ACQUISITIONS

The acquisitions below are consistent with ALLETE’s stated strategy of investing in energy infrastructure and related services to complement its core regulated utility, balance exposure to business cycles and changing demand, and provide potential long-term earnings growth.

ACE Wind Acquisition

On January 30, 2014, ALLETE Clean Energy acquired wind energy facilities located in Lake Benton, Minnesota (Lake Benton), Storm Lake, Iowa (Storm Lake II) and Condon, Oregon (Condon) from The AES Corporation (AES) for $26.9 million. ALLETE Clean Energy also has an option to acquire a fourth wind energy facility from AES in Armenia Mountain, Pennsylvania (Armenia Mountain), in June 2015.

Lake Benton, Storm Lake II and Condon have 104 MW, 77 MW and 50 MW of generating capability, respectively. Lake Benton and Storm Lake II began commercial operations in 1998, while Condon began operations in 2002. All three wind energy facilities have PPAs in place for their entire output, which expire in various years between 2019 and 2032. Pursuant to the acquisition agreement, ALLETE Clean Energy has an option to acquire the 101 MW Armenia Mountain wind energy facility in June 2015. Armenia Mountain began operations in 2009.

NOTE 7. ACQUISITIONS (Continued)

ALLETE Clean Energy acquired a controlling interest in the limited liability company (LLC) which owns Lake Benton and Storm Lake II, and a controlling interest in the LLC that owns Condon. The acquisition was accounted for as a business combination and the purchase price was allocated based on the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition. In connection with finalizing purchase price accounting, the Company recorded minor adjustments to certain assets and liabilities, which are reflected in the table below. These adjustments had no impact on the results of operations. Fair value measurements were valued primarily using the discounted cash flow method.



Millions
Assets Acquired
Cash and Cash Equivalents		$3.8
Other Current Assets	14.3
Property, Plant and Equipment – Net	156.9
Other Non-Current Assets (a)	7.5
Total Assets Acquired		$182.5
Liabilities Assumed
Other Current Liabilities (b)		$15.2
Long-Term Debt Due Within One Year	2.2
Long-Term Debt	21.1
Power Purchase Agreements	99.4
Other Non-Current Liabilities	10.6
Non-Controlling Interest (c)	7.1
Total Liabilities and Non-Controlling Interest Assumed	$155.6
Net Identifiable Assets Acquired		$26.9


(a)	Included in Other Non-Current Assets was $0.3 million for the option to purchase Armenia Mountain in 2015, and goodwill of $2.9 million; for tax purposes, the purchase price allocation resulted in no allocation to goodwill.


(b)	Other Current Liabilities included $12.4 million related to the current liabilities portion of the Power Purchase Agreements.


(c)	The purchase price accounting valued the non-controlling interest related to Lake Benton, Storm Lake II and Condon at fair value using the discounted cash flow method. The non-controlling interest related to Lake Benton and Storm Lake II was subsequently purchased by ALLETE Clean Energy.

ALLETE Clean Energy incurred $1.4 million after-tax of acquisition-related costs in 2014, which were expensed when incurred and were recorded in Other Expense on the Consolidated Statement of Income. The pro forma impact of this acquisition was not material to the results of the Company for the years ended December 31, 2014 and 2013.

On February 11, 2014, ALLETE Clean Energy purchased the non-controlling interest related to Lake Benton and Storm Lake II for $6.0 million. This was accounted for as an equity transaction, and no gain or loss was recognized in net income or other comprehensive income.

Montana-Dakota Utilities

On November 20, 2014, ALLETE Clean Energy acquired a business for $27.0 million which is developing a wind facility near Hettinger, North Dakota. ALLETE Clean Energy will develop and construct a 107 MW wind farm using 43 turbines which will then be sold to Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc., for approximately $200 million. Construction is expected to be completed in December 2015, and the sale is subject to regulatory approvals.

The acquisition was accounted for as a business combination and the purchase price was allocated based on the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. Fair value measurements were valued primarily using the replacement cost method and determined that the assets acquired amounted to cash of approximately $3.6 million and construction in process of approximately $23.4 million. There were no liabilities assumed and no recognition of goodwill.

Acquisition-related costs were expensed as incurred and were not material for the year ended December 31, 2014. The pro forma impacts of this acquisition also were not material to the results of the Company for the years ended December 31, 2014 and 2013.

NOTE 7. ACQUISITIONS (Continued)

As of December 31, 2014, $48.2 million of construction costs incurred (including the construction costs acquired) and $54.3 million of construction deposits received from Montana-Dakota Utilities Co. have been classified on the Consolidated Balance Sheet as Other Current Assets and Other Current Liabilities, respectively. Subject to regulatory approval, ALLETE expects revenue to be recognized under the percentage of completion method of accounting as progress toward completion of the project is achieved. Until regulatory approval is obtained, we expect no impact from the project on the Consolidated Statement of Income. Costs to construct the wind facility and deposits received from Montana-Dakota Utilities Co. are reported as Construction Costs for Development Project in investing activities and Construction Deposits Received for Development Project in financing activities on the Consolidated Statement of Cash Flows, respectively.

Storm Lake I Acquisition

On December 17, 2014, ALLETE Clean Energy acquired a wind generation facility in Storm Lake, Iowa (Storm Lake I) from NRG Energy, Inc. for $15.0 million, subject to a working capital adjustment.

Storm Lake I has 108 MW of generating capability and is located adjacent to Storm Lake II which ALLETE Clean Energy acquired in January 2014. The wind generation facility began commercial operations in 1999 and has a PPA in place for its entire output which expires in 2018.

The acquisition was accounted for as a business combination and the purchase price was allocated based on the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition, as shown in the table below. The allocation of the purchase price is subject to judgment and the preliminary estimated fair value of the assets acquired and liabilities assumed may be adjusted when the valuation analysis is completed in subsequent periods. Preliminary estimates subject to adjustment in subsequent periods relating primarily to property, plant and equipment and the PPA; subsequent adjustments could impact the amount of goodwill recorded or result in a bargain purchase. Fair value measurements were valued primarily using the discounted cash flow method.



Millions
Assets Acquired
Cash and Cash Equivalents		$0.4
Other Current Assets	4.7
Property, Plant and Equipment – Net	47.3
Other Non-Current Assets (a)	11.4
Total Assets Acquired		$63.8
Liabilities Assumed
Other Current Liabilities (b)		$8.2
Power Purchase Agreements	23.5
Other Non-Current Liabilities	17.0
Total Liabilities Assumed	$48.7
Net Identifiable Assets Acquired		$15.1


(a)	Included in Other Non-Current Assets was $0.4 million of restricted cash and an immaterial amount of goodwill; for tax purposes, the purchase price allocation resulted in no allocation to goodwill.


(b)	Other Current Liabilities included $7.5 million related to the current liabilities portion of the Power Purchase Agreements.

ALLETE Clean Energy Purchase Agreement

On December 31, 2014, ALLETE Clean Energy signed a purchase agreement to acquire wind facilities in southern Minnesota for approximately $47.5 million, subject to a working capital adjustment.

The facilities have 97.5 MW of generating capability and are located near our Lake Benton facility acquired in January 2014. The wind facilities began commercial operations in 2003 and have PPAs in place for the entire output, which expire in 2018 and 2023. The acquisition is expected to close in the first quarter of 2015.