After the market closed Tuesday, Black Hills Corp. warned investors to expect sharply lower than expected net income from continuing operations in the fourth quarter. Fourth quarter income is expected to be in the range of 25-30 cents/share, compared to 54 cents/share in fourth quarter 2002 and analysts’ expectations of 55 cents/share.

Black Hills attributed the expected disappointing results to several factors:

Black Hills recorded a $114 million cash payment in the third quarter for terminating a 15 year contract with Allegheny for capacity and energy at the Las Vegas Cogeneration II plant. At the time it also assessed the recoverability of the carrying value of the assets and recorded an impairment charge of $117.2 million. It determined that the plant would be dispatched on a market basis until the company obtained a replacement contract for the plant’s capacity and energy. The prevailing regional market conditions are lower than forecast and have limited the economic dispatch of the plant during the quarter. Market conditions are expected to remain depressed for the remainder of the quarter. As a result, power generation segment results are likely to be lower than previously expected.

In September, Black Hills also sold its interests in seven hydroelectric plants in upstate New York resulting in net cash proceeds of $95 million. The proceeds from both the New York and Las Vegas deals were used to pay $51 million in income taxes and to buy short-term marketable securities, which yield low rates in the current market.

For the year 2004, the company expects income from continuing operations to be in the range of $2.00 to $2.35 per share, which is in line with current analyst expectations but lower than previously expected by Black Hills. Its communications operations are expected to produce lower revenue growth and higher costs compared to 2003, resulting in an anticipated after-tax loss of $3-4 million, the company said.

It also will not be receiving earnings from the power generation segment due to the change in operation of the Las Vegas plant. Higher than expected corporate expenses and the uncertain timing of capital investments or acquisitions due to the challenges of prevailing energy industry conditions also will negatively impact results, Black Hills said.

The negative factors are expected to be partially offset by higher earnings from its oil and gas production segment because of higher gas production and strong gas prices, and by higher earnings from the energy marketing segment because of expected increases in natural gas marketing volumes.

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