 Non-Regulated Energy
For more than five decades, Black Hills Corporation has supplemented its revenue and earnings streams through non-regulated
energy investments. These operations are logical adjuncts to our utility roots in many respects.
For example, our experience in power generation planning, construction, compliance and
operation made it possible for us to enter the independent power production sector in 2000.
Our production of coal, natural gas and crude oil serves as a direct and indirect hedge for the
fuel consumption of our power generation fleet. Likewise, the market intelligence we gather and
knowledge we possess through our energy marketing operations benefit our entire organization,
such as optimizing prices for either selling or purchasing energy commodities. Most of all, at the
core of our non-regulated energy performance is customer care, consistent with our utilities’ focus.
ACHIEVEMENTS IN 2007
A number of records were set in our non-regulated
business group last year. Our coal mine eclipsed the
5.0 million ton production mark for the first time.
This record likely will be broken in 2008, too, as
additional production will supply our new Wygen II
power plant, and our recently renewed contract to
provide fuel to PacifiCorp’s Dave Johnston power
plant included increased tonnage. Our oil and gas
operations increased production for the 10th consecutive year in 2007, reaching 14.6 billion cubic feet
equivalent. Proven oil and gas reserves attained
a new record as well – 207.8 Bcfe. Energy marketing
operations achieved another record average daily
volumes of natural gas marketed, exceeding the
1.7 million MMBtu threshold. In addition to this
record setting, we began construction on the Valencia
power plant, which is under long-term contract with
Public Service Company of New Mexico.
OPERATIONS REVIEW
Income from continuing operations for non-regulated
energy in 2007 was $74.4 million,
a 34 percent increase over 2006 results. All non-regulated
business segments had increased
earnings, except oil and gas operations, which
had earnings similar to 2006. Here is a summary
of 2007 annual performance, compared to 2006:
 • Energy marketing earnings nearly doubled to
$34.2 million. Our various marketing strategies
benefited from extraordinary natural gas
market volatility that prevailed throughout
the year and a 9 percent increase in average daily
gas volumes marketed.
• Power generation earnings increased 7 percent
to $21.4 million. Our power plant fleet operated
at its normally high level of availability (97.3
percent) compared to industry standards. Results
also reflect a charge to earnings of $1.8 million
after-tax, related to the impairment of the
Ontario plant, a small-scale "qualifying facility”
whose thermal host contract expired with no
long-term extension. In addition, investment
partnership earnings from our smaller Idaho
power plants decreased significantly, related to
a partnership impairment charge. Results for
2007 also include $1.6 million after-tax from
an insurance reimbursement for repairs made in
2006 to the Las Vegas II power plant.
• Oil and gas earnings were $12.7 million.
Proved reserves increased 4 percent to 207.8, Bcfe
and production increased 1.5 percent to 14.6
Bcfe. Along with increased production, financial
results were affected by higher prices received,
offset by higher operating and maintenance
costs and higher interest expense on increased
borrowings for acquisitions and funding of
drilling activities.
 • Coal mining earnings increased 4 percent to
$6.1 million. Increased revenues were due to
increased volumes sold at higher average prices,
offset largely by higher costs related to increased
mining and overburden removal costs and
higher royalties.
As a corporation, we are focused on optimizing the value of our assets for the benefit of our shareholders.
EVOLVING THROUGH OPPORTUNITY
Our examination of long-term asset value aligns,
reinforces and complements our long-term
strategy. Such evaluation is an ongoing, evolutionary
process at Black Hills, ultimately contributing
to shareholder value, balance sheet and capital
structure strength, investment-grade credit ratings
and corporate-wide risk management.
Our examination of long-term asset value aligns, reinforces and compliments our long-term strategy.
|
