Black Hills Corporation (BKH)

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Black Hills Corp. (BKH)

Q1 2010 Earnings Call

May 06, 2010

Executives

Jason Ketchum - Director, IR

Dave Emery - Chairman and CEO

Tony Cleberg - EVP and CFO

Analysts

Ella Vuernick - RBC Capital Market

Chris Ellinghaus - Shields & Company

Jack Moore - Harpswell Capital

Jeff Gildersleeve - Millennium Partners

Tim Winter - Gabelli & Company

James Heckler - Levin Capital Strategies

Vedula Murti - CDP US

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Black Hills Corporation first quarter 2010 conference call. My name is Janeda and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks there will be a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Mr. Jason Ketchum, Director of Investor Relations of Black Hills Corporation. Please proceed, sir.

Jason Ketchum

Thank you, Operator. Good morning, everyone. Before I turn the call over to our Chairman and CEO, Dave Emery, I need to remind you that during the course of this call some of the comments we make may contain forward-looking statements as defined by the Securities and Exchange Commission and there are a number of uncertainties inherent in such comments. Although we believe that our expectations and beliefs are based on reasonable assumptions, actual results may differ materially.

We direct you to our earnings release, Slide 2 of the investor presentation on our website, and our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission for a list of some of the factors that could cause future results to differ materially from our expectations.

I will now turn the call over to Dave Emery.

Dave Emery

Thank you, Jason. Good morning, everyone. Thanks for joining my call today. I will be referring to the webcast presentation that was posted last night and so for those of you who have it, I’ll try mention slide numbers so you can follow along. And for those of you who don’t, I don’t think that will be a problem, the information is essentially contained in the press release for the most part.

Starting on Slide 5, we’re off to a really good start in the first quarter of 2010, basically a 23% improvement in income from continuing operations over the first quarter of 2009; $0.81 per share as opposed to $0.66. So, things are off to a good start in all of our companies essentially.

On the utility side, up several million dollars over the prior year, several things led to that. Gas utilities did very well, and we’re continuing to work on our efficiencies there. We also had colder than normal weather in some of our territories, which helped. On the electric side our off-system sales of excess electricity improved this year over last year despite continued lower natural gas prices, and that improvement was primarily driven by several other plant outages in the region which allowed us to have a little bit stronger local markets to sell our excess energy to.

Another item that contributed on the gas utility side was a small gain on sale related to our gas property in Nebraska that was annexed into the city of Omaha, and we had to then essentially sell that territory to the municipal utilities district in Omaha. So there was a gain on the sale recognized from that transaction as well.

On the non-regulated side; a significant improvement, $13 plus million over the prior year, overall. Oil and gas improved primarily related to improvement in product prices, and then also better depletion rates as a result of some of the non-cash impairments that we took in previous years.

Energy marketing had solid performance from our gas storage, and historically we have also had strong performance in our transport strategy in this year as tight basis spread particularly out of the Rockys have remained very narrow. That has negatively impacted that gas transport business, and we do expect that to continue.

Moving on to the utility highlights on the next page, big item for us what happened in the quarter and late at the end of the quarter is the Wygen III coal-fired power plant from Black Hills Power began commercial operation on April 1, several months ahead of schedule and about $7 million under budget; another very successful coal-fired construction project for our power generation team.

Related to that we completed a seven year power purchase agreement to sell energy and capacity to the city of Gillette, Wyoming for basically 23 megawatts. That agreement reflected the change in pricing driven by the addition of Wygen III to our resource base. It also included an option for the City of Gillette to essentially purchase 23% ownership in Wygen III on an equity basis. Gillette has stated their intent to exercise that option and we would expect from them if all goes well to close on that exercise during this year.

We implemented the interim rates for South Dakota customers, effective April 1, which was again the commercial operation’s day for the plant. We have continued our negotiations related to the rate settlement in South Dakota and hope to file a stipulation with the state of South Dakota PUC here shortly in early in this month. At Wyoming we reaching agreement with the interveners over there and actually filed a settlement stipulation there a few days ago, so making great progress on having Wygen III included in our rates for Black Hills Power in addition to the operational success.

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