UNITED STATES SECURITIES AND EXCHANGE COMMISSION

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended	September 30, 2019
OR
☐	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

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Black Hills Power, Inc.
Incorporated in	South Dakota	IRS Identification Number		46-0111677
7001 Mount Rushmore Road	Rapid City		South Dakota	57702
Registrant’s telephone number		(605)	721-1700
Former name, former address, and former fiscal year if changed since last report
NONE

For the quarterly period ended March 31, 2020

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.OR

~~Yes~~☐ xTRANSITION NoREPORT oPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~Indicate~~For ~~by check mark whether~~ the ~~Registrant~~transition ~~has submitted electronically 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~~from ~~the~~__________ ~~Registrant was required~~ to ~~submit and post such files)~~__________.

~~Yes~~Commission xFile NoNumber o001-7978

Black Hills Power, Inc.

Incorporated in South Dakota IRS Identification Number 46-0111677

7001 Mount Rushmore Road

Rapid City, South Dakota 57702

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 has submitted electronically 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 ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	o		Accelerated Filer	o

Non-accelerated Filer	x	(Do not check if a smaller reporting company)

			Smaller Reporting Company	☐

			Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

Yes ☐ No x



Securities registered pursuant to Section 12(b) of the Act: None

As of ~~October~~April 3130, ~~2019~~2020, 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

TABLE OF CONTENTS

		Page
Glossary of Terms and Abbreviations		3
PART 1. FINANCIAL INFORMATION
Item 1.	Financial Statements - unaudited	45
	Condensed Statements of Comprehensive Income	45
	Condensed Balance Sheet	56
	Condensed Statements of Cash Flows	78
	Condensed Statements of Equity	89
	Notes to Condensed Financial Statements	910
	Note 1. Management’s Statement	910
	Note 2. Revenue	1011
	Note 3. Accounts Receivable	1012
	Note 4. Regulatory Accounting	11
	Note 4. Regulatory Matters	13
	Note 5. Related-Party Transactions	1213
	Note 6. Employee Benefit Plans	1315
	Note 7. Fair Value of Financial Instruments	1517
	Note 8. Supplemental Disclosure of Cash Flow Information	15
	Note 8. Commitments and Contingencies	20
	Note 9. Commitments and Contingencies	15
	Note 9. Debt	20
	Note 10. Leases	15
	Note 10. Subsequent Event	21
Item 2.	Managements’ Discussion and Analysis of Financial Condition and Results of Operations	1721
Item 4.	Controls and Procedures	21
	Significant Events	21
	Results of Operations	22
	Operating Statistics	24
	Liquidity Disclosures	25
	Forward-Looking Information	25
Item 4.	Controls and Procedures	26
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	2226
Item 6.	Exhibits	22
Item 1A.	Risk Factors	26
Signatures		23
Item 6.	Exhibits	28
Signatures		29

Table of Contents

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
AOCI	Accumulated Other Comprehensive Income
ASC	Accounting Standards Codification
ASU	Accounting Standards Update issued by the FASB
BHC	Black Hills Corporation, the Parent of Black Hills Power, Inc.
Black Hills Energy	The name used to conduct the business of our utility company as well as our affiliates.
BHSC	Black Hills Service Company, LLC, a direct, wholly-owned subsidiary of BHC (doing business as Black Hills Energy)
CARES Act	Coronavirus Aid, Relief, and Economic Security Act, signed on March 27, 2020, which is a tax and spending package intended to provide additional economic relief and address the impact of the COVID-19 pandemic.
Cooling degree day (CDD)	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 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.
Corriedale	Wind project near Cheyenne, Wyoming, that will be a 52.5 MW wind farm jointly owned by South Dakota Electric and Wyoming Electric and will serve as the dedicated wind energy supply to the Renewable Ready program.
COVID-19	The official name for the 2019 novel coronavirus disease, which was announced on February 11, 2020 by the World Health Organization, that is causing a global pandemic.
CPCN	Certificate of Public Convenience and Necessity
FASB	Financial Accounting Standards Board
FERC	United States Federal Energy Regulatory Commission
Fitch	Fitch Ratings, Inc.
GAAP	Accounting principles generally accepted in the United States of America
Happy Jack	Happy Jack Wind Farms, LLC, a subsidiary of Duke Energy Generation Services
Heating degree day (HDD)	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 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.
Horizon Point	BHC Corporate headquarters building in Rapid City, South Dakota, which was completed in 2017.
ICFR	Internal Controls over Financial Reporting
LIBOR	London Interbank Offered Rate
Moody’s	Moody’s Investors Service, Inc.
MW	Megawatts
MWh	Megawatt-hours
Parent	Black Hills Corporation
SDPUC	South Dakota Public Utilities Commission
SEC	United States Securities and Exchange Commission
Silver Sage	Silver Sage Windpower, LLC, a subsidiary of Duke Energy Generation Services
South Dakota Electric	Black Hills Power, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric service to customers in Montana, South Dakota and Wyoming (doing business as Black Hills Energy).
S&P	Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.
TCJA	Tax Cuts and Jobs Act enacted December 22, 2017
WPSC	Wyoming Public Service Commission

AFUDC	Allowance for Funds Used During Construction
ASC	Accounting Standards Codification
ASU	Accounting Standards Update issued by the FASB
BHC	Black Hills Corporation; the Parent Company
Black Hills Energy	The name used to conduct the business of BHC utility companies
Black Hills Service Company	Black Hills Service Company, LLC, a direct, wholly-owned subsidiary of BHC
Cheyenne Light	Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy and providing electric service)
Cooling degree day (CDD)	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.
CPCN	Certificate of Public Convenience and Necessity
FASB	Financial Accounting Standards Board
FERC	United States Federal Energy Regulatory Commission
Fitch	Fitch Ratings
GAAP	Accounting principles generally accepted in the United States of America
Happy Jack	Happy Jack Wind Farms, LLC, a subsidiary of Duke Energy Generation Services
Heating degree day (HDD)	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.
Horizon Point	BHC Corporate headquarters building in Rapid City, South Dakota, which was completed in 2017.
LIBOR	London Interbank Offered Rate
Moody’s	Moody’s Investors Service, Inc.
MW	Megawatts
MWh	Megawatt-hours
Parent	Black Hills Corporation
SDPUC	South Dakota Public Utilities Commission
SEC	U. S. Securities and Exchange Commission
Silver Sage	Silver Sage Windpower, LLC, a subsidiary of Duke Energy Generation Services
South Dakota Electric	Black Hills Power, which includes operations in South Dakota, Wyoming and Montana
S&P	Standard & Poor’s, a division of The McGraw-Hill Companies, Inc.
TCJA	Tax Cuts and Jobs Act enacted December 22, 2017
WPSC	Wyoming Public Service Commission
WRDC	Wyodak Resources Development Corp., an indirect, wholly-owned subsidiary of BHC
Wygen III	110 MW mine-mouth coal-fired power plant in which BHP owns a 52% interest, MDU owns a 25% interest and the City of Gillette owns the remaining 23% interest. BHP operates the plant.
Wyodak Plant	Wyodak, a 362 MW mine-mouth coal-fired plant in Gillette, Wyoming, owned 80% by Pacificorp and 20% by South Dakota Electric. Our WRDC mine supplies all of the fuel for the plant.
Wyoming Electric	Includes Cheyenne Light’s electric utility operations

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WRDC	Wyodak Resources Development Corp., a direct, wholly-owned subsidiary of Black Hills Non-Regulated Holdings (doing business as Black Hills Energy).
Wygen III	110 MW mine-mouth coal-fired power plant in which BHP owns a 52% interest, MDU owns a 25% interest and the City of Gillette owns the remaining 23% interest. BHP operates the plant.
Wyodak Plant	Wyodak, a 362 MW mine-mouth coal-fired plant in Gillette, Wyoming, owned 80% by Pacificorp and 20% by South Dakota Electric. Our WRDC mine supplies all of the fuel for the plant.
Wyoming Electric	Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporations, providing electric service to customers in the Cheyenne, Wyoming area (doing business as Black Hills Energy).

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLACK HILLS POWER, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
(unaudited)	~~2019~~2020			~~2018~~2019			~~2019~~			~~2018~~
	(in thousands)
Revenue	$	7771,~~022~~611		$	7879,~~067~~041		$	~~225,309~~		$	~~222,558~~
Operating expenses:
Fuel and purchased power	2115,~~805~~987			2522,~~207~~733			~~62,919~~			~~68,400~~
Operations and maintenance	2021,~~885~~059			19,~~851~~557			~~61,570~~			~~57,430~~
Depreciation and amortization	1011,~~328~~141			910,~~950~~077			~~30,762~~			~~29,700~~
Taxes - property	2,~~000~~231			12,~~631~~032			~~6,102~~			~~5,741~~
Total operating expenses	5550,~~018~~418			5654,~~639~~399			~~161,353~~			~~161,271~~
Operating income	2221,~~004~~193			2124,~~428~~642			~~63,956~~			~~61,287~~
Other income (expense):
Interest charges -
Interest expense incurred (including amortization of debt issuance costs, premiums, and discounts)	(6,101		)	(5,632		)	(17,807		)	(16,873		)
Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts)	(5,948		)	(5,547		)
Allowance for funds used during construction - borrowed	456			199			1,166			399
Interest income	150			115
Interest income	316			250			603			488
Other income (expense), net	359			(375		)
Other income (expense), net	112			(247		)	28			(606		)
Total other income (expense), net	(5,439		)	(5,807		)
Total other income (expense), net	(5,217		)	(5,430		)	(16,010		)	(16,592		)
Income before income taxes	15,754			18,835
Income before income taxes	16,787			15,998			47,946			44,695
Income tax (expense)	(2,419		)	(3,338		)
Income tax expense	(3,044		)	(2,681		)	(8,558		)	(8,493		)
Net income	13,335			15,497
Net income	13,743			13,317			39,388			36,202
Other comprehensive income (loss), net of tax:
Other comprehensive income (loss), net of tax:
Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax of $(3) and $0, respectively)	12			—
Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax of $(3), $(6), $(10) and $(17), respectively)	13			10			38			31
Reclassification adjustment of benefit plan liability - net gain (loss) (net of tax of $(7) and $(4), respectively)	25			12
Reclassification adjustment of benefit plan liability - net gain (loss) (net of tax of $(3), $(9), $(10) and $(27), respectively)	12			17			38			51
Other comprehensive income (loss), net of tax	37			12
Other comprehensive income (loss), net of tax	25			27			76			82
Comprehensive income	$	13,372		$	15,509
Comprehensive income	$	13,768		$	13,344		$	39,464		$	36,284

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

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BLACK HILLS POWER, INC.

CONDENSED BALANCE SHEETS

	As of
(unaudited)	~~September~~March 3031, ~~2019~~2020			December 31, ~~2018~~2019
	(in thousands)
ASSETS
Current assets:
Cash	$	56		$	~~112~~6
Accounts receivable, net	2425,~~154~~278			2825,~~431~~532
Accounts receivable from affiliates	68,~~721~~149			87,~~119~~838
Materials, supplies and fuel	2629,~~190~~776			2427,~~853~~950
Regulatory assets, current	2025,~~555~~344			1921,~~052~~588
Other current assets	47,~~296~~299			4,~~538~~949
Total current assets	8195,~~921~~852			8587,~~105~~863
Investments	45,~~860~~104			45,~~889~~079
Property, plant and equipment	1,~~454~~493,~~337~~942			1,~~381~~494,~~045~~670
Less: accumulated depreciation and amortization	(~~393~~385,~~013~~153		)	(~~376~~400,~~160~~054		)
Total property, plant and equipment, net	1,~~061~~108,~~324~~789			1,~~004~~094,~~885~~616
Other assets:
Regulatory assets, non-current	5450,~~234~~362			5654,~~680~~109
Other assets, non-current	2418,~~006~~585			918,~~729~~690
Total other assets, non-current	7868,~~240~~947			6672,~~409~~799
TOTAL ASSETS	$	1,~~226~~278,~~345~~692		$	1,~~161~~260,~~288~~357

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

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BLACK HILLS POWER, INC.

CONDENSED BALANCE SHEETS

(Continued)

	As of
(unaudited)	~~September~~March 3031, ~~2019~~2020			December 31, ~~2018~~2019
	(in thousands, except share amounts)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable	$	17,~~492~~801		$	2520,~~122~~654
Accounts payable to affiliates	2632,~~648~~620			2532,~~804~~121
Accrued liabilities	4531,~~223~~336			3425,~~193~~492
Money pool notes payable	1760,~~370~~068			3857,~~690~~585
Notes payable to Parent	2545,000			—25,000
Regulatory liabilities, current	23,~~821~~548			23,~~574~~162
Total current liabilities	~~134~~190,~~554~~373			~~126~~164,~~383~~014
Long-term debt	~~340~~337,~~141~~356			340,~~035~~176
Deferred credits and other liabilities:
Deferred income tax liabilities, net	~~116~~112,~~965~~904			~~114~~112,~~009~~202
Regulatory liabilities, non-current	~~162~~163,~~821~~698			~~160~~163,~~642~~009
Benefit plan liabilities	1214,~~823~~473			14,~~606~~636
Other deferred credits and other liabilities	15,~~337~~612			115,~~368~~397
Total deferred credits and other liabilities	~~307~~306,~~946~~687			~~290~~305,~~625~~244
Commitments and contingencies (Notes 5, 6 and 9)
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	~~381~~382,~~528~~628			~~342~~389,~~145~~312
Accumulated other comprehensive loss	(~~815~~1,343		)	(~~891~~1,380		)
Total stockholder’s equity	~~443~~444,~~704~~276			~~404~~450,~~245~~923
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	1,~~226~~278,~~345~~692		$	1,~~161~~260,~~288~~357

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

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BLACK HILLS POWER, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)	~~Nine~~Three Months ~~EndedSeptember~~Ended 30March 31,
	2019			2018
	2020			2019
	(in thousands)
Operating activities:
Net income	$	3913,~~388~~335		$	3615,~~202~~497
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3011,~~762~~141			2910,~~700~~077
Deferred income tax	~~951~~(276		)	41,~~619~~718
Employee benefits	~~584~~324			~~1,139~~195
Other adjustments, net	~~2,559~~(137		)	21,~~123~~044
Change in operating assets and liabilities:
Accounts receivable and other current assets	4(3,~~290~~189		)	~~224~~(2,437		)
Accounts payable and other current liabilities	92,~~370~~113			26,~~337~~210
Regulatory assets - current	(~~2,306~~546		)	2(1,~~004~~413		)
Regulatory liabilities - current	~~298~~385			~~8,224~~(444		)
Contributions to defined benefit pension plan	(1,753		)	(1,795		)
Other operating activities, net	(206		)	(594		)
Other operating activities, net	(667		)	(1,400		)
Net cash provided by operating activities	22,944			29,853
Net cash provided by (used in) operating activities	83,476			83,377
Investing activities:
Property, plant and equipment additions	(8621,~~395~~747		)	(4724,~~527~~386		)
Proceeds from sale of assets	—			4,994
Other investing activities	(825		)	(169		)
Other investing activities	(868		)	(5,338		)
Net cash (used in) investing activities	(22,572		)	(24,555		)
Net cash provided by (used in) investing activities	(87,263		)	(47,871		)
Financing activities:
Change in money pool notes payable, net	~~(21~~2,~~320~~483		)	(355,~~509~~390		)
Notes payable to Parent	25,000			—
Net borrowings (payments) of Notes payable to Parent	20,000			—
Net cash provided by (used in) financing activities	3,680			(35,509		)
Long-term debt - repayments	(2,855		)	—
Net change in cash	(107		)	(3		)
Dividend to Parent company	(20,000		)	—
Cash, beginning of period	112			16
Other financing activities	—			(15		)
Cash, end of period	$	5		$	13
Net cash (used in) financing activities	(372		)	(5,405		)
Net change in cash	—			(107		)
Cash, beginning of period	6			112
Cash, end of period	$	6		$	5
Supplemental cash flow information:
Cash (paid) refunded during the period for -
Interest (net of amounts capitalized)	$	(3,501	)	$	(3,345	)
Non-cash investing and financing activities -
Accrued property, plant and equipment purchases at March 31	$	8,433		$	8,633

See Note 8 for supplemental cash flow information.

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

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BLACK HILLS POWER, INC.

CONDENSED STATEMENTS OF COMMON STOCKHOLDER’S EQUITY

(unaudited)	Common Stock
(in thousands, except share amounts)	Shares	Value		Additional Paid in Capital		Retained Earnings			AOCI			Total
December 31, 2018	23,416,396	$	23,416	$	39,575	$	342,145		$	(891	)	$	404,245
December 31, 2019	23,416,396	$	23,416	$	39,575	$	389,312		$	(1,380	)	$	450,923
Net income (loss) available for common stock	—	—		—		15,497			—			15,497
Net income	—	—		—		13,335			—			13,335
Other comprehensive income (loss), net of tax	—	—		—		—			1237			1237
Cumulative effect of ASC 842 implementation	—	—		—		(7		)	—			(7		)
Dividend to Parent company	—	—		—		(20,000		)	—			(20,000		)
Other adjustments	—	—		—		1			—			1
Implementation of ASU 2016-13 Financial Instruments -- Credit Losses	—	—		—		(19		)	—			(19		)
March 31, 2019	23,416,396	$	23,416	$	39,575	$	357,636		$	(879	)	$	419,748
March 31, 2020	23,416,396	$	23,416	$	39,575	$	382,628		$	(1,343	)	$	444,276
Net income (loss) available for common stock	—	—		—		10,148			—			10,148
Other comprehensive income (loss), net of tax	—	—		—		—			39			39
Other adjustments	—	—		—		1			—			1
June 30, 2019	23,416,396	$	23,416	$	39,575	$	367,785		$	(840	)	$	429,936
Net income (loss) available for common stock	—	—		—		13,743			—			13,743
Other comprehensive income (loss), net of tax	—	—		—		—			25			25
September 30, 2019	23,416,396	$	23,416	$	39,575	$	381,528		$	(815	)	$	443,704

	Common Stock
(in thousands except share amounts)	Shares	Value		Additional Paid in Capital		Retained Earnings			AOCI			Total
December 31, 2017	23,416,396	$	23,416	$	39,575	$	332,499		$	(1,258	)	$	394,232
December 31, 2018	23,416,396	$	23,416	$	39,575	$	342,145		$	(891	)	$	404,245
Net income (loss) available for common stock	—	—		—		11,760			—			11,760
Net income	—	—		—		15,497			—			15,497
Other comprehensive income (loss), net of tax	—	—		—		—			2712			2712
Dividend to Parent company	—	—		—		(16,000		)	—			(16,000		)
Implementation of ASU 2016-02 Leases	—	—		—		(7		)	—			(7		)
Other adjustments	—	—		—		1			—			1
March 31, 2018	23,416,396	$	23,416	$	39,575	$	328,260		$	(1,231	)	$	390,020
March 31, 2019	23,416,396	$	23,416	$	39,575	$	357,636		$	(879	)	$	419,748
Net income (loss) available for common stock	—	—		—		11,125			—			11,125
Other comprehensive income (loss), net of tax	—	—		—		—			28			28
Dividend to Parent company	—	—		—		(10,000		)	—			(10,000		)
June 30, 2018	23,416,396	$	23,416	$	39,575	$	329,385		$	(1,203	)	$	391,173
Net income (loss) available for common stock	—	—		—		13,317			—			13,317
Other comprehensive income (loss), net of tax	—	—		—		—			27			27
Dividend to Parent company	—	—		—		(10,000		)	—			(10,000		)
Other adjustments	—	—		—		1			—			1
September 30, 2018	23,416,396	$	23,416	$	39,575	$	332,703		$	(1,176	)	$	394,518

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BLACK HILLS POWER, INC.

Notes to Condensed Financial Statements

(unaudited)

(Reference is made to Notes to Financial Statements

included in our ~~2018~~2019 Annual Report on Form 10-K)

(1) ~~MANAGEMENT~~Management’Ss ~~STATEMENT~~Statement

The unaudited condensed financial statements included herein have been prepared by Black Hills Power, Inc. (“South Dakota Electric”, 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 ~~2018~~2019 Annual Report on Form 10-K filed with the SEC.

The information furnished in the accompanying condensed financial statements reflects certain estimates required and all adjustments, including accruals, which are, in the opinion of management, necessary for a fair presentation of the ~~September~~March 3031, ~~2019~~2020, December 31, ~~2018~~2019 and ~~September 30~~March 31, ~~2018~~2019 financial information and are of a normal recurring nature. The results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2019~~2020 and ~~September~~March 3031, ~~2018~~2019, and our financial condition as of ~~September~~March 3031, ~~2019~~2020 and December 31, ~~2018~~2019 are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period.

COVID-19 Pandemic

In March 2020, the World Health Organization categorized COVID-19 as a pandemic and the President of the United States declared the outbreak a national emergency. The U.S. government has deemed electric utilities as “critical” in providing essential services during this emergency. As a provider of critical services, the Company has an obligation to provide services to our customers. The Company remains focused on protecting the health of its employees and the communities in which it operates while assuring the continuity of its business operations.

The Company’s Condensed Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Financial Statements and reported amounts of revenue and expenses during the reporting periods presented. The Company considered the impacts of COVID-19 on the assumptions and estimates used and determined that for the three months ended March 31, 2020, there were no material adverse impacts on the Company’s results of operations.

Change in Accounting Principle - Pension Accounting Asset Method

Effective January 1, 2020, we changed our method of accounting for net periodic benefit cost. Prior to the change, the Company used a calculated value for determining market-related value of plan assets which amortized the effects of gains and losses over a five-year period. Effective with the accounting change, the Company will continue to use a calculated value for the return-seeking assets (equities) in the portfolio and change to fair value for the liability-hedging assets (fixed income). See Note 6 for additional information.

Recently Issued Accounting Standards

~~Financial~~Simplifying ~~Instruments~~the --Accounting ~~Credit~~for ~~Losses:~~Income ~~Measurement of Credit Losses on Financial Instruments~~Taxes, ASU ~~2018~~2019-1912

In ~~June~~December ~~2016~~2019, the FASB issued ASU ~~2016~~2019-1312, ~~Financial~~Simplifying ~~Instruments~~the --Accounting ~~Credit~~for ~~Losses:~~Income ~~Measurement~~Taxes ofas ~~Credit~~part ~~Losses~~of onits ~~Financial~~overall ~~Instruments,~~simplification ~~which~~initiative ~~was~~to ~~subsequently~~reduce ~~amended~~costs byand ~~ASU~~complexity ~~2018-19~~ in ~~November~~applying ~~2018. The~~accounting ~~standard~~standards ~~introduces~~while ~~new~~maintaining ~~accounting~~or ~~guidance~~improving ~~for~~the ~~credit~~usefulness ~~losses~~of onthe ~~financial~~information ~~instruments~~provided ~~within~~to ~~its~~users ~~scope,~~of ~~including~~the ~~trade~~financial ~~receivables~~statements. ~~This~~ ~~new~~Amendments ~~guidance~~include ~~adds~~removal anof ~~impairment~~certain ~~model~~exceptions ~~that~~to isthe ~~based~~general onprinciples ~~expected~~of ~~losses~~ASC ~~rather~~740, ~~than~~Income ~~incurred~~Taxes, ~~losses. It~~and issimplification ~~effective~~in ~~for~~several ~~interim~~other ~~and~~areas ~~annual~~such ~~reporting~~as ~~periods~~accounting ~~beginning~~for ~~after~~a ~~December~~franchise ~~15,~~tax ~~2019,~~(or ~~and~~similar ~~will~~tax) bethat ~~applied~~is partially based on aincome. ~~modified-retrospective~~The ~~basis~~new ~~through~~guidance ais ~~cumulative-effect~~effective ~~adjustment~~for tointerim ~~retained~~and ~~earnings~~annual asperiods ofbeginning ~~January~~after 1December 15, 2020~~. We~~ dowith ~~not~~early ~~anticipate~~adoption ~~the~~permitted. ~~adoption~~We ofare currently reviewing this ~~guidance~~standard to ~~have~~assess athe ~~material~~ impact on our financial position, results of operations orand cash flows.

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Recently Adopted Accounting Standards

~~Leases~~Financial Instruments -- Credit Losses: Measurement of Credit Losses on Financial Instruments, ASU ~~2016~~2018-0219

In ~~February~~June 2016, the FASB issued ASU 2016-0213, ~~Leases~~Financial ~~(Topic~~Instruments ~~842)~~-- toCredit ~~increase~~Losses: ~~transparency~~Measurement ~~and~~of ~~comparability~~Credit ~~among~~Losses ~~organizations~~on byFinancial ~~requiring~~Instruments, ~~the~~which ~~recognition~~was ofsubsequently ~~right-of-use~~amended ~~assets~~by ~~and~~ASU ~~lease~~2018-19, ~~liabilities~~ASU on2019-04, ~~the~~2019-05, ~~balance sheet for most leases~~2019-10, ~~whereas~~and ~~previously~~2019-11. The ~~only~~standard ~~financing-type~~introduces ~~lease~~new ~~liabilities~~accounting ~~(capital~~guidance ~~leases)~~for ~~were~~credit ~~recognized~~losses on ~~the~~financial ~~balance~~instruments ~~sheet. Under~~within ~~the~~its ~~new standard~~scope, ~~disclosures~~including ~~are~~trade ~~required~~receivables. toThis ~~meet~~new ~~the~~guidance ~~objective~~adds ofan ~~enabling~~impairment ~~users~~model ofthat ~~financial~~is ~~statements~~based toon ~~assess~~expected ~~the~~losses ~~amount,~~rather ~~timing~~than ~~and~~incurred ~~uncertainty of cash flows arising from leases~~losses.

We adopted ~~the~~this standard ~~effective~~on January 1, ~~2019. We~~2020, ~~elected~~with ~~the~~prior ~~option~~year tocomparative ~~not~~financial ~~recast~~information ~~comparative~~remaining ~~periods~~as ~~presented~~previously ~~with~~reported when transitioning to the new ~~lease~~ standard ~~and will report these comparative periods as presented under previous lease guidance~~. InOn ~~addition~~January 1, 2020, we ~~elected~~recorded ~~the~~an ~~package~~increase ofto ~~practical~~our ~~expedients~~allowance ~~permitted~~for ~~under~~credit ~~the~~losses, ~~transition~~primarily ~~guidance~~associated with the ~~new~~inclusion ~~standard,~~of ~~which~~expected ~~among~~losses ~~other~~on ~~things,~~unbilled ~~allowed us to carry forward the historical lease classification~~revenue. WeThe ~~also~~cumulative ~~elected~~effect of the ~~practical~~adoption, ~~expedient~~net ~~related~~of totax ~~land easements~~impact, ~~allowing~~was usrecorded toas ~~carry~~an ~~forward~~adjustment ~~our~~to ~~accounting~~retained ~~treatment of existing land easement agreements~~earnings.

~~Adoption~~Internal-Use ofSoftware: ~~the~~Customer’s ~~new~~Accounting ~~standard~~for ~~resulted~~Implementation inCosts ~~the~~Incurred ~~recording~~in ofa anCloud ~~operating~~Computing ~~lease~~Arrangement ~~right-of-use~~That ~~asset~~Is ~~and~~a anService ~~off-setting operating lease obligation liability of $14 million as of January 1~~Contract, ~~2019. The~~ASU ~~lease standard did not materially impact our net earnings and had no impact on cash flows.~~ 2018-15

In 9August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for recording implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. As a result, certain categories of implementation costs that previously would have been charged to expense as incurred are now capitalized as prepayments and amortized over the term of the arrangement. We adopted this standard prospectively on January 1, 2020. Adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

(2) Revenue

Our revenue contracts generally provide for performance obligations that are: fulfilled and transfer control to customers over time; represent a series of distinct services that are substantially the same; involve the same pattern of transfer to the customer; and provide a right to consideration from our customers in an amount that corresponds directly with the value to the customer for the performance completed to date. Therefore, we recognize revenue in the amount to which we have a right to invoice. The following tables depict the disaggregation of revenue from contracts with customers by customer type and timing of revenue recognition for each of the reporting segments for the three months ended March 31, 2020 and 2019. Sales tax and other similar taxes are excluded from revenues.



	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
	(in thousands)
Customer types:
Retail	$	51,427	$	53,076
Wholesale	4,382		8,343
Market - off-system sales	2,377		4,670
Transmission/Other	13,300		12,831
Revenue from contracts with customers	71,486		78,920
Other revenues	125		121
Total revenues	$	71,611	$	79,041

Timing of revenue recognition:
Services transferred over time	$	71,486	$	78,920
Revenue from contracts with customers	$	71,486	$	78,920

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(2) REVENUE

Revenue Recognition

As of January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and its related amendments (collectively known as ASC 606). Revenue is recognized in an amount that reflects the consideration we expect to receive in exchange for goods or services, when control of the promised goods or services is transferred to our customers. The following table depicts the disaggregation of revenue, from contracts with customers by customer type and timing of revenue recognition for the three and nine months ended September 30, 2019 and 2018. Sales tax and other similar taxes are excluded from revenues.

	Three Months Ended September 30, 2019		Three Months Ended September 30, 2018		Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018
	(in thousands)
Customer types:
Retail	$	51,056	$	49,874	$	150,941	$	147,040
Wholesale	7,918		8,255		23,041		25,496
Market - off-system sales	5,122		7,625		12,185		13,349
Transmission/Other	12,798		12,183		38,712		36,273
Revenue from contracts with customers	76,894		77,937		224,879		222,158
Other revenues	128		130		430		400
Total revenues	$	77,022	$	78,067	$	225,309	$	222,558
Timing of revenue recognition:
Services transferred over time	$	76,894	$	77,937	$	224,879	$	222,158
Revenue from contracts with customers	$	76,894	$	77,937	$	224,879	$	222,158

Contract Balances

The nature of our primary revenue contracts provides an unconditional right to consideration upon service delivery; therefore, no customer contract assets or liabilities exist. The unconditional right to consideration is represented by the balance in our Accounts ~~receivable~~Receivable and is further discussed in Note 3. We do not typically incur costs that would be capitalized to obtain or fulfill a revenue contract.

(3) ~~ACCOUNTS~~Accounts ~~RECEIVABLE~~Receivable

Following is a summary of Accounts receivable, net included in the accompanying Condensed Balance Sheets (in thousands) as of:

	September 30, 2019			December 31, 2018
	March 31, 2020			December 31, 2019
Accounts receivable, trade	$	1415,~~367~~577		$	1614,~~236~~778
Unbilled revenues	910,~~894~~059			1210,~~333~~914
Less allowance for doubtful accounts	(107		)	(138		)
Less allowance for credit losses	(358		)	(160		)
Accounts receivable, net	$	2425,~~154~~278		$	2825,~~431~~532

The 10ongoing credit evaluation of our customers during the COVID-19 pandemic is further discussed in the Credit Risk section of Note 7. The Company did not experience material credit losses or customer defaults during the three months ended March 31, 2020.

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(4) ~~REGULATORY~~Regulatory ~~ACCOUNTING~~Matters

~~Our~~We ~~regulated~~had ~~electric~~the ~~operations~~following ~~are~~regulatory ~~subject~~assets ~~to regulation by various state~~ and ~~federal~~liabilities ~~agencies. The~~(in ~~accounting~~thousands) ~~policies~~as ~~followed are generally subject to the Uniform System~~ of ~~Accounts of the FERC.~~:

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



	March 31, 2020			December 31, 2019
Regulatory assets:
Loss on reacquired debt ^(a)	$	921		$	989
Deferred taxes on AFUDC ^(b)	4,882			4,927
Employee benefit plans and related deferred taxes ^(c)	20,866			20,661
Deferred energy and fuel cost adjustments^(b)	23,854			23,203
Deferred taxes on flow through accounting^(c)	10,297			9,801
Decommissioning costs ^(a)	5,767			6,211
Vegetation management ^(a)	7,486			8,062
Other regulatory assets ^(a)	1,633			1,843
Total regulatory assets	$	75,706		$	75,697
Less current regulatory assets	(25,344		)	(21,588		)
Regulatory assets, non-current	$	50,362		$	54,109

	September 30, 2019			December 31, 2018
Regulatory liabilities:
Regulatory assets:
Cost of removal for utility plant (a)	$	58,422		$	57,318
Loss on reacquired debt (a)	$	1,056		$	1,259
Employee benefit plan costs and related deferred taxes (c)	6,986			7,023
Deferred taxes on AFUDC (b)	4,946			5,020
Excess deferred income taxes (c)	97,741			98,228
Employee benefit plans and related deferred taxes (c)	19,935			19,868
TCJA revenue reserve	3,548			3,162
Deferred energy and fuel cost adjustments (b)	22,270			20,334
Other regulatory liabilities (c)	549			440
Deferred taxes on flow through accounting (c)	9,392			8,749
Total regulatory liabilities	$	167,246		$	166,171
Decommissioning costs (a)	6,654			8,196
Less current regulatory liabilities	(3,548		)	(3,162		)
Vegetation management (a)	8,638			10,366
Regulatory liabilities, non-current	$	163,698		$	163,009
Other regulatory assets (a)	1,898			1,940
Total regulatory assets	$	74,789		$	75,732
Less current regulatory assets	(20,555		)	(19,052		)
Regulatory assets, non-current	$	54,234		$	56,680

Regulatory liabilities:
Cost of removal for utility plant (a)	$	56,113		$	52,366
Employee benefit plan costs and related deferred taxes (c)	7,518			7,518
Excess deferred income taxes (c)	98,858			100,276
TCJA revenue reserve	2,821			2,523
Other regulatory liabilities (c)	332			533
Total regulatory liabilities	$	165,642		$	163,216
Less current regulatory liabilities	(2,821		)	(2,574		)
Regulatory liabilities, non-current	$	162,821		$	160,642

____________________


(a)	We are allowed a recovery of costs, but we are not allowed a rate of return.


(b)	In addition to recovery of costs, we are allowed a rate of return.


(c)	In addition to recovery or repayment of costs, we are allowed a return on a portion of this amount or a reduction in rate base.

Regulatory ~~Matters~~Activity

There have been no significant changes to our Regulatory Matters from those previously disclosed in Note 17 of the Notes to the Financial Statements in our ~~2018~~2019 Annual Report on Form 10-K ~~except as reported below~~.

~~Renewable~~(5) ~~Ready~~Related-Party ~~Service Tariffs and Corriedale Wind Energy Project~~Transactions

South Dakota Electric and Wyoming Electric received approvals for the Renewable Ready Service Tariffs and related jointly-filed CPCN to construct the $57 million, 40 MW Corriedale Wind Energy Project. The wind project will be jointly owned by the two electric utilities to deliver renewable energy for large commercial, industrial and governmental agency customers. The project is expected to be in service by the end of 2020. In September 2019, the customer subscription period was completed with customer interest fulfilling the 40 MW of available energy. On November 1, 2019, South Dakota Electric filed with the SDPUC an amendment seeking approval to increase the generating capacity under the tariff for the South Dakota portion by 12.5 MW to a total of 32.5 MW.

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(5) RELATED-PARTY TRANSACTIONS

Dividend to Parent

WeFor ~~did not record any dividends for~~ the ~~nine~~three months ended ~~September~~March 3031, ~~2019. We~~2020, ~~recorded~~we ~~non-cash~~paid ~~dividends~~a ~~to our Parent of~~ $3620 million ~~and~~dividend ~~decreased~~to ~~the~~BHC. We ~~utility~~did ~~Money~~not ~~pool~~record ~~note~~any ~~receivable~~dividends ~~by $36 million~~ for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019.

Receivables and Payables

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

	September 30, 2019		December 31, 2018
	March 31, 2020		December 31, 2019
Accounts receivable from affiliates	$	68,~~721~~149	$	87,~~119~~838
Accounts payable to affiliates	$	2632,~~648~~620	$	2532,~~804~~121

~~Money~~ ~~Pool Notes Receivable and Notes Payable~~13

WeTable ~~participate in the Utility Money Pool Agreement (the Agreement). Under the Agreement, we may borrow from the pool; however the Agreement restricts the pool from loaning funds to BHC or to any~~ of BHC’s non-utility subsidiaries. The Agreement does not restrict us from paying dividends to BHC. Borrowings under the Agreement bear interest at the weighted average daily cost of our parent company’s external borrowings 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%. At September 30, 2019, the average cost of borrowing under the Utility Money Pool was 2.57%.Contents

Money Pool Notes Payable

We participate in the Utility Money Pool Agreement (the Agreement). Under the Agreement, we may borrow from the pool; however the Agreement restricts the pool from loaning funds to BHC or to any of BHC’s non-utility subsidiaries. The Agreement does not restrict us from paying dividends to BHC. Borrowings under the Agreement bear interest at the weighted average daily cost of our parent company’s external borrowings 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%. At March 31, 2020, the average cost of borrowing under the Utility Money Pool was 1.92%.

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

	September 30, 2019		December 31, 2018
	March 31, 2020		December 31, 2019
Money pool notes payable	$	1760,~~370~~068	$	3857,~~690~~585

Our net interest income (expense) relating to balances with the Utility Money Pool was as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018			2019			2018
	2020			2019
Net interest income (expense)	$	(~~111~~287	)	$	(75273	)	$	~~(582~~	)	$	~~(207~~	)

Notes payable to Parent

	September 30, 2019			December 31, 2018
Notes payable to Parent (a)	$	25,000		$	—

On March 1, 2020, we entered into a $45 million, 4.11% short-term promissory note with BHC. This note is eligible for annual renewal at December 31, 2020. The current note replaces the prior $25 million short-term promissory note entered into on June 1, 2019 and renewed at December 31, 2019. We had the following balances for our Notes payable to Parent balance (in thousands) as of:

(a) Note bears interest at 4.51%, expires December 31, 2019, and is eligible for annual renewal. Interest payable related to this note was $0.2 million as of September 30, 2019.

Our 12Net interest income (expense) relating to balances of the Notes Payable to Parent was as follows (in thousands):

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Other related party activity was as follows (in thousands):

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	Three Months Ended March 31,
	2019		2018		2019		2018
	2020		2019
Revenue:
Energy sold to Cheyenne Light	$	326	$	311	$	1,240	$	1,515
Energy sold to Wyoming Electric	$	294	$	574
Rent from electric properties	$	~~896~~989	$	~~908~~896	$	~~2,687~~	$	~~3,025~~
Horizon Point shared facility revenues	$	3,007	$	2,826	$	9,020	$	8,078
Horizon Point shared facility revenue	$	2,840	$	3,007
Fuel and purchased power:
Purchases of coal from WRDC	$	4,368	$	4,161	$	12,241	$	12,477
Purchases from WRDC mine	$	4,317	$	4,657
Purchase of excess energy from Cheyenne Light	$	239	$	193	$	412	$	361
Purchase of excess energy from Wyoming Electric	$	161	$	132
Purchase of renewable wind energy from Cheyenne Light - Happy Jack	$	316	$	262	$	1,193	$	1,284
Purchase of renewable wind energy from Wyoming Electric - Happy Jack	$	792	$	535
Purchase of renewable wind energy from Cheyenne Light - Silver Sage	$	607	$	582	$	2,201	$	2,371
Purchase of renewable wind energy from Wyoming Electric - Silver Sage	$	1,392	$	983
Gas transportation service agreement with Cheyenne Light for firm and interruptible gas transportation	$	76	$	96	$	227	$	288
Gas transportation service agreement with Wyoming Electric for firm and interruptible gas transportation	$	82	$	76
Operations and maintenance:
Corporate support services and fees from Black Hills Service Company	$	9,291	$	9,836	$	28,933	$	25,046
Corporate support services and fees from BHSC	$	10,419	$	10,191
Wygen III ground lease with WRDC	$	~~247~~251	$	~~241~~246	$	~~740~~	$	~~722~~

(6) ~~EMPLOYEE~~Employee ~~BENEFIT~~Benefit ~~PLANS~~Plans

Change in Accounting Principle - Pension Accounting Asset Method

Effective January 1, 2020, the Company changed its method of accounting for net periodic benefit cost. Prior to the change, the Company used a calculated value for determining market-related value of plan assets which amortized the effects of gains and losses over a five-year period. Effective with the accounting change, the Company will continue to use a calculated value for the return-seeking assets (equities) in the portfolio and fair value for the liability-hedging assets (fixed income). The Company considers the fair value method for determining market-related value of liability-hedging assets to be a preferable method of accounting because asset-related gains and losses are subject to amortization into pension cost immediately. Additionally, the fair value for liability-hedging assets allows for the impact of gains and losses on this portion of the asset portfolio to be reflected in tandem with changes in the liability which is linked to changes in the discount rate assumption for remeasurement.

We evaluated the effect of this change in accounting method and deemed it immaterial to the historical and current financial statements and therefore did not account for the change retrospectively. Accordingly, the Company calculated the cumulative difference using a calculated value versus fair value to determine market-related value for liability-hedging assets of the portfolio. The cumulative effect of this change, as of January 1, 2020, resulted in a $0.1 million decrease to prior service costs, as recorded in Other income (expense), net within the accompanying Condensed Statements of Comprehensive Income for the three months ended March 31, 2020.

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Defined Benefit Pension Plan

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018			2019			2018
	2020			2019
Service cost	$	9192		$	~~129~~91		$	~~274~~		$	~~387~~
Interest cost	~~603~~463			~~548~~603			~~1,808~~			~~1,645~~
Expected return on plan assets	(~~851~~781		)	(~~887~~851		)	~~(2,554~~		)	~~(2,660~~		)
Prior service cost	3—			112			8			33
Net loss (gain)	~~305~~511			~~516~~305			~~915~~			~~1,548~~
Net periodic benefit cost	$	~~151~~285		$	~~317~~150		$	~~451~~		$	~~953~~

Defined Benefit Postretirement Healthcare Plan

The components of net periodic benefit cost for the Defined Benefit Postretirement Healthcare Plan were as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018			2019			2018
	2020			2019
Service cost	$	3839		$	4837		$	~~112~~		$	~~145~~
Interest cost	4632			4547			~~139~~			~~134~~
Prior service cost (benefit)	(84		)	(84		)	~~(252~~		)	~~(252~~		)
Net periodic benefit cost	$	—(13	)	$	9—		$	(1	)	$	27

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Supplemental Non-qualified Defined Benefit Plans

The components of net periodic benefit cost for the Supplemental Non-qualified Defined Benefit Plans were as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2019		2018		2019		2018
	2020		2019
Interest cost	$	2921	$	2729	$	86	$	81
Net loss (gain)	1531		2616		48		78
Net periodic benefit cost	$	4452	$	5345	$	~~134~~	$	~~159~~

Contributions

Contributions to the Defined Benefit Pension Plan are cash contributions made directly to the Pension Plan Trust account. Contributions to the Postretirement Healthcare and Supplemental Plans are made in the form of benefit payments. Contributions made for ~~2019~~2020 and anticipated contributions for ~~2019~~2020 and ~~2020~~2021 are as follows (in thousands):

	Contributions		Remaining Anticipated Contributions for		Anticipated Contributions for
	Nine Months Ended September 30, 2019		2019		2020
	Three Months Ended March 31, 2020		2020		2021
Defined Benefit Pension Plan	$	~~1,753~~—	$	—1,739	$	1,~~720~~703
Defined Benefit Postretirement Healthcare Plan	$	~~350~~147	$	~~117~~440	$	~~477~~597
Supplemental Non-qualified Defined Benefit Plans	$	~~173~~80	$	58241	$	~~217~~304

1416

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(7) ~~FAIR~~Derivatives ~~VALUE~~and OFFair ~~FINANCIAL INSTRUMENTS~~Values

Our activities in the regulated and non-regulated energy sectors expose us to a number of risks in the normal operations of our businesses. Depending on the activity, we are exposed to varying degrees of market risk and credit risk.

Market Risk

Market risk is the potential loss that may occur as a result of an adverse change in market price, rate or supply. We are exposed to commodity price risk associated with our purchased power costs which include market fluctuations due to unpredictable factors such as weather, market speculation, transmission constraints, and other factors that may impact electric power supply and demand.

Credit Risk

Credit risk is the risk of financial loss resulting from non-performance of contractual obligations by a counterparty.

For production and generation activities, we attempt to mitigate our credit exposure by conducting business primarily with high credit quality entities, setting tenor and credit limits commensurate with counterparty financial strength, obtaining master netting agreements, and mitigating credit exposure with less creditworthy counterparties through parental guarantees, prepayments, letters of credit, and other security agreements.

We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and the customers’ current creditworthiness, as determined by review of their current credit information. We maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issue that is identified.

Although we did not experience material credit losses or customer defaults for the three months ended March 31, 2020, we are monitoring COVID-19 impacts and changes to customer load, consistency in customer payments, requests for deferred or discounted payments, and requests for changes to credit limits to quantify future financial impacts to allowance for credit losses.

Derivatives

We have wholesale power purchase and sale contracts used to manage purchased power costs and customer load requirements associated with serving our electric customers that are considered derivative instruments. Changes in the fair value of these commodity derivatives are recorded in Fuel and purchased power, net of amounts credited to customers under margin-sharing mechanisms.

The contract or notional amounts and terms of the derivative commodity instruments held at our utilities are composed of both long and short positions. We were in a net long position as of:



	March 31, 2020		December 31, 2019
	MWh	Maximum Term (months)	MWh	Maximum Term (months)
Wholesale power contracts ^(a)	195,825	9	—	0

__________


(a)	Volumes exclude contracts that qualify for the normal purchases and normal sales exception.

From time to time we utilize risk management contracts including interest rate swaps to fix the interest on variable rate debt or to lock in the Treasury yield component associated with anticipated issuance of senior notes. For swaps that settled in connection with the issuance of senior debt, the effective portion is deferred as a component in AOCI and recognized as interest expense over the life of the senior note. As of March 31, 2020, we had no outstanding interest rate swap agreements.

Derivatives by Balance Sheet Classification

As required by accounting standards for derivatives and hedges, fair values within the following tables are presented on a gross basis aside from the netting of asset and liability positions. Netting of positions is permitted in accordance with accounting standards for offsetting and under terms of our master netting agreements that allow us to settle positive and negative positions.

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The following table presents the fair value and balance sheet classification of our derivative instruments (in thousands) as of:



	Balance Sheet Location	March 31, 2020		December 31, 2019

Derivatives not designated as hedges:
Asset derivative instruments:
Current commodity derivatives	Other current assets	$	1,362	$	—
Total derivatives not designated as hedges		$	1,362	$	—

Derivatives Designated as Hedges

Derivatives designated as cash flow hedges relate to a treasury lock entered into in August 2002 to hedge $50 million of our First Mortgage Bonds due on August 15, 2032. The treasury lock cash settled on August 8, 2002, the bond pricing date, and resulted in a $1.8 million loss. The treasury lock is treated as a cash flow hedge and the resulting loss is carried in Accumulated other comprehensive loss and is being amortized over the life of the related bonds.



	Three Months Ended March 31,					Three Months Ended March 31,
	2020		2019			2020			2019
Derivatives in Cash Flow Hedging Relationships	Gain/(Loss) Recognized in OCI				Income Statement Location	Amount of Gain/(Loss) Reclassified from AOCI into Income
	(in thousands)					(in thousands)
Interest rate swaps	$	16	$	—	Interest expense	$	(16	)	$	—
Total	$	16	$	—		$	(16	)	$	—

Derivatives Not Designated as Hedges

The following table summarizes the impacts of derivative instruments not designated as hedge instruments on our Condensed Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019. Note that this presentation does not reflect gains or losses arising from the underlying physical transactions; therefore, it is not indicative of the economic profit or loss we realized when the underlying physical and financial transactions were settled.



		Three Months Ended March 31,
		2020		2019
Derivatives Not Designated as Hedging Instruments	Income Statement Location	Amount of Gain/(Loss) on Derivatives Recognized in Income
		(in thousands)
Commodity derivatives	Fuel and purchased power	$	1,362	$	—
		$	1,362	$	—

As discussed above, financial instruments used to manage lowest cost resources for our customers are not designated as cash flow hedges. The unrealized gains and losses arising from these derivatives are recognized in the Condensed Statements of Comprehensive Income.

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Fair Value

We use the following fair value hierarchy for determining inputs for our financial instruments. Our assets and liabilities for financial instruments are classified and disclosed in one of the following fair value categories:

Level 1 — Unadjusted quoted prices available in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. Level 1 instruments primarily consist of highly liquid and actively traded financial instruments with quoted pricing information on an ongoing basis.

Level 2 — Pricing inputs include quoted prices for identical or similar assets and liabilities in active markets other than quoted prices in Level 1, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Pricing inputs are generally less observable from objective sources. These inputs reflect management’s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels. We record transfers, if necessary, between levels at the end of the reporting period for all of our financial instruments.

Transfers into Level 3, if any, occur when significant inputs used to value the derivative instruments become less observable, such as a significant decrease in the frequency and volume in which the instrument is traded, negatively impacting the availability of observable pricing inputs. Transfers out of Level 3, if any, occur when the significant inputs become more observable, such as when the time between the valuation date and the delivery date of a transaction becomes shorter, positively impacting the availability of observable pricing inputs. We currently do not have any Level 3 investments.

Recurring Fair Value Measurements

Derivatives

Our commodity contracts are valued using the market approach and include wholesale power contracts that do not meet the normal purchases and normal sales exception. For these derivative instruments, the fair value is obtained by utilizing a nationally recognized service that obtains observable inputs to compute the fair value.

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	As of March 31, 2020
	Level 1		Level 2		Level 3		Cash Collateral and Counterparty Netting		Total
	(in thousands)
Assets:
Commodity derivatives	$	—	$	1,362	$	—	$	—	1,362

As of December 31, 2019

Level 1

Level 2

Level 3

Cash Collateral and Counterparty

Netting

Total

(in thousands)

Assets:

Commodity derivatives

—

Pension and Postretirement Plan Assets

Fair value measurements also apply to the valuation of our pension and postretirement plan assets. Current accounting guidance requires employers to annually disclose information about the fair value measurements of their assets of a defined benefit pension or other postretirement plan. The fair value of these assets was presented in Note 12 to the Financial Statements included in our 2019 Annual Report on Form 10-K.

The Company has concluded that the market volatility associated with COVID-19 does not require interim re-measurement of our pension plan assets or defined benefit obligations.

Other fair value measures

Financial instruments for which the carrying amount did not equal the fair value were as follows (in thousands) as of:

	September 30, 2019				December 31, 2018
	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current maturities (a) (b)	$	340,141	$	467,040	$	340,035	$	412,894
Long-term debt, including current maturities (a)	$	337,356	$	451,419	$	340,176	$	458,286

_________________

(a) 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. Carrying amount of long-term debt is net of deferred financing costs.

(b8) ~~Carrying~~Commitments ~~amount~~and ~~of long-term debt is net of deferred financing costs.~~Contingencies

~~(8)~~There ~~SUPPLEMENTAL~~have ~~DISCLOSURE~~been OFno ~~CASH~~significant ~~FLOW~~changes ~~INFORMATION~~to commitments and contingencies from those previously disclosed in Note 11 of our Notes to the Financial Statements in our 2019 Annual Report on Form 10-K.

	Nine Months Ended September 30,
	2019			2018
	(in thousands)
Non-cash investing and financing activities -
Property, plant and equipment acquired with accrued liabilities	$	8,858		$	10,540
Non-cash (decrease) to money pool notes receivable, net	$	—		$	(36,000	)
Non-cash dividend to Parent	$	—		$	36,000
Cash (paid) refunded during the period for -
Interest (net of amounts capitalized)	$	(14,946	)	$	(14,104	)


(9)	Long-term Debt

~~(9)~~Series ~~COMMITMENTS~~94A ~~AND CONTINGENCIES~~Debt

~~There~~On ~~have~~March ~~been~~24, no2020, ~~significant~~South ~~changes~~Dakota toElectric ~~commitments~~paid ~~and~~off ~~contingencies~~its ~~from~~$2.9 ~~those~~million, ~~previously~~Series ~~disclosed~~94A invariable ~~Note~~rate 11notes ofdue ~~our~~June ~~Notes~~1, to2024. These ~~the~~notes ~~Financial~~were ~~Statements~~tendered inby ~~our~~the ~~2018~~sole ~~Annual~~investor ~~Report~~ on ~~Form~~March ~~10-K~~17, 2020.

~~(10)~~ ~~LEASES~~20

We have a ground lease for the Wygen III generating facility with an affiliate and communication tower site and operation center facility leases with third parties. Our leases have remaining terms ranging from less than one year to 31 years.

The components of lease expense were as follows (in thousands):

	Income Statement Location	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease cost	Operations and maintenance	$	227	$	683
Variable lease cost	Operations and maintenance	39		121
Total lease cost		$	266	$	804

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~~Supplemental balance sheet information related to leases was as follows~~ (~~in thousands~~10): Subsequent Events

	Balance Sheet Location	As of September 30, 2019
Assets:
Operating lease assets	Other assets, non-current	$	14,171
Total lease assets		$	14,171
Liabilities:
Current:
Operating leases	Accrued liabilities	$	198
Noncurrent:
Operating leases	Other deferred credits and other liabilities	13,993
Total lease liabilities		$	14,191

We evaluated all subsequent event activity and concluded that no subsequent events have occurred that would require recognition in the condensed financial statements or disclosures.

~~Supplemental~~There ~~cash~~are ~~flow~~many ~~information~~uncertainties ~~related~~regarding the COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, and business partners. We are unable to ~~leases~~predict ~~was~~the asimpact ~~follows~~that ~~(in~~COVID-19 ~~thousands):~~will have on our financial position and operating results due to numerous uncertainties. The Company expects to continue to assess the evolving impact of COVID-19 and intends to make adjustments to its responses accordingly.

	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	676
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	—

	As of September 30, 2019
Weighted average remaining lease term (years):
Operating leases	30 years
Weighted average discount rate:
Operating leases	4.4	%

Scheduled maturities of operating lease liabilities for future years were as follows (in thousands):

	Total
2019 (a)	$	231
2020	856
2021	856
2022	856
2023	853
Thereafter	21,947
Total lease payments	$	25,599
Less imputed interest	11,408
Present value of lease liabilities	$	14,191

(a) Includes lease obligations for the remaining three months of 2019.

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

RESULTS OF OPERATIONS

Amounts are presented on a pre-tax basis unless otherwise indicated.

Minor differences in amounts may result due to rounding.

~~Significant~~COVID-19 ~~Events~~Pandemic

OnOne ~~October~~of 15the Company’s core values is safety. The COVID-19 pandemic has given us an opportunity to demonstrate our commitment to the health and safety of our employees, ~~2019~~customers, ~~Moody’s~~business ~~affirmed~~partners ~~South~~and ~~Dakota~~the ~~Electric’s~~communities ~~credit~~we ~~rating~~serve. We athave A1executed our business continuity plan with the goal of continuing to provide safe and reliable service during the COVID-19 pandemic.

OnFor ~~September 17, 2019, South Dakota Electric completed construction on~~ the ~~final~~three ~~94-mile~~months ~~segment~~ended ofMarch ~~a 175-mile electric transmission line from Rapid City~~31, ~~South Dakota~~2020, towe ~~Stegall,~~did ~~Nebraska.~~not ~~The~~experience ~~first~~significant ~~48-mile~~impacts ~~segment~~to ~~was~~our ~~placed~~financial inresults ~~service on July 25, 2018,~~ and ~~the~~operational ~~second~~activities ~~33-mile~~due ~~segment~~to ~~was placed in service on November 20, 2018~~COVID-19.

OnDecline ~~August~~in 29revenues and customer loads for the three months ended March 31, ~~2019~~2020, ~~Fitch~~when ~~affirmed~~compared ~~South~~to ~~Dakota~~the ~~Electric’s~~same ~~credit~~period ~~rating~~in atthe Aprior year, were driven primarily by weather. We continue to closely monitor loads and have proactively communicated with various commercial and industrial customers in our service territories to understand their needs and forecast the potential financial implications. We did not experience a significant increase in bad debt expense for the three months ended March 31, 2020. We have informed both our customers and regulators that disconnections for non-payment will be temporarily suspended. We continue to monitor the impacts of COVID-19 on our cash flows and bad debt expense.

~~South~~We ~~Dakota~~continue ~~Electric and Wyoming Electric received approvals for the Renewable Ready Service Tariffs and related jointly-filed CPCN~~ to ~~construct~~maintain ~~the~~adequate ~~$57~~liquidity ~~million, 40-megawatt Corriedale Wind Energy Project. The wind project will be jointly owned by the two electric utilities~~ to ~~deliver~~operate ~~renewable~~our ~~energy~~business ~~for~~and ~~large~~fund ~~commercial,~~our ~~industrial~~capital ~~and~~investment ~~governmental agency customers~~program. The ~~project~~Company ishas ~~expected~~no tomaterial beupcoming indebt ~~service~~maturities byuntil ~~the~~August ~~end of 2020~~2032. InWe ~~September~~have ~~2019,~~not ~~the~~had ~~customer~~any ~~subscription~~changes ~~period~~to ~~was~~our ~~completed~~credit ~~with customer interest fulfilling the 40 MW of available energy~~ratings. OnWe ~~November~~also 1,continue ~~2019, South Dakota Electric filed with the SDPUC an amendment seeking approval~~ to ~~increase~~monitor the ~~generating~~funding ~~capacity~~status ~~under~~of ~~the~~our ~~tariff~~employee ~~for~~benefit ~~the~~plan ~~South~~obligations, ~~Dakota~~which ~~portion~~had bynot ~~12.5~~materially MWchanged toas aof ~~total~~March of31, 322020.~~5 MW.~~

OnWe ~~April~~are 30monitoring supply chains, ~~2019~~including lead times for key materials and supplies, ~~S&P~~availability ~~affirmed~~of ~~South~~resources, ~~Dakota~~and ~~Electric’s~~status ~~credit~~of ~~rating~~large atcapital Aprojects. To date, there have been limited impacts to supply chains including availability of supplies and materials and lead times. Capital projects are ongoing without material disruption to schedules. Our third party resources continue to support our business plans without disruption. Contingency plans are ongoing due to the impacts of COVID-19, including the potential for rescheduling projects. We currently do not anticipate a significant impact to our capital investment plan for 2020.

We continue to work closely with local health, public safety and government officials to minimize the spread of COVID-19 and minimize the impact to our employees and the service we provide to our customers. Some of the actions the Company has taken include implementing protocols for our field operations personnel to continue to safely and effectively interact with our customers, asking employees to work from home to the extent possible, quarantining employees if they had traveled to an at-risk area, limiting travel to mission critical purposes and sequestering essential employees.

As we look forward, we anticipate that our 2020 operating results could potentially be impacted as a result of COVID-19, including impact related to the following:


•	Increased residential and decreased commercial and industrial load and demand;


•	Increased allowance for credit losses and bad debt expense as a result of suspending disconnections and delayed or non-payment from customers;


•	Disruption in our supply chains impacting our ability to timely execute our capital investment and maintenance project plans;

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•	Volatility in cost of sales due to changes in commodity prices;


•	Rate actions from our regulators;


•	Decreased training, travel and outside services related expenses;


•	Increased operation and maintenance costs if we experience a shortage of labor availability which would lead to deferral of capital projects and sequestration costs for employees deemed critical at our generating facilities; and


•	Increased tax benefits for employee retention tax credits and reduced cash tax payments for the payroll tax deferral provision from the CARES Act

During these uncertain times, we remain highly focused on the safety and health of our employees, customers, business partners and communities. We continue to monitor load, customers’ ability to pay, the potential for supply chain disruption that may impact our capital and maintenance project plans and the availability of resources to execute our plans.

Company Highlights

Construction continues on the $79 million Corriedale project, which is expected to be placed in service by year-end 2020. As a result of COVID-19, we regularly communicate with our key suppliers to maintain visibility into any disruptions they are experiencing in the receipt of supplies and materials from their suppliers. At this time, we have not experienced significant disruption in our supply chain due to COVID-19 which would cause us to adjust the in-service date for this project. If significant disruptions occur and we were unable to complete the project by December 31, 2020, we could experience loss of production tax credits.

On April 16, 2020, S&P affirmed our credit rating at A.

Results of Operations

The following discussion includes financial information prepared in accordance with GAAP, as well as another financial measure, gross margin, that is considered a “non-GAAP financial measure.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Gross margin (revenue less cost of sales) is a non-GAAP financial measure due to the exclusion of depreciation and amortization from the measure. The presentation of gross margin is intended to supplement investors’ understanding of our operating performance.

Gross margin is calculated as operating revenue less cost of fuel and purchased power. Our gross margin is impacted by the fluctuations in purchased power, natural gas and other fuel supply costs. However, while these fluctuating costs impact gross margin as a percentage of revenue, they only impact total gross margin if the costs cannot be passed through to our customers.

Our gross margin measure may not be comparable to other companies’ gross margin ~~measure~~measures. Furthermore, this measure is not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.

1722

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The following tables provide certain financial information and operating statistics:

	Three Months Ended September 30,									Nine Months Ended September 30,
	Three Months Ended March 31,
	2019			2018			Variance			2019			2018			Variance
	2020			2019			Variance
	(in thousands)
Revenue	$	77,022		$	78,067		$	(1,045	)	$	225,309		$	222,558		$	2,751
Revenue (a)	$	71,611		$	79,041		$	(7,430	)
Fuel and purchased power	21,805			25,207			(3,402		)	62,919			68,400			(5,481		)
Fuel and purchased power (a)	15,987			22,733			(6,746		)
Gross margin (non-GAAP)	55,~~217~~624			5256,~~860~~308			~~2,357~~(684		)	~~162,390~~			~~154,158~~			~~8,232~~
Operating expenses	3334,~~213~~431			31,~~432~~666			12,~~781~~765			~~98,434~~			~~92,871~~			~~5,563~~
Operating income	2221,~~004~~193			2124,~~428~~642			~~576~~(3,449		)	~~63,956~~			~~61,287~~			~~2,669~~
Interest income (expense), net	(5,~~329~~798		)	(5,~~183~~432		)	(~~146~~366		)	~~(16,038~~		)	~~(15,986~~		)	~~(52~~		)
Other income (expense), net	~~112~~359			(~~247~~375		)	~~359~~734			28			~~(606~~		)	~~634~~
Income tax expense	(3,044		)	(2,681		)	(363		)	(8,558		)	(8,493		)	(65		)
Income tax (expense)	(2,419		)	(3,338		)	919
Net income	$	13,~~743~~335		$	1315,~~317~~497		$	~~426~~(2,162	)	$	~~39,388~~		$	~~36,202~~		$	~~3,186~~

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018. Net income was $39 million compared to $36 million for the same period in the prior year primarily due to the following:

Gross margin increased primarily due to a $4.9 million reduction in the power capacity charges and increased rider revenues of $2.5 million related to transmission investment recovery. Increased industrial usage (partially due to a prior year customer outage), customer growth, and favorable weather comprised the remainder of the increase.

Operating expenses increased primarily due to higher outside services expenses, higher depreciation due to a higher asset base driven by prior and current year capital expenditures, and higher employee costs partially offset by a decrease in expenses due to generation outages.

	Electric Revenue by Customer Type
	Three Months Ended September 30,					Nine Months Ended September 30,
	(in thousands)
	2019		Percentage Change	2018		2019		Percentage Change	2018
Residential	$	17,215	(4)%	$	17,971	$	53,975	(3)%	$	55,458
Commercial	24,430		(5)%	25,601		69,705		(4)%	72,683
Industrial	8,853		15%	7,685		25,786		7%	24,131
Municipal	896		(11)%	1,005		2,453		(9)%	2,692
Total retail revenue	51,394		(2)%	52,262		151,919		(2)%	154,964
Wholesale (a)	7,917		(4)%	8,255		23,040		(10)%	25,496
Market - off-system sales (b)	5,122		(33)%	7,625		12,185		(9)%	13,349
Other revenue (c)	12,589		27%	9,925		38,165		33%	28,749
Total revenue	$	77,022	(1)%	$	78,067	$	225,309	1%	$	222,558

____________________

(a) ~~Decrease~~Revenue and purchased power for the ~~nine~~three months ended ~~September~~March 3031, ~~2019~~2020, ~~was~~as ~~primarily~~well ~~driven~~as byassociated ~~prior~~quantities, ~~year~~for ~~increased~~a ~~volumes~~certain wholesale contract have been presented on ~~long-term~~a ~~wholesale~~net ~~contracts~~basis. This resulted in a decrease of $3.6 million to both revenue and fuel and purchased power. Amounts for the three months ended March 31, 2019, were presented on a gross basis and, due to their immaterial nature, were not revised. This presentation change has no impact on Gross margin.

~~(b)~~Three ~~Decrease~~Months ~~for~~Ended ~~the~~March ~~nine~~31, ~~months~~2020 ~~ended~~Compared ~~September~~to 30Three Months Ended March 31, 2019. Net income was ~~driven~~$13 bymillion ~~lower~~compared ~~wholesale~~to ~~volume~~$15 ~~opportunities~~million ~~driven~~for bythe ~~weather~~same ~~and~~period ~~energy~~in ~~prices.~~the prior year primarily due to the following:

~~(c)~~Gross ~~Increase~~margin ~~for~~decreased ~~the~~primarily ~~nine~~due ~~months~~to ~~ended~~a ~~September~~$1.4 ~~30,~~million ~~2019~~decline ~~was~~from ~~primarily~~lower ~~due~~heating toresidential ~~the~~demand ~~prior~~from ~~year~~warmer ~~reserve~~winter toweather ~~revenue~~and to$1.2 ~~reflect~~million ~~the~~of ~~reduction~~lower ofoff-system ~~the~~power ~~lower~~marketing ~~federal~~margins ~~income~~partially ~~tax~~offset ~~rate~~by ~~from~~a ~~the~~$1.4 ~~TCJA~~million mark-to-market gain on ~~our~~wholesale ~~existing~~energy ~~rate~~contracts ~~tariffs~~and $0.6 million of higher rider revenues.

Operating 18expenses increased primarily due to higher employee related costs, higher generation expenses due to timing of a planned outage at Neil Simpson II and higher depreciation due to a higher asset base driven by prior year capital expenditures.

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	Megawatt Hours Sold by Customer Type
	Three Months Ended September 30,			Nine Months Ended September 30,
	2019	Percentage Change	2018	2019	Percentage Change	2018
Residential	124,656	—%	125,159	408,991	1%	404,178
Commercial	203,761	—%	204,621	579,521	(1)%	586,336
Industrial (a)	118,792	24%	95,473	339,611	11%	305,875
Municipal	8,399	(7)%	9,070	22,728	(6)%	24,052
Total retail quantity sold	455,608	5%	434,323	1,350,851	2%	1,320,441
Wholesale	211,968	(4)%	221,327	629,210	(7)%	677,163
Market - off-system sales (b)	129,433	(25)%	172,141	342,019	(16)%	406,109
Total quantity sold	797,009	(4)%	827,791	2,322,080	(3)%	2,403,713
Losses and Company use (c)	38,716	(18)%	47,171	116,286	(15)%	137,369
Total energy	835,725	(4)%	874,962	2,438,366	(4)%	2,541,082

Operating Statistics



	Electric Revenue				Quantities Sold
	(in thousands)				(MWh)
	Three Months Ended March 31,				Three Months Ended March 31,
	2020		2019		2020	2019
Residential	$	19,681	$	21,190	153,037	169,936
Commercial	22,226		23,144		185,961	194,794
Industrial	9,086		8,357		118,558	108,196
Municipal	771		781		7,439	7,573
Total retail revenue	51,764		53,472		464,995	480,499
Wholesale ^(a)	4,382		8,343		81,737	223,020
Market - off-system sales	2,377		4,670		105,744	99,572
Other revenue	13,088		12,556		—	—
Total Revenue and Energy Sold	71,611		79,041		652,476	803,091
Other Uses, Losses or Generation, net ^(b)	—		—		32,748	41,910
Total revenue	$	71,611	$	79,041	685,224	845,001

____________________

(a) ~~Increase~~Revenue and purchased power for the ~~nine~~three months ended ~~September~~March 3031, 2020, as well as associated quantities, for certain wholesale contracts have been presented on a net basis, which resulted in a decrease of $3.6 million, or 135,327 MWh. Amounts for the three months ended March 31, 2019, ~~was~~were ~~primarily~~presented on a gross basis and, due to atheir ~~prior~~immaterial ~~year~~nature, ~~customer~~were ~~outage~~not ~~and~~revised. ~~customer~~This ~~usage~~presentation ~~growth~~change has no impact on Gross margin.

(b) ~~Decrease~~Includes ~~for~~company ~~the~~uses, ~~nine~~line ~~months ended September 30~~losses, ~~2019 was primarily due to lower wholesale volume opportunities driven by weather~~ and ~~energy~~excess ~~prices~~exchange production.



Quantities Generated and Purchased (MWh)	Three Months Ended March 31,
	2020	2019
Coal-fired	380,495	409,666
Natural Gas and Oil	92,471	47,703
Total generated	472,966	457,369

Purchased ^(a)	212,258	387,632
Total generated and purchased	685,224	845,001

	Megawatt Hours Generated and Purchased
	Three Months Ended September 30,			Nine Months Ended September 30,
Generated -	2019	Percentage Change	2018	2019	Percentage Change	2018
Coal-fired	389,565	(5)%	407,936	1,086,432	(9)%	1,195,104
Natural Gas and Oil (a)	99,477	61%	61,744	175,904	78%	98,609
Total generated	489,042	4%	469,680	1,262,336	(2)%	1,293,713
Total purchased (a)	346,683	(14)%	405,282	1,176,030	(6)%	1,247,369
Total generated and purchased	835,725	(4)%	874,962	2,438,366	(4)%	2,541,082

________________


(a)	Purchased power quantities for the three months ended March 31, 2020, for certain wholesale contracts have been presented on a net basis, which resulted in a decrease of 135,327 MWh. Amounts for the three months ended March 31, 2019, were presented on a gross basis and, due to their immaterial nature, were not revised. This presentation change has no impact on Gross margin.



Contracted Power Plant Fleet Availability ^(a)	Three Months Ended March 31,
	2020		2019
Coal-fired plants ^(b)	91.8	%	98.2	%
Other plants^(c)	98.1	%	87.3	%
Total availability	95.1	%	92.4	%

____________________

(a) ~~Increase~~ isTotal ~~primarily~~availability ~~due~~is tocalculated ~~low~~using ~~natural gas prices and the ability to generate at~~ a ~~lower~~weighted ~~cost~~average ~~than~~based ~~to purchase generation~~ on ~~the~~capacity ~~open~~of ~~market~~our ~~for~~generating ~~the nine months ended September 30, 2019~~fleet.

	Power Plant Availability
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Coal-fired plants (a)	94.9	%	93.8	%	88.3	%	92.7	%
Other plants (b)	81.8	%	96.0	%	83.0	%	97.6	%
Total availability	88.0	%	95.0	%	85.5	%	95.3	%


(b)	2020 includes a planned outage at Neil Simpson II.

~~(a)~~ ~~2019 included planned outages at Neil Simpson II and Wygen III, unplanned outages at Wyodak Plant and Wygen III, and 2018 included planned outages at Neil Simpson II and Wyodak Plant.~~24

(b) 2019 included planned outages at Neil Simpson CT and Lange CT.

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Degree Days	~~Degree~~Three ~~Days~~Months Ended March 31,						~~Degree Days~~
	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019
	2019			2018			2019			2018
	Actual	Variance from Normal		Actual	Variance from Normal
	Actual	Variance from Normal		Actual	Variance from Normal		Actual	Variance from Normal		Actual	Variance from Normal
Heating degree days	3,111	(3	)%	3,916	22	%
Heating degree days	175	(22	)%	236	5	%	5,370	20	%	4,972	11	%
Cooling degree days	—	—	%	—	—	%
Cooling degree days	366	(31	)%	356	(33	)%	404	(36	)%	488	(23	)%

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. The following table represents our secured credit rating from each agency’s review which was in effect at ~~September~~March 3031, ~~2019~~2020:



Rating Agency	Senior Secured Rating
S&P ^(a)	A
Moody’s ^(b)	A1
Fitch ^(c)	A

__________

(a) On April 3016, ~~2019~~2020, S&P affirmed A rating.

(b) On ~~October~~December 1520, 2019, Moody’s affirmed A1 rating.


(c)	On August 29, 2019, Fitch affirmed A rating.

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FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q 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 2 - 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, such as the COVID-19 pandemic, 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 described in Item 1A of our ~~2018~~2019 Annual Report on Form 10-K, including statements contained within Item 1A - Risk Factors and Part II, Item 1A of this Quarterly Report on Form 10-Q.

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ITEM 4.	CONTROLS AND PROCEDURES

~~This~~Our ~~section~~Chief ~~should~~Executive beOfficer ~~read~~and inChief ~~conjunction~~Financial ~~with~~Officer ~~Item~~evaluated ~~9A,~~the ~~“Controls~~effectiveness of our disclosure controls and ~~Procedures”~~procedures ~~included~~(as defined in ~~our~~Rules ~~Annual~~13a-15(e) ~~Report~~and on15d-15(e) ~~Form~~of ~~10-K~~the ~~for~~Securities Exchange Act of 1934, as amended (the ~~year~~“Exchange ~~ended~~Act”)) ~~December~~as of March 31, ~~2018~~2020. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective at March 31, 2020.

Our ~~Chief~~disclosure ~~Executive~~controls ~~Officer~~ and ~~Chief~~procedures ~~Financial~~are ~~Officer~~designed ~~evaluated~~to ~~the~~ensure ~~effectiveness~~that ofinformation ~~our~~required ~~disclosure~~to ~~controls~~be ~~and~~disclosed ~~procedures~~by ~~(as~~us ~~defined~~ in ~~Rules~~the ~~13a-15(e)~~reports ~~and~~that ~~15d-15(e)~~we offile ~~the~~or ~~Securities~~submit under the Exchange Act ofis ~~1934)~~recorded, asprocessed, ofsummarized ~~September 30~~and reported, ~~2019. Based~~within onthe ~~their~~time ~~evaluation,~~periods ~~they~~specified ~~have~~in ~~concluded~~the SEC’s rules and forms, and that such information is accumulated and communicated to our ~~disclosure~~management, ~~controls~~including our Chief Executive Officer and ~~procedures~~Chief ~~were~~Financial ~~effective~~Officer, as ofappropriate ~~September 30,~~to ~~2019~~allow timely decisions regarding required disclosure.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Security Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended ~~September~~March 3031, ~~2019~~2020, there have been no changes in our internal ~~control~~controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. Although we have altered some work routines due to the COVID-19 pandemic, the changes in our work environment (i.e. remote work arrangements) have not materially impacted our internal controls over financial reporting and have not adversely affected the Company’s ability to maintain operations, including financial reporting systems, ICFR, and disclosure controls and procedures.

PART 21II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 11 of Notes to Financial Statements in Item 8 of our 2019 Annual Report on Form 10-K and Note 8 of our Notes to Condensed Financial Statements in this Quarterly Report on Form 10-Q.


ITEM 1A.	RISK FACTORS

There are no material changes to the risk factors previously disclosed in Item 1A of Part I in our 2019 Annual Report on Form 10-K filed with the SEC except as shown below:

Our business, results of operations and financial condition could be adversely affected by the recent coronavirus (COVID-19) outbreak.

We are responding to the global pandemic of COVID-19 by taking steps to mitigate the potential risks to us posed by its spread. We provide an essential service to our customers which means it is critical we keep our employees who operate our business healthy and minimize unnecessary exposure to the virus. We continue to execute our business continuity plan and have implemented a comprehensive set of actions for the health and safety of our customers, employees, business partners and the communities we serve. We have taken extra precautions for our employees who work in the field and for employees who continue to work in our facilities and we have implemented work from home policies where appropriate. We have implemented sequestration plans for employees critical to maintaining reliable service.

We have informed both our customers and regulators that disconnections for non-payment will be temporarily suspended. We have instituted measures to ensure our supply chain remains open to us. We continue to implement strong physical and cyber-security measures to ensure our systems remain functional to both serve our operational needs with a remote workforce and to provide uninterrupted service to our customers.

For the three months ended March 31, 2020, the impacts of COVID-19 had a minimal financial impact on our business, operations and financial condition. In particular, we experienced minimal financial impacts to the following due to COVID-19:


•	Volatility in electricity usage from our residential, commercial and industrial customers resulting in a minimal decrease in total demand;


•	Delayed payments from an isolated population of our commercial and industrial customers within hard-hit industries;


•	Minimal disruptions receiving the materials and supplies necessary to maintain operations and continue executing our capital investment plans as planned;


•	Reduced availability and productivity of our employees;

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~~BLACK~~• ~~HILLS~~Minimal ~~POWER,~~impacts ~~INC.~~to the availability of our third-party resources;

~~Part~~• IIMinimal -decline ~~Other~~in ~~Information~~the funded status of our pension plan;

~~Item~~• 1.Increased ~~Legal~~costs ~~Proceedings~~due to sequestration of mission critical and essential employees; and

~~For~~• ~~information~~Reduced ~~regarding legal proceedings~~training, ~~see~~travel ~~Note 11 of Notes to Financial Statements in Item 8 of our 2018 Annual Report on Form 10-K~~ and ~~Note~~outside 9services ofrelated ~~our Notes to Condensed Financial Statements in this Quarterly Report on Form 10-Q~~expenses.

~~Item~~Should 6the COVID-19 pandemic continue for a prolonged period, or impact the areas we serve more significantly than it has today, our business, operations and financial condition could be impacted in more significant ways. The ~~Exhibits~~continued spread of COVID-19 and efforts to contain the virus could have the following impacts, in addition to exacerbating the impacts described above:


•	Adversely impact our strategic business plans, growth strategy and capital investment plans;


•	Adversely impact electricity demand from our customers, particularly from businesses, commercial and industrial customers;


•	Reduce the availability and productivity of our employees and third-party resources;


•	Cause us to experience an increase in costs as a result of our emergency measures;


•	Result in increased allowance for credit losses and bad debt expense as a result of delayed or non-payment from our customers, both of which could be magnified by Federal or state government legislation that requires us to extend suspensions of disconnections for non-payment;


•	Cause delays and disruptions in the availability, timely delivery and cost of materials and components used in our operations;


•	Cause delays and disruptions in the supply chain resulting in disruptions in the commercial operation dates of certain projects impacting qualification criteria for certain tax credits and potential damages in our power purchase agreements;


•	Cause a deterioration of the credit quality of our counterparties, including power purchase agreement counterparties, contractors or retail customers, that could result in credit losses;


•	Cause impairment of long-lived assets;


•	Adversely impact our ability to develop, construct and operate facilities;


•	Cause a deterioration in our financial metrics or the business environment that adversely impacts our credit ratings;


•	Cause a delay in the permitting process of certain development projects, affecting the timing of final investment decisions and start dates of construction;


•	Cause delays in our ability to change rates through regulatory proceedings; and


•	Cause other risks to impact us, such as the risks described in the “Risk Factors” section of our 2019 Annual Report on Form 10-K, and our ability to meet our financial obligations.

To date, we have not experienced significant impacts to our results of operations, financial condition, cash flows or business plans. However, the situation remains fluid and it is difficult to predict with certainty the potential impact of COVID-19 on our business, results of operations, financial condition and cash flows.

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ITEM 6.	EXHIBITS


Exhibit 3.1*	Restated Articles of Incorporation of the Registrant dated January 30, 2018 (filed as Exhibit 3 to Registrant’s Form 8-K filed on February 5, 2018).


Exhibit 3.2*	Amended and Restated Bylaws of the Registrant dated March 30, 2015 (filed as Exhibit 3.2 to Registrant’s Form 10-Q for the quarterly period ended March 31, 2015).


Exhibit 4.1*	Restated and Amended Indenture of Mortgage and Deed of Trust of Black Hills Corporation (now called Black Hills Power, Inc.) dated as of September 1, 1999 (filed as Exhibit 4.19 to the Registrant’s Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-3 (No. 333-150669-01)).

First Supplemental Indenture, dated as of August 13, 2002, between Black Hills Power, Inc. and The Bank of New York Mellon (as successor to J.P. Morgan Chase Bank), as Trustee (filed as Exhibit 4.20 to the Registrant’s Post-Effective Amendment No. 1 to the Registrant’s Registration Statement on Form S-3 (No. 333-150669-01)).

Second Supplemental Indenture, dated as of October 27, 2009, between Black Hills Power, Inc. and The Bank of New York Mellon (filed as Exhibit 4.21 to the Registration Statement on Form S-3 (No. 333-150669-01)).

Third Supplemental Indenture, dated as of October 1, 2014, between Black Hills Power, Inc. and The Bank of New York Mellon (filed as Exhibit 10.1 to the Registrant’s Form 8-K filed on October 2, 2014).


Exhibit 18.1	Preferability letter from Deloitte & Touche LLP regarding change in pension accounting asset method.


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.


101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document


101.SCH	XBRL Taxonomy Extension Schema Document


101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document


101.DEF	XBRL Taxonomy Extension Definition Linkbase Document


101.LAB	XBRL Taxonomy Extension Label Linkbase Document


101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document


104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

_________________________


*	Previously filed as part of the filing indicated and incorporated by reference herein.

2228

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~~BLACK HILLS POWER, INC.~~SIGNATURES

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/ LINDEN R. EVANS



		/s/ Linden R. Evans
		Linden R. Evans, Chairman, President and
		Chief Executive Officer

		/s/ Richard W. Kinzley
		Richard W. Kinzley, Senior Vice President and
		Chief Financial Officer

Dated:	May 5, 2020

~~Linden~~ ~~R. Evans, Chairman, President~~29

and Chief Executive Officer

/S/ RICHARD W. KINZLEY

Richard W. Kinzley, Senior Vice President

and Chief Financial Officer

Dated: November 5, 2019

March 31, 2020

December 31, 2019

Notes payable to Parent

Filing Compare · BLACK HILLS POWER INC