Black Hills Corporation History

Company Perspectives:

The Company's mission statement is to position the Company nationally to build value for shareholders, offer competitive prices for customers and create opportunities for employees through quality energy services and products.

Company History:

A public utility holding company, Black Hills Corporation is involved in three principal businesses: electric utility service, coal mining, and oil and gas production. These businesses were operated by Black Hills Power & Light, Wyodak Resources Development Corporation, and Western Production Company, respectively. Black Hills Power & Light, the original business of the company, operated public utility electric operations that served roughly 55,600 customers in 11 counties in western South Dakota, northeastern Wyoming, and southeastern Montana. Wyodak mined low sulfur sub-bituminous coal from the Powder River Basin near Gillette, Wyoming. Western Production, operator of 277 oil and gas wells during the mid-1990s, produced and explored for oil and gas in the Rocky Mountain region, Texas, and California. In addition to these primary businesses, Black Hills also owned Daksoft, Inc., a customer information system software marketing company, and held 50 percent interest in Enserco Energy Inc., a national marketer of unregulated energy and energy services.

Origins of Black Hills's Growth

When General George A. Custer led a U.S. Calvary scouting party into the Black Hills of Dakota Territory in 1874 there could be no anticipation of the momentous events that would follow. The year was 1874, 15 years before the region surrounding the Black Hills would become part of South Dakota, and the discovery made by Custer and his scouts would do much to justify the territory's admittance as the nation's 40th state. Statehood and a series of other signal developments in U.S. history all sprang from the cataclysmic discovery of gold in the Black Hills, the finding of which sparked the Battle of the Little Bighorn, fueled the financial ascension of the nation's most powerful publishing family, and gave the United States its primary source of gold for the next century.

When news of Custer's discovery spread throughout the western territories, waves of prospectors poured into the Black Hills, with the attendant manifestations of a gold rush--saloonkeepers, bankers, merchants--close on their heels. Burgeoning communities quickly flowered, each born from the bustling prospecting and mining activity pervading the Black Hills. Towns such as Deadwood, a hotbed of entertainment for prospectors and miners where Wild Bill Hickock and Calamity Jane met their deaths, turned into thriving, tumultuous hubs of activity, the sudden emergence of which did not settle well with the resident Sioux. Tensions between the Sioux and the encroaching whites flared, finding hostile expression in the Battle at the Little Bighorn in 1876, when Crazy Horse and Sitting Bull led Sioux and Cheyenne warriors in their defeat and demise of Custer.

Hostility between the Sioux and the whites was not resolved, at least militarily, until the massacre of the Sioux at Wounded Knee in 1890, but the years of aggression between the natives and the settlers were not enough to stop the growth of communities surrounding the Black Hills. White colonization rallied inexorably forward, spurred by gold production and its largest producer, the Homestake Mining Company. One of the investors in the Homestake mine, a claim that included what ranked as the largest gold deposit in the United States, was George Hearst, father of publishing magnate William Randolph Hearst. With the profits earned from the production of the Homestake mine, the Hearst family was enriched, enabling William Randolph Hearst to purchase the San Francisco Examiner in 1887 and begin the development of the world's largest publishing empire.

Hearst, Homestake Mining, and the residents of South Dakota were beneficiaries of the discovery of gold in 1874--gaining where Custer and the Sioux lost--but there was also another beneficiary, Black Hills Power & Light, a utility whose existence was owed to the economy and population engendered by the discovery of gold. The events that precipitated Black Hills Power & Light's formation occurred more than a half-century before the company came into existence, but as the utility in charge of serving the area surrounding the Black Hills, the company was indebted to the developments that gave it its foundation. Homestake Mining would become Black Hills Power & Light's largest customer, and the gold company's presence in the Black Hills would speed the development of communities surrounding it, including the advent of electricity. The region gained its first utility company in 1893, and by the turn of the century power and lighting were being supplied to four Black Hills communities. With the Homestake mine advancing the economy at an accelerated pace, denizens of the region enjoyed technological luxuries well before residents in neighboring areas. In 1911, for instance, the streets in Deadwood and Lead were lit by electricity for the first time, long before others in adjoining areas, and as time marched forward, the region's infrastructure and utility companies expanded, spurred by the riches wrought by gold production.

1941: BHP&L Is Born

By the end of the 1930s, following the 1935 Public Utility Act that assigned utility companies to serve geographic regions, there were two major utility companies that served the Black Hills region, General Public Utilities, Inc. and Dakota Power Company. It was from these two companies that Black Hills Power & Light Company's founder, J. B. French, acquired the properties and assets to form Black Hills Power & Light in August 1941. French sold shares to the public, offering $100 per share for preferred stock and $16.50 for common stock, and the new utility commenced business several months later, supplying all of the Black Hills region except Hot Springs and Edgemont, South Dakota, and Newcastle, Wyoming. One year after commencing business, the utility began filling the few holes in its service area, purchasing an electric plant in Edgemont, and in 1946 a plant in Newcastle.

Expansion through acquisition continued in the 1950s, including the utility's purchase of an electric distribution system in Keystone, South Dakota, in 1952, but Black Hills Power & Light's most important acquisition by far during the decade was a deal struck with its largest customer, Homestake Mining. In 1954, the utility acquired Homestake Mining's Wyodak Coal Company, from which the utility would gain all the coal it needed to generate electricity. The addition of Wyodak, which in 1956 became a subsidiary named Wyodak Resources Development Corporation, stood Black Hills Power & Light apart from other, small utilities in the country, giving it a singular and stable source of low sulfur sub-bituminous coal and presence in a business outside of electric service. Additional steps outside the power generation business would be taken in later years, but the acquisition of Wyodak represented the first, setting the tone for Black Hills Power & Light's future involvement in mining, oil, and gas.

As these acquisitions were being completed, Black Hills Power & Light set itself to the task of promoting its mainstay product. Classes were offered throughout the 1950s and 1960s to encourage residents to use electrically-powered appliances, then somewhat of a novelty in rural areas of South Dakota. As these efforts were underway, the utility benefitted from a growing list of industrial customers. Aside from Homestake Mining, the Black Hills region was home to Ellsworth Air Force Base, a vital part of the Strategic Air Command and a heavy user of electric power. During the 1960s, the utility also benefitted from plant expansion by several industrial customers, giving it a solid and flourishing customer base to support its business. Wyodak, after a decade under Black Hills Power & Light's control, owned or had under lease more than 180 million tons of recoverable coal, enough to supply all of the utility's coal needs and offer reserves for sale to other companies.

During the 1970s, Black Hills Power & Light's service area stretched across 9,300 square miles, embracing much of South Dakota and parts of Wyoming and Montana. The utility's service area included a population of roughly 165,000, not large when compared to other more densely populated regions in the country, but Black Hills Power & Light was not solely dependent on electric service for its income. Wyodak contributed roughly half the income produced by the utility's electric business, and forays into the development of oil, gas, and uranium represented promising avenues for future growth. Still, viewed exclusively as a utility, Black Hills Power & Light occupied a stable and enviable position within the utility industry. The composition of the utility's customer base was well-balanced, with residential and commercial customers each accounting for one-third of electric utility revenues, while large industrial customers such as Homestake Mining and Ellsworth Air Force Base accounted for the balance. The even distribution of its electric load helped the utility record growth throughout the 1970s that exceeded the pace of growth registered by the electric utility industry as a whole. Black Hills Power & Light, nearing its 40th year of business, exited the 1970s having paid dividends to its shareholders every year since 1941.

1980s Diversification

The 1980s witnessed changes as defining as those experienced during the 1950s for the small, Rapid City-based utility, as Black Hills Power & Light's involvement in businesses outside the utility industry deepened. Diversification was the means by which the utility brought about these changes, but before Black Hills Power & Light's directors embarked on the acquisition trail the utility recorded successive years of robust growth, fueling confidence for the bold moves completed midway through the decade. Revenues increased from $52.7 million in 1979 to $85.2 million in 1983, while the utility's net income more than doubled, reaching nearly $14 million in 1983. As these encouraging figures were being tallied, the utility's management chose to enter into the trucking business, diversifying under the auspices of Wyodak. In 1983, Wyodak acquired Universal Transport, Inc., an interstate and intrastate trucking company involved in bulk commodity hauling. With a fleet of 45 tractors and 90 trailers, and terminals in Rapid City and Fort Collins, Colorado, Universal Transport hauled cement, coal, bentonite, sand, lime aggregates, and limestone in North Dakota, South Dakota, Wyoming, and Colorado. This initial foray into trucking was followed by the 1987 acquisition of Les Calkins Trucking, Inc., a small bulk commodity trucking company, but one year after the Les Calkins acquisition was completed Black Hills Power & Light's management decided to exit the trucking business entirely. In September 1988, Universal Transport and Les Calkins were divested. By this point, a more lasting acquisition had been completed, one that represented an integral component of Black Hills Power & Light's business during the 1990s.

In June 1986, Wyodak acquired Western Production Company, an oil producing and operating company with interest in an oil and gas processing plant. The purchase of Western Production added a third arm to Black Hills Power & Light's business, giving it oil and gas holdings to go along with mining and electric utility services. With the addition of Western Production, the utility matured into an energy services company, and acknowledged as much by changing its name several months before the Western Production acquisition was completed to Black Hills Corporation.

With Black Hills Power & Light, Wyodak, and Western Production each operating as wholly owned subsidiaries, Black Hills Corporation moved forward in pursuit of strengthening its role as an energy services company. Only modest annual growth could be realized through its utility service, with such growth largely dependent on the expansion of the economy and population within its service territory--factors outside the company's control. Consequently much of Black Hills's future growth was dependent on the success of its mining and oil and gas activities.

A decade after its acquisition of Western Production, Black Hills stood strongly positioned in its new role as an energy services company. Western Production, which had extended the company's geographic reach into Texas and California, recorded its best financial year in 1996 since being acquired through Wyodak, reaching $12.5 million in revenue for the year. Wyodak, for its part, also made substantial gains during the year, signing a contract with Kerr-McGee that increased its coal reserves by 73 percent for a total of approximately 300 million tons. Black Hills also carved niches into new business areas during the mid-1990s. In 1994, the company formed Daksoft, Inc., a customer information system software marketing company. In 1996, Daksoft entered into a joint venture with Montana-Dakota Utilities to market a multi-utility customer information system to other utilities. That same year, Black Hills helped launch a start-up company named Enserco Energy Inc. to market unregulated energy and energy service on a national basis. Black Hills's 50 percent interest in the company, which was based in Lakewood, Colorado, was expected to provide access to markets previously unaccessible and to strengthen the company's core businesses. With these businesses providing promise for the future, Black Hills prepared for the 21st century, intent on developing into a nationally recognized energy services company.

Principal Subsidiaries: Black Hills Power & Light Company; Wyodak Resources Development Corporation; Western Production Company; Daksoft, Inc.; Enserco Energy Inc. (50%).

Further Reading:

• Campanella, Frank W., "Dakota Dynamo," Barron's, January 7, 1985, p. 46.
• ------, "Coal Power: Black Hills Power & Light Is Counting on It for a Profits Rebound in 1980," Barron's, October 29, 1979, p. 42.
• "Excellent Area Conditions Prompt Optimism at Black Hills Power," Investment Dealers' Digest, April 18, 1966, p. 29.
• Smith, Mike, "Black Hills Power and Light Company," Wall Street Transcript, February 12, 1979, p. 53,380.

Source: International Directory of Company Histories, Vol. 20. St. James Press, 1998.

Directory of Sample Business Plans Directory of Company Histories Contact Us Advertise