Rate Case Overview

Why Black Hills Energy is requesting approval of new rates
Items included in the rate application
Interim rates
Customer rate impact
Proposed rates must be approved by the IUB

Why Black Hills Energy is requesting approval of new rates

On June 8, 2010, Black Hills Energy filed a rate application with the Iowa Utilities Board to recover the cost of capital investments and other operating expenses our company has made in its Iowa natural gas distribution system. Since December 2008, we have invested $17.2 million in Iowa communities to replace pipe and other equipment that has reached the end of its useful life, made system upgrades and implemented new technology. These investments translate to the safe, reliable and cost-effective operation of the natural gas distribution system that serves you, your family and your business.

We are asking for a $4.7 million or 2.9 percent increase in annual revenue to recover capital investments made and associated operating costs incurred since December 2008.

Items included in rate application

The base rate and customer charge are included in this rate case. The monthly customer charge is a flat fee for natural gas service that stays the same each month. The base rate is a fixed per-therm rate for the natural gas consumed by customers that causes the monthly bill to go up or down depending on usage. Combined, the base rate and customer charge typically account for 35 percent of the total residential bill. These rates cannot change without approval of the Iowa Utilities Board. This portion of the bill covers the company’s operating costs, system maintenance and improvements, and 24-hour customer service support.

The cost for the natural gas commodity is not included in this rate case. The natural gas commodity typically accounts for 65 percent of the total residential bill. This portion of the bill appears as “PGA” on the natural gas bill. We do not earn a profit on the natural gas commodity and therefore it is not part of this rate case. It is a pass-through cost that we pay to our natural gas suppliers.

*Based on average annual residential natural gas usage.

Black Hills Energy is also proposing a system integrity rider that will allow the utility to recover a portion of the costs of capital to replace aging pipe to ensure safety and reliability, including depreciation on the investments made, thereby avoiding the need for a full rate case proceeding. As with similar riders used in other states, the company's proposal is designed to reduce the delay in recovering system maintenance investments, but the expenses would still be subject to review by state regulators.

Interim Rates

As allowed by Iowa law, the 1.6 percent interim increase will go into effect June 18, 2010, while the rate case is being reviewed. Once in effect, the average monthly change for the general service class, which includes residential¹ and commercial² customers, will be $1.46. The average monthly bill of small volume³ customers will increase $51.27. If final rates approved by the IUB are lower than interim rates, customers will receive a refund with interest.

Customer rate impact

The average monthly bill would increase by approximately $2.26 for residential¹ customers if the proposed rates are approved, and $3.65 for commercial² customers. The average small volume³ and large volume⁴ customers would experience $64.93 and $69.04 monthly increases, respectively. The actual change in a customer's bill will vary based on how much natural gas is used and the price of natural gas, which is not part of this rate case.

Proposed rates must be approved by the IUB

The IUB regulates rates for investor-owned natural gas utilities in Iowa, which includes Black Hills Energy. The proposed 2.9 percent increase in annual revenue that Black Hills Energy is requesting requires approval by the IUB.

The IUB has 10 months to review and analyze Black Hills Energy's request. If approved, final rates would become effective around April 9, 2011. The IUB will hold customer comment meetings in 2010 to discuss Black Hills Energy's rate application. Customer comment meetings currently scheduled across the state are:

• Newton: Tuesday, June 29, 2010, at 6:30 p.m. at DMACC Auditorium, 600 North 2nd Avenue, Newton, Iowa
• Dubuque: Wednesday, June 30, 2010, at 6:30 p.m. at the City Council Chambers, 2nd floor, Federal Building, 350 West 6th Street, Dubuque, Iowa
• Council Bluffs: Thursday, July 1, 2010, at 6:30 p.m. at the Public Library, 400 Willow Avenue, Council Bluffs, Iowa

¹ Based on an average residential customer using 789 therms annually
² Based on an average commercial/industrial customer using 3,569 therms annually
³ Based on an average small volume sales customer using 53,043 therms annually
⁴ Based on an average large volume sales customer using 731,815 therms annually

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