UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    Form 10-K

         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X        EXCHANGE ACT OF 1934

         For the fiscal year ended December 31, 2000

         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 1-7978

                             BLACK HILLS POWER, INC.
                   (formerly known as Black Hills Corporation)

         Incorporated in South Dakota      IRS Identification Number 46-0111677

                                625 Ninth Street
                         Rapid City, South Dakota 57701

               Registrant's telephone number, including area code
                                 (605) 721-1700

        Securities registered pursuant to Section 12(b) of the Act: None

        Securities registered pursuant to Section 12(g) of the Act: 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______

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. This paragraph is not applicable to the Registrant.

State the aggregate market value of the voting stock held by  non-affiliates  of
the Registrant.

All outstanding shares are held by the Registrant's parent company,  Black Hills
Corporation.

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest  practicable date.

                   Class                         Outstanding at March 30,  2001

         Common stock, $1.00 par value                 23,416,396 shares

Reduced Disclosure

The Registrant  meets the conditions set forth in General  Instruction I (1) (a)
and (b) of Form 10-K and is  therefore  filing  this Form 10-K with the  reduced
disclosure format.


<PAGE>
                           FORWARD-LOOKING STATEMENTS

     This Form 10-K  includes  "forward-looking  statements"  as  defined by the
Securities  and  Exchange  Commission.   These  statements  concern  our  plans,
expectations and objectives for future  operations.  All statements,  other than
statements  of  historical  facts,  included  in this  Form  10-K  that  address
activities, events or developments that we expect, believe or anticipate will or
may occur in the future are  forward-looking  statements.  The words  "believe,"
"plan," "intend,"  "anticipate,"  "estimate,"  "project" and similar expressions
are also intended to identify forward-looking statements.  These forward-looking
statements include, among others, such things as:

         o  expansion  and  growth  of our  business  and  operations;
         o  future financial  performance;
         o  future acquisition and development of power plants;
         o  future  production  of coal,  oil and natural gas;
         o  reserve estimates; and
         o  business strategy.

     These forward-looking  statements are based on assumptions which we believe
are reasonable based on current expectations and projections about future events
and industry  conditions  and trends  affecting our business.  However,  whether
actual results and developments will conform to our expectations and predictions
is subject  to a number of risks and  uncertainties  which  could  cause  actual
results  to  differ  materially  from  those  contained  in the  forward-looking
statements, including the following factors:

         o    prevailing   governmental  polices  and  regulatory  actions  with
              respect to allowed rates of return,  industry and rate  structure,
              acquisition and disposal of assets and  facilities,  operation and
              construction of plant facilities,  recovery of purchased power and
              other capital  investments,  and present or prospective  wholesale
              and retail competition;
         o    changes in and compliance with environmental and safety laws and
              policies;
         o    weather conditions;
         o    counterparty credit risk;
         o    population growth and demographic patterns;
         o    competition for retail and wholesale customers;
         o    pricing and transportation of commodities;
         o    market demand, including structural market changes;
         o    changes in tax rates or policies or in rates of inflation;
         o    changes in project costs;
         o    unanticipated changes in operating expenses or capital
              expenditures;
         o    capital market conditions;
         o    technological advances;
         o    competition for new energy development opportunities; and
         o    legal and administrative proceedings that influence our business
              and profitability.
<PAGE>


                                TABLE OF CONTENTS
                                                                           Page

ITEMS
1 & 2.     BUSINESS AND PROPERTIES............................................4
                 General......................................................4
                 Electric Utility.............................................4
                 Independent Energy...........................................5
                 Communications...............................................5

ITEM 3.    LEGAL PROCEEDINGS..................................................6

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS................................................7

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           RESULTS OF OPERATIONS..............................................7

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........14

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................18

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE............................43

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...43

           SIGNATURES........................................................46

<PAGE>

PART I

ITEMS 1 AND 2.  BUSINESS AND PROPERTIES

General

We are an  electric  utility  serving  customers  in South  Dakota,  Wyoming and
Montana.  We are  incorporated  in South  Dakota  and began  providing  electric
utility service in 1941. We began selling and marketing  various forms of energy
on an  unregulated  basis in 1956.  Our  independent  energy group  produces and
markets power and fuel. We produce and sell  electricity in a number of markets,
with a strong  emphasis on the western United States.  We produce coal,  natural
gas and crude oil  primarily  in the  Rocky  Mountain  region  and  market  fuel
products nationwide.  Our communications group offers state-of-the-art broadband
communication  services to residential and business  customers in Rapid City and
the northern Black Hills region of South Dakota.

During 2000,  we became a  wholly-owned  subsidiary  of Black Hills  Corporation
(formerly Black Hills Holding  Corporation) through a "plan of exchange" between
us and Black Hills Corporation.  The "plan of exchange" provided that each share
of our common  stock  would be  exchanged  for one share of common  stock of the
holding company. As a result:

o    all common  shareholders of Black Hills Power,  Inc.  (formerly Black Hills
     Corporation) became shareholders of Black Hills Corporation (formerly Black
     Hills Holding Corporation), the holding company;

o    Black Hills Power,  Inc.  became a  wholly-owned  subsidiary of Black Hills
     Corporation; and

o    The debt securities and other  financial  obligations of Black Hills Power,
     Inc. continue to be obligations of Black Hills Power, Inc.

Unless the context  otherwise  requires,  references in this Form 10-K to "Black
Hills Power,"  "we," "us" and "our" refer to Black Hills Power,  Inc. and all of
its subsidiaries collectively.

Electric Utility

We engage in the  generation,  transmission  and  distribution of electricity to
approximately 58,600 customers in South Dakota,  Wyoming and Montana. We control
458  megawatts  of  generating  capacity,  including  65  megawatts  of capacity
purchased from others under  long-term  power contracts at rates which currently
are significantly lower than prevailing market prices.  Approximately 53 percent
of our generating  capacity consists of coal-fired plants and 33 percent is gas-
or oil-fired, with the remaining 14 percent purchased from others.

Our revenue mix for 2000 was comprised of 29 percent  wholesale  off-system,  26
percent commercial,  20 percent residential,  14 percent industrial,  10 percent
contract  wholesale and 1 percent  municipal  sales.  In 2000,  our South Dakota
customers  accounted for 92 percent of our retail electric revenues.  Our retail
electric  rates in South  Dakota are subject to a five-year  freeze  expiring on
January 1, 2005. Because our generation capacity typically exceeds our peak load
demands,  we rarely  purchase  power on the spot market  during  periods of peak
usage,  permitting  us to preserve our low-cost  rate  structure  for our retail
customers.  Off-system  sales offer a means to optimize the  utilization  of our
power supply  sources by  permitting us to sell capacity and energy in excess of
our native load  requirements  to  wholesale  customers  at market  prices which
sometimes  exceed our regulated  retail rates.  Wholesale  off-system sales have
represented an increasing  percentage of our total  revenues and net income.  We
added 40 megawatts of additional capacity to our system with the addition of the
Neil Simpson combustion turbine, which we placed into operation in June 2000.

<PAGE>

We operate a  transmission  system of 447 miles of high voltage and 541 miles of
lower voltage  lines.  Our system has the capability of connecting to either the
midwestern  or western  transmission  grids.  This provides us with an important
strategic  opportunity to shift  off-system  power to areas of higher demand and
profitability as market conditions warrant.

Independent Energy

Our independent  power unit acquires,  develops and operates  unregulated  power
plants,  primarily in the Rocky Mountain  region of the United  States.  In July
2000, we expanded our presence in the  independent  power  business by acquiring
Indeck Capital,  Inc. This acquisition and subsequent  additions provide us with
varying interests in 13 operating  gas-fired and  hydroelectric  power plants in
California,  Colorado,  Massachusetts  and New York,  of which we operate 12, as
well as  minority  interests  in several  power-related  funds.  We have a total
ownership interest of approximately 250 net megawatts.  We are in the process of
acquiring or constructing an additional net ownership  interest of approximately
470 megawatts of generation  capacity,  approximately  330 megawatts of which we
expect to be brought into service in 2001.

As of December 31, 2000,  we had 275 million tons of  low-sulfur  sub-bituminous
coal reserves at our Wyodak mine located near Gillette,  Wyoming.  Substantially
all of our coal production is sold under  long-term  contracts with our electric
utility  and with  PacifiCorp.  Our Wyodak mine will also  provide  coal to a 90
megawatt  mine-mouth  power plant which is being  developed for our  independent
power unit and is scheduled for completion in 2003. Our oil and gas  exploration
and production unit owns and operates  approximately  298 oil and gas wells, all
in Wyoming,  and owns working  interests in another 341 wells operated by others
located  in  California,  Montana,  North  Dakota,  Texas,  Wyoming,  Louisiana,
Oklahoma  and offshore in the Gulf of Mexico.  As of December  31, 2000,  we had
proved  reserves of 4.4 million  barrels of oil and 18.4  billion  cubic feet of
natural gas, with approximately 62 percent of our current production  consisting
of natural gas.

Our fuel  marketing  and  transportation  unit  supplies  wholesale  natural gas
marketing and risk  management  products and services  primarily to customers in
the Rocky  Mountain and West Coast  regions of the United  States.  In addition,
this  unit  markets  oil in the  south and coal in the  eastern  and  midwestern
regions of the United States.  Our customers  include  natural gas  distribution
companies,  municipalities,  industrial  users, oil and gas producers,  electric
utilities  and coal mines.  Our average daily  marketing  volumes for the twelve
months  ended  December  31, 2000 were  approximately  860,800  million  British
thermal units of natural gas,  44,300 barrels of oil and 4,400 tons of coal. Our
power  marketing  activities  involve  marketing of capacity and energy from our
existing power generation facilities.

Communications

Our communications group, known as Black Hills FiberCom,  offers a full suite of
local and long distance  telephone service,  expanded cable television  service,
cable  modem  Internet   access  and  high-speed  data  and  video  services  to
residential  and  business  customers.  We have  completed a 210 mile inter- and
intra-city fiber optic network and currently operate nearly 600 miles of two-way
interactive  hybrid fiber  coaxial  cable in Rapid City and the  northern  Black
Hills region of South Dakota. The construction of our communications  network is
approximately  75  percent  complete,  and we expect to  substantially  complete
construction in 2001.

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

PacifiCorp Litigation

In August 2000, we initiated an action in the United States  District  Court for
the District of Wyoming against  PacifiCorp  relating to a coal supply agreement
between  PacifiCorp  and us.  We  believe  that  PacifiCorp  has  failed to make
complete  payment to us for coal sold under the coal supply  agreement  and that
PacifiCorp continues to underpay its monthly coal bill by approximately $100,000
per month. We believe that PacifiCorp's  actions constitute a breach of the coal
supply agreement and have asked for relief in the amount of $5 million, plus all
underpayments since the commencement of our lawsuit.

PacifiCorp  subsequently brought a counterclaim against us, alleging that we had
not properly  adjusted upward and downward the components which make up the coal
price under the coal  supply  agreement,  resulting  in alleged  overbilling  to
PacifiCorp  of $35 million to $40 million over an undefined  period.  PacifiCorp
further alleged that if past practices continue our adjustment  methodology will
result in  additional  overcharges  of  approximately  $150 million  through the
balance of the term of the coal supply agreement, which expires in June of 2013.
In its  counterclaim,  PacifiCorp seeks to cancel and terminate the contract and
to recover monetary damages as proven at trial.

Management  believes that we have properly billed  PacifiCorp under the terms of
the  coal  supply  agreement  and  that  PacifiCorp's   withholding  of  payment
constitutes  a breach of contract on their part.  Although it is  impossible  to
predict  whether we will ultimately be successful with our claim or in defending
PacifiCorp's  claim or, if not successful,  what the impact might be, management
believes that the  disposition  of this matter will not have a material  adverse
effect on our  consolidated  results of  operations or financial  condition.  In
addition,  management  believes that the pending litigation has not affected and
will not affect our other agreements with PacifiCorp.

Other Litigation

On July 14,  2000,  the South Coast Air  Quality  Management  District  known as
SCAQMD sent a letter to our affiliate,  now called Black Hills  Ontario,  L.L.C,
the operator of a 12 megawatt natural-gas fired cogeneration facility located in
Ontario,  California,  stating that the SCAQMD had determined,  as a result of a
facility audit  completed for the compliance  year ended June 1, 1999,  that the
facility's  nitrogen  oxide,  or Nox,  emissions  were  28,958  pounds  over the
facility's NOx allocation  established by the SCAQMD's RECLAIM emissions trading
program.  As a  result,  the  SCAQMD  indicated  that it would be  reducing  the
facility's  NOx  allocation by the same number of allowances  for the compliance
year subsequent to a final determination on this issue. If a final determination
is reached prior to June 30, 2001, the NOx allowances would be deducted from the
facility's  allocation for the compliance year ended June 30, 2002.  Black Hills
Ontario  has  provided  documentation  to the  SCAQMD  disputing  this  proposed
reduction.  In  addition to this  proposed  reduction,  which  could  affect the
facility's  compliance with RECLAIM  requirements  for the 2001-2002  compliance
period,  Black  Hills  Ontario  also  projects  that its NOx  emissions  for the
compliance year ended June 30, 2001 may be approximately  30,000 pounds over its
current NOx allocation.  There is currently significant  volatility in the price
and supply of  RECLAIM  NOx  allowances;  although  the  SCAQMD  has  proposed a
revision to its  regulations  to  stabilize  the RECLAIM  market,  it is unclear
whether such rules will mitigate Black Hills  Ontario's  potential  exposure for
its projected  allowance  shortfall.  Accordingly,  no assurance can be given at
this time  regarding  whether  RECLAIM  NOx  allowances  will be  available  for
purchase to allow Black Hills  Ontario to comply with RECLAIM  requirements  for
the year ended June 30, 2001, or, if allowances are available, as to the cost of
those  allowances.  Black Hills Ontario may also be subject to administrative or
civil  penalties with respect to alleged  violations of the SCAQMD's  regulation
for the  compliance  year  ended  June 30,  1999,  although  no  notice  of such
penalties has been issued.

<PAGE>

There are no other  material  legal  proceedings  pending,  other than  ordinary
routine  litigation  incidental to our business,  to which we are a party. There
are no material legal  proceedings to which an officer or director is a party or
has a material interest adverse to us or our subsidiaries. There are no material
administrative or judicial  proceedings arising under  environmental  quality or
civil  rights  statutes  pending  or known to be  contemplated  by  governmental
agencies to which we are or would be a party.

PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS

All of our common stock is held by our parent company,  Black Hills Corporation.
Accordingly, there is no established trading market for our common stock.

ITEM 7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

Consolidated Results

Consolidated net income for 2000 was $52.8 million, compared to $37.1 million in
1999 and $25.8 million in 1998. This equates to a 19.0 percent, 17.1 percent and
12.5  percent  return  on  year-end  common  equity  in  2000,  1999  and  1998,
respectively.

We  reported  record  earnings  in 2000,  primarily  due to strong  natural  gas
marketing  activity,  increased fuel  production,  expanded power generation and
increased  wholesale  off-system  electric utility sales.  Strong results in our
independent  energy  business  group in 2000 were  partially  offset by start-up
losses in our communications business. Unusual energy market conditions stemming
primarily from gas and  electricity  shortages in California  contributed to our
strong  financial  performance in 2000.  There was  approximately a $9.0 million
contribution  to 2000 earnings due to prevailing  prices of gas and  electricity
and unusually wide gas trading margins that may not recur in the future.

Earnings  in 1999  increased  over  1998 due  primarily  to sales  growth in our
electric utility and improved results in our independent  energy business group,
partially offset by expected start-up losses in our communications business.

In 1998, we recorded an $8.8 million (after tax) charge to earnings related to a
write-down of certain oil and natural gas  properties.  Absent this charge,  our
earnings  for 1998  would have been $34.6  million,  and our return on  year-end
common equity would have been 16.1 percent.  The write-down was primarily due to
historically  low crude oil  prices,  lower  natural gas prices and a decline in
value of certain unevaluated properties.

Consolidated  revenues were $1,623.8 million,  $791.9 million and $679.3 million
in 2000,  1999 and 1998,  respectively,  representing a 105 percent  increase in
2000 and a 17 percent increase in 1999.

The growth in revenues in 2000 was a result of high energy  commodity prices and
increased  volumes of fuel  marketed,  primarily  as a result of  extreme  price
volatility in the western  markets,  acquisitions  and growth in the independent
energy business group and increases in off-system sales by our electric utility.
Prices of natural gas  marketed  increased  from an average of  $1.97-$2.15  per
million  British  thermal  units in 1998 and 1999 to $4.19 per  million  British
thermal  units in 2000.  Daily  volumes of natural  gas  marketed  increased  35
percent from 635,500  million  British  thermal units per day in 1999 to 860,800
million British thermal units in 2000.

Revenue increases in 1999 resulted primarily from the acquisitions and growth in
the  fuel  marketing  segment  of our  independent  energy  business  group  and
off-system sales by our electric utility.

<PAGE>

Revenue and net income (loss) provided by each business group as a percentage of
our total revenue and net income were as follows:

<TABLE>
<CAPTION>
                                                                2000                1999                1998
                                                                ----                ----                ----
                  <S>                                           <C>                 <C>                 <C>
                  Revenue:
                     Independent energy                           89%                 83%                81%
                     Electric utility                             11                  17                 19
                     Communications                                -                   -                  -
                                                                ----                ----               ----
                                                                 100%                100%               100%
                                                                 ===                 ===                ===

                  Net Income (Loss):
                     Independent energy                           55%                 31%                  5%
                     Electric utility                             70                  74                  96
                     Communications                              (25)                 (5)                 (1)
                                                                 ----                ---                 ---
                                                                 100%                100%                100%
                                                                 ===                 ===                 ===
</TABLE>

Net income from the  independent  energy  group is expected to exceed net income
derived from utility operations in 2001. We expect that earnings growth from the
independent energy group over the next few years will be driven primarily by our
continued expansion in the independent power production segment. We also believe
that continued  strength in commodity prices and energy markets will provide the
opportunity  for strong results in our fuel marketing and oil and gas production
operations.

We have  continued to produce  modest  growth in revenue and  earnings  from the
retail electric  business over the past two years. We believe that this trend is
stable and that, absent unplanned system outages,  it will continue for the next
several  years due to the extension of our electric rate freeze until January 1,
2005.  The share of our future  earnings  generated  from  wholesale  off-system
electric sales will depend on many factors  including native load growth,  plant
availability and commodity prices in the western markets.

Although our communications  business  significantly  increased  residential and
business customers in 2000, we expect it will sustain  approximately $10 million
in  net  losses  in  2001,   with  annual  losses   decreasing   thereafter  and
profitability expected in the next three to four years.

The  following  business  group and segment  information  includes  intercompany
eliminations.

Electric Utility

<TABLE>
<CAPTION>
                                                                2000                 1999                1998
                                                                ----                 ----                ----
                                                                      (in thousands)
                    <S>                                       <C>                   <C>                  <C>
                    Revenue                                   $173,308              $133,222            $129,236
                    Operating expenses                         105,100                80,936              79,340
                                                              --------              --------            --------
                    Operating income                          $ 68,208              $ 52,286            $ 49,896
                                                              ========              ========            ========
                    Net income                                $ 37,105              $ 27,286            $ 24,825
                                                              ========              ========            ========
                    EBITDA                                    $ 88,853              $ 68,299            $ 64,936
                                                              ========              ========            ========
</TABLE>

<PAGE>

Our electric  revenue  increased 30.1 percent in 2000 compared to 3.1 percent in
1999. The increase in electric revenue in 2000 was primarily due to a 54 percent
increase in wholesale  off-system  sales at an average  price that was 3.1 times
higher than the average  price in 1999.  The  increase in  off-system  sales was
driven by high spot  market  prices  for  energy in 2000,  which  enabled  us to
generate more energy from our combustion turbine facilities,  including the Neil
Simpson  combustion  turbine which we placed into  commercial  operation in June
2000.  Megawatthours  generated from our oil-fired diesel and natural  gas-fired
combustion  turbines  were  305,767 in 2000,  25,882 in 1999 and 33,082 in 1998.
Historically,  market  prices were not  sufficient  to support the  economics of
generating from these facilities,  except to meet peak demand and as standby use
for native load requirements.

Firm kilowatthour  sales increased 2.8 percent in 2000 compared to a decrease of
0.1 percent in 1999. Residential and commercial sales increases of 6 percent and
3 percent,  respectively,  in 2000 were partially offset by a 2 percent decrease
in industrial  sales,  primarily due to load  reductions at Homestake Gold Mine.
Degree  days,  a measure of  weather  trends,  were 16 percent  above 1999 and 1
percent above normal in 2000.  Degree days in 1999 were 9 percent below 1998 and
13 percent below normal.  The increase in electric revenue in 1999 was primarily
due to stable  firm sales  combined  with a 20 percent  increase  in  off-system
sales.

Revenue per  kilowatthour  sold was 6.4 cents in 2000,  compared to 5.4 cents in
1999 and 1998.  The number of customers in the service area  increased to 58,601
from 57,709 in 1999 and from 56,856 in 1998. The revenue per  kilowatthour  sold
in 2000 reflects a 54 percent  increase in wholesale  non-firm  sales to 684,378
megawatthours  and robust  wholesale power prices.  The revenue per kilowatthour
sold in 1999  reflects the 20 percent  increase in wholesale  non-firm  sales to
445,712 megawatthours. The revenue per kilowatthour sold in 1998 reflects the 33
percent increase in wholesale non-firm sales to 371,104 megawatthours.

Our  electric  utility  operating  expenses  increased  by 30  percent  in 2000,
primarily due to increased fuel,  purchased power, and operating and maintenance
expenses, partially offset by lower depreciation.  Fuel expense in 2000 included
the cost associated with the additional combustion turbine generation. Operating
expenses  increased  2.0 percent in 1999,  primarily  due to increased  purchase
power expense,  operations and maintenance expenses and depreciation,  partially
offset by lower fuel expense.

We forecast firm energy sales in our retail  service  territory to increase over
the next 10 years at an annual compound growth rate of  approximately 1 percent,
with the  system  demand  forecasted  to  increase  at a rate of 2  percent.  We
currently have a winter peak of 344 megawatts established in December 1998 and a
summer peak of 372 megawatts  established  in August 2000.  These  forecasts are
derived  from  studies  conducted  by us whereby we examined  and  analyzed  our
service  territory to estimate  changes in the needs for  electrical  energy and
demand over a 20-year period. These forecasts are only estimates, and the actual
changes in electric sales may be substantially different. Weather deviations can
also affect  energy sales  significantly  when  compared to  forecasts  based on
normal weather.


<PAGE>


Independent Energy
<TABLE>
<CAPTION>
                                                          2000                       1999                        1998
                                                          ----                       ----                        ----
                                                                   (in thousands)
       <S>                                             <C>                          <C>                        <C>
       Revenue:
         Fuel marketing                                $1,353,795                   $614,228                   $506,043
         Coal production                                   30,530                     31,095                     31,413
         Oil and gas production                            19,183                     13,052                     12,562
         Independent power                                 39,331                          -                          -
                                                       ----------                   --------                   --------
            Total revenue                               1,442,839                    658,375                    550,018
       Expenses                                         1,381,991                    644,196                    536,048*
                                                       ----------                   --------                   --------
       Operating income                                $   60,848                   $ 14,179                   $ 13,970*
                                                       ==========                   ========                   ========
       Net income                                      $   28,946                   $ 11,882                   $ 10,068*
                                                       ==========                   ========                   ========
       EBITDA**                                        $   65,184                   $ 25,016                   $ 22,530
                                                       ==========                   ========                   ========
</TABLE>

---------------
  * Excludes $13.5 million pre-tax,  $8.8 million after tax, non-cash write-down
    relating to oil and gas properties due to historically low crude oil prices,
    lower  natural  gas  prices  and a  decline  in  the  value  of  unevaluated
    properties.
**  EBITDA represents earnings before interest, income taxes,  depreciation and
    amortization  and any  non-recurring  or non-cash  items.  EBITDA is used by
    management  and some  investors as an  indicator  of a company's  historical
    ability to service debt.  Management  believes that an increase in EBITDA is
    an  indicator  of  improved  ability to service  existing  debt,  to sustain
    potential  future  increases  in debt and to satisfy  capital  requirements.
    However,  EBITDA is not intended to represent cash flows for the period, nor
    has it been  presented as an  alternative  to either  operating  income,  as
    determined by generally accepted accounting  principles,  or as an indicator
    of  operating  performance  or cash  flows  from  operating,  investing  and
    financing  activities,   as  determined  by  generally  accepted  accounting
    principles,  and is thus  susceptible  to  varying  calculations.  EBITDA as
    presented may not be comparable to other similarly  titled measures of other
    companies.

The following is a summary of coal, oil and natural gas production:

<TABLE>
<CAPTION>
                                                          2000                       1999                        1998
                                                          ----                       ----                        ----
       <S>                                              <C>                          <C>                        <C>
       Tons of coal sold                                3,050,000                    3,180,000                  3,280,000
       Barrels of oil sold                                334,000                      318,000                    344,000
       Mcf of natural gas sold                          3,274,000                    2,791,000                  2,056,000
       Mcf equivalent sales                             5,278,000                    4,698,000                  4,120,000
</TABLE>

The following is a summary of average daily fuel marketing volumes:

<TABLE>
<CAPTION>
                                                            2000                       1999                        1998
                                                            ----                       ----                        ----
          <S>                                             <C>                          <C>                        <C>
          Natural gas - MMBtus                            860,800                      635,500                    524,800
          Crude oil - barrels                              44,300                       19,270                     19,000
          Coal - tons                                       4,400                        4,500                      4,400*
</TABLE>

------------
* Since the acquisition date

The independent  energy business group's revenues  increased 119 percent in 2000
and 20 percent in 1999. The revenue  increase in 2000 was a direct result of gas
and  electricity  shortages  in the West Coast  markets  and the  closing of the
Indeck  Capital  acquisition.  The revenue  increase in 1999 was  primarily  the
result of consolidating our three fuel marketing companies'  operations from the
time of their acquisitions.  Additionally, revenues increased in both years as a
result of increased  volumes and increased fuel and power prices.  Daily volumes
of natural gas marketed increased 35 percent in 2000 and 21 percent in 1999. The
July 2000  acquisition  of Indeck  Capital  contributed  to our strong  earnings
growth in 2000. In addition, in December 2000, we sold our ownership interest in
a power fund management company which resulted in a $3.7 million pre-tax gain.




The independent  energy business  group's total operating  expenses,  EBITDA and
operating  income  increased  over 115  percent,  160 percent  and 329  percent,
respectively,  in 2000 compared to 1999. Net income of this group  increased 144
percent in 2000.  These  increases  resulted  primarily  from our gas  marketing
operations,  which  experienced a dramatic  increase in both trading volumes and
margins,  a significant  increase in fuel  production  volumes,  record fuel and
power prices and expanded power  generation.  The  independent  energy  business
group's 1999 net income  improved over 1998  (excluding  the non-cash  charge in
1998)  primarily  due to record  gas  production,  improved  oil  prices,  lower
depletion  expense and the sale of certain  retail gas  marketing  operations in
1999,  partially offset by a non-cash  write-down of certain  intangible  assets
relating to our wholesale gas marketing office in Houston.

Coal Mining

Coal mining results were as follows:

<TABLE>
<CAPTION>
                                                          2000                  1999                   1998
                                                          ----                  ----                   ----
                                                                            (in thousands)
        <S>                                               <C>                    <C>                   <C>
        Revenue                                            $30,530               $31,095               $31,413
        Operating income                                     8,800                12,600                12,700
        Net income                                           7,200                 9,700                 9,750
        EBITDA                                              19,000                15,700                15,600

</TABLE>

A planned  five-week  overhaul at the Wyodak plant  resulted in lower coal sales
and earnings in 2000 compared to 1999 and 1998.

Oil and Gas

Oil and gas operating results were as follows:

<TABLE>
<CAPTION>
                                                            2000                   1999                  1998
                                                            ----                   ----                  ----
                                                                            (in thousands)
        <S>                                                <C>                    <C>                  <C>
        Revenue                                            $19,183                $13,052              $ 12,562
        Operating income                                     7,900                  4,000                 1,200*
        Net income                                           5,000                  2,500                   800*
        EBITDA                                              11,900                  6,900                 6,400
</TABLE>
------------
*Excludes $13.5 million  pre-tax,  $8.8 million after tax,  non-cash  write-down
relating to oil and gas  properties  due to  historically  low crude oil prices,
lower natural gas prices and a decline in the value of unevaluated properties.

Record net income in 2000 was  primarily a result of record  natural gas prices,
higher  crude oil prices  and a  significant  increase  in  production  volumes.
Operating  results for 1998 decreased  primarily as a result of historically low
crude oil prices,  which not only reduced  revenue but also increased  depletion
expense (lower oil and gas prices reduce the  economically  recoverable  reserve
amounts,  causing an increase in depletion expense). We recognized approximately
$3.7 million,  $2.6 million and $4.9 million of depletion expense (excluding the
write-down  in 1998) related to gas and oil  production in 2000,  1999 and 1998,
respectively.

<PAGE>

The following is a summary of our oil and gas reserves at December 31:
<TABLE>
<CAPTION>
                                                          2000                   1999                  1998
                                                          ----                   ----                  ----
        <S>                                               <C>                    <C>                   <C>
        Barrels of oil (in millions)                       4.41                   4.11                  2.37
        Bcf of natural gas                                18.4                   19.5                  16.0
        Total in Bcf equivalents                          44.88                  44.11                 30.16
</TABLE>

These reserves are based on reports prepared by Ralph E. Davis Associates, Inc.,
an independent  consulting and engineering firm.  Reserves were determined using
constant  product  prices  at the  end of the  respective  years.  Estimates  of
economically  recoverable reserves and future net revenues are based on a number
of variables, which may differ from actual results. The increase in oil reserves
at  December  31,  2000 was due to  improved  product  prices.  The  increase in
reserves  at  December  31,  1999 was due to strong  drilling  results,  reserve
acquisitions and improved  product prices.  We intend to increase our net proved
reserves by selectively  increasing our oil and gas  exploration and development
activities and by acquiring producing properties.

Fuel Marketing

Our fuel marketing companies produced the following results:

<TABLE>
<CAPTION>
                                                          2000                   1999                  1998
                                                          ----                   ----                  ----
                                                                            (in thousands)
        <S>                                             <C>                     <C>                    <C>
        Revenue                                         $1,353,795              $614,228               $506,043
        Operating income (loss)                             23,800                (2,200)                     -
        Net income                                          14,000                  (200)                  (300)
        EBITDA                                              23,700                 2,500                    600
</TABLE>

Record volumes  marketed and strong  margins  contributed to the increase in net
income from fuel  marketing in 2000 compared to 1999 and 1998.  During 1999, the
fuel marketing companies sold certain of their retail gas marketing  operations,
resulting in after-tax gains of approximately $1.8 million. In 1999, revenue and
the  related  cost  of  sales  increased  primarily  due to a full  year of coal
marketing operations (acquired in September 1998),  increased product prices and
increased  oil  volumes  marketed.  Operating  income in 1999 was  reduced  by a
non-cash  write-down of certain  intangible assets relating to the wholesale gas
marketing office in Houston in the amount of  approximately  $1.2 million (after
tax).

Our fuel marketing companies generate large amounts of revenue and corresponding
expense  related to buying and selling  energy  commodities.  Fuel  marketing is
extremely competitive,  and margins are typically very small. The unusual energy
market conditions stemming primarily from natural gas and electricity  shortages
in California  contributed to the strong  financial  performance in 2000 and may
not recur in the future.  However,  we believe that the continued  growth of our
fuel  and  power  production  businesses  will  create  opportunities  for us to
continue to generate strong fuel marketing operating results in future years.

<PAGE>

Independent Power Production

Our independent power segment produced the following results:

<TABLE>
<CAPTION>
                                                          2000                  1999                   1998
                                                          ----                  ----                   ----
                                                                           (in thousands)
        <S>                                              <C>                  <C>                   <C>
        Revenue                                          $39,331              $     -               $      -
        Operating income (loss)                           20,400                 (160)                  (160)
        Net income                                         3,200                 (110)                  (120)
        EBITDA                                            10,751                 (160)                  (160)
</TABLE>

Results from the  independent  power  production  segment  were not  significant
either in 1999 or 1998.  In July 2000, we completed  the  acquisition  of Indeck
Capital,   representing  a  significant  advancement  of  our  position  in  the
independent power production business. We now own 250 net megawatts in currently
operating  plants.  Of this 250 net  megawatts,  approximately  179 megawatts is
under  contracts  or  tolling  arrangements  with at least  one year  remaining;
approximately  40 megawatts is owned through  minority  interests in independent
power investment  funds which we do not manage,  and the remainder is sold under
short-term  market  arrangements.  An  additional  470  megawatts of  generating
capacity is currently under construction. We expect to sell substantially all of
this  output  under  long-term  contracts.  We expect to increase  revenues  and
earnings in this segment beyond 2001 through future project development.

Communications
<TABLE>
<CAPTION>
                                                          2000                   1999                  1998
                                                          ----                   ----                  ----
                                                                            (in thousands)
        <S>                                              <C>                   <C>                    <C>
        Revenue                                          $  7,689              $    278               $      -
        Operating expenses                                 20,175                 4,852                  1,087
                                                         ---------             --------               ---------
        Operating loss                                   $(12,486)             $(4,574)               $ (1,087)
                                                         =========             ========               =========
        Net loss                                         $(12,027)             $(1,262)               $   (280)
                                                         =========             ========               =========
        EBITDA                                           $(13,144)             $(2,626)               $   (570)
                                                         =========             ========               =========
</TABLE>

In  September   1998,   we  formed  our   communications   business  to  provide
facilities-based  communications  services for Rapid City and the northern Black
Hills of South Dakota.  We began serving  communications  customers in late 1999
and market our  services to schools,  hospitals,  cities,  economic  development
groups,  and business and residential  customers.  Operating losses in 2000 were
attributable  to  increased  interest,   depreciation  and  operating  expenses.
Operating  losses in 1999 were primarily due to start-up  organizational  costs,
increased  depreciation  expense and increased  interest expense associated with
capital deployment.

As of December 31, 2000,  we had 8,368  residential  customers  and 646 business
customers.  Our goal is to double the number of our customers,  and to attain 50
percent  residential  market  penetration  within our  service  territory  while
serving 35 percent of all broadband business customers in that territory.  If we
are unable to attract  additional  customers or technological  advances make our
network  obsolete,  we could  have a  write-down  of our assets  which  could be
material.


<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Price Risk Management

Our  operations  are exposed to market risk  arising  from  changes in commodity
prices.  These changes could cause  fluctuations in our earnings and cash flows.
In the normal  course of  business,  we  actively  manage our  exposure to these
market risks by entering into various hedging transactions. Hedging transactions
involve  the use of a variety  of  derivative  financial  instruments.  Our risk
management policies place clear controls on these activities.

We have adopted risk management  policies and procedures,  approved by our board
of  directors,  and reviewed  routinely  by the audit  committee of the board of
directors.  Our risk  management  policies and procedures  include,  but are not
limited to, risk tolerance  levels relating to authorized  derivative  financial
instruments, position limits, authorization of transactions and credit exposure.

Operating margins earned by wholesale gas and crude oil marketing are relatively
insensitive to commodity price fluctuations since most of the purchase and sales
contracts do not contain fixed-price provisions.  Generally, prices contained in
these contracts are tied to a current spot or index price and, therefore, adjust
directionally with changes in overall market conditions. We generally attempt to
balance our fixed-price  physical and financial  purchase and sales commitments.
However,  we may,  at  times,  have a bias  in the  market,  within  established
guidelines,  resulting from the management of our portfolio. To the extent a net
open  position  exists,  fluctuating  commodity  market  prices  can  impact our
financial  position or results of operations,  either  favorably or unfavorably.
The net open positions are actively  managed,  and the impact of changing prices
on our financial  condition at a point in time is not necessarily  indicative of
the impact of price movements throughout the year.

Effective  January 1, 1999, we adopted the  provisions  of Emerging  Issues Task
Force  Issue No.  98-10,  "Accounting  for Energy  Trading  and Risk  Management
Activities" (EITF 98-10).  The resulting effect of adoption of the provisions of
EITF  98-10  was  to  alter  our   comprehensive   method  of   accounting   for
energy-related contracts, as defined in that statement.

We account  for all energy  trading  activities  at fair value as of the balance
sheet date and recognize  currently the net gains or losses  resulting  from the
revaluation of these contracts to fair value in our results of operations.  As a
result, substantially all of the energy trading activities of our gas marketing,
crude oil marketing and coal  marketing  operations are accounted for under fair
value accounting methodology as prescribed in EITF 98-10.

Through our independent energy business group, we utilize financial  instruments
for  our  fuel  marketing   services.   These  financial   instruments   include
fixed-for-float swap financial  instruments,  basis swap financial  instruments,
and costless collars traded in the over-the-counter financial markets.

The derivatives are not held for speculative  purposes but rather serve to hedge
our exposure  related to commodity  purchases or sales  commitments.  Under EITF
98-10,  these  transactions  qualify as energy trading  activities  that must be
accounted for at fair value. As such,  realized and unrealized  gains and losses
are recorded as a component of income.  Because we do not speculate  with "open"
positions,   substantially  all  of  our  trading  activities  are  back-to-back
positions  where a  commitment  to  buy/(sell)  a  commodity  is matched  with a
committed sale/(buy) or financial  instrument.  The quantities and maximum terms
of derivative  financial  instruments  held for trading purposes at December 31,
2000 and 1999 are as follows:

<PAGE>

<TABLE>
<CAPTION>

                                                                                                              Max. Term
December 31, 2000                                                          Volume Covered                       (Years)
-----------------                                                          --------------                     ---------
<S>                                                                           <C>                                  <C>
(MMBtus)
Natural gas basis swaps purchased                                             25,577,894                           2
Natural gas basis swaps sold                                                  26,059,621                           2
Natural gas fixed-for-float swaps purchased                                    6,476,222                           1
Natural gas fixed-for-float swaps sold                                         7,360,560                           1

(Tons)
Coal tons sold                                                                   988,000                           1
Coal tons purchased                                                              896,000                           1
</TABLE>

<TABLE>
<CAPTION>
                                                                                                               Max. Term
December 31, 1999                                                          Volume Covered                       (Years)
-----------------                                                          --------------                       -------
(MMBtus)
<S>                                                                           <C>                                  <C>
Natural gas futures contracts purchased                                          860,000                           1
Natural gas basis swaps purchased                                             17,741,500                           4
Natural gas basis  swaps sold                                                 18,390,517                           4
Natural gas fixed-for-float swaps purchased                                    9,490,486                           1
Natural gas fixed-for-float swaps sold                                        10,994,521                           1
Natural gas collar transactions; puts purchased, calls sold                      408,500                           1
Natural gas collar transactions; calls purchased, puts sold                      318,500                           1
</TABLE>

As required  under EITF 98-10,  energy  trading  activities  were marked to fair
value on December 31, 2000, and the gains and losses recognized in earnings. The
entries for the  accompanying  consolidated  balance sheets and income statement
are as follows (in thousands):

<TABLE>
<CAPTION>

Instrument                                                 Asset                     Liability                 Gain (loss)
----------                                                 -----                     ---------                 -----------
<S>                                                        <C>                        <C>                       <C>
Natural gas basis swaps                                    $13,391                    $23,963                   $(10,572)

Natural gas fixed-for-float swaps                           24,617                     27,110                     (2,493)

Natural gas physical                                        23,391                      9,427                     13,964

Coal transactions                                            5,370                      4,460                        910

Crude oil transactions                                       1,523                      1,000                        523
                                                           -------                    -------                  ---------

  Totals                                                   $68,292                    $65,960                  $   2,332
                                                           =======                    =======                  =========
</TABLE>


There were no  significant  differences  between the fair  values of  derivative
assets and liabilities at December 31, 1999.

Non-trading Energy Activities

To reduce risk from  fluctuations  in the price of oil and natural gas, we enter
into swaps and costless collar transactions.  We use these transactions to hedge
price risk from sales of our  forecasted  crude oil and natural gas  production.
For such transactions, we utilize hedge accounting.

<PAGE>

At December 31, 2000, we had fixed-for-float swaps for 17,000 barrels of oil per
month for the year 2001 to hedge our crude oil price  risk with a fair  value of
$34,000.  We had  fixed-for-float  swaps for 10,000 barrels of oil per month for
the year 2002 to hedge our crude oil price risk with a fair  value of  $416,000.
We also had costless collars  (purchased  puts-sold calls) for 10,000 barrels of
oil per month for 2001 with a fair value of $323,000.  We hedged our  forecasted
2001 natural gas production with  fixed-for-float  swaps. We had fixed-for-float
swaps for 1,581,000  million  British  thermal units with a fair value of $(3.4)
million.  These amounts are not reflected in our December 31, 2000  consolidated
balance  sheet,  but will be recorded as part of the  adoption of  Statement  of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities," on January 1, 2001.

Financing Activities

To reduce risk from  fluctuations in interest rates, we enter into interest rate
swap  transactions.  We use these  transactions  to hedge interest rate risk for
variable  rate  debt  financing.   For  such  transactions,   we  utilize  hedge
accounting.  At December  31, 2000,  we had interest  rate swaps with a notional
amount  of $127.4  million,  which  have a maximum  term of six years and a fair
value of $(7.5)  million.  These  amounts are not  reflected in our December 31,
2000 consolidated balance sheet, but will be recorded as part of the adoption of
SFAS No. 133 on January 1, 2001.

Credit Risk

In addition to the risk  associated  with price  movements,  credit risk is also
inherent in our risk management  activities.  Credit risk relates to the risk of
loss  resulting   from   non-performance   of   contractual   obligations  by  a
counterparty. While we have not experienced significant losses due to the credit
risk associated with these  arrangements,  we have off-balance sheet risk to the
extent that the counterparties to these transactions fail to perform as required
by the terms of their contracts.

Interest Rate Risk

Our exposure to market risk for changes in interest  rates relates  primarily to
our  short-term  investments  and long-term debt  obligations.  As stated in our
policy,  we are averse to principal loss and ensure the safety and  preservation
of our investments by limiting default risk, market risk and reinvestment risk.

We mitigate  default risk on short-term  investments by investing in high credit
quality securities  consisting primarily of tax-exempt federal,  state and local
agency  obligations,  by  periodically  monitoring  the  credit  rating  of  any
investment issuer or guarantor and by limiting the amount of exposure to any one
issuer.  Our portfolio  includes only securities with active secondary or resale
markets to ensure portfolio  liquidity.  All short-term  investments  mature, by
policy,  in two  years or less.  The  effect of a 100  basis  point (1  percent)
increase  in interest  rates would not have a material  effect to our results of
operations  or  financial  condition,  due to  the  short-term  duration  of the
investment portfolio.

At December 31, 2000, we had $162.2 million of outstanding floating rate debt of
which $34.8  million was not offset with interest  rate swap  transactions  that
effectively convert the interest on that debt to a fixed rate.

<PAGE>

The table below presents  principal (or notional)  amounts and related  weighted
average  interest rates by year of maturity for our short-term  investments  and
long-term debt obligations, including current maturities (in thousands).

<TABLE>
<CAPTION>

                                       2001        2002        2003         2004          2005        Thereafter        Total
<S>                                  <C>          <C>        <C>           <C>            <C>         <C>
Cash equivalents
    Fixed rate                       $ 24,913     $     -    $      -      $     -       $     -        $     -       $  24,913
    Average interest rate              6.23%            -           -            -             -              -           6.23%
  rate

Long-term debt
    Fixed rate                       $  3,070     $18,065    $  3,122      $  2,017      $  2,026       $130,602        $158,902
    Average interest rate              9.30%        6.98%        9.31%        9.50%         9.52%          8.30%          8.22%

    Variable rate                     $10,890     $11,919     $12,968       $14,380       $15,560       $ 96,433         $162,150
    Average interest rate              8.20%        8.20%        8.19%        8.19%         8.19%          8.10%          8.14%

       Total long-term debt           $13,960     $29,984     $16,090       $16,397       $17,586       $227,035         $321,052
       Average interest rate           8.44%        7.46%        8.41%        8.35%         8.35%          8.22%          8.18%
</TABLE>


<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

         Report of Independent Public Accountants                            18

         Consolidated Statements of Income
           for the three years ended December 31, 2000                       19

         Consolidated Balance Sheets as of December 31, 2000 and 1999        20

         Consolidated Statements of Cash Flows
            for the three years ended December 31, 2000                      21

         Consolidated Statements of Common Stockholder's Equity
            for the three years ended December 31, 2000                      22

         Notes to Consolidated Financial Statements                       23-42



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholder of Black Hills Power, Inc.:

We have  audited the  accompanying  consolidated  balance  sheets of Black Hills
Power, Inc. (formerly Black Hills Corporation,  a South Dakota  corporation) and
Subsidiaries  as of  December  31, 2000 and 1999,  and the related  consolidated
statements of income, common stockholder's equity and cash flows for each of the
three years in the period ended December 31, 2000.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Black Hills Power,  Inc. and
Subsidiaries  as of  December  31,  2000  and  1999,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting  principles  generally accepted
in the United States.

Arthur Andersen LLP

Minneapolis, Minnesota,
January 26, 2001


<PAGE>



                                            BLACK HILLS POWER, INC.
                                      (formerly Black Hills Corporation)
                                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

Years ended December 31,                                            2000               1999               1998
                                                                    ----               ----               ----
                                                                                  (in thousands)

<S>                                                              <C>                 <C>               <C>
Operating revenues                                               $1,623,836          $ 791,875         $  679,254
                                                                 ----------          ---------         ----------

Operating expenses:
    Fuel and purchased power                                      1,370,841            637,302            531,518
    Operations and maintenance                                       46,054             36,463             32,701
    Administrative and general                                       44,423             18,272             15,747
    Depreciation, depletion and amortization                         32,864             25,067             24,037
    Oil and gas ceilings test write-down                                  -                  -             13,546
    Taxes, other than income taxes                                   14,904             12,880             12,472
                                                                 ----------          ---------          ---------
                                                                  1,509,086            729,984            630,021
                                                                 ----------          ---------          ---------

Operating income                                                    114,750             61,891             49,233
                                                                 ----------          ---------          ---------

Other income (expense):
    Interest expense                                                (30,342)           (15,460)           (14,707)
    Interest income                                                   7,075              3,614              2,861
    Other, net                                                        2,996                876                129
                                                                 ----------         ----------          ---------
                                                                    (20,271)           (10,970)           (11,717)
                                                                 ----------         ----------          ---------

Income before minority interest and income taxes                     94,479             50,921             37,516
Minority interest                                                   (11,273)             1,935                  -
Income taxes                                                        (30,358)           (15,789)           (11,708)
                                                                 ----------         ----------          ---------

          Net income                                                 52,848             37,067             25,808
Preferred stock dividends                                               (78)                 -                 -
                                                                 ----------         ----------          ---------
Net income available for common stock                            $   52,770          $  37,067           $ 25,808
                                                                 ==========         ==========          =========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.


<PAGE>


                             BLACK HILLS POWER, INC.
                       (formerly Black Hills Corporation)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

At December 31,                                                                      2000                 1999
                                                                                     ----                 ----
                                                                                (in thousands, except share amounts)
                                   ASSETS
<S>                                                                               <C>                  <C>
Current assets:
    Cash and cash equivalents                                                     $  24,913            $  16,482
    Securities available-for-sale                                                     2,113                7,586
    Receivables (net of allowance for doubtful accounts of $3,631
         and $278, respectively) -
      Customers                                                                     278,434               84,331
      Other                                                                          21,283               55,694
    Materials, supplies and fuel                                                     16,545               14,278
    Prepaid expenses                                                                  7,428                2,828
    Derivatives at market value                                                      68,292                5,158
                                                                               ------------           ----------
                                                                                    419,008              186,357
                                                                               ------------            ---------

Investments                                                                          73,032               10,444
                                                                               ------------            ---------

Property and equipment                                                            1,072,129              700,044
    Less accumulated depreciation and depletion                                    (277,848)            (246,299)
                                                                               ------------            ---------
                                                                                    794,281              453,745
                                                                               ------------            ---------
Other assets:
    Regulatory asset                                                                  4,134                3,944
    Other, principally goodwill                                                      38,930               14,002
                                                                               ------------            ---------
                                                                                     43,064               17,946
                                                                               ------------            ---------
                                                                                 $1,329,385             $668,492
                                                                               ============            =========
                    LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
    Current maturities of long-term debt                                        $    13,960           $    1,330
    Notes payable                                                                   211,679               97,579
    Accounts payable                                                                247,596               80,355
    Accrued liabilities                                                              49,661               26,088
    Derivatives at market value                                                      65,960                5,158
                                                                               ------------           -----------
                                                                                    588,856              210,510
                                                                               ------------           ----------
Long-term debt, net of current maturities                                           307,092              160,700
                                                                               ------------           ----------

Deferred credits and other liabilities:
    Investment tax credits                                                            2,530                3,022
    Federal income taxes                                                             62,679               47,668
    Reclamation and regulatory liability                                             22,340               22,494
    Other                                                                            16,516                7,492
                                                                               ------------           ----------
                                                                                    104,065               80,676
                                                                               ------------           ----------
Minority interest in subsidiaries                                                    37,961                    -
                                                                               ------------           ----------
Commitments and contingencies (Notes 10, 11 and 14)

Common stock equity:
    Common stock $1 par value; 50,000,000 shares authorized;
      Issued: 23,416,396 shares in 2000 and 21,739,030 shares in 1999                23,416               21,739
    Additional paid-in capital                                                       77,326               40,658
    Retained earnings                                                               191,482              162,239
    Treasury stock                                                                        -               (8,030)
    Accumulated other comprehensive income (loss)                                      (813)                   -
                                                                               ------------           ----------
                                                                                    291,411              216,606
                                                                               ------------           ----------
                                                                                 $1,329,385             $668,492
                                                                               ============           ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.

<PAGE>


                             BLACK HILLS POWER, INC.
                       (formerly Black Hills Corporation)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years ended December 31,                                                 2000              1999             1998
                                                                         ----              ----             ----
                                                                                      (in thousands)
<S>                                                                     <C>               <C>               <C>
Operating activities:
    Net income available for common stock                               $52,770           $37,067           $25,808
    Principal non-cash items-
        Depreciation, depletion and amortization                         32,864            25,067            24,037
        Oil and gas ceilings test write-down                                  -                 -            13,546
        Derivative fair value adjustment, net                            (2,332)                -                 -
        Gain on sales of assets                                          (3,736)           (2,541)                -
        Deferred income taxes and investment tax credits                  1,937             2,291            (2,535)
        Minority interest                                                11,273            (1,935)                -
     Change in operating assets and liabilities-
        Accounts receivable                                            (201,307)            2,232           (46,821)
        Materials, supplies, fuel and other current assets               (3,513)           (4,003)           (2,954)
        Accounts payable                                                165,394             6,268            41,465
        Accrued liabilities                                              18,678             4,013             2,244
        Other, net                                                        2,444             5,284               (60)
                                                                     ----------         ---------          --------
                                                                         74,472            73,743            54,730
                                                                     ----------         ---------          --------
Investing activities:
    Property additions                                                 (134,855)         (102,290)          (25,265)
    Increase in investments                                             (13,646)          (52,319)           (1,960)
    Payment for acquisition of net assets, net of cash acquired         (28,688)                -                 -
    Proceeds from sales of assets                                         5,500             3,463                 -
    Available-for-sale securities purchased                                   -            (7,870)          (22,361)
    Available-for-sale securities sold                                    4,660            22,959            13,655
                                                                     ----------        ----------         ---------
                                                                       (167,029)         (136,057)          (35,931)
                                                                     ----------        ----------         ---------
Financing activities:
    Dividends paid                                                      (23,527)          (22,602)          (21,737)
    Treasury stock purchased                                             (1,037)           (4,949)           (3,081)
    Common stock issued                                                   3,852               424               273
    Increase in short-term borrowings                                    73,848            92,489             5,067
    Long-term debt - issuance                                            60,082                 -                 -
    Long-term debt - repayments                                          (1,330)           (1,330)           (1,331)
    Subsidiary distributions to minority interests                      (10,900)                -                 -
                                                                      ----------       ----------         ---------
                                                                        100,988            64,032           (20,809)
                                                                      ----------       ----------         ---------

      Increase (decrease) in cash and cash equivalents                    8,431             1,718            (2,010)

Cash and cash equivalents:
    Beginning of year                                                    16,482            14,764            16,774
                                                                      ----------         ---------         ---------
    End of year                                                       $  24,913          $ 16,482          $ 14,764
                                                                      ==========         =========         =========

Supplemental disclosure of cash flow information:

    Cash paid during the period for-
      Interest                                                          $31,309           $18,819           $14,742
      Income taxes                                                      $18,518           $13,173           $13,135

Non-cash net assets acquired through issuance of common
and preferred stock (Note 14)                                           $34,493           $     -           $     -

Non-cash exchange of treasury stock and preferred stock
for common stock (Note 1)                                               $13,067           $     -           $     -
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.


<PAGE>

                             BLACK HILLS POWER, INC.
                       (formerly Black Hills Corporation)
             CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>

                                                                                                               Accumulated
                                       Common Stock        Additional                    Treasury Stock           Other
                                   ----------------------    Paid-In       Retained     ------------------    Comprehensive
                                    Shares      Amount       Capital       Earnings     Shares     Amount     Income (loss)  Total
                                    ------      ------       -------       --------     ------     ------     -------------  -----
                                                                               (in thousands)
<S>                                 <C>        <C>         <C>             <C>           <C>       <C>         <C>            <C>
Balance at
December 31, 1997                    21,705    $ 21,705     $   39,995     $  143,703          -   $      -     $      -   $205,403
                                   --------    --------     ----------     ----------   --------- ----------   ----------  --------
Comprehensive Income:
   Net income                             -           -              -         25,808          -          -            -     25,808
                                   --------    --------     ----------     ----------   --------- ----------   ----------  --------
                                          -           -              -         25,808          -          -            -     25,808

Dividends on common stock                 -           -              -        (21,737)         -          -            -    (21,737)
Issuance of common stock                 14          14            259              -          -          -            -        273
Treasury stock acquired, net              -           -              -              -       (141)    (3,081)           -     (3,081)
                                   --------    --------     ----------     ----------   --------  ---------    ----------  --------

Balance at
December 31, 1998                    21,719      21,719         40,254        147,774       (141)    (3,081)           -   $206,666
                                   --------    --------     ----------     ----------   --------  ---------    ----------  --------
Comprehensive Income:
   Net income                             -           -              -         37,067          -          -             -    37,067
                                   --------    --------     ----------     ----------   --------  ---------    ----------  --------
                                          -           -              -         37,067          -          -             -    37,067

Dividends on common stock                 -           -              -        (22,602)         -          -             -   (22,602)
Issuance of common stock                 20          20            404              -          -          -             -       424
Treasury stock acquired, net              -           -              -              -       (227)    (4,949)            -    (4,949)
                                   --------    --------     ----------     ----------   --------  ---------    ----------  --------


Balance at
December 31, 1999                    21,739      21,739         40,658        162,239       (368)    (8,030)            -  $216,606
                                   --------    --------     ----------     ----------   --------  ---------    ----------  --------
Comprehensive Income:
   Net income                             -           -              -         52,848          -          -             -    52,848
   Unrealized loss on available
   for sale securities                    -           -              -              -          -          -          (813)     (813)
                                   --------    --------     ----------     -----------  --------  ---------    ----------  --------
                                          -           -              -         52,848          -          -          (813)   52,035

Dividends on preferred stock              -           -              -            (78)         -          -             -       (78)
Dividends on common stock                 -           -              -        (23,527)         -          -             -   (23,527)
Issuance of common stock                140         140          4,428              -          -          -             -     4,568
Issuance of common stock
  for acquisition                     1,537       1,537         32,240              -          -          -             -    33,777
Treasury stock acquired, net              -           -              -              -        368      8,030             -     8,030
                                   --------    --------     ----------     -----------  --------  ---------    ----------  --------

Balance at
December 31, 2000                    23,416    $ 23,416     $   77,326     $   191,482         -  $       -    $     (813) $291,411
                                     ======    ========     ==========     ===========  ========  =========    ==========  ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these consolidated financial statements.

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2000, 1999 and 1998

(1)   BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Description

Black Hills Power,  Inc. and its  subsidiaries  (the  Company)  operate in three
primary operating groups: regulated electric utility,  non-regulated independent
energy and  communications.  Black  Hills  Power  operates  the  public  utility
operations.  The Company operates its independent  energy businesses through its
direct and indirect subsidiaries:  Wyodak Resources related to coal, Black Hills
Exploration and Production related to oil and natural gas, Enserco Energy, Black
Hills Energy Resources and Black Hills Coal Network related to fuel marketing of
natural gas, oil and coal, respectively,  and Black Hills Energy Capital and its
subsidiaries and Black Hills Generation related to independent power activities,
all  consolidated  for reporting  purposes as Black Hills Energy  Ventures;  and
operates its communications  operations through its indirect  subsidiaries Black
Hills Fiber Systems,  Black Hills FiberCom and Daksoft. For further descriptions
of the Company's business segments see Note 13.

During  2000,  the  Company  became a  wholly-owned  subsidiary  of Black  Hills
Corporation  (formerly  Black  Hills  Holding  Corporation)  through  a "plan of
exchange"  between  the  Company  and  Black  Hills  Corporation.  The  "plan of
exchange"  provided  that each  share of the  Company's  common  stock  would be
exchanged for one share of common stock of the holding company. As a result:

o    all common  shareholders of Black Hills Power,  Inc.  (formerly Black Hills
     Corporation) became shareholders of Black Hills Corporation (formerly Black
     Hills Holding Corporation), the holding company;

o    Black Hills Power,  Inc.  became a  wholly-owned  subsidiary of Black Hills
     Corporation;

o    The debt securities and other  financial  obligations of Black Hills Power,
     Inc. continue to be obligations of Black Hills Power, Inc.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned and majority-owned  subsidiaries.  Generally,  the Company uses
equity accounting for investments of which it owns between 20 and 50 percent and
investments  in  partnerships   under  20  percent  if  the  Company   exercises
significant influence.

All significant  intercompany  balances and transactions have been eliminated in
consolidation except for revenues and expenses associated with intercompany coal
sales in accordance  with the  provisions  of Statement of Financial  Accounting
Standards  (SFAS)  No. 71,  "Accounting  for the  Effects  of  Certain  Types of
Regulation."  Total  intercompany  coal sales not eliminated  were $9.7 million,
$7.7 million and $10.3 million in 2000, 1999 and 1998, respectively.

The Company owns 51 percent of the voting  securities  of Black Hills  FiberCom,
LLC  (FiberCom).  During 2000 FiberCom's  operating  losses reduced its members'
equity below zero.  At that point the Company  began to recognize 100 percent of
FiberCom's  operating  losses  and will  continue  to do so until  such  time as
additional  equity  investments  are made by third  parties or future net income
restores members' equity to a positive amount.

As noted in Note 14, Black Hills Energy Capital made several acquisitions during
2000. The Company's consolidated statements of income include operating activity
of these companies beginning with their acquisition date.

The  Company  uses the  proportionate  consolidation  method to account  for its
working interests in oil and gas properties.

<PAGE>

Minority Interest in Subsidiaries

Minority  interest  in  results  of  operations  of  consolidated   subsidiaries
represents  the  minority  shareholders'  share of the income or loss of various
consolidated  subsidiaries.  The minority  interest in the consolidated  balance
sheets reflect the amount of the  underlying net assets of various  consolidated
subsidiaries attributable to the minority shareholders.

Regulatory Accounting

The Company's regulated electric operations are subject to regulation by various
state and federal  agencies.  The  accounting  policies  followed are  generally
subject to the  Uniform  System of Accounts  of the  Federal  Energy  Regulatory
Commission (FERC).  These accounting policies differ in some respects from those
used by the Company's non-regulated businesses.

The Company's electric  operations follow the provisions of SFAS No. 71, and its
financial statements reflect the effects of the different ratemaking  principles
followed by the various jurisdictions  regulating its electric operations.  As a
result of the Company's 1995 rate case  settlement,  a 50-year  depreciable life
for Neil Simpson II is used for  financial  reporting  purposes.  If the Company
were not  following  SFAS 71, a 35 to 40 year  life  would be more  appropriate,
which would  increase  depreciation  expense by  approximately  $0.6 million per
year.  If  rate  recovery  of  generation-related   costs  becomes  unlikely  or
uncertain,  due to competition or regulatory action,  these accounting standards
may no longer apply to the Company's  regulated  generation  operations.  In the
event the Company  determines that it no longer meets the criteria for following
SFAS 71, the accounting impact to the Company would be an extraordinary non-cash
charge to  operations  of an amount that could be material.  Criteria  that give
rise to the discontinuance of SFAS 71 include increasing  competition that could
restrict the Company's ability to establish prices to recover specific costs and
a  significant  change in the manner in which rates are set by  regulators  from
cost-based  regulation to another form of regulation.  The Company  periodically
reviews  these  criteria  to ensure  the  continuing  application  of SFAS 71 is
appropriate.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.

Available-for-sale Securities

The Company has  investments  in marketable  securities  that are  classified as
available-for-sale  securities and are carried at fair value in accordance  with
the provisions of SFAS No. 115 "Accounting  for Certain  Investments in Debt and
Equity  Securities."  The unrealized  gain or loss resulting from the difference
between the securities'  fair value and cost basis is included as a component of
accumulated other comprehensive income in common stockholders' equity.

Inventory

Materials,  supplies  and fuel are  stated  at the  lower of cost or market on a
first-in, first-out basis.

<PAGE>
Property, Plant and Equipment

The components of property, plant and equipment are as follows, at December 31:

                                            2000                     1999
                                                   (in thousands)

         Independent energy             $  430,979                $ 125,371
         Electric utility                  530,529                  523,461
         Communications                    110,486                   50,621
         Other                                 135                      591
                                        ----------                ---------
                                        $1,072,129                $ 700,044
                                        ==========                =========

Additions to property,  plant and  equipment are recorded at cost when placed in
service. Included in the cost of regulated construction projects is an allowance
for funds used during  construction  (AFUDC) which  represents  the  approximate
composite  cost of  borrowed  funds and a return on capital  used to finance the
project. The AFUDC was computed at an annual composite rate of 9.7, 8.3 and 10.1
percent  during 2000,  1999 and 1998,  respectively.  In  addition,  the Company
capitalizes interest,  when applicable,  on certain  non-regulated  construction
projects.  The amount of AFUDC and interest  capitalized was $2.0 million,  $1.2
million  and $0.2  million  in 2000,  1999 and 1998,  respectively.  The cost of
regulated electric property,  plant and equipment retired, or otherwise disposed
of in the ordinary course of business,  together with removal cost less salvage,
is charged to  accumulated  depreciation.  Retirement  or  disposal of all other
assets, except for oil and gas properties as described below, result in gains or
losses recognized as a component of income.  Repairs and maintenance of property
are charged to operations as incurred.

Depreciation provisions for regulated electric property,  plant and equipment is
computed on a straight-line  basis using an annual composite rate of 2.8 percent
in 2000,  3.1 percent in 1999 and 3.0 percent in 1998.  Non-regulated  property,
plant and equipment is  depreciated  on a  straight-line  basis using  estimated
useful  lives  ranging  from 3 to 39  years.  Depletion  of  coal,  oil  and gas
properties is computed using the cost method.

The Company  periodically  evaluates assets under SFAS No. 121,  "Accounting for
the Impairment of Long-Lived  Assets and  Long-Lived  Assets to Be Disposed Of,"
which  requires that such assets be probable of future  recovery at each balance
sheet date. As of December 31, 2000 and 1999, no  significant  write-downs  were
required.

Goodwill and Intangible Assets

Goodwill  represents the excess of acquisition  costs over the fair market value
of  the  net  assets  of  acquired  businesses  and  is  being  amortized  on  a
straight-line basis over the estimated useful lives of such assets,  which range
from 8 to 25 years.  The cost of other  acquired  intangibles  is amortized on a
straight-line basis over their estimated useful lives.  Amortization expense was
$3.1  million,   $2.7  million  and  $0.7  million  in  2000,   1999  and  1998,
respectively.  Accumulated  amortization was $6.7 million, $3.6 million and $0.9
million at December 31, 2000, 1999 and 1998, respectively.

Income Taxes

The Company uses the liability method in accounting for income taxes.  Under the
liability  method,  deferred income taxes are recognized,  at currently  enacted
income tax rates, to reflect the tax effect of temporary differences between the
financial and tax basis of assets and  liabilities.  Such temporary  differences
are the result of provisions in the income tax law that either require or permit
certain items to be reported on the income tax return in a different period than
they are reported in the financial  statements.  To the extent such income taxes
are  recoverable  or  payable  through  future  rates,   regulatory  assets  and
liabilities have been recorded in the accompanying consolidated balance sheets.

Deferred  taxes  are  provided  on  all   significant   temporary   differences,
principally  depreciation  and  depletion.  Investment  tax  credits  have  been
deferred in the electric operation and the accumulated balance is amortized as a
reduction of income tax expense  over the useful  lives of the related  electric
property which gave rise to the credits.

<PAGE>

Revenue Recognition

Generally,  revenue  is  recognized  at  the  time  products  and  services  are
delivered.  Fuel  marketing  businesses  also use the  mark-to-market  method of
accounting. Under that method all energy trading activities are recorded at fair
value as of the balance  sheet date and net gains or losses  resulting  from the
revaluation  of these  contracts to fair value are  recognized  currently in the
results of  operations.  In the  fourth  quarter of 2000,  the  Company  adopted
Securities and Exchange  Commission Staff Accounting  Bulletin No. 101, "Revenue
Recognition" (SAB 101), which provides guidance on the recognition, presentation
and disclosure of revenue in financial  statements.  The adoption of SAB 101 did
not have a material impact on the financial statements.

Oil and Gas Operations

The Company  accounts for its oil and gas activities under the full cost method.
Under the full cost method,  all productive and  nonproductive  costs related to
acquisition,  exploration and development  drilling  activities are capitalized.
These costs are  amortized  using a  unit-of-production  method based on volumes
produced and proved reserves. Any conveyances of properties,  including gains or
losses on abandonments of properties,  are treated as adjustments to the cost of
the properties with no gain or loss recognized.  Under the full cost method, net
capitalized costs may not exceed the present value of proved reserves.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles in the United States requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Ultimate results could differ from those estimates.

Reclassifications

Certain 1999 and 1998 amounts in the financial statements have been reclassified
to conform to the 2000 presentation.  These  reclassifications  had no effect on
the  Company's  common  stockholder's  equity  or  results  of  operations,   as
previously reported.

Accounting Pronouncements

In June 1998, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
133 (SFAS 133),  "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133, as amended,  establishes  accounting and reporting standards requiring
that every  derivative  instrument be recorded in the balance sheet as either an
asset or  liability  measured at its fair value.  The  Statement  requires  that
changes in the  derivative  instrument's  fair value be recognized  currently in
earnings unless specific hedge accounting criteria are met.

SFAS 133 allows  special hedge  accounting  for fair value and cash flow hedges.
The  Statement  provides  that  the  gain  or loss  on a  derivative  instrument
designated  and  qualifying  as a fair value  hedging  instrument as well as the
offsetting  loss or gain on the hedged item  attributable  to the hedged risk be
recognized  currently  in  earnings  in the  same  accounting  period.  SFAS 133
provides  that  the  effective  portion  of the  gain or  loss  on a  derivative
instrument  designated  and  qualifying  as a cash flow  hedging  instrument  be
reported as a component of other  comprehensive  income and be reclassified into
earnings  in the same  period or  periods  during  which the  hedged  forecasted
transaction  affects  earnings.  The  remaining  gain or loss on the  derivative
instrument, if any, must be recognized currently in earnings.

SFAS 133 requires that on date of initial  adoption,  an entity shall  recognize
all freestanding derivative instruments in the balance sheet as either assets or
liabilities  and  measure  them  at  fair  value.   The  difference   between  a
derivative's  previous carrying amount and its fair value shall be reported as a
transition  adjustment.  The transition  adjustment resulting from adopting this
Statement  shall be reported  in net income or other  comprehensive  income,  as
appropriate,  as the effect of a change in  accounting  principle in  accordance
with  paragraph  20 of  Accounting  Principles  Board  Opinion  No. 20 (APB 20),
"Accounting Changes."

<PAGE>

Upon  adoption of SFAS 133,  most of the  Company's  energy  trading  activities
previously  accounted  for under  Emerging  Issues Task Force  Issue No.  98-10,
"Accounting for Energy Trading and Risk Management Activities" (EITF 98-10) will
fall under the purview of SFAS 133. The effect from this  adoption on the energy
trading  companies and energy trading  activities will not be material  because,
unless otherwise  noted,  the trading  companies will not designate their energy
trading activities as hedge instruments. This "no hedge" designation will result
in  these  derivatives  being  measured  at fair  value  and  gains  and  losses
recognized  currently  in  earnings.  This  treatment  under  SFAS  133  will be
comparable to the accounting under EITF 98-10.

At December  31,  2000,  the Company had certain  non-trading  energy  contracts
documented as cash flow hedges. These contracts are defined as derivatives under
SFAS  133 and  meet  the  requirements  for  cash  flow  hedges.  Because  these
non-trading  energy  contracts were documented as hedges prior to adoption,  the
transition  adjustment  will be  reported  in  accumulated  other  comprehensive
income. The aggregated entry for the derivatives  identified as energy cash flow
hedges will increase derivative assets by $1.4 million,  increase the derivative
liabilities by $4.0 million and decrease  accumulated other comprehensive income
by $2.6 million.

At December 31, 2000,  the Company had interest  rate swaps  documented  as cash
flow hedges.  These contracts are defined as derivatives under SFAS 133 and meet
the requirements  for cash flow hedges.  Because these contracts were documented
as hedges  prior to  adoption,  the  transition  adjustment  will be reported in
accumulated other comprehensive income. The interest rate swap transactions have
a notional  amount of $127.4 million and the associated  transition  adjustments
will increase  derivative  liabilities by $7.5 million and decrease  accumulated
other comprehensive income by $7.5 million.

(2)  PRICE RISK MANAGEMENT

The Company is exposed to market risk stemming from changes in commodity prices.
These changes could cause fluctuations in the Company's earnings and cash flows.
In the normal course of business,  the Company  actively manages its exposure to
these market  risks by entering  into various  hedging  transactions,  which are
authorized  under its policies  that place clear  controls on these  activities.
Hedging  transactions  involve  the use of a  variety  of  derivative  financial
instruments.

Effective  January 1, 1999,  the Company  adopted the  provisions of EITF 98-10,
pursuant to the implementation requirements stated therein. The resulting effect
of  adoption  of the  provisions  of  EITF  98-10  was to  alter  the  Company's
comprehensive method of accounting for energy-related  contracts,  as defined in
that Statement.

The Company  accounts for all energy trading  activities at fair value as of the
balance sheet date and  recognizes  currently the net gains or losses  resulting
from the  revaluation  of  these  contracts  to fair  value  in its  results  of
operations.  As a result,  substantially all of the energy trading activities of
the Company's gas marketing,  crude oil marketing, and coal marketing operations
are accounted for under fair value accounting  methodology as prescribed in EITF
98-10.

The Company,  through its independent energy business group,  utilizes financial
instruments for its fuel marketing services. These financial instruments include
fixed-for-float swap financial instruments, basis swap financial instruments and
costless collars traded in the over-the-counter financial markets.

These  derivatives  are not held for  speculative  purposes  but rather serve to
hedge  the  Company's   exposure   related  to  commodity   purchases  or  sales
commitments.  Under EITF 98-10,  these  transactions  qualify as energy  trading
activities  that must be  accounted  for at fair value.  As such,  realized  and
unrealized  gains and losses are recorded as a component of income.  Because the
Company  does  not  as  a  policy  permit  speculation  with  "open"  positions,
substantially all of its trading  activities are back-to-back  positions where a
commitment to  buy/(sell) a commodity is matched with a committed  sale/(buy) or
financial instrument.

<PAGE>

The quantities and maximum terms of derivative  financial  instruments  held for
trading purposes at December 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
                                                                                                              Max. Term
December 31, 2000                                                            Volume Covered                      (Years)
-----------------                                                            --------------                      -------
(MMBtus)
<S>                                                                             <C>                                 <C>
Natural gas basis swaps purchased                                               25,577,894                          2
Natural gas basis swaps sold                                                    26,059,621                          2
Natural gas fixed-for-float swaps purchased                                      6,476,222                          1
Natural gas fixed-for-float swaps sold                                           7,360,560                          1

(Tons)
Coal tons sold                                                                     988,000                          1
Coal tons purchased                                                                896,000                          1

                                                                                                                Max. Term
December 31, 1999                                                            Volume Covered                      (Years)
-----------------                                                            --------------                      -------
(MMBtus)
Natural gas futures contracts purchased                                            860,000                          1
Natural gas basis swaps purchased                                               17,741,500                          4
Natural gas basis  swaps sold                                                   18,390,517                          4
Natural gas fixed-for-float swaps purchased                                      9,490,486                          1
Natural gas fixed-for-float swaps sold                                          10,994,521                          1
Natural gas collar transactions; puts purchased, calls sold                        408,500                          1
Natural gas collar transactions; calls purchased, puts sold                        318,500                          1

</TABLE>

As required  under EITF 98-10,  energy  trading  activities  were marked to fair
value on December 31, 2000, and the gains and losses recognized in earnings. The
entries for the accompanying consolidated balance sheet and income statement are
as follows (in thousands):
<TABLE>
<CAPTION>
Instrument                                               Asset                    Liability                   Gain (loss)
----------                                               -----                    ---------                   ----------
<S>                                                     <C>                        <C>                         <C>
Natural gas basis swaps                                 $13,391                    $23,963                     $(10,572)

Natural gas fixed-for-float swaps                        24,617                     27,110                       (2,493)

Natural gas physical                                     23,391                      9,427                       13,964

Coal transactions                                         5,370                      4,460                          910

Crude oil transactions                                    1,523                      1,000                          523
                                                        -------                    -------                     --------

  Totals                                                $68,292                    $65,960                     $  2,332
                                                        =======                    =======                     ========
</TABLE>

There were no  significant  differences  between the fair  values of  derivative
assets and liabilities at December 31, 1999.

Non-trading Energy Activities

To  reduce  risk from  fluctuations  in the price of oil and  natural  gas,  the
Company enters into swaps and costless collar transactions. The transactions are
used to hedge price risk from sales of the  Company's  forecasted  crude oil and
natural  gas  production.  For such  transactions,  the Company  utilizes  hedge
accounting.

<PAGE>


At December 31, 2000, the Company had  fixed-for-float  swaps for 17,000 barrels
per month for the year 2001 to hedge its crude oil price  risk with a fair value
that approximates cost. The Company had fixed-for-float swaps for 10,000 barrels
per month for the year 2002 to hedge its crude oil price  risk with a fair value
of $0.4 million.  The Company also had costless  collars  (purchased puts - sold
calls) for 10,000  barrels per month for 2001 with a fair value of $0.3 million.
The  Company   hedged  its   forecasted   2001  natural  gas   production   with
fixed-for-float  swaps.  The Company  had  fixed-for-float  swaps for  1,581,000
MMBtus with a fair value of $(3.4)  million.  These amounts are not reflected in
the Company's December 31, 2000 consolidated balance sheet, but will be recorded
as part of the adoption of SFAS 133 on January 1, 2001.

Financing Activities

To reduce risk from  fluctuations  in interest  rates,  the Company  enters into
interest rate swap  transactions.  These transactions are used to hedge interest
rate risk for variable rate debt financing.  For such transactions,  the Company
utilizes hedge  accounting.  At December 31, 2000, the Company had interest rate
swaps with a notional  amount of $127.4  million,  having a maximum  term of six
years and a fair value of $(7.5) million.

At  December  31,  2000,  the  Company  had  $162.2   million  of   outstanding,
floating-rate debt of which $34.8 million was not offset with interest rate swap
transactions that effectively convert the debt to a fixed rate.

Credit Risk

In addition to the risk  associated  with price  movements,  credit risk is also
inherent in the Company's risk management activities. Credit risk relates to the
risk of loss resulting  from  non-performance  of  contractual  obligations by a
counterparty.  While the Company has not experienced  significant  losses due to
the credit risk associated with these arrangements,  the Company has off-balance
sheet risk to the extent that the  counterparties to these transactions may fail
to perform as required by the terms of each such contract.

(3)  INVESTMENTS IN ASSOCIATED COMPANIES

Included in  Investments  on the  Consolidated  Balance Sheets are the following
investments that have been recorded on the equity method of accounting:

o    A 33.33 percent  interest in  Millennium  Pipeline  Company,  L.P., a Texas
     limited  partnership  which owns and  operates an oil  pipeline in the Gulf
     Coast region of Texas.  The Company has a carrying amount in the investment
     of $6.9  million  and $4.8  million  as of  December  31,  2000  and  1999,
     respectively.  The  partnership  had  assets  of $22.0  million  and  $15.7
     million,  liabilities  of $1.0  million  and $1.6  million,  and net income
     (loss) of $2.8  million  and $(0.2)  million as of, and for the years ended
     December 31, 2000 and 1999, respectively.

o    As part of the Indeck Capital, Inc.  acquisition,  the Company acquired a 5
     percent,  6 percent and 5 percent  interest in Energy Investors Fund, L.P.,
     Energy  Investors  Fund II,  L.P.,  and  Project  Finance  Fund III,  L.P.,
     respectively,   which  in  turn  have  investments  in  numerous   electric
     generating facilities in the United States and elsewhere. The Company has a
     carrying  amount in the investment of $8.4 million at December 31, 2000. As
     of,  and for the year  ended  December  31,  2000,  the funds had assets of
     $186.8  million,  liabilities  of $16.0  million  and net  income  of $27.1
     million.

o    As part of the  Indeck  Capital  acquisition,  the  Company  acquired  a 50
     percent financial interest in two natural gas-fired cogeneration facilities
     located  in Rupert  and Glenns  Ferry,  Idaho.  At  December  31,  2000 the
     Company's  carrying amount in the investment is $4.1 million which includes
     $0.5 million that  represents the cost of the investment  over the value of
     the underlying net assets of the projects.  This excess is being  amortized
     over 19 years.  As of,  and for the year ended  December  31,  2000,  these
     projects had assets of $26.0 million,  liabilities of $18.7 million and net
     income of $0.9 million.

o    As part  of the  Indeck  Capital  acquisition,  the  Company  directly  and
     indirectly  acquired   approximately  32  percent  of  Harbor  Cogeneration
     Company,  which in turn owns an 80 megawatt  cogeneration  facility located
     near the City of Long Beach in Los Angeles County,  California. At December
     31, 2000 the Company's  carrying amount in the investment is $42.2 million,
     which  includes  $13.7 million that  represents  the cost of the investment
     over the value of the underlying net assets of Harbor. This excess is being
     amortized over 15 years. As of, and for the year ended December 31, 2000,
     Harbor had assets of $41.7 million,  liabilities of $0.8 million and net
     income of $28.8 million.

(4)  COMMON STOCK

During  2000,  the  Company  became a  wholly-owned  subsidiary  of Black  Hills
Corporation. See Note 1 - Business Description.  Black Hills Corporation assumed
all  of the  Company's  stock  option,  employee  stock  purchase  and  dividend
reinvestment and stock purchase plans.

(5)  PREFERRED STOCK

During 2000,  the Company  issued 4,000  preferred  shares in the Indeck Capital
acquisition.  The preferred  shares issued were non-voting,  cumulative,  no par
shares with a dividend rate equal to 1 percent per annum per share,  computed on
the basis of $1,000  per share  plus an amount  equal to any  dividend  declared
payable with respect to the common stock,  multiplied by the number of shares of
common stock into which each share of preferred stock is convertible.

In the "plan of exchange" with Black Hills Corporation, the preferred stock held
by the Indeck  shareholders  was exchanged  for  preferred  stock of the holding
company and the Company converted all of its preferred stock held by the holding
company into shares of common stock.

(6)  LONG-TERM DEBT

Long-term debt outstanding at December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                     2000                      1999
                                                                                     ----                      ----
<S>                                                                                <C>                       <C>
First mortgage bonds:
     6.50% due 2002                                                                $  15,000                 $ 15,000
     9.00% due 2003                                                                    3,215                    4,255
     8.06% due 2010                                                                   30,000                   30,000
     9.49% due 2018                                                                    5,130                    5,420
     9.35% due 2021                                                                   35,000                   35,000
     8.30% due 2024                                                                   45,000                   45,000
                                                                                   ---------                 --------
                                                                                     133,345                  134,675
                                                                                   ---------                 --------

Other long-term debt:
     Pollution control revenue bonds at 6.7% due 2010                                 12,300                   12,300
     Pollution control revenue bonds at 7.5% due 2024                                 12,200                   12,200
     Other                                                                             3,911                    2,855
                                                                                   ---------                 --------
                                                                                      28,411                   27,355
                                                                                   ---------                 --------

Project financing debt:
     Floating-rate term loans at a weighted average rate of 8.05%
       at December 31, 2000 due 2009 through 2010 (a)                                159,296                        -
                                                                                   ---------                ---------
Total long-term debt                                                                 321,052                  162,030
Less current maturities                                                              (13,960)                  (1,330)
                                                                                   ---------                ---------
Net long-term debt                                                                 $ 307,092                 $160,700
                                                                                   =========                =========
</TABLE>

---------------
(a)     Approximately  80 percent of the  December  31,  2000  balance  has been
        hedged with an interest  rate swap  moving the  floating  rates to fixed
        rates with a weighted  average  interest  rate of 7.69 percent (see Note
        2-Price Risk Management).
<PAGE>

Substantially  all of the Company's  utility  property is subject to the lien of
the indenture  securing its first  mortgage  bonds.  First mortgage bonds of the
Company  may be  issued in  amounts  limited  by  property,  earnings  and other
provisions of the mortgage indentures.

Project financing debt is non-recourse debt collateralized by a mortgage on each
respective project's land and facilities, leases and rights, including rights to
receive payments under long-term purchase power contracts.

Certain debt instruments of the Company and its subsidiaries contain restrictive
covenants,  all of which the Company and its subsidiaries are in compliance with
at December 31, 2000.

Scheduled  maturities for the next five years are: $14.0 million in 2001,  $30.0
million in 2002, $16.0 million in 2003, $16.4 million in 2004, and $17.6 million
in 2005.

(7)     NOTES PAYABLE

The Company had committed  lines of credit with various banks of $290.0  million
at  December  31,  2000 and $115.0  million at  December  31,  1999,  which were
available to support bank borrowings or to provide for letters of credit.  There
were $211.0  million of borrowings and $20.6 million of letters of credit issued
under these lines of credit at December 31, 2000,  and there were $96.6  million
of borrowings  and no letters of credit issued at December 31, 1999. The Company
has no compensating balance requirements  associated with these lines of credit.
The lines of credit are subject to periodic  review and renewal  during the year
by the banks.

In addition  to the above  lines of credit,  Enserco  Energy,  Inc.  has a $90.0
million  uncommitted,  discretionary  line of credit to provide  support for the
purchases of natural gas. The Company and its subsidiaries  provide no guarantee
to the lender. At December 31, 2000 and 1999, there were outstanding  letters of
credit   issued  under  the  facility  of  $69.8   million  and  $19.9   million
respectively, with no borrowing balances on the facility.

In addition to the above lines of credit, Black Hills Energy Resources, Inc. has
a $25.0 million uncommitted,  discretionary  credit facility.  The transactional
line of credit  provides  credit support for the purchases of crude oil of Black
Hills Energy Resources. The Company and its subsidiaries provide no guarantee to
the lender.  At December 31, 2000 and 1999, Black Hills Energy  Resources,  Inc.
had  letters  of  credit   outstanding   of  $8.5  million  and  $13.2  million,
respectively and no balance outstanding on the overdraft line.

Our credit facilities contain restrictive  covenants and include commitment fees
ranging from .125 percent to .375 percent;  our credit  facilities with ABN AMRO
Bank,  NV also  include  utilization  fees of .75 percent on the amount by which
facility loans exceed 50 percent of the total facility  commitment.  The Company
and its subsidiaries had complied with all the covenants at December 31, 2000.

Interest rates under the facility  borrowings  vary and are based, at the option
of the Company at the time of the loan origination,  on either (i) a prime based
borrowing  rate  varying  from prime rate (9.5  percent at December 31, 2000) to
prime  rate plus 1.5  percent,  or (ii) on the  London  Interbank  Offered  Rate
(LIBOR)  (6.5  percent  for a  one-month  LIBOR  at  December  31,  2000)  based
borrowings  rates  varying  from  LIBOR  plus .625  percent  to LIBOR plus 1.375
percent.

(8)     FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash of the Company is invested in money  market  investments  such as municipal
put  bonds,   money  market  preferreds,   commercial  paper,   Eurodollars  and
certificates of deposit.

The following  methods and  assumptions  were used to estimate the fair value of
each class of the Company's financial instruments.

Cash and Cash Equivalents

The carrying amount  approximates  fair value due to the short maturity of these
instruments.
<PAGE>

Available-for-sale Securities

The fair value of the Company's  investments equals the quoted market price when
available  and a quoted  market price for similar  securities if a quoted market
price  is not  available.  The  Company  has  classified  all of its  marketable
securities as available-for-sale as of December 31, 2000 and 1999. An unrealized
loss on the  Company's  investments  of $0.8 million was recorded as of December
31, 2000. At December 31, 1999 fair value approximated cost.

Long-Term Debt

The fair value of the  Company's  long-term  debt is  estimated  based on quoted
market rates for utility debt instruments  having similar maturities and similar
debt ratings. The Company's  outstanding bonds are either currently not callable
or are subject to  make-whole  provisions  which would  eliminate  any  economic
benefits for the Company to call and refinance the bonds.

The estimated fair values of the Company's financial instruments are as follows:

                                                           2000
                                                           ----
                                                      (in thousands)
                                          Carrying Amount           Fair Value
                                          ---------------           ----------

      Cash and cash equivalents               $ 24,913               $ 24,913
      Securities available-for-sale              2,113                  2,113
      Long-term debt                           321,052                337,446
                                                            1999
                                                            ----
                                                       (in thousands)
                                          Carrying Amount           Fair Value
                                          ---------------           ----------
      Cash and cash equivalents                $ 16,482              $ 16,482
      Securities available-for-sale               7,586                 7,586
      Long-term debt                            162,030               165,958

(9)     WYODAK PLANT

The Company  owns a 20 percent  interest  and  Pacific  Power owns an 80 percent
interest  in the  Wyodak  plant  (Plant),  a 330  megawatt  coal-fired  electric
generating  station located in Campbell  County,  Wyoming.  Pacific Power is the
operator of the Plant.  The Company  receives 20 percent of the Plant's capacity
and is committed to pay 20 percent of its additions,  replacements and operating
and maintenance  expenses.  As of December 31, 2000, the Company's investment in
the Plant  included  $71.8  million  in  electric  plant and  $22.4  million  in
accumulated  depreciation.  The Company's  share of direct expenses of the Plant
was $5.6 million, $4.9 million and $5.8 million for the years ended December 31,
2000,  1999  and  1998,  respectively,  and is  included  in  the  corresponding
categories of operating expenses in the accompanying  consolidated statements of
income.  Wyodak Resources supplies coal to the Plant under an agreement expiring
in 2013 with a Pacific  Power option to renew the agreement for an additional 10
years.  This coal  supply  agreement  is  collateralized  by a mortgage on and a
security  interest in some of Wyodak  Resources' coal reserves.  At December 31,
2000,  approximately  17,966,000 tons of coal were covered under this agreement.
Wyodak Resources' sales to the Plant were $23.2 million, $24.9 million and $23.2
million, for the years ended December 31, 2000, 1999 and 1998, respectively.

(10)    COMMITMENTS AND CONTINGENCIES

Pacific Power's Power Sales Agreement

In 1983, the Company  entered into a 40 year power  agreement with Pacific Power
providing  for the purchase by the Company of 75 megawatts of electric  capacity
and energy from Pacific Power's system.  An amended  agreement signed in October
1997  reduces  the  contract  capacity by 25  megawatts  (5  megawatts  per year
starting in 2000).  The price paid for the  capacity  and energy is based on the
operating costs of one of Pacific Power's coal-fired electric generating plants.
Costs incurred under this agreement were $14.6 million,  $17.8 million and $17.5
million in 2000, 1999 and 1998, respectively.

<PAGE>

Reclamation

Under its mining permit,  Wyodak Resources is required to reclaim all land where
it has mined coal  reserves.  The cost of reclaiming  the land is accrued as the
coal is mined.  While the reclamation  process takes place on a continual basis,
much of the reclamation  occurs over an extended period after the area is mined.
Approximately  $0.7  million is charged to  operations  as  reclamation  expense
annually.  As of December 31, 2000, accrued reclamation costs were approximately
$17.7 million.

Legal Proceedings

On August 14, 2000, Wyodak Resources  Development Corp.  ("Wyodak") initiated an
action against  PacifiCorp as it concerns the Further  Restated and Amended Coal
Supply Agreement, dated as of May 5, 1987 ("Coal Supply Agreement").  The action
has been filed in the United States  District  Court for the District of Wyoming
as Case No. 00CV155-B.  Wyodak alleges that PacifiCorp has failed and refused to
make complete  payment to Wyodak for coal sold under the Coal Supply  Agreement,
and there was at that time approximately $5.0 million  outstanding and allegedly
due Wyodak from PacifiCorp.  Wyodak alleged that PacifiCorp's actions constitute
a breach of contract and asked for the appropriate monetary relief.

On August 31, 2000,  PacifiCorp  answered the Wyodak  Complaint and additionally
brought a  counterclaim  against  Wyodak  and Black  Hills  Corporation.  In its
action,  PacifiCorp  alleged that as a result of Wyodak's actions as it concerns
its billings under the Coal Supply Agreement,  PacifiCorp was entitled to cancel
and terminate the Coal Supply Agreement and Coal Handling Agreement,  as well as
the  recovery  of  damages.  PacifiCorp  alleged  that  Wyodak had not  properly
adjusted  upward and downward the components  which make up the coal price under
the Coal  Supply  Agreement,  and as a  result  PacifiCorp  had been  overbilled
appproximately  $35.0  million to $40.0  million  and that Wyodak  continued  to
overcharge  PacifiCorp  under the Coal Supply  Agreement  and the Coal  Handling
Agreement.  PacifiCorp  further  alleged  that the  overcharges  would result in
additional  overcharges of  approximately  $150.0 million through the balance of
the term of the Coal Supply  Agreement,  which  expires in June of 2013.  In its
action, PacifiCorp sought not only to cancel and terminate the contract but also
to  discharge  and  excuse any  further  obligation  under the same,  as well as
recovery of damages as set forth above.

Management is of the opinion that Wyodak has properly  billed  PacifiCorp  under
the  terms  of the  Coal  Supply  Agreement  and  Coal  Handling  Agreement  and
PacifiCorp's  withholding  of payment  constitutes a breach of contract on their
part.  Although  it  is  impossible  to  predict  whether  or  not  Black  Hills
Corporation  and Wyodak will ultimately be successful in defending the claim or,
if not, what the impact might be,  management  believes that the  disposition of
this  matter  will  not  have  a  material   adverse  effect  on  the  Company's
consolidated results of operations.

In  addition,  the Company is subject to various  legal  proceedings  and claims
which arise in the ordinary course of operations.  In the opinion of management,
the  amount of  liability,  if any,  with  respect  to these  actions  would not
materially affect the consolidated  financial  position or results of operations
of the Company.

(11)    EMPLOYEE BENEFIT PLANS

Defined Benefit Pension and Other Postretirement Plans

The Company has a  noncontributory  defined benefit pension plan (Plan) covering
the employees of Black Hills Power,  Wyodak Resources  Development  Corp., Black
Hills  Exploration  and  Production  and  Daksoft who meet  certain  eligibility
requirements. The benefits are based on years of service and compensation levels
during the highest five consecutive years of the last ten years of service.  The
Company's funding policy is in accordance with the federal  government's funding
requirements.  The Plan's  assets  are held in trust and  consist  primarily  of
equity securities and cash equivalents.

<PAGE>

Net pension income for the Plan was as follows:

<TABLE>
<CAPTION>
                                                                   2000                    1999                    1998
                                                                   ----                    ----                    ----
                                                                                     (in thousands)

<S>                                                              <C>                   <C>                      <C>
Service cost                                                     $    967              $   1,174                $    895
Interest cost                                                       2,885                  2,598                   2,406
Estimated return on assets                                         (5,257)                (4,162)                 (4,146)
Amortization of transition amount                                     (90)                   (90)                    (90)
Amortization of prior service cost                                    231                     89                      89
Recognized net actuarial gain                                        (537)                     -                    (272)
                                                                 --------              ---------                --------
Net pension income                                               $ (1,801)             $    (391)                $(1,118)
                                                                 ========              =========                ========

Actuarial assumptions:
   Discount rate                                                     7.5%                  6.75%                    7.5%
   Expected long-term rate of return on assets                      10.5%                 10.5%                    10.5%
   Rate of increase in compensation levels                           5.0%                  5.0%                     5.0%

</TABLE>

A reconciliation  of the beginning and ending balances of the projected  benefit
obligation is as follows:

<TABLE>
<CAPTION>
                                                                        2000                        1999
                                                                        ----                        ----
                                                                                  (in thousands)
              <S>                                                      <C>                        <C>
              Beginning projected benefit obligation                   $39,615                    $39,490
                                                                       -------                    -------
              Service cost                                                 967                      1,174
              Interest cost                                              2,885                      2,598
              Actuarial losses                                             (48)                    (3,590)
              Benefits paid                                             (2,105)                    (1,903)
              Plan amendments                                                -                      1,846
                                                                       -------                    -------
              Net increase                                               1,699                        125
                                                                       -------                    -------
              Ending projected benefit obligation                      $41,314                    $39,615
                                                                       =======                    =======
</TABLE>

A  reconciliation  of the fair value of plan assets as of October 1 of each year
is as follows:

<TABLE>
<CAPTION>
                                                                        2000                        1999
                                                                        ----                        ----
                                                                                  (in thousands)
              <S>                                                      <C>                        <C>
              Beginning market value of plan assets                    $51,212                    $40,638
              Benefits paid                                             (2,105)                    (1,903)
              Investment income                                          7,453                     12,477
                                                                     ---------                   --------
              Ending market value of plan assets                       $56,560                    $51,212
                                                                       =======                    =======
</TABLE>

<PAGE>

Funding information for the Plan as of October 1 each year was as follows:

<TABLE>
<CAPTION>
                                                                        2000                        1999
                                                                        ----                        ----
                                                                                  (in thousands)
              <S>                                                      <C>                        <C>
              Fair value of plan assets                                $56,560                    $51,212
              Projected benefit obligation                             (41,314)                   (39,615)
                                                                       -------                    -------
              Funded status                                             15,246                     11,597

              Unrecognized:
                 Net gain                                              (13,812)                   (12,105)
                 Prior service cost                                      2,054                      2,285
                 Transition asset                                            -                        (90)
                                                                       -------                    -------
              Prepaid pension cost                                     $ 3,488                    $ 1,687
                                                                       =======                    =======

              Accumulated benefit obligation                           $33,374                    $31,914
                                                                       =======                    =======
</TABLE>

The Company has various supplemental  retirement plans for outside directors and
key executives of the Company. The plans are nonqualified defined benefit plans.
Expenses  recognized  under the plans were $0.5  million,  $0.4 million and $0.4
million in 2000, 1999 and 1998, respectively.

Employees who are participants in the Plan and who retire from the Company on or
after  attaining  age 55 after  completing at least five years of service to the
Company are  entitled to  postretirement  healthcare  benefits  coverage.  These
benefits are subject to premiums,  deductibles,  copayment  provisions and other
limitations. The Company may amend or change the plan periodically.  The Company
is not pre-funding its retiree medical plan.

The net periodic postretirement cost was as follows:
<TABLE>
<CAPTION>
                                                             2000                       1999                      1998
                                                             ----                       ----                      ----
                                                                                   (in thousands)
<S>                                                          <C>                         <C>                       <C>
Service cost                                                   $282                      $225                      $135
Interest cost                                                   523                       362                       290
Amortization of transition obligation                           150                       150                       150
(Gain)/loss                                                      68                         1                       (42)
                                                             ------                      ----                      ----
                                                             $1,023                      $738                      $533
                                                             ======                      ====                      ====
</TABLE>

Funding information as of October 1 was as follows:
<TABLE>
<CAPTION>
                                                                                  2000                          1999
                                                                                  ----                          ----
                                                                                            (in thousands)
<S>                                                                              <C>                             <C>
Accumulated postretirement benefit obligation:
     Retirees                                                                    $2,478                          $2,608
     Fully eligible active participants                                           1,203                           1,195
     Other active participants                                                    3,172                           3,278
                                                                                -------                         -------
Unfunded accumulated postretirement benefit obligation                            6,853                           7,081
Unrecognized net loss                                                            (1,001)                         (1,667)
Unrecognized transition obligation                                               (1,797)                         (1,947)
                                                                                -------                         -------
Accrued postretirement cost                                                      $4,055                          $3,467
                                                                                 ======                          ======
</TABLE>
<PAGE>


For measurement  purposes,  an 8.5 percent annual rate of increase in healthcare
benefits was assumed for 2000;  the rate was assumed to decrease  gradually to 6
percent in 2005 and remain at that level  thereafter.  The healthcare cost trend
rate assumption has a significant effect on the amounts reported.  A one percent
increase in the healthcare cost trend  assumption would increase the service and
interest  cost $0.2 million or 21.8 percent and the net periodic  postretirement
cost $0.2  million or 24.1  percent.  A one percent  decrease  would  reduce the
service and  interest  cost by $0.1 million or 16.9 percent and decrease the net
periodic  postretirement cost $0.2 million or 18.6 percent. The weighted-average
discount  rate  used  in  determining  the  accumulated  postretirement  benefit
obligation was 7.5 percent.

Defined Contribution Plan

The  Company  also  sponsors  a  401(k)  savings  plan for  eligible  employees.
Participants elect to invest up to 20 percent of their eligible  compensation on
a pre-tax basis. Effective January 1, 2000 (May 1, 2000 for employees covered by
the  collective   bargaining   agreement),   the  Company  provides  a  matching
contribution of 100 percent of the employee's tax-deferred  contribution up to a
maximum  3  percent   of  the   employee's   eligible   compensation.   Matching
contributions  vest at 20  percent  per  year  and are  fully  vested  when  the
participant  has 5 years of service with the  Company.  The  Company's  matching
contributions totaled $0.6 million for 2000.

(12)     INCOME TAXES

Income tax expense for the years indicated was:
<TABLE>
<CAPTION>
                                                                           2000                 1999                  1998
                                                                           ----                 ----                  ----
                                                                                           (in thousands)
         <S>                                                             <C>                   <C>                  <C>
         Current                                                         $28,421               $13,498              $14,243
         Deferred                                                          2,576                 2,931               (1,886)
         Tax credits, net                                                   (639)                 (640)                (649)
                                                                         -------               -------              -------
                                                                         $30,358               $15,789              $11,708
                                                                         =======               =======              =======
</TABLE>

The temporary  differences  which gave rise to the net deferred tax liability at
December 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
                                                                                                                    Net Deferred
                                                                                                                       Income
                                                                                                                      Tax Asset
         December 31, 2000                                                   Assets             Liabilities          (Liability)
                                                                             ------             -----------          -----------
                                                                                           (in thousands)
         <S>                                                                 <C>                  <C>                 <C>
         Accelerated depreciation and other plant-related
           differences                                                       $ 5,393              $63,559             $(58,166)
         Regulatory asset                                                      1,621                    -                1,621
         Regulatory liability                                                      -                1,447               (1,447)
         Unamortized investment tax credits                                      886                    -                  886
         Mining development and oil exploration                                3,605                8,450               (4,845)
         Employee benefits                                                     3,308                1,347                1,961
         Other                                                                 3,711                6,400               (2,689)
                                                                             -------              -------             --------
                                                                             $18,524              $81,203             $(62,679)
                                                                             =======              =======             ========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                                                  Net Deferred
                                                                                                                     Income
                                                                                                                   Tax Asset
         December 31, 1999                                                Assets             Liabilities          (Liability)
                                                                          ------             -----------          -----------
                                                                                           (in thousands)
         <S>                                                             <C>                      <C>                 <C>
         Accelerated depreciation and other plant-related
           differences                                                    $     -              $48,223             $(48,223)
         Regulatory asset                                                   1,792                    -                1,792
         Regulatory liability                                                   -                1,380               (1,380)
         Unamortized investment tax credits                                 1,058                    -                1,058
         Mining development and oil exploration                             3,605                6,893               (3,288)
         Employee benefits                                                  2,833                  695                2,138
         Other                                                              2,184                1,949                  235
                                                                          -------              -------             --------
                                                                          $11,472              $59,140             $(47,668)
                                                                          =======              =======             ========
</TABLE>

The  effective  tax rate differs from the federal  statutory  rate for the years
ended December 31, as follows:

<TABLE>
<CAPTION>

                                                                            2000                  1999                 1998
                                                                            ----                  ----                 ----
         <S>                                                                <C>                   <C>                  <C>
         Federal statutory rate                                             35.0%                 35.0%                35.0%
         State income tax                                                    1.4                   -                    -
         Amortization of investment tax credits                             (1.0)                 (0.9)                (1.3)
         Tax-exempt interest income                                          -                    (0.5)                (1.1)
         Percentage depletion in excess of cost                             (1.1)                 (1.6)                (1.7)
         Other                                                               2.2                  (2.1)                 0.3
                                                                           -----                 ------               -----
                                                                            36.5%                 29.9%                31.2%
                                                                            ====                  ====                 ====
</TABLE>

(13)      BUSINESS SEGMENTS

The  Company's  reportable  segments  are those that are based on the  Company's
method of internal reporting,  which generally segregates the strategic business
groups due to differences in products,  services and regulation.  As of December
31, 2000,  substantially all of the Company's  operations and assets are located
within the United States.  The Company's  operations  are conducted  through six
business  segments that  include:  Electric,  which  supplies  electric  utility
service to western South Dakota,  northeastern Wyoming and southeastern Montana;
Independent  Energy consisting of: Mining,  which engages in the mining and sale
of coal from its mine  near  Gillette,  Wyoming;  Oil and Gas,  which  produces,
explores  and  operates  oil and gas  interests  located  in the Rocky  Mountain
region,  Texas,  California  and other  states;  Fuel  Marketing,  which markets
natural  gas,  oil,  coal and related  services to  customers in the East Coast,
Midwest,  Southwest,  Rocky Mountain,  West Coast and Northwest regions markets;
Independent  Power, which produces and sells power to wholesale  customers;  and
Communications and Others,  which primarily markets  communications and software
development services.

Segment  information follows the same accounting policies as described in Note 1
- BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT  ACCOUNTING POLICIES.  Segment
information  included  in  the  accompanying  Consolidated  Balance  Sheets  and
Consolidated Statements of Income is as follows (in thousands):


<PAGE>


<TABLE>
<CAPTION>

ASSETS                                              Independent Energy
                                     --------------------------------------------------
                                                 Oil and       Fuel       Independent    Communications
                          Electric     Mining       Gas       Marketing       Power          & Others      Eliminations    Total
                       ------------- ---------- ----------- ------------ -------------- ----------------- ------------- ------------
<S>                     <C>         <C>          <C>        <C>           <C>           <C>                <C>           <C>
At December 31, 2000
Current assets          $ 133,542   $167,820     $ 3,452    $ 330,352     $   25,645    $     13,213       $  (255,016)  $   419,008
Total assets              627,930    251,136      36,396      346,333        375,811         132,722          (440,943)    1,329,385

At December 31, 1999
Current assets          $  93,837   $ 57,427     $ 1,988     $ 84,867     $   52,471    $      9,698       $  (113,931)  $   186,357
Total assets              522,285    136,372      29,381       99,064         52,690          72,711          (244,011)      668,492

At December 31, 1998
Current assets          $  43,760   $ 25,872     $ 1,335     $ 77,402       $      4    $      6,067       $   (13,960)  $   140,480
Total assets              451,404     93,480      26,666       86,300             57          18,441          (116,931)      559,417

</TABLE>

<TABLE>
<CAPTION>
                                                   Independent Energy
                                     --------------------------------------------------
Year ended                                       Oil and       Fuel       Independent    Communications
December 31, 2000         Electric     Mining       Gas       Marketing       Power          & Others      Eliminations    Total
                       ------------- ---------- ----------- ------------ -------------- ----------------- ------------- ------------
<S>                       <C>        <C>        <C>         <C>            <C>           <C>              <C>             <C>
Electric revenues         $ 173,308  $       -  $        -  $        -     $         -   $        -        $        -     $  173,308
Coal revenues                     -     30,530           -       37,099              -            -                 -         67,629
Gas revenues                      -          -       9,335      871,296              -            -           (14,320)       866,311
Oil revenues                      -          -       7,211      458,575              -            -                 -        465,786
Other operating
 Revenues                         -          -       3,782            -         39,660       11,371            (4,011)        50,802
                         ---------- ---------- ----------- ------------ -------------- ----------------- ------------- -------------
Total operating
 Revenues                 $ 173,308   $ 30,530    $ 20,328   $1,366,970     $   39,660  $     11,371      $   (18,331)   $ 1,623,836
                         ---------- ---------- ----------- ------------ -------------- ----------------- ------------- -------------

Depreciation, depletion
 and amortization         $  14,966     $3,525     $ 4,071   $      644     $    3,646  $      6,012      $         -    $    32,864
Operating income (loss)      68,208      8,794       7,906       23,774         20,374       (14,306)               -        114,750
Interest expense             17,411      8,006         372          535         11,911         6,350          (14,243)        30,342
Income taxes (benefit)       19,469      2,660       2,609        9,323          3,154        (6,857)               -         30,358
Net income (loss)
available for common         37,100      7,173       4,992       14,009          3,241      (12,557)           (1,188)        52,770
Property additions,
investments and
acquisition of net assets    25,257      2,419       9,259           (3)        81,335*      58,922                 -        177,189
*Excludes the non-cash acquisition of Indeck Capital, Inc. as described in Note 14.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                                    Independent Energy
                                      --------------------------------------------------
Year ended                                        Oil and       Fuel       Independent    Communications
December 31, 1999         Electric     Mining       Gas      Marketing        Power          & Others      Eliminations     Total
                        ------------- ---------- ----------- ------------ -------------- ----------------- ------------- ----------
<S>                      <C>          <C>         <C>        <C>               <C>           <C>               <C>        <C>
Electric revenues        $ 133,222    $     -     $      -   $         -       $      -      $     -           $     -    $ 133,222
Coal revenues                    -     31,095            -        39,212              -            -                 -       70,307
Gas revenues                     -          -        5,399       382,809              -            -                 -      388,208
Oil revenues                     -          -        4,676       192,207              -            -                 -      196,883
Other operating
 Revenues                        -          -        2,977             -              -        3,423            (3,145)       3,255
                        ------------- ---------- ----------- ------------ -------------- ----------------- ------------- -----------
Total operating
 Revenues               $ 133,222     $ 31,095   $  13,052   $   614,228       $      -      $ 3,423           $(3,145)   $ 791,875
                        ------------- ---------- ----------- ------------ -------------- ----------------- ------------- -----------

Depreciation, depletion
 and amortization       $  15,552     $ 3,259    $   2,953   $     2,757       $      -      $   546           $     -    $  25,067
Operating income (loss)    52,286      12,606        3,978        (2,248)          (157)      (4,574)                -       61,891
Interest expense           13,830       1,260          568           719            111        1,172            (2,200)      15,460
Income taxes (benefit)     12,446       3,439          968            50            (58)      (1,056)                -       15,789
Net income (loss)
available for common       27,362       9,715        2,462          (185)          (109)      (1,263)             (915)      37,067
Property additions,
investments and
acquisition of net assets  31,911       5,422        9,968         5,947         52,319       49,042                 -      154,609
</TABLE>

<TABLE>
<CAPTION>
                                                        Independent Energy
                                     ---------------------------------------------------
Year ended                                      Oil and       Fuel       Independent    Communications
December 31, 1998       Electric     Mining        Gas       Marketing       Power          & Others      Eliminations      Total
                       ------------- ---------- ------------ ------------ -------------- ----------------- ------------- ----------
<S>                      <C>          <C>        <C>          <C>           <C>     <C>     <C>             <C>           <C>
Electric revenues        $ 129,236    $     -    $      -     $       -     $        -      $     -         $       -     $ 129,236
Coal revenues                    -     31,413           -        12,924              -            -                 -        44,337
Gas revenues                     -          -       4,073       375,136              -            -                 -       379,209
Oil revenues                     -          -       5,131       117,185              -            -                 -       122,316
Other operating
 Revenues                        -          -       3,358           798              -        2,437            (2,437)        4,156
                       ------------- ---------- ------------ ------------ -------------- ----------------- ------------- ----------
Total operating
 Revenues                $ 129,236   $ 31,413    $ 12,562     $ 506,043     $        -      $ 2,437         $  (2,437)    $ 679,254
                        ------------ ---------- ------------ ------------ -------------- ----------------- ------------- ----------

Depreciation, depletion
 and amortization
                        $  14,881    $ 3,252     $ 18,760**   $     690     $        -      $    -          $      -      $  37,583
Operating income
 (loss)                    49,896     12,723      (12,340)**         41              -      (1,087)                -         49,233
Interest income            13,572         10          355           731              -          39                 -         14,707
Income taxes (benefit)     12,612      4,126       (4,689)**       (116)           (64)       (161)                -         11,708
Net income (loss)
available for common       24,825      9,750       (7,976)**       (346)          (118)       (226)             (101)        25,808
Property additions,
investments and
acquisition of net
assets                     11,451      1,406       10,169         2,384              -       1,815                 -         27,225
**Includes the impact of a $13.5 million pre-tax write-down of certain oil and natural gas properties.
</TABLE>

(14)      ACQUISITIONS

On July 7, 2000, the Company  acquired Indeck  Capital,  Inc. and merged it into
Black Hills Energy Capital, Inc. The new entity owns varying financial interests
in 14 operating independent power plants in California, New York, Massachusetts,
Colorado and Idaho totaling approximately 350 megawatts.

The  acquisition  was a stock  transaction  with the Company  issuing  1,536,747
shares of common stock to the  shareholders of Indeck priced at $21.98 per share
(approximately 7 percent of the Company's  common stock after the  transaction),
along with $4


<PAGE>


million in preferred stock, resulting in a purchase price of approximately $37.8
million. Additional consideration, consisting of common and preferred stock, may
be paid  in the  form of an  earn-out  over a  four-year  period.  The  earn-out
consideration  will be based on the  acquired  company's  earnings  during  such
period and cannot exceed $35.0 million in total.  Additional  consideration paid
out under the earn-out will be recorded as an increase to goodwill.

The  acquisition  has been accounted for under the purchase method of accounting
and,  accordingly,  the purchase price has been allocated to the acquired assets
and  liabilities  based on estimates of the fair values of the assets  purchased
and the liabilities  assumed as of the date of  acquisition.  Fair values in the
allocation  include assets acquired of approximately  $151.1 million  (excluding
goodwill)  and  liabilities  assumed  of  approximately  $138.7  million.  As of
December 31, 2000, the purchase price and related acquisition costs exceeded the
fair values  assigned to net tangible  assets by  approximately  $25.4  million,
which  was  recorded  as  goodwill  and is  being  amortized  over 25 years on a
straight-line basis.

Prior to the closing of the Indeck  Capital  transaction,  there was no material
relationship  between its shareholders and the Company or any of its affiliates,
any director or officer of the Company or any of their  associates,  except that
the Company  through its  subsidiaries  and Indeck  Capital  jointly owned Black
Hills  Colorado,  LLC and both parties held  interests in Indeck North  American
Power  Partners,  L.P. and Indeck North  American  Power Fund,  L.P. Black Hills
Colorado owns 111 megawatts of combustion turbine  generating  facilities in the
Front Range of Colorado.

In  addition,   the  Company  made   several   step-acquisitions   resulting  in
consolidation of $169.5 million of assets and $138.8 million of liabilities. The
related transactions are as follows:

o    Through various transactions, acquired an additional 27.11 percent interest
     in Indeck North American Power Fund,  L.P. and an additional  46.66 percent
     interest in Indeck North American Power Partners,  L.P., for  approximately
     $13.0 million in cash.

o    Acquired a 39.6  percent  financial  interest in each of Northern  Electric
     Power  Company,   L.P.  and  South  Glens  Falls  Limited  Partnership  for
     approximately $4.2 million in cash.

o    Acquired  substantially  all of the  partnership  interests in Middle Falls
     Limited Partnership, Sissonville Limited Partnership and New York State Dam
     Limited Partnership for approximately $12.9 million in cash.

Operating  activities of the above acquired  companies have been included in the
accompanying   consolidated   financial   statements   since  their   respective
acquisition  dates.  The  following  unaudited  pro forma  condensed  results of
operations  presents the effect of the  acquisitions  as if they had occurred on
January 1, 1999.  The pro forma  financial  data is provided  for  informational
purposes  only and does not purport to be  indicative  of the results that would
have been obtained if the acquisitions had been effected on January 1, 1999. The
pro forma financial information reflects the amortization of the excess purchase
price  over the fair  value of net  assets  acquired  and the  income tax effect
thereof for the years ended December 31, 2000 and 1999 as follows:

                                            2000                 1999
                                            ----                 ----
                                            (Unaudited, in thousands)

Revenues                                 $1,668,851             $840,891
Operating income                           $139,053              $73,900
Net income available for common stock       $57,542              $34,310

(15)       OIL AND GAS RESERVES  (Unaudited)

Black Hills  Exploration  and  Production has interests in 639 producing oil and
gas properties in seven states.  Black Hills  Exploration  and  Production  also
holds leases on approximately 185,926 net undeveloped acres.

The  following  table  summarizes  Black  Hills   Exploration  and  Production's
quantities  of proved  developed and  undeveloped  oil and natural gas reserves,
estimated using constant  year-end product prices, as of December 31, 2000, 1999
and 1998,  and a  reconciliation  of the  changes  between  these  dates.  These
estimates are based on reserve reports by Ralph E. Davis Associates,


<PAGE>


Inc., an independent  engineering company selected by the Company.  Such reserve
estimates are based upon a number of variable factors and assumptions  which may
cause these estimates to differ from actual results.

<TABLE>
<CAPTION>
                                                          2000                          1999                        1998
                                                          ----                          ----                        ----
                                                      Oil           Gas            Oil            Gas           Oil           Gas
                                                      ---           ---            ---            ---           ---           ---
                                                                 (in thousands of barrels of oil and MMcf of gas)
<S>                                                  <C>          <C>             <C>    <C>    <C>             <C>          <C>
Proved developed and undeveloped reserves:
   Balance at beginning of year                      4,109        19,460          2,368        15,952           2,495        9,052
     Production                                       (352)       (3,285)          (309)       (2,801)           (353)      (2,068)
     Additions                                         625         4,228            376         7,718           1,149       10,721
     Property sales                                      -             -           (164)          (66)              -            -
     Revisions to previous estimates                    31        (1,999)         1,838        (1,343)           (923)      (1,753)
                                                   -------       -------        -------      --------         -------     --------

   Balance at end of year                            4,413        18,404          4,109        19,460           2,368       15,952
                                                   =======       =======        =======       =======         =======      =======

Proved developed reserves at end of
   year included above                               3,047        16,418          2,819        14,391           1,463       10,041
                                                   =======       =======        =======       =======         =======      =======

Year-end prices                                     $26.80         $9.78         $24.28         $1.99           $9.16        $1.93
                                                    ======         =====         ======         =====           =====        =====
</TABLE>

In December 1998,  Black Hills  Exploration  and  Production  recognized a $13.5
million  pre-tax  loss related to a write-down  of oil and gas  properties.  The
write-down was primarily due to historically low crude oil prices, lower natural
gas prices and decline in value of certain unevaluated properties.

(16)      QUARTERLY HISTORICAL DATA (Unaudited)

The Company  operates on a calendar year basis.  The following  table sets forth
selected unaudited historical operating results and market data for each quarter
of 2000 and 1999.
<TABLE>
<CAPTION>
                                                     First             Second             Third              Fourth
                                                    Quarter            Quarter           Quarter             Quarter
                                                    -------            -------           -------             -------
                                                                             (in thousands)
              <S>                                   <C>                <C>                <C>                <C>
              2000:
                 Operating revenues                 $247,959           $336,978           $453,231           $585,668
                 Operating income                     16,872             15,200             42,519             40,159
                 Net income available
                  for common stock                     9,061              8,061             16,285             19,363

              1999:
                 Operating revenues                 $168,201           $186,195           $219,779           $217,700
                 Operating income                     15,980             13,786             16,675             15,450
                 Net income available
                  for common stock                     9,035              7,763              9,725             10,544
</TABLE>

<PAGE>


 (17)     SUBSEQUENT EVENT (Unaudited)

On March 8, 2001,  Black Hills Energy Capital,  Inc., the Company's  independent
power  subsidiary  announced it had signed a definitive  agreement to purchase a
240 megawatt  gas-fired turbine  generation  facility  (Fountain Valley) located
near Colorado  Springs,  Colorado from Enron  Corporation.  The  transaction  is
expected to close around March 31, 2001.

The  Fountain  Valley  facility  features  six LM-6000  simple-cycle,  gas-fired
turbines,  a technology identical to existing Company facilities in Colorado and
Wyoming. All necessary permitting has been approved and the plant is expected to
phase in its  generation  capacity  beginning  in May  2001.  The  Company  also
announced that it has signed an 11-year contract with Public Service of Colorado
to utilize the plant for peaking purposes. The contract is a tolling arrangement
in which the Company assumes no fuel costs.  The cost of the project is expected
to be  approximately  $175 million.  The Company  expects to finance the project
primarily with  non-recourse  debt and negotiations are presently under way with
certain lenders.


<PAGE>


ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE

No change of accountants or disagreements on any matter of accounting principles
or practices or financial statement disclosure have occurred.

PART IV

ITEM 14.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)      1.    Consolidated Financial Statements

               Financial  statements required by Item 14 are listed in the index
               included in Item 8 of Part II.

         2.    Schedules

               All  schedules  have been  omitted  because of the absence of the
               conditions  under which they are required or because the required
               information  is included  elsewhere in the  financial  statements
               incorporated by reference in the Form 10-K.

         3.    Exhibits

         Exhibit
         Number                                      Description

               2*          Plan of Exchange Between Black Hills  Corporation and
                           Black Hills Holding  Corporation (filed as an exhibit
                           to the Black Hills Holding Corporation's Registration
                           Statement on Form S-4 (No. 333-52664)).
               3.1*        Restated  Articles of Incorporation of the Registrant
                           (filed as an  exhibit  to the  Registrant's  Form 8-K
                           dated June 7, 1994 (No. 1-7978)).
               3.2         Articles   of    Amendment   to   the   Articles   of
                           Incorporation  of the  Registrant,  as filed with the
                           Secretary  of State of the  State of South  Dakota on
                           December 22, 2000.
               3.3*        Bylaws of the Registrant  (filed as an exhibit to the
                           Registrant's Registration Statement on Form S-8 dated
                           July 13, 1999).
               4.1*        Restated  and Amended  Indenture of Mortgage and Deed
                           of Trust of Black Hills Corporation (now called Black
                           Hills  Power,  Inc.)  dated as of  September  1, 1999
                           (filed  as  an   exhibit  to  Black   Hills   Holding
                           Corporation's Registration Statement on Form S-4 (No.
                           333-52664)).
              10.1*        Agreement for Transmission Service and the Common Use
                           of Transmission  Systems dated January 1, 1986, among
                           Black  Hills  Power,   Inc.,   Basin  Electric  Power
                           Cooperative,  Rushmore  Electric  Power  Cooperative,
                           Inc.,  Tri-County Electric  Association,  Inc., Black
                           Hills Electric  Cooperative,  Inc. and Butte Electric
                           Cooperative,  Inc.  (filed  as  Exhibit  10(d) to the
                           Registrant's Form 10-K for 1987).
              10.2*        Restated and Amended Coal Supply Agreement for NS II
                           dated February 12, 1993 (filed as Exhibit 10(c) to
                           the Registrant's Form 10-K for 1992).
              10.3*        Coal Leases between Wyodak Resources Development
                           Corp. and the Federal Government
                            -Dated May 1, 1959 (filed as Exhibit 5(i) to the
                             Registrant's Form S-7, File No. 2-60755)
                               -Modified  January  22,  1990  (filed as  Exhibit
                                10(h) to the Registrant's Form 10-K for 1989)
                            -Dated April 1, 1961 (filed  as  Exhibit 5(j) to the
                             Registrant's Form S-7, File No. 2-60755)
                               -Modified  January  22,  1990  (filed as  Exhibit
                                10(i) to  Registrant's  Form 10-K for  1989)
                            -Dated October 1, 1965 (filed as Exhibit 5(k) to the
                             Registrant's Form S-7, File No. 2-60755)
                               -Modified January 22, 1990 (filed as Exhibit
                                10(j) to the Registrant's Form 10-K for 1989).
              10.4*       Further Restated and Amended Coal Supply Agreement
                          dated May 5, 1987 between Wyodak Resources Development
                          Corp. and Pacific Power & Light Company (filed as
                          Exhibit 10(k) to the Registrant's Form 10-K for 1987).
<PAGE>
              10.5*        Second  Restated  and Amended  Power Sales  Agreement
                           dated  September  29, 1997,  between  PacifiCorp  and
                           Black Hills Power,  Inc.  (filed as Exhibit  10(e) to
                           the Registrant's Form 10-K for 1997).
              10.6*        Coal  Supply  Agreement  for  Wyodak  Unit  #2  dated
                           February  3,  1983,  and  Ancillary  Agreement  dated
                           February   3,   1982,    between   Wyodak   Resources
                           Development Corp.,  Pacific Power & Light Company and
                           Black Hills Power,  Inc.  (filed as Exhibit  10(o) to
                           the  Registrant's  Form 10-K for 1983).  Amendment to
                           Agreement  for Coal Supply for Wyodak #2 dated May 5,
                           1987 (filed as Exhibit 10(o) to the Registrant's Form
                           10-K for 1987).
              10.7*        Reserve Capacity  Integration  Agreement dated May 5,
                           1987, between Pacific Power & Light Company and Black
                           Hills  Power,  Inc.  (filed as  Exhibit  10(u) to the
                           Registrant's Form 10-K for 1987).
              10.8*        Marketing, Capacity and Storage Service Agreement
                           between Black Hills Power, Inc. and PacifiCorp dated
                           September 1, 1995 (filed as Exhibit 10(ag) to the
                           Registrant's Form 10-K for 1995).
              10.9*        Assignment  of Mining  Leases and  Related  Agreement
                           effective  May 27,  1997,  between  Wyodak  Resources
                           Development  Corp.  and Kerr-McGee  Coal  Corporation
                           (filed as Exhibit 10(u) to the Registrant's Form 10-K
                           for 1997).
              10.10*       Rate Freeze Extension (filed as Exhibit 10(t) to the
                           Registrant's Form 10-K for 1999).
              10.11*+      Amended and Restated Pension Equalization Plan of
                           Black Hills Corporation dated January 6, 2000 (filed
                           as Exhibit 10.11 to Black Hills  Corporation's
                           Form 10-K for 2000).
              10.12*+      First Amendment to the Pension  Equalization  Plan of
                           Black Hills Corporation dated January 30, 2001 (filed
                           as Exhibit  10.12 to Black Hills  Corporation's  Form
                           10-K for 2000).
 .             10.13*+      Black Hills Corporation Nonqualified Deferred
                           Compensation Plan dated June 1, 1999 (filed as
                           Exhibit 10.13 to Black Hills Corporation's Form 10-K
                           for 2000).
              10.14*+      Black Hills Corporation 1999 Stock Option Plan (filed
                           as Exhibit 10.14 to Black Hills Corporation's Form
                           10-K for 2000).
              10.15*+      Agreement for Supplemental Pension Benefit for
                           Everett E. Hoyt dated January 20, 1992 (filed as
                           Exhibit 10(gg) to the Registrant's Form 10-K for
                           1992).
              10.16*+      Change in Control Agreements for various officers
                           (filed as Exhibit 10(af) to the Registrant's
                           Form 10-K for 1995).
              10.17*+      Black Hills Corporation 1996 Stock Option Plan (filed
                           as Exhibit 10(s) to the Registrant's Form 10-K for
                           1997).
              10.18*+      Outside Directors Stock Based Compensation Plan
                           (filed as Exhibit 10(t) to the Registrant's Form 10-K
                           for 1997).
              10.19*+      Officers Short-Term Incentive Plan (filed as Exhibit
                           10(s) to the Registrant's Form 10-K for 1999).
              10.20*       Agreement and Plan of Merger, dated as of January  1,
                           2000,  among  Black  Hills Corporation, Black Hills
                           Energy Capital, Inc., Indeck Capital, Inc., Gerald R.
                           Forsythe, Michelle R. Fawcett, Marsha Fournier,
                           Monica Breslow, Melissa S. Forsythe and John W.
                           Salyer, Jr. (Exhibit 2 to Schedule 13D filed on
                           behalf of the former shareholders of Indeck Capital,
                           Inc. consisting of Gerald R. Forsythe, Michelle R.
                           Fawcett, Marsha Fournier, Monica Breslow, Melissa S.
                           Forsythe and John W. Salyer, Jr., dated July 7, 2000)
              10.21*       Addendum to the Agreement  and Plan of Merger,  dated
                           as of April 6, 2000,  among Black Hills  Corporation,
                           Black Hills Energy  Capital,  Inc.,  Indeck  Capital,
                           Inc., Gerald R. Forsythe, Michelle R. Fawcett, Marsha
                           Fournier,  Monica  Breslow,  Melissa S.  Forsythe and
                           John W. Salyer,  Jr. (Exhibit 3 to Schedule 13D filed
                           on  behalf  of  the  former  shareholders  of  Indeck
                           Capital,  Inc.  consisting  of  Gerald  R.  Forsythe,
                           Michelle R. Fawcett, Marsha Fournier, Monica Breslow,
                           Melissa S.  Forsythe and John W. Salyer,  Jr.,  dated
                           July 7, 2000).
              10.22*       Supplemental  Agreement  Regarding  Contingent Merger
                           Consideration,  dated as of January  1,  2000,  among
                           Black Hills Corporation,  Black Hills Energy Capital,
                           Inc.,  Indeck  Capital,  Inc.,  Gerald  R.  Forsythe,
                           Michelle R. Fawcett, Marsha Fournier, Monica Breslow,
                           Melissa S. Forsythe and John W. Salyer,  Jr. (Exhibit
                           4 to  Schedule  13D  filed on  behalf  of the  former
                           shareholders  of Indeck Capital,  Inc.  consisting of
                           Gerald  R.  Forsythe,  Michelle  R.  Fawcett,  Marsha
                           Fournier,  Monica  Breslow,  Melissa S.  Forsythe and
                           John W. Salyer, Jr., dated July 7, 2000).
<PAGE>
              10.23*       Supplemental  Agreement  Regarding  Restructuring  of
                           Certain Qualifying  Facilities (Exhibit 5 to Schedule
                           13D  filed on behalf of the  former  shareholders  of
                           Indeck   Capital,   Inc.   consisting  of  Gerald  R.
                           Forsythe,   Michelle  R.  Fawcett,  Marsha  Fournier,
                           Monica  Breslow,  Melissa  S.  Forsythe  and  John W.
                           Salyer, Jr., dated July 7, 2000).
              10.24*       Addendum to the Agreement  and Plan of Merger,  dated
                           as of June 30, 2000,  among Black Hills  Corporation,
                           Black Hills Energy  Capital,  Inc.,  Indeck  Capital,
                           Inc., Gerald R. Forsythe, Michelle R. Fawcett, Marsha
                           Fournier,  Monica  Breslow,  Melissa S.  Forsythe and
                           John W. Salyer,  Jr. (Exhibit 6 to Schedule 13D filed
                           on  behalf  of  the  former  shareholders  of  Indeck
                           Capital,  Inc.  consisting  of  Gerald  R.  Forsythe,
                           Michelle R. Fawcett, Marsha Fournier, Monica Breslow,
                           Melissa S.  Forsythe and John W. Salyer,  Jr.,  dated
                           July 7, 2000).

----------
*       Previously filed as part of the filing indicated and incorporated by
        reference herein.

+       Indicates a board of director or management compensatory plan.


(b)      Reports on Form 8-K

         We have filed the  following  Reports on Form 8-K since  September  30,
         2000.

         Form 8-K filed December 22, 2000.

               Reported the formation of the holding company structure through a
               "Plan of  Exchange"  between  Black Hills  Corporation  and Black
               Hills Holding Corporation on December 22, 2000.

(c) See (a) 3. Exhibits above.

(d) See (a) 2. Schedules above.

SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

The  Registrant  is not  required to send an Annual  Report or Proxy to its sole
security holder and parent company, Black Hills Corporation.



<PAGE>



                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                              BLACK HILLS POWER, INC.

                                              By    DANIEL P. LANDGUTH
                                              Daniel P. Landguth, Chairman
                                              and Chief Executive Officer
Dated:   March 30, 2001

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

<S>                                                           <C>                                         <C>
       DANIEL P. LANDGUTH                                     Director and Principal                      March 30, 2001
---------------------------------------------                   Executive Officer
Daniel P. Landguth, Chairman,
 and Chief Executive Officer

       MARK T. THIES                                          Principal Financial Officer                 March 30, 2001
---------------------------------------------
Mark T. Thies, Senior Vice President and
 Chief Financial Officer

       ROXANN R. BASHAM                                       Principal Accounting Officer                March 30, 2001
---------------------------------------------
Roxann R. Basham, Vice President-Controller,
 and Assistant Secretary

       ADIL M. AMEER                                                   Director                           March 30, 2001
---------------------------------------------
Adil M. Ameer

       BRUCE B. BRUNDAGE                                               Director                           March 30, 2001
---------------------------------------------
Bruce B. Brundage

       DAVID C. EBERTZ                                                 Director                           March 30, 2001
---------------------------------------------
David C. Ebertz

       GERALD R. FORSYTHE                                              Director                           March 30, 2001
---------------------------------------------
Gerald R. Forsythe

       JOHN R. HOWARD                                                  Director                           March 30, 2001
---------------------------------------------
John R. Howard

       EVERETT E. HOYT                                                 Director and Officer               March 30, 2001
---------------------------------------------
Everett E. Hoyt, President and Chief
Operating Officer

       KAY S. JORGENSEN                                                Director                           March 30, 2001
---------------------------------------------
Kay S. Jorgensen

       DAVID S. MANEY                                                  Director                           March 30, 2001
---------------------------------------------
David S. Maney

       THOMAS J. ZELLER                                                Director                           March 30, 2001
---------------------------------------------
Thomas J. Zeller
</TABLE>

<PAGE>


                                                           INDEX TO EXHIBITS


       Exhibit
       Number                               Description

          2*          Plan of Exchange Between Black Hills Corporation and Black
                      Hills Holding Corporation (filed as an exhibit to the
                      Black Hills Holding Corporation's Registration Statement
                      on Form S-4 (No. 333-52664)).
         3.1*         Restated Articles of Incorporation of the Registrant
                      (filed as an exhibit to the Registrant's Form 8-K dated
                      June 7, 1994 (No. 1-7978)).
         3.2          Articles of Amendment to the Articles of Incorporation of
                      the Registrant, as filed with the Secretary of State
                      of the State of South Dakota on December 22, 2000.
         3.3*         Bylaws of the Registrant (filed as an exhibit to the
                      Registrant's Registration Statement on Form S-8 dated July
                      13, 1999).
          4.1*        Restated  and Amended  Indenture  of Mortgage  and Deed of
                      Trust of Black Hills  Corporation  (now called Black Hills
                      Power,  Inc.) dated as of  September  1, 1999 (filed as an
                      exhibit to the Registrant's Registration Statement on Form
                      S-4 (No. 333-52664)).
         10.1*        Agreement for  Transmission  Service and the Common Use of
                      Transmission  Systems dated  January 1, 1986,  among Black
                      Hills  Power,  Inc.,  Basin  Electric  Power  Cooperative,
                      Rushmore  Electric  Power  Cooperative,  Inc.,  Tri-County
                      Electric   Association,   Inc.,   Black   Hills   Electric
                      Cooperative,  Inc. and Butte  Electric  Cooperative,  Inc.
                      (filed as Exhibit 10(d) to the Registrant's  Form 10-K for
                      1987).
         10.2*        Restated and Amended Coal Supply Agreement for NS II dated
                      February 12, 1993 (filed as Exhibit 10(c) to the
                      Registrant's Form 10-K for 1992).
         10.3*        Coal Leases between Wyodak Resources Development Corp. and
                      the Federal Government
                         -Dated May 1, 1959 (filed as Exhibit 5(i) to the
                           Registrant's Form S-7, File No. 2-60755)
                              -Modified January 22, 1990 (filed as Exhibit 10(h)
                               to the Registrant's Form 10-K for 1989)
                         -Dated April 1, 1961 (filed as Exhibit 5(j) to the
                           Registrant's  Form S-7, File No. 2-60755)
                              -Modified January 22, 1990 (filed as Exhibit 10(i)
                               to  Registrant's  Form 10-K for 1989)
                         -Dated October 1, 1965 (filed as Exhibit 5(k) to the
                          Registrant's  Form S-7, File No. 2-60755)
                              -Modified January 22, 1990 (filed as Exhibit 10(j)
                               to the Registrant's Form 10-K for 1989).
         10.4*        Further  Restated and Amended Coal Supply  Agreement dated
                      May 5, 1987 between Wyodak Resources Development Corp. and
                      Pacific Power & Light  Company  (filed as Exhibit 10(k) to
                      the Registrant's Form 10-K for 1987).
         10.5*        Second  Restated and Amended Power Sales  Agreement  dated
                      September  29, 1997,  between  PacifiCorp  and Black Hills
                      Power,  Inc.  (filed as Exhibit 10(e) to the  Registrant's
                      Form 10-K for 1997).
<PAGE>

         10.6*        Coal Supply Agreement for Wyodak Unit #2 dated February 3,
                      1983,  and  Ancillary  Agreement  dated  February 3, 1982,
                      between Wyodak Resources  Development Corp., Pacific Power
                      & Light  Company and Black  Hills  Power,  Inc.  (filed as
                      Exhibit  10(o) to the  Registrant's  Form 10-K for  1983).
                      Amendment to Agreement for Coal Supply for Wyodak #2 dated
                      May 5, 1987  (filed as Exhibit  10(o) to the  Registrant's
                      Form 10-K for 1987).
         10.7*        Reserve Capacity Integration  Agreement dated May 5, 1987,
                      between  Pacific  Power & Light  Company  and Black  Hills
                      Power,  Inc.  (filed as Exhibit 10(u) to the  Registrant's
                      Form 10-K for 1987).
         10.8*        Marketing, Capacity and Storage Service Agreement between
                      Black Hills Power, Inc. and PacifiCorp dated September 1,
                      1995 (filed as Exhibit 10(ag) to the Registrant's
                      Form 10-K for 1995).
         10.9*        Assignment   of  Mining   Leases  and  Related   Agreement
                      effective   May  27,  1997,   between   Wyodak   Resources
                      Development  Corp. and Kerr-McGee Coal Corporation  (filed
                      as Exhibit 10(u) to the Registrant's Form 10-K for 1997).
        10.10*        Rate Freeze Extension (filed as Exhibit 10(t) to the
                      Registrant's Form 10-K for 1999).
        10.11*+       Amended and Restated  Pension  Equalization  Plan of Black
                      Hills Corporation  dated January 6, 2000 (filed as Exhibit
                      10.11 to Black Hills Corporation's Form 10-K for 2000).
        10.12*+       First Amendment to the Pension Equalization Plan of Black
                      Hills Corporation dated January 30, 2001 (filed as Exhibit
                      10.12 to Black Hills Corporation's Form 10-K for 2000).
        10.13*+       Black Hills Corporation Nonqualified Deferred Compensation
                      Plan dated June 1, 1999 (filed as Exhibit 10.13 to Black
                      Hills Corporation's Form 10-K for 2000).
        10.14*+       Black  Hills  Corporation  1999 Stock Option  Plan (filed
                      as Exhibit 10.14 to Black Hills Corporation's Form 10-K
                      for 2000).
        10.15*+       Agreement for Supplemental Pension Benefit for Everett E.
                      Hoyt dated January 20, 1992 (filed as Exhibit 10(gg) to
                      the Registrant's Form 10-K for 1992).
        10.16*+       Change in Control Agreements for various officers (filed
                      as Exhibit 10(af) to the Registrant's Form 10-K for 1995).
        10.17*+       Black Hills Corporation 1996 Stock Option Plan (filed as
                      Exhibit 10(s) to the Registrant's Form 10-K for 1997).
        10.18*+       Outside Directors Stock Based Compensation Plan (filed as
                      Exhibit 10(t) to the Registrant's Form 10-K for 1997).
        10.19*+       Officers Short-Term Incentive Plan (filed as Exhibit 10(s)
                      to the Registrant's Form 10-K for 1999).
        10.20*        Agreement and Plan of Merger, dated as of January 1, 2000,
                      among Black Hills Corporation, Black Hills Energy Capital,
                      Inc., Indeck Capital, Inc., Gerald R. Forsythe, Michelle R
                      Fawcett, Marsha Fournier, Moncia Breslow, Melissa S.
                      Forsythe and John W. Salyer, Jr. (Exhibit 2 to Schedule
                      13D filed on behalf of the former shareholders of Indeck
                      Capital, Inc. consisting of Gerald R. Forsythe, Michelle R
                      Fawcett, Marsha Fournier, Monica Breslow, Melissa S.
                      Forsythe and John W. Salyer, Jr., dated July 7, 2000).

<PAGE>

         10.21*       Addendum to the Agreement and Plan of Merger,  dated as of
                      April 6, 2000, among Black Hills Corporation,  Black Hills
                      Energy  Capital,  Inc.,  Indeck Capital,  Inc.,  Gerald R.
                      Forsythe,  Michelle R. Fawcett,  Marsha  Fournier,  Monica
                      Breslow,  Melissa  S.  Forsythe  and John W.  Salyer,  Jr.
                      (Exhibit 3 to  Schedule  13D filed on behalf of the former
                      shareholders of Indeck Capital,  Inc. consisting of Gerald
                      R. Forsythe,  Michelle R. Fawcett, Marsha Fournier, Monica
                      Breslow,  Melissa S.  Forsythe  and John W.  Salyer,  Jr.,
                      dated July 7, 2000).
         10.22*       Supplemental   Agreement   Regarding   Contingent   Merger
                      Consideration,  dated as of January 1, 2000,  among  Black
                      Hills  Corporation,  Black  Hills  Energy  Capital,  Inc.,
                      Indeck  Capital,  Inc.,  Gerald R.  Forsythe,  Michelle R.
                      Fawcett,  Marsha  Fournier,  Moncia  Breslow,  Melissa  S.
                      Forsythe  and John W. Salyer,  Jr.  (Exhibit 4 to Schedule
                      13D filed on behalf of the former  shareholders  of Indeck
                      Capital,  Inc. consisting of Gerald R. Forsythe,  Michelle
                      R. Fawcett,  Marsha Fournier,  Monica Breslow,  Melissa S.
                      Forsythe and John W. Salyer, Jr., dated July 7, 2000).
         10.23*       Supplemental Agreement Regarding  Restructuring of Certain
                      Qualifying  Facilities (Exhibit 5 to Schedule 13D filed on
                      behalf of the former shareholders of Indeck Capital,  Inc.
                      consisting  of Gerald R.  Forsythe,  Michelle R.  Fawcett,
                      Marsha Fournier,  Monica Breslow,  Melissa S. Forsythe and
                      John W. Salyer, Jr., dated July 7, 2000).
         10.24*       Addendum to the Agreement and Plan of Merger,  dated as of
                      June 30, 2000, among Black Hills Corporation,  Black Hills
                      Energy  Capital,  Inc.,  Indeck Capital,  Inc.,  Gerald R.
                      Forsythe,  Michelle R. Fawcett,  Marsha  Fournier,  Monica
                      Breslow,  Melissa  S.  Forsythe  and John W.  Salyer,  Jr.
                      (Exhibit 6 to  Schedule  13D filed on behalf of the former
                      shareholders of Indeck Capital,  Inc. consisting of Gerald
                      R. Forsythe,  Michelle R. Fawcett, Marsha Fournier, Monica
                      Breslow,  Melissa S.  Forsythe  and John W.  Salyer,  Jr.,
                      dated July 7, 2000).

----------
*       Previously filed as part of the filing indicated and incorporated by
        reference herein.
+       Indicates a board of director or management compensatory plan.