ALE
#Well, I feel pretty good about the demand nominations; given the amount of buffeting that the industry has taken throughout the early part of the year.
So we feel very good about the nominations at this point.
With respect to going off into the winter, <UNK>, I don't have any additional reconnaissance with regards to that.
We do work closely with our industrial customers in their operations with our engineers and the like.
We watch market signals as well.
I feel pretty good about domestic fuel consumption in autos.
Down there in the Great Lakes where most of this fuel goes, there's no sign of weakness there at all.
And so I am hopeful that they will have weathered this sort of glut of iron ore, if you will, and also steel importation illegally that the Federal Trade Commission is getting on now.
We've won a few of those battles up here and ultimately that they can get on with their operations and getting them back to normal.
I am also encouraged that they are looking at sort of taking that technology and looking at investments where they can to improve their pellet quality and products that they use.
For the tariff remediation.
I don't know.
Those are long-winded, <UNK>, in nature.
Each one is individual in nature.
Each complaint that gets filed has its own runway that it goes on, so some of the complaints that have been resolved here more recently were from a year and a half or more ago.
Some are going to get resolved sometime during the winter months.
The Trade Commission works on an individual basis on each one of those and it's very difficult to predict how they will map out on a runway basis.
I'll take the United States Steel questions first, <UNK>.
We don't have any additional information than what U.S. Steel has released at this point in time about their scheduled return to production with the lines that they idled at U.S. Steel Minntac and at Keetac, but certainly their demand nominations for the fall would signal that they are planning to ramp up here and we feel very good about that.
With respect to how relatable these temporary idlings are to past history, I think you potentially recall the 2009 economic collapse of the US economy, or global economy.
In that particular instance, the industry was down from May through the December time period and then it sprung back and recovered nicely.
There are other periods of history where the industry has cycled up and down.
This industry produces about 40 million tons per year.
They have cycled on average between 35 million and 40 million tons, so it's not a highly irregular cycle at this point in time.
The amount of steel dumping, of course, is sort of new in this particular case, so I think that affects their situation more than anything else at this point.
With respect to Essar Steel, construction again with the trades on the ground has reached 550 full-time people working there, that is substantial.
That is significant.
That really reflects sort of peaking towards peak of construction at this point in time, and so they have really ramped up significantly.
They are going to work right on through the winter at this point in time to finish up the project.
Their financing difficulties are behind them as well and we fully expect that they will commence some operation in 2016.
And as I have expressed many times, starting up a taconite facility is not like turning on a light switch in your bedroom.
It takes time to ramp up these large pieces of operation and then integrate them all.
So we expect to ramp up in 2016 and ultimately, as they move off into the later year, enhanced or near full production.
Good morning, <UNK>.
This is <UNK>.
First, I want to say, as we've kind of indicated, we will be providing more information on U.S. Water Services and ALLETE Clean Energy later this year as they trip the required segment reporting rules.
The customer growth is as we expected, but we had high expectations here.
As we indicated, U.S. Water had revenue of about $120 million last year and we expect it to grow organically between 10% and 15%.
So it is meeting our expectations.
We have high expectations, so they are off to a very good start under our ownership.
Yes.
That is a good rule of thumb, that $0.03 per million tons, and the way you have outlined it would fit with that general rule of thumb.
And of course, that's before any other cost mitigation, but it is after selling in the wholesale market.
Yes, I think that's a good rule of thumb.
I think that our view and I think their view as expressed ---+ all the steelmakers expressed this ---+ more temporary than longer lasting.
There are some broader macro factors again with iron ore pricing and steel dumping that affect them all.
Each of them have their own individual circumstances that they have worked through, but I would say our view and their view is more temporary in nature than long term.
You know, we have not disclosed that type of detail historically.
I would take the trend and the direction as a very positive thing of returning to service, confirmation, affirmation of temporary versus more long lasting.
Obviously they have got to ramp these facilities back up again.
As I suggested to you and others, it is not as simple as a light switch in a bedroom, so you have to take time to ramp them all back.
But I take the trend as a very positive thing for the industry.
Those earnings will be taxed closer to the statutory rate, which is in the 40% range.
We have not disclosed that, but I will say you can look at our shares outstanding at the end of the second quarter and we currently have no plans to issue any additional significant equity other than through modest amounts through our employee and dividend reinvestment plans.
Well, if you run through the math, the MDU fee is currently estimated at between $20 million and $25 million pretax.
You run it through the math it's probably approximately $0.25 to $0.30 a share.
So you can take that away from our $3.20 to $3.40 and our guidance does reflect, though ---+ in addition to that $20 million to $25 million, it reflects the recent taconite nominations.
It reflects the ceasing of operations at Mesabi Nugget earlier this year.
It reflects the impact of the FERC ROE complaints, both at ATC and MISO, some of which the charges we have taken are related to prior years.
And it also includes some storm damage costs for a severe weather event we had in July near Brainerd, Minnesota.
We are still assessing those costs.
They will be several million dollars.
We are assessing what will be capitalized and what will be charged to operating and maintenance expense, but all those events and items are reflected in our updated guidance.
That would be the math and it's the result of the items that I listed.
Yes, that's correct.
Cliff's United Taconite temporary idling is really the major impact resulting in the 90%.
No, other than what they have signaled.
They are looking to see a reduction in steel dumping and an increase in ore pricing, like everybody else, macro.
On a micro level, of course they are working with their customers and other off-takers who would be interested in their pellets, both existing and the new type of quality pellets that they are producing.
Their mines are all in pretty good shape.
As Lourenco Goncalves has suggested many, many times, their focus is Minnesota, all of their operations in Minnesota, and focusing on the iron ore business.
So some of the distractions that have sort of impacted Cliffs over the last several years have also been alleviated a bit.
Lourenco's focus is on Minnesota or operations.
I think that is well ---+ bodes well for Northeastern Minnesota.
And the fact that they are interested in these technology leaps, if you will, or taking their pellets to a new level of quality I think bodes well for application in a variety of settings, both blast furnace and also with the sort of DRI-type electric arc style furnaces.
So I am actually feeling pretty good about Cliffs in the longer term, <UNK>.
Obviously all of them are working through these sorts of fuel dumping and low ore pricing challenges that they are facing at the moment.
I will, sure.
So with respect to ATC and their FERC ROE complaints, approximately $1.1 million pretax or $700,000 after-tax year-to-date ---+ that is a year-to-date number ---+ is related to prior years.
And that was mainly reflected in the first quarter.
With respect to the additional MISO charges Minnesota Power will incur, approximately $1.5 million, or $900,000 after tax, is related to the prior year and that was reflected in the second quarter.
Sure.
Our strategy for a Minnesota Power rate case remains unchanged.
As we've stated, our strategy is to improve Minnesota Power's return on equity over time through cost containment and load growth; remain committed to that plan.
Temporary deviations in industrial sales don't impact that.
We, as we have talked, have no indication other than to believe those are temporary and it seems like some current events are demonstrating that.
So we are actively managing our costs and we will have more to report on that as we move through the next 12 to 18 months.
Certainly we look forward to load growth both at Essar and PolyMet.
Well, it would not be material for that short period of time, and I'm going to use our rule of thumb that we provide, about $0.03 per million tons.
UTAC produces just under 5 million tons, so you could take $0.03 times 5 million tons would roughly give you the zone of $0.15 for the year.
And then pro-rata that, divide that by two months or whatever, you can kind of get the ---+ it gets to be pretty small.
That is true, <UNK>, and it is complicated and somewhat difficult to explain.
It's not new.
This has been ---+ accounting has been this way for quite some time.
What is different here in this quarter is the size of it, and that's why we felt the need to really provide some color and to talk about it.
And the reason it's bigger ---+ and it is timing, as you indicated, and it is a result of what you indicated ---+ but the reason it's bigger this quarter is that we have more earnings that are taxed at a higher rate.
And earlier we talked about the MDU transaction tax closer to the statutory rate; that is the reason.
And the overwhelming majority of those earnings are in the second half of the year, which creates this somewhat of a timing difference as we record to our effective rate estimated for the full year.
So it is a little bit of an anomaly in the second quarter here, primarily just the result of timing because some of our ---+ most of our higher tax earnings are back-end weighted.
I hope that helped.
Thank you for that question.
First of all, if you looked at our regulated and operating and maintenance expense for the first six months of the year, it has decreased approximately $8 million, despite a $2 million required increase attributable to a maintenance service agreement with our Bison 4 wind facility that went into service at the end of last year.
Now about half of that, or $4 million, was a charge we took last year for the non-recurring EPA settlement liability, but the rest we are beginning to see some of the work we have done.
It's lower salaries and wages, some lower maintenance, and other miscellaneous expenses.
So while not tremendously large at this point, we are beginning to see the trend downward already, so we're happy with the progress we are making.
It will take time for some of these cost containment efforts we're doing.
And I mentioned a minute ago over the next 12 to 18 months and that's what we can expect.
It will come across a broad spectrum of expense items here at Minnesota Power, but I wanted to point out that you are beginning to see, albeit somewhat small, but it's trending down in the right way.
Thanks for that question and good morning.
This is <UNK>.
First of all, we are very excited about U.S. Water, and Al had mentioned how much we just really believe in the nexus between energy and water.
I will say this: we expect organic revenue growth there of between 10% and 15%.
As well it is a somewhat fragment of market, so it has the opportunity to do some bolt-on acquisitions to fill a strategic need.
That could be geographic.
It could be product line.
It could be things like that.
So we're excited about it and I think you will see growth on both fronts.
<UNK>, this is Al.
I would like (technical difficulty) an additional comment.
In the last 24 hours of course the clean power plant has gotten the most airplay ---+ greenhouse gas, carbon, and climate change.
But certainly, just from a regulatory stringency perspective ---+ drought, water reuse, and conservation, sort of all of that ---+ when I think of the EPA and the U.S. Water's Active America, when I think of state regulations in California and Colorado with respect to water consumption or reduction in water consumption, it just implies to me and speaks to me about, first of all, the nexus of energy and water.
Secondly, that the water, and use of water, reuse of water, and wastewater are going to become enormous issues in the next few years.
We certainly are going to look at both the organic side and also looking at rollup acquisitions in the industry, you bet.
As you know, or may not know, our U.S. Water Services has a national presence predominantly, but there are a few geographic areas that we would like to have a more significant presence in.
I can't name those today, but we are certainly looking at those.
And, yes, the acquisitions would be much smaller than the initial acquisition of U.S. Water.
They are more on the smaller regional and local size entities.
Well, we feel very good about what ACE has accomplished so far, <UNK>, as expressed.
I think the [build-to-own] transfer competency that has been added to ACE with the MDU project; we don't view that as one-off at all, kind of a one-off deal.
We think that's a great competency and a great add to their playbook.
Certainly if you look at the Clean Power Plan as delivered yesterday by the Obama administration, certainly biased towards enhanced renewable production across the country, all forms; biased even further in that way than natural gas even, if you look at the rule as it sits in the last 24 hours.
So we see many more opportunities that way for ALLETE Clean Energy to be involved in both acquisition of projects, in building of projects, and growing in the renewable space.
So we think it is well-positioned at this point in time.
As far as size and mass, no way to predict that just yet as well, but we see it as very much complementary to what we are doing.
It is going to be heavily involved in what I would call reoccurring revenues and power purchase agreements.
It makes sense for the long term, so nothing emergent; we haven't changed our views in that regard either and we see lots of opportunities ahead for ACE across the country.
Again, ACE, like U.S. Water, is also spread across the country.
We will be careful and selective and disciplined, as we have been right along, with our acquisitions, but we see the United States as being fertile ground.
Renewables as being fertile ground; EPA or CPP as being the enabler to help ALLETE Clean Energy grow further.
We expect to report segment information for ALLETE Clean Energy and U.S. Water Services later this year.
Whether that will be Q3 or Q4, work in progress still.
It will be when it trips; the required rules around segment reporting will be the driver.
Simply stated, and generally, if it is more than 10% of certain metrics, which you are going to have to give me a little leeway here, I believe they are assets, revenues, and net income are the three.
I may not have that exactly right.
Well, there is.
Well, thanks again for joining us, everyone.
We are very excited about ALLETE's progress broadly and we will look forward to catching up with you and meeting with you along the way here as the year courses towards the end of the year.
Thank you very much.
