ALLETE
Jul 27, 2007

Two real estate sales boost ALLETE's second quarter EPS to 80 cents compared to 47 cents in second quarter of 2006

First closing of Sawmill Creek sale included in quarterly results

ALLETE, Inc. (NYSE: ALE) today reported second quarter 2007 earnings per share of 80 cents compared to 47 cents per share in the second quarter a year ago.

Net income in the second quarter of 2007 was $22.6 million on operating revenue of $223.3 million, compared to net income of $13.2 million on operating revenue of $178.3 million in the second quarter of 2006.

ALLETE's Real Estate segment recorded net income of $11.5 million during the second quarter compared to $5.6 million in the corresponding period a year ago. ALLETE Properties closed a $12.6 million sale of property for a Super Target and associated retail stores at its Town Center at Palm Coast development. At its Palm Coast Park development, ALLETE Properties closed a $13.1 million sale to a subsidiary of Lowe Enterprises, which represents the first phase of Lowe's Sawmill Creek project.

"We're particularly pleased to report the first closing of the sale to Lowe," said Don Shippar, ALLETE's Chairman, President and Chief Executive Officer. "The Sawmill Creek development will enhance the value of the surrounding property we are marketing in Palm Coast Park." ALLETE's Regulated Utility net income was down from $6.8 million in the second quarter of 2006 to $6.1 million in 2007, primarily due to higher operations and maintenance costs related to outage schedules at the Boswell and Taconite Harbor Energy Centers. Total kilowatthour sales were about the same as a year ago.

Net income from ALLETE's investment in ATC, which commenced in May of 2006, grew to $1.9 million during the second quarter of 2007, compared to $54,000 in the second quarter a year ago. As of June 30, 2007, ALLETE had an investment balance of $64.4 million in ATC.

ALLETE's other segment recorded net income of $2.5 million in the second quarter of 2007, compared to $321,000 in the second quarter of 2006. The increase was primarily due to a $1.5 million after-tax resolution of a tax audit, and release of a $1 million loan guarantee for the now-vacant Northwest Airlines maintenance base in Duluth.

ALLETE anticipates its earnings will be between $3.00 and $3.05 per share in 2007. This guidance assumes lower real estate sales during the second half of 2007 compared to 2006, normal weather patterns in Minnesota Power's service territory compared to a warmer than normal third quarter in 2006, and higher income from the investment in ATC due to a larger investment balance in 2007. ALLETE's corporate headquarters are located in Duluth, Minnesota. ALLETE provides energy services in the upper Midwest and has significant real estate holdings in Florida. More information about the company is available on ALLETE's Web site at www.allete.com.

The statements contained in this release and statements that ALLETE may make orally in connection with this release that are not historical facts, are forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. These forward-looking statements involve risks and uncertainties, and investors are directed to the risks discussed in documents filed by ALLETE with the Securities and Exchange Commission.