Utilities
For 125 years, our primary mission has not changed: to deliver quality service and energy value to our customers.
We also are committed to the people we serve through participation and volunteerism in many civic
and charitable causes supported by our neighbors, friends and customers. We believe the way we
create long-term rewards for our shareholders is through just that kind of connection to our customers
and communities. Quite simply, we believe satisfied customers are the key to a successful future.
OPERATIONS HAVE EXCELLENT YEAR
Black Hills Power and Cheyenne Light, Fuel &
Power had excellent financial results this year.
Operations were normal with no significant service
disruptions, and both utilities advanced long-term
growth prospects through effective planning and
execution.
Black Hills Power earned $24.9 million in 2007,
a 33 percent increase over 2006 results. Financial performance benefited from the first rate increase
in 11 years and a 3 percent increase in retail electric
sales. Off-system wholesale power sales were down
significantly for the year due to market conditions;
however, margins from such sales were up 7 percent.
Maintenance costs increased in 2007, as we invested
in keeping our infrastructure and power plant fleet
in good working condition. As a result, our overall
plant availability increased to 97.4 percent – an
outstanding level compared to national statistical
benchmarks.
Earnings at Cheyenne Light increased 23 percent
to $6.7 million. Stable operations produced gross
margins similar to 2006, and earnings benefited
from income and tax effects related to the allowance
for funds used during construction for
the Wygen II project. The Cheyenne vicinity is
experiencing an economic boom, and electric load
growth reflects that trend, with a 4 percent increase
in megawatt-hours sold in 2007 compared to 2006.
We note that a number of other commercial and
industrial expansions are under way, so we believe
load growth will continue to be strong for a number
of years to come.
BUILDING FOR THE FUTURE
A notable achievement for Cheyenne Light in 2007
was the completion of the Wygen II power plant,
which was built to serve its growing electric load
and to replace expiring power purchase agreements.
This 95-megawatt, mine-mouth coal-fired facility is
situated at our Wyodak energy complex near Gillette,
Wyo. It began commercial service on January 1,
2008. This plant is now a rate base asset of Cheyenne
Light, through a rate case approved last year. We are
confident that Wygen II will contribute to long-term
rate stability, compared to volatile energy market
conditions that can expose customers to unstable
and undesirable prices.
Illustrating our cooperation with state and federal
environmental authorities, Wygen II is among
the first coal-fired plants in the nation to feature
mercury emissions abatement. Its emissions
control technology also significantly reduces
sulfur and nitrogen byproducts. This plant
demonstrates clean coal technology at work.
In 2007, we made progress on permitting for a
twin plant, Wygen III. This facility is to be located
adjacent to and share a control room with Wygen II –
an efficiency design proven several years ago when
Wygen I was built adjoining Neil Simpson II. All
four of these plants originate from the same basic
blueprint, with latest available technology improving
their energy capacity and emissions reduction with
each new plant. Wygen III will take advantage of
advanced air-cooled condensing technology, raising
its expected energy capacity to 100 megawatts, as
compared to 95 for Wygen II and 90 for Wygen I.
Wygen III is anticipated to serve the growing load
of Black Hills Power, which has not had a capacity
addition since 2001. We also are contemplating the
merits of equity investments from other parties.
If that were to occur, we would retain the operating
interest and majority ownership, and require coal
purchases under long-term contract from our
Wyodak Resources coal mine.
Reliable, efficient base load power assures that
we are cost-conscious for our customers, but we
are also keeping our eye on renewable resources to
supplement energy needs. We have contracted for
the purchase of wind power from a 30-megawatt
facility under construction in Cheyenne under a
long-term purchase power agreement. This power
is capable of serving customers of Cheyenne
Light and Black Hills Power through our
transmission system.
UTILITY ACQUISITION PROGRESSING
Last year, we announced our plans to acquire
one electric utility and four gas utilities in the
neighboring states of Colorado, Kansas, Nebraska
and Iowa. Temporary financing for
this deal has been secured, giving us flexibility to
optimize our capital structure through permanent
financing arrangements. When completed, this
purchase will transform our retail operations with
a doubling of utility assets and a quadrupling of
utility customers. Our new size will enable us to
harness economies of scale and adopt new customer
care technology and processes. We are excited to
serve even more communities with the kind of
customer service that has been synonymous with
the Black Hills brand.
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