2008 Stewardship Report

About our 2008 Stewardship Report This is Otter Tail Power Company’s second biennial stewardship report, but it is the first designed to communicate the full range of relevant environmental, social, economic, and other standard disclosures outlined by the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. The GRI guidelines provide a voluntary reporting framework used by organizations around the world to communicate meaningful information about issues that impact those organizations and their stakeholders.

We selected the content of this report based on the GRI guidelines. As in our 2006 report our reporting boundary includes the areas of our business that we can do something about or where we have significant influence. We are reporting 2008 information throughout the report unless we indicate otherwise due to data availability. At the end of this report you’ll find the GRI index that shows what we reported in relationship to the guidelines, including the most relevant disclosures GRI is piloting in 2009 for the electric utilities sector.

Cover: Dan Oehler Retired as Rate Analyst in 1998 With Otter Tail Power Company since 1960 Matthew Oehler Shareholder since 2008

Table of contents About our 2008 Stewardship Report Confirmation of self-declared GRI Application Level B Letter from the president Getting to know us Mission and values Operations Code of conduct Generation mix Transmission and distribution Environmental stewardship Climate-change legislation monitoring Wind energy development Regulatory compliance Power plant highlights Future planning Water use Wildlife habitat highlight Clean air focus Product reuse Environmental protection expenditures and investments Demand-side management Energy efficiency Home energy makeovers Project spotlight: Paying it forward in Rothsay, Minnesota Social stewardship Customer and community involvement Preparedness planning Reliability Rising costs Customer satisfaction Community commitment Employee commitment Employee health and safety Employee training Future workforce investment Project spotlight: Paying it forward in Jamestown, North Dakota Economic stewardship Direct economic value Local sourcing opportunities Community Connections giving program Indirect economic value Economic development efforts Project spotlight: Paying it forward in Sisseton, South Dakota Global Reporting Initiative index Company history Report feedback form

Inside cover 1 2 3 3 4 4 6 7 8 9 10 11 11 12 13 14 15 16 16 18 19 21 22 23 24 26 27 27 29 31 32 34 35 35 35 36 36 38 39

Independent consultant confirms self-declared Global Reporting Initiative Application Level B The Otter Tail Power Company 2008 Stewardship Report was prepared by the company’s report team and approved by the company’s management, who retain responsibility for its content. As an independent engineering and consulting firm, we provided GRI guidelines training to Otter Tail Power Company with a focus on reporting principles for defining content and ensuring quality. We also carried out a third-party check of Otter Tail Power Company’s self-declared GRI Application Level B. A GRI Application Level reflects the degree to which the report has applied the GRI-G3 Reporting Framework. For reports in all industries, GRI-G3 defines application levels in ascending order, titled C, B, and A. The criteria for level B requires coverage of all profile disclosures, the management approach in each of the 6 indicator categories, and 20 or more performance indicators, with at least 1 in each of the 6 indicator categories: economic, environmental, labor practices, human rights, product responsibility, and society.

Requirements do not exist for reporting on pilot versions of industry sector supplements.

Our third-party check involved reviewing the draft report that incorporated our suggested revisions to the GRI index based on our initial observations. We also reviewed the text in the final report to verify that the GRI index fairly reflected our findings.

We have observed reasonable coverage of the minimum required disclosures for Level B, as well as an additional 4 G3 performance indicators and 14 disclosures from the pilot version of the Electric Utility sector supplement. Our third-party check therefore confirms the self-declared Level B for Otter Tail Power Company’s 2008 Stewardship Report.

Submitted by,

Stephen L. Murphy Senior Project Manager Burns & McDonnell 9400 Ward Parkway Kansas City, Missouri 64114

1

Confirmation of GRI application Level B

A letter from Chuck MacFarlane, President, Otter Tail Power Company Our 2008 Stewardship Report comes at a special time for Otter Tail Power Company. In April 2009 we celebrate our 100th anniversary of providing electric energy to customers and communities in our three-state service area. For our 730 employees, this celebration is much more than a business anniversary. It is a true commemoration of being ON for generations as a solid community partner who views our customers’ success as our success.

Our mission is to produce and deliver electricity as reliably, economically, and environmentally responsibly as possible to the balanced benefit of customers, shareholders, and employees and to improve the quality of life in the areas in which we do business.

That statement speaks to the array of people who depend on us to help them sustain their unique quality of life.

Chuck MacFarlane, President

Our customers depend on us for reliable, affordable electric energy. Our shareholders look to us for a competitive return on the hard-earned dollars they have invested with us. And our employees expect and deserve a safe workplace where they are challenged, rewarded, and respected.

A fourth entity—the area in which we do business—is another beneficiary of our stewardship efforts. This is the environment in which our customers, employees, and many shareholders live and work. It is the backdrop against which they raise families, pursue careers, engage in recreational activities, and plan for the future.

Our 2008 Stewardship Report focuses on three essential areas. It describes how we are committed to being a careful environmental steward of the air, water, and land resources entrusted to us. It illustrates how, through a variety of energy-efficiency programs, we are helping our customers save energy and money. And it tells how we help meet community needs through charitable giving and programs that address workplace safety and employee training and education.

I believe this report communicates our commitment to achieving business success in a way that maximizes our stakeholders’ interest in us. And it demonstrates how we continue to be ON for generations.

Chuck MacFarlane, President, Otter Tail Power Company

Letter from the president

2

Getting to know us Incorporated in 1907, Otter Tail Power Company began producing electricity in 1909—100 years ago. Throughout our anniversary year we will reflect on the principles that have led to our success, set the stage for our next century, and continue to be On for generations.

Mission To produce and deliver electricity as reliably, economically, and environmentally responsibly as possible to the balanced benefit of customers, shareholders, and employees and to improve the quality of life in the areas in which we do business.

Values Integrity. Safety. Customer focus. Resourcefulness. Community.

Operations Otter Tail Corporation Electric

Manufacturing

Health services

Infrastructure products and Food ingredient services plastics processing

In the late 1980s, faced with limited growth opportunities in our electric utility operations, we implemented a diversification strategy designed to help provide shareholders with dependable earnings growth over the long term.

In 1989 Mid-States Development was formed to own and oversee the diversified businesses. Mid-States became Varistar in 1998. In 2001 we changed the corporate name to Otter Tail Corporation, and since then Otter Tail Power Company has been the utility operation of Otter Tail Corporation.

Under this corporate structure, Otter Tail Corporation and Otter Tail Power Company have been the same legal entity. In 2008 the board of directors authorized the corporation to begin discussions with regulators and other key stakeholders regarding restructuring as a holding company, with Otter Tail Corporation as the parent and Otter Tail Power Company as a principal first-tier subsidiary. If approved and implemented, all of the nonelectric businesses will remain under Varistar, another principal first-tier subsidiary.

To learn more about Otter Tail Corporation visit www.ottertail.com. For shareholder information visit www.ottertail.com/investors.

Code of Conduct Otter Tail Corporation and its operating companies believe integrity must guide all workplace relationships. Each entity is committed to ethical behavior and expects directors, officers, and employees to share that commitment. Through the years Otter Tail Corporation has built a reputation for trust and excellence. The actions the operating companies take are vitally important in maintaining that reputation.

Otter Tail Corporation requires faithful compliance with the Code of Conduct, which is distributed to all employees and posted online at www.ottertail.com. The corporation’s internal audit department confirms distribution of the Code of Conduct each year.

3

Getting to know us

Otter Tail Power Company employees Our employees function as a team to serve customers who depend on them for the electricity they want and need. Otter Tail Power Company employees run power plants, string electric cable, troubleshoot service issues, and provide the support services needed to keep our company running smoothly.

Total employees: 730

Minnesota 482

North Dakota 177

South Dakota 71

(includes temporary and part-time, excludes plant partners’ employee shares)

Dan Wagner, Big Stone Plant Power Plant Electrician II, helps the Boy Scouts build fencing at the Flynn Nature Trail and Bird Sanctuary on the edge of Milbank, South Dakota.

Recognized for customer communication We value each opportunity for meeting face-to-face with our customers and participating in our communities. That is why our employees are active in service clubs and chambers of commerce. They serve as elected officials, join volunteer fire departments, participate in youth organizations, and provide leadership for communitybased programs and events. In 2008 a video describing our employees’ community involvement won an Award for Publication Excellence from Virginia-based Communication Concepts, Inc.

Our customers We provide electricity and energy services to more than 129,000 customers in 423 communities and rural areas in 50,000 square miles of western Minnesota, eastern North Dakota, and northeastern South Dakota.

Total customers: 129,248

Minnesota 60,638

North Dakota 56,878

South Dakota 11,732

Customer break-down: Residential Seasonal cottages 99,221 2,381

Farms 2,850

Commercial 21,973

Large commercial 1,783

Other public authorities 616

Street lighting 424

Headquartered in Fergus Falls, Minnesota, we have customer service centers in each of the three states we serve.

Minnesota: Fergus Falls, Bemidji, Crookston, and Morris

North Dakota: Devils Lake, Garrison, Jamestown, Oakes, Rugby, and Wahpeton

South Dakota: Milbank

Generation mix Otter Tail Power Company has a balanced energy resource plan to meet increasing customer demand for electricity.

2007-2020 planned resource additions

2008 resource mix

Solid waste - 0.24%

280 MW Wind

Solid waste - 0.24%

174 MW Natural gas

Hydro - 6.06%

170 MW Coal

Biomass - 0.02%

Hydro - 6.06% Biomass - 0.02% Wind - 6.7%

}

Renewable resources – about 13%

280100 MW MW Winddemand-side management

Wind - 6.7% Purchases from unknown fuel sources - 12.61%

174 MW Natural gas

Purchases unknown fuel sources - 12.61% Natural gasfrom - 0.26%

170 MW Coal

Oil - Rounds 0% Natural gas -to0.26%

100 MW demand-side management

Coal - 74.11%

Oil - Rounds to 0% Coal - 74.11%

This graph represents the various fuel sources (owned and purchased) that Otter Tail Power Company uses to serve its customers. Purchases from known fuel sources are reflected in their associated categories such as hydro, wind, etc. For example, the 6.06 percent hydro portion of our resource mix reflects approximately 1 percent from owned generation and approximately 5 percent from a purchased-power agreement. All other purchases are reflected in the “Purchases from unknown fuel sources” category.

Getting to know us

4

Coal-fired power plants We operate three coal-fired power plants, which produce about 74 percent of the electrical energy our customers consume.

Big Stone Plant

Coyote Station

Hoot Lake Plant

Location: Big Stone City, South Dakota

Location: Beulah, North Dakota

Location: Fergus Falls, Minnesota

Age: Online since 1975

Age: Online since 1981

Capacity: 475 megawatts

Capacity: 427 megawatts

Age: Unit 2 online in 1959, Unit 3 online in 1964

Fuel source: Subbituminous coal

Fuel source: Lignite

Ownership: 53.9% Otter Tail Power Company, 23.4% NorthWestern Energy, 22.7% MontanaDakota Utilities

Capacity: 144 megawatts Fuel source: Subbituminous coal

Ownership: 35% Otter Tail Power Company, 30% Northern Municipal Power Agency, 25% Montana-Dakota Utilities, 10% NorthWestern Energy

Ownership: 100% Otter Tail Power Company

Plant capacity listed according to accredited Mid-Continent Area Power Pool ratings.

Hydropower Otter Tail Power Company owns six small hydroelectric plants in Minnesota and purchases generation from other hydro resources to account for about 6 percent of the company’s electrical energy. The Bemidji hydro plant is on the Mississippi River while the other plants are on the Otter Tail River near Fergus Falls, Minnesota.

Willow Creek

Bemidji

.8 MW, online 1907

Dayton Hollow

1 MW, online 1909

Hoot Lake

.8 MW, online 1914

Pisgah Dam

.7 MW, online 1918

Wright Dam

.5 MW, online 1922

Taplin Gorge

.5 MW, online 1925

Rush Lake

Otter Tail Lake Friberg Dam (Taplin Gorge)

Hoot Lake

Central Dam (Wright)

Wright Lake

Hoot Lake Plant

Pigsah Dam

Dayton Hollow

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Getting to know us

Wind power As of 2008 about 6.7 percent of Otter Tail Power Company’s electrical energy comes from emission-free renewable wind power as shown below. We plan to add 280 MW of wind to our resource mix by 2020.

Minnesota 3.5 MW (purchased)

North Dakota South Dakota Ashtabula Wind Center 48 MW (owned) .09 MW (purchased) Langdon Wind Energy Center 40.5 MW (owned) 19.5 MW (purchased) North Dakota Wind II 21 MW (purchased) (Edgeley)

Combustion turbines Al Koeckeritz, Manager, Delivery Project Development, and Joanne Field, Devils Lake Lead Customer Service Representative, coordinate the development of the Langdon Wind Energy Center in North Dakota.

Combustion turbines produce less than 1 percent of our company’s electrical energy.

Often called peaking plants, these compact power plants generate power during baseload plant maintenance and peak energy-use periods when our primary power plants cannot meet our customers’ demand for electricity.

Solway, Minnesota Generating capacity 47 MW Operates on natural gas or fuel oil

Jamestown, North Dakota

Lake Preston, South Dakota

Generating capacity 54 MW

Generating capacity 26 MW

Operates on fuel oil

Operates on fuel oil

Generating capacities are listed according to Mid-Continent Area Power Pool ratings and change monthly.

Capacity Expansion by the year 2020 (CapX 2020) is an effort of 11 transmission-owning utilities in Minnesota and the surrounding region to expand the electric transmission grid to ensure continued reliable and affordable service. Otter Tail Power Company is a CapX 2020 member.

Planning studies show that customer demand for electricity will increase 4,000 to 6,000 MW by 2020, which is more than the current transmission grid can handle. The new transmission lines are designed to meet this increasing demand as well as to support renewable energy expansion. Otter Tail Power Company is participating in three of the four Group 1 projects and is the lead utility for the BemidjiGrand Rapids 230-kv line project.

We expect construction to begin on the Group 1 projects between 2010 and 2015. www.capx2020.com

Other sources We also provide electricity produced from biomass and solid waste. And we purchase approximately 12.6 percent of our electricity from the regional energy market.

Transmission and distribution Demand for electricity is on the rise across the country, and our service area is no exception. We invest in transmission upgrades and new construction to meet that growing demand and to maintain our electrical system’s reliability.

Miles in operation Transmission lines 345 kv 230 kv 115 kv 69 kv 41.6 kv Distribution lines 24 kv and below kv = kilovolt

2006

2008

Proposed additions

47.8 405.0 799.0

47.8 405.0 821.5

216.0 3,824.0

212.0 3,801.0

0 0 Approximately 16 miles Buffalo, ND - Casselton, ND 0 4.5 miles Yellow Medicine County, MN

5,160.0

5,224.0

Getting to know us

Determined by customer needs

6

Environmental stewardship We place respect for the environment at the forefront of everything we do because we live in the communities in which we operate. We want those communities and their surroundings to have clean air, land, and water resources. We want them to support wildlife, wildflowers, game fish, and rural parks. In short, we are no different than other Americans.

We know that a wholesome environment is essential to a satisfying quality of life.

A teacher and student share a beautiful new flower grown at the Anne Carlsen Center greenhouse in Jamestown, North Dakota.

Being an electric company that is vitally concerned about a strong economy, we must help ensure that the things we do to meet our economic and environmental needs are in concert with one another.

We must work hard to achieve both to everyone’s benefit. That means we must have a fundamental understanding of the economic and environmental issues before us and act in the most responsible manner.

Monitoring climate-change legislation The discussion about climate change is a global issue with local ramifications. We recognize that the connection between climate change and increased levels of atmospheric carbon dioxide (CO2)—a greenhouse gas (GHG)—is receiving increased attention.

Because fossil fuel-fired electric generating plants produce CO2, and because Otter Tail Power Company is an owner or part-owner of three baseload coal-fired electric generating plants and four fuel oil-fired or natural gas-fired combustion turbine peaking plants, CO2 regulation will impact our company and those we serve.

We monitor and evaluate the possible adoption of national, regional, or state climatechange and GHG legislation and regulations that would affect electric utilities. Congress continues to debate the direction and scope of United States climate-change policy and the regulation of GHG. Although several bills have been introduced in Congress that would mandate reductions in CO2 emissions, no federal GHG reduction requirements exist today. The likelihood of any federal mandatory CO2 emissions-reduction program being adopted in the near future, and its specific direction and scope, is uncertain at the time of this report.

Although standards have not been developed at the national level, several states and regional organizations are developing state-specific or regional legislative initiatives to reduce GHG emissions. Minnesota Governor Tim Pawlenty established the following CO2 reduction targets as part of the Next Generation Energy Act: 15 percent by 2018, 30 percent by 2025, and 80 percent by 2050.

While the future financial impact of any proposed or pending climate-change legislation or regulation of GHG emissions is unknown, any capital and operating costs incurred for CO2 emission-reduction measures—such as the cost of CO2 capture, storage, and sequestration, the cost to purchase allowances, or the cost of a carbon tax—could adversely affect the company’s future operations, cash flows, and financial condition.

7

Environmental stewardship

Complying with renewable-energy legislation One approach that several states are taking is to develop renewable energy standards.

These standards reduce GHG emissions by requiring electric utilities to provide a certain percentage of their electricity from renewable sources, such as wind or solar energy.

Otter Tail Power Company supports cost-effective wind-energy development. The following renewable energy standards have been adopted in our service area: Minnesota has passed legislation that requires retail electricity providers to obtain 25 percent of the electricity sold to Minnesota customers from renewable sources by 2025. Associated milestones include obtaining 7 percent of the electricity from renewable sources by 2011, 12 percent by 2015, 17 percent by 2019, and 20 percent by 2024.

North Dakota and South Dakota have enacted voluntary 10 percent renewable energy objectives to be attained by 2015.

Developing wind energy We aggressively have pursued development of new wind energy resources. Relative to our size, our company has one of the highest levels of investment in wind generation among utilities nationwide. Our integrated resource plan forecasts that we will exceed the levels of renewable energy resources defined in the standards or objectives of the states we serve. A summary of our 2008 wind energy projects follows.

We own 40.5 megawatts (MW) of wind generation at the 159-MW Langdon Wind Energy Center, which became fully operational in January 2008 in northeastern North Dakota.

We purchase 19.5 MW of output from the Langdon Wind Energy Center.

We own 48 MW of wind generation at the 199.5-MW Ashtabula Wind Center in east-central North Dakota. Our portion of the site was fully commissioned in 2008.

Otter Tail Power Company has entered into an agreement with a North Dakota company to own nearly 50 MW of wind-generated electricity at the Luverne Wind Farm now under development in east-central North Dakota. When combined, the Langdon, Ashtabula, and Luverne resources would generate enough economical electricity to power approximately 52,000 homes.

TailWinds Since 2002 our TailWinds program has provided another opportunity to inform customers and support wind energy. Through TailWinds our customers can purchase up to 100 percent of their electricity from wind generation. In 2008, 711 customers were enrolled and purchased 232,700 kilowatt-hours each month through the program.

TailWinds is available to commercial and residential customers who are interested in supporting a greater level of company investment in renewable energy technologies.

Participating customers pay a little extra for their electric service to cover the incremental cost of renewable energy.

The 900-kilowatt TailWinds turbine near Hendricks, Minnesota, produces an average of 205,400 kilowatt-hours of electricity a month.

Environmental stewardship

8

Recognizing challenges 2007-2020 planned resource additions

Wind power poses new challenges to the daily operation of electric utilities, especially in dispatching electric generating units to reliably meet consumer demand. Traditional energy resources, such as coal-fired power plants, have much higher availability rates than wind farms and can be more readily dispatched.

280 MW Wind

While we are committed to the prudent use of renewable resources, their inherent 174 MW Natural gas characteristics constrain certain applications. Using a variable and intermittent source, such170asMWwind, presents uncertainties regarding how much energy or capacity can be Coal available during various times of day or during periods of high demand. That’s why 100 MW demand-side management Otter Tail Power Company has a balanced energy resource plan to meet customer demand for electricity.

2008: A year of regulatory uncertainty 280 MW Wind 174 MW Natural gas 170 MW Coal 100 MW demand-side management

Otter Tail Power Company has a balanced energy resource plan to meet customer demand for electricity.

2008 was an especially challenging year for our regulatory compliance plans. In our 2006 stewardship report we discussed our plans to comply with three rulemakings: the 316(b) Clean Water Act Rule, the Clean Air Mercury Rule (CAMR), and the Clean Air Interstate Rule (CAIR). Since the 2006 report, all three of these rules were challenged in court. As a result, the 316(b) rule was suspended, CAMR was struck down, and CAIR was struck down in July and then reinstated in December.

These legal decisions have made compliance planning difficult. In keeping with Otter Tail Power Company’s commitment to comply with all regulations and to prepare for a January 1, 2009, CAMR compliance deadline, we installed mercury monitors at Coyote Station and Big Stone Plant. In anticipation of CAIR, we reduced nitrogen oxide (NOx) emissions at our Hoot Lake Plant. Future compliance requirements remain unclear because the U.S. Environmental Protection Agency has been ordered to work on a replacement rule for CAIR.

9

Environmental stewardship

Hoot Lake Plant Unit 2 Lowest 2008 NOx emitter among our baseload plants

Hoot Lake Plant Unit 2 has been in operation since 1959, making it our oldest operating baseload generating unit. By the end of 2008 Unit 2 proved to be the lowest emitter of nitrogen oxide (NOx) among our baseload plants, showing that retrofitting older plants can be successful.

Hoot Lake Plant operates in Fergus Falls, Minnesota.

We realized this achievement by installing state-of-the-art low-NOx burners and making combustion air improvements during a planned outage in spring 2008. The primary reason we selected this technology was to reduce NOx emissions to desired levels if Phase I of CAIR is enacted. This technology also allows us to comply with a new lower NOx permit limit mandated by the Acid Rain Program even though only small reductions were necessary to comply with the Acid Rain Program compared with CAIR. The December 2008 NOx emission rate decreased by more than 65 percent, compared with the 2007 annual average, after we made the improvements. We expect to maintain the new emission rate, which will put Unit 2 in position to meet the target emission rate for Phase I of CAIR.

Other plant project successes In late 2007 we successfully installed a new pulse-jet baghouse at Big Stone Plant that collects particulate matter from the flue gas.

During 2008 we installed new continuous opacity-monitoring systems at Coyote Station and Hoot Lake Plant. These improvements complete a three-year process for upgrading all of the emissions-monitoring equipment and software reporting platforms at Coyote Station, Hoot Lake Plant, and Big Stone Plant.

Environmental stewardship

10

Planning for the future We understand the debate about environmental issues and take our environmental stewardship responsibility seriously. Our balanced energy resource plan ensures that the electricity will be there when customers need it. Their lives and businesses depend upon it.

Artist’s rendering

As of the end of 2008 South Dakota issued the following permits for the Big Stone II project: • Energy Conversion Facility Permit • Permit to Construct Transmission Facilities • Surface Water Appropriations Permit

Big Stone II, if built, would help meet our customers’ increasing energy needs in an environmentally responsible manner. Big Stone II is a 500 to 580-MW coal-fired power plant proposed to be built adjacent to the existing Big Stone Plant near Milbank, South Dakota. By incorporating a scrubber to serve both plants, the Big Stone site would produce twice the amount of electricity but fewer sulfur dioxide (SO2), nitrogen oxide (NOx), and mercury (Hg) emissions. Moreover, Big Stone II is designed to incorporate advanced supercritical pulverized coal technology, which would increase plant efficiency by 20 percent compared with existing area coal-fired plants. In other words, Big Stone II would produce 20 percent less CO2 per kilowatt-hour.

In 2007 the Minnesota Office of Energy Security (then Department of Energy) and the Big Stone II project partners reached an agreement intended to help pave the way for a diverse, reliable energy resource plan for the participating utilities, including additional renewables, energy conservation and efficiency, and needed new baseload plants, including Big Stone II. Among other provisions, the settlement includes:

• Groundwater Appropriations Permit

Innovative provisions to offset 100 percent of the Big Stone II plant’s carbon dioxide emissions attributable to Minnesota customers.

• Prevention of Significant Deterioration (PSD) Air Quality Preconstruction Permit

Commitments by the project’s owners to build or procure at least 180 megawatts of locally owned renewable community-based energy development (C-BED) projects, representing 22 percent of Governor Pawlenty’s statewide goal of 800 MW.

• Title V Air Quality Permits With the exception of the last two, all of these permits are beyond the appeal period. If built, construction would begin in late 2010.

Commitments by the project’s owners to further improve and extend their energy conservation and efficiency efforts.

Provisions that confirm that the project’s owners will add equipment to both Big Stone II and the existing Big Stone I power plant that will remove at least 90 percent of the mercury emissions from both plants, similar to what is required for the largest plants in Minnesota.

The Big Stone project participants also plan to increase the voltage of the transmission line that runs from Big Stone to Granite Falls, Minnesota, from 230 kv to 345 kv, making approximately 1,000 megawatts of extra transmission capacity available for wind energy or other generation when combined with other transmission projects planned for the region.

Responsible water use Steam generation requires access to a large amount of water. Our plants fully comply with regulations governing use of regional water resources as set forth in our water permits. We take great care to ensure that our use of water does not negatively impact the rights of other users. That policy has served us well and has helped ensure a balance between environmental and economic interests.

Coyote Station Coyote Station appropriates water from the Missouri River under a permit issued by the North Dakota State Water Commission.

Coyote Station uses a cooling tower to meet its cooling needs. In accordance with our permit, only a small portion of the water appropriated for Coyote Station cooling tower operation is discharged to the Missouri River. The remaining plant wastewater is recycled and used for plant processes. Evaporation accounts for most water lost.

11

Environmental stewardship

In 2008, 5,005 acre-feet were appropriated from the Missouri River, and the amount discharged was 312 acre-feet. Coyote Station consumed more than 4,690 acre-feet.

Hoot Lake Plant The Minnesota Pollution Control Agency (MPCA) oversees water-quality programs and discharge regulations. The Minnesota Department of Natural Resources administers water supply appropriations.

Osprey nest at Big Stone Plant near Big Stone City, South Dakota.

The Otter Tail River provides cooling water for Hoot Lake Plant. Cooling towers are used during low river flows to maintain compliance with the plant’s MPCA water discharge permit.

Water is appropriated in two different manners, either nonconsumptive or consumptive.

Nonconsumptive use in 2008 totaled about 71,300 acre-feet of water for the oncethrough cooling process. Consumptive uses totalled 1.7 acre-feet in 2008.

Respecting wildlife habitat

Big Stone Plant

Portions of the Otter Tail Power Company service area offer perfect conditions for osprey to thrive. And power poles are among the osprey’s favorite nesting sites. Unfortunately, osprey build very large nests, which can become fire hazards.

So, we’ve installed nesting platforms in suitable locations to provide places for osprey to nest safely.

The existing Big Stone Plant is permitted by the South Dakota Department of Environment and Natural Resources (DENR) to withdraw water from Big Stone Lake. The permit restricts water withdrawals when Big Stone Lake levels are below prescribed levels. The permit restrictions limit most withdrawals to times of high flows, usually during late-winter and spring months. During 2008 about 3,600 acre-feet were withdrawn from Big Stone Lake.

Using a unique design, water discharges from Big Stone Plant are sent to a cooling pond, treated by routing the water to evaporation storage ponds and a brine concentrator, and eventually recycled back into the plant. The brine concentrator technology treats the water using a process similar to a still, with the end products being a concentrated waste stream and high-quality water. The concentrated waste stream is sent to a storage pond. The high-quality water is suitable for reuse within Big Stone Plant and the adjacent ethanol plant.

This cooling water design allows the facility to avoid heated-water discharges to any natural surface-water bodies.

Proposed Big Stone II Big Stone II would require an appropriation of additional surface water from Big Stone Lake and from groundwater. Otter Tail Power Company received approval from the South Dakota Department of Environment and Natural Resources (DENR) to appropriate the additional lake water. The operating restrictions that were included in the new surfacewater appropriations permit were unchanged from the previous Big Stone Plant permit.

The Big Stone II design calls for using groundwater as an additional source of water for the combined plants. Groundwater would be used when sufficient quantities of water could not be pumped from Big Stone Lake. Groundwater withdrawals also are regulated by permit from the DENR. In contrast to the existing Big Stone Plant, Big Stone II would use a cooling tower to meet its cooling needs. Similar to the existing Big Stone Plant, however, Big Stone II would reuse wastewater and installed treatment technologies would enable it to operate without discharging cooling water or wastewater to natural surface-water bodies.

Environmental stewardship

12

Focused on air quality GHG reduction efforts While the eventual outcome of proposed and pending climate-change legislation and GHG regulation is unknown, we are taking steps to reduce our carbon footprint by increasing plant efficiency, pursuing conservation activities, and developing renewable energy.

CO2 intensity trend

3000 2500

2474 2459

2552

2525 2319

2453 2306

2397 2149

2000 1500

1990

1000

1995

2000 Years

2005

2075

2008

Overall system average

CO2 intensity, lb/1000 kwh

Otter Tail Power Company CO2 intensity trend

Otter Tail Power Company coal plant average

The graph below shows that Otter Tail Power Company’s CO2 intensity is decreasing.

Between 1990 and 2008 we reduced our overall CO2 intensity (pounds of CO2 per 1,000 kilowatt-hours generated) nearly 16 percent. This decrease is due to the addition of renewable energy and improvements in plant efficiency. This downward trend is expected to continue as more renewables and the proposed Big Stone II are added to our portfolio.

Note: Only Otter 500Tail Power Company-owned resources and contracted energy purchases from known sources are included in the above chart.

0

Plains CO2 Reduction Partnership (PCOR) Otter Tail Power Company has participated in carbon sequestration research with the Plains CO2 Reduction (PCOR) partnership through the University of North Dakota’s Energy and Environment Research Center. The PCOR Partnership is a collaborative effort of more than 75 public and private sector stakeholders working toward a better understanding of the technical and economic feasibility of capturing and storing anthropogenic CO2 emissions from stationary sources in central North America. One of PCOR’s 2008 highlights was teaming with Ducks Unlimited, Inc., to create a carbon offset program.

Participating landowners can enroll their native prairie or expired Conservation Reserve Program land in the U.S. Fish and Wildlife Service’s Grassland Easement Program, which prohibits the grassland from being plowed. This ensures that the existing soil carbon remains sequestered and is prevented from reentering the atmosphere as CO2.

SF6 Emission Reduction Partnership Otter Tail Power Company continues to participate in the EPA’s SF6 Emission Reduction Partnership for Electric Power Systems. The Partnership targets a reduction in emissions of SF6 (sulfur hexafluoride), a potent greenhouse gas that is used as an insulator in electrical transmission and distribution equipment. SF6 has a long atmospheric lifetime of 3,200 years and has a global-warming potential 23,900 times that of CO2. As of the end of 2007, the Partnership had lowered the average SF6 emission rate (the ratio of SF6 emissions to the SF6 contained in electrical equipment) to 5.5 percent compared with the 1999 baseline rate of 15.2 percent.

13

Environmental stewardship

Otter Tail Power Company’s emission rate has been lower than the average Partnership emission rate for each reporting year. Our self-determined annual SF6 emission goal is less than 2 percent of system capacity through 2012. We met this goal in 2008 with an SF6 emission rate of 0.7 percent.

SO2 and NOx emission control

Otter Tail Power Company’s coal-fired power plants are becoming increasingly clean and efficient, as shown by the graph below. The graph also shows that, with the addition of the proposed Big Stone II, this trend would continue.

27.9

25 20

19.0

17.7

16.9

15.7

15 10

9.9

10.1

8.4 8.6

14.8

7.9 7.9

7.8

9.1 7.0

5 0

4.0

1990

1995

2000

Year

2005

NOx

28.8

SO2

30

Combined SO2 and NOx

Emission intensity lb/1000 kwh

SO2 and NOx emission intensity trend from coal-fired generation

2008

5.1

2015 projections with Big Stone II

Committed to product reuse Otter Tail Power Company facilitates the reuse of fly ash and bottom ash—the products of coal combustion—wherever possible. In addition to serving as an additive in cement, our fly ash is used for agricultural purposes, such as stabilizing soil in feedlots and grain storage pads. Our bottom ash is used for sandblasting, surfacing mining roads, roofing shingles, and drainage components. Reusing product saves natural resources and reduces landfill use, and ash is more cost-effective than traditional construction materials such as asphalt, cement, or lime.

Hoot Lake Plant

Farmers use Otter Tail Power Company’s fly ash for stabilizing soil.

In 2004 the Minnesota Pollution Control Agency granted Hoot Lake Plant the first Minnesota Case-Specific Beneficial Use Determination (CSBUD) allowing agricultural use of fly ash. The demand for fly ash for use in stabilizing soil in feedlots, grain storage pads, and farm roads continues to grow. Hoot Lake Plant produced 13,104 tons of fly ash and 5,000 tons of bottom ash in 2008. Of these totals, 800 tons of fly ash (or 6.1 percent of the fly ash produced) and 20.8 tons of bottom ash (or 0.4 percent of the bottom ash produced) was beneficially reused. The remainder of the fly ash and bottom ash (12,304 tons and 4,979 tons, respectively) was placed in the plant’s permitted on-site ash-disposal area.

Environmental stewardship

14

Big Stone Plant In 2008 Big Stone Plant, which also is in an agricultural area, distributed 13.3 percent of the 78,759 tons of fly ash it produced for agricultural uses. The remainder of the fly ash produced (68,271 tons, or 86.7 percent) was placed in the permitted on-site ash-disposal area. All of the 43,957 tons of bottom ash the plant produced was beneficially reused.

If constructed, Big Stone II also would produce fly ash that could replace portland cement in making concrete.

Coyote Station Coyote Station produced 303,100 tons of fly ash and 128,340 tons of bottom ash.

Of these totals, 60,505 tons of bottom ash (or 47.1 percent) was beneficially reused.

All of the fly ash and the remainder of the bottom ash (67,835 tons) was placed in the permitted on-site ash-disposal areas.

Spill within permitted limits

Bottom ash from Coyote Station in Beulah, North Dakota, and our other coal-fired power plants, is used for sandblasting, surfacing mining roads, roofing shingles, and drainage components.

The only significant spill of the year occurred at Hoot Lake Plant in July 2008 when the coal pile runoff/wash-water collection pond’s liner was undergoing a performance evaluation. For this evaluation water pumped from the Otter Tail River into the pond was supposed to be left undisturbed for 30 days. Unfortunately, vandals tampered with the pond’s discharge structure, and the pond was discharged prior to sampling. Because this was an unauthorized discharge to the Otter Tail River, it was considered a spill.

Approximately 400,000 gallons of pond water was released, but we emphasize that the water discharged to the river was originally river water. Samples collected upon discovery of the vandalism verified that the discharged water was within permitted limits.

PVC liner at Hoot Lake to be replaced After restarting and completing the Hoot Lake Plant coal pile runoff/wash-water collection pond liner evaluation described above, the test indicated that the liner was not functioning as well as required by the Minnesota Pollution Control Agency. Otter Tail Power Company will replace the pond’s PVC liner in 2009 to improve the environmental protection the pond provides.

Environmental protection expenditures and investments During the five years ended December 31, 2008, Otter Tail Power Company invested approximately $17.4 million in environmental control facilities. The 2009 construction budget includes approximately $0.6 million for environmental equipment for existing facilities. The company’s share of environmental expenditures for the proposed Big Stone II is estimated to be $133 million, including the cost of a scrubber that would serve both the existing Big Stone Plant and Big Stone II.

15

Environmental stewardship

Demand-side management and energy efficiency In addition to aggressive renewable energy development, Otter Tail Power Company is pursuing equally aggressive demand-side management and energy-efficiency programs.

From 2005 to 2020, for instance, demand-side management will account for about 14 percent of the company’s resource acquisitions.

Demand-side management Ron Spangler, Rate Case Manager, and his family enjoy the savings associated with residential demand control at their home in Fergus Falls, Minnesota.

Demand-side management (DSM) resources make our company unique among utilities.

DSM has been part of our energy plan since the 1940s when we encouraged customers to put timers on their water heaters. During deregulation efforts of the 1990s—when many utilities dismantled their DSM programs—Otter Tail Power Company continued to focus on its value. Our goal of reducing peak energy demand led to heavy promotion of interruptible and deferred loads and associated rates.

As a result, in 2008 about 31 percent of our customers participated in some form of demand-side management, allowing a portion of our resources to be curtailed during high-use periods. This places our company among the top utilities in terms of direct load-control customer participation. Our resource plans call for a continued strong effort in establishing DSM resources with an additional 100 megawatts (MW) of coincident peak-load reduction when the load-management system is activated. In 2008 we added 41.2 MW of controlled heating, cooling, and water-heating load.

Participating customers save on their heating and cooling bills with rates that are much lower than the price of standard electric service.

Energy efficiency Energy-efficiency programming is a focus for Otter Tail Power Company. Since 1992 we have helped our customers conserve 225 MW of demand and more than 1.2 million cumulative megawatt-hours (MWH) of electricity. That’s roughly equivalent to the amount of electricity that 110,000 average homes would use in a year. And it’s almost equal to the annual energy sales of our entire residential customer base.

We promote energy efficiency through advertising campaigns and educational presentations throughout our service area.

Minnesota Conservation Improvement Program In Minnesota during 2008 public electric and gas utilities were required to spend 1.5 percent of their annual revenues on energy-efficiency programs. Overall, during 2008 we achieved approximately 15.9 million kilowatt-hours (kwh) of energy savings and 3.8 MW of demand savings. Our investment of more than $2.3 million provided a payback of almost $10 million in overall program benefits to the utility, our customers, and society. We’ve highlighted a few Minnesota program results on the next page.

Demand-side management and energy efficiency

16

Change a Light, Change the World Through this program a network of local retailers, supported by rebates, sold 18,800 Energy Star-qualified compact fluorescent lamps in 2008.

CoolSavings To help manage system electric loads, 562 participants earned $20 each in bill credits during summer-season months by allowing a radio receiver to cycle their air conditioners on and off every 15 minutes during periods of peak demand.

Heat pump conservation rebates Approximately 220 residential and 30 commercial customers qualified for rebates by installing high-efficiency Energy Star-rated air-source or geothermal heat pumps.

Energy-efficient equipment rebates We provided 257 commercial rebates for installations of energy-efficient lighting, motors, refrigeration, and cooking equipment. We provided an additional 45 grants for energyefficient process improvements to industrial or manufacturing installations.

Conservation for kids Otter Tail Power Company is shaping the future by reaching today’s children through: ConservingElectricity.com.

A series of educational energy-efficiency television and radio ads featuring Chelsey, an energetic school-aged girl.

The Minnesota Science Museum Energy Connections tour that visited 18 schools during October and November reaching about 1,790 students with a message about how electricity is made and what they can do to conserve it.

Patrick Westby from West Central Area Schools discovers how hard he has to pedal a bicycle to power lightbulbs during the Minnesota Science Museum Energy Connections Tour.

South Dakota Energy Efficiency Partnership In 2008 we launched an energy-efficiency portfolio for our South Dakota customers. The plan includes programs intended to achieve approximately 1.1 million kwh in annual energy savings at an approximate total cost of $157,100.

The Energy Efficiency Partnership programs are similar to those included in our Minnesota Conservation Improvement Program. Visit us online at www.otpco.com for more information.

North Dakota conservation program We’re prepared to submit our first conservation program portfolio to North Dakota regulators in 2009 with a goal of offering cost-effective conservation programs in that state.

Bill analyzer tool We developed a bill analyzer tool in 2008 (for launch in early 2009) for our customer service representatives to use in helping resolve high-bill calls. It also will serve as an online self-service tool for customers to analyze their personal energy use patterns. This tool offers an enhanced home energy audit capability. Our goal is to inform customers about causes of bill fluctuations and ways they can save energy and money.

17

Demand-side management and energy efficiency

Demonstrating energy-saving opportunities Holiday lighting To demonstrate the energy efficiency of LED holiday lighting and to reduce energy use, we replaced about 780 C7 incandescent bulbs outlining the roof and corners of our general office building in Fergus Falls, Minnesota, with C9 LED bulbs.

While more expensive than incandescent light sets, LED light sets can use up to 90 percent less electricity and can pay for themselves in four to five years.

New printing facility provides savings by design Our newly constructed Print and Mail Services facility in Fergus Falls is designed for energy savings. Through our Minnesota CIP SmartPlan project, we compared building plans with Minnesota energy code requirements. The systems we selected exceed code requirements in lighting, motors, use of adjustable-speed drives on high-efficiency HVAC equipment, and an energy-management control system.

Compared with the Minnesota energy code, the building’s peak demand will be 42 kw less, and energy consumption per year will be 149,812 kwh less, than if the facility were otherwise constructed.

Home energy makeovers In 2006 we sponsored the Home Energy Makeover workshops and contest throughout our service area. By 2008 we completed all installations, and we continued to collect data to assess the value our customers will realize from the home improvements.

The contest offered residential customers the chance to win $7,500 worth of home energy-efficiency improvements. Seven homes from across our service area were selected for makeover measures that included weatherization, high-efficiency heating and cooling systems, new windows, water heaters, insulation, and other energy-efficiency services.

Bob Johnson, Jamestown Service Representative, congratulates customer Barb Nuanes on her home energy makeover.

Winners were selected from: Revillo, South Dakota Rugby, North Dakota Devils Lake, North Dakota Jamestown, North Dakota Oakes, North Dakota Bemidji, Minnesota Fergus Falls, Minnesota One home energy makeover winner achieved savings of $550 a year, or 43 percent of pre-makeover energy costs. Estimated air leakage before the makeover was 3,000 cubic feet per minute (cfm) and afterwards, just 1,600 to 1,800 cfm. Energy-efficiency work included replacing and improving windows, installing off-peak water heating, insulating the home’s rim joist, and replacing the front door.

Otter Tail Power Company continues to work with customers across the system to evaluate the most effective improvements and system upgrades for their homes.

Demand-side management and energy efficiency

18

“To our knowledge, nothing like this ever has been done. It’s a unique way to help people understand that the energy choices they make and the technologies they use impact everyone. We’re facing serious energy challenges, and it will take teamwork to solve them.”

— Kim Pederson, Otter Tail Power Company, Manager, Market Planning

19

Paying it forward in Minnesota

Stewardship project profiles Stewardship is at the heart of Otter Tail Power Company and our 100th anniversary commemoration.

Throughout our anniversary year we will remember our roots, give thanks, pay it forward, and set the stage for the next 100+ years.

To pay it forward means that when you receive a thoughtful gift or gesture, you return the kindness by giving to others. When you do something kind for five people, and when they each do something kind for five people, the kind act grows exponentially.

Our anniversary planning team spent much of 2008 developing a pay-it-forward project in each of the three states we serve. Each project includes an element of environmental stewardship, social responsibility, and economic impact to reinforce our commitment to the premise behind our anniversary theme— ON for generations.

Read about our programs on pages 19, 34, and 38.

Pay it forward Minnesota project spotlight Community energy challenge Rothsay, Minnesota Imagine all of the residents of a small rural community working together to reduce the electrical use of their entire town. That is what we envisioned when we designed our Minnesota Conservation Improvement Program for 2009 and 2010. Approved by the Office of Energy Security in November 2008, the plan includes a large pilot project for making one community as energy efficient as possible.

Environmental stewardship: This project will focus on energy-efficiency improvements, plug-load reductions (plug loads draw energy even when they are not in use, such as computers, TVs, and chargers), education, research, and energy reductions through behavioral changes.

Social responsibility: The project will rely on the enthusiasm and influence of community members—including young people—which makes it especially exciting. We developed rigid criteria for our selection and screened communities that would be a good fit for the pilot project. A team finalized the selection and announced Rothsay, Minnesota, as the selected community in 2009. We will complete the retrofit and education in 2010.

Economic impact: In addition to this large pilot project and others, Otter Tail Power Company’s plan offers individual homeowners and businesses many options for saving energy and money. Our commitment to reducing energy use only can be achieved through customer willingness to invest in technologies that will help lower their consumption and lower their electric bills.

Paying it forward in Minnesota

20

Social stewardship We value integrity, safety, customer focus, resourcefulness, and community. That’s why we seek public input in various projects, encourage customers to use electricity wisely, and educate customers about their electric service rates. It’s also why we strive to provide reliable service, keep rates manageable, and maintain focused employees who are committed to serving our customers and making our service area a vibrant place to live and work.

Open involvement

David Kantrud, Land Specialist, visits with landowners during a public meeting about the Bemidji-Grand Rapids 230-kv transmission line.

We work with agencies on the regulatory, local, state, and federal levels to obtain required project approvals. And, through public meetings, we make a concerted effort to implement project processes that are as transparent as possible. We hope that one-on-one ties with our customers help to simplify processes and encourage customer participation.

In 2008 we held public meetings related to the following projects: Bemidji-Grand Rapids 230-kv transmission line.

Casselton-Buffalo 115-kv transmission line.

Pillsbury-Fargo generation outlet.

Ashtabula Wind Center.

Luverne Wind Farm.

Tharaldson Ethanol transmission.

Big Stone transmission.

Big Stone II generation.

Minnesota rate case.

Customer information To help ensure cost-effective and reliable electric service, Otter Tail Power Company provides customers with information about the wise use of electricity. We emphasize using energy safely and efficiently on our web sites, www.otpco.com and www.ConservingElectricity.com, and in advertising, bill inserts, and targeted news releases. Our goal is to ensure that our customers have convenient access to this information.

We also use these forms of communication to inform customers about rate options, available financing and rebates, and the services they can obtain from our customer service centers.

Regulatory commissions in the three states we serve require that we share certain information about rates and/or rate changes with our customers through bill inserts, advertisements, or special mailings. Those pieces are included in our communication plan, and we work closely with the commissions to ensure that we meet their expectations.

In 2008—as in previous years—we complied with all regulatory notification requirements.

21

Social stewardship

Our company’s various preparedness plans incorporate recommendations and compliance measures from: Federal Emergency Management Administration (FEMA) Midwest Independent Transmission System Operator (MISO) North American Electric Reliability Council (NERC) Federal Energy Regulatory Commission (FERC) Other key agencies

Preparedness planning Otter Tail Power Company has several situation-specific documents that provide a systematic approach to managing crises in an organized fashion, without causing major disruption to normal activities. These documents, some of which are outlined below, are general guidelines we supplement with employee education and training.

Emergency-response guidelines Each employee has a copy of Otter Tail Power Company’s emergency-response guidelines, which are provided to help ensure employee safety and reduce property damage should an emergency or disaster occur. Emergency procedures covered in the guidelines include medical, fire, tornado, workplace violence, elevator escape, building evacuation, bomb threat, and suspicious mail and objects. The emergency-response guidelines are reviewed periodically by the Safety Services Department.

Crisis-management plan Our crisis-management plan is a thorough step-by-step checklist that includes a first-hour response plan, key contacts, and situation-specific procedures for major crises. This plan is reviewed annually by the executive team, area managers, plant managers, attorneys, Otter Tail Corporation, and department representatives from Public Relations, Safety Services, System Operations, Regulatory Services, Environmental Services, and Delivery Engineering.

Cyber security and critical infrastructure protection plan In January 2008 the Federal Energy Regulatory Commission approved the North American Electric Reliability Council Critical Infrastructure Protection Standards. These standards require specific assessment, identification, and protection of facilities, systems, and equipment that, if compromised, could affect the reliability or operability of the bulk power system. Companies must be compliant with all requirements of the standards by July 2009 and auditably compliant by July 2010. Otter Tail Power Company developed implementation and administration plans, and we are working to meet these requirements. A selfassessment performed in July 2008 and submitted to the Midwest Reliability Organization shows progress toward this objective.

System restoration plans In the spring and fall of each year, Otter Tail Power Company and its neighboring utilities run drills based on system restoration plans. The purpose is to practice restoring an electrical system—including generation and transmission—that has gone black. By understanding system behavior and having shared and practiced procedures in place, our company and our neighboring utilities help ensure continued system reliability for our region.

We also maintain a backup control center that would allow us to work with neighboring utilities if our primary control center were to become unusable. Reliability is one of our primary concerns.

Information Technology Business Continuity Plan and Disaster Recovery Plan These plans provide process guidelines for reestablishing essential business services during the first days and weeks of a disaster that impacts computer and networking systems, software and applications, and communications systems. The documents outline a logical sequence of steps for us to consider in reestablishing a business system and include key contacts and vendors.

Social stewardship

22

Reliability Reliability is one of our top priorities, because we understand that electricity is a necessity for our customers. We work to minimize the frequency and length of service interruptions. We track our response to interruptions using four reliability performance indicators, and in 2008 we achieved strong results. Here are our system reliability results as recorded by our interruption monitoring system.

The number of interruptions lasting five minutes or more that an average customer experienced during the year. (System Average Interruption Frequency Index—SAIFI)

Brian Weninger, Edmore Service Representative, and Jamie McLean, Langdon Lead Lineman, help ensure reliability near Langdon, North Dakota.

SAIFI Goal

2006 < 1.60

2008 < 1.40

Actual

1.38

1.17

The average length of time that a customer was without service during an interruption.

(Customer Average Interruption Duration Index—CAIDI) CAIDI Goal

2006 < 50 min.

2008 < 54

Actual

43 min.

58

The total duration of these interruptions.

(System Average Interruption Duration Index—SAIDI) SAIDI Goal

2006 < 80 min.

2008 < 75.6

Actual

59 min.

68

The number of interruptions lasting less than five minutes that an average customer experienced during the year. (Momentary Average Interruption Frequency Index—MAIFI) MAIFI Goal

2006 < 11

2008 < 10

Actual

9.1

6.1

As part of a long-term reliability strategy, we perform analyses of our transmission and distribution systems to evaluate where our greatest needs lie.

Vegetation management Pruning and removing troublesome trees, which we have on a 5-year systemwide cycle, reduces interruptions caused by the trees and the animals living in them. In 2008 we spent $835,000 on vegetation management for our transmission system alone.

23

Social stewardship

Maintaining manageable rates Keeping our existing low-cost baseload plants available and generating electricity is critical to maintaining manageable rates for our customers.

2008 availability of our baseload generation sources Plant

Average 2008 availability

Comments

Big Stone Plant

95.4%

Big Stone Plant had an exceptional year, setting a new generation record and almost setting an all-time availability record (95.8 percent in 2006).

Coyote Station

90.8%

Coyote Station had 100 percent availability during the warm months of July and August.

Hoot Lake Plant Unit 2

57.8%

Hoot Lake Plant Unit 2 had a difficult year for availability. Following an extended scheduled outage in the spring, it experienced generator vibration issues throughout the summer and fall. These issues appear to be resolved, and in December Unit 2 had 100 percent availability.

Hoot Lake Plant Unit 3

95.9%

Hoot Lake Plant Unit 3 had an excellent year and had 100 percent availability for four consecutive months from July through October.

Rising costs Part of maintaining a reliable electrical system is our ability to finance system repairs and upgrades and to keep up with other rising costs.

Costs for crucial commodities are on the rise across the United States, yet electricity remains a value.

Percentage of increase 1983 to 2008 Otter Tail Power Company average residential rate and Consumer Price Index

Percentage of increase 1983 to 2008 Otter Tail Power Company average residential rate and Consumer Price Index 140%

Otter Tail Power Company

100%

80%

60%

40%

20%

0%

Consumer Price Index

120%

-20%

Countering cost increases To counter significant cost increases during the past 25 years, we have worked to hold down our expenses. Optimizing plant efficiencies, improving and expanding our load-management system, emphasizing conservation, managing employee count, and taking steps to reduce increases in employee benefit costs are just some of the things we have pursued.

Social stewardship

24

The following maps show how Otter Tail Power Company’s typical electric bills compare with other investor-owned utilities (IOUs) in the states we serve and with utilities nationwide.

Average residential electricity rates among IOUs by state (cents per kilowatt-hour)

Average commercial electricity rates among IOUs by state (cents per kilowatt-hour)

No data

No data

Hawaii

Hawaii

5.35 to 8.00

5.17 to 7.00

8.01 to 9.00

7.01 to 8.0 8.01 to 9.0

9.01 to 10.00

Otter Tail Power Company’s average dual-fuel rate is about half our average rate.

10.01 to 12.00 12.01 to 15.00 15.01 to 27.41

Otter Tail Power Company’s average residential rate is 7.7¢ in ND, 7.63¢ in SD, and 7.77¢ in MN.

The national average residential rate is 11.12¢.

9.01 to 10.0 10.01 to 13.0 13.01 to 25.05

Otter Tail Power Company’s average dual-fuel rate is less than half the average rate.

Otter Tail Power Company’s average commercial rate is 8.05¢ in ND, 7.67¢ in SD, and 8.13¢ in MN.

The national average commercial rate is 9.65¢.

Reflects average utility rates for 12 months ending June 30, 2008. Source: EEI Typical Bills & Average Rates Report, Summer 2008.

While we make continuous efficiency improvements and work closely with regulators to contain costs and to keep electricity prices as low as possible, rising electricity costs are inevitable.

In 2007 we filed a rate case with the Minnesota Public Utilities Commission (PUC) for the first time in 20 years. The PUC approved a final revenue increase of about 2.9 percent over what Minnesota customers paid in 2006. Final rates were implemented in February 2009. We filed rate cases in North Dakota and South Dakota in 2008, and we expect the regulatory commissions in those states to issue their final decisions in mid-summer 2009.

We understand that rate increases affect customers’ budgets, as do rising costs associated with all other consumer goods and services. To help keep electric bills as low as possible, we remain diligent about finding the most efficient, responsible, and costeffective ways to provide exceptional service, as we have since 1909. Because costs to produce electricity continue to rise, however—as does energy use—we likely will file additional rate cases in the near future.

In addition to general rate cases, cost recovery can occur through the energy adjustment, the renewable resource adjustment, transmission riders, and other riders. These forms of cost recovery require regulatory approval independent of each other to ensure that they are appropriate, yet they all impact the bottom line on customers’ electric service statements.

25

Social stewardship

Customer satisfaction Relationship survey We engaged the American Customer Satisfaction Index (ACSI) research program to conduct an independent relationship survey among our residential customers. ACSI conducts this survey randomly among our customers, regardless of whether the customers have contacted our company, and asks them about all aspects of their service relationship.

ACSI compares Otter Tail Power Company’s customer satisfaction ratings with those of the top 29 investor-owned electric and natural gas utilities in the country, which combined serve more than 75 percent of the nation’s residential customers.

Our average relationship score for 2008 is 81 points, which meets our company’s goal of being in ACSI’s top five rated utilities.

ACSI results Quarter 2 2008

Quarter 4 2008

Otter Tail Power Company

80

82

Highest-rated investor-owned utility in the comparison group

82

83

Industry average

73

73

Lowest-rated investor-owned utility

63

64

Numbers are on a scale of 0 - 100

Transaction survey Another customer satisfaction tool we use is our biannual comprehensive transaction survey, which has been part of our customer satisfaction efforts since 2002. Bellomy Research conducts this survey with customers who have interacted with us within a defined period of time and asks them about their satisfaction with a specific transaction.

The fall 2008 survey recorded the highest overall customer satisfaction rating in company history, 79.5 percent! This marks a major turnaround from the second quarter survey that recorded historically low satisfaction ratings, which we believe were related to high bills associated with the cost-of-energy adjustment that resulted from an extended plant outage. Combined with our spring 2008 rating, this gave us a 74.0 percent overall customer satisfaction rating for 2008.

Unlike the ACSI relationship survey, a well-established benchmark study for transaction surveys is not available. While this makes it difficult to compare our survey results with other utilities, we know that our survey results fall within the “very good to excellent” range on the survey data scale.

Reflected in the transaction survey is the effectiveness of our First Call Resolution program, a customer-service program implemented in 2007 and fully underway in 2008.

Social stewardship

26

Committed to our communities Public safety Helping keep customers and the public safe always has been paramount to Otter Tail Power Company. Our Safety Services Department staff, field personnel, and power plant employees give electrical safety presentations for schools, fire departments, and other organizations throughout our service area. These presentations educate the public about the hazards of electricity and about proper electrical safety measures.

We also distribute several public service notices related to electrical safety throughout the year to raise awareness. 2008 messages covered: Portable electric space heater safety.

National Electrical Safety Month (May).

Lightening strike protection for electronics and family members.

Harvest safety.

Ditch-burning precautions.

Holiday safety.

Contributions and volunteer work We volunteer our time and skills to make our communities better places in which to live.

Our employees volunteered for a wide range of nonprofit organizations and charitable causes in 2008. They served on boards of directors, organized volunteer projects, and made financial contributions.

The power of two matching gifts program

Loren Hovel, Service Representative, fights an attic fire for the Hankinson, North Dakota, fire department.

Otter Tail Power Companyâ&#x20AC;&#x2122;s The Power of Two program encourages this volunteer spirit. Employees who contribute a minimum of 24 hours of personal volunteer time within the year to a nonprofit organization are eligible for a $100 donation to that organization. Each employee is eligible for one donation to one organization each year. In 2008 Otter Tail Power Company contributed to 46 different organizations on behalf of our employees for their service as of year-end 2007.

Community Connections giving program While Otter Tail Power Company provides financial support to a broad array of activities and organizations, we focus our resources on the rural communities we serve. Please read the Economic stewardship section of this report to learn more about this giving program.

Committed to our employees We encourage workforce diversity, offer employees a competitive compensation package, promote a safe work environment, and challenge employees to excel.

The 730 Otter Tail Power Company employees work in three states: Minnesota, North Dakota, and South Dakota. Bargaining unit employees represent 51 percent of our workforce. Upon retirement, the average employee has approximately 33 years of service.

Diversity in our workplace Otter Tail Power Company is proud to be an Equal Opportunity Employer with policies and practices that are nondiscriminatory. By respecting and valuing diversity among our employees and all those with whom we do business, every employee is accountable for ensuring a workplace free of discrimination and harassment.

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Social stewardship

Employee benefits 401(k) retirement savings plan and/or pension plan

Employee interest-free financing program for appliances and electric technologies

Employee stock ownership plan

Employee allowances for electric heating systems

Health plan Dental plan Group life insurance

Employee matching gifts for higher learning program

Supplemental life insurance

Employee assistance program

Personal accident insurance

Employee adoption assistance

Flexible benefit plan Long-term disability plan

Scholarship program for children of qualifying employees

Short-term disability plan

Special travel accident insurance

Vacation plan

Stock purchase plan

Group legal plan

Tuition reimbursement Employees receive reimbursement for 80 percent of tuition and book costs for companyrelated accredited coursework. If considerable travel is required to attend a course, the company will pay 50 percent of mileage costs.

Performance evaluations Otter Tail Power Company requires managers and supervisors to evaluate their employeesâ&#x20AC;&#x2122; performance annually.

We offer competitive compensation to help retain our skilled workforce. A 2008 competitive compensation assessment shows Otter Tail Power Company within a competitive range (-1.9 percent) of the market median (50th percentile). The table below highlights a cross-section of jobs within Otter Tail Power Company.

Position

Annual salary

Entry-level plant operator Shift supervisor, control room Electrical technician Welder Coal handler Starting customer service representative Starting office manager Entry-level engineer Entry-level apprentice lineman Journeyman lineman Lead lineman

$44,000 $60,000 $44,000 $57,000 $49,000 $26,000 $50,000 $55,000 $40,000 $50,000 $60,000

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-

$76,000 $63,000 $65,000 $51,000

- $45,000 - $58,000 - $67,000

Employee health and safety Throughout our history employee safety has been one of our top priorities. In fact, we established a formal safety department in 1949â&#x20AC;&#x201D;one of the nationâ&#x20AC;&#x2122;s first among electric companies. The Minnesota Safety Council presented Otter Tail Power Company its Award of Honor in 2008 for sustained performance above and beyond industry averages. We were the only electric utility to receive an award at this level from the Council in 2008 for 2007 performance.

Minnesota Department of Labor and Industry Commissioner Steve Sviggum (left) recognizes Otter Tail Power Company employees for their commitment to safety as he presents the Award of Honor to Human Resources Manager Steve Wevley, Safety Services Manager Ryan Smith, and Human Resources and Safety Director Pete Wasberg.

We are proud of our safety tradition, which has shown and continues to show a significantly lower accident and injury rate than our industry peers. From December 1, 2007, through December 31, 2008, our employees worked more than 1.9 million hours without a lost-workday event.

Safety performance comparisons Otter Tail Power Company 2008 goal 2008 actual

Industry average 2007

Lost-time injury rate

0.35 or below

0.0

.70

OSHA recordable injury rate

3.15 or below

1.57

4.35

8 or fewer

13

52

Preventable vehicle accidents

OSHA standard recordable injury calculation: Total number of cases x 200,000/total number of hours worked

Industry averages for 2008 are not yet available.

Historical safety comparisons (OSHA recordable injury rate)

8

Industry average

7

Otter Tail Power Company

6 5 4 3 2 1

29

2001

2002

Social stewardship

2003

2004

2005

2006

2007

2008

Safety rule book Otter Tail Power Companyâ&#x20AC;&#x2122;s safety program and rule book are jointly approved by our management and local bargaining units. The rule book covers health and safety topics developed by a committee composed of management and union. Among the rule book topics are: Bloodborne Pathogens Exposure Control Plan Working on or near energized equipment sites Hazard communications Confined spaces Forklifts, cranes, and hoisting equipment Linemen practices Switching, tagging, and grounding

Best Operating Practices Committee The Best Operating Practices Committee was formed to improve communication crossfunctionally throughout the company. This group assists decision makers by providing research on procedures, policies, equipment, and regulations to support decisions and is composed of employees from many different areas of the company.

Our rule book and best practices committees are composed of approximately 10 percent of our workforce.

Power plant emergency program Coyote Station in Beulah, North Dakota, received the 2008 Occupational Safety Merit Award from the North Dakota Safety Council. This award is given to companies showing an incidence rate that is equal to or less than the national average.

Safety is a priority at all of our facilities, but it is especially important at generating plants where the potential for injury is heightened. All company power plant workers receive intensive safety training upon hiring, followed by annual refresher sessions.

All power plant employees hold first-aid and CPR certifications. In addition, each power plant has an emergency response team composed of 12 volunteers who provide monthly training to their coworkers on hazardous material handling, fire fighting, emergency medical technician/advanced first aid, high-angle rescue, and confined-space rescue.

Each emergency response team also is available to contractors working on the site.

Field safety Employees working in the field participate in monthly safety meetings, daily tailgate sessions, and other training opportunities to discuss safe work practices. Approximately 400 employees companywide are certified in CPR and first aid.

Social stewardship

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Companywide online safety training Our safety culture extends to all employees. Otter Tail Power Company uses an online training program to allow employees to complete their required annual training when it best fits into their schedules. Employees are enrolled in classes based on job classification and are asked to complete all training modules assigned to them in a calendar year. The table below lists the human resource-related classes that we require.

2008 Online human resource training classes Number of employees who completed the class

Number of employees required to complete the class

Percent complete

Discrimination-free workplace Drug-free workplace Hiring and lawful termination Sexual harassment for employees Sexual harassment for supervisors

286 777 74 737 100

307 821 92 792 121

93% 95% 80% 93% 82%

Violence in the workplace

207

215

96%

Classes

In 2008, 819 employees enrolled in 9,773 classes. Employees completed 9,307 classes, or 95.2 percent. The following table lists the 2008 average hours of online training completed per employee by classification. This training is in addition to many other educational opportunities we provide throughout the year.

Classification

Total training hours

Number of employees

Average hours per employee

105 208 687 207 670 389 332 81 2,678

22 48 197 40 248 100 105 16 776

5 4 3 5 3 4 3 6 3

Central Stores personnel (warehouse) Technicians/Electricians Linemen/Service Representatives Maintenance personnel Office/Clerical personnel Operations personnel Supervisors/Managers Yard Operations (plants) Total

This information includes power plant partnersâ&#x20AC;&#x2122; employee shares.

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Social stewardship

Investing in future employees Otter Tail Power Company typically has a low employee turnover rate compared with similar companies. The 2008 employee turnover rate was 4.86 percent including retirements. The rate is even lower—less than 2 percent—if you exclude retirements.

The table below illustrates the breakdown.

2008 Employee turnover Reason Number of employees Early retirement 21 Resignation 15 Normal retirement 4 Total 40

We anticipate that approximately 40 percent of our workforce will retire in the next ten years, however, taking precious skills and expertise with them. We are addressing the projected labor shortage by developing new recruitment materials and supplying them to educational institutions and other sources of qualified workers. For example, we distribute VisionQuest, an interactive career-guide DVD, to career services offices of area high schools and colleges. It features overviews of jobs in customer service, engineering, and plant and field operations. We also post VisionQuest on our web site www.otpco.com.

Otter Tail Power Company also emphasizes scholarship programs, job fair appearances, ties to post-secondary programs, internships, speaking engagements, and internal succession planning.

Mimi Wentzel, System Engineering Department Coordinator, and Scott Gunderson, Engineering Assistant, star in VisionQuest, Otter Tail Power Company’s interactive career guide, which features overviews of jobs in customer service, engineering, and plant and field operations.

Employee/retiree matching gifts for higher learning Otter Tail Power Company matches cash donations made by employees or retirees to colleges, universities, technical schools, or local tax-deductible community scholarship funds. The minimum contribution is $25, with a $1,000 maximum per person. In 2008, 52 employees and/or retirees participated in the matching gifts for higher learning program.

Employee family scholarships Our company scholarship program helps selected employees’ children pay tuition and academic fees for full-time undergraduate study at accredited post-secondary institutions.

An unbiased outside organization grants 13 scholarships yearly.

Social stewardship

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33

Paying it forward in North Dakota

Pay it forward North Dakota project spotlight Greenhouse at the Anne Carlsen Center Jamestown, North Dakota The Anne Carlsen Center provides residential, therapeutic, and educational services for children and young adults with medical challenges. In recognition of this vital service, we contributed financial support toward the construction of a greenhouse on the Anne Carlsen Center campus.

Social responsibility: The Anne Carlsen Center greenhouse is a gathering place where students share lessons on everything from science to mathematics to language skills. It also connects students with the marketplace as they harvest and sell what they produce.

Environmental stewardship: By tending the greenhouse plants—watering, fertilizing, pruning, repotting, harvesting—students gain firsthand knowledge of the importance of quality soil, air, and water to all growing things.

Economic impact: The Anne Carlsen Center is able to keep down energy costs in the greenhouse, thanks to proper insulation, a super-efficient air-source heat pump, and a thermal-storage underfloor heating system that creates a heat reservoir at night when energy is least expensive.

“This greenhouse unlocks potential in all of our students through vocational, educational, emotional, and physical channels. Research shows greenhouses provide unique healing environments that can’t be duplicated in clinical settings. Our students have been motivated through summer gardening; now those experiences will be expanded year round.”

— Mary Lewis, Teacher at the Anne Carlsen Center

Paying it forward in North Dakota

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Economic stewardship Our companyâ&#x20AC;&#x2122;s business success can be only as strong as the communities we serve. For that reason we energetically support economic-development opportunities that offer potential for success.

Direct economic value Otter Tail Power Company continued its role as a progressive corporate citizen by contributing the following economic impact in our communities.

Property taxes paid to local jurisdictions Wages and benefits paid to utility employees Common and preferred dividends paid Interest paid Amount paid to suppliers and vendors 2008 Total direct economic value generated

$ 8,949,000 $ 78,682,000 $ 38,093,000 $ 12,794,000 $753,641,000 $892,159,000

Local sourcing opportunities We positively impact the communities we serve by using local vendors when appropriate.

The following table details the amounts we spent in 2008 with vendors in our tri-state service area.

Amounts paid to tri-state vendors Minnesota South Dakota North Dakota 2008 Total for local vendors 2008 Total payments to all vendors

$89,811,000 9,366,000 64,083,000 $163,260,000 $753,641,000

Percent of total 11.92% 1.24% 8.50% 21.66%

Community Connections giving program While Otter Tail Power Company provides financial support to a broad range of activities and organizations, we focus our resources on the rural communities we serve.

Collaborative efforts and initiatives that fit more than one of our companyâ&#x20AC;&#x2122;s areas of emphasis receive greater consideration for funding.

Priority funding areas Education Workforce development Health and human services Arts and culture Community enhancement Environmental stewardship Community Connections donations in 2008 Customer Service Center and other donations Total 35

Economic stewardship

$400,000 $260,000 $660,000

Economic development Otter Tail Power Company partners with communities in our service area by providing economic development resources to help them expand their business base to ensure strong, vibrant communities that will be attractive places in which future generations will want to live.

Our economic development efforts are aimed at increasing job opportunities within communities to stem the tide of migration out of our rural service area. Our on-staff economic development professionals offer services related to financing strategy, partnership development, labor need/development assessment, and more. Through these efforts weâ&#x20AC;&#x2122;ve helped create more than 18,210 jobs and save approximately 3,875 jobs since 1989.

Hereâ&#x20AC;&#x2122;s a brief review of the services we provide: Two full-time economic development professionals, one dedicated to Minnesota and South Dakota and another dedicate to North Dakota. Personnel from our customer service operations also are involved in economic development activities.

A matching grant program designed to provide entrepreneurs, both start up companies and existing companies, the additional equity dollars needed to secure financing to complete projects. Applicants must obtain matching grants at least as large from local government sources and/or regional economic development funds. This requirement ensures that the local communities support the project and creates a partnership among the local community, the project, and our company.

A loan pool whereby Otter Tail Power Company lends funds as part of a group of lenders to assist projects that require financing beyond that available from conventional sources. Typically, a conventional lender, such as a bank, serves as lead lender and the other pool participants provide funds through that lead lender. The borrower pays all pool lenders the same interest rate as the lead bank. Lender pools have between two and six participants and usually are made up of banks, community development commissions, local business interests, telephone companies, and rural cooperatives.

Indirect economic value During 2008 Otter Tail Power Company engaged in construction and maintenance projects that added more than $176 million to our existing plants in service. These projects consisted of transmission line upgrades, the Langdon Wind Energy Center, the Ashtabula Wind Center, and various maintenance projects. The table below details the economic impact of those projects.

Total indirect economic impact 2008 capital additions to plant in service Labor spending on construction and maintenance Rents 2008 economic development spending Total

Economic stewardship

$176,730, 000 25,379,000 714,000 577,000 $203,400,000

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Pay it forward in South Dakota

Pay it forward South Dakota project spotlight Pay It Forward Community Room Sisseton, South Dakota Northeast South Dakota Community Action Program (NESDCAP) promotes community excellence through housing programs, energy assistance, energy efficiency and conservation training, and other worthwhile programs. Northeast South Dakota Economic Corporation (NESDEC) stimulates economic opportunities through loans, technical assistance, and partnerships with individuals and businesses. In recognition of the collaborative, pay-it-forward nature of these organizations and the tremendous benefits they bring to the region we serve in South Dakota, Otter Tail Power Company contributed furnishings and technology for their new community rooms. In honor of our contribution, they named their main meeting space the Pay It Forward Community Room.

Economic impact: NESDEC builds economic opportunities. South Dakota’s Small Business Development Center, Sisseton Economic Development Corporation, Glacial Lakes Area Development, and other development groups use these rooms for meetings and training sessions. Together they are building a stronger economy for all of northeastern South Dakota.

Environmental stewardship: NESDCAP provides clients with energy and weatherization assistance and educates the public about how they can conserve energy. Now their clients have a progressive place to gather. The public also benefits by taking advantage of opportunities such as free Otter Tail Power Company energy conservation workshops held in these rooms.

Social responsibility: One day the Pay It Forward Community Room might host a workshop on starting your own business. The next day, a few people might be taking advantage of a monthly computer-training program for people with disabilities. It is about people helping people.

“The people and organizations who use these rooms are those who are working for the good of our region. Thanks to the gift from Otter Tail Power Company, we are able to make these meeting rooms more effective and more accommodating.”

— Marcia Erickson, Executive Director for the Northeast South Dakota Community Action Program

Pay it forward in South Dakota

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Otter Tail Power Company 2008 Stewardship Report GRI-G3 Index (EU = pilot Electric Utility disclosures and indicators)

Page number or location

Disclosures, strategy, and analysis 1.1 Statement from key executive officer 1.2 Description of key sustainability impacts, risks, and opportunities

2 2 (summary), full report

Organizational profile disclosures 2.1 Name of the organization 2.2 Primary services 2.3 Operational structure 2.4 Location of headquarters 2.5 Locations of all operations 2.6 Nature of ownership and legal form 2.7 Markets served 2.8 Organization demographics 2.9 Significant company changes during the reporting period 2.10 Awards Organizational profile disclosures specific to electric utilities EU1 Installed capacity (MW), by source and regulatory regime EU2 Number of residential, industrial, and commercial customer accounts EU3 Length of transmission and distribution lines by voltage

5-6 4 6

Disclosures, report parameters 3.1 Reporting period 3.2 Date of previous report 3.3 Reporting cycle parameters 3.4 Company contacts for questions 3.5 Process for defining report content 3.6 Report boundaries 3.7 Limitations on the scope of the boundary 3.8 Basis for reporting on JVâ&#x20AC;&#x2122;s, subsidiaries, leased, or outsourced operations 3.9 Data measurement techniques 3.10 Explanation of re-statements of information provided 3.11 Significant changes in report scope/boundary/measurement since last reporting period 3.12 Identification of Standard Disclosures in the report 3.13 Policy and practice of seeking external assurance of the report

Cover Inside cover Inside cover Back cover Inside cover Inside cover, 5-6 4.6 4-6, 13-14 23 Not applicable Inside cover 39-40 1, 13-14, 21

Cover 4, 16 -18 3 4 4 3 4 4 3 4, 29

Disclosures, governance, commitments, and engagement 4.1 Governance structure of the organization http://www.ottertail.com/corporate_governance/governance.cfm 4.2 Indication of highest officer http://www.ottertail.com/corporate_governance/governance.cfm 4.3 Information about the Unitary Board http://www.ottertail.com/corporate_governance/governance.cfm 4.4 Mechanisms shareholders use to provide guidance http://www.ottertail.com/corporate_governance/governance.cfm 4.5 Compensation and performance standards for governance body http://www.ottertail.com/corporate_governance/governance.cfm 4.6 Processes to avoid conflicts of interest among governance body http://www.ottertail.com/corporate_governance/governance.cfm 4.7 Determining qualifications for governance body http://www.ottertail.com/corporate_governance/governance.cfm 4.8 Mission, values, codes of conduct, etc.

3-4 4.9 Procedures for adherences to compliance 9, 11-12, 22 4.10 Process for evaluation of governance body http://www.ottertail.com/corporate_governance/governance.cfm 4.11 Risk management 22-24 4.12 Externally developed initiatives endorsed by the organization 7-9, 13-14 4.13 Association memberships (beyond routine dues, participation) Including, but not limited to: Energy and Environment Research Centerâ&#x20AC;&#x2122;s (EERC) Center for Air Toxic Metals, EERC Coal Ash Resources Research Consortium, Association of Energy Services Professionals, Lignite Energy Council, Electric Power Research Institute, Midwest Independent Transmission System Operator, Mid-Continent Area Power Pool, North Central Electric Association, North Central Electrical League, American Wind Energy Association, Global Energy Decisions, Inc., North America Electric Reliability Council, Edison Electric Institute, Esource, Chartwell, Inc. 4.14 Stakeholder groups engaged 1 4.15 Basis for selecting stakeholders for engagement 21, 26-27, 35-36 4 .16 Frequency and type of stakeholder engagement 21, 26-27, 35-36 4.17 Stakeholder issues Full report. Shareholders visit www.ottertail.com/investors.

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Global Reporting Initiative Index

(EU = pilot Electric Utility disclosures and indicators)

Page number or location

Performance indicators G3 Economic performance indicators EC1 Direct economic value generated and distributed EC5 Range of ratios of standard entry level wages compared to local wages EC6 Spending on locally based suppliers EC8 Impact of investments and services provided for public benefit EC9 Significant indirect economic impacts Economic performance indicators and disclosures specific to electric utilities EU5 Availability and reliability - 5-10 year approach EU6 Demand-side management programs EU10 Estimated capacity (MW) saved through demand-side management EU11 Estimated energy (MWH) saved through demand-side management

23-24 16 - 18 16 16

G3 Environmental performance indicators EN5 Energy saved due to conservation and improvements EN6 Initiatives to provide energy-efficient or renewables products and services EN13 Habitats protected or restored EN18(U) Initiatives to reduce greenhouse gas emissions EN22(U) Total weight of waste by type and disposal method EN23 Total number and volume of significant spills EN30 Environmental protection expenditures and investments

16 - 18 16 - 18 12 7-20 13-15 15 15

35 28 35 35-36 36

G3 Labor performance indicators LA1(U) Total workforce LA3 Employee benefits LA4(U) Percentage of employees covered by collective bargaining agreements LA6 Percentage of workforce represented in formal joint-management worker safety committees LA7(U) Rates of injury, lost days, absenteeism, fatalities, etc.

LA10 Average hours of training per employee per year by employee category LA11 Programs for skills management and lifelong learning Labor performance indicators specific to electric utilities EU15 Processes to ensure retention and renewal of skilled workforce

2, 3, 27 27-28 27 30 29 31 28-31 28-32

G3 Human rights performance indicators HR3 Employee training

31

G3 Society performance indicators SO1(U) Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities SO3 Percentage of employees trained in organizationâ&#x20AC;&#x2122;s anticorruption policies Society performance indicators specific to electric utilities EU18 Participatory decision-making processes with stakeholders (+outcomes) EU20 Contingency planning, disaster/emergency management plan, recovery plan EU22 Programs to improve access to electricity services G3 Product responsibility performance indicators PR3 Product and service information required by procedures PR5 Practices to ensure customer satisfaction Product responsibility specific to electric utilities EU27 Power outage frequency (SAIFI) EU28 Average power outage duration (SAIDI) EU29 Average plant availability factor by energy source and regulatory regime

21-27 3 21 22-23 23-25 21 21-27 23 23 24

Terms not defined within the report Kilowatt (kw) 1,000 watts; a measure of the rate of electricity generation or consumption.

Kilowatt-hour (kwh) 1 kilowatt acting over a period of 1 hour.

The primary difference betweeen a kilowatt and a kilowatt-hour is that kilowatt measures capacity and kilowatt-hour measures the actual amount of electricity produced over a certain period of time.

Megawatt (MW) 1,000 kilowatts or 1,000,000 watts.

Megawatt-hour (MWH) 1 megawatt acting over a period of 1 hour.

Global Reporting Initiative Index

40

Otter Tail Power Company was named after the Otter Tail River, which provided the company’s first source of power.

Hundreds of years ago, the Ojibwe noted that a large sandspit follows the shoreline of the lake where the river flows into it. Because they thought this sandspit resembled the tail of an otter, the Native Americans named the lake Nigagwanoe—Otter Tail. By doing so, they also named a river, a village, a township, a county—and a power company.

1927

Kidder Station, a near duplicate of the Washburn plant, goes on line at Wahpeton, North Dakota.

1929

The stock market crash ushers in a decade that threatens the company’s existence and necessitates suspending common stock dividends from 1934 to 1938, a rate reduction, and wage cut.

1933

Thomas Wright, Vernon Wright’s son, becomes president of Otter Tail Power Company.

1871

George Wright, considered the founder of Fergus Falls, builds Central Dam along the Otter Tail River in this small Minnesota town.

1936

1879

Thomas Edison invents the lightbulb.

Congress passes the Rural Electrification Act, and Otter Tail Power Company begins providing wholesale electricity to area cooperatives the following year.

1882

Boston architect Vernon Wright inherits Central Dam from his father.

1938

1907

Wright and three other investors incorporate Otter Tail Power Company and begin building Dayton Hollow Dam at a cost of $100,000.

Negotiations between the company and the International Brotherhood of Electrical Workers culminate in signing the first labor agreement with employees.

1941

1909

Dayton Hollow hydroelectric plant goes online in April and serves its first customer, the Northern Light Electric Company in Wahpeton, North Dakota.

Otter Tail Power Company grows by 25 percent when it becomes the surviving company in a merger with Union Public Service Company.

1944

The company reaches its maximum territorial size serving 496 communities.

1914

Otter Tail Power Company began operating Hoot Lake hydroelectric plant northeast of Fergus Falls.

1919

The company’s electric system covers 2,000 square miles and includes about 44 towns.

1921

To handle the increasing demand for electricity, the company builds a 1,500-kilowatt steam plant at Hoot Lake and adds turbines in 1923, 1959, and 1964.

1926

The company builds the first sizable steam plant designed to burn lignite at Washburn, North Dakota.

The company serves 200 towns.

110 employees are in military service during World War II. 1945

C. S. Kennedy, director, vice president, and general manager, who for nearly 25 years had been the iron man of Otter Tail Power Company, resigns and management decentralizes.

1946

Electricity use skyrockets after World War II. The company turns to diesel and gas generators to bridge the gap while additional steam generation is being built.

1952

Cyrus Wright, another of Vernon Wright’s sons, becomes president of the company.

1953

The transition from being a self-contained provider to being part of an integrated network of power suppliers now is complete.

Please share your feedback Otter Tail Power Company sent this report to employees, retirees, various community organizations, city councils, local and state legislators, regulatory agencies, environmental groups, media, and others. We would appreciate your feedback as a way to help ensure that we continue to address topics of interest and to help enhance content in future reports.

You may send us your feedback by: Scanning your completed form and emailing it to shoff@otpco.com.

Faxing your completed form to 218-739-8944.

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Mailing your completed form to: Public Relations Department Otter Tail Power Company PO Box 496 Fergus Falls, MN 56538-0496

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1953

The City of Fergus Falls agrees to sell its municipal system to Otter Tail Power Company which, in turn, agrees to build its new General Office there, to be occupied in 1955.

2002

Douglas Kjellerup is named president of Otter Tail Power Company. Charles MacFarlane is named interim president after Kjellerup suffers a stroke.

Otter Tail Power Company purchases the 900-kilowatt output of a wind generator along the Buffalo Ridge near Hendricks, Minnesota. Called TailWinds, this electricity is sold by subscription to customers who are willing to pay extra to support renewable energy.

1961

Albert Hartl becomes president and serves until 1976, transitioning the company from a family business to a modern corporation.

1963

Directors adopt a two-for-one common stock split.

This occurs again in 1988 and 2000.

1967

The dispatch center installs the companyâ&#x20AC;&#x2122;s first computer.

2003

Charles MacFarlane is named president of Otter Tail Power Company.

1975

The 450-megawatt Big Stone Plant goes online near Milbank, South Dakota. Six small old less efficient plants are retired.

2005

Robert Bigwood becomes president and serves until 1983.

Otter Tail Power Company and six other utilities propose building Big Stone II to meet increasing demand. An associated transmission project calls for upgrading and adding to the transmission grid to deliver the power generated by the proposed plant.

1981

Coyote Station, with a capacity of 420 megawatts, goes online near Beulah, North Dakota.

Preparations begin for a rate case in Minnesota, the first since 1986.

1982

John MacFarlane is named president and serves until 2002.

1989

To boost flat utility revenues, Otter Tail Power Company forms Mid-States Development to acquire and oversee nonutility businesses.

1992

Minnesota passes a law that electric utilities must spend 1.5 percent of their electric revenues to encourage Minnesotans to conserve electricity.

1996

www.otpco.com web site is launched.

1998

Mid-States Development becomes Varistar Corporation.

2000

John Erickson is named executive vice president to succeed John MacFarlane.

2001

Shareholders approve changing the corporate name to Otter Tail Corporation. The electric utility continues to operate as Otter Tail Power Company. John Erickson is named president of Otter Tail Corporation.

2007

Emphasis continues on obtaining permits for building Big Stone II, strengthening the transmission grid, filing the Minnesota rate case, developing wind energy, and ensuring customer satisfaction.

2008

Langdon Wind Energy Center and Ashtabula Wind Center begin serving customers.

Otter Tail Power Company files a rate case in North Dakota for the first time since 1982, and in South Dakota for the first time since 1986.

2009

Otter Tail Power Company celebrates 100 years of providing electrical service to customers.

Contact information: www.otpco.com www.otpco100.com www.ConservingElectricity.com Idea Center 800-493-3299 Customer Service 800-257-4044 215 South Cascade Street Fergus Falls, MN 56537 For media inquiries regarding this report, please contact Cris Kling, Director, Public Relations, at 218-739-8297.

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