Edgar Filing: BLACK HILLS CORP /SD/

Document

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	3

		WEBSITE ACCESS TO REPORTS	8

		FORWARD-LOOKING INFORMATION	8
Part I
	ITEMS 1. and 2.	BUSINESS AND PROPERTIES	8

	ITEM 1A.	RISK FACTORS	57

	ITEM 1B.	UNRESOLVED STAFF COMMENTS	69

	ITEM 3.	LEGAL PROCEEDINGS	69

	ITEM 4.	MINE SAFETY DISCLOSURES	69
Part II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	70

	ITEM 6.	SELECTED FINANCIAL DATA	71

	ITEMS 7. and 7A.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	74

	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	122

	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	204

	ITEM 9A.	CONTROLS AND PROCEDURES	204

	ITEM 9B.	OTHER INFORMATION	204
Part III
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	205

	ITEM 11.	EXECUTIVE COMPENSATION	205

	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	206

	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	206

	ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	206

Part IV

	ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	207

	ITEM 16.	FORM 10-K SUMMARY	212

		SIGNATURES	213

		INDEX TO EXHIBITS	214

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



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.



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



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.
NO_x	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



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.

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.

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.

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.

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.

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;


•	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.

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.



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.



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.



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.



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

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)
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	Intrastate Gas Transmission Pipelines	Gas Distribution Mains	Gas Distribution Service Lines
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

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.

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



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



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



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.



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.

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.

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	Percentage of Power Marketing Profit Shared with Customers
Electric Utilities:
South Dakota Electric	WY	9.9%	8.13%	46.7%/53.3%	$46.8	10/2014	ECA	65%
	SD	Global Settlement	7.76%	Global Settlement	$543.9	10/2014	ECA, TCA, Energy Efficiency Cost Recovery/DSM, Vegetation Management	70%
	SD		7.76%