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Section 1: 10-K (10-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
Form 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________

Commission File Number 001-31303

BLACK HILLS CORPORATION
Incorporated in South Dakota
625 Ninth Street
IRS Identification Number
 
Rapid City, South Dakota  57701
46-0458824
Registrant’s telephone number, including area code
(605) 721-1700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange
on which registered
Common stock of $1.00 par value
 
New York Stock Exchange

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes           x           No           o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes           o           No           x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes           x           No           o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes           x           No           o

Indicate by check mark 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.    o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large accelerated filer    x
Accelerated filer    o
Non-accelerated filer   o
Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes           o           No           x

State the aggregate market value of the voting stock held by non-affiliates of the Registrant.
 
At June 30, 2016                                  $3,248,873,889

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 January 31, 2017
Common stock, $1.00 par value
53,384,259

shares
Documents Incorporated by Reference
Portions of the Registrant’s Definitive Proxy Statement being prepared for the solicitation of proxies in connection with the 2017 Annual Meeting of Stockholders to be held on April 25, 2017, are incorporated by reference in Part III of this Form 10-K.





TABLE OF CONTENTS

 
 
 
  Page
 
 
 
GLOSSARY OF TERMS AND ABBREVIATIONS
 
 
 
 
 
 
 
 
WEBSITE ACCESS TO REPORTS
 
 
 
 
 
 
 
 
FORWARD-LOOKING INFORMATION
 
Part I
 
 
 
 
 
ITEMS 1. and 2.
BUSINESS AND PROPERTIES
 
 
 
 
 
 
 
ITEM 1A.
RISK FACTORS
 
 
 
 
 
 
 
ITEM 1B.
UNRESOLVED STAFF COMMENTS
 
 
 
 
 
 
 
ITEM 3.
LEGAL PROCEEDINGS
 
 
 
 
 
 
 
ITEM 4.
MINE SAFETY DISCLOSURES
 
Part II
 
 
 
 
 
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
 
 
 
 
 
 
ITEM 6.
SELECTED FINANCIAL DATA
 
 
 
 
 
 
 
ITEMS 7. and 7A.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 
 
 
 
 
 
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
 
 
 
 
 
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
 
 
 
 
 
 
ITEM 9A.
CONTROLS AND PROCEDURES
 
 
 
 
 
 
 
ITEM 9B.
OTHER INFORMATION
 
Part III
 
 
 
 
 
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 
 
 
 
 
 
ITEM 11.
EXECUTIVE COMPENSATION
 
 
 
 
 
 
 
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
 
 
 
 
 
 
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
 
 
 
 
 
 
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
 
 
 
 
 
 
Part IV
 
 
 
 
 
 
 
 
 
 
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
 
 
 
 
 
 
ITEM 16.
FORM 10-K SUMMARY
 
 
 
 
 
 
 
 
SIGNATURES
 
 
 
 
 
 
 
 
INDEX TO EXHIBITS
 

2



GLOSSARY OF TERMS AND ABBREVIATIONS

The following terms and abbreviations appear in the text of this report and have the definitions described below:
AC
Alternating Current
AFUDC
Allowance for Funds Used During Construction
AltaGas
AltaGas Renewable Energy Colorado LLC, a subsidiary of AltaGas Ltd.
AOCI
Accumulated Other Comprehensive Income
APSC
Arkansas Public Service Commission
Aquila Transaction
Our July 14, 2008 acquisition of five utilities from Aquila, Inc.
ARO
Asset Retirement Obligations
ASC
Accounting Standards Codification
ASU
Accounting Standards Update as issued by the FASB
ATM
At-the-market equity offering program
Baseload plant
A power generation facility used to meet some or all of a given region’s continuous energy demand, producing energy at a constant rate.
Basin Electric
Basin Electric Power Cooperative
Bbl
Barrel
Bcf
Billion cubic feet
Bcfe
Billion cubic feet equivalent
BHC
Black Hills Corporation; the Company
BHEP
Black Hills Exploration and Production, Inc., a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings, includes Black Hills Gas Resources, Inc. and Black Hills Plateau Production LLC, direct wholly-owned subsidiaries of Black Hills Exploration and Production, Inc.
Black Hills Colorado IPP
Black Hills Colorado IPP, LLC a 50.1% owned subsidiary of Black Hills Electric Generation
Black Hills Gas
Black Hills Gas, LLC, a subsidiary of Black Hills Gas Holdings, which was previously named SourceGas LLC.
Black Hills Gas Holdings
Black Hills Gas Holdings, LLC, a subsidiary of Black Hills Utility Holdings, which was previously named SourceGas Holdings LLC
Black Hills Electric Generation
Black Hills Electric Generation, LLC, a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings
Black Hills Energy
The name used to conduct the business of our utility companies
Black Hills Energy Arkansas Gas
Includes the acquired SourceGas utility Black Hills Energy Arkansas, Inc. utility operations
Black Hills Energy Colorado Electric
Includes Colorado Electric’s utility operations
Black Hills Energy Colorado Gas
Includes Black Hills Energy Colorado Gas utility operations, as well as the acquired SourceGas utility Black Hills Gas Distribution’s Colorado gas operations and RMNG
Black Hills Energy Iowa Gas
Includes Black Hills Energy Iowa gas utility operations
Black Hills Energy Kansas Gas
Includes Black Hills Energy Kansas gas utility operations
Black Hills Energy Nebraska Gas
Includes Black Hills Energy Nebraska gas utility operations, as well as the acquired SourceGas utility Black Hills Gas Distribution’s Nebraska gas operations
Black Hills Energy Services
A Choice Gas supplier acquired in the SourceGas Acquisition
Black Hills Energy South Dakota Electric
Includes Black Hills Power’s operations in South Dakota, Wyoming and Montana
Black Hills Energy Wyoming Electric
Includes Cheyenne Light’s electric utility operations
Black Hills Energy Wyoming Gas
Includes Cheyenne Light’s natural gas utility operations, as well as the acquired SourceGas utility Black Hills Gas Distribution’s Wyoming gas operations
Black Hills Gas Distribution
Black Hills Gas Distribution, LLC, a company acquired in the SourceGas Acquisition that conducts the gas distribution operations in Colorado, Nebraska and Wyoming. It was formerly named SourceGas Distribution LLC.
Black Hills Non-regulated Holdings
Black Hills Non-regulated Holdings, LLC, a direct, wholly-owned subsidiary of Black Hills Corporation

3



Black Hills Power
Black Hills Power, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy)
BHSC
Black Hills Service Company LLC, a direct, wholly-owned subsidiary of Black Hills Corporation
Black Hills Utility Holdings
Black Hills Utility Holdings, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy)
Black Hills Wyoming
Black Hills Wyoming, LLC, a direct, wholly-owned subsidiary of Black Hills Electric Generation
BLM
United States Bureau of Land Management
Btu
British thermal unit
Busch Ranch
Busch Ranch Wind Farm is a 29 MW wind farm near Pueblo, Colorado, jointly owned by Colorado Electric and AltaGas. Colorado Electric has a 50% ownership interest in the wind farm.
Ceiling Test
Related to our Oil and Gas subsidiary, capitalized costs, less accumulated amortization and related deferred income taxes, are subject to a ceiling test which limits the pooled costs to the aggregate of the discounted value of future net revenue attributable to proved natural gas and crude oil reserves using a discount rate defined by the SEC plus the lower of cost or market value of unevaluated properties.
CAPP
Customer Appliance Protection Plan - acquired in the SourceGas Acquisition
CFTC
United States Commodity Futures Trading Commission
CG&A
Cawley, Gillespie & Associates, Inc., an independent consulting and engineering firm
Cheyenne Light
Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy)
Cheyenne Prairie
Cheyenne Prairie Generating Station is a 132 MW natural-gas fired generating facility jointly owned by Black Hills Power and Cheyenne Light in Cheyenne, Wyoming. Cheyenne Prairie was placed into commercial service on October 1, 2014.
Choice Gas Program
The unbundling of the natural gas service from the distribution component, which opens up the gas supply for competition allowing customers to choose from different natural gas suppliers. Black Hills Gas Distribution distributes the gas and Black Hills Energy Service is one of the Choice Gas suppliers.
City of Gillette
Gillette, Wyoming
CO2
Carbon dioxide
Colorado Electric
Black Hills Colorado Electric Utility Company, LP, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings (doing business as Black Hills Energy)
Colorado Gas
Black Hills Colorado Gas Utility Company, LP, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings (doing business as Black Hills Energy)
Colorado Interstate Gas (CIG)
Colorado Interstate Natural Gas Pricing Index
Colorado IPP
Black Hills Colorado IPP, LLC a 50.1% owned subsidiary of Black Hills Electric Generation
Consolidated Indebtedness to Capitalization Ratio
Any Indebtedness outstanding at such time, divided by Capital at such time. Capital being Consolidated Net-Worth (excluding noncontrolling interest and including the aggregate outstanding amount of RSNs) plus Consolidated Indebtedness (including letters of credit, certain guarantees issued and excluding RSNs) as defined within the current Credit Agreement.
Cooling Degree Day
A cooling degree day is equivalent to each degree that the average of the high and low temperature for a day is above 65 degrees. The warmer the climate, the greater the number of cooling degree days.  Cooling degree days are used in the utility industry to measure the relative warmth of weather and to compare relative temperatures between one geographic area and another.  Normal degree days are based on the National Weather Service data for selected locations over a 30-year average.
Cost of Service Gas Program (COSG)
Proposed Cost of Service Gas Program designed to provide long-term natural gas price stability for the Company’s utility customers, along with a reasonable expectation of customer savings over the life of the program.
CPCN
Certificate of Public Convenience and Necessity
CPP
Clean Power Plan
CP Program
Commercial Paper Program
CPUC
Colorado Public Utilities Commission
CT
Combustion turbine
CTII
The 40 MW Gillette CT, a simple-cycle, gas-fired combustion turbine owned by the City of Gillette.

4



CVA
Credit Valuation Adjustment
DART
Days Away Restricted Transferred (number of cases with days away from work or job transfer or restrictions multiplied by 200,000 then divided by total hours worked for all employees during the year covered)
DC
Direct current
Dodd-Frank
Dodd-Frank Wall Street Reform and Consumer Protection Act
DSM
Demand Side Management
DRSPP
Dividend Reinvestment and Stock Purchase Plan
Dth
Dekatherm. A unit of energy equal to 10 therms or one million British thermal units (MMBtu)
EBITDA
Earnings before interest, taxes, depreciation and amortization, a non-GAAP measurement
ECA
Energy Cost Adjustment -- adjustments that allow us to pass the prudently-incurred cost of fuel and purchased energy through to customers.
Economy Energy
Electricity purchased by one utility from another utility to take the place of electricity that would have cost more to produce on the utility’s own system
Energy West
Energy West Wyoming, Inc., a subsidiary of Gas Natural, Inc. Energy West is an acquisition we closed on July 1, 2015.
Enserco
Enserco Energy Inc., a former wholly-owned subsidiary of Black Hills Non-regulated Holdings, which is presented in discontinued operations in this Annual Report filed on Form 10-K
EPA
United States Environmental Protection Agency
EPA Region VIII
EPA Region VIII (Mountains and Plains) located in Denver serving Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming and 27 Tribal Nations
Equity Unit
Each Equity Unit has a stated amount of $50, consisting of a purchase contract issued by BHC to purchase shares of BHC common stock and a 1/20, or 5% undivided beneficial ownership interest in $1,000 principal amount of BHC RSNs due 2028.
EWG
Exempt Wholesale Generator
FASB
Financial Accounting Standards Board
FDIC
Federal Depository Insurance Corporation
FERC
United States Federal Energy Regulatory Commission
Fitch
Fitch Ratings
GAAP
Accounting principles generally accepted in the United States of America
GADS
Generation Availability Data System
GCA
Gas Cost Adjustment -- adjustments that allow us to pass the prudently-incurred cost of gas and certain services through to customers.
GHG
Greenhouse gases
Global Settlement
Settlement with a utilities commission where the dollar figure is agreed upon, but the specific adjustments used by each party to arrive at the figure are not specified in public rate orders
Happy Jack
Happy Jack Wind Farm, LLC, owned by Duke Energy Generation Services
Heating Degree Day
A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The colder the climate, the greater the number of heating degree days. Heating degree days are used in the utility industry to measure the relative coldness of weather and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations over a 30 year average.
IEEE
Institute of Electrical and Electronics Engineers
Iowa Gas
Black Hills Iowa Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings (doing business as Black Hills Energy)
IPP
Independent power producer
IPP Transaction
The July 11, 2008 sale of seven of our IPP plants
IRS
United States Internal Revenue Service
KCC
Kansas Corporation Commission
Kansas Gas
Black Hills Kansas Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings (doing business as Black Hills Energy)
kV
Kilovolt

5



LIBOR
London Interbank Offered Rate
LOE
Lease Operating Expense
Loveland Area Project
Part of the Western Area Power Association transmission system
MACT
Maximum Achievable Control Technology
MAPP
Mid-Continent Area Power Pool
MATS
Utility Mercury and Air Toxics Rules under the United States EPA National Emissions Standards for Hazardous Air Pollutants from Coal and Oil Fired Electric Utility Steam Generating Units
Mbbl
Thousand barrels of oil
Mcf
Thousand cubic feet
Mcfd
Thousand cubic feet per day
Mcfe
Thousand cubic feet equivalent
MDU
Montana Dakota Utilities Co., a regulated utility division of MDU Resources Group, Inc.
MEAN
Municipal Energy Agency of Nebraska
MGP
Manufactured Gas Plant
MMBtu
Million British thermal units
MMcf
Million cubic feet
MMcfe
Million cubic feet equivalent
Moody’s
Moody’s Investors Service, Inc.
MSHA
Mine Safety and Health Administration
MTPSC
Montana Public Service Commission
MW
Megawatts
MWh
Megawatt-hours
N/A
Not Applicable
Native load
Energy required to serve customers within our service territory
NAV
Net Asset Value
Nebraska Gas
Black Hills Nebraska Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings (doing business as Black Hills Energy)
NERC
North American Electric Reliability Corporation
NGL
Natural Gas Liquids (1 barrel equals 6 Mcfe)
NOAA
National Oceanic and Atmospheric Administration
NOAA Climate Normals
This dataset is produced once every 10 years. This dataset contains daily and monthly normals of temperature, precipitation, snowfall, heating and cooling degree days, frost/freeze dates, and growing degree days calculated from observations at approximately 9,800 stations operated by NOAA’s National Weather Service.

NOx
Nitrogen oxide
NOL
Net operating loss
NPDES
National Pollutant Discharge Elimination System
NPSC
Nebraska Public Service Commission
NWPL
Northwest Interstate Natural Gas Pricing Index
NYMEX
New York Mercantile Exchange
NYSE
New York Stock Exchange
OCI
Other Comprehensive Income
OPEB
Other Post-Employment Benefits
OSHA
Occupational Safety & Health Administration
OSM
U.S. Department of the Interior’s Office of Surface Mining
OTC
Over-the-counter
PCA
Power Cost Adjustment
PCCA
Power Capacity Cost Adjustment
Peak View
$109 million 60 MW wind generating project owned by Colorado Electric, placed in service on November 7, 2016 and adjacent to Busch Ranch Wind Farm
PPA
Power Purchase Agreement

6



PPACA
Patient Protection and Affordable Care Act of 2010
PPB
Parts per billion
PUD
Proved undeveloped reserves
PUHCA 2005
Public Utility Holding Company Act of 2005
Quad O Regulation
40 CFR 60 Subpart OOOO - Standards of performance for crude oil and natural gas production, transmission and distribution
RCRA
Resource Conservation and Recovery Act
RICE
Reciprocating Internal Combustion Engines
REPA
Renewable Energy Purchase Agreement
Revolving Credit Facility
Our $750 million credit facility used to fund working capital needs, letters of credit and other corporate purposes, which matures in 2021
RMNG
Rocky Mountain Natural Gas, a regulated gas utility acquired in the SourceGas Acquisition that provides regulated transmission and wholesale natural gas service to Black Hills Gas Distribution in western Colorado (doing business as Black Hills Energy)
RSNs
Remarketable junior subordinated notes, issued on November 23, 2015
SAIDI
System Average Interruption Duration Index
SDPUC
South Dakota Public Utilities Commission
SEC
U. S. Securities and Exchange Commission
Service Guard
Home appliance repair product offering for both natural gas and electric.
Silver Sage
Silver Sage Windpower, LLC, owned by Duke Energy Generation Services
SO2
Sulfur dioxide
S&P
Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.
SourceGas
SourceGas Holdings LLC and its subsidiaries, a gas utility owned by funds managed by Alinda Capital Partners and GE Energy Financial Services, a unit of General Electric Co. (NYSE:GE) that was acquired on February 12, 2016, and is now named Black Hills Gas Holdings, LLC (doing business as Black Hills Energy)
SourceGas Acquisition
The acquisition of SourceGas Holdings, LLC by Black Hills Utility Holdings
SourceGas Transaction
On February 12, 2016, Black Hills Utility Holdings acquired SourceGas pursuant to a purchase and sale agreement executed on July 12, 2015 for approximately $1.89 billion, which included the assumption of $760 million in debt at closing.
Spinning Reserve
Generation capacity that is on-line but unloaded and that can respond within 10 minutes to compensate for generation or transmission outages
SSIR
System Safety and Integrity Rider
SSTAR-TEXOK
Natural gas price index tied to the Southern Star Central gas pipeline
System Peak Demand
Represents the highest point of customer usage for a single hour for the system in total. Our system peaks include demand loads for 100% of plants regardless of joint ownership.
TCA
Transmission Cost Adjustment -- adjustments passed through to the customer based on transmission costs that are higher or lower than the costs approved in the rate case.
TCIR
Total Case Incident Rate (average number of work-related injuries incurred by 100 workers during a one-year period)
VEBA
Voluntary Employee Benefit Association
VIE
Variable Interest Entity
VOC
Volatile Organic Compound
WDEQ
Wyoming Department of Environmental Quality
WECC
Western Electricity Coordinating Council
WPSC
Wyoming Public Service Commission
WRDC
Wyodak Resources Development Corp., a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings
WTI
West Texas Intermediate crude oil, an oil index benchmark price as quoted by NYMEX
Wyodak Plant
Wyodak, a 362 MW mine-mouth coal-fired plant in Gillette, Wyoming, owned 80% by PacifiCorp and 20% by Black Hills Energy South Dakota. Our WRDC mine supplies all of the fuel for the plant.



7



Website Access to Reports

The reports we file with the SEC are available free of charge at our website www.blackhillscorp.com as soon as reasonably practicable after they are filed. In addition, the charters of our Audit, Governance and Compensation Committees are located on our website along with our Code of Business Conduct, Code of Ethics for our Chief Executive Officer and Senior Finance Officers, Corporate Governance Guidelines of the Board of Directors and Policy for Director Independence. The information contained on our website is not part of this document.

Forward-Looking Information

This Form 10-K contains forward-looking statements as defined by the SEC. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words “anticipates,” “estimates,” “expects,” “intends,” “plans,” “predicts” and similar expressions, and include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Item 7 - Management’s Discussion & Analysis of Financial Condition and Results of Operations.

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

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

PART I

ITEMS 1 AND 2.
BUSINESS AND PROPERTIES

History and Organization

Black Hills Corporation, a South Dakota corporation (together with its subsidiaries, referred to herein as the “Company,” “we,” “us” or “our”), is a customer-focused, growth-oriented, vertically-integrated utility company headquartered in Rapid City, South Dakota. Our predecessor company, Black Hills Power and Light Company, was incorporated and began providing electric utility service in 1941. It was formed through the purchase and combination of several existing electric utilities and related assets, some of which had served customers in the Black Hills region since 1883. In 1956, with the purchase of the Wyodak Coal Mine, we began producing, selling and marketing various forms of energy through non-regulated businesses.

We operate our business in the United States, reporting our operating results through our regulated Electric Utilities segment, regulated Gas Utilities segment, Power Generation segment, Mining Segment and Oil and Gas Segment.

Our Electric Utilities segment generates, transmits and distributes electricity to approximately 208,500 electric customers in South Dakota, Wyoming, Colorado and Montana. Our Electric Utilities own 941 MW of generation and 8,806 miles of electric transmission and distribution lines.

Our Gas Utilities segment serves approximately 1,030,800 natural gas utility customers in Arkansas, Colorado, Iowa, Nebraska, Kansas and Wyoming. Our Gas Utilities own 4,585 miles of intrastate gas transmission pipelines and 40,044 miles of gas distribution mains and service lines. On February 12, 2016, we acquired SourceGas Holdings, LLC, adding four regulated natural gas utilities serving approximately 431,000 customers in Arkansas, Colorado, Nebraska and Wyoming and a 512 mile regulated intrastate natural gas transmission pipeline in Colorado. For additional information on this acquisition, see the Key Elements of our Business Strategy in Item 7 and Note 2 in the Notes to Consolidated Financial Statements in Item 8.

8




Our Power Generation segment produces electric power from its generating plants and sells the electric capacity and energy primarily to our utilities under long-term contracts. Our Mining segment produces coal at our mine near Gillette, Wyoming, and sells the coal primarily under long-term contracts to mine-mouth electric generation facilities including our own regulated and non-regulated generating plants. Our Oil and Gas segment engages in the exploration, development and production of crude oil and natural gas, primarily in the Rocky Mountain region, with a focus on divesting non-core oil and gas assets and retaining those best suited to assist utilities with the implementation of cost of service gas programs. For additional information, see the Key Elements of our Business Strategy in Item 7.

Our segments generated the following net income (loss) available for common stock for the year ended December 31, 2016 and had the following total assets at December 31, 2016 (excluding Corporate):
 
Net income (loss) available for common stock for the year ended December 31, 2016
Total Assets as of December 31, 2016
 
(in thousands)
Electric Utilities
$85,827
$2,859,559
Gas Utilities
$59,624
$3,307,967
Power Generation
$25,930
$73,445
Mining
$10,053
$67,347
Oil and Gas
($71,054)
$96,435

Segment reporting transition of Cheyenne Light’s Natural Gas distribution

Effective January 1, 2016, the natural gas operations of Cheyenne Light are reported in our Gas Utilities Segment. Through December 31, 2015, Cheyenne Light’s natural gas operations were included in our Electric Utilities Segment as these natural gas operations were consolidated within Cheyenne Light since its acquisition. This change is a result of our business segment reorganization to, among other things, integrate all regulated natural gas operations, including the SourceGas Acquisition, into our Gas Utilities Segment which is led by the Group Vice President, Natural Gas Utilities. Likewise, all regulated electric utility operations including Cheyenne Light’s electric utility operations are reported in our Electric Utilities Segment, which is led by the Group Vice President, Electric Utilities. The prior periods have been reclassified to reflect this change in presentation between the Electric Utilities and Gas Utilities segments.

Segment Financial Information

We discuss our business strategy and other prospective information in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations. Financial information regarding our business segments is incorporated herein by reference to Item 8 - Financial Statements and Supplementary Data, and particularly Note 5 in the Notes to the Consolidated Financial Statements, in this Annual Report on Form 10-K.

Utility Rebranding

All of our utilities now operate with the trade name Black Hills Energy. We expanded our regulated operations with the acquisition of SourceGas, as well as with our 2015 utility acquisitions. We rebranded our Cheyenne Light utilities, Black Hills Power utility and our SourceGas utilities to operate under the name Black Hills Energy, conforming to the name under which our other utilities operate. Within our Electric Utilities segment and our Gas Utilities segment, references made to our utilities are presented as follows according to their respective state:

Electric Utilities Segment

Black Hills Energy South Dakota Electric - includes all Black Hills Power utility operations in South Dakota, Wyoming and Montana.

Black Hills Energy Wyoming Electric - includes all Cheyenne Light electric utility operations.

Black Hills Energy Colorado Electric - includes all Colorado Electric utility operations.


9



Gas Utilities Segment

Black Hills Energy Arkansas Gas - includes the acquired SourceGas utility Black Hills Energy Arkansas operations.

Black Hills Energy Colorado Gas - includes Black Hills Energy Colorado Gas utility operations, as well as the acquired SourceGas utility Black Hills Gas Distribution’s Colorado operations and RMNG operations.

Black Hills Energy Nebraska Gas - includes Black Hills Energy Nebraska gas utility operations, as well as the acquired SourceGas utility Black Hills Gas Distribution’s Nebraska operations.

Black Hills Energy Iowa Gas - includes Black Hills Energy Iowa gas utility operations.

Black Hills Energy Kansas Gas - includes Black Hills Energy Kansas gas utility operations.

Black Hills Energy Wyoming Gas - includes Cheyenne Light’s natural gas utility operations, as well as the acquired SourceGas utility Black Hills Gas Distribution’s Wyoming operations.

Black Hills Energy Services - includes the acquired SourceGas Utility Black Hills Energy Services operations.

Electric Utilities Segment

We conduct electric utility operations through our South Dakota, Wyoming and Colorado subsidiaries. Our Electric Utilities generate, transmit and distribute electricity to approximately 208,500 customers in South Dakota, Wyoming, Colorado and Montana. Our electric generating facilities and power purchase agreements provide for the supply of electricity principally to our own distribution systems. Additionally, we sell excess power to other utilities and marketing companies, including our affiliates. We also provide non-regulated services through our Tech Services product lines. Tech Services provides electrical system construction services to large industrial customers of our electric utilities.

Capacity and Demand

System peak demands for the Electric Utilities for each of the last three years are listed below:
 
System Peak Demand (in MW)
 
2016
 
2015
 
2014
 
Summer
Winter
 
Summer
Winter
 
Summer
 
Winter
South Dakota Electric
438
389
 
424
369
 
410
 
389
Wyoming Electric (a)
236
230
 
212
202
 
198
 
197
Colorado Electric (b)
412
302
 
392
303
 
384
 
298
Total Electric Utilities Peak Demands
1,086
921
 
1,028
874
 
992
 
884
________________________
(a)
Both 2016 summer and winter peaks are records set in July and December, respectively, replacing summer and winter record peaks set in July and December of 2015.
(b)
New summer peak load for Colorado Electric achieved in July 2016, replacing the previous all-time summer peak of 406 set in June 2016, and of 400 set in June 2012.

10



Regulated Power Plants

As of December 31, 2016, our Electric Utilities’ ownership interests in electric generation plants were as follows:

Unit
Fuel
Type
Location
Ownership
Interest %
Owned Capacity (MW)
Year
Installed
South Dakota Electric:
 
 
 
 
 
Cheyenne Prairie (a)
Gas
Cheyenne, Wyoming
58%
55.0
2014
Wygen III (b)
Coal
Gillette, Wyoming
52%
57.2
2010
Neil Simpson II
Coal
Gillette, Wyoming
100%
90.0
1995
Wyodak (c)
Coal
Gillette, Wyoming
20%
72.4
1978
Neil Simpson CT
Gas
Gillette, Wyoming
100%
40.0
2000
Lange CT
Gas
Rapid City, South Dakota
100%
40.0
2002
Ben French Diesel #1-5
Oil
Rapid City, South Dakota
100%
10.0
1965
Ben French CTs #1-4
Gas/Oil
Rapid City, South Dakota
100%
80.0
1977-1979
Wyoming Electric:
 
 
 
 
 
Cheyenne Prairie (a)
Gas
Cheyenne, Wyoming
42%
40.0
2014
Cheyenne Prairie CT (a)
Gas
Cheyenne, Wyoming
100%
37.0
2014
Wygen II
Coal
Gillette, Wyoming
100%
95.0
2008
Colorado Electric:
 
 
 
 
 
Busch Ranch Wind Farm (d)
Wind
Pueblo, Colorado
50%
14.5
2012
Peak View Wind Farm (e)
Wind
Pueblo, Colorado
100%
60.0
2016
Pueblo Airport Generation
Gas
Pueblo, Colorado
100%
180.0
2011
Pueblo Airport Generation CT (f)
Gas
Pueblo, Colorado
100%
40.0
2016
AIP Diesel
Oil
Pueblo, Colorado
100%
10.0
2001
Diesel #1-5
Oil
Pueblo, Colorado
100%
10.0
1964
Diesel #1-5
Oil
Rocky Ford, Colorado
100%
10.0
1964
Total MW Capacity
 
 
 
941.1
 
________________________
(a)
Cheyenne Prairie, a 132 MW natural gas-fired power generation facility was placed into commercial operation on October 1, 2014 to support the customers of South Dakota Electric and Wyoming Electric. The facility includes one simple-cycle, 37 MW combustion turbine that is wholly-owned by Wyoming Electric and one combined-cycle, 95 MW unit that is jointly-owned by Wyoming Electric (40 MW) and South Dakota Electric (55 MW).
(b)
Wygen III, a 110 MW mine-mouth coal-fired power plant, is operated by South Dakota Electric. South Dakota Electric has a 52% ownership interest, MDU owns 25% and the City of Gillette owns the remaining 23% interest. Our WRDC coal mine supplies all of the fuel for the plant.
(c)
Wyodak, a 362 MW mine-mouth coal-fired power plant, is owned 80% by PacifiCorp and 20% by South Dakota Electric. This baseload plant is operated by PacifiCorp and our WRDC coal mine supplies all of the fuel for the plant.
(d)
Busch Ranch Wind Farm, a 29 MW wind farm, is operated by Colorado Electric. Colorado Electric has a 50% ownership interest in the wind farm and AltaGas owns the remaining 50%. Colorado Electric has a 25-year REPA with AltaGas for their 14.5 MW of power from the wind farm.
(e)
Peak View Wind Farm achieved commercial operation on November 7, 2016.
(f)
Colorado Electric’s newly constructed LM 6000, which achieved commercial operation on December 29, 2016.

11


The Electric Utilities’ annual average cost of fuel utilized to generate electricity and the average price paid for purchased power (excluding contracted capacity) per MWh for the years ended December 31 is as follows:
Fuel Source (dollars per MWh)
2016
2015
2014
Coal
$
11.27

$
10.89

$
10.92

 
 
 
 
Natural Gas (a)
$
30.59

$
51.14

$
77.31

 
 
 
 
Diesel Oil (b)
$
149.13

$
303.16

$
174.04

 
 
 
 
Total Average Fuel Cost
$
12.99

$
14.62

$
14.82

 
 
 
 
Purchased Power - Coal, Gas and Oil
$
48.36

$
47.81

$
35.21

 
 
 
 
Purchased Power - Renewable Sources
$
51.95

$
50.92

$
50.27

______________
(a)
Decrease is driven by lower 2016 natural gas costs than the prior year.
(b)
Decrease is due to combination of lower fuel costs in 2016 and the efficiencies at which the diesel units performed compared to the prior year.

Our Electric Utilities’ power supply, by resource as a percent of the total power supply for our energy needs for the years ended December 31 is as follows:
Power Supply
2016
2015
2014
Coal
33
%
33
%
34
%
Gas, Oil and Wind
7

4

4

Total Generated
40

37

38

Purchased (a)
60

63

62

Total
100
%
100
%
100
%
______________
(a)
Wind represents approximately 7% of our purchased power in 2016, and approximately 5% of our purchased power in 2015 and 2014.

Purchased Power. We have executed various agreements to support our Electric Utilities’ capacity and energy needs beyond our regulated power plants’ generation. Key contracts include:

South Dakota Electric’s PPA with PacifiCorp expiring on December 31, 2023, which provides for the purchase of 50 MW of coal-fired baseload power;

Colorado Electric’s PPA with Black Hills Colorado IPP expiring on December 31, 2031, which provides 200 MW of energy and capacity to Colorado Electric from Black Hills Colorado IPP’s combined-cycle turbines. This PPA is reported and accounted for as a capital lease within our business segments and is eliminated on the accompanying Consolidated Financial Statements;

Colorado Electric’s PPA with AltaGas expiring on October 16, 2037, which provides up to 14.5 MW of wind energy from AltaGas’ owned interest in the Busch Ranch Wind Farm;

Wyoming Electric’s PPA with Black Hills Wyoming expiring on December 31, 2022, whereby Black Hills Wyoming provides 60 MW of unit-contingent capacity and energy from its Wygen I facility. The PPA includes an option for Wyoming Electric to purchase Black Hills Wyoming’s ownership interest in the Wygen I facility through 2019, subject to WPSC and FERC approval in order to obtain regulatory treatment. The purchase price related to the option is $2.6 million per MW adjusted for capital additions and reduced by depreciation over a 35-year life beginning January 1, 2009 (approximately $5 million per year);

Wyoming Electric’s 20-year PPA with Duke Energy expiring on September 3, 2028, which provides up to 29.4 MW of wind energy from the Happy Jack Wind Farm to Wyoming Electric. Under a separate inter-company agreement, Wyoming Electric sells 50% of the facility’s output to South Dakota Electric;

12



Wyoming Electric’s 20-year PPA with Duke Energy expiring on September 30, 2029, which provides up to 30 MW of wind energy from the Silver Sage wind farm to Wyoming Electric. Under a separate inter-company agreement, Wyoming Electric sells 20 MW of the facility’s output to South Dakota Electric; and

Wyoming Electric and South Dakota Electric’s Generation Dispatch Agreement requires South Dakota Electric to purchase all of Wyoming Electric’s excess energy.

Power Sales Agreements. Our Electric Utilities have various long-term power sales agreements. Key agreements include:

MDU owns a 25% interest in Wygen III’s net generating capacity for the life of the plant. During periods of reduced production at Wygen III, or during periods when Wygen III is off-line, South Dakota Electric will provide MDU with 25 MW from its other generation facilities or from system purchases with reimbursement of costs by MDU;

South Dakota Electric has an agreement through December 31, 2023 to provide MDU capacity and energy up to a maximum of 50 MW;

The City of Gillette owns a 23% interest in Wygen III’s net generating capacity for the life of the plant. During periods of reduced production at Wygen III, or during periods when Wygen III is off-line, South Dakota Electric will provide the City of Gillette with its first 23 MW from its other generation facilities or from system purchases with reimbursement of costs by the City of Gillette. Under this agreement, South Dakota Electric will also provide the City of Gillette its operating component of spinning reserves; and

South Dakota Electric has an agreement to supply up to 20 MW of energy and capacity to MEAN under a contract that expires in 2023. This contract is unit-contingent based on the availability of our Neil Simpson II and Wygen III plants, with decreasing capacity purchased over the term of the agreement. The unit-contingent capacity amounts from Wygen III and Neil Simpson II are as follows:
2017
20 MW - 10 MW contingent on Wygen III and 10 MW contingent on Neil Simpson II
2018-2019
15 MW - 10 MW contingent on Wygen III and 5 MW contingent on Neil Simpson II
2020-2021
12 MW - 6 MW contingent on Wygen III and 6 MW contingent on Neil Simpson II
2022-2023
10 MW - 5 MW contingent on Wygen III and 5 MW contingent on Neil Simpson II

Transmission and Distribution. Through our Electric Utilities, we own electric transmission systems composed of high voltage transmission lines (greater than 69 kV) and low voltage lines (69 kV or less). We also jointly own high voltage lines with Basin Electric and Powder River Energy Corporation.

At December 31, 2016, our Electric Utilities owned the electric transmission and distribution lines shown below:
Utility
State
Transmission
(in Line Miles)
Distribution
(in Line Miles)
South Dakota Electric
South Dakota, Wyoming
1,260

2,497

South Dakota Electric - Jointly Owned (a)
South Dakota, Wyoming
44


Wyoming Electric
South Dakota, Wyoming
44

1,279

Colorado Electric
Colorado
590

3,092

__________________________
(a)
South Dakota Electric owns 35% of a DC transmission tie that interconnects the Western and Eastern transmission grids, which are independently-operated transmission grids serving the western United States and eastern United States, respectively. This transmission tie, which is 65% owned by Basin Electric, provides transmission access to both the WECC region in the West and the MAPP region in the East. The transfer capacity of the tie is 200 MW from West to East, and 200 MW from East to West. South Dakota Electric’s electric system is located in the WECC region. This transmission tie allows us to buy and sell energy in the Eastern grid without having to isolate and physically reconnect load or generation between the two transmission grids, thus enhancing the reliability of our system. It accommodates scheduling transactions in both directions simultaneously, provides additional opportunities to sell excess generation or to make economic purchases to serve our native load and contract obligations, and enables us to take advantage of power price differentials between the two grids.

South Dakota Electric has firm point-to-point transmission access to deliver up to 50 MW of power on PacifiCorp’s transmission system to wholesale customers in the WECC region through 2023.


13


South Dakota Electric also has firm network transmission access to deliver power on PacifiCorp’s system to Sheridan, Wyoming, to serve our power sales contract with MDU through 2017, with the right to renew pursuant to the terms of PacifiCorp’s transmission tariff.

In order to serve Wyoming Electric’s existing load, Wyoming Electric has a network transmission agreement with Western Area Power Association’s Loveland Area Project.

Operating Agreements. Our Electric Utilities have the following material operating agreements:

Shared Services Agreements -

South Dakota Electric, Wyoming Electric, and Black Hills Wyoming are parties to a shared facilities agreement, whereby each entity charges for the use of assets by the affiliate entity.

Black Hills Colorado IPP and Colorado Electric are also parties to a facility fee agreement, whereby Colorado Electric charges Black Hills Colorado IPP for the use of Colorado Electric assets.

South Dakota Electric and Wyoming Electric receive certain staffing and management services from BHSC for Cheyenne Prairie.

Jointly Owned Facilities -

South Dakota Electric, the City of Gillette and MDU are parties to a shared joint ownership agreement, whereby South Dakota Electric charges the City of Gillette and MDU for administrative services, plant operations and maintenance for their share of the Wygen III generating facility for the life of the plant.

Colorado Electric and AltaGas are parties to a shared joint ownership agreement whereby Colorado Electric charges AltaGas for operations and maintenance for their share of the Busch Ranch Wind Farm.

Operating Statistics

The following tables summarize information for our Electric Utilities:

Degree Days
2016
2015
2014
 
Actual
Variance from Prior Year
Variance from 30-Year Average (b)
Actual
Variance from Prior Year
Variance from 30-Year Average (b)
Actual
Variance from 30-Year Average (b)
Heating Degree Days:
 
 
 
 
 
 
 
 
South Dakota Electric
6,402

(2)%
(10)%
6,521

(12)%
(8)%
7,373

4%
Wyoming Electric
6,363

(1)%
(14)%
6,404

(10)%
(10)%
7,100

—%
Colorado Electric
4,658

(4)%
(16)%
4,846

(12)%
(12)%
5,534

—%
Combined (a)
5,595

(2)%
(13)%
5,729

(11)%
(10)%
6,473

2%
 
 
 
 
 
 
 
 
 
Cooling Degree Days:
 
 
 
 
 
 
 
 
South Dakota Electric
646

12%
(4)%
577

20%
(14)%
481

(28)%
Wyoming Electric
460

13%
31%
407

21%
16%
336

(5)%
Colorado Electric
1,358

7%
42%
1,270

38%
32%
919

(4)%
Combined (a)
935

9%
26%
861

32%
16%
654

(12)%
________________
(a)
The combined heating degree days are calculated based on a weighted average of total customers by state.
(b)
30-Year Average is from NOAA Climate Normals.

14


Revenue - Electric (in thousands)
2016
2015
2014
Residential:
 
 
 
South Dakota Electric
$
72,084

$
72,659

$
69,712

Wyoming Electric
39,553

39,587

36,634

Colorado Electric
97,088

97,418

94,391

Total Residential
208,725

209,664

200,737

 
 
 
 
Commercial:
 
 
 
South Dakota Electric
97,579

100,511

91,882

Wyoming Electric
64,042

64,207

59,758

Colorado Electric
97,147

93,821

90,909

Total Commercial
258,768

258,539

242,549

 
 
 
 
Industrial:
 
 
 
South Dakota Electric
33,409

33,336

28,451

Wyoming Electric (a)
45,498

36,594

29,066

Colorado Electric
39,274

42,325

39,219

Total Industrial
118,181

112,255

96,736

 
 
 
 
Municipal:
 
 
 
South Dakota Electric
3,705

3,626

3,409

Wyoming Electric
2,122

2,179

1,930

Colorado Electric
11,994

12,058

13,312

Total Municipal
17,821

17,863

18,651

 
 
 
 
Subtotal Retail Revenue - Electric
603,495

598,321

558,673

 
 
 
 
Contract Wholesale:
 
 
 
Total Contract Wholesale - South Dakota Electric
17,037

17,537

21,206

 
 
 
 
Off-system/Power Marketing Wholesale:
 
 
 
South Dakota Electric (b)
15,431

23,241

28,002

Wyoming Electric
5,471

5,215

8,179

Colorado Electric
1,453

1,270

5,726

Total Off-system/Power Marketing Wholesale
22,355

29,726

41,907

 
 
 
 
Other Revenue: (c)
 
 
 
South Dakota Electric
28,387

26,954

25,826

Wyoming Electric
920

2,374

2,253

Colorado Electric
5,087

4,931

7,691

Total Other Revenue
34,394

34,259

35,770

 
 
 
 
Total Revenue - Electric
$
677,281

$
679,843

$
657,556

_____________________
(a)
Increase is driven primarily by load growth supporting data centers in Cheyenne, Wyoming.
(b)
Decrease is due to lower commodity prices that reduced gross sales.
(c)
Other revenue primarily consists of transmission revenue.

15



Quantities Generated and Purchased (MWh)
2016
2015
2014
Generated:
 
 
 
Coal-fired:
 
 
 
South Dakota Electric (a)(b)
1,467,403

1,537,744

1,591,061

Wyoming Electric (c)
734,354

690,633

697,220

Total Coal - fired
2,201,757

2,228,377

2,288,281

 
 
 
 
Natural Gas and Oil:
 
 
 
South Dakota Electric (a)(d)
118,467

80,944

44,984

Wyoming Electric (a)(d)
70,997

48,644

12,534

Colorado Electric (e)
153,537

100,732

140,942

Total Natural Gas and Oil
343,001

230,320

198,460

 
 
 
 
Wind:
 
 
 
Colorado Electric (f)
80,582

41,043

48,318

Total Wind
80,582

41,043

48,318

 
 
 
 
Total Generated:
 
 
 
South Dakota Electric
1,585,870

1,618,688

1,636,045

Wyoming Electric
805,351

739,277

709,754

Colorado Electric
234,119

141,775

189,260

Total Generated
2,625,340

2,499,740

2,535,059

 
 
 
 
Purchased:
 
 
 
South Dakota Electric
1,181,445

1,422,015

1,446,630

Wyoming Electric
872,070

791,351

766,475

Colorado Electric (e)
1,911,537

1,952,625

1,898,232

Total Purchased (g)
3,965,052

4,165,991

4,111,337

 
 
 
 
Total Generated and Purchased
6,590,392

6,665,731

6,646,396

_______________
(a)
Natural gas-fired generation from Cheyenne Prairie increased in 2016 primarily due to lower coal fired generation driven by 2016 outages at the coal-fired Wyodak plant.
(b)
Neil Simpson I was retired on March 21, 2014.
(c)
Increase in 2016 was due to a 2015 planned annual outage at Wygen II.
(d)
Cheyenne Prairie was placed into commercial service on October 1, 2014.
(e)
Lower commodity prices drove an increase in generation and a corresponding decrease in purchased power.
(f)
Increase in 2016 is due to the addition of the Peak View Wind Project in November 2016.
(g)
Includes wind power of 269,552 MWh, 227,396 MWh and 224,229 MWh in 2016, 2015 and 2014, respectively.


16


Quantities Sold (MWh)
2016
2015
2014
Residential:
 
 
 
South Dakota Electric
520,798

521,828

542,008

Wyoming Electric
257,593

256,964

261,038

Colorado Electric
616,706

621,109

598,872

Total Residential
1,395,097

1,399,901

1,401,918

 
 
 
 
Commercial:
 
 
 
South Dakota Electric
783,319

792,466

782,238

Wyoming Electric
531,446

532,218

528,689

Colorado Electric
752,721

706,872

685,094

Total Commercial
2,067,486

2,031,556

1,996,021

 
 
 
 
Industrial:
 
 
 
South Dakota Electric
429,912

429,140

399,648

Wyoming Electric (a)
650,810

498,141

382,306

Colorado Electric
434,831

472,360

432,167

Total Industrial
1,515,553

1,399,641

1,214,121

 
 
 
 
Municipal:
 
 
 
South Dakota Electric
33,591

31,924

32,076

Wyoming Electric
9,400

9,714

9,425

Colorado Electric
119,392

117,858

122,247

Total Municipal
162,383

159,496

163,748

 
 
 
 
Subtotal Retail Quantity Sold
5,140,519

4,990,594

4,775,808

 
 
 
 
Contract Wholesale:
 
 
 
Total Contract Wholesale - South Dakota Electric (b)
246,630

260,893

340,871

 
 
 
 
Off-system Wholesale:
 
 
 
South Dakota Electric (c)
597,695

837,120

808,257

Wyoming Electric
110,621

121,659

191,069

Colorado Electric
61,527

41,306

119,315

Total Off-system Wholesale
769,843

1,000,085

1,118,641

 
 
 
 
Total Quantity Sold:
 
 
 
South Dakota Electric
2,611,945

2,873,371

2,905,098

Wyoming Electric
1,559,870

1,418,696

1,372,527

Colorado Electric
1,985,177

1,959,505

1,957,695

Total Quantity Sold
6,156,992

6,251,572

6,235,320

 
 
 
 
Other Uses, Losses or Generation, net (d):
 
 
 
South Dakota Electric
155,370

167,332

177,577

Wyoming Electric
117,551

111,932

103,702

Colorado Electric
160,479

134,895

129,797

Total Other Uses, Losses and Generation, net
433,400

414,159

411,076

 
 
 
 
Total Energy Sold
6,590,392

6,665,731

6,646,396

________________________
(a)
Year over year increases since 2014 are driven by new load supporting data centers in Cheyenne, Wyoming.
(b)
Decrease in 2015 is primarily due to the expiration in March 2015 of a 5 MW unit contingent capacity contract with MEAN.
(c)
Decrease in 2016 is driven by weaker market conditions.
(d)
Includes Company uses, line losses, test energy and excess exchange production.


17


Customers at End of Year
2016
2015
2014
Residential:
 
 
 
South Dakota Electric
57,712

57,178

56,511

Wyoming Electric
36,748

36,438

36,253

Colorado Electric
83,873

83,285

82,710

Total Residential
178,333

176,901

175,474

 
 
 
 
Commercial:
 
 
 
South Dakota Electric
13,278

13,197

13,173

Wyoming Electric
4,560

4,760

4,489

Colorado Electric
11,248

11,215

11,156

Total Commercial
29,086

29,172

28,818

 
 
 
 
Industrial:
 
 
 
South Dakota Electric
21

20

23

Wyoming Electric
5

4

4

Colorado Electric
62

63

66

Total Industrial
88

87

93

 
 
 
 
Other Electric Customers:
 
 
 
South Dakota Electric
340

335

325

Wyoming Electric
218

220

224

Colorado Electric
441

469

469

Total Other Electric Customers
999

1,024

1,018

 
 
 
 
Subtotal Retail Customers
208,506

207,184

205,403

 
 
 
 
Contract Wholesale:
 
 
 
Total Contract Wholesale - South Dakota Electric
2

3

3

 
 
 
 
Total Customers:
 
 
 
South Dakota Electric
71,353

70,733

70,035

Wyoming Electric
41,531

41,422

40,970

Colorado Electric
95,624

95,032

94,401

Total Electric Customers at End of Year
208,508

207,187

205,406



18




Gas Utilities Segment

We conduct natural gas utility operations through our Arkansas, Colorado, Iowa, Kansas, Wyoming and Nebraska subsidiaries. On February 12, 2016, we acquired SourceGas Holdings, LLC, adding four regulated natural gas utilities serving approximately 431,000 customers in Arkansas, Colorado, Nebraska and Wyoming and a 512 mile regulated intrastate natural gas transmission pipeline in Colorado. Our Gas Utilities distribute and transport natural gas through our distribution network to approximately 1,030,800 customers. Additionally, we sell temporarily-available, contractual pipeline capacity and gas commodities to other utilities and marketing companies, including our affiliates.

We also provide non-regulated services through Black Hills Energy Services. Black Hills Energy Services has approximately 55,000 retail distribution customers in Nebraska and Wyoming providing unbundled natural gas commodity offerings under the regulatory-approved Choice Gas Program. We also sell, install and service air, heating and water-heating equipment, and provide associated repair service and appliance protection plans under various trade names. Service Guard and CAPP primarily provide appliance repair services to approximately 61,000, and 33,000 residential customers, respectively, through Company technicians and third-party service providers, typically through on-going monthly service agreements. Tech Services primarily serves gas transportation customers throughout our service territory by constructing and maintaining customer-owned gas infrastructure facilities, typically through one-time contracts.

Our Gas Utilities own regulated underground gas storage facilities in several states primarily to supplement the supply of natural gas to our customers in periods of peak demand. The following table summarizes certain information regarding our regulated underground gas storage facilities as of December 31, 2016:

 
State
Working Capacity (Mcf)
Cushion Gas (Mcf) (a)
Total Capacity (Mcf)
Maximum Daily Withdrawal Capability (Mcfd)
 
 
Arkansas
8,442,700

12,950,000

21,392,700

196,000

 
Colorado
2,168,721

6,063,249

8,231,970

30,000

 
Wyoming
6,813,400

17,270,200

24,083,600

32,950

 
Total
17,424,821

36,283,449

53,708,270

258,950

________________
(a)
Cushion gas represents the volume of gas that must be retained in a facility to maintain reservoir pressure.

The following tables summarize certain operating information for our Gas Utilities.

System Infrastructure (in line miles) as of
Intrastate Gas
Transmission Pipelines
Gas Distribution
Mains
Gas Distribution
Service Lines
December 31, 2016
Arkansas
886

4,572

906

Colorado
678

6,481

2,323

Nebraska
1,249

8,330

3,319

Iowa
180

2,740

2,639

Kansas
293

2,826

1,328

Wyoming
1,299

3,372

1,208

Total
4,585

28,321

11,723



19



Degree Days

 
2016
 
2015
 
2014
 
Actual
Variance From Prior Year
Variance From
30-Year Average (d)
 
Actual
Variance From Prior Year
Variance From
30-Year Average (d)
 
Actual
Variance From
30-Year Average (d)
Heating Degree Days:
 
 
 
 
 
 
 
 
 
 
Arkansas (a)
2,397

—%
(10)%
 

—%
—%
 

—%
Colorado
5,762

4%
(9)%
 
5,527

(10)%
(12)%
 
6,108

(3)%
Nebraska
5,457

2%
(12)%
 
5,350

(14)%
(12)%
 
6,193

2%
Iowa
5,997

(10)%
(12)%
 
6,629

(16)%
(2)%
 
7,875

16%
Kansas (b)
4,307

(3)%
(12)%
 
4,432

(13)%
(9)%
 
5,099

4%
Wyoming
6,750

5%
(8)%
 
6,404

(10)%
(10)%
 
7,100

—%
Combined (c)
5,823

(1)%
(10)%
 
5,890

(13)%
(8)%
 
6,805

6%
________________
(a)
Arkansas has a weather normalization mechanism in effect during the months of November through April for those customers with residential and business rate schedules. The weather normalization mechanism in Arkansas only uses one location to calculate the weather, minimizing, but not eliminating weather impact.
(b)
Kansas Gas has an approved weather normalization mechanism within its rate structure, which minimizes weather impact on gross margins, using multiple locations.
(c)
The combined heating degree days are calculated based on a weighted average of total customers by state excluding Kansas Gas due to its weather normalization mechanism.
(d)
30-Year Average is from NOAA climate normals.


20



Operating Statistics
Gas Utilities Revenue (in thousands)
2016
2015
2014
Residential:
 
 
 
Arkansas
$
59,675

$

$

Colorado
102,468

55,216

58,439

Nebraska
98,300

111,090

135,052

Iowa
80,480

90,865

124,145

Kansas
56,284

61,420

74,128

Wyoming
35,899

23,554

24,426

Total Residential
433,106

342,145

416,190

 
 
 
 
Commercial:
 
 
 
Arkansas
29,460



Colorado
36,431

10,744

12,233

Nebraska
27,742

32,798

39,947

Iowa
33,119

39,314

60,640

Kansas
18,241

21,802

24,966

Wyoming
17,554

12,916

11,279

Total Commercial
162,547

117,574

149,065

 
 
 
 
Industrial:
 
 
 
Arkansas
4,904



Colorado
1,837

1,433

1,909

Nebraska
458

1,339

830

Iowa
1,777

2,633

4,386

Kansas
8,892

12,887

16,963

Wyoming
3,377

4,106

2,945

Total Industrial
21,245

22,398

27,033

 
 
 
 
Other:
 
 
 
Arkansas
2,644



Colorado
1,006

464

118

Nebraska
3,479

2,271

2,440

Iowa
506

580

724

Kansas
4,177

4,475

2,836

Wyoming
882

275

267

Total Other
12,694

8,065

6,385

 
 
 
 
Distribution Revenue:
 
 
 
Arkansas
96,683



Colorado
141,742

67,857

72,699

Nebraska
129,979

147,498

178,269

Iowa
115,882

133,392

189,895

Kansas
87,594

100,584

118,893

Wyoming
57,712

40,851

38,917

Total Distribution Revenue
629,592

490,182

598,673

 
 
 
 
Transportation:
 
 
 
Arkansas
8,348



Colorado
3,752

1,037

968

Nebraska (a)
66,241

13,427

14,272

Iowa
4,844

4,762

4,934

Kansas
6,611

7,280

7,448

Wyoming (a)
21,962

3,310

838

Total Transportation
111,758

29,816

28,460



21



Transmission:
 
 
 
Arkansas
1,339



Colorado
21,713



Wyoming
4,680



Total Transmission
27,732



 
 
 
 
Total Regulated Revenue
769,082

519,998

627,133

 
 
 
 
Non-regulated Services
69,261

31,302

30,390

 
 
 
 
Total Revenue
$
838,343

$
551,300

$
657,523


Gas Utilities Gross Margin (in thousands)
2016
2015
2014
Residential:
 
 
 
Arkansas
$
39,324

$

$

Colorado
42,853

18,153

18,100

Nebraska
51,953

51,168

54,996

Iowa
42,030

41,638

44,134

Kansas
30,794

31,789

32,809

Wyoming
21,558

13,011

11,615

Total Residential
228,512

155,759

161,654

 
 
 
 
Commercial:
 
 
 
Arkansas
16,119



Colorado
13,128

2,921

3,048

Nebraska
10,942

10,822

11,708

Iowa
11,620

11,662

13,206

Kansas
7,419

8,409

8,115

Wyoming
8,147

4,678

3,582

Total Commercial
67,375

38,492

39,659

 
 
 
 
Industrial:
 
 
 
Arkansas
1,776



Colorado
670

395

464

Nebraska
194

393

239

Iowa
215

253

294

Kansas
2,020

2,529

2,336

Wyoming
726

733

525

Total Industrial
5,601

4,303

3,858

 
 
 
 
Other:
 
 
 
Arkansas
2,644



Colorado
1,006

464

118

Nebraska
3,479

2,271

2,441

Iowa
506

580

724

Kansas
4,177

4,405

1,990

Wyoming
882

275

266

Total Other
12,694

7,995

5,539

 
 
 
 
Distribution Gross Margin:
 
 
 
Arkansas
59,863



Colorado
57,657

21,933

21,730

Nebraska
66,568

64,654

69,384

Iowa
54,371

54,133

58,358

Kansas
44,410

47,132

45,250

Wyoming
31,313

18,697

15,988

Total Distribution Gross Margin
314,182

206,549

210,710

 
 
 
 

22



Transportation:
 
 
 
Arkansas
8,348



Colorado
3,752

1,037

968

Nebraska (a)
66,241

13,427

14,272

Iowa
4,844

4,762

4,934

Kansas
6,611

7,280

7,448

Wyoming (a)
21,962

3,310

838

Total Transportation
111,758

29,816

28,460

 
 
 
 
Transmission:
 
 
 
Arkansas
1,339



Colorado
21,504



Wyoming
4,681



Total Transmission
27,524



 
 
 
 
Total Regulated Gross Margin:
 
 
 
Arkansas
69,550



Colorado
82,913

22,970

22,698

Nebraska
132,809

78,081

83,656

Iowa
59,215

58,895

63,292

Kansas
51,021

54,412

52,698

Wyoming
57,956

22,007

16,826

Total Regulated Gross Margin
453,464

236,365

239,170

 
 
 
 
Non-regulated Services
32,714

15,290

14,572

 
 
 
 
Total Gross Margin
$
486,178

$
251,655

$
253,742


Gas Utilities Quantities Sold and Transported (in Dth)
2016
2015
2014
Residential:
 
 
 
Arkansas
6,052,792



Colorado
12,634,407

6,575,261

6,718,508

Nebraska
10,676,153

10,751,376

13,068,132

Iowa
9,567,386

9,648,973

12,172,281

Kansas
5,866,246

6,091,041

7,313,273

Wyoming
4,593,467

2,583,049

2,515,243

Total Residential
49,390,451

35,649,700

41,787,437

 
 
 
 
Commercial:
 
 
 
Arkansas
4,111,136



Colorado
4,676,332

1,404,624

1,537,704

Nebraska
3,986,531

4,026,689

4,644,645

Iowa
5,425,789

5,492,230

7,182,173

Kansas
2,564,759

2,768,486

3,043,685

Wyoming
3,273,314

2,073,213

1,482,904

Total Commercial
24,037,861

15,765,242

17,891,111

 
 
 
 
Industrial:
 
 
 
Arkansas
983,881



Colorado
440,174

288,212

354,630

Nebraska
86,905

246,184

122,662

Iowa
398,871

481,760

630,912

Kansas
2,914,538

3,346,525

3,384,797

Wyoming
913,061

845,774

539,848

Total Industrial
5,737,430

5,208,455

5,032,849

 
 
 
 
 
 
 
 

23



Wholesale and Other:
 
 
 
Kansas

14,902

150,014

Total Wholesale and Other

14,902

150,014

 
 
 
 
Distribution Quantities Sold:
 
 
 
Arkansas
11,147,809



Colorado
17,750,913

8,268,097

8,610,842

Nebraska
14,749,589

15,024,249

17,835,439

Iowa
15,392,046

15,622,963

19,985,366

Kansas
11,345,543

12,220,954

13,891,769

Wyoming
8,779,842

5,502,036

4,537,995

Total Distribution Quantities Sold
79,165,742

56,638,299

64,861,411

 
 
 
 
Transportation:
 
 
 
Arkansas
7,292,299



Colorado
2,552,756

1,019,933

950,819

Nebraska (a)
53,046,432

28,968,737

30,669,764

Iowa
19,991,944

19,867,265

19,959,462

Kansas
15,117,771

15,865,783

15,883,098

Wyoming (a)
19,870,602

11,672,057

9,970,123

Total Transportation
117,871,804

77,393,775

77,433,266

 
 
 
 
Transmission:
 
 
 
Arkansas
737,330



Colorado (b)
3,353,222



Wyoming
4,965,209



Total Transmission
9,055,761



 
 
 
 
Total Quantities Sold and Transportation:
 
 
 
Arkansas
19,177,438



Colorado
23,656,891

9,288,030

9,561,661

Nebraska
67,796,021

43,992,986

48,505,203

Iowa
35,383,990

35,490,228

39,944,828

Kansas
26,463,314

28,086,737

29,774,867

Wyoming
33,615,653

17,174,093

14,508,118

Total Quantities Sold and Transportation
206,093,307

134,032,074

142,294,677

________________________
(a)
Increased transportation in Nebraska and parts of Wyoming is due to Choice Gas Program customers acquired in the SourceGas Acquisition.
(b)
Intercompany volumes from RMNG’s transmission system to Black Hills Gas Distribution are not included.


24



Customers at End of Year
2016
2015
2014
Residential:
 
 
 
Arkansas
148,513



Colorado
160,153

74,345

72,360

Nebraska
184,794

180,897

180,014

Iowa
140,007

139,205

138,503

Kansas
99,748

99,013

99,359

Wyoming
67,765

39,953

32,962

Total Residential
800,980

533,413

523,198

 
 
 
 
Commercial:
 
 
 
Arkansas
17,638



Colorado
16,777

3,825

3,788

Nebraska
16,147

15,948

15,900

Iowa
15,435

15,433

15,303

Kansas
10,747

10,813

10,547

Wyoming
7,305

4,156

3,052

Total Commercial
84,049

50,175

48,590

 
 
 
 
Industrial:
 
 
 
Arkansas
213



Colorado
275

224

205

Nebraska
126

145

147

Iowa
94

98

90

Kansas
1,324

1,377

1,277

Wyoming
18

15

7

Total Industrial
2,050

1,859

1,726

 
 
 
 
Transportation:
 
 
 
Arkansas
148



Colorado
189

40

34

Nebraska (a)
88,586

4,271

4,151

Iowa
478

460

418

Kansas
1,138

1,161

1,145

Wyoming (a)
53,134

30

12

Total Transportation
143,673

5,962

5,760

 
 
 
 
Wholesale:
 
 
 
Kansas (b)


8

Total Wholesale


8

 
 
 
 
Total Customers:
 
 
 
Arkansas
166,512



Colorado
177,394

78,434

76,387

Nebraska
289,653

201,261

200,212

Iowa
156,014

155,196

154,314

Kansas
112,957

112,364

112,336

Wyoming
128,222

44,154

36,033

Total Customers at End of Year
1,030,752

591,409

579,282

________________________
(a)
Increased transportation in Nebraska and parts of Wyoming is due to Choice Gas Program customers acquired in the SourceGas Acquisition.
(b)
Change in customers is due to classification change to Commercial billing in 2015 based on customer’s business type.


25


Electric Utilities and Gas Utilities Business Characteristics

Seasonal Variations of Business

Our Electric Utilities and Gas Utilities are seasonal businesses and weather patterns may impact their operating performance. Demand for electricity and natural gas is sensitive to seasonal cooling, heating and industrial load requirements, as well as market price. In particular, demand is often greater in the summer and winter months for cooling and heating, respectively. Because our Electric Utilities have a diverse customer and revenue base, and we have historically optimized the utilization of our electric power supply resources, the impact on our operations may not be as significant when weather conditions are warmer in the winter and cooler in the summer. Conversely, for our Gas Utilities, natural gas is used primarily for residential and commercial heating, so the demand for this product depends heavily upon weather throughout our service territories, and as a result, a significant amount of natural gas revenue is normally recognized in the heating season consisting of the first and fourth quarters.

Competition

We generally have limited competition for the retail distribution of electricity and natural gas in our service areas. Various restructuring and competitive initiatives have been discussed in several of the states in which our utilities operate. These initiatives would be aimed at increasing competition or providing for distributed generation. To date, these initiatives have not had a material impact on our utilities. Although we face competition from independent marketers for the sale of natural gas to our industrial and commercial customers, in instances where independent marketers displace us as the seller of natural gas, we still collect a distribution charge for transporting the gas through our distribution network. In Colorado, our electric utility is subject to rules which may require competitive bidding for generation supply. Because of these rules, we face competition from other utilities and non-affiliated independent power producers for the right to provide electric energy and capacity for Colorado Electric when resource plans require additional resources.

Rates and Regulation

Current Rates

Our utilities are subject to the jurisdiction of the public utilities commissions in the states where they operate. The commissions oversee services and facilities, rates and charges, accounting, valuation of property, depreciation rates and various other matters. The public utility commissions determine the rates we are allowed to charge for our utility services. Rate decisions are influenced by many factors, including the cost of providing service, capital expenditures, the prudence of costs we incur, views concerning appropriate rates of return, the rates of other utilities, general economic conditions and the political environment. Certain commissions also have jurisdiction over the issuance of debt or securities, and the creation of liens on property located in their states to secure bonds or other securities.

26



The following table illustrates information about certain enacted regulatory provisions with respect to the states in which the Electric Utilities operate:
Subsidiary
Jurisdic-tion
Authorized Rate of Return on Equity
Authorized Return on Rate Base
Authorized Capital Structure Debt/Equity
Authorized Rate Base (in millions)
Effective Date
Tariff and Rate Matters