BLACK HILLS CORP /SD/
FIRST SUPPLEMENTAL INDENTURE
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>ex10_3-10q3rd.txt
<DESCRIPTION>FIRST SUPPLEMENTAL INDENTURE
<TEXT>
                                                              Exhibit 10.3

                             BLACK HILLS POWER, INC.



                                       TO



                              JPMORGAN CHASE BANK,



                                   As Trustee



                          ____________________________



                          FIRST SUPPLEMENTAL INDENTURE



                           Dated as of August 13, 2002



                          ____________________________


Supplemental to Restated and Amended
Indenture of Mortgage and Deed of Trust
Dated as of September 1, 1999



First Mortgage Bonds, 7.23%
Series AE Due 2032

<PAGE>

                  FIRST SUPPLEMENTAL INDENTURE, dated as of the 13 `h day of
August, 2002, between Black Hills Power, Inc., a corporation duly organized and
existing under the laws of the State of South Dakota (formerly known as Black
Hills Corporation) (hereinafter called the "Company"), party of the first part,
and JPMORGAN CHASE BANK, a corporation organized and existing under the laws of
the State of New York, as Trustee under the Indenture hereinafter mentioned
(hereinafter called the "Trustee"), party of the second part.

                  WHEREAS, in order to secure an authorized issue of First
Mortgage Bonds of the Company, the Company has executed and delivered a Restated
and Amended Indenture of Mortgage and Deed of Trust to JPMorgan Chase Bank f/k/a
The Chase Manhattan Bank, as Trustee, dated as of September 1, 1999 (hereinafter
referred to as the "Indenture"), which amended and restated the Indenture of
Mortgage and Deed of Trust to Central Hanover Bank and Trust Company (the
successor by various mergers of which is JPMorgan Chase Bank) hereinafter
referred to as the "Original Indenture."

                  WHEREAS, pursuant to the provisions of the Indenture, First
Mortgage Bonds have been duly issued under the Original Indenture and are
presently outstanding and continue to be secured by the Indenture as follows:

                                                      Principal Amount
              Series                                     Outstanding

Series Y, 9.49%, due June 15, 2018                        $4,550,000
Series Z, 9.35%, due May 29, 2021                         31,635,000
Series AA, 9.00%, due September 1, 2003                    1,650,904
Series AB, 8.30%, due September 1, 2024                   45,000,000
Series AC, 8.06%, due February 1, 2010                    30,000,000
                                                          ----------
                                                        $112,835,904

                  and

                  WHEREAS, as permitted by the Indenture, the Company, by
resolutions of its Board of Directors duly adopted, has determined to create a
new series of bonds to be known as its "First Mortgage Bonds, 7.23% Series AE
Due 2032" (herein called the "Series AE Bonds"), to be initially authenticated
and delivered in the aggregate principal amount of $75,000,000 in the form,
having the characteristics and being entitled to the benefits as in the
Indenture or as in this Supplemental Indenture provided; and

                  WHEREAS, the Company, in exercise of the powers and authority
conferred upon and reserved to it under and by virtue of the provisions of the
Indenture, and particularly the provisions contained in Articles Two and Sixteen
thereof, and pursuant to appropriate resolutions of its Board of Directors, has
duly resolved and determined to make, execute and deliver to the Trustee a First
Supplemental Indenture in the form hereof (herein sometimes referred to as "this
Supplemental Indenture") for the purposes herein provided; and

                  WHEREAS, all conditions and requirements necessary to make
this Supplemental Indenture a valid, binding and legal instrument in accordance
with its terms have been done,

                                       1
<PAGE>

performed and fulfilled, and the execution and delivery hereof have been in
all respects duly authorized;

                  NOW THEREFORE, in consideration of the premises and of one
dollar to it duly paid by the Trustee at or before the ensealing and delivery of
these presents, the receipt whereof is hereby acknowledged, and of other good
and valuable consideration, in order to establish the terms of the Series AE
Bonds, the Company hereby further covenants and agrees to and with the Trustee
and its successors in the trust under the Indenture for the benefit of all those
who shall from time to time hold the Series AE Bonds as follows:

                  The Company does hereby ratify and confirm its Mortgage and
Pledge to the Trustee of all property described in the Indenture and does hereby
grant, bargain, sell, release, convey, assign, transfer, mortgage, pledge and
set over unto the Trustee, and to its successors and assigns forever, the
following described property acquired by the Company and not specifically
described under the Indenture which following described property shall be
incorporated into the terms of Exhibit A to the Indenture as if more fully set
forth therein:

                       LANDS IN BUTTE COUNTY, SOUTH DAKOTA

1.   Tracts C, D and E of the  Southeast  Quarter  (SE1/4) of Section  Ten (10),
     Township Eight (8) North, Range Two (2) East of the Black Hills Meridian in
     the City of Belle Fourche, Butte County, South Dakota, as shown by the Plat
     recorded in Plat Book 5, Page 18, excepting  therefrom that part of Tract C
     and Tract D deeded to Floyd  Cooper,  in instrument  recorded  December 22,
     1949,  in Book 137,  Page 137; and also  excepting  therefrom  that part of
     Tract C  deeded  to  Albert  W.  Turbiville  and  Alice L.  Turbiville,  in
     instrument  recorded  October 24,  1961 in Book 156,  Page 585 of the Butte
     County real estate records.

                       LANDS IN MEADE COUNTY, SOUTH DAKOTA

1.   Lots Twenty-seven  (27),  Twenty-eight  (28),  Twenty-nine (29), and Thirty
     (30),  in Block Four of Fort Meade  Addition to  Sturgis,  in the County of
     Meade and State of South Dakota.

2.   A parcel of land  approximately  3.08 acres known as the BHP&L  Utility Lot
     formerly  a  portion  of  lot  four  (4) of the  Northeast  Quarter  of the
     Southeast  Quarter (SE 1/4) of Section  Thirty-six (36),  Township Five (5)
     North,  Range Five (5) East of the Black Hills  Meridian,  in Meade County,
     South Dakota.

3.   Plat of Piedmont  Valley  Substation  Lot being a portion of Lot Eight (8),
     Block One (1), Coopers  Subdivision located in the Northwest Quarter of the
     Northeast Quarter (NW 1/4NE1/4),  Section Fifteen (15),  Township Three (3)
     North,  Range Six (6) East of the Black Hills  Meridian,  in Meade  County,
     South Dakota.


                                       2
<PAGE>

                         LANDS IN PENNINGTON COUNTY, SOUTH DAKOTA

1.   A  Forty  (40)  acre  parcel  described  as the  Southwest  Quarter  of the
     Southwest Quarter (SW 1ASW1/4) of Section Twenty-four (24), in Township One
     (1) North,  Range Seven (7) East of the Black Hills  Meridian in Pennington
     County,  South  Dakota  excepting  therefrom  Highway  16  Bypass  and also
     excepting therefrom Lot H 1 as shown on the plat filed in Highway Plat Book
     6, Page 22 of the Pennington County real estate records.

2.   Lot Two (2) in  Prairie  Hills  Subdivision,  Rapid  City,  located  in the
     Southwest  Quarter  of the  Southwest  Quarter  (SW 1/4SW  1/4) of  Section
     Nineteen  (19),  Township Two (2) North,  Range Eight (8) East of the Black
     Hills Meridian, Pennington County, South Dakota.


                                   ARTICLE ONE

                                   DEFINITIONS

     SECTION 1.01. General. For all purposes of this Supplemental Indenture:

          (a) capitalized  terms used herein without  definition  shall have the
     meanings specified in the Indenture;

          (b) all references  herein to Articles and Sections,  unless otherwise
     specified,  refer  to the  corresponding  Articles  and  Sections  of  this
     Supplemental Indenture;

          (c) the terms  "herein,"  "hereof,"  "hereunder"  and  other  words of
     similar import refer to this Supplemental Indenture; and

          (d) in the event of a conflict between any definition set forth in the
     Indenture and any definition set forth in this Supplemental Indenture,  the
     definition set forth in this Supplemental Indenture shall control.

          SECTION 1.02.  Definitions.  The following  definitions shall apply to
     this Supplemental Indenture:

          "Business Day" means any day other than a Saturday or Sunday and other
     than a day on which banking  institutions in Rapid City,  South Dakota,  or
     New York, New York,  are authorized or obligated by law or executive  order
     to close.

          "Comparable  Treasury Issue" means the United States Treasury security
     selected  by  an  Independent   Investment  Banker  as  having  a  maturity
     comparable to the remaining term of the Series AE Bonds to be redeemed that
     would  be  utilized,  at the  time  of  selection  and in  accordance  with
     customary  financial  practice,  in pricing  new issues of  corporate  debt
     securities  of comparable  maturity to the remaining  term of the Series AE
     Bonds.


                                       3
<PAGE>

          "Comparable  Treasury  Price"  means  the  average  of  two  Reference
     Treasury Dealer Quotations obtained with respect to any redemption date.

          "Depository"   means  The  Depository   Trust  Company,   a  New  York
     corporation, or any successor thereto.

          "Global  Bond" shall have the  meaning  set forth in Section  2.05(a).
     "Independent  Investment  Banker" means ABN AMRO Incorporated or one of the
     Reference Treasury Dealers appointed by the Trustee after consultation with
     the Company.

          "Reference  Treasury  Dealer"  means  ABN  AMRO  Incorporated  and its
     successors;  provided,  however,  that  if  ABN  AMRO  Incorporated  or its
     successors shall cease to be a primary United States government  securities
     dealer (a "Primary  Treasury  Dealer"),  the Company will substitute for it
     another  nationally  recognized  investment bank that is a Primary Treasury
     Dealer.

          "Reference  Treasury Dealer  Quotations"  means,  with respect to each
     Reference  Treasury  Dealer  and  any  redemption  date,  the  average,  as
     determined  by the  Independent  Investment  Banker,  of the bid and  asked
     prices  for the  Comparable  Treasury  Issue  (expressed  in each case as a
     percentage of its principal  amount)  quoted in writing to the  Independent
     Investment  Banker at 5:00 p.m.,  New York City time, on the third Business
     Day preceding such redemption date.

          "Treasury Rate" means, for any redemption  date, (i) the yield,  under
     the heading  which  represents  the average for the  immediately  preceding
     week,  appearing  in  the  most  recently  published   statistical  release
     designated  "H.15(519)"  or any  successor  publication  which is published
     weekly by the Board of  Governors of the Federal  Reserve  System and which
     establishes  yields on actively  traded United States  Treasury  securities
     adjusted  to  constant  maturity  under  the  caption  "Treasury   Constant
     Maturities,"  for the maturity  corresponding  to the  Comparable  Treasury
     Issue (if no maturity is within three months  before or after the remaining
     term of the Series AE Bonds,  yields for the two published  maturities most
     closely  corresponding to the Comparable Treasury Issue shall be determined
     and the  Treasury  Rate shall be  interpolated  or  extrapolated  from such
     yields on a straight line basis,  rounding to the nearest month) or (ii) if
     such release (or any successor  release) is not  published  during the week
     preceding the  calculation  date or does not contain such yields,  the rate
     per annum  equal to the  semiannual  equivalent  yield to  maturity  of the
     Comparable  Treasury  Issue,  calculated  using a price for the  Comparable
     Treasury Issue (expressed as a percentage of its principal amount) equal to
     the Comparable Treasury Price. The Treasury Rate shall be calculated on the
     third Business Day preceding the redemption date.


                                       4
<PAGE>

                                   ARTICLE TWO

                     TERMS AND CONDITIONS OF SERIES AE BONDS

     SECTION 2.01. General.

          (a) There is hereby  created a series of Bonds,  known as and entitled
     "First  Mortgage  Bonds,  7.23%  Series AE Due 2032," and the form  thereof
     shall be as provided in this Supplemental Indenture.

          (b) The  aggregate  principal  amount of Series AE Bonds  which may be
     authenticated  and delivered and  outstanding  under the Indenture and this
     Supplemental  Indenture shall be limited in aggregate  principal  amount to
     $75,000,000,  except as provided under Section 2.02 of the  Indenture.  The
     Series AE Bonds  shall bear  interest  at the rate of 7.23% per annum until
     the  principal  thereof  becomes due and payable and shall bear interest on
     overdue principal (including any overdue mandatory prepayment of principal)
     and premium, if any, and (to the extent legally enforceable) on any overdue
     installment  of interest at the rate of 8.23% per annum until such  overdue
     principal,  premium or  interest  shall be paid.  The Series AE Bonds shall
     mature August 15, 2032.

          (c) The Series AE Bonds shall be registered  Bonds without  coupons in
     denominations of $100,000 and any multiples of $1,000 which may be executed
     by  the  Company  and  delivered  to the  Trustee  for  authentication  and
     delivery.  The date of  commencement  of the first interest  period for the
     Series AE Bonds shall be the date of initial  authentication  and  delivery
     thereof.  The Series AE Bonds shall be dated as provided in Section 2.06 of
     the  Indenture.  All  Series  AE  Bonds  shall  bear  interest  from  their
     respective issue dates. The principal and interest shall be due and payable
     as provided in the Bond form set forth in Section 2.02 of this Supplemental
     Indenture. The principal of, premium, if any, and interest on the Series AE
     Bonds  shall be  payable at the  principal  corporate  trust  office of the
     Trustee, in the Borough of Manhattan,  The City of New York, in any coin or
     currency of the United States of America which at the time of payment shall
     be legal tender for the payment of public and private debts.  The Series AE
     Bonds shall be subject to  redemption  only as provided in Section  2.03 of
     this Supplemental Indenture and Section 8.08 of the Indenture.

          (d) Without  limiting the other  indemnities  provided to the Trustee,
     the  Company  shall  indemnify  and  save  the  Trustee  harmless  from any
     liabilities  and costs incurred by the Trustee arising out of the making of
     the final payment when due of the  principal  owing on any of the Series AE
     Bonds without the surrender of such Bond to the Trustee.

          (e) The Trustee is hereby appointed Registrar in respect of the Series
     AE Bonds,  and the principal  corporate  trust office of the Trustee in the
     Borough of  Manhattan,  The City of New York,  is hereby  designated as the
     office or agency of the Company in said Borough where notices or demands in
     respect of Series AE Bonds may be served.


                                       5
<PAGE>

     SECTION  2.02.  Form of Bonds.  The text of the  Series  AE Bonds,  and the
certificate of authentication  of the Trustee to be executed thereon,  are to be
substantially in the following forms, respectively:

                              [FORM OF GLOBAL BOND]

     Unless  this  Bond is  presented  by an  authorized  representative  of The
Depository Trust Company, a New York corporation  ("DTC"),  to the issuer or its
agent for registration of transfer,  exchange or payment, and any Bond issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized  representative  of DTC (and any  payment is made to Cede & Co. or to
such other entity as is requested by an authorized  representative  of DTC), ANY
TRANSFER,  PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.

     Unless  and  until  it is  exchanged  in  whole  or in part  for  Bonds  in
definitive  registered form, this Bond may not be transferred  except as a whole
by the  Depositary  to the  nominee  of the  Depositary  or by a nominee  of the
Depositary  to the  Depositary  or another  nominee of the  Depositary or by the
Depositary  or any such nominee to a successor  Depositary  or a nominee of such
successor Depositary.



No.___________________                                  $______________________
CUSIP No. 092114 AA 5

                             BLACK HILLS POWER, INC.

                           FIRST MORTGAGE BOND, 7.23%
                               SERIES AE DUE 2032

     BLACK HILLS POWER, INC.  (hereinafter called the "Company"),  a corporation
organized and existing  under the laws of the State of South  Dakota,  for value
received,  hereby promises to pay to , or registered assigns, on the 15th day of
August,  2032, at the principal  corporate  trust office of the Trustee,  in the
Borough of Manhattan,  The City of New York, Dollars, in any coin or currency of
the United  States of America which at the time of payment shall be legal tender
for the payment of public and private  debts,  and to pay interest  thereon from
the date hereof,  at the rate of 7.23 percent,  per annum (computed on the basis
of a 360-day year of 12 thirty-day months),  payable at said principal office of
the Trustee in like coin or currency  semi-annually on February 15 and August 15
in each year until the principal  hereof shall have become due and payable,  and
thereafter if default be made in the payment of such  principal and premium,  if
any, and on any overdue  installment  of interest,  at the rate of 8.23 percent,
per annum until the overdue principal, premium or interest shall be paid.


                                       6
<PAGE>

     This Bond shall not be valid or become obligatory for any purpose until the
certificate of authentication  hereon shall have been signed by the Trustee,  or
its successor as Trustee, under the Indenture.

     This Bond is one of an  authorized  issue of Bonds of the Company  known as
its "First Mortgage Bonds," issued and to be issued in one or more series under,
and all  equally  and  ratably  secured  (except as any  sinking,  amortization,
improvement, renewal or other analogous fund, established in accordance with the
provisions  of  the  Indenture  hereinafter  mentioned,  may  afford  additional
security  for the Bonds of any  particular  series)  by a Restated  and  Amended
Indenture of Mortgage and Deed of Trust, dated as of September 1, 1999, executed
by the  Company  to  JPMorgan  Chase  Bank f/k/a The Chase  Manhattan  Bank,  as
Trustee,  as supplemented and amended by a First Supplemental  Indenture,  dated
August 13, 2002 (said Restated  Indenture as so  supplemented  and amended being
hereinafter  collectively  called the  "Indenture"),  to which Indenture and all
further  instruments  supplemental  thereto  reference  is  hereby  made  for  a
description  of the properties  mortgaged and pledged,  the nature and extent of
the  security,  the  rights  of the  holders  of  said  Bonds  and  the  coupons
appurtenant  to coupon  Bonds,  if any, and of the Trustee and of the Company in
respect of such security, and the terms and conditions upon which said Bonds are
and are to be issued and secured.

     To the extent permitted by the Indenture and as provided therein,  with the
consent of the Company and upon the written  consent or  affirmative  vote of at
least  sixty-six  and  twothirds  percent in principal  amount of the Bonds then
outstanding  and entitled to consent,  and of not less than  sixty-six  and two-
third percent, in principal amount of the Bonds then outstanding and entitled to
consent of each series affected thereby in case one or more but less than all of
the series of Bonds issued under the Indenture  are so affected,  the rights and
obligations  of the Company and of the holders of Bonds and coupons  appurtenant
to coupon  Bonds,  if any, and the terms and  provisions of the Indenture and of
any instrument  supplemental thereto may be modified from time to time, provided
that no such  modification or alteration  shall be made which would postpone the
date fixed herein or in the  Indenture  for the payment of the  principal of, or
any  installment  of interest on, the Bonds,  or reduce the principal of, or the
rate of  interest  payable  on,  the  Bonds,  or reduce  the  percentage  of the
principal amount of Bonds the consent of which is required for the authorization
of any such  modification  or  alteration,  without  the  consent  of all of the
holders affected thereby. The rights,  duties or immunities of the Trustee shall
not be modified without the written consent of the Trustee.

     As provided in the  Indenture,  said Bonds are issuable in series which may
vary as in the Indenture provided or permitted.  This Bond is one of a series of
Bonds  authorized  by the  First  Supplemental  Indenture  and  entitled  "First
Mortgage Bonds, 7.23% Series AE Due 2032" (the "Series AE Bonds").

     Pursuant to the  provisions of Section 8.05 of the  Indenture,  the Company
may request  the  Trustee to apply  moneys  deposited  with the Trustee  ("Trust
Moneys") for various  reasons  toward the  redemption of those Bonds,  including
payment of premium and accrued interest,  selected by the Company.  In the First
Supplemental  Indenture,  the Company has covenanted  that the Bonds may only be
called for  redemption  by the  Company,  as a whole at any time or in part from
time to time,  at a  redemption  price  equal to the  greater of (i) 100% of the
principal  amount  of  Series  AE  Bonds to be  redeemed  or (ii) the sum of the
present values of the


                                       7
<PAGE>

remaining scheduled payments of principal and interest thereon (exclusive of
interest accrued to the date of redemption) discounted, at the then current
Treasury Rate (as defined in the Supplemental Indenture) plus 30 basis points,
to the date of redemption on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) plus in each case, accrued and unpaid
interest on the principal amount being redeemed to the date of redemption.

     Notice of each redemption shall be mailed to all registered owners not less
than thirty nor more than forty-five days before the redemption date.

     Pursuant to the provisions of Section 8.08 of the Indenture,  the Series AE
Bonds are further  subject to  redemption,  in whole or in part,  by the Trustee
applying  certain  Trust Moneys which have been held by the Trustee for a period
of over two  years.  Any such  redemption  is made pro rata  among the series of
Bonds then  outstanding in the ratio of principal  amount.  Redemption is at 100
percent of principal, plus any premium due at the time of redemption and accrued
interest to the redemption date.

     If this Bond or any portion  thereof  ($1,000 or a multiple)  shall be duly
called for  redemption as provided in the  Indenture,  this Bond or such portion
thereof shall (unless the Company shall default in the payment of the redemption
price) cease to bear interest from and after the date fixed for redemption.

     Upon any partial  redemption of this Bond,  this Bond may, at the option of
the  registered  holder  hereof,  be either (a)  surrendered  to the  Trustee in
exchange  for one or more new  Series AE Bonds for the  principal  amount of the
unredeemed  portion of this Bond or (b)  submitted  to the Trustee for  notation
hereon by the Trustee of the payment of the portion of the  principal  hereof so
called for redemption.

     If an Event of  Default,  as defined in the  Indenture,  shall  occur,  the
principal of this Bond may become or be declared due and payable,  in the manner
and with the effect provided in the Indenture.

     A certificate in global form representing all of a portion of the Bonds may
not be  transferred  except as a whole by the  Depositary  for such  series to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another  nominee of such Depositary or by such Depositary or any such nominee
to a  successor  Depositary  for  such  Bonds  or a  nominee  of such  successor
Depositary.

     The Series AE Bonds are issuable as fully  registered Bonds without coupons
of the  denominations  of  $100,000  and any  multiple  of  $1,000  which may be
executed by the  Company and  delivered  to the Trustee for  authentication  and
delivery.  The Series AE Bonds,  upon  surrender  thereof to the  Trustee at its
principal  corporate  trust office in the Borough of Manhattan,  The City of New
York,  are  exchangeable  for other Bonds of the same series in such  authorized
denomination or denominations in the same aggregate  principal amount, as may be
requested by the holders  surrendering the same.

     The  Company  and the  Trustee  may deem and treat the person in whose name
this Bond is  registered  as the  absolute  owner  hereof,  for the  purpose  of
receiving  payment of or on account of the  principal  hereof and  interest  due
hereon, and neither the Company nor the Trustee

                                       8
<PAGE>

shall be affected by any notice to the contrary. Interest payable herein shall
be paid to the person in whose name the Bond is registered at the close of
business on February 1 or August 1 (whether or not on a business day) next
preceding the interest payment date, except for defaulted interest and unmatured
accrued interest on the Series AE Bonds called for redemption on a date other
than an interest payment date.

     No  recourse  shall  be had  for the  payment  of the  principal  of or the
interest on this Bond,  or for any claim based  hereon or  otherwise  in respect
hereof or of the Indenture or of any indenture supplemental thereto, against any
incorporator,  stockholder,  director  or  officer,  as such,  past,  present or
future,  of the Company or of any predecessor or successor  corporation,  either
directly or through the Company or any  predecessor  or  successor  corporation,
whether  by  virtue  of any  constitution,  statute  or rule  of law,  or by the
enforcement of any assessment or penalty or by any legal or equitable proceeding
or otherwise  howsoever;  all such liability being, by the acceptance hereof and
as a part of the  consideration  for the issuance  hereof,  expressly waived and
released  by every  holder  hereof,  as more fully  provided  in the  Indenture;
provided,  however,  that nothing herein or in the Indenture  contained shall be
taken to prevent  recourse to and the  enforcement of the liability,  if any, of
any  shareholder  or any  stockholder  or subscriber to capital stock upon or in
respect of shares of capital  stock not fully paid up.

     IN WITNESS  WHEREOF,  the  Company has caused this Bond to be signed in its
name by its President or one of its Vice  Presidents,  and its corporate seal to
be  impressed or  imprinted  hereon and attested by its  Secretary or one of its
Assistant Secretaries.

                Dated:

                                    BLACK HILLS POWER, INC.


                                    By:__________________________________
                                       Name:
                                       Title:

ATTEST:


___________________________________
Secretary


                                       9
<PAGE>


                (FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION)

     This is one of the Bonds, of the series  designated  therein,  described in
the within mentioned Indenture.


                                        JPMORGAN CHASE BANK, as Trustee


                                        By:__________________________________
                                           Authorized Officer


     SECTION 2.03. Optional Redemption.

          (a)  Notwithstanding  the provisions of Section 8.05 of the Indenture,
     the Series AE Bonds,  upon the mailing of notice and in the manner provided
     in Section 10.03 of the Indenture, shall be redeemable at the option of the
     Company,  as a whole  at any  time  or in part  from  time  to  time,  at a
     redemption  price equal to the greater of (i) 100% of the principal  amount
     of Series AE Bonds to be redeemed or (ii) the sum of the present  values of
     the  remaining   scheduled  payments  of  principal  and  interest  thereon
     (exclusive of interest  accrued to the date of redemption)  discounted,  at
     the  then  current  Treasury  Rate  plus 30  basis  points,  to the date of
     redemption  on a semiannual  basis  (assuming a 360-day year  consisting of
     twelve 30-day months) plus in each case, accrued and unpaid interest on the
     principal amount being redeemed to the date of redemption.

          (b)  Notwithstanding the provisions of Section 10.03 of the Indenture,
     in case of the  redemption  at any time of less  than  all the  outstanding
     Series AE Bonds, the particular Bonds or parts thereof to be redeemed shall
     be  selected  by the  Trustee  from the  outstanding  Series  AE Bonds  not
     previously  called for redemption as nearly as  practicable  pro rata among
     the registered  holders of the Series AE Bonds  according to the respective
     principal  amounts  of  such  Bonds,  provided  that  the  portions  of the
     principal of Series AE Bonds at any time so selected for redemption in part
     shall be equal to $1,000 or a multiple thereof.  (c)  Notwithstanding  that
     Section 8.05 of the Indenture authorizes the Company to request the Trustee
     to apply Trust Moneys toward the  redemption of Bonds to be selected by the
     Company, the Company does hereby covenant that the Company will not request
     the Trustee to apply any Trust  Moneys to the  redemption  of the Series AE
     Bonds except pursuant to Section 2.03(a) of this Supplemental Indenture.

     SECTION 2.04. No Sinking Fund.  The Series AE Bonds are not entitled to the
benefit of any sinking fund.


                                       10
<PAGE>

     SECTION 2.05. Bonds to be Issued in Global Form.

          (a) The Series AE Bonds will be initially  represented  by one or more
     Bonds in global form (the "Global  Bonds").  The Company hereby  designates
     The  Depository  Trust  Company as the  initial  Depositary  for the Global
     Bonds.  The Global Bonds will be deposited  with the Trustee,  as custodian
     for the  Depositary.  Unless and until it is  exchanged in whole or in part
     for Bonds in  certificated  form,  the Global Bonds may not be  transferred
     except as a whole by the  Depositary to a nominee of the Depositary or by a
     nominee of the  Depositary  to the  Depositary  or  another  nominee of the
     Depositary  or by  the  Depositary  or  any  such  nominee  to a  successor
     Depositary  for the Bonds or a nominee of such  successor  Depositary.  The
     Depositary  may  surrender the Global Bonds in exchange in whole or in part
     for  Bonds in  certificated  form on such  terms as are  acceptable  to the
     Company and the Depositary.

          (b) If at any time the  Depositary  for the Global Bonds  notifies the
     Company that it is unwilling or unable to continue as  Depositary  for such
     Global Bonds or if at any time the Depositary for the Series AE Bonds shall
     no longer be eligible or in good standing under the Securities Exchange Act
     of 1934, as amended, or other applicable statute or regulation, the Company
     shall appoint a successor  Depositary with respect to such Global Bonds. If
     a  successor  Depositary  for such  Global  Bonds is not  appointed  by the
     Company within 90 days after the Company  receives  notice or becomes aware
     of such  ineligibility,  the Series AE Bonds shall no longer be represented
     by Global Bonds and, subject to Section 2.07 of the Indenture,  the Company
     will  execute,  and the  Trustee,  upon  receipt of a Written  Order of the
     Company for the authentication and delivery of individual Bonds in exchange
     for such Global Bonds,  will  authenticate and deliver  individual Bonds of
     like tenor and terms in definitive  form in an aggregate  principal  amount
     equal to the  principal  amount of such Global  Bonds in exchange  for such
     Global Bonds.

          (c) The Company may at any time and in its sole  discretion  determine
     that the  Series  AE Bonds  issued or  issuable  in the form of one or more
     Global Bonds shall no longer be  represented  by such Global Bond or Bonds.
     In such event,  subject to Section 2.07 of the Indenture,  the Company will
     execute,  and the Trustee,  upon receipt of a Written  Order of the Company
     for the  authentication  and  delivery of  individual  Bonds in exchange in
     whole or in part for such  Global  Bonds,  will  authenticate  and  deliver
     individual Bonds of like tenor and terms in definitive form in an aggregate
     principal  amount  equal to the  principal  amount of such Global  Bonds in
     exchange for such Global Bonds.

          (d) In any  exchange  provided  for in  Section  2.05(b)  or (c),  the
     Company  will  execute  and  the  Trustee  will  authenticate  and  deliver
     individual Bonds in definitive registered form in authorized denominations.
     Upon the exchange of Global Bonds for individual  Bonds,  such Global Bonds
     shall be canceled by the  Trustee.  Series AE Bonds  issued in exchange for
     Global  Bonds  pursuant to this Section  2.05 shall be  registered  in such
     names  and in such  authorized  denominations  as the  Depositary  for such
     Global  Bonds,  pursuant  to  instructions  from  its  direct  or  indirect
     participants  or otherwise,  shall instruct the Trustee.  The Trustee shall
     deliver  such  Bonds  to the  Persons  in whose  names  such  Bonds  are so
     registered.


                                       11
<PAGE>

                                  ARTICLE THREE

                                  MISCELLANEOUS

     SECTION 3.01.  Outstanding  Bonds. The aggregate  principal amount of Bonds
which,  immediately after the authentication and delivery of the Series AE Bonds
to be issued under this  Supplemental  Indenture,  will be outstanding under the
provisions  of, and secured by, the Indenture,  as amended by this  Supplemental
Indenture, will be $187,835,904,  consisting of the Bonds of Series Y, Z, AA, AB
and AC  hereinbefore  set  forth  in the  second  recital  of this  Supplemental
Indenture and $75,000,000  aggregate  principal amount of Series AE Bonds hereby
created.

     SECTION  3.02.  Receipt of  Supplemental  Indenture.  The  Company,  by the
execution hereof,  acknowledges that a true copy of this Supplemental  Indenture
has been delivered to and received by it.

     SECTION  3.03.  Ratification  of  Indenture.  Except  as  amended  by  this
Supplemental  Indenture,  all  the  provisions,  terms  and  conditions  of  the
Indenture  shall  continue  in full force and effect.  The  Company  does hereby
ratify and confirm  its  mortgage  and pledge to the  Trustee of that  property,
real, personal and mixed described in the Indenture as being subject to the Lien
of the Indenture.

     SECTION 3.04. Sufficiency of Supplemental  Indenture.  The Trustee makes no
representation as to the validity or sufficiency of this Supplemental Indenture.

     SECTION 3.05. Counterparts.  This Supplemental Indenture may be executed in
several counterparts, all or any of which may be treated for all purposes as one
original and shall constitute and be one and the same instrument.

     SECTION 3.06. Governing Law. This Supplemental Indenture and each Series AE
Bond shall be governed by and construed in accordance with the laws of the State
of  South  Dakota  without  regard  to the  choice  of law  principles  thereof.
Notwithstanding  the  foregoing,  the  immunities  and  standard  of care of the
Trustee,  Registrar and paying agent in connection  with the  administration  of
trusts and duties  hereunder  shall be governed by and  construed in  accordance
with the laws of the State of New York.


                                       12
<PAGE>

     IN WITNESS  WHEREOF,  BLACK HILLS  POWER,  INC.,  party hereto of the first
part, has caused this Supplemental Indenture to be executed on its behalf by its
Chairman of the Board or its  President  or one of its Vice  Presidents  and its
corporate  seal to be hereto  affixed and to be attested by its  Secretary or an
Assistant  Secretary,  and JPMORGAN CHASE BANK, party hereto of the second part,
in evidence  of its  acceptance  of the trust  hereby  created,  has caused this
Supplemental  Indenture  to be  executed  on its  behalf  by  one  of  its  Vice
Presidents or Assistant  Vice  Presidents  and its  corporate  seal to be hereto
affixed and to be attested by a Trust Officer,  all as of the day and year first
above  written.

                                            BLACK HILLS POWER, INC.


                                            By:________________________________
                                               Name:
                                               Title:

ATTEST:



_____________________________________
Secretary

Signed, sealed and delivered by
BLACK HILLS POWER, INC.
in the presence of:

_____________________________________

_____________________________________

                                            JPMORGAN CHASE BANK, as Trustee


                                            By:________________________________
                                               Name:
                                               Title:

ATTEST:



_____________________________________
Trust Officer

Signed, sealed and delivered by
JPMORGAN CHASE BANK, as Trustee
in the presence of:

_____________________________________

_____________________________________


                                       13
<PAGE>

STATE OF SOUTH DAKOTA           )
                                )SS.:
COUNTY OF PENNINGTON            )


     On this  12th  day of  August,  2002,  before  me,  Karen  R.  Tucker,  the
undersigned  officer,  personally  appeared  Everett E. Hoyt,  to me  personally
known, who acknowledged  himself to be, and being by me duly sworn, did say that
he is  President of BLACK HILLS POWER,  INC., a  corporation,  and that the seal
affixed to the foregoing  instrument is the corporate  seal of said  corporation
and that said  instrument  was  executed  by,  and  signed  in the name of,  the
corporation,  by him, as such President and sealed on behalf of the  corporation
by authority of its Board of Directors for the purposes therein  contained,  and
the said Everett E. Hoyt  acknowledged the same as the free act and deed of said
corporation.

     IN WITNESS WHEREOF, I hereunto set my hand and official seal.

[Notarial Seal]


                                               ________________________________
                                               Notary Public
                                               My Commission expires___________


STATE OF NEW YORK               )
                                )SS.:
COUNTY OF NEW YORK              )

     On this 9TH day of August, 2002, before me, James M. Foley, the undersigned
officer,   personally   appeared  L.  O'Brien,   to  me  personally  known,  who
acknowledged  himself  to be, and being by me duly  sworn,  did say that he is A
Vice President of JPMORGAN CHASE BANK, a corporation,  and that the seal affixed
to the foregoing  instrument is the corporate seal of said  corporation and that
said instrument was executed by, and signed in the name of, the corporation,  by
him,  as such  Vice  President,  and  sealed on  behalf  of the  corporation  by
authority of its Board of Directors for the purposes therein contained,  and the
said  L.O'Brien  acknowledged  the  same  as the  free  act  and  deed  of  said
corporation.

     IN WITNESS WHEREOF, I hereunto set my hand and official seal.

[Notarial Seal]


                                               ________________________________
                                               Notary Public
                                               My Commission expires___________


                                       14
<PAGE>

</TEXT>
</DOCUMENT>
