SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
Commission file Number 1-7978
BLACK HILLS CORPORATION
Incorporated in South Dakota IRS Identification Number 46-0111677
625 Ninth Street
Rapid City, South Dakota 57709
Registrant's telephone number, including area code
(605) 348-1700
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common stock of $1.00 par value New York Stock Exchange
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant.
At February 29, 1996 $370,052,400
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT FEBRUARY 29, 1996
Common stock, $1.00 par value 14,433,686 shares
DOCUMENTS INCORPORATED BY REFERENCE
1. Definitive Proxy Statement of the Registrant filed pursuant to
Regulation 14A for the 1996 Annual Meeting of Stockholders to be
held on May 21, 1996, is incorporated by reference in Part III.
<PAGE>
TABLE OF CONTENTS
PAGE
ITEM 1. BUSINESS 4
GENERAL 4
ELECTRIC POWER SUPPLY 4
ELECTRIC SERVICE TERRITORY AND SALES 6
COMPETITION IN ELECTRIC UTILITY BUSINESS 7
COAL SALES 7
OIL AND GAS OPERATIONS 8
ENVIRONMENTAL REGULATION 9
EMPLOYEES 11
ITEM 2. PROPERTIES 11
UTILITY PROPERTIES 11
MINING PROPERTIES 12
OIL AND GAS PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15
LIQUIDITY AND CAPITAL RESOURCES 15
RATE REGULATION 16
COMPETITION IN ELECTRIC UTILITY BUSINESS 18
RESULTS OF OPERATIONS 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 40
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 40
ITEM 11. EXECUTIVE COMPENSATION 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 40
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K 41
SIGNATURES 44
<PAGE>
DEFINITIONS
WHEN THE FOLLOWING TERMS ARE USED IN THE TEXT THEY WILL HAVE THE
MEANINGS INDICATED.
TERM MEANING
Black Hills Black Hills Power and Light Company, the assumed
Power business name of the Company under which its electric
operations are conducted
Basin Electric Basin Electric Power Cooperative, Inc., a rural
electric cooperative engaged in generating and
transmitting electric power to its member RECs
Company Black Hills Corporation
DEQ Department of Environmental Quality of the State of
Wyoming
FERC Federal Energy Regulatory Commission
MDU Montana-Dakota Utilities Co., a division of MDU
Resources Group, Inc.
NS #1 Neil Simpson Unit #1, a 20 megawatt coal-fired
electric generating plant owned by the Company and
located adjacent to the Wyodak Plant
NS #2 Neil Simpson Unit #2, an 80 megawatt coal-fired power
plant owned by the Company and located adjacent to the
Wyodak Plant and Neil Simpson Unit #1
Pacific Power PacifiCorp, which operates its electric utility
operations under the assumed names of Pacific Power
and Utah Power
RECs Rural electric cooperatives, which are owned by their
customers and which rely primarily on the United
States for their financing needs
SDPUC The South Dakota Public Utilities Commission
WAPA Western Area Power Administration of the Department of
Energy of the United States of America
WPSC The Wyoming Public Service Commission
Western Western Production Company, a wholly owned
Production subsidiary of Wyodak Resources
Wyodak Resources Wyodak Resources Development Corp., a wholly owned
subsidiary of the Company
Wyodak Plant A 330 megawatt coal-fired electric generating plant
which is owned 20 percent by the Company and 80
percent by Pacific Power and located near Gillette,
Wyoming
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Incorporated under the laws of South Dakota in 1941, the Company is
an energy services company primarily consisting of three principal
businesses: electric, coal mining and oil and gas production. The
Company operates its public utility electric operations under the
assumed name of Black Hills Power and Light Company, its coal mining
operations through its subsidiary Wyodak Resources and its oil and gas
exploration and production through Western Production.
Black Hills Power is engaged in the generation, purchase,
transmission, distribution and sale of electric power and energy to
approximately 55,000 customers in 11 counties in western South Dakota,
northeastern Wyoming and southeastern Montana, with a population
estimated at 165,000. The largest community served is Rapid City, South
Dakota, a major retail, wholesale and health care center, with a
population, including environs, estimated at 75,000. Agriculture,
tourism, small stakes gambling, mining, lumbering, small item
manufacturing, service and support businesses and government support
through Ellsworth Air Force Base are the primary influences on the
economic well-being of the region.
Wyodak Resources, incorporated under the laws of Delaware in 1956,
is engaged in the mining and sale of low sulfur sub-bituminous coal.
The coal seam varies in thickness from 70 to 110 feet, averages 90 feet
and is located approximately five miles east of Gillette, Wyoming, in
the Powder River Basin.
Acquired by Wyodak Resources in 1986, Western Production is an oil
and gas exploration and production company with interests located in the
rocky mountain region, Texas, California and various other locations.
Information as to the continuing lines of business of the Company
for the calendar years 1993-1995 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Revenue from sales to
unaffiliated customers:
Electric $108,563 $104,431 $97,885
Coal mining 19,372 19,149 19,775
Oil and gas 11,164 12,052 11,396
Revenue from intercompany
sales:
Electric $ 220 $ 325 $ 270
Coal mining 10,498 9,445 10,047
</TABLE>
For additional information relating to the Company's operations see
Note 11 of "Notes to Consolidated Financial Statements" on page 37.
ELECTRIC POWER SUPPLY
GENERAL
Black Hills Power has been able to meet the needs of its customers
for electric power and energy through its owned generating capacity and
by contract purchases. Black Hills Power's peak load of 298 megawatts
was reached in August 1995. Approximately 45 megawatts of additional
load will occur in 1997 when Black Hills Power begins serving MDU's
Sheridan, Wyoming, electric service territory. (See Wholesale to MDU on
page 6.) In addition, Black Hills Power estimates its required reserves
at 82 megawatts. Black Hills Power is not a member of a power pool.
Black Hills Power owns coal-fired generating units having a summer
capability rating of 214 megawatts and 77 megawatts of oil-fired diesel
and combustion turbines for peaking and standby use. Black Hills
purchases additional resources from three contracts with Pacific Power:
the Pacific Power Colstrip contract, from which it purchases 75
megawatts of baseload power; the Reserve Capacity Integration Agreement,
from which 33 megawatts of additional reserve capacity is available;
and the Pacific Power Capacity Contract, under which Black Hills Power
has options to be exercised seasonally to purchase from 0 to 60
megawatts of capacity.
<PAGE>
PACIFIC POWER COLSTRIP CONTRACT
This contract obligates Black Hills Power to purchase from Pacific
Power 75 megawatts of electric power plus energy at a load factor
varying from a minimum of 41 percent to a maximum of 80 percent as
scheduled by Black Hills Power. The contract terminates December 31,
2023. The power and energy delivered is power from Pacific Power's
system and does not depend on any one unit, but the price is based on
Pacific Power's costs in Units 3 and 4 of the Colstrip coal-fired
generating plant near Colstrip, Montana, together with a fixed payment
for transmission. The Company has incurred capacity charges of $18,000
per megawatt month and an average energy charge of $14.55 per megawatt
hour over the last three years of this agreement with a 59 percent load
factor. The Company anticipates better utilization of this resource in
the future and lowering the average cost per megawatt hour through an
active marketing program to sell the energy.
RESERVE CAPACITY INTEGRATION AGREEMENT
This agreement obligates Pacific Power until the end of the
contract in 2012 to make available to Black Hills Power 100 megawatts of
reserve capacity to be acquired by Black Hills Power only at such time
under prudent utility practice Black Hills Power would have operated its
combustion turbines. In return, Pacific Power has the right to utilize
Black Hills Power's four 25 megawatt combustion turbines (with a summer
rating of 67 megawatts), but Black Hills Power has a prior right to use
said turbines to support the transmission system. The price for any
energy Black Hills Power acquires under this agreement is based upon the
lower of Pacific Power's incremental costs of generation of its highest
price coal-fired plant or the cost of fuel to operate the combustion
turbines. Pacific Power also pays certain operating and maintenance
expenses of the combustion turbines, together with a $50,000 payment per
month for the remaining life of the contract.
PACIFIC POWER CAPACITY CONTRACT AND SETTLEMENT OF CLAIM
On September 1, 1995, Black Hills Power and Pacific Power entered
into the Pacific Power Capacity Contract. This contract was the result
of an agreement to settle a complaint filed by Black Hills Power against
Pacific Power before the FERC claiming that since 1987 Pacific Power
used an incorrect formula resulting in an overcharge to Black Hills
Power of approximately $490,000 a year for capacity from the Pacific
Power Colstrip Contract. In addition to agreeing to the Pacific Power
Capacity Contract, Pacific Power agreed that commencing July 1, 1995 and
continuing for the remaining 23 years during which capacity payments are
to be made, the formula will be corrected which will result in the
$490,000 per year reduction during said period of time.
Under the contract, Pacific Power granted Black Hills an option to
be exercised for each six-month season for a period commencing
October 1, 1996 and ending March 31, 2007 to purchase from 0 to
60 megawatts of peaking capacity at established prices. Black Hills
Power may schedule the energy at a rate up to 100 percent per hour at a
load factor up to 15 percent per season. Other than to give preference
to purchasing peaking capacity from Pacific Power, Black Hills Power is
under no obligation to exercise any of the six-month seasonal options.
In addition to granting Black Hills Power options to purchase
peaking capacity, the Pacific Power Capacity Contract also obligates
Black Hills Power to sell to Pacific Power until December 31, 2000 all
surplus energy equal to the difference in Black Hills' Resources (all
energy from Black Hills Power's generating resources and energy
entitlement under the Pacific Power Colstrip Contract) and Black Hills'
Loads (non-end user contracts of five months or longer and all retail
customers as they exist from time to time). The selling price is based
upon economy energy spot price indices determined daily in the western
part of the United States with a sharing between Pacific Power and Black
Hills Power of prices above certain levels. Black Hills Power is not
obligated to sell any energy below its marginal production cost. The
contract also provides Black Hills Power an option to store energy with
Pacific Power and to take that energy back for the purpose of replacing
energy from a forced or scheduled outage of NS #2 or Black Hills Power's
share of the Wyodak Plant.
To the extent of the excess capacity and energy available to Black
Hills Power from its generating resources and the Pacific Power
purchased power contracts, Black Hills Power at this time has the
flexibility to serve the expected growth of its loads in its service
territory, to have its Kirk Power Plant in cold storage and, as
opportunities arise in the meantime, to increase sales of its energy
and capacity.
<PAGE>
ELECTRIC SERVICE TERRITORY AND SALES
RETAIL SERVICE TERRITORY
Black Hills Power's service territory is currently protected by
assigned service area and franchises that generally grant to Black Hills
Power the exclusive right to sell all electric power consumed therein,
subject to providing adequate service. (See Competition in Electric
Utility Business on page 18.)
As evidenced by a 2 percent increase in customers in 1995, the
economy in and around Black Hills Power's service territory is believed
by management to be strong. Small businesses and regional plant
expansions are continually being attracted to the region along with
retirees who have discovered the Black Hills region with its scenery,
recreational activities and medical services to be an attractive place
to live. Management anticipates that the economy will continue to
experience modest growth but can give no assurances as many economic
factors will greatly influence any economy. Ellsworth Air Force Base, a
B-1 bomber military base near Rapid City, survived the fourth round of
base closures in 1995. Other major industries in and around Black Hills
Power's service territory have been economically stable.
WHOLESALE TO CITY OF GILLETTE
Black Hills Power sells electric power and energy to the municipal
electric system at Gillette, Wyoming. Service is rendered under a long-
term contract, recently amended, and expiring July 1, 2012 wherein Black
Hills Power sells the City of Gillette 23 megawatts of capacity and the
associated energy. The most recent average annual capacity factor for
this 23 megawatt demand has been approximately 85 percent. Sales to
Gillette represented 10.4 percent of total firm energy sales and 7.3
percent of revenue from total sales in 1995.
WHOLESALE TO MDU
Black Hills Power and MDU entered into a Power Integration
Agreement, dated as of September 9, 1994 providing for the sale to MDU
of up to 55 megawatts of power and associated energy to serve MDU's
Sheridan, Wyoming, electric service territory for a period of 10 years
commencing January 1, 1997. The MDU Sheridan service territory has
experienced a 45 megawatt winter peak and operates at a 60 percent load
factor.
The agreement provides for fixed rates for capacity and energy to
be paid by MDU during the 10-year contract term. Black Hills Power and
MDU have agreed not to apply to FERC for any rate changes in the
contract for the entire 10-year term other than increases caused by
governmental direct taxes on electric generation fired by hydrocarbons.
The agreement further provides for Black Hills Power and MDU to equally
share the costs of constructing a combustion turbine of approximately
70 megawatts at such time during the 10-year term that Black Hills Power
determines in its sole discretion that such turbine is required.
Black Hills Power entered into the agreement with MDU because it
was an opportunity to use energy from its new base load NS #2 and other
resources, along with purchased peaking capacity, resulting in
incremental savings to Black Hills Power's other customers. Management
believes that the MDU agreement will remain profitable for the 10-year
term, but no assurances can be given.
ADDITIONAL OFF-SYSTEM SALES
Black Hills power sold 60,575 megawatt hours of non-firm energy in
1995 and plans to continue to make non-firm sales under the Pacific
Power Contract in 1996. (See Pacific Power Capacity Contract and
Settlement of Claim on page 5.) The selling price is based on spot
market prices which have been low allowing only a small profit margin on
the sales in 1995. Management does not expect spot market prices to
improve in 1996.
In order to realize a higher margin of profit than from sales on
the spot market, Black Hills Power continues to look for opportunities
to sell power off-system over a term of six months or longer. The
highly competitive electric power market, the cost of transmission to
deliver the power to markets where prices are higher, the current low
natural gas prices and the availability of surplus capacity and energy
are the current competitive conditions that make it difficult to find
new markets. However, management believes that Black Hills Power's
marginal production costs are low enough and the quantity of power Black
Hills Power has available high enough that new opportunities for off-
system sales are feasible.
<PAGE>
COMPETITION IN THE ELECTRIC UTILITY BUSINESS
For information relating to competition in the electric utility
business see page 18.
COAL SALES
SALES TO BLACK HILLS POWER'S PLANTS
Black Hills Power and Wyodak Resources entered into the Restated
and Amended Coal Supply Agreement for NS #2 on February 12, 1993. Under
this agreement, Wyodak Resources agrees to supply all of the fuel
requirements for NS #2 for its useful life and reserve 20 million tons
of coal reserves for that purpose. Black Hills Power made a commitment
to both the SDPUC and the WPSC that coal would be furnished and priced
as provided by this agreement for the life of the plant. The City of
Gillette has agreed to this same methodology of pricing coal in the
Gillette power purchase contract.
Under this agreement, Wyodak Resources agrees that its earnings
from all coal sales to Black Hills Power (including the 20 percent share
on the Wyodak Plant and all sales to Black Hills Power's other plants)
will be limited to a return on Wyodak Resources' original cost,
depreciated investment base. The return is 4 percent (400 basis points)
above A-rated utility bonds to be applied to a new investment base each
year.
Since Wyodak Resources is expected to incur only minimal additional
capital costs to fulfill the coal supply agreement for NS #2, Wyodak
Resources is not expected to increase its earnings from such sale.
Earnings from the intercompany sales of coal at this time represent 6.4
percent of the Company's consolidated earnings.
Sales and production statistics for the last five calendar years
comparing sales to Black Hills Power to others are as follows:
<TABLE>
<CAPTION>
Year Revenue from % Revenue Tons of Coal
Sale of Coal Derived from Sold
(in thousands) Black Hills (in thousands)
Power
<S> <C> <C> <C>
1995 $29,870 35% 2,934
1994 28,594 33 2,796
1993 29,822 34 3,027
1992 28,296 35 2,958
1991 26,138 35 2,742
</TABLE>
SALES TO THE WYODAK PLANT
Wyodak Resources furnishes all of the fuel supply for the Wyodak
Plant in which Black Hills Power owns a 20 percent interest and Pacific
Power an 80 percent interest. (See Note 6 of "Notes to Consolidated
Financial Statements" on page 33.) The price for unprocessed coal sold
to the Wyodak Plant is based on a coal supply agreement entered into by
Black Hills Power, Pacific Power and Wyodak Resources in 1974 and
terminating in the year 2013. This agreement was amended and restated
in 1987. Revenue from coal sales to the Wyodak Plant totaled
$20,224,000 in 1995 or 68 percent of revenue for all coal sold by Wyodak
Resources. The quantity of coal sold in 1995 for the Wyodak Plant was
1,880,000 tons, as compared to 1,956,000 tons sold in 1994. Barring
unusual periods of maintenance, the quantity of coal for the maximum
consumption capability of the Wyodak Plant for one year is approximately
2,100,000 tons and the average yearly consumption is
1,900,000 tons. The average consumption is expected to continue during
the remaining 18 years of the coal agreement. However, from time to
time, the plant's physical operating capabilities will affect the
quantity of coal burned.
Of the 2,934,000 tons of coal sold by Wyodak Resources in 1995,
1,086,000 tons were sold to Black Hills Power, 1,508,000 tons were sold
to Pacific Power and 340,000 tons were sold to others.
Wyodak Resources' revenue from sales of coal to Pacific Power and
Black Hills Power as compared to its revenue from all sales to other
customers for the last three years was as follows:
<PAGE>
<TABLE>
<CAPTION>
Revenue from All
Revenue Sales to Unaffiliated
Revenue from Sales from Sales to Customers (includes)
Year to Pacific Power Black Hills Power(1) Pacific Power)
(in thousands)
<S> <C> <C> <C>
1995 $16,777 $10,498 $19,372
1994 16,887 9,445 19,149
1993 17,448 10,047 19,775
</TABLE>
(1) 1993, 1994 and the first seven months of 1995 are not adjusted for
the affiliate coal price adjustment.
Many factors can significantly affect sales of coal and revenue
under the existing contracts. Examples include the seller's or buyer's
inability to perform due to machinery breakdown, damage to equipment,
governmental impositions, labor strikes, coal quality problems,
transportation problems and other unexpected events.
OTHER SALES
In addition to the coal sold to the Wyodak Plant and to Black Hills
Power, Wyodak Resources sold coal to the South Dakota State Cement Plant
under an all requirements contract expiring on December 1, 1997. Wyodak
Resources sold 214,000 tons under this contract in 1995. Wyodak
Resources anticipates that the Cement Plant will cancel this contract
within the next six months. Because of the Cement Plant's need for a
higher Btu coal, Wyodak Resources has agreed to the cancellation option.
Smaller amounts of coal are sold to various businesses and for
residential use. All long-term contracts contain adjustment clauses
based upon certain costs and government indices.
The coal mining industry is highly competitive and significant new
sales opportunities are limited. Wyodak Resources operates in an area
with many other mining companies which have substantial unused capacity.
They, like Wyodak Resources, have the permits and capability for large
increases in production. Wyodak Resources has no train load-out
facilities and is not able to compete for large coal sales which require
unit train (usually 110 cars) loading capabilities, and the current
market price for such sales does not support the cost of constructing
the necessary facilities. Generally, Wyodak Resources' coal sales will
be confined to sales for consumption at or near the mine.
OIL AND GAS OPERATIONS
Oil and gas operations have not been a significant part of the
Company's total operations. Net income and assets related to oil and
gas operations have been 6 percent or less of the Company's consolidated
amounts over the last five years. The oil and gas industry is highly
competitive. Western Production encounters strong competition from many
oil and gas producers in acquiring drilling prospects and producing
properties.
The Company's oil and gas production is sold at or near the
wellhead, generally at prevailing posted prices. Western Production has
been able to market all of its oil and gas production. Operating
revenue by source for the last five years was as follows:
<TABLE>
<CAPTION>
Oil and Gas Gas Plant Field
Sales Revenue Services
(in thousands)
<S> <C> <C> <C>
1995 $7,449 $762 $2,953
1994 8,325 729 2,998
1993 7,489 759 3,148
1992 5,640 701 3,258
1991 4,780 693 3,595
</TABLE>
Western Production produced approximately 597,000 equivalent
barrels of oil in 1995 comprised of 45 percent oil and 55 percent gas.
<PAGE>
ENVIRONMENTAL REGULATION
The Company is subject to extensive federal, state and local laws
and regulations governing discharges to the air and water, as well as
the handling and disposal of solid and hazardous wastes, including
without limitation the federal Clean Air Act (as amended in 1990), the
federal Water Pollution Control Act ("Clean Water Act"), the federal
Toxic Substances Control Act, and various state laws, including solid
waste disposal laws (collectively "Environmental Regulatory Laws").
Governmental authorities have the power to enforce compliance with
Environmental Regulatory Laws, and violators may be subject to civil or
criminal penalties, injunctions or both. Third parties also may have
the right to sue to enforce compliance.
AIR QUALITY
Under the federal Clean Air Act, the federal Environmental
Protection Agency ("EPA") has promulgated national air quality standards
for certain air pollutants, including sulfur oxides, particulate matter
and nitrogen oxides. The Company was granted a prevention of
significant deterioration ("PSD") construction permit by the DEQ for NS
#2. The PSD permit set emission rate limitations on particulate, sulfur
dioxide, nitrogen oxides and opacity. NS #2 is meeting all of these
emission rate limitations at this time, and based on operating
experience with continuing monitoring, management believes that Black
Hills Power will be able to continue to operate the plant in full
compliance.
Amendments to the Clean Air Act in 1990 will require a significant
reduction in nationwide sulfur oxide emissions by fossil fuel-fired
generating units to a permanent total emissions cap in the year 2000.
This reduction is to be achieved by the allotment of allowances to emit
sulfur dioxide measured in tons per year to each owner of a unit and
requiring the owner to hold sufficient allowances each year to cover the
emissions of sulfur oxide from the unit during that year. Black Hills
Power holds sufficient allowances credited to it as a result of sulfur
removal equipment previously installed on the Wyodak Plant to apply to
the operation of NS #2 and its interest in the Wyodak Plant in the year
2000 without requiring the purchase of any additional allowances.
Current law does not require allowances for Black Hills Power's other
plants.
NS #2 and all existing generating units of the Company are required
to obtain operating source permits under the Clean Air Act amendments.
The operating permit application for NS #2 is due August 31, 1996.
Completed applications for operating permits were submitted to the DEQ
for the Osage and NS #1 generating units prior to the November 1995
deadline. Air quality permits for the Ben French and Kirk Stations have
been recently renewed by the Department of Environmental and Natural
Resources of South Dakota for a period of five years.
Because the 1990 amendments to the Clean Air Act are scheduled to
be implemented and interpreted throughout the 1990s, compliance with
yet-to-be promulgated and interpreted regulations may require additional
capital and operational expenditures in the future, most likely from
enhanced monitoring costs. Due to the political sensitivity and
volatility of environmental issues and how they may be implemented,
management can give no assurances that unexpected additional capital and
operating costs may be required in the future that would have a material
impact on financial results.
WATER QUALITY
The federal Clean Water Act requires permits for discharges of
effluent and that all discharges of pollutants comply with federally
approved state water quality standards. Black Hills Power currently has
in place all required permits under the Clean Water Act for discharges
from all of the power plants in which Black Hills Power has an interest.
While management believes that it is in full compliance with all federal
and state clean water laws and regulations, for all the same reasons as
stated in the previous paragraph, no assurances can be given of the
extent of costs to comply with clean water requirements in the future.
<PAGE>
LAND QUALITY--SOLID WASTE DISPOSAL
Black Hills Power disposes all solid wastes collected as a result
of burning coal at its power plants in approved solid waste disposal
sites. Each disposal site has been permitted by the state of its
location in compliance with law. Ash and wastes from flue gas and
sulfur removal from the Wyodak Plant and NS #2 are deposited in disposal
cells located in Wyodak Resources' mined areas. These disposal cells
are located below some shallow water aquifers in the mine. Management
believes that the disposal cells are sufficiently constructed and lined
with clay so as to prevent any pollution of the underground water from
these cells. None of the solid wastes from the burning of coal is
classified as hazardous material, but the wastes do contain minute
traces of metals that would be perceived as polluting if such metals
were leached into underground water. While management does not believe
that any substances from the solid waste disposal will pollute
underground water, they can give no assurances that over a long period
of time such could never happen. In such event, the Company could
experience material costs in mitigating any damages from such pollution.
Agreements in place require Pacific Power to be responsible for any such
costs that would be related to the solid waste from its 80 percent
interest in the Wyodak Plant.
Additional unexpected material costs could also result in the
future from either the federal or state government determining that
solid waste from the burning of coal does contain some hazardous
material that requires some special treatment, including solid waste
previously disposed of, and holding those entities who disposed of such
waste responsible for such treatment. Such unexpected governmental
requirements are beyond the control of the Company.
RECLAMATION
Under federal and state laws and regulations, Wyodak Resources is
required to submit to and receive approval from the DEQ for a mining and
reclamation plan which provides for orderly mining, reclaiming and
restoring of all land in conformity with all laws and regulations.
Wyodak Resources has an approved mining permit and is otherwise in
compliance with other land quality permitting programs.
One condition that could result in material unexpected increases in
costs of the reclamation permit relates to three depressions, the
existing south depression, an additional north pit depression and a
north extension depression, which have or will result from Wyodak
Resources' mining. Because of the thick coal seam and relatively
shallow overburden, the present plan for restoration leaves areas of the
mine that will have limited reclamation potential because of their
location in depressions with interior drainage only. While the DEQ has
allowed these depressions in the present plan, the DEQ has reserved the
right to review and evaluate future mining plans proposed by Wyodak
Resources. Such plans are reviewed for the feasibility and desirability
of causing Wyodak Resources to place additional overburden generated
elsewhere for the purpose of reducing the depressions if the DEQ finds
that the placement is necessary to prevent degradation of more areas
than expected. The DEQ has allowed the depressions at the minimum acres
specified and subject to maintenance of water quality at the sites.
Exceedence of acreage limitations or degradation of water quality could
result in material additional requirements placed upon Wyodak Resources,
including the placement of additional quantities of overburden in the
depressions and restoring water quality. Based on extensive reclamation
studies, accruals are maintained to comply with all reclamation
requirements. However, no assurances can be given that additional
requirements in the future may be imposed to cause unexpected material
increases in reclamation costs.
BEN FRENCH OIL SPILL
In 1990 and 1991, Black Hills Power discovered extensive
underground fuel oil contamination at the Ben French Plant site. With
the help of expert consultants, the Company engaged in assessment and
remediation and has worked closely with the South Dakota Department of
Environment and Natural Resources. Assessment and remediation efforts
are continuing up to the present time. All underground oil-carrying
facilities from which the contamination occurred are now above ground.
There have been no significant recoveries of free fuel oil product since
1994. Black Hills Power continues to monitor the site. Soil borings
and monitoring wells on the perimeters of Black Hills Power's Ben French
Plant property are showing no indication of contamination beyond the
property's limits. Management believes that the underground spill has
been sufficiently remedied so as to prevent any oil from migrating off
site. However, due to underground gypsum deposits in this area, the
fuel oil has the potential of migrating to area waterways. In such
event, cleanup costs could be greatly increased. Management believes
that sufficient remediation efforts to prevent such a migration are
currently in place, but due to the uncertainties of underground geology,
no assurance can be given.
<PAGE>
Cleanup costs recognized to date total approximately $436,000, of
which amount $282,500 has been reimbursed from the South Dakota
Petroleum Release Compensation Fund. To date, no penalties, claims or
actions have been taken or threatened against the Company because of
this oil spill.
PCBs
Under the federal Toxic Substances Control Act, the EPA has issued
regulations that control the use and disposal of polychlorinated
biphenyls (PCBs). PCBs had been widely used as insulating fluids in
many electric utility transformers and capacitors manufactured before
the Toxic Substances Control Act prohibited any further manufacture of
such PCB equipment. Black Hills Power removes and disposes of PCB-
contaminated transformers in compliance with law as they are discovered.
Black Hills Power is uncertain of the number of PCB-contaminated
transformers remaining in operation in its system.
A release of PCB-contaminated fluids, especially any involving a
fire or a release into a waterway, could result in substantial cleanup
costs.
ELECTROMAGNETIC FIELDS
A number of studies have examined the possibility of adverse health
effects such as cancer from electromagnetic fields ("EMF") which are
caused by electric transmission and distribution facilities. Certain
states have enacted regulations to limit the strength of magnetic fields
at the edge of transmission line rights-of-way. None of the
jurisdictions in which Black Hills Power operates has adopted formal
rules or programs with respect to EMF or EMF considerations in the
siting of electric facilities. Black Hills Power expects that public
concerns will make it more difficult and costly to site and construct
new power lines and substations in the future. It is uncertain whether
Black Hills Power's operations may be adversely affected in other ways
as a result of EMF concerns. Black Hills Power is designing all new
transmission lines under EMF standards adopted by the State of Florida
so as to minimize the EMF effect. The Company is unable to predict the
future costs to the electric utility industry, including the Company, if
a determination is made in the future, either based on facts or
perception, that EMF causes adverse health effects.
The Company makes ongoing efforts to comply with new as well as
existing environmental laws and regulations to which it is subject. It
is unable to estimate the ultimate effect of existing and future
environmental requirements upon its operations.
EMPLOYEES
At December 31, 1995, the number of employees of the Company
(including Black Hills Power), Wyodak Resources and Western Production
were 342, 52 and 38, respectively, for a total of 432 employees.
ITEM 2. PROPERTIES
UTILITY PROPERTIES
NS #2 was placed into commercial operation in August 1995. The
plant has exceeded its name plate rating and has had stable operations
in the last several months. However, management cautions that the plant
has been in operation only a few months, and a higher degree of
confidence in the plant's capability will come about over a longer
period of time.
The following table provides information on the generating plants
of Black Hills Power. During 1995, 99 percent of the fuel used in
electric generation, measured in Btus (British thermal units), was coal.
<PAGE>
GENERATING UNITS
<TABLE>
<CAPTION>
Name Plate
Year of Rating Principal
INSTALLATION (KILOWATTS) FUEL
<S> <C> <C> <C>
Osage Plant - Osage, Wyoming 1948-1952 34,500 Coal
Kirk Plant - Lead, South Dakota 1956(a) 18,750 Coal
Ben French Station - Rapid City, 1960 25,000 Coal
South Dakota 1965 10,000 Oil
1977-1979(b) 100,800 Oil or gas
Neil Simpson Station - Gillette, 1969 21,760 Coal
Wyoming 1995 80,000 Coal
Wyodak Plant - Gillette, Wyoming 1978(c) 72,400 Coal
-------
Total 363,210
</TABLE>
[FN]
(a) Placed in cold reserve on September 1, 1995 due to economic
conditions. The plant can be brought back into operation within 30
days if economic conditions should change.
(b) These combustion turbines are those referenced by the Reserve
Capacity Integration Agreement with Pacific Power on page 5.
(c) Black Hills Power's 20 percent interest. See Note 6 of "Notes to
Consolidated Financial Statements" on page 33.
Black Hills Power owns transmission lines and distribution systems
in and adjoining the communities served consisting of 447 miles of
230 kV, 544 miles of 69 kV, 8 miles of 47 kV and numerous distribution
lines of less voltage. Black Hills Power owns a service center in Rapid
City, several district office buildings at various locations within its
service area and an eight-story home office building at Rapid City,
South Dakota, housing its home office on four floors, with the balance
of the building rented to others.
MINING PROPERTIES
Wyodak Resources is engaged in mining and processing sub-bituminous
coal near Gillette in Campbell County, Wyoming, and owns or has user
rights in the necessary mining, processing and delivery equipment to
fulfill its sale contracts. The coal averages 8,000 Btus per pound.
Mining rights to the coal are based upon five federal leases. The
estimated recoverable coal from the five leases as of December 31, 1995
is 173,453,000 tons, of which 28,412,000 tons are committed to be sold
to the Wyodak Plant and approximately 28,000,000 tons to Black Hills
Power's other plants. Purchase options are granted on 51,000,000 tons
of which options for 50,000,000 tons can be exercised only if Wyodak
Resources has not committed the coal reserves to other buyers prior to
such exercise. Because the coal purchase price that would be paid if
the options are exercised would be substantially higher than prices
being paid under new coal contracts, it is unlikely that the options
will be exercised.
Each federal lease grants Wyodak Resources the right to mine all of
the coal in the land described therein, but the government has the right
at the end of 20 years from the date of the lease to readjust royalty
payments and other terms and conditions. All of the federal leases
provide for a royalty of 12.5 percent of the selling price of the coal.
Each federal lease requires diligent development to produce at least one
percent of all recoverable reserves within either 10 years from the
respective dates of the 1983 leases or 10 years from the date of
adjustment of the other leases. Each lease further requires a
continuing obligation to mine, thereafter, at an average annual rate of
at least one percent of the recoverable reserves. All of the federal
<PAGE>
leases constitute one logical mining unit which is treated as one lease
for the purpose of determining diligent development and continuing
operation requirements. All coal is to be mined within 40 years from
1992, the date of the logical mining unit. Even if federal coal leases
are not mined out in 40 years, the federal coal is likely to be
available for further lease after the 40 years. Wyodak Resources'
current coal agreements require production which should be sufficient to
satisfy the diligent development and continual operation requirements of
present law. Wyodak Resources will require additional coal sales in
order to mine all of its federal coal within the 40 year requirement.
The law, which requires that an owner of land that is primarily
devoted to agriculture must approve a reclamation plan before the state
will approve a permit for open pit mining, affects approximately
3,100,000 tons of the recoverable coal. Wyodak Resources has excluded
these tons of coal from its mine plan and will not mine such coal until
a surface consent has been negotiated or the right to mine has been
settled by litigation.
OIL AND GAS PROPERTIES
Western Production operates 336 wells as of December 31, 1995. The
vast majority of these wells are in the Finn Shurley Field, located in
Weston and Niobrara Counties, Wyoming. Western Production does not
operate, but owns a working interest in 112 producing properties located
in the western United States. Western Production owns a 44.7 percent
interest in a natural gas processing plant also located at the Finn
Shurley Field.
Western Production participated in the drilling of 22 wells in
1995. Western Production's average working interest in such wells was
21.2 percent, or 4.67 net wells. Approximately 36 percent of the wells
were classified as development wells and 64 percent were classified as
exploratory wells. A development well is a well drilled within the
presently proved productive area of an oil and gas reservoir, as
indicated by reasonable interpretation of available data, with the
objective of completing in that reservoir. An exploratory well is a
well drilled in search of a new, as yet undiscovered oil or gas
reservoir or to greatly extend the known limits of a previously
discovered reservoir. Fourteen out of the 22 wells drilled in 1995 were
completed as producing wells for an overall drilling success rate of 64
percent.
See the table in Note 10 of "Notes to the Consolidated Financial
Statements" on page 37 for Western Production's estimated quantities of
proved developed and undeveloped oil and natural gas reserves at
December 31, 1995 and 1994, and a reconciliation of the changes between
these dates using constant product prices for the respective years.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in minor routine
administrative proceedings and litigation incidental to the businesses,
none of which, in the opinion of management, will have a material effect
on the consolidated financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of 1995.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock ($1 par value) is traded on The New York
Stock Exchange. Quotations for the Common Stock are reported under the
symbol BKH. At year-end the Company had 7,386 common shareholders of
record. All 50 states and the District of Columbia plus 12 foreign
countries are represented.
The Company has declared Common Stock dividends payable in cash in
each year since its incorporation in 1941. At its January 1996 meeting,
the Board of Directors raised the quarterly dividend to 34.5 cents per
share, equivalent to an annual increase of 4 cents per share. This
regular quarterly dividend is payable March 1, 1996. Dividend payment
dates are normally March 1, June 1, September 1, and December 1.
Quarterly dividends paid and the high and low Common Stock prices for
the last two years were as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
YEAR ENDED DECEMBER 31, 1995
<S> <C> <C> <C> <C>
Dividends paid per share $0.335 $0.335 $0.335 $0.335
Common stock prices -
High $24-1/8 $23-5/8 $25-7/8 $26-1/8
Low $20-5/8 $20-1/4 $19-3/4 $24-1/8
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
<S> <C> <C> <C> <C>
Dividends paid per share $0.33 $0.33 $0.33 $0.33
Common stock prices -
High $22-3/4 $22-1/8 $20-3/4 $22-1/4
Low $20-3/4 $18-1/4 $17-7/8 $17-3/4
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following data was derived from the Company's audited financial
statements.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993 1992 1991
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues $149,817 $145,402 $139,373 $135,343 $133,373
Net income 25,590 23,805 22,946 23,638 22,681
Per share of common stock:
Earnings 1.78 1.66 1.66 1.73 1.66
Dividends paid 1.34 1.32 1.28 1.24 1.17
Total assets 448,830 436,877 352,853 330,202 319,895
Total net long-term debt 166,069 128,925 85,274 88,816 92,982
</TABLE>
Quarterly financial data for the years indicated are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1ST 2ND 3RD 4TH
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $35,939 $34,603 $39,061 $40,214
Operating income 9,573 8,948 11,626 12,015
Net income 5,999 5,642 6,932 7,017
Earnings per share 0.42 0.39 0.48 0.49
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1ST 2ND 3RD 4TH
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $35,660 $34,491 $38,589 $36,662
Operating income 9,680 7,512 11,348 10,292
Net income 5,800 4,383 6,979 6,643
Earnings per share 0.41 0.31 0.49 0.45
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations sufficient to meet
operating needs, pay dividends on common stock and finance a portion
of capital requirements. Except for the construction of NS #2, a new
power plant which began commercial operation in August 1995, property
additions from 1993 through 1995 were primarily for the replacement of
equipment, modernization of facilities and for oil and gas investments.
The primary capital requirements of the Company for the past three years
were as follows:
1995 1994 1993
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Construction of NS #2 $33,219 $73,984 $12,792
Other property 18,676 29,075 27,498
additions
Common stock dividends 19,312 18,920 17,720
Maturities/redemptions 10,499 3,542 4,166
of long-term debt
$81,706 $125,521 $62,176
</TABLE>
Capital requirements for projected construction, capital
improvements and oil and gas investments for the next three years are
estimated to be as follows:
1996 1997 1998
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Electric:
Production $ 2,040 $ 1,632 $ 1,394
Transmission 5,149 2,107 3,081
Distribution 6,924 6,849 7,977
General 1,307 1,988 1,883
------- ------- -------
15,420 12,576 14,335
Coal mining 3,122 1,601 1,573
Oil and gas 8,157 6,000 7,000
------- ------- -------
$26,699 $20,177 $22,908
</TABLE>
The electric and coal mining operations' forecasted expenditures
include the replacement of equipment and modernization of facilities.
Forecasted expenditures for the oil and gas operations are dependent
upon future cash flows and include an active development and exploratory
drilling program and acquisition of existing producing properties.
WYGEN, Inc. and DAKSOFT, Inc., newly formed subsidiaries in 1994, do not
have any forecasted capital expenditures that are significant. WYGEN
was formed as an exempt wholesale generator and will not incur
substantial costs until and unless long-term power sale contracts are
obtained. DAKSOFT was formed to develop and market internally generated
computer software associated with the Company's business segments.
The electric operations is the only segment of the Company's
business with long-term debt. Long-term debt and sinking fund
requirements are: $1,405,000 in 1996, $1,534,000 in 1997 and $1,331,000
in 1998.
Under its mining permit, Wyodak Resources is required to reclaim
all land where it has mined coal reserves. The cost of reclaiming the
land is accrued as the coal is mined. While the reclamation process
takes place on a continual basis, much of the reclamation occurs over an
extended period after the area is mined. Approximately $600,000 is
charged to operations as reclamation expense annually. As of December
31, 1995, accrued reclamation costs were approximately $8,000,000.
<PAGE>
The Company sold 525,000 shares of Common Stock, $1 par value, at a
price of $25-3/8 per share in 1993 through a public stock offering.
Proceeds from the sale were used to finance NS #2. Net proceeds from
the sale were approximately $12,700,000.
In 1993 the Company revised its Dividend Reinvestment and Stock
Purchase Plan, under which shareholders may purchase additional shares
of Common Stock through dividend reinvestment or optional cash payments
at 100 percent of the recent average market price. The Company has the
option of issuing new shares or purchasing the shares on the open
market. The Company chose the open market purchase option for all of
1995. The Company issued 112,578 new shares under the Plan in 1994 and
26,891 shares in 1993. Proceeds from the sale of new shares were used
to finance capital expenditures.
The Company filed a Form S-3, shelf registration in 1994 for
$100,000,000 first mortgage bonds. Under the filing the Company issued
bonds in the amount of $45,000,000 on September 1, 1994, $30,000,000 on
February 3, 1995 and $15,000,000 on July 14, 1995. The $45,000,000 bond
issue has a 30-year life with an 8.3 percent rate of interest; the
$30,000,000 bond issue has a 15-year life with an 8.06 percent rate of
interest; and the $15,000,000 bond issue has a 7-year life with a 6.5
percent rate of interest. The $30,000,000 bond issue is redeemable at
the option of the holders in integral multiples of $1,000 on February 1,
2002. The Company also issued $3,000,000 of Environmental Improvement
Revenue Bonds in 1994 with a variable rate of interest which is
currently reset weekly. The average interest rate applied to the bonds
was 4.2 percent and 3.5 percent in 1995 and 1994, respectively. The
Company has the option to remarket the environmental bonds on a short-
term or long-term basis depending on the remarketability of the bonds.
Proceeds from all of the above bond issues were used to finance NS #2.
These additional financings increased the debt component of the
Company's capital structure from 34 percent at December 31, 1993 to 48
percent at December 31, 1995. The Company does not anticipate any
additional long-term debt financings in the next three years and would
expect the debt ratio to decrease to approximately 40 percent over the
next 3 to 5 year period unless the WYGEN project is constructed. (See
WYGEN on page 24.)
The Company also completed the refinancing of the $12,200,000, City
of Gillette Pollution Control Revenue Bonds during 1994. The new bonds
were issued in July 1994 at 7.5 percent, as agreed to in a 1992 forward
refunding agreement, and the Series 1984 bonds were called and redeemed
on August 1, 1994 at 102 percent of par.
The Company had $36,000,000 of unsecured short-term lines of credit
at December 31, 1995 and $70,000,000 at December 31, 1994, which provide
for interim borrowings and the opportunity for timing of permanent
financing. Borrowings outstanding under these lines of credit were
$575,000 and $36,975,000 as of December 31, 1995 and 1994, respectively.
The weighted average interest rate on these borrowings at December 31,
1995 and 1994 was 7.4 percent and 6.9 percent, respectively. There are
no compensating balance requirements associated with these lines of
credit.
In the past, the Company has relied upon internally generated
funds, issuance of short and long-term debt and sales of common stock to
finance its activities.
Credit ratings for the Company's First Mortgage Bonds remained at
an A1 level at Moody's Investors Service, Inc. and at an A at Standard &
Poor's. Standard & Poor's issued a negative outlook on the Company in
1993. The negative outlook was removed in 1995 after NS #2 became
commercially operational and the Company received rate recovery on the
NS #2 investment. These ratings reflect the respective agencies'
opinions of the credit quality of the Company's bonds.
RATE REGULATION
COMMERCIAL OPERATION OF NS #2 AND THE RELATED RATE RECOVERY
NS #2, an 80 megawatt coal-fired electric generating plant located
adjacent to the Company's coal mine, began commercial operation in
August 1995. The cost of the plant was approximately $122,000,000 which
was $2,900,000 under the initial project budget. A portion of the
generation from the plant replaces power Black Hills Power was
purchasing from other sources.
<PAGE>
Black Hills Power was authorized a 6.76 percent increase in
electric rates charged its South Dakota customers (representing
approximately 81 percent of sales) effective August 1, 1995, an 8.97
percent increase for its Wyoming retail customers (representing
approximately 8 percent of sales) effective August 16, 1995, and a 12.3
percent increase for its only wholesale customer, the City of Gillette
(representing approximately 10 percent of sales), effective September 6,
1995. The increase for the City of Gillette will be reduced to an 8.8
percent increase commencing January 1, 1997, when Black Hills Power
expects to receive additional revenue from sales to MDU for its
Sheridan, Wyoming, service territory. (See Wholesale to MDU on page 6.)
The South Dakota and Wyoming settlements further provide that
unless an extraordinary event occurs, Black Hills Power will not file
for any increase in rates or invoke any fuel and purchased power
automatic adjustment tariff to take effect during a freeze period ending
January 1, 2000. The specified extraordinary events are: new
governmental impositions increasing annual costs in South Dakota above
$1,000,000 or $325,000 in Wyoming, forced outages of both the Wyodak
Plant and NS #2 projected to continue at least 60 days in South Dakota
and three months in Wyoming, forced outages occurring to either plant
which are continued for a period of three months or projected to last at
least nine months and an increase in the Consumer Price Index at a
monthly rate for six consecutive months which would result in a 10
percent or more annual inflation rate.
Black Hills Power is undertaking during the freeze period the risks
of machinery failure, load loss caused by either an economic downturn or
changes in regulation, increased costs under existing power purchase
contracts over which the Company has no control, government
interferences, acts of nature and other unexpected events that could
cause material losses of income or increases in costs of doing business.
However, the settlement will allow Black Hills Power to retain during
that period of time earnings realized from more efficient operations,
sales from load growth, and off-system sales of power and energy,
including the sale to MDU. Management's expectation is that the
settlement will be beneficial in that (i) management has confidence in
the operational capability of Black Hills Power's power plants; (ii)
management does not anticipate purchasing any substantial amount of
capacity and energy during the freeze period except for its existing
purchase power agreements; and (iii) Wyodak Resources' mining costs will
not materially increase.
The rate settlements resulted in the inclusion of NS #2 into Black
Hills Power's rate base without any disallowance.
LONG-TERM CONTRACTS
As a result of rate negotiations, Black Hills Power was successful
in entering into long-term contracts with its industrial and large
commercial customers. The all requirements electric service agreement
with Homestake Mining Company expires September 9, 2002, and the other
contracts have terms of five years. Each of the contracts provides
options for the customer to keep the term of the contract extended for
at least three years, with the proviso that if the customer allows the
term to reduce to less than two years, Black Hills Power will be able to
invoke a planning surcharge on that customer. If deregulation in retail
electric sales occurs, the contracts give Black Hills Power sufficient
notice to allow the appropriate planning to make the transition to full
competition, guard against stranded investment and protect other
customers from unexpected load loss. These industrial and large
commercial customers, together with the power sales agreement to the
City of Gillette, result in Black Hills Power having approximately 36
percent of its firm load (based upon 1995 sales) under term contracts of
at least five years, and in 1997 when service commences under the MDU
contract, approximately 41 percent of Black Hills Power's firm load is
estimated to be under these term contracts.
BUSINESS DEVELOPMENT RATES
Both the SDPUC and the WPSC authorized Black Hills Power to
negotiate rates above its marginal costs but below full cost with any
customer with a load of over 250 KVA if that customer has a legal choice
of its electric supplier. Black Hills Power expects to utilize this
tariff in those instances where a new business would have a choice of
locating in the service territory of either Black Hills Power or a
competing REC or enticing a new business to locate or relocate in Black
Hills Power's service territory. Black Hills Power has available
resources to compete for new large load customers through this new
tariff.
<PAGE>
COMPETITION IN ELECTRIC UTILITY BUSINESS
CURRENT STATUS OF COMPETITION FOR SERVICE AT RETAIL
In addition to Black Hills Power, RECs and the federal government
through WAPA provide electric service in and around the service
territory of Black Hills Power. Black Hills Power's transmission system
is interconnected to Pacific Power's transmission system near Gillette,
Wyoming and to WAPA's system near Scottsbluff, Nebraska. Pacific Power
provides electric service at retail to large portions of Wyoming. Black
Hills Power and the RECs serve in territories which are protected by
state laws or regulations which generally give each entity the exclusive
right to serve retail in its respective territory; however, these laws
or regulations are subject to change and there are certain exceptions.
In South Dakota, the SDPUC may allow a new customer with a load of over
2,000 kilowatts to choose to be served by a utility other than the
utility in whose territory the new customer locates. In Wyoming, public
utilities operate in service territories assigned by the WPSC, and a
franchise granted by the municipality's governing body is required to
serve within a municipality. Black Hills Power may apply for and obtain
the right to serve in another utility's electric service territory if it
is found to be in the public interest to do so, but such applications
are rarely granted.
The respective service territories of Black Hills Power and the
RECs were originally assigned based on where each was serving at the
time of assignment. Since the RECs were serving in rural areas (the
purpose for which they were formed), a large portion of the rural area
surrounding the municipalities in which Black Hills Power serves
constitutes REC service territory. Although Black Hills Power has
traditionally served considerable territory outside of municipalities
and, therefore, has been assigned a large amount of such territory, the
RECs have the largest portion of such area and, if the laws are not
changed, will over a long period of time tend to receive a larger
portion of the growth of the population centers.
Every municipality in Black Hills Power's service territory has the
right, upon meeting certain conditions, to acquire or construct a
municipally owned electric system and to serve customers within its
city. As a wholesaler of electric power and energy, such municipality
would have the power to demand and receive transmission access over
Black Hills Power's transmission system. The FERC has proposed that a
city, which establishes a municipal electric system and buys power from
a supplier other than its former electric utility, should compensate the
former supplier for any stranded costs caused by the change in the power
supplier. The Company can give no assurances that this proposal will be
in the final regulations. Black Hills Power is not aware of any
movement by any municipality in its service territory which does not
already have a municipally owned electric system to establish one.
The primary competing fuel in Black Hills Power's territory is
natural gas which is available to approximately 80 percent of its
customers.
COMPETITION IN ELECTRIC GENERATION
The business of electric generation is no longer reserved
exclusively for the traditional public utility such as Black Hills
Power. The Energy Policy Act of 1992 exempted independent power
producers engaged exclusively in the sale of power at wholesale from the
onerous restrictions of the Public Utility Holding Company Act. The
Public Utility Regulatory Polices Act of 1978 (PURPA) authorizes
entities generating electricity from waste fuel and renewable fuel or
utilizing steam for both generation and other purposes to force a public
utility to purchase the energy at an avoided cost. These laws, together
with the FERC mandating all public utilities under its jurisdiction to
file tariffs providing transmission access for sales of energy at
wholesale, have caused electric generation and the marketing of electric
energy at wholesale to become extremely competitive. While independent
power producers, other than qualifying facilities under PURPA, are
regulated by the FERC, the FERC is allowing rates for the sale of
generation to be determined by the market rather than by costs if the
producer or marketer can demonstrate no market power.
As a result of these changes in the law and regulations, the
traditional public utility, such as Black Hills Power, is more likely to
purchase energy required for its franchised service territories through
competitive bidding and either not expand its rate base generating
capabilities or engage in the electric generation business through
independent power producers by selling to other utilities. (See--WYGEN
Project on page 24.)
<PAGE>
Black Hills Power's success in constructing NS #2 and getting it
into rate base was unusual for this period of time. The isolated area
in which Black Hills Power serves, the need for generation internal to
its system to support the limited transmission system and the Company's
control of its fuel supply at the mine site allowed Black Hills Power to
satisfy regulators that constructing NS #2 was the least cost of any
alternative, including purchased power. In the future, however, because
of the competitive forces described herein, it will become increasingly
difficult for any public utility to build base load generation and
expect to pass those costs on to its customers under the traditional
rate base methodology. Future generation, whether constructed by a
public utility or an independent power producer, is likely to be
justified strictly on the basis of the marketability of the capacity and
energy from the new source in a competitive market.
Black Hills Power could face the competition of industrial and
public customers constructing self-generation facilities using
alternative fuels, such as waste material, natural gas or oil. To date
Black Hills Power has not faced any material competition from such
sources and management does not believe that such sources are cost
effective, but no assurances can be given that material competition from
these sources will not occur.
TRANSMISSION ACCESS
The Energy Policy Act of 1992 provided for amendments to the
Federal Power Act that grant the FERC broad authority to mandate
transmission access to independent power producers as well as others
engaged in wholesale power transactions but specifically prevented the
FERC from ordering wheeling to end users (retail wheeling). Under the
new law, any electric utility or any other entity generating wholesale
electric energy may apply to the FERC for an order requiring any
electric utility to transmit such energy, including the enlargement of
relevant facilities. If the utility refuses to wheel or furnish
transmission service, the FERC may but is not required to order wheeling
in response to an application. The FERC is not to order wheeling if to
do so would impair the transmitting utility's reliability of service.
The new law does provide for the transmitting utility to obtain its full
cost of transmission service, as determined by the FERC.
In March of 1996, the FERC is expected to adopt regulations that
will require each public utility under its jurisdiction to file open
access transmission tariffs that provide rates which are comparable to
the same transmission costs of the public utility to transmit power over
its system. The rates will provide for various transmission services
and will apply to the transmission of electric power for wholesale
purposes only. The regulations will further require the public utility
to keep posted for public access, on an electronic bulletin board, all
current information concerning the availability and rates for these
transmission services. The public utilities will further be required to
functionally separate those persons who operate and market the
transmission system from those persons who buy and sell power for the
same utility. The regulations are designed to attempt to eliminate any
market advantage of the utility owning transmission over others engaged
in the sale of electric power at wholesale. Black Hills Power plans to
file an application with the FERC to approve open access transmission
tariffs in compliance with what is expected to be the final rule.
The new FERC regulations requiring the filing of open access
tariffs will not apply to the nonjurisdictional utilities such as the
RECs and publicly owned electric utilities. However, these
nonjurisdictional utilities are subject to the law that allows the FERC
to force them to provide transmission services upon application, and the
FERC is proposing reciprocity regulations that would authorize a
jurisdictional utility to deny transmission access to a
nonjurisdictional utility which has denied access.
Black Hills Power currently furnishes transmission service for
competing RECs and for the City of Gillette, Wyoming through contracts.
As long as the states in which Black Hills Power operates continue to
grant exclusive service territories, the federal government does not
preempt this state jurisdiction and municipalities in Black Hills
Power's service territory do not establish municipal electric systems,
the increase in transmission access through the Energy Policy Act of
1992 and the FERC regulations through Black Hills Power's transmission
system are not likely to have any material adverse effect upon Black
Hills Power. Such open access may have a beneficial effect by opening
opportunities for the Company to further the marketing of coal-fired
energy outside of its service territory.
RETAIL WHEELING
Legislative proposals requiring a public utility to allow its
competitors to utilize the utility's electric distribution system to
serve end-user customers who were formerly captive to that public
utility, commonly referred to as retail wheeling, are getting serious
consideration in Congress and in many states. Since the duplication of
electric transmission and distribution systems would neither be
efficient nor tolerable by the public, the transmission and
<PAGE>
distribution portion of the business is likely to continue to
be regulated with rates based on costs. The Company cannot
predict when and if mandated retail wheeling and the end of exclusive
franchised service territories will come. Major problems should be
resolved first, such as the preservation of reliable service,
compensation to a utility for investment incurred to fulfill its duty to
serve but stranded because of competition, fairness of market pricing
between large industrial users and small business and residential users
and assurances that all utilities, including the RECs, are bound to
operate under the same rules. At this time, the Company is not aware of
any movement in its major state jurisdictions for retail wheeling, but
no assurances can be given that either Congress or the states may in the
future require electric retail competition.
Management is unable to predict the effect of full electric retail
competition on the Company's earnings. Management does anticipate that
a transition period of at least five years will be required to achieve a
fully competitive electric energy retail market. During that five
years, Black Hills Power is in a position to increase its earnings
through additional sales and cost containment. Based upon the FERC's
expressed positions concerning open access transmission regulations,
electric utilities which will lose investment due to competition should
be allowed payment for such stranded costs. The market price of
electric energy in a fully competitive market is expected to be based
upon a much wider geographical area than just Black Hills Power's
service territory. Because energy providers are likely to seek the
markets where the highest profit margins can be realized, today's rates
designed to serve exclusive service territories may be substantially
different for service to a fully competitive market. Black Hills Power
should always be able to expect rates based upon full costs for the use
of its transmission and distribution systems, and its competition will
be paying the same costs. Lower rates today are partially caused by
excess generation capacity which allows providers to sell energy above
their marginal costs but below full costs. Based upon industry
predictions, management believes that this excess capacity will be more
fully utilized in the next five to seven years. Management believes
that coal-fired plants will become more competitive with natural gas-
fired plants in the future as natural gas prices increase.
However, future market and regulatory conditions anticipated in the
previous paragraph may not occur. Market and economic conditions and
government actions or inaction are highly unpredictable and could have a
materially adverse effect on Black Hills Power's ability to compete in a
fully competitive electric power market and to maintain its equity
return on investment.
REGULATORY ACCOUNTING
Black Hills Power follows Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation," and its financial statements reflect the effects of the
different ratemaking principles followed by the various jurisdictions
regulating Black Hills Power. As a result of Black Hills Power's recent
regulatory activity, a 50-year depreciable life for NS #2 is used for
financial reporting purposes. If Black Hills Power were not following
SFAS 71, a 35 to 40 year life would probably be more appropriate which
would increase depreciation expense by approximately $600,000 per year.
If rate recovery of generation-related costs becomes unlikely or
uncertain, due to competition or regulatory action, these accounting
standards may no longer apply to Black Hills Power's generation
operations. In the event Black Hills Power determines that it no longer
meets the criteria for following SFAS 71, the accounting impact to the
Company would be an extraordinary noncash charge to operations of an
amount that could be material. Criteria that give rise to the
discontinuance of SFAS 71 include increasing competition that could
restrict Black Hills Power's ability to establish prices to recover
specific costs and a significant change in the manner in which rates are
set by regulators from cost-based regulation to another form of
regulation. The Company periodically reviews these criteria to ensure
the continuing application of SFAS 71 is appropriate.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The Company reported record earnings for 1995 reflecting the
successful completion of the construction of NS #2, the related rate
recovery and strong growth in sales for the residential and commercial
customers. Consolidated net income for 1995 was $25,590,000 compared to
$23,805,000 in 1994 and $22,946,000 in 1993 or $1.78 per average common
share in 1995 and $1.66 per average common share in 1994 and 1993. This
equates to a 14.0 percent return on year-end common equity in 1995, 13.6
percent in 1994 and 13.7 percent in 1993. Consolidated net income
includes noncash earnings of $3,645,000 and $2,371,000 for allowance for
equity funds used during construction in 1995 and 1994, respectively.
<PAGE>
Consolidated revenue and income provided by the three businesses as
a percentage of the total were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenue:
Electric 73% 72% 71%
Coal mining 20 20 21
Oil and gas 7 8 8
--- --- ---
100% 100% 100%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net Income:
Electric 57% 54% 49%
Coal mining 38 41 46
Oil and gas 5 5 5
--- --- ---
100% 100% 100%
</TABLE>
Dividends paid on common stock totaled $1.34 per share in 1995.
This reflected increases approved by the Board of Directors from $1.32
per share in 1994 and $1.28 per share in 1993. All dividends were paid
out of current earnings. The Company's dividend objective is to
increase the dividend at or above the electric utility average and
reduce the Company's payout ratio to the low 70's. Management believes
this objective is attainable through earnings growth. The Company's
three year dividend growth rate was 2.6 percent and the payout ratio for
1995 was 75 percent.
In January 1996 the Board of Directors increased the quarterly
dividend 3.0 percent to 34.5 cents per share. If this dividend is
maintained during 1996, the increase will be equivalent to an annual
increase of 4 cents per share.
ELECTRIC OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Revenue $108,783 $104,756 $98,155
Operating expenses 80,540 79,680 74,173
-------- -------- -------
Operating income $ 28,243 $ 25,076 $23,982
======== ======== =======
Net income $ 14,569 $ 12,852 $11,171
======== ======== =======
</TABLE>
Electric revenue increased 3.8 percent in 1995 compared to a 6.7
percent increase in 1994 and a 0.7 percent increase in 1993. Firm
kilowatthour sales increased 0.5 percent in 1995 compared to a 2.7
percent increase in 1994 and a 3.5 percent increase in 1993 and have
averaged an annual 2.2 percent growth rate over the last three years.
The increase in revenue in 1995 was primarily due to the increase
in electric rates (see Commercial Operation of NS #2 and the Related
Rate Recovery on page 16) and strong growth in the residential and
commercial sectors of the Company's electric business. The residential
sector showed a 1.8 percent growth in the number of customers and a 4.1
percent growth in kilowatthour sales. The commercial sector showed a
2.6 percent growth in the number of customers and a 3.6 percent growth
in kilowatthour sales. While the residential and commercial sectors
which provide Black Hills Power with the highest margin sales showed
strong growth, the impact of this growth was partially offset by a 5.2
percent decrease in kilowatthour sales to the industrial customers.
Homestake Mining Company, representing 10.5 percent of firm kilowatthour
sales, purchased 7.7 percent less energy in 1995 by continuing to
concentrate on more efficient production areas. The South Dakota Cement
Plant, representing 6.3 percent of firm kilowatthour sales, purchased
12.5 percent less energy than the previous year because of a decrease in
cement production and sales and the installation of more efficient
equipment.
The increase in revenue in 1994 was due to the 2.7 percent increase
in firm kilowatthour sales and an increase in the fuel and purchased
power adjustment passed on to electric customers. The increase in
purchased power costs was primarily due to replacement power purchased
while the Wyodak Plant was out of service for maintenance.
<PAGE>
The revenue increase in 1993 from additional electric sales was
offset by a decrease in the fuel and purchased power adjustment passed
on to electric customers. The decrease in the purchased power
adjustment passed on to electric customers was due to a $2,000,000
refund received from PacifiCorp on the 40-year power purchase agreement.
Homestake Mining Company reduced its energy usage by 22,000 megawatt
hours in 1993 by concentrating on more efficient production areas.
Revenue per kilowatthour sold was 6.1 cents in 1995 and 1994 up
from 5.9 cents in 1993. The number of customers in the service area
increased to 55,018 in 1995 from 53,959 in 1994 and 53,330 in 1993. The
revenue per kilowatthour sold in 1995 reflects the increase in electric
rates and the strong growth in the higher margin sectors of Black Hills
Power's business offset by the impact of 60,575 megawatt hours of non-
firm sales. Excluding non-firm sales the rate per kilowatthour sold was
6.3 cents in 1995. The increase in revenue per kilowatthour sold in
1994 was due to the increase in purchased power cost related to
replacement power purchased during the Wyodak Plant maintenance period.
Operating expenses increased slightly in 1995 reflecting the
commercial operation of NS #2, increased substantially in 1994 due to
the increase in purchased power costs and remained relatively flat in
1993 compared to 1992 as a result of the $2,000,000 purchased power
refund. Coinciding with the commercial operation of NS #2, the electric
operations realized a decrease in the cost of coal per ton charged by
Wyodak Resources. Over the past several years Black Hills Power was not
allowed to include in rates charged to its South Dakota customers any
cost of coal which allowed Wyodak Resources to earn a return on equity
on sales of coal to Black Hills Power in excess of a percentage equal to
the rate on long-term "A" rated utility bonds plus 400 basis points (4
percent). Any excess amount that was charged was refunded to Black
Hills Power's South Dakota customers through the fuel and purchased
power adjustment clause. Beginning with the commercial operation of NS
#2, Wyodak Resources changed its coal pricing methodology to Black Hills
Power making the price of coal equal to the above limitation thereby
eliminating the need for any further adjustment to the electric
operations revenue. The impact of this change reduced fuel expense for
the electric operations, reduced revenue for the coal mining operations
and had no impact on the consolidated financial statements.
Firm energy sales are forecasted to increase over the next 10 years
at an annual compound growth rate of approximately 2 percent with the
system demand forecasted to increase 2.1 percent in the summer and 2.4
percent in the winter. The Company currently has a winter peak of 291
MWs established in January 1996 and a summer peak of 298 MWs established
in August 1995. These forecasts are from studies conducted by the
Company with the help of outside consultants whereby Black Hills Power's
service territory is examined and analyzed to estimate changes in the
needs for electrical energy and demand over a 20-year period. These
forecasts are only estimates, and the actual changes in electric sales
may be substantially different as was experienced with the industrial
sales growth in 1995. However, in the past the forecasts tracked actual
sales within a band of reasonableness over a period of several years.
COAL MINING OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Revenue $29,870 $28,594 $29,822
Operating expenses 17,644 16,694 17,461
------- ------- -------
Operating income $12,226 $11,900 $12,361
======= ======= =======
Net income $ 9,737 $ 9,918 $10,641
======= ======= =======
</TABLE>
Revenue increased 4.5 percent in 1995, decreased 4.1 percent in
1994 and increased 5.4 percent in 1993 due to a 5.0 percent increase, a
7.6 percent decrease and a 2.3 percent increase, respectively, in tons
of coal sold. The increase in revenue in 1995 was partially offset by a
decrease in the price of coal charged to the utility's operations. (See
explanation of the change in coal pricing methodology under Electric
Operations.) The decrease in tons of coal sold in 1994 was caused by
the Wyodak Plant being out of service for five weeks of scheduled
maintenance. Operating expenses increased 5.7 percent in 1995
reflecting the increase in tons of coal sold. Operating expenses
decreased 4.0 percent in 1994 reflecting the decrease in tons of coal
mined offset by an increase in depreciation expense. Operating expense
increased 4.4 percent in 1993 reflecting an increase in depreciation
expense as a result of an increase in capital investments and higher
taxes associated with increased revenues.
<PAGE>
Non-operating income was $2,279,000 in 1995 compared to $1,750,000
in 1994 and $2,226,000 in 1993. Non-operating income includes gains or
losses on sale or disposal of property and equipment, a coal contract
settlement from Grand Island, Nebraska and interest income from
investments. Non-operating income increased in 1995 due to a $700,000
gain realized on the disposal of equipment offset by a decrease in
interest rates. Non-operating income decreased in 1994 and 1993 due to
a decrease in interest income attributable to lower interest rates.
OIL AND GAS PRODUCTION
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Revenue $11,164 $12,052 $11,396
Production expenses 9,471 10,196 9,952
------- ------- -------
Operating income $ 1,693 $ 1,856 $ 1,444
======= ======= =======
Net income $ 1,320 $ 1,080 $ 1,127
======= ======= =======
</TABLE>
The oil and gas operations have not been a significant part of the
Company's total operations. Net income and assets related to oil and
gas operations have been 6 percent or less of the Company's consolidated
amounts over the last three years.
Revenue is primarily comprised of oil and gas sales and is
supplemented by field services in eastern Wyoming. Equivalent barrels
of oil sold was 599,000 barrels in 1995, 624,000 barrels in 1994 and
465,000 barrels in 1993. The average sales price of oil per barrel was
$17.09 in 1995 compared to $15.56 in 1994 and $16.69 in 1993. The
average sales price per mcf of gas was $1.47 in 1995 compared to $1.81
in 1994 and $2.31 in 1993. Western Production's production expenses
decreased 7.1 percent in 1995 compared to a 2.5 percent increase in 1994
and a 21 percent increase in 1993.
During 1995 Western Production sold its interest in several wells
with estimated net remaining reserves of 208,000 barrels of oil
equivalents for approximately $2,175,000. The impact of this sale
reduced 1995 production by approximately 100,000 equivalent barrels.
Production expenses decreased in 1995 reflecting lower depletion
expense associated with higher oil prices and a successful drilling
program. Production expenses increased in 1994 and 1993 primarily due
to increased depletion expense as a result of increased oil and gas
production and lower oil and gas prices. Western Production recognized
$3,730,000, $4,450,000 and $3,725,000 of depletion expense in 1995, 1994
and 1993, respectively. Low oil and gas prices reduce the cash flow and
value of the Company's oil and gas assets and will cause the Company to
increase its depletion expense.
Western Production's proved reserves and the revenues generated
from production decline as production occurs, except to the extent
successful exploration and development activities are conducted or
additional proved reserves are acquired. Western Production has been in
an active exploration and development drilling program during the past
three years. Western Production participated in the drilling of 22
wells in 1995 with an average working interest of 21 percent or 4.7 net
wells. Fourteen of the 22 wells were completed as producing wells for
an overall success rate of 64 percent. Much of the production growth in
1994 and 1993 was the result of its horizontal drilling program in the
Austin Chalk formation in Texas. Western Production intends to increase
its net proved reserves by selectively increasing its oil and gas
exploration and development activities and by acquiring producing
properties primarily with the use of internally generated funds.
Western Production's reserves are based on reports prepared by
Ralph E. Davis Associates, Inc. Reserves were determined using constant
product prices at the end of the respective years. Estimates of
economically recoverable reserves and future net revenues are based on a
number of variables which may differ from actual results. Western
Production's unaudited reserves, principally proved developed and proved
undeveloped properties, were estimated to be 1.6, 1.4 and 1.1 million
barrels of oil and 7.7, 9.1 and 2.8 billion cubic feet of natural gas as
of December 31, 1995, 1994 and 1993, respectively. The decrease in
reserves at December 31, 1995 was due to the sale of properties
described above and low gas prices. The increase in reserves as of
December 31, 1994, was primarily due to the active drilling program
and a production acquisition in South Texas. The decrease in the
reserves in 1993 was caused by price decreases and engineering revisions.
<PAGE>
WYGEN
In 1994, Wyodak Resources formed a wholly owned subsidiary named
WYGEN, Inc. WYGEN applied for and received from the FERC a
determination that WYGEN has exempt wholesale generator status under
Section 32 of the Public Utility Holding Company Act. WYGEN was formed
for the sole purpose of engaging in the generating and selling of
electric power and energy at wholesale. At this time WYGEN is proposing
to build an 80 megawatt coal-fired electric generating plant to be known
as the Wygen Plant adjacent to NS #2. WYGEN has filed with the DEQ an
application for a prevention of significant deterioration air quality
construction permit. Management expects, but can give no assurances,
that the required permit will be obtained in mid-1996. Construction
must commence within two years of the granting of the permit or WYGEN
would be required to reapply. As an independent power project, the air
quality permit is the only major permit required. Based upon nonbinding
suggestions of major contractors, management believes that WYGEN would
be able to construct the Wygen Plant for approximately the same cost of
construction as NS #2.
WYGEN would not commence construction of the Wygen Plant until such
time that WYGEN receives sufficient power purchase contracts from
responsible entities which would be required to obtain the necessary
financing. It is anticipated that the WYGEN Plant will be financed
primarily with non-recourse debt secured only by the WYGEN Plant assets.
The wholesale market is currently highly competitive (see Competition in
the Electric Utility Business on page 18), and the Company can give no
assurances that the project is feasible at this time. If not at this
time, the Company believes that it is only a matter of time before
additional power plants at the site of Wyodak Resources' mine are
economically feasible.
Viable markets for the electric power and energy from the Wygen
Plant will depend partially upon the cost of transmission rights to
deliver the electric power and energy to higher priced energy markets.
While the FERC's open access transmission regulations should make such
transmission legally available, physical transmission constraints or the
perception of such constraints may require WYGEN's participation in
transmission improvements which, together with transmission rates for
access across transmission systems, could make the WYGEN Plant less
economical. The economics of delivering power over multiple-owned
transmission systems will depend upon how successful the FERC is in
bringing about regional transmission systems operated independently of
the interests of any one provider, with mechanisms to pool costs and
cause transmission system improvements to be constructed, on a timely
basis, with broad participation.
OTHER SEGMENTS OF BUSINESS
DAKSOFT, Inc., a subsidiary of Wyodak Resources, was formed in 1994
to develop and market internally generated computer software associated
with the Company's business segments. DAKSOFT entered into a multi-year
enhancement and sales contract in 1995 totalling $700,000. The revenue
from this contract is earned as the product enhancement occurs.
Approximately $290,000 of revenue was recognized in 1995. DAKSOFT's
expenses in 1994 were primarily organizational expenses. Landrica was
incorporated by the Company in March 1984, and holds minor interests in
real estate. The financial position and results of operations of WYGEN,
DAKSOFT and Landrica were not significant to the Company.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS
TO BE DISPOSED OF
In December 1995, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to Be Disposed Of," which imposes a
stricter criterion for assets by requiring that such assets be probable
of future recovery at each balance sheet date. The adoption of the
standard did not have an impact on the financial position or results
of operations based on the current regulatory structure in which Black
Hills Power operates. This may change in the future as competitive
factors influence wholesale and retail pricing in the utility industry.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants 25
Consolidated Statements of Income and Retained Earnings
for the three years ended December 31, 1995 26
Consolidated Statements of Cash Flows for
the three years ended December 31, 1995 27
Consolidated Balance Sheets as of December 31, 1995 and 1994 28
Consolidated Statements of Capitalization as of
December 31, 1995 and 1994 29
Notes to Consolidated Financial Statements 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Black Hills Corporation:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of Black Hills Corporation and Subsidiaries
as of December 31, 1995 and 1994, and the related consolidated
statements of income, retained earnings and cash flows for each of the
three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Black Hills
Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 30, 1996
<PAGE>
BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Operating revenues:
Electric $108,783 $104,756 $ 98,155
Coal mining 29,870 28,594 29,822
Oil and gas 11,164 12,052 11,396
-------- -------- --------
149,817 145,402 139,373
-------- -------- --------
Operating expenses:
Fuel and purchased 39,265 41,970 36,946
power
Operations and 28,523 28,713 30,237
maintenance
Administrative and 9,226 7,920 8,144
general
Depreciation, depletion 19,660 17,601 16,051
and amortization
Taxes, other than 10,981 10,366 10,208
income taxes
-------- -------- --------
107,655 106,570 101,586
-------- -------- --------
Operating income:
Electric 28,243 25,076 23,982
Coal mining 12,226 11,900 12,361
Oil and gas 1,693 1,856 1,444
-------- -------- --------
42,162 38,832 37,787
-------- -------- --------
Other income (expense):
Interest expense (14,195) (10,339) (8,817)
Investment income 1,368 1,631 1,739
Allowance for funds 5,867 3,983 729
used during construction
Other, net 93 473 1,125
-------- -------- --------
(5,835) (4,632) (5,876)
-------- -------- --------
Income before income 36,327 34,200 31,911
taxes
Income taxes (10,737) (10,395) (8,965)
-------- -------- --------
Net income $ 25,590 $ 23,805 $ 22,946
======== ======== ========
Weighted average common 14,409 14,339 13,811
shares outstanding
Earnings per share of $ 1.78 $ 1.66 $ 1.66
common stock
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $115,284 $110,399 $105,173
Net income 25,590 23,805 22,946
Cash dividends on common
stock ($1.34, $1.32 (19,312) (18,920) (17,720)
and $1.28 per share,
respectively)
-------- -------- --------
Balance, end of year $121,562 $115,284 $110,399
======== ======== ========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Operating activities:
Net income $ 25,590 $23,805 $22,946
Principal non-cash
items-
Depreciation, depletion 19,660 17,601 16,051
and amortization
Deferred income taxes
and investment tax 2,097 2,470 1,042
credits
Allowance for other
funds used during (3,645) (2,371) (333)
construction
Increase in receivables,
inventories and other (669) (3,438) (1,556)
current assets
Increase (decrease) in (1,420) 5,054 (2,562)
current liabilities
Other, net 3,677 5,815 4,259
------- ------- -------
45,290 48,936 39,847
------- ------- -------
Investing activities:
Neil Simpson Unit #2
construction costs,
excluding allowance for (29,820) (71,956) (12,675)
other funds used during
construction
Other property
additions, excluding (18,430) (28,732) (27,282)
allowance for other
funds used during
construction
Available for sale (19,323) (41,923) (33,622)
securities purchased
Available for sale 36,941 46,964 40,228
securities sold
------- ------- -------
(30,632) (95,647) (33,351)
------- ------- -------
Financing activities:
Dividends paid (19,312) (18,920) (17,720)
Common stock issued 654 2,436 13,705
Net short-term (36,400) 25,250 3,784
borrowings (repayments)
Long-term debt issued 46,904 45,795 -
Long-term debt retired (10,499) (3,542) (4,166)
------- ------- -------
(18,653) 51,019 (4,397)
------- ------- -------
Increase (decrease) in
cash and cash (3,995) 4,308 2,099
equivalents
Cash and cash equivalents:
Beginning of year 12,174 7,866 5,767
------- ------- -------
End of year $ 8,179 $12,174 $ 7,866
======= ======= =======
Supplemental disclosure of
cash flow information:
Cash paid during the
period for-
Interest $12,901 $ 9,244 $ 9,283
Income taxes $ 7,775 $ 7,290 $ 8,000
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 1995 1994
ASSETS (in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,179 $ 12,174
Securities available for sale 6,804 24,422
Receivables, net
Customers 13,339 12,409
Other 3,825 4,045
Materials, supplies and fuel 7,415 7,139
Prepaid expenses 1,247 1,564
-------- --------
40,809 61,753
-------- --------
Property and investments:
Electric 469,135 425,690
Coal mining 44,473 51,755
Oil and gas 40,704 38,842
Other 3,330 3,009
-------- --------
557,642 519,296
Less accumulated depreciation and (164,383) (156,046)
depletion
-------- --------
393,259 363,250
-------- --------
Deferred charges:
Federal income taxes 7,543 7,505
Regulatory asset 2,576 699
Other 4,643 3,670
-------- --------
14,762 11,874
-------- --------
$448,830 $436,877
======== ========
LIABILITIES AND CAPITALIZATION
Current liabilities:
Current maturities of long-term $ 1,405 $ 2,144
debt
Notes payable 618 37,018
Accounts payable 9,737 12,018
Accrued liabilities-
Taxes 7,047 6,331
Interest 4,089 2,795
Other 6,977 8,126
-------- --------
29,873 68,432
-------- --------
Deferred credits:
Federal income taxes 45,290 39,953
Investment tax credits 5,018 5,521
Reclamation costs 7,974 7,618
Regulatory liability 7,111 6,925
Other 5,153 4,093
-------- --------
70,546 64,110
-------- --------
Commitments and contingent
liabilities
(Notes 6, 7 and 8)
Capitalization, per accompanying
statements:
Common stock equity 182,342 175,410
Long-term debt 166,069 128,925
-------- --------
348,411 304,335
-------- --------
$448,830 $436,877
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31 1995 1994
(in thousands)
<S> <C> <C>
Common stock equity:
Common stock, $1 par value;
50,000,000 shares authorized; $ 14,425 $ 14,386
14,424,952 and 14,386,353
shares outstanding respectively
Additional paid-in capital 46,355 45,740
Retained earnings 121,562 115,284
-------- --------
Total common stock equity 182,342 175,410
-------- --------
Cumulative preferred stock:
No par value; 400,000 share - -
authorized; no shares outstanding
$100 par value; 270,000 shares - -
authorized; no shares outstanding
Long-term debt:
First mortgage bonds-
8.375% retired 1995 - 2,675
8.05% retired 1995 - 4,850
6.625% pollution control bonds, - 1,680
retired 1995
6.50% due 2002 15,000 -
9.00% due 2003 9,275 10,561
8.06% due 2010 30,000 -
9.49% due 2018 6,000 6,000
9.35% due 2021 35,000 35,000
8.30% due 2024 45,000 45,000
-------- --------
140,275 105,766
-------- --------
Other-
6.7% pollution control revenue 12,300 12,300
bonds, due 2010
7.5% pollution control revenue 12,200 12,200
bonds, due 2024
Other long-term obligations 2,699 803
-------- --------
27,199 25,303
-------- --------
Total long-term debt 167,474 131,069
Current maturities (1,405) (2,144)
-------- --------
Net long-term debt 166,069 128,925
-------- --------
Total capitalization $348,411 $304,335
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
(1) BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Black Hills Corporation and its subsidiaries operate in three primary
business segments: electric, coal mining and oil and gas production.
The Company's electric utility operation is engaged in the generation,
purchase, transmission, distribution and sale of electric power and
energy in western South Dakota, northeastern Wyoming and southeastern
Montana. Sales of electric power to the three largest electric
customers represented 18 percent of the Company's electric revenue in
1995 and 20 percent in 1994 and 1993. The coal mining operation of the
Company, located in northeastern Wyoming, mines and sells sub-bituminous
coal primarily under long-term coal supply agreements. As discussed in
Note 6, 64 percent of the coal mining operation's sales are to the
Wyodak Plant. Sales of coal to the Company and to PacifiCorp represent
88 percent of total coal sales. The Company's oil and gas exploration
and production business operates and has working interests in properties
located in the western United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Black
Hills Corporation and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation except for revenues and expenses associated with
intercompany coal sales in accordance with the provisions of Statement
of Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation." Total intercompany coal sales not
eliminated were $10,498,000, $9,445,000 and $10,047,000 in 1995, 1994
and 1993, respectively.
REGULATORY ACCOUNTING
Black Hills Power follows Statement of Financial Accounting Standards
(SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation," and its financial statements reflect the effects of the
different ratemaking principles followed by the various jurisdictions
regulating Black Hills Power. As a result of Black Hills Power's recent
regulatory activity, a 50-year depreciable life for NS #2 is used for
financial reporting purposes. If Black Hills Power were not following
SFAS 71, a 35 to 40 year life would probably be more appropriate which
would increase depreciation expense by approximately $600,000 per year.
If rate recovery of generation-related costs becomes unlikely or
uncertain, due to competition or regulatory action, these accounting
standards may no longer apply to Black Hills Power's generation
operations. In the event Black Hills Power determines that it no longer
meets the criteria for following SFAS 71, the accounting impact to the
Company would be an extraordinary noncash charge to operations of an
amount that could be material. Criteria that give rise to the
discontinuance of SFAS 71 include increasing competition that could
restrict Black Hills Power's ability to establish prices to recover
specific costs and a significant change in the manner in which rates are
set by regulators from cost-based regulation to another form of
regulation. The Company periodically reviews these criteria to ensure
the continuing application of
SFAS 71 is appropriate.
PROPERTY
Property is recorded at cost which includes an allowance for funds used
during construction where applicable. The cost of electric property
retired, together with removal cost less salvage, is charged to
accumulated depreciation. Repairs and maintenance of property are
charged to operations as incurred.
DEPRECIATION AND DEPLETION
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Depreciation provisions
for the electric property were equivalent to annual composite rates of
3.0 percent in 1995, 3.1 percent in 1994 and 3.2 percent in 1993.
Composite depreciation rates for other property were 8.9 percent, 10.3
percent and 9.6 percent in 1995, 1994 and 1993, respectively.
Depletion of coal and oil and gas properties is computed using the cost
method for financial reporting and the gross income method or cost
method, whichever is applicable, for federal income tax reporting.
AVAILABLE FOR SALE SECURITIES
The Company has investments in marketable securities which are
classified as available-for-sale securities. The difference between the
securities fair value and cost basis and the realized gains and losses
on sales of the securities were not significant for the periods
presented.
REVENUE RECOGNITION
Revenue from sales of electric energy is based on rates filed with
applicable regulatory authorities. Electric revenue includes an
accrual for estimated unbilled revenue for services provided through
year-end. Revenue from other business segments is recognized at the
time the products are delivered or the services are rendered.
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Ultimate results could differ from those
estimates.
OIL AND GAS EXPLORATION
The Company accounts for its oil and gas exploration activities under
the full cost method. Capitalized costs associated with unsuccessful
wells are amortized over future periods as the reserves from successful
wells are produced.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Allowance for funds used during construction (AFDC) represents the
approximate composite cost of borrowed funds and a return on capital
used to finance construction expenditures and is capitalized as a
component of the electric property. The AFDC was computed at an annual
composite rate of 10.2 percent in 1995, 8.7 percent in 1994 and 7.7
percent in 1993.
INCOME TAXES
Deferred taxes are provided on all significant temporary differences,
principally depreciation. Investment tax credits have been deferred in
the electric operation and the accumulated balance is amortized as a
reduction of income tax expense over the useful lives of the related
electric property which gave rise to the credits.
RECLASSIFICATIONS
Certain amounts previously reported in the 1994 financial statements
have been reclassified to conform to the 1995 financial statement
presentation. Those reclassifications had no effect on previously
reported net income or common stock equity.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of," which imposes a stricter
criterion for assets by requiring that such assets be probable of future
recovery at each balance sheet date. The adoption of the standard did
not have an impact on the financial position or results of operations
based on the current regulatory structure in which the Company operates.
This may change in the future as competitive factors influence wholesale
and retail pricing in the utility industry.
(2) CAPITAL STOCK
COMMON STOCK
Common shares issued at $1.00 par value during the years indicated were:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Public Offering - - 525,000
Employee Stock 38,599 4,195 16,402
Purchase Plan
Dividend Reinvestment
and Stock Purchase Plan - 112,578 26,891
------ ------- -------
38,599 116,773 568,293
====== ======= =======
</TABLE>
At December 31, 1995, 231,415 shares of unissued common stock were
available for future offerings under the Employee Stock Purchase Plan.
The Company has a Dividend Reinvestment and Stock Purchase Plan under
which shareholders may purchase additional shares of common stock
through dividend reinvestment and/or optional cash payments at 100
percent of the recent average market price. The Company has the option
of issuing new shares or purchasing the shares on the open market. At
December 31, 1995, 860,531 shares of unissued common stock were
available for future offerings under the Plan.
<PAGE>
ADDITIONAL PAID-IN CAPITAL
Changes in additional paid-in capital for the years indicated were:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Balance, beginning of $45,740 $43,420 $30,284
year
Premium, net of expenses,
received from sales of stock 615 2,320 13,136
------- ------- -------
Balance, end of year $46,355 $45,740 $43,420
======= ======= =======
</TABLE>
(3) LONG-TERM DEBT
Substantially all of the Company's utility property is subject to the
lien of the Indenture securing its first mortgage bonds. First mortgage
bonds of the Company may be issued in amounts limited by property,
earnings and other provisions of the mortgage indentures. Scheduled
maturities of long-term debt for the next five years are: $1,405,000 in
1996, $1,534,000 in 1997, $1,331,000 in 1998, and $1,330,000 in 1999 and
2000.
In 1994 the Company filed a Form S-3, shelf registration for
$100,000,000 first mortgage bonds. Under the filing, the Company issued
bonds in the amount of $45,000,000 on September 1, 1994, $30,000,000 on
February 3, 1995 and $15,000,000 on July 14, 1995. The $30,000,000 bond
issue is redeemable at the option of the holders in integral multiples
of $1,000 on February 1, 2002. These bond issues were used to finance
NS #2.
The Company also completed the refinancing of the $12,200,000, City of
Gillette Pollution Control Revenue Bonds during 1994. In 1992 the
Company entered into a forward refunding on the $12,200,000, 10.5
percent, City of Gillette Pollution Control Revenue Bonds. The new
bonds were issued in July 1994 at 7.5 percent, due 2024.
(4) NOTES PAYABLE TO BANKS
The Company had $36,000,000 of unsecured short-term lines of credit at
December 31, 1995 and $70,000,000 at December 31, 1994. Borrowings
outstanding under these lines of credit were $575,000 and $36,975,000 as
of December 31, 1995 and 1994, respectively. The weighted average
interest rate on these borrowings at December 31, 1995 and 1994 was 7.4
percent and 6.9 percent, respectively. Average borrowings during 1995
and 1994 were $6,619,000 and $21,070,000, respectively. The Company has
no compensating balance requirements associated with these lines of
credit. The lines of credit are subject to periodic review and renewal
during the year by the banks.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash of the Company is invested in money market investments such as
municipal put bonds, money market preferreds, commercial paper,
Eurodollars and certificates of deposit. The Company considers all
highly liquid investments with an original maturity of three months or
less to be cash equivalents.
The following methods and assumptions were used to estimate the fair
value of each class of the Company's financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value due to the short maturity of
these instruments.
AVAILABLE FOR SALE SECURITIES
The fair value of the Company's investments equals the quoted market
price when available and a quoted market price for similar securities if
a quoted market price is not available. The Company has classified all
of its marketable securities as available-for-sale as of December 31,
1995.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on
quoted market rates for utility debt instruments having similar
maturities and similar debt ratings. The Company's outstanding bonds
are either currently not callable or are subject to make-whole
provisions which would eliminate any economic benefits for the Company
to call and refinance the bonds.
<PAGE>
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1995 1994
Carrying Fair Carrying Fair
Value Value Value Value
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 8,179 $ 8,179 $ 12,174 $ 12,174
Securities available for sale:
Corporate debt securities 1,000 1,000 12,200 12,200
State and local agency 5,804 5,804 12,222 12,222
obligations
Long-term debt 167,474 194,625 131,069 133,313
</TABLE>
(6) WYODAK PLANT
The Company owns a 20 percent interest and PacifiCorp an 80 percent
interest in the Wyodak Plant (the Plant), a 330 megawatt coal-fired
electric generating station located in Campbell County, Wyoming.
PacifiCorp is the operator of the Plant. The Company receives 20
percent of the Plant's capacity and is committed to pay 20 percent of
its additions, replacements and operating and maintenance expenses. As
of December 31, 1995, the Company's investment in the Plant included
$73,203,000 in electric plant and $23,053,000 in accumulated
depreciation. The Company's share of direct expenses of the Plant were
$6,503,000, $6,945,000 and $6,882,000 for the years ended December 31,
1995, 1994 and 1993, respectively, and are included in the corresponding
categories of operating expenses in the accompanying consolidated
statements of income. Wyodak Resources supplies coal to the Plant under
an agreement expiring in 2013 with a PacifiCorp option to renew for 10
years. This coal supply agreement is collateralized by a mortgage on
and a security interest in some of Wyodak Resources' coal reserves. At
December 31, 1995, approximately 28,412,000 tons were covered under this
agreement. Wyodak Resources' sales to the Plant were $20,224,000,
$20,671,000 and $21,438,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
(7) COMMITMENTS AND CONTINGENT LIABILITIES
MDU POWER SALE
During 1994, the Company entered into a Power Integration Agreement with
MDU. The agreement provides that for a period of 10 years commencing
January 1, 1997, the Company will supply up to 55 megawatts of electric
power and associated energy required by MDU for its Sheridan, Wyoming,
service territory. MDU's Sheridan service area has experienced a 45
megawatt peak and a load factor of approximately 60 percent.
COAL OBLIGATIONS
In addition to the 28,412,000 tons of coal reserved under the agreement
to supply coal to the Wyodak Plant, Wyodak Resources has reserved
28,110,000 tons of coal under existing contracts and 51,000,000 tons of
coal under future purchase options. None of the purchase options are
expected to be exercised because the option price is substantially
higher than the market price. An option for 50,000,000 tons can be
exercised only if Wyodak Resources has not committed the coal reserves
to other buyers prior to the exercise of the option.
PACIFICORP PURCHASE POWER AGREEMENT
In 1983 the Company entered into a 40 year power agreement with
PacifiCorp providing for the purchase of 75 megawatts of electric
capacity and energy from its system. The price paid for the capacity
and energy is based on the operating costs of one of PacifiCorp's
coal-fired electric generating plants. Costs incurred under this
agreement were $20,689,000, $23,132,000 and $21,106,000 in 1995, 1994
and 1993, respectively.
RECLAMATION
Under its mining permit, Wyodak Resources is required to reclaim all
land where it has mined coal reserves. The cost of reclaiming the land
is accrued as the coal is mined. While the reclamation process takes
place on a continual basis, much of the reclamation occurs over an
extended period after the area is mined. Approximately $600,000 is
charged to operations as reclamation expense annually. As of December
31, 1995, accrued reclamation costs were approximately $8,000,000.
OTHER
The Company is subject to various legal proceedings and claims which
arise in the ordinary course of operations. In the opinion of
management, the amount of liability, if any, with respect to these
actions would not materially affect the consolidated financial position
or results of operations of the Company.
<PAGE>
(8) EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan (the Plan) covering
substantially all employees. The benefits are based on years of service
and compensation levels during the highest five consecutive years of the
last ten years of service. The Company's funding policy is in
accordance with the federal government's funding requirements. The
Plan's assets consist primarily of equity securities and cash
equivalents.
Net pension expense for the Plan was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Service cost $ 802 $ 865 $ 651
Interest cost 2,169 2,074 1,899
Return on
assets:
Actual (5,204) (1,819) (2,852)
Deferred 2,603 (793) 333
------ ------ ------
Net pension $ 370 $ 327 $ 31
expense ====== ====== ======
</TABLE>
Funding information for the Plan as of October 1 of each year was as
follows:
1995 1994
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Fair value of plan assets $29,184 $25,584
Projected benefit obligation (30,714) (27,931)
------- -------
(1,530) (2,347)
Unrecognized:
Net loss 1,559 2,747
Prior service cost 796 885
Transition asset (451) (541)
------- -------
Prepaid pension cost $ 374 $ 744
======= =======
Accumulated benefit obligation $24,969 $22,649
======= =======
Vested benefit obligation $23,919 $21,749
======= =======
Actuarial assumptions:
Discount rate 7.5% 8.0%
Expected long-term rate of
return on assets 10.5% 10.5%
Rate of increase
in compensaton levels 5% 5%
</TABLE>
The change in the assumed discount rate from 8.0 percent in 1994 to 7.5
percent in 1995 resulted in an increase in the accumulated benefit
obligation and projected benefit obligation of $1,381,000 and
$1,923,000, respectively.
The Company has various supplemental retirement plans for outside
directors and key executives of the Company. The plans are nonqualified
defined benefit plans. Expenses recognized under the plans were
$350,000, $401,000 and $633,000 in 1995, 1994 and 1993, respectively.
The Company follows Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
The standard requires that the expected cost of these benefits must be
charged to expense during the years that the employees render service.
Prior to adopting the standard in 1993, the Company expensed these
benefits as they were paid. The Company is amortizing the transition
obligation of $2,996,000 over a 20 year period.
Employees retiring from the Company on or after attaining age 55 who
have rendered at least five years of service to the Company are entitled
to postretirement healthcare benefits coverage. These benefits are
subject to premiums, deductibles, copayment provisions and other
limitations. The Company may amend or change the plan periodically.
The Company is not pre-funding its retiree medical plan.
<PAGE>
The net periodic postretirement cost for the Company was as follows:
1995 1994
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Service cost $211 $188
Interest cost 429 303
Amortization of 150 150
transition obligation
Amortization of loss 79 28
---- ----
$869 $669
==== ====
</TABLE>
Funding information as of October 1 was as follows:
1995 1994
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $1,485 $1,805
Fully eligible active 723 1,246
participants
Other active 1,906 2,400
participants
------ ------
Unfunded accumulated 4,114 5,451
postretirement benefit
obligation
Unrecognized net gain 140 (1,838)
(loss)
Unrecognized transition (2,546) (2,696)
obligation
------ ------
$1,708 $ 917
====== ======
</TABLE>
For measurement purposes, a 10.5 percent annual rate of increase in
healthcare benefits was assumed for 1996; the rate was assumed to
decrease gradually to 6 percent in 2005 and remain at that level
thereafter. The healthcare cost trend rate assumption has a significant
effect on the amounts reported. A one percent increase in the
healthcare cost trend assumption would increase the net periodic
postretirement cost by approximately $116,000 annually or 18.8 percent.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent.
(9) INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the use of the liability
method in accounting for income taxes. Under the liability method,
deferred income taxes are recognized, at currently enacted income tax
rates, to reflect the tax effect of temporary differences between the
financial and tax bases of assets and liabilities. Such temporary
differences are the result of provisions in the income tax law that
either require or permit certain items to be reported on the income tax
return in a different period than they are reported in the financial
statements. To the extent such income taxes are recoverable or payable
through future rates, regulatory assets and liabilities have been
recorded in the accompanying consolidated balance sheets.
Income tax expense for the years indicated was:
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Current $ 8,640 $ 7,925 $7,923
Deferred 2,600 2,975 1,547
Investment tax (503) (505) (505)
credits, net
------- ------- ------
$10,737 $10,395 $8,965
======= ======= ======
</TABLE>
<PAGE>
The temporary differences which gave rise to the net deferred tax
liability at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
NET DEFERRED
INCOME
TAX ASSET
December 31, 1995 ASSETS LIABILITIES (LIABILITY)
(in thousands)
<S> <C> <C> <C>
Accelerated depreciation
and other plant-
related differences $ - $42,182 $(42,182)
Regulatory asset 2,482 - 2,482
Regulatory liability - 1,415 (1,415)
Unamortized investment 1,756 - 1,756
tax credits
Mining development 988 898 90
and oil exploration
Employee benefits 1,828 137 1,691
Other 489 658 (169)
------ ------- --------
$7,543 $45,290 $(37,747)
====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
NET DEFERRED
INCOME
TAX ASSET
December 31, 1994 ASSETS LIABILITIES (LIABILITY)
(in thousands)
<S> <C> <C> <C>
Accelerated
depreciation and $ - $34,940 $(34,940)
other plant-
related differences
Regulatory asset 2,350 - 2,350
Regulatory liability - - -
Unamortized 2,109 - 2,109
investment tax
credits
Mining development 678 2,896 (2,218)
and oil exploration
Employee benefits 1,521 278 1,243
Other 847 1,839 (992)
------ ------- --------
$7,505 $39,953 $(32,448)
====== ======= ========
</TABLE>
The effective tax rate differs from the federal statutory rate for the
years ended December 31, as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal statutory 35.0% 35.0% 35.0%
rate
Regulatory asset (1.9) - -
recognition
Amortization of (1.4) (1.5) (1.6)
investment tax
credits
Tax-exempt interest (0.8) (1.1) (1.7)
income
Percentage depletion (0.4) (1.7) (2.8)
in excess of cost
Other (0.9) (0.3) (0.8)
---- ---- ----
29.6% 30.4% 28.1%
==== ==== ====
</TABLE>
(10) OIL AND GAS RESERVES (Unaudited)
Western Production has interests in 448 producing oil and gas properties
in eight states. Western Production's non-operated properties are
located in the western United States. Western Production also holds
leases on approximately 62,000 net undeveloped acres.
The following table summarizes Western Production's quantities of proved
developed and undeveloped oil and natural gas reserves, estimated using
constant year-end product prices, as of December 31, 1995 and 1994, and
a reconciliation of the changes between these dates. These estimates
are based on reserve reports by Ralph E. Davis Associates, Inc. (an
independent engineering company selected by the Company). Such reserve
estimates are based upon a number of variable factors and assumptions
which may cause these estimates to differ from actual results.
<PAGE>
<TABLE>
<CAPTION>
1995 1994
OIL GAS OIL GAS
(in thousands of barrels of oil and MCF of gas)
<S> <C> <C> <C> <C>
Proved developed and
undeveloped
reserves:
Balance at 1,438 9,080 1,116 2,759
beginning of year
Production (266) (1,986) (321) (1,731)
Additions 168 4,106 107 7,582
Property sales (103) (843) - -
Revisions to
previous estimates
due primarily to 375 (2,699) 536 470
changed economic
conditions
----- ----- ----- -----
Balance at end of 1,612 7,658 1,438 9,080
year ===== ===== ===== =====
Proved developed
reserves at end of 1,606 6,370 1,436 6,246
year included above ===== ===== ===== =====
Year-end prices $18.50 $ 1.90 $15.75 $ 1.72
</TABLE>
(11) SUMMARY OF INFORMATION RELATING TO SEGMENTS OF THE COMPANY'S
BUSINESS
The three primary segments of the Company's business are its electric,
coal mining and oil and gas production operations. The following table
summarizes certain information specifically identifiable with each
segment as of or for the years ended December 31.
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Assets at year-end:
Electric $380,256 $340,042 $259,680
Coal mining 45,224 72,851 72,328
Oil and gas 23,350 23,984 20,845
-------- -------- --------
$448,830 $436,877 $352,853
======== ======== ========
Depreciation,
depletion and
amortization:
Electric $ 11,943 $ 10,314 $ 9,952
Coal mining 3,575 2,427 1,953
Oil and gas 4,142 4,860 4,146
-------- -------- --------
$ 19,660 $ 17,601 $ 16,051
======== ======== ========
Capital
expenditures:
NS #2 (includes $ 33,219 $ 73,984 $ 12,792
AFDC)
Other electric 11,242 14,187 13,140
Coal mining 1,546 5,911 7,425
Oil and gas 5,888 8,977 6,933
-------- -------- --------
$ 51,895 $103,059 $ 40,290
======== ======== ========
</TABLE>
(12) SUPPLEMENTARY INCOME STATEMENT INFORMATION
TAXES OTHER THAN INCOME TAXES
<TABLE>
<CAPTION>
1995 1994 1993
(in thousands)
<S> <C> <C> <C>
Property $ 3,696 $ 3,637 $ 3,549
Production and 3,385 2,995 2,982
severance
Payroll 1,402 1,334 1,195
Black lung 1,263 1,205 1,256
Federal reclamation 1,027 979 1,060
Other 208 216 166
------- ------- -------
$10,981 $10,366 $10,208
======= ======= =======
</TABLE>
<PAGE>
FINANCIAL STATISTICS
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS (in thousands) $448,830 $436,877 $352,853 $330,202 $319,895
PROPERTY AND INVESTMENTS
(in thousands)
Total property and $557,642 $519,296 $433,143 $413,192 $390,766
investments
Accumulated depreciation 164,383 156,046 144,492 132,890 122,574
and depletion
Capital expenditures 51,895 103,059 40,290 27,915 36,981
(includes AFDC)
CAPITALIZATION (in
thousands)
Long-term debt $166,069 $128,925 $ 85,274 $ 88,816 $ 92,982
Common stock equity 175,410 149,158 141,963 182,342 168,089
-------- -------- -------- -------- --------
Total $348,411 $304,335 $253,363 $237,974 $234,945
======== ======== ======== ======== ========
CAPITALIZATION RATIOS
Long-term debt 47.7% 42.4% 33.7% 37.3% 39.6%
Common stock equity 52.3 57.6 66.3 62.7 60.4
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
AVERAGE INTEREST RATE ON 8.1% 8.5% 9.0% 8.9% 8.9%
LONG-TERM DEBT
NET INCOME AVAILABLE FOR
COMMON STOCK (in thousands) $25,590 $23,805 $22,946 $23,638 $22,681
DIVIDENDS PAID ON COMMON $19,312 $18,920 $17,720 $16,977 $16,045
STOCK (in thousands)
COMMON STOCK DATA (in
thousands)*
Shares outstanding, 14,409 14,339 13,811 13,689 13,675
average
Shares outstanding, end of 14,425 14,386 14,270 13,701 13,675
year
Earnings per average $1.78 $1.66 $1.66 $1.73 $1.66
share, in dollars
Dividends paid per share, $1.34 $1.32 $1.28 $1.24 $1.17
in dollars
Book value per share, end $12.64 $12.19 $11.78 $10.89 $10.38
of year, in dollars
RETURN ON COMMON STOCK 14.0% 13.6% 13.7% 15.8% 16.0%
EQUITY
ALLOWANCE FOR FUNDS USED
DURING CONSTRUCTION AS 22.9% 16.7% 3.2% 1.6% 0.8%
PERCENT OF NET INCOME
</TABLE>
* Common stock data have been adjusted retroactively to reflect
the three-for-two stock split in March 1992.
<PAGE>
ELECTRIC OPERATION STATISTICS
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
ELECTRIC ENERGY GENERATED
AND PURCHASED (megawatt
hours)
Generated, net station 1,320,630 1,108,530 1,227,084 1,226,153 1,148,259
output
Purchased and net 473,175 595,872 435,990 397,478 444,848
interchange
Total generated and 1,793,805 1,704,402 1,663,074 1,623,631 1,593,107
purchased
Non-firm sales (60,575) (1,000) (7,780) (10,405) (1,040)
Company use and losses (87,512) (65,651) (61,336) (73,627) (59,896)
--------- --------- --------- --------- ---------
Total electric 1,645,718 1,637,751 1,593,958 1,539,599 1,532,171
energy sales ========= ========= ========= ========= =========
ELECTRIC ENERGY SALES
(megawatt hours)
Residential 383,929 368,953 370,736 339,341 355,691
General and commercial 513,854 495,909 469,496 446,036 440,043
Industrial 552,829 583,258 568,316 572,244 550,999
Public authorities 23,164 23,051 22,621 21,798 21,347
Sales for resale 171,942 166,580 162,789 160,180 164,091
--------- --------- --------- --------- ---------
Total electric 1,645,718 1,637,751 1,593,958 1,539,599 1,532,171
energy sales ========= ========= ========= ========= =========
ELECTRIC REVENUE (in
thousands)
Residential $ 30,433 $ 28,574 $ 27,064 $ 25,366 $ 27,053
General and commercial 37,663 35,390 32,295 30,742 31,227
Industrial 26,495 27,318 25,901 27,106 26,812
Public authorities 1,775 1,718 1,537 1,586 1,593
Sales for resale 8,366 7,460 7,122 7,002 7,223
-------- -------- -------- -------- --------
Total electric 104,732 100,460 93,919 91,802 93,908
revenue
Other revenue 4,051 4,296 4,236 5,646 4,250
-------- -------- -------- -------- --------
Total revenue $108,783 $104,756 $ 98,155 $ 97,448 $ 98,158
======== ======== ======== ======== ========
ELECTRIC CUSTOMERS
(end of year)
Residential 45,886 45,060 44,657 44,100 43,539
General and commercial 8,958 8,732 8,507 8,279 8,083
Industrial 35 36 41 38 40
Public authorities 138 130 124 117 112
Other electric 1 1 1 1 1
utilities
------ ------ ------ ------ ------
Total 55,018 53,959 53,330 52,535 51,775
====== ====== ====== ====== ======
RESIDENTIAL STATISTICS
Average annual KWH
usage:
With electric heating 16,901 16,369 17,601 15,380 16,773
Without electric 6,688 6,488 6,428 6,172 6,502
heating
All residential 8,452 8,198 8,351 7,743 8,218
Average price per KWH, 7.9 7.7 7.3 7.5 7.6
in cents
AVERAGE PRICE PER KWH,
ALL SALES 6.1 6.1 5.9 5.9 6.1
(in cents)
AVERAGE PRICE PER KWH, 6.3 6.1 5.9 5.9 6.1
FIRM SALES (in cents)
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No change of accountants or disagreements on any matter of accounting
principles or practices or financial statement disclosure have occurred.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Company is incorporated
herein by reference to the Proxy Statement for the Annual Shareholders'
Meeting to be held May 21, 1996.
EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of all executive officers of the Company.
There are no family relationships among them. Officers are normally
elected annually.
Daniel P. Landguth, 49, Chairman, President and Chief Executive Officer
of Black Hills Corporation
Mr. Landguth was elected to his present position in January 1991.
Dale E. Clement, 62, Senior Vice President - Finance
Mr. Clement was elected to his present position in September 1989.
Roxann R. Basham, 34, Secretary and Treasurer
Ms. Basham was elected to her present position January 1, 1993. She
had served as Assistant Secretary/Treasurer since May 1991 and as
Financial Analyst since February 1985.
Gary R. Fish, 37, Controller
Mr. Fish was elected to his present position in August 1988.
Everett E. Hoyt, 56, President and Chief Operating Officer of Black
Hills Power
Mr. Hoyt was elected to his present position in October 1989.
Thomas M. Ohlmacher, 44, Vice President - Power Supply
Mr. Ohlmacher was elected to his present position on August 1, 1994.
He had served as Director of Power Generation since 1993 and Director
of Electric Operations since 1991.
James M. Mattern, 41, Vice President - Administration
Mr. Mattern was elected to his present position on August 1, 1994. He
had served as Rapid City Area Manager since January 1994 and Director
of Human Resources since 1991.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding management remuneration and transactions is
incorporated herein by reference to the Proxy Statement for the Annual
Shareholders' Meeting to be held May 21, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial
owners and management is incorporated herein by reference to the Proxy
Statement for the Annual Shareholders' Meeting to be held May 21, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference to the Proxy Statement for the Annual
Shareholders' Meeting to be held May 21, 1996.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS
Financial statements required by Item 14 are listed in the index
included in Item 8 of Part II.
2. SCHEDULES
All schedules have been omitted because of the absence of the
conditions under which they are required or because the required
information is included elsewhere in the financial statements
incorporated by reference in the Form 10-K.
3. EXHIBITS
*3(a) Restated Articles of Incorporation dated May 24,1994 (Exhibit
3(i) to Form 8-K dated June 7, 1994, File No. 1-7978).
3(b) Bylaws dated January 30, 1996.
*4(a) Reference is made to Article Fourth (7) of the Restated
Articles of Incorporation of the Company (Exhibit 3(a) hereto).
*4(b) Indemnification Agreement and Company and Directors' and
Officers' indemnification insurance (Exhibit 4(b) to Form 10-K
for 1987).
*4(c) Indenture of Mortgage and Deed of Trust, dated September 1,
1941, and as amended by supplemental indentures (Exhibit B to
Form A-2, File No. 2-4832); (Exhibit 7-B to Form S-1, File No.
2-6576); (Exhibit 7-C to Form S-1, File No. 2-7695); (Exhibit
7-D to Form S-1, File No. 2-8157); (Exhibit 4.05(e) to Form S-3,
File No. 33-54329); (Exhibit 4-I to Form S-1, File No. 2-9433);
(Exhibit 4-H to Form S-1, File No. 2-13140); (Exhibit 4-I to
Form S-1, File No. 2-14829); (Exhibits 4-J and 4-K to Form S-1,
File No. 2-16756); (Exhibits 4-L, 4-M, and 4-N to Form S-1,
File No. 2-21024); (Exhibits 2(q), 2(r), 2(s), 2(t), 2(u), and
2(v) to Form S-7, File No. 2-57661); (Exhibit 4.05(t), 4.05(u)
and 4.05(v) to Form S-3, File No. 33-54329); (Exhibit 4(b) to
Form S-3, File No. 2-81643); (Exhibit 4.05(x), 4.05(y), and
4.05(z) to Form S-3, File No. 33-54329); (Exhibit 4(d) and
4(e) to Post-Effective Amendment No. 1 to Form S-8, File No.
33-15868); and (Exhibit 4.05(ac), 4.05(ad), and 4.05(ae) to
Form S-3, File No. 33-54329).
*10(a) Agreement for Transmission Service and The Common Use of
Transmission Systems dated January 1, 1986, among the Company,
Basin Electric Power Cooperative, Rushmore Electric Power
Cooperative, Inc., Tri-County Electric Association, Inc., Black
Hills Electric Cooperative, Inc., and Butte Electric
Cooperative, Inc. (Exhibit 10(d) to Form 10-K for 1987).
*10(b) Coal Supply Agreement and First Amendment dated September 1,
1977, between the Company and Wyodak Resources Development
Corp. (Exhibit 5(g) to Form S-7, File No. 2-60755). Second
Amendment to Coal Supply Agreement dated November 2, 1987
(Exhibit 10(f) to Form 10-K for 1987). Restated and Amended
Coal Supply Agreement for NS #2 dated February 12, 1993
(Exhibit 10(c) to Form 10-K for 1992).
*10(c) Coal Lease dated May 1, 1959, between Wyodak Resources
Development Corp. and the Federal Government (Exhibit 5(i) to
Form S-7, File No. 2-60755). Modified coal lease dated
January 22, 1990, between Wyodak Resources Development Corp.
and the Federal Government (Exhibit 10(h) to Form 10-K for
1989).
*10(d) Coal Lease dated April 1, 1961, between Wyodak Resources
Development Corp. and the Federal Government (Exhibit 5(j) to
Form S-7, File No. 2-60755). Modified coal lease dated January
22, 1990, between Wyodak Resources Development Corp. and the
Federal Government (Exhibit 10(i) to Form 10-K for 1989).
*10(e) Coal Lease dated October 1, 1965, between Wyodak Resources
Development Corp. and the Federal Government, as amended
(Exhibit 5(k) to Form S-7, File No. 2-60755). Modified coal
lease dated January 22, 1990, between Wyodak Resources
Development Corp. and the Federal Government (Exhibit 10(j)
to Form 10-K for 1989).
*10(f) Participation Agreement dated May 16, 1978, and various
related agreements dated June 8, 1978, including, without
limitation, Lease Agreement, Amended and Restated Coal Supply
Agreement, Coal Supply System Agreement and Security Agree-
ment, and Real Estate Mortgage (all relating to the lease
financing of the Wyodak Plant and the dedication by Wyodak
Resources Development Corp. of coal deposits with respect
thereto) filed pursuant to item 6(b) of Amendment No. 1 to
Registrant's Current Report on Form 8-K for June 1978 and
located in Commission File No. 2-4832. Further Restated and
Amended Coal Supply Agreement dated May 5, 1987 (Exhibit
10(k) to Form 10-K for 1987).
*10(g) Power Sales Agreement dated December 31, 1983, between Pacific
Power & Light Company and the Company (Exhibit 7(b) to Form 8-K
for January 1984, File No. 0-0164).
*10(h) Coal Supply Agreement for Wyodak Unit #2 dated February 3,
1983, and Ancillary Agreement dated February 3, 1982, between
Wyodak Resources Development Corp. and Pacific Power & Light
Company and the Company (Exhibit 10(o) to Form 10-K for 1983).
Amendment to Agreement for Coal Supply for Wyodak #2 dated
May 5, 1987 (Exhibit 10(o) to Form 10-K for 1987).
*10(i) Coal lease dated February 16, 1983, between Wyodak Resources
Development Corp. and the Federal Government (Exhibit 10(p) to
Form 10-K for 1983).
*10(j) Coal lease dated September 28, 1983, between Wyodak Resources
Development Corp. and the Federal Government (Exhibit 10(q) to
Form 10-K for 1983).
*10(k) Indenture of Trust dated as of June 1, 1992, City of Gillette,
Campbell County, Wyoming, to Norwest Bank Minnesota, National
Association, as Trustee (Black Hills Power and Light Company
Project) (Exhibit 10(n) to Form 10-K for 1992).
*10(l) Loan Agreement dated as of June 1, 1992, by and between City
of Gillette, Campbell County, Wyoming, and the Company (Exhibit
10(o) to Form 10-K for 1992).
*10(m) Loan Agreement dated as of June 1, 1992, by and between
Lawrence County, South Dakota and the Company (Exhibit 10(p) to
Form 10-K for 1992).
*10(n) Indenture of Trust dated as of June 1, 1992, Lawrence County,
South Dakota, to Norwest Bank Minnesota, National Association,
as Trustee (Black Hills Power and Light Company Project)
(Exhibit 10(q) to Form 10-K for 1992).
*10(o) Loan Agreement dated as of June 1, 1992, by and between
Pennington County, South Dakota and the Company (Exhibit 10(r)
to form 10-K for 1992).
*10(p) Indenture of Trust dated as of June 1, 1992, Pennington
County, South Dakota, to Norwest Bank Minnesota, National
Association, as Trustee (Black Hills Power and Light Company
Project) (Exhibit 10(s) to Form 10-K for 1992).
*10(q) Loan Agreement dated as of June 1, 1992, by and between Weston
County, Wyoming and the Company (Exhibit 10(t) to Form 10-K for
1992).
*10(r) Indenture of Trust dated as of June 1, 1992, Weston County,
Wyoming, to Norwest Bank Minnesota, National Association, as
Trustee (Black Hills Power and Light Company Project) (Exhibit
10(u) to Form 10-K for 1992).
*10(s) Loan Agreement dated as of June 1, 1992, by and between
Campbell County, Wyoming and the Company (Exhibit 10(v) to
Form 10-K for 1992).
<PAGE>
*10(t) Indenture of Trust dated as of June 1, 1992, Campbell County,
Wyoming, to Norwest Bank Minnesota, National Association, as
Trustee (Black Hills Power and Light Company Project) (Exhibit
10(w) to Form 10-K for 1992).
10(u) Second Restated Electric Power and Energy Supply and
Transmission Agreement dated February 28, 1995, by and between
the Company and the City of Gillette, Wyoming.
*10(v) Reserve Capacity Integration Agreement dated May 5, 1987,
between Pacific Power & Light Company and the Company (Exhibit
10(u) to Form 10-K for 1987).
*10(w) Compensation Plan for Outside Directors (Exhibit 10(bb) to
Form 10-K for 1992).
*10(x) Retirement Plan for Outside Directors dated January 1, 1993
(Exhibit 10(cc) to Form 10-K for 1992).
*10(y) The Amended and Restated Pension Equalization Plan of Black
Hills Corporation dated January 27, 1995.
10(z) Black Hills Corporation 1996 Executive Gainsharing Program.
10(aa) Black Hills Corporation 1996 Results Compensation Program.
*10(ab) The Amended and Restated Pension Plan of Black Hills
Corporation.
*10(ac) Agreement for Supplemental Pension Benefit for Everett
E. Hoyt dated January 20, 1992 (Exhibit 10(gg) to Form
10-K for 1992).
*10(ad) Agreement for Supplemental Pension Benefit for Dale E.
Clement dated December 19, 1991 (Exhibit 10(hh) to
Form 10-K for 1992).
*10(ae) Power Integration Agreement, dated September 9, 1994,
between the Company and Montana-Dakota Utilities Co., a
Division of MDU Resources Group, Inc. (Exhibit 10(gg) to
Form 8-K dated September 12, 1994, File No. 1-7978).
10(af) Change in Control Agreements dated January 30, 1996
for Daniel P. Landguth, Dale E. Clement, Everett E. Hoyt,
Thomas M. Ohlmacher, James M. Mattern, Roxann R. Basham and
Gary R. Fish.
10(ag) Marketing, Capacity and Storage Services Agreement between
Black hills Corporation and PacifiCorp dated September 1, 1995.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
* Exhibits incorporated by reference.
(b) No reports on Form 8-K have been filed in the quarter ended December
31, 1995.
(c) See (a) 3. above.
(d) See (a) 2. above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 CORPORATION
By /c/ DANIEL P. LANDGUTH
Daniel P. Landguth, Chairman,
President and Chief Executive
Dated: March 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/c/DANIEL P. LANDGUTH Director and Principal March 15, 1996
Daniel P. Landguth (Chairman, Executive Officer
President, and Chief Executive)
/c/DALE E. CLEMENT Director and Principal March 15, 1996
Dale E. Clement (Senior Vice Financial Officer
President - Finance)
/c/GARY R. FISH Principal Accounting March 15, 1996
Gary R. Fish (Controller) Officer
/c/GLENN C. BARBER Director March 15, 1996
Glenn C. Barber
/c/BRUCE B. BRUNDAGE Director March 15, 1996
Bruce B. Brundage
/c/KIRK E DEAN Director March 15, 1996
Kirk E. Dean
/c/MICHAEL B. ENZI Director March 15, 1996
Michael B. Enzi
/c/JOHN R. HOWARD Director March 15, 1996
John R. Howard
/c/EVERETT E. HOYT Director and Officer March 15, 1996
Everett E. Hoyt (President
and Chief Operating Officer
of Black Hills Power)
/c/KAY S. JORGENSEN Director March 15, 1996
Kay S. Jorgensen
<PAGE>
DIRECTORY
COMMON STOCK
Transfer Agent, Registrar and Dividend Disbursing Agent
Norwest Shareowner Services
P.O. Box 64854
St. Paul, MN 55164-0854
1-800-468-9716
FIRST MORTGAGE BONDS
Trustee and Paying Agent
Chemical Bank
450 West 33rd Street
New York, New York 10001
POLLUTION CONTROL AND INDUSTRIAL DEVELOPMENT REVENUE BONDS
Trustee and Paying Agent
Norwest Bank Minnesota, N.A.
Eighth Street and Marquette Avenue
Minneapolis, Minnesota 55479
ENVIRONMENTAL IMPROVEMENT REVENUE BONDS
Trustee and Paying Agent
First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
GENERAL COUNSEL
Morrill Brown Thomas & Nooney LLP
P.O. Box 8108
Rapid City, South Dakota 57709
CORPORATE OFFICES
Black Hills Corporation
P.O. Box 1400
Rapid City, South Dakota 57709
(605) 348-1700
1996 ANNUAL MEETING
The Annual Meeting of Shareholders will be held at the Holiday Inn -
Rushmore Plaza Hotel, 505 North Fifth Street, Rapid City, South Dakota,
at 9:30 A.M., on May 21, 1996. Prior to the meeting, formal notice,
proxy statement, and proxy will be mailed to shareholders.
DIRECT DEPOSIT OF DIVIDENDS
The Company encourages you to consider the direct deposit of your
dividends. With direct deposit, your quarterly dividend payment can be
automatically transferred on the dividend payment date to the bank,
savings and loan, or credit union of your choice. Direct deposit
assures payments are credited to shareholders' accounts without delay.
A form is attached to your dividend check where you can request
information about this method of payment. Questions regarding direct
deposit should be directed to Norwest Shareowner Services.
DIVIDEND REINVESTMENT PLAN
A Dividend Reinvestment and Stock Purchase Plan (the Plan) is available
to common shareholders. The Plan provides a method of investing common
stock dividends and optional cash payments in additional shares of
common stock of the Company at 100 percent of the recent average market
price. The participant may elect to continue to receive cash dividends
on shares registered in their names and invest by making optional cash
payments only. Questions regarding the Plan should be directed to the
Secretary of the Company or Norwest Shareowner Services.
<PAGE>
BLACK HILLS CORPORATION
BYLAWS
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. Meetings of the stockholders shall be held at
such place within or without the State of South Dakota as the Board of
Directors may from time to time determine and as stated in the notice of
the meeting.
Section 2. ANNUAL MEETING. The annual meeting of the stockholders
shall be held at such time within six months after the end of each
fiscal year of the Company as the Board of Directors designates for the
purpose of electing directors and for the transacting of any other
business as may be brought before the meeting.
Section 3. SPECIAL MEETINGS. All annual and special meetings of
the stockholders shall be called by a majority of the Board of Directors.
Section 4. NOTICE. Unless all stockholders entitled to vote at the
meeting waive notice in writing, written notice stating the place, day
and hour of each meeting of stockholders, and in the case of a special
meeting, further stating the purpose for which such meeting is called,
shall be mailed at least ten days before the meeting when called by the
Board of Directors to each stockholder of record who shall be entitled
to vote thereat to the last known post office address of each such
stockholder as it appears upon the stock transfer books of the Company.
However, notice of a meeting, at which proposal to increase the capital
stock or indebtedness is to be considered, shall be given at least sixty
days prior to such meeting.
Section 5. QUORUM. The holders of a majority of the issued and
outstanding shares of the capital stock of the Company entitled to vote
thereat, present in person or represented by proxy, shall constitute a
quorum for the transaction of business at all meetings of the
stockholders except as may otherwise be provided by law or by the
Articles of Incorporation. If a quorum or greater number as may be
required by law or the Articles shall not be present or represented at
any meeting of the stockholders, a majority of the stockholders who are
present in person or by proxy and who are entitled to vote thereat shall
have the power to adjourn the meeting from time to time without notice
other than announcement at the meeting until such quorum or such greater
number shall have been obtained.
Section 6. ADJOURNED MEETING. The majority of the stockholders
who are entitled to vote and who are present in person or by proxy at
any regular or special meeting of the stockholders shall have the right
to adjourn the meeting from time to time without notice other than
announcement at the meeting to be adjourned; provided, however, the
meeting may not be adjourned for a period longer than sixty days from
the date of the meeting as set forth in the notice thereof.
Section 7. VOTING. At each meeting of the stockholders, every
stockholder having the right to vote shall be entitled to vote one vote
per share in person or by proxy appointed by an instrument in writing
subscribed by such stockholder. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the
proxy. All voting for directors shall be by written ballot. All
elections shall be had and all questions decided by a plurality except
as otherwise provided by law or by the Articles of Incorporation.
Section 8. INSPECTORS. The Board of Directors or, if the Board
shall not have made the appointment, the person presiding at any meeting
of stockholders shall have power to appoint one or more persons, other
than the nominees for directors, to act as inspectors to receive,
canvass and report the votes cast by the stockholders at such meeting.
Any inspector so appointed who for any reason does not serve in such
capacity may be replaced by the person presiding at the meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 1. DEFINITIONS. For the purposes of these Bylaws an
"Inside Director" is a director who is an employee of the Company, an
officer of the Company, a person who has in the past served as an
officer of the Company or any person whose relationship to the Company
other than as a director gives him access on a regular basis to material
information about the Company that is not generally available. Any
director who is not an Inside Director would for the purpose of these
Bylaws constitute an "Outside Director." For the purpose of this
Section "Company" shall also include any subsidiary of the Company.
Section 2. MANAGEMENT OF THE COMPANY. The property, business
and affairs of the Company shall be managed by or under the direction of
its Board of Directors.
Section 3. QUALIFICATIONS OF DIRECTORS. At the time a person
is elected as director by the stockholders, that person must
beneficially own at least 100 shares of the common stock of the Company;
and if such person is elected by the stockholders, the person must be
duly qualified to vote such stock at the said election. Each director
is required to apply at least 50 percent of his or her retainer toward
the purchase of additional shares until the director has cumulated at
least 2,000 shares of common stock. No person shall be elected or stand
for reelection as a director who will be seventy years of age or older
on the first day of July of the year of the election.
Section 4. NUMBER AND ELECTION; VACANCIES AND REMOVAL. The
number of members of the Board of Directors shall be nine (9); provided,
(i) the Board of Directors may determine the number of directors to be
more than nine through amendments to its Bylaws, and (ii) the number of
directors shall be increased under the conditions set forth in the
following paragraph. The Board of Directors shall be and is divided
into three classes, Class I, Class II and Class III, which shall be as
nearly equal in number as possible. Each director shall serve for a
term ending on the date of the third annual meeting following the annual
meeting at which such director was elected; provided, each initial
director in Class I shall hold office until the annual meeting of
stockholders in 1987, each initial director in Class II shall hold
office until the annual meeting of stockholders in 1988, and each
initial director in Class III shall hold office until the annual meeting
of stockholders in 1989.
In the event that dividends payable on the Preferred Stock shall
be accrued and unpaid in an amount equivalent to or exceeding four (but
less than eight) quarterly dividends, the number of directors
constituting the Board of Directors shall be increased by a number
sufficient so that, without removal of any director from office prior to
the expiration of his or her term, the holders of the Preferred Stock,
voting separately as one class for such purpose, can elect a sufficient
number of directors to constitute one-third of all directors, in
compliance with subdivision (G) of the Article Fourth. At each
subsequent annual meeting of stockholders, the holders of the Preferred
Stock shall elect the smallest number of directors necessary to ensure
that one-third of all directors shall have been elected by the holders
of the Preferred Stock, until such time as all dividends accrued and
unpaid on the Preferred Stock shall have been paid, after which such
voting rights of the holders of the Preferred Stock shall be terminated.
In the event that dividends payable on the Preferred Stock shall be
accrued and unpaid in an amount equivalent to or exceeding eight
quarterly dividends, the number of directors constituting the Board of
Directors shall be increased by a number sufficient so that, without
removal of any director from office prior to the expiration of his or
her term, the holders of the Preferred Stock, voting separately as one
class for such purpose, can elect a sufficient number of directors to
constitute a majority of all directors, in compliance with subdivision
(H) of the Article Fourth. At each subsequent annual meeting of
stockholders, the holders of the Preferred Stock shall elect the
smallest number of directors necessary to ensure that a majority of all
directors shall have been elected by the holders of the Preferred Stock,
until such time as all dividends accrued and unpaid on the Preferred
Stock shall have been paid, after which such voting rights of the
holders of the Preferred Stock shall be terminated.
The Board of Directors is expressly authorized to determine the
rights, powers, duties, rules and procedures that affect the power of
the Board of Directors to manage and direct the business and affairs of
the Corporation, including the power to designate and empower committees
of the Board of Directors, to elect, appoint and empower the officers
and other agents of the Corporation, and to determine the time and place
of, and the notice requirements for, Board meetings, as well as quorum
and voting requirements for, and the manner of taking, Board action.
In the event of any change in the authorized number of
directors, the Board of Directors shall apportion any newly created
directorships to, or reduce the number of directorships in, such class
or classes as shall, so far as possible, equalize the number of
directors in each class. The Board of Directors shall allocate
consistently with the rule that the three classes shall be as nearly
equal in number of directors as possible, any newly-created directorship
to the class the term of office of which is due to expire at the latest
date following such allocation.
Any vacancies in the Board of Directors for any reason,
including any newly created directorships resulting from any increase in
the number of directors, may be filled by the Board of Directors, acting
by a majority of the directors then in office, although less than a
quorum; and any directors so chosen shall hold office until the next
election of the class for which such directors shall have been chosen.
Notwithstanding any of the foregoing, each director shall serve
for a term continuing until the annual meeting of stockholders at which
the term of the class to which he was elected expires and until his
successor is elected and qualified or until his or her earlier death,
resignation or removal; except, a director may be removed from office
prior to the expiration of his or her term only for cause and by a vote
of the majority of the total number of members of the Board of Directors
without including the director who is the subject of the removal
determination and without such director being entitled to vote thereon.
Section 5. COMPENSATION. Outside Directors shall be entitled
to such compensation and expenses as may be determined by resolution of
the Board. Outside Directors may serve the Company in other capacities
and receive compensation therefor.
Section 6. MEETINGS. The Board of Directors may hold meetings
within or without the State of South Dakota. Members of the Board of
Directors or any committee thereof may participate in a meeting of such
Board or committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other at the same time, and participation by
such means shall constitute presence in person at a meeting.
Section 7. REGULAR MEETINGS. The annual meeting of the Board
of Directors for the election of officers and to conduct such other
business to be brought before the meeting shall, if practicable, be held
on the same day as and immediately after the annual election of the
directors by the stockholders or any adjournment thereof, and no notice
thereof need be given. Further regular meetings of the Board may be
held with or without notice at such time and place as shall from time to
time be determined by the Board by resolution.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called either by the Chairman of the Board and Chief
Executive Officer, the President or by the Secretary upon the written
request of any two directors by giving oral or written notice to each
director stating the time and place of such meeting.
Section 9. NOTICE OF MEETINGS. Notice shall be considered to
have been given if a notice is either orally communicated to a director
at least twelve hours prior to such meeting or placed in writing and
mailed to the director at his last known post office address as shown by
the records of the Company at least four days prior to the meeting. Any
notice to be given a director for a meeting of the directors may be
waived by the director in writing either before or after the meeting.
Presence of any director at a meeting of the Board shall be considered
to be a waiver of notice by such director unless such director attends a
meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
Neither the business to be transacted nor the purpose of any regular or
special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 10. QUORUM. At all meetings of the Board of Directors
a majority of the number of directors at the time in office shall
constitute a quorum for the transaction of business; provided, less than
a quorum of directors may fill vacancies as set forth in Section 4 of
this Article II. The act of a majority of the number of directors at
the time in office shall be the act of the Board of Directors. If at
any meeting of the board there shall be less than a quorum present, a
majority of those present may adjourn the meeting from time to time
until a quorum is obtained and no further notice thereof need be given
other than by announcement at said meeting which shall be so adjourned.
Section 11. MANIFESTATION OF DISSENT. A director of the
Company who is present at a meeting of the Board of Directors at which
action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to
such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Company immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 12. ACTION TAKEN WITHOUT MEETING. Any action which may
be taken at a meeting of the directors or of a committee may be taken
without a meeting if a consent in writing setting forth the actions so
to be taken shall be signed before such action by all of the directors,
or all of the members of the committee, as the case may be. Such
consent shall have the same effect as a unanimous vote.
ARTICLE III
COMMITTEES
Section 1. EXECUTIVE COMMITTEE. The Board of Directors shall
appoint from among its members an executive committee of five directors.
The Chairman of the Board and Chief Executive Officer and President
shall be a member of the executive committee. At least three members of
the executive committee shall be Outside Directors. The executive
committee (i) shall recommend to the Board persons to be elected as
officers, (ii) recommend persons to be appointed to Board committees,
(iii) may consider and make recommendations to the Board on other Board
actions and (iv) may perform such other duties as may be permitted by
law.
Section 2. AUDIT COMMITTEE. The Board of Directors shall
appoint from three to five of its Outside Directors to serve as an audit
committee. The audit committee shall meet prior to and after each
yearly audit with representatives of the independent accounting firm
approved by the stockholders for the purpose of reviewing the audit of
such firm of the Company's financial condition and shall each year
recommend to the Board an independent accounting firm to be appointed by
the Board for the ratification by the stockholders and shall perform
such other duties as assigned by the Board.
Section 3. COMPENSATION COMMITTEE. The Board of Directors
shall appoint from three to five of its Outside Directors to serve as a
compensation committee. The compensation committee (i) shall perform
any function required by directors in the administration of all federal
and state statutes relating to employment and compensation, (ii) shall
recommend to the Board the compensation for officers, and (iii) shall
consider and approve the compensation program, including the benefit
program and stock ownership plans, of the Company.
Section 4. DIRECTOR NOMINATING COMMITTEE. The Board of
Directors shall appoint a director nominating committee to be composed
of the chief executive officer and a number of outside directors as
determined by the Board of Directors. An outside director shall be
appointed by the Board of Directors to serve as chairman of the director
nominating committee. The director nominating committee shall recommend
to the Board of Directors persons to be nominated as directors or to be
elected to fill vacancies on the Board of Directors and in making such
recommendations shall consider the recommendations of other directors as
well as stockholders.
Section 5. OTHER COMMITTEES. The Board of Directors may also
appoint from among its own members such other committees as the Board
may determine and assign such powers and duties as shall from time to
time be prescribed by the Board.
Section 6. REMOVAL FROM COMMITTEES AND RULES OF PROCEDURE.
Subject to these Bylaws directors may be removed from the committees and
vacancies therein may be filled by a majority of the Board of Directors.
A meeting of any committee may be called by any member of the committee.
The provisions of these Bylaws concerning notice of meetings,
compensation, manifestation of dissent and taking action without a
meeting as they pertain to directors shall also pertain to committees.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The Board of Directors shall elect as
officers of the Company a Chairman of the Board, who shall be the Chief
Executive Officer, a President, a Vice President, a Secretary, a
Treasurer and may elect a Controller and such other Vice Presidents and
other officers as the Board may determine is necessary for the conduct
of the business of the Company. Officers need not be directors except
for the Chairman of the Board, the President and one Vice President.
Any two or more offices may be held by the same person. (No person
shall hold an officer position after the last day of the month during
which said person became sixty-five years of age.)
Section 2. TERM AND REMOVAL. All officers of the Company shall
serve at the pleasure of the Board of Directors, and the Board at any
regular or special meeting by the vote of a majority of the whole Board
may remove an officer from an office.
Section 3. DUTIES OF CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER. The Chairman of the Board and Chief Executive Officer shall be
the chief administrative officer of the Company. The Chairman of the
Board and Chief Executive Officer (i) shall exercise such duties as
customarily pertain to the office of Chief Executive Officer, (ii) shall
have general and active management authority and supervision over the
property, business and affairs of the company and over its officers and
employees, (iii) may appoint employees, consultants and agents as deemed
necessary for the proper conduct of the Company's business, (iv) may
sign, execute and deliver in the name of the Company powers of attorney,
contracts, bonds and other obligations subject to direction of the Board
as set forth in Article VI of these Bylaws, (v) shall recommend to the
Board of Directors persons for appointment to offices and committees and
for nomination of directors, (vi) shall preside at stockholder meetings
and at meetings of the Board of Directors, and (vii) shall perform such
other duties as may be prescribed from time to time by the Board of
Directors.
Section 4. DUTIES OF THE PRESIDENT. The President shall
perform such duties as may be prescribed from time to time by the Board
of Directors or by the Chairman of the Board and Chief Executive
Officer. The President, in the absence or disability of the Chairman of
the Board and Chief Executive Officer, shall perform the duties and
exercise the powers of the Chairman of the Board and Chief Executive
Officer.
Section 5. DUTIES OF VICE PRESIDENTS. The Vice Presidents
shall have such powers and perform such duties as may be assigned to
them by the Board of Directors, or the Chairman of the Board and Chief
Executive Officer. In the absence or disability of the Chairman of the
Board and Chief Executive Officer, and the President, the Vice
Presidents in the order as designated by the Board, or if the Board so
directs, by the Chairman of the Board and Chief Executive Officer, shall
perform the duties and exercise the powers of the Chairman of the Board
and Chief Executive Officer.
Section 6. DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the Board and stockholders, record all votes and the minutes
of all proceedings in books to be kept for such purposes and shall
perform like duties for the committees when required. He shall have the
custody of the seal. He shall have the custody of the stock books and
shall perform such other duties as may be prescribed by the Board of
Directors or the Chairman of the Board and Chief Executive Officer.
Section 7. DUTIES OF TREASURER. The Treasurer shall have the
custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books of the Company
and shall deposit all monies and other valuable effects in the name and
to the credit of the Company in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the Company
as may be ordered by the Board, taking proper vouchers for such
disbursements and shall render to the Chairman of the Board and Chief
Executive Officer and to the Board of Directors at its regular meetings
or whenever they may require it, an account of all his transactions as
Treasurer and of the financial condition of the Company.
Section 8. DUTIES OF OTHER OFFICERS. All officers of the
Company shall have such duties as shall be prescribed by the Board of
Directors or the Chairman of the Board and Chief Executive Officer.
Section 9. DELEGATION OF DUTIES OF OFFICERS. In the case of
the absence of any officer of the Company or for any other reason that
the Board may deem sufficient, the Board may delegate the powers or
duties of any officer to any other officer or to any director for such
time as determined by the Board.
Section 10. COMPENSATION OF OFFICERS. The compensation of the
Chairman of the Board and Chief Executive Officer shall be determined by
the Board of Directors. The compensation of each of the other officers
shall be recommended by the Chairman of the Board and Chief Executive
Officer and approved by the Board of Directors. No officer shall be
prevented from receiving such salary by reason of the fact that he is
also a director of the Company.
ARTICLE V
INDEMNIFICATION
Section 1. ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN
THE RIGHT OF THE COMPANY. The Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including all appeals, (other
than an action by or in the right of the Company) by reason of the fact
that he is or was or has agreed to become a director or officer of the
Company, or is or was serving or had agreed to serve at the request of
the Company as a director or officer of another corporation (including a
subsidiary of the corporation, or subsidiaries of subsidiaries),
partnership, joint venture, trust or other enterprise, or by reason of
any action alleged to have been taken or omitted in such capacity,
against costs, charges, expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be within the scope of this authority
and in, or not opposed to, the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be within the scope of his authority and
in, or not opposed to, the best interests of the Company and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE COMPANY.
The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, including all appeals, by or in the right of
the Company to procure a judgment in its favor by reason of the fact
that he is or was or has agreed to become a director or officer of the
Company or is or was serving or has agreed to serve at the request of
the Company as a director or officer of another corporation (including a
subsidiary of the corporation or subsidiaries of subsidiaries),
partnership, joint venture, trust or other enterprise, or by reason of
any action alleged to have been taken or omitted in such capacity,
against costs, charges and expenses (including attorneys' fees) actually
and reasonably incurred by him or on his behalf in connection with the
defense or settlement of such action or suit and any appeal therefrom,
if he acted in good faith and in a manner he reasonably believed to be
within the scope of his authority and in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Company unless and only to
the extent that the Courts of South Dakota or the court in which such
action or suit was brought shall determine upon application that,
despite the adjudication of such liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such costs, charges and expenses which the Courts of
South Dakota or such other court shall deem proper.
Section 3. INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF
SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article
V, to the extent that a director or officer has been successful, on the
merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in defense of any action, suit or proceeding
referred to in Sections 1 and 2 of this Article V, or in defense of any
claim, issue or matter therein, he shall be indemnified against all
costs, charges and expenses (including attorneys' fees) actually and
reasonably incurred by him or on his behalf in connection therewith.
Section 4. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Sections 1 and 2 of this Article V (unless ordered
by a court) shall be paid by the Company unless a determination is made
(i) by the board of directors by a majority vote of the directors who
were not parties to such action, suit or proceeding, or if such majority
of disinterested directors so directs, (ii) by independent legal counsel
in a written opinion, or (iii) by the shareholders, that indemnification
of the director or officer is not proper in the circumstances because he
has not met the applicable standard of conduct set forth in Sections 1
and 2 of this Article V.
Section 5. ADVANCE OF COSTS, CHARGES AND EXPENSES. Costs,
charges and expenses (including attorneys' fees) incurred by a person
referred to in Sections 1 or 2 of this Article V in defending a civil or
criminal action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding;
provided, however, that the payment of such costs, charges and expenses
incurred by a director or officer in his capacity as a director or
officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer) in advance of the
final disposition of such action, suit or proceeding shall be made only
upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall
ultimately be determined that such director or officer is not entitled
to be indemnified by the Company as authorized in this Article V. Such
costs, charges and expenses incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the majority of
the directors deems appropriate. The majority of the directors may, in
the manner set forth above, and upon approval of such director or
officer of the Company, authorize the Company's counsel to represent
such person, in any action, suit or proceeding, whether or not the
Company is a party to such action, suit or proceeding.
Section 6. PROCEDURE OF INDEMNIFICATION. Any indemnification
under Sections 1, 2 and 3, or advance of costs, charges and expenses
under Section 5 of this Article V shall be made promptly, and in any
event within 60 days, upon the written request of the director or
officer. The right to indemnification or advances as granted by this
Article V shall be enforceable by the director or officer in any court
of competent jurisdiction, if the Company denies such request, in whole
or in part, or if no disposition thereof is made within 60 days. Such
person's costs and expenses incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any
such action shall also be indemnified by the Company. It shall be a
defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 5 of
this Article V where the required undertaking, if any, has been received
by the Company) that the claimant has not met the standard of conduct
set forth in Sections 1 or 2 of this Article V, but the burden of
proving such defense shall be on the Company. Neither the failure of
the Company (including its board of directors, its independent legal
counsel and its shareholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 1 or 2 of this Article V, nor the fact
that there has been an actual determination by the Company (including
its board of directors, its independent legal counsel and its
shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
the claimant has not met the applicable standards of conduct.
Section 7. SETTLEMENT. The Company shall not be obligated to
reimburse the costs of any settlement to which it has not agreed. If in
any action, suit or proceeding, including any appeal, within the scope
of Sections 1 or 2 of this Article V, the person to be indemnified shall
have unreasonably failed to enter into a settlement thereof offered or
assented to by the opposing party or parties in such action, suit or
proceeding, then, notwithstanding any other provision hereof, the
indemnification obligation of the Company to such person in connection
with such action, suit or proceeding shall not exceed the total of the
amount at which settlement could have been made and the expenses
incurred by such person prior to the time such settlement could
reasonably have been effected.
Section 8. SUBSEQUENT AMENDMENT. No amendment, termination or
repeal of this Article V or of relevant provisions of the South Dakota
corporation law or any other applicable laws shall affect or diminish in
any way the rights of any director or officer of the Company to
indemnification under the provisions hereof with respect to any action,
suit or proceeding arising out of, or relating to, any actions,
transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
Section 9. OTHER RIGHTS, CONTINUATION OF RIGHT TO
INDEMNIFICATION. The indemnification provided by this Article V shall
not be deemed exclusive of any other rights to which a director,
officer, employee or agent seeking indemnification may be entitled under
any law (common or statutory), agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office or
while employed by or acting as agent for the Company, and shall continue
as to a person who has ceased to be a director, officer, employee or
agent, and shall inure to the benefit of the estate, heirs, executors
and administrators of such person. Nothing contained in this Article V
shall be deemed to prohibit, and the Company is specifically authorized
to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth
herein. All rights to indemnification under this Article V shall be
deemed to be a contract between the Company and each director or officer
of the Company who serves or served in such capacity at any time while
this Article V is in effect. This Article V shall be binding upon any
successor corporation to this Company, whether by way of acquisition,
merger, consolidation or otherwise.
Section 10. SAVINGS CLAUSE. If this Article V or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Company shall nevertheless indemnify each
director or officer of the Company as to any costs, charges, expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by
or in the right of the Company, to the full extent permitted by any
applicable portion of this Article V that shall not have been
invalidated and to the full extent permitted by applicable law.
Section 11. SUBSEQUENT LEGISLATION. If the South Dakota law is
amended after the adoption of this Article V to further expand the
indemnification permitted to directors and officers of the Company, then
the Company shall indemnify such persons to the fullest extent permitted
by the South Dakota law, as so amended.
ARTICLE VI
CAPITAL STOCK
Section 1. STOCK CERTIFICATES. Certificates for stock of the
Company shall be in such form as the Board of Directors may from time to
time prescribe and shall be signed by the President or a Vice President
and by a Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary. If certificates are signed by a transfer agent,
acting in behalf of the Company, or registered by a registrar, the
signatures of the officers of the Company may be facsimile. The
Company, through its officers, may cause certificates to be issued and
delivered bearing facsimile signatures of persons even though at the
time of the issuance and delivery of such certificates, any of such
persons may no longer be an officer of the Company.
Section 2. TRANSFER AGENT. The Board of Directors shall have
power to appoint one or more transfer agents and registrars for the
transfer and registration of certificates of stock of any class and may
require that stock certificates shall be countersigned and registered by
one or more of such transfer agents and registrars. The transfer agent
and registrar may be the same person.
Section 3. TRANSFER OF STOCK. Shares of the capital stock of
the Company shall be transferable on the books of the Company only by
the holder of record thereof in person or by a duly authorized attorney
upon surrender and cancellation of certificates for a like number of
shares properly endorsed.
Section 4. LOST CERTIFICATE. In case any certificates of the
capital stock of the Company shall be lost, stolen or destroyed, the
Company may cause replacement certificates to be issued upon such proof
of the fact and such indemnity to be given to it and to its transfer
agent and registrar, if any, as shall be deemed necessary or advisable
by it.
Section 5. HOLDER OF RECORD. The Company shall be entitled to
treat the holder of record of any share or shares of stock as the holder
thereof in fact and shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other
person, whether or not it shall have express or other notice thereof,
except as otherwise expressly provided by law. The expression
"stockholder" or "stockholders" whenever used in these Bylaws shall be
deemed to mean only the holder or holders of record of stock.
Section 6. CLOSING OF TRANSFER BOOKS. The Board of Directors
shall have power to close the stock transfer books of the Company for a
stated period but not to exceed, in any case, fifty days, and in case of
a meeting of stockholders not less than ten days, preceding the date of
any meeting of stockholders, or the date for payment of any dividend, or
the date for the allotment of rights, or the date when any change or
conversion or exchange of capital stock shall go into effect, or in
order to make a determination of stockholders for any other proper
purpose; provided, however, that in lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record
date for any such determination of stockholders, not less than ten days
prior to the date on which the particular action, requiring such
determination of stockholders, is to be taken; and in such case only
such stockholders as shall be stockholders of record on the date so
fixed shall be entitled to such notice of, and to vote at, such meeting,
or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, as the case may be, notwithstanding
any transfer of any stock on the books of the Company after any such
record date fixed as aforesaid. When a determination of stockholders
entitled to vote at any meeting of stockholders has been made as
provided in this section, such determination shall apply to any
adjournment thereof.
Section 7. CLOSING OF TRANSFER BOOKS TO AUTHORIZE INCREASE IN
INDEBTEDNESS AND CAPITAL STOCK. Notwithstanding Section 6 of this
Article and in order to comply with Section 8 of Article XVII of the
South Dakota Constitution, the notice to be given stockholders for a
meeting at which a proposal to increase the Company's authorized
indebtedness or capital stock is to be considered shall be given at
least sixty days prior to the meeting and the record date for the
determination of stockholders eligible to vote at such meeting may be
set by the Board sixty or more days prior to the said meeting.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or
execute and deliver any instrument in the name of and on behalf of the
Company, and such authority may be general or confined to specific
instances.
Section 2. LOANS. No loans shall be contracted on behalf of
the Company and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such
authority may be general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other
orders for the payment of money, notes or other evidences of
indebtedness issued in the name of the Company shall be signed by such
officer or officers, agent or agents of the Company and in such manner
as shall from time to time be determined by resolution of the Board of
Directors.
Section 4. DEPOSITS AND INVESTMENTS. All funds of the Company
not otherwise employed shall be deposited from time to time to the
credit of the Company in such banks, trust companies or other
depositories as the Board of Directors or officers of the Company
designated by the Board of Directors may select; or be invested as
authorized by the Board of Directors. Such authority may be general or
confined to specific instances.
ARTICLE VIII
MISCELLANEOUS
Section 1. OFFICES. The principal office of the Company shall
be in the City of Rapid City, County of Pennington, State of South
Dakota. The Company may also have offices at such other places within
or without the State of South Dakota as the Board of Directors may from
time to time designate or as the business of the Company may require.
Section 2. SEAL. The corporate seal shall have inscribed
thereon the name of the Company and the words "Corporate Seal -1941-
South Dakota."
Section 3. AUDIT. The books of account of the Company shall be
audited annually by an independent firm of public accountants who shall
be appointed by the Board of Directors and ratified by the stockholders
at each annual meeting. Such auditors shall submit to the Board of
Directors each year certified financial statements of the Company for
the preceding fiscal year.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered, amended or repealed at any meeting
of the Board of Directors by the affirmative vote of a majority of the
whole Board; provided, no alteration or amendment may be in conflict
with any provision of the Articles of Incorporation.
I certify that the foregoing is a true copy of the Amended
Bylaws of Black Hills Corporation as adopted by the Board of Directors
of the Corporation on the 30th day of January, 1996 to become effective
in their entirety on the 30th day of January, 1996.
Witness my hand and the seal of the Corporation on this 30th day
of January, 1996.
Roxann R. Basham
Secretary
SECOND RESTATED ELECTRIC POWER AND ENERGY
SUPPLY AND TRANSMISSION AGREEMENT
between
THE CITY OF GILLETTE, WYOMING
and
BLACK HILLS POWER AND LIGHT COMPANY
Date: February 28, 1995
<PAGE>
TABLE OF CONTENTS
Page
1. RECITALS AND DEFINITIONS. . . . . . . . . . . . . . . . . 1
1.1 Recitals . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Definitions. . . . . . . . . . . . . . . . . . . . . 2
2. TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. SALE OF CAPACITY AND ENERGY . . . . . . . . . . . . . . . 4
3.1 Base Load Capacity Obligation. . . . . . . . . . . . 4
3.2 Base Load Energy Obligation. . . . . . . . . . . . . 4
3.3 Gillette's Capacity and Energy Obligations . . . . . 4
3.4 Inadvertent Energy Account . . . . . . . . . . . . . 5
3.5 Additional Capacity Supplied by Black Hills Without
Agreement. . . . . . . . . . . . . . . . . . . . . . 5
3.6 Capacity and Energy Technicalities . . . . . . . . . 6
3.7 Scheduling and Metering. . . . . . . . . . . . . . . 6
3.8 Coal Agreements. . . . . . . . . . . . . . . . . . . 7
4. POWER AND ENERGY RATE SCHEDULES AND REGULATION. . . . . . 8
5. OTHER SOURCES OF CAPACITY AND ENERGY. . . . . . . . . . . 17
6. POINT OF DELIVERY, FACILITIES, AND METERS . . . . . . . . 18
6.1 Point of Delivery. . . . . . . . . . . . . . . . . . 18
6.2 Calibrate Meters . . . . . . . . . . . . . . . . . . 18
6.3 Rights of Way. . . . . . . . . . . . . . . . . . . . 19
6.4 Facilities to be Provided by Gillette. . . . . . . . 19
7. GILLETTE'S PROJECTIONS. . . . . . . . . . . . . . . . . . 20
8. TRANSMISSION CAPACITY AND SERVICES. . . . . . . . . . . . 21
8.1 Definitions. . . . . . . . . . . . . . . . . . . . . 21
8.2 Transmission Capacity to be Furnished by Black
Hills. . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Transmission Service at 230 kV to be Furnished by
Black Hills for Net Other Sources. . . . . . . . . . 23
8.4 Compensation for 230 kV Transmission Capacity and
Service. . . . . . . . . . . . . . . . . . . . . . . 24
8.5 Transmission Service at 69 KV to be Furnished by
Black Hills for Net Other Sources. . . . . . . . . . 25
8.5.1 Obligation of Black Hills . . . . . . . . . . 25
8.5.2 Obligation of Gillette. . . . . . . . . . . . 25
8.5.3 Coordination. . . . . . . . . . . . . . . . . 25
8.6 Compensation for 69 kV Service . . . . . . . . . . . 26
8.7 Losses . . . . . . . . . . . . . . . . . . . . . . . 26
8.8 Regulation of Rates by FERC. . . . . . . . . . . . . 27
8.9 Scheduling and Metering. . . . . . . . . . . . . . . 30
8.10 Power Factor . . . . . . . . . . . . . . . . . . . . 30
9. IMPOSSIBILITY OF PERFORMANCE. . . . . . . . . . . . . . . 30
10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 31
11. FILING WITH FERC. . . . . . . . . . . . . . . . . . . . . 31
12. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . 32
13. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . 33
14. COMPLETE AGREEMENT. . . . . . . . . . . . . . . . . . . . 33
<PAGE>
SECOND RESTATED ELECTRIC POWER AND ENERGY SUPPLY
AND TRANSMISSION AGREEMENT
This Second Restated Electric Power and Energy Supply and
Transmission Agreement, dated as of February 28, 1995 ("Agreement"),
is entered into between the City of Gillette, a municipal corporation
of Gillette, Wyoming ("Gillette"), and Black Hills Power and Light
Company, an assumed business name of Black Hills Corporation, a South
Dakota corporation ("Black Hills"), as a restatement of the Restated
Electric Power and Energy Supply and Transmission Agreement, dated as
of December 21, 1987 ("First Restated Agreement"), which Agreement
superseded the Electric Power and Energy Supply and Transmission
Agreement, dated as of August 6, 1985 ("Original Agreement").
1. RECITALS AND DEFINITIONS.
1.1 Recitals. Gillette operates a municipal electric
system within its city and therefore requires electric current for its
own uses and for resale to operate that system. Black Hills is
engaged in the business of generation, transmission, distribution and
sale of electric capacity and energy at retail and wholesale for
resale. Black Hills furnishes electric capacity and energy service to
Gillette to be resold in the operation of its municipal electric
system pursuant to the terms and provisions of the First Restated
Agreement, which was accepted for filing with the Federal Energy
Regulatory Commission.
The purpose of this Agreement is to restate the First
Restated Agreement for the purpose, among other things, of modifying
the obligations of each party to furnish the electric capacity and
energy requirements of Gillette and to determine rates charged for
such service. At such time regulatory requirements are satisfied as
set forth in Section 11, this Agreement supersedes and replaces the
First Restated Agreement.
1.2 Definitions. The terms "capacity" and "energy" used
in this Agreement refer to electric capacity and electric energy,
respectively.
"Base Load Capacity" is Black Hills' obligation to furnish
Gillette capacity as set forth in Section 3.1.
"Base Load Energy" is Black Hills' obligation to furnish
Gillette energy as set forth in Section 3.2.
"Date of First Commercial Operation of NS #2" is the first
day of the month during which Black Hills determines that
NS #2 has commenced commercial operation, but for the
purposes of this Agreement shall not be earlier than
September 1, 1995. Such determination shall be made on the
basis of standards of the electric utility industry and in
conformance with Prudent Utility Practice.
"Gillette's Requirements" refers to Gillette's entire
electric capacity and energy requirements needed for local
distribution for resale purposes and for its own use and
shall include Gillette's Successors and Assigns' entire
electric capacity and energy requirements for distribution
within the city limits of Gillette as those limits exist
from time to time; provided, however, that if Gillette
annexes territory, Gillette's requirements will not include
any electric capacity and energy requirements until such
time as Gillette (or its Successors and Assigns) serves such
requirements.
"Gillette's Successors and Assigns" are those persons,
corporations, cooperatives or any other entities to whom
Gillette sells or leases any portion or all of its municipal
electric system or with whom Gillette contracts, the effect
of which allows those persons, corporations or entities to
sell capacity and energy to customers for consumption within
the city limits of Gillette as those limits exist from time
to time.
"NS #2" is the Neil Simpson Unit #2, an 80 MW coal-fired
electric power plant now under construction in Campbell
County, Wyoming.
"Prudent Utility Practice" at a particular time means any of
the practices, methods and acts, which, in the exercise of
reasonable judgment in light of the facts (including but not
limited to the practices, methods and acts engaged in or
approved by a significant portion of the electric utility
industry prior thereto) known at the time the decision was
made, would be expected to accomplish the desired result at
the lowest reasonable cost consistent with reliability,
safety and expedition. Prudent Utility Practice is not
intended to be limited to the optimal practice, method or
act, to the exclusion of all others, but rather represents a
spectrum of possible practices, methods or acts.
"Total Demand" is the total of Gillette's and Gillette's
Successors and Assigns' highest average demand measured in
kilowatts to satisfy Gillette's Requirements. For the
purpose of measuring demand for transmission service under
Section 8, measurement shall be based on sixty-minute
intervals; and for determining any Unauthorized Overrun
under Exhibit A, measurement shall be based on fifteen-
minute intervals.
Other defined terms and phrases used in this Agreement are
set forth throughout this Agreement where such terms and phrases are
first used.
2. TERM.
The term ("Term") of this Agreement shall comprise an
initial period from the date of this Agreement until and including
June 30, 2012, and shall continue thereafter until and unless
terminated by either party giving to the other party notice in writing
not less than seven years prior to the termination of said initial
period or of any succeeding Contract Year, unless the parties agree in
writing to a shorter notice period. For the purposes of this
Agreement, a "Contract Year" of this Agreement ends the thirtieth day
of every June of the Term.
3. SALE OF CAPACITY AND ENERGY.
3.1 Base Load Capacity Obligation. Black Hills shall sell
and Gillette shall purchase Base Load Capacity in the amount of 23,268
KW during each month of the Term prior to the date of First Commercial
Operation of NS #2 and 23,000 KW commencing on the date of First
Commercial Operation of NS #2 and every month of the Term thereafter.
3.2 Base Load Energy Obligation. Black Hills shall sell
and Gillette shall purchase all energy needs of Gillette measured in
kilowatt hours associated with all kilowatts of Base Load Capacity as
if those kilowatts were the first kilowatts needed from day to day for
Gillette's Requirements.
3.3 Gillette's Capacity and Energy Obligations. Gillette
shall have the obligation to supply firm capacity and energy to be
purchased from others or self-generation for all of that capacity and
energy required to meet that portion of Gillette's Requirements that
are not required to be furnished by Black Hills under Sections 3.1 and
3.2. Nothing herein shall prevent the parties from agreeing from time
to time to cause Black Hills to serve additional capacity and
associated energy to meet Gillette's obligations herein.
3.4 Inadvertent Energy Account. An Inadvertent Energy
Account (hereinafter referred to as "Inadvertent Account") for
overscheduled energy deliveries from each party to this Agreement
(rounded to the nearest megawatt) shall be established. The parties
shall exercise reasonable care to minimize, to the extent practicable,
overscheduled deliveries of electric energy. The parties recognize,
however, that despite their best efforts to prevent overscheduled
deliveries, such deliveries of electric energy may occur. Electric
energy delivered in such event shall be settled by the return of
equivalent energy at times satisfactory to the parties or by such
other equitable arrangements as may be mutually agreed upon.
Gillette shall use its best efforts to include, in its
contracts to purchase power from third parties, provisions to require
those third parties to establish an Inadvertent Account between Black
Hills and those third parties and provisions for settling by the
return of energy by Black Hills to the third parties on Gillette's
account.
3.5 Additional Capacity Supplied by Black Hills Without
Agreement. If, due to the unavailability of a Gillette-supplied
resource that Gillette was required to furnish under Section 3.3,
Black Hills furnishes Gillette capacity to meet a portion of
Gillette's Requirements that was Gillette's obligation to provide
under Section 3.3 without any subsequent agreement to do so, Black
Hills shall charge and Gillette shall pay, on a monthly basis, the
Unauthorized Overrun charge provided for in Exhibit A of this
Agreement. No Unauthorized Overrun charge shall be payable unless the
entity responsible for scheduling a Gillette-supplied resource fails
to meet scheduled energy deliveries as arranged by Black Hills with
the entity responsible for such scheduling. Energy accompanying such
additional capacity will be reflected in the Inadvertent Account.
3.6 Capacity and Energy Technicalities. All capacity and
energy delivered under this Section 3 shall be three phase,
alternating current, approximately 60 hertz, at a nominal voltage of
69,000 volts or such higher voltage as may be agreed to by the
parties.
3.7 Scheduling and Metering. All capacity and energy
including that sold by Black Hills pursuant to Section 3 and that
delivered by Black Hills from Net Other Sources as defined and
provided at Section 8, shall be scheduled by Black Hills for the
purpose of showing compliance with this Agreement and for billing
under Exhibit A. Black Hills shall provide one 69 kV meter and
associated equipment. Gillette shall furnish all other meters and
associated equipment required to measure the portion of the Total
Demand and the portion of the capacity and energy furnished from
sources other than from Black Hills. The associated equipment shall
include (i) equipment allowing Black Hills to monitor and to switch
from Rapid City, South Dakota, such portion or portions of the Total
Demand and the power and energy related portions thereof furnished by
the parties to areas of the Gillette municipal electric system which
are directly connected via Gillette's facilities to Black Hills'
point(s) of delivery set forth in Section 6.1 and (ii) other than
where Black Hills maintains communications with power suppliers for
reasons other than to deliver capacity and energy acquired by
Gillette, communication equipment and services required for Black
Hills to communicate on a 24-hour basis with Gillette's power
suppliers. Gillette shall provide telemetering equipment so as to
allow Black Hills to monitor demand and energy from Gillette's Total
Demand. All equipment furnished by Gillette and its installation
shall be subject to Black Hills' approval. All costs incurred by
Black Hills in scheduling and metering that capacity and energy
furnished by Gillette from sources other than Black Hills shall be
included as a part of the transmission charges made pursuant to
Section 8.4.
3.8 Coal Agreements. Commencing with the date of the
commercial operation of NS #2, coal prices to be paid by Black Hills
to its affiliated coal supplier, Wyodak Resources Development Corp.
("Wyodak Resources"), for the coal supply for Black Hills' interest in
existing coal-fired power plants and NS #2 shall be determined by the
Coal Supply Agreement for Neil Simpson Unit #2, dated as of
February 12, 1993 ("Coal Agreement"), a copy of which is attached
hereto as Exhibit B. The parties agree that, for purposes of Black
Hills' charges to Gillette, the methodology set forth in Exhibit B to
determine the coal prices for the affiliated transactions between
Black Hills and Wyodak Resources will be deemed to result in just and
reasonable prices, will be deemed to yield a fair return to Wyodak
Resources for such sales to its affiliate and will be deemed to result
in charges to Gillette under this Agreement that are not unreasonable
or unjust.
4. POWER AND ENERGY RATE SCHEDULES AND REGULATION.
Gillette shall pay Black Hills monthly upon invoices
submitted for all electric capacity and energy supplied hereunder
pursuant to the rates, charges, terms and conditions set forth in
Exhibit A attached hereto and made a part of this Agreement as if
specifically set forth herein and upon all other terms and conditions
in this Agreement. It is understood and agreed that this Agreement
and the rates charged hereunder are subject to the regulatory
jurisdiction of FERC, a regulatory commission of the United States,
pursuant to the Federal Power Act (16 U.S.C. 791a et seq.) and all
rules and regulations pertaining thereto, all as amended from time to
time.
(a) Black Hills and Gillette agree that, except as
provided in Section 4(b) and Section 8 below and as
authorized in Exhibit A, the provisions of this
Agreement and the rate schedules attached as Exhibit A
will not be changed unless Black Hills and Gillette
agree to such a change in writing. The parties have
bargained at arm's length in good faith and on equal
terms for economic benefits to each party which are
closely interrelated and which produce an overall
result which is considered by the parties to be just
and reasonable. Therefore, the parties agree that,
except as provided in Section 4(b) and Section 8
below, in any, proceeding, however initiated, whether
under Section 206 of the Federal Power Act or under
any law or regulation which now is or may hereafter be
applicable, relating to any attempt to alter, change
or amend the rates, charges, penalty provision, terms
and conditions set forth in this Agreement (including
Exhibit A), the standards which relate to the burden
of proof required for FERC or any regulatory body to
alter the terms of a contract without agreement of the
parties thereto as expressed in FPC v. Sierra Pacific
Power Co., 350 U.S. 348 (1956) and United Gas Pipe
Line Co. v. Mobile-Gas Service Corp., 350 U.S. 332
(1956), (commonly referred to as the Sierra-Mobile
doctrine in subsequent case holdings) shall apply with
respect to the parties. However, such standards shall
not prevent FERC from using a "just and reasonable"
standard either sua sponte or pursuant to a complaint
from persons or entities who are not a party to this
Agreement at such times and under such circumstances
as FERC deems appropriate in order to protect the
interests of nonparties. Each of the parties to this
Agreement covenants that it will not encourage any
nonparty through monetary assistance or otherwise to
institute any legal proceeding, including a complaint
under Section 206 of the Federal Power Act to cause
this Agreement to be applied and administered in any
way that would result in any modification of the
charges to be made hereunder.
(b) Except as limited by the provisions of Sections 4(c),
4(d), 4(e) and 4(f) below, Black Hills shall have the
right from time to time for the purpose of
establishing just and reasonable rates and achieving a
reasonable return to Black Hills to make application
unilaterally to FERC under Section 205 of the Federal
Power Act (16 U.S.C. 824d) and pursuant to FERC's
rules and regulations promulgated thereunder for a
change or adjustment in the dollar levels of the rates
and charges set forth in Exhibit A and any superseding
schedule upon delivering a written notice thereof to
Gillette. Any such changes or adjustments shall
become effective on the date specified therein,
subject to suspension or other action duly taken by
FERC, and without final approval by FERC. Except as
limited by Sections 4(c), 4(d), 4(e) and 4(f) below,
Gillette has the right under Section 205 of the
Federal Power Act (16 U.S.C. 824d) and rules and
regulations thereunder to oppose any such change or
adjustment proposed by Black Hills and also has the
right at any time to unilaterally make application to
FERC under Section 206 of the Federal Power Act (16
U.S.C. 824e) and pursuant to FERC's rules and
regulations promulgated thereunder for a change or
adjustment in the dollar levels of the rates and
charges set forth in Exhibit A and any superseding
schedule. The formula to be applied in determining
the Unauthorized Overrun penalty and the Fuel and
Economic Power Adjustment clause in Schedule A shall
not be subject to change under this Section 4(b).
(c) Other than where specifically authorized in Exhibit A,
Black Hills shall not change or adjust or file with
FERC for authority to change or adjust, and Gillette
shall not contest, the dollar levels of the rates and
charges set forth in Exhibit A prior to January 1,
1998; provided, however, that Black Hills may tender a
filing prior to January 1, 1998 that proposes an
effective date of January 1, 1998 or later.
Notwithstanding the previous sentence, if prior to
January 1, 1998, either of the following events
occurs:
(i) the annualized inflation rate for any
consecutive 12-month period ending on the last
day of the month after the date of this
Agreement is 8 percent or more based upon the
Producers Price Index published by the Bureau
of Labor Statistics in its monthly report
entitled "Producers, Prices, and Price
Indexes" (if the publication is discontinued,
a similar publication of the Bureau of Labor
Statistics), or
(ii) any damage occurs after the date of this
Agreement to Black Hills' owned or leased
generating and transmission plant which costs
more than $5,000,000 to repair.
Black Hills may file for an increase to take effect
prior to January 1, 1998, and Gillette may oppose such
increase as provided in Section 4(b).
(d) The parties hereto agree that, in consideration of the
length of this Agreement and the benefits to the
parties arising therefrom, the rates to be charged
during the Term of this Agreement for the furnishing
of capacity and energy shall be based on the following
cost principles, which underlie Black Hills' capacity
and energy rates to Gillette in this Agreement, and
that neither party will propose capacity and energy
rates based on conflicting cost principles:
(i) Black Hills shall be entitled to reflect the
revenues received under the contract dated
March 12, 1975 with Rushmore Electric Power
Cooperative, Inc. and Basin Electric Power
Cooperative, as restated by the Agreement for
Transmission Service and the Common Use of
Transmission Systems, dated as of January 1,
1986 among Black Hills, Rushmore Electric
Power Cooperative, Inc., Basin Electric Power
Cooperative, Tri-County Electric Association,
Inc., Black Hills Electric Cooperative, Inc.
and Butte Electric Cooperative, Inc. ("REC
Contract") as being equivalent to the costs
properly allocable to service under the
contract. If the REC Contract is renegotiated
by the parties thereto, the revenues received
by Black Hills from the new contract for its
transmission system as it exists as of the
date of this Agreement shall be deemed to be
equivalent to the costs properly allocable to
service from the present transmission system,
providing that the revenues received therefor
are not less than that which would have been
received if the REC Contract had not been
renegotiated.
(ii) Black Hills shall continue to assign directly
to any customer or customer group(s) the cost
of transmission facilities which serve that
customer (or group of customers) and over
which energy flows only to such customer(s).
(iii) Black Hills shall reflect the revenues
received under the contract dated September 9,
1994 ("MDU Contract") with Montana-Dakota
Utilities Co. as a revenue credit against the
Black Hills cost of service as if being
equivalent to the costs properly allocable to
service under the contract. If the MDU
Contract is renegotiated by the parties
thereto, the revenues received by Black Hills
from the new contract shall be deemed to be
equivalent to the costs properly allocable to
service from the new contract, providing that
the revenues received therefor are not less
than that which would have been received if
the MDU Contract had not been renegotiated.
(iv) Black Hills shall reflect the unamortized
Wyodak Power Plant and Rushmore Power Plant
acquisition adjustments as a rate base
addition and shall continue to amortize such
acquisition adjustments at a rate no greater
than $154,000 per year in the Black Hills cost
of service until completely amortized.
(v) Black Hills may maintain an energy charge at a
level no lower than $0.0222 per kWh, before
application of the Fuel and Economic Power
Adjustment clause in Exhibit A. If the energy
charge is higher than the level of
appropriately allocated energy costs plus base
and adjusted fuel costs, the overage will be
reflected as a credit to Gillette under the
demand charge.
(vi) The Basic Service Charge will be set no lower
than $5,400 per month.
(vii) The cost of coal to fuel Black Hills' interest
in power plants to be included in the cost of
service shall be determined by the Coal
Agreement, attached as Exhibit B to this
Agreement.
(viii) The parties agree that Black Hills' decision
to construct NS #2 was prudent and that NS #2
is used and useful for Black Hills to fulfill
its obligations under this Agreement.
(e) In consideration of the mutual benefits herein
contained, including the moratorium at Section 4(c),
and in view of the fact that the parties have agreed
to the moratorium, the parties do hereby agree to the
Fuel and Economic Power Adjustment clause in Exhibit A
notwithstanding the fact that they recognize that in
allowing the Variable Costs, as defined therein, to be
included in "F", the clause is not in strict
conformance with 18 CFR 35.14.
(f) In consideration of this Agreement, including the
moratorium at Section 4(c), Gillette waives all of its
rights to refunds due Gillette from Black Hills
because Variable Costs, as defined in Exhibit A, were
included and will continue to be included in "F" in
determining rate adjustments to charges made under the
fuel clause in Exhibit A of the Original Agreement.
When requested by Black Hills, Gillette agrees to sign
and deliver to Black Hills any documentation
reasonably requested by Black Hills to establish this
waiver with FERC.
In the event that regulatory jurisdiction over this
Agreement and/or rates charged by Black Hills to Gillette is vested in
any governmental body other than the FERC, this provision and the
rights of Black Hills and Gillette as set forth herein shall be
subject to applicable regulatory laws, regulations and rules of such
governmental body.
5. OTHER SOURCES OF CAPACITY AND ENERGY.
Except for Gillette's obligation to purchase the Base Load
Capacity and the Base Load Energy from Black Hills pursuant to
Sections 3.1 and 3.2, nothing herein prevents Gillette from
contracting with others for capacity and energy under this Agreement.
If Gillette enters into contracts from other sources, Gillette shall
keep Black Hills currently informed of the current status of those
arrangements.
6. POINT OF DELIVERY, FACILITIES, AND METERS.
6.1 Point of Delivery. Black Hills shall deliver the
electric capacity and energy to be sold by Black Hills to Gillette
under this Agreement at 69,000 volts or higher to the point of
delivery where the facilities of Black Hills now interconnect to the
facilities of Gillette, presently located near the corner of Warlow
Drive and Gurley Avenue, City of Gillette, Wyoming, and/or at any
future points of delivery upon which the parties may agree.
6.2 Calibrate Meters. Black Hills shall test and
calibrate the meters and recording devices by comparison with accurate
standards at intervals of not more than twelve (12) months, and Black
Hills shall notify Gillette of its intention to make such tests so
that agents of Gillette can have the opportunity of witnessing the
tests. Black Hills shall also make special meter tests at any time at
Gillette's request. The cost of tests on each meter shall be borne by
the party furnishing that meter. Black Hills will calibrate the
meters and recording devices as closely as practicable to the
condition of one hundred percent (100%) accuracy (zero error), but, if
any meter or recording device tested is found to be more than two
percent (2%) in error, either fast or slow, proper correction shall be
made of previous readings for the period of time the meter was in
service since last tested or from the time that it can be ascertained
the meter was in error, but in no case shall readings be adjusted for
a period of more than six months immediately preceding the discovery
of the error. If any meter or recording device shall fail to register
for any period, Gillette and Black Hills shall agree as to the amount
of electric capacity and energy furnished, and Black Hills shall
render a bill therefor.
6.3 Rights of Way. Gillette shall provide Black Hills
without cost a suitable location and rights of way for necessary lines
and equipment immediately adjacent to the point(s) of delivery set
forth in Section 6.1 for the purpose of fulfilling this Agreement.
All equipment installed by and at the cost of Black Hills shall remain
Black Hills' property and Black Hills shall have the right to inspect,
repair or remove the same at its discretion and at its own cost.
6.4 Facilities to be Provided by Gillette. Gillette shall
install and maintain at its own expense all other facilities on
Gillette's side of the point of delivery which are necessary for the
proper reception of electric capacity and energy and for its use
beyond such point including all facilities for the transformation of
capacity and energy from the delivery voltage set forth in Section
6.1. Gillette shall provide or arrange for facilities and continuous
staff in order to provide continuous information to and from Black
Hills' system control to accommodate Gillette supplied resources.
Gillette shall also provide facilities necessary for Gillette or Black
Hills to cause load curtailment on those portions of the Gillette
municipal electric system which are directly connected via Gillette's
facilities, to Black Hills' point(s) of delivery set forth in Section
6.1 as required by Prudent Utility Practice. Such facilities shall
meet approved standards of construction and be of such types as will
not interfere with other service rendered by Black Hills.
7. GILLETTE'S PROJECTIONS.
On the first day of each and every September thereafter,
Gillette shall furnish Black Hills a written forecast for a period of
five calendar years following such dates for which the forecasts are
being furnished setting forth the following information:
(a) Gillette's capacity and energy needs by season;
(b) anticipated sources to meet the capacity and energy
needs in the months when the sources are reasonably
expected to be available and the anticipated
transmission path;
(c) copies of contracts on which Gillette plans to rely to
fulfill its obligation to furnish capacity and energy
for Gillette's Requirements, pricing information to be
deleted from those contracts at Gillette's discretion;
and
(d) transmission facilities, existing or to be
constructed, over which Gillette's capacity and energy
needs are expected to be delivered.
Gillette shall use its best efforts in formulating the
forecasts to achieve as reliable a forecast as reasonably possible.
8. TRANSMISSION CAPACITY AND SERVICES.
8.1 Definitions. For the purpose of this Section 8, the
following capitalized terms shall have the respective meanings as
follows:
(a) "Additional 69 kV Facilities" are those transformation
and/or transmission lines and related facilities which
Black Hills determines under Prudent Utility Practice
are necessary from time to time to increase the
capacity of the Existing 69 kV Facilities to serve its
other customers and Gillette under this Agreement and
any other contracts and obligations.
(b) "Black Hills' Bulk Transmission System" is all of the
230 kV and larger transmission lines in which Black
Hills has complete or partial ownership, leasehold or
other rights, both now and from time to time during
the Term, and all terminal facilities of said
transmission lines, and 69 kV and 230 kV step-up
transformation facilities from Black Hills' owned and
leased generation.
(c) "East-West Ties" are those interconnections between
the transmission systems in the western part of the
United States and the transmission systems in the
eastern part of the United States which cannot be
interconnected without a DC converting facility.
(d) "Existing 69 kV Facilities" are the Existing 69 kV
Transmission Line and 70 MVA Transformer.
(e) "Existing 69 kV Transmission Line" shall mean the
present 69 kV transmission line and related facilities
from the Wyodak Substation to Gillette now used by
Black Hills to deliver capacity and energy to
Gillette.
(f) "Other Sources" are capacity and energy provided by
Gillette to meet its capacity and energy obligations
under Section 3.3.
(g) "Net Other Sources" is all capacity and energy
scheduled for Gillette's Requirements from Other
Sources regardless of whether it was scheduled or
delivered over Black Hills' Bulk Transmission System
or other systems; provided, Net Other Sources shall
not include capacity and energy from Gillette owned
generation delivered from that generation internal to
Gillette's distribution system.
(h) "70 MVA Transformer" is the transformer in the Wyodak
Substation of which 48 megawatts is owned by
PacifiCorp and 22 megawatts is owned by Black Hills.
(i) "PacifiCorp" is an Oregon corporation which operates
its electric utility division under the name of
Pacific Power & Light Company.
(j) "Wyodak Substation" is the substation located near the
Wyodak 330 MW electric generating plant east of
Gillette in Campbell County, Wyoming.
8.2 Transmission Capacity to be Furnished by Black Hills.
During the Term, Black Hills shall maintain capacity in the Black
Hills' Bulk Transmission System capable of causing that portion of
Gillette's Requirements which Gillette is required to furnish under
Section 3.3 and may acquire from Net Other Sources under this
Agreement and which Gillette may cause to be delivered at 230,000
volts to any of the interconnections of Black Hills' Bulk Transmission
System as they exist from time to time west of the East-West Ties to
be available at 230,000 volts at the Wyodak Substation or other
substations which hereafter may be constructed in the vicinity of
Gillette and which are a part of Black Hills' Bulk Transmission
System.
8.3 Transmission Service at 230 kV to be Furnished by
Black Hills for Net Other Sources. During the Term, Gillette shall
cause its electric capacity and energy acquired from Net Other Sources
to be delivered west of the East-West Ties at 230,000 volts to Black
Hills' Bulk Transmission System to the extent such Net Other Sources
are located such that delivery can be accomplished. At this time the
interconnections so located are the Wyodak Substation and the
interconnection of Black Hills' Bulk Transmission System with the
Western Area Power Administration ("WAPA") at Stegall, Nebraska.
Because Black Hills' Bulk Transmission System is integrated with other
systems in the vicinity of Gillette and performs an electrical
function in causing such capacity and energy to be delivered to
Gillette on a firm basis, capacity and energy from Net Other Sources
which Gillette, or others from whom Gillette has contracted, causes to
be delivered to the Wyodak Substation or other substations which may
be hereafter constructed and interconnected to Gillette's electrical
system, whether a part of the Black Hills' Bulk Transmission System or
not, shall be considered for the purposes of this Section 8.3 and the
compensation at Section 8.4 as having been delivered by Gillette to
Black Hills' Bulk Transmission System and from which Black Hills in
turn has delivered such capacity and energy to Gillette. During the
Term, Black Hills shall cause electric capacity and energy from Net
Other Sources which is delivered pursuant to this Section 8.3 to be
delivered at 230,000 volts to Gillette at the Wyodak Substation or
other substations hereafter constructed which are interconnected to
Black Hills' Bulk Transmission System and Gillette's electrical system.
8.4 Compensation for 230 kV Transmission Capacity and
Service. Gillette shall pay Black Hills monthly upon invoices submitted
for the transmission service on Black Hills' Bulk Transmission System
and for reserving firm transmission capacity on Black Hills' Bulk
Transmission System during the Term as provided in Sections 8.2 and 8.3
an amount of $1.60 per kilowatt month times the greater of (i) 16,288
KW, (ii) the highest kilowatt demand of capacity (other than any self
generation internal to Gillette's system) recorded as received by
Gillette for Gillette's Requirements during the Term in excess of
23,268 KW prior to the Date of First Commercial Operation of NS #2 and
23,000 KW commencing on the Date of First Commercial Operation of NS #2
and thereafter, and (iii) that capacity in excess of 23,268 KW prior to
the Date of First Commercial Operation of NS #2 and 23,000 KW commencing
on the Date of First Commercial Operation of NS #2 and thereafter
scheduled for Gillette, during any one hour period during that calendar
month. All determinations of amounts of capacity under this Section 8.4
shall be adjusted for losses under Section 8.7. Payment of each monthly
bill shall be due and paid at the same time and under the same procedures
for the payment for capacity and energy purchased by Gillette from Black
Hills.
8.5 Transmission Service at 69 KV to be Furnished by Black
Hills for Net Other Sources.
8.5.1 Obligation of Black Hills. Until such time
that Black Hills either constructs Additional 69 kV Facilities or
under Prudent Utility Practice requires Additional 69 kV Facilities to
deliver the Net Other Sources capacity and energy at 69,000 volts to
Gillette, Black Hills shall furnish Gillette transformation and
transmission service to deliver to Gillette at 69,000 volts at the
points of delivery referenced in Section 6.1 capacity and energy
acquired by Gillette from Net Other Sources. Black Hills shall give
Gillette adequate lead notice before Additional 69 kV Facilities are
to be constructed or are required so as to give Gillette the
opportunity to provide facilities as provided at Section 8.5.2.
8.5.2 Obligation of Gillette. Gillette shall
furnish the facilities or contract with others so that after Black
Hills' obligation under Section 8.5.1 terminates, Gillette will cause
capacity and energy from Net Other Sources to be transformed and
delivered from Black Hills' Bulk Transmission System to Gillette.
8.5.3 Coordination. With just and reasonable
sharing of costs under established regulatory principles, Black Hills
shall coordinate its system with facilities furnished by Gillette or
others to accommodate the delivery of Net Other Sources capacity and
energy as provided at Section 8.5.2.
8.6 Compensation for 69 kV Service. During that time
Black Hills is furnishing 69 kV wheeling service for Net Other Source
capacity as provided in Section 8.5.1, Gillette shall pay Black Hills
monthly (at the same time and under the same procedures for payment
under Section 8.4) for the 230/69 kV transformation and 69 kV
delivery, including the stand-by ability to transform and deliver, of
Net Other Sources capacity and associated energy a wheeling charge
equal to $0.40 per KW-month times the greater of (i) 16,288 KW,
(ii) the highest kilowatt demand of capacity (other than any self
generation location internal to Gillette's system) recorded as
received by Gillette at 69 kV during any one hour period that month
and (iii) the highest kilowatt demand of capacity from Net Other
Sources, delivered by Black Hills at 69 kV during any one hour period
during the Term prior to the billing month. All determinations of
amounts of capacity under this Section 8.6 shall be adjusted for
losses under Section 8.7.
8.7 Losses. To compensate for transmission losses,
including transformation losses where metered at 69 kV, the demand
received, but not less than that scheduled for Gillette, from Net
Other Sources shall be multiplied by:
(i) for capacity from Net Other Sources metered at 69 kV,
1.05 during all times the Wyodak Plant is operating
and 1.07 during all times the Wyodak Plant is not
operating; or
Ev for capacity from Net Other Sources metered at 230 kV,
1.025 during all times the Wyodak Plant is operating
and 1.055 during all times the Wyodak Plant is not
operating,
with the product thereof to constitute the quantity of capacity for
which payment is to be made. To compensate for transformation losses,
the demand from Other Sources external to Gillette which are not
delivered over Black Hills' Bulk Transmission System but which Black
Hills transforms and delivers at 69 kV under Section 8.4 shall be
multiplied by 1.015 if metered at 69 kV, with the product to
constitute the quantity of transformed capacity received by Gillette
under the provisions of Section 8.6.
8.8 Regulation of Rates by FERC.
The rates and facilities charges imposed pursuant to
Sections 8.4 and 8.6 are subject to the regulatory jurisdiction of
FERC pursuant to the Federal Power Act (16 U.S.C. 791(a) et seq.)
and all rules and regulations pertaining thereto, all as amended from
time to time.
Black Hills shall have the right from time to time for the
purpose of establishing just and reasonable rates and achieving a
reasonable return to Black Hills for the transmission and
transformation service rendered to Gillette for capacity from Other
Sources from Black Hills' Bulk Transmission System, the 230/69 kV
transformation, and Black Hills' 69 kV transmission system, and for
reserving long-term firm transmission and transformation capacity in
its transmission system for Gillette to make application unilaterally
to FERC under Section 205 of the Federal Power Act (16 U.S.C.
824(d)) and pursuant to FERC's rules and regulations promulgated
thereunder for a change or adjustment in the dollar levels of the
rates and charges set forth in Sections 8.4 and 8.6 and any
superseding rates upon delivering a written notice thereof to
Gillette. Any such changes or adjustments shall become effective on
the date specified therein, subject to suspension or other action duly
taken by FERC, and without final approval by FERC. Gillette has the
right under Section 205 of the Federal Power Act (16 U.S.C. 824(d))
and rules and regulations thereunder to oppose any such change or
adjustment proposed by Black Hills and also has the right at any time
to unilaterally make application to FERC under Sections 206 or 211 of
the Federal Power Act (16 U.S.C. 824(e) and 824(j)) and pursuant to
FERC's rules and regulations promulgated thereunder for a change or
adjustment in the dollar levels of the rates and charges set forth in
Sections 8.4 and 8.6 and any superseding rate or for an order
requiring Black Hills to provide other transmission services.
The rates to be charged for the transmission and
transformation service and capacity shall be based on the following
cost allocation principles which underlie the presently effective
rates in Sections 8.4 and 8.6:
(a) Black Hills shall continue to assign directly to any
customer or customer group(s) the cost of transmission
facilities which serve that customer (or group of
customers) and over which energy flows only to such;
(b) the capacity and energy from Net Other Sources (as
defined for determining compensation at Section 8.4)
shall be considered to have been delivered over the
entire Black Hills' Bulk Transmission System other
than that portion referred to in (a) above, regardless
of whether the capacity and energy from Net Other
Sources is actually delivered to Gillette partially or
wholly over the transmission systems of others; and
(c) Black Hills shall not be entitled to reflect the cost
allocation principles set forth at Sections 4(d)(i)
and (iv) for the purpose of determining just and
reasonable rates for the obligations undertaken by
Black Hills under Sections 8.3 and 8.5.
In the event that regulatory jurisdiction over this
Agreement and/or rates charged by Black Hills to Gillette are vested
in any governmental body other than FERC, this provision and the
rights of Black Hills and Gillette as set forth herein shall be
subject to applicable regulatory laws, regulations and rules of such
governmental body.
8.9 Scheduling and Metering. All scheduling and metering
shall be as set forth in Section 3.7 of this Agreement.
8.10 Power Factor. The power factor of Gillette's load at
the point of delivery of power from Net Other Sources shall not be
less than 95% lagging or 95% leading at the time of the maximum
demand. Gillette shall install power factor corrective equipment on
its system so as to raise the power factor of its load at that point
to at least 95% lagging or 95% leading. In the event Gillette fails
to maintain a power factor of not less than 95% lagging and does not
install corrective equipment to raise its power factor as stipulated
above, the maximum monthly demand for power from Other Sources will be
increased by multiplying by 95% and dividing by the power factor
expressed in percent. This adjustment shall not apply for
demonstrated power factors above 95% lagging.
9. IMPOSSIBILITY OF PERFORMANCE.
Black Hills shall not be liable for failure of delivery of
electric capacity and energy, and Gillette shall not be liable for
failure to take or receive electric capacity and energy, where either
of such failures is due to an Act of God, governmental regulations,
governmental interference, court or commission orders, acts of the
public enemy, strikes or labor difficulties on the system of either
party hereto or of others, accidents, fire, explosion, mob violence,
droughts, floods, freeze-ups, weather conditions, failure of equipment
or, without limitation of the foregoing, any other cause beyond the
reasonable control of the party in default.
10. INDEMNIFICATION.
Neither party to this Agreement shall be liable for any loss
or damage to property or injury to or death of persons, whether
suffered by the other party, its agents or employees, or by any third
person, persons or corporation(s), resulting from the location, use or
operation of electrical or other equipment located on its side of the
point of delivery including the failure of any electrical equipment
caused by defects or inadequate capacity or from electric capacity and
energy present therein, and each party agrees to indemnify and save
the other party harmless from all such loss, damages, injuries or
death.
11. FILING WITH FERC.
Black Hills shall cause this Agreement to be filed with FERC
as required by the Federal Power Act and rules and regulations
relating thereto. Gillette shall sign a letter of concurrence to be
filed with FERC. Both parties agree to use best efforts to achieve
the acceptance by FERC of this Agreement for filing. This Agreement
shall not be in full force and effect nor shall any rights or
obligations of either party arise herefrom until this Agreement has
been permitted by FERC to become effective as a rate schedule without
amendment under the rules and regulations relating hereto.
12. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
This Agreement shall not be assignable by either party without the
written consent of the other party except (i) to a successor in the
operations of its properties by reason of a merger, consolidation,
sale or foreclosure where substantially all such properties are
acquired by such a successor or (ii) to a loaning agency, entity or
institution for security purposes. Nothing herein shall prohibit
Gillette from becoming a participant in a governmental joint powers
board where governmental entities have joined together for mutual
benefit, but in that event this Agreement and Gillette's benefits and
obligations therein remain with Gillette only or a successor referred
to in (i). The obligations of the parties under this Agreement shall
survive and be binding on the parties during the entire Term
notwithstanding that Gillette sells or leases its municipal electric
system or a part thereof or executes other contracts the effect of
which causes entities other than Gillette (Gillette's Successors and
Assigns) to sell capacity and energy to customers for consumption
within the city limits of Gillette. Any of Gillette's Successors and
Assigns shall be entitled to the benefits of this Agreement and shall
be bound by the obligations herein. Any creation by Gillette of
Gillette's Successors and Assigns shall not relieve Gillette from its
obligations in this Agreement.
13. NOTICE.
Notice required to be given hereunder shall be deemed to
have been given if mailed, postage prepaid, to Black Hills
Corporation, P. 0. Box 1400, Rapid City, South Dakota 57709 on behalf
of Black Hills; and City of Gillette, P. 0. Box 3003, Gillette,
Wyoming 82716 on behalf of Gillette. Either party may from time to
time change its mailing address for the purpose of receiving notice by
notifying the other party in writing of such change.
14. COMPLETE AGREEMENT.
At the time that this Agreement has been accepted for filing
and/or approved by FERC, this Agreement cancels and supersedes the
First Restated Electric Power and Energy Supply and Transmission
Agreement dated December 21, 1987. This Agreement constitutes the
complete and full agreement between the parties.
This Agreement is executed as of the day and year recited in
the first paragraph hereof and each of the officers executing this
Agreement represents that this Agreement has been approved and
authorized by their respective governing bodies as required by law
applicable thereto and that by such execution that authority to such
officer has been legally authorized and delegated by the respective
governing bodies of the parties.
CITY OF GILLETTE
By /c/Frank W. Latta
ATTEST Its Mayor
Clerk
(OFFICIAL SEAL)
BLACK HILLS POWER AND LIGHT
COMPANY
ATTEST By /c/Everett E. Hoyt
Its President and Chief
Operating Officer
Its Secretary
(OFFICIAL SEAL)
<PAGE>
EXHIBIT A
ELECTRIC SERVICE AGREEMENT
APPLICABLE
To the City of Gillette, Wyoming ("Gillette") for its service
requirements, provided under Agreement with Black Hills Power and
Light Company ("Black Hills"), for resale purposes and for its own
uses. Capitalized terms used herein shall have the same meaning
as defined in the Agreement to which this is attached as Exhibit
A.
CHARACTER OF SERVICE
Alternating current, 60 hertz, three phase, at the voltage of
Black Hills' transmission line which is a part of Black Hills'
existing interconnected transmission system.
MONTHLY BASIS OF BILLING
(a) Prior to the Date of First Commercial Operation of
NS #2:
Basic Service Charge $5,400 per month
Billing Demand Charge $11.46 per kilowatt of the
Billing Demand
Billing Energy Charge 2.22<cent> per kilowatt hour of
Billing Energy
(b) From the Date of First Commercial Operation of NS #2
through December 31, 1996:
Basic Service Charge $5,400 per month
Billing Demand Charge $15.44 per kilowatt of the
Billing Demand
Billing Energy Charge 2.22<cent> per kilowatt hour of
Billing Energy
(c) January 1, 1997 and thereafter:
Basic Service Charge $5,400 per month
Billing Demand Charge $14.57 per kilowatt of the
Billing Demand
Billing Energy Charge 2.22<cent> per kilowatt hour of
Billing Energy
If the MDU Contract or any amended or substitute
agreement thereof is not approved or accepted for
filing by the Federal Energy Regulatory Commission for
any reason, this paragraph (c) shall not go into
effect and the rates under paragraph (b) above shall
continue to be in effect after December 31, 1996.
The Basic Service Charge is a given charge per month
to compensate Black Hills for the costs associated
with service which do not vary depending upon the
level of demand and energy provided by Black Hills.
BILLING DEMAND
The Billing Demand shall be 23,268 KW prior to the First
Date of Commercial Operation of NS #2 and 23,000 KW
commencing on the First Date of Commercial Operation and
thereafter for the balance of the Term.
Power Factor - The power factor of Gillette's load at the
point of delivery shall not be less than 95% lagging or 95%
leading at the time of the City's maximum demand during the
month. If the power factor of the City's load at the point
of delivery is found to be below 95% lagging or 95% leading
at the time of the maximum demand, the City shall install
power factor corrective equipment on its system so as to
raise the power factor of its load at that point to at least
95% lagging or 95% leading.
In the event the City fails to maintain a power factor of
not less than 95% lagging and does not install corrective
equipment to raise its power factor as stipulated above, the
monthly billing demand will be increased by multiplying by
95% and dividing by the power factor expressed in per cent.
This adjustment shall not apply for demonstrated power
factors above 95% lagging.
BILLING ENERGY
Billing Energy shall be measured in kilowatt hours as
provided in Section 3.2 of the Agreement.
PENALTY PROVISIONS -- UNAUTHORIZED OVERRUN
Unauthorized Overrun is subject to a penalty provision.
Unauthorized Overrun occurs when Black Hills furnishes
Gillette capacity that was Gillette's obligation to serve
under Section 3.3.
The purpose of this penalty is to provide economic incentive
to comply with the terms and conditions set forth in the
Agreement for service rendered hereunder. The level of the
penalty charge set herein shall be 3 times the monthly
Demand Charge applied to the amount of the Unauthorized
Overrun.
FUEL AND ECONOMIC POWER ADJUSTMENT
For each month in which the cost of the fuel and purchased
economic power per kWh of Sales during the second calendar
month preceding the billing month exceeds or is less than
"A" as defined below, the energy charge shall be increased
or decreased, respectively by the following Adjustment
Factor:
Adjustment Factor = Fm - Fb ; Fb/Sb = A/kWh
Sm Sb
Where: "F" is the expense of fossil (including fuel from
company-owned or controlled sources) and nuclear fuel and
purchased economic power in the base (b) and current (m)
periods; "S" is the kWh sales in the base and current
periods; and "A" is (i) 1.087<cent> prior to the First Date of
Commercial Operation of NS #2, and (ii) 1.035<cent> on the First
Date of Commercial Operation of NS #2 and thereafter, all as
defined below:
(a) Fuel and purchased economic power costs (F) shall be
the cost of:
(i) Fossil and nuclear fuel consumed in Black
Hills' owned plants, and Black Hills' share of
fossil and nuclear fuel consumed in jointly
owned or leased plants.
(ii) The actual identifiable fossil and nuclear
fuel costs associated with energy purchased
for reasons other than identified in paragraph
(iii) following. Fuel costs included in
Variable Costs are allowed by paragraph (vi)
following.
(iii) The total cost of the purchase of economic
power, as defined herein, if the reserve
capacity of Black Hills is adequate
independent of all other purchases where non-
fuel charges are included in either Fb or Fm.
(iv) Energy charges for any purchase if the total
amount of energy charges incurred for the
purchase is less than Buyer's total avoided
variable costs.
(v) Less the cost of fossil and nuclear fuel
recovered through all intersystem sales
(including sales to Montana-Dakota Utilities
Co. under the MDU Contract).
(vi) Notwithstanding anything in 18 CFR 35.14 to
the contrary, the Variable Costs paid by Black
Hills to Pacific Power & Light Company under
the Power Sales Agreement between Black Hills
and Pacific dated December 31, 1983 and
designated as Pacific Power & Light Company
Rate Schedule FERC No. 236.
(b) KWh sales(s) as used herein shall be the sum of (a)
net generation, (b) purchases, (c) interchange-in,
less (d) intersystem sales (including sales to
Montana-Dakota Utilities Co. under the MDU Contract),
and (e) losses at 3.5 percent.
If the MDU Contract or any amended or substitute agreement
thereof is not approved or accepted for filing by the
Federal Energy Regulatory Commission for any reason, "A" in
the above formula will continue to be 1.035<cent> on the First
Date of Commercial Operation of NS #2 and thereafter.
Said Adjustment Factor shall be rounded to the nearest 0.001
cents for billing purposes and applied to each kWh delivered.
For the purposes of the Fuel and Economic Power Adjustment
herein, the following definitions apply:
"Economic power" is capacity and energy purchased over a
period of 12 months or less where the total cost of the
purchase is less than Black Hills' total avoided variable
cost.
"Total cost of the purchase" is all charges incurred in
buying economic capacity and having such power delivered to
Black Hills' system. The total cost includes, but is not
limited to, capacity or reservation charges, energy charges,
adders, and any transmission or wheeling charge associated
with the purchase.
"Total avoided variable cost" is all identified and
documented variable costs that would have been incurred by
Black Hills had a particular purchase not been made. Such
costs include, but are not limited to, those associated with
fuel, startup, shutdown or any purchases that would have
been made in lieu of the purchase made.
The system reserve capacity criteria by which Black Hills'
system operator decides whether a reliability purchase is
required is as follows:
(i) Black Hills is not a member of any power pool.
For both long-range planning and for daily
operations, Black Hills' system operator
determines that a reliability purchase is
required when it is necessary to increase its
available resources to an amount equal to the
total of its projected on-system firm peak
load demand plus the yield of its largest base
load generation source.
(ii) Prior to the day NS #2 goes into commercial
operation, Black Hills' largest base load
generation source is its 20 percent leasehold
interest in the Wyodak Plant which yields
Black Hills 64 MW. When NS #2 goes into
commercial operation, Black Hills' largest
base load generation source is its interest in
the Neil Simpson 2 Plant which yields Black
Hills 80 MW.
(iii) When Black Hills' largest base load generation
is not in service, Black Hills has reserve
capacity it can call upon from PacifiCorp
under the Reserve Capacity Integration
Agreement, dated as of May 5, 1987 between
PacifiCorp and Black Hills.
(iv) When Black Hills' largest base load generation
is not in service and Black Hills unexpectedly
loses additional generation or firm purchase
contract sources, or any combination thereof,
Black Hills then will purchase additional
power and energy for reliability purposes.
Reserve capacity shall be deemed adequate if, at the time a
purchase was initiated, Black Hills' system reserve capacity
criteria was projected to be satisfied for the duration of
the purchase without the purchase at issue.
The total cost of the purchase must be projected to be less
than total avoided variable cost, at the time a purchase was
initiated, before any nonfuel purchase charge may be
included in Fm.
Black Hills shall make a credit to Fm after a purchase
terminates if the total cost of the purchase exceeds the
total avoided variable cost. The amount of the credit shall
be the difference between the total cost of the purchase and
the total avoided variable cost. This credit shall be made
in the first adjustment period after the end of the
purchase. If Black Hills fails to make the credit in the
first adjustment period after the end of the purchase, it
shall, when making the credit, also include in Fm interest
on the amount of the credit. Interest shall be calculated
at the rate required by 18 CFR 35.19a(a)(2)(iii), and
shall accrue from the date the credit should have been made
under this paragraph until the date the credit is made.
If a purchase is made of more capacity than is needed to
satisfy Black Hills' system reserve capacity criteria
because the total costs of the extra capacity and associated
energy are less than Black Hills' total avoided variable
costs for the duration of the purchase, the charges
associated with the non-reliability portion of the purchase
may be included in F.
INCOME TAX ADJUSTMENT
At any time prior to January 1, 1998 that Black Hills incurs
the burden of any state income tax or the federal corporate
income tax rates applicable to Black Hills are changed from
the current rate of 35 percent, the Energy Charge shall be
adjusted to reflect the increase or the decrease in the tax
costs as properly allocated to Gillette under the same
allocation factors as used to determine the Energy Charge;
provided, no bills or rates will be increased by this tax
adjustment without filing with the Federal Energy Regulation
Commission under laws, rules and regulations relating
thereto. In consideration of the moratorium at Section 4(c)
and this Agreement, Gillette agrees that such adjustments
shall be made and shall not object to or oppose such
adjustments. Any income tax changes effective after
December 31, 1997 shall be taken into account in determining
just and reasonable rates under Section 4(b).
RIGHTS FOR CHANGE IN RATES
The rights and limitations for changes in rates are set
forth in Section 4 of the Agreement.
PAYMENT
Bills will be rendered monthly, due upon presentation, and
paid by wire transfer (or similar method providing Black
Hills readily available dollars on the date paid) within
fifteen (15) days after the bill is received by Gillette.
TERMS AND CONDITIONS
Service will be rendered under the Company's Standard Rules
and Regulations.
1996
EXECUTIVE
GAINSHARING PROGRAM
<PAGE>
1996 EXECUTIVE GAINSHARING PROGRAM
The Executive Gainsharing Program is one of three sections of a
Company-wide gainsharing program. Other work units participating in
the Company-wide program are the Bargaining Unit and a program for the
Staff. Each of the three work units have goals established in which
participants can directly influence the results. The maximum award
that any participant may receive is three percent.
This program is designed for the officers in the following positions:
Chairman, President and CEO; President and COO; Sr. Vice President,
Finance; Vice President, Administration; Vice President, Power Supply;
Secretary/Treasurer, and Controller.
BLACK HILLS CORPORATION
1996 EXECUTIVE GAINSHARING PROGRAM GOALS
I. SAFETY GOAL (1%)
This category has a total award value of 1%. The category is
comprised of safety goals dependent on each other. The goals are:
A. Motor Vehicle Accidents
B. OSHA Lost Time Accidents
To receive a 1% award, the Company average must be less than the NCEA
average at year-end in each respective area.
II. O&M EXPENSE REDUCTION GOAL (1%)
This category has a total award value of 1%. For an award to be paid
in this category, a reduction in the O&M budget must occur. A payout
to the participants will be equal to one-third of the average
company-wide participant gainshare payout.
Example: If the average 1995 gainshare award payout per participant
is 2.5%, each participant (officer) in this specific program
would receive a payout equal to .825%.
III. COMPANY STRATEGIC DIRECTION GOAL (1%)
The goal has a total award value of 1%. Participants will develop a
plan representing their respective area of responsibility in relation
to the strategic organizational direction the Company will model in
five years given the information known at the present time. At year-
end, the CEO will determine to what degree the goal has been
achieved. Awards for each participant can be made in 1/4% increments
not to exceed 1%.
<PAGE>
NOTE: For each MVA, LTA, or public liability an individual employee
has, the equivalent of a 1% award will be deducted from their award as
previously calculated. (An employee could lose the entire 3% potential
award should they incur three of the above mentioned incidents.)
STOP LOSS: The basic goal of gainsharing is to reduce costs. Therefore,
employees who have a MVA, LTA, public liability, operations or property
damage loss in excess of $10,000 and are found to be at fault will be
ineligible for any Gainshare Award that year. An incident that occurs
in one year but accumulates expenses in more than one year would affect
an employee's Gainsharing Award in the year expenses reach $10,000. The
Gainsharing Committee will address special situations and determine
effect.
GUIDELINES
The program will be comprised of a one year period starting January 1,
1996, through December 31, 1996. The gainshare program calculations and
payout checks, if awarded, will be issued in the first quarter of the
following year.
An individual employee's gainsharing bonus, if any, will be paid on
gross pay as it appears on the employee's W-2. This includes regular,
paid time off, and other forms of compensation.
An employee who transfers between one of the three gainshare programs as
defined in the 1996 Gainsharing Program will have their gainshare bonus,
if awarded, based upon where the greatest amount of time worked
occurred. The maximum gainsharing award an employee may receive is 3%.
Anyone terminated from employment with Black Hills Corporation before
the completion of the program will not be eligible for any gainsharing
bonus. Exceptions would be death, permanent disability or retirement.
Board of Directors Retain Discretion
This Plan is not at any time a contract of employment. The Company
reserves the right to change this Plan whenever and in any manner it
deems appropriate. Irrespective of changes in the Plan, no rights are
vested. All awards are earned only when and if finally approved by the
Board of Directors notwithstanding anything contained in the Plan that
may be construed to be to the contrary.
The Board of Directors, in its sole and absolute discretion, may decline
to approve any award, though the participant may have achieved or
exceeded threshold and target levels of performance. Setting a
threshold or target of performance for any participant does not
constitute a promise to pay an award even if the participant meets the
threshold or target of performance. In determining whether to make an
award and the amount of the award, the Board of Directors may consider
criteria other than or in addition to the threshold and target
performance determined under this Plan. Nothing in this Plan is a
promise by the Company or any of its subsidiaries to continue to employ
any participant for any period of time.
1996
RESULTS
COMPENSATION
PROGRAM
BLACK HILLS POWER AND LIGHT COMPANY
WYODAK RESOURCES DEVELOPMENT CORP.
WESTERN PRODUCTION COMPANY
<PAGE>
RESULTS COMPENSATION PROGRAM
In 1996, the Results Compensation program initiated in 1994 is being
continued. This program has significantly enhanced the Corporation's
compensation philosophy and practice.
The Results Compensation program is designed to recognize and reward the
contribution that group performance makes to corporate success when
budgeted goals are met. Results Compensation can pay financial rewards
up to 8 percent of your earnings.
GROUP PERFORMANCE
There are several elements that go into determining the success of the
Corporation. Some of these elements include: the contributions
employees make to achieve goals; both on an individual basis and as part
of a work unit, in addition to the market, general economic conditions,
quality of management, strategic plans, and regulatory agencies.
In general, the current merit/base pay system provides individual pay
opportunities that are competitive in our respective industry and
geographic location coupled with each company's ability to pay. The
emphasis of the Results Compensation program is an added incentive to
reward group or business unit performance.
RESULTS COMPENSATION PROGRAM OBJECTIVES
The Results Compensation program is designed to meet the following
objectives:
* Enhance and broaden the current compensation philosophy and pay
practice.
* Share the results of the Corporation and the business unit with
the people who contribute to that success.
* Motivate work performance and behavior that supports the
Corporate and business unit financial goals.
* Increase the employee's understanding of the business.
<PAGE>
RESULTS COMPENSATION GUIDELINES
* The program encompasses a one-year period; January 1, 1996,
through December 31, 1996. Results Compensation awards, if
earned and approved, will be paid out in the first quarter of the
following year.
* Regular full-time and regular part-time employees are eligible to
participate in this program.
* An individual employee's Results Compensation award, if any, will
be paid on gross pay as it appears on the employee's W-2 form.
This includes regular, overtime, paid time off and other forms of
premium pay.
* An employee who transfers between one of the participating
companies (BHP, WRDC, WPC, or BHC) during the program year will
have the Results Compensation award, if approved, based upon
where the greatest amount of time worked occurred.
* The local union IBEW, 1250, elected not to participate in the
1996 Results Compensation program.
* Since the bargaining unit does not participate, an employee who
transfers to or from a bargaining unit position will receive a
pro-rated Results Compensation award, if approved, relative to
the amount of time worked in the non-bargaining unit position and
gross pay earned in the non-bargaining unit position while
qualified under the program.
* The maximum Results Compensation bonus and award an employee may
receive is 8 percent.
* In determining the bonus percentage to be paid, calculations will
be rounded to two decimal places (e.g., 1.43%) not rounded to the
nearest whole percentage amount.
* Any participating employee whose employment relationship with the
Corporation is terminated voluntarily or involuntarily prior to
the end of the program year will not be eligible for any Results
Compensation award. Exceptions would be death, permanent
disability or retirement.
<PAGE>
DETERMINING RESULTS COMPENSATION AWARDS
The Results Compensation program has two key financial goals. The
financial goals consist of a business unit goal and a corporate goal.
Whether a program award is paid and how much any award will be depends
on how well and to what degree the goals were obtained as evaluated by
the Board of Directors.
GOAL 1. FINANCIAL PERFORMANCE OF THE INDIVIDUAL BUSINESS UNIT (BHP,
WRDC, WPC) BASED ON OPERATING INCOME.
Operating income is all business unit revenue, less operating
expense, before corporate income taxes and interest charges. This
measures the financial results of operations.
Participants may receive up to four percent of their total Results
Compensation award from this goal; specifics are attached.
GOAL 2. CORPORATE CONSOLIDATED EARNINGS PER SHARE (EPS) GOAL.
Earnings Per Share are equal to the total consolidated profit divided
by the number of shares of Black Hills Corporation common stock owned
by shareholders.
Participants may receive up to four percent of their total Results
Compensation award from the goal. Since this is a consolidated
Corporate goal, all employees in the different business units will
have the same goal. The specific target goal for 1996 is $1.83 as
shown in the attached.
In 1994, the EPS base was established at $1.66. That base was
increased by 5% in 1995 to last year's target of $1.743 EPS.
Consistent with that goal, the EPS target for 1996 has again been
increased by 5% to the new target goal of $1.83 for 1996.
<PAGE>
BOARD OF DIRECTORS RETAIN DISCRETION
This program is not at any time a contract of employment. The Company
reserves the right to change this program whenever and in any manner it
deems appropriate. Irrespective of changes in the program, no rights
are vested. All awards are earned only when and if finally approved by
the Board of Directors notwithstanding anything contained in the program
that may be construed to be to the contrary.
The Board of Directors, in its sole and absolute discretion, may decline
to approve any award, though the participant may have achieved or
exceeded threshold and target levels of performance. Setting a
threshold or target of performance for any participants does not
constitute a promise to pay an award even if the participant meets the
threshold or target of performance. In determining whether to make an
award and the amount of the award, the Board of Directors may consider
criteria other than or in addition to the threshold and target
performance determined under this program. Nothing in this program is a
promise by the Corporation to continue to employ any participant for any
period of time.
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of
January 31, 1996, is entered into by and between Black
Hills Corporation ("Company") and Roxann R. Basham, Secretary-
Treasurer ("Executive").
1. RECITALS.
The Board of Directors of the Company ("Board") has
determined that it is in the best interests of the Company and
its shareholders to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change in Control (as defined below).
Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
2. CERTAIN DEFINITIONS.
"CHANGE IN CONTROL" shall mean any of the
following events:
(1) An acquisition (other than directly from the
Company) of any common stock of the Company (the
"Common Stock") by any "Person" (as the term
person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), immediately after
which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or
more of the Common Stock of the Company; provided,
however, in determining whether a Change in
Control has occurred, Common Stock which is
acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by
(A) the Company or (B) any corporation or other
Person of which a majority of its voting power or
its voting equity securities ("Voting Securities")
or equity interest is owned, directly or
indirectly, by the Company (for purposes of this
definition, a "Subsidiary"), (ii) the Company or
its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as
hereinafter defined);
(2) The individuals who, as of January 30, 1996 are
members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-
thirds of the members of the Board; provided,
however, that if the election, or nomination for
election by the Company's common shareholders, of
any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board;
provided further, however, that no individual
shall be considered a member of the Incumbent
Board if such individual initially assumed office
as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by shareholders of the Company of:
(i) A merger, consolidation or reorganization
involving the Company, unless such merger,
consolidation or reorganization is a "Non-
Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of the
Company where:
(A) the shareholders of the Company,
immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately
following such merger, consolidation or
reorganization, at least seventy
percent (70%) of the combined voting
power of the outstanding Voting
Securities of the corporation resulting
from such merger or consolidation or
reorganization (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
Voting Securities immediately before
such merger, consolidation or
reorganization.
(B) the individuals who were members of the
Incumbent Board immediately prior to
the execution of the agreement
providing for such merger,
consolidation or reorganization
constitute at least two-thirds of the
members of the board of directors of
the Surviving Corporation, or a
corporation beneficially directly or
indirectly owning a majority of the
Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) the Company,
(ii) any Subsidiary, (iii) any employee
benefit plan (or any trust forming a
part thereof) maintained by the
Company, the Surviving Corporation, or
any Subsidiary, or (iv) any Person who,
immediately prior to such merger,
consolidation or reorganization had
Beneficial Ownership of thirty percent
(30%) or more of the then outstanding
Voting Securities), has Beneficial
Ownership of thirty percent (30%) or
more of the combined voting power of
the Surviving Corporation's then
outstanding Voting Securities.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other
disposition of all or substantially all of
the assets of the Company to any Person
other than (x) a transfer to a Subsidiary or
(y) a sale or transfer of a Subsidiary by
the Company except if such sale or transfer
would be a sale or other disposition of all
or substantially all of the assets of the
Company.
(4) Notwithstanding the foregoing, (i) a Change in
Control shall not be deemed to occur solely
because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted
amount of the then outstanding Common Stock as a
result of the acquisition of Common Stock by the
Company which, by reducing the number of shares of
Common Stock then outstanding, increases the
proportional number of shares Beneficially Owned
by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of
this sentence) as a result of the acquisition of
Common Stock by the Company, and after such stock
acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional
Common Stock which increases the percentage of the
then outstanding Common Stock Beneficially Owned
by the Subject Person, then a Change in Control
shall occur; and (ii) a Change in Control shall
not be deemed to occur unless and until all
regulatory approvals required to effect a Change
in Control of the Company have been obtained.
"EFFECTIVE DATE" shall mean the first date on which a
Change in Control occurs. The Effective Date does not
occur and no benefits shall be paid under this
Agreement if for any reason the Executive is not an
employee of the Company on the day prior to the
Effective Date.
"EMPLOYMENT TERM" shall mean a term of employment with
the Company which shall commence on the Effective Date
and which shall expire on the third anniversary of the
Effective Date; provided, however, that the Employment
Term shall in no event extend beyond the first day of
the month following the month in which the Executive
attains age sixty-five (65).
"GOOD CAUSE" means those events or conditions described
in paragraph 8(c)(i) through (vi) below.
"NOTICE OF TERMINATION" shall mean a notice which
indicates the specific termination provision in this
Agreement, if any, relied upon and shall set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's
employment under the provisions so indicated. Any
purported termination by the Company or Executive shall
be communicated by written notice of termination to the
other.
"PENSION EQUALIZATION PLAN" is the Company's pension
equalization plan as amended and restated effective
January 27, 1995, and as amended from time to time
thereafter prior to the Effetive Date.
"PENSION PLAN" is the Company's tax qualified defined
benefit pension plan as amended and restated effective
October 1, 1989, and as amended from time to time
thereafter prior to the Effective Date.
"REMAINING TERM" shall mean that period of time
measured from the Termination Date through the end of
the Employment Term.
"TERMINATION DATE" shall mean the date subsequent to a
Change in Control that the Executive's employment with
the Company terminates.
"WELFARE BENEFITS" shall mean the Black Hills
Corporation Medical and Dental Plan, the Black Hills
Corporation Flexible Benefit Plan, and the Black Hills
Corporation Employee Life and Long-Term Disability Plan
as the plans and the terms and conditions thereof exist
on the day prior to the Effective Date.
3. EMPLOYMENT.
Subject to the provisions of Section 8 hereof, during the
Employment Term, the Company agrees to continue to employ the
Executive and the Executive agrees to remain in the employ of the
Company. During the Employment Term, the Executive shall be
employed as the Secretary-Treasurer of the Company or in such
executive capacity as may be mutually agreed to in writing by the
parties. Executive shall perform the duties, undertake the
responsibilities and exercise the authority customarily
performed, undertaken and exercised by persons situated in a
similar executive capacity.
During the Employment Term, excluding periods of vacation
and sick leave to which Executive is entitled, Executive agrees
to devote reasonable attention and time during usual business
hours to the business and affairs of the Company to the extent
necessary to discharge the responsibilities assigned to Executive
hereunder. It is expressly understood and agreed that to the
extent that any outside activities have been conducted by
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of
Executive's responsibilities to the Company.
4. COMPENSATION.
During the Employment Term, the Company agrees to pay or
cause to be paid to Executive annual compensation at a rate at
least equal to the highest rate of the Executive's annual
compensation as in effect at any time within one year preceding
the Effective Date, and as may be increased from time to time.
Such annual compensation shall be payable in accordance with the
Company's customary practices applicable to its executives. For
purposes of this Agreement, "annual compensation" shall mean all
compensation paid to the Executive by the Company during a
calendar year, which amounts are includable in the gross income
of the Executive for federal income tax purposes, including, but
not limited to, overtime, bonus, commission or incentive
compensation ("Annual Compensation").
5. EMPLOYEE WELFARE AND PENSION BENEFITS.
During the Employment Term, the Company shall provide to the
Executive the Welfare Benefits and the Pension Plan or other
substantially similar employee welfare and pension benefits, but
in no event on a basis less favorable in terms of benefit levels
and coverage than the Welfare Benefits and the Pension Plan.
6. PENSION EQUALIZATION PLAN.
During the Employment Term, the Company shall continue to
provide to Executive coverage and participation under the Pension
Equalization Plan or a substantially similar supplemental
retirement plan, but in no event on a basis less favorable in
terms of benefit levels and coverage than the Pension
Equalization Plan.
7. OTHER BENEFITS.
(a) Fringe Benefits, Perquisites, Vacation and Sick
Leave. During the Employment Term, Executive shall be entitled
to all fringe benefits, perquisites, vacation and sick leave
generally made available by the Company to its executives.
Unless otherwise provided herein, the fringe benefits,
perquisites, vacation and sick leave provided to Executive shall
be on the same basis and terms as other similarly situated
executives of the Company, but in no event shall be less
favorable than the most favorable fringe benefits, perquisites,
vacation and sick leave applicable to Executive at any time
within one year preceding the Effective Date, or if more
favorable, at any time thereafter.
(b) Expenses. Executive shall be entitled to receive
prompt reimbursement of all expenses reasonably incurred by him
in connection with the performance of his duties hereunder or for
promoting, pursuing or otherwise furthering the business or
interests of the Company.
8. TERMINATION.
During the Employment Term, Executive's employment hereunder
may be terminated under the following circumstances:
(a) Cause. The Company may terminate Executive's
employment for "Cause." A termination of employment is for
"Cause" if Executive (1) has been convicted of a felony or (2)
intentionally engaged in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of Executive's employment
shall be for Cause as set forth in clause (2) above until (i)
there shall have been delivered to Executive a copy of a written
notice setting forth that Executive was guilty of the conduct set
forth in clause (2) and specifying the particulars thereof in
detail, and (ii) Executive shall have been provided an
opportunity to be heard by the Board (with the assistance of
Executive's counsel if Executive so desires). No act, nor
failure to act, on Executive's part shall be considered
"intentional" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by Executive after a Notice of
Termination is given by Executive shall constitute Cause for
purposes of this Agreement.
(b) Disability. The Company may terminate Executive's
employment after having established Executive's Disability. For
purposes of this Agreement, "Disability" means a physical or
mental infirmity which impairs Executive's ability to
substantially perform his duties under this Agreement which
continues for a period of at least one hundred eighty (180)
consecutive days to be determined by a physician selected by
Company and acceptable to Executive. Executive shall be entitled
to the compensation and benefits provided for under this
Agreement for any period during Employment Term and prior to the
establishment of Executive's Disability during which Executive is
unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the
contrary, until the Termination Date specified in a Notice of
Termination relating to Executive's Disability, Executive shall
be entitled to return to his position with the Company as set
forth in this Agreement in which event no Disability of Executive
will be deemed to have occurred.
(c) Good Reason. During the Employment Term, the
Executive may terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean the
occurrence after the Effective Date of any of the events or
conditions described below:
(i) a change in the Executive's status, title,
position or responsibilities (including reporting
responsibilities), which, in the Executive's reasonable
judgment, represent an adverse change from his status,
title, position or responsibilities as in effect prior
to the Effective Date or any other action by the
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for
this purpose an isolated, unsubstantial and inadvertent
action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof by
Executive;
(ii) a reduction in the Executive's Annual
Compensation as defined in paragraph 4 or any failure
to pay the Executive any compensation or benefits to
which he is entitled within seven (7) days of the date
due;
(iii) any material breach by the Company of any
provision of this Agreement, including, but not limited
to, the Company's failure to provide the Employee
Welfare and Pension Benefits and Pension Equalization
Plan as set forth in paragraphs 5 and 6 above;
(iv) The Company's requiring the Executive to be
based outside a 50-mile radius from Rapid City, South
Dakota, except for reasonably required travel on the
Company's business which is not substantially greater
than such travel requirements prior to the Effective
Date;
(v) Any purported termination of the Executive's
employment for Cause by the Company which does not
comply with the terms of Section 8(a) above; or
(vi) The failure of the Company to obtain an
agreement, satisfactory to the Executive, from any
successor or assign of the Company to assume and agree
to perform this Agreement, as contemplated in Section
12 hereof.
(d) Voluntary Termination. The Executive may
voluntarily terminate his employment hereunder at any time.
9. COMPENSATION UPON TERMINATION.
Upon termination of Executive's employment during the
Employment Term, Executive shall be entitled to the following
benefits:
(a) If Executive's employment with the Company shall
be terminated (i) by the Company for Cause or Disability, or
(ii) by reason of Executive's death, or (iii) by Executive
without "Good Reason," the Company shall pay Executive all
amounts earned or accrued through the Termination Date but not
paid as of the Termination Date, including all Annual
Compensation, reimbursement for reasonable and necessary expenses
incurred by Executive on behalf of the Company during the period
ending on the Termination Date, vacation pay and sick leave
(collectively "Accrued Compensation").
(b) If the Executive's employment with the Company
shall be terminated (other than by reason of death) (i) by the
Company other than for Cause or Disability, or (ii) by Executive
for Good Reason, Executive shall be entitled to the following:
(i) The Company shall pay Executive all Accrued
Compensation;
(ii) The Company shall pay Executive as severance
pay and in lieu of any further compensation for periods
subsequent to the Termination Date an amount in cash
equal to (w) 2.99 times (x) the Executive's average
Annual Compensation for the most recent five taxable
years ending prior to the Change in Control times (y) a
ratio, the numerator of which shall be the number of
months in the Remaining Term (a partial month being
considered a full month) and the denominator of which
shall be the number of months in the Employment Term
times (z) a ratio, the numerator of which shall be the
number of months in the Employment Term and the
denominator of which shall be 36 months;
(iii) During the "Remaining Term," the Company
shall at its expense continue on behalf of Executive
and his dependents and beneficiaries the Welfare
Benefits or similar benefits no less favorable than the
benefit levels and coverages provided in the Welfare
Benefits; provided, however, that the Company's
obligation with respect to the foregoing benefits shall
be limited to the extent that Executive obtains any
such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the
coverage of any benefits it is required to provide
Executive hereunder so long as the aggregate coverages
and benefits of the combined benefit plans is no less
favorable to Executive than the Welfare Benefits;
(iv) Executive shall be entitled to an amount of
credited service for vesting purposes under the Pension
Equalization Plan equal to the period of time in the
Remaining Term, and it shall be assumed for purposes of
determining benefits under the Pension Equalization
Plan, that Executive's employment continued during the
Remaining Term at the compensation level provided for
in Section 4 above. In addition, the Executive shall
be entitled to a supplemental Pension Plan benefit,
which shall be the excess, if any, of (x) the amount
that Executive would have been entitled to receive
under the Pension Plan as if (i) Executive received
additional credited service under the Pension Plan for
the Remaining Term and (ii) Executive's Annual
Compensation as defined in Section 4 above remained in
effect during the Remaining Term over (y) the amount
that Executive will actually receive under the Pension
Plan. This supplemental benefit shall be determined
using the same factors, actuarial or otherwise, as used
in determining Executive's Pension Plan benefit and
shall be payable at like terms and in like manner as
the Pension Plan benefit. This supplemental benefit is
not payable unless and until the Executive receives
Pension Plan benefits.
10. OFFSET.
Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other
employment or otherwise, and except as provided in Section
9(b)(iii), such payments shall not be reduced whether or not
Executive obtains other employment.
11. TAX EFFECT.
Notwithstanding anything contained in this Agreement to the
contrary, if any payment received or to be received by Executive
pursuant to the terms of this Agreement or otherwise and in
connection with, or arising out of, Executive's employment with
the Company or a Change in Control ("Total Payments"), would not
be deductible by the Company (in whole or in part) as the result
of Section 280G of the Internal Revenue Code (the "Code"), the
amount determined under Section 9(b)(ii) shall be reduced until
no portion of the Total Payments is not nondeductible.
For purposes of determining whether any of the Total
Payments would not be deductible by the Company (1) Total
Payments will be treated as "Parachute Payments" within the
meaning of Section 280G(b)(2) of the Code and all Parachute
Payments in excess of the base amount within the meaning of
Section 280G(b)(3) will be treated as nondeductible unless, in
the opinion of tax counsel selected by the Company's independent
auditors and acceptable to Executive, such Total Payments (in
whole or in part) are not Parachute Payments, or such Parachute
Payments in excess of the base amount (in whole or in part) are
otherwise not nondeductible and (2) the value of any noncash
benefits or any deferred payment or benefit will be determined by
the Company's independent auditors in accordance with Section
280G(d)(3) and (4) of the Code.
12. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the
Company shall require any successor or assign to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession or assignment had taken place. The term
"Company" as used herein shall include such successors and
assigns. The term "successors and assigns" as used herein shall
mean a corporation or other entity acquiring all or substantially
all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the
laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal
personal representative.
13. FEES AND EXPENSES.
The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred
by the Executive subsequent to the Effective Date as they become
due as a result of the Executive seeking to obtain or enforce any
right or benefit provided by this Agreement.
14. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the
Notice of Termination) shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to
the other. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice
of change of address shall be effective only upon receipt.
15. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit Executive's
continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any
of its subsidiaries and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive
may have under any other agreements with the Company or any of
its subsidiaries. Amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be
payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
16. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Executive and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of South
Dakota.
20. SEVERABILITY.
The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions
hereof.
18. NO GUARANTEED EMPLOYMENT.
Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
Executive and the Company, the employment of Executive by the
Company is "at will" and, prior to the Effective Date, may be
terminated by either Executive or the Company at any time.
Moreover, if prior to the Effective Date, Executive's employment
with the Company terminates, Executive shall have no further
rights under this Agreement.
19. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof.
Dated the day and year first above written.
BLACK HILLS CORPORATION
By /c/Daniel P. Landguth
Chairman, President and Chief Executive
ATTEST:
/c/Dale E. Clement
Assistant Secretary
By /c/Roxann R. Basham
Executive
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of
January 30, 1996, is entered into by and between Black
Hills Corporation ("Company") and Dale E. Clement, Vice President
- Finance ("Executive").
1. RECITALS.
The Board of Directors of the Company ("Board") has
determined that it is in the best interests of the Company and
its shareholders to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change in Control (as defined below).
Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
2. CERTAIN DEFINITIONS.
"CHANGE IN CONTROL" shall mean any of the
following events:
(1) An acquisition (other than directly from the
Company) of any common stock of the Company (the
"Common Stock") by any "Person" (as the term
person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), immediately after
which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or
more of the Common Stock of the Company; provided,
however, in determining whether a Change in
Control has occurred, Common Stock which is
acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by
(A) the Company or (B) any corporation or other
Person of which a majority of its voting power or
its voting equity securities ("Voting Securities")
or equity interest is owned, directly or
indirectly, by the Company (for purposes of this
definition, a "Subsidiary"), (ii) the Company or
its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as
hereinafter defined);
(2) The individuals who, as of January 30, 1996 are
members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-
thirds of the members of the Board; provided,
however, that if the election, or nomination for
election by the Company's common shareholders, of
any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board;
provided further, however, that no individual
shall be considered a member of the Incumbent
Board if such individual initially assumed office
as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by shareholders of the Company of:
(i) A merger, consolidation or reorganization
involving the Company, unless such merger,
consolidation or reorganization is a "Non-
Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of the
Company where:
(A) the shareholders of the Company,
immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately
following such merger, consolidation or
reorganization, at least seventy
percent (70%) of the combined voting
power of the outstanding Voting
Securities of the corporation resulting
from such merger or consolidation or
reorganization (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
Voting Securities immediately before
such merger, consolidation or
reorganization.
(B) the individuals who were members of the
Incumbent Board immediately prior to
the execution of the agreement
providing for such merger,
consolidation or reorganization
constitute at least two-thirds of the
members of the board of directors of
the Surviving Corporation, or a
corporation beneficially directly or
indirectly owning a majority of the
Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) the Company,
(ii) any Subsidiary, (iii) any employee
benefit plan (or any trust forming a
part thereof) maintained by the
Company, the Surviving Corporation, or
any Subsidiary, or (iv) any Person who,
immediately prior to such merger,
consolidation or reorganization had
Beneficial Ownership of thirty percent
(30%) or more of the then outstanding
Voting Securities), has Beneficial
Ownership of thirty percent (30%) or
more of the combined voting power of
the Surviving Corporation's then
outstanding Voting Securities.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other
disposition of all or substantially all of
the assets of the Company to any Person
other than (x) a transfer to a Subsidiary or
(y) a sale or transfer of a Subsidiary by
the Company except if such sale or transfer
would be a sale or other disposition of all
or substantially all of the assets of the
Company.
(4) Notwithstanding the foregoing, (i) a Change in
Control shall not be deemed to occur solely
because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted
amount of the then outstanding Common Stock as a
result of the acquisition of Common Stock by the
Company which, by reducing the number of shares of
Common Stock then outstanding, increases the
proportional number of shares Beneficially Owned
by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of
this sentence) as a result of the acquisition of
Common Stock by the Company, and after such stock
acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional
Common Stock which increases the percentage of the
then outstanding Common Stock Beneficially Owned
by the Subject Person, then a Change in Control
shall occur; and (ii) a Change in Control shall
not be deemed to occur unless and until all
regulatory approvals required to effect a Change
in Control of the Company have been obtained.
"EFFECTIVE DATE" shall mean the first date on which a
Change in Control occurs. The Effective Date does not
occur and no benefits shall be paid under this
Agreement if for any reason the Executive is not an
employee of the Company on the day prior to the
Effective Date.
"EMPLOYMENT TERM" shall mean a term of employment with
the Company which shall commence on the Effective Date
and which shall expire on the third anniversary of the
Effective Date; provided, however, that the Employment
Term shall in no event extend beyond the first day of
the month following the month in which the Executive
attains age sixty-five (65).
"GOOD CAUSE" means those events or conditions described
in paragraph 8(c)(i) through (vi) below.
"NOTICE OF TERMINATION" shall mean a notice which
indicates the specific termination provision in this
Agreement, if any, relied upon and shall set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's
employment under the provisions so indicated. Any
purported termination by the Company or Executive shall
be communicated by written notice of termination to the
other.
"PENSION EQUALIZATION PLAN" is the Company's pension
equalization plan as amended and restated effective
January 27, 1995, and as amended from time to time
thereafter prior to the Effetive Date.
"PENSION PLAN" is the Company's tax qualified defined
benefit pension plan as amended and restated effective
October 1, 1989, and as amended from time to time
thereafter prior to the Effective Date.
"REMAINING TERM" shall mean that period of time
measured from the Termination Date through the end of
the Employment Term.
"TERMINATION DATE" shall mean the date subsequent to a
Change in Control that the Executive's employment with
the Company terminates.
"WELFARE BENEFITS" shall mean the Black Hills
Corporation Medical and Dental Plan, the Black Hills
Corporation Flexible Benefit Plan, and the Black Hills
Corporation Employee Life and Long-Term Disability Plan
as the plans and the terms and conditions thereof exist
on the day prior to the Effective Date.
3. EMPLOYMENT.
Subject to the provisions of Section 8 hereof, during the
Employment Term, the Company agrees to continue to employ the
Executive and the Executive agrees to remain in the employ of the
Company. During the Employment Term, the Executive shall be
employed as the Vice President - Finance of the Company or in
such executive capacity as may be mutually agreed to in writing
by the parties. Executive shall perform the duties, undertake
the responsibilities and exercise the authority customarily
performed, undertaken and exercised by persons situated in a
similar executive capacity.
During the Employment Term, excluding periods of vacation
and sick leave to which Executive is entitled, Executive agrees
to devote reasonable attention and time during usual business
hours to the business and affairs of the Company to the extent
necessary to discharge the responsibilities assigned to Executive
hereunder. It is expressly understood and agreed that to the
extent that any outside activities have been conducted by
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of
Executive's responsibilities to the Company.
4. COMPENSATION.
During the Employment Term, the Company agrees to pay or
cause to be paid to Executive annual compensation at a rate at
least equal to the highest rate of the Executive's annual
compensation as in effect at any time within one year preceding
the Effective Date, and as may be increased from time to time.
Such annual compensation shall be payable in accordance with the
Company's customary practices applicable to its executives. For
purposes of this Agreement, "annual compensation" shall mean all
compensation paid to the Executive by the Company during a
calendar year, which amounts are includable in the gross income
of the Executive for federal income tax purposes, including, but
not limited to, overtime, bonus, commission or incentive
compensation ("Annual Compensation").
5. EMPLOYEE WELFARE AND PENSION BENEFITS.
During the Employment Term, the Company shall provide to the
Executive the Welfare Benefits and the Pension Plan or other
substantially similar employee welfare and pension benefits, but
in no event on a basis less favorable in terms of benefit levels
and coverage than the Welfare Benefits and the Pension Plan.
6. PENSION EQUALIZATION PLAN.
During the Employment Term, the Company shall continue to
provide to Executive coverage and participation under the Pension
Equalization Plan or a substantially similar supplemental
retirement plan, but in no event on a basis less favorable in
terms of benefit levels and coverage than the Pension
Equalization Plan.
7. OTHER BENEFITS.
(a) Fringe Benefits, Perquisites, Vacation and Sick
Leave. During the Employment Term, Executive shall be entitled
to all fringe benefits, perquisites, vacation and sick leave
generally made available by the Company to its executives.
Unless otherwise provided herein, the fringe benefits,
perquisites, vacation and sick leave provided to Executive shall
be on the same basis and terms as other similarly situated
executives of the Company, but in no event shall be less
favorable than the most favorable fringe benefits, perquisites,
vacation and sick leave applicable to Executive at any time
within one year preceding the Effective Date, or if more
favorable, at any time thereafter.
(b) Expenses. Executive shall be entitled to receive
prompt reimbursement of all expenses reasonably incurred by him
in connection with the performance of his duties hereunder or for
promoting, pursuing or otherwise furthering the business or
interests of the Company.
8. TERMINATION.
During the Employment Term, Executive's employment hereunder
may be terminated under the following circumstances:
(a) Cause. The Company may terminate Executive's
employment for "Cause." A termination of employment is for
"Cause" if Executive (1) has been convicted of a felony or (2)
intentionally engaged in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of Executive's employment
shall be for Cause as set forth in clause (2) above until (i)
there shall have been delivered to Executive a copy of a written
notice setting forth that Executive was guilty of the conduct set
forth in clause (2) and specifying the particulars thereof in
detail, and (ii) Executive shall have been provided an
opportunity to be heard by the Board (with the assistance of
Executive's counsel if Executive so desires). No act, nor
failure to act, on Executive's part shall be considered
"intentional" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by Executive after a Notice of
Termination is given by Executive shall constitute Cause for
purposes of this Agreement.
(b) Disability. The Company may terminate Executive's
employment after having established Executive's Disability. For
purposes of this Agreement, "Disability" means a physical or
mental infirmity which impairs Executive's ability to
substantially perform his duties under this Agreement which
continues for a period of at least one hundred eighty (180)
consecutive days to be determined by a physician selected by
Company and acceptable to Executive. Executive shall be entitled
to the compensation and benefits provided for under this
Agreement for any period during Employment Term and prior to the
establishment of Executive's Disability during which Executive is
unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the
contrary, until the Termination Date specified in a Notice of
Termination relating to Executive's Disability, Executive shall
be entitled to return to his position with the Company as set
forth in this Agreement in which event no Disability of Executive
will be deemed to have occurred.
(c) Good Reason. During the Employment Term, the
Executive may terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean the
occurrence after the Effective Date of any of the events or
conditions described below:
(i) a change in the Executive's status, title,
position or responsibilities (including reporting
responsibilities), which, in the Executive's reasonable
judgment, represent an adverse change from his status,
title, position or responsibilities as in effect prior
to the Effective Date or any other action by the
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for
this purpose an isolated, unsubstantial and inadvertent
action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof by
Executive;
(ii) a reduction in the Executive's Annual
Compensation as defined in paragraph 4 or any failure
to pay the Executive any compensation or benefits to
which he is entitled within seven (7) days of the date
due;
(iii) any material breach by the Company of any
provision of this Agreement, including, but not limited
to, the Company's failure to provide the Employee
Welfare and Pension Benefits and Pension Equalization
Plan as set forth in paragraphs 5 and 6 above;
(iv) The Company's requiring the Executive to be
based outside a 50-mile radius from Rapid City, South
Dakota, except for reasonably required travel on the
Company's business which is not substantially greater
than such travel requirements prior to the Effective
Date;
(v) Any purported termination of the Executive's
employment for Cause by the Company which does not
comply with the terms of Section 8(a) above; or
(vi) The failure of the Company to obtain an
agreement, satisfactory to the Executive, from any
successor or assign of the Company to assume and agree
to perform this Agreement, as contemplated in Section
12 hereof.
(d) Voluntary Termination. The Executive may
voluntarily terminate his employment hereunder at any time.
9. COMPENSATION UPON TERMINATION.
Upon termination of Executive's employment during the
Employment Term, Executive shall be entitled to the following
benefits:
(a) If Executive's employment with the Company shall
be terminated (i) by the Company for Cause or Disability, or
(ii) by reason of Executive's death, or (iii) by Executive
without "Good Reason," the Company shall pay Executive all
amounts earned or accrued through the Termination Date but not
paid as of the Termination Date, including all Annual
Compensation, reimbursement for reasonable and necessary expenses
incurred by Executive on behalf of the Company during the period
ending on the Termination Date, vacation pay and sick leave
(collectively "Accrued Compensation").
(b) If the Executive's employment with the Company
shall be terminated (other than by reason of death) (i) by the
Company other than for Cause or Disability, or (ii) by Executive
for Good Reason, Executive shall be entitled to the following:
(i) The Company shall pay Executive all Accrued
Compensation;
(ii) The Company shall pay Executive as severance
pay and in lieu of any further compensation for periods
subsequent to the Termination Date an amount in cash
equal to (w) 2.99 times (x) the Executive's average
Annual Compensation for the most recent five taxable
years ending prior to the Change in Control times (y) a
ratio, the numerator of which shall be the number of
months in the Remaining Term (a partial month being
considered a full month) and the denominator of which
shall be the number of months in the Employment Term
times (z) a ratio, the numerator of which shall be the
number of months in the Employment Term and the
denominator of which shall be 36 months;
(iii) During the "Remaining Term," the Company
shall at its expense continue on behalf of Executive
and his dependents and beneficiaries the Welfare
Benefits or similar benefits no less favorable than the
benefit levels and coverages provided in the Welfare
Benefits; provided, however, that the Company's
obligation with respect to the foregoing benefits shall
be limited to the extent that Executive obtains any
such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the
coverage of any benefits it is required to provide
Executive hereunder so long as the aggregate coverages
and benefits of the combined benefit plans is no less
favorable to Executive than the Welfare Benefits;
(iv) Executive shall be entitled to an amount of
credited service for vesting purposes under the Pension
Equalization Plan equal to the period of time in the
Remaining Term, and it shall be assumed for purposes of
determining benefits under the Pension Equalization
Plan, that Executive's employment continued during the
Remaining Term at the compensation level provided for
in Section 4 above. In addition, the Executive shall
be entitled to a supplemental Pension Plan benefit,
which shall be the excess, if any, of (x) the amount
that Executive would have been entitled to receive
under the Pension Plan as if (i) Executive received
additional credited service under the Pension Plan for
the Remaining Term and (ii) Executive's Annual
Compensation as defined in Section 4 above remained in
effect during the Remaining Term over (y) the amount
that Executive will actually receive under the Pension
Plan. This supplemental benefit shall be determined
using the same factors, actuarial or otherwise, as used
in determining Executive's Pension Plan benefit and
shall be payable at like terms and in like manner as
the Pension Plan benefit. This supplemental benefit is
not payable unless and until the Executive receives
Pension Plan benefits.
10. OFFSET.
Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other
employment or otherwise, and except as provided in Section
9(b)(iii), such payments shall not be reduced whether or not
Executive obtains other employment.
11. TAX EFFECT.
Notwithstanding anything contained in this Agreement to the
contrary, if any payment received or to be received by Executive
pursuant to the terms of this Agreement or otherwise and in
connection with, or arising out of, Executive's employment with
the Company or a Change in Control ("Total Payments"), would not
be deductible by the Company (in whole or in part) as the result
of Section 280G of the Internal Revenue Code (the "Code"), the
amount determined under Section 9(b)(ii) shall be reduced until
no portion of the Total Payments is not nondeductible.
For purposes of determining whether any of the Total
Payments would not be deductible by the Company (1) Total
Payments will be treated as "Parachute Payments" within the
meaning of Section 280G(b)(2) of the Code and all Parachute
Payments in excess of the base amount within the meaning of
Section 280G(b)(3) will be treated as nondeductible unless, in
the opinion of tax counsel selected by the Company's independent
auditors and acceptable to Executive, such Total Payments (in
whole or in part) are not Parachute Payments, or such Parachute
Payments in excess of the base amount (in whole or in part) are
otherwise not nondeductible and (2) the value of any noncash
benefits or any deferred payment or benefit will be determined by
the Company's independent auditors in accordance with Section
280G(d)(3) and (4) of the Code.
12. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the
Company shall require any successor or assign to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession or assignment had taken place. The term
"Company" as used herein shall include such successors and
assigns. The term "successors and assigns" as used herein shall
mean a corporation or other entity acquiring all or substantially
all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the
laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal
personal representative.
13. FEES AND EXPENSES.
The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred
by the Executive subsequent to the Effective Date as they become
due as a result of the Executive seeking to obtain or enforce any
right or benefit provided by this Agreement.
14. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the
Notice of Termination) shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to
the other. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice
of change of address shall be effective only upon receipt.
15. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit Executive's
continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any
of its subsidiaries and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive
may have under any other agreements with the Company or any of
its subsidiaries. Amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be
payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
16. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Executive and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of South
Dakota.
20. SEVERABILITY.
The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions
hereof.
18. NO GUARANTEED EMPLOYMENT.
Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
Executive and the Company, the employment of Executive by the
Company is "at will" and, prior to the Effective Date, may be
terminated by either Executive or the Company at any time.
Moreover, if prior to the Effective Date, Executive's employment
with the Company terminates, Executive shall have no further
rights under this Agreement.
19. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof.
Dated the day and year first above written.
BLACK HILLS CORPORATION
By /c/Daniel P. Landguth
Chairman, President and Chief Executive
ATTEST:
/c/Roxann R. Basham
Secretary and Treasurer
By /c/Dale E. Clement
Executive
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of
January 30, 1996, is entered into by and between Black
Hills Corporation ("Company") and Gary R. Fish, Controller
("Executive").
1. RECITALS.
The Board of Directors of the Company ("Board") has
determined that it is in the best interests of the Company and
its shareholders to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change in Control (as defined below).
Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
2. CERTAIN DEFINITIONS.
"CHANGE IN CONTROL" shall mean any of the
following events:
(1) An acquisition (other than directly from the
Company) of any common stock of the Company (the
"Common Stock") by any "Person" (as the term
person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), immediately after
which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or
more of the Common Stock of the Company; provided,
however, in determining whether a Change in
Control has occurred, Common Stock which is
acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by
(A) the Company or (B) any corporation or other
Person of which a majority of its voting power or
its voting equity securities ("Voting Securities")
or equity interest is owned, directly or
indirectly, by the Company (for purposes of this
definition, a "Subsidiary"), (ii) the Company or
its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as
hereinafter defined);
(2) The individuals who, as of January 30, 1996 are
members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-
thirds of the members of the Board; provided,
however, that if the election, or nomination for
election by the Company's common shareholders, of
any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board;
provided further, however, that no individual
shall be considered a member of the Incumbent
Board if such individual initially assumed office
as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by shareholders of the Company of:
(i) A merger, consolidation or reorganization
involving the Company, unless such merger,
consolidation or reorganization is a "Non-
Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of the
Company where:
(A) the shareholders of the Company,
immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately
following such merger, consolidation or
reorganization, at least seventy
percent (70%) of the combined voting
power of the outstanding Voting
Securities of the corporation resulting
from such merger or consolidation or
reorganization (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
Voting Securities immediately before
such merger, consolidation or
reorganization.
(B) the individuals who were members of the
Incumbent Board immediately prior to
the execution of the agreement
providing for such merger,
consolidation or reorganization
constitute at least two-thirds of the
members of the board of directors of
the Surviving Corporation, or a
corporation beneficially directly or
indirectly owning a majority of the
Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) the Company,
(ii) any Subsidiary, (iii) any employee
benefit plan (or any trust forming a
part thereof) maintained by the
Company, the Surviving Corporation, or
any Subsidiary, or (iv) any Person who,
immediately prior to such merger,
consolidation or reorganization had
Beneficial Ownership of thirty percent
(30%) or more of the then outstanding
Voting Securities), has Beneficial
Ownership of thirty percent (30%) or
more of the combined voting power of
the Surviving Corporation's then
outstanding Voting Securities.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other
disposition of all or substantially all of
the assets of the Company to any Person
other than (x) a transfer to a Subsidiary or
(y) a sale or transfer of a Subsidiary by
the Company except if such sale or transfer
would be a sale or other disposition of all
or substantially all of the assets of the
Company.
(4) Notwithstanding the foregoing, (i) a Change in
Control shall not be deemed to occur solely
because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted
amount of the then outstanding Common Stock as a
result of the acquisition of Common Stock by the
Company which, by reducing the number of shares of
Common Stock then outstanding, increases the
proportional number of shares Beneficially Owned
by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of
this sentence) as a result of the acquisition of
Common Stock by the Company, and after such stock
acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional
Common Stock which increases the percentage of the
then outstanding Common Stock Beneficially Owned
by the Subject Person, then a Change in Control
shall occur; and (ii) a Change in Control shall
not be deemed to occur unless and until all
regulatory approvals required to effect a Change
in Control of the Company have been obtained.
"EFFECTIVE DATE" shall mean the first date on which a
Change in Control occurs. The Effective Date does not
occur and no benefits shall be paid under this
Agreement if for any reason the Executive is not an
employee of the Company on the day prior to the
Effective Date.
"EMPLOYMENT TERM" shall mean a term of employment with
the Company which shall commence on the Effective Date
and which shall expire on the third anniversary of the
Effective Date; provided, however, that the Employment
Term shall in no event extend beyond the first day of
the month following the month in which the Executive
attains age sixty-five (65).
"GOOD CAUSE" means those events or conditions described
in paragraph 8(c)(i) through (vi) below.
"NOTICE OF TERMINATION" shall mean a notice which
indicates the specific termination provision in this
Agreement, if any, relied upon and shall set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's
employment under the provisions so indicated. Any
purported termination by the Company or Executive shall
be communicated by written notice of termination to the
other.
"PENSION EQUALIZATION PLAN" is the Company's pension
equalization plan as amended and restated effective
January 27, 1995, and as amended from time to time
thereafter prior to the Effetive Date.
"PENSION PLAN" is the Company's tax qualified defined
benefit pension plan as amended and restated effective
October 1, 1989, and as amended from time to time
thereafter prior to the Effective Date.
"REMAINING TERM" shall mean that period of time
measured from the Termination Date through the end of
the Employment Term.
"TERMINATION DATE" shall mean the date subsequent to a
Change in Control that the Executive's employment with
the Company terminates.
"WELFARE BENEFITS" shall mean the Black Hills
Corporation Medical and Dental Plan, the Black Hills
Corporation Flexible Benefit Plan, and the Black Hills
Corporation Employee Life and Long-Term Disability Plan
as the plans and the terms and conditions thereof exist
on the day prior to the Effective Date.
3. EMPLOYMENT.
Subject to the provisions of Section 8 hereof, during the
Employment Term, the Company agrees to continue to employ the
Executive and the Executive agrees to remain in the employ of the
Company. During the Employment Term, the Executive shall be
employed as the Controller of the Company or in such executive
capacity as may be mutually agreed to in writing by the parties.
Executive shall perform the duties, undertake the
responsibilities and exercise the authority customarily
performed, undertaken and exercised by persons situated in a
similar executive capacity.
During the Employment Term, excluding periods of vacation
and sick leave to which Executive is entitled, Executive agrees
to devote reasonable attention and time during usual business
hours to the business and affairs of the Company to the extent
necessary to discharge the responsibilities assigned to Executive
hereunder. It is expressly understood and agreed that to the
extent that any outside activities have been conducted by
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of
Executive's responsibilities to the Company.
4. COMPENSATION.
During the Employment Term, the Company agrees to pay or
cause to be paid to Executive annual compensation at a rate at
least equal to the highest rate of the Executive's annual
compensation as in effect at any time within one year preceding
the Effective Date, and as may be increased from time to time.
Such annual compensation shall be payable in accordance with the
Company's customary practices applicable to its executives. For
purposes of this Agreement, "annual compensation" shall mean all
compensation paid to the Executive by the Company during a
calendar year, which amounts are includable in the gross income
of the Executive for federal income tax purposes, including, but
not limited to, overtime, bonus, commission or incentive
compensation ("Annual Compensation").
5. EMPLOYEE WELFARE AND PENSION BENEFITS.
During the Employment Term, the Company shall provide to the
Executive the Welfare Benefits and the Pension Plan or other
substantially similar employee welfare and pension benefits, but
in no event on a basis less favorable in terms of benefit levels
and coverage than the Welfare Benefits and the Pension Plan.
6. PENSION EQUALIZATION PLAN.
During the Employment Term, the Company shall continue to
provide to Executive coverage and participation under the Pension
Equalization Plan or a substantially similar supplemental
retirement plan, but in no event on a basis less favorable in
terms of benefit levels and coverage than the Pension
Equalization Plan.
7. OTHER BENEFITS.
(a) Fringe Benefits, Perquisites, Vacation and Sick
Leave. During the Employment Term, Executive shall be entitled
to all fringe benefits, perquisites, vacation and sick leave
generally made available by the Company to its executives.
Unless otherwise provided herein, the fringe benefits,
perquisites, vacation and sick leave provided to Executive shall
be on the same basis and terms as other similarly situated
executives of the Company, but in no event shall be less
favorable than the most favorable fringe benefits, perquisites,
vacation and sick leave applicable to Executive at any time
within one year preceding the Effective Date, or if more
favorable, at any time thereafter.
(b) Expenses. Executive shall be entitled to receive
prompt reimbursement of all expenses reasonably incurred by him
in connection with the performance of his duties hereunder or for
promoting, pursuing or otherwise furthering the business or
interests of the Company.
8. TERMINATION.
During the Employment Term, Executive's employment hereunder
may be terminated under the following circumstances:
(a) Cause. The Company may terminate Executive's
employment for "Cause." A termination of employment is for
"Cause" if Executive (1) has been convicted of a felony or (2)
intentionally engaged in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of Executive's employment
shall be for Cause as set forth in clause (2) above until (i)
there shall have been delivered to Executive a copy of a written
notice setting forth that Executive was guilty of the conduct set
forth in clause (2) and specifying the particulars thereof in
detail, and (ii) Executive shall have been provided an
opportunity to be heard by the Board (with the assistance of
Executive's counsel if Executive so desires). No act, nor
failure to act, on Executive's part shall be considered
"intentional" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by Executive after a Notice of
Termination is given by Executive shall constitute Cause for
purposes of this Agreement.
(b) Disability. The Company may terminate Executive's
employment after having established Executive's Disability. For
purposes of this Agreement, "Disability" means a physical or
mental infirmity which impairs Executive's ability to
substantially perform his duties under this Agreement which
continues for a period of at least one hundred eighty (180)
consecutive days to be determined by a physician selected by
Company and acceptable to Executive. Executive shall be entitled
to the compensation and benefits provided for under this
Agreement for any period during Employment Term and prior to the
establishment of Executive's Disability during which Executive is
unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the
contrary, until the Termination Date specified in a Notice of
Termination relating to Executive's Disability, Executive shall
be entitled to return to his position with the Company as set
forth in this Agreement in which event no Disability of Executive
will be deemed to have occurred.
(c) Good Reason. During the Employment Term, the
Executive may terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean the
occurrence after the Effective Date of any of the events or
conditions described below:
(i) a change in the Executive's status, title,
position or responsibilities (including reporting
responsibilities), which, in the Executive's reasonable
judgment, represent an adverse change from his status,
title, position or responsibilities as in effect prior
to the Effective Date or any other action by the
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for
this purpose an isolated, unsubstantial and inadvertent
action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof by
Executive;
(ii) a reduction in the Executive's Annual
Compensation as defined in paragraph 4 or any failure
to pay the Executive any compensation or benefits to
which he is entitled within seven (7) days of the date
due;
(iii) any material breach by the Company of any
provision of this Agreement, including, but not limited
to, the Company's failure to provide the Employee
Welfare and Pension Benefits and Pension Equalization
Plan as set forth in paragraphs 5 and 6 above;
(iv) The Company's requiring the Executive to be
based outside a 50-mile radius from Rapid City, South
Dakota, except for reasonably required travel on the
Company's business which is not substantially greater
than such travel requirements prior to the Effective
Date;
(v) Any purported termination of the Executive's
employment for Cause by the Company which does not
comply with the terms of Section 8(a) above; or
(vi) The failure of the Company to obtain an
agreement, satisfactory to the Executive, from any
successor or assign of the Company to assume and agree
to perform this Agreement, as contemplated in Section
12 hereof.
(d) Voluntary Termination. The Executive may
voluntarily terminate his employment hereunder at any time.
9. COMPENSATION UPON TERMINATION.
Upon termination of Executive's employment during the
Employment Term, Executive shall be entitled to the following
benefits:
(a) If Executive's employment with the Company shall
be terminated (i) by the Company for Cause or Disability, or
(ii) by reason of Executive's death, or (iii) by Executive
without "Good Reason," the Company shall pay Executive all
amounts earned or accrued through the Termination Date but not
paid as of the Termination Date, including all Annual
Compensation, reimbursement for reasonable and necessary expenses
incurred by Executive on behalf of the Company during the period
ending on the Termination Date, vacation pay and sick leave
(collectively "Accrued Compensation").
(b) If the Executive's employment with the Company
shall be terminated (other than by reason of death) (i) by the
Company other than for Cause or Disability, or (ii) by Executive
for Good Reason, Executive shall be entitled to the following:
(i) The Company shall pay Executive all Accrued
Compensation;
(ii) The Company shall pay Executive as severance
pay and in lieu of any further compensation for periods
subsequent to the Termination Date an amount in cash
equal to (w) 2.99 times (x) the Executive's average
Annual Compensation for the most recent five taxable
years ending prior to the Change in Control times (y) a
ratio, the numerator of which shall be the number of
months in the Remaining Term (a partial month being
considered a full month) and the denominator of which
shall be the number of months in the Employment Term
times (z) a ratio, the numerator of which shall be the
number of months in the Employment Term and the
denominator of which shall be 36 months;
(iii) During the "Remaining Term," the Company
shall at its expense continue on behalf of Executive
and his dependents and beneficiaries the Welfare
Benefits or similar benefits no less favorable than the
benefit levels and coverages provided in the Welfare
Benefits; provided, however, that the Company's
obligation with respect to the foregoing benefits shall
be limited to the extent that Executive obtains any
such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the
coverage of any benefits it is required to provide
Executive hereunder so long as the aggregate coverages
and benefits of the combined benefit plans is no less
favorable to Executive than the Welfare Benefits;
(iv) Executive shall be entitled to an amount of
credited service for vesting purposes under the Pension
Equalization Plan equal to the period of time in the
Remaining Term, and it shall be assumed for purposes of
determining benefits under the Pension Equalization
Plan, that Executive's employment continued during the
Remaining Term at the compensation level provided for
in Section 4 above. In addition, the Executive shall
be entitled to a supplemental Pension Plan benefit,
which shall be the excess, if any, of (x) the amount
that Executive would have been entitled to receive
under the Pension Plan as if (i) Executive received
additional credited service under the Pension Plan for
the Remaining Term and (ii) Executive's Annual
Compensation as defined in Section 4 above remained in
effect during the Remaining Term over (y) the amount
that Executive will actually receive under the Pension
Plan. This supplemental benefit shall be determined
using the same factors, actuarial or otherwise, as used
in determining Executive's Pension Plan benefit and
shall be payable at like terms and in like manner as
the Pension Plan benefit. This supplemental benefit is
not payable unless and until the Executive receives
Pension Plan benefits.
10. OFFSET.
Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other
employment or otherwise, and except as provided in Section
9(b)(iii), such payments shall not be reduced whether or not
Executive obtains other employment.
11. TAX EFFECT.
Notwithstanding anything contained in this Agreement to the
contrary, if any payment received or to be received by Executive
pursuant to the terms of this Agreement or otherwise and in
connection with, or arising out of, Executive's employment with
the Company or a Change in Control ("Total Payments"), would not
be deductible by the Company (in whole or in part) as the result
of Section 280G of the Internal Revenue Code (the "Code"), the
amount determined under Section 9(b)(ii) shall be reduced until
no portion of the Total Payments is not nondeductible.
For purposes of determining whether any of the Total
Payments would not be deductible by the Company (1) Total
Payments will be treated as "Parachute Payments" within the
meaning of Section 280G(b)(2) of the Code and all Parachute
Payments in excess of the base amount within the meaning of
Section 280G(b)(3) will be treated as nondeductible unless, in
the opinion of tax counsel selected by the Company's independent
auditors and acceptable to Executive, such Total Payments (in
whole or in part) are not Parachute Payments, or such Parachute
Payments in excess of the base amount (in whole or in part) are
otherwise not nondeductible and (2) the value of any noncash
benefits or any deferred payment or benefit will be determined by
the Company's independent auditors in accordance with Section
280G(d)(3) and (4) of the Code.
12. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the
Company shall require any successor or assign to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession or assignment had taken place. The term
"Company" as used herein shall include such successors and
assigns. The term "successors and assigns" as used herein shall
mean a corporation or other entity acquiring all or substantially
all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the
laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal
personal representative.
13. FEES AND EXPENSES.
The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred
by the Executive subsequent to the Effective Date as they become
due as a result of the Executive seeking to obtain or enforce any
right or benefit provided by this Agreement.
14. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the
Notice of Termination) shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to
the other. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice
of change of address shall be effective only upon receipt.
15. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit Executive's
continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any
of its subsidiaries and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive
may have under any other agreements with the Company or any of
its subsidiaries. Amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be
payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
16. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Executive and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of South
Dakota.
20. SEVERABILITY.
The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions
hereof.
18. NO GUARANTEED EMPLOYMENT.
Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
Executive and the Company, the employment of Executive by the
Company is "at will" and, prior to the Effective Date, may be
terminated by either Executive or the Company at any time.
Moreover, if prior to the Effective Date, Executive's employment
with the Company terminates, Executive shall have no further
rights under this Agreement.
19. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof.
Dated the day and year first above written.
BLACK HILLS CORPORATION
By /c/Daniel P. Landguth
Chairman, President and Chief Executive
ATTEST:
/c/Roxann R. Basham
Secretary and Treasurer
By /c/Gary R. Fish
Executive
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of
January 30, 1996, is entered into by and between Black
Hills Corporation ("Company") and Everett E. Hoyt, President and
Chief Operating Officer, Black Hills Power and Light Company
("Executive").
1. RECITALS.
The Board of Directors of the Company ("Board") has
determined that it is in the best interests of the Company and
its shareholders to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change in Control (as defined below).
Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
2. CERTAIN DEFINITIONS.
"CHANGE IN CONTROL" shall mean any of the
following events:
(1) An acquisition (other than directly from the
Company) of any common stock of the Company (the
"Common Stock") by any "Person" (as the term
person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), immediately after
which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or
more of the Common Stock of the Company; provided,
however, in determining whether a Change in
Control has occurred, Common Stock which is
acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by
(A) the Company or (B) any corporation or other
Person of which a majority of its voting power or
its voting equity securities ("Voting Securities")
or equity interest is owned, directly or
indirectly, by the Company (for purposes of this
definition, a "Subsidiary"), (ii) the Company or
its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as
hereinafter defined);
(2) The individuals who, as of January 30, 1996 are
members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-
thirds of the members of the Board; provided,
however, that if the election, or nomination for
election by the Company's common shareholders, of
any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board;
provided further, however, that no individual
shall be considered a member of the Incumbent
Board if such individual initially assumed office
as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by shareholders of the Company of:
(i) A merger, consolidation or reorganization
involving the Company, unless such merger,
consolidation or reorganization is a "Non-
Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of the
Company where:
(A) the shareholders of the Company,
immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately
following such merger, consolidation or
reorganization, at least seventy
percent (70%) of the combined voting
power of the outstanding Voting
Securities of the corporation resulting
from such merger or consolidation or
reorganization (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
Voting Securities immediately before
such merger, consolidation or
reorganization.
(B) the individuals who were members of the
Incumbent Board immediately prior to
the execution of the agreement
providing for such merger,
consolidation or reorganization
constitute at least two-thirds of the
members of the board of directors of
the Surviving Corporation, or a
corporation beneficially directly or
indirectly owning a majority of the
Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) the Company,
(ii) any Subsidiary, (iii) any employee
benefit plan (or any trust forming a
part thereof) maintained by the
Company, the Surviving Corporation, or
any Subsidiary, or (iv) any Person who,
immediately prior to such merger,
consolidation or reorganization had
Beneficial Ownership of thirty percent
(30%) or more of the then outstanding
Voting Securities), has Beneficial
Ownership of thirty percent (30%) or
more of the combined voting power of
the Surviving Corporation's then
outstanding Voting Securities.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other
disposition of all or substantially all of
the assets of the Company to any Person
other than (x) a transfer to a Subsidiary or
(y) a sale or transfer of a Subsidiary by
the Company except if such sale or transfer
would be a sale or other disposition of all
or substantially all of the assets of the
Company.
(4) Notwithstanding the foregoing, (i) a Change in
Control shall not be deemed to occur solely
because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted
amount of the then outstanding Common Stock as a
result of the acquisition of Common Stock by the
Company which, by reducing the number of shares of
Common Stock then outstanding, increases the
proportional number of shares Beneficially Owned
by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of
this sentence) as a result of the acquisition of
Common Stock by the Company, and after such stock
acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional
Common Stock which increases the percentage of the
then outstanding Common Stock Beneficially Owned
by the Subject Person, then a Change in Control
shall occur; and (ii) a Change in Control shall
not be deemed to occur unless and until all
regulatory approvals required to effect a Change
in Control of the Company have been obtained.
"EFFECTIVE DATE" shall mean the first date on which a
Change in Control occurs. The Effective Date does not
occur and no benefits shall be paid under this
Agreement if for any reason the Executive is not an
employee of the Company on the day prior to the
Effective Date.
"EMPLOYMENT TERM" shall mean a term of employment with
the Company which shall commence on the Effective Date
and which shall expire on the third anniversary of the
Effective Date; provided, however, that the Employment
Term shall in no event extend beyond the first day of
the month following the month in which the Executive
attains age sixty-five (65).
"GOOD CAUSE" means those events or conditions described
in paragraph 8(c)(i) through (vi) below.
"NOTICE OF TERMINATION" shall mean a notice which
indicates the specific termination provision in this
Agreement, if any, relied upon and shall set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's
employment under the provisions so indicated. Any
purported termination by the Company or Executive shall
be communicated by written notice of termination to the
other.
"PENSION EQUALIZATION PLAN" is the Company's pension
equalization plan as amended and restated effective
January 27, 1995, and as amended from time to time
thereafter prior to the Effetive Date.
"PENSION PLAN" is the Company's tax qualified defined
benefit pension plan as amended and restated effective
October 1, 1989, and as amended from time to time
thereafter prior to the Effective Date.
"REMAINING TERM" shall mean that period of time
measured from the Termination Date through the end of
the Employment Term.
"TERMINATION DATE" shall mean the date subsequent to a
Change in Control that the Executive's employment with
the Company terminates.
"WELFARE BENEFITS" shall mean the Black Hills
Corporation Medical and Dental Plan, the Black Hills
Corporation Flexible Benefit Plan, and the Black Hills
Corporation Employee Life and Long-Term Disability Plan
as the plans and the terms and conditions thereof exist
on the day prior to the Effective Date.
3. EMPLOYMENT.
Subject to the provisions of Section 8 hereof, during the
Employment Term, the Company agrees to continue to employ the
Executive and the Executive agrees to remain in the employ of the
Company. During the Employment Term, the Executive shall be
employed as the President and Chief Operating Officer--Black
Hills Power and Light Company or in such executive capacity as
may be mutually agreed to in writing by the parties. Executive
shall perform the duties, undertake the responsibilities and
exercise the authority customarily performed, undertaken and
exercised by persons situated in a similar executive capacity.
During the Employment Term, excluding periods of vacation
and sick leave to which Executive is entitled, Executive agrees
to devote reasonable attention and time during usual business
hours to the business and affairs of the Company to the extent
necessary to discharge the responsibilities assigned to Executive
hereunder. It is expressly understood and agreed that to the
extent that any outside activities have been conducted by
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of
Executive's responsibilities to the Company.
4. COMPENSATION.
During the Employment Term, the Company agrees to pay or
cause to be paid to Executive annual compensation at a rate at
least equal to the highest rate of the Executive's annual
compensation as in effect at any time within one year preceding
the Effective Date, and as may be increased from time to time.
Such annual compensation shall be payable in accordance with the
Company's customary practices applicable to its executives. For
purposes of this Agreement, "annual compensation" shall mean all
compensation paid to the Executive by the Company during a
calendar year, which amounts are includable in the gross income
of the Executive for federal income tax purposes, including, but
not limited to, overtime, bonus, commission or incentive
compensation ("Annual Compensation").
5. EMPLOYEE WELFARE AND PENSION BENEFITS.
During the Employment Term, the Company shall provide to the
Executive the Welfare Benefits and the Pension Plan or other
substantially similar employee welfare and pension benefits, but
in no event on a basis less favorable in terms of benefit levels
and coverage than the Welfare Benefits and the Pension Plan.
6. PENSION EQUALIZATION PLAN.
During the Employment Term, the Company shall continue to
provide to Executive coverage and participation under the Pension
Equalization Plan or a substantially similar supplemental
retirement plan, but in no event on a basis less favorable in
terms of benefit levels and coverage than the Pension
Equalization Plan.
7. OTHER BENEFITS.
(a) Fringe Benefits, Perquisites, Vacation and Sick
Leave. During the Employment Term, Executive shall be entitled
to all fringe benefits, perquisites, vacation and sick leave
generally made available by the Company to its executives.
Unless otherwise provided herein, the fringe benefits,
perquisites, vacation and sick leave provided to Executive shall
be on the same basis and terms as other similarly situated
executives of the Company, but in no event shall be less
favorable than the most favorable fringe benefits, perquisites,
vacation and sick leave applicable to Executive at any time
within one year preceding the Effective Date, or if more
favorable, at any time thereafter.
(b) Expenses. Executive shall be entitled to receive
prompt reimbursement of all expenses reasonably incurred by him
in connection with the performance of his duties hereunder or for
promoting, pursuing or otherwise furthering the business or
interests of the Company.
8. TERMINATION.
During the Employment Term, Executive's employment hereunder
may be terminated under the following circumstances:
(a) Cause. The Company may terminate Executive's
employment for "Cause." A termination of employment is for
"Cause" if Executive (1) has been convicted of a felony or (2)
intentionally engaged in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of Executive's employment
shall be for Cause as set forth in clause (2) above until (i)
there shall have been delivered to Executive a copy of a written
notice setting forth that Executive was guilty of the conduct set
forth in clause (2) and specifying the particulars thereof in
detail, and (ii) Executive shall have been provided an
opportunity to be heard by the Board (with the assistance of
Executive's counsel if Executive so desires). No act, nor
failure to act, on Executive's part shall be considered
"intentional" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by Executive after a Notice of
Termination is given by Executive shall constitute Cause for
purposes of this Agreement.
(b) Disability. The Company may terminate Executive's
employment after having established Executive's Disability. For
purposes of this Agreement, "Disability" means a physical or
mental infirmity which impairs Executive's ability to
substantially perform his duties under this Agreement which
continues for a period of at least one hundred eighty (180)
consecutive days to be determined by a physician selected by
Company and acceptable to Executive. Executive shall be entitled
to the compensation and benefits provided for under this
Agreement for any period during Employment Term and prior to the
establishment of Executive's Disability during which Executive is
unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the
contrary, until the Termination Date specified in a Notice of
Termination relating to Executive's Disability, Executive shall
be entitled to return to his position with the Company as set
forth in this Agreement in which event no Disability of Executive
will be deemed to have occurred.
(c) Good Reason. During the Employment Term, the
Executive may terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean the
occurrence after the Effective Date of any of the events or
conditions described below:
(i) a change in the Executive's status, title,
position or responsibilities (including reporting
responsibilities), which, in the Executive's reasonable
judgment, represent an adverse change from his status,
title, position or responsibilities as in effect prior
to the Effective Date or any other action by the
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for
this purpose an isolated, unsubstantial and inadvertent
action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof by
Executive;
(ii) a reduction in the Executive's Annual
Compensation as defined in paragraph 4 or any failure
to pay the Executive any compensation or benefits to
which he is entitled within seven (7) days of the date
due;
(iii) any material breach by the Company of any
provision of this Agreement, including, but not limited
to, the Company's failure to provide the Employee
Welfare and Pension Benefits and Pension Equalization
Plan as set forth in paragraphs 5 and 6 above;
(iv) The Company's requiring the Executive to be
based outside a 50-mile radius from Rapid City, South
Dakota, except for reasonably required travel on the
Company's business which is not substantially greater
than such travel requirements prior to the Effective
Date;
(v) Any purported termination of the Executive's
employment for Cause by the Company which does not
comply with the terms of Section 8(a) above; or
(vi) The failure of the Company to obtain an
agreement, satisfactory to the Executive, from any
successor or assign of the Company to assume and agree
to perform this Agreement, as contemplated in Section
12 hereof.
(d) Voluntary Termination. The Executive may
voluntarily terminate his employment hereunder at any time.
9. COMPENSATION UPON TERMINATION.
Upon termination of Executive's employment during the
Employment Term, Executive shall be entitled to the following
benefits:
(a) If Executive's employment with the Company shall
be terminated (i) by the Company for Cause or Disability, or
(ii) by reason of Executive's death, or (iii) by Executive
without "Good Reason," the Company shall pay Executive all
amounts earned or accrued through the Termination Date but not
paid as of the Termination Date, including all Annual
Compensation, reimbursement for reasonable and necessary expenses
incurred by Executive on behalf of the Company during the period
ending on the Termination Date, vacation pay and sick leave
(collectively "Accrued Compensation").
(b) If the Executive's employment with the Company
shall be terminated (other than by reason of death) (i) by the
Company other than for Cause or Disability, or (ii) by Executive
for Good Reason, Executive shall be entitled to the following:
(i) The Company shall pay Executive all Accrued
Compensation;
(ii) The Company shall pay Executive as severance
pay and in lieu of any further compensation for periods
subsequent to the Termination Date an amount in cash
equal to (w) 2.99 times (x) the Executive's average
Annual Compensation for the most recent five taxable
years ending prior to the Change in Control times (y) a
ratio, the numerator of which shall be the number of
months in the Remaining Term (a partial month being
considered a full month) and the denominator of which
shall be the number of months in the Employment Term
times (z) a ratio, the numerator of which shall be the
number of months in the Employment Term and the
denominator of which shall be 36 months;
(iii) During the "Remaining Term," the Company
shall at its expense continue on behalf of Executive
and his dependents and beneficiaries the Welfare
Benefits or similar benefits no less favorable than the
benefit levels and coverages provided in the Welfare
Benefits; provided, however, that the Company's
obligation with respect to the foregoing benefits shall
be limited to the extent that Executive obtains any
such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the
coverage of any benefits it is required to provide
Executive hereunder so long as the aggregate coverages
and benefits of the combined benefit plans is no less
favorable to Executive than the Welfare Benefits;
(iv) Executive shall be entitled to an amount of
credited service for vesting purposes under the Pension
Equalization Plan equal to the period of time in the
Remaining Term, and it shall be assumed for purposes of
determining benefits under the Pension Equalization
Plan, that Executive's employment continued during the
Remaining Term at the compensation level provided for
in Section 4 above. In addition, the Executive shall
be entitled to a supplemental Pension Plan benefit,
which shall be the excess, if any, of (x) the amount
that Executive would have been entitled to receive
under the Pension Plan as if (i) Executive received
additional credited service under the Pension Plan for
the Remaining Term and (ii) Executive's Annual
Compensation as defined in Section 4 above remained in
effect during the Remaining Term over (y) the amount
that Executive will actually receive under the Pension
Plan. This supplemental benefit shall be determined
using the same factors, actuarial or otherwise, as used
in determining Executive's Pension Plan benefit and
shall be payable at like terms and in like manner as
the Pension Plan benefit. This supplemental benefit is
not payable unless and until the Executive receives
Pension Plan benefits.
10. OFFSET.
Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other
employment or otherwise, and except as provided in Section
9(b)(iii), such payments shall not be reduced whether or not
Executive obtains other employment.
11. TAX EFFECT.
Notwithstanding anything contained in this Agreement to the
contrary, if any payment received or to be received by Executive
pursuant to the terms of this Agreement or otherwise and in
connection with, or arising out of, Executive's employment with
the Company or a Change in Control ("Total Payments"), would not
be deductible by the Company (in whole or in part) as the result
of Section 280G of the Internal Revenue Code (the "Code"), the
amount determined under Section 9(b)(ii) shall be reduced until
no portion of the Total Payments is not nondeductible.
For purposes of determining whether any of the Total
Payments would not be deductible by the Company (1) Total
Payments will be treated as "Parachute Payments" within the
meaning of Section 280G(b)(2) of the Code and all Parachute
Payments in excess of the base amount within the meaning of
Section 280G(b)(3) will be treated as nondeductible unless, in
the opinion of tax counsel selected by the Company's independent
auditors and acceptable to Executive, such Total Payments (in
whole or in part) are not Parachute Payments, or such Parachute
Payments in excess of the base amount (in whole or in part) are
otherwise not nondeductible and (2) the value of any noncash
benefits or any deferred payment or benefit will be determined by
the Company's independent auditors in accordance with Section
280G(d)(3) and (4) of the Code.
12. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the
Company shall require any successor or assign to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession or assignment had taken place. The term
"Company" as used herein shall include such successors and
assigns. The term "successors and assigns" as used herein shall
mean a corporation or other entity acquiring all or substantially
all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the
laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal
personal representative.
13. FEES AND EXPENSES.
The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred
by the Executive subsequent to the Effective Date as they become
due as a result of the Executive seeking to obtain or enforce any
right or benefit provided by this Agreement.
14. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the
Notice of Termination) shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to
the other. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice
of change of address shall be effective only upon receipt.
15. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit Executive's
continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any
of its subsidiaries and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive
may have under any other agreements with the Company or any of
its subsidiaries. Amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be
payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
16. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Executive and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of South
Dakota.
20. SEVERABILITY.
The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions
hereof.
18. NO GUARANTEED EMPLOYMENT.
Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
Executive and the Company, the employment of Executive by the
Company is "at will" and, prior to the Effective Date, may be
terminated by either Executive or the Company at any time.
Moreover, if prior to the Effective Date, Executive's employment
with the Company terminates, Executive shall have no further
rights under this Agreement.
19. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof.
Dated the day and year first above written.
BLACK HILLS CORPORATION
By /c/Daniel P. Landguth
Chairman, President and Chief Executive
ATTEST:
/c/Roxann R. Basham
Secretary and Treasurer
By /c/Everett E. Hoyt
Executive
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of
January 30, 1996, is entered into by and between Black
Hills Corporation ("Company") and Daniel P. Landguth, President
and Chief Executive Officer of the Company ("Executive").
1. RECITALS.
The Board of Directors of the Company ("Board") has
determined that it is in the best interests of the Company and
its shareholders to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change in Control (as defined below).
Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
2. CERTAIN DEFINITIONS.
"CHANGE IN CONTROL" shall mean any of the
following events:
(1) An acquisition (other than directly from the
Company) of any common stock of the Company (the
"Common Stock") by any "Person" (as the term
person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), immediately after
which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or
more of the Common Stock of the Company; provided,
however, in determining whether a Change in
Control has occurred, Common Stock which is
acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by
(A) the Company or (B) any corporation or other
Person of which a majority of its voting power or
its voting equity securities ("Voting Securities")
or equity interest is owned, directly or
indirectly, by the Company (for purposes of this
definition, a "Subsidiary"), (ii) the Company or
its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as
hereinafter defined);
(2) The individuals who, as of January 30, 1996 are
members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-
thirds of the members of the Board; provided,
however, that if the election, or nomination for
election by the Company's common shareholders, of
any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board;
provided further, however, that no individual
shall be considered a member of the Incumbent
Board if such individual initially assumed office
as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by shareholders of the Company of:
(i) A merger, consolidation or reorganization
involving the Company, unless such merger,
consolidation or reorganization is a "Non-
Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of the
Company where:
(A) the shareholders of the Company,
immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately
following such merger, consolidation or
reorganization, at least seventy
percent (70%) of the combined voting
power of the outstanding Voting
Securities of the corporation resulting
from such merger or consolidation or
reorganization (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
Voting Securities immediately before
such merger, consolidation or
reorganization.
(B) the individuals who were members of the
Incumbent Board immediately prior to
the execution of the agreement
providing for such merger,
consolidation or reorganization
constitute at least two-thirds of the
members of the board of directors of
the Surviving Corporation, or a
corporation beneficially directly or
indirectly owning a majority of the
Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) the Company,
(ii) any Subsidiary, (iii) any employee
benefit plan (or any trust forming a
part thereof) maintained by the
Company, the Surviving Corporation, or
any Subsidiary, or (iv) any Person who,
immediately prior to such merger,
consolidation or reorganization had
Beneficial Ownership of thirty percent
(30%) or more of the then outstanding
Voting Securities), has Beneficial
Ownership of thirty percent (30%) or
more of the combined voting power of
the Surviving Corporation's then
outstanding Voting Securities.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other
disposition of all or substantially all of
the assets of the Company to any Person
other than (x) a transfer to a Subsidiary or
(y) a sale or transfer of a Subsidiary by
the Company except if such sale or transfer
would be a sale or other disposition of all
or substantially all of the assets of the
Company.
(4) Notwithstanding the foregoing, (i) a Change in
Control shall not be deemed to occur solely
because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted
amount of the then outstanding Common Stock as a
result of the acquisition of Common Stock by the
Company which, by reducing the number of shares of
Common Stock then outstanding, increases the
proportional number of shares Beneficially Owned
by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of
this sentence) as a result of the acquisition of
Common Stock by the Company, and after such stock
acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional
Common Stock which increases the percentage of the
then outstanding Common Stock Beneficially Owned
by the Subject Person, then a Change in Control
shall occur; and (ii) a Change in Control shall
not be deemed to occur unless and until all
regulatory approvals required to effect a Change
in Control of the Company have been obtained.
"EFFECTIVE DATE" shall mean the first date on which a
Change in Control occurs. The Effective Date does not
occur and no benefits shall be paid under this
Agreement if for any reason the Executive is not an
employee of the Company on the day prior to the
Effective Date.
"EMPLOYMENT TERM" shall mean a term of employment with
the Company which shall commence on the Effective Date
and which shall expire on the third anniversary of the
Effective Date; provided, however, that the Employment
Term shall in no event extend beyond the first day of
the month following the month in which the Executive
attains age sixty-five (65).
"GOOD CAUSE" means those events or conditions described
in paragraph 8(c)(i) through (vi) below.
"NOTICE OF TERMINATION" shall mean a notice which
indicates the specific termination provision in this
Agreement, if any, relied upon and shall set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's
employment under the provisions so indicated. Any
purported termination by the Company or Executive shall
be communicated by written notice of termination to the
other.
"PENSION EQUALIZATION PLAN" is the Company's pension
equalization plan as amended and restated effective
January 27, 1995, and as amended from time to time
thereafter prior to the Effective Date.
"PENSION PLAN" is the Company's tax qualified defined
benefit pension plan as amended and restated effective
October 1, 1989, and as amended from time to time
thereafter prior to the Effective Date.
"REMAINING TERM" shall mean that period of time
measured from the Termination Date through the end of
the Employment Term.
"TERMINATION DATE" shall mean the date subsequent to a
Change in Control that the Executive's employment with
the Company terminates.
"WELFARE BENEFITS" shall mean the Black Hills
Corporation Medical and Dental Plan, the Black Hills
Corporation Flexible Benefit Plan, and the Black Hills
Corporation Employee Life and Long-Term Disability Plan
as the plans and the terms and conditions thereof exist
on the day prior to the Effective Date.
3. EMPLOYMENT.
Subject to the provisions of Section 8 hereof, during the
Employment Term, the Company agrees to continue to employ the
Executive and the Executive agrees to remain in the employ of the
Company. During the Employment Term, the Executive shall be
employed as the President and Chief Executive Officer of the
Company or in such executive capacity as may be mutually agreed
to in writing by the parties. Executive shall perform the
duties, undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons
situated in a similar executive capacity.
During the Employment Term, excluding periods of vacation
and sick leave to which Executive is entitled, Executive agrees
to devote reasonable attention and time during usual business
hours to the business and affairs of the Company to the extent
necessary to discharge the responsibilities assigned to Executive
hereunder. It is expressly understood and agreed that to the
extent that any outside activities have been conducted by
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of
Executive's responsibilities to the Company.
4. COMPENSATION.
During the Employment Term, the Company agrees to pay or
cause to be paid to Executive annual compensation at a rate at
least equal to the highest rate of the Executive's annual
compensation as in effect at any time within one year preceding
the Effective Date, and as may be increased from time to time.
Such annual compensation shall be payable in accordance with the
Company's customary practices applicable to its executives. For
purposes of this Agreement, "annual compensation" shall mean all
compensation paid to the Executive by the Company during a
calendar year, which amounts are includable in the gross income
of the Executive for federal income tax purposes, including, but
not limited to, overtime, bonus, commission or incentive
compensation ("Annual Compensation").
5. EMPLOYEE WELFARE AND PENSION BENEFITS.
During the Employment Term, the Company shall provide to the
Executive the Welfare Benefits and the Pension Plan or other
substantially similar employee welfare and pension benefits, but
in no event on a basis less favorable in terms of benefit levels
and coverage than the Welfare Benefits and the Pension Plan.
6. PENSION EQUALIZATION PLAN.
During the Employment Term, the Company shall continue to
provide to Executive coverage and participation under the Pension
Equalization Plan or a substantially similar supplemental
retirement plan, but in no event on a basis less favorable in
terms of benefit levels and coverage than the Pension
Equalization Plan.
7. OTHER BENEFITS.
(a) Fringe Benefits, Perquisites, Vacation and Sick
Leave. During the Employment Term, Executive shall be entitled
to all fringe benefits, perquisites, vacation and sick leave
generally made available by the Company to its executives.
Unless otherwise provided herein, the fringe benefits,
perquisites, vacation and sick leave provided to Executive shall
be on the same basis and terms as other similarly situated
executives of the Company, but in no event shall be less
favorable than the most favorable fringe benefits, perquisites,
vacation and sick leave applicable to Executive at any time
within one year preceding the Effective Date, or if more
favorable, at any time thereafter.
(b) Expenses. Executive shall be entitled to receive
prompt reimbursement of all expenses reasonably incurred by him
in connection with the performance of his duties hereunder or for
promoting, pursuing or otherwise furthering the business or
interests of the Company.
8. TERMINATION.
During the Employment Term, Executive's employment hereunder
may be terminated under the following circumstances:
(a) Cause. The Company may terminate Executive's
employment for "Cause." A termination of employment is for
"Cause" if Executive (1) has been convicted of a felony or (2)
intentionally engaged in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of Executive's employment
shall be for Cause as set forth in clause (2) above until (i)
there shall have been delivered to Executive a copy of a written
notice setting forth that Executive was guilty of the conduct set
forth in clause (2) and specifying the particulars thereof in
detail, and (ii) Executive shall have been provided an
opportunity to be heard by the Board (with the assistance of
Executive's counsel if Executive so desires). No act, nor
failure to act, on Executive's part shall be considered
"intentional" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by Executive after a Notice of
Termination is given by Executive shall constitute Cause for
purposes of this Agreement.
(b) Disability. The Company may terminate Executive's
employment after having established Executive's Disability. For
purposes of this Agreement, "Disability" means a physical or
mental infirmity which impairs Executive's ability to
substantially perform his duties under this Agreement which
continues for a period of at least one hundred eighty (180)
consecutive days to be determined by a physician selected by
Company and acceptable to Executive. Executive shall be entitled
to the compensation and benefits provided for under this
Agreement for any period during Employment Term and prior to the
establishment of Executive's Disability during which Executive is
unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the
contrary, until the Termination Date specified in a Notice of
Termination relating to Executive's Disability, Executive shall
be entitled to return to his position with the Company as set
forth in this Agreement in which event no Disability of Executive
will be deemed to have occurred.
(c) Good Reason. During the Employment Term, the
Executive may terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean the
occurrence after the Effective Date of any of the events or
conditions described below:
(i) a change in the Executive's status, title,
position or responsibilities (including reporting
responsibilities), which, in the Executive's reasonable
judgment, represent an adverse change from his status,
title, position or responsibilities as in effect prior
to the Effective Date or any other action by the
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for
this purpose an isolated, unsubstantial and inadvertent
action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof by
Executive;
(ii) a reduction in the Executive's Annual
Compensation as defined in paragraph 4 or any failure
to pay the Executive any compensation or benefits to
which he is entitled within seven (7) days of the date
due;
(iii) any material breach by the Company of any
provision of this Agreement, including, but not limited
to, the Company's failure to provide the Employee
Welfare and Pension Benefits and Pension Equalization
Plan as set forth in paragraphs 5 and 6 above;
(iv) The Company's requiring the Executive to be
based outside a 50-mile radius from Rapid City, South
Dakota, except for reasonably required travel on the
Company's business which is not substantially greater
than such travel requirements prior to the Effective
Date;
(v) Any purported termination of the Executive's
employment for Cause by the Company which does not
comply with the terms of Section 8(a) above; or
(vi) The failure of the Company to obtain an
agreement, satisfactory to the Executive, from any
successor or assign of the Company to assume and agree
to perform this Agreement, as contemplated in Section
12 hereof.
(d) Window Period. During the Window Period, the
Executive may terminate his employment for any reason. For
purposes of this Agreement, the "Window Period" shall mean the
30-day period immediately following the first anniversary of the
Effective Date.
(e) Voluntary Termination. The Executive may
voluntarily terminate his employment hereunder at any time.
9. COMPENSATION UPON TERMINATION.
Upon termination of Executive's employment during the
Employment Term, Executive shall be entitled to the following
benefits:
(a) If Executive's employment with the Company shall
be terminated (i) by the Company for Cause or Disability, or
(ii) by reason of Executive's death, or (iii) by Executive
without "Good Reason" or other than during the "Window Period",
the Company shall pay Executive all amounts earned or accrued
through the Termination Date but not paid as of the Termination
Date, including all Annual Compensation, reimbursement for
reasonable and necessary expenses incurred by Executive on behalf
of the Company during the period ending on the Termination Date,
vacation pay and sick leave (collectively "Accrued
Compensation").
(b) If the Executive's employment with the Company
shall be terminated (other than by reason of death) (i) by the
Company other than for Cause or Disability, or (ii) by Executive
for Good Reason or (iii) by the Executive for any reason during
the Window Period, Executive shall be entitled to the following:
(i) The Company shall pay Executive all Accrued
Compensation;
(ii) The Company shall pay Executive as severance
pay and in lieu of any further compensation for periods
subsequent to the Termination Date an amount in cash
equal to (w) 2.99 times (x) the Executive's average
Annual Compensation for the most recent five taxable
years ending prior to the Change in Control times (y) a
ratio, the numerator of which shall be the number of
months in the Remaining Term (a partial month being
considered a full month) and the denominator of which
shall be the number of months in the Employment Term
times (z) a ratio, the numerator of which shall be the
number of months in the Employment Term and the
denominator of which shall be 36 months;
(iii) During the "Remaining Term," the Company
shall at its expense continue on behalf of Executive
and his dependents and beneficiaries the Welfare
Benefits or similar benefits no less favorable than the
benefit levels and coverages provided in the Welfare
Benefits; provided, however, that the Company's
obligation with respect to the foregoing benefits shall
be limited to the extent that Executive obtains any
such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the
coverage of any benefits it is required to provide
Executive hereunder so long as the aggregate coverages
and benefits of the combined benefit plans is no less
favorable to Executive than the Welfare Benefits;
(iv) Executive shall be entitled to an amount of
credited service for vesting purposes under the Pension
Equalization Plan equal to the period of time in the
Remaining Term, and it shall be assumed for purposes of
determining benefits under the Pension Equalization
Plan, that Executive's employment continued during the
Remaining Term at the compensation level provided for
in Section 4 above. In addition, the Executive shall
be entitled to a supplemental Pension Plan benefit,
which shall be the excess, if any, of (x) the amount
that Executive would have been entitled to receive
under the Pension Plan as if (i) Executive received
additional credited service under the Pension Plan for
the Remaining Term and (ii) Executive's Annual
Compensation as defined in Section 4 above remained in
effect during the Remaining Term over (y) the amount
that Executive will actually receive under the Pension
Plan. This supplemental benefit shall be determined
using the same factors, actuarial or otherwise, as used
in determining Executive's Pension Plan benefit and
shall be payable at like terms and in like manner as
the Pension Plan benefit. This supplemental benefit is
not payable unless and until the Executive receives
Pension Plan benefits.
10. OFFSET.
Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other
employment or otherwise, and except as provided in Section
9(b)(iii), such payments shall not be reduced whether or not
Executive obtains other employment.
11. TAX EFFECT.
Notwithstanding anything contained in this Agreement to the
contrary, if any payment received or to be received by Executive
pursuant to the terms of this Agreement or otherwise and in
connection with, or arising out of, Executive's employment with
the Company or a Change in Control ("Total Payments"), would not
be deductible by the Company (in whole or in part) as the result
of Section 280G of the Internal Revenue Code (the "Code"), the
amount determined under Section 9(b)(ii) shall be reduced until
no portion of the Total Payments is not nondeductible.
For purposes of determining whether any of the Total
Payments would not be deductible by the Company (1) Total
Payments will be treated as "Parachute Payments" within the
meaning of Section 280G(b)(2) of the Code and all Parachute
Payments in excess of the base amount within the meaning of
Section 280G(b)(3) will be treated as nondeductible unless, in
the opinion of tax counsel selected by the Company's independent
auditors and acceptable to Executive, such Total Payments (in
whole or in part) are not Parachute Payments, or such Parachute
Payments in excess of the base amount (in whole or in part) are
otherwise not nondeductible and (2) the value of any noncash
benefits or any deferred payment or benefit will be determined by
the Company's independent auditors in accordance with Section
280G(d)(3) and (4) of the Code.
12. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the
Company shall require any successor or assign to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession or assignment had taken place. The term
"Company" as used herein shall include such successors and
assigns. The term "successors and assigns" as used herein shall
mean a corporation or other entity acquiring all or substantially
all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the
laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal
personal representative.
13. FEES AND EXPENSES.
The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred
by the Executive subsequent to the Effective Date as they become
due as a result of the Executive seeking to obtain or enforce any
right or benefit provided by this Agreement.
14. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the
Notice of Termination) shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to
the other. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice
of change of address shall be effective only upon receipt.
15. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit Executive's
continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any
of its subsidiaries and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive
may have under any other agreements with the Company or any of
its subsidiaries. Amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be
payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
16. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Executive and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of South
Dakota.
20. SEVERABILITY.
The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions
hereof.
18. NO GUARANTEED EMPLOYMENT.
Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
Executive and the Company, the employment of Executive by the
Company is "at will" and, prior to the Effective Date, may be
terminated by either Executive or the Company at any time.
Moreover, if prior to the Effective Date, Executive's employment
with the Company terminates, Executive shall have no further
rights under this Agreement.
19. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof.
Dated the day and year first above written.
BLACK HILLS CORPORATION
By /c/Dale E. Clement
Senior Vice President - Finance
ATTEST:
/c/Roxann R. Basham
Secretary and Treasurer
By /c/Daniel P. Landguth
Executive
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of
January 30, 1996, is entered into by and between Black
Hills Corporation ("Company") and James Mattern, Vice President -
Administration ("Executive").
1. RECITALS.
The Board of Directors of the Company ("Board") has
determined that it is in the best interests of the Company and
its shareholders to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change in Control (as defined below).
Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
2. CERTAIN DEFINITIONS.
"CHANGE IN CONTROL" shall mean any of the
following events:
(1) An acquisition (other than directly from the
Company) of any common stock of the Company (the
"Common Stock") by any "Person" (as the term
person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), immediately after
which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or
more of the Common Stock of the Company; provided,
however, in determining whether a Change in
Control has occurred, Common Stock which is
acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by
(A) the Company or (B) any corporation or other
Person of which a majority of its voting power or
its voting equity securities ("Voting Securities")
or equity interest is owned, directly or
indirectly, by the Company (for purposes of this
definition, a "Subsidiary"), (ii) the Company or
its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as
hereinafter defined);
(2) The individuals who, as of January 30, 1996 are
members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-
thirds of the members of the Board; provided,
however, that if the election, or nomination for
election by the Company's common shareholders, of
any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board;
provided further, however, that no individual
shall be considered a member of the Incumbent
Board if such individual initially assumed office
as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by shareholders of the Company of:
(i) A merger, consolidation or reorganization
involving the Company, unless such merger,
consolidation or reorganization is a "Non-
Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of the
Company where:
(A) the shareholders of the Company,
immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately
following such merger, consolidation or
reorganization, at least seventy
percent (70%) of the combined voting
power of the outstanding Voting
Securities of the corporation resulting
from such merger or consolidation or
reorganization (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
Voting Securities immediately before
such merger, consolidation or
reorganization.
(B) the individuals who were members of the
Incumbent Board immediately prior to
the execution of the agreement
providing for such merger,
consolidation or reorganization
constitute at least two-thirds of the
members of the board of directors of
the Surviving Corporation, or a
corporation beneficially directly or
indirectly owning a majority of the
Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) the Company,
(ii) any Subsidiary, (iii) any employee
benefit plan (or any trust forming a
part thereof) maintained by the
Company, the Surviving Corporation, or
any Subsidiary, or (iv) any Person who,
immediately prior to such merger,
consolidation or reorganization had
Beneficial Ownership of thirty percent
(30%) or more of the then outstanding
Voting Securities), has Beneficial
Ownership of thirty percent (30%) or
more of the combined voting power of
the Surviving Corporation's then
outstanding Voting Securities.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other
disposition of all or substantially all of
the assets of the Company to any Person
other than (x) a transfer to a Subsidiary or
(y) a sale or transfer of a Subsidiary by
the Company except if such sale or transfer
would be a sale or other disposition of all
or substantially all of the assets of the
Company.
(4) Notwithstanding the foregoing, (i) a Change in
Control shall not be deemed to occur solely
because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted
amount of the then outstanding Common Stock as a
result of the acquisition of Common Stock by the
Company which, by reducing the number of shares of
Common Stock then outstanding, increases the
proportional number of shares Beneficially Owned
by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of
this sentence) as a result of the acquisition of
Common Stock by the Company, and after such stock
acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional
Common Stock which increases the percentage of the
then outstanding Common Stock Beneficially Owned
by the Subject Person, then a Change in Control
shall occur; and (ii) a Change in Control shall
not be deemed to occur unless and until all
regulatory approvals required to effect a Change
in Control of the Company have been obtained.
"EFFECTIVE DATE" shall mean the first date on which a
Change in Control occurs. The Effective Date does not
occur and no benefits shall be paid under this
Agreement if for any reason the Executive is not an
employee of the Company on the day prior to the
Effective Date.
"EMPLOYMENT TERM" shall mean a term of employment with
the Company which shall commence on the Effective Date
and which shall expire on the third anniversary of the
Effective Date; provided, however, that the Employment
Term shall in no event extend beyond the first day of
the month following the month in which the Executive
attains age sixty-five (65).
"GOOD CAUSE" means those events or conditions described
in paragraph 8(c)(i) through (vi) below.
"NOTICE OF TERMINATION" shall mean a notice which
indicates the specific termination provision in this
Agreement, if any, relied upon and shall set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's
employment under the provisions so indicated. Any
purported termination by the Company or Executive shall
be communicated by written notice of termination to the
other.
"PENSION EQUALIZATION PLAN" is the Company's pension
equalization plan as amended and restated effective
January 27, 1995, and as amended from time to time
thereafter prior to the Effetive Date.
"PENSION PLAN" is the Company's tax qualified defined
benefit pension plan as amended and restated effective
October 1, 1989, and as amended from time to time
thereafter prior to the Effective Date.
"REMAINING TERM" shall mean that period of time
measured from the Termination Date through the end of
the Employment Term.
"TERMINATION DATE" shall mean the date subsequent to a
Change in Control that the Executive's employment with
the Company terminates.
"WELFARE BENEFITS" shall mean the Black Hills
Corporation Medical and Dental Plan, the Black Hills
Corporation Flexible Benefit Plan, and the Black Hills
Corporation Employee Life and Long-Term Disability Plan
as the plans and the terms and conditions thereof exist
on the day prior to the Effective Date.
3. EMPLOYMENT.
Subject to the provisions of Section 8 hereof, during the
Employment Term, the Company agrees to continue to employ the
Executive and the Executive agrees to remain in the employ of the
Company. During the Employment Term, the Executive shall be
employed as the Vice President - Administration of the Company or
in such executive capacity as may be mutually agreed to in
writing by the parties. Executive shall perform the duties,
undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons
situated in a similar executive capacity.
During the Employment Term, excluding periods of vacation
and sick leave to which Executive is entitled, Executive agrees
to devote reasonable attention and time during usual business
hours to the business and affairs of the Company to the extent
necessary to discharge the responsibilities assigned to Executive
hereunder. It is expressly understood and agreed that to the
extent that any outside activities have been conducted by
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of
Executive's responsibilities to the Company.
4. COMPENSATION.
During the Employment Term, the Company agrees to pay or
cause to be paid to Executive annual compensation at a rate at
least equal to the highest rate of the Executive's annual
compensation as in effect at any time within one year preceding
the Effective Date, and as may be increased from time to time.
Such annual compensation shall be payable in accordance with the
Company's customary practices applicable to its executives. For
purposes of this Agreement, "annual compensation" shall mean all
compensation paid to the Executive by the Company during a
calendar year, which amounts are includable in the gross income
of the Executive for federal income tax purposes, including, but
not limited to, overtime, bonus, commission or incentive
compensation ("Annual Compensation").
5. EMPLOYEE WELFARE AND PENSION BENEFITS.
During the Employment Term, the Company shall provide to the
Executive the Welfare Benefits and the Pension Plan or other
substantially similar employee welfare and pension benefits, but
in no event on a basis less favorable in terms of benefit levels
and coverage than the Welfare Benefits and the Pension Plan.
6. PENSION EQUALIZATION PLAN.
During the Employment Term, the Company shall continue to
provide to Executive coverage and participation under the Pension
Equalization Plan or a substantially similar supplemental
retirement plan, but in no event on a basis less favorable in
terms of benefit levels and coverage than the Pension
Equalization Plan.
7. OTHER BENEFITS.
(a) Fringe Benefits, Perquisites, Vacation and Sick
Leave. During the Employment Term, Executive shall be entitled
to all fringe benefits, perquisites, vacation and sick leave
generally made available by the Company to its executives.
Unless otherwise provided herein, the fringe benefits,
perquisites, vacation and sick leave provided to Executive shall
be on the same basis and terms as other similarly situated
executives of the Company, but in no event shall be less
favorable than the most favorable fringe benefits, perquisites,
vacation and sick leave applicable to Executive at any time
within one year preceding the Effective Date, or if more
favorable, at any time thereafter.
(b) Expenses. Executive shall be entitled to receive
prompt reimbursement of all expenses reasonably incurred by him
in connection with the performance of his duties hereunder or for
promoting, pursuing or otherwise furthering the business or
interests of the Company.
8. TERMINATION.
During the Employment Term, Executive's employment hereunder
may be terminated under the following circumstances:
(a) Cause. The Company may terminate Executive's
employment for "Cause." A termination of employment is for
"Cause" if Executive (1) has been convicted of a felony or (2)
intentionally engaged in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of Executive's employment
shall be for Cause as set forth in clause (2) above until (i)
there shall have been delivered to Executive a copy of a written
notice setting forth that Executive was guilty of the conduct set
forth in clause (2) and specifying the particulars thereof in
detail, and (ii) Executive shall have been provided an
opportunity to be heard by the Board (with the assistance of
Executive's counsel if Executive so desires). No act, nor
failure to act, on Executive's part shall be considered
"intentional" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by Executive after a Notice of
Termination is given by Executive shall constitute Cause for
purposes of this Agreement.
(b) Disability. The Company may terminate Executive's
employment after having established Executive's Disability. For
purposes of this Agreement, "Disability" means a physical or
mental infirmity which impairs Executive's ability to
substantially perform his duties under this Agreement which
continues for a period of at least one hundred eighty (180)
consecutive days to be determined by a physician selected by
Company and acceptable to Executive. Executive shall be entitled
to the compensation and benefits provided for under this
Agreement for any period during Employment Term and prior to the
establishment of Executive's Disability during which Executive is
unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the
contrary, until the Termination Date specified in a Notice of
Termination relating to Executive's Disability, Executive shall
be entitled to return to his position with the Company as set
forth in this Agreement in which event no Disability of Executive
will be deemed to have occurred.
(c) Good Reason. During the Employment Term, the
Executive may terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean the
occurrence after the Effective Date of any of the events or
conditions described below:
(i) a change in the Executive's status, title,
position or responsibilities (including reporting
responsibilities), which, in the Executive's reasonable
judgment, represent an adverse change from his status,
title, position or responsibilities as in effect prior
to the Effective Date or any other action by the
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for
this purpose an isolated, unsubstantial and inadvertent
action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof by
Executive;
(ii) a reduction in the Executive's Annual
Compensation as defined in paragraph 4 or any failure
to pay the Executive any compensation or benefits to
which he is entitled within seven (7) days of the date
due;
(iii) any material breach by the Company of any
provision of this Agreement, including, but not limited
to, the Company's failure to provide the Employee
Welfare and Pension Benefits and Pension Equalization
Plan as set forth in paragraphs 5 and 6 above;
(iv) The Company's requiring the Executive to be
based outside a 50-mile radius from Rapid City, South
Dakota, except for reasonably required travel on the
Company's business which is not substantially greater
than such travel requirements prior to the Effective
Date;
(v) Any purported termination of the Executive's
employment for Cause by the Company which does not
comply with the terms of Section 8(a) above; or
(vi) The failure of the Company to obtain an
agreement, satisfactory to the Executive, from any
successor or assign of the Company to assume and agree
to perform this Agreement, as contemplated in Section
12 hereof.
(d) Voluntary Termination. The Executive may
voluntarily terminate his employment hereunder at any time.
9. COMPENSATION UPON TERMINATION.
Upon termination of Executive's employment during the
Employment Term, Executive shall be entitled to the following
benefits:
(a) If Executive's employment with the Company shall
be terminated (i) by the Company for Cause or Disability, or
(ii) by reason of Executive's death, or (iii) by Executive
without "Good Reason," the Company shall pay Executive all
amounts earned or accrued through the Termination Date but not
paid as of the Termination Date, including all Annual
Compensation, reimbursement for reasonable and necessary expenses
incurred by Executive on behalf of the Company during the period
ending on the Termination Date, vacation pay and sick leave
(collectively "Accrued Compensation").
(b) If the Executive's employment with the Company
shall be terminated (other than by reason of death) (i) by the
Company other than for Cause or Disability, or (ii) by Executive
for Good Reason, Executive shall be entitled to the following:
(i) The Company shall pay Executive all Accrued
Compensation;
(ii) The Company shall pay Executive as severance
pay and in lieu of any further compensation for periods
subsequent to the Termination Date an amount in cash
equal to (w) 2.99 times (x) the Executive's average
Annual Compensation for the most recent five taxable
years ending prior to the Change in Control times (y) a
ratio, the numerator of which shall be the number of
months in the Remaining Term (a partial month being
considered a full month) and the denominator of which
shall be the number of months in the Employment Term
times (z) a ratio, the numerator of which shall be the
number of months in the Employment Term and the
denominator of which shall be 36 months;
(iii) During the "Remaining Term," the Company
shall at its expense continue on behalf of Executive
and his dependents and beneficiaries the Welfare
Benefits or similar benefits no less favorable than the
benefit levels and coverages provided in the Welfare
Benefits; provided, however, that the Company's
obligation with respect to the foregoing benefits shall
be limited to the extent that Executive obtains any
such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the
coverage of any benefits it is required to provide
Executive hereunder so long as the aggregate coverages
and benefits of the combined benefit plans is no less
favorable to Executive than the Welfare Benefits;
(iv) Executive shall be entitled to an amount of
credited service for vesting purposes under the Pension
Equalization Plan equal to the period of time in the
Remaining Term, and it shall be assumed for purposes of
determining benefits under the Pension Equalization
Plan, that Executive's employment continued during the
Remaining Term at the compensation level provided for
in Section 4 above. In addition, the Executive shall
be entitled to a supplemental Pension Plan benefit,
which shall be the excess, if any, of (x) the amount
that Executive would have been entitled to receive
under the Pension Plan as if (i) Executive received
additional credited service under the Pension Plan for
the Remaining Term and (ii) Executive's Annual
Compensation as defined in Section 4 above remained in
effect during the Remaining Term over (y) the amount
that Executive will actually receive under the Pension
Plan. This supplemental benefit shall be determined
using the same factors, actuarial or otherwise, as used
in determining Executive's Pension Plan benefit and
shall be payable at like terms and in like manner as
the Pension Plan benefit. This supplemental benefit is
not payable unless and until the Executive receives
Pension Plan benefits.
10. OFFSET.
Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other
employment or otherwise, and except as provided in Section
9(b)(iii), such payments shall not be reduced whether or not
Executive obtains other employment.
11. TAX EFFECT.
Notwithstanding anything contained in this Agreement to the
contrary, if any payment received or to be received by Executive
pursuant to the terms of this Agreement or otherwise and in
connection with, or arising out of, Executive's employment with
the Company or a Change in Control ("Total Payments"), would not
be deductible by the Company (in whole or in part) as the result
of Section 280G of the Internal Revenue Code (the "Code"), the
amount determined under Section 9(b)(ii) shall be reduced until
no portion of the Total Payments is not nondeductible.
For purposes of determining whether any of the Total
Payments would not be deductible by the Company (1) Total
Payments will be treated as "Parachute Payments" within the
meaning of Section 280G(b)(2) of the Code and all Parachute
Payments in excess of the base amount within the meaning of
Section 280G(b)(3) will be treated as nondeductible unless, in
the opinion of tax counsel selected by the Company's independent
auditors and acceptable to Executive, such Total Payments (in
whole or in part) are not Parachute Payments, or such Parachute
Payments in excess of the base amount (in whole or in part) are
otherwise not nondeductible and (2) the value of any noncash
benefits or any deferred payment or benefit will be determined by
the Company's independent auditors in accordance with Section
280G(d)(3) and (4) of the Code.
12. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the
Company shall require any successor or assign to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession or assignment had taken place. The term
"Company" as used herein shall include such successors and
assigns. The term "successors and assigns" as used herein shall
mean a corporation or other entity acquiring all or substantially
all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the
laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal
personal representative.
13. FEES AND EXPENSES.
The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred
by the Executive subsequent to the Effective Date as they become
due as a result of the Executive seeking to obtain or enforce any
right or benefit provided by this Agreement.
14. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the
Notice of Termination) shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to
the other. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice
of change of address shall be effective only upon receipt.
15. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit Executive's
continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any
of its subsidiaries and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive
may have under any other agreements with the Company or any of
its subsidiaries. Amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be
payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
16. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Executive and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of South
Dakota.
20. SEVERABILITY.
The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions
hereof.
18. NO GUARANTEED EMPLOYMENT.
Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
Executive and the Company, the employment of Executive by the
Company is "at will" and, prior to the Effective Date, may be
terminated by either Executive or the Company at any time.
Moreover, if prior to the Effective Date, Executive's employment
with the Company terminates, Executive shall have no further
rights under this Agreement.
19. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof.
Dated the day and year first above written.
BLACK HILLS CORPORATION
By /c/Daniel P. Landguth
Chairman, President and Chief Executive
ATTEST:
/c/Roxann R. Basham
Secretary and Treasurer
By /c/James M. Mattern
Executive
<PAGE>
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of
January 30, 1996, is entered into by and between Black
Hills Corporation ("Company") and Thomas M. Ohlmacher, Vice
President - Power Supply ("Executive").
1. RECITALS.
The Board of Directors of the Company ("Board") has
determined that it is in the best interests of the Company and
its shareholders to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change in Control (as defined below).
Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
2. CERTAIN DEFINITIONS.
"CHANGE IN CONTROL" shall mean any of the
following events:
(1) An acquisition (other than directly from the
Company) of any common stock of the Company (the
"Common Stock") by any "Person" (as the term
person is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), immediately after
which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of thirty percent (30%) or
more of the Common Stock of the Company; provided,
however, in determining whether a Change in
Control has occurred, Common Stock which is
acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control.
A "Non-Control Acquisition" shall mean an
acquisition by (i) an employee benefit plan (or a
trust forming a part thereof) maintained by
(A) the Company or (B) any corporation or other
Person of which a majority of its voting power or
its voting equity securities ("Voting Securities")
or equity interest is owned, directly or
indirectly, by the Company (for purposes of this
definition, a "Subsidiary"), (ii) the Company or
its Subsidiaries, or (iii) any Person in
connection with a "Non-Control Transaction" (as
hereinafter defined);
(2) The individuals who, as of January 30, 1996 are
members of the Board (the "Incumbent Board"),
cease for any reason to constitute at least two-
thirds of the members of the Board; provided,
however, that if the election, or nomination for
election by the Company's common shareholders, of
any new director was approved by a vote of at
least two-thirds of the Incumbent Board, such new
director shall, for purposes of this Plan, be
considered as a member of the Incumbent Board;
provided further, however, that no individual
shall be considered a member of the Incumbent
Board if such individual initially assumed office
as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than
the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any
Election Contest or Proxy Contest; or
(3) Approval by shareholders of the Company of:
(i) A merger, consolidation or reorganization
involving the Company, unless such merger,
consolidation or reorganization is a "Non-
Control Transaction." A "Non-Control
Transaction" shall mean a merger,
consolidation or reorganization of the
Company where:
(A) the shareholders of the Company,
immediately before such merger,
consolidation or reorganization, own
directly or indirectly immediately
following such merger, consolidation or
reorganization, at least seventy
percent (70%) of the combined voting
power of the outstanding Voting
Securities of the corporation resulting
from such merger or consolidation or
reorganization (the "Surviving
Corporation") in substantially the same
proportion as their ownership of the
Voting Securities immediately before
such merger, consolidation or
reorganization.
(B) the individuals who were members of the
Incumbent Board immediately prior to
the execution of the agreement
providing for such merger,
consolidation or reorganization
constitute at least two-thirds of the
members of the board of directors of
the Surviving Corporation, or a
corporation beneficially directly or
indirectly owning a majority of the
Voting Securities of the Surviving
Corporation, and
(C) no Person other than (i) the Company,
(ii) any Subsidiary, (iii) any employee
benefit plan (or any trust forming a
part thereof) maintained by the
Company, the Surviving Corporation, or
any Subsidiary, or (iv) any Person who,
immediately prior to such merger,
consolidation or reorganization had
Beneficial Ownership of thirty percent
(30%) or more of the then outstanding
Voting Securities), has Beneficial
Ownership of thirty percent (30%) or
more of the combined voting power of
the Surviving Corporation's then
outstanding Voting Securities.
(ii) A complete liquidation or dissolution of the
Company; or
(iii) An agreement for the sale or other
disposition of all or substantially all of
the assets of the Company to any Person
other than (x) a transfer to a Subsidiary or
(y) a sale or transfer of a Subsidiary by
the Company except if such sale or transfer
would be a sale or other disposition of all
or substantially all of the assets of the
Company.
(4) Notwithstanding the foregoing, (i) a Change in
Control shall not be deemed to occur solely
because any Person (the "Subject Person") acquired
Beneficial Ownership of more than the permitted
amount of the then outstanding Common Stock as a
result of the acquisition of Common Stock by the
Company which, by reducing the number of shares of
Common Stock then outstanding, increases the
proportional number of shares Beneficially Owned
by the Subject Persons, provided that if a Change
in Control would occur (but for the operation of
this sentence) as a result of the acquisition of
Common Stock by the Company, and after such stock
acquisition by the Company, the Subject Person
becomes the Beneficial Owner of any additional
Common Stock which increases the percentage of the
then outstanding Common Stock Beneficially Owned
by the Subject Person, then a Change in Control
shall occur; and (ii) a Change in Control shall
not be deemed to occur unless and until all
regulatory approvals required to effect a Change
in Control of the Company have been obtained.
"EFFECTIVE DATE" shall mean the first date on which a
Change in Control occurs. The Effective Date does not
occur and no benefits shall be paid under this
Agreement if for any reason the Executive is not an
employee of the Company on the day prior to the
Effective Date.
"EMPLOYMENT TERM" shall mean a term of employment with
the Company which shall commence on the Effective Date
and which shall expire on the third anniversary of the
Effective Date; provided, however, that the Employment
Term shall in no event extend beyond the first day of
the month following the month in which the Executive
attains age sixty-five (65).
"GOOD CAUSE" means those events or conditions described
in paragraph 8(c)(i) through (vi) below.
"NOTICE OF TERMINATION" shall mean a notice which
indicates the specific termination provision in this
Agreement, if any, relied upon and shall set forth in
reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's
employment under the provisions so indicated. Any
purported termination by the Company or Executive shall
be communicated by written notice of termination to the
other.
"PENSION EQUALIZATION PLAN" is the Company's pension
equalization plan as amended and restated effective
January 27, 1995, and as amended from time to time
thereafter prior to the Effetive Date.
"PENSION PLAN" is the Company's tax qualified defined
benefit pension plan as amended and restated effective
October 1, 1989, and as amended from time to time
thereafter prior to the Effective Date.
"REMAINING TERM" shall mean that period of time
measured from the Termination Date through the end of
the Employment Term.
"TERMINATION DATE" shall mean the date subsequent to a
Change in Control that the Executive's employment with
the Company terminates.
"WELFARE BENEFITS" shall mean the Black Hills
Corporation Medical and Dental Plan, the Black Hills
Corporation Flexible Benefit Plan, and the Black Hills
Corporation Employee Life and Long-Term Disability Plan
as the plans and the terms and conditions thereof exist
on the day prior to the Effective Date.
3. EMPLOYMENT.
Subject to the provisions of Section 8 hereof, during the
Employment Term, the Company agrees to continue to employ the
Executive and the Executive agrees to remain in the employ of the
Company. During the Employment Term, the Executive shall be
employed as the Vice President - Power Supply of the Company or
in such executive capacity as may be mutually agreed to in
writing by the parties. Executive shall perform the duties,
undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons
situated in a similar executive capacity.
During the Employment Term, excluding periods of vacation
and sick leave to which Executive is entitled, Executive agrees
to devote reasonable attention and time during usual business
hours to the business and affairs of the Company to the extent
necessary to discharge the responsibilities assigned to Executive
hereunder. It is expressly understood and agreed that to the
extent that any outside activities have been conducted by
Executive prior to the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of
Executive's responsibilities to the Company.
4. COMPENSATION.
During the Employment Term, the Company agrees to pay or
cause to be paid to Executive annual compensation at a rate at
least equal to the highest rate of the Executive's annual
compensation as in effect at any time within one year preceding
the Effective Date, and as may be increased from time to time.
Such annual compensation shall be payable in accordance with the
Company's customary practices applicable to its executives. For
purposes of this Agreement, "annual compensation" shall mean all
compensation paid to the Executive by the Company during a
calendar year, which amounts are includable in the gross income
of the Executive for federal income tax purposes, including, but
not limited to, overtime, bonus, commission or incentive
compensation ("Annual Compensation").
5. EMPLOYEE WELFARE AND PENSION BENEFITS.
During the Employment Term, the Company shall provide to the
Executive the Welfare Benefits and the Pension Plan or other
substantially similar employee welfare and pension benefits, but
in no event on a basis less favorable in terms of benefit levels
and coverage than the Welfare Benefits and the Pension Plan.
6. PENSION EQUALIZATION PLAN.
During the Employment Term, the Company shall continue to
provide to Executive coverage and participation under the Pension
Equalization Plan or a substantially similar supplemental
retirement plan, but in no event on a basis less favorable in
terms of benefit levels and coverage than the Pension
Equalization Plan.
7. OTHER BENEFITS.
(a) Fringe Benefits, Perquisites, Vacation and Sick
Leave. During the Employment Term, Executive shall be entitled
to all fringe benefits, perquisites, vacation and sick leave
generally made available by the Company to its executives.
Unless otherwise provided herein, the fringe benefits,
perquisites, vacation and sick leave provided to Executive shall
be on the same basis and terms as other similarly situated
executives of the Company, but in no event shall be less
favorable than the most favorable fringe benefits, perquisites,
vacation and sick leave applicable to Executive at any time
within one year preceding the Effective Date, or if more
favorable, at any time thereafter.
(b) Expenses. Executive shall be entitled to receive
prompt reimbursement of all expenses reasonably incurred by him
in connection with the performance of his duties hereunder or for
promoting, pursuing or otherwise furthering the business or
interests of the Company.
8. TERMINATION.
During the Employment Term, Executive's employment hereunder
may be terminated under the following circumstances:
(a) Cause. The Company may terminate Executive's
employment for "Cause." A termination of employment is for
"Cause" if Executive (1) has been convicted of a felony or (2)
intentionally engaged in conduct which is demonstrably and
materially injurious to the Company, monetarily or otherwise;
provided, however, that no termination of Executive's employment
shall be for Cause as set forth in clause (2) above until (i)
there shall have been delivered to Executive a copy of a written
notice setting forth that Executive was guilty of the conduct set
forth in clause (2) and specifying the particulars thereof in
detail, and (ii) Executive shall have been provided an
opportunity to be heard by the Board (with the assistance of
Executive's counsel if Executive so desires). No act, nor
failure to act, on Executive's part shall be considered
"intentional" unless he has acted, or failed to act, with an
absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Company.
Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by Executive after a Notice of
Termination is given by Executive shall constitute Cause for
purposes of this Agreement.
(b) Disability. The Company may terminate Executive's
employment after having established Executive's Disability. For
purposes of this Agreement, "Disability" means a physical or
mental infirmity which impairs Executive's ability to
substantially perform his duties under this Agreement which
continues for a period of at least one hundred eighty (180)
consecutive days to be determined by a physician selected by
Company and acceptable to Executive. Executive shall be entitled
to the compensation and benefits provided for under this
Agreement for any period during Employment Term and prior to the
establishment of Executive's Disability during which Executive is
unable to work due to a physical or mental infirmity.
Notwithstanding anything contained in this Agreement to the
contrary, until the Termination Date specified in a Notice of
Termination relating to Executive's Disability, Executive shall
be entitled to return to his position with the Company as set
forth in this Agreement in which event no Disability of Executive
will be deemed to have occurred.
(c) Good Reason. During the Employment Term, the
Executive may terminate his employment for "Good Reason." For
purposes of this Agreement, "Good Reason" shall mean the
occurrence after the Effective Date of any of the events or
conditions described below:
(i) a change in the Executive's status, title,
position or responsibilities (including reporting
responsibilities), which, in the Executive's reasonable
judgment, represent an adverse change from his status,
title, position or responsibilities as in effect prior
to the Effective Date or any other action by the
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for
this purpose an isolated, unsubstantial and inadvertent
action not taken in bad faith and which is remedied by
the Company promptly after receipt of notice thereof by
Executive;
(ii) a reduction in the Executive's Annual
Compensation as defined in paragraph 4 or any failure
to pay the Executive any compensation or benefits to
which he is entitled within seven (7) days of the date
due;
(iii) any material breach by the Company of any
provision of this Agreement, including, but not limited
to, the Company's failure to provide the Employee
Welfare and Pension Benefits and Pension Equalization
Plan as set forth in paragraphs 5 and 6 above;
(iv) The Company's requiring the Executive to be
based outside a 50-mile radius from Rapid City, South
Dakota, except for reasonably required travel on the
Company's business which is not substantially greater
than such travel requirements prior to the Effective
Date;
(v) Any purported termination of the Executive's
employment for Cause by the Company which does not
comply with the terms of Section 8(a) above; or
(vi) The failure of the Company to obtain an
agreement, satisfactory to the Executive, from any
successor or assign of the Company to assume and agree
to perform this Agreement, as contemplated in Section
12 hereof.
(d) Voluntary Termination. The Executive may
voluntarily terminate his employment hereunder at any time.
9. COMPENSATION UPON TERMINATION.
Upon termination of Executive's employment during the
Employment Term, Executive shall be entitled to the following
benefits:
(a) If Executive's employment with the Company shall
be terminated (i) by the Company for Cause or Disability, or
(ii) by reason of Executive's death, or (iii) by Executive
without "Good Reason," the Company shall pay Executive all
amounts earned or accrued through the Termination Date but not
paid as of the Termination Date, including all Annual
Compensation, reimbursement for reasonable and necessary expenses
incurred by Executive on behalf of the Company during the period
ending on the Termination Date, vacation pay and sick leave
(collectively "Accrued Compensation").
(b) If the Executive's employment with the Company
shall be terminated (other than by reason of death) (i) by the
Company other than for Cause or Disability, or (ii) by Executive
for Good Reason, Executive shall be entitled to the following:
(i) The Company shall pay Executive all Accrued
Compensation;
(ii) The Company shall pay Executive as severance
pay and in lieu of any further compensation for periods
subsequent to the Termination Date an amount in cash
equal to (w) 2.99 times (x) the Executive's average
Annual Compensation for the most recent five taxable
years ending prior to the Change in Control times (y) a
ratio, the numerator of which shall be the number of
months in the Remaining Term (a partial month being
considered a full month) and the denominator of which
shall be the number of months in the Employment Term
times (z) a ratio, the numerator of which shall be the
number of months in the Employment Term and the
denominator of which shall be 36 months;
(iii) During the "Remaining Term," the Company
shall at its expense continue on behalf of Executive
and his dependents and beneficiaries the Welfare
Benefits or similar benefits no less favorable than the
benefit levels and coverages provided in the Welfare
Benefits; provided, however, that the Company's
obligation with respect to the foregoing benefits shall
be limited to the extent that Executive obtains any
such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the
coverage of any benefits it is required to provide
Executive hereunder so long as the aggregate coverages
and benefits of the combined benefit plans is no less
favorable to Executive than the Welfare Benefits;
(iv) Executive shall be entitled to an amount of
credited service for vesting purposes under the Pension
Equalization Plan equal to the period of time in the
Remaining Term, and it shall be assumed for purposes of
determining benefits under the Pension Equalization
Plan, that Executive's employment continued during the
Remaining Term at the compensation level provided for
in Section 4 above. In addition, the Executive shall
be entitled to a supplemental Pension Plan benefit,
which shall be the excess, if any, of (x) the amount
that Executive would have been entitled to receive
under the Pension Plan as if (i) Executive received
additional credited service under the Pension Plan for
the Remaining Term and (ii) Executive's Annual
Compensation as defined in Section 4 above remained in
effect during the Remaining Term over (y) the amount
that Executive will actually receive under the Pension
Plan. This supplemental benefit shall be determined
using the same factors, actuarial or otherwise, as used
in determining Executive's Pension Plan benefit and
shall be payable at like terms and in like manner as
the Pension Plan benefit. This supplemental benefit is
not payable unless and until the Executive receives
Pension Plan benefits.
10. OFFSET.
Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other
employment or otherwise, and except as provided in Section
9(b)(iii), such payments shall not be reduced whether or not
Executive obtains other employment.
11. TAX EFFECT.
Notwithstanding anything contained in this Agreement to the
contrary, if any payment received or to be received by Executive
pursuant to the terms of this Agreement or otherwise and in
connection with, or arising out of, Executive's employment with
the Company or a Change in Control ("Total Payments"), would not
be deductible by the Company (in whole or in part) as the result
of Section 280G of the Internal Revenue Code (the "Code"), the
amount determined under Section 9(b)(ii) shall be reduced until
no portion of the Total Payments is not nondeductible.
For purposes of determining whether any of the Total
Payments would not be deductible by the Company (1) Total
Payments will be treated as "Parachute Payments" within the
meaning of Section 280G(b)(2) of the Code and all Parachute
Payments in excess of the base amount within the meaning of
Section 280G(b)(3) will be treated as nondeductible unless, in
the opinion of tax counsel selected by the Company's independent
auditors and acceptable to Executive, such Total Payments (in
whole or in part) are not Parachute Payments, or such Parachute
Payments in excess of the base amount (in whole or in part) are
otherwise not nondeductible and (2) the value of any noncash
benefits or any deferred payment or benefit will be determined by
the Company's independent auditors in accordance with Section
280G(d)(3) and (4) of the Code.
12. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns and the
Company shall require any successor or assign to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession or assignment had taken place. The term
"Company" as used herein shall include such successors and
assigns. The term "successors and assigns" as used herein shall
mean a corporation or other entity acquiring all or substantially
all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, his
beneficiaries or legal representatives, except by will or by the
laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the Executive's legal
personal representative.
13. FEES AND EXPENSES.
The Company shall pay all legal fees and related expenses
(including the costs of experts, evidence and counsel) incurred
by the Executive subsequent to the Effective Date as they become
due as a result of the Executive seeking to obtain or enforce any
right or benefit provided by this Agreement.
14. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the
Notice of Termination) shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses last given by each party to
the other. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the
third business day after the mailing thereof, except that notice
of change of address shall be effective only upon receipt.
15. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit Executive's
continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any
of its subsidiaries and for which Executive may qualify, nor
shall anything herein limit or reduce such rights as Executive
may have under any other agreements with the Company or any of
its subsidiaries. Amounts which are vested benefits or which
Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be
payable in accordance with such plan or program, except as
explicitly modified by this Agreement.
16. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Executive and the Company. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of South
Dakota.
20. SEVERABILITY.
The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions
hereof.
18. NO GUARANTEED EMPLOYMENT.
Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between
Executive and the Company, the employment of Executive by the
Company is "at will" and, prior to the Effective Date, may be
terminated by either Executive or the Company at any time.
Moreover, if prior to the Effective Date, Executive's employment
with the Company terminates, Executive shall have no further
rights under this Agreement.
19. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the
parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the
parties hereto with respect to the subject matter hereof.
Dated the day and year first above written.
BLACK HILLS CORPORATION
By /c/Daniel P. Landguth
Chairman, President and Chief Executive
ATTEST:
/c/Roxann R. Basham
Secretary and Treasurer
By /c/Thomas M. Ohlmacher
Executive
Exhibit 21
BLACK HILLS CORPORATION
SUBSIDIARY OF REGISTRANT
Wyodak Resources Development Corp.,
a Delaware corporation.
SUBSIDIARIES OF WYODAK RESOURCES DEVELOPMENT CORP.
DAKSOFT, Inc.
a South Dakota corporation.
Landrica Development Company,
a South Dakota corporation.
Western Production Company,
a Wyoming corporation.
WYGEN, Inc.
a Wyoming corporation.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements, File Numbers 33-71130,
33-15868, and 33-54329.
Arthur Andersen LLP
Minneapolis, Minnesota,
March 13, 1996
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<GROSS-OPERATING-REVENUE> 149,817,000
<INCOME-TAX-EXPENSE> 10,737,000
<OTHER-OPERATING-EXPENSES> 107,655,000
<TOTAL-OPERATING-EXPENSES> 118,392,000
<OPERATING-INCOME-LOSS> 31,425,000
<OTHER-INCOME-NET> 8,360,000
<INCOME-BEFORE-INTEREST-EXPEN> 39,785,000
<TOTAL-INTEREST-EXPENSE> 14,195,000
<NET-INCOME> 25,590,000
0
<EARNINGS-AVAILABLE-FOR-COMM> 25,590,000
<COMMON-STOCK-DIVIDENDS> 19,312,000
<TOTAL-INTEREST-ON-BONDS> 13,401,000
<CASH-FLOW-OPERATIONS> 45,290,000
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
</TABLE>
MARKETING, CAPACITY AND STORAGE SERVICES AGREEMENT
BETWEEN
BLACK HILLS CORPORATION
AND
PACIFICORP
EXHIBIT A
<PAGE>
TABLE OF CONTENTS
Page
1 Definitions . . . . . . . . . . . . . . . . . . . . 2
2 Effective Date and Termination . . . . . . . . . . . .4
3 PacifiCorp's Purchase of Black Hills Surplus Energy. .5
4 Sales of Capacity . . . . . . . . . . . . . . . . . .7
5 Storage of Heavy Load Hour Energy. . . . . . . . . . .9
6 Prices . . . . . . . . . . . . . . . . . . . . . . . 11
7 Payments and Billing . . . . . . . . . . . . . . . . 14
8 Scheduling . . . . . . . . . . . . . . . . . . . . . 17
9 Point of Delivery. . . . . . . . . . . . . . . . . . 17
10 Uncontrollable Forces. . . . . . . . . . . . . . . . 18
11 Indemnification. . . . . . . . . . . . . . . . . . . 19
12 Choice of Law. . . . . . . . . . . . . . . . . . . . 20
13 Waiver . . . . . . . . . . . . . . . . . . . . . . . 20
14 Arbitration. . . . . . . . . . . . . . . . . . . . . 20
15 Audit Rights . . . . . . . . . . . . . . . . . . . . 21
16 Assignability. . . . . . . . . . . . . . . . . . . . 22
17 Entire Agreement . . . . . . . . . . . . . . . . . . 22
18 Notices. . . . . . . . . . . . . . . . . . . . . . . 23
Appendix A - Sample Calculation of Rate of Deposit
<PAGE>
MARKETING, CAPACITY AND STORAGE SERVICES AGREEMENT
BETWEEN
BLACK HILLS CORPORATION
AND
PACIFICORP
This MARKETING, CAPACITY AND STORAGE SERVICES AGREEMENT
("Agreement"), dated this 1st day of September, 1995 is between
Black Hills Corporation, a South Dakota corporation ("Black
Hills") and PacifiCorp, an Oregon corporation. Black Hills and
PacifiCorp are sometimes referred to herein collectively as
"Parties" and individually as "Party."
WHEREAS, Black Hills' Neil Simpson II Unit ("NSII") was
operational on or about July 1, 1995 and produces some short-term
surplus energy in addition to the required needs of Black Hills.
WHEREAS, PacifiCorp desires to purchase energy that is
excess to Black Hills needs.
WHEREAS, PacifiCorp desires to provide capacity, and to
store and shape energy in its system for return to Black Hills at
times when the energy may have higher value to Black Hills.
WHEREAS, PacifiCorp and Black Hills are Parties to the
Reserve Capacity Integration Agreement dated May 5, 1987 ("RCIA")
which provides mutual reserve capacity.
NOW, THEREFORE, the Parties hereto agree as follows:
Section 1: Definitions
1.1 "Annual Energy Requirement" shall mean the amount of
energy Black Hills elects to store in the Storage Account for a
calendar year.
1.2 "Black Hills' Loads" shall mean: (i) energy required
to supply all of Black Hills' firm wholesale and non-end user
contracts of five months or greater in duration (including such
contracts which Black Hills may enter into from time to time
after the execution of this Agreement), (ii) energy scheduled to
PacifiCorp for the Storage Account, and (iii) energy required to
serve Black Hills' retail customers as they exist from time to
time. "Firm wholesale and non-end user contracts" as referenced
in the previous sentence are not contracts, such as this
Agreement, that sell surplus energy on an available basis only
and at market prices which are updated each day notwithstanding
that such contracts may have a term of five months or longer.
1.3 "Black Hills' Resources" shall mean all energy produced
from Black Hills' presently owned generation resources plus Black
Hills' energy entitlement under the Colstrip Agreement.
1.4 "Colstrip Agreement" shall mean the Power Sales
Agreement dated December 31, 1983 between PacifiCorp and Black
Hills.
1.5 "Heavy Load Hours" shall mean the schedule hours 0700
through 2200 Mountain Time, Monday through Saturday.
1.6 "Light Load Hours" shall mean the schedule hours 2300
through 0600 Mountain Time, Monday through Saturday and all hours
on Sundays and all holidays observed by the Western Systems
Coordinating Council (WSCC).
1.7 "Market Price" shall be determined daily for Light Load
Hours and Heavy Load Hours. Market Price for Light Load Hours
shall mean the simple average of the high and low daily indices
for Palo Verde and the high and low daily indices for COB/NOB for
off peak non-firm prices, or $8.00/MWh, whichever is greater.
Market Price for Heavy Load Hours shall mean the simple average
of the high and low daily indices for Palo Verde and the high and
low daily indices for COB/NOB for peak non-firm prices, or
$8.00/MWh, whichever is greater. If a market quote for either of
the indices is not available for any day, the high-low average of
the other index shall be used for that day. If neither index is
available, indices from an adjacent, like day shall be used. The
initial indices shall be as published by Economic Insight, Inc.,
in its "Energy Market Report." In the event that these indices
no longer accurately reflect the true market value of nonfirm
energy or such indices are no longer published, the parties shall
endeavor to agree upon substitute indices to more accurately
reflect market value. In the event of a dispute under this
provision, the Parties agree to resolve the dispute by
arbitration.
1.8 "Peaking Capacity" shall mean electric capacity
purchases under Section 4.
1.9 "Peaking Energy" shall mean energy associated with
Peaking Capacity made available by PacifiCorp.
1.10 "Storage Account" shall mean an energy account
established by PacifiCorp for Black Hills.
1.11 "Storage Period" shall mean all the Heavy Load Hours in
the months of March, April, May, September, October, and November
excluding the Heavy Load Hours that either NSII or the Wyodak
Plant is out of service for annual planned maintenance.
1.12 "Summer Season" shall mean each April 1 through
September 30 period during the term of this Agreement.
1.13 "Surplus Energy" shall mean the energy that PacifiCorp
purchases from Black Hills pursuant to Section 3.
1.14 "Winter Season" shall mean each October 1 through
March 31 period during the term of this Agreement.
Section 2: Effective Date and Termination
2.1 Effective Date. This Agreement shall be effective at
0000 hours Mountain time on the 1 st day of December, 1995 or
such later day as may be established by the Federal Energy
Regulatory Commission (FERC).
2.2 FERC Approval. PacifiCorp shall file this Agreement
with the FERC pursuant to Section 205 of the Federal Power Act.
Black Hills shall file a certificate of concurrence in
PacifiCorp's filing. Black Hills shall supply Pacific with
information reasonably necessary to support PacifiCorp's filing.
The Parties shall afford each other a reasonable opportunity to
review and comment in advance upon any written material proposed
to be submitted by them to the FERC in connection with this
Agreement. If the FERC does not accept or approve this agreement
for filing in its entirety, the Parties shall attempt to amend
this Agreement to comply with the FERC action in a manner
consistent with the Parties' original intent. In the event such
amendment is not executed by the Parties within sixty days, or
longer if the Parties mutually agree to an extension, following
the FERC's action, PacifiCorp shall file a notice of cancellation
with the FERC in a timely manner and this Agreement shall
terminate.
2.3 Additional FERC Review. The methodologies utilized for
pricing purposes in this Agreement and the pricing formulae
specified herein shall remain in effect through the term of this
Agreement and neither Party shall petition the FERC pursuant to
the provisions of Sections 205 or 206 of the Federal Power Act to
amend such methodologies, prices or formulae or support such a
petition filed by any third party.
2.4 Termination. Except as provided in Subsection 4.5,
this Agreement shall terminate as of 2400 hours, Mountain Time on
March 31, 2002.
Section 3: PacifiCorp's Purchase of Black Hills Surplus
Energy
3.1 Purchases. Except as otherwise provided in this
Section 3, commencing on the Effective Date of this Agreement and
continuing through the 2400 hour, Mountain Time on December 31,
2000, Black Hills shall be obligated to sell and PacifiCorp shall
be obligated to purchase an amount of energy equal to the
difference between Black Hills' Resources and Black Hills' Loads.
3.2 Production Cost Exception. Black Hills shall not be
obligated to generate energy to sell to PacifiCorp hereunder or
schedule energy above contract minimums under the Colstrip
Agreement if the incremental cost of doing so is forecasted by
Black Hills, in its sole judgment to be greater than the
estimated revenue Black Hills would receive for such energy as
determined pursuant to Subsection 6.2 or 6.3. Black Hills shall,
in its sole judgment, determine such incremental cost, the
estimated revenue it would receive, and the amount of energy it
can make available to PacifiCorp; provided, that prior to January
1, 2001, none of the energy to be sold to PacifiCorp as described
in Subsection 3.1 shall be generated or scheduled by Black Hills
for any purpose other than service to Black Hills' Loads or sale
to PacifiCorp hereunder.
3.3 Other Resources. Nothing herein shall prevent Black
Hills from purchasing energy under contracts other than the
Colstrip Agreement or producing energy from generation acquired
by Black Hills after the date of this Agreement and scheduling
that energy on a nonfirm basis to others.
3.4 Black Hills' Resources Operating Levels. Black Hills
shall, in its sole judgment, determine prudent operating levels
of the Black Hills' Resources; provided, that such determination
shall be consistent with the provisions set forth in Subsections
3.1 and 3.2.
3.5 Transmission Limitation Purchase Exception. PacifiCorp
shall not be obligated to purchase energy hereunder that, if
purchased, would require a curtailment of PacifiCorp's generating
capability at its Dave Johnston Plant due to transmission
limitations which restrict PacifiCorp's ability to transfer
additional energy out of the State of Wyoming; provided that
PacifiCorp shall limit the use of this exception to a maximum of
10% of the hours each year.
Section 4: Sales of Capacity
4.1 Sale of Peaking Capacity. Commencing October 1, 1996,
and continuing for each Winter Season and for each Summer Season
through March 31, 2002, Black Hills shall have the option to
purchase from PacifiCorp 0 to 60 megawatts of Peaking Capacity
(in whole megawatt increments). Such option shall be exercised
as to each Winter Season and Summer Season and shall be exercised
by Black Hills at least six months prior to the respective season
by providing PacifiCorp written notice of the desired amount of
the Peaking Capacity associated with the season for which the
option is being exercised. Notice for the first Winter Season
hereunder is due on or before April 1, 1996.
4.2 Requirement to Exercise Options. Black Hills shall
fully exercise its Peaking Capacity options by purchasing all of
the 60 megawatts of Peaking Capacity for a Winter Season or a
Summer Season in lieu of purchasing additional peaking capacity
from a third party for any such Winter Season or Summer Season.
Provided, even in the event Black Hills has not fully exercised
its Peaking Capacity option for any season, Black Hills shall not
be precluded from purchasing from others peaking capacity and
associated energy required to serve Black Hills Loads during such
season if such requirements were due to events which were not
anticipated by Black Hills in good faith at the time it exercised
its option for that season; provided further, PacifiCorp shall
have the option, to be exercised seven business days after
receipt of notice of such unanticipated capacity requirement, to
sell to Black Hills such additional capacity, but not to exceed,
when added to other Peaking Capacity being sold, a total of 60
megawatts, at the option price in effect for that season.
4.3 Additional Generator Exception. Black Hills shall be
deemed not to be purchasing peaking capacity from third parties
under Subsection 4.2 if it acquires such peaking capacity from a
generator in which Black Hills, after the date of this Agreement,
acquires an ownership or long-term leasehold interest, partial or
whole.
4.4 Peaking Energy Load Factor. PacifiCorp shall deliver
Peaking Energy as scheduled by Black Hills at a rate up to 100%
per hour of the Peaking Capacity being purchased and at an amount
of up to 15% load factor per season. Black Hills shall not be
obligated to schedule any minimum amount of Peaking Energy during
any season.
4.5 Extended Capacity Purchase Option. Black Hills shall
have a one-time option to extend the purchase of 0 to 60
megawatts of Peaking Capacity from April 1, 2002 to March 31,
2007. PacifiCorp shall notify Black Hills prior to April 1,
2000, of its price for Peaking Capacity during the 2002 to 2007
option period. Black Hills shall exercise its option to extend
prior to April 1, 2001. If Black Hills exercises such option,
the seasonal notice and option to be exercised for each season to
purchase from 0 to 60 megawatts, load factor, and Peaking Energy
price shall be as set forth in Subsections 4.1, 4.2, 4.4, and
6.6, respectively, and the exceptions set forth in Subsections
4.2 and 4.3 shall continue to apply.
Section 5: Storage of Heavy Load Hour Energy
5.1 Account. Commencing January 1, 1996 and continuing
through December 31, 2000, PacifiCorp shall establish a Heavy
Load Hours Storage Account for Black Hills.
5.2 Energy Deposits. On or before January 1 of each
calendar year, Black Hills shall give PacifiCorp written notice
specifying the Annual Energy Requirement to be deposited during
such calendar year, a calculation of the rate of deposit pursuant
to Subsection 5.3, and the planned maintenance schedule for NSII.
Black Hills may choose an Annual Energy Requirement from 0 to
40,000 megawatt-hours each year. Any unused energy remaining in
the Storage Account at the end of any year shall be rolled over
to the next year, except that any energy remaining in the Storage
Account on December 31, 2000, shall be withdrawn during 2001 for
NSII or Wyodak Plant outages, or as otherwise mutually agreed, so
as to bring the Storage Account balance to zero.
5.3 Rate of Deposit. The annual amount of energy to be
deposited in the Storage Account shall be calculated by
subtracting any rolled-over energy from the Annual Energy
Requirement. The rate of deposit shall be calculated by dividing
this result by the number of Heavy Load Hours during the Storage
Period. Black Hills shall adjust the Annual Energy Requirement
so that the rate of deposit is a whole number of megawatt-hours
per hour. Black Hills shall schedule energy to PacifiCorp at
such rate of deposit during all Heavy Load Hours of the Storage
Period except during hours that NSII or Wyodak have experienced a
forced outage; provided, Black Hills shall have the right to vary
the rate of deposit by plus or minus 25% of the constant rate
rounded or truncated to the next megawatt. Any energy Storage
Account shortage caused by such forced outage shall either be
deposited in the Storage Account during other Heavy Load Hours
within 12 months of the shortage or, at other times as the
Parties mutually agree. A sample calculation of the rate of
deposit is attached hereto as Appendix A.
5.4 Withdrawals from the Storage Account. Black Hills may
draw energy from the Storage Account only for the purpose of
replacing energy from a forced or scheduled outage of NSII or its
share of Wyodak, subject to the limitation of Subsection 5.5.
Any draw for a forced outage shall commence after the first hour
during which PacifiCorp provides reserve energy pursuant to the
RCIA. The rate of draw from the Storage Account shall be the
Annual Energy Requirement for such year. However, Black Hills
may cause a deficit in the Storage Account from time to time so
long as the total annual draw does not exceed the Annual Energy
Requirement.
5.5 Planned Maintenance for NSII. Black Hills intends to
normally schedule annual maintenance for NSII during the Storage
Period months. If Black Hills chooses to schedule annual
maintenance for NSII at times other than Storage Period months,
energy withdrawals from the Storage Account associated with such
annual maintenance shall only be by mutual agreement of the
Parties.
Section 6: Prices
6.1 Surplus Energy Price. The price for Surplus Energy
purchased by PacifiCorp pursuant to Section 3 shall be determined
daily.
6.2 Price for Surplus Energy During Light Load Hours.
PacifiCorp shall pay Black Hills a price that is dependent on the
Market Price for Light Load Hours Surplus Energy as follows:
6.2.1 Market Price $10.00/MWh or less. If the Light Load
Hour Market Price for a given day is $10.0/MWh or less,
PacifiCorp shall pay Black Hills such Market Price for all Light
Load Hour Surplus Energy scheduled to PacifiCorp for such day.
6.2.2 Market Price Between $10.00 and $11.00/MWh. If the
Light Load Hour Market Price for a given day is greater than
$10.00/MWh and not greater than $11.00/MWh, PacifiCorp shall pay
Black Hills $10.00/MWh for all Light Load Hour Surplus Energy
scheduled to PacifiCorp for such day.
6.2.3 Market Price Greater than $11.00/MWh. If the Light
Load Hour Market Price for a given day is greater than
$11.00/MWh, PacifiCorp shall pay Black Hills $10.00/MWh plus 50%
of the difference between the Market Price and $11.0/MWh for all
Light Load Hour Surplus Energy scheduled to PacifiCorp for such
day.
6.3 Price for Surplus Energy Heavy Load Hours. PacifiCorp
shall pay Black Hills a price that is dependant on the Market
Price for Heavy Load Hours Surplus Energy as follows:
6.3.1 Market Price $10.00/MWh or less. If the Heavy Load
Hour Market Price for a given day is $10.00/MWh or less,
PacifiCorp shall pay Black Hills such Market Price for all Heavy
Load Hour Surplus Energy scheduled to PacifiCorp for such day.
6.3.2 Market Price Between $10.00 and $12.00/MWh. If the
Heavy Load Hour Market Price for a given day is greater than
$10.00/MWh and not greater than $12.00/MWh, PacifiCorp shall pay
Black Hills $10.00/MWh for all Heavy Load Hour Surplus Energy
scheduled to PacifiCorp for such day.
6.3.3 Market Price Greater than $12.00/MWh. If the Heavy
Load Hour Market Price for a given day is greater than
$12.00/MWh, PacifiCorp shall pay Black Hills $10.00/MWh plus 60%
of the difference between Market Price and $12.00/MWh for all
Heavy Load Hour Surplus Energy scheduled to PacifiCorp for such
day.
6.3.4 Example. If the Heavy Load Hour Market Price for a
given day were determined to be $17.00/MWh, then Black Hills
shall receive $13.00/MWh ($10 + 60% of ($17-$12)) for all Heavy
Load Hour Surplus Energy for such day.
6.4 Price For Peaking Capacity. The price for Peaking
Capacity pursuant to Subsection 4.1 shall be as follows:
10/1/96-9/30/98 $2.00/kW-mo
10/1/98-9/30/00 $2.50/kW-mo
10/1/00-3/31/02 $3.00/kW-mo
6.5 Price For Peaking Capacity During the 2002-2007 Term.
The price for Peaking Capacity pursuant to Subsection 4.4 shall
be calculated by PacifiCorp under the methodology set forth in
this Subsection. PacifiCorp shall base its price per kW-month on
the levelized annual fixed cost per megawatt of owning a typical
simple cycle gas-fired combustion turbine with a rated capacity
of approximately 70 megawatts and with an on-line date of 2002 in
Wyoming. PacifiCorp shall assume depreciation over 25 years, and
PacifiCorp's overall cost of capital using its currently-allowed
FERC equity return. The Parties may apply to the FERC for a
determination of the equity return component if there is a
dispute as to such equity rate.
6.6 Price for Peaking Energy. Black Hills shall pay
PacifiCorp the daily Market Price for all Peaking Energy.
6.7 Price for Banking and Storage. Black Hills shall pay
PacifiCorp a fixed price through the term of this Agreement of
$4.00/MWh for each MWh withdrawn from the Storage Account. Black
Hills shall not incur a liability until energy is removed from
the Storage Account.
Section 7: Payments and Billing
7.1 Payments. Black Hills' payments for all Banking and
Storage services, Peaking Energy, and Peaking Capacity and
PacifiCorp's payments for Black Hills' Surplus Energy sales to
PacifiCorp shall be credited against each other. A bill showing
the net amount owed by one party to the other party shall be
calculated monthly.
7.1.1 Black Hills' Surplus Energy Sales Credit. The Black
Hills' Surplus Energy sales credit shall be determined by
applying the daily pricing mechanism in Subsections 6.2 and 6.3
to the Surplus Energy scheduled to PacifiCorp for Heavy Lead
Hours and Light Load Hours respectively for each day of the
billing month.
7.1.2 Peaking Capacity Payment through March 31, 2002. The
payment each month for Peaking Capacity shall equal the Peaking
Capacity determined pursuant to Subsection 4.1 multiplied by the
price specified in Subsection 6.4.
7.1.3 Peaking Capacity Payment 2002-2007. The payment each
month for Peaking Capacity shall equal the Peaking Capacity
determined pursuant to Subsection 4.1 multiplied by the price as
determined in Subsection 6.5.
7.1.4 Peaking Energy. The payment each month for Peaking
Energy shall be determined by applying the Market Price for Heavy
Load Hours to the daily Peaking Energy scheduled from PacifiCorp
pursuant to Subsection 4.4 for each day of the billing month.
7.1.5 Banking and Storage Payment. The payment each month
shall equal the amount of energy withdrawn from the Storage
Account determined pursuant to Subsection 5.4 (stated in
megawatt-hours) multiplied by the price as specified in
Subsection 6.7.
7.2 Billings. For those months Black Hills owes PacifiCorp
payments under this Agreement, PacifiCorp shall bill Black Hills
each month by overnight mail for all services provided hereunder
for the preceding month at the address specified in Section 16
and Black Hills shall pay any bill showing an amount owing to
PacifiCorp within 15 days of receipt. Payment for all service
provided hereunder shall be made by wire transfer to PacifiCorp
as stated below:
Attention: Cash Administrator
United States National Bank of Oregon
Metropolitan Branch
900 SW Sixth Avenue
Portland, Oregon 7204
(for credit to PacifiCorp, Account Number 070-0000-169, A.B.A.
No. 123000220).
For those months PacifiCorp owes payments under this
Agreement to Black Hills, PacifiCorp shall prepare and send a
billing of the amount owing to Black Hills and shall pay the
amount owing to Black Hills on or before the fifteenth day of the
month following the month of energy deliveries for which payment
is being made. Payment to Black Hills shall be made by wire
transfer to Black Hills as stated below:
Norwest Bank South Dakota, N.A.
Minneapolis, Minnesota ABA #091000019
For credit to the account of:
Norwest Bank, South Dakota N.A.
Sioux Falls, South Dakota
For final credit to: Black Hills Power and
Light #0880-017-785
Payments not received when due shall be considered
overdue. Simple interest shall accrue on any unpaid amounts at a
rate equal to the interest rate as established by the Morgan
Guaranty Trust Company of New York during the period of
delinquency.
7.3 Billing Disputes. In the event that any portion of any
bill is in dispute, the disputed amount shall be paid under
protest when due. Upon determination of the correct billing
amount, the proper adjustment, with interest, shall promptly be
paid to the Party to whom it is owed by the other Party after
such determination. The interest rate applied shall be the prime
interest rate as established by the Morgan Guaranty Company of
New York.
Section 8: Scheduling
Black Hills shall preschedule both Surplus Energy sold to
PacifiCorp and any Peaking Energy associated with Peaking
Capacity purchased from PacifiCorp by telephone (unless otherwise
agreed by the Parties' schedulers) no later than 1000 hours on
each work day observed by both Parties immediately preceding the
day or days on which such energy is to be delivered, or as
mutually agreed by the Parties' dispatchers or schedulers.
PacifiCorp and Black Hills shall deliver the prescheduled energy,
except as hourly load variation requires an hourly adjustment to
those preschedules, to the Point of Delivery specified in Section
9.
Section 9: Point Of Delivery
9.1 Point of Delivery. The deliveries of power and energy
contemplated by this Agreement shall be made to the Wyodak
Substation point of interconnection between Pacific's system and
Black Hills' system as defined in the Wyodak Substation
Construction, Ownership and Operation Agreement among Pacific,
Black Hills and Tri-County Electric Association, Inc. dated
September 28, 1981.
Section 10: Uncontrollable Forces
Neither Party to this Agreement shall be considered to be in
default in performance of any obligation hereunder (except for
the payment of money due which will not be so excused) if failure
of performance shall be due to an Uncontrollable Force. The term
"Uncontrollable Force" means any cause beyond the control of the
Party affected, including, but not limited to, failure of
facilities, flood, earthquake, storm, fire, lightning, epidemic,
war, riot, civil disturbance, labor disturbance, sabotage, and
restraint by court order or public authority, which by exercise
of due foresight such Party could not reasonably have been
expected to avoid, and which by exercise of due diligence it
shall be unable to overcome. A Party shall not, however, be
relieved of liability for failure of performance if and to the
extent such failure be due to causes arising out of its own
negligence or deliberate misconduct. Any Party rendered unable
to fulfill any obligation by reason of an Uncontrollable Force
shall exercise due diligence to remove such inability with all
reasonable dispatch and shall notify the other Party of such
Uncontrollable Force as soon as practicable. Nothing contained
herein, however, shall be construed to require a Party to prevent
or settle a strike against its will. Economic hardship shall not
constitute Uncontrollable Force.
Section 11: Indemnification
Except as provided in this Section each Party hereto hereby
assumes all liability for injury or damage to persons or property
arising from the act or neglect of its own employees, agents or
contractors and shall indemnify and hold the other Party harmless
from any liability arising therefrom. Notwithstanding the
foregoing, no Party shall be liable, whether in contract
warranty, tort or strict liability, to the other Party for any
injury or death to any person, or for any loss or damage to any
property, caused by or arising out of an electric disturbance on
that Party's electric system, whether or not such electric
disturbance resulted for that Party's negligent or wrongful act
or omission, excepting only action knowingly or intentionally
taken, or failed to be taken, with the intent that injury or
damage should result therefrom, or which action is wantonly
reckless. Each Party releases the other Party from, and shall
indemnify the other Party for, any such liability. As used in
this Section, (1) the term "Party" means, in addition to such
Party itself, its directors, officers, and employees; (2) the
term "damage" means all damage, including consequential damage,
and (3) the term "person" means any person, including those not
connected with either Party to this Agreement.
Section 12: Choice of Law
This Agreement shall be subject to and construed in
accordance with the laws of the State of Wyoming.
Section 13: Waiver
Failure by a party to exercise any right, remedy or option
hereunder or delay in exercising such right, remedy or option
shall not operate as a waiver by such Party of its right to
exercise any such right, remedy or option. No waiver by a Party
shall be effective unless it is in writing and signed by such
Party, and then only to the extent specifically stated.
Section 14: Arbitration
14.1 Selection of Arbitrator. The Parties shall make
reasonable efforts to settle all disputes arising under this
Agreement as a matter of normal business and without recourse to
either arbitration of litigation. If any dispute arises under
this Agreement that the Parties do not settle, the Parties shall
arbitrate the matter before an arbitrator who is an attorney or
engineer familiar with contracts governing the operation of
electrical systems. Any arbitration may be initiated by either
Party submitting to the other Party a Notice of Arbitration
within one year following the date such dispute arises. The
Parties shall have 30 days following the submittal of a Notice of
Arbitration by either Party to attempt to mutually agree upon an
arbitrator. If the Parties are unable to agree on an arbitrator
within that time, either Party may request that a judge of the
United States District Court for Wyoming designate three persons
to serve as an arbitrator. If the parties are unable to agree on
the selection of one of the three as an arbitrator, each party
shall strike one of the three and the remaining persons shall
serve as the arbitrator. The first party to strike a proposed
arbitrator shall be chosen by lot.
14.2 Conduct of Arbitration. The arbitrator shall have
discretion to establish a schedule and procedure for the
arbitration and may conduct the arbitration based upon written
submittals. The arbitrator shall afford the Parties any or all
of the discovery rights provided for in the Federal Rules of
Civil Procedure.
14.3 Arbitration Costs. Each Party shall bear its own costs
of the arbitration, including its attorneys' fees. The parties
shall share equally the costs of the arbitrator.
Section 15: Audit Rights
Black Hills shall have the right to audit and to examine any
supporting documentation related to any billing under this
Agreement. Any such audit shall be undertaken by Black Hills, or
its representatives, at reasonable times and in conformance with
generally-accepted auditing standards. The right to audit any
billing shall extend for a period of two years following such
billing. PacifiCorp agrees to fully cooperate with any audit by
Black Hills and to retain all necessary records or documentation
for the entire length of the audit period. If any such audit
discloses that an overpayment or an underpayment has been made,
the amount of such overpayment or underpayment shall promptly be
paid to the Party to whom it is owed by the other Party with
interest as determined pursuant to Subsection 7.3.
Section 16: Assignability
Neither Party shall assign this Agreement without the prior
written consent of the other Party, with such consent not
unreasonably withheld. Nothing contained in this Section shall
be construed to prevent either party from making a collateral
assignment of the revenues due under the terms of this Agreement.
No assignment, merger or consolidation shall relieve any Party of
any obligation under this Agreement. Subject to the foregoing
restriction in this Section, this Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the Parties
and their respective successors and assigns.
Section 17: Entire Agreement
This Agreement constitutes the entire Agreement of the
Parties hereto and supersedes all prior Agreements, whether oral
or written, with respect to the transactions addressed herein.
This Agreement may be amended only by a written document executed
by the Parties hereto.
Section 18: Notices
Any notice, demand, or request provided for in this
Agreement shall be deemed properly served, given, or made if
delivered in person or sent by registered or certified mail,
postage paid, to the person so designated as its authorized
representative. The titles and addresses of the authorized
representatives hereunder are as follows:
For BLACK HILLS:
Vice President, Power Supply
Black Hills Corporation
625 Ninth St.
P.O. Box 1400
Rapid City, SD 57701
with a copy to:
Controller
Black Hills Corporation
625 Ninth St.
P.O. Box 1400
Rapid City, SD 57701
For PACIFICORP:
Vice President, Power Systems
PacifiCorp
825 NE Multnomah, Suite 485
Portland, Oregon 7232-2153
with a copy to:
Manager, Customer Contract Administration
PacifiCorp
825 NE Multnomah, Suite 625
Portland, Oregon 7232-2153
IN WITNESS WHEREOF, the Parties hereto have caused this
Agreement to be executed in their respective names by their
respective officers thereunto duly authorized, all of the day and
year first above written.
PACIFICORP
By: /c/Brian D. Sickels
Brian D. Sickels
Title: Vice President, Power Systems
BLACK HILLS CORPORATION
By: /c/Thomas M. Ohlmacher
Title: Vice President, Power Supply
<PAGE>
APPENDIX A
Sample Calculation of Rate of Deposit
1. Specified Annual Energy Requirement 30,000 MWh
2. Less energy rollover from prior year 4,234 MWh
3. Amount of energy to be deposited 25,766 MWh
(Line 1-Line 2)
4. Number of Heavy Load Hours in Storage Period 1,920 Hours
(Heavy Load Hours less planned maintenance)
5. Rate of deposit 13.420 MWh/h
(Line 3 divided by Line 4)
6. Round or truncate to whole number 14 MWh/h*
7. Revised energy delivered 26,880 MWh
(Line 6 * Line 4)
8. Revised Annual Energy Requirement 31,114 MWh
(Line 7 + Line 2)
_______________
*Black Hills may vary the rate of deposit plus or minus 25%
of the constant rate as provided at Subsection 5.2.
