Alan Hodnik - Chairman, President and Chief Executive Officer Robert Adams - Senior Vice President and Chief Financial Officer Steven Morris - Controller and Chief Accounting Officer

Paul Ridzon - KeyBanc Capital Markets Christopher Ellinghaus - Williams Capital Research Elizabeth Guynn - Mizuho Securities (USA), Inc.

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.

Today, we reported first quarter 2018 financial results of $0.99 per share, a net income of $51 million. The results for the quarter were consistent with our expectations and demonstrate the benefit of our differentiated growth strategy.

Before Steve and Bob go through the details from the quarter, I would like to highlight several areas of interest. We take great pride in delivering value to our shareholders with ALLETE's differentiated strategy.

A balanced strategy built upon a foundation of longstanding commitment to environmental, social, and strong governance values. We strongly believe in the importance of how we deliver value to our shareholders with annual earnings growth and dividends underpinned by our culture that incorporates a longer view and sustainability in all of our strategies.

Building upon our strategic positioning, we expect to see the benefits of our differentiated strategy throughout the remainder of this year and into the foreseeable future. Minnesota Power’s Energy forward strategy includes plans for generation sourced from the Nemadji Trail Energy Center or NTEC, a new natural gas facility that supports additional renewable generation and grid stability, as well as the Great Northern Transmission Line to be completed in 2020, which will move carbon-free hydro energy from Canada.

Both of these initiatives provide new opportunities for sustainable investments that further add to our history of environmental stewardship. Regarding the Minnesota Power rate review status, Minnesota Power filed for a reconsideration in early April, and Steve will provide you more details in a moment.

Minnesota Power fully intends to earn its allowed ROE and has already made some difficult decisions, which include workforce reductions and other expense management efforts, while still meeting its obligations to provide safe and reliable services to its customers. The combination of an allowed ROE that is lower than industry average and disallowance of certain expenses, transmission revenue and the inequitable treatment of prepaid pension as part of the commissions order are somewhat challenging, but Minnesota Power is working diligently to earn its allowed ROE, while balancing various stakeholder interests.

We are pleased that Minnesota Power's taconite customers are operating at near full production. We anticipate continued strength supported by an improving economy and actions by the Trump administration to reduce excessive imports that damage our countries steel industry.

As mentioned last quarter, we are excited to see taconite customers making new long-term investments in their mining operations. There is also been constructive progress in the permitting process from Minnesota Power's new potential non-ferrous mining customer.

These industries are important to our region and to Minnesota Power and we believe they are well positioned to benefit along with other stakeholders as our country pursues infrastructure upgrades along with the Clean Energy economy. ALLETE Clean Energy is making significant progress with it's already announced initiatives to refurbish 385 turbines and several of its wind energy facilities, as well as construction start up on several renewable projects for others.

In addition, ALLETE Clean Energy continues to evaluate a robust pipeline of potential projects with its strategic investment in wind turbines already qualified for federal production tax credit Safe Harbor provisions. 2018 is a foundational year for ALLETE as we expect improved positioning and growing returns from our business segments.

I will provide additional comments in my closing remarks, but first I will ask Steve and Bob to go through the first quarter 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 first quarter results.

For the first quarter of 2018, ALLETE reported net income of $51 million or $0.99 per share compared to $49 million or $0.97 per share for the same period in 2017. Our 2018 results reflect approximately $600,000 after tax of severance related expenses.

Earnings were diluted by $0.02 due to additional shares of common stock outstanding as of March 31, 2018. ALLETE’s Regulated Operations segment, which includes Minnesota Power, Superior Water, Light and Power and the Company's investment in the American Transmission Company recorded net income of $43.9 million, an increase of $400,000 compared to the same quarter last year.

Net income at Minnesota Power was slightly lower than 2017 results, primarily due to the timing of reserves recorded for an interim rate refund, discounts provided to EITE customers, lower transmission revenue and higher property tax expense. These decreases were mostly offset by lower depreciation expense due to the timing of the Minnesota Public Utilities Commission’s decision to modify the depreciable lives at the Boswell Energy Center, as well as lower operating and maintenance expense, higher sales to industrial customers due to the start-up of United States Steel Keewatin Taconite plant in March 2017, and higher sales to residential customers due to favorable weather conditions.

If you recall, we recorded the full-year impact in the fourth quarter of 2017 of interim rate refund reserves and lower depreciation expense as a result of the January 18, 2018 commission's decision in our 2016 rate review. We will continue to see these timing impacts throughout the remaining quarters of 2018.

Net income at Superior Water, Light and Power was higher due to a full quarter of new rates this year, which were implemented in August 2017 and colder weather in the first quarter of 2018 compared to last year. A few additional comments on Minnesota Powers rate review status.

On April 2, 2018 the Minnesota Power filed a petition for reconsideration with the Minnesota Public Utilities Commission requesting a reconsideration of certain decisions in the commission's order dated March 12, 2018 representing approximately $20 million to $25 million in additional annual revenue. Minnesota Power requested reconsideration for certain items, which included the allowed return on common equity, recovery of the prepaid pension asset and rate base, certain disallowed expenses and certain transmission revenue adjustments.

The Minnesota Department of Commerce filed a separate request for reconsideration proposing to reduce the depreciable lives of Boswell Units 3 and Unit 4 and common facilities to 2035 and use the benefits of tax reform to offset the resulting increase in customer rates. On April 12, 2018 Minnesota Power responded to the Department of Commerce request for reconsideration and stated that with modification and conditions that commission should generally accept the Department of Commerce proposal.

We expect the decision on reconsideration by mid-2018. A couple of updates on the open dockets related to tax reform for a regulated operation.

In December 2017, the Minnesota Public Utilities Commission opening docket to review the effects of tax reform in Minnesota. Minnesota Power submitted an initial filing to the commission in which it proposed to use the net tax benefits to offset other regulated costs to the extent that Company is able to earn its allowed return on equity and for the remainder of the benefits to customers through a new tax cost recovery rider.

And as I noted, Minnesota Power responded to the Department of Commerce proposal that the commission generally accept with modifications and conditions, the Department of Commerce proposal to shorten the lives of Boswell Unit 3, Unit 4 and common facilities to 2035, while utilizing the benefits of tax reform. We anticipate a commission hearing and decision on this proposal in the second half of this year.

In February of 2018, Superior Water, Light and Power, [indiscernible] with the Public Service Commission of Wisconsin and proposed deferring the benefits of tax reform and incorporating any impacts into its next general rate review. Superior Water, Light and Power expects to file a rate review later this year.

Next a few details from our other business segment. Net income at ALLETE Clean Energy increased $1.4 million or 21% from 2017.

Net income in 2018 was higher by $1.2 million due to a lower federal income tax rate as a result of tax reform and $600,000 after-tax due to additional production tax credits as a ALLETE Clean Energy continues to execute on its refurbishment strategy. These increases were partially offset by higher operating and maintenance expenses.

U.S. Water Services net loss increased $1.1 million from 2017.

The net loss in 2018 includes higher operating expense, partially offset by increased revenue primarily resulting from the September 2017 acquisition of Tonka Water. In the first quarter of 2018 was also impacted, negatively impacted by the timing of equipment sales and colder weather conditions, which reduced chemical sales.

The net loss in 2018 included $300,000 of after-tax expense related to purchase accounting impacts. ALLETE's effective tax rate for the first quarter was a 7.8% benefit, compared to 21.1% expense in 2017.

The decrease from 2017 was primarily due to the reduction of the federal income tax rate from 35% to 21% in the lower pre-tax income. ALLETE’s financial position is supported by increased cash flow and a strong balance sheet.

Cash from operating activities was $121.3 million year-to-date and our debt to capital ratio was 42% as of March 31, 2018. I'll now hand it up to Bob to review our earnings guidance and positioning for 2018.

Bob?

Thanks Steve, and good morning, everyone. Today, we reaffirmed our 2018 earnings guidance at a range of $3.20 to $3.50 per share, a net income of $165 million to $185 million.

This guidance range is comprised of Regulated Operations segment earning within a range of $2.45 to $2.65 per share and Energy Infrastructure and Related Services businesses, which includes a ALLETE Clean Energy and U.S. Water Services and Corporate and Other earnings within a range of $0.75 to $0.85 per share.

Our differentiated growth outlook anticipates average annual long-term earnings growth of 5% to 7%. This includes growth from the Regulated Operations segment of approximately 3% to 4% and approximately 15% average annual growth from our energy infrastructure and related services businesses over the long-term.

We expect improving financial performance over time from Minnesota Power as a continues on its path to earn its authorized ROE in 2019 through a combination of expense management, small coal plant closures, potential rate review reconsideration, and legislative and other regulatory outcomes. Our rating agencies are closely monitoring the status of Minnesota Power's reconsideration filing and the outcome as an indication of the regulatory environment and the Company's ability to earn its allowed return on equity.

Consistent with all of the ALLETE businesses, earning our cost of capital is a priority for the long-term sustainability of our Company. As you know ALLETE Clean Energy focuses on developing acquiring in operating clean and renewable energy projects.

Our ALLETE Clean Energy currently owns and operates approximately 535 megawatts of wind energy generation that is contracted under power sales agreements of various durations. In mid-March we were pleased to announce ALLETE Clean Energy’s newest project to build own and operate in 80 megawatt wind energy facility pursuant to a 15-year power sales agreement with Northwestern Corporation.

Construction is expected to be completed in 2019 upon completion of this project along with the previously announced project to build owned and operated a wind energy facility for Northern States Power. ALLETE Clean Energy will have over 700 megawatts of carbon free, renewable wind generation in its portfolio.

For this robust project development backlog of approximately 465 megawatts which includes the Clean Energy One project to South Peak project and the refurbishment projects yet to complete. ALLETE Clean Energy has proposed and bid approximately 900 megawatts of additional PTC projects and is evaluate in more than a dozen potential existing renewable facility acquisitions.

U.S. Water Services quarterly financial results reflect selling certain products that are seasonal in nature, but higher demand typically realized in warmer months.

So it is not unusual to experience weaker financial results in the first quarter. I remain excited about the prospects for all of our businesses that ALLETE and look forward to updating you throughout the year with our differentiated multi-faceted growth platform.

We are well on our way with a new and exciting chapter at ALLETE. Al?

Well, thanks for the financial update, Steve and Bob. ALLETE is an energy company with a differentiated strategy.

We’ve recognized at the impacts of human activity including climate change a real complex and into related and we have thoughtfully position the company to do more than just operate but to be a recognized leader to address these issues to our family of businesses. Our strategy is intentionally designed to provide cleaner energy solutions to initiatives at our regulated utility businesses and also at our complimentary and growing energy infrastructure and related services businesses.

As we have shared previously Minnesota Powers energy forward to energy includes a proposal to further balance and diversify its energy sources with the Nemadji Trail Energy Center natural gas facility. In 2017, the Minnesota Public Utilities Commission directed at the related natural gas energy power purchase agreement.

We decided to an Administrative Law Judge process. Recently the Minnesota Department of Commerce weighed in favorably relative to the role of and the need for the NTEC initiative.

The Administrative Law Judge is expected to provide a recommendation by July 2018 and the company anticipates a commission decision in the second half of 2018. The Minnesota Public Utilities Commission did not take any action regarding the tandem or complimentary wind and solar energy power purchase agreements, which will be refile separately of still parallel II the new gas initiative.

Minnesota power believe the optimal generation mix that best balances the sustained ability, reliability and affordability interest of our nation and Minnesota customers. Is a combination of two-third renewable and renewable enabling natural gas and one-third environment compliant cold generation?

Also in progress part of our energy forward initiative is the ongoing construction of the great Northern transmission line. The GNTL was design to deliver carbon free, hydro electric power from Northern proposed copper nickel and precious metal mining operation in northeastern Minnesota by 2020.

Minnesota experienced a more traditional winter which supported more efficient construction activity on the frozen swamps and bogs of Northern Minnesota. Minnesota Power expects to spend approximately $100 million on construction this year with an estimated total investment of $330 million upon completion of the transition line.

Superior Water, Light and Power continues to invest in growth initiatives to enhance the quality and the liability of the electric, gas and water services provided to it’s customers. In support of these initiatives the company anticipates capital investment of approximately $20 million in 2018 and anticipates filing for a rate review later this year.

On the new customer front, PolyMet’s proposed copper, nickel, and precious metal mining operation in Northeastern Minnesota continues to make progress on major permitting milestones. In January of this year, the Minnesota Department of Natural Resources and the Minnesota Pollution Control Agency released PolyMet's draft permit to mine and also its air and water discharge permits.

The last required public hearings for these permits were held in the first quarter of this year. The U.S.

Forest Service has previously authorized a land exchange with PolyMet and continues to work with the Company on the final title transfer. Upon completion, this will result in PolyMet obtaining surface rights to land needed to develop its mining operation.

The final environmental impact statement also requires records of decision by federal agencies, which are expected in 2018. Minnesota Power could supply between 45 to 50 megawatts of new load under a 10-year power supply contract that would begin upon startup of the mining operations.

And now a few comments on ALLETE's Energy Infrastructure and Related Services businesses. ALLETE Clean Energy is making significant progress with its construction activities through refurbishment turbines located at three wind farms in Minnesota and Iowa.

ACE and its project teams are on schedule to complete these refurbishment initiatives in the planned 2020 timeframe. These initiatives will improve performance and availability of these facilities, while generating federal production tax credits as they resume generating carbon-free energy for their customers.

We believe the long-term operational benefits and resulting economics from these refurbished facilities will benefit the renewal of power sales agreements further contributing to ALLETE Clean Energy’s long-term financial performance. ALLETE Clean Energy is about to ramp up construction activity on an energy facility it will sell to Montana-Dakota Utilities upon completion.

Construction is on schedule and the project is expected to be completed in the second half of 2018. With its strategic investment in production tax credit – tax qualified Safe Harbor turbines, ALLETE Clean Energy is an attractive partner as it evaluates additional renewable projects, and formally bids into a nationwide pipeline of renewable RFPs.

The next several years will be transforming to earnings growth to larger scale and to project construction activity for ALLETE Clean Energy as it moves forward with its multi-faceted growth strategy. Lastly, we believe U.S.

Water Services is well positioned for growth as it captures revenue streams in the emerging integrated water management industry. With our first quarter financial results behind us, we are confident that our differentiated strategy is positioned to provide growth in earnings as well as dividends.

We believe ALLETE’s family of businesses will continue to benefit from investment growth opportunities, primarily driven by demands for cleaner energy and water conservation along with our nation's renewed focus on infrastructure upgrades and expansion. Thank you for your time and for your investment in ALLETE.

And at this time, I will ask the operator to open up the line for your questions.

Good morning. Can you hear me?

Yes. Good morning, Paul.

Good morning, Al. This request for reconsideration, you said $20 million to $25 million, I mean that could really move the needle.

Could that – by any chance be retroactive depending on what comes out of it?

Yes. Hi, Paul.

It’s Steve Morris. It would be as of most likely January 1, 2017 that’s when we started to implement our interim rate refund reserve that's what the effective date would be.

So we would go back and adjust that through that period of time up through today.

Thank you and when do you expect that to be decided?

Well tentatively there is a hearing this month. So we would – and I could get change, but we would expect that to be heard and decided in the second quarter.

So by the time we have our second quarter results.

And then just some clarification, the department made their proposal regarding Boswell and tax reform. Is that going to be consolidated with your proposal to hit your ROE and then start getting back or what's the procedural schedule on those?

Yes, I think there are two separate things. So one of our proposals was in response to the Department of Commerce proposal to go back now and shortened the lives to 2035 for Boswell was that would be heard in conjunction with our tax filing and not part of a rate case.

So that's really a cash issue. It's not an ROE issue.

But the department proposal and your proposal to hit your authorized return before you get back would be the same proceeding?

Well our tax proposal was exactly that it was any sense during our lot ROE, that’s in our tax filing. And the Department of Commerce in their reconsideration for rate case also asked for a shorter life Boswell.

In addition in the tax filing that their response was the shorter life of Boswell. So we think it's appropriate that the life of Boswell be taken up with our tax filing and not part of the rate case because that the tax reform issue.

And then also that ACE, you mentioned that you're looking at 12 potential acquisitions. Should we think about these as kind of PTCs are expired kind of like your prior acquisitions?

You make some remaining contract life and is there any opportunity for refurbishments of these potential targets?

Yes. Hi, Paul, this is Bob.

In term of the profile of those acquisitions, they'd be very similar to the acquisitions that we've done historically. So they could have PTC life left in them, several years typically, but coming to the end of a 10-year life.

We would certainly look for refurbishment at opportunities in fact some of the ones that we're looking at currently have that opportunity. And so yes, and in terms of returns, you didn't ask about returns.

But returns are expected to be very consistent with the types of deals we've done in the past.

Do you have an inventory of refurbishment eligible parts, those already earmarked to approve the two projects you’re doing?

There are earmarked for the existing projects we're doing.

But you could still secure more on deals for you 80% tax credit, correct?

That’s correct. Yes.

Yes, Paul, we have – ACE has turbans fire range and so the couple of providers, so there's an opportunity going forward.

Thank you very much. That’s all my questions.

You're welcome.

Hey, good morning, guys.

Good morning, Chris.

Hi, Chris.

The discussion on acquisition seems a little bit new. Are you seeing more activity or are you just telling us more at this point?

So Chris, this is Bob. No, it’s very much one of the four planks of our strategy that we talked about in addition to of course the PTC strategy that we have.

We've been looking at acquisitions and with a dozen projects. There's quite a bit of activity there so.

I guess what I'm really saying has they're been in increase in activity or have you really been sort of have this level for a while?

We've been at this level for a while.

Okay. And I think Steve was talking about equipment sales timing at U.S.

Water. Is that something that you expect to do so rationalize over the rest of the year?

Yes, we do.

And when you have the weather effect that U.S. Water, is that something that also sort of winds its way through the rest of the season?

Well, yes, of course, this business does better with warmer weather generally speaking and so to the extent that warm weather patterns continue as they have over the last couple of years. We would expect that that would create some potential upside for the company and all things considered weather would be on plan so to speak.

Okay. And one more thing about the ACE acquisition potential.

Are you seeing because of the winding down of PTC timing that there's a greater pipeline of sellers at this point?

Not necessarily so, but I would expect that would be the case as the years unfold here 2019 and 2020.

Right. And as far as the necessary equipment, you see more than adequate supply where you shouldn't have any trouble acquiring equipment should you make some acquisitions?

Yes. No concerns there.

Okay. Thanks for your color guys.

Thanks Chris.

Good morning, everyone. Great job on the earnings call.

I just have a quick question. Do you guys expect some more equity dilution in 2018?

This is Bob. Let me give you a bit of a picture, actually both on 2018 and 2019.

We have a direct program, which is our dividend reinvestment program. And typically in a given year, we're issuing between $15 million and $20 million a year.

So that's going to be the limit of any equity in 2018, and then again in 2019 except for the case where we do additional projects at ALLETE Clean Energy or an acquisition at U.S. Water larger one.

Okay, great. And then as ACE and now U.S.

Water business continue to grow, how do you intend to keep your current regulated and non-regulated business mix sort of at the equilibrium that is out right now?

Well, we've got some significant headroom left with regard to our ability to grow the non-reg we believe, of course, as you know we – the ratings – our credit ratings are important to us maintaining a strong investment grade rating as important. So we've got some headroom for their growth.

And as I’ve stated over time to the extent that that there is more growth in the non-reg that regulated and that mix starts to become higher than we'd like. We will be searching for other regulated opportunities to grow earnings there as well.

Okay, great. Thanks so much.

Thanks, Liz.

Good morning. I just wanted to ask what's baked in guidance for 2018 for Minnesota Power's earned ROE.

It looks like from an Analyst Day that you guys were expecting an 8.25% ROEs, is that correct?

Yes, that is correct, Kevin.

And just to make sure – yes, the math is that that $20 million pre-tax added to that would get you to earning a 9.25% at Minnesota Power in 2019?

That’s correct.

And is there any difference between the regulatory ROE and financial ROE? Are there unrecovered costs or something?

Yes, there is a little bit of unrecovered cost, but it's not significant.

Like less than 10 basis points, not significant or how so.

Yes, yes, and I think that’s about right.

Okay. Thank you.

That's very helpful.

Yes, thanks Kevin.

Just a clarification on Kevin’s question, is that 8.25% quarter consolidated utility or just Minnesota Power?

It’s just Minnesota Power.

Okay, thank you.

Yes.

Thanks Paul. End of Q&A

Well, Steve and Bob and I thank you once again for being with us this morning. Thanks for your investment in ALLETE and we'll see you out on the road as we get out here in the spring, summer and fall.

Thank you very much and have a good day.