BLACK HILLS POWER INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

•	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005.

•	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the transition period from __________ to __________.

Commission File Number 1-7978

Black Hills Power, Inc.
Incorporated in South Dakota	IRS Identification Number 46-0111677

625 Ninth Street
Rapid City, South Dakota 57701

Registrant’s telephone number (605) 721-1700

Former name, former address, and former fiscal year if changed since last report

NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes

As of April 30, 2005, there were issued and outstanding 23,416,396 shares of the Registrant’s common stock, $1.00 par value, all of which were held beneficially and of record by Black Hills Corporation.

Reduced Disclosure

The Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

TABLE OF CONTENTS

		Page

PART 1.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Statements of Income –
	Three Months Ended March 31, 2005 and 2004	3

	Condensed Balance Sheets –
	March 31, 2005 and December 31, 2004	4

	Condensed Statements of Cash Flows –
	Three Months Ended March 31, 2005 and 2004	5

	Notes to Condensed Financial Statements	6-8

Item 2.	Results of Operations	9-10

Item 4.	Controls and Procedures	11

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	11

Item 6.	Exhibits	11

	Signatures	12

	Exhibit Index	13

BLACK HILLS POWER, INC.

CONDENSED STATEMENTS OF INCOME

(unaudited)

	Three Months Ended
	March 31
	2005			2004
	(in thousands)
Operating revenue	$	43,147		$	41,647

Operating expenses:
Fuel and purchased power		15,207			12,809
Operations and maintenance		5,357			6,180
Administrative and general		5,960			4,078
Depreciation and amortization		4,938			4,943
Taxes, other than income taxes		2,190			2,229

		33,652			30,239

Operating income		9,495			11,408

Other income (expense):
Interest expense		(3,215	)		(4,188	)
Interest income		34			213
Other expense		183			(51	)
Other income		(43	)		149

		(3,041	)		(3,877	)

Income before income taxes		6,454			7,531
Income taxes		(2,132	)		(2,494	)

Net income	$	4,322		$	5,037

The accompanying notes to condensed financial statements are an integral part of these condensed financial statements.

BLACK HILLS POWER, INC.

CONDENSED BALANCE SHEETS

(unaudited)

	March 31 2005			December 31 2004
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	550		$	344
Restricted cash		3,069			3,069
Receivables (net of allowance for doubtful accounts of $913 and $912, respectively)		15,968			18,497
Receivables - related party		1,881			891
Materials, supplies and fuel		10,892			11,513
Prepaid income taxes		--			1,872
Other current assets		296			474

		32,656			36,660

Investments		3,411			3,275

Property, plant and equipment		640,566			637,630
Less accumulated depreciation		(237,493	)		(232,401	)

		403,073			405,229

Other assets:
Regulatory asset		7,190			7,237
Other		12,951			13,204

		20,141			20,441

	$	459,281		$	465,605

LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Current maturities of long-term debt	$	1,992		$	1,991
Accounts payable		5,251			7,551
Accounts payable – affiliate		351			331
Note payable – affiliate		15,365			25,074
Accrued liabilities		15,084			13,814
Deferred income taxes		317			2

		38,360			48,763

Long-term debt, net of current maturities		157,205			157,215

Deferred credits and other liabilities:
Deferred income taxes		68,940			69,233
Regulatory liability		5,935			6,021
Other		13,672			13,537

		88,547			88,791

Stockholder’s equity:
Common stock $1 par value; 50,000,000 shares authorized; 23,416,396 shares issued		23,416			23,416
Additional paid-in capital		39,549			39,549
Retained earnings		113,629			109,307
Accumulated other comprehensive loss		(1,425	)		(1,436	)

		175,169			170,836

	$	459,281		$	465,605

The accompanying notes to condensed financial statements are an integral part of these condensed financial statements.

BLACK HILLS POWER, INC.

CONDENSED STATEMENT OF CASH FLOWS

(unaudited)

	Three Months Ended
	March 31
	2005			2004
	(in thousands)
Operating activities:
Net income	$	4,322		$	5,037
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		4,938			4,943
Deferred income tax		22			370
Change in operating assets and liabilities -
Accounts receivable and other current assets		4,209			3,459
Accounts payable and other current liabilities		(1,010	)		(7,402	)
Other operating activities		361			125

		12,842			6,532


Investing activities:
Property, plant and equipment additions		(2,782	)		(2,216	)
Change in notes receivable from associated companies, net		--			1,519
Increase in investments		(136	)		(124	)

		(2,918	)		(821	)

Financing activities:
Changes in notes payable to associated companies, net		(9,709	)		--
Dividends paid		--			(6,000	)
Long-term debt – repayments		(9	)		(8	)

		(9,718	)		(6,008	)


Increase (decrease) in cash and cash equivalents		206			(297	)
Cash and cash equivalents:
Beginning of period		344			1,052

End of period	$	550		$	755


Supplemental disclosure of cash flow information:
Cash paid during the period for-
Interest	$	3,374		$	6,338
Net income taxes (received) paid	$	688		$	(3,111	)

The accompanying notes to condensed financial statements are an integral part of these condensed financial statements.

BLACK HILLS POWER, INC.

Notes to Condensed Financial Statements

(unaudited)

(Reference is made to Notes to Financial Statements

included in the Company’s 2004 Annual Report on Form 10-K)

(1)	MANAGEMENT’S STATEMENT

The financial statements included herein have been prepared by Black Hills Power, Inc. (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the footnotes adequately disclose the information presented. These financial statements should be read in conjunction with the financial statements and the notes thereto, included in the Company’s 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Accounting methods historically employed require certain estimates as of interim dates. The information furnished in the accompanying financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the March 31, 2005, December 31, 2004 and March 31, 2004, financial information and are of a normal recurring nature. The results of operations for the three months ended March 31, 2005, are not necessarily indicative of the results to be expected for the full year.

(2)	COMPREHENSIVE INCOME

The following table presents the components of the Company’s comprehensive income (in thousands):

	Three Months Ended
	March 31
	2005		2004

Net income	$	4,322	$	5,037
Other comprehensive income, net of tax:
Reclassification adjustment on interest rate swap included
in net income		11		10
Comprehensive income	$	4,333	$	5,047

(3)	RELATED-PARTY TRANSACTIONS

Receivables/Payables

The Company has accounts receivable balances related to transactions with other Black Hills Corporation subsidiaries. The balances were $1.9 million and $0.9 million as of March 31, 2005 and December 31, 2004, respectively.

The Company also has a line of credit with its Parent, Black Hills Corporation (the Parent), which is due on demand. Outstanding advances were $15.4 million at March 31, 2005 and $25.1 million at December 31, 2004. Interest paid on the note was $0.2 million for the three-month period ended March 31, 2005. Advances under this note bear interest at 1.25 percent above the one-month average LIBOR rate (4.12 percent at March 31, 2005) and is payable monthly.

Other Balances and Transactions

The Company received revenues of approximately $0.1 million and $0.5 million for each of the three-month periods ended March 31, 2005 and March 31, 2004, respectively, from Black Hills Wyoming, Inc., an indirect subsidiary of Black Hills Corporation, for the transmission of electricity.

(4)	LONG TERM DEBT

In May 2005, the Company’s parent, Black Hills Corporation, completed a new five year, $400 million revolving bank facility. As part of the new bank facility, Black Hills Corporation has agreed to reserve an aggregate amount equal to $3.1 million (the “BHP Reserve”) to fund, directly or indirectly, any liquidity needs arising under, or in connection with, the loan agreement between the City of Gillette, Campbell County, Wyoming and the Company pursuant to the Company’s $2.9 million Series 94A Floating Rate Environmental Improvement Revenue Bonds.

(5)	EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plan

The Company has a noncontributory defined benefit pension plan (Plan) covering the employees of the Company who meet certain eligibility requirements.

The components of net periodic benefit cost for the Plan for the three months ended March 31 are as follows (in thousands):