BH Corp. planning to buy utilities

By Dan Daly, Journal staff | Thursday, February 08, 2007

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RAPID CITY — After forays into ventures such as pipelines and telecommunications, Black Hills Corp. is apparently returning to its utility roots.

In the biggest deal in company history, Black Hills Corp. announced Wednesday that it has a deal to buy electric and gas utilities in Colorado, Kansas, Nebraska and Iowa for $940 million in cash.

The new utilities will expand Black Hills’ customer base by nearly five-fold.

The seller is Aquila Inc., a Kansas City, Mo., company that is being acquired by Great Plains Energy, parent company of Kansas City Power & Light. That deal is worth about $1.7 billion.

The two-step transaction — the sale of the utilities to Black Hills followed immediately by the merger with Great Plains — was announced Wednesday in Kansas City.

“Our acquisition of these utility properties and related assets has great industrial logic for Black Hills strategically, operationally and financially,” David R. Emery, chairman, president and chief executive officer of Black Hills Corp., said.

“It will significantly enhance our existing footprint in Colorado, enabling us to serve retail utility customers and communities in that state and to do so (efficiently). It will also give us, for the first time, a significant presence in the three neighboring states of Kansas, Nebraska and Iowa, where retail utility customers will also benefit from our commitment to superior customer service, reliability and efficiency.”

The company began moving back toward regulated utility business in 2005. Black Hills Corp. sold its telecommunications business, Black Hills FiberCom. It also sold its Houston-based energy marketing businesses and its Texas pipelines.

About the same time, the company acquired Cheyenne Light, Fuel & Power in southeast Wyoming. And last year, Black Hills tried to put together a merger with NorthWestern Corp., a Sioux Falls-based utility that serves Montana and eastern South Dakota.

Although Black Hills has also been investing in Colorado oil-and-gas production, retail utilities seem to be the favored path for Black Hills Corp.

“It’s certainly one of the directions we are going,” said Linn Evans, president and chief operating officer of Black Hills Corp.’s retail division.

“This transaction does return us to our roots that we’ve had in the Hills since 1883, and that’s why we’re excited about it,” Evans said. “It brings great opportunities to our company in terms of consistent stream of revenue versus risks the company faces on behalf of our shareholders. We see this as very positive.”

The acquisition will add about 616,000 new utility customers (93,000 at the electric utility and 523,000 gas customers) to the company service territory. The Rapid City-based company now serves about 137,000 utility customers in South Dakota and Wyoming.

The Colorado electric and natural gas utilities are primarily in southeast Colorado. Cities include Burlington, Canon City, Castle Rock, Pueblo and Rocky Ford.

In the transaction, Black Hills acquired the right to continue using the Aquila name in the markets where it has acquired the company’s assets. However, Kyle White, vice president of corporate affairs, said the decision has not been made whether to do so.

White said the deal will include a support office in Omaha, Neb., a call center in Lincoln, Neb., and another facility in Council Bluffs, Iowa. In addition, a number of experienced executives and 1,200 employees will come aboard.

“The properties we’re acquiring we see as strong properties run by good people that share values for superior customer service with what we’ve worked hard to deliver for Black Hills Power and Cheyenne Light customers,” he said.

As the acquired utilities are separated from their Aquila parent in Kansas City, more support staff jobs could be created in Rapid City, Omaha or Lincoln, White said.

The acquisition requires a variety of regulatory approvals, and it is expected to close in about a year.

On the New York Stock Exchange on Wednesday, the price Black Hills Corp. stock ended the day exactly where it started, at $39.08 per share. Great Plains Energy closed at $32.05, also unchanged. Aquila shares were down 33 cents at $4.34.

Contact Dan Daly at 394-8421 or dan.daly@rapidcityjournal.com