Investment in ATC

9 Months Ended

Sep. 30, 2016

Equity Method Investments and Joint Ventures [Abstract]

INVESTMENT IN ATC

Our wholly-owned subsidiary, ALLETE Transmission Holdings, owns approximately 8 percent of ATC, a Wisconsin-based utility that owns and maintains electric transmission assets in parts of Wisconsin, Michigan, Minnesota and Illinois. We account for our investment in ATC under the equity method of accounting. As of September 30, 2016, our equity investment in ATC was $133.8 million ($124.5 million at December 31, 2015). In the first nine months of 2016, we invested $3.5 million in ATC, and on October 28, 2016, we invested an additional $1.9 million. We do not expect to make any additional investments in 2016.



ALLETE’s Investment in ATC
Millions
Equity Investment Balance as of December 31, 2015		$124.5
Cash Investments	3.5
Equity in ATC Earnings	15.0
Distributed ATC Earnings	(9.2		)
Equity Investment Balance as of September 30, 2016		$133.8

NOTE 7. INVESTMENT IN ATC (Continued)

On September 28, 2016, the FERC issued an order reducing ATC’s authorized return on equity to 10.82 percent, including an incentive adder for participation in a regional transmission organization. Prior to this order, ATC had been allowed a return on equity of 12.2 percent which had been impacted by reductions for estimated refunds related to complaints filed with the FERC by several customers located within the MISO service area.

On June 30, 2016, a federal administrative law judge ruled on an additional complaint proposing a further reduction in the base return on equity to 9.70 percent, subject to approval or adjustment by the FERC. A final decision from the FERC on the administrative law judge’s recommendation is expected in 2017. (See Note 6. Regulatory Matters.) We own approximately 8 percent of ATC and estimate that for every 50 basis point reduction in ATC’s allowed return on equity our equity earnings in ATC would be impacted annually by approximately $0.5 million after-tax ($0.9 million pre-tax).