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ALLETE Unit Inks 5-Year Deal to Supply Power to U.S. Steel

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Minnesota Power, an affiliate of diversified energy company ALLETE, Inc. (ALE - Free Report) , has clinched a five-year deal to supply electricity to U.S. Steel, the largest taconite producer on Minnesota’s Iron Range. Terms of the deal were, however, kept under wraps.

Details of the Deal

The deal extends through Dec 2021. U.S. Steel has a production capacity of 22 million tons of iron ore pellets per year. The company also owns a 14.7% stake in Hibbing Taconite Co., which boasts a production capacity of 9.1 million tons of iron ore pellets per year.

Minnesota Power has filed a plea with the Minnesota Public Utilities Commission for the regulatory approval of the agreement.

As per the company, the latest deal strengthens Minnesota Power’s position as the leading electricity supplier to the Iron Range.


Minnesota Power supplies electricity to six taconite facilities. The subsidiary’s primary customer — the domestic steel industry — is poised for growth on the back of rising automotive sales and improving industrial activity.

At Aug 2016 end, Minnesota Power had 13 electricity supply contracts, with the earliest termination date of Dec 2019.

Industry Outlook

Utility is undoubtedly one of the most stable industries to invest in. Clean energy is projected to be at the top of the agenda in the coming years. On the other hand, we expect utilities to take advantage of the shale boom in the U.S. and falling prices to open more natural gas-fired power plants. Combined-cycle natural gas plants not only help reduce pollution but also lead to energy efficiency.

Meanwhile, a makeover in this space is already underway, with the companies shutting down coal-fired units and focusing on renewable generation.

Per the U.S. Bureau of Labor Statistics, the unemployment rate in Aug 2016 was 4.9%. The level of employment has remained unchanged in the last two months.  As per the U.S. Census Bureau, new single family home sales increased 20.6% year over year in Aug 2016 to 505,000.

The U.S. Energy Information Administration forecasts retail electricity sales to the commercial sector to grow 5.8% in 2016. In addition, U.S. industrial sector sales are expected to jump 19.4% this year.

Zacks Rank & Key Picks

ALLETE carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space include Pinnacle West Capital Corporation (PNW - Free Report) , DTE Energy Company (DTE - Free Report) and Black Hills Corporation (BKH - Free Report) .

DTE Energy with a Zacks Rank #2 (Buy) has witnessed four upward estimate revisions for the full year over the last 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Black Hills with a Zacks Rank #2, has seen one upward estimate revision for 2016 over the last 60 days.

Pinnacle West Capital has a Zacks Rank #2 and its earnings estimates for 2016 remained unchanged over the last 60 days.

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