POWER May 2015 - 42

GENERATION TRANSITIONS
ALLETE's Latest Transition
Acknowledges the Water-Energy
Nexus
ALLETE Inc., a Minnesota holding company known mostly for its Minnesota
Power subsidiary, is making a major strategic transition into the broader
world of energy services, exemplified by its recent purchase of U.S. Water
Services. At the same time, Minnesota Power, which previously transitioned
from hydro to coal, now is shifting to a portfolio of coal, gas, and
renewables, in roughly equal thirds.
Kennedy Maize
A
LLETE Inc., based in remote and rugged
Duluth, Minn., was a bit of an
enigma when it announced earlier this
year that it would buy 87% of U.S. Water
Services Inc., a privately held, Minnesotabased
industrial water treatment company,
for $168 million.
Why would a company built around electricity
generation and distribution want to
acquire a firm in the water services business?
" It was entirely an intentional move, "
Robert Adams, ALLETE's vice president
for " energy-centric business " and chief risk
officer, told POWER in March. " Our focus
is broadly energy. We think not just about
power, but energy infrastructure and energy
services. That includes transmission, pipelines,
delivery of services. " Add water and
wastewater management.
Adams said the U.S. Water acquisition
was the result of " a four-year effort to find
opportunities in the energy space. " He noted
that energy-related businesses are " among
the largest consumers of water. " The industrial
customers that Minnesota Power
serves-taconite (iron ore) mining and
pelleting, pulp and paper, and oil and gas
refineries and pipelines-are large water
consumers with needs related to water conservation
and management, water quality,
and effluent discharge. U.S. Water has developed
a successful business and a stellar
reputation in that market.
A water services business aimed at large
industrial and energy customers, Adams
said, " Was directly in our business wheelhouse. "
Specifically, Minnesota's taconite
industry-mining the basic raw material
for primary iron and steel production-
faces a number of water challenges, including
upcoming changes in discharge
guidelines under the Clean Water Act.
" We are trying to provide solutions to our
customers, " said Adams. Water solutions
are among them.
Electric generating plants are also large
water users (see " Water and Wastewater
Treatment Technology Update " in the March
issue or at powermag.com). Minnesota Power's
57-MW Hibbard Station, which largely
burns wood and wood wastes, had a contract
with U.S. Water for work on engineering and
chemistry. Adams said the plant's management
was quite pleased with their relationship
with U.S. Water. That gave ALLETE
confidence in its acquisition.
" Our focus is broadly energy.
We think not just about power,
but energy infrastructure
and energy services. "
-Robert Adams, vice president for " energy-centric
business " and chief risk officer, ALLETE Inc.
42
www.powermag.com
A History of Diversification
The U.S. Water buy represents just the latest
business diversification move ALLETE
has made over the years. The company's
foundation is Minnesota Power, its prime
business asset with 144,000 customers.
Over half of the utility's load is made up of
large industrials such as taconite and paper
and pulp, industries running 24/7 and buying
a lot of electric power. Its other utility
is Superior Water, Light & Power, a small
Wisconsin combination utility (15,000
electric customers, 12,000 natural gas customers,
and 10,000 water customers) that
purchases wholesale power from Minnesota
Power. ALLETE also owns BNI Coal, a
large lignite mine in North Dakota, supplying
the cooperative-owned Milton Young 2
power plant (Minnesota Power takes 100
MW of its production); ALLETE Clean
Energy, which develops renewable projects,
primarily wind; and, most recently,
U.S. Water Services.
" We've had a robust history of diversification, "
Adams said, " with a lot of success. We
are very deliberate in our approach, and focus
on the culture and values of the businesses
we invest in. " He said that a " big part of our
approach is culture. While we move quickly,
we are careful. We start with the management
team, looking for similar values. If we don't
see a strong management team, we don't
even go there. "
From U.S. Water's standpoint, the deal
with ALLETE came at a time when the water
treatment company wanted to move to a more
stable and long-range financial position. The
privately owned company had major financing
from Denver-based private equity firm
Excellere Partners, which was looking to
POWER | May 2015
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POWER May 2015

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