Black Hills Corp (BKH) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the quarterly earnings conference call.

[OPERATOR INSTRUCTIONS].

I would now like to turn the conference over to our host, Director of Investor Relations, Mr. Dale Jahr. Please go ahead.

Thank you and welcome to our conference call held in conjunction with the release of fourth quarter and year-end 2003 results.

I remind the audience that this conference call may include forward-looking statements as defined by the SEC. These statements concern our plans, expectations and objectives for future operations. Such statements are based on what we believe are reasonable assumptions and based on current expectations of industry and economic conditions and other factors.

However, risks and uncertainties could cause results to differ materially from those in forward-looking statements. I refer you to cautionary language that is published in our press release and other public disclosures.

Our discussion of recent results will be led by Mr. Mark Thies, our Executive Vice President and CFO. Mark would like to review the press release before we open this call to your questions. Mark?

Thank you, Dale. Good morning, everyone. We did release our quarterly and year-end 2003 earnings late yesterday. We'd like to give a little summary of the results there and then open up to questions as Dale mentioned.

For the third quarter, we did have 7.9 million or 24 cents a share in earnings, and then from continuing operations, which is where we have issued in mid December our guidance, we had 9.7 million or 30 cents a share, which is consistent with what we had said in mid December.

For the full year, we made $61 million or $1.97 a share compared to $61 million or 2.26 a share, that's primarily due to the equity offering that we had in April of this year for 4.6 million shares. From continuing operations, we were $57 million or $1.84 a share compared to 58.6 or 2.16 a share. It was an incredible year with a lot of different things going on.

One, the primary factor early on was the capital structure and liquidity, and we had transactions during the year to that affected that.

One, I mentioned earlier, the equity offering in April. We also had our inaugural corporate debt offering of $250 million 10 year unsecured bond that we issued in May.

Then in the late third quarter, we had a couple of transactions that occurred, which we've released, the hydro sale for $186 million, selling the hydro assets, which is down in the discontinued operations, you'll notice that on the face of our financials, as well as the contract termination related to the Allegheny contract for $114 million. Those transactions really position us for our strength in future.

In addition, we had a number of operational records and increases most notably in oil and gas. The other transaction we did was the Mallon acquisition in March, and our production for the year increased 42% to a record 10.5 BCF.

Our total reserves nearly tripled to 156 BCF and we expect that unit to be strong for us going forward as we continue to drill up those properties. Our co-production increased 19% to 4.8 million tons, and that's primarily due to the addition of the Wygen plant in February of 2003, and that's a 90-megawatt non-regulated plant that is contracted for 10 years, and that added to our production.

Our marketing business on the gas marketing side, we continued to deliver gas to end users and aggregate gas from producers, and incrementally increased our production for the year 14% to 1.2 million MMBTU's a day, and that albeit the financial results, margins reduced in the year and in the quarter, but again, we still have, that's a good core business for us, delivering gas.

On our retail businesses, again, very consistent with what we've said, a 2% increase on our customer base at the utility and 9% increase in customers at our communications businesses. As we've completed that build out in communications, we expect to continue to add customers, albeit at a slower rate.

The communications business was also affected by, you know, competitive pressures in our marketplace from one of our competitors, and that did affect performance this year and also we expect it to affect, negatively affect performance in 2004, albeit we do expect the performance to improve, and we've said that in our December release.

From the business, on a business segment basis, our results for the year, and I'll go over the year primarily. Our power generation business increased 22 million from 222 million, from 12.5 million. That's primarily, again, the result of bringing on two big power plants and contracting one of our previously un-contracted plants, the Harbor facility.

We did bring on the Las Vegas II facility in January, and we brought on the Wygen plant in February, so those results on a year-to-year basis were very strong. Our marketing business was positive at $6.7 million in income, but down nearly $6 million from the prior year, primarily due to a couple of things.

One, the CFTC settlement, which we have previously disclosed, which was a $3 million charge late in the second quarter, and then also a slight decrease in overall margins received. We are receiving normal margins, and we do deliver gas, which we had the 14% increase in volumes, but the margins have come down to more historic levels.

Our coal mining operations were relatively flat. You know, due to a couple of things. One, we had much stronger production in the year due to the increase related to the Wygen plant primarily, but we did have some additional costs.

One of the things that occurred between the corporation, the corporate results and the wide at the coal mining results was a tax amount that got transferred from the coal subsidiary to the corporate subsidiary. No net effect on earnings for the company, but between the segments, the coal business received $800,000 of a benefit, and we had $800,000 approximately of additional expense in the corporate results.

Our oil and gas results, you know, went from 4.8 million to 8.4 million, primarily related to, again, the Mallon acquisition. We increased our production in oil and gas by 42%.

We did have higher prices during the year, and that is partially offset by higher depletion in operating costs, and in the quarter, we did have a $800,000 addition to depletion, really based on our year-end reserve study and the higher cost reserves available because of the high price environment we did increase our depletion after tax $800,000.

With respect to our utility, this is very consistent with what we've had in the past and what we've reported over the past several quarters. We do have, we did have a reduction year-over-year, very consistent with past quarters.

Our utility had a strong net income of 24 million down from the 30 million. The higher fuel cost and purchase power cost, primarily related to the higher gas cost has impacted the utility. We do have somewhat of a natural hedge with our oil and gas company, but there were higher costs in the utility. In addition, we've had some higher costs related to operations to maintenance, primarily the pension. The additional costs are laid out in the release.

In communications, again, we continue to have the competition and the pressures from that competition. We expect that to be, you know, over in 2004 unless something different occurs, but that has caused us to have a loss of $2.6 million relative to $1.5 million.

Overall for the year, we did improve our loss from 7.3 million in 2002 to 5.9 million. Revenue increases were offset by certain cost increases that we have identified, but our customer growth as you see in the release, we did have a slight decline in the fourth quarter over the quarter ended September 30th. Again, primarily due to competitive pressures, but that decline was not significant, and we expect to continue to grow customers as we move forward. I would now like to direct Rachel to open it up for questions.

Thank you.

[OPERATOR INSTRUCTIONS].

Our first question comes from the line of Michael Worms of Harris Nesbitt. Please go ahead.

Good morning, guys. How are you?

Good morning, Mike.

Just a quick question for you. Can you kind of give us a little flavor for Las Vegas in terms of what the capacity factor was in the fourth quarter, and what the operating outlook is for 2004, kind of like timing in terms of when the Nevada commission will, you know, take up the contract?

Well, we expect, with respect to the operating outlook, I think we identified in our December release that that plant, due to certain market factors was not running significantly at all, which is why there was some reduction in the quarterly results, you know, inline with our expectations.

We do have, you know, and we would expect that to continue until a contract is in place. We have run some in the first quarter but you know, not a significant amount, so I wouldn't say that we would expect significant improvement. That plant is very efficient and is in a great location, so when the market is there we are able to dispatch that plant, but it's not significant.

The contract we have filed with the Nevada commission for approval on that, we would expect that approval you know late first quarter, early second quarter is when we'd expect that. I can't really comment on the timing of you know how quick that gets through the commission. That's really up to how the Nevada commission moves forward on that contract. But that's what our expectations are.

OK. Second question would be on what's the near-term plans for the cash you have gotten from the Allegheny settlement and the hydro facilities? How are you going to redeploy that?

Well, we looked at some extent to our alternatives, whether that's in capital investments or in debt reduction, and we have monitored that as we've said, we are having some negative carry that we have identified in our results, the higher interest expense relative to the investment income on short-term investments.

We would expect that to the extent we aren't able to identify opportunities to deploy that capital in earning businesses that we would reduce our debt, and we would expect some of that to occur in the first quarter of this year if we're unable to identify opportunities to deploy that capital.

We have that you know the one opportunity, the albeit, will be probably late second quarter or third quarter, depending again on regulatory approvals, as we continue to work on the acquisition of Cheyenne Light, Fuel and Power, and you know that will be an opportunity to deploy some capital as well.

Great. And then lastly, any comments on the outlook for 2004?

Well, you know we didn't reiterate our guidance. I guess I looked at it from a perspective of we had just put that out in December, do we need to reiterate that, but, you know, it's not changed from where we were.

We expect $2 to $2.35 in 2004, and that's very consistent with our mid-December release, and there's no change from that, so we didn't update, but we have not changed our expectations. We still expect to be in that range.

Thank you very much. Appreciate it.

Thank you, Mike.

We have a question from the line of Mike Weinstein with Zimmer Lucas Partners. Please go ahead.

Hi, guys. That was my main question was, what are you going to do with the cash that's on the balance sheet. How much is actually on the balance sheet as at the end of the year at this point?

We haven't disclosed that in our release. We historically don't disclose balance sheet items until we do our K. You know, the expectations were we had approximately 270 million at the end of the year.

We did have some tax amounts and some capital deployed, but, you know, our expectations, we don't disclose what those cash balances are until we put our balance sheet out. Not a very good answer, but that you know until that's disclosed, I can't speak to it.

My second question had to do with the utility. Noticing that you had higher O and M expense, higher depreciation. What's the plan for offsetting that or for mitigating that going forward?

Well we, you know, we have to look at and evaluate our rate freeze expires at the end of this - at the end of 2004, and, you know, we expect you know in the late first quarter or second quarter to evaluate how we're doing at our utility relative to our cost and our rates.

The additional depreciation, a portion of that is related to the additional capital because we did add the AC-DC tie in early fourth quarter, late third quarter. I think it was October when we added the tie so we have additional capital, but we will evaluate that overall structure, you know, this year before you know in advance of our rate freeze expiring at the end of this year.

Now, recognize that just because that rate freeze expires doesn't mean that anything has to occur. We're under the same rate structure that we always have been, and we would expect to continue to operate under that unless a change were to occur.

OK. Thank you very much.

Our next question comes from the line of Jeff Gildersleeve with Millennium Partners. Please go ahead.

Thank you.

Good morning.

Good morning. Just wanted to touch on the higher depletion and operating costs at the oil and gas unit and the year-end reserve study. Can you just sort of back up and provide some details and where you see those costs in 2004?

We go through, you know, on a quarterly basis and look at our reserves, but at the end of every year, we have an outside independent engineer evaluate the reserves.

Our reserves did increase, you know, even above the amounts that we identified earlier in the year. I believe it was 142 BCF and we ended the year at 156 BCF, again, net of 10.5 BCF of production and we still ended the year at 156 BCF.

Some of that is not to go into all the details of that calculation, but with a stronger price environment, natural gas prices end ended the year at $6.15. That makes certain reserves that may have previously been less economic or uneconomic to be included in the reserve study included in that study, and those are higher cost reserves, so when you calculate your overall depletion, you look at your total expected costs, and that gets included and you deplete that reserve base.

That's a static test and not to, again, you know, go through the details with all the callers, but it's defined by the SEC what we have to use for a price and that price is assumed going forward, for average the flat price is $6.15. So certain of those reserves to the extent prices change, but those are higher cost reserves we've added so we've had some additional depletion.

But, you know, we expect to continue to grow that business, we expect to deploy our capital, and we've been very consistent with that, acquiring Mallon was very good for us in March. We did show good strong production increases and we expect that to continue with a strong drilling budget going forward.

Thank you. And secondly, you mentioned the rate freeze expires at the end of the year. With little expectation for a change. Is there any sort of compliance filing you have to submit, and what would be the timing of that?

Well, I don't know that I don't know I have wanted to say specifically little expectation for change. What we have to do is we have to go through and evaluate what our costs are, costs of service are, relative to our rates and evaluate because of the capital costs that we've had and, you know, with a couple of plants. We've had this rate freeze for nearly 10 years.

At the end of this year, it will be 10 years. And we've added a couple of plants and a tie, the AC-DC tie that I mentioned for reliability and service of our utility as well as an ancillary benefit of access to wholesale markets, but that provides a good reliability for our local utility.

You know, we'll have to evaluate those costs and we'll do that this year, and then upon that, you know, there's no filing that has to be made at the end of the year unless we determine that we would seek a change in our rates or the commission determined that they would request a review. But there's not a required filing at the end of the year.

OK. So there's no specific timing on that. OK. Very good. One other question, sorry if I missed it, but have you, you've made some positive progress in the balance sheet you alluded to. Have you been in discussions recently with the rating agencies, and how do you see, you know, what criteria do you feel you have to meet in order to get to a stable outlook or, you know, stable investment grade rating?

Well, we are an investment grade company. The outlook is negative, but we are investment graded at both Moody's and Standard & Poor. We are always in discussion on a quarterly basis with the rating agencies just to go over our businesses and to discuss our activities.

What we need to, you know, part of the thing, we've had a number of activities that have occurred as you mentioned and as we've mentioned with respect to the balance sheet and, you know, strengthening our position and our liquidity and our capital structure.

The sensitivity going forward is, you know, part industry sensitivity from the rating agencies' perspective in that the businesses we are in, you know, in their estimation, higher risk profile, we continue to indicate that we have our capacity contracted on our generation, our marketing business is really largely back to back transactions delivering gas to customers that need it, and our oil and gas business has you know 25% to 50% hedge on the revenue stream as well as historically as well as, you know, offsetting some of the fuel risk that we have at our electric utility because we do use gas in our utility.

So I think the point that they, you know, the rating agencies, and I can't necessarily speak for them directly, but I think what will help them is execution as we expect to deploy capital in additional businesses to grow our businesses, you know, they want to see what we're going to spend that money on and that type of business.

And you know we've announced one already that is you know pending regulatory approval, the Cheyenne Light, Fuel and Power acquisition that we think is a great addition to our company, and makes a lot of sense for us and is that you know, very consistent with, you know, our risk profile that's serving Cheyenne retail customers, and it's a great expansion. It's also, you know, right in our area of location in Wyoming.

You know, we have a lot of generation in Wyoming, and we have a big office in Golden that can supply you know gas and you know managers some of our generation with our utility so we think that's a good acquisition. I think the rating agencies want to see the execution of that, and then they will weigh in.

Plus just, you know, again continue to execute we've had a huge growth over the last three years, and they want to see that, you know come through into what's our cash flow and what's our ongoing earnings.

I agree. Thank you, Mark.

Thank you.

We have a question from the line of Paul Debbas with Value Line. Please go ahead.

Hi.

Good morning, Paul.

Good morning. If you decide that you do need a rate increase, how soon would you have to file in order to get an order in time for the start of next year?

You know, again, we're going to look at that, you know, late first quarter, early second quarter, and we believe, you know, if that were the case, we'd have to you know file and go through the normal regulatory process, you know, by looking at the time frame that we expect, we think that would be soon enough. You know it can be - you know it can be up to six months in that process if we were to determine that, you know, we needed to file.

Is there a statutory turnaround time in South Dakota?

Six months.

OK. And what ROE did the utility earn last year?

We don't -- under the rate freeze, it's not based on an ROE, and in fact, it's been nearly -- you know, it's been over nine years since we've had that. The utility -- so that we don't calculate that based on our earnings we would expect a normal you know 10% to 12% or 11% to 12% ROE is you know probably typical in the utility market, but that's not based on - our utility is not based on that because some of the earnings come from wholesale sales, which were allowed to keep under our current rate order.

OK. So if your ROE is in the teens, then it doesn't necessarily mean that you couldn't justify a rate increase?

We have to evaluate all that. Some of that, you know, if that was you know a consistent level, then I can't say that the commission wouldn't look at that and try to evaluate that, but that's also a different risk profile for that generation. You know, that capacity. We're taking the risk on, we could get zero you know revenues from those sales if the market conditions were a certain way.

And so, I knew I couldn't say what that would end up being. We are going to -- we'll do our overall evaluation of that, and if we determine that we should go in for a rate adjustment, we would -- you know, we would file that in a timely manner.

OK. One more question. Do you have a production target for oil and gas this year?

You know we would expect, because the -- you know, we would expect continued growth in that because of the Mallon acquisition, and we would expect that to be somewhat consistent with what we've seen in the past as we have a higher drilling budget, you know, as we go forward. But we don't - we haven't disclosed specific business segment targets.

OK. But in the past, I believe it's usually been double digits, is that correct?

Yes.

OK. Thank you.

We have a question from the line of Ryan Wall (ph) of Northpoint Capital. Please go ahead.

Thank you. Two questions here. Can you - on the Las Vegas plant, can you -- if that doesn't run at all, what's the hit -- what's the net income loss?

Well, again, we don't specifically put out plant-by-plant statistics. It did not run significantly in the fourth quarter. We expect the results to be consistent with the fourth quarter from the generation segment. But we don't go out on a plant-by-plant basis and say what our results are.

OK. Then let's try on the oil and gas side, you just -- can you just give us kind of what the unit costs are, lifting costs and DD&A costs, what they were in the quarter the year and the year-ago quarter?

We'll have some more specific disclosure in our 10-K as to what the total costs are and the total production. We don't go through, you know, when we did the acquisition, the acquisition of Mallon resources was approximately $53 million, and, you know, we got 84 BCF of gas, so on a total cost, you know, that's came to about 60, 70 cents.

With respect to DD&A or, you know, our overall depletion, I don't have the specific number right in front of me, but we will disclose the depletion when we do our 10-K and we could just -- it's a simple division by the 10.5 BCF to get what our DD&A costs are. Depreciation, Depletion and Amortization, is what DD&A stands for. But those are -- you know, those are lower cost reserves.

Some of the higher tax costs relate to we do some of -- the Mallon acquisition is on native land, so you have severance and production taxes both for the Federal Government and the tribe, so they have somewhat higher operating cost perspective, but that's why we're you know having the lower finding costs that make those economic.

OK. But in the quarter, if I'm reading - in the quarter, they -

We had an adjustment to the depletion number based on the reserve study of $800,000. That was -- you know, that was, I would say, unusual to have that because of the fact based on the final reserve study, that was an adjustment effect. That we would not expect that to continue going forward and that's a non-cash charge.

OK. But even -- I don't know if you add that fully backed in, you're up what, 26% on 56% increase in volume?

Well, and plus we had a tax adjustment due to the filing of our returns that occurred in the fourth quarter, you know we filed our returns -- federal returns in September, state returns in October and November, and as we filtered all of that out, we had a tax adjustment for $300,000. You know, so you add that back, and it's consistent with the overall production increase.

OK.

And again that's doing that, I want to reference to those, you know, those are to get to a non -- you know, I'm not trying to get non-GAAP you know adding back things, but those were unusual transactions. Our numbers are still what they are, but we did have a couple unusual transactions that get us to you know approximately an increase consistent with what we had in the production.

OK. Thanks.

We have a question from the line of James Bellessa of D.A. Davidson and Company. Please go ahead.

Good morning.

Good morning, Jim.

Your rate freeze expires when?

I think, its 1/1/05 or 12/31/04. It's the end of '04.

OK. And did you change your methodology for calculating MCF-equivalent sales? The reason I ask that is I went to the third quarter Q, and you had 8.4 billion MCF's at that time. I add the 2.8 of the fourth quarter, and I get 11.2 billion, but you were talking about 10.5. Did the methodology change?

Al right. It shouldn't have. I'll have to look at that. You know, I don't -- I guess I don't understand the difference there.

That would be good to look at.

OK.

Then the timeline for Cheyenne Light, what are your expectations?

Well, we have probably said that we need to close by the end of the year, you know, we're actively -- we're actively going through that. You know, we would expect that, you know, on a depending on regulatory approval, and that can take some time, you know, late third quarter, early fourth quarter, but, you know, the requirement is by the end of the year.

And can you go through some of the features of this acquisition, the cost to you, the investment cost, the earnings power?

Well, you know, again we haven't specifically disclosed a purchase price. You know, we've said it we now approximates book value, you know, the book value of Cheyenne as of 12/31/02 is public information on the Wyoming PSC's -- Public Service Commission's, you know, information, that is public information, but, you know, the assets -- current assets and plant, depending on how you want to look at it from a plant basis our current assets and plant are $80 to $90 million, is the amount as of December 31st, 2002.

The earnings power would be typical to -- we would expect it to be typical to a you know a regulated utility with, you know, approximately 11% utility return on equity with, you know, 50% to 55% debt and, you know, 45% to 50% leverage, you know, for a full year. Now, that is a -- they don't have any of their owned generation. They have that contracted as part of this deal for -- through the end of 2006 with -- or 2007, I'm sorry, with public service company of Colorado, assuming all this gets approved, you know, so we would expect to continue to look at the overall resource plan with respect to that once we are able to close that transaction and look at possibly getting some generation in it.

Thank you very much.

Thank you, Jim.

We have a question from the line of Peter Su (ph) with Gemco Capital. Please go ahead.

Good morning.

Good morning.

Question in regard to your E and P business. I know in the past, you disclosed some hedging information. Are you able to give us an update as to what percentage of your production is hedged for 2004, how much production you're assuming and at what prices?

Well, you know, we, we hedge well we have historically hedged in 25% to 50%. You know what we hedged, though, is also that percent of existing production as we continue to drill an add production, that's an ongoing process, so where we are currently hedged is by the north end of that nearly 50% of our existing production that we have today, you know, going forward as we continue to drill and prove up reserves, you know, we are always adjusting that.

And those rates are - the amounts, we haven't disclosed specific amounts, you know, that will be disclosed in the 10-K for what our historic hedges are at the end of the year, but, you know, it's consistent with the market. It's an ongoing hedge that we've had, that we continue to do, we normally hedge through the next year or through the next year plus the winter season. So that we continue to look at that and we are in that range at this point.

I see, in regards to your earnings guidance, that's $2 to $2.35 range I understand that this the range there, but what would be the prices that you're assuming, for natural gas, that is?

That would be, at the time we came out with that, we look at the (inaudible) strip and that's, you know, that's what we base our forecast on, so you know, and a November early December is when we evaluated that forecast.

Sure.

I don't have that off the top of my head, I don't know the exact prices specifically to our, you know, to our forecast.

That's fine. And I just want to make sure for your earnings guidance, that doesn't include any benefit from the recently signed contract with Sierra Pacific, right?

Yes. We included we had you know; at the time we expected we had the contract termination already known. We did expect to re-contract that plant in the late first quarter, early second quarter.

Are there benefits from the contract then including your earnings guidance as well?

Yes.

OK. And just one last question. For wholesale sales at the utility, given the fact that new transmission line came on line and given hydro conditions in the northwest. How do you view the outlook for wholesale sales in 2004? Do you expect sales to increase as a result of increased capacity factor or do you have a view on where power prices will be relative to 2003 and 2004?

We look at the forward markets, you know, primarily at the you know, for our utility wholesale sales to the market are off system sales off system sales,' we call them, we've historically viewed as mid C, mid Columbia pricing point is where we have that, and that's, you know, relative on a the factors that affect that are really our own native load, our coal plants run at some of the highest availability factors in the nation. They're just very good plants that run tremendous amounts to the extent we have lower cost coal assets -- coal generation available, you know, we can do that at lower price, otherwise, you know, we're running some gas units or we're arbitraging because of that new type, the AC-DC tie, the eastern and western grids.

The factors that affect that, if there's very limited hydro and prices are up, if that occurs, then that would give us an opportunity to increase. It also is relative to what gas prices are in those markets, so there's a number of factors that we look at. We expect to have consistent wholesale sales, and we only provide those sales when we get a margin on them.

So the size of the margin is dependent on the market conditions. Then we do factor a portion of that into our annual expectations: Whether it's going to be up or down for a year is really dependent on what the market conditions are at the time, and then also as you get into our own native load requirements, what our requirements are, we get into the summer and we're a summer-peaking utility, so we have more native load requirements.

OK. Great. Thank you very much.

Thank you.

We have a question from the line of Eric Beaumont (ph) with Hobbio (ph) Capital. Please go ahead.

Good morning.

Good morning.

Most of my questions have been answered but I guess just to quickly dip into the communications area, you obviously came under pressure from competition, which suppressed what you expected to get note three, just curious from the perspective of that competition, were there any incentives that you know you had to give for an annual basis that you know are going to impact the 2004 earnings as well?

Well, and we did say that in our, I don't remember the specifics in our December release; we do expect that to continue into 2004. The incentives in the program that our competition apply at a six-month had a six-month discount for the service, and we in turn had a discount price for our customers, but we also required a longer-term contract with respect to retaining those customers.

We changed our expectations for the communications business to, you know, $3 to $4 million of loss, so we do expect to show some improvement from the 5.9 million in 2003, but not get to, as we had previously stated, not get to profitability because of some competitive pressure. So, we do expect that to impact '04.

OK. Great. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS].

We have a question from the line of John Hatson (ph) with Emporium. Please go ahead.

Good morning.

Good morning.

Most of my questions have been answered but two areas I want to kind of follow up on. One is, with the Las Vegas cogent project and your regulatory process forgetting that approved. That process has started and there were to be intervener and other kind of filings made last week. Have you gotten any preliminary feedback in terms of what kind of intervention or whatever is going to be involved in that?

Well, at this point, we believe it's staff only from an intervention perspective, and, you know, again, just reiterating, going through that process, we expect late first quarter, early second quarter to have that approved or, you know, through the regulatory process.

Sure. Has there been any kind of, I've seen some of your credit rating kind of issues. Is the issue of the party there involved in terms of their credit, has that been brought up and does that affect how you operate the plant or how you have to finance it in any way?

Well, no, I mean, that plant to me is paid for and we have our financing all in place, you know, relative to, we don't have any additional capital expenditures relative to that plant. The credit profile of our counter party in that plant, yes, that has been discussed with the rating agencies, but we believe that the benefit of having that plant located where it is in the service territory, and it's a very efficient plant, serving probably the fastest-growing market in that part, in the west. Serving those retail customers, we think that provides us additional support for having that contract, plus getting additional support from our perspective or additional comfort is a commission approval, which is why we're in the regulatory process.

Having that commission-approved contract, we believe is good. One of the issue that occurred with that plant previously was, you know, we had a marketing entity as a contracted party without native. It was the only plant in our fleet that didn't serve a utility serving, you know, a native load, and our strategy is to serve native customers and be a wholesale provider for that.

So-

The rating agencies, yes, their credit rate something sub investment grade and we continue to monitor that. We feel that just the profile and the need for power in that area, plus the location of this plant, we feel is good support that, that is a secure, you know, revenue stream for us.

OK. Let me just jump to one more question on the E&P business, and that is, the permit process that's going on right now that's been talked about in some other areas, how is that affecting or are you seeing any positives or negatives in terms of how its permit process is affecting your ability to get -

I think it's fairly normal. I mean, we're going through the normal permitting process. I wouldn't say positives or negatives. We continue to go through the process, and we're able to get permits in a normal time frame and drill up those wells. So we would expect that to continue. I don't see anything that would suggest that that would not continue.

Are you affected at all by the New Mexico governor's position on drilling now that's come out in the last couple of days down that way? You have some properties in New Mexico, is that right?

Well, yes. And primarily the properties in New Mexico are, on the Hickory nation lands and we don't expect that to affect us.

OK. Very good. Thank you.

Thank you.

We have a question from the line of Dan Daly with Rapid CD Journal.

There I am. I just have one quick question about the communications business. You know, you've been saying all along that you would become profitable in 2004. I'm just wondering, I apologize if I missed this, but is there a new prediction for that?

Well, yes. In our December release, December 16th, when we provided revised guidance, we said we expect to lose $3 to $4 million in communications in 2004.

But when would you become profitable? Have you predicted that?

You know, a lot of that depends on the timing relative to if the competition continues and, you know, right now we would expect to continue to add customers and get to profitability. We haven't put out a specific time frame. We expect to show continued improvement in that business as we go forward.

All right. Thank you.

Thank you.

Mr. Thies, there are no further questions at this time. Please continue.

I'd like to thank everybody for their interest in Black Hills, and we appreciate your questions and comments on this call. Thank you very much. Bye.