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SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27933; 70-10255)

Black Hills Corporation, et al.

Order Authorizing Acquisition of Utility Subsidiary and Related Transactions; Approving Intrasystem Transactions; Reserving Jurisdiction

December 29, 2004

Black Hills Corporation ("Black Hills"), a South Dakota holding company exempt from registration under section 3(a)(1) of the Public Utility Holding Company Act of 1935, as amended ("Act"), by rule 2, and its subsidiaries, including Black Hills Power, Inc. ("Black Hills Power" or "Utility Subsidiary"), its electric public-utility subsidiary (collectively, "Subsidiaries"), Rapid City, SD (together, "Applicants"), have filed an application-declaration, as amended ("Application") with the Securities and Exchange Commission ("Commission") under sections 6, 7, 9(a)(2), 10, 11, 12(b) and 13(b) of the Act and rules 43, 45, 54 and 80 through 91, 93 and 94 in connection with the proposed acquisition of Cheyenne Light, Fuel & Power Company ("Cheyenne"), an electric- and gas-utility company subsidiary of Xcel Energy Inc. ("Xcel Energy"), a registered holding company ("Acquisition").¹ Black Hills will register under section 5 of the Act upon receipt of various authorizations that enable the holding company and its Subsidiaries to engage in various activities and transactions following Black Hills' registration ("Financing Order").²

The Commission issued a notice of the Application on November 19, 2004. The Commission did not receive any request for a hearing.

I. Background

A. Summary of Requested Authorizations

Black Hills requests authority to acquire Cheyenne. In addition, the Applicants request authorizations to engage in certain financing and other transactions to facilitate Cheyenne's inclusion in the Black Hills registered system ("Black Hills System"). Black Hills proposes that the financing authorizations be subject to the limitations contained in the Financing Order. The financing authorizations would extend from the date of this order through December 31, 2007 ("Authorization Period"). The requested authorizations are summarized as follows:

1. Black Hills proposes, directly or indirectly, either to retain or to refinance Cheyenne's existing outstanding long-term debt issuances in the total amount of approximately $25 million ("Cheyenne's Existing Long-Term Debt");

2. Cheyenne proposes, like the other Subsidiaries, to issue and sell securities comprised of: (a) common stock ("Subsidiary Common Stock") (b) preferred stock and preferred stock equivalent securities ("Subsidiary Preferred Securities," as defined below), (c) unsecured and secured short-term debt ("Subsidiary Short-Term Debt") and (d) unsecured and secured long-term debt ("Subsidiary Long-Term Debt"), subject to the aggregate additional financing limit limiting the issuance and sale of securities to an aggregate amount of an additional $1 billion in securities outstanding at any one time ("Aggregate Additional Financing Limit"), as described in the Financing Order,³ and subject to a sublimit for Cheyenne of $100 million and a combined sublimit for Black Hills Power and Cheyenne (together, "Utility Subsidiaries") of $350 million;

3. Cheyenne proposes, like the other Subsidiaries, to enter into transactions to manage interest rate risk, including anticipatory hedging transactions (together, "Interest Rate Hedging Transactions"), subject to the same limitations as the other Subsidiaries, as described in the Financing Order;

4. Cheyenne proposes, like the other Subsidiaries, to issue guarantees and other credit support ("Guarantees"), subject to the same limitations as the other Subsidiaries, including the limit of up to $400 million ("Additional Guarantee Limit"), as described in the Financing Order;

5. Cheyenne proposes, like the other Subsidiaries, (a) to form financing entities ("Financing Subsidiaries"), as defined below, and (b) to issue and sell securities through Financing Subsidiaries, subject to the Aggregate Additional Financing Limit;

6. Cheyenne proposes, like Black Hills Power, to participate in the utility money pool ("Utility Money Pool") to be established by Black Hills and to enter into certain intrasystem financing arrangements, subject to the same limitations as Black Hills Power, as described in the Financing Order; and

7. Cheyenne proposes, like the other Subsidiaries, to obtain services from the service company to be established by Black Hills, to provide certain services to Subsidiaries pursuant to an exemption from the at-cost rules applicable to transactions among Black Hills System companies, subject to the same limitations as Black Hills Power, as described in the Financing Order.

B. The Parties

1. Black Hills

Black Hills is an energy company with three principal subsidiaries. Black Hills Power is engaged in the generation, transmission, distribution and sale of electricity to approximately 60,000 retail customers in eleven counties throughout a 9,300 square mile service territory that comprises portions of western South Dakota, eastern Wyoming and southern Montana.⁴ Black Hills Power also sells bundled capacity and energy service to the municipal electric system of the City of Gillette, Wyoming, and wholesale capacity and energy to other wholesale customers under a market-based rate wholesale power sales tariff on file with Federal Energy Regulatory Commission ("FERC"). The utility owns generating facilities in its South Dakota service area and in Wyoming's Powder River Basin, just west of Black Hills Power's service territory.

Black Hills Power owns and operates a small transmission system of 230 kilovolt ("kV") and smaller transmission facilities located in southwest South Dakota and northeast Wyoming, with a 69 kV distribution extension into southeast Montana.⁵ Black Hills Power's transmission system totals 2,195 miles of transmission facilities. The transmission system is connected to the Western Area Power Administration ("WAPA") and PacifiCorp transmission systems.

Specifically, Black Hills Power's transmission system is located within WAPA's Rocky Mountain Region transmission control area, and the utility operates its transmission system as a subcontrol area within this control area. Black Hills Power's system is directly connected with the WAPA system at Stegall West substation, in Nebraska, and Black Hills Power can also reach WAPA's system through a short transmission path over PacifiCorp's transmission system to PacifiCorp's Dave Johnston/Casper substation, which is directly interconnected with the WAPA system.

Black Hills Power is regulated as a public-utility company by South Dakota, Wyoming and Montana, which regulate its retail electric rates and charges and most of its securities issuances. The utility is also regulated by the FERC.

Black Hills Energy, Inc. ("Black Hills Energy"), a wholly owned subsidiary of Black Hills, directly and indirectly owns the holding company's interests in nonutility subsidiaries. Black Hills Energy engages, through these subsidiaries, in the development, ownership and operation of exempt wholesale generators, as defined in section 32 of the Act ("EWGs"), and qualifying facilities as defined in the Public Utility Regulatory Policies Act of 1978, as amended; the production, transportation and marketing of natural gas, oil, coal and other energy commodities; electric power marketing; and other energy-related activities.

Black Hills FiberCom, LLC, a wholly owned subsidiary of Black Hills Energy, engages in telecommunications activities. Applicants anticipate that this company will be an exempt telecommunications company, as defined in section 34 of the Act.

As of September 30, 2004, Black Hills had 32,469,000 shares of common stock issued and outstanding and its total assets were $2,031,535,000 ($480,989,600 in total electric utility assets and $1,550,537,000 in other corporate assets). For the nine months ended September 30, 2004, Black Hills Power had electric utility revenues of $129,377,000. For the year ended December 31, 2003, Black Hills Power had electric utility revenues of $171,019,000.

2. Cheyenne

Cheyenne is a small combination retail electric and gas operating utility. As of December 31, 2003, Cheyenne served 37,806 electric retail customers and 30,709 gas retail customers, in and around the City of Cheyenne in southeast Wyoming. Cheyenne makes no wholesale sales of electricity.

Cheyenne's authorized capitalization consists of 100 shares of common stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par value $100 per share. There were 100 shares of Cheyenne common stock issued and outstanding as of December 31, 2003. As of December 31, 2003, Cheyenne's common equity (common stock, net of treasury shares) was $17,201,000; its retained earnings were $18,313,000 and its accumulated other comprehensive income (loss) was ($1,631,000), for a total common equity of $33,883,000. Cheyenne's long-term debt consisted of bonds in the amount of $25,000,000 and intercompany debt of $26,175, 000 for a total long-term debt of $51,175,000, as of December 31, 2003. As of December 31, 2003, its total capitalization was $85,058,000.

Cheyenne has no subsidiaries. Property, plant and equipment was valued at approximately $82,642,100 ($49,544,478 (net electric utility property, plant and equipment), $29,357,486 (net gas utility property, plant and equipment), and $3,740,136 (net other corporate assets)), as of December 31, 2003. Cheyenne had electric-utility revenues of $72,107,894 and gas-utility revenues of $24,926,180, for the year ended December 31, 2003. Over the last ten years, Cheyenne averaged over $4 million per year in net operating income.

Cheyenne owns only limited transmission facilities that connect Cheyenne's distribution system to the WAPA transmission system. The facilities consist, first, of two 115 kV transmission line segments that total 25.5 miles in length. The lines are situated wholly within, and are operated by, the WAPA Rocky Mountain Region control area. In addition, Cheyenne has certain limited transmission facilities in two WAPA transmission substations and a switching station. Although Cheyenne's transmission facilities lines operate at transmission voltage (115 kV), they serve only to extend Cheyenne's distribution system.⁶ Cheyenne has no rate schedules or tariffs on file with FERC. However, Cheyenne is a "public utility," as defined in section 201(e) of the Federal Power Act, solely due to its ownership of these limited transmission facilities.

Cheyenne does not own any generating facilities. Historically, the utility has obtained full electric requirements service to serve its retail electric load from off-system suppliers. Cheyenne has a renewable, firm network integration transmission service agreement with WAPA. WAPA has defined three interconnection points where Cheyenne can accept defined amounts of power delivered over the WAPA system. The three interconnection points and related capacity are: Stegall West Substation, 75 MW; Dave Johnston/Casper Substation, 75 MW; and Ault Substation, 159 MW.

Since 2001, Cheyenne has obtained full requirements service from an associate company in the Xcel Energy registered system, Public Service Company of Colorado ("PSC"). The full requirements contract between PSC and Cheyenne will expire at the end of 2007.

In 2001, Black Hills Wyoming, a wholly owned EWG subsidiary of Black Hills that owns and operates electric generating facilities located in Wyoming, entered into two long-term power sales agreements ("PPAs") with Cheyenne to supply it with up to 100 MW of electric capacity and associated energy on a unit contingent basis. The two PPAs expire in 2011 and 2013. Cheyenne subsequently assigned the PPAs to PSC through 2007. After 2007, the PPAs automatically will revert back from PSC to Cheyenne, without further action by any party.

In conjunction with entering into the PPAs, Black Hills Wyoming entered into a 60 MW, firm point-to-point transmission service agreement with Black Hills Power that allows the EWG to deliver energy sold under the PPAs to PSC at the Stegall West substation in Nebraska, where the Black Hills Power system directly interconnects with the WAPA transmission system. Cheyenne has a 75 MW long-term network integration transmission service agreement with WAPA by which it can utilize the WAPA transmission system to deliver power purchased from PSC at Stegall West to Cheyenne's loads at points of delivery on the WAPA system. In addition, Black Hills can deliver energy to PSC by utilizing a short transmission path over PacifiCorp's transmission system to PacifiCorp's Dave Johnston/Casper substation, which is directly interconnected with the WAPA system.

Applicants state that the Black Hills Power system and the Cheyenne electric system will be interconnected through these existing open access transmission arrangements without causing or requiring (i) any transmission cost shifts between Black Hills Power and Cheyenne; (ii) transmission cost equalization; (iii) the incurrence of any central control and dispatch costs associated with integration; or (iv) either Black Hills Power or Cheyenne needing to construct additional transmission facilities.

Cheyenne also provides natural gas distribution service to over 30,000 retail customers in a 1,200 square mile service area of southeastern Wyoming, in and adjacent to Cheyenne, Wyoming, which substantially overlaps its electric service area. In 2003, 26% of Cheyenne's operating revenues and 36% of operating income came from its gas operations.

C. Electric Operations after the Acquisition

Following the Acquisition, Black Hills Power will continue to generate, acquire and provide power to meet the needs of its wholesale and retail customers. The utility will coordinate the economic dispatch of all utility generation and will coordinate the efficient function of transmission and distribution systems. Black Hills Power will continue to operate its transmission system. Until the expiration of the PSC full requirements contract with Cheyenne at the end of 2007, Cheyenne will continue to procure its electric power requirements from PSC.

When the PPAs revert back from PSC to Cheyenne in 2008, Black Hills Wyoming will sell 100 MW of electric power directly to Cheyenne through mid-2011, utilizing the transmission arrangements previously described. Black Hills Power will handle scheduling and dispatch operations for the Black Hills Wyoming generation that serves Cheyenne.

Black Hills Power will also be involved in meeting Cheyenne's requirements in excess of the 100 MW of power supplied by Black Hills Wyoming. These requirements will be met through Black Hills Power, Black Hills Wyoming, other EWG subsidiaries of Black Hills, or through other resources in the region. Transmission service available on the Black Hills Power, WAPA and PacifiCorp systems will allow the Black Hills associate companies and/or third-party resources to serve Cheyenne's power requirements. Improvements currently planned on the WAPA system will remove transmission constraints that would currently limit Black Hills from delivering more than 75 MW of power to Cheyenne over the WAPA system. After 2008, Black Hills Power, Black Hills Wyoming and/or other Black Hills Subsidiaries will use the firm transmission paths described above and arrange for other transmission paths, as necessary, to ensure that Cheyenne receives power from the Black Hills companies when economically desirable.

Although Black Hills Power will not directly supply power to Cheyenne during the term of Cheyenne's requirements agreement with PSC through 2007, Black Hills will integrate Cheyenne into its financial structure and into Black Hills Power's integrated resource planning process without delay following the completion of the Acquisition. Black Hills will commence the process of planning to meet Cheyenne's resources needs on a least-cost basis for 2008 and beyond. Depending on financial and market conditions in 2008 and beyond, Black Hills may elect to meet Cheyenne's needs through Black Hills Power's or Black Hills Energy's generating resources, the construction or acquisition of new generating resources for Cheyenne, the procurement of capacity resources from third-party power supplies, or some combination of these resources.

Administrative and general services for the Black Hills Power and Cheyenne electric operations will be performed by Black Hills' services company. Black Hills will have a single accounting organization, managed by a single team in one or more locations. Applicants state that there will be coordination and integration of information system networks; customer service; procurement organizations; organizational structures for power generation, energy delivery and customer relations; and support services.

Effective upon the Acquisition, Cheyenne's official in charge of day-to-day operations at Cheyenne will be a Wyoming resident. Black Hills has not yet determined the final composition of Cheyenne's Board of Directors, but states that certain members of Cheyenne's Board will be residents of Wyoming. Cheyenne's corporate headquarters will remain in Cheyenne and the utility will retain local Wyoming facilities for customer service, maintenance and fieldwork operations.

D. Proposed Acquisition

Black Hills and Xcel Energy entered into a stock purchase agreement, dated as of January 13, 2004 ("Acquisition Agreement"), in which Black Hills agreed to acquire all the common stock of Cheyenne for $82 million, payable in cash at closing, less principal and accrued interest on all Cheyenne's indebtedness, with appropriate adjustments for working capital and capital expenditures. Black Hills expects the purchase price to be approximately equal to Cheyenne's book value as of the date of the Acquisition Agreement. Black Hills does not expect to issue any new long-term debt to finance the cash payment to Xcel Energy, although Black Hills, indirectly, will assume approximately $25 million of Cheyenne's Existing Long-Term Debt.⁷

E. The Related Financing and Other Authorizations

Black Hills proposes that the same general financing parameters applicable to it and its other Subsidiaries be applicable to Cheyenne's External Financings.⁸ These parameters are as follows.

Black Hills proposes that the effective cost of capital on any of Subsidiary Preferred Securities, Subsidiary Short-Term Debt and Subsidiary Long-Term Debt will not exceed competitive market rates available at the time of the issuance of securities, having the same or reasonably similar terms and conditions issued by companies of reasonably comparable credit quality; provided that in no event will the effective cost of capital exceed, (1) on any series of Subsidiary Preferred Securities or Subsidiary Long-Term Debt, 500 basis points over a U.S. Treasury security having a remaining term equal to the term of the series; and (2) on Subsidiary Short-Term Debt, 300 basis points over the London Interbank Offered Rate ("LIBOR") for maturities of less than one year.

Black Hills also states that the maturity of any Subsidiary Long-Term Debt will not exceed 50 years. In addition, Black Hills states that all Subsidiary Preferred Securities will be redeemed no later than 50 years after their issuance. With respect to issuance expenses, Black Hills states that the underwriting fees, commissions or other similar remuneration paid in connection with the non-competitive issue, sale or distribution of a security that is the subject of this Application (not including any original issue discount) will not exceed 5% of the principal or total amount of the security being issued.

Black Hills states that its consolidated common equity was 47.5% of total consolidated capitalization (all common stock equity (comprised of common stock, additional paid-in capital, retained earnings and/or treasury stock), minority interests, preferred stock, preferred securities and long-term and short-term debt and current maturities), as of September 30, 2004. Black Hills anticipates that, upon the consummation of the Acquisition, its ratio of common equity as a percentage of total capitalization of Black Hills will be approximately 44%.

Black Hills commits that it and its Utility Subsidiaries will each maintain a common equity ratio (as reflected in the most recent Form 10-K or 10-Q (filed with the Commission as required by the Securities Exchange Act of 1934, as amended ("34 Act"), and as adjusted to reflect subsequent events that affect capitalization) of at least 30% of capitalization. Black Hills also represents that, apart from securities issued for the purpose of funding money pool operations, no guarantees or other securities, other than common stock, may be issued in reliance upon this order, unless (i) the security to be issued, if rated, is rated investment grade; (ii) all outstanding securities of the issuer, that are rated, are rated investment grade; and (iii) all outstanding securities of Black Hills that are rated, are rated investment grade ("Investment Grade Condition"). For purposes of this Investment Grade Condition, a security will be deemed to be rated "investment grade," if it is rated investment grade by at least one nationally recognized statistical rating organization, as that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of rule 15c3-1 under the 34 Act. The Investment Grade Condition ratings test will not apply to any issuance of common stock.

Black Hills requests the Commission to reserve jurisdiction over the issuance of any securities that are rated below investment grade. Black Hills further requests that the Commission reserve jurisdiction over the issuance of any guarantee or other securities at any time that the conditions set forth in clauses (i) through (iii) above are not satisfied.

Applicants state that proceeds from the sale of securities in any Cheyenne external financing transactions will be used for general corporate purposes.

Black Hills requests authorization for Cheyenne to issue and sell securities, from time to time, during the Authorization Period, comprised of: (a) Subsidiary Common Stock, (b) Subsidiary Preferred Securities,⁹ (c) Subsidiary Short-Term Debt and (d) Subsidiary Long-Term Debt (and included in Black Hills' Aggregate Additional Financing Limit (as also described in the Financing Order), subject to a sublimit for Cheyenne of $100 million and a combined sublimit for the Utility Subsidiaries of $350 million. Black Hills also seeks authorization for Cheyenne (like the other Subsidiaries) to issue Guarantees, subject to the same limitations as the other Subsidiaries, as described in the Financing Order including the Additional Guarantee Limit.

In addition, Black Hills requests authorization for Cheyenne (like the other Subsidiaries) to enter into Interest Rate Hedging Transactions of outstanding indebtedness (collectively, "Interest Rate Hedges")¹⁰ and with respect to anticipated debt offerings (collectively, "Anticipatory Hedges"),¹¹ subject to certain limitations and restrictions, in order to reduce or manage its interest rate costs. Interest Rate Hedging Transactions may be executed on-exchange ("On-Exchange Trades") through brokers by the opening of futures and/or options positions traded on the Chicago Board of Trade or other futures exchange, the opening of over-the-counter positions with one or more Approved Counterparties ("Off-Exchange Trades"), or a combination of On-Exchange Trades and Off-Exchange Trades. Cheyenne will not engage in speculative transactions. Black Hills states that it and Cheyenne will comply with SFAS No. 133 ("Accounting for Derivatives Instruments and Hedging Activities"), as adopted and implemented by the Financial Accounting Standards Board ("FASB"). Interest Rate Hedges and Anticipatory Hedges will qualify for hedge accounting treatment under the FASB standards in effect and as determined at the date the Interest Rate Hedges or Anticipatory Hedges are entered into.

Cheyenne also requests authorization, in the same manner as Black Hills Power is authorized in the Financing Order, to acquire, directly or indirectly, the common stock or other equity securities of one or more entities formed exclusively for the purpose of facilitating the issuance of long-term debt and/or preferred securities and for the loan or other transfer of the proceeds of those issuances to Cheyenne ("Financing Subsidiaries"). Black Hills requests that Cheyenne be permitted to enter into one or more Guarantees for its Financing Subsidiary, subject to the Additional Guarantee Limit. Black Hills also seeks authority for Cheyenne to enter into expense agreements ("Expense Agreements") with any Financing Subsidiary, under which Cheyenne would agree to pay all expenses of the Financing Subsidiary.¹² Black Hills states that no Financing Subsidiary will acquire or dispose of, directly or indirectly, any interest in any "utility asset," as that term is defined under the Act. Black Hills also requests authorization for Cheyenne to issue to any Financing Subsidiary, from time to time, in one or more series, unsecured debentures, unsecured promissory notes, or other unsecured debt instruments ("Notes"). Black Hills also asks that a Financing Subsidiary be permitted to apply the proceeds of any external financing by it, plus the amount of any equity contribution made to it, from time to time, to purchase the Notes.¹³

Black Hills requests that Cheyenne be permitted to participate in the Utility Money Pool established by Black Hills and in intrasystem financing transactions, in accordance with the authorizations provided in Black Hills' Financing Order, on the same basis as Black Hills Power. Black Hills also requests that Cheyenne be authorized to engage in services in the same manner as Black Hills Power in relation to Black Hills Services, Inc., the services company for the Black Hills System. Black Hills also requests that Cheyenne, like Black Hills Power, be permitted to provide to other associate companies, services that are incidental to its utility businesses, including, but not limited to, infrastructure services maintenance, storm outage emergency repairs, supply planning services, switchyard activities and services of personnel with specialized expertise related to the operation of the utility, to the extent any of these services might exceed those allowable under applicable rules, as well as provide certain other services, and engage in certain affiliate transactions to the same extent that Black Hills Power may be permitted to act by the Financing Order.

F. Other Approvals

1. State Approval

The Acquisition has been approved by the Wyoming Public Service Commission ("Wyoming Commission").¹⁴ The Wyoming Commission approved the Acquisition on August 26, 2004.

2. Federal Approvals

FERC approved the Acquisition on September 20, 2004.¹⁵ The Federal Trade Commission granted early termination of the applicable waiting period for the Acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, on May 17, 2004. Notice filings will also be made with the Federal Communications Commission in connection with the transfer of various telecommunications licenses.

II. Discussion

The proposed acquisition by Black Hills of all of the issued and outstanding common stock of Cheyenne requires prior Commission approval under sections 9(a)(2) and 10 of the Act. The various issuances and sales of securities by Cheyenne are subject to sections 6(a) and 7 of the Act, and the proposed acquisitions of securities by Cheyenne are subject to sections 9(a)(1) and 10. The proposed intrasystem extensions of credit by Cheyenne require authorization under section 12(b) of the Act. The proposed intrasystem service transactions are subject to section 13 of the Act and rules 80 through 91, 93 and 94.

The Commission has reviewed the proposed transactions and finds that the requirements of the Act are satisfied. The Commission wishes to discuss in particular the application of the statutory integration standards to the proposed acquisition of Cheyenne by Black Hills.

The existing utility operations of Black Hills constitute an electric integrated public-utility system within the meaning of section 2(a)(29)(A) of the Act. The existing utility operations of Cheyenne consist of an electric integrated system and a gas integrated system within the meaning of section 2(a)(29)(B) of the Act.¹⁶

Section 10(c)(1) of the Act requires the Commission not to approve an acquisition that "would be detrimental to the carrying out of the provisions of section 11."¹⁷ Section 11(b)(1) of the Act, in turn, generally limits the utility properties of a registered holding company to a single integrated public-utility system. An exception to this requirement is provided in section 11(b)(1)(A) through (C) ("ABC clauses"). A registered holding company may own one or more additional integrated systems, if each system meets the criteria of these clauses. The additional system may be either gas or electric.¹⁸

In this matter, Black Hills, in acquiring Cheyenne, will acquire an additional electric integrated system and a gas integrated system. As was the case in 1997, when New Century Energies, Inc., acquired Cheyenne, and in 2000, when Xcel acquired Cheyenne, the Commission finds that the requirements of the ABC clauses are satisfied in this matter. As the Commission noted in 1997, the electric operations of Cheyenne are small by any measure.¹⁹ Applicants have provided a study demonstrating that substantial economies would be lost if Black Hills were not permitted to own the Cheyenne gas operations. The Cheyenne utility operations are located in Wyoming, where Black Hills Power also has utility operations. The interested state commission has approved the Acquisition and/or given related approvals. Accordingly, the Commission finds that Black Hills may own both the Cheyenne gas operations and the electric operations as additional systems.

III. Conclusion

We have examined the Application under the applicable standards of the Act and have concluded that the proposed transactions are consistent with those standards. We have reached those conclusions on the basis of the complete record before us.

Except as described above, no state regulatory commission and no federal regulatory commission, other than this Commission, has jurisdiction over the proposed transactions. Black Hills expects to pay or incur approximately $1.5 million in aggregate fees, commissions and expenses, directly or indirectly, in connection with the proposed transactions.

Due notice of the filing of the Application has been given in the manner prescribed by rule 23 under the Act and no hearing has been requested of, or ordered by, the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act are satisfied and that no adverse findings are necessary.

IT IS ORDERED that, except as to those matters over which jurisdiction is reserved, the Application is granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 and provided that Cheyenne will be included as a "Utility Subsidiary" as defined in the Financing Order and Cheyenne will also report, as appropriate, any other transactions which are the subject of the rule 24 reporting requirements in that order.

IT IS FURTHER ORDERED that jurisdiction is reserved over issuance of any securities that fail to meet the Investment Grade Condition.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Margaret H. McFarland
Deputy Secretary

Endnotes

Black Hills states that it will use the purchase method of accounting for the Acquisition, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141 ("Business Combinations"), i.e., the total cost of acquiring Cheyenne will be assigned to the tangible and identifiable intangible assets acquired and liabilities assumed in the Acquisition based on their fair values on the date of Acquisition. Black Hills intends to "push down" the purchase accounting and to establish a new basis of accounting for the stand-alone financial statements of Cheyenne.

¹⁰ Interest Rate Hedges will make use of financial instruments commonly used in today's capital markets, such as exchange-traded interest rate futures contracts and over-the-counter interest rate swaps, caps, collars, floors and structured notes (i.e., a debt instrument in which the principal and/or interest payments are linked to the value of an underlying asset or index), or transactions involving the purchase or sale, including short sales, of U.S. Treasury or U.S. governmental (e.g., Fannie Mae) obligations, or LIBOR-based swap instruments. Interest Rate Hedges (other than exchange-traded interest rate futures or options contracts) would only be entered into with counterparties whose senior debt ratings, or the senior debt ratings of any credit support providers who have guaranteed the obligations of such counterparties, as published by Standard & Poor's Ratings Group, are equal to or greater than BBB, or an equivalent rating from Moody's Investor Services or Fitch Investor Services ("Approved Counterparties"). Fees, commissions and other amounts payable to an Approved Counterparty or exchange or other party (excluding, however, the swap or option payments) related to an Interest Rate Hedge will not exceed those generally obtainable in competitive markets for parties of comparable credit quality.

¹¹ Anticipatory Hedges (other than exchange-traded interest rate futures or options contracts) would only be entered into with Approved Counterparties and would be used to fix the interest rate and/or limit the interest rate risk associated with any new issuance. Anticipatory Hedges may be implemented through: (i) a forward sale of exchange-traded U.S. Treasury futures contracts, U.S. Treasury securities and/or a forward swap (each a "Forward Sale"), (ii) the purchase of put options on U.S. Treasury securities ("Put Options Purchase"), (iii) a Put Options Purchase in combination with the sale of call options on U.S. Treasury securities ("Zero Cost Collar"), (iv) transactions involving the purchase or sale, including short sales, of U.S. Treasury securities, or (v) some combination of a Forward Sale, Put Options Purchase, Zero Cost Collar, and/or other derivative or cash transactions, including, but not limited to, appropriate structured notes, caps or collars.

¹² In an Expense Agreement, an Applicant would provide financial support and pay necessary operating expenses of a Financing Subsidiary to facilitate the subsidiary's agreements with third parties in financing activities. This request includes Applicants request for approval under section 13(b) of the Act and rules 87 and 90 to provide these services at market prices but only so long as an Expense Agreement is in place. Applicants explain that, to have ratings agencies recognize Financing Subsidiaries as separate from their parents or affiliates, Expense Agreements must be at market prices (i.e., the contracts would be assumable by a successor without interruption or an increase of fees).

¹⁷ Section 10(c)(1) further prohibits Commission approval of an acquisition that "is unlawful under the provisions of section 8." Section 8 prohibits an acquisition by a registered holding company of an interest in an electric utility and a gas utility serving substantially the same territory without the express approval of the state commission when that state's law prohibits or requires approval of the acquisition. Wyoming law does not prohibit the proposed ownership by Black Hills of both gas and electric properties. As noted previously, the Wyoming Commission approved the proposed Acquisition.

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