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Mail Stop 3561
June 29, 2005
By Facsimile and U.S. Mail
Mr. David R. Emery
President and Chief Executive Officer
Black Hills Corporation
Black Hills Power, Inc.
625 Ninth Street
Rapid City, South Dakota 57701
Re: Black Hills Corporation
Form 10-K for the year ended December 31, 2004
Filed March 16, 2005
File No. 1-31303
Black Hills Power, Inc.
Form 10-K for the year ended December 31, 2004
Filed March 30, 2005
File No. 1-7978
Dear Mr. Emery:
We have reviewed your filing and have the following
comments.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
Please be as detailed as necessary in your explanation. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004
General
1. Where a comment below requests additional disclosures or other
revisions to be made, please include them in your future filings
including interim periods where applicable. In our interest to
reduce the volume of comments, we have not addressed Black Hills
Power, Inc. with a separate comment if applicable to their facts
and
circumstances. Please note that if you agree to a revision, we
would
also expect a concurrent change be made in the Black Hills Power,
Inc. financial statements and related disclosures. Please confirm
to
us your agreement with this objective.
Items 7 and 7A Management`s Discussion and Analysis of Financial
Condition and Results of Operations and Quantitative and
Qualitative
Disclosures About Market Risk
Oil and Gas, page 51
2. We note that your lease operating expenses and depletion per
Mcfe
sold has changed substantially in the periods provided. Please
expand to discuss the economic reasons that underlie these
variances.
Electric Utility, page 53
3. Your electric utility segment has a trend of decreasing
operating
and net income over the 3 year period. Your discussion should
provide greater information on the reasons underlying such a
trend.
For example, we note rising purchased power costs, offset by
decreased fuel costs, were responsible for much of the 2004
earnings
decline. It is implied that rising natural gas prices made it
more
economical to purchase other fuel source power and cut back on
your
gas-fired generation. If this was the case, you may want to make
it
clearer in your discussion. If not the case, then expand to
explain
the business reasons for your increased purchased power costs
versus
lower fuel costs. Furthermore the reasons for each of the
increasing
components of utility operating expenses should be discussed and
quantified.
4. We note that you have provided mwh volumes sold by firm
electric
sales and wholesale off-system sales. You indicate on page 13
that
your customer base includes commercial, residential, contract
wholesale, wholesale off-system, industrial, municipal, and other
customers. Please provide volume data and revenue amounts
segregated
by components of your customer base.
5. We note that you indicate degree days in 2004 are 9 percent
below
normal and 11 percent below the prior year. We assume you mean
heating degree days. While such information is useful, we believe
your disclosure could be enhanced by providing an analysis of the
class of customers who are more sensitive to weather trends in
tying
the numerical change in degree days with the related volume change
for such customers. To the extent your residential customer base
does not use electric resistance to heat their homes; you may want
to
make this clear. In addition since your peak load occurs at
approximately the same volume for summer versus winter, you may
want
to clarify whether you mean heating degree days or cooling degree
days.
Note 1. Business Description and Summary of Significant Accounting
Policies
Material, Supplies and Fuel, page 86
6. Please tell us how you currently account for the stripping
costs
associated with your mining activities. To the extent that such
costs are capitalized as a component of inventory, please tell us
how
often your inventory turns. Additionally, please tell us how the
adoption of EITF 04-06 will impact your financial statements.
7. Please disclose the aggregate transaction gain or loss recorded
in
your consolidated statements of income for the three years ended
December 31, 2004. Please refer to paragraphs 15 and 30 of
SFAS
52. Please explain your basis in GAAP, practice or promulgated,
of
classifying such items in revenues. If significant, please
disclose
any exchange rate changes subsequent to year-end and its effects
on
unsettled balances related to foreign currency transactions.
Please
refer to paragraph 32 of SFAS 52.
Oil and Gas Operations, page 87
8. We note that you account for your oil and gas activities under
the
full cost method and are subject to a ceiling test. You maintain
a
portfolio of swaps to hedge a portion of your crude oil and
natural
gas production. These derivative transactions are accounted for
as
cash flow hedges. Please tell us if your computation of the
limitation of capitalized costs includes the impact of the
aforementioned cash flow hedges. Please refer to SAB Topic 12:
D(3)(b).
Revenue Recognition, page 89
9. We note that you sell a substantial majority of your
unregulated
capacity and energy under tolling arrangements. We assume you
classify such revenues net of the related fuel costs. If you
classify such transactions on a gross basis explain your rationale
under EITF 99-19 and explain why such contracts do not constitute
energy trading. In doing so, please reference each of the
indicators
of gross and net revenue reporting in EITF 99-19.
Earnings Per Share of Common Stock, page 89
10. We note that you granted restricted common shares and/or
restricted stock units in each of the last three fiscal years and
such awards could be subject to return. Please tell us your
treatment of these shares in determining the number of shares
outstanding used in your calculation of basic and diluted earnings
per share. Refer to paragraph 10 of SFAS 128. In addition,
please
help us understand how you determined that your restricted shares
are
anti-dilutive.
Note 4. Property, Plant and Equipment, page 98
11. You disclose that separate categories of property, plant and
equipment are depreciated over a wide range of useful lives.
Please
disclose the weighted average useful lives related to each
category.
12. If rate recovery of generation-related costs becomes unlikely
or
uncertain, due to competition or regulatory action, the provisions
of
SFAS 71 may no longer apply to Black Hill Power`s generation
operations. In the event that Black Hills Power determines that
it
no longer meets the criteria for following SFAS 71, the accounting
impact could include a material charge to your consolidated
statement
of income. Please disclose the amount of carrying value of your
regulated generation assets that would not exist if such plant
would
have been accounted for outside of SFAS 71 for all periods
presented.
Note 15. Gain on Sale of Assets, page 107
13. Please tell us your basis for offsetting the gain to
"Operating
expenses". We may have further comment.
Note 18. Other Comprehensive Income (Loss), page 111
14. Please tell us your accounting treatment for payments on or
receipts from interest rate swap agreements designated as cash
flow
hedges whose underlying debt has interest expense that is
capitalized. Please include the capitalization policy associated
with the payments or receipts on such interest rate swaps and the
period(s) in which such payments or receipts impact earnings.
Refer
to EITF 99-9.
15. We note that you included the reclassification adjustment in
2003
for interest rate swaps designated as cash flow hedges settled as
part of an asset sale and included in net income. Please revise
your
Consolidated Statements of Stockholders` Equity and Note 11
Comprehensive Loss to include the reclassification adjustments
related to gains or losses on your cash flow hedges that were
realized and included in net income for all applicable periods.
Please refer to paragraphs 18-21 of SFAS 130.
Note 20. Employee Benefit Plans, page 114
16. Please explain to us how you calculate the market related
value
of plan assets as that term is defined in SFAS 87. Since there
are
alternative ways to calculate the market value of plan assets and
it
has a direct impact on your pension expense, we believe you should
disclose how you determine this amount in future filings.
Note 23. Business Segments, page 129
17. Please provide information about the extent of reliance on
your
major customers. If revenues from transactions with a single
external
customer amount to 10 percent or more of your revenues, you should
disclose that fact, and the total amount of revenues from each
such
customer. Please refer to paragraph 39 of SFAS 131.
Note 25. Cheyenne Acquisition, page 134
18. Please tell us how you accounted for any contracts between
yourself and CLF&P in the application of purchase accounting. In
this regard, tell us whether any amounts existed on either your
books
of CLF&P relating to such contracts immediately prior to
consummation.
Note 26. Oil and Gas Reserves and Related Financial Data
Reserves, page 135
19. We note the large negative revision in gas reserves in 2004
which
you attribute primarily to the East Blanco Field in New Mexico.
Based on the drilling and well work and the apparent lower than
expected production, did you lower per well PUD reserves in 2004
for
the remaining PUD locations in the East Blanco Field? Were the
total
East Blanco Field reserves reduced and if so by how much and what
was
the basis for the reduction? Supplementally, please clarify this
reserve revision to us.
20. Supplementally, tell us how much the reserves that were
written
off at the East Blanco field in 2004 lowered your DD&A and
increased
earnings in 2003. Do you consider this amount to be material?
We
may have additional comments.
```````````````````````````````````````````````Please
respond to these comments within 10 business days or tell us when
you
will provide us with a response. Please furnish a letter with
your
responses to our comments and provide any requested supplemental
information. Please understand that we may have additional
comments
after reviewing your responses to our comments. Please file your
response letter on EDGAR as a correspondence file.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please provide, in
writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of
the Division of Corporation Finance in our review of your filing
or
in response to our comments on your filing.
If you have any questions regarding these comments,
please
direct them to John Cannarella, Staff Accountant, at (202) 551-
3337
or, in his absence, to the undersigned at (202) 551-3849. Any
other
questions regarding disclosure issues may be directed to H.
Christopher Owings, Assistant Director, at (202) 551-3725.
Sincerely,
Jim Allegretto
Sr. Assistant Chief Accountant
`
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Mr. David R. Emery
Black Hills Corporation
Black Hills Power, Inc.
June 29, 2005
Page 3