BLACKHILLSCORPORATION annual report 2006 BLACK HILLS CORPORATION COUNTS annual report CUSTOMER THE Black Hills Corporation P.O. Box 1400, 625 Ninth Street Rapid City, South Dakota 57709 605.721.1700 | www.blackhillscorp.com 2006 INVESTOR INFORMATION THECUSTOMERCOUNTS 2006 COMMON STOCK FIRST MORTGAGE BONDS – INDUSTRIAL DEVELOPMENT BLACKHILLSCORPORATION annual report Transfer Agent, Registrar CHEYENNE LIGHT, FUEL & POWER REVENUE BONDS – & Dividend Disbursing Agent Trustee & Paying Agent CHEYENNE LIGHT, FUEL & POWER Wells Fargo Shareowner Services Wells Fargo Bank, N.A. Trustee & Paying Agent P.O. Box 64856 MAC C7300-107 US Bank St. Paul, Minnesota 55164-0856 1740 Broadway 950 17th Street, Suite 300 800-468-9716 Denver, Colorado 80274 Denver, Colorado 80203 www.wellsfargo.com/shareownerservices POLLUTION CONTROL REFUNDING CORPORATE OFFICES We deliver exceptional value to customers, SENIOR UNSECURED NOTES – REVENUE BONDS – Black Hills Corporation BLACK HILLS CORPORATION BLACK HILLS POWER, INC. P.O. Box 1400 achieve solid returns for investors, and grow through Trustee & Paying Agent Trustee & Paying Agent 625 Ninth Street LaSalle Bank N.A. Wells Fargo Bank, N.A. Rapid City, South Dakota 57709 135 S. LaSalle Street, Suite 1960 Sixth Street and Marquette Avenue 605-721-1700 responsible energy development for the West. Chicago, Illinois 60603 Minneapolis, Minnesota 55479 www.blackhillscorp.com FIRST MORTGAGE BONDS – ENVIRONMENTAL IMPROVEMENT BLACK HILLS POWER, INC. REVENUE BONDS – The Bank of New York BLACK HILLS POWER, INC. Trust Company, N.A. Trustee & Paying Agent 227 W. Monroe, 26th Floor The Bank of New York Trust Company, N.A. Chicago, Illinois 60606 227 W. Monroe, 26th Floor Chicago, Illinois 60606 2007 ANNUAL MEETING DIVIDEND REINVESTMENT AND The Annual Meeting of Shareholders will be held at The Journey Museum, DIRECT STOCK PURCHASE PLAN 222 New York Street, Rapid City, South Dakota, at 9:30 a.m. local time on A Dividend Reinvestment and Direct Stock Purchase Plan provides interested May 22, 2007. Prior to the meeting, formal notice, proxy statement and proxy investors the opportunity to purchase shares of the Company’s Common will be mailed to shareholders. Stock and to reinvest all or a percentage of their dividends. For complete details, including enrollment, contact the transfer agent, Wells Fargo Shareowner Services. MARKET FOR EQUITY SECURITIES Plan information is also available at www.wellsfargo.com/shareownerservices. The Company’s Common Stock ($1 par value) is traded on the New York Stock Exchange (NYSE). The Company has fi led its CEO Certifi cation with the The Company reports details concerning its operation and other matters CONTENTS NYSE. Quotations for the Common Stock are reported under the symbol BKH. periodically to the Securities and Exchange Commission on Form 8-K, Form 10-Q and Form 10-K, which are available on written request to: The continued interest and support of equity owners is appreciated. The Company has declared Common Stock dividends payable in each year Investor Relations, Black Hills Corporation, P.O. Box 1400, Rapid City, 1 Corporate Highlights since its incorporation in 1941. Regular quarterly dividends when declared South Dakota, 57709. The Company’s CEO/CFO Section 302 Certifi cations are normally payable on March 1, June 1, September 1 and December 1. have been fi led on exhibits to its Form 10-K. The Company also has available 2 Shareholder Letter through our internet website at www.blackhillscorp.com its annual report on 6 Black Hills at a Glance INTERNET ACCOUNT ACCESS Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K Registered shareholders can access their accounts electronically at and amendments to those reports, as soon as reasonably practicable after the 8 Retail Services www.shareowneronline.com. Shareowner Online allows shareholders to Company electronically fi les such material with, or furnishes it to, the 13 Wholesale Energy view their account balance, dividend information, reinvestment details Securities and Exchange Commission. and much more. The transfer agent maintains stockholder account access. In addition, the Company has certain corporate governance documents on our 16 Commitments to our Customers website. These documents include a Code of Ethics that applies to its CEO, DIRECT DEPOSIT OF DIVIDENDS 17 Financial Section CFO and key fi nance/accounting employees, Corporate Governance Guidelines The Company encourages you to consider the direct deposit of your dividends. for its Board of Directors, Code of Business Conduct for its employees, and With direct deposit, your quarterly dividend payment can be automatically charters for the Executive, Audit, Compensation and Governance Committees transferred on the dividend payment date to the bank, savings and loan, or credit of the Board of Directors. union of your choice. Direct deposit assures payments are credited to shareholders’ accounts without delay. A form is attached to your dividend check where you can request information about this method of payment. Questions regarding direct deposit should be directed to Wells Fargo Shareowner Services. 2006 2005 2004 Earnings per share–diluted $2.42 $1.00 a $1.76 Dividends paid per share $1.32 $1.28 $1.24 Book value per outstanding share $23.68 $22.28 $22.43 Year-end stock price $36.94 $34.61 $30.68 Page 1 Five-year dividend growth rate 3.3% 3.5% 3.6 % Payout ratio 55% 128% 70% Dividend yield on market value at year-end 3.6% 3.7% 4.0% Return on average year-end common equity 10.6% 4.5% 8.1% Price-earnings multiple at year-end 15 35 17 Electric utility sales (millions of KWH) 3,222 3,071 3,051 Electric and gas utility electric sales b (millions of KWH) 920 889 - Electric and gas utility gas sales b (millions of Dekatherm) 4,388 4,063 - Total independent power capacity (MW) at year-end 989 1,000 1,004 Tons of coal sold (thousands of tons) 4,717 4,702 4,780 Oil and gas production sold (MMcfe) 14,414 13,745 12,595 Daily physical volume natural gas marketed (MMBtu) 1,598,200 1,427,400 1,226,600 Daily volume crude oil marketed c (barrels) 8,800 - - CORPORATE HIGHLIGHTS EARNINGS PER SHARE 2006 2.42 2006 2.42 2005 1.00 2005 1.00 2004 1.76 2004 1.76 2003 1.97 2003 1.97 2002 2.26 2002 2.26 $0 $0.50 $1.00 $1.50 $2.00 $2.50 $0 $0.50 $1.00 $1.50 $2.00 $2.50 DIVIDENDS 2006 1.32 2006 1.32 2005 1.28 2005 1.28 2004 1.24 2004 1.24 2003 1.20 2003 1.20 2002 1.16 2002 1.16 $0.25 $0.50 $0.75 $1.00 $1.25 d $0.25 $0.50 $0.75 $1.00 $1.25 BUSINESS GROUP ASSETS Retail Services 2006 740.8 Wholesale Energy 1,485.7 2005 624.0 1,359.9 467.0 2004 1,224.7 a Includes $0.98 asset impairment charge 469.9 and other special items netting to a $0.29 loss. 2003 1,096.0 b January 21, 2005-December 31, 2005, 2002 455.4 full year 2006. 1,124.3 c Volume reflects activity of Golden-based marketing operation beginning in May 2006. $0 d Excludes corporate assets and assets of $300 $600 $900 $1,200 $1,500 discontinued operations. David R. Emery Chairman, President and Chief Executive Officer Page 3 THECUSTOMERCOUNTS Our ability to create value for our shareholders depends on our ability to deliver service and value to our customers. DEAR SHAREHOLDER: In 2006, Black Hills Corporation earned $2.21 per share from Last year, we conducted an opinion poll of Black Hills Power Light more than doubled, benefiting from both a base rate We have been operating in this region for several years. continuing operations. We again increased our annual dividend customers. As in the past, we found that we are in good standing, increase approved by regulators and the impact of income from Strategically, this expansion provides not only a better scale to $1.32 per share, bringing total shareholder return in 2006 and 98 percent of our customers have an overall favorable view allowance for funds used during construction (AFUDC) for the drilling and development program there, but also a to 10.8 percent including dividends and stock price appreciation. of us. Nearly 75 percent of our customers also believe we are doing associated with the ongoing construction of the Wygen II third primary basin of operations, along with our existing We entered 2007 in excellent shape both financially and our part to hold down costs. We appreciate these high ratings power plant. In March 2007, we filed a rate case with Wyoming operations in the San Juan Basin (New Mexico) and Powder operationally, with ambitious plans for further progress. and believe they reflect our commitment to reliability and quality regulators requesting the inclusion of the facility as a rate-base River Basin (Wyoming). We thus benefit from added flexibility asset for Cheyenne Light. This 90-megawatt base load plant is in our multi-year capital investment planning. Our year-end service, a commitment we also will strive to honor in our new Before reviewing last year’s results, I’d like to discuss some exciting scheduled to be in full commercial operation by January 1, 2008. reserve calculation also reflects a downward revision to previ- recent news. In February 2007, we signed a definitive agreement service territories in Colorado, Kansas, Nebraska and Iowa. • Oil and gas. We increased production for the ninth consecu- ous estimates of approximately 30 Bcfe. That adjustment was to purchase, from Aquila, Inc., five utilities in four neighboring We take a relationship-based approach to our customer care, tive year. Total production of 14.4 billion cubic feet equivalent primarily caused by lower-than-expected results from portions states, in a $940 million, all-cash transaction that will more and that philosophy extends to our other business dealings as (Bcfe) was up 5 percent from 2005.