x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018 | |
OR | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 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 |
7001 Mount Rushmore Road | |
Rapid City, South Dakota 57702 | |
Registrant’s telephone number (605) 721-1700 | |
Former name, former address, and former fiscal year if changed since last report | |
NONE |
Yes x | No o |
Yes x | No o |
Large accelerated filer | o | Accelerated filer | o | |
Non-accelerated filer | x | (Do not check if a smaller reporting company) | ||
Smaller reporting company | o | |||
Emerging growth company | o |
Yes o | No x |
Page | ||
GLOSSARY OF TERMS AND ABBREVIATIONS | ||
PART 1. | FINANCIAL INFORMATION | |
Item 1. | Financial Statements | |
Condensed Statements of Comprehensive Income - unaudited | ||
Three Months Ended March 31, 2018 and 2017 | ||
Condensed Balance Sheets - unaudited | ||
March 31, 2018 and December 31, 2017 | ||
Condensed Statements of Cash Flows - unaudited | ||
Three Months Ended March 31, 2018 and 2017 | ||
Notes to Condensed Financial Statements - unaudited | ||
Item 2. | Managements’ Discussion and Analysis of Financial Condition and Results of Operations | |
Item 4. | Controls and Procedures | |
PART II. | OTHER INFORMATION | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 6. | Exhibits | |
Signatures |
AFUDC | Allowance for Funds Used During Construction |
ASC | Accounting Standards Codification |
ASU | Accounting Standards Update issued by the FASB |
BHC | Black Hills Corporation; the Parent Company |
Black Hills Energy | The name used to conduct the business of BHC utility companies |
Black Hills Utility Holdings | Black Hills Utility Holdings, Inc. a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy) |
Black Hills Service Company | Black Hills Service Company, LLC, a direct, wholly-owned subsidiary of BHC |
Cheyenne Light | Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy) |
Cooling Degree Day | A cooling degree day is equivalent to each degree that the average of the high and low temperature for a day is above 65 degrees. The warmer the climate, the greater the number of cooling degree days. Cooling degree days are used in the utility industry to measure the relative warmth of weather and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations over a 30-year average. |
ECA | Energy Cost Adjustment - adjustments that allow us to pass the prudently-incurred cost of fuel and purchased energy through to customers. |
FASB | Financial Accounting Standards Board |
FERC | United States Federal Energy Regulatory Commission |
Fitch | Fitch Ratings |
GAAP | Accounting principles generally accepted in the United States of America |
Happy Jack | Happy Jack Wind Farms, LLC, a subsidiary of Duke Energy Generation Services |
Heating degree day | A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The colder the climate, the greater the number of heating degree days. Heating degree days are used in the utility industry to measure the relative coldness of weather and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations over a 30-year average. |
kV | Kilovolt |
LIBOR | London Interbank Offered Rate |
Moody’s | Moody’s Investors Service, Inc. |
MW | Megawatts |
SDPUC | South Dakota Public Utilities Commission |
SEC | U. S. Securities and Exchange Commission |
Silver Sage | Silver Sage Windpower, LLC, a subsidiary of Duke Energy Generation Services |
South Dakota Electric | Includes Black Hills Power operations in South Dakota, Wyoming and Montana |
S&P | Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. |
TCA | Transmission Cost Adjustment - adjustments passed through to the customer based on transmission costs that are higher or lower than the costs approved in the rate case. |
TCJA | Tax Cuts and Jobs Act enacted December 22, 2017 |
WRDC | Wyodak Resources Development Corp., an indirect, wholly-owned subsidiary of BHC |
Three Months Ended March 31, | |||||||
(unaudited) | 2018 | 2017 | |||||
(in thousands) | |||||||
Revenue | $ | 73,815 | $ | 73,794 | |||
Operating expenses: | |||||||
Fuel and purchased power | 22,440 | 23,149 | |||||
Operations and maintenance | 19,151 | 16,954 | |||||
Depreciation and amortization | 9,884 | 8,694 | |||||
Taxes - property | 1,976 | 1,621 | |||||
Total operating expenses | 53,451 | 50,418 | |||||
Operating income | 20,364 | 23,376 | |||||
Other income (expense): | |||||||
Interest expense | (5,587 | ) | (6,336 | ) | |||
AFUDC - borrowed | 48 | 192 | |||||
Interest income | 115 | 707 | |||||
AFUDC - equity | 34 | 471 | |||||
Other income (expense), net | (151 | ) | (53 | ) | |||
Total other income (expense) | (5,541 | ) | (5,019 | ) | |||
Income before income taxes | 14,823 | 18,357 | |||||
Income tax expense | (3,063 | ) | (5,787 | ) | |||
Net income | 11,760 | 12,570 | |||||
Other comprehensive income (loss): | |||||||
Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax (expense) benefit of $(6) and $(6) for the three months ended March 31, 2018 and 2017, respectively) | 10 | 10 | |||||
Reclassification adjustment of benefit plan liability - net gain (loss) (net of tax (expense) benefit of $(9) and $(8) for the three months ended March 31, 2018 and 2017, respectively) | 17 | 14 | |||||
Other comprehensive income | 27 | 24 | |||||
Comprehensive income | $ | 11,787 | $ | 12,594 |
(unaudited) | March 31, 2018 | December 31, 2017 | ||||
(in thousands) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 12 | $ | 16 | ||
Receivables - customers, net | 29,502 | 29,050 | ||||
Receivables - affiliates | 6,925 | 5,664 | ||||
Other receivables, net | 252 | 196 | ||||
Materials, supplies and fuel | 24,471 | 23,443 | ||||
Regulatory assets, current | 20,078 | 18,993 | ||||
Other current assets | 4,076 | 4,528 | ||||
Total current assets | 85,316 | 81,890 | ||||
Investments | 4,918 | 4,926 | ||||
Property, plant and equipment | 1,318,781 | 1,311,819 | ||||
Less accumulated depreciation and amortization | (359,344 | ) | (358,946 | ) | ||
Total property, plant and equipment, net | 959,437 | 952,873 | ||||
Other assets: | ||||||
Regulatory assets, non-current | 56,134 | 59,710 | ||||
Other non-current assets | 8,796 | 3,747 | ||||
Total other assets | 64,930 | 63,457 | ||||
TOTAL ASSETS | $ | 1,114,601 | $ | 1,103,146 |
(unaudited) | March 31, 2018 | December 31, 2017 | ||||
(in thousands, except common stock par value and share amounts) | ||||||
LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 15,187 | $ | 14,766 | ||
Accounts payable - affiliates | 24,767 | 25,653 | ||||
Accrued liabilities | 45,512 | 38,205 | ||||
Money pool notes payable | 13,541 | 13,397 | ||||
Regulatory liabilities, current | 3,996 | 842 | ||||
Total current liabilities | 103,003 | 92,863 | ||||
Long-term debt | 339,930 | 339,895 | ||||
Deferred credits and other liabilities: | ||||||
Deferred income tax liabilities, net | 110,081 | 110,618 | ||||
Regulatory liabilities, non-current | 153,607 | 148,013 | ||||
Benefit plan liabilities | 16,540 | 16,285 | ||||
Other, non-current liabilities | 1,420 | 1,240 | ||||
Total deferred credits and other liabilities | 281,648 | 276,156 | ||||
Commitments and contingencies (Notes 5, 6 and 9) | ||||||
Stockholder’s equity: | ||||||
Common stock $1 par value; 50,000,000 shares authorized; 23,416,396 shares issued | 23,416 | 23,416 | ||||
Additional paid-in capital | 39,575 | 39,575 | ||||
Retained earnings | 328,260 | 332,499 | ||||
Accumulated other comprehensive loss | (1,231 | ) | (1,258 | ) | ||
Total stockholder’s equity | 390,020 | 394,232 | ||||
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY | $ | 1,114,601 | $ | 1,103,146 |
(unaudited) | Three Months Ended March 31, | |||||
2018 | 2017 | |||||
(in thousands) | ||||||
Operating activities: | ||||||
Net income | $ | 11,760 | $ | 12,570 | ||
Adjustments to reconcile net income to net cash provided by operating activities- | ||||||
Depreciation and amortization | 9,884 | 8,694 | ||||
Deferred income tax | (898 | ) | 2,704 | |||
Employee benefits | 380 | 205 | ||||
AFUDC | (34 | ) | (471 | ) | ||
Other adjustments, net | 1,052 | 559 | ||||
Change in operating assets and liabilities - | ||||||
Accounts receivable and other current assets | (2,478 | ) | 7,908 | |||
Accounts payable and other current liabilities | 3,320 | (380 | ) | |||
Regulatory assets - current | 1,807 | (2,170 | ) | |||
Regulatory liabilities - current | 3,171 | (84 | ) | |||
Other operating activities, net | 35 | (152 | ) | |||
Net cash provided by (used in) operating activities | 27,999 | 29,383 | ||||
Investing activities: | ||||||
Property, plant and equipment additions | (13,533 | ) | (16,976 | ) | ||
Proceeds from sale of assets | 4,994 | — | ||||
Change in money pool notes receivable, net | — | (11,540 | ) | |||
Other investing activities | (3,608 | ) | 26 | |||
Net cash provided by (used in) investing activities | (12,147 | ) | (28,490 | ) | ||
Financing activities: | ||||||
Change in money pool notes payable, net | (15,856 | ) | — | |||
Net cash provided by (used in) financing activities | (15,856 | ) | — | |||
Net change in cash and cash equivalents | (4 | ) | 893 | |||
Cash and cash equivalents, beginning of period | 16 | 234 | ||||
Cash and cash equivalents, end of period | $ | 12 | $ | 1,127 |
• | Regulated electric utility services tariffs - Our regulated operations, as defined by ASC 980, provide services to regulated customers under rates, charges, terms and conditions of service, and prices determined by the jurisdictional regulators designated for our service territories. Collectively, these rates, charges, terms and conditions are included in a tariff, which governs all aspects of the provision of our regulated services. Our regulated services primarily encompass single performance obligations material to the context of the contract for delivery of commodity electricity and electric transmission services. These service revenues are variable based on quantities delivered, influenced by seasonal business and weather patterns. Tariffs are only permitted to be changed through a rate-setting process involving the regulator-empowered statute to establish contractual rates between the utility and its customers. All of our regulated utility sales are subject to regulatory-approved tariffs. |
• | Power sales agreements - We have long-term wholesale power sales agreements with other load serving entities, including affiliates, for the sale of excess power from owned generating units. These agreements include a combination of “take or pay” arrangements, where the customer is obligated to pay for the energy regardless of whether it actually takes delivery, as well as “requirements only” arrangements, where the customer is only obligated to pay for the energy the customer needs. In addition to these long-term contracts, we also sell excess energy to other load-serving entities on a short-term basis as a member of the Western States Power Pool. The pricing for all of these arrangements is included in the executed contracts or confirmations, reflecting the standalone selling price, and is variable based on energy delivered. |
Three Months Ended March 31, 2018 | |||
(in thousands) | |||
Customer types: | |||
Retail | $ | 50,641 | |
Wholesale | 9,050 | ||
Market - off-system sales | 2,275 | ||
Transmission/Other | 11,718 | ||
Revenue from contracts with customers | 73,684 | ||
Other revenues | 131 | ||
Total revenues | $ | 73,815 | |
Timing of revenue recognition: | |||
Services transferred at a point in time | — | ||
Services transferred over time | 73,684 | ||
Revenue from contracts with customers | $ | 73,684 |
(3) | ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS |
March 31, 2018 | December 31, 2017 | |||||
Accounts receivable trade | $ | 16,992 | $ | 15,994 | ||
Unbilled revenues | 12,772 | 13,280 | ||||
Allowance for doubtful accounts | (262 | ) | (224 | ) | ||
Receivables - customers, net | $ | 29,502 | $ | 29,050 |
(4) | REGULATORY ACCOUNTING |
Maximum Amortization (in years) | March 31, 2018 | December 31, 2017 | ||||||
Regulatory assets: | ||||||||
Unamortized loss on reacquired debt (a) | 7 | $ | 1,464 | $ | 1,534 | |||
Deferred taxes on AFUDC (b) | 45 | 5,050 | 5,095 | |||||
Employee benefit plans(c) | 12 | 19,723 | 19,465 | |||||
Deferred energy and fuel cost adjustments - current (a) | 1 | 17,912 | 19,602 | |||||
Deferred taxes on flow through accounting | 54 | 7,929 | 7,579 | |||||
Decommissioning costs, net of amortization | 6 | 9,738 | 10,252 | |||||
Vegetation management, net of amortization | 6 | 12,093 | 12,669 | |||||
Other regulatory assets (a) | 6 | 2,303 | 2,507 | |||||
Total regulatory assets | $ | 76,212 | $ | 78,703 |
Regulatory liabilities: | ||||||||
Cost of removal for utility plant (a) | 61 | $ | 49,580 | $ | 44,056 | |||
Employee benefit plan costs and related deferred taxes (c) | 12 | 6,808 | 6,808 | |||||
Excess deferred income taxes | 40 | 97,061 | 97,101 | |||||
TCJA revenue reserve (d) | subject to approval | 3,121 | — | |||||
Other regulatory liabilities | 13 | 1,033 | 890 | |||||
Total regulatory liabilities | $ | 157,603 | $ | 148,855 |
(a) | We are allowed a recovery of costs, but we are not allowed a rate of return. |
(b) | In addition to recovery of costs, we are allowed a rate of return. |
(c) | In addition to recovery or repayment of costs, we are allowed a return on a portion of this amount or a reduction in rate base. |
(d) | As of March 31, 2018, the amortization period is yet to be determined and subject to approval by our regulators. |
(5) | RELATED-PARTY TRANSACTIONS |
March 31, 2018 | December 31, 2017 | ||||||
Receivables - affiliates | $ | 6,925 | $ | 5,664 | |||
Accounts payable - affiliates | $ | 24,767 | $ | 25,653 |
March 31, 2018 | December 31, 2017 | ||||||
Money pool notes payable | $ | 13,541 | $ | 13,397 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Net interest income (expense) | $ | (36 | ) | $ | 126 |
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Revenue: | ||||||
Energy sold to Cheyenne Light | $ | 703 | $ | 878 | ||
Rent from electric properties | $ | 3,678 | $ | 1,272 | ||
Fuel and purchased power: | ||||||
Purchases of coal from WRDC | $ | 4,067 | $ | 4,280 | ||
Purchase of excess energy from Cheyenne Light | $ | 86 | $ | 40 | ||
Purchase of renewable wind energy from Cheyenne Light - Happy Jack | $ | 641 | $ | 606 | ||
Purchase of renewable wind energy from Cheyenne Light - Silver Sage | $ | 1,093 | $ | 1,019 | ||
Gas transportation service agreement: | ||||||
Gas transportation service agreement with Cheyenne Light for firm and interruptible gas transportation | $ | 96 | $ | 99 | ||
Corporate support: | ||||||
Corporate support services and fees from Parent, Black Hills Service Company and Black Hills Utility Holdings | $ | 7,606 | $ | 6,611 |
(6) | EMPLOYEE BENEFIT PLANS |
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Service cost | $ | 129 | $ | 136 | |||
Interest cost | 548 | 585 | |||||
Expected return on plan assets | (886 | ) | (897 | ) | |||
Prior service cost | 11 | 11 | |||||
Net loss (gain) | 516 | 307 | |||||
Net periodic benefit cost | $ | 318 | $ | 142 |
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Service cost | $ | 48 | $ | 52 | |||
Interest cost | 45 | 44 | |||||
Prior service cost (benefit) | (84 | ) | (84 | ) | |||
Net periodic benefit cost | $ | 9 | $ | 12 |
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
Interest cost | $ | 27 | $ | 29 | |||
Net loss (gain) | 26 | 22 | |||||
Net periodic benefit cost | $ | 53 | $ | 51 |
Contributions Three Months Ended March 31, 2018 | Remaining Anticipated Contributions for 2018 | Anticipated Contributions for 2019 | |||||||
Defined Benefit Pension Plan | $ | — | $ | 1,795 | $ | 1,789 | |||
Defined Benefit Postretirement Healthcare Plan | $ | 134 | $ | 401 | $ | 554 | |||
Supplemental Non-qualified Defined Benefit Plans | $ | 61 | $ | 184 | $ | 241 |
(7) | FAIR VALUE OF FINANCIAL INSTRUMENTS |
March 31, 2018 | December 31, 2017 | ||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||
Cash and cash equivalents (a) | $ | 12 | $ | 12 | $ | 16 | $ | 16 | |||||
Long-term debt, including current maturities (b) (c) | $ | 339,930 | $ | 429,001 | $ | 339,895 | $ | 446,978 |
(a) | Carrying value approximates fair value due to either short-term length of maturity or variable interest rates that approximate prevailing market rates and therefore is classified in Level 1 in the fair value hierarchy. |
(b) | Long-term debt is valued based on observable inputs available either directly or indirectly for similar liabilities in active markets and therefore is classified in Level 2 in the fair value hierarchy. |
(c) | Carrying amount of long-term debt is net of deferred financing costs. |
(8) | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
Three months ended March 31, | 2018 | 2017 | |||||
(in thousands) | |||||||
Non-cash investing and financing activities - | |||||||
Property, plant and equipment acquired with accrued liabilities | $ | 7,556 | $ | 10,998 | |||
Non-cash (decrease) to money pool notes receivable, net | $ | (16,000 | ) | $ | (7,000 | ) | |
Non-cash dividend to Parent | $ | 16,000 | $ | 7,000 | |||
Cash (paid) refunded during the period for - | |||||||
Interest (net of amounts capitalized) | $ | (3,088 | ) | $ | (3,014 | ) |
(9) | COMMITMENTS AND CONTINGENCIES |
(10) | INCOME TAXES |
Three Months Ended March 31, | |||||||||
2018 | 2017 | Variance | |||||||
(in thousands) | |||||||||
Revenue | $ | 73,815 | $ | 73,794 | $ | 21 | |||
Fuel and purchased power | 22,440 | 23,149 | (709 | ) | |||||
Gross margin | 51,375 | 50,645 | 730 | ||||||
Operating expenses | 31,011 | 27,269 | 3,742 | ||||||
Operating income | 20,364 | 23,376 | (3,012 | ) | |||||
Interest income (expense), net | (5,424 | ) | (5,437 | ) | 13 | ||||
Other income (expense), net | (117 | ) | 418 | (535 | ) | ||||
Income tax expense | (3,063 | ) | (5,787 | ) | 2,724 | ||||
Net income | $ | 11,760 | $ | 12,570 | $ | (810 | ) |
Electric Revenue by Customer Type | |||||||||
Three Months Ended March 31, | |||||||||
(in thousands) | |||||||||
2018 | Percentage Change | 2017 | |||||||
Residential | $ | 21,061 | 5% | $ | 20,071 | ||||
Commercial | 23,544 | (3)% | 24,291 | ||||||
Industrial | 8,276 | (2)% | 8,454 | ||||||
Municipal | 811 | (3)% | 836 | ||||||
Total retail revenue | 53,692 | —% | 53,652 | ||||||
Wholesale (a) | 9,050 | 15% | 7,843 | ||||||
Market - off-system sales (b) | 2,275 | (41)% | 3,833 | ||||||
Other revenue | 8,798 | 4% | 8,466 | ||||||
Total revenue | $ | 73,815 | —% | $ | 73,794 |
(a) | Increase for the three months ended March 31, 2018 was primarily driven by colder weather. |
(b) | Decrease for three months ended March 31, 2018 was due to softer market conditions driven by natural gas prices and excess energy in the market. |
Megawatt Hours Sold by Customer Type | |||||||
Three Months Ended March 31, | |||||||
2018 | Percentage Change | 2017 | |||||
Residential | 163,113 | 9% | 149,572 | ||||
Commercial | 194,931 | (1)% | 196,406 | ||||
Industrial | 104,302 | (5)% | 109,796 | ||||
Municipal | 7,503 | (1)% | 7,605 | ||||
Total retail quantity sold | 469,849 | 1% | 463,379 | ||||
Wholesale (a) | 237,704 | 28% | 186,116 | ||||
Market - off-system sales (b) | 92,102 | (40)% | 154,496 | ||||
Total quantity sold | 799,655 | (1)% | 803,991 | ||||
Losses and company use (c) | 28,522 | (32)% | 41,841 | ||||
Total energy | 828,177 | (2)% | 845,832 |
(a) | Increase for the three months ended March 31, 2018 was primarily driven by colder weather. |
(b) | Decrease for three months ended March 31, 2018 was due to softer market conditions driven by lower natural gas prices and excess energy in the market. |
(c) | Includes company uses, line losses, and excess exchange production. |
Megawatt Hours Generated and Purchased | |||||||
Three Months Ended March 31, | |||||||
Generated - | 2018 | Percentage Change | 2017 | ||||
Coal-fired | 399,087 | 3% | 387,985 | ||||
Natural Gas and Oil (a) | 13,107 | 27% | 10,350 | ||||
Total generated | 412,194 | 3% | 398,335 | ||||
Total purchased | 415,983 | (7)% | 447,497 | ||||
Total generated and purchased | 828,177 | (2)% | 845,832 |
(a) | Increase for the three months ended March 31, 2018 compared to the same periods in the prior year are driven primarily by lower natural gas prices compared to purchased power. |
Power Plant Availability | ||||||
Three Months Ended March 31, | ||||||
2018 | 2017 | |||||
Coal-fired plants (a) | 92.9 | % | 89.2 | % | ||
Other plants | 99.4 | % | 99.4 | % | ||
Total availability | 96.3 | % | 94.6 | % |
(a) | Both years included outages. 2018 included planned outages at Neil Simpson II, Wyodak and Wygen II, and 2017 included a planned outage at Wygen III and an extended planned outage at Wyodak. |
Degree Days | |||||||||
Three Months Ended March 31, | |||||||||
2018 | 2017 | ||||||||
Actual | Variance from 30-year Average | Actual | Variance from 30-year Average | ||||||
Heating degree days | 3,699 | 15 | % | 3,130 | (3 | )% | |||
Cooling degree days | — | — | % | — | — | % |
Rating Agency | Secured Rating |
S&P | A- |
Moody’s | A1 |
Fitch | A |
ITEM 4. | CONTROLS AND PROCEDURES |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Item 6. | Exhibits |
Exhibit 3.1* |
Exhibit 3.2* |
Exhibit 4.1* |
Exhibit 31.1 |
Exhibit 31.2 |
Exhibit 32.1 |
Exhibit 32.2 |
Exhibit 101 | Financial Statements for XBRL Format |
* | Previously filed as part of the filing indicated and incorporated by reference herein. |
1. | I have reviewed this quarterly report on Form 10-Q of Black Hills Power, Inc.; |
2. | Based on my knowledge, this 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; and |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | May 4, 2018 | |
/S/ DAVID R. EMERY | ||
David R. Emery | ||
Chairman and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Black Hills Power, Inc.; |
2. | Based on my knowledge, this 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 report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this 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 report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | May 4, 2018 | |
/S/ RICHARD W. KINZLEY | ||
Richard W. Kinzley | ||
Senior Vice President and Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13 (a) or |
(2) | The information contained in the Report fairly presents, in all material |
Date: | May 4, 2018 | |
/S/ DAVID R. EMERY | ||
David R. Emery | ||
Chairman and Chief Executive Officer |
(1) | The Report fully complies with the requirements of Section 13 (a) or |
(2) | The information contained in the Report fairly presents, in all material |
Date: | May 4, 2018 | |
/S/ RICHARD W. KINZLEY | ||
Richard W. Kinzley | ||
Senior Vice President and Chief Financial Officer |
Document and Entity Information Document - shares |
3 Months Ended | |
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Mar. 31, 2018 |
Apr. 30, 2018 |
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Document and Entity Information [Abstract] | ||
Entity Registrant Name | BLACK HILLS POWER INC | |
Entity Central Index Key | 0000012400 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
Amendment Flag | false | |
Document Fiscal Year End Focus | 2018 | |
Document Fiscal Period Focus | Q1 | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Common Stock, Shares Outstanding | 23,416,396 |
Condensed Statements of Comprehensive Income OCI Parenthetical - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2018 |
Mar. 31, 2017 |
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Income Statement [Abstract] | ||
Reclassification adjustment of cash flow hedges settled, (tax) benefit | $ (6) | $ (6) |
Reclassification adjustment of benefit and other postretirement plans included in net income, (tax) benefit | $ (9) | $ (8) |
Condensed Balance Sheets Parenthetical - $ / shares |
Mar. 31, 2018 |
Dec. 31, 2017 |
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Statement of Financial Position [Abstract] | ||
Common Stock, Par Value (usd per share) | $ 1 | $ 1 |
Common Stock, Shares authorized | 50,000,000 | 50,000,000 |
Common Stock, Shares Issued | 23,416,396 | 23,416,396 |
Management's Statement: |
3 Months Ended |
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Mar. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Management's Statement | MANAGEMENT’S STATEMENT The unaudited condensed financial statements included herein have been prepared by Black Hills Power, Inc. (the “Company,” “we,” “us,” or “our”), pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, we believe that the footnotes adequately disclose the information presented. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto, included in our 2017 Annual Report on Form 10-K filed with the SEC. The information furnished in the accompanying condensed financial statements reflects certain estimates required and all adjustments, including accruals, which are, in the opinion of management, necessary for a fair presentation of the March 31, 2018, December 31, 2017 and March 31, 2017 financial information and are of a normal recurring nature. The results of operations for the three months ended March 31, 2018 and March 31, 2017, and our financial condition as of March 31, 2018 and December 31, 2017 are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period. Recently Issued Accounting Standards Leases, ASU 2016-02 In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. This ASU requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for most leases, whereas today only financing-type lease liabilities (capital leases) are recognized on the balance sheet. In addition, the definition of a lease has been revised in regards to when an arrangement conveys the right to control the use of the identified asset under the arrangement which may result in changes to the classification of an arrangement as a lease. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASU is largely unchanged from the previous accounting standard. The ASU expands the disclosure requirements of lease arrangements. Under the current guidance, lessees and lessors will use a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. In January 2018, the FASB issued amendments to the new lease standard, ASU No. 2018-01, allowing an entity to elect not to assess whether certain land easements are, or contain, leases when transitioning to the new lease standard. We currently expect to adopt this standard on January 1, 2019 and anticipate electing not to assess existing or expired land easements that were not previously accounted for as a lease when transitioning to the new standard. We continue to evaluate the impact of this new standard on our financial position, results of operations and cash flows as well as monitor utility industry implementation guidance. We continue the process of identifying and categorizing our lease contracts and evaluating our current business processes relating to leases. We have selected and initiated implementation of a new lease software solution. Recently Adopted Accounting Standards Revenue from Contracts with Customers, ASU 2014-09 Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as ASC 606). Under this standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We applied the five-step method outlined in the ASU to all in-scope revenue streams and elected the modified retrospective implementation method. Implementation of the standard did not have a material impact on our financial position, results of operations or cash flows. Implementation of the standard did not have a significant impact on the measurement or recognition of revenue; therefore, no cumulative adoption adjustment to the opening balance of Retained earnings at the date of initial application was necessary. The additional disclosures required by the ASU are included in Note 2. Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost, ASU 2017-07 Effective January 1, 2018, we adopted ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost. The standard requires employers to report the service cost component in the same line item(s) as other compensation costs, and require the other components of net periodic pension and post-retirement benefit costs to be separately presented in the income statement outside of income from operations. Additionally, only the service cost component may be eligible for capitalization, when applicable. However, all cost components remain eligible for capitalization under FERC regulations. The capitalization of only the service cost component of net periodic pension and post-retirement benefit costs in assets was applied on a prospective basis. For our rate-regulated entities, we capitalize the other components of net periodic benefit costs into regulatory assets or regulatory liabilities and maintain a FERC-to-GAAP reporting difference for these capitalized costs. The presentation changes required for net periodic pension and post-retirement costs resulted in offsetting changes to Operating income and Other income. Implementation of the standard did not have a material impact on our financial position, results of operations or cash flows. Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, ASU 2016-15 Effective January 1, 2018, we adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This ASU requires changes in the presentation of certain items, including but not limited to, debt prepayment or debt extinguishment costs; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. We implemented this standard effective January 1, 2018 using the retrospective transition method. This standard had no impact on our financial position, results of operations or cash flows. |
Revenue: |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue | REVENUE Revenue Recognition Revenues are recognized in an amount that reflects the consideration we expect to receive in exchange for goods or services, when control of the promised goods or services is transferred to our customers. Our primary types of revenue contracts are:
The following table depicts the disaggregation of revenue, including intercompany revenue, from contracts with customers by customer type and timing of revenue recognition for each of the reporting segments. Sales tax and other similar taxes are excluded from revenues.
The majority of the our revenue contracts are based on variable quantities delivered; any fixed consideration contracts with an expected duration of one year or more are immaterial to our revenues. Variable consideration constraints in the form of discounts, rebates, credits, price concessions, incentives, performance bonuses, penalties or other similar items are not material for our revenue contracts. We are the principal in our revenue contracts, as we have control over the services prior to those services being transferred to the customer. Revenue Not in Scope of ASC 606 Other revenues included in the table above include revenue accounted for under separate accounting guidance, including lease revenue under ASC 840 and alternative revenue programs revenue under ASC 980. Significant Judgments and Estimates TCJA revenue reserve The TCJA or “tax reform”, signed into law on December 22, 2017, reduced the federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. Black Hills Power’s regulators have directed the utility to calculate the impact of tax reform on existing customer rates and tariffs caused by the income tax rate reduction. Until the regulators have a chance to review and approve these calculations, the utility continues to charge customers existing rates with the embedded 35% tax rate and estimate a reserve to revenue based on current discussions or filed applications with the regulators. We estimated and recorded a revenue reserve of approximately $3.1 million during the three months ended March 31, 2018. Unbilled Revenue Revenues attributable to energy delivered to customers but not yet billed are estimated and accrued, and the related costs are charged to expense. Factors influencing the determination of unbilled revenues may include estimates of delivered sales volumes based on weather information and customer consumption trends. Contract Balances The nature of our primary revenue contracts provides an unconditional right to consideration upon service delivery; therefore, no customer contract assets or liabilities exist. The unconditional right to consideration is represented by the balance in our Accounts Receivable and is further discussed in Note 1 of our Notes to the Financial Statements of our 2017 Annual Report on Form 10-K Business Description. We do not typically incur costs that would be capitalized, to obtain or fulfill a contract. Practical Expedients Our revenue contracts generally provide for performance obligations that are fulfilled and transfer control to customers over time, represent a series of distinct services that are substantially the same, involve the same pattern of transfer to the customer, and provide a right to consideration from our customers in an amount that corresponds directly with the value to the customer for the performance completed to date. Therefore, we recognize revenue in the amount to which we have a right to invoice. We have revenue contract performance obligations with similar characteristics, and we reasonably expect that the financial statement impact of applying the new revenue recognition guidance to a portfolio of contracts would not differ materially from applying this guidance to the individual contracts or performance obligations within the portfolio. Therefore, we have elected the portfolio approach in applying the new revenue guidance. |
Accounts Receivable and Allowance for Doubtful Accounts: |
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Accounts Receivable and Allowance for Doubtful Accounts | ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Following is a summary of Receivables - customers, net included in the accompanying Condensed Balance Sheets (in thousands) as of:
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Regulatory Accounting: |
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Regulated Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Regulatory Accounting | REGULATORY ACCOUNTING Our regulated electric operations are subject to regulation by various state and federal agencies. The accounting policies followed are generally subject to the Uniform System of Accounts of the FERC. Our regulatory assets and liabilities were as follows (in thousands) as of:
____________________
Regulatory Matters Except as discussed below, there have been no other significant changes to our Regulatory Matters from those previously disclosed in Note 1 of the Notes to the Financial Statements in our 2017 Annual Report on Form 10-K. TCJA revenue reserve - The TCJA signed into law on December 22, 2017, reduced the federal corporate income tax rate from 35% to 21%. Effective January 1, 2018, the key impact of tax reform on existing utility revenues/tariffs established prior to tax reform results primarily from the change in the federal tax rate from 35% to 21% (including the effects of tax gross-ups not yet approved) affecting current income tax expense embedded in those tariffs. Black Hills Power’s regulators have issued orders directing the utility to calculate the impacts of tax reform on existing rates/tariffs caused by the income tax rate reduction. Until each regulator has a chance to review and approve the calculations, the utility continues to charge customers existing rates with the embedded 35% federal tax rate, resulting in a reserve to revenue until new rates reflecting the 21% federal tax rate are effective. We estimated and recorded a reserve to revenue of approximately $3.1 million during the three months ended March 31, 2018. We are working with our respective regulators to address the impact of tax reform and the appropriate benefit to customers. |
Related-Party Transactions: |
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Related-Party Transactions | RELATED-PARTY TRANSACTIONS Non-Cash Dividend to Parent We recorded non-cash dividends to our Parent of $16 million and $7.0 million for three months ended March 31, 2018 and March 31, 2017, respectively, and decreased the utility Money pool note receivable by $16 million and $7.0 million for the three months ended March 31, 2018 and March 31, 2017, respectively. Receivables and Payables We have accounts receivable and accounts payable balances related to transactions with other BHC subsidiaries. The balances were as follows (in thousands) as of:
Money Pool Notes Receivable and Notes Payable We participate in the Utility Money Pool Agreement (the Agreement). Under the Agreement, we may borrow from the pool; however the Agreement restricts the pool from loaning funds to BHC or to any of BHC’s non-utility subsidiaries. The Agreement does not restrict us from paying dividends to BHC. Borrowings under the Agreement bear interest at the weighted average daily cost of our parent company’s external borrowings as defined under the Agreement, or if there are no external funds outstanding on that date, then the rate will be the daily one-month LIBOR plus 1.0%. At March 31, 2018, the average cost of borrowing under the Utility Money Pool was 2.54%. We had the following balances with the Utility Money Pool (in thousands) as of:
Our net interest income (expense) relating to balances with the Utility Money Pool was as follows (in thousands):
Other related party activity was as follows (in thousands):
Horizon Point Agreement We have a shared facility agreement among South Dakota Electric, Black Hills Service Company, and Black Hills Utility Holdings where there is a cost allocation for the use of the Horizon Point facility that is owned by South Dakota Electric. This cost allocation includes the recovery of and return on allocable property and recovery of incurred administrative service expenses for the operation and maintenance of the Horizon Point facility. |
Employee Benefit Plans: |
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Employee Benefit Plans | EMPLOYEE BENEFIT PLANS The components of net periodic benefit cost for the Defined Benefit Pension Plan were as follows (in thousands):
Defined Benefit Postretirement Healthcare Plan The components of net periodic benefit cost for the Defined Benefit Postretirement Healthcare Plan were as follows (in thousands):
Supplemental Non-qualified Defined Benefit Plans The components of net periodic benefit cost for the Supplemental Non-qualified Defined Benefit Plans were as follows (in thousands):
For the three months ended March 31, 2018, service costs were recorded in Operations and maintenance expense while non-service costs were recorded in Other income (expense), net on the Condensed Statements of Comprehensive Income. For the three months ended March 31, 2017, service costs and non-service costs were recorded in Operations and maintenance expense. Because prior years’ costs were not considered material, they were not reclassified on the Condensed Statements of Comprehensive Income. See Note 1 for additional information. Contributions Contributions to the Defined Benefit Pension Plan are cash contributions made directly to the Pension Plan Trust account. Contributions to the Postretirement Healthcare and Supplemental Plans are made in the form of benefit payments. Contributions made for 2018 and anticipated contributions for 2018 and 2019 are as follows (in thousands):
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Fair Value of Financial Instruments: |
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Fair Value of Financial Instruments | FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance on fair value measurements establishes a hierarchy for grouping assets and liabilities, based on significance of inputs. For additional information see Note 1 included in our 2017 Annual Report on Form 10-K filed with the SEC. The estimated fair values of our financial instruments were as follows (in thousands) as of:
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Supplemental Disclosure of Cash Flow Information: |
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Supplemental Disclosure of Cash Flow Information | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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Commitment and Contingencies: |
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Mar. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES There have been no significant changes to commitments and contingencies from those previously disclosed in Note 11 of our Notes to the Financial Statements in our 2017 Annual Report on Form 10-K. |
Income Taxes: |
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Mar. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | INCOME TAXES On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA reduced the U.S. federal corporate tax rate from 35% to 21%. The Company remeasured deferred income taxes at the 21% federal tax rate as of December 31, 2017. We have made our best estimate regarding the probability of settlements of net regulatory liabilities established pursuant to the TCJA. The amount of the settlements may change based on decisions and actions by the rate regulators, which could have a material impact on the Company’s future results of operations, cash flows or financial position. We revalued our deferred tax assets and liabilities as of December 31, 2017, which reflected our estimate of the impact of the TCJA. We will continue to evaluate subsequent regulations, clarifications and interpretations with the assumptions made, which could materially change our estimate. |
Managment's Statement (Policies) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recently Issued and Adopted Accounting Standards | Recently Issued Accounting Standards Leases, ASU 2016-02 In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. This ASU requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for most leases, whereas today only financing-type lease liabilities (capital leases) are recognized on the balance sheet. In addition, the definition of a lease has been revised in regards to when an arrangement conveys the right to control the use of the identified asset under the arrangement which may result in changes to the classification of an arrangement as a lease. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASU is largely unchanged from the previous accounting standard. The ASU expands the disclosure requirements of lease arrangements. Under the current guidance, lessees and lessors will use a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented in the year of adoption. The guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. In January 2018, the FASB issued amendments to the new lease standard, ASU No. 2018-01, allowing an entity to elect not to assess whether certain land easements are, or contain, leases when transitioning to the new lease standard. We currently expect to adopt this standard on January 1, 2019 and anticipate electing not to assess existing or expired land easements that were not previously accounted for as a lease when transitioning to the new standard. We continue to evaluate the impact of this new standard on our financial position, results of operations and cash flows as well as monitor utility industry implementation guidance. We continue the process of identifying and categorizing our lease contracts and evaluating our current business processes relating to leases. We have selected and initiated implementation of a new lease software solution. Recently Adopted Accounting Standards Revenue from Contracts with Customers, ASU 2014-09 Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as ASC 606). Under this standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We applied the five-step method outlined in the ASU to all in-scope revenue streams and elected the modified retrospective implementation method. Implementation of the standard did not have a material impact on our financial position, results of operations or cash flows. Implementation of the standard did not have a significant impact on the measurement or recognition of revenue; therefore, no cumulative adoption adjustment to the opening balance of Retained earnings at the date of initial application was necessary. The additional disclosures required by the ASU are included in Note 2. Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost, ASU 2017-07 Effective January 1, 2018, we adopted ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost. The standard requires employers to report the service cost component in the same line item(s) as other compensation costs, and require the other components of net periodic pension and post-retirement benefit costs to be separately presented in the income statement outside of income from operations. Additionally, only the service cost component may be eligible for capitalization, when applicable. However, all cost components remain eligible for capitalization under FERC regulations. The capitalization of only the service cost component of net periodic pension and post-retirement benefit costs in assets was applied on a prospective basis. For our rate-regulated entities, we capitalize the other components of net periodic benefit costs into regulatory assets or regulatory liabilities and maintain a FERC-to-GAAP reporting difference for these capitalized costs. The presentation changes required for net periodic pension and post-retirement costs resulted in offsetting changes to Operating income and Other income. Implementation of the standard did not have a material impact on our financial position, results of operations or cash flows. Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, ASU 2016-15 Effective January 1, 2018, we adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force). This ASU requires changes in the presentation of certain items, including but not limited to, debt prepayment or debt extinguishment costs; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity method investees. We implemented this standard effective January 1, 2018 using the retrospective transition method. This standard had no impact on our financial position, results of operations or cash flows. |
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Revenue Recognition, Policy | Revenues are recognized in an amount that reflects the consideration we expect to receive in exchange for goods or services, when control of the promised goods or services is transferred to our customers. Our primary types of revenue contracts are:
The following table depicts the disaggregation of revenue, including intercompany revenue, from contracts with customers by customer type and timing of revenue recognition for each of the reporting segments. Sales tax and other similar taxes are excluded from revenues.
The majority of the our revenue contracts are based on variable quantities delivered; any fixed consideration contracts with an expected duration of one year or more are immaterial to our revenues. Variable consideration constraints in the form of discounts, rebates, credits, price concessions, incentives, performance bonuses, penalties or other similar items are not material for our revenue contracts. We are the principal in our revenue contracts, as we have control over the services prior to those services being transferred to the customer. Revenue Not in Scope of ASC 606 Other revenues included in the table above include revenue accounted for under separate accounting guidance, including lease revenue under ASC 840 and alternative revenue programs revenue under ASC 980. Significant Judgments and Estimates TCJA revenue reserve The TCJA or “tax reform”, signed into law on December 22, 2017, reduced the federal corporate income tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. Black Hills Power’s regulators have directed the utility to calculate the impact of tax reform on existing customer rates and tariffs caused by the income tax rate reduction. Until the regulators have a chance to review and approve these calculations, the utility continues to charge customers existing rates with the embedded 35% tax rate and estimate a reserve to revenue based on current discussions or filed applications with the regulators. We estimated and recorded a revenue reserve of approximately $3.1 million during the three months ended March 31, 2018. Unbilled Revenue Revenues attributable to energy delivered to customers but not yet billed are estimated and accrued, and the related costs are charged to expense. Factors influencing the determination of unbilled revenues may include estimates of delivered sales volumes based on weather information and customer consumption trends. Contract Balances The nature of our primary revenue contracts provides an unconditional right to consideration upon service delivery; therefore, no customer contract assets or liabilities exist. The unconditional right to consideration is represented by the balance in our Accounts Receivable and is further discussed in Note 1 of our Notes to the Financial Statements of our 2017 Annual Report on Form 10-K Business Description. We do not typically incur costs that would be capitalized, to obtain or fulfill a contract. Practical Expedients Our revenue contracts generally provide for performance obligations that are fulfilled and transfer control to customers over time, represent a series of distinct services that are substantially the same, involve the same pattern of transfer to the customer, and provide a right to consideration from our customers in an amount that corresponds directly with the value to the customer for the performance completed to date. Therefore, we recognize revenue in the amount to which we have a right to invoice. We have revenue contract performance obligations with similar characteristics, and we reasonably expect that the financial statement impact of applying the new revenue recognition guidance to a portfolio of contracts would not differ materially from applying this guidance to the individual contracts or performance obligations within the portfolio. Therefore, we have elected the portfolio approach in applying the new revenue guidance. |
Revenue (Tables) |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of Revenue | The following table depicts the disaggregation of revenue, including intercompany revenue, from contracts with customers by customer type and timing of revenue recognition for each of the reporting segments. Sales tax and other similar taxes are excluded from revenues.
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Accounts Receivable and Allowance For Doubtful Accounts (Tables) |
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Accounts Receivable, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Accounts Receivable | Following is a summary of Receivables - customers, net included in the accompanying Condensed Balance Sheets (in thousands) as of:
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Regulatory Accounting (Tables) |
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Regulated Operations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Regulatory Assets | Our regulatory assets and liabilities were as follows (in thousands) as of:
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Schedule of Regulatory Liabilities |
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Related-Party Transactions (Tables) |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Related Party Accounts Receivable and Payable | The balances were as follows (in thousands) as of:
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Schedule of Related Party Notes | We had the following balances with the Utility Money Pool (in thousands) as of:
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Schedule of Related Party Interest Income Expense | Our net interest income (expense) relating to balances with the Utility Money Pool was as follows (in thousands):
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Schedule of Revenues and Purchases from Related Parties | Other related party activity was as follows (in thousands):
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Employee Benefit Plans (Tables) |
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Defined Benefit Plan [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Benefit Costs | The components of net periodic benefit cost for the Defined Benefit Pension Plan were as follows (in thousands):
Defined Benefit Postretirement Healthcare Plan The components of net periodic benefit cost for the Defined Benefit Postretirement Healthcare Plan were as follows (in thousands):
Supplemental Non-qualified Defined Benefit Plans The components of net periodic benefit cost for the Supplemental Non-qualified Defined Benefit Plans were as follows (in thousands):
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Schedule of Defined Benefit Plans Contributions | Contributions made for 2018 and anticipated contributions for 2018 and 2019 are as follows (in thousands):
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Fair Value of Financial Instruments (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value of Financial Instruments | The estimated fair values of our financial instruments were as follows (in thousands) as of:
_________________
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Supplemental Disclosure of Cash Flow Information (Tables) |
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Cash Flow, Supplemental Disclosures |
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Management Statement (Details) - USD ($) |
Mar. 31, 2018 |
Dec. 31, 2017 |
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Disaggregation of Revenue [Line Items] | ||
Cumulative adoption adjustment to the opening balance of Retained earnings | $ 328,260,000 | $ 332,499,000 |
Accounting Standards Update 2014-09 | ||
Disaggregation of Revenue [Line Items] | ||
Cumulative adoption adjustment to the opening balance of Retained earnings | $ 0 |
Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2018 |
Mar. 31, 2017 |
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Disaggregation of Revenue [Line Items] | ||
Revenue from contracts with customers | $ 73,684 | |
Other revenues | 131 | |
Total revenues | 73,815 | $ 73,794 |
Services transferred at a point in time | ||
Disaggregation of Revenue [Line Items] | ||
Revenue from contracts with customers | 0 | |
Services transferred over time | ||
Disaggregation of Revenue [Line Items] | ||
Revenue from contracts with customers | 73,684 | |
Retail | ||
Disaggregation of Revenue [Line Items] | ||
Revenue from contracts with customers | 50,641 | |
Wholesale | ||
Disaggregation of Revenue [Line Items] | ||
Revenue from contracts with customers | 9,050 | |
Market - off-system sales | ||
Disaggregation of Revenue [Line Items] | ||
Revenue from contracts with customers | 2,275 | |
Transmission/Other | ||
Disaggregation of Revenue [Line Items] | ||
Revenue from contracts with customers | $ 11,718 |
Revenue: Significant Judgements and Estimates (Details) $ in Millions |
3 Months Ended |
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Mar. 31, 2018
USD ($)
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Revenue from Contract with Customer [Abstract] | |
Estimated and recorded revenue reduction from TCJA tax benefits | $ 3.1 |
Accounts Receivable and Allowance For Doubtful Accounts (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
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Accounts Receivable, Net [Abstract] | ||
Accounts receivable trade | $ 16,992 | $ 15,994 |
Unbilled revenues | 12,772 | 13,280 |
Allowance for doubtful accounts | (262) | (224) |
Receivables - customers, net | $ 29,502 | $ 29,050 |
Regulatory Accounting: Regulatory Liabilities (Details) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2018 |
Dec. 31, 2017 |
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Regulatory Liabilities [Line Items] | ||
Total regulatory liabilities | $ 157,603 | $ 148,855 |
Cost of removal for utility plant | ||
Regulatory Liabilities [Line Items] | ||
Maximum Amortization (in years) | 61 years | |
Total regulatory liabilities | $ 49,580 | 44,056 |
Employee benefit plan costs and related deferred taxes | ||
Regulatory Liabilities [Line Items] | ||
Maximum Amortization (in years) | 12 years | |
Total regulatory liabilities | $ 6,808 | 6,808 |
Excess deferred income taxes | ||
Regulatory Liabilities [Line Items] | ||
Maximum Amortization (in years) | 40 years | |
Total regulatory liabilities | $ 97,061 | 97,101 |
TCJA revenue reduction | ||
Regulatory Liabilities [Line Items] | ||
Total regulatory liabilities | $ 3,121 | 0 |
Other regulatory liabilities | ||
Regulatory Liabilities [Line Items] | ||
Maximum Amortization (in years) | 13 years | |
Total regulatory liabilities | $ 1,033 | $ 890 |
Regulatory Accounting: TCJA Revenue Reduction (Details) $ in Millions |
3 Months Ended |
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Mar. 31, 2018
USD ($)
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Regulated Operations [Abstract] | |
Estimated and recorded revenue reduction from TCJA tax benefits | $ 3.1 |
Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
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Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||||
Cash and cash equivalents, carrying amount | $ 12 | $ 16 | $ 1,127 | $ 234 |
Carrying Amount | ||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||||
Cash and cash equivalents, carrying amount | 12 | 16 | ||
Long-term debt, including current maturities, carrying amount | 339,930 | 339,895 | ||
Fair Value | ||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||||
Cash and cash equivalents, fair value | 12 | 16 | ||
Long-term debt, including current maturities, fair value | $ 429,001 | $ 446,978 |
Supplemental Disclosure of Cash Flow Information (Details) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2018 |
Mar. 31, 2017 |
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Noncash Investing and Financing Items [Abstract] | ||
Property, plant and equipment acquired with accrued liabilities | $ 7,556 | $ 10,998 |
Interest and Income Taxes Paid Net [Abstract] | ||
Interest (net of amounts capitalized) | (3,088) | (3,014) |
Subsidiary of Common Parent | ||
Noncash Investing and Financing Items [Abstract] | ||
Non-cash (decrease) to money pool notes receivable, net | (16,000) | (7,000) |
Parent | ||
Noncash Investing and Financing Items [Abstract] | ||
Non-cash dividend to Parent | $ 16,000 | $ 7,000 |
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