Allete Inc – ‘DEF 14A’ for 5/11/04

On:  Thursday, 3/25/04, at 10:09am ET   ·   Effective:  3/25/04   ·   For:  5/11/04   ·   Accession #:  66756-4-39   ·   File #:  1-03548

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Definitive Proxy Solicitation Material   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: DEF 14A     2004 Proxy                                            30    145K 
 2: DEF 14A     Unofficial .PDF -- proxystatement2004filing          PDF    940K 

DEF 14A   —   2004 Proxy

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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549  

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant /X/                                                     
Filed by a Party other than the Registrant / /                                  
Check the appropriate box:                                                      
/ /  Preliminary Proxy Statement                                                
/ /  CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE         
14a-6(e)(2))                                                          
/X/  Definitive Proxy Statement                                                 
/ /  Definitive Additional Materials                                            
/ /  Soliciting Material Pursuant to Section 240.14a-12                         

    ALLETE, INC.
--------------------------------------------------------------------------------
    (Name of Registrant as Specified in its Charter)

--------------------------------------------------------------------------------
  (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):                              

/X/  No fee required.                                                           
/ /  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11    

(1)  Title of each class of securities to which transaction applies:  

          ----------------------------------------------------------------------

(2)  Aggregate number of securities to which transaction applies:     

          ----------------------------------------------------------------------

     (3)  Per unit  price  or other  underlying  value of  transaction  computed
          pursuant to Exchange Act Rule 0-11 (set forth  the amount on which the
filing fee is calculated and state how it was determined):  

          ----------------------------------------------------------------------

(4)  Proposed maximum aggregate value of transaction:                 

          ----------------------------------------------------------------------

(5)  Total fee paid:                                                  

          ----------------------------------------------------------------------

/ /  Fee paid previously with preliminary materials.                            
/ /  Check box if  any  part of the fee is offset as provided  by  Exchange  Act
     Rule  0-11(a)(2) and  identify the filing for which the  offsetting fee was
     paid previously.  Identify  the previous filing by  registration  statement
number, or the Form or Schedule and the date of its filing.           

(1)  Amount Previously Paid:                                          

          ----------------------------------------------------------------------

(2)  Form, Schedule or Registration Statement No.:                    

          ----------------------------------------------------------------------

(3)  Filing Party:                                                    

          ----------------------------------------------------------------------

(4)  Date Filed:                                                      

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                                                                   [ALLETE LOGO]

                                                                  Annual Meeting
                                                                 of Shareholders
                                                           ---------------------
                                                           Tuesday, May 11, 2004
                                                               Duluth, Minnesota

================================================================================
2004 NOTICE AND PROXY STATEMENT                                                 
================================================================================

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                                  March 25, 2004

Dear Shareholder:                                                               

     You are cordially  invited to ALLETE's 2004 Annual Meeting of  Shareholders
to be held on  Tuesday,  May 11,  2004 at 10:30 a.m.  in the  auditorium  of the
Duluth  Entertainment  Convention  Center  (DECC).  The DECC is  located  on the
waterfront  of Lake  Superior  at 350 Harbor  Drive in Duluth,  Minnesota.  Free
parking is available in the adjoining  lot. On behalf of the Board of Directors,
I encourage you to attend.                                                      

     At this year's  meeting you will be asked to elect eleven  directors and to
ratify the appointment of PricewaterhouseCoopers LLP as independent auditors.   

     Standing for  election to the Board of Directors  for the first time at the
Annual Meeting is Roger Peirce. I think you will agree that Mr. Peirce brings an
outstanding  background  in business and finance to the Board.  Dennis Evans has
retired from the Board.  Mr. Evans has been a director  since 1986 and all of us
have greatly benefited from his experience, commitment and many contributions to
ALLETE.  Thomas  Cunningham,  who was elected to the Board of Directors in 2003,
will not be standing for re-election  this year. Mr.  Cunningham,  a former Ford
Motor  Company  senior  executive,  will  continue  as a  director  of  ALLETE's
automotive services businesses.                                                 

     After the  Annual  Meeting,  we  invite  you to visit  with our  directors,
officers and employees over lunch in the Lake Superior  Ballroom  located in the
DECC. If you plan to join us for lunch,  please return the enclosed  reservation
card.                                                                           

     Your vote is important to us.  Whether or not you plan to attend our Annual
Meeting in person,  your shares should be represented  and voted.  After reading
the enclosed Proxy  Statement,  please vote your shares  online,  by a toll-free
telephone call or by returning the enclosed Proxy Card. Specific instructions on
how to vote are provided on your Proxy Card.                                    

Thank you for your investment in ALLETE.                              

                              Sincerely,

                                    David G. Gartzke

                                    David G. Gartzke
                            Chairman

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ALLETE, INC.
 30 WEST SUPERIOR STREET
 DULUTH, MINNESOTA 55802

--------------------------------------------------------------------------------
 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS - MAY 11, 2004
--------------------------------------------------------------------------------

     The Annual  Meeting of  Shareholders  of ALLETE,  Inc.  will be held in the
auditorium  of the Duluth  Entertainment  Convention  Center,  350 Harbor Drive,
Duluth,  Minnesota,  on Tuesday,  May 11, 2004 at 10:30 a.m.  for the  following
purposes:                                                                       

1. To elect a Board of eleven directors to serve for the ensuing year;

     2. To  ratify  the  appointment  of  PricewaterhouseCoopers LLP as ALLETE's
independent auditors for 2004; and                              

     3. To transact such other  business as may properly come before the meeting
or any adjournments thereof.                                    

     Shareholders  of record on the books of ALLETE at the close of  business on
March 12, 2004 are entitled to notice of and to vote at the Annual Meeting.     

     All shareholders are cordially invited and encouraged to attend the meeting
in  person.  The  holders of a majority  of the shares  entitled  to vote at the
meeting must be present in person or by proxy to constitute a quorum.           

     Your early response will  facilitate an efficient  tally of your votes.  If
voting by mail,  please  sign,  date and return the  enclosed  Proxy Card in the
envelope provided.  Alternatively, you can follow the instructions on your Proxy
Card to vote your shares online or by a toll-free telephone call.               

By order of the Board of Directors,                                             

Deborah A. Amberg                                                               

Deborah A. Amberg                                                               
Vice President, General Counsel and Secretary                                   

March 25, 2004                                                                  
Duluth, Minnesota                                                               

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ALLETE, INC.
 30 WEST SUPERIOR STREET
 DULUTH, MINNESOTA 55802

--------------------------------------------------------------------------------
PROXY STATEMENT 
--------------------------------------------------------------------------------

SOLICITATION                                                                    

     The Proxy Card  accompanying this Proxy Statement is solicited on behalf of
the Board of Directors  (Board) of ALLETE,  Inc.  (ALLETE or Company) for use at
the  Annual  Meeting  of  Shareholders  to be  held  on May  11,  2004  and  any
adjournments  thereof.  The purpose of the meeting is to elect a Board of eleven
directors  to  serve  for  the  ensuing  year,  to  ratify  the  appointment  of
PricewaterhouseCoopers  LLP  (PricewaterhouseCoopers)  as  ALLETE's  independent
auditors  for 2004 and to  transact  such other  business as may  properly  come
before the meeting.  All properly  submitted  proxies  received at or before the
meeting and entitled to vote will be voted at the meeting.                      

     This Proxy  Statement  and the enclosed  Proxy Card were first mailed on or
about March 25, 2004.                                                           

     Any shareholder giving a Proxy has the right to revoke it at any time prior
to its exercise by giving notice in writing to the Secretary of ALLETE.         

     ALLETE expects to solicit  proxies  primarily by mail.  Proxies also may be
solicited  at a nominal cost in person and by telephone by employees or retirees
of ALLETE. The expenses of such solicitation are the ordinary ones in connection
with  preparing,  assembling and mailing the material,  and also include charges
and  expenses  of  brokerage  houses  and other  custodians,  nominees  or other
fiduciaries for  communicating  with  shareholders.  Additional  solicitation of
proxies will be made by mail,  telephone and in person by Georgeson  Shareholder
Communications,  Inc., a firm specializing in the solicitation of proxies,  at a
cost to ALLETE of approximately  $15,000 plus expenses.  The full amount of such
costs will be paid by ALLETE.                                                   

OUTSTANDING SHARES AND VOTING PROCEDURES                                        

     The outstanding shares of capital stock of ALLETE as of March 12, 2004 were
87,920,807 shares of common stock, without par value (Common Stock).            

     Each  share of the  Common  Stock of  record  on the books of ALLETE at the
close of business on March 12, 2004 is entitled to notice of the Annual  Meeting
and to one vote.                                                                

     The affirmative  vote of a majority of the shares of stock entitled to vote
at the  Annual  Meeting is  required  for  election  of each  director,  and the
affirmative  vote of a majority of the shares of stock  present and  entitled to
vote is  required  for  approval  of the  other  items  described  in the  Proxy
Statement to be acted upon by shareholders.  An automated system administered by
Wells Fargo Bank Minnesota,  N.A. tabulates the votes.  Abstentions are included
in determining the number of shares present and voting, and are treated as votes
against the particular proposal. Broker non-votes are not counted for or against
any proposal.                                                                   

     Unless  contrary  instructions  are  indicated  on the  Proxy,  all  shares
represented  by valid  proxies  will be voted "FOR" the election of all nominees
for   director   named   herein  and  "FOR"   ratifying   the   appointment   of
PricewaterhouseCoopers  as ALLETE's  independent auditors for 2004. If any other
business is transacted at the meeting,  all shares  represented by valid proxies
will be voted in accordance with the judgment of the appointed proxies.         

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                  

     The only person known to ALLETE who as of March 12, 2004 owned beneficially
more than 5 percent  of any class of  ALLETE's  voting  securities  is  American
Express Trust Company,  928 AXP Financial Center,  Minneapolis,  MN 55474. As of
March 12, 2004  American  Express Trust Company held  7,687,287  shares,  or 8.7
percent,  of the Common Stock in its capacity as Trustee of the Minnesota  Power
and Affiliated  Companies  Retirement  Savings and Stock  Ownership Plan (RSOP).
Generally,  these shares will be voted in accordance with instructions  received
by American Express Trust Company from participants in the RSOP.                

     The following table presents the shares of Common Stock  beneficially owned
by directors,  nominees for director,  executive  officers  named in the Summary
Compensation Table which appears  subsequently in this Proxy Statement,  and all
directors  and  executive  officers of ALLETE as a group,  as of March 12, 2004.
Unless  otherwise  indicated,  the persons shown have sole voting and investment
power over the shares listed.                                                   

                                                        [Enlarge/Download Table]


                                               Options                                                                Options       
                      Number of Shares       Exercisable                                     Number of Shares       Exercisable     
Name of                Beneficially        within 60 days     Name of                          Beneficially        within 60 days   
Beneficial Owner          Owned<F1>     after March 12, 2004  Beneficial Owner                    Owned<F1>     after March 12, 2004
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
Wynn V. Bussmann            4,907               2,250         Nick Smith                          15,640               13,725       
Thomas L. Cunningham        1,902                 750         Bruce W. Stender                    20,791               11,100       
David G. Gartzke           58,753             189,580         Donald C. Wegmiller                 25,590               11,100       
Dennis O. Green             1,898                   0         Deborah L. Weinstein                 1,860                    0       
Peter J. Johnson           38,678              11,100         James P. Hallett                    41,033              131,344       
George L. Mayer            29,053              10,616         Philip R. Halverson (retired)       32,796               30,481       
Roger D. Peirce                 0                   0         Donald J. Shippar                   22,558               23,488       
Jack I. Rajala             20,605              11,100         James K. Vizanko                    22,883               31,175       

All directors and                                                                                                                   
executive officers                                                                                                                  
as a group (20):          400,727             545,924                                                                               
------------------------------------------------------------------------------------------------------------------------------------
<FN>                                                                                                                                
<F1> Includes (i) shares as to which voting and  investment power is  shared with the person's spouse: Mr. Johnson - 36,861, and all
     directors and officers as a group - 49,187;  (ii) shares owned by the person's spouse: Mr. Gartzke - 21,107, Mr. Johnson - 323,
     Mr. Mayer - 800, Mr. Smith - 50, and all  directors and officers as a group - 21,957;  (iii) shares held by the person's  minor
     children: Mr. Halverson - 9, and all directors and officers as a group - 213; and (iv) shares held as trustee: Mr. Mayer - 650.
     Each director and executive officer owns only a fraction of 1 percent of Common Stock, and all directors and executive officers
     as a group also own less than 1 percent of Common Stock.                                                                       
</FN>                                                                                                                               

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE                         

     Section 16(a) of the Securities Exchange Act of 1934, as amended,  requires
ALLETE's  directors  and  executive  officers,  and persons who own more than 10
percent of a registered class of ALLETE's equity securities,  to file reports of
initial  ownership of Common Stock and other equity  securities  and  subsequent
changes in that ownership with the Securities and Exchange  Commission (SEC) and
the New York Stock Exchange  (NYSE).  Based on a review of such reports,  ALLETE
believes that all such filing requirements were met during 2003, except that one
report  (an  amended  Form  5) for Mr.  Johnson  was  filed  late  covering  one
transaction involving the receipt by his spouse of a gift of Common Stock.      

PROPOSALS OF SHAREHOLDERS FOR THE 2005 ANNUAL MEETING                           

     All proposals from shareholders to be considered for inclusion in the Proxy
Statement  relating  to the Annual  Meeting  scheduled  for May 10, 2005 must be
received by the  Secretary  of ALLETE at 30 West  Superior  Street,  Duluth,  MN
55802-2093  not later than  November  25, 2004.  In addition,  the persons to be
named as proxies in the Proxy Cards relating to that Annual Meeting may have the
discretion to vote their proxies in accordance with their judgment on any matter
as to which  ALLETE did not have  notice  prior to  February  8,  2005,  without
discussion  of such  matter  in the  Proxy  Statement  relating  to that  Annual
Meeting.                                                                        

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--------------------------------------------------------------------------------
ITEM NO. 1 - ELECTION OF DIRECTORS
--------------------------------------------------------------------------------

     It is  intended  that the  shares  represented  by the Proxy will be voted,
unless  authority  is withheld,  "FOR" the  election of the eleven  nominees for
director named below and on the next page.  Directors are elected to serve until
the next annual  election  of  directors  and until a  successor  is elected and
qualified,  or until a director's earlier resignation or removal. If any nominee
should become unavailable,  which is not anticipated, the Board of Directors may
provide by resolution for a lesser number of directors,  or designate substitute
nominees, who would receive the votes represented by the enclosed Proxy.        

NOMINEES FOR DIRECTOR                                                           
--------------------------------------------------------------------------------
[PHOTO]        WYNN  V.  BUSSMANN,  62,  Birmingham,  MI.  Member  of the  Audit
               Committee.  Senior Vice  President - Global  Forecasting  of J.D.
               Power and  Associates,  an  international  marketing  information
               firm.   From  1994  to  2001  he  was  Corporate   Economist  for
               DaimlerChrysler  Corporation,  where he  provided  forecasts  and
               analysis  of  vehicle  sales  and  other  trends  in the  vehicle
               industry for product strategy and planning.  Chair of the Society
               of  Automotive  Analysts  and  past  chair of the  Conference  of
Business Analysts. DIRECTOR SINCE 2002.           
--------------------------------------------------------------------------------
[PHOTO]        DAVID G. GARTZKE, 60,  Indianapolis,  IN. Chairman of ALLETE, and
               Chairman,  President and CEO of ALLETE Automotive Services,  Inc.
               From 2002 to 2004 he was  Chairman,  President and CEO of ALLETE.
               From 2001 to 2002 he was  President of ALLETE.  From 1994 to 2001
               he was Senior Vice  President and CFO of ALLETE.  DIRECTOR  SINCE
2001.                                             
--------------------------------------------------------------------------------
[PHOTO]        DENNIS O. GREEN, 63, Beaufort, SC. Member of the Audit Committee.
               Founder,  Director and President of the Olive Tree Foundation,  a
               private charitable foundation.  Managing partner of Celadon, LLC,
               a real estate  development  firm.  An organizing  Director,  Vice
               Chairman  of the Board and  Chairman  of the Audit  Committee  of
               Coastal Banking Company and its subsidiary,  Lowcountry  National
               Bank.  Retired in July 1997 from his position as Chief Auditor of
               Citicorp and of its principal subsidiary,  Citibank, NA, where he
               had been  responsible  for worldwide  audit functions since 1990.
               From  1984  to  1990 he was the  General  Auditor  of Ford  Motor
Company. DIRECTOR SINCE 2003.                     
--------------------------------------------------------------------------------
[PHOTO]        PETER J. JOHNSON,  67, Tower,  MN. Member of the Audit Committee.
               Chairman  of Hoover  Construction  Company,  a highway  and heavy
construction contractor. DIRECTOR SINCE 1994.     
--------------------------------------------------------------------------------
[PHOTO]        GEORGE L. MAYER,  59, Essex,  CT. Member of the Audit  Committee.
               Founder and  President  of Manhattan  Realty Group which  manages
               various apartment properties.  Director of Schwaab,  Inc., one of
               the nation's largest  manufacturers of handheld rubber stamps and
associated products. DIRECTOR SINCE 1996.         
--------------------------------------------------------------------------------

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NOMINEES FOR DIRECTOR                                                           
--------------------------------------------------------------------------------
[PHOTO]        ROGER D. PEIRCE, 66, Mequon,  WI. Corporate  consultant since his
               retirement  in 1994 from his  position as Vice Chair of the Board
               and  CEO  of  Super  Steel  Products   Corporation,   a  contract
               manufacturer of fabricated  metal products.  From 1995 to 1996 he
               was  President  and CEO of  Valuation  Research  Corporation,  an
               independent  firm providing  valuations of business  enterprises,
               securities and tangible and intangible assets.  From 1961 to 1986
               he was an  accountant  with  Arthur  Andersen  and  the  managing
               partner of the Tucson, Arizona office from 1985 to 1986. Director
               and   Chairman   of  the   Compensation   Committee   of  Journal
               Communication,   Inc.   and  Demco,   Inc.,   Director  of  Brady
               Corporation and Compensation Committee Chairman for Schwaab, Inc.
               Mr. Peirce was known to one of ALLETE's non-management  directors
               who  suggested  him to the Corporate  Governance  and  Nominating
Committee. FIRST-TIME NOMINEE.                    
--------------------------------------------------------------------------------
[PHOTO]        JACK I. RAJALA,  64, Grand  Rapids,  MN.  Member of the Corporate
               Governance and Nominating  Committee.  Chairman and CEO of Rajala
               Companies,  and  Director  and  President  of Rajala Mill Company
               which  manufactures  and trades lumber.  Director of Grand Rapids
               State Bank.  Member of the Board of Regents of Concordia  College
in Minnesota. DIRECTOR SINCE 1985.                
--------------------------------------------------------------------------------
[PHOTO]        NICK SMITH,  67,  Duluth,  MN. Lead Director of the ALLETE Board.
               Chair of the Corporate Governance and Nominating  Committee,  and
               member of the Executive Compensation Committee.  Chairman and CEO
               of  Northeast  Ventures  Corporation,   a  venture  capital  firm
               investing  in  northeastern  Minnesota.   Chairman  of  Community
               Development  Venture Capital  Alliance,  a national  association.
            Director of North Shore Bank of Commerce. DIRECTOR SINCE 1995.
--------------------------------------------------------------------------------
[PHOTO]        BRUCE W. STENDER,  62, Duluth,  MN. Chair of the Audit Committee,
               and member of the Corporate Governance and Nominating  Committee.
               President and CEO of Labovitz  Enterprises,  Inc.  which owns and
               manages  hotels and commercial  real estate.  Trustee of the C.K.
               Blandin  Foundation  and  member  of  the  Chancellor's  Advisory
               Committee for the University of Minnesota Duluth.  DIRECTOR SINCE
1995.                                             
--------------------------------------------------------------------------------
[PHOTO]        DONALD C. WEGMILLER, 65, Minneapolis,  MN. Chair of the Executive
               Compensation Committee. Chairman of Clark Consulting - Healthcare
               Group,  a  national  executive  and  physician  compensation  and
               benefits  consulting firm. From 1993 to 2003 he was President and
               CEO of Clark  Consulting - Healthcare  Group.  Director of Possis
               Medical,  Inc., JLJ Medical Devices  International,  LLC, Vivius,
   Inc. and ProVation Medical, Inc. DIRECTOR SINCE 1992.
--------------------------------------------------------------------------------
[PHOTO]        DEBORAH L. WEINSTEIN,  44, Ottawa,  Ontario Canada. Member of the
               Executive  Compensation  Committee.  Co-founder  and  partner  in
               LaBarge Weinstein,  LLP, a business law firm.  Director of Mosaid
               Technologies Inc. and Dynex  Semiconductor Inc. Vice Chair of the
               Ottawa  Centre for Research and  Innovation,  and Director of the
     Ottawa Heart Institute Foundation. DIRECTOR SINCE 2003.
--------------------------------------------------------------------------------

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CORPORATE GOVERNANCE                                                            

     Corporate  governance  encompasses  the internal  policies and practices by
which ALLETE is operated and  controlled  on behalf of its  shareholders.  Sound
corporate  governance starts with a strong,  independent Board of Directors that
is accountable to the Company and its shareholders.  The role of the Board is to
effectively   govern  the  affairs  of  the  Company  for  the  benefit  of  its
shareholders  and,  to  the  extent   appropriate  under  Minnesota  law,  other
constituencies which include the Company's employees,  customers,  suppliers and
the  communities  in which it does  business.  Because its  ultimate  goal is to
better  focus and  direct  the  resources  of the  Company,  ALLETE  views  good
corporate governance as a source of competitive advantage.                      

     In 2003 the Board and its committees  continued to examine their  processes
and strengthen them as appropriate.  Corporate Governance  Guidelines adopted in
2002  were  revised.  Committee  charters  were  updated  in 2003 to  supplement
substantial revisions adopted in 2002 to meet or exceed requirements proposed in
rulemakings then underway.  The Corporate  Governance  Guidelines document Board
rules and  responsibilities,  Board  selection and composition  policies,  Board
operating policies, Board committee responsibilities,  director compensation and
other matters.  Current copies of ALLETE's Corporate  Governance  Guidelines and
the charters of the Corporate  Governance  and  Nominating,  Audit and Executive
Compensation    committees    are    available    on    ALLETE's    website   at
http://www.allete.com.                                                          

     The  Board's  evaluation  of ALLETE's  corporate  governance  processes  is
ongoing.  This  assures  that the Board and its  committees  have the  necessary
authority and  practices in place to review and evaluate the Company's  business
operations  as  needed,  and to  make  decisions  that  are  independent  of the
Company's  management.  As examples,  the Board and its committees  undertake an
annual  self-evaluation  process,  meet regularly  without members of management
present, have direct access to and meet individually with members of management,
and retain their own advisors as they deem appropriate.                         

DIRECTOR INDEPENDENCE                                                           

     The  Board  has  determined  that all of  ALLETE's  directors,  except  the
Chairman,  are "independent" under ALLETE's Corporate Governance  Guidelines and
applicable SEC and NYSE rules.  The Board has established  responsibilities  for
the lead director which include, among other things, coordinating the activities
of the Company's  independent  directors,  advising the Chairman of the Board on
Board meeting agendas and on the effectiveness of the Board meeting processes.  

DIRECTOR NOMINATIONS                                                            

     The Corporate  Governance  and  Nominating  Committee  recommends  director
candidates  to the Board,  and will consider for such  recommendations  director
candidates  proposed  by  management,   other  directors  and  shareholders.   A
shareholder  wishing to suggest a candidate  should provide the candidate's name
and a detailed  background of the  candidate's  qualifications  to the Corporate
Governance  and Nominating  Committee by addressing the Secretary of ALLETE,  30
West Superior Street, Duluth, MN 55802-2093.                                    

     The selection of director nominees includes consideration of factors deemed
appropriate by the Board. Factors may include integrity, achievements, judgment,
intelligence,  personal  character,  the interplay of the  candidate's  relevant
experience  with the experience of other Board members,  the  willingness of the
candidate to devote  adequate time to Board duties and the likelihood that he or
she will be willing and able to serve on the Board for a sustained  period.  The
Corporate  Governance  and Nominating  Committee  will consider the  candidate's
independence, as defined in the Corporate Governance Guidelines and the rules of
the NYSE. In connection with the selection,  due consideration  will be given to
the Board's  overall  balance of  diversity  of  perspectives,  backgrounds  and
experiences.  Experience,  knowledge and skills to be  represented  on the Board
include,  among other  considerations,  financial expertise (including an "audit
committee  financial  expert" within the meaning of SEC  regulations),  electric
utility and/or automobile industry knowledge and contacts, financing experience,
strategic planning and community leadership.                                    

     The  Corporate   Governance  and  Nominating   Committee  will  review  all
candidates,  and before any  contact is made with a  potential  candidate,  will
notify the Board of its intent to do so, will provide the  candidate's  name and
background  information,  and allow time for directors to comment. The Corporate
Governance  and  Nominating   Committee  screens,   personally   interviews  and
recommends  candidates to the Board.  A majority of the  committee  members will
interview any potential nominee before recommending that candidate to the Board.
The recommendations of the Corporate Governance and Nominating Committee will be
timed so as to allow  interested  Board members an  opportunity to interview the
candidate prior to the nomination of the candidate.                             

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BOARD AND COMMITTEE MEETINGS IN 2003                                            

     During  2003 the Board of  Directors  held eight  meetings.  The  Corporate
Governance and  Nominating  Committee,  which held seven  meetings  during 2003,
provides  recommendations  to the  Board  with  respect  to Board  organization,
membership,  function,  committee structure and membership,  succession planning
for  the  executive  management  and the  application  of  corporate  governance
principles.  The Corporate Governance and Nominating Committee also performs the
functions  of  a  director  nominating  committee,   leads  the  Board's  annual
evaluation  of the chief  executive  officer and is  authorized  to exercise the
authority of the Board in the intervals between  meetings.  The Audit Committee,
which held eleven  meetings in 2003,  recommends  the  selection of  independent
auditors,  reviews the  independence  and  performance of independent  auditors,
reviews and evaluates ALLETE's accounting practices,  reviews periodic financial
reports to be provided to the public, and reviews and recommends approval of the
annual audit report.  The Executive  Compensation  Committee,  which held eleven
meetings in 2003,  establishes  compensation and benefit arrangements for ALLETE
officers and other key executives that are intended to be equitable, competitive
in the marketplace and consistent with corporate  objectives.  In 2003 the Board
established the Automotive  Services Strategy  Committee and the Minnesota Power
Strategy  Committee to focus on the  strategies  of these  business  units.  All
directors attended 75 percent or more of the aggregate number of meetings of the
Board of Directors  and  applicable  committee  meetings in 2003.  Directors are
expected to attend the Annual Meeting, and in 2003, all directors attended.     

COMMUNICATIONS BETWEEN SHAREHOLDERS AND THE BOARD OF DIRECTORS                  

     Shareholders  who wish to communicate  directly with the Board may do so by
addressing the Lead Director,  c/o Secretary of ALLETE, 30 West Superior Street,
Duluth, MN 55802-2093.                                                          

DIRECTOR COMPENSATION                                                           

     Employee directors receive no additional compensation for their services as
directors.  ALLETE pays each non-employee director under the terms of the ALLETE
Director  Stock Plan an annual cash  retainer  fee of  $20,000,  and annual cash
retainer fees for each committee and chair assignment as set forth below:       

                                 Committee Retainer Fees
                                 Members               Chair
                                 -------------------------------
Audit                                  $9,000              $6,000     
Executive Compensation                 $7,500              $4,500     
Corporate Governance and Nominating    $7,500              $4,500     
Automotive Services Strategy           $4,000              $2,000     
Minnesota Power Strategy               $4,000              $2,000     

     In 2003 non-employee  directors received a prorated portion (83.33 percent)
of cash  retainer  fees to  reflect  a change in the  timing of annual  director
compensation  payments  under the ALLETE  Director  Stock Plan to coincide  with
annual  service  commencing  with the  election of the  directors  at the Annual
Meeting.  Directors  may elect to defer all or part of the cash portion of their
retainer under the terms of the ALLETE Director Compensation Deferral Plan.     

     In addition,  ALLETE pays each non-employee  director,  other than the lead
director,  annual equity  compensation  equal in value to $47,500.  Beginning in
2004 non-employee  director annual equity  compensation will be paid entirely in
Common Stock.  In 2003  non-employee  director equity  compensation  was paid as
follows:  1,300 shares of Common Stock and $8,000 in cash under the terms of the
ALLETE  Director  Stock Plan;  and 1,500 stock options and a  performance  share
award  opportunity  valued at $5,000  under  the  terms of the  ALLETE  Director
Long-Term Stock Incentive Plan.                                                 

     The Board authorized Mr. Smith, as lead director, to receive an annual cash
retainer  fee of  $22,000  and the  same  annual  cash  retainer  fees  for each
committee and chair  assignment  as other  non-employee  directors.  In 2003 Mr.
Smith received a prorated  portion (83.33  percent) of his cash retainer fees in
the same manner as other non-employee directors.  Mr. Smith also received equity
compensation  in 2003 comprised of the  following:  3,507 shares of Common Stock
under the terms of the ALLETE Director Stock Plan; and 3,000 stock options and a
performance share award opportunity  valued at $10,000 under the ALLETE Director
Long-Term Stock Incentive Plan.                                                 

     Fifty percent of the stock  options  granted to  non-employee  directors in
2003 vest and become  exercisable on the first anniversary of the date of grant,
and the remaining 50 percent vest on the second  anniversary.  All stock options
expire on the tenth  anniversary  of the date of grant.  The exercise  price for
each grant is the closing market price of Common Stock on the date of grant. The
performance  periods for performance shares ended on December 31, 2003. Dividend
equivalents  in the form of  additional  performance  shares  accrue  during the
performance  period  and are paid only to the  extent  the  underlying  grant is
earned.  The  performance  goal of each  performance  period  is  based on Total
Shareholder  Return for ALLETE in comparison to Total Shareholder  Return for 16
diversified electric utilities. Any awards earned are paid out in Common Stock. 

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     During  the  two-year   performance   period  ending   December  31,  2003,
shareholders  of ALLETE  realized  Total  Shareholder  Return of 31.8 percent on
their  investment  in  Common  Stock,   ranking  ALLETE  seventh  among  the  16
diversified electric utilities.  With this ranking, the non-employee  directors,
other than the lead  director,  each  earned 424 shares of Common  Stock and the
lead director earned 916 shares of Common Stock,  awards equal to 100 percent of
the respective target performance share award. Fifty percent of this performance
share  award  was  paid in  stock  at the  end of the  performance  period.  The
remaining 50 percent  will be paid in stock on December 31, 2004.  There will be
no new grants of stock  options or  performance  shares  issued to  non-employee
directors under the ALLETE  Director  Long-Term Stock Incentive Plan. The shares
of Common  Stock paid to directors  with  respect to 2003 had an average  market
price of $24.90 per share.                                                      

COMPENSATION OF EXECUTIVE OFFICERS                                              

     The following  information  describes  compensation  paid in the years 2001
through 2003 for ALLETE's named executive officers.                             

                                                        [Enlarge/Download Table]

                                                    SUMMARY COMPENSATION TABLE                                                      
------------------------------------------------------------------------------------------------------------------------------------

                                                  Annual Compensation<F1>                  Long-Term Compensation                   
                                                 -------------------------- ------------------------------------------              
                                                                                        Awards                Payouts               
                                                                            ------------------------------   ---------     All      
                                                                              Restricted      Securities                  Other     
                                                                                Stock         Underlying       LTIP      Compen-    
 Name and                                         Salary        Bonus           Awards          Options       Payouts    sation<F7> 
 Principal Position                   Year          ($)          ($)             ($)              (#)           ($)        ($)      
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
 DAVID G. GARTZKE                     2003       561,846       544,002            0             74,219        302,962     61,300    
 Chairman; Chairman, President        2002       515,385             0            0             89,667         99,388     74,195    
 and CEO of ALLETE                    2001       319,866       489,590<F2>     493,800<F6>      16,883        139,394     42,139    
 Automotive Services                                                                                                                

 JAMES P. HALLETT                     2003       439,808       328,532<F3>        0             42,500        169,203     47,104    
 Executive Vice President;            2002       420,692       153,344<F3>        0             42,500        117,912     47,516    
 Vice President of ADESA, Inc.        2001       361,885       890,565            0             19,350        195,531     34,664    

 JAMES K. VIZANKO                     2003       261,679       265,825<F4>        0             23,959         95,384     26,824    
 Senior Vice President,               2002       240,769             0            0             23,959         87,180     29,498    
 CFO and Treasurer                    2001       183,477        97,235            0              5,863        118,782     21,377    

 DONALD J. SHIPPAR                    2003       263,250       235,639            0              8,371         77,759     28,380    
 President and CEO                    2002       231,041        25,132            0              8,371         52,961     29,506    
                                      2001       194,654       104,654            0              6,136         88,524     21,336    

 PHILIP R. HALVERSON                  2003       239,429       199,105<F5>        0              6,548         60,827     35,114    
 Retired Vice President, Secretary    2002       228,077             0            0              6,548         88,998     37,399    
 and General Counsel                  2001       215,484        83,657            0              6,875        124,150     29,277    
------------------------------------------------------------------------------------------------------------------------------------
<FN>                                                                                                                                
<F1> Amounts shown include compensation earned by the  named  executive  officers, as  well as amounts  earned but deferred  at  the
     election of those  officers.  The "Bonus" column is comprised of amounts earned pursuant to the Results Sharing program and the
     Executive  Annual  Incentive  Plan.  For bonuses paid in Common Stock,  the market value of the stock at the time of payment is
     included.                                                                                                                      
<F2> Included in the amount shown for Mr. Gartzke is $250,000 paid as a bonus in  connection  with his  election to  the  office  of
     President of ALLETE.                                                                                                           
<F3> Included in the amount shown for Mr. Hallett is an annual retention bonus of $102,550 for 2002 and $162,750 for  2003 paid in a
     combination of Common Stock and cash.                                                                                          
<F4> Included in the amount shown for Mr. Vizanko is $100,000 paid as a bonus in connection with the sale of ALLETE's water services
     businesses.                                                                                                                    
<F5> Included in the amount shown for Mr.  Halverson is $50,000  paid as  a bonus in connection with  the  sale  of  ALLETE's  water
     services businesses.                                                                                                           
<F6> The amount shown represents the value  of 20,000  deferred  share units of  Common Stock  granted  on  December 18, 2001.      
<F7> The amounts shown for 2003 include the following ALLETE annual contributions for the named executive officers:                 

                                        Contribution to the         Contribution to the      Above-Market Interest                  
                                      Retirement Savings and            Supplemental            on Compensation                     
                                       Stock Ownership Plan              Executive             Deferred Under the                   
 Name                              and the Flexible Benefit Plan      Retirement Plan      Executive Investment Plan*               
------------------------------------------------------------------------------------------------------------------------------------
 David G. Gartzke                             $21,042                     $33,311                    $6,947                         
 James P. Hallett                               3,100                      44,004                         0                         
 James K. Vizanko                              19,342                       5,550                     1,932                         
 Donald J. Shippar                             19,342                       7,509                     1,529                         
 Philip R. Halverson                           21,042                       3,953                    10,119                         
------------------------------------------------------------------------------------------------------------------------------------
* ALLETE made investments in corporate-owned life insurance which will recover the cost  of this above-market benefit, if  actuarial
  factors  and other  assumptions are realized. The  policy premiums are  fully paid  and ALLETE  has discontinued  this  investment
  program.                                                                                                                          
</FN>                                                                                                                               

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                                                        [Enlarge/Download Table]

                                                  OPTION GRANTS IN LAST FISCAL YEAR                                                 

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                                                 Individual Grants                                               Grant Date Value   
------------------------------------------------------------------------------------------------------------------------------------
                                Number of               % of Total                                                                  
                               Securities            Options Granted        Exercise or                             Grant Date      
                               Underlying            to Employees in        Base Price          Expiration         Present Value    
  Name                       Options Granted<F1>        Fiscal Year           ($/Sh)               Date                 ($)<F2>     
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
  David G. Gartzke               74,219                   10.8                 20.51           Feb. 3, 2013           316,626       

  James P. Hallett               42,500                    6.2                 20.51           Feb. 3, 2013           181,309       

  James K. Vizanko               23,959                    3.5                 20.51           Feb. 3, 2013           102,211       

  Donald J. Shippar               8,371                    1.2                 20.51           Feb. 3, 2013            35,712       

  Philip R. Halverson             6,548                    0.9                 20.51           Feb. 3, 2013            27,934       
------------------------------------------------------------------------------------------------------------------------------------
<FN>                                                                                                                                
<F1> Options vest 50 percent on February 3, 2004 and 50 percent on  February 3, 2005. Options  granted  to  each of  the  executives
     listed in this table are subject to a change-in-control acceleration provision.                                                
<F2> The  grant date dollar  value of options is  based on ALLETE's  binomial  ratio (as of February 3, 2003) of .208. The  binomial
     option valuation method is a complicated  mathematical model premised on immediate  exercisability  and  transferability of the
     options,  which are not features of ALLETE's options granted to executive  officers and other  employees.  The values shown are
     theoretical and do not  necessarily  reflect the actual values the recipients may eventually  realize.  Any actual value to the
     officer or other  employee  will depend on the extent to which the market  value of Common  Stock at a future date  exceeds the
     exercise price. In addition to the option  exercise  price,  the following  assumptions for modeling were used to calculate the
     values shown for the options granted in 2003: (i) each option remains  outstanding  for a period of seven years;  (ii) expected
     dividend yield is 5.51 percent (based on the most recent quarterly  dividend);  (iii) expected  dividend increase is 2 percent;
     (iv) expected  stock price  volatility is .297 (based on 504 trading days previous to February 3, 2003);  and (v) the risk-free
     rate of return is 3.81 percent (based on Treasury yields).                                                                     

</FN>                                                                                                                               

                                                        [Enlarge/Download Table]
                                           AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR                                          
                                                      AND FY-END OPTION VALUES                                                      
------------------------------------------------------------------------------------------------------------------------------------

                                                                         Number of Securities                Value of Unexercised   
                                                                        Underlying Unexercised                   In-the-Money       
                                                                         Options at FY-End (#)              Options at FY-End ($)   
                          Shares Acquired        Value Realized        --------------------------         --------------------------
  Name                    on Exercise (#)              ($)             Exercisable  Unexercisable         Exercisable  Unexercisable
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
  David G. Gartzke                  0                     0              113,673       113,017              840,029       939,756   

  James P. Hallett                  0                     0               88,844        63,750              743,715       533,375   

  James K. Vizanko                  0                     0               17,842        35,939               99,831       300,688   

  Donald J. Shippar                 0                     0               28,391        12,557              265,626       105,059   

  Philip R. Halverson          24,683               318,356               23,933         9,822              185,118        82,177   
------------------------------------------------------------------------------------------------------------------------------------

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RETIREMENT PLANS                                                                

     The following table sets forth examples of the estimated annual  retirement
benefits that would be payable to participants  in ALLETE's  Retirement Plan and
Supplemental  Executive  Retirement  Plan  after  various  periods  of  service,
assuming no changes to the plans and retirement at the normal  retirement age of
65.                                                                             

                                                        [Enlarge/Download Table]


                                                                   PENSION PLAN                                                     
                                                                 Years of Service                                                   
------------------------------------------------------------------------------------------------------------------------------------
     Remuneration<F1>             15                   20                    25                  30                   35            
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                    
       $100,000                $12,000              $16,000               $30,400              $35,400              $40,400         
        125,000                 15,000               20,000                38,000               44,250               50,500         
        150,000                 18,000               24,000                45,600               53,100               60,600         
        175,000                 21,000               28,000                53,200               61,950               70,700         
        200,000                 24,000               32,000                60,800               70,800               80,800         
        225,000                 27,000               36,000                68,400               79,650               90,900         
        250,000                 30,000               40,000                76,000               88,500              101,000         
        300,000                 36,000               48,000                91,200              106,200              121,200         
        400,000                 48,000               64,000               121,600              141,600              161,600         
        450,000                 54,000               72,000               136,800              159,300              181,800         
        500,000                 60,000               80,000               152,000              177,000              202,000         
        600,000                 72,000               96,000               182,400              212,400              242,400         
        700,000                 84,000              112,000               212,800              247,800              282,800         
        800,000                 96,000              128,000               243,200              283,200              323,200         
        900,000                108,000              144,000               273,600              318,600              363,600         
      1,000,000                120,000              160,000               304,000              354,000              404,000         
------------------------------------------------------------------------------------------------------------------------------------
<FN>                                                                                                                                
<F1>  Represents  the highest  annualized  average  compensation  (salary  and  bonus) received for 48 consecutive months during the
      employee's last 15  years of  service with ALLETE. For determination  of  the pension benefit, the 48-month period for highest
      average salary may be different from the 48-month period of highest aggregate bonus compensation.                             
</FN>                                                                                                                               

     Retirement benefit amounts shown are in the form of a straight-life annuity
to the  employee  and are based on amounts  listed in the  Summary  Compensation
Table under the headings "Salary" and "Bonus."  Retirement benefit amounts shown
are not subject to any  deduction for Social  Security or other offset  amounts.
ALLETE's  Retirement  Plan  provides  that the benefit  amount at  retirement is
subject to adjustment in future years to reflect  changes in cost of living to a
maximum  adjustment of 3 percent per year. As of December 31, 2003 the executive
officers  named in the Summary  Compensation  Table had the  following  years of
credited service under the plans:                                               

 David G. Gartzke      29 years        Donald J. Shippar        27 years
 James P. Hallett       9 years        Philip R. Halverson      27 years
James K. Vizanko      26 years                                        

     If either Mr. Gartzke or Mr. Hallett remains employed as a senior executive
with ALLETE until age 62, a defined benefit retirement plan supplements  amounts
paid  under  other  ALLETE  retirement  plans,  so that  the  executive's  total
retirement  pay is no less  than 51  percent  of the  executive's  final  pay if
retirement is at age 62 and no less than 60 percent of the executive's final pay
if  retirement  is at age 65. This  benefit is reduced by 2.3 percent of pay for
each year under 22 years of service with ALLETE if the executive  retires at age
62 and by 3 percent of pay for each of the three years between ages 62 and 65.  

     With  certain  exceptions,  the Internal  Revenue Code of 1986,  as amended
(Code),  restricts the aggregate  amount of annual pension benefits which may be
paid to an employee under ALLETE's  Retirement  Plan to $160,000 for 2003.  This
amount is subject to  adjustment  in future years to reflect  changes in cost of
living.   ALLETE's   Supplemental   Executive   Retirement   Plan  provides  for
supplemental  payments by ALLETE to eligible executives (including the executive
officers  named in the  Summary  Compensation  Table) in amounts  sufficient  to
maintain total  retirement  benefits upon retirement at a level which would have
been provided by ALLETE's Retirement Plan if benefits were not restricted by the
Code.                                                                           

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REPORT OF BOARD'S EXECUTIVE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION    

     Described below are the compensation policies of the Executive Compensation
Committee of the Board of Directors (Compensation  Committee) effective for 2003
with  respect  to  the  executive  officers  of  ALLETE.  Composed  entirely  of
independent  outside  directors,  the Compensation  Committee is responsible for
recommending  to the Board  policies  which  govern the  executive  compensation
program  of  ALLETE  and for  administering  those  policies.  The  Compensation
Committee  has  retained  the  services  of outside  benefits  and  compensation
consulting  firms to assist the  Compensation  Committee in connection  with the
performance of such responsibilities.                                           

     The role of the executive  compensation  program is to help ALLETE  achieve
its corporate goals by motivating  performance,  rewarding  positive results and
enhancing Total  Shareholder  Return,  as discussed below.  Recognizing that the
potential impact an individual employee has on the attainment of corporate goals
tends to  increase  at  higher  levels  of  responsibility  within  ALLETE,  the
executive  compensation  program  provides  greater  visibility in  compensating
individuals  based on results achieved as their  responsibilities  within ALLETE
increase.  In other words,  individuals  with the greatest  potential  impact on
achieving  the  stated  goals  have the  greatest  amount to gain when goals are
achieved and the greatest amount at risk when goals are not achieved.           

     The program recognizes that, in order to attract and retain the exceptional
executive talent needed to lead and grow ALLETE's businesses,  compensation must
be  competitive  in  the  national   market.   To  determine  market  levels  of
compensation for executive  officers in 2003, the Compensation  Committee relied
upon comparative  information from general  industrial  companies in tandem with
available specific industry data (i.e., electric utility,  automotive,  finance,
etc.) which was  provided  and  reviewed by outside  consultants.  All data were
analyzed to determine  median  compensation  levels for comparable  positions in
comparably sized companies, as measured by revenue.                             

     Code Section 162(m) generally disallows a tax deduction to public companies
for  compensation  over  $1  million  paid  for any  fiscal  year to each of the
corporation's CEO and four other most highly  compensated  executive officers as
of the end of any fiscal year.  Qualifying  performance-based  compensation will
not be subject to the deduction limit if certain requirements are met. The stock
options and  performance  shares  granted to the  executive  officers  under the
Executive  Long-Term  Incentive  Compensation  Plan are  intended  to qualify as
performance-based  compensation  within the meaning of Code Section 162(m).  The
Compensation  Committee  generally intends to structure  executive  compensation
plans so that the Company may deduct all  executive  compensation,  but reserves
the ability to do otherwise if it is determined  to be in the best  interests of
the Company and its shareholders.                                               

     As described  below,  executive  officers of ALLETE  receive a compensation
package which consists of three basic elements:  base salary,  performance-based
compensation and supplemental  executive benefits.  The compensation of ALLETE's
CEO for the year 2003 is discussed separately.                                  

BASE SALARY                                                                     

     Base  salaries  are  set at a  level  so  that,  if  the  target  level  of
performance  is achieved under the  performance-based  compensation  plans,  the
named executive officers' total compensation,  including amounts paid under each
of the  performance-based  compensation  plans described below, will be near the
midpoint of market compensation.                                                

PERFORMANCE-BASED COMPENSATION                                                  

     The  performance-based  compensation  plans of ALLETE are  intended  by the
Compensation   Committee  to  reward  executives  for  achieving  financial  and
non-financial goals that the Compensation  Committee determines will be required
to achieve ALLETE's strategic and budgeted goals.                               

     Performance goals under  performance-based plans are established in advance
by the  Compensation  Committee and the Board of Directors.  Target  performance
levels  under the  performance-based  plans are  achieved if the  business  unit
exceeds its budget and if ALLETE achieves a Total Shareholder  Return ranking of
7th or better  compared to a peer group of 16  diversified  electric  utilities.
Total Shareholder  Return is defined as stock price  appreciation plus dividends
reinvested on the ex-dividend date throughout the relevant  performance  period,
divided by the fair market value of a share at the beginning of the  performance
period. With target performance,  it is the Compensation Committee's intent that
executive  compensation  (including the value of stock options  granted) will be
near the midpoint of the relevant  market.  If no performance  awards are earned
and no value is attributed to the                                               

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stock options  granted,  compensation  of ALLETE's  executive  officers would be
significantly below the midpoint market compensation level, while performance at
increments above the target level would result in total  compensation  above the
midpoint of the market.                                                         

ALLETE's performance-based compensation plans include:                

  -  RESULTS  SHARING.  Employees  of ALLETE's  energy services and real  estate
     businesses  and ALLETE's  corporate  group are eligible to  participate  in
     ALLETE's Results Sharing program.  The Results Sharing award  opportunities
     for 2003 were based on net income  from  continuing  operations  (including
     gains from the sale of ALLETE's  water  services  businesses)  and business
     unit operating income. Target financial performance will result in an award
     of 5 percent of base salary,  assuming safety and environmental  protection
     goals established by the Compensation Committee are also accomplished.  The
     results  shown in the Summary  Compensation  Table  reflect  earned  awards
averaging 12 percent of base salary.                                  

  -  EXECUTIVE ANNUAL INCENTIVE PLAN. The  Executive  Annual  Incentive Plan  is
     intended  to focus  executive  attention  on meeting and  exceeding  annual
     financial  and  non-financial   business  unit  goals  established  by  the
     Compensation  Committee.  For  2003  financial  performance  measures  were
     business unit  contributions  to net income from continuing  operations and
     operating free cash flow. These financial  performance measures were chosen
     by the Compensation  Committee  because of their positive  correlation over
     time  with  the  Total  Shareholder  Return  achieved  by  ALLETE  for  its
     shareholders.  Target  level  performance  is earned if budgeted  financial
     results are exceeded. The 2003 financial and non-financial results exceeded
     budgeted  goals set by the Executive  Compensation  Committee.  The results
     shown in the Summary  Compensation Table reflect earned awards ranging from
37.1 percent to 76.8 percent of base salary.                          

  -  EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN (LTIP). Under the LTIP, the
     executive  officers of ALLETE have been awarded  stock  options  (which are
     granted   annually)   and   performance   shares   (which  are  granted  in
     even-numbered  years) having in the aggregate  target award values  ranging
     from 40  percent to 100  percent of the  executive  officers'  annual  base
     salaries.  The target award value for Mr.  Hallett and Mr. Vizanko has been
     allocated 70 percent to stock options and 30 percent to performance shares.
     The target award value for Mr. Shippar and Mr. Halverson has been allocated
     50 percent to stock options and 50 percent to performance shares. The stock
     options  have value only if the Common  Stock price  appreciates  above the
     price on the date of grant. The performance shares granted for the two-year
     performance  period  ending  December 31, 2003 have value because the Total
     Shareholder  Return of ALLETE over the two-year period ranked at least 11th
     in a  peer  group  of 16  diversified  electric  utilities  adopted  by the
     Compensation  Committee as appropriate  comparators.  Dividend  equivalents
     accrue on performance  shares during the performance period and are paid in
     Common Stock only to the extent performance goals are achieved. The maximum
     payout is 200  percent of the target  award.  If  earned,  the  performance
     shares  will be paid in Common  Stock  with 50 percent of the award paid at
     the end of the performance period and the remaining 50 percent on the first
     anniversary  thereof.  For the two-year  performance period ending December
     31, 2003,  shareholders  of ALLETE realized a Total  Shareholder  Return of
     31.8 percent on their investment in Common Stock,  ranking ALLETE 7th among
     the  16-member  peer  group.  The LTIP payout for 2003 shown in the Summary
     Compensation  Table  includes  payment of the first 50 percent of the award
earned for the performance period ending December 31, 2003.           

     The  Compensation  Committee  has  determined  that these  awards under the
performance-based  compensation  plans are  consistent  with its  philosophy  of
aligning  executive  officers'  interests with those of shareholders  and to the
performance of ALLETE.                                                          

SUPPLEMENTAL EXECUTIVE BENEFITS                                                 

     ALLETE has established a Supplemental  Executive  Retirement Plan (SERP) to
compensate certain  employees,  including the executive  officers,  equitably by
replacing  benefits not provided by ALLETE's  Flexible Benefit Plan and the RSOP
due to  government-imposed  limits and to provide retirement  benefits which are
competitive  with those offered by other  businesses  with which ALLETE competes
for executive  talent.  The SERP provides  employees  whose salaries  exceed the
salary  limitations for tax-qualified  plans imposed by the Code with additional
benefits  such that they receive in aggregate  the benefits they would have been
entitled  to  receive  had such  limitations  not been  imposed.  The SERP  also
provides certain executive employees with a 40 percent                          

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supplemental  tax benefit if a change in control of the  Company  results in the
termination of the covered executives'  employment and an immediate distribution
in full of the covered executives' SERP account and/or Executive Investment Plan
deferral  account.  The  supplemental  tax benefit  applies  only if the covered
executive  employee  is not  eligible  for early  retirement  at the time of the
change-in-control event.                                                        

CHIEF EXECUTIVE OFFICER COMPENSATION                                            

     The  Compensation  Committee has endeavored to provide its chief  executive
officer  with  a  compensation  package  that  is  at  the  50th  percentile  of
compensation paid by comparably-sized  general industrial companies with revenue
comparable  to the  Company.  The  Compensation  Committee  designed  the  CEO's
compensation package to provide substantial  incentive to achieve and exceed the
Board's financial performance goals for the Company and Total Shareholder Return
goals for the Company's shareholders.                                           

     In June 2003 the Board of Directors  increased  Mr.  Gartzke's  annual base
salary 4 percent to move his base salary  toward the median of salaries of chief
executive  officers  of  comparably-sized  companies.  In 2003 Mr.  Gartzke  was
awarded  $71,130,  or 12.7 percent of his annual salary,  under ALLETE's Results
Sharing  program.  This Results  Sharing award was based 50 percent on corporate
net income from continuing operations (including gains from the sale of ALLETE's
water services businesses) and 50 percent on an average of business unit Results
Sharing awards.  Under the Executive  Annual Incentive Plan in 2003, Mr. Gartzke
earned  an award of  $472,872,  or 82.7  percent  of his  annual  salary,  which
rewarded Mr.  Gartzke for achieving  2003  corporate net income from  continuing
operations   (excluding   gains  from  the  sales  of  ALLETE's  water  services
businesses) that were above budget,  as well as for achievement of non-financial
strategic goals established by the Compensation Committee.                      

     The  compensation  of the CEO also contains  elements which motivate him to
focus on the longer-term performance of the Company. In 2003 under the LTIP, Mr.
Gartzke  was  awarded  annual  target  opportunities  with a value  equal to 150
percent of his base  salary.  This value has been  allocated 70 percent to stock
options (which are granted annually) and 30 percent to performance shares (which
are granted in even-numbered  years).  The stock options and performance  shares
have the same  characteristics  as those issued to other  executive  officers as
described  above.  The LTIP  payout for 2003 shown in the  Summary  Compensation
Table  includes a payment  of the first 50  percent of the award  earned for the
performance period ending December 31, 2003.                                    

     On January 21, 2004 the Board of Directors  elected Mr.  Shippar  President
and CEO of ALLETE.  Mr.  Gartzke  continues to serve as Chairman of ALLETE.  The
Board appointed Mr. Gartzke President and CEO of ALLETE  Automotive  Services as
of July 9, 2003.                                                                

March 25, 2004                                                                  

Executive Compensation Committee                                                

Donald C. Wegmiller, Chair                                                      
Thomas L. Cunningham                                                            
Nick Smith                                                                      
Deborah L. Weinstein                                                            

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EQUITY COMPENSATION PLAN INFORMATION                                            

     The following table sets forth the Company securities available for
issuance under ALLETE's equity compensation plans as of December 31, 2003.      

                                                        [Enlarge/Download Table]

                                      EQUITY COMPENSATION PLAN INFORMATION                                     
---------------------------------------------------------------------------------------------------------------

                                   Number of Securities                                 Number of Securities   
                                    to be Issued Upon          Weighted-Average         Remaining Available    
                                       Exercise of             Exercise Price of         for Future Issuance   
                                   Outstanding Options,      Outstanding Options,           Under Equity       
  Plan Category                     Warrants and Rights       Warrants and Rights        Compensation Plans<F1>
---------------------------------------------------------------------------------------------------------------
                                                                                                               
  Equity Compensation                    2,284,343                  $21.49                    5,276,157<F2>    
      Plans Approved by                                                                                        
      Security Holders                                                                                         
  Equity Compensation                            0                     N/A                            0        
      Plans Not Approved                                                                                       
      by Security Holders                                                                                      
---------------------------------------------------------------------------------------------------------------
  Total                                  2,284,343                  $21.49                    5,276,157        
---------------------------------------------------------------------------------------------------------------
<FN>                                                                                                           
<F1> Excludes the number of securities to be issued upon exercise of  outstanding options, warrants and rights.
<F2> The  amount shown includes: (i) 4,295,019 shares  available for issuance under the  LTIP in  the  form  of
     options,  rights,  restricted  stock,  performance  units and shares,  or other  grants as approved by the
     Executive Compensation Committee;  (ii) 138,992 shares available for issuance under the Director Long-Term
     Stock Incentive Plan in the form of options and  performance  shares;  (iii) 364,325 shares  available for
     issuance  under the  Director  Stock Plan as  payment  for a portion  of the  annual  retainer  payable to
     non-employee  directors;  and (iv) 477,821  shares  available for issuance under the ALLETE and Affiliated
     Companies  Employee Stock Purchase Plan.  Shares available for issuance under the LTIP may be increased by
     shares  purchased on the open market,  tendered to exercise options or withheld to satisfy tax withholding
     requirements in connection with LTIP awards.                                                              
</FN>                                                                                                          

REPORT OF THE AUDIT COMMITTEE                                                   

     The  Audit  Committee  of  the  Board  of  Directors  is  comprised  of six
non-employee  Directors,  each of whom has been  determined  by the  Board to be
"independent"  under  ALLETE's  Corporate  Governance  Guidelines and within the
meaning of the rules of both the NYSE and the SEC. The Board has also determined
that each member of the Audit  Committee  is  financially  literate and that Mr.
Green is an "audit committee  financial  expert" within the meaning of the rules
of the SEC. The Audit Committee  operates pursuant to a written charter that was
amended and restated in January  2004.  The current Audit  Committee  Charter is
attached as an Appendix to this Proxy  Statement  and is also  available  on the
Company's  website at  http://www.allete.com.  The Audit  Committee  assists the
Board's  oversight of the integrity of ALLETE's  financial  reports,  compliance
with legal and regulatory  requirements,  the qualifications and independence of
the independent  auditors,  the audit process and internal  controls.  The Audit
Committee  reviews and  recommends  to the Board of  Directors  that the audited
financial statements be included in ALLETE's Annual Report on Form 10-K.        

     During 2003 the Audit  Committee  met and held  separate  discussions  with
members  of  ALLETE's   management  and  the  Company's   independent   auditor,
PricewaterhouseCoopers, regarding certain audit activities and the plans for and
results of selected internal audits.  The Audit Committee reviewed the quarterly
financial  statements.  It  reviewed  the  adequacy  of the  systems of internal
controls,  and the  Company's  compliance  with  laws and  regulations.  It also
reviewed the Company's  process for  communicating  its code of business conduct
and   ethics.    The   Audit    Committee    approved   the    appointment    of
PricewaterhouseCoopers  as the Company's  independent auditor for the year 2004,
subject to shareholder ratification.  The Company's independent auditor provided
to  the  Audit  Committee  the  written  disclosures  required  by  Independence
Standards Board Standard No. 1 (Independence  Discussions with Audit Committees)
and the Audit  Committee  discussed  with the  independent  auditor  the  firm's
independence.                                                                   

     The Audit  Committee  has:  (i)  reviewed and  discussed  ALLETE's  audited
financial  statements  for the year  ending  December  31,  2003  with  ALLETE's
management and with ALLETE's independent  auditors;  (ii) met with management to
discuss  all  financial  statements  prior  to  their  issuance  and to  discuss
significant  accounting  issues;  and (iii) discussed with ALLETE's  independent
auditors  the  matters  required  to be  discussed  by SAS 61  (Codification  of
Statements on Auditing  Standards)  which  include,  among other items,  matters
related to the conduct of the audit of ALLETE's financial statements. Management
represented  to the Audit  Committee that the Company's  consolidated  financial
statements were prepared in accordance with generally accepted accounting       

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principles in the United States of America. Based on the  above-mentioned review
and discussions, the Audit Committee recommended to the  Board of Directors that
the audited financial  statements be  included in ALLETE's Annual Report on Form
10-K for the fiscal year ended December 31, 2003, for filing with the SEC.      

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES                            

     The Audit  Committee has implemented  pre-approval  policies and procedures
related to the  provision  of audit and  non-audit  services by the  independent
auditor. Under these procedures,  the Audit Committee pre-approves both the type
of services to be provided by the  independent  auditor and the  estimated  fees
related to these services.  During the pre-approval process, the Audit Committee
considers  the  impact  of the types of  services  and the  related  fees on the
independence  of the auditor.  The  services and fees must be deemed  compatible
with the maintenance of the auditor's  independence,  including  compliance with
SEC rules and regulations.                                                      

     The Audit  Committee  will,  as necessary,  consider  and, if  appropriate,
pre-approve  the  provision of additional  audit and  non-audit  services by the
independent  auditor that were not encompassed by the Audit  Committee's  annual
pre-approval  and  that are not  prohibited  by law.  The  Audit  Committee  has
delegated to the Chair of the Audit Committee the authority to pre-approve, on a
case-by-case basis, these additional audit and non-audit services, provided that
the Chair shall report any decisions to  pre-approve  such services to the Audit
Committee at its next regular meeting.                                          

AUDIT AND NON-AUDIT FEES                                                        

     The following table presents fees for professional  audit services rendered
by PricewaterhouseCoopers  for the audit of ALLETE's annual financial statements
for the years ended December 31, 2003 and December 31, 2002, and fees billed for
other services rendered by PricewaterhouseCoopers  during those periods. Certain
amounts for 2002 have been reclassified to conform to the 2003 presentation.    

                                                                [Download Table]


                                     2003                 2002             
                                 --------------------------------          
                                                                           
Audit Fees<F1>                    $1,300,000          $1,100,000           
Audit Related Fees<F2>               100,000             200,000           
Tax Fees<F3>                       1,000,000           1,000,000           
All Other Fees                             0                   0           
                                 --------------------------------          
Total                             $2,400,000          $2,300,000           

<FN>                                                                           
<F1> Audit  fees  consisted  of  audit  work  performed  in  the preparation of
 financial  statements,  as well as work  generally  only  the  independent
 auditor can reasonably be expected to provide, such as statutory audits.  
<F2> Audit related  fees consisted of  assurance services, including  audits of
 employee  benefit  plans and  special  procedures  related  to  regulatory
 filings in 2002 and 2003.                                                 
<F3> Tax  fees  were  comprised  of (i)  tax   compliance  services,  including
 assistance with the preparation of tax returns and claims for tax refunds,
 and (ii) tax consultation and planning services, including assistance with
 tax audits and appeals,  tax advice  relating to mergers and  acquisitions
 and employee  benefit  plans,  and request for ruling or technical  advice
 from taxing authorities. In 2003 tax compliance services totaled $500,000,
 and tax consulting and planning  services  totaled  $500,000.  In 2002 tax
 compliance  services  totaled  $600,000,  and tax  consulting and planning
 services totaled $400,000.                                                
</FN>                                                                           

All audit and  non-audit  services  and fees for 2003 were  pre-approved  by the
Audit  Committee.  We have  considered and determined  that the provision of the
non-audit    services    noted   above   is    compatible    with    maintaining
PricewaterhouseCoopers' independence.                                           

March 25, 2004                                                                  

Audit Committee                                                                 

Bruce W. Stender, Chair                                                         
Wynn V. Bussmann                                                                
Thomas L. Cunningham                                                            
Dennis O. Green                                                                 
Peter J. Johnson                                                                
George L. Mayer                                                                 

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--------------------------------------------------------------------------------
ITEM NO. 2 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------

     The  Audit  Committee  of the  Board  of  Directors  of  ALLETE  recommends
shareholder  ratification  of  the  appointment  of   PricewaterhouseCoopers  as
independent  auditors for ALLETE for the year 2004.  PricewaterhouseCoopers  has
acted in this capacity since October 1963.                                      

     A representative  of  PricewaterhouseCoopers  will be present at the Annual
Meeting,  will have an  opportunity  to make a statement if he or she so desires
and will be available to respond to appropriate questions.                      

     In connection with the 2003 audit, PricewaterhouseCoopers reviewed ALLETE's
annual report,  examined the related financial statements,  and reviewed interim
financial  statements  and certain  filings of ALLETE  with the  Federal  Energy
Regulatory  Commission  and the SEC.                                            

     The Board of Directors recommends a vote "FOR" ratifying the appointment of
PricewaterhouseCoopers as ALLETE's independent auditors for 2004.               

ALLETE COMMON STOCK PERFORMANCE                                                 

     The following graph compares ALLETE's  cumulative Total Shareholder  Return
on its  Common  Stock  with the  cumulative  return of the S&P 500 Index and the
Philadelphia Stock Exchange Utility Index (Philadelphia  Utility Index). The S&P
500 Index is a  capitalization-weighted  index of 500 stocks designed to measure
performance  of the broad  domestic  economy  through  changes in the  aggregate
market  value of 500 stocks  representing  all major  industries.  Because  this
composite index has a broad industry base, its performance may not closely track
that  of  a  composite  index  comprised  solely  of  electric  utilities.   The
Philadelphia  Utility  Index is a  capitalization-weighted  index of 20  utility
companies  involved in the  production of electrical  energy.  The  calculations
assume a $100  investment on December 31, 1998 and  reinvestment of dividends on
the ex-dividend date.                                                           

[GRAPH OMITTED - TOTAL SHAREHOLDER RETURN PERFORMANCE GRAPH]                    

                                                                [Download Table]
      TOTAL SHAREHOLDER RETURN FOR THE FIVE YEARS ENDING DECEMBER 31, 2003      

                                   1998    1999    2000    2001    2002    2003 
                                  ----------------------------------------------
                                                                                
ALLETE                             $100     $81    $126    $134    $126    $177 
S&P 500 Index                      $100    $121    $110     $97     $76     $97 
Philadelphia Utility Index         $100     $82    $124    $108     $88    $110 

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--------------------------------------------------------------------------------
OTHER BUSINESS
--------------------------------------------------------------------------------

     The Board of Directors  does not know of any other business to be presented
at the meeting.  However, if any other matters properly come before the meeting,
it is the intention of the persons named in the accompanying  Proxy Card to vote
pursuant to the proxies in accordance with their judgment in such matters.      

     All  shareholders  are asked to  promptly  return  their  Proxy so that the
necessary vote may be present at the meeting.  We respectfully  request that you
vote your Proxy at your earliest convenience either by signing and returning the
accompanying  Proxy Card by mail, or by following the  instructions on the Proxy
Card to vote by a toll-free telephone call or online.                           

By order of the Board of Directors,                                             

Deborah A. Amberg                                                               

Deborah A. Amberg                                                               
Vice President, General Counsel and Secretary                                   

March 25, 2004                                                                  
Duluth, Minnesota                                                               

DELIVERY OF PROXY MATERIALS TO HOUSEHOLDS                                       

     Only one copy of ALLETE's  Proxy  Statement for the 2004 Annual  Meeting of
Shareholders  and one copy of the 2003  ALLETE  Annual  Report,  which  includes
financial statements,  will be delivered to an address where two or more related
shareholders  reside,  unless ALLETE has received  contrary  instructions from a
shareholder at the address.  A separate Proxy Card and a separate  notice of the
Annual  Meeting of  Shareholders  will be delivered to each  shareholder  at the
shared address.                                                                 

     If you are a shareholder  who lives at a shared  address and you would like
additional  copies of this Proxy  Statement  or the 2003 ALLETE  Annual  Report,
contact  ALLETE  Shareholder  Services,  30 West  Superior  Street,  Duluth,  MN
55802-2093,  telephone  number  1-800-535-3056  or  1-218-723-3974,  and we will
promptly mail you copies.                                                       

     If you  share the same  address  with  other  ALLETE  shareholders  and you
currently receive multiple copies of annual reports or proxy statements, you may
request  delivery of a single copy of future annual reports and proxy statements
at any time by calling  ALLETE  Shareholder  Services  at  1-800-535-3056  or by
writing to ALLETE's  Stock Transfer  Agent,  Wells Fargo Bank  Minnesota,  N.A.,
Shareowner  Services,  Attn:   Householding,   P.O.  Box  64854,  St.  Paul,  MN
55164-0854.                                                                     

     If you did not receive the 2003 ALLETE Annual Report,  please notify ALLETE
Shareholder Services, 30 West Superior Street, Duluth, MN 55802-2093,  telephone
number  1-800-535-3056 or  1-218-723-3974,  and a copy will be sent to you.     

     Many  brokerage  firms and other holders of record have  procedures for the
delivery of single  copies of company  documents  to  households  with  multiple
shareholders.  If your family has one or more "street name" accounts under which
you beneficially own shares of ALLETE Common Stock,  please contact your broker,
financial  institution,  or other  holder  of  record  directly  if you  require
additional  copies of the Proxy Statement or ALLETE's 2003 Annual Report,  or if
you have other questions or directions about your "street name" account.        

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                                                                        APPENDIX

ALLETE, INC.
BOARD OF DIRECTORS

 AUDIT COMMITTEE CHARTER
EFFECTIVE JANUARY 20, 2004

PURPOSES AND ROLE OF COMMITTEE                                                  

The  purposes  of the Audit  Committee  (Committee)  of the  Board of  Directors
(Board) of ALLETE,  Inc.  (Company) are to: (A) assist the Board's  oversight of
(1) the  integrity of the  Company's  financial  statements,  (2) the  Company's
compliance with corporate policies and procedures,  (3) the Company's compliance
with  legal  and  regulatory   requirements,   (4)  the  independent   auditor's
qualifications  and  independence,  and (5)  the  performance  of the  Company's
internal audit  function and  independent  auditors;  and (B) prepare the report
that  Securities  and  Exchange  Commission  (Commission)  rules  require  to be
included in the Company's annual proxy statement.                               

The role of the  Committee  is  oversight.  Management  and the  internal  audit
department are responsible for maintaining and evaluating appropriate accounting
and financial reporting  principles and policies,  as well as internal controls,
processes,  systems,  corporate  policies  and  procedures  designed  to  assure
compliance with accounting standards, corporate policies and applicable laws and
regulations. The independent auditors are responsible for auditing the financial
statements  and assessing  the Company's  internal  controls.  Consequently,  in
carrying out its oversight responsibilities,  the Committee is not providing any
certification as to the independent  auditors' work or the work or report of any
expert. Each member of the Committee shall be entitled to reasonably rely on the
integrity  of  people  and  organizations  from  which  the  Committee  receives
information and the accuracy of such information.                               

COMMITTEE MEMBERSHIP                                                            

The Committee shall consist of three or more members of the Board,  each of whom
(A) satisfies the requirements for independence  pursuant to law and the listing
standards of the New York Stock Exchange (NYSE), and (B) is financially literate
as required by the listing  standards of the NYSE. At least one Committee member
shall have accounting or related financial  management  expertise as required by
the  listing  standards  of the NYSE.  Committee  members may not serve on audit
committees of more than two other publicly traded  companies.  Committee members
shall serve at the pleasure of the Board and for such term or terms as the Board
may determine.                                                                  

COMMITTEE STRUCTURE AND OPERATIONS                                              

The  Board  shall  designate  one  member of the  Committee  as its  Chair.  The
Committee  shall meet at least  quarterly at a time and place  determined by the
Board or the  Committee  Chair,  with  further  meetings  to occur  when  deemed
necessary  or  desirable  by a  majority  of the  Committee  or its  Chair.  The
Committee  will  meet  periodically  in  executive  session  without  management
present.                                                                        

A majority of the  Committee  members  currently  holding  office  constitutes a
quorum for the  transaction of business.  The Committee shall take action by the
affirmative  vote of a majority of the Committee  members present at a duly held
meeting.  The  Committee  may meet in person or  telephonically,  and may act by
unanimous written consent when deemed necessary or desirable by the Committee or
its Chair. The Committee may recommend to the Board procedures to be observed in
executing  its  responsibilities.  The  Committee  may  invite  such  members of
management to its meetings as it may deem desirable or appropriate.             

COMMITTEE DUTIES AND RESPONSIBILITIES                                           

The duties and responsibilities of the Committee are to:                        

1.   Appoint, retain and terminate, and approve fees and  terms of  retention of
     the public  accounting firm serving as the Company's  independent  auditors
     (subject to  ratification by Company  shareholders if deemed  appropriate).
     The Committee  shall be  responsible  for the oversight of the  independent
     accounting  firm  engaged by the Company for the  purpose of  preparing  or
issuing an audit report or related work or                            

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     performing other audit, review or attest services,  including resolution of
     disagreements  between  management  and  the  independent  accounting  firm
     regarding  financial  reporting.  The Committee shall pre-approve any audit
     and  non-audit  services  by  the  independent   auditors  as  required  by
     applicable  law and the rules of the NYSE.  The  Committee  shall  directly
implement these responsibilities.                                     

2.   Instruct the independent auditors that  they are  to report directly to the
     Committee,  and  provide  that  they  are  ultimately  responsible  to  the
Committee and the Board.                                              

3.   Review with the independent auditors the scope of  the  prospective  audit,
     the estimated fees therefor and such other matters pertaining to such audit
     as the  Committee  may  deem  appropriate.  Receive  copies  of the  annual
     comments from the outside auditors on accounting  procedures and systems of
     control.  Recommend  to the Board the  acceptance  of such  audits that are
accompanied by certification.                                         

4.   Meet separately,  periodically, with  management, with  the senior internal
audit executive and with the independent auditors.                    

5.   Review and discuss with  management and  the  independent  auditor,  before
     filing with the  Commission,  the annual audited  financial  statements and
     quarterly financial  statements,  including the Company's disclosures under
     "Management's Discussion and Analysis of Financial Condition and Results of
Operations."                                                          

6.   Review   and  discuss  earnings   press  releases,  as  well  as  financial
     information and earnings guidance provided to analysts and rating agencies.

7.   Advise  management, the  internal  audit department  and   the  independent
     auditors  that they are  expected  to  provide  to the  Committee  a timely
     analysis of and opportunity to review (A) major issues regarding accounting
     principles and financial statement presentations, including any significant
     changes in the Company's selection or application of accounting principles,
     and major issues as to the adequacy of the Company's  internal controls and
     any special audit steps adopted in light of material control  deficiencies;
     (B) compliance  with the Company's  policies and  procedures;  (C) analyses
     prepared  by  management  and/or  the  independent  auditor  setting  forth
     significant  financial  reporting  issues and judgments  made in connection
     with the preparation of the financial statements, including analyses of the
     effects of alternative  generally  accepted  accounting  principles  (GAAP)
     methods  on the  financial  statements;  (D) the effect of  regulatory  and
     accounting  initiatives,  as well as off balance sheet  structures,  on the
     financial  statements of the company;  and (E) the type and presentation of
     information to be included in earnings press  releases  (paying  particular
     attention to any use of "pro forma," or "adjusted" non-GAAP,  information),
     as well as review any financial  information and earnings guidance provided
to analysts and rating agencies.                                      

8.   Direct management, the  internal auditors  and the  independent auditors to
     disclose to the  Committee any  significant  risks and  exposures;  discuss
policies with respect to risk assessment and risk management.         

9.   Review with the independent auditors any audit problems or difficulties and
     management's  response,  including  any  restrictions  on  the  independent
     auditor's activities or on access to requested information,  any accounting
     adjustments  that were noted or proposed  by the auditor but were  "passed"
     (as immaterial or otherwise); any communications between the audit team and
     the audit firm's national office  respecting  auditing or accounting issues
     presented by the engagement;  any "management" or "internal control" letter
     issued (or proposed) by the audit firm to Company,  and a discussion of the
     responsibilities,  budget and  staffing  of the  Company's  internal  audit
function.                                                             

10.  Review the action  taken  by  management  on  the  internal  auditors'  and
independent auditors' recommendations.                                

11.  Review with the senior  internal  audit executive the annual internal audit
     plan and scope of internal  audits,  including  the  procedure for assuring
     implementation  of  accepted   recommendations   made  by  the  independent
     auditors.  Advise the senior  internal  audit  executive  that he or she is
     expected  to  provide  the  Committee  with  summaries  of any  significant
     identified control issues and management's response thereto, and seek prior
     approval of the Committee for any significant changes to the internal audit
department charter, staffing or budget.                               

A-2 

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12.  Make  or  cause to  be made, from  time to time, such other examinations or
     reviews as the Committee may deem advisable with respect to the adequacy of
     the systems of internal  controls and  accounting  practices of the Company
     and its  subsidiaries  and with  respect to current  accounting  trends and
     developments,  and take such action with  respect  thereto as may be deemed
appropriate.                                                          

13.  Review  the  appointment, reassignment,  and  replacement  of   the  senior
internal audit executive.                                             

14.  Set   clear   hiring   policies   for employees or former  employees of the
independent auditors.                                                 

15.  On a periodic basis, and  without others  present, meet separately with the
     independent auditors, the senior internal audit executive,  the controller,
the general counsel, and other members of management as appropriate.  

16.  Review  with  management, the independent  auditors and the senior internal
     audit executive the adequacy of and any significant changes in the internal
     controls,  the accounting  policies  procedures or practices of the Company
     and its subsidiaries,  and compliance with corporate  policies,  directives
and applicable laws.                                                  

17.  Ensure  that the  independent  auditor  submits on a  periodic basis to the
     Committee a formal written statement  delineating all relationships between
     the  auditor  and the  Company  that may have a  bearing  on the  auditor's
     independence,  engage in an active  dialogue with the  independent  auditor
     with respect to any disclosed relationships or services that may impact the
     objectivity and independence of the independent  auditor,  and recommend to
     the Board any action  deemed  appropriate  in response  to the  independent
     auditor's  report to satisfy the Board and the Committee of the independent
auditor's independence.                                               

18.  Obtain  and review, at least annually, a  report by the independent auditor
     describing: the independent auditor's internal quality-control  procedures;
     any  material  issues  raised by the most recent  internal  quality-control
     review,  or peer review, of the firm, or by any inquiry or investigation by
     governmental or professional authorities,  within the preceding five years,
     respecting one or more independent  audits carried out by the firm, and any
     steps  taken to deal with any such  issues;  and (to assess  the  auditor's
     independence)  all  relationships  between the independent  auditor and the
Company.                                                              

19.  Establish procedures for the receipt, retention and treatment of complaints
     received by the Company regarding accounting, internal accounting controls,
     or  auditing  matters;  and  the  confidential,   anonymous  submission  by
     employees  of  the  Company  and  its  affiliates  of  concerns   regarding
questionable accounting, internal control or auditing matters.        

20.  Review  the  status  of  compliance  with  laws,  regulations, and internal
     procedures,  contingent  liabilities  and risks that may be material to the
     Company,  the  scope and  status  of  systems  designed  to assure  Company
     compliance  with  laws,   regulations  and  internal  procedures,   through
     receiving reports from management, legal counsel and other third parties as
     determined by the Committee on such matters,  as well as major  legislative
     and regulatory  developments  which could  materially  impact the Company's
contingent liabilities and risks.                                     

21.  Prepare a report for inclusion in the annual proxy statement that specifies
     the  Directors  who  sit  on  the  Committee,   describes  the  Committee's
     responsibilities  as  outlined in this  Charter,  and  discusses  how these
responsibilities were discharged during the year.                     

22.  Conduct or authorize investigations into any matters within the Committee's
     scope of  responsibility,  consistent  with procedures to be adopted by the
Committee.                                                            

23.  Review and assess the adequacy of the Committee charter annually.          

COMMITTEE REPORTS                                                               

1.   Report to the Board on a regular basis on the  activities of the  Committee
     and make such  recommendations  with  respect  to the above  matters as the
     Committee may deem  necessary or  appropriate.  This report shall include a
     review of any issues that arise with respect to the quality or integrity of
     the Company's financial statements,  the Company's compliance with legal or
     regulatory requirements,  the performance and independence of the Company's
  independent auditors, or the performance of the internal audit function.

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2.   Transmit to the Board notices of Committee  meetings, agendas, and  meeting
minutes.                                                              

3.   At the time of or in advance of the Annual Directors Meeting held in May of
     each year, present an annual performance evaluation of the Committee, which
     shall assess the performance of the Committee in relation to its duties and
     responsibilities  under this  charter,  recommend  any  amendments  to this
     charter,  and set forth the goals and  objectives  of the Committee for the
ensuing twelve months.                                                

4.   Report on matters required by the rules of the Commission  to be  disclosed
in the Company's annual proxy statement.                              

DELEGATION OF AUTHORITY                                                         

The  Committee  may,  in its  discretion,  delegate  certain  of its  duties and
responsibilities to a subcommittee of the Committee.                            

The  Committee may delegate to one or more of its members the authority to grant
pre-approvals  of  auditing  and  non-audit  services  to be  performed  by  the
Company's  independent  auditor  subject to such guidelines as the Committee may
determine.  Any such  decisions  to  pre-approve  shall be presented to the full
Committee at its next following regular meeting.                                

RESOURCES AND AUTHORITY OF THE COMMITTEE                                        

The Committee shall have the resources and appropriate funding, as determined by
the Committee, to discharge its duties and responsibilities. The Committee shall
have the authority to retain and discharge, and approve fees and other terms and
conditions  for retention of  independent  experts in  accounting  and auditing,
legal  counsel  and other  experts or  advisors.  The  Committee  may direct any
officer or  employee of the  Company or request  any  employee of the  Company's
independent  auditors or outside legal counsel to attend a Committee  meeting or
meet with any Committee members.                                                

A-4 

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"Printed with soy based inks on recycled paper containing at
least 10 percent fibers from paper recycled by consumers."

  [RECYCLE LOGO] [LOGO PRINTED WITH SOY INK]

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 [ALLETE LOGO]

ANNUAL MEETING OF SHAREHOLDERS
 TUESDAY, MAY 11, 2004
10:30 A.M.
DULUTH ENTERTAINMENT
 CONVENTION CENTER
350 HARBOR DRIVE
DULUTH, MN

--------------------------------------------------------------------------------

[ALLETE LOGO]  ALLETE, INC.                                                     
30 WEST SUPERIOR STREET                           
               DULUTH, MINNESOTA 55802-2093                                PROXY
--------------------------------------------------------------------------------

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL  MEETING
ON MAY 11, 2004.                                                                

David G.  Gartzke  and  Deborah A. Amberg  or  either of them,   with  power  of
substitution, are hereby appointed Proxies of the undersigned to vote all shares
of  ALLETE,  Inc.  stock  owned by the  undersigned  at the  Annual  Meeting  of
Shareholders to be held in the auditorium of the Duluth Entertainment Convention
Center, 350 Harbor Drive, Duluth,  Minnesota,  at 10:30 a.m. on Tuesday, May 11,
2004, or any  adjournments  thereof,  with respect to the election of Directors,
ratification  of the  appointment of independent  auditors and any other matters
as may properly come before the meeting.                                        

THIS PROXY  CONFERS  AUTHORITY  TO VOTE EACH  PROPOSAL  LISTED ON THE OTHER SIDE
UNLESS OTHERWISE INDICATED. If any other business is transacted at said meeting,
this Proxy shall be voted in  accordance  with the best judgment of the Proxies.
The Board of  Directors  recommends  a vote "FOR" each of the listed  proposals.
This Proxy is solicited on behalf of the Board of Directors of ALLETE, Inc., and
may be revoked prior to its exercise.  PLEASE MARK,  SIGN,  DATE AND RETURN THIS
PROXY CARD USING THE ENCLOSED ENVELOPE. ALTERNATIVELY, AUTHORIZE THE ABOVE-NAMED
PROXIES TO VOTE THE SHARES  REPRESENTED ON THIS PROXY CARD BY PHONE OR ONLINE AS
DESCRIBED ON THE OTHER SIDE.  Shares  cannot be voted unless these  instructions
are  followed,  or other  specific  arrangements  are  made to have  the  shares
represented at the meeting. By responding promptly,  you may help save the costs
of additional Proxy solicitations.                                              

SEE REVERSE FOR VOTING INSTRUCTIONS.

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                                                                      ----------
                                                                       COMPANY #
                                                                      ----------
THERE ARE THREE WAYS TO VOTE YOUR PROXY:                                        

VOTE BY PHONE - TOLL FREE - 1-800-560-1965 - QUICK --- EASY --- IMMEDIATE       

- Use any touch-tone telephone to vote your Proxy 24 hours a day, 7 days a week,
until 12:00 p.m. (CT) on May 10, 2004.                                      
- Please  have your Proxy Card and  the last four digits of your Social Security
Number available. Follow the simple instructions the voice provides you.    

VOTE ONLINE - http://www.eproxy.com/ale/ - QUICK --- EASY --- IMMEDIATE         

- Use the Internet to vote your Proxy 24 hours a day, 7 days a week, until 12:00
p.m. (CT) on May 10, 2004.                                                  
- Please have your Proxy Card and the  last four digits of  your Social Security
  Number available. Follow the simple  instructions  to obtain  your records and
create an electronic ballot.                                                

VOTE BY MAIL                                                                    

Mark, sign and date your Proxy Card and return it in the  postage-paid  envelope
we've  provided  or  return  it  to  ALLETE,   Inc.,  c/o  Shareowner   Services
(servicemark), P.O. Box 64873, St. Paul, MN 55164-0873.                         

YOUR  TELEPHONE OR ONLINE VOTE  AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES
IN THE SAME MANNER AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.       

 IF YOU VOTE BY PHONE OR ONLINE, PLEASE DO NOT MAIL YOUR PROXY CARD.

 - PLEASE DETACH HERE. -

 THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.

1. Election of Directors:  01 Bussmann   02 Gartzke      03 Green     04 Johnson
                         05 Mayer      06 Peirce       07 Rajala    08 Smith
                09 Stender    10 Wegmiller    11 Weinstein

/ / Vote FOR all nominees    / / Vote WITHHELD from all nominees                
(except as marked)                                                      

(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY      ----------------------
INDICATED NOMINEE, WRITE THE NUMBER(S) OF THE NOMINEE(S)                        
IN THE BOX PROVIDED TO THE RIGHT.)                        ----------------------

2. Ratification of the appointment of PricewaterhouseCoopers LLP as  independent
auditors.                                                                 

/ / For       / / Against       / / Abstain                                     

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION 
IS GIVEN, WILL BE VOTED FOR ITEMS 1 AND 2.                                      
---                             

Address Change? Mark Box  / /     Indicate changes below:                       

              Date
                                                  ------------------------------

                                             -----------------------------------

                                             -----------------------------------
                             Signature(s) in Box

                                             Please sign exactly as your name(s)
                                             appears on Proxy.  If held in joint
                                             tenancy,  all  persons  must  sign.
                                             Trustees,   administrators,   etc.,
                                             should include title and authority.
                                             Corporations  should  provide  full
                                             name of  corporation  and  title of
                                             authorized   officer   signing  the
                Proxy.

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                                                                   [ALLETE LOGO]

ANNUAL MEETING OF SHAREHOLDERS                                                  
10:30 A.M. TUESDAY, MAY 11, 2004                                                
DULUTH ENTERTAINMENT CONVENTION CENTER                                          
DULUTH, MINNESOTA                                                               

Dear Shareholder:                                                               

It's my pleasure to invite you to ALLETE's Annual Meeting of Shareholders at    
10:30 a.m. on Tuesday, May 11, in the Duluth Entertainment Convention Center.   
Our agenda will include business highlights from 2003 and a discussion of       
strategic issues facing ALLETE.                                                 

Lunch will be served in the DECC's Lake Superior Ballroom after the meeting.    

Please make plans to join us May 11. It will be a great opportunity to learn the
latest information about ALLETE and enjoy the camaraderie of your fellow        
shareholders.                                                                   

We look forward to seeing you.                                                  

Sincerely,                                                                      

/s/ David G. Gartzke                                                            

David G. Gartzke                                                                
Chairman of the Board                                                           

PARKING - Free. Tell gate attendant you're a shareholder.                       

REGISTRATION - Begins at 9 a.m. inside DECC entrance. You'll receive a ticket   
for lunch and a ticket for a chance to win shares of ALLETE stock.              

SCHEDULE - DECC Auditorium doors will open at 9:30 a.m. and the meeting will    
begin promptly at 10:30 a.m.                                                    

LUNCH - A box lunch will be served following the meeting in the Lake Superior   
Ballroom of the DECC.                                                           

QUESTIONS - Call Shareholder Services at 218-723-3974 or, toll-free,            
1-800-535-3056.                                                                 

CANCELLATIONS - If your plans change after you've sent in the reservation and   
you can't attend, please notify Shareholder Services.                           

--------------------------------------------------------------------------------
PLEASE COMPLETE AND MAIL THIS POSTAGE-PAID RESERVATION CARD AS SOON AS POSSIBLE.

--------------------                                    ------------------------
Each shareholder      / / Yes, I will attend the         Do not enclose this
may bring one guest.        Annual Meeting and lunch.     card with your proxy. 
--------------------                                    ------------------------

Please PRINT

Shareholder's Name                                                              
                   -------------------------------------------------------------

Guest's Name                                                                    
              ------------------------------------------------------------------

Shareholder's Name                                                              
                   -------------------------------------------------------------

Guest's Name                                                                    
             -------------------------------------------------------------------

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                          [GRAPHIC OMITTED - Fim Markings]
                                                             -----------------
                                                              NO POSTAGE
                                                               NECESSARY
                                                               IF MAILED
                                                                IN THE
                                                               UNITED STATES
                                                             -----------------
                                               [GRAPHIC OMITTED - Solid bars
                                  below indicia]

----------------------------------------      
BUSINESS REPLY MAIL                         
FIRST CLASS Permit No. 74 Duluth, MN        
----------------------------------------      
POSTAGE WILL BE PAID BY ADDRESSEE           

BERNADETTE NELSON                           
ALLETE                                      
30 WEST SUPERIOR ST                         
DULUTH, MN 55802-9986                       

                      [GRAPHIC OMITTED - Bar Code]

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                                April __, 2004

Dear Shareholder:                                                               

     ALLETE  has not yet  received  your vote on issues to come  before the 2004
Annual Meeting of Shareholders on May 11, 2004. Proxy materials were sent to you
on or about  March 25,  2004.  Please  take a few  moments  to review  the Proxy
materials and vote your shares using one of the three options available to you: 

     1. BY MAIL - Complete the  enclosed  duplicate Proxy Card and  return it in
the self-addressed stamped envelope provided;                   

     2. BY TELEPHONE - Call  the  toll-free  number  listed  on  the  Proxy Card
and follow the instructions; or                                 

     3. ONLINE - Log onto  the web  site listed  on the  Proxy Card  and  follow
the instructions.                                               

     On  behalf  of the  Board of  Directors,  we again  extend to you a cordial
invitation to attend  ALLETE's  Annual Meeting of Shareholders to be held in the
auditorium  of the Duluth  Entertainment  Convention  Center,  350 Harbor Drive,
Duluth, Minnesota on Tuesday, May 11, 2004 at 10:30 a.m.                        

Your prompt response is appreciated.                                  

                            Sincerely,

                                   Deborah A. Amberg
                                                 Vice President, General Counsel
                               and Secretary

Enclosures                                                                      

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘DEF 14A’ Filing		Date		First		Last			Other Filings
		5/10/05		6					8-K,  DEF 14A
		2/8/05		6
		2/3/05		12					4
		12/31/04		11					10-K,  11-K,  5,  5/A,  U-3A-2
		11/25/04		6
For Period End:		5/11/04		2		30			3
		5/10/04		27
Filed on / Effective on:		3/25/04		3		30
		3/12/04		4		6
		2/3/04		12
		1/21/04		16
		1/20/04		21					3
		12/31/03		10		19			10-K,  11-K,  5,  U-3A-2
		7/9/03		16
		2/3/03		12					4
		12/31/02		18					10-K,  5,  U-3A-2
		12/18/01		11
		12/31/98		19					10-K405,  11-K,  U-3A-2
									List all Filings