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Black Hills Signs Confidentiality Pact with NorthWestern, Reports 'Strong' 4th Qtr.

With a reported upswing in fourth quarter 2005 profits, although still down for the full year, Rapid City, SD-based Black Hills Corp. announced late Tuesday it has entered into a confidentiality agreement with NorthWestern Corp., the neighboring South Dakota-based utility holding company it has been hotly pursuing for a merger.

NorthWestern earlier in the day also had announced the agreement, with the caveat that it hasn't reached any conclusions about this or other options now before the company.

The confidentiality agreement, which is reportedly one of several NorthWestern may have signed with suitors, allows the two companies to mutually go through due diligence to determine if a merger would be materially beneficial to both sets of shareholders and both sets of utility customers.

As part of Black Hills' formal year-end earnings announcement, CEO David Emery said his company remains "committed to our offer for a proposed combination with NorthWestern, provided that the combination maximizes shareholder value and strengthens the long-term strategy of both companies." While outlining various operating challenges on the coal mining and generation parts of Black Hills, Emery said he is "excited about all our opportunities to expand our regional energy presence and increase shareholder returns."

Black Hills reported net income for the final quarter of last year ended Dec. 31 of $26.6 million, or 79 cents/share, compared to $19.4 million, or 59 cents/share, for the same period in 2004. Income from continuing operations was identical for last year's final quarter, but was slightly better in the fourth quarter of 2004 ($21.1 million, or 64 cents/share). For the full year in 2005, net income was $33.2 million, or $1.07/share, compared to $57.6 million, or $1.86/share, for all of 2004.

Six factors most directly affected profits from continuing operations in the fourth quarter, Black Hills reported, with three of the items being positive and carrying the greatest per-share impact. Cumulatively, the company reported three declines of 16 cents/share for reduced oil/gas production earnings, lower power generation earnings and bigger corporate losses last quarter compared to the same period in 2004. On the positive side, a cumulative increase of 33 cents/share resulted in increased earnings in three other areas: energy marketing, retail services and coal mining.

Emery touted "strong earnings" in the fourth quarter, due primarily what he called "a solid performance in energy marketing." For the year overall, there were "record oil/gas production and earnings, the start of construction on a new coal-fired generation plant, and an expanded asset base through acquisitions." On the utility side, there was record new customer growth, too, Emery said.

"Marketing operations benefited from robust and volatile natural gas market conditions that created solid margins during the fourth quarter." Emery said there was a near-tripling of earnings from storage, transportation and producer services marketing. "Our coal mining and utility operations also contributed to the earnings increase," he said.

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