Black Hills approval for Cheyenne Prairie highlights quarter

Black Hills (NYSE: BKH) is making progress on key power generation projects and posted a 20% increase in third quarter earnings.

The South Dakota-based company said Nov. 7 that has received final approvals for its Cheyenne Prairie power plant from the Wyoming Public Service Commission. The PSC approved the certificate of public convenience and necessity on July 31 authorizing the construction, operation and maintenance of a new 132-MW, $237m natural gas-fired power plant in Cheyenne, Wyo.

The state of Wyoming issued the air permit for the project on Aug. 31, and the U.S. Environmental Protection Agency issued the greenhouse gas air permit on Sept. 27. Upon receipt of this final permit, the major equipment for the project was ordered.

Commencement of construction is expected in spring 2013. Project costs for plant construction and associated transmission are estimated at $222m, with up to $15m of construction financing costs, for a total of $237m.

On Oct. 30, subsidiaries Cheyenne Light and Black Hills Power received approval from the Wyoming PSC to use a construction financing rider for Cheyenne Prairie in lieu of the traditional allowance for funds used during construction.

The rider allows the companies to earn and collect a rate of return during the construction period on the approximately 60% of the project cost related to serving Wyoming customers. The company is evaluating filing for a similar rider in South Dakota.

Fossil retirements, wind additions discussed

On Oct. 16, Colorado Electric’s 29-MW Busch Ranch wind project south of Pueblo, Colo., commenced operation. Colorado Electric’s share of the project’s cost is approximately $26m. On Sept. 18, the company completed the sale of a 50% undivided ownership interest in the project to the co-owner.

The Busch Ranch site has the potential for expansion, according to the company. There is no immediate plan to add more company-owned renewables, Emery said. “We don’t have anything on the drawing board right now,” in part due to low natural gas prices, the CEO said.

On Aug. 6, Black Hills Power and Colorado Electric announced plans to suspend plant operations at some of their older coal-fired and natural gas-fired facilities.

** Black Hills Power has set “ultimate” retirement for a trio of coal units — the 34-MW Osage plant, the 25-MW Ben French plant and the 22-MW Neil Simpson 1 – in March 2014. Osage and Ben French have already suspended operation.

** Colorado Electric will fully retire the 40-MW W.N. Clark facility, the 9-MWPueblo Unit 5 and the 20-MW Pueblo 6. W.N Clark will fully retire by the end of 2012 while Pueblo 5 and 6 will suspend operations by Dec. 31 will final retirement yet to be determined.

Pueblo 5 and 6 are natural gas units. The rest of the aforementioned units slated for retirement are coal units. Neil Simpson 1 is the youngest of these fossil units at 43 years old. Pueblo 5 is the oldest, at age 71.

“We had continued strong earnings contributions from our electric utilities, and I am particularly pleased with the ongoing earnings improvements in our power generation and coal mining segments,” said Black Hills President and CEO David Emery.

As far as operations, Emery said July was a very hot month but not a very humid one in the Black Hills service areas.

Black Hills announced that its adjusted income from continuing operations in the quarter ended Sept. 30 was $18.7m, or $0.42 per diluted share, compared with $13.7m, or $0.35 per diluted share, for the same period in 2011 (non-GAAP).

During the quarter, the South Dakota-based company closed on the sale of its Williston Basin oil and gas assets for net cash proceeds of $227m. The company reported a $17.7m after-tax gain from the sale in the quarter

Black Hills expects to make between $440 m to $470m in capital spending during 2013. That includes oil and gas capital expenditures of $90m to $105m.

The company serves 765,000 utility customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. The company’s non-regulated businesses generate wholesale electricity and produce natural gas, crude oil and coal.

On other issues, the company said Black Hills recently had its credit upgraded by two ratings agencies.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.