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Black Hills Corp. Reports 55 Percent Increase In 2012 Second Quarter Adjusted Earnings Per Share

“Several key strategic projects advanced since last quarter,” Emery said. “Cheyenne Light and Black Hills Power received approval for their certificate of public convenience and necessity to build a $237 million natural gas-fired generating facility in Cheyenne, Wyo. Construction on our 29 megawatt wind project for Colorado Electric is on schedule for completion this year. Cheyenne Light also received approval for its rate cases to implement new electric and natural gas base rates effective July 1, 2012.

“Overall, we executed well in the second quarter with solid operating performance and improved earnings. We advanced several key strategic projects and aggressively managed our controllable expenses. Our cost reduction efforts to mitigate the earnings challenges in the first quarter are progressing. These efforts to improve earnings gained traction in the second quarter and we fully expect these efforts to continue throughout the remainder of 2012.”

Black Hills Corp. highlights for second quarter 2012, recent regulatory filings and updates and other events include:

Utilities

  • Colorado Electric's new 180 megawatt power plant in Pueblo, Colo. was operational with availability greater than 91 percent.
  • On July 31, 2012, Cheyenne Light and Black Hills Power received approval from the Wyoming Public Service Commission for a certificate of public convenience and necessity authorizing the construction, operation and maintenance of a new $237 million, 132 megawatt natural gas-fired electric generating facility and related gas and electric transmission in Cheyenne, Wyo. On July 13, 2012, a Stipulation and Agreement among the joint applicants and the intervenor was filed with the WPSC including provisions for a construction work-in-progress rate rider. Use of the CWIP rider will allow a rate of return during construction, eliminating the usual allowance for funds used during construction, thus reducing the total construction cost from $237 million to $222 million. The WPSC noted the Stipulation and Agreement in the CPCN hearing on July 31, 2012, without approving the CWIP rider and indicating its preference to consider the rider and total construction cost in a separate proceeding.
  • On July 30, 2012, Colorado Electric filed its Electric Resource Plan with the Colorado Public Utilities Commission. The ERP identified the replacement resource for the 42 megawatt coal-fired W.N. Clark plant as required by the Colorado Clean Air - Clean Jobs Act. Colorado Electric proposed to add a 40 megawatt simple-cycle, natural gas-fired turbine in Colorado no later than 2016. The W.N. Clark plant is approved for retirement on or before Dec. 13, 2013.
  • Construction on Colorado Electric's 29 megawatt wind turbine project south of Pueblo, Colo. is approximately 80 percent complete and is scheduled to begin serving its utility customers in the fourth quarter of 2012. Colorado Electric's share of this project is approximately $27 million.
  • On June 18, 2012, the Wyoming Public Service Commission approved settlement agreements increasing base rates for Cheyenne Light's electric and natural gas customers effective July 1, 2012. The PSC approved an increase of $2.7 million in annual electric revenue and $1.6 million in annual natural gas revenue. The settlement included a return on equity of 9.6 percent and a capital structure of 54 percent equity and 46 percent debt.
  • On June 4, 2012, Colorado Gas filed a request with the Colorado Public Utilities Commission for an increase in annual gas revenues of $1.0 million or 1.5 percent to recover $29 million in capital investments made in its gas system since January 2008.

Non-regulated Energy

  • Black Hills Colorado IPP's new 200 megawatt power plant in Pueblo, Colo. was operational with contract availability greater than 97 percent.
  • Coal Mining commenced operations under its revised "south to north" mine plan including infrastructure preparation. Mining operations moved in August to an area with lower overburden ratios, which should reduce mining costs for the next several years.
  • Oil and Gas reported a 23 percent increase in total production, reflecting a 54 percent increase in crude oil and a 16 percent increase in natural gas. Activity from our non-operated interests in the Bakken accelerated the crude oil volumes while the Mancos shale test wells drilled in 2011 generated the higher natural gas volumes.
  • Oil and Gas recorded a $17.3 million after-tax, non-cash ceiling test impairment to the book value of its crude oil and natural gas properties for the three months ended June 30, 2012, due to low natural gas prices.

Corporate

  • On June 24, 2012, the company extended for one year its $150 million term loan at favorable terms.
  • On July 25, 2012, Black Hills Corp. declared a quarterly dividend of $0.37 per share, equivalent to an annual dividend rate of $1.48 per share.

Discontinued Operations

  • On Feb. 29, 2012, the company sold the outstanding stock of its Energy Marketing business. Cash proceeds from the transaction were $166.3 million. In May 2012, pursuant to the Stock Purchase Agreement, the buyer requested purchase price adjustments totaling $7.2 million. We contested this proposed adjustment and estimated the amount owed at $1.3 million, which was accrued in the second quarter of 2012. If we do not reach a negotiated agreement with the buyer regarding the purchase price adjustment, resolution would occur through the dispute resolution provision of the Stock Purchase Agreement. The company recorded a loss, net of tax, of $1.2 million during the quarter, including $0.3 million in transaction costs, net of tax.

BLACK HILLS CORPORATION CONSOLIDATED FINANCIAL RESULTS

(Minor differences may result due to rounding. Prior period information has been revised to reclassify information related to discontinued operations.)

   
(in millions) Three Months Ended June 30, Six Months Ended June 30,
2012   2011 2012   2011
Net income (loss):    
Utilities:
Electric $ 14.2 $ 8.6 $ 22.9 $ 19.0
Gas 1.2     4.4   16.4     23.7  
Total Utilities Group 15.4     13.0   39.3     42.7  
 
Non-regulated Energy:
Power generation 3.9 0.5 10.8 1.7
Coal mining 1.2 (0.4 ) 2.2 (1.7 )
Oil and gas (a) (19.6 )   (0.1 ) (19.6 )   (0.8 )
Total Non-regulated Energy Group (14.5 )     (6.6 )   (0.8 )
 
Corporate and Eliminations (b) (c) (13.2 )   (9.3 ) (9.8 )   (9.1 )
 
Income from continuing operations (12.3 )   3.7   22.9     32.8  
 
Income (loss) from discontinued operations, net of tax (c) (1.2 )   4.0   (6.6 )   1.9  
Net income (loss) $ (13.5 )   $ 7.8   $ 16.3     $ 34.7  
                                 

(a) Financial results for the three and six months ended June 30, 2012 include a non-cash after-tax ceiling test impairment of $17.3 million.(b) Financial results for the three months ended June 30, 2012 and 2011 include a non-cash after-tax loss related to mark-to-market adjustments on certain interest rate swaps of $10.1 million and $5.1 million, respectively, while financial results for the six months ended June 30, 2012 and 2011 include a non-cash after-tax loss related to those same interest rate swaps of $2.3 million and $1.5 million.(c) Certain indirect corporate costs and inter-segment interest expense previously charged to our Energy Marketing segment could not be reclassified to discontinued operations and accordingly have been presented within Corporate in the after-tax amounts of $0.0 and $0.5 million for the three months ended June 30, 2012 and 2011, respectively, while after-tax indirect corporate costs and inter-segment interest expense not reclassified to discontinued operations for the six months ended June 30, 2012 and 2011 totaled $1.6 million and $1.0 million, respectively.

   
Three Months Ended June 30, Six Months Ended June 30,
2012   2011 2012   2011
Weighted average common shares outstanding (in thousands):    
Basic 43,799 39,109 43,765 39,084
Diluted 43,799 39,823 43,984 39,793
 
Earnings per share:
Basic -
Continuing Operations $ (0.28 ) $ 0.09 $ 0.52 $ 0.84
Discontinued Operations (0.03 )   0.11   (0.15 )   0.05
Total Basic Earnings Per Share $ (0.31 )   $ 0.20   $ 0.37     $ 0.89
 
Diluted -
Continuing Operations $ (0.28 ) $ 0.09 $ 0.52 $ 0.82
Discontinued Operations (0.03 )   0.10   (0.15 )   0.05
Total Diluted Earnings Per Share $ (0.31 )   $ 0.19   $ 0.37     $ 0.87
 

EARNINGS GUIDANCE REAFFIRMED

Black Hills reaffirms its expected 2012 earnings per share from continuing operations, as adjusted, to be in the range of $1.90 to $2.10, as previously issued on May 3, 2012.

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