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Higher industrial sales help raise ALLETE second quarter earnings

ALLETE Inc. earned 72 cents per share in the second quarter, beating the S&P Capital IQ consensus estimate of 55 cents per share and the 2016 second quarter's 50 cents per share, amid higher industrial sales in the first half of this year.

ALLETE's retail power sales totaled 7.3 million MWh in the first six months of 2017, up 2.3% from 2016 sales in the first six months, mainly because of higher sales to industrial customers, according to the company's Aug. 2 earnings release. Sales to residential, commercial and municipal customers fell in the first half of this year from the same period last year amid warmer weather and less energy used for heating, ALLETE Vice President, Controller and Chief Accounting Officer Steven Morris indicated on the call.

ALLETE Chairman, President and CEO Alan Hodnik spoke optimistically about the U.S. steel markets and industrial sales going forward. He referred to Cliffs Natural Resources Inc., a large customer of subsidiary Minnesota Power Inc., which in June announced investing $700 million in a new hot-briquetted iron plant in Ohio for operation in mid-2020. Investment in next-generation iron ore products "bodes well" for Cliffs' iron ore mining operations in Minnesota, which receive electricity from Minnesota Power, Hodnik said.

ALLETE executives narrowed the company's guidance for 2017 to between $3.15 and $3.40 per share from a prior range of $3.10 to $3.50 per share. ALLETE Senior Vice President and CFO Bob Adams attributed the 10-cent drop on the upper end of the guidance to weather and delays at the Great Northern Transmission Line project, a 220-mile, 500-kV line that Minnesota Power is building to the U.S. border, where it will meet a 500-kV line under construction by Manitoba Hydro.

Regarding the Great Northern Transmission Line, Hodnik said, "We got a little bit of a late start, of course, because the presidential permit was issued so late in the year last year. So that was part of the cause here in terms of some of the delay. But we have every plan right now to stay on track to get the project done by 2020."

Overall net income in the first half of 2017 totaled $85.9 million, up about $15 million from net income in the first half of 2016, ALLETE said in its release. Of that amount, its regulated utilities — Minnesota Power, Wisconsin utility Superior Water Light and Power Co., and its 8% stake in American Transmission Co. LLC — earned about $75.9 million, up about $11 million from the first half of 2016.

Hodnik expects certain electric rate reviews to advance in the second half of 2017. In August, he expects a final order in an electric rate case before the Public Service Commission of Wisconsin regarding SWL&P. During a July 13 hearing, the commission approved a 10.5% return on equity. On an annualized basis, the company expects the rate increase to result in additional revenue of about $2.5 million, according to its Form 10-Q.

Minnesota Power is still working with intervenors on a rate review. Adams expects the utility's final rate request to be for about $49 million on an annualized basis, he said on the call. "We continue to work with our intervenors and regulators to achieve a reasonable outcome in a rate filing and are committed to earn our allowed rate of return in the future," Adams added. In April, the Minnesota Public Utilities Commission approved an interim rate increase of $32.2 million that began on May 1, according to the Form 10-Q.

ALLETE Clean Energy, its renewable energy subsidiary, delivered net income in the first half of 2017 of $10.5 million, up by $1.8 million from the same period in 2016. The unit is investing about $80 million through 2020 to refurbish wind turbines at three wind farms in Minnesota and Iowa to requalify them for federal production tax credits, Hodnik said on the call. The wind farms include Storm Lake I, Storm Lake II and Lake Benton I, Hodnik said. In a separate press release, the company said it will stage the refurbishments between 2017 and 2020.