|
R
|
Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
|
£
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
Minnesota
|
41-0418150
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
Title
of Each Class
|
Name
of Each Stock Exchange
on
Which Registered
|
|
Common
Stock, without par value
|
New
York Stock Exchange
|
Large
Accelerated Filer R
|
Accelerated
Filer £
|
Non-Accelerated
Filer £
|
Smaller
Reporting Company £
|
Definitions
|
3
|
||
Safe Harbor Statement Under the
Private Securities Litigation Reform Act of 1995
|
5
|
||
Part
I
|
|||
Item
1.
|
Business
|
6
|
|
Energy
– Regulated Utility
|
6
|
||
Electric
Sales / Customers
|
6
|
||
Power
Supply
|
10
|
||
Transmission
& Distribution
|
11
|
||
Properties
|
11
|
||
Regulatory
Matters
|
12
|
||
Minnesota
Legislation
|
14
|
||
Competition
|
15
|
||
Franchises
|
15
|
||
Energy
– Nonregulated Energy Operations
|
15
|
||
Energy
– Investment in ATC
|
16
|
||
Real
Estate
|
16
|
||
Seller
Financing
|
17
|
||
Regulation
|
18
|
||
Competition
|
18
|
||
Other
|
18
|
||
Environmental
Matters
|
18
|
||
Employees
|
20
|
||
Executive
Officers of the Registrant
|
21
|
||
Item
1A.
|
Risk
Factors
|
22
|
|
Item
1B.
|
Unresolved
Staff Comments
|
26
|
|
Item
2.
|
Properties
|
26
|
|
Item
3.
|
Legal
Proceedings
|
26
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
26
|
|
Part
II
|
|||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters
and
Issuer
Purchases of Equity Securities
|
26
|
|
Item
6.
|
Selected
Financial Data
|
27
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
28
|
|
Overview
|
28
|
||
2007
Compared to 2006
|
30
|
||
2006
Compared to 2005
|
32
|
||
Critical
Accounting Estimates
|
34
|
||
Outlook
|
36
|
||
Liquidity
and Capital Resources
|
44
|
||
Capital
Requirements
|
48
|
||
Environmental
and Other Matters
|
48
|
||
Market
Risk
|
48
|
||
New
Accounting Standards
|
49
|
||
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
50
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
50
|
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
50
|
|
Item
9A.
|
Controls
and Procedures
|
50
|
|
Item
9B.
|
Other
Information
|
51
|
|
Part
III
|
|||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
52
|
|
Item
11.
|
Executive
Compensation
|
52
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
52
|
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
52
|
|
Item
14.
|
Principal
Accountant Fees and Services
|
52
|
|
Part
IV
|
|||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
53
|
|
Signatures
|
57
|
||
Consolidated Financial
Statements
|
59
|
Abbreviation
or Acronym
|
Term
|
AICPA
|
American
Institute of Certified Public Accountants
|
ALLETE
|
ALLETE,
Inc.
|
ALLETE
Properties
|
ALLETE
Properties, LLC and its subsidiaries
|
AFUDC
|
Allowance
for Funds Used During Construction - the cost of both the debt and equity
funds used to finance utility plant additions during construction
periods
|
AREA
|
Arrowhead
Regional Emission Abatement
|
ATC
|
American
Transmission Company LLC
|
Blandin
Paper
|
UPM,
Blandin Paper Mill
|
BNI
Coal
|
BNI
Coal, Ltd.
|
Boswell
|
Boswell
Energy Center
|
Company
|
ALLETE,
Inc. and its subsidiaries
|
Constellation
Energy Commodities
|
Constellation
Energy Commodities Group, Inc.
|
DOC
|
Minnesota
Department of Commerce
|
DRI
|
Development
of Regional Impact
|
EITF
|
Emerging
Issues Task Force
|
Enventis
Telecom
|
Enventis
Telecom, Inc.
|
EPA
|
Environmental
Protection Agency
|
ESA
|
Electric
Service Agreement
|
ESOP
|
Employee
Stock Ownership Plan
|
FASB
|
Financial
Accounting Standards Board
|
FERC
|
Federal
Energy Regulatory Commission
|
Florida
Landmark
|
Florida
Landmark Communities, Inc.
|
Florida
Water
|
Florida
Water Services Corporation
|
Form
8-K
|
ALLETE
Current Report on Form 8-K
|
Form
10-K
|
ALLETE
Annual Report on Form 10-K
|
Form
10-Q
|
ALLETE
Quarterly Report on Form 10-Q
|
FPL
Energy
|
FPL
Energy, LLC
|
FPSC
|
Florida
Public Service Commission
|
FSP
|
Financial
Accounting Standards Board Staff Position
|
GAAP
|
Accounting
Principles Generally Accepted in the United States
|
Heating
Degree Days
|
Measure
of the extent to which the average daily temperature is below 65 degrees
Fahrenheit, increasing demand for heating
|
Invest
Direct
|
ALLETE’s
Direct Stock Purchase and Dividend Reinvestment Plan
|
IPO
|
Initial
Public Offering
|
kV
|
Kilovolt(s)
|
Laskin
|
Laskin
Energy Center
|
Manitoba
Hydro
|
Manitoba
Hydro Board
|
MBtu
|
Million
British thermal units
|
Mesabi
Nugget
|
Mesabi
Nugget Delaware, LLC
|
Minnesota
Power
|
An
operating division of ALLETE, Inc.
|
Minnkota
Power
|
Minnkota
Power Cooperative, Inc.
|
MISO
|
Midwest
Independent Transmission System Operator, Inc.
|
Moody’s
|
Moody’s
Investors Service, Inc.
|
MPCA
|
Minnesota
Pollution Control Agency
|
MPUC
|
Minnesota
Public Utilities Commission
|
Abbreviation
or Acronym
|
Term
|
MW
/ MWh
|
Megawatt(s)
/ Megawatthour(s)
|
Non-residential
|
Retail
commercial, non-retail commercial, office, industrial, warehouse, storage
and institutional
|
NOX
|
Nitrogen
Oxide
|
Northwest
Airlines
|
Northwest
Airlines, Inc.
|
Note
___
|
Note
___ to the consolidated financial statements in this Form
10-K
|
NPDES
|
National
Pollutant Discharge Elimination System
|
NYSE
|
New
York Stock Exchange
|
OAG
|
Office
of the Attorney General
|
Oliver
Wind I
|
Oliver
Wind I Energy Center
|
Oliver
Wind II
|
Oliver
Wind II Energy Center
|
Palm
Coast Park
|
Palm
Coast Park development project in Florida
|
Palm
Coast Park District
|
Palm
Coast Park Community Development District
|
PolyMet
Mining
|
PolyMet
Mining, Inc.
|
PSCW
|
Public
Service Commission of Wisconsin
|
PUHCA
1935
|
Public
Utility Holding Company Act of 1935
|
PUHCA
2005
|
Public
Utility Holding Company Act of 2005
|
Rainy
River Energy
|
Rainy
River Energy Corporation
|
SEC
|
Securities
and Exchange Commission
|
SFAS
|
Statement
of Financial Accounting Standards No.
|
SO2
|
Sulfur
Dioxide
|
Square
Butte
|
Square
Butte Electric Cooperative
|
Standard
& Poor’s
|
Standard
& Poor’s Ratings Services, a division of The McGraw-Hill Companies,
Inc.
|
SWL&P
|
Superior
Water, Light and Power Company
|
Taconite
Harbor
|
Taconite
Harbor Energy Center
|
Town
Center
|
Town
Center at Palm Coast development project in Florida
|
Town
Center District
|
Town
Center at Palm Coast Community Development District
|
WDNR
|
Wisconsin
Department of Natural Resources
|
·
|
our
ability to successfully implement our strategic
objectives;
|
·
|
our
ability to manage expansion and integrate acquisitions;
|
·
|
prevailing
governmental policies, regulatory actions, and legislation including those
of the United States Congress, state legislatures, the FERC, the MPUC, the
PSCW, and various local and county regulators, and city administrators,
allowed rates of return, financings, industry and rate structure,
acquisition and disposal of assets and facilities, real estate
development, operation and construction of plant facilities, recovery of
purchased power, capital investments and other expenses, present or
prospective wholesale and retail competition (including but not limited to
transmission costs), zoning and permitting of land held for resale and
environmental matters;
|
·
|
the
potential impacts of climate change on our Regulated Utility
operations;
|
·
|
effects
of restructuring initiatives in the electric industry;
|
·
|
economic
and geographic factors, including political and economic
risks;
|
·
|
changes
in and compliance with laws and policies;
|
·
|
weather
conditions;
|
·
|
natural
disasters and pandemic diseases;
|
·
|
war
and acts of terrorism;
|
·
|
wholesale
power market conditions;
|
·
|
population
growth rates and demographic patterns;
|
·
|
effects
of competition, including competition for retail and wholesale
customers;
|
·
|
changes
in the real estate market;
|
·
|
pricing
and transportation of commodities;
|
·
|
changes
in tax rates or policies or in rates of inflation;
|
·
|
unanticipated
project delays or changes in project costs;
|
·
|
availability
and management of construction
materials and skilled construction labor for capital
projects;
|
·
|
unanticipated
changes in operating expenses, capital and land
development expenditures;
|
·
|
global
and domestic economic conditions;
|
·
|
our
ability to access capital markets and
bank financing;
|
·
|
changes
in interest rates and the performance of the financial
markets;
|
·
|
our
ability to replace a mature workforce and retain qualified, skilled and
experienced personnel; and
|
·
|
the
outcome of legal and administrative proceedings (whether civil or
criminal) and settlements that affect the business and profitability of
ALLETE.
|
Item
1.
|
Business
|
|
·
|
Regulated Utility
includes retail and wholesale rate regulated electric, natural gas and
water services in northeastern Minnesota and northwestern
Wisconsin under the jurisdiction of state and federal regulatory
authorities.
|
|
·
|
Nonregulated Energy
Operations includes our coal mining activities in North Dakota,
approximately 50 MW of nonregulated generation and Minnesota land
sales.
|
|
·
|
Investment in ATC
includes our equity ownership interest in
ATC.
|
Year
Ended December 31
|
2007
|
2006
|
2005
|
Consolidated
Operating Revenue – Millions
|
$841.7
|
$767.1
|
$737.4
|
Percentage
of Consolidated Operating Revenue
|
|||
Regulated
Utility
|
86
|
83
|
78
|
Nonregulated
Energy Operations
|
8
|
9
|
16
|
Real
Estate
|
6
|
8
|
6
|
100%
|
100%
|
100%
|
Regulated Utility Electric Sales
Year Ended December 31
|
2007
|
%
|
2006
|
%
|
2005
|
%
|
Millions
of Kilowatthours
|
||||||
Retail
and Municipals
|
||||||
Residential
|
1,141
|
9
|
1,100
|
9
|
1,102
|
10
|
Commercial
|
1,373
|
11
|
1,335
|
10
|
1,327
|
11
|
Industrial
|
7,054
|
55
|
7,206
|
56
|
7,130
|
61
|
Municipals
and Other
|
1,092
|
8
|
990
|
8
|
956
|
8
|
10,660
|
83
|
10,631
|
83
|
10,515
|
90
|
|
Other
Power Suppliers (a)
|
2,157
|
17
|
2,153
|
17
|
1,142
|
10
|
12,817
|
100
|
12,784
|
100
|
11,657
|
100
|
(a)
|
Effective
January 1, 2006, Taconite Harbor was redirected from Nonregulated Energy
Operations to Regulated
Utility.
|
Industrial
Customer Electric Sales
Year
Ended December 31
|
2007
|
%
|
2006
|
%
|
2005
|
%
|
||
Millions
of Kilowatthours
|
||||||||
Taconite
Producers
|
4,408
|
62
|
4,517
|
63
|
4,558
|
64
|
||
Paper,
Pulp and Wood Products
|
1,613
|
23
|
1,689
|
23
|
1,623
|
23
|
||
Pipelines
|
562
|
8
|
550
|
8
|
480
|
7
|
||
Other
Industrial
|
471
|
7
|
450
|
6
|
469
|
6
|
||
7,054
|
100
|
7,206
|
100
|
7,130
|
100
|
Minimum
Revenue and Demand Under Contract
As
of February 1, 2008
|
Minimum
Annual
Demand
Revenue (a,b)
|
Monthly
Megawatts
|
2008
|
$64.1
million
|
401
|
2009
|
$27.5
million
|
154
|
2010
|
$25.5
million
|
148
|
2011
|
$25.3
million
|
148
|
2012
|
$15.6
million
|
88
|
(a)
|
Based
on past experience, we believe revenue from our Large Power Customers will
be substantially in excess of the minimum contract amounts. For example,
in our 2006 Form 10-K we stated that 2007 minimum annual revenue demand
from these Large Power Customers would be $62.5 million. Actual 2007
demand revenue from these Large Power Customers was
$118.7 million.
|
(b)
|
Although
several contracts have a feature that allows demand to go to zero after a
two-year advance notice of a permanent closure, this minimum revenue
summary does not reflect this occurrence happening in the forecasted
period because we believe it is
unlikely.
|
Customer
|
Industry
|
Location
|
Ownership
|
Earliest
Termination
Date
|
Hibbing
Taconite Co. (a)
|
Taconite
|
Hibbing,
MN
|
62.3%
Mittal Steel USA Inc.
23%
Cleveland-Cliffs Inc
14.7%
United States Steel (USS)
|
February
29, 2012
|
ArcelorMittal
USA – Minorca Mine
|
Taconite
|
Virginia,
MN
|
ArcelorMittal
USA Inc.
|
December
31, 2013
|
United
States Steel Corporation
(USS)
Minntac
|
Taconite
|
Mt.
Iron, MN
|
USS
|
October
31, 2014
|
USS
Keewatin Taconite
|
Taconite
|
Keewatin,
MN
|
USS
|
October
31, 2014
|
United
Taconite LLC (a)
|
Taconite
|
Eveleth,
MN
|
70%
Cleveland-Cliffs Inc
30%
Laiwu Steel Group
|
February
29, 2012
|
UPM,
Blandin Paper Mill (a)
|
Paper
|
Grand
Rapids, MN
|
UPM-Kymmene
Corporation
|
February
29, 2012
|
Boise
White Paper, LLC (b)
|
Paper
|
International
Falls, MN
|
Madison Dearborn Partnership
|
February
28, 2009
|
Sappi
Cloquet LLC (a)
|
Paper
|
Cloquet,
MN
|
Sappi
Limited
|
February
29, 2012
|
NewPage
Corporation – Duluth Mills
|
Paper
and Pulp
|
Duluth,
MN
|
NewPage
Corporation
|
August
31, 2013
|
USG
Interiors, Inc. (b)
|
Manufacturer
|
Cloquet,
MN
|
USG
Corporation
|
February
28, 2009
|
Enbridge
Energy Company,
Limited
Partnership (b)
|
Pipeline
|
Deer
River, MN
Floodwood,
MN
|
Enbridge
Energy Company,
Limited
Partnership
|
February
28, 2009
|
Minnesota
Pipeline Company (b)
|
Pipeline
|
Staples,
MN
Little
Falls, MN
Park
Rapids, MN
|
60%
Koch Pipeline Co. L.P.
40%
Marathon Ashland
Petroleum
LLC
|
February
28, 2009
|
(a)
|
The
contract will terminate four years from the date of written notice from
either Minnesota Power or the customer. No notice of contract cancellation
has been given by either party. Thus, the earliest date of cancellation is
February 29, 2012.
|
(b)
|
The
contract will terminate one year from the date of written notice from
either Minnesota Power or the customer. No notice of contract cancellation
has been given by either party. Thus, the earliest date of cancellation is
February 28, 2009.
|
Regulated
Utility
Power
Supply
|
Unit
No.
|
Year
Installed
|
Net
Winter
Capability
|
For the Year Ended
December 31,
2007
Electric Requirements
|
|
MW
|
MWh
|
%
|
|||
Coal-Fired
|
|||||
Boswell
Energy Center
|
1
|
1958
|
69
|
||
in
Cohasset, MN
|
2
|
1960
|
69
|
||
3
|
1973
|
350
|
|||
4
|
1980
|
429
|
|||
917
|
6,005,520
|
45.7%
|
|||
Laskin
Energy Center
|
1
|
1953
|
55
|
||
in
Hoyt Lakes, MN
|
2
|
1953
|
54
|
||
109
|
591,499
|
4.5
|
|||
Taconite
Harbor Energy Center
|
1,
2 & 3
|
1957,
1957
|
|||
in
Taconite Harbor, MN
|
1967
|
220
|
1,491,457
|
11.4
|
|
Total
Coal
|
1,246
|
8,088,476
|
61.6
|
||
Purchased
Steam
|
|||||
Hibbard
Energy Center in Duluth, MN
|
3
& 4
|
1949,
1951
|
47
|
53,354
|
0.4
|
Hydro
|
|||||
Group
consisting of ten stations in MN
|
Various
|
115
|
428,153
|
3.3
|
|
Total
Company Generation
|
1,408
|
8,569,983
|
65.3
|
||
Long
Term Purchased Power
|
|||||
Square
Butte burns lignite coal near Center, ND
|
273
|
1,533,186
|
11.7
|
||
Wind
– Oliver County, ND (a)
|
20
|
203,675
|
1.5
|
||
Total
Long Term Purchased Power
|
293
|
1,736,861
|
13.2
|
||
Other
Purchased Power – Net (b)
|
–
|
2,819,715
|
21.5
|
||
Total
Purchased Power
|
293
|
4,556,576
|
34.7
|
||
Total
|
1,701
|
13,126,559
|
100.0%
|
(a)
|
The
nameplate capacity of Oliver Wind I Energy Center is 50-MWs and 48-MWs for
the Oliver Wind II Energy Center. The capacity reflected in the table is
actual accredited capacity of the facility. Accredited capacity is the
amount of net generating capability associated with the facility for which
capacity credit may be obtained under applicable Mid-Continent Area Power
Pool (MAPP) rules.
|
(b)
|
Includes
short term market purchases in the MISO market and from other power
suppliers.
|
Coal
Delivered to Minnesota Power
Year
Ended December 31
|
2007
|
2006
|
2005
|
Average
Price per Ton
|
$21.78
|
$20.19
|
$19.76
|
Average
Price per MBtu
|
$1.20
|
$1.10
|
$1.08
|
|
·
|
rulemaking
for long-term transmission rights;
|
|
·
|
dockets
pertaining to the development and certification of electric reliability
organizations, including delegated authority to regional entities for
proposing and enforcing reliability
standards;
|
|
·
|
rules
specifying the form of applications for federal construction permits to be
issued in the exercise of federal backstop siting authority for
transmission projects;
|
|
·
|
rulemaking
requiring unregulated transmitting utilities to provide open access to
their transmission systems;
|
|
·
|
various
rulemakings regarding the consideration of merger applications under the
revised Federal Power Act Section
203;
|
|
·
|
a
U.S. Department of Energy study/report on the benefits of economic
dispatch and a report on recommendations of regional joint boards that
considered economic dispatch;
|
|
·
|
rulemaking
to facilitate transmission market transparency;
and
|
|
·
|
the
energy market manipulation
rulemaking.
|
|
·
|
"As-needed"
peaking and intermediate generation
facilities;
|
|
·
|
Expiration
of wholesale contracts presently in
place;
|
|
·
|
Short-term
market purchases;
|
|
·
|
Improved
efficiency of existing generation and power delivery assets;
and
|
|
·
|
Expanded
conservation and demand-side management
initiatives.
|
Nonregulated
Power Supply
|
Unit
No.
|
Year
Installed
|
Year
Acquired
|
Net
Capability
|
MW
|
||||
Steam
|
||||
Wood-Fired
(a)
|
||||
Cloquet
Energy Center
|
5
|
2001
|
2001
|
22
|
in
Cloquet, MN
|
||||
Rapids
Energy Center (b)
|
6
& 7
|
1969,
1980
|
2000
|
29
|
in
Grand Rapids, MN
|
||||
Hydro
|
||||
Conventional
Run-of-River
|
||||
Rapids
Energy Center (b)
|
4
& 5
|
1917
|
2000
|
1
|
in
Grand Rapids, MN
|
(a)
|
Supplemented
by coal.
|
(b)
|
The
net generation is primarily dedicated to the needs of one
customer.
|
(1)
|
make
emissions reductions (See AREA and Boswell Unit 3 Emission Reduction Plans
for discussion of current emission reduction
initiatives);
|
(2)
|
purchase SO2 and
NOX
allowances through the EPA’s cap-and-trade system (See CAIR Phase I
NOX
Allowance Purchases below); and/or
|
(3)
|
use
a combination of both (1) and (2).
|
Executive Officers
|
Initial Effective Date
|
Donald J. Shippar, Age
58
|
|
Chairman,
President and Chief Executive Officer
|
January
1, 2006
|
President
and Chief Executive Officer
|
January
21, 2004
|
Executive
Vice President – ALLETE and President – Minnesota Power
|
May
13, 2003
|
President
and Chief Operating Officer – Minnesota Power
|
January
1, 2002
|
Deborah A. Amberg, Age
42
|
|
Senior
Vice President, General Counsel and Secretary
|
January
1, 2006
|
Vice
President, General Counsel and Secretary
|
March
8, 2004
|
Steven Q. DeVinck, Age
48
|
|
Controller
|
July
12, 2006
|
Laura A. Holquist, Age
46
|
|
President
– ALLETE Properties, LLC
|
September
6, 2001
|
Mark A. Schober, Age
52
|
|
Senior
Vice President and Chief Financial Officer
|
July
1, 2006
|
Senior
Vice President and Controller
|
February
1, 2004
|
Vice
President and Controller
|
April
18, 2001
|
Donald W. Stellmaker,
Age 50
|
|
Treasurer
|
July
24, 2004
|
Claudia Scott Welty, Age
55
|
|
Senior
Vice President and Chief Administrative Officer
|
February
1, 2004
|
|
Ms. Amberg was a Senior
Attorney.
|
|
Mr. DeVinck was
Director of Nonutility Business Development, and Assistant Controller.
|
|
Mr. Stellmaker was
Director of Financial Planning.
|
|
Ms. Welty was Vice
President Strategy and Technology
Development.
|
|
·
|
severe
or unexpected weather conditions;
|
|
·
|
seasonality;
|
|
·
|
changes
in electricity usage;
|
|
·
|
transmission
or transportation constraints, inoperability or
inefficiencies;
|
|
·
|
availability
of competitively priced alternative energy
sources;
|
|
·
|
changes
in supply and demand for energy;
|
|
·
|
changes
in power production capacity;
|
|
·
|
outages
at Minnesota Power’s generating facilities or those of our
competitors;
|
|
·
|
changes
in production and storage levels of natural gas, lignite, coal, crude oil
and refined products;
|
|
·
|
natural
disasters, wars, sabotage, terrorist acts or other catastrophic events;
and
|
|
·
|
federal,
state, local and foreign energy, environmental, or other regulation and
legislation.
|
Item
1B.
|
Unresolved
Staff Comments
|
Item
2.
|
Properties
|
Item
3.
|
Legal
Proceedings
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
2007
|
2006
|
|||||
Price
Range
|
Dividends
|
Price
Range
|
Dividends
|
|||
Quarter
|
High
|
Low
|
Declared
|
High
|
Low
|
Declared
|
First
|
$49.69
|
$44.93
|
$0.4100
|
$47.81
|
$42.99
|
$0.3625
|
Second
|
51.30
|
45.39
|
0.4100
|
48.55
|
44.34
|
0.3625
|
Third
|
50.05
|
38.60
|
0.4100
|
49.30
|
43.26
|
0.3625
|
Fourth
|
46.48
|
38.17
|
0.4100
|
47.84
|
42.55
|
0.3625
|
Annual
Total
|
$1.640
|
$1.450
|
||||
Dividend
Payout Ratio
|
53%
|
53%
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||
Operating
Revenue
|
$841.7
|
$767.1
|
$737.4
|
$704.1
|
$659.6
|
|||||
Operating
Expenses
|
708.0
|
626.4
|
692.3
|
(d)
|
603.2
|
561.9
|
||||
Income
from Continuing Operations Before Change in Accounting
Principle
|
87.6
|
77.3
|
17.6
|
(d)
|
38.5
|
29.2
|
||||
Income
(Loss) from Discontinued Operations – Net of Tax
|
–
|
(0.9)
|
(4.3)
|
73.7
|
207.2
|
(f)
|
||||
Change
in Accounting Principle – Net of Tax
|
–
|
–
|
–
|
(7.8)
|
(b)
|
–
|
||||
Net
Income
|
87.6
|
76.4
|
13.3
|
104.4
|
236.4
|
|||||
Common
Stock Dividends
|
44.3
|
40.7
|
34.4
|
79.7
|
93.2
|
|||||
Earnings
Retained in (Distributed from) Business
|
$43.3
|
$35.7
|
$(21.1)
|
$24.7
|
$143.2
|
|||||
Shares
Outstanding – Millions
|
||||||||||
Year-End
|
30.8
|
30.4
|
30.1
|
29.7
|
29.1
|
|||||
Average (c)
|
||||||||||
Basic
|
28.3
|
27.8
|
27.3
|
28.3
|
27.6
|
|||||
Diluted
|
28.4
|
27.9
|
27.4
|
28.4
|
27.8
|
|||||
Diluted
Earnings (Loss) Per Share
|
||||||||||
Continuing
Operations
|
$3.08
|
$2.77
|
$0.64
|
(d)
|
$1.35
|
(e)
|
$1.05
|
|||
Discontinued
Operations
|
–
|
(0.03)
|
(0.16)
|
2.59
|
7.47
|
(f)
|
||||
Change
in Accounting Principle
|
–
|
–
|
–
|
(0.27)
|
–
|
|||||
$3.08
|
$2.74
|
$0.48
|
$3.67
|
$8.52
|
||||||
Total
Assets
|
$1,644.2
|
$1,533.4
|
(a)
|
$1,398.8
|
$1,431.4
|
$3,101.3
|
||||
Long-Term
Debt
|
410.9
|
359.8
|
387.8
|
389.4
|
513.9
|
|||||
Return
on Common Equity
|
12.4%
|
12.1%
|
2.2%
|
(d)
|
8.3%
|
17.7%
|
||||
Common
Equity Ratio
|
63.7%
|
63.1%
|
60.7%
|
61.7%
|
64.4%
|
|||||
Dividends
Declared per Common Share
|
$1.6400
|
$1.4500
|
$1.2450
|
$2.8425
|
$3.3900
|
|||||
Dividend
Payout Ratio
|
53%
|
53%
|
259%
|
(d)
|
77%
|
40%
|
||||
Book
Value Per Share at Year-End
|
$24.11
|
$21.90
|
$20.03
|
$21.23
|
$50.18
|
|||||
Capital
Expenditures by Segment
|
||||||||||
Regulated
Utility Operations
|
$220.6
|
$107.5
|
$46.5
|
$41.7
|
$42.2
|
|||||
Non
Regulated Utility
|
3.3
|
1.9
|
12.1
|
15.7
|
26.5
|
|||||
Real
Estate
(h)
|
–
|
–
|
–
|
–
|
–
|
|||||
Other
|
–
|
–
|
–
|
0.4
|
–
|
|||||
Discontinued
Operations
|
–
|
–
|
4.5
|
21.4
|
67.6
|
|||||
Total
Capital Expenditures
|
$223.9
|
$109.4
|
$63.1
|
$79.2
|
$136.3
|
|||||
Current
Cost Recovery (g)
|
$145
|
$27
|
–
|
–
|
–
|
(a)
|
Included
$86.1 million of assets and $107.6 million of liabilities reflecting the
adoption of SFAS 158 “Employers’ Accounting for Defined Benefit Pension
and Other Postretirement Plans.” (See Notes 2 and
16.)
|
(b)
|
Reflected
the cumulative effect on prior years (to December 2003) of changing to the
equity method of accounting for investments in limited liability companies
included in our emerging technology portfolio. (See Note
6.)
|
(c)
|
Excludes
unallocated ESOP shares.
|
(d)
|
Impacted
by a $50.4 million, or $1.84 per share, charge related to the assignment
of the Kendall County power purchase agreement (See Note 10.), a $2.5
million, or $0.09 per share, deferred tax benefit due to comprehensive
state tax planning initiatives, and a $3.7 million, or $0.13 per
share, current tax benefit due to a positive resolution of income tax
audit issues.
|
(e)
|
Included
a $10.9 million, or $0.38 per share, after-tax debt prepayment cost
incurred as part of ALLETE’s financial restructuring in preparation for
the spin-off of the Automotive Services business and an $11.5 million, or
$0.41 per share, gain on the sale of ADESA shares related to the Company’s
ESOP (see Note 16).
|
(f)
|
Included
a $71.6 million, or $2.59 per share, gain on the sale of the Water
Services businesses.
|
(g)
|
Estimated
current capital expenditures recoverable outside of a rate
case.
|
(h)
|
Excludes
capitalized improvements on our development projects, which are included
in inventory. (See Note 6.)
|
|
·
|
Regulated Utility
includes retail and wholesale rate regulated electric, natural gas and
water services in northeastern Minnesota and northwestern
Wisconsin under the jurisdiction of state and federal regulatory
authorities.
|
|
·
|
Nonregulated Energy
Operations includes our coal mining activities in North Dakota,
approximately 50 MW of nonregulated generation and Minnesota land
sales.
|
|
·
|
Investment in ATC
includes our equity ownership interest in
ATC.
|
|
·
|
increased
electric sales to residential, commercial and municipal
customers;
|
|
·
|
continued
strong demand from our industrial
customers;
|
|
·
|
rate
increases, effective January 1, 2007, at
SWL&P;
|
|
·
|
commencement
of current cost recovery on AREA project environmental capital
expenditures;
|
|
·
|
higher
AFUDC related to increased capital
expenditures;
|
|
·
|
increased
operations and maintenance expense, relating to outages and salary and
wage increases; and
|
|
·
|
a
lower effective tax rate.
|
Kilowatthours
Sold
|
2007
|
2006
|
2005
|
Millions
|
|||
Regulated
Utility
|
|||
Retail
and Municipals
|
|||
Residential
|
1,141
|
1,100
|
1,102
|
Commercial
|
1,373
|
1,335
|
1,327
|
Industrial
|
7,054
|
7,206
|
7,130
|
Municipals
|
1,008
|
911
|
877
|
Other
|
84
|
79
|
79
|
Total
Retail and Municipals
|
10,660
|
10,631
|
10,515
|
Other
Power Suppliers
|
2,157
|
2,153
|
1,142
|
Total
Regulated Utility
|
12,817
|
12,784
|
11,657
|
Nonregulated
Energy Operations
|
249
|
240
|
1,521
|
Total
Kilowatthours Sold
|
13,066
|
13,024
|
13,178
|
Real
Estate
|
2007
|
2006
|
2005
|
|||
Revenue
and Sales Activity (a)
|
Quantity
|
Amount
|
Quantity
|
Amount
|
Quantity
|
Amount
|
Dollars
in Millions
|
||||||
Revenue
from Land Sales
|
||||||
Town
Center Sales
|
||||||
Non-residential
Sq. Ft.
|
540,059
|
$15.0
|
401,971
|
$10.8
|
643,000
|
$15.2
|
Residential
Units
|
130
|
1.6
|
773
|
12.9
|
–
|
–
|
Palm
Coast Park
|
||||||
Non-residential
Sq. Ft.
|
40,000
|
2.0
|
–
|
–
|
–
|
–
|
Residential
Unit
|
606
|
13.2
|
200
|
3.0
|
–
|
–
|
Other
Land Sales
|
||||||
Acres (b)
|
483
|
10.6
|
732
|
24.4
|
1,102
|
38.1
|
Lots
|
–
|
–
|
–
|
–
|
7
|
0.4
|
Contract
Sales Price (c)
|
42.4
|
51.1
|
53.7
|
|||
Revenue
Recognized from
|
||||||
Previously
Deferred Sales
|
3.1
|
9.7
|
–
|
|||
Deferred
Revenue
|
(1.2)
|
(3.8)
|
(10.0)
|
|||
Adjustments
(d)
|
–
|
(0.9)
|
(1.7)
|
|||
Revenue
from Land Sales
|
44.3
|
56.1
|
42.0
|
|||
Other
Revenue
|
6.2
|
6.5
|
5.5
|
|||
$50.5
|
$62.6
|
$47.5
|
(a)
|
Quantity
amounts are approximate until final
build-out.
|
(b)
|
Acreage
amounts are shown on a gross basis, including wetlands and minority
interest.
|
(c)
|
Reflected
total contract sales price on closed land transactions. Land sales are
recorded using a percentage-of-completion method. (See Critical Accounting
Estimates and Note 2.)
|
(d)
|
Contributed
development dollars, which are credited to cost of real estate
sold.
|
|
·
|
scheduled
outage at Boswell Unit 3;
|
|
·
|
scheduled
outages at Laskin Unit 1 and Taconite Harbor Unit 2 relating to AREA Plan
environmental upgrades; and
|
|
·
|
unscheduled
outages at Boswell Unit 4.
|
|
·
|
New
FERC-approved wholesale rates effective March 1,
2008;
|
|
·
|
Minnesota
Power’s intention to file a retail rate case with the MPUC in mid-2008,
with interim rates in effect 60 days
later;
|
|
·
|
Minnesota
Power’s expectation that electricity sales to industrial customers will
continue at the current high levels during
2008;
|
|
·
|
increased
revenue from current cost recovery riders related to the Company’s
investments in environmental and renewable energy
initiatives;
|
|
·
|
increased
operation and maintenance expenses, including labor and benefit
costs;
|
|
·
|
increased
financing costs associated with the 2008 capital expenditure
program;
|
|
·
|
anticipation
of approximately $316 million in capital expenditures in 2008, about half
of which will be invested in environmental and renewable energy
initiatives;
|
|
·
|
the
expectation of ALLETE investing an additional $5 to $7 million in ATC in
2008;
|
|
·
|
a
continuation of the difficult market conditions;
and
|
|
·
|
an
expectation that net income in 2008 will be less than in
2007.
|
|
·
|
"As-needed"
peaking and intermediate generation
facilities;
|
|
·
|
Expiration
of wholesale contracts presently in
place;
|
|
·
|
Short-term
market purchases;
|
|
·
|
Improved
efficiency of existing generation and power delivery assets;
and
|
|
·
|
Expanded
conservation and demand-side management
initiatives.
|
|
·
|
We
will consider only carbon minimizing resources to supply power to our
customers. We will not consider a new coal resource without a carbon
emission solution.
|
|
·
|
We
will aggressively pursue Minnesota’s Renewable Energy Standard by adding
significant renewable resources to our portfolio of generation facilities
and power supply agreements.
|
|
·
|
We
will continue to improve the efficiency of coal-based generation
facilities.
|
|
·
|
We
plan to implement aggressive demand side conservation
efforts.
|
|
·
|
We
will continue to support research of technologies to reduce carbon
emissions from generation facilities and support carbon sequestration
efforts.
|
|
·
|
We
plan to achieve overall carbon emission reductions while maintaining
competitively priced electric service to our
customers.
|
Summary
of Development Projects
For
the Year Ended
December
31, 2007
|
Ownership
|
Total
Acres
(a)
|
Residential
Units
(b)
|
Non-residential
Sq.
Ft. (b, c)
|
Town
Center
|
80%
|
|||
At
December 31, 2006
|
1,356
|
2,222
|
2,705,310
|
|
Property
Sold
|
(99)
|
(130)
|
(540,059)
|
|
Change
in Estimate (a)
|
(266)
|
197
|
62,949
|
|
991
|
2,289
|
2,228,200
|
||
Palm
Coast Park
|
100%
|
|||
At
December 31, 2006
|
4,337
|
3,760
|
3,156,800
|
|
Property
Sold
|
(888)
|
(606)
|
(40,000)
|
|
Change
in Estimate (a)
|
(13)
|
–
|
–
|
|
3,436
|
3,154
|
3,116,800
|
||
Ormond
Crossings
|
100%
|
|||
At
December 31, 2006
|
5,960
|
(d)
|
(d)
|
|
Change
in Estimate (a)
|
8
|
|||
5,968
|
||||
10,395
|
5,443
|
5,345,000
|
(a)
|
Acreage
amounts are approximate and shown on a gross basis, including wetlands and
minority interest.
|
(b)
|
Estimated
and includes minority interest. Density at build out may differ from these
estimates.
|
(c)
|
Depending
on the project, non-residential includes retail commercial, non-retail
commercial, office, industrial, warehouse, storage and
institutional.
|
(d)
|
A development order approved
by the City of Ormond Beach includes up to 3,700 residential units and 5
million square feet of non-residential space. We estimate the first two
phases of Ormond Crossings will include 2,500-3,200 residential units
and 2.5-3.5 million square feet of various types of non-residential
space. Density of the residential and
non-residential components of the project will be determined based upon
market and traffic mitigation cost considerations.
Approximately
2,000 acres will be devoted to a regionally significant wetlands
mitigation bank.
|
Summary
of Other Land Inventories
For
the Year Ended
December
31, 2007
|
Ownership
|
Total
|
Mixed
Use
|
Residential
|
Non-residential
|
Agricultural
|
Acres
(a)
|
||||||
Palm
Coast Holdings
|
80%
|
|||||
At
December 31, 2006
|
2,136
|
1,404
|
346
|
247
|
139
|
|
Property
Sold
|
(111)
|
(78)
|
–
|
(14)
|
(19)
|
|
Change
in Estimate (a)
|
(1,160)
|
(964)
|
(239)
|
96
|
(53)
|
|
865
|
362
|
107
|
329
|
67
|
||
Lehigh
|
80%
|
|||||
At
December 31, 2006
|
223
|
–
|
140
|
74
|
9
|
|
Change
in Estimate (a)
|
6
|
–
|
–
|
–
|
6
|
|
229
|
–
|
140
|
74
|
15
|
||
Cape
Coral
|
100%
|
|||||
At
December 31, 2006
|
30
|
–
|
1
|
29
|
–
|
|
Property
Sold
|
(8)
|
–
|
–
|
(8)
|
–
|
|
22
|
–
|
1
|
21
|
–
|
||
Other
(b)
|
100%
|
|||||
At
December 31, 2006
|
934
|
–
|
–
|
–
|
934
|
|
Property
Sold
|
(364)
|
–
|
–
|
–
|
(364)
|
|
Change
in Estimate
(a)
|
(113)
|
–
|
–
|
–
|
(113)
|
|
457
|
–
|
–
|
–
|
457
|
||
1,573
|
362
|
248
|
424
|
539
|
(a)
|
Acreage
amounts are approximate and shown on a gross basis, including wetlands
and minority interest.
|
(b)
|
Includes
land located in Palm Coast, Florida not included in development
projects.
|
Real
Estate
|
||
Pending
Contracts (a,
b)
|
Contract
|
|
At
December 31, 2007
|
Quantity
(c)
|
Sales
Price
|
Dollars
in Millions
|
||
Town
Center
|
||
Non-residential
Sq. Ft.
|
304,000
|
$9.6
|
Residential
Units
|
490
|
9.3
|
Palm
Coast Park
|
||
Non-residential
Sq. Ft.
|
–
|
–
|
Residential
Units
|
1,263
|
31.9
|
Other
Land
|
||
Acres
|
123
|
4.4
|
Total
Pending Land Sales Under Contract
|
$55.2
|
(a)
|
For
the year ended December 31, 2007, we had contract cancellations totaling
$22.1 million.
|
(b)
|
Pending
contracts are contracts for which the due diligence period has ended, and
the contract deposit is non-refundable subject to performance by the
seller.
|
(c)
|
Acreage
amounts are approximate and shown on a gross basis, including wetlands
and minority interest. Non-residential square feet and residential
units are estimated and include minority interest. The actual property
densities at build-out may differ from these
estimates.
|
Payments
Due by Period
|
|||||
Contractual
Obligations
|
Less
than
|
1
to 3
|
4
to 5
|
After
|
|
As
of December 31, 2007
|
Total
|
1
Year
|
Years
|
Years
|
5
Years
|
Millions
|
|||||
Long-Term
Debt (a)
|
$760.2
|
$33.7
|
$79.6
|
$47.7
|
$599.2
|
Operating
Lease Obligations
|
86.4
|
8.1
|
23.0
|
12.4
|
42.9
|
FIN
48 – Uncertain Tax Positions
|
4.5
|
2.0
|
2.5
|
–
|
–
|
Unconditional
Purchase Obligations
|
407.7
|
114.2
|
64.7
|
28.8
|
200.0
|
$1,258.8
|
$158.0
|
$169.8
|
$88.9
|
$842.1
|
Credit
Ratings
|
Standard
& Poor’s
|
Moody’s
|
Issuer
Credit Rating
|
BBB+
|
Baa2
|
Commercial
Paper
|
A-2
|
P-2
|
Senior
Secured
|
||
First
Mortgage Bonds
|
A–
|
Baa1
|
Pollution
Control Bonds
|
A–
|
Baa1
|
Unsecured
Debt
|
||
Collier
County Industrial Development Revenue Bonds – Fixed Rate
|
BBB
|
–
|
Capital
Expenditures (a)
|
2008
|
2009
|
2010
|
2011
|
2012
|
Total
|
||
Regulated
Utility Operations
|
||||||||
Base
and Other
|
$121
|
$136
|
$173
|
$158
|
$151
|
$739
|
||
Current
Cost Recovery (b)
|
||||||||
Environmental
|
130
|
68
|
12
|
–
|
23
|
233
|
||
Renewable
|
54
|
158
|
97
|
108
|
64
|
481
|
||
Transmission
|
11
|
17
|
15
|
20
|
15
|
78
|
||
Total
Current Cost Recovery
|
195
|
243
|