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Black Hills Corporation (BKH) Unit Gets Rate Hike Approval

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Electric utility operator Black Hills Corporation (BKH - Free Report) announced that its subsidiary Black Hills Energy received an approval from the Colorado Public Utilities Commission to increase electricity rates from Jan 1, 2015. The rate hike will boost the utility’s annual revenues by an estimated $3 million.

The rate appeal was filed on Apr 30, 2014, to recover infrastructural investments made by the company over the last three years in addition to a return on its capital expenditures associated with constructing a new natural gas-fired turbine at the Pueblo Airport Generating Station. The nat-gas facility will replace the retired W.N. Clark coal-fired power plant.

To Black Hills Energy’s request for a return on equity (“ROE”) of 10.30%, the commission approved an ROE of 9.83%. The new rate provides a return on additional capital investments of $54 million made since the last rate hike in 2012.

Rate hikes undoubtedly put extra burden on consumers but the introduction of modern technology and the uninterrupted supply of electricity require utilities to make huge capital outlays.  Regulated utilities thus have to depend on constructive regulatory rulings to recover these costs and continue their services.

The unemployment rate in Colorado was lower than the national average in the last six months, as per a report released by the Bureau of Labor Statistics. The unemployment rate has come down consistently over the last six months to 4.1% in Nov 2014, lower than the national average of 5.8%. This is encouraging and could increase Black Hills Corp’s consumer count going forward.

Recently, Black Hills Energy received an approval from the Kansas Corporation Commission for increasing the natural gas base rate for Kansas customers effective Jan 1, 2015 (read: Black Hills Unit Gets KCC Approval to Hike Rates, Shares Up)

Black Hills Corp sports a Zacks Rank #1 (Strong Buy). Other well-ranked stocks in the space include The Empire District Electric Company , PG&E Corporation (PCG - Free Report) and Abengoa Yield plc . The Empire District Electric Company and PG&E Corporation also hold a Zacks Rank #1 (Strong Buy), while Abengoa Yield plc carries a Zacks Rank #2 (Buy).

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