Electric Rates. Entities within our Regulated Operations segment file for periodic rate revisions with the MPUC, PSCW or FERC. As authorized by the MPUC, Minnesota Power also recognizes revenue under cost recovery riders for transmission, renewable and environmental investments and expenditures. (See Transmission Cost Recovery Rider, Renewable Cost Recovery Rider, Solar Cost Recovery Rider and Environmental Improvement Rider.) Revenue from cost recovery riders was $38.8 million in 2022 ($38.9 million in 2021; $29.9 million in 2020).

Minnesota Retail Rates. Minnesota Power’s retail rates through 2021 were based on a 2018 MPUC retail rate order that allowed for a 9.25 percent return on common equity and a 53.81 percent equity ratio. The resolution of Minnesota Power’s 2020 general rate case did not change the allowed return on equity or equity ratio. (See 2020 Minnesota General Rate Case.)

2020 Minnesota General Rate Case. In November 2019, Minnesota Power filed a retail rate increase request with the MPUC seeking an average increase of approximately 10.6 percent for retail customers. In December 2019 orders, the MPUC accepted the filing as complete and authorized an annual interim rate increase of $36.1 million beginning January 1, 2020.

In April 2020, Minnesota Power filed a request with the MPUC that proposed a resolution of Minnesota Power’s 2020 general rate case. Key components of our proposal included removing the power marketing margin credit in base rates and reflecting actual power marketing margins in the fuel adjustment clause effective May 1, 2020; refunding to customers interim rates collected through April 2020; increasing customer rates 4.1 percent compared to the 5.8 percent increase reflected in interim rates; and a provision that Minnesota Power would not file another rate case until at least November 1, 2021, unless certain events occur. In a June 2020 order, the MPUC approved Minnesota Power’s petition and proposal to resolve and withdraw the general rate case. Effective May 1, 2020, customer rates were set at an increase of 4.1 percent with the removal of the power marketing margin credit from base rates. Actual power marketing margins are now reflected in the fuel adjustment clause. Reserves for interim rates of $11.7 million were recorded in the second quarter of 2020 and refunded in the third and fourth quarters of 2020.

2022 Minnesota General Rate Case. On November 1, 2021, Minnesota Power filed a retail rate increase request with the MPUC seeking an average increase of approximately 18 percent for retail customers. The rate filing seeks a return on equity of 10.25 percent and a 53.81 percent equity ratio. On an annualized basis, the requested final rate increase would generate approximately $108 million in additional revenue. In orders dated December 30, 2021, the MPUC accepted the filing as complete and authorized an annual interim rate increase beginning January 1, 2022, with approximately $80 million expected to be collected in cash and approximately $8 million of interim rates for residential customers deferred with a final determination on recovery at the end of the rate case.

At a hearing on January 23, 2023, the MPUC made determinations regarding Minnesota Power’s general rate case including allowing a return on common equity of 9.65 percent and a 52.50 percent equity ratio. Upon commencement of final rates, we expect additional revenue from base rates of approximately $60 million and an additional $10 million in revenue recognized under cost recovery riders on an annualized basis, subject to final written order and reconsideration. Final rates are expected to commence in the third quarter of 2023; interim rates will be collected through this period with reserves recorded as necessary. As a result of the MPUC’s determinations made on January 23, 2023, Minnesota Power has recorded a reserve for an interim rate refund of approximately $18 million pre-tax as of December 31, 2022, which is subject to MPUC approval of Minnesota Power’s refund calculation. In addition, Minnesota Power recorded a charge of approximately $8 million pre-tax to write-off the deferred portion of residential customer interim rates. Minnesota Power also recorded additional revenue of approximately $9 million pre-tax for an increase in expected recoveries under its cost recovery riders. Impacts of regulatory outcomes that are determined subsequent to the balance sheet date, and prior to issuance of the financial statements, are recognized in the financial statements as of the balance sheet date.

Minnesota Power’s wholesale electric contract with the Nashwauk Public Utilities Commission is effective through December 31, 2037. The wholesale electric service contract with SWL&P is effective through February 28, 2026. Under the agreement with SWL&P, no termination notice has been given. The rates included in these two contracts are set each July 1 based on a cost-based formula methodology, using estimated costs and a rate of return that is equal to Minnesota Power’s authorized rate of return for Minnesota retail customers. The formula-based rate methodology also provides for a yearly true-up calculation for actual costs incurred.

Minnesota Power’s wholesale electric contracts with 13 other municipal customers were extended in January 2022 and are effective through 2029. These contracts are based on fixed prices for capacity and energy. The base energy charge for each year is adjusted annually for updated fuel and purchased power costs.

Transmission Cost Recovery Rider. Minnesota Power has an approved cost recovery rider in place to charge retail customers on a current basis for certain transmission investments and expenditures, including a return on the capital invested. Current customer billing rates are based on an MPUC order dated December 27, 2022, which provisionally approved Minnesota Power’s latest transmission factor filing submitted on October 31, 2022.

Renewable Cost Recovery Rider. Minnesota Power has an approved cost recovery rider in place to charge retail customers on a current basis for the costs of certain renewable investments and expenditures, including a return on the capital invested. Current customer billing rates for the renewable cost recovery rider were approved by the MPUC in a 2020 order. On February 2, 2022, Minnesota Power submitted its latest renewable factor filing, which included a request to recover a regulatory asset of $3.8 million related to the recognition of production tax credits due to a metering error at Bison. The filing was approved in an order dated January 24, 2023 authorizing Minnesota Power to include updated billing rates on customer bills for recovery of the regulatory asset.

Solar Cost Recovery Rider. Minnesota Power has an approved cost recovery rider in place to charge retail customers on a current basis for solar costs related to investments and expenditures for meeting the state of Minnesota’s solar energy standard. Current customer billing rates for the solar cost recovery rider were approved by the MPUC in an order dated August 31, 2022.

Electric Vehicle Charging Infrastructure Petition. In April 2021, Minnesota Power filed a petition seeking approval to install and own DC fast charger stations for electric vehicles across its service territory, implement accompanying rates for those stations, and track and recover investments and expenses for the project. In an October 2021 order, the MPUC approved Minnesota Power’s petition.

Fuel Adjustment Clause. In 2020, Minnesota Power filed its fuel adjustment forecast for 2021, which was approved by the MPUC in a December 2020 order, subject to the annual prudence review and true-up filing in 2022. During 2021, Minnesota Power incurred higher fuel and purchased power costs than those forecasted in its May 2020 filing, which resulted in the recognition of an approximately $56 million regulatory asset through December 31, 2021. Minnesota Power submitted its annual true-up filing and a significant events filing in March 2022 requesting recovery of these under-collected fuel adjustment clause recoveries. The MPUC approved recovery of the regulatory asset in an order dated July 5, 2022; recovery of the regulatory asset will continue through mid-2023.

Minnesota Power also incurred higher fuel and purchased power costs in 2022 than those factored in its fuel adjustment forecast filed in May 2021 for 2022, which resulted in the recognition of an approximately $13 million regulatory asset as of December 31, 2022. Minnesota Power filed a significant events filing in June 2022 requesting to increase rates from August 2022 through December 2022 in order to recover the under-collected fuel adjustment clause recoveries that were expected for 2022. No parties objected to the request and higher rates were implemented in August 2022. Minnesota Power will request recovery of the remaining regulatory asset as part of its annual true-up filing expected to be submitted to the MPUC in March 2023.

In 2020, Minnesota Power filed its FAC report covering the period July 2018 through December 2019. In a 2020 order, the MPUC referred the review of Minnesota Power’s forced outage costs during the period of the report, which totaled approximately $8 million, to an administrative law judge (ALJ) for a contested case hearing to recommend to the MPUC if any of those costs should be returned to customers. On August 11, 2021, the ALJ recommended that Minnesota Power refund approximately $5 million to ratepayers. Minnesota Power submitted exceptions to the ALJ’s report to the MPUC stating that it disagreed with the ALJ’s recommendation and that no refund should be made as the Company operated its facilities in accordance with good utility practice. At a hearing on January 13, 2022, the MPUC agreed with the ALJ’s recommendation and ordered the refund of approximately $5 million to ratepayers, which was recorded as a reserve as of December 31, 2021, and refunded to customers in 2022.

2022 Wisconsin General Rate Case. In 2022, SWL&P filed a rate increase request with the PSCW seeking an average increase of 3.6 percent for retail customers. The filing sought an overall return on equity of 10.4 percent and a 55 percent equity ratio. On an annualized basis, the requested final rate increase would have generated an estimated $4.3 million in additional revenue. In an order dated December 20, 2022, the PSCW approved an annual increase of $3.3 million reflecting a return on equity of 10.0 percent and 55 percent equity ratio. Final rates went into effect January 1, 2023.

Integrated Resource Plan. On February 1, 2021, Minnesota Power filed its latest IRP, which was approved by the MPUC in an order dated January 9, 2023. The approved IRP, which reflects a joint agreement reached with various stakeholders, outlines Minnesota Power’s clean-energy transition plans through 2035. These plans include expanding its renewable energy supply, achieving coal-free operations at its facilities by 2035, and investing in a resilient and flexible transmission and distribution grid. As part of these plans, Minnesota Power anticipates adding up to 700 MW of new wind and solar energy resources, and ceasing coal operations at Boswell Units 3 and 4 by 2030 and 2035, respectively. Minnesota Power’s plans recognize that advances in technology will play a significant role in completing its transition to carbon-free energy supply, reliably and affordably. Minnesota Power is expected to file its next IRP by March 1, 2025.

On April 1, 2022, Minnesota Power submitted its 2021 consolidated filing detailing Minnesota Power’s CIP program results and proposed CIP financial incentive, which was approved by the MPUC in an order dated July 5, 2022. As a result, Minnesota Power recognized revenue of $1.9 million in 2022 for the approved CIP financial incentive ($2.4 million in 2021 and $2.4 million in 2020). CIP financial incentives are recognized in the period in which the MPUC approves the filing.

In 2020, Minnesota Power submitted its CIP triennial filing for 2021 through 2023 to the MPUC and Minnesota Department of Commerce, which outlines Minnesota Power’s CIP spending and energy-saving goals for those years. Minnesota Power’s CIP investment goal is $10.9 million for 2023.

MISO Return on Equity Complaint. MISO transmission owners, including ALLETE and ATC, have an authorized return on equity of 10.02 percent, or 10.52 percent including an incentive adder for participation in a regional transmission organization based on a 2020 FERC order which is subject to various outstanding legal challenges related to the return on equity calculation and refund period ordered by the FERC. On August 9, 2022, the U.S. Court of Appeals for the District of Columbia Circuit vacated and remanded the 2020 FERC order back to the FERC. We cannot predict the return on equity the FERC will ultimately authorize in the remanded proceeding. (See Note 6. Equity Investments.)

Minnesota Solar Energy Standard. Minnesota law requires at least 1.5 percent of total retail electric sales, excluding sales to certain customers, to be generated by solar energy. At least 10 percent of the 1.5 percent mandate must be met by solar energy generated by or procured from solar photovoltaic devices with a nameplate capacity of 40 kW or less and community solar garden subscriptions. Minnesota Power has met both parts of the solar mandate to date.

In June 2020, Minnesota Power filed proposal with the MPUC to accelerate its plans for purchasing solar energy from approximately 20 MW of solar energy projects in Minnesota which was approved in a June 2021 order. These solar energy projects will be constructed and owned through an ALLETE subsidiary with an estimated investment of $40 million. Construction of these solar energy projects commenced in 2022 with a portion of these projects placed into service in the fourth quarter of 2022; the remaining project is expected to be placed into service in 2023.

Regulatory Assets and Liabilities. Our regulated utility operations are subject to accounting standards for the effects of certain types of regulation. Regulatory assets represent incurred costs that have been deferred as they are probable for recovery in customer rates. Regulatory liabilities represent obligations to make refunds to customers and amounts collected in rates for which the related costs have not yet been incurred. The Company assesses quarterly whether regulatory assets and liabilities meet the criteria for probability of future recovery or deferral. With the exception of the regulatory asset for Boswell Units 1 and 2 net plant and equipment, no other regulatory assets are currently earning a return. The recovery, refund or credit to rates for these regulatory assets and liabilities will occur over the periods either specified by the applicable regulatory authority or over the corresponding period related to the asset or liability.


Regulatory Assets and Liabilities
As of December 31	2022	2021
Millions
Current Regulatory Assets (a)
Fuel Adjustment Clause (b)	$25.6	—
Total Current Regulatory Assets	$25.6	—
Non-Current Regulatory Assets

Defined Benefit Pension and Other Postretirement Benefit Plans (c)	$225.9	$226.4

Income Taxes (d)	97.6	104.7
Cost Recovery Riders (e)	41.2	63.2
Asset Retirement Obligations (f)	35.6	33.1
Manufactured Gas Plant (g)	15.1	17.0
Fuel Adjustment Clause (b)	14.5	56.4
PPACA Income Tax Deferral	4.1	4.3


Other	7.0	6.7
Total Non-Current Regulatory Assets	$441.0	$511.8


Current Regulatory Liabilities (h)
Provision for Interim Rate Refund	$18.4	—
Fuel Adjustment Clause (b)	—	$5.0

Transmission Formula Rates	4.9	3.1
Other	0.1	0.5
Total Current Regulatory Liabilities	$23.4	$8.6
Non-Current Regulatory Liabilities

Income Taxes (d)	$332.5	$353.4
Wholesale and Retail Contra AFUDC (j)	80.7	83.7
Plant Removal Obligations (k)	60.0	52.6

Defined Benefit Pension and Other Postretirement Benefit Plans (c)	17.6	28.1
North Dakota Investment Tax Credits (l)	16.9	12.2
Boswell Units 1 and 2 Net Plant and Equipment (i)	6.7	0.4
Non-Jurisdictional Land Sales (m)	7.5	—


Other	4.2	5.7
Total Non-Current Regulatory Liabilities	$526.1	$536.1

(c)Defined benefit pension and other postretirement items included in our Regulated Operations, which are otherwise required to be recognized in accumulated other comprehensive income, are recognized as regulatory assets or regulatory liabilities on the Consolidated Balance Sheet. The asset or liability will decrease as the deferred items are amortized and recognized as components of net periodic benefit cost. (See Note 12. Pension and Other Postretirement Benefit Plans.)

(e)The cost recovery rider regulatory assets and liabilities are revenue not yet collected from our customers and cash collections from our customers in excess of the revenue recognized, respectively, primarily due to capital expenditures related to Bison and the GNTL as well as differences between production tax credits recognized and those assumed in Minnesota Power’s base rates. The cost recovery rider regulatory assets as of December 31, 2022, will be recovered within the next two years.

(i)In 2018, Minnesota Power retired Boswell Units 1 and 2 and reclassified the remaining net book value from property, plant and equipment to a regulatory asset on the Consolidated Balance Sheet. The remaining net book value is currently included in Minnesota Power’s rate base and Minnesota Power is earning a return on the outstanding balance.

(j)Wholesale and retail contra AFUDC represents amortization to offset AFUDC Equity and Debt recorded during the construction period of our cost recovery rider projects prior to placing the projects in service. The regulatory liability will decrease over the remaining depreciable life of the related asset.