Company Quick10K Filing
Quick10K
Black Hills Power
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$74.25 60 $4,480
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2018-01-30 Amend Bylaw, Exhibits
SCCO Southern Copper 27,390
LDOS Leidos 10,820
CATY Cathay General Bancorp 2,970
FRME First Merchants 1,840
NTG Natco Group 879
FBM Foundation Building Materials 668
LND Brasilagro - Brazilian Agricultural Real Estate 210
SESN Sesen Bio 95
ORRP Oroplata Resources 0
JRVS Imine 0
BKH 2019-03-31
Item 2. Management's Discussion and Analysis of Financial Condition And
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
EX-31.1 bhpex-311q12019.htm
EX-31.2 bhpex-312q12019.htm
EX-32.1 bhpex-321q12019.htm
EX-32.2 bhpex-322q12019.htm

Black Hills Power Earnings 2019-03-31

BKH 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2019
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

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 o

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes x
No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o
No x
Securities registered pursuant to Section 12(b) of the Act:  None


As of April 30, 2019, 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.




TABLE OF CONTENTS

 
 
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, 2019 and 2018
 
 
 
 
 
Condensed Balance Sheets - unaudited
 
March 31, 2019 and December 31, 2018
 
 
 
 
 
Condensed Statements of Cash Flows - unaudited
 
Three Months Ended March 31, 2019 and 2018
 
 
 
 
 
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


2



GLOSSARY OF TERMS AND ABBREVIATIONS

The following terms and abbreviations appear in the text of this report and have the definitions described below:

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 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 (CDD)
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.
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 (HDD)
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.
Horizon Point
BHC Corporate headquarters building in Rapid City, South Dakota, which was completed in 2017.
LIBOR
London Interbank Offered Rate
Moody’s
Moody’s Investors Service, Inc.
Parent
Black Hills Corporation
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.
TCJA
Tax Cuts and Jobs Act enacted December 22, 2017
WRDC
Wyodak Resources Development Corp., an indirect, wholly-owned subsidiary of BHC


3






BLACK HILLS POWER, INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended March 31,
(unaudited)
2019
2018
 
(in thousands)
Revenue
$
79,041

$
73,815

 
 
 
Operating expenses:
 
 
Fuel and purchased power
22,733

22,440

Operations and maintenance
19,557

19,151

Depreciation and amortization
10,077

9,884

Taxes - property
2,032

1,976

Total operating expenses
54,399

53,451

 
 
 
Operating income
24,642

20,364

 
 
 
Other income (expense):
 
 
Interest charges -
 
 
Interest expense incurred (including amortization of debt issuance costs, premiums, and discounts)
(5,830
)
(5,587
)
Allowance for funds used during construction - borrowed
283

48

Interest income
115

115

Allowance for funds used during construction - equity

34

Other income (expense), net
(375
)
(151
)
Total other income (expense), net
(5,807
)
(5,541
)
 
 
 
Income before income taxes
18,835

14,823

Income tax expense
(3,338
)
(3,063
)
Net income
15,497

11,760

 
 
 
Other comprehensive income (loss), net of tax:
 
 
Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax of $0 and $(6), respectively)

10

Reclassification adjustment of benefit plan liability - net gain (loss) (net of tax of $(4) and $(9), respectively)
12

17

Other comprehensive income (loss), net of tax
12

27

 
 
 
Comprehensive income
$
15,509

$
11,787


The accompanying Notes to Condensed Financial Statements are an integral part of these Condensed Financial Statements.

4




BLACK HILLS POWER, INC.
CONDENSED BALANCE SHEETS

 
As of
(unaudited)
March 31, 2019
December 31, 2018
 
(in thousands)
ASSETS
 
 
Current assets:
 
 
Cash
$
5

$
112

Accounts receivable, net
28,354

28,431

Accounts receivable from affiliates
9,903

8,119

Materials, supplies and fuel
25,275

24,853

Regulatory assets, current
23,215

19,052

Other current assets
4,692

4,538

Total current assets
91,444

85,105

 
 
 
Investments
4,973

4,889

 
 
 
Property, plant and equipment
1,399,901

1,381,045

Less: accumulated depreciation and amortization
(383,681
)
(376,160
)
Total property, plant and equipment, net
1,016,220

1,004,885

 
 
 
Other assets:
 
 
Regulatory assets, non-current
53,141

56,680

Other assets, non-current
24,616

9,729

Total other assets, non-current
77,757

66,409

 
 
 
TOTAL ASSETS
$
1,190,394

$
1,161,288


The accompanying Notes to Condensed Financial Statements are an integral part of these Condensed Financial Statements.

5




BLACK HILLS POWER, INC.
CONDENSED BALANCE SHEETS
(Continued)
 
As of
(unaudited)
March 31, 2019
December 31, 2018
 
(in thousands, except share amounts)
LIABILITIES AND STOCKHOLDER’S EQUITY
 
 
Current liabilities:
 
 
Accounts payable
$
19,434

$
25,122

Accounts payable to affiliates
26,966

25,804

Accrued liabilities
40,428

34,193

Money pool notes payable
33,300

38,690

Regulatory liabilities, current
2,079

2,574

Total current liabilities
122,207

126,383

 
 
 
Long-term debt
340,070

340,035

 
 
 
Deferred credits and other liabilities:
 
 
Deferred income tax liabilities, net
116,499

114,009

Regulatory liabilities, non-current
161,714

160,642

Benefit plan liabilities
14,631

14,606

Other deferred credits and other liabilities
15,525

1,368

Total deferred credits and other liabilities
308,369

290,625

 
 
 
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
357,636

342,145

Accumulated other comprehensive loss
(879
)
(891
)
Total stockholder’s equity
419,748

404,245

 
 
 
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY
$
1,190,394

$
1,161,288


The accompanying Notes to Condensed Financial Statements are an integral part of these Condensed Financial Statements.


6



BLACK HILLS POWER, INC.
CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)
Three Months Ended March 31,
 
2019
2018
 
(in thousands)
Operating activities:
 
 
Net income
$
15,497

$
11,760

Adjustments to reconcile net income to net cash provided by operating activities-
 
 
Depreciation and amortization
10,077

9,884

Deferred income tax
1,718

(898
)
Employee benefits
195

380

Other adjustments, net
1,044

1,018

Change in operating assets and liabilities -
 
 
Accounts receivable and other current assets
(2,437
)
(2,478
)
Accounts payable and other current liabilities
6,210

3,320

Regulatory assets - current
(1,413
)
1,807

Regulatory liabilities - current
(444
)
3,171

Other operating activities, net
(594
)
35

Net cash provided by (used in) operating activities
29,853

27,999

 
 
 
Investing activities:
 
 
Property, plant and equipment additions
(24,386
)
(13,533
)
Proceeds from sale of assets

4,994

Other investing activities
(169
)
(3,608
)
Net cash provided by (used in) investing activities
(24,555
)
(12,147
)
 
 
 
Financing activities:
 
 
Change in money pool notes payable, net
(5,390
)
(15,856
)
Other financing activities
(15
)

Net cash provided by (used in) financing activities
(5,405
)
(15,856
)
 
 
 
Net change in cash
(107
)
(4
)
 
 
 
Cash, beginning of period
112

16

Cash, end of period
$
5

$
12


See Note 8 for supplemental cash flow information.

The accompanying Notes to Condensed Financial Statements are an integral part of these Condensed Financial Statements.

7



BLACK HILLS POWER, INC.

Notes to Condensed Financial Statements
(unaudited)
(Reference is made to Notes to Financial Statements
included in our 2018 Annual Report on Form 10-K)

(1)    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 2018 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, 2019, December 31, 2018 and March 31, 2018 financial information and are of a normal recurring nature. The results of operations for the three months ended March 31, 2019 and March 31, 2018, and our financial condition as of March 31, 2019 and December 31, 2018 are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period.

Recently Adopted Accounting Standards

Leases, ASU 2016-02

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet for most leases, whereas previously only financing-type lease liabilities (capital leases) were recognized on the balance sheet. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

We adopted the standard effective January 1, 2019. We elected the option to not recast comparative periods presented with transitioning to the new lease standard and will report these comparative periods as presented under previous lease guidance. In addition, we elected the package of practical expedients permitted under the transition guidance with the new standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment of existing land easement agreements.

Adoption of the new standard resulted in the recording of an operating lease right-of-use asset and an off-setting operating lease obligation liability of $14 million as of January 1, 2019. The lease standard did not materially impact our net earnings and had no impact on cash flows.













8



(2)    REVENUE

Revenue Recognition

As of January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and its related amendments (collectively known as ASC 606). Revenue is 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. The following table depicts the disaggregation of revenue, from contracts with customers by customer type and timing of revenue recognition for the three months ended March 31, 2019 and 2018. Sales tax and other similar taxes are excluded from revenues.
 
Three Months Ended March 31, 2019
Three Months Ended March 31, 2018
 
(in thousands)
Customer types:
 
 
Retail
$
53,076

$
50,641

Wholesale
8,343

9,050

Market - off-system sales
4,670

2,275

Transmission/Other
12,831

11,718

Revenue from contracts with customers
78,920

73,684

Other revenues
121

131

Total revenues
$
79,041

$
73,815

 
 
 
Timing of revenue recognition:
 
 
Services transferred over time
$
78,920

$
73,684

Revenue from contracts with customers
$
78,920

$
73,684



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 3. We do not typically incur costs that would be capitalized, to obtain or fulfill a revenue contract.


(3)
ACCOUNTS RECEIVABLE

Following is a summary of Accounts receivable, net included in the accompanying Condensed Balance Sheets (in thousands) as of:
 
March 31, 2019
December 31, 2018
Accounts receivable trade
$
18,196

$
16,236

Unbilled revenues
10,356

12,333

Allowance for doubtful accounts
(198
)
(138
)
Accounts receivable, net
$
28,354

$
28,431




9



(4)
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:
 
March 31, 2019
 
December 31, 2018
Regulatory assets:
 
 
 
Loss on reacquired debt (a)
$
1,191

 
$
1,259

Deferred taxes on AFUDC (b)
5,048

 
5,020

Employee benefit plans and related deferred taxes (c)

20,085

 
19,868

Deferred energy and fuel cost adjustments (b)
21,649

 
20,334

Deferred taxes on flow through accounting (c)
9,045

 
8,749

Decommissioning costs (a)
7,682

 
8,196

Vegetation management (a)
9,790

 
10,366

Other regulatory assets (a)
1,866

 
1,940

Total regulatory assets
$
76,356

 
$
75,732

Less current regulatory assets
(23,215
)
 
(19,052
)
Regulatory assets, non-current
$
53,141

 
$
56,680



Regulatory liabilities:
 
 
 
Cost of removal for utility plant (a)
$
53,758

 
$
52,366

Employee benefit plan costs and related deferred taxes (c)
7,518

 
7,518

Excess deferred income taxes (c)
99,846

 
100,276

TCJA revenue reserve
2,079

 
2,523

Other regulatory liabilities (c)
592

 
533

Total regulatory liabilities
$
163,793

 
$
163,216

Less current regulatory liabilities
(2,079
)
 
(2,574
)
Regulatory liabilities, non-current
$
161,714

 
$
160,642


____________________
(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.

Regulatory Matters

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 2018 Annual Report on Form 10-K.



10



(5)
RELATED-PARTY TRANSACTIONS

Dividend to Parent

We recorded non-cash dividends to our Parent of $16 million and decreased the utility Money pool note receivable by $16 million for the three months ended March 31, 2018. We did not record any dividends for the three months ended March 31, 2019.

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:
 
March 31, 2019
December 31, 2018
Accounts receivable from affiliates
$
9,903

$
8,119

Accounts payable to affiliates
$
26,966

$
25,804



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, 2019, the average cost of borrowing under the Utility Money Pool was 2.88%.

We had the following balances with the Utility Money Pool (in thousands) as of:
 
March 31, 2019
December 31, 2018
Money pool notes payable
$
33,300

$
38,690



Our net interest income (expense) relating to balances with the Utility Money Pool was as follows (in thousands):
 
Three Months Ended March 31,
 
2019
2018
Net interest income (expense)
$
(273
)
$
(36
)




11



Other related party activity was as follows (in thousands):
 
Three Months Ended
March 31,
 
2019
2018
Revenue:
 
 
Energy sold to Cheyenne Light
$
574

$
703

Rent from electric properties
$
896

$
909

Horizon Point shared facility revenues
$
3,007

$
2,769

 
 
 
Fuel and purchased power:
 
 
Purchases of coal from WRDC
$
4,657

$
4,067

Purchase of excess energy from Cheyenne Light
$
132

$
86

Purchase of renewable wind energy from Cheyenne Light - Happy Jack
$
535

$
641

Purchase of renewable wind energy from Cheyenne Light - Silver Sage
$
983

$
1,093

 
 
 
Gas transportation service agreement:
 
 
Gas transportation service agreement with Cheyenne Light for firm and interruptible gas transportation
$
76

$
96

 
 
 
Corporate support:
 
 
Corporate support services and fees from Black Hills Service Company
$
10,191

$
7,606




Horizon Point Agreement

We have a shared facility agreement among South Dakota Electric and Black Hills Service Company 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.


(6)
EMPLOYEE BENEFIT PLANS

The components of net periodic benefit cost for the Defined Benefit Pension Plan were as follows (in thousands):
 
Three Months Ended March 31,
 
2019
2018
Service cost
$
91

$
129

Interest cost
603

548

Expected return on plan assets
(851
)
(886
)
Prior service cost
2

11

Net loss (gain)
305

516

Net periodic benefit cost
$
150

$
318




12



Defined Benefit Postretirement Healthcare Plan

The components of net periodic benefit cost for the Defined Benefit Postretirement Healthcare Plan were as follows (in thousands):
 
Three Months Ended March 31,
 
2019
2018
Service cost
$
37

$
48

Interest cost
47

45

Prior service cost (benefit)
(84
)
(84
)
Net periodic benefit cost
$

$
9



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):
 
Three Months Ended March 31,
 
2019
2018
Interest cost
$
29

$
27

Net loss (gain)
16

26

Net periodic benefit cost
$
45

$
53



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 2019 and anticipated contributions for 2019 and 2020 are as follows (in thousands):
 
Contributions
Three Months Ended
March 31, 2019
Remaining Anticipated Contributions for 2019
Anticipated Contributions for 2020
Defined Benefit Pension Plan
$

$
1,753

$
1,841

Defined Benefit Postretirement Healthcare Plan
$
117

$
349

$
466

Supplemental Non-qualified Defined Benefit Plans
$
58

$
172

$
240



13



(7)
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 2018 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:
 
March 31, 2019
December 31, 2018
 
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Cash (a)
$
5

$
5

$
112

$
112

Long-term debt, including current maturities (b) (c)
$
340,070

$
428,498

$
340,035

$
412,894

_________________
(a)
The cash fair value approximates carrying value and therefore is classified as Level 1 in the fair value hierarchy. We believe that the market risk arising from cash in a bank account is minimal.
(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,
 
2019
2018
 
(in thousands)
Non-cash investing and financing activities -
 
 
Property, plant and equipment acquired with accrued liabilities
$
8,633

$
7,556

Non-cash (decrease) to money pool notes receivable, net
$

$
(16,000
)
Non-cash dividend to Parent
$

$
16,000

 
 
 
Cash (paid) refunded during the period for -
 
 
Interest (net of amounts capitalized)
$
(3,345
)
$
(3,088
)
Income taxes, net
$

$



(9)
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 2018 Annual Report on Form 10-K.


(10)
LEASES

We have a ground lease for the Wygen III generating facility with an affiliate and communication tower site and operation center facility leases with third parties. Our leases have remaining terms ranging from less than one year to 31 years.
The components of lease expense were as follows (in thousands):
 
Income Statement Location
Three Months Ended March 31, 2019
Operating lease cost
Operations and maintenance
$
228

Variable lease cost
Operations and maintenance
43

Total lease cost
 
$
271




14



Supplemental balance sheet information related to leases was as follows (in thousands):
 
Balance Sheet Location
As of March 31, 2019
Assets:
 
 
Operating lease assets
Other assets, non-current
$
14,316

Total lease assets
 
$
14,316

 
 
 
Liabilities:
 
 
Current:
 
 
Operating leases
Accrued liabilities
$
279

 
 
 
Noncurrent:
 
 
Operating leases
Other deferred credits and other liabilities
14,054

Total lease liabilities
 
$
14,333



Supplemental cash flow information related to leases was as follows (in thousands):
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
223

Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$



 
As of March 31, 2019
Weighted average remaining lease term (years):
 
Operating leases
31 years

 
 
Weighted average discount rate:
 
Operating leases
4.4
%


Scheduled maturities of operating lease liabilities for future years were as follows (in thousands):
 
Total
2019 (a)
$
681

2020
856

2021
855

2022
856

2023
853

Thereafter
21,947

Total lease payments
$
26,048

Less imputed interest
11,715

Present value of lease liabilities
$
14,333


(a)
Includes lease obligations for the remaining nine months of 2019.



15



(11)
EQUITY

A summary of the changes in equity is as follows:

 
 
 
 
 
 
 

Three Months Ended March 31, 2019
Common Stock
 
 
 
 
(in thousands except share amounts)
Shares
Value
Additional Paid in Capital
Retained Earnings
AOCI
Total
December 31, 2018
23,416

$
23,416

$
39,575

$
342,145

$
(891
)
$
404,245

Net income (loss) available for common stock



15,497


15,497

Other comprehensive income (loss), net of tax




12

12

Cumulative effect of ASU 2016-02, Leases implementation



(7
)

(7
)
Other adjustments



1


1

March 31, 2019
23,416

$
23,416

$
39,575

$
357,636

$
(879
)
$
419,748


 
 
 
 
 
 
 

Three Months Ended March 31, 2018
Common Stock
 
 
 
 
(in thousands except share amounts)
Shares
Value
Additional Paid in Capital
Retained Earnings
AOCI
Total
December 31, 2017
23,416

$
23,416

$
39,575

$
332,499

$
(1,258
)
$
394,232

Net income (loss) available for common stock



11,760


11,760

Other comprehensive income (loss), net of tax




27

27

Non-cash dividend to Parent company



(16,000
)

(16,000
)
Other adjustments



1


1

March 31, 2018
23,416

$
23,416

$
39,575

$
328,260

$
(1,231
)
$
390,020






ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Amounts are presented on a pre-tax basis unless otherwise indicated.
Minor differences in amounts may result due to rounding.

Significant Events

On April 30, 2019, S&P affirmed South Dakota Electric’s credit rating at A.

During the first quarter, South Dakota Electric continued construction on a $70 million, 175-mile electric transmission line from Stegall, Nebraska to Rapid City, South Dakota. The 94-mile final segment of the transmission line is expected to be completed and placed in service in the fall of 2019.



16



Results of Operations

The following discussion includes financial information prepared in accordance with GAAP, as well as another financial measure, gross margin, that is considered a “non-GAAP financial measure.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Gross margin (revenue less cost of sales) is a non-GAAP financial measure due to the exclusion of depreciation and amortization from the measure. The presentation of gross margin is intended to supplement investors’ understanding of our operating performance.

Gross margin is calculated as operating revenue less cost of fuel and purchased power. Our gross margin is impacted by the fluctuations in power purchases, natural gas and other fuel supply costs. However, while these fluctuating costs impact gross margin as a percentage of revenue, they only impact total gross margin if the costs cannot be passed through to our customers.

Our gross margin measure may not be comparable to other companies’ gross margin measure. Furthermore, this measure is not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.

The following tables provide certain financial information and operating statistics:

 
Three Months Ended March 31,
 
2019
2018
Variance
 
(in thousands)
Revenue
$
79,041

$
73,815

$
5,226

Fuel and purchased power
22,733

22,440

293

Gross margin (non-GAAP)
56,308

51,375

4,933

 
 
 
 
Operating expenses
31,666

31,011

655

Operating income
24,642

20,364

4,278

 
 
 
 
Interest income (expense), net
(5,432
)
(5,424
)
(8
)
Other income (expense), net
(375
)
(117
)
(258
)
Income tax expense
(3,338
)
(3,063
)
(275
)
Net income
$
15,497

$
11,760

$
3,737





Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018. Net income was $15 million compared to $12 million for the same period in the prior year primarily due to the following:

Gross margin increased primarily due to $2.4 million of higher power marketing revenue, customer growth, and favorable weather. A $1.6 million reduction in the purchased power capacity charges and higher rider revenues of $0.9 million, primarily related to transmission investment recovery, comprised the remainder of the increase.

Operating expenses increased primarily due to higher outside services expenses and higher employee costs driven by labor and benefits partially offset by a decrease in expenses due to generation outage timing.

Interest expense, net, Other income (expense), net, and Income tax expense were all comparable to prior year.



17



 
Electric Revenue by Customer Type
 
Three Months Ended March 31,
 
(in thousands)
 
2019
 
Percentage Change
 
2018
Residential
$
21,190

 
1%
 
$
21,061

Commercial
23,144

 
(2)%
 
23,544

Industrial
8,357

 
1%
 
8,276

Municipal
781

 
(4)%
 
811

Total retail revenue
53,472

 
—%
 
53,692

Wholesale
8,343

 
(8)%
 
9,050

Market - off-system sales (a)
4,670

 
105%
 
2,275

Other revenue (b)
12,556

 
43%
 
8,798

Total revenue
$
79,041

 
7%
 
$
73,815

____________________
(a)
Increase for the three months ended March 31, 2019 was due to higher trading volume opportunities driven by weather and energy prices.
(b)
Increase for the three months ended March 31, 2019 was primarily due to the prior year reserve to revenue to reflect the reduction of the lower federal income tax rate from the TCJA on our existing rate tariffs.


 
Megawatt Hours Sold by Customer Type
 
Three Months Ended March 31,
 
2019
 
Percentage Change
 
2018
Residential
169,936

 
4%
 
163,113

Commercial
194,794

 
—%
 
194,931

Industrial
108,196

 
4%
 
104,302

Municipal
7,573

 
1%
 
7,503

Total retail quantity sold
480,499

 
2%
 
469,849

Wholesale
223,020

 
(6)%
 
237,704

Market - off-system sales
99,572

 
8%
 
92,102

Total quantity sold
803,091

 
—%
 
799,655

Losses and Company use (a)
41,910

 
47%
 
28,522

Total energy
845,001

 
2%
 
828,177

____________________
(a)
Includes company uses, line losses, and excess exchange production.


18



 
Megawatt Hours Generated and Purchased
 
Three Months Ended March 31,
Generated -
2019
 
Percentage Change
 
2018
Coal-fired
409,666

 
3%
 
399,087

Natural Gas and Oil (a) 
47,703

 
264%
 
13,107

Total generated
457,369

 
11%
 
412,194

 
 
 
 
 
 
Total purchased
387,632

 
(7)%
 
415,983

Total generated and purchased
845,001

 
2%
 
828,177

____________________
(a) Increase is primarily due to low natural gas prices and the ability to generate at a lower cost than to purchase generation on the open market for the three months ended March 31, 2019.

 
Power Plant Availability
 
Three Months Ended March 31,
 
2019
2018
Coal-fired plants (a)
98.2
%
92.9
%
Other plants (b)
87.3
%
99.4
%
Total availability
92.4
%
96.3
%
____________________
(a)
2018 included planned outages at Neil Simpson II, Wyodak and Wygen II.
(b)
2019 includes a planned outage at Lange CT.

 
Degree Days
 
Three Months Ended March 31,
 
2019
 
2018
 
Actual
Variance from Normal
 
Actual
Variance from Normal
 
 
 
 
 
 
Heating degree days
3,916

22
%
 
3,699

15
%

Credit Ratings

Credit ratings impact our ability to obtain short and long-term financing, the cost of such financing, and vendor payment terms, including collateral requirements. The following table represents our secured credit rating from each agency’s review which was in effect at March 31, 2019:

Rating Agency
Senior Secured Rating
S&P (a)
A
Moody’s (b)
A1
Fitch (c)
A
__________
(a)
On April 30, 2019, S&P affirmed A rating.
(b)
On December 12, 2018, Moody’s affirmed A1 rating.
(c)
On October 11, 2018, Fitch affirmed A rating.



19



FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements as defined by the SEC. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words “anticipates”, “estimates”, “expects”, “intends”, “plans”, “predicts” and similar expressions, and include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Item 2 - Management’s Discussion & Analysis of Financial Condition and Results of Operations.

Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company’s expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. Nonetheless, the Company’s expectations, beliefs or projections may not be achieved or accomplished.

Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements described in Item 1A of our 2018 Annual Report on Form 10-K, including statements contained within Item 1A - Risk Factors and Part II, Item 1A of this Quarterly Report on Form 10-Q.

ITEM 4.
CONTROLS AND PROCEDURES

This section should be read in conjunction with Item 9A, “Controls and Procedures” included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of March 31, 2019. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective as of March 31, 2019.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Security Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2019, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


20



BLACK HILLS POWER, INC.

Part II - Other Information

Item 1.
Legal Proceedings

For information regarding legal proceedings, see Note 11 of Notes to Financial Statements in Item 8 of our 2018 Annual Report on Form 10-K and Note 9 of our Notes to Condensed Financial Statements in this Quarterly Report on Form 10-Q, which information from Note 9 is incorporated by reference into this item.


Item 1A.
Risk Factors

There are no material changes to the Risk Factors previously disclosed in Item 1A of Part I in our Annual Report on Form 10-K for the year ended December 31, 2018.


Item 6.
Exhibits

Exhibit 3.1*

Exhibit 3.2*

Exhibit 4.1*
First Supplemental Indenture, dated as of August 13, 2002, between Black Hills Power, Inc. and The Bank of New York Mellon (as successor to J.P. Morgan Chase Bank), as Trustee (filed as Exhibit 4.20 to the Registrant’s Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-3 (No. 333-150669-01)).
Second Supplemental Indenture, dated as of October 27, 2009, between Black Hills Power, Inc. and The Bank of New York Mellon (filed as Exhibit 4.21 to the Registration Statement on Form S-3 (No. 333-150669-01)).
Third Supplemental Indenture, dated as of October 1, 2014, between Black Hills Power, Inc. and The Bank of New York Mellon (filed as Exhibit 10.1 to the Registrant’s Form 8-K filed on October 2, 2014).

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

Exhibit 32.2

101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
_________________________
*
Previously filed as part of the filing indicated and incorporated by reference herein.

21



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/ LINDEN R. EVANS
Linden R. Evans, Chairman, President
and Chief Executive Officer


/S/ RICHARD W. KINZLEY
Richard W. Kinzley, Senior Vice President
and Chief Financial Officer

Dated: May 3, 2019


22