Citing natural gas price volatility and electric generation improvements, Rapid City, SD-based Black Hills Corp. CFO Mark Thies Friday said the company's energy marketing unit had a "very strong" first quarter, following an equally strong last quarter in 2006, and it continued to look to coal-fired generation as being viable in the future, despite the onslaught of states adopting coal-restrictive global climate change initiatives.

In reporting overall profit growth in the first quarter compared to the same period a year earlier ($32.5 million, or 91 cents/share, this year, compared to $26.2 million, or 78 cents/share, in the first quarter 2006), Black Hills reported an added $6.5 million, or 18 cents/share, in profits from energy marketing, and another $2.9 million, or 8 cents/share, profits from power generation, said Thies, who spoke on a conference call.

"Energy marketing had a very strong first quarter -- up $6.5 million -- and energy marketing generally is strong in the first and fourth quarters," he said. "You don't know what that will be longer term; it depends on the level of volatility in the marketplace. It is a very difficult business to forecast."

The only down side in first quarter results was a loss of $1.8 million or 5 cents/share, in Black Hills' oil/gas exploration and production business primarily due to continued decreases in production (6% on an Mcf-equivalent basis in the first quarter) and increases in exploration and production costs.

In response to questions from analysts on the conference call, Thies defended the company's position of tying its future to coal-fired generation plants. He noted that Black Hills has built three plants in the last 12 years, including the 90 MW Wygen II unit at its coal mine mouth facilities in Wyoming, which is about to come on-line for Black Hills' Cheyenne Light, Fuel & Power utility. In fact, the company has plans for another 100 MW expansion, a Wygen III unit.

"We have the best-available control technology (BACT) in Wygen II, and we believe that will be one of the cleanest new plants to come into service," said Thies, who indicated Black Hills will look at carbon sequestration as an option if pressed to do so by new laws and regulations. "We still believe that coal plants make sense, and we have Wygen II under construction and Wygen III we just received air permits for earlier this year.

"We expect to continue down the path of looking for contracts or utility and other regulatory approvals to begin the construction of Wygen III later this year or early in 2008. We are very attuned with what is going on with carbon sequestration, and we look to make sure that our coal-fired power plants have the best environmental technology that is out there. We've been able to do that three times, and we continue to improve that technology. To the extent that laws and rules change, we'll have to address that when it occurs."

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