We are an integrated energy company operating principally in the United States with two major business groups - Utilities and Non-regulated Energy. We report for our business groups in the following financial segments:

Business Group       Financial Segment

Utilities            Electric Utilities
                     Gas Utilities

Our Utilities Group consists of our Electric and Gas utility segments. Our Electric Utilities segment generates, transmits and distributes electricity to approximately 202,100 customers in South Dakota, Wyoming, Colorado and Montana and includes the operations of Cheyenne Light and its approximately 33,300 gas utility customers in Wyoming. Our Gas Utilities segment serves approximately 524,000 natural gas customers in Colorado, Nebraska, Iowa and Kansas. Our Non-regulated Energy Group engages in the production of coal, natural gas and crude oil primarily in the Rocky Mountain region; the production of electric power through ownership of a portfolio of generating plants and the sale of electric power and capacity primarily under long-term contracts; and the marketing of natural gas, crude oil and related services.

The United States energy industry experienced one of the most tumultuous years ever in 2008. Energy commodity prices, which were near historic highs in July with natural gas trading over $13 per Mcf and crude oil selling for nearly $150 per barrel, experienced dramatic declines to less than $6 and $45, respectively, by year end. Domestic energy prices continue to be influenced by global factors, including foreign economic conditions, especially in China and Asia, domestic economic conditions, the policies of OPEC and other large foreign oil producers, and political tensions and conflict in many regions. Mild weather dominated the United States during much of the year, reducing demand for fuel used for power generation and heating.

Beginning in late summer, a slow down in the United States economy accelerated into one of the worst recessions since the 1930s. A global credit crisis emerged from a proliferation of sub-prime lending. As that issue attracted attention, other credit quality concerns surfaced, creating an international-scale financial crisis. The capital markets have been impacted dramatically by the crisis, severely inhibiting the ability of companies to raise both debt and equity capital, and significantly increasing the cost of capital.

Like other United States industries, the energy industry is faced with uncertainties, both short and long-term. Many utilities are faced with large capital spending needs over the next few years to replace aging infrastructure and add new assets such as transmission lines and renewable energy resources. Utility companies generally are less impacted by economic downturns, but a prolonged or severe recession could affect the demand for energy services and the ability of customers to pay their utility bills and restrict the ability of companies to obtain the capital necessary for infrastructure expansion.

The federal and state utility regulatory climate in 2008, in a general sense, remained relatively constructive among government, industry and consumer representatives. In the multi-state region encompassing our utility operations, regulators were willing to establish rates based on multi-year considerations, including fuel and other reasonable cost adjustments, justifiable capital expenditures for maintenance and expansion of energy systems, and a response to environmental concerns through demand management and energy efficiency programs.

The November 2008 elections however, represented a significant change in the domestic political environment. Sweeping wins for Democrats in both Houses of Congress, signal a shift in domestic policy that will likely have dramatic impacts on the domestic energy industry. Despite all of the focus on the economy, environmental issues are slated to remain a priority for many in Congress. Federal legislation that would mandate renewable energy use and the reduction of greenhouse gas emissions appears likely to pass during this Congress in the form of a federal renewable portfolio standard, and a greenhouse gas reduction target, utilizing either a carbon tax or a carbon "cap-and-trade" system. These potential legislative actions could have significant macroeconomic consequences. The associated cost increase may cause a dramatic increase in consumers' rates for electricity and other energy in the mid- to long-term. State legislatures were also active on environmental issues in 2008, with a majority of states now having adopted some form of renewable standard, including some in which we operate. In addition, several states have passed greenhouse gas emissions legislation.

Progress in the domestic energy industry in 2008 included increasing levels of oil and gas exploration and production activity, continued planning and construction of liquefied natural gas port facilities, proposals for additional gas-fired, coal-fired and nuclear power plants, planning for additional electric transmission capacity, and the advancement of renewable energy resources and utilization.

The energy industry continues to adjust to change, including the trends of consolidation in the electric and gas utility sectors, along with asset divestitures to restrict or redefine business strategies. The energy marketplace continues to respond to increased oversight and enforcement activity of the FERC and increased environmental and emissions reviews and mandates. In recent years, several state regulatory agencies allowed electric utilities to construct and operate power plants in vertically integrated structures after years of discouraging or prohibiting such activity.

Over the last several years, the corporate structure of many energy companies underwent evaluation and change, in large part due to efforts to create additional shareholder value. A number of companies are contemplating or implementing a realignment of business lines, reflecting a shift in long-term strategies. Some are divesting certain energy properties to focus on core businesses, such as exiting unregulated power production or oil and gas production in favor of more stable utility operations. Others have engaged in mergers and acquisitions with a goal to improve economies of scale and returns to investors. Private equity investors continued to play a role in the changing composition of energy ownership, but to a lesser extent than previous years.

Many industry analysts have cited the need for expanded energy capacity and delivery systems. They foresee an increase in capital investment across a wide spectrum of energy companies. Many electric and gas utilities must replace aging plant and equipment, and regulators appear to be willing to provide acceptable rate treatment for additional utility investment. Oil and gas producers will continue to explore for new reserves, particularly of natural gas, which will be the primary fuel of choice in an era of concern regarding greenhouse gas emissions. In the short-term, however, low oil and natural gas prices prompted companies to curtail projects as they seek to conserve cash in a constrained capital market environment. The increased focus on environmental regulation has made it increasingly more difficult to obtain drilling permits, particularly on public and Native American lands.

In early 2008, the domestic coal industry benefited from a positive price environment, in large part due to high and volatile natural gas prices. Coal prices have moderated considerably in response to a trend of lower overall natural gas prices. Fossil fuel combustion continues to be a contentious domestic and international public policy issue, as many nations, including United States allies, advocate reductions in CO2 and other emissions. Many states now encourage the energy industry to invest in renewable energy resources, such as wind or solar power, or the use of bio-mass as a fuel. In many instances, renewable energy use is mandated by state regulators. Furthermore, the State of California has mandated that future imports of power must come from power plants with lower emission levels than currently associated with conventional coal-fired plants. Such restrictions may alter transmission flow of power in western states, as a large percentage of current power generation in the western grid comes from coal sources.

The power generation industry continues to make improvements in emissions control in response to regulatory mandates. Emissions from new coal-fired plants are a small fraction of those produced by power plants built a generation ago. Along with similar technological progress, coal can and likely will remain an important, domestically available, and economical national energy resource that is vital to meet growing energy demand. In that regard, the United States Department of Energy is beginning to take positive steps toward ensuring the future of coal through research funding for "clean coal" technologies and methods of carbon capture and sequestration.

Energy providers, government authorities and private interests continue to address issues concerning electric transmission, power generation capacity, the use of renewable and other diversified sources of energy, oil and natural gas pipelines and storage, and other infrastructure requirements. In the short-term, prevailing economic conditions will reduce consumption. Despite public and private efforts to promote conservation and efficiency, however, the demand for energy is expected to increase steadily over the long term. To meet this demand growth, the industry will need to provide capital, resources and innovation to serve customers in cost-effective ways and to achieve suitable returns on investment.

The Company believes that it is well-positioned in this industry setting, and able to proceed with its key business objectives. Along with industry counterparts, we are preparing to address the challenges discussed in this overview, such as new environmental mandates, renewable portfolio standards, carbon-related taxes or trading systems, credit market conditions, inflation, or other factors that may affect energy demand and supply. In particular, we are sensitive to additional costs that can negatively affect our customers or our profitability. To that end, we intend to work closely with regulators and industry leaders to assure that cost-conscious proposals and solutions are carefully explored in public policy proceedings.

We are a customer-focused integrated energy company. Our business is comprised of electric and natural gas utility operations; power generation; and fuel assets and services, including production and marketing operations for crude oil, natural gas and coal. Our focus on customers - whether they are utility customers or non-regulated generation, fuel or marketing customers - provides opportunities to expand our businesses. Our balanced, integrated approach to the energy business is supported by disciplined risk management practices.

The diversity of our energy operations, which range from fuel production to retail utility sales, reduces reliance on any single business segment to achieve our strategic objectives. It helps reduce our overall corporate risk and enhances our ability to earn stronger returns for shareholders over the long term. Despite very challenging conditions in the capital markets, we have sufficient liquidity and solid cash flows, and expect to be able to access the capital markets as needed. Consequently, our financial foundation is sound and capable of supporting an expansion of operations in both the near and long term.

During 2008, we significantly transformed our business and reduced our risk profile through the acquisition of five utility properties, and the divestiture of seven IPP plants. For the next two years, we will focus on continued integration of the newly acquired utility properties and the achievement of certain synergies made possible by the utility acquisition. We expect to achieve operating synergies in accounting and information systems, procurement, inventory, utility engineering, power marketing, resource planning and other areas.

Our long-term strategy focuses on growing both our utility and non-regulated energy businesses, primarily by increasing our customer base and providing superior service to both utility and non-regulated energy customers.

In our natural gas and electric utilities, we intend to grow our asset base through customer growth in our existing utility service territories, combined with the construction of new rate-based power generation facilities. We also plan to pursue acquisitions of additional utility properties, primarily in the Great Plains and Rocky Mountain regions of the country. By maintaining our high customer service and reliability standards in a cost-efficient manner, our goal is to secure satisfactory rate recovery to provide solid economic returns on our utility investments.

In our fuel production operations, we will continue to prudently grow and develop our existing inventory of oil and gas reserves, while we strive to maintain our positive relationships with mineral owners, landowners and regulatory authorities. Our ability to grow both production and reserves may be hindered in the short-term by low price levels for both crude oil and natural gas resulting from the impact on demand of a weakened economy. In the long-term, however, we believe that demand for natural gas will be strong. Given increased regulatory emphasis on wind and solar power generation, and potential greenhouse gas legislation that may limit construction of new coal-fired power plants, natural gas will be the fuel of choice for power generation. Additional gas-fired peaking resources will also be necessary to provide back-up supply for renewable technologies.

We will continue efforts to develop additional markets for our coal production, including the development of additional power plants at our mine site. Nearly 50% of all electricity generated in the United States is currently supplied from coal-fired plants, and it will take decades before this generation can be replaced with alternative technologies. As a result, coal-fired resources will remain a necessary component of the nation's electric supply for the foreseeable future. Potential greenhouse gas legislation may limit construction of new conventional coal-fired power plants, but technologies such as carbon capture and sequestration should provide for the long-term economic use of coal. We will investigate the possible deployment of these technologies at our mine site in Wyoming.

We divested of seven IPP plants in 2008 because we were able to capture significant value for shareholders, but we are not exiting the non-regulated power generation business. We have expertise in permitting, constructing and operating power generation facilities; and these skills provide us with a key opportunity to add long-term shareholder value. We intend to grow our non-regulated power generation business by continuing to focus on long-term contractual relationships with other load-serving utilities.

The expertise of our energy marketing business should provide continued profitability through a risk-managed and disciplined approach to producer services, origination, storage, transportation and proprietary marketing strategies. We will also continue to utilize our marketing expertise to enhance the value of our other energy assets, particularly our fuel and power generation assets.

We intend to operate our lines of business as Utilities and Non-regulated Energy Groups. The Utilities Group consists of electric and natural gas utility assets and services. The Non-regulated Energy Group consists of fuel production, mid-stream assets, power generation facilities and energy marketing.

The following are key elements of our business strategy:

• Complete the full, efficient integration of the five utility properties acquired in the 2008 Aquila Transaction, focusing on the achievement of operating synergies and cost reductions;

• Provide stable long-term rates for customers and increase earnings by efficiently planning, constructing and operating rate-base power generation facilities needed to serve our electric utilities;

• Proactively integrate alternative and renewable energy into our utility energy supply while remaining mindful of potential customer rate impacts;

• Expand utility operations through selective acquisitions of electric and gas utilities consistent with our regional focus and strategic advantages;

• Build and maintain strong relationships with wholesale power customers of both our utilities and non-regulated power generation businesses;

• Selectively grow our non-regulated power generation business in targeted Western markets by developing assets and selling most of the capacity and energy production through mid-and long-term contracts primarily to load-serving utilities;

• Exploit our fuel cost advantages and our operating and marketing expertise to produce and sell power at attractive margins;

• Grow our reserves and increase our production of natural gas and crude oil in a cost-effective manner;

• Opportunistically expand our energy marketing operations including producer and end-use origination services and, as warranted by market conditions, natural gas and crude oil storage and transportation opportunities;

• Diligently manage the credit, price and operational risks inherent in buying and selling energy commodities; and

• Maintain an investment grade credit rating and ready access to debt and equity capital markets.

Complete the full, efficient integration of the five utility properties acquired in the 2008 Aquila Transaction, focusing on the achievement of operating synergies and cost reductions. The July 14, 2008 acquisition of five utility properties in four states from Aquila significantly expanded our regional presence and the size and scope of our utility operations. The expanded utility operations will enhance our ability to serve customers and communities and build long-term value for our shareholders. Over the next two years, we will continue working diligently to integrate the operations of the five acquired utilities with our other utility operations. By standardizing processes, centralizing purchasing and inventory, and utilizing common computer systems for customer service, accounting, human resources and operations, it will be possible to reduce costs and improve operating efficiency.

Provide stable long-term rates for customers and increase earnings by efficiently planning, constructing and operating rate-base power generation facilities needed to serve our electric utilities. Our Company was originally a vertically integrated electric utility. This business model remains a core strength and strategy today, where we invest in and operate efficient power generation resources to transmit and distribute electricity to our customers. We provide power at reasonable and stable rates to our customers and earn competitive returns for our investors. Rate-based generation assets offer several advantages for consumers, regulators and investors. First, the assets assure consumers that rates have been reviewed and approved by government authorities who safeguard the public interest. Since the generating assets are included in the utility rate base, customer rates are more stable than if the power was purchased from the open market via wholesale contracts. Second, regulators participate in a planning process where long-term investments are designed to match long-term energy demand. Third, investors are assured that a long-term, reasonable, stable rate of return may be earned on their investment. A lower risk profile may also improve credit ratings which, in turn, can benefit both consumers and investors by lowering our cost of capital.

Examples of our progress include the January 2008 completion of Wygen II to serve the customers of Cheyenne Light and the ongoing construction of Wygen III to serve the customers of Black Hills Power. In August 2008, following the closing of the Aquila Transaction, we submitted to the Colorado regulators a long-term resource plan that included the proposed construction of up to five gas-fired power plants, with a total capacity of approximately 350 megawatts, to serve the customers of Colorado Electric. Hearings were completed in late January 2009, and on February 24, 2009 the Commission issued its initial decision. The decision allows us to construct 2 gas-fired power plants representing approximately 150 MW. We will issue a request for proposal for the remaining 200 MW with a bid due date in June 2009. Under the process outlined by the Commission in its decision, we may submit proposals to provide generation through our IPP business. This initial Commission decision and order is subject to requests by any party to the proceeding for reconsideration by the Commission, which must be filed by March 16, 2009.

Proactively integrate alternative and renewable energy into our utility energy supply while remaining mindful of potential customer rate impacts. The energy and utility industries face tremendous uncertainty related to the potential impact of legislation intended to reduce greenhouse gas emissions and increase the use of renewable and other alternative energy sources. To date, many states have enacted and others are considering some form of mandatory renewable energy standard requiring utilities to meet certain thresholds of renewable energy use. Additionally, many states have either enacted or are considering legislation setting greenhouse gas emissions reduction targets. Federal legislation for both renewable energy standards and greenhouse gas emission reductions is also under consideration.

Mandates for the use of renewable energy or the reduction of greenhouse gas emissions will likely result in substantial increases in the prices for electricity and natural gas. At the same time, however, as a regulated utility we are responsible for providing safe, reasonably priced, reliable sources of energy to our customers. As a result, we have developed a customer-centered strategy for renewable energy standards and greenhouse gas emission reductions that balances our customers' rate concerns with environmental considerations. We attempt to strike this balance by prudently and proactively incorporating renewable energy into our resource supply, while seeking to minimize rate increases for our utility customers. Examples of our balanced approach include:

• With respect to states such as South Dakota and Wyoming that currently have no legislative mandate on the use of renewable energy, we have nevertheless integrated cost-effective renewable energy into our generation supply on the expectation that there will be mandatory renewable energy standards in the future. For example, in September 2008, we commenced buying wind energy for use at Black Hills Power and Cheyenne Light under a 20-year power purchase agreement for approximately 30 MW of wind energy located in Cheyenne, Wyoming;

• In states such as Colorado and Montana that do have a legislative mandate on the use of renewable energy, we are aggressively pursuing cost-effective initiatives with the regulators that will allow us to accomplish our renewable energy requirements. In Colorado for instance, we recently filed an electric resource plan that includes enough renewable energy additions and greenhouse gas emission reductions to permit us to satisfy both (i) the State's requirement that 20% of a utility's distributed energy must be supplied by renewable energy resources by 2020 and (ii) the governor's executive order that requires a 20% reduction in carbon dioxide emissions; and

• In all states in which we conduct electric operations, we are exploring other potential biomass, solar and wind energy projects and evaluating other potential wind generator sites, particularly sites located near our utility service territories.

Using reasonable assumptions, we have also carefully evaluated our coal-fired generating facilities and the potential future economic impact of a carbon tax or cap-and-trade regime intended to reduce CO2 emissions. For customers in states without renewable or CO2 mandates, such as South Dakota and Wyoming, we believe it is still in our utility customers' long-term interest to construct new mine-mouth, coal-fired generating facilities, such as our Wygen II generation facility (completed in January 2008) and our Wygen III generation facility (under construction). In addition, we are actively evaluating alternative coal-fired generation technologies, including IGCC and carbon capture and sequestration, though both appear cost prohibitive in the near term. These technologies may become cost effective in the future if the cost of CO2 emissions reaches sufficiently high levels or further technological advancements reduce the costs of those technologies.

Expand utility operations through selective acquisitions of electric and gas utilities consistent with our regional focus and strategic advantages. For 125 years, we have provided strong utility services, delivering quality and value to our customers. Our tradition of accomplishment supports efforts to expand our utility operations into other markets, most likely in the Midwest, West and possibly other regions that permit us to take advantage of our intrinsic competitive advantages, such as baseload power generation, system reliability, superior customer service, community involvement and a relationship-based approach to regulatory matters. The 2005 acquisition of Cheyenne Light and the 2008 Aquila Transaction are examples of such expansion efforts. Utility operations also enhance other important business development, including gas transmission pipelines and storage infrastructure, which could promote other non-regulated energy operations. Utility operations can contribute substantially to the stability of our long-term cash flows, earnings and dividend policy.

Although we do not expect to make any significant utility acquisitions in 2009, some industry experts believe that the current financial turmoil and economic recession may produce opportunities for healthy utility companies to acquire utility assets and operations of less creditworthy companies upon attractive terms and conditions. We would expect to consider such opportunities if we believe they would further our long-term strategy and help maximize shareholder value.

Build and maintain strong relationships with wholesale power customers of both our utilities and non-regulated power generation business. We strive to build strong relationships with other utilities, municipalities and wholesale customers and believe we will continue to be a primary provider of electricity to wholesale utility customers. We further believe that these entities will need products, such as capacity, in order to serve their customers reliably. By providing these products under long-term contracts, we are able to help our customers' meet their energy needs. Through this approach, we also believe we can earn more stable revenues and greater returns over the long term than we could by selling energy into more volatile spot markets. In addition, relationships that we've established with wholesale power customers have developed into other opportunities. MEAN and MDU, both wholesale power customers, will now also be our joint owners in power plants.

Selectively grow our non-regulated power generation business in targeted Western markets by developing assets and selling most of the capacity and energy production through mid-and long-term contracts primarily to load-serving utilities. In late 2007, we initiated an evaluation of the merits of divesting certain power generation assets. That strategic review resulted in the mid-2008 divestiture of seven IPP plants for a total of $840 million. While much of our recent power plant development has been for our regulated utilities, we intend to continue to expand our non-regulated power generation business by developing and operating power plants in regional markets based on prevailing supply and demand fundamentals in a manner that complements our existing fuel assets, and marketing capabilities. We intend to grow this business through a combination of disciplined acquisitions and the development of new power generation facilities primarily in the western region where our detailed knowledge of market and . . .