnesota Supreme Court of that Court of Appeals decision and we do believe the court of Appeals aired and so we're awaiting kind of <unk> the Minnesota Supreme Court at their review is discretionary so.
We are weighting that decision, we should know that within the next few weeks likely by early April and but Meanwhile, we are in conversations with dairy lend about other options and a path forward and we are confident that we'll be able to move forward, but you know if if the if we were required to kind of.
Oh down this other path that would be a bit of a delay in the project, but we're confident there other path forward and so we're working on that with their island.
Okay.
Bob If you got any.
Box on the prospects for properties going forward.
You know were down Chris to a very small amount of acreage on a relative basis about 1400 1500 acres now at properties.
And I'm actually given what we've got left there I I'm actually feeling quite good.
About us wrapping that up if you will this this year.
In terms of getting completely liquidated their there's there continues to be actually increasing interest we've had a good year as you know and 2019 actually ended up with a gain in our property segment small gain but but again nevertheless.
So a.
Pretty pretty a bullish about our ability to kind of move on beyond that after we get through 2020.
One last thing I might've missed this somewhere along the lines that can you give us any.
Color on where ace is backlog stands today.
As far as they're up a pipeline of opportunities, they're reviewing Chris yeah.
Yep.
There's there's still end that I would say roughly a thousand to 1500 megawatts of projects are evaluating night, what's interesting about it though.
Is that again the nature of the backlog in terms of the see an ice bays recall the Diamond Springs was an entrance new entrants into the CNS based and we've got a a very healthy mix of Cnine hundred snow on the on the heels of that deal.
Within themselves into 1500 megawatts.
Okay, great. Thanks for the color I appreciate it.
Thank you next question comes from the to live MACI from Avon Capital. Please go ahead.
Hi, good morning.
Good morning, Budleigh Marni.
Vicki.
Thinking about.
Kind of rolling out here.
21 in particular Ace with Diamond Springs, and Noble's two coming into operation cumulative that's a little over $600 million of capital investment that will then be calling into service.
And my recollection is is that you know you generally had kind of like a oh thumb more guideline that you know every hundred million dollars capital investment translates to about $5 million above net income when fully operational because that is that still is that there's still a fair representation.
Yeah, Hi, I'm a little of this is Steve Moore's we're still using that as a benchmark for a.
100 megawatt project.
And that's on a levelize basis. So what we're seeing is on the the accounting for these projects is under HL BV, you'll be hearing more about that is it isn't exactly a straight line it'll start lower than that and it will gradually increase to that so what we're looking at using is probably.
60% to 70% of that number in the first year and that's going to gradually increased to about 60% to 70% over that $5 million.
By the time, we hit your 10.
Okay and does she also indicated that you were following on the confirmation of timed springs that there were that that did that transaction has.
Initiated.
You know discussions on up for similar types of transactions with a commercial third parties can you kind of up this little bit as to it.
At this point kind of like you know a weird.
How far along those types of things.
Things might be and the potential size increment that do that might be involved.
Yeah, the do I wouldn't say this I would say that the.
Size of the projects are that we're looking at that are in and around the that region, where Diamond Springs was for example are greater than the 100 megawatt in size. So I can tell you that.
And I would tell you that are pretty enthusiastic about our ability to get something done here.
Within the earlier part of the year. So that's that's what we're that's where we're really focused on right now.
Okay, Alright, thank you very much.
Thank you.
Thank you. My next question comes from Kevin Feldman. Please go ahead from Citadel.
Good morning.
Kevin.
Just to just make sure I understand the base for the clean energy to grow 30% to 40% is what you're in and what amount.
Yeah, I'd use 2019.
Actual.
As we've even actually adjusted that to normalize ALLETE clean energy for the when this year.
So obviously were down significantly because of wins, so we assume normal win.
But we expect 2020 2021 to be 30% to 40% higher as Bob mentioned.
On a normal windier.
Okay. So what what exactly is the the nineteena actual that you're using.
Yeah, roughly 20 million.
20 million of net income.
Okay, and then and then when we look at the 5% to 7% growth rate. That's that's anchored of $3 an eight cents in 2018 correct.
Correct and and other years, where you were above the top end.
Or or or is the market being to EUR estimates being too aggressive in any given year, if you're above 7%.
No there there will be years that we're above there could be years that were below but at least as Bob mentioned, a with the significant ace growth. It will have in the next several years, we could be above that number.
Well, that's that's specifically what always was getting too. So so you're implying that theres, a very solid chance of being above the 7% growth range and 20 122 because of the strength of Ace is is that where you're trying to communicate.
Not that it's definitely happening yeah, Yep Yep, that's that's likely.
Okay and look I have just for a long period of time, Kevin. So that's a that's a long term view five to seven there's going to be years up there really years under.
True and I assume that that that it's just a reflection of kind of the strength of your pipeline in terms of though the wind opportunities in the next few years, which is driving to the kind of greater than 7% step up and then from there. It's it's a less it's less visible.
Yes, correct, Okay, and just what what are you guys are assuming that the Minnesota power earns in in calendar year 20 in your guidance.
Yeah, I'd use close to 9%.
Got it.
Just lastly, there was something in the K about a critical audit matter and I'd just it it.
Well it seemed like some sort of technical thing I just wanted to make sure that was in an issue. It was just wasn't clear to me what it was being driven by.
Are you talking about.
Our auditor's opinion page yes.
So that is the new requirement for all auditors the audit opinion has to include.
What they feel as critical audit matter you will see that all public companies. So this isn't unique and they have to have one.
So that's what they have it if it's on or regulate regulated regulatory assets and liabilities and they felt that was critical audit matter because of the judgment that can be involved in that so they have to have one it is just a new requirement.
Nothing more than that.
That's really helpful. I really appreciate it and thank you very much.
Thanks.
<unk>.
Thank you.
Our next question comes from Switzerland.
Capital. Please go ahead.
Yes in terms of.
He told even you said that I think in your opening comments that pool.
You are looking at about 5% increase.
Oh, and M.T.D.A. no property taxes, one how much that it enough on the nominal basis for the year over year, and then secondarily does that get trued up such that that would then be.
Recouped starting in <unk> 21.
Following the completion of the rate case.
Yeah. It really is reflected in our in our rate case, so, but it will be up but it is part of the the 36 million and the 66 million dollar request that we have.
I would just take last year's actual expenses times, 5%, you'll get the nominal amount.
So I guess, what I'm trying to get out is whether this would constitute a regulatory lag item in 24, 2021 or or not necessarily.
Not in 2021, it's all reflected in our final rate request here that we asked for of $66 million.
But it would but as a country would you consider day lag item for 2020. However.
Some of it but not all of it you can't get everything you asked for an interim rates. So there is some lag there.
And also can you remind me in terms of the power contract that expires.
April.
2021, when we get half the rate case, having been determined.
The fact that there was portion that was not permitted in interim rate that effectively getting gets trued up so what would be the uplift in 21 that we should anticipate from the lack of that timing items.
Yeah, so that amount here is fully reflected in our final rate.
Rate case request of $66 million.
So we'll have to wait and see on.
The rate case, and how that goes just what is fully reflected in final rates.
In 2021.
Because I think it was a the difference between <unk>, where you work branded and what should requested for interim rates was about $10 million to $12 million that's correct.
That's correct.
So that <unk>. So leased out was that it would be anticipate that not amount would then be normalized for 21.
Yeah, So our request inner rate case.
Was power marketing margins of $10 million without that.
Contract in there that's part of this 66 million dollar request that we have.
Alright, thank you.
Thank you.
Thank you I shouldnt or further questions in the queue at this time I like to turn the call over its best <unk>, President and Chief Executive Officer Elite for closing remarks. Please go ahead.
The Bob the Alan I. Thank you again for being with US This morning, and for your investment and interest and elite. We look forward to see many of you at our annual analyst Breakfast in New York on March 12, and at other investor venue throughout the year enjoy the rest of your day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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