Edgar Filing: BLACK HILLS CORP /SD/

BKH 10Q/A Q1 2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

(Amendment No. 1)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2015
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the transition period from __________ to __________.

	Commission File Number 001-31303



Black Hills Corporation
Incorporated in South Dakota	IRS Identification Number 46-0458824
625 Ninth Street
Rapid City, South Dakota 57701
Registrant’s telephone number (605) 721-1700
Former name, former address, and former fiscal year if changed since last report
NONE

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



	Yes x		No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).



	Yes x		No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).



	Large accelerated filer x		Accelerated filer o



	Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



	Yes o		No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.



Class	Outstanding at April 30, 2015
Common stock, $1.00 par value	44,821,847	shares

EXPLANATORY NOTE

This Amendment No. 1 (this “Amendment”) amends the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 originally filed by Black Hills Corporation on May 5, 2015 (the “Original Filing”).

In preparing our condensed consolidated financial statements for the quarter ended June 30, 2015, we identified immaterial errors that impacted our previously issued consolidated financial statements. The prior period errors originated in the year ended December 31, 2008 and related to our oil and gas full cost ceiling impairment calculation to determine whether the net book value of the our oil and gas properties exceeded the ceiling. Specifically, the errors related to evaluating and correctly accounting for the treatment of tax related amounts associated with the calculation. The errors identified caused an understatement of 2008, 2009, 2012 and Q1 2015 noncash ceiling test impairment calculations, which resulted in an overstatement of depletion expense from 2009 through March 31, 2015, and an understatement of the 2012 gain on sale of oil and gas properties, further described in Note 1 to the condensed consolidated financial statements filed in this Quarterly Report on Form 10-Q/A.

As a result of these immaterial errors, under the supervision and with the participation of Management including our Chief Executive Officer and Chief Financial Officer, we re-evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014, using the criteria in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this re-evaluation, we have determined that a material weakness in internal control over financial reporting relating to our oil and gas full cost ceiling, non-cash impairment calculation existed as of December 31, 2014. As a result, we have revised Management’s Report on Internal Control Over Financial Reporting for the year ended December 31, 2014, included in our Annual Report on Form 10-K/A. As a result of the material weakness and our restated report on internal control over financial reporting, we have also concluded that our disclosure controls and procedures were not effective as of March 31, 2015.

Notwithstanding the material weakness described above, we have concluded that our condensed financial statements included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, as previously filed with the Securities and Exchange Commission (“SEC”), are fairly stated in all material respects in accordance with generally accepted accounting principles in the United States of America for each of the periods presented and that they may still be relied upon. Given this Amendment, we have revised our previously issued condensed consolidated financial statements for the effects of immaterial errors included in this Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2015.

The following items have been amended as a result of the revision of Management’s Report on Internal Control Over Financial Reporting and to correct immaterial errors:


•	Item 1 - Financial Statements


•	Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations


•	Item 4 - Controls and Procedures


•	Item 6 - Exhibits

In accordance with applicable SEC rules, the Quarterly Report on Form 10-Q/A includes certifications from our Chief Executive Officer and Chief Financial Officer dated as of the date of this filing.

Except for the impact of the items discussed above, no other changes have been made to the Original Filing. This Quarterly Report on Form 10-Q/A continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that have occurred after the Original Filing date, or to modify or update those disclosures affected by subsequent events.



TABLE OF CONTENTS
		Page
	Glossary of Terms and Abbreviations	3

PART I.	FINANCIAL INFORMATION	5

Item 1.	Financial Statements	5

	Condensed Consolidated Statements of Income (Loss) - unaudited
	Three Months Ended March 31, 2015 and 2014	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) - unaudited
	Three Months Ended March 31, 2015 and 2014	6

	Condensed Consolidated Balance Sheets - unaudited
	March 31, 2015, December 31, 2014 and March 31, 2014	7

	Condensed Consolidated Statements of Cash Flows - unaudited
	Three Months Ended March 31, 2015 and 2014	9

	Notes to Condensed Consolidated Financial Statements - unaudited	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58

Item 4.	Controls and Procedures	59

PART II.	OTHER INFORMATION	60

Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 4.	Mine Safety Disclosures	60

Item 5.	Other Information	60

Item 6.	Exhibits	61

	Signatures	63

	Index to Exhibits	64

GLOSSARY OF TERMS AND ABBREVIATIONS

The following terms and abbreviations appear in the text of this report and have the definitions described below:



AFUDC	Allowance for Funds Used During Construction
AOCI	Accumulated Other Comprehensive Income (Loss)
ASU	Accounting Standards Update issued by the FASB
Bbl	Barrel
BHC	Black Hills Corporation; the Company
Black Hills Electric Generation	Black Hills Electric Generation, LLC, a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings
Black Hills Energy	The name used to conduct the business of Black Hills Utility Holdings, Inc., and its subsidiaries
Black Hills Non-regulated Holdings	Black Hills Non-regulated Holdings, LLC, a direct, wholly-owned subsidiary of Black Hills Corporation
Black Hills Power	Black Hills Power, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation
Black Hills Utility Holdings	Black Hills Utility Holdings, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation
Black Hills Wyoming	Black Hills Wyoming, LLC, a direct, wholly-owned subsidiary of Black Hills Electric Generation
Btu	British thermal unit
Cheyenne Light	Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation
Cheyenne Prairie	Cheyenne Prairie Generating Station is a 132 MW natural gas-fired generating facility jointly owned by Black Hills Power and Cheyenne Light in Cheyenne, Wyoming. Cheyenne Prairie was placed into commercial service on October 1, 2014.
Colorado Electric	Black Hills Colorado Electric Utility Company, LP (doing business as Black Hills Energy), an indirect, wholly-owned subsidiary of Black Hills Utility Holdings
Colorado IPP	Black Hills Colorado IPP, LLC a direct wholly-owned subsidiary of Black Hills Electric Generation
CPCN	Certificate of Public Convenience and Necessity
CPUC	Colorado Public Utilities Commission
CVA	Credit Valuation Adjustment
Dodd-Frank	Dodd-Frank Wall Street Reform and Consumer Protection Act
Dth	Dekatherm. A unit of energy equal to 10 therms or one million British thermal units (MMBtu)
Energy West	Energy West Wyoming, Inc., a subsidiary of Gas Natural, Inc.
FASB	Financial Accounting Standards Board
Fitch	Fitch Ratings
GAAP	Accounting principles generally accepted in the United States of America
GHG	Greenhouse Gases
GCA	Gas Cost Adjustment -- adjustments that allow us to pass the prudently-incurred cost of natural gas and certain services through to customers.
Global Settlement	Settlement with a utilities commission where the dollar figure is agreed upon, but the specific adjustments used by each party to arrive at the figure are not specified in public rate orders.
Heating Degree Day	A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The colder the climate, the greater the number of heating degree days. Heating degree days are used in the utility industry to measure the relative coldness of weather and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations over a 30-year average.
IFRS	International Financial Reporting Standards



Iowa Gas	Black Hills Iowa Gas Utility Company, LLC (doing business as Black Hills Energy), a direct, wholly-owned subsidiary of Black Hills Utility Holdings
IPP	Independent power producer
IRS	United States Internal Revenue Service
IUB	Iowa Utilities Board
Kansas Gas	Black Hills Kansas Gas Utility Company, LLC (doing business as Black Hills Energy), a direct, wholly-owned subsidiary of Black Hills Utility Holdings
KCC	Kansas Corporation Commission
kV	Kilovolt
LIBOR	London Interbank Offered Rate
LOE	Lease Operating Expense
Mcf	Thousand cubic feet
Mcfe	Thousand cubic feet equivalent.
MMBtu	Million British thermal units
Moody’s	Moody’s Investors Service, Inc.
MW	Megawatts
MWh	Megawatt-hours
NGL	Natural Gas Liquids (1 barrel equals 6 Mcfe)
NPSC	Nebraska Public Service Commission
PPA	Power Purchase Agreement
Revolving Credit Facility	Our $500 million credit facility used to fund working capital needs, letters of credit and other corporate purposes, which matures in 2019.
SDPUC	South Dakota Public Utilities Commission
SEC	U. S. Securities and Exchange Commission
S&P	Standard and Poor’s, a division of The McGraw-Hill Companies, Inc.
WPSC	Wyoming Public Service Commission
WRDC	Wyodak Resources Development Corp., a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings

BLACK HILLS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)



(unaudited)	Three Months Ended March 31,
	2015			2014
	(in thousands, except per share amounts)

Revenue	$	441,987		$	460,169

Operating expenses:
Utilities -
Fuel, purchased power and cost of natural gas sold	205,327			230,468
Operations and maintenance	71,084			71,227
Non-regulated energy operations and maintenance	22,050			22,332
Depreciation, depletion and amortization	39,002			35,249
Taxes - property, production and severance	11,936			10,336
Impairment of long-lived assets	22,036			—
Other operating expenses	52			125
Total operating expenses	371,487			369,737

Operating income	70,500			90,432

Other income (expense):
Interest charges -
Interest expense incurred (including amortization of debt issuance costs, premiums and discounts and realized settlements on interest rate swaps)	(19,910		)	(17,860		)
Allowance for funds used during construction - borrowed	158			270
Capitalized interest	276			257
Interest income	448			390
Allowance for funds used during construction - equity	56			238
Other income (expense), net	331			592
Total other income (expense), net	(18,641		)	(16,113		)

Income (loss) before earnings (loss) of unconsolidated subsidiaries and income taxes	51,859			74,319
Equity in earnings (loss) of unconsolidated subsidiaries	(297		)	(1		)
Income tax benefit (expense)	(17,712		)	(25,673		)
Net income (loss) available for common stock	$	33,850		$	48,645

Earnings (loss) per share of common stock:
Earnings (loss) per share, Basic	$	0.76		$	1.10
Earnings (loss) per share, Diluted	$	0.76		$	1.09
Weighted average common shares outstanding:
Basic	44,541			44,330
Diluted	44,660			44,554

Dividends declared per share of common stock	$	0.405		$	0.390

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

BLACK HILLS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



(unaudited)	Three Months Ended March 31,
	2015			2014
	(in thousands)

Net income (loss) available for common stock	$	33,850		$	48,645

Other comprehensive income (loss), net of tax:
Fair value adjustments on derivatives designated as cash flow hedges (net of tax (expense) benefit of $(1,042) and $1,307 for the three months ended 2015 and 2014, respectively)	1,836			(2,257		)
Reclassification adjustments for cash flow hedges settled and included in net income (loss) (net of tax (expense) benefit of $1,254 and $(425) for the three months ended 2015 and 2014, respectively)	(1,241		)	780
Benefit plan liability adjustments - net gain (loss) (net of tax (expense) benefit of $15 and $2 for the three months ended 2015 and 2014, respectively)	(27		)	(2		)
Benefit plan liability adjustments - prior service cost (net of tax (expense) benefit of $(90) for the three months ended 2014	—			164
Reclassification adjustments of benefit plan liability - prior service cost (net of tax (expense) benefit of $19 and $4 for the three months ended 2015 and 2014, respectively)	(36		)	(9		)
Reclassification adjustments of benefit plan liability - net gain (loss) (net of tax (expense) benefit of $(247) and $(85) for the three months ended 2015 and 2014, respectively)	458			157
Other comprehensive income (loss), net of tax	990			(1,167		)

Comprehensive income (loss) available for common stock	$	34,840		$	47,478

See Note 11 for additional disclosures.

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

BLACK HILLS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS



(unaudited)	As of
	March 31, 2015			December 31, 2014			March 31, 2014
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	63,385		$	21,218		$	17,641
Restricted cash and equivalents	2,191			2,056			2
Accounts receivable, net	178,421			189,992			203,625
Materials, supplies and fuel	66,626			91,191			66,187
Derivative assets, current	—			—			1,846
Income tax receivable, net	159			2,053			1,826
Deferred income tax assets, net, current	23,913			48,288			25,780
Regulatory assets, current	56,542			74,396			62,946
Other current assets	47,448			24,842			24,563
Total current assets	438,685			454,036			404,416

Investments	17,210			17,294			16,916

Property, plant and equipment	4,652,058			4,563,400			4,318,194
Less: accumulated depreciation and depletion	(1,407,214		)	(1,357,929		)	(1,334,806		)
Total property, plant and equipment, net	3,244,844			3,205,471			2,983,388

Other assets:
Goodwill	353,396			353,396			353,396
Intangible assets, net	3,121			3,176			3,342
Regulatory assets, non-current	178,935			183,443			138,173
Other assets, non-current	28,280			29,086			28,925
Total other assets, non-current	563,732			569,101			523,836

TOTAL ASSETS	$	4,264,471		$	4,245,902		$	3,928,556

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

BLACK HILLS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Continued)



(unaudited)	As of
	March 31, 2015			December 31, 2014			March 31, 2014
	(in thousands, except share amounts)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	88,770		$	124,139		$	149,681
Accrued liabilities	166,781			170,115			145,973
Derivative liabilities, current	3,342			3,340			3,498
Regulatory liabilities, current	17,621			3,687			583
Notes payable	102,600			75,000			100,000
Current maturities of long-term debt	—			275,000			—
Total current liabilities	379,114			651,281			399,735

Long-term debt, net of current maturities	1,542,658			1,267,589			1,396,949

Deferred credits and other liabilities:
Deferred income tax liabilities, net, non-current	503,117			511,952			454,169
Derivative liabilities, non-current	2,143			2,680			4,805
Regulatory liabilities, non-current	148,918			145,144			116,793
Benefit plan liabilities	162,334			158,966			113,324
Other deferred credits and other liabilities	154,604			154,406			129,083
Total deferred credits and other liabilities	971,116			973,148			818,174

Commitments and contingencies (See Notes 7, 8, 13, 14)

Stockholders’ equity:
Common stock equity —
Common stock $1 par value; 100,000,000 shares authorized; issued 44,856,790; 44,714,072; and 44,666,953 shares, respectively	44,857			44,714			44,667
Additional paid-in capital	749,517			748,840			742,016
Retained earnings	592,951			577,249			547,242
Treasury stock, at cost – 33,755; 42,226; and 37,038 shares, respectively	(1,688		)	(1,875		)	(1,638		)
Accumulated other comprehensive income (loss)	(14,054		)	(15,044		)	(18,589		)
Total stockholders’ equity	1,371,583			1,353,884			1,313,698

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,264,471		$	4,245,902		$	3,928,556

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

BLACK HILLS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



(unaudited)	Three Months Ended March 31,
	2015			2014
Operating activities:	(in thousands)
Net income (loss) available for common stock	$	33,850		$	48,645
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	39,002			35,249
Deferred financing cost amortization	519			568
Impairment of long-lived assets	22,036			—
Stock compensation	2,083			3,716
Deferred income taxes	14,640			26,260
Employee benefit plans	5,283			3,703
Other adjustments, net	6,748			5,190
Changes in certain operating assets and liabilities:
Materials, supplies and fuel	25,689			22,291
Accounts receivable, unbilled revenues and other operating assets	47,947			(78,576		)
Accounts payable and other operating liabilities	(44,652		)	29,074
Other operating activities, net	(1,658		)	1,978
Net cash provided by (used in) operating activities	151,487			98,098

Investing activities:
Property, plant and equipment additions	(117,523		)	(83,609		)
Other investing activities	(348		)	(3,220		)
Net cash provided by (used in) investing activities	(117,871		)	(86,829		)

Financing activities:
Dividends paid on common stock	(18,148		)	(17,399		)
Common stock issued	999			881
Short-term borrowings - issuances	77,700			86,800
Short-term borrowings - repayments	(50,100		)	(69,300		)
Other financing activities	(1,900		)	(2,451		)
Net cash provided by (used in) financing activities	8,551			(1,469		)
Net change in cash and cash equivalents	42,167			9,800
Cash and cash equivalents, beginning of period	21,218			7,841
Cash and cash equivalents, end of period	$	63,385		$	17,641

See Note 12 for supplemental disclosure of cash flow information.

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

BLACK HILLS CORPORATION

Notes to Condensed Consolidated Financial Statements

(unaudited)

(Reference is made to Notes to Consolidated Financial Statements

included in the Company’s 2014 Annual Report on Form 10-K/A)

(1) MANAGEMENT’S STATEMENT

The unaudited Condensed Consolidated Financial Statements included herein have been prepared by Black Hills Corporation (together with our subsidiaries the “Company,” “us,” “we,” or “our”), pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, we believe that the footnotes adequately disclose the information presented. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2014 Annual Report on Form 10-K/A filed with the SEC.

We conduct our operations through the following reportable segments: Electric Utilities, Gas Utilities, Power Generation, Coal Mining and Oil and Gas. Our reportable segments are based on our method of internal reporting, which generally segregates the strategic business groups due to differences in products, services and regulation. All of our operations and assets are located within the United States.

Accounting methods historically employed require certain estimates as of interim dates. The information furnished in the accompanying Condensed Consolidated Financial Statements reflects all adjustments, including accruals, which are, in the opinion of management, necessary for a fair presentation of the March 31, 2015, December 31, 2014, and March 31, 2014 financial information and are of a normal recurring nature. Certain industries in which we operate are highly seasonal, and revenue from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Demand for electricity and natural gas is sensitive to seasonal cooling, heating and industrial load requirements, as well as changes in market price. In particular, the normal peak usage season for electric utilities is June through August while the normal peak usage season for gas utilities is November through March. Significant earnings variances can be expected between the Gas Utilities segment’s peak and off-peak seasons. Due to this seasonal nature, our results of operations for the three months ended March 31, 2015 and March 31, 2014, and our financial condition as of March 31, 2015, December 31, 2014, and March 31, 2014, are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period. All earnings per share amounts discussed refer to diluted earnings per share unless otherwise noted.

Recently Issued and Adopted Accounting Standards

We have implemented all new accounting pronouncements that are in effect and may impact our financial statements. We are currently assessing the impact any other new accounting pronouncements that have been issued may have on our financial position, results of operations, or cash flows.

Simplifying the Presentation of Debt Issuance Costs, ASU 2015-03

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. Debt issuance costs related to a recognized debt liability will be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts, rather than as an asset. Amortization of these costs will continue to be reported as interest expense. ASU 2015-03 is effective for annual and interim reporting periods beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the impact of adoption that ASU 2015-03 will have on our financial position, results of operations, or cash flows.

Revenue from Contracts with Customers, ASU 2014-09

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. On April 1, 2015, FASB voted to propose to defer the effective date of ASU 2014-09 by one year. The proposed guidance would be effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. We are currently assessing the impact, if any, that ASU 2014-09 will have on our financial position, results of operations or cash flows.

Correction of Immaterial Errors

In accordance with Staff Accounting Bulletin (SAB) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated these errors, including both qualitative and quantitative considerations, and concluded that the errors did not, individually or in the aggregate, result in a material misstatement of our previously issued condensed consolidated financial statements.

The following tables present the revisions to particular line items resulting from the corrections of these errors in this Quarterly Report on Form 10-Q/A. The impact of the errors relate entirely to our Oil and Gas segment.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



For the Three Months Ended March 31, 2015	As Reported			Adjustments			As Revised
	(in thousands)

Depreciation, depletion and amortization	$	39,586		$	(584	)	$	39,002
Impairment of long-lived assets	$	—		$	22,036		$	22,036
Total operating expenses	$	350,035		$	21,452		$	371,487

Operating income (loss)	$	91,952		$	(21,452	)	$	70,500
Income (loss) before earnings (loss) of unconsolidated subsidiaries and income taxes	$	73,311		$	(21,452	)	$	51,859
Income tax benefit (expense)	$	(25,120	)	$	7,408		$	(17,712	)
Net income (loss) available for common stock	$	47,894		$	(14,044	)	$	33,850

Earnings (loss) per share of common stock:
Earnings (loss) per share, Basic	$	1.08		$	(0.32	)	$	0.76
Earnings (loss) per share, Diluted	$	1.07		$	(0.31	)	$	0.76



For the Three Months Ended March 31, 2014	As Reported			Adjustments			As Revised
	(in thousands)

Depreciation, depletion and amortization	$	36,083		$	(834	)	$	35,249
Total operating expenses	$	370,571		$	(834	)	$	369,737

Operating income (loss)	$	89,598		$	834		$	90,432
Income (loss) before earnings (loss) of unconsolidated subsidiaries and income taxes	$	73,485		$	834		$	74,319
Income tax benefit (expense)	$	(25,366	)	$	(307	)	$	(25,673	)
Net income (loss) available for common stock	$	48,118		$	527		$	48,645

Earnings (loss) per share of common stock:
Earnings (loss) per share, Basic -	$	1.09		$	0.01		$	1.10
Earnings (loss) per share, Diluted -	$	1.08		$	0.01		$	1.09

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



	For the Three Months Ended March 31,
	2015							2014
(in thousands)	As Reported		Adjustments			As Revised		As Reported		Adjustments		As Revised
Net income (loss) available for common stock	$	47,894	$	(14,044	)	$	33,850	$	48,118	$	527	$	48,645
Comprehensive income (loss)	$	48,884	$	(14,044	)	$	34,840	$	46,951	$	527	$	47,478

CONDENSED CONSOLIDATED BALANCE SHEET



	As of March 31, 2015									As of March 31, 2014
	As Reported			Adjustments			As Revised			As Reported			Adjustments			As Revised
	(in thousands)
Accumulated depreciation and depletion	$	(1,351,857	)	$	(55,357	)	$	(1,407,214	)	$	(1,298,398	)	$	(36,408	)	$	(1,334,806	)
Total property, plant and equipment, net	$	3,300,201		$	(55,357	)	$	3,244,844		$	3,019,796		$	(36,408	)	$	2,983,388
TOTAL ASSETS	$	4,319,828		$	(55,357	)	$	4,264,471		$	3,964,964		$	(36,408	)	$	3,928,556

Deferred income tax liability, non-current	$	522,290		$	(19,173	)	$	503,117		$	466,856		$	(12,687	)	$	454,169
Total deferred credits and other liabilities	$	990,289		$	(19,173	)	$	971,116		$	830,861		$	(12,687	)	$	818,174

Retained earnings	$	629,135		$	(36,184	)	$	592,951		$	570,963		$	(23,721	)	$	547,242
Total stockholders' equity	$	1,407,767		$	(36,184	)	$	1,371,583		$	1,337,419		$	(23,721	)	$	1,313,698
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,319,828		$	(55,357	)	$	4,264,471		$	3,964,964		$	(36,408	)	$	3,928,556

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	Three Months Ended March 31, 2015							Three Months Ended March 31, 2014
	As Reported		Adjustments			As Revised		As Reported		Adjustments			As Revised
	(in thousands)
Net income (loss) available for common stock	$	47,894	$	(14,044	)	$	33,850	$	48,118	$	527		$	48,645

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	$	39,586	$	(584	)	$	39,002	$	36,083	$	(834	)	$	35,249
Impairment of long-lived assets	$	—	$	22,036		$	22,036	$	—	$	—		$	—
Deferred income taxes	$	22,048	$	(7,408	)	$	14,640	$	25,953	$	307		$	26,260
Net cash provided by (used in) operating activities	$	151,487	$	—		$	151,487	$	98,098	$	—		$	98,098

The Notes to the Condensed Consolidated Financial Statements have been revised to reflect the correction of these errors for all periods presented.

(2) BUSINESS SEGMENT INFORMATION

Segment information and Corporate activities included in the accompanying Condensed Consolidated Statements of Income (Loss) were as follows (in thousands):



Three Months Ended March 31, 2015	External Operating Revenue		Inter-company Operating Revenue			Net Income (Loss)
Utilities:
Electric	$	182,974	$	3,424		$	18,929
Gas	237,651		—			22,212
Non-regulated Energy:
Power Generation	1,953		20,721			8,145
Coal Mining	8,142		7,792			3,010
Oil and Gas ^(a)	11,267		—			(19,115		)
Corporate activities	—		—			669
Inter-company eliminations	—		(31,937		)	—
Total	$	441,987	$	—		$	33,850

________________

(a) Net income (loss) includes ceiling test impairment (see Note 15)



Three Months Ended March 31, 2014	External Operating Revenue		Inter-company Operating Revenue			Net Income (Loss)
Utilities:
Electric	$	178,095	$	4,007		$	14,575
Gas	259,337		—			24,698
Non-regulated Energy:
Power Generation	1,269		21,079			8,073
Coal Mining	6,618		8,880			2,464
Oil and Gas	14,850		—			(1,495		)
Corporate activities	—		—			330
Inter-company eliminations	—		(33,966		)	—
Total	$	460,169	$	—		$	48,645

Segment information and Corporate balances included in the accompanying Condensed Consolidated Balance Sheets were as follows (in thousands):



Total Assets (net of inter-company eliminations) as of:	March 31, 2015		December 31, 2014		March 31, 2014
Utilities:
Electric ^(a)	$	2,817,423	$	2,748,680	$	2,572,616
Gas	839,802		906,922		842,660
Non-regulated Energy:
Power Generation^(a)	75,945		76,945		90,643
Coal Mining	77,399		74,407		74,523
Oil and Gas ^(b)	348,300		332,343		258,675
Corporate activities	105,602		106,605		89,439
Total assets	$	4,264,471	$	4,245,902	$	3,928,556

__________


(a)	The PPA under which Black Hills Colorado IPP provides generation to support Colorado Electric customers from the Pueblo Airport Generation Station is accounted for as a capital lease. As such, assets owned by our Power Generation segment are recorded at Colorado Electric under accounting for a capital lease.


(b)	As a result of continued low commodity prices during 2015, we recorded a non-cash impairment of oil and gas assets included in our Oil and Gas segment of $22 million for the three months ended March 31, 2015. See Note 1 to the Condensed Consolidated Financial statements in this Quarterly Report on Form 10-Q/A.

(3) ACCOUNTS RECEIVABLE

Following is a summary of Accounts receivable, net included in the accompanying Condensed Consolidated Balance Sheets (in thousands) as of:



	Accounts		Unbilled		Less Allowance for			Accounts
March 31, 2015	Receivable, Trade		Revenue		Doubtful Accounts			Receivable, net
Electric Utilities	$	53,862	$	24,540	$	(834	)	$	77,568
Gas Utilities	63,252		28,785		(1,588		)	90,449
Power Generation	1,152		—		—			1,152
Coal Mining	3,638		—		—			3,638
Oil and Gas	4,646		—		(13		)	4,633
Corporate	981		—		—			981
Total	$	127,531	$	53,325	$	(2,435	)	$	178,421



	Accounts		Unbilled		Less Allowance for			Accounts
December 31, 2014	Receivable, Trade		Revenue		Doubtful Accounts			Receivable, net
Electric Utilities	$	59,714	$	26,474	$	(722	)	$	85,466
Gas Utilities	47,394		45,546		(781		)	92,159
Power Generation	1,369		—		—			1,369
Coal Mining	3,151		—		—			3,151
Oil and Gas	5,305		—		(13		)	5,292
Corporate	2,555		—		—			2,555
Total	$	119,488	$	72,020	$	(1,516	)	$	189,992



	Accounts		Unbilled		Less Allowance for			Accounts
March 31, 2014	Receivable, Trade		Revenue		Doubtful Accounts			Receivable, net
Electric Utilities	$	53,733	$	20,063	$	(690	)	$	73,106
Gas Utilities	77,982		35,791		(814		)	112,959
Power Generation	1,340		—		—			1,340
Coal Mining	2,616		—		—			2,616
Oil and Gas	10,920		—		(13		)	10,907
Corporate	2,697		—		—			2,697
Total	$	149,288	$	55,854	$	(1,517	)	$	203,625

(4) REGULATORY ACCOUNTING

We had the following regulatory assets and liabilities (in thousands):



	Maximum	As of		As of		As of
	Amortization (in years)	March 31, 2015		December 31, 2014		March 31, 2014
Regulatory assets
Deferred energy and fuel cost adjustments - current^{(a) (d)}	1	$	30,833	$	23,820	$	23,935
Deferred gas cost adjustments ^(a)(d)	2	6,138		37,471		38,505
Gas price derivatives ^(a)	7	21,606		18,740		4,420
AFUDC^(b)	45	12,114		12,358		12,349
Employee benefit plans ^{(c) (e)}	12	97,700		97,126		65,833
Environmental^(a)	subject to approval	1,240		1,314		1,317
Asset retirement obligations^(a)	44	3,237		3,287		3,271
Bond issue cost^(a)	23	3,240		3,276		3,383
Renewable energy standard adjustment ^(a)	5	5,590		9,622		16,088
Flow through accounting^(c)	35	26,835		25,887		21,837
Decommissioning costs	10	13,702		12,484		—
Other regulatory assets^(a)	15	13,242		12,454		10,181
		$	235,477	$	257,839	$	201,119

Regulatory liabilities
Deferred energy and gas costs^{(a) (d)}	1	$	18,094	$	6,496	$	6,485
Employee benefit plans^{(c) (e)}	12	53,151		53,139		34,355
Cost of removal^(a)	44	81,449		78,249		67,640
Other regulatory liabilities^(c)	25	13,845		10,947		8,896
		$	166,539	$	148,831	$	117,376

__________


(a)	Recovery of costs, but we are not allowed a rate of return.


(b)	In addition to recovery of costs, we are allowed a rate of return.


(c)	In addition to recovery or repayment of costs, we are allowed a return on a portion of this amount or a reduction in rate base, respectively.

(d)

Our deferred energy, fuel cost, and gas cost adjustments represent the cost of electricity and gas delivered to our electric and gas utility customers that is either higher or lower than current rates and will be recovered or refunded in future rates. Fluctuations in deferred gas cost adjustments compared to the same period in the prior year are primarily due to higher natural gas prices driven by demand and market conditions from the peak winter heating season in the first part of 2014. Our electric and gas utilities file periodic quarterly, semi-annual, and/or annual filings to recover these costs based on the respective cost mechanisms approved by their applicable state utility commissions.


(e)	Increase compared to March 31, 2014 is due to a decrease in the discount rate and a change in the mortality tables used in employee benefit plan estimates.

(5) MATERIALS, SUPPLIES AND FUEL

The following amounts by major classification are included in Materials, supplies and fuel in the accompanying Condensed Consolidated Balance Sheets (in thousands) as of:



	March 31, 2015		December 31, 2014		March 31, 2014
Materials and supplies	$	52,429	$	49,555	$	50,727
Fuel - Electric Utilities	6,780		6,637		7,218
Natural gas in storage held for distribution	7,417		34,999		8,242
Total materials, supplies and fuel	$	66,626	$	91,191	$	66,187

(6) EARNINGS PER SHARE

A reconciliation of share amounts used to compute Earnings (loss) per share in the accompanying Condensed Consolidated Statements of Income (loss) is as follows (in thousands):



	Three Months Ended March 31,
	2015		2014

Net income (loss) available for common stock	$	33,850	$	48,645

Weighted average shares - basic	44,541		44,330
Dilutive effect of:
Equity compensation	119		224
Weighted average shares - diluted	44,660		44,554

The following outstanding securities were not included in the computation of diluted earnings per share as their effect would have been anti-dilutive (in thousands):



	Three Months Ended March 31,
	2015	2014

Equity compensation	107	46
Anti-dilutive shares	107	46

(7) NOTES PAYABLE AND LONG-TERM DEBT

We had the following short-term debt outstanding in the accompanying Condensed Consolidated Balance Sheets (in thousands) as of:



	March 31, 2015				December 31, 2014				March 31, 2014
	Balance Outstanding		Letters of Credit		Balance Outstanding		Letters of Credit		Balance Outstanding		Letters of Credit
Revolving Credit Facility	$	102,600	$	22,300	$	75,000	$	35,000	$	100,000	$	27,700

Revolving Credit Facility

On May 29, 2014, we amended our $500 million corporate Revolving Credit Facility agreement to extend the term through May 29, 2019. This facility is substantially similar to the former agreement, which includes an accordion feature that allows us, with the consent of the administrative agent and issuing agents, to increase the capacity of the facility to $750 million. Borrowings continue to be available under a base rate or various Eurodollar rate options. The interest costs associated with the letters of credit or borrowings and the commitment fee under the Revolving Credit Facility are determined based upon our most favorable Corporate credit rating from S&P and Moody’s for our unsecured debt. Based on our credit ratings, the margins for base rate borrowings, Eurodollar borrowings, and letters of credit were 0.125%, 1.125%, and 1.125%, respectively at March 31, 2015. A commitment fee is charged on the unused amount of the Revolving Credit Facility and was 0.175% based on our credit rating.

Replacement of Corporate Term Loan

On April 13, 2015, we entered into a new $300 million Corporate term loan expiring April 12, 2017. This new term loan replaced the $275 million Corporate term loan due on June 19, 2015. In accordance with the terms of the agreement, the $275 million Corporate term loan is classified as Long-Term Debt as of March 31, 2015. The additional $25 million, less interest and fees, will be used for general corporate purposes. The cost of the borrowing under the new term loan is LIBOR plus a margin of 0.9%. The covenants on the new term loan are substantially the same as the revolving credit facility.

Debt Covenants

Our Revolving Credit Facility and our Term Loan require compliance with the following financial covenant at the end of each quarter:



	As of March 31, 2015	Covenant Requirement
Recourse Leverage Ratio	55%	Less than	65%

As of March 31, 2015, we were in compliance with this covenant.

(8) RISK MANAGEMENT ACTIVITIES

Our activities in the regulated and non-regulated energy sectors expose us to a number of risks in the normal operation of our businesses. Depending on the activity, we are exposed to varying degrees of market risk and credit risk. To manage and mitigate these identified risks, we have adopted the Black Hills Corporation Risk Policies and Procedures as discussed in our 2014 Annual Report on Form 10-K/A.

Market Risk

Market risk is the potential loss that might occur as a result of an adverse change in market price or rate. We are exposed to the following market risks including, but not limited to:


•	Commodity price risk associated with our natural long position in crude oil and natural gas reserves and production; and our fuel procurement for certain of our gas-fired generation assets; and


•	Interest rate risk associated with our variable-rate debt.

Credit Risk

Credit risk is the risk of financial loss resulting from non-performance of contractual obligations by a counterparty.

For production and generation activities, we attempt to mitigate our credit exposure by conducting business primarily with high credit quality entities, setting tenor and credit limits commensurate with counterparty financial strength, obtaining master netting agreements, and mitigating credit exposure with less creditworthy counterparties through parental guarantees, prepayments, letters of credit, and other security agreements.

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness, as determined by review of their current credit information. We maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issue that is identified.

Our derivative and hedging activities recorded in the accompanying Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income (Loss) and Condensed Consolidated Statements of Comprehensive Income (Loss) are detailed below and in Note 9.

Oil and Gas

We produce natural gas, NGLs and crude oil through our exploration and production activities. Our natural long positions, or unhedged open positions, result in commodity price risk and variability to our cash flows.

To mitigate commodity price risk and preserve cash flows, we primarily use exchange traded futures and related options to hedge portions of our crude oil and natural gas production. We elect hedge accounting on these instruments. These transactions were designated at inception as cash flow hedges, documented under accounting standards for derivatives and hedging, and initially met prospective effectiveness testing. Effectiveness of our hedging position is evaluated at least quarterly.

The derivatives were marked to fair value and were recorded as Derivative assets or Derivative liabilities on the accompanying Condensed Consolidated Balance Sheets, net of balance sheet offsetting as permitted by GAAP. The effective portion of the gain or loss on these derivatives for which we have elected cash flow hedge accounting is reported in AOCI in the accompanying Condensed Consolidated Balance Sheets and the ineffective portion, if any, is reported in Revenue in the accompanying Condensed Consolidated Statements of Income (Loss).

The contract or notional amounts, terms of our commodity derivatives, and the derivative balances for our Oil and Gas segment reflected on the Condensed Consolidated Balance Sheets were as follows (dollars in thousands) as of:



	March 31, 2015				December 31, 2014				March 31, 2014
	Crude Oil Futures, Swaps and Options		Natural Gas Futures and Swaps		Crude Oil Futures, Swaps and Options		Natural Gas Futures and Swaps		Crude Oil Futures, Swaps and Options		Natural Gas Futures and Swaps
Notional ^(a)	305,000		5,367,500		334,500		6,582,500		442,500		8,296,250
Maximum terms in months ^(b)	1		1		1		1		1		1
Derivative assets, current	$	—	$	—	$	—	$	—	$	—	$	—
Derivative assets, non-current	$	—	$	—	$	—	$	—	$	—	$	—
Derivative liabilities, current	$	—	$	—	$	—	$	—	$	—	$	—
Derivative liabilities, non-current	$	—	$	—	$	—	$	—	$	—	$	—

__________


(a)	Crude oil in Bbls, natural gas in MMBtus.


(b)	Refers to the tenor of the derivative instrument. Assets and liabilities are classified as current/non-current based on the production month hedged and the corresponding settlement of the derivative instrument.

Based on March 31, 2015, prices a $9.9 million gain would be reclassified from AOCI over the next 12 months. Estimated and actual realized gains or losses will change during future periods as market prices fluctuate.

Utilities

The operations of our utilities, including natural gas sold by our Gas Utilities and natural gas used for Electric Utility generation plants or those plants under PPAs where our Electric Utilities must provide the generation fuel (tolling agreements), expose our utility customers to volatility in natural gas prices. Therefore, as allowed or required by state utility commissions, we have entered into commission approved hedging programs utilizing natural gas futures, options and basis swaps to reduce our customers’ underlying exposure to these fluctuations. These transactions are considered derivatives, and in accordance with accounting standards for derivatives and hedging, mark-to-market adjustments are recorded as Derivative assets or Derivative liabilities on the accompanying Condensed Consolidated Balance Sheets, net of balance sheet offsetting as permitted by GAAP. Unrealized and realized gains and losses, as well as option premiums and commissions on these transactions are recorded as Regulatory assets or Regulatory liabilities in the accompanying Condensed Consolidated Balance Sheets in accordance with state commission guidelines. When the related costs are recovered through our rates, the hedging activity is recognized in the Condensed Consolidated Statements of Income (Loss), or the Condensed Consolidated Statements of Comprehensive Income (Loss).

The contract or notional amounts and terms of the natural gas derivative commodity instruments held at our Utilities were as follows, as of:



	March 31, 2015		December 31, 2014		March 31, 2014
	Notional (MMBtus)	Maximum Term (months)^(a)	Notional (MMBtus)	Maximum Term (months)^(a)	Notional (MMBtus)	Maximum Term (months)^(a)
Natural gas futures purchased	17,280,000	69	19,370,000	72	16,140,000	80
Natural gas options purchased	1,320,000	12	4,020,000	8	1,320,000	12
Natural gas basis swaps purchased	15,735,000	57	12,005,000	60	14,575,000	69

__________

(a) Term reflects the maximum forward period hedged.

We had the following derivative balances related to the hedges in our Utilities reflected in our Condensed Consolidated Balance Sheets as of (in thousands):



	March 31, 2015		December 31, 2014		March 31, 2014
Derivative assets, current	$	—	$	—	$	1,846
Derivative assets, non-current	$	—	$	—	$	—
Derivative liabilities, non-current	$	—	$	—	$	—
Net unrealized (gain) loss included in Regulatory assets or Regulatory liabilities	$	21,606	$	18,740	$	4,420

Financing Activities

We entered into floating-to-fixed interest rate swap agreements to reduce our exposure to interest rate fluctuations associated with our floating rate debt obligations. The contract or notional amounts, terms of our interest rate swaps and the interest rate swaps balances reflected on the Condensed Consolidated Balance Sheets were as follows (dollars in thousands) as of:



	March 31, 2015			December 31, 2014			March 31, 2014
	Interest Rate Swaps^(a)			Interest Rate Swaps^(a)			Interest Rate Swaps^(a)
Notional	$	75,000		$	75,000		$	75,000
Weighted average fixed interest rate	4.97		%	4.97		%	4.97		%
Maximum terms in years	1.75			2.00			2.75
Derivative liabilities, current	$	3,342		$	3,340		$	3,498
Derivative liabilities, non-current	$	2,143		$	2,680		$	4,805

__________


(a)	These swaps are designated to borrowings on our Revolving Credit Facility, and are priced using three-month LIBOR, matching the floating portion of the related borrowings.

Based on March 31, 2015, market interest rates and balances related to our interest rate swaps, a loss of approximately $3.3 million would be realized, reported in pre-tax earnings and reclassified from AOCI during the next 12 months. Estimated and actual realized gains or losses will change during future periods as market interest rates change.

Cash Flow Hedges

The impacts of cash flow hedges on our Condensed Consolidated Statements of Income (Loss) were as follows (in thousands):



Three Months Ended March 31, 2015
Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in AOCI Derivative (Effective Portion)			Location of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Reclassified Gain/(Loss) from AOCI into Income (Effective Portion)			Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swaps	$	(886	)	Interest expense	$	1,437			$	—
Commodity derivatives	3,764			Revenue	(3,932		)		—
Total	$	2,878			$	(2,495	)		$	—



Three Months Ended March 31, 2014
Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in AOCI Derivative (Effective Portion)			Location of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Reclassified Gain/(Loss) from AOCI into Income (Effective Portion)			Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swaps	$	(91	)	Interest expense	$	(894	)		$	—
Commodity derivatives	(3,473		)	Revenue	(311		)		—
Total	$	(3,564	)		$	(1,205	)		$	—

(9) FAIR VALUE MEASUREMENTS

Derivative Financial Instruments

The accounting guidance for fair value measurements requires certain disclosures about assets and liabilities measured at fair value. This guidance establishes a hierarchical framework for disclosing the observability of the inputs utilized in measuring assets and liabilities at fair value. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels. We record transfers, if necessary, between levels at the end of the reporting period for all of our financial instruments. For additional information see Notes 1, 8, 9 and 10 to the Consolidated Financial Statements included in our 2014 Annual Report on Form 10-K/A filed with the SEC.

Transfers into Level 3, if any, occur when significant inputs used to value the derivative instruments become less observable such as a significant decrease in the frequency and volume in which the instrument is traded, negatively impacting the availability of observable pricing inputs. Transfers out of Level 3, if any, occur when the significant inputs become more observable, such as when the time between the valuation date and the delivery date of a transaction becomes shorter, positively impacting the availability of observable pricing inputs.

Valuation Methodologies for Derivatives

Oil and Gas Segment:


•	The commodity contracts for our Oil and Gas segment are valued using the market approach and include exchange-traded futures and basis swaps. Fair value was derived using exchange quoted settlement prices from third party brokers for similar instruments as to quantity and timing. The prices are then validated through third-party sources and therefore support Level 2 disclosure.

Utilities Segments:


•	The commodity contracts for our Utilities Segments, valued using the market approach, include exchange-traded futures, options and basis swaps (Level 2) for natural gas contracts. For Level 2 assets and liabilities, fair value was derived using broker quotes validated by the Chicago Mercantile Exchange pricing for similar instruments.

Corporate Activities:

•

The interest rate swaps are valued using the market approach. We establish fair value by obtaining price quotes directly from the counterparty which are based on the floating three-month LIBOR curve for the term of the contract. The fair value obtained from the counterparty is then validated by utilizing a nationally recognized service that obtains observable inputs to compute fair value for the same instrument. In addition, the fair value for the interest rate swap derivatives includes a CVA component. The CVA considers the fair value of the interest rate swap and the probability of default based on the life of the contract. For the probability of a default component, we utilize observable inputs supporting a Level 2 disclosure by using our credit default spread, if available, or a generic credit default spread curve that takes into account our credit ratings.

Recurring Fair Value Measurements

There have been no significant transfers between Level 1 and Level 2 derivative balances. Amounts included in cash collateral and counterparty netting in the following tables represent the impact of legally enforceable master netting agreements that allow us to settle positive and negative positions, netting of asset and liability positions permitted in accordance with accounting standards for offsetting as well as cash collateral posted with the same counterparties.

The following tables set forth by level within the fair value hierarchy our gross assets and gross liabilities and related offsetting as permitted by GAAP that were accounted for at fair value on a recurring basis for derivative instruments. A discussion of fair value of financial instruments is included in Note 10:



	As of March 31, 2015
	Level 1		Level 2		Level 3		Cash Collateral and Counterparty Netting			Total
	(in thousands)
Assets:
Commodity derivatives — Oil and Gas
Options -- Oil	$	—	$	—	$	—	$	—		$	—
Basis Swaps -- Oil	—		8,096		—		(8,096		)	—
Options -- Gas	—		—		—		—			—
Basis Swaps -- Gas	—		6,526		—		(6,526		)	—
Commodity derivatives — Utilities	—		1,184		—		(1,184		)	—
Total	$	—	$	15,806	$	—	$	(15,806	)	$	—

Liabilities:
Commodity derivatives — Oil and Gas
Options -- Oil	$	—	$	—	$	—	$	—		$	—
Basis Swaps -- Oil	—		2		—		(2		)	—
Options -- Gas	—		—		—		—			—
Basis Swaps -- Gas	—		256		—		(256		)	—
Commodity derivatives — Utilities	—		22,002		—		(22,002		)	—
Interest rate swaps	—		5,485		—		—			5,485
Total	$	—	$	27,745	$	—	$	(22,260	)	$	5,485



	As of December 31, 2014
	Level 1		Level 2		Level 3		Cash Collateral and Counterparty Netting			Total
	(in thousands)
Assets:
Commodity derivatives — Oil and Gas
Options -- Oil	$	—	$	—	$	—	$	—		$	—
Basis Swaps -- Oil	—		8,599		—		(8,599		)	—
Options -- Gas	—		—		—		—			—
Basis Swaps -- Gas	—		6,558		—		(6,558		)	—
Commodity derivatives —Utilities	—		2,389		—		(2,389		)	—
Total	$	—	$	17,546	$	—	$	(17,546	)	$	—

Liabilities:
Commodity derivatives — Oil and Gas
Options -- Oil	$	—	$	—	$	—	$	—		$	—
Basis Swaps -- Oil	—		—		—		—			—
Options -- Gas	—		—		—		—			—
Basis Swaps -- Gas	—		473		—		(473		)	—
Commodity derivatives — Utilities	—		19,303		—		(19,303		)	—
Interest rate swaps	—		6,020		—		—			6,020
Total	$	—	$	25,796	$	—	$	(19,776	)	$	6,020



	As of March 31, 2014
	Level 1		Level 2		Level 3		Cash Collateral and Counterparty Netting			Total
	(in thousands)
Assets:
Commodity derivatives — Oil and Gas
Options -- Oil	$	—	$	—	$	—	$	—		$	—
Basis Swaps -- Oil	—		7		—		(7		)	—
Options -- Gas	—		—		—		—			—
Basis Swaps -- Gas	—		490		—		(490		)	—
Commodity derivatives — Utilities	—		3,226		—		(1,380		)	1,846
Total	$	—	$	3,723	$	—	$	(1,877	)	$	1,846

Liabilities:
Commodity derivatives — Oil and Gas
Options -- Oil	$	—	$	—	$	—	$	—		$	—
Basis Swaps -- Oil	—		1,983		—		(1,983		)	—
Options -- Gas	—		—		—		—			—
Basis Swaps -- Gas	—		2,114		—		(2,114		)	—
Commodity derivatives — Utilities	—		6,919		—		(6,919		)	—
Interest rate swaps	—		8,303		—		—			8,303
Total	$	—	$	19,319	$	—	$	(11,016	)	$	8,303

Fair Value Measures by Balance Sheet Classification

As required by accounting standards for derivatives and hedges, fair values within the following tables are presented on a gross basis reflecting the netting of asset and liability positions permitted in accordance with accounting standards for offsetting and under terms of our master netting agreements and the impact of legally enforceable master netting agreements that allow us to settle positive and negative positions; however, the amounts do not include net cash collateral on deposit in margin accounts at March 31, 2015, December 31, 2014, and March 31, 2014, to collateralize certain financial instruments, which are included in Derivative assets and/or Derivative liabilities. Therefore, the balances are not indicative of either our actual credit exposure or net economic exposure. Additionally, the amounts below will not agree with the amounts presented on our Condensed Consolidated Balance Sheets, nor will they correspond to the fair value measurements presented in Note 8.

The following tables present the fair value and balance sheet classification of our derivative instruments (in thousands):



As of March 31, 2015
	Balance Sheet Location	Fair Value of Asset Derivatives		Fair Value of Liability Derivatives
Derivatives designated as hedges:
Commodity derivatives	Derivative assets — current	$	9,989	$	—
Commodity derivatives	Derivative assets — non-current	4,633		—
Commodity derivatives	Derivative liabilities — current	—		126
Commodity derivatives	Derivative liabilities — non-current	—		132
Interest rate swaps	Derivative liabilities — current	—		3,342
Interest rate swaps	Derivative liabilities — non-current	—		2,143
Total derivatives designated as hedges		$	14,622	$	5,743

Derivatives not designated as hedges:
Commodity derivatives	Derivative assets — current	$	—	$	—
Commodity derivatives	Derivative assets — non-current	—		—
Commodity derivatives	Derivative liabilities — current	—		7,530
Commodity derivatives	Derivative liabilities — non-current	—		13,288
Total derivatives not designated as hedges		$	—	$	20,818



As of December 31, 2014
	Balance Sheet Location	Fair Value of Asset Derivatives		Fair Value of Liability Derivatives
Derivatives designated as hedges:
Commodity derivatives	Derivative assets — current	$	10,391	$	—
Commodity derivatives	Derivative assets — non-current	4,766		—
Commodity derivatives