-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nvb1cuKTKGt6wYygRKAsg1FSucXTPYc3NOL2lsfXyNjRHW3JHDtNjfMjadBQ3xoy XwW8clZUQDiSYi0cqvKYBw== 0000012400-02-000013.txt : 20021118 0000012400-02-000013.hdr.sgml : 20021118 20021114181109 ACCESSION NUMBER: 0000012400-02-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACK HILLS POWER INC CENTRAL INDEX KEY: 0000012400 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 460111677 STATE OF INCORPORATION: SD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07978 FILM NUMBER: 02827154 BUSINESS ADDRESS: STREET 1: 625 NINTH ST STREET 2: PO BOX 1400 CITY: RAPID CITY STATE: SD ZIP: 57709 BUSINESS PHONE: 6053481700 MAIL ADDRESS: STREET 1: P O BOX 1400 CITY: RAPID CITY STATE: SD ZIP: 57709 FORMER COMPANY: FORMER CONFORMED NAME: BLACK HILLS POWER & LIGHT CO DATE OF NAME CHANGE: 19860409 FORMER COMPANY: FORMER CONFORMED NAME: BLACK HILLS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 form10q_3rdqtr.txt 3RD QTR 10 United States Securities and Exchange Commission Washington, D.C. 20549 Form 10-Q X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002. OR ___ 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 X No ---------- ---------- As of October 31, 2002, 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. 1 BLACK HILLS POWER, INC. I N D E X Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Income- 3 Three and Nine Months Ended September 30, 2002 and 2001 Condensed Consolidated Balance Sheets- 4 September 30, 2002 and December 31, 2001 Condensed Consolidated Statements of Cash Flows- 5 Nine Months Ended September 30, 2002 and 2001 Notes to Condensed Consolidated Financial Statements 6-14 Item 2. Results of Operations 15-19 Item 4. Controls and Procedures 19 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21 2 BLACK HILLS POWER, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three Months Ended Nine Months Ended September 30 September 30 2002 2001 2002 2001 ---- ---- ---- ---- (in thousands) Operating revenues $77,682 $63,167 $217,744 $227,367 ------- ------- -------- -------- Operating expenses: Fuel and purchased power 18,865 16,617 44,100 61,470 Operations and maintenance 9,387 9,315 26,158 26,785 Administrative and general 8,030 4,333 23,382 20,190 Depreciation and amortization 10,910 8,588 32,514 22,424 Taxes, other than income taxes 3,600 2,973 11,013 8,906 ------- ------- -------- -------- 50,792 41,826 137,167 139,775 ------- ------- -------- -------- Equity in investments of unconsolidated subsidiaries 907 1,575 3,939 10,077 ------- ------- -------- -------- Operating income 27,797 22,916 84,516 97,669 ------- ------- -------- -------- Other income and (expense): Interest expense (12,165) (10,982) (35,818) (32,428) Investment income 594 1,000 1,678 4,841 Other expense (790) (713) (170) (1,024) Other income 90 345 728 4,498 ------- ------- -------- -------- (12,271) (10,350) (33,582) (24,113) ------- ------- -------- -------- Income from continuing operations before minority interest, income taxes and change in accounting principle 15,526 12,566 50,934 73,556 Minority interest 1,488 163 (2,613) (4,408) Income taxes (6,001) (4,471) (17,087) (24,670) ------- ------- -------- -------- Income from continuing operations, before change in accounting principle 11,013 8,258 31,234 44,478 Discontinued operation, net of income taxes (Note 2) - - - 4,832 Change in accounting principle - - 896 - ------- ------- -------- -------- Net income $11,013 $ 8,258 $ 32,130 $ 49,310 ======= ======= ======== ========
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements. 3 BLACK HILLS POWER, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
September 30 December 31 2002 2001 ---- ---- (in thousands) ASSETS Current assets: Cash and cash equivalents $ 43,612 $ 14,832 Receivables (net of allowance for doubtful accounts of $1,839 and $2,677, respectively) 41,270 32,334 Receivables - related party 54,508 9,457 Materials, supplies and fuel 18,873 10,399 Derivative assets 327 - Prepaid expenses 9,036 9,822 ----------- ----------- 167,626 76,844 ----------- ----------- Investments 15,820 51,543 ----------- ----------- Property and equipment 1,454,877 1,249,800 Less accumulated depreciation (290,901) (240,472) ----------- ----------- 1,163,976 1,009,328 Other assets: Regulatory asset 4,350 4,071 Goodwill 27,059 25,566 Intangible assets 78,883 85,983 Derivative assets - 5,746 Other 14,569 10,493 ----------- ----------- 124,861 131,859 ----------- ----------- Total $ 1,472,283 $ 1,269,574 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Current maturities of long-term debt $ 17,279 $ 35,881 Notes payable 50,021 450 Notes payable - related party 462,297 447,125 Accounts payable 9,344 13,271 Accounts payable - related party 1,214 4,385 Accrued liabilities 17,196 16,929 Derivative liabilities 9,168 10,212 ----------- ----------- 566,519 528,253 ----------- ----------- Long-term debt, net of current maturities 560,935 415,314 ----------- ----------- Deferred credits: Federal income taxes 79,637 61,239 Regulatory liability 5,612 6,249 Derivative liabilities 9,022 5,949 Other 9,260 11,306 ----------- ----------- 103,531 84,743 ----------- ----------- Minority interest in subsidiaries 16,618 19,536 ----------- ----------- 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 80,961 80,961 Retained earnings 130,673 121,875 Accumulated other comprehensive loss (10,370) (4,524) ----------- ----------- 224,680 221,728 ----------- ----------- Total $ 1,472,283 $ 1,269,574 =========== ===========
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements. 4 BLACK HILLS POWER, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine Months Ended September 30 2002 2001 ---- ---- (in thousands) Cash flows from operations $ 57,110 $52,030 -------- ------- Investing activities: Property additions (132,128) (375,477) Notes receivable from associated companies, net (46,854) 56,597 Payment for acquisition of net assets, net of cash acquired (13,243) (10,410) Payment for the acquisition of minority interest (3,617) - Payment for intangible assets including goodwill - (50,413) -------- -------- (195,842) (379,703) -------- -------- Financing activities Dividends paid (23,334) (21,667) Increase in short-term borrowings, net 64,743 221,325 Subsidiary distributions to minority interests (916) (1,505) Long-term debt - issuance 156,135 (11,034) Long-term debt - repayments (29,116) 144,975 -------- -------- 167,512 332,094 -------- -------- Increase in cash and cash equivalents 28,780 4,421 Cash and cash equivalents: Beginning of period 14,832 12,697 -------- -------- End of period $ 43,612 $ 17,118 ======== ======== Supplemental disclosure of cash flow information Cash paid during the period for: Interest $36,810 $ 32,931 Income taxes $ 170 $ 19,944 Stock dividend distribution to Black Hills Corporation, the parent company of Black Hills Power, Inc. (Note 2) $ - $ 89,643
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed consolidated financial statements. 5 BLACK HILLS POWER, INC. Notes to Condensed Consolidated Financial Statements (unaudited) (Reference is made to Notes to Consolidated Financial Statements included in the Company's 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 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 2001 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 September 30, 2002, December 31, 2001 and September 30, 2001, financial information and are of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2002, are not necessarily indicative of the results to be expected for the full year. (2) NON-CASH DIVIDEND AND DISCONTINUED OPERATIONS During the quarter ended March 31, 2001, the Company distributed a non-cash dividend to its parent company, Black Hills Corporation (Parent). The dividend consisted of 50,000 common shares of Wyodak Resources Development Corporation (Wyodak), which represents 100 percent ownership of Wyodak. The Company therefore no longer operates in the coal production segment, oil and natural gas production segment, fuel marketing segment or communications as the Company had indirectly owned the companies operating in these segments through its ownership of Wyodak. As a result, the Company's only subsidiary is Black Hills Energy Capital and its subsidiaries. The Company's investment in Wyodak at the time of the distribution was $89.6 million. The condensed consolidated financial statements and notes to condensed consolidated financial statements have been restated to reflect the continuing operations of the Company for all periods presented. 6 The net operating results of discontinued operations are included in the Condensed Consolidated Statements of Income for the nine months ended September 30, 2001 under the caption "Discontinued operations, net of income taxes" and are summarized as follows (in thousands): Revenue $197,274 Income before income taxes 7,849 Federal income taxes 3,017 Net income 4,832 (3) RECLASSIFICATIONS Certain 2001 amounts in the financial statements have been reclassified to conform to the 2002 presentation. These reclassifications did not have an effect on the Company's total stockholder's equity or net income as previously reported. (4) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred with associated asset retirement costs being capitalized as part of the carrying amount of the long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Management will adopt SFAS 143 effective January 1, 2003 and is currently evaluating the effects adoption will have on the Company's consolidated financial statements. (5) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations," (SFAS 141) and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). The Company has adopted SFAS 141, which requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but the carrying values are reviewed annually (or more frequently if impairment indicators arise) for impairment. If the carrying value exceeds the fair value, an impairment loss shall be recognized. A discounted cash flow approach was used to determine fair value of the Company's businesses for purposes of testing for impairment. Intangible assets with a defined life will continue to be amortized over their useful lives (but with no maximum life). The Company adopted SFAS 142 on January 1, 2002. 7 The pro forma effects of adopting SFAS No. 142 for the three and nine-month periods ended September 30, 2002 and 2001 are as follows (in thousands):
Three Months Ended Nine Months Ended September 30 September 30 2002 2001 2002 2001 ---- ---- ---- ---- Net income as reported $11,013 $ 8,258 $32,130 $49,310 Cumulative effect of change in accounting principle, net of tax - - (896) - ------- ------- ------- ------- Income excluding cumulative effect of change in accounting principle 11,013 8,258 31,234 49,310 Add: goodwill amortization - 274 - 849 ------- ------- ------- ------- Net income excluding cumulative effect of change in accounting principle and goodwill amortization $11,013 $ 8,532 $31,234 $50,159 ======= ======= ======= =======
The cumulative effect adjustment recognized upon adoption of SFAS 142 was $0.9 million (after tax). The adjustment consisted of income from the after-tax write-off of negative goodwill from prior acquisitions in our Independent Power segment. If SFAS 142 had been adopted on January 1, 2001, net income would have been lower for the nine-month period ended September 30, 2002 by $0.9 million and higher for the three and nine-month periods ended September 30, 2001 by $0.3 million and $0.8 million, respectively. The Company's goodwill and intangible assets are contained within the Independent Power segment. Changes to goodwill and intangible assets during the nine-month period ended September 30, 2002, including the effects of adopting SFAS No. 142, are as follows (in thousands):
Goodwill Other Intangible Assets Balance at December 31, 2001, net of accumulated amortization $25,566 $85,983 Change in accounting principle 1,493 - Additions - 10,080 Adjustments - (14,108) Amortization expense - (3,072) ------- ------- Balance at September 30, 2002, net of accumulated amortization $27,059 $78,883 ======= =======
On September 30, 2002, intangible assets totaled $78.9 million, net of accumulated amortization of $7.0 million. Intangible assets are primarily related to site development fees and above-market long-term contracts, and all have definite lives ranging from 7 to 40 years, over which they continue to be amortized. Amortization expense for intangible assets for the next five years is expected to be approximately $4.1 million a year. Intangible asset additions during the nine-month period ended September 30, 2002 were primarily the result of a $9.3 million addition related to preliminary purchase allocations in the acquisition of additional ownership interest in the Harbor Cogeneration Facility (See Note 11). This intangible asset primarily relates to an acquired ownership of additional interest in a contract termination payment stream at the facility. 8 Adjustments of intangible assets during the nine-month period ended September 30, 2002 primarily relate to final adjustments to the preliminary purchase price allocation of the Company's third quarter 2001 Las Vegas Cogeneration acquisition. In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS 144 supersedes FASB Statement 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121) and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (APB 30). SFAS 144 establishes a single accounting model for long-lived assets to be disposed of by sale and resolves implementation issues related to SFAS 121. The Company adopted SFAS 144 effective January 1, 2002. Adoption did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. (6) COMPREHENSIVE INCOME The following table presents the components of the Company's comprehensive income:
Three Months Ended Nine Months Ended September 30 September 30 2002 2001 2002 2001 ---- ---- ---- ---- (in thousands) Net income $11,013 $ 8,258 $32,130 $49,310 Other comprehensive income: Initial impact of adoption of SFAS 133, net of minority interest - - - (4,880) Fair value adjustment on derivatives designated as cash flow hedges, net of minority interest (4,604) (5,355) (5,846) (6,321) -------- ------- ------- ------- Comprehensive income $ 6,409 $ 2,903 $26,284 $38,109 ======== ======= ======= =======
(7) CHANGES IN LONG-TERM DEBT AND NOTES PAYABLE On March 14, 2002, the Company closed on $135 million five-year senior secured project-level financing for the Arapahoe and Valmont Facilities. These projects have a total of 210 megawatts in service and are located in the Denver, Colorado area. Proceeds from this financing were used to refinance $53.8 million of an existing seven-year, senior-secured term project-level facility, pay down approximately $50.0 million of short-term credit facility borrowings and approximately $31.2 million was used for project construction. At September 30, 2002, all of the $135 million financing had been utilized. On June 18, 2002, the Company closed on a $75 million bridge credit agreement. This credit agreement bridged the issuance of $75 million of the Company's First Mortgage Bonds, which were issued on August 13, 2002. The termination date of the bridge credit agreement was August 13, 2002, the date on which the First Mortgage Bonds were issued. 9 On August 13, 2002, the Company issued $75 million of First Mortgage Bonds, Series AE, due 2032. The First Mortgage Bonds have a 7.23 percent coupon with interest payable semi-annually, commencing February 15, 2003. Net proceeds from the offering were and will be used to fund the Company's portion of construction and installation costs for an AC-DC-AC Converter Station; for general capital expenditures for the remainder of 2002 and 2003; to repay a portion of current bank indebtedness; to satisfy bond maturities for certain outstanding first mortgage bonds due in 2003; and for general corporate purposes. On September 27, 2002, the Company closed on a $50 million secured financing for the expansion at our Las Vegas II project, a 224-megawatt gas-fired generation facility located in North Las Vegas, Nevada, that expires on November 26, 2002. Proceeds from this financing were used to pay down related party borrowings. The Company's credit facilities contain certain restrictive covenants, including restrictions on the ability of certain subsidiaries with project level financings to dividend cash to the Parent in the amount of approximately $17.5 million at September 30, 2002. Some of these credit facilities were amended during the second quarter to remove default provisions pertaining to credit rating status. The Company complied with all the covenants at September 30, 2002. Other than the above transactions, the Company had no other material changes in its consolidated indebtedness, as reported in Notes 7 and 8 of the Company's 2001 Annual Report on Form 10-K. (8) RELATED-PARTY TRANSACTIONS Receivables The Company has accounts receivable balances related to transactions with other Black Hills Corporation subsidiaries. The balances were $0.7 million and $2.5 million as of September 30, 2002 and December 31, 2001, respectively. The Company also has extended a line of credit to the Parent, which is due on demand. Outstanding advances were $53.8 million at September 30, 2002 and $6.9 million at December 31, 2001. Interest income received on the note was $224,000 and $262,000 for the three and nine-month periods ended September 30, 2002. Advances under these notes bear interest at a variable rate that does not exceed prime and is receivable monthly. Note Payable The Company has an unsecured line of credit with Black Hills Generation, an indirect subsidiary of the Parent. Although the line of credit is due on demand, Black Hills Generation has agreed not to demand payment until such time as outside financing is obtained. Borrowings under the note bear interest at prime rate (4.75 percent at September 30, 2002) and interest is payable monthly. Borrowings were $462.3 million at September 30, 2002 and $447.1 million at December 31, 2001. Interest expense on the borrowings under the note for the three months and nine months ended September 30, 2002 was $5.9 million and $16.9 million, respectively. 10 Other Balances and Transactions In addition to the above transactions, the Company purchased natural gas to fuel its combustion turbine from Enserco Energy, an indirect subsidiary of the Parent. The amount purchased during the three and nine-month periods ended September 30, 2002 was approximately $2.5 million and $4.9 million, respectively and is included in "Fuel and purchased power" on the Condensed Consolidated Statements of Income. The Company also received revenues of approximately $0.1 million and $0.2 million for the three and nine-month periods, respectively, from Black Hills Generation, an indirect subsidiary of Black Hills Corporation, for the transmission of electricity. In the opinion of management, the described related-party transactions have been fair and reasonable to the Company and have been entered into under terms and rates substantially the same as those transactions entered into with unrelated third parties in the ordinary course of business. (9) SUMMARY OF INFORMATION RELATING TO SEGMENTS OF THE COMPANY'S BUSINESS The Company's reportable segments are those that are based on the Company's method of internal reporting, which generally segregates the strategic business groups due to differences in products, services and regulation. Prior to the first quarter of 2001, the Company reported six operating segments consisting of Electric, Mining, Oil and Gas, Fuel Marketing, Independent Power and Communications. Due to the distribution of Wyodak common stock as described in Note 2, the Company no longer has companies operating in the Mining, Oil and Gas, Fuel Marketing and Communications segments. The Company's operations are now conducted through two business segments. As of September 30, 2002, substantially all of the Company's operations and assets are located within the United States. The two segments consist of: Electric, which supplies electric utility service to western South Dakota, northeastern Wyoming and southeastern Montana; and Independent Power, which produces and sells power to wholesale customers. Segment information follows the same accounting policies as described in Note 1 of the Company's 2001 Annual Report on Form 10-K. Segment information included in the accompanying Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income is as follows (in thousands): Income from Continuing Operating Revenues Operations Quarter Ended September 30, 2002 Electric $45,291 $ 8,304 Independent power 32,391 2,709 -------- ------- Total $77,682 $11,013 ======= ======= 11 Income from Continuing Operating Revenues Operations Quarter Ended September 30, 2001 Electric $43,518 $ 7,929 Independent power 19,649 329 -------- -------- Total $63,167 $ 8,258 ======= ======== Income from Continuing Operating Revenues Operations Year to Date September 30, 2002 Electric $120,786 $22,918 Independent power 96,958 8,316 ---------- ------- Total $217,744 $31,234 ======== ======= Income from Continuing Operating Revenues Operations Year to Date September 30, 2001 Electric $175,698 $42,053 Independent power 51,669 2,425 ---------- ------- Total $227,367 $44,478 ======== ======= Other than the following transactions, the Company had no other material changes in total assets of its reporting segments, as reported in Note 15 of the Company's 2001 Annual Report on Form 10-K, beyond changes resulting from normal operating activities. The Independent Power segment had a net addition to non working capital assets of approximately $106 million primarily related to ongoing construction of the expansions at the Las Vegas Cogeneration II and Arapahoe facilities and the acquisition of additional ownership interest at the Harbor Cogeneration facility (Note 11). 12 (10) RISK MANAGEMENT ACTIVITIES The Company actively manages its exposure to certain market risks as described in Note 3 of the Company's 2001 Annual Report on Form 10-K. Included in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001, are derivative assets of $0.3 million and $5.7 million and derivative liabilities of $18.2 million and $16.2 million, respectively, related to fixed-for-float interest rate swaps on certain financings. These transactions are accounted for as cash flow hedges and have been determined to be fully effective. Because these hedges are fully effective, the entire derivative fair value is recorded in accumulated other comprehensive income. These swaps had a current notional amount of $213.6 million and a weighted average interest rate of 5.99 percent at September 30, 2002 and a current notional amount of $316.4 million and a weighted average interest rate of 5.85 percent at December 31, 2001. The Company anticipates a portion of the unrealized losses recorded in accumulated other comprehensive income will be realized as increased interest expense in the next 12 months. Based on September 30, 2002 market interest rates, $9.1 million will be realized as additional interest expense during the next 12 months. Estimated and realized amounts will likely change during the next year as market interest rates change. At September 30, 2002, the Company had $365.9 million of outstanding, floating-rate debt of which $152.3 million was not offset with interest rate swap transactions that effectively convert the debt to a fixed rate. At December 31, 2001, the Company had a $100 million forward starting floating-to-fixed interest rate swap to hedge the anticipated floating rate debt financing related to the Company's Las Vegas Cogeneration expansion. This swap terminated during the second quarter 2002 and resulted in a $1.1 million gain. This swap was treated as a cash flow hedge and accordingly in the second quarter of 2002 the resulting gain was carried in Accumulated Other Comprehensive Income on the Condensed Consolidated Balance Sheet and was to be amortized over the life of the anticipated long-term financing. In the third quarter of 2002, this cash flow hedge was determined to be ineffective due to uncertainties about the eventual timing and form of financing for this project. As a result, the $1.1 million was taken into earnings. The gain was offset by the expensing of approximately $1.0 million of deferred financing costs related to the anticipated financing. In addition, the Company entered into a $50 million treasury lock to hedge a portion of the Company's $75 million First Mortgage Bond offering completed in August 2002 (Note 7). The treasury lock cash settled on August 8, 2002, the bond pricing date, and resulted in a $1.8 million loss. This treasury lock was treated as a cash flow hedge and accordingly the resulting loss is carried in Accumulated Other Comprehensive Loss on the Condensed Consolidated Balance Sheet and amortized over the life of the related bonds as additional interest expense. 13 (11) ACQUISITIONS On March 15, 2002, the Company paid $25.7 million to acquire an additional 30 percent interest in the Harbor Cogeneration Facility (Harbor), a 98-megawatt gas-fired plant located in Wilmington, California. This acquisition was funded through borrowings from a related party. At September 30, 2002 the Company had an 88 percent ownership interest in Harbor. The Company's investment in Harbor prior to the above acquisition was accounted for under the equity method of accounting and included in Investments on the accompanying Condensed Consolidated Balance Sheets. The above acquisition gave the Company majority ownership and voting control of Harbor. Therefore, the Company now includes the accounts of Harbor in its consolidated financial statements. The above acquisition has been accounted for under the purchase method of accounting and, accordingly, the purchase price has been allocated to the acquired assets and liabilities based on preliminary estimates of the fair values of the assets purchased and the liabilities assumed as of the date of acquisition. The estimated purchase price allocations are subject to adjustment, generally within one year of the date of the acquisition. The purchase price and related acquisition costs exceeded the fair values assigned to net tangible assets by approximately $9.3 million, which was recorded as long-lived intangible assets. The impact of this acquisition was not material in relation to the Company's results of operations. Consequently, pro forma information is not presented. (12) LEGAL PROCEEDINGS In June 2002, a forest fire damaged approximately 11,000 acres of private and government land located near Deadwood and Lead, South Dakota. The fire destroyed approximately 20 structures (seven houses and 13 outbuildings) and caused the evacuation of the cities of Lead and Deadwood for approximately 48 hours. The cause of the fire was investigated by the State of South Dakota. Alleged contact between power lines owned by the Company and undergrowth were implicated as the cause. The Company has initiated its own investigation into the cause of the fire, including the hiring of expert fire investigators and that investigation is continuing. The Company has been put on notice of potential private civil claims for property damage and business loss. In addition, the State of South Dakota initiated a civil action in the Seventh Judicial Circuit Court, Pennington County, South Dakota, seeking recovery of damages for fire suppression costs, reclamation and remediation. If it is determined that power line contact was the cause of the fire, and that the Company was negligent in the maintenance of those power lines, the Company could be liable for resultant damages. Management cannot predict the outcome of either the Company's investigation, or the viability of potential claims. Management believes that any such claims will not have a material adverse effect on the Company's financial condition or results of operations. 14 ITEM 2. RESULTS OF OPERATIONS Consolidated Results Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001. Consolidated net income for the three months ended September 30, 2002 was $11.0 million compared to $8.3 million in the same period of the prior year. The increase in net income is a result of increased generating capacity, increased earnings from additional ownership of an energy partnership and increased off-system sales partially offset by increased depreciation expense. Consolidated revenues for the three months ended September 30, 2002 were $77.7 million compared to $63.2 million for the same period of the prior year. The increase in revenues was a result of increased off-system sales by our electric utility and expanded power production. Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001. Consolidated net income for the nine months ended September 30, 2002 was $32.1 million compared to $49.3 million in the same period of the prior year. Consolidated income from continuing operations, before change in accounting principle, for the nine-month period ended September 30, 2002 was $31.2 million compared to $44.5 million for the same period in the prior year. As discussed in Note 2 of Notes to Consolidated Financial Statements, during the quarter ended March 31, 2001, the Company distributed its ownership interest in Wyodak to its parent company, Black Hills Corporation. The consolidated Condensed Statement of Income has been restated to reflect the continuing operations of the Company. The decrease in income from continuing operations is a result of decreased off-system sales, a substantial decrease in prevailing prices for wholesale electricity and increased depreciation expense. These factors were partially offset by increased generating capacity, increased earnings from additional ownership of an energy partnership and the collection of previously reserved amounts for California operations. Consolidated revenues for the nine months ended September 30, 2002 were $217.7 million compared to $227.4 million for the same period of the prior year. The decrease in revenues was a result of decreased prices for off-system sales by our electric utility, partially offset by expanded power production. Wholesale electricity average peak prices at Mid-Columbia were approximately $182 per megawatt-hour during the first nine months of 2001 compared to approximately $21 per megawatt-hour during the first nine months of 2002. 15 Electric Utility
Three Months Ended Nine Months Ended September 30 September 30 2002 2001 2002 2001 ---- ---- ---- ---- (in thousands) Revenue $45,291 $43,518 $120,786 $175,698 Operating income 15,975 15,246 43,655 73,221 Income from continuing operations 8,304 7,929 22,918 42,053 The following table provides certain operating statistics: Three Months Ended Nine Months Ended September 30 September 30 2002 2001 2002 2001 ---- ---- ---- ---- (in MWh's) Firm (system) sales 510,500 537,000 1,466,000 1,527,000 Off-system sales 317,600 211,000 688,700 761,000
Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001. Electric utility revenues increased 4 percent for the three-month period ended September 30, 2002, compared to the same period in the prior year. Net income for the segment increased 5 percent from the same period in the prior year. The increase in revenues and net income was primarily due to a 51 percent increase in off-system electric megawatt-hour sales, which was partially offset by average prices received that were 22 percent lower than the average prices received in the same period of the prior year. Firm residential and contracted electricity sales increased, but were offset by a decline in industrial sales due to the closing of Homestake Gold Mine at year-end 2001. Fuel and purchased power expense decreased 6 percent for the three-month period ended September 30, 2002 compared to the same period in 2001, and total operating expense increased 4 percent for the same period. Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001. Electric utility revenues decreased 31 percent for the nine-month period ended September 30, 2002, compared to the same period in the prior year. Net income for the segment decreased 46 percent from the same period in the prior year. The decrease in revenues and net income was primarily due to a 10 percent decrease in off-system electric megawatt-hour sales at average prices received that were 69 percent lower than average prices received in the same period of the prior year. Firm residential and contracted electricity sales increased, but were offset by a decline in industrial sales due to the closing of Homestake Gold Mine at year-end 2001. Fuel and purchased power expense decreased 41 percent for the nine-month period ended September 30, 2002 compared to the same period in 2001, and operating expense decreased 25 percent for the same period. 16 Independent Power Production
Three Months Ended Nine Months Ended September 30 September 30 2002 2001 2002 2001 ---- ---- ---- ---- (in thousands) Revenue $32,391 $19,649 $96,958 $51,669 Operating income 11,822 7,670 40,861 24,448 Income from continuing operations 2,709 329 8,316 2,425
Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001. Independent power revenues increased 65 percent for the three-month period ended September 30, 2002, compared to the same period in the prior year. The substantial increase in revenues was offset by a 58 percent increase in operating expense. These increases can be attributed to additional generating capacity and increased earnings from additional ownership of an energy partnership. As of September 30, 2002, we had 657 megawatts of independent power capacity in service compared to 625 megawatts at September 30, 2001. Approximately 300 megawatts of the 625 megawatts of capacity at September 30, 2001 were placed in service during the third quarter of 2001. Additional partnership equity was earned by the Company in July 2002 as a result of certain performance measures being met at a consolidated energy partnership. The earnings impact was approximately $1.6 million pre-tax and was recorded as a reduction to "Minority interest" expense on the accompanying Condensed Consolidated Statement of Income. Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001. Independent power revenues increased 88 percent for the nine-month period ended September 30, 2002 compared to the same period in the prior year. Operating income increased 67 percent for the same period. Income from continuing operations for the nine-month period was more than three times income from continuing operations for the prior nine-month period. Additional independent power capacity and increased earnings from additional ownership of an energy partnership contributed to the increase in revenue and net income and was partially offset by increased depreciation and interest expense. As of September 30, 2002, we had 657 megawatts of independent power capacity in service compared to 625 megawatts at September 30, 2001. Approximately 300 megawatts of the 625 megawatts of capacity at September 30, 2001 were placed in service during the third quarter of 2001. In addition for the nine months ended September 30, 2002, $1.9 million after-tax was collected for previously recorded reserves pertaining to exposure in the California markets and the adoption of SFAS 142 resulted in a net income benefit of $0.9 million after tax. 17 Forward Looking Statements Some of the statements in this Form 10-Q include "forward-looking statements" as defined by the Securities and Exchange Commission, or SEC. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are based on assumptions, which we believe are reasonable based on current expectations and projections about future events and industry conditions and trends affecting our business. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, including, among other things: (1) unanticipated developments in the western power markets, including unanticipated governmental intervention, deterioration in the financial condition of counterparties, default on amounts due from counterparties, adverse changes in current or future litigation, adverse changes in the tariffs of the California Independent System Operator, market disruption and adverse changes in energy and commodity supply, volume and pricing and interest rates; (2) prevailing governmental policies and regulatory actions with respect to allowed rates of return, industry and rate structure, acquisition and disposal of assets and facilities, operation and construction of plant facilities, recovery of purchased power and other capital investments, and present or prospective wholesale and retail competition; (3) the State of California's efforts to reform its long-term power purchase contracts and recover refunds for alleged price manipulation; (4) changes in and compliance with environmental and safety laws and policies; (5) weather conditions; (6) population growth and demographic patterns; (7) competition for retail and wholesale customers; (8) pricing and transportation of commodities; (9) market demand, including structural market changes; (10) changes in tax rates or policies or in rates of inflation; (11) changes in project costs; (12) unanticipated changes in operating expenses or capital expenditures; (13) capital market conditions; (14) technological advances by competitors; (15) competition for new energy development opportunities; (16) legal and administrative proceedings that influence our business and profitability; (17) the effects on our business, including the availability of insurance, resulting from the terrorist actions on September 11, 2001, or any other terrorist actions or responses to such actions; (18) the effects on our business resulting from the financial difficulties of Enron and other energy companies, including their effects on liquidity in the trading and power industry, and their effects on the capital markets views of the energy or trading industry, and our ability to access the capital markets on the same favorable terms as in the past; (19) the effects on our business in connection with a lowering of our credit rating (or actions we may take in response to changing credit ratings criteria), including, increased collateral requirements to execute our business plan, demands for increased collateral by our current counterparties, refusal by our current or potential counterparties or customers to enter into transactions with us and our inability to obtain credit or capital in amounts or on terms favorable to us; (20) risk factors discussed from time to time in our filings with the SEC. New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for us to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. We assume 18 no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events, or otherwise. ITEM 4. CONTROLS AND PROCEDURES With the participation of management, our Chief Executive Officer and Chief Financial Officer evaluated our disclosure controls and procedures within 90 days of the filing of this quarterly report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in our internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation, including any significant deficiencies or material weaknesses of internal controls that would require corrective action. 19 BLACK HILLS POWER, INC. Part II - Other Information Item 1. Legal Proceedings For information regarding legal proceedings, see Note 11 to the Company's 2001 Annual Report on Form 10-K and Note 12 in Item 1 of Part I of this Quarterly Report on Form 10-Q, which information from Note 12 is incorporated by reference into this item. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - Exhibit 10.1 The First Supplemental Indenture, dated as of August 13, 2002, between Black Hills Power, Inc. and JPMorgan Chase Bank, as Trustee. Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K We have not filed any Reports on Form 8-K during the quarter ended September 30, 2002. 20 BLACK HILLS POWER, INC. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BLACK HILLS POWER, INC. /s/ Daniel P. Landguth ------------------------------------------- Daniel P. Landguth, Chairman and Chief Executive Officer /s/ Mark T. Thies ------------------------------------------- Mark T. Thies, Senior Vice President and Chief Financial Officer Dated: November 14, 2002 21 CERTIFICATION I, Daniel P. Landguth, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Black Hills Power, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 22 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Daniel P. Landguth ---------------------------- Chairman and Chief Executive Officer 23 CERTIFICATION I, Mark T. Thies, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Black Hills Power, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 24 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Mark T. Thies ---------------------------- Senior Vice President and Chief Financial Officer 25 EXHIBIT INDEX Exhibit Number Description Exhibit 10.1 The First Supplemental Indenture, dated as of August 13, 2002, between Black Hills Power, Inc. and JPMorgan Chase Bank, as Trustee. Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 26 EX-10 3 ex10_1-10q3rd.txt 1ST SUPPLEMENTALS INDENTURE Exhibit 10.1 BLACK HILLS POWER, INC. TO JPMORGAN CHASE BANK, As Trustee ---------------------------- FIRST SUPPLEMENTAL INDENTURE Dated as of August 13, 2002 ---------------------------- Supplemental to Restated and Amended Indenture of Mortgage and Deed of Trust Dated as of September 1, 1999 First Mortgage Bonds, 7.23% Series AE Due 2032 FIRST SUPPLEMENTAL INDENTURE, dated as of the 13 `h day of August, 2002, between Black Hills Power, Inc., a corporation duly organized and existing under the laws of the State of South Dakota (formerly known as Black Hills Corporation) (hereinafter called the "Company"), party of the first part, and JPMORGAN CHASE BANK, a corporation organized and existing under the laws of the State of New York, as Trustee under the Indenture hereinafter mentioned (hereinafter called the "Trustee"), party of the second part. WHEREAS, in order to secure an authorized issue of First Mortgage Bonds of the Company, the Company has executed and delivered a Restated and Amended Indenture of Mortgage and Deed of Trust to JPMorgan Chase Bank f/k/a The Chase Manhattan Bank, as Trustee, dated as of September 1, 1999 (hereinafter referred to as the "Indenture"), which amended and restated the Indenture of Mortgage and Deed of Trust to Central Hanover Bank and Trust Company (the successor by various mergers of which is JPMorgan Chase Bank) hereinafter referred to as the "Original Indenture." WHEREAS, pursuant to the provisions of the Indenture, First Mortgage Bonds have been duly issued under the Original Indenture and are presently outstanding and continue to be secured by the Indenture as follows: Principal Amount Series Outstanding Series Y, 9.49%, due June 15, 2018 $4,550,000 Series Z, 9.35%, due May 29, 2021 31,635,000 Series AA, 9.00%, due September 1, 2003 1,650,904 Series AB, 8.30%, due September 1, 2024 45,000,000 Series AC, 8.06%, due February 1, 2010 30,000,000 ---------- $112,835,904 and WHEREAS, as permitted by the Indenture, the Company, by resolutions of its Board of Directors duly adopted, has determined to create a new series of bonds to be known as its "First Mortgage Bonds, 7.23% Series AE Due 2032" (herein called the "Series AE Bonds"), to be initially authenticated and delivered in the aggregate principal amount of $75,000,000 in the form, having the characteristics and being entitled to the benefits as in the Indenture or as in this Supplemental Indenture provided; and WHEREAS, the Company, in exercise of the powers and authority conferred upon and reserved to it under and by virtue of the provisions of the Indenture, and particularly the provisions contained in Articles Two and Sixteen thereof, and pursuant to appropriate resolutions of its Board of Directors, has duly resolved and determined to make, execute and deliver to the Trustee a First Supplemental Indenture in the form hereof (herein sometimes referred to as "this Supplemental Indenture") for the purposes herein provided; and WHEREAS, all conditions and requirements necessary to make this Supplemental Indenture a valid, binding and legal instrument in accordance with its terms have been done, 1 performed and fulfilled, and the execution and delivery hereof have been in all respects duly authorized; NOW THEREFORE, in consideration of the premises and of one dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and of other good and valuable consideration, in order to establish the terms of the Series AE Bonds, the Company hereby further covenants and agrees to and with the Trustee and its successors in the trust under the Indenture for the benefit of all those who shall from time to time hold the Series AE Bonds as follows: The Company does hereby ratify and confirm its Mortgage and Pledge to the Trustee of all property described in the Indenture and does hereby grant, bargain, sell, release, convey, assign, transfer, mortgage, pledge and set over unto the Trustee, and to its successors and assigns forever, the following described property acquired by the Company and not specifically described under the Indenture which following described property shall be incorporated into the terms of Exhibit A to the Indenture as if more fully set forth therein: LANDS IN BUTTE COUNTY, SOUTH DAKOTA 1. Tracts C, D and E of the Southeast Quarter (SE1/4) of Section Ten (10), Township Eight (8) North, Range Two (2) East of the Black Hills Meridian in the City of Belle Fourche, Butte County, South Dakota, as shown by the Plat recorded in Plat Book 5, Page 18, excepting therefrom that part of Tract C and Tract D deeded to Floyd Cooper, in instrument recorded December 22, 1949, in Book 137, Page 137; and also excepting therefrom that part of Tract C deeded to Albert W. Turbiville and Alice L. Turbiville, in instrument recorded October 24, 1961 in Book 156, Page 585 of the Butte County real estate records. LANDS IN MEADE COUNTY, SOUTH DAKOTA 1. Lots Twenty-seven (27), Twenty-eight (28), Twenty-nine (29), and Thirty (30), in Block Four of Fort Meade Addition to Sturgis, in the County of Meade and State of South Dakota. 2. A parcel of land approximately 3.08 acres known as the BHP&L Utility Lot formerly a portion of lot four (4) of the Northeast Quarter of the Southeast Quarter (SE 1/4) of Section Thirty-six (36), Township Five (5) North, Range Five (5) East of the Black Hills Meridian, in Meade County, South Dakota. 3. Plat of Piedmont Valley Substation Lot being a portion of Lot Eight (8), Block One (1), Coopers Subdivision located in the Northwest Quarter of the Northeast Quarter (NW 1/4NE1/4), Section Fifteen (15), Township Three (3) North, Range Six (6) East of the Black Hills Meridian, in Meade County, South Dakota. 2 LANDS IN PENNINGTON COUNTY, SOUTH DAKOTA 1. A Forty (40) acre parcel described as the Southwest Quarter of the Southwest Quarter (SW 1ASW1/4) of Section Twenty-four (24), in Township One (1) North, Range Seven (7) East of the Black Hills Meridian in Pennington County, South Dakota excepting therefrom Highway 16 Bypass and also excepting therefrom Lot H 1 as shown on the plat filed in Highway Plat Book 6, Page 22 of the Pennington County real estate records. 2. Lot Two (2) in Prairie Hills Subdivision, Rapid City, located in the Southwest Quarter of the Southwest Quarter (SW 1/4SW 1/4) of Section Nineteen (19), Township Two (2) North, Range Eight (8) East of the Black Hills Meridian, Pennington County, South Dakota. ARTICLE ONE DEFINITIONS SECTION 1.01. General. For all purposes of this Supplemental Indenture: (a) capitalized terms used herein without definition shall have the meanings specified in the Indenture; (b) all references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Supplemental Indenture; (c) the terms "herein," "hereof," "hereunder" and other words of similar import refer to this Supplemental Indenture; and (d) in the event of a conflict between any definition set forth in the Indenture and any definition set forth in this Supplemental Indenture, the definition set forth in this Supplemental Indenture shall control. SECTION 1.02. Definitions. The following definitions shall apply to this Supplemental Indenture: "Business Day" means any day other than a Saturday or Sunday and other than a day on which banking institutions in Rapid City, South Dakota, or New York, New York, are authorized or obligated by law or executive order to close. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Series AE Bonds to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Series AE Bonds. 3 "Comparable Treasury Price" means the average of two Reference Treasury Dealer Quotations obtained with respect to any redemption date. "Depository" means The Depository Trust Company, a New York corporation, or any successor thereto. "Global Bond" shall have the meaning set forth in Section 2.05(a). "Independent Investment Banker" means ABN AMRO Incorporated or one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company. "Reference Treasury Dealer" means ABN AMRO Incorporated and its successors; provided, however, that if ABN AMRO Incorporated or its successors shall cease to be a primary United States government securities dealer (a "Primary Treasury Dealer"), the Company will substitute for it another nationally recognized investment bank that is a Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Independent Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Independent Investment Banker at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. "Treasury Rate" means, for any redemption date, (i) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15(519)" or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the remaining term of the Series AE Bonds, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month) or (ii) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price. The Treasury Rate shall be calculated on the third Business Day preceding the redemption date. 4 ARTICLE TWO TERMS AND CONDITIONS OF SERIES AE BONDS SECTION 2.01. General. (a) There is hereby created a series of Bonds, known as and entitled "First Mortgage Bonds, 7.23% Series AE Due 2032," and the form thereof shall be as provided in this Supplemental Indenture. (b) The aggregate principal amount of Series AE Bonds which may be authenticated and delivered and outstanding under the Indenture and this Supplemental Indenture shall be limited in aggregate principal amount to $75,000,000, except as provided under Section 2.02 of the Indenture. The Series AE Bonds shall bear interest at the rate of 7.23% per annum until the principal thereof becomes due and payable and shall bear interest on overdue principal (including any overdue mandatory prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest at the rate of 8.23% per annum until such overdue principal, premium or interest shall be paid. The Series AE Bonds shall mature August 15, 2032. (c) The Series AE Bonds shall be registered Bonds without coupons in denominations of $100,000 and any multiples of $1,000 which may be executed by the Company and delivered to the Trustee for authentication and delivery. The date of commencement of the first interest period for the Series AE Bonds shall be the date of initial authentication and delivery thereof. The Series AE Bonds shall be dated as provided in Section 2.06 of the Indenture. All Series AE Bonds shall bear interest from their respective issue dates. The principal and interest shall be due and payable as provided in the Bond form set forth in Section 2.02 of this Supplemental Indenture. The principal of, premium, if any, and interest on the Series AE Bonds shall be payable at the principal corporate trust office of the Trustee, in the Borough of Manhattan, The City of New York, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. The Series AE Bonds shall be subject to redemption only as provided in Section 2.03 of this Supplemental Indenture and Section 8.08 of the Indenture. (d) Without limiting the other indemnities provided to the Trustee, the Company shall indemnify and save the Trustee harmless from any liabilities and costs incurred by the Trustee arising out of the making of the final payment when due of the principal owing on any of the Series AE Bonds without the surrender of such Bond to the Trustee. (e) The Trustee is hereby appointed Registrar in respect of the Series AE Bonds, and the principal corporate trust office of the Trustee in the Borough of Manhattan, The City of New York, is hereby designated as the office or agency of the Company in said Borough where notices or demands in respect of Series AE Bonds may be served. 5 SECTION 2.02. Form of Bonds. The text of the Series AE Bonds, and the certificate of authentication of the Trustee to be executed thereon, are to be substantially in the following forms, respectively: [FORM OF GLOBAL BOND] Unless this Bond is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the issuer or its agent for registration of transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. Unless and until it is exchanged in whole or in part for Bonds in definitive registered form, this Bond may not be transferred except as a whole by the Depositary to the nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. No.___________________ $______________________ CUSIP No. 092114 AA 5 BLACK HILLS POWER, INC. FIRST MORTGAGE BOND, 7.23% SERIES AE DUE 2032 BLACK HILLS POWER, INC. (hereinafter called the "Company"), a corporation organized and existing under the laws of the State of South Dakota, for value received, hereby promises to pay to , or registered assigns, on the 15th day of August, 2032, at the principal corporate trust office of the Trustee, in the Borough of Manhattan, The City of New York, Dollars, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest thereon from the date hereof, at the rate of 7.23 percent, per annum (computed on the basis of a 360-day year of 12 thirty-day months), payable at said principal office of the Trustee in like coin or currency semi-annually on February 15 and August 15 in each year until the principal hereof shall have become due and payable, and thereafter if default be made in the payment of such principal and premium, if any, and on any overdue installment of interest, at the rate of 8.23 percent, per annum until the overdue principal, premium or interest shall be paid. 6 This Bond shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee, or its successor as Trustee, under the Indenture. This Bond is one of an authorized issue of Bonds of the Company known as its "First Mortgage Bonds," issued and to be issued in one or more series under, and all equally and ratably secured (except as any sinking, amortization, improvement, renewal or other analogous fund, established in accordance with the provisions of the Indenture hereinafter mentioned, may afford additional security for the Bonds of any particular series) by a Restated and Amended Indenture of Mortgage and Deed of Trust, dated as of September 1, 1999, executed by the Company to JPMorgan Chase Bank f/k/a The Chase Manhattan Bank, as Trustee, as supplemented and amended by a First Supplemental Indenture, dated August 13, 2002 (said Restated Indenture as so supplemented and amended being hereinafter collectively called the "Indenture"), to which Indenture and all further instruments supplemental thereto reference is hereby made for a description of the properties mortgaged and pledged, the nature and extent of the security, the rights of the holders of said Bonds and the coupons appurtenant to coupon Bonds, if any, and of the Trustee and of the Company in respect of such security, and the terms and conditions upon which said Bonds are and are to be issued and secured. To the extent permitted by the Indenture and as provided therein, with the consent of the Company and upon the written consent or affirmative vote of at least sixty-six and twothirds percent in principal amount of the Bonds then outstanding and entitled to consent, and of not less than sixty-six and two- third percent, in principal amount of the Bonds then outstanding and entitled to consent of each series affected thereby in case one or more but less than all of the series of Bonds issued under the Indenture are so affected, the rights and obligations of the Company and of the holders of Bonds and coupons appurtenant to coupon Bonds, if any, and the terms and provisions of the Indenture and of any instrument supplemental thereto may be modified from time to time, provided that no such modification or alteration shall be made which would postpone the date fixed herein or in the Indenture for the payment of the principal of, or any installment of interest on, the Bonds, or reduce the principal of, or the rate of interest payable on, the Bonds, or reduce the percentage of the principal amount of Bonds the consent of which is required for the authorization of any such modification or alteration, without the consent of all of the holders affected thereby. The rights, duties or immunities of the Trustee shall not be modified without the written consent of the Trustee. As provided in the Indenture, said Bonds are issuable in series which may vary as in the Indenture provided or permitted. This Bond is one of a series of Bonds authorized by the First Supplemental Indenture and entitled "First Mortgage Bonds, 7.23% Series AE Due 2032" (the "Series AE Bonds"). Pursuant to the provisions of Section 8.05 of the Indenture, the Company may request the Trustee to apply moneys deposited with the Trustee ("Trust Moneys") for various reasons toward the redemption of those Bonds, including payment of premium and accrued interest, selected by the Company. In the First Supplemental Indenture, the Company has covenanted that the Bonds may only be called for redemption by the Company, as a whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of Series AE Bonds to be redeemed or (ii) the sum of the present values of the 7 remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted, at the then current Treasury Rate (as defined in the Supplemental Indenture) plus 30 basis points, to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) plus in each case, accrued and unpaid interest on the principal amount being redeemed to the date of redemption. Notice of each redemption shall be mailed to all registered owners not less than thirty nor more than forty-five days before the redemption date. Pursuant to the provisions of Section 8.08 of the Indenture, the Series AE Bonds are further subject to redemption, in whole or in part, by the Trustee applying certain Trust Moneys which have been held by the Trustee for a period of over two years. Any such redemption is made pro rata among the series of Bonds then outstanding in the ratio of principal amount. Redemption is at 100 percent of principal, plus any premium due at the time of redemption and accrued interest to the redemption date. If this Bond or any portion thereof ($1,000 or a multiple) shall be duly called for redemption as provided in the Indenture, this Bond or such portion thereof shall (unless the Company shall default in the payment of the redemption price) cease to bear interest from and after the date fixed for redemption. Upon any partial redemption of this Bond, this Bond may, at the option of the registered holder hereof, be either (a) surrendered to the Trustee in exchange for one or more new Series AE Bonds for the principal amount of the unredeemed portion of this Bond or (b) submitted to the Trustee for notation hereon by the Trustee of the payment of the portion of the principal hereof so called for redemption. If an Event of Default, as defined in the Indenture, shall occur, the principal of this Bond may become or be declared due and payable, in the manner and with the effect provided in the Indenture. A certificate in global form representing all of a portion of the Bonds may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such Bonds or a nominee of such successor Depositary. The Series AE Bonds are issuable as fully registered Bonds without coupons of the denominations of $100,000 and any multiple of $1,000 which may be executed by the Company and delivered to the Trustee for authentication and delivery. The Series AE Bonds, upon surrender thereof to the Trustee at its principal corporate trust office in the Borough of Manhattan, The City of New York, are exchangeable for other Bonds of the same series in such authorized denomination or denominations in the same aggregate principal amount, as may be requested by the holders surrendering the same. The Company and the Trustee may deem and treat the person in whose name this Bond is registered as the absolute owner hereof, for the purpose of receiving payment of or on account of the principal hereof and interest due hereon, and neither the Company nor the Trustee 8 shall be affected by any notice to the contrary. Interest payable herein shall be paid to the person in whose name the Bond is registered at the close of business on February 1 or August 1 (whether or not on a business day) next preceding the interest payment date, except for defaulted interest and unmatured accrued interest on the Series AE Bonds called for redemption on a date other than an interest payment date. No recourse shall be had for the payment of the principal of or the interest on this Bond, or for any claim based hereon or otherwise in respect hereof or of the Indenture or of any indenture supplemental thereto, against any incorporator, stockholder, director or officer, as such, past, present or future, of the Company or of any predecessor or successor corporation, either directly or through the Company or any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or by any legal or equitable proceeding or otherwise howsoever; all such liability being, by the acceptance hereof and as a part of the consideration for the issuance hereof, expressly waived and released by every holder hereof, as more fully provided in the Indenture; provided, however, that nothing herein or in the Indenture contained shall be taken to prevent recourse to and the enforcement of the liability, if any, of any shareholder or any stockholder or subscriber to capital stock upon or in respect of shares of capital stock not fully paid up. IN WITNESS WHEREOF, the Company has caused this Bond to be signed in its name by its President or one of its Vice Presidents, and its corporate seal to be impressed or imprinted hereon and attested by its Secretary or one of its Assistant Secretaries. Dated: BLACK HILLS POWER, INC. By:__________________________________ Name: Title: ATTEST: - ----------------------------------- Secretary 9 (FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION) This is one of the Bonds, of the series designated therein, described in the within mentioned Indenture. JPMORGAN CHASE BANK, as Trustee By:__________________________________ Authorized Officer SECTION 2.03. Optional Redemption. (a) Notwithstanding the provisions of Section 8.05 of the Indenture, the Series AE Bonds, upon the mailing of notice and in the manner provided in Section 10.03 of the Indenture, shall be redeemable at the option of the Company, as a whole at any time or in part from time to time, at a redemption price equal to the greater of (i) 100% of the principal amount of Series AE Bonds to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted, at the then current Treasury Rate plus 30 basis points, to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) plus in each case, accrued and unpaid interest on the principal amount being redeemed to the date of redemption. (b) Notwithstanding the provisions of Section 10.03 of the Indenture, in case of the redemption at any time of less than all the outstanding Series AE Bonds, the particular Bonds or parts thereof to be redeemed shall be selected by the Trustee from the outstanding Series AE Bonds not previously called for redemption as nearly as practicable pro rata among the registered holders of the Series AE Bonds according to the respective principal amounts of such Bonds, provided that the portions of the principal of Series AE Bonds at any time so selected for redemption in part shall be equal to $1,000 or a multiple thereof. (c) Notwithstanding that Section 8.05 of the Indenture authorizes the Company to request the Trustee to apply Trust Moneys toward the redemption of Bonds to be selected by the Company, the Company does hereby covenant that the Company will not request the Trustee to apply any Trust Moneys to the redemption of the Series AE Bonds except pursuant to Section 2.03(a) of this Supplemental Indenture. SECTION 2.04. No Sinking Fund. The Series AE Bonds are not entitled to the benefit of any sinking fund. 10 SECTION 2.05. Bonds to be Issued in Global Form. (a) The Series AE Bonds will be initially represented by one or more Bonds in global form (the "Global Bonds"). The Company hereby designates The Depository Trust Company as the initial Depositary for the Global Bonds. The Global Bonds will be deposited with the Trustee, as custodian for the Depositary. Unless and until it is exchanged in whole or in part for Bonds in certificated form, the Global Bonds may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary for the Bonds or a nominee of such successor Depositary. The Depositary may surrender the Global Bonds in exchange in whole or in part for Bonds in certificated form on such terms as are acceptable to the Company and the Depositary. (b) If at any time the Depositary for the Global Bonds notifies the Company that it is unwilling or unable to continue as Depositary for such Global Bonds or if at any time the Depositary for the Series AE Bonds shall no longer be eligible or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, the Company shall appoint a successor Depositary with respect to such Global Bonds. If a successor Depositary for such Global Bonds is not appointed by the Company within 90 days after the Company receives notice or becomes aware of such ineligibility, the Series AE Bonds shall no longer be represented by Global Bonds and, subject to Section 2.07 of the Indenture, the Company will execute, and the Trustee, upon receipt of a Written Order of the Company for the authentication and delivery of individual Bonds in exchange for such Global Bonds, will authenticate and deliver individual Bonds of like tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such Global Bonds in exchange for such Global Bonds. (c) The Company may at any time and in its sole discretion determine that the Series AE Bonds issued or issuable in the form of one or more Global Bonds shall no longer be represented by such Global Bond or Bonds. In such event, subject to Section 2.07 of the Indenture, the Company will execute, and the Trustee, upon receipt of a Written Order of the Company for the authentication and delivery of individual Bonds in exchange in whole or in part for such Global Bonds, will authenticate and deliver individual Bonds of like tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such Global Bonds in exchange for such Global Bonds. (d) In any exchange provided for in Section 2.05(b) or (c), the Company will execute and the Trustee will authenticate and deliver individual Bonds in definitive registered form in authorized denominations. Upon the exchange of Global Bonds for individual Bonds, such Global Bonds shall be canceled by the Trustee. Series AE Bonds issued in exchange for Global Bonds pursuant to this Section 2.05 shall be registered in such names and in such authorized denominations as the Depositary for such Global Bonds, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Bonds to the Persons in whose names such Bonds are so registered. 11 ARTICLE THREE MISCELLANEOUS SECTION 3.01. Outstanding Bonds. The aggregate principal amount of Bonds which, immediately after the authentication and delivery of the Series AE Bonds to be issued under this Supplemental Indenture, will be outstanding under the provisions of, and secured by, the Indenture, as amended by this Supplemental Indenture, will be $187,835,904, consisting of the Bonds of Series Y, Z, AA, AB and AC hereinbefore set forth in the second recital of this Supplemental Indenture and $75,000,000 aggregate principal amount of Series AE Bonds hereby created. SECTION 3.02. Receipt of Supplemental Indenture. The Company, by the execution hereof, acknowledges that a true copy of this Supplemental Indenture has been delivered to and received by it. SECTION 3.03. Ratification of Indenture. Except as amended by this Supplemental Indenture, all the provisions, terms and conditions of the Indenture shall continue in full force and effect. The Company does hereby ratify and confirm its mortgage and pledge to the Trustee of that property, real, personal and mixed described in the Indenture as being subject to the Lien of the Indenture. SECTION 3.04. Sufficiency of Supplemental Indenture. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. SECTION 3.05. Counterparts. This Supplemental Indenture may be executed in several counterparts, all or any of which may be treated for all purposes as one original and shall constitute and be one and the same instrument. SECTION 3.06. Governing Law. This Supplemental Indenture and each Series AE Bond shall be governed by and construed in accordance with the laws of the State of South Dakota without regard to the choice of law principles thereof. Notwithstanding the foregoing, the immunities and standard of care of the Trustee, Registrar and paying agent in connection with the administration of trusts and duties hereunder shall be governed by and construed in accordance with the laws of the State of New York. 12 IN WITNESS WHEREOF, BLACK HILLS POWER, INC., party hereto of the first part, has caused this Supplemental Indenture to be executed on its behalf by its Chairman of the Board or its President or one of its Vice Presidents and its corporate seal to be hereto affixed and to be attested by its Secretary or an Assistant Secretary, and JPMORGAN CHASE BANK, party hereto of the second part, in evidence of its acceptance of the trust hereby created, has caused this Supplemental Indenture to be executed on its behalf by one of its Vice Presidents or Assistant Vice Presidents and its corporate seal to be hereto affixed and to be attested by a Trust Officer, all as of the day and year first above written. BLACK HILLS POWER, INC. By:________________________________ Name: Title: ATTEST: - ------------------------------------- Secretary Signed, sealed and delivered by BLACK HILLS POWER, INC. in the presence of: - ------------------------------------- - ------------------------------------- JPMORGAN CHASE BANK, as Trustee By:________________________________ Name: Title: ATTEST: - ------------------------------------- Trust Officer Signed, sealed and delivered by JPMORGAN CHASE BANK, as Trustee in the presence of: - ------------------------------------- - ------------------------------------- 13 STATE OF SOUTH DAKOTA ) )SS.: COUNTY OF PENNINGTON ) On this 12th day of August, 2002, before me, Karen R. Tucker, the undersigned officer, personally appeared Everett E. Hoyt, to me personally known, who acknowledged himself to be, and being by me duly sworn, did say that he is President of BLACK HILLS POWER, INC., a corporation, and that the seal affixed to the foregoing instrument is the corporate seal of said corporation and that said instrument was executed by, and signed in the name of, the corporation, by him, as such President and sealed on behalf of the corporation by authority of its Board of Directors for the purposes therein contained, and the said Everett E. Hoyt acknowledged the same as the free act and deed of said corporation. IN WITNESS WHEREOF, I hereunto set my hand and official seal. [Notarial Seal] -------------------------------- Notary Public My Commission expires___________ STATE OF NEW YORK ) )SS.: COUNTY OF NEW YORK ) On this 9TH day of August, 2002, before me, James M. Foley, the undersigned officer, personally appeared L. O'Brien, to me personally known, who acknowledged himself to be, and being by me duly sworn, did say that he is A Vice President of JPMORGAN CHASE BANK, a corporation, and that the seal affixed to the foregoing instrument is the corporate seal of said corporation and that said instrument was executed by, and signed in the name of, the corporation, by him, as such Vice President, and sealed on behalf of the corporation by authority of its Board of Directors for the purposes therein contained, and the said L.O'Brien acknowledged the same as the free act and deed of said corporation. IN WITNESS WHEREOF, I hereunto set my hand and official seal. [Notarial Seal] -------------------------------- Notary Public My Commission expires___________ 14 EX-99 4 ex99-1ceo_3rdqtr.txt CEO CERTIFICATION Exhibit 99.1 BLACK HILLS POWER, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Black Hills Power, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel P. Landguth, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Daniel P. Landguth - -------------------------------------------- Daniel P. Landguth Chairman of the Board and Chief Executive Officer November 14, 2002 EX-99 5 ex99-2cfo_3rdqtr.txt CFO CERTIFICATION Exhibit 99.2 BLACK HILLS POWER, INC. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Black Hills Power, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark T. Thies, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mark T. Thies - ------------------------------------ Mark T. Thies Senior Vice President and Chief Financial Officer November 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----