Investment in ATC

6 Months Ended

Jun. 30, 2015

INVESTMENT IN ATC

Our wholly-owned subsidiary, Rainy River Energy, owns approximately 8 percent of ATC, a Wisconsin-based utility that owns and maintains electric transmission assets in parts of Wisconsin, Michigan, Minnesota and Illinois. ATC rates are based on a FERC-approved 12.2 percent return on common equity dedicated to utility plant. We account for our investment in ATC under the equity method of accounting. As of June 30, 2015, our equity investment in ATC was $124.2 million ($121.1 million at December 31, 2014). In the first six months of 2015, we invested $0.8 million in ATC, and on July 30, 2015, we invested an additional $0.4 million. We expect to make additional investments of approximately $0.7 million in 2015.



ALLETE’s Investment in ATC
Millions
Equity Investment Balance as of December 31, 2014		$121.1
Cash Investments	0.8
Equity in ATC Earnings	8.6
Distributed ATC Earnings	(6.3		)
Equity Investment Balance as of June 30, 2015		$124.2

NOTE 9. INVESTMENT IN ATC (Continued)

ATC’s summarized financial data for the six months ended June 30, 2015 and 2014, is as follows:



	Quarter Ended				Six Months Ended
ATC Summarized Financial Data	June 30,				June 30,
Income Statement Data	2015		2014		2015		2014
Millions
Revenue		$165.2		$160.0		$317.6		$323.3
Operating Expense	80.3		74.4		160.3		153.0
Other Expense	24.3		21.9		48.7		43.5
Net Income		$60.6		$63.7		$108.6		$126.8
ALLETE’s Equity in Net Income		$4.7		$5.2		$8.6		$10.3

Our equity earnings in ATC for the six months ended June 30, 2015, were $8.6 million and reflected a $1.7 million reduction related to complaints filed with the FERC by several customer groups located within the MISO service area; of which $1.1 million was attributable to ATC’s change in estimate of a refund liability relating to prior years. The groups requested, among other things, a reduction in the base return on equity used by MISO transmission owners, including ATC, to 9.15 percent. ATC's current authorized return on equity is 12.2 percent. On February 12, 2015, an additional complaint was filed with the FERC seeking an order to further reduce the base return on equity to 8.67 percent. We own approximately 8 percent of ATC and estimate that for every 50 basis point reduction in ATC’s allowed return on equity our equity earnings in ATC would be impacted annually by approximately $0.5 million on an after-tax basis ($0.9 million pre-tax).