ALLETE Reports 2006 Earnings Increase of 23%; Higher Earnings Projected in 2007.

DULUTH, Minn. -- ALLETE, Inc. (NYSE:ALE) today reported 2006 earnings from continuing operations of $2.77 per diluted share, compared with 64 cents in 2005. Excluding transactions in 2005 not representative of ongoing operations (described below), 2006 earnings from continuing operations increased 23 percent over the adjusted 2005 diluted earnings per share of $2.26.

ALLETE in 2006 recorded net income of $76.4 million on revenue of $767.1 million, compared to 2005 income of $13.3 million and revenue of $737.4 million. Financial results in 2005 were impacted by three one-time transactions: a $50.4 million after-tax charge for the assignment of the Kendall County power purchase agreement and two non-recurring tax benefits totaling $6.2 million.

Real estate income in 2006 increased 30 percent to $22.8 million, while ALLETE's energy businesses recorded $52.4 million for the year, a 10 percent increase over 2005 excluding the Kendall County charge.

"Increased earnings contributions from both our core real estate and energy businesses resulted in another year of strong earnings growth," said ALLETE Chairman, President and CEO Donald J. Shippar. "ALLETE Properties' performance was on track, with sales contracts closing on schedule. Earnings from our American Transmission Company (ATC) investment began ramping up and energy sales remain at high levels."

Initial returns from ALLETE's ATC investment, the absence of operating losses from Kendall County, and increased demand from Minnesota Power's industrial customers contributed to an earnings increase at ALLETE's energy business in 2006. At the end of 2006, ALLETE had an investment balance of $53.7 million in ATC, representing an ownership interest of approximately seven percent.

ALLETE's higher real estate earnings included recognition of deferred profit from past years' sales at the Town Center at Palm Coast development project, as well as 2006 sales at both the Town Center and Palm Coast Park projects. At the close of 2006, ALLETE Properties had about $114 million in future land sales under contract. ALLETE Properties' third major real estate development, Ormond Crossings, received development order approval late in 2006.

Income at ALLETE's "other" business segment rose by $5.4 million in 2006 compared to 2005 when excluding last year's tax benefits. Higher earnings on cash and short-term investments in 2006 and the absence of impairments in the emerging technology investment portfolio in 2006 versus 2005 contributed to the increase.

"Earnings growth is a priority for our corporation," Shippar said. "We're proud of the key milestones ALLETE achieved during the year that lay the groundwork for future success." These achievements include:

* Starting construction on an aggressive air emissions control plan with current cost recovery

* Purchasing electricity from a new 50-megawatt wind facility in North Dakota and signing an agreement to purchase power from a second 48-megawatt wind facility

* Signing a long-term 70-megawatt contract with PolyMet Mining

* Receiving development order approval for ALLETE Properties' Ormond Crossings real estate project

* Closing the first sales contracts at ALLETE Properties' Palm Coast Park development.

Shippar noted that the 13 percent dividend increase on ALLETE common stock announced on January 26th reflects the positive outlook for the company's future shared by the board of directors and management.

"We project that in 2007 ALLETE's earnings per share from continuing operations will be in the range of $2.95 to $3.05," Shippar said. "Our portfolio of valuable real estate and the growth prospects in our energy business give us great confidence for 2007 and beyond."

ALLETE's corporate headquarters are located in Duluth, Minnesota. ALLETE provides energy services in the upper Midwest and has significant real estate holdings in Florida. More information about the company is available on ALLETE's Web site at www.allete.com.

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

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(a) In 2006, financial results for ALLETE's Taconite Harbor Energy Center are included in the Regulated Utility segment. In 2005, Taconite Harbor is included in the Nonregulated Energy Operations segment.

(b) In April 2005, ALLETE recorded a $50.4 million, or $1.84 per diluted share, charge related to the assignment of the Kendall County power purchase agreement.

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Non-GAAP Financial Measures

ALLETE prepares financial statements in accordance with accounting principles generally accepted in the United States (GAAP). Along with this information, ALLETE discloses and discusses certain non-GAAP financial information in its quarterly earnings releases, on investor conference calls, and during investor conferences and related events. Management believes that non-GAAP financial data supplements ALLETE's GAAP financial statements by providing investors with additional information which enhances the investors' overall understanding of ALLETE's financial performance and the comparability of its operating results from period to period. The presentation of this additional information is not meant to be considered in isolation or as a substitute for ALLETE's results of operations prepared and presented in accordance with GAAP.

Financial results for 2005 were significantly impacted by the following transactions:

* A $50.4 million after tax, or $1.84 per share, charge due to the assignment of the Kendall County power purchase agreement to Constellation Energy Commodities;

* A $3.7 million, or $0.13 per share, current tax benefit due to a positive resolution of income tax audit issues; and

* A $2.5 million, or $0.09 per share, deferred tax benefit due to comprehensive tax planning initiatives.

Since these transactions significantly impacted the financial results from continuing operations in 2005, ALLETE believes that for comparative purposes and a more accurate reflection of its ongoing operations, it is useful to present diluted earnings per share from continuing operations for each applicable period excluding the impact of these items. The table below reconciles actual reported diluted earnings per share from continuing operations to the adjusted results that exclude these transactions in the respective periods.

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