ALLETE, Inc. Q2 2010 Earnings Call Transcript

ALLETE, Inc. Q2 2010 Earnings Call Transcript
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ALLETE, Inc. (ALE)

Q2 2010 Earnings Call

August 04, 2010 10:00 a.m. ET

Executives

Alan Hodnik - President & CEO

Mark Schober - CFO

Analysts

Larry Solow - CJS Securities

James Bellessa - D.A. Davidson & Co.

Neil Stein - Levin Capital

Presentation

Operator

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Previous Statements by ALE
» ALLETE Inc. Q1 2010 Earnings Call Transcript
» ALLETE, Inc. Q4 2009 Earnings Call Transcript
» ALLETE Inc. Q3 2009 Financial Results Conference Call

Good day and welcome to the ALLETE Second Quarter 2010 Financial Results Call. Today's call is being recorded. Certain statements contained in this conference call that are not description of historical facts are forward-looking statements such as terms defined in the Private Securities Litigation Reform Act of 1995 because such statements can include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include but are not limited to those discussed in filings made by the company with the Securities and Exchange Commission. Many of the factors that will determine the company's future result are beyond the ability of management to control or predict. Listeners should not place undue reliance on forward-looking statements which reflects management's views only as of date hereof. The company undertakes no obligations to revise or update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

For opening remarks and introductions, I'd now like to now turn the conference over to ALLETE' President and Chief Executive Officer, Alan R. Hodnik. Please go ahead.

Alan Hodnik

Thank you. Good morning and thanks everyone for joining us today. With me is ALLETE Chief Financial Officer, Mark Schober. This morning we reported second quarter earnings per share of $0.57 compared with $0.29 a year ago. The year-over-year increase was driven by a number of factors including a return to strong production levels by our taconite mining customers. Mark will go through the financial details in a few moments but first let me recap some of the highlights for the quarter

Earlier this week we received demand nominations from our industrial customers for the last four months of 2010. The total nomination level is similar to that of the May through August time period and it indicates that total demand from our industrial customer class in 2010 will be quite a turn around from 2009 levels.

Turning to another topic, construction work is progressing nicely on the first portion of our North Dakota wind initiative. The 75 megawatt Bison I project located near the 250 kilowatt DC line we purchased in 2009 Bison alone will consist of 33 wind turbines with the first half placed into service late this year.

The total project is estimated to cost $177 million and as of June 30 we have spent about $63 million. On a related note in July the Minnesota public utilities commission approved our partition to begin billing customers for the project.

Our retail rate increased request before the Minnesota public utilities commission continues to proceed according to schedule.

As you may know in April we filed our rebuttal testimony in which we lowered our increased request from $81 million to approximately $72 million due to adjustments for known and measurable events that occurred since the original filing.

The largest of these adjustments relates to increased sales to our industrial customers and in addition we lowered our return on equity request from 11.5% to 11.25%. In mid-august, we expect to report in recommendations on the administrative law judge. The commission's oral deliberations should begin and be held sometime in October and the written order is due November 2nd.

I will now ask Mark to provide the financial details for the quarter. Mark?

Mark Schober

Good morning, before I begin I encourage you to refer to the 10Q we filed this morning for complete details of our quarterly results.

For the second quarter of 2010 ALLETE earned $0.57 per share on net income of $19.4 million compared to $0.29 per share, a net income of $9.4 million in the second quarter if 2009. Last year's results included $1.5 million after tax accruals or rate refund related to the 2008 case.

Both excluding it the second quarter of 2009 earned $0.34 per share a net income of $10.9 million. Our regulated operations which includes Minnesota Power; Superior Water, Light and Power and our investment in the American transmission company recorded a net income of 18.2 million for the quarter compared to 10.7 million a year ago.

As I mentioned $1.5 million of the increase is due to the refunds related to the 2008 rate case which we recorded in 2009. Retail and municipal kilowatt hour sales were 50% higher than last years second quarter primarily due to a 98% increase in industrial sales.

There was a corresponding decrease in sales to other power suppliers which were 33% lower this quarter than in 2009. In total, kilowatt hour sales were 17% higher in the second quarter of 2010 compared to 2009.

Last year sales were impacted by dramatic downturn in production levels from our taconite mining customers. Total regulated operations revenue increased 45 million compared to last year due to a number of factors.

Including the significantly increase in retail and municipal sales authorized interim retail rates which are subject to refund pending a final order. The absence in 2010 of the 2008 interim rate refund accruals that occurred last year.

Higher fuel and purchase power recoveries and increased transmission revenue related to the DC Line we purchased in late 2009. Revenue from sales to other power suppliers decreased in 2010 versus 2009.

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