Edgar Filing: BLACK HILLS CORP /SD/

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2019
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
7001 Mount Rushmore Road
Rapid City, South Dakota 57702
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 every Interactive Data File required to be submitted 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 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



	Large accelerated filer x		Accelerated filer o

	Non-accelerated filer o		Smaller reporting company o

			Emerging growth company o

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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



Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock of $1.00 par value	BKH	New York Stock Exchange

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, 2019
Common stock, $1.00 par value	60,367,972	shares



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 - unaudited
	Three Months Ended March 31, 2019 and 2018	5

	Condensed Consolidated Statements of Comprehensive Income - unaudited
	Three Months Ended March 31, 2019 and 2018	6

	Condensed Consolidated Balance Sheets - unaudited
	March 31, 2019, December 31, 2018 and March 31, 2018	7

	Condensed Consolidated Statements of Cash Flows - unaudited
	Three Months Ended March 31, 2019 and 2018	9

	Notes to Condensed Consolidated Financial Statements - unaudited	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53

Item 4.	Controls and Procedures	54

PART II.	OTHER INFORMATION	54

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 4.	Mine Safety Disclosures	54

Item 5.	Other Information	54

Item 6.	Exhibits	55

	Signatures	57

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)
Arkansas Gas	Black Hills Energy Arkansas, Inc., a direct, wholly-owned subsidiary of Black Hills Gas Inc.
ASC	Accounting Standards Codification
ASU	Accounting Standards Update issued by the FASB
ATM	At-the-market equity offering program
Availability	The availability factor of a power plant is the percentage of the time that it is available to provide energy.
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 our utility companies
Black Hills Power	Black Hills Power, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy)
Black Hills Utility Holdings	Black Hills Utility Holdings, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy)
Black Hills Wyoming	Black Hills Wyoming, LLC, a direct, wholly-owned subsidiary of Black Hills Electric Generation
Busch Ranch I	Busch Ranch Wind Farm is a 29 MW wind farm near Pueblo, Colorado, jointly owned by Colorado Electric and Black Hills Electric Generation. Colorado Electric and Black Hills Electric Generation each have a 50% ownership interest in the wind farm.
Busch Ranch II	Busch Ranch II wind project will be a 60 MW wind farm near Pueblo, Colorado, built by Black Hills Electric Generation to provide wind energy to Colorado Electric through a 25-year power purchase agreement.
CAPP	Customer Appliance Protection Plan
Cheyenne Light	Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy)
Choice Gas Program	The unbundling of the natural gas service from the distribution component, which opens up the gas supply for competition allowing customers to choose from different natural gas suppliers. Black Hills Gas Distribution distributes the gas and Black Hills Energy Services is one of the Choice Gas suppliers.
CIAC	Contribution In Aid of Construction
City of Gillette	Gillette, Wyoming
Colorado Electric	Black Hills Colorado Electric, LLC, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings (doing business as Black Hills Energy)
Colorado IPP	Black Hills Colorado IPP, LLC a 50.1% owned subsidiary of Black Hills Electric Generation
Consolidated Indebtedness to Capitalization Ratio	Any Indebtedness outstanding at such time, divided by Capital at such time. Capital being Consolidated Net-Worth (excluding noncontrolling interest) plus Consolidated Indebtedness (including letters of credit and certain guarantees issued) as defined within the current Credit Agreement.
Cooling Degree Day (CDD)	A cooling degree day is equivalent to each degree that the average of the high and low temperature for a day is above 65 degrees. The warmer the climate, the greater the number of cooling degree days. Cooling degree days are used in the utility industry to measure the relative warmth 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.
CPCN	Certificate of Public Convenience and Necessity
CP Program	Commercial Paper Program
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)



Equity Unit	Each Equity Unit had a stated amount of $50, consisting of a purchase contract issued by BHC to purchase shares of BHC common stock and a 1/20, or 5% undivided beneficial ownership interest in $1,000 principal amount of BHC RSNs that were formerly due 2028. On November 1, 2018, we completed settlement of the stock purchase contracts that are components of the Equity Units issued in November 2015.
FASB	Financial Accounting Standards Board
FERC	United States Federal Energy Regulatory Commission
Fitch	Fitch Ratings
GAAP	Accounting principles generally accepted in the United States of America
Heating Degree Day (HDD)	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.
IPP	Independent power producer
IRS	United States Internal Revenue Service
Kansas Gas	Black Hills Kansas Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings (doing business as Black Hills Energy)
MMBtu	Million British thermal units
Moody’s	Moody’s Investors Service, Inc.
MWh	Megawatt-hours
Nebraska Gas	Black Hills Nebraska Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings (doing business as Black Hills Energy)
NPSC	Nebraska Public Service Commission
PPA	Power Purchase Agreement
Revolving Credit Facility	Our $750 million credit facility used to fund working capital needs, letters of credit and other corporate purposes, which was amended and restated on July 30, 2018 and now terminates on July 30, 2023.
RSNs	Remarketable junior subordinated notes, issued on November 23, 2015
SEC	U. S. Securities and Exchange Commission
SourceGas	SourceGas Holdings LLC and its subsidiaries, a gas utility owned by funds managed by Alinda Capital Partners and GE Energy Financial Services, a unit of General Electric Co. (NYSE:GE) that was acquired on February 12, 2016, and is now named Black Hills Gas Holdings, LLC (doing business as Black Hills Energy)
SourceGas Acquisition	The acquisition of SourceGas Holdings, LLC by Black Hills Utility Holdings
S&P	Standard and Poor’s, a division of The McGraw-Hill Companies, Inc.
South Dakota Electric	Includes Black Hills Power operations in South Dakota, Wyoming and Montana
SSIR	System Safety and Integrity Rider
TCJA	Tax Cuts and Jobs Act enacted on December 22, 2017
Tech Services	Non-regulated product lines within Black Hills Corporation that 1) provide electrical system construction services to large industrial customers of our electric utilities, and 2) serve gas transportation customers throughout its service territory by constructing and maintaining customer-owner gas infrastructure facilities, typically through one-time contracts.
WPSC	Wyoming Public Service Commission
Wyodak Plant	Wyodak, a 362 MW mine-mouth coal-fired plant in Gillette, Wyoming, owned 80% by Pacificorp and 20% by Black Hills Energy South Dakota. Our WRDC mine supplies all of the fuel for the plant.
Wyoming Electric	Includes Cheyenne Light’s electric utility operations

BLACK HILLS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



(unaudited)	Three Months Ended March 31,
	2019			2018
	(in thousands, except per share amounts)

Revenue	$	597,810		$	575,389

Operating expenses:
Fuel, purchased power and cost of natural gas sold	248,779			247,639
Operations and maintenance	123,913			116,096
Depreciation, depletion and amortization	51,028			48,590
Taxes - property and production	13,519			13,300
Other operating expenses	440			1,490
Total operating expenses	437,679			427,115

Operating income	160,131			148,274

Other income (expense):
Interest charges -
Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts)	(35,974		)	(35,438		)
Allowance for funds used during construction - borrowed	958			133
Interest income	299			310
Allowance for funds used during construction - equity	48			68
Other income (expense), net	(837		)	(172		)
Total other income (expense)	(35,506		)	(35,099		)

Income before income taxes	124,625			113,175
Income tax benefit (expense)	(17,263		)	25,802
Income from continuing operations	107,362			138,977
Net (loss) from discontinued operations	—			(2,343		)
Net income	107,362			136,634
Net income attributable to noncontrolling interest	(3,554		)	(3,630		)
Net income available for common stock	$	103,808		$	133,004

Amounts attributable to common shareholders:
Net income from continuing operations	$	103,808		$	135,347
Net (loss) from discontinued operations	—			(2,343		)
Net income available for common stock	$	103,808		$	133,004

Earnings (loss) per share of common stock, Basic -
Earnings from continuing operations	$	1.73		$	2.54
(Loss) from discontinued operations	—			(0.05		)
Total earnings per share of common stock, Basic	$	1.73		$	2.49

Earnings (loss) per share of common stock, Diluted -
Earnings from continuing operations	$	1.73		$	2.50
(Loss) from discontinued operations	—			(0.04		)
Total earnings per share of common stock, Diluted	$	1.73		$	2.46

Weighted average common shares outstanding:
Basic	59,920			53,319
Diluted	60,060			54,122

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



(unaudited)	Three Months Ended March 31,
	2019			2018
	(in thousands)

Net income	$	107,362		$	136,634

Other comprehensive income (loss), net of tax:
Reclassification adjustments of benefit plan liability - prior service cost (net of tax of $5 and $10, respectively)	(14		)	(35		)
Reclassification adjustments of benefit plan liability - net gain (loss) (net of tax of $(53) and $(136), respectively)	167			486
Derivative instruments designated as cash flow hedges:
Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax of $(163) and $(152), respectively)	550			561
Net unrealized gains (losses) on commodity derivatives (net of tax of $(54) and $69, respectively)	180			(228		)
Reclassification of net realized (gains) losses on settled commodity derivatives (net of tax of $128 and $(145), respectively)	(426		)	476
Other comprehensive income, net of tax	457			1,260

Comprehensive income	107,819			137,894
Less: comprehensive income attributable to noncontrolling interest	(3,554		)	(3,630		)
Comprehensive income available for common stock	$	104,265		$	134,264

See Note 13 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, 2019			December 31, 2018			March 31, 2018
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	12,225		$	20,776		$	30,947
Restricted cash	3,494			3,369			2,958
Accounts receivable, net	282,602			269,153			257,772
Materials, supplies and fuel	87,676			117,299			82,045
Derivative assets, current	932			1,500			295
Income tax receivable, net	15,309			12,978			13,900
Regulatory assets, current	54,303			48,776			54,492
Other current assets	28,029			29,982			24,972
Current assets held for sale	—			—			24,724
Total current assets	484,570			503,833			492,105

Investments	41,247			41,013			40,927

Property, plant and equipment	6,127,050			6,000,015			5,608,539
Less: accumulated depreciation and depletion	(1,187,112		)	(1,145,136		)	(1,048,933		)
Total property, plant and equipment, net	4,939,938			4,854,879			4,559,606

Other assets:
Goodwill	1,299,454			1,299,454			1,299,454
Intangible assets, net	14,136			14,337			7,357
Regulatory assets, non-current	232,404			235,459			212,740
Other assets, non-current	25,823			14,352			14,800
Total other assets, non-current	1,571,817			1,563,602			1,534,351

TOTAL ASSETS	$	7,037,572		$	6,963,327		$	6,626,989

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, 2019			December 31, 2018			March 31, 2018
	(in thousands, except share amounts)
LIABILITIES AND TOTAL EQUITY
Current liabilities:
Accounts payable	$	178,678		$	210,609		$	106,281
Accrued liabilities	196,072			215,501			194,040
Derivative liabilities, current	95			947			891
Regulatory liabilities, current	45,777			29,810			42,499
Notes payable	164,650			185,620			164,200
Current maturities of long-term debt	5,743			5,743			255,743
Current liabilities held for sale	—			—			24,910
Total current liabilities	591,015			648,230			788,564

Long-term debt	2,950,299			2,950,835			2,858,787

Deferred credits and other liabilities:
Deferred income tax liabilities, net	337,184			311,331			290,491
Regulatory liabilities, non-current	511,482			510,984			495,362
Benefit plan liabilities	145,883			145,147			160,580
Other deferred credits and other liabilities	118,007			109,377			105,221
Total deferred credits and other liabilities	1,112,556			1,076,839			1,051,654

Commitments and contingencies (See Notes 8, 10, 15, 16)

Equity:
Stockholders’ equity —
Common stock $1 par value; 100,000,000 shares authorized; issued 60,378,020; 60,048,567; and 53,648,817 shares, respectively	60,378			60,049			53,649
Additional paid-in capital	1,469,410			1,450,569			1,151,933
Retained earnings	777,262			700,396			656,161
Treasury stock, at cost – 23,756; 44,253; and 53,959 shares, respectively	(1,432		)	(2,510		)	(3,049		)
Accumulated other comprehensive income (loss)	(26,459		)	(26,916		)	(39,924		)
Total stockholders’ equity	2,279,159			2,181,588			1,818,770
Noncontrolling interest	104,543			105,835			109,214
Total equity	2,383,702			2,287,423			1,927,984

TOTAL LIABILITIES AND TOTAL EQUITY	$	7,037,572		$	6,963,327		$	6,626,989

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,
	2019			2018
Operating activities:	(in thousands)
Net income	$	107,362		$	136,634
Loss from discontinued operations, net of tax	—			2,343
Income from continuing operations	107,362			138,977
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	51,028			48,590
Deferred financing cost amortization	2,007			1,900
Stock compensation	3,296			2,209
Deferred income taxes	19,602			(25,430		)
Employee benefit plans	3,137			3,378
Other adjustments, net	4,428			3,053
Changes in certain operating assets and liabilities:
Materials, supplies and fuel	29,387			31,196
Accounts receivable, unbilled revenues and other operating assets	(15,857		)	(25,113		)
Accounts payable and other operating liabilities	(41,689		)	(71,149		)
Regulatory assets - current	13,031			47,903
Regulatory liabilities - current	(1,635		)	16,098
Other operating activities, net	1,796			(278		)
Net cash provided by operating activities of continuing operations	175,893			171,334
Net cash provided by (used in) operating activities of discontinued operations	—			(1,459		)
Net cash provided by operating activities	175,893			169,875

Investing activities:
Property, plant and equipment additions	(144,126		)	(69,972		)
Purchase of investment	—			(23,500		)
Other investing activities	(901		)	(261		)
Net cash provided by (used in) investing activities of continuing operations	(145,027		)	(93,733		)
Net cash provided by (used in) investing activities of discontinued operations	—			20,179
Net cash provided by (used in) investing activities	(145,027		)	(73,554		)

Financing activities:
Dividends paid on common stock	(30,332		)	(25,444		)
Common stock issued	19,949			372
Net (payments) borrowings of short-term debt	(20,970		)	(47,100		)
Long-term debt - repayments	(1,436		)	(1,436		)
Distributions to noncontrolling interest	(4,846		)	(5,648		)
Other financing activities	(1,657		)	(1,400		)
Net cash provided by (used in) financing activities	(39,292		)	(80,656		)
Net change in cash, cash equivalents and restricted cash	(8,426		)	15,665
Cash, cash equivalents and restricted cash at beginning of period	24,145			18,240
Cash, cash equivalents and restricted cash at end of period	$	15,719		$	33,905

See Note 14 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 2018 Annual Report on Form 10-K)

(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 2018 Annual Report on Form 10-K filed with the SEC.

Segment Reporting

We conduct our operations through the following reportable segments: Electric Utilities, Gas Utilities, Power Generation and Mining. Our reportable segments are based on our method of internal reporting, which is generally segregated by differences in products, services and regulation. All of our operations and assets are located within the United States.

Accounting standards for presentation of segments requires an approach based on the way we organize the segments for making operating decisions and how the chief operating decision maker (CODM) assesses performance. We have changed our segment performance metrics and concluded that adjusted operating income, instead of net income available for common stock which was used previously, is the most relevant metric for measuring segment performance.

The CODM assesses the performance of our segments by using adjusted operating income, which considers the power sales arrangement between Colorado IPP and Colorado Electric be treated as an executory contract. Adjusted operating income adjusts this power sales arrangement from being accounted for as a capital lease to being accounted for as an executory contract on an accrual basis. This adjustment impacts Electric Utilities and Power Generation segments and Corporate and Other. There were no adjustments to Gas Utilities and Mining segments and this adjustment had no effect on our consolidated operating income.

The change to our segment performance measure resulted in a revision of the Company’s segment disclosures for all periods to report adjusted operating income as the measure of segment profit and adjust revenues, operating income, and total assets for the power sales agreement to an executory contract and not a capital lease. See Notes 2 and 3 for more information.

On November 1, 2017, the BHC board of directors approved a complete divestiture of our Oil and Gas segment. We completed the divestiture of our Oil and Gas segment in 2018. The Oil and Gas segment assets and liabilities have been classified as held for sale and the results of operations are shown in income (loss) from discontinued operations, except for certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation, depletion and amortization expenses were no longer recorded. Unless otherwise noted, the amounts presented in the accompanying notes to the Condensed Consolidated Financial Statements relate to the Company’s continuing operations. See Note 17 for more information on discontinued operations.

Use of Estimates and Basis of Presentation

The information furnished in the accompanying Condensed Consolidated Financial Statements reflects certain estimates required and all adjustments, including accruals, which are, in the opinion of management, necessary for a fair presentation of the March 31, 2019, December 31, 2018, and March 31, 2018 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. 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, 2019 and March 31, 2018, and our financial condition as of March 31, 2019, December 31, 2018, and March 31, 2018, are not necessarily indicative of the results of operations and financial condition to be expected for any other period. All earnings per share amounts discussed refer to diluted earnings per share unless otherwise noted.

Recently Issued Accounting Standards

Simplifying the Test for Goodwill Impairment, 2017-04

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment by eliminating step 2 from the goodwill impairment test. Under the new guidance, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit. The new standard is effective for interim and annual reporting periods beginning after December 1, 2019, applied on a prospective basis with early adoption permitted. We do not anticipate the adoption of this guidance to have any impact on our financial position, results of operations or cash flows.

Recently Adopted Accounting Standards

Leases, ASU 2016-02

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet for most leases, whereas previously only financing-type lease liabilities (capital leases) were recognized on the balance sheet. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

We adopted the standard effective January 1, 2019. We elected not to recast comparative periods coinciding with the new lease standard transition and will report these comparative periods as presented under previous lease guidance. In addition, we elected the package of practical expedients permitted under the transition guidance with the new standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for existing land easement agreements.

Adoption of the new standard resulted in the recording of an operating lease right-of-use asset of $3.1 million, an operating lease obligation liability of $3.2 million, and an accrued rent receivable of $4.5 million, as of January 1, 2019. The cumulative effect of the adoption, net of tax impact, was $3.4 million, which was recorded as an adjustment to retained earnings.

Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, ASU 2017-12

Effective January 1, 2019, we adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This standard better aligns risk management activities and financial reporting for hedging relationships, simplifies hedge accounting requirements and improves disclosures of hedging arrangements. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.

(2) REVENUE

Revenue Recognition

As of January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), and its related amendments (collectively known as ASC 606). Revenue is recognized in an amount that reflects the consideration we expect to receive in exchange for goods or services, when control of the promised goods or services is transferred to our customers. The following tables depict the disaggregation of revenue, including intercompany revenue, from contracts with customers by customer type and timing of revenue recognition for each of the reporting segments, for the three months ended March 31, 2019 and 2018. Sales tax and other similar taxes are excluded from revenues.



Three Months Ended March 31, 2019	Electric Utilities		Gas Utilities				Power Generation ^(a)		Mining		Inter-company Revenues ^(a)			Total
Customer types:	(in thousands)
Retail	$	153,463	$	354,275			$	—	$	15,829	$	(8,128	)	$	515,439
Transportation	—		44,517				—		—		(432		)	44,085
Wholesale	8,343		—				15,469		—		(13,213		)	10,599
Market - off-system sales	6,692		217				—		—		(2,224		)	4,685
Transmission/Other	14,175		13,190				—		—		(4,203		)	23,162
Revenue from contracts with customers	182,673		412,199				15,469		15,829		(28,200		)	597,970
Other revenues	254		(1,119		)	^(b)	9,776		600		(9,671		)	(160		)
Total revenues	$	182,927	$	411,080			$	25,245	$	16,429	$	(37,871	)	$	597,810

Timing of revenue recognition:
Services transferred at a point in time	$	—	$	—			$	—	$	15,829	$	(8,128	)	$	7,701
Services transferred over time	182,673		412,199				15,469		—		(20,072		)	590,269
Revenue from contracts with customers	$	182,673	$	412,199			$	15,469	$	15,829	$	(28,200	)	$	597,970



Three Months Ended March 31, 2018	Electric Utilities		Gas Utilities			Power Generation ^(a)		Mining		Inter-company Revenues ^(a)			Total
Customer Types:
Retail	$	147,057	$	341,394		$	—	$	16,557	$	(7,842	)	$	497,166
Transportation	—		41,669			—		—		(409		)	41,260
Wholesale	9,050		—			14,769		—		(13,049		)	10,770
Market - Off-System Sales	4,144		427			—		—		(2,522		)	2,049
Transmission/Other	13,071		12,670			—		—		(3,631		)	22,110
Revenue from contracts with customers	$	173,322	$	396,160		$	14,769	$	16,557	$	(27,453	)	$	573,355
Other Revenues	233		1,184		^(b)	9,170		571		(9,124		)	2,034
Total Revenues	$	173,555	$	397,344		$	23,939	$	17,128	$	(36,577	)	$	575,389

Timing of Revenue Recognition:
Services transferred at a point in time	$	—	$	—		$	—	$	16,557	$	(7,842	)	$	8,715
Services transferred over time	173,322		396,160			14,769		—		(19,611		)	564,640
Revenue from contracts with customers	$	173,322	$	396,160		$	14,769	$	16,557	$	(27,453	)	$	573,355

(a)

Due to changes to our segment performance measure as disclosed in Note 1, Power Generation Wholesale revenue was recast for the three months ended March 31, 2018 which resulted in a change of $0.8 million. For the three months ended March 31, 2019, the impact to Power Generation Wholesale revenue was $3.4 million. The changes to Power Generation were offset by changes to eliminations in Inter-company Revenues and there was no impact to our consolidated Total Revenues.


(b)	Other revenues in the Gas Utilities segment include alternative revenue programs related to weather normalization mechanisms for Arkansas Gas and Kansas Gas that are considered out of scope for ASC 606.

Contract Balances

The nature of our primary revenue contracts provides an unconditional right to consideration upon service delivery; therefore, no customer contract assets or liabilities exists. The unconditional right to consideration is represented by the balance in our Accounts Receivable further discussed in Note 4. We do not typically incur costs that would be capitalized to obtain or fulfill a revenue contract.

(3) BUSINESS SEGMENT INFORMATION

Our reportable segments are based on our method of internal reporting, which is generally segregated by differences in products, services and regulation.

As disclosed in Note 1, changes to our segment performance measure resulted in a revision of the Company’s segment disclosures for all periods to adjust revenues, operating income, and assets related to the power sales arrangement between Colorado IPP and Colorado Electric from being accounted for as a capital lease to being accounted for as an executory contract on an accrual basis. This change had no effect on our consolidated revenues, operating income, or total assets. See below for more information.

Segment information and Corporate and Other is as follows (in thousands):



Three Months Ended March 31, 2019	External Operating Revenue					Inter-company Operating Revenue						Total Revenues
Three Months Ended March 31, 2019	Contract Customers		Other Revenues			Contract Customers			Other Revenues			Total Revenues
Segment:
Electric Utilities	$	176,663	$	254		$	6,010		$	—		$	182,927
Gas Utilities ^(a)	411,500		(1,119		)	699			—			411,080
Power Generation ^(b)	2,257		436			13,212			9,340			25,245
Mining	7,550		269			8,279			331			16,429
Corporate and Other	—		—			—			—			—
Inter-company eliminations ^(b)	—		—			(28,200		)	(9,671		)	(37,871		)
Total	$	597,970	$	(160	)	$	—		$	—		$	597,810




Three Months Ended March 31, 2018	External Operating Revenue				Inter-company Operating Revenue						Total Revenues
	Contract Customers		Other Revenues		Contract Customers			Other Revenues
Segment:
Electric Utilities	$	167,178	$	233	$	6,144		$	—		$	173,555
Gas Utilities^(a)	395,742		1,184		418			—			397,344
Power Generation ^(b)	1,720		371		13,049			8,799			23,939
Mining	8,715		246		7,842			325			17,128
Corporate and Other	—		—		—			—			—
Inter-company eliminations ^(b)	—		—		(27,453		)	(9,124		)	(36,577		)
Total	$	573,355	$	2,034	$	—		$	—		$	575,389


(a)	Other revenues in the Gas Utilities segment include alternative revenue programs related to weather normalization mechanisms for Arkansas Gas and Kansas Gas that are considered out of scope for ASC 606.

(b)

Due to changes to our segment performance measure, Power Generation Inter-company Operating Revenue for Contract Customers was recast for the three months ended March 31, 2018 which resulted in a change of $0.8 million. For the three months ended March 31, 2019, the impact to Power Generation Inter-company Operating Revenue for Contract Customers was $3.4 million. The changes to Power Generation were offset by changes to Inter-company eliminations and there was no impact on our consolidated Total revenues.




	Three Months Ended March 31,
	2019			2018
Adjusted operating income:
Electric Utilities ^(a)	$	41,020		$	38,480
Gas Utilities	103,314			95,443
Power Generation ^(a)	11,967			11,776
Mining	4,337			4,271
Corporate and Other ^(a)	(507		)	(1,696		)
Operating income	160,131			148,274

Interest expense, net	(34,717		)	(34,995		)
Other income (expense), net	(789		)	(104		)
Income tax benefit (expense) ^(b)	(17,263