UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
| EXCHANGE ACT OF 1934 |
| For the quarterly period ended March 31, 2008. |
OR |
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
| EXCHANGE ACT OF 1934 |
| For the transition period from __________ to __________. |
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| Commission File Number 1-7978 |
Black Hills Power, Inc. | |
Incorporated in South Dakota | IRS Identification Number 46-0111677 |
625 Ninth Street, Rapid City, South Dakota 57701 | |
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Registrant’s telephone number (605) 721-1700 | |
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Former name, former address, and former fiscal year if changed since last report | |
NONE |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Yes | x |
| No | o |
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
| Large accelerated filer | o |
| Accelerated filer | o |
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| Non-accelerated filer | x |
| Smaller reporting company | o |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | o |
| No | x |
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As of April 30, 2008, there were issued and outstanding 23,416,396 shares of the Registrant’s common stock, $1.00 par value, all of which were held beneficially and of record by Black Hills Corporation.
Reduced Disclosure
The Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
TABLE OF CONTENTS
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| GLOSSARY OF TERMS | 3 |
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PART 1. | FINANCIAL INFORMATION |
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Item 1. | Financial Statements |
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| Condensed Statements of Income – |
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| Three Months Ended March 31, 2008 and 2007 | 4 |
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| Condensed Balance Sheets – |
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| March 31, 2008 and December 31, 2007 | 5 |
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| Condensed Statements of Cash Flows – |
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| Three Months Ended March 31, 2008 and 2007 | 6 |
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| Notes to Condensed Financial Statements | 7-13 |
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Item 2. | Results of Operations | 14-17 |
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Item 4. | Controls and Procedures | 17 |
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PART II. | OTHER INFORMATION |
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Item 1. | Legal Proceedings | 18 |
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Item 1A. | Risk Factors | 18 |
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Item 6. | Exhibits | 18 |
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| Signatures | 19 |
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| Exhibit Index | 20 |
2
GLOSSARY OF TERMS
The following terms and abbreviations appear in the text of this report and have the definitions described below:
AFUDC | Allowance for Funds Used During Construction |
BHC | Black Hills Corporation, the Parent Company |
Black Hills Wyoming | Black Hills Wyoming, Inc., an indirect subsidiary of the Parent Company |
Cheyenne Light | Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary |
| of the Parent Company |
Enserco | Enserco Energy, Inc., an indirect subsidiary of the Parent Company |
FASB | Financial Accounting Standards Board |
FSP FAS 157-2 | Effective Date of FASB Statement No. 157 |
GAAP | Generally Accepted Accounting Principles |
LIBOR | London Interbank Offered Rate |
MMBtu | One million British thermal units |
MW | Megawatts |
MWh | Megawatt-hours |
SEC | U.S. Securities and Exchange Commission |
SFAS | Statement of Financial Accounting Standards |
SFAS 157 | SFAS 157, “Fair Value Measurements” |
SFAS 159 | SFAS 159, “The Fair Value Option for Financial Assets and Financial |
| Liabilities” |
SFAS 161 | SFAS 161, “Disclosure about Derivative Instruments and Hedging Activities – |
| an amendment of FASB Statement No. 133” |
WRDC | Wyodak Resources Development Corp., an indirect subsidiary of the Parent |
| Company |
3
BLACK HILLS POWER, INC.
CONDENSED STATEMENTS OF INCOME
(unaudited)
| Three Months Ended | ||||
| March 31, | ||||
| 2008 | 2007 | |||
| (in thousands) | ||||
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Operating revenue | $ | 57,632 | $ | 47,767 | |
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Operating expenses: |
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Fuel and purchased power |
| 27,499 |
| 17,035 | |
Operations and maintenance |
| 7,097 |
| 5,906 | |
Administrative and general |
| 5,464 |
| 5,164 | |
Depreciation and amortization |
| 5,252 |
| 5,155 | |
Taxes, other than income taxes |
| 1,729 |
| 1,962 | |
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| 47,041 |
| 35,222 | |
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Operating income |
| 10,591 |
| 12,545 | |
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Other income (expense): |
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Interest expense |
| (2,693) |
| (2,965) | |
Interest income |
| 95 |
| 174 | |
Allowance for funds used |
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during construction – equity |
| 284 |
| 112 | |
Other income, net |
| 115 |
| 144 | |
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| (2,199) |
| (2,535) | |
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Income before income taxes |
| 8,392 |
| 10,010 | |
Income taxes |
| (2,816) |
| (3,311) | |
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Net income | $ | 5,576 | $ | 6,699 | |
The accompanying notes to condensed financial statements are an integral part of these condensed financial statements.
4
BLACK HILLS POWER, INC.
CONDENSED BALANCE SHEETS
(unaudited)
| March 31, | December 31, | ||
| 2008 | 2007 | ||
| (in thousands) | |||
ASSETS |
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Current assets: |
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Cash and cash equivalents | $ | 5,074 | $ | 2,033 |
Receivables (net of allowance for doubtful accounts |
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of $573 and $388, respectively) – |
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Customers |
| 22,474 |
| 22,330 |
Affiliates |
| 1,744 |
| 8,882 |
Other |
| 2,582 |
| 2,198 |
Money pool note receivable – affiliates |
| 1,570 |
| 10,304 |
Materials, supplies and fuel |
| 13,654 |
| 15,628 |
Deferred income taxes |
| 127 |
| — |
Other current assets |
| 2,226 |
| 3,862 |
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| 49,451 |
| 65,237 |
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Investments |
| 3,889 |
| 3,774 |
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Property, plant and equipment |
| 726,050 |
| 695,452 |
Less accumulated depreciation |
| (270,922) |
| (266,583) |
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| 455,128 |
| 428,869 |
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Other assets: |
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Regulatory assets |
| 9,830 |
| 9,899 |
Other |
| 5,923 |
| 5,901 |
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| 15,753 |
| 15,800 |
| $ | 524,221 | $ | 513,680 |
LIABILITIES AND STOCKHOLDER’S EQUITY |
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Current liabilities: |
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Current maturities of long-term debt | $ | 2,010 | $ | 2,009 |
Accounts payable |
| 17,790 |
| 12,982 |
Accounts payable – affiliates |
| 1,992 |
| 3,158 |
Accrued liabilities |
| 13,729 |
| 13,898 |
Deferred income taxes |
| — |
| 18 |
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| 35,521 |
| 32,065 |
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Long-term debt, net of current maturities |
| 151,194 |
| 151,209 |
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Deferred credits and other liabilities: |
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Deferred income taxes |
| 70,446 |
| 69,761 |
Regulatory liabilities |
| 11,840 |
| 11,085 |
Other |
| 17,324 |
| 17,140 |
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| 99,610 |
| 97,986 |
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Stockholder’s equity: |
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Common stock $1 par value; 50,000,000 shares authorized; |
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23,416,396 shares issued |
| 23,416 |
| 23,416 |
Additional paid-in capital |
| 39,575 |
| 39,575 |
Retained earnings |
| 176,282 |
| 170,706 |
Accumulated other comprehensive loss |
| (1,377) |
| (1,277) |
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| 237,896 |
| 232,420 |
| $ | 524,221 | $ | 513,680 |
The accompanying notes to condensed financial statements are an integral part of these condensed financial statements.
5
BLACK HILLS POWER, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
| Three Months Ended | |||
| March 31, | |||
| 2008 | 2007 | ||
| (in thousands) | |||
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Operating activities: |
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Net income | $ | 5,576 | $ | 6,699 |
Adjustments to reconcile net income to cash |
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provided by operating activities: |
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Depreciation and amortization |
| 5,252 |
| 5,155 |
Provision for valuation allowances |
| 185 |
| (2) |
Deferred income tax |
| 594 |
| 312 |
Allowance for funds used during construction – |
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equity |
| (284) |
| (112) |
Change in operating assets and liabilities – |
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Accounts receivable and other current assets |
| 10,001 |
| 3,713 |
Accounts payable and other current liabilities |
| (740) |
| (9,574) |
Other operating activities |
| 240 |
| (1,177) |
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| 20,824 |
| 5,014 |
Investing activities: |
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Property, plant and equipment additions |
| (26,388) |
| (5,377) |
Change in money pool note receivable from |
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affiliate, net |
| 8,734 |
| 827 |
Other investing activities |
| (115) |
| (143) |
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| (17,769) |
| (4,693) |
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Financing activities: |
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Long-term debt – repayments |
| (14) |
| (11) |
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Increase in cash and cash equivalents |
| 3,041 |
| 310 |
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Cash and cash equivalents: |
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Beginning of period |
| 2,033 |
| 1,223 |
End of period | $ | 5,074 | $ | 1,533 |
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Supplemental disclosure of cash flow information: |
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Non-cash investing and financing activities: |
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Property, plant and equipment acquired |
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with accrued liabilities | $ | 5,372 | $ | 131 |
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Cash paid during the period for: |
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Interest (net of amounts capitalized) | $ | 4,480 | $ | 5,153 |
Income taxes paid | $ | — | $ | 7,993 |
The accompanying notes to condensed financial statements are an integral part of these condensed financial statements.
6
BLACK HILLS POWER, INC.
Notes to Condensed Financial Statements
(unaudited)
(Reference is made to Notes to Financial Statements
included in the Company’s 2007 Annual Report on Form 10-K)
(1) | MANAGEMENT’S STATEMENT |
The condensed financial statements included herein have been prepared by Black Hills Power, Inc., (the Company) without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the footnotes adequately disclose the information presented. These financial statements should be read in conjunction with the financial statements and the notes thereto, included in the Company’s 2007 Annual Report on Form 10-K filed with the SEC.
Accounting methods historically employed require certain estimates as of interim dates. The information furnished in the accompanying financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the March 31, 2008, December 31, 2007 and March 31, 2007 financial information and are of a normal recurring nature. The results of operations for the three months ended March 31, 2008, are not necessarily indicative of the results to be expected for the full year.
(2) | RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS |
SFAS 157
During September 2006, the FASB issued SFAS 157. This Statement defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 does not expand the application of fair value accounting to any new circumstances, but applies the framework to other accounting pronouncements that require or permit fair value measurement. The Company applies fair value measurements to certain assets and liabilities, primarily commodity derivatives.
SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. As of January 1, 2008, the Company adopted the provisions of SFAS 157 for all assets and liabilities measured at fair value except for non-financial assets and liabilities measured at fair value on a non-recurring basis, as permitted by FSP FAS 157-2. SFAS 157 also required new disclosures regarding the level of pricing observability associated with instruments carried at fair value. This additional disclosure is provided in Note 7. The adoption of SFAS 157 did not have a material impact on the Company’s financial position, results of operations or cash flows.
7
SFAS 159
SFAS 159 establishes a fair value option under which entities can elect to report certain financial assets and liabilities at fair value, with changes in fair value recognized in earnings. SFAS 159 was adopted on January 1, 2008 and did not have an impact on the Company’s financial position, results of operations or cash flows.
(3) | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
SFAS 161
In March 2008, the FASB issued SFAS 161 which requires enhanced disclosures about how derivative and hedging activities affect an entity’s financial position, financial performance and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of adoption of SFAS 161.
(4) | OTHER COMPREHENSIVE INCOME |
The following table presents the components of the Company’s Other comprehensive income (in thousands):
| Three Months Ended | |||
| March 31, | |||
| 2008 | 2007 | ||
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Net income | $ | 5,576 | $ | 6,699 |
Other comprehensive income (loss), net of tax: |
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Fair value adjustment on derivatives |
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designated as cash flow hedges (net of |
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tax of $(38) and $95, respectively) |
| 71 |
| (177) |
Reclassification adjustments included |
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in net income (net of tax of $93 and $263, |
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respectively) |
| (171) |
| (488) |
Other comprehensive income | $ | 5,476 | $ | 6,034 |
Balances by classification included within Accumulated other comprehensive loss on the accompanying Condensed Balance Sheets are as follows (in thousands):
| Derivatives | Employee |
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| Designated as | Benefit |
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| Cash Flow Hedges | Plans | Total | |||
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As of March 31, 2008 | $ | (961) | $ | (416) | $ | (1,377) |
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As of December 31, 2007 | $ | (861) | $ | (416) | $ | (1,277) |
8
(5) | RELATED-PARTY TRANSACTIONS |
Receivables and Payables
The Company has accounts receivable balances related to transactions with other BHC subsidiaries. The balances were $1.7 million and $8.9 million as of March 31, 2008 and December 31, 2007, respectively. The Company also has accounts payable balances related to transactions with other BHC subsidiaries. The balances were $2.0 million and $3.2 million as of March 31, 2008 and December 31, 2007, respectively.
| Money Pool Notes Receivable and Notes Payable |
The Company has entered into a Utility Money Pool Agreement with BHC and Cheyenne Light. Under the agreement, the Company may borrow from the Parent. The Agreement restricts the Company from loaning funds to the Parent or to any of the Parent’s non-utility subsidiaries; the Agreement does not restrict the Company from making dividends to the Parent. Borrowings under the agreement bear interest at the daily cost of external funds as defined under the Agreement, or if there are no external funds outstanding on that date, then the rate will be the daily one month LIBOR rate plus 100 basis points.
The Company through the Utility Money Pool had a net note receivable balance from Cheyenne Light of $1.6 million and $10.3 million as of March 31, 2008 and December 31, 2007, respectively. Advances under this note bear interest at 0.70 percent above the daily LIBOR rate (which equates to 3.40 percent at March 31, 2008). Net interest income was less than $0.1 million for the three months ended March 31, 2008 and $0.2 million was recorded for the three months ended March 31, 2007.
Other Balances and Transactions
The Company also received revenues of approximately $0.3 million and $0.4 million for the three months ended March 31, 2008 and 2007, respectively, from Black Hills Wyoming for the transmission of electricity.
The Company recorded revenues of $0.2 million and $1.3 million for the three months ended March 31, 2008 and 2007, respectively, relating to payments received pursuant to a natural gas swap entered into with Enserco, with a third party transacted by Enserco on the Company’s behalf.
The Company purchases coal from WRDC. The amount purchased during the three months ended March 31, 2008 and 2007 was $3.1 million and $2.7 million, respectively.
The Company purchases excess power generated by Cheyenne Light. The amount purchased during the three months ended March 31, 2008 was $1.3 million.
In order to fuel its combustion turbine, the Company purchased natural gas from Enserco. The amount purchased during the three months ended March 31, 2008 was less than $0.1 million and during the three months ended March 31, 2007 was approximately $0.2 million. These amounts are included in Fuel and purchased power on the accompanying Condensed Statements of Income.
In addition, the Company also pays the Parent for allocated corporate support service cost incurred on its behalf. Corporate costs allocated from the Parent were $3.1 million and $2.7 million for the three months ended March 31, 2008 and 2007, respectively.
9
The Company has funds on deposit from Black Hills Wyoming for transmission system reserve in the amount of $1.8 million as of March 31, 2008 and December 31, 2007, respectively, which is included in Other, Deferred credits and other liabilities on the accompanying Condensed Balance Sheets. Interest on the funds accrues quarterly at an average prime rate (7.76 percent at March 31, 2008).
(6) | RISK MANAGEMENT |
The Company holds natural gas in storage for use as fuel for generating electricity with its gas-fired combustion turbines. To minimize associated price risk and seasonal storage level requirements, the Company utilizes various derivative instruments in managing these risks. On March 31, 2008 and December 31, 2007, the Company had the following derivatives and related balances (in thousands):
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| Maximum | Current | current | Current | current | Other | |||||
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| Terms in | Derivative | Derivative | Derivative | Derivative | Comprehensive | |||||
| Notional* | Months | Assets | Assets | Liabilities | Liabilities | Income | |||||
March 31, |
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2008 |
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Natural gas |
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swaps | 300,000 | 1 | $ | 245 | $ | — | $ | 245 | $ | — | $ | — |
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December 31, |
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2007 |
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Natural gas |
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swaps | 610,000 | 4 | $ | 238 | $ | — | $ | 68 | $ | — | $ | 170 |
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*gas in MMBtu’s
Based on March 31, 2008 market prices, no realized gain or loss will be reported in pre-tax earnings during the next twelve months related to derivatives designated as a cash flow hedge. Estimated and actual realized gains and losses will likely change during the next twelve months as market prices change.
(7) | FAIR VALUE MEASUREMENTS |
Adoption of SFAS 157
Effective January 1, 2008, the Company adopted SFAS 157 as discussed in Note 2, which, among other things, requires enhanced disclosures about assets and liabilities carried at fair value.
SFAS 157 provides a single definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As permitted under SFAS 157, the Company utilizes a mid-market pricing convention (the mid-point price between bid and ask prices) as a practical expedient for valuing a significant portion of its assets and liabilities measured and reported at fair value. SFAS 157 also requires enhanced disclosures and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The Company is able to classify fair value balances based on the observability of inputs.
10
Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1 – Unadjusted quoted prices available in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. This level primarily consists of financial instruments such as exchange-traded securities and listed derivatives.
Level 2 – Pricing inputs include quoted prices for identical or similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 - Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs reflect management’s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.
The following table sets forth by level within the fair value hierarchy the Company’s assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2008. As required by SFAS 157, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect their placement within the fair value hierarchy levels.
Recurring Fair Value | At Fair Value as of March 31, 2008 | |||||||
Measures (in thousands) |
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| Level 1 | Level 2 | Level 3 | Total | ||||
Assets: |
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Natural gas swaps | $ | — | $ | 245 | $ | — | $ | 245 |
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Liabilities: |
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Natural gas swaps | $ | — | $ | 245 | $ | — | $ | 245 |
11
(8) | EMPLOYEE BENEFIT PLANS |
Defined Benefit Pension Plan
The Company has a noncontributory defined benefit pension plan (Plan) covering the employees of the Company who meet certain eligibility requirements.
The components of net periodic benefit cost for the Plan are as follows (in thousands):
| Three Months Ended | |||
| March 31, | |||
| 2008 | 2007 | ||
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Service cost | $ | 279 | $ | 284 |
Interest cost |
| 758 |
| 731 |
Expected return on plan assets |
| (1,094) |
| (971) |
Prior service cost |
| 28 |
| 26 |
Net loss |
| — |
| 102 |
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Net periodic benefit (income) cost | $ | (29) | $ | 172 |
The Company does not anticipate that it will need to make a contribution to the Plan in the 2008 fiscal year.
Supplemental Nonqualified Defined Benefit Plans
The Company has various supplemental retirement plans for key executives of the Company (Supplemental Plans). The Supplemental Plans are non-qualified defined benefit plans.
The components of net periodic benefit cost for the Supplemental Plans are as follows (in thousands):
| Three Months Ended | |||
| March 31, | |||
| 2008 | 2007 | ||
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Interest cost | $ | 30 | $ | 28 |
Net loss |
| 11 |
| 14 |
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Net periodic benefit cost | $ | 41 | $ | 42 |
The Company anticipates that it will make contributions to the Supplemental Plans for the 2008 fiscal year of approximately $0.1 million. Contributions are expected to be in the form of benefit payments.
12
Non-pension Defined Benefit Postretirement Plans
Employees who are participants in the Company’s Postretirement Healthcare Plans (Healthcare Plans) and who meet certain eligibility requirements are entitled to postretirement healthcare benefits.
The components of net periodic benefit cost for the Healthcare Plans are as follows (in thousands):
| Three Months Ended | |||
| March 31, | |||
| 2008 | 2007 | ||
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Service cost | $ | 52 | $ | 52 |
Interest cost |
| 104 |
| 100 |
Net transition obligation |
| 13 |
| 13 |
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Net periodic benefit cost | $ | 169 | $ | 165 |
The Company anticipates that it will make contributions to the Healthcare Plan for the 2008 fiscal year of approximately $0.2 million. Contributions are expected to be made in the form of benefit payments.
It has been determined that the Company’s post-65 retiree prescription drug plans are actuarially equivalent and qualify for the Medicare Part D subsidy. The decrease in net periodic postretirement benefit cost due to the subsidy is not material to the Company.
(9) | LEGAL PROCEEDINGS |
The Company is subject to various legal proceedings, claims and litigation as described in Note 11 of the Notes to Financial Statements in the Company’s 2007 Annual Report on Form 10-K. There have been no material developments in any previously reported proceedings or any new material proceedings that have developed or material proceedings that have terminated during the first three months of 2008.
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| ITEM 2. | RESULTS OF OPERATIONS |
| Three Months Ended | |||
| March 31, | |||
| 2008 | 2007 | ||
| (in thousands) | |||
|
|
|
|
|
Revenue | $ | 57,632 | $ | 47,767 |
Fuel and purchased power |
| 27,499 |
| 17,035 |
Gross margin |
| 30,133 |
| 30,732 |
|
|
|
|
|
Other operating expenses |
| 19,542 |
| 18,187 |
Operating income | $ | 10,591 | $ | 12,545 |
|
|
|
|
|
Net income | $ | 5,576 | $ | 6,699 |
The following tables provide certain operating statistics for the Company:
| Electric Revenue | ||||
| (in thousands) | ||||
|
| ||||
| Three Months Ended March 31, | ||||
|
| Percentage |
| ||
Customer Base | 2008 | Change | 2007 | ||
|
|
|
|
|
|
Commercial | $ | 13,484 | 3% | $ | 13,105 |
Residential |
| 12,966 | 5 |
| 12,407 |
Industrial |
| 5,296 | 4 |
| 5,096 |
Municipal sales |
| 625 | 8 |
| 579 |
Total retail sales |
| 32,371 | 4 |
| 31,187 |
Contract wholesale |
| 6,931 | 7 |
| 6,457 |
Wholesale off system |
| 15,097 | 129 |
| 6,582 |
Total electric sales |
| 54,399 | 23 |
| 44,226 |
Other revenue |
| 3,233 | (9) |
| 3,541 |
Total revenue | $ | 57,632 | 21% | $ | 47,767 |
| Megawatt Hours Sold | ||||
|
| ||||
| Three Months Ended March 31, | ||||
|
| Percentage |
| ||
Customer Base | 2008 | Change | 2007 | ||
|
|
|
|
|
|
Commercial |
| 173,459 | 4% |
| 166,094 |
Residential |
| 163,034 | 7 |
| 152,736 |
Industrial |
| 102,669 | 3 |
| 99,254 |
Municipal sales |
| 8,208 | 11 |
| 7,420 |
Total retail sales |
| 447,370 | 5 |
| 425,504 |
Contract wholesale |
| 171,620 | 4 |
| 165,110 |
Wholesale off system |
| 227,741 | 70 |
| 133,849 |
Total electric sales |
| 846,731 | 17% |
| 724,463 |
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| Electric Utility Power Plant Availability | |
|
| |
| Three Months Ended March 31, | |
| 2008 | 2007 |
|
|
|
Coal-fired plants | 93.9% | 95.3% |
Other plants | 93.9% | 99.9% |
Total availability | 93.9% | 97.3% |
| Megawatt Hours Generated | ||
| and Purchased | ||
|
| ||
| Three Months Ended March 31, | ||
|
| Percentage |
|
Resources | 2008 | Change | 2007 |
|
|
|
|
Coal | 432,882 | (2)% | 440,518 |
Gas | 37,000 | — | 5,698 |
| 469,882 | 5% | 446,216 |
|
|
|
|
MWhs purchased | 384,581 | 31% | 294,463 |
Total resources | 854,463 | 15% | 740,679 |
| Heating Degree Days | |
|
| |
| Three Months Ended | |
| March 31, | |
| 2008 | 2007 |
Heating degree days: |
|
|
Actual– |
|
|
Heating degree days | 3,361 | 3,055 |
|
|
|
Percent of normal– |
|
|
Heating degree days | 102% | 93% |
Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007. Net income decreased $1.1 million, or 17 percent from the prior period primarily due to the following:
• A $1.0 million reduction in retail sales margins due to increased fuel and purchased power costs, partially offset by a 5 percent increase in MWhs sold; and |
|
• Increased operating expense due to increased repair and maintenance expenses, personnel costs, consulting fees and allocated corporate costs. |
|
Partially offsetting the increased costs was the following: |
|
• Margins from wholesale off-system sales increased $0.7 million. Total MWhs increased 70 percent as we were able to market excess generation purchased from Cheyenne Light’s Wygen II plant. |
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Wygen III Power Plant Project
In March 2008, we received final regulatory approval for Wygen III. Construction began immediately and the 100 MW coal-fired base load electric generating facility is expected to take 24 to 30 months to complete. The expected cost of construction is approximately $255 million, which includes AFUDC. We anticipate that we will have at least 55 MW of the facilities’ capacity and we are considering third-party investors to own the remaining 45 MW. Definitive ownership structuring for the Wygen III plant is expected prior to the end of 2008.
SAFE HARBOR FOR FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q includes “forward-looking statements” as defined by the SEC. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are based on assumptions which we believe are reasonable based on current expectations and projections about future events and industry conditions and trends affecting our business. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties that, among other things, could cause actual results to differ materially from those contained in the forward-looking statements, including the risk factors described in Item 1A of our 2007 Annual Report on Form 10-K and in Item 1A. of Part II of this Quarterly Report on Form 10-Q filed with the SEC, and the following:
• Our ability to obtain adequate cost recovery for our retail utility operations through regulatory proceedings; to receive favorable rulings in the periodic applications to recover costs for fuel and purchased power; and our ability to add power generation assets into regulatory rate base; |
• The amount and timing of capital deployment in new investment opportunities or for the repurchase of debt or stock; |
• Our ability to successfully maintain or improve our corporate credit rating; |
• Our ability to obtain from utility commissions any requisite determination of prudency to support resource planning and development programs we propose to implement; |
• The timing and extent of scheduled and unscheduled outages of power generation facilities; |
• The possibility that we may be required to take impairment charges to reduce the carrying value of some of our long-lived assets when indicators of impairment emerge; |
• Changes in business and financial reporting practices arising from the enactment of the Energy Policy Act of 2005; |
• Our ability to remedy any deficiencies that may be identified in the review of our internal controls; |
• The timing, volatility and extent of changes in energy-related and commodity prices, interest rates, energy and commodity supply or volume, the cost and availability of transportation of commodities, and demand for our services, all of which can affect our earnings, liquidity position and the underlying value of our assets; |
• Our ability to effectively use derivative financial instruments to hedge commodity risks; |
• Our ability to minimize defaults on amounts due from counterparty transactions; |
• Changes in or compliance with laws and regulations, particularly those relating to taxation, safety and protection of the environment; |
• Weather and other natural phenomena; |
• Industry and market changes, including the impact of consolidations and changes in competition; |
• The effect of accounting policies issued periodically by accounting standard-setting bodies; |
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• The cost and effects on our business, including insurance, resulting from terrorist actions or responses to such actions or events; |
• The outcome of any ongoing or future litigation or similar disputes and the impact on any such outcome or related settlements; |
• Capital market conditions, which may affect our ability to raise capital on favorable terms; |
• Price risk due to marketable securities held as investments in benefit plans; |
• General economic and political conditions, including tax rates or policies and inflation rates; and |
• Other factors discussed from time to time in our other filings with the SEC. |
New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for us to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. We assume no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events, or otherwise.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer, who is also currently serving as interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act)) as of March 31, 2008. Based on his evaluation, he has concluded that our disclosure controls and procedures are effective.
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2008 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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BLACK HILLS POWER, INC.
Part II – Other Information
Item 1. | Legal Proceedings |
For information regarding legal proceedings, see Note 11 of Notes to Financial Statements in Item 8 of the Company’s 2007 Annual Report on Form 10-K and Note 9 of our Notes to Condensed Financial Statements in this Quarterly Report on Form 10-Q, which information from Note 9 is incorporated by reference into this item.
Item 1A. | Risk Factors |
There have been no material changes in our Risk Factors from those reported in Item 1A. of Part I of our 2007 Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Item 6. | Exhibits |
Exhibit 31 | Certification pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes – Oxley Act of 2002. |
|
|
Exhibit 32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002. |
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BLACK HILLS POWER, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BLACK HILLS POWER, INC. |
|
|
|
|
| David R. Emery |
| David R. Emery, Chairman, President and |
| Chief Executive Officer, and interim |
| Principal Financial Officer |
|
|
|
|
Dated: May 15, 2008 |
|
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EXHIBIT INDEX
Exhibit Number | Description |
|
|
|
|
Exhibit 31 | Certification pursuant to Rule 13a – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes – Oxley Act of 2002. |
|
|
Exhibit 32 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002. |
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