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    secletter_sept30-09.htm

September 30, 2009

H. Christopher Owings

Assistant Director

Division of Corporation Finance

United States Securities and Exchange Commission

100 F Street, NE

Washington, D.C.  20549-7010

Re:

Black Hills Corporation

Form 10-K for Fiscal Year Ended December 31, 2008

Filed March 2, 2009

Proxy Statement on Schedule 14A

Filed April 7, 2009

Form 10-Q for the Fiscal Quarter Ended March 31, 2009

Filed May 11, 2009

Form 10-Q for the Fiscal Quarter Ended June 30, 2007

Filed August 10, 2007

File No. 001-31303

Dear Mr. Owings:

The purpose of this letter is to respond to your comments as set forth in your letter of September 8, 2009.  The headings used herein are the same as those set forth in your letter.  For ease of reference, we have set forth your comment before each response.

We have carefully considered your comments and, as requested in your letter, we acknowledge that we intend to comply with your comments in all future filings, as applicable.  Our following responses provide the details of how we intend to comply with your comments by enhancing and, in some respects, clarifying our disclosures.  In
some limited cases where we believe further revision is unnecessary, we have provided an explanation.

In connection with our response to your comments, we also acknowledge the following:

·

the Company is responsible for the adequacy and accuracy of the disclosure in the filing;

·

Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and

·

the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

H. Christopher Owings

U.S. Securities and Exchange Commission

September 30, 2009

Page 2 of 14

FORM 10-K FOR FISCAL YEAR ENDED DECEMER 31, 2008

Items 7 and 7A. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures about Market Risk, page 59

Critical Accounting Policies, page 83

Comment No. 1:

Please revise to describe the material implications of uncertainties associated with the methods, assumptions and estimates underlying your critical accounting measurements that have had or that you reasonably expect will have a material impact on financial condition and operating performance and on the comparability
of reported information among periods.  Your disclosures should supplement, not duplicate, the accounting policies disclosed in the notes to the financial statements.  For example, you should analyze to the extent material, such factors as how you arrived at each estimate, how accurate the estimate/assumption has been in the past, how much the estimate/assumption has changed in the past and whether the estimate/assumption is reasonably likely to change in the future.  We would expect
you to provide quantitative as well as qualitative disclosure when quantitative information is reasonably available and to provide greater insight into the quality and variability of information regarding financial condition and operating performance.  Also, since each critical accounting estimate and related assumptions are based on matters that are uncertain or difficult to measure, you should analyze and disclose their specific sensitivity to change, based on other outcomes that are reasonably likely
to occur and would have a material effect.  Please refer to Item 303(a)(3)(ii) of Regulation S-K as well as the Commission’s Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Company’s Response:

We considered Item 303 of Regulation S-K as well as section five of the Commission’s Interpretive Release on Management’s Discussion and Analysis of Financial Condition and Results of Operations, and we attempted to draft our disclosures to meet the requirements of this guidance.  However, we duly note the Staff’s
comment and will prospectively enhance our disclosures as noted below.

Regarding our Critical Accounting Policies “Impairment of Long-Lived Assets,” “Full Cost Method of Accounting for Oil and Gas Activities,” “Oil
and Natural Gas Reserve Estimates,” “Risk Management Activities,” “Contingencies” and “Valuation of Deferred Tax Assets,” we will enhance our disclosures of the uncertainties inherent in our estimates, the variability that could result from changes in key assumptions that are used to develop our
estimates, the accuracy of past estimates and the likelihood of a change in the estimate in the future.  In addition, we will include appropriate sensitivity analysis where meaningful and reasonably available.  We will also disclose, when appropriate, other reasonably available quantitative information, including historical information concerning our assumptions and their susceptibility to change, when there are highly subjective or complex judgments made by management or other uncertainties
associated with those events or calculations.

Examples of disclosure enhancements that we will consider, as relevant and meaningful at the time of the filing, include but are not limited to:  details of capital expenditures, cost of capital, growth rates in revenues and costs used in our impairment models and sensitivities around these assumptions; the impact of a percentage
decline in commodity prices and the effect it would have on our cost ceiling under the full-cost method of accounting.  Actual disclosure enhancements will be developed and analyzed prior to our Form 10-K filing for 2009.

We note to the Staff that within certain estimates, particularly our “Oil and Natural Gas Reserve Estimates” policy, we are faced with estimations and models that rely on a large number of variables that are interrelated and are difficult to examine independently.  If
a sensitivity analysis were carried out on any one variable while keeping the others constant, we believe that it likely would not yield meaningful information precisely because of the high correlation (positive or negative) between these variables.

Regarding our Critical Accounting Policy, “Pension and Postretirement Benefits,” we believe the disclosures within our 2008 Form 10-K provided the quantitative information and sensitivity analysis sought by the Staff.

H. Christopher Owings

U.S. Securities and Exchange Commission

September 30, 2009

Page 3 of 14

The interpretative guidance included in “Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations” on Critical Accounting Estimates discusses “accounting estimates and assumptions that may be material due to the levels of subjectivity and judgment necessary
to account for highly uncertain matters or the susceptibility of such matters to change.”  After further consideration and in an effort to not obscure the impact of our truly critical estimates, we intend in future filings to remove from our list of Critical Accounting Policies the “Regulatory Accounting” and “Unbilled Utility Revenues” policies.  We
believe that the assumptions utilized in providing the estimates associated with these particular accounting policies are not as subjective, highly uncertain or susceptible to change as would rise to the level of a “Critical Accounting Policy.”

Non Regulated Trading Activities, page 103

Comment No. 2:

We note your disclosure of the non-GAAP measure of the fair value of your energy marketing position on page 103.  Please disclose the reasons why you believe the presentation of the non-GAAP measure provides useful information to investors.  Refer to Item 10(e)(1)(i)(B) of Regulation S-K.

Company’s Response:

The non-GAAP measure on page 103 is presented because we believe disclosing the fair value of all of our forward positions as of the balance sheet date provides a more comprehensive view for our investors of the value created or lost within our Energy Marketing portfolio during each period and thus a better understanding of these activities
than would be presented by GAAP measures alone.  We believe we explained the usefulness of the non-GAAP measure within the paragraphs preceding the non-GAAP measure on page 102.  However, in future filings we will enhance the language to connect these paragraphs to the non-GAAP measure as well as provide a footnote to the table with the non-GAAP measure to further highlight the usefulness that the measure provides the investor.

Report of Independent Registered Public Accounting Firm, page 112

Comment No. 3:

Please confirm to us that you received a manually signed copy of the audit opinion from the auditors.  In addition, please include the conforming signature in future filings as required by Regulation S-T.

Company’s Response:

We confirm that the Company received a manually signed audit opinion letter from our auditors.  In the future, we will include a conformed signed audit opinion in our filings as required by Regulation S-T.

H. Christopher Owings

U.S. Securities and Exchange Commission

September 30, 2009

Page 4 of 14

Consolidated Statements of Common Stockholder’s Equity and Comprehensive Income, page 116

Comment No. 4:

Please provide a more detailed analysis of the changes in each caption of stockholders’ equity in future filings.  The analysis should present all significant reconciling items, such as share-based compensation, tax effects of share-based compensation, purchases of securities, sales of securities
and other issuances of securities.  In addition, please include a reconciliation of the beginning and ending shares of common stock and treasury stock.  Refer to Rule 3-04 of Regulation S-X.

Company’s Response:

We note the requirements of Rule 3-04 of Regulation S-X.  Although we have disclosed information on common stock in Note 10 of the Notes to our Consolidated Financial Statements, we will include, in all material respects, additional analysis of the changes in each caption of stockholders’ equity and a reconciliation
of the beginning and ending shares of common stock and treasury stock in our Statement of Stockholders’ Equity in future 10-K filings.

Note (1) Business Description and Summary of Significant Accounting Policies, page 117

Regulatory Accounting, page 123

Comment No. 5:

Please disclose regulatory assets not earning a return and their remaining recovery periods.  Refer to paragraph 20 of SFAS 71.

Company’s Response:

Paragraph 20 of SFAS 71 states that a regulator may permit an enterprise to include a cost that would be charged to expense by an unregulated enterprise as an allowable cost over a period of time by amortizing that cost for rate-making purposes without providing a return during the recovery period.  If recovery of such major
costs is provided without a return on investment during the recovery period, Paragraph 20 requires that the enterprise disclose the remaining amounts of such assets and the remaining recovery period applicable to them.  Paragraph 34 of SFAS 71 requires the disclosures prescribed in Paragraph 20 if the amounts being recovered without a return on investment are material.

We will include additional disclosures, as modeled below, in our future 10-K filings regarding our regulatory assets, which will outline remaining recovery periods and amounts being recovered without a return.  As of December 31, 2008, the Company recovers the cost of our regulatory assets but does not earn a return on them.  An
example is as follows (in thousands):

Balance at

December 31,

Recovery Period

2008

Regulatory Assets:

Deferred energy and fuel costs adjustments

Less than one year

$
32,198

Deferred gas cost adjustment and gas price derivative

Less than one year

25,364

AFUDC

Up to seventeen years

8,719

Employee benefit plans

Two to thirteen years

98,414

Environmental

To be determined

2,406

Asset retirement obligations

Up to 65 years

2,598

Bond issue costs

Up to 15 ½ years

4,121

Other – Rate Case expenses

Up to five years

1,728

Other – Unamortized loss on reacquired debt

Up to 15 ½ years

2,628

Other

919

Total Regulatory Assets

$
179,095

H. Christopher Owings

U.S. Securities and Exchange Commission

September 30, 2009

Page 5 of 14

Note (4) Investments in Associated Companies, page 139

Comment No. 6:

Please tell us the nature and amounts of other items included in the investments line item in the consolidated balance sheets.

Company’s Response:

The items included in the investments line item in the consolidated balance sheets are our equity method investments of approximately $11.5 million (including those disclosed in Note 4), cash surrender value of life insurance policies of approximately $8.6 million, cost-method investments of approximately $2.3 million, and treasury
notes of approximately $0.4 million.  The investments line item on our December 31, 2008 balance sheet represents 0.67 percent of our total asset balance and therefore we do not believe the balances are significant enough to warrant additional footnote disclosure.

In the past we included the additional disclosure provided in Note 4 due to the fact that the value of our investments in associated companies used to be more material and there was a potential to show significant mark-to-market adjustments for our equity method power fund investments as disclosed.  As these funds have been
liquidating their assets over the last few years our investment balance in the funds and their potential to have significant mark-to-market adjustments has been reduced.  Accordingly, we no longer consider these investments to be significant to our business and are considering removing them from our note disclosures in future filings.

Note (10) Common Stock, page 145

Equity Compensation Plans, page 147

Comment No. 7:

Please tell us your rationale for using a blend of historical and implied volatility of your stock price in 2006 as opposed to historical and implied volatility over a period commensurate with the expected or contractual term of the awards in estimating the fair value of stock-based awards granted in 2006.  Refer
to Question 2 of SAB Topic 14:D.1.

Company’s Response:

We used a blend of historical and implied volatility of our stock price over the expected life of the awards, rather than just the year 2006.  The language “in 2006” was referring to the column heading “2006” in the table.  Footnote 3 to the table on page 147 of the 2008 Form 10-K would have
been more clear if the words “in 2006” were omitted.  The reason the words “in 2006” were specified was in 2006 we changed to a blend of historical and implied volatility whereas in prior years we only used the historical volatility.  The language “in 2006” was a carryover from the prior year when in the 2007 Form 10-K the footnote stated - “Based on a blended historical and implied volatility of the Company’s stock price in 2006 and historical
volatility only in 2005.”  We will clarify the language in future filings, as applicable.

H. Christopher Owings

U.S. Securities and Exchange Commission

September 30, 2009

Page 6 of 14

Dividend Restrictions, page 150

Comment No. 8:

We note that you are required to maintain a minimum net worth under the most restrictive covenants contained in your credit facility agreements.  As such, please disclose the amount of retained earnings or net income restricted or free of restrictions.  Refer to Rule 4-08(e)(1) of Regulation
S-X.  Also, it appears your consolidated subsidiaries are restricted from transferring funds to you in the form of loans, advances or cash dividends under the terms of your debt agreements and orders approved by regulatory agencies.  As such, tell us the amount of the restricted net assets of your consolidated subsidiaries and how you compute the amount.  If the restricted net assets of your consolidated subsidiaries exceed 25 pe