 Wholesale Energy
Our non-regulated energy platform – oil and natural gas production, coal mining, power generation and marketing – provides strength to our financial operations. Accounting for the majority of our earnings and assets, our non-regulated energy businesses augment our utility operations.
CUSTOMER SERVICE IS OUR SUCCESS MODEL
Across our wholesale energy operations, we are customerfocused. Through sustained relationship-building, we maintain a model for long-term business success. Moreover, our approach has created profitability based on multi-year contracts that is expanded through repeat business and referrals. We are dependable, dedicated allies of our business partners – and like it that way.
 OPERATIONS REVIEW
Wholesale energy earned $55.4 million in 2006, compared to $26.2 million in 2005. Here is a breakdown of 2006 business segment performance.
• Energy marketing earned $17.3 million, a 25 percent increase over 2005 results. Average daily volume of natural gas marketed was up 12 percent to nearly 1.6 million MMBtu. Results benefited from higher gross margins as well. Our marketing profitability is derived largely from price volatility, a business feature that can offset potential adverse swings in prices received for our own oil and gas production. In March 2006, we sold our Texas-based crude oil marketing and pipeline transportation business, and in May began offering crude oil producer services out of our Golden, Colorado marketing operation. Celebrating its tenth anniversary last summer, our energy marketing business is the epitome of customer service. Our personable and expert team thrives on relationship management, as they offer producer services to regional clients requiring better access to marketing channels; origination services to clients that are consumers of energy; and storage and transportation services to optimize the value of and provide reliable delivery of energy for our customers.
• Oil and gas production increased for the ninth consecutive year, up 5 percent from 2005 to 14.4 billion cubic feet equivalent (Bcfe). For the year, average prices received net of hedges were about 36 percent higher for crude oil but 4 percent lower for natural gas. Increased revenues were offset by higher field service costs and depletion expense; consequently earnings were 29 percent lower than in 2005. Year-end proven reserves of 199.1 Bcfe reflected an increase of approximately 60 Bcfe from two acquisitions in the Piceance Basin of Colorado, an increase of 13 Bcfe from our 2006 drilling  program, and a downward revision of about 30 Bcfe from previous estimates. That revision was affected by lower-than-expected production results in certain areas in the San Juan Basin of New Mexico, oil well performance in portions of the Finn-Shurley Field of Wyoming, the loss of a very productive gas well in the Denver-Julesburg Basin in Nebraska, and the effect of lower year-end product prices on reserve calculations.Fourth quarter 2006 production increased 15 percent compared to the prior year, providing momentum toward our long-term goal of 10 percent annual production growth. In February 2007, we received approval for increased density spacing in the East Blanco Field of the San Juan Basin that is expected to contribute solidly to future production and proven reserves. In addition, there likely are significant quantities of probable reserves at our primary operations. Since a large portion of our proven reserves are undeveloped, we have sufficient drill site inventory to maintain a solid drilling program over the next several years without significant new leasehold additions. We see opportunity to grow in each of our primary operational bases – the San Juan, Piceance and Powder River Basins.
• Coal mining overcame the temporary loss of sales to its largest customer, the Wyodak power plant, which underwent a planned six-week major maintenance outage in the spring of 2006, by increasing train load-out sales during the year. Coal production was flat compared to 2005 at 4.7 million tons. Earnings were down $1 million to $5.9 million, due to higher overburden removal expense related to a change in certain accounting rules, and increased mineral taxes. Our skilled mining team is geared up to increase production, too. Delivery of coal to the Wygen II plant will begin later in this year, and add a half-million tons to our annual production beginning in 2008. The mining operation isplanning for Wygen III as well, which will add a similar tonnage to sales when operational in the future.
 • Power generation returned to its normal high performance level in the last half of 2006 with the restoration of operations at our Las Vegas power plant complex, where plants resumed full service in April and July 2006 after extensive maintenance and repairs. Earnings in 2006 were $19.9 million, compared to a loss of $(12.5) million in 2005, the results of which were affected primarily by an impairment charge related to our Las Vegas I power plant. Availability for our entire fleet of non-regulated power plants across five states was 93.4 percent in 2006, with 99 percent availability for the fourth quarter.
In all our businesses, we are customer focused and driven. We aim to be reliable, dependable, economical and interactive with all our business partners.
WE’RE HERE TO SERVE
In all our businesses, we are customer focused and driven. We aim to be reliable, dependable, economical and interactive with all our business partners. From energy commodities to marketing to generation, we are ready to serve our customers with enthusiasm and professionalism.
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