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ALLETE says return of large commercial customers will improve power sales over remainder of year

Highlights

Big customers idled by coronavirus pandemic

Minnesota Power taking more hydro,wind power

Houston — The return to operations of some, though not all, of ALLETE Energy's large industrial electricity customers in Minnesota will allow it to see improved generation levels in the remaining four months of this year, the company said Aug. 5.

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"We are now better able to quantify COVID-19 impacts on the remainder of 2020, as impacts have been played out thus far for Minnesota Power's large power customers," said ALLETE President and CEO Bethany Owen during the company's second-quarter earnings call.

ALLETE, headquartered in Duluth, Minnesota, owns electric utilities Minnesota Power and Superior Water, Light and Power of Wisconsin. It also owns ALLETE Clean Energy.

Minnesota Power "received demand nominations" Aug. 1 that are in effect through Dec. 31 from Cliffs' Northshore Mining, US Steel Minntac and Hibbing Taconite, the company said. It noted however, that two other customers, US Steel's Keetac and Verso Paper "remain indefinitely idled."

Due to an overall slump in sales to other commercial, industrial, and municipal customers, ALLETE executives said they are anticipating "sales to be down 5% for the remainder of 2020." The company said it is estimating the decline in C&I sales of about 400 MW and a 200-MW drop in residential sales.

ALLETE reported Q2 earnings of 39 cents/share on net income of $20.1 million. Results in Q2 2019 were 66 cents/share on net income of $34.2 million, the company said.

It blamed lower Q2 earnings on lower net income at Minnesota Power "primarily due" to a rate case settlement, lower kilowatt-hour sales to commercial and industrial customers due to coronavirus impacts, and lower sales to municipal customers and other power suppliers due to the expiration of related contracts.

These decreases were partially offset, the company said, by lower operating and maintenance expenses and higher sales to residential customers.

Hydro and wind

Minnesota Power has said it expects its energy mix to be about 50% renewable by 2021 and expects to reduce carbon emissions by 50% the same year. That would exceed the state of Minnesota's goal of 30% carbon reduction by 2025.

The utility subsidiary has a total of 1,733 MW of generating capacity. It owns 940 MW of coal-fired capacity, a 110-MW gas-fired unit, 10 hydro facilities with combined capacity of 107 MW and two facilities fueled by biomass that have combined capacity of 76 MW.

Included in its generation capacity total is its 500-MW Bison Wind facility located in south central North Dakota that was brought online in 2015.

However, in June, Minnesota Power energized the 224-mile, 500-kV Great Northern Transmission line that delivers 250 MW of hydropower from the Canadian province of Manitoba to Minnesota.

Industry observers have argued that the new line will help Minnesota Power reach its 2021 renewables goal while it continues to push hard into wind generation.

During its earnings call, the company said its Clean Energy group recorded second quarter 2020 net income of $4.0 million compared with $1.9 million in 2019 as a result of "additional production tax credits and earnings" from its new 106-MW Glen Ullin Energy wind farm located in Mercer and Morton Counties in North Dakota and its 80-MW South Peak wind farm in Montana.

ALLETE Clean Energy, the company's merchant firm, is now developing the approximately 300-MW Diamond Spring wind site in Oklahoma, where it will enter the commercial and industrial power market by selling power to Walmart, Starbucks and Smithfield Foods.

In mid-March, ALLETE Clean Energy bought the 300-MW Caddo wind project located in Oklahoma from Apex Clean Energy. That project has PPAs with three corporate off-takers and is expected to be operational by the end of 2021.

ALLETE has said it has a three-pronged growth strategy when it comes to wind generation. It intends to build and operate wind farms based on long-term power purchase agreements, build wind farms for other companies for a development fee or a sale price, and refurbish existing wind farms while extending power sales agreements.

In June, the utility also said it would "accelerate" its plans for solar energy with an estimated $40 million investment. It announced a plan for approximately 20 MW of solar arrays in northern Minnesota.

Minnesota Power in May proposed an extension of its filing of its Integrated Resource Plan to the Minnesota Public Utilities Commission until April 2021. The company said it needs more time to understand the impact of the coronavirus pandemic.