Black Hills Corp (BKH) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Black Hills Corporation quarterly earning conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Instructions will be given at that time. (Operator Instructions). As a reminder this conference is being recorded.

I would now like to turn the conference over to Jason Ketchum, Investor Relations. Please go ahead.

Thank you, Marla. Good morning and welcome to the Black Hills first quarter earnings call. During the course of this call some of the comments we make may contain forward looking statements as defined by the Securities and Exchange Commission and there are a number of uncertainties inherent in such comments. Although we believe that our expectations and beliefs are based on reasonable assumptions actual results may differ materially. We direct you to our earnings release, slide 2 of the investor presentation on our website, and our most recent Form 10K and Form 10Q filed with the Securities and Exchange Commission for a list of some of the factors that could cause future results to differ materially from our expectations.

I will now turn the call over to David Emery, CEO and Chairman.

Thank you, Jason. Good morning everyone. We appreciate your time this morning and your interest in Black Hills Corporation. We have a webcast presentation out there and certainly if you are following along on that we'll try to mention page numbers from time to time so you can see where we're at. If you don't have it, I think you'll be fine as far as following along with the discussion.

Starting on page 3 we've got several things we want to cover today. I will give an update of the quarter, primarily from a business and operational review. Tony Cleberg, our CFO, will then go through the financial update for the quarter. I'll discuss some key strategic issues and forward looking issues and then we will open it up for questions.

With this quarterly presentation we have modified the format from what we have been using through the last couple quarters of 2008. Specifically, we've changed the business and operational highlights section. And for each reporting segment we have some quarterly income information, key highlights of the quarter, and then we've added a few key operational metrics for each of those segments. I'm hoping that that will enhance the disclosures and help you interpret some of our various different business segments.

We do intend to use this format on a consistent basis going forward, but if you have any comments or feedback related to what you see on this new format and maybe what you'd like to see different, please let us know and we'll pass that along. Jason Ketchum would be your contact on that.

Moving on to page 5, the highlights from the quarter. We had a very strong financial and operational performance, particularly given the condition of the economy and the challenges we faced with low, very low natural gas prices which impacts several pieces of our business. From a liquidity standpoint we're very strong. We've made very positive progress on the liquidity situation since last fall. And since the end of the year we've improved our liquidity position by more than $180 million and now have just under $500 million of liquidity, which in this time from an economy and credit market perspective is very nice to have.

Highlights of our businesses. We had solid performance in our utilities. Typically the first quarter is very strong for gas utilities anyway and we had some additional rate relief this quarter that helped us, but a good positive result there. We're continuing to make progress on our generation construction projects. Key future earning drivers for us the Wygen III project and the approval in Colorado to build two LMS 100 turbines to serve our Colorado Electric customers.

We had two transactions related to our power plants the sale of an interest, 25% interest in Wygen III and also the sale of a 23% interest in Wygen I. Those two transactions both converted long term wholesale power customers purchase power customers into long term strategic partners and co investors in the plants with us. It also generated over $80 million in cash through those transactions.

Oil and gas performance certainly was impacted by low commodity prices and another ceilings test impairment. Prices were lower at the end of the quarter than they were at year end. So, a ceilings test was certainly expected. It wasn't a surprise.

And the Energy Marketing our Energy Marketing Unit performed pretty well for the first quarter, particularly compared to last year. And we had intentionally reduced the utilization of the credit facility for our Energy Marketing Unit just in an effort to preserve liquidity and be conservative through all the economic and credit market turmoil of the fourth quarter and the first quarter as well.

The margins have narrowed in that business due to the absolute price levels of gas. There's not as much room for the same level of margins and certainly our transport basis differentials have narrowed somewhat as well, but we believe we're off to a pretty good quarter particularly considering all of those items.

On page 6, electric utilities. I'll just touch on a few items on here. There's a lot of information on these update slides. From an earnings perceptive slightly below last year primarily driven by lower off systems sales margins. The R&P price of power in the West ties very closely to the price of natural gas, and so the margins for those off system sales were not as large. Volumes were still good. Our quantities were still good, but the margins are considerably less just because of power prices driven by natural gas prices.

A couple of key projects ongoing. We talked about Wygen III already, so I won't reiterate that, but we are in the process of upgrading our Neil Simpson II plant with a condenser upgrade. We spoke about that last year. That project is on schedule to be finished in this quarter before the summer months. A very economical upgrade to that plant. It's not a large upgrade, but very, very cost effective and less than $1,000 per installed kilowatt.

We're making good progress on two different transmission projects that we've spoken about previously for Black Hills Power and our Colorado Electric Utility. We got approval of a Black Hills Power FERC rate case in the quarter, which is a very positive result and that rate case also gives us a formulaic rate structure for transmission, which allows us to pass through cost as we continue to invest in our transmission system without having to go back in for another rate case.

Another key on our existing utilities Black Hills Power and Cheyenne Light as we are in the process of planning for customer information system conversions and then all of our utilities including the acquired Aquila utilities will all be on the same customer information system prior to the year end 2009.

From a generation availability perspective, as is very typical for us, very excellent generation availability; as high or higher than anyone in the industry. Particularly it's something we're very proud.

Moving on to gas utilities. Typically for gas utilities the first quarter is the strongest quarter, and that's no exception this year. We don't have a quarter over quarter comparison because we acquired our gas utilities in July of 2008. We did not own them in the first quarter of last year, so really no quarter over quarter statistics.

We do have two rate cases that are impacting results there. We have interim rates in effect at Iowa and expect a final order there soon. We've reached a settlement and then we did get an order in our Colorado gas rate case that was effective April 1. Going forward, that will be a small positive impact on results as well.

One other item I think worth mentioning on gas utilities is we are looking at acquiring some small municipal systems and we've acquired a couple small ones in Kansas. Not a real large transaction, very small, a couple hundred customers. But to the extent we can do that it allows us to offset some of the declining use per customer and some of those other trends, particularly in a couple of our more rural states with slower growth rates. So, that's something that just from a strategic perspective we'll be looking to very cost effectively add small quantities of customers as the opportunities arise and as the economics work for us.

Moving on to page 8, power generation. The highlight of the quarter certainly there is the sale of the 23.5% interest in Wygen I that occurred. A good gain on sale of almost $17 million. Generation availability in the unit was, as in our regulated fleet, was very high. And then also in our non-regulated generation our Wygen I we are adding additional air cooled condensing that are similar to our Neil Simpson project. Again, adding about 8 megawatts of capacity for less than $1,000 a kilowatt. That project will also be completed prior to summer.

For coal mine production is slightly better than the first quarter a year ago, but costs are higher. Winter operations in this year in particular was a very hard winter. We had several pretty large blizzards this spring and really slowed things down and resulted in additional equipment and maintenance expenses and things like that.

A new statistic we're putting on here is our average delivered fuel cost and on here it's expressed in dollars per ton, but it shows the cost per ton of coal delivered to our mine mouth power plants on site at the Wyodak location. $11 a ton using 8,000 BTU per pound coal equates to less than $0.70 a million BTU delivered fuel cost, which is extremely competitive, which makes those plants very, very high in the economic dispatch order in the entire WECC.

Slide 10, Energy Marketing. I already mentioned that we performed better than we did in the first quarter of last year. Challenging quarter because of the decreased level of natural gas prices and contracting basis differentials particularly out of the Rockies.

Credit facility utilization. As I said before we're managing that very conservatively until we get that facility renewed. End of the quarter we were at $95 million worth of utilization on the $300 million uncommitted credit facility for Enserco. We are in the process of obtaining a committed facility. Tony will talk about our progress on that effort, which is going very well. He'll speak to that here in a little bit.

On the oil and gas side, as I mentioned earlier, no big surprise there. We had another ceilings test impairment. Prices, particularly natural gas prices, were significantly lower than they were at December 31st and that triggers a re evaluation of reserves in holding March 31st prices constant for the life of our reserves and resulted in an impairment. Non cash not indicative of future value of our reserves that we believe that price levels will change at some point in the future.

We did have a 4% increase in production over the first quarter of 2008. We had several pretty good wells that were added late in the fourth quarter, early first quarter this year and they impacted production from a positive perspective over the prior year's quarter.

Capital spending has been quite low in the first quarter at oil and gas and most of the $9.5 million we did spend was carryover from projects we commenced in 2008 and we really have committed very little additional capital spending so far this year. With price levels where they are it's just not prudent in our opinion to drill for wells drill wells and try to accelerate the production of reserves. That's more cost effective and certainly better for shareholder value to leave those reserves in the ground and produce them at a time when the economics are better.

Page 12, our unification update. We've got a lot of integration activity still going on related to the acquisition of the five utilities we had last summer. A couple key items that are noteworthy to point out. We implemented some major human resource systems changes; automated performance management, compensation management; consolidated a couple hundred pay grades into 20 some pay grades; consolidated numerous incentive compensation plans into one kind of unified plan for the Company. So, we've made a lot progress there.

We've done quite a bit of work on common procurement and purchasing activity and then we're working on the systems. I already mentioned we're diligently working on a customer information system project and then converting to data management software and some other things that are ongoing.

Page 13 is our time line. A lot of these items on here you've seen before. There are a few new ones. It really outlines kind of the key activities that we have planned for 2009, '10 and '11. Impactful either from an integration perspective or a growth perspective or from our financial return or regulatory recovery perspective.

Several key items on there that you'll see and particularly on the systems unification projects and some of those. We've added a little more detail there so you can see the magnitude of some of the systems integrations that we're working on in order to improve efficiency and reduce our overall operating and overhead costs.

Now, I'll turn it over to Tony Cleberg, our Executive Vice President and Chief Financial Officer for the financial review. Tony?

Thank you, Dave. Good morning. As Dave described during the first quarter we had a solid we saw solid improvements in both earnings and in liquidity.

Moving to slide 15 our utilities had a seasonally strong performance in the first quarter. Gas utilities performed well reflecting some of the additional strengths because of the rate case settlement. The off systems sales decreased year over year even with the addition of the Aquila acquisition and an increase in megawatts sold. So, the decrease was driven by the low natural gas prices, but on an overall basis we're quite pleased with the way that utilities performed.

On the non-regulated side of the business the results were mixed. Oil and gas were negatively impacted by low natural gas prices resulting in lower margins and also requiring the impairment charge for the ceiling test. Until we see improvement in the natural gas prices we will continue to minimize our CapEx program for this business segment.

Power generation included the gain on sale for a portion of the Wygen I plan and a more normal operation level versus the prior year. Coal mining was impacted by an increase in equipment costs and some weather related costs.

Energy Marketing showed an improvement over last year, but was impacted by the low natural gas prices and tighter spread and our self imposed constraint on limiting the use of our credit facility.

Moving to slide 16. Here we have an EPS announcement and we adjusted our income from continuing operations to help you understand the impact of several large and notable items recorded during the quarter. By isolating these items the income from operations as adjusted is $0.61 per share versus $0.35 per share last year, a substantial increase.

The first item excluded in the reconciliation was the gain on sale for the portion of Wygen I. We sold 23.5% in the Wygen I to Municipal Electric Association of Nebraska for $51 million. We recognized a $16.9 million gain, or $0.44 per share. This was stronger by $0.06 per share than we had previously estimated due to some refinements of the assets related to the sale.

The next item excluded in the reconciliation was an improved tax rate reflecting a $3.8 million tax expense reduction or $0.10 per share improvement of a previously recorded tax position.

The next income item excluded in the reconciliation was the mark to market improvement from the year end on the outstanding interest rate swaps. This amounted to $9.6 million or $0.25 per share, which is noncash and reflects a reduction in the swap spreads.

The first expense item excluded in the reconciliation was a non cash impairment on oil and gas in the amount of $27.8 million or $0.72 per share. This first quarter charge results from the ceiling test calculation based on declining natural gas prices. For example, the spot wellhead natural gas price dropped from 441 per MMcf at year end to 232 per MMcf at March 31. That's a 47% decline.

The low prices at year end and quarter end have caused us to write off a total pretax amount of $135 million of our assets in this business. That's 41% roughly that we've written off over the last two quarters. We certainly understand the current low price environment, but we don't believe gas prices will stay at these depressed levels over the long term. Consequently, we feel the book value understates the real value of our oil and gas assets.

The last item expense item that was excluded in the reconciliation was the integration expenses we incurred during the first quarter for Aquila properties in the amount of $700,000 or $0.02 per share. This compares to the pre close expenses that we had in 2008 of $1.4 million or $0.04 per share. So, by isolating these notable items from our quarterly performance our income from continuing operations as adjusted was $0.61 compared to the $0.35 in 2008, a substantial improvement. We're encouraged by the year over year improvement and remain optimistic about our ability to achieve continued improvement in the future.

Slide 17 displays our income statement for the first quarter of 2009 compared to the first quarter of 2008. The revenue at $438 million, an increase of $285 million over 2008, reflects the addition of Aquila property.

Moving to the operating income we displayed a sub total before the gain on sale of Wygen I and the ceiling test impairment to show the improvement year over year of $25 million. That improvement is a combination of $29 million improvement from utilities, a decline in the non-regulated business of $6 million, and an improvement at the corporate level of $2 million.

Moving down to the operating income line including the impact of the gain on sale and the oil and gas impairment we still showed an improvement of $8 million year over year.

Continuing down the income statement the interest expense was $19 million, an increase of $10 million over 2008. The main driver is an increase debt level of $276 million. Another item impacting the quarter was the mark to market gain of $14.8 million on the interest rate swap spreads. In the fourth quarter we recorded a loss on these interest rate swaps, so it's nice to see some reversal as the spreads tighten.

Continuing down the income statement. Taxes for the first quarter of 2009 are at a rate of 19%. This includes the favorable impact of the $3.8 million reflecting an improvement of the previously recorded tax position. The 2008 tax rate was 33%. So, from a continuing operations standpoint our 2009 per share income was $0.66 compared to the $0.31 in 2008.

Moving down to discontinued operations, this quarter included a final sales adjustment on the IPP assets sold last year. Drilling down into the income statement, slide 18 displays the segment roll up of revenue and operating income. The electric utility segment increased $38 million and the operating income declined as a result of the Colorado Electric acquisition, part of the Aquila acquisition. We're not surprised by Colorado Electric performance, but we see this as one of the best opportunities we have to improve overall profitability of the Company, particularly by adding rate based assets.

The gas utility segment performed better than we expected in the first quarter showing some benefit from the improved rate recovery. Oil and gas performance, both revenue and operating income, were affected by the low natural gas prices. In addition, the oil and gas financial performance includes the $43 million pre tax charge for the ceiling test. So, that charge and the rest of the business lost if you exclude that charge the rest of the business lost $2.5 million in the quarter. Although oil prices have improved since year end that improvement was offset more by the large decline in natural gas prices.

The power generation segment included a gain on sale for the 23.5% of Wygen to the Municipal Electric Association of Nebraska. Excluding that gain Power Generation produced a $3.8 million in operating, a more normal level versus the comparable level in 2008.

The coal mining segment revenue increased slightly with a 3% decline in the ton, but 11% improvement in price. Coal mining operating income declined primarily due to increased equipment costs and weather related impacts.

The Energy Marketing segment revenue increased as a result of an increase in physical sales of both the natural gas and crude oil. The operating income improved $1.4 million over 2008, but fell short of our expectations because of the tight spread, particularly on the low natural gas prices.

At the corporate level we had an improvement of $2.3 million related to reduced expenses for the 2008 pre acquisition costs on Aquila.

Slide 19 shows our capitalization. Our debt declined since year end by $224 million. By selling a portion of Wygen I and generating more cash from operations than was spent on capital projects, we were able to reduce debt and improve liquidity by $181 million since year end. In addition, with the closing of a 25% sale of Wygen III to MBU in April we received a catch up payment for their share of the capital expenditures in the amount of $30 million and paid down the bridge loan to $353 million.

We planned various financing in 2009 to move a considerable amount of short term debt to long term. If you look at our total debt capitalization of 48%, which is an improvement from 53% at year end, we believe we are well positioned for our asset mix and have room to grow. As we've described in the past we plan to issue $400 million to $500 million in long term debt to replace the bridge facility and pay down other short term debt. The bridge facility now at $353 million is due in December of 2009 and we're considering various options to retire this debt and other short term debt during the year. And this includes [HoldCo] debt, first mortgage bonds, project financing and equity once the equity markets improve.

We are pleased that the debt market has improved considerably since year end. In addition, we're making great progress in obtaining a committed facility for Enserco. We have several additional banks interested in the facility and we have several options to ensure that the current facility remains in place until the committed facility closes. Currently, we are managing this business with a very conservative capital structure with only $95 million in letters of credit drawn on a $300 million facility.

Slide 20 displays our credit and liquidity. The main point on this slide is our overall liquidity has improved $181 million since year end to the $493 million that Dave mentioned earlier. And in April we continued to reduce the revolver debt by another $14 million, so now our overall liquidity exceeds $500 million. And as I mentioned earlier we did pay down $30 million on the bridge facility.

Slide 21 summarizes our current credit ratings. Our corporate ratings are BBB at Fitch, BBB at S&P, and Baa3 at Moody's. So, from an overall perspective the first quarter was a good start for the year. We are pleased with the utility performance and we are pleased with our improved liquidity. On the non reg side an improvement in natural gases are needed to improve the outlook for the year.

So, with those comments on the financial performance for the quarter I'll turn it back to Dave.

Thank you, Tony. Moving on from a strategic perspective on slide 23 as Tony said from a financial perspective we're well positioned. Certainly, from a project and opportunity perspective we're well positioned for the future and I'll talk about that in a little bit. The change in our profile from essentially one third utility to two thirds utility following our acquisitions last summer has really added a lot of predictability and stability to our cash flows to the utility side. With the current capital structure we have we're very well positioned to continue our growth objectives and plans.

On the regulatory front we always have several initiatives going on particularly now that we have as many utilities and as many jurisdictions as we have. On slide 24, Effective January 1 we have a new FERC transmission rate approved for Black Hills Power. As I said before it is a formulaic rate and so when we make additional capital investments in our transmission system every year we get the opportunity to true that rate up. And because we have a transmission pass through in our Black Hills Power rates the FERC transmission rate also gets passed through in our customer rates as well. So, very favorable results particularly at a time right now when we expect to spend capital on some transmission over the next couple years.

Colorado Gas rate case was approved. I'll talk about that shortly and fill you in on a few more details of that. We've reached a tentative settlement in our Iowa case and hope to have a final order in this quarter from the Iowa Utilities Board. We do recognize the need to file future rate cases in both Black Hills Power and our Colorado Electric Utility, primarily driven by power plant construction, the Wygen III plant and Black Hills Power and the two LMS 100 gas combustion turbines we plan to construct for Colorado Electric.

In all of our utility territories we will continue to evaluate the need for rate cases. As it becomes prudent for us to file we will do so.

Moving on to slide 25, Colorado Gas rate case. We achieved a very favorable result there. We asked for $2.8 million and received $1.4 million. It looks like frankly, it looks like we didn't recover what we really had hoped. But the reality of it is a very large portion of that $2.8 million, almost $1 million of that was related to our request to switch methodologies for weather normalization. It's a new technique that we had proposed and it's not widely accepted and we did not get that. We will continue to ask for it in the cases that we file, but until it gains wider acceptance it's not a huge surprise to us that we weren't successful there, but we do believe it's a better methodology and we'll continue to pursue that.

Absent that, we really achieved a very high percentage of what we'd asked for in our rate case. And importantly, we received an increase in our monthly customer charge which effectively at least partially helps decouple our rates, puts more of the cost in our fixed charge and less in the commodity charge, which helps us provide incentives to our customers for energy efficiency and some of those items.

Slide 26 is just a summary of some of the things that we do and the rate mechanisms we have in place to allow us to pass through items to customers without having to go back for specific rate cases. This gives you an idea in our various utilities which mechanisms we do have in place. The detail behind the way those mechanisms actually operate is disclosed in our 10K, but this gives you just a good summary of where we have pass through mechanisms including bad debt and fuel costs and some of those things. And then to the extent in our gas states we are at least partially decoupled. It gives you a sense for the magnitude of our costs that are recovered in the fixed charge as opposed to the commodity charge in our customer's rate structure.

Page 27 just gives you an outline of what we've been doing on energy efficiency and renewable programs. Several things that are notable. We did sign another 20 year power purchase agreement at Cheyenne Light, which will be shared with Black Hills Power committing to another 30 megawatts of wind energy from the Cheyenne, Wyoming area. The Silver Sage Wind Farm is adjacent to the Happy Jack Wind Farm that we already have a 30 megawatt power purchase agreement in place for. That Silver Sage facility is under construction this year.

We're proceeding on our AMI project in Colorado Electric Utility. We've got several thousand meters installed and really are going full speed ahead there with the intent of adding smart meters for almost 57,000 customers there over the course of the next year.

We've also signed a contract to buy 1.2 megawatts of solar energy in Colorado from a facility at Colorado State University there, which helps us meet our solar renewable requirement in the state of Colorado.

Looking to the future from a growth perspective, on slide 28 we have several and we've been talking about these for almost a year now key strategic growth opportunities primarily driven by both our utilities and then some opportunities, future opportunities when prices improve in our oil and gas segment. Relatively large investment opportunities there and certainly key from a long term shareholder value creation perspective. We're excited about those opportunities and really look forward to further implementing those so they can be realized in our earnings.

We've had a lot of time and attention spent on our Black Hills Colorado Electric Resource Plan, highlighted on slide 29. We firmly believe in the vertically integrated electric utility model and do believe that utility owned generation provides the lowest long term cost and most reliable power for our customers.

We filed a resource plan for Colorado Electric right after we acquired the Aquila utilities last summer. We filed it in August, had hearings through the winter this winter, received an initial order from the PUC in February and then a reaffirmation of that order in late March, which allows us to proceed with the construction of two LMS 100 gas combustion turbines to serve Colorado Electric customer resource needs.

The balance of the resources that we have to acquire need to be bid through a competitive bidding process, but we do have the ability for our own non regulated power generation subsidiary to bid into that RFP and also even for our other electric utilities to bid into that RFP. We're considering our options there now.

We have issued the RFP and are soliciting bids for those resources now. Bids will be due on June 8th. We also on June 8th intend to file our certificates of public convenience and necessity with the Colorado PUC for the two gas combustion turbines that we intend to build in rate base as well.

As a reminder, the need for those resources is triggered by the expiration of a long term power purchase agreement that we have that expires December 31st, 2011. So, the new rate base generation and the bid resource will help us replace the expiration of that contract.

On page 30, the strategy score card. This is a slide that we added last year to give you an idea of what our current year key strategic initiatives are and the progress that we've made. We took the ones off that we had accomplished through 2008. We showed those to you last quarter. Now, we're talking about 2009 progress on this slide and we will continue to update you throughout the year as we make additional progress towards all of these key strategic initiatives.

So, in summary on page 31. We had a solid quarter despite several real significant challenges. Certainly, the economic conditions and capital and debt and credit markets were in a situation over the last couple quarters unlike any of us have ever seen before. The impact on natural gas prices impacts several of our business entities, the off system sales from our utilities, as well as the oil and gas segment and to some extent our marketing segment as well.

We're very pleased with the large projects that we have and the key initiatives that are progressing including our plant construction projects and the heavy amount of integration activity that we're engaging in in our utility area, in particular in systems and overhead and administrative cost areas.

As far as earnings guidance goes as you may recall we withdrew our earnings guidance in conjunction with our first quarter release. There's a lot of uncertainty around the timing of our debt issuance, the amount of oil and gas spending we may do, what oil and gas price levels will be and some of those things and don't believe it is yet prudent to put out earnings guidance at this time.

In all the economic turmoil and uncertainty particularly related to the timing and cost of some of our debt offerings we believe that shareholders should focus more on the key drivers of the business and how they will positively impact the future. And when we get to the point where we have better certainty around those and can put out a credible earnings guidance number we'll revisit the issue.

In the meantime I think with this presentation we have significantly expanded our disclosures. We also did the same in our 10K for year end in order to help investors better understand our various business reporting segments.

So, that's all I have. I'd be happy to entertain any questions that any one may have.

Thank you. (Operator Instructions). We'll go to the line of Jeff Gildersleeve with Millennium Partners. Please go ahead.

Good morning, Jeff.

Morning David, morning Tony. How are you?

Great. Thank you.

Good. Just wanted to go over a few things. On the financing plan, Tony you mentioned, I think, around $400 million of long term debt.

Yes, $400 million to $500 million.

Okay. I wasn't clear. Was that the long term debt portion or could that be made up of the project debt, the HoldCo, the equity?

Yes, it's all of those.

Okay. So that's more the total financing numbers?

Right, it is.

Okay. And then just any I guess the credit markets as you pointed out have improved significantly. Just wondering any sense on timing or sort of around what kind of rates you're seeing on comparable debt. Do you have any target as far as getting things wrapped up?

We have not set a specific target as far as timing goes. Clearly, we would like to get it done sooner rather than later, Jeff, but I think what we said when we extended our bridge late last year is that we wanted the ability to be patient. I think the rates have definitely moved in our direction. I think at some point here in the future, probably relatively near future, they're probably going to reach a point where rates may not improve that much more.

And so, we are looking at the opportunity to issue some debt. We're talking to our banks multiple times a week and as soon as we believe that we've kind of reached a prudent point here we will try to go ahead and get those bonds issued. We're very optimistic, I think, and I guess positive maybe more so than optimistic. We're very positive that their rates have indeed come in. And the fact that we were able to extend our bridge and be patient, I think, will be a benefit for both shareholders and ratepayers when we finally do get that debt placed.

We certainly don't want to wait until late third, fourth quarter kind of time frame. We'd like to get it done in this quarter, maybe early next quarter; somewhere in that range. But we want to be patient and get at least what we think is the best rate we can get in the near term.

Got it. And just to be clear, that $400 million to $500 million could be comprised of a blend of different financings between different types of debt and equity?

Yes. It may not all be senior unsecured debt. It could be some projects finance. It could be some first mortgage bonds, whatever, but we want to retire a good portion of our short term debt. That's the key issue.

When you mention equity do you mean like a drip program or a dribble or more of a secondary type transaction?

Well, really, the primary driver for the need for equity is going to be future growth. If we look at the financings that we're trying to do for the short term to retire short term debt most of that's going to be some of the other items we just talked about project debt, first mortgage bonds, senior level debt. But we do anticipate with the construction projects that we have on the board that at some point over the next couple years we will have to issue equity. Now, whether that's going to be in a public offering or a dribble program or whatever has yet to be determined.

The other thing is if we get some improvement in the natural gas prices let's say even in a years time frame or a little more than that that will impact our thought process around issuing equity because just the two items I mentioned since subsequent to the quarter our debt to equity goes down to 47% and if you look at how much we wrote off on the oil and gas and you say those assets still exist we're at 45%. So, we've got room from the standpoint of our debt to cap and we get some improvement in some of the other businesses, we'll reconsider.

We don't believe that we need to rush out and issue equity at our current price levels by any stretch oat the imagination.

Tony, you mentioned the $400 million or $500 million that that was possibly one of the components. That's all I was trying to clarify. So, it could be one of those components, but you're not committing to anything?

Correct. We prefer, obviously, to wait to issue equity until prices improve.

Okay. And then just quickly. The quarterly distribution now that you have the LDCs which performed very well in the first quarter. I guess those assets are typically fourth and first quarter. Will we see a change in the distribution of your quarterly performance?

You'll definitely see a variation in the gas utility segment. That business typically the strongest quarter is the first and the next strongest quarter is the fourth. They're relatively weak in the summer quarters second, third quarters just because of the nature of the business. I think you should expect to see that on a going forward basis in that utility segment.

Okay. Thank you very much.

You bet. Thank you, Jeff.

(Operator Instructions). We do have a question. We'll go to the line of James Bellessa with D.A. Davidson and Company. Sorry about the pronunciation.

Good morning.

Good morning, Jim.

I'd like to hone in on the gas utility business. In the fourth quarter its contribution was $0.16 and then it almost triples in the first quarter. Is that typical or was there something that you got as a rate relief in the first quarter that wasn't there in the fourth quarter? What can we use as a gauge here looking forward into the next year's fourth and first quarters?

Well, certainly, from the change perspective we did implement interim rates in our Iowa rate case and those have a positive impact.

Do you know how much?

The weather wasn't particularly abnormal or anything else during the quarter. I think Tony alluded to we did perhaps perform a little better than we expected, but not materially so. I would anticipate that that was probably a good quarter for us for a first quarter, but not a super extraordinary one.

Was there something in the fourth quarter that held it back other than this interim rate relief that you talked about?

Off the top of my head, Jim, I certainly can't think of anything.

Would this be typical to see more than a double from a fourth quarter number to first quarter number?

Well, I wouldn't think so, but there's a lot of factors there. It depends on weather and a lot of other things. Certainly, a large scale rate increase would have a pretty significant impact on that.

Is this business able to produce a profit in the second quarter or does it typically dip into breakeven results?

It's pretty close to break even. It's possible that it could produce some profit, but it's not going to be material in the summer quarters. It may be positive, but it wouldn't be very large by any stretch.

But certainly a loss in the third quarter?

Certainly likely. It's hard to say exactly until you get there and see what the weather does and some of those things. We don't expect to make any money really in the third quarter, for sure.

Now, the materials that came out here in the slide presentation were good. If they can be put out the same time you put your earnings release I wasted several hours last night just trying to guess numbers where you had them in your slide. So, I'm just wondering if they can coincide in time more closely together?

That would be our intent going forward, Jim, with changing the format and doing some of those things for the first time this time. It took us a little longer to get the presentation pulled together, but hopefully we can get the timing of release of those two pieces of information a little bit closer together in the future.

Thank you very much.

All right. Thank you.

Thank you. Next we'll go to the line of Chris Ellinghaus with Shields and Company. Please go ahead.

Hey, guys. How are you?

Good.

Good.

I don't know if I missed this, but did you attribute the tax benefit to any of the segments anywhere?

We did. It was an oil and gas situation related to oil and gas.

Okay. And the earnings for the IPP in the first quarter. Can I presume that that's not indicative of what you expect normal earnings to look like on a quarterly basis? And is there a lot of seasonality to the assets that you have remaining?

Yes. If you take out the gain of $26 million, which is a pretax number and get back to that 3.8, that would be a little more normal for the first quarter versus what we did the year before. I think it was 1.6. But on a quarterly basis a little bit of seasonality, but not much.

Okay. And lastly I think the last time when you withdrew guidance you had started to talk a little bit about due to the commodity pricing situation that you thought maybe production would dip into negative territory for this year. Should we be expecting you talked about these wells late in the year, David. Should we be expecting sort of a negative trend on production for the remainder of the year?

To the extent the prices stay low you're going to see that because we're just not going to replace production decline if we're not drilling. Frankly, where prices are right now we're not drilling. It doesn't make a whole lot of sense. Got a couple small projects going on; that's about it. I would anticipate that it would stay that way. So, we'll have kind of natural production decline this year. And we may do some things later in the year if we see some price improvement or maybe some oil drilling activity later in the year if we see some price improvement. It's not going to have a material impact on 2009 production, I don't think.

And one more question. Relative to your pre existing hedges can you clarify or give us some color on how they wind down through the year?

We have a schedule that will come out in the Q, Chris, that lists all of our hedges and the terms and durations of all of those hedges. That will come out when we file our Q here in a week, week and a half.

Okay. Great. Thanks a lot.

You bet. Thank you.

(Operator Instructions).

All right. If there's no additional questions, I want to say thank you to everybody for participating today. We appreciate your continued interest in Black Hills and we're clearly excited about the future here. It's a difficult year for everybody, certainly the economy and natural gas prices and other things, but we've got a lot of really good things going for us right now and are very optimistic about some of the projects we have and also optimistic about our access to the capital markets.

I think in the end we're going to be very happy we delayed some of our financing activity in order to take advantage of some better rates as those continue to move in our direction. So, we're very upbeat about where we're headed here over the next several years and appreciate your interest in Black Hills Corporation. Thanks for being on the call today.

Thank you. Ladies and gentlemen this conference will be available for replay today after 11:30 a.m. through Friday, May 8th, 2009 at midnight. You may access the AT&T Teleconference replay system at any time by dialing 1 800 475 6701 and entering the access code 996033. That number again is 1 800 475 6701 and entering the access code 996033.

That does conclude our conference for today. Thank you for your participation and for using the AT&T Executive Teleconference Service. You may now disconnect.