Black Hills Service Company, LLC

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

10-Q

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 001-31303

Black Hills Corporation

Incorporated in South Dakota IRS Identification Number 46-0458824

7001 Mount Rushmore Road

Rapid City, South Dakota 57702

Registrant’s telephone number (605) 721-1700

Former name, former address, and former fiscal year if changed since last report

NONE

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.


Class	Outstanding at July 31, 2023
Common stock, $1.00 par value	67,110,952	shares

TABLE OF CONTENTS


		Page
Glossary of Terms and Abbreviations		3
Forward-Looking Information		6

PART I. FINANCIAL INFORMATION		7

Item 1.	Financial Statements - unaudited	7
	Consolidated Statements of Income	7
	Consolidated Statements of Comprehensive Income	8
	Consolidated Balance Sheets	9
	Consolidated Statements of Cash Flows	11
	Consolidated Statements of Equity	12
	Condensed Notes to Consolidated Financial Statements	13
	Note 1. Management’s Statement	13
	Note 2. Regulatory Matters	13
	Note 3. Commitments, Contingencies and Guarantees	14
	Note 4. Revenue	14
	Note 5. Financing	16
	Note 6. Earnings Per Share	18
	Note 7. Risk Management and Derivatives	19
	Note 8. Fair Value Measurements	22
	Note 9. Other Comprehensive Income	24
	Note 10. Employee Benefit Plans	25
	Note 11. Income Taxes	26
	Note 12. Business Segment Information	26
	Note 13. Selected Balance Sheet Information	27
	Note 14. Subsequent Events	27

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Executive Summary	28
	Recent Developments	28
	Results of Operations	29
	Consolidated Summary and Overview	29
	Non-GAAP Financial Measure	30
	Electric Utilities	31
	Gas Utilities	34
	Corporate and Other	36
	Consolidated Interest Expense, Other Income and Income Tax Expense	36
	Liquidity and Capital Resources	37
	Cash Flow Activities	37
	Capital Resources	38
	Credit Ratings	39
	Capital Requirements	39
	Critical Accounting Estimates	41
	New Accounting Pronouncements	41

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	42

Signatures		43

Table of Contents

GLOSSARY OF TERMS AND ABBREVIATIONS

The following terms and abbreviations appear in the text of this report and have the definitions described below:


AFUDC	Allowance for Funds Used During Construction
AOCI	Accumulated Other Comprehensive Income (Loss)
Arkansas Gas	Black Hills Energy Arkansas, Inc., an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Arkansas (doing business as Black Hills Energy).
ATM	At-the-market equity offering program
Availability	The availability factor of a power plant is the percentage of the time that it is available to provide energy.
BHC	Black Hills Corporation; the Company
Black Hills Colorado IPP	Black Hills Colorado IPP, LLC a 50.1% owned subsidiary of Black Hills Electric Generation
Black Hills Electric Generation	Black Hills Electric Generation, LLC, a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings, providing wholesale electric capacity and energy primarily to our affiliate utilities.
Black Hills Electric Parent Holdings	Black Hills Electric Utility Holdings, LLC., a direct, wholly-owned subsidiary of Black Hills Corporation
Black Hills Energy	The name used to conduct the business of our utility companies
Black Hills Energy Services	Black Hills Energy Services Company, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas commodity supply for the Choice Gas Programs (doing business as Black Hills Energy)
Black Hills Non-regulated Holdings	Black Hills Non-regulated Holdings, LLC, a direct, wholly-owned subsidiary of Black Hills Corporation
Black Hills Utility Holdings	Black Hills Utility Holdings, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy)
Black Hills Wyoming	Black Hills Wyoming, LLC, a direct, wholly-owned subsidiary of Black Hills Electric Generation
Cheyenne Light	Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric service in the Cheyenne, Wyoming area (doing business as Black Hills Energy).
Choice Gas Program	Regulator-approved programs in Wyoming and Nebraska that allow certain utility customers to select their natural gas commodity supplier, providing for the unbundling of the commodity service from the distribution delivery service.
Clean Energy Plan	2030 Ready Plan that establishes a roadmap and preferred resource portfolio for Colorado Electric to cost-effectively achieve the State of Colorado's requirement calling upon electric utilities to reduce GHG emissions by a minimum of 80% from 2005 levels by 2030. The preferred resource portfolio calls for the addition of 149 MW of wind, 258 MW of solar and 50 MW of battery storage to Colorado Electric's system. The final mix of resources will be determined by the results of a competitive solicitation that started in July 2023. Colorado legislation allows electric utilities to own up to 50% of the renewable generation assets added to comply with the Clean Energy Plan.
Colorado Electric	Black Hills Colorado Electric, LLC, a direct, wholly-owned subsidiary of Black Hills Electric Parent Holdings, providing electric services to customers in Colorado (doing business as Black Hills Energy).
Colorado Gas	Black Hills Colorado Gas, Inc., an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Colorado (doing business as Black Hills Energy).
Common Use System	The Common Use System is a jointly operated transmission system we participated in with Basin Electric Power Cooperative and Powder River Energy Corporation. The Common Use System provides transmission service over these utilities' combined 230-kilovolt (kV) and limited 69-kV transmission facilities within areas of southwestern South Dakota and northeastern Wyoming.
Consolidated Indebtedness to Capitalization Ratio	Any indebtedness outstanding at such time, divided by capital at such time. Capital being consolidated net worth (excluding non-controlling interest) plus consolidated indebtedness (including letters of credit and certain guarantees issued) as defined within the current Revolving Credit Facility.
Cooling Degree Day	A cooling degree day is equivalent to each degree that the average of the high and low temperatures for a day is above 65 degrees. The warmer the climate, the greater the number of cooling degree days. Cooling degree days are used in the utility industry to measure the relative warmth and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations.

Table of Contents


CP Program	Commercial Paper Program
CPUC	Colorado Public Utilities Commission
DRSPP	Dividend Reinvestment and Stock Purchase Plan
Dth	Dekatherm. A unit of energy equal to 10 therms or approximately one million British thermal units (MMBtu)
FASB	Financial Accounting Standards Board
Fitch	Fitch Ratings Inc.
GAAP	Accounting principles generally accepted in the United States of America
Heating Degree Day	A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The colder the climate, the greater the number of heating degree days. Heating degree days are used in the utility industry to measure the relative coldness and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations.
HomeServe	We offer HomeServe products to our natural gas residential customers interested in purchasing additional home repair service plans.
Integrated Generation	Non-regulated power generation and mining businesses that are vertically integrated within our Electric Utilities segment.
Iowa Gas	Black Hills Iowa Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Iowa (doing business as Black Hills Energy).
IPP	Independent Power Producer
IRS	United States Internal Revenue Service
Kansas Gas	Black Hills Kansas Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Kansas (doing business as Black Hills Energy).
kV	Kilovolt
LIBOR	London Interbank Offered Rate
MEAN	Municipal Energy Agency of Nebraska
MMBtu	Million British thermal units
Moody's	Moody's Investors Service, Inc.
MW	Megawatts
MWh	Megawatt-hours
N/A	Not applicable
Nebraska Gas	Black Hills Nebraska Gas, LLC, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Nebraska (doing business as Black Hills Energy).
Northern Iowa Windpower	Northern Iowa Windpower, LLC, a 87.1 MW wind farm located near Joice, Iowa, previously owned by Black Hills Electric Generation. In March 2023, Black Hills Electric Generation completed the sale of Northern Iowa Windpower assets to a third-party.
OCI	Other Comprehensive Income
PPA	Power Purchase Agreement
PTC	Production Tax Credit
Revolving Credit Facility	Our $750 million credit facility used to fund working capital needs, letters of credit and other corporate purposes, which was amended on May 9, 2023 and will terminate on July 19, 2026.
RMNG	Rocky Mountain Natural Gas LLC, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas transmission and wholesale services in western Colorado (doing business as Black Hills Energy).
SEC	United States Securities and Exchange Commission
Service Guard Comfort Plan	Appliance protection plan that provides home appliance repair services through on-going monthly service agreements to residential utility customers.
S&P	S&P Global Ratings, a division of S&P Global Inc.
SOFR	Secured Overnight Financing Rate
South Dakota Electric	Black Hills Power, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric service to customers in Montana, South Dakota and Wyoming (doing business as Black Hills Energy).
SSIR	System Safety and Integrity Rider
Tech Services	Non-regulated product lines delivered by our Utilities that 1) provide electrical system construction services to large industrial customers of our electric utilities, and 2) serve gas transportation customers throughout its service territory by constructing and maintaining customer-owned gas infrastructure facilities, typically through one-time contracts.
Utilities	Black Hills' Electric and Gas Utilities

Table of Contents


Wind Capacity Factor	Measures the amount of electricity a wind turbine produces in a given time period relative to its maximum potential.
Winter Storm Uri	February 2021 winter weather event that caused extreme cold temperatures in the central United States and led to unprecedented fluctuations in customer demand and market pricing for natural gas and energy.
WPSC	Wyoming Public Service Commission
Wyodak Plant	The 362 MW mine-mouth, coal-fired generating facility near Gillette, Wyoming, jointly owned by PacifiCorp (80%) and South Dakota Electric (20%). Our WRDC mine supplies all of the fuel for the facility.
Wyoming Electric	Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric service to customers in the Cheyenne, Wyoming area (doing business as Black Hills Energy).
Wyoming Gas	Black Hills Wyoming Gas, LLC, an indirect and wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Wyoming (doing business as Black Hills Energy).

Table of Contents

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q includes “forward-looking statements” as defined by the SEC. Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words “anticipates,” “estimates,” “expects,” “intends,” “plans,” “predicts” and similar expressions, and include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions which we believe are reasonable based on current expectations and projections about future events and industry conditions and trends affecting our business. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties that, among other things, could cause actual results to differ materially from those contained in the forward-looking statements, including without limitation, the risk factors described in Item 1A of Part I of our 2022 Annual Report on Form 10-K, Part II, Item 1A of this Quarterly Report on Form 10-Q and other reports that we file with the SEC from time to time, and the following:

•

Our ability to obtain adequate cost recovery for our utility operations through regulatory proceedings and favorable rulings on periodic applications to recover costs for capital additions, plant retirements and decommissioning, fuel, transmission, purchased power, and other operating costs and the timing in which new rates would go into effect;

•

Our ability to complete our capital program in a cost-effective and timely manner;

•

Our ability to execute on our strategy;

•

Our ability to successfully execute our financing plans;

•

The effects of changing interest rates;

•

Our ability to achieve our greenhouse gas emissions intensity reduction goals;

•

Board of Directors’ approval of any future quarterly dividends;

•

The impact of future governmental regulation;

•

Our ability to overcome the impacts of supply chain disruptions on availability and cost of materials;

•

The effects of inflation and volatile energy prices; and

•

Other factors discussed from time to time in our filings with the SEC.

New factors that could cause actual results to differ materially from those described in forward-looking statements emerge from time-to-time, and it is not possible for us to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. We assume no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BLACK HILLS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME


(unaudited)	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except per share amounts)
Revenue	$	411,283		$	474,195		$	1,332,442		$	1,297,765

Operating expenses:
Fuel, purchased power and cost of natural gas sold		121,245			188,171			647,512			625,097
Operations and maintenance		145,767			132,968			286,755			269,100
Depreciation, depletion and amortization		64,714			64,128			126,357			124,591
Taxes - property and production		16,041			16,539			33,419			33,235
Total operating expenses		347,767			401,806			1,094,043			1,052,023

Operating income		63,516			72,389			238,399			245,742

Other income (expense):
Interest expense incurred net of amounts capitalized		(43,267	)		(39,053	)		(87,332	)		(77,874	)
Interest income		1,746			289			2,307			565
Other income (expense), net		(1,540	)		1,563			(866	)		2,267
Total other income (expense)		(43,061	)		(37,201	)		(85,891	)		(75,042	)

Income before income taxes		20,455			35,188			152,508			170,700
Income tax benefit (expense)		6,089			658			(8,584	)		(13,830	)
Net income		26,544			35,846			143,924			156,870
Net income attributable to non-controlling interest		(3,491	)		(2,431	)		(6,787	)		(5,929	)
Net income available for common stock	$	23,053		$	33,415		$	137,137		$	150,941

Earnings per share of common stock:
Earnings per share, Basic	$	0.35		$	0.52		$	2.07		$	2.33
Earnings per share, Diluted	$	0.35		$	0.52		$	2.06		$	2.33

Weighted average common shares outstanding:
Basic		66,591			64,721			66,315			64,643
Diluted		66,684			64,883			66,419			64,822

The accompanying Condensed Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.

Table of Contents

BLACK HILLS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(unaudited)	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands)
Net income	$	26,544		$	35,846		$	143,924		$	156,870

Other comprehensive income (loss), net of tax;
Reclassification adjustments of benefit plan liability - prior service cost (net of tax of $--, $8, $-- and $14, respectively)		-			(14	)		-			(32	)
Reclassification adjustments of benefit plan liability - net loss (net of tax of $(27), $(68), $(43) and $(113), respectively)		16			119			44			262
Derivative instruments designated as cash flow hedges:
Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax of $(177), $(238), $(327) and $(415), respectively)		536			475			1,099			1,011
Net unrealized gains (losses) on commodity derivatives (net of tax of $(35), $734, $233 and $394, respectively)		112			(2,314	)		(743	)		(1,267	)
Reclassification of net realized (gains) losses on settled commodity derivatives (net of tax of $(118), $319, $(584) and $871, respectively)		371			(1,004	)		1,855			(2,706	)
Other comprehensive income, net of tax		1,035			(2,738	)		2,255			(2,732	)

Comprehensive income		27,579			33,108			146,179			154,138
Less: comprehensive income attributable to non-controlling interest		(3,491	)		(2,431	)		(6,787	)		(5,929	)
Comprehensive income available for common stock	$	24,088		$	30,677		$	139,392		$	148,209

See Note 9 for additional disclosures.

The accompanying Condensed Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.

Table of Contents

BLACK HILLS CORPORATION

CONSOLIDATED BALANCE SHEETS


(unaudited)	As of
	June 30, 2023			December 31, 2022
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	152,581		$	21,430
Restricted cash and equivalents		5,966			5,555
Accounts receivable, net		260,350			508,192
Materials, supplies and fuel		136,534			207,421
Derivative assets, current		303			582
Income tax receivable, net		18,222			17,637
Regulatory assets, current		198,443			260,312
Other current assets		29,929			50,579
Total current assets		802,328			1,071,708

Property, plant and equipment		8,590,796			8,374,790
Less: accumulated depreciation and depletion		(1,671,303	)		(1,576,842	)
Total property, plant and equipment, net		6,919,493			6,797,948

Other assets:
Goodwill		1,299,454			1,299,454
Intangible assets, net		9,002			9,589
Regulatory assets, non-current		325,228			392,669
Other assets, non-current		53,590			46,862
Total other assets, non-current		1,687,274			1,748,574

TOTAL ASSETS	$	9,409,095		$	9,618,230

The accompanying Condensed Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.

Table of Contents

BLACK HILLS CORPORATION

CONSOLIDATED BALANCE SHEETS

(Continued)


(unaudited)	As of
	June 30, 2023			December 31, 2022
	(in thousands)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	133,300		$	310,020
Accrued liabilities		217,259			243,457
Derivative liabilities, current		322			6,600
Regulatory liabilities, current		101,979			46,013
Notes payable		-			535,600
Current maturities of long-term debt		525,000			525,000
Total current liabilities		977,860			1,666,690

Long-term debt, net of current maturities		3,955,745			3,607,340

Deferred credits and other liabilities:
Deferred income tax liabilities, net		528,627			508,941
Regulatory liabilities, non-current		469,509			472,560
Benefit plan liabilities		118,841			116,742
Other deferred credits and other liabilities		155,746			156,062
Total deferred credits and other liabilities		1,272,723			1,254,305

Commitments, contingencies and guarantees (Note 3)

Equity:
Stockholder's equity -
Common stock $1 par value; 100,000,000 shares authorized; issued 67,115,403 and 66,140,396 shares, respectively		67,115			66,140
Additional paid-in capital		1,941,234			1,882,653
Retained earnings		1,118,145			1,064,122
Treasury stock, at cost - 48,623 and 36,726 shares, respectively		(3,167	)		(2,435	)
Accumulated other comprehensive income (loss)		(13,312	)		(15,567	)
Total stockholders' equity		3,110,015			2,994,913
Non-controlling interest		92,752			94,982
Total equity		3,202,767			3,089,895

TOTAL LIABILITIES AND TOTAL EQUITY	$	9,409,095		$	9,618,230

The accompanying Condensed Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.

Table of Contents

BLACK HILLS CORPORATION

CONSOLIDATED STATEMENTS OF CASH