|   | R | Annual      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934 |
|--------|---|------------------------------------------------------------------------------------------------|

|   | £ | Transition      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of      1934 |
|--------|--------|----------------------------------------------------------------------------------------------------|

| Minnesota                                                           |   | 41-0418150                                |
|---------------------------------------------------------------------|--------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization) |   | (I.R.S.      Employer Identification No.) |

| Title      of Each Class             |   | Name      of Each Stock Exchangeon      Which Registered |
|--------------------------------------|--------|----------------------------------------------------------|
| Common      Stock, without par value |   | New      York Stock Exchange                             |

| Large      Accelerated Filer R | Accelerated      Filer £ | Non-Accelerated      Filer £ | Smaller      Reporting Company £ |
|--------------------------------|-------------------------------|-----------------------------------|--------------------------------------------|

----

| Definitions                                                                                     | 3                                                                                                                                |
|-------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|
|                                                                                            |                                                                                                                             |
| Safe Harbor      Statement Under the Private Securities Litigation Reform Act of      1995 | 5                                                                                                                                |
|                                                                                            |                                                                                                                             |
| Part      I                                                                                     |                                                                                                                             |
| Item      1.                                                                                    | Business                                                                                                                         | 6 |
|                                                                                            | Regulated      Operations                                                                                                        | 6 |
|                                                                                            |                                                                                                                             | Electric      Sales / Customers | 6 |
|                                                                                            |                                                                                                                             | Power      Supply | 9 |
|                                                                                            |                                                                                                                             | Transmission      and Distribution | 11 |
|                                                                                            |                                                                                                                             | Investment      in ATC | 11 |
|                                                                                            |                                                                                                                             | Properties | 11 |
|                                                                                            |                                                                                                                             | Regulatory      Matters | 12 |
|                                                                                            |                                                                                                                             | Regional      Organizations | 13 |
|                                                                                            |                                                                                                                             | Minnesota      Legislation | 14 |
|                                                                                            |                                                                                                                             | Competition | 14 |
|                                                                                            |                                                                                                                             | Franchises | 14 |
|                                                                                            | Investments      and Other                                                                                                       | 15 |
|                                                                                            |                                                                                                                             | BNI      Coal | 15 |
|                                                                                            |                                                                                                                             | ALLETE      Properties | 15 |
|                                                                                            |                                                                                                                             | Non-Rate      Base Generation | 16 |
|                                                                                            |                                                                                                                             | Other | 16 |
|                                                                                            | Environmental      Matters                                                                                                       | 16 |
|                                                                                            | Employees                                                                                                                        | 18 |
|                                                                                            | Availability      of Information                                                                                                 |        18 |
|                                                                                            | Executive      Officers of the Registrant                                                                                        | 19 |
| Item      1A.                                                                                   | Risk      Factors                                                                                                                | 20 |
| Item      1B.                                                                                   | Unresolved      Staff Comments                                                                                                   | 23 |
| Item      2.                                                                                    | Properties                                                                                                                       | 23 |
| Item      3.                                                                                    | Legal      Proceedings                                                                                                           | 23 |
| Item      4.                                                                                    | Submission      of Matters to a Vote of Security Holders                                                                         | 23 |
|                                                                                            |                                                                                                                             |   |
| Part      II                                                                                    |                                                                                                                             |
| Item      5.                                                                                    | Market      for Registrant’s Common Equity, Related Stockholder Matters      andIssuer      Purchases of Equity Securities | 23 |
| Item      6.                                                                                    | Selected      Financial Data                                                                                                     | 24 |
| Item      7.                                                                                    | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations                            | 25 |
|                                                                                            | Overview                                                                                                                         | 25 |
|                                                                                            | 2008      Compared to 2007                                                                                                       | 25 |
|                                                                                            | 2007      Compared to 2006                                                                                                       | 27 |
|                                                                                            | Critical      Accounting Estimates                                                                                               | 29 |
|                                                                                            | Outlook                                                                                                                          | 31 |
|                                                                                            | Liquidity      and Capital Resources                                                                                             | 37 |
|                                                                                            | Capital      Requirements                                                                                                        | 40 |
|                                                                                            | Environmental      and Other Matters                                                                                             | 40 |
|                                                                                            | Market      Risk                                                                                                                 | 40 |
|                                                                                            | New      Accounting Standards                                                                                                    | 41 |
| Item      7A.                                                                                   | Quantitative      and Qualitative Disclosures about Market Risk                                                                  | 41 |
| Item      8.                                                                                    | Financial      Statements and Supplementary Data                                                                                 | 41 |
| Item      9.                                                                                    | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure                                   | 41 |
| Item      9A.                                                                                   | Controls      and Procedures                                                                                                     | 42 |
| Item      9B.                                                                                   | Other      Information                                                                                                           | 42 |
|                                                                                            |                                                                                                                             |
| Part      III                                                                                   |                                                                                                                             |
| Item      10.                                                                                   | Directors,      Executive Officers and Corporate Governance                                                                      | 43 |
| Item      11.                                                                                   | Executive      Compensation                                                                                                      | 43 |
| Item      12.                                                                                   | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters                         | 43 |
| Item      13.                                                                                   | Certain      Relationships and Related Transactions, and Director      Independence                                              | 43 |
| Item      14.                                                                                   | Principal      Accounting Fees and Services                                                                                      | 43 |
|                                                                                            |                                                                                                                             |
| Part      IV                                                                                    |                                                                                                                             |   |
| Item      15.                                                                                   | Exhibits      and Financial Statement Schedules                                                                                  | 44 |
|                                                                                            |                                                                                                                             |
| Signatures                                                                                      | 48                                                                                                                               |
|                                                                                            |                                                                                                                             |
| Consolidated      Financial Statements                                                          | 50                                                                                                                               |

----

| Abbreviation      or Acronym | Term                                                                                                                                                                     |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| AICPA                        | American      Institute of Certified Public Accountants                                                                                                                  |
| ALLETE                       | ALLETE,      Inc.                                                                                                                                                        |
| ALLETE      Properties       | ALLETE      Properties, LLC and its subsidiaries                                                                                                                         |
| AFUDC                        | Allowance      for Funds Used During Construction - the cost of both debt and equity      funds used to finance utility plant additions during construction      periods |
| AREA                         | Arrowhead      Regional Emission Abatement                                                                                                                               |
| ATC                          | American      Transmission Company LLC                                                                                                                                   |
| BNI      Coal                | BNI      Coal, Ltd.                                                                                                                                                      |
| Boswell                      | Boswell      Energy Center                                                                                                                                               |
| Company                      | ALLETE,      Inc. and its subsidiaries                                                                                                                                   |
| DRI                          | Development      of Regional Impact                                                                                                                                      |
| EITF                         | Emerging      Issues Task Force                                                                                                                                          |
| EPA                          | Environmental      Protection Agency                                                                                                                                     |
| ESOP                         | Employee      Stock Ownership Plan                                                                                                                                       |
| FASB                         | Financial      Accounting Standards Board                                                                                                                                |
| FERC                         | Federal      Energy Regulatory Commission                                                                                                                                |
| Form      8-K                | ALLETE      Current Report on Form 8-K                                                                                                                                   |
| Form      10-K               | ALLETE      Annual Report on Form 10-K                                                                                                                                   |
| Form      10-Q               | ALLETE      Quarterly Report on Form 10-Q                                                                                                                                |
| FSP                          | Financial      Accounting Standards Board Staff Position                                                                                                                 |
| GAAP                         | Accounting      Principles Generally Accepted in the United States                                                                                                       |
| GHG                          | Greenhouse      Gas                                                                                                                                                      |
| Heating      Degree Days     | Measure      of the extent to which the average daily temperature is below 65 degrees      Fahrenheit, increasing demand for heating                                     |
| Invest      Direct           | ALLETE’s      Direct Stock Purchase and Dividend Reinvestment Plan                                                                                                 |
| kV                           | Kilovolt(s)                                                                                                                                                              |
| Laskin                       | Laskin      Energy Center                                                                                                                                                |
| Manitoba      Hydro          | Manitoba      Hydro-Electric Board                                                                                                                                       |
| MBtu                         | Million      British thermal units                                                                                                                                       |
| Mesabi      Nugget           | Mesabi      Nugget Delaware, LLC                                                                                                                                         |
| Minnesota      Power         | An      operating division of ALLETE, Inc.                                                                                                                               |
| Minnkota      Power          | Minnkota      Power Cooperative, Inc.                                                                                                                                    |
| MISO                         | Midwest      Independent Transmission System Operator, Inc.                                                                                                              |
| Moody’s                | Moody’s      Investors Service, Inc.                                                                                                                               |
| MPCA                         | Minnesota      Pollution Control Agency                                                                                                                                  |
| MPUC                         | Minnesota      Public Utilities Commission                                                                                                                               |
| MW      / MWh                | Megawatt(s)      / Megawatt-hour(s)                                                                                                                                      |
| NextEra      Energy          | NextEra      Energy Resources, LLC                                                                                                                                       |
| Non-residential              | Retail      commercial, non-retail commercial, office, industrial, warehouse, storage      and institutional                                                             |
| NOX                          | Nitrogen      Oxide                                                                                                                                                      |
| Note      ___                | Note      ___ to the consolidated financial statements in this Form    10-K                                                                                              |
| NPDES                        | National      Pollutant Discharge Elimination System                                                                                                                     |
| NYSE                         | New      York Stock Exchange                                                                                                                                             |
| OES                          | Minnesota      Office of Energy Security                                                                                                                                 |

----

| Abbreviation      or Acronym     | Term                                                                                                  |
|----------------------------------|-------------------------------------------------------------------------------------------------------|
| Oliver      Wind I               | Oliver      Wind I Energy Center                                                                      |
| Oliver      Wind II              | Oliver      Wind II Energy Center                                                                     |
| Palm      Coast Park             | Palm      Coast Park development project in Florida                                                   |
| Palm      Coast Park District    | Palm      Coast Park Community Development District                                                   |
| PolyMet      Mining              | PolyMet      Mining Corp.                                                                             |
| PSCW                             | Public      Service Commission of Wisconsin                                                           |
| PUHCA      2005                  | Public      Utility Holding Company Act of 2005                                                       |
| Rainy      River Energy          | Rainy      River Energy Corporation - Wisconsin                                                       |
| SEC                              | Securities      and Exchange Commission                                                               |
| SFAS                             | Statement      of Financial Accounting Standards No.                                                  |
| SO2                              | Sulfur      Dioxide                                                                                   |
| Square      Butte                | Square      Butte Electric Cooperative                                                                |
| Standard      & Poor’s | Standard      & Poor’s Ratings Services, a division of The McGraw-Hill Companies,      Inc. |
| SWL&P                        | Superior      Water, Light and Power Company                                                          |
| Taconite      Harbor             | Taconite      Harbor Energy Center                                                                    |
| Taconite      Ridge              | Taconite      Ridge Energy Center                                                                     |
| Town      Center                 | Town      Center at Palm Coast development project in Florida                                         |
| Town      Center District        | Town      Center at Palm Coast Community Development District                                         |
| WDNR                             | Wisconsin      Department of NaturalResources                                                         |

----

| · | our      ability to successfully implement our strategic  objectives;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | our      ability to manage expansion and integrate acquisitions;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| · | prevailing      governmental policies, regulatory actions, and legislation including those      of the United States Congress, state legislatures, the FERC, the MPUC, the      PSCW, and various local and county regulators, and city administrators,      about allowed rates of return, financings, industry and rate structure,      acquisition and disposal of assets and facilities, real estate      development, operation and construction of plant facilities, recovery of      purchased power, capital investments and other expenses, present or      prospective wholesale and retail competition (including but not limited to      transmission costs), zoning and permitting of land held for resale and      environmental matters; |
| · | the      potential impacts of climate change and future regulation to restrict the      emissions of GHG on our Regulated Operations;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| · | effects      of restructuring initiatives in the electric industry;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | economic      and geographic factors, including political and economic      risks;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| · | changes      in and compliance with laws and regulations;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| · | weather      conditions;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| · | natural      disasters and pandemic diseases;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| · | war      and acts of terrorism;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| · | wholesale      power market conditions;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | population      growth rates and demographic patterns;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| · | effects      of competition, including competition for retail and wholesale      customers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| · | changes      in the real estate market;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| · | pricing      and transportation of commodities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| · | changes      in tax rates or policies or in rates of inflation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| · | project      delays or changes in project costs;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| · | availability      and management of construction      materials and skilled construction labor for capital    projects;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| · | changes      in operating expenses, capital and land      development expenditures;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| · | global      and domestic economic conditions affecting us or our      customers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| · | our      ability to access capital markets and  bank financing;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| · | changes      in interest rates and the performance of the financial      markets;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| · | our      ability to replace a mature workforce and retain qualified, skilled and      experienced personnel; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| · | the      outcome of legal and administrative proceedings (whether civil or      criminal) and settlements that affect the business and profitability of      ALLETE.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

----

| Item      1. | Business |
|--------------|----------|

| Year      Ended December 31                          | 2008   | 2007   | 2006   |
|------------------------------------------------------|--------|--------|--------|
|                                                 |   |   |   |
| Consolidated      Operating Revenue – Millions | $801.0 | $841.7 | $767.1 |
|                                                 |   |   |   |
| Percentage      of Consolidated Operating Revenue    |   |   |   |
| Regulated      Operations                            | 89     | 86     | 83     |
| Investments      and Other                           | 11     | 14     | 17     |
|                                                 | 100%   | 100%   | 100%   |

| Regulated Utility Electric SalesYear Ended December 31 | 2008   | %      | 2007   | %      | 2006   | %      |
|--------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Millions      of Kilowatt-hours                                                      |   |   |   |   |   |   |
|                                                                                 |   |   |   |   |   |   |
| Retail      and Municipals                                                           |   |   |   |   |   |   |
| Residential                                                                          | 1,172  | 9      | 1,141  | 9      | 1,100  | 9      |
| Commercial                                                                           | 1,454  | 12     | 1,456  | 11     | 1,420  | 11     |
| Industrial                                                                           | 7,192  | 57     | 7,054  | 55     | 7,206  | 56     |
| Municipals      (FERC rate regulated)                                                | 1,002  | 8      | 1,009  | 8      | 905    | 7      |
|                                                                                 | 10,820 | 86     | 10,660 | 83     | 10,631 | 83     |
| Other      Power Suppliers                                                           | 1,800  | 14     | 2,157  | 17     | 2,153  | 17     |
|                                                                                 | 12,620 | 100    | 12,817 | 100    | 12,784 | 100    |

----

| Industrial      Customer Electric SalesYear      Ended December 31 | 2008   | %      | 2007   | %      | 2006   | %      |
|--------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Millions      of Kilowatt-hours                               |   |   |   |   |   |   |
| Taconite      Producers                                            | 4,579  | 64     | 4,408  | 62     | 4,517  | 63     |
| Paper,      Pulp and Wood Products                                 | 1,567  | 22     | 1,613  | 23     | 1,689  | 23     |
| Pipelines                                                          | 582    | 8      | 562    | 8      | 550    | 8      |
| Other      Industrial                                              | 464    | 6      | 471    | 7      | 450    | 6      |
|                                                               | 7,192  | 100    | 7,054  | 100    | 7,206  | 100    |

----

| Customer                                                                 | Industry            | Location                                                  | Ownership                                                                                                         |         Earliest        Termination      Date |
|--------------------------------------------------------------------------|---------------------|-----------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------|
| Hibbing      Taconite Co. (a)                                            | Taconite            | Hibbing,      MN                                          | 62.3%      ArcelorMittal USA Inc.23%      Cliffs Natural Resources Inc.14.7%      United States Steel Corporation | December      31, 2015                                                                                                        |
| ArcelorMittal      USA – Minorca Mine (b)                     | Taconite            | Virginia,      MN                                         | ArcelorMittal      USA Inc.                                                                                       | February      28, 2013                                                                                                        |
| United      States Steel Corporation(USS      – Minnesota Ore) (c) | Taconite            | Mt.      Iron, MN and Keewatin, MN                        | United      States Steel Corporation                                                                              | October      31, 2013                                                                                                         |
| United      Taconite LLC (a)                                             | Taconite            | Eveleth,      MN                                          | Cliffs      Natural Resources Inc.                                                                                | December      31, 2015                                                                                                        |
| UPM,      Blandin Paper Mill (b)                                         | Paper               | Grand      Rapids, MN                                     | UPM-Kymmene      Corporation                                                                                      | February      28, 2013                                                                                                        |
| Boise      White Paper, LLC (d)                                          | Paper               | International      Falls, MN                              | Boise      Paper Holdings, LLC                                                                                    | December      31, 2013                                                                                                        |
| Sappi      Cloquet LLC (b)                                               | Paper      and Pulp | Cloquet,      MN                                          | Sappi      Limited                                                                                                | February      28, 2013                                                                                                        |
| NewPage      Corporation – Duluth Mills                            | Paper      and Pulp | Duluth,      MN                                           | NewPage      Corporation                                                                                          | August      31, 2013                                                                                                          |
| USG      Interiors, Inc. (e)                                             | Manufacturer        | Cloquet,      MN                                          | USG      Corporation                                                                                              | December      31, 2009                                                                                                        |
| Enbridge      Energy Company,Limited      Partnership (e)                | Pipeline            | Deer      River, MNFloodwood,      MN                     | Enbridge      Energy Company,Limited      Partnership                                                             | June      30, 2009                                                                                                            |
| Minnesota      Pipeline Company (e)                                      | Pipeline            | Staples,      MNLittle      Falls, MNPark      Rapids, MN | 60%      Koch Pipeline Co. L.P.40%      Marathon AshlandPetroleum      LLC                                        | April      7, 2009                                                                                                            |

| (a) | Contract      extensions at Hibbing Taconite Co. and United Taconite LLC are pending      final approval from the MPUC. |
|-----|-------------------------------------------------------------------------------------------------------------------------|

| (b) | The      contract will terminate four years from the date of written notice from      either Minnesota Power or the customer. No notice of contract cancellation      has been given by either party. Thus, the earliest date of cancellation is      February 28, 2013. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | United      States Steel Corporation includes the Minntac Plant in Mountain Iron, MN      and the Keewatin Taconite Plant in Keewatin,MN. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | A      contract amendment has been filed with the MPUC which provides for an      extension of the agreement through December 31,  2013. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | Contracts      with USG Interiors, Inc., Minnesota Pipeline Company, and Enbridge Energy      Company are all in cancellation periods effective on or before      December 31, 2009; new contracts are expected to be agreed upon prior      to expiration. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

MunicipalCustomers. In2008, our municipal customers represented 8 percent of total regulated utilitykilowatt-hour sales. Our municipal customers consist of 16 municipalities inMinnesota and 1 private utility in Wisconsin. The FERC has jurisdiction over ourwholesale electric service, tariff rates, and operations. In 2008 MinnesotaPower entered into new contracts with all of our municipal customers with theexception of one small customer whose contract is now in the cancellationperiod. The new contracts transition each customer to formula based rates, whichmeans rates can be adjusted annually based on changes in costs. The newagreement with the private utility in Wisconsin is subject to PSCW approval. InNovember 2008, we filed a request with the FERC to implement the formula basedrate provision in the new contracts. We anticipate final resolution andimplementation of new rates in the first quarter of 2009.

----

| Regulated      UtilityPower      Supply              | UnitNo.        | YearInstalled   |     Net      Winter    Capability | For the Year EndedDecember 31,      2008Electric Requirements |
|------------------------------------------------------|----------------|-----------------|---------------------------------------------------------------------------|----------------------------------------------------------------------------------------|
|                                                 |           |            |     MW                                                |     MWh                                                            |     % |
| Coal-Fired                                           |           |            |                                                                      |                                                                                   |   |
| Boswell      Energy Center                           | 1              | 1958            | 69                                                                        |                                                                                   |   |
| in      Cohasset, MN                                 | 2              | 1960            | 69                                                                        |                                                                                   |   |
|                                                 | 3              | 1973            | 350                                                                       |                                                                                   |   |
|                                                 | 4              | 1980            | 429                                                                       |                                                                                   |   |
|                                                 |           |            | 917                                                                       | 6,365,305                                                                              | 48.5% |
| Laskin      Energy Center                            | 1              | 1953            | 55                                                                        |                                                                                   |   |
| in      Hoyt Lakes, MN                               | 2              | 1953            | 55                                                                        |                                                                                   |   |
|                                                 |           |            | 110                                                                       | 659,439                                                                                | 5.0 |
| Taconite      Harbor Energy Center                   | 1              | 1957            | 73                                                                        |                                                                                   |   |
| in      Taconite Harbor, MN                          | 2              | 1957            | 73                                                                        |                                                                                   |   |
|                                                 | 3              | 1967            | 74                                                                        |                                                                                   |   |
|                                                 |           |            | 220                                                                       | 1,473,239                                                                              | 11.2 |
| Total      Coal                                      |           |            | 1,247                                                                     | 8,497,983                                                                              | 64.7 |
| Steam      – Purchased                         |           |            |                                                                      |                                                                                   |   |
| Hibbard      Energy Center in Duluth, MN             | 3      & 4 | 1949,      1951 | 45                                                                        | 61,635                                                                                 | 0.5 |
| Hydro                                                |           |            |                                                                      |                                                                                   |   |
| Group      consisting of nine stations in MN         | Various        |            | 112                                                                       | 487,930                                                                                | 3.7 |
| Wind                                                 |           |            |                                                                      |                                                                                   |   |
| Taconite      Ridge (a)                         | 1              | 2008            | 4                                                                         | 18,587                                                                                 | 0.2 |
| Total      Company Generation                        |           |            | 1,408                                                                     | 9,066,135                                                                              | 69.1 |
| Long      Term Purchased Power                       |           |            |                                                                      |                                                                                   |   |
| Square      Butte burns lignite coal near Center, ND |           |            |                                                                      | 1,943,949                                                                              | 14.8 |
| Wind      – Oliver County, ND                  |           |            |                                                                      | 366,945                                                                                | 2.8 |
| Hydro      – Manitoba Hydro                    |           |            |                                                                      | 390,680                                                                                | 3.0 |
| Total      Long Term Purchased Power                 |           |            |                                                                      | 2,701,574                                                                              | 20.6 |
|                                                 |           |            |                                                                      |                                                                                   |   |
| Other      Purchased Power(b)                        |           |            |                                                                      | 1,357,023                                                                              | 10.3 |
| Total      Purchased Power                           |           |            |                                                                      | 4,058,597                                                                              | 30.9 |
| Total                                                |           |            | 1,408                                                                     | 13,124,732                                                                             | 100.0% |

| (a) | The      nameplate capacity of Taconite Ridge is 25 MWs. The capacity reflected in      the table is actual accredited capacity of the facility. Accredited      capacity is the amount of net generating capability associated with the      facility for which capacity credit may be obtained using limited      historical data. As more data is collected, actual accredited capacity may      increase. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Includes      short term market purchases in the MISO market and from Other Power      Suppliers. |
|-----|---------------------------------------------------------------------------------------------------|

----

On January 24, 2008, we received a letter from BNSF alleging that theCompany defaulted on a material obligation under the Company’s CoalTransportation Agreement (CTA). In the notice, BNSF claimed the Companyunderpaid approximately $1.6 million for coal transportation services in 2006and that failure to pay such amount plus interest may result in BNSF’stermination of the CTA. We believe we do not owe the amount claimed. On April 1,2008, to ensure that BNSF did not attempt to terminate the CTA, we paid underprotest the full amount claimed by BNSF and filed a demand for arbitration ofthe issue. On April 22, 2008, BNSF filed a counterclaim in the arbitrationdisputing our position that we are entitled to a refund from BNSF of $1.5million plus interest for amounts that we overpaid for 2007 deliveries. Thearbitration is proceeding in connection with the claim regarding 2006 paymentsand the counterclaim regarding 2007 payments, and we are unable to predict theoutcome at this time. The delivered costs of fuel for the Company’s generationare recoverable from Minnesota Power’s utility customers through the fueladjustment clause.

| Coal      Delivered to Minnesota PowerYear      Ended December 31 |         2008 |         2007 |         2006 |
|-------------------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|
| Average      Price per Ton                                        | $22.73                                               | $21.78                                               | $20.19                                               |
| Average      Price per MBtu                                       | $1.25                                                | $1.20                                                | $1.10                                                |

----

some supportingpeaking generation. We plan to add 300 to 500 megawatts of carbon-minimizingrenewable energy to our generation mix. Besides the additional generation fromrenewable sources, Minnesota Power anticipates future supply will come from acombination of sources, including:

|   | · | “As-needed”      peaking and intermediate generationfacilities; |
|--------|--------|-----------------------------------------------------------------------------|

|   | · | Expiration      of wholesale contracts presently inplace; |
|--------|--------|-----------------------------------------------------------|

|   | · | Short-term      market purchases; |
|--------|--------|-----------------------------------|

|   | · | Improved      efficiency of existing generation and power delivery assets;      and |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Expanded      conservation and demand-side management  initiatives. |
|--------|--------|---------------------------------------------------------------------|

----

BoswellNOX Reduction Plan. In September 2008, wesubmitted to the MPCA and MPUC a $92 million environmental initiative proposingcost recovery for NOX emissionreductions from Boswell Units 1, 2, and 4. If approved by the MPUC, the BoswellNOX ReductionPlan is expected to significantly reduce NOX emissionsfrom these units. In conjunction with the NOX reductionPlan, we plan to install an efficiency upgrade to the existingturbine/generator at Boswell Unit 4 adding approximately 60 MWs of total outputwith no additional emissions. A second filing requesting cost recovery for theplan will be submitted to the MPUC in the first quarter of2009.

----

----

----

| Non-Rate      Base Power Supply | UnitNo.        | YearInstalled   | YearAcquired | NetCapability |
|---------------------------------|----------------|-----------------|--------------|---------------|
|                            |           |            |         | MW            |
| Steam                           |           |            |         |          |
| Wood-Fired      (a)             |           |            |         |          |
| Cloquet      Energy Center      | 5              | 2001            | 2001         | 23            |
| in      Cloquet, MN             |           |            |         |          |
| Rapids      Energy Center (b)   | 6      & 7 | 1969,      1980 | 2000         | 29            |
| in      Grand Rapids, MN        |           |            |         |          |
| Hydro                           |           |            |         |          |
| Conventional      Run-of-River  |           |            |         |          |
| Rapids      Energy Center (b)   | 4      & 5 | 1917            | 2000         | 1             |
| in      Grand Rapids, MN        |           |            |         |          |

| (a) | Supplemented      by coal. |
|-----|----------------------------|

| (b) | The      net generation is primarily dedicated to the needs of one      customer. |
|-----|-----------------------------------------------------------------------------------|

----

Environmental Matters (Continued)

----

Manufactured GasPlant Site. We are reviewing and addressing environmental conditionsat a former manufactured gas plant site within the City of Superior, Wisconsinand formerly operated by SWL&P. We have been working with the WDNR todetermine the extent of contamination and the remediation of contaminatedlocations. We have accrued a $0.5 million liability for this site atDecember 31, 2008, and have recorded a corresponding regulatory asset as weexpect recovery of remediation costs to be allowed by the PSCW.

----

| Executive Officers                                                                 | Initial Effective Date |
|------------------------------------------------------------------------------------|------------------------|
|                                                                               |                   |
| Donald J. Shippar, Age      59                                                     |                   |
| Chairman,      President and Chief Executive Officer                               | January      1, 2006   |
| President      and Chief Executive Officer                                         | January      21, 2004  |
| Executive      Vice President – ALLETE and President – Minnesota Power | May      13, 2003      |
| President      and Chief Operating Officer – Minnesota Power                 | January      1, 2002   |
|                                                                               |                   |
| Robert J. Adams, Age      46                                                       |                   |
| Vice      President – Business Development and Chief Risk Officer            | May      13, 2008      |
| Vice      President – Utility Business Development                 | February      1, 2004  |
|                                                                               |                   |
| Deborah A. Amberg, Age      43                                                     |                   |
| Senior      Vice President, General Counsel and Secretary                          | January      1, 2006   |
| Vice      President, General Counsel and Secretary                                 | March      8, 2004     |
|                                                                               |                   |
| Steven Q. DeVinck, Age      49                                                     |                   |
| Controller                                                                         | July      12, 2006     |
|                                                                               |                   |
| Mark A. Schober, Age      53                                                       |                   |
| Senior      Vice President and Chief Financial Officer                             | July      1, 2006      |
| Senior      Vice President and Controller                                          | February      1, 2004  |
| Vice      President and Controller                                                 | April      18, 2001    |
|                                                                               |                   |
| Donald W. Stellmaker,      Age 51                                                  |                   |
| Treasurer                                                                          | July      24, 2004     |
|                                                                               |                   |
| Claudia Scott Welty, Age      56                                                   |                   |
| Senior      Vice President and Chief Administrative Officer                        | February      1, 2004  |

|   | Ms. Amberg was a Senior      Attorney.Mr. DeVinck was      Director of Nonutility Business Development, and Assistant Controller.Mr. Stellmaker was      Director of FinancialPlanning. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Large Power Customers accounted for approximately 36 percent of our 2008consolidated operating revenue (one of these customers accounted for 12.5percent of consolidated revenue). These customers are involved in cyclicalindustries that by their nature are adversely impacted by economic downturns andare subject to strong competition in the global marketplace. An economicdownturn or failure to compete effectively in the global economy could have amaterial adverse effect on their operations and, consequently, could negativelyimpact our results of operations if we are unable to remarket this energy atsimilar prices.

----

|   | · | severe      or unexpected weather conditions; |
|--------|--------|-----------------------------------------------|

|   | · | seasonality; |
|--------|--------|--------------|

|   | · | changes      in electricity usage; |
|--------|--------|------------------------------------|

|   | · | transmission      or transportation constraints, inoperability or      inefficiencies; |
|--------|--------|----------------------------------------------------------------------------------------|

|   | · | availability      of competitively priced alternative energy  sources; |
|--------|--------|------------------------------------------------------------------------|

|   | · | changes      in supply and demand for energy; |
|--------|--------|-----------------------------------------------|

|   | · | changes      in power production capacity; |
|--------|--------|--------------------------------------------|

|   | · | outages      at Minnesota Power’s generating facilities or those of our      competitors; |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | changes      in production and storage levels of natural gas, lignite, coal, crude oil      and refined products; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|

|   | · | natural      disasters, wars, sabotage, terrorist acts or other catastrophic events;      and |
|--------|--------|-----------------------------------------------------------------------------------------------|

|   | · | federal,      state, local and foreign energy, environmental, or other regulation and      legislation. |
|--------|--------|---------------------------------------------------------------------------------------------------------|

----

A downturn in economic conditions could adversely affect our realestate business.

----

| Item      1B. | Unresolved      Staff Comments |
|---------------|--------------------------------|

| Item      2. | Properties |
|--------------|------------|

| Item      3. | Legal      Proceedings |
|--------------|------------------------|

| Item      4. | Submission      of Matters to a Vote of SecurityHolders |
|--------------|---------------------------------------------------------|

| Item      5. | Market      for Registrant’s Common Equity, Related Stockholder Matters and Issuer      Purchases of Equity Securities |
|--------------|------------------------------------------------------------------------------------------------------------------------------|

|                       | 2008                                                 | 2007                                                |
|----------------------------|------------------------------------------------------|-----------------------------------------------------|
|                       |     Price      Range             |     Dividends                   | Price      Range |     Dividends |
| Quarter                    |         High |         Low |     Declared |     High |     Low |     Declared |
|                       |                                                 |                                                |   |   |   |   |
| First                      | $39.86                                               | $33.76                                              | $0.43 | $49.69 | $44.93 | $0.41 |
| Second                     | 46.11                                                | 38.82                                               | 0.43 | 51.30 | 45.39 | 0.41 |
| Third                      | 49.00                                                | 38.05                                               | 0.43 | 50.05 | 38.60 | 0.41 |
| Fourth                     | 44.63                                                | 28.28                                               | 0.43 | 46.48 | 38.17 | 0.41 |
| Annual      Total          |                                                 |                                                | $1.72 |   |   | $1.64 |
| Dividend      Payout Ratio |                                                 |                                                | 61% |   |   | 53% |

----

|                                                                              |     2008 |   |     2007 |   |     2006 |   |     2005 |   |     2004 |      |
|-----------------------------------------------------------------------------------|------------------------------|--------|------------------------------|--------|------------------------------|--------|------------------------------|--------|------------------------------|-----------|
|                                                                              |                         |   |                         |   |                         |   |                         |   |                         |      |
| Operating      Revenue                                                            | $801.0                       |   | $841.7                       |   | $767.1                       |   | $737.4                       |   | $704.1                       |      |
| Operating      Expenses                                                           | 679.2                        |   | 710.0                        |   | 628.8                        |   | 692.3                        | (g)    | 603.2                        |      |
| Income      from Continuing Operations Before Change in Accounting      Principle | 82.5                         |   | 87.6                         |   | 77.3                         |   | 17.6                         | (g)    | 38.5                         |      |
| Income      (Loss) from Discontinued Operations – Net of Tax                | –                      |   | –                      |   | (0.9)                        |   | (4.3)                        | (g)    | 73.7                         |      |
| Change      in Accounting Principle – Net of Tax                            | –                      |   | –                      |   | –                      |   | –                      |   | (7.8)                        | (h)       |
| Net      Income                                                                   | 82.5                         |   | 87.6                         |   | 76.4                         |   | 13.3                         |   | 104.4                        |      |
| Common      Stock Dividends                                                       | 50.4                         |   | 44.3                         |   | 40.7                         |   | 34.4                         |   | 79.7                         |      |
| Earnings      Retained in (Distributed from) Business                             | $32.1                        |   | $43.3                        |   | $35.7                        |   | $(21.1)                      |   | $24.7                        |      |
| Shares      Outstanding – Millions                                          |                         |   |                         |   |                         |   |                         |   |                         |      |
| Year-End                                                                          | 32.6                         |   | 30.8                         |   | 30.4                         |   | 30.1                         |   | 29.7                         |      |
| Average (a)                                                                       |                         |   |                         |   |                         |   |                         |   |                         |      |
| Basic                                                                             | 29.2                         |   | 28.3                         |   | 27.8                         |   | 27.3                         |   | 28.3                         |      |
| Diluted                                                                           | 29.3                         |   | 28.4                         |   | 27.9                         |   | 27.4                         |   | 28.4                         |      |
| Diluted      Earnings (Loss) Per Share (b)                                   |                         |   |                         |   |                         |   |                         |   |                         |      |
| Continuing      Operations                                                        | $2.82                        |   | $3.08                        |   | $2.77                        |   | $0.64                        | (g)    | $1.35                        |  (i) |
| Discontinued      Operations (c)                                             | –                      |   | –                      |   | (0.03)                       |   | (0.16)                       |   | 2.59                         |      |
| Change      in Accounting Principle                                               | –                      |   | –                      |   | –                      |   | –                      |   | (0.27)                       |      |
|                                                                              | $2.82                        |   | $3.08                        |   | $2.74                        |   | $0.48                        |   | $3.67                        |      |
| Total      Assets                                                                 | $2,134.8                     |   | $1,644.2                     |   | $1,533.4                     | (f)    | $1,398.8                     |   | $1,431.4                     |      |
| Long-Term      Debt                                                               | 588.3                        |   | 410.9                        |   | 359.8                        |   | 387.8                        |   | 389.4                        |      |
| Return      on Common Equity                                                      | 10.7%                        |   | 12.4%                        |   | 12.1%                        |   | 2.2%                         | (g)    | 8.3%                         |      |
| Common      Equity Ratio                                                          | 58.0%                        |   | 63.7%                        |   | 63.1%                        |   | 60.7%                        |   | 61.7%                        |      |
| Dividends      Declared per Common Share                                          | $1.72                        |   | $1.64                        |   | $1.45                        |   | $1.245                       |   | $2.8425                      |      |
| Dividend      Payout Ratio                                                        | 61%                          |   | 53%                          |   | 53%                          |   | 259%                         | (g)    | 77%                          |      |
| Book      Value Per Share at Year-End                                             | $25.37                       |   | $24.11                       |   | $21.90                       |   | $20.03                       |   | $21.23                       |      |
| Capital      Expenditures by Segment (d)                                     |                         |   |                         |   |                         |   |                         |   |                         |      |
| Regulated      Operations                                                         | $317.0                       |   | $220.6                       |   | $107.5                       |   | $46.5                        |   | $41.7                        |      |
| Investments      and Other (e)                                                    | 5.9                          |   | 3.3                          |   | 1.9                          |   | 12.1                         |   | 16.1                         |      |
| Discontinued      Operations                                                      | –                      |   | –                      |   | –                      |   | 4.5                          |   | 21.4                         |      |
| Total      Capital Expenditures                                                   | $322.9                       |   | $223.9                       |   | $109.4                       |   | $63.1                        |   | $79.2                        |      |

| (a) | Excludes      unallocated ESOP shares. |
|-----|----------------------------------------|

| (b) | Common      share and per share amounts have also been adjusted for all periods to      reflect our September 20, 2004, one-for-three common stock reverse      split. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | Operating      results of our Water Services businesses and our telecommunications      business are included in discontinued operations, and accordingly, amounts      have been restated for all periods presented. (See Note 12. Discontinued      Operations.) |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | In      the fourth quarter of 2008, we made changes to our reportable business      segments in our continuing effort to manage and measure performance of our      operations based on the nature of products and services provided and      customers served. (See Note 2. Business  Segments.) |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (e) | Excludes      capitalized improvements on our development projects, which are included      in inventory. |
|-----|-----------------------------------------------------------------------------------------------------------|

| (f) | Included      $86.1 million of assets reflecting the adoption of SFAS 158 “Employers’      Accounting for Defined Benefit Pension and Other Postretirement      Plans.” |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (g) | Impacted      by a $50.4 million, or $1.84 per share, charge related to the assignment      of the Kendall County power purchase agreement, a $2.5 million, or $0.09      per share, deferred tax benefit due to comprehensive state tax planning      initiatives, and a $3.7 million, or $0.13 per share, current tax      benefit due to a positive resolution of income tax audit      issues. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (h) | Reflected      the cumulative effect on prior years (to December 2003) of changing to the      equity method of accounting for investments in limited liability companies      included in our emerging technologyportfolio. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (i) | Included      a $10.9 million, or $0.38 per share, after-tax debt prepayment cost      incurred as part of ALLETE’s financial restructuring in preparation for      the spin-off of the Automotive Services business and an $11.5 million, or      $0.41 per share, gain on the sale of ADESA shares related to the Company’s      ESOP. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Kilowatt-hours      Sold                                   |         2008 |         2007 |
|------------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|
| Millions                                                   |                                                 |                                                 |
|                                                       |                                                 |                                                 |
| Regulated      Utility                                     |                                                 |                                                 |
| Retail      and Municipals                                 |                                                 |                                                 |
| Residential                                                | 1,172                                                | 1,141                                                |
| Commercial                                                 | 1,372                                                | 1,373                                                |
| Industrial                                                 | 7,192                                                | 7,054                                                |
| Municipals                                                 | 1,002                                                | 1,008                                                |
| Other                                                      | 82                                                   | 84                                                   |
| Total      Retail and Municipals                           | 10,820                                               | 10,660                                               |
| Other      Power Suppliers                                 | 1,800                                                | 2,157                                                |
| Total      Regulated Utility Kilowatt-hours      Sold | 12,620                                               | 12,817                                               |

----

| ALLETE      Properties          | 2008                             | 2007                                                   |
|---------------------------------|----------------------------------|--------------------------------------------------------|
| Revenue      and Sales Activity |     Quantity |         Amount |         Quantity |         Amount |
| Dollars      in Millions        |                             |                                                   |   |   |
|                            |                             |                                                   |   |   |
| Revenue      from Land Sales    |                             |                                                   |   |   |
| Non-residential      Sq. Ft.    | –                          | –                                                | 580,059 | $17.0 |
| Residential      Units          | –                          | –                                                | 736 | 14.8 |
| Acres      (a)                  | 219                              | $6.3                                                   | 483 | 10.6 |
| Contract      Sales Price (b)   |                             | 6.3                                                    |   | 42.4 |
| Revenue      Recognized from    |                             |                                                   |   |   |
| Previously      Deferred Sales  |                             | 3.7                                                    |   | 3.1 |
| Deferred      Revenue           |                             | –                                                |   | (1.2) |
| Revenue      from Land Sales    |                             | 10.0                                                   |   | 44.3 |
| Other      Revenue              |                             | 8.3                                                    |   | 6.2 |
|                            |                             | $18.3                                                  |   | $50.5 |

| (a) | Acreage      amounts are shown on a gross basis, including wetlands and minority      interest. |
|-----|-------------------------------------------------------------------------------------------------|

| (b) | Reflected      total contract sales price on closed land transactions. Land sales are      recorded using a percentage-of-completion method. (See Note 1. Operations      and Significant AccountingPolicies.) |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Kilowatt-hours      Sold         |         2007 |             2006 |
|----------------------------------|------------------------------------------------------|------------------------------------------------------------------------------|
| Millions                         |                                                 |                                                                         |
|                             |                                                 |                                                                         |
| Regulated      Utility           |                                                 |                                                                         |
| Retail      and Municipals       |                                                 |                                                                         |
| Residential                      | 1,141                                                | 1,100                                                                        |
| Commercial                       | 1,373                                                | 1,335                                                                        |
| Industrial                       | 7,054                                                | 7,206                                                                        |
| Municipals                       | 1,008                                                | 911                                                                          |
| Other                            | 84                                                   | 79                                                                           |
| Total      Retail and Municipals | 10,660                                               | 10,631                                                                       |
| Other      Power Suppliers       | 2,157                                                | 2,153                                                                        |
| Total      Regulated Utility     | 12,817                                               | 12,784                                                                       |

----

| ALLETE      Properties          | 2007                                                     | 2006                                                   |
|---------------------------------|----------------------------------------------------------|--------------------------------------------------------|
| Revenue      and Sales Activity |         Quantity |         Amount |         Quantity |         Amount |
| Dollars      in Millions        |                                                     |                                                   |   |   |
|                            |                                                     |                                                   |   |   |
| Revenue      from Land Sales    |                                                     |                                                   |   |   |
| Non-residential      Sq. Ft.    | 580,059                                                  | $17.0                                                  | 401,971 | $10.8 |
| Residential      Units          | 736                                                      | 14.8                                                   | 973 | 15.9 |
| Acres      (a)                  | 483                                                      | 10.6                                                   | 732 | 24.4 |
| Contract      Sales Price (b)   |                                                     | 42.4                                                   |   | 51.1 |
| Revenue      Recognized from    |                                                     |                                                   |   |   |
| Previously      Deferred Sales  |                                                     | 3.1                                                    |   | 9.7 |
| Deferred      Revenue           |                                                     | (1.2)                                                  |   | (3.8) |
| Adjustments      (c)            |                                                     | –                                                |   | (0.9) |
| Revenue      from Land Sales    |                                                     | 44.3                                                   |   | 56.1 |
| Other      Revenue              |                                                     | 6.2                                                    |   | 6.5 |
|                            |                                                     | $50.5                                                  |   | $62.6 |

| (a) | Acreage      amounts are shown on a gross basis, including wetlands and minority      interest. |
|-----|-------------------------------------------------------------------------------------------------|

| (b) | Reflected      total contract sales price on closed land transactions. Land sales are      recorded using a percentage-of-completion method. (See Note 1. Operations      and Significant AccountingPolicies.) |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (c) | Contributed      development dollars, which are credited to cost of real estate      sold. |
|-----|--------------------------------------------------------------------------------------------|

----

----

ALLETE is committed to earning a financial return that rewards ourshareholders, allows for reinvestment in our businesses and sustainsgrowth. Minnesota Power’s industrial customers are facing weak conditionsin the markets for their products, and have and may continue to reduce theamount of energy they use. We will work to sell this released energy in thewholesale markets, and believe that our ability to produce energy at low costwill be a competitive advantage. Our focus will be to maintain thecompetitively-priced production of energy, while meeting environmentalrequirements. Minnesota Power will also focus on maintaining competitiveretail rates, as we believe this is important to the success of ourcustomers. Information published by the Edison Electric Institute inmid-2008 ranked Minnesota Power as having the ninth lowest retail rates out of175 investor-owned utilities in the United States.

----

PolyMet. In 2007, the MPUCapproved our contract with PolyMet, a new customer planning to start a copper,nickel and precious metals (non-ferrous) mining operation in NortheasternMinnesota. If PolyMet receives all necessary environmental permits and achievesstart-up, the contract will run through at least 2018 and supply approximately70 MWs of capacity. PolyMet continues to make progress towards production. InDecember 2008, PolyMet received a draft environmental impact statement from theMinnesota Department of Natural Resources.

----

On May 13, 2008, we announced plans to develop several hundredmegawatts of wind energy in North Dakota and purchase an existing 250 kV DCtransmission line to transport this wind energy to our customers while graduallyreducing the supply of energy currently delivered to our system on this sametransmission line from Square Butte’s coal-fired Milton R. Young Unit 2. TheNorth Dakota wind project is expected to complete the 2025 renewable energysupply requirements for our retail load. In September 2008, we signed anagreement to purchase the transmission line from Square Butte ElectricCooperative for approximately $80 million. The transaction is subject toregulatory approvals and is anticipated to close in 2009.

|   | · | “As-needed”      peaking and intermediate generationfacilities; |
|--------|--------|-----------------------------------------------------------------------------|

|   | · | Expiration      of wholesale contracts presently inplace; |
|--------|--------|-----------------------------------------------------------|

|   | · | Short-term      market purchases; |
|--------|--------|-----------------------------------|

|   | · | Improved      efficiency of existing generation and power delivery assets;      and |
|--------|--------|-------------------------------------------------------------------------------------|

|   | · | Expanded      conservation and demand-side management  initiatives. |
|--------|--------|---------------------------------------------------------------------|

----

ClimateChange. Minnesota Power has a long history of environmentalstewardship. A key component of our energy strategy is a goal to reduceoverall GHG emissions.

|   | · | We      will consider only carbon minimizing resources to supply power to our      customers. We will not consider a new coal resource without a carbon      emission solution. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      are pursuing Minnesota’s Renewable Energy Standard by adding      significant renewable resources to our portfolio of generation facilities      and power supply agreements. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      plan to continue improving the efficiency of our coal-based generation      facilities. |
|--------|--------|-------------------------------------------------------------------------------------------------|

|   | · | We      plan to implement demand side conservation  efforts. |
|--------|--------|--------------------------------------------------------------|

|   | · | We      will continue to support research of technologies to reduce carbon      emissions from generation facilities and support carbon sequestration      efforts. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | We      plan to achieve overall carbon emission reductions while maintaining      competitively priced electric service to our  customers. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Summary      of Development Projects                    |      | Total          | Residential    | Non-residential          |
|---------------------------------------------------------|-----------|----------------|----------------|--------------------------|
| Land      Available-for-Sale                            | Ownership | Acres      (a) | Units      (b) | Sq.      Ft. (b,      c) |
| Current      Development Projects                       |      |           |           |                     |
| Town      Center                                        | 80%       |           |           |                     |
| At      December 31, 2007                               |      | 991            | 2,289          | 2,228,200                |
| Property      Sold                                      |      | –        | –        | –                  |
| At      December 31, 2008                               |      | 991            | 2,289          | 2,228,200                |
| Palm      Coast Park                                    | 100%      |           |           |                     |
| At      December 31, 2007                               |      | 3,436          | 3,154          | 3,116,800                |
| Property      Sold                                      |      | –        | –        | –                  |
| Change      in Estimate                                 |      | –        | 85             | –                  |
| At      December 31, 2008                               |      | 3,436          | 3,239          | 3,116,800                |
| Total      Current Development Projects                 |      | 4,427          | 5,528          | 5,345,000                |
| Proposed      Development Project                       |      |           |           |                     |
| Ormond      Crossings                                   | 100%      |           |           |                     |
| At      December 31, 2008                               |      | 5,968          | (d)            | (d)                      |
| Total      of Development Projects at December 31, 2008 |      | 10,395         | 5,528          | 5,345,000                |

| (a) | Acreage      amounts are approximate and shown on a gross basis, including wetlands and      minority interest. |
|-----|-----------------------------------------------------------------------------------------------------------------|

| (b) | Estimated      and includes minority interest. Density at build out may differ from these      estimates. |
|-----|-----------------------------------------------------------------------------------------------------------|

| (c) | Depending      on the project, non-residential includes retail commercial, non-retail      commercial, office, industrial, warehouse, storage and      institutional. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | A development order approved      by the City of Ormond Beach includes up to 3,700 residential units and 5      million square feet of non-residential space. We estimate the first two      phases of Ormond Crossings will include 2,500-3,200 residential units and      2.5-3.5 million square feet of various types of non-residential      space. Density of the residential and      non-residential components of the project will be determined based upon      market and traffic mitigation cost considerations. Approximately 2,000      acres will be devoted to a regionally significant wetlands mitigation      bank. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Other      Land Available-for-Sale (a) |     Total |     Mixed      Use |     Residential |     Non-residential |     Agricultural |
|----------------------------------------|-------------------------------|----------------------------------------|-------------------------------------|-----------------------------------------|--------------------------------------|
| Acres      (b)                         |                          |                                   |                                |                                    |                                 |
|                                   |                          |                                   |                                |                                    |                                 |
| At      December 31, 2007              | 1,573                         | 362                                    | 248                                 | 424                                     | 539                                  |
| Property      Sold                     | (166)                         | (2)                                    | (134)                               | (18)                                    | (12)                                 |
| Contributed      Land                  | (54)                          | –                                | –                             | –                                 | (54)                                 |
| Change      in Estimate                | –                       | (7)                                    | –                             | (4)                                     | 11                                   |
| At      December 31, 2008              | 1,353                         | 353                                    | 114                                 | 402                                     | 484                                  |

| (a) | Other      land includes land located in Palm Coast, Florida not included in      development projects, Lehigh Acquisition Corporation and Cape Coral      Holdings, Inc. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Acreage      amounts are approximate and shown on a gross basis, including wetlands      and minority interest. |
|-----|----------------------------------------------------------------------------------------------------------------------|

----

----

| Issue      Date        | Maturity              | Amount           | Coupon |
|------------------------|-----------------------|------------------|--------|
| December      15, 2008 | January      15, 2014 | $18      Million | 6.94%  |
| December      15, 2008 | January      15, 2016 | $20      Million | 7.70%  |
| January      15, 2009  | January      15, 2019 | $42      Million | 8.17%  |

----

|                                        | Payments      Due by Period |
|---------------------------------------------|-----------------------------|
| Contractual      Obligations                |                        | Less      than | 1      to 3 | 4      to 5 | After |
| As      of December 31, 2008                | Total                       | 1      Year | Years | Years | 5      Years |
| Millions                                    |                        |   |   |   |   |
| Long-Term      Debt (a)                     | $979.6                      | $40.1 | $106.6 | $140.8 | $692.1 |
| Operating      Lease Obligations            | 93.7                        | 8.3 | 24.8 | 15.1 | 45.5 |
| FIN      48 – Uncertain Tax Positions | 1.2                         | 1.0 | 0.2 | – | – |
| Unconditional      Purchase Obligations     | 352.9                       | 77.1 | 63.3 | 28.8 | 183.7 |
|                                        | $1,427.4                    | $126.5 | $194.9 | $184.7 | $921.3 |

----

| Credit      Ratings                                                         | Standard      & Poor’s | Moody’s |
|-----------------------------------------------------------------------------|----------------------------------|---------------|
|                                                                        |                             |          |
| Issuer      Credit Rating                                                   | BBB+                             | Baa1          |
| Commercial      Paper                                                       | A-2                              | P-2           |
| Senior      Secured                                                         |                             |          |
| First      Mortgage Bonds                                                   | A–                         | A3            |
| Pollution      Control Bonds                                                | A–                         | A3            |
| Unsecured      Debt                                                         |                             |          |
| Collier      County Industrial Development Revenue Bonds – Fixed Rate | BBB                              | –       |

| Capital      Expenditures                   |         2009 |         2010 |         2011 |         2012 |         2013 |         Total |
|---------------------------------------------|------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|-------------------------------------------------------|
| Regulated      Utility Operations           |                                                 |                                                 |                                                 |                                                 |                                                 |                                                  |
|                                        | Base      and Other                                  | $197                                                 | $125                                                 | $109                                                 | $114                                                 | $128                                                  | $673 |
|                                        | Current      Cost Recovery (a)                  |                                                 |                                                 |                                                 |                                                 |                                                  |   |
|                                        |                                                 | Environmental                                        | 43                                                   | 9                                                    | 37                                                   | 56                                                    | 112 | 257 |
|                                        |                                                 | Renewable                                            | 29                                                   | 138                                                  | 16                                                   | 15                                                    | – | 198 |
|                                        |                                                 | Transmission                                         | 3                                                    | 17                                                   | 18                                                   | 18                                                    | 17 | 73 |
|                                        |                                                 | Generation                                           | 21                                                   | 17                                                   | –                                              | –                                               | – | 38 |
|                                        | Total      Current Cost Recovery                     | 96                                                   | 181                                                  | 71                                                   | 89                                                   | 129                                                   | 566 |
| Regulated      Utility Capital Expenditures | 293                                                  | 306                                                  | 180                                                  | 203                                                  | 257                                                  | 1,239                                                 |
| Other                                       |                                                 | 7                                                    | 8                                                    | 11                                                   | 8                                                    | 26                                                    | 60 |
| Total      Capital Expenditures             | $300                                                 | $314                                                 | $191                                                 | $211                                                 | $283                                                 | $1,299                                                |

|   | (a) | Estimated      current capital expenditures recoverable outside of a rate      case. |
|--------|-----|--------------------------------------------------------------------------------------|

----

|                                     | Expected      Maturity Date  |
|------------------------------------------|------------------------------|
| Interest      Rate Sensitive             |                         |   |   |   |   |   |   | Fair |
| Financial      Instruments               |     2009 |     2010 |     2011 |     2012 |     2013 |     Thereafter |     Total | Value |
| Dollars      in Millions                 |                         |   |   |   |   |   |   |   |
|                                     |                         |   |   |   |   |   |   |   |
| Long-Term      Debt                      |                         |   |   |   |   |   |   |   |
| Fixed      Rate                          | $2.2                         | $1.1 | $1.2 | $1.2 | $70.6 | $438.6 | $514.9 | $477.6 |
| Average      Interest Rate – %     | 5.5                          | 6.2 | 6.2 | 6.2 | 5.2 | 5.6 | 5.7 |   |
|                                     |                         |   |   |   |   |   |   |   |
| Variable      Rate                       | $8.2                         | $3.6 | $10.5 | $1.7 | $2.8 | $57.0 | $83.8 | $83.8 |
| Average      Interest Rate – % (a) | 1.2                          | 1.8 | 3.5 | 2.7 | 1.2 | 1.7 | 1.9 |   |

| (a) | Assumes      rate in effect at December 31, 2008, remains constant through remaining      term. |
|-----|-------------------------------------------------------------------------------------------------|

| Item      7A. | Quantitative      and Qualitative Disclosures about MarketRisk |
|---------------|----------------------------------------------------------------|

| Item      8. | Financial      Statements and Supplementary Data |
|--------------|--------------------------------------------------|

----

| Item      9A. | Controls      and Procedures |
|---------------|------------------------------|

| Item      9B. | Other      Information |
|---------------|------------------------|

----

| Item      10. | Directors,      Executive Officers and CorporateGovernance |
|---------------|------------------------------------------------------------|

|   | · | Directors. The      information regarding directors will be included in the “Election of      Directors” section; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------|

|   | · | Audit Committee Financial      Expert. The information regarding the Audit Committee financial      expert will be included in the “Audit Committee Report”      section; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Audit Committee Members.      The identity of the Audit Committee members is included in the “Audit      Committee Report” section; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Executive Officers. The      information regarding executive officers is included in Part I of this      Form 10-K; and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|

|   | · | Section 16(a)      Compliance. The information regarding Section 16(a) compliance will      be included in the “Section 16(a) Beneficial Ownership Reporting      Compliance” section. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Corporate      Governance Guidelines; |
|--------|--------|---------------------------------------|

|   | · | Audit      Committee Charter; |
|--------|--------|-------------------------------|

|   | · | Executive      Compensation Committee Charter; and |
|--------|--------|----------------------------------------------------|

|   | · | Corporate      Governance and Nominating CommitteeCharter. |
|--------|--------|------------------------------------------------------------|

| Item      11. | Executive      Compensation |
|---------------|-----------------------------|

| Item      12. | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters |
|---------------|----------------------------------------------------------------------------------------------------------|

| Item      13. | Certain      Relationships and Related Transactions, and Director      Independence |
|---------------|-------------------------------------------------------------------------------------|

| Item      14. | Principal      Accounting Fees and Services |
|---------------|---------------------------------------------|

----

| (a)    | Certain      Documents Filed as Part of this Form 10-K.                                                                                                                                                                    |                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------|
| (1)    | Financial      Statements                                                                                                                                                                                                  | Page                                                                           |
|   |                                                                                                                                                                                                                       | ALLETE                                                                         |   |
|   |                                                                                                                                                                                                                       | Report      of Independent Registered Public Accounting Firm                   | 49 |
|   |                                                                                                                                                                                                                       | Consolidated      Balance Sheet at December 31, 2008 and 2007                  | 50 |
|   |                                                                                                                                                                                                                       | For      the Three Years Ended December 31, 2008                               |   |
|   |                                                                                                                                                                                                                       |                                                                           | Consolidated      Statement of Income | 51 |
|   |                                                                                                                                                                                                                       |                                                                           | Consolidated      Statement of Cash Flows | 52 |
|   |                                                                                                                                                                                                                       |                                                                           | Consolidated      Statement of Shareholders’ Equity | 53 |
|   |                                                                                                                                                                                                                       | Notes      to Consolidated Financial Statements                                | 54 |
| (2)    | Financial      Statement Schedules                                                                                                                                                                                         |                                                                           |
|   |                                                                                                                                                                                                                       | Schedule      II – ALLETE Valuation and Qualifying Accounts and Reserves | 84 |
|   | All      other schedules have been omitted either because the information is not      required to be reported by ALLETE or because the information is included      in the consolidated financial statements or the notes. |
| (3)    | Exhibits      including those incorporated by reference.                                                                                                                                                                   |                                                                           |

|   | *3(a)1 | -      | Articles      of Incorporation, amended and restated as of May 8, 2001 (filed as Exhibit      3(b) to the March 31, 2001, Form 10-Q, File No.1-3548).                                                                                                                                                               |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | *3(a)2 | -      | Amendment      to Articles of Incorporation, effective 12:00 p.m. Eastern Time on      September 20, 2004 (filed as Exhibit 3 to the September 21, 2004,      Form 8-K, File No. 1-3548).                                                                                                                      |
|   | *3(a)3 | -      | Amendment      to Certificate of Assumed Name, filed with the Minnesota Secretary of      State on May 8, 2001 (filed as Exhibit 3(a) to the March 31, 2001, Form      10-Q, File No. 1-3548).                                                                                                                      |
|   | *3(b)  | -      | Bylaws,      as amended effective August 24, 2004 (filed as Exhibit 3 to the August 25,      2004, Form 8-K, File No. 1-3548).                                                                                                                                                                                      |
|   | *4(a)1 | -      | Mortgage      and Deed of Trust, dated as of September 1, 1945, between Minnesota Power      & Light Company (now ALLETE) and The Bank of New York Mellon (formerly      Irving Trust Company) and Douglas J. MacInnes (successor to Richard H.      West), Trustees (filed as Exhibit 7(c), File No.  2-5865). |
|   | *4(a)2 | -      | Supplemental      Indentures to ALLETE’s Mortgage and Deed of Trust:                                                                                                                                                                                                                                          |
|   |   |   | Number                                                                                                                                                                                                                                                                                                              | Dated      as of | Reference      File | Exhibit |
|   |   |   | First                                                                                                                                                                                                                                                                                                               | March      1, 1949 | 2-7826 | 7(b) |
|   |   |   | Second                                                                                                                                                                                                                                                                                                              | July      1, 1951 | 2-9036 | 7(c) |
|   |   |   | Third                                                                                                                                                                                                                                                                                                               | March      1, 1957 | 2-13075 | 2(c) |
|   |   |   | Fourth                                                                                                                                                                                                                                                                                                              | January      1, 1968 | 2-27794 | 2(c) |
|   |   |   | Fifth                                                                                                                                                                                                                                                                                                               | April      1, 1971 | 2-39537 | 2(c) |
|   |   |   | Sixth                                                                                                                                                                                                                                                                                                               | August      1, 1975 | 2-54116 | 2(c) |
|   |   |   | Seventh                                                                                                                                                                                                                                                                                                             | September      1, 1976 | 2-57014 | 2(c) |
|   |   |   | Eighth                                                                                                                                                                                                                                                                                                              | September      1, 1977 | 2-59690 | 2(c) |
|   |   |   | Ninth                                                                                                                                                                                                                                                                                                               | April      1, 1978 | 2-60866 | 2(c) |
|   |   |   | Tenth                                                                                                                                                                                                                                                                                                               | August      1, 1978 | 2-62852 | 2(d)2 |
|   |   |   | Eleventh                                                                                                                                                                                                                                                                                                            | December      1, 1982 | 2-56649 | 4(a)3 |
|   |   |   | Twelfth                                                                                                                                                                                                                                                                                                             | April      1, 1987 | 33-30224 | 4(a)3 |
|   |   |   | Thirteenth                                                                                                                                                                                                                                                                                                          | March      1, 1992 | 33-47438 | 4(b) |
|   |   |   | Fourteenth                                                                                                                                                                                                                                                                                                          | June      1, 1992 | 33-55240 | 4(b) |
|   |   |   | Fifteenth                                                                                                                                                                                                                                                                                                           | July      1, 1992 | 33-55240 | 4(c) |
|   |   |   | Sixteenth                                                                                                                                                                                                                                                                                                           | July      1, 1992 | 33-55240 | 4(d) |
|   |   |   | Seventeenth                                                                                                                                                                                                                                                                                                         | February      1, 1993 | 33-50143 | 4(b) |
|   |   |   | Eighteenth                                                                                                                                                                                                                                                                                                          | July      1, 1993 | 33-50143 | 4(c) |
|   |   |   | Nineteenth                                                                                                                                                                                                                                                                                                          | February      1, 1997 | 1-3548      (1996 Form 10-K) | 4(a)3 |
|   |   |   | Twentieth                                                                                                                                                                                                                                                                                                           | November      1, 1997 | 1-3548      (1997 Form 10-K) | 4(a)3 |
|   |   |   | Twenty-first                                                                                                                                                                                                                                                                                                        | October      1, 2000 | 333-54330 | 4(c)3 |
|   |   |   | Twenty-second                                                                                                                                                                                                                                                                                                       | July      1, 2003 | 1-3548      (June 30, 2003 Form 10-Q) | 4 |
|   |   |   | Twenty-third                                                                                                                                                                                                                                                                                                        | August      1, 2004 | 1-3548      (Sept. 30, 2004 Form 10-Q) | 4(a) |
|   |   |   | Twenty-fourth                                                                                                                                                                                                                                                                                                       | March      1, 2005 | 1-3548      (March 31, 2005 Form 10-Q) | 4 |
|   |   |   | Twenty-fifth                                                                                                                                                                                                                                                                                                        | December      1, 2005 | 1-3548      (March 31, 2006 Form 10-Q) | 4 |
|   |   |   | Twenty-sixth                                                                                                                                                                                                                                                                                                        | October      1, 2006 | 1-3548      (2006 Form 10-K) | 4 |
|   |   |   | Twenty-seventh                                                                                                                                                                                                                                                                                                      | February      1, 2008 | 1-3548      (2007 Form 10-K) | 4(a)3 |
|   |   |   | Twenty-eighth                                                                                                                                                                                                                                                                                                       | May      1, 2008 | 1-3548      (June 30, 2008 Form 10-Q) | 4 |

----

|   | 4(a)3    | -      | Twenty-ninth      Supplemental Indenture, dated as of November 1, 2008, between ALLETE and      The Bank of New York Mellon and Douglas J. MacInnes, as      Trustees.                                                                                                                                                           |
|--------|----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 4(a)4    | -      | Thirtieth      Supplemental Indenture, dated as of January 1, 2009, between ALLETE and      The Bank of New York Mellon and Douglas J. MacInnes, as      Trustees.                                                                                                                                                               |
|   | *4(b)1   | -      | Indenture      of Trust, dated as of August 1, 2004, between the City of Cohasset,      Minnesota and U.S. Bank National Association, as Trustee relating to $111      Million Collateralized Pollution Control Refunding Revenue Bonds (filed as      Exhibit 4(b) to the September 30, 2004, Form 10-Q, File No.      1-3548). |
|   | *4(b)2   | -      | Loan      Agreement, dated as of August 1, 2004, between the City of Cohasset,      Minnesota and ALLETE relating to $111 Million Collateralized Pollution      Control Refunding Revenue Bonds (filed as Exhibit 4(c) to the September      30, 2004, Form 10-Q, File No. 1-3548).                                              |
|   | *4(c)1   | -      | Mortgage      and Deed of Trust, dated as of March 1, 1943, between Superior Water,      Light and Power Company and Chemical Bank & Trust Company and Howard      B. Smith, as Trustees, both succeeded by U.S. Bank Trust N.A., as Trustee      (filed as Exhibit 7(c), File No. 2-8668).                                  |
|   | *4(c)2   | -      | Supplemental      Indentures to Superior Water, Light and Power Company’s Mortgage and Deed      of Trust:                                                                                                                                                                                                                 |
|   |     |   | Number                                                                                                                                                                                                                                                                                                                           | Dated      as of | Reference      File | Exhibit |
|   |     |   | First                                                                                                                                                                                                                                                                                                                            | March      1, 1951 | 2-59690 | 2(d)(1) |
|   |     |   | Second                                                                                                                                                                                                                                                                                                                           | March      1, 1962 | 2-27794 | 2(d)1 |
|   |     |   | Third                                                                                                                                                                                                                                                                                                                            | July      1, 1976 | 2-57478 | 2(e)1 |
|   |     |   | Fourth                                                                                                                                                                                                                                                                                                                           | March      1, 1985 | 2-78641 | 4(b) |
|   |     |   | Fifth                                                                                                                                                                                                                                                                                                                            | December      1, 1992 | 1-3548      (1992 Form 10-K) | 4(b)1 |
|   |     |   | Sixth                                                                                                                                                                                                                                                                                                                            | March      24, 1994 | 1-3548      (1996 Form 10-K) | 4(b)1 |
|   |     |   | Seventh                                                                                                                                                                                                                                                                                                                          | November      1, 1994 | 1-3548      (1996 Form 10-K) | 4(b)2 |
|   |     |   | Eighth                                                                                                                                                                                                                                                                                                                           | January      1, 1997 | 1-3548      (1996 Form 10-K) | 4(b)3 |
|   |     |   | Ninth                                                                                                                                                                                                                                                                                                                            | October      1, 2007 | 1-3548      (2007 Form 10-K) | 4(c)3 |
|   |     |   | Tenth                                                                                                                                                                                                                                                                                                                            | October      1, 2007 | 1-3548      (2007 Form 10-K) | 4(c)4 |
|   | *4(c)3   | -      | Eleventh      Supplemental Indenture, dated as of December 1, 2008, between Superior      Water, Light and Power Company and U.S. Bank National Association, as      Trustees.                                                                                                                                                   |
|   | *4(d)    | -      | Amended      and Restated Rights Agreement, dated as of July 12, 2006, between ALLETE      and the Corporate Secretary of ALLETE, as Rights Agent (filed as Exhibit 4      to the July 14, 2006, Form 8-K, File No. 1-3548).                                                                                                     |
|   | *10(a)   | -      | Power      Purchase and Sale Agreement, dated as of May 29, 1998, between Minnesota      Power, Inc. (now ALLETE) and Square Butte Electric Cooperative (filed as      Exhibit 10 to the June 30, 1998, Form 10-Q, File No.    1-3548).                                                                                          |
|   | *10(c)   | -      | Master      Agreement (without Appendices and Exhibits), dated December 28, 2004, by      and between Rainy River Energy Corporation and Constellation Energy      Commodities Group, Inc. (filed as Exhibit 10(c) to the 2004 Form 10-K,      File No. 1-3548).                                                                 |
|   | *10(d)1  | -      | Fourth      Amended and Restated Committed Facility Letter (without Exhibits), dated      January 11, 2006, by and among ALLETE and LaSalle Bank National      Association, as Agent (filed as Exhibit 10 to the January 17, 2006, Form      8-K, File No. 1-3548).                                                              |
|   | *10(d)2  | -      | First      Amendment to Fourth Amended and Restated Committed Facility Letter dated      June 19, 2006, by and among ALLETE and LaSalle Bank National Association,      as Agent (filed as Exhibit 10(a) to the June 30, 2006, Form 10-Q,      File No. 1-3548).                                                            |
|   | 10(d)3   | -      | Second      Amendment to Fourth Amended and Restated Committed Facility Letter dated      December 14, 2006, by and among ALLETE and LaSalle Bank National      Association, as Agent.                                                                                                                                           |
|   | *10(e)1  | -      | Financing      Agreement between Collier County Industrial Development Authority and      ALLETE dated as of July 1, 2006 (filed as Exhibit 10(b)1 to the      June 30, 2006, Form 10-Q, File No. 1-3548).                                                                                                                  |
|   | *10(e)2  | -      | Letter      of Credit Agreement, dated as of July 5, 2006, among ALLETE, the      Participating Banks and Wells Fargo Bank, National Association, as      Administrative Agent and Issuing Bank (filed as Exhibit 10(b)2 to the      June 30, 2006, Form 10-Q, File No. 1-3548).                                            |
|   | *10(g)   | -      | Agreement      (without Exhibit) dated December 16, 2005, among ALLETE, Wisconsin Public      Service Corporation and WPS Investments, LLC (filed as Exhibit 10 to the      December 21, 2005 Form 8-K, File No. 1-3548).                                                                                                        |
|   | +*10(h)1 | -      | Minnesota      Power (now ALLETE) Executive Annual Incentive Plan, as amended, effective      January 1, 1999 with amendments through January 2003 (filed as Exhibit 10      to the September 30, 2003, Form 10-Q, File No. 1-3548).                                                                                             |
|   | +*10(h)2 | -      | November      2003 Amendment to the ALLETE Executive Annual Incentive Plan (filed as      Exhibit 10(t)2 to the 2003 Form 10-K, File No. 1-3548).                                                                                                                                                                                |
|   | +*10(h)3 | -      | July      2004 Amendment to the ALLETE Executive Annual Incentive Plan (filed as      Exhibit 10(a) to the June 30, 2004, Form 10-Q, File No.      1-3548).                                                                                                                                                                      |
|   | +*10(h)4 | -      | January      2007 Amendment to the ALLETE Executive Annual Incentive Plan (filed      as Exhibit 10(h)4 to the 2006 Form 10-K, File No.  1-3548).                                                                                                                                                                           |

----

|   | +*10(h)5 | - | Form      of ALLETE Executive Annual Incentive Plan 2006 Award (filed as Exhibit 10      to the February 17, 2006, Form 8-K, File No. 1-3548).                                                                                   |   |
|--------|----------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | +*10(h)6 | - | Form      of ALLETE Executive Annual Incentive Plan Awards Effective      2007 (filed as Exhibit 10(h)7 to the 2006 Form 10-K, File No.      1-3548).                                                                            |   |
|   | +*10(h)7 | - | Form      of ALLETE Executive Annual Incentive Plan Form of Awards Effective      2009.                                                                                                                                               |   |
|   | +*10(i)1 | - | ALLETE      and Affiliated Companies Supplemental Executive Retirement Plan, as      amended and restated, effective January 1, 2004 (filed as Exhibit 10(u) to      the 2003 Form 10-K, File No. 1-3548).                            |   |
|   | +*10(i)2 | - | January      2005 Amendment to the ALLETE and Affiliated Companies Supplemental      Executive Retirement Plan (filed as Exhibit 10(b) to the March 31, 2005,      Form 10-Q, File No. 1-3548).                                       |   |
|   | +*10(i)3 | - | August      2006 Amendments to the ALLETE and Affiliated Companies Supplemental      Executive Retirement Plan (filed as Exhibit 10(a) to the September 30,      2006, Form 10-Q, File No. 1-3548).                                   |   |
|   | +*10(i)4 | - | ALLETE      and Affiliated Companies Supplemental Executive Retirement Plan I (SERP      I), as amended and restated, effective January 1, 2009.                                                                                      |   |
|   | +*10(i)5 | - | ALLETE      and Affiliated Companies Supplemental Executive Retirement Plan II (SERP      II), effective January 1, 2009.                                                                                                             |   |
|   | +*10(i)6 | - | January      2009 Amendment to the ALLETE and Affiliated Companies Supplemental      Executive Retirement Plan II (SERP II), effective January 20,      2009.                                                                         |   |
|   | +*10(j)1 | - | Minnesota      Power and Affiliated Companies Executive Investment Plan I, as amended and      restated, effective November 1, 1988 (filed as Exhibit 10(c) to the 1988      Form 10-K, File No. 1-3548).                             |   |
|   | +*10(j)2 | - | Amendments      through December 2003 to the Minnesota Power and Affiliated Companies      Executive Investment Plan I (filed as Exhibit 10(v)2 to the 2003 Form      10-K, File No. 1-3548).                                         |   |
|   | +*10(j)3 | - | July      2004 Amendment to the Minnesota Power and Affiliated Companies Executive      Investment Plan I (filed as Exhibit 10(b) to the June 30, 2004, Form 10-Q,      File No. 1-3548).                                             |   |
|   | +*10(j)4 | - | August      2006 Amendment to the Minnesota Power and Affiliated Companies Executive      Investment Plan I (filed as Exhibit 10(b) to the September 30, 2006,      Form 10-Q, File No. 1-3548).                                 |   |
|   | +*10(k)1 | - | Minnesota      Power and Affiliated Companies Executive Investment Plan II, as amended      and restated, effective November 1, 1988 (filed as Exhibit 10(d) to the      1988 Form 10-K, File No. 1-3548).                            |   |
|   | +*10(k)2 | - | Amendments      through December 2003 to the Minnesota Power and Affiliated Companies      Executive Investment Plan II (filed as Exhibit 10(w)2 to the 2003 Form      10-K, File No. 1-3548).                                        |   |
|   | +*10(k)3 | - | July      2004 Amendment to the Minnesota Power and Affiliated Companies Executive      Investment Plan II (filed as Exhibit 10(c) to the June 30, 2004, Form      10-Q, File No. 1-3548).                                            |   |
|   | +*10(k)4 | - | August      2006 Amendment to the Minnesota Power and Affiliated Companies Executive      Investment Plan II (filed as Exhibit 10(c) to the September 30, 2006,      Form 10-Q, File No. 1-3548).                                |   |
|   | +*10(l)  | - | Deferred      Compensation Trust Agreement, as amended and restated, effective January      1, 1989 (filed as Exhibit 10(f) to the 1988 Form 10-K, File No.      1-3548).                                                             |   |
|   | +*10(m)1 | - | ALLETE      Executive Long-Term Incentive Compensation Plan as amended and restated      effective January 1, 2006 (filed as Exhibit 10 to the May 16,      2005, Form 8-K, File No. 1-3548).                               |   |
|   | +*10(m)2 | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan 2006      Nonqualified Stock Option Grant (filed as Exhibit 10(a)1 to the January      30, 2006, Form 8-K, File No. 1-3548).                                      |   |
|   | +*10(m)3 | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan 2006 Performance      Share Grant (filed as Exhibit 10(a)2 to the January 30, 2006, Form 8-K,      File No. 1-3548).                                              |   |
|   | +*10(m)4 | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan 2006 Long-Term      Cash Incentive Award – President of ALLETE Properties (filed as Exhibit      10(a)3 to the January 30, 2006, Form 8-K, File No.1-3548). |   |
|   | +*10(m)5 | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan 2006 Stock Grant      – President of ALLETE Properties (filed as Exhibit 10(a)4 to the January      30, 2006, Form 8-K, File No. 1-3548).                   |   |
|   | +10(m)6  | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan Nonqualified      Stock Option Grant Effective 2007 (filed as Exhibit 10(m)6 to the      2006 Form 10-K, File No. 1-3548).                                   |   |
|   | +10(m)7  | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan Performance      Share Grant Effective 2007 (filed as Exhibit 10(m)7 to the 2006 Form      10-K, File No. 1-3548).                                           |   |
|   | +10(m)8  | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan Long-Term Cash      Incentive Award Effective 2007 (filed as Exhibit 10(m)8 to the 2006      Form 10-K, File No. 1-3548).                                    |   |
|   | +10(m)9  | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan Stock Grant      Effective 2007 (filed as Exhibit 10(m)9 to the 2006 Form 10-K, File      No. 1-3548).                                                       |   |
|   | +10(m)10 | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan Performance      Share Grant Effective 2008 (filed as Exhibit 10(m)10 to the 2007 Form      10-K, File No. 1-3548).                                          |   |
|   | +10(m)11 | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan Performance      Share Grant Effective 2009.                                                                                                                      |   |

----

|   | +*10(m)12    | - | Form      of ALLETE Executive Long-Term Incentive Compensation Plan – Restricted      Stock Unit Grant Effective 2009.                                                                                                                                                                                                                                                                                                                                                  |   |
|--------|-----------------------------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | +*10(n)1                    | - | Minnesota      Power (now ALLETE) Director Stock Plan, effective January 1, 1995 (filed      as Exhibit 10 to the March 31, 1995 Form 10-Q, File No.      1-3548).                                                                                                                                                                                                                                                                                                            |   |
|   | +*10(n)2                    | - | Amendments      through December 2003 to the Minnesota Power (now ALLETE) Director Stock      Plan (filed as Exhibit 10(z)2 to the 2003 Form 10-K, File No.      1-3548).                                                                                                                                                                                                                                                                                                     |   |
|   | +*10(n)3                    | - | July      2004 Amendment to the ALLETE Director Stock Plan (filed as Exhibit 10(e)      to the June 30, 2004, Form 10-Q, File No. 1-3548).                                                                                                                                                                                                                                                                                                                                    |   |
|   | +*10(n)4                    | - | January      2007 Amendment to the ALLETE Director Stock Plan (filed as Exhibit      10(n)4 to the 2006 Form 10-K, File No. 1-3548).                                                                                                                                                                                                                                                                                                                                     |   |
|   | +*10(n)5                    | - | ALLETE      Non-Management Director Compensation Summary Effective February 15,      2007 (filed as Exhibit 10(n)6 to the 2006 Form 10-K, File No.      1-3548).                                                                                                                                                                                                                                                                                                         |   |
|   | +*10(o)1                    | - | Minnesota      Power (now ALLETE) Director Compensation Deferral Plan Amended and      Restated, effective January 1, 1990 (filed as Exhibit 10(ac) to the 2002      Form 10-K, File No. 1-3548).                                                                                                                                                                                                                                                                             |   |
|   | +*10(o)2                    | - | October      2003 Amendment to the Minnesota Power (now ALLETE) Director Compensation      Deferral Plan (filed as Exhibit 10(aa)2 to the 2003 Form 10-K, File No.      1-3548).                                                                                                                                                                                                                                                                                              |   |
|   | +*10(o)3                    | - | January      2005 Amendment to the ALLETE Director Compensation Deferral Plan (filed as      Exhibit 10(c) to the March 31, 2005, Form 10-Q, File No.      1-3548).                                                                                                                                                                                                                                                                                                           |   |
|   | +*10(o)4                    | - | August      2006 Amendment to the ALLETE Director Compensation Deferral Plan (filed as      Exhibit 10(d) to the September 30, 2006, Form 10-Q, File No.      1-3548).                                                                                                                                                                                                                                                                                                        |   |
|   | +*10(o)5                    | - | ALLETE      Non-Employee Director Compensation Deferral Plan II, effective January 1,      2009.                                                                                                                                                                                                                                                                                                                                                                              |   |
|   | +*10(p)                     | - | ALLETE      Director Compensation Trust Agreement, effective October 11, 2004 (filed      as Exhibit 10(a) to the September 30, 2004, Form 10-Q, File No.      1-3548).                                                                                                                                                                                                                                                                                                       |   |
|   | +*10(q)                     | - | ALLETE      Change of Control Severance Pay Plan Effective February 13,      2008 (filed as Exhibit 10(q) to the 2007 Form 10-K, File No.      1-3548).                                                                                                                                                                                                                                                                                                                  |   |
|   | 12                          | - | Computation      of Ratios of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                                                                                      |   |
|   | 21                          | - | Subsidiaries      of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |
|   | 23(a)                       | - | Consent      of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|   | 23(b)                       | - | Consent      of General Counsel.                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
|   | 31(a)                       | - | Rule      13a-14(a)/15d-14(a) Certification by the Chief Executive Officer Pursuant      to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                    |   |
|   | 31(b)                       | - | Rule      13a-14(a)/15d-14(a) Certification by the Chief Financial Officer Pursuant      to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                    |   |
|   | 32                          | - | Section      1350 Certification of Annual Report by the Chief Executive Officer and      Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act      of 2002.                                                                                                                                                                                                                                                                                              |   |
|   | 99                          | - | ALLETE      News Release dated February 13, 2009, announcing earnings for the year      ended December 31, 2008.      (This exhibit has been furnished and shall not be deemed “filed” for      purposes of Section 18 of the Securities Exchange Act of 1934, nor      shall it be deemed incorporated by reference in any filing under the      Securities Act of 1933, except as shall be expressly set forth by specific      reference in such filing.) |   |

| * | Incorporated      herein by reference as indicated.                                                                                                       |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| + | Management      contract or compensatory plan or arrangement required to be filed as an      exhibit to this report pursuant to Item 15(b) of Form  10-K. |

----

|                          | ALLETE,      Inc.                                   |
|-------------------------------|-----------------------------------------------------|
|                          |
|                          |
| Dated:      February 13, 2009 | By                                                  | /s/      Donald J. Shippar |
|                          | Donald      J. Shippar                              |
|                          | Chairman,      President and Chief ExecutiveOfficer |

| Signature                 |   | Title                                                  |   | Date                   |
|---------------------------|--------|--------------------------------------------------------|--------|------------------------|
|                      |   |                                                   |   |                   |
|                      |   |                                                   |   |                   |
| Donald      J. Shippar    |   | Chairman,      President, Chief Executive Officer      |   | February      13, 2009 |
| Donald      J. Shippar    |   | and      Director(Principal      Executive Officer)    |   |                   |
|                      |   |                                                   |   |                   |
| Mark      A. Schober      |   | Senior      Vice President and Chief Financial Officer |   | February      13, 2009 |
| Mark      A. Schober      |   | (Principal      Financial Officer)                     |   |                   |
|                      |   |                                                   |   |                   |
| Steven      Q. DeVinck    |   | Controller                                             |   | February      13, 2009 |
| Steven      Q. DeVinck    |   | (Principal      Accounting Officer)                    |   |                   |
|                      |   |                                                   |   |                   |
| Kathleen      A. Brekken  |   | Director                                               |   | February      13, 2009 |
| Kathleen      A. Brekken  |   |                                                   |   |                   |
|                      |   |                                                   |   |                   |
| Heidi      J. Eddins      |   | Director                                               |   | February      13, 2009 |
| Heidi      J. Eddins      |   |                                                   |   |                   |
|                      |   |                                                   |   |                   |
| Sidney      W. Emery, Jr. |   | Director                                               |   | February      13, 2009 |
| Sidney      W. Emery, Jr. |   |                                                   |   |                   |
|                      |   |                                                   |   |                   |
| James      J. Hoolihan    |   | Director                                               |   | February      13, 2009 |
| James      J. Hoolihan    |   |                                                   |   |                   |
|                      |   |                                                   |   |                   |
| Madeleine      W. Ludlow  |   | Director                                               |   | February      13, 2009 |
| Madeleine      W. Ludlow  |   |                                                   |   |                   |
|                      |   |                                                   |   |                   |
| George      L. Mayer      |   | Director                                               |   | February      13, 2009 |
| George      L. Mayer      |   |                                                   |   |                   |
|                      |   |                                                   |   |                   |
| Douglas      C. Neve      |   | Director                                               |   | February      13, 2009 |
| Douglas      C. Neve      |   |                                                   |   |                   |
|                      |   |                                                   |   |                   |
| Jack      I. Rajala       |   | Director                                               |   | February      13, 2009 |
| Jack      I. Rajala       |   |                                                   |   |                   |
|                      |   |                                                   |   |                   |
| Bruce      W. Stender     |   | Director                                               |   | February      13, 2009 |
| Bruce      W. Stender     |   |                                                   |   |                   |

----

----

| December      31                                            |             2008 |             2007 |
|-------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|
| Millions                                                    |                                                                         |                                                                         |
|                                                        |                                                                         |                                                                         |
| Assets                                                      |                                                                         |                                                                         |
| Current      Assets                                         |                                                                         |                                                                         |
| Cash      and Cash Equivalents                              | $102.0                                                                       | $23.3                                                                        |
| Short-Term      Investments                                 | –                                                                      | 23.1                                                                         |
| Accounts      Receivable (Less Allowance of $0.7 and $1.0)  | 76.3                                                                         | 79.5                                                                         |
| Inventories                                                 | 49.7                                                                         | 49.5                                                                         |
| Prepayments      and Other                                  | 24.3                                                                         | 39.1                                                                         |
| Total      Current Assets                                   | 252.3                                                                        | 214.5                                                                        |
| Property,      Plant and Equipment – Net              | 1,387.3                                                                      | 1,104.5                                                                      |
| Investment      in ATC                                      | 76.9                                                                         | 65.7                                                                         |
| Other      Investments                                      | 136.9                                                                        | 148.1                                                                        |
| Other      Assets                                           | 281.4                                                                        | 111.4                                                                        |
| Total      Assets                                           | $2,134.8                                                                     | $1,644.2                                                                     |
|                                                        |                                                                         |                                                                         |
| Liabilities      and Shareholders’ Equity             |                                                                         |                                                                         |
| Liabilities                                                 |                                                                         |                                                                         |
| Current      Liabilities                                    |                                                                         |                                                                         |
| Accounts      Payable                                       | $75.7                                                                        | $72.7                                                                        |
| Accrued      Taxes                                          | 12.9                                                                         | 14.8                                                                         |
| Accrued      Interest                                       | 8.9                                                                          | 7.8                                                                          |
| Long-Term      Debt Due Within One Year                     | 10.4                                                                         | 11.8                                                                         |
| Deferred      Profit on Sales of Real Estate                | –                                                                      | 2.7                                                                          |
| Notes      Payable                                          | 6.0                                                                          | –                                                                      |
| Other                                                       | 36.8                                                                         | 27.3                                                                         |
| Total      Current Liabilities                              | 150.7                                                                        | 137.1                                                                        |
| Long-Term      Debt                                         | 588.3                                                                        | 410.9                                                                        |
| Deferred      Income Taxes                                  | 169.6                                                                        | 144.2                                                                        |
| Other      Liabilities                                      | 389.3                                                                        | 200.1                                                                        |
| Minority      Interest                                      | 9.8                                                                          | 9.3                                                                          |
| Total      Liabilities                                      | 1,307.7                                                                      | 901.6                                                                        |
|                                                        |                                                                         |                                                                         |
| Commitments      and Contingencies                          |                                                                         |                                                                         |
|                                                        |                                                                         |                                                                         |
| Shareholders’      Equity                             |                                                                         |                                                                         |
| Common      Stock Without Par Value, 43.3 Shares Authorized |                                                                         |                                                                         |
| 32.6      and 30.8 Shares Outstanding                       | 534.1                                                                        | 461.2                                                                        |
| Unearned      ESOP Shares                                   | (54.9)                                                                       | (64.5)                                                                       |
| Accumulated      Other Comprehensive Loss                   | (33.0)                                                                       | (4.5)                                                                        |
| Retained      Earnings                                      | 380.9                                                                        | 350.4                                                                        |
| Total      Shareholders’ Equity                       | 827.1                                                                        | 742.6                                                                        |
| Total      Liabilities and Shareholders’ Equity       | $2,134.8                                                                     | $1,644.2                                                                     |

----

| For      the Year Ended December 31                       | 2008    | 2007    | 2006   |
|-----------------------------------------------------------|---------|---------|--------|
| Millions      Except Per Share Amounts                    |    |    |   |
|                                                      |    |    |   |
| Operating      Revenue                                    | $801.0  | $841.7  | $767.1 |
| Operating      Expenses                                   |    |    |   |
| Fuel      and Purchased Power                             | 305.6   | 347.6   | 281.7  |
| Operating      and Maintenance                            | 318.1   | 313.9   | 298.4  |
| Depreciation                                              | 55.5    | 48.5    | 48.7   |
| Total      Operating Expenses                             | 679.2   | 710.0   | 628.8  |
| Operating      Income from Continuing Operations          | 121.8   | 131.7   | 138.3  |
| Other      Income (Expense)                               |    |    |   |
| Interest      Expense                                     | (26.3)  | (22.6)  | (25.0) |
| Equity      Earnings in ATC                               | 15.3    | 12.6    | 3.0    |
| Other                                                     | 15.6    | 15.5    | 11.9   |
| Total      Other Income (Expense)                         | 4.6     | 5.5     | (10.1) |
| Income      from Continuing Operations Before Minority    |    |    |   |
| Interest      and Income Taxes                            | 126.4   | 137.2   | 128.2  |
| Income      Tax Expense                                   | 43.4    | 47.7    | 46.3   |
| Minority      Interest                                    | 0.5     | 1.9     | 4.6    |
| Income      from Continuing Operations                    | 82.5    | 87.6    | 77.3   |
| Loss      from Discontinued Operations – Net of Tax | – | – | (0.9)  |
| Net      Income                                           | $82.5   | $87.6   | $76.4  |
|                                                      |    |    |   |
| Average      Shares of Common Stock                       |    |    |   |
| Basic                                                     | 29.2    | 28.3    | 27.8   |
| Diluted                                                   | 29.3    | 28.4    | 27.9   |
|                                                      |    |    |   |
| Basic      Earnings (Loss) Per Share of Common Stock      |    |    |   |
| Continuing      Operations                                | $2.82   | $3.09   | $2.78  |
| Discontinued      Operations                              | – | – | (0.03) |
|                                                      | $2.82   | $3.09   | $2.75  |
| Diluted      Earnings (Loss) Per Share of Common Stock    |    |    |   |
| Continuing      Operations                                | $2.82   | $3.08   | $2.77  |
| Discontinued      Operations                              | – | – | (0.03) |
|                                                      | $2.82   | $3.08   | $2.74  |
|                                                      |    |    |   |
| Dividends      Per Share of Common Stock                  | $1.72   | $1.64   | $1.45  |

----

| For      the Year Ended December 31                                       |             2008 |             2007 |             2006 |
|---------------------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|
| Millions                                                                  |                                                                         |                                                                         |                                                                         |
|                                                                      |                                                                         |                                                                         |                                                                         |
| Operating      Activities                                                 |                                                                         |                                                                         |                                                                         |
| Net      Income                                                           | $82.5                                                                        | $87.6                                                                        | $76.4                                                                        |
| Loss      from Discontinued Operations                                    | –                                                                      | –                                                                      | 0.9                                                                          |
| Allowance      for Funds Used During Construction                         | (3.3)                                                                        | (3.8)                                                                        | (0.5)                                                                        |
| Income      from Equity Investments, Net of Dividends                     | (3.1)                                                                        | (2.7)                                                                        | (1.8)                                                                        |
| Gain      on Sale of Assets                                               | (4.8)                                                                        | (2.2)                                                                        | –                                                                      |
| Gain      on Sale of Available-for-sale Securities                        | (6.4)                                                                        | –                                                                      | –                                                                      |
| Loss      on Impairment of Investments                                    | –                                                                      | 0.3                                                                          | –                                                                      |
| Depreciation      Expense                                                 | 55.5                                                                         | 48.5                                                                         | 48.7                                                                         |
| Deferred      Income Tax Expense                                          | 38.8                                                                         | 14.0                                                                         | 27.8                                                                         |
| Minority      Interest                                                    | 0.5                                                                          | 1.9                                                                          | 4.6                                                                          |
| Stock      Compensation Expense                                           | 1.8                                                                          | 2.0                                                                          | 1.8                                                                          |
| Bad      Debt Expense                                                     | 0.7                                                                          | 1.0                                                                          | 0.7                                                                          |
| Changes      in Operating Assets and Liabilities                          |                                                                         |                                                                         |                                                                         |
| Accounts      Receivable                                                  | 2.4                                                                          | (6.6)                                                                        | 7.5                                                                          |
| Inventories                                                               | (0.2)                                                                        | (6.1)                                                                        | (10.3)                                                                       |
| Prepayments      and Other                                                | 11.2                                                                         | (11.7)                                                                       | (2.3)                                                                        |
| Accounts      Payable                                                     | (14.1)                                                                       | 9.4                                                                          | 5.1                                                                          |
| Other      Current Liabilities                                            | 5.9                                                                          | (10.0)                                                                       | 0.2                                                                          |
| Other      Assets                                                         | (2.5)                                                                        | 0.8                                                                          | (4.3)                                                                        |
| Other      Liabilities                                                    | (12.8)                                                                       | 0.7                                                                          | 1.0                                                                          |
| Net      Operating Activities for Discontinued Operations                 | –                                                                      | –                                                                      | (13.5)                                                                       |
| Cash      from Operating Activities                                       | 152.1                                                                        | 123.1                                                                        | 142.0                                                                        |
| Investing      Activities                                                 |                                                                         |                                                                         |                                                                         |
| Proceeds      from Sale of Available-for-sale Securities                  | 62.3                                                                         | 449.7                                                                        | 608.8                                                                        |
| Payments      for Purchase of Available-for-sale Securities               | (44.8)                                                                       | (368.3)                                                                      | (596.4)                                                                      |
| Investment      in ATC                                                    | (7.4)                                                                        | (8.7)                                                                        | (51.4)                                                                       |
| Changes      to Investments                                               | (0.1)                                                                        | (10.9)                                                                       | (0.6)                                                                        |
| Additions      to Property, Plant and Equipment                           | (301.1)                                                                      | (210.2)                                                                      | (101.8)                                                                      |
| Proceeds      from Sale of Assets                                         | 20.4                                                                         | 1.5                                                                          | –                                                                      |
| Other                                                                     | (5.4)                                                                        | (7.2)                                                                        | (15.0)                                                                       |
| Net      Investing Activities from Discontinued Operations                | –                                                                      | –                                                                      | 2.2                                                                          |
| Cash      for Investing Activities                                        | (276.1)                                                                      | (154.1)                                                                      | (154.2)                                                                      |
| Financing      Activities                                                 |                                                                         |                                                                         |                                                                         |
| Issuance      of Common Stock                                             | 71.1                                                                         | 20.6                                                                         | 15.8                                                                         |
| Issuance      of Long-Term Debt                                           | 198.7                                                                        | 123.9                                                                        | 77.8                                                                         |
| Issuance      of Notes Payable                                            | 6.0                                                                          | –                                                                      | –                                                                      |
| Reductions      of Long-Term Debt                                         | (22.7)                                                                       | (90.7)                                                                       | (78.9)                                                                       |
| Dividends      on Common Stock and Distributions to Minority Shareholders | (50.4)                                                                       | (44.3)                                                                       | (43.9)                                                                       |
| Net      Decrease in Book Overdrafts                                      | –                                                                      | –                                                                      | (3.4)                                                                        |
| Cash      from (for) Financing Activities                                 | 202.7                                                                        | 9.5                                                                          | (32.6)                                                                       |
| Change      in Cash and Cash Equivalents                                  | 78.7                                                                         | (21.5)                                                                       | (44.8)                                                                       |
| Cash      and Cash Equivalents at Beginning of Period                     | 23.3                                                                         | 44.8                                                                         | 89.6                                                                         |
| Cash      and Cash Equivalents at End of Period                           | $102.0                                                                       | $23.3                                                                        | $44.8                                                                        |

----

|                                                           |                |     | Accumulated        |     |   |
|----------------------------------------------------------------|---------------------|----------|--------------------|----------|--------|
|                                                           | Total               |     | Other              | Unearned |   |
|                                                           | Shareholders’ | Retained | Comprehensive      | ESOP     | Common |
|                                                           | Equity              | Earnings | Income      (Loss) | Shares   | Stock  |
| Millions                                                       |                |     |               |     |   |
| Balance      at December 31, 2005                              | $602.8              | $272.1   | $(12.8)            | $(77.6)  | $421.1 |
|                                                           |                |     |               |     |   |
| Comprehensive      Income                                      |                |     |               |     |   |
| Net      Income                                                | 76.4                | 76.4     |               |     |   |
| Other      Comprehensive Income – Net of Tax             |                |     |               |     |   |
| Unrealized      Gains on Securities – Net                | 1.9                 |     | 1.9                |     |   |
| Additional      Pension Liability                              | 6.4                 |     | 6.4                |     |   |
| Total      Comprehensive Income                                | 84.7                |     |               |     |   |
| Adjustment      to initially apply SFAS 158 – Net of Tax | (4.3)               |     | (4.3)              |     |   |
| Common      Stock Issued – Net                           | 17.6                |     |               |     | 17.6   |
| Dividends      Declared                                        | (40.7)              | (40.7)   |               |     |   |
| ESOP      Shares Earned                                        | 5.7                 |     |               | 5.7      |   |
| Balance      at December 31, 2006                              | 665.8               | 307.8    | (8.8)              | (71.9)   | 438.7  |
|                                                           |                |     |               |     |   |
| Comprehensive      Income                                      |                |     |               |     |   |
| Net      Income                                                | 87.6                | 87.6     |               |     |   |
| Other      Comprehensive Income – Net of Tax             |                |     |               |     |   |
| Unrealized      Gains on Securities – Net                | 1.1                 |     | 1.1                |     |   |
| Defined      Benefit Pension and Other Postretirement Plans    | 3.2                 |     | 3.2                |     |   |
| Total      Comprehensive Income                                | 91.9                |     |               |     |   |
| Adjustment      to initially apply FIN 48                      | (0.7)               | (0.7)    |               |     |   |
| Common      Stock Issued – Net                           | 22.5                |     |               |     | 22.5   |
| Dividends      Declared                                        | (44.3)              | (44.3)   |               |     |   |
| ESOP      Shares Earned                                        | 7.4                 |     |               | 7.4      |   |
| Balance      at December 31, 2007                              | 742.6               | 350.4    | (4.5)              | (64.5)   | 461.2  |
|                                                           |                |     |               |     |   |
| Comprehensive      Income                                      |                |     |               |     |   |
| Net      Income                                                | 82.5                | 82.5     |               |     |   |
| Other      Comprehensive Income – Net of Tax             |                |     |               |     |   |
| Unrealized      Loss on Securities – Net                 | (6.0)               |     | (6.0)              |     |   |
| Reclassification      Adjustment for Gains Included in Income  | (3.7)               |     | (3.7)              |     |   |
| Defined      Benefit Pension and Other Postretirement Plans    | (18.8)              |     | (18.8)             |     |   |
| Total      Comprehensive Income                                | 54.0                |     |               |     |   |
| Adjustment      to initially apply FAS 158 measurement date    | (1.6)               | (1.6)    |               |     |   |
| Common      Stock Issued – Net                           | 72.9                |     |               |     | 72.9   |
| Dividends      Declared                                        | (50.4)              | (50.4)   |               |     |   |
| ESOP      Shares Earned                                        | 9.6                 |     |               | 9.6      |   |
| Balance      at December 31, 2008                              | $827.1              | $380.9   | $(33.0)            | $(54.9)  | $534.1 |

----

----

| Accounts      Receivable                   |                                                                         |
|--------------------------------------------|------------------------------------------------------------------------------|
| December      31                           |             2008 |         2007 |
| Millions                                   |                                                                         |   |
|                                       |                                                                         |   |
| Trade      Accounts Receivable             |                                                                         |   |
| Billed                                     | $61.1                                                                        | $63.9 |
| Unbilled                                   | 15.9                                                                         | 16.6 |
| Less:      Allowance for Doubtful Accounts | 0.7                                                                          | 1.0 |
| Total      Accounts Receivable – Net | $76.3                                                                        | $79.5 |

----

| Inventories                 |                                                                         |
|-----------------------------|------------------------------------------------------------------------------|
| December      31            |             2008 |             2007 |
| Millions                    |                                                                         |   |
|                        |                                                                         |   |
| Fuel                        | $16.6                                                                        | $22.1 |
| Materials      and Supplies | 33.1                                                                         | 27.4 |
| Total      Inventories      | $49.7                                                                        | $49.5 |

| Consolidated      Statement of Cash Flows                                       |                                                 |
|---------------------------------------------------------------------------------|------------------------------------------------------|
| Supplemental      Disclosure                                                    |                                                 |
| For      the Year Ended December 31                                             |         2008 |         2007 |         2006 |
| Millions                                                                        |                                                 |   |   |
|                                                                            |                                                 |   |   |
| Cash      Paid During the Period for                                            |                                                 |   |   |
| Interest      – Net of Amounts Capitalized                                | $25.2                                                | $26.3 | $25.3 |
| Income      Taxes                                                               | $6.5                                                 | $34.2 | $32.4      (a) |
|                                                                            |                                                 |   |   |
| Noncash      Investing Activities                                               |                                                 |   |   |
| Accounts      Payable for Capital Additions to Property, Plant and    Equipment | $17.1                                                | $9.8 | $7.1 |
| AFUDC      – Equity                                                       | $3.3                                                 | $3.8 | $0.5 |

| (a) | Net      of a $24.3 million cash refund. |
|-----|------------------------------------------|

----

| Prepayments      and Other Current Assets       |                                                 |                                                 |
|-------------------------------------------------|------------------------------------------------------|------------------------------------------------------|
| December      31                                |         2008 |         2007 |
| Millions                                        |                                                 |                                                 |
| Deferred      Fuel Adjustment Clause            | $13.1                                                | $26.5                                                |
| Other                                           | 11.2                                                 | 12.6                                                 |
| Total      Prepayments and Other Current Assets | $24.3                                                | $39.1                                                |

| Other      Assets                                                                                |                                                 |                                                 |
|--------------------------------------------------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|
| December      31                                                                                 |         2008 |         2007 |
| Millions                                                                                         |                                                 |                                                 |
| Deferred      Regulatory Assets (See Note 5. Regulatory Matters)                                 | $249.3                                               | $76.6                                                |
| Other                                                                                            | 32.1                                                 | 34.8                                                 |
| Total      Other Assets                                                                          | $281.4                                               | $111.4                                               |
|                                                                                             |                                                 |                                                 |
| Other      Liabilities                                                                           |                                                 |                                                 |
| December      31                                                                                 |         2008 |         2007 |
| Millions                                                                                         |                                                 |                                                 |
| Future      Benefit Obligation Under Defined Benefit Pension and Other Postretirement      Plans | $251.8                                               | $71.6                                                |
| Deferred      Regulatory Liabilities (See Note 5. Regulatory Matters)                            | 50.0                                                 | 31.3                                                 |
| Asset      Retirement Obligation (See Note 3. Property, Plant and      Equipment)                | 39.5                                                 | 36.5                                                 |
| Other                                                                                            | 48.0                                                 | 60.7                                                 |
| Total      Other Liabilities                                                                     | $389.3                                               | $200.1                                               |

----

----

|                                                                                  |             Regulated    |         Investments                        |
|---------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|
|                                                                                  |             Consolidated |             Operations |         and      Other |
| Millions                                                                              |                                                                                 |                                                                               |   |
| 2008                                                                                  |                                                                                 |                                                                               |   |
| Operating      Revenue                                                                | $801.0                                                                               | $712.2                                                                             | $88.8 |
| Fuel      and Purchased Power                                                         | 305.6                                                                                | 305.6                                                                              | – |
| Operating      and Maintenance                                                        | 318.1                                                                                | 239.3                                                                              | 78.8 |
| Depreciation      Expense                                                             | 55.5                                                                                 | 50.7                                                                               | 4.8 |
| Operating      Income from Continuing Operations                                      | 121.8                                                                                | 116.6                                                                              | 5.2 |
| Interest      Expense                                                                 | (26.3)                                                                               | (24.0)                                                                             | (2.3) |
| Equity      Earnings in ATC                                                           | 15.3                                                                                 | 15.3                                                                               | – |
| Other      Income                                                                     | 15.6                                                                                 | 3.6                                                                                | 12.0 |
| Income      from Continuing Operations Before Minority Interest and Income      Taxes | 126.4                                                                                | 111.5                                                                              | 14.9 |
| Income      Tax Expense (Benefit)                                                     | 43.4                                                                                 | 43.6                                                                               | (0.2) |
| Minority      Interest                                                                | 0.5                                                                                  | –                                                                            | 0.5 |
| Net      Income                                                                       | $82.5                                                                                | $67.9                                                                              | $14.6 |
|                                                                                  |                                                                                 |                                                                               |   |
| Total      Assets                                                                     | $2,134.8                                                                             | $1,832.1                                                                           | $302.7 |
| Capital      Additions                                                                | $322.9                                                                               | $317.0                                                                             | $5.9 |

----

| Note      2. | Business      Segments (Continued) |
|--------------|------------------------------------|

|                                                                                  |                                                                                 |             Regulated  |             Investments    |
|---------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|
|                                                                                  |             Consolidated |             Operations |             and      Other |
| Millions                                                                              |                                                                                 |                                                                               |                                                                                   |
| 2007                                                                                  |                                                                                 |                                                                               |                                                                                   |
| Operating      Revenue                                                                | $841.7                                                                               | $723.8                                                                             | $117.9                                                                                 |
| Fuel      and Purchased Power                                                         | 347.6                                                                                | 347.6                                                                              | –                                                                                |
| Operating      and Maintenance                                                        | 313.9                                                                                | 229.3                                                                              | 84.6                                                                                   |
| Depreciation      Expense                                                             | 48.5                                                                                 | 43.8                                                                               | 4.7                                                                                    |
| Operating      Income from Continuing Operations                                      | 131.7                                                                                | 103.1                                                                              | 28.6                                                                                   |
| Interest      Expense                                                                 | (22.6)                                                                               | (21.0)                                                                             | (1.6)                                                                                  |
| Equity      Earnings in ATC                                                           | 12.6                                                                                 | 12.6                                                                               | –                                                                                |
| Other      Income                                                                     | 15.5                                                                                 | 4.1                                                                                | 11.4                                                                                   |
| Income      from Continuing Operations Before Minority Interest and Income      Taxes | 137.2                                                                                | 98.8                                                                               | 38.4                                                                                   |
| Income      Tax Expense                                                               | 47.7                                                                                 | 36.4                                                                               | 11.3                                                                                   |
| Minority      Interest                                                                | 1.9                                                                                  | –                                                                            | 1.9                                                                                    |
| Net      Income                                                                       | $87.6                                                                                | $62.4                                                                              | $25.2                                                                                  |
|                                                                                  |                                                                                 |                                                                               |                                                                                   |
| Total      Assets                                                                     | $1,644.2                                                                             | $1,396.6                                                                           | $247.6                                                                                 |
| Capital      Additions                                                                | $223.9                                                                               | $220.6                                                                             | $3.3                                                                                   |

|                                                                                  |         | Regulated  | Investments    |
|---------------------------------------------------------------------------------------|--------------|------------|----------------|
|                                                                                  | Consolidated | Operations | and      Other |
| Millions                                                                              |         |       |           |
| 2006                                                                                  |         |       |           |
| Operating      Revenue                                                                | $767.1       | $639.2     | $127.9         |
| Fuel      and Purchased Power                                                         | 281.7        | 281.7      | –        |
| Operating      and Maintenance                                                        | 298.4        | 217.9      | 80.5           |
| Depreciation      Expense                                                             | 48.7         | 44.2       | 4.5            |
| Operating      Income from Continuing Operations                                      | 138.3        | 95.4       | 42.9           |
| Interest      Expense                                                                 | (25.0)       | (20.2)     | (4.8)          |
| Equity      Earnings in ATC                                                           | 3.0          | 3.0        | –        |
| Other      Income                                                                     | 11.9         | 0.9        | 11.0           |
| Income      from Continuing Operations Before Minority Interest and Income      Taxes | 128.2        | 79.1       | 49.1           |
| Income      Tax Expense                                                               | 46.3         | 30.4       | 15.9           |
| Minority      Interest                                                                | 4.6          | –    | 4.6            |
| Income      from Continuing Operations                                                | 77.3         | $48.7      | $28.6          |
| Loss      from Discontinued Operations – Net of Tax                             | (0.9)        |       |           |
| Net      Income                                                                       | $76.4        |       |           |
|                                                                                  |         |       |           |
| Total      Assets                                                                     | $1,533.4     | $1,197.0   | $336.4         |
| Capital      Additions                                                                | $109.4       | $107.5     | $1.9           |

----

| Property,      Plant and Equipment                     |     |     |
|--------------------------------------------------------|----------|----------|
| December      31                                       | 2008     | 2007     |
| Millions                                               |     |     |
| Regulated      Utility                                 | $1,837.2 | $1,683.0 |
| Construction      Work in Progress                     | 303.0    | 165.8    |
| Accumulated      Depreciation                          | (806.8)  | (796.8)  |
| Regulated      Utility Plant – Net               | 1,333.4  | 1,052.0  |
| Non-Rate      Base Energy Operations                   | 94.0     | 89.9     |
| Construction      Work in Progress                     | 3.9      | 2.5      |
| Accumulated      Depreciation                          | (47.2)   | (43.2)   |
| Non-Rate      Base Energy Operations Plant – Net | 50.7     | 49.2     |
| Other      Plant – Net                           | 3.2      | 3.3      |
| Property,      Plant and Equipment – Net         | $1,387.3 | $1,104.5 |

| Estimated      Useful Lives of Property, Plant and Equipment |
|--------------------------------------------------------------|
|                                                         |   |   |   |   |
| Regulated      Utility –                               | Generation | 3      to 35 years | Non-Rate Base      Operations | 3      to 61 years |
|                                                         | Transmission | 42      to 61 years | Other      Plant | 5      to 25 years |
|                                                         | Distribution | 14      to 65 years |   |   |

| Asset      Retirement Obligation             |   |
|----------------------------------------------|--------|
| Millions                                     |   |
| Obligation      at December 31, 2006         | $27.2  |
| Accretion      Expense                       | 2.1    |
| Additional      Liabilities Incurred in 2007 | 7.2    |
| Obligation      at December 31, 2007         | 36.5   |
| Accretion      Expense                       | 2.0    |
| Additional      Liabilities Incurred in 2008 | 1.0    |
| Obligation      at December 31, 2008         | $39.5  |

| Note      4. | Jointly-Owned      Electric Facility |
|--------------|--------------------------------------|

----

| Note      5. | Regulatory      Matters |
|--------------|-------------------------|

| Deferred      Regulatory Assets and Liabilities                                                                                |   |    |
|--------------------------------------------------------------------------------------------------------------------------------|--------|---------|
| December      31                                                                                                               | 2008   | 2007    |
| Millions                                                                                                                       |   |    |
|                                                                                                                           |   |    |
| Regulatory      Assets                                                                                                         |   |    |
| Income      Taxes                                                                                                              | $12.2  | $11.3   |
| Premium      on Reacquired Debt                                                                                                | 2.2    | 2.3     |
| Future      Benefit Obligations Under                                                                                          |   |    |
| Defined      Benefit Pension and Other Postretirement Plans (See Note 14. Pension and      Other Postretirement Benefit Plans) | 216.5  | 53.7    |
| Deferred      MISO Costs                                                                                                       | 3.9    | 3.7     |
| Asset      Retirement Obligation                                                                                               | 5.1    | 3.6     |
| Boswell      Unit 3 Environmental Rider                                                                                        | 3.8    | – |
| Other                                                                                                                          | 5.6    | 2.0     |
|                                                                                                                           | 249.3  | 76.6    |
| Regulatory      Liabilities                                                                                                    |   |    |
| Income      Taxes                                                                                                              | 28.7   | 31.3    |
| Plant      Removal Obligations                                                                                                 | 15.9   | – |
| Accrued      MISO Refund                                                                                                       | 4.7    | – |
| Other                                                                                                                          | 0.7    | – |
|                                                                                                                           | 50.0   | 31.3    |
| Net      Deferred Regulatory Assets                                                                                            | $199.3 | $45.3   |

----

| ALLETE’s      Interest in ATC      |   |   |
|------------------------------------------|--------|--------|
| Year      Ended December 31              | 2008   | 2007   |
| Millions                                 |   |   |
| Equity      Investment Beginning Balance | $65.7  | $53.7  |
| Cash      Investments                    | 7.4    | 8.7    |
| Equity      in ATC Earnings              | 15.3   | 12.6   |
| Distributed      ATC Earnings            | (11.5) | (9.3)  |
| Equity      Investment Ending Balance    | $76.9  | $65.7  |

| Note      6. | Investments |
|--------------|-------------|

| Investments                        |   |   |
|------------------------------------|--------|--------|
| December      31                   | 2008   | 2007   |
| Millions                           |   |   |
| ALLETE      Properties             | $84.9  | $91.3  |
| Available-for-sale      Securities | 32.6   | 30.5   |
| Emerging      Technology Portfolio | 7.4    | 7.9    |
| Other                              | 12.0   | 18.4   |
| Total      Investments             | $136.9 | $148.1 |

|                                                        |   |   |
|-------------------------------------------------------------|--------|--------|
| ALLETE      Properties                                      | 2008   | 2007   |
| Millions                                                    |   |   |
| Land      Held for Sale Beginning Balance                   | $62.6  | $58.0  |
| Additions      during period: Capitalized Improvements | 10.5   | 12.8   |
| Deductions      during period: Cost of Real Estate Sold     | (1.9)  | (8.2)  |
| Land      Held for Sale Ending Balance                      | 71.2   | 62.6   |
| Long-Term      Finance Receivables                          | 13.6   | 15.3   |
| Other (a)                                                   | 0.1    | 13.4   |
| Total      Real Estate Assets                               | $84.9  | $91.3  |

| (a) | Consisted      primarily of a shopping center that was sold on May 1, 2008. The pre-tax      gain of $4.5 million resulting from this sale is included in operating      revenue on the Consolidated Statement ofIncome. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Available-For-Sale      Securities |
|------------------------------------|
| Millions                           |   |   |   |
|                               |   | Gross      Unrealized |   |
| At December 31           | Cost | Gain | (Loss) | Fair      Value |
|                               |   |   |   |   |
| 2008                               | $40.5 | – | $(7.9) | $32.6 |
| 2007(a)                            | $45.3 | $8.4 | $(0.1) | $53.6 |
| 2006                               | $123.2 | $7.0 | $(0.1) | $130.1 |

| (a) | Included      $23.1 million of auction rate securities that were classified as      Short-Term Investments and were subsequently reclassified in 2008 as      Investments. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|             |                                                     |                                                                         |     Net      Unrealized            |
|------------------|----------------------------------------------------------|------------------------------------------------------------------------------|--------------------------------------------------------|
|             |                                                     |                                                                         |     Gain      (Loss)               |
|             |                                                     |                                                                         |     in      Other                  |
| Year      Ended  |         Net      | Gross      Realized                                                          |     Comprehensive                  |
| December      31 |         Proceeds |             Gain |         (Loss) |     Income |
|             |                                                     |                                                                         |                                                   |   |
| 2008             | $17.5                                                    | $6.5                                                                         | $(0.1)                                                 | $(9.7) |
| 2007             | $81.4                                                    | –                                                                      | –                                                | $1.4 |
| 2006             | $12.4                                                    | –                                                                      | –                                                | $2.5 |

----

| Financial      Instruments                     |                                         |                                                            |
|------------------------------------------------|----------------------------------------------|-----------------------------------------------------------------|
| December      31                               |     Carrying      Amount |         Fair      Value |
| Millions                                       |                                         |                                                            |
| Long-Term      Debt, Including Current Portion |                                         |                                                            |
| 2008                                           | $598.7                                       | $561.6                                                          |
| 2007                                           | $422.7                                       | $410.9                                                          |

----

|                                  | At      Fair Value as of December 31, 2008 |
|---------------------------------------|--------------------------------------------|
| Recurring Fair Value      Measures    |                                       |     Level      1 |   |     Level      2 |   |     Level      3 |   |     Total |
| Millions                              |                                       |   |   |   |   |   |   |   |
| Assets:                               |                                       |   |   |   |   |   |   |   |
| Mutual      Funds                     |                                       | $13.5 |   | – |   | – |   | $13.5 |
| Bonds                                 |                                       | – |   | $3.3 |   | – |   | 3.3 |
| Auction      Rate Securities          |                                       | – |   | – |   | $15.2 |   | 15.2 |
| Money      Market Funds               |                                       | 10.6 |   | – |   | – |   | 10.6 |
| Total      Assets                     |                                       | $24.1 |   | $3.3 |   | $15.2 |   | $42.6 |
|                                  |                                       |   |   |   |   |   |   |   |
| Liabilities:                          |                                       |   |   |   |   |   |   |   |
| Deferred      compensation obligation |                                       | – |   | $13.5 |   | – |   | $13.5 |
| Total      Liabilities                |                                       | – |   | $13.5 |   | – |   | $13.5 |
|                                  |                                       |   |   |   |   |   |   |   |
| Total      Net Assets (Liabilities)   |                                       | $24.1 |   | $(10.2) |   | $15.2 |   | $29.1 |

| Recurring      Fair Value Measures as of December 31, 2008 |     Auction      Rate                 |
|------------------------------------------------------------|-----------------------------------------------------------|
| Activity      in Level 3                                   |     Securities                        |
| Millions                                                   |                                                      |
| Balance      as of January 1, 2008                         | –                                                   |
|                                                       | Purchases,      sales, issuances and settlements, net (a) | $(10.0) |
|                                                       | Level      3 transfers in                                 | 25.2 |
| Balance      as of December 31, 2008                       | $15.2                                                     |

| (a) | Includes      a $5.2 million transfer of auction rate securities to our Voluntary      Employee Benefit Association trust used to fund postretirement health and      life benefits. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Note      7. | Short-Term      and Long-Term Debt |
|--------------|------------------------------------|

----

| Issue      Date        | Maturity              | Principal      Amount | Coupon |
|------------------------|-----------------------|-----------------------|--------|
| December      15, 2008 | January      15, 2014 | $18      Million      | 6.94%  |
| December      15, 2008 | January      15, 2016 | $20      Million      | 7.70%  |
| January      15, 2009  | January      15, 2019 | $42      Million      | 8.17%  |

| Long-Term      Debt                                                                            |                                                 |                                                                         |
|------------------------------------------------------------------------------------------------|------------------------------------------------------|------------------------------------------------------------------------------|
| December      31                                                                               |         2008 |             2007 |
| Millions                                                                                       |                                                 |                                                                         |
|                                                                                           |                                                 |                                                                         |
| First      Mortgage Bonds                                                                      |                                                 |                                                                         |
| 4.86%      Series Due 2013                                                                     | $60.0                                                | –                                                                      |
| 6.94%      Series Due 2014                                                                     | 18.0                                                 | –                                                                      |
| 7.70%      Series Due 2016                                                                     | 20.0                                                 | –                                                                      |
| 5.28%      Series Due 2020                                                                     | 35.0                                                 | $35.0                                                                        |
| 4.95%      Pollution Control Series F Due 2022                                                 | 111.0                                                | 111.0                                                                        |
| 6.02%      Series Due 2023                                                                     | 75.0                                                 | –                                                                      |
| 5.99%      Series Due 2027                                                                     | 60.0                                                 | 60.0                                                                         |
| 5.69%      Series Due 2036                                                                     | 50.0                                                 | 50.0                                                                         |
| SWL&P      First Mortgage Bonds                                                            |                                                 |                                                                         |
| 7.25%      Series Due 2013                                                                     | 10.0                                                 | –                                                                      |
| Senior      Unsecured Notes 5.99% Due 2017                                                     | 50.0                                                 | 50.0                                                                         |
| Variable      Demand Revenue Refunding BondsSeries      1997 A, B, and C Due 2009 – 2020 | 28.3                                                 | 36.5                                                                         |
| Industrial      Development Revenue Bonds 6.5% Due 2025                                        | 6.0                                                  | 6.0                                                                          |
| Industrial      Development Variable Rate Demand Refunding                                     |                                                 |                                                                         |
| Revenue      Bonds Series 2006 Due 2025                                                        | 27.8                                                 | 27.8                                                                         |
| Other      Long-Term Debt, 2.0% – 8.0% Due 2009 – 2037                             | 47.6                                                 | 46.4                                                                         |
| Total      Long-Term Debt                                                                      | 598.7                                                | 422.7                                                                        |
| Less:      Due Within One Year                                                                 | 10.4                                                 | 11.8                                                                         |
| Net      Long-Term Debt                                                                        | $588.3                                               | $410.9                                                                       |

----

Coal, Railand Shipping Contracts. We have three coal supplyagreements with various expiration dates ranging from December 2009 to December2011. We also have rail and shipping agreements for the transportation of all ofour coal, with various expiration dates ranging from December 2009 to December2011. Our minimum annual payment obligations under these coal, rail and shippingagreements are currently $43.9 million in 2009, $9.5 million in 2010, $5.4million in 2011, and no specific commitments beyond 2011. Our minimum annualpayment obligations will increase when annual nominations are made for coaldeliveries in future years.

----

----

----

| Note      9. | Common      Stock and Earnings Per Share |
|--------------|------------------------------------------|

| Summary      of Common Stock                            |         Shares    |         Equity   |
|---------------------------------------------------------|-----------------------------------------------------------|----------------------------------------------------------|
|                                                    |         Thousands |         Millions |
|                                                    |                                                      |                                                     |
| Balance      at December 31, 2005                       | 30,143                                                    | $421.1                                                   |
| 2006   Employee      Stock Purchase Plan | 12                                                        | 0.5                                                      |
| Invest Direct (a)                                       | 218                                                       | 10.0                                                     |
| Options      and Stock Awards                           | 63                                                        | 7.1                                                      |
| Balance      at December 31, 2006                       | 30,436                                                    | $438.7                                                   |
| 2007   Employee      Stock Purchase Plan | 17                                                        | 0.7                                                      |
| Invest      Direct (a)                                  | 331                                                       | 15.1                                                     |
| Options      and Stock Awards                           | 43                                                        | 6.7                                                      |
| Balance      at December 31, 2007                       | 30,827                                                    | $461.2                                                   |
| 2008   Employee      Stock Purchase Plan | 17                                                        | 0.6                                                      |
| Invest      Direct (a)                                  | 161                                                       | 6.9                                                      |
| Options      and Stock Awards                           | 24                                                        | 4.6                                                      |
| Equity      Issuance Program                            | 1,556                                                     | 60.8                                                     |
| Balance      at December 31, 2008                       | 32,585                                                    | $534.1                                                   |

| (a) | Invest      Direct is ALLETE’s direct stock purchase and dividend reinvestment      plan. |
|-----|-------------------------------------------------------------------------------------------------|

ShareholderRights Plan. In1996, we adopted a rights plan that provides for a dividend distribution of onepreferred share purchase right (Right) to be attached to each share of commonstock. In July 2006, we amended the rights plan to extend the expiration of theRights to July 11, 2009. The amendment also provides that the Company may notconsolidate, merge, or sell a majority of its assets or earning power if doingso would be counter to the intended benefits of the Rights or would result inthe distribution of Rights to the shareholders of the other parties to thetransaction. Finally, the amendment provides for the creation of a committee ofindependent directors to annually review the terms and conditions of the amendedrights plan (Rights Plan), as well as to consider whether termination ormodification of the Rights Plan would be in the best interests of theshareholders and to make a recommendation based on such review to the Board ofDirectors.

----

| Note      9. | Common      Stock and Earnings Per Share(Continued) |
|--------------|-----------------------------------------------------|

| Reconciliation      of Basic and Diluted  |                          |                               |                            |
|-------------------------------------------|-------------------------------|------------------------------------|---------------------------------|
| Earnings      Per Share                   |                          |     Dilutive   |                            |
| For      the Year Ended December 31       |     Basic |     Securities |     Diluted |
| Millions      Except Per Share Amounts    |                          |                               |                            |
|                                      |                          |                               |                            |
| 2008                                      |                          |                               |                            |
| Income      from Continuing Operations    | $82.5                         | –                            | $82.5                           |
| Common      Shares                        | 29.2                          | 0.1                                | 29.3                            |
| Per      Share from Continuing Operations | $2.82                         | –                            | $2.82                           |
|                                      |                          |                               |                            |
| 2007                                      |                          |                               |                            |
| Income      from Continuing Operations    | $87.6                         | –                            | $87.6                           |
| Common      Shares                        | 28.3                          | 0.1                                | 28.4                            |
| Per      Share from Continuing Operations | $3.09                         | –                            | $3.08                           |
|                                      |                          |                               |                            |
| 2006                                      |                          |                               |                            |
| Income      from Continuing Operations    | $77.3                         | –                            | $77.3                           |
| Common      Shares                        | 27.8                          | 0.1                                | 27.9                            |
| Per      Share from Continuing Operations | $2.78                         | –                            | $2.77                           |

| For      the Year Ended December 31                              | 2008    | 2007    | 2006   |
|------------------------------------------------------------------|---------|---------|--------|
| Millions                                                         |    |    |   |
| Loss      on Emerging Technology Investments                     | $(0.7)  | $(1.3)  | $(0.9) |
| AFUDC      - Equity                                              | 3.3     | 3.8     | 0.5    |
| Debt      Prepayment Premium and Unamortized Debt Issuance Costs | – | – | (0.6)  |
| Investments      and Other Income                                | 13.0    | 13.0    | 12.9   |
| Total      Other Income                                          | $15.6   | $15.5   | $11.9  |

----

| Income      Tax Expense                                       |                         |   |                         |   |                         |   |
|---------------------------------------------------------------|------------------------------|--------|------------------------------|--------|------------------------------|--------|
| Year      Ended December 31                                   |     2008 |   |     2007 |   |     2006 |   |
| Millions                                                      |                         |   |                         |   |                         |   |
|                                                          |                         |   |                         |   |                         |   |
| Current      Tax Expense                                      |                         |   |                         |   |                         |   |
| Federal                                                       | $6.2                         |   | $26.5                        |   | $8.9                         | (a)    |
| State                                                         | (1.6)                        |   | 7.2                          |   | 9.6                          |   |
| Total      Current Tax Expense                                | 4.6                          |   | 33.7                         |   | 18.5                         |   |
| Deferred      Tax Expense                                     |                         |   |                         |   |                         |   |
| Federal                                                       | 29.3                         |   | 10.7                         |   | 28.0                         | (a)    |
| State                                                         | 13.4                         |   | 4.7                          |   | 2.0                          |   |
| Change      in Valuation Allowance                            | (2.9)                        |   | (0.3)                        |   | (1.1)                        |   |
| Investment      Tax Credit Amortization                       | (1.0)                        |   | (1.1)                        |   | (1.1)                        |   |
| Total      Deferred Tax Expense                               | 38.8                         |   | 14.0                         |   | 27.8                         |   |
| Income      Tax Expense for Continuing Operations             | 43.4                         |   | 47.7                         |   | 46.3                         |   |
| Income      Tax Expense (Benefit) for Discontinued Operations | –                      |   | –                      |   | (0.6)                        |   |
| Total      Income Tax Expense                                 | $43.4                        |   | $47.7                        |   | $45.7                        |   |

| (a) | Included      a current federal tax benefit of $24.3 million and a deferred federal tax      expense of $24.3 million related to the refund from the      Kendall County capital losscarryback. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Reconciliation      of Taxes from Federal Statutory                                  |                                                                         |                                                                         |                                                 |
|--------------------------------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------|
| Rate      to Total Income Tax Expense for Continuing Operations                      |                                                                         |                                                                         |                                                 |
| Year      Ended December 31                                                          |             2008 |             2007 |         2006 |
| Millions                                                                             |                                                                         |                                                                         |                                                 |
| Income      from Continuing OperationsBefore      Minority Interest and Income Taxes | $126.4                                                                       | $137.2                                                                       | $128.2                                               |
| Statutory      Federal Income Tax Rate                                               | 35%                                                                          | 35%                                                                          | 35%                                                  |
| Income      Taxes Computed at 35% Statutory Federal Rate                             | $44.2                                                                        | $48.0                                                                        | $44.9                                                |
| Increase      (Decrease) in Tax Due to:                                              |                                                                         |                                                                         |                                                 |
| Amortization      of Deferred Investment Tax Credits                                 | (1.0)                                                                        | (1.1)                                                                        | (1.1)                                                |
| State      Income Taxes – Net of Federal Income Tax Benefit                    | 4.8                                                                          | 7.4                                                                          | 6.5                                                  |
| Depletion                                                                            | (0.8)                                                                        | (0.9)                                                                        | (1.1)                                                |
| Employee      Benefits                                                               | 0.2                                                                          | 0.4                                                                          | 0.1                                                  |
| Domestic      Manufacturing Deduction                                                | (0.1)                                                                        | (1.1)                                                                        | (0.6)                                                |
| Regulatory      Differences for Utility Plant                                        | (1.6)                                                                        | (2.2)                                                                        | (0.9)                                                |
| Positive      Resolution of Audit Issues                                             | –                                                                      | (1.6)                                                                        | –                                              |
| Other                                                                                | (2.3)                                                                        | (1.2)                                                                        | (1.5)                                                |
| Total      Income Tax Expense for Continuing Operations                              | $43.4                                                                        | $47.7                                                                        | $46.3                                                |

----

| Deferred      Tax Assets and Liabilities           |   |   |
|----------------------------------------------------|--------|--------|
| December      31                                   | 2008   | 2007   |
| Millions                                           |   |   |
|                                               |   |   |
| Deferred      Tax Assets                           |   |   |
| Employee      Benefits and Compensation (a)        | $125.2 | $80.5  |
| Property      Related                              | 36.4   | 26.5   |
| Investment      Tax Credits                        | 10.7   | 11.4   |
| Other                                              | 16.3   | 13.4   |
| Gross      Deferred Tax Assets                     | 188.6  | 131.8  |
| Deferred      Tax Asset Valuation Allowance        | (0.4)  | (3.3)  |
| Total      Deferred Tax Assets                     | $188.2 | $128.5 |
| Deferred      Tax Liabilities                      |   |   |
| Property      Related                              | $235.6 | $201.7 |
| Regulatory      Asset for Benefit Obligations      | 87.7   | 21.6   |
| Unamortized      Investment Tax Credits            | 15.1   | 16.1   |
| Employee      Benefits and Compensation            | 1.2    | 19.5   |
| Fuel      Clause Adjustment                        | 5.3    | 10.7   |
| Other                                              | 14.0   | 8.1    |
| Total      Deferred Tax Liabilities                | $358.9 | $277.7 |
| Accumulated      Deferred Income Taxes             | $170.7 | $149.2 |
|                                               |   |   |
| Recorded      as:                                  |   |   |
| Net      Current Deferred Tax Liabilities (b) | $1.1   | $5.0   |
| Net      Long-Term Deferred Tax Liabilities        | 169.6  | 144.2  |
| Net      Deferred Tax Liabilities                  | $170.7 | $149.2 |

| (a) | Includes      Unfunded Employee Benefits |
|-----|------------------------------------------|

| (b) | Included      in Other Current Liabilities. |
|-----|---------------------------------------------|

|                                                                                                                                    |
|-----------------------------------------------------------------------------------------------------------------------------------------|
| Uncertain      Tax Positions                                                                                                            |   |
| MillionsDecember      31, 2007                                                                                                          | Gross      Unrecognized Income Tax Benefits |
| Balance      at January 1, 2007                                                                                                         | $10.4 |
| Additions      for Tax Positions Related to the Current Year                                                                            | 0.8 |
| Reductions      for Tax Positions Related to the Current Year                                                                           | – |
| Additions      for Tax Positions Related to Prior Years                                                                                 | – |
| Reduction      for Tax Positions Related to Prior Years                                                                                 | (2.4) |
| Settlements                                                                                                                             | (3.5) |
| Balance      at December 31, 2007                                                                                                       | $5.3 |
| Less:      Tax Attributable to Temporary Items and Federal Benefit on State      Tax                                                    | (2.3) |
|  Total      Unrecognized Tax Benefits that, if Recognized, Would Impact the Effective      Income Tax Rate as of December 31, 2007 |  $3.0 |
|                                                                                                                                    |   |
| December      31, 2008                                                                                                                  |   |
| Balance      at January 1, 2008                                                                                                         | $5.3 |
| Additions      for Tax Positions Related to the Current Year                                                                            | 0.7 |
| Reductions      for Tax Positions Related to the Current Year                                                                           | – |
| Additions      for Tax Positions Related to Prior Years                                                                                 | 4.5 |
| Reduction      for Tax Positions Related to Prior Years                                                                                 | (2.5) |
| Settlements                                                                                                                             | – |
| Balance      at December 31, 2008                                                                                                       | $8.0 |
| Less:      Tax Attributable to Temporary Items and Federal Benefit on State      Tax                                                    | (6.8) |
|  Total      Unrecognized Tax Benefits that, if Recognized, Would Impact the Effective      Tax Rate as of December 31, 2008        |  $1.2 |

----

| Discontinued      Operations           |                                                                         |
|----------------------------------------|------------------------------------------------------------------------------|
| Summary      Income Statement          |                                                                         |
| For      the Year Ended December 31    |             2006 |
| Millions                               |                                                                         |
| Loss      on Disposal                  |                                                                         |
| Water      Services                    | $(1.5)                                                                       |
|                                   | (1.5)                                                                        |
| Income      Tax Expense (Benefit)      |                                                                         |
| Water      Services                    | (0.6)                                                                        |
|                                   | (0.6)                                                                        |
| Net      Loss on Disposal              | (0.9)                                                                        |
| Loss      from Discontinued Operations | $(0.9)                                                                       |

| Other      Comprehensive Income (Loss)                        |             Pre-Tax |         Tax      Expense |         Net-of-Tax |
|---------------------------------------------------------------|---------------------------------------------------------------------------------|------------------------------------------------------------------|------------------------------------------------------------|
| Year      Ended December 31                                   |             Amount  |         (Benefit)        |         Amount     |
| Millions                                                      |                                                                            |                                                             |                                                       |
|                                                          |                                                                            |                                                             |                                                       |
| 2008                                                          |                                                                            |                                                             |                                                       |
| Unrealized      Loss on Securities During the Year            | $(9.7)                                                                          | $(3.7)                                                           | $(6.0)                                                     |
| Reclassification      Adjustment for Gains Included in Income | (6.4)                                                                           | (2.7)                                                            | (3.7)                                                      |
| Defined      Benefit Pension and Other Postretirement Plans   | (32.1)                                                                          | (13.3)                                                           | (18.8)                                                     |
| Other      Comprehensive Loss                                 | $(48.2)                                                                         | $(19.7)                                                          | $(28.5)                                                    |
|                                                          |                                                                            |                                                             |                                                       |
| 2007                                                          |                                                                            |                                                             |                                                       |
| Unrealized      Gain on Securities During the Year            | $1.4                                                                            | $0.3                                                             | $1.1                                                       |
| Defined      Benefit Pension and Other Postretirement Plans   | 5.5                                                                             | 2.3                                                              | 3.2                                                        |
| Other      Comprehensive Income                               | $6.9                                                                            | $2.6                                                             | $4.3                                                       |
|                                                          |                                                                            |                                                             |                                                       |
| 2006                                                          |                                                                            |                                                             |                                                       |
| Unrealized      Gain on Securities During the Year            | $2.5                                                                            | $0.6                                                             | $1.9                                                       |
| Defined      Benefit Pension and Other Postretirement Plans   | 11.0                                                                            | 4.6                                                              | 6.4                                                        |
| Other      Comprehensive Income                               | $13.5                                                                           | $5.2                                                             | $8.3                                                       |

| December      31                                            |             2008 |             2007 |
|-------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|
| Millions                                                    |                                                                         |                                                                         |
|                                                        |                                                                         |                                                                         |
| Unrealized      Gain (Loss) on Securities                   | $(4.6)                                                                       | $5.1                                                                         |
| Defined      Benefit Pension and Other Postretirement Plans | (28.4)                                                                       | (9.6)                                                                        |
| Total      Accumulated Other Comprehensive Loss             | $(33.0)                                                                      | $(4.5)                                                                       |

----

----

|                                                                               |         December      31, |         September      30, |
|------------------------------------------------------------------------------------|-------------------------------------------------------------------|--------------------------------------------------------------------|
| Pension      Obligation and Funded Status                                          |         2008              |         2007               |
| Millions                                                                           |                                                              |                                                               |
| Accumulated      Benefit Obligation                                                | $406.6                                                            | $384.9                                                             |
|                                                                               |                                                              |                                                               |
| Change      in Benefit Obligation                                                  |                                                              |                                                               |
| Obligation,      Beginning of Year                                                 | $421.9                                                            | $417.7                                                             |
| Service      Cost                                                                  | 7.3                                                               | 5.3                                                                |
| Interest      Cost                                                                 | 31.8                                                              | 23.4                                                               |
| Actuarial      Loss (Gain)                                                         | 3.2                                                               | (5.6)                                                              |
| Benefits      Paid                                                                 | (29.9)                                                            | (21.6)                                                             |
| Participant      Contributions                                                     | 6.1                                                               | 2.7                                                                |
| Obligation,      End of Year                                                       | $440.4                                                            | $421.9                                                             |
| Change      in Plan Assets                                                         |                                                              |                                                               |
| Fair      Value, Beginning of Year                                                 | $405.6                                                            | $364.7                                                             |
| Actual      Return on Plan Assets                                                  | (120.2)                                                           | 58.9                                                               |
| Employer      Contribution                                                         | 18.2                                                              | 3.6                                                                |
| Benefits      Paid                                                                 | (29.9)                                                            | (21.6)                                                             |
| Fair      Value, End of Year                                                       | $273.7                                                            | $405.6                                                             |
| Funded      Status, End of Year                                                    | $(166.7)                                                          | $(16.3)                                                            |
|                                                                               |                                                              |                                                               |
| Net      Pension Amounts Recognized in Consolidated Balance Sheet Consist      of: |                                                              |                                                               |
| Noncurrent      Assets                                                             | –                                                           | $29.3                                                              |
| Current      Liabilities                                                           | $(0.9)                                                            | $(0.8)                                                             |
| Noncurrent      Liabilities                                                        | $(165.8)                                                          | $(44.8)                                                            |

| Unrecognized      Pension Costs       |                                                                         |                                                                         |
|---------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------------------------------|
| Year      Ended December 31           |             2008 |             2007 |
| Millions                              |                                                                         |                                                                         |
| Net      Loss                         | $193.2                                                                       | $31.1                                                                        |
| Prior      Service Cost               | 2.4                                                                          | 3.2                                                                          |
| Transition      Obligation            | –                                                                      | –                                                                      |
| Total      Unrecognized Pension Costs | $195.6                                                                       | $34.3                                                                        |

| Components      of Net Periodic Pension Expense |                                                 |   |                                                 |
|-------------------------------------------------|------------------------------------------------------|--------|------------------------------------------------------|
| Year      Ended December 31                     |         2008 | 2007   |         2006 |
| Millions                                        |                                                 |   |                                                 |
| Service      Cost                               | $5.8                                                 | $5.3   | $9.1                                                 |
| Interest      Cost                              | 25.4                                                 | 23.4   | 22.2                                                 |
| Expected      Return on Plan Assets             | (32.5)                                               | (30.6) | (28.6)                                               |
| Amortization      of Loss                       | 1.6                                                  | 4.9    | 4.6                                                  |
| Amortization      of Prior Service Costs        | 0.6                                                  | 0.6    | 0.6                                                  |
| Net      Pension Expense                        | $0.9                                                 | $3.6   | $7.9                                                 |

| Other      Changes in Plan Assets and Benefit Obligations Recognized inOther      Comprehensive Income and Regulatory Assets |                                                 |    |
|------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|---------|
| Year      Ended December 31                                                                                                  |         2008 | 2007    |
| Millions                                                                                                                     |                                                 |    |
| Net      Loss (Gain)                                                                                                         | $164.0                                               | $(35.4) |
| Amortization      of Prior Service Costs                                                                                     | (0.6)                                                | (0.6)   |
| Amortization      of Loss (Gain)                                                                                             | (1.6)                                                | (3.3)   |
| Total      Recognized in Other Comprehensive Income and Regulatory    Assets                                                 | $161.8                                               | $(39.3) |

----

| Information      for Pension Plans with an                   | December      31, |         September      30, |
|--------------------------------------------------------------|-------------------|--------------------------------------------------------------------|
| Accumulated      Benefit Obligation in Excess of Plan Assets | 2008              |         2007               |
| Millions                                                     |              |                                                               |
| Projected      Benefit Obligation                            | $440.4            | $170.6                                                             |
| Accumulated      Benefit Obligation                          | $406.6            | $188.3                                                             |
| Fair      Value of Plan Assets                               | $273.7            | $145.3                                                             |

|                                                                                                      |         December      31, |         September      30, |
|-----------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------|--------------------------------------------------------------------|
| Postretirement      Health and Life Obligation and Funded Status                                          |         2008              |         2007               |
| Millions                                                                                                  |                                                              |                                                               |
| Change      in Benefit Obligation                                                                         |                                                              |                                                               |
| Obligation,      Beginning of Year                                                                        | $153.7                                                            | $138.9                                                             |
| Service      Cost                                                                                         | 5.0                                                               | 4.2                                                                |
| Interest      Cost                                                                                        | 11.7                                                              | 7.9                                                                |
| Actuarial      Loss                                                                                       | 4.0                                                               | 7.5                                                                |
| Participant      Contributions                                                                            | 2.0                                                               | 1.4                                                                |
| Benefits      Paid                                                                                        | (9.5)                                                             | (6.2)                                                              |
| Obligation,      End of Year                                                                              | $166.9                                                            | $153.7                                                             |
| Change      in Plan Assets                                                                                |                                                              |                                                               |
| Fair      Value, Beginning of Year                                                                        | $90.9                                                             | $78.9                                                              |
| Actual      Return on Plan Assets                                                                         | (25.2)                                                            | 9.6                                                                |
| Employer      Contribution                                                                                | 20.3                                                              | 6.8                                                                |
| Participant      Contributions                                                                            | 1.9                                                               | 1.4                                                                |
| Benefits      Paid                                                                                        | (9.3)                                                             | (5.8)                                                              |
| Fair      Value, End of Year                                                                              | $78.6                                                             | $90.9                                                              |
| Funded      Status, End of Year                                                                           | $(88.3)                                                           | $(62.8)                                                            |
|                                                                                                      |                                                              |                                                               |
| Net      Postretirement Health and Life Amounts Recognized in Consolidated Balance      Sheet Consist of: |                                                              |                                                               |
| Current      Liabilities                                                                                  | $(0.7)                                                            | $(0.6)                                                             |
| Noncurrent      Liabilities                                                                               | $(87.6)                                                           | $(62.2)                                                            |

| Unrecognized      Postretirement Health and Life Costs       |                                                                         |                                                 |
|--------------------------------------------------------------|------------------------------------------------------------------------------|------------------------------------------------------|
| Year      Ended December 31                                  |             2008 |         2007 |
| Millions                                                     |                                                                         |                                                 |
| Net      Loss                                                | $59.2                                                                        | $22.7                                                |
| Prior      Service Cost                                      | –                                                                      | (0.1)                                                |
| Transition      Obligation                                   | 9.4                                                                          | 12.6                                                 |
| Total      Unrecognized Postretirement Health and Life Costs | $68.6                                                                        | $35.2                                                |

| Components      of Net Periodic Postretirement Health and Life Expense |                         |                                                 |
|------------------------------------------------------------------------|------------------------------|------------------------------------------------------|
| Year      Ended December 31                                            |     2008 |         2007 |         2006 |
| Millions                                                               |                         |                                                 |   |
| Service      Cost                                                      | $4.0                         | $4.2                                                 | $4.4 |
| Interest      Cost                                                     | 9.4                          | 7.8                                                  | 7.4 |
| Expected      Return on Plan Assets                                    | (7.2)                        | (6.5)                                                | (5.6) |
| Amortization      of Loss                                              | 1.4                          | 1.0                                                  | 1.7 |
| Amortization      of Transition Obligation                             | 2.5                          | 2.4                                                  | 2.4 |
| Net      Postretirement Health and Life Expense                        | $10.1                        | $8.9                                                 | $10.3 |

----

| Other      Changes in Plan Assets and Benefit Obligations Recognized inOther      Comprehensive Income and Regulatory Assets |                                                                                                                                                                                                                    |                                                 |
|------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------|
| Year      Ended December 31                                                                                                  |         2008                                                                                                                                                                    |         2007 |
| Millions                                                                                                                     |                                                                                                                                                                                                                    |                                                 |
| Net      Loss (Gain)                                                                                                         | $38.3                                                                                                                                                                                                                   | $4.5                                                 |
| Amortization      of Transition Obligation                                                                                   | (2.5)                                                                                                                                                                                                                   | (2.5)                                                |
| Amortization      of Prior Service Costs                                                                                     | –                                                                                                                                                                                                                 | –                                              |
| Amortization      of Loss (Gain)                                                                                             | (1.4)                                                                                                                                                                                                                   | (0.9)                                                |
| Total      Recognized in Other Comprehensive Income and Regulatory    Assets                                                 |                                         $34.4 | $1.1                                                 |

|                                   |                                                    |     Postretirement       |
|----------------------------------------|---------------------------------------------------------|----------------------------------------------|
| Estimated      Future Benefit Payments |         Pension |     Health      and Life |
| Millions                               |                                                    |                                         |
| 2009                                   | $24.1                                                   | $7.0                                         |
| 2010                                   | $25.6                                                   | $7.8                                         |
| 2011                                   | $26.5                                                   | $8.7                                         |
| 2012                                   | $27.4                                                   | $9.3                                         |
| 2013                                   | $28.6                                                   | $10.0                                        |
| Years      2014 – 2018           | $160.0                                                  | $59.5                                        |

|                                                        |                                                    | Postretirement       |
|-------------------------------------------------------------|---------------------------------------------------------|----------------------|
|                                                        |         Pension | Health      and Life |
| Millions                                                    |                                                    |                 |
| Net      Loss                                               | $3.4                                                    | $2.5                 |
| Prior      Service Costs                                    | $0.6                                                    | –              |
| Transition      Obligations                                 | –                                                 | $2.5                 |
| Total      Pension and Postretirement Health and Life Costs | $4.0                                                    | $5.0                 |

| Weighted-Average      Assumptions         |         December      31, |         September      30, |
|-------------------------------------------|-------------------------------------------------------------------|--------------------------------------------------------------------|
| Used      to Determine Benefit Obligation |         2008              |         2007               |
| Discount      Rate                        | 6.12%                                                             | 6.25%                                                              |
| Rate      of Compensation Increase        | 4.3      – 4.6%                                             | 4.3      – 4.6%                                              |
| Health      Care Trend Rates              |                                                              |                                                               |
| Trend      Rate                           | 9%                                                                | 10%                                                                |
| Ultimate      Trend Rate                  | 5%                                                                | 5%                                                                 |
| Year      Ultimate Trend Rate Effective   | 2012                                                              | 2012                                                               |

| Weighted-Average      Assumptions                      |                                                 |                                                 |                                                 |
|--------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|
| Used      to Determine Net Periodic Benefit Costs      |                                                 |                                                 |                                                 |
| Year      Ended December 31                            |         2008 |         2007 |         2006 |
| Discount      Rate                                     | 6.25%                                                | 5.75%                                                | 5.50%                                                |
| Expected      Long-Term Return on Plan Assets (a) |                                                 |                                                 |                                                 |
| Pension                                                | 9.0%                                                 | 9.0%                                                 | 9.0%                                                 |
| Postretirement      Health and Life                    | 7.2      – 9.0%                                | 5.0      – 9.0%                                | 5.0      – 9.0%                                |
| Rate      of Compensation Increase                     | 4.3      – 4.6%                                | 4.3      – 4.6%                                | 3.5      – 4.5%                                |

----

| Sensitivity      of a One-Percentage-Point                                            |         One      Percent |         One      Percent |
|---------------------------------------------------------------------------------------|------------------------------------------------------------------|------------------------------------------------------------------|
| Change      in Health Care Trend Rates                                                |         Increase         |         Decrease         |
| Millions                                                                              |                                                             |                                                             |
| Effect      on Total of Postretirement Health and Life Service and Interest      Cost | $2.0                                                             | $(1.7)                                                           |
| Effect      on Postretirement Health and Life Obligation                              | $19.5                                                            | $(16.2)                                                          |

|                               | Pension                                              | PostretirementHealth      and Life (a)                                       |
|------------------------------------|------------------------------------------------------|------------------------------------------------------------------------------|
| Actual      Plan Asset Allocations |         2008 |             2007 |         2008 |         2007 |
| Equity      Securities             | 46%                                                  | 61%                                                                          | 47% | 66% |
| Debt      Securities               | 32%                                                  | 25%                                                                          | 40% | 24% |
| Real      Estate                   | 6%                                                   | 2%                                                                           | – | – |
| Private      Equity                | 16%                                                  | 9%                                                                           | 9% | 5% |
| Cash                               | –                                              | 3%                                                                           | 4% | 5% |
|                               | 100%                                                 | 100%                                                                         | 100% | 100% |

| (a) | Includes      VEBAs and irrevocable grantortrusts. |
|-----|----------------------------------------------------|

|                               |                                                                            | Postretirement      |
|------------------------------------|---------------------------------------------------------------------------------|---------------------|
| Plan      Asset Target Allocations |             Pension | Health and Life (a) |
| Equity      Securities             | 55%                                                                             | 55%                 |
| Debt      Securities               | 24%                                                                             | 24%                 |
| Real      Estate                   | 9%                                                                              | 9%                  |
| Private      Equity                | 11%                                                                             | 11%                 |
| Cash                               | 1%                                                                              | 1%                  |
|                               | 100%                                                                            | 100%                |

----

| Year      Ended December 31           |         2008 |         2007 |         2006 |
|---------------------------------------|------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|
| Millions                              |                                                 |                                                 |                                                 |
| ESOP      Shares                      |                                                 |                                                 |                                                 |
| Allocated                             | 2.0                                                  | 1.8                                                  | 1.7                                                  |
| Unallocated                           | 1.9                                                  | 2.2                                                  | 2.5                                                  |
| Total                                 | 3.9                                                  | 4.0                                                  | 4.2                                                  |
| Fair      Value of Unallocated Shares | $61.3                                                | $87.1                                                | $115.2                                               |

|                         |         2008 |         2007 |         2006 |
|------------------------------|------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|
| Risk-Free      Interest Rate | 2.8%                                                 | 4.8%                                                 | 4.5%                                                 |
| Expected      Life           | 5      Years                                         |  5      Years                                   |  5      Years                                   |
| Expected      Volatility     | 20%                                                  | 20%                                                  | 20%                                                  |
| Dividend      Growth Rate    | 4.4%                                                 | 5.0%                                                 | 5.0%                                                 |

----

| Share-Based      Compensation Expense       |                                                 |                                                 |                                                 |
|---------------------------------------------|------------------------------------------------------|------------------------------------------------------|------------------------------------------------------|
| For      the Year Ended December 31         |         2008 |         2007 |         2006 |
| Millions                                    |                                                 |                                                 |                                                 |
| Stock      Options                          | $0.7                                                 | $0.8                                                 | $0.8                                                 |
| Performance      Shares                     | 1.1                                                  | 1.0                                                  | 1.0                                                  |
| Total      Share-Based Compensation Expense | $1.8                                                 | $1.8                                                 | $1.8                                                 |
|                                        |                                                 |                                                 |                                                 |
| Income      Tax Benefit                     | $0.7                                                 | $0.7                                                 | $0.7                                                 |

|                                  |                                                           |                                                             |                              |         Weighted-Average |
|---------------------------------------|----------------------------------------------------------------|------------------------------------------------------------------|-----------------------------------|------------------------------------------------------------------|
|                                  |                                                           |         Weighted-Average |     Aggregate |         Remaining        |
|                                  |         Number      of |         Exercise         |     Intrinsic |         Contractual      |
|                                  |         Options        |         Price            |     Value     |         Term             |
|                                  |                                                           |                                                             |     Millions  |                                                             |
| Outstanding      at December 31, 2007 | 510,992                                                        | $39.83                                                           | $(0.1)                            | 6.8      years                                                   |
| Granted                               | 180,815                                                        | $39.10                                                           |                              |                                                             |
| Exercised                             | (16,627)                                                       | $25.56                                                           |                              |                                                             |
| Forfeited                             | (2,761)                                                        | $39.39                                                           |                              |                                                             |
| Outstanding      at December 31, 2008 | 672,419                                                        | $39.99                                                           | $(5.2)                            | 6.9      years                                                   |
| Exercisable      at December 31, 2008 | 406,894                                                        | $34.48                                                           | $(2.7)                            | 5.7      years                                                   |
| Fair      Value of Options            |                                                           |                                                             |                              |                                                             |
| Granted      During the Year          | $3.97                                                          |                                                             |                              |                                                             |

----

|                                 |                                   |     Weighted-Average |
|--------------------------------------|----------------------------------------|------------------------------------------|
|                                 |     Number      of |     Grant      Date  |
|                                 |     Shares         |     Fair      Value  |
| Non-vested      at December 31, 2007 | 68,501                                 | $45.63                                   |
| Granted                              | 36,684                                 | 54.05                                    |
| Unearned      Grant Award            | (23,624)                               | 42.80                                    |
| Forfeited                            | (2,323)                                | 50.87                                    |
| Non-vested      at December 31, 2008 | 79,238                                 | 50.22                                    |

| Quarter      Ended                      |             Mar.      31 |             Jun.      30 |         Sept.      30 |             Dec.      31 |
|-----------------------------------------|--------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------|---------------------------------------------------------------|--------------------------------------------------------------------------------------|
| Millions      Except Earnings Per Share |                                                                                 |                                                                                 |                                                          |                                                                                 |
| 2008                                    |                                                                                 |                                                                                 |                                                          |                                                                                 |
| Operating      Revenue                  | $213.4                                                                               | $189.8                                                                               | $201.7                                                        | $196.1                                                                               |
| Operating      Income                   | $31.3                                                                                | $17.5                                                                                | $33.2                                                         | $39.8                                                                                |
| Net      Income                         | $23.6                                                                                | $10.7                                                                                | $24.7                                                         | $23.5                                                                                |
| Earnings      Per Share of Common Stock |                                                                                 |                                                                                 |                                                          |                                                                                 |
| Basic                                   | $0.82                                                                                | $0.37                                                                                | $0.85                                                         | $0.78                                                                                |
| Diluted                                 | $0.82                                                                                | $0.37                                                                                | $0.85                                                         | $0.78                                                                                |
|                                    |                                                                                 |                                                                                 |                                                          |                                                                                 |
| 2007                                    |                                                                                 |                                                                                 |                                                          |                                                                                 |
| Operating      Revenue                  | $205.3                                                                               | $223.3                                                                               | $200.8                                                        | $212.3                                                                               |
| Operating      Income                   | $40.7                                                                                | $33.3                                                                                | $24.3                                                         | $33.4                                                                                |
| Net      Income                         | $26.3                                                                                | $22.6                                                                                | $16.5                                                         | $22.2                                                                                |
| Earnings      Per Share of Common Stock |                                                                                 |                                                                                 |                                                          |                                                                                 |
| Basic                                   | $0.93                                                                                | $0.80                                                                                | $0.58                                                         | $0.78                                                                                |
| Diluted                                 | $0.93                                                                                | $0.80                                                                                | $0.58                                                         | $0.77                                                                                |

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|                                           |     Balance      at | Additions                              |     Deductions |     Balance      at |
|------------------------------------------------|-----------------------------------------|----------------------------------------|------------------------------------|-----------------------------------------|
|                                           |     Beginning       |     Charged        |     Other      |     from            |     End      of |
| For      the Year Ended December 31            |     of      Year    |     to      Income |     Changes    |     Reserves (a)    |     Period |
| Millions                                       |                                    |                                   |                               |                                    |   |
|                                           |                                    |                                   |                               |                                    |   |
| Reserve      Deducted from Related Assets      |                                    |                                   |                               |                                    |   |
| Reserve      For Uncollectible Accounts        |                                    |                                   |                               |                                    |   |
| 2008  Trade      Accounts Receivable | $1.0                                    | $1.0                                   | –                            | $1.3                                    | $0.7 |
| Finance      Receivables – Long-Term     | 0.2                                     | –                                | –                            | 0.1                                     | 0.1 |
| 2007  Trade      Accounts Receivable | 1.1                                     | 1.0                                    | –                            | 1.1                                     | 1.0 |
| Finance      Receivables – Long-Term     | 0.2                                     | –                                | –                            | –                                 | 0.2 |
| 2006  Trade      Accounts Receivable | 1.0                                     | 0.7                                    | _                                  | 0.6                                     | 1.1 |
| Finance      Receivables – Long-Term     | 0.6                                     | _                                      | _                                  | 0.4                                     | 0.2 |
| Deferred      Asset Valuation Allowance        |                                    |                                   |                               |                                    |   |
| 2008  Deferred      Tax Assets       | 3.3                                     | (2.9)                                  | –                            | –                                 | 0.4 |
| 2007  Deferred      Tax Assets       | 3.6                                     | (0.3)                                  | –                            | –                                 | 3.3 |
| 2006  Deferred      Tax Assets       | 4.1                                     | (1.1)                                  | $0.6                               | –                                 | 3.6 |

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