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Commitments And Contingencies:
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
COMMITMENTS AND CONTINGENCIES

Power Purchase and Transmission Services Agreements

Through our subsidiaries, we have the following significant long-term power purchase contracts with non-affiliated third-parties:

Black Hills Wyoming sold its CTII 40 MW natural gas-fired generating unit to the City of Gillette, Wyoming on September 3, 2014. Under the terms of the sale, Black Hills Wyoming entered into ancillary agreements to operate CTII, provide use of shared facilities including a ground lease and dispatch generation services. In addition, the agreement includes a 20-year economy energy PPA that contains a sharing arrangement in which the parties share the savings of wholesale power purchases made when market power prices are less than the cost of operating the generating unit.

South Dakota Electric’s PPA with PacifiCorp, expiring December 31, 2023, for the purchase of 50 MW of electric capacity and energy from PacifiCorp’s system. The price paid for the capacity and energy is based on the operating costs of one of PacifiCorp’s coal-fired electric generating plants.

South Dakota Electric’s firm point-to-point transmission service agreement with PacifiCorp expiring December 31, 2023. The agreement provides 50 MW of capacity and energy to be transmitted annually by PacifiCorp.

Wyoming Electric’s PPA with Duke Energy’s Happy Jack wind site, expiring September 3, 2028, provides up to 30 MW of wind energy from Happy Jack to Wyoming Electric. Under a separate intercompany agreement, Wyoming Electric sells 50% of the facility output to South Dakota Electric.

Wyoming Electric’s PPA with Duke Energy’s Silver Sage wind site, expiring September 30, 2029, provides up to 30 MW of wind energy. Under a separate intercompany agreement, Wyoming Electric sells 20 MW of energy from Silver Sage to South Dakota Electric.

South Dakota Electric’s PPA with Platte River Power Authority (PRPA) to purchase up to 12 MW of wind energy through PRPA’s agreement with Silver Sage. This agreement will expire September 30, 2029.

Costs under these power purchase contracts for the years ended December 31 were as follows (in thousands):
 
2018
2017
2016
PPA with PacifiCorp
$
13,681

$
13,218

$
12,221

Transmission services agreement with PacifiCorp
$
1,742

$
1,671

$
1,428

PPA with Happy Jack
$
3,884

$
3,846

$
3,836

PPA with Silver Sage
$
5,376

$
4,934

$
4,949

Busch Ranch I Wind Farm (a)
$

$
1,966

$
2,071

PPA with Platte River Power Authority
$
223

$

$

PPAs with Cargill (b)
$

$

$
10,995


________________
(a)
On December 11, 2018, Black Hills Electric Generation purchased a 50% ownership interest of the Busch Ranch I Wind Farm from AltaGas. Black Hills Electric Generation and Colorado Electric now collectively own 100% of the wind farm.
(b)
PPAs with Cargill expired on December 31, 2016.

Power Purchase Agreement - Related Party

On December 11, 2018, Black Hills Electric Generation purchased a 50% ownership interest in the 29 MW Busch Ranch I Wind Farm, previously owned by AltaGas. Black Hills Electric Generation will provide its 14.5 MW share of energy from the wind farm to Colorado Electric through a new PPA that replaces the PPA that Colorado Electric had with AltaGas, expiring in October 2037.


Other Gas Supply Agreements

Our Utilities also purchase natural gas, including transportation and storage capacity to meet customers’ needs, under short-term and long-term purchase contracts. These contracts extend to 2044.

Purchase Commitments

We maintain natural gas supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated baseload gas volumes are established prior to the beginning of the month under these contracts on a monthly basis at contractually negotiated prices. Commitments for incremental daily purchases are made as necessary during the month based on requirements in accordance with the terms of the individual contract.

Our Gas Utilities segment has commitments to purchase physical quantities of natural gas under contracts indexed to various forward natural gas price curves. A portion of our gas purchases are purchased under evergreen contracts and are therefore, for purposes of this disclosure, carried out for 60 days. At December 31, 2018, the long-term commitments to purchase quantities of natural gas under contracts indexed to the following forward indices were as follows (in MMBtus):

 
CIG Rockies
NNG-Ventura
NWPL-Wyoming
Other
2019
5,803,117
3,650,000
720,000
236
2020
75,075
3,660,000
0
0
2021
0
3,650,000
0
0
2022
0
1,810,000
0
0
2023
0
0
0
0
Thereafter
0
0
0
0


Purchases under these contracts totaled $27 million, $65 million and $31 million for 2018, 2017 and 2016, respectively.

The following is a schedule of unconditional purchase obligations required under the power purchase, transmission services, coal and natural gas transportation and storage agreements (in thousands):
 
Power Purchase Agreements
Transportation and storage agreements
2019
$
22,092

$
129,018

2020
$
6,837

$
127,326

2021
$
6,203

$
118,707

2022
$
6,203

$
92,635

2023
$
6,204

$
73,919

Thereafter
$

$
148,363



Future Purchase Agreement - Related Party

Wyoming Electric’s PPA for 60 MW of capacity and energy from Black Hills Wyoming’s Wygen I generating facility expiring on December 31, 2022, includes an option for Wyoming Electric to purchase Black Hills Wyoming’s ownership in the Wygen I facility. The purchase price related to the option is $2.1 million per MW which is the equivalent per MW of the pre-construction estimated cost of the Wygen III plant, which was completed in April 2010. This option purchase price is adjusted for capital additions and reduced by an amount equal to annual depreciation based on a 35-year life starting January 1, 2009. The purchase option would be subject to WPSC and FERC approval in order to obtain regulatory treatment.

Power Sales Agreements

Through our subsidiaries, we have the following significant long-term power sales contracts with non-affiliated third-parties:

During periods of reduced production at Wygen III in which MDU owns a portion of the capacity, or during periods when Wygen III is off-line, MDU will be provided with 25 MW from our other generation facilities or from system purchases with reimbursement of costs by MDU. This agreement expires January 31, 2023.

South Dakota Electric has an agreement to serve MDU capacity and energy up to a maximum of 50 MW in excess of Wygen III ownership. This agreement expires December 31, 2023.

During periods of reduced production at Wygen III in which the City of Gillette owns a portion of the capacity, or during periods when Wygen III is off-line, we will provide the City of Gillette with its first 23 MW from our other generating facilities or from system purchases with reimbursement of costs by the City of Gillette. Under this agreement, which expires September 3, 2019, South Dakota Electric will also provide the City of Gillette their operating component of spinning reserves.

South Dakota Electric has a PPA with MEAN expiring May 31, 2028. This contract is unit-contingent on up to 10 MW from Neil Simpson II and up to 10 MW from Wygen III based on the availability of these plants. The capacity purchase requirements decrease over the term of the agreement.

South Dakota Electric has an agreement through December 31, 2021 to provide 50 MW of energy to Macquarie Energy, LLC during heavy and light load timing intervals.

Related Party Lease

Colorado Electric’s PPA with Black Hills Colorado IPP expiring on December 31, 2031, provides 200 MW of power to Colorado Electric from Black Hills Colorado IPP’s combined-cycle turbines. This PPA is accounted for as a capital lease whereby Colorado Electric, as lessee, has included the combined-cycle turbines as property, plant and equipment along with the related lease obligation and Black Hills Colorado IPP, as lessor, has recorded a lease receivable. Segment revenue and expenses associated with the PPA have been impacted by the lease accounting. The effect of the lease accounting is eliminated in corporate consolidations.

Reimbursement Agreement

We have a reimbursement agreement in place with Wells Fargo on behalf of Wyoming Electric for the 2009A bonds of $10 million due in 2027 and the 2009B bonds of $7.0 million due in 2021. In the case of default, we hold the assumption of liability for drawings on Wyoming Electric’s Letter of Credit attached to these bonds.

Environmental Matters

We are subject to costs resulting from a number of federal, state and local laws and regulations which affect future planning and existing operations. Laws and regulations can result in increased capital expenditures, operating and other costs as a result of compliance, remediation and monitoring obligations. Due to the environmental issues discussed below, we may be required to modify, curtail, replace or cease operating certain facilities or operations to comply with statutes, regulations and other requirements of regulatory bodies.

Solid Waste Disposal

Various materials used at our facilities are subject to disposal regulations. Our Osage plant, permanently retired on March 21, 2014, had an on-site ash impoundment that was near capacity. An application to close the impoundment was approved on April 13, 2012. Site closure work was completed in 2013 with the state providing closure certification in 2014. Post closure monitoring activities will continue for 30 years following the closure certification date.

In September 2013, Osage also received a permit to close the small industrial rubble landfill. Site work was completed with the state providing closure certification in 2014. Post closure monitoring will continue for 30 years following the closure certification date.

Our W.N. Clark plant, which has been retired, previously delivered coal ash to a permitted, privately-owned landfill. While we do not believe that any substances from our solid waste disposal activities will pollute underground water, we can provide no assurance that pollution will not occur over time. In this event, we could incur material costs to mitigate any resulting damages.

Reclamation Liability

For our Pueblo Airport Generation site, we posted a bond of $4.1 million with the State of Colorado to cover the costs of remediation for a waste water containment pond permitted to provide wastewater storage and processing for this zero discharge facility. The reclamation liability is recorded at the present value of the estimated future cost to reclaim the land.

Under its land lease for Busch Ranch I, Colorado Electric is required to reclaim all land where it has placed wind turbines. The reclamation liability is recorded at the present value of the estimated future cost to reclaim the land.

Under its mining permit, WRDC is required to reclaim all land where it has mined coal reserves. The reclamation liability is recorded at the present value of the estimated future cost to reclaim the land.

See Note 8 for additional information.

Manufactured Gas Processing

As a result of the Aquila Transaction, we acquired whole and partial liabilities for former manufactured gas processing sites in Nebraska and Iowa which were previously used to convert coal to natural gas. The acquisition provided for an insurance recovery, now valued at $1.1 million recorded in Other assets, non-current on our Consolidated Balance Sheets, which will be used to help offset remediation costs. We also have a $1.0 million regulatory asset for manufactured gas processing sites; see Note 1.

As of December 31, 2018, our estimated liabilities for Iowa’s MGP site currently range from approximately $2.6 million to $6.1 million for which we had $2.6 million accrued for remediation of the site as of December 31, 2018 included in Other deferred credits and other liabilities on our Consolidated Balance Sheets. The remediation cost estimate could change materially due to results of further investigations, actions of environmental agencies or the financial viability of other responsible parties.

For additional information on environmental matters, see Item 1 in this Annual Report on Form 10-K.

Legal Proceedings

In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. We believe the amounts provided in the consolidated financial statements to satisfy alleged liabilities are adequate in light of the probable and estimable contingencies. However, there can be no assurance that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims and other matters discussed, and to comply with applicable laws and regulations will not exceed the amounts reflected in the consolidated financial statements.

In the normal course of business, we enter into agreements that include indemnification in favor of third parties, such as information technology agreements, purchase and sale agreements and lease contracts.  We have also agreed to indemnify our directors, officers and employees in accordance with our articles of incorporation, as amended.  Certain agreements do not contain any limits on our liability and therefore, it is not possible to estimate our potential liability under these indemnifications.  In certain cases, we have recourse against third parties with respect to these indemnities.  Further, we maintain insurance policies that may provide coverage against certain claims under these indemnities.