ALLETE, Inc. (ALE) Earnings Call Transcript & Summary

Good day, and welcome to ALLETE Investor Day Presentation. Today's call is being recorded. Certain statements contained in this conference call that are not descriptions of historical facts are forward-looking statements, such as terms defined in the Private Securities Litigation Reform Act of 1995. Because such statements can include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to discussed in the filings made by the company with the Securities and Exchange Commission. Many other factors that will determine the company's future results are beyond the ability of management to control or predict. Listeners should not place undue reliance on forward-looking statements, which reflect management views only as the date hereof. The company undertakes no obligation to revise or update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, further events or otherwise. For opening remarks and introductions, I would now like to turn the conference over to ALLETE President and Chief Executive Officer, Bethany Owen. Please go ahead.

Thank you, operator. So good morning, everyone. We really appreciate your being here this morning, and we're really glad to have the opportunity to speak with you to share a bit about ALLETE, our strategy and growth outlook and to answer any questions you might have. Please note that our slides are posted on allete.com under our Investors section. Slide 3 shows who will be formally presenting today. And in a few minutes, you're going to hear from Bob Adams, Senior Vice President and CFO of ALLETE, regarding our overall growth outlook, including positioning in our regulated operations. And then we're going to turn it to our fastest growing company, ALLETE Clean Energy, and you'll hear from its President, Al Rudeck, about how we're thinking about what's next as we build on ALLETE Clean Energy's strong track record and reputation and expand its scope beyond wind energy. Also with us here today are Steve Morris, Vice President and Chief Accounting Officer; Frank Frederickson, Vice President, Minnesota Power Customer Experience; and Vince Meyer, Director of Investor Relations. But first, we're going to begin with sustainability. At ALLETE, it all really starts with our passion and our commitment to sustainability in all of its forms. A lot of companies are talking about ESG and corporate responsibility, but like most things, words are not enough. At ALLETE, sustainability is not only our shared value, it's the very foundation of our strategy. We believe our shared purpose at ALLETE is to answer the call to transform the nation's energy landscape. That's a pretty bold purpose for a relatively small company, but we're actually leading the way on many fronts. All of our ALLETE companies are committed and playing important roles in this strategy. We call it sustainability in action. In addition to being the right thing to do for the climate, for our customers and for our communities, our sustainability in action strategy also provides great opportunities for growth for all of ALLETE's companies and value for our investors. We're going to start with Slide 4, but I won't go into all the details here. Certainly, if you have questions, we'll be glad to cover them. Overall, our ALLETE companies are focused on expanding renewable sources of energy, reducing carbon, investing to create a more resilient transmission and distribution grid and developing innovative and sustainable solutions for our customers. Our second largest company, ALLETE Clean Energy, was formed 10 years ago this year for the very purpose of advancing clean energy throughout the country. Currently, it has a portfolio of wind energy across 7 states and a total of 1,300 megawatts is planned to be online by the end of this year. And as we've recently announced, we're building on that strong track record and reputation to expand its strategy beyond wind. You're going to hear more from Al Rudeck in a minute, but ALLETE Clean Energy is making a significant difference by helping other utilities and commercial and industrial customers meet their sustainability goals. Our largest business, Minnesota Power, is leading the state of Minnesota by providing 50% renewable energy to our customers today through a diverse renewable generation mix of wind, hydro, solar and biomass. That's a pretty remarkable transformation for a company that was 95% coal and just 5% renewable back in 2005. Minnesota Power has moved further and faster than most other utilities in transforming its energy supply, placing us #1 in the state of Minnesota and #2 in all of the Midwest for renewable energy as a percentage of energy mix. And Minnesota Power has exceeded state conservation goals for more than 10 consecutive years, and we're well positioned for advancing electrification of our economy. So we're really proud of how far and how fast Minnesota Power has already transformed its fleet. We've idled or retired 7 of our 9 coal units, and we're not stopping there. Just last month, we filed Minnesota Power's integrated resource plan laying out a plan to reduce carbon by 80% and be coal-free by 2035, while adding additional renewables and infrastructure investments. And in January, we announced Minnesota Power's vision to provide 100% carbon-free energy to customers by 2050. Turning to the S in ESG. While Minnesota Power has been transforming its fleet and ensuring safety and reliability, it has also maintained the lowest residential rates in the state of Minnesota. And that's important because we believe equity in all of its forms is a critical part of our sustainability commitment. We've worked hard to ensure equity as it relates to energy affordability for our most vulnerable customers by implementing successful conservation programs and a unique solar program for low-income customers, which is really the first of its kind in Minnesota. Also on the societal front, we're committed to doing all we can to bridge the opportunity gap in the regions we serve. To that end, ALLETE has a long history of supporting individuals and our communities with approximately $1 million each year donated from our foundation and our employees. As another example, ALLETE also has a strong, long-standing track record of recruiting and retaining veterans and active duty service members. In fact, Minnesota Power was the first company headquartered outside the Minneapolis-St. Paul area to earn Minnesota's Beyond the Yellow Ribbon Company designation and ALLETE Clean Energy followed shortly thereafter. That's something we're really proud of. On the governance front, ALLETE and our Board of Directors are committed to best practice governance, and another unique aspect of our company and our strong track record on ESG relates to gender equity. ALLETE is one of very few publicly traded companies whose Board of Directors is composed of a majority of women, and our ALLETE senior executive team is 40% women. We certainly have more work to do to ensure that diversity in all of its forms is reflected on our Board and in our executive ranks, but gender equity is nothing new at ALLETE. We've had women on our Board and in our senior leadership for decades. So we and our Board of Directors appreciate the strength and diversity of thought experience that background brings, and we're committed to continuing to encourage and embrace diversity in all forms at ALLETE. Although ALLETE has been on this sustainability journey for a while, we've just begun in recent years to formally disclose our specific progress and commitment. This spring, we're really excited to publish ALLETE's first comprehensive corporate sustainability report, which will include TCFD; SASB; EEI; and diversity, equity and inclusion components. So watch for that coming this spring. Turning to Slide 5. Again, words are not enough, and I couldn't be more proud that ALLETE is walking the talk and has established a strong track record as a proven leader in clean energy. Societies' and customers' goals for cleaner energy and sustainable solutions are more powerful than ever, and ALLETE's strong balance sheet and portfolio of companies committed to advancing clean energy will continue to provide value for investors well into the future. On Slide 6, you'll see a few important examples of what differentiates ALLETE. First, our size. We're relatively small, but that allows us to be nimble, and it doesn't take much to move the needle. A big differentiator is our significant experience with large commercial and industrial customers. Minnesota Power and Superior Water, Light and Power are 2 of the most unique utilities in the country given their large industrial loads. We know these customers and their unique needs, and that's a big advantage for all of ALLETE's businesses. In addition, C&I customers, like those served by ALLETE Clean Energy, are adopting significant and aggressive sustainability goals, which we're uniquely positioned to help them meet. In addition to being nimble, we're creative and innovative and have a strong reputation with our many stakeholders, and we execute. We do what we say we're going to do, and maintaining and even strengthening that reputation is very important to each and everyone of us. Finally, on Slide 7, we've shown you previous versions of this slide in the past, but it was just updated a couple of weeks ago, and it shows that ALLETE continues to be the second largest investor in renewables as a percentage of market cap. So this really illustrates what I've been saying all along this morning. At ALLETE, we're not just talking about sustainability, we're committed, we're executing, and we're leading the way. I'm going to turn it to Bob Adams for the next few slides and some additional remarks. Bob?

Well, thanks, Bethany, and good morning, everyone. I -- this is -- this Annual Investor Conference is actually one of my favorite venues to talk about our strategy with both those that know us very well and have been following us or invested with us for years and also new potential investors as they contemplate a possible investment in ALLETE. I would just at the highest level -- I'm going to get into Slide 8 next year. But at the highest level, this is indeed a very exciting and transformational time for ALLETE overall. We've referred to this on the earnings call last quarter as a transitional year, and I'm going to explain more about that, but I would -- it's transitional, but it's also launching in nature. We're launching major efforts along 2 major threats, if you will, to continue to grow and improve the performance of ALLETE as we go forward. So I'm going to talk about 2 of those major threats as we get into this. Clearly, the clean energy trends and the demand characteristics of what is happening by virtue of clean energy and demand for sustainable solutions is a major, major driver of our future. As Bethany indicated, it's not something that's just going to drive, we believe, stellar financial outcomes for the company, but it's also something we're very passionate about and drives our employee engagement and interest as we go along. It's actually very exciting on both fronts. So clean energy, as we look at ALLETE's 5% to 7% growth objectives are going to be drivers not just for ALLETE Clean Energy but also our regulated businesses as well. There is a very significant ongoing transformation on the regulated side in our generation fleet and supporting transmission and distribution, which we're going to be providing you more color on as I get into it. And so there's -- it's growth around the horn truly as we transform -- continue to transform ALLETE as we move forward. In terms of the thrust, and I'm on Page 8 in the lower left-hand corner, there's really 2 things that I want you to be aware of. First is what I call sort of basic blocking and tackling or improving the returns that we have both in the regulated and in the nonregulated businesses. And so as you are aware, if you had tied into our fourth quarter call, we have a business in Minnesota Power that is substantially underearning relative to its authorized rate of return of 9.25%. And just to remember that every 1% ROE translates into about $20 million pretax in terms of impact on our company, and so if we're earning 200 to 300 basis points less than the authorized, that is a very big deal. And we're -- I want you to know that we're on it. And we're going to be working closely, of course, with regulators as we file our rate case later this year to address that as well as continue to make sure that we're running our operations as efficiently as possible. And so improving ROI -- ROE is a very big deal. We have, of course, our -- on the growth side of the regulated side, we have Minnesota Power, the IRP, which you're well familiar with. It's been filed. Bethany mentioned that. And we're going to continue to look for other regulated investment opportunities to grow the business. And some of those opportunities may be directly within the regulated opportunity, area within the service area or adjacent to the service territory, but there may be investments outside of that. And of course, you're all familiar with ATC. We'll continue to fully participate in the capital calls. We own about 8% of that business. They will continue to make significant investments, and we're going to participate fully in that. But we're also looking for other regulated opportunities outside our service territory, which we can talk about later. So regulated growth, focused on fundamentals, improving the return, rate case critical. We are assuming reasonable outcomes, of course, there. I'll get into why we think that is a high probability outcome by virtue of the work that we've been doing with the commission and just the quality of the nature of some of the interactions and things that we've had with them. On the Clean Energy side, ALLETE Clean Energy side, we have a target of at least 15% growth. That is a business, as Bethany indicated, that's got a tremendous amount of positive momentum. We have built a solid reputation in the market by virtue of things that we've gotten done, whether it's a brand-new project development, construction, operation and maintenance of facilities on behalf of customers. And so our reputation is really going to be a catapult into this whole C&I space, which, of course, we got into in a big way in Oklahoma over this past year or so. And so 30% to 40% growth is the range that we are comfortable in as we look forward over the next 5 years. And that is the average annual compounded growth rate of 30 to 40 over that 5-year period. And so we're quite excited about that. The customers, as Al Rudeck will get into later, are really looking to us to augment our services to them. So it's not us pushing products and services, it's things that they want and are interested in from ALLETE, and it's complementary to the skill set and our capabilities that we have. So ALLETE Clean Energy, at the same time, back to basics and blocking and tackling, is looking hard at its existing portfolio as we should be doing. The portfolio that, as Bethany mentioned, that will be approaching 1,300 megawatts. And we're looking at -- continue to look at the quality of that portfolio in terms of the length of the contract. By the way, our weighted average contract length is now about 12 years for that portfolio. Just 3, 4 years ago, it was closer to 7 to 8. So the quality in terms of length of the portfolio has improved. We are looking at the underlying returns of the projects we're doing. Obviously, as we get larger and larger, there's opportunity for efficiencies in terms of how we operate and maintain those facilities. And we do have some assets that are nearing their end of their contract life. We evaluate that very closely in terms of what new market prices may be, new contract prices. And to the extent that those prices are not going to enable us to achieve the returns we look for, we would look to exit those projects. We made such a move in terms of a sale of our Chanarambie facility to Xcel. It will involve a repower in the small development, 20-megawatt development as well as -- which is packaged to Xcel. But in large part, it is also intended to free up some capital that we can reallocate as we do so well in other higher returning opportunities to support their strategy. So ALLETE Clean Energy will be focused on their portfolio optimization, improving their existing business returns, investment returns as well as expanding into other areas, which Al Rudeck will get -- provide a lot more detail on in a few moments. If you go to Page 9, I want to talk a little bit about the Minnesota Power regulatory positioning. This is really important, obviously, with the rate case that we're planning on filing in November. So we've had our challenges over the years with the Minnesota Power Regulatory Commission as we've worked with them, albeit in very difficult environments, with COVID, economic challenges, et cetera. And the message here is that we've had more recently here over the last year saw some very constructive outcomes with this commission. There, of course, the commission has charged with balancing the needs and cost and reliability of ratepayers with the health of our company, our ability to attract capital. And I believe that they're doing a very good job of that. It's -- this rate case settlement, when you step back and think about it, and again, recall, we settled the -- our 2020 rate case in the midst of the COVID challenges, was a settlement that is very, very rare in the state of Minnesota to have all parties come to the table, including the commission and be willing to settle that case and do it in an unanimous supportive manner. That is a very, very big deal. It's very constructive. The conversations we had were constructive and supportive as we went. We have a capital structure petition that we file each and every year with the commission. That capital structure basically provides the framework and approval for raising debt and equity to support our company. Some of the debt and equity that's approved in that is -- it's recognized that some of that capital is used for nonregulated purposes. And so the fact that they supported that unanimously does show their support and confidence in our company to be able to manage the strategy and the capital needs that we have going forward. One of the things that Bethany has talked about in the past, which has been really, really great to see is the engagement of the commission and trying to understand our large power customers better. As you well know, our large power customers compete on a worldwide scale in very competitive markets, their cost of power, the various types of contract structures that we offer them and need to offer them, it's very important that we have some flexibility. And they made the effort and joined us here this past year to visit with the customers and to understand that situation much better. And as a result, we think they're getting much better informed and much more sensitive to the challenges and issues that we have as well as our need to continue to provide them reliable, low-cost energy as we go forward. The state of Minnesota has a very constructive regulatory framework. I'm not going to go through this. I think most of you are well familiar with it. It has proven that framework to be very valuable for sure, particularly when we're building a lot of -- making a lot of investments, for example, that are eligible for cost recovery -- current cost recovery riders and the fuel adjustment clause as well. So we are anticipating a filing in November of 2021. We'll have more details on the specifics on that filing as the year progresses. So we're not going to get into dollars and amounts at this point. But just know, going back to where I started my comments that, that rate case is a very significant driver of our ability to earn -- have the opportunity to earn our authorized ROE that we have set forth. So I'm going to move on to Page 10. The integrated resource plan is a very, very big deal. Last quarter, I referred to this as historic. It truly is historic for our company. It is a resource plan that involves not just more work around our coal units. We have about 800 megawatts of coal remaining. But it's also -- recall that in order to make those kinds of transitions, it also involves significant investment in transmission and supporting distribution as we go. So that filing is going to play out in a significant way in 2021. It's going to involve a robust stakeholder process, not just the commission, our customers, et cetera, and we're excited to be engaged in those conversations. Again, this is something we think is the right thing to do. We are trying to make sure we balance the affordability of this journey that's in front of us on behalf of our customers. And we will do that. At the same time, we will need to make substantial investments in the fleets that we have and T&D as well. And the timing of these investments, as we've laid out in the IRP, of course, is going to be the closest thing to watch as we move along. We've proposed some dates in terms of our renewable objectives. And our exit, ultimately, retirement, if you will, from Boswell Unit 3 and our transformation of Boswell Unit 4, which may involve using other forms of input other than coal as we go forward. And so the timing of that transformation and people's perspectives on that and how that ultimately plays out is going to -- could have a very material impact on our company as it relates to investments, et cetera. Page 11 gets at the significant transmission and distribution investment opportunities. I've referred to our T&D investments as the second largest, if you will, investment area for the company or a growth area for ALLETE overall. It is very, very significant. And I would just remind you, when we talk about the top platforms for additional investment growth that, as a company, we have direct investments in some of the largest transmission corridors in the state of Minnesota and the upper Midwest for that matter. And that includes the DC line, the 500-megawatt DC line; the Great Northern Transmission Line, which we just recently completed construction on -- off with Manitoba Hydro; and also our investment in ATC. And so our knowledge of transmission, our reputation in the area for managing corridor issues, constraints, those kinds of things has enabled us to be front and center at the table with MISO as they are currently challenged with tremendous congestion challenges over the next decade and beyond. And so I would watch the activities, I would watch the MISO responses as we come together with MISO. And frankly, some of the other utilities to resolve some of this. And this is going to provide, again, significant investment for the company as we go forward. Beyond transmission, we have a significant opportunity and need to harden our distribution grid. Those investments would entail, over the next 5-year period, about $150 million. That was included in our Integrated Distribution Plan. That Integrated Distribution Plan is something the commission has required to be filed every other year. And it's really reviewing our current plan and making sure that the investments that we're making are meeting the reliability and the initial charter that we set forth. We have not yet incorporated in -- even in our 10-year plan that next 5-year period would be another $150 million to $200 million of distribution investments. And so more work to come there, and we'll be communicating those outcomes as that proceeds. ATC build-out, their number is $2.9 billion to $3.5 billion through 2030, that number has been out there for a while. Again, our 8% share of that, we'd fully intend on participating in as capital calls arise. But I would tell you, in my opinion, I think that, that range is light, just given what we know about the nature of the MISO challenges that are in front of the company. So that's another form of transmission investment. I'm going to move on to Page 12. Our base CapEx plan of about $1.6 billion, as laid out there. Most of you are familiar with this. Just a reminder that as we lay out these capital plans, these are high-confidence capital investments, projects that have either been approved or we're actually moving forward on or high confidence that they will move forward. And so it always raises the question about what about ACE. I don't see any projects beyond Caddo, for example. And the quick answer to that, of course, is we don't incorporate projects that aren't yet inked or we're moving forward on. But that is not to say, as you know, by our track record by now that we will not -- that we will be making significant investments as we go forward, and we will be doing that for sure, and Al Rudeck will speak to that. So I -- just to give you a little more color on that, I wanted to include a slide for today, which is Slide 13. And it gives you a snapshot into our planning process beyond the CapEx table numbers you see for the next 5 years and outlines about another roughly $2 billion to $4 billion on top of the $1.6 billion that I just mentioned that fits in the CapEx table. And it comes in a variety of forms, and as I said, and most notably in Minnesota Power again, the IRP plan, the DC transmission line and the distribution system hardening that there's a significant amount of additional investment that is not incorporated, some of which would occur within the 5-year period, potentially. Some would occur in that next 5-year period. So this is over sort of the next 10-year period of time. So you can see Minnesota Power; Superior Water, Light and Power. Superior Water, Light and Power, although smaller is -- also has significant growth opportunities to add to its rate base as that company evolves; and of course, ALLETE Clean Energy as well. A big part of that $800 million to $2.5 billion, that would represent a range of investment on an annual basis, which is pretty typical to what that company has invested, for example, over the last 3 years. On average, we have deployed about $150 million of equity or about $300 million in investments on an annual basis. And that sort of corresponded to the old adage of about 2 to 3 projects. So to the extent that we are able to keep up that level of investment, which we think we can, now it's not all going to be in wind. It will be in other areas of the renewable value chain, as Al will describe in a minute. That is a tremendous amount of additional capital that will fuel the growth of ALLETE Clean Energy and ALLETE overall. So well, obviously, I'm sure you'll have some more questions about this particular slide as we get into it, but I wanted to at least leave you with that snapshot. Page 14. This is the value proposition slide that we've had in this deck for many years now. We're committed to it in terms of the shareholder return, the growth. And we did upward revise the payout ratio from -- it used to be 60% to 65%. We changed it from 60% to 70%. And that was in large part just to make sure that we were aligned more closely with the industry averages. The data we looked at even this past year was the average payout about 68%. And we think -- so we think that's the right move and would be -- continue to be supportive of our dividend policy and the overall TSR that investors would expect. With that, I'm going to turn this over to Mr. Rudeck to talk more about ALLETE Clean Energy. Thanks. Al?

Yes. Thank you, Bob, and good morning, everyone. And it's a pleasure to be here with you today to talk again about our strategy and our path forward on sustainability and action in all of its forms. On Slide 15, just talk a little bit about how we see growth at ALLETE Clean Energy and how we're going to go about ACE here as we expand our offerings to customers. We started with a strong platform. We didn't get into it earlier, but Minnesota Power, the predecessor company of ALLETE, started as a hydro company back in 1906. So we continue that tradition today as we launched ACE 10 years ago and continue to grow in clean energy investments in and around the country to harvest natural resources and serve customer needs. So we feel we're really well positioned, well ahead of many that would love to have a platform like we do across the country with a talented team and a national footprint and a nice variety of customers in our portfolio and a proven track record year-over-year of getting things done and serving those customers' needs and doing so profitably. Second, when we look at customer demands and the changes that we see in the marketplace, clearly, there is a step-change, an interest in ESG, an interest in leaving the world in a better place and even regenerative strategies and things that customers bring. And so providing those sustainable offerings in more comprehensive ways is definitely at the heart of our strategy and meeting those customer demands and helping them achieve their sustainability and climate action goals. At the end of the day, too, we've all felt in this global pandemic that convenience and control is important to customers of all sizes. And the more we can do that and help customers meet their needs and tailor those demands that they have, the better we can serve them. The markets continue to grow. As Bob Adams said, the tailwinds in renewables is really strong, both from the energy policy standpoint. We're anxious to hear and engage with the Biden Administration on what can be done as we move forward to further enhance clean energy policy drivers to help grow the business. And in technology, I'd never bet against technology and what it can bring to society and to the economy. And then finally, our capabilities. In the past, we've been historically all wind, and that's where we found the right risk-reward profile for our investor base in this dividend-paying company at ALLETE. We do construction very well. We operate very well. We develop projects very well, build strong relationships. And those together are skills that can be translated to apply to new technologies. At the end of the day, we think that platform, customer demand, growing market opportunity, improving capabilities will lead to material growth for future projects as we move forward. So if you want to go to Slide 16, just looking at our platform, we're located across 5 electric markets across largely the northern tier. In this last year, we dipped further into the south and are expanding into the state of Oklahoma. And importantly, it offers opportunities in 2 ways. What you see in the map is opportunities to work in those markets in and around those assets, as Bob said; make them more profitable; do things around repowering; expanding adjacent facilities; creating beachheads to add multiple facilities together; and continue to serve those customers. We're seeing requests for continued recontracting and repeat project opportunities with those customers that are really exciting to us and encouraging to show that those customers value what we give them. What's maybe not there, but you see in kind of the green areas is our expansion opportunity areas. When we look at the -- how fast clean energy is transforming, particularly on the coasts and then in the south, those are areas we're not in today. And we've been on this diversification strategy at ALLETE for a long, long time as we diversify in and around our large power customers at the utility of Minnesota Power. And so we see tremendous opportunity in New England and New York and California and other places as we think about new technology opportunities that does not -- that further diversifies our product mix and our customer mix. If you want to go to Slide 17, next, when we think about our strategy, it's really customer-focused and really listening to the customer and understanding what they need and bringing in more comprehensive solutions to market. Today, I've been in ACE now in almost 5 years, and we brought the whole tax equity mix into the business in the last several years in executing our PTC strategy. That was a new capability that we were happy to bring into the business to leverage and maximize the value of those tax credits. We're going to continue to do those kinds of things. And we think in energy, storage and solar, combined with wind, creates a great opportunity for us to place capital invested in the business. And in the near term, we have our Northern Wind Repower, which is a project that we're packaging up the repower and expansion of 2 projects in Southern Minnesota to our largest customer, Xcel Energy. We think it's great for the customers, great for the community and great for the environment down there. It's a multipart winner. We still have PTC-qualified turbines in our portfolio to probably build another 400 to 500 megawatts of projects, maybe even more if the Biden Administration extends those tax credits, which is certainly a point of discussion on the policy front. We're executing Caddo right now, and that project remains on track and on schedule. And then we're continuing to look at our portfolio. As Bob mentioned earlier, there are further opportunities within the portfolio, a number of projects that are going to need recontracting solutions in the next several years, and that's a great point of opportunity to review them and unlock further value. And in the lower right on the slide, we talk a bit about where we want to go next. And we've never said it was ACE wind energy when we created ACE. It was ACE -- it was ALLETE Clean Energy when we created ACE. And so we look at the opportunities in the market. Certainly, we believe the technology is at an inflection point where customers are going to really demand and expect more products and services on a 24/7 basis. And right now, think about wind as a volume-based product. It provides large volumes of carbon-free energy at great prices. When we think about where solar and storage can play, it's a price and profile product that can really advance and help customers peak shave, manage risk, and maybe even shape they're hourly load with carbon-free energy. So all of those things together, we think, are important, and we think our platform and our customer relationships and other relationships in the market will allow us to break into that space and leverage our capabilities in those new markets. And I think as Bethany or Bob said, I think it's Bethany that it doesn't take much to move our needle. So when we think about it, we're going to continue to do wind where it makes sense, and we continue to be disciplined and discerning of where we invest and how we invest and to have more places to invest in solar and storage is only going to provide more optionality over time. On Slide 18, just some of our highlights over the last year, we've expanded our capability in serving the C&I markets. We've added 6 new customers. Some of them, we're really proud to serve: Walmart; Starbucks; Smithfield Foods; this year, Diamond Springs and then McDonald's and Hormel; and Oshkosh Trucking will come online with Caddo later this year. Really happy to help those customers. And they're industry-leading. When you think about what Walmart is wanting to do with regenerative by 2040, when you think about what McDonald's is doing in their fleets and in their stores, very, very industry-leading companies. And we're proud to partner with them on clean energy projects. We think our footprint across 7 states in much of the wind-rich region of the United States provides a lot of optionality in the future. The turbines continue to get more efficient and more effective and larger, and that creates more investment opportunities to repower. And then we continue to expand our creditworthy contract durations with our customers, and that's been an important part of what we've done here at ACE. We've bought a number of projects early on that allowed us to break into the space, and now we're recycling and repurposing and recontracting those to provide that revenue stability over the longer term. And then I think we will be testing and trying some new business models and looking at platform acquisitions to help augment our capabilities to help serve those customers more holistically in the future. On Slide 19, I just want to focus on a couple of things here. We've talked about a bunch of these. But really, our relationships are really at this part of our strategy, and our relationships with our customers is what leads our growth. Landowner relationships and development relationships are super important for our business. We have hundreds of them, and we coexist with those landowners on the landscape, and they're farming, and they're cat -- ranching and other things. And it's important that we maintain that -- those strong relationships to allow us to repower and recontract and extend those project lives. Finally, the capabilities we have, we think, can be really leveraged as we move forward into the clean energy space, particularly in the new technologies like solar and storage. So with that, on Slide 20, I just want to close with -- I think Bob mentioned this earlier already, but that's our track record over the last 5 years in major investments and equity investments in ALLETE Clean Energy. And as we look to the future, that being on pace of 1 to 2 to 2 to 3 projects a year, that translates to $50 million to $150 million in equity invested each year. And that will be partially supported by portfolio optimization and recycling some capital, like we talked about with project, not only recycling capital back into the business but it also means continuing to grow the business overall. So we're very bullish on where ALLETE Clean Energy can go. We think it can be an important contributor and achieve those growth goals that we want to do well to help decarbonize the energy sector and help our customers achieve their sustainability goals. So with that, I'll turn it back to Bethany.

I think we're ready to open it up for questions from audience. So operator, are there any questions in the queue? [Technical Difficulty] I think we lost our operator. While we're checking on our operator, we just appreciate everybody being here today. These virtual conferences always bring some sort of new dynamic and thing that we have to weather. But appreciate your patience as we work to find out what questions you might have for our team. Well, I'll just -- this is Bethany, again. I'll just share some thoughts while we're waiting for the operator to return to the call. Certainly, we're seeing what we hope is a bright light at the end of the tunnel in terms of COVID-19. Our company has weathered the last year relatively well. Our primary focus has been ensuring the safety and health of all of our employees, our families, our communities and our customers as we navigate all of this. And I'm really pleased to say that we've not had community spread within the company. And we've not even had hospitalizations of our employees, and I'm going to knock on wood on that front because we're not out of the woods, yet. So we've been really focused on that while we continue to ensure that the essential services that we provide are available for our customers because we know that they're counting on them now more than ever. So certainly, vaccines are becoming more widely available in the areas where we operate, and we're very grateful for that. Our employees are starting -- our frontline of workers are starting to be vaccinated. And so we're certainly seeing positive things in our region and same for our customers as well. And so we're very grateful for that, and we're hopeful that the economy will continue to recover and increase in -- over time. I believe the operator may have rejoined our call, so we'll open it up now for questions.

[Operator Instructions] Our next question comes from the line of Richard Sunderland.

Just wanted to start maybe on the ACE side. I'm curious in terms of what you're looking for from the Biden Administration? And how that informs sort of your goals for the broader ACE platform? And maybe just fit in one more there that, is sort of 30% to 40% growth contemplated for ACE as well over the next few years?

Yes. Great question. Thank you for that. I think a number of things. We've been able to get to the levels of renewables we have today in this country, building on the backbone of the literally a century-old piecemeal transmission system. And I think one of the biggest things we could use support from the Biden Administration on is really more clarity on transmission planning and citing. It is the Achilles heel right now of the industry at all levels and in all RTOs around the country. And so I'd say that clearly is one. I'd say, more national clarity on things like protected species and priority of renewable energy development around the country in permitting, streamlining, those are all important things to help get the industry to achieve the kinds of growth goals needed to meet the Paris Climate Accord obligations and carbon-reduction efforts. The other thing we've been an advocate for is direct pay as a concept, as an alternative to tax equity. Many in the industry are saturated, but then the use of tax capacity is becoming more difficult, and there's less and less players that can provide tax equity on bigger and bigger projects over time. And so we think other vehicles, other methods of incentives, whether they're direct payer, whether they're direct incentives, could be very helpful with the industry. And then finally, kind of technology parity. So when we think about the reason that wind has been able to grow the way it has is in part because of the production tax credit and its scale. And when we think about solar and think about storage, similar long-term investment-type credits or other direct pay-type credits will be very, very helpful for us as we continue to expand those somewhat younger technologies and make them mainstream and help them be reliable in the market and attract the capital into the space. So those would be a few things that come to mind for me, but really transmission is probably at the top of the list.

Got it. Appreciate the color there. And just a quick follow-up on the ACE front. Curious over what time frame you're looking to build out the ACE platform capabilities? It's -- is this something that you're looking to do in the next 1 to 2 years to pursue that growth in the sort of the 5-year time frame? Or is this a longer-term consideration?

Yes, great question. We always have to balance those near-term objectives around growth with longer-term value creation for investors and all of our stakeholders, honestly. And so I would say we take a long-term disciplined view, and so we definitely have a long-term view in our mind. We didn't create ACE overnight. It's been 10 years, and we're finally at that 1,000 megawatt platform size, and we're really proud of that. That said, we do have urgency to move. We think the market, we think the customer demand, the policy structure is right that we can grow and grow quickly. There is a lot of competition in the space. We have to recognize that. And we think our size and our speed and nimbleness allows us to win. And our customer relationships can help us capture adequate market share to move our needle. But -- so we'll be disciplined. I would say, I would hope that in the near term, you're going to see us continue to do wind projects that can help us leverage our PTC-qualifying equipment. And then we'll feather in new technologies and new platform opportunities as opportunities present themselves and we find them or create them in the market. So I'm hoping in the next 3 years that we have made a material move and perhaps even sooner. But I wouldn't want to rush it for the sake of doing something. We want to do the right thing in the right way for our company and our stakeholders.

Got it. And then just one other one for me on the regulated side. You've talked to various points about regulated M&A or the expansion of your regulated portfolio. Could you speak to maybe guardrails or criteria in evaluating this opportunity for ALLETE, particularly just the size and scope that your regulated operations ultimately would, I guess, better balance the ACE growth as well over a 5-year period?

Yes, sure. So this is Bob Adams. I -- so let me say what I always say about this topic in terms of how we go at this is that we're going to be very disciplined about what we do. I've -- it's been interesting to watch the M&A space here over the last 5 to 10 years, and we've all seen the premiums. We've seen the, in some cases, significant dilution in terms of returns to investors, given premiums paid and the difficulty in terms of getting the appropriate regulatory terms negotiated. So some of that value can be preserved for investors as well. So it's a challenging area for sure. We're going to be disciplined about it. We are not going to go out and do -- you're not going to see us go out and do a transaction that's dilutive to shareholders or that locks us into a low ROE going forward because we're not able to recover the premium, those kinds of things. So it is going to be a journey. We have time to do it. I just want to remind, we talked about our rating agencies and their views of nonregulated. They continue to work with us. We're going to have some meetings here actually this week with both agencies as we typically do. And we do it throughout the year as well, but this is a big time of year to be meeting with them. We talk about business mix. We talk about the portfolio characteristics, as I said in my introductory remarks, at ACE that we continue to improve. And they see that. They see the tenor at -- now at 12 years versus 7. They see the discipline of exiting projects that we're less confident in future market prices. And so those all bode well, in my view, for more room as they see the discipline being applied as we grow the business. Now having said that, we're -- we've got a significant amount of room, I believe, to continue to grow the business. But eventually here, over the next 5-year period of time, probably more towards the tail end, we're going to have more investment in regulated businesses and that means predominantly regulated utility in my view. We have looked at water, we've looked at LDCs, we've looked at gas. We're all familiar with some of the challenges in that space, now with carbon. And so we're continuing to vet it. We're doing it in a serious manner. We're working with advisers. So it's not just a hobby. We're looking and putting resources to it. Our sweet spot is going to be with transactions that move our needle. So not trying to roll up $50 million, $100 million sort of investments, but do something that is more material, probably, give or take, $400 million, $500 million in size would be for starters in terms of materiality. And we look at these transactions as not financial transactions but as strategic transactions. So we look toward opportunities that may not be adjacent, by the way, that where we could lever the ACE business. There may be a part of the country or a particular utility that is not where it wants to be, feel it needs to be in the renewable space, and it's an opportunity for us to catapult ACE into a new territory. So we think about it very strategically. Beyond business mix, I'm of strong view that we have to continue to improve the diversity of our business, given our customer concentration at Minnesota Power. So we're looking to improve that over time. And fundamentally, just create a stronger, more diverse platform upon which we can continue to apply what we do well now in the clean energy space. So that's a long answer to your question, but I -- it's an important one. And I want you to know that, first of all, we're disciplined. And secondly, we're committed to get it done. It's going to need to get done, not by -- but not by next week. But certainly, the success of ALLETE Clean Energy, 30% to 40% growth, that continues, and we are confident that will be the case. We're going to need to make investments on the other side, on the regulated side.

[Operator Instructions] Our next question comes from the line of Chris Ellinghaus with Siebert Williams.

The slide, I guess, it's 17 that has the 3 sort of subsegment growth rates. Does that give us any insights? And given what you're talking about for ACE growth, does that give us any insights into those markets you think are more important at all?

Yes. Chris, this is Al Rudeck. Good to hear your voice. Wish we could be together in person as in years past. No, I don't think so, Chris. We look broadly at the market and see opportunity in all 3 spaces, I would say, somewhat uniformly. We wanted to provide our snapshot of what we see as the space out there. And certainly, the growth rates would indicate the maturity of the technology. I would say that's an indicator. Certainly, wind is the most mature. And so it's got such a large penetration. It's going to grow at a smaller rate, although from a pretty big spot. And then solar and storage is going to grow much faster because they're less deployed around the country. So we think all have a place in our portfolio and can fit, and we just wanted to kind of give our view of a 10-year outlook of the market size.

Okay. Al, when you talk about maybe looking at acquisitions for complementary stuff, what do you see as sort of your needs for complementary products and services?

Yes. Great question, Chris. So think about where we're not today. Today, we've been historically all wind. And so when you look at that Slide 17 and we kind of tip into the notion of solar and storage, I think that's a good marker. What we're looking for is some more capability and ability to deliver in those markets. They tend to be smaller projects. Instead of 300-megawatt wind projects, solar and storage projects tend to be of a different size. And so then that leads to a different volume and column to projects. And so that leads to a different sized team. And that leads to different geographies that you're in. And as we said, we're interested in those faster transforming markets, areas we're not today. So that would augur for more staff and more resources and more touch points with the communities, whether it's in New England, New York, California, other places like the Pacific Northwest, where we have a small presence. So I would say, certainly, our utility scale-type projects have been in bread and butter, but we're going to look across the entire value chain. And where we can get the best appropriate risk-adjusted returns that are dividend supporting and high-quality sort of complementary platforms is what we're exploring at the moment.

So is that sort of suggesting you're looking at acquiring developers, so you could get not only their personnel but their portfolio of projects?

I really can't say. I don't want to tip my hand any more than that, Chris, great question. At this point in time, we definitely see consolidation in that space, to your point. We've not made the move into buying companies, but rather project-by-project or joint development. So I'd rather just leave that, you'll see if the renewal results arrived.

Okay. And are you on that slide sort of suggesting -- there's a couple of things in the renewable space that are not on that slide. And I'm wondering whether you're thinking that these are sort of your exclusive 3 areas. But are you excluding things like renewable natural gas and hydrogen from your thought process? Or is that something that might come later? What are your thoughts on sort of the breadth of what you consider clean energy to be?