[Federal Register Volume 69, Number 214 (Friday, November 5, 2004)]
[Notices]
[Pages 64599-64607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-24738]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27907]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

November 1, 2004.
    Notice is hereby given that the following filings(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by November 24, 2004, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declarant(s) at the address(es) specified below. 
Proof of service (by affidavit or, in the case of an attorney at law, 
by certificate should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the matter. After November 24, 2004, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

[[Page 64600]]

Black Hills Corporation, et al. (70-10237)

    Black Hills Corporation (``Black Hills''), a public-utility holding 
company exempt under section 3(a)(1) of the Act by rule 2, and its 
subsidiaries, including Black Hills Power, Inc. (``Black Hills Power'' 
or ``Utility Subsidiary''), its electric-utility company subsidiary 
(collectively, ``Subsidiaries''), all located at 625 Ninth Street, 
Rapid City, SD 57701 (collectively, ``Applicants''), have filed an 
application-declaration, as amended (``Application'') with the 
Commission under sections 6, 7, 9, 10, 11, 12, 13, 32, 33, 34 of the 
Act and rules 42, 43, 45, 52, 53, 54, 58 and 88 through 92.

I. Background

    Black Hills, a South Dakota corporation, is an integrated energy 
company with three principal subsidiaries engaged in three major lines 
of business: (i) Black Hills Power, a subsidiary electric-utility 
company engaged in the generation, transmission, distribution and sale 
of electricity to customers in South Dakota, Wyoming and Montana and 
the wholesale sale of power in the western United States,\1\ (ii) Black 
Hills Energy, Inc. (``Black Hills Energy''), a direct wholly owned 
subsidiary engaged, through subsidiaries, in the development, ownership 
and operation of exempt wholesale generators, as defined in section 32 
of the Act (``EWGs''), and qualifying facilities as defined in the 
Public Utility Regulatory Policies Act of 1978 (``PURPA'') (``QFs''), 
the production, transportation and marketing of natural gas, oil, coal 
and other energy commodities, power marketing and other energy-related 
activities; and (iii) Black Hills FiberCom, LLC (``Black Hills 
FiberCom''), a subsidiary engaged in telecommunications activities and 
which Applicants anticipate will become an exempt telecommunications 
company, as defined in section 34 of the Act (``ETC''). Black Hills 
Power is regulated as a public-utility company by the states of South 
Dakota, Wyoming and Montana, with these states regulating Black Hills 
Power's retail electric rates and charges and most of its securities 
issuances. Black Hills Power is also subject to regulation, under the 
Federal Power Act, by the Federal Energy Regulatory Commission 
(``FERC''). Black Hills Energy, directly and indirectly, owns interests 
in nonutility subsidiaries, all primarily engaged in energy-related or 
telecommunications activities (``Nonutility Subsidiaries'').
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    \1\ Black Hills Power has approximately 60,000 retail customers 
in eleven counties throughout a 9,300 square mile service territory 
in portions of western South Dakota, eastern Wyoming and southern 
Montana. It also sells bundled capacity and energy service to 
Gillette, Wyoming and wholesale capacity and energy to other 
wholesale customers; owns generating facilities in its South Dakota 
service area, in Wyoming's Powder River Basin (just west of Black 
Hills Power's service territory) and a small transmission system 
(consisting of 230 kV and smaller transmission facilities in 
southwest South Dakota and northeast Wyoming, with a 69 kV 
distribution extension into southeast Montana, totalling 2,195 miles 
of transmission facilities).
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    Black Hills proposes to continue to compete in the utility business 
by developing generation projects, expanding its power marketing 
operations and pursuing additional, related growth opportunities. Black 
Hills seeks authorizations to enable it and its Subsidiaries to operate 
and engage in financing and investment activities, intrasystem services 
and other related activities and transactions following its 
registration as a public-utility holding company under the Act. Black 
Hills states that it intends to register as a public-utility holding 
company under section 5 of the Act upon the issuance of the 
Commission's order in this matter.
    Upon its registration as a public-utility holding company, Black 
Hills proposes to form Black Hills Services Company, Inc. (``Black 
Hills Services''), to provide centralized services (such as accounting, 
financial, human resources, information technology and legal services) 
to the companies in the Black Hills system (``Black Hills System''). 
Black Hills also intends to purchase an additional electric-utility 
company, Cheyenne Light, Fuel & Power Company, which is currently a 
subsidiary of Xcel Energy, Inc., a registered holding company under the 
Act.\2\
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    \2\ See SEC File Nos. 70-10229 (May 14, 2004) and 70-10225 
(October 14, 2004).
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II. Summary of Requested Authority

    Applicants request the following financing authorizations, for the 
period beginning with the effective date of an order issued in this 
matter, through December 31, 2007 (``Authorization Period''), and 
authorizations for certain related actions, as described in more detail 
in subsequent sections of this notice:

    1. For Black Hills, directly or indirectly, to retain or 
refinance existing outstanding financing arrangements and debt 
issuances in the total amount of up to $1.534 billion, consisting of 
approximately (a) $807.1 million in utility and nonutility debt 
arrangements; (b) up to $350 million in short-term debt and 
available credit lines (``Existing Short-Term Debt''); and (c) 
$367.7 million in guarantees and other forms of credit support 
(``Existing Guarantees'') (collectively, ``Existing Financings'');
    2. For Black Hills and its Subsidiaries, to issue and sell 
securities, of up to an additional $1 billion in securities 
outstanding at any one time (``Aggregate Additional Financing 
Limit''), comprised of:
    (a) For Black Hills, (i) common stock (``Common Stock,'' as 
defined below), (ii) preferred stock and preferred stock equivalent 
securities (collectively, ``Preferred Securities,'' as defined 
below), (iii) unsecured debt (``Long-Term Debt'') (excluding the 
additional issuance of 2.7 million shares of common stock under 
various plans, described below); and
    (b) For the Subsidiaries, (a) common stock (``Subsidiary Common 
Stock,'' as defined below), (b) preferred stock and preferred stock 
equivalent securities (``Subsidiaries Preferred Securities,'' as 
described below), (c) unsecured and secured short-term debt 
(``Subsidiary Short-Term Debt'') and (d) unsecured and secured long-
term debt (``Subsidiary Long-Term Debt'');
    3. For Black Hills and its Subsidiaries, to enter into 
transactions to manage interest rate risk, including anticipatory 
hedging transactions (together, ``Interest Rate Hedging 
Transactions'');
    4. For Black Hills and its Subsidiaries, to issue grantees and 
other credit support (``Guarantees'') in an aggregate amount of up 
to $400 million (excluding Existing Guarantees) (``Additional 
Guarantee Limit'');
    5. For Black Hills and its Subsidiaries, (a) to form financing 
entities (``Financing Subsidiaries,'' as defined below) and (b) to 
issue and sell securities through Financing Subsidiaries, subject to 
the Aggregate Additional Financing Limit;
    6. For Black Hills and its Subsidiaries, to establish two money 
pools and enter into certain intrasystem financing arrangements;
    7. For Black Hills, directly or indirectly through Nonutility 
Subsidiaries to engage, and make investments, in nonutility 
activities (such as EWGs, FUCOs, energy-related activities or 
subsidiaries authorized under rule 58 (``Rule 58 Subsidiaries'') and 
other energy-related activities, assets or subsidiaries 
(collectively, ``Permitted Nonutility Investments'')):
    (a) to (i) engage in energy marketing and brokering (``Energy 
Marketing,'' as further defined below) in Canada and Mexico and 
elsewhere in the world outside of the United States (subject to the 
Commission's reservation or jurisdiction over these activities 
outside of the United States, Mexico and Canada), and (ii) render 
energy management services (``Energy Management Services,'' as 
described below) and consulting services (``Consulting Services,'' 
as described below) anywhere in the world outside of the United 
States (collectively ``Non-U.S. Energy-Related Subsidiaries'');
    (b) to invest in energy-related assets (``Energy-Related 
Assets,'' as further defined below) in an amount of up to $300 
million (``Energy-Related Assets Financing Limit'');
    (c) to invest in an aggregate amount of up to $1.4 billion in 
EWGs and FUCOs

[[Page 64601]]

(excluding its existing investments) (``EWG/FUCO Financing Limit''); 
and
    (d) to engage, and invest an amount of up to $100 million (on a 
revolving fund basis), in (i) preliminary development activities 
(``Development Activities,'' as defined below) and (ii) 
administrative and management activities (``Administrative 
Activities,'' as defined below) related to EWGs, FUCOs, Rule 58 
Subsidiaries, Energy-Related Assets and Non-U.S. Energy-Related 
Subsidiaries;
    8. For Black Hills and its Subsidiaries, to alter the capital 
stock of all 50%-or-more owned Subsidiaries, subject to the 
Commission's reservation of jurisdiction over partially owned 
Subsidiaries;
    9. For Nonutility Subsidiaries, to pay dividends out of capital 
and unearned surplus (including revaluation reserve);
    10. For Black Hills, directly or through Nonutility 
Subsidiaries, to acquire the securities of one or more corporations, 
trusts, partnerships, limited liability companies or other entities 
organized exclusively for the purpose of acquiring, holding and/or 
financing or facilitating the acquisition or disposition of 
Permitted Nonutility Investments (``Intermediate Subsidiaries'');
    11. For Black Hills and its Subsidiaries, to undertake internal 
reorganizations of subsidiaries and businesses;
    12. For Black Hills, for the Commission to find, concerning the 
formation of a service company, that Black Hills Services will be so 
organized and so conducted as to meet the requirements of section 
13(b) of the Act and that the filing of a Form U-13-1 is 
unnecessary; to be permitted an interim transition period after 
registration (no later than 12 months following the date of the 
Commission's order in this matter), to implement the service 
company; and to be excepted, among other things, from various at-
cost rules applicable to transactions among Black Hills System 
companies; and
    13. For Black Hills, to retain all of its existing investments 
in (a) EWGs and QFs, (b) energy-related exploration, production, 
transportation and marketing of energy commodities, power marketing 
and other activities; (c) telecommunications activities and (d) 
related businesses.

III. General Financing Parameters and Use of Proceeds

    Black Hills proposes that the following general terms be applicable 
to the external financing transactions.

A. Effective Cost of Money

    Applicants propose that the effective cost of capital on the 
proposed Preferred Securities, Short-Term Debt and Long-Term Debt and 
Black Hills' Subsidiaries' preferred securities, short-term debt and 
long-term debt will not exceed competitive market rates available at 
the time of the issuance of securities, having the same or reasonably 
similar terms and conditions issued by companies of reasonably 
comparable credit quality; provided that in no event will the effective 
cost of capital exceed, (1) on any series of Preferred Securities, 
Long-Term Debt or Subsidiary Preferred Securities or Subsidiary Long-
Term Debt, 500 basis points over a U.S. Treasury security having a 
remaining term equal to the term of the series; and (2) on Short-Term 
Debt, or Subsidiary Short-Term Debt, 300 basis points over the London 
Interbank Offered Rate (``LIBOR'') for maturities of less than one 
year.

B. Maturity of Debt and Final Redemption of Preferred Securities

    Applicants state that the maturity of the proposed long-term 
indebtedness will not exceed 50 years. In addition, they state that all 
preferred securities will be redeemed no later than 50 years after 
their issuance.

C. Issuance Expenses

    Applicants state that the underwriting fees, commissions, or other 
similar remuneration paid in connection with the non-competitive issue, 
sale or distribution of a security that is the subject of this 
Application (not including any original issue discount) will not exceed 
5% of the principal or total amount of the security being issued.

D. Common Equity Ratio and Investment Grade Condition

    The consolidated common equity of Black Hills was 47% of total 
consolidated capitalization (common equity, preferred stock and long-
term and short-term debt, including current maturities on long-term 
debt), as of June 30, 2004, Black Hills and its Utility Subsidiary 
commit that they will each maintain a common equity ratio (as reflected 
in the most recent 10-K or 10-Q (filed with the Commission as required 
by the Securities Exchange Act of 1934, as amended (``34 Act''), and as 
adjusted to reflect subsequent events that affect capitalization) of at 
least 30% of capitalization.
    Applicants represent that, apart from securities issued for the 
purpose of funding money pool operations, no guarantees or other 
securities, other than common stock, may be issued in reliance upon the 
authorization to be granted by the Commission in this matter, unless 
(i) the security to be issued, if rated, is rated investment grade; 
(ii) all outstanding securities of the issuer, that are rated, are 
rated investment grade; and (iii) all outstanding securities of Black 
Hills (the holding company in the Black Hills System), that will be 
registered, that are rated, are rated investment grade (``Investment 
Grade Condition''). For purposes of this Investment Grade Condition, a 
security will be deemed to be rated ``investment grade,'' if it is 
rated investment grade by at least one nationally recognized 
statistical rating organization, as that term is used in paragraphs 
(c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the 34 Act. The 
Investment Grade Condition ratings test will not apply to any issuance 
of common stock. Applicants request that the Commission reserve 
jurisdiction over the issuance of any of such securities that are rated 
below investment grade. Applicants further request that the Commission 
reserve jurisdiction over the issuance of any guarantee or other 
securities at any time that the conditions set forth in clauses (i) 
through (iii) above are not satisfied.

E. Use of Proceeds

    Applicants state that proceeds from the sale of securities in 
external financing transactions will be used for general corporate 
purposes, including, in part, capital expenditures of the Black Hills 
System, working capital requirements of the Black Hills System, the 
acquisition, retirement or redemption under rule 42 of the securities 
previously issued by Black Hills or its Subsidiaries and other 
purposes, including direct or indirect investment in authorized assets 
and securities (i.e., energy-related assets and companies, EWGs, FUCOs 
and ETCs).

IV. Retention and Refinancing of Existing Financing

    Applicants request authorizations, during the Authorization Period, 
for Black Hills, directly or indirectly, to retain and refinance 
existing outstanding financing arrangements and debt issuances in the 
total amount of up to $1.534 billion, consisting of, approximately, (a) 
$807.1 million in Utility and Nonutility debt arrangements; (b) up to 
$350 million in short-term debt and available credit lines (the 
Existing Short-Term Debt); and (c) $376.7 million in guarantees and 
other forms of credit support (the Existing Guarantees).\3\ With 
respect to its Existing Short-Term Debt, Black Hills requests that the 
Commission include in its approval the retention and refinancing of 
Black Hills' existing revolving credit facilities (up to $350 million 
in borrowing ability at any one time on a short-term basis), although 
Black Hills may not draw down the full amount of its facilities at the 
time of a Commission order and, thus, not have actually incurred 
``short-term debt.'' \4\
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    \3\ Existing Financings are described in detail in Exhibit I-2 
of the Application.
    \4\ Applicants note that this request includes amounts that have 
been obtained through Financing Subsidiaries. Applicants also note 
that they are requesting authority to retain existing Financing 
Subsidiaries. See sections V.F. and VI, below, Existing Financing 
Subsidiaries are Black Hills Nevada Real Estate Holdings LLC, Black 
Hills Valmont Colorado Inc., E-Next A Equipment Leasing Company LLC 
and Las Vegas Cogeneration Energy Financing Company LLC.

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[[Page 64602]]

V. Proposed Additional Financing and Other Related Authority

    Applicants request authority to issue and sell additional equity 
and debt securities in an amount of up to $1 billion and Additional 
Guarantees in an amount of up to $400 million, among other things, in 
addition to the refinancing of its Existing Financings (described 
above), during the Authorization Period. Specifically, Black Hills 
requests authorization to issue, directly and indirectly, (a) common 
stock (other than 2.7 million shares for employee benefits plans or 
stock purchase and dividend reinvestment plans, discussed below), (b) 
preferred stock and preferred securities, (c) long-term debt and (d) 
short-term debt, in an aggregate amount of up to $1 billion (the 
Aggregate Additional Financing Limit), and guarantees and other credit 
support in an aggregate amount of up to $400 million (the Additional 
Guarantee Limit). Applicants also seek financing authority (a) for 
certain energy-related investments, in an aggregate amount of up to 
$300 million (the Energy-Related Assets Financing Limit), and (b) for 
additional investments in EWGs and FUCOs, in an aggregate amount of up 
to $1.4 billion (the EWG/FUCO Financing Limit), during the 
Authorization Period and other related authority, described further, 
below.

A. Common Stock

    Black Hills now requests authority to issue and sell its common 
stock, denominated as ``common stock,'' and including (unless the 
context indicates otherwise) outstanding options, warrants and other 
stock purchase rights exercisable for Black Hills' common stock (but 
not Black Hills' Preferred Stock that is convertible into its common 
stock, prior to conversion) (``Common Stock''), subject to the 
Aggregate Additional Financing Limit of up to $1 billion, during the 
Authorization Period.
    In addition, Black Hills requests authority to issue up to 2.7 
million additional shares of Common Stock through various plans, in 
accordance with the terms of the programs.\5\ Black Hills proposes in 
this regard, from time to time, to issue new shares and/or acquire in 
open market transactions, or by some other method, up to 400,000 
additional shares of Black Hills Common Stock, during the Authorization 
Period. Black Hills also proposes to issue new shares and/or acquire in 
open market transactions, or by some other method, up to 2.3 million 
additional shares of Black Hills Common Stock under the employee stock-
based plans (excluding shares that may be issued through the exercise 
of outstanding options and issuance of shares for outstanding 
restricted stock units and performance shares), from time to time, 
during the Authorization Period.\6\
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    \5\ Black Hills currently maintains a divided reinvestment plan 
(``DRP'') for its shareholders and various employee stock-based 
plans (an employee stock purchase plan (the ``ESPP''), a Short-Term 
Incentive Plan, a 1996 Stock Option Plan, a 1999 Stock Option Plan 
and a 2001 Omnibus Incentive Compensation Plan). Black Hills' DRP 
enables its shareholders to reinvest dividends and make optional 
cash investments to purchase additional shares of common stock. 
Black Hills' ESPP sells shares of Black Hills common stock to 
employees at 90% of the stock's market price on the offering date. 
At June 30, 2004, 129,244 shares have been reserved and are 
available for issuance under the ESPP. Under the Short-Term 
Incentive Plan, certain key employees are awarded short-term 
incentive bonuses, a portion or all of which may be paid in common 
stock. The 1996 and 1999 Stock Option Plans permit Black Hills to 
grant stock options to its employees. The 2001 Omnibus Incentive 
Compensation Plan permits it to issue restricted stock, restricted 
stock units, performance shares, performance units, stock 
appreciation rights, stock options and other awards, as determined 
by the Compensation Committee of the Board of Directors.
    \6\ Black Hills proposes that its common stock financings may be 
effected by underwriting agreements customary in the industry and 
public distributions effected by private negotiation with 
underwriters, dealers or agents, as described below, or through 
competitive bidding among underwriters. In addition, it is proposed 
that sales may be made through private placements or other non-
public offerings to one or more persons. Black Hills states that all 
common stock sales would be at rates or prices and under conditions 
negotiated or based upon, or otherwise determined by, competitive 
capital markets. Black Hills may also buy back shares of its stock 
or options during the Authorization Period in accordance with rule 
42.
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B. Preferred Securities

    Black Hills requests authority to issue additional shares of its 
authorized Preferred Stock, defined below, or other types of preferred 
securities of Black Hills Corporation (including trust-preferred 
securities, monthly income preferred securities and equity-linked 
securities) (together, ``Preferred Securities''), directly or 
indirectly through one or more financing entities (``Financing 
Subsidiaries,'' as defined below), organized by Black Hills, subject to 
the Aggregate Additional Financing Limit. Preferred Stock is defined as 
stock of Black Hills Corporation denominated as ``preferred stock'' and 
having preference rights with respect to payment of dividends and other 
benefits, which may include, in certain circumstances, the right of 
conversion into Common Stock.\7\
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    \7\ Preferred Securities may be issued in one or more series 
with rights, preferences and priorities, as may be determined by 
Black Hills' Board of Directors. Dividends or distributions on 
Preferred Securities will be made periodically, but may be made 
subject to terms, which allow the issuer to defer dividend payments 
for specified periods. Preferred Securities may be convertible or 
exchangeable into shares of Black Hills common stock or 
indebtedness. Preferred Securities may be sold directly through 
underwriters or dealers in connection with an acquisition in a 
manner similar to that described for common stock.
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C. Debt Securities

1. Long-Term Debt
    Black Hills requests authority to issue and sell unsecured long-
term debt securities, comprised of notes and debentures and other forms 
of unsecured indebtedness having maturities of one year or longer 
(``Long-Term Debt''), up to the Aggregate Additional Financing Limit 
(which excludes renewals of Existing Financings).\8\
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    \8\ Any long-term debt may: (a) Be convertible into any other 
securities of Black Hills; (b) will have maturities ranging from one 
to 50 years; (c) be subject to optional and/or mandatory redemption, 
in whole or in part, at par or at various premiums above the 
principal amount; (d) be entitled to mandatory or optional sinking 
fund provisions; (e) provide for reset of the coupon as required by 
a remarketing arrangement; (f) be subject to tender or the 
obligation of the issuer to repurchase at the election of the holder 
or upon the occurrence of a specified event; (g) be called from 
existing investors by a third party; and (h) be entitled to the 
benefit of positive or negative financial or other covenant. 
Maturity dates, interest rates, redemption and sinking fund 
provisions, tender or repurchase and conversion features, if any, 
with respect to the long-term securities of a particular series, as 
well as any associated placement, underwriting or selling agent 
fees, commissions and discounts, if any, will be established by 
negotiation or competitive bidding. Borrowings from the banks and 
other financial institutions may be unsecured and pari passu with 
debt securities issued under the Black Hills Indenture and the 
short-term credit facilities. Specific terms of any borrowings will 
be determined by Black Hills at the time of issuance and will comply 
in all regards with the parameters of the financing authorization 
described in section III, above.
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2. Short-Term Debt
    Black Hills seeks authority to issue unsecured short-term debt 
securities, comprised of commercial paper, promissory notes and other 
forms of indebtedness having maturities of less than one year (``Short-
Term Debt''), up to the Aggregate Additional Financing Limit (which 
excludes renewals of Existing Financings).\9\
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    \9\ Commercial paper may be sold in established domestic and 
European commercial markets. Commercial paper would be sold to 
dealers at the discount rate or the coupon rate per annum prevailing 
at the date of issuance for commercial paper of comparable quality 
and maturities sold to commercial paper dealers generally. It is 
expected that the dealers acquiring commercial paper from Black 
Hills will offer the paper at a discount to corporate, institutional 
and, with respect to European commercial paper, individual 
investors. Institutional investors are expected to include 
commercial banks, insurance companies, pension funds, investment 
trusts, foundations, colleges and universities, and finance 
companies.

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[[Page 64603]]

D. Subsidiary Financings

    Applicants also request that Black Hills' Subsidiaries be 
authorized to issue and sell Subsidiary Common Stock and Subsidiary 
Preferred Securities, Subsidiary Long-Term Debt and Subsidiary Short-
Term Debt, subject to the Aggregate Additional Financing Limit and the 
parameters described in section III, above, during the Authorization 
Period. Black Hills' Utility Subsidiary and its Nonutility Subsidiaries 
request this financing authority to the extent that Subsidiaries may 
require financing that is outside rule 52 exempt financing.\10\ The 
Utility Subsidiary specifically requests authority to issue unsecured 
and secured short-term debt securities, including commercial paper and 
credit lines, subject to the Aggregate Additional Financing Limit and 
the parameters described in section III, above, during the 
Authorization Period.
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    \10\ Applicants anticipate that the majority of the financings 
will be exempt from prior Commission authorization under rule 52(b).
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E. Financing Risk Management Devices

    Black Hills, directly or indirectly through its Subsidiaries, 
requests authority to enter into interest rate hedging transactions 
utilizing various financial instruments (collectively, ``Interest Rate 
Hedges''), subject to certain limitations and restrictions, in order to 
reduce or manage interest rate costs. Black Hills will not engage in 
speculative transactions.
    Applicants state that Interest Rate Hedges (other than exchange-
traded interest rate futures or options contracts) \11\ will only be 
entered into with counterparties whose senior debt ratings, or the 
senior debt ratings of any credit support providers who have guaranteed 
the obligations of such counterparties, as published by Standard and 
Poor's Ratings Group, are equal to or greater than BBB, or an 
equivalent rating from Moody's, Fitch Investor Service or Duff and 
Phelps (``Approved Counterparties''). Applicants also state that fees, 
commissions and other amounts payable to an Approved Counterparty or 
exchange or other party (excluding, however, the swap or option 
payments) in connection with an Interest Rate Hedge, will not exceed 
those generally obtainable in competitive markets for parties of 
comparable credit quality.
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    \11\ Interest Rate Hedges will include the use of financial 
instruments commonly used in today's capital markets, such as 
interest rate forwards, futures, swaps, caps, collars, floors and 
structured notes (i.e., a debt instrument in which the principal 
and/or interest payments are linked to the value of an underlying 
asset or index), or transactions involving the purchase or sale, 
including short sales, of government or agency (e.g., Fannie Mae) 
obligations or LIBOR-based swap instruments.
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    Applicants also request authority to enter into interest rate 
hedging transactions for anticipated debt offerings (``Anticipatory 
Hedges''). Black Hills states that Anticipatory Hedges would be 
utilized to fix an/or limit the interest rate risk associated with any 
new issuance.\12\ Anticipatory Hedges may be executed on-exchange 
(``On-Exchange Trades''), through brokers by the opening of futures 
and/or options positions traded on the Chicago Board of Trade, the 
opening of over-the-counter positions with one or more Approved 
Counterparties (``Off-Exchange Trades'') or a combination of On-
Exchange Trades and Off-Exchange Trades.
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    \12\ Anticipatory Hedges may be implemented through: (a) A 
forward sale of exchange-traded Interest Rate Hedges (a ``Forward 
Sale''); (b) the purchase of put options on Interest Rate Hedges (a 
``Put Options Purchase''); (c) a Put Options Purchase in combination 
with the sale of call options Interest Rate Hedges (a ``Zero Cost 
Collar''); (d) transactions involving the purchase or sale, 
including short sales, of Interest Rate Hedges; or (e) some 
combination of a Forward Sale, Put Options Purchase, Zero Cost 
Collar and/or other derivative or cash transactions, including, but 
not limited to, appropriate structured notes, caps or collars.
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    Applicants state that they will comply with Statement of Financial 
Accounting Standards No. 133 (``SFAS 133''), ``Accounting for 
Derivatives Instruments and Hedging Activities'' or other standards 
relating to accounting for derivative transactions as are adopted and 
implemented by the Financial Accounting Standards Board (``FASB''). The 
Interest Rate Hedges and Anticipatory Hedges will qualify for hedge 
accounting treatment under the FASB standards in effect and as 
determined at the date Interest Rate Hedges or Anticipatory Hedges are 
entered into.

F. Additional Guarantees ($400 Million)

    Applicants request authority to guarantee performance of a 
Subsidiary or an affiliate and to provide other forms of credit support 
(``Guarantees'') in an aggregate principal amount not to exceed $400 
million outstanding at any one time, the Additional Guarantee Limit, 
during the Authorization Period. Applicants also request authority to 
charge each Subsidiary a guarantee fee that is comparable to those fees 
charged by third parties. Black Hills further requests that any 
Guarantees outstanding at the end of the Authorization Period be 
permitted to continue until expiration or termination in accordance 
with their terms.\13\
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    \13\ Certain Guarantees may be for obligations not capable of 
exact quantification. For measuring compliance with the $400 million 
limitation appropriate means will be utilized, including estimation 
of exposure based on loss experience or projected potential payment 
amounts. If appropriate, estimates will in accordance with GAAP. 
Estimates will be reevaluated periodically.
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G. Financing Subsidiaries

    Applicants request authority to acquire, directly or indirectly, 
the equity securities of one or more corporations, trusts, 
partnerships, limited liability companies, or other entities, created 
specifically for the purpose of facilitating the financing of 
authorized and exempt activities (including authorized and exempt 
acquisitions) (``Financing Subsidiaries''), through the issuance of 
Subsidiary Common Stock or Subsidiary Preferred Securities, or 
Subsidiary Long-Term Debt, and to transfer of the proceeds to the Black 
Hills System company involved.\14\ Applicants also request authority to 
issue Guarantees for the Financing Subsidiaries, subject to the 
Additional Guarantee Limit. Applicants further request authority to 
enter into support, servicing or expense agreements (``Expense 
Agreements'') for obligations of Financing Subsidiaries.\15\ Applicants 
request authority for Financing Subsidiaries to pledge revenues or 
other assets or grant security interests solely to accommodate the 
intrasystem mirror structure of the financings; provided that the 
security pledged will not consist of the assets (other than an income 
stream in support of the financing) or stock of any Black Hills 
operation subsidiary.\16\
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    \14\ Applicants are also requesting authority to retain existing 
Financing Subsidiaries. See sections IV, above, and VI, below.
    \15\ In an Expense Agreement, an Applicant would provide 
financial support and pay necessary operating expenses of a 
Financing Subsidiary to facilitate the subsidiary's agreements with 
third parties in financing activities approved through this 
Application.
    \16\ See section V.N., below. Applicants also request approval 
under section 13(b) of the Act and rules 87 and 90 to provide these 
services at market prices but only for so long as an Expense 
Agreement in place. Applicants explain that, to have ratings 
agencies recognize Financing Subsidiaries as separate from their 
parents or affiliates, Expense Agreements must be at market prices 
(i.e., the contracts would be assumable by a successor without 
interruption or an increase of fees).
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    Black Hills and its Subsidiaries also request authority to issue 
and sell to any Financing Subsidiary, from time to time, in one or more 
series, unsecured debentures, unsecured promissory notes, or other 
unsecured debt

[[Page 64604]]

instruments (``Notes'').\17\ Applicants further request authority for 
the Financing Subsidiaries to apply the proceeds of any external 
financing by a Financing Subsidiary, plus the amount of any equity 
contribution made to it, from time to time, by its parent corporation 
and other funds that may be available, or obtained in an exempt 
financing transaction, to purchase Notes. Applicants state that amounts 
issued by Financing Subsidiaries to third parties will be subject to 
the Aggregate Additional Financing Limit. However, Applicants request 
that underlying intrasystem mirror debt (including Notes), and parent 
guarantee, not be so included, so as to avoid double counting.
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    \17\ The terms (e.g., interest rate, maturity, amortization, 
prepayment terms, default provisions, etc.) of the Notes would be 
designed to parallel the terms of the securities issued by the 
Financing Subsidiary to which the Notes relate.
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H. Money Pools

    Black Hills and its Utility Subsidiary request authorization to 
establish a utility money pool (``Utility Money Pool'') and Black Hills 
and its Nonutility Subsidiaries request authority to establish a 
nonutility money pool (``Nonutility Money Pool''), separate from the 
Utility Money Pool.\18\ Black Hills also requests that utility-related 
Financing Subsidiaries be permitted to participate in the Utility Money 
Pool (due to their financing relationship with the Utility Subsidiary). 
Black Hills also asks the Commission to reserve jurisdiction over the 
addition of other participants to the Money Pools in the future.
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    \18\ Black Hills states that, although it is requesting this 
authorization, it may not implement either the Utility or Nonutility 
Money Pool immediately upon registration for various reasons, 
including the need to meet requirements of state regulatory 
commissions. Initial participants in the Nonutility Money Pool would 
be Black Hills Services, Black Hills Energy and Black Hills 
FiberCom.
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    The Utility Subsidiary, to the extent not exempted under rule 52, 
requests authority to make unsecured short-term borrowings from, 
contribute surplus funds to, and to lend and extend credit to (and 
acquire promissory notes from) other participants in the Utility Money 
Pool, through the Utility Money Pool.\19\
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    \19\ Under the proposed Utility Money Pool terms, short-term 
funds would be available from: (1) Surplus funds in the treasuries 
of Utility Money Pool participants other than Black Hills, (2) 
surplus funds in the treasury of Black Hills, and (3) proceeds from 
bank borrowings by Utility Money Pool participants or the sale of 
commercial paper by Black Hills or the Utility Subsidiary for loan 
to the Utility Money Pool. Funds would be made available as Black 
Hills Services may determine would result in a lower cost of 
borrowing, consistent with the individual borrowing needs and 
financing standing of pool participants.
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    Applicants propose that the Nonutility Money Pool would be operated 
on the same terms and conditions as the Utility Money Pool, except that 
Black Hills' funds made available to Money Pools will be made available 
to the Utility Money Pool first and only afterward to the Nonutility 
Money Pool. No loans would be made to, and no borrowings from, the 
Nonutility Money Pool by a Utility Subsidiary.
    Black Hills requests authorization to contribute surplus funds and 
to lend and extend credit to: (1) The Utility Subsidiary through the 
Utility Money Pool and (2) the Nonutility Subsidiaries through the 
Nonutility Money Pool. Black Hills and the Utility Subsidiary, 
including related Financing Entities, may contribute funds from the 
issuance of short-term debt to the Utility Money Pool. Black Hills and 
the Nonutility Subsidiaries may contribute funds from the issuance of 
short-term debt to the Nonutility Money Pool.\20\
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    \20\ Applicants state that the Money Pools will be operated by 
Black Hills Services on an at-cost basis and separate records will 
be maintained for each pool. Surplus funds of the Utility Money Pool 
and the Nonutility Money Pool may be combined in common short-term 
investments, but separate records will be maintained and interest 
will be allocated separately, on a daily basis, to each money pool 
in the proportion that the amount of each money pool's surplus funds 
bears to the total amount of surplus funds available for investment 
from both money pools.
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I. Intrasystem Financing

    Black Hills and the Subsidiaries request that they be permitted, 
when making intrasystem loans or extending intrasystem credit (in the 
event a loan or an extension of credit is not exempt under rules 45(b) 
or 52), to charge interest at the same effective rate of interest as 
the daily weighted average of commercial paper, revolving credit and/or 
other short-term borrowings of the respective lending Subsidiary, 
including an allocated share of commitment fees and related 
expenses.\21\
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    \21\ Applicants state that, if no borrowings are outstanding, 
then the interest rate will be predicated on the Federal Funds' 
effective rate of interest as quoted daily by the Federal Reserve 
Bank of New York.
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    Applicants also request authority for Black Hills, directly or 
indirectly through a Nonutility Subsidiary, to make loans to partially 
owned Subsidiaries at interest rates and maturities designed to provide 
a return to the lending company of not less than its effective cost of 
capital.\22\
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    \22\ Black Hills states that, generally, loans to, and purchase 
of capital stock form, borrowing Subsidiaries will be exempt under 
rule 52 and capital contributions and open account advances without 
interest will be exempt under rule 45(b). Loans by Black Hills or a 
Nonutility Subsidiary to a Nonutility Subsidiary generally will have 
interest rates and maturity dates that are designed to parallel the 
lending company's effective cost of capital, in accordance with rule 
52(b).
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J. Energy-Related Activities and Other Additional Nonutility 
Investments

    Applicants seek authorization for certain activities related to 
nonutility investments in EWGs, FUCOs and other energy-related 
investments permitted under rule 58, as well as investments in Energy-
Related Assets and Non-U.S. Energy Related Subsidiaries, for the 
duration of the Authorization Period, i.e., Permitted Nonutility 
Investments, as discussed below.
1. Certain Energy-Related Activities
    Black Hills requests authority, directly or indirectly through 
Nonutility Subsidiaries, to (a) engage in Energy Marketing \23\ in 
Canada and Mexico and elsewhere in the world outside of the United 
States, subject to the Commission's reservation of jurisdiction over 
these activities outside of the United States, Mexico and Canada, and 
(b) render Energy Management Service \24\ and Consulting Services \25\

[[Page 64605]]

anywhere in the world outside of the United States. To the extent that 
operations outside the U.S. involve additional or different risks than 
U.S. operations, Black Hills states that it will evaluate and seek to 
mitigate those risks in a manner similar to the manner it evaluates EWG 
and FUCO investments, described below.
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    \23\ Black Hills defines Energy Marketing to consist of the 
brokering and marketing of electricity, natural gas and other energy 
commodities, as well as incidental related services, such as fuel 
management, storage and procurement.
    \24\ Black Hills defines Energy Management Services to include 
the marketing, sale, installation, operation and maintenance of 
various products and services related to energy management and 
demand-side management, including energy and efficiency audits; 
meter data management, facility design and process control and 
enhancements; construction, installation, testing, sales and 
maintenance of (and training client personnel to operate) energy 
conservation equipment; design implementation, monitoring and 
evaluation of energy conservation programs; development and review 
of architectural, structural and engineering drawings for energy 
efficiencies, design and specification of energy consuming equipment 
and general advice on programs; the design, construction, 
installation, testing, sales, operation and maintenance of new and 
retrofit heating, ventilating, and air conditioning, electrical and 
power systems, alarm, security, access control and warning systems, 
motors, pumps, lighting, water, water-purification and plumbing 
systems, building automation and temperature controls, installation 
and maintenance of refrigeration systems, building infrastructure 
wiring supporting voice, video, data and controls networks, 
environmental monitoring and control, ventilation system calibration 
and maintenance, piping and fire protection systems, and design, 
sale, engineering, installation, operation and maintenance of 
emergency or distributed power generation systems, and related 
structures, in connection with energy-related needs; and the 
provision of services and products designed to prevent, control, or 
mitigate adverse effects of power disturbances on a customer's 
electrical systems.
    \25\ Applicants define Consulting Services to include technical 
and consulting services involving technology assessments, power 
factor correction and harmonics mitigation analysis, meter reading 
and repair, rate schedule design and analysis, environmental 
services, engineering services, billing services (including 
consolidation or centralized billing, bill desegregation tools and 
bill inserts), risk management services, communications systems, 
information systems/data processing, system planning, strategic 
planning, finance, general management consulting including training 
activities, feasibility studies, and other similar related services.
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2. Additional Investments in Energy-Related Assets ($300 Million)
    Black Hills also requests authority, directly or indirectly through 
Nonutility Subsidiaries, to invest in nonutility energy assets that are 
incidental and related to its business as an electricity and energy 
commodities marketer and broker or to its other energy-related 
businesses, including natural gas exploration and production, 
gathering, processing, storage and transportation facilities and 
equipment, liquid oil reserves and transportation and storage 
facilities, gas or coal reserves, electric metering and customer 
electric equipment and associated facilities, and other physical assets 
that are incidental to and reasonably necessary in the day-to-day 
conduct of energy marketing, brokering and trading operations or other 
energy-related businesses (``Energy-Related Assets'') in an amount of 
up to $300 million (``Energy-Related Assets Financing Limit'').\26\ 
Black Hills further defines Energy-Related Assets to exclude additional 
investments in EWGs or FUCOs, addressed in section V.1.3., below. Black 
Hills states that Energy-Related Assets will be acquired only in the 
countries in which it is authorized to conduct its electricity and 
energy commodities marketing and brokering business (currently the 
United States and, if approved, Canada and Mexico).
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    \26\ Black Hills states that Energy-Related Assets will not 
include any ``utility assets'' within the meaning of the Act.
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3. Additional Investment in EWGs and FUCOs ($1.4 Billion)
    Applicants seek financing authority in an aggregate amount of up to 
$1.4 billion for additional investments in EWGs and FUCOs during the 
Authorization Period (excluding Black Hills investment as of June 30, 
2004, of $705 million in EWGs) \27\ (``EWG/FUCO Investment Limit''). 
Black Hills states that the proposed amount represents approximately 
458% of Black Hills' ``average consolidate retained earnings,'' as 
defined in rule 53(a)(1), for the four quarterly periods ending June 
30, 2004, and the proposed investment limit of $1.4 billion compare 
favorably with other EWG/FUCO investment limits authorized by the 
Commission.
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    \27\ Black Hills has no FUCOs.
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4. Investment in Development Activities and Administrative Activities
    Black Hills and its Subsidiaries also request authority to invest, 
using a ``revolving fund'' concept described below, an amount of up to 
$100 million, in (i) Development Activities \28\ and (ii) 
Administrative Activities \29\ related to EWGs, FUCOs, Rule 58 
Subsidiaries, Energy-Related Assets and Energy-Related Subsidiaries. 
Development Activities will be designed to result in nonutility 
investments, eventually, such as EWGs, FUCOs, Rule 58 Subsidiaries, 
Energy-Related Assets or Energy-Related Subsidiaries.
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    \28\ Development Activities will include due diligence and 
design review; market studies; preliminary engineering; site 
inspection; preparation of bid proposals, including, in connection 
with these activities, posting of bid bonds; application for 
required permits and/or regulatory approvals; acquisition of site 
options and options on other necessary rights; negotiation and 
execution of contractual commitments with owners of existing 
facilities, equipment vendors, construction firms, power purchasers, 
thermal ``hosts,'' fuel suppliers and other project contractors; 
negotiation of financing commitments with lenders and other third-
party investors; and such other preliminary activities as may be 
required in connection with the purchase, acquisition, financing or 
construction of facilities or the acquisition of securities of, or 
interests in, new businesses.
    \29\ Administrative Activities will include personnel, 
accounting, engineering, legal, financial and other support 
activities necessary to manage Black Hills and its Subsidiaries' 
investments in nonutility subsidiaries.
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    Black Hills proposes a ``revolving fund,'' which would provide 
that, to the extent that funds are expended for Development Activities 
(or Administrative Activities, as the case may be) and result in an 
EWG, FUCO, or a Rule 58 Subsidiary, or other authorized investment, the 
amount will cease to be allocable to the Development Activities 
financing limit of $100 million, but will then be allocable to the 
particular, applicable investment limit related to the investment. For 
example, Development Activities expenditures that result in an EWG 
would count against the EWB/FUCO Aggregate Financing Limit (described 
in section V.1.3., above) and expenditures resulting in a Rule 58 
Subsidiary would count against the limitation on investment in rule 58, 
or expenditures resulting in an Energy-Related Asset would count 
against the Energy-Related Assets Financing Limit (described in section 
V.1.s., above), or any other applicable limitation.

K. Changes in Capital Stock of Subsidiaries

    Applicants request authority to change the terms of any wholly 
owned Subsidiary's authorized capital stock capitalization or other 
interests by an amount deemed appropriate by Black Hills or another 
intermediate parent company, as needed to accommodate transactions and 
future issuances. Applicants propose that a wholly owned Subsidiary be 
able to change the par value, or change between par value and no-par 
stock, without additional Commission approval.\30\
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    \30\ Applicants state that they cannot ascertain at this time 
how a Subsidiary's financing may be effected under rule 52, 
including, for example, what portion may be a sale of capital 
securities (i.e., common or preferred stock) to Black Hills or an 
intermediate parent or whether it may exceed then-authorized capital 
stock or whether capital stock with no par value may be used.
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    Black Hills also states that the Utility Subsidiary would only take 
this action upon receipt of necessary approvals from interested state 
commission. Black Hills also requests that the Commission reserve 
jurisdiction over these transactions by partially owned Subsidiaries, 
pending completion of the record.

L. Nonutilities' Payment of Dividends Out of Capital and Unearned 
Surplus

    Black Hills Energy and Black Hills FiberCom also request that they 
be permitted, directly or indirectly through their Nonutility 
Subsidiaries, to pay dividends, from time to time, out of capital and 
unearned surplus (including revaluation reserve), to the extent 
permitted under applicable state corporate law, during the 
Authorization Period.

M. Intermediate Subsidiaries

    Black Hills requests authority to acquire, directly or indirectly 
through the Utility Subsidiary or Nonutility Subsidiaries, the 
securities of one or more corporations, trusts, partnerships, limited 
liability companies or other entities to be created and organized 
exclusively for the purpose of acquiring, holding and/or financing or 
facilitating the acquisition or disposition of investments 
(``Intermediate Subsidiaries'').\31\ Black Hills states that,

[[Page 64606]]

to the extent that it provides funds to an Intermediate Subsidiary for 
investment in an EWG, FUCO or a Rule 58 Subsidiary or other investment, 
the amount will be included in Black Hills' Aggregate EWG/FUCO 
Financing Limit of $1.4 billion or other applicable financing limit, as 
the case may be.
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    \31\ Black Hills states that there are various legal and 
business reasons for using Intermediate Subsidiaries. Limited 
purpose subsidiaries are often necessary or desirable to facilitate 
financing the acquisition and ownership of a FUCO, an EWG or other 
enterprise. The laws of some foreign countries may require that a 
bidder in a privatization program be organized in that country. 
Using one or more Intermediate Subsidiaries may allow Black Hills to 
secure more favorable U.S. and foreign tax treatment and achieve tax 
efficient corporate structures, minimizing state or federal taxes. 
Intermediate Subsidiaries may also isolate business risks and 
facilitate adjustments to ownership interests or raising debt or 
equity capital in domestic or foreign markets.
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N. Internal Corporate Reorganizations

    Applicants request authority to undertake internal reorganizations 
of Subsidiaries and businesses. Internal reorganizations may be 
accomplished through a contribution, sale, distribution, assignment or 
other transfer from one entity, and the acquisition by another entity, 
of the securities, asset or interests in an entity. None of the 
proposed reorganizations will include a transfer of assets or 
securities of a Subsidiary that owns or operates utility assets within 
the meaning of sections 2(a)(3), 2(a)(4) and 2(a)(18) of the Act.
    Black Hills and its Subsidiaries request authority to sell or to 
cause any Subsidiary to sell, or otherwise transfer, (1) businesses, 
(2) the securities of current Subsidiaries engaged in some or all of 
these businesses, or (3) investments which do not involve a Subsidiary 
(i.e., less than 10% voting interest) to a Subsidiary, and to acquire 
the assets of businesses, subsidiaries or other investment interests 
or, alternatively, to transfer securities or assets by share exchanges, 
share distributions or dividends, followed by contribution of 
securities or assets to a Subsidiary. Black Hills also requests that it 
be permitted, following direct or indirect acquisition of securities of 
Nonutility Subsidiaries, to transfer securities or assets of Nonutility 
Subsidiaries to other Subsidiaries using any of these methods or to 
liquidate or merge Nonutility Subsidiaries.

O. Intrasystem Service Transactions

    Black Hills states that the Black Hills System will engage in a 
variety of affiliate transactions for the provision of goods, services 
and construction, under rules 87, 90 and 91. For an interim period 
following registration, no longer than 12 months after the date of the 
Commission's order in this matter, Applicants request various 
exceptions to the at-cost rules, among other things, as described more 
fully below.
1. Establishment of Black Hills Services Company
    Black Hills expects to form Black Hills Services within 60 days of 
the issuance of the Commission's order in this matter. Black Hills 
seeks authority to delay, for a period not longer than 12 months 
following the date of its registration, the full implementation of all 
service agreements and arrangements and required accounting systems and 
cost allocation methodologies. The transition period is necessary to 
accommodate the complexities of the formation of the service 
company.\32\ In addition, Black Hills commits, however, to implement 
the at-cost requirements as soon as practicable.
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    \32\ Black Hills states that, first, appropriate personnel from 
Black Hills and its Subsidiaries will be transferred to Black Hills 
Services' employ, subject to requirements associated with the 
transfer employee benefit, health and pension plans, contracts, 
licenses, and permits to Black Hills Services and subject to 
approvals and consents from regulators, counterparties and vendors.
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    In connection with the formation of the service company, Black 
Hills requests that the Commission find that Black Hills Services will 
be so organized and shall be so conducted as to meet the requirements 
of section 13(b), and that the filing of a Form U-13-1 is unnecessary, 
or, alternatively, that this Application be deemed to constitute a 
filing on Form U-13-1 as required by rule 88.
    Black Hills Services will be the service company subsidiary for the 
Black Hills System and will provide Black Hills Power, any future 
utility subsidiaries and Black Hills' Nonutility Subsidiaries with some 
or all of the following services: administrative, management and 
support services, including services relating to support of electric 
and gas plant operations (i.e., energy supply management of the bulk 
power and natural gas supply, procurement of fuels, coordination of 
electric and natural gas distribution systems, maintenance, 
construction and engineering work); customer bills, and related 
matters; materials management; facilities; real estate; rights of way; 
human resources; finance; accounting; internal auditing; information 
systems; corporate planning and research; public affairs; corporate 
communications; legal; environmental matters; and executive 
services.\33\ The cost of services provided by Black Hills Services 
will be directly assigned, distributed or allocated by activity, 
project, program, work order or other appropriate basis. Black Hills 
Services will be staffed primarily by personnel transferred from Black 
Hills, Black Hills Power and certain Nonutility Subsidiaries. It will 
have its headquarters in Rapid City, South Dakota, and will conduct 
substantial operations in Rapid City and Golden, Colorado.
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    \33\ Black Hills Services will have total equity capital of not 
more than $10,000.
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2. Services, Goods and Assets Involving a Utility Subsidiary
    The Utility Subsidiary may provide to other associate companies, 
services that are incidental to its utility businesses, including, but 
not limited to, infrastructure services maintenance, storm outage 
emergency repairs, supply planning services, switchyard activities and 
services of personnel with specialized expertise related to the 
operation of the utility. To the extent these services might exceed 
those allowable under applicable rules, Black Hills seeks approval for 
Black Hills Power to provide services to any other Subsidiary.
3. Nonutility Subsidiary Transactions
    Black Hills requests authorization for Black Hills Services and the 
Nonutility Subsidiaries to enter into agreements (and/or continue the 
effectiveness of existing agreements, described in section V.N.4, 
below) to provide construction, goods or services to certain associate 
companies at fair market prices determined without regard to cost. 
Specifically, Black Hills seeks an exemption for Black Hills Services 
and the Nonutility Subsidiaries under section 13(b) from the cost 
standards of rules 90 and 91 (to the extent that rule 90(d) does not 
apply), if the company being provided construction, goods or service 
is: (1) A FUCO or an EWG that derives no part of its income, directly 
or indirectly, from the generation, transmission, or distribution of 
electric energy for sale within the U.S.; (2) an EWG that sells 
electricity at market-based rates that have been approved by the FERC 
or appropriate state public-utility commission, provided that the 
purchaser of the EWG's electricity is not an affiliated public-utility 
or an affiliate that resells the power to an affiliated public-utility; 
(3) a QF that sells electricity exclusively at rates negotiated at 
arm's-length to one or more industrial or commercial customers 
purchasing the electricity for their own use and not for resale, or to 
an electric utility company (other than an affiliated electric utility) 
at the purchaser's ``avoided cost,'' as determined under PURPA; (4) an 
EWG or a QF that sells electricity at rates based upon its cost of 
service, as approved by FERC or any state public-utility commission 
having jurisdiction,

[[Page 64607]]

provided that the purchaser of the electricity is not an affiliated 
public-utility; or (5) an ETC, an ``energy-related'' company under rule 
58 or any other Nonutility Subsidiary that (i) is partially owned, 
provided that the ultimate purchaser of goods or services is not a 
Utility Subsidiary, (ii) is engaged solely in the business of 
developing, owning, operating, and/or providing services or goods to 
Nonutility Subsidiaries described in (1) through (4) above, or (iii) 
does not derive, directly or indirectly, any part of its income from 
sources within the U.S. and is not a public-utility company operating 
within the U.S.
4. Request for Exemption for Existing Affiliate Arrangements
    Black Hills requests a determination that the Subsidiaries may 
continue to engage in certain affiliate transactions under rule 
87(a)(3) or otherwise. Black Hills also seeks approval for Black Hills 
Power and affiliated EWGs to provide services (such as engineering and 
technical support functions, fuel procurement, information systems, 
maintenance, quality assurance, management services and support and 
safety review) at cost as defined in rules 90 and 91, to each other.

VI. Retention

    Black Hills is engaged in various nonutility businesses through 
Subsidiaries and through affiliated business ventures, including the 
following: (1) EWGs and QFs, (2) investments in energy-related 
businesses involving exploration and production, transmission and 
distribution and cogeneration, among other things; and (3) 
telecommunications activities. Applicants also request that they be 
permitted to retain existing Financing Subsidiaries, Black Hills Nevada 
Real Estate Holdings LLC, Black Hills Valmont Colorado Inc., E-Next A 
Equipment Leasing Company LLC, and Las Vegas Cogeneration Energy 
Financing Company LLC.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-24738 Filed 11-4-04; 8:45 am]
BILLING CODE 8010-01-M