Q3 2022 ALLETE Inc Earnings Call

Good day and welcome to the ALLETE third quarter financial results call. Today's call is being recorded certain statements contained in this conference call are not descriptions of historical facts are forward looking statements such as terms defined in the private Securities Litigation Reform Act of 1990.

Five.

Because such statements can include risks and uncertainties actual results may differ materially from those expressed or implied by such forward looking statements factor.

Factors that could cause results to differ materially from those expressed or implied by such forward. Looking statements include but are not limited to those discussed in filings made by the company with the Securities and Exchange Commission. Many of the factors that will determine the company's future results are beyond the ability of management to control or predict listeners should not put undue reliance on forward.

Statements, which reflect management's views only as of the date hereof. The company undertakes no obligation to revise or update any forward looking statements or to make any other forward looking statements whether as a result of new information future events or otherwise welcome to I'll Eat conference call announcing third quarter 2022 financial results later in the call we will.

Have a Q&A session and instructions will follow at that time as a reminder, this call is being recorded I would now like to hand, the call over to Bethany Owen President and CEO you may begin.

Thanks, operator, and good morning, everyone and thanks for joining US with me are our lead senior Vice President and Chief Financial Officer, Steve Morris as well as Frank Frederickson, Minnesota powers, Vice President of customer experience in engineering services, and Jeff citizens, ALLETE clean Energy's Chief financial and strategy Officer.

Corresponding slides for this mornings call can be found on our website at ALLETE Dot com in the investors section to follow along we'll call out each slide number as we go through todays presentation.

This morning, ALLETE reported third quarter 2022 earnings of <unk> 59 per share. These results were in line with our expectations and support our view that our full year results will be near the midpoint of our $3 60 to $3 90 per share guidance range provided earlier this.

This year, Steve we'll be sharing more details from the quarter and comments on 2022 guidance in a moment.

I will start with important updates on our key strategic initiatives and.

An exciting news, we announced and filed on Monday, Minnesota Power reached a proposed agreement with a broad coalition of stakeholder groups on its integrated resource plan.

If the agreement is approved by the Minnesota Public Utilities Commission in Minnesota power would significantly increase the amount of renewable energy. It provides over the next 15 years.

In the proposed settlement, Minnesota power outlined its plans to add up to 400 megawatts of wind energy and 300 megawatts of regional solar energy.

That is nearly twice the amount the company proposed in its initial AARP filing in early 2021.

Also included in the proposed settlement is energy storage to support our renewable investments. In addition, Minnesota power will continue to evaluate the transition of Boswell four as the company commenced the six coal operations by the end of 2029 at Boswell three and 2035 at Boswell four.

Under the agreement the <unk> Trail Energy center, and important grid reliability projects, including those set forth in the MISO long range transmission plan would be deferred to future regulatory filings.

Minnesota Power's integrated resource plan and this latest agreement reflects our commitment to the climate, our customers and our communities as well as our employees. Our team has done a tremendous job of listening to our many stakeholders, including our customers community leaders and organizations.

<unk> and prioritizing their feedback I'm very pleased that this coalition of diverse stakeholders came to an agreement that allows us to continue on our path to provide 100% carbon free energy by 2050.

And hearings over the next two weeks the commission will consider the next steps in Minnesota powers energy forward plan with a decision on the company's IR P expected on November 22nd.

Moving to <unk> capital investment plan on slide three we've updated this table to reflect a significant increase in capital expenditures over the next five years.

The additions include transmission and clean energy projects as part of our sustainability in action growth strategy. It's important to note that this update does not yet include the additional renewables and energy storage from the proposed IRS agreement filed with the commission on Monday. So we're confident there is more.

More to come.

In addition to renewable generation a key part of this Capex plan is significant transmission investments to support reliability throughout our region.

These investments include expanding and modernizing Minnesota Power's existing 550 megawatt HBC transmission line and investment in MISO long range transmission plan tranche one projects.

Next please refer to slides four through six.

As we look beyond 2027, we believe there are significant investment opportunities. In addition to those reflected in the five year Capex plan.

Specifically, the additional wind solar and storage just mentioned in connection with the IRS as well as additional investments in generation and infrastructure needed as we responsibly and reliably transition our boswell units three and four.

We also expect to participate in MISO tranche, two transmission projects and as part of our high voltage transmission strategy to leverage our strategic geographical position to advance inter regional transmission projects that support reliability and the clean energy transformation.

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As we execute in the near term we are always planning for the future and these very important parts of our transformational long term investment strategy are already in motion.

Turning to slide seven we're also very excited about the inflation reduction Act and we believe all of <unk> businesses are well positioned to benefit from this important legislation.

The production tax and investment tax credit extensions provide new options for investment and the transferability of tax credits provides monetization options for our leads businesses improving cash flow and credit metrics as we continue to be a market leader in clean energy.

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The IRA will also benefit of lease customers as the new solar production tax credit makes company owned projects more affordable than the solar investment tax credit.

For our newest business, new energy equity the IRA has potential locational domestic material and low to moderate income subscription adders that could provide an up to 50% upside on the ITC.

On the rate case front superior water light and powers rate case is proceeding with a decision expected from the public Service Commission of Wisconsin later this year.

And Minnesota Power's rate case is also moving forward please refer to slides eight and nine.

The administrative law judge recommendation in September was constructive and address key areas of our filing while there are parts of the ALJ report, we strongly disagree with we continue to have confidence in our Minnesota Commission and in the regulatory process to deliver a rate case outcome that.

Supports a financially healthy, Minnesota power, enabling us to continue our clean energy transition, while providing safe resilient reliable and affordable service to our customers.

The Commission's current rate case hearing timeline has been extended to January of 2023 with a final order expected by the end of February .

Also some exciting news on the Minnesota power industrial customer outlook. This summer U S steel announced plans to invest approximately $150 million in its keewatin taconite facility to enable production of direct reduced or Dr grade pellets.

These pellets will be feedstock for direct reduced iron or hot Briquetted iron processes to support the growing demand for steelmaking in electric arc furnaces.

Construction began this fall and upon completion key tech will be able to produce Dr grade pellets, while retaining the optionality to produce glass furnace grade pellets USD.

<unk> facility has the capability of producing approximately 5 million tons annually.

Moving to our newest elite company, New energy equity, we expect a solid fourth quarter, New energy is on track with our original projections for the year and has increased its total pipeline of prospective projects well above 2000 megawatts.

Along with the IRS benefits mentioned earlier that could provide investment tax credit upside of up to 50% the new energies the new energy teams solid execution and strong pipeline of future projects have only enhanced our confidence in the resiliency and strength of this business.

Please see slide 10 for details.

Finally, ALLETE clean Energy's earnings this quarter were impacted by congestion at its Caddo wind energy facility and our priority is to address the ramifications of these congestion issues in the southwest power pool for both the Diamond spring and Caddo project.

These sites are operating well and the wind resources are strong and we firmly believe that ALLETE clean energy is well positioned to accelerate the clean energy transition in our country.

The inflation reduction Act will also provide increased incentives and flexibility for structuring and financing of new projects and for maximizing the value of the company's legacy fleet, where more than 400 megawatts have strong potential for redevelopment.

Please see slide 11 for more information on the opportunities we see at ALLETE clean energy.

Now I'll turn it over to Steve for additional details on our third quarter financial results and our full year earnings guidance Steve.

Thanks, Bethany and good morning, everyone I would like to remind you that we filed our 10-Q. This morning and I encourage you to refer to it for more details.

Please refer to slides 12, and 13 for significant variances and other items for comparison consideration.

Today, we reported third quarter 2022 earnings of <unk> 59 per share on net income of $33 $7 million earnings in 2021 were <unk> 53 per share on net income of $27 6 million.

Results for the quarter reflect higher net income for the regulated operations segment, primarily due to interim rate revenue at Minnesota power.

This increase was partially offset by a reserve of $2 $9 million after tax or <unk> per share for an anticipated loss on the sale of ALLETE clean Energy's Northern wind project.

The negative impact of $1 $7 million after tax or <unk> <unk> per share to reflect changes in the American transmission company estimate of a refund liability related to the ongoing MISO return on equity complaints.

A few details from our business segments.

Fleets regulated operations operations segment recorded third quarter 2022, net income of $38 $3 million.

Compared to $32 9 million in 2021.

Earnings reflect higher net income at Minnesota power, primarily due to the implementation of interim rates at the beginning of the year.

This increase was partially offset by lower kilowatt hour sales to retail customers and higher costs on our 250 megawatt purchase power agreement.

ALLETE earnings in the American transmission company were lower due to period over period changes in Atc's estimate of a refund liability related to MISO return on equity complaints mentioned earlier.

ALLETE clean energy recorded a third quarter of 2022 net loss of $7 3 million compared to a net loss of $800000 in 2021.

The net loss reflects a reserve of $2 $9 million after tax for anticipated loss on the sale of its northern wind project.

Losses under the Caddo wind energy facilities power sales agreements, resulting from market volatility and transmission congestion in the southwest power pool.

The lower wind resources compared to 2021.

Our corporate and other businesses, which include new energy P&I energy and our investment in the nobles two wind energy facility.

Recorded net income of $2 $7 million compared to a net loss of $4 5 million in 2021.

Results in 2020 to reflect higher earnings from our investment in the nobles two wind energy facility.

Fucking higher wind resources net income of $1 3 million from new energy, which included purchase price accounting adjustments of $1 $7 million after tax as.

As well as the benefit from the timing of income taxes.

Earnings per share dilution in the third quarter was approximately <unk> <unk>.

Due to additional shares of common stock outstanding.

Next I'll turn to our 2022 earnings guidance, we are updating our earnings guidance and expect earnings to be near the midpoint of our guidance range of $3 60 to $3 90 per share.

This reflects year to date results.

Timing of a portion of our solar project that has shifted into 2023.

In part due to timing of solar panel deliveries.

However, we now expect to take advantage of the IRA for this project.

We also expect strong fourth quarter earnings from new energy with growing momentum in our project pipeline and significant project closings in October and then to the end of the year.

Keep in mind that on early its ownership new energies partial year financial results for 2022 will be affected by transaction costs and purchase price accounting.

Excluding these items new energy is expected to be accretive this year and we do anticipate meaningful accretion in the first full year of our ownership in 2023.

Turning to ALLETE clean energy, despite inflationary increases and significant cost pressures resulted in a reserve taken in the third quarter.

The northern wind project and the rocket in a project both continued to progress and we.

We are expected and they are expected to be completed by the end of this year and early 2023, respectively.

ALLETE clean energy also continues to advance the 92 megawatt Red barn build transfer project and is on track for 2023 closings.

As Bethany mentioned earlier, we have updated our five year capital expenditure plan through 2027, which can be seen on slide three.

This update reflects additional transmission for Minnesota Power's participation in MISO tranche one projects.

As well as 400 megawatts of additional wind and solar reflected in the Minnesota Power's initial IRB.

Minnesota power and Great River energy intend to build a transmission line from northern Minnesota to Central Minnesota as part of MISO tranche one projects.

We filed a notice of intent with the Minnesota Public Utilities Commission on August one.

On a combined certificate of need and route permit filing will follow within the next 18 months.

The transmission line is expected to be in service in 2030, supporting and strengthening the reliability and resilience of the grid in the upper Midwest as we continue our clean energy transition.

With Minnesota powers approximate 50% share of the $970 million project and additional capital investments of 200 megawatts of solar and 200 megawatts of our wind partnership elite now expects capital expenditures of approximately $2 $7 billion through.

Through 2027.

Clean energy supporting investments will provide additional optionality resiliency and reliability benefits for our customers, while delivering rate base growth of approximately 8% using 2022 as a base year.

Also expect to update our capital expenditure plan once the integrated resource plan has been approved by the Commission later this month.

In addition, the American transmission company recently updated its 10 year capital investment forecast.

Which calls for approximately $5 billion to $6 billion and system improvements, which would result in additional investment for ALLETE.

Finally at least financial position is supported by a strong balance sheet that includes cash and cash equivalents of $42 million.

$387 million in available consolidated lines of credit.

Debt to capital ratio of 37% as of September 32022.

I'll now turn it back to Bethany for her closing remarks Bethany.

For that update Steve.

I'm very proud of our amazing and talented team of employees throughout our lead and we're pleased with our execution and positioning thus far this year with more to come in the final quarter of 2022, including the results of Minnesota Power's IRB.

Superior water light and power rate case. The addition of significant solar capabilities for new energy equity as well as ALLETE clean Energy's progress on build transfer projects and optimization of its portfolio and all of this sets the stage for <unk> future growth over the near and longer term.

The foundation of our strategy is sustainability in all aspects and we're delivering on our commitment to transparency. Please refer to slide 14, with some highlights of our sustainability in action strategy and slide 15, which contains links to important ESG information.

Including our recently updated corporate sustainability report for 2021.

We look forward to sharing more with you in February as we report on the last quarter of this year and as ALLETE continues putting sustainability in action, leading the way to a sustainable clean energy future. Thank you for your interest and your investment in ALLETE and at this time I'll ask the operator to open the <unk>.

<unk> for your question.

Ladies and gentlemen, if you would like to ask a question. Please press star one one.

On your Touchtone telephone.

One moment, while we compile the Q&A roster.

And our first question comes from Brian Russo with Sidoti Your line is open.

Hi, good morning.

Good morning, Brian .

Hey, just to follow up on the expectation for the fourth quarter given.

Your confidence in the midpoint of your guidance it looks like a pretty big step up or improvement.

From the fourth quarter.

<unk> 2021.

Just wanted to.

If you can provide more insight is it mostly driven by the new energy.

Contribution.

And or are there other drivers plus or minus.

Yeah, Hi, Brian Steve Morris, So I can take that on so a little bit from new energy. So we do expect some some contribution from new energy in the fourth quarter as we talked about a strong fourth quarter, so that will be helpful.

We do expect a higher earnings.

Earnings from <unk>, which has been performing very well regulated operations is can be higher than our expectation as well as property taxes and depreciation expense has been favorable to our plan.

We've had we do expect a little favorable.

The increase from income tax timing.

We do expect higher industrial sales and margins versus our plan as well.

Okay got it and then just on the new energy.

More than 2000 megawatt pipeline project pipeline is there any way to kind of profile of that.

Are these early or late stage development projects and or those that are.

Closer to monetization.

Hi, Brian This is Jeff. Thanks for the question I think 2000 megawatts captures all all stages of development, Brian . So there is a probability weighted that is.

Smaller than that but what we've said kind of we pointed back to the 100 megawatts that was closed so what we really want to references our confidence in their ability to meet the plan and it's based on that it's based on that pipeline and the fact that it's growing and so we're pleased with the performance to date.

We're pleased with the progress that they've made.

Yes.

Okay, Great and then just on the Capex the increase of a $1 billion it looks like a pretty big bump.

Bump up in 'twenty four 'twenty five is that the 200 megawatt solar project and is that.

Separate from the original proposed IRB.

Then the update IOP that you discussed earlier.

I'll take that Brian Steve Morris again, so it is the original or initial AARP for those two projects I think that's on slide three you can see 2425 to 100 megawatts.

Our wind and.

The wind partnership.

And those were the items that.

Bethany and I mentioned that we will look to update.

Pending the outcome of this AARP in November so we've noted that it's nearly double that.

Stay tuned for some potential updates once we get the decision on the IRB.

Okay got it so that $300 million of investment that's pending obviously MPC.

Review and approval.

Thats correct.

Okay, and then just lastly on the <unk> you mentioned.

Coalition of diverse stakeholders involved in this new.

Settlement.

To be submitted to the commission.

Can you share with us some of the crew some of those stakeholders are.

Yes. This is Bethany Brian .

The public filing that we filed on Monday, so youll be able to see the exact lift but it's.

A great diverse coalition of clean energy organizations hosts communities of the city of co asset.

The county of task of County, Economic Development Corporation, as well as labor a variety of labor organizations, including IBEW local 31.

So it's a good diverse coalition.

And we're really proud of the fact that we were able to reach that proposed agreement and I'm very hopeful that the commission will will take it.

Okay, great. Thank you very much.

Of course.

One moment.

And our next question will come from Chris <unk> of Siebert Williams <unk> Company. Your line is open.

Hey, everybody how are you.

Chris.

The additions to the Capex budget to come.

What are your thoughts on the cost of solar and wind relative to what's in your budget.

How much of that is kind.

Fixed at this point.

Additional projects in this inflationary environment would you expect them to be proportionately higher than what you have for the existing ERP projects or would you expect them to be materially higher.

Yeah, Hi, Christy more so these are these are updates so updated cost with today's dollars.

To the extent that inflation impacts us when we build these in 2000 and 425 they certainly.

Could go higher but.

We are reflecting current current cost in this recent capital update. So so we'll just have to stay tuned of course, we'll do whatever we can do to keep costs low for our customers.

You have any idea when you think you may make an additional revision to the budget for the IRB.

So the ERP will be decided or with the hearing on the 20 <unk> and we would do it after that of course it might take some time to analyze it I would expect though by.

February when we come out with our earnings guidance for 2003 that we would have our updated capital.

At that point in time okay.

The ALJ is rare.

<unk> really is pretty good from a top line perspective, but.

Do you have any thoughts.

Scott.

What the commission might think about the <unk>.

<unk> mechanism relative to the Alj's recommendation is there potential there still.

Well, yes, you saw the ALJ recommendation, which opposed to sales true up I don't have any indication of the direction that the commission will go we are not giving up on the sales true up mechanism, though Brian and we will continue to push for that in this particular rate case.

So more to follow on that again, the hearing will be end of January .

Okay.

Sure.

Vis vis the.

Additional wind and solar resources from the ERP is there any additional transmission required for any of that potential capacity.

Well, we do know that transmission will.

I mentioned, Brian the infrastructure that will be required as we transition Boswell three and four so we are always evaluating our system needs.

As more renewables come on it's really important critical that we maintain resiliency and reliability.

Our own customers, but also for the regional grid and so we're always making those evaluations.

System needs and obviously this is a more kind of late breaking news in connection with these additional renewables, but we are anticipating additional infrastructure as well and you know where we have a significant amount of capital in our plan already for an upgrade of the DC line as well.

Okay.

The storage pilot that you have in the <unk>.

Capex already.

Talk about adding storage for IR.

Is that sort of dependent on having the pilot operating for a few years. So.

Incremental storage B, a little further out in the timeline.

Actually the agreement that we filed on Monday really.

Refers to implementing storage demonstration projects are relatively significant size by 2026.

We deem that practicable and in connection with our system. So it's actually more near term as well, okay and not dependent on the pilot Okay Gotcha.

And lastly, Steve you talked about win for Ace being lower can you give us a little more color there.

Yes, it wasn't a huge driver for the quarter. It was it was down about 1% so it wasn't significant.

<unk> is probably.

<unk> two and also keep in mind.

The northern wind, which was in service last year is now under construction. So there was an impact because of that earnings last year, which we did not have this year.

Okay, great. Thanks for the detail I appreciate it guys.

Thanks, Chris.

Again, ladies and gentlemen, if you would like to ask a question. Please press star one on your Touchtone telephone and our next question.

Mmm will come from Angelique Aiello Bank of America, Andrew Lee Your line is open.

Okay.

Hi, good morning, its Julien can you hear me.

Good morning, we can do.

Okay excellent. Thanks for the time I appreciate it so.

Want to ask here, a really well done again on the quarter give us. So just first off if you could talk about.

Dated Brent base year, 8%, you've got a five to seven EPS growth outlook out there.

That rate base does not include <unk>.

Can the component here that could be upside to can you talk about how you see that five to seven positions here.

And how you think about updating it I know you mentioned some specific data points.

<unk> next year, but could we could we kind of reconcile that maybe some of the other data points that might be ahead Phil.

Yes, so good morning, Julien Steve Morris here. So we are we would reaffirm our.

Our long term growth look at 5% to 7%. So we do have some work to do on.

Our capex as we talked about the ERP being improved later this month.

So.

And you pointed out the 8%, but we're going to wait for the IOP to be to be approved.

Which could be potentially higher.

We do expect complementary earnings from our new energy and ALLETE clean energy businesses.

But we are going to reassess our 5% to 7%.

We wouldn't do that until next year, but we need some more information here on this rate base on the <unk> and also on the rate case here Thats really critical coming in January .

And then we'll look at that and updating our long term outlook and get back to you on that I would expect if any change there.

Reaffirmation of our.

Long term outlook would be in February when we do our 23 earnings guidance.

Right, but just to come back to the pieces of the pie here the 8% rate base growth does not include the upside from the ERP that you talked about being approved maybe later this month and then separately if I.

And if I remember the other side of the guidance Youre Ace the status quo prior to reflect an irate commitment was broadly mid teens, 15% if I recall right.

Correct.

Okay, and presumably that should be reflect updated here as we as we roll forward into.

Fully flushed view of the opportunities right.

Correct.

Excellent so women.

And we will take all that in.

Sure.

Under consideration as we get the rate case as we get our.

Our ERP flushed out and decided on with the commission.

And then reflect that in our long term plan and then we'll have the pieces and parts.

Are you.

Next year early next year.

Absolutely alright. So those are those are the positives, let's talk about some of the offsets here just quickly to make sure. We've got our piece of the puts and takes here what about equity needs here. How do you think about that positioning here. How do you think about balance sheet and then also separately lets maybe just tackle the inflationary question. Here. Obviously, you have got a rate case in flight.

But prospectively you like we have an accelerating inflation backdrop, how do you think about shoring up dealing in mitigating those potentially pressures here. How do you think about even another rate case pancakes on this one just in light of the backdrop that we're seeing today again I don't want to be too presumptive here, but obviously, it's fairly dynamic.

Given whether it's sales or cost structure pressures.

Yes, so the equity needs here.

As you know many of these projects are related to the regulated operations. So we generally look at our maintaining our capital structure. So if you if you throw out a 50% equity debt. We will take advantage. If we can and we expect to only IRA as far as tax credits. We do have some some PTC said, we are going to try.

To monetize here even into 2023 for the next several years thats about $45 million to $50 million.

Which would help lower equity needs as well as we have a strong balance sheet to rely on as well. So we'll do what we can do to reduce those equity needs, but generally we would start with our with our cap structure with generally a 50 50 debt to equity.

Inflationary increases of course, we're not immune to inflationary increases we're doing what we can to lower our costs.

Not committing on a timing of a rate case right now Julian until we get the outcome of this rate case.

Excellent. Thank you so much and then if I may just one more here just as you're thinking about the outlook.

Why are you going to the mid point without narrowing here for the guidance right I just wanted to come back to that as you think about the uncertainty in the environment today.

I get that.

I would love to hear your thoughts I mean, as we get closer to the end of the year typically we think about narrowing ranges does that.

That kind of signify any kind of pressures here.

No I don't think so I think the midpoint is $3 75. So you can flex around that if you want plus or minus <unk> <unk>. The way I would look at it and it is a big quarter, So fourth quarter thought.

As a significant quarter for us third quarter not so much as you you know.

So there is some variability with weather and wind that we're watching closely.

But so.

No more than no more than that Julian So you can flex around that plus or minus five cents.

Got it alright excellent.

Great.

And then maybe sorry, if I can throw in one last one here just to come back to the RFP MISO has been talking about changes in seasonal capacity and then LCC effective load carrying capacity of our various resources here. What are you seeing out there. If you can speak to that about even the ERP that you are pretty forthright that one would that actually be a further revision.

The expectation.

Well, yes.

Obviously, we are.

Very involved with MISO and certainly the tranche one projects and expect to participate in tranche two.

I would say that.

In connection with our current AARP those transmission projects are deferred to another regulatory filing, but we believe transmission is critical and that's why it's such a huge part of our strategy going forward and obviously, we're very closely linked with MISO.

All of that.

Got it alright. Thank you guys I appreciate you bearing with me on a few questions here. Good luck this quarter I will speak to you soon thanks Julien.

One moment.

Okay.

And our next question will come from Richard Sunderland of Jpmorgan. Your line is open.

Okay.

Hi, Good morning, and thank you for your time today I wanted to start at a high level thinking about financing considerations and funding needs with this latest growth update.

How do you see a student and strategically in the picture given the regulated outlook continues to tick up several of your peers are looking to monetize some more assets is this potentially a source for reinvestment into the utility.

Withstanding that there are benefits towards the <unk> side going forward as well.

Yes. Thanks for the question Richard We believe <unk> is a very important part of <unk> future and our strategy and so we're really confident in our ability to.

Dress some of the challenges that we mentioned in connection with the congestion in the SPP market that we're seeing in connection with Caddo, but we believe longer term.

No question that as an important part of <unk> future and our strategy.

Understood that's very clear and then you're taking down specifically into the congestion issues can you speak a little bit into what's needed to remediate that and how long it could take.

Yes.

Hi, This is Jeff thanks for the question.

So again as a reminder, the Caddo wind farm has reached commercial operation date in 2022, so it's relatively new so some of these issues we are digging into.

There is some planned infrastructure upgrades in the area that we believe will help.

And then we'll also look at other whether it's technology or working with customers. This is one of the primary focuses for us. So we're learning as we go here.

And there'll be more to come.

Okay understood and then maybe just to go out broadly again, you spoke a little bit about IRA Dennis shapes, and a number of ways, including <unk>.

Cancel a tax credit monetization, which would lower equity needs.

And just also curious kind of what you're seeing particularly on the <unk> side around.

Market discussions counterparty can create.

It's sort of the overall sentiment in terms of new project development there.

Yes, we continue to see robust market and the clean energy goals, both local regional national and on the corporate side. There continues to be strong I think we're seeing some constraints in the infrastructure.

We tried to indicate that our legacy fleet.

Greater than 400 megawatts of mature fleet, and we think theres its prime for redevelopment opportunities in the IRI is is really a tailwind for that especially with the clarity of the rules versus the <unk> that we've had to deal with in the past. So we still see it as a strong market.

Demand is there.

Great. Thank you for taking time so thanks.

Thank you Richard.

And I'm showing no further questions I would now like to turn the call back to Bethany for closing remarks.

Sure.

Okay.

So thank you for your questions today and your interest in ALLETE, we look forward to.

Speaking with many of you at upcoming Investor venues and at EI Financial next week. We hope you have a great rest of your day.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.

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Vince will begin shortly to raise your hand during Q&A you can dial one one.

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Good day and welcome to the ALLETE third quarter financial results call. Today's call is being recorded certain statements contained in this conference call are not descriptions of historical facts are forward looking statements such as terms defined in the private Securities Litigation Reform Act of 1095.

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 those discussed in filings made by the company with the Securities and Exchange Commission. Many of the factors that will determine the company's future results are beyond the ability of management to control or predict listeners should not put undue reliance on forward looking.

Statements, which reflect management's views only as of the date hereof. The company undertakes no obligation to revise or update any forward looking statements or to make any other forward looking statements whether as a result of new information future events or otherwise welcome to Ali's conference call announcing third quarter 2022 financial results later in the call we will have a.

Q&A session and instructions will follow at that time as a reminder, this call is being recorded I would now like to hand, the call over to Bethany Owen Chair President and CEO you may begin.

Thanks, operator, and good morning, everyone and thanks for joining US with me, our elite Senior Vice President and Chief Financial Officer, Steve Morris as well as Frank Frederickson, Minnesota powers, Vice President of customer experience in engineering services, and Jeff citizens, ALLETE clean Energy's Chief financial and strategy Officer.

Corresponding slides for this mornings call can be found on our website at Alere Dot com in the investors section to follow along we will call out each slide number as we go through todays presentation.

This morning, ALLETE reported third quarter 2022 earnings of 59 cents per share. These results were in line with our expectations and support our view that our full year results will be near the midpoint of our $3 60 to $3 90 per share guidance range provided earlier this.

Year.

Steve will be sharing more details from the quarter and comments on 2022 guidance in a moment.

I'll start with important updates on our key strategic initiatives.

And exciting news, we announced and filed on Monday, Minnesota Power reached a proposed agreement with a broad coalition of stakeholder groups on its integrated resource plan.

If the agreement is approved by the Minnesota Public Utilities Commission, Minnesota power would significantly increase the amount of renewable energy. It provides over the next 15 years.

In the proposed settlement, Minnesota power outlined its plans to add up to 400 megawatts of wind energy and 300 megawatts of regional solar energy.

That is nearly twice the amount the company proposed in its initial AARP filing in early 2021.

Also included in the proposed settlement is energy storage to support our renewable investment in.

In addition, Minnesota power will continue to evaluate the transition of Boswell four as the company commenced the six coal operations by the end of 2029 at Boswell three and 2035 at Boswell four.

Under the agreement the <unk> Trail Energy center, and important grid reliability projects, including those set forth in the MISO long range transmission plan would be deferred to future regulatory filings.

Minnesota Power's integrated resource plan and this latest agreement reflect our commitment to the climate, our customers and our communities as well as our employees.

Our team has done a tremendous job of listening to our many stakeholders, including our customers community leaders and organizations and prioritizing their feedback I'm very pleased that this coalition of diverse stakeholders came to an agreement that allows us to continue on our path to provide.

100% carbon free energy by 2050.

And hearings over the next two weeks the commission will consider the next steps in Minnesota powers energy forward plan with a decision on the company's IR P expected on November 22nd.

Moving to <unk> capital investment plan on slide three we've updated this table to reflect a significant increase in capital expenditures over the next five years.

The additions include transmission and clean energy projects as part of our sustainability in action growth strategy. It is important to note that this update does not yet include the additional renewables and energy storage from the proposed IRS agreement filed with the commission on Monday. So we are confident there is more.

More to come.

In addition to renewable generation a key part of this Capex plan is significant transmission investments to support reliability throughout our region.

These investments include expanding and modernizing Minnesota Power's existing 550 megawatt HBC transmission line and investment in MISO long range transmission plan tranche one projects.

Next please refer to slides four through six.

As we look beyond 2027, we believe there are significant investment opportunities. In addition to those reflected in this five year Capex plan.

Specifically, the additional wind solar and storage just mentioned in connection with the IRS as well as additional investments in generation and infrastructure needed as we responsibly and reliably transition our boswell units three and four.

We also expect to participate in MISO as tranche two transmission projects and as part of our high voltage transmission strategy to leverage our strategic geographical position to advance inter regional transmission projects that support reliability and the clean energy transformation.

<unk>.

As we execute in the near term we are always planning for the future and these very important parts of our transformational long term investment strategy are already in motion.

Turning to slide seven we're also very excited about the inflation reduction Act and we believe all of <unk> businesses are well positioned to benefit from this important legislation.

The production tax and investment tax credit extensions provide new options for investment and the transferability of tax credits provides monetization options for our leads business is improving cash flow and credit metrics as we continue to be a market leader in clean energy and.

<unk>.

The IRA will also benefit of lease customers as the new solar production tax credit makes company owned projects more affordable than the solar investment tax credit.

For our newest business, new energy equity the IRA has potential locational domestic material and low to moderate income subscription adders that could provide an up to 50% upside on the IPC.

On the rate case front superior water light and powers rate case is proceeding with a decision expected from the public Service Commission of Wisconsin later this year.

And Minnesota Power's rate case is also moving forward please refer to slides eight and nine.

The administrative law judge recommendation in September was constructive and address key areas of our filing while there are parts of the ALJ report, we strongly disagree with we continue to have confidence in our Minnesota Commission and in the regulatory process to deliver a rate case outcome that.

<unk> supports a financially healthy, Minnesota power, enabling us to continue our clean energy transition, while providing safe resilient reliable and affordable service to our customers.

The Commission's current rate case hearing timeline has been extended to January of 2023 with a final order expected by the end of February .

Also some exciting news on the Minnesota power industrial customer outlook. This summer U S steel announced plans to invest approximately $150 million in its keewatin taconite facility to enable production of direct reduced or Dr. Grade pellets. These.

These pellets will be feedstock for direct reduced iron or hot Briquetted iron processes to support the growing demand for steelmaking in electric arc furnaces.

Construction began this fall and upon completion key tech will be able to produce Dr grade pellets, while retaining the optionality to produce glass furnace grade pellets.

<unk> facility has the capability of producing approximately 5 million tons annually.

Moving to our newest elite company, New energy equity, we expect a solid fourth quarter, New energy is on track with our original projections for the year and has increased its total pipeline of prospective projects well above 2000 megawatts.

Along with the IRS benefits mentioned earlier that could provide investment tax credit upside of up to 50% the new energies the new energy teams solid execution and strong pipeline of future projects have only enhanced our confidence in the resiliency and strength of this business.

Please see slide 10 for details.

Finally, ALLETE clean Energy's earnings this quarter were impacted by congestion at its Caddo wind energy facility and our priority is to address the ramifications of these congestion issues in the southwest power pool for both the Diamond spring and Caddo project.

These sites are operating well and the wind resources are strong and we firmly believe that ALLETE clean energy is well positioned to accelerate the clean energy transition in our country.

The inflation reduction Act will also provide increased incentives and flexibility for structuring and financing of new projects and for maximizing the value of the company's legacy fleet, where more than 400 megawatts have strong potential for redevelopment.

Please see slide 11 for more information on the opportunities we see at ALLETE clean energy.

Now I'll turn it over to Steve for additional details on our third quarter financial results and our full year earnings guidance Steve.

Thanks, Bethany and good morning, everyone I would like to remind you that we filed our 10-Q. This morning and I encourage you to refer to it for more details.

Please refer to slides 12, and 13 for significant variances and other items for comparison consideration today ALLETE reported third quarter 2022 earnings of <unk> 59 per share on net income of $33 $7 million earnings in 2021 was <unk> 53 per share on net income of $27 6 million.

Results for the quarter reflect higher net income for the regulated operations segment, primarily due to interim rate revenue at Minnesota power.

This increase was partially offset by a reserve of $2 9 million after tax or <unk> <unk> per share for an anticipated loss on the sale of ALLETE clean Energy's Northern wind project.

And then could have impacts of $1 7 million after tax or <unk> <unk> per share to reflect changes in the American transmission company estimate of a refund liability related to the ongoing MISO return on equity complaints.

A few details from our business segments.

<unk> regulated operations operations segment recorded third quarter 2022, net income of $38 $3 million.

Compared to $32 9 million in 2021, earning.

Earnings reflect higher net income at Minnesota power, primarily due to the implementation of interim rates at the beginning of the year.

This increase was partially offset by lower kilowatt hour sales to retail customers and higher costs on our 250 megawatt purchase power agreement.

ALLETE earnings in the American transmission company were lower due to period over period changes in Atc's estimate of a refund liability related to MISO return on equity complaints mentioned earlier.

ALLETE clean energy recorded a third quarter of 2022 net loss of $7 3 million compared to a net loss of $800000 in 2021.

The net loss reflects a reserve of $2 $9 million after tax or anticipated loss on the sale of its northern wind project.

Losses under the Caddo wind energy facilities power sales agreement, resulting from market volatility and transmission congestion in the southwest power pool.

The lower wind resources compared to 2021.

Our corporate and other businesses, which include new energy P&I energy and our investment in the nobles two wind energy facility.

We recorded net income of $2 7 million compared to a net loss of $4 $5 million in 2021.

Results in 2020 to reflect higher earnings from our investment in the nobles two wind energy facility.

<unk> higher wind resources net income of $1 $3 million from new energy, which included purchase price accounting adjustments of $1 $7 million after tax as.

As well as the benefit from the timing of income taxes.

Earnings per share dilution in the third quarter was approximately <unk> <unk> due.

Due to additional shares of common stock outstanding.

Next I'll turn to our 2022 earnings guidance, we are updating our earnings guidance and expect earnings to be near the midpoint of our guidance range of $3 60 to $3 90 per share.

This reflects year to date results.

Timing of a portion of our solar project that has shifted into 2023 and.

In part due to timing of solar panel deliveries. However, we now expect to take advantage of the IRA for this project.

We also expect strong fourth quarter earnings from new energy with growing momentum in our project pipeline and significant project closings in October and then to the end of the year.

Keep in mind that on early its ownership new energies partial year financial results for 2022 will be affected by transaction costs and purchase price accounting.

Excluding these items new energy is expected to be accretive this year and we do anticipate meaningful accretion in the first full year of our ownership in 2023.

Turning to ALLETE clean energy, despite inflationary increases and significant cost pressures resulted in a reserve taken in the third quarter.

The northern wind project and the rocket in a project both continued to progress and we are expected and they are expected to be completed by the end of this year and early 2023, respectively.

ALLETE clean energy also continues to advance the 92 megawatt Red barn build transfer project and is on track for 2023 closings.

As Bethany mentioned earlier, we have updated our five year capital expenditure plan through 2027, which can be seen on slide three.

This update reflects additional transmission for Minnesota Power's participation in MISO tranche one projects.

As well as 400 megawatts of additional wind and solar reflected in the Minnesota Power's initial IRB.

Minnesota power and Great River energy intend to build a transmission line from northern Minnesota to Central Minnesota as part of MISO tranche one projects.

We filed a notice of intent with the Minnesota Public Utilities Commission on August one.

And a combined certificate of need and route permit filing will follow within the next 18 months.

The transmission line is expected to be in service in 2030, supporting and strengthening the reliability and resilience of the grid in the upper Midwest as we continue our clean energy transition.

With Minnesota powers approximate 50% share of the $970 million project and additional capital investments of 200 megawatts of solar and 200 megawatts of wind partnership elite now expects capital expenditures of approximately $2 7 billion to.

Through 2027.

Clean energy supporting investments will provide additional optionality resiliency and reliability benefits for our customers, while delivering rate base growth of approximately 8% using 2022 as a base here.

We also expect to update our capital expenditure plan once the integrated resource plan has been approved by the Commission later this month.

In addition, the American transmission company recently updated its 10 year capital investment forecast.

Which calls for approximately $5 to $6 billion and system improvements, which would result in additional investment for ALLETE.

Finally at least financial position is supported by a strong balance sheet that includes cash and cash equivalents of $42 million.

$387 million in available consolidated lines of credit.

Debt to capital ratio of 37% as of September 32022.

I will now turn it back to Bethany for her closing remarks, Anthony Thanks.

Thanks for that update Steve I'm, very proud of our amazing and talented team of employees throughout our lead and we're pleased with our execution and positioning thus far this year with more to come in the final quarter of 2022, including the results of Minnesota Power's AARP, the superior water light and power rate case.

The addition of significant solar capabilities from new energy equity as well as ALLETE clean Energy's progress on build transfer projects and optimization of its portfolio and all of this sets the stage for <unk> future growth over the near and longer term.

The foundation of our strategy is sustainability in all aspects and we're delivering on our commitment to transparency. Please refer to slide 14, with some highlights of our sustainability in action strategy and slide 15, which contains links to important ESG information includes.

Our recently updated corporate sustainability report for 2021.

We look forward to sharing more with you in February as we report on the last quarter of this year and as ALLETE continues putting sustainability in action, leaving the way to a sustainable clean energy future. Thank you for your interest and your investment in ALLETE and at this time I'll ask the operator to open the line.

For your questions certainly.

Certainly ladies and gentlemen, if you would like to ask a question. Please press star one one.

On your Touchtone telephone.

One moment, while we compile the Q&A roster.

Okay.

Sure.

And our first question comes from Brian Russo of Sidoti Your line is open.

Hi, good morning.

Good morning, Brian .

Just to follow up on the expectation for the fourth quarter. It given you.

And your confidence in the midpoint of your guidance it looks like a pretty big step up or improvement.

From the fourth quarter.

2021, and I just wanted to.

If you can provide more insight is it mostly driven by the new energy.

<unk> contribution.

And or are there other drivers plus or minus.

Yeah, Hi, Brian Steve Morris, So I can take that on so a little bit from new energy. So we do expect some some contribution from new energy in the fourth quarter as we talked about a strong fourth quarter, so that will be helpful.

We do expect a higher earnings.

Earnings from Noble's, such which has been performing very well regulated operations is can be higher than our expectation as well as property taxes and depreciation expense has been favorable to our plan.

We have we do expect a little favorable.

The increase from income tax timing.

We do expect higher industrial sales and margins versus our plan as well.

Okay got it and then just on the new energy.

More than 2000 megawatt pipeline project pipeline is there any way to kind of profile that.

These early or late stage development projects and or those that are.

Closer to monetization.

Hi, Brian This is Jeff. Thanks for the question I think that 2000 megawatts captures all all stages of development, Brian . So there is a probability weighted that is.

Smaller than that but what we've said kind of we pointed back to the 100 megawatts that was closed so what we really want our references our confidence in their ability to meet the plan and it's based on that it's based on that pipeline and the fact that it is growing and so we're we're pleased with the performance to date.

We're pleased with some of.

The progress that they've made.

Okay, Great and then just.

On the Capex the increase of a $1 billion it looks like a pretty big.

In 2004, and 25 is that the 200 megawatt solar project and is that.

Separate from the original proposed IOP and then the update IOP that you discussed earlier.

Yeah, I'll take that Brian Steve Morris again, so it is the original or initial AARP for those two projects I think thats on slide three you can see 24 25 to 100 megawatts.

Wind in the.

The wind partnership.

And those were the items that.

Bethany and I mentioned that we will look to update that.

Depending on the outcome of this AARP in November so we've noted that it's nearly double that.

So stay tuned for some potential updates once we get the decision on the IRB.

Okay got it so that $300 million of investment that's pending obviously MPC.

<unk> review and approval.

That is correct.

Okay, and then just lastly on the IRB.

Sure.

A coalition of diverse stakeholders involved in this new.

Settlement.

To be submitted to the commission.

Can you share with us some of the crew some of those stakeholders are.

This is Bethany Brian .

<unk> filing that we filed on Monday, so youll be able to see the exact lift but it's.

A great diverse coalition of clean energy organizations hosts communities or the city of co asset.

The county of task of County, Economic Development Corporation, as well as labor a variety of labor organizations, including IBEW local 31.

So it's a good diverse coalition.

We're really proud of the fact that we were able to reach that proposed agreement and I'm very hopeful that the commission will will take it.

Okay, great. Thank you very much.

Of course.

One moment.

And our next question will come from Chris <unk> of Siebert Williams <unk> <unk> Company. Your line is open.

Hey, everybody how are you.

Chris.

The additions to the Capex budget to come.

What are your thoughts on the cost of solar and wind relative to what's in your budget.

How much of that is.

Kind of fixed at this point.

Additional projects in this inflationary environment would you expect them to be proportionately higher than what you have for the existing ERP projects or would you expect them to be materially higher.

Yeah, Hi, Christy Mara. So these are these are updates our updated cost with today's dollars.

To the extent that inflation impacts us when we build these in 2000 and 425 they certainly.

It could go higher but.

We are reflecting current current costs and this recent capital update. So so we'll just have to stay tuned of course, we'll do whatever we can do to keep costs low for our customers.

Do you have any idea when you think you may make an additional revision to the budget for the IRB.

So the ERP will be decided or with the hearing on the 20 <unk> and we would do it after that of course it might take some time to analyze it I would expect though by.

February when we come out with our earnings guidance for 2003 that we would have our updated capital plan at that point in time.

Okay.

The alj's.

Recommendation really is pretty good from a top line perspective, but.

Do you have any.

<unk>.

What the commission might think about the industrial mechanism relative to the Alj's recommendation is there potential there still.

Well, yes, you saw the ALJ recommendation, which supposed to sales true up I don't have any indication of the direction that the commission will go we are not giving up on the sales drove mechanism, though Brian and we will continue to push for that in this particular rate case.

So more to follow on that again, the hearing will be end of January .

Is there.

Vis vis the.

Additional wind and solar resources from the ERP is there any additional transmission required for any of that potential capacity.

Well, we do know that transmission will.

I mentioned, Brian the infrastructure that will be required as we transition Boswell three and four so we are always evaluating our system needs.

As more renewables come on it's really important critical that we maintain resiliency and reliability.

Our own customers, but also for the regional grid and so we're always making those evaluations.

System needs and obviously this is a more kind of late breaking news in connection with these additional renewables, but we are anticipating additional infrastructure as well and you know we're.

A significant amount of capital in our plan already for an upgrade of the DC line as well.

Okay.

The storage pilot that you have in the <unk>.

Capex already.

Talk about adding storage for the IRB is that sort of dependent on having the pilot.

Operating for a few years so.

Incremental storage B, a little further out in the timeline.

Actually the agreement that we filed on Monday really.

It refers to implementing storage demonstration projects are relatively significant size by 2026.

As we deem that practicable and in connection with our system. So it's actually more near term as well, okay and not dependent on the pilot Okay Gotcha.

And lastly, Steve you talked about win for Ace being lower can you give us a little more color there.

Yes, it wasn't a huge driver for the quarter. It was it was down about 1% so it wasn't significant.

Maybe it's probably <unk>.

Penny or two and also keep in mind.

That northern wind, which was in service last year is now under construction. So there was an impact because of that earnings last year, which we did not have this year.

Okay, great. Thanks for the details I appreciate it guys.

Thanks, Chris.

Again, ladies and gentlemen, if you would like to ask a question. Please press star one on your Touchtone telephone and our next question.

Momo will come from Angelique Aiello Bank of America, Andrew Lee Your line is open.

Okay.

Hi, good morning, its Julien can you hear me.

Good morning, we can do.

Okay excellent. Thanks for the time I appreciate it so.

Want to ask here, a really well done again on this quarter here, but so just first off you could talk about.

Dated Brent base, your 8% you've got a five to seven EPS growth outlook out there.

That rate base does not include <unk>.

And the component here that could be upside to can you talk about how you see that 5% to seven positions here.

And how you think about updating and I know you mentioned some specific data points in <unk> next year, but can we can we kind of reconcile that maybe some of the other data points that might be ahead Phil.

Yes, so good morning, Julienne, Steve Morris here. So we are we would reaffirm our.

Our long term growth look at 5% to 7%. So we do have some work to do on.

Our capex as we talked about the ERP being improved later this month.

So and you pointed out the 8%, but we're going to wait for the <unk> to be approved.

Which could be potentially higher.

We do expect complementary earnings from our new energy and ALLETE clean energy businesses.

We are going to reassess our 5% to 7%.

We wouldn't do that until next year, but we need some more information here on this rate base on this <unk> and also on the rate case here Thats really critical coming in January .

And then we'll look at that and updating our long term outlook and get back to you on that I would expect if any change there.

Ria formation of our.

Long term outlook would be in February when we do our 23 earnings guidance.

Right, but just to come back to the pieces of the pie here the 8% rate base growth does not include the upside from the ERP that you talked about being approved maybe later this month and then separately if I.

If I remember the other side of the guidance here as the status quo prior to reflect an irate commitment was broadly mid teens, 15% if I recall right.

Correct.

Okay, and presumably that should be reflect updated here as we as we roll forward into.

Fully fleshed view of the opportunities right.

Correct.

Excellent.

Oh, sorry, Julian will take all that in.

Under consideration as we get the rate case as we get our.

Our our ERP flushed out and decided on with the commission.

And then reflect that in our long term plan and then we'll have the pieces and parts for you.

<unk> early next year.

Absolutely alright. So this is a positive so let's talk about some of the offsets here just quickly to make sure. We've got our piece of the puts and takes here.

What about equity needs here, how do you think about that positioning here. How do you think about balance sheet and then also separately lets maybe just tackle the inflationary question. Here. Obviously, you have got a rate case in flight.

But prospectively you like we have an accelerating inflation backdrop, how do you think about shoring up dealing in mitigating those potentially pressures here, but do you think about even another rate case pancake on this one just in light of the backdrop that we're seeing today again I don't want to be too presumptive here, but obviously, it's fairly dynamic.

Given weather sales or cost structure pressures.

Yes, so the equity needs here.

As you know many of these projects are related to the regulated operations. So we generally look at our maintain our capital structure. So if you throw out a 50% equity debt. We will take advantage. If we can and we expect to only IRA as far as tax credits. We do have some so PTC is that we are.

We're going to try to monetize here even into 2023 for the next several years, it's about $45 million to $50 million.

Which would help lower equity needs as well as we have a strong balance sheet to rely on as well. So we'll do what we can do to reduce those equity needs, but generally we would start with our with our cap structure with generally a 50 50 debt to equity.

Inflationary increases of course, we're not immune to inflationary increases we're doing what we can to lower our costs.

Not committing on a timing of a rate case right now Julian until we get the outcome of this rate case.

Okay.

Excellent. Thank you so much and then if I may just one more here just as you're thinking about the outlook.

Why are you going to the mid point without narrowing here for the guidance right I just wanted to come back to that as you think about the uncertainty in the environment today.

I get that.

I would love to hear your thoughts I mean, as we get closer to the end of the year typically we think about narrowing ranges.

Does that kind of signify any kind of pressures here.

No I don't think so I think at.

The midpoint is $3 75, so you can flex around that if you want plus or minus <unk> <unk>. The way I would look at it and it is a big quarter. So fourth quarter is a lot.

<unk> is a significant quarter for us third quarter not so much as you you know.

So there is some variability with weather and window, we're watching closely.

But so.

No more than no more than that Julian So you can flex around that plus or minus <unk>.

Got it alright excellent.

Great.

And then maybe sorry, if I can throw in one last one here just to come back to the RFP MISO has been talking about changes in seasonal capacity and then LCC effective load carrying capacity of our various resources here. What are you seeing out there. If you can speak to that about even the ERP that you're putting forth right that one would that actually be a further revision.

And the expectation.

Well.

Obviously.

Very involved with MISO and certainly the tranche one projects and expect to participate in tranche two.

I would say that.

In connection with our current IRT.

Those transmission projects are deferred to another regulatory filing, but we believe transmission is critical and that's why it's such a huge part of our strategy going forward and obviously, we're very closely linked with MISO.

All of that.

Got it alright. Thank you guys I appreciate you bearing with me on a few questions here. Good luck this quarter I will speak to you soon thanks.

Thanks Julien.

One moment.

And our next question will come from Richard Sunderland of Jpmorgan. Your line is open.

Okay.

Hi, good morning, and thank you for the time today wanted to start at a high level thinking about financing considerations and funding needs with this latest growth update.

How do you see a student and strategically in the picture given the regulated outlook continues to tick up several of your peers are looking to monetize some more assets is this potentially a source for reinvestment into the utility.

Withstanding that there are benefits towards the <unk> side going forward as well.

Yes. Thanks for the question Richard We believe <unk> is a very important part of <unk> future and our strategy. So we're really confident in our ability to address some of the challenges that we mentioned in connection with the congestion in the SPP market that we're seeing in connection with Caddo.

But we believe longer term.

No question that Ace is an important part of beliefs future and our strategy.

Understood that's very clear and then you're taking down specifically into the congestion issues could you speak a little bit into what's needed to remediate that and how long it could take.

Yes.

Hi, This is Jeff thanks for the question.

So again as a reminder, the Caddo wind farm has reached commercial operation date in 2022, so it's relatively new so some of these issues. We are digging into there is some planned infrastructure upgrades in the area that we believe will help.

And then we'll also look at other whether it's technology or working with customers. This is one of the primary focuses for us. So we're learning as we go here.

And there'll be more to come.

Okay understood and then maybe.

Just to go out broadly again, you spoke a little bit about IRR, Dennis shapes, and a number of ways, including.

Solar tax credit monetization, which would lower equity needs.

And just also curious kind of what you're seeing particularly on the <unk> side around.

Market discussions counterparty and creates.

It's sort of the overall sentiment in terms of new project development there.

Yes.

To see a robust market and the clean energy goals, both local regional national and on the corporate side. They continue to be strong I think we're seeing some constraints in the infrastructure.

We tried to indicate that our legacy fleet, that's greater than 400 megawatts of mature fleet and we think theres its prime for redevelopment opportunities in the IRI is is really a tailwind for that especially with the clarity of the rules versus the <unk> that we've had to deal with in the past. So we still see it as a strong.

Market.

And demand is there.

Great. Thanks for taking time today.

Thank you Richard.

And Im showing no further questions I would now like to turn the call back to <unk> for closing remarks.

Yes.

So thank you for your questions today and your interest in ALLETE, we look forward to.

Speaking with many of you at upcoming Investor venues and at the EI Financial next week. We hope you have a great rest of your day.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect.