Newly freed of its upstream business unit, Rapid City, SD-based Black Hills Corp. finds itself in a dispute with Colorado regulators over a high-profile state law that encourages new gas-fired generation and the retirement of coal plants.

During a 1Q2018 earnings call reporting increased profits, particularly in its newly expanded natural gas utilities segment, Black Hills CEO David Emery said the holding company is considering possible regulatory and legal actions in response to an adverse Colorado Public Utilities Commission (PUC) decision that was upheld last month by a state district court in Denver.

Black Hills lost its appeal of the PUC’s decision on a natural gas-fired turbine’s rate treatment at its Colorado Electric utility. Emery said the rejection of the company’s appeal addressed several issues, “some positive, some negative” to Black Hills.

“We’re very disappointed that the court affirmed the regulatory commission’s decision related to the rate treatment of the gas turbine generator that we constructed in Colorado,” said Emery, adding that PUC’s assignment of a lower return on investment for the plant is the lowest for any of the company’s utility assets in the state.

“The turbine was built in response to the Colorado Clean Air, Clean Jobs Act, a state law intended to provide an incentive for utilities to retire coal-fired generation before the end of its useful life, replacing it with cleaner, more modern generation,” he said. “For the commission to assign a lower return on investment for the new generation after we built it in good faith and compliance with the state law is very troubling, and the fact that the court upheld that is even more troubling.”

He said the regulatory and court actions are contrary to the intent of the 2010 legislation.

“We’re currently evaluating the impacts of the court order on our business, before taking our next steps,” Emery said. Black Hills is assessing multiple options, including another legal appeal, seeking a PUC rehearing or including the issue in a future rate case.

Emery lowered the curtain on the company’s once bullish oil and gas production operations, noting that as of May 3, Black Hills has “executed agreements to sell or have closed on such agreements for 96% of oil and gas properties as measured by gross well count.” He said the rest of the assets will be sold by the end of June.

Analysts asked Emery about future growth opportunities among its utilities, which are spread across eight states. He said several possibilities are being assessed, including new pipeline in its expanded gas utility group with the acquisition of Source Gas. In 1Q2018, colder-than-normal weather drove up gas utility results, according to CFO Rich Kinzley

Black Hills reported 1Q2018 net income from continuing operations of $135 million ($2.50/share), compared with $78 million ($1.42) in the same quarter last year. First quarter results benefited from a one-time, $49 million tax benefit that resulted from Black Hills restructuring its gas utilities.