<TABLE>
<CAPTION>
Selected consolidated financial data
----------------------------------------------------------------------------------------------------------
                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>
                                  1996       1995       1994       1993       1992       1991       1986
                                --------   --------   --------   --------   --------   --------   --------
                                                    (thousands except per-share data)
Revenues
Electric
<S>                             <C>        <C>        <C>        <C>        <C>        <C>        <C>
  Residential                   $ 66,295   $ 64,355   $ 62,687   $ 62,167   $ 59,038   $ 61,844   $ 64,123
  Commercial and farms (1)        74,355     71,487     69,060     66,286     63,257     64,122     64,019
  Industrial (1)                  37,453     37,952     38,354     36,442     35,607     34,408     29,981
  Sales for resale                10,238     19,110     19,066     18,107     11,126     11,330      6,330
  Other electric                  11,004     11,021      9,645      9,288      8,077      7,752      7,768
                                --------   --------   --------   --------   --------   --------   --------
Total electric                  $199,345   $203,925   $198,812   $192,290   $177,105   $179,456   $172,221
Health services                   61,697     50,896     45,555     32,068         --         --         --
Manufacturing                     56,868     38,690     13,083      8,473         --         --         --
Other business operations         43,829     32,818     29,276     32,396     32,433     20,389         --
                                --------   --------   --------   --------   --------   --------   --------
  Total operating revenues      $361,739   $326,329   $286,726   $265,227   $209,538   $199,845   $172,221


Net income                      $ 29,955   $ 28,945   $ 28,475   $ 27,369   $ 26,538   $ 26,096   $ 24,013
Cash flow from operations       $ 67,145   $ 58,077   $ 51,832   $ 53,255   $ 44,866   $ 46,667     N/A
Total assets                    $662,287   $609,196   $578,972   $563,905   $530,456   $491,633   $480,621
Long-term debt                  $160,492   $168,261   $162,196   $166,563   $159,295   $146,326   $130,032
Redeemable preferred            $ 18,000   $ 18,000   $ 18,000   $ 18,000   $ 18,000   $ 13,150   $ 18,145
Common shares outstanding
 (2) (thousands)                  11,215     11,180     11,180     11,180     11,180     11,185     11,961
Number of common
 shareholders (3)                 13,829     13,933     14,115     13,634     13,812     13,928     14,994
Earnings per common share (4)      $2.47      $2.38      $2.34      $2.23      $2.17      $2.15      $1.78
Dividends per common share         $1.80      $1.76      $1.72      $1.68      $1.64      $1.60      $1.42
----------------------------------------------------------------------------------------------------------

Notes:
(1) Customer classifications were redefined in 1996.  Customers with demand less than
    1000 kw previously classified as industrial are now classified as commercial.
(2) Number of shares outstanding at year-end.
(3) Holders of record at year-end.
(4) Based on average number of shares outstanding.
</TABLE>



                   Management's discussion and analysis of
                financial condition and results of operations

Management's major financial objective is to increase shareholder value by 
continuing to earn a reasonable return on the Company's capital.  This will 
enable the Company to preserve and enhance its financial capability by 
maintaining acceptable capitalization ratios, maintaining a strong interest 
coverage position, providing a reasonable return to the common shareholder, 
maintaining an above average level of internal cash generation, and 
preserving strong credit ratings on outstanding securities to the benefit 
of both the Company's customers and its shareholders.

Liquidity:  Liquidity is the ability to generate adequate amounts of cash 
to meet the Company's needs, both short-term and long-term.  Historically, 
the Company's liquidity has been a function of its capital project 
expenditures and debt service requirements, its net internal funds 
generation and its access to long-term securities markets and credit 
facilities for external capital.

Over the years, the Company has achieved a high degree of long-term 
liquidity by maintaining desired capitalization ratios and strong bond 
ratings, implementing cost-containment programs, evaluating operations and 
projects on a cost-benefit approach, investing in projects that enhance 
shareholder value, and obtaining adequate depreciation rates. 

Cash provided by operating activities of $67,145,000 along with net 
proceeds from the issuance of short-term debt of $25,600,000 as shown on 
the Consolidated Statement of Cash Flows for the year ended December 31, 
1996, combined with funds on hand of $4,075,000 at December 31, 1995, 
allowed the Company to finance its capital expenditures, pay dividends, and 
provide for a majority of its investments in additional nonutility  
businesses.  Proceeds from the issuance of long-term debt net of payments 
for the retirement of long-term debt of $5,700,000 for the year ended 
December 31, 1996, were used to finance equipment purchases at the 
Company's medical and manufacturing subsidiaries and to finance a portion 
of the investments in additional nonutility businesses.  The Company had 
$1.2 million in cash, cash equivalents and temporary cash investments at 
December 31, 1996, along with $21,725,000 available in unused lines of 
credit which could be used to supplement cash needs.

The Company estimates that funds internally generated net of forecasted 
dividend payments, combined with funds on hand, will be sufficient to meet 
all sinking fund payments for First Mortgage Bonds in the next five years 
and to provide for a majority of its estimated 1997-2001 consolidated 
capital project expenditures.

Additional short-term or long-term financing will be required in the period 
1997-2001 in connection with the following items:

- A portion of the Company's estimated capital project expenditures.

- Maturity of First Mortgage Bonds, $18,800,000 in 1997, and Long-Term 
  Lease Obligation, $2,200,000 in 1998.

- In the event the Company decides to refund or retire early any of its 
  presently outstanding debt or cumulative preferred shares.

- Other corporate purposes.


Capital Requirements:  The Company has a construction and capital 
investment program to provide facilities necessary to meet forecasted 
customer demands and provide reliable service in the capital intensive 
electric utility business.  This includes improvements to existing power 
plants, acquisition or construction of additional generating capacity, and 
upgrading or replacing portions of the distribution and transmission 
systems and other buildings and equipment.  The construction program is 
subject to continuing review and is revised annually in light of changes in 
demands for energy, environmental laws, technology affecting the electric 
utility industry, the costs of labor, materials and equipment, and the 
Company's financial condition (including cash flow and earnings). 

The subsidiaries capital requirements include periodic and timely 
replacement of technically obsolete or worn out equipment, new equipment 
purchases, and plant upgrades to accommodate anticipated growth.
 
Capital project expenditures for the years 1996, 1995, and 1994 were $64 
million, $37 million, and $30 million, respectively.  Actual 1996 cash 
expenditures in excess of previously reported accrual-based estimates, and 
1995 actual expenditures reflect: 1)reductions in capital related payables 
at year-end 1996, compared to year-end 1995, at the electric utility, 
2)$8 million in diagnostic medical equipment purchases by the health services 
subsidiary acquired in April 1996, 3)accelerated replacement of equipment 
at another of the Company's health services subsidiaries, 4)the purchase 
and expansion of a building formerly being leased by a manufacturing 
subsidiary and, 5)the purchase of a building by the Company's radio 
broadcasting subsidiary.

The estimated capital expenditures for 1997 are $39 million, and the total 
expenditures for the five-year period 1997-2001 are expected to be 
approximately $169 million.  The breakdown of 1996 actual and 1997-2001 
estimated capital project expenditures by segment is as follows:

                                 1996       1997     1997-2001
                                 ----       ----     ---------
                                         (in millions)
  Electric utility                $38        $25        $127
  Health services                  16          6          18
  Manufacturing                     5          4          12
  Other business operations         5          4          12

In addition to these capital requirements, funds totaling approximately 
$84,808,000 will be needed during the five-year period 1997 through 2001 to 
retire First Mortgage Bonds and other long-term obligations, including 
subsidiary long-term obligations, at maturity and through sinking fund 
payments.

Capital Resources:  Financial flexibility is provided by unused lines of 
credit, financial coverages in excess of the minimum levels required for 
issuance of securities, and strong credit ratings.

On August 30, 1996, the Company filed a shelf registration statement with 
the Securities and Exchange Commission for the issuance of up to 
$50,000,000 of its debt securities, which may be sold from time to time in 
one or more series, the proceeds of which will be used to repay short-term 
and other indebtedness, to redeem one or more of the outstanding series of 
the Company's First Mortgage Bonds and for general corporate purposes.

On August 30, 1996, the Company also filed a shelf registration statement 
with the Securities and Exchange Commission for the issuance of up to 
1,000,000 common shares pursuant to the Company's Automatic Dividend 
Reinvestment and Share Purchase Plan (the Plan), which will permit shares 
purchased by shareholders, employees, or customers who participate in the 
Plan to be either new issue common shares or common shares purchased on the 
open market.  In December 1996 the Company began issuing newly issued 
common shares to fulfill the requirements of the Plan, resulting in the 
issuance of 34,516 common shares and proceeds to the Company of $1,130,000 
in 1996. The Company estimates that it could raise approximately $6 million 
per year in new capital if new issue common shares are used to fulfill all 
requirements of the Plan in 1997 and beyond.  Proceeds from newly issued 
common shares will be used for general corporate purposes.

The Company also plans to fulfill part of the share purchase requirements 
of its leveraged employee stock ownership plan (ESOP) in 1997, and possibly 
in 1998, and 1999, with newly issued common shares, which could provide the 
Company with up to $2.8 million of capital each year.

As of December 31, 1996, unused credit lines totaling $21.7 million were 
available to meet interim financing of working capital and other capital 
requirements, if needed.  The Company had $25,600,000 in short-term 
borrowings outstanding as of December 31, 1996.  The subsidiary companies 
had $7 million of credit lines in use at December 31, 1996, classified as 
current maturities and long-term debt. (See note 9 to financial statements 
for further information.)

During 1996 the Company's coverage ratios declined slightly from 1995 
levels. The fixed charge coverage ratio after taxes was 3.0 for 1996, as 
compared to 3.2 in 1995.  The long-term debt interest coverage ratio before 
taxes was 3.9 for 1996, as compared to 4.3 in 1995.  The Company expects 
these coverages to increase slightly in 1997. 

The Company's credit ratings affect its access to the capital market.  The 
current credit ratings for the Company's First Mortgage Bonds are as 
follows: 

  Moody's Investors Service        Aa3
  Duff and Phelps                  AA
  Fitch Investors Service          AA
  Standard and Poor's              AA-

The Company's disclosure of these security ratings is not a recommendation 
to buy, sell, or hold the Company's securities.

As of December 31, 1996, the Company had the capacity under its Indenture 
of Mortgage to issue an additional $138 million principal amount of First 
Mortgage Bonds.


Results of operations:

Electric operations:

Otter Tail Power Company provides electrical service to nearly 125,000 
customers in a service territory of over 50,000 square miles. 

Operating revenues
------------------
The change in revenues may be summarized as follows: 
	 		
                                  Revenue increase(decrease)
                                        from prior year
                                  1996       1995       1994
                                 ------     ------     ------ 
                                        (in thousands)
  Volume variance (1)           $  (499)   $ 5,419    $ 6,979
  Price variance (2)             (3,985)    (1,517)      (492)
  Other                             (96)     1,211         35
                                -------    -------    -------
    Total Electric              $(4,580)   $ 5,113    $ 6,522

(1)  Derived for each customer class by multiplying year-to-year change in 
units sold by the average revenue per kwh for the prior year. 

(2)  Derived for each customer class by multiplying the year-to-year change 
in average revenue per kwh by the units sold during the year. 

The 1996 volume variance was mainly due to a decrease in noncontractual 
power pool kwh sales partially offset by a 4% increase in retail kwh sales. 
A number of factors contributed to the decrease in noncontractual power 
pool sales.  Midcontinent Area Power Pool (MAPP) transmission service 
charges have made it less economical to ship energy over long distances.  
The summer of 1996 was milder than the summer of 1995 and high water levels 
in the summer of 1996 furnished MAPP's hydro generators with an excess of 
low-priced electricity to market.  In addition to external factors, lower 
plant availability in 1996 due to scheduled outages at both Hoot Lake Unit 
3 and Big Stone Plant also contributed to the decrease in noncontractual 
power pool sales.

The 1995 volume variance was due to a 3.4% increase in retail kwh sales.  
The increase in retail kwh sales was due to increased sales in each 
customer class: residential, commercial, and industrial.  Total power pool 
sales decreased by 1% from the previous year.  Noncontractual power pool 
sales increased due to a combination of warmer weather and greater plant 
availability in 1995 which resulted in more opportunity sales.  This 
increase was offset by a 53.7% decrease in contractual power pool sales.

The 1994 volume variance was due to a 3.6% increase in retail kwh sales.  
The increase in retail kwh sales was principally due to increased sales to 
commercial and industrial customers.  Power pool sales remained at the same 
level as in the previous year.  Noncontractual power pool sales declined in 
1994 because of the exceptionally high level of sales in 1993.  However, 
contractual power pool sales were up significantly in 1994 because of a 
large sale to another utility.
 
Heating degree days, which generally correlate to increases or decreases in 
usage by residential customers, were 10,349 for 1996, 9,326 for 1995, and 
9,204 for 1994.  The average revenue per retail kilowatt-hour was 5.35 cents in 
1996, 5.45 cents in 1995, and 5.50 cents in 1994.

The 1996 price variance relates to lower fuel costs at Big Stone Plant 
being passed on to customers through the cost of energy adjustment clause 
and lower rates charged to one of the Company's largest industrial 
customers under the Company's recently developed Large General Service 
Time-of-Use Rider.

The 1995 price variance was primarily attributed to residential and 
commercial sales, sales to a large industrial customer, and the cost of 
energy adjustment clause.  The negative variance in these categories was 
partially offset by a positive price variance in contractual power pool 
sales.  The increase in contractual power pool sales revenue per kwh sold 
resulted from spreading a fixed demand charge over a decrease in kwh sales.

The 1994 price variance was essentially due to increased sales to 
industrial customers and increased contractual power pool sales.  The 
decrease in contractual power pool sales revenue per kwh sold resulted from 
spreading a fixed demand charge over an increase in kwh sales.

The change in electric revenue attributed to factors other than price and 
volume variances in 1996 reflects an increase in conservation program 
revenues recognized in 1996, offset by a decrease of $614,000 in North 
Dakota unbilled revenues as a result of the three year phase-in period for 
the initial recognition of these revenues ending in 1995.  (See note 1 to 
financial statements for further information.)  The increase in electric 
revenue related to other factors in 1995 reflects an increase in unbilled 
revenue of $388,000 over 1994 and the initial recognition of conservation 
program revenues and wheeling service fees in 1995.

Expenses
--------
The percentage changes in operating expenses may be summarized as follows:

                                Percentage increase (decrease)
                                        from prior year
                                  1996       1995       1994
                                  ----       ----       ----
  Production fuel                 (12)        (2)         3
  Purchased power                  (7)         7          5
  Electric operation expenses       3         13          2
  Electric maintenance              8        (11)         6
  Depreciation and amortization     2          3          4
  Property taxes                    8         (6)         6

Production fuel and purchased power expense
-------------------------------------------
The 12% decrease in production fuel expense in 1996 was the result of 
declines in fuel expenses at all three of the Company's major power plants 
due to decreases in fuel costs per kwh at Big Stone and Hoot Lake and 
decreases in net generation at Big Stone and Coyote. Two factors 
contributing to the decrease in system wide generation in 1996 were lower 
demand as a result of fewer noncontractual power pool sales and scheduled 
maintenance shutdowns at Hoot Lake and Big Stone Plants.  In 1995 the cost 
of steam production fuel per kwh generated decreased by 4.1% while the 
total kwhs generated increased by 1.6%, which, in combination, contributed 
to the 2% decrease in 1995 production fuel expense compared to 1994.  The 
decrease in fuel cost per unit of generation in 1996 and 1995 resulted 
mainly from switching fuels at Big Stone Plant from lignite to higher-Btu 
subbituminous coal in August 1995.  The 3% increase in production fuel in 
1994 resulted chiefly from a 3.2% increase in generation.

The 7% decrease in purchased power in 1996 reflects a 45% decrease in kwh 
purchases for resale partially offset by a 21% increase in purchases for 
system use.  The decrease in purchases for resale correlates to the 
decrease in noncontractual power pool sales.  The purchase of replacement 
generation for planned plant outages was the major factor contributing to 
the increase in purchases for system use.  The 7% increase in purchased 
power in 1995 was due to increased kwh purchases for system use, which 
correlates to the increase in retail sales.  Purchased power increased 5% 
in 1994 essentially because of an increase in cost per kwh purchased. The 
bulk of the increase in cost per kwh purchased resulted from an increase in 
replacement generation cost for plant outages.

The increase or decrease in fuel and purchased power costs arising from 
changing prices results in adjustments to the Company's rate schedules 
through the cost of energy adjustment clause.  Over the last five years 
this has resulted in savings of nearly $39 million to the Company's 
customers.

Electric operation and maintenance expenses
-------------------------------------------
The 3% increase in electric operation expenses for 1996 was mainly due to 
increased benefit costs resulting from revised actuarial assumptions for 
the Company's Executive Survivor and Supplemental Retirement Plan (see note 
8 to financial statements for further information) and increased payments 
for contracted services offset by a decrease in economic development 
expenditures that were lower than the increased levels recorded in 1995.  

The increase in electric operating expense of 13% in 1995 was primarily due 
to a settlement with the Minnesota Public Utilities Commission requiring 
recovery of Conservation Improvement Program costs in current rates 
starting in 1995 and an increase in postretirement health-care benefit 
costs resulting from a plan amendment which reduces the health insurance 
contribution requirements for surviving spouses of retired employees.  (See 
notes 3 and 8 to financial statements for further information.)  Storm-
related expenses in the summer and fall of 1995 along with 1995 economic 
development expenditures and wage and salary increases also contributed to 
the increase in electric operating expense.

The 1994 increase of 2% in electric operating expense resulted principally 
from increases in customer account expenses and payroll expenses.

The majority of the increase in electric maintenance expense of 8% in 1996 
was due to increased production plant maintenance expenses.  Hoot Lake Unit 
3 was down for scheduled maintenance in February and March of 1996 and had 
a turbine rebuild and steam chest replacement in July 1996.  Big Stone 
Plant underwent a scheduled ten-week major overhaul in September, October 
and November of 1996.

The 11% decrease in electric maintenance expense in 1995 was mainly due to 
significant reductions in power plant maintenance expenses.  Coyote Plant, 
which had a major overhaul in the spring of 1994 but no major overhauls in 
1995, was the primary contributor to the reduction in maintenance expenses. 
Lower maintenance expenses on Hoot Lake Plant Unit 2, which underwent major 
repairs in the summer of 1994, also contributed to the decrease.

The increase in electric maintenance expense of 6% in 1994 was due to 
increases in production and distribution maintenance.  Production 
maintenance increased because of boiler repairs at Coyote Plant.  
Distribution maintenance increased due to more tree-trimming expenses.

Depreciation and amortization
-----------------------------
The increases in depreciation and amortization expense of 2% in 1996, 3% in 
1995 and 4% in 1994 were attributable to additions to plant in service from 
capital expenditures.

Property taxes
--------------
The 8% increase in property taxes in 1996 was due to a 10% increase in the 
assessed value of the Company's South Dakota utility property compounded by 
a 14% increase in the mill rates applied to that property.  The 6% decrease 
in property taxes in 1995 was mainly due to decreased property tax rates in 
Minnesota and valuation decreases in South Dakota.  The increase in 
property taxes of 6% for 1994 was due to property additions and increased 
mill rates.


Health services operations:

Health services operations include businesses which are involved in the 
sale, service, rental, refurbishing, and operation of medical imaging 
equipment and the sale of related supplies and accessories to various 
medical institutions, primarily in the Midwest.  Initial acquisitions of 
businesses in this segment were made in 1993.  Two companies were acquired 
in 1996: one in February, and a second more significant acquisition in 
April.  (See note 2 to financial statements for more information.)

                                  1996       1995       1994
                                 ------     ------     ------
                                        (in thousands)
  Operating revenues            $61,697    $50,896    $45,555
  Cost of goods sold             40,224     31,576     28,690
  Operating expenses             16,336     15,739     14,379
                                -------    -------    -------
    Operating income            $ 5,137    $ 3,581    $ 2,486

The increases in health services revenue of 21% and cost of goods sold of 
27% in 1996, as compared to 1995, were due to acquisitions of two health 
services companies.  The 12% increase in health services operating revenues 
in 1995 was due to increased sales of medical equipment in 1995 compared to 
1994.  The acquisition of three additional diagnostic imaging companies in 
January 1995 also contributed to the increase in operating revenues.  The 
increase in cost of goods sold in 1995 compared to 1994 was directly 
related to the 1995 increase in equipment sales.


Manufacturing operations:

Manufacturing operations is made up of businesses involved in the 
production of agricultural equipment, plastic pipe extrusion, and metal 
parts stamping and fabrication.  Initial acquisitions of businesses in this 
segment were made in 1990.  No additional companies were acquired in 1996.

                                  1996       1995       1994
                                 ------     ------     ------
                                        (in thousands)
  Operating revenues            $56,868    $38,690    $13,083
  Cost of goods sold             43,745     29,884      9,167
  Operating expenses              7,700      5,536      1,475
                                -------    -------    -------
    Operating income            $ 5,423    $ 3,270    $ 2,441

The 47% increase in manufacturing operating revenues in 1996 reflects 
revenues from Northern Pipe Products, acquired in October of 1995, and 
increased sales at BTD Manufacturing.  The 46% increase in manufacturing 
cost of goods sold and 39% increase in operating expenses in 1996 were 
directly related to the increase in manufacturing revenue.  The increases 
in 1995 operating revenues and 1995 cost of goods sold and operating 
expenses resulted principally from the acquisitions of Northern Pipe 
Products and BTD Manufacturing in 1995 and sales in expanded product lines 
of companies acquired prior to 1995. 


Other business operations:

The Company's other business operations include a telephone utility and 
businesses involved in electrical and telephone construction contracting, 
radio broadcasting, and waste incinerating.  In 1996 the Company's 
subsidiary, Mid-States Development, Inc., acquired four radio stations, and 
the Company's telecommunications subsidiary, North Central Utilities, Inc. 
(NCU), acquired two small cable TV systems. On January 2, 1997, NCU 
acquired The Peoples Telephone Co. of Bigfork (Peoples) in a pooling-of-
interests transaction.  Peoples, with 1,903 access lines serving five 
communities in Northern Minnesota, had 1996 revenues of $1.6 million.  (See 
note 2 to financial statements for more information.)

                                  1996       1995       1994
                                 ------     ------     ------
                                        (in thousands)
  Operating revenues            $43,829    $32,818    $29,276
  Cost of goods sold             28,297     18,954     16,903
  Operating expenses             13,145     10,333      9,247
                                -------    -------    -------
    Operating income            $ 2,387    $ 3,531    $ 3,126

The 34% increase in operating revenue in 1996, as compared to 1995, 
reflects material cost pass through billings by the Company's construction 
subsidiaries on material intensive jobs.  The increase in material costs 
billed is also reflected in the 49% increase in cost of goods sold from 
other business operations.  The increase of 27% in 1996 operating expenses 
as compared to 1995 was due to increased construction activity and non-
recurring expenses associated with the acquisition of four radio stations 
in 1996. (See note 2 to financial statements for more information.)

Operating revenues increased 12% in 1995, of which half was attributable to 
increased construction revenues related to material cost billings on large 
projects with a commensurate increase in cost of goods sold.  The remaining 
increases in revenues and operating income were due to modest contributions 
from all other businesses in 1995.

Consolidated other income and deductions--net:

The increase in other income and deductions--net in 1996, as compared to 
1995, reflects a reduction in miscellaneous expenses at the health services 
subsidiaries in 1996 and losses on marketable securities recognized in 1995 
related to the Company's preferred stock investment program which ended in 
October of 1995.

Consolidated interest charges:

Interest charges increased 10% in 1996 as a result of increased debt at the 
Company's subsidiaries due to acquisitions and growth and to an increase in 
the use of short-term debt at the parent-company level.  Interest charges 
increased 11% in 1995 due to new business acquisitions.

Consolidated income taxes:

The 13% decrease in income taxes in 1996, compared to 1995, was the result 
of net capital losses realized in 1995 on the sale of marketable securities 
not generating tax savings, the initial recording of affordable housing  
tax credits in 1996, and reversal of taxes previously deferred at rates 
higher than current tax rates. (See note 11 and "Investments" under note 1 
to financial statements for more information.) 

Impact of inflation:

For an electric utility, the regulatory process limits the amount of 
depreciation expense included in the Company's revenue allowance and limits 
electric utility plant in the rate base to original cost.  Such amounts 
produce cash flows that are inadequate to replace such property in the 
future or preserve the purchasing power of common equity capital previously 
invested.  Under continuation of the current regulatory process, the 
Company expects that it will be able to establish rates that will cover the 
increased costs of new plant when such costs are incurred.  The Company 
operates under regulatory provisions that allow price increases in the cost 
of fuel and purchased power to be passed to customers through automatic 
adjustments to its rate schedules under the cost of energy adjustment 
clause.  For the past eight years this has resulted in lower retail 
electric rates.  Other increases in the cost of electric service must be 
recovered through timely filings for rate relief with the appropriate 
regulatory agency.

The Company's health services, manufacturing and other business operations 
consist almost entirely of unregulated businesses.  Increased operating 
costs are reflected in product or services pricing with any limitations on 
price increases determined by the marketplace.

Factors affecting future earnings:

Growth of electric revenue
--------------------------
The results of operations discussed above are not necessarily indicative of 
future earnings.  Anticipated higher operating costs and carrying charges 
on increased investment in plant, if not offset by proportionate increases 
in operating revenues and other income (either by appropriate rate 
increases, increases in unit sales, or increases in nonelectric 
operations), will affect future earnings.

Growth in electric sales will be subject to a number of factors, including 
the volume of power pool sales to other utilities, the effectiveness of 
demand-side management programs, weather, competition, and the rate of 
economic growth or decline in the Company's service area.  The Company's 
electric business is primarily dependent upon the use of electricity by 
customers in our service area.  Percentage changes in the Company's 
electric kwh sales to retail customers over the prior year for the last 
three years were increases of 4.0% in 1996, 3.4% in 1995, and 3.6% in 1994.

Market factors beyond the Company's control such as mergers and 
acquisitions, geographical location, transmission costs and uncertainty 
about the impact of deregulation may contribute to a continued decline in 
noncontractual power pool sales.  However, the relative effect of the 
decrease in noncontractual power pool sales on earnings is less than its 
proportionate effect on the decrease in electric revenues due to the 
relatively low margin of profits on these sales.

Rates of return earned on utility operations are subject to review by the 
various state commissions that have jurisdiction over the electric rates 
charged by the Company.  These reviews may result in future revenue 
reductions when actual rates of return are deemed by regulators to be in 
excess of allowed rates of return.

Demand-side management
----------------------
Demand-side management (DSM) efforts will continue in all jurisdictions 
served by the Company.  The goal of DSM is to encourage the wise and 
efficient use of electricity by customers.  Currently, Minnesota is the 
only jurisdiction that mandates investments in DSM. 

In 1994 the Company filed a petition with the Minnesota Public Utilities 
Commission (MPUC) for approval of an annual recovery mechanism for DSM-
related costs under Minnesota's Conservation Improvement Programs (CIP).  
An intervenor on behalf of the Large General Service Group filed comments 
against the petition and requested the MPUC to order a general rate case to 
review the Company's earnings levels.  In the interest of rate stability 
the Company reached an agreement, which was approved by the MPUC, resulting 
in costs to the Company of approximately $2.2 million each year for three 
years being absorbed in current rates starting in 1995.  
 
In 1996 the MPUC approved the Company's 1995 financial incentive filing 
along with a 1.25% surcharge on all Minnesota customers' bills starting on 
July 1, 1996, for the recovery of conservation-related costs over and above 
those being recovered in current rates.  The approved surcharge in effect 
from July 1, 1995, through June 30, 1996, was .5030%.  The surcharge 
approvals resulted in earnings of approximately $655,000 in 1996 and 
$620,000 in 1995 due to recognition of revenue related to CIP impacts on 
1996, 1995, and 1994 energy consumption.  The current surcharge rate will 
be in place until June 30, 1997, when it will be revised for subsequent 
years' program results.

Energy adjustment clause
------------------------
The Company began purchasing subbituminous coal for Big Stone Plant in 
August 1995 under a new coal contract that runs through December 1999. 
Price reductions, in addition to plant efficiency gains due to switching 
from lignite to higher-Btu subbituminous coal, have resulted in cost 
reductions.  The majority of these reductions have been, and continue to 
be, passed on to retail electric customers through the cost of energy 
adjustment clause, which enhances the Company's competitive position.
 
In November 1995 the Company and two other Coyote Plant partners initiated 
a lawsuit against Knife River Coal Mining Company and its parent, MDU 
Resources Group, in an attempt to resolve disputes over the pricing 
mechanism included in the Coyote coal agreement.  The case has been 
remanded to arbitration to determine if the items under dispute are 
arbitrable.  Any fuel cost savings that may result from resolution of this 
dispute will be passed on to customers through the cost of energy 
adjustment clause.  

Environmental regulation
------------------------
Under current regulations the Federal Clean Air Act (the Act) is not 
expected to have a significant impact on future capital requirements or 
operating costs. However, proposed or future regulations under the Act, 
changes in the future coal supply market, and/or other laws and regulations 
could impact such requirements or costs.  It is anticipated that, under 
current regulatory principles, any such costs could be recovered through 
rates. 

The Company's plants are not subject to the Act's phase one requirements. 
Phase two standards of the Act must be met by the year 2000.  The Company 
intends that Big Stone Plant will maintain current levels of operation and 
meet phase two requirements for sulfur dioxide emissions by burning 
subbituminous coal, which is much lower in sulfur emissions than lignite.  
As stated previously, Big Stone Plant's new coal contract expires at the 
end of 1999.  The cost of subbituminous coal in 2000 and beyond will 
probably be higher than the current market price but will likely not 
adversely affect the Company's power plant operations.  Under recently 
proposed regulations, modifications would be required at Big Stone Plant by 
2000 to satisfy proposed nitrogen oxide emission standards.  The Company is 
a member of the Utility Air Regulatory Group (UARG), which has filed a 
petition in Federal Court for reconsideration of the standards based on 
inconsistencies in current laws.  Compliance costs will depend on the 
regulations that are ultimately adopted and the cost of available 
technologies.

The Company's Coyote Plant is equipped with sulfur dioxide removal 
equipment. Compliance with the phase two requirements is not expected to 
significantly impact operations at that plant.  Hoot Lake Plant already 
uses low-sulfur subbituminous coal. Minor modifications may be required at 
Hoot Lake Plant to meet the phase two nitrogen oxide emission requirements 
by 2000.

Competition
-----------
In 1995 the Federal Energy Regulatory Commission (FERC) issued a Notice of 
Proposed Rulemaking (NOPR) to promote competition and deregulation in 
wholesale electric markets by requiring owners of transmission facilities 
to offer nondiscriminatory open-access transmission and ancillary services 
to wholesale sellers and purchasers of electric energy in interstate 
commerce.  On April 24, 1996, the FERC issued two final rules, Order Nos. 
888 and 889, which may have a potentially significant impact on wholesale 
markets.

Order No. 888, effective July 9, 1996, requires electric utilities and 
other transmission users to abide by comparable terms, conditions and 
pricing in transmitting power.  The Company filed its initial transmission 
tariff on July 9, 1996, as required by Order No. 888.  A revised rate 
schedule will become effective in the first quarter of 1997.

Order No. 889, which became effective January 3, 1997, requires public 
utilities to implement Standards of Conduct and an Open Access Same-Time 
Information System (OASIS).  These rules require transmission personnel to 
provide information about their transmission systems to all customers, 
including their associates within their respective companies, through the 
OASIS.
 
The state utility commissions in Minnesota and North Dakota are currently 
investigating the impact of electric utility industry restructuring and the 
prospects for reregulation and retail competition in their respective 
jurisdictions. To date, the MPUC and the NDPSC have issued no new policies 
or rulemakings regarding this issue.  The South Dakota PUC has not taken 
any action with regards to industry restructuring or retail competition.

The Company is taking a number of steps to position itself for success in a 
competitive marketplace.  It has initiated the process of functionally 
unbundling its generation, transmission, distribution and energy services 
operations by setting up distinct separate business units in each of these 
areas. The Company is developing the necessary accounting systems to 
capture costs and determine the profitability of each of these units and to 
identify areas for improvement and opportunities for increased 
profitability.  The Company is establishing an energy services business 
unit to promote the energy related products and services that have always 
been offered to its customers and to develop new products and services to 
be offered to current and potential customers in order to distinguish 
itself from the competition. 

As the electric industry evolves and becomes more competitive, the Company 
believes it is well positioned to maintain its customer base and may have 
opportunities to increase its market share.  The Company's generation 
capacity appears poised for competition due to unit heat rate improvements 
and reductions in fuel and freight costs.  A comparison of the Company's 
electric retail rates with the rates of other investor-owned utilities, 
cooperatives, and municipals in the states the Company serves indicates 
that its rates are competitive.  In addition, the Company would attempt 
more flexible pricing strategies under an open, competitive environment.

The year 2000 (millennium) bug
------------------------------
The Company does not expect to incur significant costs over the next three 
years to modify software programs to accommodate the year 2000 because 
coding standards used when the programs were written have enabled the 
Company to programmatically identify and locate the code that needs to be 
changed on all programs written in-house.  The Company anticipates that it 
will be able to cover any conversion costs within current operating budget 
levels.  Additionally, the Company has replaced or is in the process of 
updating or replacing a number of its financial application and other 
operating programs within the normal course of business.  The new software 
will accommodate the millennium change.
  
Diversification
---------------
The Company continues to investigate acquisitions of additional businesses 
(both utility and nonutility) and expects continued growth in this area.  
The success of these businesses and any future business purchases will 
affect future earnings.

Quadrant Co., the Company's waste incineration subsidiary, continues to 
provide primary service to one of its two steam customers under an 
agreement which can be terminated by either party upon one year's prior 
written notice.  Quadrant is currently providing backup service to its 
other steam customer under an agreement that commenced on June 1, 1996 and 
terminates on May 31, 1998, subject to earlier termination by either party 
upon 90 days' written notice.  Quadrant also continues to burn municipal 
solid waste for three Minnesota counties under a contract extension which  
expires April 1, 1997.  Two Minnesota counties, representing about 40% of 
Quadrant's processing capacity, did not renew or extend their contracts for 
waste incineration which expired in September 1996.

Quadrant is in the process of negotiating new waste incineration agreements 
with the remaining counties and is pursuing additional incineration 
contracts.  New pollution rules for Minnesota municipal waste incinerators 
have recently been issued.  The costs to be in compliance with the new 
rules by the year 2000, combined with a decline in future revenues from 
decreased steam sales and the loss of the two counties' waste streams 
threaten the economic viability of the plant.  Quadrant is currently 
generating positive cash flows from the operation of its plant, which had a 
net undepreciated book value of approximately $3.2 million on December 31, 
1996.  However, the outcome of current incineration contract negotiations 
could result in an impairment issue under SFAS 121.  Prospects for new 
incineration contracts are positive but the range of prices being 
considered results in a wide variance in estimates of future cash flows, 
making it impossible to accurately calculate an impairment value at this 
time.

The majority of the subsidiary companies' long-term debt is variable 
interest rate debt.  Any increase in prime lending rates would result in 
increased interest expense and have a negative impact on future earnings.

Accounting pronouncements
-------------------------
In March 1995 the Financial Accounting Standards Board issued SFAS 121 - 
Accounting for the Impairment of Long-Lived Assets and for Long-Lived 
Assets to Be Disposed Of, which became effective for the Company's 
financial statements in 1996. The nature of utility regulation generally 
provides for the recovery of amounts invested in utility assets used to 
serve customers, over a specified period of time, through approved service 
rates and allowed rates of return on rate base.  Currently, most of the 
Company's utility revenues are subject to regulation.  The Company has 
determined that the carrying amounts of all its long-lived assets and 
identifiable intangibles at December 31, 1996, for both its utility and 
subsidiary operations are recoverable through expected future cash flows 
from the use of those assets.

In October 1995 the Financial Accounting Standards Board issued SFAS 123 - 
Accounting for Stock-Based Compensation, which became effective for the 
Company's financial statements in 1996.  The statement establishes 
financial accounting and reporting standards for stock-based employee 
compensation.  As of December 31, 1996, the Company had no stock-based 
employee compensation programs that are subject to SFAS 123 reporting 
requirements.

Cautionary Statements for Purposes of the Safe Harbor 
Provisions of the Private Securities Litigation Reform Act of 1995
------------------------------------------------------------------
The information in this annual report includes forward-looking statements. 
Important risks and uncertainties that could cause actual results to differ 
materially from those discussed in such forward-looking statements are set 
forth above under "Factors affecting future earnings."  Other risks and 
uncertainties may be detailed from time to time in the Company's future 
Securities and Exchange Commission filings.



                         Independent Auditors' Report

To the Shareholders of Otter Tail Power Company:

We have audited the accompanying consolidated balance sheets and statements 
of capitalization of Otter Tail Power Company and its subsidiaries (the 
Company) as of December 31, 1996,  and 1995, and the related consolidated 
statements of income, retained earnings, and cash flows for each of the 
three years in the period ended December 31, 1996.  These consolidated 
financial statements are the responsibility of the Company's management.  
Our responsibility is to express an opinion on these consolidated financial 
statements based on our audits. 

We conducted our audits in accordance with generally accepted auditing 
standards.  Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the consolidated financial 
statements are free of material misstatement.  An audit includes examining, 
on a test basis, evidence supporting the amounts and disclosures in the 
consolidated financial statements.  An audit also includes assessing the 
accounting principles used and significant estimates made by management, as 
well as evaluating the overall financial statement presentation.  We 
believe that our audits provide a reasonable basis for our opinion. 

In our opinion, such consolidated financial statements present fairly, in 
all material respects, the financial position of the Company at December 
31, 1996, and 1995, and the results of its operations and its cash flows 
for each of the three years in the period ended December 31, 1996, in 
conformity with generally accepted accounting principles. 

DELOITTE & TOUCHE LLP




January 29, 1997
Minneapolis, Minnesota



Otter Tail Power Company
<TABLE>
<CAPTION>
<S>                                                                   <C>         <C>
Consolidated Balance Sheets, December 31                              1996        1995
----------------------------------------------------------------------------------------
                                                                       (in thousands)
                                         Assets
Plant:
<S>                                                                 <C>         <C>
  Electric plant in service                                         $742,065    $715,305
  Subsidiary companies                                                93,975      54,266
                                                                    --------    --------
    Total                                                            836,040     769,571
  Less accumulated depreciation and amortization                     327,672     308,174
                                                                    --------    --------
                                                                     508,368     461,397
  Construction work in progress                                       11,470      16,285
                                                                    --------    --------
    Net plant                                                        519,838     477,682
                                                                    --------    --------

Investments                                                           19,880      12,716
                                                                    --------    --------
Intangibles--net                                                      21,954      18,902
                                                                    --------    --------
Other assets                                                           6,553       7,732
                                                                    --------    --------
Current assets:
  Cash and cash equivalents                                            1,229       1,867
  Temporary cash investments                                              --       2,208
  Accounts receivable:
    Trade (less accumulated provision for uncollectible accounts:
     1996, $690,000; 1995, $398,000)                                  32,590      31,184
    Other                                                              5,018       8,276
  Materials and supplies:
    Fuel                                                               3,220       3,322
    Inventory, materials and operating supplies                       23,778      19,408
  Deferred income taxes                                                4,550       3,754
  Accrued utility revenues                                             5,349       4,328
  Other                                                                4,537       4,427
                                                                    --------    --------
    Total current assets                                              80,271      78,774
                                                                    --------    --------
Deferred debits:
  Unamortized debt expense and reacquisition premiums                  4,270       4,687
  Regulatory assets                                                    5,866       5,727
  Other                                                                3,655       2,976
                                                                    --------    --------
    Total deferred debits                                             13,791      13,390
                                                                    --------    --------
      Total                                                         $662,287    $609,196
                                                                    ========    ========
</TABLE>
See accompanying notes to consolidated financial statements.


Otter Tail Power Company
<TABLE>
<CAPTION>
<S>                                                                   <C>         <C>
Consolidated Balance Sheets, December 31                              1996        1995
----------------------------------------------------------------------------------------
                                                                       (in thousands)
                                      Liabilities
Capitalization (page 38):
  Common shares, par value $5 per share -- authorized, 25,000,000
<S>                                                                 <C>         <C>
   shares; outstanding, 1996 11,214,652; 1995 11,180,136 shares     $ 56,073    $ 55,901
  Premium on common shares                                            31,271      30,335
  Retained earnings                                                  105,882      98,006
                                                                    --------    --------
    Total                                                            193,226     184,242

  Cumulative preferred shares:
    Subject to mandatory redemption                                   18,000      18,000
    Other                                                             20,831      20,831
  Long-term debt                                                     160,492     168,261
                                                                    --------    --------
    Total capitalization                                             392,549     391,334
                                                                    --------    --------
Current liabilities:
  Short-term debt                                                     25,600          --
  Sinking fund requirements and current maturities                    42,136      13,733
  Accounts payable                                                    26,587      27,828
  Accrued salaries and wages                                           3,847       3,703
  Federal and state income taxes accrued                               2,031         393
  Other taxes accrued                                                 12,043      11,356
  Interest accrued                                                     3,622       3,509
  Other                                                                2,822       6,752
                                                                    --------    --------
    Total current liabilities                                        118,688      67,274
                                                                    --------    --------

Noncurrent liabilities                                                16,688      13,498
                                                                    --------    --------

Commitments (note 6)                                                      --          --
                                                                    --------    --------
Deferred credits:
  Accumulated deferred income taxes                                   98,498      99,398
  Accumulated deferred investment tax credit                          19,818      20,994
  Regulatory liabilities                                              13,283      14,500
  Other                                                                2,763       2,198
                                                                    --------    --------
    Total deferred credits                                           134,362     137,090
                                                                    --------    --------
      Total                                                         $662,287    $609,196
                                                                    ========    ========
</TABLE>
See accompanying notes to consolidated financial statements.


Otter Tail Power Company
<TABLE>

<CAPTION>
Consolidated Statements of Income
<S>                                                       <C>         <C>         <C>
For the Years Ended December 31                           1996        1995        1994
----------------------------------------------------------------------------------------
                                                (in thousands, except per share amounts)
Operating revenues:
<S>                                                     <C>         <C>         <C>
  Electric                                              $199,345    $203,925    $198,812
  Health services                                         61,697      50,896      45,555
  Manufacturing                                           56,868      38,690      13,083
  Other business operations                               43,829      32,818      29,276
                                                        --------    --------    --------
    Total operating revenues                             361,739     326,329     286,726

Operating expenses:
  Production fuel                                         27,913      31,559      32,311
  Purchased power                                         28,378      30,591      28,717
  Electric operation and maintenance expenses             66,401      63,777      59,409
  Cost of goods sold                                     112,266      80,414      54,760
  Other nonelectric expenses                              34,126      29,111      22,842
  Depreciation and amortization                           22,904      21,909      21,190
  Property taxes                                          11,525      10,670      11,318
                                                        --------    --------    --------
    Total operating expenses                             303,513     268,031     230,547

Operating income:
  Electric                                                45,279      47,916      48,126
  Health services                                          5,137       3,581       2,486
  Manufacturing                                            5,423       3,270       2,441
  Other business operations                                2,387       3,531       3,126
                                                        --------    --------    --------
    Total operating income                                58,226      58,298      56,179

Other income and deductions -- net                         2,370       1,881       1,864
Interest charges                                          16,601      15,075      13,687
                                                        --------    --------    --------
Income before income taxes                                43,995      45,104      44,356
Income taxes                                              14,040      16,159      15,881
                                                        --------    --------    --------
Net income                                                29,955      28,945      28,475
Preferred dividend requirements                            2,358       2,358       2,358
                                                        --------    --------    --------
Earnings available for common shares                    $ 27,597    $ 26,587    $ 26,117
                                                        ========    ========    ========
Average number of common shares outstanding               11,182      11,180      11,180
Earnings per average common share                          $2.47       $2.38       $2.34
Dividends per common share                                 $1.80       $1.76       $1.72

</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
Consolidated Statements of Retained Earnings
<S>                                                       <C>         <C>         <C>
For the Years Ended December 31                           1996        1995        1994
----------------------------------------------------------------------------------------
                                                                 (in thousands)
<S>                                                     <C>         <C>         <C>
Retained earnings at beginning of year                  $ 98,006    $ 90,412    $ 84,209
Net income                                                29,955      28,945      28,475
Other                                                        403         684        (684)
                                                        --------    --------    --------
  Total                                                  128,364     120,041     112,000
                                                        --------    --------    --------
Dividends paid:
  Cumulative preferred shares at required annual rates     2,358       2,358       2,358
  Common shares                                           20,124      19,677      19,230
                                                        --------    --------    --------
    Total                                                 22,482      22,035      21,588
                                                        --------    --------    --------
Retained earnings at end of year                        $105,882    $ 98,006    $ 90,412
                                                        ========    ========    ========
</TABLE>
See accompanying notes to consolidated financial statements.


Otter Tail Power Company
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
<S>                                                                    <C>        <C>        <C>
For the Years Ended December 31                                        1996       1995       1994
---------------------------------------------------------------------------------------------------
                                                                             (in thousands)
Cash flows from operating activities:
<S>                                                                  <C>        <C>        <C>
  Net income                                                         $ 29,955   $ 28,945   $ 28,475
  Adjustments to reconcile net income to net cash provided
   by operating activities:
    Depreciation and amortization                                      34,788     28,602     25,899
    Deferred investment tax credit--net                                (1,177)    (1,177)    (1,347)
    Deferred income taxes                                              (5,276)       751      1,386
    Change in deferred debits and other assets                          3,679     (1,792)    (1,016)
    Change in noncurrent liabilities and deferred credits               3,389      4,560      1,016
    Allowance for equity (other) funds used during construction          (325)      (229)      (146)
    (Gain)/loss on investments in and disposal of noncurrent assets       308        946       (201)
  Cash provided by (used for) current assets and current liabilities:
    Change in receivables, materials, and supplies                        660     (1,035)   (10,712)
    Change in other current assets                                       (957)    (1,349)      (339)
    Change in payables and other current liabilities                      548      1,436      6,720
    Change in interest and income taxes payable                         1,553     (1,581)     2,097
                                                                     --------   --------   --------
      Net cash provided by operating activities                        67,145     58,077     51,832
                                                                     --------   --------   --------
Cash flows from investing activities:
  Gross capital expenditures                                          (63,951)   (37,134)   (30,411)
  Proceeds from disposal of noncurrent assets                           4,649      2,417      2,574
  Purchase of subsidiaries, net of cash acquired                      (10,006)    (5,808)      (286)
  Change in temporary cash investments                                  2,208     (1,817)        60
  Change in marketable securities and other investments               (10,609)    13,151     (1,630)
                                                                     --------   --------   --------
    Net cash used in investing activities                             (77,709)   (29,191)   (29,693)
                                                                     --------   --------   --------
Cash flows from financing activities:
  Change in short-term debt---net issuances                            25,600     (2,900)     2,900
  Proceeds from issuance of long-term debt                            117,083     54,482      6,433
  Proceeds from issuance of common stock                                1,130         --         --
  Payments for debt and common stock issuance expense                     (22)        --        (56)
  Payments for retirement of long-term debt                          (111,383)   (58,418)   (11,784)
  Dividends paid                                                      (22,482)   (22,035)   (21,588)
                                                                     --------   --------   --------
    Net cash used In financing activities                               9,926    (28,871)   (24,095)
                                                                     --------   --------   --------
Net change in cash and cash equivalents                                  (638)        15     (1,956)
Cash and cash equivalents at beginning of year                          1,867      1,852      3,808
                                                                     --------   --------   --------
Cash and cash equivalents at end of year                             $  1,229   $  1,867   $  1,852
                                                                     ========   ========   ========
Supplemental disclosures of cash flow information:
  Cash paid during the year for:
    Interest (net of amount capitalized)                             $ 16,375   $ 14,160   $ 13,160
    Income taxes                                                     $ 18,759   $ 18,286   $ 14,058
</TABLE>
See accompanying notes to consolidated financial statements.


Otter Tail Power Company
<TABLE>
<CAPTION>
<S>                                                                   <C>         <C>
Consolidated Statements of Capitalization, December 31                1996        1995
----------------------------------------------------------------------------------------
                                                                       (in thousands)

<S>                                                                 <C>         <C>
Total common shareholders'  equity                                  $193,226    $184,242

Cumulative preferred shares -- without par value (stated and
  liquidating value $100 a share) -- authorized 1,500,000 shares;
   outstanding:
    Series subject to mandatory redemption
      $6.35, 180,000 shares; 9,000 shares due 2002-06;
                             135,000 shares due 2007                  18,000      18,000
                                                                    --------    --------
        Total                                                         18,000      18,000
                                                                    --------    --------
    Other series:
      $3.60, 60,000 shares                                             6,000       6,000
      $4.40, 25,000 shares                                             2,500       2,500
      $4.65, 30,000 shares                                             3,000       3,000
      $6.75, 40,000 shares                                             4,000       4,000
      $9.00, 53,311 shares                                             5,331       5,331
                                                                    --------    --------
        Total other preferred                                         20,831      20,831
                                                                    --------    --------
Cumulative preference shares -- without par value, authorized
 1,000,000 shares; outstanding: none

Long-term debt:
  First mortgage bond series:
    8.75%, due December 15, 1997                                      18,800      19,000
    7.25%, due August 1, 2002                                         19,200      19,400
    7.625%, due February 1, 2003                                       9,240       9,360
    8.75%, due September 15, 2021                                     19,000      19,200
    8.25%, due August 1, 2022                                         28,800      29,100
    Pollution control series:
      6.10-6.80%, due February 1, 2006, Big Stone project              5,427       5,487
      8.125%, due August 1, 2009, Coyote project, series B               830         840
      6.10-6.90%, due February 1, 2019, Coyote project                21,734      21,969
                                                                    --------    --------
        Total                                                        123,031     124,356

  Subsidiary and other long-term debt:
    Long-term lease obligation (5.625% pollution control revenue
     bonds due July 1, 1998)                                           2,200       2,200
    Industrial development refunding revenue bonds
     5.00% due December 1, 2002                                        3,010       3,010
    Pollution control refunding revenue bonds
     variable 4.20% at December 31, 1996, due December 1, 2012        10,400      10,400
    Industrial development revenue bond (Quadrant Co. project)            --         200
    Obligations of Mid-States Development, Inc.
     rates 2.90%  to 11.38% at December 31, 1996                      56,606      33,496
    Obligations of North Central Utilities, Inc.
     variable 6.90% to 7.05% at December 31, 1996                      8,026       9,013
    Other                                                                  1           8
                                                                    --------    --------
      Total                                                          203,274     182,683
  Less:
    Current maturity                                                  41,011      12,408
    Sinking fund requirement                                           1,125       1,325
    Unamortized debt discount and premium -- net                         646         689
                                                                    --------    --------
      Total long-term debt                                           160,492     168,261
                                                                    --------    --------
Total capitalization                                                $392,549    $391,334
                                                                    ========    ========
</TABLE>
See accompanying notes to consolidated financial statements.



Otter Tail Power Company
Notes to consolidated financial statements
For the three years ended December 31, 1996


1. Summary of accounting policies

   System of accounts -- The accounting records of the Company conform to the 
   Uniform System of Accounts prescribed by the Federal Energy Regulatory 
   Commission (FERC), the Public Service Commission of North Dakota, and 
   the Public Utilities Commissions of Minnesota and South Dakota. 

   Principles of consolidation -- The consolidated financial statements 
   include the accounts of the Company and all wholly owned subsidiaries.  
   All significant intercompany transactions have been eliminated. 

   Plant, retirements, and depreciation -- Utility plant is stated at 
   original cost. The cost of additions includes contracted work, direct 
   labor and materials, allocable overheads, and allowance for funds used 
   during construction.  The cost of depreciable units of property retired 
   plus removal costs less salvage is charged to the accumulated provision 
   for depreciation.  Maintenance, repairs, and replacement of minor items 
   of property are charged to operating expenses.  Repairs to property made 
   necessary by storm damage are charged to the reserve therefor.  The 
   provisions for utility depreciation for financial reporting purposes are 
   made on the straight-line method based on the estimated service lives of 
   the properties.  Such provisions as a percent of the average balance of 
   depreciable property were 3.00% in 1996, 2.97% in 1995, and 2.98% in 
   1994.

   Property and equipment of nonutility and subsidiary operations are 
   carried at historical cost, or at the current appraised value if 
   acquired in a business combination, and are depreciated on a 
   straight-line basis over the useful lives (3 to 40 years) of the related 
   assets.  Upon sale or retirement of property and equipment, the cost and 
   related accumulated depreciation are eliminated from the respective 
   accounts and the resulting gain or loss is included in the consolidated 
   financial statements.

   Jointly owned plants -- The consolidated financial statements include the 
   Company's 53.9% and 35% ownership interests in the assets, liabilities 
   and expenses of Big Stone and Coyote Plants, respectively.  Amounts at 
   December 31, 1996 and 1995, included in Plant in Service for Big Stone 
   were $109,251,000 and $108,577,000, respectively, and the accumulated 
   provision for depreciation and amortization was $59,078,000 and 
   $62,486,000, respectively.  Amounts at December 31, 1996 and 1995, 
   included in Plant in Service for Coyote were $145,542,000 and 
   $143,748,000, respectively, and the accumulated provision for 
   depreciation and amortization was $58,436,000 and $54,441,000, 
   respectively.  The Company's share of direct expenses of the jointly 
   owned plants in service is included in the corresponding operating 
   expenses in the statement of income.

   Allowance for funds used during construction (AFC) -- AFC, a noncash item, 
   is included in construction work in progress based on a composite rate 
   that assumes that funds used for construction were provided by borrowed 
   funds and equity funds.  The AFC so included in construction work in 
   progress will ultimately be included in the rate base used in 
   establishing rates for utility services.  The composite rate for AFC was 
   8.50% for 1996, 9.50% for 1995, and 10.25% for 1994.

   Income taxes -- Comprehensive interperiod income tax allocation is used 
   for substantially all book and tax temporary differences.  Deferred 
   income taxes arise for all temporary differences between the book and 
   tax basis of assets and liabilities.  Deferred taxes are recorded using 
   the tax rates scheduled by tax law to be in effect when the temporary 
   differences reverse.  The Company amortizes the investment tax credit 
   over the estimated lives of the related property.

   Operating revenues -- Electric customers' meters are read and bills are 
   rendered on a cycle basis.  Prior to 1993 the Company in all of its 
   jurisdictions recorded electric revenues based on billing dates. 
   Effective January 1, 1993, due to a North Dakota Public Service 
   Commission (NDPSC) order, the Company changed its method of revenue 
   recognition in North Dakota from billing dates to energy delivery dates. 
   (See note 3 for further information on the order.)  The North Dakota 
   unbilled revenue amount as of January 1, 1993, ($4.4 million) was 
   amortized to electric revenues over 36 months as required by the order. 
   The change in method of revenue recognition resulted in additional net 
   income of  $984,000 in 1995 and $751,000 in 1994.  The impact on 
   earnings per share was $.09 in 1995 and $.07 in 1994. 

   The Company's rate schedules applicable to substantially all customers 
   include a cost of energy adjustment clause under which the rates are 
   adjusted to reflect changes in average cost of fuels and purchased 
   power.  Since July 1, 1995, rate schedules applicable to Minnesota 
   customers also include a surcharge for recovery of conservation-related 
   expenses: 1.25% as of July 1, 1996 and .5030% from July 1, 1995, through 
   June 30, 1996. (See further discussion under note 3.)

   Health services' operating revenues on major equipment and installation 
   contracts are recorded using the percentage-of-completion method. 
   Amounts received in advance under customer service contracts are 
   deferred and recognized on a straight-line basis over the contract 
   period. 

   Manufacturing operating revenues are recorded when products are shipped, 
   when services are rendered, and on a percentage-of-completion basis for 
   large items that are assembled over several months.

   Other business operations' operating revenues are recorded when services 
   are rendered or products are shipped.  In the case of construction 
   contracts, the percentage-of-completion method is used.

   Storm damage reserve -- The Company is required under its Indenture of 
   Mortgage to make annual provisions for storm damage of not less than .5% 
   of gross electric operating revenues.  Provisions for loss have been 
   used in determining rates approved by the applicable regulatory 
   commissions.  Provisions for 1996, 1995, and 1994 were $1,247,000, 
   $1,800,000, and $995,000, respectively; repairs charged to these 
   reserves were $1,304,000, $1,597,000, and $1,269,000, respectively.  
   Accrued liabilities included $1,003,000 and $1,060,000 for storm damage 
   at December 31, 1996 and 1995, respectively.

   Employee incentive plan -- The Company has a gain sharing plan for the 
   benefit of all electric utility company employees.  The totals received 
   by all electric utility company employees for 1996, 1995, and 1994 were 
   $778,000, $870,000, and $1,314,000, respectively.

   Use of estimates -- In recording transactions and balances resulting from 
   business operations, the Company uses estimates based on the best 
   information available.  Estimates are used for such items as plant 
   depreciable lives, tax provisions, uncollectible accounts, environmental 
   loss contingencies, unbilled revenues and actuarially determined benefit 
   costs.  As better information becomes available (or actual amounts are 
   determinable) the recorded estimates are revised.  Consequently, 
   operating results can be affected by revisions to prior accounting 
   estimates.  Recent changes in anticipated retirement ages have resulted 
   in changes to actuarial assumptions used in the cost calculations for 
   postretirement benefits related to the Company's Executive Survivor and 
   Supplemental Retirement Plan.  Also, the depreciable lives of certain 
   plant assets are reviewed and, if appropriate, revised each year, as 
   discussed previously.  (See note 8 for more information on the effects 
   of these changes in estimates.)

   Reclassifications -- Certain prior year amounts have been reclassified to 
   conform to the 1996 presentation format.  Such reclassification had no 
   impact on net income and shareholders' equity.

   Cash equivalents -- The Company considers all highly liquid debt 
   instruments purchased with a maturity of 90 days or less to be cash 
   equivalents. 

   Consolidated Statements of Cash Flows -- Excluded from the Consolidated 
   Statements of Cash Flows, are the following noncash transactions.  In 
   September 1995 the Company recorded a $3.5 million passive investment in 
   the form of a delayed equity contribution to a limited liability 
   company.  As of December 31, 1996 and 1995, $13,000 and $3,033,000, 
   respectively, remained to be paid on the obligation.  In 1995 the 
   Company recorded an investment of $2 million in the form of a delayed 
   equity contribution in a limited partnership that invests in tax-credit 
   qualifying affordable housing.  The $780,000 balance of the obligation 
   remaining to be paid at December 31, 1995, was paid in the second 
   quarter of 1996.

   Debt reacquisition premiums -- In accordance with regulatory treatment, 
   the Company defers debt redemption premiums and amortizes such costs 
   over the original life of the reacquired bonds.

   Investments -- At December 31, 1996 and 1995, the Company had noncurrent 
   investments of $6,163,000 and $4,491,000, respectively, in limited 
   partnerships that invest in tax-credit qualifying affordable housing 
   projects.  These investments, accounted for under the equity method, 
   provided the Company with tax credits of $593,000 and $92,000, in 1996 
   and 1995, respectively.  At December 31, 1996, the Company had $820,000 
   invested in marketable equity securities classified as available-for-
   sale and recorded at market value.  The balance of investments at 
   December 31, 1996, consists of $8,722,000 in additional investments 
   accounted for under the equity method, and $3,916,000 in financial 
   instruments, primarily related to participation in economic development 
   loan pools. The Company's temporary cash investments consist of money 
   market funds recorded at cost, which approximates market.  (See further 
   discussion under note 10.)

   Inventories -- The electric operation inventories are reported at average 
   cost.  The health service, manufacturing and other business operation 
   inventories are stated at the lower of cost (first-in, first-out) or 
   market. 

   Short-term debt -- The composite interest rate on short-term debt 
   outstanding as of December 31, 1996, was 5.77%.  The average interest 
   rate paid on short-term debt during 1996 was 5.65%.

   Intangible assets -- The majority of the Company's intangible assets 
   consist of goodwill associated with the acquisition of subsidiaries.  
   Intangible assets are amortized on a straight-line basis over periods of 
   40 years for the telephone company and 15 years or less for all other 
   intangibles.  The Company periodically evaluates the recovery of 
   intangible assets based on an analysis of undiscounted future cash 
   flows. Total intangibles as of December 31 are as follows:

                                               1996        1995
                                             --------    --------
                                                (in thousands)
   Goodwill on telephone company              $ 7,749     $ 7,749
   Other intangible assets                     19,870      15,797
                                              -------     -------
     Total                                     27,619      23,546
   Less accumulated amortization                5,665       4,644
                                              -------     -------
     Intangibles-net                          $21,954     $18,902


2. Segment information

   The Company's wholly owned subsidiary Mid-States Development, Inc. (Mid-
   States) purchased a Montana-based supplier of X-ray supplies and 
   accessories in February of 1996, a mobile medical diagnostic services 
   company located in Bemidji, MN in April of 1996, and four radio stations 
   located in the	Fargo, North Dakota/Moorhead, Minnesota, market area, two
   in June, one in October, and one in December 1996.  Mid-States purchased
   two additional manufacturing companies and three small diagnostic imaging 
   companies in 1995, and one additional business in 1994. Of the companies 
   purchased in 1995, one manufacturing company and all three diagnostic 
   imaging companies were purchased in January, and the other manufacturing 
   company was purchased in October. The Company's telecommunications 
   subsidiary North Central Utilities, Inc. (NCU) acquired two cable TV 
   systems in 1996 that serve the communities of Milbank, South Dakota, and 
   Carlos, Minnesota.

   In all acquisitions, the purchase method of accounting was used and the 
   acquisitions would have had no significant pro forma effect on the 
   Company's operating revenues, net income, or earnings per share for 
   1996, 1995, and 1994.  The total price for all businesses acquired was 
   $11,060,000 in 1996, $10,820,000 in 1995, and $575,000 in 1994. 

   On January 2, 1997, NCU completed the acquisition of The Peoples 
   Telephone Co. of Bigfork (Peoples).  The acquisition will be accounted 
   for under the pooling-of-interests method.  This acquisition will have 
   no significant pro forma effect on the Company's operating revenues, net 
   income, or earnings per share for 1996, 1995, and 1994.

   The Company's business operations, which are based mainly in Minnesota, 
   North Dakota, and South Dakota, principally in the region known as the 
   "Red River Valley of the North," are broken down into four segments.  
   Electric operations includes the electric utility only.  Health services 
   operations consists of businesses involved in the sale, service, rental, 
   refurbishing and operations of medical imaging equipment and the sale of 
   related supplies and accessories to various medical institutions 
   primarily in the Midwestern United States.  Manufacturing operations 
   includes production of agricultural equipment, plastic pipe, and 
   fabricated metal parts. Other business operations consists of businesses 
   diversified in such areas as electrical and telephone construction 
   contracting, radio broadcasting, waste incinerating, and 
   telecommunications.  Information for the business segments for 1996, 
   1995 and 1994 is presented in the table below:

                                               1996        1995        1994
                                             --------    --------    --------
                                                      (in thousands)
   Operating revenue
     Electric                                $199,345    $203,925    $198,812
     Health services                           61,697      50,896      45,555
     Manufacturing                             56,868      38,690      13,083
     Other business operations                 43,829      32,818      29,276
                                             --------    --------    --------
       Total                                 $361,739    $326,329    $286,726

   Operating income
     Electric                                $ 45,279    $ 47,916    $ 48,126
     Health services                            5,137       3,581       2,486
     Manufacturing                              5,423       3,270       2,441
     Other business operations                  2,387       3,531       3,126
                                             --------    --------    --------
       Total                                 $ 58,226    $ 58,298    $ 56,179

   Depreciation and amortization
     Electric                                $ 19,880    $ 19,448    $ 18,970
     Health services                              585         517         455
     Manufacturing                                551         344         227
     Other business operations                  1,888       1,600       1,538
                                             --------    --------    --------
       Total                                 $ 22,904    $ 21,909    $ 21,190

   Capital expenditures
     Electric                                $ 38,224    $ 27,443    $ 25,693
     Health services                           16,230       4,020       2,544
     Manufacturing                              4,575       3,879         357
     Other business operations                  4,922       1,792       1,817
                                             --------    --------    --------
       Total                                 $ 63,951    $ 37,134    $ 30,411

   Identifiable assets
     Electric                                $523,509    $509,588    $505,291
     Health services                           65,140      41,623      26,415
     Manufacturing                             32,474      27,270       7,215
     Other business operations                 41,164      30,715      40,051
                                             --------    --------    --------
       Total                                 $662,287    $609,196    $578,972


3. Rate matters

   On July 1, 1995, the Company began charging all Minnesota customers a 
   .5030% surcharge on their electric service statements for recovery of 
   conservation-related costs exceeding the amount already included in base 
   rates.  On July 1, 1996 the rate was increased to 1.25%.  The 
   conservation-related costs being recovered through the surcharge and in 
   base rates include Conservation Improvement Program (CIP) expenditures, 
   carrying charges on costs incurred in excess of costs currently being 
   recovered, lost margins on avoided kilowatt-hour sales, and bonus 
   incentives related to energy savings.  The MPUC approved recovery of 
   1995 and 1994 lost margins and bonus incentives in 1996 and 1995, 
   respectively.  The Company recorded revenues related to 1996, 1995, and 
   1994 lost margins and bonus incentives of $800,000, $766,000, and 
   $537,000, respectively. As these costs are recovered through the monthly 
   billing process, the amounts billed are offset by the amortization of 
   deferred CIP charges. 

   In 1994 the Company filed a petition with the MPUC for approval of an 
   annual recovery mechanism for DSM-related costs, under Minnesota's CIP. 
   An intervenor, on behalf of the large general service group, filed 
   comments against the petition and requested the MPUC to order a general 
   rate case to review the Company's earnings levels.  In the interest of 
   rate stability the Company reached an agreement, which was approved by 
   the MPUC, resulting in costs of approximately $2.2 million each year for 
   three years being absorbed in current rates beginning in 1995.


4. Common shares

   New issuances -- On August 30, 1996, the Company filed a shelf 
   registration statement with the Securities and Exchange Commission for 
   the issuance of up to 1,000,000 common shares pursuant to the Company's 
   Automatic Dividend Reinvestment and Share Purchase Plan (the Plan), 
   which will permit shares purchased by shareholders, employees, or 
   customers who participate in the Plan to be either new issue common 
   shares or common shares purchased on the open market.  In December 1996 
   the Company began issuing newly issued common shares under the Plan, 
   which resulted in the issuance of 34,516 common shares in 1996.  On 
   January 2, 1997, the Company issued 163,758 unregistered common shares 
   to effect the acquisition of Peoples.  On February 7, 1997, the Company 
   issued 30,561 common shares to its leveraged employee stock ownership 
   plan.

   Shareholder Rights Plan -- On January 27, 1997, the Company's Board of 
   Directors declared a dividend of one preferred share purchase right 
   (Right) for each outstanding common share held of record as of February 
   10, 1997.  One Right was also issued with respect to each common share 
   issued after February 10, 1997.  Each Right entitles the holder to 
   purchase from the Company one one-hundredth of a share of newly created 
   Series A Junior Participating Preferred Stock at a price of $70, subject 
   to certain adjustment.  The Rights are exercisable when, and are not 
   transferable apart from the Company's common shares until, a person or 
   group has acquired 15% or more, or commenced a tender or exchange offer 
   for 15% or more, of the Company's common shares.  If the specified 
   percentage of the Company's common shares is acquired, each right will 
   entitle the holder (other than the acquiring person or group) to 
   receive, upon exercise, common shares of either the Company or the 
   acquiring company having value equal to two times the exercise price of 
   the Right.  The Rights are redeemable by the Company's Board of 
   Directors in certain circumstances and expire on January 27, 2007.


5. Retained earnings restriction

   The Company's Indenture of Mortgage and Articles of Incorporation, as 
   amended, contain provisions that limit the amount of dividends that may 
   be paid to common shareholders.  Under the most restrictive of these 
   provisions, retained earnings at December 31, 1996, were restricted by 
   $10,089,000.


6. Commitments

   At December 31, 1996, the Company had commitments under contracts in 
   connection with construction programs aggregating approximately 
   $4,600,000. For capacity requirements the Company has agreements 
   extending through April 2005, at annual costs of approximately 
   $5,100,000 in 1997, $4,700,000 in 1998, $4,800,000 in 1999, $2,300,000 
   in each year of 2000 through 2004 and $760,000 in 2005.

   The Company also has several long-term coal contracts in which it is 
   responsible for making payment only upon the delivery of the coal.  The 
   risk of loss from nonperformance of the contracts is considered nominal 
   because of the availability of other suppliers and the expected 
   continued reliability of the current fuel suppliers.  Furthermore, the 
   cost of energy adjustment provision in the rate-making process lessens 
   the risk of loss (in the form of increased costs) from market price 
   changes because it assures recovery of almost all fuel costs.

   The Big Stone Plant joint owners entered into operating leases for 250 
   new aluminum coal cars for transporting coal to Big Stone Plant.  The 
   terms of the leases are 15 years and the Company's share of lease 
   payments is approximately $539,000 per year.  The new cars began 
   transporting coal in October 1996.  The Company has no other significant 
   operating leases.

	  
7. Long-term obligations

   Preferred shares--The $6.35 cumulative preferred shares are redeemable 
   in whole or in part at the option of the Company after December 1, 1997, 
   at $103.175, declining linearly to $100.00 at December 31, 2002.

   The $9.00 exchangeable cumulative preferred shares are redeemable in 
   whole or in part at the option of the Company after August 9, 1999, for 
   $100.00 per share payable in cash or, at the holder's election, common 
   shares.  Subject to certain conditions, such shares are exchangeable at 
   the option of the holder after August 9, 1999, for $100.00 per share in 
   cash or common shares. 

   Long-term debt--All utility property, with certain minor exceptions, is 
   subject to the lien of the Indenture of Mortgage of the Company securing 
   its First Mortgage Bonds.  The Company is required by the Indenture to 
   make annual payments (exclusive of redemption premiums) for sinking fund 
   purposes, except that the requirement with respect to certain series may 
   be satisfied by the delivery of bonds of such series of equal principal 
   amount.  The Company issued First Mortgage Bonds of its pollution 
   control and industrial development series to secure payment of a like 
   principal amount of revenue bonds that were issued by local governmental 
   units to finance facilities leased or purchased and that the Company has 
   capitalized.  The aggregate amounts of maturities and sinking fund 
   requirements on bonds outstanding and other long-term obligations at 
   December 31, 1996, for each of the next five years are $42,136,000 for 
   1997, $17,197,000 for 1998, $10,628,000 for 1999, $10,457,000 for 2000, 
   and $4,390,000 for 2001.


8. Pension plan and other postretirement benefits

   The Company's noncontributory funded pension plan covers substantially 
   all electric utility employees.  The plan provides 100% vesting after 5 
   vesting years of service and for retirement compensation at age 65, with 
   reduced compensation in cases of retirement prior to age 62.  The 
   Company reserves the right to discontinue the plan, but no change or 
   discontinuance may affect the pensions theretofore vested.  The 
   Company's policy is to fund pension costs accrued. All past service 
   costs have been provided for.  The total pension cost was $1,292,000 for 
   1996, $1,009,000 for 1995, and $1,356,000 for 1994.  A portion of the 
   pension cost is capitalized as a part of utility plant construction.

   The pension plan has a trustee who is responsible for pension payments 
   to retirees.  Five investment managers are responsible for managing the 
   plan's assets.  In addition, an independent actuary performs the 
   necessary actuarial valuations for the plan.

   Net periodic pension cost for 1996, 1995, and 1994 includes the 
   following components:
                                                  1996       1995       1994
                                                --------   --------   --------
                                                        (in thousands)
Service cost--benefit earned during the period  $  2,273   $  1,908   $  2,076
Interest cost on projected benefit obligation      6,754      6,511      6,209
                                                --------   --------   --------
                                                $  9,027   $  8,419   $  8,285
(Gain)/loss on return on assets                  (15,738)   (26,509)     3,234
Plus/(less): net deferral and amortization         8,003     19,099    (10,163)
                                                --------   --------   --------
Net periodic pension cost                       $  1,292   $  1,009   $  1,356
                                                ========   ========   ========

   The plan assets consist of common stock and bonds of public companies, 
   U.S. Government Securities, cash and cash equivalents.

   The funded status of the plan and amounts recognized on the balance 
   sheet at December 31, 1996 and 1995, are as follows:

                                                  1996        1995
                                                --------    --------
                                                   (in thousands)
Actuarial present value of benefit obligation:
  Vested benefits                               $ 72,243    $ 69,340
  Nonvested benefits                               9,688       8,594
                                                --------    --------
    Accumulated benefit obligation              $ 81,931    $ 77,934
                                                ========    ========
  Projected benefit obligation                  $100,664    $ 95,359
  Plan assets at fair value                      121,506     110,728
                                                --------    --------
  Funded status                                 $ 20,842    $ 15,369
  Unrecognized transition asset                   (1,251)     (1,486)
  Unrecognized prior service cost                  9,916       9,200
  Unrecognized net actuarial (gain) or loss      (25,773)    (18,057)
                                                --------    --------

    Net pension asset                           $  3,734    $  5,026
                                                ========    ========

The assumptions used for actuarial valuations were:
                                                  1996        1995
                                                --------    --------
Discount rate                                     7.25%       7.25%
Rate of increase in future compensation level     4.25%       4.25%
Long-term rate of return on assets                8.50%       8.50%


   In addition to providing pension benefits to all electric utility 
   employees, the Company has an unfunded, nonqualified benefit plan for 
   executive officers and certain key management employees. This plan 
   provides defined benefit payments to these employees upon their 
   retirements or to their beneficiaries upon their deaths for a 15-year 
   period.  Life insurance carried on the plan participants is payable to 
   the Company upon the employee's death. The net periodic pension cost of 
   this program in 1996, 1995 and 1994 was $485,000, $412,000, and 
   $271,000, respectively.  In the second quarter of 1996 actuary reports 
   for the Company's Executive Survivor and Supplemental Retirement Program 
   amended July 1, 1994, were revised to reflect assumption changes 
   regarding expected retirement age and projected benefits under the July 
   1, 1994 plan amendment, which expanded the plan to include nonofficer 
   upper level management employees.  The restatement resulted in an 
   expense adjustment of an additional $2,590,000, and a reduction in 
   earnings per share of $0.14 in 1996, along with a $711,000 reduction in 
   the $1,426,000 additional minimum liability reflected on the Company's 
   December 31, 1995, balance sheet.

   The funded status of the plan and amounts recognized on the balance 
   sheet at December 31, 1996 and 1995, are as follows:

                                                  1996        1995
                                                --------    --------
                                                   (in thousands)
Actuarial present value of benefit obligation:
  Vested benefits                                $ 4,322     $ 3,067
  Nonvested benefits                                 686         583
                                                 -------     -------
    Accumulated benefit obligation               $ 5,008     $ 3,650
                                                 =======     =======
  Projected benefit obligation                   $ 6,636     $ 3,650
  Plan assets at fair value                           --          --
                                                 -------     -------
  Funded Status                                  $(6,636)    $(3,650)
  Unrecognized transition obligation                  82         102
  Unrecognized prior service cost                  1,774       1,177
  Unrecognized net actuarial (gain) or loss          487       1,018
  Additional liability                              (715)     (1,426)
                                                 -------     -------
    Accrued benefit liability                    $(5,008)    $(2,779)
                                                 =======     =======

   The assumptions used for actuarial valuations for 1996 and 1995 were a 
   discount rate of 7.25%, and a salary scale rate increase of 5%.

   In addition to providing pension benefits, the Company provides a 
   portion of health insurance benefits for retired employees. 
   Substantially all of the Company's electric utility employees may become 
   eligible for health insurance  benefits if they reach age 55 and have 10 
   years of service.  Upon adoption of Statement of Financial Accounting 
   Standards No. 106 - Employers' Accounting for Postretirement Benefits 
   Other Than Pensions - in January 1993, the Company elected to recognize 
   its transition obligation related to postretirement benefits earned of 
   approximately $14,964,000 over a period of twenty years.

   During the second quarter of 1996 actuary valuations for postretirement 
   benefits other than pensions were computed to reflect a change in 
   assumptions related to group life insurance.  The change in actuarial 
   assumptions resulted in a reduction in 1996 expenses related to a 
   reduction in expected postretirement benefit obligations.  The plan was 
   amended during the fourth quarter of 1995 to reduce the contribution 
   required of an employee's surviving spouse for health insurance.  This 
   amendment increased benefit costs by $2,155,000 in 1995 because most of 
   the prior service cost was related to retired employees' spouses for 
   which the Company has no current economic benefit.  The Company 
   estimates this amendment will have a service cost of approximately 
   $200,000 per year in future years.

   The net postretirement benefit cost for 1996, 1995, and 1994 includes 
   the following components:
                                                 1996       1995       1994
                                               --------   --------   --------
                                                       (in thousands)

Service cost - benefit earned during the period  $  484     $  411     $  596
Interest cost on accumulated postretirement
 benefit obligation                               1,132      1,187      1,412
Amortization of transition obligation               748        881        881
Amortization of experience (gain)/loss             (210)      (311)        --
Plan amendment prior service cost                    --      2,155         --
Life insurance curtailment gain                    (749)        --         --
                                                 ------     ------     ------
Net postretirement benefit cost                  $1,405     $4,323     $2,889
                                                 ======     ======     ======

   The funded status of the plan and the amounts recognized on the balance 
   sheet at December 31, 1996 and 1995, are as follows:

                                                       1996        1995
                                                     --------    --------
                                                        (in thousands)
Actuarial present value of benefit obligation:
  Retirees                                           $  9,096    $ 10,276
  Fully eligible plan participants                      4,582       5,000
  Other active plan participants                        2,645       2,607
                                                     --------    --------
    Accumulated postretirement benefit obligation    $ 16,323    $ 17,883
Plan assets at fair value                                  --          --
                                                     --------    --------
Funded status                                        $(16,323)   $(17,883)
Unrecognized (gain)/loss                               (4,038)     (4,662)
Unrecognized transitional obligation                   11,971      14,976
                                                     --------    --------
Postretirement benefit liability                     $ (8,390)   $ (7,569)
                                                     ========    ========

   The assumed health care cost trend rate used in measuring the 
   accumulated postretirement benefit obligation as of December 31, 1996, 
   was 7.0% for 1997, decreasing linearly each successive year until it 
   reaches 5% in 2001, after which it remains constant.  The assumed health 
   care cost trend rate used in measuring the accumulated postretirement 
   benefit obligation as of December 31, 1995, was 9.5% for 1996, 
   decreasing linearly each successive year until it reaches 5% in 2001, 
   after which it remains constant.  The assumed discount rate used in 
   determining the accumulated postretirement benefit obligation as of 
   December 31, 1996 and 1995, was 7.25%. A one-percentage-point increase 
   in the assumed health care cost trend rate for each year would increase 
   the accumulated postretirement obligation as of December 31, 1996, by 
   approximately 11% and the service and interest cost components of the 
   net postretirement health care cost in 1996 by approximately 17%.

   The Company has a leveraged employee stock ownership plan (ESOP) for the 
   benefit of all its employees.  Contributions made by the Company were 
   $1,010,000 for 1996, $993,000 for 1995, and $970,000 for 1994. 


9. Compensating balances and short-term borrowings

   The Company maintains formal bank lines of credit for its electric 
   utility operations separate from lines and letters of credit maintained 
   by the subsidiary companies.  They make available to the Company bank 
   loans for short-term financing and provide backup financing for 
   commercial paper notes.  At December 31, 1996, the Company maintained no 
   compensating balances to support formal bank lines of credit.  The 
   Company's bank lines of credit for electric utility operations totaled 
   $30,000,000 of which $25,600,000 was used at December 31, 1996.  The 
   subsidiary companies' bank lines and letters of credit, which require no 
   compensating balances, totaled $24,357,000 of which $7,032,000 was used 
   at December 31, 1996.  Based on the terms and nature of use of the 
   subsidiaries' lines, outstanding amounts are reflected in long-term debt 
   and current maturities on the Company's consolidated balance sheets.


10. Fair value of financial instruments

   The following methods and assumptions were used to estimate the fair 
   value of each class of financial instruments for which it is practicable 
   to estimate that value:

   Cash and short-term investments -- The carrying amount approximates fair 
   value because of the short-term maturity of those instruments.

   Marketable securities -- The fair value of investments are estimated based 
   on quoted market prices.

   Other investments -- The carrying amount approximates fair value.  A 
   portion of other investments is in financial instruments that have 
   variable interest rates that reflect fair value.  The remainder of other 
   investments is accounted for by the equity method which, in the case of 
   operating losses, results in a reduction of the carrying amount.

   Redeemable preferred stock -- The fair value is estimated based on the 
   current rates available to the Company for the issuance of redeemable 
   preferred stock.

   Long-term debt--The fair value of the Company's long-term debt is 
   estimated based on the current rates available to the Company for the 
   issuance of debt.  About $42 million of the Company's long term debt, 
   which is subject to variable interest rates, approximates fair value.

                                         1996                  1995
                                 --------------------  --------------------
                                               (in thousands)
                                  Carrying     Fair     Carrying     Fair
                                   amount     value      amount     value
                                 ---------  ---------  ---------  ---------
Cash and short-term investments  $   1,229  $   1,229  $   4,075  $   4,075
Marketable securities                  820        820         --         --
Other investments                   19,060     19,060     12,716     12,716
Redeemable preferred stock         (18,000)   (18,000)   (18,000)   (18,650)
Long-term debt                    (160,492)  (167,799)  (168,261)  (183,099)

   The Company's marketable securities are included in investments on the 
   balance sheet and are classified as available for sale.  These 
   securities are recorded at fair value with any unrealized gain or loss 
   included as a separate component in the retained earnings on the balance 
   sheet.  Realized gains and losses are computed on each specific 
   investment sold.  The amounts recognized on the balance sheet as of 
   December 31, 1996 and 1995, and amounts sold for each year are as 
   follows:
                                                1996       1995
                                              --------   --------
                                                 (in thousands)
   Available for sale - securities
     Cost                                     $   133    $    --
     Gross unrealized gain                        687         --
     Gross unrealized loss                         --         --
                                              -------    -------
       Fair value                             $   820    $    --
                                              =======    =======
   Proceeds from sale                         $    --    $90,774
   Gross realized gains                            --      1,591
   Gross realized losses                           --     (2,816)


11. Income tax expense

   The total income tax expense differs from the amount computed by 
   applying the federal income tax rate (35% in 1996, 1995 and 1994) to net 
   income before total income tax expense for the following reasons:

                                                    1996      1995      1994
                                                  --------  --------  --------
                                                         (in thousands)
Tax computed at federal statutory rate             $15,398   $15,786   $15,525
Increases (decreases) in tax from:
  State income taxes net of federal income tax
   benefit                                           1,835     2,097     2,088
  Investment tax credit amortization                (1,177)   (1,177)   (1,347)
  Depreciation differences--flow-through
   method reversal                                    (137)      222       617
  Differences reversing in excess of federal rates  (1,030)     (754)     (707)
  Dividend received/paid deduction                    (604)     (872)     (889)
  Permanent and other differences
   and affordable housing tax credits                 (245)      857       594
                                                   -------   -------   -------
    Total Income tax expense                       $14,040   $16,159   $15,881
                                                   =======   =======   =======
Overall effective federal and state income tax rate  31.9%     35.8%     35.8%

Income tax expense includes the following:
  Charged (credited) to operations:
    Current federal income taxes                   $18,034   $13,840   $12,892
    Current state income taxes                       3,608     3,201     2,935
    Deferred federal income taxes                   (4,656)      603     1,185
    Deferred state income taxes                       (480)      117       266
    Investment tax credit amortization              (1,177)   (1,177)   (1,347)
                                                   -------   -------   -------
      Total                                        $15,329   $16,584   $15,931

  Charged (credited) to other income and deductions:
    Current federal income taxes                    (1,023)     (269)      115
    Current state income taxes                        (103)      (21)       50
    Deferred federal and state income taxes           (163)     (135)     (215)
                                                   -------   -------   -------
      Total Income tax expense                     $14,040   $16,159   $15,881
                                                   =======   =======   =======

   The Company's deferred tax assets and liabilities were composed of the 
   following on December 31, 1996 and 1995:
                                                   1996        1995
                                                 --------    --------
                                                    (in thousands)
Deferred tax assets
  Amortization of tax credits                   $  13,021   $  13,782
  Vacation accrual                                  1,039         953
  Unbilled/unearned revenue                         4,452       3,886
  Reserves                                          6,872       5,137
  Nondeductible land - plant abandonment            1,134       1,134
  Transfer to regulatory asset                       (617)       (689)
  Other                                             1,646       1,364
                                                ---------   ---------
    Total deferred tax assets                   $  27,547   $  25,567

Deferred tax liabilities
  Differences related to property                (113,450)   (114,081)
  Excess tax over book - pensions                  (1,481)     (1,994)
  Transfer to regulatory asset                     (4,012)     (2,563)
  Transfer to regulatory liability                    204         649
  Other                                            (2,756)     (3,222)
                                                ---------   ---------
    Total deferred tax liabilities              $(121,495)  $(121,211)
                                                ---------   ---------
      Deferred income taxes                     $ (93,948)  $ (95,644)
                                                =========   =========


12. Property, plant and equipment
                                                      1996         1995
                                                    --------     --------
                                                 (December 31, in thousands)
   Electric Plant:
     Production                                     $305,472     $302,601
     Transmission                                    137,539      132,031
     Distribution                                    217,825      207,248
     General                                          81,229       73,425
                                                    --------     --------
                                                     742,065      715,305
   Less accumulated depreciation and amortization    301,380      291,740
                                                    --------     --------
                                                     440,685      423,565
   Construction work in progress                      11,470       16,285
                                                    --------     --------
     Net electric plant                             $452,155     $439,850
                                                    --------     --------

   Subsidiary companies plant                       $ 93,975     $ 54,266
   Less accumulated depreciation and amortization     26,292       16,434
                                                    --------     --------
     Net subsidiary companies plant                 $ 67,683     $ 37,832
                                                    --------     --------
       Net plant                                    $519,838     $477,682
                                                    ========     ========

13. Quarterly information (unaudited)
<TABLE>
<CAPTION>
The quarterly data shown below reflects seasonal and timing variations that are common in the 
utility industry.
                                                                <S>
                                                                Three Months Ended
                                            <C>              <C>            <C>              <C>         
                                            March 31         June 30        September 30     December 31
                                         --------------   --------------   --------------   --------------
                                          <C>     <C>      <C>     <C>      <C>     <C>      <C>     <C>
                                          1996    1995     1996    1995     1996    1995     1996    1995
                                         ------  ------   ------  ------   ------  ------   ------  ------
                                                       (in thousands except per share data)
<S>                                     <C>     <C>      <C>     <C>      <C>     <C>      <C>     <C>
Operating revenues                      $88,390 $83,250  $89,588 $73,433  $92,866 $80,585  $90,895 $89,061
Operating income                        $18,831 $17,648  $12,293 $11,814  $12,273 $14,910  $14,829 $13,926
Net income                              $10,032 $ 8,707  $ 5,980 $ 5,337  $ 6,207 $ 7,147  $ 7,736 $ 7,754
Earnings available for common shares    $ 9,442 $ 8,118  $ 5,391 $ 4,747  $ 5,617 $ 6,557  $ 7,147 $ 7,165
Earnings per common share                 $ .84   $ .73    $ .48   $ .42    $ .50   $ .59    $ .64   $ .64
Dividends paid per common share           $ .45   $ .44    $ .45   $ .44    $ .45   $ .44    $ .45   $ .44
Price range:
  High                                  $38 5/8 $35      $38 5/8 $35      $34 1/2 $35 1/4  $34 1/4 $37 3/4
  Low                                   $35 1/4 $31 3/4  $32     $30 3/4  $31 3/4 $32 1/4  $32     $34 1/8
Average number of common shares
 outstanding                             11,180  11,180   11,180  11,180   11,180  11,180   11,187  11,180

</TABLE>

Exhibit 13-A


Stock listing

Otter Tail common stock is traded on The Nasdaq Stock Market's National 
Market.  (Nasdaq: National Association of Securities Dealers Automated 
Quotation.)