Black Hills Corp: Form 10-Q for the period ended Mar 31, 2025

The following discussions should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our 2024 Annual Report on Form 10-K

Executive Summary

We are a customer-focused energy solutions provider with a mission of Improving Life with Energy for more than 1.35 million customers and 800+ communities we serve. Our aspiration is to be the trusted energy partner across our growing eight-state footprint, including Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Our strategy is centered on four priorities: *People & Culture—*build a team that wins together, *Operational Excellence—*relentlessly deliver on our commitment to serve our customers, *Transformation—*be a simple and connected company and *Growth—*grow to be a dominant long-term energy provider.

We conduct our business operations through two operating segments: Electric Utilities and Gas Utilities. Certain unallocated corporate expenses that support our operating segments are presented as Corporate and Other. We conduct our utility operations under the name Black Hills Energy predominantly in rural areas of the Rocky Mountains and Midwestern states. We consider ourself a domestic electric and natural gas utility company.

We have provided energy and served customers for 141 years, since the 1883 gold rush days in Deadwood, South Dakota. Throughout our history, the common thread that unites the past to the present is our commitment to serve our customers and communities. By being responsive and service focused, we can help our customers and communities thrive while meeting rapidly changing customer expectations.

Recent Developments

Business Segment Recent Developments

Electric Utilities

• See Note 2 of the Condensed Notes to Consolidated Financial Statements for recent rate review activity for Colorado Electric.
• On March 6, 2025, the state of Wyoming enacted comprehensive wildfire mitigation legislation (HB192), effective July 1, 2025. The legislation provides material liability protections for a utility that complies with its commission-approved wildfire mitigation plan. The legislation provides a utility a presumption of reasonableness and prudency for compliance with an approved wildfire mitigation plan.
• On February 12, 2025, Wyoming Electric set a new all-time and winter peak load of 344 MW, surpassing the previous all-time and winter peak of 318 MW set on January 20, 2025. Prior to 2025, the previous all-time and winter peak was 314 MW set on January 11, 2024.
• During the first quarter of 2025, Wyoming Electric continued construction of its approximately 260-mile, $350 million Ready Wyoming electric transmission expansion project, which is expected to be completed and in service by year-end 2025. Wyoming Electric has procured all required regulatory approvals and land rights-of-way and is constructing the project in multiple segments. The first 12-mile transmission line segment and two substations near Cheyenne, Wyoming, were completed and energized in 2024, adding approximately $40 million of rate base being recovered through the TCAM.
• During the first quarter of 2025, South Dakota Electric continued its Lange II construction project, which is planned to be in-service by the second half of 2026. On March 28, 2025, South Dakota Electric filed a request with the WPSC for the Lange II project.
• During the first quarter of 2025, Colorado Electric continued to pursue the addition of 350 MW of new renewable generation resources in support of its Clean Energy Plan. In 2024, the CPUC approved the addition of a 100-MW utility-owned solar project, 50-MW utility-owned battery storage project and a 200-MW solar PPA. Colorado Electric plans to file a CPCN for the battery storage project by mid-2025. Negotiations with counterparties for the other two projects are ongoing, which will drive final cost and timing of projects.

Gas Utilities

• See Note 2 of the Condensed Notes to Consolidated Financial Statements for recent rate review activity for Iowa Gas, Kansas Gas and Nebraska Gas.

Corporate and Other

• See Note 5 of the Condensed Notes to Consolidated Financial Statements for ATM program activity.
• On January 17, 2025, Fitch affirmed BHC's long-term issuer rating at BBB+ with a negative outlook. Following the affirmation, the parties jointly withdrew the rating. See Liquidity and Capital Resources section below for additional information on our credit ratings.

Results of Operations

Certain lines of business in which we operate are highly seasonal, and revenue from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Demand for electricity and natural gas is sensitive to seasonal cooling, heating and industrial load requirements. In particular, the normal peak usage season for our Electric Utilities is June through August while the normal peak usage season for our Gas Utilities is November through March. Significant earnings variances can be expected between the Gas Utilities segment’s peak and off-peak seasons. Due to this seasonal nature, our results of operations for the three months ended March 31, 2025, and 2024, and our financial condition as of March 31, 2025, and December 31, 2024, are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period or for the entire year.

All amounts are presented on a pre-tax basis unless otherwise indicated. Minor differences in amounts may result due to rounding.

Consolidated Summary and Overview

(in millions, except per share amounts)

(a) Includes inter-segment eliminations.

Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024:

The variance to the prior year included the following:

• Electric Utilities’ operating income decreased $10.3 million primarily due to higher operating expenses and current year unplanned generation outages;
• Gas Utilities’ operating income increased $20.7 million primarily due to new rates and rider recovery driven by the Arkansas Gas and Colorado Gas rate reviews and favorable winter heating season weather partially offset by higher operating expenses;
• Interest expense increased $7.3 million primarily due to higher interest rates and lower interest income on lower cash and cash equivalents balances; and
• Net income attributable to non-controlling interest decreased $1.6 million due to lower net income from Black Hills Colorado IPP primarily driven by unplanned generation outages.

Segment Operating Results

A discussion of operating results from our business segments follows. Unless otherwise indicated, segment information does not include inter-segment eliminations.

Non-GAAP Financial Measures

The following discussion includes financial information prepared in accordance with GAAP and a “non-GAAP financial measure", Electric and Gas Utility margin. Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. We define Electric and Gas Utility margin as operating revenue less cost of fuel, purchased power and cost of natural gas sold. Electric and Gas Utility margin is a non-GAAP financial measure due to the exclusion of operation and maintenance expenses determined to be directly attributable to revenue-producing activities, depreciation and amortization expenses, and taxes other than income taxes from the measure.

We believe that Gas and Electric Utility margin provides a useful basis for evaluating our segment operating results since our Utilities have regulatory mechanisms that allow them to pass prudently incurred costs of energy through to the customer in current rates. As a result, management uses Gas and Electric Utility margin internally when assessing the financial performance of our operating segments as this measure excludes the majority of revenue fluctuations caused by changes in these costs of energy. Similarly, the presentation of Gas and Electric Utility margin is intended to supplement investors’ understanding of operating performance.

Our Electric and Gas Utility margin measure may not be comparable to other companies’ Electric and Gas Utility margin measures. The following table includes a reconciliation of Electric and Gas Utility margin to Gross margin, the most directly comparable GAAP measure:

(in millions)

(a) Operations and maintenance expenses which are deemed to be directly attributable to revenue-producing activities include plant operations and maintenance expenses at our electric generation facilities, operations and maintenance expenses at our WRDC coal mine, and electric and gas transmission and distribution expenses. These amounts are included in the table above to calculate gross margin in accordance with GAAP. These amounts excluded operations and maintenance expenses not directly attributable to revenue-producing activities of $26.9 million and $21.5 million for the three months ended March 31, 2025 and 2024, respectively, for the Electric Utilities and $41.7 and $35.8 million for the three months ended 2025 and 2024, respectively, for the Gas Utilities.

Electric Utilities

Operating results for the Electric Utilities were as follows:

(in millions)

(a) See Non-GAAP Financial Measures section above for reconciliation to Gross margin, the most directly comparable GAAP measure.

Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024:

Electric Utility margin increased as a result of the following:

(in millions)

Operations and maintenance expense increased primarily due to $2.8 million of expenses related to unplanned generation outages, $2.8 million of higher outside services expenses; $1.9 million of higher employee-related expenses and $1.3 million of higher insurance expense.

Depreciation and amortization was comparable to the same period in the prior year.

Taxes other than income taxes was comparable to the same period in the prior year.

Operating Statistics

(in millions)

(a) Includes Integrated Generation, inter-segment rent, and non-regulated services to our retail customers under the Service Guard Comfort Plan and Tech Services.

(b) Includes company uses and line losses.

(in millions)

(a) The shift between coal generation and coal, natural gas, oil and other market purchases for the three months ended March 31, 2025 compared to the same period in 2024 was primarily due to unplanned outages at Wygen III.

(b) The increase in wind and solar GWh purchased for the three months ended March 31, 2025, compared to the same period in 2024 was primarily due to a new solar PPA. In 2022, Wyoming Electric entered into a new solar PPA with third party to purchase up to 150 MW of solar energy, upon construction of new renewable generation facility (owned by third party). The solar facility was placed in service in March 2024. The renewable energy from the PPA is used to serve our expanding partnerships with LPCS customers.

(a) The shift between South Dakota Electric's generated and purchased GWh for the three months ended March 31, 2025, compared to the same period in 2024 is primarily due to unplanned outages at Wygen III.

(b) As discussed in footnote (b) in the Quantities Generated and Purchased by Fuel Type table above, the increase in Wyoming Electric's purchases is primarily driven by its solar PPA from the facility that was placed in service in March 2024.

(a) Degree days are calculated based on a weighted average of total customers by state.

(a) Availability and Wind Capacity Factor are calculated using a weighted average based on capacity of our generating fleet.

(b) 2025 included unplanned outages at Wygen III, Pueblo Airport Generation #4-5 and Busch Ranch I and II.

Gas Utilities

Operating results for the Gas Utilities were as follows:

(in millions)

(a) See Non-GAAP Financial Measures section above for reconciliation to Gross margin, the most directly comparable GAAP measure.

Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024:

Gas Utility margin increased as a result of the following:

(in millions)

Operations and maintenance expense increased primarily due to $4.1 million of higher employee related expenses, $1.8 million of higher insurance expense, and $1.4 million of higher bad debt expense driven by increased revenues.

Depreciation and amortization was comparable to the same period in the prior year.

Taxes other than income taxes was comparable to the same period in the prior year.

Operating Statistics

(in millions)

(Dth in millions)

(a) Includes Black Hills Energy Services revenue under the Choice Gas Program.

(b) Includes inter-segment rent and non-regulated services under the Service Guard Comfort Plan, Tech Services, and HomeServe.

(in millions)

(Dth in millions)

(a) Arkansas Gas and Kansas Gas have weather normalization mechanisms that mitigate the weather impact on revenue.

(b) The combined heating degree days are calculated based on a weighted average of total customers by state excluding Kansas Gas due to its weather normalization mechanism. Arkansas Gas is partially excluded based on the weather normalization mechanism in effect from November through April.

Corporate and Other

Corporate and Other operating results, including inter-segment eliminations, were as follows:

(in millions)

Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024:

Operating loss was comparable to the same period in the prior year.

Consolidated Interest Expense, Other Income and Income Tax Expense

(in millions)

36

Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024:

Interest expense, net increased primarily due to higher interest rates and lower interest income on lower cash and cash equivalents balances.

Other income (expense), net was comparable to the same period in the prior year.

Income tax (expense) was comparable to the same period in the prior year. For the three months ended March 31, 2025, the effective tax rate was 11.7%, which was comparable to 11.4% for the same period in 2024.

Liquidity and Capital Resources

The following table provides an informational summary of our liquidity and capital structure as of:

(dollars in millions)

(a) Available capacity under Revolving Credit Facility and CP Program represents $750 million of total borrowing capacity less outstanding borrowings and letters of credit. See Note 5 of the Notes to Consolidated Financial Statements for more information.

Future Financing Plans

We plan to fund our capital plan and strategic objectives by using cash generated from operating activities and various financing alternatives, which could include our Revolving Credit Facility, our CP Program, and the issuance of common stock under our ATM program or in an opportunistic block trade. In 2025, we plan to renew our Equity Distribution Sales Agreement, which allows us to sell shares of common stock, from time to time, through our ATM program utilizing our shelf registration statement. We also plan to re-finance our $300 million, 3.95%, senior unsecured notes due January 2026, at or before maturity date.

CASH FLOW ACTIVITIES

The following tables summarize our cash flows for the three months ended March 31, 2025:

Operating Activities:

(in millions)

Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024

Net cash provided by operating activities was $5.6 million lower than the same period in 2024. The variance to the prior year was primarily attributable to:

• Total earnings (net income plus non-cash adjustments) were $27.3 million higher for the three months ended March 31, 2025, compared to the same period in the prior year primarily due the sale of our 2024 PTCs in January 2025.
• Net outflows from changes in certain operating assets and liabilities were $35.0 million higher, primarily attributable to changes in materials, supplies, fuel, accounts receivable, and other current assets driven by fluctuations in commodity prices and weather conditions.

Investing Activities:

(in millions)

Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024

Net cash used in investing activities was $21.7 million lower than the same period in 2024. The variance to the prior year was primarily attributable to lower capital expenditures which were primarily driven by timing of projects and the prior year Black Hills Energy Renewable Resources' acquisition of a RNG production facility at a landfill in Dubuque, Iowa.

Financing Activities:

(in millions)

Three Months Ended March 31, 2025, Compared to the Three Months Ended March 31, 2024

Net cash used in financing activities was $62.1 million higher than the same period in 2024. The variance to the prior year was primarily attributable to:

• Cash outflows increased $73.9 million as a result of repayments of debt in excess of proceeds from debt offerings.
• Cash inflows increased $14.4 million due to higher issuances of common stock; and
• Cash outflows increased $4.2 million due to increased dividends paid on common stock.

CAPITAL RESOURCES

See Note 5 of the Condensed Notes to Consolidated Financial Statements for recent financing updates and financial covenants information.

CREDIT RATINGS

The following table represents the credit ratings and outlook and risk profile of BHC as of the date of this report:

(a) On May 9, 2024, S&P affirmed BBB+ rating and maintained a Stable outlook.

(b) On March 5, 2025, Moody's affirmed our Baa2 rating and maintained a Stable outlook.

The following table represents the credit rating of South Dakota Electric as of the date of this report:

We have not had any triggering events (i.e. an acceleration of repayment of outstanding indebtedness, an increase in interest costs, or the posting of additional cash collateral) tied to our stock price and have not executed any transactions that require us to issue equity based on our credit ratings.

CAPITAL REQUIREMENTS

Capital Expenditures

(in millions)

(a) Includes accruals for property, plant and equipment as disclosed in supplemental cash flow information in the Consolidated Statements of Cash Flows in the Consolidated Financial Statements. Capital expenditures are presented net of CIACs in the Consolidated Statements of Cash Flows.

(b) Projects are being evaluated by our segments for timing, cost, and other factors.

(c) Includes actual capital expenditures for the three months ended March 31, 2025.

Common Stock Dividends

Dividends paid on our common stock totaled $48.6 million for the three months ended March 31, 2025, or $0.676 per share. On April 22, 2025, our board of directors declared a quarterly dividend of $0.676 per share payable June 1, 2025, equivalent to an annual dividend of $2.704 per share. The amount of any future cash dividends to be declared and paid, if any, will depend upon, among other things, our financial condition, funds from operations, the level of our capital expenditures, restrictions under our Revolving Credit Facility, and our future business prospects.

Critical Accounting Estimates

A summary of our critical accounting estimates is included in our 2024 Annual Report on Form 10-K. There were no material changes made as of March 31, 2025.

New Accounting Pronouncements

See Note 1 of the Condensed Notes to Consolidated Financial Statements for a description of recent accounting pronouncements, if any, and our expectation of their impact on our results of operations and financial condition.

There have been no material changes to our quantitative and qualitative disclosures about market risk previously disclosed in Item 7A of our 2024 Annual Report on Form 10-K.

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2025. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective at March 31, 2025.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2025, there have been no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely, to materially affect our internal control over financial reporting.

There are no material changes to the risk factors previously disclosed in Item 1A of Part I in our 2024 Annual Report on Form 10-K.