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Income Tax Expense | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Tax Expense | INCOME TAX EXPENSE
Income Tax Expense |  |  |
Year Ended December 31 | 2024 | 2023 | 2022
Millions |  |  |
Current Income Tax Expense (a) |  |  |
Federal | $8.4 |  | $9.4 |  | $1.2 |
State | 12.1 |  | 0.9 |  | 6.1 |
Total Current Income Tax Expense | $20.5 |  | $10.3 |  | $7.3 |
Deferred Income Tax Expense (Benefit) |  |  |
Federal (b) | $(20.1) | $(6.0) | $(32.8)
State (c) | 5.0 | 24.0 | (5.2)
Investment Tax Credit Amortization | (0.7) | (0.4) | (0.5)
Total Deferred Income Tax Expense (Benefit) | $(15.8) | $17.6 |  | $(38.5)
Total Income Tax Expense (Benefit) | $4.7 |  | $27.9 |  | $(31.2)
(a)For the years ended December 31, 2024, the federal current tax expense was partially offset by tax credits. For the years ended December 31, 2023 and 2022, the federal current tax expense was partially offset by tax credits and NOLs. (b)The federal deferred income tax benefit is primarily due to tax credits. For the year ended December 31, 2023, the federal deferred income tax benefit was partially offset by deferred partnership income. (c)For the year ended December 31, 2022, the state impact includes the benefit of deferred repricing as a result of the New Energy acquisition.
Reconciliation of Taxes from Federal Statutory |  |  |
Rate to Total Income Tax Expense |  |  |
Year Ended December 31 | 2024 | 2023 | 2022
Millions |  |  |
Income Before Non-Controlling Interest and Income Taxes | $126.4 |  | $206.8 |  | $100.1 |
Statutory Federal Income Tax Rate | 21 | % | 21 | % | 21 | %
Income Taxes Computed at Statutory Federal Rate | $26.5 |  | $43.4 |  | $21.0 |
Increase (Decrease) in Tax Due to: |  |  |
State Income Taxes – Net of Federal Income Tax Benefit | 13.5 |  | 19.7 |  | 8.6 |
Deferred Revaluation – Net of Federal Income Tax Benefit | — |  | — |  | (7.9) |
Production Tax Credits (a) | (32.4) |  | (31.6) |  | (50.7) |
Investment Tax Credits (a) | (4.8) |  | (5.8) |  | (4.1) |
Regulatory Differences – Excess Deferred Tax Benefit | (9.9) |  | (9.9) |  | (9.1) |
Non-Controlling Interest | 11.0 |  | 13.3 |  | 11.2 |
AFUDC - Equity | (1.5) |  | (1.3) |  | (1.1) |
Transaction Costs | 4.7 |  | — |  | — |
Other | (2.4) |  | 0.1 |  | 0.9 |
Total Income Tax Expense (Benefit) | $4.7 |  | $27.9 |  | $(31.2)
(a)For the years ended December 31, 2023 and 2024, the credits are presented net of any estimated discount on the sale of certain credits. The effective tax rate was an expense of 3.7 percent for 2024 (expense of 13.5 percent for 2023; benefit of 31.2 percent for 2022). The 2024, 2023 and 2022 effective tax rates were primarily impacted by tax credits and non-controlling interests in subsidiaries. NOTE 11. INCOME TAX EXPENSE (Continued)
Deferred Income Tax Assets and Liabilities |  |
As of December 31 | 2024 | 2023
Millions |  |
Deferred Income Tax Assets |  |
Deferred Gain - Land Sales | $16.5 |  | $8.3 |
Employee Benefits and Compensation | 20.5 |  | 29.3 |
Property-Related | 52.0 |  | 58.1 |
NOL Carryforwards | 10.6 |  | 13.0 |
Tax Credit Carryforwards | 486.9 |  | 557.4 |
Power Sales Agreements | 7.3 |  | 9.0 |
Regulatory Liabilities | 84.0 |  | 89.0 |
Other | 4.2 |  | 0.6 |
Gross Deferred Income Tax Assets | 682.0 |  | 764.7 |
Deferred Income Tax Asset Valuation Allowance | (44.9) |  | (58.0) |
Total Deferred Income Tax Assets | $637.1 |  | $706.7 |
Deferred Income Tax Liabilities |  |
Deferred Gain | $7.1 |  | $7.9 |
Property-Related | 619.7 |  | 632.0 |
Regulatory Asset for Benefit Obligations | 46.0 |  | 48.1 |
Unamortized Investment Tax Credits | 29.0 |  | 29.6 |
Partnership Basis Differences | 164.3 |  | 156.5 |
Regulatory Assets | 24.4 |  | 25.3 |
Total Deferred Income Tax Liabilities | $890.5 |  | $899.4 |
Net Deferred Income Taxes (a) | $253.4 |  | $192.7 |
(a)Recorded as a net Deferred Income Tax liability on the Consolidated Balance Sheet.
NOL and Tax Credit Carryforwards |  |
As of December 31 | 2024 | 2023
Millions |  |
Federal Tax Credit Carryforwards | $424.7 | $480.4
State NOL Carryforwards (a) | $258.8 | $280.9
State Tax Credit Carryforwards (b) | $19.9 | $21.5
(a)Pre-tax amounts; state NOL carryforwards net of a $9.7 million valuation allowance. (b)Net of a $42.3 million valuation allowance as of December 31, 2024 ($55.4 million as of December 31, 2023). The federal tax credit carryforward periods expire between 2035 and 2044. We expect to fully utilize the tax credit carryforwards; therefore, no federal valuation allowance has been recognized as of December 31, 2024. The apportioned state NOL, capital loss and tax credit carryforward periods expire between 2025 and 2045. We have established a valuation allowance against certain state NOL, capital loss and tax credits that we do not expect to utilize before their expiration. NOTE 11. INCOME TAX EXPENSE (Continued)
Gross Unrecognized Income Tax Benefits | 2024 | 2023 | 2022
Millions |  |  |
Balance at January 1 | $1.1 |  | $1.3 |  | $1.3 |
Reductions for Tax Positions Related to Prior Years | — |  | (0.2) |  | — |
Balance as of December 31 | $1.1 |  | $1.1 |  | $1.3 |
Unrecognized tax benefits are the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the “more-likely-than-not” criteria. The unrecognized tax benefit balance includes permanent tax positions which, if recognized, would affect the annual effective income tax rate. In addition, the unrecognized tax benefit balance includes temporary tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. A change in the period of deductibility would not affect the effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. The gross unrecognized tax benefits as of December 31, 2024, included $0.6 million of net unrecognized tax benefits which, if recognized, would affect the annual effective income tax rate. As of December 31, 2024, we had accrued interest of $0.2 million ($0.1 million as of December 31, 2023; none as of December 31, 2022) related to unrecognized tax benefits included on the Consolidated Balance Sheet due to our NOL carryforwards. We classify interest related to unrecognized tax benefits as interest expense and tax-related penalties in operating expenses on the Consolidated Statement of Income. Interest expense related to unrecognized tax benefits on the Consolidated Statement of Income was immaterial in 2024, 2023 and 2022. There were no penalties recognized in 2024, 2023 or 2022. The unrecognized tax benefit amounts have been presented as an increase to the net deferred tax liability on the Consolidated Balance Sheet. No material changes to unrecognized tax benefits are expected during the next 12 months. ALLETE and its subsidiaries file a consolidated federal income tax return as well as combined and separate state income tax returns in various jurisdictions. ALLETE is currently under examination by the state of Minnesota for the tax years 2020 through 2022. ALLETE has no open federal audits, and is no longer subject to federal examination for years before 2021 or state examination for years before 2020. Additionally, the statute of limitations related to the federal tax credit carryforwards will remain open until those credits are utilized in subsequent returns.

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