SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
X ACT OF 1934
For the fiscal year ended December 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
Commission File Number 1-7978
BLACK HILLS CORPORATION
Incorporated in South Dakota IRS Identification Number 46-0111677
625 Ninth Street
Rapid City, South Dakota 57701
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 27, 1998 $471,999,190
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 27, 1998
Common stock, $1.00 par value 14,475,971 shares
DOCUMENTS INCORPORATED BY REFERENCE
1. Definitive Proxy Statement of the Registrant filed pursuant to Regulation
14A for the 1998 Annual Meeting of Stockholders to be held on May 19, 1998,
is incorporated by reference in Part III.
TABLE OF CONTENTS
Page
ITEM 1. BUSINESS...........................................................4
GENERAL........................................................4
ELECTRIC POWER SUPPLY..........................................4
ELECTRIC SERVICE TERRITORY AND SALES...........................6
COMPETITION IN THE ELECTRIC UTILITY BUSINESS...................7
COAL SALES.....................................................7
OIL AND GAS OPERATIONS.........................................8
ENERGY MARKETING OPERATIONS....................................9
ENVIRONMENTAL REGULATION.......................................9
EMPLOYEES.....................................................12
ITEM 2. PROPERTIES........................................................12
UTILITY PROPERTIES............................................12
MINING PROPERTIES.............................................13
OIL AND GAS PROPERTIES........................................13
ITEM 3. LEGAL PROCEEDINGS.................................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............15
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...............................................15
ITEM 6. SELECTED FINANCIAL DATA...........................................16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................16
LIQUIDITY AND CAPITAL RESOURCES...............................16
RATE REGULATION...............................................19
COMPETITION IN ELECTRIC UTILITY BUSINESS......................20
RESULTS OF OPERATIONS.........................................23
BUSINESS OUTLOOK STATEMENTS...................................29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE............................51
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................51
ITEM 11. EXECUTIVE COMPENSATION............................................52
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................52
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...52
SIGNATURES........................................................55
<PAGE>
DEFINITIONS
When the following terms are used in the text they will have the meanings
indicated.
TERM MEANING
Black Hills Power.............Black Hills Power and Light Company, the assumed
business name ofthe 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
Black Hills Capital Group.....Black Hills Capital Group, Inc., a wholly owned
subsidiary of Wyodak Resources
Clovis Point Mine.............Clovis Point Mine refers to coal properties
belonging to Kerr-McGee Coal Corporation
consisting of a federal coal lease, a state
coal lease and real property interests
including coal processing and rail loading
facilities, all of which Wyodak Resources has
acquired
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 and Neil
Simpson Unit #2
NS #2.........................Neil Simpson Unit #2, an 80 megawatt coal-fired
electric generating 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, an agency of
the Department of Energy of the United States
of America
WPSC..........................The Wyoming Public Service Commission
Western Production............Western Production Company, a wholly owned
subsidiary of Wyodak Resources
Wyodak Resources..............Wyodak Resources Development Corp., a wholly
owned subsidiary ofthe 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
company primarily consisting of four principal businesses: electric, coal
mining, oil and gas production, and energy marketing. The Company's mission
statement is to position the Company nationally to build value for
shareholders, offer competitive prices for customers and create opportunities
for employees through quality energy products and services. 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, its oil and gas exploration and production
operations through Western Production, and its energy marketing operations
through Black Hills Capital Group.
Black Hills Power is engaged in the generation, purchase, transmission,
distribution and sale of electric power and energy to approximately 56,300
customers in 11 counties in western South Dakota, northeastern Wyoming and
southeastern Montana, an area 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 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.
Black Hills Capital Group, incorporated under the laws of South Dakota in 1997,
holds the Company's investments in Black Hills Energy Resources, Inc. (formerly
Wickford Energy Marketing, Inc.), VariFuel, Inc., and a 50% interest in Enserco
Energy, Inc. The energy marketing companies noted above market natural gas,
crude oil, electricity, and related energy services to customers in the East
Coast, Midwest, Rocky Mountain and West Coast regions. In addition to the
energy marketing companies, Black Hills Capital Group will be a primary vehicle
for future corporate development activities.
Information as to the continuing lines of business of the Company for the
calendar years 1995-1997 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Revenue from sales to
unaffiliated customers:
Electric $126,194 $118,508 $108,563
Coal mining 19,991 20,931 19,372
Oil and gas 13,295 12,555 11,164
Energy marketing 142,790 - -
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Revenue from
inter-company sales:
Electric $ 303 $ 210 $ 220
Coal mining 11,089 10,384 10,498
</TABLE>
For additional information relating to the Company's operations by business
line see Note 11 of "Notes to Consolidated Financial Statements".
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 346 megawatts was reached in July
1997. Approximately 45 megawatts of additional load commenced January 1, 1997,
when Black Hills Power began providing wholesale electricity to MDU for its
Sheridan, Wyoming electric service territory. (See ITEM 1. BUSINESS-ELECTRIC
SERVICE TERRITORY AND SALES - Wholesale to MDU.) Black Hills Power estimates
its required reserves at 82 megawatts. Black Hills Power is not presently a
member of a power pool, but in 1997 Black Hills Power signed a Letter of Intent
to join a new power pool, Rocky Mountain Reserve Group. Rocky Mountain Reserve
Group's formation is pending approval by FERC. Upon joining the FERC-approved
power pool, Black Hills Power's reserve requirement is estimated to be 22
megawatts.
Black Hills Power owns coal-fired generating units having a summer capability
rating of 214 megawatts and 77 megawatts of oil-fired diesel and natural gas
combustion turbines for peaking and standby use. Black Hills purchases
additional resources under three contracts with Pacific Power: the Power Sales
Agreement, under which it purchases 75 megawatts of baseload power declining
to 50 megawatts from 2000 to 2004; the Reserve Capacity Integration Agreement,
under which 33 megawatts of additional reserve capacity are available; and the
Capacity Contract, under which Black Hills Power has options to be exercised
seasonally to purchase up to 60 megawatts of capacity.
PACIFIC POWER'S POWER SALES AGREEMENT
Pacific Power's Power Sales Agreement 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. In October 1997, Black Hills Power entered into a second
Restated and Amended Power Sales Agreement with Pacific Power. The Amended
Agreement reduces the contract capacity by 25 megawatts (5 megawatts per year
beginning in 2000). 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 generally based on Pacific Power's costs in
Units 3 and 4 of the Colstrip coal-fired generating plant near Colstrip,
Montana. Black Hills Power contracts for transmission service from Pacific
Power under Pacific Power's FERC approved transmission rates. The Company has
incurred capacity charges of $15,800 per megawatt month and an average energy
charge of $12.26 per megawatt hour over the last three years of this agreement
with a 55 percent load factor. (See ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - BUSINESS OUTLOOK
STATEMENTS.)
PACIFIC POWER'S 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'S CAPACITY CONTRACT
On September 1, 1995, Black Hills Power and Pacific Power entered into the
Pacific Power Capacity Contract. Under the contract, Pacific Power granted
Black Hills Power an option to be exercised for each six-month season for a
period commencing October 1, 1996 and ending March 31, 2007 to purchase up 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 which is defined as
the difference in Black Hills' Resources (all energy from Black Hills Power's
generating resources and energy entitlement under Pacific Power's Power Sales
Agreement) 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
prices are 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 and as opportunities arise in the
meantime, to increase sales of its energy and capacity.
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 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - COMPETITION IN ELECTRIC
UTILITY BUSINESS.)
As evidenced by a 1 percent increase in customers in both 1997 and 1996, the
economy in and around Black Hills Power's service territory is believed by
management to be stable. 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. In January 1998, Homestake Mining
Company (Homestake), the Company's third largest customer at 5.6 percent of
electric revenues, announced a reorganization and restructuring plan at its
gold mine in Lead, South Dakota. It is anticipated that the mine workforce
will be reduced from 900 to approximately 400 workers. The Company believes
that any load reductions at Homestake can be somewhat mitigated by additional
off-system sales. Currently, the Company does not believe that this
restructuring will have a material adverse effect on results of operations or
financial position. 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 to
the City of Gillette its first 23 megawatts of capacity requirements and the
associated energy. In 1997, as part of the contract amendment, the
transmission service component was unbundled from the power supply agreement,
and transmission service will be provided at FERC approved rates. In the
amended contract, the City of Gillette has agreed not to apply to FERC for any
rate change to be effective prior to January 1, 2003, unless and in the event
that Black Hills Power files for a rate change with FERC, which rate filing
cannot be effective prior to January 1, 2002, except under extraordinary events
as defined in the contract. In addition, Black Hills Power agreed to phase in
price reductions for the power purchased by the City of Gillette. The most
recent average annual capacity factor for this 23 megawatt demand has been
approximately 89 percent. Sales to Gillette represented 9.3 percent and 10.6
percent of total firm energy sales and 6.6 percent and 7.1 percent of revenue
from total electric sales in 1997 and 1996, respectively.
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 which commenced January 1, 1997. The MDU
Sheridan service territory has experienced a 47 megawatt winter peak and
operates at a 57 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.
ADDITIONAL OFF-SYSTEM SALES
Black Hills Power sold 279,600 and 249,100 megawatt hours of non-firm energy in
1997 and 1996, respectively. The selling price is based on spot market prices
which have generated only a small profit margin on the sales. (See ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - BUSINESS OUTLOOK STATEMENTS.)
TRANSMISSION SERVICE SALES
Black Hills Power furnishes long-term transmission services under two
contracts: (i) the transmission contract terminating December 31, 2020 (1986
Agreement), among Black Hills Power and Basin Electric and the other
distribution cooperatives as it concerns the transmission contract (the
Cooperatives) and (ii) the agreement with the City of Gillette terminating July
1, 2012 (described under Wholesale to City of Gillette above), under which
Black Hills Power has agreed to deliver all of the City of Gillette's electric
requirements. The rates charged under the transmission contract with the
Cooperatives are fixed formula rates, and the transmission rates under the
Gillette contract are established by FERC under Black Hills Power's open access
transmission tariff. (See ITEM 3. LEGAL PROCEEDINGS - Transmission Rates -
FERC Proceedings and ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -COMPETITION IN ELECTRIC UTILITY BUSINESS.)
COMPETITION IN THE ELECTRIC UTILITY BUSINESS
For information relating to competition in the electric utility business, see
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -COMPETITION IN ELECTRIC UTILITY
BUSINESS.
COAL SALES
SALES TO BLACK HILLS POWER'S PLANTS
Wyodak Resources sells coal to Black Hills Power for all its requirements under
an agreement that limits 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) 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 Wyodak Resources' coal mining investment
base as determined each year. Black Hills Power made a commitment to the
SDPUC, the WPSC and the City of Gillette that coal would be furnished and
priced as provided by this agreement for the life of NS #2. Earnings from the
intercompany sales of coal at this time represent 5.3 percent of the Company's
consolidated earnings.
Sales and production statistics for the last three calendar years comparing
sales to Black Hills Power to others are as follows:
<TABLE>
<CAPTION>
% Revenue
Revenue Derived from
from Sale Black HILLS Tons of
YEAR OF COAL POWER COAL SOLD
(in thousands, except % revenue)
<S> <C> <C> <C>
1997 $31,080 36 3,251
1996 31,315 33 3,243
1995 29,870 35 2,934
</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.) The
price for unprocessed coal sold to Pacific Power for its 80 percent interest in
the Wyodak Plant is determined by a coal supply agreement entered into by Black
Hills Power, Pacific Power and Wyodak Resources in 1978 and terminating in the
year 2013. This agreement was amended and restated in 1987. Revenue from coal
sales to the Wyodak Plant totaled $22,688,000 in 1997 or 73 percent of revenue
for all coal sold by Wyodak Resources. The quantity of coal sold in 1997 for
the Wyodak Plant was 2,155,000 tons, as compared to 2,125,000 tons sold in
1996. 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 16
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 3,251,000 tons of coal sold by Wyodak Resources in 1997, 1,427,000 tons
were sold to Black Hills Power, 1,725,000 tons were sold to Pacific Power and
99,000 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 total unaffiliated customers
for the last three years was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Sales to:
Pacific Power $19,240 $19,189 $16,777
Black Hills Power(1) 11,089 10,384 10,498
All unaffiliated
customers 19,991 20,931 19,372
</TABLE>
(1) 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 119,000 tons of coal to the South Dakota State Cement
Plant in 1996. The Cement Plant canceled this contract in October 1996.
Smaller amounts of coal are sold to various businesses. All substantial 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. Currently, Wyodak Resources' coal sales are confined to sales for
consumption at or near the mine. Wyodak Resources is a relatively small coal
mine in relation to others in the area and its current production costs exceed
the current spot market price for coal. (See ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-BUSINESS OUTLOOK
STATEMENTS-Future Coal Sales.)
OIL AND GAS OPERATIONS
Net income and assets related to oil and gas operations have been 7 percent or
less of the Company's consolidated amounts over the last three 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 three
years was as follows:
<TABLE>
<CAPTION>
Oil and Gas Gas Plant Field
YEAR SALES REVENUE SERVICES
(in thousands)
<S> <C> <C> <C>
1997 $9,763 $755 $2,777
1996 9,050 875 2,630
1995 7,449 762 2,953
</TABLE>
Western Production produced approximately 590,000 equivalent barrels of oil in
1997 comprised of 51 percent oil and 49 percent gas.
ENERGY MARKETING OPERATIONS
In July 1997, Black Hills Capital Group acquired the assets and hired the
operational management of Jomax Partners, L.P. as successor and survivor of
Wickford Energy Marketing, L.C. and Wickford Energy Marketing Canada Company.
In March 1998, Wickford Energy Marketing, Inc. changed its name to Black Hills
Energy Resources, Inc. Black Hills Energy Resources is headquartered in
Houston, Texas with a natural gas sales office in Calgary, Alberta, Canada and
crude oil sales offices in Tulsa, Oklahoma and Midland, Texas. Black Hills
Energy Resources is a "niche" wholesale natural gas and crude oil marketing
company with expertise in Gulf Coast and Canadian Supply, targeting natural gas
markets in the East Coast and Midwest and crude oil markets primarily in the
Southwest.
Since its acquisition in July 1997, Black Hills Energy Resources marketed
231,000 mmbtus (million British thermal units) of natural gas per day and
12,600 barrels of oil per day. Wholesale natural gas and crude oil businesses
are high volume, lower margin operations. Operating revenues for natural gas
and crude oil sales totaled $94,295,000 and $46,810,000, respectively, for the
five month period since acquisition. With a full year of operations in 1998,
the Company expects revenues to increase substantially from 1997 levels, but
does not expect Black Hills Energy Resources' contribution to total Company
operations to be significant.
In 1996, Wyodak Resources established Enserco Energy, Inc., a Lakewood,
Colorado-based energy marketing company. (See ITEM 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -RESULTS OF
OPERATIONS - Energy Marketing Operations.)
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 currently working with DEQ to obtain an air quality operating permit and
expects to receive such permit in 1998. Black Hills Power has been in
substantial compliance with its PSD permit in its operations of NS #2 since its
completion in August of 1995. Black Hills Power is continuing to make final
adjustments to NS #2's equipment and operating procedures and to work with the
DEQ to obtain its operating permit and achieve complete 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.
All existing generating units of the Company are required to obtain operating
source permits under the Clean Air Act amendments. The operating permit
applications for the Osage and NS #1 generating units were submitted in 1995
and received in 1997. Air quality permits for the Ben French Station were
renewed in 1995 by the Department of Environment and Natural Resources of South
Dakota. Black Hills Power expects to renew this permit in 1998.
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.
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 substantial unexpected increases in costs
of the reclamation permit relates to three depressions, the existing south
depression, the Peerless depression and the North Pit 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 that 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.
Cleanup costs recognized to date total approximately $434,000, of which amount
$312,000 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 equipment in compliance with law as it is
discovered.
Several years ago, Black Hills Power began a testing program of possible PCB-
contaminated transformers, and in 1997 completed testing of all transformers
and capacitators which are not located in Black Hills Power's electric
substations. Black Hills Power has not completed the testing of sealed
potential transformers and bushings located in its electric substations as the
testing of such equipment will require the destruction of the equipment. While
release of PCB-contaminated fluid, if present, from such equipment is unlikely
and the volume of fluid in such equipment is generally less than one gallon,
any release of such fluid would be confined to Black Hills Power's substation
site.
Release of PCB-contaminated fluids, especially any involving a fire or a
release into a waterway, could result in substantial cleanup costs. The
Company has not received any notices of non-compliance relating to PCB
regulations.
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, 1997, the number of employees of the Company (including Black
Hills Power), Wyodak Resources, Western Production and Black Hills Capital
Group were 324, 53, 35, and 34, respectively, for a total of 446 employees.
Approximately 44 percent of the employees of Black Hills Power are covered by
union contracts with the International Brotherhood of Electrical Workers. In
the Company's opinion employee relations are satisfactory.
<PAGE>
ITEM 2. PROPERTIES
UTILITY PROPERTIES
The following table provides information on the generating plants of Black
Hills Power. During 1997, 99 percent of the fuel used in electric generation,
measured in Btus (British thermal units), was coal.
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
Ben French Station -
Rapid City, South Dakota 1960 25,000 Coal
1965 10,000 Oil
1977-1979(a) 100,000 Oil or gas
Neil Simpson Station -
Gillette,Wyoming 1969 21,760 Coal
1995(b) 88,900 Coal
Wyodak Plant -
Gillette, Wyoming 1978(c) 72,400 Coal
Total 352,560
</TABLE>
(a) These combustion turbines are those referenced by ITEM 1. BUSINESS -
ELECTRIC POWER SUPPLY - Pacific Power's Reserve Capacity Integration
Agreement.
(b) NS #2 was placed into commercial operation in August 1995. The plant's
total production may, at times, exceed its name plate rating by 11 MWs.
(c) Black Hills Power's 20 percent interest. See Note 6 of "Notes to
Consolidated Financial Statements". Black Hills Power owns transmission
lines and distribution systems in and adjoining the communities served
consisting of 447 miles of 230 kV, 530 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.
<PAGE>
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 sales
contracts. The coal averages 8,000 Btus per pound. Mining rights to the coal
are based upon four federal leases and one state lease. The estimated
recoverable coal from the leases as of December 31, 1997 is 284,175,000 tons,
of which 24,132,000 tons are committed to be sold to the Wyodak Plant and
approximately 26,130,000 tons to Black Hills Power's other plants.
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. The state lease provides for a
royalty to be determined every five years. Currently, the royalty on the state
lease, to be reviewed in 1998, is 7% of the selling price of the coal. Each
federal lease and state 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 leases and the state lease 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 December 31, 1991, the date of the
logical mining unit. Even if federal and state 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 state and 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.
In September 1996, Wyodak Resources entered into an agreement to purchase the
Clovis Point Mine properties from Kerr McGee Coal Corporation. Acquisition of
the property increased Wyodak Resources' 1996 recoverable reserves to
approximately 288 million tons and includes a train loadout facility,
maintenance and processing facilities and a developed open pit. (See ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES - Acquisition of Clovis Point Mine
Properties.)
OIL AND GAS PROPERTIES
Western Production operates 310 wells as of December 31, 1997. The 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 174 producing properties located in the western and southern United
States. Western Production also owns a 44.7 percent non-operating interest in
a natural gas processing plant also located at the Finn Shurley Field.
Western Production participated in the drilling of 37 exploratory and
development wells in 1997. Western Production's average working interest in
such wells was 19 percent, or 7 net 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. Twenty-
two out of the 37 wells drilled in 1997 were completed as producing wells for
an overall drilling success rate of 59 percent.
See the table in Note 10 of "NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS"
for Western Production's estimated quantities of proved developed and
undeveloped oil and natural gas reserves at December 31, 1997, 1996 and 1995,
and a reconciliation of the changes between these dates using constant product
prices for the respective years.
ITEM 3. LEGAL PROCEEDINGS
TRANSMISSION RATES - FERC PROCEEDINGS
In Black Hills' open access transmission tariff proceedings before the FERC
under the provisions of Rule 888, Black Hills and the FERC Trial Staff have
reached a settlement which has been forwarded to the FERC for their review and
approval. This settlement allows Black Hills to use the revenues received
under the long-term transmission agreement between the Company and the
Cooperatives which terminates on December 31, 2020 (SEE ITEM 1. BUSINESS -
ELECTRIC SERVICE TERRITORY AND SALES) as being equal to the cost of providing
service to the Cooperatives. The settlement recognizes the benefits realized
by Black Hills in working with the RECs relating to the construction of
transmission facilities and, as a result of these joint efforts, applies the
revenue credit method in determining Black Hills Power's open access
transmission tariff rates by crediting the revenue received from the
Cooperatives against Black Hills Power's revenue requirements necessary to earn
a just and reasonable rate on its transmission facilities. The Cooperatives'
transmission loads are not considered when calculating Black Hills' open access
transmission tariff rates; and as such, the Cooperatives are paying less than
their fully allocated cost for use of the transmission system. But as a result
of allowing the revenue credit methodology, the open access transmission rates
still allow Black Hills to earn a just and reasonable rate on its transmission
facilities. The settlement with the FERC is consistent with past actions of
the SDPUC and WPSC, which similarly have allowed Black Hills to use the revenue
credit methodology in determining bundled rates for retail customers. The
settlement with the FERC now applies the revenue credit methodology in
determining wholesale transmission rates.
In the settlement with the FERC Trial Staff, Black Hills has agreed to file for
new open access transmission tariff rates in the event that: (1) either the
South Dakota or the Wyoming legislatures adopt retail access which would allow
alternative electricity suppliers to have access to existing franchised retail
service territories; (2) an entity other than Black Hills Power or the
Cooperatives establishes generation tied to a Cooperative's transmission line
as identified in the 1986 Black Hills Power-Basin Electric Transmission
Agreement for service to that entity's existing retail customers within the
joint transmission area; (3) an AC/DC/AC tie is established near Rapid City,
South Dakota, to connect the western electric transmission and eastern electric
transmission grids of the United States; or (4) the FERC revises the rates
Black Hills Power charges the Cooperatives. Finally, to the extent that a
transmission customer (other than Black Hills Power or the Cooperatives)
arranges for transmission service on the Cooperatives' transmission facilities
as defined in the 1986 Agreement for the purposes of serving the transmission
customer's retail customers within the joint transmission area as defined
within the 1986 Agreement, Black Hills Power shall provide a credit, not to
exceed its tariff rate, against their rates for transmission service it charges
to such transmission customer for its use of the Cooperatives' transmission
facilities to serve the transmission customer's retail customers within the
joint transmission area.
Because Rule 888 now gives the cooperatives the full use of the transmission
system, in another FERC proceeding, Black Hills Power has filed a complaint
against the Cooperatives asking the FERC to modify the transmission contract
with the cooperatives so that the Cooperatives will in the future be obligated
to pay a just and reasonable rate that would fairly allocate the capital costs
of the transmission system to reflect the cooperative's use of that system.
No further action has occurred in the complaint filed by Black Hills Power
against the Cooperatives and Black Hills' request to require the Cooperatives
to pay a just and reasonable rate for their use of the transmission system.
In view of the uncertainty as to how the FERC will administer the new Rule 888
in ordering open access transmission and the uncertainty of whether the FERC
will interfere with existing transmission contracts, the Company can give no
opinion as to the outcome of the FERC proceedings outlined above. However,
Black Hills Power does not anticipate any material use of its transmission
system by third-parties until such time that retail wheeling may be instituted.
It is uncertain at this date as to what extent the FERC or the state regulatory
jurisdictions will have jurisdiction over determining retail wheeling rates.
(See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - COMPETITION IN ELECTRIC UTILITY BUSINESS.)
OTHER 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 1997.
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 6,539 common shareholders of record. All 50
states and the District of Columbia plus 8 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 1998 meeting, the Board of
Directors raised the quarterly dividend to 25.0 cents per share, equivalent to
an annual increase of 5.3 cents per share. This regular quarterly dividend is
payable March 1, 1998. 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 adjusted for the 3-for-2 Common Stock split in March 1998 were as
follows:
<TABLE>
<CAPTION>
Year ended December 31, 1997
1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
Dividends paid
per share $0.237 $0.237 $0.237 $0.237
Common stock
prices
High $19.25 $19.67 $19.75 $24.29
Low $17.50 $17.58 $17.92 $19.50
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1996
1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
Dividends paid
per share $0.230 $0.230 $0.230 $0.230
Common stock
prices
High $17.50 $17.50 $17.33 $19.17
Low $15.50 $15.75 $15.17 $15.83
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following data was derived from the Company's audited financial statements.
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995 1994 1993
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating revenues $313,662 $162,588 $149,817 $145,402 $139,373
Net income 32,359 30,252 25,590 23,805 22,946
Per share of common stock*:
Earnings - basic
and diluted 1.49 1.40 1.19 1.11 1.11
Dividends paid 0.95 0.92 0.89 0.88 0.85
Total assets 508,741 467,354 448,830 436,877 352,853
Long-term debt 163,360 164,691 166,069 128,925 85,274
</TABLE>
* The per share of common stock information has been restated to reflect the
3-for-2 Common Stock split in March 1998.
Quarterly financial data for the years indicated are summarized as follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Operating revenues $43,879 $40,259 $98,182 $131,342
Operating income 15,707 12,894 15,642 14,667
Net income 8,586 6,762 8,644 8,367
Earnings per share* 0.39 0.31 0.40 0.39
YEAR ENDED DECEMBER 31, 1996
Operating revenues $41,104 $37,783 $42,565 $41,136
Operating income 14,182 11,196 14,919 14,008
Net income 8,001 5,887 8,243 8,121
Earnings per share* 0.37 0.27 0.38 0.38
</TABLE>
*The earnings per share amounts have been restated to reflect the March 1998
stock split.
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 1995 through 1997 were
primarily for the replacement of equipment, modernization of facilities, oil and
gas investment and expansion of energy marketing operations. The primary
capital requirements of the Company for the past three years were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Construction of NS #2 $ - $ - $33,219
Other property additions 21,186 24,576 18,676
Common stock dividends 20,540 19,930 19,312
Energy marketing assets 7,232 - -
Maturities/redemptions of long-term debt 1,534 1,405 10,499
$50,492 $45,911 $81,706
</TABLE>
Capital requirements for projected construction, capital improvements, oil and
gas investments and corporate development activities for the next three years
are estimated to be as follows:
<TABLE>
<CAPTION>
1998 1999 2000
(in thousands)
<S> <C> <C> <C>
Electric:
Production $ 928 $ 972 $ 959
Transmission 5,395 1,993 3,010
Distribution 7,811 8,002 8,083
General 1,890 2,400 2,378
16,024 13,367 14,430
Coal mining 1,306 2,466 4,546
Oil and gas 11,047 10,000 10,000
Corporate development 20,000 10,000 10,000
$48,377 $35,833 $38,976
</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. Forecasted investment in
corporate development activities are dependent on market conditions at the time
and the Company's ability to identify opportunities consistent with its
corporate strategy. WYGEN, Inc., DAKSOFT, Inc., Black Hills Energy
Resources, Inc. (formerly Wickford Energy Marketing, Inc.), VariFuel, Inc. and
Enserco Energy, Inc., 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. Black Hills Energy Resources, Inc. and VariFuel, Inc. were acquired
in 1997 and are energy marketing companies. Enserco was formed in 1996 as an
energy marketing company. The energy marketing companies are generally not
capital intensive businesses. If long term sales agreements are reached
requiring capital expenditures, such expenditures will be evaluated at that
time.
Electric operations is the only segment of the Company's business with long-
term debt. Long-term debt sinking fund requirements are: $1,331,000 in 1998,
$1,330,000 in 1999 and $1,330,000 in 2000.
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 $700,000 is charged to operations as reclamation expense
annually. As of December 31, 1997, accrued reclamation costs were
approximately $16,700,000 which includes $7,957,000 for the 1996 Clovis Point
Mine Acquisition. (See Acquisition of Clovis Point Mine Properties following
this section.)
The Company has a 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 used the open market purchase
option for all of 1997, 1996 and 1995.
Under a 1994 shelf registration, the Company issued bonds in the amount of
$30,000,000 on February 3, 1995 and $15,000,000 on July 14, 1995. 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 debt
component of the Company's capital structure at December 31, 1997 and 1996, was
44 percent and 46 percent, respectively. 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 or significant other
development opportunities are consummated. (See ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-
RESULTS OF OPERATIONS-Independent Power Business.)
The Company had $12,000,000 of unsecured short-term lines of credit at December
31, 1997 and 1996, which provide for interim borrowings and the opportunity for
timing of permanent financing. There were no borrowings outstanding under
these lines of credit as of December 31, 1997. Borrowings outstanding under
these lines of credit were $120,000 as of December 31, 1996 at a weighted
average interest rate of 8.0 percent. There are no compensating balance
requirements associated with these lines of credit.
In addition to the above lines of credit, Black Hills Energy Resources has a
$65,000,000 uncommitted line of credit with a national bank ($50,000,000 for
letters of credit and $15,000,000 for working capital) to provide credit
support for purchases and sales of natural gas and crude oil. The Company does
not provide credit support for this agreement. At December 31, 1997, there
were outstanding letters of credit totaling $29,000,000 which reduced the
available credit to $36,000,000.
In addition to the above lines of credit, Black Hills Energy Resources has
guaranteed a $15,000,000 line of credit for Enserco to use to guarantee letters
of credit. Enserco pays a 0.125 percent facility fee on this line of credit.
At December 31, 1997, there were no balances outstanding on this line 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 are at an A1 level at
Moody's Investors Service, Inc. and at an A+ at Standard & Poor's. These
ratings reflect the respective agencies' opinions of the credit quality of the
Company's first mortgage bonds.
ACQUISITION OF CLOVIS POINT MINE PROPERTIES
In September 1996, Wyodak Resources entered into an agreement to purchase the
Clovis Point Mine properties from Kerr-McGee Coal Corporation. The Clovis
Point Mine properties are located adjacent to Wyodak Resource's current
reserves in Campbell County, Wyoming, and consist of State of Wyoming and
federal leased coal reserves.
Acquisition of the property increased the Company's 1996 recoverable reserves
from 170 million tons to approximately 288 million tons and included a train
loadout facility, maintenance and processing facilities and a developed open
pit.
The purchase price consisted of the assumption of the responsibility to reclaim
the existing Clovis Point open pit and the payment of overriding royalties to
Kerr McGee if and when coal is produced from the acquired properties. Wyodak
Resources is not obligated to mine the coal. (See NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS - Note 7.) The acquisition was subject to the approval of
the Bureau of Land Management(BLM) of the United States of a logical mining unit
(LMU) including the newly acquired Clovis Point Mine. The Company received the
BLM approvalin 1997. The Board of Land Commissioners of the State of Wyoming
approved the transfer of the state lease in 1996. The modified LMU meets all
requirements of the laws and regulations for an LMU.
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 replaced
power Black Hills Power was purchasing from other sources.
Black Hills Power was authorized a 6.76 percent increase in electric rates
charged its South Dakota customers (representing approximately 81 percent of
1995 sales) effective August 1, 1995, an 8.97 percent increase for its Wyoming
retail customers (representing approximately 8 percent of 1995 sales) effective
August 16, 1995, and a 12.3 percent increase for its only wholesale customer in
1995, the City of Gillette (representing approximately 10 percent of 1995
sales), effective September 6, 1995. The increase for the City of Gillette
was reduced to an 8.8 percent increase commencing January 1, 1997, when Black
Hills Power began to receive additional revenue from wholesale sales to MDU for
its Sheridan, Wyoming, service territory. (See ITEM 1. BUSINESS - ELECTRIC
SERVICE TERRITORY AND SALES - Wholesale to City of Gillette; Wholesale to MDU.)
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.
During the freeze period, Black Hills Power is undertaking 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 anticipates that Black
Hills Power will 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. (See ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - BUSINESS OUTLOOK
STATEMENTS.)
LONG-TERM CONTRACTS
As a result of rate negotiations, Black Hills Power was successful in entering
into long-term contracts with most of 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 that begin to expire in 2000. However, 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 notice to allow for planning to
make the transition to full competition, guard against stranded investment and
protect other customers from rate impacts of unexpected load loss. However,
management cannot predict if the notice period would be sufficient to fully
adapt for competition. These industrial and large commercial customers,
together with the wholesale power sales agreements to the City of Gillette and
MDU, result in approximately 40 percent of Black Hills Power's firm load 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.
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 customers 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
consistent with its open access transmission tariff. The FERC has recognized
the principle 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. However, the Company can give no assurances to what extent
the stranded cost provisions will be administered or how they would be applied
to Black Hills Power. 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 Policies 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 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -RESULTS OF OPERATIONS - Independent Power
Business.)
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
In 1996, the FERC adopted Rule 888 that requires 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 provide for various transmission services to
be provided for any competitor but apply to the transmission of electric power
for wholesale purposes only. Black Hills Power filed an application with the
FERC in 1996 to approve its open access transmission tariffs. The regulations
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. Black Hills Power was granted an
extension by FERC to delay establishing an electronic bulletin board until
WAPA, which operates the control area in which Black Hills Power is located,
establishes or participates in an electronic bulletin board. The public
utilities are further required by FERC to adopt standards of conduct which
require the functional separation of those persons who operate and market the
transmission system from those persons who buy and sell power for the same
utility; however, the FERC granted a waiver to Black Hills Power from the
requirement to adopt the standards of conduct in view of Black Hills Power's
small transmission system and lack of significant market control. 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.
The new FERC regulations requiring the filing of open access tariffs does 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 has adopted 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
through contract. 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 for wholesale purposes through Black Hills Power's
transmission system is 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-use customers
who are located in service areas assigned 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 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 will come to the areas where it now provides
exclusive retail electric service. 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,
South Dakota does not have any legislative activity regarding retail wheeling.
A committee of the Wyoming legislature considered an electric deregulation
bill for the 1998 session. The bill did not get out of committee, however, it
or an alternative bill could be introduced to the full Wyoming legislature for
consideration. The regulatory commissions in both states are considering the
potential impacts of electric utility industry restructuring. The Company is
unable to predict whether Congress or the states may in the future require
electric retail competition and, if they do, whether the ground rules for
competition will be fair to all participants.
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 will endeavor
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 revenues due to competition
should be allowed recovery of 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. Lower rates today are partially caused by excess generation capacity
which allows providers to sell energy above their marginal costs but below full
costs.
However, the Company is unable to predict future markets and economic
conditions and government actions or inaction that could have a materially
adverse affect on Black Hills Power's ability to compete in a fully competitive
electric power market and to maintain its equity return on investment. (See
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - BUSINESS OUTLOOK
STATEMENTS.)
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 1997 due to strong sales growth in
electric operations, record coal production and stable oil and gas results.
Consolidated net income for 1997 was $32,359,000 compared to $30,252,000 in
1996 and $25,590,000 in 1995 or $1.49 per average common share in 1997, $1.40
per average common share in 1996 and $1.19 per average common share in 1995.
This equates to a 15.8 percent return on year-end common equity in 1997, 15.7
percent in 1996 and 14.0 percent in 1995. Consolidated net income includes
noncash earnings of $3,645,000 for allowance for equity funds used during NS
#2 construction in 1995.
Consolidated revenue and net income (loss) provided by the four business
segments as a percentage of the total were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenue:
Electric 40% 73% 73%
Coal mining 10 19 20
Oil and gas 4 8 7
Energy
marketing 46 - -
100% 100% 100%
1997 1996 1995
Net Income (Loss):
Electric 68% 61% 57%
Coal mining 28 32 38
Oil and gas 7 7 5
Energy marketing
and other (3) - -
100% 100% 100%
</TABLE>
Dividends paid on common stock totaled $0.95 per share in 1997. This reflected
increases approved by the Board of Directors from $0.92 per share in 1996 and
$0.89 per share in 1995. 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 60'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 1997 was 63 percent.
In January 1998 the Board of Directors increased the quarterly dividend 5.6
percent to 25 cents per share. If this dividend is maintained during 1998, it
will be equivalent to $1.00 per share, an annual increase of 5 cents per share.
The Board of Directors, at its January 1998 meeting, declared a 3-for-2 Common
Stock split effected in the form of a stock dividend. The stock distribution
is payable March 10, 1998 to shareholders of record on February 13, 1998 and is
reflected in this report.
ELECTRIC OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Revenue $126,497 $118,718 $108,783
Operating
expenses 81,886 79,628 80,540
Operating income $ 44,611 $ 39,090 $ 28,243
Net income $ 22,106 $ 18,333 $ 14,569
</TABLE>
Electric revenue increased 6.6 percent in 1997 compared to a 9.1 percent
increase in 1996 and a 3.8 percent increase in 1995. Firm kilowatthour sales
increased 13.0 percent in 1997 compared to a 3.9 percent increase in 1996 and a
0.5 percent increase in 1995 and have averaged an annual 5.7 percent growth
rate over the last three years.
The increase in electric revenue and firm kilowatthour sales in 1997 was
primarily due to the additional load to serve MDU's energy requirements for its
customers in the Sheridan, Wyoming area. Partially offsetting the increase,
residential sales declined 3 percent primarily due to milder weather. Degree
days, a measure of weather trends, were 15 percent below last year and 2
percent below normal.
The increase in electric revenue in 1996 was due to strong sales growth in all
sectors of the Company's electric business, including the industrial sector
which had a decrease in sales in 1995, and the inclusion of NS #2 in the
Company's rate base (See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - RATE REGULATION - Commercial
Operation of NS #2 and the Related Rate Recovery).
The increase in revenue in 1995 was primarily due to the increase in electric
rates and strong growth in the residential and commercial sectors of the
Company's electric business. 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.
Revenue per kilowatthour sold was 5.5 cents in 1997 compared to 5.8 cents in
1996 and 6.1 cents in 1995. The number of customers in the service area
increased to 56,269 in 1997 from 55,601 in 1996 and 55,018 in 1995. The
revenue per kilowatthour sold in 1997 reflects the increased wholesale sales to
MDU's Sheridan, Wyoming customers and 279,600 megawatthours of wholesale non-
firm sales. The revenue per kilowatthour sold in 1996 and 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 249,100 megawatt hours
of wholesale non-firm sales in 1996 and 60,575 megawatt hours in 1995.
Excluding Sheridan, Wyoming's sales and non-firm sales, the rate per
kilowatthour sold was 6.5 cents in 1997 and 1996 and 6.3 cents in 1995.
Operating expenses have remained fairly stable over the last three years. The
increase in operating expenses in 1997 are primarily due to the increased load
requirements to serve MDU's Sheridan, Wyoming energy needs. The increase in
operating expenses and depreciation associated with the commercial operation of
NS #2 were offset by a decrease in fuel and purchased power costs. Coinciding
with the commercial operation of NS #2, in 1995, 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
material impact on the consolidated financial statements.
`
Depreciation expense decreased 9 percent in 1997 as a result of the 1996
accelerated depreciation of the Kirk Power Plant. Depreciation expense
increased 35 percent in 1996 related to a full year of depreciation on NS #2
and accelerated depreciation related to the Kirk Power Plant. The Kirk Power
Plant was placed in cold reserve in August 1995 and was fully depreciated at
December 31, 1996.
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 327 MWs established in January 1997
and a summer peak of 346 MWs established in July 1997. 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. Weather
deviations can adversely effect energy sales when compared to forecasts based
on normal weather.
COAL MINING OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Revenue $31,080 $31,315 $29,870
Expenses 18,863 19,081 17,644
Operating income $12,217 $12,234 $12,226
Net income $ 9,073 $ 9,934 $ 9,737
</TABLE>
Revenue decreased 1 percent in 1997 due to a decrease in the price charged to
the utility's operations. (See explanation of the change in coal pricing
methodology under Electric Operations). Wyodak Resources had record coal
production of 3,251,000 tons in 1997.
Revenue increased 4.8 percent in 1996 and 4.5 percent in 1995, due to a 10.5
percent and a 5.0 percent increase in tons of coal sold in 1996 and 1995,
respectively.
Operating expenses decreased 1 percent in 1997 due to lower revenue based taxes
other than income taxes and increased 8.1 percent in 1996 and 5.7 percent in
1995 reflecting the increase in tons of coal sold.
Non-operating income was $1,066,000 in 1997 compared to $2,725,000 in 1996 and
$2,279,000 in 1995. Non-operating income includes gains or losses on sale or
disposal of property and equipment and interest income from investments. Non-
operating income increased in 1996 due to a $700,000 gain realized on the
disposal of equipment and an increase in cash available for investment. 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.
Wyodak Resources expects relatively stable sales in 1998 absent unplanned
outages at the Wyodak Plant or Black Hills Power's plants.
OIL AND GAS OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Revenue $13,295 $12,555 $11,164
Expenses 10,388 9,574 9,471
Operating income $ 2,907 $ 2,981 $ 1,693
Net income $ 2,147 $ 2,198 $ 1,320
</TABLE>
Net income and assets related to oil and gas operations have been 7 percent or
less of the Company's consolidated amounts over the last three years.
Western Production's product sales and product prices for the last three years
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Barrels of oil sold 299,000 286,000 266,000
Mcf of natural gas sold 1,747,000 1,718,000 1,986,000
Equivalent barrels
of oil sold 590,000 572,000 597,000
Price per barrel
of oil $19.05 $21.09 $17.09
Price per mcf of
natural gas $2.42 $2.05 $1.46
</TABLE>
In 1997 and 1996, Western Production sold certain interest in natural gas
properties for $165,000 and $380,000, respectively. Such sales are not
expected to materially impact future production.
During 1995, Western Production sold its interest in several wells with
estimated net remaining reserves of 208,000 barrels of oil equivalent for
approximately $2,175,000. The impact of this sale reduced 1995 production by
approximately 100,000 equivalent barrels.
Western Production's production expenses increased 8.5 percent in 1997, 1.1
percent in 1996, and decreased 7.1 percent in 1995. Production expenses
increased in 1997 due to increased depletion as a result of increased oil and
gas production and lower crude oil prices. Production expenses decreased in
1995 reflecting lower depletion expense associated with higher oil prices and a
successful drilling program. Western Production recognized $3,920,000,
$3,434,000 and $3,730,000 of depletion expense in 1997, 1996 and 1995,
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,
development, and production enhancement activities are conducted or additional
proved reserves are acquired. Western Production has been active in
exploration and development drilling during the past three years.
Western Production's drilling results were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
GROSS NET GROSS NET GROSS NET
<S> <C> <C> <C> <C> <C> <C>
Wells drilled 37 7.1 52 7.0 22 5.2
Producing 22 3.5 35 4.7 14 3.8
Success Rate 59% 67% 64%
</TABLE>
In 1997, Western Production acquired approximately 121,000 barrels of oil and
0.2 bcf of natural gas in the Finn Shurley Field for $455,000.
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 2.5,
2.4, and 1.6 million barrels of oil and 9.1, 11.0 and 7.7 billion cubic feet
of natural gas as of December 31, 1997, 1996 and 1995, respectively. The
decrease in reserves at December 31, 1997 was due to lower oil and gas prices
and reductions in engineering estimates of recoverable reserves for certain
natural gas properties. The increase in reserves at December 31, 1996 was due
to a successful drilling program and higher oil and gas prices. The decrease
in reserves at December 31, 1995 was due to the sale of properties described
above and low gas prices.
ENERGY MARKETING OPERATIONS
Within the context of this report, an energy marketing company is a company
that sells and buys natural gas and electric power at market prices and
ordinarily does not participate in the production of energy. A marketing
company is not a traditional public utility servicing a franchised service
territory at rates that are just and reasonable based upon a rate of return on
an investment rate base as permitted by regulatory commissions.
Black Hills Capital Group, Inc. was incorporated by the Company to hold the
Company's equity and debt investments in Black Hills Energy Resources, Inc.
(formerly Wickford Energy Marketing, Inc.), VariFuel, Inc. and Enserco Energy,
Inc. (the energy marketing companies are described in more detail below). In
addition to the energy marketing companies, Black Hills Capital Group will be
the primary vehicle for future corporate development activities outside of the
internal company specific activities.
In 1997, Black Hills Capital Group incurred a net loss of $746,900 primarily
due to mild weather conditions in its target markets, start-up expenses and
additional administrative expenses to expand its energy marketing operations.
In July 1997, Black Hills Capital Group acquired the assets and hired the
operational management of Jomax Partners, L.P. as successor and survivor of
Wickford Energy Marketing, L.C. and Wickford Energy Marketing Canada Company.
Black Hills Energy Resources, Inc. (formerly Wickford Energy Marketing, Inc.)
is headquartered in Houston, Texas with a natural gas sales office in Calgary,
Alberta, Canada and crude oil sales offices in Tulsa, Oklahoma, and Midland,
Texas. Black Hills Energy Resources is a "niche" wholesale natural gas and
crude oil marketing company with expertise in Gulf Coast and Canadian supply,
targeting natural gas markets in the East Coast and Midwest and crude oil
markets primarily in the Southwest.
Since its acquisition in July 1997, Black Hills Energy Resources marketed
231,000 mmbtus of natural gas per day and 12,600 barrels of oil per day.
Wholesale natural gas and crude oil businesses are high volume, lower margin
operations. Operating revenues for natural gas and crude oil sales totaled
$94,295,000 and $46,810,000, respectively, for the five-month period since
acquisition. Cost of natural gas and crude oil sold (included in Fuel and
Purchased Power in the CONSOLIDATED STATEMENTS OF INCOME) relating to the above
revenues totaled $140,151,000 in 1997. With a full year of operations in 1998,
the Company expects revenues and related expenses to increase substantially
from 1997 levels, but does not expect Black Hills Energy Resources'
contribution to total Company operations to be significant.
Black Hills Energy Resources has a $65,000,000 uncommitted line of credit with
a national bank ($50,000,000 for letters of credit and $15,000,000 for working
capital) to provide credit support for purchases and sales of natural gas and
crude oil. The Company does not provide credit support for this agreement.
In November 1997, Black Hills Capital Group, Inc. acquired the assets and hired
the operational management of VariFuel, Inc. (VariFuel). VariFuel targets
commercial and industrial natural gas customers located primarily in the
Chicago, Illinois and northern Indiana area. VariFuel is headquartered in
Houston, Texas with a sales office in Chicago, Illinois. VariFuel's retail
marketing operations complement Black Hills Energy Resources' wholesale
marketing operations in the Midwest. The financial position and results of
operations of VariFuel are not significant to the Company at this time.
In 1996, Wyodak Resources, with the participation of three individuals, formed
an energy marketing startup company under the name of Enserco Energy, Inc.
(Enserco), headquartered in Lakewood, Colorado. Wyodak Resources acquired 50
percent of the capital stock of Enserco, and the other 50 percent was acquired
by three of the full-time officers of Enserco. However, to fund the startup
operations, Wyodak Resources acquired a convertible debenture from Enserco,
that Wyodak Resources has the right to convert to additional capital stock of
Enserco, which would increase Wyodak
Resources' ownership interest to 70 percent of the issued and outstanding
capital stock of Enserco.
To provide Enserco with the financial backing to participate in the purchase
and sale of natural gas and electric power, Wyodak Resources has agreed to
guarantee up to $15,000,000 of letters of credit to be issued by banks to
guarantee purchases and sales of natural gas and electric power.
Enserco has acquired the approval from the FERC of a tariff which allows
Enserco to sell electric power at market prices. Enserco is also qualified to
purchase and sell natural gas at market prices. Enserco is a startup company
and has not as yet realized a profit. Its operations are not material to the
Company at this time.
Although the energy marketing business is highly competitive, management is of
the opinion that due to the increasing competition in the energy business, it
is essential for many reasons to be active with the energy marketing business,
including the knowledge the Company gains in the marketing of energy, which is
required for the Company to effectively compete in all aspects of its energy
business.
The energy marketing companies anticipate generating large amounts of revenue
and corresponding expense related to buying and selling energy products.
Associated with the purchase and sale of energy products, the energy marketing
companies will use derivatives (exchange traded and over-the-counter energy
financial instruments) to manage risk associated with the buying and selling
of energy products whose prices can be extremely volatile. The use of
derivatives helps mitigate risk in the trading of energy products but does not
eliminate the risk. Wyodak Resources and the energy marketing companies have
adopted risk management policies and established risk management committees to
further mitigate risk associated with the sale and purchase of energy products.
Some purchasers and sellers with whom the energy marketing companies transact
business require the utilization of letters of credit to assure the underlying
performance of the obligations between the parties. The failure of a party to
perform may result in a significant risk of loss to the energy marketing
companies and corresponding loss to Wyodak Resources as it concerns the
outstanding letters of credit to Enserco.
INDEPENDENT POWER BUSINESS
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. In 1996, WYGEN received a
prevention of significant deterioration air quality construction permit from
the DEQ. Construction must commence within
two years of the granting of the permit or WYGEN will be required to reapply.
As an independent power project, the air quality permit is the only major
permit required. WYGEN plans to renew this permit in 1998.
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 interest of
any one provider, with mechanisms to pool costs and cause transmission system
improvements to be constructed, on a timely basis, with broad participation.
In addition, to the WYGEN Project, the Company is exploring opportunities for
participating in the acquisition of existing or new independent power projects
fueled by coal or natural gas and located at Wyodak Resources' mine or at other
locations in the United States.
OTHER SEGMENTS OF BUSINESS
DAKSOFT, Inc. was incorporated by the Company in 1994, to develop and market
internally generated computer software associated with the Company's business
segments. Additionally, DAKSOFT has developed internet/intranet products which
are currently being used internally and marketed to third parties. No
significant revenues have been received to date. DAKSOFT entered into a
multiyear enhancement and sales contract in 1995. The revenue from this
contract is earned as the product enhancement occurs. Approximately $219,000,
$370,000 and $290,000 of revenue was recognized in 1997, 1996, and 1995,
respectively. Also, in 1997, DAKSOFT entered into an implementation and
enhancement agreement for the customized installation of its Customer
Information System (CIS) product. Revenue from such installation and
enhancement agreement totaled $457,000 in 1997.
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 are not material to the Company.
YEAR 2000 ISSUES
The Company uses technologies throughout its operations that will be affected
by year 2000 issues. During 1997, the Company implemented remediation steps to
make the core business systems which are part of the Company's mid-range
computer systems year 2000 compliant. The Company also has initiated a
company-wide project, to be completed in 1998, to identify and assess year 2000
compliance for all other Company systems and the compliance status of its
critical suppliers. The expenses relating to year 2000 compliance incurred in
1997 were not material, and the Company believes the amounts that are expected
to be expensed in the future for such compliance will not have a material
impact on its results of operations.
NEW ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 128, Earnings per Share, (SFAS 128) which
requires the disclosure of basic earnings per share and diluted earnings per
share. The diluted earnings per share recognizes the impact of the Company's
stock option plans (See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Note 2
Common Stock) as if fully vested at the grant date. Adoption of this statement
did not have a material affect on the results of operations or financial
position of the Company.
BUSINESS OUTLOOK STATEMENTS
The following statements are based on current expectations. These statements
under this Business Outlook Statements section are forward-looking, and actual
results may differ materially.
PACIFIC POWER'S POWER SALES AGREEMENT
Pacific Power's Power Sales Agreement represents Black Hills Power's highest-
cost electric power resource. Black Hills Power expects to reduce these costs
in the future through better utilization of the resource and as a result of the
Second Restated and Amended Power Sales Agreement executed between Pacific
Power and Black Hills Power. This Second Restated and Amended Power Sales
Agreement, effective August 1, 1997, and terminating December 31, 2023,
supersedes the Restated Agreement, which was intended to be effective January
1, 2000.
Black Hills Power has been able to utilize the 75 MW resource from Pacific
Power's Power Sales Agreement at a load factor of only 55 percent. Black Hills
Power anticipates higher utilization of this resource in the future and
lowering the average cost per megawatt hour through an active marketing program
to sell the power and energy. This marketing program will include the use of
the Pacific Power's Power Sales Agreement contract under which Black Hills
Power has the right to cause the power and energy to be delivered at any
point on Pacific Power's transmission system (defined as both Pacific Power's
owned and contracted transmission paths) where capacity is available.
The Second Restated Agreement provides (i) that 25 megawatts of the contract
capacity amount and the charges thereof will be deleted, 5 megawatts each year
commencing in the year 2000, (ii) Black Hills Power shall pay no levelized
annual charges for Colstrip Plants' additions and replacements which are
completed after January 1, 1997, (iii) that commencing January 1, 1997, all
fixed cost components of the Variable Costs to be paid by the company shall be
based on an assumption that the Colstrip Plants operated at an 80 percent load
factor, (iv) beginning August 1, 1997 and continuing until December 31, 1999,
Black Hills Power shall pay Pacific Power annual fixed cost of $164.59 per kW-
yr multiplied by the capacity purchased, (v) commencing January 2000 and
continuing until December 2018, Black Hills Power shall pay Pacific Power's
initial investment in Colstrip Units 3 and 4 using Pacific Power's then most
current applicable cost of capital consisting of Pacific Power's then current
FERC approved capital structure, Pacific Power's then current weighted average
cost of long-term debt and preferred stock using FERC approved methods and
Pacific Power's then current FERC approved cost of common equity, (vi) that
for the invoices the fixed amount calculated above shall be reduced by $95,564
each month for the years 2000 through 2009, and (vii) unbundling of the
transmission charge in the contract to Pacific Power's FERC-filed rates.
Future cost reductions or increases related to these amendments will depend on
Pacific Power's future capital structure and cost of capital and the cost of
replacement power starting in the year 2000. However, the Company believes the
reduction of the 25 MWs of capacity which begins in the year 2000 at a rate of
5 MW a year is positive as the Company enters a deregulated electricity market
and believes Pacific Power's future cost of capital under the FERC approved
capital structure will be lower than the cost of capital formulas embedded in
the existing contract.
FUTURE ELECTRIC SALES
Future earnings from all power sales are dependent on many economic and
political factors, including the move toward competition at the retail level,
the market price of electricity, the ability of Black Hills Power to generate
and deliver electric power at a cost that will allow a profit margin and the
regulatory treatment of electric utilities during the transition period toward
competition.
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
wholesale electric power market, the lack of an open retail market at this
time, 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.
FUTURE RETAIL WHEELING
Management is unable to predict the effect of full electric retail competition
(if it comes about) 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. Black Hills Power continues to
endeavor 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 revenue due to
competition should be allowed to recover 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 the energy providers are likely to seek the markets where the highest
profit margin can be realized, today's rates designed to serve exclusive
service territories may be substantially different for service to a fully
competitive market. Based upon industry predictions, management believes that
the industry's excess capacity will be more fully utilized in the future.
Management believes that coal-fired plants will become more competitive with
natural gas-fired plants in the future as natural gas prices increase.
However, the Company is unable to predict future markets and economic
conditions and government actions or inactions that 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.
RATE REGULATION
Management's expectation is that the rate settlements made with the South
Dakota and Wyoming Commissions are 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 are not expected to
materially increase.
FUTURE COAL SALES
Because of an acquisition of unit train load-out facilities with the Clovis
Point Mine Properties, Wyodak Resources expects to increase its market
opportunities. However, the heating value (approximately 8,000 Btu per pound)
of the coal at Wyodak Resources' mine and the Clovis Point Mine Properties is
approximately 400 to 800 Btus less than Powder River Basin coal available at
other locations. This difference makes Wyodak Resources' coal noncompetitive
in the current market for coal to be shipped by rail over long distances
because of higher freight rates per Btu. Notwithstanding this limitation, the
acquisition of a unit train loadout facility has led management to investigate
opportunities for Wyodak Resources to ship coal by rail at closer distances
where the Btu difference would not be a major factor, and to ship coal that is
enhanced at the coal mine site by various processes, one of the results of
which would remove some of the moisture content of the coal and thereby
increase the Btu per pound content. Processes for the enhancement of Powder
River Basin coal are being developed and seriously considered for commercial
operations by the coal industry. Management can give no assurances at this
time that any coal enhancement process is commercially practical in view of the
current low spot market price of Powder River Basin coal, that a market for
enhanced coal can be developed or that a coal enhancement project at Wyodak
Resources' mine would be feasible.
Freight rates to ship coal by rail are also a material factor in determining
the economic feasibility of selling either raw run-of-the-mine coal or enhanced
coal products. At this time only one rail carrier, the Burlington Northern, is
available to Wyodak Resources for such sales. Reasonable freight rates are a
requirement for any rail transported sales from Wyodak Resources' mine.
FUTURE ENERGY MARKETING SALES
The profitability of the Company's energy marketing operations depends in large
part on management's ability to assess and respond to changing market
conditions. Such conditions include, but are not limited to, availability of
supply, availability of transportation capacity from supply area to markets
served and market demand. In addition, such operations are highly sensitive to
weather conditions in the markets served. The Company is unable to predict
future markets and economic conditions that could effect the profitability of
the energy marketing operations.
FUTURE CORPORATE DEVELOPMENT ACTIVITIES
The Company created a new subsidiary named Black Hills Capital Group, Inc. to
spearhead its corporate development activities. Black Hills Capital Group,
Inc.'s focus is to increase the Company's earnings and assets through energy
related investments that position the Company to earn multiple revenue streams
in the energy value chain. Potential investment could comprise of independent
power projects, coal reserves, oil and gas reserves, energy transportation
assets, energy marketing assets or other related assets. The success of the
Black Hills Capital Group acquiring such assets will depend on future market
conditions. The market for such assets is very competitive. The Company is
unable to predict future markets and economic conditions that could effect the
profitability and probability of the success of corporate development
activities.
RISKS AND UNCERTAINTIES
The forward looking statements contained in the Management's Discussion and
Analysis of Financial Condition and Results of Operations involve a number of
risks and uncertainties. In addition to factors discussed above, other factors
that could cause actual results to differ materially are the following: the
extent to which the federal government or the state governments, or both,
institute competition in the electric utility business; the market value of
electric power at the time full competition comes about, including any
competitor's delivery costs to Black Hills Power's current markets and Black
Hills Power's ability to produce and deliver power at those market prices; the
extent to which the surplus electric generation continues; the extent that any
electric generating surplus is exhausted and customers are again entering into
longer-term purchased power contracts with prices relating more to the full
cost of generating and delivering electric power; the future market prices of
crude oil, natural gas and coal; government regulations of the environment,
especially to the extent to which further financial burdens may be placed upon
coal versus natural gas and additional governmental burdens that may be placed
upon the burning of all fossil fuels; the extent to which competition will be
fairly administered for participants in the electric utility business and
whether it will be applied equally to investor-owned companies, rural electric
cooperatives, public power agencies and municipalities; technological advances
in the generation and delivery of electric power; the general economy as it
affects the use of electric power; the market price of competing fuels to
electricity, such as natural gas; the extent to which coal
beneficiation programs are efficiently developed and the extent to which the
new coal products will be accepted by the market; the general economy of Black
Hills Power's retail service territory; and other risk factors which are
referenced in this report and other SEC reports filed prior hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants 32
Consolidated Statements of Income and Retained Earnings
for the three years ended December 31, 1997 33
Consolidated Statements of Cash Flows for
the three years ended December 31, 1997 34
Consolidated Balance Sheets as of December 31, 1997 and 1996 35
Consolidated Statements of Capitalization as of
December 31, 1997 and 1996 36
Notes to Consolidated Financial Statements 37
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,
1997 and 1996, and the related consolidated statements of income, retained
earnings and cash flows for each of the three years in the period ended
December 31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 28, 1998
<PAGE>
BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995
(in thousands, except per share amounts)
<S> <C> <C> <C>
Operating revenues:
Electric $126,497 $118,718 $108,783
Coal mining 31,080 31,315 29,870
Oil and gas 13,295 12,555 11,164
Energy marketing 142,790 - -
313,662 162,588 149,817
Operating expenses:
Fuel and purchased power 177,071 34,195 39,265
Operations and maintenance 31,743 30,343 28,523
Administrative and general 11,642 8,491 9,226
Depreciation, depletion and
amortization 22,311 22,794 19,660
Taxes, other than income taxes 11,985 12,460 10,981
254,752 108,283 107,655
Operating income (loss):
Electric 44,611 39,090 28,243
Coal mining 12,217 12,234 12,226
Oil and gas 2,907 2,981 1,693
Energy marketing (825) - -
58,910 54,305 42,162
Other income (expense):
Interest expense (14,123) (13,942) (14,195)
Investment income 2,136 1,373 1,368
Allowance for funds used during
construction 188 350 5,867
Other, net (426) 1,744 1,125
(12,225) (10,475) (5,835)
Income before income taxes 46,685 43,830 36,327
Income taxes (14,326) (13,578) (10,737)
Net income $ 32,359 $ 30,252 $ 25,590
Earnings per share of common stock:
Basic and diluted $1.49 $1.40 $1.19
Weighted average common shares outstanding:
Basic 21,692 21,660 21,614
Diluted 21,706 21,660 21,614
</TABLE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year $131,884 $121,562 $115,284
Net income 32,359 30,252 25,590
Cash dividends on common stock
($0.95, $0.92 and $0.89 per share,
respectively) (20,540) (19,930) (19,312)
Balance, end of year $143,703 $131,884 $121,562
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Operating activities:
Net income $32,359 $30,252 $25,590
Principal non-cash items-
Depreciation, depletion and amortization 22,311 22,794 19,660
Deferred income taxes and investment tax
credits 2,457 1,872 2,097
Allowance for other funds used during
construction (99) (188) (3,645)
Increase in receivables, inventories and other
current assets (27,067) (373) (669)
Increase (decrease) in current liabilities 26,015 (1,412) (1,420)
Other, net 73 2,452 3,677
56,049 55,397 45,290
Investing activities:
Energy marketing assets (7,232) - -
Neil Simpson Unit #2 construction costs,
excluding allowance for other funds used
during construction - - (29,820)
Other property additions, excluding allowance
for other funds used during construction (21,087) (24,388) (18,430)
Available for sale securities purchased (31,944) (40,894) (19,323)
Available for sale securities sold 29,433 36,189 36,941
(30,830) (29,093) (30,632)
Financing activities:
Dividends paid (20,540) (19,930) (19,312)
Common stock issued 409 511 654
Repayment of short-term borrowings (120) (475) (36,400)
Long-term debt issued - 156 46,904
Long-term debt retired (1,534) (1,405) (10,499)
(21,785) (21,143) (18,653)
Increase (decrease) in cash and cash
equivalents 3,434 5,161 (3,995)
Cash and cash equivalents:
Beginning of year 13,340 8,179 12,174
End of year $16,774 $13,340 8,179
Supplemental disclosure of cash flow information:
Assumption of reclamation liability in acquisition
of Clovis Point Properties $ - $ 7,957 $ -
Clovis Point properties
Cash paid during the period for-
Interest $14,167 $13,996 $12,901
Income taxes $11,840 $12,616 $ 7,775
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31, 1997 1996
(in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,774 $ 13,340
Securities available for sale 13,969 11,458
Receivables, net
Customers 39,639 12,961
Other 3,414 2,727
Materials, supplies and fuel 8,642 7,861
Prepaid expenses 1,571 2,650
84,009 50,997
Property and equipment:
Electric 487,424 479,237
Coal mining 52,804 53,200
Oil and gas 52,412 45,336
Other 5,666 3,764
598,306 581,537
Less accumulated depreciation and depletion (197,179) (181,103)
401,127 400,434
Deferred charges:
Federal income taxes 8,061 7,972
Regulatory asset 3,776 3,176
Other 11,768 4,775
23,605 15,923
$508,741 $467,354
LIABILITIES AND CAPITALIZATION
Current liabilities:
Current maturities of long-term debt $ 1,331 $ 1,534
Notes payable 23 143
Accounts payable 32,622 7,332
Accrued liabilities-
Taxes 8,040 8,633
Interest 3,991 4,035
Other 7,800 6,438
53,807 28,115
Deferred credits:
Federal income taxes 53,010 48,262
Investment tax credits 4,014 4,516
Reclamation liability 16,664 16,267
Regulatory liability 6,152 6,692
Other 6,331 5,636
86,171 81,373
Commitments and contingent liabilities (Notes 6, 7 and 8)
Capitalization, per accompanying statements:
Common stock equity 205,403 193,175
Long-term debt 163,360 164,691
368,763 357,866
$508,741 $467,354
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
<PAGE>
BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
At December 31, 1997 1996
(in thousands)
<S> <C> <C>
Common stock equity:
Common stock $1 par value; 50,000,000
shares authorized; 21,704,592 and 14,450,199
shares outstanding repsecitvely $ 21,705 $ 14,450
Additional paid-in capital 39,995 46,841
Retained earnings 143,703 131,884
Total common stock equity 205,403 193,175
Cumulative preferred stock:
No par value; 400,000 shares authorized;
no shares outstanding - -
$100 par value; 270,000 shares authorized;
no shares outstanding - -
Long-term debt:
First mortgage bonds-
6.50% due 2002 15,000 15,000
9.00% due 2003 6,336 7,870
8.06% due 2010 30,000 30,000
9.49% due 2018 6,000 6,000
9.35% due 2021 35,000 5,000
8.30% due 2024 45,000 5,000
137,336 138,870
Other-
6.7% pollution control revenue bonds, due 2010 12,300 2,300
7.5% pollution control revenue bonds, due 2024 12,200 12,200
Other long-term obligations 2,855 2,855
27,355 27,355
Total long-term debt 164,691 166,225
Current maturities (1,331) (1,534)
Net long-term debt 163,360 164,691
Total capitalization $368,763 $357,866
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) BUSINESS DESCRIPTION AND SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
BUSINESS DESCRIPTION
Black Hills Corporation and its subsidiaries operate in four primary business
segments: electric, coal mining, oil and gas production, and energy marketing.
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 1997, 17 percent in 1996 and 18 percent in
1995. 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, approximately 73 percent of the
coal mining operation's sales are to the Wyodak Plant. Sales of coal to the
Company and to PacifiCorp, herein referred to as Pacific Power, represent 98
percent of total coal sales in 1997. The Company's oil and gas exploration and
production business operates and has working interests in properties located in
the western and southern United States. The Company's energy marketing
businesses market natural gas, crude oil and electricity and provide related
energy services to customers in the West Coast, Rocky Mountain region,
Southwest, Midwest and East Coast markets.
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 (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation." Total
intercompany coal sales not eliminated were $11,089,000, $10,384,000 and
$10,498,000 in 1997, 1996 and 1995, respectively.
Investments in and advances to Enserco, in which the Company has a 50 percent
ownership interest, are accounted for on the equity method of accounting.
The Company uses the proportionate consolidation method to account for its
working interests in oil and gas properties.
REGULATORY ACCOUNTING
Black Hills Power follows the provisions of SFAS No. 71, 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 1995 rate case settlement, 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 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.
The Company periodically evaluates assets under SFAS 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.
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 1997, 3.4
percent in 1996 and 3.0 percent in 1995. Composite depreciation rates for
other property were 8.1 percent, 7.7 percent and 8.9 percent in 1997, 1996 and
1995, respectively. Depletion of coal and oil and gas properties is computed
using the cost method for financial reporting.
AVAILABLE FOR SALE SECURITIES
The Company has investments in marketable securities which are classified as
available-for-sale securities and are carried at fair value. 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.
FUEL AND PURCHASED POWER ADJUSTMENT TARIFFS
The Company's Montana Retail Tariffs contain a clause that allow recovery of
certain fuel and purchased power costs in excess of the level of such costs
included in base rates. The cost adjustment tariff is revised periodically for
any difference between the total amount collected under the clause and the
recoverable costs incurred. The adjustments are recognized as current assets
or current liabilities until adjusted through future billings to customers.
The Company's South Dakota, Wyoming and wholesale tariffs do not include an
automatic fuel and purchased power adjustment tariff.
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 OPERATIONS
The Company accounts for its oil and gas drilling activities under the full
cost method. Under the full cost method, all productive and nonproductive
costs related to acquisition, exploration and development activities are
capitalized. These costs are amortized using a unit-of-production method based
on volumes produced and proved reserves. Under the full cost method, net
capitalized costs may not exceed the present value of proved reserves.
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 10.0 percent in
1997 and 1996 and 10.2 percent in 1995.
INCOME TAXES
The Company follows the provisions of SFAS 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.
Deferred taxes are provided on all significant temporary differences,
principally depreciation and depletion. 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.
ENVIRONMENTAL REMEDIATION
In October 1996 the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 96-1, "Environmental Remediation Liabilities" which
provides authoritative guidance on specific accounting issues that are present
in the recognition, measurement, display and disclosure of environmental
remediation liabilities. The provisions of the SOP are effective for the
Company for fiscal year 1997 but did not have a material impact on the
Company's financial position or results of operations.
(2) CAPITAL STOCK
In January, 1998, the Board of Directors declared a 3-for-2 Common Stock Split
effected in the form of a stock dividend. The stock dividend is payable March
10, 1998 to shareholders of record on February 13, 1998. The common stock
share and per share information in the accompanying consolidated financial
statements and notes have been restated to reflect the stock distribution.
NET INCOME PER SHARE
The Company adopted the SFAS No. 128 "Earnings Per Share" in 1997. As a
result, all prior periods presented have been restated to conform to the
provisions of SFAS No. 128, which requires the presentation of basic and
diluted earnings per share. Basic earnings per share is computed by dividing
net income available to common shareholders by the weighted average number of
common shares outstanding during each year. Diluted earnings per share is
computed under the treasury stock method and is calculated to compute the
dilutive effect of outstanding stock options. A reconciliation of these
amounts is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net Income $32,359 $30,252 $25,590
Weighted average
common shares
outstanding-basic 21,692 21,660 21,614
Dilutive effect of
option plan 14 - -
Common and
potential common
shares outstanding-
diluted 21,706 21,660 21,614
Basic and diluted net
income per share $1.49 $1.40 $1.19
</TABLE>
COMMON STOCK
The Company has a stock option plan ("the 1996 Stock Option Plan") which allows
for the granting of stock options with exercise prices equal to the stocks'
market value on the date of grant and an employee stock purchase plan ("the
ESPP Plan"). The Company accounts for under Accounting Principles Board
Opinion No. 25, under which no compensation cost has been recognized.
Had compensation cost been determined consistent with SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
following proforma amounts:
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Net income:
As reported $32,359 $30,252
Proforma $32,308 $30,215
</TABLE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Earnings per share:
As reported (basic and diluted) $1.49 $1.40
Proforma (basic and diluted) $1.49 $1.39
</TABLE>
The Company may grant options for up to 300,000 shares of common stock under
the Stock Option Plans The Company has granted options on 182,700 shares and
83,700 shares through December 31, 1997 and 1996, respectively. The option
exercise price equals the fair market value of the stock on the day of the
grant. The options granted have an exercise price range of $16.67 to $22.50.
The options granted vest one-third a year for three years and all expire after
ten years from the grant date. At December 31, 1997, 27,900 options were
available for exercise at an exercise price of $16.67. There were no options
available for exercise at December 31, 1996.
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted-average
assumptions used for the grants:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Risk free interest rate 6.09% 6.15%
Expected dividend yield 5.00% 5.50%
Expected life 10 years 10 years
Expected volatility 16.71% 17.66%
Weighted average fair value $1.09 $0.49
</TABLE>
The Company issued 29,294 and 37,871 shares of common stock under the ESPP Plan
in 1997 and 1996, respectively. At December 31, 1997, 279,959 shares are
reserved and available for issuance under the ESPP Plan. The Company sells the
shares to employees at 90 percent of the stock's market price on the offering
date. The fair value per share of shares sold in 1997 was $15.50.
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. The Company purchased shares on the open market
in 1997, 1996 and 1995. At December 31, 1997, 1,290,797 shares of unissued
common stock were available for future offerings under the Plan.
ADDITIONAL PAID-IN CAPITAL
Changes in additional paid-in capital for the years indicated were:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Balance, beginning
of year $46,841 $46,355 $45,740
Stock Dividend for 3-for-2
Common Stock split (7,235) - -
Premium, net of expenses
from sales of stock 389 486 615
Balance, end of year $39,995 $46,841 $46,355
</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: $1,331,000 in 1998, $1,330,000 in 1999,
$1,330,000 in 2000, $3,029,000 in 2001 and $18,018,000 in 2002.
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.
(4) NOTES PAYABLE TO BANKS
The Company had $12,000,000 of unsecured short-term lines of credit at December
31, 1997 and 1996. There were no outstanding borrowings under these lines of
credit at December 31, 1997. Borrowings outstanding under these lines of
credit were $120,000 as of December 31, 1996, at a weighted average interest
rate of 8.0 percent. 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.
In addition to the above lines of credit, Black Hills Energy Resources, Inc.
(formerly Wickford Energy Marketing, Inc.), has a $65,000,000, uncommitted,
discretionary credit facility consisting of a $50,000,000 transactional line of
credit and a $15,000,000 overdraft line of credit. The transactional line of
credit provides credit support for the purchases of natural gas and crude oil
of Black Hills Energy Resources. The Company and its subsidiaries provide no
guarantee to the Lender. At December 31, 1997, Black Hills Energy Resources
had letters of credit outstanding of $29,000,000 and no balance outstanding on
the overdraft line of credit.
In addition to the above lines of credit, Wyodak Resources has guaranteed a
$15,000,000 line of credit for Enserco to use to guarantee letters of credit.
Enserco pays a 0.125 percent facility fee on this line of credit. At December
31, 1997 and 1996, there were no balances outstanding on this line of credit.
(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, 1997 and 1996, and the fair
value approximates cost.
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.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1997
(in thousands)
Carrying Fair
Amount Value
<S> <C> <C>
Cash and cash equivalents $16,774 $16,774
Securities available for sale:
Corporate debt securities 997 997
Federal, state and local
agency obligations 12,972 12,972
Long-term debt 164,691 189,649
</TABLE>
<TABLE>
<CAPTION>
1996
(in thousands)
Carrying Fair
Amount Value
<S> <C> <C>
Cash and cash equivalents $13,340 $13,340
Securities available for sale:
State and local agency
obligations 11,458 11,458
Long-term debt 166,225 184,508
</TABLE>
(6) WYODAK PLANT
The Company owns a 20 percent interest and Pacific Power an 80 percent
interest in the Wyodak Plant (the Plant), a 330 megawatt coal-fired electric
generating station located in Campbell County, Wyoming. Pacific Power 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, 1997, the Company's investment in
the Plant included $72,171,000 in electric plant and $25,961,000 in accumulated
depreciation. The Company's share of direct expenses of the Plant was
$5,934,000, $6,458,000 and $6,503,000 for the years ended December 31, 1997,
1996 and 1995, respectively, and is 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 Pacific Power 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, 1997, approximately 24,132,000 tons
were covered under this agreement. Wyodak Resources' sales to the Plant were
$22,688,000, $22,643,000 and $20,224,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
(7) COMMITMENTS AND CONTINGENT
LIABILITIES
MDU POWER SALE
On January 1, 1997, the Company began serving a ten year contract to supply up
to 55 megawatts of electric power and associated energy required by MDU for its
Sheridan, Wyoming, service territory. In 1997, MDU's Sheridan service area
experienced a 47 megawatt peak and had a load factor of approximately 57
percent.
COAL OBLIGATIONS
In addition to the 24,132,000 tons of coal reserved under the agreement to
supply coal to the Wyodak Plant, Wyodak Resources has reserved 26,130,000 tons
of coal under existing contracts.
COAL LEASES
Wyodak Resources' mining rights to its coal are based upon four federal leases
and one state lease. The federal leases provide for a royalty of 12.5 percent
of the selling price of the coal. The state lease provides for a royalty, to be
reviewed every five years, currently at 7 percent. Wyodak Resources paid
royalties in the amount of $3,969,000, $3,995,000 and $2,323,000 in 1997, 1996
and 1995, respectively. 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 leases or 10 years from the date of adjustment
of the 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 leases constitute one logical mining
unit which is treated as one lease for the purpose of determining diligent
development and continuing operation requirements.
PACIFIC POWER'S POWER SALES AGREEMENT
In 1983 the Company entered into a 40 year power agreement with Pacific Power
providing for the purchase by the Company of 75 megawatts of electric capacity
and energy from Pacific Power's system. The price paid for the capacity and
energy is based on the operating costs of one of Pacific Power's coal-fired
electric generating plants. Costs incurred under this agreement were
$20,251,000, $19,777,000 and $20,689,000 in 1997, 1996 and 1995, respectively.
ACQUISITION OF CLOVIS POINT MINE PROPERTIES
In September 1996 Wyodak Resources entered into an agreement to purchase a
portion of the Clovis Point and East Gillette Mine properties from Kerr-McGee
Coal Corporation. The Clovis Point Mine properties are located adjacent to
Wyodak Resources' current reserves in Campbell County, Wyoming, and consist of
State of Wyoming and federal leased coal reserves.
Acquisition of the property in 1996 increased Wyodak Resources' reserves from
170 million tons to approximately 288 million tons and included a train loadout
facility, maintenance and processing facilities and a developed open pit.
The purchase price consisted of the assumption of the responsibility to reclaim
the existing Clovis Point open pit of which the Company recorded a liability of
$7,957,000 and the payment of overriding royalties to Kerr McGee if and when
coal is produced from the acquired properties. Wyodak Resources is not
obligated to mine the coal.
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 $700,000 is charged to operations as reclamation expense
annually. As of December 31, 1997, accrued reclamation costs were
approximately $16,700,000 which includes $7,957,000 for the Clovis Point Mine
Acquisition.
PRICE RISK MANAGEMENT ACTIVITIES
The Company utilizes a variety of financial instruments to hedge the impact of
price fluctuations on its oil and gas production and energy marketing
operations. The Company does not hold or issue derivative financial
instruments for trading purposes.
The Company utilizes deferral (hedge) accounting in conjunction with such
financial instruments; gains or losses from changes in the market value of the
financial instruments are deferred until the gain or loss on the hedged item is
recognized.
Financial instruments are classified as being used for a hedge only if the
instrument reduces the risk of the underlying hedged item and is designated at
the inception as a hedge with respect to the hedged item.
The primary financial instruments the Company uses in managing its price risk
exposure are exchange traded natural gas futures contracts and over-the-counter
natural gas and crude oil swaps, collar and option contracts. The Company
would be exposed to credit losses in the event of nonperformance by the
counterparties that have issued the financial instruments. The Company does
not expect that the counterparties will fail to meet their obligations, based
on the Company's review of the financial condition of the counterparties and/or
their credit ratings.
At December 31, 1997, the Company has fixed rate for floating rate price swaps
to hedge crude oil price risk for 15,000 barrels of oil per month at prices
ranging from $19.00 per barrel to $20.93 per barrel. In addition, the Company
has fixed rate for floating rate price swaps on 3.9 bcf of natural gas to hedge
fixed price sales commitments in a similar quantity.
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.
(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>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Service cost $ 931 $ 874 $ 802
Interest cost 2,383 2,239 2,169
Return on assets:
Actual (10,278) (4,477) (5,204)
Deferred 7,022 1,502 2,603
Net pension expense $ 58 $ 138 $ 370
Actuarial assumptions:
Discount rate 7.5% 7.5% 7.5%
Expected long-term rate
of return on assets 10.5% 10.5% 10.5%
Rate of increase in
compensation levels 5% 5% 5%
</TABLE>
Funding information for the Plan as of October 1 each year was as follows:
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Fair value of plan assets $40,435 $31,953
Projected benefit obligation (33,025) (32,722)
7,410 (769)
Unrecognized:
Net loss (gain) (7,579) 659
Prior service cost 618 707
Transition asset (271) (361)
Prepaid pension cost $ 178 $ 236
Accumulated benefit obligation $27,133 $26,376
Vested benefit obligation $25,995 $25,266
</TABLE>
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 $94,000, $498,000 and $350,000
in 1997, 1996 and 1995, respectively.
The Company follows the provisions of SFAS 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.
The net periodic postretirement cost for the Company was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Service cost $168 $166 $211
Interest cost 329 304 429
Amortization of transition 150 150 150
obligation
Amortization of (gain) loss (5) (1) 79
$642 $619 $869
</TABLE>
Funding information as of October 1 was as follows:
<TABLE>
<CAPTION>
1997 1996
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $1,588 $1,743
Fully eligible active participants 671 756
Other active participants 1,668 1,941
Unfunded accumulated postretirement
benefit obligation 3,927 4,440
Unrecognized net gain 1,067 173
Unrecognized transition obligation (2,247) (2,397)
$2,747 $2,216
</TABLE>
For measurement purposes, a 9.5 percent annual rate of increase in healthcare
benefits was assumed for 1998; 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 $130,000 annually or 24.3
percent. The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5 percent.
<PAGE>
(9) INCOME TAXES
Income tax expense for the years indicated was:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Current $11,869 $11,706 $ 8,640
Deferred 3,107 2,533 2,600
Tax credits, net (650) (661) (503)
$14,326 $13,578 $10,737
</TABLE>
The temporary differences which gave rise to the net deferred tax liability at
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Net Deferred
Income
Tax Asset
December 31, 1997 Assets Liabilities Liability
(in thousands)
<S> <C> <C> <C>
Accelerated depreciation and
other plant-related differences $ - $45,508 $(45,508)
Regulatory asset 2,136 - 2,136
Regulatory liability - 1,415 (1,415)
Unamortized investment tax credits 1,405 - 1,405
Mining development and oil exploration 1,417 5,342 (3,925)
Employee benefits 2,426 103 2,323
Other 677 642 35
$ 8,061 $53,010 $(44,949)
</TABLE>
<TABLE>
<CAPTION>
Net Deferred
Income
Tax Asset
December 31, 1996 Assets Liabilities (Liability)
(in thousands)
<S> <C> <C> <C>
Accelerated depreciation and
other plant-related differences $ - $42,088 $(42,088)
Regulatory asset 2,309 - 2,309
Regulatory liability - 1,415 (1,415)
Unamortized investment tax credits 1,580 - 1,580
Mining development and oil exploration 1,417 4,220 (2,803)
Employee benefits 2,107 97 2,010
Other 559 442 117
$7,972 $48,262 $(40,290)
</TABLE>
The effective tax rate differs from the federal statutory rate for the years
ended December 31, as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Regulatory asset recognition (1.3) (1.7) (1.9)
Amortization of investment tax credits (1.1) (1.5) (1.4)
Tax-exempt interest income (0.9) (0.6) (0.8)
Percentage depletion in excess of cost (0.7) (0.5) (0.4)
Other (0.3) 0.2 (0.9)
30.7% 30.9% 29.6%
</TABLE>
(10) OIL AND GAS RESERVES (Unaudited)
Western Production has interests in 484 producing oil and gas properties in
eight states. Western Production also holds leases on approximately 42,200 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, 1997, 1996 and 1995, 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.
<TABLE>
<CAPTION>
1997 1996 1995
Oil Gas Oil Gas Oil Gas
(in thousands of barrels of oil and MCF of gas)
<S> <C> <C> <C> <C> <C> <C>
Proved developed and
undeveloped reserves:
Balance at begin. of year 2,386 10,972 1,612 7,658 1,438 9,080
Production (299) (1,747) (286) (1,718) (266) (1,986)
Additions 1,146 3,498 404 5,098 168 4,106
Property sales (10) (393) (9) (312) (103) (843)
Revisions to previous
estimates (728) (3,278) 665 246 375 (2,699)
Balance at end of year 2,495 9,052 2,386 10,972 1,612 7,658
Proved developed reserves
at end of year included
above 2,035 6,821 2,376 9,633 1,606 6,370
Year-end prices $16.34 $2.32 $24.04 $3.20 $18.50 $ 1.90
</TABLE>
(11) SUMMARY OF INFORMATION RELATING TO SEGMENTS OF THE COMPANY'S BUSINESS
The four primary segments of the Company's business are its electric
operations, coal mining operations, oil and gas operations and energy
marketing operations. The following table summarizes certain information
specifically identifiable with each segment as of, or for, the years ended
December 31.
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Assets at year-end:
Electric $385,325 $382,753 $380,256
Coal mining 48,295 55,470 45,224
Oil and gas 31,449 29,131 23,350
Energy marketing 43,672 - -
$508,741 $467,354 $448,830
Depreciation, depletion and amortization:
Electric $ 14,608 $ 16,104 $ 11,943
Coal mining 3,188 2,981 3,575
Oil and gas 4,275 3,709 4,142
Energy marketing 240 - -
$ 22,311 $ 22,794 $ 19,660
Capital expenditures:
NS #2 (includes AFDC) $ - $ - $ 33,219
Other electric 12,583 12,822 11,242
Coal mining 1,527 2,169 1,546
Oil and gas 7,076 9,585 5,888
Energy marketing 7,232 - -
$ 28,418 $ 24,576 $ 51,895
</TABLE>
(12) SUPPLEMENTARY INCOME STATEMENT INFORMATION
Taxes Other than Income Taxes
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Property $ 4,326 $ 4,368 $ 3,696
Production and severance 3,654 4,105 3,385
Payroll 1,332 1,307 1,402
Black lung 1,310 1,320 1,263
Federal reclamation 1,138 1,135 1,027
Other 225 225 208
$11,985 $12,460 $10,981
</TABLE>
(13) ACQUISITIONS
In July 1997, Black Hills Capital Group acquired the assets and hired the
operational management of Jomax Partners, L.P. as successor and survivor
of Wickford Energy Marketing, L.C. and Wickford Energy Marketing Canada
Company. In March 1998, Wickford was renamed Black Hills Energy
Resources, Inc. Black Hills Energy Resources is headquartered in
Houston, Texas with a natural gas sales office Calgary, Alberta, Canada
and crude oil sales offices in Tulsa, Oklahoma and Midland, Texas. Black
Hills Energy Resources is a "niche" wholesale natural gas and crude oil
marketing company with expertise in Gulf Coast and Canadian Supply,
targeting natural gas markets in the East Coast and Midwest and crude oil
markets primarily in the Southwest.
The Company accounted for this acquisition using the purchase method.
Results of operations since the acquisition date are included in the
consolidated results.
The Company recorded goodwill and intangible assets resulting from the
acquisition. The Company is amortizing the goodwill and intangible
assets over the expected benefit periods of 15 years and 5 years,
respectively, using the straight-line method.
The following, unaudited proforma financial information assumes the
acquisition occurred at January 1, 1996, in thousands, except per share
amounts:
<TABLE>
<CAPTION>
1997 1996
(unaudited)
<S> <C> <C>
Revenues $506,188 $391,618
Net income $ 33,010 $ 32,771
Earnings per share - basic and diluted $ 1.52 $ 1.51
</TABLE>
<PAGE>
FINANCIAL STATISTICS
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS (in thousands) $508,741 $467,354 $448,830 $436,877 $352,853
PROPERTY AND INVESTMENTS
(in thousands)
Total property and
investments $598,306 $581,537 $557,642 $519,296 $433,143
Accumulated depreciation
and depletion 197,179 181,103 164,383 156,046 144,492
Capital expenditures
(includes AFDC) 28,418 24,576 51,895 103,059 40,290
CAPITALIZATION (in thousands)
Long-term debt $163,360 $164,691 $166,069 $128,925 $ 85,274
Common stock equity 205,403 193,175 182,342 175,410 168,089
Total capitalization $368,763 $357,866 $348,411 $304,335 $253,363
CAPITALIZATION RATIOS
Long-term debt 44.3% 46.0% 47.7% 42.4% 33.7%
Common stock equity 55.7 54.0 52.3 57.6 66.3
Total 100.0% 100.0% 100.0% 100.0% 100.0%
AVERAGE INTEREST RATE ON
LONG-TERM DEBT 8.1% 8.1% 8.1% 8.5% 9.0%
NET INCOME AVAILABLE FOR
COMMON STOCK
(in thousands) $32,359 $30,252 $25,590 $23,805 $22,946
DIVIDENDS PAID ON COMMON
STOCK (in thousands) $20,540 $19,930 $19,312 $18,920 $17,720
COMMON STOCK DATA
(in thousands)*
Shares outstanding,
average 21,692 21,660 21,614 21,509 20,717
Shares outstanding,
end of year 21,705 21,675 21,638 21,579 21,405
Earnings per average
share, in dollars $1.49 $1.40 $1.19 $1.11 $1.11
Dividends paid per
share, in dollars 0.95 $0.92 $0.89 $0.88 $0.85
Book value per share,
end of year, in
dollars $9.46 $8.91 $8.43 $8.13 $7.85
RETURN ON COMMON STOCK
EQUITY (year-end) 15.8% 15.7% 14.0% 13.6% 13.7%
ALLOWANCE FOR FUNDS USED
DURING CONSTRUCTION AS
PERCENT OF NET INCOME 0.6% 1.2% 22.9% 16.7% 3.2%
</TABLE>
*Common Stock Data has been restated to reflect the 3-for-2 stock split on
March 10, 1998.
ELECTRIC OPERATION STATISTICS
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
ELECTRIC ENERGY GENERATED
AND PURCHASED
(megawatt hours)
Generated, net station
output 1,803,350 1,659,671 1,320,630 1,108,530 1,227,084
Purchased and net
interchange 503,242 380,106 473,175 595,872 435,990
Total generated and
purchased 2,306,592 2,039,777 1,793,805 1,704,402 1,663,074
Company use and losses (94,633) (80,106) (87,512) (65,651) (61,336)
Total electric energy
sales 2,211,959 1,959,671 1,706,293 1,638,751 1,601,738
ELECTRIC ENERGY SALES
(megawatt hours)
Residential 392,059 406,658 383,929 368,953 370,736
General and commercial 547,624 541,463 513,854 495,909 469,496
Industrial 556,554 555,601 552,829 583,258 568,316
Public authorities 22,583 25,083 23,164 23,051 22,621
Sales for resale 413,527 181,766 171,942 166,580 162,789
Total firm electric
energy sales 1,932,347 1,710,571 1,645,718 1,637,751 1,593,958
Non-firm sales 279,612 249,100 60,575 1,000 7,780
Total electric energy
sales 2,211,959 1,959,671 1,706,293 1,638,751 1,601,738
ELECTRIC REVENUE
(in thousands)
Residential $ 32,178 $ 33,230 $ 30,433 $ 28,574 $ 27,064
General and commercial 41,452 41,307 37,663 35,390 32,295
Industrial 26,802 26,915 26,495 27,318 25,901
Public authorities 1,843 1,970 1,775 1,718 1,537
Sales for resale 16,181 8,189 7,625 7,460 7,122
Total firm electric
revenue 118,456 111,611 103,991 100,460 93,919
Non-firm electric revenue 3,760 2,985 741 - 202
Other electric revenue 4,281 4,122 4,051 4,296 4,034
Total electric revenue $126,497 $118,718 $108,783 $104,756 $ 98,155
ELECTRIC CUSTOMERS
(end of year)
Residential 46,656 46,146 45,886 45,060 44,657
General and commercial 9,431 9,280 8,958 8,732 8,507
Industrial 39 37 35 36 41
Public authorities 141 137 138 130 124
Other electric utilities 2 1 1 1 1
Total electric customers 56,269 55,601 55,018 53,959 53,330
</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 19, 1998.
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, 51, Chairman, President and Chief Executive Officer of
Black Hills Corporation
Mr. Landguth was elected to his present position in January 1991.
Roxann R. Basham, 36, Vice President - Finance and Secretary/Treasurer
Ms. Basham was elected to her present position on December 9, 1997. She had
served as Secretary/Treasurer since 1993. She had served as Assistant
Secretary/Treasurer since May 1991.
David R. Emery, 35, Vice President - Fuel Resources
Mr. Emery was elected to his present position in January 1997. He had served
as General Manager of Western Production Company since June 1993 and
Petroleum Engineer since 1989.
Gary R. Fish, 39, Vice President - Corporate Development
Mr. Fish was elected to his present position in October 1996. He had served
as Controller since 1988.
Everett E. Hoyt, 58, President and Chief Operating Officer of Black Hills Power
Mr. Hoyt was elected to his present position in October 1989.
James M. Mattern, 43, Vice President - Corporate Administration and Assistant
to the CEO
Mr. Mattern was elected to his present position in September 1997. He had
served as Vice President - Corporate Administration since January 1994 and
had served as Director of Human Resources since 1991.
Thomas M. Ohlmacher, 46, 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.
Mark T. Thies, 34, Controller
Mr. Thies was elected to his present position on May 1, 1997. Previously,
Mr. Thies had served in a number of accounting positions, most recently as
Assistant Controller, at InterCoast Energy Company, a wholly owned
subsidiary of MidAmerican Energy Holdings Company since 1990.
Kyle D. White, 38, Vice President - Energy Services
Mr. White was elected to his present position on January 29, 1998. He had
served as Director of Strategic Marketing and Sales since 1993. He had
served as Manager, Rates and Regulatory Affairs 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 19, 1998.
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 19, 1998.
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 19, 1998.
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, 1984 (Exhibit
3(I) to Form 8-K dated June 7, 1994, File No. 1-7978).
*3(b) Bylaws dated January 30, 1997. (Exhibit 3(b) to Form 10-K for
1997.)
*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).
*4(d) Indentures of Trust dated as of
June 1, 1992, City of Gillette, Campbell County, Wyoming;
Lawrence County, South Dakota; Pennington County, South
Dakota; Weston County Wyoming; and Campbell County, Wyoming;
to Norwest Bank Minnesota, National Association, as Trustee
(Exhibits 10(n), 10(q), 10(s), 10(u), and 10(w), to Form 10-K
for 1992).
*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) 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 Leases between Wyodak
Resources Development Corp. and the Federal Government
-Dated May 1, 1959, (Exhibit 5(i) to Form S-7, File
No.2-60755)
-Modified January 22, 1990 (Exhibit 10(h) to Form 10-K for
1989)
-Dated April 1, 1961 (Exhibit 5(j) to Form S-7, File
No.2-60755)
-Modified January 22, 1990 (Exhibit 10(i) to Form 10-K for
1989)
-Dated October 1, 1965 (Exhibit 5(k) to Form S-7, File
No.2-60755)
-Modified January 22, 1990 (Exhibit 10(j) to Form 10-K for
1989)
*10(d) Further Restated and Amended Coal
Supply Agreement dated May 5, 1987 between Wyodak Resources
Development Corp. and Pacific Power & Light Company (Exhibit
10(k) to Form 10-K for 1987).
10(e) Second Restated and Amended Power
Sales Agreement dated September 29, 1997, between PacifiCorp
and the Company.
*10(f) 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(g) Third Restated Electric Power and
Energy Supply and Transmission Agreement dated January 1,
1998, by and between the Company and the City of Gillette,
Wyoming.
*10(h) 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(i) Compensation Plan for Outside
Directors (Exhibit 10(bb) to Form 10-K for 1992).
*10(j) The Amended and Restated Pension
Equalization Plan of Black Hills Corporation dated January 27,
1995 (Exhibit 10 (ad) to Form 10-K for 1994).
*10(k) The Amended and Restated Pension
Plan of Black Hills Corporation (Exhibit 10 (ad) to Form 10-K
for 1994).
*10(l) Agreement for Supplemental Pension
Benefit for Everett E. Hoyt dated January 20, 1992 (Exhibit
10(gg) to Form 10-K for 1992).
*10(m) 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(n) Change in Control Agreements dated
January 30, 1996 for Daniel P. Landguth, Everett E. Hoyt,
Thomas M. Ohlmacher, James M. Mattern, Roxann R. Basham and
Gary R. Fish (Exhibit 10(af) to Form 10-K for 1995).
*10(o) Marketing, Capacity and Storage
Service Agreement between Black Hills Corporation and
PacifiCorp dated September 1, 1995 (Exhibit 10(ag) to Form 10-
K for 1995).
10(p) Change in Control Agreement dated
February 1, 1997 for David R. Emery.
10(q) Change in Control Agreement dated
May 1, 1997 for Mark T. Thies.
10(r) Change in Control Agreement dated
December 31, 1997 for Kyle D. White.
10(s) Black Hills Corporation 1996 Stock Option Plan.
10(t) The Outside Directors Stock Based Compensation Plan.
10(u) Assignment of Mining Leases and
Related Agreement effective May 27, 1997, between Wyodak
Resources Development Corp. and Kerr-McGee Coal Corporation.
Included in this Agreement are coal leases between Wyodak
Resources Development Corp. and the Federal Government and the
State of Wyoming, as modified by the decision dated May 27,
1997 from the U.S. Department of the Interior - Bureau of Land
Management.
21 Subsidiaries of the Registrant.
23a Consent of Independent Public Accountants with respect to Annual
Report on Form 10-K.
23b Consent of Independent Public Accountants with respect to Annual
Report on Form 11-K.
27 Financial Data Schedule.
99 Annual Report on Form 11-K of the Black Hills Corporation Employee
Stock Purchase Plan for the year ended December 31, 1997.
* Exhibits incorporated by reference.
(b) The Company filed a report on Form 8-K on October 10, 1997 relating to the
renegotiated Power Sales Agreement with Pacific Power.
(c) See (a) 3. above.
(d) See (a) 2. above.
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 /s/ DANIEL P. LANDGUTH
Daniel P. Landguth, Chairman,
President and Chief Executive
Officer
Dated: March 9, 1998
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.
/s/ DANIEL P. LANDGUTH Director and Principal March 9, 1998
Daniel P. Landguth, Chairman, Executive Officer
President, and Chief Executive Officer
/s/ ROXANN R. BASHAM Principal Financial Officer March 9, 1998
Roxann R. Basham, Vice President-Finance,
and Corporate Secretary/Treasurer
/s/ MARK T. THIES Principal Accounting Officer March 9, 1998
Mark T. Thies, Controller
/s/ ADIL M. AMEER Director March 9, 1998
Adil M. Ameer
/s/ GLENN C. BARBE Director March 9, 1998
Glenn C. Barber
/s/ BRUCE B. BRUNDAGE Director March 9, 1998
Bruce B. Brundage
/s/ JOHN R. HOWARD Director March 9, 1998
John R. Howard
/s/ EVERETT E. HOYT Director and Officer March 9, 1998
Everett E. Hoyt (President and Chief
Operating Officer of Black Hills Power)
/s/ KAY S. JORGENSEN Director March 9, 1998
Kay S. Jorgensen
/s/ THOMAS J. ZELL Director March 9, 1998
Thomas J. Zeller
BOARD OF DIRECTORS AND OFFICERS
BOARD OF DIRECTORS OFFICERS
Daniel P. Landguth Daniel P. Landguth
Chairman of the Board, President and Chairman of the Board,President
Chief Executive Officer of the Company and Chief Executive Officer
Adil M. Ameer Roxann R. Basham
President and Chief Executive Officer Vice President - Finance and
Rapid City Regional Hospital Corporate Secretary/Treasurer
Glenn C. Barber David R. Emery
President and Chief Executive Officer Vice President - Fuel Resources
Glenn C. Barber & Associates, Inc.
Bruce B. Brundage Gary R. Fish
President and Director Vice President - Corporate
Brundage & Company Development
John R. Howard Everett E. Hoyt
President President and Chief Operating
Industrial Products, Inc. Officer of Black Hills Power
and Light Company
Everett E. Hoyt James M. Mattern
President and Chief Operating Officer Vice President-Corporate
Black Hills Power and Light Company Administration and Assistant
to the CEO
Kay S. Jorgensen Thomas M. Ohlmacher
Owner - Jorgensen-Thompson Vice President-Power Supply
Creative Broadcast Services; and
South Dakota Legislative Representative
Lawrence County, South Dakota
Thomas J. Zeller Mark T. Thies
President Controller
RE/SPEC Inc.
Kyle D. White
Vice President-Energy Services
Black Hills Power and Light
Company
SECOND RESTATED AND AMENDED POWER SALES AGREEMENT
BETWEEN
PACIFICORP
AND
BLACK HILLS CORPORATION
TABLE OF CONTENTS
Page
RECITALS.. ........................................................1
Section 1: Definitions.............................................1
Section 2: Term....................................................4
Section 3: Sale and Delivery of Capacity and Energy................4
Section 4: Scheduling..............................................6
Section 5: Prices and Payments.....................................7
Section 6: Governmental Regulation................................10
Section 7: FERC Reporting; Past Audit Issues......................10
Section 8: Arbitration............................................11
Section 9: Uncontrollable Forces..................................12
Section 10: Notices...............................................13
Section 11: Waiver............................................. ..13
Section 12: Several Obligations...................................14
Section 13: Amendments............................................14
Section 14: Assignment............................................14
Section 15: Choice of Law.........................................14
Section 16: Replacement of Original Agreement.....................14
Appendix A - Annual Fixed Cost
Appendix B - Variable Costs
SECOND RESTATED AND AMENDED POWER SALES AGREEMENT
BETWEEN
PACIFICORP
AND
BLACK HILLS CORPORATION
This Second Restated and Amended Power Sales Agreement,
dated as of the 29th day of September, 1997 ("Agreement"), is entered into
by and between PacifiCorp ("PacifiCorp"), an Oregon corporation, and Black
Hills Power and Light Company, predecessor to Black Hills
Corporation ("Black Hills"), a South Dakota corporation. PacifiCorp and
Black Hills are referredto herein individually as "Party" and collectively
as "Parties".
RECITALS
WHEREAS, on December 31, 1983, Black Hills and Pacific Power & Light
Company (a predecessor to PacifiCorp) entered into a Power Sales Agreement
which was modified by a letter agreement between the Parties dated August
31, 1995 ("Original Agreement"); and
WHEREAS, the Parties desire to further restate and amend the Original
Agreement as modified as of the Effective Date of this Agreement; and
WHEREAS, this Agreement will supersede and replace the Restated and
Amended Power Sales Agreement dated February 27, 1997 which had never
become effective;
NOW, therefore, the Parties agree as follows:
Section 1: Definitions
As used in this Agreement, the following terms shall have the
following meanings:
1.1"Adjusted Variable Cost Rate" is the cost for energy as defined
and adjusted in Appendix B, Section 1.
1.2 "Agreement" is this Second Restated and Amended Power Sales
Agreement,together with the Appendices A through C, attached hereto.
1.3 "Annual Fixed Costs" are the costs for capacity as determined
pursuant to Appendix A to this Agreement.
1.4 "Black Hills' System" is Black Hills' entire electric power
generating and transmission system as it exists from time to time.
1.5"Colstrip Project" is PacifiCorp's share in Unit Nos. 3 and 4 of
the coal-fired electric generating plant near Colstrip, Montana.
1.6 "Effective Date" is 0000 hours Mountain prevailing time August 1,
1997.
1.7 "FERC" is the Federal Energy Regulatory Commission of the United
States.
1.8 "Net Colstrip Generation" is PacifiCorp's combined share of the
output of the Colstrip Project Unit Nos. 3 and 4 generation. Net Colstrip
Generation, when expressed as capacity, shall, for purposes of this
Agreement, be deemed to be 150 megawatts ("MW"). When
expressed as energy, Net Colstrip Generation is the actual energy
production less station service requirements and less generator step-up
transformer losses expressed in megawatt-hours ("MWh") as reported in
PacifiCorp's FERC Form No. 1.
1.9 "Original Agreement" is the Power Sale Agreement between Black
Hills and PacifiCorp dated December 31, 1983 as amended by the letter
agreement dated August 31, 1995.
1.10 "Original Investment" shall be that dollar amount specified in
Subsection A.2.1 of Appendix A to this Agreement.
1.11 "PacifiCorp's System" is PacifiCorp's entire electric power
generating and transmission system as it exists from time to time.
1.12 "Prudent Utility Practice" is, at any particular time, either
any of the practices, methods, and acts engaged in or approved by a
significant portion of the electrical utility industry
prior thereto or any of the practices, methods, or acts which, in the
exercise of reasonable judgment the light of the facts known at the time
the decision was made, could have been 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 optimum practice, method, or act to the exclusion of all others but,
rather, to be a spectrum of possible practices, methods, or acts. Prudent
Utility Practice shall also include those practices, methods, and acts that
are required by applicable laws and final orders or regulations of
regulatory agencies having jurisdiction; provided, that the definition of
Prudent Utility Practice shall not be construed to allow regulatory bodies
to amend the fixed formulae used to determine prices under this Agreement,
nor any other provision of this Agreement. Prudent Utility Practice shall
not be interpreted as justification for discriminating among customers,
including Black Hills.
1.13 "Transmission Losses" are the product of the system energy
scheduled by Black Hills multiplied by the applicable real time
transmission loss factor pursuant to the Transmission Tariff.
1.14 "Transmission Tariff" is PacifiCorp's FERC pro forma open access
tariff on file with FERC as PacifiCorp's FERC Electric Tariff, Original
Volume No. 11, as such may be amended or replaced from time to time.
1.15 "Variable Cost Rate" is the variable cost rate as calculated
from the FERC Form No. 1 as demonstrated in Appendix B Sections B2 and B3.
1.16 "Western Energy" is the coal company or its successor company
through which the Colstrip Project purchases its coal supply and coal
transportation.
Section 2: Term
2.1 Term. This Agreement shall become effective on the Effective
Date pursuant to Subsection 1.6. Subject to the provisions of Section 2.2,
it shall terminate on December 31, 2023.
2.2 Regulatory Approval. PacifiCorp, at its expense, shall file this
Agreement with the Federal Energy Regulatory Commission (FERC) as provided
for in Subsection 6.1. PacifiCorp shall provide Black Hills with a copy of
the filing prior to its submittal to the FERC. Black Hills shall file with
the FERC an intervention in support of PacifiCorp's filing of this
Agreement. Upon FERC's acceptance of this Agreement, the Original
Agreement shall terminate as of the Effective Date. If the FERC does not
accept or approve this Agreement and the transmission service agreement s
under the Transmission Tariff for filing in toto, the Parties shall
exercise best efforts to amend these agreements to comply with the FERC
action in a manner consistent with the Parties' original intent. Failure
of the FERC to accept or approve these agreements after the Parties have
exercised best efforts shall terminate these agreements,
and the Original Agreement shall remain in full force and effect.
Section 3: Sale and Delivery of Capacity and Energy
3.1 Sale of Capacity. For the term of this Agreement, PacifiCorp
shall sell, and Black Hills shall purchase, system capacity as shown below:
Capacity
Amount
Commencing MW
Effective Date 75
January 1, 2000 70
January 1, 2001 65
January 1, 2002 60
January 1, 2003 55
January 1, 2004 50
3.2 Minimum Energy Purchases. Each month Black Hills shall purchase a
minimum of 22,500 MWh of system energy multiplied by the applicable
capacity pursuant to subsection 3.1 and divided by 75 MW.
3.3 Points of Delivery. PacifiCorp shall provide system power and
energy purchased under this Agreement to Black Hills under the terms and
conditions of separate service agreements under the Transmission Tariff.
Black Hills shall cause such service agreements to be executed with
PacifiCorp to reserve the amount of transmission capacity and the type of
service which in Black Hills' determination is required for the amount of
capacity purchased pursuant to Subsection 3.1 and Black Hills shall pay
separately for such transmission wheeling charges and shall be responsible
for either the return of energy or the payment for applicable energy charges
for transmission losses under the Transmission Tariff. However, the
merchant function of PacifiCorp shall purchase any capacity requirements
for losses, Spinning Reserve Service, Supplemental Reserve Service and any
other required ancillary service on behalf of Black Hills at the expense of
the merchant function of PacifiCorp. In addition, the merchant function of
PacifiCorp shall provide Black Hills with non-firm transmission service on
PacifiCorp's transmission system for deliveries to the Wyodak Substation
from PacifiCorp's multiple generation units as defined in such service
agreements for transfers not to exceed 5 megawatt-hours per hour for all
hours from the Effective Date through the earlier of the termination of
Black Hills' Power Integration Agreement with Montana-Dakota Utilities
Company dated September 9, 1994 or December 31, 2006. Black Hills shall
use its best efforts in scheduling transmission services under such service
agreements so as to minimize its use of the nonfirm transmission
service to be made available by the merchant function of PacifiCorp.
Black Hills shall be responsible for any amounts of additional firm
transmission service or nonfirm service in excess of the amount made
available to Black Hills by the merchant function of PacifiCorp pursuant
to the terms of the Transmission Tariff. On a monthly basis Black Hills
may purchase energy in addition to that energy associated with the
capacity purchases under Subsection 3.1, at the Adjusted Variable Rate
applicable for such month, under the terms of this Agreement to replace
the Transmission Losses required under the Transmission Tariff pursuant
to Subsections 4.1 and 4.2.
3.4 Deliveries. PacifiCorp does now and will continue to maintain
available transmission facilities sufficient to meet its delivery
obligations under this Agreement for the Term hereof.
Section 4: Scheduling
4.1 Amounts of Capacity and Energy. Commencing on the Effective Date
of this Agreement, and continuing during the Term hereof, PacifiCorp shall
make available from PacifiCorp's System, and Black Hills shall schedule,
energy associated with purchased capacity;provided, that PacifiCorp shall
not be obligated under this Agreement to schedule and deliver energy to
Black Hills in excess of the following amounts plus Transmission Losses if
elected by Black Hills pursuant to Subsection 4.2:
Hourly -- 75 MWh multiplied by the applicable purchased
capacity ofSubsection 3.1 and divided by 75 MW.
Weekly -- 10,050 MWh multiplied by the applicable purchased
capacity of Subsection 3.1 and divided by 75 MW.
Monthly -- One hundred ten percent (110%) of the estimated
monthly energy under Section 4.2.
4.2 Estimated Monthly Energy. At least five (5) days prior to the
commencement of each month, Black Hills shall deliver to PacifiCorp by
facsimile a written estimate of expected energy purchases for the following
month. Such estimate of expected energy purchases shall not be less than
the minimum monthly requirement pursuant to Subsection 3.2. Included in
the written estimate Black Hills shall notify PacifiCorp if Black Hills
elects to purchase or not purchase the Transmission Losses under this
Agreement for such month.
4.3 Schedules. Black Hills shall preschedule all deliveries of power
and energy purchased under this Agreement no later than 1000 hours Pacific
prevailing time on each workday prior to the day of such schedule and in
accordance with normal scheduling practices. Such schedules of power
and energy shall be deemed to be delivered during the hours and in the
amounts scheduled; provied, that if scheduled deliveries are interrupted
due to forces beyond either Party's control, including but not limited to
loss of facilities, such scheduled deliveries shall be adjusted to reflect
such interruptions.
4.4 Limitations on Variations. Black Hills shall use its best
efforts, consistent with Prudent Utility Practice, to minimize rapid
changes in deliveries hereunder; provided, that, unless otherwise agreed,
the hour-to-hour variation in such scheduled deliveries shall be limited to
25 MWh per hour.
Section 5: Prices and Payments.
5.1 Annual Fixed Cost Payments. Beginning on the Effective Date and
continuing until December 31, 1999, by the fifteenth (15th) of each month
Black Hills shall pay PacifiCorp one-twelfth of the Annual Fixed Cost of
$164.59 per kW-yr. multiplied by the capacity purchased pursuant to
Subsection 3.1.Commencing on January 14, 2000, and by the fifteenth
(15) of each month thereafter, Black Hills shall pay PacifiCorp
one-twelfth (1/12) of the Annual Fixed Cost as determined pursuant
to Appendix A, multiplied by the capacity purchased pursuant to
Subsection 3.1. Black Hills' last and final Annual Fixed Cost payment
for the Original Investment shall be December 15, 2018 pursuant to
Appendix A. The last and final Annual Fixed Cost payment for each of the
associated subsequent annual levelized fixed charge for capital additions,
replacements and betterments shall be after the completion of the 35th
year of Annual Fixed Cost payments for the associated subsequent capital
addition. For example, the final Annual Fixed Cost Payment for
1986 subsequent capital additions, replacements and betterments shall be
December 15, 2021.
5.2 Annual Fixed Cost Payment Reduction. For the invoices for each
month of the calendar years 2000 through 2009, the amount calculated
pursuant to Subsection 5.1 shall be reduced by $95,564, irrespective of the
reduced sale of capacity pursuant to Subsection 3.1.
5.3 Adjusted Variable Cost Payments.
5.3 Adjusted Variable Cost Payments for Estimated Energy. By the
fifteenth (15th) of each month after the Effective Date, Black Hills shall
pay PacifiCorp an amount determined by multiplying the Adjusted Variable
Cost Rate, as expressed in dollars per MWh ($/MWh), by the estimated
monthly MWh of energy including any elected Transmission Losses as provided
under Subsection 4.2.
5.3.1 Monthly Adjustments. PacifiCorp shall use the following
formula to calculate an adjustment to each prior month's invoice to adjust
for actual versus estimated monthly usage:
z = [(a - b) x (c)] (1 +i)
Where z = the amount of charge to Black Hills (if positive)
or credit to Black Hills (if negative);
a = the minimum energy pursuant to Subsection 3.2 or
the actual energy scheduled for the prior month
in MWh (whichever is greater) including any
energy scheduled for elected Transmission Losses;
b = the energy which was billed for such prior month,
in MWh, including any Transmission Losses
pursuant to Subsection 4.2;
c = the applicable Adjusted Variable Cost Rate in
dollars per MWh ($/Mwh) for such prior month;
i = the prime interest rate, expressed in decimal
form on an annual basis, as established by the
Morgan Guaranty Trust Company of New York as of
the first day of the prior month, divided by
twelve (12).
5.4 Payment Schedules. PacifiCorp shall send by facsimile to Black
Hills an invoice for all services hereunder, by the third (3rd) working day
of each month. Black Hills shall pay such invoices by the fifteenth (15th)
of such month. Each monthly payment shall be made in immediately available
funds by the due date. Such payments to PacifiCorp shall be electronically
wire transferred to:
The First National Bank of Chicago
A.B.A. No. 071000013
PacifiCorp-Wholesale & Trans.
Account No. 55-44688
Simple interest shall accrue on any amount not paid when due at a rate of
one hundred twenty-five percent (125%) of the prime rate as established by
the Morgan Guaranty Trust Company of New York during the period of
delinquency.
5.5 Operation of the Colstrip Project. It is the intent of the
Parties that the pricing provisions of this Section 5 shall account for all
operational variables of the Colstrip Project. Subject to exceptions as
specified in this Agreement, the pricing for the delivery of PacifiCorp
system power to Black Hills is based upon PacifiCorp's cost of ownership
and operation of the Colstrip as provided in this Section 5. Nothing in
this Agreement shall be construed as an obligation for PacifiCorp to
dispatch or control the Colstrip Project in any particular fashion.
Section 6: Governmental Regulation
6.1 Filing. The Parties shall submit this Agreement for filing to
the FERC no later than October 15, 1997. PacifiCorp shall seek a waiver of
any FERC rules that require an earlier filing date.
6.2 Fixed-Formulae Contract. The terms, conditions, and formulae for
prices for service specified herein shall remain in effect for the term
hereof, and shall not be subject to change through application to the FERC
pursuant to the provisions of Section 205 of the Federal Power Act absent
the agreement of the Parties hereto. The Parties covenant that neither
shall request relief from any of the provisions of this Agreement pursuant
to the provisions of Section 206 of the Federal Power Act absent the
agreement of the Parties hereto. The foregoing statutory references are
intended to include any subsequent similar enactments.
Section 7: FERC Reporting: Past Audit Issues.
7.1 Reporting. For purposes of administering this Agreement, data
reported in PacifiCorp's FERC Form No. 1 shall be deemed to be accurate for
purposes of calculating the Variable Cost Rate and the Adjusted Variable
Cost Rate; provided, however, should the FERC as a result of an audit,
require changes to PacifiCorp's FERC Form No. 1 that are relevant to the
calculation of the Variable Cost Rate or the Adjusted Variable Cost
Rate, the billings to Black Hills shall be retroactively adjusted to
reflect such changes. PacifiCorp shall fully comply with the Uniform
System of Accounts as promulgated by the FERC from time to time in the
preparation of the Form No. 1 during the Term of this Agreement.
7.2 Past Audit Issues. It is agreed by the Parties that any and all
outstanding audit issues are resolved by this Agreement. Any outstanding
audit questions or requests for information from Black Hills to PacifiCorp
are deemed to be withdrawn and satisfied.
7.3 Past Billings. All prior invoices under the Original Agreement
are deemed to be correct and not subject to further audit or adjustment
unless mutually agreed by the Parties.
Section 8: Arbitration
If any dispute arises under this Agreement as to any factual matter,
the Parties shall submit the factual dispute to a board of three arbiters,
one to be selected by each Party and the Parties to agree on the
selection of a third arbiter. If the Parties are unable to agree on the
third arbiter, the Parties shall request the senior district judge of
the United States District Court of the District of Wyoming to submit a
list of five (5) persons. Each Party shall alternately strike one name
from the list, the first exercise to be determined by lot. The
last person remaining on the list shall serve as the third (3rd) arbiter.
Except as otherwise set forth herein, the arbitration shall be held
under the rules of the American Arbitration Association. The arbiters
shall render their decision in writing not later than thirty (30) days
after the matter has been submitted to them, and the decision of a
majority of the board of arbiters of the factual dispute shall be
binding on the Parties. The arbiters may, in their discretion, award
arbitration costs and attorneys' fees to either Party.
Section 9: Uncontrollable Forces.
Neither Party to this Agreement shall be considered to be in default
in performance of any obligation hereunder if failure of performance shall
be due to uncontrollable forces. The term "uncontrollable forces" 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 such failure be due to causes arising
out of its own negligence or to removable or remediable causes which it
fails to remove or remedy with reasonable dispatch. Any Party rendered
unable to fulfill any obligation by reason of uncontrollable forces shall
exercise due diligence to remove such inability with all reasonable
dispatch. Nothing contained herein, however, shall be construed to require
a Party to prevent or settle a strike against its will. It is specifically
understood and agreed that PacifiCorp's delivery of capacity and energy to
Black Hills under this Agreement comes from PacifiCorp's System and shall
not depend upon the existence, operation, or efficiency of the Colstrip
Project alone. In determining any uncontrollable force justifying any
nonperformance by PacifiCorp herein, the entire PacifiCorp System shall be
taken into consideration.
Section 10: 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
facsimile and registered or certified mail, postage paid and return
receipt requested, 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, Finance
Black Hills Corporation
625 Ninth Street
P.O. Box 1400
Rapid City, South Dakota 57709
Fax No.: (605) 342-0945
For PacifiCorp: Vice President, Global Energy
Trading & Wholesale Sales
PacifiCorp, Suite 1600
700 NE Multnomah
Portland, Oregon 97232-4194
Fax No.: (503) 731-2160
With a copy to: Manager, Contract Administration
PacifiCorp, Suite 625
825 NE Multnomah
Portland, OR 97232-2153
Fax No. (503) 275-2827
Either Party may change its authorized representative by providing
notice to the other Party pursuant to this Section 10.
Section 11: Waiver
Any waiver by a Party of its rights with respect to default under this
Agreement, or with respect to any other matter arising in connection with
this Agreement, shall not be deemed to be a waiver with respect to any
subsequent default or matter. No delay in asserting or enforcing any right
hereunder shall be deemed a waiver of such fight.
Section 12: Several Obligations.
Except where specifically stated in this Agreement to be otherwise,
the duties, obligations, and liabilities of the Parties are intended to be
several and not joint or collective. Nothing contained in this Agreement
shall ever be construed to create an association, trust, partnership,
or joint venture or to impose a trust or partnership duty, obligation,
or liability on or with regard to either Party. Each Party shall
be individually and severally liable for its own obligations under this
Agreement.
Section 13: Amendments.
No amendment of this Agreement shall be effective without written
approval of each Party.
Section 14: Assignment.
This Agreement shall not be assigned by any Party to any third party
without the written consent of the other Party, and such consent shall not
be withheld unreasonably. No assignment of this Agreement shall operate
to discharge the assignor of any duty or obligation hereunder without
the written consent of the other Party.
Section 15: Choice of Law
This Agreement shall be subject to and be construed under the laws of
the State of Wyoming.
Section 16: Replacement of Original Agreement.
This Agreement represents the entire agreement of the Parties and
replaces the Original Agreement in its entirety, except as provided in
Subsection 2.2.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed in their respective names by their respective officers
thereunder duly authorized.
PACIFICORP
By:___________________________________
Vice President
Date: September 29, 1997
BLACK HILLS CORPORATION
By:____________________________________
Vice President
Date:___________________________________
Appendix A
APPENDIX A: ANNUAL FIXED COSTS
Introduction
This Appendix A sets forth the elements and techniques to
calculate the Annual Fixed Cost under Subsection 5.1 for the term
of the Agreement.
The Annual Fixed Cost is the dollars per megawatt sum of:
(a) initial levelized annual fixed cost, (b) subsequent levelized
annual fixed costs for Colstrip Plant investments made through
December 31, 1996, and (c) other fixed annual charges, including
but not limited to property taxes, insurance, and taxes other
than income tax.
Prior to January 1, 2000 the Annual Fixed Cost shall be
those as set forth in Subsection 5.1. Commencing on January 1,
2000 the Annual Fixed Cost shall be calculated as set forth in
this Appendix A. Capital additions, replacements, and
betterments made after December 31, 1996 shall not be included
for calculating the Annual Fixed Cost. During the balance of the
Term, PacifiCorp shall continue to comply with generally accepted
accounting principles in identifying capital additions,
replacements and betterments to the Colstrip Project and
capitalizing such for book purposes as opposed to expensing them
and including them in the Variable Cost Rate calculation.
Section A1. Discussion of Methodology
A1.1 Levelized fixed charges are the basis of annual fixed
costs hereunder. While actual capital-related charges associated
with an investment may vary considerably from year to year, the
levelized fixed charge translates these charges into a level
annual amount which remains constant over time. The present
values of the two streams (varying versus constant) are equal.
A1.2 The levelized fixed charge includes three basic
components: (a) return on investment, given a specific capital
structure and cost of capital; (b) recovery of investment, given
the appropriate depreciation period related to the investment;
and (c) income tax requirements, given tax law considerations.
These components are commonly expressed as: (a) interest expense
on debt and return required by shareholders; (b) book
depreciation; and, (c) income taxes incorporating the effects of
investment tax credits and tax depreciation.
A1.3 An initial levelized annual charge rate shall be
applied to the original investment of Colstrip Project Unit Nos.
3 and 4. The rate shall be recalculated effective each January 1
only in the event of a change during the preceding calendar year
in any of the following: (a) the capital structure; (b) cost of
long-term debt; (c) preferred retum; (d) the return on common
equity; or, (e) income tax law, but not to be applied
retroactively.
A1.4 Subsequent levelized annual fixed charge rates shall
be calculated each year through December 31, 1996 to reflect the
most current information and shall be applied each year to the
amount of capital additions, replacements (less credit for net
salvage and insurance proceeds, if any) and betterments of the
Colstrip Project completed through the end of the preceding
calendar year.
Section A2: Determination of Annual Fixed Costs
The Annual Fixed Costs for any year shall be determined by
(a) adding the amounts calculated under Sections A2.1 through
A2.5, and (b) dividing the total by Net Colstrip Generation in
MW. The costs referred to above are:
A2.1 The initial levelized annual fixed charge computed as
the product of (1) PacifiCorp's initial levelized annual fixed
charge rate determined annually in accordance with Section AS of
this Appendix A, and (2) PacifiCorp's total Original Investment
in the Colstrip Unit Nos. 3 and 4 of $194,965,667. Black Hills
shall pay no initial levelized annual fixed costs aver 2018,
pursuant to Subsection 5.1.
A2.2 The total subsequent an nual levelized fixed charge
shall be computed as the sum of annual charges determined by the
product of (a) PacifiCorp's subsequent levelized annual fixed
charge rate, as calculated using the then current applicable cost
of capital in accordance with Section A3 of this Appendix A and
(b) the subsequent dollar investment in capital additions,
replacements (less credit for net salvage and insurance proceeds,
if any), and betterments of the Colstrip Project, completed for
each year from January 1, 1986 through December 31, 1996.
A2.3 All ad valorem taxes imposed upon the Colstrip Project
by governmental agencies without limitation for excluded
subsequent capital additions, replacements, and betterments.
A2 4 All taxes, assessments, payments in lieu of taxes, or other
charges imposed by any governmental body assessed or charged
against PacifiCorp relating to the Colstrip Project, excluding ad
valorem taxes, state and federal income taxes and excluding any
tax included in the Variable Cost Rate calculation of Subsection
B3. It is understood that the current Montana electric energy
license tax is included in the Variable Cost Rate.
A2.4 Insurance premiums which shall be deemed to be
$322,941.08 (0.16 percent of the Colstrip production plant
investment as of December 31, 1996).
Section A3: Elements of Levelized Annual Fixed Charge Rates
A3.1 Capital Structure:
A3.1.1 Commencing January 1, 2000, for purposes of
calculating the initial levelized annual fixed charge rate and
subsequent levelized fixed charge rates in any year, PacifiCorp's
then-current FERC approved capital structure as described further
in Subsection A3.3 shall be utilized. Such capital structure
shall be updated as provided for in Section A3.3. The capital
structure approved by the FERC the date of execution of this
Agreement is as follows:
Percent
Long-Term Debt 45.54%
Preferred Stock 8.40%
Common Equity 46.06%
Total Capital 100%
A3.2 Cost of Capital:
A3.2.1 Long-Term Debt: Commencing on January 1,
2000, the long-term debt applicable in the calculation of the
initial and subsequent levelized annual fixed charge rates shall
be equal to PacifiCorp's then-current weighted average cost of
longterm debt calculated using FERC prescribed methods. As of
the execution date of this Agreement, this rate is 7.11%. The
cost of long-term debt shall be updated as provided for in
Subsection A3.3, below.
A3.2.2Preferred Stock: Commencing on January 1,
2000, the return on preferred stock applicable in the calculation
of initial and subsequent levelized annual fixed charge rates
shall be PacifiCorp's then-current weighted average cost of
preferred stock calculated using FERC prescribed methods. As of
the execution date of this Agreement, this rate is 6.76%. The
cost of preferred stock shall be updated as provided for in
Subsection A3.3, below.
A3.2.3 Common Stock Equity: Commencing on January 1,
2000, the return on common stock equity applicable in the
calculation of each initial levelized annual fixed charge rate,
and each subsequent levelized annual fixed charge rate, shall be
the then current FERC approved cost of common equity for
PacifiCorp. The current cost of common stock equity approved by
the FERC at the date of execution of this Agreement is 10.40%.
The cost of common stock equity shall be updated as provided for
in Subsection A3.3 below.
A3.3Updates to FERC-Based Elements of Fixed Charge Rates:
At such times, subsequent to January 1, 2000, as new FERC orders
establish a different capital structure, cost of long-term debt,
cost of preferred stock or cost of common equity for PacifiCorp,
or PacifiCorp enters into a settlement of a FERC rate proceeding
where FERC staff reports known as "top sheets" provide for such
differences, effective the following January 1, such different
capital structure, cost of long-term debt, cost of preferred
stock or cost of common equity shall be substituted in
Subsections A3.1 through A3.2 as appropriate until the next FERC
order or settlement. If more than three years have elapsed
between the Effective Date of this Agreement and a FERC order or
settlement (with FERC staff top sheets), or between FERC orders
and/or settlements (with FERC staff top sheets) establishing a
capital structure, cost of long-term debt, cost of preferred
stock or cost of common equity, either Party may cause PacifiCorp
to promptly apply to the FERC for an order establishing a current
capital structure, cost of long-term debt, cost of preferred
stock and cost of common equity and the FERC findings shall be
substituted effective the January 1 following an order resulting
from such application .
A3.4 Book Depreciation: Book Depreciation charges shall be
at a straight-line rate based on a thirty-five (35) year life in
calculating the initial and subsequent levelized annual fixed
charge rate.
A3.5 Income Tax Requirements: Income tax requirements
applicable in calculating both initial and subsequent levelized
annual fixed charge rates shall be based on the following items:
provided, subsequent changes in tax laws shall be incorporated in
computing levelized annual fixed charge rates for periods
following such tax law changes:
A3.5.1 The actual federal corporate income tax rate
beginning at 46% in 1984, and tracking the actual corporate tax
and projected tax rates for the life of the investment, with tax
rate at the execution date of this Agreement at 35%.
A3.5.2 A state corporate income tax rate equal to the
estimated composite weighted average of PacifiCorp's three-factor
formula for unitary allocation of state taxable income based upon
payroll, property, and revenue in each state in which PacifiCorp
provides retail service. As of the execution date of this
Agreement, the rate is four and four-tenths percent (4.4%).
A3.5.3 Use of 1 5-year depreciation under Accelerated
Cost Recovery System for original investment and additions prior
to 1987, and 20-year depreciation under Modified Accelerated Cost
Recovery System for additions beginning in 1987 through 1 996.
A3.5.4 Regular investment tax credits allowed in
accordance with the provisions of the Internal Revenue Code of
1954, as amended, regardless of whether PacifiCorp is able to use
such credits. The investment tax credit in calculating the
initial levelized annual fixed charge rate shall be deemed to be
9.65 percent of tax basis.
A3.5.5 Tax basis shall be 75.98% of the book basis in
calculating each initial levelized annual fixed charge rate, and
100% of the book basis in calculating each subsequent levelized
annual fixed charge rate.
A3.5.6 The annual income tax amount included in the
levelized annual fixed charge rate shall be calculated utilizing
the methodology demonstrated in Item 3 of Appendix C of this
Agreement.
Appendix B
APPENDIX B: VARIABLE COSTS
This Appendix B sets forth the elements and techniques to
calculate the Adjusted Variable Cost Rate and the Variable Cost
Rate under Subsection 5.3 for each year of this Agreement.
Section B1: Adjusted Variable Cost Rate
During the term of this Agreement, the Adjusted Variable
Cost Rate expressed in dollars per megawatt-hour ($/MWh) in any
year shall be determined by June 1 of each year, to be effective
from such June 1 to May 31 of the following calendar year. The
Adjusted Variable Cost Rate for any year shall be the prior
year's Adjusted Variable Cost Rate multiplied by the ratio of the
prior calendar year's Variable Cost Rate, divided by the Variable
Cost Rate as determined one calendar year earlier. (The Variable
Cost Rate shall be determined pursuant to Section B2.) The
calculation of the Adjusted Variable Cost Rate is as follows:
AVCn=AVCn-1 *(VCmost recent year /VCmost recent year -1)
Where: AVC = Adjusted Variable Cost Rate
VC = Variable Cost Rate
n = current year
For example, the Adjusted Variable Cost Rate effective June
1, 2000 is equal to the Adjusted Variable Cost Rate effective
June 1, 1999 multiplied by the Variable Cost Rate based on 1999
FERC Form No. 1 and divided by the Variable Cost Rate based on
1998 FERC Form No. 1.
The initial Adjusted Variable Cost Rate shall be deemed to
be $12.20/MWh and shall be effective through May 31, 1998. This
Adjusted Variable Cost Rate shall be adjusted each successive
year beginning June 1, 1998 pursuant to this Section B1.
Section B2: Variable Cost Rate
During the term of this Agreement, the prior calendar year's
Variable Cost Rate ($/MWh) shall be determined by June 1 of each
year. The Variable Cost Rate for each year shall be calculated
from PacifiCorp's FERC Form No. 1 for the Colstrip Project as
illustrated in Section B3. The FERC Form No. 1 costs shall be
adjusted to spread the fixed portion of PacifiCorp's fuel costs
over the greater of (1) the actual PacifiCorp Net Colstrip
Generation (MWh) or (2) the generation based on a deemed 150 MW
of capacity at an 80% capacity factor. The commodity component
of the fuel costs shall be a separate calculation using actual
Net Colstrip Generation (MWh). The non-fuel variable cost shall
be computed using the generation based on a deemed 150 MW of
capacity at an 80% capacity factor.
Section B3: Variable Cost Rate Calculation
B3.1 An example calculation is shown in Subsection B3.2.
The input data for the calculation is from PacifiCorp's 1996 FERC
Form No. 1 for the Colstrip Project and the sum of the Western
Energy fixed charges (line 9 of Subsection B3.2) for contract
coal and coal transportation paid in such calendar year. The
1996 Variable Cost Rate is $13.12 pursuant to Subsection B3.2.
B3.2 Variable Cost Rate Calculation - 1996 Example
1 1996 PacifiCorp Colstrip Project
2 Annual Variables
3 Calendar Year 1996
4 PacifiCorp FERC Form No.1 ("Form 1") Page No. 403.1
5 Form 1, line 33, "Total Production Expenses" $11,619,595
6 Form 1, line 19, "Fuel" $7,594,943
7 Form 1, line 12, "Net Generation, Exclusive
of Plant Use", MWh 795,052
8 Hours in the Year (Leap Year) 8784
9 Sum of Western Energy Fixed Charges for
Contract Coal and Coal Transportation $567,744
10
11 Non-Fuel Variable Cost Component
12 Non-fuel Production Expense (line 5-line 6) $4,024,652
13 Deemed Non-Fuel Variable Adjustment Factor
(Electrical energy license tax and A&G) 1.03
14 Black Hills Adjusted Non-Fuel Variable Cost
(line 12 x line 13) $4,145,392
15 Deemed Production for Non-Fuel Calculation
(150 MW @ 80% OF), MWh 1,054,080
16 Non-Fuel Variable Cost, S/MWh (line 14/line 15) 3.93
17
18 Fuel Cost-Fixed Component
19 Western Energy Fixed Charges (line 9) $567,744
20 Deemed Production for FKed-Fuel Calculation,
MWh 1,054,080
(greater of 150MW @ 80% CF or line 7)
21 Fuel - Fixed Cost, $/MWh (line 19/line 20) 0.54
22
23 Fuel Cost - Commodity Component
24 Fuel Production Expense (line 6) $7,594,943
25 Deemed Fuel Variable Adjustment Factor 0.98
26 Black Hills Adjusted Fuel Expense
(line 24 x line 25) $7,443.044
27 Western Energy Feed Charges (line 9) $567,744
28 Black Hills Fuel Commodity Expenses
(line 26- line 27) $6,875.300
29 Net Generation, MWh (line 7) 795,052
30 Fuel Commodity cost, $/MWh (line 28/line 29) 8.65
31
32 1996 Variable Cost Rate, $/MWh
(line 16 + line 21 + line 30) 13.12
Section B4: Unavailability of Colstrip Variable Costs
B4 In years in which the capacity factor of Colstrip Unit
Nos. 3 and 4 together is less than forty percent (40%), or if
Colstrip Project costs are not available for any reason, or if
PacifiCorp is no longer a participant in the Colstrip Project,
the Adjusted Variable Cost Rate shall not be updated for up to a
year after its normal adjustment period. During such time the
Parties shall negotiate an appropriate alternative variable cost
methodology. If the Parties are unable to agree, the issue of
the variable cost methodology shall be submitted to arbitration
based on the fair market price for long term fuel and O&M for a
project similar to Colstrip. For the purpose herein, a "project
similar to Colstrip" is a project located in the western part of
the United States consisting of a generating station of two or
more coal-fired steam electric generators of 500 megawatts or
larger operating at an eighty percent (80%) load factor or more
and situated in close proximity to a surface coal mine from which
the generators are fueled. The Annual Fixed Costs shall not be
modified by such an event.
THIRD RESTATED ELECTRIC POWER AND ENERGY
SUPPLY AND TRANSMISSION AGREEMENT
between
THE CITY OF GILLETTE, WYOMING
and
BLACK HILLS POWER AND LIGHT COMPANY
Date: January 1, 1998<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 Backup Supply Service. . . . . . . . . . . . . .4
3.4 Capacity and Energy Technicalities . . . . . . .5
3.5 Metering. . . . . . . . . . . . . . . . . . . .5
3.6 Coal Agreements. . . . . . . . . . . . . . . . .5
4. POWER AND ENERGY RATE SCHEDULES AND REGULATION. . . . .6
5. OTHER SOURCES OF CAPACITY AND ENERGY. . . . . . . . . 12
6. POINT OF DELIVERY, INTERCONNECTION, FACILITIES, AND METERS12
6.1 Point of Metering. . . . . . . . . . . . . . . 12
6.2 Point of Interconnection and Delivery. . . . . 12
6.3 Calibrate Meters . . . . . . . . . . . . . . . 12
6.4 Rights of Way. . . . . . . . . . . . . . . . . 13
6.5 Facilities to be Provided by Gillette. . . . . 13
7. NETWORK INTEGRATION TRANSMISSION SERVICE AGREEMENT. . 14
8. CONTRACT REFORMATION. . . . . . . . . . . . . . . . . 14
8.1 Contract Reformation Charge. . . . . . . . . . 14
8.2 Conditional Contract Reformation Charge. . . . 15
9. IMPOSSIBILITY OF PERFORMANCE. . . . . . . . . . . . . 16
10. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 16
11. FILING WITH FERC. . . . . . . . . . . . . . . . . . . 17
12. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . 17
13. NOTICE. . . . . . . . . . . . . . . . . . . . . . . . 18
14. COMPLETE AGREEMENT. . . . . . . . . . . . . . . . . . 18
<PAGE>
THIRD RESTATED ELECTRIC POWER AND ENERGY SUPPLY
AND TRANSMISSION AGREEMENT
This Third Restated Electric Power and Energy Supply and Transmission
Agreement, dated as of January 1, 1998 ("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
Second Restated Electric Power and Energy Supply and Transmission Agreement,
dated as of February 28, 1995 ("Second Restated Agreement"), which agreement
superseded 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 transmission
services and electric capacity and energy service to Gillette for its own use
and to be resold in the operation of its municipal electric system pursuant
to the terms and provisions of the Second Restated Agreement, which was accepted
for filing with the Federal Energy Regulatory Commission.
The purpose of this Agreement is to restate the Second Restated Agreement.
At such time regulatory requirements are satisfied as set forth in Section 11,
this Agreement supersedes and replaces the Second Restated Agreement.
1.2 Definitions. The terms "capacity" and "energy" used in this Agreement
refer to electric capacity and electric energy, respectively.
"Backup Supply Service"refers to Black Hills providing Gillette
capacity which Black Hills is not otherwise obligated to provide
per this Agreement, the Network Integration Transmission Service
Agreement, or any other agreement between Black Hills and Gillette.
"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.
"Black Hills' Transmission System" is the facilities owned, controlled
or operated by Black Hills as defined in the Transmission Tariff.
"Conditional Contract Reformation Charge" is the payment due from
Gillette to Black Hills consistent with Section 8.2.
"Contract Reformation Charge" is the payment due from Gillette to
Black Hills consistent with Section 8.1.
"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.
"Good Utility Practice" is any of the practices, methods and acts
engaged in or approved by a significant portion of the electric
utility industry during the relevant time period, or any of the
practices, methods and acts which, in the exercise of reasonable
judgment in light of the facts known at the time the decision was
made, could have been expected to accomplish the desired result at a
reasonable cost consistent with good business practices, reliability,
safety and expedition. Good Utility Practice is not intended to be
limited to the optimum practice, method, or act to the exclusion of
all others, but rather to be acceptable practices, methods, or acts
generally accepted in the region.
"Network Integration Transmission Service Agreement" is the agreement
under which transmission services are provided to Gillette by Black
Hills.
"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 determining any Backup
Supply Service under Exhibit A, measurement shall be based on fifteen-
minute intervals.
"Transmission Tariff" is Black Hills' FERC pro forma Open Access Tariff
on file with the FERC as Black Hills Power and Light Company Open
Access Transmission Tariff, Original Volume No. 2, as the same may be
amended or replaced from time to time.
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 23,000 KW during each month
of the Term.
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 Backup Supply Service. Black Hills shall have no obligation to supply
firm capacity and energy to Gillette beyond that capacity and energy required
under Sections 3.1 and 3.2. In the event that Black Hills furnishes Gillette
capacity to meet a portion of Gillette's Requirements beyond the capacity
required to be provided by Black Hills under Section 3.1 of this Agreement,
the Network Integration Transmission Service Agreement or any other agreement
entered into between Black Hills and Gillette, Black Hills shall charge and
Gillette shall pay, on a monthly basis, the Backup Supply Service charge
provided for in Exhibit A of this Agreement. No charge for Backup Supply
Service shall be payable unless the entity responsible for scheduling a
Gillette-supplied resource fails to meet scheduled energy deliveries
as arranged between Black Hills and the entity responsible for such scheduling.
Energy accompanying such additional capacity will be billed consistent with
Exhibit A.
3.4 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.
3.5 Metering. 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.
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.
3.6 Coal Agreements. 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 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. Section 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) 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) 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) and 4(d),
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. Section 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) and
4(d), below, Gillette has the right under Section 205 of the
Federal Power Act (16 U.S.C. Section 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. Section 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 Backup Supply Service charge in Exhibit
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 the dollar levels of the rate and
charges set forth on Exhibit A prior to January 1, 2002, provided,
however, Black Hills may tender with the FERC a filing prior to
January 1, 2002, that proposes an effective date of January 1,
2002; and Gillette shall not contest, the dollar levels of the
rates and charges set forth in Exhibit A prior to January 1,
2003, provided, however, Gillette may tender with the FERC a
filing prior to January 1, 2003, that proposes an effective date
of January 1, 2003, except Gillette may tender a filing with the
FERC earlier if a Black Hills filing is made prior to January 1,
2003. Notwithstanding the previous sentence, if prior to January
1, 2002, 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 plant which costs more
than $5,000,000 to repair.
Black Hills may file for an increase to take effect prior to
January 1, 2002, 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 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.
(ii) 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.
(iii) Black Hills may maintain an energy charge at a level no
lower than $0.0213 per kWh. If the energy charge is higher
than the level of appropriately allocated energy costs, the
overage will be reflected as a credit to Gillette under the
demand charge.
(iv) The Basic Service Charge will be set no lower than $5,400
per month.
(v) 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.
(vi) The Contract Reformation Charge shall be set not lower than
$16,000 and shall not be used to reduce Gillette's cost of
service under this Agreement.
(vii) The Conditional Contract Reformation Charge shall be set
not lower than $16,000 unless the conditions in Section 8.2
are satisfied and shall not be used to reduce Gillette's
cost of service under this Agreement
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 self generating or contracting with others for
capacity and energy . If Gillette enters into contracts from other sources,
Gillette shall keep Black Hills currently informed of the arrangements.
6. POINT OF DELIVERY, INTERCONNECTION, FACILITIES, AND METERS.
6.1 Point of Metering. Black Hills shall meter 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 metering which is the Neil Simpson No. 1 69 kV
Substation and/or at any future points of metering upon which the parties may
agree.
6.2 Point of Interconnection and Delivery. The point of interconnection
and delivery shall be where Black Hills facilities now interconnect to the
facilities of Gillette, presently located near the corner of Warlow Drive and
Gurley Avenue, City of Gillette, Wyoming, or at any future point of
interconnection and delivery upon which the parties may agree.
6.3 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.
6.4 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 interconnection and delivery set forth
in Section 6.2 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.
6.5 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 interconnection and delivery with Black Hills' Transmission System 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 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 6.2 as
required by Good 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. NETWORK INTEGRATION TRANSMISSION SERVICE AGREEMENT.
Black Hills shall provide transmission services for Gillette's Requirements
under this Agreement consistent with the Network Integration Transmission
Service Agreement. Gillette shall accept such service under the Transmission
Tariff and be responsible for all charges and expense associated with the same,
except that Gillette shall receive a credit against its bill calculated
consistent with Exhibit A for the ancillary service charges as provided for in
the Transmission Tariff excluding Energy Imbalances Services (Network
Integration Transmission Service Agreement Section 4.4) related to Gillette's
Requirements until there is a change in rates consistent with Section 4(c).
Additionally, until there is a change in rates consistent with Section
4(c), Black Hills shall be responsible for the transmission losses under the
Transmission Tariff for the Base Load Capacity and Base Load Energy.
8. CONTRACT REFORMATION.
8.1 Contract Reformation Charge. Section 8.4 of the Second Restated
Agreement obligated Gillette to make payment to Black Hills for reserved
transmission capacity. In consideration of extinguishing that obligation to
Black Hills, Gillette shall pay Black Hills monthly upon invoices the sum
identified on Exhibit A related to the Contract Reformation Charge. This
Contract Reformation Charge shall not be subject to change, modification, or
amendment as a result of any regulatory proceeding as otherwise set forth in
Section 4 and shall remain an obligation of Gillette to Black Hills through June
30, 2012.
8.2 Conditional Contract Reformation Charge. In the event that Black
Hills does not have the right under its Transmission Tariff to realize the
benefits of 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. (now known as Powder River Energy
Corporation), Black Hills Electric Cooperative, Inc., and Butte Electric
Cooperative, Inc. (collectively "Cooperatives") ("REC Contract"), as being
equivalent to the costs properly allocable to the service under the REC Contract
("Revenue Credit Methodology"), which right was otherwise set forth in the
Second Restated Agreement, Gillette shall make payment to Black Hills of a
Conditional Contract Reformation Charge as set forth on Exhibit A. This
Conditional Contract Reformation Charge shall not be subject to change,
modification, or amendment as a result of any regulatory proceeding as otherwise
set forth in Section 4 and shall remain an obligation of Gillette to Black Hills
through June 30, 2012. In the event that this Conditional Contract
Reformation Charge is otherwise mitigated as a result of having the
Cooperatives more fully pay the allocable charge as a result of application of
the REC Contract provisions, regulatory proceedings or contract modifications
associated with their use of the joint transmission system, Gillette's
obligation for this Conditional Contract Reformation Charge shall be reduced to
reflect any mitigation in this expense.
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 Power and Light Company, Attention:
President, P. O. Box 1400, Rapid City, South Dakota 57709 on behalf of Black
Hills; and City of Gillette, Attention: Jon Young and Wayne Lindgren at P. O.
Box 3003, Gillette, Wyoming 82717, and Attention: Wayne Lindgren at 611
Exchange, 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 and the Network Integration Transmission
Service Agreement have been accepted for filing and/or approved by FERC, this
Agreement and the Network Integration Transmission Service Agreement cancel and
supersede the Second Restated Electric Power and Energy Supply and Transmission
Agreement dated February 28, 1995. This Agreement and the Network Integration
Transmission Service Agreement constitute the complete and full agreements
between the parties.
This Agreement and the Network Integration Transmission Service Agreement
are executed as of the day and year recited in the first paragraph hereof and
each of the officers executing this Agreement and the Network Integration
Transmission Service Agreement represent that this Agreement and the Network
Integration Transmission Service Agreement have 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
ATTEST:Its Mayor
Clerk
(OFFICIAL SEAL)
BLACK HILLS POWER AND LIGHT
COMPANY
ATTEST:By
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) January 1, 1998 through December 31, 1998:
Basic Service Charge $5,400 per month
Billing Demand Charge $11.49 per kilowatt of the Billing
Demand
Billing Energy Charge 2.13 cents per kilowatt hour of Billing
Energy
Contract Reformation Charge $16,000 per month
Conditional Contract
Reformation Charge$16,000 per month
(b)January 1, 1999 through December 31, 1999:
Basic Service Charge $5,400 per month
Billing Demand Charge $10.59 per kilowatt of the Billing
Demand
Billing Energy Charge 2.13 cents per kilowatt hour of Billing
Energy
Contract Reformation Charge $16,000 per month
Conditional Contract
Reformation Charge$16,000 per month
(c) January 1, 2000 and thereafter:
Basic Service Charge$5,400 per month
Billing Demand Charge $8.77 per kilowatt of the Billing
Demand
Billing Energy Charge 2.13 cents per kilowatt hour of Billing
Energy
Contract Reformation Charge $16,000 per month
Conditional Contract
Reformation Charge$16,000 per month
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 23,000 KW 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.
BACKUP SUPPLY SERVICE
Backup Supply Service occurs when Black Hills furnishes Gillette capacity
beyond Black Hills' obligations under this Agreement, the Network
Integration Transmission Service Agreement or any other agreements between
Black Hills and Gillette.
When Black Hills provides capacity to Gillette beyond Black Hills'
obligation under this Agreement, the Network Integration Transmission
Service Agreement or any other agreements between Black Hills and Gillette,
Gillette shall pay to Black Hills 3 times the monthly Billing Demand Charge
for the capacity for such Backup Supply Service and the Billing Energy
Charge identified in this Exhibit A.
INCOME TAX ADJUSTMENT
At any time prior to January 1, 2002 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, 2001 shall be taken into account in determining just and
reasonable rates under Section 4(b).
GOVERNMENT IMPOSITION ADJUSTMENT
At any time prior to January 1, 2002, that Black Hills incurs the burden of
any new federal, state, or local governmental impositions and governmental
charges of general applicability to electric utilities, including but not
limited their generating fuel source and purchase power obligations,
including but not limited to charges imposed upon energy and emissions,
environmental externalities, and reclamation requirements imposed after
January 1, 1998, which project to cause Black Hills at least a 5 percent
increase in costs of service, the Energy Charge shall be adjusted
to reflect the increase associated with such charges; provided, no bills or
rates will be increased by this governmental imposition and charge
adjustment without filing with the Federal Energy Regulatory Commission
under laws, rules, and regulations related thereto. In consideration of the
moratorium at Section 4(c) of this Agreement, Gillette agrees that any such
adjustment shall be made and shall not object to or oppose such adjustments.
Any governmental imposition to be effective after December 31, 2001, 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.
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of February 1, 1997,
is entered into by and between Black Hills Corporation ("Company") and David R.
Emery, Vice President - Fuel Resources ("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 Vice President - Fuel Resources 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_/s/David R. Emery
Title:
ATTEST:
/s/ Roxann R. Basham
Secretary and Treasurer
By /s/ Daniel P. Landguth
Executive
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of May 1, 1997, is
entered into by and between Black Hills Corporation ("Company") and Mark T.
Thies, 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 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 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/s/ Mark T.Thies
Title:Controller
ATTEST:
/s/Roxann R. Basham
Secretary and Treasurer
By /s/Daniel P. Landguth
Executive
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement ("Agreement") dated as of December 31,
1997, is entered into by and between Black Hills Corporation ("Company") and
Kyle White ("Key Employee").
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 Key
Employee'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 Key Employee 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.
"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 Key Executive's
employment under the provisions so indicated. Any purported
termination by the Company or Key Employee 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 Key Employee'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 Key Employee and the Key Employee
agrees to remain in the employ of the Company. During the Employment Term, the
Key Employee shall be employed at a position substantially similar to Key
Employee's position prior to the Change in Control or in such other capacity as
may be mutually agreed to in writing by the parties. Key Employee shall
perform the duties, undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons situated in a
similar capacity.
During the Employment Term, excluding periods of vacation and sick leave to
which Key Employee is entitled, Key Employee 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 Key Employee hereunder. It is expressly understood and agreed that to the
extent that any outside activities have been conducted by Key Employee 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 Key
Employee's responsibilities to the Company.
4. COMPENSATION.
During the Employment Term, the Company agrees to pay or cause to be paid to
Key Employee annual compensation at a rate at least equal to the highest rate of
the Key Employee'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 Key Employees. For purposes of this
Agreement, "annual compensation" shall mean all compensation paid to the Key
Employee by the Company during a calendar year, which amounts are includable in
the gross income of the Key Employee 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 Key Employee
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 Key
Employee (if Key Employee was a participant prior to the Change in Control)
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, Key Employee shall be entitled to all fringe benefits,
perquisites, vacation and sick leave generally made available by the Company to
its employees. Unless otherwise provided herein, the fringe benefits,
perquisites, vacation and sick leave provided to Key Employee shall be on the
same basis and terms as other similarly situated employees of the Company,
but in no event shall be less favorable than the most favorable fringe benefits,
perquisites, vacation and sick leave applicable to Key Employee at any time
within one year preceding the Effective Date, or if more favorable, at any
time thereafter.
(b) Expenses. Key Employee 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, Key Employee's employment hereunder may be
terminated under the following circumstances:
(a) Cause. The Company may terminate Key Employee's employment for
"Cause." A termination of employment is for "Cause" if Key Employee (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 Key Employee's employment shall be for
Cause as set forth in clause (2) above until (i) there all have been delivered
to Key Employee a copy of a written notice setting forth that Key Employee
was guilty of the conduct set forth in clause (2) and specifying the particulars
thereof in detail, and (ii) Key Employee shall have been provided an opportunity
to be heard by the Board (with the assistance of Key Employee's counsel if Key
Employee so desires). No act, nor failure to act, on Key Employee'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 Key Employee after a Notice of Termination is given by Key Employee shall
constitute Cause for purposes of this Agreement.
(b)Disability. The Company may terminate Key Employee's employment
after having established Key Employee's Disability. For purposes of this
Agreement, "Disability" means a physical or mental infirmity which impairs Key
Employee'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 Key Employee. Key Employee 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 Key Employee's
Disability during which Key Employee 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 Key Employee's Disability, Key Employee shall be entitled to
return to his position with the Company as set forth in this Agreement in
which event no Disability of Key Employee will be deemed to have occurred.
(c)Good Reason. During the Employment Term, the Key Employee 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 Key Employee's status, title, position or
responsibilities (including reporting responsibilities), which, in the
Key Employee'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 Key
Employee;
(ii)a reduction in the Key Employee's Annual Compensation as
defined in paragraph 4 or any failure to pay the Key Employee 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 Key Employee to be based outside
a 50-mile radius from Key Employee's usual and normal place of work
prior to the Change in Control, 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 Key Employee'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 Key Employee, 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 Key Employee may voluntarily terminate his
employment hereunder at any time.
9. COMPENSATION UPON TERMINATION.
Upon termination of Key Employee's employment during the Employment Term,
Key Employee shall be entitled to the following benefits:
(a)If Key Employee's employment with the Company shall be terminated
(i) by the Company for Cause or Disability, or (ii) by reason of Key
Employee's death, or (iii) by Key Employee without "Good Reason," the Company
shall pay Key Employee 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 Key Employee on behalf of the Company during the period ending on the
Termination Date, vacation pay and sick leave (collectively "Accrued
Compensation").
(b)If the Key Employee'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 Key Employee for Good Reason, Key Employee shall be
entitled to the following:
(i)The Company shall pay Key Employee all Accrued
Compensation;
(ii)The Company shall pay Key Employee 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
Key Employee'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 Key Employee 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 Key Employee
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 Key Employee hereunder so long
as the aggregate coverages and benefits of the combined benefit plans
is no less favorable to Key Employee than the Welfare Benefits;
(iv)Key Employee shall be entitled to an amount of credited service
for vesting purposes under the Pension Equalization Plan (if Key
Employee is a participant therein) 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 Key
Employee's employment continued during the Remaining Term at
the compensation level provided for in Section 4 above. In
addition, the Key Employee shall be entitled to a supplemental
Pension Plan benefit, which shall be the excess, if any, of (x) the
amount that Key Employee would have been entitled to receive under
the Pension Plan as if (i) Key Employee received additional credited
service under the Pension Plan for the Remaining Term and (ii) Key
Employee's Annual Compensation as defined in Section 4 above
remained in effect during the Remaining Term over (y) the amount that
Key Employee will actually receive under the Pension Plan. This
supplemental benefit shall be determined using the same factors,
actuarial or otherwise, as used in determining Key Employee'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 Key Employee receives Pension Plan
benefits.
10. OFFSET.
Key Employee 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 Key Employee obtains other employment.
11. TAX EFFECT.
Notwithstanding anything contained in this Agreement to the contrary, if
any payment received or to be received by Key Employee pursuant to the terms
of this Agreement or otherwise and in connection with, or arising out of,
Key Employee'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 Key
Employee, 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 Key Employee, 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 Key
Employee'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 Key Employee subsequent
to the Effective Date as they become due as a result of the Key Employee 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 ofchange of address shall be effective only upon receipt.
15. NONEXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit Key Employee'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 Key
Employee may qualify, nor shall anything herein limit or reduce such rights
as Key Employee may have under any other agreements with the Company or any
of its subsidiaries. Amounts which are vested benefits or which Key Employee
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 Key Employee 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.
18. 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.
19. NO GUARANTEED EMPLOYMENT.
Key Employee and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between Key Employee and the
Company, the employment of Key Employee by the Company is "at will" and,
prior to the Effective Date, may be terminated by either Key Employee or
the Company at any time. Moreover, if prior to the Effective Date, Key
Employee's employment with the Company terminates, Key Employee shall have
no further rights under this Agreement.
20. NO ADMINISTRATION.
The parties hereto understand and agree that this Agreement shall not be
subject to a separate ongoing administrative scheme to administer the benefits
of this Agreement in that the benefits provided hereunder are capable of
simple or mechanical determination upon the happening of a required event or
events.
21. SUBSIDIARY DEEMED TO BE COMPANY FOR PORTIONS OF AGREEMENT.
In the event that subsequent to the date of this Agreement the Key Employee
becomes an employee of a Subsidiary of the Company, or in the event that any
Key Employee is an employee of a Subsidiary of the Company, the references
to "Company" in Sections 3 through 8 and in Section 19 shall be deemed to be a
reference to the Subsidiary which may employ the Key Employee to the extent
necessary to preserve the intent of this Agreement; provided, that nothing
herein shall mean or suggest that any benefits are applicable hereunder upon
a Change in Control of a Subsidiary rather than the Company.
22. 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______________________________
Title:
ATTEST:
_________________________
Secretary and Treasurer
By______________________________
Key Employee
Black Hills Corporation
1996 Stock Option Plan
Option Award Agreement
Participant:
Date of Grant:
Number of Shares Covered by this Option:
Number of above Shares intended to be
Incentive Stock Options ("ISOs")
within the meaning of Internal Revenue
Code Section 422:
Number of above shares intended to be
Nonqualified Stock Options ("NQSOs"):
Option Price for each Share:
Date of Expiration:
This document constitutes part of the prospectus covering securities that have
been registered under the Securities Act of 1933.
THIS AGREEMENT, effective as of the Date of Grant set forth above,
represents the grant of stock options by Black Hills Corporation, a South Dakota
corporation (the "Company") to the Participant named above, pursuant to the
provisions of the Black Hills Corporation 1996 Stock Option Plan ("Plan").
All capitalized terms used herein shall have the meanings ascribed to them
in the Plan, unless specifically set forth otherwise herein.
The Plan provides a complete description of the terms and conditions
governing the Option. If there is any inconsistency between the terms of this
Agreement and the terms of the Plan, the Plan's terms shall completely supersede
and replace the conflicting terms of this Agreement. The parties hereto agree
as follows:
1.Grant of Stock Options. The Company hereby grants to the Participant an
Option to purchase the number of Shares set forth above, at the stated Option
Price, which is 100 percent (100%) of the Fair Market Value of a Share on the
Date of Grant, in the manner and subject to the terms and conditions of the Plan
and this Agreement.
2.Exercise of Stock Option. Except as hereinafter provided, the
Participant may exercise this Option at any time after the end of one year
following the Date of Grant as to those Shares which have become vested
according to the vesting schedule set forth below, provided that
no exercise may occur subsequent to the close of business on the Date of
Expiration (as defined on page 1 of this Agreement).
VESTING SCHEDULE
Date Shares for Which Option Cumulative Number of Shares
Becomes Exercisable Available for Purchase
This Option may be exercised in whole or in part, but not for less than 100
Shares at any one time, unless fewer than 100 Shares then remain subject to the
Option, and the Option is then being exercised as to all such remaining Shares.
3.Termination of Employment:
(a) By death or Disability: Shares which are vested as of the date of
death or Disability of the Participant may be purchased under the
terms of this Agreement until the earlier of: (i) the expiration
date of this Option; or (ii) the first anniversary of the date of
death or Disability. Shares which are not vested as of the date of
death or Disability shall be forfeited to the Company.
(b) By Retirement: Shares which are vested as of the date of Retirement
of the Participant may be purchased under the terms of this Agreement
until the earlier of: (i) the expiration date of this Option; or
(ii) the first anniversary date of Retirement. Shares which are not
vested as of the date of Retirement shall be forfeited to the Company.
(c) For other reasons: Shares which are vested as of the date of
termination of employment of the Participant for any reason other
than those reasons set forth in 3(a) or 3(b) above may be purchased
under the terms of this Agreement until the earlier of: (i) the
expiration date of this Option; or (ii) the end of the ninetieth day
following the date of termination of employment. Shares which are
not vested as of the date of termination shall immediately
terminate, and shall be forfeited to the Company.
4.Change in Control. In the event of a Change in Control, all Shares under
this Optionshall become immediately vested (100%) and shall remain
exercisable for their entire term.
"Change in Control" of the Company shall be deemed to have occurred (as of
a particular day, as specified by the Board) upon the occurrence of any event
described in this Section 4 as constituting a Change in Control.
(a) An acquisition (other than directly from the Company) of any Shares
of the Company by any Person immediately after which such Person has
Beneficial Ownership of thirty percent (30%) or more of the Shares
of the Company; provided, however, in determining whether a Change
in Control has occurred, Shares which are 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) a Subsidiary; (ii) the Company or its Subsidiaries;
or (iii) any Person in connection with a "Non-Control Transaction"
(as hereinafter defined);
(b) The individuals who, as of the Effective Date hereof, are members of
the Board (the "Incumbent Board"), cease for any reason to
constitute at least two-thirds (2/3) 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 (2/3) 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
(c) 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 (2/3) 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.
(d)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 Shares by the Company which,
by reducing the number of Shares 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 Shares by the Company, and after such stock
acquisition by the Company, the Subject Person becomes the Beneficial Owner
of any additional Shares which increases the percentage of the then outstanding
Shares 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.
5.Restrictions on Transfer. This Option may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by will
or by the laws of descent and distribution. Further, this Option shall be
exercisable during the Participant's lifetime only by the Participant or
the Participant's legal representative.
6.Recapitalization. In the event there is any change in the Company's
Shares through the declaration of stock dividends or through recapitalization
resulting in stock splits or through merger, consolidation, exchange of
Shares, or otherwise, the number and class of Shares subject to this
Option, as well as the Option Price, may be equitably adjusted by the Committee,
in its sole discretion, to prevent dilution or enlargement of rights.
7.Procedure for Exercise of Option. This Option may be exercised by
delivery of written notice to the Company at its executive offices, addressed
to the attention of its Secretary. Such notice: (a) shall be signed by the
Participant or his or her legal representative; (b) shall specify the number
of full Shares then elected to be purchased with respect to the Option;
(c) unless a Registration Statement under the Securities Act of 1933 is in
effect with respect to the Shares to be purchased, shall contain a
representation of the Participant that the Shares are being acquired by him
or her for investment and with no present intention of selling or transferring
them, and that he or she will not sell or otherwise transfer the Shares
except in compliance with all applicable securities laws and requirements of
any stock exchange upon which the Shares may then be listed; and (d) shall be
accompanied by payment in full of the Option Price of the Shares to be purchased
and the Participant's copy of this Agreement.
The Option Price upon exercise of this Option shall be payable to the
Company in full either: (a) in cash or its equivalent (acceptable cash
equivalents shall be determined at the sole discretion of the Committee); or
(b) by tendering previously acquired Shares having an aggregate Fair Market
Value at the time of exercise equal to the total Option Price (provided that
the Shares which are tendered must have been held by the Participant for at
least six (6) months prior to their tender to satisfy the Option Price); or
(c), by a combination of (a) and (b).
The Participant may also be permitted to exercise pursuant to a "cashless
exercise" procedure as permitted under the Federal Reserve Board's Regulation
T, subject to securities law restrictions. In the event the Participant
exercises pursuant to a "cashless exercise" procedure, any net gain on the
"cashless exercise", after appropriate tax withholdings, shall be distributed
to the Participant in the form of Shares.
As promptly as practicable after receipt of notice and payment upon
exercise, the Company shall cause to be issued and delivered to the Participant
or his or her legal representative, as the case may be, certificates for the
Shares so purchased, which may, if appropriate, be endorsed with appropriate
restrictive legends. The Share certificates shall be issued in the
Participant's name (or, at the discretion of the Participant, jointly in the
names of the Participant and the Participant's spouse). The Company shall
maintain a record of all information pertaining to the Participant's rights
under this Agreement, including the number of Shares for which their Option
is exercisable. If the Option shall have been exercised in full, this
Agreement shall be returned to the Company and canceled.
8.Beneficiary Designation. The Participant may, from time to time,
name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under this Agreement is to be paid in case
of his or her death before he or she receives any or all of such benefit.
Each such designation shall revoke all prior designations by the Participant,
shall be in a form prescribed by the Company, and will be effective only when
filed by the Participant in writing with the Secretary of the Company during
the Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
9.Rights as a Shareholder. The Participant shall have no rights as a
shareholder of the Company with respect to the Shares subject to this Option
Agreement including, without limitation, any right to dividends, until such
time as the purchase price has been paid, and the Shares have been issued
and delivered to him or her.
10.Continuation of Employment. This Option Agreement shall not confer
upon the Participant any right to continuation of employment by the Company,
nor shall this Option Agreement interfere in any way with the Company's
right to terminate the Participant's employment at any time. A transfer of
the Participant's employment between the Company and any one of its
Subsidiaries (or between Subsidiaries) shall not be deemed a termination of
employment.
11.Limitation. Participant shall not exercise any shares which are
intended to be ISOs hereunder if and to the extent that the Participant
would thereby be entitled to purchase Shares in any one calendar year, the
value of which, determined at the time of the Date of Grant, would exceed
$100,000.
12.Miscellaneous.
(a) This Option Agreement and the rights of the Participant hereunder
are subject to all the terms and conditions of the Plan, as the same
may be amended from time to time, as well as to such rules and
regulations as the Committee may adopt for administration of the
Plan. The Committee shall have the right to impose such restrictions
on any Shares acquired pursuant to the exercise of this Option, as
it may deem advisable, including, without limitation, restrictions
under applicable Federal securities laws, under the requirements of
any stock exchange or market upon which such Shares are then listed
and/or traded, and under any blue sky or state securities laws
applicable to such Shares. It is expressly understood that the
Committee is authorized to administer, construe, and make all
determinations necessary or appropriate to the administration of the
Plan and this Option Agreement, all of which shall be binding upon
the Participant.
(b) With the approval of the Board, the Committee may terminate, amend,
or modify the Plan; provided, however, that no such termination,
amendment, or modification of the Plan may in any material way
adversely affect the Participant's rights under this
Agreement, without the written consent of the Participant.
(c) The Company shall have the power and the right to deduct or withhold,
or require the Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes (including
Participant's FICA obligation) required by law to be withheld with
respect to any exercise of the Participant's rights under this
Agreement.
The Participant may elect, subject to any procedural rules adopted by
the Committee, to satisfy the withholding requirement, in whole or in
part, by having the Company withhold Shares having an aggregate Fair
Market Value on the date the tax is to be determined, equal to the
amount required to be withheld.
(d) The Participant agrees to take all steps necessary to comply with all
applicable provisions of federal and state securities law in exercising
his or her rights under this Agreement.
(e) This Agreement shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or
national securities exchanges as may be required.
(f) All obligations of the Company under the Plan and this Agreement,
with respect to this Option, shall be binding on any successor to
the Company, whether the existence of such successor is the result
of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets
of the Company.
(g) To the extent not preempted by federal law, this Agreement shall be
governed by, and construed in accordance with, the laws of the State
of South Dakota.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the Date of Grant.
BLACK HILLS CORPORATION
By_______________________________________
Its
ATTEST:
___________________________________________
___________________________________________
Participant
THE OUTSIDE DIRECTORS
STOCK BASED COMPENSATION PLAN
This Outside Directors Stock Based Compensation Plan ("Plan"), is adopted
by Black Hills Corporation ("Company") effective the 1st day of January, 1997.
1.RECITALS.
This Plan is an amendment and restatement of the prior Retirement Plan for
Outside Directors which was adopted by Company effective the 1st day of January,
1993 ("Prior Plan"). The purpose of the Plan is to provide to Participants
certain benefits in order to attract and retain competent and hardworking
outside directors whose abilities, experience and judgment can contribute to
the well-being of the Company and its shareholders and to further align the
long-term interests of the outside directors with those of the shareholders by
converting the outside directors' vested benefits under the Prior Plan into
Company common stock equivalent accounts and providing that future benefits
will also be based on Company common stock equivalents, as more particularly
set forth hereafter.
2.PARTICIPANTS.
Those persons eligible for participation in the Plan ("Participants") are
the present and future outside directors of the Company. Outside directors
are directors who are not full-time employees of the Company. A Participant's
eligibility for benefits under this Plan shall cease upon the Participant no
longer being an outside director of the Company.
3. ESTABLISHMENT OF COMPANY COMMON STOCK EQUIVALENT
ACCOUNT.
For each Participant, the Company shall establish a Company common stock
equivalent memorandum account ("Account") and shall credit the Account with
Company common stock equivalents, including fractional equivalents. The stock
equivalents shall be determined by using the closing price of the Company
common stock on the New York Stock Exchange on the date of determination.
Appropriate adjustments shall be made to the Account for stock splits, stock
dividends, merger, consolidation and similar circumstances affecting the Company
common stock.
4. CONVERSION OF VESTED BENEFITS AND PROVISION OF ANNUAL
BENEFITS.
a.In lieu of the benefits payable under the Prior Plan, the present value
of the vested benefits of those Participants who had vested benefits under the
Prior Plan as of January 1, 1997, shall be converted to Company common stock
equivalents and credited to the Participant's Account. The present value of
the vested benefits under the Plan has been determined using a 7 percent
discount rate and a determination date of January 1, 1997. The present value of
the vested benefits and the number of Company common stock equivalents is as
follows:
OUTSIDE PRESENT VALUE OF COMMON STOCK
DIRECTORS VESTED BENEFITS EQUIVALENTS
Glenn C. Barber $ 86,126.00 3,055 shares
Bruce B. Brundage 86,126.00 3,055 shares
John R. Howard 66,493.00 2,359 shares
Kay S. Jorgensen 17,398.00 617 shares
b.In addition, beginning with the Plan year beginning January 1, 1997, and
in each Plan year thereafter, each Participant shall be entitled to a monthly
addition to their Account in the amount of the number of Company common stock
equivalents determined by dividing the sum of $291.67 by the market price of
the Company common stock on the last day of the month for each month of each
Plan year that the Participant is eligible for benefits.
c.By their signatures below, all Participants hereby consent to the
conversion of their vested benefits under the Prior Plan as set forth in this
Section 4a above and the provision of monthly additions to their Account as set
forth Section 4b above in lieu of any continuing earning of vesting service
under the Prior Plan. The Participants agree that the benefits provided
in this Plan are in full substitution for any and all benefits that they may
have been entitled to under the Prior Plan.
5.TIME AND MANNER OF BENEFIT PAYMENTS.
a.For the purposes of this section, the term "Payment Date" shall mean the
date that a Participant is no longer an outside director of the Company. Not
more than 90 days prior to or 90 days subsequent to the Payment Date, the
Participant shall elect: (1) either to defer the commencement of payment of
benefits until the anniversary date of the Payment Date ("Deferral
Election"); or (2) to receive payment of the benefits represented in the
Participant's Account from the following choices:
(1) A lump sum payment in cash in an amount equal to the Participant's
Account determined as of the Payment Date due 30 days after the later
of the Payment Date or the date of election;
(2) Payment of shares of common stock of the Company equal to the number
of shares of Company common stock equivalents credited to the
Participant's Account as of the Payment Date due 30 days after the
later of the Payment Date or the date of election;
(3) Payment in monthly installments of either cash or shares of Company
common stock over a period of up to 15 years with the first
installment being due 30 days after the later of the Payment Date
or the date of election. The installment payout period shall be
specified in the election. The installment size shall be fixed on
the Payment Date and on each anniversary of the Payment Date as
though equal installments were to be paid for the then entire
balance of the Account over the remaining payment period including
any accrued interest or dividends or stock appreciation or
depreciation. The installment payout election, once made,
may only be changed by the Participant's giving written notice of the
Participant's election to change the installment payout period within
30 days prior to any anniversary date of the Payment Date. Said
election to change the installment period shall include, without
limitation, the right to elect to have the then remaining entire
balance of the Account paid in a lump sum in cash or shares of
common stock.
b.In the event the Participant makes a Deferral Election, then the
Participant shall, within 30 days of the anniversary date of the Payment Date,
either make another Deferral Election until the next anniversary date of the
Payment Date (with the right in the Participant to make further Deferral
Elections in like manner) or make a payment election in accordance with
the payment choices set forth in 5.a above. In the event of any Deferral
Election, Account values shall be determined upon a payment election being
made as of the anniversary date of the Payment Date subsequent to the payment
election.
6.PAYMENTS UPON DEATH.
In the event of the death of a Participant, the benefits which would have
been payable to the Participant if not for the Participant's death shall be paid
as follows:
(1) In the event of the death of a Participant prior to the Participant's
payment election, the Participant's beneficiary designated under
Section 8 below, or if there is no designated beneficiary, the
personal representative of the Participant's estate shall have the
right to make the payment election under Section 5 above. Such
payment election shall be made within 90 days of the death of the
Participant.
(2) If the Participant dies subsequent to the commencement of payment of
benefits under the Plan, then the Participant's beneficiary, or if
there is no designated beneficiary, the Participant's personal
representative, shall have the right to continue the payment of
benefits at the same time and manner that payments were made to the
Participant prior to Participant's death; provided, that the
beneficiary or personal representative of the Participant may elect to
receive a lump sum payment in cash or shares of common stock equal to
the Participant's remaining balance on the date of Participant's
death.
7.LOSS OF BENEFITS.
Notwithstanding any other provision in this Plan, if a Participant is
removed as a director of the Company because of misconduct or dishonesty, the
Participant shall forfeit all right to any benefits payable under this Plan,
including vested benefits.
8.DESIGNATION OF BENEFICIARY.
A Participant may designate a beneficiary or beneficiaries to receive
benefits after the death of the Participant. The designation shall be effective
upon filing written notice with the Compensation Committee of the Board of
Directors of the Company ("Committee") on the form provided for that purpose.
If more than one beneficiary designation has been filed, the beneficiary or
beneficiaries designated in the notice bearing the most recent date will be
deemed the valid beneficiary or beneficiaries.
9.PLAN TO BE UNFUNDED.
All benefit payments under the Plan will be made from the general assets of
the Company and Participants and their beneficiaries are to be unsecured general
creditors of the Company. No special or separate fund is to be established nor
other segregation of assets made to create Plan assets or cause the Plan to be a
funded plan. Notwithstanding the foregoing, however, the Company may, in its
sole discretion, place assets in a trust that may be used to meet Company's
obligations under the Plan and any right of a Participant to any benefit payment
under the Plan shall be reduced by any payment received by the Participant from
the trustee under such a trust. In the event such a trust is established, the
assets of such trust shall be available to the general creditors of the Company
in the event of the insolvency or bankruptcy of the Company (a "Rabbi trust").
10.PLAN MAY BE MODIFIED OR DISCONTINUED.
The Company reserves the right to amend, modify or discontinue the Plan
except under the circumstances set forth in Section 11 below. Any modification
or discontinuance of benefits shall not reduce accrued and unpaid benefits.
11.CHANGE IN CONTROL.
In the event of a Change in Control, as hereafter defined, the Company
shall, as soon as possible, but in no event longer than 30 days following the
Change of Control, make an irrevocable contribution to the Rabbi trust referred
to in Section 9 above, or in the event the Rabbi trust has not been created,
create such a trust, and make an irrevocable contribution to the trust, in an
amount that is sufficient to pay each Participant or beneficiary the benefits to
which the Participants or their beneficiaries would be entitled pursuant to
the terms of this Plan as of the date of the Change in Control.
For the purposes of this section, the term "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 1, 1997 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.
12.WITHHOLDING.
There shall be deducted from all benefits paid under this Plan the amount of
any taxes required to be withheld by any federal, state or local government.
The Participants and their beneficiaries, distributees, and Personal
Representatives, will bear any and all federal, foreign, state, local or
other income or other taxes imposed on amounts paid under this Plan.
13.ASSIGNABILITY.
No right to receive payments under this Plan shall be subject to voluntary
or involuntary alienation, assignment or transfer, sale, bankruptcy, pledge,
attachment, charge, lien or encumbrance of any kind.
14.ADMINISTRATION OF PLAN.
The Amended Plan shall be administered by the Committee. The Committee
shall conclusively interpret the provisions of the Plan, decide all claims and
shall make all determinations under the Plan. The Committee shall act by vote
or written consent of a majority of its members.
15.GOVERNING LAW.
This Plan shall be governed by and construed in accordance with the laws of
the State of South Dakota.
16.NO CONTRACT.
Neither the action of the Company in establishing the Plan or any action
taken by it or by the Committee under the provisions hereof or any provisions of
the Plan shall be construed as giving to any Participant the right to be
retained as a director of the Company.
17.NO TAX-QUALIFIED OR ERISA PLAN.
It is not intended that this Plan be a tax-qualified plan under the Internal
Revenue Code, nor is it intended that this Plan be an employee benefit plan
subject to ERISA because none of the Participants are employees of the Company.
The Participant's rights under the Plan are contractual.
BLACK HILLS CORPORATION
By/s/Daniel P. Landguth
Its Chairman, President and CEO
ATTEST:
/s/Roxann R. Basham
Secretary and Treasurer
(SEAL)
OUTSIDE DIRECTORS:
/s/Glenn C. Barber
Glenn C. Barber
/s/Bruce B. Brundage
Bruce B. Brundage
/s/John R. Howard
John R. Howard
/s/Kay S. Jorgensen
Kay S. Jorgensen
/s/Adil M. Ameer
Adil M. Ameer
/s/Thomas J. Zeller
Thomas J. Zeller
Book 1431 of Photos, Page 228
ASSIGNMENT OF MINING LEASES AND
RELATED AGREEMENTS
THIS AGREEMENT, made and entered into this 20th day of May, 1997, but
effective as of the 27th day of May, 1997 ("the Effective Date"), by and
between Kerr-McGee Coal Corporation, a Delaware corporation ("Assignor"), and
Wyodak Resources Development Corp., a Delaware corporation ("Assignee").
WITNESSETH:
Assignor for good and valuable considerations, the receipt and
sufficiency of which is acknowledged, does hereby bargain, sell, transfer,
assign, and convey to Assignee, as of the Effective Date hereof, all its right,
title and interest in and to those mining leases and related agreements,
covering the lands in Campbell County, State of Wyoming, described in Exhibit A
hereto attached and made a part hereof.
PROVIDED, HOWEVER, that except as otherwise provided in Paragraph 15 of
the Agreement between Kerr-McGee Coal Corporation and Wyodak Resources
Development Corp. dated September 20, 1996, each lease hereby assigned is
assigned subject to such outstanding burdens and obligations as are specified
with respect to that lease in Exhibit A.
Assignor excepts and reserves in its favor overriding royalties on all
coal produced from the lands covered by the said leases at rates determined in
accordance with the following provisions:
(1) For coal used to fuel Existing Plants, as defined below, the
royalty shall be $0.10 per ton.
(2) For coal delivered for purposes other than to fuel Existing
Plants during the ten-year period commencing with the effective date of this
Assignment, the royalty shall be $0.10 per ton.
(3) For coal delivered after the said ten-year period for purposes
other than to fuel Existing Plants, the royalty shall be 2% of the selling
price per ton. Said overriding royalty is to be based on a percentage of
selling price calculated using the same methodology as is used to calculate
federal royalties, except that the overriding royalty to be paid hereunder
shall not be included in the selling price for such calculation.
For purposes of the foregoing royalty provisions, the term "Existing Plants"
shall be understood as referring to the following coal-fired power plants:
Assignment Approved Effective s/s_________________
5/27/97
June 1, 1997
State Director Date
The Wyodak Plant, 362 megawatt nameplate (now owned 80 percent by
PacifiCorp and 20 percent by Black Hills Corporation and situated in
Campbell County, Wyoming).
Neil Simpson Unit #1 (21.76 megawatt nameplate now owned by Black Hills
Corporation and situated in Campbell County, Wyoming).
Ben French Plant (25 megawatt nameplate now owned by Black Hills
Corporation and situated in Pennington County, South Dakota).
Osage Station-three plants (34.5 megawatts nameplate total now owned by
Black Hills Corporation and situated in Weston County, Wyoming).
Kirk Plant (18.75 megawatt nameplate now owned by Black Hills
Corporation and situated in Lawrence County, South Dakota).
If any royalty to be calculated hereunder should exceed the maximum overriding
royalty allowed by state or federal law applicable thereto, the royalty shall
be reduced to the maximum allowed by law. Assignee and any subsequent holder
of the lease shall afford Assignor (or Assignor's successors or assigns)
reasonable audit rights for the purpose of confirming that all overriding
royalties due hereunder are correctly paid.
By execution of this instrument, and except as otherwise provided in
Paragraph 15 of the Agreement between Kerr-McGee Coal Corporation and Wyodak
Resources Development Corp. dated September 20, 1996, Assignee hereby assumes
and agrees to bear any obligations of the lessee under the said mining leases
described in Exhibit A outstanding on or accruing after the Effective Date
hereof, as well as any obligations of Assignor under the related agreements
described in Exhibit A outstanding on or accruing after said Effective Date.
Assignor grants to Assignee, with full right of substitution in the place
of Assignor, all rights of Assignor under or with respect to all prior
warranties pertaining to the leases assigned hereunder.
IN WITNESS WHEREOF, we have hereunto set our hands and seals the day and
year first above written.
ATTEST: KERR-McGEE COAL CORPORATION
s/s_____________________ By_____s/s William D.Hake__________
Assistant Secretary Senior Vice President
ATTEST: WYODAK RESOURCES
DEVELOPMENT CORP.
________________________ By_____s/s Dale E.Clement_________
Assistant Secretary Senior Vice President
STATE OF OKLAHOMA)
)SS.
COUNTY OF OKLAHOMA)
The foregoing instrument was acknowledged before me by William D. Hake,
Sr. Vice President of Kerr-McGee Coal Corporation, this 20th day of May, 1997.
Witness my hand and official seal.
s/s R. E. Anderson
Notary Public
My Commission Expires:
10-9-99
STATE OF WYOMING)
)SS.
COUNTY OF LARAMIE)
The foregoing instrument was acknowledged before me by Dale E. Clement,
Senior Vice President of Wyodak Resource Development Corp., this 27th day of
May, 1997.
Witness my hand and official seal.
s/s Markie J. Stoker
Notary Public
My Commission Expires:
11-13-2000
Book 1431 of Photos, Page 231
DEPARTMENT OF THE INTERIOR
97 MAY 27 PM 2:23
RECEIVED
CHEYENNE, WYOMING
EXHIBIT A
DESCRIPTION OF RELATED AGREEMENT
TO BE ASSIGNED
Kerr-McGee Coal Corporation's interest in and to that certain Easement
and Encroachment Agreement by and between Carter Oil Company and Kerr-McGee
Coal Corporation dated June 21, 1978, as amended ("Easement and
Encroachment Agreement"), which Easement and Encroachment Agreement is referred
to in that certain Assignment of Easement and Encroachment recorded in Book
1420 of Photos, Page 170-173 in the Office of the Campbell County Clerk.
717449 Book 1420 of Photos, Page 170
ASSIGNMENT OF EASEMENT AND ENCROACHMENT
(Kerr-McGee)
Fort Union Ltd., an Alabama limited partnership whose address is 530
Beacon Parkway West, 7th Floor, Birmingham, Alabama 35209, ("Assignor"), by
and through its general partner, Marigold Land Company does hereby assign to
Wyoming Coal Resources Company, a Delaware corporation whose address is Caller
Box 3009, Gillette, Wyoming 82717-3009 ("Assignee") and to its successors and
assigns, forever, all of Assignor's right, title and interest in the Easement
and Encroachment Agreement by and between Carter Oil Company and Kerr-McGee
Coal Corporation, dated June 21, 1978, as amended. The Easement and
Encroachment Agreement herein assigned covers and affects or at some time in the
past covered and affected the following real property located in Campbell
County, Wyoming:
Carter/Fort Union Lands:
Township 50 North, Range 72 West, 6th P.M.
Section 1:E1/2E1/2
Section 12:NE1/4NE1/4
Township 50 North, Range 71 West, 6th P.M.
Section 7:N1/2N1/2, SE1/4NE1/4, E1/2S1/4
Section 18:E1/2E1/2
Section 19:E1/2E1/2
and an easement for a haul road along the north Section line of Section
7, Township 50 North, Range 71 West.
Kerr-McGee Lands:
Township 50 North, Range 71 West, 6th P.M.
Section 6:W1/2W1/2, SE1/4W1/4,S1/2SE1/4
Section 5:SW1/4SW1/4
Section 8:W1/2W1/2
Section 17:W1/2W1/2
Section 20:W1/2W1/2
and an easement for a haul road within Sections 5 and 6, Township 50
North, Range 71 West.
Assignee accepts the foregoing assignment and does hereby assume any and
all rights and obligations of Assignor under the agreement herein assigned
which relate to the period from and after the effective date hereof.
This Assignment may be executed in counterpart with the same effect as
though all parties had executed a single instrument.
Book 1420 of Photos, Page 171
IN WITNESS WHEREOF, said Assignor and Assignee have executed this
assignment effective as of the 7th day of March, 1997.
FORT UNION, LTD.,
By Its General Partner,
ATTEST:
MARIGOLD LAND COMPANY
s/s Curtis W. Jones By: s/s William B. Long
Curtis W. Jones, Ass't. Secretary
William B. Long, President
ATTEST:
WYOMING COAL RESOURCES COMPANY
__________________________
By:_________________________
S. S. Crompton, Secretary G. H. Boyce, President and
Chief Executive Officer
STATE OF ALABAMA)
)
COUNTY OF JEFFERSON)
The foregoing instrument was acknowledged before me this 6th day of
March, 1997, by William B. Long in his capacity as president of Marigold Land
Company, an Alabama corporation, as general partner of Fort Union, Ltd., an
Alabama limited partnership, on behalf of said limited partnership.
s/s Pamela Lucas
Notary Public
My commission expires:4/4/99
Book 1420 of Photos, Page 171
IN WITNESS WHEREOF, said Assignor and Assignee have executed this
assignment effective as of the 7th day of March, 1997.
FORT UNION, LTD.,
By Its General Partner,
ATTEST: MARIGOLD LAND COMPANY
__________________________ By: _______________________
Curtis W. Jones, Ass't. Secretary William B. Long
ATTEST: WYOMING COAL RESOURCES COMPANY
s/s Crompton By:__s/s G. H. Boyce___
S. S. Crompton, Secretary G. H. Boyce, President and
Chief Executive Officer
STATE OF ALABAMA)
)
COUNTY OF JEFFERSON)
The foregoing instrument was acknowledged before me this ____ day of
March, 1997, by William B. Long in his capacity as president of Marigold Land
Company, an Alabama corporation, as general partner of Fort Union, Ltd., an
Alabama limited partnership, on behalf of said limited partnership.
______________________________
Notary Public
My commission expires: ________________
Book 1420 of Photos, Page 173
STATE OF UTAH)
) SS
COUNTY OF SALT LAKE)
The foregoing instrument was acknowledged before me this 5th day of
March, 1997, by G.H. Boyce in his capacity as the President and Chief
Executive Officer of Wyoming Coal Resources Company.
s/s Shannon S. Crompton
Notary Public
My commission expires: 1 Oct 98
STATE OF WYOMING
Campbell County
Filed for record this 18th day of March, A.D., 1997 at 9:12 o'clock A.M. and
recorded in Book 1420 of Photos on page 170-173 Fees $12.00 717449
RECORDED
ABSTRACTED By
s/s Susan Saunders INDEXED
County Clerk and Ex-Officio CHECKED Deputy s/s Diane Hackett
Register of Deeds
WY 3-100-6 Serial Number
(April 1985) UNITED STATES WYW0313668
DEPARTMENT OF THE INTERIOR Date Lease Issued
BUREAU OF LAND MANAGEMENT Effective
October 1, 1965
COAL LEASE READJUSTMENT
PART I:LEASE RIGHTS GRANTED
This lease, entered into by and between the United States of American,
hereinafter called the lessor, through the Bureau of Land Management, and
[Name and Address]
Kerr-McGee Coal Corporation
P. O. Box 25861
Oklahoma City, Oklahoma 73125
hereinafter called the lessee, is readjusted, effective [Date] October 1, 1995
for a period of 10 years and for so long thereafter as coal is produced in
commercial quantities from the leased lands, subject to readjustment of lease
terms at the end of each 10-year period.
Sec. 1. This lease readjustment is subject to the terms and provisions of
the:
x Mineral Lands Leasing Act of 1920. Act of February 25, 1920, as
amended, 41 Stat. 437, 30 U.S.C. 181-287, hereinafter referred to as the Act;
Mineral Leasing Act for Acquired Lands, Act of August 7, 1947, 61
Stat. 913, 30 U.S.C. 351-359;
and to the regulations and formal orders of the Secretary of the Interior
which are now or hereafter in force, when not inconsistent with the express
and specific provisions herein.
Sec. 2. Lessor, in consideration of any rents and royalties to be paid, and
the conditions and covenants to be observed as herein set forth, hereby grants
to
lessee the exclusive right and privilege to drill for, mine, extract, remove
or otherwise process and dispose of the coal deposits in, upon, or under the
following described lands:
T. 50 N., R. 71 W., 6th P.M., Campbell County, Wyoming
Sec. 8:All;
Sec. 9:W2;
Sec. 17:All;
Sec. 20:NE, N2NW, SWNW.
containing 1880.00 acres, more or less, together with the right to
construct such works, buildings, plants, structures, equipment, and appliances
and the right to use such on-lease rights-of-ways which may be necessary and
convenient to the exercise of the rights and privileges granted, subject to
the conditions herein provided.
PART II.TERMS AND CONDITIONS
Sec. 1.(a) RENTAL RATE - Lessee shall pay lessor rental annually and
in advance for each acres or fraction thereof during the continuance of
the lease at the rate of 53.00 for each lease year.
(b) RENTAL CREDITS - Rental shall not be credited against either
production or advance royalties for any year.
Sec. 2.(a) PRODUCTION ROYALTIES - The royalty shall be 12<<
percent of the value of the coal produced by strip or auger methods and
8 percent of the value of the coal produced by underground mining
methods. The value of the coal shall be determined as set forth in 43
CFR 3480. Royalties are due to lessor the final day of the month
succeeding the calendar month in which the royalty obligation accrues.
(b) ADVANCE ROYALTIES. Upon request by the lessee, the
authorized officer may accept for a total of not more than 10 years, the
payment of advance royalties in lien of continued operation, consistent
with the regulations. The advance royalty shall be based on a percent of
the value of a minimum number of tons determined in the manner
established by the advance royalty regulations in effect at the time the
lessee requests approval to pay advance royalties in lieu of continued
operation.
Sec. 3. BONDS - Lessee shall maintain in the proper office a lease bond
in the amount of $ 6,000.00 . The authorized officer may require an
increase in this amount when additional coverage is determined
appropriate.
Sec. 4. DILIGENCE - This lease is subject to the conditions of diligent
development and continued operation, except than these conditions are
excused when operations under the lease are interrupted by strikes, the
elements, or casualties not attributable to the lessee. The lessor, in the
public interest, may suspend the condition of continued operation upon
payment of advance royalties in accordance with the regulations in
existence at the time of the suspension. Lessee's failure to produce coal
in commercial quantities at the end of 10 years shall terminate the lease.
If not submitted already, lessee shall submit an operation upon payment
of advance royalties in accordance with the regulations in existence at
the time of the suspension. Lessee's failure to produce coal in
commercial quantities at the end of 10 years shall terminate the lease.
If not submitted already, lessee shall submit an operation and
reclamation plan pursuant to Section 7 of the Act no later than 3 years
after the effective date of this lease readjustment.
The lessor reserve the power to assent to or order the suspension of the
terms and conditions of this lease in accordance with inter alia. Section
39 of the Mineral Leasing Act, 30 U.S.C. 209.
Sec. 5. LOGICAL MINING UNIT (LMU) - Either upon approval by the
lessor of the lessee's application or at the direction of the lessor, this
lease shall become an LMU or part of an LMU, subject to the provisions
set forth in the regulations.
The stipulations established in an LMU approval in effect at the time of
LMU approval will supersede the relevant inconsistent terms of this
lease so long as the lease remains committed to the LMU. If the LMT
of which this lease is a part is dissolved, the lease shall then be subject
to the lease terms which would have been applied if the lease had not
been included in an LMU.
Sec. 6. DOCUMENTS, EVIDENCE AND INSPECTION - At such
times and in such form as lessor may prescribed, lessee shall furnish
detailed statements showing the amounts and quality of all products
removed and sold from the lease, the proceeds therefrom, and the
amount used for production purposes or unavoidably lost.
Lessee shall keep open at all reasonable times for the inspection of any
duly authorized offices of lessor, the leased premises and all surface and
underground improvements, works, machinery, ore stockpiles,
equipment and all books, accounts, maps and records relative to
operations, surveys, or investigations on or under the leased lands.
Lessee shall allow lessor access to and copying of documents reasonably
necessary to verify lessee compliance with terms and conditions of the
lease.
While this lease remains in effect, information obtained under this
section shall be closed to inspection by the public in accordance with the
Freedom of Information Act (5 U.S.C. 552).
Sec. 7. DAMAGES TO PROPERTY AND CONDUCT OF OPERATIONS - Lessee shall
comply at its own expense with all reasonable orders of the Secretary,
respecting diligent operations, prevention of waste, and protection of
other resources.
Lessee shall not conduct exploration operations, other than casual use,
without an approved exploration plan. All exploration plans prior to the
commencement of mining operations within an approved mining permit
area shall be submitted to the authorized officer.
Lessee shall carry on all operations in accordance with approved
methods and practices as provided in the operating regulations, having
due regard for the prevention of injury to life, health, or property, and
prevention of waste, damage, or degradation to any land, air, water,
cultural, biological, visual, and other resources, including mineral
deposits and formations of mineral deposits not leased hereunder, and to
other land uses or users. Lessee shall take measures deemed necessary
by lessor to accomplish the intent of this lease term. Such measures may
include, but are not limited to, modification to proposed siting or design
of facilities, timing of operations, and specification of interim and final
reclamation procedures. Lessor reserves to itself the right to lease, sell
or otherwise dispose of the surface of other mineral deposits in the lands
and the right to continue existing uses and to authorize future uses upon
or in the leased lands, including issuing leases for mineral deposits not
covered hereunder, and approving easements or rights-of-ways. Lessor
shall condition such uses to prevent unnecessary or unreasonable
interference with rights of lessee as may be consistent with concepts of
multiple use and multiple mineral development.
Sec. 8. PROTECTION OF DIVERSE INTERESTS, AND EQUAL
OPPORTUNITY - Lessee shall: pay when due all taxes, legally assessed
and levied under the laws of the State or the United States; accord all
employees complete freedom of purchase; pay all wages at least twice
each month in lawful money of the United States; maintain a safe
working environment in accordance with standard industry practices;
restrict the workday to not more than 8 hours in any one day for
underground workers except in emergencies; and take measurers
necessary to protect the health and safety of the public. No person under
the age of 16 years shall be employed at any mine below the surface. To
the extent that laws of the State in which the lands are situated are more
restrictive than the provisions in the paragraphs, then the State laws
apply.
Lessee will comply with all provisions of Executive Order No. 11246 of
September 24, 1965, as amended, and the rules, regulations, and relevant
orders of the Secretary of Labor. Neither lessee nor lessee's
subcontractors shall maintain segregated facilities.
Sec. 9.(a) TRANSFERS
x This lease may be transferred in whole of in part to any
person, association or corporation qualified to hold such
lease interest.
This lease may be transferred in whole or in part to another
public body, or to a person who will mine the coal on behalf
of, and for the use of, the public body or to a person who for
the limited purpose of creating a security interest in favor of
a lender agrees to be obligated to mine the coal on behalf of
the public body.
This lease may only be transferred in whole or in part to
another small business qualified under 13 CFR 121.
Transfers of record title, working or royalty interest must be approved
in accordance with the regulations.
(b) RELINQUISHMENT - The lessee may relinquish in writing at any
time all rights under this lease or any portion thereof as provided in the
regulations. Upon lessor's acceptance of the relinquishment, lessee shall
be relieved of all future obligations under the lease or the relinquished
portion thereof, whichever is applicable.
Sec. 10. DELIVERY OF PREMISES, REMOVAL OF MACHINERY,
EQUIPMENT, ETC. - At such time as all portions of this lease are
returned to lessor, lessee shall deliver up to the lessor the land leased,
underground timbering, and such other supports and structures necessary
for the preservation of the mine workings on the leased premises or
deposits and place all workings in condition for suspension or
abandonment. Within 180 days thereof, lessee shall remove from the
premises all other structures, machinery, equipment, tools, and materials
that it elects to or as required by the authorized officer. Any such
structures, machinery, equipment, tools, and materials remaining on the
leased lands beyond 180 days or approved extension thereof, shall
become the property of the lessor, but lessee shall either remove any or
all such property or shall continue to be liable for the cost of removal
and disposal in the amount actually incurred by the lessor. If the surface
is owned by this parties, lessor shall waive the requirements for removal,
provided the third parties do not object to such waiver. Lessee shall,
prior to the termination of bond liability or at any other time when
required and in accordance with all applicable laws and regulations
reclaim all lands the surface of which has been disturbed, dispose of all
debris or solid waste, repair the offsite and onsite damage caused by
lessee's activity or activities incidental thereto, and reclaim access roads
or trails.
Sec. 11. PROCEEDINGS IN CASE OF DEFAULT - If lessee fails to
comply with applicable laws, existing regulations, or the terms,
conditions and stipulations of this lease, and the noncompliance
continues for 30 days after written notice thereof, this lease shall be
subject to cancellation by the lessor only by judicial proceedings. This
provision shall not be construed to prevent the exercise by lessor of any
other legal and equitable remedy including waiver of the default. Any
such remedy or waiver shall not prevent later cancellation for the same
default occurring at any other time.
Sec. 12. HEIRS AND SUCCESSORS-IN-INTEREST - Each obligation
of this lease shall extend to and be binding upon, and every benefit
hereof shall inure to the heirs, executors, administrators, successors, or
assigns of the respective parties hereto.
Sec. 13. INDEMNIFICATION - Lessee shall indemnify and hold
harmless the United States from any and all claims arising out of the
lessee's activities and operations under this lease.
Sec. 14. SPECIAL STATUTES - This lease is subject to the Federal
Water Pollution Control Act (33 U.S.C. 1151-1175), the Clean Air Act
(42 U.S.C. 1857 et. seq.), and to all other applicable laws pertaining to
exploration activities, mining operations and reclamation, including the
Surface Mining Control and Reclamation Act of 1977 (30 U.S.C. 1201
et. seq.).
Sec. 15. SPECIAL STIPULATIONS - In addition to observing the
general obligations and standards of performance set out in the current
regulations, the lessee shall comply with and be bound by the following
special stipulations. These stipulations are also imposed upon the
lessee's agents and employees. The failure or refusal of any of these
persons to comply with these stipulations shall be deemed a failure of
the lessee to comply with the terms of this lease. The lessee shall require
his agents, contractors, and subcontractors involved in activities
concerning this lease to include these stipulations in the contracts
between and among them. These stipulations may be revised or
amended, in writing, by the mutual consent of the lessor and the lessee
at any time to adjust to changed conditions or to correct an oversight.
(a) CULTURAL RESOURCES -
(1) Before undertaking any activities that may disturb the surface of the
leased lands, the lessee shall conduct a cultural resource intensive field
inventory in a manner specified by the authorized officer of the BLM or
of the surface managing agency, if different, on portions of the mine plan
area and adjacent areas, or exploration plan area, that may be adversely
affected by lease-related activities and which were not previously
inventoried at such a level of intensity. The inventory shall be
conducted by a qualified professional cultural resources specialist (i.e.,
archeologist, historian, historical architect, as appropriate), approved by
the authorized officer of the surface managing agency (BLM if the
surface is privately owned), and a report of the inventory and
recommendations for protecting any cultural resources identified shall
be submitted to the Regional Director of the Office of Surface Mining,
the authorized officer of the BLM, if activities are associated with coal
exploration outside an approved mining permit area (hereinafter called
authorized officer), and the authorized officer of the surface managing
agency, if different. The lessee shall undertake measurers, in accordance
with instructions from the Regional Director, or authorized officer, to
protect cultural resources on the leased lands. The lessee shall not
commence the surface disturbing activities until permission to proceed
is given by the Regional Director or authorized officer.
(2) The lessee shall protect all cultural resource properties within the
lease area from lease-related activities until the cultural resource
mitigation measures can be implemented as part of an approved mining
and reclamation plan or exploration plan.
(3) The cost of conducting the inventory, preparing reports, and carrying
out mitigation measurers shall be borne by the lessee.
(4) If cultural resources are discovered during operations under this
lease, the lessee shall immediately bring them to the attention of the
Regional Director or authorized officer, or the authorized officer of the
surface managing agency, if the Regional Director is not available. The
lessee shall not disturb such resources except as may be subsequently
authorized by the Regional Director or authorized officer. Within two
(2) working days of notification, the Regional Director or authorized
officer will evaluate or have evaluated any cultural resources discovered
and will determine if any action may be required to protect or preserve
such discoveries. The cost of data recovery for cultural resources
discovered during lease operations shall be borne by the surface
managing agency unless otherwise specified by the authorized officer of
the BLM or of the surface managing agency, if different.
(5) PALEONTOLOGICAL RESOURCES - If paleontological resources,
either large and conspicuous, and/or of significant scientific value are
discovered during constructed, the find will be reported to the authorized
officer immediately. Construction will be suspended within 250 feet of
said find. An evaluation of the paleontological discovery will be made
by a BLM approved professional paleontologist within five (5) working
days, weather permitting, to determine the appropriate action(s) to
prevent the potential loss of any significant paleontological value.
Operations within 250 feet of such discovery will not be resumed until
written authorization to proceed is issued by the authorized officer. The
lessee will hear the cost of any required paleontological appraisals,
surface collection of fossils, or salvage of any large conspicuous fossils
of significant scientific interest discovered during the operations.
(c)MULTIPLE MINERAL DEVELOPMENT - Operations will not be approved
which, in the opinion of the Authorized Officer, would unreasonably interfere
with the orderly development and/or production from a valid existing mineral
lease issued prior to this one for the same land. Lessor reserves the right
in accordance with applicable coal regulations administered by Lessor to
require the Operator/Lessee to modify the Resource Recovery and Protection
Plans (R2P2) to minimize conflicts with other resources and to maximize
recovery of all resources.
(d)OIL AND GAS/COAL RESOURCES - The BLM realizes that coal mining
operations conducted on Federal coal leases issued within producing oil and
gas fields may interfere with the economic recovery of oil and gas; just as
Federal oil and gas leases issued in a Federal coal lease area may inhibit
coal recovery. BLM retains the authority to alter and/or modify the Resource
Recovery and Protection Plans for coal operations and/or oil and gas
operations on those lands covered by Federal mineral leases so as to obtain
maximum resource recovery.
(e)RESOURCE RECOVERY AND PROTECTION - Any bypass of Federal coal
previously determined to be economically recoverable under an approved
Resource Recovery and Protection Plan (R2P2), must have the written approval
of the Authorized Officer of the BLM in the form of an approved modification
to the R2P2 prior to the Federal coal being bypassed. (43 CFR 3482.2(c)(2))
Failure to comply with this requirement shall result in the issuance of a
Notice of Noncompliance by the Authorized Officer. The Notice of
Noncompliance will include the amount of damage to be assessed for the
unauthorized bypass of Federal coal as determined by the Authorized Officer.
Lessee shall pay royalty for all coal not recovered which was available for
mining and was economically recoverably by mining operations under an R2P2
approved by the Authorized Officer.
The royalty shall be determined in accordance with Section 2.(a),
PRODUCTION ROYALTIES, of this lease, and the value of the coal shall be
determined as set forth in the applicable coal regulations administered by the
Lessor. Federal coal not recovered, but which was available for recovery,
will be volumetrically determined by the Authorized Officer using standard
industry practices.
(f)RECORDS OF PRODUCTION AND SALES - Lessee will accurately determine
the weight of all leased coal deposits mined (produced) and sold, will keep
accurate records of such, and make those available to the Authorized Officer
for inspection.
(g)PUBLIC LAND SURVEY PROTECTION - The lessee will protect all survey
monuments, witness corners, reference monuments, and bearing trees against
destruction, obliteration, or damage during operations on the lease areas. If
any monuments, corners or accessories are destroyed, obliterated, or damaged
by this operation, the lessee will hire an appropriate county surveyor or
registered land surveyor to reestablish or restore the monuments, corners, or
accessories at the same location, using surveying procedures in accordance
with the "Manual of Surveying Instructions for the Survey of the Public Lands
of the United States." The survey will be recorded in the appropriate county
records, with a copy sent to the Authorized Officer.
P.L. #20
Amended March 1, 1982
STATE OF WYOMING
COAL MINING LEASE
THIS INDENTURE OF LEASE ENTERED INTO THIS 2nd day of August,
1993, A.D., by and between the STATE OF WYOMING, acting by and
through its lessor, and
KERR-MC GEE COAL CORPORATION
party of the second part, hereinafter called the lessee.
Section 1. PURPOSES. The lessor in consideration of the
rentals and royalties to be paid and the covenants and agreements
hereinafter contained and to be performed by the lessee, does
hereby grant and lease to the lessee the exclusive right and
privilege to mine, extract and remove all of the coal deposits in
or under the following described land, to wit:
640.00 Acres AllSection 16, Twp. 50 N., Rg. 71 W., 6th P.M.
consisting of 640.00 acres, more or less, Campbell
county, together with the right to construct, and maintain thereon
all work, buildings, plants, waterways, roads, telegraph, telephone
and power lines, tipples, hoists or other structures necessary to
the full enjoyment thereof, including the right to transport coal
through the underground workings on the premises above described,
subject however, to the conditions hereinafter set forth.
Section 2. TERM OF LEASE. This lease, unless terminated at an
earlier date as hereinafter provided, shall remain in force and
effect for a term of ten (10) years beginning on the 2nd day of
August, 1993 and expiring on the 1st day of August, 2003.
Section 3. IN CONSIDERATION OF THE FOREGOING, THE LESSEE
CONVENANTS AND AGREES:
(a)BOND When the lease becomes an operating lease or
actual operations for the mineral are to be commenced, the bond
shall be furnished in such a reasonable amount as the State Land
and Farm Loan Office shall determine to be advisable in the
premises. The operating bond shall preferably be a corporate
surety bond, executed by the lessee, the surety being authorized to
do business in the State of Wyoming. A cash bond may be furnished
on the consent of the State Land and Farm Loan Office if the lessee
is unable to obtain a corporate surety bond. Form of bond will be
furnished by the State Land and Farm Loan Office. The State will
require two executed copies of the bond, therefore as many
additional copies should be made as will be required by the lessee
and the bonding company.
(b) PAYMENTS To make all payments accruing hereunder to
the State Land and Farm Loan Office, 122 West 25th Street, Herschel
Building, Cheyenne, Wyoming 82002-0600.
__ RENTALS Prior to the discovery of commercial
quantities of coal in the lands herein leased, to pay the lessor in
advance beginning with the effective date hereof, an annual rental
of ONE DOLLARS ($1.00) PER ACRE OR FRACTION THEREOF PER YEAR for
the 1st through the 5th year inclusive and TWO DOLLARS ($2.00) PER
ACRE OR FRACTION THEREOF PER YEAR for the 6th through 10th years
inclusive - or renewal thereof; provided, however, that if the said
lands are not on a commercial mining basis and so operated at the
end of two (2) years from the date hereof, such rental may be
increased at the option of the lessor, to such an amount as the
lessor may decide to be fair and equitable.
After the discovery of commercial quantities of coal in the
lands herein leased to pay to the lessor in advance, beginning with
the first day of the lease year succeeding the lease year in which
commercial discovery was made, an annual rental of TWO DOLLARS
($2.00) PER ACRE OR FRACTION THEREOF PER YEAR unless changed by
agreement, such rental so paid for anyone year to be credited on
the royalty for that year.
Annual rentals on all leases shall be payable in advance for
the first year and each year thereafter. No Notice of Rental Due
shall be sent to the lessee. If the rental is not received in this
office on or before the date it becomes due, Notice of Default will
be sent to the lessee and a penalty of 50> per acre or fraction
thereof for late payment will be assessed.
The lessee is not legally obligated to pay either the rental
or the penalty, but if the rental and penalty are not received in
this office within thirty (30) days after the Notice of Default has
been received by the lessee, the lease will terminate automatically
by operation of law. Termination of the lease shall not relieve
the lessee of any obligation incurred under the lease other than
the obligation to pay rental or penalty. The lessee shall not be
entitled to a credit on royalty due for any penalty paid for late
payment of rental on an operating lease.
(d) ROYALTY To pay a royalty on all coal mined from the
land herein leased, either in kind or value as the lessor may elect
of 12<<%* on coal mined by surface mining operations and 8% on coal
mined by underground mining methods.* 7% for five years with a
royalty rate review prior to the lease anniversary date of August
2, 1998 pursuant to royalty rate adjustment as directed by the
Board.
Royalty shall be payable on the gross value at the mine on all
coal mined. Gross value for the purpose of royalty calculation
means the unit sale or contract price times the number of units
sold. In calculating gross value the sales price shall be prima
facia evidence of such gross value. No deduction shall be allowed
for fees, taxes, assessments or similar levies imposed by the State
of Wyoming, its political subdivisions, any other state or the
federal government, nor for the expense of mining, processing and
loading the coal in merchantable condition at the mine ready for
shipment. If the coal is not sold and valued at the mine,
transportation from the mine to the point of sale or delivery may
be deducted in determining value. In the event there is no sale of
the coal or the Board of Land Commissioners determines that the
sales price does not truly reflect the value of the coal, it may
make its own determination of value and require that royalties be
paid on the basis of the value determined by the Board.
If the lessor elects to take its royalty in kind, such coal
shall be good merchantable coal delivered for shipment at the mine.
(e) MONTHLY PAYMENTS AND STATEMENTS Unless a different
time schedule is approved by the Board of Land Commissioners, to
make payment on or before the twentieth (20th) day of the calendar
month succeeding the month of production, for royalties of all coal
mined from the land; and to furnish sworn monthly statements
therewith showing in tons the amount of all coal mined, accompanied
by the mine weights; and such other information as may be called
for by the form of report prescribed by the lessor. These
statements are to be subject to verification by examination of
books and records of the lessee.
(f) UNDERGROUND WORKINGS That in the underground workings
for coal 11 shafts, inclines and tunnels shall be well timbered
(when good mining required timbering); that all underground
timbering placed in the mine shall be kept in good condition and at
no time shall such timbering be removed unless all of the coal in
the lands have been removed; that at the termination of this lease
all underground timberings shall become the property of the lessor
without compensation therefor to the lessee; that all parts or
workings, where the coal is not exhausted and for good reasons not
being worked, will be kept free from water and waste material; and
that the underground workings shall be protected against fire and
flood and should creeps and squeezes occur they shall be checked
without delay; to leave such solid blocks of coal as may be
necessary to support the cover and protect the slopes, air-courses,
manways, and hauling roads to permit the lessee to mine coal from
any lands which he may own or become owner of in adjacent sections
of land; and the leases shall have the use of the slopes, air-
courses, manways and hauling roads for the purpose of mining in the
adjacent sections provided the lessee shall pay the royalty for the
blocks of coal so left for support for protection, if it shall be
agreed that the blocks of coal so left shall be more for the
benefit of the lessee than to the State of Wyoming, and all coal so
paid for may be removed subsequently during the term of this lease
without subjecting the lessee to the payment of an additional
royalty therefor.
(g) STRIP WORKINGS That all strip workings shall be
operated in such a manner so as to remove all coal in the vein or
veins worked; that strip mining shall be continuous across the
property according to a definite plan and pattern submitted to and
receiving the approval of the State Land and Farm Loan Office; that
all overburden removed shall, as mining progresses, be returned to
original pit and leveled, so that all the expiration or surrender
of the lease or termination of mining activities the land will
approximate its previous configuration; that all roads and bridges
built and necessary to mining operation on the land shall upon the
expiration, forfeiture or surrender of said lease become the
property of the lessor.
(h) WEIGHT - WEIGHT RECORD That all coal mined or taken
from the premises, upon being hoisted and trammed, shall be weighed
and the weight thereof together with the proper check number,
entered in due form in books kept for such purpose by the lessee;
and an accurate record of the weight of all coal mined from the
land shall be kept and preserved separate from the records of the
coal mined from other lands.
The term "ton" as herein used means a ton of two thousand
(2,000) pounds of unscreened coal, unless the lessor elects to
compute a ton of coal at twenty-nine cubic feet of coal in the
sold, or by the measurements of the space from which the coal is
mined, deducting therefrom all space occupied by slate or other
impurities, and in such case the computation shall be final and
binding upon the lessee.
(i) MAPS AND REPORTS Upon demand, to furnish the State
Land and Farm Loan Office with copies of Blue-prints of all maps of
underground surveys of leased lands made or authorized by the
lessee, including engineer's field notes, certified by the engineer
who made such survey; and to make such other reports pertaining to
the production and operation by the lessee as may be called for by
the lessor.
As required by W.S. 36-6-102, copies of all electrical,
gamma-ray neutron, resistivity or other types of sub-surface log
reports obtained by or for lessee in conducting operations on the
leased premises shall be submitted to the State Geologist within
three (3) years after the completion of drilling.
(j) TAXES AND WAGES - FREEDOM OF PURCHASE To pay when
due, all taxes lawfully assessed and levied under the laws of the
State of Wyoming, upon improvements, coal produced from the land
hereunder or other rights, property or assets of the lessee; to
accord all workmen and employees complete freedom of purchase and
to pay all wages due workman and employees at lease twice each
month in the lawful money of the United States.
(k) STATUTORY REQUIREMENTS AND REGULATIONS To comply
with all State statutory requirements and valid regulations
hereunder.
(l) ASSIGNMENT OF LEASE - MINING AGREEMENTS (1) Not to
assign this lease or any interest herein, nor sub-let any portion
thereof, except with the consent in writing of the lessor first and
obtained.
(2) To submit a signed copy of any mining agreement
entered into affecting the possessory title to any of the land
hereby leased for approval by the lessor.
(3) All overriding royalties to be valid must have
the approval of the Board and be recorded with the lease. The
Board reserves the right of disapproval of such overriding
royalties when in its opinion they become excessive and hence are
detrimental to the proper development of the leased lands.
(m) DELIVER PREMISES IN CASE OF FORFEITURE To deliver
the leased premises with all permanent improvements thereon, in
good order and condition in case of forfeiture of the lease; but
this shall not be construed to prevent the removal, alteration or
renewal of equipment and improvements in the ordinary course of
operations.
(n) DILIGENCE IN DEVELOPMENT This lease is granted with
express understanding that prospecting, coal mining, and the
recovery of the valuable coal content of the above described lands
shall be pursued with diligence, and if at any time the lessor has
reasonable belief that the operations are not being so conducted it
shall so notify lessee in writing, and if compliance is not
promptly obtained and the delinquency fully satisfied, it may then,
at the end of any lease year, declare this said lease terminated
and offer the said lands to the highest and best bidder, and upon
such terms as the lessor may prescribe, provided, that the herein
designated lessee may have a preferential right to a new lease on
the same terms and conditions as offered in the best bid; provided,
however, that if the lessee fails or refuses to exercise such right
the improvements then on the property shall be disposed of pursuant
to Section 6 of this lease.
Section 4. GENERAL COVENANTS.
(a)The lessee shall have the right to enter upon,
occupy and enjoy such surface areas of the described tract as are
necessary for the mining of coal, and the construction of all
buildings and other surface improvements incidental to the work
contemplated by this lease; but the lessee shall fully protect the
rights of any agricultural and grazing leases which have heretofore
or may hereafter be granted or sale contract holders by erecting
cattle guards or gates and keeping closed gates in all fences in
which openings are or may be made, and for protection of stock
grazing thereon to fence or close all holes, pits or open cuts in
which injury might be sustained, and shall not contaminate any
living water upon the land so as to make it injurious to livestock;
and, further, should the lessee or any person holding from, by or
under the lessee, in any operation on said premises under this
lease, destroy or injure any crop, building or other improvements
of any tenant, lessee, purchaser, or other person holding under the
State, the lessee agrees to fully indemnify all such injured
parties in such sum or sums as may be mutually agreed upon by the
respective parties, or as may be fixed by appraisers appointed by
each party if agreement is impossible; or the Board of Land
Commissioners may fix the amount of such indemnity after inspection
or hearing.
(b)The rights of the lessee hereunder are subject
further to the right of any other mineral lessee, his sublessee, or
operator under any other mineral lease or leases as provided by the
Rules and Regulations of the Board of Land Commissioners Governing
the Leasing of Sub-surface Resources and providing for multiple
development of those resources, now in force, or renewals thereof;
to enjoy the free use of so much of the surface of the said lands
as are necessary and incidental to their operations thereunder; and
coal mining operations shall be conducted so as not to unduly
interfere with the natural production operations, not shall coal
mining operations be conducted nearer than two hundred (200) feet
from any productive oil or gas well without consent of the oil and
gas lessee; and the lessee further shall not disturb any existing
road or roads now on said lands nor roads leading to or from any
well or well locations without first providing adequate and
suitable roads in lieu thereof, and the lessee shall fully
indemnify any such lessee for any injury or damages resulting from
his operations hereunder in such amount so fixed as above provided.
(c)Such methods of mining shall be used as shall
insure the extraction of the greatest amount of the coal bed
possible, and all coal mining operations on these premises shall be
subject to the supervision of the State Coal Mine Inspector or
other officers as by law provided.
(d)During the proper hours and at all times during the
continuance of this lease the lessor or its representatives shall
be authorized to go through any of the shafts, openings or workings
on the premises and to examine, inspect and survey the same and to
make extracts of all books and weigh sheets which showing any way
the coal output from the land.
(e)This lease shall include only the right and
privilege of coal mining, but if the lessee shall discovery any
vein, lode, lead or ledge or other mineralized rock in or under
said lands he shall immediately report the same to the lessor and
shall then have a preferential right for a period of thirty (30)
days following the date of discovery to lease said vein, lode, lead
or ledge upon such terms, conditions, and royalty as may be fairly
fixed by the State Board of Land Commissioners, providing the land
had not been leased prior to such time for that specific mineral.
Section 5. THE LESSOR EXPRESSLY RESERVES:
(a)DISPOSITION OF SURFACE The right to lease, grant
right-of-way, sell or otherwise dispose of the surface of the land
embraced within this lease under existing laws hereafter enacted,
or in accordance with the Rules of the Board of Land Commissioners,
insofar as the surface is not necessary for the use of the lessee
in the extraction and removal of the coal therein, except where
such surface rights have been sold or otherwise disposed of by the
State of Wyoming.
(b)MULTIPLE USE The right to lease the lands for other
minerals subject to the Rules and Regulations of the Board of Land
Commissioners providing for Leasing of Sub-surface Resources and
the Multiple Use therefor.
Section 6. APPRAISAL OF IMPROVEMENTS Upon the expiration of
this lease, or earlier termination thereof pursuant to surrender of
forfeiture, or if such land be leased to another other than the
owner of the improvements thereon, the lessee agrees that the
improvements shall be disposed of in the manner provided by law.
Section 7. FORFEITURE CLAUSE In the event that the lessee
shall have procured this lease through fraud, misrepresentation or
deceit, then and in that event this agreement, at the option of the
lessor, shall cease and terminate and shall become ipso factor null
and void, and all improvements upon said land or premises under the
terms of this lease shall forfeit to and become the property of the
State of Wyoming. In the event that the lessee shall fail to make
payments of rentals and royalties as herein provided, or make
default in the performance or observance of any of the terms,
covenants and stipulations hereof, or of the general regulations
promulgated by the Board of Land Commissioners and in force on the
date hereof, the lessor shall serve notice of such failure or
default, either by personal service or by registered mail upon the
lessee, and if such failure or default continues for a period of
thirty (30) days after the service of such notice, then and in that
event the lessor may, at its option, declare a forfeiture and
cancel this lease, whereupon all rights and privileges obtained by
the lessee hereunder shall terminate and cease and the lessor may
re-enter and take possession of said premises or any part thereof;
but these provisions shall not be construed to prevent the exercise
by the lessor of any legal or equitable remedy which the lessor
might otherwise have. A waiver of any particular cause of
forfeiture shall not prevent the cancellation and forfeiture of
this lease for any other cause of forfeiture, or for the same cause
occurring at any other time.
Section 8. RELINQUISHMENT AND SURRENDER This lease may be
relinquished and surrendered to lessor as to all or any legal
subdivision of said land as follows.
(a)If no operations have been conducted under the lease
on the land to be relinquished, the lessee shall file with the
State Land and Farm Loan Office a written relinquishment or
surrender, duly signed and either witnessed or acknowledged and
stating therein that no operations have been conducted on the
lands. The relinquishment so filed shall become effective on the
date and hour of receipt thereof in the office of the State Land
and Farm Loan Office or at some later date if such be so specified
by the lessee therein. If the said relinquishment fails to state
that no operations have been conducted, the effective date of
relinquishment shall be the date the relinquishment is approved by
the Board of Land Commissioners.
(b)If operations have been conducted under the lease on
land proposed to be relinquished the lessee shall give sixty (60)
days notice and shall file with the State Land and Farm Office a
written relinquishment or surrender duly witnessed or acknowledged
and stating therein that operations have been conducted on the
land. The relinquishment shall not become effective until the land
and the mines thereon shall have been placed in condition
acceptable to lessor and shall have been approved by the Board of
Land Commissioners.
(c)All rentals becoming due prior to a surrender or
relinquishment becoming effective shall be payable by lessee unless
payment thereof shall be waived by the Board of Land Commissioners.
A relinquishment have become effective there shall be no recourse
by lessee, and the lease as to the relinquished lands may not be
reinstated.
Section 9. HEIRS AND SUCCESSORS IN INTEREST. It is further
agreed that each obligation hereunder shall extend to and be
binding upon, and every benefit hereof shall inure to the heirs,
executors, administrators, successors of or assigns of the
respective parties hereto.
This lease is issued by virtue of and under the authority conferred
by Title 36 as to School and Title 11 as to Farm Loan Land relating
to "Mineral Leases", and valid amendments thereto and subject to
the laws of the State of Wyoming and is accepted by the lessee
subject thereto.
IN WITNESS WHEREOF, this lease has been executed by and
through its Board of Land Commissioners.
STATE OF WYOMING
BOARD OF LAND COMMISSIONERS
AND FARM LOANS
SEAL
By:________________________________
Director,
State Land and Farm Loan Office
LESSEE: s/s Robert C. Sharp
Robert C. Sharp
President, Kerr-McGee Coal Corp.
CORPORATE SEAL
Board approved: Nov 04 1993
Examined by:
PERMANENT
LEASE NO. 0-26651
TYPE OF LEASE COAL RENEWAL
NAME OF LESSEE KERR-MC GEE COAL CORPORATION
ADDRESS 123 ROBT. S. KERR AV.
OKLAHOMA CITY, OK 73102
EXPIRATION OF PARTIAL LEASE AUGUST 1, 2003
AMOUNT OF RENTAL $1280.00
COUNTY CAMPBELL
FUND COMMON SCHOOL
BOND $10,000.00 CORP. SURETY BOND DATED JUNE 24, 1983
Subject to 2> per ton overriding royalty
previously reserved by Peabody Coal Company.
(Bd. Appvd. 9-14-88) LEASE NO. 2-5534
STATE OF WYOMING
BOARD OF LAND COMMISSIONERS
GRAZING AND AGRICULTURAL LEASE
THIS LEASE, entered into by and between the State of Wyoming through its Board
of Land Commissioners, hereinafter designated as the
LESSOR, and the following LESSEE:
KERR-MCGEE COAL CORPORATION
In consideration of the payment of the first year's rental, receipt of
which is hereby acknowledged, and the covenants and agreements herein made,
to be kept and performed by the lessee, the lessor hereby leases, for GRAZING
AND AGRICULTURAL purposes only the following-described lands, subject to all
terms, conditions and restrictions contained in this lease, the Statutes of
the State of Wyoming, and the Rules and Regulations of the Board of Land
Commissioners.
DESCRIPTION:
ACRES DESCRIPTION SE TP RNG CO
- -----------------------------------------------------------------------
240,000 NW4:W2SW4 8 50 071 CL
(1) TERM OF LEASE - The term of this lease shall begin at 5:00 P.M. on the
FIRST day of FEBRUARY, 1992
and terminate at 5:00 P.M. on the
FIRST day of FEBRUARY, 2002.
(2) USE - The leasehold right granted by this lease is for GRAZING AND
AGRICULTURAL purposes only, provided, that in the event the lessee changes the
use of grazing lands to other agricultural purposes, either by dry land
process or irrigation, the Lessee shall notify the Commissioner of Public
Lands of the acreage placed under cultivation and the Lessee shall pay an
increased annual rental therefore as fixed
by the Lessor.
(3) RENTAL - The Lessee shall pay to the Lessor at the office of the
Commissioner of Public Lands, Herschler Building, Cheyenne, Wyoming, a rental
for the use of the premises in the amount of $ 262.50 per annum. This
amount is subject to change on an annual basis and may be increased or
decreased by the Lessor in the event of reclassification of the land, due to a
change in its use, a change in the carrying capacity, or a change in the
minimum annual rental for grazing and agricultural leases adopted by the
Lessor. Annual rentals are due and payable 90 days before the anniversary
date of this lease. If the annual rental is not paid on or before
the last day of the current lease year, this lease shall terminate
automatically by operation of law.
(4) COVENANTS - The Lessee hereby promises:
(a) Not to take or disturb any fur bearing animals on the premises except
where a permit to do so has been secured from the Wyoming Game and Fish
Commission and consent thereto has also been obtained from the Commissioner of
Public Lands.
(b)To observe state and federal laws and regulations for the protection of
fish and wildlife.
(c)Not to cut, destroy or remove, or permit to be cut, destroyed or
removed, any timber that may be upon the premises. The Lessee shall promptly
report to the Lessor the cutting or removal of timber by other persons.
(d)To conduct all grazing and agricultural operations on the premises in a
manner which protects soil fertility and forage production, and does not
contribute to soil erosion, overgrazing, and noxious weeds.
(e)To maintain all buildings, wells, dams, windmills, fences, and other
improvements located on the premises in a good state of repair at the
lessee's expense.
(f)To dispose of all waste in a proper manner.
(4)COVENANTS (CONTINUED)
(g)IRRIGATED LAND If the premises are subject to irrigation in whole or in
part from water available for that purpose under a rental
right or permanent water right, as the case may be.
(1)The Lessor agrees to use water so as to protect and maintain all water
rights.
(2)Where applicable, the Lessee agrees to pay when due all charges for
operation, maintenance, and delivery of water.
(3)The lands shall be operated under a customary and appropriate crop
rotation method.
(4)The lands shall be cultivated, irrigated and fertilized in a proper
husbandlike manner so as to prevent washing, blowing, seepage,
leaching of the soil, waste of water and other damage.
(5)All irrigation ditches and laterals shall be kept in good condition at
the Lessee's expense and shall be maintained so as to prevent
washing, cutting and damage to the lands. Ditches and laterals shall attach
to the lands and become the property of the lessor.
(6)The Lessee shall file annually, on or before March 31, of each year,
with the Commissioner of Public Lands, on the proper forms,
a report of the location and yield of all crops grown the preceding year and
the location and type of crops to be grown in the ensuing year.
(5)RESERVATIONS - The Lessor reserves:
(a) The right to order the sale of all or any portion of the premises at
any time, subject to this lease.
(b)The right to lease and dispose of all coal, oil, gas and other minerals,
and all deposits of clay, stone, gravel, and sand valuable for building,
mining or commercial purposes, and all timber, together with the right to mine
and remove such minerals and other deposits and timber with the right of
ingress and egress thereto, and to cancel this lease as to any portion of the
premises when required for these purposes.
(c)The right to hold, sell, appropriate or otherwise dispose of any fences
or other improvements of any character owned by the Lessee upon the premises,
to insure the payment of rentals, damages or other expenses accruing to the
Lessor by virtue of this lease.
(d)The right to enter in and upon the premises at any time for purposes of
inspection or management.
(e)The right at any time to grant easements across the premises for
ditches, canals, tunnels, telephone and telegraph lines, pipelines, power
lines, or other lawful purposes, with right of ingress and egress thereto.
(f)The right to use or lease the premises or any part thereof at any time
for any purpose other than the rights and privileges granted by this lease.
(g)The privilege of any person to fish in any streams, lakes or ponds, and
to hunt, pursue and kill game animals, game birds and migratory birds on the
premises pursuant to Chapter XIII of the Rules and Regulations of the Board of
Land Commissioners.
(h)All rights not expressly granted to Lessee by this lease are reserved to
the Lessor.
(6)ASSIGNMENTS - This lease shall be subject to cancellation by the Lessor
if it is assigned without the approval of the Lessor. Any assignments of this
lease shall be recorded in the office of the Commission of Public Lands.
(7)SUBLEASES - This lease shall be subject to cancellation by the Lessor if
the premises are subleased or made subject to any contract, or other agreement
of any kind, except "price support and production adjustment" contracts of the
ASCS, without the approval of the Lessor, in no event shall the premises be
subleased unless one-half of any excess rental is paid to the Lessor.
(8)IMPROVEMENTS - The Lessee shall not construct or make improvements upon
the premises in excess of the value of $750.00 per section without first
filing an application for permission to construct or make such improvements
with the Lessor, which shall be subject to approval or rejection, in case the
Lessee fails to comply with the provisions of this paragraph, any and all
improvements erected on premises
shall forfeit to and become the property of the Lessor, as provided by law.
(9)CANCELLATION - If it be determined by the Lessor that this lease has
been procured by fraud, deceit or misrepresentation, or if the premises or any
part thereof be used for unlawful, unauthorized, or illegal purposes, or if
the Lessee fails to perform or violates any of the terms of this lease, the
Lessor shall have power and authority to cancel this lease.
(10)SURRENDER OF PREMISES UPON TERMINATION OF LEASE - The Lessee shall,
upon termination of this lease, surrender and deliver unto the Lessor the
peaceful and uninterrupted possession of the premises.
(11)TIME AND SPECIFIC PERFORMANCE are each of the essence of this lease,
and all agreements and conditions herein contained shall extend to and be
binding alike upon the heirs, administrators, successors and assigns of the
parties hereto.
(12)RELIANCE - The Lessor has expressly relied on the representations made
by the Lessee in the written application to lease the premises.
(13)EXCHANGE - The lease is granted upon the express condition that should
the Lessor hereafter find it to be in the best interest of the Lessor to
exchange the lands embraced in this lease for other lands, as provided by law,
then this lease may be terminated upon giving the Lessee one (1) year notice,
unless by mutual consent of the Lessor and the Lessee, an earlier date of
termination may be fixed.
(14)BUY-OUT BY LESSOR - The lessor shall have the right to purchase back
from the Lessee all the rights and interests granted to the Lessee by this
lease for any portion of the premises at any time paying to Lessee the fair
market value of those rights and interests for the remaining term of the
lease.
IN WITNESS WHEREOF, the State Of Wyoming, Board of Land Commissioners, has
caused these presents to be signed by the Commissioner of Public Lands and his
official seal to be affixed on this 31st day of March, 1992, and the Lessee
has caused these presents to be signed and sealed below:
LESSOR: THE STATE OF WYOMING,
BOARD OF LAND COMMISSIONERS
By: ______________________________________
Commissioners of Public Lands
LESSEE:______________________________________
KERR-MCGEE COAL CO.
(Bd. Appvd. 9-14-88) LEASE
NO. 2-3701
STATE OF WYOMING
BOARD OF LAND COMMISSIONERS
GRAZING AND AGRICULTURAL LEASE
THIS LEASE, entered into by and between the State of Wyoming through its Board
of Land Commissioners, hereinafter designated as the LESSOR, and the following
LESSEE:
KERR-MCGEE COAL CORPORATION
In consideration of the payment of the first year's rental, receipt of
which is hereby acknowledged, and the covenants and agreements herein made,
to be kept and performed by the lessee, the lessor hereby leases, for GRAZING
AND AGRICULTURAL purposes only the following-described lands, subject to all
terms, conditions and restrictions contained in this lease, the Statutes of
the State of Wyoming, and the Rules and Regulations of the Board of Land
Commissioners.
DESCRIPTION:
ACRES DESCRIPTION SE TP RNG CO
-----------------------------------------------------------------
240,000 ALL 16 50 071 CL
(1) TERM OF LEASE - The term of this lease shall begin at 5:00 P.M. on the
FIRST day of FEBRUARY, 1992
and terminate at 5:00 P.M. on the
FIRST day of FEBRUARY, 2002.
(2) USE - The leasehold right granted by this lease is for GRAZING AND
AGRICULTURAL purposes only, provided, that in the event the
lessee changes the use of grazing lands to other agricultural purposes, either
by dry land process or irrigation, the Lessee shall notify the
Commissioner of Public Lands of the acreage placed under cultivation and the
Lessee shall pay an increased annual rental therefore as fixed
by the Lessor.
(3) RENTAL - The Lessee shall pay to the Lessor at the office of the
Commissioner of Public Lands, Herschler Building, Cheyenne, Wyoming, a rental
for the use of the premises in the amount of $ 425.00 per annum. This
amount is subject to change on an annual basis and may be increased or
decreased by the Lessor in the event of reclassification of the land, due to a
change in its use, a change in the carrying capacity,
or a change in the minimum annual rental for grazing and agricultural leases
adopted by the Lessor. Annual rentals are due and payable 90 days before the
anniversary date of this lease. If the annual rental is not paid on or before
the last day of the current lease year, this lease shall terminate
automatically by operation of law.
(4) COVENANTS - The Lessee hereby promises:
(a) Not to take or disturb any fur bearing animals on the premises except
where a permit to do so has been secured from the Wyoming Game and Fish
Commission and consent thereto has also been obtained from the Commissioner of
Public Lands.
(b)To observe state and federal laws and regulations for the protection of
fish and wildlife.
(c)Not to cut, destroy or remove, or permit to be cut, destroyed or
removed, any timber that may be upon the premises. The Lessee
shall promptly report to the Lessor the cutting or removal of timber by other
persons.
(d)To conduct all grazing and agricultural operations on the premises in a
manner which protects soil fertility and forage production, and
does not contribute to soil erosion, overgrazing, and noxious weeds.
(e)To maintain all buildings, wells, dams, windmills, fences, and other
improvements located on the premises in a good state of repair at the
lessee's expense.
(f)To dispose of all waste in a proper manner.
(4)COVENANTS (CONTINUED)
(g)IRRIGATED LAND If the premises are subject to irrigation in whole or in
part from water available for that purpose under a rental right or permanent
water right, as the case may be.
(1)The Lessor agrees to use water so as to protect and maintain all water
rights.
(2)Where applicable, the Lessee agrees to pay when due all charges for
operation, maintenance, and delivery of water.
(3)The lands shall be operated under a customary and appropriate crop
rotation method.
(4)The lands shall be cultivated, irrigated and fertilized in a proper
husbandlike manner so as to prevent washing, blowing, seepage, leaching of
the soil, waste of water and other damage.
(5)All irrigation ditches and laterals shall be kept in good condition at
the Lessee's expense and shall be maintained so as to prevent washing, cutting
and damage to the lands. Ditches and laterals shall attach to the lands and
become the property of the lessor.
(6)The Lessee shall file annually, on or before March 31, of each year,
with the Commissioner of Public Lands, on the proper forms, a report of the
location and yield of all crops grown the preceding year and the location and
type of crops to be grown in the ensuing year.
(5)RESERVATIONS - The Lessor reserves:
(a) The right to order the sale of all or any portion of the premises at
any time, subject to this lease.
(b)The right to lease and dispose of all coal, oil, gas and other minerals,
and all deposits of clay, stone, gravel, and sand valuable for building,
mining or commercial purposes, and all timber, together with the right to mine
and remove such minerals and other deposits and timber with the right of
ingress and egress thereto, and to cancel this lease as to any portion of the
premises when required for these purposes.
(c)The right to hold, sell, appropriate or otherwise dispose of any fences
or other improvements of any character owned by the Lessee upon the premises,
to insure the payment of rentals, damages or other expenses accruing to the
Lessor by virtue of this lease.
(d)The right to enter in and upon the premises at any time for purposes of
inspection or management.
(e)The right at any time to grant easements across the premises for
ditches, canals, tunnels, telephone and telegraph lines, pipelines, power
lines, or other lawful purposes, with right of ingress and egress thereto.
(f)The right to use or lease the premises or any part thereof at any time
for any purpose other than the rights and privileges granted by this lease.
(g)The privilege of any person to fish in any streams, lakes or ponds, and
to hunt, pursue and kill game animals, game birds and migratory birds on the
premises pursuant to Chapter XIII of the Rules and Regulations of the Board of
Land Commissioners.
(h)All rights not expressly granted to Lessee by this lease are reserved to
the Lessor.
(6)ASSIGNMENTS - This lease shall be subject to cancellation by the Lessor
if it is assigned without the approval of the Lessor. Any assignments of this
lease shall be recorded in the office of the Commission of Public Lands.
(7)SUBLEASES - This lease shall be subject to cancellation by the Lessor if
the premises are subleased or made subject to any contract, or other agreement
of any kind, except "price support and production adjustment" contracts of the
ASCS, without the approval of the Lessor, in no event shall the premises be
subleased unless one-half of any excess rental is paid to the Lessor.
(8)IMPROVEMENTS - The Lessee shall not construct or make improvements upon
the premises in excess of the value of $750.00 per section without first
filing an application for permission to construct or make such improvements
with the Lessor, which shall be subject to approval or rejection, in case the
Lessee fails to comply with the provisions of this paragraph, any and all
improvements erected on premises
shall forfeit to and become the property of the Lessor, as provided by law.
(9)CANCELLATION - If it be determined by the Lessor that this lease has
been procured by fraud, deceit or misrepresentation, or if the premises or any
part thereof be used for unlawful, unauthorized, or illegal purposes, or if
the Lessee fails to perform or violates any of the terms of this lease, the
Lessor shall have power and authority to cancel this lease.
(10)SURRENDER OF PREMISES UPON TERMINATION OF LEASE - The Lessee shall,
upon termination of this lease, surrender and deliver unto the Lessor the
peaceful and uninterrupted possession of the premises.
(11)TIME AND SPECIFIC PERFORMANCE are each of the essence of this lease,
and all agreements and conditions herein contained shall extend to and be
binding alike upon the heirs, administrators, successors and assigns of the
parties hereto.
(12)RELIANCE - The Lessor has expressly relied on the representations made
by the Lessee in the written application to lease the premises.
(13)EXCHANGE - The lease is granted upon the express condition that should
the Lessor hereafter find it to be in the best interest of the Lessor to
exchange the lands embraced in this lease for other lands, as provided by law,
then this lease may be terminated upon giving the Lessee one (1) year notice,
unless by mutual consent of the Lessor and the Lessee, an earlier date of
termination may be fixed.
(14)BUY-OUT BY LESSOR - The lessor shall have the right to purchase back
from the Lessee all the rights and interests granted to the Lessee by this
lease for any portion of the premises at any time paying to Lessee the fair
market value of those rights and interests for the remaining term of the
lease.
IN WITNESS WHEREOF, the State Of Wyoming, Board of Land Commissioners, has
caused these presents to be signed by the Commissioner of Public Lands and his
official seal to be affixed on this 31st day of March, 1992, and the Lessee
has caused these presents to be signed and sealed below:
LESSOR: THE STATE OF WYOMING,
BOARD OF LAND COMMISSIONERS
By:__________________________
Commissioners of Public Lands
LESSEE:__________________________
KERR-MCGEE COAL CO.
Form Approved by Bd: LEASE NO. SU-169
APPLICATION NO. ______
Book 705 of Photos, Page 487
LEASE OF WYOMING STATE LANDS
535648 ________________________
THIS INDENTURE OF LEASE, Made and entered into by and between the STATE OF
WYOMING, hereinafter designated as the LESSOR, and KERR-MCGEE COAL CORP., of
the County of Campbell, State of Wyoming, hereinafter designated as the
LESSEE.
WITNESSETH, That Whereas the lessee has made written application to the
Board of Land Commissioners to lease the state lands hereinafter described,
pursuant to the provisions of Chapter 187, Wyoming S. L. 1963, and Title 36,
Wyoming Statute, 1957, which application has been accepted by the Board of
Land Commissioners and a lease ordered issued to the applicant for the lands.
NOW, THEREFORE, the lessor, for and in consideration of the payment of the
first year's rental, receipt of which is hereby acknowledged, and of the
covenants and agreements herein mentioned, to be kept and performed by the
lessee, does by these presents, demise, lease and let unto lessee, for SURFACE
MINING purpose(s) only, the following described lands, in Campbell County,
Wyoming, to-wit:
Acres Description Sec.Tp.Rg.
240.00 NW1/4:SW1/4 8 50 71
160.00 NE1/4
400.00 TOTAL ACRES
TO HAVE AND TO HOLD the premises with the appurtenances, unto the lessee for
the term hereinafter specified, with a preferential right to renew, subject,
however, to all terms, conditions, regulations and restrictions contained in
this lease, the Statues of the State of Wyoming, and the Rules and Regulations
prescribed by the Board of Land Commissioners.
IT IS MUTUALLY AGREED AND COVENANTED BY AND BETWEEN THE LESSOR AND THE
LESSEE AS FOLLOWS:
1.TERM OF LEASE - The term of this lease shall begin at 5:00 o'clock P.M.
on the FIRST day of SEPTEMBER, A.D., 1979, and terminate at 5:00 o'clock P.M.,
on the THIRTY-FIRST day of AUGUST, A.D. 2004.
Received For Pending
State of Wyoming
Campbell Co. Clerk
Date Sept 02 1983
EXAMINED:_______________
STATE OF WYOMING )
) ss
Campbell County )
Filed for record this 23rd day of September, A.D., 1983 at 9:02 A.M. and
recorded in Book 705 of Photos on page 487Fees $10.00535648
s/s Vivian E. Addison RECORDED By
County Clerk and Ex Officio ABSTRACTED Deputy s/s Margaret Suedekum
Register of Deeds INDEXED
Book 705 of Photos, Page 488
2.RENTAL - The lessee shall pay to the lessor at the office of the
Commissioner of Public Lands, Pioneer Building, Cheyenne, Wyoming, a rental
for the use of said land and in the amount and manner as follows:
$8,000.00 per year
subject to reservations in lease
together with such interest and penalties as may be provided by law, or the
Rules and Regulations of the Board of Land Commissioners, provided that in the
event of a change in the classification of said lands, due to the use thereof,
the Board of Land Commissioners may increase or decrease the rental accordingly.
The rentalherein stipulated is subject to change upon inspection and
classification of the lands.
3.USE - the leasehold or tenantry right leased and let by this lease, is
for SURFACE MINING purpose(s) only, as specified in the application of the
lessee, and any use by lessee other than for the purposes herein stated shall
forthwith cancel and cause this lease to terminate.
4.RESERVATIONS - The State of Wyoming reserves:
a.The right to order the sale of all or any portion of said premises at any
time after one year from the date hereof except as modified by Section 36-181,
Wyoming Statutes, 1957.
b.The right to lease and dispose of all coal, oil, gas, and other minerals,
and all deposits of clay, stone, gravel and sand valuable for building,
mining or commercial purposes, and all timber, together with the right to
mine and remove such minerals and other deposits and timber with the right of
ingress and egress thereto.
c.The right to lease all or any portion of said premises for the purpose of
mining and removing all minerals and deposits expressly reserved to the State of
Wyoming, and to declare a cancellation of said lease on all or any portion
of said lands when required for such purposes.
d.The right to hold, sell, appropriate or otherwise dispose of any fences or
other improvements of any character upon said lands to insure the payment of
rentals, damages or other expenses accruing to the State by virtue of this
lease.
Book 705 of Photos, Page 489
e.The right and privilege of any person to fish in any stream, lakes or ponds
and to hunt, pursue and kill game animals, game birds and migratory birds under
applicable State and Federal hunting and fishing laws on said premises.
f.The right at any time to grant Rights of Way across said premises for lawful
purposes, with right of ingress and egress thereto.
g.The right to use or lease said premises or any part thereof at any time for
any purposes other than the rights and privileges herein specifically granted.
h.The lessee shall not take any fur bearing animals from any of the lands
under this lease except where a permit to do so has been secured from the
Wyoming Game and Fish Commission and consent thereto has also been obtained
from the Commissioner of Public Lands. The Board of Land Commissioners
reserves the right by its duly appointed agent to enter in and upon said
lands and take therefrom fur bearing animals, provided that it shall first
obtain the consent and approval of the
Wyoming
Game and Fish Commission.
i.The lessee shall observe the laws and regulations for the protection of game
animals, game birds, non-game birds, migratory birds and game fish and not
unnecessarily disturb such animals, birds or fish.
5.SUBLEASE AND ASSIGNMENTS - The lessee shall not sublease in whole or in
part: this lease shall not be assigned or transferred except with the written
consent of the Board of Land Commissioners. Any assignment or transfer of
this lease shall contain a provision to the effect that such assignment or
transfer is invalid and of no force and effect, until approved by the Board
of Land Commissioners as herein required.
6.The lessee shall not in any event, cut destroy or remove, or permit to
be cut, destroyed or removed, any live timber that may be upon the premises;
the lessee shall report promptly the cutting or removal of timber by other
persons.
7.IMPROVEMENTS - The lessee shall construct or make improvements upon the
premises hereby leased only in accordance and compliance with the specific
rules and regulations attached to this agreement.
8.FORFEITURE - In case the rental hereinbefore provided, or any part
thereof, shall not be paid within the time herein provided or if it be
determined that this lease has been procured by fraud, deceit or
misrepresentation, or if the lands or any part thereof be used for unlawful
or illegal purposes, or if default be made in the performance of any of the
terms of this lease, the Board shall have power and authority to elect to
declare the term ended and cancel this lease.
Book 705 of Photos, Page 490
9.SURRENDER OF PREMISES UPON TERMINATION OF LEASE - The lessee shall, upon
termination of this lease, surrender and deliver under the lessor the peaceful
and uninterrupted possession of said premises. If this lease shall be
terminated for any reason other than by sale of the land, the improvements
thereon shall be disposed of as provided by Section 36-71, Wyoming Statutes,
1957.
10.TIME AND SPECIFIC PERFORMANCE are each of the essence of this lease, and
all agreements and conditions herein contained shall extend to and be binding
alike upon the heirs, administrators, successors and assigns of the parties
hereto.
11.This lease shall be subject to all provisions of law and rules and
regulations governing the leasing of lands by the State.
12.The lessee having made certain representations to the lessor in written
application, in the nature of an offer to lease the premises herein described,
saidlessor by the execution and delivery of this lease to the lessee accepts
said offer to lease, expressly relying upon the representations made in said
written application which is made a part hereof.
13.This lease is granted and issued upon the express condition and
understanding that should the lessor hereafter find it to be the best interest
of the State to exchange the lands embraced in this lease for other lands, as
provided by the laws of the United States and the State of Wyoming, then, in
that event, this lease may be terminated upon giving the lessee one (1)
year's notice, unless by mutual consent of the lessor and the lessee, an
earlier date of termination may be fixed: and providing further, that the
lessee shall have the opportunity of presenting his objections to the Board
of Land Commissioners before the final action is taken.
14.If the land herein leased, or any part thereof is taken or condemned for
any use by the United States of America, this lease shall, as to the part so
taken, terminate as of the date title shall vest in the condemnor. Unused
rental paid in advance by the lessee shall be refunded by the lessor.
15.***
IN WITNESS WHEREOF, the State of Wyoming has caused these presents to be
signed by the Commissioner of Public Lands and his official seal to be
hereunto affixed, and the lessee has caused these presents to be signed and
sealed in this manner following:
DATE:Sept. 27, 1979 LESSOR:THE STATE OF WYOMING
(If incorporated, affix corporate seal) By____________________________
Commissioner of Public Lands
Board Approved September 6, 1979 LESSEE: BY: s/s JAMES G. RANDOLPH
KERR-MCGEE COAL CORP
15.*** This lease is granted with the understanding that once surface mining
commences the lessee is required to accept an increase in annual rental
from 2% to 5<<% of the appraised value of surface over coal. Also,
granted with a five year rental review, reserving to the State the
right to re-appraise the land and assess the rental accordingly.
ST. LAND OFFICE ID: 307-777-5400JUL 10 '969:09 No. 003 P.01
48-CNT-1623-69
LEASE NO. SU-431
STATE OF WYOMING
BOARD OF LAND COMMISSIONERS
SPECIAL USE LEASE
THIS LEASE, entered into by and between the State of Wyoming through its
Board of Land Commissioners, hereinafter designated as the LESSOR, and the
following LESSEE:
KERR-MCGEE COAL CORPORATION
In consideration of the first year's rental, receipt of which is hereby
acknowledged, and the covenants and agreements herein made, to be kept and
performed by the Lessee, the Lessor hereby leases to Lessee, for the purposes
specified below only, the following described lands, subject to all terms,
conditions, regulations contained in this lease, the Statutes of the State of
Wyoming, and the Rules and Regulations of the Board of Land Commissioners.
DESCRIPTION:
TOWNSHIP 50 NORTH, RANGE 71 WEST, 6TH P.M.
SECTION 16: W2NW4NW4SE4NE4:S2NE4NE4SW4NE4:N2SE4NE4SW4NE4
(1)TERM OF LEASE - The term of this lease shall begin at 5:00 P.M. on the
1ST day of OCTOBER, 1995 and terminate at 5:00 P.M. on the 1ST day of OCTOBER,
2005.
(2)USE - The leasehold right granted by this lease, is for LAND FARM
purposes only, and any other use by lessee of the promises shall be a
violation of the terms and conditions of this lease.
(3)RENTAL - The lessee shall pay to the Lessor at the State Land and Farm
Loan Office, Herschler Building, Cheyenne, Wyoming, a rental for the use of
the premises in the amount and manner as follows:
$103.13 PER YEAR
Annual rentals are due and payable 90 days before the anniversary date of
this lease. If the annual rental is not paid on or before the last day of the
current lease year, this lease shall terminate automatically by operation of
law.
(4)COVENANTS - The Lessee hereby promises:
(A)Not to take or disturb any fur bearing animals on the premises except
where a permit to do so has been secured from the Wyoming Game and Fish
Commission and consent thereto has also been obtained from the State Lane and
Farm Loan Office.
(B)To observe state and federal laws and regulations for the protection of
fish and wildlife.
(C)Not to cut, destroy or remove, or permit to be cut, destroyed or
removed, any timber that may be upon the premises. The Lessee shall promptly
report to the Lessor the cutting or removal of timber by other persons.
(D)To maintain all improvements located on the premises in a good state of
repair at the Lessee's expense.
(E)To control noxious weeds and pest at Lessee's expense, in cooperation
with Weed and pest Control District.
(5)RESERVATIONS - The Lessor reserves:
(A)The right to order the sale of all or any portion of the premises at any
time, subject to this lease.
(B)The right to lease and dispose of all coal, oil, gas, and other
minerals, and all deposits of clay, stone, gravel and sand valuable for
building, mining, or commercial purposes, and all timber, together with the
right to mine and remove such minerals and other deposits and timber with the
right of ingress and egress thereto, and to cancel this lease as to any
portion of the premises when required for these purposes.
(C)The right to hold, sell, appropriate or otherwise dispose of any fences
or other improvements of any character owned by the Lessee upon the premises,
to insure the payment of rentals, damages or other expenses accruing to the
Lessor by virtue of this lease.
(D)The right at any time to grant easements across the premises for
ditches, canals, tunnels, telephone and telegraph lines, pipelines, power
lines, or other lawful purposes, with right of ingress and egress thereto.
(F)The right to use or lease the premises or any part thereof at any time
for any purpose other than the rights and privileges granted by this lease.
(G)The privilege of any person to fish in any streams, lakes or ponds, and
to hunt, pursue and kill game animals, game birds and migratory birds on the
premises pursuant to the Rules and Regulations of the Board of Land
Commissioners.
(H)All rights not expressly granted to Lessee by this lease are reserved to
the Lessor.
(6)ASSIGNMENTS - This lease shall not be assigned without the prior
approval of the Lessor. Any assignment of this lease shall be recorded in the
State Land and Farm Office.
(7)SUBLEASES - The premises shall not be subleased or made subject to any
contract, or other agreement of any kind, without the approval of the Lessor.
Such approval may be conditioned upon payment of additional rental to the
Lessor.
(8)IMPROVEMENTS - The Lessee shall not construct or make improvements upon
the premises in excess of the value of $750.00 without first filing an
application for permission to construct or make such improvements with the
Lessor, which shall be subject to approval or rejection. In case the Lessee
fails to comply with the provisions of this paragraph, any and all
improvements erected on the premises shall forfeit to and become the property
of the Lessor, as provided by law.
(9)CANCELLATION - If it be determined by the lessor that this lease has
been procured by fraud, deceit, or misrepresentation, or if the premises or
any part thereof be used for unlawful, unauthorized, or illegal purposes, or
if the Lessee
fails to perform or violates any of the terms of this lease, the Lessor shall
have power and authority to cancel this lease.
(10)SURRENDER OF PREMISES UPON TERMINATION OF LEASE - The Lessee shall,
upon termination of this lease, surrender and deliver unto the Lessor the
peaceful and uninterrupted possession of the premises. The Lessee may
remove his improvements in accordance with W.S. 36-5-110.
(11)TIME AND SPECIFIC PERFORMANCE are each of the essence of this lease,
and all agreements and conditions herein contained shall extend to and be
binding alike upon the heirs, administrators, successors and assigns of the
parties hereto.
(12)RELIANCE - The Lessor has expressly relied on the representations made
by the Lessee in the written application to lease the premises.
(13)EXCHANGE - The lease is granted upon the express condition that should
the Lessor hereafter find it to be in the best interest of the Lessor to
exchange the lands embraced in this lease for other lands, as provided by law,
then this lease may be terminated upon giving the Lessee one (1) year's
notice, unless by mutual consent of the Lessor and the Lessee, an earlier
date of termination may be fixed.
(14)BUY-OUT BY LESSOR - The Lessor shall have the right to purchase back
from the Lessee all the rights and interests granted to the Lessee by this
lease for any portion of the premises at any time by paying to the Lessee the
fair market value of those rights and interests for the remaining term of the
lease.
(15)Lessee to restore the surface to as near its original condition as
possible upon termination of this lease or any renewal thereof.
IN WITNESS WHEREOF, the State of Wyoming, Board of Land Commissioners, has
caused these presents to be signed by the Director, State Land and Farm Loan
Office on this 31st day of October, 1995, and the Lessee has caused these
presents to be signed:
LESSOR:THE STATE OF WYOMING
BOARD OF LAND COMMISSIONERS
BY:s/s_______________________
Director
State Land and Farm Loan Office
LESSEE:
John W. Coleman
Kerr-McGee Coal Corporation
Book 347 of Photos, page 25
MUTUAL EASEMENT AGREEMENT
This Agreement ("Agreement") is made and entered into on this 13th
day of May, 1976, by and between Kerr-McGee Coal Corporation, a
Delaware corporation of Kerr-McGee Center, Oklahoma City, Oklahoma,
("Kerr-McGee") and Wyodak Resources Development Corp., a Delaware
corporation of P. O. Box 1400, Rapid City, South Dakota, ("Wyodak").
W I T N E S S E T H
Whereas, the Parties to this Agreement are owners of certain coal
properties and certain rights to use land as follows:
Kerr-McGee is the owner of certain land rights in the properties
described in Annex A,
Wyodak is the owner of certain land rights in the property
described in Annex B,
The Parties are owners as tenants in common of land described in
Annex C; and
Whereas, it is for the mutual benefit of both Parties to enter
into this Agreement so as to assist each Party in maximizing the mining
of coal and to assist each other in complying with all laws and
regulations relating to the mining of coal and reclaiming of land, now
therefore,
In consideration of the promises herein contained the Parties
agree as follows:
1.OVER-STRIPPING EASEMENTS: Each Party, to the extent said
Party now has and will in the future have the right to grant, grants
and agrees to grant to the other Party over-stripping easements in each
Party's respective lands as described in Annex A, B and C. The over-
stripping easements granted herein give to each Party the right to
enter upon the other Party's lands described in Annex A, B and C to
slope the ground and change the configuration of that Party's land for
the efficient mining and removal of coal by the open pit method,
(commonly referred to as strip mining) from the Parties' respective
coal lands described in Annex A and B. The rights granted herein shall
include the right to temporarily store over burden upon the land of the
other. The Party exercising the rights granted herein shall be
responsible for the reclaiming of the land disturbed by that Party in
compliance with the laws relating thereto. The Parties shall exercise
reasonable care to minimize burdens upon mining operations under this
Agreement. This Easement does not constitute an easement from Wyodak
to Kerr-McGee to mine Kerr-McGee coal under Wyodak surface described as
the West Half of the Southwest Quarter of Section 27, Township 50
North, Range 71 West. This Easement does grant over stripping
easements on Wyodak land adjacent thereto to be used at such time that
Kerr-McGee otherwise acquires the right to mine on the West Half of the
Southwest Quarter of Section 27.
2.RIGHTS-OF-WAY EASEMENTS: Either Party, to the extent said
Party now has and will in the future have the right to grant shall from
time to time grant to the other Party upon reasonable written notice
Easements for the use of that Party's lands described in Annex A and B
and C for rights-of-way for the purpose of moving machinery,
transporting coal and conveying coal and matters incidental to coal
mining, for the efficient operation of coal mining by each of the
Parties from their lands described in Annex A and B and C in which the
Parties possess a right to mine. Such Easements shall not unduly
interfere with the efficient operation of the coal mining operations of
the Party granting the Easement or any other use or planned use of such
land and such Easements shall provide for their being changed to a
different location as mining activities or other uses of the land
proceed. In those lands described in Annex A and B which belong to the
State of Wyoming, Easements which are granted therein shall be subject
to approval of the State of Wyoming and each party shall not
unreasonably withhold its consent to the State of Wyoming to grant such
similar Easement. However, any consideration which may be owing to the
State of Wyoming for the exercise of rights in Wyoming land shall be
paid by the Party entering upon State land for the purposes herein.
These rights and easements shall cease when the Parties' coal mining
operations proximate to said land cease.
3.NO WARRANTY OF TITLE. It is expressly understood that any
easements or licenses granted herein contain no warranty of title,
exclusive use or quiet enjoyment, expressed or implied by either Party.
4.WELL NO. 7: Black Hills Power and Light Company, Wyodak, and
their successors in interest own a water well known as Well No. 7
through which they obtain water through an adjudicated water right
evidenced by Permit No. UW 5543 issued by the State Engineer of
Wyoming. Well No. 7 is located on the Northeast Quarter of the
Southwest Quarter of Section 22, Township 50 North, Range 71 West in
Campbell County, Wyoming, close to the west boundary thereof. In
exercising the over-stripping easement granted herein to Kerr-McGee at
the location of Well No. 7, Kerr-McGee will interfere with the
operation of Well No. 7. When Wyodak mines its coal at that location,
Wyodak will interfere with the operation of Well No. 7. Both Parties
therefore agree that when mining by either Party interferes with the
operation of Well No. 7, both Parties shall be obligated to use
reasonable efforts in sealing the Well at a sufficient depth before
removing the over burden at the location of the Well and to thereafter
restore the Well after the land above the Well has been reclaimed. The
expense of preserving Well No. 7 shall be borne equally by both
Parties.
5.ASSIGNABILITY. All rights and obligations of the Parties
hereto shall inure to the benefit of and shall be binding upon their
respective assigns and successors in interest.
IN WITNESS WHEREOF the parties through their respective authorized
officers have executed this Contract on the day and year first above
written.
KERR-McGEE COAL CORPORATION
By /s/ F. A. McPherson
Its President
ATTEST:
/s/ Carter G. Dudley
Its Assistant Secretary
(CORPORATE SEAL)
WYODAK RESOURCES DEVELOPMENT CORP.
By /s/ Robert G. Asheim
Its President
ATTEST:
/s/ Louise S. Kelley
Its Assistant Secretary-Treasurer
STATE OF OKLAHOMA )
) SS
COUNTY OF OKLAHOMA)
On this 13th day of May, 1976, before me, a Notary Public, within
and for said County and State, personally appeared F. A. McPHERSON and
CARTER G. DUDLEY, who acknowledged themselves to be the President and
Assistant Secretary of Kerr-McGee Coal Corporation, a corporation, and
that they as such officers being authorized so to do, executed the
within and foregoing instrument for the purposes therein contained by
signing the name of the corporation by themselves as President and
Assistant Secretary, respectively.
/s/ M. Robinson
M. Robinson
Notary Public
(SEAL)
My commission expires:
November 9, 1979
STATE OF OKLAHOMA )
) SS
COUNTY OF OKLAHOMA)
On this 13th day of May, 1976, before me, a Notary Public, within
and for said County and State, personally appeared ROBERT G. ASHEIM and
LOUISE S. KELLEY, who acknowledged themselves to be the President and
Assistant Secretary-Treasurer of Wyodak Resources Development Corp., a
corporation, and that they as such officers being authorized so to do
executed the within and foregoing instrument for the purposes therein
contained by signing the name of the corporation by themselves as
President and Assistant Secretary-Treasurer, respectively.
/s/ M. Robinson
M. Robinson
Notary Public
My commission expires:
November 9, 1979
Book 347 of Photos, page 30
ANNEX A
(to Mutual Easement Agreement dated May 13, 1976)
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 16: East Half of the Eats Half and the South Half of
the South Half;
Section 20: Northeast Quarter and the North Half of the
Northwest Quarter;
Section 21: Northeast Quarter of the Southeast Quarter,
Southwest Quarter of the Southeast Quarter, and
the Southeast Quarter of the Southwest Quarter;
Section 22: Northwest Quarter of the Southwest Quarter'
Section 27: West Half of the Southwest Quarter;
Section 28: West Half of the Northeast Quarter, East Half of
the Northwest Quarter, and the Southwest Quarter
of the Northwest Quarter;
Section 29: East Half and the East Half of the Southwest
Quarter;
Section 33: Northwest Quarter of the Northwest Quarter;
Section 34: Northwest Quarter of the Northwest Quarter.
Book 347 of Photos, page 31
ANNEX B
(to Mutual Easement Agreement dated May 13, 1976)
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 10: South Half of the Southwest Quarter;
Section 15: West Half and the West Half of the East Half;
Section 21: North Half, North Half of the Southwest Quarter,
Southwest Quarter of the Southwest Quarter,
Northwest Quarter of the Southeast Quarter and the
Southeast Quarter of the Southeast Quarter;
Section 22: Northwest Quarter, West Half of the Northeast
Quarter, Southwest Quarter of the Southwest
Quarter, Northeast Quarter of the Southwest
Quarter, Northwest Quarter of the Southeast
Quarter, Southeast Quarter of the Southwest
Quarter (less parcels heretofore conveyed to Black
Hills), and the Southwest Quarter of the Southeast
Quarter (less parcels heretofore conveyed to Black
Hills);
Section 28: East Half of the Northeast Quarter, Northwest
Quarter of the Northwest Quarter and the South
Half;
Section 33: North Half of the Northeast Quarter and the
Northeast Quarter of the Northeast Quarter
ook 347 of Photos, page 32
ANNEX C
(to Mutual Easement Agreement dated May 13, 1976)
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 20: Southeast Quarter of the Northwest Quarter,
Northeast Quarter of the Southwest Quarter, and
the North Half of the Southeast Quarter;
Section 22: East Half of the Southeast Quarter;
Section 23: West Half of the West Half;
Section 26: Northwest Quarter of the Northwest Quarter;
Section 27: East Half of the Northeast Quarter and the East
Half of the West Half of the Northeast Quarter;
Section 29: East Half of the Northwest Quarter;
Section 32: Northeast Quarter and the East Half of the
Northwest Quarter;
Section 33: Southwest Quarter of the Northwest Quarter.
SUPPLEMENTAL AGREEMENT
THIS AGREEMENT is made and entered into on this 31st day of May, 1979, by
and between Kerr-McGee Coal Corporation, a Delaware corporation, whose post
office address is Kerr-McGee Center, Oklahoma City, Oklahoma 73125,
hereinafter cared "Kerr-McGee", and Wyodak Resources Development Corp., a
Delaware corporation, whose address is P. O. Box 1400, Rapid City, South
Dakota 57709, hereinafter called "Wyodak".
WHEREAS, the parties have entered into a "Mutual Easement Agreement" dated
May 13, 1976granting each other certain mutual benefits authorizing each party
to conduct mining operations on theirrespective coal interests in a mutually
economic and beneficial manner, and the parties along with BlackHills Power
and Light Company ("Black Hills") have entered into an Agreement pertaining to
Water and Mining Rights ("Water Agreement"), defining the respective rights
of the parties concerning mung and water rights on certain lands, and
WHEREAS, the parties desire to supplement that Mutual Easement Agreement so
as to provide for a more definitive scheduling and pattern of use by each of
the parties of the lands of the other, such lands described in Exhibit "A",
attached hereto, and to lessen the possibility of conflict in the conduct
of the operations of the parties, all as more specifically hereinafter
provided; and
WHEREAS, it is expressly understood and agreed that this Agreement
supplements and does not supersede that Mutual Easement Agreement or Water
Agreement, nor is it intended to grant to any party rights of use in addition
to those granted in said Mutual Easement Agreement and Water Agreement (except
the right to mine certain Non-Operator's coal under the provisions of Section
4), nor is this Agreement intended to grant any right to Kerr-McGee to use for
mining purposes the surface lands of Wyodak described as the West Half of
the Southwest Quarter of Section 27, Township 50 North, Range 71 West in
Campbell County, Wyoming, nor is this Agreement intended to constitute any
approval or consent by Wyodak of any mining plan or reclamation plan which
either has been or will be submitted by Kerr-McGee to state or federal
authorities,
NOW THEREFORE, in consideration of the premises, and the mutual agreement of
the parties hereto and the benefits to be derived therefrom, the parties agree
as follows:
SECTION 1.OPERATING PLAN. At least six (6) months prior to the date of
anticipated commencement of activities and operations by either party hereto,
the party intending to exercise its rights hereunder (referred to herein as
"Operator" ), shall give the other party (referred to herein as "Non--
Operator"), written notice thereof. Such notice shall have transmitted
therewith a copy of the proposed operating plan ("Operating Plan") setting
forth the duration of use and occupation of the Non-Operator's lands and
leases, and the description of the lands to be so used and occupied. The
Operating Plan shall not exceed a period of five years and any use and
occupation of the Non-Operator's lands and leases beyond said five years must
be covered by another Operating Plan to be submitted and approved as set forth
herein.
Said proposed Operating Plan shall further specify the configuration of the
pit and backslope, proposed water diversions, plans for rerouting or
relocation of utilities, roads, pipelines, railroads and any and all other
surface facilities. Said proposed Operating Plan shad have taken into account
and provided for the surface mining operation upon the lands and leases which
are the subject matter of this Agreementin such, manner as to provide for the
reclamation of the surface estate in accordance with the plans of the parties
as approved by the appropriate federal and state regulatory agencies exercising
jurisdiction over the parties and their respective operations.
Within thirty (30) days following the receipt of the proposed Operating
Plan, the Non-Operator shall notify Operator in writing of any changes Non-
Operator deems necessary in the proposed Operating Plan for the protection of
its mining rights and property and the rights and property of others and to
prevent unreasonable interference with any mining operations contemplated by
Non-Operator or any operations of other Parties. The proposed Operating Plan
submitted by Operator shall be deemed acceptable to Non-Operator if it does
not submit any changes within that thirty (30) day period. Following receipt
of all approvals of the Operating Plan, including any approvals required by the
appropriate federal and state regulatory agencies, Operator may exercise the
rights granted in said Mutual Easement Agreement to enter upon the lands of
Non-Operator to conduct such operations in accordance with the Operating Plan
as finally approved. Any subsequent amendment of the approved Operating Plan
or additional Operating Plan shall require an additional 30 days notice to
the Non-Operator and its approval as above provided and approval by the
appropriate federal and state regulatory agencies prior to the conduct of
any operations pursuant to said amended or new Operating Plan.
SECTION 2.COMPLIANCE WITH MINING AND RECLAMATION LAWS, RULES AND
REGULATIONS. It is agreed as between the parties hereto that the Operator
will perform all operations necessary and required to comply with all
applicable mining and reclamation laws, rules and regulations, in effect or as
hereafter may be enacted or promulgated, relative to the lands subject to this
Agreement which are disturbed or affected, whether directly or indirectly,
as a result of the operations and activities of said Operator. Such
obligation and responsibility shall continue in accordance with the
requirements of such laws, rules and regulations until such time as actual
mining operations, which shall be deemed to occur with the removal of topsoil
or overburden if topsoil has not been replaced in accordance with the
approved mining plan of Operator, are commenced by the other party on the
said disturbed or affected land, at which tone said other party shall assume
the responsibility and obligations of the "Operator" as provided herein. The
obligation and responsibility of the said other party shad continue until
the termination of this Agreement as hereinafter provided.
SECTION 3.COMPLETION OF OPERATIONS. Upon completion of operations upon the
lands and leases of the other party, the Operator having conducted such
operations and having completed the same shall give written notice of such
completion to the Non-Operator. The Non-Operator shall verify within sixty
(60) days after having received said notice that completion to the
satisfaction of Non-Operator has occurred or set forth specific written
objections thereto to Operator. The Operator agrees to use its best efforts
to satisfy all written objections or claims within a reasonable time.
Provided, however, any verification of completion of operations given by
Non-Operator shall not be construe as a waiver by Non-Operator of Operator's
contractual obligation as herein provided to perform the required reclamation
of the lands subject to this Agreement. Upon notice and verification of
completion without objection having been given and received, or satisfaction
by Operator of all written objections
tendered by Non-Operator and verification of completion having been given and
received, and upon satisfaction of all requirements of the applicable federal
and state mining and reclamation laws, rules and regulations, the party having
conducted operations shall have no responsibility hereunder to conduct further
operations upon the lands
of the other party. The conduct of operations upon the lands and leases of
the other party and the completion of same as provided in the proceeding
sentence may be accomplished in whole or In part on an area-by-area basis.
Upon both parties having exercised their rights hereunder as to an the lands
covered hereby, and notice and verification of completion having been given
and received, and upon satisfaction of all applicable mining and reclamation
laws, rules and regulations by each of the parties in its capacity as
Operator, and the settlement of any coal imbalance existing at the conclusion of
mining operations as hereinafter provided, this Supplemental Agreement
shall terminate.
SECTION 4.RIGHT TO MINE CERTAIN COAL OF NON-OPERATOR. Removal of
commercial coal from the property of Non-Operator hereunder shall only be
undertaken following receipt of all necessary approvals and consents from the
state or federal leasing authority as applicable and shall be limited to coal
lying above the backstops line, i.e., coal occurring within the volume of
material to be removed from the lands of Non-Operator pursuant to the approved
Operating Plan of Operator, as provided above, including the coal mined from
Non-Operator's lands due to the slope angle of the coalseam. Operator will
be responsible for the payment of all fees and for posting of any bonds
necessary to obtain any license or similar authorization which may be
required by the state or federal authorities. Non-Operator hereby agrees to
cooperate with Operator as necessary in obtaining such approvals and consents.
SECTION 5.DETERMINATION OF QUANTITIES OF NON-OPERATOR'S COAL. If at anytime
the Operator removes coal owned or leased by Non-Operator from the lands of
Non-Operator due to the backslope encroaching on the Non-Operator's lands
pursuant to an approved Operating Plan, the quantity of such coal shall be
determined at Operator's sole expense by a mutually acceptable independent
aerial photography and photogrammetry organization in conformance with sound
and accepted engineering practices. Said independent organization will be
required to deliver to each of the parties a complete monthly report showing
the total quantity of an such coal mined and removed from the property of
the other party, if any, during the preceding month together with copies of
all photographs, charts and other data used in arriving at such total.
SECTION 6.OBLIGATION OF OPERATOR TO PAY ROYALTIES AND TAXES ON NON-
OPERATOR'S MINED COAL. Operator agrees to pay promptly when due, and to the
individuals or agencies authorized to receive such payments, all royalty or
similar burdens in accordance with the provisions of any lease or other
agreement subject to which such coal is held and all severance, reclamation,
black lung and similar taxes that are now or may hereafter be levied and
computed on the amount or value of the coal owned or leased by Non-Operator
and mined and removed by Operator from the lands of Non-Operator.
SECTION 7.PAYMENT FOR IMBALANCE OF COAL MINED. It is the intent of the
parties that coal mining operations hereunder shall be planned and conducted
as practicable so as to equalize the amounts of coal owned or leased by the
parties that each party may ultimately mine and remove from the lands of the
other. At the end of every one year period, the total number of tons of coal
owned or leased by each of the parties and mined and removed by the other
party hereunder shad be determined and compared. If the quantities of such
coal are unequal, the party mung and removing the greater quantity of such
coal shall pay to the other party the sum of $1.00 per ton for each ton of
coal mined and removed from the lands of the other party in excess of that
mined and removed from its lands by said other party. The payment shall be
promptly made upon 30 days notice given by the party entitled to receive same
following each one year period of this Agreement and upon the completion of
all miring operations hereunder.
If at any time payment is to be made under thin Section 7 either party
believes the price of $1.00 per ton to be paid for such excess coal is
inequitable because of changed circumstances or otherwise, it may, not less
than 30 days from the date of the notice provided for in the preceding
paragraph, request a review of the price to be paid. The parties shall meet
within 15 days of receipt by the other party of such request and shall
endeavor to reach agreement on a fair and equitable price which is appropriate
having regard to the prevailing market level for coal of similar type and
quality under generally similar terms and conditions. If the parties are
unable to agree on such price at any time payment is made under this
provision, the price to be paid shad be determined by a committee of three
persons, one to be selected by each party and the two to select the third
member.
SECTION 8.SUSPENSION UNTIL RIGHTS AND PERMITS CAN BE OBTAINED. Loss of any
of the Uniting rights, leasehold interests, permits or licenses necessary for
the conduct of any of the mining operations hereunder will not automatically
terminate this Agreement, but all mining operations on the lands of Non-
Operator will be suspended until such necessary rights, interests, licenses or
permits are restored, the parties to exercise due diligence in the pursuit of
restoring same, or other mutually acceptable arrangements are made. In the
event such rights, interests, licenses or permits are not restored within a
reasonable time and other mutually acceptable arrangements cannot be agreed
upon, notwithstanding anything to the contrary contained herein, this
Agreement will terminate, except as to obligations for reclamation
theretofore accrued and the obligation to make payment in accordance with
the procedures hereinabove provided for any cow imbalance existing on the
date of such termination and not previously paid.
SECTION 9.RELEASE OR SURRENDER OF MINING RIGHTS AND
LEASEHOLD INTERESTS. The parties hereto are currently negotiating with the
Secretary of the Department of Interior for the exchange of certain of the
coal mining and leasehold rights and interests which are included in the lands
described in Exhibit "A" for coal mining and leasehold rights and interests
located elsewhere. It is understood and agreed that either party to this
Agreement may at any time and from time to time surrender or relinquish all or
any portion of its mining rights and leasehold interests in and to the lands
included in this Agreement without incurring liability or being in default
hereunder, including any liability pursuant to Section 14 below; provided,
however, if any Operator is actively engaged in the mining and removal of
coal from said lands, such Operator will be given 3 months advance written
notice of the surrender or relinquishment of the rights and interests
therein, and upon the effective date of the surrender and relinquishment of the
rights and interests, all mining of coal by Operator hereunder from the
lands of Non-Operator which have been surrendered and relinquished will
cease; however, Operator's obligations for reclamation of such lands shall
continue in accordance with this Agreement and the requirements of state and
federal laws, rules and regulations applicable thereto. This Agreement will
continue in all respects as to the lands, rights and interests which are not
surrendered and relinquished as otherwise provided herein.
SECTION 10.ACCESS AND INSPECTION. The parties agree that each shall have
the right, upon prior notice to the other, at its sole risk, cost and expense,
to full access to the lands subject to this agreement and the operations being
conducted thereon as herein provided with the right to observe and to be kept
fully informed by the other party with respect to all such operations and
activities.
SECTION 11.REMOVAL OF STRUCTURES. The party initiating the right to use
and occupy the lands and leases of the other party may, at its sole risk, cost
and expense, remove or relocate any structures located upon the lands and
leases to be used and occupied, provided that said removal or relocation is
approved in writing by the party whose structures are to be removed or
relocated; and further provided that, notwithstanding anything contained in
this Agreement to the contrary, such relocations shall be in accordance with
any agreements pertaining thereto between the parties hereto entered into
prior to this Agreement. Such approval shall not be unreasonably withheld.
SECTION 12.COMPLIANCE WITH LAWS AND REGULATIONS. The parties shall conduct
their respective operations and activities upon, within and under the lands
and leases of the other party as herein provided in accordance and in
compliance with all applicable laws, rules and regulations now existing or
hereinafter enacted, adopted or promulgated by any federal, state, county or
other governmental authority having jurisdiction over the subject matter of
this; Agreement and in conformance with the terms and conditions of any lease
under which title to the applicable lands may be held.
SECTION 13.NOTICE. Any notices or other communications to be given
pursuant to this Agreement shall be by first class certified mail, return
receipt requested, postage prepaid, to the parties at their respective office
addresses first above written.
SECTION 14.WARRANTIES. The parties make no warranty whatsoever with
respect to the lands or leases which are the subject of this Agreement, except
that Wyodak and Kerr-McGee each, for itself and its successors and assigns,
covenant to warrant to and forever defend the rights of the other party hereto
to the subject lands and leases which are the subject matter of this Agreement
against the claims of all persons claiming by, through or under such
warranting party, its successors or assigns, arising from or as
a result of any rights granted by the parties in any of the lands described in
Exhibit "A" subsequent to the date of this Agreement.
SECTION 15.SAVE HARMLESS. Any Operator operating upon the lands of the
other party pursuant to rights granted or referred to herein shall save Non-
Operator harmless from any obligations and costs, including, but not limited
to, personal injury or death, property damages, taxes and governmental
impositions, arising out of the use and possession of the Non-Operator's lands
except only for those obligations set forth herein.
SECTION 16.ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
WYODAK RESOURCES DEVELOPMENT CORP.
BY: s/ Robert G. Asheim
KERR-McGEE COAL CORPORATION
BY: s/ James G. Randolph
STATE OF SOUTH DAKOTA)
)SS.
COUNTY OF PENNINGTON )
The foregoing instrument was acknowledged before me this 31st day of May,
1979, by Robert G. Asheim of Wyodak Resources Development Corp., on behalf of
the corporation.
Witness my hand and official seal.
s/ Elinore Strelia
Notary Public
My commission expires: June 26, 1986
STATE OF SOUTH DAKOTA)
)SS.
COUNTY OF PENNINGTON )
The foregoing instrument was acknowledged before me this 31st day of May,
1979, by James G. Randolph of Kerr-McGee Coal Corporation, on behalf of the
corporation.
Witness my hand and official seal.
s/ Elinore Strelia
Notary Public
My commission expires: June 26, 1986
EXHIBIT A
(TO SUPPLEMENTAL AGREEMENT DATED ______________, 1979)
KERR-McGEE LANDS
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 16: East Half of the East Half and the South Half of the
South Half;
Section 20: Northeast Quarter and the North Half of the Northwest
Quarter;
Section 21: Northeast Quarter of the Southeast Quarter, Southwest
Quarter of the Southeast Quarter, and the
Southeast Quarter of the Southwest Quarter;
Section 22: Northwest Quarter of the Southwest Quarter;
Section 27: West Half of the Southwest Quarter;
Section 28: West Half of the Northeast Quarter, East Half of the
Northwest Quarter, and the Southwest Quarter of
the Northwest Quarter;
Section 29: East Half and the East Half of the Southwest Quarter;
Section 33: Northwest Quarter of the Northwest Quarter;
Section 34: Northwest Quarter of the Northwest Quarter.
WYODAK LANDS
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 10: South Half of the Southwest Quarter;
Section 15: West Half and the West Half of the East Half;
Section 21: North Half, North Half of the Southwest Quarter,
Southwest Quarter of the Southwest Quarter,
Northwest Quarter of the Southeast Quarter
and the Southeast Quarter of the Southeast
Quarter;
Section 22: Northwest Quarter, West Half of the Northeast Quarter,
Southwest Quarter of the Southwest Quarter,
Northeast Quarter of the Southwest Quarter,
Northwest Quarter of the Southeast Quarter,
Southeast Quarter of the Southwest Quarter
(less parcels heretofore conveyed to Black
Hills), and the Southwest Quarter of the
Southeast Quarter (less parcels
heretofore conveyed to Black Hills);
Section 28: East Half of the Northeast Quarter, Northwest Quarter
of the Northwest Quarter and the South Half;
Section 33: North Half of the Northeast Quarter and the Northeast
Quarter of the Northwest Quarter.
JOINTLY OWNED LANDS
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 20: Southeast Quarter of the Northwest Quarter, Northeast
Quarter of the Southwest Quarter, and the North
Half of the Southeast Quarter;
Section 22: East Half of the Southeast Quarter;
Section 23: West Half of the West Half;
Section 26: Northwest Quarter of the Northwest Quarter;
Section 27: East Half of the Northeast Quarter and the East Half of
the West Half of the Northeast Quarter;
Section 29: East Half of the Northwest Quarter;
Section 32: Northeast Quarter and the East Half of the Northwest
Quarter;
Section 33: Southwest Quarter of the Northwest Quarter.
Book 1431 of Photos, Page 281
Book 7 of Photos, page 4
AGREEMENT PERTAINING TO
WATER AND MINING RIGHTS
This agreement ("Agreement") is entered into on this 13th day of May,
1976, by and among Kerr-McGee Coal Corporation, a Delaware corporation, of
Kerr-McGee Center, Oklahoma City, Oklahoma, ("Kerr-McGee"), Wyodak Resources
Development Corp., a Delaware corporations of P. O. Box 1400, Rapid City,
South Dakota, ("Wyodak"), and Black Hills Power and Light Company, a South
Dakota corporation, of P. O. Box 1400, Rapid City, South Dakota, ("Black
Hills").
W I T N E S S E T H
Whereas, Kerr-McGee is the lessee of the federal coal situated in the
property described in Exhibit A attached to this Agreement and is the owner
of the fee title to the property described in Exhibit B attached to this
Agreement, and Kerr-McGee further has obtained a Right to Mine from Wyodak on
the property described in Exhibit C attached to this Agreement, and
Whereas, Wyodak (a wholly-owned subsidiary of Black Hills) is a lessee
of the federal coal, coal owned by others, and is the owner of fee coal
situated in the property described in Exhibit D attached to this Agreement and
Wyodak is further the owner of the fee title to the property described in
Exhibit E attached to this Agreement and Black Hills is the owner of the fee
title to the property described in Exhibit F attached to this Agreement, and
Whereas, Black Hills is an electric utility engaged in the generation,
transmission, distribution and sale of electric power and energy and operates
and maintains certain power plants situated upon its property described at
Exhibit F and is further (along with others) in the process of causing other
power plants to be constructed upon the lands of Black Hills described in
Exhibit F, and
Whereas, Black Hills is the grantee of rights granted by Wyodak Coal
Co., in an instrument (referred to herein as the "Wyodak Coal Co.--Black Hills
Easement") dated October 16, 1954, and filed of record with the County Clerk
of Campbell County, Wyoming, in Book 22 on Page 192 and 193, Black Hills
contends, Black Hills was granted certain rights to use certain lands,
including Kerr-McGee fee lands described in Exhibit B, and
Whereas, in order to establish sufficient water resources to supply the
necessary water for the operation and maintenance of Black Hills' presently
existing electric generating power plants and those electric power plants now
in construction (including a 330 mw electric generating station now being
constructed by Black Hills and Pacific Power & Light Company) and to be
constructed on Black Hills' and Wyodak's fee lands described in Exhibits E and
F, Black Hills has filed with the State of Wyoming applications for the
appropriation of water from the Ditto Lake Aquifer (as hereinafter defined)
Ditto Well No. 1 Permit No. UW 15582
Wyodak Well No. 13 Action Pending
Wyodak Well No. 14 Action Pending
Wyodak Well No. 15 Action Pending
and it has further made two surface water filings, Temporary Filing No. 21-
3/149, which asks for a diversion of an exposed sump east of the main surface
bed of water and Temporary Filing No. 21-3/171, which asks diversion from the
main surface body; and
("Ditto Lake Aquifer") for the purposes of this Agreement
shall mean both the underground water and surface water
which is contained within a large underground aquifer
composed of scoria (burned out coal cylinders). The
scoria bed with depth of up to 200 feet below the surface,
has an area estimated at some two square miles. The
surface manifestation of Ditto Lake is located
approximately at the center of Section 20, Township 50,
Range 71 in Campbell County, Wyoming, and the underground
portion of Ditto Lake is believed to be located in parts
of Sections 18, 19, 20, 21, 28 and 29 in Township 50,
Range 71, Campbell County, Wyoming, and possibly other
adjacent lands) and
Whereas, Kerr-McGee desires to be able to mine and remove its coal from
its coal properties described in Exhibit A and Black Hills and Wyodak desire
to preserve their water rights for the purpose of coal mining and electric
power generation, and
Whereas, the Parties enter into this Agreement in order to establish
certain rights and obligations, now therefore,
In consideration of the mutual covenants herein contained, and an
Agreement for the Sale of Property dated of even date to which this Agreement
is a part thereof, the parties agree as follows:
1.WYOMING WATER RIGHTS: The parties enter into this Agreement with
the understanding that the waters of the State of Wyoming are subject to the
appropriation of those waters for beneficial use under the laws and
regulations of the State of Wyoming.
2.BLACK HILLS' QUIT CLAIM OF EASEMENT RIGHTS: Black Hills does hereby
quit claim, release and relinquish unto Kerr-McGee any rights which Black
Hills may have received pursuant to the terms of the Wyodak Coal Co.-Black
Hills Easement and any other easement which may have heretofore been granted
to Black Hills in the fee lands of Kerr-McGee described in Exhibit B, except
for the following easements:
(a) Right-of-Way Easement granted by Homestake Mining Company
dated June 23, 1975, and recorded in Book 325, Page 332 of
the records of the County Clerk of Campbell County,
Wyoming, for a water pipeline as modified by Kerr-McGee on
May 13, 1976, and going across the Northeast Quarter and
the East Half of the Northwest Quarter of Section 32,
Township 50, Range 71 in Campbell County, Wyoming; and
(b) Black Hills reserves the right to continue to operate and
maintain any electric transmission and distribution lines
which are in existence on the date hereof on Kerr-McGee's
property described in Exhibit A pursuant to easements
found recorded in Book 41, page 251 and Book 179, Page 43
of the records of the County Clerk of Campbell County,
Wyoming, subject to the right of Kerr-McGee to cause said
facilities to be relocated at Black Hills' expense upon
reasonable notice in order to accommodate the mining of
coal by open pit methods or other Kerr-McGee uses of the
land.
This quit claim shall not operate to release any Wyoming water right.
3.DITTO LAKE AQUIFER. Kerr-McGee in the mining and removal of its
coal shall be obligated to use reasonable efforts to prevent substantial
drainage of the water from the Ditto Lake Aquifer and the loss of the Ditto
Lake Aquifer water resource. If Kerr-McGee should penetrate the scoria bed
so as to cause substantial drainage of the waters of Ditto Lake Aquifer in
mining of the coal around the edge of the scoria bed which holds the waters
of the Ditto Lake Aquifer, Kerr-McGee shall be obligated to use reasonable
efforts in damming or sealing the scoria bed in order to prevent the
substantial drainage of the water of the Ditto Lake Aquifer. If Kerr-McGee
by the mining of its coal should cause substantial drainage of the waters of
the Ditto Lake Aquifer, Kerr-McGee shall be obligated to pump that water
drainage back into the natural drainage of Ditto Lake Aquifer so as to
replenish that water source so as to minimize the loss of the waters of the
Ditto Lake Aquifer.
4.WATER FOR MINING: Nothing herein shall prevent Kerr-McGee and
Wyodak from using water which may seep into their mining pits for their own
purposes in the mining of coal provided that Kerr-McGee returns water as
provided in Section 3 above.
5.EASEMENTS OVER KERR-MCGEE'S LAND: Black Hills shall have an
easement over Kerr-McGee lands overlying the Ditto Lake Aquifer scoria bed.
This easement is for power generation and coal mining purposes and Black Hills
shall have the right to drill water wells (the total of water wells on said
easement not to exceed four at any one time), and appropriate surface water
(not to exceed one point of diversion at any one time). Further, Black Hills
and Wyodak shall have the right to construct, operate and maintain pumps,
water pipelines or other means of conveyance to convey said water, provided
that none of these easement rights shall interfere with Kerr-McGee, its
successors and assigns, in the mining of its coal and use of the surface of
said lands. Upon reasonable notice from Kerr-McGee, Black Hills shall at its
own expense relocate any wells and pipelines, other means of conveyance, and
any associated facilities on said lands.
6.EASEMENTS FOR WELLS 8 AND 12: Kerr-McGee does specifically grant
an easement to Black Hills to operate and maintain, repair and replace two
existing water wells Nos. 8 and 12 situated upon the East Half of the West
Half of the Northeast Quarter of Section 27, Township 50, Range 71 in Campbell
County, Wyoming, and to operate and maintain and replace water pipelines over
said property herein described in order to convey water from said wells to
facilities of Black Hills located on the property described in Exhibit F,
subject to Kerr-McGee's right to cause the pipelines to be relocated at Black
Hills' expense.
7.COVENANTS RUNNING WITH THE LAND: Easements and rights to use land
granted herein shall be considered running with the land.
8.ASSIGNABILITY. This Agreement and any and all rights and
obligations herein shall inure to and be binding upon the respective assignees
and successors in interest of the Parties hereto.
IN WITNESS WHEREOF the Parties through their respective authorized
officers have executed this Agreement on the day and year first above written.
KERR-MCGEE COAL CORPORATION
ATTEST: By: s/s F.A. McPherson
Its President
Carter G. Dudley
Its Asst-Secretary
(CORPORATE SEAL)
WYODAK RESOURCES DEVELOPMENT CORP.
ATTEST: By s/s Robert G. Asheim
Its President
s/s Louise S. Kelley
Its Assistant Secretary-Treasurer
BLACK HILLS POWER AND LIGHT COMPANY
ATTEST: By Robert G. Asheim
Its President
s/s Louise S. Kelley
Its Assistant Secretary-Treasurer
(CORPORATE SEAL)
STATE OF OKLAHOMA )
)ss
COUNTY OF OKLAHOMA)
On this 13th day of May, 1976, before me, a Notary Public within and for
said County and State, personally appeared F. A. McPHERSON and CARTER G.
DUDLEY, who acknowledged themselves to be the President and Assistant
Secretary of Kerr-McGee Coal Corporation, a corporation, and that they as such
officers being authorized so to do executed the within and foregoing
instrument for the purposes therein contained by signing the name of the
corporation by themselves as President and Assistance Secretary, respectively.
s/s M. R. Robinson
(SEAL) M. Robinson
Notary Public
My commission expires:
November 9, 1979
STATE OF OKLAHOMA )
)ss
COUNTY OF OKLAHOMA)
On this 13th day of May, 1976, before me, a Notary Public within and for
said County and State, personally appeared ROBERT G. ASHEIM and LOUISE S.
KELLEY, who acknowledged themselves to be the President and Assistant
Secretary-Treasurer of Wyodak Resources Development Corp., a corporation, and
that they as such officers being authorized so to do executed the within and
foregoing instrument for the purposes therein contained by signing the name
of the corporation by themselves as President and Assistant Secretary-
Treasurer, respectively.
s/s M. Robinson
M. Robinson
Notary Public
My commission expires:
November 9, 1979
STATE OF OKLAHOMA )
) ss
COUNTY OF OKLAHOMA)
On this 13th day of May, 1976, before me, a Notary Public within and for
said County and State, personally appeared ROBERT G. ASHEIM and LOUISE S.
KELLEY, who acknowledged themselves to be the President and Assistant
Secretary-Treasurer of Black Hills Power and Light Company, a corporation, and
that they as such officers being authorized so to do executed the within and
foregoing instrument for the purposes therein contained by signing the name
of the corporation by themselves as President and Assistant Secretary-
Treasurer, respectively.
(SEAL) s/s M. Robinson
Notary Public
My commission expires:
November 9, 1979
EXHIBIT A
(To be attached to Agreement Pertaining to Water and Mining Rights dated May
13, 1976)
Township 50 North, Range 71 West of the 6th Principal Meridian, Campbell
County, Wyoming:
Section 16:All;
Section 17:All;
Section 20: North Half of the Northwest Quarter, the Northeast
Quarter, the South Half of the South Half, the
Southwest Quarter of the Northwest Quarter, and the
Northwest Quarter of the Southwest Quarter;
Section 21: Southeast Quarter of the Southwest Quarter, the
Southwest Quarter of the Southeast Quarter, and the
Northeast Quarter of the Southeast Quarter;
Section 22: Northwest Quarter of the Southwest Quarter;
Section 28: West Half of the Northeast Quarter, East Half of the
Northwest Quarter and the Southwest Quarter of the
Northwest Quarter;
Section 29: East Half and the Southwest Quarter
Book 1431 of Photos, Page 291
EXHIBIT B
(To be attached to Agreement Pertaining to Water and Mining Rights dated May
13, 1976)
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 17: Southeast Quarter, East Half of the northeast Quarter,
Southwest Quarter of the Northeast Quarter, and the
Southeast Quarter of the Southwest Quarter;
Section 20: South Half of the Southeast Quarter and the Southeast
Quarter of the Southwest Quarter;
Section 21: Northeast Quarter of the Southeast Quarter, Southwest
Quarter of the Southeast Quarter and the Southeast
Quarter of the Southwest Quarter;
Section 22: Northwest Quarter of the Southwest Quarter;
Section 28: West Half of the Northeast Quarter, East Half of the
Northwest Quarter, and the Southwest Quarter of the
Northwest Quarter;
Section 29: East Half and the East Half of the Southwest Quarter.
Book 1431 of Photos, Page 292
EXHIBIT C
(To be attached to Agreement Pertaining to Water and Mining Rights dated May
13, 1976)
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 17: Southwest Quarter of the Southwest Quarter;
Section 18: Southeast Quarter of the Southeast Quarter;
Section 19: Northeast Quarter of the Northeast Quarter;
Section 20: North Half of the Northwest Quarter, the Northeast
Quarter.
Book 1431 of Photos, Page 293
EXHIBIT D
(To be attached to Agreement Pertaining to Water and Mining Rights dated May
13, 1976)
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 10: South Half of the Southwest Quarter;
Section 15: West Half and the West Half of the East Half;
Section 21: North Half, North Half of the Southwest Quarter,
Southwest Quarter of the Southwest Quarter, the
Northwest Quarter of the Southeast Quarter, and the
Southeast Quarter of the Southeast Quarter;
Section 22: Northwest Quarter, Southwest Quarter of the Southwest
Quarter, East Half of the Southwest Quarter and the
West Half of the East Half;
Section 28: Northwest Quarter of the Northwest Quarter, South Half
and East Half of the Northeast Quarter;
Section 33: North Half of the Northeast Quarter, and the Northeast
Quarter of the Northwest Quarter.
Book 1431 of Photos, Page 294
EXHIBIT E
(To be attached to Agreement Pertaining to Water and Mining Rights dated May
13, 1976)
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 21: North Half, North Half of the Southwest Quarter,
Southwest Quarter of the Southwest Quarter, Northwest
Quarter of the Southeast Quarter and the Southeast
Quarter of the Southeast Quarter;
Section 22: West Half of the Northeast Quarter, Southwest Quarter
of the Southwest Quarter, East Half of the Southwest
Quarter (except for Parcels heretofore conveyed to
Black Hills) and the West Half of the Southeast
Quarter;
Section 28: East Half of the Northeast Quarter, Northwest Quarter
of the Northwest Quarter, and the South Half;
Section 33: North Half of the Northeast Quarter.
Book 1431 of Photos, Page 295
Book 347 of Photos, page 18
EXHIBIT F
(To be attached to Agreement Pertaining to Water and Mining Rights dated May
13, 1976)
Township 50 North, Range 71 West of the 6th Principal Meridian,
Campbell County, Wyoming:
Section 27: Northwest Quarter and the West half of the West Half of
the Northeast Quarter.
United States Department of the Interior
Bureau of Land Management
Wyoming State Office
P. O. Box 1828
Cheyenne, Wyoming 82003-1828
In Reply Refer To:
3400
WYW073289
WYW0111833
WYW0313666
WYW0313668
WYW141918
3420
WYW78630
3435
WYW85379
3480
WYW133400
(CASPLMU3)
WYW133403
(CASPLMU6)
CERTIFIED-RETURN RECEIPT REQUESTED
D E C I S I O N
ASSIGNOR: :
:
Kerr-McGee Coal Corporation :
P. O. Box 25861 :
Oklahoma City, Oklahoma 73125 :
: Federal Coal
ASSIGNEE: :
:
WYODAK Resources Development Corp. :
P. O. Box 1400 :
Rapid City, South Dakota 57709 :
Assignment Approved and Lease Bond Accepted
Bond Period of Liability Terminated
Logical Mining Units Merged
Logical Mining Unit Terminated and Case Closed
Logical Mining Unit Modified
Lease Partially Segregated
Segregated Lease Terminated and Case Closed
Leases Segregated from Logical Mining Unit
Leases Terminated and Cases Closed
Individual Lease Bonds Terminated
Assignment Approved and Lease Bond Accepted
A 100 percent record title interest assignment in Federal coal lease
WYW0313668 from Kerr-McGee Coal Corporation (KM), Assignor, to WYODAK
Resources Development Corp. (WYODAK), Assignee, has been filed in
this office. The assignment has been examined, found acceptable, and
is attached for the Assignor and Assignee. PLEASE NOTE: This lease
is currently the subject of a pending appeal at the Interior Board of
Land Appeals (IBLA), IBLA 97-26. The appeal relates to issues
concerning the payment of advance royalty in lieu of continued
operations.
Federal coal lease WYW0313668, now held by WYODAK, affects the
following lands in Campbell County, Wyoming:
T. 50 N. R. 71 W., 6th P.M., Wyoming
Sec. 8: All;
Sec. 9: W2;
Sec. 17: All;
Sec. 20: NE, N2NW and SWNW
Containing 1,880.00 acres.
The bond identified below, with WYODAK as Principal, has been
examined, found satisfactory, and is accepted as of June 1, 1997.
Please Note: The following bond amount is based on an annual bond
review completed for the lease in February 1997.
Lease Bond
Serial Number Surety Number Amount
WYW0313668 St. Paul Fire and Marine 400JR4338 $6,000
Insurance Company
Bond Period of Liability Terminated
The period of liability under the bond identified below, with KM as
Principal, is terminated effective June 1, 1997, the effective date
of approval of WYODAK's bond for Federal coal lease WYW0313668.
There is a presumption that the lease account is in good standing,
subject to audit by the Minerals Management Service (MMS).
Lease Bond
Serial Number Surety Number Amount
WYW0313668 Safeco Insurance Company 2971100-2266 $7,000
of America
Logical Mining Units Merged
Logical Mining Unit Terminated and Case Closed
KM's East Gillette Federal Mine/Clovis Point Mine Logical Mining Unit
(LMU) WYW133400 (CASPLMU3) (KM's LMU), consists of Federal coal lease
WYW0313668, unleased Federal coal determined to contain no
recoverable reserves, and State of Wyoming coal lease O-26651. As a
result of the following, KM's LMU is merged into the Wyodak Mine LMU
WYW133403 (CASPLMU6) (WYODAK's LMU). WYODAK's LMU is the surviving
LMU and KM's LMU is terminated effective June 1, 1997. The case file
for KM's LMU is closed.
1.Approval of the assignment of Federal coal lease WYW0313668 from
KM to WYODAK; and
2.WYODAK is now the holder of State of Wyoming coal lease O-26651.
Logical Mining Unit Modified
Lease Partially Segregated
Segregated Lease Terminated and Case Closed
Based on an application to modify WYODAK's LMU, a part of Federal
coal lease WYW0313668 identified below is included in WYODAK's LMU.
The part of Federal coal lease WYW0313668 not included in WYODAK's
LMU also identified below is segregated into a separate lease
assigned serial number WYW141918. The diligence date for the
segregated lease was October 1, 1995, and production on the
segregated lease is not occurring. Also, the segregated lease is not
held by production within an LMU. Therefore the segregated lease
WYW141918 is terminated and the case is closed effective June 1,
1997.
The part of Federal coal lease WYW0313668, to be included in WYODAK's
LMU, as modified, is:
T. 50 N., R. 71 W., 6th P.M., Wyoming
Sec. 8: S2;
Sec. 9: W2;
Sec. 17: All;
Sec. 20: N2NE.
Containing 1,360.00 acres.
The part of Federal coal lease WYW0313668, to be excluded from
WYODAK's LMU now under serial number WYW141918 and terminated
effective June 1, 1997, is:
T. 50 N., R. 71 W., 6th P.M., Wyoming
Sec. 8: N2;
Sec. 20: S2NE, N2NW and SWNW.
Containing 520.00 acres.
Leases Segregated From Logical Mining Unit
Leases Terminated and Cases Closed
In addition to the above, a modification of WYODAK's LMU to exclude
Federal coal leases WYW78630 and WYW85379 was filed. Also filed was
a request for simultaneous approval of the LMU modification along
with approval of the assignment of WYW0313668 from KM to WYODAK.
Therefore, the following leases affecting the lands identified are
segregated from WYODAK's LMU. The diligence date for Federal coal
lease WYW78630 was March 1, 1992. The diligence date for Federal
coal lease WYW85379 was June 1, 1992. The lease diligence production
requirements have not been met and the leases are not being held by
LMU production. Therefore, the leases are terminated and the cases
are closed effective June 1, 1997.
WYW78630:
T. 50 N., R. 71 W., 6th P.M., Wyoming
Sec. 34: S2N2 and SW.
Containing 320.00 acres.
WYW85379:
T. 50 N., R. 71 W., 6th P.M., Wyoming
Sec. 27: E2SW and SWSE;
Sec. 34: N2NE and NENW.
Containing 240.00 acres.
Individual Lease Bonds Terminated
The periods of liability for the individual lease bonds set out below
are terminated effective June 1, 1997, the effective date of
termination of Federal coal leases WYW78630 and WYW85379.
Lease Bond
Serial Number Surety Number Amount
WYW78630 The Travelers Indemnity 464F383-0 $5,000
Company
WYW85379 The Travelers Indemnity 464F076-9 $5,000
The following fee coal lands are also excluded from WYODAK's LMU by
the modification:
T. 50 N., R. 71 W., 6th P.M., Wyoming
Sec. 27: SWNW;
Containing 40.00 acres.
Effective June 1, 1997, WYODAK's LMU, as modified, now consists of
the following lands included in Federal coal leases WYW073289,
WYW0111833, WYW0313666, WYW0313668, a part of State of Wyoming coal
lease O-26651, fee coal and unleased Federal coal:
T. 50 N., R. 71 W., 6th P.M., Wyoming
Sec. 8: S2;
Sec. 9: All; **
Sec. 10: S2SW;
Sec. 15: W2E2 and W2;
Sec. 16: N2 and SE;
Sec. 17: All;
Sec. 20: N2NE;
Sec. 21: N2, N2N2N2SW, SESW, NESE, SWSE, and S2SESE;
Sec. 22: W2NE, NW, N2NESW, NWSW, S2S2SW, E2SE, N2NWSE,
N2S2NWSE, S2S2SWSE;
Sec. 28: NE, E2NW, SWNW, SW, N2SE and SWSE.
Containing 4,220.00 acres.
**Please Note: The E2 of Section 9, T. 50 N., R. 71 W., contains
unleased Federal coal. The Casper District
Office, Bureau of Land Management, determined
there were no recoverable coal reserves in the E2
of Section 9, T. 50 N., R. 71 W. A copy of the
approved modified LMU document is attached for
WYODAK. Attached to the modified LMU document is
a sealed envelope containing
"privileged/confidential" information to be
opened only by authorized personnel of WYODAK.
/s/
2 Attachments:
1 - Approved Assignment Document
2 - WYODAK Mine LMU, As Modified, Document
w/"Privileged/Confidential" Information in a Sealed
Envelope
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.
Enserco Energy, Inc.
a South Dakota corporation
(50 percent owned by Wyodak Resources)
Black Hills Capital Group, Inc.
a South Dakota corporation
Black Hills Energy Resources, Inc.
a South Dakota corporation
VariFuel, Inc.
a South Dakota corporation
Exhibit 23a
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included or incorporated by reference in this Form 10-K, into the
Company's previously filed Registration Statements, File Numbers 33-71130,
33-15868, 33-63059, and 33-17451.
/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
March 5, 1998
Exhibit 23b
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent pubic accountants, we hereby consent to the incorporation
of our report included in this Form 11-K, into the Company's previously
filed Registration Statement (Form S-8 No. 33-63059).
/s/ Arthur Andersen LLP
Minneapolis, Minnesota,
March 5, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 334,859,000
<OTHER-PROPERTY-AND-INVEST> 66,268,000
<TOTAL-CURRENT-ASSETS> 84,009,000
<TOTAL-DEFERRED-CHARGES> 23,605,000
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 508,741,000
<COMMON> 21,705,000
<CAPITAL-SURPLUS-PAID-IN> 39,995,000
<RETAINED-EARNINGS> 143,703,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 205,403,000
0
0
<LONG-TERM-DEBT-NET> 163,360,000
<SHORT-TERM-NOTES> 23,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,331,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 138,624,000
<TOT-CAPITALIZATION-AND-LIAB> 508,741,000
<GROSS-OPERATING-REVENUE> 313,662,000
<INCOME-TAX-EXPENSE> 14,326,000
<OTHER-OPERATING-EXPENSES> 254,752,000
<TOTAL-OPERATING-EXPENSES> 269,078,000
<OPERATING-INCOME-LOSS> 44,584,000
<OTHER-INCOME-NET> 1,898,000
<INCOME-BEFORE-INTEREST-EXPEN> 42,686,000
<TOTAL-INTEREST-EXPENSE> 14,123,000
<NET-INCOME> 32,359,000
0
<EARNINGS-AVAILABLE-FOR-COMM> 32,359,000
<COMMON-STOCK-DIVIDENDS> 20,540,000
<TOTAL-INTEREST-ON-BONDS> 13,450,000
<CASH-FLOW-OPERATIONS> 56,049,000
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.49
</TABLE>
_____________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
_________________________________________________
For the fiscal year ended December 31, 1997
Commission File Number 1-7978
BLACK HILLS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
BLACK HILLS CORPORATION
625 NINTH STREET
PO BOX 1400
RAPID CITY, SOUTH DAKOTA 57709
______________________________________________________________________
<PAGE>
BLACK HILLS CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Employee Stock Purchase Plan
Committee of the Black Hills Corporation
Employee Stock Purchase Plan:
We have audited the accompanying statements of financial position of the
Black Hills Corporation Employee Stock Purchase Plan (the Plan) as of
December 31, 1997 and 1996, and the related statements of income and
changes in participants' equity for each of the three years in the period
ended December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of the Employee Stock Purchase Plan Committee and 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 the Plan as
of December 31, 1997 and 1996, and the income and changes in
participants' equity for each of the three years in the period ended
December 31, 1997, 1996 and 1995, in conformity with generally accepted
accounting principles.
Minneapolis, Minnesota Arthur Andersen LLP
January 28, 1998
<PAGE>
Black Hills Corporation
Employee Stock Purchase Plan
Statements of Financial Position
December 31
<TABLE>
<CAPTION>
1997 1996
<C> <C>
ASSETS
$43,582 $81,332
LIABILITIES AND PARTICIPANTS EQUITY
Participants' Equity $43,582 $81,332
</TABLE>
The accompanying note is an integral part of these statements.
<PAGE>
Black Hills Corporation
Employee Stock Purchase Plan
Statements of Income and Changes in Participants' Equity
For the years December 31
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Participants' Equity, Beginning of Year $ 81,332 $115,820 $148,339
Increases (Decreases) During the Year:
Employee Contributions Received 359,188 462,870 593,879
Dividend Income 11,804 14,094 33,841
Distributions to Participants (408,742) (511,452) (660,239)
Participants' Equity, End of Year $ 43,582 $ 81,332 $115,820
</TABLE>
The accompanying note is an integral part of these statements.
<PAGE>
Note to Financial Statements
(1) Plan Description
GENERAL - The Black Hills Corporation Employee Stock Purchase Plan was
adopted by the Company's Board of Directors on January 29, 1987, and
approved by the Company's stockholders on May 20, 1987, at which time
100,000 shares of the Company's Common Stock were reserved for offering
under this Plan. At the May 23, 1995 Annual Meeting of Shareholders, the
Company's stockholders approved an additional 200,000 shares of the
Company's Common Stock, for issuance under this Plan. As of December 31,
1997, 186,639 shares were available for issuance under the Plan.
The Board of Directors of the Company determine the "Offering Date" on
which shares of stock may be offered. Offerings under the Plan may be
made at such times, for such number of shares and remain open for such
periods (up to 90 days) as the Company's Board of Directors may prescribe.
Subscriptions can only be accepted during the prescribed period. The
subscription price per share is equal to 90 percent of the fair market
value of the Common Stock on the offering date and is set forth in the
Subscription Agreement.
ADMINISTRATION - The Plan is administered by the Board of Directors of the
Company who have the power and authority to promulgate such rules and
regulations as they deem appropriate for the administration of the Plan,
to interpret its provisions and to take all actions in connection
therewith as they deem necessary or advisable. Other aspects of
administration are handled by the Employee Stock Purchase Plan Committee,
the members of which shall be designated from time to time by the Chief
Executive Officer of the Company. The Company pays all administrative
costs of the Plan.
ELIGIBILITY - Each full-time employee of the Company or its subsidiaries,
including officers, but excluding directors who are not employees of the
Company or subsidiaries, is eligible to participate in the Plan. A full-
time employee is one who has been employed by the Company or a subsidiary
for at least six months prior to the Offering Date and who is in active
service on the date an offering is made. Any employee whose customary
employment is twenty hours or less per week or whose customary employment
is for not more than five months per calendar year is not eligible to
participate.
No employee is allowed to participate in the Plan if such employee,
immediately after the offering is granted, owns stock possessing 5 percent
or more of the total combined voting power or value of all classes of
stock of the Company.
CONTRIBUTIONS - The plan is solely funded by employee contributions. An
eligible employee may subscribe for not less than 20 nor more than 400
shares of Common Stock in connection with each offering. A subscription
must be accompanied by an initial payment of $1.00 for each share of stock
for which a subscription is made. The remaining balance will be paid
through equal payroll deductions during the 12 month period following the
Subscription Date.
INVESTMENT OF FUNDS; ISSUANCE OF SHARES - Amounts paid by employees on
Employee Stock Purchase Plan subscriptions through payroll deductions are
applied solely to purchase shares of Common Stock allotted to them,
pursuant to the Plan.
Except in the event of withdrawal or cancellation, certificates for shares
subscribed to pursuant to an offering are not issued to an employee until
all shares have been paid for in full.
DIVIDENDS - Dividends are applied toward the purchase of additional shares
of common stock of the Company through the Dividend Reinvestment and Stock
Purchase Plan at the offering price.
WITHDRAWAL FROM THE PLAN OR CANCELLATION OF SUBSCRIPTION -
Shares are distributed to employees after the subscription is paid for in
full.
An employee participating in the Plan has the right, any time prior to
payment in full, to cancel a subscription for unpaid shares by giving the
committee written notice to that effect. Upon payment in full of the
subscription or upon withdrawal from the Plan or termination of
employment, the participant's account will be cleared by one of the
following methods pursuant to the participants request; (a) Shares
transferred to employee's "of record" account; (b) Certificate issued for
whole shares and a check for fractional shares; or (c) Shares sold on the
open market.
Termination of employment for any reason including retirement or death,
accompanied by failure of the terminated employee or the legal
representative of the descendent to pay the entire balance due for the
purchase of the shares for which a subscription has been accepted will
result in cancellation. Such election shall be made within ten days of
the time of termination of employment, except for death which shall be
within two months following death.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Employee Stock Purchase Plan Committee has duly caused this Annual Report to be
signed on its behalf by the undersigned hereunto duly authorized.
Black Hills Corporation
Employee Stock Purchase Plan
Date: March 9, 1998 By /s/Roxann R. Basham
Roxann R. Basham
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 11-K, into the Company's previously filed
Registration Statement (Form S-8 No. 33-63059).
/s/ ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
March 9, 1998
