United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the year ended December 31, 2018
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______________ to ______________
Commission File Number 1-3548
ALLETE, Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Minnesota
41-0418150
30 West Superior Street, Duluth, Minnesota 55802-2093
(Address of principal executive offices, including zip code)
(218) 279-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, without par value
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Non-Accelerated Filer
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of voting stock held by nonaffiliates on June 29, 2018, was $3,959,298,983.
As of February 1, 2019, there were 51,519,442 shares of ALLETE Common Stock, without par value, outstanding.
Portions of the Proxy Statement for the 2019 Annual Meeting of Shareholders are incorporated by reference in Part III.
Documents Incorporated By Reference
Index
Definitions
Forward-Looking Statements
Part I
Item 1. Business
Regulated Operations
Electric Sales / Customers
Seasonality
Power Supply
Transmission and Distribution
Investment in ATC
Properties
Regulatory Matters
Regional Organizations
Minnesota Legislation
Competition
Franchises
Energy Infrastructure and Related Services
ALLETE Clean Energy
U.S. Water Services
Corporate and Other
BNI Energy
Investment in Nobles 2
ALLETE Properties
Non-Rate Base Generation and Miscellaneous
Environmental Matters
Employees
Availability of Information
Executive Officers of the Registrant
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
2018 Compared to 2017
2017 Compared to 2016
Critical Accounting Policies
Outlook
Liquidity and Capital Resources
Capital Requirements
Environmental and Other Matters
Market Risk
Recently Adopted Accounting Standards
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
ALLETE, Inc. 2018 Form 10-K
2
4
6
8
8
9
9
12
12
14
15
15
15
17
17
17
18
18
18
19
20
20
20
20
21
21
21
22
22
23
30
30
31
31
31
31
33
33
34
35
39
43
45
52
56
56
56
57
57
58
Index
Part III
Part IV
Signatures
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements - Audited
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Cash Flows
Consolidated Statement of Equity
Notes to Consolidated Financial Statements
Note 1. Operations and Significant Accounting Policies
Note 2. Property, Plant and Equipment
Note 3. Jointly-Owned Facilities and Projects
Note 4. Regulatory Matters
Note 5. Equity Investments
Note 6. Acquisitions
Note 7. Goodwill and Intangible Assets
Note 8. Investments
Note 9. Fair Value
Note 10. Short-Term and Long-Term Debt
Note 11. Commitments, Guarantees and Contingencies
Note 12. Common Stock and Earnings Per Share
Note 13. Income Tax Expense
Note 14. Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
Note 15. Pension and Other Postretirement Benefit Plans
Note 16. Employee Stock and Incentive Plans
Note 17. Business Segments
Note 18. Quarterly Financial Data (Unaudited)
Schedule II
58
58
58
59
59
59
60
60
60
61
61
66
67
69
71
71
72
73
74
75
76
76
88
89
89
95
96
97
98
99
102
104
112
113
116
116
125
127
130
131
ALLETE, Inc. 2018 Form 10-K
3
Definitions
The following abbreviations or acronyms are used in the text. References in this report to “we,” “us” and “our” are to ALLETE,
Inc. and its subsidiaries, collectively.
Abbreviation or Acronym
AFUDC
ALLETE
Term
Allowance for Funds Used During Construction - the cost of both debt and equity funds
used to finance utility plant additions during construction periods
ALLETE, Inc.
ALLETE Clean Energy
ALLETE Clean Energy, Inc. and its subsidiaries
ALLETE Properties
ALLETE South Wind
ALLETE Properties, LLC and its subsidiaries
ALLETE South Wind, LLC
ALLETE Transmission Holdings ALLETE Transmission Holdings, Inc.
ArcelorMittal
ASC
ATC
Basin
Bison
BNI Energy
Boswell
Camp Ripley
CIP
Cliffs
CO2
Company
DC
EIS
EITE
EPA
ArcelorMittal USA, Inc.
Accounting Standards Codification
American Transmission Company LLC
Basin Electric Power Cooperative
Bison Wind Energy Center
BNI Energy, Inc. and its subsidiary
Boswell Energy Center
Camp Ripley Solar Array
Conservation Improvement Program
Cleveland-Cliffs Inc.
Carbon Dioxide
ALLETE, Inc. and its subsidiaries
Direct Current
Environmental Impact Statement
Energy-Intensive Trade-Exposed
United States Environmental Protection Agency
ERP Iron Ore
ERP Iron Ore, LLC
ESOP
FASB
FERC
Form 8-K
Form 10-K
Form 10-Q
GAAP
GHG
GNTL
Invest Direct
IRP
Item ___
kV
kW / kWh
Laskin
Magnetation
Manitoba Hydro
MBtu
Employee Stock Ownership Plan
Financial Accounting Standards Board
Federal Energy Regulatory Commission
ALLETE Current Report on Form 8-K
ALLETE Annual Report on Form 10-K
ALLETE Quarterly Report on Form 10-Q
Generally Accepted Accounting Principles in the United States of America
Greenhouse Gases
Great Northern Transmission Line
ALLETE’s Direct Stock Purchase and Dividend Reinvestment Plan
Integrated Resource Plan
Item ___ of this Form 10-K
Kilovolt(s)
Kilowatt(s) / Kilowatt-hour(s)
Laskin Energy Center
Magnetation, LLC
Manitoba Hydro-Electric Board
Million British thermal units
ALLETE, Inc. 2018 Form 10-K
4
Abbreviation or Acronym
Mesabi Metallics
Minnesota Power
Minnkota Power
MISO
Montana-Dakota Utilities
Moody’s
MPCA
MPUC
MW / MWh
NDPSC
NERC
Nobles 2
NOL
NOX
Northern States Power
Northshore Mining
Note ___
NTEC
NYSE
Oliver Wind I
Oliver Wind II
Palm Coast Park District
PolyMet
PPA / PSA
PPACA
PSCW
RSOP
SEC
S&P Global Ratings
Shell Energy
Silver Bay Power
SO2
Square Butte
SWL&P
Taconite Harbor
Taconite Ridge
Tenaska
TCJA
Tonka Water
Town Center District
TransAlta
United Taconite
UPM Blandin
U.S.
U.S. Water Services
USS Corporation
WTG
Definitions (continued)
Term
Mesabi Metallics Company, LLC
An operating division of ALLETE, Inc.
Minnkota Power Cooperative, Inc.
Midcontinent Independent System Operator, Inc.
Montana-Dakota Utilities Co., a division of MDU Resources Group, Inc.
Moody’s Investors Service, Inc.
Minnesota Pollution Control Agency
Minnesota Public Utilities Commission
Megawatt(s) / Megawatt-hour(s)
North Dakota Public Service Commission
North American Electric Reliability Corporation
Nobles 2 Power Partners, LLC
Net Operating Loss
Nitrogen Oxides
Northern States Power Company, a subsidiary of Xcel Energy Inc.
Northshore Mining Company, a wholly-owned subsidiary of Cliffs
Note ___ to the consolidated financial statements in this Form 10-K
Nemadji Trail Energy Center
New York Stock Exchange
Oliver Wind I Energy Center
Oliver Wind II Energy Center
Palm Coast Park Community Development District in Florida
PolyMet Mining Corp.
Power Purchase Agreement / Power Sales Agreement
Patient Protection and Affordable Care Act of 2010
Public Service Commission of Wisconsin
Retirement Savings and Stock Ownership Plan
Securities and Exchange Commission
Standard and Poor’s Global Ratings
Shell Energy North America (US), L.P.
Silver Bay Power Company, a wholly-owned subsidiary of Cliffs
Sulfur Dioxide
Square Butte Electric Cooperative, a North Dakota cooperative corporation
Superior Water, Light and Power Company
Taconite Harbor Energy Center
Taconite Ridge Energy Center
Tenaska Energy, Inc. and Tenaska Energy Holdings, LLC
Tax Cuts and Jobs Act of 2017 (Public Law 115-97)
Tonka Equipment Company
Town Center at Palm Coast Community Development District in Florida
TransAlta Energy Marketing (U.S.) Inc.
United Taconite LLC, a wholly-owned subsidiary of Cliffs
UPM, Blandin paper mill owned by UPM-Kymmene Corporation
United States of America
U.S. Water Services, Inc. and its subsidiaries
United States Steel Corporation
Wind Turbine Generator
ALLETE, Inc. 2018 Form 10-K
5
Forward-Looking Statements
Statements in this report that are not statements of historical facts are considered “forward-looking” and, accordingly, involve
risks and uncertainties that could cause actual results to differ materially from those discussed. Although such forward-looking
statements have been made in good faith and are based on reasonable assumptions, there can be no assurance that the expected
results will be achieved. Any statements that express, or involve discussions as to, future expectations, risks, beliefs, plans,
objectives, assumptions, events, uncertainties, financial performance, or growth strategies (often, but not always, through the use
of words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “likely,” “will
continue,” “could,” “may,” “potential,” “target,” “outlook” or words of similar meaning) are not statements of historical facts and
may be forward-looking.
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we are providing this
cautionary statement to identify important factors that could cause our actual results to differ materially from those indicated in
forward-looking statements made by or on behalf of ALLETE in this Form 10-K, in presentations, on our website, in response to
questions or otherwise. These statements are qualified in their entirety by reference to, and are accompanied by, the following
important factors, in addition to any assumptions and other factors referred to specifically in connection with such forward-looking
statements that could cause our actual results to differ materially from those indicated in the forward-looking statements:
our ability to successfully implement our strategic objectives;
global and domestic economic conditions affecting us or our customers;
changes in and compliance with laws and regulations;
changes in tax rates or policies or in rates of inflation;
the outcome of legal and administrative proceedings (whether civil or criminal) and settlements;
•
•
•
•
•
• weather conditions, natural disasters and pandemic diseases;
our ability to access capital markets and bank financing;
•
changes in interest rates and the performance of the financial markets;
•
project delays or changes in project costs;
•
changes in operating expenses and capital expenditures and our ability to raise revenues from our customers in regulated rates
•
or sales price increases at our Energy Infrastructure and Related Services businesses;
the impacts of commodity prices on ALLETE and our customers;
our ability to attract and retain qualified, skilled and experienced personnel;
effects of emerging technology;
•
•
•
• war, acts of terrorism and cybersecurity attacks;
•
•
• wholesale power market conditions;
•
our ability to manage expansion and integrate acquisitions;
population growth rates and demographic patterns;
federal and state regulatory and legislative actions that impact regulated utility economics, including our allowed rates of
return, capital structure, ability to secure financing, industry and rate structure, acquisition and disposal of assets and facilities,
operation and construction of plant facilities and utility infrastructure, recovery of purchased power, capital investments and
other expenses, including present or prospective environmental matters;
effects of competition, including competition for retail and wholesale customers;
effects of restructuring initiatives in the electric industry;
the impacts on our Regulated Operations segment of climate change and future regulation to restrict the emissions of GHG;
effects of increased deployment of distributed low-carbon electricity generation resources;
the impacts of laws and regulations related to renewable and distributed generation;
pricing, availability and transportation of fuel and other commodities and the ability to recover the costs of such commodities;
our current and potential industrial and municipal customers’ ability to execute announced expansion plans;
real estate market conditions where our legacy Florida real estate investment is located may not improve;
the success of efforts to realize value from, invest in, and develop new opportunities in, our Energy Infrastructure and Related
Services businesses;
factors affecting our Energy Infrastructure and Related Services businesses, including fluctuations in the volume of customer
orders, unanticipated cost increases, changes in legislation and regulations impacting the industries in which the customers
served operate, the effects of weather, creditworthiness of customers, ability to obtain materials required to perform services,
and changing market conditions; and
our ability to successfully close the announced sale of U.S. Water Services, including the satisfaction of certain closing
conditions, which cannot be assured to be completed.
•
•
•
•
•
•
•
•
•
•
•
ALLETE, Inc. 2018 Form 10-K
6
Forward Looking Statements (Continued)
Additional disclosures regarding factors that could cause our results or performance to differ from those anticipated by this report
are discussed in Part 1, Item 1A under the heading “Risk Factors” of this Form 10-K. Any forward-looking statement speaks only
as of the date on which such statement is made, and we undertake no obligation to update any forward looking statement to reflect
events or circumstances after the date on which that statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for management to predict all of these factors, nor can it assess the impact
of each of these factors on the businesses of ALLETE or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking statement. Readers are urged to carefully review
and consider the various disclosures made by ALLETE in this Form 10-K and in other reports filed with the SEC that attempt to
identify the risks and uncertainties that may affect ALLETE’s business.
ALLETE, Inc. 2018 Form 10-K
7
Item 1. Business
Part I
Regulated Operations includes our regulated utilities, Minnesota Power and SWL&P, as well as our investment in ATC, a
Wisconsin-based regulated utility that owns and maintains electric transmission assets in portions of Wisconsin, Michigan,
Minnesota and Illinois. Minnesota Power provides regulated utility electric service in northeastern Minnesota to approximately
145,000 retail customers. Minnesota Power also has 16 non-affiliated municipal customers in Minnesota. SWL&P is a Wisconsin
utility and a wholesale customer of Minnesota Power. SWL&P provides regulated utility electric, natural gas and water service
in northwestern Wisconsin to approximately 15,000 electric customers, 13,000 natural gas customers and 10,000 water customers.
Our regulated utility operations include retail and wholesale activities under the jurisdiction of state and federal regulatory
authorities. (See Note 4. Regulatory Matters.)
ALLETE Clean Energy focuses on developing, acquiring, and operating clean and renewable energy projects. ALLETE Clean
Energy currently owns and operates, in four states, approximately 545 MW of nameplate capacity wind energy generation that is
contracted under PSAs of various durations. ALLETE Clean Energy also engages in the development of wind energy facilities to
operate under long-term PSAs or for sale to others upon completion.
U.S. Water Services provides integrated water management for industry by combining chemical, equipment, engineering and
service for customized solutions to reduce water and energy usage, and improve efficiency.
Corporate and Other is comprised of BNI Energy, our coal mining operations in North Dakota, our investment in Nobles 2,
ALLETE Properties, our legacy Florida real estate investment, other business development and corporate expenditures, unallocated
interest expense, a small amount of non-rate base generation, approximately 4,000 acres of land in Minnesota, and earnings on
cash and investments.
ALLETE is incorporated under the laws of Minnesota. Our corporate headquarters are in Duluth, Minnesota. Statistical information
is presented as of December 31, 2018, unless otherwise indicated. All subsidiaries are wholly-owned unless otherwise specifically
indicated. References in this report to “we,” “us” and “our” are to ALLETE and its subsidiaries, collectively.
Year Ended December 31
2018
2017
2016
Consolidated Operating Revenue – Millions (a)
$1,498.6
$1,419.3
$1,339.7
Percentage of Consolidated Operating Revenue
Regulated Operations
ALLETE Clean Energy (a)
U.S. Water Services
Corporate and Other
71%
11%
11%
7%
100%
75%
6%
11%
8%
100%
75%
6%
10%
9%
100%
(a) Includes the sale of a wind energy facility to Montana-Dakota Utilities for $81.1 million in 2018.
For a detailed discussion of results of operations and trends, see Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations. For business segment information, see Note 1. Operations and Significant Accounting Policies
and Note 17. Business Segments.
ALLETE, Inc. 2018 Form 10-K
8
REGULATED OPERATIONS
Electric Sales / Customers
Regulated Utility Kilowatt-hours Sold
Year Ended December 31
Millions
Retail and Municipal
Residential
Commercial
Industrial
Municipal
Total Retail and Municipal
Other Power Suppliers
Total Regulated Utility Kilowatt-hours Sold
2018
%
2017
%
2016
%
1,140
1,426
7,261
798
10,625
3,953
14,578
8
10
50
5
73
27
100
1,096
1,420
7,327
799
10,642
4,039
14,681
7
10
50
5
72
28
100
1,102
1,442
6,456
816
9,816
4,316
14,132
8
10
45
6
69
31
100
Industrial Customers. In 2018, industrial customers represented 50 percent of total regulated utility kWh sales. Our industrial
customers are primarily in the taconite mining, iron concentrate, paper, pulp and secondary wood products, and pipeline industries.
Industrial Customer Kilowatt-hours Sold
Year Ended December 31
Millions
Taconite/Iron Concentrate
Paper, Pulp and Secondary Wood Products
Pipelines and Other Industrial
Total Industrial Customer Kilowatt-hours Sold
2018
%
2017
%
2016
%
5,039
987
1,235
7,261
69
14
17
100
4,930
1,104
1,293
7,327
67
15
18
100
3,906
1,303
1,247
6,456
61
20
19
100
Six taconite facilities served by Minnesota Power made up approximately 80 percent of 2017 iron ore pellet production in the
U.S. according to data from the Minnesota Department of Revenue 2018 Mining Tax Guide. Sales to taconite customers and iron
concentrate customers represented 5,039 million kWh, or 69 percent of total industrial customer kWh sales in 2018. Taconite, an
iron bearing rock of relatively low iron content, is abundantly available in northern Minnesota and an important domestic source
of raw material for the steel industry. Taconite processing plants use large quantities of electric power to grind the iron-bearing
rock, and agglomerate and pelletize the iron particles into taconite pellets. Iron concentrate reclamation facilities also use large
quantities of electricity to extract and process iron-bearing tailings left from previous mining operations in the production of iron
ore concentrate.
Minnesota Power’s taconite customers are capable of producing approximately 41 million tons of taconite pellets annually. Taconite
pellets produced in Minnesota are primarily shipped to North American steel making facilities that are part of the integrated steel
industry. Steel produced from these North American facilities is used primarily in the manufacture of automobiles, appliances,
pipe and tube products for the gas and oil industry, and in the construction industry. Historically, less than 10 percent of Minnesota
taconite production has been exported outside of North America. Minnesota Power also has provided electric service to three iron
concentrate facilities capable of producing up to approximately 4 million tons of iron concentrate per year. Iron concentrate is
used in the production of taconite pellets. These facilities have been idled since at least 2016. On July 17, 2018, ERP Iron Ore
announced it would no longer seek to restart its iron concentrate operations. (See Item 7. Management’s Discussion and Analysis
– Outlook – Industrial Customers and Prospective Additional Load.)
There has been a general historical correlation between U.S. steel production and Minnesota taconite production. The American
Iron and Steel Institute, an association of North American steel producers, reported that U.S. raw steel production operated at
approximately 78 percent of capacity in 2018 (74 percent in 2017 and 71 percent in 2016). The World Steel Association, an
association of over 160 steel producers, national and regional steel industry associations, and steel research institutes representing
approximately 85 percent of world steel production, projected U.S. steel consumption in 2019 will increase by approximately
one percent compared to 2018.
ALLETE, Inc. 2018 Form 10-K
9
REGULATED OPERATIONS (Continued)
Industrial Customers (Continued)
The following table reflects Minnesota Power’s taconite customers’ production levels for the past ten years:
Minnesota Power Taconite Customer Production
Year
2018*
2017
2016
2015
2014
2013
2012
2011
2010
2009
Tons (Millions)
38
38
28
31
39
37
39
39
35
17
Source: Minnesota Department of Revenue 2018 Mining Tax Guide for years 2009 - 2017.
* Preliminary data from the Minnesota Department of Revenue.
Minnesota Power’s taconite customers may experience annual variations in production levels due to such factors as economic
conditions, short-term demand changes or maintenance outages. We estimate that a one million ton change in Minnesota Power’s
taconite customers’ production would impact our annual earnings per share by approximately $0.04, net of expected power
marketing sales at current prices. Changes in wholesale electric prices or customer contractual demand nominations could impact
this estimate. Minnesota Power proactively sells power in the wholesale power markets that is temporarily not required by industrial
customers to optimize the value of its generating facilities. Long-term reductions in taconite production or a permanent shut down
of a taconite customer may lead Minnesota Power to file a general rate case to recover lost revenue.
In addition to serving the taconite industry, Minnesota Power serves a number of customers in the paper, pulp and secondary wood
products industry, which represented 987 million kWh, or 14 percent of total industrial customer kWh sales in 2018. Minnesota
Power also has agreements to provide steam for two of its paper and pulp customers for use in the customers’ operations. The four
major paper and pulp mills we serve reported operating at lower levels in 2018 compared to 2017 resulting from the closure of
the smaller of UPM Blandin’s two paper machines in the fourth quarter of 2017. (See Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Outlook – Industrial Customers and Prospective Additional Load.)
Large Power Customer Contracts. Minnesota Power has eight Large Power Customer contracts, each serving requirements of
10 MW or more of customer load. The customers consist of six taconite facilities and four paper and pulp mills. Certain facilities
have common ownership and are served under combined contracts.
Large Power Customer contracts require Minnesota Power to have a certain amount of generating capacity available. In turn, each
Large Power Customer is required to pay a minimum monthly demand charge that covers the fixed costs associated with having
this capacity available to serve the customer, including a return on common equity. Most contracts allow customers to establish
the level of megawatts subject to a demand charge on a four-month basis and require that a portion of their megawatt needs be
committed on a take-or-pay basis for at least a portion of the term of the agreement. In addition to the demand charge, each Large
Power Customer is billed an energy charge for each kWh used that recovers the variable costs incurred in generating electricity.
Five of the Large Power Customer contracts have interruptible service which provides a discounted demand rate in exchange for
the ability to interrupt the customers during system emergencies. Minnesota Power also provides incremental production service
for customer demand levels above the contractual take-or-pay levels. There is no demand charge for this service and energy is
priced at an increment above Minnesota Power’s cost. Incremental production service is interruptible.
ALLETE, Inc. 2018 Form 10-K
10
REGULATED OPERATIONS (Continued)
Large Power Customer Contracts (Continued)
All contracts with Large Power Customers continue past the contract termination date unless the required advance notice of
cancellation has been given. The required advance notice of cancellation varies from two to four years. Such contracts minimize
the impact on earnings that otherwise would result from significant reductions in kWh sales to such customers. Large Power
Customers are required to take all of their purchased electric service requirements from Minnesota Power for the duration of their
contracts. The rates and corresponding revenue associated with capacity and energy provided under these contracts are subject to
change through the same regulatory process governing all retail electric rates. (See Regulatory Matters – Electric Rates.)
Minnesota Power, as permitted by the MPUC, requires its taconite-producing Large Power Customers to pay weekly for electric
usage based on monthly energy usage estimates. These customers receive estimated bills based on Minnesota Power’s estimate
of the customer’s energy usage, forecasted energy prices and fuel adjustment clause estimates. Minnesota Power’s
taconite producing Large Power Customers have generally predictable energy usage on a week-to-week basis and any differences
that occur are trued-up the following month.
Contract Status for Minnesota Power Large Power Customers
As of December 31, 2018
Industry
Customer
ArcelorMittal – Minorca Mine Taconite
Location
Virginia, MN
Ownership
ArcelorMittal S.A.
Hibbing Taconite Co. (a)
Taconite
Hibbing, MN
62.3% ArcelorMittal S.A.
23.0% Cliffs
14.7% USS Corporation
Earliest
Termination Date
December 31, 2025
December 31, 2022
United Taconite and
Northshore Mining
USS Corporation
(USS – Minnesota Ore) (a)(b)
Boise, Inc.
Taconite
Taconite
Paper
Eveleth, MN and
Babbitt, MN
Mt. Iron, MN and
Keewatin, MN
International Falls,
MN
Cliffs
December 31, 2026
USS Corporation
December 31, 2022
Packaging Corporation of America December 31, 2023
UPM Blandin (c)(d)
Paper
Grand Rapids, MN
UPM-Kymmene Corporation
December 31, 2029
Verso Duluth Mill (e)
Sappi Cloquet LLC (a)
Paper and
Pulp
Paper and
Pulp
Duluth, MN
Verso Corporation
December 31, 2024
Cloquet, MN
Sappi Limited
December 31, 2022
(a) The contract will terminate four years from the date of written notice from either Minnesota Power or the customer. No notice of contract
cancellation has been given by either party. Thus, the earliest date of cancellation is December 31, 2022.
(b) USS Corporation owns both the Minntac Plant in Mountain Iron, MN, and the Keewatin Taconite Plant in Keewatin, MN.
(c) The smaller of UPM Blandin’s two paper machines was closed in the fourth quarter of 2017. (See Item 7. Management’s Discussion and
Analysis – Outlook – Industrial Customers and Prospective Additional Load.)
(d) Minnesota Power amended and extended its electric service agreement with UPM Blandin through 2029, subject to MPUC approval.
(e) Minnesota Power amended and extended its electric service agreement with Verso Corporation through 2024, which was approved by the
MPUC at a hearing on December 20, 2018.
Residential and Commercial Customers. In 2018, residential and commercial customers represented 18 percent of total regulated
utility kWh sales.
Municipal Customers. In 2018, municipal customers represented five percent of total regulated utility kWh sales. All of the
municipal contracts include a termination clause requiring a three-year notice to terminate.
Minnesota Power’s wholesale electric contracts with 16 non-affiliated municipal customers in Minnesota have termination dates
ranging from 2019 through at least 2032, with a majority of contracts effective through at least 2024. One municipal customer
provided a contract termination notice in 2016, with the termination to be effective June 30, 2019. Minnesota Power currently
provides approximately 29 MW of average monthly demand to this customer. (See Note 4. Regulatory Matters.)
ALLETE, Inc. 2018 Form 10-K
11
REGULATED OPERATIONS (Continued)
Other Power Suppliers. The Company also enters into off-system sales with Other Power Suppliers. These sales are at
market based prices into the MISO market on a daily basis or through bilateral agreements of various durations.
Our PSAs are detailed in Note 11. Commitments, Guarantees and Contingencies, with additional disclosure provided in the
following paragraphs.
Basin PSAs. Minnesota Power has an agreement to sell 100 MW of capacity and energy to Basin for a ten-year period which
expires in April 2020. The capacity charge is based on a fixed monthly schedule with a minimum annual escalation provision. The
energy charge is based on a fixed monthly schedule and provides for annual escalation based on the cost of fuel. The agreement
also allows Minnesota Power to recover a pro rata share of increased costs related to emissions that occur during the last five years
of the contract. Minnesota Power has three additional agreements to sell capacity to Basin at fixed prices. (See Note 11.
Commitments, Guarantees and Commitments.)
Minnkota Power PSA. Minnesota Power has a PSA with Minnkota Power where Minnesota Power is selling a portion of its
entitlement from Square Butte to Minnkota Power, resulting in Minnkota Power’s net entitlement increasing and Minnesota Power’s
net entitlement decreasing until Minnesota Power’s share is eliminated at the end of 2025. Of Minnesota Power’s 50 percent output
entitlement, it sold approximately 28 percent to Minnkota Power in 2018 (28 percent in 2017 and in 2016). (See Power Supply –
Long-Term Purchased Power.)
Silver Bay Power PSA. In 2016, Minnesota Power and Silver Bay Power entered into a PSA through 2031. Silver Bay Power
supplies approximately 90 MW of load to Northshore Mining, an affiliate of Silver Bay Power, which has been served predominately
through self-generation by Silver Bay Power. Through 2019, Minnesota Power will supply Silver Bay Power with at least 50 MW
of energy and Silver Bay Power has the option to purchase additional energy from Minnesota Power as it transitions away from
self-generation. By December 31, 2019, Silver Bay Power is expected to cease self-generation and Minnesota Power is expected
to supply the energy requirements for Silver Bay Power.
Seasonality
The operations of our industrial customers, which make up a large portion of our electric sales, are not typically subject to significant
seasonal variations. (See Electric Sales / Customers.) As a result, Minnesota Power is generally not subject to significant seasonal
fluctuations in electric sales; however, Minnesota Power and SWL&P electric and natural gas sales to other customers may be
affected by seasonal differences in weather. In general, peak electric sales occur in the winter and summer months with fewer
electric sales in the spring and fall months. Peak sales of natural gas generally occur in the winter months. Additionally, our
regulated utilities have historically generated fewer sales and less revenue when weather conditions are milder in the winter and
summer.
Power Supply
In order to meet its customers’ electric requirements, Minnesota Power utilizes a mix of its own generation and purchased power.
As of December 31, 2018, Minnesota Power’s generating capability is primarily coal-fired, but also includes wind energy,
hydroelectric, natural gas-fired, biomass co-fired and solar generation. Purchased power primarily consists of long-term coal, wind
and hydro PPAs as well as market purchases. The following table reflects Minnesota Power’s generating capabilities as of
December 31, 2018, and total electrical supply for 2018. Minnesota Power had an annual net peak load of 1,589 MW on
August 13, 2018.
ALLETE, Inc. 2018 Form 10-K
12
REGULATED OPERATIONS (Continued)
Power Supply (Continued)
Regulated Utility Power Supply
Coal-Fired
Boswell Energy Center
in Cohasset, MN
Taconite Harbor Energy Center
in Schroeder, MN
Total Coal-Fired
Biomass Co-Fired / Natural Gas
Unit
No.
Year
Net
Installed Capability
1
2
3
4
1
2
1958
1960
1973
1980
1957
1957
Hibbard Renewable Energy Center in Duluth, MN
Laskin Energy Center in Hoyt Lakes, MN
Total Biomass Co-Fired / Natural Gas
3 & 4
1 & 2
1949, 1951
1953
Hydro (d)
Group consisting of ten stations in MN
Multiple Multiple
Wind (e)
Taconite Ridge Energy Center in Mt. Iron, MN
Bison Wind Energy Center in Oliver and Morton
Counties, ND
Total Wind
Multiple
2008
Multiple 2010-2014
Solar
Camp Ripley Solar Array near Little Falls, MN
Multiple
2016
Total Generation
Long-Term Purchased Power
Lignite Coal - Square Butte near Center, ND (f)
Wind - Oliver County, ND
Hydro - Manitoba Hydro in Manitoba, Canada
Total Long-Term Purchased Power
Other Purchased Power (g)
Total Purchased Power
Total Regulated Utility Power Supply
Year Ended
December 31, 2018
Generation and Purchases
MWh
%
(a)
(a)
(b)
6,442,894
42.9
(c)
—
6,442,894
10,286
13,893
24,179
607,664
50,813
1,496,131
1,546,944
16,744
8,638,425
1,717,616
295,101
292,148
2,304,865
4,087,176
6,392,041
15,030,466
—
42.9
0.1
0.1
0.2
4.0
0.3
10.0
10.3
0.1
57.5
11.4
2.0
1.9
15.3
27.2
42.5
100.0
MW
67
68
355
468
958
75
75
150
1,108
62
110
172
120
25
497
522
10
1,932
1,932
(a) Minnesota Power retired Boswell Units 1 and 2 in the fourth quarter of 2018. (See Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations – Outlook – EnergyForward.)
(b) Boswell Unit 4 net capability shown above reflects Minnesota Power’s ownership percentage of 80 percent. WPPI Energy owns 20 percent
of Boswell Unit 4. (See Note 3. Jointly-Owned Facilities and Projects.)
(c) Taconite Harbor Units 1 and 2 were idled in 2016. (See Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Outlook – EnergyForward.)
(d) Hydro consists of 10 stations with 34 generating units.
(e) Taconite Ridge consists of 10 WTGs and Bison consists of 165 WTGs.
(f) Minnesota Power has a PSA with Minnkota Power whereby Minnesota Power is selling a portion of its entitlement from Square Butte to
Minnkota Power. (See Electric Sales / Customers.)
(g) Includes short-term market purchases in the MISO market and from Other Power Suppliers.
ALLETE, Inc. 2018 Form 10-K
13
REGULATED OPERATIONS (Continued)
Power Supply (Continued)
Fuel. Minnesota Power purchases low-sulfur, sub-bituminous coal from the Powder River Basin region located in Montana and
Wyoming. Coal consumption in 2018 for electric generation at Minnesota Power’s coal-fired generating stations was 3.8 million
tons (3.8 million tons in 2017; 4.2 million tons in 2016). As of December 31, 2018, Minnesota Power had coal inventories of
0.9 million tons (1.2 million tons as of December 31, 2017). Minnesota Power has coal supply agreements providing for the
purchase of a significant portion of its coal requirements through December 2019 and a portion of its coal requirements through
December 2021. In 2019, Minnesota Power expects to obtain coal under these coal supply agreements and in the spot market.
Minnesota Power continues to explore other future coal supply options and believes that adequate supplies of low-sulfur,
sub bituminous coal will continue to be available.
Minnesota Power also has coal transportation agreements in place for the delivery of a significant portion of its coal requirements
through December 2021. The costs of fuel and related transportation costs for Minnesota Power’s generation are recoverable from
Minnesota Power’s utility customers through the fuel adjustment clause.
Coal Delivered to Minnesota Power
Year Ended December 31
Average Price per Ton
Average Price per MBtu
2018
$38.89
$2.10
2017
$36.50
$2.01
2016
$35.87
$1.98
Long-Term Purchased Power. Minnesota Power has contracts to purchase capacity and energy from various entities, including
output from certain coal, wind, hydro and solar generating facilities.
Our PPAs are detailed in Note 11. Commitments, Guarantees and Contingencies, with additional disclosure provided in the
following paragraph.
Square Butte PPA. Under the PPA with Square Butte that extends through 2026, Minnesota Power is entitled to 50 percent of the
output of Square Butte’s 455 MW coal-fired generating unit. (See Note 11. Commitments, Guarantees and Contingencies.) BNI
Energy mines and sells lignite coal to Square Butte. This lignite supply is sufficient to provide fuel for the anticipated useful life
of the generating unit. Square Butte’s cost of lignite consumed in 2018 was approximately $1.60 per MBtu ($1.71 per MBtu in
2017; $1.57 per MBtu in 2016). (See Electric Sales / Customers – Minnkota Power PSA.)
Transmission and Distribution
We have electric transmission and distribution lines of 500 kV (8 miles), 345 kV (242 miles), 250 kV (465 miles), 230 kV
(717 miles), 161 kV (43 miles), 138 kV (190 miles), 115 kV (1,285 miles) and less than 115 kV (6,342 miles). We own and operate
159 substations with a total capacity of 8,531 megavoltamperes. Some of our transmission and distribution lines interconnect with
other utilities.
Great Northern Transmission Line. As a condition of a 250 MW long-term PPA entered into with Manitoba Hydro, construction
of additional transmission capacity is required. As a result, Minnesota Power is constructing the GNTL, an approximately 220 mile
500-kV transmission line between Manitoba and Minnesota’s Iron Range that was proposed by Minnesota Power and Manitoba
Hydro in order to strengthen the electric grid, enhance regional reliability and promote a greater exchange of sustainable energy.
In a 2016 order, the MPUC approved the route permit for the GNTL, and in 2016, the U.S. Department of Energy issued a
presidential permit to cross the U.S. Canadian border, which was the final major regulatory approval needed before construction
in the U.S. could begin. Site clearing and pre construction activities commenced in the first quarter of 2017 with construction
expected to be completed in 2020. To date, most of the right-of-way has been cleared while foundation installation and transmission
tower construction have commenced. The total project cost in the U.S., including substation work, is estimated to be between
$560 million and $710 million, of which Minnesota Power’s portion is expected to be between $300 million and $350 million;
the difference will be recovered from a subsidiary of Manitoba Hydro as non-shareholder contributions to capital. Total project
costs of $380.8 million have been incurred through December 31, 2018, of which $203.7 million has been recovered from a
subsidiary of Manitoba Hydro.
Manitoba Hydro must obtain regulatory and governmental approvals related to the MMTP, a new transmission line in Canada that
will connect with the GNTL. (See Note 11. Commitments, Guarantees and Contingencies.)
ALLETE, Inc. 2018 Form 10-K
14
REGULATED OPERATIONS (Continued)
Investment in ATC
Our wholly-owned subsidiary, ALLETE Transmission Holdings, owns approximately 8 percent of ATC, a Wisconsin-based utility
that owns and maintains electric transmission assets in portions of Wisconsin, Michigan, Minnesota and Illinois. We account for
our investment in ATC under the equity method of accounting. As of December 31, 2018, our equity investment in ATC was
$128.1 million ($118.7 million as of December 31, 2017). (See Note 5. Equity Investments.)
ATC’s authorized return on equity is 10.32 percent, or 10.82 percent including an incentive adder for participation in a regional
transmission organization. In 2016, a federal administrative law judge ruled on a complaint proposing a reduction in the base
return on equity to 9.70 percent, or 10.20 percent including an incentive adder for participation in a regional transmission
organization, subject to approval or adjustment by the FERC. A final decision from the FERC on the administrative law judge’s
recommendation is pending.
ATC’s 10-year transmission assessment, which covers the years 2018 through 2027, identifies a need for between $2.8 billion and
$3.4 billion in transmission system investments. These investments by ATC, if undertaken, are expected to be funded through a
combination of internally generated cash, debt and investor contributions. As opportunities arise, we plan to make additional
investments in ATC through general capital calls based upon our pro rata ownership interest in ATC.
Properties
Our Regulated Operations businesses own office and service buildings, an energy control center, repair shops, electric plants,
transmission facilities and storerooms in various localities in Minnesota, Wisconsin and North Dakota. All of the electric plants
are subject to mortgages, which collateralize the outstanding first mortgage bonds of Minnesota Power and SWL&P. Most of the
generating plants and substations are located on real property owned by Minnesota Power or SWL&P, subject to the lien of a
mortgage, whereas most of the electric lines are located on real property owned by others with appropriate easement rights or
necessary permits from governmental authorities. WPPI Energy owns 20 percent of Boswell Unit 4. WPPI Energy has the right
to use our transmission line facilities to transport its share of Boswell generation. (See Note 3. Jointly-Owned Facilities and
Projects.)
Regulatory Matters
We are subject to the jurisdiction of various regulatory authorities and other organizations.
Electric Rates. All rates and contract terms in our Regulated Operations are subject to approval by applicable regulatory authorities.
Minnesota Power and SWL&P design their retail electric service rates based on cost of service studies under which allocations
are made to the various classes of customers as approved by the MPUC or the PSCW. Nearly all retail sales include billing
adjustment clauses, which may adjust electric service rates for changes in the cost of fuel and purchased energy, recovery of current
and deferred conservation improvement program expenditures and recovery of certain transmission, renewable and environmental
investments.
Minnesota Public Utilities Commission. The MPUC has regulatory authority over Minnesota Power’s retail service area in
Minnesota, retail rates, retail services, capital structure, issuance of securities and other matters. As authorized by the MPUC,
Minnesota Power also recognizes revenue under cost recovery riders for transmission, renewable and environmental investments.
ALLETE, Inc. 2018 Form 10-K
15
REGULATED OPERATIONS (Continued)
Regulatory Matters (Continued)
2016 Minnesota General Rate Case. In November 2016, Minnesota Power filed a retail rate increase request with the MPUC
which sought an average increase of approximately 9 percent for retail customers. The rate filing sought a return on equity of
10.25 percent and a 53.81 percent equity ratio. The MPUC issued an order dated March 12, 2018, in Minnesota Power’s general
rate case approving a return on common equity of 9.25 percent and a 53.81 percent equity ratio. Final rates went into effect on
December 1, 2018, which is expected to result in additional revenue of approximately $13 million on an annualized basis. Interim
rates were collected from January 1, 2017, through November 30, 2018, which were fully offset by the recognition of a corresponding
reserve. Minnesota Power has recorded a reserve for an interim rate refund, net of discounts provided to EITE customers, of
$40.0 million as of December 31, 2018 ($23.7 million as of December 31, 2017) which is expected to be refunded in 2019. The
MPUC also disallowed Minnesota Power’s regulatory asset for deferred fuel adjustment clause costs due to the anticipated adoption
of a forward-looking fuel adjustment clause methodology resulting in a $19.5 million pre-tax charge to Fuel, Purchased Power
and Gas – Utility in 2017. As part of its decision in Minnesota Power’s 2016 general rate case, the MPUC also extended the
depreciable lives of Boswell Unit 3, Unit 4 and common facilities to 2050 primarily to mitigate rate increases for our customers,
and shortened the depreciable lives of Boswell Unit 1 and Unit 2 to 2022, resulting in a net decrease to depreciation expense of
approximately $25 million pre-tax in the fourth quarter of 2017.
On April 2, 2018, Minnesota Power filed a petition with the MPUC requesting reconsideration of certain decisions in the MPUC’s
order dated March 12, 2018. In an order dated May 29, 2018, the MPUC denied Minnesota Power’s petition for reconsideration
and accepted a Minnesota Department of Commerce request for reconsideration reducing the depreciable lives of Boswell Unit 3,
Unit 4 and common facilities to 2035 while utilizing the benefits of the lower federal income tax rate enacted as part of the TCJA
to mitigate the impact on customer rates.
Energy-Intensive Trade-Exposed Customer Rates. An EITE customer ratemaking law was enacted in 2015 establishing a Minnesota
energy policy to have competitive rates for certain industries such as mining and forest products. The MPUC approved a reduction
in rates for EITE customers in a December 2016 order and subsequently approved cost recovery in an April 2017 order. Minnesota
Power expects the discount to EITE customers to be approximately $16 million annually based on EITE customer current operating
levels. While interim rates were in effect for Minnesota Power’s 2016 general rate case, discounts provided to EITE customers
offset interim rate refund reserves for non-EITE customers. Minnesota Power provided $16.7 million of discounts to EITE
customers during the year ended December 31, 2018 ($8.6 million and none for the years ended December 31, 2017, and 2016,
respectively)
Additional regulatory proceedings pending with the MPUC are detailed in Note 4. Regulatory Matters.
Public Service Commission of Wisconsin. The PSCW has regulatory authority over SWL&P’s retail sales of electricity, natural
gas and water, issuances of securities and other matters.
2016 Wisconsin General Rate Case. SWL&P’s retail rates in 2018 were based on a 2017 PSCW retail rate order effective
August 2017 that allowed for a 10.5 percent return on common equity and a 55 percent equity ratio. SWL&P’s retail rates prior
to August 2017 were based on a 2012 PSCW retail rate order that provided for a 10.9 percent return on equity.
2018 Wisconsin General Rate Case. On May 25, 2018, SWL&P filed a rate increase request with the PSCW requesting an average
increase of 2.7 percent for retail customers (2.0 percent increase in electric rates; 2.3 percent increase in natural gas rates; and
0.1 percent increase in water rates). The filing sought an overall return on equity of 10.5 percent and a 55.41 percent equity ratio.
In an order dated December 20, 2018, the PSCW approved a rate increase for SWL&P including a return on equity of 10.4 percent
and a 55.0 percent equity ratio. Final rates went into effect January 1, 2019, which is expected to result in additional revenue of
approximately $1.3 million on an annualized basis.
North Dakota Public Service Commission. The NDPSC has jurisdiction over site and route permitting of generation and
transmission facilities in North Dakota.
Federal Energy Regulatory Commission. The FERC has jurisdiction over the licensing of hydroelectric projects, the
establishment of rates and charges for transmission of electricity in interstate commerce, electricity sold at wholesale (including
the rates for Minnesota Power’s municipal and wholesale customers), natural gas transportation, certain accounting and
record keeping practices, certain activities of our regulated utilities and the operations of ATC. FERC jurisdiction also includes
enforcement of NERC mandatory electric reliability standards. Violations of FERC rules are subject to enforcement action by the
FERC including financial penalties up to $1 million per day per violation. Regulatory proceedings pending with the FERC are
detailed in Note 4. Regulatory Matters.
ALLETE, Inc. 2018 Form 10-K
16
REGULATED OPERATIONS (Continued)
Regional Organizations
Midcontinent Independent System Operator, Inc. Minnesota Power, SWL&P and ATC are members of MISO, a regional
transmission organization. While Minnesota Power and SWL&P retain ownership of their respective transmission assets, their
transmission networks are under the regional operational control of MISO. Minnesota Power and SWL&P take and provide
transmission service under the MISO open access transmission tariff. In cooperation with stakeholders, MISO manages the delivery
of electric power across all or parts of 15 states and the Canadian province of Manitoba which includes nearly 200,000 MW of
generating capacity.
North American Electric Reliability Corporation. The NERC has been certified by the FERC as the national electric reliability
organization. The NERC ensures the reliability of the North American bulk power system. The NERC oversees seven regional
entities that establish requirements, approved by the FERC, for reliable operation and maintenance of power generation facilities
and transmission systems. Minnesota Power is subject to these reliability requirements and can incur significant penalties for
non compliance.
Midwest Reliability Organization (MRO). Minnesota Power and ATC are members of the MRO, one of the seven regional
entities overseen by the NERC. The MRO's primary responsibilities are to: ensure compliance with mandatory reliability standards
by entities who own, operate or use the interconnected, international bulk power system; conduct assessments of the grid's ability
to meet electricity demand in the region; and analyze regional system events.
The MRO region spans the Canadian provinces of Saskatchewan and Manitoba, and all or parts of 16 states. The region includes
more than 200 organizations that are involved in the production and delivery of electricity. These organizations include municipal
utilities, cooperatives, investor-owned utilities, transmission system operators, a federal power marketing agency, Canadian Crown
corporations and independent power producers.
Minnesota Legislation
Renewable Energy. Minnesota law requires 25 percent of electric utilities’ applicable retail and municipal energy sales in Minnesota
to be from renewable energy sources by 2025. Minnesota law also requires Minnesota Power to meet interim milestones of
12 percent by 2012, 17 percent by 2016 and 20 percent by 2020. The law allows the MPUC to modify or delay meeting a milestone
if implementation will cause significant ratepayer cost or technical reliability issues. If a utility is not in compliance with a milestone,
the MPUC may order the utility to construct facilities, purchase renewable energy or purchase renewable energy credits. Minnesota
Power’s 2015 IRP, which was filed with the MPUC in 2015 and approved with modifications by the MPUC in a 2016 order,
includes an update on its plans and progress in meeting the Minnesota renewable energy milestones through 2025. (See Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Outlook – EnergyForward.)
Minnesota Power continues to execute its renewable energy strategy through renewable projects that will ensure it meets the
identified state mandate at the lowest cost for customers. Minnesota Power has exceeded the interim milestone requirements to
date with 26 percent of its applicable retail and municipal energy sales supplied by renewable energy sources in 2018.
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 by the end of 2020. 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. (See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Outlook – EnergyForward.)
Competition
Retail electric energy sales in Minnesota and Wisconsin are made to customers in assigned service territories. As a result, most
retail electric customers in Minnesota do not have the ability to choose their electric supplier. Large energy users of 2 MW and
above that are located outside of a municipality are allowed to choose a supplier upon MPUC approval. Minnesota Power serves
10 Large Power facilities over 10 MW, none of which have engaged in a competitive rate process. No other large commercial or
small industrial customers in Minnesota Power’s service territory have sought a provider outside Minnesota Power’s service
territory. Retail electric and natural gas customers in Wisconsin do not have the ability to choose their energy supplier. In both
states, however, electricity may compete with other forms of energy. Customers may also choose to generate their own electricity,
or substitute other forms of energy for their manufacturing processes.
ALLETE, Inc. 2018 Form 10-K
17
REGULATED OPERATIONS (Continued)
Competition (Continued)
In 2018, five percent of total regulated utility kWh sales were to municipal customers in Minnesota by contract. These customers
have the right to seek an energy supply from any wholesale electric service provider upon contract expiration. Minnesota Power’s
wholesale electric contract with the Nashwauk Public Utilities Commission is effective through at least December 31, 2032.
Minnesota Power wholesale electric contracts with 14 municipal customers are effective through varying dates ranging from 2024
through 2029. In 2016, one of Minnesota Power’s municipal customers provided a contract termination notice effective
June 30, 2019. (See Electric Sales / Customers.)
The FERC has continued with its efforts to promote a competitive wholesale market through open-access electric transmission
and other means. As a result, our electric sales to Other Power Suppliers and our purchases to supply our retail and wholesale load
are made in a competitive market.
Franchises
Minnesota Power holds franchises to construct and maintain an electric distribution and transmission system in 91 cities. The
remaining cities, villages and towns served by Minnesota Power do not require a franchise to operate. SWL&P serves customers
under electric, natural gas or water franchises in 1 city and 14 villages or towns.
ENERGY INFRASTRUCTURE AND RELATED SERVICES
ALLETE Clean Energy
ALLETE Clean Energy focuses on developing, acquiring, and operating clean and renewable energy projects. ALLETE Clean
Energy currently owns and operates, in four states, approximately 545 MW of nameplate capacity wind energy generation that is
contracted under PSAs of various durations. ALLETE Clean Energy also engages in the development of wind energy facilities to
operate under long-term PSAs or for sale to others upon completion.
ALLETE Clean Energy believes the market for renewable energy in North America is robust, driven by several factors including
environmental regulation, tax incentives, societal expectations and continual technology advances. State renewable portfolio
standards, and state or federal regulations to limit GHG emissions are examples of environmental regulation or public policy that
we believe will drive renewable energy development.
ALLETE Clean Energy’s strategy includes the safe, reliable, optimal and profitable operation of its existing facilities. This includes
a strong safety culture, the continuous pursuit of operational efficiencies at existing facilities and cost controls. ALLETE Clean
Energy generally acquires facilities in liquid power markets and its strategy includes the exploration of PSA extensions upon
expiration of existing contracts and production tax credit requalification of existing facilities.
In January 2017, ALLETE Clean Energy announced that it would develop a wind energy facility of up to 50 MW to be sold to
Montana-Dakota Utilities; sale of the wind energy facility was completed on October 31, 2018, with revenue of $81.1 million and
cost of sales of $67.4 million recognized in the fourth quarter of 2018. ALLETE Clean Energy also constructed and sold a 107 MW
wind energy facility to Montana-Dakota Utilities in 2015.
In March 2017, ALLETE Clean Energy announced it will build, own and operate a 100 MW wind energy facility pursuant to a
20-year PSA with Northern States Power; construction is expected to be completed in late 2019. On March 15, 2018, ALLETE
Clean Energy announced that it will build, own and operate an 80 MW wind energy facility pursuant to a 15-year PSA with
NorthWestern Corporation; construction is expected to be completed in late 2019.
ALLETE, Inc. 2018 Form 10-K
18
ENERGY INFRASTRUCTURE AND RELATED SERVICES (Continued)
ALLETE Clean Energy (Continued)
ALLETE Clean Energy manages risk by having a diverse portfolio of assets, which includes PSA expiration, technology and
geographic diversity. The current portfolio of approximately 545 MW is subject to typical variations in seasonal wind with higher
wind resources typically available in the winter months. The majority of its planned maintenance leverages this seasonality and
is performed during lower wind periods. The current mix of PSA expiration and geographic location for existing facilities is as
follows:
Wind Energy Facility
Armenia Mountain
Chanarambie/Viking
PSA 1 (a)
PSA 2
Condon
Lake Benton
Lincoln Heights
Storm Lake I
Storm Lake II
PSA 1
PSA 2
Location
Pennsylvania
Minnesota
Capacity MW
100.5
97.5
PSA MW
100%
PSA Expiration
2024
Oregon
Minnesota
Minnesota
Iowa
Iowa
50
104
8.8
108
77
12%
88%
100%
100%
100%
100%
90%
10%
2023
2023
2022
2028
2028
2019
2019
2032
(a) The PSA expiration assumes the exercise of four one-year renewal options that ALLETE Clean Energy has the sole right to exercise.
The majority of ALLETE Clean Energy’s wind operations are located on real property owned by others with appropriate easement
rights or necessary consents of governmental authorities. Two of ALLETE Clean Energy’s wind energy facilities are encumbered
by liens against their assets securing financing. (See Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Outlook – Energy Infrastructure and Related Services – ALLETE Clean Energy.)
U.S. Water Services
On February 8, 2019, the Company entered into a stock purchase agreement providing for the sale of U.S. Water Services to a
subsidiary of Kurita Water Industries Ltd. for a cash purchase price of $270 million, subject to adjustment at closing, such as for
changes in working capital. The transaction is expected to close by the end of the first quarter of 2019 upon receipt of regulatory
approval. ALLETE plans to use the proceeds from the sale of U.S. Water Services primarily to reinvest in growth initiatives at
our Regulated Operations and ALLETE Clean Energy. ALLETE will also consider using a portion of the proceeds to implement
a common stock repurchase program.
U.S. Water Services provides integrated water management for industry by combining chemical, equipment, engineering and
service for customized solutions to reduce water and energy usage, and improve efficiency. U.S. Water Services has a presence
in 49 states and Canada and has an established base of approximately 4,900 customers. U.S. Water Services differentiates itself
from the competition by developing synergies between solutions in engineering, equipment and chemical water treatment, which
helps customers achieve efficient and sustainable use of their water and energy systems. U.S. Water Services is a leading provider
to the biofuels industry, and also serves the commercial and institutional markets, food and beverage, light manufacturing, power
generation, and midstream oil and gas industries, among others. U.S. Water Services principally relies upon recurring revenues
from a diverse mix of industrial customers. U.S. Water Services sells certain products which are seasonal in nature, with higher
demand typically realized in warmer months; generally, lower sales occur in the first quarter of each year. (See Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Outlook – Energy Infrastructure and Related Services
– U.S. Water Services.)
In September 2017, U.S. Water Services acquired Tonka Water for total consideration of $19.2 million. Tonka Water is a supplier
of municipal and industrial water treatment systems that expanded U.S. Water Services’ geographic and customer markets.
U.S. Water Services leases an office and production facility at its headquarters in Minnesota as well as various office, warehouse
and production facilities across the United States.
ALLETE, Inc. 2018 Form 10-K
19
CORPORATE AND OTHER
BNI Energy
BNI Energy is a supplier of lignite coal in North Dakota, producing approximately 4 million tons annually and has an estimated
650 million tons of lignite coal reserves. Two electric generating cooperatives, Minnkota Power and Square Butte, consume
virtually all of BNI Energy’s production of lignite under cost-plus fixed fee coal supply agreements extending through
December 31, 2037. (See Item 1. Business – Regulated Operations – Power Supply – Long-Term Purchased Power and Note 11.
Commitments, Guarantees and Contingencies.) The mining process disturbs and reclaims between 200 and 250 acres per year.
Laws require that the reclaimed land be at least as productive as it was prior to mining. As of December 31, 2018, BNI Energy
had a $26.5 million asset reclamation obligation ($25.0 million as of December 31, 2017) included in Other Non-Current Liabilities
on the Consolidated Balance Sheet. These costs are included in the cost-plus fixed fee contract, for which an asset reclamation
cost receivable was included in Other Non-Current Assets on the Consolidated Balance Sheet. The asset reclamation obligation
is guaranteed by surety bonds and a letter of credit. (See Note 11. Commitments, Guarantees and Contingencies.)
Investment in Nobles 2
On December 27, 2018, our wholly-owned subsidiary, ALLETE South Wind, entered into a partnership agreement with Tenaska
to purchase a 49 percent equity interest in Nobles 2, the entity that will own and operate a 250 MW wind energy facility in
southwestern Minnesota pursuant to a 20-year PPA with Minnesota Power. The wind energy facility will be built in Nobles County,
Minnesota and is expected to be completed in late 2020, with an estimated total project cost of approximately $350 million to
$400 million of which our portion is expected to be approximately $170 million to $200 million. We expect to utilize tax equity
to finance a portion of our project costs, with an ALLETE expected equity investment of approximately $60 million to $70 million.
We account for our investment in Nobles 2 under the equity method of accounting. As of December 31, 2018, our equity investment
in Nobles 2 was $33.0 million. (See Note 5. Equity Investments.)
ALLETE Properties
ALLETE Properties represents our legacy Florida real estate investment. ALLETE Properties’ major projects in Florida are Town
Center at Palm Coast and Palm Coast Park.
Summary of Projects
As of December 31, 2018
Projects
Town Center at Palm Coast
Palm Coast Park
Residential Non-residential
Acres (a)
Units (b)
Sq. Ft. (b)(c)
962
638
1,600
2,419
—
2,419
2,022,700
1,181,000
3,203,700
Total Projects
(a) Acreage amounts are approximate and shown on a gross basis, including wetlands.
(b) Units and square footage are estimated. Density at build out may differ from these estimates.
(c) Includes retail and non-retail commercial, office, industrial, warehouse, storage and institutional square footage.
In addition to the two projects, ALLETE Properties has approximately 600 acres of other land available for sale. (See Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Outlook – Corporate and Other –
ALLETE Properties.)
Seller Financing. ALLETE Properties occasionally provides seller financing to certain qualified buyers. As of December 31, 2018,
outstanding finance receivables were $15.1 million, net of reserves, with maturities through 2022. These finance receivables accrue
interest at market-based rates and are collateralized by the financed properties.
Regulation. A substantial portion of our development properties in Florida are subject to federal, state and local regulations, and
restrictions that may impose significant costs or limitations on our ability to develop the properties. Much of our property is vacant
land and some is located in areas where development may affect the natural habitats of various protected wildlife species or in
sensitive environmental areas such as wetlands.
ALLETE, Inc. 2018 Form 10-K
20
CORPORATE AND OTHER (Continued)
Non-Rate Base Generation and Miscellaneous
Corporate and Other also includes other business development and corporate expenditures, unallocated interest expense, a small
amount of non-rate base generation, approximately 4,000 acres of land in Minnesota, and earnings on cash and investments.
As of December 31, 2018, non-rate base generation consists of 29 MW of generation at Rapids Energy Center. In 2018, we sold
0.1 million MWh of non-rate base generation (0.1 million MWh in 2017 and in 2016).
Non-Rate Base Power Supply
Rapids Energy Center (a)
in Grand Rapids, MN
Steam – Biomass (b)
Hydro
Unit No.
Year
Installed
Year
Acquired
Net
Capability
(MW)
6 & 7
4 & 5
1969, 1980
1917, 1948
2000
2000
27
2
(a) The net generation is primarily dedicated to the needs of one customer, UPM Blandin in Grand Rapids, Minnesota. (See Item 7. Management’s
Discussion and Analysis – Outlook – Industrial Customers and Prospective Additional Load.)
(b) The fuel supply for Rapids Energy Center Units 6 and 7 is supplemented by coal, but in 2019, those units will operate on natural gas.
ENVIRONMENTAL MATTERS
Our businesses are subject to regulation of environmental matters by various federal, state and local authorities. A number of
regulatory changes to the Clean Air Act, the Clean Water Act and various waste management requirements have been promulgated
by both the EPA and state authorities over the past several years. Minnesota Power’s facilities are subject to additional requirements
under many of these regulations. Minnesota Power is reshaping its generation portfolio, over time, to reduce its reliance on coal,
has installed cost-effective emission control technology, and advocates for sound science and policy during rulemaking
implementation.
We consider our businesses to be in substantial compliance with currently applicable environmental regulations and believe all
necessary permits have been obtained. We anticipate that with many state and federal environmental regulations and requirements
finalized, or to be finalized in the near future, potential expenditures for future environmental matters may be material and require
significant capital investments. Minnesota Power has evaluated various environmental compliance scenarios using possible
outcomes of environmental regulations to project power supply trends and impacts on customers.
We review environmental matters on a quarterly basis. Accruals for environmental matters are recorded when it is probable that
a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing
technologies. Accruals are adjusted as assessment and remediation efforts progress or as additional technical or legal information
becomes available. Accruals for environmental liabilities are included in the Consolidated Balance Sheet at undiscounted amounts
and exclude claims for recoveries from insurance or other third parties. Costs related to environmental contamination treatment
and cleanup are expensed unless recoverable in rates from customers. (See Note 11. Commitments, Guarantees and Contingencies.)
EMPLOYEES
As of December 31, 2018, ALLETE had 1,889 employees, of which 1,852 were full-time.
Minnesota Power and SWL&P have an aggregate of 475 employees who are members of the International Brotherhood of Electrical
Workers (IBEW) Local 31. The current labor agreements with IBEW Local 31 expire on April 30, 2020, for Minnesota Power
and February 1, 2021, for SWL&P.
BNI Energy has 181 employees, of which 139 are members of IBEW Local 1593. The current labor agreement with IBEW
Local 1593 expires on March 31, 2019.
ALLETE, Inc. 2018 Form 10-K
21
AVAILABILITY OF INFORMATION
ALLETE makes its SEC filings, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(e) or 15(d) of the Securities Exchange
Act of 1934, available free of charge on ALLETE’s website, www.allete.com, as soon as reasonably practicable after they are
electronically filed with or furnished to the SEC.
EXECUTIVE OFFICERS OF THE REGISTRANT
As of February 14, 2019, these are the executive officers of ALLETE:
Executive Officers
Alan R. Hodnik, Age 59
Chairman and Chief Executive Officer (a)
Chairman, President and Chief Executive Officer
President and Chief Executive Officer
Bethany M. Owen, Age 53
President (a)
Senior Vice President and Chief Legal and Administrative Officer
Robert J. Adams, Age 56
Senior Vice President and Chief Financial Officer
Senior Vice President – Energy-Centric Businesses and Chief Risk Officer
Vice President – Energy-Centric Businesses and Chief Risk Officer
Vice President – Business Development and Chief Risk Officer
Patrick L. Cutshall, Age 53
Vice President and Corporate Treasurer
Treasurer
Steven W. Morris, Age 57
Vice President, Controller and Chief Accounting Officer
Controller
Patrick K. Mullen, Age 58 (b)
Senior Vice President – External Affairs
Bradley W. Oachs, Age 61
Initial Effective Date
January 31, 2019
May 10, 2011
May 1, 2010
January 31, 2019
November 26, 2016
March 4, 2017
November 14, 2015
June 23, 2014
May 13, 2008
December 18, 2017
January 1, 2016
December 24, 2016
March 3, 2014
April 10, 2017
Senior Vice President and President – Regulated Operations
November 26, 2016
Margaret A. Thickens, Age 52
Vice President, Chief Legal Officer and Corporate Secretary
February 13, 2019
(a) On January 31, 2019, the Board of Directors of ALLETE appointed Bethany M. Owen as President of ALLETE.
(b) On January 14, 2019, Mr. Mullen announced his plan to retire. As part of an orderly transition, it is expected that Mr. Mullen will remain
with the Company until some time in the second quarter of 2019.
ALLETE, Inc. 2018 Form 10-K
22
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
All of the executive officers have been employed by us for more than five years in executive or management positions. Prior to
election to the position listed above, the following executives held other positions with the Company during the past five years.
Mr. Cutshall was Director – Investments and Tax; Director – Investments.
Mr. Morris was Director – Accounting.
Mr. Mullen was Vice President – Marketing and Corporate Communications.
Mr. Oachs was Chief Operating Officer – Minnesota Power.
Ms. Owen was Vice President – Information Technology Solutions and President – SWL&P.
Ms. Thickens was General Counsel and Director of Compliance – ALLETE Clean Energy; General Counsel and Secretary
– ALLETE Clean Energy; Attorney Senior.
There are no family relationships between any of the executive officers. All officers and directors are elected or appointed annually.
The present term of office of the executive officers listed in the preceding table extends to the first meeting of our Board of Directors
after the next annual meeting of shareholders. Both meetings are scheduled for May 14, 2019.
Item 1A. Risk Factors
The risks and uncertainties discussed below could materially affect our business operations, financial position, results of operations
and cash flows, and should be carefully considered by stakeholders. The risks and uncertainties in this section are not the only
ones we face; additional risks and uncertainties that we are not presently aware of, or that we currently consider immaterial, may
also affect our business operations, financial position, results of operations and cash flows. Accordingly, the risks described below
should be carefully considered together with other information set forth in this report and in future reports that we file with the
SEC.
Certain of these risk factors below relate to U.S. Water Services. On February 8, 2019, the Company entered into a stock purchase
agreement providing for the sale of U.S. Water Services to a subsidiary of Kurita Water Industries Ltd. for a cash purchase price
of $270 million, subject to adjustment at closing, such as for changes in working capital. The transaction is expected to close by
the end of the first quarter of 2019. Risk factors relating to U.S. Water Services exist up to the closing of the sale, or in the future
should the sale not be consummated.
Entity-wide Risks
We rely on access to financing sources and capital markets. If we do not have access to capital on acceptable terms or are
unable to obtain capital when needed, our ability to execute our business plans, make capital expenditures or pursue other
strategic actions that we may otherwise rely on for future growth would be adversely affected.
We rely on access to financing sources and the capital markets, on acceptable terms and at reasonable costs, as sources of liquidity
for capital requirements not satisfied by our cash flows from operations. Market disruptions or a downgrade of our credit ratings
may increase the cost of borrowing or adversely affect our ability to access and financing costs in the capital markets. Such
disruptions or causes of a downgrade could include but are not limited to: the effects of the TCJA on the Company’s cash flow
metrics; a loss of, or a reduction in sales to, Large Power Customers if we are unable to offset the related lost margins; weaker
operating performance; adverse regulatory outcomes; disproportionate increase in the contribution to net income from our Energy
Infrastructure and Related Services businesses as compared to that from our Regulated Operations; deteriorating economic or
capital market conditions; or volatility in commodity prices.
If we are not able to access capital on acceptable terms in sufficient amounts and when needed, or at all, the ability to maintain
our businesses or to implement our business plans would be adversely affected.
ALLETE, Inc. 2018 Form 10-K
23
Item 1A. Risk Factors (Continued)
Entity-wide Risks (Continued)
A deterioration in general economic conditions may have adverse impacts on our financial position, results of operations
and cash flows.
If economic conditions deteriorate on a national or regional level, it may have a negative impact on the Company’s financial
position, results of operations and cash flows as well as on our customers. This impact may include volatility and unpredictability
in the demand for the products and services offered by our businesses, the loss of existing customers, tempered growth strategies,
production cutbacks or customer bankruptcies. An uncertain economy could also adversely affect expenses including pension
costs, interest costs, and uncollectible accounts, or lead to reductions in the value of certain real estate and other investments.
We are subject to extensive state and federal legislation and regulation, compliance with which could have an adverse effect
on our businesses.
We are subject to, and affected by, extensive state and federal legislation and regulation. If it was determined that our businesses
failed to comply with applicable laws and regulations, we could become subject to fines or penalties or be required to implement
additional compliance measures or actions, the cost of which could be material. Adoption of new laws, rules, regulations, principles,
or practices by federal and state agencies, or changes to or a failure to comply with current laws, rules, regulations, principles, or
practices and their interpretations, could have an adverse effect on our financial position, results of operations and cash flows.
The inability to attract and retain a qualified workforce including, but not limited to, executive officers, key employees
and employees with specialized skills, could have an adverse effect on our operations.
The success of our business heavily depends on the leadership of our executive officers and key employees to implement our
business strategy. The inability to maintain a qualified workforce including, but not limited to, executive officers, key employees
and employees with specialized skills, may negatively affect our ability to service our existing or new customers, or successfully
manage our business or achieve our business objectives. Personnel costs may increase due to competitive pressures or terms of
collective bargaining agreements with union employees.
Market performance and other changes could decrease the value of pension and other postretirement benefit plan assets,
which may result in significant additional funding requirements and increased annual expenses.
The performance of the capital markets impacts the values of the assets that are held in trust to satisfy future obligations under our
pension and other postretirement benefit plans. We have significant obligations to these plans and the trusts hold significant assets.
These assets are subject to market fluctuations and will yield uncertain returns, which may fall below our projected rates of return.
A decline in the market value of the pension and other postretirement benefit plan assets would increase the funding requirements
under our benefit plans if asset returns do not recover. Additionally, our pension and other postretirement benefit plan liabilities
are sensitive to changes in interest rates. As interest rates decrease, the liabilities increase, potentially increasing benefit expense
and funding requirements. Our pension and other postretirement benefit plan costs are generally recoverable in our electric rates
as allowed by our regulators or through our cost-plus fixed fee coal supply agreements at BNI Energy; however, there is no certainty
that regulators will continue to allow recovery of these rising costs in the future.
We are exposed to significant reputational risk.
The Company could suffer negative impacts to its reputation as a result of operational incidents, violations of corporate compliance
policies, regulatory violations, or other events which may result in negative customer perception and increased regulatory oversight,
each of which could have an adverse effect on our financial position, results of operations and cash flows.
Catastrophic events, such as natural disasters and acts of war, may adversely affect our operations.
Catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, or similar occurrences, as well as acts of
war, could adversely affect the Company’s facilities, operations, financial position, results of operations and cash flows. Although
the Company has contingency plans and employs crisis management to respond and recover operations in the event of a severe
disruption resulting from such events, these measures may not be successful. Furthermore, despite these measures, if such an
occurrence were to occur, our financial position, results of operations and cash flows could be adversely affected.
ALLETE, Inc. 2018 Form 10-K
24
Item 1A. Risk Factors (Continued)
Entity-wide Risks (Continued)
We are vulnerable to acts of terrorism or cybersecurity attacks.
Our operations may be targets of terrorist activities or cybersecurity attacks, which could disrupt our ability to provide utility
service at our regulated utilities, develop or operate our renewable energy projects at ALLETE Clean Energy, provide integrated
water management at U.S. Water Services, or operate our other businesses. The impacts may also impair the fulfillment of critical
business functions, negatively impact our reputation, subject us to litigation or increased regulation, or compromise sensitive,
confidential data.
There have been cybersecurity attacks on U.S. energy infrastructure in the past and there may be such attacks in the future. Our
generation, transmission and distribution facilities, information technology systems and other infrastructure facilities and systems
could be direct targets of, or otherwise be materially adversely affected by such activities. Computer viruses, terrorism, theft and
sabotage could impact our systems and facilities, or those of third parties on which we rely, which may disrupt our operations.
Our businesses require the continued operation of sophisticated information technology systems and network infrastructure as
well as the collection and retention of personally identifiable information of our customers, shareholders and employees. Although
we maintain security measures designed to prevent cybersecurity incidents and protect our information technology and control
systems, network infrastructure and other assets, our technology systems, or those of third parties on which we rely, may be
vulnerable to disability, failures or unauthorized access due to hacking, viruses, acts of war or terrorism and other causes. If those
technology systems fail or are breached and not recovered in a timely manner, we may be unable to perform critical business
functions including effectively maintaining certain internal controls over financial reporting, our reputation may be negatively
impacted, we may become subject to litigation or increased regulation, and sensitive, confidential and other data could be
compromised. If our business were impacted by terrorist activities or cybersecurity attacks, such impacts could have an adverse
effect on our financial position, results of operations and cash flows.
Government challenges to our tax positions, as well as tax law changes and the inherent difficulty in quantifying potential
tax effects of business decisions, could adversely affect our results of operations and liquidity.
We are required to make judgments in order to estimate federal and state tax obligations. These judgments include reserves for
potential adverse outcomes for tax positions that may be challenged by tax authorities. The obligations, which include income
taxes and taxes other than income taxes, involve complex matters that ultimately could be litigated. We also estimate our ability
to use tax benefits, including those in the form of carryforwards and tax credits that are recorded as deferred tax assets on our
Consolidated Balance Sheet. A disallowance of these tax benefits could have an adverse impact on our financial position, results
of operations and cash flows.
We are currently utilizing, and plan to utilize in the future, our carryforwards and tax credits to reduce our income tax obligations.
If we cannot generate enough taxable income in the future to utilize all of our carryforwards and tax credits before they expire,
we may incur adverse charges to earnings. If federal or state tax authorities deny any deductions or tax credits, our financial
position, results of operations and cash flows may be adversely impacted.
Regulated Operations Risks
Our results of operations could be negatively impacted if our Large Power Customers experience an economic downturn,
incur work stoppages, fail to compete effectively, experience decreased demand or experience a decline in prices for their
product.
Minnesota Power’s eight Large Power Customers accounted for 24 percent of our 2018 consolidated operating revenue (25 percent
in 2017 and 22 percent in 2016), of which one of these customers accounted for approximately 10 percent of consolidated revenue
in 2018 (10 percent in 2017 and 8 percent in 2016). These customers are involved in cyclical industries that by their nature are
adversely impacted by economic downturns and are subject to strong competition in the marketplace. Additionally, the North
American paper and pulp industry also faces declining demand due to the impact of electronic substitution for print and changing
customer needs.
Accordingly, if our customers experience an economic downturn, incur a work stoppage (including strikes, lock-outs or other
events), fail to compete effectively, experience decreased demand or experience a decline in prices for their product, there could
be adverse effects on their operations and, consequently, this could have a negative impact on our results of operations if we are
unable to remarket at similar prices the energy that would otherwise have been sold to such Large Power Customers.
ALLETE, Inc. 2018 Form 10-K
25
Item 1A. Risk Factors (Continued)
Regulated Operations Risks (Continued)
Our utility operations are subject to an extensive legal and regulatory framework under federal and state laws as well as
regulations imposed by other organizations that may have a negative impact on our business and results of operations.
We are subject to an extensive legal and regulatory framework imposed under federal and state law including regulations
administered by the FERC, MPUC, MPCA, PSCW, NDPSC and EPA as well as regulations administered by other organizations
including the NERC. These laws and regulations relate to allowed rates of return, capital structure, financings, rate and cost
structure, acquisition and disposal of assets and facilities, construction and operation of generation, transmission and distribution
facilities (including the ongoing maintenance and reliable operation of such facilities), recovery of purchased power costs and
capital investments, approval of integrated resource plans and present or prospective wholesale and retail competition, renewable
portfolio standards that require utilities to obtain specified percentages of electric supply from eligible renewable generation
sources, among other things. Energy policy initiatives at the state or federal level could increase renewable portfolio standards or
incentives for distributed generation, municipal utility ownership, or local initiatives could introduce generation or distribution
requirements that could change the current integrated utility model. Our transmission systems and electric generation facilities are
subject to the NERC mandatory reliability standards, including cybersecurity standards. Compliance with these standards may
lead to increased operating costs and capital expenditures. If it was determined that we were not in compliance with these mandatory
reliability standards or other statutes, rules and orders, we could incur substantial monetary penalties and other sanctions, which
could adversely affect our results of operations.
These laws and regulations significantly influence our operations and may affect our ability to recover costs from our customers.
We are required to have numerous permits, licenses, approvals and certificates from the agencies and other organizations that
regulate our business. We believe we have obtained the necessary permits, licenses, approvals and certificates for our existing
operations and that our business is conducted in accordance with applicable laws; however, we are unable to predict the impact
on our operating results from the future regulatory activities of any of these agencies and other organizations. Changes in regulations
or the adoption of new regulations could have an adverse impact on our results of operations.
Our ability to obtain rate adjustments to maintain reasonable rates of return depends upon regulatory action under applicable
statutes and regulations, and we cannot provide assurance that rate adjustments will be obtained or reasonable authorized rates of
return on capital will be earned. Minnesota Power and SWL&P, from time to time, file general rate cases with, or otherwise seek
cost recovery authorization from, federal and state regulatory authorities. If Minnesota Power and SWL&P do not receive an
adequate amount of rate relief in general rate cases, including if rates are reduced, if increased rates are not approved on a timely
basis, if cost recovery is not granted at the requested level, or costs are otherwise unable to be recovered through rates, we may
experience an adverse impact on our financial position, results of operations and cash flows. We are unable to predict the impact
on our business and results of operations from future legislation or regulatory activities of any of these agencies or organizations.
Our operations present certain environmental risks that could adversely affect our financial position and results of
operations, including effects of environmental laws and regulations, physical risks associated with climate change and
initiatives designed to reduce the impact of GHG emissions.
We are subject to extensive environmental laws and regulations affecting many aspects of our present and future operations,
including air quality, water quality and usage, waste management, reclamation, hazardous wastes, avian mortality and natural
resources. These laws and regulations can result in increased capital expenditures, environmental emission allowance trading,
operating and other costs, as a result of compliance, remediation, containment and monitoring obligations, particularly with regard
to laws relating to emissions at generating facilities, coal ash, water discharge and wind energy facilities.
These laws and regulations could restrict the output of some existing facilities, limit the use of some fuels in the production of
electricity, require the installation of additional pollution control equipment, require participation in environmental emission
allowance trading, and lead to other environmental considerations and costs, which could have an adverse impact on our business,
operations and results of operations.
These laws and regulations generally require us to obtain and comply with a wide variety of environmental licenses, permits,
inspections and other approvals. Violations of these laws and regulations could expose us to regulatory and legal proceedings,
disputes with, and legal challenges by, governmental authorities and private parties, as well as potential significant civil fines
criminal penalties and other sanctions.
ALLETE, Inc. 2018 Form 10-K
26
Item 1A. Risk Factors (Continued)
Regulated Operations Risks (Continued)
Existing environmental regulations may be revised and new environmental regulations may be adopted or become applicable to
us. Revised or additional regulations which result in increased compliance costs or additional operating restrictions, particularly
if those costs are not fully recoverable from customers, could have an adverse effect on our results of operations.
The scientific community generally accepts that emissions of GHG are linked to global climate change. Physical risks of climate
change, such as more frequent or more extreme weather events, changes in temperature and precipitation patterns, changes to
ground and surface water availability, and other related phenomena, could affect some, or all, of our operations. Severe weather
or other natural disasters could be destructive, which could result in increased costs. An extreme weather event within our utility
service areas can also directly affect our capital assets, causing disruption in service to customers due to downed wires and poles
or damage to other operating equipment. These all have the potential to adversely affect our business and operations.
There is significant uncertainty regarding if and when new laws or regulations will be adopted to reduce GHG and the impact any
such laws or regulations would have on us. In 2018, coal was the primary fuel source for 75 percent of the energy produced by
our generating facilities. Any future limits on GHG emissions at the federal or state level may require us to incur significant capital
expenditures and increases in operating costs, which if significant, could result in the closure of certain coal-fired energy centers,
an impairment of assets, or otherwise adversely affect our results of operations, particularly if such expenditures and costs are not
fully recoverable from customers.
We cannot predict the amount or timing of all future expenditures related to environmental matters because of uncertainty as to
applicable regulations or requirements. There is also uncertainty in quantifying liabilities under environmental laws that impose
joint and several liability on all potentially responsible parties. Violations of certain environmental statutes, rules and regulations
could expose ALLETE to third party disputes and potentially significant monetary penalties, as well as other sanctions for
non compliance.
The operation and maintenance of our electric generation and transmission facilities are subject to operational risks that
could adversely affect our financial position, results of operations and cash flows.
The operation of generating facilities involves many risks, including start-up operations risks, breakdown or failure of facilities,
the dependence on a specific fuel source, inadequate fuel supply, availability of fuel transportation, and the impact of unusual or
adverse weather conditions or other natural events, as well as the risk of performance below expected levels of output or efficiency.
A significant portion of our facilities contain older generating equipment, which, even if maintained in accordance with good
engineering practices, may require significant capital expenditures to continue operating at peak efficiency. Generation and
transmission facilities and equipment are also likely to require periodic upgrades and improvements due to changing environmental
standards and technological advances. We could be subject to costs associated with any unexpected failure to produce or deliver
power, including failure caused by breakdown or forced outage, as well as repairing damage to facilities due to storms, natural
disasters, wars, sabotage, terrorist acts and other catastrophic events.
Our ability to successfully and timely complete capital improvements to existing facilities or other capital projects is
contingent upon many variables.
We expect to incur significant capital expenditures in making capital improvements to our existing electric generation and
transmission facilities and in the development and construction of new electric generation and transmission facilities. Should any
such efforts be unsuccessful or not completed in a timely manner, we could be subject to additional costs or impairments which
could have an adverse impact on our financial position, results of operation and cash flows.
Our electric generating operations may not have access to adequate and reliable transmission and distribution facilities
necessary to deliver electricity to our customers.
We depend on our own transmission and distribution facilities, as well as facilities owned by other utilities, to deliver the electricity
produced and sold to our customers, and to other energy suppliers. If transmission capacity is inadequate, our ability to sell and
deliver electricity may be limited. We may have to forgo sales or may have to buy more expensive wholesale electricity that is
available in the capacity-constrained area. In addition, any infrastructure failure that interrupts or impairs delivery of electricity
to our customers could negatively impact the satisfaction of our customers, which could have an adverse impact on our business
and results of operations.
ALLETE, Inc. 2018 Form 10-K
27
Item 1A. Risk Factors (Continued)
Regulated Operations Risks (Continued)
Our results of operations could be impacted by declining wholesale power prices.
Wholesale prices for electricity have declined in recent years primarily due to low natural gas prices. If there are reductions in
demand from customers or if we lose customers, we will market any available power to Other Power Suppliers in an effort to
mitigate any earnings impact. Sales to Other Power Suppliers are sold at market-based prices into the MISO market on a daily
basis or through bilateral agreements of various durations. Due to the low wholesale prices for electricity, we can make no assurances
that our power marketing efforts would fully offset any reduction in earnings resulting from the lower demand from existing
customers or the loss of customers.
The price of electricity and fuel may be volatile.
Volatility in market prices for electricity and fuel could adversely impact our financial position and results of operations and may
result from:
severe or unexpected weather conditions and natural disasters;
seasonality;
changes in electricity usage;
transmission or transportation constraints, inoperability or inefficiencies;
availability of competitively priced alternative energy sources;
changes in supply and demand for energy;
changes in power production capacity;
outages at our generating facilities or those of our competitors;
availability of fuel transportation;
changes in production and storage levels of natural gas, lignite, coal, crude oil and refined products;
•
•
•
•
•
•
•
•
•
•
• wars, sabotage, terrorist acts or other catastrophic events; and
•
federal, state, local and foreign energy, environmental, or other regulation and legislation.
Fluctuations in our fuel and purchased power costs related to our retail and municipal customers are passed on to customers through
the fuel adjustment clause. Volatility in market prices for our fuel and purchase power costs primarily impacts our sales to Other
Power Suppliers.
Demand for energy may decrease.
Our results of operations are impacted by the demand for energy in our service territories. There could be lower demand for energy
due to a loss of customers as a result of economic conditions, customers constructing or installing their own generation facilities,
higher costs and rates charged to customers, or loss of service territory or franchises. Further, energy conservation and technological
advances that increased energy efficiency may temporarily or permanently reduce the demand for energy products. In addition,
we are impacted by state and federal regulations requiring mandatory conservation measures, which reduce the demand for energy
products. Continuing technology improvements and regulatory developments may make customer and third party-owned generation
technologies such as rooftop solar systems, WTGs, microturbines and battery storage systems more cost effective and feasible for
of our customers. If customers utilize their own generation, demand for energy from us would decline. There may not be future
economic growth opportunities that would enable us to replace the lost energy demand from these customers. Therefore, a decrease
in demand for energy could adversely impact our financial position, results of operations and cash flows.
We may not be able to successfully implement our strategic objectives of growing load at our utilities if current or potential
industrial or municipal customers are unable to successfully implement expansion plans, including the inability to obtain
necessary governmental permits.
As part of our long-term strategy, we pursue new wholesale and retail loads in and around our service territories. Currently, there
are several companies in northeastern Minnesota that are in the process of developing natural resource-based projects that represent
long-term growth potential and load diversity for our Regulated Operations businesses. These projects may include construction
of new facilities and restarts of old facilities, both of which require permitting and approvals to be obtained before the projects
can be successfully implemented. If a project does not obtain any necessary governmental (including environmental) permits and
approvals or if these customers are unable to successfully implement expansion plans, our long-term strategy and thus our results
of operations could be adversely impacted.
ALLETE, Inc. 2018 Form 10-K
28
Item 1A. Risk Factors (Continued)
Energy Infrastructure and Related Services Risks
The inability to successfully manage and grow our Energy Infrastructure and Related Services businesses could adversely
affect our results of operations.
Our Energy Infrastructure and Related Services businesses consist of ALLETE Clean Energy and U.S. Water Services. The
Company's strategy for these businesses includes adding customers, products, and new geographies, project development for others
and growth through acquisitions. This strategy depends, in part, on the Company’s ability to successfully identify and evaluate
acquisition opportunities and consummate acquisitions on acceptable terms. The Company may compete with other companies
for these acquisition opportunities, which may increase the Company’s cost of making acquisitions and the Company may be
unsuccessful in pursuing these acquisition opportunities. These companies may be able to pay more for acquisitions and may be
able to identify, evaluate, bid for and purchase a greater number of assets than the Company’s financial or human resources permit.
Additionally, tax law changes may adversely impact the economic characteristics of potential acquisitions or investments. If the
Company is unable to execute its strategy of growth through acquisitions, project development for others, or the addition of new
customers, products and geographies, it may impede our long-term objectives and business strategy.
Acquisitions are subject to uncertainties. If we are unable to successfully integrate and manage future acquisitions or strategic
investments, this could have an adverse impact on our results of operations. Our actual results may also differ from our expectations
due to factors such as the ability to obtain timely regulatory or governmental approvals, integration and operational issues and the
ability to retain management and other key personnel.
U.S. Water Services principally relies upon recurring revenues from a diverse mix of industrial customers. Some of these customers
can be adversely affected by low commodity prices such as those for ethanol and oil which may cause these customers to purchase
less of U.S. Water Services’ products and services. If U.S. Water Services is unable to retain its existing customers, add new
customers, or if it experiences reduced demand for its products and services, adverse impacts on our results of operations could
occur that would prevent us from achieving our future growth expectations.
The generation of electricity from ALLETE Clean Energy’s wind energy facilities depends heavily on suitable
meteorological conditions.
ALLETE Clean Energy’s facilities are geographically diverse; however, if wind conditions are unfavorable, ALLETE Clean
Energy’s electricity generation and revenue from its wind energy facilities may be substantially below its expectations. The
electricity produced, production tax credits received, and revenues generated by a wind energy facility are highly dependent on
suitable wind conditions and associated weather conditions, which are beyond ALLETE Clean Energy’s control. Furthermore,
components of its systems could be damaged by severe weather, such as hailstorms, lightning or tornadoes. In addition, replacement
and spare parts for key components of ALLETE Clean Energy’s diverse turbine portfolio may be difficult or costly to acquire or
may be unavailable. Unfavorable weather and atmospheric conditions could impair the effectiveness of ALLETE Clean Energy’s
assets or reduce their output beneath their rated capacity or require shutdown of key equipment, impeding operation of its wind
energy facilities.
The construction, operation and maintenance of ALLETE Clean Energy’s electric generation facilities are subject to
operational risks that could adversely affect our financial position, results of operations and cash flows.
The construction and operation of generating facilities involves many risks, including the performance by key contracted suppliers
and maintenance providers, start-up operations risks, breakdown or failure of facilities, the dependence on the availability of wind
resources, or the impact of unusual, adverse weather conditions or other natural events, as well as the risk of performance below
expected levels of output or efficiency. A portion of our facilities contain older generating equipment, even if maintained in
accordance with good engineering practices, may require significant capital expenditures to continue operating at peak efficiency.
We could be subject to costs associated with any unexpected failure to produce and deliver power, including failure caused by
breakdown or forced outage, as well as repairing damage to facilities due to storms, natural disasters, wars, sabotage, terrorist acts
and other catastrophic events.
ALLETE, Inc. 2018 Form 10-K
29
Item 1A. Risk Factors (Continued)
Energy Infrastructure and Related Services Risks (Continued)
As contracts with its counterparties expire, ALLETE Clean Energy may not be able to replace them with agreements on
similar terms.
ALLETE Clean Energy is party to PSAs which expire in various years between 2019 and 2032. These PSA expirations are prior
to the end of the estimated useful lives of the respective wind energy facilities. If, for any reason, ALLETE Clean Energy is unable
to enter into new agreements with existing or new counterparties on similar terms once the current agreements expire, or sell
energy in the wholesale market resulting in similar revenue, our financial position, results of operations and cash flows could be
adversely affected.
Counterparties to ALLETE Clean Energy’s turbine supply, service and maintenance, or offtake agreements may not fulfill
their obligations.
ALLETE Clean Energy is party to turbine supply agreements, service and maintenance agreements, and PSAs under various
durations with a limited number of creditworthy counterparties. If, for any reason, any of the counterparties under these agreements
do not fulfill their related contractual obligations, and ALLETE Clean Energy is unable to mitigate non-performance by a key
supplier or maintenance provider or remarket PSA energy resulting in similar revenue, our financial position, results of operations
and cash flows could be adversely affected.
ALLETE has a significant amount of goodwill and intangible assets. A determination that goodwill or intangible assets
have been impaired could result in a significant non-cash charge to earnings.
We had approximately $223 million of goodwill and intangible assets recorded on our Consolidated Balance Sheet as of
December 31, 2018. If we change our business strategy, fail to deliver on our projected results or if market or other conditions
adversely affect the operations of U.S. Water Services, we may be required to record an impairment charge. Declines in projected
operating cash flows at U.S. Water Services could also result in an impairment charge. An impairment charge would result in a
non-cash charge to earnings that could have an adverse effect on our results of operations.
Corporate and Other Risks
BNI Energy may be adversely impacted by its exposure to customer concentration, and environmental laws and regulations.
BNI Energy sells lignite coal to two electric generating cooperatives, Minnkota Power and Square Butte, and could be adversely
impacted if these customers were unable or unwilling to fulfill their related contractual obligations. In addition, BNI Energy and
its customers may be adversely impacted by environmental laws and regulations which could have an adverse effect on our financial
position, results of operations and cash flows.
Real estate market conditions where our legacy Florida real estate investment is located may not improve.
The Company’s strategy related to the real estate assets of ALLETE Properties incorporates the possibility of a bulk sale of its
entire portfolio, in addition to sales over time, however, continued adverse market conditions could impact the timing of land sales,
which could result in little to no sales, while still incurring operating expenses such as community development district assessments
and property taxes, resulting in net operating losses at ALLETE Properties. Furthermore, weak market conditions could put the
properties at risk for an impairment charge. An impairment charge would result in a non-cash charge to earnings that could have
an adverse effect on our results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
A discussion of our properties is included in Item 1. Business and is incorporated by reference herein.
ALLETE, Inc. 2018 Form 10-K
30
Item 3. Legal Proceedings
Discussions of material regulatory and environmental proceedings are included in Note 4. Regulatory Matters and Note 11.
Commitments, Guarantees and Contingencies, and are incorporated by reference herein.
We are involved in litigation arising in the normal course of business. Also in the normal course of business, we are involved in
tax, regulatory and other governmental audits, inspections, investigations and other proceedings that involve state and federal
taxes, safety, and compliance with regulations, rate base and cost of service issues, among other things. We do not expect the
outcome of these matters to have a material effect on our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures
The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) requires issuers to include in periodic reports
filed with the SEC certain information relating to citations or orders for violations of standards under the Federal Mine Safety and
Health Act of 1977 (Mine Safety Act). Information concerning mine safety violations or other regulatory matters required by
Section 1503(a) of the Dodd-Frank Act and this Item are included in Exhibit 95 to this Form 10-K.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the NYSE under the symbol ALE. We have paid dividends, without interruption, on our common
stock since 1948. A quarterly dividend of $0.5875 per share on our common stock is payable on March 1, 2019, to the shareholders
of record on February 15, 2019. The timing and amount of future dividends will depend upon earnings, cash requirements, the
financial condition of the Company, applicable government regulations and other factors deemed relevant by the ALLETE Board
of Directors.
As of February 1, 2019, there were approximately 22,000 common stock shareholders of record.
Performance Graph.
The following graph compares ALLETE’s cumulative Total Shareholder Return on its common stock with the cumulative return
of the S&P 500 Index and the Philadelphia Utility Index. The S&P 500 Index is a capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks
representing all major industries. Because this composite index has a broad industry base, its performance may not closely track
that of a composite index comprised solely of electric utilities. The Philadelphia Utility Index is a capitalization-weighted index
of 20 utility companies involved in the generation of electricity.
The calculations assume a $100 investment on December 31, 2013, and reinvestment of dividends.
ALLETE, Inc. 2018 Form 10-K
31
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
(Continued)
ALLETE
S&P 500 Index
Philadelphia Utility Index
2013
$100
$100
$100
2014
$115
$114
$129
2015
$110
$115
$121
2016
$144
$129
$142
2017
$172
$157
$160
2018
$182
$150
$166
ALLETE, Inc. 2018 Form 10-K
32
Item 6. Selected Financial Data
Millions Except Per Share Amounts
Operating Revenue (a)
Operating Expenses (a)
Net Income (b)
Less: Non-Controlling Interest in Subsidiaries (c)
Net Income Attributable to ALLETE (b)
Common Stock Dividends
Earnings Retained in Business (b)
Shares Outstanding
Year-End
Average (d)
Basic
Diluted
Diluted Earnings Per Share (b)
Total Assets
Long-Term Debt
Return on Common Equity (b)
Common Equity Ratio
2018
2017
2016
2015
2014
$1,498.6
$1,297.4
$174.1
—
$174.1
115.0
$59.1
$1,419.3
$1,193.4
$172.2
—
$172.2
108.7
$63.5
$1,339.7
$1,122.7
$155.8
0.5
$155.3
102.7
$52.6
$1,486.4
$1,274.7
$141.5
0.4
$141.1
97.9
$43.2
$1,136.8
$946.9
$125.5
0.7
$124.8
83.8
$41.0
51.5
51.1
49.6
49.1
45.9
51.3
51.5
$3.38
50.8
51.0
$3.38
49.3
49.5
$3.14
48.3
48.4
$2.92
42.9
43.1
$2.90
$5,165.0
$1,428.5
$5,080.0
$1,439.2
$4,876.9
$1,370.4
$4,864.4
$1,556.7
$4,329.1
$1,263.2
8.3%
59%
8.6%
58%
8.4%
55%
8.0%
53%
8.6%
54%
Dividends Declared per Common Share
$2.24
$2.14
$2.08
$2.02
$1.96
Dividend Payout Ratio (b)
Book Value Per Share at Year-End
Capital Expenditures by Segment
Regulated Operations
ALLETE Clean Energy
U.S. Water Services
Corporate and Other
66%
63%
66%
69%
68%
$41.85
$40.46
$38.17
$37.18
$35.04
$211.9
$177.1
89.7
5.0
12.0
56.1
4.4
28.9
$121.8
106.9
3.7
15.4
$224.4
$583.5
8.6
2.9
15.9
4.2
—
16.6
$604.3
Total Capital Expenditures
$318.6
$266.5
$247.8
$251.8
(a) In 2015, operating revenue and operating expenses included $197.7 million and $162.9 million, respectively, for the sale of a wind energy
facility by ALLETE Clean Energy to Montana-Dakota Utilities. In 2018, operating revenue and operating expenses included $81.1 million
and $67.4 million, respectively, for the sale of a wind energy facility by ALLETE Clean Energy to Montana-Dakota Utilities.
(b) The year ended December 31, 2017, includes the impact of the remeasurement of deferred income tax assets and liabilities resulting from
the TCJA. (See Note 13. Income Tax Expense.)
(c) The non-controlling interest related to ALLETE Clean Energy’s Condon wind energy facility was acquired in 2016. (See Note 6. Acquisitions.)
(d) Excludes unallocated ESOP shares in 2014.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our Consolidated Financial Statements and notes to those statements
and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion
and other parts of this Form 10-K contain forward-looking information that involves risks and uncertainties. Readers are cautioned
that forward-looking statements should be read in conjunction with our disclosures in this Form 10-K under the headings:
“Forward Looking Statements” located on page 6 and “Risk Factors” located in Item 1A. The risks and uncertainties described
in this Form 10-K are not the only risks facing our Company. Additional risks and uncertainties that we are not presently aware
of, or that we currently consider immaterial, may also affect our business operations. Our business, financial condition or results
of operations could suffer if the risks are realized.
ALLETE, Inc. 2018 Form 10-K
33
Overview
Basis of Presentation. We present three reportable segments: Regulated Operations, ALLETE Clean Energy and U.S. Water
Services. Our segments were determined in accordance with the guidance on segment reporting. We measure performance of our
operations through budgeting and monitoring of contributions to consolidated net income by each business segment.
Regulated Operations includes our regulated utilities, Minnesota Power and SWL&P, as well as our investment in ATC, a
Wisconsin-based regulated utility that owns and maintains electric transmission assets in portions of Wisconsin, Michigan,
Minnesota and Illinois. Minnesota Power provides regulated utility electric service in northeastern Minnesota to approximately
145,000 retail customers. Minnesota Power also has 16 non-affiliated municipal customers in Minnesota. SWL&P is a Wisconsin
utility and a wholesale customer of Minnesota Power. SWL&P provides regulated utility electric, natural gas and water service
in northwestern Wisconsin to approximately 15,000 electric customers, 13,000 natural gas customers and 10,000 water customers.
Our regulated utility operations include retail and wholesale activities under the jurisdiction of state and federal regulatory
authorities. (See Note 4. Regulatory Matters.)
ALLETE Clean Energy focuses on developing, acquiring, and operating clean and renewable energy projects. ALLETE Clean
Energy currently owns and operates, in four states, approximately 545 MW of nameplate capacity wind energy generation that is
contracted under PSAs of various durations. ALLETE Clean Energy also engages in the development of wind energy facilities to
operate under long-term PSAs or for sale to others upon completion.
U.S. Water Services provides integrated water management for industry by combining chemical, equipment, engineering and
service for customized solutions to reduce water and energy usage, and improve efficiency.
Corporate and Other is comprised of BNI Energy, our coal mining operations in North Dakota, our investment in Nobles 2,
ALLETE Properties, our legacy Florida real estate investment, other business development and corporate expenditures, unallocated
interest expense, a small amount of non-rate base generation, approximately 4,000 acres of land in Minnesota, and earnings on
cash and investments.
ALLETE is incorporated under the laws of Minnesota. Our corporate headquarters are in Duluth, Minnesota. Statistical information
is presented as of December 31, 2018, unless otherwise indicated. All subsidiaries are wholly-owned unless otherwise specifically
indicated. References in this report to “we,” “us” and “our” are to ALLETE and its subsidiaries, collectively.
2018 Financial Overview
The following net income discussion summarizes a comparison of the year ended December 31, 2018, to the year ended
December 31, 2017.
Net income attributable to ALLETE in 2018 was $174.1 million, or $3.38 per diluted share, compared to $172.2 million, or
$3.38 per diluted share, in 2017. Net income in 2017 included the favorable impacts of $13.0 million after-tax, or $0.25 per share,
for the remeasurement of deferred income tax assets and liabilities resulting from the TCJA and $7.9 million after-tax, or $0.16 per
share, related to the regulatory outcome of the MPUC’s modification of its November 2016 order on the allocation of North Dakota
investment tax credits. Net income in 2017 also included a non cash $11.4 million after-tax charge, or $0.22 per share, for the
MPUC’s decision in Minnesota Power’s 2016 general rate case disallowing recovery of Minnesota Power’s regulatory asset for
deferred fuel adjustment clause costs. (See Note 4. Regulatory Matters.) Earnings per share dilution in 2018 was $0.04 due to
additional shares of common stock outstanding as of December 31, 2018.
Regulated Operations net income attributable to ALLETE was $131.0 million in 2018, compared to $128.4 million in 2017. Net
income at Minnesota Power was higher than 2017 reflecting the non cash $11.4 million after-tax charge in 2017 for the MPUC’s
decision in Minnesota Power’s 2016 general rate case disallowing recovery of Minnesota Power’s regulatory asset for deferred
fuel adjustment clause costs. Net income in 2018 included lower transmission revenue resulting from lower MISO-related revenue
and a $3.1 million after-tax out-of-period adjustment for an estimated true-up of MISO rates that were billed in 2017 and are
expected to be credited to customers in 2019, the timing of fuel adjustment clause recoveries, lower industrial sales, and higher
property tax and interest expense. These decreases were partially offset by lower operating and maintenance expense, higher
pricing on PSAs with Other Power Suppliers, increased cost recovery rider revenue, and higher sales to residential and commercial
customers due to more favorable weather conditions in 2018. Net income in 2018 also included higher depreciation expense
resulting from a reduction in the depreciable lives of Boswell Unit 3, Unit 4 and common facilities to 2035, which was offset by
the benefits of the lower federal income tax rate enacted as part of the TCJA. Net income at SWL&P and our after-tax equity
earnings in ATC were similar to 2017.
ALLETE, Inc. 2018 Form 10-K
34
2018 Financial Overview (Continued)
ALLETE Clean Energy net income attributable to ALLETE was $33.7 million in 2018 compared to $41.5 million in 2017. Net
income in 2017 included a $23.6 million after-tax benefit due to the remeasurement of deferred income tax assets and liabilities
resulting from the TCJA. Net income in 2018 included the sale of a wind energy facility to Montana-Dakota Utilities, a lower
federal income tax rate enacted as part of the TCJA and $7.4 million after-tax of additional production tax credits generated as
ALLETE Clean Energy continues to execute its refurbishment strategy. Of the $7.4 million after-tax in additional production tax
credits, $3.0 million resulted from the retrospective qualification of additional wind turbine generators in 2016 and 2017. These
increases were partially offset by higher operating and maintenance expenses.
U.S. Water Services net income attributable to ALLETE was $3.2 million in 2018, compared to $10.7 million in 2017. Net income
in 2017 included a $9.2 million after-tax benefit due to the remeasurement of deferred income tax assets and liabilities resulting
from the TCJA. Net income in 2018 included increased revenue primarily due to higher capital project sales and higher sales of
chemicals and related services, partially offset by higher operating expenses. Net income in 2018 included $0.6 million of after-
tax expense recognized as cost of sales related to purchase accounting for sales backlog.
Corporate and Other net income attributable to ALLETE was $6.2 million in 2018 compared to a net loss of $8.4 million in 2017.
The net loss in 2017 included additional income tax expense of $19.8 million after-tax for the remeasurement of deferred income
tax assets and liabilities resulting from the TCJA and a $7.9 million after-tax favorable impact for the regulatory outcome of the
MPUC’s modification of its November 2016 order on the allocation of North Dakota investment tax credits. Net income in 2018
included an increase for the change in fair value of the contingent consideration liability of $1.3 million after-tax as compared to
2017.
2018 Compared to 2017
(See Note 17. Business Segments for financial results by segment.)
Regulated Operations
Year Ended December 31
Millions
Operating Revenue – Utility
Fuel, Purchased Power and Gas – Utility
Transmission Services – Utility
Operating and Maintenance
Depreciation and Amortization
Taxes Other than Income Taxes
Operating Income
Interest Expense
Equity Earnings in ATC
Other Income
Income Before Income Taxes
Income Tax Expense (Benefit)
Net Income Attributable to ALLETE
2018
2017
$1,059.5
407.5
69.9
220.1
158.0
52.5
151.5
(60.2)
17.5
6.7
115.5
(15.5)
$131.0
$1,063.8
396.9
71.2
227.3
132.6
51.1
184.7
(57.0)
22.5
5.4
155.6
27.2
$128.4
Operating Revenue – Utility decreased $4.3 million from 2017 primarily due to lower transmission revenue, the impact of a
regulatory outcome in 2017 related to the allocation of North Dakota investment tax credits, provision for tax reform refund
related to income tax changes resulting from the TCJA, and lower financial incentives under the Minnesota conservation
improvement program, partially offset by higher revenue from kWh sales, cost recovery rider revenue, fuel clause adjustment
recoveries, and conservation improvement program recoveries.
Transmission revenue decreased $15.0 million primarily due to lower MISO-related revenue and a $4.4 million out-of-period
adjustment for an estimated true-up of MISO rates that were billed in 2017 and are expected to be credited to customers in
2019.
ALLETE, Inc. 2018 Form 10-K
35
2018 Compared to 2017 (Continued)
Regulated Operations (Continued)
Revenue decreased $14.0 million due to the impact of a regulatory outcome in 2017 related to the allocation of North Dakota
investment tax credits. This decrease in revenue was offset by the income tax impacts of the regulatory outcome resulting in
no impact to net income for Regulated Operations. (See Note 4. Regulatory Matters and Income Tax Expense.)
Revenue decreased $11.9 million from 2017 reflecting income tax changes resulting from the TCJA primarily related to a
provision for tax reform refund for the benefit of excess deferred income taxes in 2018. We have recorded the benefit of these
excess deferred income taxes for Minnesota Power and SWL&P as regulatory liabilities. (See Note 4. Regulatory Matters.)
Financial incentives under the Minnesota conservation improvement program were lower by $2.5 million from 2017 as a
result of MPUC-approved modifications to the mechanism for calculating the financial incentives.
Interim retail rates of $29.5 million collected in 2018 were fully offset by the recognition of a corresponding reserve throughout
the year. In the fourth quarter of 2017, Minnesota Power recognized interim retail rate refund reserves of $31.6 million to
fully offset interim retail rates collected throughout the year in 2017 due to the regulatory outcome of the MPUC’s decision
in Minnesota Power’s 2016 general rate case at a hearing on January 18, 2018.
Revenue increased $13.5 million from 2017 reflecting higher kWh sales to Residential and Commercial customers, and higher
pricing on sales to Other Power Suppliers. Sales to Residential and Commercial customers increased in 2018 primarily due
to more favorable weather conditions in 2018 compared to 2017. Sales to Industrial customers decreased 0.9 percent reflecting
lower sales to UPM Blandin as a result of the closure of the smaller of its two paper machines in the fourth quarter of 2017
and Husky Energy due to an April 2018 fire at its refinery in Superior, Wisconsin, partially offset by increased taconite
production. Revenue from Other Power Suppliers increased due to higher pricing on sales, partially offset by a 2.1 percent
decrease in kWh sales from 2017. Sales to Other Power Suppliers are sold at market-based prices into the MISO market on
a daily basis or through PSAs of various durations.
Kilowatt-hours Sold
Millions
Regulated Utility
Retail and Municipal
Residential
Commercial
Industrial
Municipal
Total Retail and Municipal
Other Power Suppliers
Total Regulated Utility Kilowatt-hours Sold
2018
2017
Quantity
Variance
%
Variance
1,140
1,426
7,261
798
10,625
3,953
14,578
1,096
1,420
7,327
799
10,642
4,039
14,681
44
6
(66)
(1)
(17)
(86)
(103)
4.0
0.4
(0.9)
(0.1)
(0.2)
(2.1)
(0.7)
Revenue from electric sales to taconite and iron concentrate customers accounted for 21 percent of consolidated operating
revenue in 2018 (22 percent in 2017). Revenue from electric sales to paper, pulp and secondary wood product customers
accounted for 4 percent of consolidated operating revenue in 2018 (5 percent in 2017). Revenue from electric sales to pipelines
and other industrial customers accounted for 6 percent of consolidated operating revenue in 2018 (7 percent in 2017).
Cost recovery rider revenue increased $13.0 million primarily due to higher expenditures related to the construction of the
GNTL and fewer production tax credits recognized by Minnesota Power. If production tax credits are recognized at a level
below those assumed in Minnesota Power’s base rates, an increase in cost recovery rider revenue is recognized to offset the
impact of lower production tax credits on income tax expense.
Fuel adjustment clause recoveries increased $7.9 million due to higher fuel and purchased power costs attributable to retail
and municipal customers.
Conservation improvement program recoveries increased $3.5 million from 2017 primarily due to an increase in related
expenditures. (See Operating Expenses - Operating and Maintenance.)
ALLETE, Inc. 2018 Form 10-K
36
2018 Compared to 2017 (Continued)
Regulated Operations (Continued)
Operating Expenses increased $28.9 million, or 3 percent, from 2017.
Fuel, Purchased Power and Gas – Utility expense increased $10.6 million, or 3 percent, from 2017 primarily due to higher
purchased power prices and higher fuel costs, partially offset by a $19.5 million expense in 2017 for the MPUC’s decision
disallowing recovery of Minnesota Power’s regulatory asset for deferred fuel adjustment clause costs. At a hearing on
January 18, 2018, the MPUC disallowed Minnesota Power’s regulatory asset for deferred fuel adjustment clause costs due
to the anticipated adoption of a forward-looking fuel adjustment clause methodology resulting in a $19.5 million charge in
the fourth quarter of 2017. Fuel and purchased power expense related to our retail and municipal customers is recovered
through the fuel adjustment clause. (See Operating Revenue – Utility.)
Operating and Maintenance expense decreased $7.2 million, or 3 percent, from 2017 primarily due to lower salary and benefit
expenses, and lower materials purchased for generation facilities, partially offset by a $3.5 million increase in conservation
improvement program expenses and additional severance expense of $1.9 million in 2018. (See Operating Revenue – Utility.)
Depreciation and Amortization expense increased $25.4 million, or 19 percent, from 2017 primarily due to modifications of
the depreciable lives for Boswell and additional property, plant and equipment in service. As part of its decision in Minnesota
Power’s 2016 general rate case, the MPUC extended the depreciable lives of Boswell Unit 3, Unit 4 and common facilities
to 2050, and shortened the depreciable lives of Boswell Unit 1 and Unit 2 to 2022, resulting in a net decrease to depreciation
expense of approximately $25 million in 2017. Subsequently, as part of the reconsideration of its decision in Minnesota
Power’s 2016 general rate case, the MPUC reduced the depreciable lives of Boswell Unit 3, Unit 4 and common facilities to
2035, resulting in higher depreciation expense in 2018. The increase in depreciation expense in 2018 was offset mostly by
the benefits of the lower federal income tax rate enacted as part of the TCJA. (See Note 4. Regulatory Matters and Income
Tax Benefit.)
Interest Expense increased $3.2 million, or 6 percent, from 2017 primarily due to higher average long-term debt balances,
higher interest rates and $0.5 million of interest on Minnesota Power’s reserve for interim rate refunds. We record interest
expense for Regulated Operations primarily based on rate base and authorized capital structure, and allocate the balance to
Corporate and Other.
Equity Earnings in ATC decreased $5.0 million, or 22 percent, from 2017 primarily due to the federal income tax rate change
enacted as part of the TCJA, partially offset by additional investments in ATC. (See Note 5. Equity Investments.)
Income Tax Benefit was $15.5 million in 2018 compared to income tax expense of $27.2 million in 2017. The income tax
benefit in 2018 reflects the reduction of the federal income tax rate from 35 percent to 21 percent enacted as part of the TCJA,
the amortization of excess deferred income tax benefit resulting from the TCJA and lower pre-tax income. Income tax expense
in 2017 included the impact of a regulatory outcome in 2017 related to the allocation of North Dakota investment tax credits.
In 2017, as a result of the favorable impact for the regulatory outcome of the MPUC’s modification of its November 2016
order on the allocation of North Dakota investment tax credits, Regulated Operations increased operating revenue and reduced
the corresponding regulatory liability by $14.0 million resulting in an income tax expense of $6.1 million. In addition,
Regulated Operations recorded an income tax expense of $7.9 million for North Dakota investment tax credits transferred to
Corporate and Other, resulting in no impact to net income for Regulated Operations. Corporate and Other recorded an offsetting
income tax benefit of $7.9 million for the North Dakota investment tax credits transferred from Regulated Operations. (See
Note 4. Regulatory Matters.)
ALLETE Clean Energy
Year Ended December 31
Millions
Operating Revenue
Net Income Attributable to ALLETE (a)
(a) Results in 2017 include a $23.6 million after-tax benefit due to the remeasurement of deferred income tax assets and liabilities resulting
$159.9
$33.7
$80.5
$41.5
2018
2017
from the TCJA.
ALLETE, Inc. 2018 Form 10-K
37
2018 Compared to 2017 (Continued)
ALLETE Clean Energy (Continued)
Operating Revenue increased $79.4 million from 2017 due to the sale of a wind energy facility to Montana-Dakota Utilities
in 2018.
Production and Operating Revenue
Millions
Wind Energy Facility
Lake Benton
Storm Lake II
Condon
Storm Lake I
Chanarambie/Viking
Armenia Mountain
Total Wind Energy Facilities
Sale of Wind Energy Facility (a)
Total Production and Operating Revenue
Year Ended December 31,
2018
2017
kWh
Revenue
kWh
Revenue
220.1
134.8
99.6
191.8
244.9
264.5
1,155.7
—
1,155.7
$11.9
9.5
8.1
11.7
13.5
24.1
78.8
81.1
$159.9
241.8
152.6
90.7
215.6
263.5
267.4
1,231.6
—
1,231.6
$12.3
10.0
7.5
12.4
13.9
24.4
80.5
—
$80.5
(a) 2018 included the recognition of $67.4 million of cost of sales related to the sale of a wind energy facility.
Net Income Attributable to ALLETE decreased $7.8 million from 2017. Net income in 2017 included a $23.6 million after-
tax benefit due to the remeasurement of deferred income tax assets and liabilities resulting from the TCJA. Net income in
2018 included the sale of a wind energy facility to Montana-Dakota Utilities, a lower federal income tax rate enacted as part
of the TCJA and $7.4 million after-tax of additional production tax credits generated as ALLETE Clean Energy continues to
execute its refurbishment strategy. Of the $7.4 million after-tax in additional production tax credits, $3.0 million resulted from
the retrospective qualification of additional wind turbine generators in 2016 and 2017. These increases were partially offset
by higher operating and maintenance expenses.
U.S. Water Services
Year Ended December 31
Millions
Operating Revenue
Net Income Attributable to ALLETE (a)
(a) Results in 2017 include a $9.2 million after-tax benefit due to the remeasurement of deferred income tax assets and liabilities resulting
$172.1
$3.2
$151.8
$10.7
2018
2017
from the TCJA.
Operating Revenue increased $20.3 million, or 13 percent, from 2017. Revenue from chemical sales and related services was
$138.6 million in 2018 compared to $132.0 million in 2017. Revenue from capital projects was $33.5 million for 2018
compared to $19.8 million in 2017; capital project sales can significantly fluctuate from period to period. Revenue in 2018
reflected a full year of sales from Tonka Water, which was acquired in September 2017.
Net Income Attributable to ALLETE decreased $7.5 million from 2017. Net income in 2017 included a $9.2 million after-
tax benefit due to the remeasurement of deferred income tax assets and liabilities resulting from the TCJA. Net income in
2018 included increased revenue primarily due to higher capital project sales and higher sales of chemicals and related services,
partially offset by higher operating expenses. Net income in 2018 included $0.6 million of after-tax expense recognized as
cost of sales related to purchase accounting for sales backlog.
Cash flow from operations for U.S. Water Services was approximately $5 million in 2018 compared to approximately
$12 million in 2017.
Corporate and Other
Operating Revenue decreased $16.1 million, or 13 percent, from 2017 primarily due to a decrease in land sales at ALLETE
Properties and lower revenue at BNI Energy, which operates under cost-plus fixed fee contracts, as a result of lower expenses
and fewer tons sold in 2018 compared to 2017.
ALLETE, Inc. 2018 Form 10-K
38
2018 Compared to 2017 (Continued)
Corporate and Other (Continued)
Net Income Attributable to ALLETE was $6.2 million in 2017 compared to a net loss of $8.4 million in 2017. The net loss
in 2017 included additional income tax expense of $19.8 million after-tax for the remeasurement of deferred income tax assets
and liabilities resulting from the TCJA and a $7.9 million after-tax favorable impact for the regulatory outcome of the MPUC’s
modification of its November 2016 order on the allocation of North Dakota investment tax credits. Net income in 2018
included an increase for the change in fair value of the contingent consideration liability of $1.3 million after-tax.
Net income at BNI Energy was $6.8 million in 2018 compared to $4.5 million in 2017. Net income in 2017 included a
$3.1 million after-tax expense due to the remeasurement of deferred income tax assets and liabilities resulting from the TCJA.
The net loss at ALLETE Properties was $0.5 million in 2018 compared to a net loss of $8.8 million in 2017. The net loss in
2017 included a $7.8 million after-tax expense for the remeasurement of deferred income tax assets and liabilities resulting
from the TCJA.
Income Taxes – Consolidated
For the year ended December 31, 2018, the effective tax rate was a benefit of 9.8 percent (expense of 7.9 percent for the year
ended December 31, 2017). The decrease from 2017 was primarily due to the reduction of the federal income tax rate from
35 percent to 21 percent enacted as part of the TCJA, the amortization of excess deferred income tax benefit resulting from
the TCJA and lower pre-tax income in 2018, partially offset by the remeasurement of deferred income tax assets and liabilities
resulting from the TCJA in 2017. The effective rate deviated from the combined statutory rate of approximately 28 percent
primarily due to production tax credits. (See Note 13. Income Tax Expense.)
2017 Compared to 2016
(See Note 17. Business Segments for financial results by segment.)
Regulated Operations
Year Ended December 31
Millions
Operating Revenue – Utility
Fuel, Purchased Power and Gas – Utility
Transmission Services – Utility
Operating and Maintenance
Depreciation and Amortization
Taxes Other than Income Taxes
Operating Income
Interest Expense
Equity Earnings in ATC
Other Income
Income Before Income Taxes
Income Tax Expense
Net Income Attributable to ALLETE
2017
2016
$1,063.8
396.9
71.2
227.3
132.6
51.1
184.7
(57.0)
22.5
5.4
155.6
27.2
$128.4
$1,000.7
339.9
65.2
227.5
154.3
47.7
166.1
(52.1)
18.5
8.9
141.4
5.9
$135.5
Operating Revenue – Utility increased $63.1 million, or 6 percent, from 2016 primarily due to the period over period impact
of the regulatory outcomes related to the allocation of North Dakota investment tax credits, as well as higher fuel adjustment
clause recoveries, conservation improvement program recoveries and revenue from kWh sales, partially offset by lower FERC
formula-based rates, financial incentives under the conservation improvement program and transmission revenue. Interim
retail rate refund reserves fully offset the interim retail rates recognized during 2017.
Revenue increased $29.0 million due to the period over period impact of the regulatory outcomes related to the allocation of
North Dakota investment tax credits. As a result of the favorable impact for the regulatory outcome of the MPUC’s modification
of its 2016 order on the allocation of North Dakota investment tax credits, operating revenue increased $14.0 million in 2017.
In 2016, operating revenue decreased $15.0 million as a result of the adverse impact for the regulatory outcome of the 2016
MPUC order. (See Note 4. Regulatory Matters.)
ALLETE, Inc. 2018 Form 10-K
39
2017 Compared to 2016 (Continued)
Regulated Operations (Continued)
Fuel adjustment clause recoveries increased $24.4 million due to higher fuel and purchased power costs attributable to retail
and municipal customers. (See Operating Expenses - Fuel, Purchased Power and Gas – Utility.)
Conservation improvement program recoveries increased $7.2 million from 2016 primarily due to an increase in related
expenditures. (See Operating Expenses - Operating and Maintenance.)
Revenue from kWh sales increased $3.9 million from 2016 primarily due to higher sales to Industrial customers. Sales to
Industrial customers increased 13.5 percent primarily due to increased taconite production and the commencement of a
long term PSA with Silver Bay Power in 2016. Sales to Other Power Suppliers decreased 6.4 percent from 2016 as a result
of increased sales to Industrial customers. Sales to Other Power Suppliers are sold at market based prices into the MISO
market on a daily basis or through bilateral agreements of various durations; market prices were lower in 2017 compared to
2016. Sales to Residential, Commercial and Municipal customers decreased primarily due to milder temperatures in 2017.
Kilowatt-hours Sold
Millions
Regulated Utility
Retail and Municipal
Residential
Commercial
Industrial
Municipal
Total Retail and Municipal
Other Power Suppliers
Total Regulated Utility Kilowatt-hours Sold
2017
2016
Quantity
Variance
%
Variance
1,096
1,420
7,327
799
10,642
4,039
14,681
1,102
1,442
6,456
816
9,816
4,316
14,132
(6)
(22)
871
(17)
826
(277)
549
(0.5)
(1.5)
13.5
(2.1)
8.4
(6.4)
3.9
Revenue from electric sales to taconite and iron concentrate customers accounted for 22 percent of consolidated operating
revenue in 2017 (18 percent in 2016). Revenue from electric sales to paper, pulp and secondary wood product customers
accounted for 5 percent of consolidated operating revenue in 2017 (6 percent in 2016). Revenue from electric sales to pipelines
and other industrial customers accounted for 7 percent of consolidated operating revenue in 2017 (7 percent in 2016).
Interim retail rates for Minnesota Power were approved by the MPUC and became effective on January 1, 2017. Interim retail
rate refund reserves of $31.6 million fully offset the interim retail rates recognized during 2017 due to the regulatory outcome
of the MPUC’s decision in Minnesota Power’s 2016 general rate case on January 18, 2018. (See Note 4. Regulatory Matters.)
Revenue from wholesale customers under FERC formula-based rates decreased $4.9 million from 2016 primarily due to lower
rates.
Financial incentives under the conservation improvement program decreased $1.9 million from 2016.
Transmission revenue decreased $1.7 million primarily due to lower MISO-related revenue, partially offset by period over
period changes in the estimate of a refund liability related to MISO return on equity complaints. (See Operating Expenses -
Transmission Services – Utility.)
Operating Expenses increased $44.5 million, or 5 percent, from 2016.
Fuel, Purchased Power and Gas – Utility expense increased $57.0 million, or 17 percent, from 2016 primarily due to increased
kWh sales, higher fuel costs and a $19.5 million expense for the MPUC’s decision disallowing recovery of Minnesota Power’s
regulatory asset for deferred fuel adjustment clause costs at a hearing on January 18, 2018, due to the anticipated adoption of
a forward-looking fuel adjustment clause methodology. These increases were partially offset by lower purchased power prices.
Fuel and purchased power expense related to our retail and municipal customers is recovered through the fuel adjustment
clause. (See Operating Revenue – Utility.)
ALLETE, Inc. 2018 Form 10-K
40
2017 Compared to 2016 (Continued)
Regulated Operations (Continued)
Transmission Services – Utility expense increased $6.0 million, or 9 percent, from 2016 primarily due to higher MISO-related
expense. (See Operating Revenue – Utility.)
Depreciation and Amortization expense decreased $21.7 million, or 14 percent, from 2016 primarily due to modifications of
the depreciable lives for Boswell, partially offset by additional property, plant and equipment in service. At a hearing on
January 18, 2018, the MPUC extended the depreciable lives of Boswell Unit 3, Unit 4 and common facilities to 2050, and
shortened the depreciable lives of Boswell Unit 1 and Unit 2 to 2022, resulting in a net decrease to depreciation expense of
approximately $25 million in 2017.
Taxes Other than Income Taxes increased $3.4 million, or 7 percent, from 2016 primarily due to higher property tax expenses
resulting from higher taxable plant.
Interest Expense increased $4.9 million, or 9 percent, from 2016 primarily due to higher average interest rates. We record
interest expense for Regulated Operations primarily based on rate base and authorized capital structure, and allocate the
balance to Corporate and Other.
Equity Earnings in ATC increased $4.0 million, or 22 percent, from 2016 primarily due to additional investments in ATC
and period over period changes in ATC’s estimate of a refund liability related to MISO return on equity complaints. (See
Note 5. Equity Investments.)
Income Tax Expense increased $21.3 million, from 2016 due to the period over period impact of the regulatory outcomes
related to the allocation of North Dakota investment tax credits and higher pre-tax income. The TCJA did not have an impact
on income tax expense for our Regulated Operations as the remeasurement of deferred income tax assets and liabilities
primarily resulted in the recording of regulatory assets and liabilities.
In 2017, as a result of the favorable impact for the regulatory outcome of the MPUC’s modification of its 2016 order on the
allocation of North Dakota investment tax credits, Regulated Operations increased operating revenue and reduced the
corresponding regulatory liability by $14.0 million resulting in an income tax expense of $6.1 million. In addition, Regulated
Operations recorded an income tax expense of $7.9 million for North Dakota investment tax credits transferred to Corporate
and Other, resulting in no impact to net income for Regulated Operations. Corporate and Other recorded an offsetting income
tax benefit of $7.9 million for the North Dakota investment tax credits transferred from Regulated Operations.
In 2016, as a result of the adverse impact for the regulatory outcome of the 2016 MPUC order, Regulated Operations reduced
operating revenue and recorded a corresponding regulatory liability for $15.0 million resulting in an income tax benefit of
$6.2 million. In addition, Regulated Operations recorded an income tax benefit of $8.8 million for North Dakota investment
tax credits transferred from Corporate and Other, resulting in no impact to net income for Regulated Operations. Corporate
and Other recorded an offsetting income tax expense of $8.8 million for the North Dakota investment tax credits transferred
to Regulated Operations.
ALLETE Clean Energy
Year Ended December 31,
Millions
Operating Revenue
Net Income Attributable to ALLETE (a)
(a) Results in 2017 include a $23.6 million after-tax benefit due to the remeasurement of deferred income tax assets and liabilities resulting
$80.5
$41.5
$80.5
$13.4
2016
2017
from the TCJA.
Operating Revenue is consistent with 2016 as lower kWh sales at the wind energy facilities resulting from lower wind
resources were offset by higher amortization of PSAs. (See Note 1. Operations and Significant Accounting Policies.)
ALLETE, Inc. 2018 Form 10-K
41
2017 Compared to 2016 (Continued)
ALLETE Clean Energy (Continued)
Production and Operating Revenue
Millions
Wind Energy Facility
Lake Benton
Storm Lake II
Condon
Storm Lake I
Chanarambie/Viking
Armenia Mountain
Total Production and Operating Revenue
Year Ended December 31,
2017
2016
kWh
Revenue
kWh
Revenue
241.8
152.6
90.7
215.6
263.5
267.4
1,231.6
$12.3
10.0
7.5
12.4
13.9
24.4
$80.5
254.7
154.8
96.9
222.3
278.8
268.2
1,275.7
$12.8
10.1
8.2
11.6
13.4
24.4
$80.5
Net Income Attributable to ALLETE increased $28.1 million from 2016. Net income in 2017 included a $23.6 million after tax
benefit due to the remeasurement of deferred income tax assets and liabilities resulting from the TCJA, increased production
tax credits due to the requalification of WTGs at ALLETE Clean Energy’s Storm Lake I, Storm Lake II and Lake Benton
wind energy facilities, lower operating and maintenance expense, and lower interest expense compared to 2016. Net income
in 2016 included a $3.3 million after-tax goodwill impairment charge and a $0.9 million after-tax expense related to the
repayment of long-term debt. Net income in 2016 also included an allocation of earnings to a non-controlling interest in the
limited liability company that owns the Condon wind energy facility, which was acquired by ALLETE Clean Energy in
April 2016. (See Note 6. Acquisitions.)
U.S. Water Services
Year Ended December 31
Millions
Operating Revenue
Net Income Attributable to ALLETE (a)
(a) Results in 2017 include a $9.2 million after-tax benefit due to the remeasurement of deferred income tax assets and liabilities resulting
$151.8
$10.7
$137.5
$1.5
2017
2016
from the TCJA.
Operating Revenue increased $14.3 million from 2016 primarily due to the acquisitions of WEST in 2016 and Tonka Water
in September 2017. (See Note 6. Acquisitions.) Revenue from chemical sales and related services was $132.0 million in 2017
compared to $124.3 million in 2016. Revenue from capital project sales was $19.8 million for 2017 compared to $13.2 million
in 2016; capital project sales can significantly fluctuate from period to period.
Net Income Attributable to ALLETE increased $9.2 million from 2016. Net income in 2017 included a $9.2 million after tax
benefit due to the remeasurement of deferred income tax assets and liabilities resulting from the TCJA, and higher operating
revenue, partially offset by increased operating expenses as a result of investments for future growth in waste treatment and
water safety applications. Net income in 2017 also included a net loss of $0.8 million primarily for transaction fees and
amortization expense of the Tonka Water acquisition in September 2017. (See Note 6. Acquisitions.)
Corporate and Other
Operating Revenue increased $2.2 million, or 2 percent, from 2016 primarily due to an increase in revenue at BNI Energy,
which operates under cost-plus fixed fee contracts, as a result of higher expenses and record coal sales in 2017, partially offset
by a decrease in land sales at ALLETE Properties. Operating revenue in 2016 included the sale of ALLETE Properties’ Ormond
Crossings project and Lake Swamp wetland mitigation bank for approximately $21 million.
ALLETE, Inc. 2018 Form 10-K
42
2017 Compared to 2016 (Continued)
Corporate and Other (Continued)
Net Loss Attributable to ALLETE was $8.4 million in 2017 compared to net income of $4.9 million in 2016. The net loss in
2017 included a $19.8 million after-tax expense due to the remeasurement of deferred income tax assets and liabilities resulting
from the TCJA. The net loss in 2017 also included a $7.9 million after-tax favorable impact for the regulatory outcome of the
MPUC’s modification of its 2016 order on the allocation of North Dakota investment tax credits, lower accretion expense
relating to the contingent consideration liability, and lower interest expense. Net income in 2016 included an after tax gain
of $13.6 million related to the change in fair value of the contingent consideration liability, partially offset by an $8.8 million
after-tax adverse impact for the regulatory outcome of the 2016 MPUC order.
Net income at BNI Energy was $4.5 million in 2017 which included a $3.1 million after-tax expense due to the remeasurement
of deferred income tax assets and liabilities resulting from the TCJA, partially offset by more tons sold; net income in 2016
was $6.8 million. The net loss at ALLETE Properties was $8.8 million in 2017 which included a $7.8 million after-tax expense
for the remeasurement of deferred income tax assets and liabilities resulting from the TCJA; net income in 2016 was
$0.7 million.
Income Taxes – Consolidated
For the year ended December 31, 2017, the effective tax rate was 7.9 percent (11.3 percent for the year ended
December 31, 2016). The decrease from 2016 was primarily due to the remeasurement of deferred income tax assets and
liabilities resulting from the TCJA and increased production tax credits, partially offset by higher pre-tax income. (See
Regulated Operations - Income Tax Expense.) The effective rate deviated from the combined statutory rate of approximately
41 percent primarily due to the remeasurement of deferred income tax assets and liabilities resulting from the TCJA, and
production tax credits. (See Note 13. Income Tax Expense.)
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make various
estimates and assumptions that affect amounts reported in the Consolidated Financial Statements. These estimates and assumptions
may be revised, which may have a material effect on the Consolidated Financial Statements. Actual results may differ from these
estimates and assumptions. These policies are discussed with the Audit Committee of our Board of Directors on a regular basis.
We believe the following policies are most critical to our business and the understanding of our results of operations.
Regulatory Accounting. Our regulated utility operations are accounted for in accordance with the accounting standards for the
effects of certain types of regulation. These standards require us to reflect the effect of regulatory decisions in our financial
statements. 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. This assessment considers factors such as, but not limited to, changes in the regulatory environment
and recent rate orders to other regulated entities under the same jurisdiction. If future recovery or refund of costs becomes no
longer probable, the assets and liabilities would be recognized in current period net income or other comprehensive income. (See
Note 4. Regulatory Matters.)
ALLETE, Inc. 2018 Form 10-K
43
Critical Accounting Policies (Continued)
Pension and Postretirement Health and Life Actuarial Assumptions. We account for our pension and other postretirement
benefit obligations in accordance with the accounting standards for defined benefit pension and other postretirement plans. These
standards require the use of several important assumptions, including the expected long-term rate of return on plan assets, the
discount rate and mortality assumptions, among others, in determining our obligations and the annual cost of our pension and
other postretirement benefits. In establishing the expected long-term rate of return on plan assets, we determine the long-term
historical performance of each asset class and adjust these for current economic conditions while utilizing the target allocation of
our plan assets to forecast the expected long-term rate of return. Our pension asset allocation as of December 31, 2018, was
approximately 32 percent equity securities, 60 percent fixed income, 5 percent private equity and 3 percent real estate. Our
postretirement health and life asset allocation as of December 31, 2018, was approximately 62 percent equity securities, 34 percent
fixed income and 4 percent private equity. Equity securities consist of a mix of market capitalization sizes with domestic and
international securities. In 2018, we used expected long-term rates of return of 7.50 percent in our actuarial determination of our
pension expense and 6.00 percent to 7.50 percent in our actuarial determination of our other postretirement expense. The actuarial
determination uses an asset smoothing methodology for actual returns to reduce the volatility of varying investment performance
over time. We review our expected long-term rate of return assumption annually and will adjust it to respond to changing market
conditions. A one quarter percent decrease in the expected long-term rate of return would increase the annual expense for pension
and other postretirement benefits by approximately $1.8 million, pre-tax.
The discount rate is computed using a bond matching study which utilizes a portfolio of high quality bonds that produce cash
flows similar to the projected costs of our pension and other postretirement plans. In 2018, we used discount rates of 3.81 percent
to 3.96 percent and 3.86 percent in our actuarial determination of our pension and other postretirement expense, respectively. We
review our discount rates annually and will adjust them to respond to changing market conditions. A one-quarter percent decrease
in the discount rate would increase the annual expense for pension and other postretirement benefits by approximately $1.7 million,
pre tax.
The mortality assumptions used to calculate our pension and other postretirement benefit obligations as of December 31, 2018,
considered a modified RP-2014 mortality table and mortality projection scale. (See Note 15. Pension and Other Postretirement
Benefit Plans.)
Impairment of Long-Lived Assets. We review our long-lived assets, which include the legacy real estate assets of ALLETE
Properties, for indicators of impairment in accordance with the accounting standards for property, plant and equipment on a
quarterly basis.
In accordance with the accounting standards for property, plant and equipment, if indicators of impairment exist, we test our
long lived assets for recoverability by comparing the carrying amount of the asset to the undiscounted future net cash flows
expected to be generated by the asset. Cash flows are assessed at the lowest level of identifiable cash flows. The undiscounted
future net cash flows are impacted by trends and factors known to us at the time they are calculated and our expectations related
to: management’s best estimate of future sales prices; holding period and timing of sales; method of disposition; and future
expenditures necessary to maintain the operations.
Taxation. We are required to make judgments regarding the potential tax effects of various financial transactions and our ongoing
operations to estimate our obligations to taxing authorities. These tax obligations include income taxes and taxes other than income
taxes. Judgments related to income taxes require the recognition in our financial statements of the largest tax benefit of a tax
position that is “more-likely-than-not” to be sustained on audit. Tax positions that do not meet the “more-likely-than-not” criteria
are reflected as a tax liability in accordance with the accounting standards for uncertainty in income taxes. We record a valuation
allowance against our deferred tax assets to the extent it is more-likely-than-not that some portion or all of the deferred tax assets
will not be realized.
We are subject to income taxes in various jurisdictions. We make assumptions and judgments each reporting period to estimate
our income tax assets, liabilities, benefits and expenses. Judgments and assumptions are supported by historical data and reasonable
projections. Our assumptions and judgments include the application of tax statutes and regulations, and projections of future federal
taxable income, state taxable income, and state apportionment to determine our ability to utilize NOL and credit carryforwards
prior to their expiration. Significant changes in assumptions regarding future federal and state taxable income or a change in tax
rates could require new or increased valuation allowances which could result in a material impact on our results of operations.
ALLETE, Inc. 2018 Form 10-K
44
Critical Accounting Policies (Continued)
Valuation of Goodwill and Intangible Assets. When we acquire a business, the assets acquired and liabilities assumed are recorded
at their respective fair values as of the acquisition date. Determining the fair value of intangible assets acquired as part of a business
combination requires us to make significant estimates. These estimates include the amount and timing of projected future cash
flows, the discount rate used to discount those cash flows to present value, the assessment of the asset’s life cycle, and the
consideration of legal, technical, regulatory, economic and competitive risks. The fair value assigned to intangible assets is
determined by estimating the future cash flows of each project and discounting the net cash flows back to their present values.
The discount rate used is determined at the time of measurement in accordance with accepted valuation standards.
Goodwill. Goodwill is the excess of the purchase price (consideration transferred) over the estimated fair value of net assets of
acquired businesses. In accordance with GAAP, goodwill is not amortized. The Company assesses whether there has been an
impairment of goodwill annually in the fourth quarter and whenever an event occurs or circumstances change that would indicate
the carrying amount may be impaired. Impairment testing for goodwill is done at the reporting unit level. An impairment loss is
recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The
test for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows.
Our estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on our
Consolidated Balance Sheet and the judgment required in determining fair value, including projected future cash flows. The results
of our annual impairment test are discussed in Note 1. Operations and Significant Accounting Policies and Note 9. Fair Value in
this Form 10-K. Goodwill was $148.5 million and $148.3 million as of December 31, 2018, and December 31, 2017, respectively.
Intangible Assets. Intangible assets include customer relationships, patents, non-compete agreements, land easements, trademarks
and trade names. Intangible assets with definite lives consist of customer relationships, which are amortized using an attrition
model, and patents, non-compete agreements, land easements and certain trade names, which are amortized on a straight-line basis
with estimated useful lives ranging from approximately 4 years to approximately 19 years. We review definite-lived intangible
assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.
Indefinite-lived intangible assets consist of trademarks and certain trade names, which are tested for impairment annually in the
fourth quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount may be impaired.
Impairment is calculated as the excess of the asset’s carrying amount over its fair value. Our impairment reviews are based on an
estimated future cash flow approach that requires significant judgment with respect to future revenue and expense growth rates,
selection of an appropriate discount rate, and other assumptions and estimates. We use estimates that are consistent with our
business plans and a market participant view of the assets being evaluated. The results of our annual impairment test are discussed
in Note 9. Fair Value in this Form 10-K. Intangible assets, net of accumulated amortization, were $74.8 million and $77.6 million
as of December 31, 2018, and December 31, 2017, respectively.
Outlook
ALLETE is an energy company committed to earning a financial return that rewards our shareholders, allows for reinvestment in
our businesses and sustains growth. The Company has long-term objectives of achieving average annual earnings per share growth
of 5 percent to 7 percent, and providing a dividend payout competitive with our industry. Regulated Operations is projected to
have average annual earnings growth of 4 percent to 5 percent and our Energy Infrastructure and Related Services businesses are
projected to have average annual earnings growth of at least 15 percent over the long-term.
ALLETE is predominately a regulated utility through Minnesota Power, SWL&P and an investment in ATC. ALLETE’s strategy
is to remain predominately a regulated utility while investing in its Energy Infrastructure and Related Services businesses to
complement its regulated businesses, balance exposure to the utility’s industrial customers and provide potential long-term earnings
growth. ALLETE expects net income from Regulated Operations to be approximately 80 percent of total consolidated net income
in 2019. Over the next several years, the contribution of the Energy Infrastructure and Related Services businesses to net income
is expected to increase as ALLETE grows these operations. ALLETE expects its businesses to provide regulated, contracted or
recurring revenues, and to support sustained growth in net income and cash flow.
On February 8, 2019, the Company entered into a stock purchase agreement providing for the sale of U.S. Water Services to a
subsidiary of Kurita Water Industries Ltd. for a cash purchase price of $270 million, subject to adjustment at closing, such as for
changes in working capital. The transaction is expected to close by the end of the first quarter of 2019 upon receipt of regulatory
approval. ALLETE plans to use the proceeds from the sale of U.S. Water Services primarily to reinvest in growth initiatives at
our Regulated Operations and ALLETE Clean Energy. ALLETE will also consider using a portion of the proceeds to implement
a common stock repurchase program.
ALLETE, Inc. 2018 Form 10-K
45
Outlook (Continued)
Regulated Operations. Minnesota Power’s long-term strategy is to be the leading electric energy provider in northeastern
Minnesota by providing safe, reliable and cost-competitive electric energy, while complying with environmental permit conditions
and renewable energy requirements. Keeping the cost of energy production competitive enables Minnesota Power to effectively
compete in the wholesale power markets and minimizes retail rate increases to help maintain customer viability. As part of
maintaining cost competitiveness, Minnesota Power intends to reduce its exposure to possible future carbon and GHG legislation
by reshaping its generation portfolio, over time, to reduce its reliance on coal. (See EnergyForward.) We will monitor and review
proposed environmental regulations and may challenge those that add considerable cost with limited environmental benefit.
Minnesota Power will continue to pursue customer growth opportunities and cost recovery rider approvals for transmission,
renewable and environmental investments, as well as work with regulators to earn a fair rate of return. Minnesota Power anticipates
filing a rate case in the fourth quarter of 2019 with a 2020 test year.
Regulatory Matters. Entities within our Regulated Operations segment are under the jurisdiction of the MPUC, FERC, PSCW
and NDPSC. See Note 4. Regulatory Matters for discussion of regulatory matters within these jurisdictions.
2016 Minnesota General Rate Case. In November 2016, Minnesota Power filed a retail rate increase request with the MPUC
which sought an average increase of approximately 9 percent for retail customers. The rate filing sought a return on equity of
10.25 percent and a 53.81 percent equity ratio. The MPUC issued an order dated March 12, 2018, in Minnesota Power’s general
rate case approving a return on common equity of 9.25 percent and a 53.81 percent equity ratio. Final rates went into effect on
December 1, 2018, which is expected to result in additional revenue of approximately $13 million on an annualized basis. Interim
rates were collected from January 1, 2017, through November 30, 2018, which were fully offset by the recognition of a corresponding
reserve. Minnesota Power has recorded a reserve for an interim rate refund, net of discounts provided to EITE customers, of
$40.0 million as of December 31, 2018 ($23.7 million as of December 31, 2017) which is expected to be refunded in 2019. The
MPUC also disallowed Minnesota Power’s regulatory asset for deferred fuel adjustment clause costs due to the anticipated adoption
of a forward-looking fuel adjustment clause methodology resulting in a $19.5 million pre-tax charge to Fuel, Purchased Power
and Gas – Utility in 2017. As part of its decision in Minnesota Power’s 2016 general rate case, the MPUC also extended the
depreciable lives of Boswell Unit 3, Unit 4 and common facilities to 2050 primarily to mitigate rate increases for our customers,
and shortened the depreciable lives of Boswell Unit 1 and Unit 2 to 2022, resulting in a net decrease to depreciation expense of
approximately $25 million in the fourth quarter of 2017.
On April 2, 2018, Minnesota Power filed a petition with the MPUC requesting reconsideration of certain decisions in the MPUC’s
order dated March 12, 2018. In an order dated May 29, 2018, the MPUC denied Minnesota Power’s petition for reconsideration
and accepted a Minnesota Department of Commerce request for reconsideration reducing the depreciable lives of Boswell Unit 3,
Unit 4 and common facilities to 2035 while utilizing the benefits of the lower federal income tax rate enacted as part of the TCJA
to mitigate the impact on customer rates.
Energy-Intensive Trade-Exposed Customer Rates. An EITE customer ratemaking law was enacted in 2015 establishing a Minnesota
energy policy to have competitive rates for certain industries such as mining and forest products. The MPUC approved a reduction
in rates for EITE customers in a December 2016 order and subsequently approved cost recovery in an April 2017 order. Minnesota
Power expects the discount to EITE customers to be approximately $16 million annually based on EITE customer current operating
levels. While interim rates were in effect for Minnesota Power’s 2016 general rate case, discounts provided to EITE customers
offset interim rate refund reserves for non-EITE customers. Minnesota Power provided $16.7 million of discounts to EITE
customers during the year ended December 31, 2018 ($8.6 million and none for the years ended December 31, 2017, and 2016,
respectively).
2016 Wisconsin General Rate Case. SWL&P’s retail rates in 2018 were based on a 2017 PSCW retail rate order effective
August 2017 that allowed for a 10.5 percent return on common equity and a 55 percent equity ratio. SWL&P’s retail rates prior
to August 2017 were based on a 2012 PSCW retail rate order that provided for a 10.9 percent return on equity.
2018 Wisconsin General Rate Case. On May 25, 2018, SWL&P filed a rate increase request with the PSCW requesting an average
increase of 2.7 percent for retail customers (2.0 percent increase in electric rates; 2.3 percent increase in natural gas rates; and
0.1 percent increase in water rates). The filing sought an overall return on equity of 10.5 percent and a 55.41 percent equity ratio.
In an order dated December 20, 2018, the PSCW approved a rate increase for SWL&P including a return of equity of 10.4 percent
and a 55.0 percent equity ratio. Final rates went into effect January 1, 2019, which is expected to result in additional revenue of
approximately $1.3 million on an annualized basis.
ALLETE, Inc. 2018 Form 10-K
46
Outlook (Continued)
Industrial Customers and Prospective Additional Load
Industrial Customers. Electric power is one of several key inputs in the taconite mining, iron concentrate, paper, pulp and secondary
wood products, pipeline and other industries. Approximately 50 percent of our regulated utility kWh sales in 2018 (50 percent in
2017 and 45 percent in 2016) were made to our industrial customers. We expect industrial sales of approximately 7.0 million to
7.5 million MWh in 2019 (7.3 million MWh in 2018; 7.3 million MWh in 2017). (See Item 1. Business – Regulated Operations
– Electric Sales / Customers.)
Taconite and Iron Concentrate. Minnesota Power’s taconite customers are capable of producing up to approximately 41 million
tons of taconite pellets annually. Taconite pellets produced in Minnesota are primarily shipped to North American steel making
facilities that are part of the integrated steel industry. Steel produced from these North American facilities is used primarily in the
manufacture of automobiles, appliances, pipe and tube products for the gas and oil industry, and in the construction industry.
Historically, less than 10 percent of Minnesota taconite production has been exported outside of North America. Minnesota Power
also has provided electric service to three iron concentrate facilities capable of producing up to approximately 4 million tons of
iron concentrate per year. Iron concentrate is used in the production of taconite pellets. These facilities have been idled since at
least 2016. On July 17, 2018, ERP Iron Ore announced it would no longer seek to restart its operations. (See ERP Iron Ore /
Magnetation.)
There has been a general historical correlation between U.S. steel production and Minnesota taconite production. The American
Iron and Steel Institute, an association of North American steel producers, reported that U.S. raw steel production operated at
approximately 78 percent of capacity in 2018 (74 percent in 2017 and 71 percent in 2016). The World Steel Association, an
association of over 160 steel producers, national and regional steel industry associations, and steel research institutes representing
approximately 85 percent of world steel production, projected U.S. steel consumption in 2019 will increase by approximately
one percent compared to 2018.
Minnesota Power’s taconite customers may experience annual variations in production levels due to such factors as economic
conditions, short-term demand changes or maintenance outages. We estimate that a one million ton change in Minnesota Power’s
taconite customers’ production would impact our annual earnings per share by approximately $0.04, net of expected power
marketing sales at current prices. Changes in wholesale electric prices or customer contractual demand nominations could impact
this estimate. Minnesota Power proactively sells power in the wholesale power markets that is temporarily not required by industrial
customers to optimize the value of its generating facilities. Long-term reductions in taconite production or a permanent shut down
of a taconite customer may lead Minnesota Power to file a general rate case to recover lost revenue.
USS Corporation. In the first quarter of 2017, USS Corporation restarted its Minnesota Ore Operations Keetac plant in Keewatin,
Minnesota, which had been idled since 2015. USS Corporation has the capability to produce approximately 5 million tons at its
Keetac Plant.
United Taconite. In May 2017, Cliffs announced that production of a fully fluxed taconite pellet has started at its United Taconite
facility. The product replaced a flux pellet previously made at Cliffs’ indefinitely idled Empire operation in Michigan. United
Taconite has the capability to produce approximately 5 million tons of taconite annually.
Northshore Mining. Cliffs has announced that it is investing further in its Minnesota ore operations, specifically it plans to invest
approximately $90 million through 2020 to expand capacity for producing direct reduced-grade pellets at Northshore Mining. The
additional direct reduced-grade pellets could be sold commercially or used to supply Cliff’s planned hot briquetted iron production
plant in Toledo, Ohio. Minnesota Power has a PSA through 2031 with Silver Bay Power, which provides the majority of the electric
service requirements for Northshore Mining. (See Silver Bay Power.)
Silver Bay Power. In 2016, Minnesota Power and Silver Bay Power entered into a PSA through 2031. Silver Bay Power supplies
approximately 90 MW of load to Northshore Mining, an affiliate of Silver Bay Power, which has been served predominately
through self-generation by Silver Bay Power. Through 2019, Minnesota Power will supply Silver Bay Power with at least 50 MW
of energy and Silver Bay Power has the option to purchase additional energy from Minnesota Power as it transitions away from
self-generation. By December 31, 2019, Silver Bay Power is expected to cease self-generation and Minnesota Power is expected
to supply the energy requirements for Silver Bay Power.
ALLETE, Inc. 2018 Form 10-K
47
Outlook (Continued)
Industrial Customers and Prospective Additional Load (Continued)
ERP Iron Ore / Magnetation. In January 2017, ERP Iron Ore purchased substantially all of Magnetation’s assets pursuant to an
asset purchase agreement approved by the U. S. Bankruptcy Court for the District of Minnesota. These facilities have been idled
since at least 2016. On July 17, 2018, ERP Iron Ore filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
Code in the U.S. Bankruptcy Court for the District of Minnesota and announced that it would no longer seek to restart its operations.
Minnesota Power has reserved for all receivables due from ERP Iron Ore.
Paper, Pulp and Secondary Wood Products. The four major paper and pulp mills we serve reported operating at lower levels in
2018 compared to 2017 resulting from the closure of the smaller of UPM Blandin’s two paper machines in the fourth quarter of
2017. (See UPM Blandin.) We expect operating levels in 2019 to be similar to 2018.
UPM Blandin. In October 2017, UPM-Kymmene Corporation announced that in light of the global market for graphic papers,
and to sustain its competitiveness and leading position in the market, it planned to permanently close the smaller of UPM Blandin’s
two paper machines located in Grand Rapids, Minnesota; the closure was completed in the fourth quarter of 2017. Paper production
related to the other paper machine is planned to continue at UPM Blandin. Minnesota Power provides electric and steam service
to UPM Blandin. In October 2018, Minnesota Power amended and extended its electric service agreement with UPM Blandin
through 2029, subject to MPUC approval.
Verso Corporation. In the third quarter of 2018, Minnesota Power amended and extended its electric service agreement with Verso
Corporation through 2024, which was approved by the MPUC at a hearing on December 20, 2018.
Pipeline and Other Industries.
Husky Energy. On April 26, 2018, a fire at Husky Energy’s refinery in Superior, Wisconsin disrupted operations at the facility.
Under normal operating conditions, SWL&P provides approximately 14 MW of average monthly demand to Husky Energy in
addition to water service. The facility remains at minimal operations, and the refinery is not expected to resume normal operations
in 2020.
Prospective Additional Load. Minnesota Power is pursuing new wholesale and retail loads in and around its service territory.
Currently, several companies in northeastern Minnesota continue to progress in the development of natural resource-based projects
that represent long-term growth potential and load diversity for Minnesota Power. We cannot predict the outcome of these projects.
Nashwauk Public Utilities Commission. Mesabi Metallics is a retail customer of the Nashwauk Public Utilities Commission, and
Minnesota Power has a wholesale electric contract with the Nashwauk Public Utilities Commission for electric service through
at least December 2032. Mesabi Metallics filed for bankruptcy protection in 2016 under Chapter 11 of the Bankruptcy Code in
the U.S. Bankruptcy Court for the District of Delaware. In June 2017, the bankruptcy court approved a settlement plan for a
consortium led by Chippewa Capital Partners LLC to take control of the project, subject to certain stipulations. In December 2017,
Mesabi Metallics emerged from bankruptcy under the ownership of Chippewa Capital Partners LLC.
PolyMet. PolyMet is planning to start a new copper-nickel and precious metal (non-ferrous) mining operation in northeastern
Minnesota. In 2015, PolyMet announced the completion of the final EIS by state and federal agencies, which was subsequently
published in the Federal Register and Minnesota Environmental Quality Board Monitor. The Minnesota Department of Natural
Resources (DNR) issued its Record of Decision in 2016, finding the final EIS adequate. The final EIS also requires Records of
Decision by the federal agencies, which are expected in 2019, before final action can be taken on the required federal permits to
construct and operate the mining operation.
In 2016, PolyMet submitted applications for water-related permits with the DNR and MPCA, an air quality permit with the MPCA,
and a state permit to mine application with the DNR detailing its operational plans for the mine. On November 1, 2018, the DNR
issued PolyMet’s permit to mine and certain water-related permits. On December 20, 2018, the MPCA issued PolyMet’s final
state water and air quality permits. PolyMet’s remaining federal permit is under review by the U.S. Army Corps of Engineers. On
June 28, 2018, the U.S. Forest Service and PolyMet closed on a land exchange, which resulted in PolyMet obtaining surface rights
to land needed to develop its mining operation. Minnesota Power could supply between 45 MW and 50 MW of load under a
10 year power supply contract with PolyMet that would begin upon start-up of operations.
ALLETE, Inc. 2018 Form 10-K
48
Outlook (Continued)
EnergyForward. Minnesota Power is executing EnergyForward, a strategic plan for assuring reliability, protecting affordability
and further improving environmental performance. The plan includes completed and planned investments in wind, solar, natural
gas and hydroelectric power, construction of additional transmission capacity, the installation of emissions control technology and
the idling of certain coal-fired generating facilities.
In July 2017, Minnesota Power submitted a resource package to the MPUC requesting approval of PPAs for the output of a 250 MW
wind energy facility and a 10 MW solar energy facility as well as approval of a 250 MW natural gas capacity dedication agreement.
These agreements were subject to MPUC approval of the construction of NTEC, a 525 MW to 550 MW combined-cycle natural
gas-fired generating facility which will be jointly owned by Dairyland Power Cooperative and a subsidiary of ALLETE. Minnesota
Power would purchase approximately 50 percent of the facility's output starting in 2025. In an order dated January 24, 2019, the
MPUC approved Minnesota Power’s request for approval of the NTEC natural gas capacity dedication agreement. Separately, the
MPUC required a baseload retirement evaluation in Minnesota Power’s next IRP filing analyzing its existing fleet including
potential early retirement scenarios of Boswell Units 3 and 4, including a securitization plan. The MPUC also approved Minnesota
Power’s request to extend the next IRP filing deadline until October 1, 2020. On January 8, 2019, an application for a certificate
of public convenience and necessity for NTEC was submitted to the PSCW. A decision on the application is expected in 2020.
On June 18, 2018, Minnesota Power filed a separate petition for approval of the PPA for the output of the 10 MW solar energy
facility to be located in central Minnesota, which was approved by the MPUC in an order dated October 2, 2018. On
August 22, 2018, Minnesota Power filed a separate petition for approval of an amended PPA for the output of the 250 MW wind
energy facility to be located in southwestern Minnesota which was approved in an order dated January 23, 2019. (See Note 5.
Equity Investments.)
Integrated Resource Plan. In 2015, Minnesota Power filed its 2015 IRP with the MPUC, which included an analysis of a variety
of existing and future energy resource alternatives and a projection of customer cost impact by class. The 2015 IRP also contained
steps in Minnesota Power’s EnergyForward strategic plan including the economic idling of Taconite Harbor Units 1 and 2 which
occurred in 2016, the ceasing of coal-fired operations at Taconite Harbor in 2020, and the addition of between 200 MW and
300 MW of natural gas-fired generation. In a 2016 order, the MPUC approved Minnesota Power’s 2015 IRP with modifications.
The order accepted Minnesota Power’s plans for Taconite Harbor, directed Minnesota Power to retire Boswell Units 1 and 2 no
later than 2022, required an analysis of generation and demand response alternatives to be filed with a natural gas resource proposal,
and required Minnesota Power to conduct request for proposals for additional wind, solar and demand response resource additions
subject to further MPUC approvals. Minnesota Power retired Boswell Units 1 and 2 in the fourth quarter of 2018. (See Note 4.
Regulatory Matters.)
Renewable Energy. Minnesota Power’s 2015 IRP includes an update on its plans and progress in meeting the Minnesota renewable
energy milestones through 2025. Minnesota Power continues to execute its renewable energy strategy through renewable projects
that will ensure it meets the identified state mandate at the lowest cost for customers. Minnesota Power has exceeded the interim
milestone requirements to date and expects between 25 percent and 30 percent of its applicable retail and municipal energy sales will
be supplied by renewable energy sources in 2019. (See Item 1. Business – Regulated Operations – Minnesota Legislation and
EnergyForward.)
Minnesota Solar Energy Standard. Minnesota Power’s solar energy supply consists of Camp Ripley, a 10 MW solar energy facility
at the Camp Ripley Minnesota Army National Guard base and training facility near Little Falls, Minnesota, and a community solar
garden project in northeastern Minnesota, which is comprised of a 1 MW solar array owned and operated by a third party with
the output purchased by Minnesota Power and a 40 kW solar array that is owned and operated by Minnesota Power. In an order
dated October 2, 2018, the MPUC approved a PPA for the output of the 10 MW Blanchard solar energy facility to be located in
central Minnesota. Minnesota Power expects that Camp Ripley, the community solar garden arrays, the PPA for the output of the
10 MW Blanchard solar energy facility, and an increase in solar rebates will allow Minnesota Power to meet both parts of the solar
mandate. (See Item 1. Business – Regulated Operations – Minnesota Legislature and EnergyForward.)
Minnesota Power has approval for current cost recovery of investments and expenditures related to compliance with the Minnesota
Solar Energy Standard. Currently, there is no approved customer billing rate for solar costs.
Wind Energy. Minnesota Power’s wind energy facilities consist of Bison (497 MW) located in North Dakota and Taconite Ridge
(25 MW) located in northeastern Minnesota. Minnesota Power also has two long-term wind energy PPAs with an affiliate of
NextEra Energy, Inc. to purchase the output from Oliver Wind I (50 MW) and Oliver Wind II (48 MW) located in North Dakota.
ALLETE, Inc. 2018 Form 10-K
49
Outlook (Continued)
EnergyForward (Continued)
Minnesota Power uses the 465-mile, 250-kV DC transmission line that runs from Center, North Dakota, to Duluth, Minnesota, to
transport increasing amounts of wind energy from North Dakota while gradually phasing out coal-based electricity delivered to
its system over this transmission line from Square Butte’s lignite coal-fired generating unit. The DC transmission line capacity
can be increased if renewable energy or transmission needs justify investments to upgrade the line.
Minnesota Power has an approved cost recovery rider for certain renewable investments and expenditures. The cost recovery rider
allows Minnesota Power to charge retail customers on a current basis for the costs of certain renewable investments plus a return
on the capital invested. Updated customer billing rates for the renewable cost recovery rider were provisionally approved by the
MPUC in an order dated November 19, 2018.
Nobles 2 PPA. In the third quarter of 2018, Minnesota Power and Nobles 2 signed an amended long-term PPA that provides for
Minnesota Power to purchase the energy and associated capacity from a 250 MW wind energy facility in southwestern Minnesota
for a 20-year period beginning in 2020. The agreement provides for the purchase of output from the facility at fixed energy prices.
There are no fixed capacity charges, and Minnesota Power will only pay for energy as it is delivered. This agreement is subject
to construction of the wind energy facility. (See Note 5. Equity Investments.)
Manitoba Hydro. Minnesota Power has five long-term PPAs with Manitoba Hydro. The first PPA expires in May 2020. Under
this agreement, Minnesota Power is purchasing 50 MW of capacity and the energy associated with that capacity. Both the capacity
price and the energy price are adjusted annually by the change in a governmental inflationary index. Under the second PPA,
Minnesota Power is purchasing surplus energy through April 2022. This energy-only agreement primarily consists of surplus hydro
energy on Manitoba Hydro’s system that is delivered to Minnesota Power on a non-firm basis. The pricing is based on forward
market prices. Under this agreement, Minnesota Power will purchase at least one million MWh of energy over the contract term.
The third PPA provides for Minnesota Power to purchase 250 MW of capacity and energy from Manitoba Hydro for 15 years
beginning in 2020. The PPA is subject to construction of the GNTL and MMTP. (See Note 11. Commitments, Guarantees and
Contingencies.) The capacity price is adjusted annually until 2020 by the change in a governmental inflationary index. The energy
price is based on a formula that includes an annual fixed price component adjusted for the change in a governmental inflationary
index and a natural gas index, as well as market prices.
The fourth PPA provides for Minnesota Power to purchase up to 133 MW of energy from Manitoba Hydro for 20 years beginning
in 2020. The pricing under this PPA is based on forward market prices. The PPA is subject to the construction of the GNTL and
MMTP. (See Note 11. Commitments, Guarantees and Contingencies.)
The fifth PPA provides for Minnesota Power to purchase 50 MW of capacity from Manitoba Hydro at fixed prices. The PPA began
in June 2017 and expires in May 2020.
Transmission. We continue to make investments in transmission opportunities that strengthen or enhance the transmission grid
or take advantage of our geographical location between sources of renewable energy and end users. These include the GNTL,
investments to enhance our own transmission facilities, investments in other transmission assets (individually or in combination
with others), and our investment in ATC. See also Item 1. Business – Regulated Operations and Note 11. Commitments, Guarantees
and Contingencies.
Energy Infrastructure and Related Services.
ALLETE Clean Energy.
ALLETE Clean Energy will pursue growth through acquisitions or project development. ALLETE Clean Energy is targeting
acquisitions of existing facilities up to 200 MW each, which have long-term PSAs in place for the facilities’ output. At this time,
ALLETE Clean Energy expects acquisitions or development of new facilities will be primarily wind or solar facilities in North
America. ALLETE Clean Energy is also targeting the development of new facilities up to 200 MW each, which will have long term
PSAs in place for the output or may be sold upon completion. (See Item 1. Business – Energy Infrastructure and Related Services
– ALLETE Clean Energy.)
ALLETE, Inc. 2018 Form 10-K
50
Outlook (Continued)
ALLETE Clean Energy (Continued)
Federal production tax credit qualification is important to the economics of project development, and in 2016, 2017, and 2018
ALLETE Clean Energy invested in equipment to meet production tax credit safe harbor provisions which provides an opportunity
to seek development of up to approximately 1,500 MW of production tax credit qualified wind projects through 2022. ALLETE
Clean Energy will also invest approximately $80 million through 2020 for production tax credit requalification of up to 385 WTGs
at its Storm Lake I, Storm Lake II and Lake Benton wind energy facilities. On December 18, 2018, ALLETE Clean Energy
announced it will requalify its Condon wind energy facility for production tax credits, which will be completed in 2019. We
anticipate annual production tax credits relating to these projects of approximately $14 million in 2019, $17 million to $22 million
annually in 2020 through 2027, and decreasing thereafter through 2030.
In January 2017, ALLETE Clean Energy announced that it would develop a wind energy facility of up to 50 MW to be sold to
Montana-Dakota Utilities; sale of the wind energy facility was completed on October 31, 2018, with revenue of $81.1 million and
cost of sales of $67.4 million recognized in the fourth quarter of 2018. ALLETE Clean Energy also constructed and sold a 107 MW
wind energy facility to Montana-Dakota Utilities in 2015.
In March 2017, ALLETE Clean Energy announced it will build, own and operate a 100 MW wind energy facility pursuant to a
20-year PSA with Northern States Power; construction is expected to be completed in late 2019. On March 15, 2018, ALLETE
Clean Energy announced that it will build, own and operate an 80 MW wind energy facility pursuant to a 15-year PSA with
NorthWestern Corporation; construction is expected to be completed in late 2019.
ALLETE Clean Energy manages risk by having a diverse portfolio of assets, which includes PSA expiration, technology and
geographic diversity. The current portfolio of approximately 545 MW is subject to typical variations in seasonal wind with higher
wind resources typically available in the winter months. The majority of its planned maintenance leverages this seasonality and
is performed during lower wind periods. The current mix of PSA expiration and geographic location for existing facilities is as
follows:
Wind Energy Facility
Armenia Mountain
Chanarambie/Viking
PSA 1 (a)
PSA 2
Condon
Lake Benton
Lincoln Heights
Storm Lake I
Storm Lake II
PSA 1
PSA 2
Location
Pennsylvania
Minnesota
Capacity MW
100.5
97.5
PSA MW
100%
PSA Expiration
2024
Oregon
Minnesota
Minnesota
Iowa
Iowa
50
104
8.8
108
77
12%
88%
100%
100%
100%
100%
90%
10%
2023
2023
2022
2028
2028
2019
2019
2032
(a) The PSA expiration assumes the exercise of four one-year renewal options that ALLETE Clean Energy has the sole right to exercise.
U.S. Water Services.
On February 8, 2019, the Company entered into a stock purchase agreement providing for the sale of U.S. Water Services to a
subsidiary of Kurita Water Industries Ltd. for a cash purchase price of $270 million, subject to adjustment at closing, such as for
changes in working capital. The transaction is expected to close by the end of the first quarter of 2019 upon receipt of regulatory
approval. ALLETE plans to use the proceeds from the sale of U.S. Water Services primarily to reinvest in growth initiatives at
our Regulated Operations and ALLETE Clean Energy. ALLETE will also consider using a portion of the proceeds to implement
a common stock repurchase program.
ALLETE, Inc. 2018 Form 10-K
51
Outlook (Continued)
Corporate and Other.
BNI Energy. In 2018, BNI Energy sold 4.3 million tons of coal (4.7 million tons in 2017) and anticipates 2019 sales will be similar
to 2018. BNI Energy operates under cost-plus fixed fee agreements extending through December 31, 2037.
Investment in Nobles 2. On December 27, 2018, our wholly-owned subsidiary, ALLETE South Wind, entered into a partnership
agreement with Tenaska to purchase a 49 percent equity interest in Nobles 2, the entity that will own and operate a 250 MW wind
energy facility in southwestern Minnesota pursuant to a 20-year PPA with Minnesota Power. The wind energy facility will be built
in Nobles County, Minnesota and is expected to be completed in late 2020, with an estimated total project cost of approximately
$350 million to $400 million of which our portion is expected to be approximately $170 million to $200 million. We expect to
utilize tax equity to finance a portion of our project costs, with an ALLETE expected equity investment of approximately $60 million
to $70 million. We account for our investment in Nobles 2 under the equity method of accounting. As of December 31, 2018, our
equity investment in Nobles 2 was $33.0 million. (See Note 5. Equity Investments.)
ALLETE Properties. Our strategy incorporates the possibility of a bulk sale of the entire ALLETE Properties portfolio. Proceeds
from a bulk sale would be strategically deployed to support growth initiatives at our Regulated Operations and ALLETE Clean
Energy. ALLETE Properties also continues to pursue sales of individual parcels over time and will continue to maintain key
entitlements and infrastructure. Market conditions can impact land sales and could result in our inability to cover our cost basis
and operating expenses including fixed carrying costs such as community development district assessments and property taxes.
Income Taxes
ALLETE’s aggregate federal and multi-state statutory tax rate is approximately 28 percent for 2018. ALLETE also has tax credits
and other tax adjustments that reduce the combined statutory rate to the effective tax rate. These tax credits and adjustments
historically have included items such as investment tax credits, production tax credits, AFUDC Equity, depletion, as well as other
items. The annual effective rate can also be impacted by such items as changes in income before income taxes, state and federal
tax law changes that become effective during the year, business combinations, tax planning initiatives and resolution of prior years’
tax matters. We expect our effective tax rate to be a benefit of approximately 10 percent for 2019 primarily due to federal production
tax credits as a result of wind energy generation. We also expect that our effective tax rate will be lower than the combined statutory
rate over the next 11 years due to production tax credits attributable to our wind energy generation.
Liquidity and Capital Resources
Liquidity Position. ALLETE is well-positioned to meet its liquidity needs. As of December 31, 2018, we had cash and cash
equivalents of $69.1 million, $388.6 million in available consolidated lines of credit and a debt-to-capital ratio of 41 percent.
On February 8, 2019, the Company entered into a stock purchase agreement providing for the sale of U.S. Water Services to a
subsidiary of Kurita Water Industries Ltd. for a cash purchase price of $270 million, subject to adjustment at closing, such as for
changes in working capital. The transaction is expected to close by the end of the first quarter of 2019 upon receipt of regulatory
approval. ALLETE plans to use the proceeds from the sale of U.S. Water Services primarily to reinvest in growth initiatives at
our Regulated Operations and ALLETE Clean Energy. ALLETE will also consider using a portion of the proceeds to implement
a common stock repurchase program.
Capital Structure. ALLETE’s capital structure for each of the last three years is as follows:
As of December 31
Millions
ALLETE Equity
Long-Term Debt (Including Long-Term Debt Due
Within One Year)
2018
%
2017
%
2016
%
$2,155.8
59
$2,068.2
58
$1,893.0
1,495.2
$3,651.0
41
100
1,513.3
$3,581.5
42
100
1,569.1
$3,462.1
55
45
100
ALLETE, Inc. 2018 Form 10-K
52
Liquidity and Capital Resources (Continued)
Cash Flows. Selected information from ALLETE’s Consolidated Statement of Cash Flows is as follows:
Year Ended December 31
Millions
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
Cash Flows from (used for)
Operating Activities
Investing Activities
Financing Activities
Change in Cash, Cash Equivalents and Restricted Cash
Cash, Cash Equivalents and Restricted Cash at End of Period
2018
2017
2016
$110.1
$38.3
$110.7
433.1
(349.0)
(115.2)
(31.1)
$79.0
402.9
(229.0)
(102.1)
71.8
$110.1
334.9
(272.1)
(135.2)
(72.4)
$38.3
Operating Activities. Cash from operating activities was higher in 2018 compared to 2017 primarily due to the sale of a wind
energy facility to Montana-Dakota Utilities in 2018 and the timing of accounts payable, partially offset by lower recoveries from
customers under cost recovery riders and higher contributions to the defined benefit pension plans in 2018.
Cash from operating activities was higher in 2017 compared to 2016 primarily due to a payment made in 2016 as part of the PSA
between Minnesota Power and Silver Bay Power, as well as higher recoveries from customers under cost recovery riders, net
income and non-cash items in 2017, partially offset by an increase in customer receivables and timing of payments on accounts
payable in 2017.
Investing Activities. Cash used for investing activities was higher in 2018 compared to 2017 primarily due to higher capital
expenditures and additional contributions to equity method investments in 2018. (See Note 5. Equity Investments.) These increases
in cash used for investing activities were partially offset by the acquisition of Tonka Water in 2017.
Cash used for investing activities was lower in 2017 compared to 2016 primarily due to lower capital expenditures in 2017, partially
offset by the acquisition of Tonka Water in 2017. (See Note 6. Acquisitions.)
Financing Activities. Cash used for financing activities was higher in 2018 compared to 2017 primarily due to higher dividends
on common stock as well as lower proceeds from the issuance of common stock and long-term debt in 2018, partially offset by
lower repayments of long-term debt in 2018.
Cash used for financing activities was lower in 2017 compared to 2016 primarily due to higher proceeds from the issuance of
common stock and long-term debt in 2017, partially offset by higher contingent consideration payments and repayments of long-
term debt in 2017.
Working Capital. Additional working capital, if and when needed, generally is provided by consolidated bank lines of credit and
the issuance of securities, including long-term debt, common stock and commercial paper. As of December 31, 2018, we had
consolidated bank lines of credit aggregating $407.0 million ($407.0 million as of December 31, 2017), most of which expire in
January 2024. We had $18.4 million outstanding in standby letters of credit and no outstanding draws under our lines of credit as
of December 31, 2018 ($11.9 million in standby letters of credit and no outstanding draws as of December 31, 2017). In addition,
as of December 31, 2018, we had 2.9 million original issue shares of our common stock available for issuance through Invest
Direct and 2.9 million original issue shares of common stock available for issuance through a distribution agreement with Lampert
Capital Markets, Inc. (See Securities.) The amount and timing of future sales of our securities will depend upon market conditions
and our specific needs.
On January 10, 2019, ALLETE entered into an amended and restated $400 million credit agreement (Credit Agreement). The
Credit Agreement amended and restated ALLETE’s $400 million credit facility, which was scheduled to expire in October 2020.
The Credit Agreement is unsecured, has a variable interest rate and will expire in January 2024. (See Note 10. Short-Term and
Long-Term Debt.)
ALLETE, Inc. 2018 Form 10-K
53
Liquidity and Capital Resources (Continued)
Securities. We entered into a distribution agreement with Lampert Capital Markets, Inc., in 2008, as amended most recently in
2016, with respect to the issuance and sale of up to an aggregate of 13.6 million shares of our common stock, without par value,
of which 2.9 million shares remain available for issuance as of December 31, 2018. For the year ended December 31, 2018, no
shares of common stock were issued under this agreement (1.0 million shares for net proceeds of $65.7 million in 2017; 0.1 million
shares for net proceeds of $8.0 million in 2016). The shares issued in 2017 and 2016 were offered and sold pursuant to Registration
Statement No. 333-212794, pursuant to which the remaining shares will continue to be offered for sale, from time to time.
During the year ended December 31, 2018, we issued 0.4 million shares of common stock through Invest Direct, the Employee
Stock Purchase Plan, and the Retirement Savings and Stock Ownership Plan, resulting in net proceeds of $20.3 million (0.3 million
shares for net proceeds of $20.3 million in 2017; 0.4 million shares for net proceeds of $22.9 million in 2016). These shares of
common stock were registered under Registration Statement Nos. 333-211075, 333-183051 and 333-162890. (See Note 10. Short-
Term and Long-Term Debt and Note 12. Common Stock and Earnings Per Share for additional detail regarding ALLETE’s debt
and equity securities.)
Financial Covenants. See Note 10. Short-Term and Long-Term Debt for information regarding our financial covenants.
Pension and Other Postretirement Benefit Plans. Management considers various factors when making funding decisions, such
as regulatory requirements, actuarially determined minimum contribution requirements and contributions required to avoid benefit
restrictions for the defined benefit pension plans. For the year ended December 31, 2018, we contributed $15.0 million in cash
and no shares of ALLETE common stock to the defined benefit pension plans. On January 15, 2019, we contributed $10.4 million
in cash to the defined benefit pension plans. We do not expect to make any additional contributions to our defined benefit pension
plans in 2019, and we do not expect to make any contributions to our other postretirement benefit plans in 2019. (See Note 12.
Common Stock and Earnings Per Share and Note 15. Pension and Other Postretirement Benefit Plans.)
Off-Balance Sheet Arrangements. Off-balance sheet arrangements are discussed in Note 11. Commitments, Guarantees and
Contingencies.
Contractual Obligations and Commercial Commitments. ALLETE has contractual obligations and other commitments that
will need to be funded in the future, in addition to its capital expenditure programs. The following table summarizes contractual
obligations and other commercial commitments as of December 31, 2018:
Contractual Obligations (a)
Millions
Long-Term Debt
Pension (b)
Other Postretirement Benefit Plans (b)
Operating Lease Obligations
Easement Obligations
PPA Obligations (c)
Other Purchase Obligations
Total Contractual Obligations
Total
$2,266.3
467.8
99.8
41.3
161.0
2,210.2
69.6
$5,316.0
Payments Due by Period
1 to 3
Years
Less than
1 Year
4 to 5
Years
$118.7
47.9
9.7
9.9
4.8
107.3
52.4
$350.7
$326.1
94.7
19.5
14.0
9.8
260.7
17.1
$741.9
$275.9
94.1
19.5
8.0
10.1
291.5
—
$699.1
After
5 Years
$1,545.6
231.1
51.1
9.4
136.3
1,550.7
0.1
$3,524.3
(a) Does not include $1.6 million of non-current unrecognized tax benefits due to uncertainty regarding the timing of future cash payments
related to uncertain tax positions. (See Note 13. Income Tax Expense.)
(b) Represents the estimated future benefit payments for our defined benefit pension and other postretirement plans through 2028.
(c) Does not include the agreement with Manitoba Hydro expiring in 2022, as this contract is for surplus energy only; Oliver Wind I and Oliver
Wind II, as Minnesota Power only pays for energy as it is delivered; and the agreement with Nobles 2 commencing in 2020 as it is subject
to construction of a wind energy facility. (See Note 11. Commitments, Guarantees and Contingencies.)
Long-Term Debt. Our long-term debt obligations, including long-term debt due within one year, represent the principal amount
of bonds, notes and loans which are recorded on the Consolidated Balance Sheet, plus interest. The table above assumes that the
interest rates in effect at December 31, 2018, remain constant through the remaining term. (See Note 10. Short-Term and Long Term
Debt.)
ALLETE, Inc. 2018 Form 10-K
54
Liquidity and Capital Resources (Continued)
Contractual Obligations and Commercial Commitments (Continued)
Pension and Other Postretirement Benefit Plans. Our pension and other postretirement benefit plan obligations represent our
current estimate of future benefit payments through 2028. Pension contributions will be dependent on several factors including
realized asset performance, future discount rate and other actuarial assumptions, Internal Revenue Service and other regulatory
requirements, and contributions required to avoid benefit restrictions for the pension plans. Funding for the other postretirement
benefit plans is impacted by realized asset performance, future discount rate and other actuarial assumptions, and utility regulatory
requirements. These amounts are estimates and will change based on actual market performance, changes in interest rates and any
changes in governmental regulations. (See Note 15. Pension and Other Postretirement Benefit Plans.)
Easement Obligations. Easement obligations represent the minimum payments for our land easement agreements at our wind
energy facilities.
PPA Obligations. PPA obligations represent our Square Butte, Manitoba Hydro, Minnkota Power and other PPAs. (See Note 11.
Commitments, Guarantees and Contingencies.)
Other Purchase Obligations. Other purchase obligations represents our minimum purchase commitments under coal and rail
contracts, purchase obligations for certain capital expenditure projects, and long-term service agreements for wind energy facilities.
(See Note 11. Commitments, Guarantees and Contingencies.)
Credit Ratings. Access to reasonably priced capital markets is dependent in part on credit and ratings. Our securities have been
rated by S&P Global Ratings and by Moody’s. Rating agencies use both quantitative and qualitative measures in determining a
company’s credit rating. These measures include business risk, liquidity risk, competitive position, capital mix, financial condition,
predictability of cash flows, management strength and future direction. Some of the quantitative measures can be analyzed through
a few key financial ratios, while the qualitative ones are more subjective. Our current credit ratings are listed in the following
table:
Credit Ratings
Issuer Credit Rating
Commercial Paper
First Mortgage Bonds
(a) Not rated by S&P Global Ratings.
S&P Global Ratings Moody’s
BBB+
A-2
(a)
A3
P-2
A1
The disclosure of these credit ratings is not a recommendation to buy, sell or hold our securities. Ratings are subject to revision
or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating.
On February 6, 2018, S&P Global Ratings revised its credit rating outlook on ALLETE to negative from stable, while affirming
its issuer and commercial paper ratings on ALLETE. S&P Global Ratings cited the potential effect of the TCJA on the Company’s
cash flows and S&P Global Ratings assessment of the Company’s regulatory risk following Minnesota Power’s recent general
rate case as its rationale for issuing the negative outlook.
On February 8, 2018, Moody’s issued a report on ALLETE noting that Minnesota Power’s general rate case was credit negative.
With respect to Minnesota Power’s general rate case outcome, Moody’s noted a lower return on equity, disallowance of various
expenses, including a decision to disallow recovery of the prepaid pension asset, and a ruling against Minnesota Power’s request
to adopt an annual rate review mechanism. In addition, Moody’s noted the potential negative impact of the TCJA on certain
financial metrics used by Moody’s.
The Company believes it is well-positioned to meet its liquidity needs. As of December 31, 2018, we had cash and cash equivalents
of $69.1 million, $388.6 million in available consolidated lines of credit and a debt-to-capital ratio of 41 percent. Our cash from
operating activities for the year ended December 31, 2018 was $433.1 million. In addition, as of December 31, 2018, we had
2.9 million original issue shares of our common stock available for issuance through Invest Direct and 2.9 million original issue
shares of common stock available for issuance through a distribution agreement with Lampert Capital Markets, Inc.
ALLETE, Inc. 2018 Form 10-K
55
Liquidity and Capital Resources (Continued)
Common Stock Dividends. ALLETE is committed to providing a competitive dividend to its shareholders while at the same time
funding its growth. ALLETE’s long-term objective is to maintain a dividend payout ratio similar to our peers and provide for
future dividend increases. Our targeted payout range is between 60 percent and 65 percent. In 2018, we paid out 66 percent
(63 percent in 2017; 66 percent in 2016) of our per share earnings in dividends. On January 31, 2019, our Board of Directors
declared a dividend of $0.5875 per share, which is payable on March 1, 2019, to shareholders of record at the close of business
on February 15, 2019.
Capital Requirements
ALLETE’s projected capital expenditures for the years 2019 through 2023 are presented in the following table. Actual capital
expenditures may vary from the projections due to changes in forecasted plant maintenance, regulatory decisions or approvals,
future environmental requirements, base load growth, capital market conditions or executions of new business strategies.
Capital Expenditures
Millions
Regulated Operations
Base and Other
Transmission Cost Recovery (a)
Nemadji Trail Energy Center (b)
Regulated Operations Capital Expenditures
ALLETE Clean Energy (c)
Corporate and Other
Total Capital Expenditures
2019
2020
2021
2022
2023
Total
$120
125
5
250
270
10
$530
$160
20
15
195
20
15
$230
$215
—
50
265
10
15
$290
$170
—
135
305
5
25
$335
$105
—
130
235
10
30
$275
$770
145
335
1,250
315
95
$1,660
(a) Estimated capital expenditures eligible for cost recovery outside of a general rate case, including our portion of transmission capital
expenditures related to construction of the GNTL, which are eligible for cost recovery outside of a general rate case. (See Item 1. Business
– Regulated Operations – Transmission and Distribution.)
(b) Our portion of estimated capital expenditures for construction of NTEC, a 525 MW to 550 MW combined-cycle natural gas-fired generating
facility which will be jointly owned by Dairyland Power Cooperative and a subsidiary of ALLETE.
(c) Capital expenditures in 2019 include construction of a 100 MW wind energy facility and an 80 MW wind energy facility that ALLETE Clean
Energy will build, own and operate. These capital expenditures do not include the cost of safe harbor turbines purchased previously. (See
Outlook – Energy Infrastructure and Related Services – ALLETE Clean Energy.)
We are well positioned to meet our financing needs due to adequate operating cash flows, available additional working capital
and access to capital markets. We will finance capital expenditures from a combination of internally generated funds, debt and
equity issuance proceeds. We intend to maintain a capital structure with capital ratios near current levels. (See Capital Structure.)
Environmental and Other Matters
Our businesses are subject to regulation of environmental matters by various federal, state and local authorities. A number of
regulatory changes to the Clean Air Act, the Clean Water Act and various waste management requirements have been promulgated
by both the EPA and state authorities over the past several years. Minnesota Power’s facilities are subject to additional requirements
under many of these regulations. Minnesota Power is reshaping its generation portfolio, over time, to reduce its reliance on coal,
has installed cost-effective emission control technology, and advocates for sound science and policy during rulemaking
implementation. (See Note 11. Commitments, Guarantees and Contingencies.)
Market Risk
Securities Investments.
Available-for-Sale Securities. As of December 31, 2018, our available-for-sale securities portfolio consisted primarily of securities
held in other postretirement plans to fund employee benefits. (See Note 8. Investments.)
ALLETE, Inc. 2018 Form 10-K
56
Market Risk (Continued)
INTEREST RATE RISK
We are exposed to risks resulting from changes in interest rates as a result of our issuance of variable rate debt. We manage our
interest rate risk by varying the issuance and maturity dates of our fixed rate debt, limiting the amount of variable rate debt, and
continually monitoring the effects of market changes in interest rates. We may also enter into derivative financial instruments,
such as interest rate swaps, to mitigate interest rate exposure. The following table presents the long-term debt obligations and the
corresponding weighted average interest rate as of December 31, 2018:
Interest Rate Sensitive
Financial Instruments
Long-Term Debt
Fixed Rate – Millions
Average Interest Rate – %
Variable Rate – Millions
Average Interest Rate – %
Expected Maturity Date
2019
2020
2021
2022
2023 Thereafter
Total
Fair
Value
$56.7
7.6
$1.2
5.2
$89.5
4.2
$24.2
2.6
$98.3
3.8
$0.2
5.2
$88.5
3.7
$0.8
5.2
$88.5
5.9
$1,019.5
4.3
$1,441.0
$1,480.4
5.0
—
—
$27.8
1.8
$54.2
$54.2
2.3
Interest rates on variable rate long-term debt are reset on a periodic basis reflecting prevailing market conditions. Based on the
variable rate debt outstanding as of December 31, 2018, an increase of 100 basis points in interest rates would impact the amount
of pre-tax interest expense by $0.5 million. This amount was determined by considering the impact of a hypothetical 100 basis
point increase to the average variable interest rate on the variable rate debt outstanding as of December 31, 2018.
COMMODITY PRICE RISK
Our regulated utility operations incur costs for power and fuel (primarily coal and related transportation) in Minnesota, and power
and natural gas purchased for resale in our regulated service territory in Wisconsin. Minnesota Power’s exposure to price risk for
these commodities is significantly mitigated by the current ratemaking process and regulatory framework, which allows recovery
of fuel costs in excess of those included in base rates or distribution of savings in fuel costs to ratepayers. SWL&P’s exposure to
price risk for natural gas is significantly mitigated by the current ratemaking process and regulatory framework, which allows the
commodity cost to be passed through to customers. We seek to prudently manage our customers’ exposure to price risk by entering
into contracts of various durations and terms for the purchase of power and coal and related transportation costs (Minnesota Power)
and natural gas (SWL&P).
POWER MARKETING
Minnesota Power’s power marketing activities consist of: (1) purchasing energy in the wholesale market to serve its regulated
service territory when energy requirements exceed generation output; and (2) selling excess available energy and purchased power.
From time to time, Minnesota Power may have excess energy that is temporarily not required by retail and municipal customers
in our regulated service territory. Minnesota Power actively sells any excess energy to the wholesale market to optimize the value
of its generating facilities.
We are exposed to credit risk primarily through our power marketing activities. We use credit policies to manage credit risk, which
includes utilizing an established credit approval process and monitoring counterparty limits.
Recently Adopted Accounting Pronouncements.
New accounting pronouncements are discussed in Note 1. Operations and Significant Accounting Policies of this Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk for information
related to quantitative and qualitative disclosure about market risk.
ALLETE, Inc. 2018 Form 10-K
57
Item 8. Financial Statements and Supplementary Data
See our Consolidated Financial Statements as of December 31, 2018 and 2017, and for the years ended December 31, 2018, 2017
and 2016, and supplementary data, which are indexed in Item 15(a).
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of December 31, 2018, evaluations were performed, under the supervision and with the participation of management, including
our principal executive officer and principal financial officer, on the effectiveness of the design and operation of ALLETE’s
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange
Act). Based upon those evaluations, our principal executive officer and principal financial officer have concluded that such
disclosure controls and procedures are effective to provide assurance that information required to be disclosed in ALLETE’s reports
filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term
is defined in Exchange Act Rule 13a-15(f) or 15d-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the Internal Control – Integrated Framework (framework) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework, our management
concluded that our internal control over financial reporting was effective as of December 31, 2018.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Changes in Internal Controls
There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that
has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
ALLETE, Inc. 2018 Form 10-K
58
Item 10. Directors, Executive Officers and Corporate Governance
Part III
Unless otherwise stated, the information required by this Item is incorporated by reference herein from our Proxy Statement for
the 2019 Annual Meeting of Shareholders (2019 Proxy Statement) under the following headings:
• Directors. The information regarding directors will be included in the “Election of Directors” section;
• Audit Committee Financial Expert. The information regarding the Audit Committee financial expert will be
included in the “Corporate Governance” section and the “Audit Committee Report” section;
• Audit Committee Members. The identity of the Audit Committee members will be included in the “Corporate
Governance” section and the “Audit Committee Report” section;
• Executive Officers. The information regarding executive officers is included in Part I of this Form 10-K; and
•
Section 16(a) Compliance. The information regarding Section 16(a) compliance will be included in the “Ownership
of ALLETE Common Stock – Section 16(a) Beneficial Ownership Reporting Compliance” section.
Our 2019 Proxy Statement will be filed with the SEC within 120 days after the end of our 2018 fiscal year.
Code of Ethics. We have adopted a written Code of Ethics that applies to all of our employees, including our Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer. A copy of our Code of Ethics is available on our website at
www.allete.com and print copies are available without charge upon request to ALLETE, Inc., Attention: Secretary, 30 West Superior
St., Duluth, Minnesota 55802. Any amendment to the Code of Ethics or any waiver of the Code of Ethics will be disclosed on our
website at www.allete.com promptly following the date of such amendment or waiver.
Corporate Governance. The following documents are available on our website at www.allete.com and print copies are available
upon request:
• Corporate Governance Guidelines;
• Audit Committee Charter;
• Executive Compensation Committee Charter; and
• Corporate Governance and Nominating Committee Charter.
Any amendment to these documents will be disclosed on our website at www.allete.com promptly following the date of such
amendment.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference herein from the “Compensation Discussion and Analysis,” the
“Compensation of Executive Officers,” the “Compensation Committee Report” and the “Director Compensation” sections in our
2019 Proxy Statement.
ALLETE, Inc. 2018 Form 10-K
59
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference herein from the “Ownership of ALLETE Common Stock –
Securities Owned by Certain Beneficial Owners” and the “Ownership of ALLETE Common Stock – Securities Owned by Directors
and Management” sections in our 2019 Proxy Statement.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth the shares of ALLETE common stock available for issuance under the Company's equity compensation
plans as of December 31, 2018:
Plan Category
Equity Compensation Plans Approved by
Security Holders
Equity Compensation Plans Not Approved
by Security Holders
Total
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants, and Rights (a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants, and Rights (b)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans (c)
230,424
—
230,424
—
—
—
892,004
—
892,004
(a) Includes the following: (i) 73,532 securities representing the performance shares (including accrued dividends) granted under the executive
long-term incentive compensation plan that vested but were not paid as of December 31, 2018; (ii) 82,190 securities representing the target
number of performance share awards (including accrued dividends) granted under the executive long-term incentive compensation plan
that were unvested as of December 31, 2018; and (iii) 74,702 director deferred stock units (including accrued dividends) under the non-
employee director compensation deferral plan as of December 31, 2018. With respect to unvested performance share awards, the actual
number of shares to be issued will vary from 0 percent to 200 percent of the target level depending upon the achievement of total shareholder
return objectives established for such awards. For additional information about the performance shares, including payout calculations,
see our 2019 Proxy Statement.
(b) Earned performance share awards are paid in shares of ALLETE common stock on a one-for-one basis. Accordingly, these awards do not
have a weighted-average exercise price.
(c) Excludes the number of securities shown in the first column as to be issued upon exercise of outstanding options, warrants, and rights. The
amount shown is comprised of: (i) 723,470 shares available for issuance under the executive long-term incentive compensation plan in the
form of options, rights, restricted stock units, performance share awards, and other grants as approved by the Executive Compensation
Committee of the Company’s Board of Directors; (ii) 55,204 shares available for issuance under the Non-Employee Director Stock Plan
as payment for a portion of the annual retainer payable to non-employee Directors; and (iii) 113,330 shares available for issuance under
the ALLETE and Affiliated Companies Employee Stock Purchase Plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference herein from the “Corporate Governance” section in our
2019 Proxy Statement.
We have adopted a Related Person Transaction Policy which is available on our website at www.allete.com. Print copies are
available without charge, upon request. Any amendment to this policy will be disclosed on our website at www.allete.com promptly
following the date of such amendment.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated by reference herein from the “Audit Committee Report” section in our
2019 Proxy Statement.
ALLETE, Inc. 2018 Form 10-K
60
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a)
(1)
Certain Documents Filed as Part of this Form 10-K.
Financial Statements
ALLETE
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet as of December 31, 2018 and 2017
For the Years Ended December 31, 2018, 2017 and 2016
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Cash Flows
Consolidated Statement of Equity
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules
Schedule II – ALLETE Valuation and Qualifying Accounts and Reserves
Page
69
71
72
73
74
75
76
131
All other schedules have been omitted either because the information is not required to be reported by ALLETE or
because the information is included in the Consolidated Financial Statements or the notes.
(3)
Exhibits including those incorporated by reference.
ALLETE, Inc. 2018 Form 10-K
61
Exhibit Number
*3(a)1
— Articles of Incorporation, amended and restated as of May 8, 2001 (filed as Exhibit 3(b) to the March 31, 2001, Form 10 Q,
File No. 1-3548).
*3(a)2
— Amendment to Articles of Incorporation, dated as of September 20, 2004 (filed as Exhibit 3 to the September 21, 2004,
Form 8-K, File No. 1-3548).
*3(a)3
— Amendment to Articles of Incorporation, dated as of May 12, 2009 (filed as Exhibit 3 to the June 30, 2009, Form 10-Q,
File No. 1-3548).
*3(a)4
— Amendment to Articles of Incorporation, dated as of May 11, 2010 (filed as Exhibit 3(a) to the May 14, 2010, Form 8-K,
File No. 1-3548).
*3(a)5
— Amendment to Certificate of Assumed Name, filed with the Minnesota Secretary of State on May 8, 2001 (filed as
Exhibit 3(a) to the March 31, 2001, Form 10-Q, File No. 1-3548).
*3(b)
*4(a)1
— Bylaws, as amended effective May 11, 2010 (filed as Exhibit 3(b) to the May 14, 2010, Form 8-K, File No. 1-3548).
— Mortgage and Deed of Trust, dated as of September 1, 1945, between Minnesota Power & Light Company (now ALLETE)
and The Bank of New York Mellon (formerly Irving Trust Company) and Andres Serrano (successor to Richard H. West),
Trustees (filed as Exhibit 7(c), File No. 2-5865).
*4(a)2
— Supplemental Indentures to ALLETE’s Mortgage and Deed of Trust:
Number
Dated as of
Reference File
Exhibit
First
Second
Third
Fourth
Fifth
Sixth
Seventh
Eighth
Ninth
Tenth
Eleventh
Twelfth
Thirteenth
Fourteenth
Fifteenth
Sixteenth
Seventeenth
Eighteenth
Nineteenth
Twentieth
Twenty-first
Twenty-second
Twenty-third
Twenty-fourth
Twenty-fifth
Twenty-sixth
Twenty-seventh
Twenty-eighth
Twenty-ninth
Thirtieth
Thirty-first
Thirty-second
Thirty-third
Thirty-fourth
Thirty-fifth
Thirty-sixth
Thirty-seventh
Thirty-eighth
March 1, 1949
July 1, 1951
March 1, 1957
January 1, 1968
April 1, 1971
August 1, 1975
September 1, 1976
September 1, 1977
April 1, 1978
August 1, 1978
December 1, 1982
April 1, 1987
March 1, 1992
June 1, 1992
July 1, 1992
July 1, 1992
February 1, 1993
July 1, 1993
February 1, 1997
November 1, 1997
October 1, 2000
July 1, 2003
August 1, 2004
March 1, 2005
December 1, 2005
October 1, 2006
February 1, 2008
May 1, 2008
November 1, 2008
January 1, 2009
February 1, 2010
August 1, 2010
July 1, 2012
April 1, 2013
March 1, 2014
June 1, 2014
September 1, 2014
September 1, 2015
2-7826
2-9036
2-13075
2-27794
2-39537
2-54116
2-57014
2-59690
2-60866
2-62852
2-56649
33-30224
33-47438
33-55240
33-55240
33-55240
33-50143
33-50143
1-3548 (1996 Form 10-K)
1-3548 (1997 Form 10-K)
333-54330
1-3548 (June 30, 2003, Form 10-Q)
1-3548 (Sept. 30, 2004, Form 10-Q)
1-3548 (March 31, 2005, Form 10-Q)
1-3548 (March 31, 2006, Form 10-Q)
1-3548 (2006 Form 10-K)
1-3548 (2007 Form 10-K)
1-3548 (June 30, 2008, Form 10-Q)
1-3548 (2008 Form 10-K)
1-3548 (2008 Form 10-K)
1-3548 (March 31, 2010, Form 10-Q)
1-3548 (Sept. 30, 2010, Form 10-Q)
1-3548 (July 2, 2012, Form 8-K)
1-3548 (April 2, 2013, Form 8-K)
1-3548 (March 31, 2014, Form 10-Q)
1-3548 (June 30, 2014, Form 10-Q)
1-3548 (Sept. 30, 2014, Form 10-Q)
1-3548 (Sept. 30, 2015, Form 10-Q)
ALLETE, Inc. 2018 Form 10-K
62
7(b)
7(c)
2(c)
2(c)
2(c)
2(c)
2(c)
2(c)
2(c)
2(d)2
4(a)3
4(a)3
4(b)
4(b)
4(c)
4(d)
4(b)
4(c)
4(a)3
4(a)3
4(c)3
4
4(a)
4
4
4(a)3
4(a)3
4
4(a)3
4(a)4
4
4
4
4
4
4
4
4(a)
Exhibit Number
Thirty-ninth
April 1, 2018
1-3548 (March 31, 2018, Form 10-Q)
4
*4(b)1
— Mortgage and Deed of Trust, dated as of March 1, 1943, between Superior Water, Light and Power Company and Chemical
Bank & Trust Company and Howard B. Smith, as Trustees, both succeeded by U.S. Bank National Association, as Trustee
(filed as Exhibit 7(c), File No. 2-8668).
*4(b)2
— Supplemental Indentures to Superior Water, Light and Power Company’s Mortgage and Deed of Trust:
Number
First
Second
Third
Fourth
Fifth
Sixth
Seventh
Eighth
Ninth
Tenth
Eleventh
Twelfth
Thirteenth
Dated as of
March 1, 1951
March 1, 1962
July 1, 1976
March 1, 1985
Reference File
2-59690
2-27794
2-57478
2-78641
December 1, 1992
1-3548 (1992 Form 10-K)
March 24, 1994
1-3548 (1996 Form 10-K)
November 1, 1994
1-3548 (1996 Form 10-K)
January 1, 1997
1-3548 (1996 Form 10-K)
October 1, 2007
1-3548 (2007 Form 10-K)
October 1, 2007
1-3548 (2007 Form 10-K)
December 1, 2008
1-3548 (2008 Form 10-K)
December 2, 2013
May 29, 2018
1-3548 (2013 Form 10-K)
1-3548 (June 30, 2018, Form 10-Q)
Exhibit
2(d)(1)
2(d)1
2(e)1
4(b)
4(b)1
4(b)1
4(b)2
4(b)3
4(c)3
4(c)4
4(c)3
4(c)3
4
*4(c)
*4(d)
*4(e)
— Note Purchase and Guarantee Agreement dated as of November 5, 2015, among Armenia Mountain Wind LLC, AMW I
Holding, LLC and the purchasers named therein (filed as Exhibit 4 to the November 12, 2015, Form 8-K, File No. 1-3548).
— Note Purchase Agreement, dated December 8, 2016, between ALLETE and Hartford Investment Management Company,
Northwestern Mutual Investment Management Company, The Northwestern Mutual Life Insurance Company and
Nationwide Life insurance Company (filed as Exhibit 4 to the December 12, 2016, Form 8-K, File No. 1-3548).
— Term Loan Agreement dated as of August 25, 2017, among ALLETE, as Borrower, the Lenders party hereto, JPMorgan
Chase Bank, N.A., as Administrative Agent, Bank of America, N.A., as Syndication Agent, and JPMorgan Chase Bank,
N.A., as Sole Lead Arranger and Sole Book Runner (filed as Exhibit 4 to the September 30, 2017, Form 10-Q, File No.
1-3548).
*10(a)
— Power Purchase and Sale Agreement, dated as of May 29, 1998, between Minnesota Power, Inc. (now ALLETE) and Square
Butte Electric Cooperative (filed as Exhibit 10 to the June 30, 1998, Form 10-Q, File No. 1-3548).
*10(b)1
10(b)2
— Credit Agreement dated as of November 4, 2013 among ALLETE, as Borrower, the lenders party thereto, JPMorgan Chase
Bank, N.A., as Administrative Agent, and J.P. Morgan Securities LLC, as Sole Lead Arranger and Sole Book Runner (filed
as Exhibit 10 to the November 4, 2013, Form 8-K, File No. 1-3548).
— Amended and Restated Credit Agreement dated as of January 10, 2019 among ALLETE, as Borrower, the lenders party
hereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Chase Bank, N.A., as Sole Lead Arranger
and Sole Book Runner.
*10(c)1
— Financing Agreement between Collier County Industrial Development Authority and ALLETE dated as of July 1, 2006
(filed as Exhibit 10(b)1 to the June 30, 2006, Form 10-Q, File No. 1-3548).
*10(c)2
*10(c)3
— Amended and Restated Letter of Credit Agreement, dated as of June 3, 2011, among ALLETE, the participating banks and
Wells Fargo Bank, National Association, as Administrative Agent and Issuing Bank (filed as Exhibit 10(b) to the
June 30, 2011, Form 10-Q, File No. 1-3548).
— First Amendment to Amended and Restated Letter of Credit Agreement, dated as of June 1, 2013, between ALLETE and
Wells Fargo Bank, National Association, as Issuing Bank, Administrative Agent and Sole Participating Bank (filed as
Exhibit 10(b) to the June 30, 2013, Form 10-Q, File No. 1-3548).
*10(d)
— Agreement dated December 16, 2005, among ALLETE, Wisconsin Public Service Corporation and WPS Investments, LLC
(filed as Exhibit 10(g) to the 2009 Form 10-K, File No. 1-3548).
+*10(e)1
— ALLETE Executive Annual Incentive Plan, as amended and restated, effective January 1, 2011 (filed as Exhibit 10(h)1 to
the 2010 Form 10-K, File No. 1-3548).
+*10(e)2
— ALLETE Executive Annual Incentive Plan Form of Award Effective 2016 (filed as Exhibit 10(e)6 to the 2015 Form 10 K,
File No. 1-3548).
+*10(e)3
— ALLETE Executive Annual Incentive Plan Form of Award Effective 2017 (filed as Exhibit 10(e)6 to the 2016 Form 10-K,
File No. 1-3548).
+*10(e)4
— ALLETE Executive Annual Incentive Plan Form of Award Superior Water, Light and Power Effective 2017 (filed as Exhibit
10(e)7 to the 2016 Form 10-K, File No. 1-3548).
+*10(e)5
— ALLETE Executive Annual Incentive Plan Form of Award Effective 2018 (filed as Exhibit 10(a)1 to the March 31, 2018,
Form 10-Q, File No. 1-3548).
+*10(e)6
— ALLETE Executive Annual Incentive Plan Form of Award Superior Water, Light and Power Effective 2018 (filed as Exhibit
10(a)2 to the March 31, 2018, Form 10-Q, File No. 1-3548).
ALLETE, Inc. 2018 Form 10-K
63
Exhibit Number
+10(e)7
— ALLETE Executive Annual Incentive Plan Form of Award Effective 2019.
+*10(e)8
— ALLETE Executive Annual Incentive Plan Form of Award Effective 2015 (filed as Exhibit 10(e)6 to the 2014 Form 10 K,
File No. 1-3548).
+*10(f)1
— ALLETE and Affiliated Companies Supplemental Executive Retirement Plan (SERP I), as amended and restated, effective
January 1, 2009 (filed as Exhibit 10(i)4 to the 2008 Form 10-K, File No. 1-3548).
+*10(f)2
— Amendment to the ALLETE and Affiliated Companies Supplemental Executive Retirement Plan (SERP I), effective
January 1, 2011 (filed as Exhibit 10(i)2 to the 2010 Form 10-K, File No. 1-3548).
+*10(f)3
— ALLETE and Affiliated Companies Supplemental Executive Retirement Plan II (SERP II), as amended and restated, effective
January 1, 2015 (filed as Exhibit 10(f)3 to the 2014 Form 10-K, File No. 1-3548).
+10(f)4
— ALLETE and Affiliated Companies Supplemental Executive Retirement Plan II (SERP II), as amended and restated, effective
January 1, 2019.
+*10(g)
— ALLETE Deferred Compensation Trust Agreement, as amended and restated, effective December 15, 2012 (filed as
Exhibit 10(j) to the 2012 Form 10-K, File No. 1-3548).
+*10(h)1
— ALLETE Executive Long-Term Incentive Compensation Plan as amended and restated effective January 1, 2006 (filed as
Exhibit 10 to the May 16, 2005, Form 8-K, File No. 1-3548).
+*10(h)2
— Amendment to the ALLETE Executive Long-Term Incentive Compensation Plan, effective January 1, 2011 (filed as
Exhibit 10(m)2 to the 2010 Form 10-K, File No. 1-3548).
+*10(h)3
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Performance Share Grant Effective 2014 (filed as
Exhibit 10(j)14 to the 2013 Form 10-K, File No. 1-3548).
+*10(h)4
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Restricted Stock Unit Grant Effective 2014 (filed
as Exhibit 10(j)15 to the 2013 Form 10-K, File No. 1-3548).
+*10(h)5
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Performance Share Grant Effective 2015 (filed as
Exhibit 10(j)16 to the 2014 Form 10-K, File No. 1-3548).
+*10(h)6
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Restricted Stock Unit Grant Effective 2015 (filed
as Exhibit 10(j)17 to the 2014 Form 10-K, File No. 1-3548).
+*10(h)7
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Performance Share Grant Effective 2013 (filed as
Exhibit 10(k)14 to the 2012 Form 10-K, File No. 1-3548).
+*10(h)8
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Restricted Stock Unit Grant Effective 2013 (filed
as Exhibit 10(k)15 to the 2012 Form 10-K, File No. 1-3548).
+*10(i)1
— ALLETE Executive Long-Term Incentive Compensation Plan effective January 1, 2016 (filed November 6, 2015, as Exhibit
99 to Form S-8, File No. 333-207846).
+*10(i)2
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Restricted Stock Unit Grant Effective 2016 (filed
as Exhibit 10(k)3 to the 2015 Form 10-K, File No. 1-3548).
+*10(i)3
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Performance Share Grant Effective 2016 (filed as
Exhibit 10(k)2 to the 2015 Form 10-K, File No. 1-3548).
+*10(i)4
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Cash Award Effective 2017 (filed as Exhibit 10(i)4
to the 2016 Form 10-K, File No. 1-3548).
+*10(i)5
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Restricted Stock Unit Grant Effective 2017 (filed
as Exhibit 10(i)5 to the 2016 Form 10-K, File No. 1-3548).
+*10(i)6
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Performance Share Grant Effective 2017 (filed as
Exhibit 10(i)6 to the 2016 Form 10-K, File No. 1-3548).
+*10(i)7
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Cash Award Effective 2018 (filed as Exhibit 10(b)
to the March 31, 2018, Form 10-Q, File No. 1-3548).
+*10(i)8
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Restricted Stock Unit Grant Effective 2018 (filed
as Exhibit 10(i)7 to the 2017 Form 10-K, File No. 1-3548).
+*10(i)9
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Performance Share Grant Effective 2018 (filed as
Exhibit 10(i)8 to the 2017 Form 10-K, File No. 1-3548).
+10(i)10
+10(i)11
+*10(j)1
+*10(k)1
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Restricted Stock Unit Grant Effective 2019.
— Form of ALLETE Executive Long-Term Incentive Compensation Plan Performance Share Grant Effective 2019.
— Amended and Restated ALLETE Non-Employee Director Stock Plan, effective May 15, 2013 (filed as Exhibit 10(a) to the
June 30, 2013, Form 10-Q, File No. 1-3548).
— ALLETE Non-Employee Director Compensation Summary effective January 1, 2015 (filed as Exhibit 10(l)5 to the
2014 Form 10-K, File No. 1-3548).
+*10(k)2
— ALLETE Non-Employee Director Compensation Summary effective January 1, 2017 (filed as Exhibit 10(k)3 to the 2016
Form 10-K, File No. 1-3548).
+10(k)3
+*10(l)1
— ALLETE Non-Employee Director Compensation Summary effective January 1, 2019.
— Minnesota Power (now ALLETE) Non-Employee Director Compensation Deferral Plan Amended and Restated, effective
January 1, 1990 (filed as Exhibit 10(ac) to the 2002 Form 10-K, File No. 1-3548).
ALLETE, Inc. 2018 Form 10-K
64
Exhibit Number
+*10(l)2
— October 2003 Amendment to the Minnesota Power (now ALLETE) Non-Employee Director Compensation Deferral Plan
(filed as Exhibit 10(aa)2 to the 2003 Form 10-K, File No. 1-3548).
+*10(l)3
— January 2005 Amendment to the ALLETE Non-Employee Director Compensation Deferral Plan (filed as Exhibit 10(c) to
the March 31, 2005, Form 10-Q, File No. 1-3548).
+*10(l)4
— October 2006 Amendment to the ALLETE Non-Employee Director Compensation Deferral Plan (filed as Exhibit 10(d) to
the September 30, 2006, Form 10-Q, File No. 1-3548).
+*10(l)5
— July 2012 Amendment to the ALLETE Non-Employee Director Compensation Deferral Plan (filed as Exhibit 10(n)5 to the
2012 Form 10-K, File No. 1-3548).
+*10(m)1 — ALLETE Non-Employee Director Compensation Deferral Plan II, effective May 1, 2009 (filed as Exhibit 10(a) to the
June 30, 2009, Form 10-Q, File No. 1-3548).
+*10(m)2 — ALLETE Non-Employee Director Compensation Deferral Plan II, as amended and restated, effective July 24, 2012 (filed
as Exhibit 10(o)2 to the 2012 Form 10-K, File No. 1-3548).
+*10(n)
— ALLETE Non-Employee Director Compensation Trust Agreement, as amended and restated, effective December 15, 2012
(filed as Exhibit 10(p)2 to the 2012 Form 10-K, File No. 1-3548).
+*10(o)1
— ALLETE and Affiliated Companies Change in Control Severance Plan, as amended and restated, effective January 19, 2011
(filed as Exhibit 10(q) to the 2010 Form 10-K, File No. 1-3548).
+*10(o)2
— ALLETE and Affiliated Companies Change in Control Severance Plan, as amended and restated, effective April 23, 2018
(filed as Exhibit 10(c) to the March 31, 2018, Form 10-Q, File No. 1-3548).
+10(p)
— ALLETE Executive Separation Agreement effective November 29, 2018.
21
23
31(a)
31(b)
32
95
99
— Subsidiaries of the Registrant.
— Consent of Independent Registered Public Accounting Firm.
— Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
— Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
— Section 1350 Certification of Annual Report by the Chief Executive Officer and Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
— Mine Safety.
— ALLETE News Release dated February 14, 2019, announcing earnings for the year ended December 31, 2018. (This
exhibit has been furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act
of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as
shall be expressly set forth by specific reference in such filing.)
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
— XBRL Instance
— XBRL Schema
— XBRL Calculation
— XBRL Definition
— XBRL Label
— XBRL Presentation
ALLETE, Inc. 2018 Form 10-K
65
Exhibits (Continued)
ALLETE or its subsidiaries are obligors under various long-term debt instruments including, but not limited to, the following:
•
•
•
•
$38,995,000 original principal amount, of City of Cohasset, Minnesota, Variable Rate Demand Revenue Refunding Bonds
(ALLETE, formerly Minnesota Power & Light Company, Project) Series 1997A ($13,500,000 remaining principal
balance);
$27,800,000 of Collier County Industrial Development Authority, Industrial Development Variable Rate Demand
Refunding Revenue Bonds Series 2006;
$6,370,000 of City of Superior, Wisconsin, Collateralized Utility Revenue Refunding Bonds Series 2007A; and
$6,130,000 of City of Superior, Wisconsin, Collateralized Utility Revenue Bonds Series 2007B.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, these and other long-term debt instruments are not filed as exhibits because the
total amount of debt authorized under each omitted instrument does not exceed 10 percent of our total consolidated assets. We
will furnish copies of these instruments to the SEC upon its request.
*
+
Incorporated herein by reference as indicated.
Management contract or compensatory plan or arrangement pursuant to Item 15(b).
Item 16. Form 10-K Summary
None.
ALLETE, Inc. 2018 Form 10-K
66
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Signatures
Dated: February 14, 2019
By
ALLETE, Inc.
/s/ Alan R. Hodnik
Alan R. Hodnik
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Alan R. Hodnik
Alan R. Hodnik
/s/ Robert J. Adams
Robert J. Adams
/s/ Steven W. Morris
Steven W. Morris
Chairman, Chief Executive Officer and Director
February 14, 2019
(Principal Executive Officer)
Senior Vice President and Chief Financial
Officer
(Principal Financial Officer)
February 14, 2019
Vice President, Controller and Chief Accounting
Officer
(Principal Accounting Officer)
February 14, 2019
ALLETE, Inc. 2018 Form 10-K
67
Date
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
February 14, 2019
Signature
/s/ Kathryn W. Dindo
Kathryn W. Dindo
/s/ Sidney W. Emery, Jr.
Sidney W. Emery, Jr.
/s/ George G. Goldfarb
George G. Goldfarb
/s/ James S. Haines, Jr.
James S. Haines, Jr.
/s/ James J. Hoolihan
James J. Hoolihan
/s/ Heidi E. Jimmerson
Heidi E. Jimmerson
/s/ Madeleine W. Ludlow
Madeleine W. Ludlow
/s/ Susan K. Nestegard
Susan K. Nestegard
/s/ Douglas C. Neve
Douglas C. Neve
/s/ Bethany M. Owen
Bethany M. Owen
/s/ Robert P. Powers
Robert P. Powers
/s/ Leonard C. Rodman
Leonard C. Rodman
Signatures (Continued)
Title
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
ALLETE, Inc. 2018 Form 10-K
68
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of ALLETE, Inc.:
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of ALLETE, Inc. and its subsidiaries (the “Company”) as of
December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive income, equity and cash flows
for each of the three years in the period ended December 31, 2018, including the related notes and schedule of valuation and
qualifying accounts and reserves for each of the three years in the period ended December 31, 2018 appearing under Item 15(a)
(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control
over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
ALLETE, Inc. 2018 Form 10-K
69
Report of Independent Registered Public Accounting Firm (Continued)
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 14, 2019
We have served as the Company’s auditor since 1963.
ALLETE, Inc. 2018 Form 10-K
70
CONSOLIDATED FINANCIAL STATEMENTS
ALLETE Consolidated Balance Sheet
As of December 31
Millions
Assets
Current Assets
Cash and Cash Equivalents
Accounts Receivable (Less Allowance of $1.7 and $2.1)
Inventories – Net
Prepayments and Other
Total Current Assets
Property, Plant and Equipment – Net
Regulatory Assets
Equity Investments
Other Investments
Goodwill and Intangible Assets – Net
Other Non-Current Assets
Total Assets
Liabilities and Shareholders’ Equity
Liabilities
Current Liabilities
Accounts Payable
Accrued Taxes
Accrued Interest
Long-Term Debt Due Within One Year
Other
Total Current Liabilities
Long-Term Debt
Deferred Income Taxes
Regulatory Liabilities
Defined Benefit Pension and Other Postretirement Benefit Plans
Other Non-Current Liabilities
Total Liabilities
Commitments, Guarantees and Contingencies (Note 11)
Shareholders’ Equity
2018
2017
$69.1
144.4
86.7
34.1
334.3
3,904.4
389.5
161.1
49.1
223.3
103.3
$5,165.0
$149.8
51.4
17.9
57.5
128.5
405.1
1,428.5
223.6
512.1
177.3
262.6
3,009.2
$98.9
135.1
95.9
37.6
367.5
3,822.4
384.7
118.7
53.1
225.9
107.7
$5,080.0
$136.3
50.0
17.6
64.1
83.2
351.2
1,439.2
230.5
532.0
191.8
267.1
3,011.8
Common Stock Without Par Value, 80.0 Shares Authorized, 51.5 and 51.1 Shares Issued
and Outstanding
Accumulated Other Comprehensive Loss
Retained Earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
1,428.5
(27.3)
754.6
2,155.8
$5,165.0
1,401.4
(22.6)
689.4
2,068.2
$5,080.0
The accompanying notes are an integral part of these statements.
ALLETE, Inc. 2018 Form 10-K
71
ALLETE Consolidated Statement of Income
Year Ended December 31
Millions Except Per Share Amounts
Operating Revenue
Contracts with Customers – Utility
Contracts with Customers – Non-utility
Other – Non-utility
Total Operating Revenue
Operating Expenses
Fuel, Purchased Power and Gas – Utility
Transmission Services – Utility
Cost of Sales – Non-utility
Operating and Maintenance
Depreciation and Amortization
Taxes Other than Income Taxes
Other
Total Operating Expenses
Operating Income
Other Income (Expense)
Interest Expense
Equity Earnings in ATC
Other
Total Other Expense
Income Before Non-Controlling Interest and Income Taxes
Income Tax Expense (Benefit)
Net Income
Less: Non-Controlling Interest in Subsidiaries
Net Income Attributable to ALLETE
Average Shares of Common Stock
Basic
Diluted
Basic Earnings Per Share of Common Stock
Diluted Earnings Per Share of Common Stock
2018
2017
2016
$1,059.5
415.5
23.6
1,498.6
$1,063.8
331.9
23.6
1,419.3
$1,000.7
316.7
22.3
1,339.7
407.5
69.9
218.0
340.5
205.6
57.9
(2.0)
1,297.4
201.2
(67.9)
17.5
7.8
(42.6)
158.6
(15.5)
174.1
—
$174.1
51.3
51.5
$3.39
$3.38
396.9
71.2
147.5
344.1
177.5
56.9
(0.7)
1,193.4
225.9
(67.8)
22.5
6.3
(39.0)
186.9
14.7
172.2
—
$172.2
50.8
51.0
$3.39
$3.38
339.9
65.2
137.4
340.9
195.8
53.8
(10.3)
1,122.7
217.0
(70.3)
18.5
10.4
(41.4)
175.6
19.8
155.8
0.5
$155.3
49.3
49.5
$3.15
$3.14
The accompanying notes are an integral part of these statements.
ALLETE, Inc. 2018 Form 10-K
72
ALLETE Consolidated Statement of Comprehensive Income
Year Ended December 31
Millions
Net Income
Other Comprehensive Income (Loss)
Unrealized Gain (Loss) on Securities
Net of Income Tax Expense (Benefit) of $–, $0.7 and $(0.2)
Defined Benefit Pension and Other Postretirement Benefit Plans
Net of Income Tax Expense (Benefit) of $0.3, $2.2 and $(2.4)
Total Other Comprehensive Income (Loss)
Total Comprehensive Income
Less: Non-Controlling Interest in Subsidiaries
Total Comprehensive Income Attributable to ALLETE
2018
2017
2016
$174.1
$172.2
$155.8
(0.1)
0.9
(0.2)
1.0
0.9
175.0
—
$175.0
4.7
5.6
177.8
—
$177.8
(3.5)
(3.7)
152.1
0.5
$151.6
The accompanying notes are an integral part of these statements.
ALLETE, Inc. 2018 Form 10-K
73
ALLETE Consolidated Statement of Cash Flows
Year Ended December 31
Millions
Operating Activities
Net Income
AFUDC – Equity
Income from Equity Investments – Net of Dividends
Impairment of Goodwill
Change in Fair Value of Contingent Consideration
Deferred Fuel Adjustment Clause Charge
Loss (Gain) on Sales of Investments and Property, Plant and Equipment
Depreciation Expense
Amortization of PSAs
Amortization of Other Intangible Assets and Other Assets
Deferred Income Tax Expense (Benefit)
Share-Based and ESOP Compensation Expense
Defined Benefit Pension and Other Postretirement Benefit Expense
Bad Debt Expense
Provision for Interim Rate Refund
Provision for Tax Reform Refund
Changes in Operating Assets and Liabilities
Accounts Receivable
Inventories
Prepayments and Other
Accounts Payable
Other Current Liabilities
Cash Contributions to Defined Benefit Pension Plans
Changes in Regulatory and Other Non-Current Assets
Changes in Regulatory and Other Non-Current Liabilities
Cash from Operating Activities
Investing Activities
Proceeds from Sale of Available-for-sale Securities
Payments for Purchase of Available-for-sale Securities
Acquisitions of Subsidiaries – Net of Cash and Restricted Cash Acquired
Equity Investments
Additions to Property, Plant and Equipment
Other Investing Activities
Cash for Investing Activities
Financing Activities
Proceeds from Issuance of Common Stock
Proceeds from Issuance of Long-Term Debt
Repayments of Long-Term Debt
Acquisition of Non-Controlling Interest
Acquisition-Related Contingent Consideration Payments
Dividends on Common Stock
Other Financing Activities
Cash for Financing Activities
Change in Cash, Cash Equivalents and Restricted Cash
Cash, Cash Equivalents and Restricted Cash at Beginning of Period
Cash, Cash Equivalents and Restricted Cash at End of Period
2018
2017
2016
$174.1
(1.2)
(2.3)
—
(2.0)
—
1.0
200.1
(23.6)
10.4
(15.8)
6.8
8.6
1.1
16.3
10.7
(10.7)
55.5
(4.0)
13.6
6.7
(15.0)
6.7
(3.9)
433.1
10.2
(13.3)
—
(39.2)
(312.4)
5.7
(349.0)
20.3
75.6
(95.5)
—
—
(115.0)
(0.6)
(115.2)
(31.1)
110.1
$79.0
$172.2
(1.2)
(3.2)
—
(0.7)
19.5
0.4
171.9
(23.6)
10.2
14.4
6.6
10.1
0.8
32.3
—
(8.0)
11.9
(5.3)
(7.5)
1.8
(1.7)
33.7
(31.7)
402.9
10.1
(8.6)
(18.5)
(7.8)
(208.5)
4.3
(229.0)
86.0
131.5
(189.6)
—
(19.7)
(108.7)
(1.6)
(102.1)
71.8
38.3
$110.1
$155.8
(2.1)
(5.7)
3.3
(13.6)
—
(6.0)
190.6
(22.3)
10.3
19.4
5.1
4.6
4.1
—
—
(4.7)
13.3
(6.9)
6.5
(10.9)
(6.3)
(10.7)
11.1
334.9
9.0
(9.4)
(5.8)
(5.4)
(265.6)
5.1
(272.1)
30.9
4.8
(57.7)
(8.0)
(0.9)
(102.7)
(1.6)
(135.2)
(72.4)
110.7
$38.3
The accompanying notes are an integral part of these statements.
ALLETE, Inc. 2018 Form 10-K
74
ALLETE Consolidated Statement of Equity
Millions
Balance as of December 31, 2015
$1,822.4
$573.3
$(24.5) $1,271.4
$2.2
Total
Equity
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Non-
Controlling
Interest in
Subsidiaries
Common
Stock
Comprehensive Income
Net Income
Other Comprehensive Income – Net of Income Taxes
Unrealized Loss on Securities
Defined Benefit Pension and Other Postretirement Plans
Total Comprehensive Income
Common Stock Issued
Common Stock Retired
Dividends Declared
Acquisition of Non-Controlling Interest
Balance as of December 31, 2016
Comprehensive Income
Net Income
Other Comprehensive Income – Net of Income Taxes
Unrealized Gain on Securities
Defined Benefit Pension and Other Postretirement Plans
Total Comprehensive Income
Common Stock Issued
Dividends Declared
Balance as of December 31, 2017
Adjustments to Opening Balance – Net of Income Taxes (a)
Balance as of January 1, 2018
Comprehensive Income
Net Income
Other Comprehensive Income – Net of Income Taxes
Unrealized Loss on Debt Securities
Defined Benefit Pension and Other Postretirement Plans
Total Comprehensive Income
Common Stock Issued
Dividends Declared
Balance as of December 31, 2018
155.8
155.3
(0.2)
(3.5)
152.1
35.9
(8.0)
(102.7)
(6.7)
1,893.0
—
—
—
(102.7)
—
625.9
172.2
172.2
0.9
4.7
177.8
106.1
(108.7)
2,068.2
0.5
2,068.7
—
—
—
(108.7)
689.4
6.1
695.5
174.1
174.1
(0.1)
1.0
175.0
—
—
27.1
(115.0)
$2,155.8
—
(115.0)
$754.6
—
(0.2)
(3.5)
—
—
—
(28.2)
—
0.9
4.7
—
—
—
35.9
(8.0)
—
(4.0)
1,295.3
—
—
—
—
106.1
—
(22.6)
(5.6)
(28.2)
—
1,401.4
—
1,401.4
—
(0.1)
1.0
—
—
—
—
—
27.1
—
$(27.3) $1,428.5
0.5
—
—
—
—
(2.7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(a) Reflects the impacts associated with the adoption of accounting standards concerning Financial Instruments, Revenue from Contracts with
Customers and the Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. (See Note 1. Operations and
Significant Accounting Policies.)
The accompanying notes are an integral part of these statements.
ALLETE, Inc. 2018 Form 10-K
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Preparation. References in this report to “we,” “us,” and “our” are to ALLETE and its subsidiaries,
collectively. We prepare our financial statements in conformity with GAAP. These principles require management to make informed
judgments, best estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual
results could differ from those estimates.
Subsequent Events. The Company performed an evaluation of subsequent events for potential recognition and disclosure through
the time of the financial statements issuance.
On February 8, 2019, the Company entered into a stock purchase agreement providing for the sale of U.S. Water Services to a
subsidiary of Kurita Water Industries Ltd. for a cash purchase price of $270 million, subject to adjustment at closing, such as for
changes in working capital. The transaction is expected to close by the end of the first quarter of 2019 upon receipt of regulatory
approval. The Company expects to recognize a gain on the sale of U.S. Water Services estimated at approximately $10 million
after-tax.
Principles of Consolidation. Our Consolidated Financial Statements include the accounts of ALLETE and all of our
majority owned subsidiary companies. All material intercompany balances and transactions have been eliminated in consolidation.
Business Segments. We present three reportable segments: Regulated Operations, ALLETE Clean Energy and U.S. Water Services.
Our segments were determined in accordance with the guidance on segment reporting. We measure performance of our operations
through budgeting and monitoring of contributions to consolidated net income by each business segment.
Regulated Operations includes our regulated utilities, Minnesota Power and SWL&P, as well as our investment in ATC, a
Wisconsin-based regulated utility that owns and maintains electric transmission assets in portions of Wisconsin, Michigan,
Minnesota and Illinois. Minnesota Power provides regulated utility electric service in northeastern Minnesota to approximately
145,000 retail customers. Minnesota Power also has 16 non-affiliated municipal customers in Minnesota. SWL&P is a Wisconsin
utility and a wholesale customer of Minnesota Power. SWL&P provides regulated utility electric, natural gas and water service
in northwestern Wisconsin to approximately 15,000 electric customers, 13,000 natural gas customers and 10,000 water customers.
Our regulated utility operations include retail and wholesale activities under the jurisdiction of state and federal regulatory
authorities.
ALLETE Clean Energy focuses on developing, acquiring, and operating clean and renewable energy projects. ALLETE Clean
Energy currently owns and operates, in four states, approximately 545 MW of nameplate capacity wind energy generation that is
contracted under PSAs of various durations. ALLETE Clean Energy also engages in the development of wind energy facilities to
operate under long-term PSAs or for sale to others upon completion.
U.S. Water Services provides integrated water management for industry by combining chemical, equipment, engineering and
service for customized solutions to reduce water and energy usage, and improve efficiency.
Corporate and Other is comprised of BNI Energy, our investment in Nobles 2, ALLETE Properties, other business development
and corporate expenditures, unallocated interest expense, a small amount of non-rate base generation, approximately 4,000 acres
of land in Minnesota, and earnings on cash and investments.
BNI Energy mines and sells lignite coal to two North Dakota mine-mouth generating units, one of which is Square Butte. In 2018,
Square Butte supplied 50 percent (227.5 MW) of its output to Minnesota Power under long-term contracts. (See Note 11.
Commitments, Guarantees and Contingencies.)
ALLETE Properties represents our legacy Florida real estate investment. Our strategy incorporates the possibility of a bulk sale
of the entire ALLETE Properties portfolio. Proceeds from a bulk sale would be strategically deployed to support growth at our
Regulated Operations and ALLETE Clean Energy. ALLETE Properties continues to pursue sales of individual parcels over time
and will continue to maintain key entitlements and infrastructure. (See Note 8. Investments.)
ALLETE, Inc. 2018 Form 10-K
76
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash, Cash Equivalents and Restricted Cash. We consider all investments purchased with original maturities of three months
or less to be cash equivalents. Restricted cash amounts included in Prepayments and Other on the Consolidated Balance Sheet
include collateral deposits required under an ALLETE Clean Energy loan agreement and U.S. Water Services’ standby letters of
credit. The restricted cash amounts included in Other Non-Current Assets represent collateral deposits required under an ALLETE
Clean Energy loan agreement and PSAs, and deposits from a SWL&P customer in aid of future capital expenditures. The following
table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheet that
aggregate to the amount presented in the Consolidated Statement of Cash Flows. During the first quarter of 2018, the Company
updated the presentation of its Consolidated Statement of Cash Flows to include restricted cash with cash and cash equivalents
when reconciling the beginning-of-period and end-of-period total amounts shown on the Consolidated Statement of Cash Flows.
(See Recently Adopted Pronouncements - Statement of Cash Flows: Restricted Cash.)
Cash, Cash Equivalents and Restricted Cash
Millions
Cash and Cash Equivalents
Restricted Cash included in Prepayments and Other
Restricted Cash included in Other Non-Current Assets
Cash, Cash Equivalents and Restricted Cash on the
Consolidated Statement of Cash Flows
Supplemental Statement of Cash Flow Information.
Consolidated Statement of Cash Flows
Year Ended December 31
Millions
December 31,
2018
December 31,
2017
December 31,
2016
$69.1
1.3
8.6
$79.0
$98.9
2.6
8.6
$110.1
$27.5
2.2
8.6
$38.3
2018
2017
2016
Cash Paid During the Period for Interest – Net of Amounts Capitalized
$66.0
$64.5
$68.2
Remeasurement of Deferred Income Taxes Resulting from the TCJA
Increase in Regulatory Assets
Decrease in Investment in ATC
Decrease in Deferred Income Taxes
Increase in Regulatory Liabilities
Noncash Investing and Financing Activities
Increase (Decrease) in Accounts Payable for Capital Additions to Property, Plant
and Equipment
Reclassification of Property, Plant and Equipment to Inventory (a)
Capitalized Asset Retirement Costs
Camp Ripley Solar Financing
AFUDC–Equity
ALLETE Common Stock Contributed to Pension Plans
ALLETE Common Stock Received for Land Inventory
Long-Term Finance Receivable for Land Inventory
—
—
—
—
$80.9
$(27.9)
$(353.6)
$393.6
$(0.1)
$46.3
$14.2
—
$1.2
—
—
—
$67.2
—
$(15.6)
—
$1.2
$13.5
—
—
—
—
—
—
$(22.0)
—
$3.7
$15.0
$2.1
—
$8.0
$12.0
(a) On February 28, 2018, Montana-Dakota Utilities exercised its option to purchase the Thunder Spirit II wind energy facility upon completion,
resulting in a $46.3 million reclassification from Property, Plant and Equipment – Net to Inventories – Net for project costs incurred in the
prior year. On the Consolidated Statement of Cash Flows, the sale of the wind energy facility in the fourth quarter of 2018 resulted in
Operating Activities – Inventories increasing by $46.3 million in 2018 due to the project costs incurred in the prior year.
Accounts Receivable. Accounts receivable are reported on the Consolidated Balance Sheet net of an allowance for doubtful
accounts. The allowance is based on our evaluation of the receivable portfolio under current conditions, overall portfolio quality,
review of specific situations and such other factors that, in our judgment, deserve recognition in estimating losses.
ALLETE, Inc. 2018 Form 10-K
77
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounts Receivable (Continued)
Accounts Receivable
As of December 31
Millions
Trade Accounts Receivable
Billed
Unbilled
Less: Allowance for Doubtful Accounts
Total Accounts Receivable
2018
2017
$121.7
24.4
1.7
$144.4
$112.6
24.6
2.1
$135.1
Concentration of Credit Risk. We are subject to concentration of credit risk primarily as a result of accounts receivable. Minnesota
Power sells electricity to eight Large Power Customers. Receivables from these customers totaled $11.7 million as of
December 31, 2018 ($13.8 million as of December 31, 2017). Minnesota Power does not obtain collateral to support utility
receivables, but monitors the credit standing of major customers. In addition, Minnesota Power, as permitted by the MPUC, requires
its taconite-producing Large Power Customers to pay weekly for electric usage based on monthly energy usage estimates, which
allows us to closely manage collection of amounts due. One of these customers accounted for 10 percent of consolidated operating
revenue in 2018 (10 percent in 2017 and 8 percent in 2016).
Long-Term Finance Receivables. Long-term finance receivables relating to our real estate operations are collateralized by property
sold, accrue interest at market-based rates and are net of an allowance for doubtful accounts. We assess delinquent finance
receivables by comparing the balance of such receivables to the estimated fair value of the collateralized property. If the fair value
of the property is less than the finance receivable, we record a reserve for the difference. We estimate fair value based on recent
property tax assessed values or current appraisals.
Available-for-Sale Securities. Available-for-sale debt and equity securities are recorded at fair value. Unrealized gains and losses
on available-for-sale debt securities are included in accumulated other comprehensive income (loss), net of tax. Unrealized gains
and losses on available-for-sale equity securities are recognized in earnings. We use the specific identification method as the basis
for determining the cost of securities sold. (See Note 8. Investments.)
Inventories – Net. Inventories are stated at the lower of cost or net realizable value. Inventories in our Regulated Operations
segment are carried at an average cost or first-in, first-out basis. Inventories in our U.S. Water Services and ALLETE Clean Energy
segments, and Corporate and Other businesses are carried at an average cost, first-in, first-out or specific identification basis.
Inventories – Net
As of December 31
Millions
Fuel (a)
Materials and Supplies
Raw Materials
Work in Progress
Finished Goods
Reserve for Obsolescence
Total Inventories – Net
(a) Fuel consists primarily of coal inventory at Minnesota Power.
2018
$26.0
44.2
2.8
6.1
8.4
(0.8)
$86.7
2017
$34.8
46.5
2.8
4.2
8.3
(0.7)
$95.9
ALLETE, Inc. 2018 Form 10-K
78
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment. Property, plant and equipment are recorded at original cost and are reported on the Consolidated
Balance Sheet net of accumulated depreciation. Expenditures for additions, significant replacements, improvements and major
plant overhauls are capitalized; maintenance and repair costs are expensed as incurred. Gains or losses on property, plant and
equipment in our U.S. Water Services segment and Corporate and Other operations are recognized when they are retired or otherwise
disposed. When property, plant and equipment in our Regulated Operations and ALLETE Clean Energy segments are retired or
otherwise disposed, no gain or loss is recognized in accordance with the accounting standards for component depreciation except
for certain circumstances where the retirement is unforeseen or unexpected. Our Regulated Operations capitalize AFUDC, which
includes both an interest and equity component. AFUDC represents the cost of both debt and equity funds used to finance utility
plant additions during construction periods. AFUDC amounts capitalized are included in rate base and are recovered from customers
as the related property is depreciated. Upon MPUC approval of cost recovery, the recognition of AFUDC ceases. (See Note 2.
Property, Plant and Equipment.)
We believe that long-standing ratemaking practices approved by applicable state and federal regulatory commissions allow for
the recovery of the remaining book value of retired plant assets. In 2015, Minnesota Power retired Taconite Harbor Unit 3 and
converted Laskin to operate on natural gas. Minnesota Power’s 2015 IRP contained steps in Minnesota Power’s EnergyForward
plan including the economic idling of Taconite Harbor Units 1 and 2 in 2016, and the ceasing of coal-fired operations at Taconite
Harbor in 2020. (See Note 4. Regulatory Matters.) The MPUC order for the 2015 IRP also directed Minnesota Power to retire
Boswell Units 1 and 2 no later than 2022. Minnesota Power retired Boswell Units 1 and 2 in the fourth quarter of 2018. As part
of the 2016 general retail rate case, the MPUC allowed recovery of the remaining book value of Boswell Units 1 and 2 through
2022. We do not expect to record any impairment charge as a result of the retirement of Taconite Harbor Unit 3, the ceasing of
coal-fired operations at Taconite Harbor Units 1 and 2 or the conversion of Laskin to operate on natural gas. In addition, we expect
to be able to continue depreciating these assets for at least their established remaining useful lives; however, we are unable to
predict the impact of regulatory outcomes resulting in changes to their established remaining useful lives.
Impairment of Long-Lived Assets. We review our long-lived assets, which include the legacy real estate assets of ALLETE
Properties, for indicators of impairment in accordance with the accounting standards for property, plant and equipment on a
quarterly basis. Land inventory is accounted for as held for use and is recorded at cost, unless the carrying value is determined
not to be recoverable in accordance with the accounting standards for property, plant and equipment, in which case the land
inventory is written down to estimated fair value.
In accordance with the accounting standards for property, plant and equipment, if indicators of impairment exist, we test our
long lived assets for recoverability by comparing the carrying amount of the asset to the undiscounted future net cash flows
expected to be generated by the asset. Cash flows are assessed at the lowest level of identifiable cash flows. The undiscounted
future net cash flows are impacted by trends and factors known to us at the time they are calculated and our expectations related
to: management’s best estimate of future sales prices; holding period and timing of sales; method of disposition; and future
expenditures necessary to maintain the operations.
In 2018, 2017, and 2016, our qualitative assessments indicated that the cash flows were adequate to recover the carrying value of
ALLETE Properties real estate assets. As a result, no impairment was recorded in 2018, 2017, or 2016.
Derivatives. ALLETE is exposed to certain risks relating to its business operations that can be managed through the use of
derivative instruments. ALLETE may enter into derivative instruments to manage those risks including interest rate risk related
to certain variable-rate borrowings.
Accounting for Stock-Based Compensation. We apply the fair value recognition guidance for share-based payments. Under this
guidance, we recognize stock-based compensation expense for all share-based payments granted, net of an estimated forfeiture
rate. (See Note 16. Employee Stock and Incentive Plans.)
Goodwill and Intangible Assets.
Goodwill. Goodwill is the excess of the purchase price (consideration transferred) over the estimated fair value of net assets of
acquired businesses. In accordance with GAAP, goodwill is not amortized. Goodwill is assessed annually in the fourth quarter for
impairment and whenever an event occurs or circumstances change that would indicate the carrying amount may be impaired.
Impairment testing for goodwill is done at the reporting unit level.
ALLETE, Inc. 2018 Form 10-K
79
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill and Intangible Assets (Continued)
As part of the 2016 annual impairment analysis, the Company recognized a non-cash impairment charge of $3.3 million for
ALLETE Clean Energy’s goodwill primarily related to the acquisition of Storm Lake II in 2014. The charge, which is presented
within Operating Expenses – Other in the Consolidated Statement of Income, eliminated all recognized goodwill for the ALLETE
Clean Energy reporting unit.
As of the date of our annual goodwill impairment testing in 2018, the U.S. Water Services reporting unit had positive equity and
the Company elected to bypass the qualitative assessment of goodwill for impairment, proceeding directly to the two-step
impairment test. In performing Step 1 of the impairment test, we compared the fair value of the reporting unit to its carrying value
including goodwill. If the carrying value including goodwill were to exceed the fair value of a reporting unit, Step 2 of the
impairment test would be performed. Step 2 of the impairment test requires the carrying value of goodwill to be reduced to its fair
value, if lower, as of the test date.
U.S. Water Services. For Step 1 of the impairment test, we estimated the reporting unit's fair value using standard valuation
techniques, including techniques which use estimates of projected future results and cash flows to be generated by the reporting
unit. Such techniques generally include a terminal value that utilizes a growth rate on debt-free cash flows. These cash flow
valuations involve a number of estimates that require broad assumptions and significant judgment by management regarding future
performance. Our annual impairment test in 2018 indicated that the estimated fair value of U.S. Water Services exceeded its
carrying value, and therefore no impairment existed (none in 2017 or in 2016). The fair value of the reporting unit was determined
using a discounted cash flow model, using significant assumptions which included a discount rate of 12.0 percent, cash flow
forecasts through 2023, annual revenue growth rates ranging from 6.0 percent to 10.0 percent, and a terminal growth rate of
3.5 percent. Forecasted annual revenue growth assumes an increase in market share and growth in the industry. (See Subsequent
Events.)
Intangible Assets. Intangible assets include customer relationships, patents, non-compete agreements, land easements, trademarks
and trade names. Intangible assets with definite lives consist of customer relationships, which are amortized using an attrition
model, and patents, non-compete agreements, land easements and certain trade names, which are amortized on a straight-line basis
with estimated remaining useful lives ranging from approximately 4 years to approximately 19 years. We review definite-lived
intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be
recoverable. Indefinite lived intangible assets consist of trademarks and certain trade names, which are tested for impairment
annually in the fourth quarter and whenever an event occurs or circumstances change that would indicate that the carrying amount
may be impaired. Impairment is calculated as the excess of the asset’s carrying amount over its fair value. Fair value is generally
determined using a discounted cash flow analysis. Our annual impairment test in 2018 indicated that the estimated fair value of
trademarks and trade names exceeded the asset carrying values. As a result, no impairment existed in 2018 (none in 2017 or in
2016).
Other Non-Current Assets
As of December 31
Millions
Contract Assets (a)
Finance Receivable (b)
Other
Total Other Non-Current Assets
2018
2017
$30.7
10.4
62.2
$103.3
$31.6
11.0
65.1
$107.7
(a) Contract Assets include payments made to customers as an incentive to execute or extend service agreements. The contract payments are
being amortized over the term of the respective agreements as a reduction to revenue.
(b) Finance Receivable reflects the remaining balance due from the ALLETE Properties sale of its Ormond Crossings project and Lake Swamp
wetland mitigation bank.
ALLETE, Inc. 2018 Form 10-K
80
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Current Liabilities
As of December 31
Millions
Provision for Interim Rate Refund
PSAs
Contract Liabilities (a)
Provision for Tax Reform Refund
Contingent Consideration (b)
Other
Total Other Current Liabilities
2018
$40.0
12.6
7.6
10.7
3.8
53.8
$128.5
2017
—
$24.5
8.7
—
—
50.0
$83.2
(a) Contract Liabilities include deposits received as a result of entering into contracts with our customers prior to completing our performance
obligations.
(b) Contingent Consideration relates to the estimated fair value of the earnings-based payment resulting from the U.S. Water Services acquisition.
(See Note 9. Fair Value.)
Other Non-Current Liabilities
As of December 31
Millions
Asset Retirement Obligation
PSAs
Contingent Consideration (a)
Other
Total Other Non-Current Liabilities
2018
2017
$138.6
76.9
—
47.1
$262.6
$122.7
89.5
5.4
49.5
$267.1
(a) Contingent Consideration relates to the estimated fair value of the earnings-based payment resulting from the U.S. Water Services acquisition.
(See Note 9. Fair Value.)
Environmental Liabilities. We review environmental matters on a quarterly basis. Accruals for environmental matters are recorded
when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current
law and existing technologies. Accruals are adjusted as assessment and remediation efforts progress, or as additional technical or
legal information becomes available. Accruals for environmental liabilities are included in the Consolidated Balance Sheet at
undiscounted amounts and exclude claims for recoveries from insurance or other third parties. Costs related to environmental
contamination treatment and cleanup are expensed unless recoverable in rates from customers. (See Note 11. Commitments,
Guarantees and Contingencies.)
Revenue.
Contracts with Customers – Utility includes sales from our regulated operations for generation, transmission and distribution of
electric service, and distribution of water and gas services to our customers. Also included is an immaterial amount of regulated
steam generation that is used by customers in the production of paper and pulp.
Contracts with Customers – Non-utility includes sales of goods and services to customers from ALLETE Clean Energy, U.S. Water
Services and our Corporate and Other businesses.
Other – Non-utility is the non-cash adjustments to revenue recognized by ALLETE Clean Energy for the amortization of differences
between contract prices and estimated market prices for PSAs that were assumed during the acquisition of various wind energy
facilities.
ALLETE, Inc. 2018 Form 10-K
81
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue is recognized upon transfer of control of promised goods or services to our customers in an amount that reflects the
consideration we expect to receive in exchange for those products or services. Revenue is recognized net of allowance for returns
and any taxes collected from customers, which are subsequently remitted to the appropriate governmental authorities. We account
for shipping and handling activities that occur after the customer obtains control of goods as a cost rather than an additional
performance obligation thereby recognizing revenue at time of shipment and accruing shipping and handling costs when control
transfers to our customers. We have a right to consideration from our customers in an amount that corresponds directly with the
value to the customer for our performance completed to date; therefore, we may recognize revenue in the amount to which we
have a right to invoice.
Nature of Revenue Streams
Utility
Residential and Commercial includes sales for electric, gas or water service to customers, who have implied contracts with the
utility, under rates governed by the MPUC, PSCW or FERC. Customers are billed on a monthly cycle basis and revenue is
recognized for electric, gas or water service delivered during the billing period. Revenue is accrued for service provided but not
yet billed at period end. Performance obligations with these customers are satisfied at time of delivery to customer meters and
simultaneously consumed.
Municipal includes sales to 16 non-affiliated municipal customers in Minnesota under long-term wholesale electric contracts. All
wholesale electric contracts include a termination clause requiring a three-year notice to terminate. These contracts have termination
dates ranging from 2019 through at least 2032, with a majority of contracts effective through at least 2024. Performance obligations
with these customers are satisfied at the time energy is delivered to an agreed upon municipal substation or meter.
Industrial includes sales recognized from contracts with customers in the taconite mining, iron concentrate, paper, pulp and
secondary wood products, pipeline and other industries. Industrial sales accounted for approximately 50 percent of total regulated
utility kWh sales for the year ended December 31, 2018. Within industrial revenue, Minnesota Power has eight Large Power
Customer contracts, each serving requirements of 10 MW or more of customer load. These contracts automatically renew past the
contract term unless a four-year advanced written notice is given. Large Power Customer contracts have earliest termination dates
ranging from 2022 through 2028. We satisfy our performance obligations for these customers at the time energy is delivered to
an agreed upon customer substation. Revenue is accrued for energy provided but not yet billed at period end. Based on current
contracts with industrial customers, we expect to recognize minimum revenue for the fixed contract components of approximately
$75 million in 2019, $55 million per annum in 2020 through 2022, $25 million in 2023, and $75 million in total thereafter, which
reflects the termination notice period in these contracts. When determining minimum revenue, we assume that customer contracts
will continue under the contract renewal provision; however, if long-term contracts are renegotiated and subsequently approved
by the MPUC or there are changes within our industrial customer class, these amounts may be impacted. Contracts with customers
that contain variable pricing or quantity components are excluded from the expected minimum revenue amounts.
Other Power Suppliers includes the sale of energy under long-term PSAs with two customers as well as MISO market and
liquidation sales. Expiration dates of these PSAs range from 2020 through 2028. Performance obligations with these customers
are satisfied at the time energy is delivered to an agreed upon delivery point defined in the contract (generally the MISO pricing
node). Based on current contracts with two customers, we expect to recognize minimum revenue for fixed contract components
of approximately $10 million in 2019. Other power supplier contracts that extend beyond 2020 contain variable pricing components
that prevent us from estimating future minimum revenue, and therefore are not included.
Other Revenue includes all remaining individually immaterial revenue streams for Minnesota Power and SWL&P, and is comprised
of steam sales to paper and pulp mills, wheeling revenue and other sources. Revenue for steam sales to customers is recognized
at the time steam is delivered and simultaneously consumed. Revenue is recognized at the time each performance obligation is
satisfied.
ALLETE, Inc. 2018 Form 10-K
82
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue (Continued)
Alternative Programs includes revenue that is driven by factors outside of our regulated entities’ control or as a result of the
achievement of certain objectives, such as CIP financial incentives. This revenue is accounted for in accordance with the accounting
standards for alternative revenue programs which allow for the recognition of revenue under an alternative revenue program if
the program is established by an order from the utility’s regulatory commission, the order allows for automatic adjustment of
future rates, the amount of revenue recognized is objectively determinable and probable of recovery, and the revenue will be
collected within 24 months following the end of the annual period in which it is recognized. CIP financial incentives are recognized
in the period in which the MPUC approves the filing, which is typically mid-year.
Non-utility
ALLETE Clean Energy
Long-term PSA revenue includes all sales recognized under long-term contracts for production, curtailment, capacity and associated
renewable energy credits from ALLETE Clean Energy wind energy facilities. Expiration dates of these PSAs range from 2019
through 2032. Performance obligations for these contracts are satisfied at the time energy is delivered to an agreed upon point, or
production is curtailed at the request of the customer, at specified prices. Revenue from the sale of renewable energy credits is
recognized at the same time the related energy is delivered to the customer when sold to the same party.
Sale of Wind Energy Facility includes revenue recognized for the design, development, construction, and sale of a wind energy
facility to a customer. Performance obligations for these types of agreements are satisfied at the time the completed project is
transferred to the customer at the commercial operation date. Revenue from the sale of a wind energy facility is recognized at the
time of asset transfer.
Other is the non-cash adjustments to revenue recognized by ALLETE Clean Energy for the amortization of differences between
contract prices and estimated market prices on assumed PSAs. As part of wind energy facility acquisitions, ALLETE Clean Energy
assumed various PSAs that were above or below estimated market prices at the time of acquisition; the resulting differences
between contract prices and estimated market prices are amortized to revenue over the remaining PSA term.
U.S. Water Services
Point-in-time revenue is recognized for purchases by customers for chemicals, consumable equipment (e.g., filters, pumps and
valves) or related maintenance and repair services as the customer’s usage and needs change over time. These goods and services
are purchased on an as-needed basis by customers and therefore revenue can be variable. Products are shipped to customers in
accordance with the terms of each purchase order, and performance obligations are satisfied at the time of shipment of goods or
when services are rendered to the customer.
Contract includes monthly revenue from contracts with customers to provide chemicals, consumable equipment and services to
meet customer needs during the contract period. As agreed with the customer, a fixed amount is invoiced based on the goods and
services to be provided under the contract. The duration of these contracts generally range in length from three months to five years
and automatically renew. A 30-day notice is required to terminate such contracts without penalty. Performance obligations are
satisfied during the period as goods and service are delivered in accordance with the terms of the contract.
Capital Project includes the sale of equipment and other components assembled to create a water treatment system for a customer.
These projects are provided under contracts at an agreed upon price to meet a customer's specifications and typically take less
than one year to complete. In general, progress payments are received throughout the project period and are recorded as contract
liabilities until performance obligations are satisfied at the time the equipment and other components are delivered to the customer’s
site.
Corporate and Other
Long-term Contract encompasses the sale and delivery of coal to customer generation facilities. Revenue is recognized on a
monthly basis at the cost of production plus a specified profit per ton of coal delivered to the customer. Coal sales are secured
under long-term coal supply agreements extending through 2037. Performance obligations are satisfied during the period as coal
is delivered to customer generation facilities.
ALLETE, Inc. 2018 Form 10-K
83
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue (Continued)
Other primarily includes revenue from BNI Energy unrelated to coal, the sale of real estate from ALLETE Properties, and non rate
base steam generation that is sold for use during production of paper and pulp. Performance obligations are satisfied when control
transfers to the customer.
See Note 17. Business Segments for additional detail of disaggregated revenue by nature of revenue stream.
Payment Terms
Payment terms and conditions vary across our businesses. Aside from taconite-producing Large Power Customers, payment terms
generally require payment to be made within 15 to 30 days from the end of the period that the service has been rendered or goods
provided. In the case of its taconite-producing Large Power Customers, as permitted by the MPUC, Minnesota Power requires
weekly payments for electric usage based on monthly energy usage estimates. These customers receive estimated bills based on
Minnesota Power’s estimate of the customers’ energy usage, forecasted energy prices and fuel adjustment clause estimates.
Minnesota Power’s taconite-producing Large Power Customers have generally predictable energy usage on a weekly basis and
any differences that occur are trued-up the following month. Due to the timing difference of revenue recognition from the timing
of invoicing and payment, the customer receives credit for the time value of money; however, we have determined that our contracts
do not include a significant financing component as the period between when we transfer the service to the customer and when
they pay for such service is minimal.
Assets Recognized From the Costs to Obtain a Contract with a Customer
We recognize as an asset the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to
be longer than one year. We expense incremental costs when the asset that would have resulted from capitalizing these costs would
have been amortized in one year or less. As of December 31, 2018, we have $30.7 million of assets recognized for costs incurred
to obtain contracts with our customers ($31.6 million as of December 31, 2017). Management determined the amount of costs to
be recognized as assets based on actual costs incurred and paid to obtain and fulfill these contracts to provide goods and services
to our customers. Assets recognized to obtain contracts are amortized on a straight-line basis over the contract term as a non-cash
reduction to revenue. We recognized $2.6 million and $2.7 million of non-cash amortization for the year ended December 31, 2018
and 2017, respectively.
Operating Expenses – Other
Year Ended December 31
Millions
Impairment of Goodwill (a)
Change in Fair Value of Contingent Consideration (b)
Total Operating Expenses – Other
(a) See Goodwill and Intangible Assets.
(b) See Note 9. Fair Value.
2018
2017
2016
—
$(2.0)
$(2.0)
—
$(0.7)
$(0.7)
$3.3
(13.6)
$(10.3)
Unamortized Discount and Premium on Debt. Discount and premium on debt are deferred and amortized over the terms of the
related debt instruments using a method which approximates the effective interest method.
Income Taxes. ALLETE and its subsidiaries file a consolidated federal income tax return as well as combined and separate state
income tax returns. We account for income taxes using the liability method in accordance with GAAP for income taxes. Under
the liability method, deferred income tax assets and liabilities are established for all temporary differences in the book and tax
basis of assets and liabilities, based upon enacted tax laws and rates applicable to the periods in which the taxes become payable.
Due to the effects of regulation on Minnesota Power and SWL&P, certain adjustments made to deferred income taxes are, in turn,
recorded as regulatory assets or liabilities. Federal investment tax credits have been recorded as deferred credits and are being
amortized to income tax expense over the service lives of the related property. In accordance with GAAP for uncertainty in income
taxes, we are required to recognize in our financial statements the largest tax benefit of a tax position that is “more likely than not”
to be sustained on audit, based solely on the technical merits of the position as of the reporting date. The term “more likely than not”
means more than 50 percent likely. (See Note 13. Income Tax Expense.)
ALLETE, Inc. 2018 Form 10-K
84
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes (Continued)
Tax Cuts and Jobs Act of 2017. On December 22, 2017, the TCJA was enacted. Under ASC 740, the tax effects of changes in tax
laws must be recognized in the period in which the law is enacted. On December 22, 2017, the SEC staff issued guidance in Staff
Accounting Bulletin 118 (SAB 118) which provided for up to a one-year period in which to complete the required analysis and
accounting for the TCJA. The one-year period is now complete and the final impact was immaterial.
Excise Taxes. We collect excise taxes from our customers levied by government entities. These taxes are stated separately on the
billing to the customer and recorded as a liability to be remitted to the government entity. We account for the collection and payment
of these taxes on a net basis.
Purchase Accounting. In accordance with authoritative accounting guidance, the purchase price of an acquired business is
generally allocated to the assets acquired and liabilities assumed at their estimated fair values on the date of acquisition. Any
unallocated purchase price amount is recognized as goodwill on the Consolidated Balance Sheet if it exceeds the estimated fair
value and as a bargain purchase gain on the Consolidated Income Statement if it is below the estimated fair value. Determining
the fair value of assets acquired and liabilities assumed requires management’s judgment, and the utilization of independent
valuation experts as well as the use of significant estimates and assumptions with respect to the timing and amounts of future cash
inflows and outflows, discount rates, market prices and asset lives, among other items. The judgments made in the determination
of the estimated fair value assigned to the assets acquired and liabilities assumed, as well as the estimated useful life of each asset
and the duration of each liability, can materially impact the financial statements in periods after acquisition, such as through
depreciation and amortization expense. (See Note 6. Acquisitions.)
New Accounting Pronouncements.
Recently Adopted Pronouncements
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. In February 2018, the FASB issued an
update allowing for a one-time reclassification from accumulated other comprehensive income to retained earnings for stranded
tax effects resulting from the enactment of the TCJA. With the enactment of the new federal tax rates in 2017, entities were required
to adjust deferred income tax assets and liabilities to reflect the lower federal rate. The effect of this reduction impacted income
from continuing operations in the period of enactment, even in instances where the related income tax effects of items were
originally recognized in other comprehensive income. As such, companies were left with stranded tax effects in accumulated other
comprehensive income that did not reflect the appropriate tax rate. This guidance is effective in the first quarter of 2019 with early
adoption permitted. The Company elected to early adopt this guidance in the first quarter of 2018, which resulted in a reduction
of $5.7 million to Accumulated Other Comprehensive Loss and a corresponding increase to Retained Earnings for the
reclassification of the stranded income tax effects.
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. In March 2017, the FASB
issued an accounting standard update to improve the presentation of net periodic pension and postretirement benefit costs. Under
the guidance, an entity is required to present the service cost component of the net periodic benefit cost in the same income
statement line as other employee compensation costs arising from services rendered during the period. The guidance also allows
only the service cost component of the periodic cost to be eligible for capitalization on a prospective basis. The other components
of net periodic expense must be presented separately from the line item that includes the service cost and must be excluded from
the operating income subtotal. The Company adopted the guidance in the first quarter of 2018 and retrospectively adjusted the
presentation of the service cost component and the other components of net periodic costs in the Consolidated Statement of Income.
The retrospective adjustments for the years ended December 31, 2017, and 2016, were as follows: Operating and Maintenance
increased $4.2 million and $6.8 million, respectively, and Cost of Sales – Non-utility decreased $0.3 million in each year, resulting
in an increase of $3.9 million and $6.5 million, respectively, to Other Income (Expense) – Other. There was no impact to net
income as a result of adoption.
Financial Instruments. In 2016, the FASB issued an accounting standard update which requires entities to measure equity
investments at fair value and recognize any changes in fair value in net income unless the investments qualify for the practicability
exception. The practicability exception will be available for equity investments that do not have readily determinable fair values.
The update was adopted by the Company in the first quarter of 2018 which resulted in a cumulative-effect transition adjustment
reducing Retained Earnings by $0.1 million, including the tax effect, for the previously unrealized loss on available-for-sale equity
securities in Accumulated Other Comprehensive Loss as of December 31, 2017.
ALLETE, Inc. 2018 Form 10-K
85
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements (Continued)
Classification of Certain Cash Receipts and Cash Payments. In 2016, the FASB issued an accounting standard update which
addresses the following eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero coupon
debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate
of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance
claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies);
distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable
cash flows and application of the predominance principle. The amendments of this update were adopted by the Company in the
first quarter of 2018. The adoption of this standard update resulted in an increase to Cash from Operating Activities of $2.9 million
and a decrease to Cash for Financing Activities of a corresponding amount for the year ending December 31, 2016, due to the
reclassification of debt extinguishment costs incurred by ALLETE Clean Energy in 2016.
Statement of Cash Flows: Restricted Cash. In 2016, the FASB issued an accounting standard update related to the presentation of
restricted cash in the Company’s Consolidated Statement of Cash Flows. The update requires that the Consolidated Statement of
Cash Flows explain the change during the period in cash, cash equivalents and restricted cash. Restricted cash should be included
with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the
Consolidated Statement of Cash Flows. This standard update was adopted by the Company in the first quarter of 2018 and was
applied retrospectively to the periods presented in the Consolidated Statement of Cash Flows, which resulted in a net decrease for
Cash for Financing Activities of $0.4 million and $0.7 million for the years ended December 31, 2017 and 2016, respectively, and
a decrease in Cash for Investing Activities of $4.1 million for the year ended December 31, 2016. A reconciliation of Cash and
Cash Equivalents presented on the Consolidated Balance Sheet to Cash, Cash Equivalents and Restricted Cash presented on the
Consolidated Statement of Cash Flows can be found above under Cash, Cash Equivalents and Restricted Cash.
Revenue from Contracts with Customers. In 2014, the FASB issued amended revenue recognition guidance that clarifies the
principles for recognizing revenue from contracts with customers by providing a single comprehensive model to determine the
measurement of revenue and timing of recognition. The guidance requires an entity to recognize revenue in a manner that depicts
the transfer of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled
to in exchange for those goods or services. The guidance requires expanded disclosures relating to the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures
regarding customer contracts, significant judgments and changes in those judgments, and the assets recognized from the costs to
obtain or fulfill a contract are required. The Company adopted this accounting guidance in the first quarter of 2018 and elected to
apply the modified retrospective method of adoption to all contracts as of the date of initial application. The financial impact to
the consolidated financial statements as a result of adoption of the new standard is immaterial. Based on the nature of the contracts
with our customers and our related performance obligations which transfer control, a $0.5 million after-tax cumulative effect
transition adjustment was made to increase the opening balance of Retained Earnings. We have included additional disclosures in
the notes to the consolidated financial statements including additional information on the Company’s revenue streams and related
performance obligations required to be satisfied in order to recognize revenue. (See Revenue Recognition.)
Practical Expedients
The following practical expedients were used by the Company as part of the adoption of the new revenue recognition guidance:
• We have a right to consideration from our customers in an amount that corresponds directly with the value to such customer
for performance completed to date; therefore, we may recognize revenue in the amount to which we have a right to
invoice.
• We do not adjust the promised amount of consideration for the effects of a significant financing component as at contract
inception we expect that the period between when we transfer a promised good or service to a customer and when the
customer pays for that good or service will be one year or less.
• Where applicable, we adopted this guidance using the portfolio approach in which contracts that have similar
characteristics were reviewed as a portfolio. The effects on the financial statements of applying this guidance to the
portfolio would not differ materially from applying the guidance to each individual contract.
• We recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the
asset that would otherwise have been recognized is one year or less.
ALLETE, Inc. 2018 Form 10-K
86
NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Pronouncements
Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued updated guidance which simplifies the
measurement of goodwill impairment by removing step two of the goodwill impairment test that requires the determination of the
fair value of individual assets and liabilities of a reporting unit. The updated guidance requires goodwill impairment to be measured
as the amount by which a reporting unit’s carrying value exceeds its fair value; however, the loss recognized should not exceed
the total amount of goodwill allocated to that reporting unit. This guidance is effective for the Company beginning in the first
quarter of 2020, with early adoption permitted on a prospective basis.
Leases. In 2016, the FASB issued an accounting standard update which revises the existing guidance for leases. Under the revised
guidance, lessees will be required to recognize a “right-of-use” asset and a lease liability for all leases with a term greater than
12 months. The new standard also requires additional quantitative and qualitative disclosures by lessees and lessors to enable users
of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The accounting for
leases by lessors and the recognition, measurement, and presentation of expenses and cash flows from leases are not expected to
significantly change as a result of the new guidance. As of December 31, 2018, the Company has reviewed all of its leases,
completing our evaluation of the impact of this guidance. At adoption, we expect to recognize right-of-use assets and lease liabilities
of approximately $36 million, which represents the discounted future minimum operating lease payments. The Company will
adopt and implement the new guidance utilizing the additional optional transition method and package of practical expedients in
the period of adoption without retrospective adjustment. Management continues to finalize additional qualitative and quantitative
disclosures to meet the requirements of the new standard following adoption. The revised guidance is effective for the Company
beginning in the first quarter of 2019.
Reclassification of Prior Income Statement. Beginning with the first quarter of 2018, the Company enhanced its presentation
of Operating Revenue on the Consolidated Statement of Income by presenting the caption Operating Revenue separately as
Contracts with Customers – Utility, Contracts with Customers – Non-utility, and Other – Non-utility. In conformity with the current
presentation, we now present $1,063.8 million and $1,000.7 million of Operating Revenue as Contracts with Customers – Utility
for the years ended December 31, 2017, and 2016, respectively, as it is generated from our regulated utility operations. Non-utility
revenue of $331.9 million and $316.7 million as well as $23.6 million and $22.3 million for the years ended December 31, 2017,
and 2016 respectively, is now presented as Contracts with Customers – Non-utility and Other – Non-utility, respectively.
Consolidated Statement of Income. In 2018, we recognized a $4.4 million reduction in revenue for MISO rates that were billed
in 2017 and are expected to be credited to customers in 2019. We have evaluated the effect of this out-of-period adjustment on
the years ended December 31, 2018, and 2017, and concluded that this adjustment is not material to any of the periods affected.
ALLETE, Inc. 2018 Form 10-K
87
NOTE 2. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment
As of December 31
Millions
Regulated Operations
Property, Plant and Equipment in Service
Construction Work in Progress
Accumulated Depreciation
Regulated Operations – Net
ALLETE Clean Energy
Property, Plant and Equipment in Service
Construction Work in Progress
Accumulated Depreciation
ALLETE Clean Energy – Net
U.S. Water Services
Property, Plant and Equipment in Service
Accumulated Depreciation
U.S. Water Services – Net
Corporate and Other (a)
Property, Plant and Equipment in Service
Construction Work in Progress
Accumulated Depreciation
Corporate and Other – Net
Property, Plant and Equipment – Net
2018
2017
$4,490.6
251.1
(1,549.6)
3,192.1
$4,523.7
121.6
(1,520.5)
3,124.8
488.4
164.5
(73.0)
579.9
30.1
(14.0)
16.1
214.3
6.6
(104.6)
116.3
$3,904.4
482.5
144.9
(60.8)
566.6
24.8
(10.4)
14.4
204.7
5.0
(93.1)
116.6
$3,822.4
(a) Primarily includes BNI Energy and a small amount of non-rate base generation.
Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets.
Estimated Useful Lives of Property, Plant and Equipment (Years)
Regulated Operations
Generation
Transmission
Distribution
5 to 50
52 to 71
19 to 68
ALLETE Clean Energy
U.S. Water Services
Corporate and Other
5 to 35
5 to 39
3 to 50
Asset Retirement Obligations. We recognize, at fair value, obligations associated with the retirement of certain tangible, long lived
assets that result from the acquisition, construction, development or normal operation of the asset. Asset retirement obligations
(AROs) relate primarily to the decommissioning of our coal-fired and wind energy facilities, and land reclamation at BNI Energy.
AROs are included in Other Non-Current Liabilities on the Consolidated Balance Sheet. The associated retirement costs are
capitalized as part of the related long-lived asset and depreciated over the useful life of the asset. Removal costs associated with
certain distribution and transmission assets have not been recognized, as these facilities have indeterminate useful lives.
Conditional asset retirement obligations have been identified for treated wood poles and remaining polychlorinated biphenyl and
asbestos-containing assets; however, the period of remediation is indeterminable and removal liabilities have not been recognized.
Long-standing ratemaking practices approved by applicable state and federal regulatory authorities have allowed provisions for
future plant removal costs in depreciation rates. These plant removal cost recoveries are classified either as AROs or as a regulatory
liability for non-AROs. To the extent annual accruals for plant removal costs differ from accruals under approved depreciation
rates, a regulatory asset has been established in accordance with GAAP for AROs. (See Note 4. Regulatory Matters.)
ALLETE, Inc. 2018 Form 10-K
88
NOTE 2. PROPERTY, PLANT AND EQUIPMENT (Continued)
Asset Retirement Obligations
Millions
Obligation as of December 31, 2016
Accretion
Liabilities Settled
Revisions in Estimated Cash Flows
Obligation as of December 31, 2017
Accretion
Liabilities Settled
Revisions in Estimated Cash Flows
Obligation as of December 31, 2018
$136.6
7.6
(5.9)
(15.6)
122.7
7.0
(5.3)
14.2
$138.6
NOTE 3. JOINTLY-OWNED FACILITIES AND ASSETS
Boswell Unit 4. Minnesota Power owns 80 percent of the 585 MW Boswell Unit 4. While Minnesota Power operates the plant,
certain decisions about the operations of Boswell Unit 4 are subject to the oversight of a committee on which it and WPPI Energy,
the owner of the remaining 20 percent, have equal representation and voting rights. Each owner must provide its own financing
and is obligated to its ownership share of operating costs. Minnesota Power’s share of operating expenses for Boswell Unit 4 is
included in Operating Expenses on the Consolidated Statement of Income.
CapX2020. Minnesota Power was a participant in the CapX2020 initiative which represented an effort to ensure electric
transmission and distribution reliability in Minnesota and the surrounding region for the future. CapX2020, which consisted of
electric cooperatives and municipal and investor-owned utilities, including Minnesota’s largest transmission owners, assessed the
transmission system and projected growth in customer demand for electricity through 2020. Minnesota Power participated in
certain CapX2020 projects which were completed and placed in service by 2015.
Minnesota Power’s investments in jointly-owned facilities and projects and the related ownership percentages are as follows:
Regulated Utility Plant
Millions
As of December 31, 2018
Boswell Unit 4
CapX2020
Total
As of December 31, 2017
Boswell Unit 4
CapX2020
Total
Plant in
Service
Accumulated
Depreciation
Construction
Work in Progress
%
Ownership
$650.1
101.0
$751.1
$668.2
101.0
$769.2
$229.9
11.0
$240.9
$222.8
8.4
$231.2
$6.4
—
$6.4
$8.2
—
$8.2
80
9.3 - 14.7
80
9.3 - 14.7
NOTE 4. REGULATORY MATTERS
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 and
Environmental Improvement Rider.) Revenue from cost recovery riders was $103.8 million in 2018 ($96.9 million in 2017;
$97.1 million in 2016). With the implementation of final rates in Minnesota Power’s general rate case, certain revenue previously
recognized under cost recovery riders was incorporated into base rates. (See 2016 Minnesota General Rate Case.)
ALLETE, Inc. 2018 Form 10-K
89
NOTE 4. REGULATORY MATTERS (Continued)
Electric Rates (Continued)
2016 Minnesota General Rate Case. In November 2016, Minnesota Power filed a retail rate increase request with the MPUC
which sought an average increase of approximately 9 percent for retail customers. The rate filing sought a return on equity of
10.25 percent and a 53.81 percent equity ratio. The MPUC issued an order dated March 12, 2018, in Minnesota Power’s general
rate case approving a return on common equity of 9.25 percent and a 53.81 percent equity ratio. Final rates went into effect on
December 1, 2018, which is expected to result in additional revenue of approximately $13 million on an annualized basis. Interim
rates were collected from January 1, 2017, through November 30, 2018, which were fully offset by the recognition of a corresponding
reserve. Minnesota Power has recorded a reserve for an interim rate refund, net of discounts provided to EITE customers, of
$40.0 million as of December 31, 2018 ($23.7 million as of December 31, 2017) which is expected to be refunded in 2019. The
MPUC also disallowed Minnesota Power’s regulatory asset for deferred fuel adjustment clause costs due to the anticipated adoption
of a forward-looking fuel adjustment clause methodology resulting in a $19.5 million pre-tax charge to Fuel, Purchased Power
and Gas – Utility in 2017. As part of its decision in Minnesota Power’s 2016 general rate case, the MPUC also extended the
depreciable lives of Boswell Unit 3, Unit 4 and common facilities to 2050 primarily to mitigate rate increases for our customers,
and shortened the depreciable lives of Boswell Unit 1 and Unit 2 to 2022, resulting in a net decrease to depreciation expense of
approximately $25 million in the fourth quarter of 2017.
On April 2, 2018, Minnesota Power filed a petition with the MPUC requesting reconsideration of certain decisions in the MPUC’s
order dated March 12, 2018. In an order dated May 29, 2018, the MPUC denied Minnesota Power’s petition for reconsideration
and accepted a Minnesota Department of Commerce request for reconsideration reducing the depreciable lives of Boswell Unit 3,
Unit 4 and common facilities to 2035 while utilizing the benefits of the lower federal income tax rate enacted as part of the TCJA
to mitigate the impact on customer rates.
Energy-Intensive Trade-Exposed Customer Rates. An EITE customer ratemaking law was enacted in 2015 establishing a Minnesota
energy policy to have competitive rates for certain industries such as mining and forest products. The MPUC approved a reduction
in rates for EITE customers in a December 2016 order and subsequently approved cost recovery in an April 2017 order. Minnesota
Power expects the discount to EITE customers to be approximately $16 million annually based on EITE customer current operating
levels. While interim rates were in effect for Minnesota Power’s 2016 general rate case, discounts provided to EITE customers
offset interim rate refund reserves for non-EITE customers. Minnesota Power provided $16.7 million of discounts to EITE
customers during the year ended December 31, 2018 ($8.6 million and none for the years ended December 31, 2017, and 2016,
respectively).
FERC-Approved Wholesale Rates. Minnesota Power has 16 non-affiliated municipal customers in Minnesota. SWL&P is a
Wisconsin utility and a wholesale customer of Minnesota Power. All wholesale contracts include a termination clause requiring
a three-year notice to terminate.
Minnesota Power’s wholesale electric contract with the Nashwauk Public Utilities Commission is effective through at least
December 31, 2032. No termination notice may be given for this contract prior to July 1, 2029. The wholesale electric service
contracts with SWL&P and another municipal customer are effective through at least February 28, 2022, and through June 30, 2019,
respectively. Under the agreement with SWL&P, no termination notice has been given. The other municipal customer provided
termination notice for its contract in 2016. Minnesota Power currently provides approximately 29 MW of average monthly demand
to this customer. The rates included in these three 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 14 municipal customers are effective through varying dates ranging from
2024 through 2029. No termination notices may be given prior to three years before maturity. These contracts include fixed capacity
charges through 2018; beginning in 2019, the capacity charge will be determined using a cost-based formula methodology with
limits on the annual change from the previous year’s capacity charge. The base energy charge for each year of the contract term
will be set each January 1, subject to monthly adjustment, and will also be determined using a cost-based formula methodology.
Transmission Cost Recovery Rider. Minnesota Power has an approved cost recovery rider for certain transmission investments
and expenditures. In a 2016 order, the MPUC approved Minnesota Power’s updated customer billing rates which allows Minnesota
Power to charge retail customers on a current basis for the costs of constructing certain transmission facilities plus a return on the
capital invested. As a result of the MPUC approval of the certificate of need for the GNTL in 2015, the project is eligible for cost
recovery under the existing transmission cost recovery rider. Minnesota Power is funding the construction of the GNTL with a
subsidiary of Manitoba Hydro (see Great Northern Transmission Line), and anticipates including its portion of the investments
and expenditures for the GNTL in future transmission bill factor filings.
ALLETE, Inc. 2018 Form 10-K
90
NOTE 4. REGULATORY MATTERS (Continued)
Electric Rates (Continued)
Renewable Cost Recovery Rider. Minnesota Power has an approved cost recovery rider for certain renewable investments and
expenditures. The cost recovery rider allows Minnesota Power to charge retail customers on a current basis for the costs of certain
renewable investments plus a return on the capital invested. Updated customer billing rates for the renewable cost recovery rider
were approved by the MPUC in an order dated November 19, 2018.
Minnesota Power also has approval for current cost recovery of investments and expenditures related to compliance with the
Minnesota Solar Energy Standard. (See Minnesota Solar Energy Standard.) Currently, there is no approved customer billing rate
for solar costs.
In a November 2016 order, the MPUC directed Minnesota Power to attribute all North Dakota investment tax credits realized
from Bison to Minnesota Power regulated retail customers. As a result of the adverse regulatory outcome, Minnesota Power
recorded a regulatory liability and a reduction in Operating Revenue of $15.0 million in 2016. The North Dakota investment tax
credits previously recognized as income tax credits in Corporate and Other were reversed in 2016 resulting in an $8.8 million
charge to net income in 2016. In December 2016, Minnesota Power submitted a request for reconsideration with the MPUC.
In a December 2017 order, the MPUC modified its November 2016 order to allow Minnesota Power to account for North Dakota
investment tax credits based on the long-standing regulatory precedents of stand-alone allocation methodology of accounting for
income taxes. As a result of the favorable regulatory outcome, Minnesota Power recorded a reduction in its regulatory liability
and an increase in Operating Revenue of $14.0 million in 2017. The North Dakota investment tax credits previously recorded
were reestablished as income tax credits in Corporate and Other, resulting in a $7.9 million increase to net income in 2017.
The stand-alone method provides that income taxes (and credits) are calculated as if Minnesota Power was the only entity included
in ALLETE’s consolidated federal and unitary state income tax returns. Minnesota Power has recorded a regulatory liability for
North Dakota investment tax credits generated by its jurisdictional activity and expected to be realized in the future. North Dakota
investment tax credits attributable to ALLETE’s apportionment and income of ALLETE’s other subsidiaries are included in
Corporate and Other operations.
Environmental Improvement Rider. Minnesota Power has an approved environmental improvement rider for investments and
expenditures related to the implementation of the Boswell Unit 4 mercury emissions reduction plan completed in 2015. Updated
customer billing rates for the environmental improvement rider were approved by the MPUC in an order dated November 19, 2018.
Fuel Adjustment Clause Reform. In a December 2017 order, the MPUC adopted a program to implement certain procedural reforms
to the Minnesota utilities’ automatic fuel adjustment clause (FAC) for fuel and purchased power. The order will change the method
of accounting for all Minnesota electric utilities to a monthly budgeted, forwarded-looking FAC with an annual prudence review
and true-up to actual allowed costs. The MPUC is seeking input from Minnesota electric utilities and other stakeholders on the
implementation and transition accounting needed to adopt the change. At a hearing on January 18, 2018, the MPUC disallowed
recovery of Minnesota Power’s regulatory asset for deferred fuel adjustment clause costs due to the anticipated adoption of the
forward-looking fuel adjustment clause methodology resulting in a $19.5 million pre-tax charge to Fuel, Purchased Power and
Gas – Utility in 2017. In an order dated December 12, 2018, the MPUC deferred the implementation date to January 1, 2020.
Tax Cuts and Jobs Act of 2017. In December 2017, the MPUC opened a docket to review the effects of the TCJA on electric and
natural gas rates and services in Minnesota, including the legislation’s impact on tax rates and utilities’ deferred income tax assets
and liabilities. On March 2, 2018, Minnesota Power submitted an initial filing to the MPUC regarding the impacts of the TCJA
on Minnesota Power. As part of Minnesota Power’s rate case, in an order dated May 29, 2018, the MPUC directed Minnesota
Power to utilize the benefits of the lower federal income tax rate enacted as part of the TCJA to offset an increase in depreciation
expense, effective January 1, 2018, resulting from the reduction in the depreciable lives of Boswell Unit 3, Unit 4 and common
facilities to 2035 that would have otherwise resulted in an increase in customer rates. The impact of the TCJA on Minnesota
Power’s deferred income tax assets and liabilities was not addressed in the rate case order.
In an order dated December 5, 2018, the MPUC determined the regulatory treatment for the impact of the TCJA on Minnesota
Power’s deferred income tax assets and liabilities. The MPUC authorized Minnesota Power to amortize the income tax benefits
from the remeasurement of deferred income tax assets and liabilities resulting from the TCJA primarily over the life of the related
property, plant and equipment with the remainder amortized over a 10-year period. The MPUC directed Minnesota Power to return
these excess deferred income tax benefits as a monthly bill credit beginning with the implementation of final rates on
December 1, 2018. Additionally, Minnesota Power customers will receive a one-time bill credit in 2019 for the benefit of the
excess deferred income taxes from January 1, 2018, through November 30, 2018.
ALLETE, Inc. 2018 Form 10-K
91
NOTE 4. REGULATORY MATTERS (Continued)
Electric Rates (Continued)
On January 10, 2018, the PSCW opened a docket to review the effects of the TCJA and directed Wisconsin utilities to defer its
impacts until further direction was provided by the PSCW. In an order dated May 24, 2018, the PSCW directed SWL&P to refund
the benefits of the lower federal income tax rates enacted as part of the TCJA on customer bills beginning in July 2018. In an order
dated December 20, 2018, the PSCW directed SWL&P to return the excess deferred income tax benefits for 2018 in 2019 and
2020, and include the return of excess deferred income tax benefits going forward in final rates effective January 1, 2019, with a
true-up in its next rate case. (See 2018 Wisconsin General Rate Case.) These excess deferred income tax benefits for SWL&P will
be returned primarily over the life of the related property, plant and equipment with the remainder amortized over a 4-year period.
2016 Wisconsin General Rate Case. SWL&P’s retail rates in 2018 were based on a 2017 PSCW retail rate order effective
August 2017 that allowed for a 10.5 percent return on common equity and a 55 percent equity ratio. SWL&P’s retail rates prior
to August 2017, were based on a 2012 PSCW retail rate order that provided for a 10.9 percent return on equity.
2018 Wisconsin General Rate Case. On May 25, 2018, SWL&P filed a rate increase request with the PSCW requesting an average
increase of 2.7 percent for retail customers (2.0 percent increase in electric rates; 2.3 percent increase in natural gas rates; and
8.3 percent increase in water rates). The filing sought an overall return on equity of 10.5 percent and a 55.41 percent equity ratio.
In an order dated December 20, 2018, the PSCW approved a rate increase for SWL&P including a return on equity of 10.4 percent
and a 55.0 percent equity ratio. Final rates went into effect January 1, 2019, which is expected to result in additional revenue of
approximately $1.3 million on an annualized basis.
Integrated Resource Plan. In 2015, Minnesota Power filed its 2015 IRP with the MPUC which included an analysis of a variety
of existing and future energy resource alternatives and a projection of customer cost impact by class. The 2015 IRP also contained
steps in Minnesota Power’s EnergyForward strategic plan including the economic idling of Taconite Harbor Units 1 and 2 which
occurred in 2016, the ceasing of coal-fired operations at Taconite Harbor in 2020, and the addition of between 200 MW and
300 MW of natural gas-fired generation. In a 2016 order, the MPUC approved Minnesota Power’s 2015 IRP with modifications.
The order accepted Minnesota Power’s plans for Taconite Harbor, directed Minnesota Power to retire Boswell Units 1 and 2 no
later than 2022, required an analysis of generation and demand response alternatives to be filed with a natural gas resource proposal,
and required Minnesota Power to conduct request for proposals for additional wind, solar and demand response resource additions
subject to further MPUC approvals. Minnesota Power retired Boswell Units 1 and 2 in the fourth quarter of 2018.
In July 2017, Minnesota Power submitted a resource package to the MPUC requesting approval of PPAs for the output of a 250 MW
wind energy facility and a 10 MW solar energy facility as well as approval of a 250 MW natural gas capacity dedication agreement.
These agreements were subject to MPUC approval of the construction of NTEC, a 525 MW to 550 MW combined-cycle natural
gas fired generating facility which will be jointly owned by Dairyland Power Cooperative and a subsidiary of ALLETE. Minnesota
Power would purchase approximately 50 percent of the facility's output starting in 2025. In an order dated January 24, 2019, the
MPUC approved Minnesota Power’s request for approval of the NTEC natural gas capacity dedication agreement. Separately, the
MPUC required a baseload retirement evaluation in Minnesota Power’s next IRP filing analyzing its existing fleet including
potential early retirement scenarios of Boswell Units 3 and 4, including a securitization plan. The MPUC also approved Minnesota
Power’s request to extend the next IRP filing deadline until October 1, 2020. On January 8, 2019, an application for a certificate
of public convenience and necessity for NTEC was submitted to the PSCW. A decision on the application is expected in 2020.
On June 18, 2018, Minnesota Power filed a separate petition for approval of the PPA for the output of the 10 MW solar energy
facility to be located in central Minnesota, which was approved by the MPUC in an order dated October 2, 2018. On
August 22, 2018, Minnesota Power filed a separate petition for approval of an amended PPA for the output of the 250 MW wind
energy facility to be located in southwestern Minnesota which was approved in an order dated January 23, 2019. (See Note 5.
Equity Investments.)
Great Northern Transmission Line. Minnesota Power is constructing the GNTL, an approximately 220-mile 500-kV transmission
line between Manitoba and Minnesota’s Iron Range that was proposed by Minnesota Power and Manitoba Hydro. In a 2016 order,
the MPUC approved the route permit for the GNTL, and in 2016, the U.S. Department of Energy issued a presidential permit to
cross the U.S.-Canadian border, which was the final major regulatory approval needed before construction in the U.S. could begin.
Site clearing and pre-construction activities commenced in the first quarter of 2017 with construction expected to be completed
in 2020. To date, most of the right-of-way has been cleared while foundation installation and transmission tower construction have
commenced. The total project cost in the U.S., including substation work, is estimated to be between $560 million and $710 million,
of which Minnesota Power’s portion is expected to be between $300 million and $350 million; the difference will be recovered
from a subsidiary of Manitoba Hydro as non-shareholder contributions to capital. Total project costs of $380.8 million have been
incurred through December 31, 2018, of which $203.7 million has been recovered from a subsidiary of Manitoba Hydro.
ALLETE, Inc. 2018 Form 10-K
92
NOTE 4. REGULATORY MATTERS (Continued)
Great Northern Transmission Line (Continued)
Manitoba Hydro must obtain regulatory and governmental approvals related to the MMTP, a new transmission line in Canada that
will connect with the GNTL. (See Note 11. Commitments, Guarantees and Contingencies.)
Minnesota Power’s portion of the investments and expenditures for the project are eligible for cost recovery under its existing
transmission cost recovery rider and are anticipated to be included in future transmission cost recovery filings. (See Transmission
Cost Recovery Rider.) Minnesota Power also has FERC approval to recover on construction work in progress related to the GNTL
from Minnesota Power’s wholesale customers.
Conservation Improvement Program. Minnesota requires electric utilities to spend a minimum of 1.5 percent of gross operating
revenues, excluding revenue received from exempt customers, from service provided in the state on energy CIPs each year. In
November 2017, the Minnesota Department of Commerce approved Minnesota Power’s modified CIP triennial filing for 2017
through 2019, which outlined Minnesota Power’s CIP spending and energy-saving goals for those years. Minnesota Power’s CIP
investment goal was $10.3 million for 2018 ($10.3 million for 2017; $7.3 million for 2016), with actual spending of $9.0 million
in 2018 ($8.1 million in 2017; $7.4 million in 2016). The investment goal for 2019 is $10.5 million.
On April 2, 2018, Minnesota Power submitted its 2017 CIP consolidated filing, which detailed Minnesota Power’s CIP program
results and requested a CIP financial incentive of $3.0 million based on MPUC procedures. In an order dated September 4, 2018,
the MPUC approved Minnesota Power’s CIP consolidated filing, including the requested CIP financial incentive which was
recorded as revenue and as a regulatory asset in 2018. The approved financial incentive will be recovered in customer billing rates
in 2018 and 2019. In 2017 and 2016, the CIP financial incentives recognize were $5.5 million and $7.5 million, respectively. CIP
financial incentives are recognized in the period in which the MPUC approves the filing.
MISO Return on Equity Complaint. MISO transmission owners, including ALLETE and ATC, have an authorized return on
equity of 10.32 percent, or 10.82 percent including an incentive adder for participation in a regional transmission organization.
In 2016, a federal administrative law judge ruled on a complaint proposing a reduction in the base return on equity to 9.70 percent,
or 10.20 percent including an incentive adder for participation in a regional transmission organization, subject to approval or
adjustment by the FERC. A final decision from the FERC on the administrative law judge’s recommendation is pending, which
is not expected to have a material impact on our Consolidated Financial Statements.
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 by the end of 2020. 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’s solar energy supply consists of Camp Ripley, a 10 MW solar energy facility at the Camp Ripley Minnesota
Army National Guard base and training facility near Little Falls, Minnesota, and a community solar garden project in northeastern
Minnesota, which is comprised of a 1 MW solar array owned and operated by a third party with the output purchased by Minnesota
Power and a 40 kW solar array that is owned and operated by Minnesota Power. In an order dated October 2, 2018, the MPUC
approved a PPA for the output of the 10 MW Blanchard solar energy facility to be located in central Minnesota. Minnesota Power
expects that Camp Ripley, the community solar garden arrays, the PPA for the output of the 10 MW Blanchard solar energy facility,
and an increase in solar rebates will allow Minnesota Power to meet both parts of the solar mandate.
Regulatory Assets and Liabilities. Our regulated utility operations are subject to accounting guidance for the effect 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, 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.
ALLETE, Inc. 2018 Form 10-K
93
NOTE 4. REGULATORY MATTERS (Continued)
Regulatory Assets and Liabilities
As of December 31
Millions
Non-Current Regulatory Assets
Defined Benefit Pension and Other Postretirement Benefit Plans (b)
Income Taxes (c)
Asset Retirement Obligations (d)
Boswell 1 & 2 (l)
Manufactured Gas Plant (e)
PPACA Income Tax Deferral
Conservation Improvement Program (f)
Other
Total Non-Current Regulatory Assets
Current Regulatory Liabilities (a)
Provision for Interim Rate Refund (i)
Provision for Tax Reform Refund (j)
Transmission Formula Rates
Total Current Regulatory Liabilities
Non-Current Regulatory Liabilities
Income Taxes (c)
Wholesale and Retail Contra AFUDC (h)
Provision for Interim Rate Refund (i)
Plant Removal Obligations
North Dakota Investment Tax Credits (k)
Cost Recovery Riders (g)
Transmission Formula Rates
Other
Total Non-Current Regulatory Liabilities
2018
2017
$218.5
105.5
32.6
16.3
8.0
5.0
—
3.6
$389.5
$40.0
10.7
4.4
55.1
$220.3
112.8
29.6
—
8.1
5.0
3.3
5.6
$384.7
—
—
—
—
396.4
64.4
—
25.1
14.7
6.9
1.6
3.0
512.1
$567.2
$411.2
57.9
23.7
20.3
14.1
2.2
—
2.6
532.0
$532.0
Total Regulatory Liabilities
(a) Current regulatory liabilities are presented within Other Current Liabilities on the Consolidated Balance Sheet.
(b) Defined benefit pension and other postretirement items included in our Regulated Operations, which are otherwise required to be recognized
in accumulated other comprehensive income as actuarial gains and losses as well as prior service costs and credits, 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 15. Pension and Other Postretirement Benefit Plans.)
(c) These costs represent the difference between deferred income taxes recognized for financial reporting purposes and amounts previously
billed to our customers. The balances will primarily decrease over the remaining life of the related temporary differences and flow through
current income taxes.
(d) Asset retirement obligations will accrete and be amortized over the lives of the related property with asset retirement obligations.
(e) The manufactured gas plant regulatory asset represents costs of remediation for a former manufactured gas plant site located in Superior,
Wisconsin, and formerly operated by SWL&P. We expect recovery of these remediation costs to be allowed by the PSCW in rates over time.
(f) The conservation improvement program regulatory asset represents CIP expenditures, any financial incentive earned for cost-effective
program achievements and a carrying charge deferred for future cost recovery over the next year following MPUC approval.
(g) The cost recovery rider regulatory liabilities are cash collections from our customers in excess of revenue recognized, primarily due to
capital expenditures related to Bison, investment in CapX2020 projects, the Boswell Unit 4 environmental upgrade and the GNTL. The cost
recovery rider regulatory liabilities as of December 31, 2018, will be returned within the next two years.
(h) 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.
(i) This amount is expected to be refunded to Minnesota Power’s regulated retail customers in 2019 and includes $23.8 million of discounts
provided to EITE customers as of December 31, 2018, that will be offset against interim rate refunds ($8.6 million as of December 31, 2017).
(See 2016 Minnesota General Rate Case and Energy-Intensive Trade Exposed Customer Rates.)
(j) Provision for tax reform refund is expected to be refunded to Minnesota Power customers in the first quarter of 2019 and SWL&P customers
in 2019 and 2020. (See Tax Cuts and Jobs Act of 2017.)
(k) North Dakota investment tax credits expected to be realized from Bison that will be credited to Minnesota Power’s regulated retail customers
(l)
through future renewable cost recovery rider filings as the tax credits are utilized.
In December 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.
ALLETE, Inc. 2018 Form 10-K
94
NOTE 5. EQUITY INVESTMENTS
Investment in ATC. Our wholly-owned subsidiary, ALLETE Transmission Holdings, owns approximately 8 percent of ATC, a
Wisconsin-based utility that owns and maintains electric transmission assets in portions of Wisconsin, Michigan, Minnesota and
Illinois. We account for our investment in ATC under the equity method of accounting. As of December 31, 2018, our equity
investment in ATC was $128.1 million ($118.7 million as of December 31, 2017). On January 31, 2019, we invested an additional
$0.4 million in ATC. In total, we expect to invest approximately $8.5 million in 2019.
ALLETE’s Investment in ATC
Year Ended December 31
Millions
Equity Investment Beginning Balance
Cash Investments
Equity in ATC Earnings
Distributed ATC Earnings
Remeasurement of Deferred Income Taxes (a)
Amortization of the Remeasurement of Deferred Income Taxes
Equity Investment Ending Balance
(a) Impact of the remeasurement of deferred income tax assets and liabilities resulting from the TCJA.
2018
2017
$118.7
6.2
17.5
(15.2)
—
0.9
$128.1
$135.6
7.8
22.5
(19.3)
(27.9)
—
$118.7
2018
2017
$87.2
4,928.8
$5,016.0
$640.0
2,014.0
295.3
2,066.7
$5,016.0
$87.7
4,598.9
$4,686.6
$767.2
1,790.6
240.3
1,888.5
$4,686.6
2018
2017
2016
$690.5
358.7
108.3
$223.5
$17.5
$721.6
344.9
104.1
$272.6
$22.5
$650.8
322.5
95.5
$232.8
$18.5
ATC Summarized Financial Data
Balance Sheet Data
As of December 31
Millions
Current Assets
Non-Current Assets
Total Assets
Current Liabilities
Long-Term Debt
Other Non-Current Liabilities
Members’ Equity
Total Liabilities and Members’ Equity
Income Statement Data
Year Ended December 31
Millions
Revenue
Operating Expense
Other Expense
Net Income
ALLETE’s Equity in Net Income
ATC’s authorized return on equity is 10.32 percent, or 10.82 percent including an incentive adder for participation in a regional
transmission organization.
In 2016, a federal administrative law judge ruled on a complaint proposing a reduction in the base return on equity to 9.70 percent,
or 10.20 percent including an incentive adder for participation in a regional transmission organization, subject to approval or
adjustment by the FERC. A final decision from the FERC on the administrative law judge’s recommendation is pending.
ALLETE, Inc. 2018 Form 10-K
95
NOTE 5. EQUITY INVESTMENTS (Continued)
Investment in Nobles 2. On December 27, 2018, our wholly-owned subsidiary, ALLETE South Wind, entered into a partnership
agreement with Tenaska to purchase a 49 percent equity interest in Nobles 2, the entity that will own and operate a 250 MW wind
energy facility in southwestern Minnesota pursuant to a 20-year PPA with Minnesota Power. The wind energy facility will be built
in Nobles County, Minnesota and is expected to be completed in late 2020, with an estimated total project cost of approximately
$350 million to $400 million of which our portion is expected to be approximately $170 million to $200 million. We expect to
utilize tax equity to finance a portion of our project costs, with an ALLETE expected equity investment of approximately $60 million
to $70 million. We account for our investment in Nobles 2 under the equity method of accounting. As of December 31, 2018, our
equity investment in Nobles 2 was $33.0 million.
NOTE 6. ACQUISITIONS
The following acquisitions are consistent with ALLETE’s stated strategy of investing in energy infrastructure and related services
businesses to complement its regulated businesses, balance exposure to business cycles and changing demand, and provide potential
long-term earnings growth. The pro forma impact of the following acquisitions was not significant, either individually or in the
aggregate, to the results of the Company for the years ended December 31, 2018, 2017 and 2016.
2017 Activity.
Tonka Water. In September 2017, U.S. Water Services acquired 100 percent of Tonka Water. Total consideration for the transaction
was $19.2 million, including a working capital adjustment. Consideration of $19.0 million was paid in cash on the acquisition
date and a working capital adjustment of $0.2 million was paid in the fourth quarter of 2017. Tonka Water is a supplier of municipal
and industrial water treatment systems that expanded U.S. Water Services’ geographic and customer markets.
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. The purchase price accounting, which was
finalized in 2018, is reflected in the following table. Fair value measurements were valued primarily using the discounted cash
flow method and replacement cost basis.
Millions
Assets Acquired
Accounts Receivable
Other Current Assets
Trade Names (a)
Goodwill (a)(b)
Other Non-Current Assets
Total Assets Acquired
Liabilities Assumed
Current Liabilities
Total Liabilities Assumed
Net Identifiable Assets Acquired
$5.1
5.1
0.9
16.9
0.2
$28.2
$9.0
$9.0
$19.2
(a) Presented within Goodwill and Intangible Assets – Net on the Consolidated Balance Sheet. (See Note 7. Goodwill and Intangible Assets.)
(b) Recognized goodwill is attributable to the assembled workforce and anticipated synergies. For tax purposes, the purchase price allocation
resulted in $4.1 million of deductible goodwill.
Acquisition-related costs were immaterial, expensed as incurred during 2017 and recorded in Operating and Maintenance on the
Consolidated Statement of Income.
2016 Activity.
Acquisition of Non-Controlling Interest. In 2016, ALLETE Clean Energy acquired the non-controlling interest in the limited
liability company that owns its Condon wind energy facility for $8.0 million. This transaction was accounted for as an equity
transaction, and no gain or loss was recognized in net income or other comprehensive income. As a result of the acquisition, the
Condon wind energy facility is now a wholly-owned subsidiary of ALLETE Clean Energy.
ALLETE, Inc. 2018 Form 10-K
96
NOTE 6. ACQUISITIONS (Continued)
2016 Activity (Continued)
WEST. In 2016, U.S. Water Services acquired 100 percent of Water & Energy Systems Technology of Nevada, Inc. (WEST). Total
consideration for the transaction was $6.7 million. Consideration of $5.9 million was paid in cash on the acquisition date, working
capital adjustments of $0.2 million were paid in 2017 and a $0.6 million payment was made in April 2018. WEST is an integrated
water management company and was acquired to expand U.S. Water Services’ regional footprint in the Southwestern United
States.
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. The purchase price accounting, which was
finalized in 2017, is shown in the following table. Fair value measurements were valued primarily using the discounted cash flow
method and replacement cost basis.
Millions
Assets Acquired
Cash and Cash Equivalents
Other Current Assets
Customer Relationships (a)
Goodwill (a)(b)
Other Non-Current Assets
Total Assets Acquired
Liabilities Assumed
Current Liabilities
Non-Current Liabilities
Total Liabilities Assumed
Net Identifiable Assets Acquired
$0.1
1.0
2.8
4.2
0.1
$8.2
$0.3
1.2
$1.5
$6.7
(a) Presented within Goodwill and Intangible Assets – Net on the Consolidated Balance Sheet. (See Note 7. Goodwill and Intangible Assets.)
(b) For tax purposes, the purchase price allocation resulted in no allocation to goodwill.
Acquisition-related costs were immaterial, expensed as incurred during 2016 and recorded in Operating and Maintenance on the
Consolidated Statement of Income.
NOTE 7. GOODWILL AND INTANGIBLE ASSETS
The following table summarizes changes to goodwill by reportable segment:
Millions
Balance as of December 31, 2016
Acquired Goodwill (a)
Other Adjustments (b)
Balance as of December 31, 2017
Other Adjustments (b)
Balance as of December 31, 2018
U.S. Water
Services
$131.2
16.9
0.2
148.3
0.2
$148.5
(a) See Note 6. Acquisitions.
(b) Finalization of purchase price accounting for U.S. Water Services’ acquisition of WEST was completed in 2017 and acquisition of Tonka
Water was completed in 2018 resulting in adjustments in those periods to the goodwill recorded at the time of acquisition.
ALLETE, Inc. 2018 Form 10-K
97
NOTE 7. GOODWILL AND INTANGIBLE ASSETS (Continued)
The following table summarizes changes to intangible assets, net, for the year ended December 31, 2018:
December 31,
2017
Additions
Amortization
December 31,
2018
Millions
Intangible Assets
Definite-Lived Intangible Assets
Customer Relationships
Developed Technology and Other (a)
Total Definite-Lived Intangible Assets
Indefinite-Lived Intangible Assets
Trademarks and Trade Names
Total Intangible Assets
$54.7
6.3
61.0
16.6
$77.6
$0.2
2.6
2.8
—
$2.8
$(4.2)
(1.4)
(5.6)
n/a
$(5.6)
$50.7
7.5
58.2
16.6
$74.8
(a) Developed Technology and Other includes patents, non-compete agreements, land easements and trade names with finite lives.
Customer relationships have a remaining useful life of approximately 19 years, and developed technology and other have remaining
useful lives ranging from approximately 4 years to approximately 10 years (weighted average of approximately 6 years). The
weighted average remaining useful life of all definite-lived intangible assets as of December 31, 2018, is approximately 17 years.
Amortization expense of intangible assets for the year ended December 31, 2018, was $5.6 million ($5.5 million in 2017;
$5.2 million in 2016). Accumulated amortization was $20.4 million and $14.8 million as of December 31, 2018, and
December 31, 2017, respectively. Estimated amortization expense for definite-lived intangible assets is $5.3 million in 2019,
$4.9 million in 2020, $4.9 million in 2021, $4.6 million in 2022, $4.3 million in 2023 and $34.2 million thereafter.
NOTE 8. INVESTMENTS
Investments. As of December 31, 2018, the investment portfolio included the legacy real estate assets of ALLETE Properties,
debt and equity securities consisting primarily of securities held in other postretirement plans to fund employee benefits, the cash
equivalents within these plans and other assets consisting primarily of land in Minnesota.
Other Investments
As of December 31
Millions
ALLETE Properties
Available-for-sale Securities (a)
Cash Equivalents
Other
Total Other Investments
2018
2017
$24.4
20.2
1.0
3.5
$49.1
$26.4
19.1
3.8
3.8
$53.1
(a) As of December 31, 2018, the aggregate amount of available-for-sale corporate and governmental debt securities maturing in one year or
less was $2.0 million, in one year to less than three years was $2.9 million, in three years to less than five years was $2.6 million, and in
five or more years was $0.5 million.
Available-for-Sale Securities. We account for our available-for-sale securities portfolio in accordance with the guidance for
certain investments in debt and equity securities. Our available-for-sale securities portfolio consisted primarily of securities held
in other postretirement plans to fund employee benefits. Gross realized and unrealized gains and losses on our available-for-sale
securities were immaterial in 2018, 2017 and 2016.
ALLETE, Inc. 2018 Form 10-K
98
NOTE 9. FAIR VALUE
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These
inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for
recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs, which are used
to measure fair value, are prioritized through the fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs
(Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Active markets
are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information
on an ongoing basis. This category includes primarily equity securities.
Level 2 — Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the
reported date. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities
or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models
using highly observable inputs, such as commodity options priced using observable forward prices and volatilities. This category
includes deferred compensation and fixed income securities.
Level 3 — Significant inputs that are generally less observable from objective sources. The types of assets and liabilities included
in Level 3 are those with inputs requiring significant management judgment or estimation, such as the complex and subjective
models and forecasts used to determine the fair value. This category includes the U.S. Water Services contingent consideration
liability.
The following tables set forth by level within the fair value hierarchy, our assets and liabilities that were accounted for at fair value
on a recurring basis as of December 31, 2018, and December 31, 2017. Each asset and liability is classified based on the lowest
level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair
value measurement requires judgment, which may affect the valuation of these assets and liabilities and their placement within
the fair value hierarchy levels. The estimated fair value of Cash and Cash Equivalents listed on the Consolidated Balance Sheet
approximates the carrying amount and therefore is excluded from the recurring fair value measures in the following tables.
Recurring Fair Value Measures
Millions
Assets:
Investments (a)
Available-for-sale – Equity Securities
Available-for-sale – Corporate and Governmental Debt Securities
Cash Equivalents
Total Fair Value of Assets
Liabilities:
Deferred Compensation (b)
U.S. Water Services Contingent Consideration (c)
Total Fair Value of Liabilities
Total Net Fair Value of Assets (Liabilities)
(a) Included in Other Investments on the Consolidated Balance Sheet.
(b) Included in Other Non-Current Liabilities on the Consolidated Balance Sheet.
(c) Included in Other Current Liabilities on the Consolidated Balance Sheet.
Fair Value as of December 31, 2018
Level 1
Level 2
Level 3
Total
$12.2
—
1.0
$13.2
—
—
—
$13.2
—
$8.0
—
$8.0
—
—
—
—
$19.8
—
$19.8
$(11.8)
—
$3.8
$3.8
$(3.8)
$12.2
8.0
1.0
$21.2
$19.8
3.8
$23.6
$(2.4)
ALLETE, Inc. 2018 Form 10-K
99
NOTE 9. FAIR VALUE (Continued)
Recurring Fair Value Measures
Millions
Assets:
Investments (a)
Available-for-sale – Equity Securities
Available-for-sale – Corporate and Governmental Debt Securities
Cash Equivalents
Total Fair Value of Assets
Liabilities: (b)
Deferred Compensation
U.S. Water Services Contingent Consideration
Total Fair Value of Liabilities
Total Net Fair Value of Assets (Liabilities)
(a) Included in Other Investments on the Consolidated Balance Sheet.
(b) Included in Other Non-Current Liabilities on the Consolidated Balance Sheet.
Fair Value as of December 31, 2017
Level 1
Level 2
Level 3
Total
$10.2
—
3.8
$14.0
—
—
—
$14.0
—
$8.9
—
$8.9
$18.2
—
$18.2
$(9.3)
—
—
—
—
—
$5.4
$5.4
$(5.4)
$10.2
8.9
3.8
$22.9
$18.2
5.4
$23.6
$(0.7)
The following table provides a reconciliation of the beginning and ending balances of the U.S. Water Services Contingent
Consideration measured at fair value using Level 3 measurements as of December 31, 2018, and December 31, 2017. The
acquisition contingent consideration was recorded at the acquisition date at its estimated fair value. The acquisition date fair value
was measured based on the consideration expected to be transferred, discounted to present value. The discount rate was determined
at the time of measurement in accordance with generally accepted valuation methods. The fair value of the acquisition contingent
consideration is remeasured to arrive at estimated fair value each reporting period with the change in fair value recognized as
income or expense in the Consolidated Statement of Income. Changes to the fair value of the acquisition contingent consideration
can result from changes in discount rates, timing of milestones that trigger payments, and the timing and amount of earnings
estimates. Using different valuation assumptions, including earnings projections or discount rates, may result in different fair value
measurements and expense (or income) in future periods. Management analyzes the fair value of the contingent liability on a
quarterly basis and makes adjustments as appropriate. The acquisition contingent consideration was measured at $3.8 million as
of December 31, 2018.
Recurring Fair Value Measures
Activity in Level 3
Millions
Balance as of December 31, 2016
Accretion (a)
Payments (b)
Changes in Cash Flow Projections
Balance as of December 31, 2017
Accretion (a)
Changes in Cash Flow Projections
Balance as of December 31, 2018
$25.0
0.8
(19.7)
(0.7)
$5.4
0.4
(2.0)
$3.8
(a) Included in Interest Expense on the Consolidated Statement of Income.
(b) Payments reflect the impact of a modification to the shareholder agreement in the first quarter of 2017 which provided participants a one-
time election to sell shares at a determined price. Participants representing approximately half of the outstanding contingent consideration
shares made the election, and were paid in 2017.
The Company’s policy is to recognize transfers in and transfers out of Levels as of the actual date of the event or change in
circumstances that caused the transfer. For the years ended December 31, 2018 and 2017, there were no transfers in or out of
Levels 1, 2 or 3.
ALLETE, Inc. 2018 Form 10-K
100
NOTE 9. FAIR VALUE (Continued)
Fair Value of Financial Instruments. With the exception of the item listed in the following table, the estimated fair value of all
financial instruments approximates the carrying amount. The fair value for the item listed in the following table was based on
quoted market prices for the same or similar instruments (Level 2).
Financial Instruments
Millions
Long-Term Debt, Including Long-Term Debt Due Within One Year
December 31, 2018
December 31, 2017
Carrying Amount
Fair Value
$1,495.2
$1,513.3
$1,534.6
$1,627.6
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis. Non-financial assets such as equity method investments,
goodwill, intangible assets, and property, plant and equipment are measured at fair value when there is an indicator of impairment
and recorded at fair value only when an impairment is recognized.
Equity Method Investments. The aggregate carrying amount of our equity investments was $161.1 million as of December 31, 2018
($118.7 million as of December 31, 2017). The Company assesses our equity investments in ATC and Nobles 2 for impairment
whenever events or changes in circumstances indicate that the carrying amount of our investments may not be recoverable. For
the years ended December 31, 2018 and 2017, there were no indicators of impairment. (See Note 5. Equity Investments.)
Goodwill. The Company assesses the impairment of goodwill annually in the fourth quarter and whenever an event occurs or
circumstances change that would indicate that the carrying amount may be impaired. The Company’s goodwill is a result of the
U.S. Water Services acquisition in 2015 as well as U.S. Water Services’ subsequent acquisitions. (See Note 6. Acquisitions.) The
aggregate carrying amount of goodwill was $148.5 million as of December 31, 2018, and $148.3 million as of December 31, 2017.
Impairment testing for goodwill is done at the reporting unit level. An impairment loss is recognized when the carrying amount
of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The inputs used in the fair value analysis
fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs to determine fair value. The test
for impairment requires us to make several estimates about fair value, most of which are based on projected future cash flows.
The Company calculates the excess of the reporting unit's fair value over its carrying amount, including goodwill, utilizing a
discounted cash flow analysis. Our annual impairment test for U.S. Water Services indicated that the estimated fair value of U.S.
Water Services exceeded its carrying value, and no impairment existed for the year ended December 31, 2018 (none in 2017 and
none in 2016). As part of the 2016 annual impairment analysis, the Company recognized a non-cash impairment charge of
$3.3 million for ALLETE Clean Energy’s goodwill primarily related to the acquisition of Storm Lake II in 2014. The charge,
which is presented within Operating Expenses – Other in the Consolidated Statement of Income, eliminated all goodwill for the
ALLETE Clean Energy reporting unit. (See Note 1. Operations and Significant Accounting Policies.)
Intangible Assets. The Company assesses indefinite-lived intangible assets for impairment annually in the fourth quarter. The
Company also assesses indefinite-lived and definite-lived intangible assets whenever events or changes in circumstances indicate
that the carrying amount of an intangible asset may not be recoverable. Substantially all of the Company’s intangible assets are a
result of the U.S. Water Services acquisition in 2015 as well as U.S. Water Services’ subsequent acquisitions. The aggregate
carrying amount of intangible assets was $74.8 million as of December 31, 2018 ($77.6 million as of December 31, 2017). When
events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable, the Company
calculates the excess of an intangible asset's carrying amount over its undiscounted future cash flows. If the carrying amount is
not recoverable, an impairment loss is recorded based on the amount by which the carrying amount exceeds the fair value. The
inputs used in the fair value analysis fall within Level 3 of the fair value hierarchy due to the use of significant unobservable inputs
to determine fair value. As of December 31, 2018, there have been no events or changes in circumstance which would indicate
impairment of our intangible assets.
Property, Plant and Equipment. The Company assesses the impairment of property, plant, and equipment whenever events or
changes in circumstances indicate that the carrying amount of property, plant, and equipment assets may not be recoverable. The
impairment of ALLETE Clean Energy’s goodwill in 2016, primarily due to lower estimated energy prices in periods not under
PSAs, caused management to review ALLETE Clean Energy’s WTGs for impairment. Based on the results of the undiscounted
cash flow analysis, the undiscounted future cash flows were adequate to recover the carrying value of the WTGs. (See Note 1.
Operations and Significant Accounting Policies.) For the years ended December 31, 2018, and 2017, there was no impairment of
property, plant, and equipment.
ALLETE, Inc. 2018 Form 10-K
101
NOTE 9. FAIR VALUE (Continued)
We believe that long-standing ratemaking practices approved by applicable state and federal regulatory commissions allow for
the recovery of the remaining book value of retired plant assets. In a 2016 order, the MPUC accepted Minnesota Power’s plans
for Taconite Harbor, directed Minnesota Power to retire Boswell Units 1 and 2 no later than 2022, required an analysis of generation
and demand response alternatives to be filed with a natural gas resource proposal, and required Minnesota Power to conduct
request for proposals for additional wind, solar and demand response resource additions subject to further MPUC approvals.
Minnesota Power retired Boswell Units 1 and 2 in the fourth quarter of 2018. As part of the 2016 general retail rate case, the
MPUC allowed recovery of the remaining book value of Boswell Units 1 and 2 through 2022. We do not expect to record any
impairment charge as a result of the retirement of Taconite Harbor Unit 3, ceasing of coal-fired operations at Taconite Harbor
Units 1 and 2 or the conversion of Laskin to operate on natural gas. In addition, we expect to be able to continue depreciating
these assets for at least their established remaining useful lives; however, we are unable to predict the impact of regulatory outcomes
resulting in changes to their established remaining useful lives. (See Note 4. Regulatory Matters.)
NOTE 10. SHORT-TERM AND LONG-TERM DEBT
Short-Term Debt. As of December 31, 2018, total short-term debt outstanding was $57.5 million ($64.1 million as of
December 31, 2017), consisted of long-term debt due within one year and included $0.4 million of unamortized debt issuance
costs.
As of December 31, 2018, we had consolidated bank lines of credit aggregating $407.0 million ($407.0 million as of
December 31, 2017), most of which expire in January 2024. We had $18.4 million outstanding in standby letters of credit and no
outstanding draws under our lines of credit as of December 31, 2018 ($11.9 million in standby letters of credit and no outstanding
draws as of December 31, 2017).
On January 10, 2019, ALLETE entered into an amended and restated $400 million credit agreement (Credit Agreement). The
Credit Agreement amended and restated ALLETE’s $400 million credit facility, which was scheduled to expire in October 2020.
The Credit Agreement is unsecured, has a variable interest rate and will expire in January 2024. At ALLETE’s request and subject
to certain conditions, the Credit Agreement may be increased by up to$150 million and ALLETE may make two requests to extend
the maturity date, each for a one year extension. Advances may be used by ALLETE for general corporate purposes, to provide
liquidity in support of ALLETE's commercial paper program and to issue up to $60 million in letters of credit.
Long-Term Debt. As of December 31, 2018, total long-term debt outstanding was $1,428.5 million ($1,439.2 million as of
December 31, 2017) and included $8.8 million of unamortized debt issuance costs. The aggregate amount of long-term debt
maturing in 2019 is $57.9 million; $113.7 million in 2020; $98.5 million in 2021; $89.3 million in 2022; $88.5 million in 2023;
and $1,047.3 million thereafter. Substantially all of our regulated electric plant is subject to the lien of the mortgages collateralizing
outstanding first mortgage bonds. The mortgages contain non-financial covenants customary in utility mortgages, including
restrictions on our ability to incur liens, dispose of assets, and merge with other entities.
Minnesota Power is obligated to make financing payments for the Camp Ripley solar array totaling $1.4 million annually during
the financing term, which expires in 2027. Minnesota Power has the option at the end of the financing term to renew for a two year
term, or to purchase the solar array for approximately $4 million. Minnesota Power anticipates exercising the purchase option
when the term expires.
On April 16, 2018, ALLETE issued and sold $60.0 million of its First Mortgage Bonds (the Bonds) that bear interest at 4.07 percent.
The Bonds will mature in April 2048 and pay interest semi-annually in April and October of each year, commencing on
October 16, 2018. ALLETE has the option to prepay all or a portion of the Bonds at its discretion, subject to a make-whole
provision. The Bonds are subject to additional terms and conditions which are customary for these types of transactions. ALLETE
intends to use the proceeds from the sale of the Bonds to fund utility capital investment and for general corporate purposes. The
Bonds were sold in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended,
to institutional accredited investors.
ALLETE, Inc. 2018 Form 10-K
102
NOTE 10. SHORT-TERM AND LONG-TERM DEBT (Continued)
Long-Term Debt (Continued)
On October 3, 2018, and October 17, 2018, ALLETE repaid $20.0 million and $10.0 million, respectively, under an unsecured
term loan due in 2020.
Long-Term Debt
As of December 31
Millions
First Mortgage Bonds
1.83% Series Due 2018
8.17% Series Due 2019
5.28% Series Due 2020
2.80% Series Due 2020
4.85% Series Due 2021
3.02% Series Due 2021
3.40% Series Due 2022
6.02% Series Due 2023
3.69% Series Due 2024
4.90% Series Due 2025
5.10% Series Due 2025
3.20% Series Due 2026
5.99% Series Due 2027
3.30% Series Due 2028
3.74% Series Due 2029
3.86% Series Due 2030
5.69% Series Due 2036
6.00% Series Due 2040
5.82% Series Due 2040
4.08% Series Due 2042
4.21% Series Due 2043
4.95% Series Due 2044
5.05% Series Due 2044
4.39% Series Due 2044
4.07% Series Due 2048
Variable Demand Revenue Refunding Bonds Series 1997 A Due 2020
Unsecured Term Loan Variable Rate Due 2020
Armenia Mountain Senior Secured Notes 3.26% Due 2024
Industrial Development Variable Rate Demand Refunding Revenue Bonds Series 2006, Due 2025
Senior Unsecured Notes 3.11% Due 2027
SWL&P First Mortgage Bonds 4.15% Series Due 2028
SWL&P First Mortgage Bonds 4.14% Series Due 2048
Other Long-Term Debt, 3.11% – 5.75% Due 2019 – 2037
Unamortized Debt Issuance Costs
Total Long-Term Debt
Less: Due Within One Year
Net Long-Term Debt
ALLETE, Inc. 2018 Form 10-K
103
2018
2017
—
$42.0
35.0
40.0
15.0
60.0
75.0
75.0
60.0
30.0
30.0
75.0
60.0
40.0
50.0
60.0
50.0
35.0
45.0
85.0
60.0
40.0
40.0
50.0
60.0
13.5
10.0
57.2
27.8
80.0
15.0
12.0
67.7
(9.2)
1,486.0
57.5
$1,428.5
$50.0
42.0
35.0
40.0
15.0
60.0
75.0
75.0
60.0
30.0
30.0
75.0
60.0
40.0
50.0
60.0
50.0
35.0
45.0
85.0
60.0
40.0
40.0
50.0
—
13.5
40.0
65.9
27.8
80.0
15.0
—
69.1
(10.0)
1,503.3
64.1
$1,439.2
NOTE 10. SHORT-TERM AND LONG-TERM DEBT (Continued)
Financial Covenants. Our long-term debt arrangements contain customary covenants. In addition, our lines of credit and letters
of credit supporting certain long-term debt arrangements contain financial covenants. Our compliance with financial covenants is
not dependent on debt ratings. The most restrictive financial covenant requires ALLETE to maintain a ratio of indebtedness to
total capitalization (as the amounts are calculated in accordance with the respective long-term debt arrangements) of less than or
equal to 0.65 to 1.00, measured quarterly. As of December 31, 2018, our ratio was approximately 0.41 to 1.00. Failure to meet
this covenant would give rise to an event of default if not cured after notice from the lender, in which event ALLETE may need
to pursue alternative sources of funding. Some of ALLETE’s debt arrangements contain “cross-default” provisions that would
result in an event of default if there is a failure under other financing arrangements to meet payment terms or to observe other
covenants that would result in an acceleration of payments due. ALLETE has no significant restrictions on its ability to pay
dividends from retained earnings or net income. As of December 31, 2018, ALLETE was in compliance with its financial covenants.
NOTE 11. COMMITMENTS, GUARANTEES AND CONTINGENCIES
The following table details the estimated minimum payments for certain long-term commitments:
As of December 31, 2018
Millions
Coal, Rail and Shipping Contracts
Operating Leases
Easements
Other (a)
PPAs (b)
2019
$20.8
$9.9
$4.8
$31.6
$107.3
2020
$9.0
$7.9
$4.9
$0.3
$115.3
2021
$7.5
$6.1
$4.9
$0.3
$145.4
2022
—
$4.9
$5.0
—
$145.7
2023 Thereafter
—
$9.4
$136.3
$0.1
$1,550.7
—
$3.1
$5.1
—
$145.8
(a) Consists of long-term service agreements for wind energy facilities.
(b) Does not include the agreement with Manitoba Hydro expiring in 2022, as this contract is for surplus energy only; Oliver Wind I and Oliver
Wind II, as Minnesota Power only pays for energy as it is delivered; and the agreement with Nobles 2 commencing in 2020 as it is subject
to construction of a wind energy facility. (See Power Purchase Agreements.)
Power Purchase and Sales Agreements. Our long-term PPAs have been evaluated under the accounting guidance for variable
interest entities. We have determined that either we have no variable interest in the PPAs, or where we do have variable interests,
we are not the primary beneficiary; therefore, consolidation is not required. These conclusions are based on the fact that we do
not have both control over activities that are most significant to the entity and an obligation to absorb losses or receive benefits
from the entity’s performance. Our financial exposure relating to these PPAs is limited to capacity and energy payments.
These agreements have also been evaluated under the accounting guidance for derivatives. We have determined that either these
agreements are not derivatives, or if they are derivatives, the agreements qualify for the normal purchases and normal sales
exemption to the accounting guidance; therefore, derivative accounting is not required.
Square Butte PPA. Minnesota Power has a PPA with Square Butte that extends through 2026 (Agreement). Minnesota Power is
obligated to pay its pro rata share of Square Butte’s costs based on its entitlement to the output of Square Butte’s 455 MW coal fired
generating unit. Minnesota Power’s output entitlement under the Agreement is 50 percent for the remainder of the Agreement,
subject to the provisions of the Minnkota Power PSA described in the following table. Minnesota Power’s payment obligation
will be suspended if Square Butte fails to deliver any power, whether produced or purchased, for a period of one year. Square
Butte’s costs consist primarily of debt service, operating and maintenance, depreciation and fuel expenses. As of
December 31, 2018, Square Butte had total debt outstanding of $304.0 million. Annual debt service for Square Butte is expected
to be approximately $48.7 million in each of the next five years, 2019 through 2023, of which Minnesota Power’s obligation is
50 percent. Fuel expenses are recoverable through Minnesota Power’s fuel adjustment clause and include the cost of coal purchased
from BNI Energy under a long-term contract.
Minnesota Power’s cost of power purchased from Square Butte during 2018 was $78.0 million ($75.7 million in 2017; $73.3 million
in 2016). This reflects Minnesota Power’s pro rata share of total Square Butte costs based on the 50 percent output entitlement.
Included in this amount was Minnesota Power’s pro rata share of interest expense of $9.1 million in 2018 ($9.4 million in 2017;
$9.6 million in 2016). Minnesota Power’s payments to Square Butte are approved as a purchased power expense for ratemaking
purposes by both the MPUC and the FERC.
ALLETE, Inc. 2018 Form 10-K
104
NOTE 11. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)
Power Purchase and Sales Agreements (Continued)
Minnesota Power has also entered into the following PPAs for the purchase or sale of capacity and energy as of December 31, 2018:
Counterparty
Quantity
Product
Commencement
Expiration
Pricing
PPAs
Calpine Corporation
Cypress Creek Renewables (a)
Great River Energy
25 MW
(a)
Capacity
Capacity / Energy
June 2019
(a)
PPA 1
PPA 2
PPA 3
Manitoba Hydro
PPA 1
PPA 2
PPA 3
PPA 4 (e)
PPA 5 (e)
Minnkota Power
Nobles 2 (i)
Oliver Wind I
Oliver Wind II
Shell Energy
TransAlta
50 MW Capacity / Energy
50 MW
50 MW
Capacity
Capacity
(c)
Energy
Energy
Capacity
50 MW Capacity / Energy
50 MW
250 MW Capacity / Energy
133 MW
50 MW Capacity / Energy
Capacity / Energy
Energy
Energy
Energy
Energy
(i)
(j)
(j)
50 MW
(k)
June 2016
June 2016
June 2017
May 2011
June 2015
June 2017
June 2020
(g)
June 2016
(i)
May 2026
(a)
May 2020
May 2020
May 2020
April 2022
May 2020
May 2020
May 2035
(g)
May 2020
(i)
Fixed
Fixed
(b)
Fixed
Fixed
Forward Market Prices
(d)
Fixed
(f)
Forward Market Prices
(h)
Fixed
Fixed
Fixed
Fixed
Fixed
December 2006 December 2040
December 2007 December 2040
December 2019
January 2017
December 2019
January 2017
(a) The PPA provides for the purchase of all output from the 10 MW Blanchard solar energy facility to be located in central Minnesota.
Construction of the Blanchard solar energy facility is expected to be completed in 2020 and the contract is effective for 25 years beginning
upon commercial operation.
(b) The capacity price is fixed and the energy price is based on a formula that includes an annual fixed price component adjusted for changes
in a natural gas index, as well as market prices.
(c) The energy purchased consists primarily of surplus hydro energy on Manitoba Hydro's system and is delivered on a non-firm basis. Minnesota
Power will purchase at least one million MWh of energy over the contract term.
(d) The capacity and energy prices are adjusted annually by the change in a governmental inflationary index.
(e) Agreements are subject to the construction of the GNTL and MMTP. (See Great Northern Transmission Line.)
(f) The capacity price is adjusted annually until 2020 by the change in a governmental inflationary index. The energy price is based on a
formula that includes an annual fixed component adjusted for the change in a governmental inflationary index and a natural gas index, as
well as market prices.
(g) The contract term will be the 20-year period beginning on the in-service date for the GNTL. (See Great Northern Transmission Line.)
(h) The agreement includes a fixed capacity charge and energy prices that escalate at a fixed rate annually over the term.
(i) The PPA provides for the purchase of all output from a 250 MW wind energy facility to be constructed in southwest Minnesota for 20 years
beginning upon commercial operation of the wind energy facility which is currently expected in fourth quarter of 2020. (See Note 4.
Regulatory Matters and Note 5. Equity Investments.)
(j) The PPAs provide for the purchase of all output from the 50 MW Oliver Wind I and 48 MW Oliver Wind II wind energy facilities.
(k) Minnesota Power is purchasing 50 MW of energy during off-peak hours and 100 MW of energy during on-peak hours.
ALLETE, Inc. 2018 Form 10-K
105
NOTE 11. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)
Power Purchase and Sales Agreements (Continued)
Minnesota Power has also entered into the following PSAs for the purchase or sale of capacity and energy as of December 31, 2018:
Counterparty
Quantity
Product
Commencement
Expiration
Pricing
PSAs
Basin
PSA 1
PSA 2
PSA 3
PSA 4
Minnkota Power
Oconto Electric Cooperative
Silver Bay Power
100 MW Capacity / Energy
50 MW
(b)
100 MW
(c)
Capacity
Capacity
Capacity
Capacity / Energy
25 MW Capacity / Energy
(d)
Energy
May 2010
June 2017
June 2022
June 2025
June 2014
January 2019
January 2017
April 2020
May 2019
May 2025
May 2028
December 2026
May 2026
December 2031
(a)
Fixed
Fixed
Fixed
(c)
Fixed
(e)
(a) The capacity charge is based on a fixed monthly schedule with a minimum annual escalation provision. The energy charge is based on a
fixed monthly schedule and provides for annual escalation based on the cost of fuel. The agreement also allows Minnesota Power to recover
a pro rata share of increased costs related to emissions that occur during the last five years of the contract.
(b) The agreement provides for 75 MW of capacity from June 1, 2022, through May 31, 2023, and increases to 125 MW of capacity from
June 1, 2023, through May 31, 2025.
(c) Minnesota Power is selling a portion of its entitlement from Square Butte to Minnkota Power, resulting in Minnkota Power’s net entitlement
increasing and Minnesota Power’s net entitlement decreasing until Minnesota Power’s share is eliminated at the end of 2025. Of Minnesota
Power’s 50 percent output entitlement, it sold to Minnkota Power approximately 28 percent in 2018 (28 percent in 2017 and in 2016). (See
Square Butte PPA.)
(d) Silver Bay Power supplies approximately 90 MW of load to Northshore Mining, an affiliate of Silver Bay Power, which has been served
predominately through self-generation by Silver Bay Power. Through 2019, Minnesota Power will supply Silver Bay Power with at least
50 MW of energy and Silver Bay Power has the option to purchase additional energy. By December 31, 2019, Silver Bay Power is expected
to cease self-generation and Minnesota Power is expected to supply the energy requirements for Silver Bay Power.
(e) The energy pricing is fixed through 2019 with pricing in later years escalating at a fixed rate annually and adjusted for changes in a natural
gas index.
Coal, Rail and Shipping Contracts. Minnesota Power has coal supply agreements providing for the purchase of a significant
portion of its coal requirements through December 2019 and a portion of its coal requirements through December 2021. Minnesota
Power also has coal transportation agreements in place for the delivery of a significant portion of its coal requirements through
December 2021. The costs of fuel and related transportation costs for Minnesota Power’s generation are recoverable from Minnesota
Power’s utility customers through the fuel adjustment clause.
Leasing Agreements. BNI Energy is obligated to make lease payments for a dragline totaling $2.8 million annually during the
lease term, which expires in 2027. BNI Energy has the option at the end of the lease term to renew the lease at fair market value,
to purchase the dragline at fair market value, or to surrender the dragline and pay a $3.0 million termination fee. We also lease
other properties and equipment under operating lease agreements with a majority of terms expiring through 2024. Total lease
expense was $14.6 million in 2018 ($17.5 million in 2017; $17.1 million in 2016).
Transmission. We continue to make investments in transmission opportunities that strengthen or enhance the transmission grid
or take advantage of our geographical location between sources of renewable energy and end users. These include the GNTL,
investments to enhance our own transmission facilities, investments in other transmission assets (individually or in combination
with others) and our investment in ATC.
Great Northern Transmission Line. As a condition of a 250 MW long-term PPA entered into with Manitoba Hydro, construction
of additional transmission capacity is required. As a result, Minnesota Power is constructing the GNTL, an approximately 220 mile
500-kV transmission line between Manitoba and Minnesota’s Iron Range that was proposed by Minnesota Power and Manitoba
Hydro in order to strengthen the electric grid, enhance regional reliability and promote a greater exchange of sustainable energy.
ALLETE, Inc. 2018 Form 10-K
106
NOTE 11. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)
Transmission (Continued)
In a 2016 order, the MPUC approved the route permit for the GNTL, and in 2016, the U.S. Department of Energy issued a
presidential permit to cross the U.S. Canadian border, which was the final major regulatory approval needed before construction
in the U.S. could begin. Site clearing and pre construction activities commenced in the first quarter of 2017 with construction
expected to be completed in 2020. To date, most of the right-of-way has been cleared while foundation installation and transmission
tower construction have commenced. The total project cost in the U.S., including substation work, is estimated to be between
$560 million and $710 million, of which Minnesota Power’s portion is expected to be between $300 million and $350 million;
the difference will be recovered from a subsidiary of Manitoba Hydro as non-shareholder contributions to capital. Total project
costs of $380.8 million have been incurred through December 31, 2018, of which $203.7 million has been recovered from a
subsidiary of Manitoba Hydro.
Manitoba Hydro must obtain regulatory and governmental approvals related to the MMTP, a new transmission line in Canada that
will connect with the GNTL. In 2015, Manitoba Hydro submitted the final preferred route and EIS for the MMTP to the Manitoba
Conservation and Water Stewardship for siting and environmental approval, which remains pending. In 2016, Manitoba Hydro
filed an application with the Canadian National Energy Board (NEB) requesting authorization to construct and operate the MMTP,
which was recommended for approval on November 15, 2018. Approval of the Canadian federal cabinet is also required.
The MMTP is subject to legal and regulatory challenges which Minnesota Power is actively monitoring. Manitoba Hydro has
informed Minnesota Power that it continues to work towards completing the MMTP on schedule. In order to meet the transmission
in service requirements in PPAs with Minnesota Power, Manitoba Hydro has indicated that it would need to start construction of
the MMTP by June 2019. We are unable to predict the outcome of the Canadian regulatory review process, including the timing
thereof or whether any onerous conditions may be imposed, or the timing of the completion of the MMTP, including the impact
of any delays that may result in construction schedule adjustments. Any significant delays in the MMTP construction schedule
may result in Minnesota Power adjusting the GNTL construction schedule and impact the timing of capital expenditures and
associated cost recovery under our transmission cost recovery rider.
Construction of Manitoba Hydro’s Keeyask hydroelectric generation facility, which will provide the power to be sold under PPAs
with Minnesota Power and transmitted on the MMTP and the GNTL, commenced in 2014 and is anticipated to be in service by
early 2021.
Environmental Matters.
Our businesses are subject to regulation of environmental matters by various federal, state and local authorities. A number of
regulatory changes to the Clean Air Act, the Clean Water Act and various waste management requirements have been promulgated
by both the EPA and state authorities over the past several years. Minnesota Power’s facilities are subject to additional requirements
under many of these regulations. Minnesota Power is reshaping its generation portfolio, over time, to reduce its reliance on coal,
has installed cost-effective emission control technology, and advocates for sound science and policy during rulemaking
implementation.
We consider our businesses to be in substantial compliance with currently applicable environmental regulations and believe all
necessary permits have been obtained. We anticipate that with many state and federal environmental regulations and requirements
finalized, or to be finalized in the near future, potential expenditures for future environmental matters may be material and require
significant capital investments. Minnesota Power has evaluated various environmental compliance scenarios using possible
outcomes of environmental regulations to project power supply trends and impacts on customers.
We review environmental matters on a quarterly basis. Accruals for environmental matters are recorded when it is probable that
a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing
technologies. Accruals are adjusted as assessment and remediation efforts progress, or as additional technical or legal information
becomes available. Accruals for environmental liabilities are included in the Consolidated Balance Sheet at undiscounted amounts
and exclude claims for recoveries from insurance or other third parties. Costs related to environmental contamination treatment
and cleanup are expensed unless recoverable in rates from customers.
Air. The electric utility industry is regulated both at the federal and state level to address air emissions. Minnesota Power’s
generating facilities mainly burn low-sulfur western sub-bituminous coal. All of Minnesota Power’s coal-fired generating facilities
are equipped with pollution control equipment such as scrubbers, baghouses and low NOX technologies. Under currently applicable
environmental regulations, these facilities are substantially compliant with emission requirements.
ALLETE, Inc. 2018 Form 10-K
107
NOTE 11. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)
Environmental Matters (Continued)
New Source Review (NSR). In 2014, Minnesota Power reached a settlement with the EPA and entered into a Consent Decree
regarding certain Notices of Violation received in 2008 and 2011 that asserted violations of the NSR requirements of the Clean
Air Act, which was approved by the U.S. District Court for the District of Minnesota. The Consent Decree provided for, among
other requirements, more stringent emissions limits at all affected units, the option of refueling, retrofitting or retiring certain small
coal units, and the addition of 200 MW of wind energy. Provisions of the Consent Decree require that, by no later than
December 31, 2018, Boswell Units 1 and 2 must be retired, refueled, repowered, or emissions rerouted through existing emission
control technology at Boswell. Minnesota Power retired Boswell Units 1 and 2 in the fourth quarter of 2018. Minnesota Power is
allowed to recover the remaining net book value for Boswell Units 1 and 2 through 2022. We believe that costs to retire Boswell
Units 1 and 2 will be eligible for recovery in rates over time, subject to regulatory approval in a rate proceeding.
Mercury and Air Toxics Standards (MATS) Rule. Under Section 112 of the Clean Air Act, the EPA is required to set emission
standards for hazardous air pollutants (HAPs) for certain source categories. The final MATS rule addressed such emissions from
coal-fired utility units greater than 25 MW and established categories of HAPs, including mercury, trace metals other than mercury,
and acid gases. The EPA established emission limits for these categories of HAPs and work practice standards for the remaining
categories. Construction on the project to implement the Boswell Unit 4 mercury emissions reduction plan to position the unit for
MATS compliance was completed in 2015. Investments and compliance work previously completed at Boswell Unit 3, including
emission reduction investments completed in 2009, meet the requirements of the MATS rule. The conversion of Laskin Units 1
and 2 to operate on natural gas in 2015 positioned those units for MATS compliance. On December 27, 2018, the EPA issued a
proposed revised Supplemental Cost Finding for MATS that determined it is not appropriate and necessary to regulate HAP
emissions from power plants under section 112 of the Clean Air Act.
Minnesota Mercury Emissions Reduction Act/Rule. Minnesota Power was required to implement a mercury emissions reduction
project for Boswell Unit 4 by December 31, 2018. The Boswell Unit 4 environmental upgrade discussed above (see Mercury and
Air Toxics Standards (MATS) Rule) fulfills the requirements of the Minnesota Mercury Emissions Reduction Act.
Cross-State Air Pollution Rule (CSAPR). The CSAPR requires certain states in the eastern half of the U.S., including Minnesota,
to reduce power plant emissions that contribute to ozone or fine particulate pollution in other states. The CSAPR does not require
installation of controls but does require facilities have sufficient allowances to cover their emissions on an annual basis. These
allowances are allocated to facilities from each state’s annual budget, and can be bought and sold. Based on our review of the NOx
and SO2 allowances issued and pending issuance, we currently expect generation levels and emission rates will result in continued
compliance with the CSAPR.
National Ambient Air Quality Standards (NAAQS). The EPA is required to review the NAAQS every five years. If the EPA
determines that a state’s air quality is not in compliance with the NAAQS, the state is required to adopt plans describing how it
will reduce emissions to attain the NAAQS. None of the compliance costs for proposed or current NAAQS revisions are expected
to be material.
Climate Change. The scientific community generally accepts that emissions of GHG are linked to global climate change which
creates physical and financial risks. Physical risks could include, but are not limited to: increased or decreased precipitation and
water levels in lakes and rivers; increased temperatures; and changes in the intensity and frequency of extreme weather events.
These all have the potential to affect the Company’s business and operations. We are addressing climate change by taking the
following steps that also ensure reliable and environmentally compliant generation resources to meet our customers’ requirements:
• Expanding renewable power supply for both our operations and the operations of others;
•
Providing energy conservation initiatives for our customers and engaging in other demand side management efforts;
•
Improving efficiency of our generating facilities;
Supporting research of technologies to reduce carbon emissions from generating facilities and carbon sequestration efforts;
•
• Evaluating and developing less carbon intensive future generating assets such as efficient and flexible natural gas fired
generating facilities;
• Managing vegetation on right-of-way corridors to reduce potential wildfire or storm damage risks; and
•
Practicing sound forestry management in our service territories to create landscapes more resilient to disruption from
climate-related changes, including planting and managing long-lived conifer species.
ALLETE, Inc. 2018 Form 10-K
108
NOTE 11. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)
Environmental Matters (Continued)
EPA Regulation of GHG Emissions. In 2014, the EPA announced a proposed rule under Section 111(d) of the Clean Air Act for
existing power plants entitled “Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Generating Units”,
also referred to as the Clean Power Plan (CPP). The EPA issued the final CPP in 2015, together with a proposed federal
implementation plan and a model rule for emissions trading. In 2016, the U.S. Supreme Court issued an order staying the
effectiveness of the rule until after the appellate court process is complete. In 2016, the U.S. Court of Appeals for the District of
Columbia Circuit heard oral arguments and is currently deliberating. If the CPP is upheld at the completion of the appellate process,
all of the CPP regulatory deadlines are expected to be reset based on the length of time that the appeals process takes. The EPA is
precluded from enforcing the CPP while the U.S. Supreme Court stay is in force.
If upheld, the CPP would establish uniform CO2 emission performance rates for existing fossil fuel-fired and natural gas-fired
combined cycle generating units, setting state-specific goals for CO2 emissions from the power sector. State goals were determined
based on CPP source-specific performance emission rates and each state’s mix of power plants. The EPA filed a motion with the
U.S. Court of Appeals for the District of Columbia Circuit to hold CPP-related litigation in suspension while the EPA is reviewing
the rule. In October 2017, the EPA issued a notice of proposed rulemaking, proposing to repeal the CPP. In December 2017, an
Advanced Notice of Proposed Rulemaking for a CPP replacement rule was published in the Federal Register.
On August 31, 2018, the EPA published the proposed Affordable Clean Energy Rule in the Federal Register, which is intended to
replace the CPP with revised emission guidelines that inform the development, submittal, and implementation of State
Implementation Plans (SIP) to reduce GHG emissions for existing steam generating units. If a state does not submit a SIP or
submits a plan that is unacceptable to the EPA, the EPA would develop a Federal Implementation Plan (FIP). Minnesota Power
generating facilities affected by this proposal include Boswell, Laskin, Taconite Harbor and Hibbard.
The proposed Affordable Clean Energy Rule seeks to reduce carbon intensity at existing steam generation units by prescribing
Best System of Emission Reduction (BSER), primarily through Heat Rate Improvement (HRI) technologies. Under the proposal,
states will have up to three years to develop a SIP, which is subject to EPA approval. While many of the HRIs proposed by the
EPA in the proposed rule have already been installed in Minnesota Power’s largest coal-fired generating units, compliance specifics
would be detailed in either Minnesota’s SIP or a FIP.
Minnesota has already initiated several measures consistent with those called for under the CPP and proposed Affordable Clean
Energy Rule. Minnesota Power is implementing its EnergyForward strategic plan that provides for significant emission reductions
and diversifying its electricity generation mix to include more renewable and natural gas energy. (See Note 6. Regulatory Matters.)
We are unable to predict the GHG emission compliance costs we might incur; however, the costs could be material. Minnesota
Power would seek recovery of additional costs through a rate proceeding.
Water. The Clean Water Act requires NPDES permits be obtained from the EPA (or, when delegated, from individual state pollution
control agencies) for any wastewater discharged into navigable waters. We have obtained all necessary NPDES permits, including
NPDES storm water permits for applicable facilities, to conduct our operations.
Steam Electric Power Generating Effluent Limitations Guidelines. In 2015, the EPA issued revised federal effluent limitation
guidelines (ELG) for steam electric power generating stations under the Clean Water Act. It set effluent limits and prescribed
BACT for several wastewater streams, including flue gas desulphurization (FGD) water, bottom ash transport water and coal
combustion landfill leachate. In September 2017, the EPA announced a two-year postponement of the ELG compliance date of
November 1, 2018, to November 1, 2020, while the agency reconsiders the bottom ash transport water and FGD wastewater
provisions.
The final ELG rule’s potential impact on Minnesota Power operations is primarily at Boswell. Boswell currently discharges bottom
ash contact water through its NPDES permit, and also has a closed-loop FGD system that does not discharge to surface waters,
but may do so in the future. Under the existing ELG rule, bottom ash transport water discharge to surface waters must cease no
later than December 31, 2023. Bottom ash contact water will either need to be re-used in a closed-loop process, routed to a FGD
scrubber, or the bottom ash handling system will need to be converted to a dry process. If FGD wastewater is discharged in the
future, it will require additional wastewater treatment. The ELG rule provision regarding these two waste-streams are being
reconsidered and may change prior to November 1, 2020. Efforts have been underway at Boswell to reduce the amount of water
discharged and evaluate potential re use options in its plant processes.
ALLETE, Inc. 2018 Form 10-K
109
NOTE 11. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)
Environmental Matters (Continued)
At this time, we cannot estimate what compliance costs we might incur related to these or other potential future water discharge
regulations; however, the costs could be material, including costs associated with retrofits for bottom ash handling, pond dewatering,
pond closure, and wastewater treatment and re-use. Minnesota Power would seek recovery of additional costs through a rate
proceeding.
Solid and Hazardous Waste. The Resource Conservation and Recovery Act of 1976 regulates the management and disposal of
solid and hazardous wastes. We are required to notify the EPA of hazardous waste activity and, consequently, routinely submit
reports to the EPA.
Coal Ash Management Facilities. Minnesota Power stores or disposes coal ash at four of its electric generating facilities by the
following methods: storing ash in lined onsite impoundments (ash ponds), disposing of dry ash in a lined dry ash landfill, applying
ash to land as an approved beneficial use and trucking ash to state permitted landfills.
Coal Combustion Residuals from Electric Utilities (CCR). In 2015, the EPA published the final rule regulating CCR as nonhazardous
waste under Subtitle D of the Resource Conservation and Recovery Act (RCRA) in the Federal Register. The rule includes additional
requirements for new landfill and impoundment construction as well as closure activities related to certain existing impoundments.
Costs of compliance for Boswell and Laskin are expected to occur primarily over the next 15 years and be between approximately
$65 million and $120 million. The EPA has indicated to Minnesota Power that the landfill at Taconite Harbor, which has been
idled and has a temporary landfill cover in place, is a CCR unit based on the EPA’s interpretation of the CCR rule language.
Minnesota Power has agreed to post the required CCR information for the Taconite Harbor landfill on Minnesota Power’s website
while the CCR issue is resolved. Compliance costs for CCR at Taconite Harbor are not expected to be material. Minnesota Power
would seek recovery of additional costs through a rate proceeding.
Minnesota Power continues to work on minimizing costs through evaluation of beneficial re-use and recycling of CCR and
CCR related waters. In September 2017, the EPA announced its intention to formally reconsider the CCR rule under Subtitle D
of the RCRA and on March 15, 2018, published the first phase of the proposed rule revisions in the Federal Register. On
July 17, 2018, the EPA finalized revisions to elements of the CCR rule, including extending certain deadlines by two years, the
establishment of alternative groundwater protection standards for certain constituents and the potential for risk based management
options at facilities based on site characteristics. On August 22, 2018, a U.S. District Court for the District of Columbia decision
vacated specific provisions of the CCR rule. The court decision changes the status of three existing impoundments at Boswell that
must now be considered unlined. Compliance costs at Boswell due to the court decision are unknown at this time. Minnesota
Power would seek recovery of additional costs through a rate proceeding.
Other Environmental Matters
Manufactured Gas Plant Site. We are reviewing and addressing environmental conditions at a former manufactured gas plant site
located in Superior, Wisconsin, and formerly operated by SWL&P. SWL&P has been working with the Wisconsin Department of
Natural Resources (WDNR) in determining the extent and location of contamination at the site and surrounding properties. In
December 2017, the WDNR authorized SWL&P to transition from site investigation into the remedial design process. As of
December 31, 2018, we have recorded a liability of approximately $7 million for remediation costs at this site (approximately
$8 million as of December 31, 2017), and an associated regulatory asset as we expect recovery of these remediation costs to be
allowed by the PSCW. We expect to incur these costs over the next four years.
Other Matters
ALLETE Clean Energy. ALLETE Clean Energy’s wind energy facilities have PSAs in place for their entire output and expire
in various years between 2019 and 2032. As of December 31, 2018, ALLETE Clean Energy has $21.0 million outstanding in
standby letters of credit.
U.S. Water Services. As of December 31, 2018, U.S. Water Services has no outstanding standby letters of credit.
BNI Energy. As of December 31, 2018, BNI Energy had surety bonds outstanding of $49.9 million and a letter of credit for an
additional $0.6 million related to the reclamation liability for closing costs associated with its mine and mine facilities. Although
its coal supply agreements obligate the customers to provide for the closing costs, additional assurance is required by federal and
state regulations. BNI Energy’s total reclamation liability is currently estimated at $47.5 million. BNI Energy does not believe it
is likely that any of these outstanding surety bonds or the letter of credit will be drawn upon.
ALLETE, Inc. 2018 Form 10-K
110
NOTE 11. COMMITMENTS, GUARANTEES AND CONTINGENCIES (Continued)
Other Matters (Continued)
ALLETE Properties. As of December 31, 2018, ALLETE Properties had surety bonds outstanding and letters of credit to
governmental entities totaling $8.6 million primarily related to development and maintenance obligations for various projects.
The estimated cost of the remaining development work is $6.1 million. ALLETE Properties does not believe it is likely that any
of these outstanding surety bonds or letters of credit will be drawn upon.
Community Development District Obligations. In 2005, the Town Center District issued $26.4 million of tax-exempt, 6.0 percent
capital improvement revenue bonds, and in 2006, the Palm Coast Park District issued $31.8 million of tax-exempt, 5.7 percent
special assessment bonds. The capital improvement revenue bonds and the special assessment bonds are payable over 31 years
(by May 1, 2036 and 2037, respectively) and are secured by special assessments on the benefited land. The bond proceeds were
used to pay for the construction of a portion of the major infrastructure improvements in each district and to mitigate traffic and
environmental impacts. The assessments were billed to the landowners beginning in 2006 for the Town Center District and 2007
for the Palm Coast Park District. To the extent that ALLETE Properties still owns land at the time of the assessment, it will incur
the cost of its portion of these assessments, based upon its ownership of benefited property.
As of December 31, 2018, we owned 68 percent of the assessable land in the Town Center District (70 percent as of
December 31, 2017) and 19 percent of the assessable land in the Palm Coast Park District (33 percent as of December 31, 2017).
As of December 31, 2018, ownership levels, our annual assessments related to capital improvement and special assessment bonds
for the ALLETE Properties projects within these districts are $1.4 million for Town Center at Palm Coast and $0.6 million for
Palm Coast Park. As we sell property at these projects, the obligation to pay special assessments will pass to the new landowners.
In accordance with accounting guidance, these bonds are not reflected as debt on our Consolidated Balance Sheet.
Legal Proceedings.
We are involved in litigation arising in the normal course of business. Also in the normal course of business, we are involved in
tax, regulatory and other governmental audits, inspections, investigations and other proceedings that involve state and federal
taxes, safety, and compliance with regulations, rate base and cost of service issues, among other things. We do not expect the
outcome of these matters to have a material effect on our financial position, results of operations or cash flows.
U.S. Water Services is involved in on-going patent defense litigation it brought against a company for infringement of two patents
held by U.S. Water Services. As of December 31, 2018, U.S. Water Services has recognized approximately $2.6 million of patent
defense costs as an intangible asset. Management expects that U.S. Water Services will prevail, but in the event of an unfavorable
outcome, the patent defense costs would be recognized as an expense in the period of resolution.
ALLETE, Inc. 2018 Form 10-K
111
NOTE 12. COMMON STOCK AND EARNINGS PER SHARE
Summary of Common Stock
Balance as of December 31, 2015
Employee Stock Purchase Plan
Invest Direct
Options and Stock Awards
Contributions to RSOP
Equity Issuance Program
Received for Sale of Land Inventory
Acquisition of Non-Controlling Interest
Balance as of December 31, 2016
Employee Stock Purchase Plan
Invest Direct
Options and Stock Awards
Contributions to RSOP
Equity Issuance Program
Contribution to Pension
Balance as of December 31, 2017
Employee Stock Purchase Plan
Invest Direct
Options and Stock Awards
Contributions to RSOP
Balance as of December 31, 2018
Shares
Thousands
49,075
16
344
65
60
130
(130)
—
49,560
12
257
22
50
1,000
216
51,117
11
277
57
47
51,509
Equity
Millions
$1,271.4
0.9
20.0
3.7
3.3
8.0
(8.0)
(4.0)
1,295.3
0.8
19.0
3.6
3.5
65.7
13.5
1,401.4
0.8
20.7
2.1
3.5
$1,428.5
Equity Issuance Program. We entered into a distribution agreement with Lampert Capital Markets, Inc., in 2008, as amended
most recently in 2016, with respect to the issuance and sale of up to an aggregate of 13.6 million shares of our common stock,
without par value, of which 2.9 million shares remain available for issuance as of December 31, 2018. For the year ended
December 31, 2018, no shares of common stock were issued under this agreement (1.0 million shares for net proceeds of
$65.7 million in 2017; 0.1 million shares for net proceeds of $8.0 million in 2016). The shares issued in 2017 and 2016 were
offered and sold pursuant to Registration Statement No. 333-212794, pursuant to which the remaining shares will continue to be
offered for sale, from time to time.
Contributions to Pension. For the year ended December 31, 2018, we contributed no shares of ALLETE common stock to our
pension plan (0.2 million shares, which had an aggregate value of $13.5 million in 2017 and none in 2016). The shares of ALLETE
common stock contributed in 2017 were contributed in reliance upon an exemption available pursuant to Section 4(a)(2) of the
Securities Act of 1933, as amended.
Earnings Per Share. We compute basic earnings per share using the weighted average number of shares of common stock
outstanding during each period. The difference between basic and diluted earnings per share, if any, arises from outstanding stock
options, non-vested restricted stock units and performance share awards granted under our Executive Long-Term Incentive
Compensation Plan. No options to purchase shares of common stock were excluded from the computation of diluted earnings per
share in 2018, 2017 and 2016.
ALLETE, Inc. 2018 Form 10-K
112
NOTE 12. COMMON STOCK AND EARNINGS PER SHARE (Continued)
Reconciliation of Basic and Diluted
Earnings Per Share
Year Ended December 31
Millions Except Per Share Amounts
2018
Net Income Attributable to ALLETE
Average Common Shares
Earnings Per Share
Dividends Per Share
2017
Net Income Attributable to ALLETE
Average Common Shares
Earnings Per Share
Dividends Per Share
2016
Net Income Attributable to ALLETE
Average Common Shares
Earnings Per Share
Dividends Per Share
NOTE 13. INCOME TAX EXPENSE
Income Tax Expense
Year Ended December 31
Millions
Current Income Tax Expense (a)
Federal
State
Total Current Income Tax Expense
Deferred Income Tax Expense (Benefit)
Federal (b)
Federal – Remeasurement of Deferred Income Taxes (c)
State
Investment Tax Credit Amortization
Total Deferred Income Tax Expense (Benefit)
Total Income Tax Expense (Benefit)
Dilutive
Securities
Basic
Diluted
$174.1
51.3
$3.39
$2.24
$172.2
50.8
$3.39
$2.14
$155.3
49.3
$3.15
$2.08
0.2
0.2
0.2
$174.1
51.5
$3.38
$2.24
$172.2
51.0
$3.38
$2.14
$155.3
49.5
$3.14
$2.08
2018
2017
2016
—
$0.3
$0.3
$(26.2)
—
11.0
(0.6)
$(15.8)
$(15.5)
—
$0.3
$0.3
$12.1
(13.0)
15.8
(0.5)
$14.4
$14.7
—
$0.4
$0.4
$12.0
—
8.1
(0.7)
$19.4
$19.8
(a) For the years ended December 31, 2018, 2017 and 2016, the federal and state current tax expense was minimal due to NOLs which resulted
from the bonus depreciation provisions of the Protecting Americans from Tax Hikes Act of 2015, the Tax Increase Prevention Act of 2014
and the American Taxpayer Relief Act of 2012. Federal and state NOLs are being carried forward to offset current and future taxable
income.
(b) For the year ended December 31, 2018, the federal tax benefit is primarily due to production tax credits, and the reduction of the federal
statutory tax rate from 35 percent to 21 percent enacted as part of the TCJA.
(c) For the year ended December 31, 2017, the federal deferred income tax benefit is due to the remeasurement of deferred income tax assets
and liabilities resulting from the TCJA.
ALLETE, Inc. 2018 Form 10-K
113
NOTE 13. INCOME TAX EXPENSE (Continued).
Reconciliation of Taxes from Federal Statutory
Rate to Total Income Tax Expense
Year Ended December 31
Millions
Income Before Non-Controlling Interest and Income Taxes
Statutory Federal Income Tax Rate
Income Taxes Computed at Statutory Federal Rate
Increase (Decrease) in Tax Due to:
State Income Taxes – Net of Federal Income Tax Benefit
Production Tax Credits
Regulatory Differences – Excess Deferred Tax Benefit (a)
Change in Fair Value of Contingent Consideration
Remeasurement of Deferred Income Taxes (b)
Other
Total Income Tax Expense (Benefit)
2018
2017
2016
$158.6
$186.9
$175.6
21%
$33.3
35%
$65.4
35%
$61.5
8.9
(45.0)
(8.2)
(0.4)
—
(4.1)
$(15.5)
10.5
(45.1)
1.2
—
(13.0)
(4.3)
$14.7
5.6
(41.5)
1.4
(3.8)
—
(3.4)
$19.8
(a) Excess deferred income taxes are being returned to customers under both the Average Rate Assumption Method and amortization periods
as approved by regulators. (See Note 4. Regulatory Matters.)
(b) Deferred income tax benefit from the remeasurement of deferred income tax assets and liabilities resulting from the TCJA.
The effective tax rate was a benefit of 9.8 percent for 2018 (expense of 7.9 percent for 2017; expense of 11.3 percent for 2016).
The 2018 effective tax rate was primarily impacted by production tax credits, and the reduction of the federal income tax rate from
35 percent to 21 percent enacted as part of the TCJA. The 2017 effective tax rate was primarily impacted by production tax credits
and the remeasurement of deferred income tax assets and liabilities resulting from the TCJA. The 2016 effective tax rate was
primarily impacted by production tax credits.
Deferred Income Tax Assets and Liabilities
As of December 31
Millions
Deferred Income Tax Assets
Employee Benefits and Compensation
Property-Related
NOL Carryforwards
Tax Credit Carryforwards
Power Sales Agreements
Regulatory Liabilities
Other
Gross Deferred Income Tax Assets
Deferred Income Tax Asset Valuation Allowance
Total Deferred Income Tax Assets
Deferred Income Tax Liabilities
Property-Related
Regulatory Asset for Benefit Obligations
Unamortized Investment Tax Credits
Partnership Basis Differences
Regulatory Assets
Other
Total Deferred Income Tax Liabilities
Net Deferred Income Taxes (a)
(a) Recorded as a net long-term Deferred Income Tax liability on the Consolidated Balance Sheet
ALLETE, Inc. 2018 Form 10-K
114
2018
2017
$62.2
95.2
86.1
349.8
27.5
113.4
25.1
759.3
(66.5)
$692.8
$752.5
61.0
32.2
40.8
29.9
—
$916.4
$223.6
$65.9
104.3
99.1
294.3
35.0
117.7
33.3
749.6
(60.0)
$689.6
$758.3
61.4
32.8
34.9
32.0
0.7
$920.1
$230.5
NOTE 13. INCOME TAX EXPENSE (Continued).
NOL and Tax Credit Carryforwards
As of December 31
Millions
Federal NOL Carryforwards (a)
Federal Tax Credit Carryforwards
State NOL Carryforwards (a)
State Tax Credit Carryforwards (b)
2018
2017
$319.0
$256.4
$305.8
$27.4
$375.2
$209.2
$289.9
$25.6
(a) Pre-tax amounts.
(b) Net of a $66.0 million valuation allowance as of December 31, 2018 ($59.5 million as of December 31, 2017).
The federal NOL and tax credit carryforward periods expire between 2031 and 2038. We expect to fully utilize the federal NOL
and federal tax credit carryforwards; therefore, no federal valuation allowance has been recognized as of December 31, 2018. The
state NOL and tax credit carryforward periods expire between 2024 and 2045. We have established a valuation allowance against
certain state NOL and tax credits that we do not expect to utilize before their expiration. We do not expect a material impact on
the Company’s ability to utilize its federal and state NOL and tax credit carryforwards due to the TCJA.
Gross Unrecognized Income Tax Benefits
Millions
Balance at January 1
Additions for Tax Positions Related to the Current Year
Additions for Tax Positions Related to Prior Years
Reductions for Tax Positions Related to Prior Years
Lapse of Statute
Balance as of December 31
2018
2017
2016
$1.7
0.1
0.1
(0.2)
(0.1)
$1.6
$2.0
0.1
0.1
(0.1)
(0.4)
$1.7
$2.4
0.1
0.2
(0.3)
(0.4)
$2.0
Unrecognized tax benefits are the differences between a tax position taken or expected to be taken in a tax return and the benefit
recognized and measured pursuant to the “more-likely-than-not” criteria. The unrecognized tax benefit balance includes permanent
tax positions which, if recognized would affect the annual effective income tax rate. In addition, the unrecognized tax benefit
balance includes temporary tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty
about the timing of such deductibility. A change in the period of deductibility would not affect the effective tax rate but would
accelerate the payment of cash to the taxing authority to an earlier period. The gross unrecognized tax benefits as of
December 31, 2018, included $0.9 million of net unrecognized tax benefits which, if recognized, would affect the annual effective
income tax rate.
As of December 31, 2018, we had no accrued interest (none as of December 31, 2017, and 2016) related to unrecognized tax
benefits included on the Consolidated Balance Sheet due to our NOL carryforwards. We classify interest related to unrecognized
tax benefits as interest expense and tax-related penalties in operating expenses on the Consolidated Statement of Income. Interest
expense related to unrecognized tax benefits on the Consolidated Statement of Income was immaterial in 2018 (immaterial in
2017, and in 2016). There were no penalties recognized in 2018, 2017 or 2016. The unrecognized tax benefit amounts have been
presented as reductions to the tax benefits associated with NOL and tax credit carryforwards on the Consolidated Balance Sheet.
No material changes to unrecognized tax benefits are expected during the next 12 months.
ALLETE and its subsidiaries file a consolidated federal income tax return as well as combined and separate state income tax
returns in various jurisdictions. ALLETE has no open federal or state audits, and is no longer subject to federal examination for
years before 2015 or state examination for years before 2014.
ALLETE, Inc. 2018 Form 10-K
115
NOTE 14. RECLASSIFICATIONS OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in Accumulated Other Comprehensive Loss. Comprehensive income (loss) is the change in shareholders’ equity during
a period from transactions and events from non-owner sources, including net income. The amounts recorded to accumulated other
comprehensive loss include unrealized gains and losses on available-for-sale debt securities as well as defined benefit pension
and other postretirement items, consisting of deferred actuarial gains or losses and prior service costs or credits.
For the years ended December 31, 2018, 2017 and 2016, reclassifications out of accumulated other comprehensive loss for the
company were not material. Changes in accumulated other comprehensive loss are presented on the Consolidated Statement of
Shareholders’ Equity.
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
We have noncontributory union, non-union and combined retiree defined benefit pension plans covering eligible employees. The
combined retiree defined benefit pension plan was created in 2016, to include all union and non-union retirees from the existing
plans as of January 1, 2016. The plans provide defined benefits based on years of service and final average pay. We contributed
$15.0 million in cash to the plans in 2018 ($1.7 million in 2017; $6.3 million in 2016). We contributed no shares of ALLETE
common stock to the plans in 2018 (0.2 million shares, which had an aggregate value of $13.5 million in 2017; none in 2016). We
also have a defined contribution RSOP covering substantially all employees. The 2018 plan year employer contributions, which
are made through the employee stock ownership plan portion of the RSOP, totaled $11.4 million ($11.0 million for the 2017 plan
year; $9.2 million for the 2016 plan year). (See Note 12. Common Stock and Earnings Per Share and Note 16. Employee Stock
and Incentive Plans.)
The non-union defined benefit pension plan was frozen in 2018, and does not allow further crediting of service or earnings to the
plan. Further, it is closed to new participants. The Minnesota Power union defined benefit pension plan is also closed to new
participants.
We have postretirement health care and life insurance plans covering eligible employees. In 2010, the postretirement health care
plan was closed to employees hired after January 31, 2011, and the eligibility requirements were amended. In 2014, the
postretirement life plan was amended to close the plan to non-union employees retiring after December 31, 2015, and in 2018,
the postretirement life plan was amended to limit the benefit level for union employees retiring after December 31, 2018. The
postretirement health and life plans are contributory with participant contributions adjusted annually. Postretirement health and
life benefits are funded through a combination of Voluntary Employee Benefit Association trusts (VEBAs), established under
section 501(c)(9) of the Internal Revenue Code, and irrevocable grantor trusts. In 2018, no contributions were made to the VEBAs
(none in 2017; none in 2016) and no contributions were made to the grantor trusts (none in 2017; none in 2016).
Management considers various factors when making funding decisions such as regulatory requirements, actuarially determined
minimum contribution requirements and contributions required to avoid benefit restrictions for the pension plans. Contributions
are based on estimates and assumptions which are subject to change. On January 15, 2019, we contributed $10.4 million in cash
to the defined benefit pension plans. We do not expect to make any additional contributions to the defined benefit pension plans
in 2019, and we do not expect to make any contributions to the defined benefit postretirement health and life plans in 2019.
Accounting for defined benefit pension and other postretirement benefit plans requires that employers recognize on a prospective
basis the funded status of their defined benefit pension and other postretirement plans on their balance sheet and recognize as a
component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the
period but are not recognized as components of net periodic benefit cost.
The defined benefit pension and postretirement health and life benefit expense (credit) recognized annually by our regulated
utilities are expected to be recovered (refunded) through rates filed with our regulatory jurisdictions. As a result, these amounts
that are required to otherwise be recognized in accumulated other comprehensive income have been recognized as a long-term
regulatory asset (regulatory liability) on the Consolidated Balance Sheet, in accordance with the accounting standards for the effect
of certain types of regulation applicable to our Regulated Operations. The defined benefit pension and postretirement health and
life benefit expense (credits) associated with our other operations are recognized in accumulated other comprehensive income.
ALLETE, Inc. 2018 Form 10-K
116
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Pension Obligation and Funded Status
As of December 31
Millions
Accumulated Benefit Obligation
Change in Benefit Obligation
Obligation, Beginning of Year
Service Cost
Interest Cost
Plan Amendments
Plan Curtailments
Actuarial (Gain) Loss
Benefits Paid
Participant Contributions
Obligation, End of Year
Change in Plan Assets
Fair Value, Beginning of Year
Actual Return on Plan Assets
Employer Contribution (a)
Benefits Paid
Fair Value, End of Year
Funded Status, End of Year
Net Pension Amounts Recognized in Consolidated Balance Sheet Consist of:
Current Liabilities
Non-Current Liabilities
(a) Includes Participant Contributions noted above.
2018
2017
$713.7
$745.4
$793.2
11.0
29.6
(1.5)
(6.9)
(53.0)
(49.5)
24.1
$747.0
$628.2
(21.2)
40.5
(49.5)
$598.0
$(149.0)
$743.3
10.2
32.5
—
—
44.8
(51.0)
13.4
$793.2
$557.5
91.6
30.1
(51.0)
$628.2
$(165.0)
$(1.6)
$(147.4)
$(1.4)
$(163.6)
The pension costs that are reported as a component within the Consolidated Balance Sheet, reflected in long-term regulatory assets
or liabilities and accumulated other comprehensive income, consist of a net loss of $230.5 million and prior service cost of
$1.4 million as of December 31, 2018 (net loss of $236.2 million as of December 31, 2017).
Reconciliation of Net Pension Amounts Recognized in Consolidated Balance Sheet
As of December 31
Millions
Net Loss
Prior Service Cost
Accumulated Contributions in Excess of Net Periodic Benefit Cost (Prepaid Pension Asset)
Total Net Pension Amounts Recognized in Consolidated Balance Sheet
2018
2017
$(230.5)
1.4
80.1
$(149.0)
$(236.2)
—
71.2
$(165.0)
ALLETE, Inc. 2018 Form 10-K
117
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Components of Net Periodic Pension Cost
Year Ended December 31
Millions
Service Cost
Non-Service Cost Components (a)
Interest Cost
Expected Return on Plan Assets
Amortization of Loss
Amortization of Prior Service Cost
Net Pension Cost
2018
2017
$11.0
$10.2
29.6
(44.4)
11.4
(0.1)
$7.5
32.5
(42.4)
9.9
—
$10.2
2016
$8.1
33.2
(43.6)
9.5
—
$7.2
(a) These components of net periodic pension cost are included in the line item “Other” under Other Income (Expense) on the Consolidated
Statement of Income.
Other Changes in Pension Plan Assets and Benefit Obligations Recognized in
Other Comprehensive Income and Regulatory Assets or Liabilities
Year Ended December 31
Millions
Net (Gain) Loss
Amortization of Prior Service Cost
Prior Service Cost Arising During the Period
Amortization of Loss
Total Recognized in Other Comprehensive Income and Regulatory Assets or Liabilities
2018
2017
$5.8
0.1
(1.6)
(11.4)
$(7.1)
$(4.3)
—
—
(9.9)
$(14.2)
Information for Pension Plans with an Accumulated Benefit Obligation in Excess of Plan Assets
As of December 31
Millions
Projected Benefit Obligation
Accumulated Benefit Obligation
Fair Value of Plan Assets
2018
2017
$747.0
$713.7
$598.0
$793.2
$745.4
$628.2
ALLETE, Inc. 2018 Form 10-K
118
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Postretirement Health and Life Obligation and Funded Status
As of December 31
Millions
Change in Benefit Obligation
Obligation, Beginning of Year
Service Cost
Interest Cost
Actuarial (Gain) Loss
Benefits Paid
Participant Contributions
Plan Amendments
Obligation, End of Year
Change in Plan Assets
Fair Value, Beginning of Year
Actual Return on Plan Assets
Employer Contribution
Participant Contributions
Benefits Paid
Fair Value, End of Year
Funded Status, End of Year
Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet
Consist of:
Non-Current Assets
Current Liabilities
Non-Current Liabilities
2018
2017
$190.1
4.7
7.1
(15.8)
(11.6)
3.6
(2.1)
$176.0
$171.0
(9.6)
1.0
3.6
(11.7)
$154.3
$(21.7)
$173.4
4.4
7.7
15.5
(12.2)
3.1
(1.8)
$190.1
$154.3
24.5
1.3
3.1
(12.2)
$171.0
$(19.1)
$0.4
$(1.0)
$(21.1)
$3.0
$(1.1)
$(21.0)
According to the accounting standards for retirement benefits, only assets in the VEBAs are treated as plan assets in the preceding
table for the purpose of determining funded status. In addition to the postretirement health and life assets reported in the previous
table, we had $18.3 million in irrevocable grantor trusts included in Other Investments on the Consolidated Balance Sheet as of
December 31, 2018 ($19.2 million as of December 31, 2017).
The postretirement health and life costs that are reported as a component within the Consolidated Balance Sheet, reflected in
regulatory long-term assets or liabilities and accumulated other comprehensive income, consist of the following:
Unrecognized Postretirement Health and Life Costs
As of December 31
Millions
Net Loss
Prior Service Credit
Total Unrecognized Postretirement Health and Life Cost
2018
2017
$25.0
(4.6)
$20.4
$21.1
(4.6)
$16.5
Reconciliation of Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet
As of December 31
Millions
Net Loss (a)
Prior Service Credit
Accumulated Net Periodic Benefit Cost in Excess of Contributions (a)
Total Net Postretirement Health and Life Amounts Recognized in Consolidated Balance Sheet
$(25.0)
4.6
(1.3)
$(21.7)
2018
2017
$(21.1)
4.6
(2.6)
$(19.1)
(a) Excludes gains, losses and contributions associated with irrevocable grantor trusts.
ALLETE, Inc. 2018 Form 10-K
119
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Components of Net Periodic Postretirement Health and Life Cost
Year Ended December 31
Millions
Service Cost
Non-Service Cost Components (a)
Interest Cost
Expected Return on Plan Assets
Amortization of Loss
Amortization of Prior Service Credit
Net Postretirement Health and Life Credit
2018
$4.7
7.1
(10.9)
0.8
(2.1)
$(0.4)
2017
$4.4
7.7
(10.5)
0.3
(2.0)
$(0.1)
2016
$3.9
7.4
(11.2)
0.2
(2.9)
$(2.6)
(a) These components of net periodic postretirement health and life cost are included in the line item “Other” under Other Income (Expense)
on the Consolidated Statement of Income.
Other Changes in Postretirement Benefit Plan Assets and Benefit Obligations
Recognized in Other Comprehensive Income and Regulatory Assets or Liabilities
Year Ended December 31
Millions
Net Loss
Prior Service Credit Arising During the Period
Amortization of Prior Service Credit
Amortization of Loss
Total Recognized in Other Comprehensive Income and Regulatory Assets or Liabilities
Estimated Future Benefit Payments
Millions
2019
2020
2021
2022
2023
Years 2024 – 2028
2018
2017
$4.7
(2.1)
2.1
(0.8)
$3.9
$1.6
(1.8)
2.0
(0.3)
$1.5
Pension
Postretirement
Health and Life
$47.9
$47.4
$47.3
$47.1
$47.0
$231.1
$9.7
$9.7
$9.8
$9.8
$9.7
$51.1
The pension and postretirement health and life costs recorded in regulatory long-term assets or liabilities and accumulated other
comprehensive income expected to be recognized as a component of net pension and postretirement benefit costs for the year
ending December 31, 2019, are as follows:
Millions
Net Loss
Prior Service Credit
Total Pension and Postretirement Health and Life Cost (Credit)
Pension
Postretirement
Health and Life
$7.3
(0.2)
$7.1
$0.4
(1.7)
$(1.3)
ALLETE, Inc. 2018 Form 10-K
120
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Assumptions Used to Determine Benefit Obligation
As of December 31
Discount Rate
Pension
Postretirement Health and Life
Rate of Compensation Increase
Health Care Trend Rates
Trend Rate
Ultimate Trend Rate
Year Ultimate Trend Rate Effective
Assumptions Used to Determine Net Periodic Benefit Costs
Year Ended December 31
Discount Rate
Expected Long-Term Return on Plan Assets
Pension
Postretirement Health and Life
Rate of Compensation Increase
2018
2017
4.39 - 4.53% 3.81 - 3.96%
4.47%
3.86%
3.70 - 4.10% 3.70 - 4.10%
5.00 - 6.46% 5.00 - 6.73%
4.50%
2038
4.50%
2038
2018
2017
3.81 - 3.96% 4.53 - 4.57% 4.72 - 4.73%
2016
7.50%
7.50%
6.00 - 7.50% 6.00 - 7.50% 6.40 - 8.00%
3.70 - 4.10% 3.70 - 4.30% 3.70 - 4.30%
8.00%
In establishing the expected long-term rate of return on plan assets, we determine the long-term historical performance of each
asset class, adjust these for current economic conditions, and utilizing the target allocation of our plan assets, forecast the expected
long-term rate of return.
The discount rate is computed using a bond matching study which utilizes a portfolio of high quality bonds that produce cash
flows similar to the projected costs of our pension and other postretirement plans.
The Company utilizes actuarial assumptions about mortality to calculate the pension and postretirement health and life benefit
obligations. The mortality assumptions used to calculate our pension and other postretirement benefit obligations as of
December 31, 2018, considered a modified RP-2014 mortality table and mortality projection scale.
Sensitivity of a One Percent Change in Health Care Trend Rates
Millions
Effect on Total of Postretirement Health and Life Service and Interest Cost
Effect on Postretirement Health and Life Obligation
One Percent
Increase
One Percent
Decrease
$2.0
$20.7
$(1.6)
$(17.2)
Actual Plan Asset Allocations
Equity Securities
Fixed Income Securities
Private Equity
Real Estate
(a) Includes VEBAs and irrevocable grantor trusts.
Pension
2018
32%
60%
5%
3%
100%
2017
53%
38%
5%
4%
100%
Postretirement
Health and Life (a)
2017
2018
64%
62%
31%
34%
5%
4%
—
—
100%
100%
There were no shares of ALLETE common stock included in pension plan equity securities as of December 31, 2018 (no shares
as of December 31, 2017).
ALLETE, Inc. 2018 Form 10-K
121
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
The defined benefit pension plans have adopted a dynamic asset allocation strategy (glide path) that increases the invested allocation
to fixed income assets as the funding level of the plan increases to better match the sensitivity of the plan’s assets and liabilities
to changes in interest rates. This is expected to reduce the volatility of reported pension plan expenses. The postretirement health
and life plans’ assets are diversified to achieve strong returns within managed risk. Equity securities are diversified among domestic
companies with large, mid and small market capitalizations, as well as investments in international companies. The majority of
debt securities are made up of investment grade bonds.
Following are the current targeted allocations as of December 31, 2018:
Plan Asset Target Allocations
Equity Securities
Fixed Income Securities
Private Equity
Real Estate
(a) Includes VEBAs and irrevocable grantor trusts.
Fair Value
Pension
32%
56%
6%
6%
100%
Postretirement
Health and
Life (a)
60%
37%
3%
—
100%
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These
inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for
recurring fair value measurements and endeavor to utilize the best available information. Accordingly, we utilize valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs, which are used
to measure fair value, are prioritized through the fair value hierarchy. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs
(Level 3 measurement). (See Note 9. Fair Value)
Pension Fair Value
Recurring Fair Value Measures
Millions
Assets:
Equity Securities:
U.S. Large-cap (a)
U.S. Mid-cap Growth (a)
U.S. Small-cap (a)
International
Fixed Income Securities
Cash and Cash Equivalents
Private Equity Funds
Real Estate
Total Fair Value of Assets
Fair Value as of December 31, 2018
Level 1
Level 2
Level 3
Total
—
—
—
—
—
$6.3
—
—
$6.3
$59.1
28.1
27.2
75.8
352.9
—
—
—
$543.1
—
—
—
—
—
—
$27.8
20.8
$48.6
$59.1
28.1
27.2
75.8
352.9
6.3
27.8
20.8
$598.0
(a) The underlying investments consist of actively-managed funds managed to achieve the returns of certain U.S. equity securities large cap,
mid-cap and small-cap indexes.
ALLETE, Inc. 2018 Form 10-K
122
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Fair Value (Continued)
Recurring Fair Value Measures
Activity in Level 3
Millions
Balance as of December 31, 2017
Actual Return on Plan Assets
Purchases, Sales, and Settlements – Net
Balance as of December 31, 2018
Recurring Fair Value Measures
Millions
Assets:
Equity Securities:
U.S. Large-cap (a)
U.S. Mid-cap Growth (a)
U.S. Small-cap (a)
International
Fixed Income Securities
Cash and Cash Equivalents
Private Equity Funds
Real Estate
Total Fair Value of Assets
Private Equity
Funds
Real Estate
$33.2
2.8
(8.2)
$27.8
$25.5
0.7
(5.4)
$20.8
Fair Value as of December 31, 2017
Level 1
Level 2
Level 3
Total
—
—
—
—
—
$12.4
—
—
$12.4
$108.6
51.9
51.5
122.3
222.8
—
—
—
$557.1
—
—
—
—
—
—
$33.2
25.5
$58.7
$108.6
51.9
51.5
122.3
222.8
12.4
33.2
25.5
$628.2
(a) The underlying investments consist of actively-managed funds managed to achieve the returns of certain U.S. equity securities large cap,
mid-cap and small-cap indexes.
Recurring Fair Value Measures
Activity in Level 3
Millions
Balance as of December 31, 2016
Actual Return on Plan Assets
Purchases, Sales, and Settlements – Net
Balance as of December 31, 2017
Private Equity
Funds
Real Estate
$40.6
7.1
(14.5)
$33.2
$25.6
1.7
(1.8)
$25.5
ALLETE, Inc. 2018 Form 10-K
123
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Fair Value (Continued)
Postretirement Health and Life Fair Value
Recurring Fair Value Measures
Millions
Assets:
Equity Securities: (a)
U.S. Large-cap
U.S. Mid-cap Growth
U.S. Small-cap
International
Fixed Income Securities:
Mutual Funds
Debt Securities
Cash and Cash Equivalents
Private Equity Funds
Total Fair Value of Assets
(a) The underlying investments consist of mutual funds (Level 1).
Fair Value as of December 31, 2018
Level 1
Level 2
Level 3
Total
$29.1
21.2
12.9
30.4
49.6
—
0.6
—
$143.8
—
—
—
—
—
$4.0
—
—
$4.0
—
—
—
—
—
—
—
$6.5
$6.5
$29.1
21.2
12.9
30.4
49.6
4.0
0.6
6.5
$154.3
Recurring Fair Value Measures
Activity in Level 3
Millions
Balance as of December 31, 2017
Actual Return on Plan Assets
Purchases, Sales, and Settlements – Net
Balance as of December 31, 2018
Recurring Fair Value Measures
Millions
Assets:
Equity Securities: (a)
U.S. Large-cap
U.S. Mid-cap Growth
U.S. Small-cap
International
Fixed Income Securities:
Mutual Funds
Debt Securities
Cash and Cash Equivalents
Private Equity Funds
Total Fair Value of Assets
Private Equity
Funds
$8.2
0.9
(2.6)
$6.5
Fair Value as of December 31, 2017
Level 1
Level 2
Level 3
Total
$32.1
24.3
15.5
35.8
49.8
—
0.8
—
$158.3
—
—
—
—
—
$4.5
—
—
$4.5
—
—
—
—
—
—
—
$8.2
$8.2
$32.1
24.3
15.5
35.8
49.8
4.5
0.8
8.2
$171.0
(a) The underlying investments consist of mutual funds (Level 1).
ALLETE, Inc. 2018 Form 10-K
124
NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS (Continued)
Fair Value (Continued)
Recurring Fair Value Measures
Activity in Level 3
Millions
Balance as of December 31, 2016
Actual Return on Plan Assets
Purchases, Sales, and Settlements – Net
Balance as of December 31, 2017
Private Equity
Funds
$9.5
2.6
(3.9)
$8.2
Accounting and disclosure requirements for the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act)
provide guidance for employers that sponsor postretirement health care plans that provide prescription drug benefits. We provide
a fully insured postretirement health benefit, including a prescription drug benefit, which qualifies us for a federal subsidy under
the Act. The federal subsidy is reflected in the premiums charged to us by the insurance company.
NOTE 16. EMPLOYEE STOCK AND INCENTIVE PLANS
Employee Stock Ownership Plan. We sponsor an ESOP within the RSOP. Eligible employees may contribute to the RSOP plan
as of their date of hire. The dividends received by the ESOP are distributed to participants. Dividends on allocated ESOP shares
are recorded as a reduction of retained earnings. ESOP employer allocations are funded with contributions paid in either cash or
the issuance of ALLETE common stock at the Company’s discretion. We record compensation expense equal to the cash or current
market price of stock contributed. ESOP compensation expense was $11.4 million in 2018 ($11.0 million in 2017; $9.2 million
in 2016).
According to the accounting standards for stock compensation, unallocated shares of ALLETE common stock held and purchased
by the ESOP were treated as unearned ESOP shares and not considered outstanding for earnings per share computations. All ESOP
shares have been allocated to participants as of December 31, 2018, 2017 and 2016.
Stock-Based Compensation. Stock Incentive Plan. Under our Executive Long-Term Incentive Compensation Plan (Executive
Plan), share-based awards may be issued to key employees through a broad range of methods, including non-qualified and incentive
stock options, performance shares, performance units, restricted stock, restricted stock units, stock appreciation rights and other
awards. There are 0.9 million shares of ALLETE common stock reserved for issuance under the Executive Plan, of which 0.7 million
of these shares remain available for issuance as of December 31, 2018.
The following types of share-based awards were outstanding in 2018, 2017 or 2016:
Non-Qualified Stock Options. Stock options have not been granted since 2008 and none were outstanding as of
December 31, 2018 (none in 2017 and an immaterial amount in 2016). These options allow for the purchase of shares of
common stock at a price equal to the market value of our common stock at the date of grant. Options become exercisable
beginning one year after the grant date, with one-third vesting each year over three years. Options may be exercised up to ten
years following the date of grant. In the case of qualified retirement, death or disability, options vest immediately and the
period over which the options can be exercised is three years. Employees have up to 3 months to exercise vested options upon
voluntary termination or involuntary termination without cause. All options are canceled upon termination for cause. All
options vest immediately upon retirement, death, disability or a change of control, as defined in the award agreement. We
determine the fair value of options using the Black-Scholes option-pricing model. The estimated fair value of options, including
the effect of estimated forfeitures, is recognized as expense on the straight-line basis over the options’ vesting periods, or the
accelerated vesting period if the employee is eligible for retirement.
The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the grant date. Expected volatility is estimated based on the historic volatility of our stock and the stock of our peer
group companies. We utilize historical option exercise and employee pre-vesting termination data to estimate the option life.
The dividend growth rate is based upon historical growth rates in our dividends.
ALLETE, Inc. 2018 Form 10-K
125
NOTE 16. EMPLOYEE STOCK AND INCENTIVE PLANS (Continued)
Stock-Based Compensation (Continued)
Performance Shares. Under the performance share awards, the number of shares earned is contingent upon attaining specific
market goals over a three-year performance period. Market goals are measured by total shareholder return relative to a group
of peer companies. In the case of qualified retirement, death, or disability during a performance period, a pro rata portion of
the award will be earned at the conclusion of the performance period based on the market goals achieved. In the case of
termination of employment for any reason other than qualified retirement, death, or disability, no award will be earned. If
there is a change in control, a pro rata portion of the award will be paid based on the greater of actual performance up to the
date of the change in control or target performance. The fair value of these awards is determined by the probability of meeting
the total shareholder return goals. Compensation cost is recognized over the three-year performance period based on our
estimate of the number of shares which will be earned by the award recipients.
Restricted Stock Units. Under the restricted stock unit awards, shares for participants eligible for retirement vest monthly over
a three-year period. For participants not eligible for retirement, shares vest at the end of the three-year period. In the case of
qualified retirement, death or disability, a pro rata portion of the award will be earned. In the case of termination of employment
for any reason other than qualified retirement, death or disability, no award will be earned. If there is a change in control, a
pro rata portion of the award will be earned. The fair value of these awards is equal to the grant date fair value. Compensation
cost is recognized over the three-year vesting period based on our estimate of the number of shares which will be earned by
the award recipients.
Employee Stock Purchase Plan (ESPP). Under our ESPP, eligible employees may purchase ALLETE common stock at a
5 percent discount from the market price; we are not required to apply fair value accounting to these awards as the discount
is not greater than 5 percent.
RSOP. The RSOP is a contributory defined contribution plan subject to the provisions of the Employee Retirement Income
Security Act of 1974, as amended, and qualifies as an employee stock ownership plan and profit sharing plan. The RSOP
provides eligible employees an opportunity to save for retirement.
The following share-based compensation expense amounts were recognized in our Consolidated Statement of Income for the
periods presented.
Share-Based Compensation Expense
Year Ended December 31
Millions
Performance Shares
Restricted Stock Units
Total Share-Based Compensation Expense
Income Tax Benefit
2018
2017
2016
$2.3
0.9
$3.2
$0.9
$2.1
1.0
$3.1
$0.9
$1.8
0.8
$2.6
$1.1
There were no capitalized share-based compensation costs during the years ended December 31, 2018, 2017 or 2016.
As of December 31, 2018, the total unrecognized compensation cost for the performance share awards and restricted stock units
not yet recognized in our Consolidated Statement of Income was $3.0 million and $1.0 million, respectively. These amounts are
expected to be recognized over a weighted-average period of 1.7 years and 1.6 years respectively.
ALLETE, Inc. 2018 Form 10-K
126
NOTE 16. EMPLOYEE STOCK AND INCENTIVE PLANS (Continued)
Stock-Based Compensation (Continued)
Performance Shares. The following table presents information regarding our non-vested performance shares.
2018
2017
2016
Weighted-
Average
Grant Date
Fair Value
$58.23
$76.42
$59.82
—
$72.99
$66.12
Number of
Shares
127,580
50,729
—
(40,801)
(9,610)
127,898
Weighted-
Average
Grant Date
Fair Value
$52.56
$62.90
—
$46.27
$58.29
$58.23
Number of
Shares
119,540
57,189
—
(42,126)
(7,023)
127,580
Weighted-
Average
Grant Date
Fair Value
$52.72
$52.43
—
$52.70
$53.45
$52.56
Number of
Shares
127,898
66,557
(58,293)
—
(6,469)
129,693
Non-vested as of January 1
Granted (a)
Awarded
Unearned Grant Award
Forfeited
Non-vested as of December 31
(a) Shares granted include accrued dividends.
There were 31,843 performance shares granted in January 2019 for the three-year performance period ending in 2021. The ultimate
issuance is contingent upon the attainment of certain goals of ALLETE during the performance periods. The grant date fair value
of the performance shares granted was $2.3 million. There were 73,532 performance shares awarded in February 2019. The grant
date fair value of the shares awarded was $3.9 million.
Restricted Stock Units. The following table presents information regarding our available restricted stock units.
2018
2017
2016
Weighted-
Average
Grant Date
Fair Value
$56.18
$71.11
$55.78
$64.92
$60.74
Number of
Shares
54,728
21,241
(17,281)
(3,440)
55,248
Weighted-
Average
Grant Date
Fair Value
$51.79
$62.20
$49.72
$56.00
$56.18
Number of
Shares
57,694
20,351
(19,661)
(3,656)
54,728
Weighted-
Average
Grant Date
Fair Value
$49.86
$50.25
$44.33
$52.87
$51.79
Number of
Shares
55,248
16,573
(18,881)
(3,169)
49,771
Available as of January 1
Granted (a)
Awarded
Forfeited
Available as of December 31
(a) Shares granted include accrued dividends.
There were 12,924 restricted stock units granted in January 2019 for the vesting period ending in 2021. The grant date fair value
of the restricted stock units granted was $1.0 million. There were 14,307 restricted stock units awarded in February 2019. The
grant date fair value of the shares awarded was $0.7 million.
NOTE 17. BUSINESS SEGMENTS
We present three reportable segments: Regulated Operations, ALLETE Clean Energy, and U.S. Water Services. We measure
performance of our operations through budgeting and monitoring of contributions to consolidated net income by each business
segment.
Regulated Operations includes three operating segments which consist of our regulated utilities, Minnesota Power and SWL&P,
as well as our investment in ATC. ALLETE Clean Energy is our business focused on developing, acquiring and operating clean
and renewable energy projects. U.S. Water Services is our integrated water management company. The ALLETE Clean Energy
and U.S. Water Services reportable segments comprise our Energy Infrastructure and Related Services businesses. We also present
Corporate and Other which includes two operating segments, BNI Energy, our coal mining operations in North Dakota, and
ALLETE Properties, our legacy Florida real estate investment, along with our investment in Nobles 2, other business development
and corporate expenditures, unallocated interest expense, a small amount of non-rate base generation, approximately 4,000 acres
of land in Minnesota, and earnings on cash and investments.
ALLETE, Inc. 2018 Form 10-K
127
NOTE 17. BUSINESS SEGMENTS (Continued)
Year Ended December 31
Millions
Operating Revenue (a)
Residential
Commercial
Municipal
Industrial
Other Power Suppliers
CIP Financial Incentive
Other
Total Regulated Operations
Energy Infrastructure and Related Services
ALLETE Clean Energy
Long-term PSA
Sale of Wind Energy Facility
Other
Total ALLETE Clean Energy
U.S. Water Services
Point-in-time
Contract
Capital Project
Total U.S. Water Services
Corporate and Other
Long-term Contract
Other
Total Corporate and Other
Total Operating Revenue
Net Income (Loss) Attributable to ALLETE (b)(c)
Regulated Operations
Energy Infrastructure and Related Services
ALLETE Clean Energy (d)
U.S. Water Services
Corporate and Other (e)
Total Net Income Attributable to ALLETE
2018
2017
2016
$139.7
147.9
54.9
469.5
170.3
3.0
74.2
1,059.5
55.2
81.1
23.6
159.9
100.3
38.3
33.5
172.1
$127.4
139.8
57.9
470.5
161.8
5.5
100.9
1,063.8
56.9
—
23.6
80.5
95.8
36.2
19.8
151.8
$127.9
139.5
67.6
416.0
175.1
7.5
67.1
1,000.7
58.2
—
22.3
80.5
93.9
30.4
13.2
137.5
85.5
21.6
107.1
$1,498.6
89.3
33.9
123.2
$1,419.3
73.7
47.3
121.0
$1,339.7
$131.0
$128.4
$135.5
33.7
3.2
6.2
$174.1
41.5
10.7
(8.4)
$172.2
13.4
1.5
4.9
$155.3
(a) With the adoption of new revenue recognition guidance, the Company has enhanced the presentation of business segment Operating Revenue.
(See Note 1. Operations and Significant Accounting Policies.)
(b) Net income in 2017 included a favorable impact of $13.0 million after-tax due to the remeasurement of deferred income tax assets and
liabilities resulting from the TCJA, which consisted of a $23.6 million after-tax benefit for ALLETE Clean Energy, a $9.2 million after-tax
benefit for U.S. Water Services and a $19.8 million after-tax expense for Corporate and Other. The TCJA did not have an impact on net
income for our Regulated Operations as the remeasurement of deferred income tax assets and liabilities primarily resulted in the recording
of regulatory assets and liabilities. (See Note 1. Operations and Significant Accounting Policies and Note 4. Regulatory Matters.)
(c) Includes interest expense resulting from intercompany loan agreements and allocated to certain subsidiaries. The amounts are eliminated
in consolidation.
(d) Net income in 2018 includes the recognition of profit for the sale of a wind energy facility to Montana-Dakota Utilities.
(e) Net income in 2017 included a $7.9 million after-tax favorable impact for the regulatory outcome of the MPUC’s modification of tits
November 2016 order on the allocation of North Dakota investment tax credits. Net income in 2016 included an $8.8 million after-tax
adverse impact for the regulatory outcome of the November 2016 order.
ALLETE, Inc. 2018 Form 10-K
128
NOTE 17. BUSINESS SEGMENTS (Continued)
Year Ended December 31
Millions
Depreciation and Amortization
Regulated Operations
Energy Infrastructure and Related Services
ALLETE Clean Energy
U.S. Water Services
Corporate and Other
Total Depreciation and Amortization
Operating Expenses – Other (a)
ALLETE Clean Energy
Corporate and Other
Total Operating Expenses – Other
Interest Expense (b)
Regulated Operations
Energy Infrastructure and Related Services
ALLETE Clean Energy
U.S. Water Services
Corporate and Other
Eliminations
Total Interest Expense
Equity Earnings in ATC
Regulated Operations
Income Tax Expense (Benefit) (c)
Regulated Operations (d)
Energy Infrastructure and Related Services
ALLETE Clean Energy
U.S. Water Services
Corporate and Other (d)
Total Income Tax Expense (Benefit)
2018
2017
2016
$158.0
$132.6
$154.3
24.4
10.2
13.0
$205.6
—
$(2.0)
$(2.0)
$60.2
3.6
1.5
7.3
(4.7)
$67.9
$17.5
$(15.5)
(1.0)
1.0
—
$(15.5)
23.4
9.8
11.7
$177.5
—
$(0.7)
$(0.7)
$57.0
4.2
1.6
10.3
(5.3)
$67.8
$22.5
$27.2
(14.2)
(7.8)
9.5
$14.7
22.3
8.9
10.3
$195.8
$3.3
(13.6)
$(10.3)
$52.1
5.8
1.7
14.5
(3.8)
$70.3
$18.5
$5.9
8.1
1.4
4.4
$19.8
(a) See Note 1. Operations and Significant Accounting Policies.
(b) Includes interest expense resulting from intercompany loan agreements and allocated to certain subsidiaries. The amounts are eliminated
in consolidation.
(c) Income tax expense in 2017 included an income tax benefit of $13.0 million due to the remeasurement of deferred income tax assets and
liabilities resulting from the TCJA, which consisted of income tax benefits of $23.6 million for ALLETE Clean Energy and $9.2 million for
U.S. Water Services as well as additional income tax expense of $19.8 million for Corporate and Other. The TCJA did not have an impact
on income tax expense for our Regulated Operations as the remeasurement of deferred income tax assets and liabilities primarily resulted
in the recording of regulatory assets and liabilities. (See Note 1. Operations and Significant Accounting Policies and Note 4. Regulatory
Matters.)
(d) In 2017, Regulated Operations includes $14.0 million of income tax expense related to North Dakota investment tax credits transferred to
Corporate and Other and higher pre-tax income for the favorable impact for the regulatory outcome of the MPUC’s modification of its
November 2016 order on the allocation of North Dakota investment tax credits. There was no impact to net income for Regulated Operations.
Corporate and Other recorded an offsetting income tax benefit of $7.9 million in 2017. In 2016, Regulated Operations includes $15.0 million
of income tax benefit for North Dakota investment tax credits transferred from Corporate and Other and lower pre-tax income related to
the adverse impact for the regulatory outcome of the November 2016 MPUC order. There was no impact to net income for Regulated
Operations. Corporate and Other recorded an offsetting income tax expense of $8.8 million in 2016. (See Note 4. Regulatory Matters.)
ALLETE, Inc. 2018 Form 10-K
129
NOTE 17. BUSINESS SEGMENTS (Continued)
As of December 31
Millions
Assets
Regulated Operations
Energy Infrastructure and Related Services
ALLETE Clean Energy
U.S. Water Services
Corporate and Other
Total Assets
Capital Expenditures
Regulated Operations
Energy Infrastructure and Related Services
ALLETE Clean Energy
U.S. Water Services
Corporate and Other
Total Capital Expenditures
2018
2017
$3,952.5
$3,886.6
606.6
295.8
600.5
292.4
310.1
$5,165.0
300.5
$5,080.0
$211.9
$177.1
89.7
5.0
12.0
$318.6
56.1
4.4
28.9
$266.5
NOTE 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Information for any one quarterly period is not necessarily indicative of the results which may be expected for the year.
Quarter Ended
Millions Except Earnings Per Share
2018
Operating Revenue
Operating Income
Net Income Attributable to ALLETE
Earnings Per Share of Common Stock
Basic
Diluted
2017
Operating Revenue
Operating Income
Net Income Attributable to ALLETE
Earnings Per Share of Common Stock
Basic
Diluted
2016
Operating Revenue
Operating Income
Net Income Attributable to ALLETE
Earnings Per Share of Common Stock
Basic
Diluted
Mar. 31
Jun. 30
Sept. 30
Dec. 31
$358.2
$57.4
$51.0
$1.00
$0.99
$365.6
$71.6
$49.0
$0.97
$0.97
$333.8
$65.2
$45.9
$0.93
$0.93
$344.1
$36.5
$31.3
$0.61
$0.61
$353.3
$54.0
$36.9
$0.73
$0.72
$314.8
$40.6
$24.8
$0.50
$0.50
$348.0
$43.3
$30.7
$0.59
$0.59
$362.5
$68.0
$44.9
$0.88
$0.88
$349.6
$51.8
$40.3
$0.82
$0.81
$448.3
$64.0
$61.1
$1.19
$1.18
$337.9
$32.3
$41.4
$0.81
$0.81
$341.5
$59.4
$44.3
$0.89
$0.89
ALLETE, Inc. 2018 Form 10-K
130
Schedule II
ALLETE
Valuation and Qualifying Accounts and Reserves
Millions
Reserve Deducted from Related Assets
Reserve For Uncollectible Accounts
2016 Trade Accounts Receivable
Finance Receivables – Long-Term
2017 Trade Accounts Receivable
Finance Receivables – Long-Term
2018 Trade Accounts Receivable
Finance Receivables – Long-Term
Deferred Asset Valuation Allowance
2016 Deferred Tax Assets
2017 Deferred Tax Assets
2018 Deferred Tax Assets
(a) Includes uncollectible accounts written-off.
Balance at
Beginning of
Period
Additions
Charged to
Income
Other
Charges
Deductions
from
Reserves (a)
Balance at
End of
Period
$1.0
$0.6
$3.1
—
$2.1
—
$31.6
$43.0
$60.0
$4.1
—
$0.8
—
$0.9
—
$11.4
$17.0
$6.5
—
—
—
—
—
—
—
—
—
$2.0
$0.6
$1.8
—
$1.3
—
—
—
—
$3.1
—
$2.1
—
$1.7
—
$43.0
$60.0
$66.5
ALLETE, Inc. 2018 Form 10-K
131
Exhibit 10(b)2
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of January 10, 2019
among
ALLETE, INC.,
as Borrower,
The Lenders Party Hereto,
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent
and
BANK OF AMERICA, N.A.,
ROYAL BANK OF CANADA,
U.S. BANK NATIONAL ASSOCIATION and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Documentation Agents
J.P. MORGAN CHASE BANK, N.A.
Sole Lead Arranger and Sole Book Runner
TABLE OF CONTENTS
Exhibit 10(b)2
Page
Article 1.
Article 2.
Article 3.
Article 4.
Section 1.1.
Section 1.2.
Section 1.3.
Section 1.4.
Section 1.5.
Section 1.6.
Section 1.7.
DEFINITIONS AND INTERPRETATION.....................................................
Defined Terms......................................................................................................
Classification of Loans and Borrowings..............................................................
Terms Generally...................................................................................................
Accounting Terms; GAAP...................................................................................
Interest Rates; LIBOR Notification .....................................................................
Rounding..............................................................................................................
Amendment and Restatement ..............................................................................
THE CREDITS ..................................................................................................
Commitments.......................................................................................................
Loans and Borrowings .........................................................................................
Requests for Borrowings......................................................................................
Funding of Borrowings ........................................................................................
Termination, Reduction and Increase of Commitments ......................................
Repayment of Loans; Evidence of Debt ..............................................................
Prepayment of Loans ...........................................................................................
Extension of Maturity Date..................................................................................
Letters of Credit ...................................................................................................
............................
Defaulting Lenders...............................................................................................
INTEREST, FEES, YIELD PROTECTION, ETC.........................................
Interest..................................................................................................................
Interest Elections Relating to Borrowings ...........................................................
Fees ......................................................................................................................
Alternate Rate of Interest .....................................................................................
Increased Costs; Illegality....................................................................................
Break Funding Payments .....................................................................................
Withholding of Taxes;m Gross-Up ......................................................................
Mitigation Obligations .........................................................................................
EEA Financial Institutions ...................................................................................
Plan Assets; Prohibited Transactions ...................................................................
REPRESENTATIONS AND WARRANTIES .................................................
Organization; Powers...........................................................................................
Authorization; Enforceability ..............................................................................
Governmental Approvals; No Conflicts...............................................................
Financial Condition; No Material Adverse Change.............................................
Litigation..............................................................................................................
Environmental Matters.........................................................................................
Investment Company Status ................................................................................
ERISA ..................................................................................................................
Disclosure ............................................................................................................
Subsidiaries ..........................................................................................................
Use of Proceeds; Federal Reserve Regulations ...................................................
Anti-Money Laundering and Anti-Terrorism Finance Laws ...............................
Section 2.1.
Section 2.2.
Section 2.3.
Section 2.4.
Section 2.5.
Section 2.6.
Section 2.7.
Section 2.8.
Section 2.9.
Section 2.10.
Section 2.11.
Section 3.1.
Section 3.2.
Section 3.3.
Section 3.4.
Section 3.5.
Section 3.6.
Section 3.7.
Section 3.8.
Section 3.9.
Section 3.10.
Section 4.1.
Section 4.2.
Section 4.3.
Section 4.4.
Section 4.5.
Section 4.6.
Section 4.7.
Section 4.8.
Section 4.9.
Section 4.10.
Section 4.11.
Section 4.12.
(i)
1
1
17
17
17
18
18
18
18
18
19
19
20
20
21
22
23
23
27
28
29
29
30
31
32
33
34
34
37
38
38
38
38
38
39
39
39
39
39
40
40
40
40
40
Exhibit 10(b)2
TABLE OF CONTENTS
Page
Article 5.
Article 6.
Article 7.
Article 8.
Article 9.
Article 10.
Section 4.13.
Section 4.14.
Foreign Corrupt Practices Act..............................................................................
Sanction Laws......................................................................................................
CONDITIONS....................................................................................................
Effectiveness ........................................................................................................
Each Credit Event ................................................................................................
AFFIRMATIVE COVENANTS.......................................................................
Financial Statements and Other Information .......................................................
Notices of Material Events...................................................................................
Legal Existence....................................................................................................
Taxes ....................................................................................................................
Insurance ..............................................................................................................
Condition of Property ..........................................................................................
Observance of Legal Requirements .....................................................................
Inspection of Property; Books and Records; Discussions ...................................
NEGATIVE COVENANTS ..............................................................................
Liens.....................................................................................................................
Merger; Consolidation .........................................................................................
Transactions with Affiliates .................................................................................
Permitted Hedge Agreements ..............................................................................
Financial Covenant ..............................................................................................
Anti-Money Laundering and Anti-Terrorism Finance Laws;
Foreign Corrupt Practices Act; Sanctions Laws; Restricted Person ....................
Section 5.1.
Section 5.2.
Section 6.1.
Section 6.2.
Section 6.3.
Section 6.4.
Section 6.5.
Section 6.6.
Section 6.7.
Section 6.8.
Section 7.1.
Section 7.2.
Section 7.3.
Section 7.4.
Section 7.5.
Section 7.6.
Section 9.2.
Section 9.1.
Section 9.4.
Section 9.3.
Section 9.7.
Section 9.5.
Section 9.6.
EVENTS OF DEFAULT....................................................................................
THE ADMINISTRATIVE AGENT .................................................................
Authorization and Action.....................................................................................
Administrative Agent's Reliance, Indemnification, Etc.......................................
Posting of Communications.................................................................................
The Administrative Agent Individually ...............................................................
Successor Administrative Agent ..........................................................................
Acknowledgements of Lenders and Issuing banks..............................................
Certain ERISA Matters ........................................................................................
MISCELLANEOUS ..........................................................................................
Section 10.1.
Notices .................................................................................................................
Section 10.2. Waivers; Amendments .........................................................................................
Expenses; Indemnity; Damage Waiver................................................................
Section 10.3.
Successors and Assigns........................................................................................
Survival ................................................................................................................
Counterparts; Integration; Effectiveness..............................................................
Severability ..........................................................................................................
....................................................................................................
Section 10.9.
Governing Law; Jurisdiction; Consent to Service of Process..............................
Section 10.10. Waiver of Jury Trial .............................................................................................
Section 10.6.
Section 10.7.
Section 10.4.
Section 10.8.
Section 10.5.
(ii)
41
41
41
41
42
43
43
44
45
45
45
45
45
45
46
46
47
48
48
48
48
48
51
51
53
54
55
55
56
56
57
57
58
59
60
63
63
64
64
64
65
Exhibit 10(b)2
Section 10.11. Headings ..............................................................................................................
Section 10.12.
Interest Rate Limitation .......................................................................................
Section 10.13. Advertisement ......................................................................................................
Section 10.14. USA PATRIOT Act ..............................................................................................
Section 10.15.
Treatment of Certain Information ........................................................................
Section 10.16. No Fiduciary Duty ...............................................................................................
Section 10.17.
CoBank Equity and Security................................................................................
Section 10.18. Acknowledgement and Consent to Bail-In of EEA Financial Institutions ..........
65
65
65
65
65
66
66
67
SCHEDULES:
Schedule 1
Schedule 2
Schedule 2.1
Schedule 2.9
Schedule 4.5/4.6
Schedule 4.10
EXHIBITS:
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Applicable Margin
Letter of Credit Commitments
List of Commitments
Existing Letters of Credit
Disclosed Matters
List of Subsidiaries
Form of Assignment and Assumption
Form of Credit Request
Form of Note
Form of Compliance Certificate
Form of Increase Supplement
Form of U.S. Tax Compliance Certificates
(iii)
Exhibit 10(b)2
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”) dated as of January 10,
2019, is among ALLETE, INC. (the “Borrower”), the Lenders party hereto and JPMORGAN CHASE BANK, N.A.,
as Administrative Agent.
WHEREAS, the Borrower, various financial institutions and JPMorgan Chase Bank, N.A., as
administrative agent, have entered into a credit agreement dated as of November 4, 2013 (the “Existing Credit
Agreement”);
WHEREAS, the parties hereto have agreed to amend and restate the Existing Credit Agreement
pursuant to this Agreement; and
WHEREAS, the parties hereto intend that this Agreement and the documents executed in connection
herewith not effect a novation of the obligations of the Borrower under the Existing Credit Agreement, but
merely a restatement of and, where applicable, an amendment to the terms governing such obligations;
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
acknowledged hereby, the parties hereto agree as follows:
Article 1.
DEFINITIONS AND INTERPRETATION
Section 1.1.
Defined Terms. As used in this Agreement, the following terms have the meanings specified
below:
“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans
comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. For the
avoidance of doubt, a Loan that bears interest at a rate determined pursuant to clause (c) of the definition of Alternate
Base Rate shall, for all purposes of this Agreement, be deemed to be an ABR Loan and not a Eurodollar Loan.
“Accountants” means PricewaterhouseCoopers, L.L.P. or another registered public accounting firm
of recognized national standing.
“Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, an
interest rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.
“Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as administrative agent
for the Lenders hereunder, and any successor in such capacity.
“Administrative Questionnaire” means an administrative questionnaire in a form supplied by the
Administrative Agent.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through
one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agreement” has the meaning assigned to such term in the preamble.
1
Exhibit 10(b)2
“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate
in effect on such day, (b) the NYFRB Rate in effect on such day plus ½ of 1% and (c) the Adjusted LIBO Rate for a
one month Interest Period on such day (or if such day is not a Business Day, the immediately preceding Business Day)
plus 1%; provided that for the purpose of this definition, the Adjusted LIBO Rate for any day shall be based on the
LIBO Screen Rate (or if the LIBO Screen Rate is not available for such one month Interest Period, the Interpolated
Rate) at approximately 11:00 a.m. London time on such day. Any change in the Alternate Base Rate due to a change
in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate shall be effective from and including the effective date
of such change in the Prime Rate, the NYFRB Rate or the Adjusted LIBO Rate, respectively. If the Alternate Base
Rate is being used as an alternate rate of interest pursuant to Section 3.4, then the Alternate Base Rate shall be the
greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance
of doubt, if the Alternate Base Rate as determined pursuant to the foregoing would be less than 1.00%, such rate shall
be deemed to be 1.00% for purposes of this Agreement.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the
Borrower or any of its Subsidiaries from time to time concerning or relating to bribery or corruption.
“Anti-Terrorism Laws” has the meaning assigned to such term in Section 4.12.
“Applicable Margin” means a rate per annum determined pursuant to Schedule 1.
“Applicable Percentage” means, with respect to any Lender, the percentage of the total Commitments
represented by such Lender’s Commitment; provided that in the case of Section 2.11 when a Defaulting Lender shall
exist, “Applicable Percentage” shall mean the percentage of the total Commitments (disregarding any Defaulting
Lender’s Commitments) represented by such Lender’s Commitments. If the Commitments have terminated or expired,
the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to
any assignments and to any Lender’s status as a Defaulting Lender at the time of such determination.
“Approved Electronic Platform” has the meaning assigned to such term in Section 9.3(a).
“Approved Fund” means, with respect to any Lender that is a fund that invests in commercial loans,
any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such
Lender or by an Affiliate of such investment advisor.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an
Eligible Assignee (with the consent of any party whose consent is required by Section 10.4), and accepted by the
Administrative Agent, substantially in the form of Exhibit A or in such other form as shall be acceptable to the
Administrative Agent.
“Availability Period” means the period from and including the Effective Date to but excluding the
earlier of the Maturity Date and, if different, the date of termination of the Commitments.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable
EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of
Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law
for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“Bankruptcy Event” means, with respect to any Person, such Person becomes the subject of a
bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, custodian, assignee for
the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for
it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event
2
Exhibit 10(b)2
shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person
by a Governmental Authority or instrumentality thereof, provided, further, that such ownership interest does not result
in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement
of judgments or writs of attachment on its assets or permit such Person (or such Governmental Authority or
instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership or control
as required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA)
that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code to which Section 4975 of the
Code applies, and (c) any Person whose assets include (for purposes of the Plan Asset Regulations or otherwise for
purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“Board” means the Board of Governors of the Federal Reserve System of the United States of America.
“Borrower” means ALLETE, Inc., a Minnesota corporation.
“Borrower Financial Statements” has the meaning assigned to such term in Section
4.4(a).
“Borrowing” means Loans of the same Type made, converted or continued on the same date and, in
the case of Eurodollar Loans, as to which a single Interest Period is in effect.
“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks
in New York City are authorized or required by law to remain closed, provided that, when used in connection with a
Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in
dollar deposits in the London interbank market.
“Capital Lease Obligations” means with respect to any Person, obligations of such Person to pay rent
or other amounts under any lease (or other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance
sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined
in accordance with GAAP, provided that no power purchase agreement shall constitute a Capital Lease Obligation.
“Change in Control” means the occurrence of any of the following: (a) the consummation of any
transaction the result of which is that any “person” or “group” (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934 but excluding any employee benefit plan of the Borrower or its Subsidiaries, and any Person
acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial
owner” (as such term is defined in Rule 13d 3 under the Securities Exchange Act of 1934) of more than 30% of the
total voting power in the aggregate of all classes of the Voting Securities of the Borrower then outstanding, (b) during
any period of two consecutive calendar years, individuals who at the beginning of such period constituted the board
of directors of the Borrower cease for any reason to constitute a majority of the directors of the Borrower then in office
unless (i) such new directors were elected or nominated by a majority of the directors of the Borrower who constituted
the board of directors of the Borrower at the beginning of such period or (ii) the reason for such directors failing to
constitute a majority is a result of retirement by directors due to age, death or disability or (c) any event or condition
relating to a change of control of the Borrower shall occur which requires or permits the holder or holders of indebtedness
of the Borrower in an aggregate principal amount of $35,000,000 or more, or any agent or trustee for such holders, to
require payment, purchase, redemption or defeasance of such indebtedness prior to its expressed maturity.
3
Exhibit 10(b)2
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a)
the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty
or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c)
the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any
Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street
Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection
therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements,
the Basel Committee on Banking Supervision (or any successor or similar authority) or any United States or foreign
regulatory authority, in each case pursuant to Basel III, shall, in each case referred to in the foregoing clauses (x) and
(y), be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“CoBank” means CoBank ACB.
“CoBank Equities” has the meaning assigned to such term in Section 10.17(a).
“Code” means the Internal Revenue Code of 1986.
“Commitment” means, with respect to each Lender, the commitment of such Lender to make Loans
and to acquire participations in Letters of Credit hereunder in an aggregate outstanding amount not exceeding the
amount of such Lender’s Commitment as set forth on Schedule 2.1 plus, the amount of any increase set forth in each
Increase Supplement executed and delivered by such Lender, the Borrower and the Administrative Agent or in the
Assignment and Assumption pursuant to which such Lender shall have assumed its Commitment in accordance with
Section 10.4(b), as applicable, as such Commitment may be adjusted from time to time pursuant to Section 2.5 or
pursuant to assignments by or to such Lender pursuant to Section 10.4. The initial aggregate amount of the Commitments
is $400,000,000.
“Communications” has the meaning assigned to such term in Section 9.3(c).
“Compliance Certificate” means a certificate, substantially in the form of Exhibit D.
“Consolidated Assets” means the total amount of assets shown on the consolidated balance sheet of
the Borrower and its Subsidiaries, determined in accordance with GAAP and prepared as of the end of the fiscal quarter
then most recently ended for which financial statements have been filed with the SEC.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of
the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.
The terms “Controlling” and “Controlled” have meanings correlative thereto.
“Credit Exposure” means, with respect to any Lender at any time, the sum of the aggregate outstanding
principal amount of such Lender’s Loans and its LC Exposure at such time.
“Credit Parties” means the Administrative Agent, the Issuing Banks and the Lenders.
“Credit Request” means a Credit Request, substantially in the form of Exhibit B, or in such other form
as shall be acceptable to the Administrative Agent.
“Declining Lender” has the meaning assigned to such term in Section 2.8.
“Default” means any event or condition that constitutes an Event of Default or that upon notice, lapse
of time or both would, unless cured or waived, become an Event of Default.
4
Exhibit 10(b)2
“Defaulting Lender” means any Lender, as determined by the Administrative Agent (or if the
Administrative Agent is the Defaulting Lender, by the Required Lenders), that (a) has failed, within three (3) Business
Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations
in Letters of Credit or (iii) pay over to any Credit Party any other amount required to be paid by it hereunder, unless,
in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result
of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including
the particular default, if any) has not been satisfied, (b) has notified the Borrower or any Credit Party in writing, or has
made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations
under this Agreement) or generally under other agreements in which it commits to extend credit, (c) has failed, within
three (3) Business Days after request by a Credit Party (based on the reasonable belief that it may not fulfill its funding
obligation), acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it
will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans and
participations in then outstanding Letters of Credit under this Agreement, provided that such Lender shall cease to be
a Defaulting Lender pursuant to this clause (c) upon such Credit Party’s receipt of such certification in form and
substance satisfactory to it and the Administrative Agent, or (d) has become the subject of (A) a Bankruptcy Event or
(B) a Bail-In Action.
“Disclosed Matters” means the actions, suits, proceedings and environmental matters disclosed in (a)
Schedule 4.5/4.6, (b) the current and periodic reports filed by the Borrower from time to time with the SEC pursuant
to the requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, or
(c) disclosed by the Borrower to the Lenders (either directly or indirectly through the Administrative Agent) in writing.
“Disqualified Stock” means any Equity Interest that, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of
any event, matures (excluding any maturity as a result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the unconditional sole option of
the holder thereof (other than solely for Equity Interests that do not constitute Disqualified Stock), in whole or in part,
on or prior to the date that is 180 days after the Maturity Date.
“dollars” or “$” refers to lawful money of the United States of America.
“EEA Financial Institution” means (a) any institution established in any EEA Member Country which
is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country
which is a parent of an institution described in clause (a) of this definition, or (c) any institution established in an EEA
Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject
to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland,
Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with
public administrative authority of any EEA Member Country (including any delegee) having responsibility for the
resolution of any EEA Financial Institution.
“Effective Date” means January 10, 2019.
“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with,
a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
5
Exhibit 10(b)2
“Eligible Assignees” means any of the following (a) any commercial banks, finance companies,
insurance companies and other financial institutions and funds (whether a corporation, partnership or other entity)
engaged generally in making, purchasing or otherwise investing in commercial loans in the ordinary course of its
business, provided that unless such entity is a Lender or an Affiliate of a Lender, such entity has been approved by the
Administrative Agent, the Issuing Banks and, unless an Event of Default has occurred and is continuing at the time of
assignment to such entity, the Borrower (each such approval not to be unreasonably withheld or delayed), and provided,
further, that any such entity shall be entitled, as of the date such entity becomes a Lender, to receive payments under
its Note without deduction or withholding with respect to United States federal income tax, (b) each of the Lenders
and (c) any Affiliate or Approved Fund of a Lender, and each is an “Eligible Assignee”.
“Environmental Law” means any and all applicable present and future treaties, laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or
entered into by or with any Governmental Authority, relating in any way to the environment, preservation or reclamation
of natural resources, the presence, management, release or threatened release of any Hazardous Material or to health
and safety matters.
“Equity Interest” means (a) shares of corporate stock, partnership interests, limited liability company
membership interests, and any other interest that confers on a Person the right to receive a share of the profits and
losses of, or distribution of assets of, the issuing Person, and (b) all warrants, options or other rights to acquire any
Equity Interest set forth in the foregoing clause (a).
“ERISA” means the Employee Retirement Income Security Act of 1974.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the
Borrower or any Subsidiary, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for
purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of
the Code.
“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the
regulations issued thereunder with respect to a Plan (other than an event for which the 30 day notice period is waived),
(b) any failure to satisfy the minimum funding standards of Section 412 of the Code or Section 302 of ERISA with
respect to any Plan, whether or not waived, (c) the incurrence by the Borrower, any Subsidiary or any ERISA Affiliate
of any liability under Title IV of ERISA with respect to the termination of any Plan, (d) the receipt by the Borrower,
any Subsidiary or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan, (e) the incurrence by the Borrower, any
Subsidiary or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Plan
or Multiemployer Plan or (f) the receipt by the Borrower, any Subsidiary or any ERISA Affiliate of any notice, or the
receipt by any Multiemployer Plan from the Borrower, any Subsidiary or any ERISA Affiliate of any notice, concerning
the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent
or in reorganization, within the meaning of Title IV of ERISA.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan
Market Association (or any successor Person), as in effect from time to time.
“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the
Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
For the avoidance of doubt, a Loan that bears interest at a rate determined pursuant to clause (c) of the definition of
Alternate Base Rate shall, for all purposes of this Agreement, be deemed to be an ABR Loan and not a Eurodollar
Loan.
“Event of Default” has the meaning assigned to such term in Article 8.
6
Exhibit 10(b)2
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or
required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income
(however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient
being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending
office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection
Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account
of such Lender with respect to an applicable interest in a Loan, Letter of Credit or Commitment pursuant to a law in
effect on the date on which (i) such Lender acquires such interest in the Loan, Letter of Credit or Commitment (other
than pursuant to an assignment request by the Borrower under Section 3.8(b)) or (ii) such Lender changes its lending
office, except in each case to the extent that, pursuant to Section 3.7, amounts with respect to such Taxes were payable
either to such Lender’s assignor immediately before such Lender acquired the applicable interest in a Loan, Letter of
Credit or Commitment or to such Lender immediately before it changed its lending office, (c) Taxes attributable to
such Recipient’s failure to comply with Section 3.7(f), and (d) any withholding Taxes imposed under FATCA.
“Existing Credit Agreement” has the meaning assigned to such term in the recitals.
“Existing Letters of Credit” means the Letters of Credit listed on Schedule 2.9 hereof.
“Extension Effective Date” has the meaning assigned to such term in Section 2.8.
“Extension Request” has the meaning assigned to such term in Section 2.8.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any
amended or successor version that is substantively comparable and not materially more onerous to comply with), any
current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)
(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental
agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“Federal Funds Effective Rate” means, for any day, the rate calculated by the NYFRB based on such
day’s federal funds transactions by depositary institutions, as determined in such manner as the NYFRB shall set forth
on its public website from time to time, and published on the next succeeding Business Day by the NYFRB as the
effective federal funds rate; provided that if the Federal Funds Effective Rate as so determined would be less than zero,
such rate shall be deemed to zero for the purposes of this Agreement.
“Financial Officer” means the chief financial officer, principal accounting officer, treasurer or
controller of the Borrower.
“Fitch” means Fitch Ratings Inc., or any successor thereto.
“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that
in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and
the District of Columbia shall be deemed to constitute a single jurisdiction.
“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements
of the Accounting Principles Board and the American Institute of Certified Public Accountants and in the statements
and pronouncements of the Financial Accounting Standards Board or in such other statement by such other entity as
may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as
of the date of determination, consistently applied; provided that in the event Borrower converts to use the International
Financial Reporting Standards by the International Accounting Standards Board or other method of accounting, as may
hereafter be required or permitted by the SEC, then the term “GAAP” as used in this Agreement shall be deemed to
mean and refer to such International Financial Reporting Standards or such other method of accounting instead, which
are applicable to the circumstances as of the date of determination, consistently applied.
7
Exhibit 10(b)2
“Governmental Authority” means the government of the United States of America, any other nation
or any political subdivision thereof, whether state or local, and any agency, commission, exchange, association, board,
authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to government (including supranational bodies
such as the European Union or European Central Bank).
“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of
the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the
guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the
payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such
Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor as to enable the primary obligor to pay such Indebtedness
or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support
such Indebtedness or obligation, provided that the term “Guarantee” shall not include endorsements for collection or
deposit in the ordinary course of business. The term “Guaranteed” has a meaning correlative thereto. The amount of
any Guarantee of a Person shall be deemed to be an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee is made (or, if less, the maximum amount of such primary obligation
for which such Person may be liable pursuant to the terms of the instrument evidencing such Guarantee) or, if not
stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person
in good faith, provided that, notwithstanding anything in this definition to the contrary, the amount of any Guarantee
of a Person in respect of any Permitted Hedge Agreement by any other Person with a counterparty shall be deemed to
be the maximum reasonably anticipated liability of such other Person, as determined in good faith by such Person, net
of any obligation or liability of such counterparty in respect of any Permitted Hedge Agreement with such Person,
provided further that the obligations of such other Person under such Permitted Hedge Agreement with such counterparty
shall be terminable at the election of such other Person in the event of a default by such counterparty in its obligations
to such other Person.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or
toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any
nature regulated pursuant to any Environmental Law.
“Hedge Agreement” means any interest rate protection agreement, foreign currency exchange
agreement, commodity price protection agreement or other interest rate, currency exchange rate or commodity price
hedge, future, forward, swap, option, cap, floor, collar or similar agreement or arrangement (including both physical
and financial settlement transactions).
“IBA” has the meaning assigned to such term in Section 1.5.
“Immaterial Subsidiary” means a Subsidiary that (a) has consolidated total assets with a book value
not exceeding 5% of Consolidated Assets as of the end of the most recent fiscal quarter for which financial statements
have been filed with the SEC and (b) had total revenues not exceeding 5% of the Borrower’s consolidated total revenues
for the period ending on the last day of such fiscal quarter.
“Immaterial Transaction” means any transaction or event described in paragraph (i) or (j) of Article 8
so long as, after giving effect to such transaction or event, all Subsidiaries that have become subject to such transactions
or events during the 12-month period ending on the date of such transaction or event (a) had consolidated total assets
with a fair market value not exceeding 5% of Consolidated Assets as of the end of the most recent fiscal quarter for
which financial statements have been filed with the SEC and (b) had total revenues not exceeding 5% of the Borrower’s
consolidated total revenues for the period ending on the last day of such fiscal quarter.
8
Exhibit 10(b)2
“Impacted Interest Period” has the meaning assigned to it in the definition of “LIBO Rate.”
“Increase Supplement” means an increase supplement in the form of Exhibit E.
“Increasing Lender” has the meaning assigned to such term in Section 2.5(d).
“Indebtedness” means as to any Person, at a particular time, all items which constitute, without
duplication, (a) indebtedness for borrowed money or the deferred purchase price of property (excluding trade payables
incurred in the ordinary course of business and excluding any such obligations payable solely through the Borrower’s
issuance of Equity Interests (other than the Disqualified Stock and Equity Interests convertible into Disqualified Stock)),
(b) indebtedness evidenced by notes, bonds, debentures or similar instruments, (c) obligations with respect to any
conditional sale or title retention agreement, (d) indebtedness arising under acceptance facilities and the amount
available to be drawn under all letters of credit issued for the account of such Person and, without duplication, all drafts
drawn thereunder to the extent such Person shall not have reimbursed the issuer in respect of the issuer’s payment of
such drafts, (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has
not assumed or otherwise become liable for the payment thereof, provided that the amount of such liabilities included
for purposes of this definition will be the amount equal to the lesser of the fair market value of such property and the
amount of the liabilities so secured, (f) indebtedness in respect of Disqualified Stock valued at the greater of its voluntary
or involuntary maximum fixed repurchase price plus accrued dividends, (g) liabilities in respect of any obligation
(contingent or otherwise) to purchase, redeem, retire, acquire or make any other payment in respect of any shares of
equity securities or any option, warrant or other right to acquire any shares of equity securities, (h) obligations under
Capital Lease Obligations, (i) Guarantees of such Person in respect of Indebtedness of others, and (j) to the extent not
otherwise included, all net obligations of such Person under Permitted Hedge Agreements.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any
payment made by or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not
otherwise described in (a) hereof, Other Taxes.
“Indemnitee” has the meaning assigned to such term in Section 10.3(b).
“Information” has the meaning assigned to such term in Section 10.15.
“Intellectual Property” means all copyrights, trademarks, servicemarks, patents, trade names and
service names.
“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in
accordance with Section 3.2.
“Interest Payment Date” means (a) with respect to any ABR Loan, the last day of each March, June,
September and December, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Eurodollar Loan is a part and, in the case of a Eurodollar Loan with an Interest Period of
more than three months’ duration, the three-month anniversary of the first day of such interest period and (c) with
respect to all Loans, (i) on the date of any prepayment or (ii) on the Maturity Date.
“Interest Period” means, with respect to any Eurodollar Borrowing, the period commencing on the
date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one week or
one, two, three or six months thereafter, as the Borrower may elect, provided that (a) if any Interest Period would end
on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless
such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end
on the next preceding Business Day, and (b) any Interest Period that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest
Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the
date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective
date of the most recent conversion or continuation of such Borrowing.
9
Exhibit 10(b)2
“Interpolated Rate” means, at any time, for any Interest Period, the rate per annum (rounded to the
same number of decimal places as the LIBO Screen Rate) determined by the Administrative Agent (which determination
shall be conclusive and binding absent manifest error) to be equal to the rate that results from interpolating on a linear
basis between: (a) the LIBO Screen Rate for the longest period (for which the LIBO Screen Rate is available) that is
shorter than the Impacted Interest Period; and (b) the LIBO Screen Rate for the shortest period (for which that LIBO
Screen Rate is available) that exceeds the Impacted Interest Period, in each case, at such time.
“Investment Grade Rating” has the meaning assigned to such term in Section 7.2.
“Issuing Bank” means JPMorgan Chase, CoBank and any other Lender that agrees to act as an Issuing
Bank, each in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided
in Section 2.9(i). Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by
Affiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to
Letters of Credit issued by such Affiliate. Each reference herein to the “Issuing Bank” in connection with a Letter of
Credit or other matter shall be deemed to be a reference to the relevant Issuing Bank with respect thereto.
“JPMorgan Chase” means JPMorgan Chase Bank, N.A.
“LC Disbursement” means a payment made by an Issuing Bank pursuant to a Letter of Credit.
“LC Exposure” means, at any time, (a) with respect to all of the Lenders, the sum, without duplication,
of (i) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (ii) the aggregate amount of
all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time and (b) with
respect to each Lender, its Applicable Percentage of the amount determined under clause (a).
“Lenders” means the Persons listed on Schedule 2.1 and any other Person that shall have become a
party hereto pursuant to an Assignment and Assumption or an Increase Supplement other than any such Person that
ceases to be a party hereto pursuant to an Assignment and Assumption.
“Letter of Credit” means any standby letter of credit (and any successive renewals thereof) issued
pursuant to this Agreement.
“Letter of Credit Commitment” means, with respect to each Issuing Bank, the commitment of such
Issuing Bank to issue Letters of Credit hereunder. The initial amount of each Issuing Bank’s Letter of Credit
Commitment is set forth on Schedule 2, or if an Issuing Bank has entered into an Assignment and Assumption or has
otherwise assumed a Letter of Credit Commitment after the Effective Date, the amount set forth for such Issuing Bank
as its Letter of Credit Commitment in the Register maintained by the Administrative Agent. The Letter of Credit
Commitment of an Issuing Bank may be modified from time to time by agreement between such Issuing Bank and the
Borrower, and notified to the Administrative Agent..
“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest Period, the LIBO
Screen Rate at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest
Period; provided that if the LIBO Screen Rate shall not be available at such time for such Interest Period (an “Impacted
Interest Period”) then the LIBO Rate shall be the Interpolated Rate.
“LIBO Screen Rate” means, for any day and time, with respect to any Eurodollar Borrowing for any
Interest Period, the London interbank offered rate as administered by the IBA (or any other Person that takes over the
administration of such rate for dollars for a period equal in length to such Interest Period as displayed on such day and
time on pages LIBOR01 or LIBOR02 of the Reuters screen that displays such rate (or, in the event such rate does not
appear on a Reuters page or screen, on any successor or substitute page on such screen that displays such rate, or on
the appropriate page of such other information service that publishes such rate from time to time as selected by the
Administrative Agent in its reasonable discretion); provided that if the LIBO Screen Rate as so determined would be
less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
10
Exhibit 10(b)2
“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien (statutory or other),
assignment, deposit arrangement, pledge, hypothecation, encumbrance or preference, priority, charge or other security
interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital
lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
“Loan” means a loan referred to in Section 2.1 and made pursuant to Section 2.4 or 2.9(e).
“Loan Documents” means this Agreement, each Note issued pursuant to Section 2.6(e) and each Letter
of Credit and the related documentation.
“Margin Stock” has the meaning assigned to such term in Regulation U.
“Material Adverse Change” means a material adverse change in (a) the financial condition, operations,
business or property of (ii) the Borrower or (ii) the Borrower and its Subsidiaries, taken as a whole, (b) the ability of
the Borrower to perform its obligations under the Loan Documents or (c) the ability of the Credit Parties to enforce
their rights and remedies under the Loan Documents.
“Material Adverse Effect” means a material adverse effect on (a) the financial condition, operations,
business or property of (i) the Borrower or (ii) the Borrower and its Subsidiaries, taken as a whole, (b) the ability of
the Borrower to perform its obligations under the Loan Documents, or (c) the ability of the Credit Parties to enforce
their rights and remedies under the Loan Documents.
“Material Obligations” means as of any date, Indebtedness (other than Indebtedness under the Loan
Documents) or operating leases of any one or more of the Borrower or any Subsidiary or, in the case of the Borrower
only, any Guarantee, in an aggregate principal amount exceeding $35,000,000. For purposes of determining Material
Obligations, the “principal amount” of Indebtedness, operating leases or Guarantees at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary, as applicable, would
be required to pay if such Indebtedness, operating leases or Guarantees became due and payable on such day.
“Maturity Date” means January 10, 2024.
“Maximum Rate” has the meaning assigned to such term in Section 10.12.
“Moody’s” means Moody’s Investors Service, Inc., or any successor thereto.
“Mortgage” means the Mortgage and Deed of Trust, dated as of September 1, 1945, among the
Borrower, The Bank of New York Mellon (formerly Irving Trust Company) and Andres Serrano (successor to Philip
L. Watson), Trustees.
“MPUC” means the Minnesota Public Utilities Commission or any Governmental Authority
succeeding to the functions thereof.
“Multiemployer Plan” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
“New Lender” has the meaning assigned to such term in Section 2.5(d).
“Note” means a promissory note substantially in the form of Exhibit C issued at the request of a Lender
pursuant to Section 2.6(e) to evidence its Loans.
“NYFRB” means the Federal Reserve Bank of New York.
11
Exhibit 10(b)2
“NYFRB Rate” means, for any day, the greater of (a) the Federal Funds Effective Rate in effect on
such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day,
for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a
Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m. on such day
received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided,
further, that if any of the aforesaid rates as so determined be less than zero, such rate shall be deemed to be zero for
purposes of this Agreement.
“OFAC” has the meaning assigned to such term in Section 4.14.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present
or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising
from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments
under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any
Loan Document, or sold or assigned an interest in any Loan, Letter of Credit or Loan Document).
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing
or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or
registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan
Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment.
“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds
and overnight Eurodollar borrowings by U.S.-managed banking offices of depository institutions, as such composite
rate shall be determined by the NYFRB as set forth on its public website from time to time, and published on the next
succeeding Business Day by the NYFRB as an overnight bank funding rate.
“Participant” has the meaning assigned to such term in Section 10.4(d).
“Participant Register” has the meaning assigned to such term in Section 10.4(d).
“PATRIOT Act” means the “Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001” (Title III of Pub. L. 107-56 (signed into law October 26,
2001)).
“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
“Permitted Encumbrances” means:
Liens imposed by law for taxes, assessments or similar charges incurred in the ordinary
course of business that are not yet due or are being contested in compliance with Section 6.4, provided that enforcement
of such Liens is stayed pending such contest;
(a)
(b)
landlords’, vendors’, carriers’, warehousemen’s, mechanics’, materialmen’s,
contractors’, repairmen’s and other like Liens imposed by law, arising in the ordinary course of business and securing
obligations which are not delinquent or are being contested, provided that enforcement of such Liens is stayed pending
such contest;
workers’ compensation, unemployment insurance and other social security laws or regulations (but not ERISA);
(c)
pledges and deposits made in the ordinary course of business in compliance with
(d)
pledges and deposits to secure the performance of bids, trade contracts, leases,
purchase agreements, government contracts, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of business, and other than promissory notes and
contracts for the repayment of borrowed money;
12
Exhibit 10(b)2
(e)
Liens (including contractual security interests) in favor of a financial institution
(including securities firms) encumbering deposit accounts or checks or instruments for collection, commodity accounts
or securities accounts (including the right of set off) at or held by such financial institution in the ordinary course of
its commercial business and which secure only liabilities owed to such financial institution arising out of or resulting
from its maintenance of such account or otherwise are within the general parameters customary in the financial industry;
paragraph (k) of Article 8;
(f)
judgment liens in respect of judgments that do not constitute an Event of Default under
any interest of a lessor or licensor in property under an operating lease under which
the Borrower or any Subsidiary is lessee or licensee, and any restriction or encumbrance to which the interest of such
lessor or licensor is subject;
(g)
prohibited by this Agreement;
(h)
Liens arising from filed UCC-1 financing statements relating solely to leases not
conduct of business of the Borrower and its Subsidiaries;
(i)
leases or subleases granted to others that do not materially interfere with the ordinary
licenses of Intellectual Property granted by the Borrower or any Subsidiary in the
ordinary course of business and not materially interfering with the ordinary conduct of the business of the Borrower
and its Subsidiaries;
(j)
(k)
easements, servitudes (contractual and legal), zoning restrictions, rights of way,
encroachments, minor defects and irregularities in title and other similar encumbrances on real property imposed by
law or arising in the ordinary course of business that do not secure any monetary obligations and do not render title to
such property unmarketable or materially interfere with the ability of the Borrower and its Subsidiaries, as the case
may be, to utilize their respective properties for their intended purposes;
(l)
Liens securing obligations, neither assumed by the Borrower or any Subsidiary nor
on account of which the Borrower or any Subsidiary customarily pays interest, upon real estate on which the Borrower
or any Subsidiary has a right-of-way, easement, franchise or other servitude or of which the Borrower or any Subsidiary
is the lessee, for the purpose of locating transmission and distribution lines and related support structures, pipe lines,
substations, measuring stations, tanks, pumping or delivery equipment or similar equipment, or service buildings
incidental to any of the foregoing;
(m)
Liens with respect to properties involved in the production of oil, gas and other
minerals, unitization and pooling agreements and orders, operating agreements, royalties, reversionary interests,
preferential purchase rights, farmout agreements, gas balancing agreements and other agreements, in each case that
are customary in the oil, gas and mineral production business in the general area of such property and that are entered
into in the ordinary course of business;
(n)
Liens in favor of Governmental Authorities encumbering assets acquired in connection
with a government grant program, and the right reserved to, or vested in, any Governmental Authority by the terms of
any right, power, franchise, grant, license, or permit, or by any provision of law, to purchase, condemn, recapture or
designate a purchaser of any property;
Regulation U;
(o)
Liens on Margin Stock to the extent that a prohibition on such Liens would violate
13
Exhibit 10(b)2
(p)
Liens on any cash collateral for Letters of Credit issued under (i) the Borrower’s
primary revolving credit facility upon the occurrence of an event of default thereunder or to cover an issuing lender’s
credit exposure under such facility with respect to a defaulting lender thereunder and (ii) this Agreement or for a
Defaulting Lender’s LC Exposure;
any indenture, escrow agreement or similar agreement establishing a trust or escrow arrangement;
(q)
customary Liens for the fees and expenses of trustees and escrow agents pursuant to
(r)
agreements for and obligations (other than repayment of borrowed money) relating
to the joint or common ownership, operation, and use of property, including Liens under joint venture or similar
agreements securing obligations incurred in the conduct of operations or consisting of a purchase option, call or right
of first refusal with respect to the Equity Interests in such jointly owned Person; and
(s)
Liens granted on cash or invested funds constituting proceeds of any sale or disposition
of property deposited into escrow accounts to secure indemnification, adjustment of purchase price or similar obligations
incurred in connection with such sale or disposition, in an amount not to exceed the amount of gross proceeds received
from such sale or disposition.
“Permitted Hedge Agreement” means any Hedge Agreement engaged in by a Person as part of its
normal business operations with the purpose and effect of hedging and protecting such Person against fluctuations or
adverse changes in the prices of electricity, gas, fuel or other commodities, interest rates or currency exchange rates,
which Hedge Agreement is part of a risk management strategy and not for purposes of speculation and not intended
primarily as a borrowing of funds.
“Person” means any natural person, corporation, limited liability company, trust, joint venture,
association, company, partnership, Governmental Authority or other entity.
“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the
provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the
Borrower, any Subsidiary or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“Plan Asset Regulations” means 29 CFR § 2510.3-101 et seq., as modified by Section 3(42) of ERISA,
as amended from time to time.
“Prime Rate” means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate”
in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the
Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime
loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative
Agent) or any similar release by the Federal Reserve Board (as determined by the Administrative Agent). Each change
in the Prime Rate shall be effective from and including the date such change is publicly announced or quoted as being
effective.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as
any such exemption may be amended from time to time.
“Rating Agencies” means Fitch, Moody’s and S&P (or, if any of the foregoing ceases to provide Senior
Debt Ratings as contemplated hereby, such other nationally recognized rating agency as shall be agreed by the Borrower
and the Administrative Agent).
“Recipient” means (a) the Administrative Agent, (b) any Lender and (c) any Issuing Bank, as applicable.
14
Exhibit 10(b)2
“Register” has the meaning assigned to such term in Section 10.4(c).
“Regulation D” means Regulation D of the Board as from time to time in effect and all official rulings
and interpretations thereunder or thereof.
“Regulation T” means Regulation T of the Board as from time to time in effect and all official rulings
and interpretations thereunder or thereof.
“Regulation U” means Regulation U of the Board as from time to time in effect and all official rulings
and interpretations thereunder or thereof.
“Regulation X” means Regulation X of the Board as from time to time in effect and all official rulings
and interpretations thereunder or thereof.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the
respective directors, officers, employees, agents and advisors of such Person and such Person’s Affiliates.
“Required Deposit Amount” means in the event that as a result of the deposit of cash collateral with
the Administrative Agent pursuant to Section 2.9(i) the Borrower (a) is not required to grant a security interest in such
cash collateral to any other Person, an amount equal to the LC Exposure on the date on which cash collateral is required
to be deposited, or (b) is required to grant a security interest in such cash collateral to any other Person, an amount
equal to the LC Exposure on the date on which cash collateral is required to be deposited multiplied by a fraction, the
numerator of which is the sum of the LC Exposure plus the principal amount of all other obligations to be secured by
such cash collateral and the denominator of which is the amount of such LC Exposure.
“Required Lenders” means, at any time, Lenders having unused Commitments, LC Exposure and
outstanding Loans representing more than 50% of the sum of the unused Commitments, LC Exposure and outstanding
Loans of all Lenders.
“Restricted Person” has the meaning assigned to such term in Section 4.14.
“S&P” means Standard & Poor’s Rating Services, a Standard & Poor’s Financial Services LLC
business, or any successor thereto.
“SEC” means the Securities and Exchange Commission or any Governmental Authority succeeding
to the functions thereof.
“Senior Debt Rating” means, at any date, the credit rating identified by a Rating Agency as the credit
rating that (i) it has assigned to long term unsecured senior debt of the Borrower or (ii) would assign to long term
unsecured senior debt of the Borrower were the Borrower to issue or have outstanding any long term unsecured senior
debt on such date.
“Sole Lead Arranger and Sole Bookrunner” means J.P. Morgan Chase, in its capacity as Sole Lead
Arranger and Sole Bookrunner hereunder.
15
Exhibit 10(b)2
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the numerator of which is the
number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages,
if any, (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by
the Board to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency
funding (currently referred to as “Eurocurrency liabilities” in Regulation D). Such reserve percentages shall include
those imposed pursuant to Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and
to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under Regulation D or any comparable regulation. The Statutory Reserve
Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.
“Subsidiary” means, as to any Person, any corporation, association, partnership, limited liability
company, joint venture or other business entity of which such Person or any Subsidiary of such Person, directly or
indirectly, either (i) in respect of a corporation, owns or controls more than 50% of the outstanding Equity Interests
having ordinary voting power to elect a majority of the board of directors or similar managing body, irrespective of
whether a class or classes shall or might have voting power by reason of the happening of any contingency, or (ii) in
respect of an association, partnership, joint venture or other business entity, is entitled to share in more than 50% of
the profits and losses, however determined. Unless the context otherwise requires, any reference to a Subsidiary shall
be deemed to refer to a Subsidiary of the Borrower.
“SWLP Mortgage” means the Mortgage and Deed of Trust, dated as of March 1, 1943, between Superior
Water, Light and Power Company and U.S. Bank National Association (successor to First Bank (N.A.) as successor
to Chemical Bank and Trust Company as Corporate Trustee and Howard B. Smith as Co-Trustee) as Trustee.
“Tax” means any present or future tax, levy, assessment, impost, duty, charge, fee, deduction or
withholding of any nature, and whatever called, by a Governmental Authority, on whomsoever and wherever imposed,
levied, collected, withheld or assessed.
“Total Capitalization” means, at any time, the difference between (a) the sum of each of the following
at such time with respect to the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with
GAAP: (i) preferred Equity Interests, plus (ii) common Equity Interests and any premium on Equity Interests thereon
(as such term is used in the Borrower Financial Statements), excluding accumulated other comprehensive income or
loss, plus (iii) retained earnings, plus (iv) Total Indebtedness, and (b) (i) stock of the Borrower acquired by the Borrower
and (ii) stock of a Subsidiary acquired by such Subsidiary, in each case at such time, as applicable, determined on a
consolidated basis in accordance with GAAP.
“Total Indebtedness” means at any time, all Indebtedness (net of unamortized premium and discount
(as such term is used in the Borrower Financial Statements)) at such time of the Borrower and the Subsidiaries,
determined on a consolidated basis in accordance with GAAP.
“Transactions” means (a) the execution, delivery and performance by the Borrower of each Loan
Document to which it is a party, (b) the borrowing of the Loans and the issuance of the Letters of Credit and (c) the
use of the proceeds of the Loans and the Letters of Credit.
“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on
such Loan, or on the Loans comprising such Borrowing, is determined by reference to (a) the Adjusted LIBO Rate or
(b) the Alternate Base Rate. For the avoidance of doubt, a Loan that bears interest at a rate determined pursuant to
clause (c) of the definition of Alternate Base Rate shall, for all purposes of this Agreement, be deemed to be an ABR
Loan and not a Eurodollar Loan.
“U.S. Person” means a “United States person” within the meaning of Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” has the meaning assigned to such term in Section 3.7(f)(ii)(B)(3).
16
Exhibit 10(b)2
“Voting Security” means a security which ordinarily has voting power for the election of the board of
directors (or other governing body), whether at all times or only so long as no senior class of Equity Interests has such
voting power by reason of any contingency.
“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial
withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“WPS” means the Public Service Commission of Wisconsin or any Governmental Authority
succeeding to the functions thereof.
“Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the
write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation
for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In
Legislation Schedule.
Section 1.2.
Classification of Loans and Borrowings. For purposes of this Agreement, (a) Loans may be
classified and referred to by Type (e.g., a “Eurodollar Loan”) and (b) Borrowings may also be classified and referred
to by Type (e.g., a “Eurodollar Borrowing”).
Section 1.3.
Terms Generally. The definitions of terms herein shall apply equally to the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the
phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word
“shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or other document as from time to time
amended, supplemented or otherwise modified, (b) any definition of or reference to any law shall be construed as
referring to such law as from time to time amended and any successor thereto and the rules and regulations promulgated
from time to time thereunder, (c) any reference herein to any Person shall be construed to include such Person’s
successors and assigns, (d) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed
to refer to this Agreement in its entirety and not to any particular provision hereof, (e) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules
to, this Agreement, (f) the words “asset” and “property” shall be construed to have the same meaning and effect and
to refer to all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, and
(g) any reference to a fiscal quarter or fiscal year means a fiscal quarter or fiscal year of the Borrower. Unless otherwise
specified, each reference herein to a time of day shall mean such time in New York, New York.
Section 1.4.
Accounting Terms; GAAP.
(a)
Except as otherwise expressly provided herein, as used in the Loan Documents and in any
certificate, opinion or other document made or delivered pursuant thereto, accounting terms not defined in Section 1.1,
and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given
to them under GAAP. If at any time any change in GAAP (including any change to the International Financial Reporting
Standards by the International Accounting Standards Board or other method of accounting, as may hereafter be required
or permitted by the SEC) would affect the computation of any financial requirement set forth in this Agreement, the
Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such requirement to reflect
such change in GAAP (subject to the approval of the Required Lenders), provided that, until so amended, (i) such
requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower
shall provide to the Credit Parties financial statements and other documents required under this Agreement or as
reasonably requested hereunder setting forth a reconciliation between calculations of such requirement made before
and after giving effect to such change in GAAP.
17
Exhibit 10(b)2
(b)
Notwithstanding anything to the contrary contained in Section 1.4(a) or in the definition of
“Capital Lease Obligations,” in the event of an accounting change requiring all leases to be capitalized, only those
leases (assuming for purposes hereof that such leases were in existence on the date hereof) that would constitute capital
leases in conformity with GAAP on the date hereof shall be considered capital leases, and all calculations and
deliverables under this Agreement or any other Loan Document shall be made or delivered, as applicable, in accordance
therewith.
Section 1.5.
Interest Rates; LIBOR Notification. The interest rate on Eurodollar Loans is determined by
reference to the LIBO Rate, which is derived from the London interbank offered rate. The London interbank offered
rate is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other
in the London interbank market. In July 2017, the U.K. Financial Conduct Authority announced that, after the end of
2021,it would no longer persuade or compel contributing banks to make rate submissions to the ICE Benchmark
Administration (together with any successor to the ICE Benchmark Administrator, the “IBA”) for purposes of the IBA
setting the London interbank offered rate. As a result, it is possible that commencing in 2022, the London interbank
offered rate may no longer be available or may no longer be deemed an appropriate reference rate upon which to
determine the interest rate on Eurodollar Loans. In light of this eventuality, public and private sector industry initiatives
are currently underway to identify new or alternative reference rates to be used in place of the London interbank offered
rate. In the event that the London interbank offered rate is no longer available or in certain other circumstances as set
forth in Section 3.4(b) of this Agreement, such Section 3.4(b) provides a mechanism for determining an alternative
rate of interest. The Administrative Agent will notify the Borrower, pursuant to Section 3.4, in advance of any change
to the reference rate upon which the interest rate on Eurodollar Loans is based. However, the Administrative Agent
does not warrant or accept any responsibility for, and shall not have any liability with respect to, the administration,
submission or any other matter related to the London interbank offered rate or other rates in the definition of “LIBO
Rate” or with respect to any alternative or successor rate thereto, or replacement rate thereof, including without
limitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate,
as it may or may not be adjusted pursuant to Section 3.4(b), will be similar to, or produce the same value or economic
equivalence of, the LIBO Rate or have the same volume or liquidity as did the London interbank offered rate prior to
its discontinuance or unavailability.
Section 1.6.
Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this
Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to
one place more than the number of places by which such ratio is expressed herein and rounding the result up or down
to the nearest number (with a rounding up if there is no nearest number).
Section 1.7.
Amendment and Restatement. The Borrower and the Lenders acknowledge and agree that
(a) effective at the time at which all conditions precedent set forth in Section 5.1 have been satisfied, this Agreement
shall amend and restate in its entirety the Existing Credit Agreement and (b) there are no outstanding Loans under the
Existing Credit Agreement.
Article 2.
THE CREDITS
Section 2.1.
Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to
make Loans to the Borrower in dollars from time to time during the Availability Period in an aggregate principal amount
that will not result in such Lender’s Credit Exposure exceeding such Lender’s Commitment. Within the foregoing
limits, the Borrower may borrow, prepay and reborrow Loans.
18
Exhibit 10(b)2
Section 2.2.
Loans and Borrowings.
(a)
Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders
ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be
made by it shall not relieve any other Lender of its obligations hereunder, provided that the Commitments of the Lenders
are several, and no Lender shall be responsible for any other Lender’s failure to make any Loan as required.
(b)
Subject to Section 3.4, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar
Loans, as applicable, in each case as the Borrower may request in accordance herewith. Each Lender at its option may
make any Eurodollar Loan (and any ABR Loan, the interest on which is determined pursuant to clause (c) of the
definition of Alternate Base Rate) by causing any domestic or foreign branch or Affiliate of such Lender to make such
Loan, provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement.
(c)
At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing
shall be in an aggregate amount that is $5,000,000 or a higher integral multiple of $1,000,000. At the time that each
ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is $5,000,000 or a higher integral
multiple of $1,000,000, provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire
unused balance of the total Commitments or in an aggregate amount that is required to finance the reimbursement of
an LC Disbursement as contemplated by Section 2.9(e). Borrowings of more than one Type may be outstanding at the
same time, provided that there shall not at any time be more than a total of ten Eurodollar Borrowings outstanding.
(d)
Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to
request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would
end after the Maturity Date.
Section 2.3.
Requests for Borrowings.
(a)
To request a Borrowing, the Borrower shall deliver a Credit Request to the Administrative
Agent (i) in the case of a Eurodollar Borrowing, not later than 12:30 p.m. three Business Days before the date of the
proposed Borrowing or (ii) in the case of an ABR Borrowing, not later than 12:30 p.m. on the date of the proposed
Borrowing. Each such Credit Request shall be irrevocable (except as otherwise provided in Section 3.4) and shall
specify the following information in compliance with Section 2.2:
(i)
the aggregate amount of the requested Borrowing;
(ii)
the date of such Borrowing, which shall be a Business Day;
(iii)
whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing;
(iv)
in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable
thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
(v)
the location and number of the Borrower’s account to which funds are to be disbursed,
which shall comply with the requirements of Section 2.4.
(b)
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be
an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the
Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of
a Credit Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.
19
Exhibit 10(b)2
Section 2.4.
Funding of Borrowings.
(a)
Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof
by wire transfer of immediately available funds by 2:00 p.m. to the account of the Administrative Agent most recently
designated by it for such purpose by notice to the Lenders. Subject to Section 5.2, the Administrative Agent will make
such Loans available to the Borrower by promptly crediting or otherwise transferring the amounts so received, in like
funds, to an account of the Borrower designated by the Borrower in the applicable Credit Request, provided that ABR
Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.9(e) shall be remitted by
the Administrative Agent to the applicable Issuing Bank.
(b)
Unless the Administrative Agent shall have received notice from a Lender prior to the proposed
date of any Borrowing (or purchase of participations pursuant to Section 2.9(e)) that such Lender will not make available
to the Administrative Agent such Lender’s share of such Borrowing (or the amount of its participation), the
Administrative Agent may assume that such Lender has made such share available on such date in accordance with
Section 2.4(a) or Section 2.9(e) and may, in reliance upon such assumption, make available to the Borrower or the
applicable Issuing Bank, as applicable, a corresponding amount. In such event, if a Lender has not in fact made its
share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower
(and, if applicable, the applicable Issuing Bank) severally agree to pay to the Administrative Agent forthwith on demand
such corresponding amount with interest thereon, for each day from and including the date such amount is made
available to the Borrower or such Issuing Bank, as applicable, to but excluding the date of payment to the Administrative
Agent, at (i) in the case of such Lender or an Issuing Bank, the greater of the Federal Funds Effective Rate and a rate
determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii)
in the case of the Borrower, the interest rate that would be otherwise applicable to such Borrowing (or such participating
interest). Any payment by the Borrower or an Issuing Bank, however, shall be without prejudice to its rights against
the applicable Lender. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute
such Lender’s Loan included in such Borrowing (or participation in the applicable LC Disbursement).
Section 2.5.
Termination, Reduction and Increase of Commitments.
(a)
Unless previously terminated, the Commitments shall terminate on the Maturity Date.
(b)
The Borrower may at any time terminate, or from time to time reduce, the Commitments,
provided that (i) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent
prepayment or repayment of the Loans in accordance with Section 2.7, the sum of the Credit Exposures would exceed
the total Commitments and (ii) each such reduction of the Commitments shall be in the amount of $5,000,000 or a
higher integral multiple of $1,000,000.
(c)
The Borrower shall notify the Administrative Agent of any election to terminate or reduce the
Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such
termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any
notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower
pursuant to this Section shall be irrevocable, provided that a notice of termination of the Commitments delivered by
the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective
date) if such condition is not satisfied. Each reduction, and any termination, of the Commitments shall be permanent
and each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective
Commitments.
20
Exhibit 10(b)2
(d)
The Borrower may at any time and from time to time prior to the Maturity Date, at its sole
cost, expense and effort, request any one or more of the Lenders to increase its Commitment (the decision to increase
the Commitment of a Lender to be within the sole and absolute discretion of such Lender), or any other Person reasonably
satisfactory to the Administrative Agent and the Issuing Banks to provide a new Commitment, by submitting to the
Administrative Agent and the Issuing Banks an Increase Supplement duly executed by the Borrower and each such
Lender or other Person, as the case may be, together with such other documentation and deliveries as the Administrative
Agent shall reasonably require (which may include copies of resolutions authorizing such increase and/or opinion of
counsel). If such Increase Supplement is in all respects reasonably satisfactory to the Administrative Agent and the
Issuing Banks, the Administrative Agent shall execute such Increase Supplement and the Administrative Agent shall
deliver a copy thereof to the Borrower and each such Lender or other Person, as the case may be. Upon execution and
delivery of such Increase Supplement by the Administrative Agent and the Issuing Banks, (i) in the case of each such
Lender (an “Increasing Lender”), its Commitment shall be increased to the amount set forth in such Increase Supplement,
(ii) in the case of each such other Person (a “New Lender”), such New Lender shall become a party hereto and have
the rights and obligations of a Lender under the Loan Documents and its Commitment shall be as set forth in such
Increase Supplement; provided that:
(A)
immediately after giving effect thereto, the sum of all increases (other than any increase
in any Lender’s Commitment in order to replace another Lender pursuant to Section 3.8(b)) in the
aggregate Commitments made pursuant to this Section 2.5(d) shall not exceed the sum of (x)
$150,000,000 plus (y) the amount of the Commitment of each Lender that becomes a Defaulting
Lender;
(B)
each such increase of the aggregate Commitments shall be in an amount not less than
$10,000,000 or a higher integral multiple of $5,000,000;
(C)
if Loans would be outstanding immediately after giving effect to any such increase,
then simultaneously with such increase (1) each such Increasing Lender, each New Lender and each
other Lender shall be deemed to have entered into an Assignment and Assumption, pursuant to which
each such other Lender shall have assigned to each such Increasing Lender and each such New Lender
a portion of its Commitment, Loans and LC Exposure necessary to reflect proportionately the
Commitments as adjusted in accordance with this paragraph (d), and (2) in connection with such
assignment, each such Increasing Lender and each such New Lender shall pay to the Administrative
Agent, for the account of each such other Lender, such amount as shall be necessary to reflect the
assignment to it of Loans, and in connection with such master assignment each such other Lender may
treat the assignment of Eurodollar Borrowings as a prepayment of such Eurodollar Borrowings for
purposes of Section 3.6;
(D)
each such other Person shall have delivered to the Administrative Agent and the
Borrower all forms, if any, that are required to be delivered by such other Person pursuant to Section
3.7; and
(E)
the Borrower shall have delivered to the Administrative Agent sufficient copies for
each Lender of a certificate of a Financial Officer demonstrating pro forma compliance with the terms
of this Agreement through the Maturity Date and the Administrative Agent shall have received such
certificates and other items as it shall reasonably request in connection with such increase.
Section 2.6.
Repayment of Loans; Evidence of Debt.
(a)
The Borrower hereby unconditionally promises to pay to the Administrative Agent for the
account of each Lender the then unpaid principal amount of each Loan on the Maturity Date.
(b)
Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the debt of the Borrower to such Lender resulting from each Loan made by such Lender, including the
amounts of principal and interest payable and paid to such Lender from time to time hereunder.
21
Exhibit 10(b)2
(c)
The Administrative Agent shall maintain accounts in which it shall record (i) the amount of
each Loan made hereunder, the Type thereof and the Interest Period, if any, applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each
Lender’s share thereof.
(d)
The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section
shall be prima facie evidence of the existence and amounts of the obligations recorded therein, provided that the failure
of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect
the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e)
Any Lender may request that its Loans be evidenced by a Note. In such event, the Borrower
shall prepare, execute and deliver to such Lender a Note payable to the order of such Lender. Thereafter, the Loans
evidenced by such Note and interest thereon shall at all times (including after any assignment pursuant to Section 10.4)
be represented by a Note payable to the order of the payee named therein or any Eligible Assignee pursuant to Section
10.4, except to the extent that any such Lender or Eligible Assignee subsequently returns any such Note for cancellation
and requests that such Loans once again be evidenced as described in paragraphs (b) and (c) above.
Section 2.7.
Prepayment of Loans.
(a)
Voluntary Prepayments. The Borrower shall have the right at any time and from time to time
to prepay any Borrowing in whole or in part, subject to the requirements of this Section.
(b)
Prepayments Resulting from the Reduction of the Total Commitments. In the event of any
partial reduction or termination of the Commitments, then (i) at or prior to the date of such reduction or termination,
the Administrative Agent shall notify the Borrower and the Lenders of the sum of the Credit Exposures after giving
effect thereto and (ii) if such sum would exceed the total Commitments after giving effect to such reduction or
termination, then the Borrower shall, on the date of such reduction or termination, prepay Borrowings in an amount
sufficient to eliminate such excess.
(c)
Notice of Prepayment; Application of Prepayments. The Borrower shall notify the
Administrative Agent by telephone (confirmed by facsimile) of any prepayment hereunder, (i) in the case of a
prepayment of a Eurodollar Borrowing, not later than 11:30 a.m. three Business Days before the date of prepayment
or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:30 a.m. on the date of the prepayment. Each
such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid, provided that, if a notice of prepayment is given in connection with a conditional notice
of termination of the Commitments as contemplated by Section 2.5, then such notice of prepayment may be revoked
if such notice of termination is revoked in accordance with Section 2.5. Promptly following receipt of any such notice
relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial
prepayment of any Borrowing shall be in an integral multiple of $1,000,000 and not less than $5,000,000 (or, if the
outstanding principal balance of the applicable Borrowing is less than such minimum amount, then such lesser
outstanding principal balance); provided that if, as a result of any ABR Borrowing to reimburse an LC Disbursement
pursuant to Section 2.9(e), the aggregate principal amount of all ABR Borrowings is not an integral multiple of
$1,000,000, then any prepayment of ABR Borrowings shall be in an amount that will cause the aggregate principal
amount of all ABR Borrowings to be an integral multiple of $1,000,000. Each prepayment of a Borrowing shall be
applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest
to the extent required by Section 3.1 and, if applicable, shall be subject to the provisions of Section 3.6. Notwithstanding
any provision of this Section 2.7(c) to the contrary, if any Lender becomes a Defaulting Lender, then the provisions
of Section 2.11 shall apply for so long as such Lender is a Defaulting Lender.
22
Exhibit 10(b)2
Section 2.8.
Extension of Maturity Date.
After the first anniversary of the Effective Date, the Borrower may, on two occasions during the term
of this Agreement (but not more frequently than once in any consecutive twelve- month period), request an extension
of the Maturity Date for an additional one-year period by submitting a request for extension (an “Extension Request”)
to the Administrative Agent (which shall promptly advise each Lender) not more than 75 days or less than 30 days
prior to the effective date of the proposed extension (the “Extension Effective Date”). In response to such request,
each Lender shall, not later than 20 days prior to the applicable Extension Effective Date, notify the Administrative
Agent whether it is willing (in its sole and complete discretion) to extend the scheduled Maturity Date for an additional
one-year period (and any Lender that fails to give such notice to the Administrative Agent shall be deemed to have
elected not to extend the scheduled Maturity Date). The Administrative Agent will notify the Borrower of the Lenders’
decisions no later than 15 days prior to such Extension Effective Date. If Lenders holding more than 50% of the
Commitments elect to extend the scheduled Maturity Date, then on such Extension Effective Date the Commitments
of such Lenders shall be extended for an additional one-year period; provided that (i) no Default exists on such Extension
Effective Date and (ii) all representations and warranties are true and correct on such Extension Effective Date, as
though made as of such Extension Effective Date (or, if any such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date). No Lender shall be required to consent to any Extension
Request and any Lender that elects, or is deemed to have elected, not to extend the scheduled Maturity Date (a “Declining
Lender”) will have its Commitment terminated on the then existing scheduled Maturity Date (without regard to any
extension by other Lenders). The Borrower may, at its sole expense and effort, upon notice to any Declining Lender
and the Administrative Agent, require any Declining Lender to assign and delegate its rights and obligations under this
Agreement to an Eligible Assignee selected by the Borrower and willing to accept such assignment (in accordance
with, and subject to, the restrictions and consents otherwise required for assignments generally).
Section 2.9.
Letters of Credit.
(a)
General. Subject to the terms and conditions set forth herein, the Borrower may request the
issuance of Letters of Credit denominated in dollars as the applicant thereof for the support of its or its Subsidiaries’
obligations, in a form acceptable to the Administrative Agent and the applicable Issuing Bank, at any time and from
time to time during the period from the Effective Date to the tenth Business Day preceding the last day of the Availability
Period; provided that (i) the aggregate amount of the Credit Exposure of all Lenders shall not exceed the total
Commitments and (ii) the aggregate amount of all LC Exposure shall not at any time exceed $60,000,000. In the event
of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of
letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, an
Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. As of the
Effective Date, all Existing Letters of Credit shall be deemed to have been issued hereunder and shall be subject to
and governed by the terms and conditions hereof.
(b)
Notice of Issuance; Amendment; Renewal; Extension; Certain Conditions. To request the
issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower
shall hand deliver or facsimile (or transmit by electronic communication, pursuant to arrangements for doing so approved
by the applicable Issuing Bank) to the applicable Issuing Bank and the Administrative Agent (not later than three
Business Days before the requested date of issuance, amendment, renewal or extension) a Credit Request requesting
the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying
the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter
of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the
name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew
or extend such Letter of Credit. If requested by an Issuing Bank, the Borrower also shall submit a letter of credit
application on such Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of
Credit shall be issued, amended, renewed or extended only if (and, upon issuance, amendment, renewal or extension
of each Letter of Credit, the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension, (i) (x) the aggregate undrawn amount of all outstanding Letters of Credit issued by
the Issuing Bank at such time plus (y) the aggregate amount of all LC Disbursements made by the Issuing Bank that
have not yet been reimbursed by or on behalf of the Borrower at such time shall not exceed its Letter of Credit
23
Exhibit 10(b)2
Commitment, (ii) the LC Exposure shall not exceed the total Letter of Credit Commitments, (iii) the total Credit
Exposures shall not exceed the total Commitments. The Borrower may, at any time and from time to time, reduce the
Letter of Credit Commitment of any Issuing Bank with the consent of such Issuing Bank; provided that the Borrower
shall not reduce the Letter of Credit Commitment of any Issuing Bank if, after giving effect of such reduction, the
conditions set forth in clauses (i) and (ii) above shall not be satisfied.
(c)
Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the
earlier of (i) the date that is one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal
or extension thereof, one year after such renewal or extension), and (ii) the date that is ten Business Days prior to the
Maturity Date, provided that any Letter of Credit may provide for the automatic renewal thereof for any period (unless
the applicable Issuing Bank elects not to extend) so long as such period ends (x) at least ten Business Days prior to the
Maturity Date or (y) if the Borrower shall have deposited cash collateral with the Administrative Agent to the extent
required by Section 2.9(j) for such Letter of Credit, not later than the first anniversary of the Maturity Date.
(d)
Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit
increasing the amount thereof) and without any further action on the part of the applicable Issuing Bank or the Lenders,
such Issuing Bank hereby grants to each Lender and each Lender hereby acquires from such Issuing Bank, a participation
in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn
under such Letter of Credit. In consideration and in furtherance of the foregoing, each such Lender hereby absolutely
and unconditionally agrees to pay to the Administrative Agent, for the account of such Issuing Bank, such Lender’s
Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by the Borrower on
the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to
the Borrower for any reason. Each such Lender acknowledges and agrees that its obligation to acquire participations
pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence
and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever.
(e)
Reimbursement. If any Issuing Bank shall make an LC Disbursement in respect of a Letter
of Credit, then such Issuing Bank shall promptly notify the Borrower of such LC Disbursement and the Borrower shall
reimburse such LC Disbursement by paying to the Administrative Agent, for the account of such Issuing Bank, an
amount equal to such LC Disbursement and any accrued interest thereon (collectively, the “Unreimbursed Amount”)
by not later than (i) if the Borrower shall have received notice of such LC Disbursement prior to 11:00 a.m. on such
date, 2:00 p.m. on such date, or (ii) otherwise, 2:00 p.m. on the Business Day immediately following the day that the
Borrower receives such notice. If the Borrower fails to reimburse an Issuing Bank in full for an LC Disbursement
prior to the time required pursuant to the preceding sentence, then such Issuing Bank may (and the Borrower authorizes
such Issuing Bank to) request, on behalf of the Borrower by notice to the Administrative Agent (which shall promptly
advise each Lender), that the Lenders fund an ABR Borrowing in an amount equal to the Unreimbursed Amount,
without regard to the minimum and integral multiple requirements in Section 2.2(c), and each Lender shall make its
Loan as part of such ABR Borrowing (by wire transfer of immediately available funds to the account most recently
designated by the Administrative Agent for such purpose by notice to the Lenders) not later than (x) if such Lender
shall have received notice of such Borrowing from the Administrative Agent prior to 12:00 noon on such date, 2:00
p.m. on such date or (y) otherwise, 2:00 p.m. on the Business Day immediately following the day that such Lender
receives such notice; provided that if the conditions precedent to a Borrowing specified in Section 5.2 are not satisfied,
then the request by the Issuing Bank shall be deemed to be a request for the funding of the Lenders’ participations in
such Unreimbursed Amount and the amounts made available by the Lenders to the Administrative Agent as provided
above shall constitute the Lenders’ funding of their respective participations in such Unreimbursed Amount. The
Administrative Agent will make the proceeds of such Loans or participations, as applicable, available to the applicable
Issuing Bank by promptly crediting or otherwise transferring the amounts so received, in like funds, to such Issuing
Bank for the purpose of repaying in full the LC Disbursement and all accrued interest thereon. Any Lender that fails
to make the proceeds of its Loan or its participation available to the Administrative Agent in accordance with the
provisions of this Section 2.9(e) shall pay interest thereon, for the account of the applicable Issuing Bank, for each day
from and including the date such amount is due to but excluding the date such amount is received by the Administrative
24
Exhibit 10(b)2
Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
(f)
Obligations Absolute. The Borrower’s obligations to reimburse LC Disbursements as provided
in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any
lack of validity or enforceability of any Letter of Credit or any Loan Document, or any term or provision therein, (ii)
any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, insufficient or invalid
in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by any Issuing Bank
under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such
Letter of Credit, (iv) any amendment or waiver of or any consent to departure from all or any of the provisions of any
Letter of Credit or any Loan Document, (v) the existence of any claim, set off, defense or other right that the Borrower,
any other party guaranteeing, or otherwise obligated with, such Borrower, any Subsidiary or other Affiliate thereof or
any other Person may at any time have against the beneficiary under any Letter of Credit, any Credit Party or any other
Person, whether in connection with this Agreement, any other Loan Document or any other related or unrelated
agreement or transaction, or (vi) any other act or omission to act or delay of any kind of any Credit Party or any other
Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but
for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of set off against, the
Borrower’s obligations hereunder. Neither any Credit Party nor any of their respective Related Parties shall have any
liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other
communication under or relating to any Letter of Credit (including any document required to make a drawing
thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control
of any Issuing Bank; provided that the foregoing shall not be construed to excuse an Issuing Bank from liability to the
Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are
hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused
by any Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under
a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross
negligence or willful misconduct on the part of any Issuing Bank (as finally determined by a court of competent
jurisdiction), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of
the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented
which appear on their face to be in substantial compliance with the terms of a Letter of Credit, any Issuing Bank may,
in its sole discretion, either accept and make payment upon such documents without responsibility for further
investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such Letter of Credit.
(g)
Disbursement Procedures. Each Issuing Bank shall, promptly following its receipt thereof,
examine all documents purporting to represent a demand for payment under a Letter of Credit. Each Issuing Bank
shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by telecopy or electronic
mail) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder;
provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the applicable Issuing Bank and the Lenders with respect to any such LC Disbursement.
(h)
Interim Interest. If any Issuing Bank shall make any LC Disbursement, then, unless the
Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount
thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding
the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to ABR Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this
Section, then Section 3.1(b) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the
applicable Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to
paragraph (e) of this Section to reimburse the applicable Issuing Bank shall be for the account of such Lender to the
extent of such payment.
25
Exhibit 10(b)2
(i)
Replacement and Resignation of an Issuing Bank. (i) An Issuing Bank may be replaced at
any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the
successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of an Issuing
Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for
the account of the replaced Issuing Bank pursuant to Section 3.3(b). From and after the effective date of any such
replacement, (x) the successor Issuing Bank shall have all the rights and obligations of Issuing Banks under this
Agreement with respect to Letters of Credit to be issued thereafter and (y) references herein to the term “Issuing Bank”
shall be deemed to refer to such successor or to any previous Issuing Banks, or to such successor and all previous
Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing
Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this
Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue
additional Letters of Credit.
(ii) Subject to the appointment and acceptance of a successor Issuing Bank, any Issuing Bank may
resign as an Issuing Bank at any time upon 30 days’ prior written notice to the Administrative Agent, the
Borrower and the Lenders, in which case, such resigning Issuing Bank shall be replaced in accordance with
Section 2.9(i) above.
(j)
Cash Collateral. In the event that (i) an Event of Default shall occur and be continuing or (ii)
any Letter of Credit has an expiry date on or after the tenth Business Day prior to the Maturity Date (or any LC
Disbursements remain unreimbursed on or after such date), the Borrower shall deposit with the Administrative Agent
in immediately available funds on the Business Day on which it receives notice from the Administrative Agent or
Required Lenders demanding the deposit of cash collateral in the case of clause (i), or no later than the tenth Business
Day prior to the Maturity Date in the case of clause (ii), an amount equal to the Required Deposit Amount, which
amount shall be held by the Administrative Agent for the benefit of the Lenders as cash collateral pursuant to a cash
collateral agreement in form and substance satisfactory to the Administrative Agent and the applicable Issuing Banks
to secure the Borrower’s reimbursement obligations with respect to LC Disbursements; provided that the obligation
to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due
and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default described in
paragraph (i) or (j) of Article 8. Such deposit shall be held by the Administrative Agent as collateral for the payment
and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have
exclusive dominion and control, including the exclusive right of withdrawal, over such account. Such deposit shall
not bear interest, nor shall the Administrative Agent be under any obligation whatsoever to invest the same, provided
that, at the request of the Borrower, such deposit shall be invested by the Administrative Agent in direct short term
obligations of, or short term obligations the principal of and interest on which are unconditionally guaranteed by, the
United States of America, in each case maturing no later than the expiry date of the Letter of Credit giving rise to the
relevant LC Exposure. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in
such account shall be applied by the Administrative Agent to reimburse the applicable Issuing Bank for LC
Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction
of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans
has been accelerated (but subject to the consent of Required Lenders), be applied to satisfy other obligations of the
Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned
to the Borrower within three Business Days after all Events of Default have been cured or waived. If the Borrower is
required to provide cash collateral hereunder as a result of clause (ii) of the first sentence of this paragraph, the amount
thereof (to the extent not applied as aforesaid) shall be returned to the Borrower when the LC Exposure is zero and all
applicable Letters of Credit shall have been returned to the applicable Issuing Banks and shall have been cancelled.
Notwithstanding any provision of this Section 2.9 to the contrary, if any Lender becomes a
Defaulting Lender, then the provisions of Section 2.11 shall apply for so long as such Lender is a Defaulting Lender.
(k)
26
Exhibit 10(b)2
Section 2.10. Payments Generally; Pro Rata Treatment; Sharing of Set offs.
(a)
The Borrower shall make each payment required to be made by it hereunder or under any
other Loan Document (whether of principal of Loans, LC Disbursements, interest or fees, or of amounts payable under
Sections 3.5, 3.6, 3.7 or 10.3, or otherwise) prior to 1:00 p.m. on the date when due, in immediately available funds,
without set off or counterclaim. Any amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating
interest thereon. All such payments shall be made to the Administrative Agent at its office at 10 S. Dearborn, Chicago,
Illinois, or such other office as to which the Administrative Agent may notify the other parties hereto, except that
payments pursuant to Sections 3.3(b) (with respect to the fronting fee and other amounts payable to the Issuing Banks),
3.3(c), 3.5, 3.6, 3.7 and 10.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall
distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly
following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars.
(b)
Each Borrowing, each payment or prepayment of principal of any Borrowing, each payment
of interest on the Loans, each payment of fees, each reduction of the Commitments and each conversion of any
Borrowing to or continuation of any Borrowing as a Borrowing of any Type shall be allocated pro rata among the
Lenders in accordance with their respective applicable Commitments (or, if such Commitments shall have expired or
been terminated, in accordance with the respective principal amounts of their outstanding Loans). Each Lender agrees
that in computing such Lender’s portion of any Borrowing to be made hereunder, the Administrative Agent may, in its
discretion, round each Lender’s percentage of such Borrowing to the next higher or lower whole dollar amount. If at
any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of
principal of Loans, unreimbursed LC Disbursements, interest, fees and commissions then due hereunder, such funds
shall be applied (i) first, towards payment of interest, fees and commissions then due hereunder, ratably among the
parties entitled thereto in accordance with the amounts of interest, fees and commissions then due to such parties and
(ii) second, towards payment of principal of Loans and unreimbursed LC Disbursements then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of principal of Loans and unreimbursed LC
Disbursements then due to such parties.
(c)
If any Lender shall, by exercising any right of set off or counterclaim or otherwise, obtain
payment in respect of any principal of, or interest on, any of its Loans or participations in LC Disbursements resulting
in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in
LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations
in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared
by the Lenders ratably in accordance with the aggregate amount of principal of, and accrued interest on, their respective
Loans and participations in LC Disbursements, provided that (i) if any such participations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed
to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement
or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its
Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Subsidiary
or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing
and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant
to the foregoing arrangements may exercise against the Borrower rights of set off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
27
Exhibit 10(b)2
(d)
Unless the Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of the applicable Credit Parties hereunder
that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such
payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to such Credit
Parties the amount due. In such event, if the Borrower has not in fact made such payment, then each such Credit Party
severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Credit
Party with interest thereon, for each day from and including the date such amount is distributed to it to but excluding
the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(e)
If any Credit Party shall fail to make any payment required to be made by it pursuant to Section
2.4(b) or 2.10(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof),
(i) apply any amounts thereafter received by the Administrative Agent for the account of such Credit Party to satisfy
such Credit Party’s obligations under such Sections until all such unsatisfied obligations are fully paid and (ii) hold
any such amounts in a segregated account as cash collateral for, and application to, any future funding obligations of
such Lender under such Sections; in the case of each of (i) and (ii) above, in any order as determined by the Administrative
Agent in its discretion. Notwithstanding any provision of this Section 2.10 to the contrary, if any Lender becomes a
Defaulting Lender, then the provisions of Section 2.11 shall apply for so long as such Lender is a Defaulting Lender.
Section 2.11. Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any
Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting
Lender:
(a)
Fees pursuant to Section 3.3(a) shall cease to accrue on the unfunded portion of the
Commitment of such Defaulting Lender.
(b)
If any LC Exposure exists at the time a Lender becomes a Defaulting Lender then:
(i)
All or any part of such LC Exposure shall be reallocated among the non-Defaulting
Lenders in accordance with their respective Applicable Percentages but only to the extent (x) the sum
of all non-Defaulting Lenders’ Credit Exposures plus such Defaulting Lender’s LC Exposure does not
exceed the total of all non-Defaulting Lenders’ Commitments and (y) the conditions set forth in Section
5.2 are satisfied at such time;
(ii)
If the reallocation described in clause (i) above cannot, or can only partially, be
effected, the Borrower shall within two Business Days following notice by the Administrative Agent
cash collateralize such Defaulting Lender’s LC Exposure (after giving effect to any partial reallocation
pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.9(j) for so long
as such LC Exposure is outstanding;
(iii)
If the Borrower cash collateralizes any portion of such Defaulting Lender’s LC
Exposure pursuant to this Section 2.11(b), the Borrower shall not be required to pay any fees to such
Defaulting Lender pursuant to Section 3.3(b) with respect to such Defaulting Lender’s LC Exposure
during the period such Defaulting Lender’s LC Exposure is cash collateralized;
(iv)
If the LC Exposure of the non-Defaulting Lenders is reallocated pursuant to this
Section 2.11(b), then the fees payable to the Lenders pursuant to Sections 3.3(a) and 3.3(b) shall be
adjusted in accordance with such non-Defaulting Lenders’ Applicable Percentages;
(v)
If any Defaulting Lender’s LC Exposure is neither cash collateralized nor reallocated
pursuant to this Section 2.11(b), then, without prejudice to any rights or remedies of the Issuing Banks
or any Lender hereunder, all letter of credit fees payable under Section 3.3(b) with respect to such
Defaulting Lender’s LC Exposure shall be payable to the applicable Issuing Banks until such LC
Exposure is cash collateralized and/or reallocated; and
28
Exhibit 10(b)2
(vi)
If and so long as any Lender is a Defaulting Lender, no Issuing Bank shall be required
to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure will be
100% covered by the Commitments of the non-Defaulting Lenders or cash collateral will be provided
by the Borrower in accordance with this Section 2.11(b), and participating interests in any such newly
issued or increased Letter of Credit shall be allocated among non-Defaulting Lenders in a manner
consistent with Section 2.11(b)(i) (and Defaulting Lenders shall not participate therein).
(c)
The Commitments and Credit Exposure of such Defaulting Lender shall not be included in
determining whether all Lenders or the Required Lenders have voted or taken or may take any action hereunder
(including any consent to any amendment, modification or waiver pursuant to Section 10.2); provided that (i) any
waiver, amendment or modification requiring the consent of all Lenders or each affected Lender which affects such
Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender and (ii)
any amendment or modification that increases, or extends the maturity of, such Defaulting Lender’s Commitment or
reduces the principal amount of, or rate of interest on, any Loan made by such Defaulting Lender, shall require the
consent of such Defaulting Lender.
(d)
In the event that the Administrative Agent, the Borrower and each Issuing Bank agree that a
Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the
LC Exposure of the Lenders shall be readjusted to reflect the inclusion of such Lender’s Commitments and on such
date such Lender shall purchase at par such of the Loans of the other Lenders as the Administrative Agent shall determine
may be necessary in order for such Lender to hold such Loans in accordance with its Applicable Percentage, and all
cash collateral and accrued interest thereon held by the Administrative Agent or the applicable Issuing Banks shall be
returned to the Borrower forthwith.
Article 3.
INTEREST, FEES, YIELD PROTECTION, ETC.
Section 3.1.
Interest.
(a)
The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus
the Applicable Margin. The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(b)
Notwithstanding the foregoing, if any principal of or interest on any Loan, any reimbursement
obligation in respect of any LC Disbursement or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest,
after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus
the rate otherwise applicable to such Loan as provided in the preceding paragraph of this Section or (ii) in the case of
any other amount, 2% plus the rate applicable to ABR Borrowings as provided in the preceding paragraph of this
Section.
(c)
Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for
such Loan, provided that (i) interest accrued pursuant to paragraph (b) of this Section shall be payable on demand, (ii)
in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment, and (iii) in the event of any conversion of any Eurodollar
Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
29
Exhibit 10(b)2
(d)
All interest hereunder shall be computed on the basis of a year of 360 days, except that interest
computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate
shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for
the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base
Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination
shall be conclusive absent clearly demonstrable error. The Administrative Agent shall, as soon as practicable, notify
the Borrower and the Lenders of the effective date and the amount of each change in the Prime Rate or ABR, but any
failure to so notify shall not in any manner affect the obligation of the Borrower to pay interest on the Loans in the
amounts and on the dates required.
Section 3.2.
Interest Elections Relating to Borrowings.
(a)
Each Borrowing initially shall be of the Type specified in the applicable Credit Request and,
in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Credit Request. Thereafter,
the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case
of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing, in which case each such portion shall be
allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each
such portion shall be considered a separate Borrowing.
(b)
To make an election pursuant to this Section, the Borrower shall deliver to the Administrative
Agent a signed Interest Election Request in a form approved by the Administrative Agent by the time that a Credit
Request would be required under Section 2.3 if the Borrower were requesting a Borrowing of the Type resulting from
such election to be made on the effective date of such election.
(c)
Each such Interest Election Request shall be irrevocable (except as otherwise provided in
Section 3.4) and shall specify the following information:
(i)
the Borrowing to which such Interest Election Request applies and, if different options
are being elected with respect to different portions thereof, the portions thereof to be allocated to each
resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv)
of this paragraph shall be specified for each resulting Borrowing);
(ii)
the effective date of the election made pursuant to such Interest Election Request,
which shall be a Business Day;
(iii)
whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and
(iv)
if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be
applicable thereto after giving effect to such election, which shall be a period contemplated by the
definition of the term “Interest Period”.
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the
Borrower shall be deemed to have selected an Interest Period of one month’s duration.
(d)
Promptly following receipt of an Interest Election Request, the Administrative Agent shall
advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
30
Exhibit 10(b)2
(e)
If the Borrower fails to deliver a timely Interest Election Request prior to the end of the Interest
Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period,
such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event
of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so
notifies the Borrower, then, so long as an Event of Default is continuing, (i) no outstanding Borrowing may be converted
to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an
ABR Borrowing at the end of the Interest Period applicable thereto.
Section 3.3.
Fees.
(a)
The Borrower agrees to pay to the Administrative Agent for the account of each Lender, a
facility fee, which shall accrue at a rate per annum equal to the Applicable Margin on the daily amount of the Commitment
of such Lender (regardless of usage) during the period from and including the date on which this Agreement becomes
effective pursuant to Section 10.6 to but excluding the date on which such Commitment terminates; provided that, if
such Lender continues to have any Credit Exposure after its Commitment terminates, then such facility fee shall
continue to accrue on the daily amount of such Lender’s Credit Exposure from and including the date on which such
Lender’s Commitment terminates to but excluding the date on which such Lender ceases to have any Credit Exposure.
Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year,
each date on which the Commitments are permanently reduced and on the date on which the Commitments terminate,
commencing on the first such date to occur after the Effective Date, provided that all unpaid facility fees shall be
payable on the date on which the Commitments terminate and provided further that facility fees which accrue after the
Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 360
days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
(b)
The Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a
participation fee with respect to its participations in Letters of Credit, which shall accrue at a rate per annum equal to
the Applicable Margin on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but
excluding the later of the date on which such Lender’s Commitment terminates and the date on which such Lender
ceases to have any LC Exposure and (ii) to each Issuing Bank for its own account a fronting fee, which shall accrue
at the rate or rates per annum separately agreed upon between the Borrower and each Issuing Bank on the average
daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Effective Date to but excluding the later of the date of termination of the
Commitments and the date on which there ceases to be any LC Exposure, as well as each Issuing Bank’s standard fees
with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings
thereunder. Accrued participation fees and fronting fees shall be payable in arrears on the last day of March, June,
September and December of each year, commencing on the first such date to occur after the Effective Date; provided
that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after
the date on which the Commitments terminate shall be payable on demand. Any other fees payable to any Issuing
Bank pursuant to this paragraph shall be payable within ten days after demand. All participation fees and fronting fees
shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
The Borrower agrees to pay to each Credit Party, for its own account, fees and other amounts
payable in the amounts and at the times separately agreed upon in writing between the Borrower and such Credit Party.
(c)
(d)
All fees and other amounts payable hereunder shall be paid on the dates due, in immediately
available funds. Fees and other amounts paid shall not be refundable under any circumstances other than clearly
demonstrable error.
31
Exhibit 10(b)2
Section 3.4.
Alternate Rate of Interest.
(a)
If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
(i)
the Administrative Agent determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO
Rate or the LIBO Rate, as applicable (including because the LIBO Screen Rate is not available or
published on a current basis), for such Interest Period, or
(ii)
the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO
Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect
the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in
such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone, telecopy or
electronic mail as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the
Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests
the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Credit Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.
Notwithstanding the foregoing, if the Borrower shall have submitted a Credit Request with respect to a Eurodollar
Borrowing and the Administrative Agent shall have notified the Borrower in accordance with the preceding sentence
that such Borrowing will be made as an ABR Borrowing, the Borrower shall have the right, prior to the time by which
it would have had to submit a Credit Request for an ABR Borrowing to be made on the same date, to withdraw such
Credit Request.
(b)
If at any time the Administrative Agent determines (which determination shall be conclusive
absent manifest error) that (i) the circumstances set forth in clause (a)(i) have arisen and such circumstances are unlikely
to be temporary or (ii) the circumstances set forth in clause (a)(i) have not arisen but either (w) the supervisor for the
administrator of the LIBO Screen Rate has made a public statement that the administrator of the LIBO Screen Rate is
insolvent (and there is no successor administrator that will continue publication of the LIBO Screen Rate), (x) the
administrator of the LIBO Screen Rate has made a public statement identifying a specific date after which the LIBO
Screen Rate will permanently or indefinitely cease to be published by it (and there is no successor administrator that
will continue publication of the LIBO Screen Rate), (y) the supervisor for the administrator of the LIBO Screen Rate
has made a public statement identifying a specific date after which the LIBO Screen Rate will permanently or indefinitely
cease to be published or (z) the supervisor for the administrator of the LIBO Screen Rate or a Governmental Authority
having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which
the LIBO Screen Rate may no longer be used for determining interest rates for loans, then the Administrative Agent
and the Borrower shall endeavor to establish an alternate rate of interest to the LIBO Rate that gives due consideration
to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at
such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other
related changes to this Agreement as may be applicable (but for the avoidance of doubt, such related changes shall not
include a reduction of the Applicable Margin); provided that, if such alternate rate of interest as so determined would
be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement. Notwithstanding anything
to the contrary in Section 10.2, such amendment shall become effective without any further action or consent of any
other party to this Agreement so long as the Administrative Agent shall not have received, within five Business Days
of the date notice of such alternate rate of interest is provided to the Lenders, a written notice from the Required Lenders
stating that such Required Lenders object to such amendment and describing in detail the basis for such objection.
Until an alternate rate of interest shall be determined in accordance with this paragraph (b) (but, in the case of the
circumstances described in clause (ii)(w), clause (ii)(x) or clause (ii)(y) of the first sentence of this Section 3.4(b), only
to the extent the LIBO Screen Rate for such Interest Period is not available or published at such time on a current
basis), (y) any Interest Election Request that requests the conversion of any ABR Borrowing to, or continuation of any
Eurodollar Borrowing as, a Eurodollar Borrowing shall be ineffective and (z) if any Credit Request requests a Eurodollar
Borrowing, such Borrowing shall be made as an ABR Borrowing.
32
Exhibit 10(b)2
Section 3.5.
Increased Costs; Illegality.
(a)
If any Change in Law shall:
(i)
impose, modify or deem applicable any reserve, special deposit, liquidity or similar
requirement against assets of, deposits with or for the account of, or credit extended by, any Credit
Party (except any such reserve requirement reflected in the Adjusted LIBO Rate);
(ii)
subject any Recipient to any Taxes with respect to this Agreement or on its Loans,
loan principal, Letters of Credit, Commitments, or other obligations, or its deposits, reserves, other
liabilities or capital attributable thereto in respect thereof (other than (A) Indemnified Taxes and (B)
Excluded Taxes); or
(iii)
impose on any Credit Party or the London interbank market any other condition
affecting this Agreement, any Eurodollar Loans made by such Credit Party or any participation therein
or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Credit Party of making, continuing, converting
or maintaining any Eurodollar Loan or the cost to such Credit Party of issuing, participating in or maintaining any
Letter of Credit hereunder or to increase the cost to such Credit Party or to reduce the amount of any sum received or
receivable by such Credit Party hereunder (whether of principal, interest or otherwise), then the Borrower will pay to
such Credit Party such additional amount or amounts as will compensate such Credit Party for such additional costs
incurred or reduction suffered.
(b)
If any Credit Party determines that any Change in Law regarding capital or liquidity
requirements has or would have the effect of reducing the rate of return on such Credit Party’s capital or on the capital
of such Credit Party’s holding company, if any, as a consequence of this Agreement or the Loans made, the Letters of
Credit issued or the participations therein held, by such Credit Party to a level below that which such Credit Party or
such Credit Party’s holding company could have achieved but for such Change in Law (taking into consideration such
Credit Party’s policies and the policies of such Credit Party’s holding company with respect to capital adequacy), then
from time to time the Borrower will pay to such Credit Party such additional amount or amounts as will compensate
such Credit Party or such Credit Party’s holding company for any such reduction suffered.
(c)
A certificate of a Credit Party setting forth the amount or amounts necessary to compensate
such Credit Party or its holding company, as applicable, as specified in paragraph (a) or (b) of this Section shall be
delivered to the Borrower and shall be conclusive and binding upon all parties hereto absent manifest error. The
Borrower shall pay such Credit Party the amount shown as due on any such certificate within 10 Business Days after
receipt thereof.
(d)
Failure or delay on the part of any Credit Party to demand compensation pursuant to this
Section shall not constitute a waiver of such Credit Party’s right to demand such compensation; provided that the
Borrower shall not be required to compensate a Credit Party pursuant to this Section for any increased costs or reductions
incurred more than 180 days prior to the date that such Credit Party notifies the Borrower of the Change in Law giving
rise to such increased costs or reductions and of such Credit Party’s intention to claim compensation therefor; and
provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180
day period referred to above shall be extended to include the period of retroactive effect thereof but not to exceed a
period of 365 days.
(e)
Notwithstanding any other provision of this Agreement, if any Change in Law shall make it
unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated
hereby with respect to any Eurodollar Loan, then, by written notice to the Borrower and to the Administrative Agent:
33
Exhibit 10(b)2
(i)
such Lender may declare that Eurodollar Loans will not thereafter (for the duration
of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest
Periods) and ABR Loans will not thereafter (for such duration) be converted into Eurodollar Loans,
whereupon any request for a Eurodollar Borrowing or to convert an ABR Borrowing to a Eurodollar
Borrowing or to continue a Eurodollar Borrowing, as applicable, for an additional Interest Period shall,
as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan
as such for an additional Interest Period or to convert a Eurodollar Loan into an ABR Loan, as
applicable), unless such declaration shall be subsequently withdrawn; and
(ii)
such Lender may require that all outstanding Eurodollar Loans made by it be converted
to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR
Loans, as of the effective date of such notice as provided in the last sentence of this paragraph.
In the event any Lender shall exercise its rights under clause (i) or (ii) of this paragraph, all payments and prepayments
of principal that would otherwise have been applied to repay the Eurodollar Loans that would have been made by such
Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by
such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans, as applicable. For purposes of this
paragraph, a notice to the Borrower by any Lender shall be effective as to each Eurodollar Loan made by such Lender,
if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such
notice shall be effective on the date of receipt by the Borrower.
Section 3.6.
Break Funding Payments. In the event of (a) the payment or prepayment (voluntary or
otherwise) of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto
(including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of
the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on
the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under
Section 2.7(c) and is revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on
the last day of the Interest Period or maturity date applicable thereto as a result of a request by the Borrower pursuant
to Section 3.8, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed
to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest that would have
accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have
been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest
Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest that would accrue on such principal amount for such
period at the interest rate that such Lender would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Lender
setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown
as due on any such certificate within 10 Business Days after receipt thereof.
Section 3.7. Withholding of Taxes; Gross-Up.
(a)
Payments to be Free and Clear. Any and all payments by or on account of any obligation of
the Borrower under any Loan Document shall be made without deduction or withholding for any Taxes, except as
required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable withholding
agent) requires the deduction or withholding of any Tax from any such payment by a withholding agent, then the
applicable withholding agent shall be entitled to make such deduction or withholding and shall timely pay the full
amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such
Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such
deduction or withholding has been made (including such deductions and withholdings applicable to additional sums
payable under this Section) the applicable Recipient receives an amount equal to the sum it would have received had
no such deduction or withholding been made.
34
Exhibit 10(b)2
(b)
Payment of Other Taxes by the Borrower. The Borrower shall timely pay to the relevant
Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely
reimburse it for, Other Taxes.
(c)
Evidence of Payments. As soon as practicable after any payment of Taxes by the Borrower
to a Governmental Authority pursuant to this Section, the Borrower shall deliver to the Administrative Agent the original
or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(d)
Indemnification by the Borrower. The Borrower shall indemnify each Recipient, within 10
Business Days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes
imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or
required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower
by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf
of a Lender, shall be conclusive absent manifest error.
(e)
Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative
Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the
extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without
limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Lender’s failure to comply with
the provisions of Section 10.4(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes
attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any
Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes
were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount
of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest
error. Each Lender hereby authorizes the Administrative Agent to setoff and apply any and all amounts at any time
owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from
any other source against any amount due to the Administrative Agent under this paragraph (e).
(f)
Status of Lenders.
(i)
Any Lender that is entitled to an exemption from or reduction of withholding Tax
with respect to payments made under any Loan Document shall deliver to the Borrower and the
Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative
Agent, such properly completed and executed documentation reasonably requested by the Borrower
or the Administrative Agent as will permit such payments to be made without withholding or at a
reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the
Administrative Agent, shall deliver such other documentation prescribed by applicable law or
reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the
Administrative Agent to determine whether or not such Lender is subject to backup withholding or
information reporting requirements. Notwithstanding anything to the contrary in the preceding two
sentences, the completion, execution and submission of such documentation (other than such
documentation set forth in Section 3.7(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in
the Lender’s reasonable judgment such completion, execution or submission would subject such
Lender to any material unreimbursed cost or expense or would materially prejudice the legal or
commercial position of such Lender.
(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a
U.S. Person,
35
Exhibit 10(b)2
(A)
any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative
Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from
time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), an
executed copy of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup
withholding tax;
(B)
any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the
Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient)
on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and
from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent),
whichever of the following is applicable:
1.
in the case of a Foreign Lender claiming the benefits of an income tax treaty
to which the United States is a party (x) with respect to payments of interest under any Loan
Document, an executed copy of IRS Form W-8BEN-E or IRS Form W-8BEN establishing an
exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article
of such tax treaty and (y) with respect to any other applicable payments under any Loan
Document, IRS Form W-8BEN-E or IRS Form W-8BEN establishing an exemption from, or
reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income”
article of such tax treaty;
2.
in the case of a Foreign Lender claiming that its extension of credit will
generate U.S. effectively connected income, an executed copy of IRS Form W-8ECI;
3.
in the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form
of Exhibit F-1 to the effect that such Foreign Lender is not a “bank” within the meaning of
Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the
meaning of Section 881(h)(3)(B) of the Code, or a “controlled foreign corporation” described
in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) an executed
copy of IRS Form W-8BEN-E or IRS Form W-8BEN; or
4.
to the extent a Foreign Lender is not the beneficial owner, an executed copy
of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E, IRS Form
W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit F-2 or Exhibit
F-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as
applicable; provided that if the Foreign Lender is a partnership and one or more direct or
indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such
Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of
Exhibit F-4 on behalf of each such direct and indirect partner;
(C)
any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the
Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient)
on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and
from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent),
executed copies of any other form prescribed by applicable law as a basis for claiming exemption from
or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary
documentation as may be prescribed by applicable law to permit the Borrower or the Administrative
Agent to determine the withholding or deduction required to be made; and
36
Exhibit 10(b)2
(D)
if a payment made to a Lender under any Loan Document would be subject to U.S.
federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable
reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the
Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the
time or times prescribed by law and at such time or times reasonably requested by the Borrower or
the Administrative Agent such documentation prescribed by applicable law (including as prescribed
by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by
the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative
Agent to comply with their obligations under FATCA and to determine that such Lender has complied
with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from
such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made
to FATCA after the date of this Agreement
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate
in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent
in writing of its legal inability to do so.
(g)
Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good
faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section (including
by the payment of additional amounts pursuant to this Section), it shall pay to the indemnifying party an amount equal
to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving
rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest
(other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying
party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant
to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority)
in the event that such indemnified party is required to repay such refund to such Governmental Authority.
Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to
pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the
indemnified party in a less favorable net after-tax position than the indemnified party would have been in if the Tax
subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and
the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph
shall not be construed to require any indemnified party to make available its tax returns (or any other information
relating to its taxes that it deems confidential) to the indemnifying party or any other Person.
(h)
Survival. Each party’s obligations under this Section shall survive the resignation or
replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination
of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
(i)
Defined Terms. For purposes of this Section, the term “Lender” includes any Issuing Bank
and the term “applicable law” includes FATCA.
Section 3.8. Mitigation Obligations.
(a)
Designation of a Different Lending Office. In the event that the Borrower becomes obligated
to pay additional amounts to any Lender (or to any Governmental Authority for the account of any Lender) pursuant
to Section 3.5, Section 3.6 or Section 3.7, then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its
offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant to Section 3.5, Section 3.6 or Section 3.7, as the case may be, in the future, and
(ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous
to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
37
Exhibit 10(b)2
(b)
Replacement of Lenders. In the event that (i) the Borrower becomes obligated to pay additional
amounts to any Lender (or to any Governmental Authority for the account of any Lender) pursuant to Section 3.5,
Section 3.6 or Section 3.7, (ii) any Lender becomes a Defaulting Lender, or (iii) if any Lender has failed to consent to
a proposed amendment, waiver, discharge or termination that under Section 10.2 requires the consent of all the Lenders
and with respect to which the Required Lenders shall have granted their consent, then the Borrower may, at its sole
cost and expense, within 60 days of the demand by such Lender for such additional amounts or the relevant default or
action or inaction by such Lender, as the case may be, and subject to and in accordance with the provisions of Section
10.4 (with the Borrower obligated to pay any applicable processing and recordation fee), designate an Eligible Assignee
(acceptable to the Administrative Agent and the Issuing Banks) to purchase and assume all of such Lender’s interests,
rights and obligations under the Loan Documents, without recourse to or warranty by or expense to, such Lender, for
a purchase price equal to the outstanding principal amount of such Lender’s Loans plus any accrued but unpaid interest
thereon and accrued but unpaid facility fees and letter of credit fees in respect of such Lender’s Commitment and any
other amounts payable to such Lender hereunder, and to assume all the obligations of such Lender hereunder, and,
upon such purchase, such Lender shall no longer be a party hereto or have any rights hereunder (except those that
survive full repayment hereunder) and shall be relieved from all obligations to the Borrower hereunder, and the Eligible
Assignee shall succeed to the rights and obligations of such Lender hereunder. No replacement of a Defaulting Lender
pursuant to this Section 3.8 shall be deemed to be a waiver of any right that the Borrower, the Administrative Agent,
the Issuing Banks or any other Lender may have against such Defaulting Lender. The Borrower shall execute and
deliver to such Eligible Assignee a Note. Notwithstanding anything herein to the contrary, in the event that a Lender
is replaced pursuant to this Section 3.8 as a result of the Borrower becoming obligated to pay additional amounts to
such Lender (or to any Governmental Authority for the account of any Lender) pursuant to Section 3.5, Section 3.6 or
Section 3.7, such Lender shall be entitled to receive such additional amounts as if it had not been so replaced, except
as otherwise provided in Section 2.11 if such Lender becomes a Defaulting Lender.
Section 3.9.
EEA Financial Institutions. The Borrower is not an EEA Financial Institution.
Section 3.10. Plan Assets; Prohibited Transactions. None of the Borrower or any of its Subsidiaries is an
entity deemed to hold “plan assets” (within the meaning of the Plan Asset Regulations), and neither the execution,
delivery nor performance of the transactions contemplated under this Agreement, including the making of any Loan
and the issuance of any Letter of Credit hereunder, will give rise to a non-exempt prohibited transaction under Section
406 of ERISA or Section 4975 of the Code.
Article 4.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Credit Parties that:
Section 4.1.
Organization; Powers. Each of the Borrower and each Subsidiary is duly organized or formed,
validly existing and in good standing under the laws of the jurisdiction of its organization or formation, has all requisite
corporate power and authority to carry on its business as now conducted and, except where the failure to do so,
individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, is qualified
to do business in, and is in good standing in, every jurisdiction where such qualification is required.
Section 4.2.
Authorization; Enforceability. The Transactions are within the corporate powers of the
Borrower and have been duly authorized by all necessary corporate and, if required, equity holder action. Each Loan
Document has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation
thereof, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors’ rights generally and general principles of equity.
38
Exhibit 10(b)2
Section 4.3.
Governmental Approvals; No Conflicts.
(a)
The execution, delivery and performance by the Borrower of the Loan Documents and the
borrowing of the Loans and the issuance of the Letters of Credit do not require any consent or approval of, registration
or filing with, or any other action by, any Governmental Authority, except for (i) information filings to be made in the
ordinary course of business, which filings are not a condition to the Borrower’s performance under the Loan Documents
and (ii) such as have been obtained or made and are in full force and effect and not subject to any appeals period.
(b)
The Transactions will not (i) violate the charter, by-laws or other organizational documents
of the Borrower, (ii) violate any applicable law or regulation or any order of any Governmental Authority, (iii) violate
or result in a default under any material indenture, agreement or other instrument binding upon the Borrower or its
assets, or give rise to a right thereunder to require any payment to be made by the Borrower, and (iv) result in or require
the creation or imposition of any Lien on any asset of the Borrower.
Section 4.4.
Financial Condition; No Material Adverse Change.
(a)
The Borrower has previously delivered to the Credit Parties copies of (i) its Form 10 K for
the fiscal year ended December 31, 2017, containing the audited consolidated balance sheet of the Borrower and its
Subsidiaries and the related audited consolidated statements of operations, comprehensive income, changes in
stockholders’ equity and cash flows for the fiscal year ending December 31, 2017 (including with the applicable related
notes and schedules, the “Borrower Financial Statements”), and (ii) the unaudited consolidated balance sheet of the
Borrower and its Subsidiaries and the related unaudited consolidated statements of income, equity and cash flows for
the fiscal quarter ended September 30, 2018. All such financial statements have been prepared in accordance with
GAAP and fairly present in all material respects the consolidated financial condition and results of the operations of
the Borrower and its Subsidiaries as of the dates and for the periods indicated therein (subject, in the case of unaudited
financial statements, to the absence of footnotes and to normal, year end audit adjustments).
(b)
Since December 31, 2017, there has been no Material Adverse Change.
Section 4.5.
Litigation. There are no actions, suits or proceedings by or before any arbitrator or
Governmental Authority pending against or, to the knowledge of the Borrower, threatened in writing against or affecting
the Borrower or any Subsidiary that (a) if adversely determined (and provided that there exists a reasonable possibility
of such adverse determination), would reasonably be expected, individually or in the aggregate, to result in a Material
Adverse Effect, except for any Disclosed Matters, and except that the commencement by the Borrower, any Subsidiary
or any Governmental Authority of a rate proceeding, fuel adjustment clause audit or earnings review before such
Governmental Authority shall not constitute such a pending or threatened action, suit or proceeding unless and until
such Governmental Authority has made a final determination thereunder that would reasonably be expected to have a
Material Adverse Effect, or (b) involve any Loan Document or the Transactions.
Section 4.6.
Environmental Matters. Except for the Disclosed Matters, the Borrower and its Subsidiaries
(a) are in compliance with Environmental Law, (b) have received all permits, licenses or other approvals required of
them under applicable Environmental Law to conduct their respective businesses and (c) are in compliance with all
terms and conditions of any such permit, license, or approval, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect.
Section 4.7.
Investment Company Status. Neither the Borrower nor any Subsidiary is an “investment
company” or a company “controlled” by an “investment company” as defined in, or is otherwise subject to regulation
under, the Investment Company Act of 1940.
39
Exhibit 10(b)2
Section 4.8.
ERISA. Each of the Borrower and each of its ERISA Affiliates is in compliance in all material
respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations
thereunder except for any such failure that, individually or in the aggregate, could not reasonably be expected to result
in a Material Adverse Effect. No ERISA Event has occurred or is reasonably expected to occur that, when taken
together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be
expected to result in a Material Adverse Effect.
Section 4.9.
Disclosure.
(a)
None of the reports, financial statements, certificates or other information furnished by or on
behalf of the Borrower or any Subsidiary to any Credit Party in connection with the negotiation of, or delivered under
any Loan Document when taken as a whole (as modified or supplemented by other information so furnished, including
the information contained in the Borrower’s most recent annual report on Form 10-K and in the Borrower’s reports
filed with the SEC under the Securities Exchange Act of 1934 subsequent to the filing of the Form 10-K) contains any
material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not materially misleading, provided that, to the extent any such
reports, financial statements, certificates or other information was based upon or constitutes a forecast or a projection
(including statements concerning future financial performance, ongoing business strategies or prospects or possible
future actions, and other forward-looking statements), the Borrower represents only that such information was prepared
in good faith based upon assumptions believed to be reasonable at the time.
(b)
As of the Effective Date, to the best knowledge of the Borrower, the information included in
the Beneficial Ownership Certification provided on or prior to the Effective Date to any Lender in connection with
this Agreement is true and correct in all respects.
Section 4.10. Subsidiaries. As of the date hereof, the Borrower has only the Subsidiaries set forth on Schedule
4.10. Schedule 4.10 sets forth with respect to each Subsidiary, the identity of each Person that owns Equity Interests
in such Subsidiary and the percentage of the issued and outstanding Equity Interests owned by each such Person. The
shares of each Subsidiary (excluding any Immaterial Subsidiary) are duly authorized, validly issued, fully paid and
non assessable and are owned free and clear of any Liens, other than Liens permitted pursuant to Section 7.1.
Section 4.11. Use of Proceeds; Federal Reserve Regulations.
(a)
The proceeds of the Loans and the Letters of Credit will be used for general corporate purposes
not inconsistent with the terms hereof, including liquidity support for the Borrower’s commercial paper program.
(b)
Neither the Borrower nor any Subsidiary is engaged principally, or as one of their important
activities, in the business of extending credit for the purpose of buying or carrying Margin Stock. Immediately before
and after giving effect to the making of each Loan and the issuance of each Letter of Credit, Margin Stock will constitute
less than 25% of the Borrower’s assets as determined in accordance with Regulation U.
(c)
No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to purchase, acquire or carry any Margin Stock
(other than any purchase of Equity Interests in the Borrower so long as such Equity Interests are retired immediately
upon the purchase thereof) or for any purpose that entails a violation of, or that is inconsistent with, the provisions of
the regulations of the Board, including Regulation T, U or X or (ii) to fund a personal loan to or for the benefit of a
director or executive officer of the Borrower or any Subsidiary.
Section 4.12. Anti-Money Laundering and Anti-Terrorism Finance Laws. The Borrower has implemented
and maintains in effect policies and procedures designed to ensure compliance by the Borrower, its Subsidiaries and
their respective directors, officers, employees and agents with Anti-Corruption Laws. To the extent applicable, Borrower
is in compliance, in all material respects, with Anti-Corruption Laws, anti-money laundering laws and anti-terrorism
finance laws including the Bank Secrecy Act and the PATRIOT Act (the “Anti-Terrorism Laws”).
40
Exhibit 10(b)2
Section 4.13. Foreign Corrupt Practices Act. No part of the proceeds of the Loans or Letters of Credit shall
be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of
a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or
direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of
1977.
Section 4.14. Sanctions Laws. Neither the Borrower nor, to the knowledge of the Borrower, any Affiliate
or broker or other agent of the Borrower acting or benefiting in any capacity in connection with the Loans or Letters
of Credit, is any of the following (a “Restricted Person”): (i) a Person that is listed in the annex to, or is otherwise
subject to the provisions of, Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001; (ii) a
Person that is named as a “specially designated national and blocked person” on the most current list published by the
U.S. Treasury Department Office of Foreign Assets Control (“OFAC”) at its official website or any replacement website
or other replacement official publication of such list or similarly named by any similar foreign governmental authority;
(iii) an agency of the government of a country, an organization controlled by a country, or a Person resident in a country
that is subject to a sanctions program identified on the lists maintained by OFAC; or (iv) a Person that derives more
than 10% of its assets or operating income from investments in or transactions with any such country, agency,
organization or person. Further, none of the proceeds from the Loans or Letters of Credit shall be used to finance any
operations, investments or activities in, or make any payments to, any such country, agency, organization or Person
subject to OFAC sanctions.
Article 5.
CONDITIONS
Section 5.1.
Effectiveness. The obligations of the Lenders to make Loans and of the Issuing Banks to issue
Letters of Credit hereunder are subject to the satisfaction (or waiver in accordance with Section 10.2) of the following
conditions precedent:
(a)
Credit Agreement. The Administrative Agent (or its counsel) shall have received from each
party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory
to the Administrative Agent (which may include facsimile transmission of a signed signature page of this Agreement)
that such party has signed a counterpart of this Agreement.
(b)
Notes. The Administrative Agent shall have received any Note requested by a Lender pursuant
to Section 2.6(e) payable to the order of such requesting Lender.
(c)
Legal Opinions. The Administrative Agent shall have received favorable written opinions
(addressed to the Credit Parties and dated on or prior to the Effective Date) from Bethany M. Owen, Senior Vice
President, Chief Legal and Administrative Officer and Secretary of the Borrower, and Cohen Tauber Spievack &
Wagner P.C., special counsel to the Borrower, covering such matters relating to the Borrower, the Loan Documents
and the Transactions as the Required Lenders may reasonably request. The Borrower hereby requests such counsel to
deliver such opinion.
41
Exhibit 10(b)2
(d)
Organizational Documents, etc. The Administrative Agent shall have received such documents
and certificates as the Administrative Agent or its counsel may reasonably request relating to (i) the organization,
existence and good standing of the Borrower (including (x) a certificate of incorporation of the Borrower, certified as
of a recent date by the Secretary of State of the jurisdiction of its incorporation, and (y) certificates of good standing
(or comparable certificates) for the Borrower, certified as of a recent date prior to the Effective Date, by the Secretaries
of State (or comparable official) of the jurisdiction of its incorporation and each other jurisdiction in which it is qualified
to do business, (ii) the authorization of the Transactions, (iii) the incumbency of its officer or officers who may sign
the Loan Documents, including therein a signature specimen of such officer or officers, and (iv) any other legal matters
relating to the Borrower, the Loan Documents or the Transactions, all in form and substance reasonably satisfactory
to the Administrative Agent and its counsel.
(e)
Fees etc. The Administrative Agent shall have received all fees and other amounts due and
payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all reasonable
out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder.
(f)
Officer’s Certificate. The Administrative Agent shall have received a certificate, in form and
substance satisfactory to the Administrative Agent, dated on or prior to the Effective Date and signed by the chief
executive officer or the chief financial officer of the Borrower (or other Financial Officer acceptable to the
Administrative Agent), confirming that (i) the representations and warranties of the Borrower set forth in this Agreement
are true and correct and (ii) no Default exists.
(g)
No Material Adverse Change. The Administrative Agent shall have received a certificate of
a Financial Officer, in form and substance satisfactory to the Administrative Agent, dated the Effective Date, to the
effect that since December 31, 2017, no Material Adverse Change has occurred, except as has been previously disclosed
by the Borrower in documents filed with the SEC prior to the Effective Date.
(h)
KYC. (i) The Administrative Agent shall have received, at least five days prior to the Effective
Date, all documentation and other information regarding the Borrower requested in connection with applicable “know
your customer” and anti-money laundering rules and regulations, including the PATRIOT Act, to the extent requested
in writing of the Borrower at least 10 days prior to the Effective Date and (ii) to the extent the Borrower qualifies as
a “legal entity customer” under the Beneficial Ownership Regulation, at least five days prior to the Effective Date, any
Lender that has requested, in a written notice to the Borrower at least 10 days prior to the Effective Date, a Beneficial
Ownership Certification in relation to the Borrower shall have received such Beneficial Ownership Certification
(provided that, upon the execution and delivery by such Lender of its signature page to this Agreement, the condition
set forth in this clause (ii) shall be deemed to be satisfied).
(i)
Approvals. All governmental and third party approvals necessary or, in the discretion of the
Administrative Agent, advisable in connection with the financing and the continuing operations of the Borrower and
its subsidiaries shall have been obtained and be in full force.
(j)
Miscellaneous. Such other documents as any Lender or its counsel may have reasonably
requested.
The Administrative Agent shall notify the Borrower and the Credit Parties when the conditions set forth above have
been satisfied or waived, and such notice shall be conclusive and binding.
Section 5.2.
Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any
Borrowing, and of the Issuing Banks to issue, increase, amend, renew or extend a Letter of Credit, is subject to the
satisfaction of the following conditions:
42
Exhibit 10(b)2
(a)
The representations and warranties of the Borrower set forth in the Loan Documents (other
than the representations and warranties in Section 4.4(b), Section 4.5 and Section 4.6 of this Agreement) shall be true
and correct on and as of the date of such Borrowing or the date of such issuance, increase, amendment, renewal or
extension, as applicable, except to the extent such representations and warranties specifically relate to an earlier date,
in which case such representations and warranties shall have been true and correct on and as of such earlier date.
(b)
At the time of and immediately after giving effect to such Borrowing or such issuance, increase,
amendment, renewal or extension, as applicable, no Default shall have occurred and be continuing.
(c)
The Administrative Agent shall have received a Credit Request and such other documentation
and assurances as shall be reasonably required by it in connection herewith.
(d)
Such Loan or Letter of Credit shall not be prohibited by any applicable law, rule or regulation.
Each Borrowing and each issuance, increase, amendment, renewal or extension of a Letter of Credit shall be deemed
to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in
paragraphs (a) and (b) of this Section.
Article 6.
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the principal of and interest on each Loan and
all fees and other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit
have expired or terminated and all LC Disbursements have been reimbursed, the Borrower covenants and agrees with
the Credit Parties that:
Section 6.1.
Financial Statements and Other Information. The Borrower will furnish to the Administrative
Agent and each Lender:
(a)
As soon as available, but in any event within 120 days after the end of each fiscal year, (i) a
copy of the Borrower’s Annual Report on Form 10 K in respect of such fiscal year required to be filed by the Borrower
with the SEC, together with the financial statements attached thereto, and (ii) the Borrower’s audited consolidated
balance sheet and related consolidated statements of income, stockholder’s equity and cash flows as of the end of and
for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported
on by the Accountants (without a “going concern” or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all
material respects the financial conditions and results of operations of the Borrower and the Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied during such fiscal year;
(b)
As soon as available, but in any event within 60 days after the end of each of the first three
fiscal quarters of each fiscal year, (i) a copy of the Borrower’s Quarterly Report on Form 10 Q in respect of such fiscal
quarter required to be filed by the Borrower with the SEC, together with the financial statements attached thereto, and
(ii) the Borrower’s unaudited consolidated balance sheet and related consolidated statements of income, stockholder’s
equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting
forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous fiscal year, all certified by a duly authorized Financial Officer as presenting
fairly in all material respects the financial conditions and results of operations of the Borrower and the Subsidiaries
on a consolidated basis in accordance with GAAP consistently applied, subject to normal year end audit adjustments
and the absence of footnotes;
43
Exhibit 10(b)2
(c)
Within 60 days after the end of each of the first three fiscal quarters and within 120 days after
the end of the last fiscal quarter, a Compliance Certificate, signed by a Financial Officer (or such other officer as shall
be acceptable to the Administrative Agent) as to the Borrower’s compliance, as of such fiscal quarter ending date, with
Section 7.5, and as to the absence of any Default as of such fiscal quarter ending date and the date of such certificate
(or if a Default existed or exists, the nature thereof); and
(d)
promptly following any request therefor, (i) such other information regarding the operations,
business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of the Loan
Documents, as any Credit Party may reasonably request and (ii) information and documentation reasonably requested
by the Administrative Agent or any Lender for purposes of compliance with applicable “know your customer” and
anti-money laundering rules and regulations, including the PATRIOT Act and the Beneficial Ownership Regulation.
Section 6.2.
Notices of Material Events. The Borrower will furnish the following to the Administrative
Agent and each Lender:
(a)
prompt written notice of the occurrence of any Default, specifying the nature thereof and any
action taken or proposed to be taken with respect thereto;
(b)
promptly upon becoming available, copies of all (i) regular, periodic or special reports,
schedules and other material which the Borrower or any of its Subsidiaries may be required to file with or deliver to
any securities exchange or the SEC, or any other Governmental Authority succeeding to the functions thereof, and (ii)
upon the written request of the Administrative Agent, reports that the Borrower or any of its Subsidiaries sends to or
files with the Federal Energy Regulatory Commission, the WPS, the MPUC or any Governmental Authority succeeding
to the functions thereof, or any similar state or local Governmental Authority;
(c)
prompt written notice of (i) any material citation, summons, subpoena, order, notice, claim or
proceeding received by, or brought against, the Borrower or any of its Subsidiaries, with respect to (x) any proceeding
before any Governmental Authority (other than proceedings in the ordinary course of business before the WPS or the
MPUC), or (y) any real property under any Environmental Law, and (ii) any lapse or other termination of, or refusal
to renew or extend, any material franchise or other authorization issued to the Borrower or any of its Subsidiaries by
any Governmental Authority (other than in the ordinary course of business), provided that any of the foregoing set
forth in this paragraph would, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect;
(d)
(e)
prompt written notice of any change by any Rating Agency in a Senior Debt Rating; and
any change in the information provided in the Beneficial Ownership Certification delivered
to such Lender that would result in a change to the list of beneficial owners identified in such certification.
Each notice delivered under Section 6.2(a) or (c) shall be accompanied by a statement of a Financial Officer or other
executive officer of the Borrower setting forth the details of the event or development requiring such notice and any
action taken or proposed to be taken with respect thereto.
Documents required to be delivered pursuant to Section 6.1(a) or (b) or Section 6.2(b) or (c) (to the extent any
such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so
delivered, shall be deemed to have been delivered on the date (a) on which the Borrower posts such documents, or
provides a link thereto, on the Borrower’s website on the Internet at the website address listed in Section 10.1; or (b)
on which such documents are posted on the Borrower’s behalf on an Internet or intranet website, if any, to which each
Lender and the Administrative have access (whether a commercial, third party website or whether sponsored by the
Administrative Agent), provided that: (i) the Borrower shall deliver paper copies of such documents to the
Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to
cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify
the Administrative Agent and each Lender (by facsimile or electronic mail) of the posting of any such documents and
provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Except
44
Exhibit 10(b)2
for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to
maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance
by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery
to it or maintaining its copies of such documents.
Section 6.3.
Legal Existence. Except as permitted under Section 7.2, the Borrower shall maintain its legal
existence in good standing in the jurisdiction of its organization or formation and in each other jurisdiction in which
the failure so to do would reasonably be expected to have a Material Adverse Effect, and cause each of the Subsidiaries
to maintain its qualification to do business and good standing in each jurisdiction in which the failure so to do would
reasonably be expected to have a Material Adverse Effect (it being understood that the foregoing shall not prohibit the
Borrower from dissolving or terminating the existence of any Subsidiary that is inactive or whose preservation otherwise
is no longer desirable in the conduct of the business of the Borrower and its Subsidiaries considered as a whole).
Section 6.4.
Taxes. The Borrower shall pay and discharge when due, and cause each of the Subsidiaries
so to do, all Taxes imposed upon it or upon its property, which if unpaid would, individually or collectively, reasonably
be expected to have a Material Adverse Effect or become a Lien on the property of the Borrower or such Subsidiary
(other than a Lien described in clause (a) of the definition of Permitted Encumbrances), as the case may be, unless and
to the extent only that such Taxes shall be contested in good faith and by appropriate proceedings diligently conducted
by the Borrower or such Subsidiary, as the case may be.
Section 6.5.
Insurance. The Borrower shall maintain, and cause each of its Subsidiaries to maintain, with
financially sound and reputable insurance companies insurance on all its property in at least such amounts and against
at least such risks as are usually insured against in the same general area by companies engaged in the same or a similar
business, provided that the Borrower and its Subsidiaries may self-insure to the same extent as other companies engaged
in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary
operates and to the extent consistent with prudent business practice. The Borrower shall furnish to the Administrative
Agent, upon written request of the Administrative Agent or any Lender, full information as to the insurance carried.
Section 6.6.
Condition of Property. The Borrower shall at all times maintain, protect and keep in good
repair, working order and condition in all material respects (ordinary wear and tear excepted), and cause each of its
Subsidiaries so to do, all material property necessary to the operation of the Borrower’s or such Subsidiary’s, as the
case may be, material businesses, provided that nothing shall prevent the Borrower or its Subsidiaries, as appropriate,
from discontinuing the maintenance or operation of any property if such discontinuance is, in the judgment of the
Borrower or such Subsidiary, desirable in the conduct of the business of the Borrower or such Subsidiary. It is understood
that this covenant relates only to working order and condition of such property in accordance with prudent industry
practices and shall not be construed as a covenant not to dispose of property.
Section 6.7.
Observance of Legal Requirements. The Borrower shall observe and comply in all material
respects, and cause each of its Subsidiaries so to do, with all laws, regulations and orders of any Governmental Authority
which now or at any time hereafter may be applicable to it, including ERISA and all Environmental Laws, a violation
of which would individually or collectively reasonably be expected to have a Material Adverse Effect, except such
thereof as shall be contested in good faith and, if applicable, by appropriate proceedings diligently conducted by it.
Section 6.8.
Inspection of Property; Books and Records; Discussions. The Borrower shall keep proper
books of record and account in conformity with GAAP and all requirements of law. The Borrower shall permit
representatives of the Administrative Agent and any Lender to visit its offices, to inspect any of its property (subject
to reasonable procedures relating to safety and security) and examine and make copies or abstracts from any of its
books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business,
operations, prospects, property and financial condition of the Borrower and its Subsidiaries with the officers thereof
and the Accountants; provided that none of the Administrative Agent, its agents, its representatives or the Lenders shall
be entitled to examine or make copies or abstracts of, or otherwise obtain information with respect to, the Borrower’s
records relating to pending or threatened litigation if any such disclosure by the Borrower would reasonably be expected
(i) to give rise to a waiver of any attorney/client privilege of the Borrower or any of its Subsidiaries relating to such
information or (ii) to be otherwise materially disadvantageous to the Borrower or any of its Subsidiaries in the defense
45
of such litigation; and provided further that in the case of any discussion with the Accountants, the Borrower shall have
been given the opportunity to participate in such discussion and, unless a Default exists, the Lender or Lenders requesting
such discussion shall pay any fees and expenses of the Accountant in connection therewith.
Exhibit 10(b)2
Article 7.
NEGATIVE COVENANTS
Until the Commitments have expired or been terminated and the principal of and interest on each Loan and
all fees and other amounts payable under the Loan Documents shall have been paid in full and all Letters of Credit
have expired and all LC Disbursements have been reimbursed, the Borrower covenants and agrees with the Credit
Parties that:
Section 7.1.
Liens. The Borrower shall not, and shall not permit any Subsidiary to, create, incur, assume
or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired by it, except:
(a)
Liens now existing or hereafter arising in favor of the Administrative Agent or the Lenders
under the Loan Documents;
(b)
Permitted Encumbrances;
(c)
any Lien existing on any property prior to the acquisition thereof by the Borrower or any
Subsidiary, or existing on any property of any Person that becomes a Subsidiary after the Effective Date prior to the
time such Person becomes a Subsidiary or that is merged with or into or consolidated with the Borrower or any
Subsidiary prior to such merger or consolidation, provided that (i) such Lien is not created in contemplation of or in
connection with such acquisition or such Person becoming a Subsidiary or such merger or consolidation, as the case
may be, (ii) such Lien shall not apply to any other property of the Borrower or any Subsidiary and (iii) such Lien shall
secure only those obligations and liabilities that it secures on the date of such acquisition or the date such Person
becomes a Subsidiary of the Borrower or such merger or consolidation, as the case may be;
(d)
Liens (including precautionary Liens in connection with Capital Lease Obligations) on fixed
or capital assets and other property (including any natural gas, oil or other mineral assets, pollution control facilities,
electrical generating plants, equipment and machinery, and related accounts, financial assets, contracts and general
intangibles) acquired, constructed, explored, drilled, developed, improved, repaired or serviced (including in connection
with the financing of working capital and ongoing maintenance) by the Borrower or any Subsidiary, provided that (i)
such security interests and the obligations and liabilities secured thereby are incurred prior to or within 270 days after
the acquisition of the relevant asset or the completion of the relevant construction, exploration, drilling, development,
improvement, repair or servicing (including the relevant financing of working capital and ongoing maintenance), as
the case may be, (ii) the obligations and liabilities secured thereby do not exceed the cost of acquiring, constructing,
exploring, drilling, developing, improving, repairing or servicing (including the financing of working capital and
ongoing maintenance in respect of) the relevant assets, and (iii) such security interests shall not apply to any other
property beyond the relevant property set forth in this paragraph (d) (and in the case of construction or improvement,
any theretofore unimproved real property on which the property so constructed or the improvement is located) and
paragraph (f), as applicable, of the Borrower or any Subsidiary;
(e)
Liens created under or in connection with the Mortgage and the SWLP Mortgage;
(f)
Liens on any Equity Interest owned or otherwise held by or on behalf of the Borrower or any
Subsidiary in any Person created as a special purpose, bankruptcy-remote Person for the sole and exclusive purpose
of engaging in activities in connection with the owning and operating of property in connection with any project
financing permitted to be secured under paragraph (d);
46
Exhibit 10(b)2
(g)
Liens created to secure Indebtedness of any Subsidiary to the Borrower or to any other
Subsidiary;
(h)
rights reserved to or vested in others to take or receive any part of any coal, ore, gas, oil and
other minerals, any timber and/or any electric capacity or energy, gas, water, steam and any other product developed,
produced, manufactured, generated, purchased or otherwise acquired by the Borrower or by others on property of the
Borrower or any of its Subsidiaries, provided that no Lien described in this paragraph shall secure Indebtedness;
(i)
Liens created for the sole purpose of extending, renewing or replacing in whole or in part
Indebtedness secured by any lien, mortgage or security interest referred to in the foregoing paragraphs (a) through (h),
provided that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of
Indebtedness so secured at the time of such extension, renewal or replacement and that such extension, renewal or
replacement, as the case may be, shall be limited to all or a part of the property or indebtedness that secured the lien
or mortgage so extended, renewed or replaced (and any improvements on such property);
(j)
Liens on cash or invested funds used to make a defeasance, covenant defeasance or in substance
defeasance of any Indebtedness pursuant to an express contractual provision in the agreement governing such
Indebtedness, provided that immediately before and immediately after giving effect to the making of such defeasance,
no Default shall exist;
(k)
Liens on all CoBank Equities now owned or hereafter acquired by the Borrower; and
(l)
any Lien, in addition to those described in the foregoing paragraphs (a) through (k), securing
obligations that, together with all other obligations secured pursuant to this paragraph (l), do not exceed 10% of
Consolidated Assets at the time of the incurrence thereof.
Section 7.2. Merger; Consolidation. The Borrower shall not, and shall not permit any Subsidiary (excluding
any Immaterial Subsidiary) to undergo a Division (as defined in Section 18-217 of the Delaware Limited Liability
Company Act) or consolidate with or merge into any other Person (other than a merger of a Subsidiary into, or a
consolidation of a Subsidiary with, the Borrower or another Subsidiary), unless:
(a)
immediately before and after giving effect thereto no Default shall exist;
(b)
immediately before and after giving effect thereto, all of the representations and
warranties contained in the Loan Documents shall be true and correct except as the context thereof
otherwise requires and except for those representations and warranties which by their terms or by
necessary implication are expressly limited to a state of facts existing at a time prior to such merger,
consolidation or acquisition, as the case may be, or such other matters relating thereto as are identified
in a writing to the Administrative Agent and the Lenders and are satisfactory to the Administrative
Agent and the Lenders; and
(c)
in the case of a transaction involving the Borrower, either (i) the Borrower shall be
the surviving entity thereof, or in the event the Borrower shall not be the surviving entity thereof, each
of the following conditions shall be satisfied: (A) such surviving entity shall have been incorporated
or otherwise formed in a State of the United States with substantially all of its assets and business
located and conducted in the United States, (B) such surviving entity shall, immediately after giving
effect to such transaction, have an Investment Grade Rating and (C) such surviving entity shall have
expressly assumed the obligations of the Borrower under the Loan Documents pursuant to a writing
in form and substance satisfactory to the Administrative Agent; and (ii) the Administrative Agent and
the Lenders shall have received a certificate signed by a duly authorized officer of the Borrower
identifying the Person to be merged with or into, or consolidated with, or acquired by, the Borrower,
and certifying as to each of the matters set forth in clauses (a), (b) and (c)(i) of this Section 7.2.
47
Exhibit 10(b)2
For purposes of clause (c) above, “Investment Grade Rating” means a Senior Debt Rating from at
least two Rating Agencies equal to (1) for any transaction where the surviving entity has a Senior Debt Rating, a rating
for such surviving entity of BBB- or higher from S&P or Fitch or Baa3 or higher from Moody’s and (2) for any
transaction where the surviving entity is an indirect or direct holding company for a public utility that does not have
a Senior Debt Rating, a rating for such surviving entity’s primary utility Subsidiary of BBB- or higher from S&P or
Fitch or Baa3 or higher from Moody’s.
Section 7.3.
Transactions with Affiliates. The Borrower shall not, and shall not permit any of its
Subsidiaries to, sell, transfer, lease or otherwise dispose of (including pursuant to a merger) any property or assets to,
or purchase, lease or otherwise acquire (including pursuant to a merger) any property or assets from, or otherwise
engage in any other transactions with, any of its Affiliates, except in the ordinary course of business at prices and on
terms and conditions not less materially favorable to the Borrower or such Subsidiary, as the case may be, than could
be obtained on an arms length basis from unrelated third parties, provided that this Section shall not apply to (i) any
transaction that is in compliance with applicable laws and regulations of the Federal Energy Regulatory Commission,
the WPS or the MPUC pertaining to affiliate transactions or is authorized by a tariff or rate schedule which has been
approved by a Governmental Authority or performed in accordance with its orders, (ii) any transaction that is otherwise
permitted under Section 7.2 and (iii) transactions pursuant to any contract in effect on the date hereof, as the same may
be amended, extended or replaced from time to time so long as such contract as so amended, extended or replaced is,
taken as a whole, not materially less favorable to the Borrower and its Subsidiaries than under those contracts in effect
on the date hereof.
Section 7.4.
Permitted Hedge Agreements. The Borrower shall not enter into any Hedge Agreements other
than (a) Permitted Hedge Agreements and (b) transactions in futures, floors, collars and similar Hedge Agreements
involving the stock price of a Person involved in a merger transaction permitted by Section 7.2.
Section 7.5.
Financial Covenant. The Borrower will not permit Total Indebtedness to be greater than 65%
of Total Capitalization as of the end of any fiscal quarter.
Section 7.6.
Anti-Money Laundering and Anti-Terrorism Finance Laws; Foreign Corrupt Practices Act;
Sanctions Laws; Restricted Person. The Borrower shall not, and shall not permit any Subsidiary to, (i) engage in or
conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any prohibition set forth in any Anti-Terrorism Law, (ii) cause or permit any of the funds that are used to repay
any obligation under the Loan Documents to be derived from any unlawful activity with the result that the making of
the Loans or the issuance of the Letters of Credit would be in violation of any applicable law, (iii) use any part of the
proceeds of the Loans or the Letters of Credit, in furtherance of an offer, payment, promise to pay, or authorization of
the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws;
(iv) use any of the proceeds from the Loans or the Letters of Credit to finance any operations, investments or activities
in, or make any payments to, any Restricted Person or in any manner that would result in the violation of any applicable
sanctions.
Article 8.
EVENTS OF DEFAULT
If any of the following events (each an “Event of Default”) shall occur:
(a)
the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in
respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof
or at a date fixed for prepayment thereof or otherwise;
48
Exhibit 10(b)2
(b)
the Borrower shall fail to pay any interest on any Loan or on any reimbursement obligation
in respect of any LC Disbursement or any fee, commission or any other amount (other than an amount referred to in
paragraph (a) of this Article) payable under any Loan Document, when and as the same shall become due and payable,
and such failure shall continue unremedied for a period of five Business Days;
(c)
any representation or warranty made or deemed made by or on behalf of the Borrower or any
Subsidiary in or in connection with any Loan Document or any amendment or modification hereof or waiver thereunder,
or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any
Loan Document or any amendment or modification hereof or waiver thereunder, shall prove to have been incorrect in
any material respect when made or deemed made;
(d)
the Borrower shall fail to observe or perform any covenant, condition or agreement contained
in Section 6.3 (with respect to the Borrower’s existence), 7.2, 7.4 or 7.5;
(e)
the Borrower shall fail to observe or perform any covenant, condition or agreement contained
in Section 7.1 or Section 7.3 and such failure shall continue unremedied for a period of ten days after the Borrower
shall have obtained knowledge thereof.
(f)
the Borrower shall fail to observe or perform any covenant, condition or agreement contained
in any Loan Document to which it is a party (other than those specified in paragraph (a), (b), (d) or (e) of this Article),
and such failure shall continue unremedied for a period of 30 days after the Borrower shall have obtained knowledge
thereof;
(g)
the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest
and regardless of amount) in respect to any Material Obligations, when and as the same shall become due and payable
and after the expiration of any applicable grace period;
(h)
any event or condition occurs that results in any Material Obligations becoming due prior to
their scheduled maturity or payment date, or that enables or permits (with or without the giving of notice, the lapse of
time or both) the holder or holders of any Material Obligations or any trustee or agent on its or their behalf to cause
any Material Obligations to become due prior to their scheduled maturity or payment date or to require the prepayment,
repurchase, redemption or defeasance thereof prior to their scheduled maturity or payment date (in each case after
giving effect to any applicable cure period), provided that this paragraph (h) shall not apply to (i) Indebtedness that
becomes due as a result of a notice of voluntary prepayment or redemption delivered by the Borrower or a Subsidiary,
(ii) secured Indebtedness that becomes due solely as a result of the voluntary sale or transfer of the property or assets
securing such Indebtedness, (iii) intercompany indebtedness or (iv) the exercise of any contractual right to cause the
prepayment of any Material Obligations (other than the exercise of a remedy for an event of default under the applicable
contract or agreement);
(i)
except for Immaterial Transactions and transactions expressly permitted by Section 6.3 with
respect to Subsidiaries, the Borrower or any Subsidiary shall (i) suspend or discontinue its business, (ii) make an
assignment for the benefit of creditors, (iii) generally not pay its debts as such debts become due, (iv) admit in writing
its inability to pay its debts as they become due, (v) file a voluntary petition in bankruptcy, (vi) become insolvent
(however such insolvency shall be evidenced), (vii) file any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment of debt, liquidation or dissolution or similar relief under any present or future
statute, law or regulation of any jurisdiction, (viii) petition or apply to any tribunal for any receiver, custodian or any
trustee for any substantial part of its property, (ix) be the subject of any such proceeding filed against it which remains
undismissed for a period of 45 days, (x) file any answer admitting or not contesting the material allegations of any
such petition filed against it or any order, judgment or decree approving such petition in any such proceeding, (xi)
seek, approve, consent to, or acquiesce in any such proceeding, or in the appointment of any trustee, receiver,
sequestrator, custodian, liquidator, or fiscal agent for it, or any substantial part of its property, or an order is entered
appointing any such trustee, receiver, custodian, liquidator or fiscal agent and such order remains in effect for 45 days,
or (xii) take any formal action for the purpose of effecting any of the foregoing or looking to the liquidation or dissolution
of the Borrower or any Subsidiary;
49
Exhibit 10(b)2
(j)
except to the extent arising solely out of an Immaterial Transaction, an order for relief is entered
under the United States bankruptcy laws or any other decree or order is entered by a court having jurisdiction (i)
adjudging the Borrower or any Subsidiary bankrupt or insolvent, (ii) approving as properly filed a petition seeking
reorganization, liquidation, arrangement, adjustment or composition of or in respect of Borrower or any Subsidiary
under the United States bankruptcy laws or any other applicable Federal or state law, (iii) appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Borrower or any Subsidiary of any
substantial part of the property thereof, or (iv) ordering the winding up or liquidation (other than, in the case of a
Subsidiary, voluntary liquidation, not under any bankruptcy, insolvency or similar law) of the affairs of the Borrower
or any Subsidiary, and any such decree or order continues unstayed and in effect for a period of 45 days;
(k)
one or more judgments or decrees against the Borrower or any of its Subsidiaries or any
combination thereof aggregating in excess of $35,000,000, which judgment or decree (i) shall not be fully covered by
insurance after taking into account any applicable deductibles and (ii) shall remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of at least 30 consecutive days;
(l)
any Loan Document shall cease, for any reason, to be in full force and effect or the Borrower
shall so assert in writing or shall disavow any of its obligations thereunder;
(m)
an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken
together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse
Effect;
(n)
any authorization or approval or other action by any Governmental Authority required for the
execution, delivery or performance of any Loan Document shall be terminated, revoked or rescinded or shall otherwise
no longer be in full force and effect;
(o)
(p)
Power;
a Change in Control shall occur; or
the Borrower shall fail to own, directly or indirectly, substantially all of the assets of Minnesota
then, and in every such event (other than an event described in paragraph (i) or (j) of this Article), and at any time
thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required
Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall terminate immediately and (ii) declare the Loans
then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be
due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued
under the Loan Documents, shall become due and payable immediately, without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower; and in case of any event described in paragraph
(i) or (j) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of the Borrower accrued under the Loan
Documents, shall automatically become due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
50
Exhibit 10(b)2
Article 9.
THE ADMINISTRATIVE AGENT
Section 9.1.
Authorization and Action.
(a)
Each Credit Party hereby irrevocably appoints the Administrative Agent as its agent and
authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental
thereto.
(b)
The Person serving as the Administrative Agent hereunder shall have the same rights and
powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative
Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind
of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent
hereunder.
(c)
As to any matters not expressly provided for herein and in the other Loan Documents (including
enforcement or collection), the Administrative Agent shall not be required to exercise any discretion or take any action,
but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting)
upon the written instructions of the Required Lenders (or such other number or percentage of the Lenders as shall be
necessary, pursuant to the terms in the Loan Documents), and, unless and until revoked in writing, such instructions
shall be binding upon each Lender and each Issuing Bank; provided, however, that the Administrative Agent shall not
be required to take any action that (i) the Administrative Agent in good faith believes exposes it to liability unless the
Administrative Agent receives an indemnification and is exculpated in a manner satisfactory to it from the Lenders
and the Issuing Banks with respect to such action or (ii) is contrary to this Agreement or any other Loan Document or
applicable law, including any action that may be in violation of the automatic stay under any requirement of law relating
to bankruptcy, insolvency or reorganization or relief of debtors or that may effect a forfeiture, modification or termination
of property of a Defaulting Lender in violation of any requirement of law relating to bankruptcy, insolvency or
reorganization or relief of debtors; provided, further, that the Administrative Agent may seek clarification or direction
from the Required Lenders prior to the exercise of any such instructed action and may refrain from acting until such
clarification or direction has been provided. Except as expressly set forth in the Loan Documents, the Administrative
Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating
to the Borrower, any Subsidiary or any Affiliate of any of the foregoing that is communicated to or obtained by the
Person serving as Administrative Agent or any of its Affiliates in any capacity. Nothing in this Agreement shall require
the Administrative Agent to expend or risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured
to it.
(d)
In performing its functions and duties hereunder and under the other Loan Documents, the
Administrative Agent is acting solely on behalf of the Lenders and the Issuing Banks (except in limited circumstances
expressly provided for herein relating to the maintenance of the Register), and its duties are entirely mechanical and
administrative in nature. Without limiting the generality of the foregoing:
51
Exhibit 10(b)2
(i)
the Administrative Agent does not assume and shall not be deemed to have assumed
any obligation or duty or any other relationship as the agent, fiduciary or trustee of or for any Lender
or Issuing Bank other than as expressly set forth herein and in the other Loan Documents, regardless
of whether a Default or an Event of Default has occurred and is continuing (and it is understood and
agreed that the use of the term “agent” (or any similar term) herein or in any other Loan Document
with reference to the Administrative Agent is not intended to connote any fiduciary duty or other
implied (or express) obligations arising under agency doctrine of any applicable law, and that such
term is used as a matter of market custom and is intended to create or reflect only an administrative
relationship between contracting parties); additionally, each Lender agrees that it will not assert any
claim against the Administrative Agent based on an alleged breach of fiduciary duty by the
Administrative Agent in connection with this Agreement and/or the transactions contemplated hereby;
and
(ii)
nothing in this Agreement or any Loan Document shall require the Administrative
Agent to account to any Lender for any sum or the profit element of any sum received by the
Administrative Agent for its own account;
(e)
The Administrative Agent may perform any of its duties and exercise its rights and powers
hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative
Agent. The Administrative Agent and any such sub-agent may perform any of their respective duties and exercise their
respective rights and powers through their respective Related Parties. The exculpatory provisions of this Article shall
apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall
apply to their respective activities pursuant to this Agreement. The Administrative Agent shall not be responsible for
the negligence or misconduct of any sub-agent except to the extent that a court of competent jurisdiction determines
in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct
in the selection of such sub-agent.
(f)
The Sole Lead Arranger and Sole Bookrunner shall have no obligations or duties whatsoever
in such capacity under this Agreement or any other Loan Document and shall incur no liability hereunder or thereunder
in such capacity, but shall have the benefit of the indemnities provided for hereunder.
(g)
In case of the pendency of any proceeding with respect to the Borrower under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, the Administrative Agent
(irrespective of whether the principal of any Loan or any reimbursement obligation in respect of any LC Disbursement
shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the
Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered (but not obligated)
by intervention in such proceeding or otherwise:
(i)
to file and prove a claim for the whole amount of the principal and interest owing and
unpaid in respect of the Loans, LC Disbursements and all other obligations under the Loan Documents
that are owing and unpaid and to file such other documents as may be necessary or advisable in order
to have the claims of the Lenders, the Issuing Banks and the Administrative Agent (including any
claim under Sections 3.1, 3.3, 3.5, 3.7 and 10.3) allowed in such judicial proceeding; and
(ii)
to collect and receive any monies or other property payable or deliverable on any such
claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such proceeding is hereby authorized by each Lender and each Issuing
Bank to make such payments to the Administrative Agent and, in the event that the Administrative
Agent shall consent to the making of such payments directly to the Lenders and the Issuing Banks, to
pay to the Administrative Agent any amount due to it, in its capacity as the Administrative Agent,
under the Loan Documents (including under Section 10.3). Nothing contained herein shall be deemed
to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any
Lender or Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting
52
Exhibit 10(b)2
the obligations or the rights of any Lender or Issuing Bank or to authorize the Administrative Agent
to vote in respect of the claim of any Lender or Issuing Bank in any such proceeding.
(h)
The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders
and the Issuing Banks, and, except solely to the extent of the Borrower’s rights to consent pursuant to and subject to
the conditions set forth in this Article, none of the Borrower or any Subsidiary, or any of their respective Affiliates,
shall have any rights as a third party beneficiary under any such provisions.
Section 9.2.
Administrative Agent’s Reliance, Indemnification, Etc.
(a)
Neither the Administrative Agent nor any of its Related Parties shall be (i) liable for any action
taken or omitted to be taken by such party under or in connection with this Agreement or the other Loan Documents
(x) with the consent of or at the request of the Required Lenders (or such other number or percentage of the Lenders
as shall be necessary, or as the Administrative Agent shall believe in good faith to be necessary, under the circumstances
as provided in the Loan Documents) or (y) in the absence of its own gross negligence or willful misconduct (such
absence to be presumed unless otherwise determined by a court of competent jurisdiction by a final and non-appealable
judgment) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or
warranties made the Borrower or any officer thereof contained in this Agreement or any other Loan Document or in
any certificate, report, statement or other document referred to or provided for in, or received by the Administrative
Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the
Borrower to perform its obligations hereunder or thereunder.
(b)
The Administrative Agent shall be deemed not to have knowledge of any Default unless and
until written notice thereof (stating that it is a “notice of default”) is given to the Administrative Agent by the Borrower,
a Lender or an Issuing Bank, and the Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii)
the contents of any certificate, report or other document delivered thereunder or in connection therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan
Document or the occurrence of any Default, (iv) the sufficiency, validity, enforceability, effectiveness or genuineness
of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set
forth in Article 5 or elsewhere in any Loan Document, other than to confirm receipt of items (which on their face
purport to be such items) expressly required to be delivered to the Administrative Agent or satisfaction of any condition
that expressly refers to the matters described therein being acceptable or satisfactory to the Administrative Agent.
(c)
Without limiting the foregoing, the Administrative Agent (i) may treat the payee of any Note
as its holder until such Note has been assigned in accordance with Section 10.4, (ii) may rely on the Register to the
extent set forth in Section 10.4(c), (iii) may consult with legal counsel (including counsel to the Borrower), independent
public accountants and other experts selected by it, and shall not be liable for any action taken or omitted to be taken
in good faith by it in accordance with the advice of such counsel, accountants or experts, (iv) makes no warranty or
representation to any Lender or Issuing Bank and shall not be responsible to any Lender or Issuing Bank for any
statements, warranties or representations made by or on behalf of the Borrower in connection with this Agreement or
any other Loan Document, (v) in determining compliance with any condition hereunder to the making of a Loan, or
the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or an Issuing Bank,
may presume that such condition is satisfactory to such Lender or Issuing Bank unless the Administrative Agent shall
have received notice to the contrary from such Lender or Issuing Bank sufficiently in advance of the making of such
Loan or the issuance of such Letter of Credit and (vi) shall be entitled to rely on, and shall incur no liability under or
in respect of this Agreement or any other Loan Document by acting upon, any notice, consent, certificate or other
instrument or writing (which writing may be a fax, any electronic message, Internet or intranet website posting or other
distribution) or any statement made to it orally or by telephone and believed by it to be genuine and signed or sent or
otherwise authenticated by the proper party or parties (whether or not such Person in fact meets the requirements set
forth in the Loan Documents for being the maker thereof).
53
Exhibit 10(b)2
Section 9.3.
Posting of Communications.
(a)
The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make
any Communications available to the Lenders and the Issuing Banks by posting the Communications on IntraLinks™,
DebtDomain, SyndTrak, ClearPar or any other electronic platform chosen by the Administrative Agent to be its
electronic transmission system (the “Approved Electronic Platform”).
(b)
Although the Approved Electronic Platform and its primary web portal are secured with
generally-applicable security procedures and policies implemented or modified by the Administrative Agent from time
to time (including, as of the Effective Date, a user ID/password authorization system) and the Approved Electronic
Platform is secured through a per-deal authorization method whereby each user may access the Approved Electronic
Platform only on a deal-by-deal basis, each of the Lenders, each of the Issuing Banks and the Borrower acknowledges
and agrees that the distribution of material through an electronic medium is not necessarily secure, that the
Administrative Agent is not responsible for approving or vetting the representatives or contacts of any Lender that are
added to the Approved Electronic Platform, and that there may be confidentiality and other risks associated with such
distribution. Each of the Lenders, each of the Issuing Banks and the Borrower hereby approves distribution of the
Communications through the Approved Electronic Platform and understands and assumes the risks of such distribution.
(c)
THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS ARE
PROVIDED “AS IS” AND “AS AVAILABLE”. THE APPLICABLE PARTIES (AS DEFINED BELOW) DO NOT
WARRANT THE ACCURACY OR COMPLETENESS OF THE COMMUNICATIONS, OR THE ADEQUACY OF
THE APPROVED ELECTRONIC PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR
OMISSIONS IN THE APPROVED ELECTRONIC PLATFORM AND THE COMMUNICATIONS. NO
WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY
RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE APPLICABLE
PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE APPROVED ELECTRONIC
PLATFORM. IN NO EVENT SHALL THE ADMINISTRATIVE AGENT, THE SOLE LEAD ARRANGER AND
SOLE BOOKRUNNER OR ANY OF THEIR RESPECTIVE RELATED PARTIES (COLLECTIVELY,
“APPLICABLE PARTIES”) HAVE ANY LIABILITY TO THE BORROWER, ANY LENDER, ANY ISSUING
BANK OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING DIRECT OR
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, LOSSES OR EXPENSES (WHETHER
IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF THE BORROWER’S OR THE ADMINISTRATIVE
AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH THE INTERNET OR THE APPROVED
ELECTRONIC PLATFORM.
“Communications” means, collectively, any notice, demand, communication, information, document or other material
provided by or on behalf of the Borrower pursuant to any Loan Document or the transactions contemplated therein
which is distributed by the Administrative Agent, any Lender or any Issuing Bank by means of electronic
communications pursuant to this Section, including through an Approved Electronic Platform.
(d)
Each Lender and each Issuing Bank agrees that notice to it (as provided in the next sentence)
specifying that Communications have been posted to the Approved Electronic Platform shall constitute effective
delivery of the Communications to such Lender for purposes of the Loan Documents. Each Lender and Issuing Bank
agrees (i) to notify the Administrative Agent in writing (which could be in the form of electronic communication) from
time to time of such Lender’s or Issuing Bank’s (as applicable) email address to which the foregoing notice may be
sent by electronic transmission and (ii) that the foregoing notice may be sent to such email address.
(e)
Each of the Lenders, each of the Issuing Banks and the Borrower agrees that the Administrative
Agent may, but (except as may be required by applicable law) shall not be obligated to, store the Communications on
the Approved Electronic Platform in accordance with the Administrative Agent’s generally applicable document
retention procedures and policies.
54
Exhibit 10(b)2
(f)
Nothing herein shall prejudice the right of the Administrative Agent, any Lender or any Issuing
Bank to give any notice or other communication pursuant to any Loan Document in any other manner specified in
such Loan Document.
Section 9.4.
The Administrative Agent Individually. With respect to its Commitment, Loans, Letter of
Credit Commitments and Letters of Credit, the Person serving as the Administrative Agent shall have and may exercise
the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth
herein for any other Lender or Issuing Bank, as the case may be. The terms “Issuing Banks”, “Lenders”, “Required
Lenders” and any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent
in its individual capacity as a Lender, Issuing Bank or as one of the Required Lenders, as applicable. The Person serving
as the Administrative Agent and its Affiliates may accept deposits from, lend money to, own securities of, act as the
financial advisor or in any other advisory capacity for and generally engage in any kind of banking, trust or other
business with, the Borrower, any Subsidiary or any Affiliate of any of the foregoing as if such Person was not acting
as the Administrative Agent and without any duty to account therefor to the Lenders or the Issuing Banks.
Section 9.5.
Successor Administrative Agent.
(a)
The Administrative Agent may resign at any time by giving 30 days’ prior written notice
thereof to the Lenders, the Issuing Banks and the Borrower, whether or not a successor Administrative Agent has been
appointed. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have
accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation,
then the retiring Administrative Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor
Administrative Agent, which shall be a bank with an office in New York, New York or an Affiliate of any such bank.
In either case, such appointment shall be subject to the prior written approval of the Borrower (which approval may
not be unreasonably withheld and shall not be required while an Event of Default has occurred and is continuing).
Upon the acceptance of any appointment as Administrative Agent by a successor Administrative Agent, such successor
Administrative Agent shall succeed to, and become vested with, all the rights, powers, privileges and duties of the
retiring Administrative Agent. Upon the acceptance of appointment as Administrative Agent by a successor
Administrative Agent, the retiring Administrative Agent shall be discharged from its duties and obligations under this
Agreement and the other Loan Documents. Prior to any retiring Administrative Agent’s resignation hereunder as
Administrative Agent, the retiring Administrative Agent shall take such action as may be reasonably necessary to assign
to the successor Administrative Agent its rights as Administrative Agent under the Loan Documents.
(b)
Notwithstanding paragraph (a) of this Section, in the event no successor Administrative Agent
shall have been so appointed and shall have accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its intent to resign, the retiring Administrative Agent may give notice of the effectiveness of its
resignation to the Lenders, the Issuing Banks and the Borrower, whereupon, on the date of effectiveness of such
resignation stated in such notice, (i) the retiring Administrative Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents; and (ii) the Required Lenders shall succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Administrative Agent; provided that (A) all payments
required to be made hereunder or under any other Loan Document to the Administrative Agent for the account of any
Person other than the Administrative Agent shall be made directly to such Person and (B) all notices and other
communications required or contemplated to be given or made to the Administrative Agent shall directly be given or
made to each Lender and each Issuing Bank. Following the effectiveness of the Administrative Agent’s resignation
from its capacity as such, the provisions of this Article and Section 10.3, as well as any exculpatory, reimbursement
and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of such
retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or
omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.
55
Exhibit 10(b)2
Section 9.6.
Acknowledgements of Lenders and Issuing Banks.
(a)
Each Lender represents that it is engaged in making, acquiring or holding commercial loans
in the ordinary course of its business and that it has, independently and without reliance upon the Administrative Agent,
the Sole Lead Arranger and Sole Bookrunner or any other Lender, or any of the Related Parties of any of the foregoing,
and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision
to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder. Each Lender also acknowledges
that it will, independently and without reliance upon the Administrative Agent, the Sole Lead Arranger and Sole
Bookrunner or any other Lender, or any of the Related Parties of any of the foregoing, and based on such documents
and information (which may contain material, non-public information within the meaning of the United States securities
laws concerning the Borrower and its Affiliates) as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any
related agreement or any document furnished hereunder or thereunder.
(b)
Each Lender, by delivering its signature page to this Agreement on the Effective Date, or delivering
its signature page to an Assignment and Assumption or any other Loan Document pursuant to which it shall become
a Lender hereunder, shall be deemed to have acknowledged receipt of, and consented to and approved, each Loan
Document and each other document required to be delivered to, or be approved by or satisfactory to, the Administrative
Agent or the Lenders on the Effective Date.
Section 9.7.
Certain ERISA Matters. (a) Each Lender (x) represents and warrants, as of the date such Person
became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the
date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Sole Lead
Arranger and Sole Bookrunner and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit
of the Borrower or any other Loan Party, that at least one of the following is and will be true:
(i)
such Lender is not using “plan assets” (within the meaning of the Plan Asset
Regulations) of one or more Benefit Plans in connection with the Loans, the Letters of Credit or the
Commitments,
(ii)
the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class
exemption for certain transactions determined by independent qualified professional asset managers),
PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts),
PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate
accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment
funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset
managers), is applicable with respect to such Lender’s entrance into, participation in, administration
of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement,
(iii)
(A) such Lender is an investment fund managed by a “Qualified Professional Asset
Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager
made the investment decision on behalf of such Lender to enter into, participate in, administer and
perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into,
participation in, administration of and performance of the Loans, the Letters of Credit, the
Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I
of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part
I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration
of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement, or
(iv)
such other representation, warranty and covenant as may be agreed in writing between
the Administrative Agent, in its sole discretion, and such Lender.
56
Exhibit 10(b)2
(b)
In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect
to a Lender or such Lender has not provided another representation, warranty and covenant as provided in sub-clause
(iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person
became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the
date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and the Sole Lead
Arranger and Sole Bookrunner and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit
of the Borrower or any other Loan Party, that none of the Administrative Agent or any of their respective Affiliates is
a fiduciary with respect to the assets of such Lender (including in connection with the reservation or exercise of any
rights by the Administrative Agent under this Agreement, any Loan Document or any documents related to hereto or
thereto).
(c)
The Administrative Agent and the Sole Lead Arranger and Sole Bookrunner hereby informs
the Lenders that each such Person is not undertaking to provide investment advice or to give advice in a fiduciary
capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the
transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments
with respect to the Loans, the Letters of Credit, the Commitments, this Agreement and any other Loan Documents (ii)
may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount less than the
amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may
receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or
otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees,
ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of
credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums,
banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
Article 10.
MISCELLANEOUS
Section 10.1. Notices.
(a)
Notices Generally. Except in the case of notices and other communications expressly permitted
to be given by telephone (and except as provided in paragraph (b) below), all notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered
mail or sent by facsimile (or e-mail in accordance with Section 10.1(b) below) as follows:
(i)
if to the Borrower, to it at 30 West Superior Street, Duluth, Minnesota, Attention of:
Patrick L. Cutshall, Treasurer, Phone: 218-723-3978, Fax: 218-723-3912, Email:
pcutshall@allete.com.
(ii)
if to the Administrative Agent,
(A)
for Loans or Borrowings, to it at its Loan and Agency Services Group, 10 S.
Dearborn Street, Floor L2, Chicago, Illinois, Attention of: Julius C. Williams, Phone:
312-954-3750, Fax: 844-492-3894, Email: jpm.agency.cri@jpmchase.com;
(B)
for Letters of Credit, to it at its Letter of Credit Agency Servicing Group, 10
S. Dearborn Street, Floor 07, Chicago, Illinois, Attention of: Pavithra Charles, Phone:
855-609-9959, Email: chicago.lc.agency.activity.team@jpmchase.com;
(C)
for credit related matters including compliance requirements pursuant to
Article 6, to it at its Power & Utilities Credit, 10 S. Dearborn Street, Floor 09, Chicago, Illinois,
Attention of: Justin Martin, Phone: 312-732-4441, Fax: 312-732-1762, Email: justin.
2.martin@jpmorgan.com; and
57
Exhibit 10(b)2
(iii)
if to any other Credit Party, to it at its address (or facsimile number) set forth in its
Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be
deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent
(except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the
opening of business on the next business day for the recipient). Notices delivered through electronic communications
or Approved Electronic Platforms to the extent provided in paragraph (b) below, shall be effective as provided in such
paragraph (b).
(b)
Electronic Communications. Notices and other communications to the Lenders and the Issuing
Banks hereunder may be delivered or furnished by using Approved Electronic Platforms pursuant to procedures
approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article 2
unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the
Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic
communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to
particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to
an e mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient
(such as by the “return receipt requested” function, as available, return e mail or other written acknowledgement),
provided that if such notice or other communication is not sent during the normal business hours of the recipient, such
notice or communication shall be deemed to have been sent at the opening of business on the next business day for
the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received
upon the deemed receipt by the intended recipient at its e mail address as described in the foregoing clause (i) of
notification that such notice or communication is available and identifying the website address therefor.
For purposes of Section 6.2, the Borrower’s website is www.allete.com.
(c)
Change of Address, Etc. Any party hereto may change its address or facsimile number or e-
mail address for notices and other communications hereunder by notice to the other parties hereto.
Section 10.2. Waivers; Amendments.
(a)
No failure or delay by any Credit Party in exercising any right or power under any Loan
Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. The rights and remedies of the Credit Parties under the Loan Documents
are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any
provision of any Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective
unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the
making of a Loan and/or the issuance, amendment, extension or renewal of a Letter of Credit shall not be construed
as a waiver of any Default, regardless of whether any Credit Party may have had notice or knowledge of such Default
at the time.
(b)
Subject to Section 3.4(b), neither any Loan Document nor any provision thereof may be
waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower
and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders,
provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such
Lender or increase the Letter of Credit Commitment of any Issuing Bank without the consent of such Issuing Bank,
(ii) reduce the principal amount of any Loan or any reimbursement obligation with respect to a LC Disbursement, or
reduce the rate of any interest, or reduce any fees, payable under the Loan Documents, without the written consent of
each Credit Party affected thereby, (iii) postpone the date of payment at stated maturity of any Loan or the date of
58
Exhibit 10(b)2
payment of any reimbursement obligation with respect to an LC Disbursement, or the date of any interest or any fees
payable under the Loan Documents, or reduce the amount of, waive or excuse any such payment, or postpone the stated
termination or expiration of the Commitments without the written consent of each Credit Party affected thereby, (iv)
change any provision hereof in a manner that would alter the pro rata sharing of payments required by Section 2.10(b)
or 2.10(c) or the pro rata reduction of Commitments required by Section 2.5(c), without the written consent of each
Credit Party affected thereby, and (v) change any of the provisions of this Section or the definition of the term “Required
Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination or grant any consent hereunder, or change the currency in
which Loans are to be made, Letters of Credit are to be issued or payment under the Loan Documents is to be made,
or add additional borrowers, without the written consent of each Lender, and provided further that no such agreement
shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Issuing Banks hereunder
without the prior written consent of the Administrative Agent or such Issuing Banks, as applicable.
Section 10.3. Expenses; Indemnity; Damage Waiver.
(a)
Cost and Expenses. The Borrower shall pay (i) all reasonable out of pocket costs and expenses
incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of
counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein,
the preparation and administration of each Loan Document or any amendments, modifications or waivers of the
provisions thereof (whether or not the transactions contemplated thereby shall be consummated), (ii) all reasonable
out of pocket costs and expenses incurred by an Issuing Bank in connection with the issuance, amendment, renewal
or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out of pocket costs
and expenses incurred by any Credit Party, including the reasonable fees, charges and disbursements of any counsel
for any Credit Party and any consultant or expert witness fees and expenses, in connection with the enforcement or
protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection
with the Loans made or Letters of Credit issued hereunder, including all such reasonable out of pocket costs and
expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.
(b)
Indemnification by the Borrower. The Borrower shall indemnify each Credit Party and each
Related Party thereof (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of (i) the execution or delivery of any Loan Document or any agreement or instrument
contemplated thereby, the performance by the parties to the Loan Documents of their respective obligations thereunder
or the consummation of the Transactions or any other transactions contemplated thereby, (ii) any Loan or Letter of
Credit or the use of the proceeds thereof including any refusal of an Issuing Bank to honor a demand for payment under
a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms
of such Letter of Credit, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property
owned or operated by the Borrower or any of the Subsidiaries, or any liability under any Environmental Law related
in any way to the Borrower or any of the Subsidiaries or (iv) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of
whether any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available
to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of
such Indemnitee or a breach in bad faith by such Indemnitee or arising solely from claims between or among one or
more Indemnitees.
(c)
Reimbursement by Lenders. To the extent that the Borrower fails to pay any amount required
to be paid by it to the Administrative Agent or an Issuing Bank under paragraph (a) or (b) of this Section (and without
limiting the Borrower’s obligation to do so), each Lender severally agrees to pay to the Administrative Agent or such
Issuing Bank, as applicable, an amount equal to the product of such unpaid amount multiplied by a fraction, the
numerator of which is the sum of such Lender’s unused Commitment plus the outstanding principal balance of such
Lender’s Loans and such Lender’s LC Exposure and the denominator of which is the sum of the unused Commitments
plus the outstanding principal balance of all Lenders Loans and the LC Exposure of all Lenders (in each case determined
59
Exhibit 10(b)2
as of the time that the applicable unreimbursed expense or indemnity payment is sought or, in the event that no Lender
shall have any unused Commitments, outstanding Loans or LC Exposure at such time, as of the last time at which any
Lender had any unused Commitments, outstanding Loans or LC Exposure), provided that the unreimbursed expense
or indemnified loss, claim, damage, liability or related expense, as applicable, was incurred by or asserted against the
Administrative Agent or an Issuing Bank, as applicable, in its capacity as such.
(d) Waiver of Consequential Damages, etc. To the extent permitted by applicable law, the
Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct and actual damages) arising out of, in connection
with, or as a result of, any Loan Document or any agreement, instrument or other document contemplated thereby, the
Transactions or any Loan or any Letter of Credit or the use of the proceeds thereof.
(e)
Payments. All amounts due under this Section shall be payable promptly but in no event later
than ten days after written demand therefor.
Section 10.4. Successors and Assigns.
(a)
Successors and Assigns Generally. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that
the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written
consent of the Administrative Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights
or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of paragraph (b) of this
Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way
of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section (and any other
attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and
assigns permitted hereby, Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly
contemplated hereby, the Related Parties of each Credit Party) any legal or equitable right, remedy or claim under or
by reason of this Agreement.
(b)
Assignments by Lenders. Any Lender may (and if demanded by Borrower pursuant to Section
3.8 shall to the extent required thereby) at any time assign to one or more Eligible Assignees all or a portion of its
rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans and obligations
in respect of its LC Exposure at the time owing to it); provided that any such assignment shall be subject to the following
conditions:
(i)
Minimum Amounts.
(A)
In the case of an assignment of the entire remaining amount of the assigning Lender’s
Commitments and the Loans and obligations in respect of its LC Exposure at the time owing to it or
in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum
amount need be assigned; and
(B)
In any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount
of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the
Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning
Lender subject to each such assignment (determined as of the date the Assignment and Assumption
with respect to such assignment is delivered to the Administrative Agent or, if “trade date” is specified
in the Assignment and Assumption, as of the trade date) shall not be less than $5,000,000 unless each
of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the
Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).
60
Exhibit 10(b)2
(ii)
Proportionate Amounts. Each partial assignment shall be made as an assignment of
a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with
respect to the Loan or the Commitment assigned.
(iii)
Required Consents. For each such assignment:
(A)
the consent of the Borrower (such consent not to be unreasonably withheld) shall be
required unless (x) an Event of Default has occurred and is continuing at the time of such assignment
or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the
Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by
written notice to the Administrative Agent within five Business Days after having received notice
thereof;
(B)
the consent of the Administrative Agent (such consent not to be unreasonably withheld
or delayed) shall be required for assignments in respect of an unfunded or revolving facility if such
assignment is to an Eligible Assignee that is not a Lender with a Commitment in respect of such facility,
an Affiliate of such Lender or an Approved Fund with respect to such Lender; and
(C)
the consent of the applicable Issuing Banks (such consent not to be unreasonably
withheld or delayed) shall be required for any assignment that increases the obligation of the assignee
to participate in exposure under one or more Letters of Credit (whether or not then outstanding).
(iv)
Assignment and Assumption. The parties to each assignment shall execute and deliver
to the Administrative Agent an Assignment and Assumption, together with a processing and recordation
fee of $3,500, and the Eligible Assignee, if it is not a Lender, shall deliver to the Administrative Agent
an Administrative Questionnaire.
(v)
No Assignment to Borrower. No such assignment shall be made to the Borrower or
any of the Borrower’s Affiliates or Subsidiaries.
(vi)
No Assignment to Natural Persons. No such assignment shall be made to a natural
person.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of
this Section, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee
thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and
Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder
shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under
this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and
obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the
benefits of Sections 3.5, 3.6, 3.7 and 10.3 with respect to facts and circumstances occurring prior to the effective date
of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does
not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation
in such rights and obligations in accordance with paragraph (d) of this Section.
(c)
Register.
(i)
The Administrative Agent, acting solely for this purpose as an agent of the Borrower,
shall maintain at one of its offices in New York, New York a copy of each Assignment and Assumption
delivered to it and a register for the recordation of the names and addresses of the Lenders, and the
Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the
Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded
in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement,
61
Exhibit 10(b)2
notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(ii)
Upon its receipt of (x) a duly completed Assignment and Assumption executed by an
assigning Lender and an assignee or (y) to the extent applicable, an agreement incorporating an
Assignment and Assumption by reference pursuant to an Approved Electronic Platform as to which
the Administrative Agent and the parties to the Assignment and Assumption are participants, the
assignee’s completed Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any
written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent
shall accept such Assignment and Assumption and record the information contained therein in the
Register; provided that if either the assigning Lender or the assignee shall have failed to make any
payment required to be made by it pursuant to Section 2.4(b), 2.9(d) or (e), or 10.3(c), the
Administrative Agent shall have no obligation to accept such Assignment and Assumption and record
the information therein in the Register unless and until such payment shall have been made in full,
together with all accrued interest thereon. No assignment shall be effective for purposes of this
Agreement unless it has been recorded in the Register as provided in this paragraph
(d)
Participations. Any Lender may at any time, without the consent of, but with notice to, the
Borrower and the Administrative Agent (provided that any failure to give such notice shall not impair the effectiveness
of such participation except as expressly provided in paragraph (e) of this Section), sell participations to any Person
(other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”)
in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its
Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall
remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) such Lender shall remain the holder of any Note for all purposes of this Agreement and (iv) the
Borrower, the Administrative Agent and each Credit Party shall continue to deal solely and directly with such Lender
in connection with such Lender’s rights and obligations under this Agreement. Notwithstanding the foregoing, in no
event may a participation be granted to any entity which is not a commercial bank, finance company, insurance company
or other financial institution or fund (whether a corporation, partnership or other entity) engaged generally in making,
purchasing or otherwise investing in commercial loans in the ordinary course of its business without the express prior
written consent of the Borrower.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that
such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver
of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will
not, without the consent of the Participant, agree to any amendment, modification or waiver with respect to the following
matters described in clauses (ii) and (iii) of the first proviso in Section 10.2(b) that directly affects such Participant.
Subject to paragraph (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of
Sections 3.5, 3.6 and 3.7 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant
to paragraph (b) of this Section but (x) shall not be entitled to recover greater amounts under any such Section than
the selling Lender would be entitled to recover and (y) shall be subject to replacement by the Borrower under Section
3.8 to the same extent as if it were a Lender; provided that such replacement Participant shall be a commercial bank,
finance company, insurance company or other financial institution or fund (whether a corporation, partnership or other
entity) engaged generally in making, purchasing or otherwise investing in commercial loans in the ordinary course of
its business. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.8 as
though it were a Lender, provided such Participant agrees to be subject to Section 2.10(c) as though it were a Lender.
Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of
the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts
(and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the
“Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant
Register (including the identity of any Participant or any information relating to a Participant’s interest in any Loans
or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary
62
Exhibit 10(b)2
to establish that such Loan or other obligation is in registered form under Section 5f.103-1(c) of the United States
Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender
shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all
purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative
Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(e)
Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater
payment under Sections 3.5 or 3.7 than the applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s
prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the
benefits of Section 3.7 unless the Borrower is notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 3.7(f) as though it were a Lender.
(f)
Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to
secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender
from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
Notwithstanding any provision in this Section 10.4 to the contrary, if any Lender becomes a
Defaulting Lender, then the provisions of Section 2.11 shall apply for so long as such Lender is a Defaulting Lender.
(g)
Section 10.5. Survival. All covenants, agreements, representations and warranties made by the Borrower
herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement
or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive
the execution and delivery of any Loan Document and the making of any Loans and the issuance of any Letter of
Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that any
Credit Party may have had notice or knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest
on any Loan or any LC Disbursement or any fee or any other amount payable under the Loan Documents is outstanding
and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The
provisions of Sections 3.5, 3.6, 3.7, 10.3, 10.9, 10.10 and Article 9 shall survive and remain in full force and effect
regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans and the LC
Disbursements, the expiration or termination of the Letters of Credit and the termination of the Commitments or the
termination of this Agreement or any provision hereof.
Section 10.6. Counterparts; Integration; Effectiveness.
(a)
This Agreement may be executed in counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but all of which, when taken together, shall constitute a single
contract. This Agreement and any separate letter agreements with respect to fees payable to any Credit Party or the
syndication of the credit facility established hereunder constitute the entire contract among the parties relating to the
subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to
the subject matter hereof. Except as provided in Section 5.1, this Agreement shall become effective as of the date set
forth in the preamble to this Agreement when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each
of the other parties and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
(b)
Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed
pdf. or any other electronic means that reproduces an image of the actual executed signature page shall be effective as
delivery of a manually executed counterpart of this Agreement. The words “execution,” “signed,” “signature,”
“delivery,” and words of like import in or relating to any document to be signed in connection with this Agreement
and the transactions contemplated hereby shall be deemed to include Electronic Signatures, deliveries or the keeping
of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually
63
Exhibit 10(b)2
executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to
the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National
Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on
the Uniform Electronic Transactions Act; provided that nothing herein shall require the Administrative Agent to accept
electronic signatures in any form or format without its prior written consent.
Section 10.7. Severability. In the event any one or more of the provisions contained in this Agreement
should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired thereby (it being understood that the invalidity
of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any
other jurisdiction). The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
Section 10.8. Right of Set off. If an Event of Default shall have occurred and be continuing, and the
acceleration of the obligations owing in connection with the Loan Documents, or at any time upon the occurrence and
during the continuance of an Event of Default under paragraph (a) of Article 8, each of the Lenders and their respective
Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to
set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and
other obligations at any time owing by it to or for the credit or the account of the Borrower against any of and all the
obligations of the Borrower now or hereafter existing under this Agreement and the other Loan Documents held by it,
irrespective of whether or not it shall have made any demand therefor and although such obligations may be unmatured.
The rights of each of the Lenders and their respective Affiliates under this Section are in addition to other rights and
remedies (including other rights of set off) that it may have. Each Lender agrees promptly to notify the Borrower and
the Administrative Agent after any such set off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set off and application.
Section 10.9. Governing Law; Jurisdiction; Consent to Service of Process.
(a)
This Agreement shall be governed by, and construed in accordance with, the laws of the State
of New York.
(b)
Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County
and of the United States District Court of the Southern District of New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this Agreement or the other Loan Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be
heard and determined in such New York State court or, to the extent permitted by applicable law, in such Federal court.
Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that the Administrative Agent or any other Credit Party may otherwise have to bring
any action or proceeding relating to this Agreement or the other Loan Documents against the Borrower, or any of its
property, in the courts of any jurisdiction.
(c)
The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Agreement or the other Loan Documents in any court referred to in
paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d)
Each of the parties hereto irrevocably consents to service of process in the manner provided
for notices in Section 10.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.
64
Exhibit 10(b)2
Section 10.10. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR RELATING TO THIS
CREDIT AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES
HERETO HAVE BEEN INDUCED TO ENTER INTO THIS CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
Section 10.11. Headings. Article and Section headings and the Table of Contents used herein are for
convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
Section 10.12. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the
interest rate applicable to any Loan or LC Disbursement, together with all fees, charges and other amounts that are
treated as interest thereon under applicable law, shall exceed the maximum lawful rate (the “Maximum Rate”) that
may be contracted for, charged, taken, received or reserved by the Lender holding an interest in such Loan or LC
Disbursement in accordance with applicable law, the rate of interest payable in respect of such Loan or LC Disbursement
hereunder, together with all of the charges payable in respect thereof, shall be limited to the Maximum Rate and, to
the extent lawful, the interest and the charges that would have been payable in respect of such Loan or LC Disbursement
but were not payable as a result of the operation of this Section shall be cumulated, and the interest and the charges
payable to such Lender in respect of other Loans or LC Disbursements or periods shall be increased (but not above
the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective
Rate to the date of repayment, shall have been received by such Lender.
Section 10.13. Advertisement. The Borrower hereby authorizes JPMorgan Chase or any Affiliate thereof to
publish the name of the Borrower and the amount of the financing evidenced hereby in any “tombstone” or comparable
advertisement that JPMorgan Chase or such Affiliate elects to publish at its own expense. In addition, the Borrower
agrees that JPMorgan Chase or any Affiliates thereof may provide lending industry trade organizations with information
necessary and customary for inclusion in league table measurements after the date hereof.
Section 10.14. USA PATRIOT Act. Each Lender that is subject to the requirements of the PATRIOT Act
hereby notifies the Borrower that such Lender is required to obtain, verify and record information that identifies the
Borrower, which information includes the name and address of the Borrower and other information that will allow
such Lender to identify the Borrower in accordance with the PATRIOT Act.
Section 10.15. Treatment of Certain Information. Each Credit Party agrees to use reasonable precautions to
keep confidential, in accordance with its customary procedures for handling confidential information of the same
nature, all confidential, proprietary or non public information supplied by the Borrower or any Affiliate pursuant to
this Agreement relating to the Borrower, such Subsidiary or their respective businesses, including, without limitation,
any financial statement, financial projections or forecasts, budget, Compliance Certificate, audit report, management
letter or accountants’ certification delivered hereunder (“Information”), provided that nothing herein shall limit the
disclosure of any Information (a) to any of its respective Related Parties that needs to know such Information, (b) to
the extent required by applicable laws or regulations or by any subpoena or similar legal process, or requested by any
bank regulatory authority, (c) on a confidential basis, to any bona fide or potential assignee or participant in connection
with the contemplated assignment or participation of any Loans or any participations therein or by any direct or indirect
contractual counterparties (or the professional advisors thereto) to any swap or derivative transaction relating to the
Borrower and its obligations (provided such assignees, participants, counterparties and advisors are advised of and
agree to be bound by either the provisions of this Section 10.15 or other provisions at least as restrictive as this Section
10.15), (d) to auditors, accountants, consultants and advisors, and any analogous counterpart thereof, (e) to any other
Credit Party, (f) in connection with any litigation to which any one or more of the Credit Parties is a party, (g) to the
65
Exhibit 10(b)2
extent such Information (A) becomes publicly available other than as a result of a breach of this Agreement, (B) becomes
available to any of the Credit Parties on a non confidential basis from a source other than the Borrower or any of its
Affiliates or (C) was available to the Credit Parties on a non confidential basis prior to its disclosure to any of them
by the Borrower or any of its Affiliates; and (h) to the extent the Borrower shall have consented to such disclosure in
writing.
Section 10.16. No Fiduciary Duty, etc. (a) The Borrower acknowledges and agrees, and acknowledges its
Subsidiaries’ understanding, that no Credit Party will have any obligations except those obligations expressly set forth
herein and in the other Loan Documents and each Credit Party is acting solely in the capacity of an arm’s length
contractual counterparty to the Borrower with respect to the Loan Documents and the transactions contemplated herein
and therein and not as a financial advisor or a fiduciary to, or an agent of, the Borrower or any other person. The
Borrower agrees that it will not assert any claim against any Credit Party based on an alleged breach of fiduciary duty
by such Credit Party in connection with this Agreement and the transactions contemplated hereby. Additionally, the
Borrower acknowledges and agrees that no Credit Party is advising the Borrower as to any legal, tax, investment,
accounting, regulatory or any other matters in any jurisdiction. The Borrower shall consult with its own advisors
concerning such matters and shall be responsible for making its own independent investigation and appraisal of the
transactions contemplated herein or in the other Loan Documents, and the Credit Parties shall have no responsibility
or liability to the Borrower with respect thereto.
(b) The Borrower further acknowledges and agrees, and acknowledges its Subsidiaries’ understanding, that
each Credit Party, together with its Affiliates, is a full service securities or banking firm engaged in securities
trading and brokerage activities as well as providing investment banking and other financial services. In the
ordinary course of business, any Credit Party may provide investment banking and other financial services to, and/
or acquire, hold or sell, for its own accounts and the accounts of customers, equity, debt and other securities and
financial instruments (including bank loans and other obligations) of, the Borrower and other companies with which
the Borrower may have commercial or other relationships. With respect to any securities and/or financial
instruments so held by any Credit Party or any of its customers, all rights in respect of such securities and financial
instruments, including any voting rights, will be exercised by the holder of the rights, in its sole discretion.
(c) In addition, the Borrower acknowledges and agrees, and acknowledges its Subsidiaries’ understanding,
that each Credit Party and its affiliates may be providing debt financing, equity capital or other services (including
financial advisory services) to other companies in respect of which the Borrower may have conflicting interests
regarding the transactions described herein and otherwise. No Credit Party will use confidential information
obtained from the Borrower by virtue of the transactions contemplated by the Loan Documents or its other
relationships with the Borrower in connection with the performance by such Credit Party of services for other
companies, and no Credit Party will furnish any such information to other companies. The Borrower also
acknowledges that no Credit Party has any obligation to use in connection with the transactions contemplated by the
Loan Documents, or to furnish to the Borrower, confidential information obtained from other companies.
Section 10.17. CoBank Equity and Security.
(a)
So long as CoBank (or its Affiliate) is a Lender hereunder, the Borrower will (i) maintain its
status as an entity eligible to borrow from CoBank and (ii) acquire equity in CoBank in such amounts and at such times
as CoBank may require in accordance with CoBank’s Bylaws and Capital Plan, except that the maximum amount of
equity that the Borrower may be required to purchase in CoBank in connection with the Loans made by CoBank (or
its affiliate) may not exceed the maximum amount permitted by the Bylaws and the Capital Plan at the time this
Agreement is entered into. The Borrower acknowledges receipt of a copy of (x) CoBank’s most recent annual report,
and if more recent, CoBank’s latest quarterly report, (y) CoBank’s Notice to Prospective Stockholders and (iii) CoBank’s
Bylaws and Capital Plan, which describe the nature of all of the Borrower’s cash patronage, stock and other equities
in CoBank acquired in connection with its patronage loan from CoBank (or its Affiliate) (the “CoBank Equities”) as
well as capitalization requirements, and agrees to be bound by the terms thereof.
(b)
Each party hereto acknowledges that CoBank’s Bylaws and Capital Plan shall govern (i) the
rights and obligations of the parties with respect to the CoBank Equities and any patronage refunds or other distributions
made on account thereof or on account of the Borrower’s patronage with CoBank, (ii) the Borrower’s eligibility for
66
Exhibit 10(b)2
patronage distributions from CoBank (in the form of CoBank Equities and cash) and (iii) patronage distributions, if
any, in the event of a sale of a participation interest. CoBank reserves the right to assign or sell participations in all or
any part of its (or its Affiliate’s) Commitments or outstanding Loans hereunder on a non-patronage basis.
(c)
Each party hereto acknowledges that CoBank has a statutory first lien pursuant to the Farm
Credit Act of 1971 (as amended from time to time) on all CoBank Equities that the Borrower may now own or hereafter
acquire, which statutory lien shall be for CoBank’s (or its Affiliate’s) sole and exclusive benefit. The CoBank Equities
shall not constitute security for the obligations due to any other Lender. To the extent that any of the Loan Documents
create a Lien on the CoBank Equities or on patronage accrued by CoBank for the account of the Borrower (including,
in each case, proceeds thereof), such Lien shall be for CoBank’s (or its Affiliate’s) sole and exclusive benefit and shall
not be subject to pro rata sharing hereunder. Neither the CoBank Equities nor any accrued patronage shall be offset
against the obligations hereunder, except that, in the event of an Event of Default, CoBank may elect, solely at its
discretion, to apply the cash portion of any patronage distribution or retirement of equity to amounts owed to CoBank
or its Affiliate under this Agreement, whether or not such amounts are currently due and payable. The Borrower
acknowledges that any corresponding tax liability associated with such application is the sole responsibility of the
Borrower. CoBank shall have no obligation to retire the CoBank Equities upon any Default or any other default by the
Borrower, or at any other time, either for application to the Loans or other obligations under this Agreement or otherwise.
Section 10.18. Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Notwithstanding
anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any
such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan
Document may be subject to the Write-Down and Conversion Powers of an EEA Resolution Authority and agrees and
consents to, and acknowledges and agrees to be bound by:
(a)
the application of any Write-Down and Conversion Powers by an EEA Resolution Authority
to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial
Institution; and
(b)
the effects of any Bail-In Action on any such liability, including, if applicable:
(i)
a reduction in full or in part or cancellation of any such liability;
(ii)
a conversion of all, or a portion of, such liability into shares or other instruments of
ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued
to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted
by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan
Document; or
(iii)
the variation of the terms of such liability in connection with the exercise of the Write-
Down and Conversion Powers of any EEA Resolution Authority.
[Signature pages follow]
67
Exhibit 10(b)2
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
ALLETE, INC., as Borrower
By:
_____________________________________
Name: _____________________________________
Title:
_____________________________________
S-1
Exhibit 10(b)2
JPMORGAN CHASE BANK, N.A., as a Lender, as an Issuing
Bank, and as Administrative Agent
By:
_____________________________________
Name: _____________________________________
Title:
_____________________________________
S-2
Exhibit 10(b)2
ROYAL BANK OF CANADA, as a Lender
By:
_____________________________________
Name: _____________________________________
Title:
_____________________________________
S-3
Exhibit 10(b)2
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By:
_____________________________________
Name: _____________________________________
Title:
_____________________________________
S-4
Exhibit 10(b)2
WELLS FARGO BANK, NATIONAL ASSOCIATION, as a
Lender
By:
_____________________________________
Name: _____________________________________
Title:
_____________________________________
S-5
Exhibit 10(b)2
BANK OF AMERICA, N.A., as a Lender
By:
_____________________________________
Name: _____________________________________
Title:
_____________________________________
S-6
Exhibit 10(b)2
KEYBANK NATIONAL ASSOCIATION, as a Lender
By:
_____________________________________
Name: _____________________________________
Title:
_____________________________________
S-7
Exhibit 10(b)2
COBANK, ACB, as a Lender and as an Issuing Bank
By:
_____________________________________
Name: _____________________________________
Title:
_____________________________________
S-8
Exhibit 10(b)2
SCHEDULE 1
APPLICABLE MARGIN
The Applicable Margin for Eurodollar Borrowings, ABR Borrowings, Letter of Credit fees and facility fees shall be
determined in accordance with the table below based on the then-current Senior Debt Ratings. The Senior Debt Ratings
in effect on any date for the purposes of this Schedule are those in effect at the close of business on such date.
Status
Pricing
Level I
Pricing
Level II
Pricing
Level III
Senior Debt Rating
A+/
A+/ A1
A/
A/ A2
A-/
A-/A3
Pricing
Level IV
BBB+/
BBB+/
Baa1
Pricing
Level V
< BBB+/
BBB+/
Baa1
Applicable Margin for
Eurodollar Rate loans
and Letter of Credit
participation fees
Applicable for
facility fees
Applicable Margin for
ABR loans
0.800%
0.900%
1.00%
1.075%
1.275%
0.075%
0.100%
0.125%
0.175%
0.225%
0%
0%
0%
0.075%
0.275%
(a)
If each Rating Agency issues a Senior Debt Rating, the applicable Senior Debt Rating shall be (i) if
two of such Senior Debt Ratings are the same, such Senior Debt Ratings; and (ii) if all such Senior Debt Ratings are
different, the middle of such Senior Debt Ratings.
(b)
If only two Rating Agencies issue a Senior Debt Rating, the applicable Senior Debt Rating shall be
the higher of such Senior Debt Ratings; provided that if a split of greater than one ratings category occurs between
such Senior Debt Ratings, the applicable Senior Debt Rating shall be the ratings category that is one category below
the higher of such Senior Debt Ratings.
(c)
If only one Rating Agency issues a Senior Debt Rating, the applicable Senior Debt Rating shall be
such Senior Debt Rating.
(d)
If no Rating Agency issues a Senior Debt Rating, Pricing Level V shall apply.
Schedule 1
Exhibit 10(b)2
SCHEDULE 2.1
LIST OF COMMITMENTS
Lender
JPMorgan Chase Bank, N.A.
U.S. Bank National Association
Wells Fargo Bank, National Association
Royal Bank of Canada
Bank of America, N.A.
CoBank, ACB
KeyBank National Association
Total
Commitment
$70,000,000
$60,000,000
$60,000,000
$60,000,000
$60,000,000
$45,000,000
$45,000,000
$400,000,000
Schedule 2.1
Exhibit 10(b)2
SCHEDULE 2.1
LETTER OF CREDIT COMMITMENTS
Issuing Bank
JPMorgan Chase Bank, N.A.
CoBank, ACB
Total
Commitment
$15,000,000
$45,000,000
$60,000,000
Schedule 2.1
Exhibit 10(b)2
SCHEDULE 2.9
EXISTING LETTERS OF CREDIT
LC Number
Issue Date
Expiry Date
NUSCGS017948
08/29/18
NUSCGS002178
12/11/17
CPCS-896422
09/15/15
CPCS-896429
08/26/15
CPCS-838047
08/11/15
CPCS-768035
04/17/15
CPCS-890848
CPCS-392599
06/15/17
01/24/13
CPCS-838037
08/11/15
CPCS-876683
06/22/17
CPCS-768036
04/17/15
NUSCGS002177
12/11/17
CPCS-344357
01/03/13
NUSCGS006217
03/21/18
NUSCGS007703
07/02/18
NUSCGS017437
07/02/18
NUSCGS018011
08/22/18
CPCS-984746
05/18/16
CPCS-838044
08/13/15
CPCS-890847
06/15/17
CPCS-896401
09/02/15
08/06/19
06/01/19
09/10/19
03/31/19
07/29/19
08/15/19
06/15/19
12/31/19
07/29/19
04/07/19
09/30/19
08/01/19
12/31/19
03/19/20
06/18/19
06/25/19
07/31/19
03/16/19
07/29/19
06/15/19
11/15/19
NUSCGS025173
12/19/18
07/31/19
Schedule 2.9
Beneficiary
Northwestern
Corporation
Kiewit Power
Constructors Co.
Kiewit Power
Constructors Co.
TIC - The Industrial
Company
Kiewit Power
Constructors Co.
Gemma Power
Systems, LLC
Mid-Continent
Independent System
State of Minnesota
Kiewit Power
Constructors Co.
Kiewit Power
Constructors Co.
Gemma Power
Systems, LLC
Kiewit Power
Constructors Co.
Midwest
Independent
Transmission
Northwestern
Corporation
Kiewit Power
Constructors Co.
Kiewit Power
Constructors Co.
Kiewit Power
Constructors Co.
Kiewit Power
Constructors Co.
Kiewit Energy
Canada Corp.
Mid-Continent
Independent System
Kiewit Energy
Canada Corp.
Kiewa-GIA
Constructora S. de
R.L.
Amount
$4,806,370.00
$572,623.50
$1,711,097.00
$749,241.00
$104,951.90
$334,700.00
$400,000.00
$3,413,384.00
$233,643.60
$116,822.00
$332,206.56
$164,104.80
$1,500,000.00
$800,000.00
$71,240.50
$130,684.40
$641,346.00
$261,368.80
$231,016.67
$400,000.00
$325,025.00
$490,972.00
Exhibit 10(b)2
SCHEDULE 4.5/4.6
DISCLOSED MATTERS
None.
Schedule 4.5/4.6
Exhibit 10(b)2
SCHEDULE 4.10
LIST OF SUBSIDIARIES1
ALLETE Automotive Services, LLC
ALLETE Enterprises, Inc.
ALLETE Clean Energy, Inc.
ACE O&M, LLC
ACE Wind LLC
ACE Mid-West Holdings, LLC
MWW Holdings, LLC
Lake Benton Power Associates LLC
Lake Benton Holdings LLC
Lake Benton Power Partners L.L.C.
Storm Lake Power Partners I LLC
Storm Lake II Power Associates LLC
Storm Lake II Holdings LLC
Storm Lake Power Partners II LLC
New Salem Holdings, LLC
Glen Ullin Energy Center, LLC
Northern Wind Energy, LLC
Chanarambie Power Partners, LLC
Viking Wind Holdings, LLC
Viking Wind Partners, LLC
Buffalo Ridge Wind Farm, LLC
Moulton Heights Wind Power Project, LLC
Muncie Power Partners, LLC
North Ridge Wind Farm, LLC
Vandy South Project, LLC
Viking Wind Farm, LLC
Vindy Power Partners, LLC
Wilson-West Wind Farm, LLC
ACE West Holdings, LLC
Condon Wind Power, LLC
South Peak Wind, LLC
Armenia Holdings, LLC
AMW I Holding, LLC
Armenia Mountain Wind, LLC
Armenia Mountain Wind II, LLC
Thunder Spirit Wind, LLC
ALLETE Power Systems, Inc.
ALLETE Renewable Resources, Inc.
ALLETE South Wind, LLC
ALLETE Transmission Holdings, Inc.
BNI Energy, Inc.
BNI Coal, Ltd.
Global Water Services Holding Company, Inc.
U.S. Water Services, Inc.
1 Unless otherwise specified, the Equity Interests in each Subsidiary are owned 100% by the Subsidiary identified above it, with first-
tier Subsidiaries’ Equity Interests owned 100% by ALLETE, Inc.
Schedule 4.10
Exhibit 10(b)2
U.S. Water Services - Canada, Inc.
USWATERSERV-DR, SRL.
MP Affiliate Resources, Inc.
Rainy River Energy Corporation
South Shore Energy, LLC
Upper Minnesota Properties, Inc.
Upper Minnesota Properties - Development, Inc.
ALLETE Properties, LLC
ALLETE Commercial, LLC
Lehigh Acquisition, LLC
Florida Landmark Communities, LLC
Lehigh Corporation
Mardem, LLC
Palm Coast Holdings, Inc.
Port Orange Holdings, LLC
Interlachen Lakes Estates, LLC
Palm Coast Land, LLC
ALLETE Water Services, Inc.
Florida Water Services Corporation
Energy Replacement Property, LLC
Energy Land, Incorporated
Lakeview Financial Corporation I
Lakeview Financial Corporation II
MP Investments, Inc.
RendField Land Company, Inc.
Superior Water, Light and Power Company
Schedule 4.10
Exhibit 10(b)2
EXHIBIT A
FORM OF ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective Date set
forth below and is entered into between [the] [each]1 Assignor identified in item 1 below ([the][each, an] “Assignor”)
and [the][each]2 Assignee identified in item 2 below ([the][each, an] “Assignee”). [It is understood and agreed that
the rights and obligations of [the Assignors][the Assignees]3 hereunder are several and not joint.]4 Capitalized terms
used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended,
modified or otherwise supplemented from time to time, the “Credit Agreement”), receipt of a copy of which is hereby
acknowledged by [the][each] Assignee. The standard Terms and Conditions set forth in Annex 1 attached hereto are
hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set
forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee
hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated
below, (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any
other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest
identified below of all of the Assignor’s outstanding rights and obligations under the Credit Agreement (including
without limitation any letters of credit included in such facilities and, to the extent permitted to be assigned under
applicable law, all claims (including without limitation contract claims, tort claims, malpractice claims, statutory claims
and all other claims at law or in equity), suits, causes of action and any other right of the Assignor against any Person
whether known or unknown arising under or in connection with the Credit Agreement, any other documents or
instruments delivered pursuant thereto or the loan transactions governed thereby) other than claims for indemnification
or reimbursement with respect to any period prior to the Effective Date (the “Assigned Interest”). Such sale and
assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption,
without representation or warranty by the Assignor.
1.
2.
3.
4.
5.
Assignor:
__________
Assignee:
[and is an Affiliate of Assignor]
Borrower:
ALLETE, Inc.
Administrative Agent: JPMorgan Chase Bank, N.A.
Credit Agreement: Amended and Restated Credit Agreement dated as of January 10, 2019 among the
Borrower, the Lenders party thereto and the Administrative Agent.
1 For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose
the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language.
2 For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the
first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language.
3 Select as appropriate.
4 Include bracketed language if there are either multiple Assignors or multiple Assignees.
6.
Assigned Interest:
Exhibit A-1
Exhibit 10(b)2
Assignor[s]5 Assignee[s]6
Aggregate Amount
of
Commitment/
Loans for all
Lenders7
$[________]
Facility
Assigned
Revolving
Amount of
Commitment/
Loans
Assigned8
$[_______]
Percentage Assigned
of Commitment/Loans8
[____]%
7.
Trade Date: ______________ 20__.9
Effective Date: ____________________, 20__ [TO BE INSERTED BY THE ADMINISTRATIVE AGENT
AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE
ADMINISTRATIVE AGENT.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR]
By:
Title:
ASSIGNEE
[NAME OF ASSIGNEE]
By:
Title:
5 List each Assignor, as appropriate.
6 List each Assignee, as appropriate.
7 Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the
Effective Date.
8 Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder.
9 Insert if satisfaction of minimum amounts is to be determined as of the Trade Date.
Exhibit A-2
Exhibit 10(b)2
[Consented to and]10 Accepted:
JPMORGAN CHASE BANK, N.A., as Administrative Agent
By:
Title:
[Consented to:]11
[NAME OF RELEVANT PARTY]
By:
Title:
10 To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.
11 To be added only if the consent of the Borrower and/or other parties (e.g. LC Issuer) is required by the terms of the Credit Agreement.
Exhibit A-3
Exhibit 10(b)2
ANNEX 1
TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of
the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and
(iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and
Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect
to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other
Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates
or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower,
any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and
has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements
specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and
become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement
as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder,
(iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and
either it, or the person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in
acquiring assets of such type, (v) it has received a copy of the Credit Agreement, together with copies of the most
recent financial statements delivered pursuant to Section 6.1 thereof, as applicable, and such other documents and
information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment
and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision
independently and without reliance on the Administrative Agent or any other Lender, and (vi) if it is a Foreign Lender,
attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms
of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently
and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not
taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations
which by the terms of the Loan Documents are required to be performed by it as a Lender.
2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments
in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor
for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have
accrued from and after the Effective Date. The Assignor and Assignee shall make all appropriate adjustments in
payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this
assignment directly between themselves.
3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed
counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a
manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be
governed by, and construed in accordance with, the law of the State of New York.
Exhibit A-4
Exhibit 10(b)2
EXHIBIT B
FORM OF CREDIT REQUEST
[Date]
JPMorgan Chase Bank, N.A., as Administrative Agent
10 S. Dearborn, Floor 07
Chicago, IL 60603
Attention: Julius C. Williams
Ladies/Gentlemen:
Please refer to the Amended and Restated Credit Agreement dated as of January 10, 2019, among ALLETE,
Inc. (the “Borrower”), the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (in such
capacity, the “Administrative Agent”) (as amended, supplemented or otherwise modified from time to time, the “Credit
Agreement”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein
defined.
1.
Pursuant to Section 2.3(a) of the Credit Agreement, the Borrower hereby gives notice of its intention
to borrow Borrowings in an aggregate principal amount of $ ________on ______ __, 20__ (the “Borrowing Date”),
which Borrowing(s) shall consist of the following Types:
Type of Borrowing (ABR
or Eurodollar)
Amount
Interest Period for
Eurodollar Borrowings
2.
Pursuant to Sections 2.9 and 5.2 of the Credit Agreement, the Borrower hereby requests that the Issuing
Bank [issue, amend, renew or extend] Letter(s) of Credit on ______ __, 20__, in accordance with the information
annexed hereto (attach additional sheets if necessary).
3.
The Borrower hereby certifies that on the date hereof and on the Borrowing Date set forth above, and
after giving effect to the Loans and Letters of Credit requested hereby, there exists and shall exist no Default and each
of the representations and warranties contained in each Loan Document (other than the representations and warranties
in Sections 4.4(b), 4.5 and 4.6 of the Credit Agreement) is and shall be true and correct except to the extent such
representations and warranties specifically relate to an earlier date, in which case such representations and warranties
were true and correct on and as of such earlier date.
4.
The location and number of the Borrower’s account to which funds are to be disbursed is as follows:
[Insert Wire Instructions]
Exhibit B-1
IN WITNESS WHEREOF, the Borrower has caused this Credit Request to be executed by its authorized
signatory as of the date and year first written above.
Exhibit 10(b)2
ALLETE, INC.
By:
_____________________________________
Name: _____________________________________
Title:
_____________________________________
Exhibit B-2
EXHIBIT C
FORM OF NOTE
Exhibit 10(b)2
____________, 2019
FOR VALUE RECEIVED, the undersigned, ALLETE, Inc., a Minnesota corporation (the
“Borrower”), hereby promises to pay to the order of [INSERT LENDER NAME] (the “Lender”) the unpaid principal
amount of the Loans made by the Lender to the Borrower, in the amounts and at the times set forth in the Amended
and Restated Credit Agreement dated as of January 10, 2019, among the Borrower, the Lenders party thereto and
JPMorgan Chase Bank, N.A., as Administrative Agent (as amended, supplemented or otherwise modified from time
to time, the “Credit Agreement”), and to pay interest from the date hereof on the principal balance of such Loans from
time to time outstanding at the rate or rates and at the times set forth in the Credit Agreement, in each case at the office
of the Administrative Agent located at Ten South Dearborn Street, Chicago, Illinois, or at such other place as the
Administrative Agent may specify from time to time, in lawful money of the United States in immediately available
funds. Terms not otherwise defined herein but defined in the Credit Agreement are used herein with the same meanings.
The Loans evidenced by this Note are prepayable in the amounts, and under the circumstances, and
their respective maturities are subject to acceleration upon the terms, set forth in the Credit Agreement. This Note is
subject to, and shall be construed in accordance with, the provisions of the Credit Agreement and is entitled to the
benefits and security set forth in the Loan Documents.
The Lender is hereby authorized to record on the Schedule annexed hereto, and any continuation sheets
which the Lender may attach hereto, (i) the date of each Loan made by the Lender to the Borrower, (ii) the Type and
amount thereof, (iii) the interest rate (without regard to the Applicable Margin) and Interest Period applicable to each
Eurodollar Loan and (iv) the date and amount of each conversion of, and each payment or prepayment of the principal
of, any such Loan. The entries made on such Schedule shall be prima facie evidence of the existence and amounts of
the obligations recorded thereon, provided that the failure to so record or any error therein shall not in any manner
affect the obligation of the Borrower to repay the Loans in accordance with the terms of the Credit Agreement.
Except as specifically otherwise provided in the Credit Agreement, the Borrower hereby waives
presentment, demand, notice of dishonor, protest, notice of protest and all other demands, protests and notices in
connection with the execution, delivery, performance, collection and enforcement of this Note.
Whenever in this Note either party hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party. The Borrower shall not have the right to assign its rights or obligations hereunder
or any interest herein (and any such attempted assignment shall be void), except as expressly permitted by the Loan
Documents. No failure or delay of the Lender in exercising any power or right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right
or power. Neither this Note nor any provision hereof may be waived, amended or modified, nor shall any departure
therefrom be consented to, except pursuant to a written agreement entered into between the Borrower and the Lender
with respect to which such waiver, amendment, modification or consent is to apply, subject to any consent required
in accordance with Section 10.2 of the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
All communications and notices hereunder shall be in writing and given as provided in Section 10.1
of the Credit Agreement.
Exhibit C-1
Exhibit 10(b)2
The Borrower, and by accepting the Note, the Lender, hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in
New York County and of the United States District Court of the Southern District of New York City, and any appellate
court from any thereof, in any action or proceeding arising out of or relating to this Note or the other Loan Documents,
or for recognition or enforcement of any judgment, and each of the Borrower and the Lender hereby irrevocably and
unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or
proceeding may be heard and determined in such New York State court or, to the extent permitted by applicable law,
in such Federal court. The Borrower, and by accepting this Note, the Lender, agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. Nothing in this Note shall affect any right that the Borrower or the Lender may otherwise
have to bring any action or proceeding relating to this Note or the other Loan Documents against the other party, or
any of its property, in the courts of any jurisdiction.
The Borrower, and by accepting this Note, the Lender, hereby irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to this Note or the other Loan Documents in any
court referred to in the preceding paragraph hereof. The Borrower, and by accepting this Note, the Lender, hereby
irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
The Borrower, and by accepting this Note, the Lender, irrevocably consents to service of process in
the manner provided for notices herein. Nothing herein will affect the right of the Borrower or the Lender to serve
process in any other manner permitted by law.
THE BORROWER, AND BY ACCEPTING THIS NOTE, THE LENDER, EACH HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR RELATING TO THIS NOTE. THE BORROWER, AND BY ACCEPTING
THIS NOTE, THE LENDER, (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT SUCH OTHER PARTY HAS BEEN INDUCED TO ENTER INTO THE LOAN
DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THE WAIVERS AND
CERTIFICATIONS IN THIS PARAGRAPH.
Exhibit C-2
Exhibit 10(b)2
ALLETE, INC.
By:
______________________________
Name: ______________________________
Title: ______________________________
Exhibit C-3
Exhibit 10(b)2
SCHEDULE TO NOTE
Date
Type of Loan
Amount of
Loan
Amount of
principal
converted,
paid or
prepaid
Interest Rate
on
Eurodollar
Loans
Interest
Period for
Eurodollar
Loans
Notation
Made By
Exhibit C-4
Exhibit 10(b)2
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
I, ______________, do hereby certify that I am the ______________ of ALLETE, Inc. (the
“Borrower”), and that, as such, I am duly authorized to execute and deliver this Compliance Certificate on the Borrower’s
behalf pursuant to Section 6.1(c) of the Amended and Restated Credit Agreement dated as of January 10, 2019 among
the Borrower, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (as amended,
supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used herein which
are not defined herein shall have the meanings assigned to such terms in the Credit Agreement.
I hereby certify that:
1.
To the best of my knowledge, all financial statements delivered herewith have been prepared
in accordance with GAAP. There have been no changes in GAAP pertinent to the Borrower or in the application thereof
to Borrower and that affects the computation of any financial covenant set forth in Section 7.5 of the Credit Agreement,
since the date of the audited financial statements referred to in Section 4.4(a) of the Credit Agreement, [, except as
follows:12]
2.
There existed no Default on the last day of the fiscal quarter ended _________, 20__, and
there exists no Default as of the date hereof [, except as follows13]
3.
Attached are true and correct calculations demonstrating compliance with Section 7.5 of the
Credit Agreement as of the fiscal quarter ended _________, 20__.
IN WITNESS WHEREOF, I have executed this Compliance Certificate on this ___ day of
________________, 20__.
12 Specify each such change and the effect thereof on the financial statements accompanying this Compliance Certificate as set forth in
Section 1.4 of the Credit Agreement.
13 Specify all such violations, conditions and events, the nature and status thereof and any action taken or proposed to be taken with respect
thereto.
Exhibit D-1
Exhibit 10(b)2
Section 7.5
Ratio of Total Indebtedness to Total Capitalization14
Item 1.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Sum of all Indebtedness
Unamortized premium and discount (as such
term is used in the Borrower Financial
Statements)
Total Indebtedness (Item 1 minus Item 2)
Preferred Equity Interests
Common Equity Interests and any premium on
Equity Interests thereon (as such term is used in
the Borrower Financial Statements) excluding
accumulated other comprehensive income or
loss
Retained earnings
Sum of Items 3, 4, 5 and 6
Stock of the Borrower acquired by the
Borrower and stock of a Subsidiary acquired by
such Subsidiary
Total Capitalization (Item 7 minus Item 8)
Ratio of Total Indebtedness to Total
Capitalization (Item 3 divided by Item 9)
Maximum permitted ratio
$
$
$
$
$
$
$
$
$
_.__: 1.00
0.65:1.00
14 Each of the computations is based on the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP.
Exhibit D-2
Exhibit 10(b)2
EXHIBIT E
FORM OF INCREASE SUPPLEMENT
INCREASE SUPPLEMENT, dated as of __________________, 20__ to the Amended and Restated
Credit Agreement, dated as of January 10, 2019, among ALLETE, Inc., a Minnesota corporation (the “Borrower”),
the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (the “Administrative Agent”) (as
amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used
herein that are defined in the Credit Agreement shall have the meanings therein defined.
1.
Pursuant to Section 2.5(d) of the Credit Agreement, the Borrower hereby proposes to increase
(the “Increase”) the aggregate Commitments from $________________ to $________________.
2.
Each of the following Lenders (each an “Increasing Lender”) has been invited by the Borrower,
and has agreed, subject to the terms hereof, to increase its Commitment as follows:
Name of Lender
Commitment
(after giving effect to the Increase)
$
$
3.
Each of the following Persons (each a “Proposed Lender”) has been invited by the Borrower,
and has agreed, subject to the terms hereof, to become a “Lender” under the Credit Agreement with a Commitment in
the amount set forth below:
Name of Lender
Commitment
$
$
$
4.
The Borrower hereby represents and warrants to the Administrative Agent, each Lender and
each such Person that immediately before and after giving effect to the Increase, (a) no Default exists or would exist
under the Loan Documents and (b) the representations and warranties of the Borrower set forth in the Loan Documents
are true and correct on the date hereof except to the extent such representations and warranties specifically relate to
an earlier date.
5.
Pursuant to Section 2.5(d) of the Credit Agreement, by execution and delivery of this Increase
Supplement, together with the satisfaction of all of the requirements set forth in clauses (A) through (E) of such Section
2.5(d) (the date of such satisfaction being the “Increase Effective Date”), (i) each of the Increasing Lenders shall have,
on and as of the Increase Effective Date of the Increase, a Commitment equal to the amount set forth above next to its
name, and (ii) each such Proposed Lender as of the Increase Effective Date shall be deemed to be a “Lender” under,
and as such term is defined in, the Credit Agreement, and shall have a Commitment equal to the amount set forth above
next to its name.
Exhibit E-1
IN WITNESS WHEREOF, the parties hereto have caused this Increase Supplement to be duly executed
and delivered by their proper and duly authorized officers as of the day and year first above written.
Exhibit 10(b)2
ALLETE, INC.
By:_______________________________
Name: ___________________________
Title: ___________________________
JPMORGAN CHASE BANK, N.A., as
Administrative Agent
By:_______________________________
Name: ___________________________
Title: ___________________________
[INCREASING LENDER]
By:_______________________________
Name: ___________________________
Title: ___________________________
[PROPOSED LENDER]
By:_______________________________
Name: ___________________________
Title: ___________________________
Exhibit E-2
Exhibit 10(b)2
EXHIBIT F-1
[FORM OF]
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Amended and Restated Credit Agreement dated as of January 10, 2019 (as
amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ALLETE, Inc.,
each lender from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
Pursuant to the provisions of Section 3.7 of the Credit Agreement, the undersigned hereby certifies that (i) it
is the sole record and beneficial owner of the Loan(s) (as well as any promissory note(s) evidencing such Loan(s))
in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of
the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the
Code and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C)
of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S.
Person status on IRS Form W-8BEN or IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees
that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the
Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and
the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in
which each payment is to be made to the undersigned, or in either of the two calendar years preceding such
payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement.
[NAME OF LENDER]
By:
Name:
Title:
Date: ________ __, 20[ ]
Exhibit E-3
Exhibit 10(b)2
EXHIBIT F-2
[FORM OF]
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Amended and Restated Credit Agreement dated as of January 10, 2019 (as
amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ALLETE, Inc.,
each lender from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
Pursuant to the provisions of Section 3.7 of the Credit Agreement, the undersigned hereby certifies that (i) it
is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is
not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the
Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation
related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on
IRS Form W-8BEN or IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the
information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing,
and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently
effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either
of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT]
By:
Name:
Title:
Date: ________ __, 20[ ]
Exhibit E-4
Exhibit 10(b)2
EXHIBIT F-3
[FORM OF]
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Amended and Restated Credit Agreement dated as of January 10, 2019 (as
amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ALLETE, Inc.,
each lender from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
Pursuant to the provisions of Section 3.7 of the Credit Agreement, the undersigned hereby certifies that (i) it
is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or
indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation,
neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a
loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)
(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower
within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a
controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the
following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS
Form W-8BEN or IRS Form W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or
IRS Form W-8BEN-E from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest
exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this
certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all
times furnished such Lender with a properly completed and currently effective certificate in either the calendar year
in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such
payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT]
By:
Name:
Title:
Date: ________ __, 20[ ]
Exhibit E-5
Exhibit 10(b)2
EXHIBIT F-4
[FORM OF]
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Amended and Restated Credit Agreement dated as of January 10, 2019 (as
amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among ALLETE, Inc.,
each lender from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.
Pursuant to the provisions of Section 3.7 of the Credit Agreement, the undersigned hereby certifies that (i) it
is the sole record owner of the Loan(s) (as well as any promissory note(s) evidencing such Loan(s)) in respect of
which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of
such Loan(s) (as well as any promissory note(s) evidencing such Loan(s)), (iii) with respect to the extension of
credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct
or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary
course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or
indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B)
of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the
Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY
accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest
exemption: (i) an IRS Form W-8BEN or Form W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS
Form W-8BEN or IRS W-8BEN-E from each of such partner’s/member’s beneficial owners that is claiming the
portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information
provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative
Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a
properly completed and currently effective certificate in either the calendar year in which each payment is to be
made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the
meanings given to them in the Credit Agreement.
[NAME OF LENDER]
By:
Name:
Title:
Date: ________ __, 20[ ]
Exhibit E-6
Exhibit 10(e)7
ALLETE Executive Annual Incentive Plan
Form of Award
Effective 2019
[Eligible Executive Employees]
Target Award Opportunity
Base Salary
Times
Award Opportunity (percent of base salary)
Equals
Target Award
$
%
$
Performance Levels and Award Amounts
Goal Performance Level
Superior
Target
Threshold
Below Threshold
Payout as Percent of
Target Award
200%
100%
45%
0%
Goals
Award Amount
$
$
$
$
Financial Goals
Net Income
Cash from Operating Activities
Strategic & Operational & Values Goals
Goal
Weighting
50%
25%
25%
100%
Compensation Subject to Compensation Recovery Policy
Annual Incentive Plan Compensation is subject to recoupment as defined in the Compensation Recovery
policy.
Exhibit 10(f)4
ALLETE AND AFFILIATED COMPANIES
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II
Amended and Restated Effective January 1, 2019
TABLE OF CONTENTS Page
Exhibit 10(f)4
Article 1.
Article 2.
Article 3.
Article 4.
Article 5.
Article 6.
Article 7.
Article 8.
Establishment and Purpose ..............................................................................
Establishment.......................................................................................................
Compensation Recovery Policy...........................................................................
Section 409A Plans and Organizations ............................................................
Section 409A Plans ..............................................................................................
Organization.........................................................................................................
Section 409A Compliance....................................................................................
Administration ...................................................................................................
Administrator .......................................................................................................
Duties ...................................................................................................................
Agents ..................................................................................................................
Binding Effect of Decisions.................................................................................
Employer Information..........................................................................................
Participation.......................................................................................................
Eligibility and Commencement of Participation..................................................
Special Rule for Initial Participation....................................................................
Termination of Participation ................................................................................
Annual Make-Up Award ...................................................................................
Eligibility .............................................................................................................
Amount of Annual Make-Up Award....................................................................
Payment................................................................................................................
Forfeiture of Annual make-Up Award .................................................................
SERP II Account Balance Plan for Employees ...............................................
Elective Deferrals.................................................................................................
Non-Elective Deferrals ........................................................................................
FICA and Other Taxes..........................................................................................
Distributions.........................................................................................................
Additional Distribution Rules ..............................................................................
Subsequent Changes in Time and Form of Distributions ....................................
Accounts and Investments ................................................................................
Establishment of Accounts...................................................................................
Timing of Credits to Accounts.............................................................................
Vesting..................................................................................................................
Investments ..........................................................................................................
Valuation Date......................................................................................................
SERP II Retirement Benefit..............................................................................
Eligibility .............................................................................................................
Vesting and Forfeiture..........................................................................................
Retirement Benefit ...............................................................................................
Forfeiture of Vested Retirement Benefit for Misconduct ....................................
Time and Form of Distributions...........................................................................
Additional Distribution Rules ..............................................................................
Subsequent Changes in Time and Form of Payment ...........................................
FICA and Other Taxes..........................................................................................
Section 1.1
Section 1.2
Section 2.1
Section 2.2
Section 2.3
Section 3.1
Section 3.2
Section 3.3
Section 3.4
Section 3.5
Section 4.1
Section 4.2
Section 4.3
Section 5.1
Section 5.2
Section 5.3
Section 5.4
Section 6.1
Section 6.2
Section 6.3
Section 6.4
Section 6.5
Section 6.6
Section 7.1
Section 7.2
Section 7.3
Section 7.4
Section 7.5
Section 8.1
Section 8.2
Section 8.3
Section 8.4
Section 8.5
Section 8.6
Section 8.7
Section 8.8
1
1
2
2
2
2
2
3
3
3
3
3
3
4
4
4
4
4
5
5
5
5
5
5
6
6
7
8
9
10
10
10
10
10
10
11
11
11
11
12
12
12
14
14
Exhibit 10(f)4
Section 9.3
Section 9.1
Section 9.2
Article 9.
Section 11.4
Section 11.3
Section 11.2
Section 11.5
Section 11.1
Section 10.2
Section 10.1
Article 11.
Article 10.
Article 12.
Article 13.
Payment Acceleration and Delay......................................................................
Permitted Accelerations .......................................................................................
Permissible Payment Delays................................................................................
Suspension Not Allowed......................................................................................
Beneficiary Designation.....................................................................................
Beneficiary...........................................................................................................
No Beneficiary Designation.................................................................................
Claims Procedures .............................................................................................
Presentation of Claim...........................................................................................
Notification of Decision.......................................................................................
Review of a Denied Claim...................................................................................
Decision on Review .............................................................................................
Other Remedies....................................................................................................
Amendment of Termination..............................................................................
Miscellaneous Provisions...................................................................................
Unsecured General Creditor ................................................................................
Employer's Liability.............................................................................................
Nonassignability ..................................................................................................
No Right to Employment .....................................................................................
Incompetency.......................................................................................................
Tax Withholding...................................................................................................
Furnishing Information ........................................................................................
Notice...................................................................................................................
Gender and Number.............................................................................................
Headings ..............................................................................................................
Applicable Law and Construction .......................................................................
Invalid or Unenforceable Provisions ...................................................................
Successors ............................................................................................................
APPENDIX A........................................................................................................................................................
Section 13.10
Section 13.13
Section 13.12
Section 13.11
Section 13.7
Section 13.5
Section 13.4
Section 13.1
Section 13.8
Section 13.3
Section 13.9
Section 13.2
Section 13.6
14
14
15
15
16
16
16
16
16
16
17
17
18
18
19
19
19
19
19
19
19
20
20
20
20
20
20
20
21
ALLETE AND AFFILIATED COMPANIES
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN II
Exhibit 10(f)4
Effective January 1, 2018
ARTICLE 1
Establishment, Purpose and Intent
1.1
Establishment. This document includes the terms of the ALLETE and Affiliated Companies
Supplemental Executive Retirement Plan II. The purpose of SERP II is to provide eligible Employees
an opportunity to elect to defer compensation. SERP II also provides eligible Employees a
supplemental Retirement Benefit designed to compensate for annual compensation limits and
maximum benefit limitations imposed by the Code on Retirement Plans maintained by the Company.
SERP II is a successor to the ALLETE and Affiliated Companies Supplemental Executive Retirement
Plan (“SERP I”). On December 31, 2004, the Company froze SERP I with respect to all deferrals
and vested accrued Retirement Benefits (if any). On January 1, 2005, the Company established SERP
II to govern (a) amounts initially deferred after December 31, 2004 and investment earnings thereon;
(b) Retirement Benefit accruals after December 31, 2004; and (c) accrued but unvested SERP I
Retirement Benefits as of December 31, 2004. From January 1, 2005 to the effective date hereof,
the Company operated and administered the Plan in all material respects in good faith compliance
with the applicable requirements of Section 409A, the final and proposed Treasury Regulations, IRS
Notice 2005-1, and all other IRS guidance. The Company amended and restated SERP II in its
entirety, effective January 1, 2009, to comply with Section 409A. The Company intends that SERP
II constitute an unfunded deferred compensation plan for a select group of management or highly
compensated employees within the meaning of ERISA sections 201(2), 301(a)(3) and 401(a)(1). All
provisions of SERP II shall be interpreted and administered to the extent possible in a manner
consistent with the stated intentions.
Effective January 20, 2009, the Company amended SERP II to narrow the salary-grade eligibility
requirements to receive an Annual Make-Up Award for employees who first became eligible to
participate in SERP II after September 30, 2006.
Effective January 1, 2011, the Company amended SERP II to incorporate any compensation recovery
policy adopted by the Company and to provide that certain benefits may be subject to forfeiture for
Misconduct.
Effective January 1, 2015, the Company amended SERP II to reflect the reduction to the Flexible
Dollar Makeup in connection with amendments to the ALLETE and Affiliated Companies Flexible
Compensation Plan that eliminate the life insurance percentage (age-rated) flexible dollars benefit
commencing with the Plan Year that begins on January 1, 2015.
Exhibit 10(f)4
Effective January 1, 2019, the Company hereby amends SERP II to and to narrow the salary-grade
eligibility requirements to defer compensation, to reflect the discontinuation of additional non-elective
162(m) Deferrals beginning with the Plan Year that commences on January 1, 2019 , to freeze credited
service as of December 31, 2018, for all Participants eligible for a SERP II Retirement Benefit, and
to modify the amount of the Annual Make-up Award.
Capitalized terms, unless otherwise defined herein, shall have the meaning provided in Appendix A.
1.2
Compensation Recovery Policy. All amounts payable to Participants in accordance with this Plan
are subject to, and the Company hereby incorporates into this SERP II, the terms of any compensation
recovery policy or policies established and amended by the Company from time to time
(“Compensation Recovery Policy”).
ARTICLE 2
Section 409A Plans and Organization
2.1
Section 409A Plans.
The provisions of SERP II include terms and conditions applicable to the following 409A Plans:
2.1.1 An elective account balance plan for Employees for purposes of Elective Deferrals;
2.1.2 A non-elective account balance plan for Employees for purposes of Non-Elective Deferrals;
and
2.1.3 A non-account balance plan for Employees.
2.2 Organization.
Except as otherwise provided in this section or in a specific section, all provisions of the Plan apply
to all amounts deferred under any Article of the Plan.
2.2.1 The provisions of Article 5 apply only for purposes of identifying employees eligible to receive
an Annual Make-Up Award and the amount of the award, if any.
2.2.2 The provisions of Articles 6 and 7 apply only to the extent that SERP II provides for Employees’
Elective Deferrals, or Non-Elective Deferrals or both, which, for purposes of Section 409A,
represent the elective and non-elective account balance plans identified in subsections 2.1.1
and 2.1.2, respectively.
2.2.3 The provisions of Article 8 apply only to the extent that SERP II provides for Retirement
Benefits, which represent the non-account balance plan identified in subsection 2.1.3.
2.3
Section 409A Compliance.
To the extent that any provision of the Plan would cause a conflict with the requirements of Section
409A, or would cause the administration of the Plan to fail to satisfy Section 409A, such provision
shall be deemed null and void to the extent permitted by applicable law. Nothing herein shall be
construed as a guarantee of any particular tax treatment to a Participant.
Exhibit 10(f)4
ARTICLE 3
Administration
3.1
Administrator.
The Administrator shall administer the Plan or may delegate any of its duties to such other person or
persons from time to time as it may designate. Members of the Employee Benefit Plans Committee
may participate in SERP II; however, any individual serving on the Employee Benefit Plans
Committee shall not vote or act on any matter relating solely to himself or herself.
3.2
Duties.
The Administrator has the authority to construe and interpret all provisions of the Plan and, to the
extent permitted by Section 409A, the Administrator is authorized to remedy any errors,
inconsistencies or omissions, to resolve any ambiguities, to adopt rules and practices concerning the
administration of the Plan, and to make any determinations and calculations necessary or appropriate
hereunder. The Company shall pay all expenses and liabilities incurred in connection with Plan
administration.
3.3
Agents.
The Administrator may engage the services of accountants, attorneys, actuaries, investment
consultants, and such other professional personnel as are deemed necessary or advisable to assist in
fulfilling the Administrator’s responsibilities. The Administrator, the Company and the Board may
rely upon the advice, opinions or valuations of any such persons.
3.4
Binding Effect of Decisions.
The decision or action of the Administrator with respect to any question arising out of or in connection
with the administration, interpretation and application of the Plan and the rules and regulations
promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in
the Plan. Neither the Administrator, its delegates, nor the Board shall be personally liable for any
good faith action, determination or interpretation with respect to the Plan, and each shall be fully
protected by the Company in respect of any such action, determination or interpretation.
3.5
Employer Information.
To enable the Administrator to perform its duties, each Employer shall supply full and timely
information to the Administrator on all matters relating to the compensation of its Participants, the
date and circumstances of the Participant’s death, Disability or Separation from Service, and other
pertinent information as the Administrator may reasonably require.
Exhibit 10(f)4
4.1
Eligibility and Commencement of Participation.
ARTICLE 4
Participation
Eligible Employees may participate in the Plan, except to the extent provided in Section 8.1 regarding
eligibility for Retirement Benefits. Each Plan Year, the Administrator shall notify Eligible Employees
of their eligibility to participate in the Plan during the following Plan Year. An Eligible Employee
shall become a Participant either upon the initial submission of an election form on which the Eligible
Employee has elected Elective Deferrals or upon first receiving an allocation of Non-Elective
Deferrals.
4.2
Special Rule for Initial Participation.
Within 30 days after the date an individual first becomes an Eligible Employee, the individual may
elect to commence participating with respect to compensation to be paid for services performed after
the election is filed. This election relating to initial participation in the Plan is available only to
Participants who do not participate in any Aggregated Plans. If an Employee whose participation in
the Plan is terminated again becomes an Eligible Employee, he or she may elect to defer pursuant to
this Section only if the Employee was ineligible to defer compensation in this Plan and all other
Related Company elective account balance plans, within the meaning of Section 409A, for the 24
months preceding the date on which the Participant again became eligible to participate in this Plan.
4.3
Termination of Participation.
If the Administrator determines in good faith that a Participant is no longer an Eligible Employee,
the Participant shall cease active participation in the Plan on the last day of the Plan Year during
which the Participant ceased to be an Eligible Employee, and the terms of this Plan shall continue to
govern Participant’s Account until the Participant’s Account is paid in full.
ARTICLE 5
Annual Make-Up Award
5.1
Eligibility.
An Employee who: (i) was a Participant as of September 30, 2006, (ii) has continuously remained
an Employee in ALLETE management salary grade SA-SM, and (iii) has continuously participated
in the ALLETE Executive Annual Incentive Plan or been eligible to receive a Bonus shall be eligible
to receive an Annual Make-up Award. Any other Employee shall be eligible to receive an Annual
Make-up Award if the Employee: (i) initially becomes, or again becomes, a Participant after
September 30, 2006, (ii) is in ALLETE management salary grade SG-SM, and (iii) participates in
the ALLETE Executive Annual Incentive Plan or is eligible to receive a Bonus.
Exhibit 10(f)4
5.2
Amount of Annual Make-Up Award.
5.3
Commencing with the Plan Year that begins on January 1, 2019, the Annual Make-Up Award shall
equal the product of 13% and an amount equal to the sum of: (a) the total of the Participant’s Annual
Incentive Award and other awards (to the extent included in calculations for the Retirement Plans)
for such year, and (b) the Participant’s Salary (determined as of October 1 of the prior Plan Year) in
excess of the Code section 401(a)(17) limitation in effect for that Plan Year. Payment.
Except to the extent deferred in accordance with this Plan, the Annual Make-Up Award for any year
shall be paid between January 1 and March 15 of the year following the year to which the award
relates.
5.4
Forfeiture of Annual Make-Up Award. Notwithstanding any other term or provision of this Article
5, if a Participant engages in Misconduct, the Participant shall forfeit or repay, as necessary, any
Annual Make-Up Award payable on account of the period during which the Misconduct occurred
and any subsequent period. In addition, notwithstanding any other term or provison of this Article
5, if a Partipant has a Separation from Service that is not also a Retirement, the Participant shall
forfeit any Annual Make-Up Award that has not yet been paid to the Participant.
ARTICLE 6
SERP II Account Balance Plan for Employees
6.1
Elective Deferrals.
6.1.1 Eligibility. Beginning with the Plan year that commences on January 1, 2019, only employees
in ALLETE management salary grade SG-SM will be eligible to elect to make elective
deferrals in accordance with this Article 6.
6.1.2 Deferral Elections. For each Plan Year, an eligible Participant may elect to defer some or
all of Salary, Bonus, and, if eligible, an Annual Make-up Award, Severance Pay, and Other
Awards. Elections are effective on a calendar year basis and become irrevocable no later than
the date specified by the Administrator, but in any event before the beginning of the Plan Year
to which the elections relate. An eligible Participant’s elections will become effective only
if the forms required by the Administrator have been properly completed and signed by the
Participant, timely delivered to the Administrator, and accepted by the Administrator. An
eligible Participant who fails to file elections before the required date will be treated as having
elected not to defer any amounts for the following Plan Year. For any Plan Year the
Administrator may, in its sole discretion, decide not to allow one or more Participants to defer
certain types of compensation.
6.1.3 Special Rule for Performance-Based Compensation. The Administrator, in its complete
and sole discretion, may allow a Participant to revise a deferral election with respect to a
Bonus if the Administrator determines that the Bonus is performance-based compensation
within the meaning of Section 409A and the election becomes irrevocable no later than the
earlier of: (a) six months preceding the end of the performance period to which the Bonus
relates; or (b) the date as of which the Bonus has become readily ascertainable, within the
meaning of Section 409A.
Exhibit 10(f)4
6.1.4 Special Rule for Severance Pay. An eligible Participant may elect to defer all or a portion
of Severance Pay by filing with the Administrator an irrevocable deferral election no later
than the date the Participant obtains a legally binding right to the Severance Pay.
6.1.5 Cancellation of Deferral Election due to Disability. If an eligible Participant becomes
disabled, the Administrator may, in its sole discretion, cancel the Participant’s deferral election,
with respect to amounts to be deferred on or after the cancellation, by the end of the year
during which the Participant becomes disabled, or, if later, the 15th day of the third month
following the date on which the Participant becomes disabled. For purposes of this Section,
a Participant shall be disabled if the Participant is suffering from any medically determinable
physical or mental impairment resulting in the Participant’s inability to perform the duties of
his position or any substantially similar position, if such impairment can be expected to result
in death or can be expected to last for a continuous period of six months.
The Participant may elect to defer amounts for the Plan Year following his return to
employment and for every Plan Year thereafter while an Eligible Employee, provided the
Participant’s deferral election otherwise complies with all of the requirements of this Section.
6.1.6 Cancellation of Deferral Election due to Unforeseeable Emergency. If an eligible
Participant experiences an Unforeseeable Emergency during a Plan Year, the Participant may
submit to the Administrator a written request to cancel Elective Deferrals for the Plan Year
to satisfy the Unforeseeable Emergency. If the Administrator either approves the Participant’s
request to cancel Elective Deferrals for the Plan Year, or approves a request for a distribution
of in accordance with Section 6.4.6, then effective as of the date the request is approved the
Administrator shall cancel the Participant’s deferral elections for the remainder of the Plan
Year. A Participant whose Elective Deferrals are canceled during a Plan Year in accordance
with this section may elect Elective Deferrals for the following Plan Year; provided, however,
if required to comply with Treasury Regulations section 1.401(k)-1(d)(3), the Participant may
not elect to defer any amounts attributable to periods less than six months from the date on
which the Participant receives a distribution on account of an Unforeseeable Emergency.
6.1.7 Withholding of Deferrals. The Administrator will withhold Elective Deferrals not later than
the end of the calendar year during which the Company would otherwise have paid the amounts
to the Participant but for the Participant’s deferral election. The Administrator will not
withhold Elective Deferrals from a Participant’s Salary during any period in which the
Participant is on an unpaid leave of absence.
6.2
Non-Elective Deferrals. If the Administrator determines that an eligible Participant’s Salary exceeds
the Code section 401(a)(17) limit, the Administrator shall automatically credit the Participant’s Annual
Make-up Award to the Participant’s Account
6.3
FICA and Other Taxes.
For each Plan Year during which a Participant has Deferrals, the Participant’s Employer(s) shall, in
a manner determined by the Employer(s), withhold the Participant’s share of FICA and other required
employment or state, local, and foreign taxes on Deferrals from that portion of the Participant’s Salary,
Bonus, Annual Make-up Award, Severance Pay, Other Award and in the event of a 162(m) Deferral,
the Participant’s compensation generally, that is not deferred. To the extent permitted by Section
409A, the Administrator may reduce a Participant’s Deferrals to the extent necessary to pay FICA
and other employment, state, local and foreign taxes.
6.4
Distributions.
Exhibit 10(f)4
The Plan provides for distributions in a Specified Year, or upon a Separation from Service, death,
Disability, or Unforeseeable Emergency. At the time of a Participant’s initial deferral election, a
Participant may elect to receive a distribution: (i) with respect to Elective Deferrals, in a Specified
Year; and (ii) with respect to all Deferrals, upon the earlier of Separation from Service, death or
Disability. In each subsequent Plan year, a Participant may elect to have all or any portion of that
year’s Elective Deferrals distributed either in a Specified Year, subject to the restrictions in Section
6.4.1, or in accordance with the Participant’s prior elections for distributions other than in a Specified
Year. Except as otherwise provided in the Plan, a Participant’s distribution elections are irrevocable
and will govern the Deferrals to which the election relates until the amounts covered by the election
are paid in full or until subsequently changed in accordance with Section 6.6. Notwithstanding any
elections by a Participant, all distributions are subject to the provisions of Sections 1.2 and 6.5.
6.4.1 Specified Year. A Participant may elect to receive a distribution of Elective Deferrals in a
Specified Year, which may be no earlier than the third Plan Year beginning after the date on
which the Participant initially elects to receive a distribution in a Specified Year. Except as
otherwise provided in this subsection or in Section 6.6, once a Participant has elected to receive
a distribution in a Specified Year, the Participant may not elect to receive a distribution in a
different Specified Year. Beginning during the year preceding any Specified Year previously
elected by the Participant, the Participant may elect to receive a distribution of Elective
Deferrals in a later Specified Year, subject, however, to the restrictions of this subsection. All
amounts distributed in a Specified Year will be paid in a single lump sum.
6.4.2 Separation from Service. A Participant may elect to receive a distribution commencing
either upon a Separation from Service, or during any of the first five years following the year
of the Separation from Service. A Participant may elect to receive a distribution in the form
of a lump sum, monthly installments over a period of five (5), ten (10), or fifteen (15) years,
or a combination of both a lump sum and installments.
6.4.3 Disability. A Participant may elect to receive a distribution on account of Disability.
Distributions upon Disability will commence on the earlier of the Participant’s 65th birthday
or the second anniversary of the Disability, unless changed in accordance with Section 6.6.
A Participant may elect to receive the distribution in the form of a lump sum, monthly
installments over a period of five (5), ten (10), or fifteen (15) years, or a combination of both
a lump sum and installments. Notwithstanding any other election by a Participant relating to
a distribution upon Disability, if a Participant dies after commencement of a Disability but
before the year during which distributions would commence, the Participant’s Account shall
be distributed in accordance with the Participant’s election regarding distributions upon death.
6.4.4 Death. A Participant may elect to receive a distribution commencing upon death or during
any of the first five years following the year of death. A Participant may elect to receive a
distribution in the form of a lump sum, monthly installments over a period of five (5), ten
(10), or fifteen (15) years, or a combination of both a lump sum and installments.
Exhibit 10(f)4
6.4.5 Unforeseeable Emergency. A Participant may submit a written request for a distribution on
account of an Unforeseeable Emergency. Upon approval by the Administrator of a
Participant’s request, the Participant’s Account, or that portion of a Participant’s Account
deemed necessary by the Administrator to satisfy the Unforeseeable Emergency (determined
in a manner consistent with Section 409A) plus amounts necessary to pay taxes reasonably
anticipated because of the distribution, will be distributed in a single lump sum.
6.5
Additional Distribution Rules.
6.5.1 Default Time and Form of Distribution. If a Participant fails timely to elect a time and
form of distribution, the Participant’s Account will be distributed upon any Separation from
Service, including death, in the form of a single lump sum payment.
6.5.2 Commencement of Distributions. Except as otherwise provided in this section, if a
Participant has elected to receive a distribution commencing upon a Distribution Event, or if
a distribution is required upon a Distribution Event, distribution will commence between the
date of the Distribution Event and the end of the year in which the Distribution Event occurs.
If a Participant has elected, or is required, to receive a distribution commencing upon a
Distribution Event, and the Distribution Event occurs on or after October 1 of a Plan Year,
the distribution may, to the extent permitted by Section 409A, commence after the Distribution
Event and on or before the 15th day of the third calendar month following the Distribution
Event, even if after the end of the year during which the Distribution Event occurs; provided,
however, the Participant will not be permitted, directly or indirectly, to designate the taxable
year of the distribution. If a Participant has elected to receive a distribution commencing
during any of the first five years following the year of a Distribution Event, the distribution
will commence during the year elected by the Participant. If a Participant has elected to
receive a distribution in a Specified Year, the distribution will occur during the Specified Year.
Any distribution that complies with this section shall be deemed for all purposes to comply
with the Plan requirements regarding the time and form of distributions.
6.5.3
Installments. If a Participant elects to receive distributions in monthly installments, the
Participant’s Account will be paid in substantially equal monthly installments in consecutive
years over the period elected by the Participant. Each monthly installment will be paid during
the Plan Year in which it is due, commencing as described in Section 6.5.2. During the Plan
Year in which distributions commence, the Participant will receive one installment for each
calendar month beginning after the date of the Distribution Event, or, if the Participant has
elected to receive a distribution commencing during any of the first five years following the
year of a Distribution Event, one monthly installment for each calendar month beginning after
the anniversary date of the Distribution Event. For deferrals made in connection with any
Plan Year that commenced on or before January 1, 2018, during the distribution period, the
Participant’s Account will be credited with interest compounded monthly at a rate of 7.5%
per year. For deferrals made in connection with any Plan Year that commences on or after
January 1, 2019, the Participant’s Account will be credited or debited with notional gains and
losses based on the investment funds selected by the Participant, from among the options
provided by the Company, until all amounts credited have been distributed. Any installment
distribution that complies with this section shall be deemed for all purposes to comply with
the Plan requirements regarding the time and form of distributions.
Exhibit 10(f)4
6.5.4 Death After Commencement of Distributions. Upon the death of a Participant after
distributions of the Participant’s Account have commenced, the balance of the Participant’s
Account will be distributed to the Participant’s Beneficiary at the same times and in the same
forms that the Account would have been distributed to the Participant if the Participant had
survived.
6.5.5 Distributions to Specified Employees. Notwithstanding anything to the contrary in this
Plan, if a Participant becomes entitled to a distribution on account of a Separation from Service
and is a Specified Employee on the date of the Separation from Service, distributions shall
not commence until the earlier of: (i) the expiration of the six-month period beginning on
the date of Participant’s Separation from Service, or (ii) the date of Participant’s death.
Payments to which a Specified Employee would otherwise be entitled during this six-month
period shall be accumulated and paid, together with earnings that have accrued during this
six-month delay, during the seventh month following the date of the Participant’s Separation
from Service, or, if earlier, the date of the Participant’s death.
6.5.6 Effect of Change in Control. Notwithstanding a Participant’s elections regarding
distributions upon a Separation from Service and a distribution in a Specified Year, if (a) the
Participant has a Separation from Service within two years following a Change in Control or
(b) a Change in Control occurs within six months after the Participant has a Separation from
Service, the Participant shall receive a distribution of the Participant’s entire Account in a
single lump sum upon the later of the Separation from Service or the Change in Control,
whether or not distributions have already commenced.
6.6
Subsequent Changes in Time and Form of Distributions.
A Participant may, in accordance with rules, procedures and forms specified from time to time by the
Administrator, elect to change the time of commencement or change the form in which the Participant’s
Account is distributed or both, provided that: (i) the Participant elects at least twelve (12) months
prior to the date on which payments are otherwise scheduled to commence; (ii) the new election does
not take effect for at least twelve (12) months; and (iii) with respect to changes applicable to
distributions in a Specified Year or upon Separation from Service, the distributions must be deferred
for at least five (5) years from the date the distributions would otherwise have been paid, or in the
case of installment payments, five (5) years from the date the installments were scheduled to
commence. For purposes of this section, distributions on account of a Specified Year are considered
scheduled to commence on January 1 of the Specified Year and all other distributions are considered
to commence on the date of the Distribution Event, or if the Participant has elected a later year for
commencement, January 1 of the year elected by the Participant. Any election in accordance with
this section to change the time or form or both shall be irrevocable on the date it is filed with the
Administrator unless subsequently changed pursuant to this Section.
Exhibit 10(f)4
ARTICLE 7
Accounts and Investments
7.1
Establishment of Accounts.
The Company will establish notional accounts for each Participant as the Administrator deems
necessary or advisable from time to time. The Company will establish a Participant’s Account at the
earlier of the time a Participant first elects to defer any amounts into the Account or the time the
Company first credits non-elective amounts to the Account. Each Account shall be credited as
appropriate with deferrals and earnings with respect to deferrals and debited for distributions from
the Account.
7.2
Timing of Credits to Accounts.
The Administrator shall credit a Participant’s Elective Deferrals to the Participant’s Account(s) not
later than the end of the calendar year during which the Company would otherwise have paid the
amounts to the Participant but for the Participant’s deferral election. The Administrator shall credit
Non-Elective Deferrals at such times and in such amounts as the Administrator determines.
7.3
Vesting.
All Participant Accounts are fully vested at all times.
7.4
Investments.
The Administrator may select investment funds to use for measuring notional gains and losses credited
or debited to Participant’s Accounts. The Administrator will establish, from time to time, rules and
procedures for allowing each Participant who has not had a Distribution Event to designate which
one or more of the selected investment funds will be used to determine the notional gains and losses
credited or debited to the Participant’s Accounts prior to commencement of distributions.
7.5
Valuation Date.
As of each Valuation Date, each Account will be adjusted to reflect the effect of notional investment
gains or losses, additions, distributions, transfers and all other transactions with respect to that Account
since the previous Valuation Date.
Exhibit 10(f)4
ARTICLE 8
SERP II Retirement Benefit
8.1
Eligibility.
The provisions of Article 8 apply only to Eligible Employees who were eligible for Retirement
Benefits on September 30, 2006. Effective October 1, 2006, the Company froze eligibility for
Retirement Benefits and individuals who were not Participants on that date are not eligible for
Retirement Benefits. Any Participant who was accruing Retirement Benefits on September 30, 2006
or who was eligible to accrue Retirement Benefits on that date because the Participant received an
Annual Incentive Award or Other Award and was serving in management salary grades SA - SM, will
remain eligible for Retirement Benefits in accordance with this section; provided the Participant
remains an Employee of a Related Company.
8.2
Vesting; Forfeiture of Unvested Retirement Benefit.
Participants will fully vest in the Retirement Benefit upon: (i) Retirement; (ii) becoming Disabled
after attaining both age 50 and 10 years of Vesting Service; or (iii) upon attaining age 50 and 10 years
of Vesting Service after becoming Disabled. Participants will forfeit unvested Retirement Benefits
and prior years of Vesting Service upon Separation from Service or death prior to full vesting.
8.3
Retirement Benefit.
The amount of the Retirement Benefit shall equal a single life annuity determined in the manner
provided in the Retirement Plans, including any applicable early retirement factors and cost of living
adjustments, but using a Participant’s Final Average Earnings and years of Credited Service as
described in this section.
8.3.1 Final Average Earnings. Final Average Earnings include the sum of: (i) the Participant’s
four highest consecutive Annual Incentive Awards and Other Awards within the “applicable
15-year period,” and (ii) the Participant’s highest Basic Compensation during any consecutive
48-month period within the “applicable 15-year period” to the extent that Basic Compensation
exceeds the limitation on compensation imposed by Code section 401(a)(17). Compensation
in excess of the limitation on compensation imposed by Code section 401(a)(17) shall be
determined by using the limit in effect on the first day of the 48-month period described in
(i) and the next three anniversaries of that date. With respect to a Participant who becomes
entitled to a distribution upon Retirement, the “applicable 15-year period” shall be the fifteen
(15) years preceding the date of Retirement. With respect to a Participant who becomes
entitled to a distribution because of Disability, the “applicable 15-year period” shall be the
15-year period that: (i) ends no earlier than the Participant’s Disability and no later than the
Participant’s sixty-fifth (65th) birthday; and (ii) would result in the greatest Retirement Benefit.
8.4
8.5
Exhibit 10(f)4
8.3.2 Years of Credited Service. A Participant will receive credit for years of Credited Service
after September 30, 2006, only to the extent that: (i) the Participant has been continuously
employed since that date by a Related Company in management salary grades SA - SM; and
(ii) distributions of Retirement Benefits have not commenced. Notwithstanding the foregoing,
no Participant will receive credit for years of Credited Service after December 31, 2018.
Forfeiture of Vested Retirement Benefit for Misconduct. Notwithstanding any other term or
condition in this Article 8, a Participant will forfeit any vested Retirement Benefit attributable to any
year during which the Participant engaged in Misconduct and any subsequent period. For purposes
of calculating the Retirement Benefit of any Participant who engaged in Misconduct, the Participant’s
Final Average Earnings and Years of Credited Service will exclude the period during which the
Participant engaged in Misconduct and any subsequent period.
Time and Form of Distributions. Subject to the provisions of Section 8.6, a Participant will become
entitled to a distribution of vested Retirement Benefits, in the form determined by this section, upon
the earlier of: (i) Retirement; (ii) Disability; or (iii) solely with respect to a Participant who vests
after becoming Disabled, the earlier of death or attainment of age 65.
8.5.1 Election of Alternative Forms of Distribution. A Participant may elect to receive the
Retirement Benefit in one of the following forms, each of which shall be actuarially equivalent:
(i) monthly installments over a 15-year period, (ii) a monthly life annuity, (iii) a lump sum
payment; or (iv) a combination of a lump sum and either (i) or (ii). Actuarially equivalence
will be calculated using actuarial factors adopted by the Administrator from time to time.
Effective as of December 31, 2008, Participant elections regarding the form of distribution
are irrevocable and will remain in effect until the Retirement Benefits are paid in full unless
a Participant elects to change the time and form of payment in accordance with Section 8.7.
8.5.2 Default Form of Payment. If a Participant fails to elect a form of payment with respect to
the Participant’s Retirement Benefit before December 31, 2008, the Retirement Benefit will
be paid in the form of monthly installments over a 15-year period unless the Participant elects
to change the time and form of payment in accordance with Section 8.7.
8.6
Additional Distribution Rules.
8.6.1 Commencement of Distributions. Distributions on account of a Distribution Event other
than Disability will commence between the date of the Distribution Event and the end of the
year in which the Distribution Event occurs. If a Distribution Event other than Disability
occurs on or after October 1 of a Plan Year, the distribution may, to the extent permitted by
Section 409A, commence after the Distribution Event and on or before the 15th day of the
third calendar month following the Distribution Event, even if after the end of the year during
which the Distribution Event occurs; provided, however, the Participant will not be permitted,
directly or indirectly, to designate the taxable year of the distribution. Any distribution that
complies with this section shall be deemed for all purposes to comply with the Plan
requirements regarding the time and form of distributions.
Exhibit 10(f)4
8.6.2 Distributions to Specified Employees. Notwithstanding anything to the contrary in this
Plan, if a Participant becomes entitled to a distribution on account of a Retirement and is a
Specified Employee on the date of the Retirement, distributions shall not commence until the
earlier of: (i) the expiration of the six-month period beginning on the date of Participant’s
Retirement, or (ii) the date of the Participant’s death. Payments to which a Specified Employee
would otherwise be entitled during this six-month period shall be accumulated and paid,
together with earnings (calculated using the interest rate adopted by the Administrator for
determining actuarial equivalence) that have accrued during this six-month delay, during the
seventh month following the date of the Participant’s Retirement, or, if earlier, the date of the
Participant’s death.
8.6.3 Disability. Unless subsequently changed in accordance with the Plan, distributions on account
of Disability will commence on the earlier of the Participant’s 65th birthday or the second
anniversary of the Disability.
8.6.4 Annuity Payments and Installments. If a Participant elects to receive all or a portion of the
distributions in monthly installments, that portion to be paid in installments will be paid in
substantially equal monthly installments in consecutive months over a 15-year period. If a
Participant elects to receive all or a portion of the distributions in the form of a life annuity,
that portion to be paid as a life annuity will be paid in monthly installments in consecutive
months for the remainder of the Participant’s life, in the case of a unmarried Participant, and
in the case of a married Participant over the lives of the Participant and the Participant’s
Eligible Surviving Spouse. Each monthly installment or life annuity payment will be paid
during the Plan Year in which it is due, commencing as described in Section 8.6.1. During
the Plan Year in which distributions commence, the Participant will receive one installment
or life annuity payment for each calendar month beginning after the date of the Distribution
Event. If the Participant has elected to be paid in installments, during the distribution period
the portion of the Participant’s Account to be paid in installments will be credited with interest
compounded monthly at the interest rate used by the Administrator to determine actuarial
equivalence. Any distribution that complies with this section shall be deemed for all purposes
to comply with the Plan requirements regarding the time and form of distributions.
8.6.5 Death After Commencement of Benefits. Upon the death of a Participant after distributions
of the Participant’s Retirement Benefit have commenced, the remainder of the Participant’s
Retirement Benefit will continue to be distributed to the Participant’s Beneficiary at the same
time and in the same form as the benefit would have been distributed to the Participant had
the Participant survived, except to the extent that the Participant had elected a life annuity:
(i) if the Participant has an Eligible Surviving Spouse on the date of death, the surviving
spouse will receive 60% of the Participant’s life annuity benefit for the remainder of the
spouse’s life and (ii) if the Participant does not have an Eligible Surviving Spouse, the annuity
will cease as of the first day of the month following the month during which the Participant
died.
8.6.6 Effect of Change of Control. With respect to any Participant whose Retirement Benefit
distributions have commenced, or would commence, upon a Separation from Service, if (a)
the Participant’s Separation from Service occurs within two years following a Change in
Control or (b) a Change in Control occurs within six months after the Participant’s Separation
from Service, then notwithstanding the Participant’s elections regarding distributions upon a
Separation from Service, the Participant shall receive a distribution of the Participant’s entire
remaining vested Retirement Benefit in a single lump sum upon the later of the Separation
from Service or the Change in Control, whether or not distributions have already commenced.
Any Retirement Benefit that does not become payable in a lump sum in accordance with this
section will vest, if at all, in accordance with Section 8.2, will become payable in accordance
with Section 8.5, and will otherwise remain subject to the provisions of Article 8.
Exhibit 10(f)4
8.7
Subsequent Changes in Time and Form of Payment.
A Participant may, in accordance with rules, procedures and forms specified from time to time by the
Administrator, elect to change the form in which the Participant’s Retirement Benefit is distributed,
provided that: (i) the Participant elects at least twelve (12) months prior to the date on which payments
are otherwise scheduled to commence; (ii) the new election does not take effect for at least twelve
(12) months; and (iii) with respect to changes applicable to distributions upon Retirement or, solely
with respect to a Participant who vests after becoming Disabled, distributions upon attaining age 65,
distributions must be deferred for at least five years from the date the distributions would otherwise
have been paid, or in the case of installment payments or life annuity payments, five years from the
date the installments or life annuity payments were scheduled to commence. Any such election shall
be irrevocable on the date it is filed with the Administrator unless subsequently changed pursuant to
this section. For purposes of this section, distributions are considered to commence on the date of
the Distribution Event.
8.8
FICA and Other Taxes.
At the time of a Participant’s Distribution Event, the Participant’s Employer(s) shall, in a manner
determined by the Employer(s), calculate the FICA and other required employment or state, local,
and foreign taxes due on the lump sum present value, calculated using the factors adopted by the
Administrator for determining actuarial equivalence, of the Participant’s Retirement Benefit and shall
reduce the Participant’s Retirement Benefit by the amount of any such taxes payable by the Participant.
The amount of the Participant’s Retirement Benefit remaining after reduction for any taxes shall be
payable in accordance with Sections 8.6 and 8.7.
ARTICLE 9
Payment Acceleration and Delay
9.1
Permitted Accelerations of Payment.
Except as otherwise provided herein or permitted by Section 409A, the Plan prohibits the acceleration
of the time or schedule of any payment due under the Plan.
9.1.1 Distribution in the Event of Taxation. If, for any reason, all or any portion of any benefit
provided by the Plan becomes taxable to a Participant because of a violation of Section 409A
prior to receipt, the Participant may file a written request with the Administrator for a
distribution of that portion of the Plan benefit that has become taxable. Upon the grant of
such a request, which grant shall not be unreasonably withheld, the Participant shall receive
a distribution equal to the taxable portion of the Plan benefit. If the request is granted, the
tax liability distribution shall be paid between the date on which the Participant’s request is
approved and the end of the Plan Year during which the approval occurred, or if later, the 15th
day of the third calendar month following the date on which the Participant’s request is
approved.
Exhibit 10(f)4
9.1.2 Compliance with Ethics Laws or Conflicts of Interests Laws. The Administrator is
authorized, in its sole discretion, to accelerate the time or schedule of a payment to the extent
necessary to avoid the violation of any applicable federal, state, local, or foreign ethics law
or conflicts of interest law as provided in Section 409A.
9.1.3 Small Accounts. The Administrator may, in its sole discretion, distribute in a single lump
sum the aggregate amounts of Deferrals or Elective Deferrals or both credited to the
Participant’s Account, along with any related earnings, provided: (i) the distribution results
in the payment of the Participant’s entire interest in the Account and all Aggregated Plans,
and (ii) the total payment does not exceed the applicable dollar limit under Code section
402(g)(1)(B). The Administrator shall notify the Participant in writing if the Administrator
exercises its discretion pursuant to this Section.
9.1.4 Settlement of a Bona Fide Dispute. The Administrator may, in its sole discretion, accelerate
the time or schedule of a distribution as part of a settlement of a bona fide dispute between
the Participant and the Employer over the Participant’s right to a distribution provided that
the distribution relates only to the deferred compensation in dispute and the Employer is not
experiencing a downturn in financial health.
9.1.5 Settlement of Debt. The Administrator may, in its sole discretion, accelerate the time or
schedule of a payment to satisfy an ordinary debt owed by the Participant to the Employer at
the time the debt becomes due as provided in Section 409A.
9.2
Permissible Payment Delays.
Notwithstanding anything in the Plan to the contrary, to the extent permitted by Section 409A, the
Administrator may, in its sole discretion, delay a distribution to a Participant:
9.2.1
9.2.2
9.2.3
9.2.4
If the distribution would jeopardize the Employer’s ability to continue as a going concern,
provided that the delayed amount is distributed in the first calendar year in which the payment
would not have such effect.
If the Company reasonably anticipates that its deduction with respect to a distribution, if paid
as scheduled, could be limited or barred by the application of Code section 162(m), provided
the delayed amount is distributed in the first calendar year in which the Company reasonably
anticipates that the deduction would not be limited or barred by the application of Code section
162(m).
If the distribution would violate Federal securities or other applicable laws, provided that the
delayed amount is distributed at the earliest date at which the Administrator reasonably
anticipates that the distribution will not cause such violation.
If calculation of the distribution is not administratively practicable due to events beyond the
control of the Participant, provided that the delayed amount is distributed in the first calendar
year in which the calculation of the distribution is administratively practicable.
9.3
Suspension Not Allowed.
If a Participant whose distributions have commenced becomes eligible again to defer compensation
as a Participant in any plan subject to Section 409A maintained by a Related Company, distribution
of the Participant’s Retirement Benefit or Account may not be suspended.
Exhibit 10(f)4
ARTICLE 10
Beneficiary Designation
10.1 Beneficiary.
Each Participant shall have the right, in accordance with procedures established from time to time
by the Administrator, to designate a Beneficiary(ies) (both primary as well as contingent) to whom
Plan benefits shall, if permitted by the Plan, be paid if a Participant dies prior to complete distribution
of benefits. Each Beneficiary designation shall be in a written form prescribed by the Administrator,
and will be effective only when filed with the Administrator during the Participant’s lifetime. Any
Beneficiary designation may be changed by a Participant without the consent of the previously named
Beneficiary by filing a new Beneficiary designation with the Administrator. The most recent
Beneficiary designation received by the Administrator shall control the payment of all benefits under
the Plan in the event of the Participant’s death.
10.2 No Beneficiary Designation.
In the absence of an effective Beneficiary designation, or if all designated Beneficiaries predecease
the Participant or die prior to the complete distribution of the Participant’s benefits, benefits shall be
paid in the following order of precedence: (a) the Participant’s surviving spouse; (b) the Participant’s
children (including adopted children), per stirpes; or (c) the Participant’s estate.
ARTICLE 11
Claims Procedures
11.1 Presentation of Claim.
Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being
referred to below as a “Claimant”) may file with the Administrator a written claim for a determination
with respect to Plan benefits. The claim must state with particularity the determination desired by
the Claimant.
11.2 Notification of Decision.
The Administrator shall consider a Claimant’s claim, and, except as provided below, within 90 days
after the claim is received, shall notify the Claimant in writing:
11.2.1 That the claim has been allowed in full; or
11.2.2 That the claim has been denied, in whole or in part, and such notice must set forth in a manner
calculated to be understood by the Claimant:
(a)
The specific reason(s) for the denial of the claim, or any part of it;
(b)
Specific reference(s) to pertinent provisions of the Plan upon which such denial was
based;
Exhibit 10(f)4
(c)
(d)
A description of any additional material or information necessary for the Claimant to
perfect the claim, and an explanation of why such material or information is necessary;
and
An explanation of the claim review procedures and time limits, including a statement
of the Claimant’s right to initiate a civil action pursuant to section 502(a) of ERISA
following an adverse determination upon review.
11.2.3 If the Administrator determines that an extension of time for processing is required, written
notice of the extension shall be furnished to the Claimant prior to termination of the original
90-day period. In no event shall such extension exceed 90 days from the end of such initial
period.
11.2.4 In the case of a claim for disability benefits, the Administrator shall notify the Claimant, in
accordance with subsection 11.2.2 above, within 45 days after the claim is received. The
notification shall advise the Claimant whether the Administrator’s denial relied upon any
specific rule, guideline, protocol or scientific or clinical judgment.
11.2.5 In the case of a claim for disability benefits, if the Administrator determines that an extension
of time for processing is required due to matters beyond the control of the Plan, written notice
of the extension shall be furnished to the Claimant prior to termination of the original 45-day
period. Such extension shall not exceed 30 days from the end of the initial period. If, prior
to the end of the first 30-day extension period, the Administrator determines that, due to
matters beyond the control of the Plan, an additional extension of time for processing is
required, written notice of a second 30-day extension shall be furnished to the Claimant prior
to termination of the first 30-day extension.
11.3 Review of a Denied Claim.
Within 90 days after receiving a notice from the Administrator that a claim has been denied, in whole
or in part, a Claimant (or the Claimant’s duly authorized representative) may file a written request
for a review of the denial of the claim and of pertinent documents. The Claimant (or the Claimant’s
duly authorized representative):
11.3.1 May request reasonable access to, and copies of, all documents, records, and other information
relevant to the claim, which shall be provided to Claimant free of charge; and
11.3.2 May submit written comments or other documents.
11.4 Decision on Review.
The Administrator shall review all comments or other documents submitted by the Claimant relating
to the claim, without regard to whether such information was submitted or considered in the initial
benefit determination. The Administrator shall render its decision on review promptly, and not later
than 60 days after the filing of a written request for review of the denial (or, if other special
circumstances require additional time and written notice of such extension and circumstances is given
to the Claimant within the initial 60-day period). The Administrator shall notify the Claimant, in
language calculated to be understood by the Claimant:
11.4.1 That the claim has been allowed in full; or
Exhibit 10(f)4
11.4.2 That the claim has been denied, in whole or in part, and such notice must set forth:
(a)
Specific reasons for the decision;
(b)
(c)
(d)
Specific reference(s) to the pertinent Plan provisions upon which the decision was
based;
A statement that Claimant is entitled to reasonable access to, and copies of, all
documents, records or other information relevant to the claim upon request and free
of charge;
A statement regarding the Claimant’s right to initiate an action pursuant to section
502(a) of ERISA; and
(e)
Such other matters as the Administrator deems relevant.
11.4.3 In the case of a claim for disability benefits, the notice shall set forth:
(a) Whether the Administrator’s denial relied upon any specific rule, guideline, protocol
or scientific or clinical judgment; and
(b)
The following statement: “You and your Plan may have other voluntary alternative
dispute resolution options, such as mediation. One way to find out what may be
available is to contact your local U.S. Department of Labor Office and your State
insurance regulatory agency.”
11.5 Other Remedies.
A Claimant’s compliance with the foregoing procedures is a mandatory prerequisite to a Claimant’s
right to pursue any other remedy with respect to any claim relating to this Plan.
ARTICLE 12
Amendment or Termination
The Company hereby reserves the right to amend, modify, or terminate any one or more of the 409A
Plans, at any time by action of the Board, with or without prior notice. No amendment or termination shall
reduce any Participant’s Account or Retirement Benefit without the written consent of the affected Participant.
Notwithstanding anything herein to the contrary, to the extent consistent with Section 409A, the Board may
terminate the Plan and distribute to each Participant the Participant’s Account and the Participant’s Retirement
Benefit, if any, in a lump sum; provided that all distributions (i) commence no earlier than the date that is
twelve (12) months following the termination date (or any earlier date that would comply with Section 409A)
and (ii) are completed by the date that is twenty-four (24) months following the termination date (or any later
date that would comply with Section 409A). In addition, payments may be accelerated upon termination of
any 409A Plan only if, to the extent required under Section 409A, (i) the Company terminates all Aggregated
Plans, and (ii) for three years following the date of termination of the 409A Plan, the Company does not
adopt any new arrangement that would have been an Aggregated Plan of the terminated 409A Plan.
Exhibit 10(f)4
ARTICLE 13
Miscellaneous Provisions
13.1 Unsecured General Creditor.
Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable
rights, interests or claims in any property or assets of an Employer. An Employer’s obligation under
the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.
13.2 Employer’s Liability.
An Employer’s liability for benefits shall be defined only by the Plan. An Employer shall have no
obligation to a Participant except as expressly provided in the Plan.
13.3 Nonassignability.
Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and
all rights to which are expressly declared to be, unassignable and non-transferable. No part of the
amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or
sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, be transferable by operation of law in the event of a Participant’s or
any other person’s bankruptcy or insolvency or be transferable to a spouse as a result of a property
settlement or otherwise.
13.4 No Right to Employment.
Nothing contained in this Plan or any documents relating to the Plan shall: (a) confer on a Participant
any right to continue in the employ of a Related Company, (b) constitute any contract or agreement
of employment, (c) interfere with the right of a Related Company to terminate the Participant’s
employment at any time, with or without cause.
13.5
Incompetency.
If the Administrator determines that a distribution under this Plan is to be paid to a minor, a person
declared incompetent or to a person incapable of handling the disposition of that person’s property,
the Administrator may direct such distribution to be paid to the guardian, legal representative or
person having the care and custody of such minor, incompetent or incapable person. The Administrator
may require proof of majority, competence, capacity, guardianship, or status as a legal representative
as it may deem appropriate prior to distribution of a payment. Any distribution shall be a payment
for the account of the Participant and the Participant’s Beneficiary, as the case may be, and shall be
a complete discharge of any liability for such payment amount.
13.6 Tax Withholding.
To the extent required by the law in effect at the time of any distribution, the Participant’s Employer
shall withhold from any payments to a Participant hereunder any taxes required to be withheld by
the federal or any state or local government, in amounts and in a manner to be determined in the sole
discretion of the Employer(s).
Exhibit 10(f)4
13.7 Furnishing Information.
A Participant or his Beneficiary will cooperate with the Administrator by furnishing any and all
information requested by the Administrator and take such other actions as may be requested in order
to facilitate the administration of the Plan and the distributions hereunder, including but not limited
to taking such physical examinations as the Administrator may deem necessary.
13.8 Notice.
Any notice or filing required or permitted under the Plan shall be sufficient if in writing and if (i)
hand-delivered or sent by telecopy, (ii) sent by registered or certified mail, or (iii) sent by nationally-
recognized overnight courier. Such notice shall be deemed given as of (i) the date of delivery if
hand-delivered or sent by telecopy, (ii) as of the date shown on the postmark on the receipt for
registration or certification, if delivery is by mail, or (iii) on the first business day after dispatch, if
sent by nationally-recognized overnight courier.
13.9 Gender and Number.
Except when otherwise indicated by context, words in the masculine gender shall include the feminine
and neuter genders, the singular shall include the plural, and the plural shall include the singular.
13.10 Headings.
The headings contained in this Plan are for convenience only and will not control or affect the meaning
or construction of any of the terms or provisions of this Plan.
13.11 Applicable Law and Construction.
The Plan shall be governed by, construed and administered in accordance with the applicable
provisions of ERISA, and any other applicable Federal law, including Section 409A, and to the extent
not preempted by Federal law, this Plan shall be governed by, construed and administered in
accordance with the laws of the State of Minnesota, other than its laws respecting choice of law.
13.12 Invalid or Unenforceable Provisions.
If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any other provisions hereof and the Administrator may elect in its sole discretion to
construe such invalid or unenforceable provisions in a manner that conforms to applicable law or as
if such provisions, to the extent invalid or unenforceable, had not been included.
13.13 Successors.
This Plan shall bind any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company, in the same manner
and to the same extent that the Company would be obligated under this Plan if no succession had
taken place. In the case of any transaction in which a successor would not by the foregoing provision
or by operation of law be bound by this Plan, the Company shall require such successor expressly
and unconditionally to assume and agree to perform the obligations of the Company and each
Employer under this Plan, in the same manner and to the same extent that the Company and each
Employer would be required to perform if no such succession had taken place.
Exhibit 10(f)4
APPENDIX A
“162(m) Deferrals” means the portion of a Participant’s Annual Incentive Award for a Plan Year
ending on or before December 31, 2018, that the Company reasonably anticipates is not deductible by the
application of Code section 162(m).
“409A Plan” means one of the separate non-qualified deferred compensation arrangements described
in Section 2.1.
“Account” means the Company’s bookkeeping entry representing a Participant’s Deferrals, and such
other accounts or sub-accounts as the Administrator deems necessary or appropriate.
“Administrator” means the Employee Benefit Plans Committee appointed by the Board or delegates
of the Employee Benefit Plans Committee.
“Aggregated Plans” means, with respect to any 409A Plan, that plan and all other non-qualified
deferred compensation plans which must be aggregated with that plan in accordance with the plan aggregation
rules of Section 409A.
“Annual Incentive Award” means the annual award received by a Participant under the ALLETE
Executive Annual Incentive Plan or any predecessor or successor plan.
“Basic Compensation” shall have the meaning prescribed in Retirement Plan A, but shall be calculated
without regard to the limitation on compensation imposed by Code section 401(a)(17).
“Beneficiary” means one or more persons, trusts, estates or other entities, designated in accordance
this Plan, that are entitled to receive Plan benefits upon the death of a Participant.
“Board” means the Board of Directors of the Company.
“Bonus” means any incentive compensation, including Annual Incentive Awards, that is payable to
the Participant in addition to the Participant’s Salary.
“Change in Control” means the earliest of:
(i)
the date any one Person, or more than one Person acting as a group (as the term
“group” is used in Treasury Regulations section 1.409A-3(i)(5)(v)(B)), acquires
ownership of stock of the Company that, together with stock previously held by
the acquirer, constitutes more than fifty (50%) percent of the total fair market value
or total voting power of Company stock. If any one Person, or more than one
Person acting as a group, is considered to own more than fifty (50%) percent of
the total fair market value or total voting power of Company stock, the acquisition
of additional stock by the same Person or Persons acting as a group does not cause
a Change in Control. An increase in the percentage of stock owned by any one
Person, or Persons acting as a group, as a result of a transaction in which Company
acquires its stock in exchange for property, is treated as an acquisition of stock;
Exhibit 10(f)4
(ii)
(iii)
(iv)
(b) the date any one Person, or more than one Person acting as a group (as the term
“group” is used in Treasury Regulations section 1.409A-3(i)(5)(v)(B)), acquires
(or has acquired during the twelve (12) month period ending on the date of the
most recent acquisition by that Person or Persons) ownership of Company stock
possessing at least thirty (30%) percent of the total voting power of Company
stock;
(c) the date a majority of the members of the Company’s board of directors is
replaced during any twelve (12) month period by directors whose appointment or
election is not endorsed by a majority of the members of the board of directors
prior to the date of appointment or election; or
(d) the date any one Person, or more than one Person acting as a group (as the term
“group” is used in Treasury Regulations section 1.409A-3(i)(5)(v)(B)), acquires
(or has acquired during the twelve (12) month period ending on the date of the
most recent acquisition by that Person or Persons) assets from the Company that
have a total gross fair market value equal to at least forty (40%) percent of the
total gross fair market value of all the Company’s assets immediately prior to the
acquisition or acquisitions. For this purpose, “gross fair market value” means the
value of the corporation’s assets, or the value of the assets being disposed of,
without regard to any liabilities associated with these assets.
In determining whether a Change in Control occurs, the attribution rules of Code section 318 apply
to determine stock ownership. The stock underlying a vested option is treated as owned by the individual
who holds the vested option, and the stock underlying an unvested option is not treated as owned by the
individual who holds the unvested option. The term “Person” used in this definition means any individual,
corporation (including any non-profit corporation), general, limited or limited liability partnership, limited
liability company, joint venture, estate, trust, firm, association, organization or other entity or any
governmental or quasi-governmental authority, organization, agency or body.
“Claimant” shall have the meaning set forth in Section 11.1.
“Code” means the Internal Revenue Code of 1986, as it may be amended from time to time.
“Company” means ALLETE, Inc., a Minnesota Corporation, and any successor to all, or substantially
all, of the Company’s assets or business.
“Credited Service” shall have the meaning prescribed in the Retirement Plan A.
“Deferrals” means Elective Deferrals and Non-Elective Deferrals.
“Disability” or “Disabled” when used with an initial capital letter, means a physical or mental condition
in which the Participant is:
(i)
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in death
or can be expected to last for a continuous period of not less than twelve (12)
months;
Exhibit 10(f)4
(ii)
by reason of any medically determinable physical or mental impairment which
can be expected to result in death or can be expected to last for a continuous period
of not less than twelve (12) months, receiving income replacement benefits for a
period of not less than three (3) months under the Employer’s accident and health
plan;
(iii)
determined to be totally disabled by the Social Security Administration; or
(iv)
disabled pursuant to an Employer-sponsored disability insurance arrangement
provided that the definition of disability applied under such disability insurance
program complies with the foregoing definition of Disability.
When the term “disability” (without an initial capital letter) is used in the Plan, it shall have the
meaning prescribed in the definition of “Separation from Service.”
“Distribution Event” means, with respect to Article 6, a Specified Year, a Separation from Service,
death, Disability or the Administrator’s determination regarding the occurrence of an Unforeseeable
Emergency and, with respect to Article 8, Retirement, Disability or solely with respect to a Participant who
vests after becoming Disabled, the earlier of death or attainment of age 65.
“Elective Deferrals” means any portion of a Participant’s Salary, Bonus, Severance Pay, Annual Make-
up Award or Other Award that a Participant irrevocably elects to defer.
“Eligible Employee” means an Employee in management salary grades SA-SM, who has been notified
in writing by the Administrator of eligibility to participate in the Plan.
“Eligible Surviving Spouse” shall have the meaning prescribed in Retirement Plan A.
“Employee” means a person who is a common-law employee of any Related Company.
“Employer(s)” means the Company and any Related Company (now in existence or hereafter formed
or acquired) that have been selected by the Administrator to participate in the Plan.
“ERISA” means the Employee Retirement Income Security Act of 1974, as it may be amended from
time to time.
“IRS” means the Internal Revenue Service.
“Misconduct” means the occurrence of either or both of the following, as determined in its sole
discretion by either the Executive Compensation Committee of the Company’s Board of Directors with
respect to Section 16 Officers of the Company, or the Administrator with respect to any other Participant:
an act or omission by the Participant involving dishonesty in connection with his or her
(a)
responsibilities as an employee of the Company; or
the Participant’s conviction of, or entry of a plea of nolo contendere to, any felony or a
(b)
misdemeanor involving moral turpitude, provided that a misdemeanor motor vehicle violation will
not constitute a crime of moral turpitude unless it involves driving while impaired within the scope
of employment or another serious driving offense committed within the scope of employment.
Exhibit 10(f)4
For purposes of clarifying the foregoing definition, Misconduct can occur regardless of whether the Company
discovers the Misconduct before or after the Participant’s Separation from Service and regardless of whether
the Participant has a Separation from Service on account of the Misconduct.
“Non-Elective Deferrals” means 162(m) Deferrals and the Annual Make-up Award credited to the
Account of any Participant whose Salary exceeds the Code section 401(a)(17) limit.
“Other Award” means an award, other than an Annual Incentive Award or Severance Pay, that a
Participant may defer at the Administrator’s discretion.
“Participant” means any Eligible Employee (i) who has elected to defer amounts under the Plan, (ii)
who is eligible to receive a Retirement Benefit or (iii) whose compensation, or a portion thereof, was deferred
as a Non-Elective Deferral.
“Plan” means SERP II.
“Plan Year” means a period beginning on January 1 of each calendar year and continuing through
December 31 of such calendar year.
“Related Company” means the Company and all persons with whom the Company would be
considered a single employer under Code section 414(b) (employees of controlled group of corporations),
and all persons with whom such person would be considered a single employer under Code section 414(c)
(employees of partnerships, proprietorships, etc., under common control); provided that in applying Code
sections 1563(a)(1), (2), and (3) for purposes of determining a controlled group of corporations under Code
section 414(b), the language “at least 50 percent” is used instead of “at least 80 percent” each place it appears
in Code sections 1563(a)(1), (2), and (3), and in applying Treasury Regulations section 1.414(c)-2 for purposes
of determining trades or businesses (whether or not incorporated) that are under common control for purposes
of Code section 414(c), “at least 50 percent” is used instead of “at least 80 percent” each place it appears in
Treasury Regulations section 1.414(c)-2.
“Retirement” means Separation from Service, for reasons other than death, on or after attaining both
50 years of age and 10 years of Vesting Service.
“Retirement Benefit” means the benefit payable pursuant to Article 8.
“Retirement Plans” mean the Minnesota Power and Affiliated Companies Retirement Plan A and
Minnesota Power and Affiliated Companies Retirement Plan B, as amended from time to time.
“Retirement Savings and Stock Ownership Plan” or “RSOP” means the Minnesota Power and
Affiliated Companies Retirement Savings and Stock Ownership Plan, as amended from time to time.
“Salary” means the Participant’s earnings during a calendar year, before any reduction pursuant to
Code sections 125, 132(f)(4), or 401(k) and this Plan. It does not include overtime compensation, if any,
Bonuses, Annual Incentive Awards and Other Awards, expense reimbursements, allowances, commission
payments, employer contributions or awards under this Plan or other employee benefit plans, imputed income
(whether such imputed income is from vehicle use, life insurance premiums, or any other source) payments
made pursuant to the Results Sharing Program, payment of stock options and performance shares under the
Long Term Incentive Compensation Plan, and any other payments of a similar nature. In the case of a
Participant who is employed jointly by the Company and an affiliated company (as defined in the RSOP),
Salary as defined herein shall include amounts received from all such companies.
Exhibit 10(f)4
“Section 409A” means both section 409A of the Code and Treasury Regulations section 1.409A-1
et seq., as they both may be amended from time to time, and other guidance issued by the Treasury Department
and Internal Revenue Service thereunder.
“Separation from Service” means that the Participant terminates employment within the meaning of
Treasury Regulations section 1.409A-1(h) and other applicable guidance with all Related Companies.
Whether a termination of employment has occurred is determined under the facts and circumstances, and a
termination of employment shall occur if all Related Companies and the Participant reasonably anticipate
that no further services shall be performed after a certain date or that the level of bona fide services the
Participant shall perform after such date (as an employee or an independent contractor) shall permanently
decrease to no more than 20 percent of the average level of bona fide services performed (whether as an
employee or an independent contractor) over the immediately preceding 36-month period (or the full period
of services to the Related Companies if the Participant has been providing services to the Related Companies
less than 36 months). A Participant shall not be considered to separate from service during a bona fide leave
of absence for less than six (6) months or longer if the Participant retains a right to reemployment with any
Related Company by contract or statute. With respect to disability leave, a Participant shall not be considered
to separate from service for 29 months unless the Participant otherwise terminates employment or is
terminated by all Related Companies. For purposes of determining whether a Separation from Service has
occurred on account of a disability, a Participant shall be disabled if the Participant is suffering from any
medically determinable physical or mental impairment resulting in the Participant’s inability to perform the
duties of his position or any substantially similar position, if such impairment can be expected to result in
death or can be expected to last for a continuous period of 6 months.
“SERP II” means the ALLETE and Affiliated Companies Supplemental Executive Retirement Plan
II, as amended from time to time.
“Severance Pay” means the cash payment(s) to a Participant payable in connection with his Separation
from Service in accordance with the terms of a severance arrangement that is the subject of bona fide, arm’s
length negotiations between a Related Company and the Participant at the time of the Separation from Service.
“Specified Year” means a calendar year during which a Participant has elected to receive a distribution
of Elective Deferrals.
“Specified Employee” means an Employee who is subject to the six-month delay rule described in
Code section 409A(2)(B)(i). The Board shall adopt guidelines for identifying Specified Employees in a
manner consistent with Section 409A, and may amend the guidelines from time to time as permitted by
Section 409A.
“Unforeseeable Emergency” means an unanticipated emergency that is caused by an event beyond
the control of the Participant that would result in severe financial hardship to the Participant resulting from
(i) an illness or accident of the Participant or the Participant’s spouse, the Participant’s beneficiary, or the
Participant’s dependent (as defined in Code section 152, without regard to Code sections 152(b)(1), (b)(2),
and (d)(1)(B)), (ii) a loss of the Participant’s property due to casualty, or (iii) such other similar extraordinary
and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as
determined in the sole discretion of the Administrator.
“Valuation Date” means each day that the U.S. stock markets are open or such other dates as may be
set by the Administrator from time to time.
“Vesting Service” shall have the meaning prescribed in the Retirement Plan A. Participants will
continue to receive credit for Vesting Service after October 1, 2006. A Disabled Participant will receive
credit for Vesting Service on account of any period after the commencement of the Disability during which
the Participant is characterized as an active employee on the Related Company’s employment records.
Exhibit 10(f)4
IN WITNESS WHEREOF, ALLETE, Inc. has caused these presents to be signed by its duly authorized
officers, effective as of January 1, 2019.
Exhibit 10(f)4
ALLETE, Inc.
By:
Alan R. Hodnik
Its: Chairman, President and Chief
Executive Officer
ATTEST
By:
Bethany M. Owen
Its:
Senior Vice President, Chief Legal and
Administrative Officer, and Secretary
Exhibit 10(i)7
EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN
ALLETE
RESTRICTED STOCK UNIT GRANT
[Effective 2019]
[Eligible Executive Employees]
Name
In accordance with the terms of ALLETE’s Executive Long-Term Incentive Compensation Plan, as
amended (the "Plan"), and as determined by and through the Executive Compensation Committee of
ALLETE’s Board of Directors, ALLETE hereby grants to you (the "Participant") Restricted Stock Units
(“RSU’s”) as set forth below, payable in the form of ALLETE Common Stock, subject to the terms and
conditions set forth in this Grant, including Annex A hereto, and all documents incorporated herein by
reference:
Number of Restricted Stock Units:
Date of Grant:
Vesting Period:
This Grant is made in accordance with the Plan.
Further terms and conditions of the Grant are set forth in Annex A hereto, which is an integral part of this
Grant.
Any term, provision or condition applicable to the Restricted Stock Units set forth in the Plan and not set
forth herein is hereby incorporated by reference. To the extent any provision hereof is inconsistent with a
Plan provision, the Plan provision will govern.
YOU SHOULD CAREFULLY READ AND REVIEW THE TERMS AND CONDITIONS SET FORTH
IN THIS GRANT, INCLUDING ANNEX A HERETO, WHICH CONTAINS IMPORTANT
INFORMATION, INCLUDING MANDATORY CLAIMS AND ARBITRATION PROCEDURES.
You will be deemed to have accepted this Grant on the Date of Grant, and all its associated terms and
conditions, including the mandatory claims and arbitration procedures set forth in Annex A, unless you
notify the Company of your non-acceptance of the Grant by contacting the Manager–Compensation and
Benefits, in writing within sixty (60) days of the Date of Grant.
IN WITNESS WHEREOF, ALLETE has caused this Grant to be executed by its Chairman, President and
Chief Executive Officer as of the date and year first above written.
ALLETE
By:
Chairman, President & CEO
Attachment: Annex A
ANNEX A
TO
ALLETE
EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN
RESTRICTED STOCK UNIT GRANT
The grant of restricted stock units (each, a “RSU”) under the ALLETE Executive Long-Term
Incentive Compensation Plan (the “Plan”), evidenced by the Grant to which this is annexed, is subject to
the following additional terms and conditions:
Form and Timing of Payment. Subject to the provisions hereof, each RSU will be paid in the form
1.
of one share of ALLETE common stock (each, a “Share”), plus accrued Dividend Equivalents. Shares
will be deposited into your ALLETE Invest Direct plan account. Except as otherwise provided in sections
3 and 4, below, payment will be made during the period ending sixty days after the end of the vesting
period; provided, however, the Participant will not be permitted, directly or indirectly, to designate the
taxable year of the distribution. Payment will be subject to withholding Shares equal in value to the
minimum amount of tax required to be withheld by law.
2.
Dividend Equivalents. You will receive Dividend Equivalents in connection with the RSUs
granted. Dividend Equivalents will be calculated and credited to you at the time the underlying RSUs are
paid. Dividend Equivalents will be in the form of additional RSUs, which will be added to the number of
RSUs subject to the grant, and will equal the number of Shares (including fractional Shares) that could
have been purchased on applicable dividend payment dates, based on the closing ALLETE common stock
price as reported in the consolidated transaction reporting system on that date, with cash dividends that
would have been paid on the underlying RSUs, if such RSUs were Shares. Dividend Equivalents will only
become payable if and to the extent the underlying RSUs vest and become payable.
Payment Upon Retirement, Death or Disability; Forfeiture Upon Other Termination of
3.
Employment, Default on Certain Agreements or Unsatisfactory Job Performance.
3.1
Subject to Section 3.4 below, if during the vesting period you (i) Retire, (ii) die while
employed by a Related Company, or (iii) become Disabled, a portion of the unvested RSUs subject
to the Grant will vest and be paid to you (or your beneficiary or estate) during the period ending
sixty days after such event; provided, however, you will not be permitted, directly or indirectly, to
designate the taxable year of the distribution. Except as otherwise provided in Section 4, payment
pursuant to this Section 3.1 will be prorated, after giving effect to accumulated Dividend
Equivalents, based on the number of whole calendar months within the vesting period that had
elapsed as of the date of Retirement, death or Disability in relation to the number of calendar
months in the vesting period. For purposes of this calculation, you will be credited with a whole
month if you were employed on the 15th of the month.
Except as otherwise provided in Section 4, if during the vesting period or prior to payment
3.2
of all RSUs you have a Separation from Service for any reason other than those specified in
Section 3.1 above, all unvested or unpaid RSUs subject to the Grant (and related Dividend
Equivalents) will be forfeited on the date of such Separation from Service.
3.3
If during the vesting period or prior to payment of all RSUs you are demoted, you default
on any written agreement with a Related Company related to a restrictive employment covenant
(such as confidentiality, non-disclosure, non-competition, non-solicitation, or the like), or if
ALLETE determines, in its sole discretion, that your job performance is unsatisfactory, ALLETE
may cancel or amend your grant relating to any unpaid RSUs, resulting in the forfeiture of some
portion or all of your unpaid RSUs (and related Dividend Equivalents).
Notwithstanding anything herein to the contrary, if you become entitled to a payment of the
3.4
RSUs by reason of your Retirement and if you are a Specified Employee on the date of such
Retirement, payment shall not be made until the earlier of: (i) the expiration of the six-month
period beginning on the date of your Retirement, or (ii) the date of your death. The payment to
which a Specified Employee would otherwise be entitled during this six-month period shall be
paid, together with Dividend Equivalents that have accrued during this six-month delay, during the
seventh month following the date of the Participant’s Retirement, or, if earlier, the date of the
Participant’s death.
Change in Control. Upon a Change in Control, unless the Committee provides otherwise prior to
4.
the Change in Control, outstanding unvested RSUs shall be prorated (as described below) and such
prorated RSUs shall immediately vest and be payable to you during the period ending sixty days after the
Change in Control. The RSUs will not be subject to proration and immediately vest, however, if and to
the extent that the Grant is, in connection with the Change in Control, fully assumed by the successor
corporation or parent thereof; in such case, the RSUs shall be prorated and immediately vest upon your
termination of employment by the successor corporation for reasons other than cause within 18 months
following the Change in Control and be payable to the Participant during the period ending sixty days
after the termination of employment. Any payment on account of or in connection with a Change in
Control will be prorated, after giving effect to the accumulation of Dividend Equivalents, based on the
number of whole calendar months within the three-year vesting period that had elapsed as of the date of
the Change in Control or termination of employment, as applicable, in relation to the number of calendar
months in the three-year vesting period. For purposes of this calculation, you will be credited with a
whole month if you were employed on the 15th of the month. In no event will you be permitted, directly
or indirectly, to designate the taxable year of the distribution on account of or in connection with a Change
in Control.
Compensation Recovery Policy. The Grant is subject to the terms of any compensation recovery
5.
policy or policies established by ALLETE as may be amended from time to time (“Compensation
Recovery Policy”). ALLETE hereby incorporates into the Grant the terms of the Compensation Recovery
Policy.
2
Section 409A Compliance. This Grant is intended to comply with Section 409A or an exemption
6.
thereunder, and, accordingly, to the maximum extent permitted, the Plan and the Grant shall be interpreted
and administered in compliance therewith. Notwithstanding any other provision of the Grant, payments
provided pursuant to the Grant may only be made upon an event and in a manner that complies with
Section 409A or an applicable exemption. Any payments pursuant to the Grant that may be excluded
from Section 409A as a short-term deferral shall be excluded from Section 409A to the maximum extent
possible. To the extent that any provision of the Grant would cause a conflict with the requirements of
Section 409A or would cause the administration of the Grant to fail to satisfy Section 409A, such
provision shall be deemed null and void to the extent permitted by applicable law. Nothing herein shall be
construed as a guarantee of any particular tax treatment. ALLETE makes no representation that the Grant
complies with Section 409A and in no event shall ALLETE be liable for the payment of any taxes and
penalties that you may incur under Section 409A.
7.
Claims Procedure and Arbitration. The Grant is subject to the following claims procedures:
7.1 Mandatory Claims Procedures. If you or any person acting on your behalf (the
“Claimant”) has any claim or dispute related in any way to the Grant or to the Plan, the Claimant
must follow these claims procedures. All claims must be brought no later than one year following
the date on which the claim first arose and any claim not submitted within such time limit will be
waived.
7.2
Claim Submission. Any claim must be made in writing to the Claims
Administrator. The Claims Administrator, or its delegate, shall notify the Claimant of the
resolution of the Claim within 90 days after receipt of the claim; provided, however, if the Claims
Administrator determines that an extension is necessary, the 90-day period shall be extended to up
to 180 days upon notice to that effect to the Claimant.
7.3
Notice of Denial. If a claim is wholly or partially denied, the denial notice shall
contain (i) the reason or reasons for denial of the claim, and (ii) references to the pertinent Plan
provisions upon which the denial is based. Unless the claim is submitted for arbitration as
provided below and in the Plan, the Claims Administrator’s decision or action shall be final,
conclusive and binding on all persons having any interest in the Plan.
7.4
Arbitration. If, after exhausting the procedures set forth above, a Claimant wishes
to pursue legal action, any action by the Claimant with respect to a claim, must be resolved by
arbitration in the manner described herein.
a) Time Limits. A Claimant seeking arbitration of any determination by the Claims
Administrator must, within six (6) months of the date of the Claims Administrator’s
final decision, file a demand for arbitration with the American Arbitration
Association submitting the Claim to resolution by arbitration. A Claimant waives
any claim not filed timely in accordance with this Section.
b) Rules Applicable to Arbitration. The arbitration process shall be conducted in
accordance with the Commercial Law Rules of the American Arbitration
Association.
c) Venue. The arbitration shall be conducted in Minneapolis, Minnesota.
3
d) Binding Effect. The decision of the arbitrator with respect to the claim will be final
and binding upon the Company and the Claimant. BY PARTICIPATING IN THE
PLAN, AND ACCEPTING THE GRANT, YOU, ON BEHALF OF YOURSELF
AND ANY PERSON WITH A CLAIM RELATING TO YOUR GRANT, AGREE
TO WAIVE ANY RIGHT TO SUE IN COURT OR TO PURSUE ANY OTHER
LEGAL RIGHT OR REMEDY THAT MIGHT OTHERWISE BE AVAILABLE IN
CONNECTION WITH THE RESOLUTION OF THE CLAIM.
e) Enforceability. Judgment upon any award entered by an arbitrator may be entered
in any court having jurisdiction over the parties.
f) Waiver of Class, Collective, and Representative Actions. Any claim shall be heard
without consolidation of such claims with any other person or entity. To the fullest
extent permitted by law, whether in court or in arbitration, by participating in the
Plan, you waive any right to commence, be a party to in any way, or be an actual or
putative class member of any class, collective, or representative action arising out
of or relating to any claim, and you agree that any claim may only be initiated or
maintained and decided on an individual basis.
g) Standard of Review. Any decision of an arbitrator on a claim shall be limited to
determining whether the Claims Administrator’s decision or action was arbitrary or
capricious or was unlawful. The arbitrator shall adhere to and apply the deferential
standard of review set out in Conkright v. Frommert, 130 S. Ct. 1640 (2010),
Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008), and Firestone Tire
and Rubber Company v. Bruch, 489 U.S. 101 (1989), and shall accord due
deference to the determinations, interpretations, and construction of the Plan
document by the Claim’s Administrator.
h) General Procedures.
i. Arbitration Rules. The arbitration hearing will be conducted under the AAA
Commercial Arbitration Rules (as amended or revised from time to time by
AAA) (hereinafter the “AAA Rules”), before one AAA arbitrator who is from
the Large, Complex Case Panel and who has experience with matters involving
executive compensation and equity compensation plans. The AAA Rules and
the terms and procedures set forth here may conflict on certain issues. To the
extent that the procedures set forth here conflict with the AAA Rules, the
procedures set forth here shall control and be applied by the arbitrator.
Notwithstanding the amount of the claim, the Procedures for Large, Complex
Commercial Disputes shall not apply.
ii. Substantive Law. The arbitrator shall apply the substantive law (and the laws of
remedies, if applicable), of Minnesota or federal law, or both, depending upon
the claim. Except to the extent required by applicable law, the Claimant shall
keep any arbitration decision or award strictly confidential and not disclose to
anyone other than his or her spouse, attorney, or tax advisor.
4
iii. Authority. The arbitrator shall have jurisdiction to hear and rule on prehearing
disputes and is authorized to hold prehearing conferences by telephone or in
person as the arbitrator deems necessary. The arbitrator will have the authority
to hear a motion to dismiss and/or a motion for summary judgment by any party
and in doing so shall apply the standards governing such motions under the
Federal Rules of Civil Procedure.
iv. Pre-Hearing Procedures. Each party may take the deposition of not more than
one individual and the expert witness, if any, designated by another party. Each
party will have the right to subpoena witnesses in accordance with the Federal
Arbitration Act, Title 9 of the United States Code. Additional discovery may be
had only if the arbitrator so orders, upon a showing of substantial need.
v. Fees and Costs. Administrative arbitration fees and arbitrator compensation
shall be borne equally by the parties, and each party shall be responsible for its
own attorney’s fees, if any; provided, however, that the Committee will
authorize payment by the Company of all administrative arbitration fees,
arbitrator compensation and attorney’s fees if the Committee concludes that a
Claimant has substantially prevailed on his or her claims. Unless prohibited by
statute, the arbitrator shall assess attorney’s fees against a party upon a showing
that such party’s claim, defense or position is frivolous, or unreasonable, or
factually groundless. If either party pursues a claim by any means other than
those set forth in this Article, the responding party shall be entitled to dismissal
of such action, and the recovery of all costs and attorney’s fees and losses
related to such action, unless prohibited by statute.
(i) Interstate Commerce and the Federal Arbitration Act. The Company is involved in
transactions involving interstate commerce, and the employee’s employment with
the Company involves such commerce. Therefore, the Federal Arbitration Act,
Title 9 of the United States Code, will govern the interpretation, enforcement, and
all judicial proceedings regarding the arbitration procedures in this Section.
8.
Ratification of Actions. By receiving the Grant or other benefit under the Plan, you and each
person claiming under or through you shall be conclusively deemed to have indicated your acceptance and
ratification of, and consent to, any action taken under the Plan or the Grant by ALLETE, the Board, or the
Committee.
No Impact on Other Benefits. The Grant or payment on account thereof shall not be taken into
9.
account in determining any benefits under any severance, retirement, welfare, insurance or other benefit
plan of ALLETE or any affiliate except to the extent otherwise expressly provided in writing in such other
plan or an agreement thereunder.
Notices. Any notice hereunder to ALLETE shall be addressed to ALLETE, 30 West Superior
10.
Street, Duluth, Minnesota 55802, Attention: Manager - Compensation and Benefits, Human Resources,
and any notice hereunder to you shall be directed to your address as indicated by ALLETE’s records,
subject to the right of either party to designate at any time hereafter in writing some other address.
5
Governing Law and Severability. To the extent not preempted by the Federal law, the Grant will
11.
be governed by and construed in accordance with the laws of the State of Minnesota, without regard to its
conflicts of law provisions. In the event any provision of the Grant shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining parts of the Grant, and the Grant shall be
construed and enforced as if the illegal or invalid provision had not been included.
Definitions. Capitalized terms not otherwise defined herein shall have the meanings given them in
12.
the Plan. The following definitions apply to the Grant and this Annex A:
“Claims Administrator” means ALLETE’s Chief Executive Officer, unless the claimant is
12.1
(or is acting on behalf of) an ALLETE executive officer (within the meaning of Exchange Act
Rule 3b-7), in which case the Claims Administrator is the Executive Compensation Committee of
the Board of Directors.
12.2
“Change in Control” means the earliest of:
(i)
(ii)
(iii)
(iv)
the date any one Person, or more than one Person acting as a group (as the term
“group” is used in Treasury Regulations section 1.409A-3(i)(5)(v)(B)), acquires
ownership of stock of the Company that, together with stock previously held by the
acquirer, constitutes more than fifty (50%) percent of the total fair market value or
total voting power of Company stock. If any one Person, or more than one Person
acting as a group, is considered to own more than fifty (50%) percent of the total fair
market value or total voting power of Company stock, the acquisition of additional
stock by the same Person or Persons acting as a group does not cause a Change in
Control. An increase in the percentage of stock owned by any one Person, or Persons
acting as a group, as a result of a transaction in which Company acquires its stock in
exchange for property, is treated as an acquisition of stock;
the date any one Person, or more than one Person acting as a group (as the term
“group” is used in Treasury Regulations section 1.409A-3(i)(5)(v)(B)), acquires (or
has acquired during the twelve (12) month period ending on the date of the most
recent acquisition by that Person or Persons) ownership of Company stock possessing
at least thirty (30%) percent of the total voting power of Company stock;
the date a majority of the members of the Company’s board of directors is replaced
during any twelve (12) month period by directors whose appointment or election is
not endorsed by a majority of the members of the board of directors prior to the date
of appointment or election; or
the date any one Person, or more than one Person acting as a group (as the term
“group” is used in Treasury Regulations section 1.409A-3(i)(5)(v)(B)), acquires (or
has acquired during the twelve (12) month period ending on the date of the most
recent acquisition by that Person or Persons) assets from the Company that have a
total gross fair market value equal to at least forty (40%) percent of the total gross
fair market value of all the Company’s assets immediately prior to the acquisition or
acquisitions. For this purpose, “gross fair market value” means the value of the
corporation’s assets, or the value of the assets being disposed of, without regard to
any liabilities associated with these assets.
6
In determining whether a Change in Control occurs, the attribution rules of Code section 318 apply
to determine stock ownership. The stock underlying a vested option is treated as owned by the
individual who holds the vested option, and the stock underlying an unvested option is not treated
as owned by the individual who holds the unvested option. The term “Person” used in this
definition means any individual, corporation (including any non-profit corporation), general,
limited or limited liability partnership, limited liability company, joint venture, estate, trust, firm,
association, organization or other entity or any governmental or quasi-governmental authority,
organization, agency or body.
12.3
“Code” means the Internal Revenue Code of 1986, as it may be amended from time to time
“Disability” or “Disabled” means a physical or mental condition in which the Participant
12.4
is:
(i)
(ii)
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in death
or can be expected to last for a continuous period of not less than twelve (12)
months;
by reason of any medically determinable physical or mental impairment which can
be expected to result in death or can be expected to last for a continuous period of
not less than twelve (12) months, receiving income replacement benefits for a period
of not less than three (3) months under the Employer’s accident and health plan;
(iii)
determined to be totally disabled by the Social Security Administration; or
(iv)
disabled pursuant to an Employer-sponsored disability insurance arrangement
provided that the definition of disability applied under such disability insurance
program complies with the foregoing definition of Disability.
“Related Company” means the ALLETE, Inc. and all persons with whom the ALLETE,
12.5
Inc. would be considered a single employer under Code section 414(b) (employees of controlled
group of corporations), and all persons with whom such person would be considered a single
employer under Code section 414(c) (employees of partnerships, proprietorships, etc., under
common control); provided that in applying Code sections 1563(a)(1), (2), and (3) for purposes of
determining a controlled group of corporations under Code section 414(b), the language “at least
50 percent” is used instead of “at least 80 percent” each place it appears in Code sections 1563(a)
(1), (2), and (3), and in applying Treasury Regulations section 1.414(c)-2 for purposes of
determining trades or businesses (whether or not incorporated) that are under common control for
purposes of Code section 414(c), “at least 50 percent” is used instead of “at least 80 percent” each
place it appears in Treasury Regulations section 1.414(c)-2.
“Retirement” or “Retires” means Separation from Service, for reasons other than death or
12.6
Disability, on or after attaining normal retirement age or early retirement age as defined in the
most applicable qualified retirement plan sponsored by the Related Company that employed the
Participant immediately preceding the Separation from Service, without regard to whether the
Participant is a participant in such plan, or if the employer Related Company does not sponsor
such retirement plan, on or after attaining Normal Retirement Age or Early Retirement Age as
defined in the ALLETE and Affiliated Companies Retirement Plan A, without regard to whether
the Participant is a participant under the ALLETE and Affiliated Companies Retirement Plan A.
7
“Section 409A” means Section 409A of the Code and Treasury Regulations section
12.7
1.409A-1 et seq., as they both may be amended from time to time, or other guidance issued by the
Treasury Department and Internal Revenue Service thereunder.
“Separation from Service” means that the Participant terminates employment within the
12.8
meaning of Treasury Regulations section 1.409A-1(h) and other applicable guidance with all
Related Companies. Whether a termination of employment has occurred is determined under the
facts and circumstances, and a termination of employment shall occur if all Related Companies
and the Participant reasonably anticipate that no further services shall be performed after a certain
date or that the level of bona fide services the Participant shall perform after such date (as an
employee or an independent contractor) shall permanently decrease to no more than 20 percent of
the average level of bona fide services performed (whether as an employee or an independent
contractor) over the immediately preceding 36-month period (or the full period of services to the
Related Companies if the Participant has been providing services to the Related Companies less
than 36 months). A Participant shall not be considered to separate from service during a bona fide
leave of absence for less than six (6) months or longer if the Participant retains a right to
reemployment with any Related Company by contract or statute. With respect to disability leave,
a Participant shall not be considered to separate from service for 29 months unless the Participant
otherwise terminates employment or is terminated by all Related Companies.
12.9 “Specified Employee” means an Participant who is subject to the six-month delay rule
described in Code section 409A(2)(B)(i), determined in accordance with guidelines adopted by the
Board from time to time as permitted by Section 409A of the Code and Treasury Regulations
section 1.409A-1 et seq., as they both may be amended from time to time, and other guidance
issued by the Treasury Department and Internal Revenue Service thereunder.
8
Exhibit 10(i)8
ALLETE
EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN
PERFORMANCE SHARE GRANT
[Effective 2019]
[Eligible Executive Employees]
Name
In accordance with the terms of ALLETE’s Executive Long-Term Incentive Compensation Plan, as
amended (the "Plan"), and as determined by and through the Executive Compensation Committee of
ALLETE’s Board of Directors, ALLETE hereby grants to you (the "Participant") Performance Shares, as
set forth below, subject to the terms and conditions set forth in this Grant, including Annex A and Annex
B hereto and all documents incorporated herein by reference:
Number of Performance Shares Granted:
Date of Grant:
Performance Period:
Performance Goals:
See Annex B
This Grant is made in accordance with the Plan.
Further terms and conditions of the Grant are set forth in Annex A hereto and Performance Goals are set
forth in Annex B hereto, both of which are integral parts of this Grant.
Any term, provision or condition applicable to the Performance Shares set forth in the Plan and not set
forth herein is hereby incorporated by reference. To the extent any provision hereof is inconsistent with a
Plan provision, the Plan provision will govern.
YOU SHOULD CAREFULLY READ AND REVIEW THE TERMS AND CONDITIONS SET FORTH
IN THIS GRANT, INCLUDING ANNEX A HERETO, WHICH CONTAINS IMPORTANT
INFORMATION, INCLUDING MANDATORY CLAIMS AND ARBITRATION PROCEDURES.
You will be deemed to have accepted this Grant on the Date of Grant and all its associated terms and
conditions, including the mandatory claims and arbitration procedures set forth in Annex A, unless you
notify the Company of your non-acceptance of the Grant by contacting the Manager–Compensation and
Benefits, in writing within sixty (60) days of the Date of Grant.
IN WITNESS WHEREOF, ALLETE has caused this Grant to be executed by its Chairman, President and
Chief Executive Officer as of the date and year first above written.
ALLETE
By:
Chairman, President & CEO
Attachments: Annex A and Annex B
ANNEX A
TO
ALLETE
EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN
PERFORMANCE SHARE GRANT
The Performance Share Grant to which this is annexed is subject to the following additional terms
and conditions:
1.
Dividend Equivalents. You will receive Dividend Equivalents with respect to Performance
Shares that are earned and payable. Dividend Equivalents are calculated and credited to you after the
Performance Period has ended. The Dividend Equivalents will be in the form of additional Performance
Shares, which will be added to the number of Performance Shares earned, and will equal the number of
Shares (including fractional Shares) that could have been purchased on applicable dividend payment
dates, based on the closing ALLETE common stock price as reported in the consolidated transaction
reporting system on that date, with cash dividends that would have been paid on underlying Performance
Shares, if such Performance Shares were Shares. Dividend Equivalents will only become payable if and to
the extent the underlying Performance Shares are earned and become payable.
2.
Satisfaction of Goals. Performance Shares remain unearned unless and until Performance
Goals are achieved. After the Performance Period has ended, the Executive Compensation Committee
(the “Committee”) will determine the extent to which the Performance Goals have been met. You will not
earn any Performance Shares if the threshold performance level has not been met. Subject to the
provisions of Section 4 below and to provisions in the Plan for change in control, Performance Shares will
be earned as follows: If the threshold level has been met, you will have earned 50% of the Performance
Shares (as increased by the Dividend Equivalents). If the target level has been met, you will have earned
100% of the Performance Shares (as increased by the Dividend Equivalents). If the superior level has
been met, you will have earned 200% of the Performance Shares (as increased by the Dividend
Equivalents). Straight line interpolation will be used to determine earned awards based on achievement of
goals between the threshold, target and superior levels.
3.
Payment. Subject to the provisions of Section 4 below and to provisions in the Plan for
Change in Control, Performance Shares (as increased by the Dividend Equivalents) shall be paid in full
after the Committee has determined the extent to which Performance Goals have been met and within two
and one half months after the end of the Performance Period. Payment shall be made, after withholding
Performance Shares in an amount equal in value to the minimum amount of tax required to be withheld by
law, by depositing ALLETE common stock into your Invest Direct account. Performance Share awards
shall not vest until paid.
4.
Payment Upon Death, Retirement or Disability; Forfeiture of Unvested Performance
Shares Upon Demotion, Unsatisfactory Job Performance, Default on Certain Agreements or Other
Separation from Service.
4.1
If during a Performance Period you (i) Retire, (ii) die while employed by a Related
Company, or (iii) become Disabled, you (or your beneficiary or estate) will receive a payment of
any Performance Shares (as increased by the Dividend Equivalents) after the end of the
Performance Period in accordance with Section 3 above. The payment shall be prorated based
upon the number of whole calendar months within the Performance Period which had elapsed as
of the date of death, Retirement or Disability in relation to the number of calendar months in the
full Performance Period. A whole month is counted in the calculation if you were in the position as
of the 15th of the month.
4.2
If after the end of a Performance Period, but before any or all Performance Shares
have been paid, you Retire, die or become Disabled, you (or your beneficiary or estate) will be
entitled to full payout of all earned Performance Shares (as increased by the Dividend Equivalents)
in accordance with Section 3 above.
4.3
If, prior to payment of all Performance Shares, you are demoted, you default on any
written agreement with a Related Company related to a restrictive employment covenant (such as
confidentiality, non-disclosure, non-competition, non-solicitation, or the like) or ALLETE
determines, in its sole discretion, that your job performance is unsatisfactory, ALLETE reserves
the right to cancel or amend your grant relating to any unpaid Performance Shares, with the result
that some portion or all of your unpaid Performance Shares (and related Dividend Equivalents)
will be forfeited.
4.4
If you have a Separation from Service for any reason other than those specified in
subsection 4.1 above, all Performance Shares (and related Dividend Equivalents), to the extent not
yet paid, shall be forfeited on the date of such Separation from Service, except as otherwise
provided by the Committee.
5.
Compensation Recovery Policy. The Grant is subject to the terms of any compensation
recovery policy or policies established by ALLETE as may be amended from time to time
(“Compensation Recovery Policy”). ALLETE hereby incorporates into the Grant the terms of the
Compensation Recovery Policy.
6.
Section 409A Compliance. This Grant is intended to comply with Section 409A of the
Code (“Section 409A”) or an exemption thereunder, and, accordingly, to the maximum extent permitted,
the Plan and the Grant shall be interpreted and administered in compliance therewith. Notwithstanding
any other provision of the Grant, payments provided pursuant to the Grant may only be made upon an
event and in a manner that complies with Section 409A or an applicable exemption. Any payments
pursuant to the Grant that may be excluded from Section 409A as a short-term deferral shall be excluded
from Section 409A to the maximum extent possible. To the extent that any provision of the Grant would
cause a conflict with the requirements of Section 409A or would cause the administration of the Grant to
fail to satisfy Section 409A, such provision shall be deemed null and void to the extent permitted by
applicable law. Nothing herein shall be construed as a guarantee of any particular tax treatment.
ALLETE makes no representation that the Grant complies with Section 409A and in no event shall
ALLETE be liable for the payment of any taxes and penalties that you may incur under Section 409A.
7.
Claims Procedure and Arbitration. The Grant is subject to the following claims
procedures:
2
7.1 Mandatory Claims Procedures. If you or any person acting on your behalf (the
“Claimant”) has any claim or dispute related in any way to the Grant or to the Plan, the Claimant
must follow these claims procedures. All claims must be brought no later than one year following
the date on which the claim first arose and any claim not submitted within such time limit will be
waived.
7.2
Claim Submission. Any claim must be made in writing to the Claims
Administrator. The Claims Administrator, or its delegate, shall notify the Claimant of the
resolution of the claim within 90 days after receipt of the claim; provided, however, if the Claims
Administrator determines that an extension is necessary, the 90-day period shall be extended to up
to 180 days upon notice to that effect to the Claimant.
7.3
Notice of Denial. If a claim is wholly or partially denied, the denial notice shall
contain (i) the reason or reasons for denial of the claim, and (ii) references to the pertinent Plan
provisions upon which the denial is based. Unless the claim is submitted for arbitration as
provided below and in the Plan, the Claims Administrator’s decision or action shall be final,
conclusive and binding on all persons having any interest in the Plan.
7.4
Arbitration. If, after exhausting the procedures set forth above, a Claimant wishes
to pursue legal action, any action by the Claimant with respect to a claim, must be resolved by
arbitration in the manner described herein.
a) Time Limits. A Claimant seeking arbitration of any determination by the Claims
Administrator must, within six (6) months of the date of the Claims Administrator’s
final decision, file a demand for arbitration with the American Arbitration
Association submitting the claim to resolution by arbitration. A Claimant waives
any claim not filed timely in accordance with this Section.
b) Rules Applicable to Arbitration. The arbitration process shall be conducted in
accordance with the Commercial Law Rules of the American Arbitration
Association.
c) Venue. The arbitration shall be conducted in Minneapolis, Minnesota.
d) Binding Effect. The decision of the arbitrator with respect to the claim will be final
and binding upon the Company and the Claimant. BY PARTICIPATING IN THE
PLAN, AND ACCEPTING THE GRANT, YOU, ON BEHALF OF YOURSELF
AND ANY PERSON WITH A CLAIM RELATING TO YOUR GRANT, AGREE
TO WAIVE ANY RIGHT TO SUE IN COURT OR TO PURSUE ANY OTHER
LEGAL RIGHT OR REMEDY THAT MIGHT OTHERWISE BE AVAILABLE IN
CONNECTION WITH THE RESOLUTION OF THE CLAIM.
e) Enforceability. Judgment upon any award entered by an arbitrator may be entered
in any court having jurisdiction over the parties.
3
f) Waiver of Class, Collective, and Representative Actions. Any claim shall be heard
without consolidation of such claims with any other person or entity. To the fullest
extent permitted by law, whether in court or in arbitration, by participating in the
Plan, you waive any right to commence, be a party to in any way, or be an actual or
putative class member of any class, collective, or representative action arising out
of or relating to any claim, and you agree that any claim may only be initiated or
maintained and decided on an individual basis.
g) Standard of Review. Any decision of an arbitrator on a claim shall be limited to
determining whether the Claims Administrator’s decision or action was arbitrary or
capricious or was unlawful. The arbitrator shall adhere to and apply the deferential
standard of review set out in Conkright v. Frommert, 130 S. Ct. 1640 (2010),
Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105 (2008), and Firestone Tire
and Rubber Company v. Bruch, 489 U.S. 101 (1989), and shall accord due
deference to the determinations, interpretations, and construction of the Plan
document by the Claims Administrator.
h) General Procedures.
i. Arbitration Rules. The arbitration hearing will be conducted under the AAA
Commercial Arbitration Rules (as amended or revised from time to time by
AAA) (hereinafter the “AAA Rules”), before one AAA arbitrator who is from
the Large, Complex Case Panel and who has experience with matters involving
executive compensation and equity compensation plans. The AAA Rules and
the terms and procedures set forth here may conflict on certain issues. To the
extent that the procedures set forth here conflict with the AAA Rules, the
procedures set forth here shall control and be applied by the arbitrator.
Notwithstanding the amount of the claim, the Procedures for Large, Complex
Commercial Disputes shall not apply.
ii. Substantive Law. The arbitrator shall apply the substantive law (and the laws of
remedies, if applicable), of Minnesota or federal law, or both, depending upon
the claim. Except to the extent required by applicable law, the Claimant shall
keep any arbitration decision or award strictly confidential and not disclose to
anyone other than his or her spouse, attorney, or tax advisor.
iii. Authority. The arbitrator shall have jurisdiction to hear and rule on prehearing
disputes and is authorized to hold prehearing conferences by telephone or in
person as the arbitrator deems necessary. The arbitrator will have the authority
to hear a motion to dismiss and/or a motion for summary judgment by any party
and in doing so shall apply the standards governing such motions under the
Federal Rules of Civil Procedure.
iv. Pre-Hearing Procedures. Each party may take the deposition of not more than
one individual and the expert witness, if any, designated by another party. Each
party will have the right to subpoena witnesses in accordance with the Federal
Arbitration Act, Title 9 of the United States Code. Additional discovery may be
had only if the arbitrator so orders, upon a showing of substantial need.
4
v.
Fees and Costs. Administrative arbitration fees and arbitrator compensation
shall be borne equally by the parties, and each party shall be responsible for its
own attorney’s fees, if any; provided, however, that the Committee will
authorize payment by the Company of all administrative arbitration fees,
arbitrator compensation and attorney’s fees if the Committee concludes that a
Claimant has substantially prevailed on his or her claims. Unless prohibited by
statute, the arbitrator shall assess attorney’s fees against a party upon a showing
that such party’s claim, defense or position is frivolous, or unreasonable, or
factually groundless. If either party pursues a claim by any means other than
those set forth in this Article, the responding party shall be entitled to dismissal
of such action, and the recovery of all costs and attorney’s fees and losses
related to such action, unless prohibited by statute.
i)
Interstate Commerce and the Federal Arbitration Act. The Company is involved in
transactions involving interstate commerce, and the employee’s employment with
the Company involves such commerce. Therefore, the Federal Arbitration Act,
Title 9 of the United States Code, will govern the interpretation, enforcement, and
all judicial proceedings regarding the arbitration procedures in this Section.
8.
Ratification of Actions. By receiving the Grant or other benefit under the Plan, you and
each person claiming under or through you shall be conclusively deemed to have indicated your
acceptance and ratification of, and consent to, any action taken under the Plan or the Grant by ALLETE,
the Board or the Committee.
9.
No Impact on Other Benefits. The Grant or payment on account thereof shall not be taken
into account in determining any benefits under any severance, retirement, welfare, insurance or other
benefit plan of ALLETE or any affiliate except to the extent otherwise expressly provided in writing in
such other plan or an agreement thereunder.
10.
Notices. Any notice hereunder to ALLETE shall be addressed to ALLETE, 30 West
Superior Street, Duluth, Minnesota 55802, Attention: Manager - Compensation and Benefits, Human
Resources, and any notice hereunder to you shall be directed to your address as indicated by ALLETE’s
records, subject to the right of either party to designate at any time hereafter in writing some other
address.
11.
Governing Law and Severability. To the extent not preempted by the Federal law, the
Grant will be governed by and construed in accordance with the laws of the State of Minnesota, without
regard to its conflicts of law provisions. In the event any provision of the Grant shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Grant, and the
Grant shall be construed and enforced as if the illegal or invalid provision had not been included.
12.
Definitions. Capitalized terms not otherwise defined herein shall have the meanings given
them in the Plan. The following definitions apply to the Grant and this Annex A:
12.1
“Claims Administrator” means ALLETE’s Chief Executive Officer, unless the
claimant is (or is acting on behalf of) an ALLETE executive officer (within the meaning of
Exchange Act Rule 3b-7), in which case the Claims Administrator is the Executive Compensation
Committee of the Board of Directors.
5
12.2
“Code” means the Internal Revenue Code of 1986, as it may be amended from time
to time.
12.3
“Disability” or “Disabled” means a physical or mental condition in which the
Participant is:
(a)
(b)
(c)
(d)
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months;
by reason of any medically determinable physical or mental impairment which
can be expected to result in death or can be expected to last for a continuous
period of not less than twelve (12) months, receiving income replacement
benefits for a period of not less than three (3) months under the Employer’s
accident and health plan;
determined to be totally disabled by the Social Security Administration; or
disabled pursuant to an Employer-sponsored disability insurance arrangement
provided that the definition of disability applied under such disability insurance
program complies with the foregoing definition of Disability.
12.4
“Related Company” means ALLETE, Inc. and all persons with whom the
ALLETE, Inc. would be considered a single employer under Code section 414(b) (employees of
controlled group of corporations), and all persons with whom such person would be considered a
single employer under Code section 414(c) (employees of partnerships, proprietorships, etc., under
common control); provided that in applying Code sections 1563(a)(1), (2), and (3) for purposes of
determining a controlled group of corporations under Code section 414(b), the language “at least
50 percent” is used instead of “at least 80 percent” each place it appears in Code sections 1563(a)
(1), (2), and (3), and in applying Treasury Regulations section 1.414(c)-2 for purposes of
determining trades or businesses (whether or not incorporated) that are under common control for
purposes of Code section 414(c), “at least 50 percent” is used instead of “at least 80 percent” each
place it appears in Treasury Regulations section 1.414(c)-2.
12.5
“Retirement” or “Retires” means Separation from Service, for reasons other than
death or Disability, on or after attaining normal retirement age or early retirement age as defined in
the most applicable qualified retirement plan sponsored by the Related Company that employed
the Participant immediately preceding the Separation from Service, without regard to whether the
Participant is a participant in such plan, or if the employer Related Company does not sponsor
such retirement plan, on or after attaining Normal Retirement Age or Early Retirement Age as
defined in the ALLETE and Affiliated Companies Retirement Plan A, without regard to whether
the Participant is a participant under the ALLETE and Affiliated Companies Retirement Plan A.
6
12.6
“Separation from Service” means that the Participant terminates employment
within the meaning of Treasury Regulations section 1.409A-1(h) and other applicable guidance
with all Related Companies. Whether a termination of employment has occurred is determined
under the facts and circumstances, and a termination of employment shall occur if all Related
Companies and the Participant reasonably anticipate that no further services shall be performed
after a certain date or that the level of bona fide services the Participant shall perform after such
date (as an employee or an independent contractor) shall permanently decrease to no more than 20
percent of the average level of bona fide services performed (whether as an employee or an
independent contractor) over the immediately preceding 36-month period (or the full period of
services to the Related Companies if the Participant has been providing services to the Related
Companies less than 36 months). A Participant shall not be considered to separate from service
during a bona fide leave of absence for less than six (6) months or longer if the Participant retains
a right to reemployment with any Related Company by contract or statute. With respect to
disability leave, a Participant shall not be considered to separate from service for 29 months unless
the Participant otherwise terminates employment or is terminated by all Related Companies.
7
ANNEX B
TO
ALLETE
Executive Long Term Incentive Compensation Plan
Performance Share Grant
Effective 2019
[Eligible Executive Employees]
Financial Measure:
Total Shareholder Return (TSR) computed over the three-year performance period January 1, 2019 to
December 31, 2021.
Performance Share Award:
If ALLETE’s TSR ranking is at the 85th percentile or higher among the peer group (superior
performance), 200% of the Performance Share Grant will be earned. If ALLETE’s TSR ranking is at the
50th percentile among the peer group (target performance), 100% of the Performance Share Grant will be
earned. If ALLETE’s TSR ranking is at the 30th percentile (threshold performance), 50% of the
Performance Share Grant will be earned. If TSR ranking is below threshold, no Performance Shares will
be earned. Straight-line interpolation will be used to determine earned awards based on the TSR ranking
between threshold, target and superior.
Peer Group:
The integrated utility companies comprising Edison Electric Institute (EEI) Stock Index as of December
31, 2021 that have been in the EEI Stock Index for at least three years as of December 31, 2021 will
constitute the peer group used to determine actual payout results. The table below lists the EEI Stock
Index as of December 31, 2018, based on published information available as of that date:
Entergy Corporation
Evergy Inc.
Alliant Energy Corporation
Ameren Corporation
American Electric Power Company Eversource Energy
Exelon Corporation
Avangrid, Inc.
FirstEnergy Corporation
Avista Corporation
Hawaiian Electric Industries, Inc.
Black Hills Corporation
IDACORP, Inc.
CenterPoint Energy, Inc.
MDU Resources Group, Inc.
CMS Energy Corporation
MGE Energy, Inc.
Consolidated Edison, Inc.
NextEra Energy, Inc.
Dominion Energy, Inc.
NiSource, Inc.
DTE Energy Company
NorthWestern Corporation
Duke Energy Corporation
OGE Energy Corp.
Edison International
Otter Tail Corporation
El Paso Electric Company
PG&E Corporation
Pinnacle West Capital Corporation
PNM Resources, Inc.
Portland General Electric Company
PPL Corporation
Public Service Enterprise Group, Inc.
SCANA Corporation
Sempra Energy
The Southern Company
Unitil Corporation
Vectren Corporation
WEC Energy Group, Inc.
Xcel Energy, Inc.
Any Company that is no longer included in the EEI Stock Index as of December 31, 2020 due to corporate
restructuring during the performance period (e.g., mergers, acquisitions, divestitures, spin-offs, etc.) will
be excluded from the results calculation entirely. If a corporate restructuring during the performance
period results in a company remaining in the EEI Stock Index following the transaction (and thus not
being excluded from the results calculation entirely), from the point of the transaction forward, the results
calculation will track only the entity that remains in the EEI Stock Index and ignore other entities,
regardless of whether such other entities are publicly traded.
Exhibit 10(k)3
ALLETE, INC.
Non-Employee Director Compensation
Effective January 1, 2019
Board Retainers (1) (2)
Stock
Cash
Committee Cash Retainers (1) (2)
Audit
Executive Compensation
Corporate Governance & Nominating
Chair Cash Retainers (1) (2)
Audit
Executive Compensation
Corporate Governance & Nominating
Lead Director (1) (2) (3)
Board Stock Retainer
Board Cash Retainer
Lead Director Cash Retainer
$80,850
$65,100
$9,000
$7,500
$7,500
$10,000
$7,500
$5,000
$80,850
$65,100
$40,000
(1) Cash and stock retainers may be deferred under the Director Compensation Deferral Plan II.
(2) Cash retainers may be elected to be received in ALLETE stock.
(3) Lead Director is not eligible for other committee or chair retainers.
EXECUTIVE SEPARATION AGREEMENT
Exhibit 10(p)
THIS EXECUTIVE SEPARATION AGREEMENT (“Agreement”) is made and entered into
effective November 29, 2018 (the “Effective Date”) between ALLETE, Inc. (“ALLETE” or the
“Company”), a Minnesota corporation, and Deborah A. Amberg (“Ms. Amberg”).
WHEREAS, prior to the Effective Date, Ms. Amberg was employed by ALLETE, on an at-will
basis, as its Senior Vice President, Chief Strategy Officer-Regulated Operations, and President of Superior
Water, Light and Power Company;
WHEREAS, the Company eliminated Ms. Amberg’s position in connection with the ongoing
restructuring and re-scaling of ALLETE’s regulated utility operations, resulting in Ms. Amberg
termination as an ALLETE employee;
WHEREAS, Ms. Amberg has elected to accept executive separation benefits in accordance with
this Agreement and understands and agrees that these benefits constitute additional compensation to
which she would not otherwise be entitled under any Company program or policy;
WHEREAS, Ms. Amberg and ALLETE wish to set forth the terms of her separation and resolve
any and all claims and potential claims between them arising out of or in any way relating to Ms.
Amberg’s employment with ALLETE and separation from ALLETE;
NOW, THEREFORE, in consideration of the promises and mutual covenants in this Agreement
and further good and valuable consideration, the adequacy of which Ms. Amberg acknowledges, the
parties agree as follows:
1. Separation from Employment. Ms. Amberg’s last day of employment was November 28, 2018.
As of the Effective Date, Ms. Amberg no longer holds: (a) the title position of Senior Vice President,
Chief Strategy Officer-Regulated Operations, or President of Superior Water, Light and Power Company;
(b) any other position with ALLETE or any of its subsidiaries or affiliates or any of the boards of directors
thereof; (c) any board or other service position with a trade group, association, or other entity where such
board or service position was conferred on her as a representative of ALLETE or any of its subsidiaries or
affiliates; and (d) any position as fiduciary or trustee of any benefit plan of ALLETE or any of its
subsidiaries or affiliates.
2. Separation Benefits. In consideration for the release set forth below and other obligations
under this Agreement, ALLETE agrees to provide the following benefits to Ms. Amberg:
2.1
Separation Payment. ALLETE will make a lump-sum payment to Ms. Amberg in
an amount equal to the sum of: (a) $344,866, which amount is equal to twelve (12) months’ base
salary at Ms. Amberg’s pay rate in effect on the Effective Date.
2.2
Health and Welfare Benefits. ALLETE will maintain, at its expense, coverage
under the medical plan, dental plan, or both in which Ms. Amberg was a participant as of the
Effective Date and will pay the COBRA premiums for that benefit for eighteen (18) months;
provided, that ALLETE’s obligation to pay COBRA premiums for Ms. Amberg will be contingent
on her timely election of COBRA health and dental coverage continuation. In addition, under the
Minnesota Continuation rules, ALLETE will pay to continue Ms. Amberg’s core life insurance
benefit in effect on the Effective Date for a period of eighteen (18) months following the Effective
Date.
Exhibit 10(p)
2.3
Professional Services. ALLETE will pay up to $10,000 for outplacement services
provided such expenses are incurred and submitted for payment, as provided in Section 3 below,
as described in Section 3.2 below, within twelve (12) months following the Effective Date. In
addition, ALLETE will pay up to $5,000 for tax consulting, financial planning, or estate planning
services provided such expenses are incurred and submitted for payment, as provided in Section
3.2, below not later than April 30, 2020.
2.4 Withholding. All amounts payable to Ms. Amberg pursuant to this Section 2 above
shall be reduced for any applicable withholding taxes.
2.5 Other Benefits. This Agreement is not intended to alter Ms. Amberg’s entitlement to
benefits provided through her participation in various qualified benefit plans, non-qualified benefit
plans, incentive compensation plans, or other benefit programs offered by the Company, including
Ms. Amberg’s right to receive, in connection with the termination of her employment, a lump-sum
payout of any accrued and unused vacation time. Ms. Amberg will be entitled to such benefits or
payments when and as provided by the respective plan, program, or grant, as applicable.
3.
Timing of Separation Payments.
3.1
Except as expressly provided in this Agreement to the contrary, ALLETE will make
the payment described in Section 2.1 above within thirty (30) business days after January 31,
2020, provided this Agreement is in full effect on such date and Ms. Amberg is in compliance with
the provisions of this Agreement. If Ms. Amberg dies prior to the date on which the payment
described in Section 2.1 otherwise would have been made, ALLETE will make the payment to any
beneficiary or beneficiaries designated, in writing, by Ms. Amberg for this express purpose and
delivered by her to ALLETE’s Manager-Compensation and Benefits.
3.2
All invoices for services covered in Section 2.3 above must be timely submitted to
ALLETE’s Manager-Compensation and Benefits and, if timely submitted, ALLETE will make
payments as soon as administratively practicable following such submission, but in no event later
than the last day of Ms. Amberg’s taxable year following the taxable year in which the expense
was incurred.
4.
Waiver and Release. Except with respect to Ms. Amberg’s rights under this Agreement,
Ms. Amberg, on behalf of herself and her heirs, executors, administrators, representatives, successors and
assigns, agrees to release and forever discharge ALLETE, Inc. and its affiliates, subsidiaries, predecessors,
successors, related entities, insurers and the current and former officers, directors, shareholders,
employees, attorneys, agents and trustees or administrators of any benefit plan of each of the foregoing
(any and all of which are referred to as “Releasees”) generally from any and all charges, complaints,
claims, promises, agreements, causes of actions, damages, and debts of any nature whatsoever, known or
unknown (collectively “Claims”), which Ms. Amberg has, claims to have, ever had, or ever claimed to
have had against Releasees up through the date of her execution of this Agreement, including but not
limited to any Claims under the common law or any statute. This waiver and release specifically includes,
but is not limited to, the following:
4.1
any and all claims arising from or relating to Ms. Amberg’s recruitment, hire,
employment, and separation from employment;
Exhibit 10(p)
4.2
any and all claims for back pay, front pay, other wages, vacation pay or sick pay,
bonuses and any other form of compensation or benefits;
4.3
any and all claims of employment discrimination, harassment or wrongful or
retaliatory discharge based on race, color, national origin, ancestry, religion, marital status, veteran
status, sex, sexual orientation, familial status, disability, handicap age or other characteristic or
conduct protected under any applicable federal and state laws and regulations;
4.4
any and all claims of employment discrimination, harassment or wrongful or
retaliatory discharge under any applicable federal, state and local laws and regulations;
4.5
any and all claims under the Title VII of the Civil Rights Act of 1964, as amended;
the Civil Rights Act of 1991; the Age Discrimination and Employment Act of 1967, as amended
by the Older Workers Benefit Protection Act of 1990; the National Labor Relations Act, as
amended; the Equal Pay Act of 1963; the Employee Retirement Income Securities Act of 1974, as
amended, (but only as to claims arising thereunder prior to the date hereof); the Americans With
Disabilities Act, as amended; the Family and Medical Leave Act of 1993, as amended; the Fair
Labor Standards Act; the Minnesota Human Rights Act; the Wisconsin Fair Employment Act; the
Constitutions of the United States, the State of Minnesota and the State of Wisconsin; all other
federal, state and local civil rights acts, regulations, orders relating to any term, condition or
termination of employment; any and all state statutes or judicial decisions relating in any way to
any term, condition or termination of employment; in all cases except to the extent such claims
cannot be waived as a matter of law;
4.6
theory; and
any and all claims in tort, contract, public policy, common law or any equitable
4.7
any and all claims for costs or attorneys’ fees.
5.
The waiver and release in Section 4 above shall not release any claims that cannot be
waived or released as a matter of law. Accordingly, Ms. Amberg does not waive or release the right:
5.1
to file an employment-related charge or complaint with any federal, state, or local
government agency with authority over employment-related matters (including the United States
Department of Labor, the federal Equal Employment Opportunity Commission, the Minnesota
Department of Human Rights, etc.); provided, however, if Ms. Amberg does file a charge or
complaint with a government agency, or if someone else files on my behalf or for her benefit, and
if it is covered by Section 4, she waives and releases all individual rights, remedies, claims, and
causes of action, known and unknown, contingent or absolute, she might have against the
Company to receive any damages, attorneys’ fees, costs, disbursements, and other monetary and
personal relief; also, if the charge or complaint is followed by a lawsuit brought by Ms. Amberg or
by someone else on her behalf, she waives and releases all individual rights, remedies, claims, and
causes of action, known and unknown, contingent or absolute, she might have against the
Company to receive any damages, attorneys’ fees, costs, disbursements, and other monetary and
personal relief in the lawsuit;
5.2
to testify, assist, or otherwise participate in any investigation, hearing, or other
proceeding conducted by any government agency;
Exhibit 10(p)
5.3
to bring claims under the Minnesota Workers’ Compensation Act, as amended,
pertaining to workers’ compensation benefits; except, however, she does waive the right to bring
claims under Minn. Stat. § 176.82;
5.4
to bring claims under the Wisconsin Workers’ Compensation Act, as amended,
pertaining to workers’ compensation benefits; or
5.5
to challenge in court the validity of her waiver and release under the Age
Discrimination in Employment Act of 1967, as amended; however, Ms. Amberg has no reason to
believe that her waiver and release under that Act is invalid or unenforceable, it being in the best
interests of the parties that such waiver and release is valid and enforceable.
6.
ADEA Waiver. Ms. Amberg expressly acknowledges and agrees that, among other matters
waived and released by Section 4 above, are any and all rights or claims arising under the Age
Discrimination and Employment Act of 1967, as amended by the Older Workers Benefit Protection Act of
1990 (the “ADEA”), which have arisen on or before the date Ms. Amberg executes this Agreement.
Pursuant to the Older Workers Benefit Protection Act, which contains special provisions and requirements
affecting the release of ADEA claims, Ms. Amberg expressly acknowledges and agrees as follows:
6.1
In exchange for the waiver and release in this Agreement, she will receive
consideration, meaning something of value beyond that which she was already entitled to receive
before signing this Agreement;
6.2
She has been advised by the Company in writing (and given the opportunity) to
consult with an attorney before signing this Agreement and Ms. Amberg has consulted with an
attorney to the extent that she thinks appropriate;
6.3
She has decided to enter into this Agreement only after she had the opportunity to
carefully consider the benefits available as severance pay and the ramifications of this Waiver;
6.4
She has not relied on any explanations, statements, or promises made by the
Company or its agents or attorneys other than as set forth in this Agreement;
6.5 Ms. Amberg is being given forty-five (45) calendar days following the date she
received this Agreement to consider signing this Agreement. If Ms. Amberg signs this Agreement
at any point prior to the end of the 45-day period, it will be her knowing and voluntary decision to
do so because she decided that she does not need any additional time to decide whether to sign this
Agreement. If she does not sign this agreement within the 45-day period, the offer will expire on
the 46th day following the date she received this Agreement and this Agreement will not become
enforceable;
6.6
Ms. Amberg has fifteen (15) days following the date she signs this Agreement in
which to revoke the Agreement (the “Reconsideration Period”). This Agreement will become
irrevocable on the 16th day after it is signed if not revoked within the Reconsideration Period. Any
revocation must be in writing and delivered by Ms. Amberg to ALLETE’s Vice President-Human
Resources prior to the expiration of the Reconsideration Period. If Ms. Amberg revokes this
Agreement within the Reconsideration Period, ALLETE shall have no obligations under this
Agreement, including to make any severance or other payments provided hereunder; and
6.7 Ms. Amberg further acknowledges receiving the document titled, “Information
Regarding Terminated Employees,” attached hereto as Exhibit A.
7. Representations. Ms. Amberg acknowledges and understands that ALLETE has relied upon the
following representations in entering into this Agreement and that all payments and benefits provided
under this Agreement are subject to Ms. Amberg’s ongoing compliance with the same:
Exhibit 10(p)
7.1
No Pending Claims. Ms. Amberg represents that no actions, complaints, or charges
have been filed by her against ALLETE or any of its successors, assigns, directors, officers,
employees, attorneys, agents and trustees or administrators of any of its benefit plans.
7.2
Promise not to Assist Claimants. Ms. Amberg will not voluntarily aid, assist, or
cooperate with any actual or potential claimants or plaintiffs or their attorneys or agents in any
claims or lawsuits proposed to be asserted, pending or commenced on the date hereof or in the
future against ALLETE or any of its affiliates; provided, however, that nothing in this Agreement
will be construed to prevent Ms. Amberg from testifying at an administrative hearing or deposition
or in court in response to a lawful subpoena in any litigation or proceeding involving ALLETE or
any affiliate.
7.3
Non-disparagement. Ms. Amberg promises that she will not disparage or do
anything to harm the ALLETE, its directors, officer, employees, suppliers or customers, or its
affiliates and the directors, officers or employees of such affiliates, or to interfere with any of the
business or government relations of ALLETE or its affiliates. Ms. Amberg will not, directly or
indirectly, publicly criticize in any manner or by any means ALLETE or any aspect of its
management, policies, operations, practices, or personnel. Similarly, ALLETE promises that its
officers will not disparage Ms. Amberg, and will do nothing to harm her reputation.
7.4
Confidentiality. ALLETE and Ms. Amberg agree that the terms of this Agreement
are confidential and that neither will disclose reveal or publicize the existence of this Agreement or
its terms, except as required by law and as required under the rules and regulations of the
Securities and Exchange Commission (the “SEC”). Ms. Amberg will not discuss the existence or
terms of this Agreement with anyone (including to other ALLETE employees) without the express
written consent of the ALLETE’s Chief Executive Officer, except that she may disclose this
Agreement to her legal, tax, accounting or other advisors, and discuss it to the extent necessary to
obtain counsel and advice therefrom; and, except further, Ms. Amberg may discuss any term of
this Agreement after, and to the extent, such term has been disclosed by ALLETE as required
under the rules of the SEC. Notwithstanding the foregoing, Ms. Amberg expressly acknowledges
and agrees that by virtue of her former positions with the Company, separate and apart from any
obligations set forth in this Agreement, she is subject to and bound by statutory and common law
duties that may survive termination of employment, including duties of loyalty and confidentiality.
7.5
Records, Documents and Property. Upon execution of this Agreement, Ms. Amberg
will promptly return to ALLETE all business-related records and correspondence, in any format, in
her possession at the time she signs this Agreement. Ms. Amberg will also return all property of
ALLETE, including computers, telephones, corporate credit cards, keys, proximity cards and
badges in her possession at the time she signs this Agreement, except as follows: (a) Ms. Amberg
may retain her Company-provided mobile phone and ALLETE agrees to release the associated
phone number to allow Ms. Amberg to “port” that number and continue to use it in connection
with a personal service plan at her own expense; (b) Ms. Amberg may retain her Company-
provided iPad with an understanding that ALLETE will terminate the data plan associated with the
Exhibit 10(p)
device after the Effective Date, and (c) Ms. Amberg may retain her Company-provided laptop
computer, but only on the condition that she first returns it to ALLETE by the Effective Date with
the understanding that ALLETE will completely “wipe” the computer, removing everything form
it, including all files, documents, programs, and systems, before it will be returned to Ms. Amberg.
Ms. Amberg hereby represents that she has returned, or will return to ALLETE within fifteen
calendar days after the Effective Date, all ALLETE property in her possession or under her control
in accordance with this Section 7.5.
7.6
No Violations of this Agreement. Ms. Amberg represents that during the period in
which she has considered whether to enter into this Agreement, she has taken no actions that
would have violated this Agreement, had this Agreement been in full force and effect.
8.
No Admission. It is expressly understood and agreed that this Agreement does not
constitute an admission or statement by either party that it has acted unlawfully or is otherwise liable in
any way. It is further agreed that evidence of this Agreement, its terms, or the circumstances surrounding
the parties entering into this Agreement will be inadmissible in any action or lawsuit of any kind, except
an action for alleged breach of this Agreement. In the event this Agreement does not become effective, it
is and will be treated as settlement negotiations that will not be offered or admitted in evidence, or used in
any way, for any purpose, in any trial, proceeding, or appeal.
9.
Coordination with Other Benefits. Payments made under this Agreement are not intended
to duplicate such benefits as workers' compensation wage replacement benefits, disability benefits
(including those under the Minnesota Power and Affiliated Companies Long Term Disability Plan), pay-
in-lieu-of-notice, severance pay, or similar benefits under other benefit plans, severance programs,
employment contracts, or applicable U.S. laws. Should such other benefits be payable, payments under
this Agreement will be reduced accordingly or, alternatively, payments previously paid under this
Agreement will be treated as having been paid to satisfy such other benefit obligations. In either case,
ALLETE, in its sole discretion, will determine how to apply this provision and may override other
provisions in the Agreement in doing so. In addition, Ms. Amberg agrees that she will not apply for
employment nor be hired by ALLETE or its subsidiaries or affiliates for a period of one year following the
Effective Date.
10. Entire Agreement. This Agreement constitutes the entire agreement and understanding
between ALLETE and Ms. Amberg concerning her separation from ALLETE, and supersedes and
replaces any and all prior agreements and understandings concerning Ms. Amberg’ relationship with
ALLETE.
11. Severability. In the event any one or more of the provisions of this Agreement becomes or is
declared by a court or other tribunal of competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said provision.
12. Section 409A of the Internal Revenue Code.
12.1 ALLETE and Ms. Amberg agree that all amounts payable under this Agreement are
intended to comply with one or more of the exceptions to Section 409A of the Internal Revenue
Code (“Section 409A”), including the “short term deferral” exception from specified in Treas.
Reg. § 1.409A-1(b)(4) (or any successor provision) or the “separation pay plan” exception
specified in Treas. Reg. § 1.409A-1(b)(9) (or any successor provision), and shall to the maximum
extent possible be interpreted and administered in a manner consistent with that intention.
Exhibit 10(p)
12.2 Notwithstanding the foregoing, to the extent that any amounts payable in
accordance with this Agreement are subject to Section 409A, this Agreement shall be interpreted
and administered in such a way as to comply with Section 409A to the maximum extent possible.
If necessary, with respect to amounts subject to Section 409A, if any, any provision in this
Agreement will be held null and void to the extent such provision (or part thereof) fails to comply
with Section 409A or regulations issued under Section 409A.
12.3 ALLETE and Ms. Amberg agree that each payment of compensation under this
Agreement will be treated as a separate payment of compensation for purposes of Section 409A
rule and exceptions.
12.4 The severance amounts described in this Agreement shall be paid only upon the
occurrence of an involuntary “separation from service,” as defined in Section 409A. If payment of
any amount subject to Section 409A is triggered by a separation from service that occurs while
Ms. Amberg is a “specified employee” (as defined by Section 409A), payment(s) shall not
commence until the expiration of the six-month period commencing on the Effective Date and
payments to which Ms. Amberg would otherwise be entitled during this six-month period shall be
accumulated and paid, together with earnings that have accrued during this six-month delay, on the
first day of the seventh month following the Effective Date; or, if earlier, within 15 days after the
appointment of the personal representative or executor of the Ms. Amberg’s estate following the
her death.
12.5
“Termination of employment,” “resignation” or words of similar import, as used in
this Agreement shall mean, with respect to any payments subject to Section 409A, Ms. Amberg’s
“separation from service” as defined by Section 409A. If any payment subject to Section 409A is
contingent on the delivery of a release by Ms. Amberg and could occur in either of two years, the
payment will occur in the later year.
12.6 Any reimbursements or in-kind benefits provided under this Agreement that are
subject to Section 409A will be made or provided in accordance with the requirements of Section
409A. Ms. Amberg will not be permitted, directly or indirectly, to designate the taxable year of the
affected payment(s).
13. Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any
duress or undue influence on the part or behalf of the parties hereto. The parties represent that they have
read this Agreement, they understand the terms and consequences of this Agreement and of the releases it
contains, and they are fully aware of the legal and binding effect of this Agreement.
14. Binding Effect. This Agreement is binding upon and inures to the benefit of the parties hereto
and their respective personal representatives, estates, heirs, successors or assigns.
15. Governing Law. This Agreement will be construed and interpreted in accordance with federal
law, to the extent applicable, and otherwise in accordance with the internal laws of the State of Minnesota,
without regard to its choice of law rules. To the extent that either Party seeks to interpret or enforce this
Agreement, the Parties agree to submit to the exclusive jurisdiction of the State and Federal Courts sitting
in St. Louis County, Minnesota, and waive any objections to the Court based on jurisdiction, venue or
inconvenient forum.
Exhibit 10(p)
16. Counterparts. This Agreement may be executed simultaneously in two or more counterparts,
each of which will be deemed an original, but all of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the respective parties hereto have executed this Agreement on the date
indicated below Ms. Amberg’s signature.
Deborah A. Amberg
ALLETE, Inc.
_________________________________
By: ________________________________
Alan R. Hodnik
Chairman, President and CEO
Dated: ___________________________
Exhibit 10(p)
Exhibit A
to
Executive SEPARATIOn AGREEMENT
INFORMATION REGARDING TERMINATED EMPLOYEES
The following information is provided as required under the Age Discrimination in Employment Act, 29
U.S.C. Section 621 et seq. and the older Workers Benefit Protection Act, 29 U.S.C. Section 630 et seq., as
set forth in 29 C.F.R. Section 1625.22.
The “decisional unit” considered for the program and the group from which you were selected for
termination consists of all Senior Vice Presidents of ALLETE and Minnesota Power whose exclusive or
primary focus is on regulated operations, excluding the following positon: Senior Vice President ALLETE
& President Regulated Operations. The persons whose employment is being terminated have been
selected for the program based on their positions’ exclusive focus on regulated operations.
Below is a list, as of November 26, 2018, of the ages and job titles of the persons in the affected
decisional unit who were, and were not, selected for termination and offered severance in exchange for
signing the waiver and release contained in this Executive Separation Agreement.
Eligible for Severance Pay
(Selected for Termination)
Age
53
56
Job Title
Senior Vice President ALLETE,
Chief Strategy Officer-Regulated
Operations, and President
Superior Water, Light & Power
Senior Vice President-Minnesota
Power Operations
Not Eligible for Severance Pay
(Not Selected for Termination)
Age
58
Job Title
Senior Vice President
ALLETE-External Affairs
SUBSIDIARIES OF THE REGISTRANT
As of December 31, 2018
Name of Organization (a)
ALLETE, Inc. (d/b/a ALLETE; Minnesota Power; Minnesota Power, Inc.;
Minnesota Power & Light Company)
ALLETE Automotive Services, LLC
ALLETE Enterprises, Inc.
ALLETE Clean Energy, Inc.
ACE Wind LLC
ACE Mid-West Holdings, LLC
MWW Holdings, LLC
Lake Benton Power Associates LLC
Lake Benton Holdings LLC
Lake Benton Power Partners L.L.C.
Storm Lake Power Partners I LLC
Storm Lake II Power Associates LLC
Storm Lake II Holdings LLC
Storm Lake Power Partners II LLC
New Salem Holdings, LLC
Glen Ullin Energy Center, LLC
Northern Wind Energy, LLC
Chanarambie Power Partners, LLC
Viking Wind Holdings, LLC
ACE West Holdings, LLC
Condon Wind Power, LLC
South Peak Wind LLC
Armenia Holdings, LLC
AMW I Holding, LLC
Armenia Mountain Wind, LLC
Armenia Mountain Wind II, LLC
Thunder Spirit Wind, LLC
ACE O&M, LLC
ALLETE Power Systems, Inc.
ALLETE Renewable Resources, Inc.
ALLETE South Wind, LLC
ALLETE Transmission Holdings, Inc.
BNI Energy, Inc.
BNI Coal, Ltd.
Global Water Services Holding Company, Inc.
U.S. Water Services, Inc.
U.S. Water Services – Canada, Inc.
USWATERSERV-DR, S.R.L.
MP Affiliate Resources, Inc.
Rainy River Energy Corporation
South Shore Energy, LLC
Upper Minnesota Properties, Inc.
Upper Minnesota Properties - Development, Inc.
ALLETE Properties, LLC (d/b/a ALLETE Properties)
ALLETE Commercial, LLC
Lehigh Acquisition, LLC
Florida Landmark Communities, LLC
Lehigh Corporation
Mardem, LLC
(a) Certain insignificant subsidiaries are omitted.
Exhibit 21
State or Country
Minnesota
Minnesota
Minnesota
Minnesota
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Minnesota
North Dakota
Delaware
Wisconsin
North Dakota
North Dakota
Delaware
Minnesota
Canada
Dominican Republic
Minnesota
Minnesota
Wisconsin
Minnesota
Minnesota
Minnesota
Florida
Delaware
Florida
Florida
Florida
Name of Organization (a)
Palm Coast Holdings, Inc.
Port Orange Holdings, LLC
Interlachen Lakes Estates, LLC
Palm Coast Land, LLC
ALLETE Water Services, Inc.
Florida Water Services Corporation
Energy Replacement Property, LLC
Energy Land, Incorporated
Lakeview Financial Corporation I
Lakeview Financial Corporation II
MP Investments, Inc.
RendField Land Company, Inc.
Superior Water, Light and Power Company
(a) Certain insignificant subsidiaries are omitted.
Exhibit 21
State or Country
Florida
Florida
Florida
Florida
Minnesota
Florida
Minnesota
Wisconsin
Minnesota
Minnesota
Delaware
Minnesota
Wisconsin
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-212794,
333-211075) and Form S-8 (Nos. 333-162890, 333-183051, 333-190336, 333-207846, 333-228120) of ALLETE, Inc. of our
report dated February 14, 2019, relating to the financial statements, financial statement schedule and the effectiveness of
internal control over financial reporting, which appears in this Form 10 K.
Exhibit 23
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
February 14, 2019
Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31(a)
I, Alan R. Hodnik, certify that:
1.
I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2018, of ALLETE, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 14, 2019
/s/ Alan R. Hodnik
Alan R. Hodnik
Chairman and Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31(b)
I, Robert J. Adams, certify that:
1.
I have reviewed this annual report on Form 10-K for the fiscal year ended December 31, 2018, of ALLETE, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: February 14, 2019
/s/ Robert J. Adams
Robert J. Adams
Senior Vice President and Chief Financial Officer
Section 1350 Certification of Periodic Report
By the Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 32
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, each of the undersigned officers of ALLETE,
Inc. (ALLETE), does hereby certify that:
1. The Annual Report on Form 10-K of ALLETE for the fiscal year ended December 31, 2018, (Report) fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of ALLETE.
Date: February 14, 2019
/s/ Alan R. Hodnik
Alan R. Hodnik
Chairman and Chief Executive Officer
Date: February 14, 2019
/s/ Robert J. Adams
Robert J. Adams
Senior Vice President and Chief Financial Officer
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise
subject to liability pursuant to that section. Such certification shall not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that ALLETE specifically incorporates
it by reference.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906,
has been provided to ALLETE and will be retained by ALLETE and furnished to the Securities and Exchange Commission or its
staff upon request.
Mine Safety Disclosure
Exhibit 95
Section
104 S&S
Citations
(#)
Section
104(b)
Orders
(#)
Section
104(d)
Citations
and
Orders
(#)
Section
110(b)(2)
Violations
(#)
Section
107(a)
Orders
(#)
Total Dollar
Value of
MSHA
Assessments
Proposed
($)
Total
Number
of
Mining-
Related
Fatalities
(#)
Received
Notice of
Pattern of
Violation
Under
Section
104(e)
(yes/no)
Received
Notice of
Potential to
Have
Pattern
Under
Section
104(e)
(yes/no)
Legal
Actions
Pending
as of Last
Day of
Period
(#)
Legal
Actions
Initiated
During
Period
(#)
Legal
Actions
Resolved
During
Period (#)
—
—
—
—
—
—
—
No
No
—
—
—
Mine or
Operating
Name/MSHA
Identification
Number
Center Mine /
3200218
For the quarter ended December 31, 2018, BNI Energy, owner of Center Mine, received six citations under Section 104(a) of the
Mine Safety Act, none of which were significant and substantial (S&S) citations; fourteen citations were received for the year
ended December 31, 2018, one of which was a S&S citation. For the year ended December 31, 2018, BNI Energy paid $3,658 in
penalties for citations closed during the period. For the year ended December 31, 2018, there were no citations, orders, violations
or notices received under Sections 104(b), 104(d), 107(a), 104(e) or 110(b)(2) of the Mine Safety Act and there were no fatalities.
Exhibit 99
February 14, 2019
For Release:
Investor Contact: Vince Meyer
218-723-3952
vmeyer@allete.com
NEWS
ALLETE, Inc. reports 2018 earnings of $3.38 per share; initiates 2019 earnings
guidance; 2019 to be a significant year of renewable energy projects
DULUTH, Minn. - ALLETE, Inc. (NYSE: ALE) today reported 2018 earnings of $3.38 per share on net income of
$174.1 million and operating revenue of $1.5 billion. Reported results from 2017 were $3.38 per share on net
income of $172.2 million and operating revenue of $1.4 billion.
Net income in 2017 included a $13.0 million after-tax, or $0.25 per share, benefit for the re-measurement of
ALLETE’s deferred income tax assets and liabilities resulting from the Tax Cuts and Jobs Act (TCJA) that was
enacted on December 22, 2017. Results for 2017 also reflected a benefit of $7.9 million after-tax, or $0.16 per
share, for the Minnesota Public Utilities Commission’s (MPUC) modification of its November 2016 order on the
allocation of North Dakota investment tax credits. These benefits were partially offset by a non-cash $11.4 million
after-tax charge, or $0.22 per share, for the MPUC’s decision in Minnesota Power’s rate case in January 2018,
disallowing recovery of Minnesota Power’s regulatory asset for deferred fuel adjustment clause costs due to the
anticipated adoption of a forward-looking fuel adjustment clause methodology.
“Our accomplishments in 2018 were many, as evidenced by our strong financial performance and continued
positioning with our multi-faceted strategy for future growth,” said ALLETE Chairman and CEO Al Hodnik. “Our
hard work and thoughtful positioning over the past several years is already contributing value to our shareholders
and we expect that to continue for the long-term. 2019 will be a year of robust construction and further investment
for growth as our Regulated Operations and ALLETE Clean Energy will complete approximately $400 million in
renewable energy related projects for a cleaner energy future.”
ALLETE’s Regulated Operations segment, which includes Minnesota Power, Superior Water, Light and Power, and
the Company’s investment in the American Transmission Co. (ATC), recorded 2018 net income of $131.0 million,
compared to $128.4 million in 2017. Minnesota Power’s 2017 net income reflects the previously mentioned $11.4
million after-tax charge for the MPUC’s decision disallowing recovery of Minnesota Power’s regulatory asset for
deferred fuel adjustment clause costs in 2017. In addition, net income in 2018 reflects lower transmission revenue
resulting from lower MISO-related revenue, timing of fuel adjustment clause recoveries, lower industrial sales, and
higher property tax and interest expense. These decreases were partially offset by lower operating and maintenance
expense, higher pricing on power supply agreements with Other Power Suppliers, increased cost recovery rider
revenue and higher kilowatt hour (kWh) sales to residential and commercial customers due to more favorable
weather conditions in 2018.
ALLETE’s Energy Infrastructure and Related Services businesses, which include ALLETE Clean Energy and U.S.
Water Services, recorded net income of $33.7 million and $3.2 million, respectively. Earnings at ALLETE Clean
Energy in 2018 included the sale of a wind energy facility to Montana-Dakota Utilities, a lower federal income tax
rate enacted as part of TCJA and $7.4 million after-tax of additional production tax credits as ALLETE Clean
Energy continues to execute its refurbishment strategy. These increases were partially offset by higher operating and
maintenance expenses. Earnings in 2017 included a favorable impact of $23.6 million after-tax for the
remeasurement of deferred income tax assets and liabilities resulting from the TCJA.
Earnings at U.S. Water Services in 2018 included increased revenue due to higher capital project sales and higher
sales of chemicals and related services, partially offset by increased operating expenses. 2018 earnings also
reflected a $0.6 million after-tax expense recognized as cost of sales related to purchase price accounting for sales
backlog. Net income in 2017 reflected a $9.2 million after-tax benefit for the re-measurement of deferred income
tax assets and liabilities resulting from the TCJA.
Corporate and Other businesses, which include BNI Energy and ALLETE Properties, recorded net income of $6.2
million in 2018 compared to a net loss of $8.4 million in 2017. Net income in 2018 included an increase for the
change in fair value of the contingent consideration liability of $1.3 million after-tax. The net loss in 2017 included
additional income tax expense of $19.8 million after-tax for the remeasurement of deferred income tax assets and
liabilities resulting from the TCJA. The net loss in 2017 also included the previously mentioned favorable impact of
$7.9 million after-tax for the MPUC’s modification of its November 2016 order on the allocation of North Dakota
investment tax credits.
Earnings were diluted by $0.04 per share in 2018, due to additional shares of common stock outstanding as of
December 31, 2018.
Details of the Company’s 2019 earnings guidance were filed as part of today’s Form 8-K filing.
Live Webcast on February 14, 2019; financial slides posted on company website
ALLETE’s earnings conference call will be at 10:00 a.m. (EST), February 14, 2019, at which time management will
discuss fourth quarter and 2018 financial results. To participate in the call, analysts are asked to dial 877-303-5852,
pass code 4766869, ten minutes prior to the start time and refer to the “ALLETE’s Conference Call Announcing
Fourth Quarter 2018 Financial Results.” All interested parties may listen to the live audio-only webcast
accompanied by financial slides, which will be available on ALLETE’s Investor Relations website http://
investor.allete.com/events-presentations. A replay of the call will be available through February 18, 2019 by calling
(855) 859-2056, pass code 4766869. The webcast will be accessible for one year at www.allete.com.
ALLETE is an energy company headquartered in Duluth, Minn. In addition to its electric utilities, Minnesota Power
and Superior Water, Light and Power of Wisconsin, ALLETE owns ALLETE Clean Energy, based in Duluth, BNI
Energy in Bismarck, N.D., U.S. Water headquartered in St. Michael, Minn., and has an eight percent equity interest
in the American Transmission Co. More information about ALLETE is available at www.allete.com. ALE-CORP
The statements contained in this release and statements that ALLETE may make orally in connection with this
release that are not historical facts, are forward-looking statements. Actual results may differ materially from those
projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties and
investors are directed to the risks discussed in documents filed by ALLETE with the Securities and Exchange
Commission.
ALLETE's press releases and other communications may include certain non-Generally Accepted Accounting
Principles (GAAP) financial measures. A “non-GAAP financial measure” is defined as a numerical measure of a
company's financial performance, financial position or cash flows that excludes (or includes) amounts that are
included in (or excluded from) the most directly comparable measure calculated and presented in accordance with
GAAP in the company's financial statements.
Non-GAAP financial measures utilized by the Company may include presentations of earnings (loss) per share and
earnings before interest, taxes, depreciation and amortization. ALLETE's management believes that these non-
GAAP financial measures provide useful information to investors by removing the effect of variances in GAAP
reported results of operations that are not indicative of changes in the fundamental earnings power of the
Company's operations. Management believes that the presentation of the non-GAAP financial measures is
appropriate and enables investors and analysts to more accurately compare the company's ongoing financial
performance over the periods presented.
ALLETE, Inc.
Consolidated Statement of Income
For the Periods Ended December 31, 2018 and 2017
Millions Except Per Share Amounts
Operating Revenue
Contracts with Customer – Utility
Contracts with Customer – Non-utility
Other – Non-utility
Total Operating Revenue
Operating Expenses
Fuel, Purchased Power and Gas – Utility
Transmission Services – Utility
Cost of Sales – Non-utility
Operating and Maintenance
Depreciation and Amortization
Taxes Other than Income Taxes
Other
Total Operating Expenses
Operating Income
Other Income (Expense)
Interest Expense
Equity Earnings in ATC
Other
Total Other Expense
Income Before Non-Controlling Interest and Income Taxes
Income Tax Expense (Benefit)
Net Income
Average Shares of Common Stock
Basic
Diluted
Basic Earnings Per Share of Common Stock
Diluted Earnings Per Share of Common Stock
Dividends Per Share of Common Stock
Quarter Ended
2017
2018
Year to Date
2018
2017
$270.2
172.4
5.7
448.3
$239.7
92.3
5.9
337.9
$1,059.5
415.5
23.6
1,498.6
$1,063.8
331.9
23.6
1,419.3
106.9
16.8
109.4
86.9
52.2
14.1
(2.0)
384.3
64.0
(16.3)
4.5
2.1
(9.7)
54.3
(6.8)
$61.1
51.5
51.7
$1.19
$1.18
$0.56
113.7
18.1
41.6
92.7
26.0
14.2
(0.7)
305.6
32.3
(17.3)
5.2
1.3
(10.8)
21.5
(19.9)
$41.4
51.1
51.3
$0.81
$0.81
$0.535
407.5
69.9
218.0
340.5
205.6
57.9
(2.0)
1,297.4
201.2
(67.9)
17.5
7.8
(42.6)
158.6
(15.5)
$174.1
51.3
51.5
$3.39
$3.38
$2.24
396.9
71.2
147.5
344.1
177.5
56.9
(0.7)
1,193.4
225.9
(67.8)
22.5
6.3
(39.0)
186.9
14.7
$172.2
50.8
51.0
$3.39
$3.38
$2.14
Consolidated Balance Sheet
Millions
Dec. 31, Dec. 31,
2018
2017
Liabilities and Equity
$69.1
265.2
$98.9 Current Liabilities
268.6 Long-Term Debt
3,904.4
3,822.4 Deferred Income Taxes
389.5
161.1
49.1
223.3
103.3
384.7 Regulatory Liabilities
118.7 Defined Benefit Pension & Other
Postretirement Benefit Plans
53.1 Other Non-Current Liabilities
225.9 Equity
107.7
Dec. 31, Dec. 31,
2018
2017
$405.1
$351.2
1,428.5
1,439.2
223.6
512.1
177.3
230.5
532.0
191.8
262.6
2,155.8
267.1
2,068.2
$5,165.0 $5,080.0 Total Liabilities and Equity
$5,165.0 $5,080.0
Assets
Cash and Cash Equivalents
Other Current Assets
Property, Plant and Equipment –
Net
Regulatory Assets
Equity Investments
Other Investments
Goodwill and Intangibles – Net
Other Non-Current Assets
Total Assets
ALLETE, Inc.
Income (Loss)
Millions
Regulated Operations
Energy Infrastructure and Related Services
ALLETE Clean Energy
U.S. Water Services
Corporate and Other
Net Income Attributable to ALLETE
Diluted Earnings Per Share
Statistical Data
Corporate
Common Stock
High
Low
Close
Book Value
Kilowatt-hours Sold
Millions
Regulated Utility
Retail and Municipal
Residential
Commercial
Industrial
Municipal
Total Retail and Municipal
Other Power Suppliers
Total Regulated Utility
Regulated Utility Revenue
Millions
Regulated Utility Revenue
Retail and Municipal Electric Revenue
Residential
Commercial
Industrial
Municipal
Total Retail and Municipal
Other Power Suppliers
Other (Includes Water and Gas Revenue)
Total Regulated Utility Revenue
Quarter Ended
December 31,
Year to Date
December 31,
2018
2017
2018
2017
$31.3
$18.3
$131.0
$128.4
17.8
2.7
9.3
$61.1
$1.18
30.4
9.1
(16.4)
$41.4
$0.81
33.7
3.2
6.2
$174.1
$3.38
41.5
10.7
(8.4)
$172.2
$3.38
$82.82
$72.42
$76.22
$41.85
$81.24
$72.96
$74.36
$40.46
$82.82
$66.64
$76.22
$41.85
$81.24
$61.64
$74.36
$40.46
304
351
1,843
195
2,693
977
3,670
$33.6
35.5
120.3
13.1
202.5
43.0
24.7
305
359
1,890
208
2,762
1,017
3,779
1,140
1,426
7,261
798
10,625
3,953
14,578
1,096
1,420
7,327
799
10,642
4,039
14,681
$28.4
29.8
103.1
12.8
174.1
37.7
27.9
$126.1
$114.8
141.9
465.2
54.9
788.1
170.3
101.1
133.6
465.9
57.9
772.2
161.8
129.8
$270.2
$239.7
$1,059.5
$1,063.8
This exhibit has been furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange
Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as
shall be expressly set forth by specific reference in such filing.