After suffering numerous outages at some generation plants in the past, Rapid City, SD-based Black Hills Corp. enjoyed a 96% availability rate among its electric generation plants and increased its energy trading profits during the second quarter, executives said Friday. Black Hills released greatly improved quarterly financial results on Thursday.
For the second quarter, net income was $25.1 million (66 cents/share) compared to $11.8 million (35 cents/share) for the same period in 2006, and the figures were increased slightly on a continuing operations basis. For the first half of the year, net income was $57.6 million ($1.56/share) compared to $37.9 million ($1.13/share) for the first six months last year.
Black Hills CFO Mark Thies said earnings increased across all of the company's business units -- utility, exploration and production, energy trading and marketing, and electricity generation. CEO David Emery called the overall results "excellent," noting that natural gas markets in the second quarter continued to be "extremely volatile," including wide basis differentials between the Rockies and other regions.
"Energy marketing was able to capitalize on these market conditions and benefited from higher volumes marketed and increased margins from transportation and other marketing strategies compared to the second quarter in 2006," Emery said.
The company's utility operations showed a substantial increase in natural gas-fired power plant availability for both the quarter and the six-month periods (98.6% for gas plants in the second quarter, compared with 89.6% for the same period in 2006), and for the six months, availability in gas generating plants was 98.7% compared to 88.3% for those plants in the first half of 2006. By further comparison, coal-fired plants were down just slightly in their availability this year compared to the same two periods in 2006, but still in the 93-94% range.
A major transmission line (AC/DC) intertie for carrying power east was knocked out for most of the first five months this year by ice storms, effectively curtailing Black Hills' off-system wholesale electricity sales, but the line was back in operation in June, Thies said. "We expect normal operations through this summer period, which is really good for us," he said.
With coal and oil and gas production businesses also improving their profits in the second quarter, Thies said he is excited about the all-around performance so far this year. After having a major coal plant out last year, negatively affecting its electric utility and coal-mining operations in 2006, but with the plant back in business this year, "our tons of coal sold and our production of power from a coal perspective have been very strong," he said.
In terms of cost for oil and gas production and power generation, Thies said prices are going up, but not as severely as in the past. "We have seen some increase in costs, but we don't believe that it is escalating like it was last year," Thies said.
"On the power plant side, most of our components have already been contracted for, but for new plants beyond that, we do see increases," Thies said. Nevertheless, he said Black Hills still thinks new coal-fired plants will be economic to build, and it expects to begin a third new one early next year.
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