Black Hills Corporation (BKH)

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Black Hills Corporation (BKH)

Q3 2010 Earnings Call Transcript

October 29, 2010 11:00 am ET

Executives

Jason Ketchum – Director, IR

Tony Cleberg – CFO

Dave Emery – Chairman and CEO

Analysts

Dan Eggers – Credit Suisse

Gordon Howald – East Shore Partners

Eric Beaumont – Copia Capital

Ella Vuernick – RBC Capital Markets

James Bellessa – D.A. Davidson

Vedula Murti – CDP

Michael Worms – BMO

Jeff Gildersleeve – Millennium Partners

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Black Hills Corporation 2010 Third Quarter Earnings Conference Call. My name is Regina [ph] and I will be your coordinator for today. At this time, all participants are in 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, Regina. Good morning, everyone and welcome to the Black Hills Corporation 2010 third quarter earnings call. With me today are Dave Emery, Chairman and CEO and Tony Cleberg, CFO. Before I turn over the call, 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 two 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 being with us today. We want to cover several things today. Obviously, a review of the quarter which I will do, Tony will then cover financials, I’ll speak a little to forward-looking strategic issues and then Tony will provide an update on our guidance for both 2010 and new guidance for 2011.

Moving on, some of you, I know, might be following along on the webcast presentation and if you are I will try to cite some page numbers periodically, so you can know where we are at. Moving on to slide five, we had an excellent third quarter. A substantial improvement in adjusted income from continuing operations as compared to the third quarter of 2009, essentially $0.38 a share this year as compared to $0.07 a share for the same period last year.

Utility results are up nearly $11 million, primarily driven by a gain on sale of a 23% interest in Wygen III plant and also an increase in revenues from several completed rate cases. On the non-regulated energy side, results are up approximately $6 million, driven by improved performance in energy marketing and oil and gas, partially offset by slightly lower coal mining reserves.

Moving on to utility highlights, several key things going on in the utility side of our business in this last quarter. First item is construction is well under way on our utility gas fire and generation facilities for our Colorado Electric utility. That plant, which is located in Pueblo, Colorado is progressing very well. We’ve made a tremendous amount of progress since construction began in late July. We have completed four rate cases year-to-date for a total annual revenue increase of approximately $44 million.

We recently reached a settlement in an Iowa gas rate case and the Iowa utilities board held a hearing here just in the last week or so related to that settlement, we’re waiting on an order but that would be for another 3.4 million, if they accept the settlement as it was presented to them. Another notable item related to our southern Colorado utility, is we were successful in extending our franchise agreement with the city of Pueblo in August ,that’s a 20-year extension of that franchise, which is real key, given the huge amount of capital investment, we’re making to serve that utilities generations needs right now.

In October, Black Hills power suspended operations on our Osage coal-fired power plant, it’s over 60-year-old facility, a 35-megawatt coal-fired facility in Wyoming and we’ve suspended operations as we notified people at that time. And then, finally, our smart meter projects are on track, progressing very well. We have over 50% of our meters installed and trying to accelerate as much of that activity into the current year as we possibly can.

Moving on to Non-regulated Energy segment, we are making excellent progress there as well on our 200 mega watt IPP-owned gas fire power plant that will serve our Colorado Electric customers. We also commenced construction that is co-located with our utility plant. So construction commenced there in July as well.

On the energy marketing front, we do have a slight improvement in energy marketing results over the last year. We had solid unrealized coal marketing margins this quarter, some of which was related in new deals entered into during the quarter and the other was related to increased coal market prices and a long coal position that we had in that business from when we acquired it last quarter.

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