|
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
|
15
|
||
Minnesota
Legislation
|
15
|
||
Competition
|
15
|
||
Franchises
|
16
|
||
Investments
and Other
|
16
|
||
BNI
Coal
|
16
|
||
ALLETE
Properties
|
16
|
||
Non-Rate
Base Generation
|
17
|
||
Other.
|
17
|
||
Environmental
Matters
|
17
|
||
Employees
|
21
|
||
Availability
of Information
|
21
|
||
Executive
Officers of the Registrant
|
22
|
||
Item
1A.
|
Risk
Factors
|
23
|
|
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
Issuer
Purchases of Equity Securities
|
27
|
|
Item
6.
|
Selected
Financial Data
|
28
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
29
|
|
Overview
|
29
|
||
2009
Compared to 2008.
|
30
|
||
2008
Compared to 2007
|
32
|
||
Critical
Accounting Estimates
|
34
|
||
Outlook
|
35
|
||
Liquidity
and Capital Resources
|
42
|
||
Capital
Requirements
|
46
|
||
Environmental
and Other Matters
|
46
|
||
Market
Risk
|
46
|
||
New
Accounting Standards
|
48
|
||
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
48
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
48
|
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
48
|
|
Item
9A.
|
Controls
and Procedures
|
48
|
|
Item
9B.
|
Other
Information
|
49
|
|
Part
III
|
|||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
50
|
|
Item
11.
|
Executive
Compensation
|
50
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
50
|
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
50
|
|
Item
14.
|
Principal
Accounting Fees and Services
|
50
|
|
Part
IV
|
|||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
51
|
|
Signatures
|
55
|
||
Consolidated
Financial Statements
|
58
|
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
|
ARS
|
Auction
Rate Securities
|
ATC
|
American
Transmission Company LLC
|
Basin
|
Basin
Electric Power Cooperative
|
Bison
I
|
Bison
I Wind Project
|
BNI
Coal
|
BNI
Coal, Ltd.
|
BNSF
|
Burlington
Northern Santa Fe Railway Company
|
Boswell
|
Boswell
Energy Center
|
Boswell
NOX
Reduction Plan
|
NOX
emission reductions from Boswell Units 1, 2, and 4
|
CO2
|
Carbon
Dioxide
|
Company
|
ALLETE,
Inc. and its subsidiaries
|
DC
|
Direct
Current
|
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
|
FTR
|
Financial
Transmission Rights
|
GAAP
|
Accounting
Principles Generally Accepted in the United States
|
GHG
|
Greenhouse
Gases
|
Heating
Degree Days
|
Measure
of the extent to which the average daily temperature is below 65 degrees
Fahrenheit, increasing demand for heating
|
IBEW
Local 31
|
International
Brotherhood of Electrical Workers Local 31
|
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
|
NDPSC
|
North
Dakota Public Service Commission
|
Non-residential
|
Retail
commercial, non-retail commercial, office, industrial, warehouse, storage
and institutional
|
NOX
|
Nitrogen
Oxides
|
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
|
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
|
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;
|
·
|
prevailing
governmental policies, regulatory actions, and legislation including those
of the United States Congress, state legislatures, the FERC, the MPUC, the
PSCW, the NDPSC, 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;
|
·
|
our
ability to manage expansion and integrate acquisitions;
|
·
|
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
|
2009
|
2008
|
2007
|
Consolidated
Operating Revenue – Millions
|
$759.1
|
$801.0
|
$841.7
|
Percentage
of Consolidated Operating Revenue
|
|||
Regulated
Operations
|
90%
|
89%
|
86%
|
Investments
and Other
|
10%
|
11%
|
14%
|
100%
|
100%
|
100%
|
Regulated
Utility Electric Sales
|
||||||
Year Ended December 31
|
2009
|
%
|
2008
|
%
|
2007
|
%
|
Millions
of Kilowatt-hours
|
||||||
Retail
and Municipals
|
||||||
Residential
|
1,164
|
10
|
1,172
|
9
|
1,141
|
9
|
Commercial
|
1,420
|
12
|
1,454
|
12
|
1,456
|
11
|
Industrial
|
4,475
|
37
|
7,192
|
57
|
7,054
|
55
|
Municipals
(FERC rate regulated)
|
992
|
8
|
1,002
|
8
|
1,009
|
8
|
Total
Retail and Municipals
|
8,051
|
67
|
10,820
|
86
|
10,660
|
83
|
Other
Power Suppliers
|
4,056
|
33
|
1,800
|
14
|
2,157
|
17
|
Total
Regulated Utility Electric Sales
|
12,107
|
100
|
12,620
|
100
|
12,817
|
100
|
Industrial
Customer Electric Sales
|
||||||
Year
Ended December 31
|
2009
|
%
|
2008
|
%
|
2007
|
%
|
Millions
of Kilowatt-hours
|
||||||
Taconite
Producers
|
2,124
|
47
|
4,579
|
64
|
4,408
|
62
|
Paper,
Pulp and Wood Products
|
1,454
|
33
|
1,567
|
22
|
1,613
|
23
|
Pipelines
|
504
|
11
|
582
|
8
|
562
|
8
|
Other
Industrial
|
393
|
9
|
464
|
6
|
471
|
7
|
4,475
|
100
|
7,192
|
100
|
7,054
|
100
|
Customer (a)
|
Industry
|
Location
|
Ownership
|
Earliest
Termination
Date
|
Hibbing
Taconite Co.
|
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, 2014
|
United
States Steel Corporation
(USS
– Minnesota Ore) (b,c)
|
Taconite
|
Mt.
Iron, MN and Keewatin, MN
|
United
States Steel Corporation
|
February
28, 2014
|
United
Taconite LLC
|
Taconite
|
Eveleth,
MN
|
Cliffs
Natural Resources Inc.
|
December
31, 2015
|
Mesabi
Nugget Delaware, LLC
|
Iron
Nugget
|
Hoyt
Lakes, MN
|
Steel
Dynamics, Inc (80%)
Kobe
Steel USA (20%)
|
December
31, 2017
|
UPM,
Blandin Paper Mill (b)
|
Paper
|
Grand
Rapids, MN
|
UPM-Kymmene
Corporation
|
February
28, 2014
|
Boise
White Paper, LLC
|
Paper
|
International
Falls, MN
|
Boise
Paper Holdings, LLC
|
December
31, 2013
|
Sappi
Cloquet LLC
|
Paper
and Pulp
|
Cloquet,
MN
|
Sappi
Limited
|
February
28, 2014
|
NewPage
Corporation – Duluth Mills (b)
|
Paper
and Pulp
|
Duluth,
MN
|
NewPage
Corporation
|
February
28, 2014
|
|
(a)
|
During
2009, three Large Power Customers moved to the Large Light and Power rate
class.
|
|
(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, 2014.
|
|
(c)
|
United
States Steel Corporation includes the Minntac Plant in Mountain Iron, MN
and the Keewatin Taconite Plant in Keewatin,
MN.
|
Regulated
Utility
Power
Supply
|
Unit
No.
|
Year
Installed
|
Net
Winter
Capability
|
Year Ended
December 31,
2009
Electric Requirements
|
|
MW
|
MWh
|
%
|
|||
Coal-Fired
|
|||||
Boswell
Energy Center
|
1
|
1958
|
68
|
||
in
Cohasset, MN
|
2
|
1960
|
67
|
||
3
|
1973
|
352
|
|||
4
|
1980
|
429
|
|||
916
|
5,390,131
|
42.8%
|
|||
Laskin
Energy Center
|
1
|
1953
|
55
|
||
in
Hoyt Lakes, MN
|
2
|
1953
|
51
|
||
106
|
510,505
|
4.1
|
|||
Taconite
Harbor Energy Center
|
1
|
1957
|
75
|
||
in
Schroeder, MN
|
2
|
1957
|
74
|
||
3
|
1967
|
76
|
|||
225
|
1,058,263
|
8.4
|
|||
Total
Coal
|
1,247
|
6,958,899
|
55.3
|
||
Biomass/Coal/Natural
Gas
|
|||||
Hibbard
Renewable Energy Center
|
|||||
in
Duluth, MN
|
3
& 4
|
1949,
1951
|
54
|
40,703
|
0.3
|
Cloquet
Energy Center
in
Cloquet, MN
|
5
|
2001
|
22
|
19,340
|
0.2
|
Total
Biomass/Coal/Natural Gas
|
76
|
60,043
|
0.5
|
||
Hydro
|
|||||
Group
consisting of ten stations in MN
|
Various
|
109
|
434,541
|
3.5
|
|
Wind
|
|||||
Taconite
Ridge
in
Mt. Iron, MN (a)
|
1-10
|
2008
|
4
|
56,255
|
0.4
|
Total
Company Generation
|
1,436
|
7,509,738
|
59.7
|
||
Long-Term
Purchased Power
|
|||||
Square
Butte burns lignite coal near Center, ND
|
1,695,254
|
13.5
|
|||
Wind
– Oliver County, ND
|
361,624
|
2.9
|
|||
Hydro
– Manitoba Hydro in Winnipeg, MB, Canada
|
433,543
|
3.4
|
|||
Total
Long-Term Purchased Power
|
2,490,421
|
19.8
|
|||
Other
Purchased Power(b)
|
2,579,408
|
20.5
|
|||
Total
Purchased Power
|
5,069,829
|
40.3
|
|||
Total
|
1,436
|
12,579,567
|
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
|
2009
|
2008
|
2007
|
Average
Price per Ton
|
$24.99
|
$22.73
|
$21.78
|
Average
Price per MBtu
|
$1.37
|
$1.25
|
$1.20
|
|
·
|
Increased
system flexibility to adapt to volatile business cycles and varied future
industrial load scenarios;
|
|
·
|
Reductions
in the emission of GHGs (primarily carbon dioxide);
and
|
|
·
|
Compliance
with mandated renewable energy
standards.
|
Non-Rate
Base Power Supply
|
Unit
No.
|
Year
Installed
|
Year
Acquired
|
Net
Capability
(MW)
|
Steam
|
||||
Biomass
(a)
|
||||
Cloquet
Energy Center (b)
|
5
|
2001
|
2001
|
22
|
in
Cloquet, MN
|
||||
Rapids
Energy Center (c)
|
6
& 7
|
1969,
1980
|
2000
|
29
|
in
Grand Rapids, MN
|
||||
Hydro
|
||||
Conventional
Run-of-River
|
||||
Rapids
Energy Center (c)
|
4
& 5
|
1917
|
2000
|
1
|
in
Grand Rapids, MN
|
(a)
|
Cloquet
Energy Center is supplemented by natural gas; Rapids Energy Center is
supplemented by coal.
|
(b)
|
Transferred
to Regulated Operations as a result of our 2008 rate order on November 1,
2009.
|
(c)
|
The
net generation is primarily dedicated to the needs of one
customer.
|
|
·
|
Expand
our renewable energy supply.
|
|
·
|
Improve
the efficiency of our coal-based generation facilities, as well as other
process efficiencies.
|
|
·
|
Provide
energy conservation initiatives with our customers and demand side
efforts.
|
|
·
|
Support
research of technologies to reduce carbon emissions from generation
facilities and support carbon sequestration
efforts.
|
|
·
|
Achieve
overall carbon emission reductions.
|
Executive Officers
|
Initial Effective Date
|
Donald J. Shippar, Age
60
|
|
Chairman
and Chief Executive Officer
|
May
12, 2009
|
Chairman,
President and Chief Executive Officer
|
January
1, 2006
|
President
and Chief Executive Officer
|
January
21, 2004
|
Alan R. Hodnik, Age
50
|
|
President
– ALLETE
|
May
12, 2009
|
Chief
Operating Officer – Minnesota Power
|
May
8, 2007
|
Senior
Vice President – Minnesota Power Operations
|
September
22, 2006
|
Vice
President – Minnesota Power Generation
|
May
1, 2005
|
Robert J. Adams, Age
47
|
|
Vice
President – Business Development and Chief Risk Officer
|
May
13, 2008
|
Vice
President – Utility Business Development
|
February
1, 2004
|
Deborah A. Amberg, Age
44
|
|
Senior
Vice President, General Counsel and Secretary
|
January
1, 2006
|
Vice
President, General Counsel and Secretary
|
March
8, 2004
|
Steven Q. DeVinck, Age
50
|
|
Controller
and Vice President – Business Support
|
December
17, 2009
|
Controller
|
July
12, 2006
|
Mark A. Schober, Age
54
|
|
Senior
Vice President and Chief Financial Officer
|
July
1, 2006
|
Senior
Vice President and Controller
|
February
1, 2004
|
Donald W. Stellmaker,
Age 52
|
|
Treasurer
|
July
24, 2004
|
|
Mr. DeVinck was
Director of Nonutility Business Development, and Assistant Controller.
|
|
Mr. Hodnik was General
Manager of Thermal Operations.
|
Item
1A.
|
Risk
Factors
|
|
·
|
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
|
2009
|
2008
|
|||||
Price
Range
|
Dividends
|
Price
Range
|
Dividends
|
|||
Quarter
|
High
|
Low
|
Declared
|
High
|
Low
|
Declared
|
First
|
$33.27
|
$23.35
|
$0.44
|
$39.86
|
$33.76
|
$0.43
|
Second
|
29.14
|
24.45
|
0.44
|
46.11
|
38.82
|
0.43
|
Third
|
34.57
|
27.75
|
0.44
|
49.00
|
38.05
|
0.43
|
Fourth
|
35.29
|
32.23
|
0.44
|
44.63
|
28.28
|
0.43
|
Annual
Total
|
$1.76
|
$1.72
|
Item
6.
|
Selected
Financial Data
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||
Millions
|
||||||||||
Operating
Revenue
|
$759.1
|
$801.0
|
$841.7
|
$767.1
|
$737.4
|
|||||
Operating
Expenses
|
653.1
|
679.2
|
710.0
|
628.8
|
692.3
|
(e)
|
||||
Income
from Continuing Operations Before Non-Controlling Interest – Net of
Tax
|
60.7
|
83.0
|
89.5
|
81.9
|
20.3
|
(e)
|
||||
Income
(Loss) from Discontinued Operations – Net of Tax
|
–
|
–
|
–
|
(0.9)
|
(4.3)
|
(e)
|
||||
Net
Income
|
60.7
|
83.0
|
89.5
|
81.0
|
16.0
|
|||||
Less:
Non-Controlling Interest in Subsidiaries
|
(0.3)
|
0.5
|
1.9
|
4.6
|
2.7
|
|||||
Net
Income Attributable to ALLETE
|
61.0
|
82.5
|
87.6
|
76.4
|
13.3
|
|||||
Common
Stock Dividends
|
56.5
|
50.4
|
44.3
|
40.7
|
34.4
|
|||||
Earnings
Retained in (Distributed from) Business
|
$4.5
|
$32.1
|
$43.3
|
$35.7
|
$(21.1)
|
|||||
Shares
Outstanding – Millions
|
||||||||||
Year-End
|
35.2
|
32.6
|
30.8
|
30.4
|
30.1
|
|||||
Average (a)
|
||||||||||
Basic
|
32.2
|
29.2
|
28.3
|
27.8
|
27.3
|
|||||
Diluted
|
32.2
|
29.3
|
28.4
|
27.9
|
27.4
|
|||||
Diluted
Earnings (Loss) Per Share
|
||||||||||
Continuing
Operations
|
$1.89
|
$2.82
|
$3.08
|
$2.77
|
$0.64
|
(e)
|
||||
Discontinued
Operations (b)
|
–
|
–
|
–
|
(0.03)
|
(0.16)
|
|||||
$1.89
|
$2.82
|
$3.08
|
$2.74
|
$0.48
|
||||||
Total
Assets
|
$2,393.1
|
$2,134.8
|
$1,644.2
|
$1,533.4
|
(d)
|
$1,398.8
|
||||
Long-Term
Debt
|
695.8
|
588.3
|
410.9
|
359.8
|
387.8
|
|||||
Return
on Common Equity
|
6.9%
|
10.7%
|
12.4%
|
12.1%
|
2.2%
|
(e)
|
||||
Common
Equity Ratio
|
57.0%
|
58.0%
|
63.7%
|
63.1%
|
60.7%
|
|||||
Dividends
Declared per Common Share
|
$1.76
|
$1.72
|
$1.64
|
$1.45
|
$1.245
|
|||||
Dividend
Payout Ratio
|
93%
|
61%
|
53%
|
53%
|
259%
|
(e)
|
||||
Book
Value Per Share at Year-End
|
$26.39
|
$25.37
|
$24.11
|
$21.90
|
$20.03
|
|||||
Capital
Expenditures by Segment (c)
|
||||||||||
Regulated
Operations
|
$299.2
|
$317.0
|
$220.6
|
$107.5
|
$46.5
|
|||||
Investments
and Other
|
4.5
|
5.9
|
3.3
|
1.9
|
12.1
|
|||||
Discontinued
Operations
|
–
|
–
|
–
|
–
|
4.5
|
|||||
Total
Capital Expenditures
|
$303.7
|
$322.9
|
$223.9
|
$109.4
|
$63.1
|
(a)
|
Excludes
unallocated ESOP shares.
|
(b)
|
Operating
results of our Water Services businesses and our telecommunications
business are included in discontinued operations, and accordingly, amounts
have been restate for all periods
presented.
|
(c)
|
In
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.)
|
(d)
|
Included
$86.1 million of assets reflecting the adoption of Plan Accounting –
Defined Benefit Pension Plans, and Health and Welfare Benefit
Plans.
|
(e)
|
Impacted
by a $50.4 million, or $1.84 per share, charge related to the assignment
of the Kendall County power purchase
agreement.
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Kilowatt-hours
Sold
|
2009
|
2008
|
Quantity
Variance
|
%
Variance
|
Millions
|
||||
Regulated
Utility
|
||||
Retail
and Municipals
|
||||
Residential
|
1,164
|
1,172
|
(8)
|
(0.7)
%
|
Commercial
|
1,420
|
1,454
|
(34)
|
(2.3)
%
|
Industrial
|
4,475
|
7,192
|
(2,717)
|
(37.8)
%
|
Municipals
|
992
|
1,002
|
(10)
|
(1.0)
%
|
Total
Retail and Municipals
|
8,051
|
10,820
|
(2,769)
|
(25.6)
%
|
Other
Power Suppliers
|
4,056
|
1,800
|
2,256
|
125.3
%
|
Total
Regulated Utility Kilowatt-hours
Sold
|
12,107
|
12,620
|
(513)
|
(4.1)
%
|
ALLETE
Properties
|
2009
|
2008
|
||
Revenue
and Sales Activity
|
Quantity
|
Amount
|
Quantity
|
Amount
|
Dollars
in Millions
|
||||
Revenue
from Land Sales
|
||||
Acres
(a)
|
35
|
$3.8
|
219
|
$6.3
|
Contract
Sales Price (b)
|
3.8
|
6.3
|
||
Revenue
Recognized from Previously Deferred Sales
|
–
|
3.7
|
||
Revenue
from Land Sales
|
3.8
|
10.0
|
||
Other
Revenue (c)
|
0.2
|
8.3
|
||
Total
ALLETE Properties Revenue
|
$4.0
|
$18.3
|
(a)
|
Acreage
amounts are shown on a gross basis, including wetlands and non-controlling
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)
|
Included
a $4.5 million pre-tax gain from the sale of a shopping center in Winter
Haven, Florida in 2008.
|
Kilowatt-hours
Sold
|
2008
|
2007
|
Quantity
Variance
|
%
Variance
|
Millions
|
||||
Regulated
Utility
|
||||
Retail
and Municipals
|
||||
Residential
|
1,172
|
1,141
|
31
|
2.7%
|
Commercial
|
1,454
|
1,457
|
(3)
|
(0.2)%
|
Industrial
|
7,192
|
7,054
|
138
|
2.0%
|
Municipals
|
1,002
|
1,008
|
(6)
|
(0.6)%
|
Total
Retail and Municipals
|
10,820
|
10,660
|
160
|
1.5%
|
Other
Power Suppliers
|
1,800
|
2,157
|
(357)
|
(16.6)%
|
Total
Regulated Utility Kilowatt-hours
Sold
|
12,620
|
12,817
|
(197)
|
(1.5)%
|
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 (c)
|
8.3
|
6.2
|
||
Total
ALLETE Properties Revenue
|
$18.3
|
$50.5
|
(a)
|
Acreage
amounts are shown on a gross basis, including wetlands and non-controlling
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)
|
Included
a $4.5 million pre-tax gain from the sale of a shopping center in Winter
Haven, Florida in 2008.
|
|
·
|
Increased
system flexibility to adapt to volatile business cycles and varied future
industrial load scenarios;
|
|
·
|
Reductions
in the emission of GHGs (primarily carbon dioxide);
and
|
|
·
|
Compliance
with mandated renewable energy
standards.
|
|
·
|
Expand
our renewable energy supply.
|
|
·
|
Improve
the efficiency of our coal-based generation facilities, as well as other
process efficiencies.
|
|
·
|
Provide
energy conservation initiatives with our customers and demand side
efforts.
|
|
·
|
Support
research of technologies to reduce carbon emissions from generation
facilities and support carbon sequestration
efforts.
|
|
·
|
Achieve
overall carbon emission reductions.
|
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%
|
854
|
2,264
|
2,238,400
|
Palm
Coast Park
|
100%
|
3,143
|
3,154
|
3,555,000
|
Total
Current Development Projects
|
3,997
|
5,418
|
5,793,400
|
|
Proposed
Development Project
|
||||
Ormond
Crossings
|
100%
|
2,924
|
(d)
|
(d)
|
Other
|
||||
Lake
Swamp Wetland Mitigation Project
|
100%
|
3,034
|
(e)
|
(e)
|
Total
of Development Projects
|
9,955
|
5,418
|
5,793,400
|
(a)
|
Acreage
amounts are approximate and shown on a gross basis, including wetlands and
non-controlling interest.
|
(b)
|
Estimated
and includes non-controlling 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 that was approved by the City of Ormond Beach is being
replaced by a development agreement to facilitate development of Ormond
Crossings as currently planned. At build-out, we expect the project to
include 2,950 residential units, 4.87 million square feet of various types
of non-residential space and public
facilities.
|
(e)
|
Lake Swamp wetland mitigation
bank is a regionally significant wetlands mitigation bank that was
permitted by the St. Johns River Water Management District in 2008 and by
the U.S. Army Corps of Engineers in December 2009. Wetland mitigation
credits will be used at Ormond Crossings and will also be available for
sale to developers of other projects that are located in the bank’s
service area.
|
Other
Land Available-for-Sale (a)
|
Total
|
Mixed
Use
|
Residential
|
Non-residential
|
Agricultural
|
Acres
(b)
|
|||||
Other
Land
|
1,277
|
394
|
113
|
267
|
503
|
(a)
|
Other
land includes land located in Palm Coast, Lehigh, and Cape Coral,
Florida.
|
(b)
|
Acreage
amounts are approximate and shown on a gross basis, including wetlands and
non-controlling interest.
|
Year
Ended December 31
|
2009
|
%
|
2008
|
%
|
2007
|
%
|
Millions
|
||||||
Common
Equity
|
$929.5
|
57
|
$827.1
|
57
|
$742.6
|
63
|
Non-Controlling
Interest
|
9.5
|
–
|
9.8
|
1
|
9.3
|
1
|
Long-Term
Debt (Including Current Maturities)
|
701.0
|
43
|
598.7
|
42
|
422.7
|
36
|
Short-Term
Debt
|
1.9
|
–
|
6.0
|
–
|
–
|
–
|
$1,641.9
|
100
|
$1,441.6
|
100
|
$1,174.6
|
100
|
Year
Ended December 31
|
2009
|
2008
|
2007
|
Millions
|
|||
Cash
and Cash Equivalents at Beginning of Period
|
$102.0
|
$23.3
|
$44.8
|
Cash
Flows from (used for)
|
|||
Operating
Activities
|
137.4
|
153.6
|
124.2
|
Investing
Activities
|
(320.0)
|
(276.1)
|
(154.1)
|
Financing
Activities
|
106.3
|
201.2
|
8.4
|
Change
in Cash and Cash Equivalents
|
(76.3)
|
78.7
|
(21.5)
|
Cash
and Cash Equivalents at End of Period
|
$25.7
|
$102.0
|
$23.3
|
Issue
Date
(on
or about)
|
Maturity
|
Principal
Amount
|
Coupon
|
February
17, 2010
|
April
15, 2021
|
$15
Million
|
4.85%
|
February
17, 2010
|
April
15, 2025
|
$30
Million
|
5.10%
|
February
17, 2010
|
April
15, 2040
|
$35
Million
|
6.00%
|
Payments
Due by Period
|
|||||
Contractual
Obligations
|
Less
than
|
1
to 3
|
4
to 5
|
After
|
|
As
of December 31, 2009
|
Total
|
1
Year
|
Years
|
Years
|
5
Years
|
Millions
|
|||||
Long-Term
Debt (a)
|
$1,172.1
|
$41.5
|
$196.6
|
$98.2
|
$835.8
|
Pension
and Other Postretirement Benefit Plans
|
194.1
|
36.6
|
105.4
|
52.1
|
–
|
Operating
Lease Obligations
|
89.1
|
8.8
|
26.4
|
15.8
|
38.1
|
Uncertain
Tax Positions (b)
|
–
|
–
|
–
|
–
|
–
|
Unconditional
Purchase Obligations
|
394.0
|
114.1
|
102.7
|
30.4
|
146.8
|
$1,849.3
|
$201.0
|
$431.1
|
$196.5
|
$1,020.7
|
(a)
|
Includes
interest and assumes variable interest rates in effect at December 31,
2009, remains constant through remaining
term.
|
(b)
|
Excludes
$9.5 million of noncurrent unrecognized tax benefits due to uncertainty
regarding the timing of future cash payments related to the guidance in
accounting for uncertain tax
positions.
|
Credit
Ratings
|
Standard
& Poor’s
|
Moody’s
|
Issuer
Credit Rating
|
BBB+
|
Baa1
|
Commercial
Paper
|
A-2
|
P-2
|
Senior
Secured
|
||
First
Mortgage Bonds (a)
|
A–
|
A2
|
Unsecured
Debt
|
||
Collier
County Industrial Development Revenue Bonds – Fixed Rate
|
BBB
|
–
|
(a)
|
Includes
collateralized pollution control
bonds.
|
Capital
Expenditures
|
2010
|
2011
|
2012
|
2013
|
2014
|
Total
|
||
Regulated
Utility Operations
|
||||||||
Base
and Other
|
$156
|
$82
|
$81
|
$82
|
$89
|
$490
|
||
Current
Cost Recovery (a)
|
||||||||
Environmental
|
2
|
–
|
–
|
–
|
–
|
2
|
||
Renewable
|
81
|
66
|
–
|
–
|
–
|
147
|
||
Transmission
|
5
|
21
|
27
|
42
|
13
|
108
|
||
Generation
|
–
|
–
|
–
|
–
|
–
|
–
|
||
Total
Current Cost Recovery
|
88
|
87
|
27
|
42
|
13
|
257
|
||
Regulated
Utility Capital Expenditures
|
244
|
169
|
108
|
124
|
102
|
747
|
||
Other
|
6
|
18
|
24
|
8
|
8
|
64
|
||
Total
Capital Expenditures
|
$250
|
$187
|
$132
|
$132
|
$110
|
$811
|
(a)
|
Estimated
current capital expenditures recoverable outside of a rate
case.
|
Expected
Maturity Date
|
||||||||
Interest
Rate Sensitive
|
Fair
|
|||||||
Financial
Instruments
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
Value
|
Dollars
in Millions
|
||||||||
Long-Term
Debt
|
||||||||
Fixed
Rate (a)
|
$1.6
|
$1.6
|
$1.6
|
$71.1
|
$19.6
|
$528.1
|
$623.6
|
$657.3
|
Average
Interest Rate – %
|
5.9
|
5.9
|
5.9
|
5.2
|
6.9
|
5.9
|
5.8
|
|
Variable
Rate
|
$3.6
|
$12.3
|
$1.7
|
$2.8
|
–
|
$57.0
|
$77.4
|
$77.5
|
Average
Interest Rate – % (b)
|
0.4
|
3.6
|
1.9
|
0.3
|
–
|
0.3
|
0.9
|
(a)
|
The
$65 million line of credit is included in the fixed rate maturity of
$528.1 as it will be refinanced with long-term debt in the first quarter
of 2010.
|
(b)
|
Assumes
rate in effect at December 31, 2009, remains constant through remaining
term.
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
Item
8.
|
Financial
Statements and Supplementary Data
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
Item
9A.
|
Controls
and Procedures
|
Item
9A.
|
Controls
and Procedures (Continued)
|
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
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
(a)
|
Certain
Documents Filed as Part of this Form 10-K.
|
|||
(1)
|
Financial
Statements
|
Page
|
||
ALLETE
|
||||
Report
of Independent Registered Public Accounting Firm
|
57
|
|||
Consolidated
Balance Sheet at December 31, 2009 and 2008
|
58
|
|||
For
the Three Years Ended December 31, 2009
|
||||
Consolidated
Statement of Income
|
59
|
|||
Consolidated
Statement of Cash Flows
|
60
|
|||
Consolidated
Statement of Shareholders’ Equity
|
61
|
|||
Notes
to Consolidated Financial Statements
|
62
|
|||
(2)
|
Financial
Statement Schedules
|
|||
Schedule
II – ALLETE Valuation and Qualifying Accounts and Reserves
|
97
|
|||
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, dated as of May 12, 2009, (filed as Exhibit
3 to the June 30, 2009, Form 10-Q, 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)
|
|||