|
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
|
|
Regulated
Operations
|
6
|
||
Electric
Sales / Customers
|
6
|
||
Power
Supply
|
9
|
||
Transmission
and Distribution
|
11
|
||
Investment
in ATC
|
11
|
||
Properties
|
11
|
||
Regulatory
Matters
|
12
|
||
Regional
Organizations
|
13
|
||
Minnesota
Legislation
|
14
|
||
Competition
|
14
|
||
Franchises
|
14
|
||
Investments
and Other
|
15
|
||
BNI
Coal
|
15
|
||
ALLETE
Properties
|
15
|
||
Non-Rate
Base Generation
|
16
|
||
Other
|
16
|
||
Environmental
Matters
|
16
|
||
Employees
|
18
|
||
Availability of Information | 18 | ||
Executive
Officers of the Registrant
|
19
|
||
Item
1A.
|
Risk
Factors
|
20
|
|
Item
1B.
|
Unresolved
Staff Comments
|
23
|
|
Item
2.
|
Properties
|
23
|
|
Item
3.
|
Legal
Proceedings
|
23
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
23
|
|
Part
II
|
|||
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters
and
Issuer
Purchases of Equity Securities
|
23
|
|
Item
6.
|
Selected
Financial Data
|
24
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
25
|
|
Overview
|
25
|
||
2008
Compared to 2007
|
25
|
||
2007
Compared to 2006
|
27
|
||
Critical
Accounting Estimates
|
29
|
||
Outlook
|
31
|
||
Liquidity
and Capital Resources
|
37
|
||
Capital
Requirements
|
40
|
||
Environmental
and Other Matters
|
40
|
||
Market
Risk
|
40
|
||
New
Accounting Standards
|
41
|
||
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
41
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
41
|
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
41
|
|
Item
9A.
|
Controls
and Procedures
|
42
|
|
Item
9B.
|
Other
Information
|
42
|
|
Part
III
|
|||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
43
|
|
Item
11.
|
Executive
Compensation
|
43
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
43
|
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
43
|
|
Item
14.
|
Principal
Accounting Fees and Services
|
43
|
|
Part
IV
|
|||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
44
|
|
Signatures
|
48
|
||
Consolidated
Financial Statements
|
50
|
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 debt and equity
funds used to finance utility plant additions during construction
periods
|
AREA
|
Arrowhead
Regional Emission Abatement
|
ATC
|
American
Transmission Company LLC
|
BNI
Coal
|
BNI
Coal, Ltd.
|
Boswell
|
Boswell
Energy Center
|
Company
|
ALLETE,
Inc. and its subsidiaries
|
DRI
|
Development
of Regional Impact
|
EITF
|
Emerging
Issues Task Force
|
EPA
|
Environmental
Protection Agency
|
ESOP
|
Employee
Stock Ownership Plan
|
FASB
|
Financial
Accounting Standards Board
|
FERC
|
Federal
Energy Regulatory Commission
|
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
|
FSP
|
Financial
Accounting Standards Board Staff Position
|
GAAP
|
Accounting
Principles Generally Accepted in the United States
|
GHG
|
Greenhouse
Gas
|
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
|
kV
|
Kilovolt(s)
|
Laskin
|
Laskin
Energy Center
|
Manitoba
Hydro
|
Manitoba
Hydro-Electric 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
|
MW
/ MWh
|
Megawatt(s)
/ Megawatt-hour(s)
|
NextEra
Energy
|
NextEra
Energy Resources, LLC
|
Non-residential
|
Retail
commercial, non-retail commercial, office, industrial, warehouse, storage
and institutional
|
NOX
|
Nitrogen
Oxide
|
Note
___
|
Note
___ to the consolidated financial statements in this Form
10-K
|
NPDES
|
National
Pollutant Discharge Elimination System
|
NYSE
|
New
York Stock Exchange
|
OES
|
Minnesota
Office of Energy Security
|
Abbreviation
or Acronym
|
Term
|
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 Corp.
|
PSCW
|
Public
Service Commission of Wisconsin
|
PUHCA
2005
|
Public
Utility Holding Company Act of 2005
|
Rainy
River Energy
|
Rainy
River Energy Corporation - Wisconsin
|
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
|
Taconite
Ridge
|
Taconite
Ridge 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,
about 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 and future regulation to restrict the
emissions of GHG on our Regulated 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 regulations;
|
·
|
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;
|
·
|
project
delays or changes in project costs;
|
·
|
availability
and management of construction
materials and skilled construction labor for capital
projects;
|
·
|
changes
in operating expenses, capital and land
development expenditures;
|
·
|
global
and domestic economic conditions affecting us or our
customers;
|
·
|
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
|
Year
Ended December 31
|
2008
|
2007
|
2006
|
Consolidated
Operating Revenue – Millions
|
$801.0
|
$841.7
|
$767.1
|
Percentage
of Consolidated Operating Revenue
|
|||
Regulated
Operations
|
89
|
86
|
83
|
Investments
and Other
|
11
|
14
|
17
|
100%
|
100%
|
100%
|
Regulated Utility Electric Sales
Year Ended December 31
|
2008
|
%
|
2007
|
%
|
2006
|
%
|
Millions
of Kilowatt-hours
|
||||||
Retail
and Municipals
|
||||||
Residential
|
1,172
|
9
|
1,141
|
9
|
1,100
|
9
|
Commercial
|
1,454
|
12
|
1,456
|
11
|
1,420
|
11
|
Industrial
|
7,192
|
57
|
7,054
|
55
|
7,206
|
56
|
Municipals
(FERC rate regulated)
|
1,002
|
8
|
1,009
|
8
|
905
|
7
|
10,820
|
86
|
10,660
|
83
|
10,631
|
83
|
|
Other
Power Suppliers
|
1,800
|
14
|
2,157
|
17
|
2,153
|
17
|
12,620
|
100
|
12,817
|
100
|
12,784
|
100
|
Industrial
Customer Electric Sales
Year
Ended December 31
|
2008
|
%
|
2007
|
%
|
2006
|
%
|
Millions
of Kilowatt-hours
|
||||||
Taconite
Producers
|
4,579
|
64
|
4,408
|
62
|
4,517
|
63
|
Paper,
Pulp and Wood Products
|
1,567
|
22
|
1,613
|
23
|
1,689
|
23
|
Pipelines
|
582
|
8
|
562
|
8
|
550
|
8
|
Other
Industrial
|
464
|
6
|
471
|
7
|
450
|
6
|
7,192
|
100
|
7,054
|
100
|
7,206
|
100
|
Customer
|
Industry
|
Location
|
Ownership
|
Earliest
Termination
Date
|
Hibbing
Taconite Co. (a)
|
Taconite
|
Hibbing,
MN
|
62.3%
ArcelorMittal USA Inc.
23%
Cliffs Natural Resources Inc.
14.7%
United States Steel Corporation
|
December
31, 2015
|
ArcelorMittal
USA – Minorca Mine (b)
|
Taconite
|
Virginia,
MN
|
ArcelorMittal
USA Inc.
|
February
28, 2013
|
United
States Steel Corporation
(USS
– Minnesota Ore) (c)
|
Taconite
|
Mt.
Iron, MN and Keewatin, MN
|
United
States Steel Corporation
|
October
31, 2013
|
United
Taconite LLC (a)
|
Taconite
|
Eveleth,
MN
|
Cliffs
Natural Resources Inc.
|
December
31, 2015
|
UPM,
Blandin Paper Mill (b)
|
Paper
|
Grand
Rapids, MN
|
UPM-Kymmene
Corporation
|
February
28, 2013
|
Boise
White Paper, LLC (d)
|
Paper
|
International
Falls, MN
|
Boise
Paper Holdings, LLC
|
December
31, 2013
|
Sappi
Cloquet LLC (b)
|
Paper
and Pulp
|
Cloquet,
MN
|
Sappi
Limited
|
February
28, 2013
|
NewPage
Corporation – Duluth Mills
|
Paper
and Pulp
|
Duluth,
MN
|
NewPage
Corporation
|
August
31, 2013
|
USG
Interiors, Inc. (e)
|
Manufacturer
|
Cloquet,
MN
|
USG
Corporation
|
December
31, 2009
|
Enbridge
Energy Company,
Limited
Partnership (e)
|
Pipeline
|
Deer
River, MN
Floodwood,
MN
|
Enbridge
Energy Company,
Limited
Partnership
|
June
30, 2009
|
Minnesota
Pipeline Company (e)
|
Pipeline
|
Staples,
MN
Little
Falls, MN
Park
Rapids, MN
|
60%
Koch Pipeline Co. L.P.
40%
Marathon Ashland
Petroleum
LLC
|
April
7, 2009
|
(a)
|
Contract
extensions at Hibbing Taconite Co. and United Taconite LLC are pending
final approval from the MPUC.
|
(b)
|
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 28, 2013.
|
(c)
|
United
States Steel Corporation includes the Minntac Plant in Mountain Iron, MN
and the Keewatin Taconite Plant in Keewatin,
MN.
|
(d)
|
A
contract amendment has been filed with the MPUC which provides for an
extension of the agreement through December 31,
2013.
|
(e)
|
Contracts
with USG Interiors, Inc., Minnesota Pipeline Company, and Enbridge Energy
Company are all in cancellation periods effective on or before
December 31, 2009; new contracts are expected to be agreed upon prior
to expiration.
|
Regulated
Utility
Power
Supply
|
Unit
No.
|
Year
Installed
|
Net
Winter
Capability
|
For the Year Ended
December 31,
2008
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
|
6,365,305
|
48.5%
|
|||
Laskin
Energy Center
|
1
|
1953
|
55
|
||
in
Hoyt Lakes, MN
|
2
|
1953
|
55
|
||
110
|
659,439
|
5.0
|
|||
Taconite
Harbor Energy Center
|
1
|
1957
|
73
|
||
in
Taconite Harbor, MN
|
2
|
1957
|
73
|
||
3
|
1967
|
74
|
|||
220
|
1,473,239
|
11.2
|
|||
Total
Coal
|
1,247
|
8,497,983
|
64.7
|
||
Steam
– Purchased
|
|||||
Hibbard
Energy Center in Duluth, MN
|
3
& 4
|
1949,
1951
|
45
|
61,635
|
0.5
|
Hydro
|
|||||
Group
consisting of nine stations in MN
|
Various
|
112
|
487,930
|
3.7
|
|
Wind
|
|||||
Taconite
Ridge (a)
|
1
|
2008
|
4
|
18,587
|
0.2
|
Total
Company Generation
|
1,408
|
9,066,135
|
69.1
|
||
Long
Term Purchased Power
|
|||||
Square
Butte burns lignite coal near Center, ND
|
1,943,949
|
14.8
|
|||
Wind
– Oliver County, ND
|
366,945
|
2.8
|
|||
Hydro
– Manitoba Hydro
|
390,680
|
3.0
|
|||
Total
Long Term Purchased Power
|
2,701,574
|
20.6
|
|||
Other
Purchased Power(b)
|
1,357,023
|
10.3
|
|||
Total
Purchased Power
|
4,058,597
|
30.9
|
|||
Total
|
1,408
|
13,124,732
|
100.0%
|
(a)
|
The
nameplate capacity of Taconite Ridge is 25 MWs. 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 using limited
historical data. As more data is collected, actual accredited capacity may
increase.
|
(b)
|
Includes
short term market purchases in the MISO market and from Other Power
Suppliers.
|
Coal
Delivered to Minnesota Power
Year
Ended December 31
|
2008
|
2007
|
2006
|
Average
Price per Ton
|
$22.73
|
$21.78
|
$20.19
|
Average
Price per MBtu
|
$1.25
|
$1.20
|
$1.10
|
|
·
|
“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.
|
Non-Rate
Base Power Supply
|
Unit
No.
|
Year
Installed
|
Year
Acquired
|
Net
Capability
|
MW
|
||||
Steam
|
||||
Wood-Fired
(a)
|
||||
Cloquet
Energy Center
|
5
|
2001
|
2001
|
23
|
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.
|
Executive Officers
|
Initial Effective Date
|
Donald J. Shippar, Age
59
|
|
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
|
Robert J. Adams, Age
46
|
|
Vice
President – Business Development and Chief Risk Officer
|
May
13, 2008
|
Vice
President – Utility Business Development
|
February
1, 2004
|
Deborah A. Amberg, Age
43
|
|
Senior
Vice President, General Counsel and Secretary
|
January
1, 2006
|
Vice
President, General Counsel and Secretary
|
March
8, 2004
|
Steven Q. DeVinck, Age
49
|
|
Controller
|
July
12, 2006
|
Mark A. Schober, Age
53
|
|
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 51
|
|
Treasurer
|
July
24, 2004
|
Claudia Scott Welty, Age
56
|
|
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.
|
|
·
|
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
|
2008
|
2007
|
|||||
Price
Range
|
Dividends
|
Price
Range
|
Dividends
|
|||
Quarter
|
High
|
Low
|
Declared
|
High
|
Low
|
Declared
|
First
|
$39.86
|
$33.76
|
$0.43
|
$49.69
|
$44.93
|
$0.41
|
Second
|
46.11
|
38.82
|
0.43
|
51.30
|
45.39
|
0.41
|
Third
|
49.00
|
38.05
|
0.43
|
50.05
|
38.60
|
0.41
|
Fourth
|
44.63
|
28.28
|
0.43
|
46.48
|
38.17
|
0.41
|
Annual
Total
|
$1.72
|
$1.64
|
||||
Dividend
Payout Ratio
|
61%
|
53%
|
2008
|
2007
|
2006
|
2005
|
2004
|
||||||
Operating
Revenue
|
$801.0
|
$841.7
|
$767.1
|
$737.4
|
$704.1
|
|||||
Operating
Expenses
|
679.2
|
710.0
|
628.8
|
692.3
|
(g)
|
603.2
|
||||
Income
from Continuing Operations Before Change in Accounting
Principle
|
82.5
|
87.6
|
77.3
|
17.6
|
(g)
|
38.5
|
||||
Income
(Loss) from Discontinued Operations – Net of Tax
|
–
|
–
|
(0.9)
|
(4.3)
|
(g)
|
73.7
|
||||
Change
in Accounting Principle – Net of Tax
|
–
|
–
|
–
|
–
|
(7.8)
|
(h)
|
||||
Net
Income
|
82.5
|
87.6
|
76.4
|
13.3
|
104.4
|
|||||
Common
Stock Dividends
|
50.4
|
44.3
|
40.7
|
34.4
|
79.7
|
|||||
Earnings
Retained in (Distributed from) Business
|
$32.1
|
$43.3
|
$35.7
|
$(21.1)
|
$24.7
|
|||||
Shares
Outstanding – Millions
|
||||||||||
Year-End
|
32.6
|
30.8
|
30.4
|
30.1
|
29.7
|
|||||
Average (a)
|
||||||||||
Basic
|
29.2
|
28.3
|
27.8
|
27.3
|
28.3
|
|||||
Diluted
|
29.3
|
28.4
|
27.9
|
27.4
|
28.4
|
|||||
Diluted
Earnings (Loss) Per Share (b)
|
||||||||||
Continuing
Operations
|
$2.82
|
$3.08
|
$2.77
|
$0.64
|
(g)
|
$1.35
|
(i)
|
|||
Discontinued
Operations (c)
|
–
|
–
|
(0.03)
|
(0.16)
|
2.59
|
|||||
Change
in Accounting Principle
|
–
|
–
|
–
|
–
|
(0.27)
|
|||||
$2.82
|
$3.08
|
$2.74
|
$0.48
|
$3.67
|
||||||
Total
Assets
|
$2,134.8
|
$1,644.2
|
$1,533.4
|
(f)
|
$1,398.8
|
$1,431.4
|
||||
Long-Term
Debt
|
588.3
|
410.9
|
359.8
|
387.8
|
389.4
|
|||||
Return
on Common Equity
|
10.7%
|
12.4%
|
12.1%
|
2.2%
|
(g)
|
8.3%
|
||||
Common
Equity Ratio
|
58.0%
|
63.7%
|
63.1%
|
60.7%
|
61.7%
|
|||||
Dividends
Declared per Common Share
|
$1.72
|
$1.64
|
$1.45
|
$1.245
|
$2.8425
|
|||||
Dividend
Payout Ratio
|
61%
|
53%
|
53%
|
259%
|
(g)
|
77%
|
||||
Book
Value Per Share at Year-End
|
$25.37
|
$24.11
|
$21.90
|
$20.03
|
$21.23
|
|||||
Capital
Expenditures by Segment (d)
|
||||||||||
Regulated
Operations
|
$317.0
|
$220.6
|
$107.5
|
$46.5
|
$41.7
|
|||||
Investments
and Other (e)
|
5.9
|
3.3
|
1.9
|
12.1
|
16.1
|
|||||
Discontinued
Operations
|
–
|
–
|
–
|
4.5
|
21.4
|
|||||
Total
Capital Expenditures
|
$322.9
|
$223.9
|
$109.4
|
$63.1
|
$79.2
|
(a)
|
Excludes
unallocated ESOP shares.
|
(b)
|
Common
share and per share amounts have also been adjusted for all periods to
reflect our September 20, 2004, one-for-three common stock reverse
split.
|
(c)
|
Operating
results of our Water Services businesses and our telecommunications
business are included in discontinued operations, and accordingly, amounts
have been restated for all periods presented. (See Note 12. Discontinued
Operations.)
|
(d)
|
In
the fourth quarter of 2008, we made changes to our reportable business
segments in our continuing effort to manage and measure performance of our
operations based on the nature of products and services provided and
customers served. (See Note 2. Business
Segments.)
|
(e)
|
Excludes
capitalized improvements on our development projects, which are included
in inventory.
|
(f)
|
Included
$86.1 million of assets reflecting the adoption of SFAS 158 “Employers’
Accounting for Defined Benefit Pension and Other Postretirement
Plans.”
|
(g)
|
Impacted
by a $50.4 million, or $1.84 per share, charge related to the assignment
of the Kendall County power purchase agreement, 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.
|
(h)
|
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.
|
(i)
|
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.
|
Kilowatt-hours
Sold
|
2008
|
2007
|
Millions
|
||
Regulated
Utility
|
||
Retail
and Municipals
|
||
Residential
|
1,172
|
1,141
|
Commercial
|
1,372
|
1,373
|
Industrial
|
7,192
|
7,054
|
Municipals
|
1,002
|
1,008
|
Other
|
82
|
84
|
Total
Retail and Municipals
|
10,820
|
10,660
|
Other
Power Suppliers
|
1,800
|
2,157
|
Total
Regulated Utility Kilowatt-hours
Sold
|
12,620
|
12,817
|
ALLETE
Properties
|
2008
|
2007
|
||
Revenue
and Sales Activity
|
Quantity
|
Amount
|
Quantity
|
Amount
|
Dollars
in Millions
|
||||
Revenue
from Land Sales
|
||||
Non-residential
Sq. Ft.
|
–
|
–
|
580,059
|
$17.0
|
Residential
Units
|
–
|
–
|
736
|
14.8
|
Acres
(a)
|
219
|
$6.3
|
483
|
10.6
|
Contract
Sales Price (b)
|
6.3
|
42.4
|
||
Revenue
Recognized from
|
||||
Previously
Deferred Sales
|
3.7
|
3.1
|
||
Deferred
Revenue
|
–
|
(1.2)
|
||
Revenue
from Land Sales
|
10.0
|
44.3
|
||
Other
Revenue
|
8.3
|
6.2
|
||
$18.3
|
$50.5
|
(a)
|
Acreage
amounts are shown on a gross basis, including wetlands and minority
interest.
|
(b)
|
Reflected
total contract sales price on closed land transactions. Land sales are
recorded using a percentage-of-completion method. (See Note 1. Operations
and Significant Accounting
Policies.)
|
Kilowatt-hours
Sold
|
2007
|
2006
|
Millions
|
||
Regulated
Utility
|
||
Retail
and Municipals
|
||
Residential
|
1,141
|
1,100
|
Commercial
|
1,373
|
1,335
|
Industrial
|
7,054
|
7,206
|
Municipals
|
1,008
|
911
|
Other
|
84
|
79
|
Total
Retail and Municipals
|
10,660
|
10,631
|
Other
Power Suppliers
|
2,157
|
2,153
|
Total
Regulated Utility
|
12,817
|
12,784
|
ALLETE
Properties
|
2007
|
2006
|
||
Revenue
and Sales Activity
|
Quantity
|
Amount
|
Quantity
|
Amount
|
Dollars
in Millions
|
||||
Revenue
from Land Sales
|
||||
Non-residential
Sq. Ft.
|
580,059
|
$17.0
|
401,971
|
$10.8
|
Residential
Units
|
736
|
14.8
|
973
|
15.9
|
Acres
(a)
|
483
|
10.6
|
732
|
24.4
|
Contract
Sales Price (b)
|
42.4
|
51.1
|
||
Revenue
Recognized from
|
||||
Previously
Deferred Sales
|
3.1
|
9.7
|
||
Deferred
Revenue
|
(1.2)
|
(3.8)
|
||
Adjustments
(c)
|
–
|
(0.9)
|
||
Revenue
from Land Sales
|
44.3
|
56.1
|
||
Other
Revenue
|
6.2
|
6.5
|
||
$50.5
|
$62.6
|
(a)
|
Acreage
amounts are shown on a gross basis, including wetlands and minority
interest.
|
(b)
|
Reflected
total contract sales price on closed land transactions. Land sales are
recorded using a percentage-of-completion method. (See Note 1. Operations
and Significant Accounting
Policies.)
|
(c)
|
Contributed
development dollars, which are credited to cost of real estate
sold.
|
|
·
|
“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
are pursuing Minnesota’s Renewable Energy Standard by adding
significant renewable resources to our portfolio of generation facilities
and power supply agreements.
|
|
·
|
We
plan to continue improving the efficiency of our coal-based generation
facilities.
|
|
·
|
We
plan to implement 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
|
Total
|
Residential
|
Non-residential
|
|
Land
Available-for-Sale
|
Ownership
|
Acres
(a)
|
Units
(b)
|
Sq.
Ft. (b,
c)
|
Current
Development Projects
|
||||
Town
Center
|
80%
|
|||
At
December 31, 2007
|
991
|
2,289
|
2,228,200
|
|
Property
Sold
|
–
|
–
|
–
|
|
At
December 31, 2008
|
991
|
2,289
|
2,228,200
|
|
Palm
Coast Park
|
100%
|
|||
At
December 31, 2007
|
3,436
|
3,154
|
3,116,800
|
|
Property
Sold
|
–
|
–
|
–
|
|
Change
in Estimate
|
–
|
85
|
–
|
|
At
December 31, 2008
|
3,436
|
3,239
|
3,116,800
|
|
Total
Current Development Projects
|
4,427
|
5,528
|
5,345,000
|
|
Proposed
Development Project
|
||||
Ormond
Crossings
|
100%
|
|||
At
December 31, 2008
|
5,968
|
(d)
|
(d)
|
|
Total
of Development Projects at December 31, 2008
|
10,395
|
5,528
|
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.
|
Other
Land Available-for-Sale (a)
|
Total
|
Mixed
Use
|
Residential
|
Non-residential
|
Agricultural
|
Acres
(b)
|
|||||
At
December 31, 2007
|
1,573
|
362
|
248
|
424
|
539
|
Property
Sold
|
(166)
|
(2)
|
(134)
|
(18)
|
(12)
|
Contributed
Land
|
(54)
|
–
|
–
|
–
|
(54)
|
Change
in Estimate
|
–
|
(7)
|
–
|
(4)
|
11
|
At
December 31, 2008
|
1,353
|
353
|
114
|
402
|
484
|
(a)
|
Other
land includes land located in Palm Coast, Florida not included in
development projects, Lehigh Acquisition Corporation and Cape Coral
Holdings, Inc.
|
(b)
|
Acreage
amounts are approximate and shown on a gross basis, including wetlands
and minority interest.
|
Issue
Date
|
Maturity
|
Amount
|
Coupon
|
December
15, 2008
|
January
15, 2014
|
$18
Million
|
6.94%
|
December
15, 2008
|
January
15, 2016
|
$20
Million
|
7.70%
|
January
15, 2009
|
January
15, 2019
|
$42
Million
|
8.17%
|
Payments
Due by Period
|
|||||
Contractual
Obligations
|
Less
than
|
1
to 3
|
4
to 5
|
After
|
|
As
of December 31, 2008
|
Total
|
1
Year
|
Years
|
Years
|
5
Years
|
Millions
|
|||||
Long-Term
Debt (a)
|
$979.6
|
$40.1
|
$106.6
|
$140.8
|
$692.1
|
Operating
Lease Obligations
|
93.7
|
8.3
|
24.8
|
15.1
|
45.5
|
FIN
48 – Uncertain Tax Positions
|
1.2
|
1.0
|
0.2
|
–
|
–
|
Unconditional
Purchase Obligations
|
352.9
|
77.1
|
63.3
|
28.8
|
183.7
|
$1,427.4
|
$126.5
|
$194.9
|
$184.7
|
$921.3
|
Credit
Ratings
|
Standard
& Poor’s
|
Moody’s
|
Issuer
Credit Rating
|
BBB+
|
Baa1
|
Commercial
Paper
|
A-2
|
P-2
|
Senior
Secured
|
||
First
Mortgage Bonds
|
A–
|
A3
|
Pollution
Control Bonds
|
A–
|
A3
|
Unsecured
Debt
|
||
Collier
County Industrial Development Revenue Bonds – Fixed Rate
|
BBB
|
–
|
Capital
Expenditures
|
2009
|
2010
|
2011
|
2012
|
2013
|
Total
|
||
Regulated
Utility Operations
|
||||||||
Base
and Other
|
$197
|
$125
|
$109
|
$114
|
$128
|
$673
|
||
Current
Cost Recovery (a)
|
||||||||
Environmental
|
43
|
9
|
37
|
56
|
112
|
257
|
||
Renewable
|
29
|
138
|
16
|
15
|
–
|
198
|
||
Transmission
|
3
|
17
|
18
|
18
|
17
|
73
|
||
Generation
|
21
|
17
|
–
|
–
|
–
|
38
|
||
Total
Current Cost Recovery
|
96
|
181
|
71
|
89
|
129
|
566
|
||
Regulated
Utility Capital Expenditures
|
293
|
306
|
180
|
203
|
257
|
1,239
|
||
Other
|
7
|
8
|
11
|
8
|
26
|
60
|
||
Total
Capital Expenditures
|
$300
|
$314
|
$191
|
$211
|
$283
|
$1,299
|
|
(a)
|
Estimated
current capital expenditures recoverable outside of a rate
case.
|
Expected
Maturity Date
|
||||||||
Interest
Rate Sensitive
|
Fair
|
|||||||
Financial
Instruments
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
Total
|
Value
|
Dollars
in Millions
|
||||||||
Long-Term
Debt
|
||||||||
Fixed
Rate
|
$2.2
|
$1.1
|
$1.2
|
$1.2
|
$70.6
|
$438.6
|
$514.9
|
$477.6
|
Average
Interest Rate – %
|
5.5
|
6.2
|
6.2
|
6.2
|
5.2
|
5.6
|
5.7
|
|
Variable
Rate
|
$8.2
|
$3.6
|
$10.5
|
$1.7
|
$2.8
|
$57.0
|
$83.8
|
$83.8
|
Average
Interest Rate – % (a)
|
1.2
|
1.8
|
3.5
|
2.7
|
1.2
|
1.7
|
1.9
|
(a)
|
Assumes
rate in effect at December 31, 2008, remains constant through remaining
term.
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
Item
8.
|
Financial
Statements and Supplementary Data
|
Item
9A.
|
Controls
and Procedures
|
Item
9B.
|
Other
Information
|
Item
10.
|
Directors,
Executive Officers and Corporate
Governance
|
|
·
|
Directors. The
information regarding directors will be included in the “Election of
Directors” section;
|
|
·
|
Audit Committee Financial
Expert. The information regarding the Audit Committee financial
expert will be included in the “Audit Committee Report”
section;
|
|
·
|
Audit Committee Members.
The identity of the Audit Committee members is included in the “Audit
Committee Report” section;
|
|
·
|
Executive Officers. The
information regarding executive officers is included in Part I of this
Form 10-K; and
|
|
·
|
Section 16(a)
Compliance. The information regarding Section 16(a) compliance will
be included in the “Section 16(a) Beneficial Ownership Reporting
Compliance” section.
|
|
·
|
Corporate
Governance Guidelines;
|
|
·
|
Audit
Committee Charter;
|
|
·
|
Executive
Compensation Committee Charter; and
|
|
·
|
Corporate
Governance and Nominating Committee
Charter.
|
Item
11.
|
Executive
Compensation
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Item
14.
|
Principal
Accounting Fees and Services
|
(a)
|
Certain
Documents Filed as Part of this Form 10-K.
|
|||
(1)
|
Financial
Statements
|
Page
|
||
ALLETE
|
||||
Report
of Independent Registered Public Accounting Firm
|
49
|
|||
Consolidated
Balance Sheet at December 31, 2008 and 2007
|
50
|
|||
For
the Three Years Ended December 31, 2008
|
||||
Consolidated
Statement of Income
|
51
|
|||
Consolidated
Statement of Cash Flows
|
52
|
|||
Consolidated
Statement of Shareholders’ Equity
|
53
|
|||
Notes
to Consolidated Financial Statements
|
54
|
|||
(2)
|
Financial
Statement Schedules
|
|||
Schedule
II – ALLETE Valuation and Qualifying Accounts and Reserves
|
84
|
|||
All
other schedules have been omitted either because the information is not
required to be reported by ALLETE or because the information is included
in the consolidated financial statements or the notes.
|
||||
(3)
|
Exhibits
including those incorporated by reference.
|
*3(a)1
|
-
|
Articles
of Incorporation, amended and restated as of May 8, 2001 (filed as Exhibit
3(b) to the March 31, 2001, Form 10-Q, File No.
1-3548).
|
||||
*3(a)2
|
-
|
Amendment
to Articles of Incorporation, effective 12:00 p.m. Eastern Time on
September 20, 2004 (filed as Exhibit 3 to the September 21, 2004,
Form 8-K, File No. 1-3548).
|
||||
*3(a)3
|
-
|
Amendment
to Certificate of Assumed Name, filed with the Minnesota Secretary of
State on May 8, 2001 (filed as Exhibit 3(a) to the March 31, 2001, Form
10-Q, File No. 1-3548).
|
||||
*3(b)
|
-
|
Bylaws,
as amended effective August 24, 2004 (filed as Exhibit 3 to the August 25,
2004, Form 8-K, File No. 1-3548).
|
||||
*4(a)1
|
-
|
Mortgage
and Deed of Trust, dated as of September 1, 1945, between Minnesota Power
& Light Company (now ALLETE) and The Bank of New York Mellon (formerly
Irving Trust Company) and Douglas J. MacInnes (successor to Richard H.
West), Trustees (filed as Exhibit 7(c), File No.
2-5865).
|
||||
*4(a)2
|
-
|
Supplemental
Indentures to ALLETE’s Mortgage and Deed of Trust:
|
||||
Number
|
Dated
as of
|
Reference
File
|
Exhibit
|
|||
First
|
March
1, 1949
|
2-7826
|
7(b)
|
|||
Second
|
July
1, 1951
|
2-9036
|
7(c)
|
|||
Third
|
March
1, 1957
|
2-13075
|
2(c)
|
|||
Fourth
|
January
1, 1968
|
2-27794
|
2(c)
|
|||
Fifth
|
April
1, 1971
|
2-39537
|
2(c)
|
|||
Sixth
|
August
1, 1975
|
2-54116
|
2(c)
|
|||
Seventh
|
September
1, 1976
|
2-57014
|
2(c)
|
|||
Eighth
|
September
1, 1977
|