REGULATORY MATTERS

6 Months Ended

Jun. 30, 2025

Regulatory matters are summarized in Note 4. Regulatory Matters to the Consolidated Financial Statements in our 2024 Form 10-K, with additional disclosure provided in the following paragraphs.

Electric Rates. Entities within our Regulated Operations segment file for periodic rate revisions with the MPUC, PSCW or FERC. As authorized by the MPUC, Minnesota Power also recognizes revenue under cost recovery riders for transmission, renewable, and environmental investments and expenditures. Revenue from cost recovery riders was $22.9 million for the six months ended June 30, 2025 ($13.3 million for the six months ended June 30, 2024).

2024 Minnesota General Rate Case. On November 1, 2023, Minnesota Power filed a retail rate increase request with the MPUC that sought an average increase of approximately 12.00 percent for retail customers, net of rider revenue incorporated into base rates. The rate filing sought a return on equity of 10.30 percent and a 53.00 percent equity ratio. On an annualized basis, the requested final rate increase would have generated approximately $89 million in additional revenue. In separate orders dated December 19, 2023, the MPUC accepted the filing as complete and approved an annual interim rate increase of approximately $64 million, net of rider revenue, beginning January 1, 2024, subject to refund.

On May 3, 2024, Minnesota Power entered into a settlement agreement with the Minnesota Department of Commerce, Minnesota Office of the Attorney General, Residential Utilities Division, and Large Power Intervenors to settle the retail rate increase request. As part of the settlement agreement, the parties agreed on all issues, including an overall rate increase of $33.97 million, net of rider revenue and amounts transferring to the fuel adjustment clause, a return on equity of 9.78 percent, all non-financial items and cost allocation. In an order dated November 25, 2024, the MPUC approved the settlement agreement. Final rates were implemented in the first quarter of 2025; interim rates were collected through this period with reserves recorded as necessary, which were refunded to customers in the second quarter of 2025.

2022 Minnesota General Rate Case. Minnesota Power appealed with the Minnesota Court of Appeals (Court) specific aspects of the MPUC’s February 2023 and May 2023 rate case orders for the ratemaking treatment of Taconite Harbor and Minnesota Power’s prepaid pension asset. On September 9, 2024, the Court affirmed the MPUC’s Taconite Harbor treatment, but reversed and remanded the treatment of Minnesota Power’s prepaid pension asset back to the MPUC. The Court directed the MPUC to determine the amount of Minnesota Power’s prepaid pension asset to be included in rate base. On June 26, 2025, the MPUC held a hearing and decided to reopen the record to address whether Minnesota Power has met its burden to prove the size and source of the prepaid pension asset, contributions required by Federal law, and possible allocation between ratepayers and shareholders. We are unable to predict the outcome of this proceeding.

NOTE 2. REGULATORY MATTERS (Continued)

Solar Cost Recovery Rider. Minnesota Power has an approved cost recovery rider in place to charge retail customers on a current basis for solar costs related to investments and expenditures for meeting the state of Minnesota’s solar energy standard. Current customer billing rates were approved by the MPUC in an order dated February 13, 2025.

Fuel Adjustment Clause. Minnesota Power incurred higher fuel and purchased power costs in 2024 than those factored in its fuel adjustment forecast filed in May 2023 for 2024, which resulted in the recognition of a $4.5 million regulatory asset. Minnesota Power submitted its annual true-up filing to the MPUC on March 3, 2025. At a hearing on June 26, 2025, the MPUC approved the filing, and authorized Minnesota Power to refund the regulatory liability over 12 months beginning on September 1, 2025.

Minnesota Power has incurred lower fuel and purchased power costs in 2025 than those factored in its 2025 fuel adjustment forecast filed in May 2024, which resulted in the recognition of a $5.7 million regulatory liability as of June 30, 2025.

Minnesota Power filed its annual forecasted fuel and purchased energy rates for 2026 on May 1, 2025.

Energy Conservation and Optimization (ECO) Plan. On April 1, 2025, Minnesota Power submitted its 2024 ECO annual filing (formerly the Conservation Improvement Plan) detailing Minnesota Power’s ECO plan results and requesting a financial incentive of $2.6 million, which will be recognized upon approval by the MPUC. In 2024, a financial incentive of $2.2 million was recognized in the fourth quarter upon approval by the MPUC of the 2023 ECO annual filing. The financial incentives are recognized in the period in which the MPUC approves the filing.

Integrated Resource Plan. On March 3, 2025, Minnesota Power filed its 2025 IRP, which outlines Minnesota Power’s next steps to provide safe and reliable energy to customers while adding new resources, meeting increasing demand for energy and reducing carbon emissions. The 2025 IRP calls for adding renewable projects, customer-focused demand response, energy storage and natural gas generation, and positions Minnesota Power to cease coal use for its customers at the Boswell Energy Center in Cohasset and meet the requirements of the state of Minnesota’s carbon-free standard. As part of the 2025 IRP, Minnesota Power anticipates maximizing and expanding customer-focused programs including energy efficiency, energy conservation and demand response, adding 400 MW of new wind energy resources by 2035, in addition to the 700 MW of wind and solar announced in its 2021 IRP, expanding energy storage resources by 100 MW by 2035, and adding approximately 1,000 MW of natural gas capacity, including the refuel of Boswell Unit 3 to run solely on natural gas by 2030. Minnesota Power will continue to explore biomass fuel opportunities at Boswell Unit 3 and will develop natural gas replacement options for Boswell Unit 4. A final decision on the 2025 IRP is expected in 2026.

2021 Integrated Resource Plan. In 2021, Minnesota Power filed its 2021 IRP, which was approved by the MPUC in a January 2023 order. The approved 2021 IRP, which reflected a joint agreement reached with various stakeholders, outlined Minnesota Power’s clean-energy transition plans through 2035. Those plans included expanding its renewable energy supply, achieving coal-free operations at its facilities by 2035, and investing in a resilient and flexible transmission and distribution grid. As part of those plans, Minnesota Power is adding up to 700 MW of new wind and solar energy resources, and ceasing coal operations at Boswell Units 3 and 4 by 2030 and 2035, respectively. Minnesota Power’s plans recognized that advances in technology will play a significant role in completing its transition to carbon-free energy supply, reliably and affordably.

Wind Energy Request For Proposals. On August 4, 2025, Minnesota Power announced plans to build a 200 MW wind project in North Dakota, which is expected to be in service in late 2027, subject to regulatory approvals in North Dakota and Minnesota. Minnesota Power also filed a petition with the MPUC on August 4, 2025, requesting approval of investments and expenditures in the wind project for recovery through Minnesota Power’s renewable resources rider.

Regulatory Assets and Liabilities. Our regulated utility operations are subject to accounting standards for the effects of certain types of regulation. Regulatory assets represent incurred costs that have been deferred as they are probable for recovery in customer rates. Regulatory liabilities represent obligations to make refunds to customers and amounts collected in rates for which the related costs have not yet been incurred. The Company assesses quarterly whether regulatory assets and liabilities meet the criteria for probability of future recovery or deferral. The recovery, refund or credit to rates for these regulatory assets and liabilities will occur over the periods either specified by the applicable regulatory authority or over the corresponding period related to the asset or liability.

NOTE 2. REGULATORY MATTERS (Continued)


Regulatory Assets and Liabilities	June 30, 2025	December 31, 2024
Millions
Current Regulatory Assets (a)
Fuel Adjustment Clause	$3.2	—
Other	1.6	$1.6
Total Current Regulatory Assets	$4.8	$1.6
Non-Current Regulatory Assets
Defined Benefit Pension and Other Postretirement Benefit Plans	$197.2	$200.3
Income Taxes	81.4	84.9
Asset Retirement Obligations	43.1	41.0
Taconite Harbor	10.5	17.3
Manufactured Gas Plant	10.8	11.6
Cost Recovery Riders	13.9	5.5
PPACA Income Tax Deferral	3.6	3.7
Fuel Adjustment Clause	0.7	4.5

Other	1.8	2.9
Total Non-Current Regulatory Assets	$363.0	$371.7


Current Regulatory Liabilities (b)
Provision for Interim Rate Refund	—	$23.0
Fuel Adjustment Clause	$2.2	7.2

Other	1.1	1.3
Total Current Regulatory Liabilities	$3.3	$31.5
Non-Current Regulatory Liabilities
Income Taxes	$283.2	$292.7
Wholesale and Retail Contra AFUDC	79.4	77.6
Plant Removal Obligations	78.2	74.2
Non-Jurisdictional Land Sales	74.8	59.7
Defined Benefit Pension and Other Postretirement Benefit Plans	37.2	40.7
Investment Tax Credits	17.4	17.8
Boswell Units 1 and 2 Net Plant and Equipment	6.7	6.7
Fuel Adjustment Clause	5.7	0.6


Other	4.1	0.5
Total Non-Current Regulatory Liabilities	$586.7	$570.5

(a)Current regulatory assets are presented within Prepayments and Other on the Consolidated Balance Sheet.

(b)Current regulatory liabilities are presented within Other Current Liabilities on the Consolidated Balance Sheet.