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Black Hills Seeks Utility-Funded Gas Reserves Programs in Five States

Rapid City, SD-based Black Hills Corp. has asked regulators in five states to approve cost-of-service-based natural gas reserves acquisition programs to support utility supplies.

Filings were made by Black Hills subsidiary utilities in Iowa, Kansas, Nebraska, South Dakota and Wyoming. A sixth application, in Colorado, is to be filed later in October, the holding company said. Under the proposed program, Black Hills would acquire or drill for the reserves through its Black Hills Exploration and Production unit (see Daily GPIFeb. 5).

"The cost of service gas program is designed to provide long-term natural gas price stability for the company's utility customers, along with a reasonable expectation of customer savings over the life of the program," a Black Hills spokesperson said.

The basis for the program is the assumption that historical performance supports the cost of production being more stable and predictable in the program than relying on the spot market price for natural gas. Black Hills CEO David Emery has described the program as a "growth opportunity" for the corporation. The utility customer direct investment in gas supplies also can provide more "long-term price stability" for customers, he said.

"Cost-effective energy" and a means of eliminating vulnerability to wholesale price volatility are what the program is all about, according to Linn Evans, COO of Black Hills' utilities. "This program is a win-win for customers and shareholders alike," Evans said.

There is precedence for such a program. Agreements now in place in Utah and Wyoming allow Wexpro Co. to produce gas from properties at cost of service that benefits Questar Gas utility customers (see Daily GPISept. 24). Wexpro has said similar cost-of-service arrangements could benefit customers or partners purchasing volumes of a Wexpro-Piceance Energy LLC joint venture's natural gas production.

In the past decade, Black Hills has added 19 small gas and electric utilities across seven states -- Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming, including most recently SourceGas Holding LLC (see Daily GPI, July 13).

The cost-of-gas filing only applies to Black Hills utilities outside of the additions from SourceGas, since that acquisition is not expected to close until the first half of next year.

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