AGREEMENT TO PURCHASE
Black Hills Corporation
Certain Utility and Related Assets of Aquila, Inc.
in Colorado, Kansas, Nebraska and Iowa
F E B R U A R Y 2 0 0 7
T R A N S A C T I O N O V E R V I E W
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Information concerning forward-looking statements
Statements made in this document that are not based on historical facts are forward-looking, may involve risks and uncertainties, and are
intended to be as of the date when made. In connection
with the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, Black Hills Corporation, Great Plains Energy and Aquila are providing a number of important factors, risks and uncertainties that could
cause actual results to
differ materially for the provided forward-looking information. These include: obtaining shareholder approvals required
for the transactions (Great Plains and Aquila); the timing of, and the conditions imposed by, regulatory approvals required for the
transactions;
satisfying the conditions to the closing of the transactions; Great Plains and Black Hills successfully integrating the acquired
Aquila businesses into their respective operations, avoiding problems which may result in either company not operating as effectively
and
efficiently as expected; the timing and amount of cost-cutting synergies; unexpected costs or unexpected liabilities, or the effects of purchase
accounting may be different from the companies’ expectations; the actual resulting credit ratings
of the companies or their respective
subsidiaries; the effects on the businesses of the companies resulting from uncertainty surrounding the transactions; the effect of future
regulatory or legislative actions on the companies; and other economic, business,
and/or competitive factors. Additional factors that may
affect the future results of Black Hills, Great Plains and Aquila are set forth in their most recent quarterly report on Form 10-Q or annual
report on Form 10-K with the Securities and Exchange
Commission (“SEC”), which are available at xxx.xxxxxxxxxxxxxxxxxxxxx.xxx,
xxx.xxxxxxxxxxxxxxxxx.xxx, and xxx.xxxxxx.xxx respectively. Black Hills, Great Plains and Aquila undertake no obligation to publicly
update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
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Definitive agreements:
– Black Hills Corporation to purchase certain
Aquila utility assets in
Colorado,
Kansas, Nebraska and Iowa for $940 million cash, subject to
working capital adjustments at completion of transaction
– Simultaneously, Great Plains Energy will acquire Aquila, Inc. and
its subsidiaries;
– At closing, Great Plains will retain utility operations in Missouri
Black Hills transaction financing:
– A bridge credit facility through a bank syndication;
– Permanent financing at closing expected
through a combination of
newly-issued
equity, mandatory convertible securities, corporate-level
debt issuance and internally generated cash resources; and
– Based on market conditions, Black Hills intends to issue equity,
equity linked and debt securities in public or private markets and
could execute such transaction prior to closing
Deal expected to close in Q1 2008.
Completion of transaction subject to state regulatory approvals, Federal
Energy Regulatory Commission (FERC) and Federal Trade Commission
(Xxxx-Xxxxx-Xxxxxx) review, plus customary closing conditions.
Expected to be earnings-accretive after one year of temporary and
transitional costs
Cash flow from acquired operations expected to be positive from start.
Definitive agreements signed February 7, 2007
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We are a diversified energy company with our roots in utility operations
dating back to the 1880s. Our strategy is to capitalize on our core strengths:
Strong utility operations with commitment to customer service
Planning, construction and operations of energy assets
Optimization of fuel assets to deliver value to investors and customers
Our search for energy partners led us to evaluate Aquila’s utility operations
in Colorado, Kansas, Nebraska and Iowa:
We share similar demographics, community cultures and business relationships.
The combination of our operations is a logical extension of our business
Acquiring these operations will make us a financially stronger company with
a larger, more diversified asset base and more stable and predictable cash flows
and earnings with opportunity for significant growth in rate base, especially
in Colorado
Benefits of the deal extend to our customers, communities, investors
and employees
How this deal came about
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We have the strategy, skills, experience and track record to make this deal work:
Strong utility operations with commitment to superior customer service,
reliability, efficiency, and cost control
Strong planning, construction, integration and maintenance of assets
Strong regulatory relationships
Strong record of technical innovation and environmental safety
Strong tradition of corporate social responsibility
Strong commitment to the communities we serve
Merits of acquisition
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Merits of acquisition
The transaction is good for customers, investors and employees:
Customers will benefit from improved economies of scale, operational efficiencies
and integrated business functions
Investors should benefit from expanded operations,
improved cash flow
and earnings, improved
growth potential, improved credit standing and
improved risk profile
Employees will have increased opportunity for personal and professional growth
The transaction is financially sound:
Solid financial foundation
We’re buying earnings-producing assets only
Strong cash flow and earnings base from stable, risk-managed and
geographically diverse operations
We are committed to maintaining, and expect to maintain, an
investment-grade credit rating
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Rapid
City
Combination at a glance
Utilities will serve
over 750,000 customers
in South Dakota, Montana,
Wyoming, Colorado, Kansas,
Nebraska and Iowa
Utilities will comprise ~50%
of ~$3 billion in total assets
Wholesale energy operations include
oil and gas production, coal mining,
power generation and energy marketing
Proposed Acquisitions
Utilities in CO, KS,
NE and IA
Black Hills Assets
Utility operations
Power generation
Gas production
Oil production
Coal mine
Energy marketing
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Rapid
City
Assets of combination
Profile of the Combined Company
(Based on recent public information)
Total assets ~ $3 Billion
Regulated customers:
Electric 197,000 Customers
Gas
556,000 Customers
Total regulated customers 753,000Customers
Power generation resources:
Regulated, operated 537 MW
Regulated,
contracted 398 MW
Regulated, under construction 90
MW
Independent power production 1,000
MW
Total generation 2,025 MW
Natural gas and oil reserves ~ 170 BCFE
Coal reserves ~ 290 million tons
Natural gas marketing average
daily physical volume 1.4 million
MMBTU
Regulated operations in 7 states
Wholesale energy operations in 12 states
Black Hills Assets
Utility operations
Power generation
Gas production
Oil production
Coal mine
Energy marketing
Acquired Assets
Utilities in CO, KS,
KS, NE and IA
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Utilities of combination
Number
of Annual
Utility Customers Energy Sales
Black Hills Power 65,000 3.1 million MWH
Cheyenne Light (electric) 39,0000.9 million MWH
Cheyenne Light (gas) 33,0008.1 BCF
Subtotal, existing 137,000 4.0 million
MWH
8.1 BCF
Colorado Electric ( ) 93,0002.0 million MWH
Colorado Gas ( ) 68,000 7.1 BCF
Kansas Gas ( ) 108,00022.5 BCF
Nebraska Gas ( ) 198,00018.0 BCF
Iowa Gas ( ) 149,000 27.3 BCF
Subtotal, new 616,000
2.0 million MWH
74.9 BCF
Total, combined 753,000
6.0 million MWH
83.0 BCF
Seven adjoining states
in
Midwest
and Rockies with
similar demographics and
business environments
Proximity should permit some
consolidation of administrative
functions while retaining
quality of service
Cheyenne
Light
WY
CO
NE
KS
IA
Rapid City
Black Hills Power
SD
MT
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COLORADO ELECTRIC FACTS
(2005)
Annual sales volume 1,980GWh
Power generation 102MW
Power contracts 285 MW
Customers 93,000
Annual customer growth >3%
Customer mix
Residential
87%
Commercial
12%
Industrial
1%
Fountain
Pueblo
Rocky
Ford
Cañon
City
Colorado
Colorado electric properties
Territory is experiencing strong population
and load growth
Current RFP seeks 225 MW baseload and
140 MW intermediate and peaking energy
supply beginning in 2013
Potential to construct new coal-fired
power plant and to utilize our Colorado
gas-fired plants to serve long-term needs
and xxxxxx off-system sales opportunities
100% fuel and purchased power
pass-through
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COLORADO GAS FACTS
(2005)
Annual sales volume 7Bcf
Customers 68,000
Annual customer growth >3%
Customer mix
Residential
94%
Commercial
6%
Industrial
1%
Colorado
Fountain
Pueblo
Burlington
Castle Rock
Colorado gas properties
Territory
experiencing strong
population and customer growth
Proximity to existing Black Hills operations in Colorado
100% fuel pass-through
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KANSAS GAS FACTS
(2005)
Annual sales volume 23Bcf
Customers 108,000
Annual customer growth < 1%
Customer mix
Residential
89%
Commercial
9%
Industrial
2%
Xxxxxxxx
Xxxxxxxx
Wichita
Liberal
Garden
City
Dodge City
Kansas
Kansas gas properties
Stable customer counts
Stable cash flows
Rate case filed in November 2006
seeking $7.3 million increase
100% fuel cost pass-through
Other favorable regulatory treatment:
bad debt pass-through, decoupling and
weather normalization
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NEBRASKA GAS FACTS
(2005)
Annual sales volume 18Bcf
Customers 198,000
Annual customer growth < 1%
Customer mix
Residential
90%
Commercial
7%
Industrial – 3%
Nebraska gas properties
Stable customer counts
Attractive regulatory environment
Lincoln
is also home to regional
customer service center
Omaha is
headquarters for regional
gas operations center
Rate case
filed in November 2006
seeking $16.3 million
increase
100% fuel cost pass-through
Other favorable
regulatory treatment:
bad debt pass-through
and decoupling
York
Beatrice
Nebraska
Lincoln
Norfolk
Omaha
Xxxxx
Xxxxxxxx
Bellevue
Xxxxx
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IOWA GAS FACTS
(2005)
Annual sales volume 27Bcf
Customers 149,000
Annual customer growth < 1%
Customer mix
Residential
89%
Commercial
10%
Industrial
1%
Iowa gas properties
Stable customer counts and cash flows
100% fuel cost pass-through
Other favorable
regulatory treatment:
bad debt pass-through,
decoupling and
weather normalization
Newton
West Des Moines
Xxxxxxx
Council
Bluffs
Forest City
Decorah
Dubuque
Xxxxxxxx
Xxxxxxx City
Iowa
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Strategic rationale
Significant scale and scope expansion for Black Hills from utilities and
operations to be acquired
Acquisition represents about 93,000 electric and 523,000 gas customers
Operational efficiency with new resources and larger customer base
Opportunity to advance Black Hills’ relationship-based business
approach and
reputation for superior customer service and
satisfaction
Opportunity to benefit from workforce innovation, adaptability and
business practices
Lower overall business risk
Expanded utility operations provide more stable cash flows
with
more predictable capital needs
Diversifies regulatory and geographic exposure with opportunity to
build
upon Black Hills’ successful regulatory relationship-based
approach
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Financial rationale
More stable and predictable financial results
Earnings per share break-even expected after a year of transitional costs following transaction, with
EPS accretion beginning in second full year
Positive cash flows from operations expected immediately
We are acquiring earnings-producing assets only, with stable service territories
in Kansas, Nebraska and Iowa, and with higher growth in Colorado
Constructive regulatory environments; gas cost pass-throughs;
weather-normalization mechanisms
Longer-term upside earnings potential from customer growth and possible
power generation
construction and integration in Colorado
Our intention will be to mirror our strategy
at Cheyenne Light, where
we will be integrating generation
as a rate-base asset later this year
Current Aquila RFP seeks 225 MW baseload and
140MW intermediate
and peaking energy supply beginning
in 2013, and increasing to
290 MW /190 MW, respectively,
by 2022
Potential to construct new coal-fired power plant and to utilize our three
existing Colorado gas-fired plants to serve long-term needs
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Financing the acquisition
Initial bridge financing
Commitment for bridge credit facility obtained from bank syndicate, including
ABN AMRO, Credit Suisse, BMO Capital Markets, and Union Bank of CA
Targeted permanent financing
Equity contribution through stock offering;
Mandatory convertible securities offering;
Unsecured corporate debt;
Internally generated cash resources
May fund certain amounts prior to closing based on market conditions.
Logic of financing strategy
Balanced combination of financing sources retains investment-grade
corporate credit rating while
Accelerating accretive cash flow and earnings per share results.
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Summary
A sound transaction – strategically, operationally and financially
Attractive, stable, geographically diverse assets with stable or
growing customer bases
Balanced financing strategy with access to capital markets at reasonable rates
Accretive to EPS after one year of transition costs
Improvement in overall corporate risk profile
Expansion of retail footprint and addition of rate-base
assets assure
stable, predictable cash flows
and earnings
Low integration risk:
– Experience with
retail operations and customer care
–
Familiarity with demographics and business environments of new states
– Commitment to relationship-based regulatory processes
Upside potential with vertical integration of electric properties
We are expert planners, builders and operators of power plants
We understand transmission systems and regulatory processes in region
We are committed to remaining an investment-grade Company as we grow
to serve more customers and communities and to build more value for
investors in responsible, safe and
environmentally conscious ways.
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INVESTOR RELATIONS
Xxxx X. Xxxxx, Executive Vice President & CFO
Xxxx Xxxx, Director of Investor Relations
000 Xxxxx Xxxxxx Xxxxx
Xxxx, XX 00000
000 000 0000 xxxxx@xx-xxxx.xxx
Please visit our web site for
up-to-date investor news
and information:
Click on “Investor Relations”
and follow instructions to review,
download or print press releases,
SEC documents, recent presentations,
annual report
and other publications.
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