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UNITED STATES 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 ~~March 31~~June 30, 2020

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

For the transition period from __________ to __________.

Commission File Number 001-7978

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

Accelerated Filer

Non-accelerated Filer

(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 ☒


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

As of ~~April~~July 3031, 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~~

Page

Glossary of Terms and Abbreviations

PART 1. FINANCIAL INFORMATION

Item 1.

~~Financial Statements - unaudited~~

5Financial Statements - unaudited

~~Condensed Statements of Comprehensive Income~~

5Condensed Statements of Comprehensive Income

Condensed Balance Sheet

Condensed Balance Sheets

~~Condensed Statements of Cash Flows~~

8Condensed Statements of Cash Flows

Condensed Statements of Equity

Condensed Statements of Common Stockholder’s Equity

~~Notes to Condensed Financial Statements~~

10Notes to Condensed Financial Statements

~~Note 1. Management’s Statement~~

10Note 1. Management’s Statement

~~Note 2. Revenue~~

11Note 2. Revenue

~~Note 3. Accounts Receivable~~

12Note 3. Accounts Receivable

~~Note 4. Regulatory Matters~~

13Note 4. Regulatory Matters

~~Note 5. Related-Party Transactions~~

13Note 5. Related-Party Transactions

~~Note 6. Employee Benefit Plans~~

15Note 6. Employee Benefit Plans

Note 7. Fair Value of Financial Instruments

Note 7. Derivatives and Fair Values

~~Note 8. Commitments and Contingencies~~

20Note 8. Commitments and Contingencies

Note 9. Debt

Note 9. Long-term Debt

Note 10. Subsequent Event

Item 2.

Managements’ Discussion and Analysis of Financial Condition and Results of Operations

Item 2.

Managements’ Discussion and Analysis of Financial Condition and Results of Operations

Significant Events

Results of Operations

Operating Statistics

Credit Ratings

Liquidity Disclosures

Forward-Looking Information

Item 4.

Controls and Procedures

Item 4.

Controls and Procedures

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 1A.

Risk Factors

Item 6.

Exhibits

Item 6.

Exhibits

Signatures

Table of Contents

GLOSSARY OF TERMS AND ABBREVIATIONS

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

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 announced on February 11, 2020 by the World Health Organization, that is causing a global pandemic.





FASB			Financial Accounting Standards Board

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
Renewable Ready			Voluntary renewable energy subscription program for large commercial, industrial and governmental agency customers in South Dakota and Wyoming.

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


WRDC			Wyodak Resources Development Corp., a direct, wholly-owned subsidiary of Black Hills Non-Regulated Holdings (doing business as Black Hills Energy).

Table of Contents

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.
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.
Wyoming Electric		Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric service to customers in the Cheyenne, Wyoming area (doing business as Black Hills Energy).
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 March 31,
			Three Months Ended June 30,							Six Months Ended June 30,
(unaudited)	~~2020~~		2020	~~2019~~		2019		2020		2019
	~~(in thousands)~~		(in thousands)
Revenue	$	~~71,611~~	$	$62,587	~~79,041~~	$	69,246	$	134,198	$	148,287
Operating expenses:
Fuel and purchased power	~~15,987~~		12,614	~~22,733~~		18,381		28,601		41,114
Operations and maintenance	~~21,059~~		19,204	~~19,557~~		21,128		40,263		40,685
Depreciation and amortization	~~11,141~~		10,762	~~10,077~~		10,357		21,903		20,434
Taxes - property	~~2,231~~		2,280	~~2,032~~		2,070		4,511		4,102
Total operating expenses	~~50,418~~		44,860	~~54,399~~		51,936		95,278		106,335
Operating income	~~21,193~~		17,727	~~24,642~~		17,310		38,920		41,952
Other income (expense):
Interest charges -
Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts)			(5,994)			(5,449)		(11,942)		(10,996)
Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts)	(5,948		)	(5,547		)
Interest income			(27)			172		123		287
Interest income	150			115
Other income (expense), net			(543)			291		(184)		(84)
Other income (expense), net	359			(375		)
Total other income (expense), net			(6,564)			(4,986)		(12,003)		(10,793)
Total other income (expense), net	(5,439		)	(5,807		)
Income before income taxes			11,163			12,324		26,917		31,159
Income before income taxes	15,754			18,835
Income tax (expense)			(1,536)			(2,176)		(3,955)		(5,514)
Income tax (expense)	(2,419		)	(3,338		)
Net income			9,627			10,148		22,962		25,645
Net income	13,335			15,497
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), $(7), $(6) and $(7), respectively			13			25		25		25
Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax of $(3) and $0, respectively)	12			—
Reclassification adjustment of benefit plan liability - net gain (loss) (net of tax of $(7), $(2), $(14) and $(6), respectively)			25			14		50		26
Reclassification adjustment of benefit plan liability - net gain (loss) (net of tax of $(7) and $(4), respectively)	25			12
Other comprehensive income (loss), net of tax			38			39		75		51
Other comprehensive income (loss), net of tax	37			12
Comprehensive income			$	9,665		$	10,187	$	23,037	$	25,696
Comprehensive income	$	13,372		$	15,509

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~~		As of
(unaudited)	~~March 31, 2020~~		June 30, 2020	~~December 31, 2019~~		December 31, 2019
	~~(in thousands)~~		(in thousands)
ASSETS
Current assets:
Cash	$	6	$	$5	6	$	6
Accounts receivable, net	~~25,278~~		24,987	~~25,532~~		25,532
Accounts receivable from affiliates	~~8,149~~		6,557	~~7,838~~		7,838
Materials, supplies and fuel	~~29,776~~		31,800	~~27,950~~		27,950
Regulatory assets, current	~~25,344~~		25,043	~~21,588~~		21,588
Other current assets	~~7,299~~		7,064	~~4,949~~		4,949
Total current assets	~~95,852~~		95,456	~~87,863~~		87,863
Investments	~~5,104~~		5,136	~~5,079~~		5,079
Property, plant and equipment	~~1,493,942~~		1,517,000	~~1,494,670~~		1,494,670
Less: accumulated depreciation and amortization	~~(385,153~~		(382,896)	~~(400,054~~		(400,054)
Total property, plant and equipment, net	~~1,108,789~~		1,134,104	~~1,094,616~~		1,094,616
Other assets:
Regulatory assets, non-current	~~50,362~~		49,951	~~54,109~~		54,109
Other assets, non-current	~~18,585~~		18,560	~~18,690~~		18,690
Total other assets, non-current	~~68,947~~		68,511	~~72,799~~		72,799
TOTAL ASSETS	$	~~1,278,692~~	$	$1,303,207	~~1,260,357~~	$	1,260,357

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~~		As of
(unaudited)	~~March 31, 2020~~		June 30, 2020	~~December 31, 2019~~		December 31, 2019
	~~(in thousands, except share amounts)~~		(in thousands, except share amounts)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable	$	~~17,801~~	$	$18,678	~~20,654~~	$	20,654
Accounts payable to affiliates	~~32,620~~		35,033	~~32,121~~		32,121
Accrued liabilities	~~31,336~~		30,074	~~25,492~~		25,492
Money pool notes payable	~~60,068~~		56,827	~~57,585~~		57,585
Notes payable to Parent	~~45,000~~		65,000	~~25,000~~		25,000
Regulatory liabilities, current	~~3,548~~		3,353	~~3,162~~		3,162
Total current liabilities	~~190,373~~		208,965	~~164,014~~		164,014
Long-term debt	~~337,356~~		337,391	~~340,176~~		340,176
Deferred credits and other liabilities:
Deferred income tax liabilities, net	~~112,904~~		113,079	~~112,202~~		112,202
Regulatory liabilities, non-current	~~163,698~~		161,237	~~163,009~~		163,009
Benefit plan liabilities	~~14,473~~		12,856	~~14,636~~		14,636
Other deferred credits and other liabilities	~~15,612~~		15,738	~~15,397~~		15,397
Total deferred credits and other liabilities	~~306,687~~		302,910	~~305,244~~		305,244
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	~~23,416~~		23,416
Additional paid-in capital	~~39,575~~		39,575	~~39,575~~		39,575
Retained earnings	~~382,628~~		392,255	~~389,312~~		389,312
Accumulated other comprehensive loss	~~(1,343~~		(1,305)	~~(1,380~~		(1,380)
Total stockholder’s equity	~~444,276~~		453,941	~~450,923~~		450,923
TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	~~1,278,692~~	$	$1,303,207	~~1,260,357~~	$	1,260,357

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)	~~Three Months Ended March 31,~~		Six Months Ended June 30,
	~~2020~~		2020	~~2019~~		2019
	~~(in thousands)~~		(in thousands)
Operating activities:
Net income	$	~~13,335~~	$	$22,962	~~15,497~~	$	25,645
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	~~11,141~~		21,903	~~10,077~~		20,434
Deferred income tax	~~(276~~		(987)	~~1,718~~		2,004
Employee benefits	~~324~~		649	~~195~~		389
Other adjustments, net	~~(137~~		)1,345	~~1,044~~		1,767
Change in operating assets and liabilities:
Accounts receivable and other current assets	~~(3,189~~		(3,611)	~~(2,437~~		)4,841
Accounts payable and other current liabilities	~~2,113~~		1,642	~~6,210~~		47
Regulatory assets - current	~~(546~~		(693)	~~(1,413~~		(2,037)
Regulatory liabilities - current	~~385~~		191	~~(444~~		(131)
Other operating activities, net	(206		)	(594		)
Contributions to defined benefit pension plan			(1,739)			—
Net cash provided by operating activities	22,944			29,853
Other operating activities, net			(409)			(2,372)
Investing activities:
Net cash provided by operating activities			41,253			50,587
Property, plant and equipment additions	(21,747		)	(24,386		)
Investing activities:
Other investing activities	(825		)	(169		)
Property, plant and equipment additions			(56,837)			(49,387)
Net cash (used in) investing activities	(22,572		)	(24,555		)
Other investing activities			(804)			(688)
Financing activities:
Net cash (used in) investing activities			(57,641)			(50,075)
Change in money pool notes payable, net	2,483			(5,390		)
Financing activities:
Net borrowings (payments) of Notes payable to Parent	20,000			—
Change in money pool notes payable, net			(758)			(619)
Long-term debt - repayments	(2,855		)	—
Net borrowings of Notes payable to Parent			40,000			—
Dividend to Parent company	(20,000		)	—
Long-term debt - repayments			(2,855)			—
Other financing activities	—			(15		)
Dividend to Parent company			(20,000)			—
Net cash (used in) financing activities	(372		)	(5,405		)
Net cash provided by (used in) financing activities			16,387			(619)
Net change in cash	—		(1)	~~(107~~		(107)
Cash, beginning of period	6		6	~~112~~		112
Cash, end of period	$	6	$	$5	5	$	5
Supplemental cash flow information:
Cash (paid) refunded during the period for -
Cash (paid) during the period for -
Interest (net of amounts capitalized)	$	~~(3,501~~	)$	$(11,681)	~~(3,345~~	)$	(11,342)
Non-cash investing and financing activities -
Accrued property, plant and equipment purchases at March 31	$	8,433		$	8,633
Accrued property, plant and equipment purchases at June 30			$	11,573		$	15,316

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~~	Common Stock
(in thousands, except share amounts)	~~Shares~~	~~Value~~Shares		~~Additional Paid in Capital~~Value		~~Retained~~Additional ~~Earnings~~Paid in Capital			~~AOCI~~Retained Earnings			~~Total~~AOCI			Total
December 31, 2019	~~23,416,396~~	$23,416,396	~~23,416~~	$	3923,~~575~~416	$	~~389~~39,~~312~~575		$	(1389,~~380~~312	)	$	~~450~~(1,~~923~~380)		$	450,923
Net income	—	—		—		~~13,335~~—			—13,335			~~13,335~~—			13,335
Other comprehensive income (loss), net of tax	—	—		—		—			37—			37			37
Dividend to Parent company	—	—		—		~~(20,000~~—		)	—(20,000)			~~(20,000~~—		)	(20,000)
Implementation of ASU 2016-13 Financial Instruments -- Credit Losses	—	—		—		(19		)	—			(19		)
Implementation of ASU 2016-13 Financial Instruments — Credit Losses		—		—		—			(19)			—			(19)
March 31, 2020	~~23,416,396~~	$23,416,396	~~23,416~~	$	3923,~~575~~416	$	~~382~~39,~~628~~575		$	(1382,~~343~~628	)	$	~~444~~(1,~~276~~343)		$	444,276
Net income		—		—		—			9,627			—			9,627
Other comprehensive income (loss), net of tax		—		—		—			—			38			38
June 30, 2020		23,416,396		$	23,416	$	39,575		$	392,255		$	(1,305)		$	453,941

	~~Common Stock~~	Common Stock
(in thousands except share amounts)	~~Shares~~	~~Value~~Shares		~~Additional Paid in Capital~~Value		~~Retained~~Additional ~~Earnings~~Paid in Capital			~~AOCI~~Retained Earnings			~~Total~~AOCI			Total
December 31, 2018	~~23,416,396~~	$23,416,396	~~23,416~~	$	3923,~~575~~416	$	~~342~~39,~~145~~575		$	~~(891~~342,145	)	$	~~404,245~~(891)		$	404,245
Net income	—	—		—		~~15,497~~—			—15,497			~~15,497~~—			15,497
Other comprehensive income (loss), net of tax	—	—		—		—			12—			12			12
Implementation of ASU 2016-02 Leases	—	—		—		(7		)	—			(7		)
Cumulative effect of ASC 842 implementation		—		—		—			(7)			—			(7)
Other adjustments	—	—		—		1—			—1			1—			1
March 31, 2019	~~23,416,396~~	$23,416,396	~~23,416~~	$	3923,~~575~~416	$	~~357~~39,~~636~~575		$	~~(879~~357,636	)	$	~~419,748~~(879)		$	419,748
Net income		—		—		—			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

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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 2019 Annual Report on Form 10-K)

(1) Management’s Statement

The unaudited condensed financial statements included herein have been prepared by Black Hills Power, Inc. (“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 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 ~~March~~June 3130, 2020, December 31, 2019 and ~~March 31~~June 30, 2019 financial information and are of a normal recurring nature. The results of operations for the three and six months ended ~~March~~June 3130, 2020 and ~~March~~June 3130, 2019, and our financial condition as of ~~March~~June 3130, 2020 and December 31, 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 asto “be a critical” ininfrastructure ~~providing~~sector that provides essential services during this emergency. As a provider of ~~critical~~essential 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 and six months ended ~~March~~June 3130, 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

Simplifying the Accounting for Income Taxes, ASU 2019-12

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes as part of its overall simplification initiative to reduce costs and complexity in applying accounting standards while maintaining or improving the usefulness of the information provided to users of the financial statements. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The new guidance is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted. We are currently reviewing this standard to assess the impact on our financial position, results of operations and cash flows.

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Recently Adopted Accounting Standards

Financial Instruments -- Credit Losses: Measurement of Credit Losses on Financial Instruments, ASU ~~2018~~2016-1913

In June 2016, the FASB issued ASU 2016-13, Financial Instruments -- Credit Losses: Measurement of Credit Losses on Financial Instruments, which was subsequently amended by ~~ASU~~ASUs 2018-19, ~~ASU~~ 2019-04, 2019-05, 2019-10, and 2019-11. The standard introduces new accounting guidance for credit losses on financial instruments within its scope, including trade receivables. This new guidance adds an impairment model that is based on expected losses rather than incurred losses.

We adopted this standard on January 1, 2020, with prior year comparative financial information remaining as previously reported when transitioning to the new standard. On January 1, 2020, we recorded an increase to our allowance for credit losses, primarily associated with the inclusion of expected losses on unbilled revenue. The cumulative effect of the adoption, net of tax impact, was recorded as an adjustment to retained earnings.

Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, ASU 2018-15

In August 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 and six months ended ~~March~~June 3130, 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
			Three Months Ended June 30, 2020			Three Months Ended June 30, 2019		Six Months Ended June 30, 2020		Six Months Ended June 30, 2019
	~~(in thousands)~~		(in thousands)
Customer types:
Retail	$	~~51,427~~	$	$46,509	~~53,076~~	$	46,809	$	97,936	$	99,885
Wholesale	~~4,382~~		2,716	~~8,343~~		6,780		7,098		15,123
Market - off-system sales	~~2,377~~		2,004	~~4,670~~		2,393		4,381		7,063
Transmission/Other	~~13,300~~		11,299	~~12,831~~		13,083		24,599		25,914
Revenue from contracts with customers	~~71,486~~		62,528	~~78,920~~		69,065		134,014		147,985
Other revenues	~~125~~		59	~~121~~		181		184		302
Total revenues	$	~~71,611~~	$	$62,587	~~79,041~~	$	69,246	$	134,198	$	148,287
Timing of revenue recognition:
Services transferred over time	$	~~71,486~~	$	$62,528	~~78,920~~	$	69,065	$	134,014	$	147,985
Revenue from contracts with customers	$	~~71,486~~	$	$62,528	~~78,920~~	$	69,065	$	134,014	$	147,985

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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 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 Receivable

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

	March 31, 2020			December 31, 2019
			June 30, 2020			December 31, 2019
Accounts receivable, trade	$	~~15,577~~	$	$14,615	~~14,778~~	$	14,778
Unbilled revenues	~~10,059~~		10,933	~~10,914~~		10,914
Less allowance for credit losses	~~(358~~		(561)	~~(160~~		(160)
Accounts receivable, net	$	~~25,278~~	$	$24,987	~~25,532~~	$	25,532

~~The~~Due ~~ongoing~~to ~~credit evaluation of our customers during~~ the COVID-19 pandemic, iswe ~~further~~experienced ~~discussed~~an increase in ~~the~~our ~~Credit~~accounts ~~Risk~~receivable ~~section~~arrears ~~of Note 7~~balances. ~~The~~As ~~Company~~a ~~did~~result, ~~not~~we ~~experience~~increased ~~material~~our allowance for credit losses orand ~~customer~~bad ~~defaults~~debt ~~during~~expense for the ~~three~~six months ended ~~March~~June 3130, 2020 by $0.1 million.

The ongoing credit evaluation of our customers during the COVID-19 pandemic is further discussed in the Credit Risk section of Note 7.

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(4) Regulatory Matters

We had the following regulatory assets and liabilities (in thousands) as of:

	March 31, 2020				December 31, 2019
			June 30, 2020					December 31, 2019
Regulatory assets:
Loss on reacquired debt (a)	$	~~921~~	$	854	$	~~989~~		$	989
Deferred taxes on AFUDC (b)	~~4,882~~		4,840		~~4,927~~			4,927
Employee benefit plans and related deferred taxes (c)	~~20,866~~		20,810		~~20,661~~			20,661
Deferred energy and fuel cost adjustments (b)	~~23,854~~		23,937		~~23,203~~			23,203
Deferred taxes on flow through accounting (c)	~~10,297~~		10,727		~~9,801~~			9,801
Decommissioning costs (a)	~~5,767~~		5,323		~~6,211~~			6,211
Vegetation management (a)	~~7,486~~		6,911		~~8,062~~			8,062
Other regulatory assets (a)	~~1,633~~		1,592		~~1,843~~			1,843
Total regulatory assets	$	~~75,706~~	$	74,994	$	~~75,697~~		$	75,697
Less current regulatory assets	~~(25,344~~		(25,043)		~~(21,588~~		)	(21,588)
Regulatory assets, non-current	$	~~50,362~~	$	49,951	$	~~54,109~~		$	54,109

Regulatory liabilities:
Cost of removal for utility plant (a)	$	58,422		$	57,318
Cost of removal (a)					$	56,339	$	57,318
Employee benefit plan costs and related deferred taxes (c)	~~6,986~~			~~7,023~~	6,986		7,023
Excess deferred income taxes (c)	~~97,741~~			~~98,228~~	97,254		98,228
TCJA revenue reserve	~~3,548~~			~~3,162~~	3,209		3,162
Other regulatory liabilities (c)	~~549~~			~~440~~	802		440
Total regulatory liabilities	$	~~167,246~~		$	~~166,171~~$	164,590	$	166,171
Less current regulatory liabilities	~~(3,548~~		)	~~(3,162~~	(3,353)	)	(3,162)
Regulatory liabilities, non-current	$	~~163,698~~		$	~~163,009~~$	161,237	$	163,009

____________________

(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 Activity

There have been no significant changes to our Regulatory Matters from those previously disclosed in Note 7 of the Notes to the Financial Statements in our 2019 Annual Report on Form 10-K.

(5) Related-Party Transactions

Dividend to Parent

For the ~~three~~six months ended ~~March~~June 3130, 2020, we paid a $20 million dividend to BHC. We did not ~~record~~pay any dividends for the ~~three~~six months ended ~~March 31~~June 30, 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:

	March 31, 2020			December 31, 2019
			June 30, 2020			December 31, 2019
Accounts receivable from affiliates	$	~~8,149~~	$	$6,557	~~7,838~~	$	7,838
Accounts payable to affiliates	$	~~32,620~~	$	$35,033	~~32,121~~	$	32,121

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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~~June 3130, 2020, the ~~average~~ cost of borrowing under the Utility Money Pool was 1.9216%.

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

	March 31, 2020			December 31, 2019
			June 30, 2020			December 31, 2019
Money pool notes payable	$	~~60,068~~	$	$56,827	~~57,585~~	$	57,585

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

	Three Months Ended March 31,
			Three Months Ended June 30,							Six Months Ended June 30,
	~~2020~~		2020	~~2019~~		2019		2020		2019
Net interest income (expense)	$	(287	)	$	(273	)
Net interest (expense)			$	(201)		$	(198)	$	(488)	$	(471)

Notes payable to Parent

On ~~March~~June 1, 2020, we entered into a $4565 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 $2545 million short-term promissory note entered into on ~~June~~March 1, ~~2019 and renewed at December 31, 2019~~2020. We had the following balances for our Notes payable to Parent balance (in thousands) as of:

	March 31, 2020			December 31, 2019
			June 30, 2020			December 31, 2019
Notes payable to Parent	$	~~45,000~~	$	$65,000	~~25,000~~	$	25,000

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

	Three Months Ended March 31,
			Three Months Ended June 30,							Six Months Ended June 30,
	~~2020~~		2020	~~2019~~		2019		2020		2019
Net interest income (expense)	$	(388	)	$	—
Net interest (expense)			$	(589)		$	(214)	$	(977)	$	(227)

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

	Three Months Ended March 31,
			Three Months EndedJune 30,							Six Months EndedJune 30,
	~~2020~~		2020	~~2019~~		2019		2020		2019
Revenue:
Energy sold to Wyoming Electric	$	~~294~~	$	$235	~~574~~	$	340	$	529	$	914
Rent from electric properties	$	~~989~~	$	$989	~~896~~	$	895	$	1,978	$	1,791
Horizon Point shared facility revenue	$	~~2,840~~	$	$2,840	~~3,007~~	$	3,006	$	5,680	$	6,013
Fuel and purchased power:
Purchases from WRDC mine	$	~~4,317~~	$	$4,332	~~4,657~~	$	3,216	$	8,649	$	7,873
Purchase of excess energy from Wyoming Electric	$	~~161~~	$	$125	~~132~~	$	41	$	286	$	173
Purchase of renewable wind energy from Wyoming Electric - Happy Jack	$	~~792~~	$	$416	~~535~~	$	342	$	1,208	$	877
Purchase of renewable wind energy from Wyoming Electric - Silver Sage	$	~~1,392~~	$	$804	~~983~~	$	611	$	2,196	$	1,594
Gas transportation service agreement with Wyoming Electric for firm and interruptible gas transportation	$	82	$	$82	76	$	75	$	164	$	151
Operations and maintenance:
Corporate support services and fees from BHSC	$	~~10,419~~	$	$9,822	~~10,191~~	$	9,451	$	20,241	$	19,642
Wygen III ground lease with WRDC	$	~~251~~	$	$251	~~246~~	$	247	$	502	$	493

(6) Employee Benefit 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~~six months ended ~~March~~June 3130, 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 March 31,
			Three Months Ended June 30,							Six Months Ended June 30,
	~~2020~~		2020	~~2019~~		2019		2020		2019
Service cost	$	92	$	$92	91	$	92	$	184	$	183
Interest cost	~~463~~		463	~~603~~		602		926		1,205
Expected return on plan assets	~~(781~~		(781)	~~(851~~		(852)		(1,562)		(1,703)
Prior service cost	—		—	2		3		—		5
Net loss (gain)	511			305
Net loss			510			305		1,021		610
Net periodic benefit cost	$	~~285~~	$	$284	~~150~~	$	150	$	569	$	300

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 March 31,
			Three Months Ended June 30,					Six Months Ended June 30,
	~~2020~~		2020	~~2019~~		2019	2020	2019
Service cost	$	39	39	$	37	37	78	74
Interest cost	32		33	47		46	65	93
Prior service cost (benefit)	(84		)	(84		)
Prior service (benefit)			(84)			(84)	(168)	(168)
Net periodic benefit cost	$	~~(13~~	(12)	$	—	(1)	(25)	(1)

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 March 31,
			Three Months Ended June 30,							Six Months Ended June 30,
	~~2020~~		2020	~~2019~~		2019		2020		2019
Interest cost	$	21	$	$21	29	$	28	$	42	$	57
Net loss (gain)	31			16
Net loss			32			17		63		33
Net periodic benefit cost	$	52	$	$53	45	$	45	$	105	$	90

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 2020 and anticipated contributions for 2020 and 2021 are as follows (in thousands):

	~~Contributions~~		Contributions	~~Remaining Anticipated Contributions for~~		Remaining Anticipated Contributions for	~~Anticipated Contributions for~~		Anticipated Contributions for
	Three Months Ended March 31, 2020			2020			2021
			Six Months Ended June 30, 2020			2020			2021
Defined Benefit Pension Plan	$	—	$	$1,739	~~1,739~~	$	$—	~~1,703~~	$	1,703
Defined Benefit Postretirement Healthcare Plan	$	~~147~~	$	$293	~~440~~	$	$293	~~597~~	$	597
Supplemental Non-qualified Defined Benefit Plans	$	80	$	$160	~~241~~	$	$161	~~304~~	$	304

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(7) Derivatives and Fair Values

Market and Credit Risk Disclosures

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~~the ~~price~~following ~~risk associated with our purchased power costs which include~~ market ~~fluctuations due to unpredictable factors such as weather~~risks, ~~market speculation~~including, ~~transmission~~but ~~constraints,~~not ~~and~~limited ~~other factors that may impact electric power supply and demand.~~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; and

•Interest rate risk associated with future debt, including reduced access to liquidity during periods of extreme capital markets volatility, such as the 2008 financial crisis and the COVID-19 pandemic;

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~~cash collateral requirements, 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, changes in current market conditions, expected losses and any specific customer collection issue that is identified.

~~Although~~We wecontinue ~~did~~to ~~not~~monitor ~~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 estimated future financial impacts to the allowance for credit losses. During the three and six months ended June 30, 2020, the potential economic impact of the COVID-19 pandemic was considered in forward looking projections related to write-off and recovery rates, and resulted in increases to the allowance for credit losses and bad debt expense of $0.1 million and $0.1 million, respectively. See Note 3 for further information.

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.

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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

June 30, 2020

December 31, 2019

~~MWh~~

~~Maximum Term (months)~~MWh

~~MWh~~

~~Maximum Term (months)~~

Maximum Term (months)

MWh

Maximum Term (months)

Wholesale power contracts (a)

~~195,825~~

9141,225

—

__________

(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~~June 3130, 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~~Balance ~~31,~~Sheet ~~2020~~Location		~~December 31, 2019~~		June 30, 2020		December 31, 2019
Derivatives not designated as hedges:
Asset derivative instruments:
Current commodity derivatives	~~Other current assets~~	$Other current assets	~~1,362~~	$	—	$	1,158	$	—
Total derivatives not designated as hedges		$	~~1,362~~	$	—	$	1,158	$	—

Derivatives Designated as Hedges

The impacts of cash flow hedges on our Condensed Statements of Comprehensive Income are presented below for the three and six months ended June 30, 2020 and 2019. 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 EndedMarch 31,					Three Months Ended March 31,
										Three Months Ended June 30,						Six Months Ended June 30,
	~~2020~~		~~2019~~			~~2020~~			~~2019~~	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~~	Income Statement Location			Amount of Gain/(Loss) Reclassified from AOCI into Income
	~~(in thousands)~~					~~(in thousands)~~				(in thousands)						(in thousands)
Interest rate swaps	$	16	$	—	~~Interest expense~~	$	~~(16~~Interest expense	)	$	—$	(16)	$	(16)	$	(32)	$	(32)
Total	$	16	$	—		$	~~(16~~	)	$	—$	(16)	$	(16)	$	(32)	$	(32)

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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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 and six months ended June 30, 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 June 30,
		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	$	(204)	$	—
		$	(204)	$	—


		Six Months Ended June 30,
		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	$	1,158	$	—
		$	1,158	$	—

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.

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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.


	As of June 30, 2020
	Level 1		Level 2		Level 3		Cash Collateral and Counterparty Netting		Total
	(in thousands)
Assets:
Commodity derivatives	$	—	$	1,158	$	—	$	—	1,158

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	As of March 31, 2020
	Level 1		Level 2		Level 3		Cash Collateral and CounterpartyNetting		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:

March 31, 2020

December 31, 2019

June 30, 2020

December 31, 2019

~~Carrying Amount~~

Carrying Amount

~~Fair Value~~

Fair Value

~~Carrying Amount~~

Carrying Amount

~~Fair Value~~

Fair Value

Long-term debt, including current maturities (a)

~~337,356~~

$337,391

~~451,419~~

$491,595

~~340,176~~

$340,176

~~458,286~~

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.

(8) Commitments and Contingencies

There have been no significant changes 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.

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(9) Long-term Debt

Series 94A Debt

On March 24, 2020, South Dakota Electric paid off its $2.9 million, Series 94A variable rate notes due June 1, 2024. These notes were tendered by the sole investor on March 17, 2020.

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(10) Subsequent Events

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.

There are many uncertainties 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 predict the impact that COVID-19 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.

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.

COVID-19 Pandemic

One of the 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~~customers, ~~customers~~employees, business partners and the communities we serve. We have executed our business continuity plan with the goal of continuing to provide safe and reliable service during the COVID-19 pandemic.

For the three and six months ended ~~March~~June 3130, 2020, we ~~did~~experienced ~~not~~limited ~~experience significant~~ impacts to our financial results and operational activities due to COVID-19. Increased costs due to sequestration of mission-critical and essential employees and increased bad debt expense were mostly offset by decreased training, travel and outside services related expenses.

During the three months ended June 30, 2020, COVID-19 had a limited impact on revenues and customer loads, as the decline in commercial usage was partially offset by an increase in residential usage. Decline in revenues and customer loads for the ~~three~~six months ended ~~March~~June 3130, 2020, when compared to the same period in the prior 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~~have ~~not~~increased ~~experience~~our aallowance ~~significant~~for ~~increase~~credit inlosses and bad debt expense by $0.1 million for the three and six months ended ~~March~~June 3130, 2020. Weafter ~~have~~considering ~~informed~~the ~~both~~potential ~~our~~economic ~~customers~~impact ~~and~~of ~~regulators~~the ~~that~~COVID-19 ~~disconnections~~pandemic ~~for~~in ~~non-payment~~forward ~~will~~looking beprojections ~~temporarily~~related ~~suspended~~to write-off and recovery efforts. We continue to monitor ~~the~~customer ~~impacts~~loads, ofaccounts ~~COVID-19~~receivable onarrears ~~our~~balances, disconnects, cash flows and bad debt expense. We are proactively working with customers to establish payment plans and find available payment assistance resources.

We continue to maintain adequate liquidity to operate our business and fund our capital investment program. The Company has no material upcoming debt maturities until August 2032. We have not had any changes to our credit ratings. We also continue to monitor the funding status of our employee benefit plan obligations, which ~~had~~did not materially ~~changed~~change asduring ofthe ~~March~~six 31months ended June 30, 2020.

We are monitoring supply chains, including lead times for key materials and supplies, availability of resources, and status of large capital projects. 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~~its ~~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~~have traveled to an at-risk area, limiting travel to ~~mission~~only mission-critical purposes and sequestering essential employees.

As we look forward to the second half of 2020, we anticipate that our ~~2020~~ operating results could potentially be ~~impacted~~further asaffected afrom ~~result of~~ COVID-19, ~~including~~as ~~impact~~discussed ~~related~~in todetail ~~the~~in ~~following:~~our Risk Factors.

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

• 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~~South ~~continues~~Dakota onElectric and Wyoming Electric continued construction of the $79 million, Corriedale project,. ~~which~~The iswind ~~expected~~project towill be ~~placed~~jointly inowned ~~service~~ by ~~year-end~~the ~~2020. As~~two aelectric ~~result~~utilities ~~of COVID-19, we regularly communicate with our key suppliers~~ to ~~maintain~~deliver ~~visibility~~renewable ~~into~~energy ~~any~~for ~~disruptions~~large ~~they~~commercial, ~~are~~industrial ~~experiencing in the receipt of supplies~~ and ~~materials~~governmental ~~from~~agency ~~their suppliers~~customers. At ~~this~~The ~~time,~~project weis ~~have~~on ~~not~~schedule ~~experienced~~and ~~significant~~on ~~disruption~~budget inand ~~our~~expected ~~supply chain due~~ to ~~COVID-19~~be ~~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~~year-end ~~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 measures. Furthermore, this measure is not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.

The following tables provide certain financial information and operating statistics:


	Three Months Ended June 30,										Six Months Ended June 30,
	2020		2019		Variance		2020		2019		Variance
	(in thousands)
Revenue ^(a)	$	62,587	$	69,246	$	(6,659)	$	134,198	$	148,287	$	(14,089)
Fuel and purchased power ^(a)	12,614		18,381		(5,767)		28,601		41,114		(12,513)
Gross margin (non-GAAP)	49,973		50,865		(892)		105,597		107,173		(1,576)

Operating expenses	32,246		33,555		(1,309)		66,677		65,221		1,456
Operating income	17,727		17,310		417		38,920		41,952		(3,032)

Interest expense, net	(6,021)		(5,277)		(744)		(11,819)		(10,709)		(1,110)
Other income (expense), net	(543)		291		(834)		(184)		(84)		(100)
Income tax (expense)	(1,536)		(2,176)		640		(3,955)		(5,514)		1,559
Net income	$	9,627	$	10,148	$	(521)	$	22,962	$	25,645	$	(2,683)

____________________

(a) Revenue and purchased power for the three and six months ended June 30, 2020, as well as associated quantities, for certain wholesale contracts have been presented on a net basis, which resulted in a decrease of $5.0 million and $8.6 million, or 183,120 MWh and 318,447 MWh, respectively. Amounts for the three and six months ended June 30, 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.

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~~The~~Six ~~following~~Months ~~tables~~Ended ~~provide~~June ~~certain~~30, ~~financial~~2020 ~~information~~Compared ~~and~~to ~~operating~~Six ~~statistics~~Months Ended June 30, 2019. Net income was $23 million compared to $26 million for the same period in the prior year primarily due to the following:

	Three Months Ended March 31,
	2020			2019			Variance
	(in thousands)
Revenue (a)	$	71,611		$	79,041		$	(7,430	)
Fuel and purchased power (a)	15,987			22,733			(6,746		)
Gross margin (non-GAAP)	55,624			56,308			(684		)
Operating expenses	34,431			31,666			2,765
Operating income	21,193			24,642			(3,449		)
Interest income (expense), net	(5,798		)	(5,432		)	(366		)
Other income (expense), net	359			(375		)	734
Income tax (expense)	(2,419		)	(3,338		)	919
Net income	$	13,335		$	15,497		$	(2,162	)

Gross margin decreased primarily due to a $1.2 million decline from lower heating demand with warmer weather and $1.1 million of lower off-system power marketing margins partially offset by a $1.2 million mark-to-market gain on wholesale energy contracts. COVID-19 impacts to gross margin included a $0.8 million decrease due to lower commercial volumes partially offset by higher residential usage.

Operating expenses increased primarily due higher depreciation due to a higher asset base driven by prior year and current year capital expenditures. COVID-19 impacts to operations and maintenance expense included $0.7 million of expenses related to the sequestration of essential employees and $0.1 million of additional bad debt expense which were mostly offset by $0.6 million of lower travel, training and outside services related expenses.

Interest expense, net increased primarily due to higher Money pool notes payable and Notes payable to Parent balances partially offset by lower interest rates.

Income Tax (Expense): The effective tax rate was 14.7% compared to 17.7% for the same period in 2019. The lower effective tax rate is primarily due to current year tax flow-through benefits related to repairs.

Operating Statistics


	Electric Revenue by Customer Type
	(in thousands)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Residential	$	16,693	$	15,570	$	36,374	$	36,760
Commercial	20,540		22,131		42,766		45,275
Industrial	8,111		8,576		17,197		16,933
Municipal	799		776		1,570		1,557
Total retail revenue	46,143		47,053		97,907		100,525
Wholesale ^(a)	2,716		6,780		7,098		15,123
Market - off-system sales	2,004		2,393		4,381		7,063
Other revenue	11,724		13,020		24,812		25,576
Total revenue	$	62,587	$	69,246	$	134,198	$	148,287

____________________

(a) Revenue ~~and purchased power~~ for the three and six months ended ~~March~~June 3130, 2020, ~~as well as associated quantities,~~ for a certain wholesale ~~contract~~contracts ~~have~~has been presented on a net basis., ~~This~~which resulted in a decrease of $35.60 million ~~to both revenue~~ and ~~fuel~~$8.6 ~~and~~million, ~~purchased power~~respectively. Amounts for the three and six months ended ~~March~~June 3130, 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.

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019. Net income was $13 million compared to $15 million for the same period in the prior year primarily due to the following:

Gross margin decreased primarily due to a $1.4 million decline from lower heating residential demand from warmer winter weather and $1.2 million of lower off-system power marketing margins partially offset by a $1.4 million mark-to-market gain on wholesale energy contracts and $0.6 million of higher rider revenues.

Operating expenses 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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Operating Statistics


	Quantities Sold (MWh) by Customer Type
	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Residential	122,223	114,399	275,260	284,335
Commercial	166,711	180,966	352,672	375,760
Industrial	100,761	112,623	219,319	220,819
Municipal	7,263	6,756	14,702	14,329
Total retail quantity sold	396,958	414,744	861,953	895,243
Wholesale ^(a)	38,483	194,222	120,220	417,242
Market - off-system sales	106,005	113,014	211,749	212,586
Total quantity sold	541,446	721,980	1,193,922	1,525,071
Losses and Company use ^(b)	29,083	35,660	61,830	77,570
Total energy	570,529	757,640	1,255,752	1,602,641

	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) MWh ~~Revenue~~sold ~~and purchased power~~ for the three and six months ended ~~March~~June 3130, 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~~183,120 orMWh ~~135~~and 318,~~327~~447 MWh., respectively. Amounts for the three and six months ended ~~March~~June 3130, 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) Includes company uses, line losses, and excess exchange production.

Quantities Generated and Purchased (MWh)	~~Three Months Ended March 31,~~	Three Months Ended June 30,			Six Months Ended June 30,
	~~2020~~	~~2019~~2020	2019	2020	2019
Coal-fired	~~380,495~~	~~409~~399,~~666~~005	287,201	779,500	696,867
Natural Gas and Oil	~~92,471~~	4743,~~703~~561	28,724	136,032	76,427
Total generated	~~472,966~~	~~457~~442,~~369~~566	315,925	915,532	773,294
Purchased (a)	~~212,258~~	~~387~~127,~~632~~963	441,715	340,220	829,347
Total generated and purchased	~~685,224~~	~~845~~570,~~001~~529	757,640	1,255,752	1,602,641

________________

(a) Purchased power quantities for the three and six months ended ~~March~~June 3130, 2020, for certain wholesale contracts have been presented on a net basis, which resulted in a decrease of ~~135~~183,~~327~~120 MWh. and 318,447 MWh, respectively. Amounts for the three and six months ended ~~March~~June 3130, 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) Total availability is calculated using a weighted average based on capacity of our generating fleet.

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

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Degree Days	Three Months Ended March 31,
Contracted Power Plant Fleet Availability (a)		Three Months Ended June 30,							Six Months Ended June 30,
	~~2020~~	2020			2019		2020		2019
	Actual	Variance from Normal			Actual	Variance from Normal
Coal-fired plants (b)		97.1		%	71.9	%	94.4	%	85.0	%
Heating degree days	3,111	(3	)%		3,916	22	%
Other plants (c) (d)		86.1		%	79.7	%	92.1	%	83.5	%
Cooling degree days	—	—	%		—	—	%
Total availability		91.2		%	76.0	%	93.2	%	84.2	%

____________________

(a) Total availability is calculated using a weighted average based on capacity of our generating fleet.

(b) 2019 included planned outages at Neil Simpson II and Wygen III and unplanned outages at Wyodak Plant.

(d) 2020 includes planned outages at Ben French CTs #1-4.


	Three Months Ended June 30,											Six Months Ended June 30,
	2020				2019					2020				2019
	Actual	Variance from Normal		Actual	Variance from Normal		Actual	Variance from Normal			Actual	Variance from Normal
Heating degree days	1,127	10	%	1,279	25	%	4,238	—	%		5,195	23	%
Cooling degree days	120	21	%	38	(62)	%	120	21	%		38	(62)	%

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 ~~March~~June 3130, 2020:


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

__________

(a) On April 16, 2020, S&P affirmed A rating.

(b) On December 20, 2019, Moody’s affirmed A1 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 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

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~March~~June 3130, 2020. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective at ~~March~~June 3130, 2020.

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 Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’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 ~~March~~June 3130, 2020, there have been no changes in our internal 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 II. 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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•ITEM ~~Minimal~~1A.RISK ~~impacts to the availability of our third-party resources;~~FACTORS

•There ~~Minimal~~are ~~decline~~no inmaterial changes to the ~~funded~~risk ~~status~~factors previously disclosed in Item 1A of Part I in our ~~pension~~2019 ~~plan;~~Annual Report on Form 10-K filed with the SEC except as shown below:

•Our ~~Increased~~business, ~~costs~~results ~~due~~of tooperations, ~~sequestration~~financial ofcondition ~~mission~~and ~~critical~~cash ~~and~~flows ~~essential~~could ~~employees;~~be ~~and~~adversely affected by the recent coronavirus (COVID-19) pandemic.

•We ~~Reduced~~have ~~training,~~responded ~~travel~~to ~~and~~the ~~outside~~global ~~services~~pandemic ~~related~~of ~~expenses~~COVID-19 by taking steps to mitigate the potential risks to us posed by its spread.

~~Should~~For the ~~COVID-19~~six ~~pandemic~~months ~~continue~~ended ~~for~~June a30, ~~prolonged period~~2020, ~~or impact~~ the ~~areas~~COVID-19 wepandemic ~~serve~~had ~~more~~a ~~significantly~~limited ~~than~~financial itimpact ~~has~~on ~~today,~~ our business, operations, ~~and~~ financial condition ~~could~~and becash ~~impacted in more significant ways~~flows. ~~The~~In ~~continued spread of COVID-19 and efforts to contain the virus could have the following impacts~~particular, inwe ~~addition to exacerbating the impacts described above~~experienced:

•Lower ~~Adversely~~commercial ~~impact~~volumes ~~our~~partially ~~strategic~~offset ~~business~~by ~~plans,~~higher ~~growth~~residential ~~strategy and capital investment plans~~usage;

•Increased ~~Adversely~~allowance ~~impact~~for ~~electricity~~credit ~~demand~~losses ~~from~~and ~~our~~bad ~~customers,~~debt ~~particularly~~expense ~~from~~due ~~businesses,~~to ~~commercial~~anticipated ~~and~~higher ~~industrial~~customer ~~customers~~accounts receivable arrears balances;

•Minimal ~~Reduce~~cash ~~the~~flow ~~availability~~impacts ~~and~~from ~~productivity~~delayed ofpayments ~~our~~from ~~employees~~residential, commercial and ~~third-party~~industrial ~~resources~~customers;

•Minimal ~~Cause~~disruptions usreceiving tothe ~~experience~~materials anand ~~increase~~supplies innecessary ~~costs~~to asmaintain aoperations ~~result~~and ofcontinue executing our ~~emergency~~capital ~~measures~~investment plan;

•Reduced ~~Result~~availability ~~in increased allowance for credit losses~~ and ~~bad~~productivity ~~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~~employees;

•Minimal ~~Cause~~impacts ~~delays~~to ~~and disruptions in~~ the availability, ~~timely delivery and cost~~ of ~~materials and components used in~~ our ~~operations~~third-party resources;

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

•Increased ~~Cause~~costs afor ~~deterioration~~personal ofprotection ~~the~~equipment ~~credit~~and ~~quality~~cleaning ~~of our counterparties, including power purchase agreement counterparties, contractors or retail customers, that could result in credit losses~~supplies;

•Increased ~~Cause~~costs ~~impairment~~due to sequestration of ~~long~~mission-~~lived~~critical ~~assets~~and essential employees; and

•Reduced ~~Adversely impact our ability to develop~~training, ~~construct~~travel and ~~operate~~outside ~~facilities;~~services related expenses.

•Should ~~Cause~~the aCOVID-19 ~~deterioration~~pandemic incontinue ~~our~~for ~~financial~~a ~~metrics~~prolonged period or impact the areas we serve more significantly than it has today, our business, ~~environment~~operations, ~~that~~financial ~~adversely~~condition and cash flows could be impacted in more significant ways. In addition to exacerbating the impacts ~~our~~described ~~credit~~above, ~~ratings;~~we could experience:

•Adverse ~~Cause~~impacts aon ~~delay~~our instrategic ~~the~~business ~~permitting process of certain development projects~~plans, ~~affecting~~growth ~~the~~strategy ~~timing~~and ofcapital ~~final~~ investment ~~decisions and start dates of construction~~plans;

•Increased ~~Cause~~adverse ~~delays~~impacts into ~~our~~electricity ~~ability~~demand tofrom ~~change~~our ~~rates~~customers, ~~through~~particularly ~~regulatory~~from ~~proceedings;~~commercial and industrial customers;

•Further ~~Cause~~reduction ~~other risks to impact us, such as the risks described~~ in the ~~“Risk~~availability ~~Factors”~~and ~~section~~productivity of our ~~2019~~employees ~~Annual~~and ~~Report on Form 10~~third-K,party ~~and our ability to meet our financial obligations.~~resources;

To•Increased ~~date,~~costs weas ~~have~~a ~~not~~result ~~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,~~emergency ~~results~~measures; ~~of operations, financial condition and cash flows.~~

•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;

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

•Disruptions in the commercial operation dates of certain projects impacting qualification criteria for certain tax credits and potential damages in our power purchase agreements;

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

•Impairment of long-lived assets;

•Adverse impacts on our ability to develop, construct and operate facilities;

•Deterioration in our financial metrics or the business environment that adversely impacts our credit ratings;

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

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

•Other risks that 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 experienced limited 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.

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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~~		Linden R. Evans, Chairman, President and
		~~Chief Executive Officer~~		Chief Executive Officer
		~~/s/ Richard W. Kinzley~~		/s/ Richard W. Kinzley
		~~Richard W. Kinzley, Senior Vice President and~~		Richard W. Kinzley, Senior Vice President and
		~~Chief Financial Officer~~		Chief Financial Officer
Dated:	~~May 5, 2020~~		August 4, 2020

Filing Compare · BLACK HILLS POWER INC