BLACK HILLS POWER INC - FORM 10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2012
OR
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 1-7978

Black Hills Power, Inc.



Incorporated in South Dakota		IRS Identification Number 46-0111677

625 Ninth Street, Rapid City, South Dakota 57701

Registrant's telephone number (605) 721-1700

Former name, former address, and former fiscal year if changed since last report

NONE

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 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 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	o	Accelerated filer	o

Non-accelerated filer	x	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

As of April 30, 2012, there were issued and outstanding 23,416,396 shares of the Registrant's common stock, $1.00 par value, all of which were held beneficially and of record by Black Hills Corporation.

Reduced Disclosure

The Registrant meets the conditions set forth in General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

TABLE OF CONTENTS



		Page
	GLOSSARY OF TERMS AND ABBREVIATIONS	3

PART 1.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Statements of Income and Comprehensive Income - unaudited	4
	Three Months Ended March 31, 2012 and 2011

	Condensed Balance Sheets - unaudited	5
	March 31, 2012 and December 31, 2011

	Cash Flow Statements - unaudited	6
	Three Months Ended March 31, 2012 and 2011

	Notes to Condensed Financial Statements - unaudited	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14

Item 4.	Controls and Procedures	18

PART II.	OTHER INFORMATION	20

Item 1.	Legal Proceedings	20

Item 1A.	Risk Factors	20

Item 6.	Exhibits	20

	Signatures	21

	Exhibit Index	22

GLOSSARY OF TERMS AND ABBREVIATIONS

The following terms and abbreviations appear in the text of this report and have the definitions described below:



AFUDC	Allowance for Funds Used During Construction
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
BHC	Black Hills Corporation, the Parent Company
Black Hills Energy	The name used to conduct the business activities of Black Hills Utility Holdings, Inc., a direct, wholly-owned subsidiary of the Parent Company
Black Hills Service Company	Black Hills Service Company, LLC, a direct, wholly-owned subsidiary of the Parent Company
Black Hills Wyoming	Black Hills Wyoming, LLC, an indirect, wholly-owned subsidiary of the Parent Company
Cheyenne Light	Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of the Parent Company
Enserco	Enserco Energy, Inc., an indirect, wholly-owned subsidiary of the Parent Company, which was sold by the Parent Company to an unrelated third party on February 29, 2012
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FERC	Federal Energy Regulatory Commission
GAAP	Generally Accepted Accounting Principles of the United States
IFRS	International Financial Reporting Standards
LIBOR	London Interbank Offered Rate
MW	Megawatts
MWh	Megawatt-hours
SEC	U.S. Securities and Exchange Commission
WRDC	Wyodak Resources Development Corp., an indirect, wholly-owned subsidiary of the Parent Company

BLACK HILLS POWER, INC.

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(unaudited)



	Three Months Ended March 31,
	2012			2011
	(in thousands)

Revenue	$	62,270		$	59,194

Operating expenses:
Fuel and purchased power	24,715			21,560
Operations and maintenance	16,543			17,990
Depreciation and amortization	6,950			6,562
Taxes - property	1,320			1,165
Total operating expenses	49,528			47,277

Operating income	12,742			11,917

Other income (expense):
Interest expense	(4,290		)	(4,220		)
AFUDC - borrowed	57			180
Interest income	24			10
AFUDC - equity	116			287
Other income (expense), net	388			104
Total other income (expense)	(3,705		)	(3,639		)

Income before income taxes	9,037			8,278
Income tax expense	(2,984		)	(2,397		)
Net income	6,053			5,881

Other comprehensive income (loss):
Reclassification adjustments of cash flow hedges	10			11

Comprehensive income	$	6,063		$	5,892

The accompanying Notes to Condensed Financial Statements are an integral part of these Condensed Financial Statements.

BLACK HILLS POWER, INC.

CONDENSED BALANCE SHEETS

(unaudited)



	March 31, 2012			December 31, 2011
	(in thousands, except common stock par value and share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	2,329		$	2,812
Receivables - customers, net	21,348			24,668
Receivables - affiliates	6,576			6,998
Other receivables, net	906			786
Money pool notes receivable, net	60,040			50,477
Materials, supplies and fuel	21,966			22,074
Regulatory assets, current	5,423			6,605
Other, current assets	4,716			4,255
Total current assets	123,304			118,675

Investments	4,678			4,592

Property, plant and equipment	1,000,430			995,772
Less accumulated depreciation and amortization	(318,260		)	(313,581		)
Total property, plant and equipment, net	682,170			682,191

Other assets:
Regulatory assets, non-current	46,686			45,160
Other, non-current assets	3,725			3,812
Total other assets	50,411			48,972
TOTAL ASSETS	$	860,563		$	854,430

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt	$	6,465		$	37
Accounts payable	10,546			12,560
Accounts payable - affiliates	21,379			18,598
Accrued liabilities	18,322			16,448
Regulatory liabilities, current	36			853
Deferred income tax liabilities, current	1,363			848
Total current liabilities	58,111			49,344

Long-term debt, net of current maturities	269,941			276,390

Deferred credits and other liabilities:
Deferred income tax liability, non-current	115,741			113,320
Regulatory liabilities, non-current	40,779			39,621
Benefit plan liabilities	25,200			31,097
Other deferred credits and other liabilities	8,242			8,172
Total deferred credits and other liabilities	189,962			192,210

Stockholder's equity:
Common stock $1 par value; 50,000,000 shares authorized; 23,416,396 shares issued	23,416			23,416
Additional paid-in capital	39,575			39,575
Retained earnings	280,838			274,785
Accumulated other comprehensive loss	(1,280		)	(1,290		)
Total stockholder's equity	342,549			336,486
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	860,563		$	854,430

The accompanying Notes to Condensed Financial Statements are an integral part of these Condensed Financial Statements.

BLACK HILLS POWER, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)



	Three Months Ended March 31,
	2012			2011
	(in thousands)
Operating activities:
Net income	$	6,053		$	5,881
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization	6,950			6,562
Deferred income tax	2,695			2,057
Employee benefits	957			601
AFUDC - equity	(116		)	(287		)
Other adjustments, net	703			(175		)
Change in operating assets and liabilities -
Accounts receivable and other current assets	3,696			2,256
Accounts payable and other current liabilities	2,705			6,473
Regulatory assets	(22		)	3,468
Regulatory liabilities	(659		)	(317		)
Contributions to employee benefit plans	(6,835		)	—
Other operating activities, net	25			(2,213		)
Net cash provided by operating activities	16,152			24,306

Investing activities:
Property, plant and equipment additions	(6,965		)	(12,122		)
Change in money pool notes receivable, net	(9,563		)	(9,063		)
Other investing activities	(86		)	(92		)
Net cash provided by (used in) investing activities	(16,614		)	(21,277		)

Financing activities:
Long-term debt - repayments	(21		)	(18		)
Net cash provided by (used in) financing activities	(21		)	(18		)

Net change in cash and cash equivalents	(483		)	3,011

Cash and cash equivalents, beginning of period	2,812			2,045
Cash and cash equivalents, end of period	$	2,329		$	5,056

See Note 10 for supplemental cash flow information.

The accompanying Notes to Condensed Financial Statements are an integral part of these Condensed Financial Statements.

BLACK HILLS POWER, INC.

Notes to Condensed Financial Statements

(unaudited)

(Reference is made to Notes to Financial Statements

included in our 2011 Annual Report on Form 10-K)


(1)	MANAGEMENT'S STATEMENT

The unaudited condensed financial statements included herein have been prepared by Black Hills Power, Inc. (the "Company," "we," "us," or "our"), pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, we believe that the footnotes adequately disclose the information presented. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto, included in our 2011 Annual Report on Form 10-K filed with the SEC.

Accounting methods historically employed require certain estimates as of interim dates. The information furnished in the accompanying condensed financial statements reflects all adjustments, including accruals, which are, in the opinion of management, necessary for a fair presentation of the March 31, 2012, December 31, 2011 and March 31, 2011 financial information and are of a normal recurring nature. The results of operations for the three months ended March 31, 2012 and March 31, 2011, and our financial condition as of March 31, 2012 and December 31, 2011 are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period.


(2)	RECENTLY ADOPTED ACCOUNTING STANDARDS

Other Comprehensive Income: Presentation of Other Comprehensive Income ASU 2011-05 and ASU 2011-12

FASB issued an accounting standards update amending ASC 220, Comprehensive Income, to improve the comparability, consistency and transparency of reporting of comprehensive income. It amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of income and comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of comprehensive income. Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. In December 2011, FASB issued ASU 2011-12 which indefinitely deferred the provisions of ASU 2011-05 requiring the presentation of reclassification adjustments for items reclassified from other comprehensive income to net income be presented on the face of the financial statements.

At December 31, 2011, we elected to early adopt the provisions of ASU 2011-05 as amended by ASU 2011-12. The adoption changed the presentation of certain financial statements and provided additional details in notes to the financial statements, but did not have any other impact on our financial statements.

Fair Value Measurements: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements, ASU 2011-04

FASB issued an accounting standards update amending ASC 820, Fair Value Measurements and Disclosures, to achieve common fair value measurement and disclosure requirements between GAAP and IFRS. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements - quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity's use of a non-financial asset that is different from the asset's highest and best use - the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required - the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 was effective for fiscal years, and interim periods within those years, beginning after December 31, 2011. The amendment required additional details in the notes to financial statements, but did not have any other impact on our condensed financial statements. Additional disclosures are included in Note 8.


(3)	ACCOUNTS RECEIVABLE

Accounts receivable consist of sales to residential, commercial, industrial, municipal and other customers all of which do not bear interest. These accounts receivable balances are stated at billed and unbilled amounts net of write-offs.

We maintain an allowance for doubtful accounts which reflects our best estimate of probable uncollectible trade receivables. We regularly review our trade receivable allowance by considering such factors as historical experience, credit worthiness, the age of the receivable balances and current economic conditions that may affect our ability to collect.

The allowance for doubtful accounts represents our best estimate of existing accounts receivable that will ultimately be uncollected. The allowance is calculated by applying estimated write-off factors to various classes of outstanding receivables, including unbilled revenue. The write-off factors used to estimate uncollectible accounts are based upon consideration of both historical collections experience and management's best estimate of future collection success given the existing collections environment.

Following is a summary of accounts receivable balances (in thousands):



	March 31, 2012			December 31, 2011
Accounts receivable trade	$	14,777		$	16,447
Unbilled revenues	6,731			8,364
Allowance for doubtful accounts	(160		)	(143		)
Receivables - customers, net	$	21,348		$	24,668


(4)	REGULATORY ASSETS AND LIABILITIES

Our regulated electric operations are subject to regulation by various state and federal agencies. The accounting policies followed are generally subject to the Uniform System of Accounts of the FERC.

Our regulatory assets and liabilities were as follows (in thousands):



	Recovery Period	March 31, 2012		December 31, 2011
Regulatory assets:
Unamortized loss on reacquired debt	14 years	$	2,702	$	2,765
AFUDC	45 years	8,552		8,552
Employee benefit plans	13 years	27,602		27,602
Deferred energy costs	1 year	6,628		6,605
Flow through accounting	35 years	5,929		5,789
Other		696		452
Total regulatory assets		$	52,109	$	51,765

Regulatory liabilities:
Cost of removal for utility plant	53 years	$	24,213	$	23,347
Employee benefit plans	13 years	15,282		15,282
Other		1,320		1,845
Total regulatory liabilities		$	40,815	$	40,474

Regulatory assets represent items we expect to recover from customers through probable future rates. Regulatory assets are included in Regulatory assets, current and Regulatory assets, non-current on the accompanying Condensed Balance Sheets.

Unamortized Loss on Reacquired Debt - The early redemption premium on reacquired bonds is being amortized over the remaining term of the original bonds.

AFUDC - The equity component of AFUDC is considered a permanent difference for tax purposes with the tax benefit being flowed through to customers as prescribed or allowed by regulators. If, based on a regulator's action, it is probable the utility will recover the future increase in taxes payable represented by this flow-through treatment through a rate revenue increase, a regulatory asset is recognized. This regulatory asset itself is a temporary difference for which a deferred tax liability must be recognized. Accounting standards for income taxes specifically address AFUDC-equity, and require a gross-up of such amounts to reflect the revenue requirement associated with a rate-regulated environment.

Employee Benefit Plans - Employee benefit plans include the unrecognized prior service costs and net actuarial loss associated with our defined benefit pension plans and post-retirement benefit plans in regulatory assets rather than in accumulated other comprehensive income.

Deferred Energy Costs - Deferred energy and fuel cost adjustments represent the cost of electricity delivered to our electric utility customers in excess of current rates which will be recovered in future rates. Deferred energy and fuel cost adjustments are recorded and recovered or amortized as approved by the appropriate state commission.

Flow-through Accounting - Under flow-through accounting, the income tax effects of certain tax items are reflected in our cost of service for the customer in the year in which the tax benefits are realized and result in lower utility rates. This regulatory treatment was applied to the tax benefit generated by repair costs that were previously capitalized for tax purposes in a rate case settlement that was reached with respect to Black Hills Power in 2010. In this instance, the agreed upon rate increase was less than it would have been absent the flow-through treatment. A regulatory asset established to reflect the future increases in income taxes payable will be recovered from customers as the temporary differences reverse.

Regulatory liabilities represent items we expect to refund to customers through probable future decreases in rates. Regulatory liabilities are included in Regulatory liabilities, current and Regulatory liabilities, non-current on the accompanying Condensed Balance Sheets.

Cost of Removal - Cost of removal for utility plant represents the estimated cumulative net provisions for future removal costs included in depreciation expense for which there is no legal obligation for removal. Liabilities will be settled and trued up following completion of the related activities.

Employee Benefit Plans - Employee benefit plans represent the cumulative excess of pension costs recovered in rates over pension expense recorded in accordance with accounting standards for compensation - retirements. In addition, this regulatory liability includes the income tax effect of the adjustment required under accounting for compensation - defined benefit plans, to record the full pension and post-retirement benefit obligations. Such income tax effect has been grossed-up to account for the revenue requirement aspect of a rate regulated environment.


(5)	OTHER COMPREHENSIVE INCOME

The following tables present the components of Other comprehensive income (in thousands):



	Three Months Ended March 31, 2012
	Pre-tax Amount		Tax (Expense) Benefit			Net-of-Tax Amount
Reclassification adjustments of cash flow hedges settled and included in net income	$	16	$	(6	)	$	10

Other comprehensive income	$	16	$	(6	)	$	10



	Three Months Ended March 31, 2011
	Pre-tax Amount		Tax (Expense) Benefit			Net-of-Tax Amount
Reclassification adjustments of cash flow hedges settled and included in net income	$	16	$	(5	)	$	11

Other comprehensive income	$	16	$	(5	)	$	11

During 2002, we entered into a treasury lock to hedge a portion of a first mortgage bonds. The treasury lock cash settled on the bond pricing date, and resulted in a $1.8 million loss. This treasury lock was treated as a cash flow hedge and accordingly the resulting loss is carried in Accumulated other comprehensive loss on the accompanying Condensed Balance Sheets and amortized over the life of the related bonds as additional interest expense.

Balances by classification included within Accumulated other comprehensive loss on the accompanying Condensed Balance Sheets were as follows (in thousands):



	Derivatives Designated as Cash Flow Hedges			Employee Benefit Plans			Total
As of December 31, 2011	$	(801	)	$	(489	)	$	(1,290	)
Other comprehensive income	10			—			10
As of March 31, 2012	$	(791	)	$	(489	)	$	(1,280	)


(6)	RELATED-PARTY TRANSACTIONS

Receivables and Payables

We have accounts receivable and accounts payable balances related to transactions with other BHC subsidiaries. The balances were as follows as of (in thousands):



	March 31, 2012		December 31, 2011
Receivables - affiliates	$	6,576	$	6,998
Accounts payable - affiliates	$	21,379	$	18,598

Money Pool Notes Receivable and Notes Payable

We have entered into a Utility Money Pool Agreement (the "Agreement") with BHC, Cheyenne Light and Black Hills Energy. Under the Agreement, we may borrow from our Parent however the Agreement restricts us from loaning funds to our Parent or to any of our Parent's non-utility subsidiaries. The Agreement does not restrict us from making dividends to our Parent. Borrowings under the agreement bear interest at the daily cost of external funds as defined under the Agreement, or if there are no external funds outstanding on that date, then the rate will be the daily one-month LIBOR plus 1.0% .

We had the following balances with the Utility Money Pool as of (in thousands):



	March 31, 2012		December 31, 2011
Money pool notes receivable	$	60,040	$	50,477

Advances under the Utility Money Pool notes bear interest at 1.50% above the daily average LIBOR (which equates to 1.74% at March 31, 2012). Net interest income (expense) relating to balances for the Utility Money Pool was as follows (in thousands):

Other Balances and Transactions

Sales and purchases with related parties were as follows (in thousands):



	Three Months Ended March 31,
	2012		2011
Revenues:
Energy sold to Cheyenne Light	$	526	$	185

Purchases:
Coal purchases from WRDC	$	5,995	$	4,887
Purchase of excess energy from Cheyenne Light	$	742	$	107
Renewable wind energy from Cheyenne Light	$	1,748	$	1,700
Natural gas from Enserco	$	7	$	161
Corporate support services from Parent, Black Hills Service Company and Black Hills Utilities Holdings Inc.	$	4,805	$	5,174


(7)	EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plan

We have a noncontributory defined benefit pension plan (the "Pension Plan") covering employees who meet certain eligibility requirements.

The components of net periodic benefit cost for the Pension Plan were as follows (in thousands):



	Three Months Ended March 31,
	2012			2011
Service cost	$	191		$	199
Interest cost	742			773
Expected return on plan assets	(785		)	(905		)
Prior service cost	14			16
Net loss	650			372
Net periodic benefit cost	$	812		$	455

Non-pension Defined Benefit Postretirement Healthcare Plans

Employees who are participants in the Postretirement Healthcare Plans (the "Healthcare Plans") and who meet certain eligibility requirements are entitled to postretirement healthcare benefits.

The components of net periodic benefit cost for the Healthcare Plans were as follows (in thousands):



	Three Months Ended March 31,
	2012			2011
Service cost	$	53		$	52
Interest cost	86			91
Amortization of prior service cost	(69		)	(78		)
Net loss	35			41
Net periodic benefit cost	$	105		$	106

Supplemental Non-qualified Defined Benefit Plans

We have various supplemental retirement plans for key executives (the "Supplemental Plans"). The Supplemental Plans are non-qualified defined benefit plans.

The components of net periodic benefit cost for the Supplemental Plans were as follows (in thousands):



	Three Months Ended March 31,
	2012		2011
Interest cost	$	26	$	28
Net loss	14		12
Net periodic benefit cost	$	40	$	40

Contributions

We anticipate that we will make contributions to each of the benefit plans during 2012 and 2013. Contributions to the Pension Plan will be made in cash and contributions to the Healthcare Plans and the Supplemental Plans are expected to be made in the form of benefit payments. Contributions are as follows (in thousands):



	Three Months Ended March 31, 2012		Remaining Anticipated Contributions for 2012		Anticipated Contributions for 2013
Defined Benefit Pension Plan	$	6,835	$	—	$	—
Non-Pension Defined Benefit Postretirement Healthcare Plans	$	164	$	493	$	702
Supplemental Non-qualified Defined Benefit Plans	$	39	$	116	$	113


(8)	FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of our financial instruments were as follows as of (in thousands):



	March 31, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash and cash equivalents^(a)	$	2,329	$	2,329	$	2,812	$	2,812
Note receivable - affiliates^(a)	$	60,040	$	60,040	$	50,477	$	50,477
Long-term debt, including current maturities^(b)	$	276,406	$	348,285	$	276,427	$	362,055

___________________

(a) Carrying value approximates fair value due to the short term maturities and therefore is classified in Level 1 in the fair value hierarchy.

(b) Long-term debt is valued based on observable inputs available either directly or indirectly for similar liabilities in active markets and therefore is classified in Level 2 in the fair value hierarchy.

The following methods and assumptions were used to estimate the fair value of each class of our financial instruments.

Cash and Cash Equivalents

Included in cash and cash equivalents, overnight repurchase agreement accounts and money market funds. As part of our cash management process, excess operating cash is invested in overnight repurchase agreements with our bank. Repurchase agreements are not deposits and are not insured by the U.S. government, the FDIC or any other government agency and involve investment risk including possible loss of principal. We believe however, the market risk arising from holding these financial instruments is minimal. The carrying amount for cash and cash equivalents approximates fair value due to the short maturity of these instruments.

Notes Receivable - Affiliates

The fair value of Notes receivable - affiliates approximates fair value due to the variable interest rate with short reset periods.

Long-term Debt

Our debt instruments are marked to fair value using the market valuation approach. The fair value for our fixed rate debt instruments is estimated based on quoted market prices and yields for debt instruments having similar maturities and debt ratings. The carrying amounts of our variable rate debt approximate fair value due to the variable interest rates with short reset periods.

The first mortgage bonds are either currently not callable or are subject to make-whole provisions which would eliminate any economic benefits if we were to call these bonds.


(9)	LONG TERM DEBT

Pollution Control Revenue Bonds

In March, 2012, we provided notice to the trustee of our intent to call the Pollution Control Refund Revenue Bonds which were originally due to mature on October 1, 2014. The principal amount due on the bonds has been reclassified to Current maturities of long-term debt on the accompanying Condensed Balance Sheets. Repayment of $6.5 million principal and accrued interest will be made on May 15, 2012.


(10)	SUPPLEMENTAL CASH FLOWS INFORMATION



	Three Months Ended March 31,
	2012			2011
	(in thousands)
Non-cash investing and financing activities -
Property, plant and equipment acquired with accrued liabilities	$	1,417		$	832

Supplemental disclosure of cash flow information:
Cash (paid) refunded during the period for -
Interest (net of amounts capitalized)	$	(2,318	)	$	(3,146	)
Income taxes	$	(150	)	$	—


(11)	COMMITMENTS AND CONTINGENCIES

There have been no significant changes to commitments and contingencies from those previously disclosed in Note 12 of our Notes to the Financial Statements in our 2011 Annual Report on Form 10-K.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following tables provide certain financial information and operating statistics (dollars in thousands):



	Three Months Ended March 31,
	2012			2011
Revenue	$	62,270		$	59,194
Fuel and purchased power	24,715			21,560
Gross margin	37,555			37,634

Operations and maintenance, depreciation and amortization	24,813			25,717
Operating income	12,742			11,917

Interest income (expense), net	(4,209		)	(4,030		)
Other income (expense), net	504			391
Income tax expense	(2,984		)	(2,397		)
Net income	$	6,053		$	5,881



	Electric Revenue by Customer Type
	Three Months Ended March 31,
	2012		Percentage Change		2011
Commercial	$	16,808	(3	)%	$	17,314
Residential	15,476		(10	)%	17,170
Industrial	6,020		4	%	5,764
Municipal	698		(5	)%	734
Total retail revenue	39,002		(5	)%	40,982
Contract wholesale	4,905		6	%	4,620
Off-system wholesale	11,273		62	%	6,953
Other revenue	7,090		7	%	6,639
Total revenue	$	62,270	5	%	$	59,194



	Megawatt Hours Sold by Customer Type
	Three Months Ended March 31,
	2012	Percentage Change		2011
Commercial	170,093	(5	)%	178,237
Residential	150,428	(14	)%	174,400
Industrial	95,735	8	%	88,749
Municipal	7,568	(9	)%	8,302
Total retail quantity sold	423,824	(6	)%	449,688
Contract wholesale	89,048	(1	)%	89,959
Wholesale off-system	458,230	89	%	242,156
Total megawatt hours sold	971,102	24	%	781,803
Losses and company use	43,587	33	%	32,671
Total energy	1,014,689	25	%	814,474



	Electric Utility Power Plant Availability
	Three Months Ended March 31,
	2012		2011
Coal-fired plants	97.3	%	90.1	%	^(a)
Other plants	99.9	%	98.8	%
Total availability	98.3	%	93.5	%

___________________________

(a) 2011 reflects a planned major outage at the PacifiCorp-operated Wyodak plant.



	Megawatt Hours Generated and Purchased
	Three Months Ended March 31,
Generated -	2012	Percentage Change		2011
Coal-fired	499,792	14	%	437,838
Gas-fired	363	(65	)%	1,024
Total generated	500,155	14	%	438,862

Total purchased	514,534	37	%	375,612
Total generated and purchased	1,014,689	25	%	814,474



	Degree Days
	Three Months Ended March 31,
	2012		2011
Heating and cooling degree days:
Actual -
Heating degree days	2,711		3,707
Cooling degree days	—		—

Variance from normal -
Heating degree days	(16	)%	12	%
Cooling degree days	—	%	—	%

Amounts are presented on a pre-tax basis unless otherwise indicated. Minor differences in amounts may result due to rounding.

Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011. Net income was $6.1 million compared to $5.9 million for the same period in the prior year primarily due to the following:

Gross margin decreased $0.1 million primarily due to lower electric retail volumes sold from lower customer demand, partially offset by increased off-system margins due to increased volumes sold.

Operations and maintenance decreased $0.9 million primarily due to lower labor costs and lower plant maintenance costs in 2012 compared to 2011. Plant maintenance costs in 2011 included a planned maintenance outage at the PacifiCorp-operated Wyodak Plant.

Interest expense, net was comparable to the same period in the prior year.

Other income, net was comparable to the same period in the prior year.

Income tax expense The effective tax rate increased due to a favorable impact of a research and development credit in the prior year.

Significant Events

On November 1, 2011, Cheyenne Light and Black Hills Power filed a joint request with the WPSC for a CPCN to construct and operate a new $237 million natural gas-fired electric generation facility and related gas and electric transmission in Cheyenne, WY. The proposed facility will include construction of one simple-cycle, 37 MW combustion turbine that will be wholly owned by Cheyenne Light and one combined-cycle, 95 MW unit that will be jointly owned by Cheyenne Light and Black Hills Power. Cheyenne Light will own 40 MW and Black Hills Power will own 55 MW of the combined cycle unit. Pending WPSC approval, commercial operation would commence in 2014. A hearing with the WPSC is scheduled in July 2012.

Financing Transactions and Short-term Liquidity

Repayment of Long-term Debt

In March, 2012, we provided notice to the trustee of our intent to call the Pollution Control Refund Revenue Bonds which were originally due to mature on October 1, 2014. The principal amount due on the bonds has been reclassified to Current maturities of long-term debt on the accompanying Condensed Balance Sheets. Repayment of $6.5 million for principal and accrued interest will be made on May 15, 2012.

Credit Ratings

Credit ratings impact our ability to obtain short- and long-term financing, the cost of such financing, and vendor payment terms, including collateral requirements. As of March 31, 2012, our first mortgage bonds credit ratings, as assessed by the three major credit rating agencies, were as follows:



Rating Agency	Rating	Outlook
Fitch	A-	Stable
Moody's	A3	Stable
S&P	BBB+	Stable

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q includes "forward-looking statements" as defined by the SEC. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. These forward-looking statements are based on assumptions which we believe are reasonable based on current expectations and projections about future events and industry conditions and trends affecting our business. Forward-looking statements involve risks and uncertainties, and certain important factors can cause actual results to differ materially from those anticipated. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential," or "continue" or the negative of these terms or other similar terminology. There are various factors that could cause actual results to differ materially from those suggested by the forward-looking statements; accordingly, there can be no assurances that such indicated results will be realized. The forward-looking statements include the factors discussed above, the risk factors described in Item 1A. of our 2011 Annual Report on Form 10-K, risk factors described in Item 1A. of Part II of this Quarterly Report on Form 10-Q and other reports that we file with the SEC from time to time, and the following:


•	Our ability to obtain adequate cost recovery for our electric utility operations through regulatory proceedings and receive favorable rulings in periodic applications to recover costs for fuel and purchased power and our ability to add power generation assets into regulatory rate base;


•	Our ability to successfully maintain or improve our corporate credit rating;


•	Our ability to obtain from utility commissions any requisite determination of prudency to support resource planning and development programs we propose to implement;


•	The timing and extent of scheduled and unscheduled outages;


•	The possibility that we may be required to take impairment charges to reduce the carrying value of some of our long-lived assets when indicators of impairment emerge;


•	Changes in business and financial reporting practices arising from the enactment of the Energy Policy Act of 2005 and subsequent rules and regulations promulgated thereunder;


•	Our ability to complete the permitting, construction, start-up and operation of power generating facilities in a cost-effective and timely manner;


•	Our ability to remedy any deficiencies that may be identified in the review of our internal controls;


•	Our ability to successfully complete labor negotiations with our union;


•	The timing, volatility and extent of changes in energy-related and commodity prices, interest rates, energy and commodity supply or volume, the cost and availability of transportation of commodities, and demand for our services, all of which can affect our earnings, liquidity position and the underlying value of our assets;


•	Our ability to effectively use derivative financial instruments to hedge commodity risks;


•	Our ability to minimize defaults on amounts due from customers and counterparty transactions;


•	Our ability to comply, or to make expenditures required to comply with changes in laws and regulations, particularly those relating to taxation, safety and protection of the environment and to recover those expenditures in customer rates, where applicable;


•	Liabilities related to environmental conditions, including remediation and reclamation obligations under environmental laws;


•	Federal and state laws concerning climate changes and air emissions, including emission reduction mandates and renewable energy portfolio standards, which may materially increase our generation and production costs and could render some of our generating units uneconomical to operate and maintain;


•	Our ability to recover our borrowing costs, including debt service costs, in our customer rates;


•	Weather and other natural phenomena;


•	Macro- and micro-economic changes in the economy and energy industry, including the impact of (i) consolidations and changes in competition, (ii) changing conditions in the credit markets, and (iii) general economic and political conditions, including tax rates or policies and inflation rates;


•	Catastrophic events that could result from terrorism, cyber-attacks, or attempts to disrupt our business, or the business of third parties, that may impact operations in unpredictable ways and adversely affect financial results and liquidity;


•	The effect of accounting policies issued periodically by accounting standard-setting bodies;


•	The cost and effects on our business, including insurance, resulting from terrorist actions or responses to such actions or events;


•	The outcome of any ongoing or future litigation or similar disputes and the impact of any such outcome or related settlements on our financial condition or results of operations;


•	Capital market conditions, which may affect our ability to raise capital on favorable terms;


•	Price risk due to marketable securities held as investments in benefit plans; and


•	Other factors discussed from time to time in our other filings with the SEC.

New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time to time, and it is not possible for us to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. We assume no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events, or otherwise.


ITEM 4.	CONTROLS AND PROCEDURES

This section should be read in conjunction with Item 9A, "Controls and Procedures" included in our Annual Report on Form 10-K for the year ended December 31, 2011.

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act)) as of March 31, 2012

and concluded that, because of the material weakness in our internal control over financial reporting related to accounting for income taxes as previously disclosed in Item 9A, “Controls and Procedures” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, our disclosure controls and procedures were not effective as of March 31, 2012. Additional review, evaluation and oversight have been undertaken to ensure our unaudited Condensed Financial Statements were prepared in accordance with generally accepted accounting principles and as a result, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that the Condensed Financial Statements in this Form 10-Q fairly present in all material respects our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

As discussed in our 2011 Annual Report on Form 10-K, management concluded that while we had appropriately designed control procedures for income tax accounting and disclosures, the existence of non-routine transactions, insufficient tax resources, and ineffective communications between the tax department and the Controller organization caused us to poorly execute the controls for evaluating and recording income taxes. Management has developed and is implementing a remediation plan to address this material weakness in internal controls surrounding accounting for income taxes. Key aspects of the remediation plan include enhancing resources and skill sets and implementing formal periodic meetings among the Chief Financial Officer, Controller and the tax department.

While we concluded our internal controls surrounding income taxes were not effective as of March 31, 2012, we are remediating the material weakness and will continue to implement our remediation plan and track our performance against the plan.

During the quarter ended March 31, 2012 there have been no other changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

BLACK HILLS POWER, INC.

Part II - Other Information


Item 1.	Legal Proceedings

For information regarding legal proceedings, see Note 12 of Notes to Financial Statements in Item 8 of our 2011 Annual Report on Form 10-K and Note 11 of our Notes to Condensed Financial Statements in this Quarterly Report on Form 10-Q, which information from Note 11 is incorporated by reference into this item.


Item 1A.	Risk Factors

There are no material changes to the Risk Factors previously disclosed in Item 1A. of Part I in our Annual Report on Form 10-K for the year ended December 31, 2011.


Item 6.	Exhibits


Exhibit 31.1	Certification of Chief Executive Officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.


Exhibit 31.2	Certification of Chief Financial Officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.


Exhibit 32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.


Exhibit 32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.


Exhibit 101	Financial Statements for XBRL Format

BLACK HILLS POWER, INC.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BLACK HILLS POWER, INC.

/S/ DAVID R. EMERY

David R. Emery, Chairman

and Chief Executive Officer

/S/ ANTHONY S. CLEBERG

Anthony S. Cleberg, Executive Vice President

and Chief Financial Officer

Dated: May 10, 2012

EXHIBIT INDEX


Exhibit Number	Description


Exhibit 31.1	Certification of Chief Executive Officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.


Exhibit 31.2	Certification of Chief Financial Officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.


Exhibit 32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.


Exhibit 32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.


Exhibit 101	Financial Statements for XBRL Format

Three Months Ended March 31,

Net interest income (expense)