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Black Hills 'cautious' on Colo. investments amid rate dispute

Black Hills Corp. continues to push for a Colorado commissioner to recuse herself from the company's rate case, with a decision on the recusal and the case expected in the next few weeks.

The Colorado Public Utilities Commission in December 2016 granted $1.2 million in new revenue beginning in 2017 tied to cost recovery for a new 40-MW unit at the company's Pueblo Airport Generating Station, which began commercial operation on Dec. 29, 2016. Black Hills Colorado Electric Utility Co. LP's original rate request was an increase of $8.5 million annually.

"We were very disappointed in the PUC's decision," Black Hills Chairman and CEO David Emery said Feb. 2 on the company's fourth-quarter 2016 earnings call. "It was contrary to both state law and prior Colorado PUC precedent."

Black Hills Colorado Electric in January filed an application with state regulators for rehearing or reconsideration. The utility also filed a motion that Commissioner Frances Koncilja be recused from the case. Koncilja is the only sitting commissioner that was on the three-member board at the time of the decision. Black Hills claims that Koncilja "acted with bias" in the rate case decision.

"We just felt like it was absolutely necessary to ask for [recusal]," Emery said. "We did not feel that we were getting a fair shake in any way, shape or form unfortunately, and felt like we really had no other choice. It's not something we really preferred to do. In fact, we would avoid it at all cost pretty much, but just felt like we didn't have any choice."

The CEO noted that the commissioner does have the option to voluntarily recuse herself from the rate case.

"If we're not comfortable with a result [in the case] that's consistent with state law ... we would likely appeal to the court system after that," Emery said, adding the company is "hopeful" there will be a reasonable outcome based on current commission membership.

Outside of the rate case, Black Hills noted that a Colorado administrative law judge did approve a settlement agreement tied to its electric resource plan. The plan includes the addition of about 60 MW of renewable energy to be in service by 2019 to help meet Colorado's renewable energy standard. Black Hills said it plans to issue a request for proposals, or RFP, to procure the renewable capacity.

"Obviously, we are concerned about cost recovery," Emery said in response to an analyst's question about future investments in Colorado. "We are cautious about making additional investments in the state. We're anxious to see how the commission moves forward with two new members. We'll be watching that as we analyze the RFP results and making a decision whether or not we want to invest additional capital there. We certainly would like to and we hope that we can get comfortable with doing so."

While it may hold back on organic investments in Colorado, Black Hills management indicated the Rapid City, S.D.-headquartered company is still open to acquisitions.

"We're always looking. The issue right now, just given our balance sheet, it would be hard for us to lever up enough to be competitive on a large-scale acquisition that had a lot of interest from other parties," Emery said in a response to an analyst's question. "If we were to find a little tuck-in acquisition some place, where it really made great sense for us, we wouldn't have any problem doing that."

The CEO added that the company indicated in the past that its preference would likely be an electric utility with power generation needs, but "beggars can't be choosers."