##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2007
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File Number 0-368
 OTTER TAIL CORPORATION
  MINNESOTA
    
    41-0462685(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)215 SOUTH CASCADE STREET, BOX 496, FERGUS FALLS, MINNESOTA
    
    56538-0496(Address of principal executive offices)
    
    (Zip Code)
 866-410-8780
  Title of each class
    
    Name of each exchange on which registeredCOMMON SHARES, par value $5.00 per share
    
    The NASDAQ Stock Market LLC
  CUMULATIVE PREFERRED SHARES, without par value
 þ o
 o þ
 þ o
 þ
  Large Accelerated Filer þ
    
    Accelerated Filer o
    
    Non-Accelerated Filer o(Do not check if a smaller
reporting company)

    
    Smaller Reporting
Company o
 o þ
 $945,987,487.
 29,892,988 Common Shares ($5 par value) as of February 15, 2008.
  2007 Annual Report to Shareholders-Portions incorporated by reference into Parts I and II
Proxy Statement for the 2008 Annual Meeting-Portions incorporated by reference into Part III




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TABLE OF CONTENTS  PART IItem 1. BUSINESSItem 1A. RISK FACTORSItem 1B. UNRESOLVED STAFF COMMENTSItem 2. PROPERTIESItem 3. LEGAL PROCEEDINGSItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSItem 4A. EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF FEBRUARY 28, 2008)PART IIItem 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESItem 6. SELECTED FINANCIAL DATAItem 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 9A. CONTROLS AND PROCEDURESItem 9B. OTHER INFORMATIONPART IIIItem 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEItem 11. EXECUTIVE COMPENSATIONItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEItem 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVItem 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESSIGNATURESRestated Bylaws, as AmendedPortions of 2007 Annual Report to ShareholdersSubsidiariesConsent of Deloitte & Touche LLPPowers of AttorneyCertification of Chief Executive OfficerCertification of Chief Financial OfficerSection 906 Certification of CEOSection 906 Certification of CFO    Table of Contents  
  
 BUSINESS
 General Development of Business
 th
     
    
    ability to provide returns on invested capital that exceed the Companys weighted
average cost of capital over the long term; and
    
    assessment of an operating companys business and potential for future earnings
growth.
  1




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
    
    Electric (the Utility) includes the production, transmission, distribution
and sale of electric energy in Minnesota, North Dakota and South Dakota under the name
Otter Tail Power Company. In addition, the Utility is an active wholesale participant
in the Midwest Independent Transmission System Operator (MISO) markets. Electric
utility operations have been the Companys primary business since incorporation.
    
    Plastics consists of businesses producing polyvinyl chloride (PVC) and
polyethylene (PE) pipe in the Upper Midwest and Southwest regions of the United States.
    
    Manufacturing consists of businesses in the following manufacturing
activities: production of waterfront equipment, wind towers, material and handling
trays and horticultural containers, contract machining, and metal parts stamping and
fabrication. These businesses have manufacturing facilities in Minnesota, North Dakota,
South Carolina, Missouri, California, Florida, Oklahoma and Ontario, Canada and sell
products primarily in the United States.
    
    Health Services consists of businesses involved in the sale of diagnostic
medical equipment, patient monitoring equipment and related supplies and accessories.
These businesses also provide equipment maintenance, diagnostic imaging services and
rental of diagnostic medical imaging equipment to various medical institutions located
throughout the United States.
    
    Food Ingredient Processing consists of Idaho Pacific Holdings, Inc. (IPH),
which owns and operates potato dehydration plants in Ririe, Idaho; Center, Colorado and
Souris, Prince Edward Island, Canada. IPH produces dehydrated potato products that are
sold in the United States, Canada and other countries. Approximately 31% of IPHs
sales are to customers outside of the United States.
    
    Other Business Operations consists of businesses in residential, commercial
and industrial electric contracting industries, fiber optic and electric distribution
systems, wastewater and HVAC systems construction, transportation and energy services.
These businesses operate primarily in the Central United States, except for the
transportation company which operates in 48 states and six Canadian provinces.
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
    
    Emerging or middle market company;
    
    Proven entrepreneurial management team that will remain after the acquisition;
    
    Preference for 100% ownership of the acquired company;
    
    Products and services intended for commercial rather than retail consumer use; and
    
    The potential to provide immediate earnings and future growth.
      Financial Information About Industry Segments
  3




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Narrative Description of Business
 ELECTRIC
 General
  State
    
    2007
    
    2006Minnesota
    
    
    49.7
    %
    
    
    51.5
    %North Dakota
    
    
    40.8
    
    
    
    39.8South Dakota
    
    
    9.5
    
    
    
    8.7Total
    
    
    100.0
    %
    
    
    100.0
    %
  Customer category
    
    2007
    
    2006Commercial
    
    
    36.3
    %
    
    
    35.6
    %Residential
    
    
    30.4
    
    
    
    30.5Industrial
    
    
    23.1
    
    
    
    23.0All other sources
    
    
    10.2
    
    
    
    10.9Total
    
    
    100.0
    %
    
    
    100.0
    %
   4




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Capability and Demand
  Base load net plant capability
    
    2007
    
    2006Big Stone Plant
    
    256,025
    kW
    

    256,025
    kWCoyote Station
    
    
    149,450
    
    
    
    149,450Hoot Lake Plant
    
    
    144,325
    
    
    
    143,875Total
    
    549,800
    kW
    
    549,350
    kW
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Big Stone II
      6




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Fuel Supply
   2007
    
    2006Net Kilowatt Hours
    
    
    
    Net Kilowatt HoursGenerated
    
    % of Total Kilowatt
    
    Generated
    
    % of Total KilowattSources
    
    (Thousands)
    
    Hours Generated
    
    (Thousands)
    
    Hours GeneratedSubbituminous Coal
    
    
    2,273,799
    
    
    
    67.1
    %
    
    
    2,539,723
    
    
    
    71.1
    %Lignite Coal
    
    
    1,032,449
    
    
    
    30.5
    
    
    
    981,478
    
    
    
    27.5Hydro and Renewables
    
    
    20,537
    
    
    
    .6
    
    
    
    18,363
    
    
    
    .5Natural Gas and Oil
    
    
    59,256
    
    
    
    1.8
    
    
    
    31,846
    
    
    
    .9Total
    
    
    3,386,041
    
    
    
    100.0
    %
    
    
    3,571,410
    
    
    
    100.0
    %
  Plant
    
    Coal Supplier
    
    Type of Coal
    
    Expiration DateBig Stone Plant
    
    Kennecott Coal Sales Company
    
    Wyoming subbituminous
    
    December 31, 2010Hoot Lake Plant
    
    Kennecott Coal Sales Company
    
    Wyoming subbituminous
    
    December 31, 2010Coyote Station
    
    Dakota Westmoreland Corporation
    
    North Dakota lignite
    
    2016
   7




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General Regulation
   2007
    
    2006% of
    
    % of
    
    % of
    
    % ofElectric
    
    kWh
    
    Electric
    
    kWhRates
    
    Regulation
    
    Revenues
    
    Sales
    
    Revenues
    
    SalesMN retail sales
    
    MN Public Utilities
Commission
    
    
    37.1
    %
    
    
    34.5
    %
    
    
    33.6
    %
    
    
    30.8
    %ND retail sales
    
    ND Public Service
Commission
    
    
    30.4
    
    
    
    25.8
    
    
    
    25.9
    
    
    
    22.7SD retail sales
    
    SD Public Utilities
Commission
    
    
    7.1
    
    
    
    6.4
    
    
    
    5.7
    
    
    
    5.4Transmission &  wholesale
    
    Federal Energy Regulatory
Commission
    
    
    25.4
    
    
    
    33.3
    
    
    
    34.8
    
    
    
    41.1100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  8




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Minnesota
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North Dakota
   13




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South
Dakota
   FERC
  14




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
    
    The Public Utility Holding Company Act of 1935 (PUHCA) was repealed effective February
8, 2006. PUHCA significantly restricted mergers and acquisitions in the electric utility
sector.
    
    FERC appointed the Electric Reliability Organization (ERO) formerly known as North
American Electric Reliability Council (NERC) as an electric reliability organization to
establish and enforce mandatory reliability rules regarding the interstate electric
transmission system. On January 1, 2007 the ERO began operating.
    
    The FERC established incentives for transmission companies, such as performance based
rates, recovery of costs to comply with reliability rules and accelerated depreciation for
investments in transmission infrastructure.
    
    Federal support was made available for certain clean coal power initiatives, nuclear
power projects and renewable energy technologies.
  MAPP
 MEMA
 MRO
 MISO
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Other:
 Competition, Deregulation and Legislation
     Environmental Regulation
 Impact of Environmental Laws
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Air Quality
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.
  19




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2 2 2.
 2
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2
 
    
    Supply efficiency and reliability: Between 1990 and 2005, the Utility decreased its
CO2 intensity (lbs. of CO2 /mwh generated) nearly 11%. The Utility
plans to more than double that reduction by 2025. Big Stone II, the Utility proposed new
generating plant is designed to incorporate supercritical pulverized coal technology that
will increase plant efficiency by 20 percent and produce fly-ash that can replace cement in
making concrete. In addition, transmission capacity above that which was needed for the
plant was included in order to encourage regional wind energy development. The Utilitys
most recent integrated resource plan calls for the retirement of older coal units that
generate up to 122 MW of electricity by 2017. This would be replaced with the best
available technology, which would be more efficient and potentially would include carbon
capture and sequestration technologies.
    
    Conservation: Since 1992 the Utility has helped our customers conserve more than 1
million mwh of electricity. That is roughly equivalent to the amount of electricity that
90,000 average homes would have used in a year. The Utility continues to educate customers
about energy efficiency and demand-side management and to work with regulators to develop
new programs and measurements. The Utilitys integrated resource plan calls for an
additional 98 mw of conservation impacts by 2020.
    
    Renewable energy: Since 2002 the Utilitys customers have been able to purchase 100% of
their electricity from wind generation through the Utilitys TailWinds program. The MPUC
has approved 160 MW of new wind generation in the most recent resource plan filing. Of
that, 19.5 MW of purchased power agreements came on-line in December 2007 and 40.5 MW of
owned wind resources were on-line by January 2008. Other projects are in the development
phase and are expected to come on-line in the 2008  2010 time period. The Utility has
purchased all the electricity generated by fourteen 1.5 MW wind turbines located in
southeastern North Dakota since 2004. The Utility supports Minnesotas new law requiring
25% of the electricity sold to Minnesota customers be obtained from renewable resources by
2025, especially with its customer protection provisions. This new law was based on the
MPUCs Wind Integration Study, which assumed in its baseline the construction of the Big
Stone II power plant and associated transmission. The Utility supports North Dakotas
renewable energy objective that 10% of all retail electricity sold within the state by the
year 2015 be obtained from renewable energy and recycled energy sources.
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
    
    Other: The Utility will continue to participate as a member of EPAs SF6
(sulfur hexafluoride) Emission Reduction Partnership for Electric Power Systems program.
The partnership proactively is targeting a reduction in emissions of SF6, a
potent greenhouse gas. SF6 has a global-warming potential 23,900 times that of
CO2. The Utility is involved in a pilot project to use methane from a municipal
waste water treatment plant to generate electricity and is also studying the potential for
other methane-related projects. Methane has a global-warming potential 20 times that of
CO2. The Utility participates in carbon sequestration research through the
Plains CO2 Reduction Partnership (PCOR) through the University of North Dakotas
Energy and Environment Research Center. The PCOR Partnership is a collaborative effort of
more than 50 public and private sector stakeholders working toward a better understanding
of the technical and economic feasibility of capturing and storing anthropogenic CO2 emissions from stationary sources in the
central interior of North America.
 2
 Water Quality
   Solid Waste
  22




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Capital Expenditures
   Franchises
  Employees
  23




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PLASTICS
 General
   Northern Pipe Products, Inc. (Northern Pipe)
 Vinyltech Corporation (Vinyltech)
  Customers
  Competition
   Manufacturing and Resin Supply
  24




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Capital Expenditures
  Employees
  MANUFACTURING
 General
   BTD Manufacturing, Inc.
 25




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DMI Industries, Inc.
 ShoreMaster, Inc.,
 T. O. Plastics, Inc. (T.O. Plastics)
 Competition
   Raw Materials Supply
  Backlog
  Legislation
  26




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Capital Expenditures
  Employees
  HEALTH SERVICES
 General
   DMS Health Technologies, Inc. (DMSHT)
 DMS Imaging, Inc. (DMSI)
 27




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
    
    DMS Imaging  provides shared diagnostic medical imaging services
(primarily mobile) for MR, CT, nuclear medicine, PET, PET/CT, ultrasound,
mammography and bone density analysis.
    
    DMS Interim Solutions  offers interim and rental options for diagnostic
imaging services.
    
    DMS MedSource Partners  develops long-term relationships with
healthcare providers to offer dedicated in-house diagnostic imaging
services.
    
    DMS Portable X-Ray  delivers portable x-ray, ultrasound and
electrocardiography services to nursing homes and other facilities.
  Regulation
     28




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Reimbursement
   Competition
  Environmental, Health or Safety Laws
  Capital Expenditures
  30




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Employees
  FOOD INGREDIENT PROCESSING
 General
   Customers
  Competition
  Potato Supply
  Backlog
  31




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Regulations
  Capital Expenditures
  Employees
  OTHER BUSINESS OPERATIONS
 General
   Foley Company
 Midwest Construction Services, Inc. (MCS)
 Otter Tail Energy Services Company
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E. W. Wylie Corporation (Wylie)
 Competition
   Backlog
  Capital Expenditures
  Employees
  Forward-Looking Information  Safe Harbor Statement Under the  Private Securities Litigation Reform Act of 1995
  33




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
    
    Federal and state environmental regulation could require the Company to incur
substantial capital expenditures and increased operating costs.
    
    Volatile financial markets and changes in the Companys debt ratings could restrict the
Companys ability to access capital and could increase borrowing costs and pension plan
expenses.
    
    The Companys plans to grow and diversify through acquisitions may not be successful
and could result in poor financial performance.
    
    The Companys ability to grow its nonelectric businesses could be limited by state law.
    
    The Company is subject to federal and state legislation, regulations and actions that
may have a negative impact on its business and results of operations.
    
    Competition is a factor in all of the Companys businesses.
    
    Economic uncertainty could have a negative impact on the Companys future revenues and
earnings.
    
    Weather conditions or changes in weather patterns can adversely affect the Companys
operations and revenues.
    
    Actions by the regulators of the Companys Electric segment could result in rate
reductions, lower revenues or delays in recovering capital expenditures.
    
    The Company may not be able to respond effectively to deregulation initiatives in the
electric industry, which could result in reduced revenues and earnings.
    
    The Companys electric generating facilities are subject to operational risks that
could result in unscheduled plant outages, unanticipated operation and maintenance
expenses and increased power purchase costs.
 
    
    Future operating results of the Companys Electric segment will be impacted by the
outcome of a rate case filed in Minnesota on October 1, 2007 requesting a final overall
increase in Minnesota retail electric rates of 6.7%. The filing included a request for an
interim rate increase of 5.4%, which went into effect on November 30, 2007. Interim rates
will remain in effect for all Minnesota customers until the MPUC makes a final
determination on the Utilitys request, which is expected by August 1, 2008. If final
rates are lower than interim rates, the Utility will refund Minnesota customers the
difference with interest.
    
    Certain costs currently included in the FCA in retail rates may be excluded from
recovery through the FCA but may be subject to recovery through rates established in a
general rate case. Further, all, or portions of, gross margins on asset-based wholesale
electric sales may become subject to refund through the FCA as a result of a general rate
case.
    
    Electric wholesale margins could be further reduced as the MISO market becomes more
efficient.
    
    Electric wholesale trading margins could be reduced or eliminated by losses due to
trading activities.
    
    Wholesale sales of electricity from excess generation could be affected by reductions
in coal shipments to the Big Stone and Hoot Lake plants due to supply constraints or rail
transportation problems beyond the Utilitys control.
    
    The Utility has capitalized $8.2 million in costs related to the planned construction
of a second electric generating unit at its Big Stone Plant site as of December 31, 2007.
Should approvals of permits not be received on a timely basis, the project could be at
risk. If the project is abandoned for permitting or other reasons, these capitalized costs
and others incurred in future periods may be subject to expense and may not be
recoverable.
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
    
    Existing or new laws or regulations addressing climate change or reductions of
greenhouse gas emissions by federal or state authorities, such as mandated levels of
renewable generation or mandatory reductions
in CO2 emission
levels or taxes on CO2 emissions,
that result in increases in electric service
costs could negatively impact the Companys net income, financial position and
operating cash flows if such costs cannot be recovered through rates granted by ratemaking
authorities in the states where the Utility provides service or through increased market
prices for electricity.
    
    The Companys Plastics segment is highly dependent on a limited number of vendors for
PVC resin, many of which are located in the Gulf Coast region, and a limited supply of
resin. The loss of a key vendor or an interruption or delay in the supply of PVC resin
could result in reduced sales or increased costs for this business.
    
    Reductions in PVC resin prices could negatively impact PVC pipe prices, profit margins
on PVC pipe sales and the value of PVC pipe held in inventory.
    
    The price and availability of raw materials could affect the revenues and earnings of
the Companys Manufacturing segment.
    
    The Companys Food Ingredient Processing segment operates in a highly competitive
market and is dependent on adequate sources of raw materials for processing. Should the
supply of these raw materials be affected by poor growing conditions, this could
negatively impact the results of operations for this segment.
    
    The Companys Food Ingredient Processing and wind tower manufacturing businesses could
be adversely affected by changes in foreign currency exchange rates.
    
    Changes in the rates or methods of third-party reimbursements for diagnostic imaging
services could result in reduced demand for those services or create downward pricing
pressure, which would decrease revenues and earnings for the Companys Health Services
segment.
    
    The Companys Health Services segment may not be able to retain or comply with the
dealership arrangement and other agreements with Philips Medical.
    
    Actions by regulators of the Companys Health Services segment could result in monetary
penalties or restrictions in the Companys health services operations.
 
    
    A significant failure or an inability to properly bid or perform on projects by the
Companys construction businesses could lead to adverse financial results.
  
 RISK FACTORS
  
 UNRESOLVED STAFF COMMENTS
  35




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PROPERTIES
        
 LEGAL PROCEEDINGS
  36




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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 EXECUTIVE OFFICERS OF THE
REGISTRANT (AS OF FEBRUARY 28, 2008)
  NAME AND AGE
    
    DATES ELECTED TO OFFICE
    
    PRESENT POSITION AND BUSINESS EXPERIENCEJohn D. Erickson (49)
    
    4/8/02
    
    Present: President and Chief
Executive OfficerGeorge A. Koeck (55)
    
    4/10/00
    
    Present: Corporate Secretary
and General CounselLauris N. Molbert (50)
    
    6/10/02
    
    Present: Executive Vice President and
Chief Operating OfficerKevin G. Moug (48)
    
    4/9/01
    
    Present: Chief Financial Officer and
TreasurerCharles S. MacFarlane (43)
    
    5/1/03
    
    President, Otter Tail Power CompanyPrior to 5/1/03
    
    Interim President, Otter Tail Power Company
  
  
 Item 5.
    
    MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  37




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2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007OTC
    
    $
    100.00
    
    
    $
    103.42
    
    
    $
    103.02
    
    
    $
    121.66
    
    
    $
    136.04
    
    
    $
    156.39EEI
    
    $
    100.00
    
    
    $
    123.48
    
    
    $
    151.68
    
    
    $
    176.03
    
    
    $
    212.56
    
    
    $
    247.76NASDAQ
    
    $
    100.00
    
    
    $
    149.52
    
    
    $
    162.72
    
    
    $
    166.18
    
    
    $
    182.57
    
    
    $
    197.98
 
 SELECTED FINANCIAL DATA
  38




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 CONTROLS AND PROCEDURES
    39




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OTHER INFORMATION
  
  
 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 EXECUTIVE COMPENSATION
  
 Item 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  40




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Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    under equityissued upon
    
    Weighted-average
    
    compensation plansexercise of
    
    exercise price of
    
    (excludingoutstanding
    
    outstanding
    
    securitiesoptions, warrants
    
    options, warrants
    
    reflected in columnPlan Category
    
    and rights
    
    and rights
    
    (a))(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders1999 Stock
Incentive Plan
    
    
    1,128,755
    (1)
    
    $
    17.94
    
    
    
    1,202,173
    (2)1999 Employee
Stock Purchase Plan
    
    
    
    
    
    
    N/A
    
    
    
    397,156
    (3)Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,128,755
    
    
    $
    17.94
    
    
    
    1,599,329
 
 (1)
    
    Includes 109,000, 88,050 and 75,150 performance based share awards made in 2007, 2006 and
2005, respectively, 55,480 restricted stock units outstanding as of December 31, 2007, and
13,938 phantom shares as part of the deferred director compensation program and excludes
58,077 shares of restricted stock issued under the 1999 Stock Incentive Plan.(2)
    
    The 1999 Stock Incentive Plan provides for the issuance of any shares available under the
plan in the form of restricted stock, performance awards and other types of stock-based
awards, in addition to the granting of options, warrants or stock appreciation rights.(3)
    
    Shares are issued based on employees election to participate in the plan. 
 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 PRINCIPAL ACCOUNTANT FEES AND SERVICES
  41




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EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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OTTER TAIL CORPORATIONBy
    
    /s/ Kevin G. Moug

Kevin G. Moug
Chief Financial Officer and TreasurerDated: February 28, 2008
  Signature and Title
 John D. Erickson
    
    )President and Chief Executive Officer
    
    )(principal executive officer) and Director
    
    ))Kevin G. Moug
    
    )Chief Financial Officer and Treasurer
    
    )(principal financial and accounting officer)
    
    ))
    By
    
    /s/ John D. EricksonJohn C. MacFarlane
    
    )
    
    
    John D. EricksonChairman of the Board and Director
    
    )
    
    
    Pro Se and Attorney-in-Fact)
    
    
    Dated February 28, 2008Karen M. Bohn, Director
    
    ))Dennis R. Emmen, Director
    
    ))Arvid R. Liebe, Director
    
    ))Edward J. McIntyre, Director
    
    ))Joyce Nelson Schuette, Director
    
    ))Nathan I. Partain, Director
    
    ))Gary J. Spies, Director
    
    )
 43




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##### Table of Contents



TABLE OF CONTENTS
 
  Page inAnnualReport toShareholdersFinancial Statements:Managements Report Regarding Internal Controls Over Financial Reporting
    
    
    36Report of Independent Registered Public Accounting Firm
    
    
    36Consolidated Statements of Income for the Three Years Ended December 31, 2007
    
    
    37Consolidated Balance Sheets, December 31, 2007 and 2006
    
    
    38 & 39Consolidated Statements of Common Shareholders Equity and Comprehensive Income for the
Three Years Ended December 31, 2007
    
    
    40Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2007
    
    
    41Consolidated Statements of Capitalization, December 31, 2007 and 2006
    
    
    42Notes to Consolidated Financial Statements
    
    
    43-65Selected Consolidated Financial Data for the Five Years Ended December 31, 2007
    
    
    18Quarterly Data for the Two Years Ended December 31, 2007
    
    
    65
  44




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##### Table of Contents



Exhibit Index
to
Annual Report
on Form 10-K
For Year Ended December 31, 2007
 Previously FiledAsExhibitFile No.
    
    No.3-A
    
    8-K filed 
4/10/01
    
    3
    
    Restated Articles of Incorporation, as amended
(including resolutions creating outstanding series of
Cumulative Preferred Shares).3-B
    
    
    
    
    
    
    
    Restated Bylaws, as amended.4-A-1
    
    10-K for year ended 12/31/01
    
    4-D-7
    
    Note Purchase Agreement, dated as of December 1, 2001.4-A-2
    
    10-K for year 
ended 12/31/02
    
    4-D-4
    
    First Amendment, dated as of December 1, 2002, to Note
Purchase Agreement, dated as of December 1, 2001.4-A-3
    
    10-Q for quarter ended 9/30/04
    
    4.2
    
    Second Amendment, dated as of October 1, 2004, to Note
Purchase Agreement, dated as of December 1, 2001.4-A-4
    
    8-K filed
12/20/07
    
    4.2
    
    Third Amendment, dated as of December 1, 2007, to Note
Purchase Agreement, dated as of December 1, 2001.4-B
    
    8-K filed 9/06/06
    
    4.1
    
    Credit Agreement, dated as of September 1, 2006,
between the Company, dba Otter Tail Power Company, and
U.S. Bank National Association.4-B-1
    
    8-K filed
4/18/07
    
    4.1
    
    First Amendment to Credit Agreement, dated as of April
13, 2007, to Credit Agreement, dated as of September 1,
2006.4-B-2
    
    8-K filed
9/06/07
    
    4.1
    
    Second Amendment to Credit Agreement, dated as of
August 31, 2007, to Credit Agreement, dated as of
September 1, 2006.4-C
    
    8-K filed
2/28/07
    
    4.1
    
    Note Purchase Agreement, dated as of February 23,
2007, between the Company and Cascade Investment L.L.C.4-D
    
    8-K filed
8/23/07
    
    4.1
    
    Note Purchase Agreement, dated as of August 20, 2007.4-D-1
    
    8-K filed
12/20/07
    
    4.3
    
    First Amendment, dated as of December 14, 2007, to
Note Purchase Agreement, dated as of August 20, 2007.
 45




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##### Table of Contents



Previously FiledAsExhibitFile No.
    
    No.4-E
    
    8-K filed10/5/07
    
    4.1
    
    Credit Agreement, dated as of October 2, 2007, among
Varistar Corporation, the Banks named therein, U.S. Bank
National Association, a national banking association, as
agent for the Banks and as Lead Arranger, and Bank of
America, N.A., Keybank National Association, and Wells
Fargo Bank, National Association, as Co-Documentation
Agents.4-E-1
    
    8-K filed12/7/07
    
    4.1
    
    First Amendment to Credit Agreement, dated as of
November 30, 2007, to Credit Agreement, dated as of
October 2, 2007.10-A
    
    2-39794
    
    4-C
    
    Integrated Transmission Agreement, dated August 25,
1967, between Cooperative Power Association and the
Company.10-A-1
    
    10-K for year
ended 12/31/92
    
    10-A-1
    
    Amendment No. 1, dated as of September 6, 1979, to
Integrated Transmission Agreement, dated as of August
25, 1967, between Cooperative Power Association and the
Company.10-A-2
    
    10-K for year
ended 12/31/92
    
    10-A-2
    
    Amendment No. 2, dated as of November 19, 1986, to
Integrated Transmission Agreement between Cooperative
Power Association and the Company.10-C-1
    
    2-55813
    
    5-E
    
    Contract dated July 1, 1958, between Central Power
Electric Corporation, Inc., and the Company.10-C-2
    
    2-55813
    
    5-E-1
    
    Supplement Seven dated November 21, 1973. (Supplements
Nos. One through Six have been superseded and are no
longer in effect.)10-C-3
    
    2-55813
    
    5-E-2
    
    Amendment No. 1 dated December 19, 1973, to
Supplement Seven.10-C-4
    
    10-K for year
ended 12/31/91
    
    10-C-4
    
    Amendment No. 2 dated June 17, 1986, to
Supplement Seven.10-C-5
    
    10-K for year
ended 12/31/92
    
    10-C-5
    
    Amendment No. 3 dated June 18, 1992, to
Supplement Seven.10-C-6
    
    10-K for year
ended 12/31/93
    
    10-C-6
    
    Amendment No. 4 dated January 18, 1994 to
Supplement Seven.10-D
    
    2-55813
    
    5-F
    
    Contract dated April 12, 1973, between the Bureau of
Reclamation and the Company.10-E-1
    
    2-55813
    
    5-G
    
    Contract dated January 8, 1973, between East River
Electric Power Cooperative and the Company.
 46




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##### Table of Contents



Previously FiledAsExhibitFile No.
    
    No.10-E-2
    
    2-62815
    
    5-E-1
    
    Supplement One dated February 20, 1978.10-E-3
    
    10-K for yearended 12/31/89
    
    10-E-3
    
    Supplement Two dated June 10, 1983.10-E-4
    
    10-K for year

ended 12/31/90
    
    10-E-4
    
    Supplement Three dated June 6, 1985.10-E-5
    
    10-K for year

ended 12/31/92
    
    10-E-5
    
    Supplement No. Four, dated as of September 10, 1986.10-E-6
    
    10-K for year

ended 12/31/92
    
    10-E-6
    
    Supplement No. Five, dated as of January 7, 1993.10-E-7
    
    10-K for year

ended 12/31/93
    
    10-E-7
    
    Supplement No. Six, dated as of December 2, 199310-F
    
    10-K for year

ended 12/31/89
    
    10-F
    
    Agreement for Sharing Ownership of Generating Plant by
and between the Company, Montana-Dakota Utilities Co.,
and Northwestern Public Service Company (dated as of
January 7, 1970).10-F-1
    
    10-K for year

ended 12/31/89
    
    10-F-1
    
    Letter of Intent for purchase of share of Big Stone
Plant from Northwestern Public Service Company (dated as
of
May 8, 1984).10-F-2
    
    10-K for year

ended 12/31/91
    
    10-F-2
    
    Supplemental Agreement No. 1 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of July 1, 1983).10-F-3
    
    10-K for year

ended 12/31/91
    
    10-F-3
    
    Supplemental Agreement No. 2 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of March 1,
1985).10-F-4
    
    10-K for year

ended 12/31/91
    
    10-F-4
    
    Supplemental Agreement No. 3 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of March 31,
1986).10-F-5
    
    10-Q for quarter

ended 9/30/03
    
    10.1
    
    Supplemental Agreement No. 4 to Agreement for Sharing
Ownership of Big Stone Plant (dated as of April 24,
2003).10-F-6
    
    10-K for year

ended 12/31/92
    
    10-F-5
    
    Amendment I to Letter of Intent dated May 8, 1984, for
purchase of share of Big Stone Plant.10-G
    
    10-Q for quarter

ended 06/30/04
    
    10.3
    
    Master Coal Purchase and Sale Agreement by and between
the Company, Montana-Dakota Utilities Co., Northwestern
Corporation and Kennecott Coal Sales Company-Big Stone
Plant (dated as of June 1, 2004).
 47




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##### Table of Contents



Previously FiledAsExhibitFile No.
    
    No.10-H
    
    2-61043
    
    5-H
    
    Agreement for Sharing Ownership of Coyote Station
Generating Unit No. 1 by and between the Company,
Minnkota Power Cooperative, Inc., Montana-Dakota
Utilities Co., Northwestern Public Service Company and
Minnesota Power & Light Company (dated as of July 1,
1977).10-H-1
    
    10-K for year

ended 12/31/89
    
    10-H-1
    
    Supplemental Agreement No. One, dated as of November
30, 1978, to Agreement for Sharing Ownership of Coyote
Generating Unit No. 1.10-H-2
    
    10-K for year

ended 12/31/89
    
    10-H-2
    
    Supplemental Agreement No. Two, dated as of March 1,
1981, to Agreement for Sharing Ownership of Coyote
Generating Unit No. 1 and Amendment No. 2 dated March 1,
1981, to Coyote Plant Coal Agreement.10-H-3
    
    10-K for year

ended 12/31/89
    
    10-H-3
    
    Amendment, dated as of July 29, 1983, to Agreement for
Sharing Ownership of Coyote Generating Unit No. 1.10-H-4
    
    10-K for year

ended 12/31/92
    
    10-H-4
    
    Agreement, dated as of September 5, 1985, containing
Amendment No. 3 to Agreement for Sharing Ownership of
Coyote Generating Unit No.1, dated as of July 1, 1977,
and Amendment No. 5 to Coyote Plant Coal Agreement,
dated as of January 1, 1978.10-H-5
    
    10-Q for quarter

ended 9/30/01
    
    10-A
    
    Amendment, dated as of June 14, 2001, to Agreement for
Sharing Ownership of Coyote Generating Unit No. 1.10-H-6
    
    10-Q for quarter

ended 9/30/03
    
    10.2
    
    Amendment, dated as of April 24, 2003, to Agreement
for Sharing Ownership of Coyote Generating Unit No. 1.10-I
    
    2-63744
    
    5-I
    
    Coyote Plant Coal Agreement by and between the
Company, Minnkota Power Cooperative, Inc.,
Montana-Dakota Utilities Co., Northwestern Public
Service Company, Minnesota Power & Light Company, and
Knife River Coal Mining Company (dated as of January 1,
1978).10-I-1
    
    10-K for year

ended 12/31/92
    
    10-I-1
    
    Addendum, dated as of March 10, 1980, to Coyote Plant
Coal Agreement.10-I-2
    
    10-K for year

ended 12/31/92
    
    10-I-2
    
    Amendment (No. 3), dated as of May 28, 1980, to Coyote
Plant Coal Agreement.10-I-3
    
    10-K for year

ended 12/31/92
    
    10-I-3
    
    Fourth Amendment, dated as of August 19, 1985, to
Coyote Plant Coal Agreement.10-I-4
    
    10-Q for quarter

ended 6/30/93
    
    19-A
    
    Sixth Amendment, dated as of February 17, 1993, to
Coyote Plant Coal Agreement.
 48




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##### Table of Contents



Previously FiledAsExhibitFile No.
    
    No.10-I-5
    
    10-K for year

ended 12/31/01
    
    10-I-5
    
    Agreement and Consent to Assignment of the Coyote
Plant Coal Agreement.10-J-1
    
    10-Q for quarter

ended 06/30/05
    
    10.1
    
    Big Stone II Power Plant Participation Agreement by
and among the Company, Central Minnesota Municipal Power
Agency, Great River Energy, Heartland Consumers Power
District, Montana-Dakota Utilities Co., a division of
MDU Resources Group, Inc., Southern Minnesota Municipal
Power Agency and Western Minnesota Municipal Power
Agency, as Owners (dated as of June 30, 2005).10-J-1a
    
    10-Q for quarter

ended 6/30/06
    
    10.6
    
    Amendment No. 1, dated as of June 1, 2006, to
Participation Agreement (dated as of June 30, 2005).10-J-1b
    
    8-K filed
8/31/06
    
    10.1
    
    Amendment No. 2, dated as of August 18, 2006, to
Participation Agreement (dated as of June 30, 2005).10-J-1c
    
    8-K filed
10/11/06
    
    10.1
    
    
    
    Amendment No. 3, effective September 1, 2006, to
Participation Agreement (dated as of June 30, 2005).10-J-1d
    
    8-K filed

6/19/07
    
    10.1
    
    Amendment No. 4, dated as of June 8, 2007, to
Participation Agreement (dated as of June 30, 2005).10-J-1e
    
    8-K filed

9/12/07
    
    10.1
    
    Amendment No. 5, dated as of September 1, 2007, to
Participation Agreement (dated as of June 30, 2005).10-J-1f
    
    8-K filed

9/24/07
    
    10.1
    
    Amendment No. 6, dated as of September 20, 2007, to
Participation Agreement (dated as of June 30, 2005).10-J-2
    
    10-Q for quarter

ended 06/30/05
    
    10.2
    
    Big Stone II Power Plant Operation & Maintenance
Services Agreement by and among the Company, Central
Minnesota Municipal Power Agency, Great River Energy,
Heartland Consumers Power District, Montana-Dakota
Utilities Co., a division of MDU Resources Group, Inc.,
Southern Minnesota Municipal Power Agency and Western
Minnesota Municipal Power Agency, as Owners, and the
Company, as Operator (dated as of June 30, 2005).10-J-3
    
    10-Q for quarter

ended 06/30/05
    
    10.3
    
    Big Stone I and Big Stone II 2005 Joint Facilities
Agreement by and among the Company, Central Minnesota
Municipal Power Agency, Great River Energy, Heartland
Consumers Power District, Montana-Dakota Utilities Co.,
a division of MDU Resources Group, Inc., NorthWestern
Corporation dba NorthWestern Energy, Southern Minnesota
Municipal Power Agency and Western Minnesota Municipal
Power Agency, as Owners (dated as of June 30, 2005).
 49




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##### Table of Contents



Previously FiledAsExhibitFile No.
    
    No.10-J-3a
    
    8-K filed
8/25/06
    
    10.1
    
    Amendment No. 1, dated as of July 13, 2006, to Joint
Facilities Agreement (dated as of June 30, 2005).10-K-1
    
    10-Q for quarter
ended 9/30/99
    
    10
    
    Power Sales Agreement between the Company and Manitoba
Hydro Electric Board (dated as of July 1, 1999).10-L
    
    10-K for year
ended 12/31/91
    
    10-L
    
    Integrated Transmission Agreement by and between the
Company, Missouri Basin Municipal Power Agency and
Western Minnesota Municipal Power Agency (dated as of
March 31, 1986).10-L-1
    
    10-K for year
ended 12/31/88
    
    10-L-1
    
    Amendment No. 1, dated as of December 28, 1988, to
Integrated Transmission Agreement (dated as of
March 31, 1986).10-M
    
    10-Q for quarter
ended 06/30/04
    
    10.1
    
    Master Coal Purchase Agreement by and between the
Company and Kennecott Coal Sales Company  Hoot Lake
Plant (dated as of December 31, 2001).10-N-1
    
    10-K for year
ended 12/31/02
    
    10-N-1
    
    Deferred Compensation Plan for Directors, as amended*10-N-2
    
    8-K filed
02/04/05
    
    10.1
    
    Executive Survivor and Supplemental Retirement Plan
(2005 Restatement).*10-N-2a
    
    10-K for year
ended 12/31/06
    
    10-N-2a
    
    First Amendment of Executive Survivor and Supplemental
Retirement Plan (2005 Restatement).*10-N-3
    
    10-K for year
ended 12/31/93
    
    10-N-5
    
    Nonqualified Profit Sharing Plan.*10-N-4
    
    10-Q for quarter
ended 3/31/02
    
    10-B
    
    Nonqualified Retirement Savings Plan, as amended.*10-N-5
    
    8-K filed
4/13/06
    
    10.3
    
    1999 Employee Stock Purchase Plan, As Amended (2006).10-N-6
    
    8-K filed
4/13/06
    
    10.4
    
    1999 Stock Incentive Plan, As Amended (2006).10-N-7
    
    10-K for year 
ended 12/31/05
    
    10-N-7
    
    Form of Stock Option Agreement*10-N-8
    
    10-K for year 
ended 12/31/05
    
    10-N-8
    
    Form of Restricted Stock Agreement*10-N-9
    
    8-K filed4/13/06
    
    10.2
    
    Form of 2006 Performance Award Agreement.*
 50




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##### Table of Contents



Previously FiledAsExhibitFile No.
    
    No.10-N-10
    
    8-K filed
04/15/05
    
    10.2
    
    Executive Annual Incentive Plan (Effective April 1,
2005).*10-N-11
    
    10-Q for quarter
ended 6/30/06
    
    10.5
    
    Form of 2006 Restricted Stock Unit Award Agreement.*10-N-12
    
    8-K filed 4/13/06
    
    10.1
    
    Form of Restricted Stock Award Agreement for Directors.10-O-1
    
    10-Q for quarter
ended 6/30/02
    
    10-A
    
    Executive Employment Agreement, John Erickson.*10-O-2
    
    10-Q for quarter
ended 6/30/02
    
    10-B
    
    Executive Employment Agreement and amendment no. 1,
Lauris Molbert.*10-O-3
    
    10-Q for quarter
ended 6/30/02
    
    10-C
    
    Executive Employment Agreement, Kevin Moug.*10-O-4
    
    10-Q for quarter
ended 6/30/02
    
    10-D
    
    Executive Employment Agreement, George Koeck.*10-P-1
    
    8-K filed
11/2/07
    
    10.1
    
    Change in Control Severance Agreement, John Erickson.*10-P-2
    
    8-K filed
11/2/07
    
    10.2
    
    Change in Control Severance Agreement, Lauris Molbert.*10-P-3
    
    8-K filed
11/2/07
    
    10.3
    
    Change in Control Severance Agreement, Kevin Moug.*10-P-4
    
    8-K filed
11/2/07
    
    10.4
    
    Change in Control Severance Agreement, George Koeck.*13-A
    
    
    
    
    
    
    
    Portions of 2007 Annual Report to Shareholders
incorporated by reference in this Form 10-K.21-A
    
    
    
    
    
    
    
    Subsidiaries of Registrant.23-A
    
    
    
    
    
    
    
    Consent of Deloitte & Touche LLP.24-A
    
    
    
    
    
    
    
    Powers of Attorney.31.1
    
    
    
    
    
    
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
 51




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##### Table of Contents



Previously FiledAsExhibitFile No.
    
    No.31.2
    
    
    
    
    
    
    
    Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    
    
    
    
    Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    
    
    
    
    Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract of compensatory plan or arrangement required to be filed pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K. 52