COMMITMENTS AND CONTINGENCIES

Power Purchase and Transmission Services Agreements

We have the following power purchase and transmission agreements, not including related party agreements, as of December 31, 2015 (see Note 9 for information on related party agreements):


•	A PPA with PacifiCorp expiring on December 31, 2023, which provides for the purchase by us 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;


•	A firm point-to-point transmission access agreement to deliver up to 50 MW of power on PacifiCorp’s transmission system to wholesale customers in the western region through December 31, 2023; and


•	An agreement with Thunder Creek for gas transport capacity, expiring in October 31, 2019.

Costs incurred under these agreements were as follows for the years ended December 31 (in thousands):



Contract	Contract Type	2015		2014		2013
PacifiCorp	Electric capacity and energy	$	13,990	$	13,943	$	13,026
PacifiCorp	Transmission access	$	1,213	$	1,227	$	1,384
Thunder Creek	Gas transport capacity	$	633	$	633	$	633

Future Contractual Obligations

The following is a schedule of future minimum payments required under the power purchase, transmission services, facility and vehicle leases, and gas supply agreements (in thousands):



2016	$	12,827
2017	$	12,824
2018	$	6,513
2019	$	6,408
2020	$	5,880
Thereafter	$	17,641

Long-Term Power Sales Agreements

We have the following power sales agreements as of December 31, 2015:


•	An agreement with MDU to supply up to a maximum of 25 MW on a cost reimbursement basis during periods of reduced production at Wygen III;


•	A capacity and energy agreement with MDU through December 31, 2023 to supply up to a maximum of 50 MW;


•	An agreement with the City of Gillette to supply its first 23 MW on a cost reimbursement basis during periods of reduced production at Wygen III. Under this agreement, we will also provide the City of Gillette their operating component of spinning reserves;


•	A unit-contingent energy and capacity sales agreement with MEAN expiring on May 31, 2023. This contract is based 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 energy and capacity purchase requirements decrease over the term of the agreement; and


•	A PPA with MEAN, expiring May 31, 2023. 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.

Oil Creek Fire

On June 29, 2012, a forest and grassland fire occurred in the western Black Hills of Wyoming. On April 16, 2013, private landowners filed suit in the United States District Court for the District of Wyoming asserting that the fire was caused by Black Hills Power’s negligent maintenance of a transmission line. The Company denied these claims. These landowners sought recovery for reclamation and rehabilitation costs, damage to fencing and other personal property, alleged injury to timber, grass or hay, livestock and related operations, and diminished value of real estate. The State of Wyoming intervened in the lawsuit, asserting claims for fire suppression costs, and similar damage claims related to state-owned lands. As of December 31, 2015, we believed that a loss associated with settlement of pending claims was probable. Accordingly, we had recorded a loss contingency liability related to these claims and a receivable for costs we believed were reimbursable and probable of recovery under our insurance coverage. In consideration of the risk and uncertainty of litigation, the Company subsequently concluded a settlement of all claims, with all parties to the litigation. On January 4, 2016, the court entered its order dismissing the litigation with prejudice. The resolution of the State and private claims did not have a material effect upon our consolidated financial condition, results of operations or cash flows.

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.

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. They 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.

Air

Our generation facilities are subject to federal, state and local laws and regulations relating to the protection of air quality. These laws and regulations cover, among other pollutants, carbon monoxide, SO₂, NO_x, mercury particulate matter and GHG. Power generating facilities burning fossil fuels emit each of the foregoing pollutants and, therefore, are subject to substantial regulation and enforcement oversight by various governmental agencies.

Title IV of the Clean Air Act applies to several of our generation facilities, including the Neil Simpson II, Neil Simpson CT, Lange CT, Wygen III and Wyodak plants. Title IV of the Clean Air Act created an SO₂ allowance trading program as part of the federal acid rain program. Without purchasing additional allowances, we currently hold sufficient allowances to satisfy Title IV at all such plants through 2045.

The EPA issued the Industrial and Commercial Boiler Regulations for Area Sources of Hazardous Air Pollutants, with updates which impose emission limits, fuel requirements and monitoring requirements. The rule had a compliance deadline of March 21, 2014. In anticipation of this rule, we suspended operations at the Osage plant on October 1, 2010 and as a result of this rule, we suspended operations at the Ben French facility on August 31, 2012. We permanently retired Ben French, Osage and Neil Simpson I on March 21, 2014. The net book value of these plants was allowed regulatory accounting treatment and is recorded as a Regulatory Asset on the accompanying Balance Sheets.

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.

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.