ALLETE Shareholders Newsletter

Our Businesses

Investors

News

Contact

Governance

June 1, 2007

Dear Shareholder

Don Shippar
For those of you who came to our Annual Meeting of Shareholders in Duluth May 8, thanks for your attendance. If you couldn’t make it, you can read about the meeting in this edition of The ALLETE Investor.

The day after the meeting, two groundbreaking ceremonies about 1,600 miles apart illustrated the dynamic growth taking shape at ALLETE. In Cohasset, Minn., Minnesota Power broke ground on a $200 million construction project that will significantly reduce air emissions at Boswell Unit 3. In Palm Coast, Fla., ALLETE Properties officials helped break ground for a new Super Target store that will serve as an anchor tenant at Town Center at Palm Coast, a major multi-use project under development by ALLETE Properties.

These joint groundbreaking ceremonies highlighted the diverse nature of our corporation and remind us all that careful planning and creative thinking can lead to successful growth. Boswell Unit 3’s retrofits are expected to be completed in 2009; the Target store is slated for completion in March of 2008.

On behalf of ALLETE employees in Minnesota, Florida, and elsewhere, thanks for sharing our vision of the future. We appreciate your investment in our company.

Sincerely,

Don Shippar
Chief Executive Officer

ALLETE Annual Meeting focuses on growth in energy, real estate

Chief Executive Don Shippar told a gathering of about 750 ALLETE shareholders at their annual meeting May 8 that the corporation’s energy business faces a complex challenge of serving large new customers while maintaining environmental quality.“Nobody is in a better position to meet the future energy needs of northern Minnesota than Minnesota Power,” said Shippar, ALLETE’s chairman, president and CEO. “Our objective is to meet those needs without adding more greenhouse gases to the environment.”

While Shippar focused on environmental issues during his annual meeting address at the Duluth Entertainment Convention Center, he also spoke in optimistic terms about ALLETE’s real estate business, particularly the Town Center at Palm Coast development.

“Many years ago we envisioned this property as a new downtown for a fast-growing community,” Shippar said. “Now, our vision is being realized.” He noted that a new medical office building is now under construction at Town Center and told the audience a 435,000-square-foot Super Target store will anchor a “power center” in Palm Coast’s new downtown. Shippar took time to thank Peter Johnson and Nick Smith, two ALLETE directors who did not stand for reelection after serving 13 and 12 years, respectively, on the board. Voting by proxy, ALLETE shareholders elected ten directors, including first time nominee Sidney W. “Chip” Emery Jr. of Minneapolis. He is board chairman and CEO of MTS Systems Corp., a supplier of mechanical testing systems and industrial position sensors.

In addition to electing the board, shareholders ratified the appointment of PricewaterhouseCoopers as ALLETE’s public accounting firm for 2007.

Shippar summarized the company’s “very strong first quarter financial report,” which was released a week before the meeting. ALLETE earned 93 cents per share in the first quarter, an increase of 37 percent over first quarter earnings in 2006. He also noted the 13 percent dividend increase approved by the board in January of 2007, following a 15 percent dividend hike the year before.

In his prepared remarks, Shippar focused on the company’s longstanding commitment to environmental ethics. He told shareholders that Minnesota Power had adopted a climate change policy in which the utility will make reductions in the amount of greenhouse gases emitted to produce energy. Shippar said the company would accomplish this by 1. accelerating the use of renewable energy, 2. improving generation efficiency, 3. aggressive conservation, including demand-side management, and 4. researching and developing advanced coal generation and carbon sequestration.

Shippar also reported on the major air emissions control upgrades underway at three Minnesota Power generating stations, and outlined a new biomass initiative in which Minnesota Power will boost its use of wood waste and other environmentally benign fuels.

Shippar told ALLETE investors that potential projects by two major industrial customers – PolyMet Mining and Essar Global, which is purchasing Minnesota Steel in Nashwauk, Minn. – were moving closer to reality and would require large amounts of electric power. David McMillan, Sr. Vice President of Marketing,
Regulatory and Public Affairs, elaborated on these and other large potential projects during an extended question and answer session.

“Rarely in the history of this company has the energy business been as dynamic as it is today,” Shippar said. “And never has it been as complex.”

Jeffrey Roth, Heidi Hughes join ALLETE Properties

ALLETE Properties has added two executives to its management team, Jeffrey H. Roth and Heidi Hughes.

Roth was named senior vice president and chief financial officer of the wholly-owned ALLETE subsidiary. Roth brings more than 20 years of real estate finance experience to ALLETE Properties, where he will be responsible for the financial activities of the company, including acquisition evaluations and funding.

Roth has held a variety of finance positions, including vice president of finance for KB Homes’ Fort Myers Division, and chief financial officer of Centex Construction’s Mid-Atlantic Division.

Hughes, who joins ALLETE Properties as senior vice president, will lead land acquisition and government relations activities and serve as general counsel for the company and its subsidiaries. Hughes previously served as deputy general counsel to Florida Gov. Jeb Bush and general counsel for the Florida Department of Community Affairs. Most recently, she was chief of staff and general counsel for the Florida Department of State.

Heidi Hughes

Jeffrey Roth

Shareholders who received ADESA stock in 2004 spin-off should be aware of tax consequences

ALLETE shareholders who received ADESA stock as a result of the 2004 spin-off and continued to own it until 2007 should be aware of their tax liability and plan accordingly.

Generally, the receipt of cash in exchange for shares is a taxable transaction for federal income tax purposes and is most likely a taxable transaction under state, local or foreign tax laws.

The receipt of checks by holders of ADESA stock when the company recently was acquired and converted to private ownership has prompted many calls to Allete Shareholder Services. Judging from the inquiries, it’s clear that many people are unaware that receiving a payment for their ADESA stock is a taxable event.

Investors who either sold shares or received a check for their ADESA stock in 2007 will most likely need to establish their cost basis in order to calculate their capital gain or loss when filing income tax statements early in 2008. Allete Shareholder Services personnel want to avoid confusion and last minute questions at next year’s tax deadline. Investors should refer to saved stock statements received from Allete, Minnesota Power or their brokers for the information needed to calculate their cost basis in ADESA shares. They should also consider consulting a tax advisor about the consequences of the ADESA transaction.

Allete shareholders who received ADESA shares in the 2004 spin-off and need help tracking down old statements can contact Allete Shareholder Services by calling (218)723-3974 or 1-800-535-3056, or by sending an email to shareholder@allete.com.

ALLETE digs in to simultaneous groundbreakings in Minnesota and Florida

ALLETE digs in to simultaneous groundbreakings in Minnesota and Florida ALLETE personnel on May 9 participated in two separate groundbreaking events 1,680 miles apart.One groundbreaking celebrated the start of work on a major emissions control project at Boswell Energy Center’s Unit 3 in Cohasset, Minn. Shovels were also deployed in Palm Coast, Fla., where ground was broken for a new Super Target store that will anchor a 435,000 square-foot retail center within ALLETE Properties’ Town Center development.

In the Boswell photo above on the left, (from left to right): are Claudia Welty of ALLETE, Unit 3 manager Bob Johnson, Warren Candy of Minnesota Power, ALLETE CEO Don Shippar, Cohasset Mayor Ron Hardy, Minnesota Pollution Control Agency Commissioner Brad Moore and Al Hodnik of Minnesota Power.

In the Palm Coast photo above to the right, David Lusby and Bill Livingston of ALLETE Properties are shown at far left, along with representatives of Developers Realty Corporation, Weingarten Realty and the city of Palm Coast.

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

Shareholder Services ALLETE • 30 West Superior Street • Duluth, MN 55802-2093 • 218-723-3974 or 1-800-535-3056
E-mail: shareholder@allete.com