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Black Hills Corp. Reports 20 Percent Increase In 2012 Third Quarter Adjusted Earnings Per Share, Reaffirms 2012 Earnings Guidance And Initiates 2013 Earnings Guidance

“Two key strategic utility projects advanced during the quarter,” Emery said. “Cheyenne Light and Black Hills Power received final approvals and permits to build the 132 megawatt, $237 million natural gas-fired Cheyenne Prairie Generating Station in Cheyenne, Wyo., and Colorado Electric’s Busch Ranch wind project south of Pueblo, Colo. was placed into service on Oct. 16.

“In October, two of the three credit rating agencies changed their ratings outlook for Black Hills Corp. and Black Hills Power from stable to positive. We believe the outlook change recognizes our lower business risk profile and debt reduction efforts.

“We executed well in the third quarter with solid operating performance and improved earnings. Our cost-containment efforts to mitigate the earnings challenges of the first quarter are yielding positive results, and those efforts will continue throughout the remainder of 2012.”

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

Utilities

  • Cheyenne Light and Black Hills Power received final approvals and permits for the Cheyenne Prairie Generating Station. The Wyoming Public Service Commission approved the certificate of public convenience and necessity on July 31 authorizing the construction, operation and maintenance of a new 132 megawatt, $237 million natural gas-fired electric generating facility in Cheyenne, Wyo. The state of Wyoming issued the air permit for the project on Aug. 31, and the U.S. Environmental Protection Agency issued the greenhouse gas air permit on Sept. 27. Upon receipt of this final permit, the major equipment for the project was ordered. Commencement of construction is expected in spring 2013. Project costs for plant construction and associated transmission are estimated at $222 million, with up to $15 million of construction financing costs, for a total of $237 million.
  • On Oct. 30, Cheyenne Light and Black Hills Power received approval from the Wyoming Public Service Commission to use a construction financing rider for Cheyenne Prairie Generating Station in lieu of the traditional allowance for funds used during construction. The rider allows Cheyenne Light and Black Hills Power to earn and collect a rate of return during the construction period on the approximately 60 percent of the project cost related to serving Wyoming customers. The company is evaluating filing for a similar rider in South Dakota.
  • On Oct. 16, Colorado Electric’s 29 megawatt Busch Ranch wind project south of Pueblo, Colo., commenced commercial operation. Colorado Electric’s share of the project’s cost is approximately $26 million. On Sept. 18, the company completed the sale of a 50 percent undivided ownership interest in the project to the co-owner.
  • On Aug. 6, Black Hills Power and Colorado Electric announced plans to suspend plant operations at some of their older coal-fired and natural gas-fired facilities. In addition, the companies identified retirement dates for the older coal-fired power plants because of state and federal environmental regulations. The affected plants are listed in the table below with their operations suspension date (if applicable) and their ultimate retirement date (if identified).
                   

Type of

 

 

   

Age of Plant

Plant

Company

Megawatts

Plant

Suspend Date

Retirement Date

(in years)

Osage Black Hills Power 34.5 Coal Oct. 1, 2010 March 21, 2014 64
Ben French Black Hills Power 25.0 Coal Aug. 31, 2012 March 21, 2014 52
Neil Simpson I Black Hills Power 21.8 Coal NA March 21, 2014 43
W.N. Clark Colorado Electric 40.0 Coal Dec. 31, 2012 Dec. 31, 2013 57
Pueblo Unit #5 Colorado Electric 9.0 Gas Dec. 31, 2012 to be determined 71
Pueblo Unit #6 Colorado Electric 20.0 Gas Dec. 31, 2012 to be determined 63
 
  • On July 30, Colorado Electric filed its electric resource plan with the Colorado Public Utilities Commission seeking to develop and own replacement capacity for the retirement of the coal-fired W.N. Clark power plant, which was previously ordered to be retired by the commission to comply with the Colorado Clean Air – Clean Jobs Act. The commission dismissed the initial filing and directed Colorado Electric to refile the ERP by Jan. 18, 2013 in order to address alternatives for the replacement capacity for its coal-fired W.N. Clark power plant, as well as the retirement of Pueblo No. 5 and No. 6. The commission also directed Colorado Electric to request certificates of public convenience and necessity for any replacement capacity that Colorado Electric seeks to develop and own.
  • On June 4, Colorado Gas filed a request with the Colorado Public Utilities Commission for an increase in annual gas revenues to recover capital investments and increased operation and maintenance expenses. The commission required this rate case filing as part of a previous settlement agreement when Black Hills Corp. purchased Colorado Gas. All parties reached a rate case settlement, and the settlement hearing was held on Oct. 12, 2012. A decision is expected in the first quarter of 2013. The settlement, if approved, includes a $0.2 million revenue increase, a return on equity of 9.6 percent, a cost of debt of 7.2 percent, and a capital structure of 50 percent equity and 50 percent debt.
  • Weather was a contributing factor for utility results in the third quarter. Our service territories reported warmer weather, as measured by degree days, compared with the 30-year average and the same period last year. Although temperatures were above normal, weather-related demand was tempered by significantly lower humidity in the company’s service territories in 2012 compared with 2011.

Non-regulated Energy

  • On Sept. 27, the company’s oil and gas business segment sold approximately 85 percent of its Williston Basin assets for net cash proceeds of approximately $227 million.

Corporate

  • On Oct. 31, the company redeemed $225 million of senior unsecured, 6.5 percent notes which were originally scheduled to mature on May 15, 2013.
  • On Oct. 30, Black Hills Corp. declared a quarterly dividend of $0.37 per share, equivalent to an annual dividend rate of $1.48 per share. Through 2012, the company has increased its dividend for 42 consecutive years.
  • On Oct. 16, Standard & Poor’s Ratings Services changed its credit ratings outlook for Black Hills Corp. and Black Hills Power from stable to positive. On Oct. 18, Moody’s Investors Service also changed its credit ratings outlook for Black Hills Corp. and Black Hills Power from stable to positive.

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 Sept. 30, Nine Months Ended Sept. 30,
2012   2011 2012   2011
Net income (loss):    
Utilities:
Electric $ 14.6 $ 15.8 $ 37.5 $ 34.6
Gas     0.6   16.4     24.3  
Total Utilities Group 14.6     16.4   53.9     58.9  
 
Non-regulated Energy:
Power generation 5.1 0.3 16.0 2.1
Coal mining 1.7 0.5 3.9 (1.1 )
Oil and gas (a) 17.4     0.2   (2.2 )   (0.6 )
Total Non-regulated Energy Group 24.2     1.0   17.7     0.4  
 
Corporate and Eliminations (b) (c) (4.2 )   (28.6 ) (14.0 )   (37.7 )
 
Income from continuing operations 34.6     (11.2 ) 57.6     21.6  
 
Income (loss) from discontinued operations, net of tax (c) (0.2 )   0.6   (6.8 )   2.5  
Net income (loss)   $ 34.5     $ (10.5 ) $ 50.8     $ 24.1  
 
(a)   Financial results for the three and nine months ended Sept. 30, 2012 include a $17.7 million after-tax gain on sale of our Williston Basin assets and the nine months ended Sept. 30, 2012 include a non-cash after-tax ceiling test impairment of $17.3 million.
(b) Financial results include a $0.4 million net after-tax non-cash mark-to-market gain and a $1.9 million net after-tax non-cash mark-to-market loss on interest rate swaps for the three and nine months ended Sept. 30, 2012, respectively, and a $24.9 million and $26.4 million net after-tax non-cash mark-to-market loss on interest rate swaps for the three and nine months ended Sept. 30, 2011, respectively.
(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 amount of $0.5 million for the three months ended Sept. 30, 2011, while after-tax indirect corporate costs and inter-segment interest expense not reclassified to discontinued operations for the nine months ended Sept. 30, 2012 and 2011 totaled $1.6 million and $1.5 million, respectively.
 
  Three Months Ended Sept. 30,   Nine Months Ended Sept. 30,
2012   2011 2012   2011
Weighted average common shares outstanding (in thousands):    
Basic 43,847 39,145 43,792 39,105
Diluted 44,108 39,145 44,026 39,792
 
Earnings per share:
Basic -
Continuing Operations $ 0.79 $ (0.29 ) $ 1.31 $ 0.55
Discontinued Operations     0.02   (0.16 )   0.07
Total Basic Earnings Per Share $ 0.79     $ (0.27 ) $ 1.15     $ 0.62
 
Diluted -
Continuing Operations $ 0.78 $ (0.29 ) $ 1.31 $ 0.54
Discontinued Operations     0.02   (0.16 )   0.07
Total Diluted Earnings Per Share $ 0.78     $ (0.27 ) $ 1.15     $ 0.61
 

DIVIDENDS

On Oct. 30, 2012, the company’s board of directors declared a quarterly dividend on common stock. Common shareholders of record at the close of business on Nov. 16, 2012 will receive $0.37 per share, equivalent to an annual dividend rate of $1.48 per share, payable on Dec. 1, 2012.

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