Al Hodnik - President and CEO Steve Morris - VP, Controller and CAO Bob Adams - SVP and CFO

Shar Pourreza - Guggenheim Partners Paul Ridzon - Keybanc Capital Markets Joe Zhou - Avon Capital Advisors

Good morning everyone and thanks for joining us today. With me are ALLETE's Senior Vice President and Chief Financial Officer, Bob Adams; and ALLETE's Vice President, Controller, and Chief Accounting Officer, Steve Morris.

This morning, we reported first quarter 2017 financial result of $0.97 per share on net income of $49 million. We are pleased to start 2017 with solid financial performance.

And along with several noteworthy strategic initiatives underway, we feel we are well-positioned for another year of success. Our results for the quarter support our previous earnings guidance range of $3.10 to $3.50 per share.

Before Steve and Bob go through the financial details of the quarter, I wish to share several key accomplishments that have us excited here at ALLETE. Starting on the clean energy front and those expanding horizons, ALLETE Clean Energy continues to fire on all cylinders.

We formed ACE in 2011 with a mission to establish a growing renewable generation business with sustainable financial characteristics, this, while answering our nation's call for cleaner energy forms. As we signaled this past February, ALLETE Clean Energy strategically invested $100 million in wind turbines at the end of 2016, effectively capturing the full breadth and opportunity of federal renewable energy production tax credits for Safe Harbor provisions.

More importantly, the ACE Safe Harbor turbine strategy has improved an already strong deal flow pipeline and further connected ACE with many new industry partners nationwide. This investment provides ACE significant optionality for future multifaceted growth over the next several years.

Evidence of this has already materialized via two projects announced this past quarter. First, a project expansion of up to 50 megawatts for Montana-Dakota Utilities at the Thunder Spirit site, a site the ACE team created several years ago.

Second, a new 100-megawatt wind energy facility to be built, owned, and operated by ACE. This to service a long-term power sales agreements with Northern States Power, a subsidiary of Xcel Energy.

The ACE NSP project is subject to regulatory approval and upon completion; ALLETE Clean Energy will own and operate approximately 640 megawatts of wind generation across the United States. Minnesota Power continues to advance its Energy Forward strategy with significant investments that will deliver on goals designed to meet societal expectations and regulatory standards, while further diversifying its fleet.

Energy Forward targets a combination of two-thirds renewable energy and renewable enabling natural gas and one-thirds environmentally-compliant baseload coal. Meanwhile, on the organic growth front, trends in the [Indiscernible] District for Minnesota Power's taconite customers remain on track and at this time, support full production levels.

We continue to be pleased with the Trump administration and the federal government's overall aggressive approach to the many unfair trade practices that have hurt the domestic steel producers recently. We applaud the administration's latest decision to conduct additional investigations focusing on how imported steel impacts our national security.

We agree with the view that we must have a strong domestic steel sector to ensure our country has the quality steel it needs for military infrastructure, logistical support, and timely crisis response. I will provide additional details on thoughts about our outlook for the remainder of 2017 in a moment.

But first, I will ask Steve and Bob to go through the financial details. Steve?

Thanks Al and good morning everyone. I would like to remind you that we filed our 10-Q this morning and encourage you to refer to it for more details on the quarter.

For the first quarter of 2017, ALLETE reported earnings of $0.97 per share, net income of $49 million and operating revenue of $365.6 million compared to $0.93 per share on net income of $45.9 million and operating revenue of $333.8 million for the first quarter of 2016. Earnings were diluted by $0.02 for the first quarter of 2017 due to additional shares of common stock outstanding as of March 31st, 2017.

Operating revenue from ALLETE's Regulated Operations segment, which includes Minnesota Power, Superior Water, Light and Power and the company's investment in the American Transmission Company, increased $29.3 million or 12% from 2016, primarily due to the commencement of interim retail rates in January 2017, higher kilowatt-hour sales, and fuel adjustment clause recoveries. Fuel adjustment clause recoveries increased $10.2 million due to higher fuel and purchased power costs, attributable to retail and municipal customers.

Interim retail rates for Minnesota Power, which are subject to refund, were approved by the Minnesota Public Utilities Commission in the December 2016 order and became effective January 1st, 2017, resulting in revenue of $8.8 million in the first quarter of 2017. Higher kilowatt-hour sales resulted in increased revenue of $7.5 million from 2016, primarily due to higher sales to industrial customers.

Sales to industrial customers increased 10.5% due to increased taconite production and the commencement of a long-term power supply agreement with Silver Bay Power in the second quarter of 2016. Sales to other power suppliers decreased 7.9% from 2016 as a result of increased sales to industrial customers.

On the expense side, fuel and purchased power expense increased $16.1 million or 21% from 2016, primarily due to increased kilowatt-hour sales as well as higher purchased power prices and fuel costs. Fuel and purchased power expense related to our retail and municipal customers is recovered through the fuel adjustment clause.

Operating and maintenance expense increased $4.4 million or 9% from 2016, primarily due to a $3.6 million sales tax refund received in 2016. Equity earnings in ATC increased $1.3 million or 27% from 2016, primarily due to additional investments in ATC and period-over-period changes in ATC's estimate of a refund liability relating to MISO return on equity complaints.

Net income at ALLETE Clean Energy increased $600,000, primarily due to the absence of a non-controlling interest, which was acquired in April of 2016. Revenue and expenses for ALLETE Clean Energy in 2017 were similar to 2016.

U.S. Water Services recorded a net loss of $300,000 for the first quarter of 2017 versus a $500,000 net loss for the first quarter of 2016.

The decrease in net loss was primarily due to lower amortization expense related to purchase price accounting adjustment from the 2015 acquisition and lower operating expenses in 2017. U.S.

Water Services saw certain products that are seasonal in nature with higher demand typically realized in the warmer months, generally, lower sales occur in the first quarter of each year. Our corporate and other segment, which includes BNI Energy and ALLETE Properties, posted a net loss of $900,000 for the first quarter of 2017 compared to a net loss of $2.1 million for the first quarter of 2016.

The net loss in 2017 decreased, primarily due to lower accretion expense resulting from the contingent consideration liability. Net income at BNI Energy was $1.8 million in the first quarter of 2017 compared to $2 million for the same period in 2016.

ALLETE Properties recorded a net loss of $1.2 million in the first quarter of 2017 compared to a net loss of $1.1 million for the same period in 2016. ALLETE's effective tax rate for the first quarter of this year was 21.1% compared to 16.7% for the same period in 2016.

We expect our annual effective tax rate in 2017 to be higher than 2016 due to higher pretax income. ALLETE's financial position is supported by increased cash flow and a strong balance sheet.

Cash from operating activities was $98.7 million and our debt to capital ratio was 44% as of March 31st, 2017. We remain committed to financial discipline as we execute and deliver value to our shareholders.

I'll now hand it off to Bob Adams for additional highlights on our 2017 earnings guidance and outlook. Bob?

Thanks Steve and good morning everyone. Last December, we'd initiated our 2017 earnings guidance at a range of $3.10 to $3.50 per share.

The midpoint of our guidance range represents 5% growth over 2016's earnings per share of $3.14. As Al mentioned earlier, we are pleased with our results for the quarter, and we reaffirm our 2017 guidance range of $3.10 to $3.50 per share.

There are two significant points I wanted to emphasize related to our guidance. With respect to our Regulated Operations, our 2017 guidance includes the reduced Minnesota Power interim rate request of $34.7 million that went into effect January 1st, 2017, which was further reduced to $32.2 million effective May 2017, due to improved economic conditions in our service territory.

In addition, guidance includes a partial year for Superior Water, Light and Power Wisconsin rate request. The high end of our guidance range assumes the positive impact on depreciation expense for the Boswell Energy Center life extension request.

Both rate cases are proceeding as planned and we are providing requested information that is customary in any general rate case proceeding. Several key dates upcoming on the Minnesota Power rate case are intervenor direct testimony towards the end of May, public hearings in June, followed by a settlement conference in late July.

An administrative live judge report and recommendation are due at the end of November. We continue to expect industrial sales of approximately 7 million to 7.5 million megawatt-hours and we expect additional rider revenue as we continue to make capital investments in the Great Northern Transmission Line throughout the year.

At our Energy Infrastructure and Related Services businesses, we expect higher earnings at both the U.S. Water Services and at ALLETE Clean Energy, excluding the $3.3 million after-tax goodwill impairment charge taken at ALLETE Clean Energy in 2016.

Our guidance excludes the impact, if any, of possible acquisitions or development projects. Overall, our deal pipelines remain very robust for both of these growth segments, and we remain bullish on our ability to consummate value-adding transactions that meet our investment criteria and return expectations.

A few quick thoughts on tax reform. Obviously, there is a lot in motion with his priority of the Trump administration and we will continue to monitor developments as details emerge.

We expect lower corporate tax rates would be beneficial to our regulated customers and to the bottom lines of our non-regulated businesses. As disclosed previously, ALLETE does not have any significant unallocated corporate debt and currently, ALLETE Clean Energy does not have any projects with tax equity partners.

The tax equity partner market remains robust and there is ample capacity out there to optimize the economics of any new ALLETE Clean Energy projects. We remain engaged with EEI on the regulated front to ensure the interest of our customers, the industry and our shareholders are fairly represented.

And our views are consistent with EEI's with which in we support federal income tax deduction for interest expense; the federal deductibility of state and local taxes; consistent tax normalization methodologies; and finally, continued low tax rates on dividends. I remain excited about the future for ALLETE Clean Energy and U.S.

Water Services. We are well-positioned with these businesses that will further contribute to ALLETE's growth.

We have confidence that the overall long-term, these businesses will continue to broaden our respective base of customers and will provide long-term earnings and cash flow growth as well as provide complementary earnings through our regulated businesses. Al?

Steve and Bob thank you for the financial update. ALLETE is a growing energy company, complete with a multifaceted strategy, designed to capture the many opportunities being spun from rapidly-changing energy and industrial water treatment sectors.

Our significant and stable foundation of regulated businesses is complemented nicely by our Energy Infrastructure and Related Services businesses. This synergistic business mix has ALLETE well-positioned for a sustainable growth as North America transforms its energy and water landscapes.

And I would like to share a few details on our latest initiatives in that regard. Minnesota Power's Energy Forward strategy is making significant progress on its plan to move carbon-free hydro generation from Canada into Minnesota and the upper Midwest.

Construction is currently underway on Minnesota Power's Great Northern Transmission Line and we expect cost recovery rider revenue will increase as NP spends approximately $120 million this year. As disclosed previously, we estimate our total investment in the 224-mile line will be approximately $350 million upon completion in 2020.

Minnesota Power has also been quite busy analyzing future industrial load prospects as well as data points from power markets and RFPs as it refines plans for adding renewable-enabling natural gas generation and additional wind and solar generation. We continue to believe the optimal generation mix for the future includes a combination of two-thirds renewable energy and renewable enabling natural gas and one-third environmentally compliant baseload coal generation.

We expect to share more details on this strategy towards the end of the second quarter of this year. Minnesota Power anticipates its taconite mining customers will operate at full production levels for the remainder of 2017.

President Trump continues to promote the use of American-made steel, and just last week, signed a Section 232 Presidential Memorandum initiating a Department of Commerce investigation into the effects of steel imports on our national security. We applaud this action.

Along with import tariffs and fair trade cases, which call attention to and helps to resolve the many unfair dumping challenges our domestic steel industry, and by extension, the mineral mining industry has contended with over the past several years. We view these efforts as supportive for the industry and should provide greater stability and encourage investment in the domestic steel industry.

A good example of this here in Northeastern Minnesota is the $65 million investment Cliffs Resources is making at their United Taconite facility. This investment in next-generation iron ore products is nearing completion and is expected to be fully operational this summer.

An equally good piece of news was the restart by United States Steel of their Keetac facility in Keewatin, Minnesota this past March. Next, a few highlights on the new customer growth front.

As expressed to you all many times in this forum, the Essar site and ore body is highly valuable. And it is only a matter of when and not if, a new vision for next-generation iron ore products emerges from the western Mesabi Range.

More clarity on that matter came just last week as federal bankruptcy judge, Brendan Shannon, issued a ruling in favor of Chippewa Capital Partners as the winning bid in the auction for the Essar Steel Minnesota assets. Chippewa Capital Partners is comprised of ERP Iron Ore LLC and the GFG Alliance.

Many of you will recognize ERP Iron Ore LLC as the company that recently purchased the assets of Magnetation LLC in bankruptcy court late last year. The GFG Enterprise is an alliance between the Liberty House and SIMEC, both established companies that have strong global connections in steel manufacturing, steel products, and shipping facilities.

The heft and financial backing that GFG provides lends real credibility and lift to the Chippewa Capital Partners' vision near Nashwauk. Chippewa Capital Partners' stated vision for this site includes finishing the construction over a three-year period with key progress milestones assured.

Concentrates from the mill are designed to feed a next-generation direct-reduced iron or hot briquetted iron facility to be built at the Nashwauk site. Liberty House has recently agreed to purchase an electric arc steelmaking facility located in South Carolina from ArcelorMittal.

Tom Clarke, owner/agent for Chippewa Capital Partners and the CEO of ERP Iron Ore LLC, has stated that his goal for the Nashwauk facility is to enter into the raw material supply market for electric arc furnaces and steel mini mills and not to compete directly with Minnesota's existing taconite producers. There is much to do, of course, as key stakeholders in the preceding have until the May 22nd hearing to evaluate the Chippewa Capital Partners' initiative and to agree to modify claims and work constructively to bring the project to production by 2020.

Chippewa Capital Partners would be a retail customer of the Nashwauk Public Utilities Commission, which, in turn, has a wholesale supply agreement with Minnesota Power for electric service to the city of Nashwauk through mid-2028. Meanwhile, PolyMet's proposed copper, nickel and precious metal mining operation in Northeastern Minnesota continues with its final permit applications and processing with state and federal regulatory agencies.

PolyMet recently stated it believes the permit application review process is proceeding well. Minnesota Power could begin to supply 45 to 50 megawatts of new load under a 10-year power supply contract upon startup of the mining operation.

In addition to adding a significant new customer to Minnesota Power's service territory, the project would create hundreds of good paying jobs. I mentioned ALLETE's Energy Infrastructure and Related Services businesses in my opening remarks.

ALLETE Clean Energy's strategy is already in motion as it has become an established and respected project developer and operator of renewable energy facilities across the nation. ALLETE Clean Energy is actively engaging and has participated in over 1,000 megawatts of renewable RFPs in Q1 of this year alone.

I believe adding -- I believe additional investment opportunities will emerge for ACE as it continues to optimize and execute its Safe Harbor strategy. While these processes sort themselves out, ACE is currently evaluating the PTC-related refurbishment opportunities across its entire fleet of facilities.

More as we have it on the ACE refurbishment component, but the recent MDU and NSP, Xcel announcements are harbingers of more good things to come and it is reasonable to expect further announcements as ALLETE Clean Energy seeks out additional opportunities to optimize tax incentives and its strategic investment in qualified production tax credit turbines. Our U.S.

Water Services business provides integrated water management for industry by combining chemicals, equipment and engineering for customized solutions to industrial and commercial customers in North America. To ensure a solid platform for future growth and scale, we have invested considerable resources in back office systems and support since the acquisition of U.S.

Water Services in 2015. We believe water scarcity and a growing emphasis on conservation will continue to drive significant growth in the industrial, commercial, and governmental sectors.

This will provide U.S. Water Services with ample organic revenue growth as well as opportunities for strategic tuck-in acquisitions.

U.S. Water Services customer base has grown over 30% since acquisition and the recurring nature of their business will play a key role in sustaining ALLETE's financial performance.

We are excited and optimistic about the value proposition ALLETE offers to investors. Thank you for your confidence and your investment with us.

At this time, I will ask the operator to open up your lines for your questions.

Good morning guys.

Good morning.

Good morning Shar.

So, on sort of the wind turbines that you have right now, I think you kind of highlighted this a little bit here. But you've got something like 2,000 RFPs, I think, outstanding right now.

Is it fair to say just given the opportunities set there that you'll likely spread out these turbines for new projects versus, for instance, Clean Energy or at Thunder Spirit? Or do you expect to use more turbines on the latter projects?

And just I guess a related question is, if you are spreading these turbines under a wide array of projects, can you just talk a little bit about how we should think about tax equity and your current equity needs?

Well, this is Al. I'll speak at the higher level -- the strategic level.

But firstly, ACE has been involved or has submitted a bid to about 1,000 megawatts, not 2,000 megawatts, 1,000 megawatts of RFPs here in Q1 alone. The strategy right now, of course, is to play those out a bit and try to understand where they can play and where they'll be competitive and we'll know that over the next several years here.

And so we've got a strategy that can sprinkle those turbines out in projects along the way here with quality off-taker as good partners or can be more narrow if necessary to close off risk that way so we don't have an open position. So, it's a very fluid and effective strategy.

And right now, we're very actively engaged in these RFP markets. We certainly have a track record or ACE has a track record of execution, being able to work with big players like Montana-Dakota Utilities and Xcel Energy and so we've become industry player with heft in size and credibility.

And so we do think, at the end of the day, as I said, it's reasonable to expect more opportunities for ACE in that regard. And we will let you know as those materialize how we, in a sense, sprinkle all the production tax-related turbines.

I'm going to turn it over to Bob for commentary on terms of tax equity and how we think about that.

Sure. Well, a couple of things I would say, too.

With regard to the Clean Energy one project, we don't have to dedicate those turbines, if you will, to the project. We don't have to make that decision until the end of 2018.

So, we have a significant period of time, if you will, to continue to work on RFPs. Undoubtedly, there's a lot going on in the wind market right now in terms of interest and need and so we'll be continuing to bid and participate as we go.

Shar as we talked when we met as well, I mean, we're a disciplined as company as well. We have returned thresholds, et cetera.

We've seen -- we've been pleased with regard to the nature of the market in terms of the returns we were able to achieve. We will be bringing in tax equity partners as we go for those projects.

We do not have tax appetite. But at the same time, the yields that we're seeing in the tax equity market have not changed even despite some of the positioning on the Trump administration on lower corporate rates, so we feel good about that as well.

Excellent. And let me just clarify something that Al just mentioned.

You bid on 1,000 RFPs in Q1, but is there RFP still outstanding from last year?

No. I believe, right now, we've accounted for the RFP activity that we were involved with.

Last year we have 1,000-megawatts in Q1 here that we have been engaging on at this point in time. And there may be future RFPs that come out again.

As you know, the PTC extension here to 2020 has set up an opportunity like this. And not all the sort of RFPs, if you will, we believe are out there just yet from all companies.

That's helpful. And then let me just on -- mainly the water segment, it's obviously becoming a little bit more of a -- more material part of the business.

So, as you sort of think about growing this business, are you thinking about potentially enhancing the way you kind of disclose around this business? And providing maybe a little bit more metrics around this business, so we can go ahead and try to figure out how to model this business, actually, on sort of a go-forward basis.

So, is there anything that you're thinking about as far as giving enhanced disclosures around water?

Yes Shar, this is Bob again. Yes, we are -- we will be evolving that.

As you note, and as you have stated, these businesses, even ALLETE Clean Energy, were smaller in nature less material to ALLETE's overall earnings contribution, et cetera. So, as these businesses are evolving, are growing, we will be evolving those disclosures.

As you know, they both do operating competitive industries, though, so there's a limit on how far we can go. But we are disclosing, for example, more information in IR pack about the size of the marketplace that we're targeting.

You've seen disclosures around the mix of the business, so, equipment versus sort of core chemicals. And we're going to be evolving towards EBITDA measures as well as we go.

So, yes, a long answer, but to answer your question, yes, we will be.

Good. And then just lastly, just remind us, PolyMet is within your kind of growth trajectory, where the former Essar project is completely added?

In the long-term financial forecast?

Yes, that's correct.

Yes, that's the way to think about it. Yes.

Excellent. Congrats guys.

See you soon.

Thank you.

Good morning.

Morning Paul.

Good morning Paul.

Could you give an update on the Minnesota Power RFP or is -- Al, is that what you alluded to when you gave an update on the 2Q call?

Yes, that's the update. I said we'd give an update probably later in Q2.

Right now, we're evaluating the industrial load growth prospects, as I said Chippewa Capital Partners, PolyMet, kind of timing around those things, plus the power markets, plus the RFPs enabled. So, we're still kind of in that process of sorting that out.

More to come.

Okay. And then I think Magnetation is going to start up in June, any clarity around what that's going to look like?

We've not heard more from Tom Clarke at this point, Paul. I know he's out recruiting talent and bringing talent back in.

He is continuing to suggest that they're going to start up in the summer months. We, of course, have a nomination from him for power, of course.

So, we fully expect him to do something with that as to whether or not precisely on June 1, I can't give you that answer right now, but we're excited about that plant for like we're starting back up.

Is that take or pay?

I believe that contract right now, in terms of its renewal, is aligned along the way the taconite contracts are aligned so by the quarter. And then, of course, they nominate and continue to nominate by the quarter, if you will.

And then the RFPs that ACE has bid into. What's kind of the time line of when we kind to see when those bids are awarded?

Well, each company has their own sort of processes. As you can imagine, Minnesota Power has been going on about year and a half now evaluating its RFPs.

So, each company has its own sort of process, Paul, as you know, IOUs, cooperatives, others that were involved with here in terms of bidding projects. And so I don't know that I can give you sort of a specific concrete time line.

We'll just have to play those out as they come to us. As Bob said earlier, we're very disciplined in our processes in the way that we come at it.

And when we have something more to say about it, we certainly will as you've seen with Montana-Dakota and with Xcel.

And then, lastly, are you booking in your reserves against the interim rates?

Steve -- Paul, this is Steve. We are not right now.

As we've talked about and Bob mentioned the time line here, we're in the process of answering IRs. We won't know until at least the end of May, the intervenors direct testimony.

And so we'll have an indication at that. That would be the first time we have an indication.

And as Bob mentioned, possible settlement conferences in July with the live judge report in November. So, as we evaluate those time lines, we'll consider appropriate reserves.

Thank you very much. And especially thank you for a very thorough update on a lot of outstanding issues.

Thanks Paul.

Good morning. Thank you for taking my question.

Good morning.

I just -- probably just a more general question on iron ore. I see the iron ore prices have been falling sharply since March.

Do you see any early indications from your taconite mining customers at this point?

No, we don't see any pullback. Lourenco Goncalves just dealt with this yesterday or the day before on the Cliffs' call talking about their sort of fortunes, if you will, with regards to iron ore price.

And Cliffs, of course, is fully contracted here in the United States on the domestic side. Most of their business is focused in the U.S.

and in Minnesota primarily. And so we don't see and I don't see any infringement there from pricing on what Cliffs has going on at the moment.

And United States Steel is also, of course, is also in one way integrated, moving product, if you will, from Minntac up to its blast furnace operations. And with respect to Keetac, it has a five-year agreement in place in Canada to sell product up there.

So, we don't see at the moment sort of any impacts here regionally from iron ore pricing.

Great. I've asked you guys because throughout my years covering you guys, you have been through many cycles and you have been managing well when bidding with -- in your down cycles, if there's any coming.

I just want to refresh my model, if the -- just in case if a down cycle is coming, are the previous, like a rule of thumb, 1 million ton change equals to $0.03 per share still works? I remember last time you mitigated that into a like a roughly $0.02 per share for 1 million tons.

Can you share something with that?

Yes, you are thinking about it the right way. And if you look in our Q, you will see we referenced it in the Q.

So, you're thinking exactly the right way there. And I do appreciate your kind words on the way the management team here at the company has dealt with these cycles.

As you know, there is going to be fluctuation naturally so as the economy ebbs and flows. But we're very [Indiscernible] at dealing with these cycles, always have been and working very collaboratively with our customers.

As you know, we have key account engineers inside of each of these facilities and we have a very good working relationship with our large industrial customers.

Great. Thank you very much.

Thank you.

Well, thank you, again, everyone. Bob, Steve and I appreciate your time with us this morning, your questions and, of course, your investment and interest in ALLETE.

We'll be out on the road over the summer months and we hope to see you then. Thank you very much.