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, 2013 | |
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________. |
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
Registrant’s telephone number (605) 721-1700
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 |
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes x | No o |
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 | |
Non-accelerated filer | x | Smaller reporting company | o |
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 |
As of April 30, 2013, 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
Page | ||
GLOSSARY OF TERMS AND ABBREVIATIONS | ||
PART 1. | FINANCIAL INFORMATION | |
Item 1. | Financial Statements | |
Condensed Statements of Income and Comprehensive Income - unaudited | ||
Three Months Ended March 31, 2013 and 2012 | ||
Condensed Balance Sheets - unaudited | ||
March 31, 2013 and December 31, 2012 | ||
Condensed Statements of Cash Flows - unaudited | ||
Three Months Ended March 31, 2013 and 2012 | ||
Notes to Condensed Financial Statements - unaudited | ||
Item 2. | Managements’ Discussion and Analysis of Financial Condition and Results of Operations | |
Item 4. | Controls and Procedures | |
PART II. | OTHER INFORMATION | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 6. | Exhibits | |
Signatures | ||
Exhibit Index |
2
GLOSSARY OF TERMS AND ABBREVIATIONS
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 |
ASC | Accounting Standards Codification |
BHC | Black Hills Corporation, the Parent Company |
Black Hills Energy | The name used to conduct the business of Black Hills Utility Holdings, Inc., and its subsidiaries |
Black Hills Utility Holdings | Black Hills Utility Holdings, Inc. a direct, wholly-owned subsidiary of BHC |
Black Hills Service Company | Black Hills Service Company, LLC, a direct, wholly-owned subsidiary of BHC |
Cheyenne Light | Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of the BHC |
Cheyenne Prairie | Cheyenne Prairie Generating Station currently being constructed in Cheyenne, Wyoming by Cheyenne Light and Black Hills Power. Construction is expected to be completed for this 132 MW facility in 2014. |
FERC | Federal Energy Regulatory Commission |
Fitch | Fitch Ratings |
Happy Jack | Happy Jack Wind Farms, LLC, a subsidiary of Duke Energy Generation Services |
LIBOR | London Interbank Offered Rate |
Moody's | Moody's Investor Services, Inc. |
MW | Megawatts |
SDPUC | South Dakota Public Utilities Commission |
SEC | U.S. Securities and Exchange Commission |
Silver Sage | Silver Sage Windpower, LLC, a subsidiary of Duke Energy Generation Services |
S&P | Standard & Poor's Rating Services |
WRDC | Wyodak Resources Development Corp., an indirect, wholly-owned subsidiary of BHC |
3
BLACK HILLS POWER, INC.
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(unaudited)
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
(in thousands) | |||||||
Revenue | $ | 59,817 | $ | 62,270 | |||
Operating expenses: | |||||||
Fuel and purchased power | 22,098 | 24,715 | |||||
Operations and maintenance | 16,808 | 16,543 | |||||
Depreciation and amortization | 6,986 | 6,950 | |||||
Taxes - property | 1,422 | 1,320 | |||||
Total operating expenses | 47,314 | 49,528 | |||||
Operating income | 12,503 | 12,742 | |||||
Other income (expense): | |||||||
Interest expense | (4,847 | ) | (4,290 | ) | |||
AFUDC - borrowed | 58 | 57 | |||||
Interest income | 27 | 24 | |||||
AFUDC - equity | 134 | 116 | |||||
Other income (expense), net | 82 | 388 | |||||
Total other income (expense) | (4,546 | ) | (3,705 | ) | |||
Income from continuing operations before income taxes | 7,957 | 9,037 | |||||
Income tax expense | (2,375 | ) | (2,984 | ) | |||
Net income | 5,582 | 6,053 | |||||
Other comprehensive income (loss): | |||||||
Reclassification adjustments of cash flow hedges settled and included in net income (net of tax (expense) benefit of $(6) and $(6)) | 10 | 10 | |||||
Reclassification adjustment of benefit plan liability (net of tax (expense) benefit of $(6) and $0) | 11 | — | |||||
Other comprehensive income | 21 | 10 | |||||
Comprehensive income | $ | 5,603 | $ | 6,063 |
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, 2013 | December 31, 2012 | ||||||
(in thousands, except common stock par value and share amounts) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 3,063 | $ | 3,805 | |||
Receivables - customers, net | 23,309 | 23,867 | |||||
Receivables - affiliates | 4,896 | 5,027 | |||||
Other receivables, net | 628 | 673 | |||||
Money pool notes receivable, net | 35,063 | 31,645 | |||||
Materials, supplies and fuel | 21,284 | 20,633 | |||||
Deferred income tax assets, net, current | 1,563 | 16,631 | |||||
Regulatory assets, current | 4,891 | 4,998 | |||||
Other, current assets | 5,432 | 5,781 | |||||
Total current assets | 100,129 | 113,060 | |||||
Investments | 4,438 | 4,359 | |||||
Property, plant and equipment | 1,036,672 | 1,024,768 | |||||
Less accumulated depreciation and amortization | (326,160 | ) | (322,830 | ) | |||
Total property, plant and equipment, net | 710,512 | 701,938 | |||||
Other assets: | |||||||
Regulatory assets, non-current | 48,921 | 48,244 | |||||
Other, non-current assets | 5,685 | 5,322 | |||||
Total other assets | 54,606 | 53,566 | |||||
TOTAL ASSETS | $ | 869,685 | $ | 872,923 | |||
LIABILITIES AND STOCKHOLDER’S EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 17,128 | $ | 14,318 | |||
Accounts payable - affiliates | 18,030 | 21,896 | |||||
Accrued liabilities | 17,232 | 15,477 | |||||
Regulatory liabilities, current | 22 | 37 | |||||
Total current liabilities | 52,412 | 51,728 | |||||
Long-term debt, net of current maturities | 269,945 | 269,944 | |||||
Deferred credits and other liabilities: | |||||||
Deferred income tax liability, net, non-current | 146,521 | 158,918 | |||||
Regulatory liabilities, non-current | 45,845 | 43,849 | |||||
Benefit plan liabilities | 26,627 | 25,888 | |||||
Other, non-current liabilities | 3,274 | 3,138 | |||||
Total deferred credits and other liabilities | 222,267 | 231,793 | |||||
Commitments and contingencies (Notes 4, 5, 7 and 9) | |||||||
Stockholders’ equity: | |||||||
Common stock $1 par value; 50,000,000 shares authorized; 23,416,396 shares issued | 23,416 | 23,416 | |||||
Additional paid-in capital | 39,575 | 39,575 | |||||
Retained earnings | 263,469 | 257,887 | |||||
Accumulated other comprehensive loss | (1,399 | ) | (1,420 | ) | |||
Total stockholders’ equity | 325,061 | 319,458 | |||||
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | 869,685 | $ | 872,923 |
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, | |||||||
2013 | 2012 | ||||||
(in thousands) | |||||||
Operating activities: | |||||||
Net income | $ | 5,582 | $ | 6,053 | |||
Adjustments to reconcile net income to net cash provided by operating activities- | |||||||
Depreciation and amortization | 6,986 | 6,950 | |||||
Deferred income tax | 2,252 | 2,695 | |||||
Employee benefits | 774 | 957 | |||||
AFUDC - equity | (134 | ) | (116 | ) | |||
Other adjustments, net | 389 | 703 | |||||
Change in operating assets and liabilities - | |||||||
Accounts receivable and other current assets | (1,334 | ) | 3,696 | ||||
Accounts payable and other current liabilities | 393 | 2,705 | |||||
Regulatory assets | 746 | (22 | ) | ||||
Regulatory liabilities | 161 | (659 | ) | ||||
Contributions to defined benefit pension plan | — | (6,835 | ) | ||||
Other operating activities, net | 1,182 | 25 | |||||
Net cash provided by (used in) operating activities | 16,997 | 16,152 | |||||
Investing activities: | |||||||
Property, plant and equipment additions | (14,243 | ) | (6,965 | ) | |||
Change in money pool notes receivable, net | (3,418 | ) | (9,563 | ) | |||
Other investing activities | (78 | ) | (86 | ) | |||
Net cash provided by (used in) investing activities | (17,739 | ) | (16,614 | ) | |||
Financing activities: | |||||||
Long-term debt - repayments | — | (21 | ) | ||||
Net cash provided by (used in) financing activities | — | (21 | ) | ||||
Net change in cash and cash equivalents | (742 | ) | (483 | ) | |||
Cash and cash equivalents, beginning of period | 3,805 | 2,812 | |||||
Cash and cash equivalents, end of period | $ | 3,063 | $ | 2,329 |
See Note 8 for supplemental cash flow information.
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 our 2012 Annual Report on Form 10-K)
(1) | MANAGEMENT'S STATEMENT |
The unaudited condensed financial statements included herein have been prepared by Black Hills Power, Inc. (the “Company,” “we,” “us,” or “our”), 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, we believe that the footnotes adequately disclose the information presented. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto, included in our 2012 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 condensed financial statements reflects all adjustments, including accruals, which are, in the opinion of management, necessary for a fair presentation of the March 31, 2013, December 31, 2012 and March 31, 2012 financial information and are of a normal recurring nature. The results of operations for the three months ended March 31, 2013 and March 31, 2012, and our financial condition as of March 31, 2013 and December 31, 2012 are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period.
(2) | ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS |
Following is a summary of Receivables - customers, net included in the accompanying Condensed Balance Sheets (in thousands) as of:
March 31, 2013 | December 31, 2012 | |||||
Accounts receivable trade | $ | 15,548 | $ | 14,965 | ||
Unbilled revenues | 7,919 | 9,004 | ||||
Allowance for doubtful accounts | (158 | ) | (102 | ) | ||
Receivables - customers, net | $ | 23,309 | $ | 23,867 |
7
(3) | REGULATORY ASSETS AND LIABILITIES |
Our regulated electric operations are subject to regulation by various state and federal agencies. The accounting policies followed are generally subject to the Uniform System of Accounts of the FERC.
Our regulatory assets and liabilities were as follows (in thousands) as of:
Recovery/Amortization Period (in years) | March 31, 2013 | December 31, 2012 | ||||||
Regulatory assets: | ||||||||
Unamortized loss on reacquired debt(a) | 14 | $ | 2,440 | $ | 2,501 | |||
AFUDC(b) | 45 | 8,447 | 8,460 | |||||
Employee benefit plans(c) | 13 | 27,854 | 27,001 | |||||
Deferred energy costs(a) | 1 | 6,117 | 6,892 | |||||
Flow through accounting(a) | 35 | 8,368 | 8,019 | |||||
Other(a) | 2 | 586 | 369 | |||||
Total regulatory assets | $ | 53,812 | $ | 53,242 |
Regulatory liabilities: | ||||||||
Cost of removal for utility plant(a) | 53 | $ | 27,546 | $ | 26,630 | |||
Employee benefit plans(d) | 13 | 16,542 | 15,689 | |||||
Other(e) | 13 | 1,779 | 1,567 | |||||
Total regulatory liabilities | $ | 45,867 | $ | 43,886 |
____________________
(a) | Recovery or return of costs, but not allowed a rate of return. |
(b) | In addition to recovery of costs, we are allowed a rate of return. |
(c) In addition to recovery of costs, we are allowed a return on approximately $23.5 million.
(d) | Approximately $13.2 million is included in our rate base calculation as a reduction to rate base. |
(e) | Approximately $0.8 million is included in our rate base calculation as a reduction to rate base. |
(4) | RELATED-PARTY TRANSACTIONS |
Receivables and Payables
We have accounts receivable and accounts payable balances related to transactions with other BHC subsidiaries. The balances were as follows (in thousands) as of:
March 31, 2013 | December 31, 2012 | ||||||
Receivables - affiliates | $ | 4,896 | $ | 5,027 | |||
Accounts payable - affiliates | $ | 18,030 | $ | 21,896 |
Money Pool Notes Receivable and Notes Payable
We have entered into a Utility Money Pool Agreement (the “Agreement”) with BHC, Cheyenne Light and Black Hills Energy. Under the Agreement, we may borrow from BHC however the Agreement restricts us from loaning funds to BHC or to any of BHC’s non-utility subsidiaries. The Agreement does not restrict us from making dividends to BHC. Borrowings under the Agreement bear interest at the weighted average 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 plus 1.0%. Advances under the Utility Money Pool notes bear interest at a weighted average daily rate (1.78% at March 31, 2013).
8
We had the following balances with the Utility Money Pool (in thousands) as of:
March 31, 2013 | December 31, 2012 | ||||||
Money pool notes receivable, net | $ | 35,063 | $ | 31,645 |
Net interest income (expense) relating to balances for the Utility Money Pool was as follows (in thousands):
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Net interest income (expense) | $ | (440 | ) | $ | 283 |
Other Balances and Transactions
Sales and purchases with related parties were as follows (in thousands):
Three Months Ended March 31, | ||||||
2013 | 2012 | |||||
Revenues: | ||||||
Energy sold to Cheyenne Light | $ | 140 | $ | 526 | ||
Rent from electric properties | $ | 988 | $ | 1,259 | ||
Purchases: | ||||||
Purchase of coal from WRDC | $ | 4,524 | $ | 5,995 | ||
Purchase of excess energy from Cheyenne Light | $ | 946 | $ | 742 | ||
Purchase of renewable wind energy from Cheyenne Light - Happy Jack | $ | 650 | $ | 671 | ||
Purchase of renewable wind energy from Cheyenne Light - Silver Sage | $ | 1,085 | $ | 1,077 | ||
Purchase of natural gas - other | $ | — | $ | 7 | ||
Corporate support services from Parent, Black Hills Service Company and Black Hills Utilities Holdings Inc. | $ | 7,276 | $ | 4,805 |
(5) | EMPLOYEE BENEFIT PLANS |
Defined Benefit Pension Plan
The components of net periodic benefit cost for the Defined Benefit Pension Plan were as follows (in thousands):
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Service cost | $ | 213 | $ | 191 | |||
Interest cost | 742 | 742 | |||||
Expected return on plan assets | (941 | ) | (785 | ) | |||
Prior service cost | 11 | 14 | |||||
Net loss (gain) | 652 | 650 | |||||
Net periodic benefit cost | $ | 677 | $ | 812 |
9
Non-pension Defined Benefit Postretirement Healthcare Plan
The components of net periodic benefit cost for the Non-Pension Defined Postretirement Healthcare Plan were as follows (in thousands):
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Service cost | $ | 54 | $ | 53 | |||
Interest cost | 60 | 86 | |||||
Amortization of prior service cost | (69 | ) | (69 | ) | |||
Net loss (gain) | 2 | 35 | |||||
Net periodic benefit cost | $ | 47 | $ | 105 |
Supplemental Non-qualified Defined Benefit Plans
The components of net periodic benefit cost for the Supplemental Non-qualified Defined Benefit Plans were as follows (in thousands):
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
Interest cost | $ | 33 | $ | 26 | |||
Net loss (gain) | 17 | 14 | |||||
Net periodic benefit cost | $ | 50 | $ | 40 |
Contributions
We anticipate that we will make contributions to each of the benefit plans during 2013 and 2014. Contributions to the Pension Plan will be made in cash and contributions to the Healthcare Plan and the Supplemental Plans are expected to be made in the form of benefit payments. Contributions are as follows (in thousands):
Three Months Ended March 31, 2013 | Remaining Anticipated Contributions for 2013 | Anticipated Contributions for 2014 | |||||||
Defined Benefit Pension Plan | $ | — | $ | 1,582 | $ | 3,483 | |||
Non-Pension Defined Benefit Postretirement Healthcare Plan | $ | 109 | $ | 329 | $ | 489 | |||
Supplemental Non-qualified Defined Benefit Plans | $ | 54 | $ | 162 | $ | 215 |
10
(6) | FAIR VALUE OF FINANCIAL INSTRUMENTS |
Fair value is defined 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. The ASC on Fair Value Measurements and Disclosure Requirements establishes a hierarchy for grouping assets and liabilities, based on significance of inputs. For additional information see Note 1 included in our 2012 Annual Report on Form 10-K filed with the SEC.
The estimated fair values of our financial instruments were as follows (in thousands) as of:
March 31, 2013 | December 31, 2012 | ||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||
Cash and cash equivalents (a) | $ | 3,063 | $ | 3,063 | $ | 3,805 | $ | 3,805 | |||||
Long-term debt, including current maturities (b) | $ | 269,945 | $ | 351,165 | $ | 269,944 | $ | 359,567 |
_________________
(a) | Fair value approximates carrying value due to either short-term length of maturity or variable interest rates that approximate prevailing market rates and therefore is classified in Level 1 in the fair value hierarchy. |
(b) | Long-term debt is valued using the market approach based on observable inputs of quoted market prices and yields available for debt instruments either directly or indirectly for similar maturities and debt ratings in active markets and therefore is classified in Level 2 in the fair value hierarchy. The carrying amount of our variable rate debt approximates fair value due to the variable interest rates with short reset periods. |
(7) | LONG TERM DEBT |
Pollution Control Refund Revenue Bonds
On May 15, 2012, we repaid in full $6.5 million principal and interest on the 4.8% Pollution Control Revenue Bonds which were originally due to mature on October 1, 2014.
(8) | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
(in thousands) | |||||||
Non-cash investing and financing activities - | |||||||
Property, plant and equipment acquired with accrued liabilities | $ | 4,953 | $ | 1,417 | |||
Cash (paid) refunded during the period for - | |||||||
Interest (net of amounts capitalized) | $ | (3,098 | ) | $ | (2,318 | ) | |
Income taxes, net | $ | — | $ | (150 | ) |
(9) | COMMITMENTS AND CONTINGENCIES |
Other than the items discussed below, there have been no significant changes to commitments and contingencies from those previously disclosed in Note 12 of our Notes to the Financial Statements in our 2012 Annual Report on Form 10-K.
Cheyenne Prairie
Construction of Cheyenne Prairie, a 132 MW natural gas-fired electric generating facility, by us and Cheyenne Light is expected to cost approximately $222.0 million, exclusive of financing costs. Construction is expected to be completed by September 30, 2014. As of March 31, 2013, committed contracts for equipment purchases and for construction were 28% and 13% complete, respectively.
11
Oil Creek Fire
On June 29, 2012, a forest and grassland fire occurred in the western Black Hills. We subsequently received written damage claims from the State of Wyoming and one landowner seeking recovery for alleged injury to timber, grass, fencing, fire suppression and rehabilitation costs of approximately $8.0 million. On April 16, 2013, thirty-four private landowners filed suit in United States District Court for the District of Wyoming, asserting similar claims, based upon allegations of negligence, common law nuisance and trespass. The suit seeks recovery of both actual and exemplary damages in an unspecified amount. Our investigation into the cause and origin of the fire is pending. We expect to deny and will vigorously defend all claims arising out of the lawsuit, pending the completion of our investigation. Given the uncertainty of litigation, however, a loss related to the fire and the litigation is reasonably possible. We cannot reasonably estimate the amount of a potential loss because our investigation is ongoing. Further claims may be presented by other parties. Although we cannot predict the outcome of our investigation or the viability of alleged claims, based on information currently available, management believes that any such claims, if determined adversely to us, will not have a material adverse effect on our financial condition or results of operation.
12
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following tables provide certain financial information and operating statistics
Three Months Ended March 31, | |||||||||
2013 | 2012 | Variance | |||||||
(in thousands) | |||||||||
Revenue | $ | 59,817 | $ | 62,270 | $ | (2,453 | ) | ||
Fuel and purchased power | 22,098 | 24,715 | (2,617 | ) | |||||
Gross margin | 37,719 | 37,555 | 164 | ||||||
Operating expenses | 25,216 | 24,813 | 403 | ||||||
Operating income | 12,503 | 12,742 | (239 | ) | |||||
Interest income (expense), net | (4,762 | ) | (4,209 | ) | (553 | ) | |||
Other income (expense), net | 216 | 504 | (288 | ) | |||||
Income tax expense | (2,375 | ) | (2,984 | ) | 609 | ||||
Net income | $ | 5,582 | $ | 6,053 | $ | (471 | ) |
Electric Revenue by Customer Type | |||||||||
Three Months Ended March 31, | |||||||||
(dollars in thousands) | |||||||||
2013 | Percentage Change | 2012 | |||||||
Commercial | $ | 17,484 | 4% | $ | 16,808 | ||||
Residential | 16,442 | 6% | 15,476 | ||||||
Industrial | 6,010 | —% | 6,020 | ||||||
Municipal | 714 | 2% | 698 | ||||||
Total retail revenue | 40,650 | 4% | 39,002 | ||||||
Contract wholesale | 5,767 | 18% | 4,905 | ||||||
Off-system wholesale | 6,250 | (45)% | 11,273 | ||||||
Other revenue | 7,150 | 1% | 7,090 | ||||||
Total revenue | $ | 59,817 | (4)% | $ | 62,270 |
13
Megawatt Hours Sold by Customer Type | |||||||
Three Months Ended March 31, | |||||||
2013 | Percentage Change | 2012 | |||||
Residential | 160,970 | 7% | 150,428 | ||||
Commercial | 175,617 | 3% | 170,093 | ||||
Industrial | 91,632 | (4)% | 95,735 | ||||
Municipal | 7,783 | 3% | 7,568 | ||||
Total retail quantity sold | 436,002 | 3% | 423,824 | ||||
Contract wholesale | 103,784 | 17% | 89,048 | ||||
Wholesale off-system | 238,447 | (48)% | 458,230 | ||||
Total quantity sold | 778,233 | (20)% | 971,102 | ||||
Losses and company use | 40,101 | (8)% | 43,587 | ||||
Total energy | 818,334 | (19)% | 1,014,689 |
Megawatt Hours Generated and Purchased | |||||||
Three Months Ended March 31, | |||||||
Generated - | 2013 | Percentage Change | 2012 | ||||
Coal-fired | 427,015 | (15)% | 499,792 | ||||
Gas-fired | 3,120 | 760% | 363 | ||||
Total generated | 430,135 | (14)% | 500,155 | ||||
Total purchased | 388,199 | (25)% | 514,534 | ||||
Total generated and purchased | 818,334 | (19)% | 1,014,689 |
Power Plant Availability | ||||||
Three Months Ended March 31, | ||||||
2013 | 2012 | |||||
Coal-fired plants | 95.9 | % | 97.3 | % | ||
Other plants | 97.8 | % | 99.9 | % | ||
Total availability | 96.7 | % | 98.3 | % |
Degree Days | ||||||||
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Actual | Variance from 30-year Average | Actual | Variance from 30-year Average | |||||
Heating and cooling degree days: | ||||||||
Heating degree days | 3,210 | — | % | 2,711 | (16 | )% | ||
Cooling degree days | — | — | % | — | — | % |
14
Amounts are presented on a pre-tax basis unless otherwise indicated. Minor differences in amounts may result due to rounding.
Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012. Net income was $5.6 million compared to $6.1 million for the same period in the prior year primarily due to the following:
Gross margin increased primarily due to an increase of $0.5 million from wholesale margins due to higher volumes, $0.2 million from retail margins due to higher volumes, partially offset by a $0.5 million decrease in off-system sales margins due to increased costs and lower volumes.
Operations and maintenance increased primarily due to an increase in compensation and benefits costs.
Interest expense, net increased primarily due to lower interest income received on affiliate borrowings.
Other income, net was comparable to the same period in the prior year.
Income tax expense: The effective tax rate decreased due to research and development credits including the full year 2012 estimated benefit as a result of retroactive reinstatement and flow through of a greater tax benefit attributable to costs deducted as repairs and maintenance for tax purposes.
Significant Events
Cheyenne Prairie
Construction and infrastructure work for Cheyenne Prairie, a natural gas-fired electric generating facility to serve our customers and the customers of Cheyenne Light began in April. The 132 MW generation project is expected to cost approximately $222.0 million, with up to $15 million of construction financing costs, for a total of $237 million. Through March 31, 2013, $21.4 million has been expended and the project is on schedule to be placed into service in the fourth quarter of 2014.
On January 17, 2013, the SDPUC approved a stipulation for interim rates effective April 1, 2013, subject to refund, for the use of a construction rider for the South Dakota portion of costs for Cheyenne Prairie in lieu of the traditional allowance for funds used during construction. Public hearings with the SDPUC are scheduled to commence September 16, 2013.
On December 17, 2012, we filed a request with the SDPUC seeking a $13.7 million increase in annual electric revenues. Public hearings with the SDPUC are scheduled to commence October 8, 2013. We expect to implement interim rates, subject to refund, in June 2013.
Credit Ratings
Credit ratings impact our ability to obtain short- and long-term financing, the cost of such financing, and vendor payment terms, including collateral requirements. As of March 31, 2013, our first mortgage bonds credit ratings, as assessed by the three major credit rating agencies, were as follows:
Rating Agency | Rating |
S&P | BBB+ |
Moody’s | A3 |
Fitch | A- |
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FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements as defined by the SEC. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words “anticipates,” “estimates,” “expects,” “intends,” “plans,” “predicts” and similar expressions, and include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Item 7 - Management’s Discussion & Analysis.
Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company’s expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. Nonetheless, the Company’s expectations, beliefs or projections may not be achieved or accomplished.
Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements described in Item 1A of our 2012 Annual Report on Form 10-K, including statements contained within Item 1A - Risk Factors and Part II, Item 1A of this Quarterly Report on Form 10Q.
ITEM 4. | CONTROLS AND PROCEDURES |
This section should be read in conjunction with Item 9A, “Controls and Procedures” included in our Annual Report on Form 10-K for the year ended December 31, 2012.
Our Chief Executive Officer and 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, 2013. Based on their evaluation, they have 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, 2013, that materially affected or are reasonably likely to materially affect our internal control over financial reporting.
BLACK HILLS POWER, INC.
Part II - Other Information
Item 1. | Legal Proceedings |
For information regarding legal proceedings, see Note 12 of Notes to Financial Statements in Item 8 of our 2012 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 are no material changes to the Risk Factors previously disclosed in Item 1A. of Part I in our Annual Report on Form 10-K for the year ended December 31, 2012.
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Item 6. | Exhibits |
Exhibit 3.1* | Restated Articles of Incorporation of the Registrant (filed as an exhibit to the Registrant’s Form 8-K dated June 7, 1994 (No. 1-7978)). |
Exhibit 3.2* | Articles of Amendment to the Articles of Incorporation of the Registrant, as filed with the Secretary of State of the State of South Dakota on December 22, 2000 (filed as an exhibit to the Registrant’s Form 10-K for 2000). |
Exhibit 3.3* | Bylaws of the Registrant (filed as an exhibit to the Registrant’s Registration Statement on Form S-8 dated July 13, 1999). |
Exhibit 4.1* | Restated and Amended Indenture of Mortgage and Deed of Trust of Black Hills Corporation (now called Black Hills Power, Inc.) dated as of September 1, 1999 (filed as Exhibit 4.19 to the Registrant's Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-3 (No. 333-150669-01)). First Supplemental Indenture, dated as of August 13, 2002, between Black Hills Power, Inc. and The Bank of New York Mellon (as successor to J.P. Morgan Chase Bank), as Trustee (filed as Exhibit 4.20 to the Registrant's Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-3 (No. 333-150669-01)). Second Supplemental Indenture, dated as of October 27, 2009, between Black Hills Power, Inc. and The Bank of New York Mellon (filed as Exhibit 4.21 to the Registration Statement on Form S-3 (No. 333-150669-01)). |
Exhibit 31.1 | Certification of Chief Executive Officer 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 31.2 | Certification of Chief Financial Officer 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 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
Exhibit 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
Exhibit 101 | Financial Statements for XBRL Format |
_________________________
* | Previously filed as part of the filing indicated and incorporated by reference herein. |
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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.
/S/ DAVID R. EMERY
David R. Emery, Chairman
and Chief Executive Officer
/S/ ANTHONY S. CLEBERG
Anthony S. Cleberg, Executive Vice President
and Chief Financial Officer
Dated: May 9, 2013
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EXHIBIT INDEX
Exhibit Number | Description |
Exhibit 3.1* | Restated Articles of Incorporation of the Registrant (filed as an exhibit to the Registrant’s Form 8-K dated June 7, 1994 (No. 1-7978)). |
Exhibit 3.2* | Articles of Amendment to the Articles of Incorporation of the Registrant, as filed with the Secretary of State of the State of South Dakota on December 22, 2000 (filed as an exhibit to the Registrant’s Form 10-K for 2000). |
Exhibit 3.3* | Bylaws of the Registrant (filed as an exhibit to the Registrant’s Registration Statement on Form S-8 dated July 13, 1999). |
Exhibit 4.1* | Restated and Amended Indenture of Mortgage and Deed of Trust of Black Hills Corporation (now called Black Hills Power, Inc.) dated as of September 1, 1999 (filed as Exhibit 4.19 to the Registrant's Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-3 (No. 333-150669-01)). First Supplemental Indenture, dated as of August 13, 2002, between Black Hills Power, Inc. and The Bank of New York Mellon (as successor to J.P. Morgan Chase Bank), as Trustee (filed as Exhibit 4.20 to the Registrant's Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-3 (No. 333-150669-01)). Second Supplemental Indenture, dated as of October 27, 2009, between Black Hills Power, Inc. and The Bank of New York Mellon (filed as Exhibit 4.21 to the Registration Statement on Form S-3 (No. 333-150669-01)). |
Exhibit 31.1 | Certification of Chief Executive Officer 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 31.2 | Certification of Chief Financial Officer 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 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
Exhibit 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002. |
Exhibit 101 | Financial Statements for XBRL Format |
_________________________
* | Previously filed as part of the filing indicated and incorporated by reference herein. |
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