In releasing preliminary third-quarter results, Rapid City, SD-based Black Hills Corp. late Friday reported a lot of red ink and financial complications resulting in three separate one-time negative write-downs collectively totaling a loss of $1.22/share for the quarter. The biggest charges taken were for impairment of the company’s merchant power plant in Las Vegas, which is losing money due to the extremely high wholesale natural gas prices, resulting in a $50.3 million, or 99 cent/share, charge against earnings.
Complete third quarter results, with comparative information, will be released Thursday, and the company has scheduled a conference call with the financial community that day. Black Hills said it expects to reverse some of the losses in the fourth quarter when it is projecting earnings of 55-60 cents/share from continuing operations.
Noting that the Las Vegas I generation plant is the company’s only merchant plant with direct exposure to long-term gas prices, Black Hills CEO David Emery indicated that his company has begun discussions with Las Vegas-based Nevada Power Co., with which Black Hills has a contract for 45 MW of the 53 MW plant’s output, regarding the future operations of the power plant. “We are exploring alternatives to the existing power supply agreement, which expires in 2024,” Emery said.
Emery said the company has concluded that at sustained high natural gas prices, Black Hills will be unable to recover its capital investment in Las Vegas I. Its other merchant, gas-fired power plants, all of which operate “normally and profitably,” he said, are under tolling arrangements whereby the power purchaser assumes the fuel price risk.
The other one-time charges against earnings were tied to expensing of development costs for several projects the company now feels won’t be completed. On an after-tax basis, the expensed costs amount to a charge of $8.9 million, or 18 cents/share. “The company determined these projects were less likely to advance due to the reduced economic feasibility of gas-fired power generation,” a company spokesperson said.
Another charge of $2.5 million, or 5 cents/share, was taken related to one of the Black Hills subsidiaries being among the defendants in a federal district court in New York class action lawsuit against its gas marketing activities, along with several other co-defendants.
Despite the losses and negative impact of current energy prices, CEO Emery stressed that overall Black Hills benefits from the current strong global natural gas and oil prices with increased earnings contributions from production, and what he called “a significant increase in the value of our gas and oil reserves.” In addition, Emery said the company’s coal reserves are of “tremendous importance” to the Black Hills’ regulated utility operations.
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