2005 Pension Equalization Plan of Black Hills Corporation

Exhibit 10.3

2005 Pension Equalization Plan

of Black Hills Corporation

Black Hills Corporation, a South Dakota corporation (“Company”) maintains a nonqualified “top hat” plan for certain of its management or highly compensated employees, which was last restated effective the 6th day of November, 2001, known as the Pension Equalization Plan of Black Hills Corporation (the “Original PEP”). The Original PEP provided two types of benefits – a pension equalization or PEP benefit and a restoration benefit.

Effective January 1, 2005, the portion of the Original PEP that provides PEP benefits to each employee who was a Participant under the Original PEP on or before December 31, 2004 to which the Participant had a legally binding right and whose right to such benefits was earned and vested before January 1, 2005, as determined under Section 409A of the Code and the regulations issued thereunder, was treated as “grandfathered” and exempt from the provisions of Section 409A of the Code. Such portion of the Original PEP is known as the “Grandfathered PEP.” Effective October 3, 2004, in no event shall any amendment or other change to the Grandfathered PEP cause a material modification of such provisions, as determined under Section 409A of the Code. Any such amendment or other change shall be void and of no effect.

Effective January 1, 2005, the portion of the Original PEP that provides PEP benefits to which Participants did not have a legally binding right or whose right to such benefits was not earned and vested before January 1, 2005 under the Original PEP and which are thus subject to the provisions of Code Section 409A is spun off into this separate plan known as the 2005 Pension Equalization Plan of Black Hills Corporation.

It is the intention of the Company that: (1) this Plan will be operated in reasonable good faith compliance with Code Section 409A and the interim guidance issued thereunder during the period from January 1, 2005 through December 31, 2008; and (2) this Plan will comply with the provisions of Code Section 409A and the final regulations issued thereunder effective January 1, 2009.

The purpose of the Plan is to provide a select group of management or highly compensated employees with certain retirement and death benefits in addition to those benefits which the Participants may enjoy from the Company’s tax qualified retirement plans in order to supplement and attempt to equalize total retirement benefits being paid to persons holding like executive and management positions by other companies. The Plan is designed to aid the Company in attracting and retaining its executive employees, persons whose abilities, experience and judgment can contribute to the well-being of the Company. It is the intention of Company that this Plan shall be administered as an unfunded benefit plan established and maintained for a select group of management or highly compensated employees.

“Active Participant” shall mean a Participant who has not incurred a Termination of Employment and whose participation hereunder has not been discontinued by the Board of Directors.

“Actuarial Equivalent” shall mean a benefit of equivalent value computed on the basis of the Applicable Interest Rate and the Applicable Mortality Table.

“Affiliate” shall mean any business organization or legal entity that directly or indirectly, controls, is controlled by or is under common control with the Company. For purposes of this definition, the term “control” (including the terms “controlling”, “controlled by”, and “under common control with”) includes the possession, direct or indirect, of the power to vote 50 percent or more of the voting equity securities, membership interest, or other voting interest, or to direct or cause the direction of the management and policies of such business organization or other legal entity, whether through the ownership of voting equity securities, membership interest, by contract, or otherwise.

“Annual Compensation Limitation” shall mean the limitation on annual compensation for tax qualified retirement plans as set forth in Internal Revenue Code Section 401(a)(17) as the same may be amended hereafter from time to time.

“Applicable Interest Rate” shall mean the interest rate (or rates) prescribed by the Commissioner of Internal Revenue for purposes of Code Section 417(e), as in effect for the month of November preceding the first day of the calendar year of distribution.

“Applicable Mortality Table” shall mean (i) in the case of a Participant, the mortality table that is a blend of 75% of the male mortality table and 25% of the female mortality table underlying the mortality table prescribed by the Commissioner of Internal Revenue for purposes of Code Section 417(e), regardless of the actual sex of the Participant and (ii) in the case of a contingent annuitant, the mortality table shall be a blend of 25% of the male mortality table and 75% of the female mortality table underlying the mortality table prescribed by the Commissioner of Internal Revenue for purposes of Code Section 417(e), regardless of the actual sex of the contingent annuitant. If the mortality table prescribed by the Commissioner of Internal Revenue for purposes of Code Section 417(e) should be updated to a table that is not based on a blend of underlying male and female mortality tables, then the tables in effect immediately prior to such change shall continue to be used by this Plan without change.

“Average Earnings” shall mean whichever of the following results in the highest annual average Earnings: (i) a Participant’s average Earnings for the five (5) consecutive full calendar years of employment during the ten (10) full calendar years of employment immediately preceding the Calculation Date, which results in the highest such average; or (ii) a Participant’s average Earnings determined by dividing the sum of the following by five (5): (a) the Participant’s Earnings for the four full calendar years preceding the year containing his Calculation Date; (b) the Participant’s Earnings for the year containing his Calculation Date as of the Calculation Date; and (c) a portion of the Participant’s Earnings for the fifth full calendar year preceding the year containing his Calculation Date determined by multiplying his Earnings for said fifth preceding full calendar year by a ratio, the numerator of which shall be 365 minus the number of days in the year containing his Calculation Date measured from the first day of said year to his Calculation Date, and the denominator of which ratio shall be 365. If the Participant has less than five (5) full calendar years of employment, the average shall be taken over his total full calendar years of employment.

“Beneficiary” shall mean the individual or individuals designated by the Participant in accordance with paragraph 7 of the Grandfathered PEP to receive Grandfathered PEP Benefits, if

any, which are payable upon the Participant’s death. If no Beneficiary has been designated, or if no Beneficiary survives, the Participant’s remaining 2005 PEP Benefits shall be paid to the estate of the last to survive of the Participant and the Beneficiary.

“Board of Directors” shall mean the Board of Directors of the Company.

“Calculation Date” shall mean the earliest of (i) the date of the Participant’s Termination of Employment, (ii) the date of the Participant’s death and (iii) the date the Participant’s participation in the Plan is discontinued.

"Controlled Group Member" shall mean any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes the Company; any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with the Company; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes the Company; and any other entity required to be aggregated with the Company pursuant to regulations under Section 414(o) of the Code.

“Earnings” shall mean the Participant’s Earnings, as defined for purposes of the Pension Plan of Black Hills Corporation but determined without regard to the Annual Compensation Limitation, for a calendar year plus the amount, if any, that the Participant has elected to defer under the Company’s Nonqualified Deferred Compensation Plan for the calendar year.

“Grandfathered PEP” shall have the meaning set out in paragraph 1.

“Grandfathered PEP Benefit” shall mean the PEP Benefit determined under the Grandfathered PEP to which the Participant had a legally binding right and which is earned and vested as of December 31, 2004.

“Key Employee” shall mean a Participant who is a specified employee, as defined as in Code Section 409A and the regulations and other official guidance issued thereunder, and as determined in accordance with procedures established by the Plan Administrator.

“Participant” shall mean an employee or former employee of the Company or an Affiliate who is designated as a Participant pursuant to paragraph 4 and who is or may become entitled to receive benefits under the Plan.

“2005 PEP Benefit” shall mean the benefit payable under the Plan.

“Plan Administrator” shall mean the Pension Administration Committee described in the Pension Plan of Black Hills Corporation.

“Termination of Employment” shall mean separation from service with the Company and all Affiliates, in accordance with the provisions of Code Section 409A. Pursuant to Code Section 409A, unless the facts and circumstances indicate otherwise, a Termination of Employment is presumed to have occurred where the Participant's level of bona fide services performed decreases to a level equal to 20 percent or less of the average level of services performed by the Participant during the immediately preceding 36-month period, and a Termination of Employment will be presumed not to have occurred where the Participant's level of bona fide services performed continues at a level that is 50 percent or more of the average level of service performed by the Participant during the immediately preceding 36-month period. However, a Termination of Employment does not occur while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed six months, or if longer, while the Participant retains a right to reemployment with the Company or any Affiliate under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Company or an Affiliate. If the period of leave exceeds six months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the Participant's Termination of Employment is deemed to occur on the day after the end of the six-month period.

“Year of Plan Participation” shall mean each complete twelve-month period beginning on the date an employee becomes a Participant in the Plan and ending at the employee’s Termination of Employment or, if earlier, when the employee’s participation in the Plan is discontinued by the Board of Directors. Partial years shall be disregarded. No credit for service with the Company or the applicable Affiliate prior to January 1, 1990 shall be given. However, Years of Plan Participation shall include any years of participation credited to the Participant under the Grandfathered PEP prior to January 1, 2005.

Any management or highly compensated employees of the Company or its Affiliates whose Salary Level equals or exceeds the Social Security Wage Base and who are designated by the Board of Directors of the Company upon recommendation of the Chief Executive Officer of the Company shall be eligible to participate in the Plan. Each employee of the Company or its Affiliates who was a participant in the Original PEP on December 31, 2004, who remains an employee on January 1, 2005 and whose participation is not discontinued by the Board of Directors before January 1, 2005 shall be a Participant as of January 1, 2005. An employee who was not a Participant on January 1, 2005 will become a Participant on the first day of the calendar month beginning after the date the employee is designated as a Participant by the Board of Directors (or, if later, the participation date specified in the designation). An employee ceases to be an Active Participant upon his Termination of Employment or, if earlie