Duluth-based Allete thrives as it renews focus on all things energy

A wide swath of Minnesotans interact with a homegrown, billion-dollar business every day -- without leaving the house, without turning on a computer, without blinking. Just don't expect all of them to know the name of that company. Allete Inc. is...

The Allete headquarters in downtown Duluth seen at dusk the evening of Wednesday, May 10. (Clint Austin / Forum News Service)


A wide swath of Minnesotans interact with a homegrown, billion-dollar business every day - without leaving the house, without turning on a computer, without blinking. Just don't expect all of them to know the name of that company.

Allete Inc. is known best, and for some solely, as the parent of Minnesota Power. And while the electric utility is still the corporation's biggest source of income, Allete has been expanding its energy empire and searching for a new balance.

"Minnesota Power is still a very big engine for Allete, but it's not the only engine," CEO Al Hodnik said in an interview with the News Tribune. "Energy markets and energy businesses are transforming in ways we've not seen in the past 50 years."

A decade of realignment has given Allete a hand in nearly every aspect of energy: utilities and coal plants, wind and solar farms, a coal mine, an industrial water service and transmission lines.


"Our purpose is to answer the nation's call to transform the nation's energy and water landscapes," Hodnik said, echoing the company's mission spelled out inside the top floor of its headquarters at 30 W. Superior St. in downtown Duluth.

That hasn't always been the case, with ventures into Florida real estate, telecommunications, an auto auction business and other concerns coming and going in the past 20 years. There's a renewed focus in recent years on all things energy - and the focus is paying off.

Since 2010, Allete has nearly doubled its share price, pushed yearly revenue past $1 billion and gained a wider base of institutional investors.

"They've been able to take that cash flow to move into wind, transmission, water and the like," said Jason Crawshaw, an analyst with Polaris Capital Management in Boston. "They've done a very good job on capital allocation that not only generates high-return projects for shareholders but has also diversified the company away from just coal-fired power generation."

The past seven years

You can't spell Allete without Al.

Hodnik was an Iron Range kid who has never abandoned his heritage. He was elected to the Aurora City Council at 22 and served as mayor for a decade. He was hired by Minnesota Power to work in plant operations 35 years ago this fall.

Now he's got the corner office at the corner of Lake and Superior. Not that there's much time to sit and enjoy the view.


"In 2010, when I ascended into this role, I saw two big things: industry transformation, which presented for us opportunity, and the planned but substantial workforce transition," Hodnik said.

In the 1970s, Allete - then just Minnesota Power - grew rapidly to meet the electricity demands of a booming taconite industry. Forty years later, a wave of retirements hit the company just as it was getting a new leader who had new ideas for its future: "to take advantage of these renewable energy and water trends that are sitting out there."

Allete Clean Energy was founded in 2011 and today is the second-biggest contributor to Allete's bottom line, with its hundreds of megawatts of wind generation spanning the country - and more on the way.

U.S. Water was a strategic acquisition in 2015 to give Allete a "platform" business, Hodnik said, one with largely recurring revenues that stretches the company's footprint to 49 states.

And that Florida real estate?

"It's not strategic anymore," Hodnik said with a tone that made it clear he's no longer concerned with those distractions of the past. "I like energy. It's a much different company today than it was."

Financial analysts certainly like the direction of the company, with Joe Zhou of Avon Capital Advisors telling the executives on a recent conference call: "You've managed well with any down cycles."

Crawshaw at Polaris likewise tips his hat at leadership.


"One of the things the management team has done a nice job of is having a more balanced profile," Crawshaw said. "The management team has been very consistent in their strategy."

Allete spokeswoman Amy Rutledge credits Hodnik with spearheading that strategy and starting a new chapter in the company's 111-year history.

"Al's vision is how and why this company was transformed," she said. "Part of that vision isn't just about making those changes for today, it's about being able to see out 30, 40 years and putting these different things in place."

Balance, balance, balance

Ten years ago, Allete got 95 percent of its power from coal. In 2020 the company will be at 40 percent renewable energy when the sun is blasting and the wind is blowing.

While that should easily beat state requirements, some say the company isn't moving fast enough.

"People are asking us to 'go cleaner, go greener, go quicker!' " Hodnik said. "But they don't often talk about maintaining reliability. Most people don't understand the miracle that goes on."

The company has made environmental stewardship a priority, investing more than $1 billion in wind farms just in North Dakota. But that needs to be balanced with reliability and affordability, Hodnik said.


It's one of many balancing acts Allete performs as it spins a dozen plates representing stakeholders, geographies and strategies.

There are shareholders - who have dollar signs in their eyes these days amid consistent dividend, profit and share price growth.

There are customers - who aren't all pleased about proposed rate hikes coming amid those profits.

There are regulators - who will decide if any rate increase goes through, likely next year.

There are policymakers - who at the state level have pushed a clean energy mandate and at the federal level made Allete's foray into wind a possibility with the passage and extension of tax credits.

Then there are employees - who now number nearly 2,000 companywide and are placed at the center of what Allete is trying to do.

"I always put people, leadership and culture as the most important," Hodnik said. "Get that right, and the rest will take care of itself."

Allete also finds itself balancing the 26,000-square-mile service territory of Minnesota Power - from Little Falls to the Iron Range to Duluth - which can have some vastly different wants and needs.


The strategy of the company - becoming diverse but energy-centric - tries to balance out any swings in the industrial base it relies on. Annually about half of electricity sales are to big industrial customers, including mining operations; one analyst said that every million tons of taconite represents $0.02 per share in earnings.

"The diversification is in part to take a little bit of the edge off that swing in Minnesota Power's business," Hodnik said. "It's not purely a defensive play; it's an offensive play to take advantage of trends in the energy business."

What's next

Allete is putting $330 million into the Great Northern Transmission Line, which is now under construction and is set to deliver hydro power from a new dam in Manitoba in 2020.

Allete Clean Energy is bidding on the 1,000 megawatts of wind farm proposals up for grabs as federal tax incentives keep the market hot.

New natural gas investments may be in the works as Minnesota Power works toward its EnergyForward goal of one-third renewable, one-third coal and one-third natural gas for power sources.

That's just this year.

"We're only halfway to what I think can be accomplished, in terms of what Allete can do," said Hodnik, who at 57 has no plans to leave his post anytime soon, and said he'll serve as long as the board will keep him.


In the longer term, some of the company's performance will be out of his hands as taconite, paper, pipeline and other industries ebb and flow. Magnetation's reboot would be a big gain, and any action at the former Essar Steel site would boost revenue as well. Not that Hodnik needs a reminder.

"I'm the only CEO in the company's history to have grown up and come from the mining district, where the company draws most of its revenues from," Hodnik said. "Mining and forest products and natural resources are not an abstraction for me. I have them under my fingernails."

The numbers will tell any company leader that those industries make up the biggest share of company revenue, but Hodnik's pragmatic embrace of industry goes even further.

He'll be the first to point out that the company's new solar farm at Camp Ripley uses more than 30 tons of copper, and its Bison Wind Energy Center in North Dakota uses 1,500 tons, and that copper has to come from somewhere - possibly another big new customer, PolyMet Mining Corp. As he said at last week's investor meeting: "Minnesota is a leader in clean energy, and it can also be a leader in clean mineral mining." (Hodnik is on the board of directors for PolyMet, which is edging closer to getting permits for a copper and nickel mine in northern Minnesota.)

That might not make him friends with environmentalists, who remain staunchly opposed to copper mining in the state, but renewable energy requires nonrenewable resources.

"It doesn't have to be a false premise; it doesn't have to be a false choice of one or the other," he told the News Tribune. "It's just not how I view life, and society doesn't work that way either."

Plus, Hodnik says, the better industry is doing, the less the company will have to raise rates for residential and commercial customers.

"As they go, we go."




Allete timeline

• 1906: Duluth Edison Electric Co. incorporated

• 1923: Minnesota Power and Light Co. born of acquisitions and consolidation

• 1923: Superior Water, Light & Power acquired

• 1950: MP&L listed on New York Stock Exchange

• 1988: BNI Energy coal mine in North Dakota acquired

• 1996: Auto auction business ADESA acquired, will grow to major revenue source

• 2000: Corporate name changes to Allete

• 2004: ADESA spun off into separate company

• 2010: Al Hodnik named CEO

• 2011: Allete Clean Energy founded

• 2015: U.S. Water acquired

Brooks Johnson was an enterprise/investigative reporter and business columnist at the Duluth News Tribune from 2016 to 2019.
What To Read Next
Get Local