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Allete Inc. Reports Operating Results (10-Q)

October 29, 2010 | About:
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10qk

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Allete Inc. (ALE) filed Quarterly Report for the period ended 2010-09-30.

Allete Inc. has a market cap of $1.32 billion; its shares were traded at around $36.65 with a P/E ratio of 16 and P/S ratio of 1.7. The dividend yield of Allete Inc. stocks is 4.7%.ALE is in the portfolios of David Dreman of Dreman Value Management, John Keeley of Keeley Fund Management, Columbia Wanger of Columbia Wanger Asset Management, Mario Gabelli of GAMCO Investors, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Net income attributable to ALLETE for the nine months ended September 30, 2010, was $62.0 million, or $1.81 per diluted share, compared to $42.3 million, or $1.33 per diluted share, for the same period of 2009. Net income for the first nine months of 2010 was reduced by $4.0 million, or $0.12 per share, due to the elimination of the deduction for expenses reimbursed under Medicare Part D of the Patient Protection and Affordable Care Act of 2010. Net income for the first nine months of 2009 was reduced by a $4.9 million, or $0.15 per share, after-tax charge for the accrual of retail rate refunds related to 2008.

Regulated Operations net income attributable to ALLETE was $65.2 million for the first nine months of 2010, compared to $45.0 million for the same period of 2009; the first nine months of 2009 was reduced by a $4.9 million after-tax charge for the accrual of retail rate refunds related to 2008. The period-over-period increase is attributable to higher MPUC-approved retail rates (subject to reconsideration and final order), increased sales to our large power customers, higher FERC-approved wholesale rates, and increased transmission-related margins. These increases were significantly offset by higher operating and maintenance, depreciation, interest and income tax expenses. Income tax expense included a $3.6 million charge resulting from the Patient Protection and Affordable Care Act of 2010 that eliminated the deduction for expenses reimbursed under Medicare Part D. In addition, 2010 reflected an increase of $0.3 million in after-tax earnings from our investment in ATC over 2009.

Investments and Other reflected a net loss attributable to ALLETE of $3.2 million in the first nine months of 2010, compared to a net loss of $2.7 million in 2009. The increase in net loss was primarily due to the transfer of a small generating facility to our Regulated Operations in November 2009, and higher operating and maintenance expenses. These items were partially offset by lower equity losses on investments, lower losses at ALLETE Properties and a tax benefit (including interest) resulting from the completion of a state income tax audit of $1.1 million. Income tax expense also included a $0.4 million charge resulting from the Patient Protection and Affordable Care Act of 2010 that eliminated the deduction for expenses reimbursed under Medicare Part D.

Operating and Maintenance Expense increased $20.1 million, or 40 percent, from 2009 reflecting higher plant outages and reagent expenses of $4.4 million, increased labor and employee benefit costs of $4.5 million and additional MISO expenses of $3.1 million relating to the 250 kV DC transmission line purchased from Square Butte on December 31, 2009.

Operating and Maintenance Expense increased $39.5 million, or 23 percent, from 2009 reflecting higher plant outage and reagent expenses of $10.4 million, DC transmission line maintenance expenses of $0.9 million, additional MISO expenses of $11.8 million relating to the 250 kV DC transmission line purchased from Square Butte on December 31, 2009, and increased labor and employee benefit costs of $9.2 million.

2010 Rate Case. On November 2, 2009, Minnesota Power filed an $81 million retail rate increase request for additional revenues to recover the costs of significant investments to ensure current and future system reliability, enhance environmental performance, and bring new renewable energy to northeastern Minnesota. Interim rates were put into effect on January 1, 2010, and were originally estimated to increase revenues by $48.5 million in 2010. In April 2010, we adjusted our initial filing for events that had occurred since November 2009 – primarily increased sales to our industrial customers – resulting in a retail rate increase request of $72 million, a return on equity request of 11.25 percent, and a capital structure consisting of 54.29 percent equity and 45.71 percent debt. As a result of these increased sales, interim rates are estimated to be approximately $53 million during 2010.

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