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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

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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.

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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

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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).

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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.

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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.

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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.

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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.

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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.

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BLACK HILLS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited)	Six Months Ended June 30,
	2023			2022
Operating activities:	(in thousands)
Net income	$	143,924		$	156,870
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		126,357			124,591
Deferred financing cost amortization		4,853			4,953
Stock compensation		4,311			3,834
Deferred income taxes		9,203			13,860
Employee benefit plans		5,898			1,383
Other adjustments, net		(6,754	)		(9,489	)
Changes in certain operating assets and liabilities:
Materials, supplies and fuel		73,022			(6,993	)
Accounts receivable and other current assets		266,820			55,641
Accounts payable and other current liabilities		(201,389	)		(24,130	)
Regulatory assets		186,699			128,315
Other operating activities, net		(7,873	)		(6,805	)
Net cash provided by operating activities		605,071			442,030

Investing activities:
Property, plant and equipment additions		(261,739	)		(293,803	)
Other investing activities		16,367			2,418
Net cash (used in) investing activities		(245,372	)		(291,385	)

Financing activities:
Dividends paid on common stock		(83,114	)		(77,136	)
Common stock issued		54,689			20,095
Net borrowings (payments) of Revolving Credit Facility and CP Program		(535,600	)		(85,130	)
Long-term debt - issuance		350,000			-
Distributions to non-controlling interests		(9,017	)		(8,604	)
Other financing activities		(5,095	)		1,682
Net cash (used in) financing activities		(228,137	)		(149,093	)

Net change in cash, restricted cash and cash equivalents		131,562			1,552

Cash, restricted cash and cash equivalents beginning of period		26,985			13,810
Cash, restricted cash and cash equivalents end of period	$	158,547		$	15,362

Supplemental cash flow information:
Cash (paid) refunded during the period:
Interest (net of amounts capitalized)	$	(75,507	)	$	(72,791	)
Income taxes		34			752
Non-cash investing and financing activities:
Accrued property, plant and equipment purchases at June 30,		50,081			49,229

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

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BLACK HILLS CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY


(unaudited)	Common Stock				Treasury Stock
(in thousands except share amounts)	Shares		Value		Shares		Value			Additional Paid in Capital			Retained Earnings			AOCI			Non-controlling Interest			Total
December 31, 2022		66,140,396	$	66,140		36,726	$	(2,435	)	$	1,882,653		$	1,064,122		$	(15,567	)	$	94,982		$	3,089,895
Net income		-		-		-		-			-			114,084			-			3,296			117,380
Other comprehensive income, net of tax		-		-		-		-			-			-			1,220			-			1,220
Dividends on common stock ($0.625 per share)		-		-		-		-			-			(41,362	)		-			-			(41,362	)
Share-based compensation		84,735		85		4,388		(262	)		1,886			-			-			-			1,709
Issuance of common stock		445,578		446		-		-			27,273			-			-			-			27,719
Issuance costs		-		-		-		-			(336	)		-			-			-			(336	)
Distributions to non-controlling interest		-		-		-		-			-			-			-			(4,494	)		(4,494	)
March 31, 2023		66,670,709	$	66,671		41,114	$	(2,697	)	$	1,911,476		$	1,136,844		$	(14,347	)	$	93,784		$	3,191,731
Net income		-		-		-		-			-			23,053			-			3,491			26,544
Other comprehensive income, net of tax		-		-		-		-			-			-			1,035			-			1,035
Dividends on common stock ($0.625 per share)		-		-		-		-			-			(41,752	)		-			-			(41,752	)
Share-based compensation		8,492		8		7,509		(470	)		2,888			-			-			-			2,426
Issuance of common stock		436,202		436		-		-			27,274			-			-			-			27,710
Issuance costs		-		-		-		-			(404	)		-			-			-			(404	)
Distributions to non-controlling interest		-		-		-		-			-			-			-			(4,523	)		(4,523	)
June 30, 2023		67,115,403	$	67,115		48,623	$	(3,167	)	$	1,941,234		$	1,118,145		$	(13,312	)	$	92,752		$	3,202,767


(unaudited)	Common Stock				Treasury Stock
(in thousands except share amounts)	Shares		Value		Shares			Value			Additional Paid in Capital			Retained Earnings			AOCI			Non-controlling Interest			Total
December 31, 2021		64,793,095	$	64,793		54,078		$	(3,509	)	$	1,783,436		$	962,458		$	(20,084	)	$	100,029		$	2,887,123
Net income		-		-		-			-			-			117,526			-			3,498			121,024
Other comprehensive income, net of tax		-		-		-			-			-			-			6			-			6
Dividends on common stock ($0.595 per share)		-		-		-			-			-			(38,533	)		-			-			(38,533	)
Share-based compensation		425		-		(34,393	)		2,222			(191	)		-			-			-			2,031
Issuance of common stock		55,707		56		-			-			3,776			-			-			-			3,832
Issuance costs		-		-		-			-			(41	)		-			-			-			(41	)
Distributions to non-controlling interest		-		-		-			-			-			-			-			(4,420	)		(4,420	)
March 31, 2022		64,849,227	$	64,849		19,685		$	(1,287	)	$	1,786,980		$	1,041,451		$	(20,078	)	$	99,107		$	2,971,022
Net income		-		-		-			-			-			33,415			-			2,431			35,846
Other comprehensive income, net of tax		-		-		-			-			-			-			(2,738	)		-			(2,738	)
Dividends on common stock ($0.595 per share)		-		-		-			-			-			(38,603	)		-			-			(38,603	)
Share-based compensation		39,066		39		4,006			(255	)		5,370			-			-			-			5,154
Issuance of common stock		216,885		217		-			-			16,353			-			-			-			16,570
Issuance costs		-		-		-			-			(266	)		-			-			-			(266	)
Distributions to non-controlling interest		-		-		-			-			-			-			-			(4,184	)		(4,184	)
June 30, 2022		65,105,178	$	65,105		23,691		$	(1,542	)	$	1,808,437		$	1,036,263		$	(22,816	)	$	97,354		$	2,982,801

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BLACK HILLS CORPORATION

Condensed Notes to Consolidated Financial Statements

(unaudited)

(Reference is made to Notes to Consolidated Financial Statements

included in the Company’s 2022 Annual Report on Form 10-K)

(1)

Management’s Statement

The unaudited Consolidated Financial Statements included herein have been prepared by Black Hills Corporation (together with our subsidiaries the “Company”, “us”, “we” or “our”), pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, we believe that the footnotes adequately disclose the information presented. These Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes included in our 2022 Annual Report on Form 10-K.

Use of Estimates and Basis of Presentation

The information furnished in the accompanying Consolidated Financial Statements reflects certain estimates required and all adjustments, including accruals, which are, in the opinion of management, necessary for a fair presentation of the June 30, 2023, December 31, 2022 and June 30, 2022 financial information. Certain lines of business in which we operate are highly seasonal, and our interim results of operations are not necessarily indicative of the results of operations to be expected for an entire year.

(2)

Regulatory Matters

We had the following regulatory assets and liabilities (in thousands):


	As of			As of
	June 30, 2023			December 31, 2022
Regulatory assets
Winter Storm Uri	$	233,299		$	347,980
Deferred energy and fuel cost adjustments		68,708			72,580
Deferred gas cost adjustments		8,777			12,147
Gas price derivatives		-			8,793
Deferred taxes on AFUDC		7,305			7,333
Employee benefit plans and related deferred taxes		88,203			89,259
Environmental		1,346			1,343
Loss on reacquired debt		18,315			19,213
Deferred taxes on flow through accounting		74,165			69,529
Decommissioning costs		2,406			3,472
Other regulatory assets		21,147			21,332
Total regulatory assets		523,671			652,981
Less current regulatory assets		(198,443	)		(260,312	)
Regulatory assets, non-current	$	325,228		$	392,669

Regulatory liabilities
Deferred energy and gas costs	$	99,649		$	41,722
Employee benefit plan costs and related deferred taxes		33,065			34,258
Cost of removal		178,668			175,614
Excess deferred income taxes		250,728			254,833
Other regulatory liabilities		9,378			12,146
Total regulatory liabilities		571,488			518,573
Less current regulatory liabilities		(101,979	)		(46,013	)
Regulatory liabilities, non-current	$	469,509		$	472,560

Regulatory Activity

Except as discussed below, there have been no other significant changes to our Regulatory Matters from those previously disclosed in Note 2 of the Notes to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K.

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Colorado Gas

RMNG Rate Review

On July 12, 2023, the CPUC approved a settlement agreement for RMNG's rate review filed on October 7, 2022. The agreement is expected to generate $8.2 million in new annual revenue and establishes a weighted average cost of capital of 6.93% with a capital structure that reflects an equity range of 50% to 52%, a debt range of 50% to 48% and a return on equity range of 9.5% to 9.7%. The settlement also shifts $8.3 million of SSIR revenues to base rates and terminates the SSIR. New rates were effective July 15, 2023.

Colorado Gas Rate Review

On May 9, 2023, Colorado Gas filed a rate review with the CPUC seeking recovery of significant infrastructure investments in its 10,000-mile natural gas pipeline system. The rate review requests $27 million in new annual revenue with a capital structure of 51% equity and 49% debt and a return on equity of 10.49%. The request seeks to finalize rates in the first quarter of 2024.

Wyoming Gas

On May 18, 2023, Wyoming Gas filed a rate review with the WPSC seeking recovery of significant infrastructure investments in its 6,400-mile natural gas pipeline system. The rate review requests $19 million in new annual revenue with a capital structure of 52% equity and 48% debt and a return on equity of 10.49%. Additionally, Wyoming Gas is seeking renewal of the Wyoming Integrity Rider. The request seeks to finalize rates in the first quarter of 2024.

Wyoming Electric

On June 1, 2022, Wyoming Electric filed a rate review with the WPSC seeking recovery of significant infrastructure investments in its 1,330-mile electric distribution and 59-mile electric transmission systems. On January 26, 2023, the WPSC approved a settlement agreement with intervening parties for a general rate increase. The settlement is expected to generate $8.7 million in new annual revenue with a capital structure of 52% equity and 48% debt and a return on equity of 9.75%. New rates were effective March 1, 2023. The agreement also includes approval of a new rider that will be filed annually to recover transmission investments and expenses.

(3)

Commitments, Contingencies and Guarantees

There have been no significant changes to commitments, contingencies and guarantees from those previously disclosed in Note 3 of our Notes to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K.

(4)

Revenue

The following tables depict the disaggregation of revenue, including intercompany revenue, from contracts with customers by customer type and timing of revenue recognition for each of the reportable segments for the three and six months ended June 30, 2023 and 2022. Sales tax and other similar taxes are excluded from revenues.


Three Months Ended June 30, 2023	Electric Utilities		Gas Utilities		Inter-segment Revenues			Total
Customer types:
Retail	$	156,372	$	174,781	$	-		$	331,153
Transportation		-		35,913		(115	)		35,798
Wholesale		5,739		-		-			5,739
Market - off-system sales		8,364		43		-			8,407
Transmission/Other		19,231		9,203		(4,395	)		24,039
Revenue from contracts with customers	$	189,706	$	219,940	$	(4,510	)	$	405,136
Other revenues		3,367		2,780		-			6,147
Total revenues	$	193,073	$	222,720	$	(4,510	)	$	411,283

Timing of revenue recognition:
Services transferred at a point in time	$	7,844	$	-	$	-		$	7,844
Services transferred over time		181,862		219,940		(4,510	)		397,292
Revenue from contracts with customers	$	189,706	$	219,940	$	(4,510	)	$	405,136

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Three Months Ended June 30, 2022	Electric Utilities		Gas Utilities		Inter-segment Revenues			Total
Customer types:
Retail	$	169,032	$	229,074	$	-		$	398,106
Transportation		-		34,667		(100	)		34,567
Wholesale		8,428		-		-			8,428
Market - off-system sales		8,666		178		-			8,844
Transmission/Other		15,183		9,344		(4,148	)		20,379
Revenue from contracts with customers	$	201,309	$	273,263	$	(4,248	)	$	470,324
Other revenues		3,070		906		(105	)		3,871
Total revenues	$	204,379	$	274,169	$	(4,353	)	$	474,195

Timing of revenue recognition:
Services transferred at a point in time	$	6,671	$	-	$	-		$	6,671
Services transferred over time		194,638		273,263		(4,248	)		463,653
Revenue from contracts with customers	$	201,309	$	273,263	$	(4,248	)	$	470,324


Six Months Ended June 30, 2023	Electric Utilities		Gas Utilities		Inter-segment Revenues			Total
Customer types:	(in thousands)
Retail	$	331,275	$	810,326	$	-		$	1,141,601
Transportation		-		88,756		(230	)		88,526
Wholesale		15,137		-		-			15,137
Market - off-system sales		24,488		324		-			24,812
Transmission/Other		36,635		19,226		(8,746	)		47,115
Revenue from contracts with customers	$	407,535	$	918,632	$	(8,976	)	$	1,317,191
Other revenues		4,247		11,004		-			15,251
Total revenues	$	411,782	$	929,636	$	(8,976	)	$	1,332,442

Timing of revenue recognition:
Services transferred at a point in time	$	16,501	$	-	$	-		$	16,501
Services transferred over time		391,034		918,632		(8,976	)		1,300,690
Revenue from contracts with customers	$	407,535	$	918,632	$	(8,976	)	$	1,317,191


Six Months Ended June 30, 2022	Electric Utilities		Gas Utilities		Inter-segment Revenues			Total
Customer types:	(in thousands)
Retail	$	341,838	$	790,087	$	-		$	1,131,925
Transportation		-		84,190		(199	)		83,991
Wholesale		18,703		-		-			18,703
Market - off-system sales		15,820		416		-			16,236
Transmission/Other		30,616		18,919		(8,297	)		41,238
Revenue from contracts with customers	$	406,977	$	893,612	$	(8,496	)	$	1,292,093
Other revenues		3,940		1,949		(217	)		5,672
Total revenues	$	410,917	$	895,561	$	(8,713	)	$	1,297,765

Timing of revenue recognition:
Services transferred at a point in time	$	13,784	$	-	$	-		$	13,784
Services transferred over time		393,193		893,612		(8,496	)		1,278,309
Revenue from contracts with customers	$	406,977	$	893,612	$	(8,496	)	$	1,292,093

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(5)

Financing

Shelf Registration Statement

We maintain an effective shelf registration statement with the SEC under which we may issue, from time to time, an unspecified amount of senior debt securities, subordinated debt securities, common stock, preferred stock, warrants and other securities. In anticipation of the approaching expiration of our previous shelf registration statement on Form S-3 originally filed on August 4, 2020 (Registration No. 333-240320), we filed a new shelf registration statement on Form S-3 on June 16, 2023 (Registration No. 333-272739).

Short-term Debt

Revolving Credit Facility and CP Program

On May 9, 2023, we amended and restated our corporate Revolving Credit Facility, which replaced LIBOR as a benchmark interest rate with the SOFR. The adoption of SOFR as a benchmark interest rate was in advance of the scheduled elimination of LIBOR as a benchmark interest rate on June 30, 2023. No other significant terms or conditions, including borrowing capacity, credit spreads or financial covenants were modified under these amendments and restatements.

Our Revolving Credit Facility and CP Program, which are classified as Notes payable on the Consolidated Balance Sheets, had the following borrowings, outstanding letters of credit, and available capacity (dollars in thousands) as of:


	June 30, 2023		December 31, 2022
Amount outstanding	$	—	$	535,600
Letters of credit (a)	$	2,751	$	24,626
Available capacity	$	747,249	$	189,774
Weighted average interest rates	N/A			4.88	%

(a)

Letters of credit are off-balance sheet commitments that reduce the borrowing capacity available on our corporate Revolving Credit Facility.

Revolving Credit Facility and CP Program borrowing activity was as follows (dollars in thousands):


	Six Months Ended June 30,
	2023			2022
Maximum amount outstanding (based on daily outstanding balances)	$	548,700		$	429,000
Average amount outstanding (based on daily outstanding balances)	$	164,719		$	326,172
Weighted average interest rates		4.91	%		0.82	%

Long-term Debt

On March 7, 2023, we completed a public debt offering of $350 million, 5.95% five year senior unsecured notes due March 15, 2028. The proceeds from the offering, which were net of $4.2 million of deferred financing costs, were used to repay notes outstanding under our CP Program and for other general corporate purposes.

Debt Covenants

Revolving Credit Facility

We were in compliance with all of our Revolving Credit Facility covenants as of June 30, 2023. We are required to maintain a Consolidated Indebtedness to Capitalization Ratio not to exceed 0.65 to 1.00. Subject to applicable cure periods, a violation of this covenant would constitute an event of default that entitles the lenders to terminate their remaining commitments and accelerate all principal and interest outstanding. As of June 30, 2023, our Consolidated Indebtedness to Capitalization Ratio was 0.59 to 1.00.

Wyoming Electric

Wyoming Electric was in compliance with all covenants within its financing agreements as of June 30, 2023. Wyoming Electric is required to maintain a debt to capitalization ratio of no more than 0.60 to 1.00. As of June 30, 2023, Wyoming Electric's debt to capitalization ratio was 0.52 to 1.00.

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Equity

At-the-Market Equity Offering Program

As previously disclosed, on August 4, 2020, we entered into an Amended and Restated Equity Distribution Sales Agreement ("Previous Sales Agreement") to sell shares of common stock up to an aggregate of $400 million, from time to time, through our ATM program utilizing our shelf registration statement. In conjunction with the new shelf registration statement filing discussed above, we entered into a new Equity Distribution Sales Agreement ("Sales Agreement") on June 16, 2023. We also terminated the Previous Sales Agreement on June 16, 2023. The Sales Agreement is similar to the Previous Sales Agreement and allows us to sell shares of common stock up to an aggregate of $400 million through our ATM program.

ATM activity was as follows (net proceeds and issuance costs in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
August 4, 2020 ATM Program
Proceeds, (net of issuance costs of $(0.2), $(0.2), $(0.5) and $(0.2), respectively)	$	21.0	$	16.4	$	48.5	$	20.2
Number of shares issued		329,647		216,885		775,225		272,592

June 16, 2023 ATM Program
Proceeds, (net of issuance costs of $(0.1), $0, $(0.1) and $0, respectively)	$	6.4	$	-	$	6.4	$	-
Number of shares issued		106,555		-		106,555		-

Total activity under both ATM Programs
Proceeds, (net of issuance costs of $(0.3), $(0.2), $(0.6) and $(0.2), respectively)	$	27.4	$	16.4	$	54.9	$	20.2
Number of shares issued		436,202		216,885		881,780		272,592
Average price per share	$	63.53	$	76.39	$	62.86	$	74.84

As of June 30, 2023, there were 46,696 shares issued under the June 16, 2023 ATM Program, but not settled.

Shareholder Dividend Reinvestment and Stock Purchase Plan

Effective as of July 7, 2023, we terminated our DRSPP. On July 10, 2023, we filed a post-effective amendment to amend the Registration Statement on Form S-3 (File No. 333-240319) filed with the SEC on August 4, 2020. The filing of this post-effective amendment de-registered all shares of common stock that were issuable under the DRSPP but not sold as of July 7, 2023. With the termination of the DRSPP, a direct stock purchase plan is being offered which will allow shareholders to continue making share transactions. This plan is sponsored and administered solely by EQ Shareowner Services, our transfer agent.

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(6)

Earnings Per Share

A reconciliation of share amounts used to compute earnings per share in the accompanying Consolidated Statements of Income was as follows (in thousands, except per share amounts):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income available for common stock	$	23,053	$	33,415	$	137,137	$	150,941

Weighted average shares - basic		66,591		64,721		66,315		64,643
Dilutive effect of:
Equity compensation		93		162		104		179
Weighted average shares - diluted		66,684		64,883		66,419		64,822

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

The following securities were excluded from the diluted earnings per share computation because of their anti-dilutive nature (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Equity compensation		76		-		47		-
Restricted stock		1		-		-		1
Anti-dilutive shares		77		-		47		1

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(7)

Risk Management and Derivatives

Market and Credit Risk Disclosures

Our activities in the energy industry expose us to a number of risks in the normal operations of our businesses. Depending on the activity, we are exposed to varying degrees of market risk and credit risk. Valuation methodologies for our derivatives are detailed within Note 1 of the Notes to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K.

Market Risk

Market risk is the potential loss that may occur as a result of an adverse change in market price, rate or supply. We are exposed but not limited to, the following market risks:

•

Commodity price risk associated with our retail natural gas and wholesale electric power marketing activities and our fuel procurement for several of our gas-fired generation assets, which include market fluctuations due to unpredictable factors such as weather, geopolitical events, pandemics, market speculation, recession, inflation, pipeline constraints, and other factors that may impact natural gas and electric supply and demand; and

•

Interest rate risk associated with future debt, including reduced access to liquidity during periods of extreme capital markets volatility.

Credit Risk

Credit risk is the risk of financial loss resulting from non-performance of contractual obligations by a counterparty.

We attempt to mitigate our credit exposure by conducting business primarily with high credit quality entities, setting tenor and credit limits commensurate with counterparty financial strength, obtaining master netting agreements and mitigating credit exposure with less creditworthy counterparties through parental guarantees, cash collateral requirements, letters of credit and other security agreements.

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customers’ current creditworthiness, as determined by review of their current credit information. We maintain a provision for estimated credit losses based upon historical experience, changes in current market conditions, expected losses and any specific customer collection issue that is identified.

Derivatives and Hedging Activity

Our derivative and hedging activities included in the accompanying Consolidated Balance Sheets, Consolidated Statements of Income and Consolidated Statements of Comprehensive Income are detailed below and in Note 8.

The operations of our Utilities, including natural gas sold by our Gas Utilities and natural gas used by our Electric Utilities’ generation plants or those plants under PPAs where our Electric Utilities must provide the generation fuel (tolling agreements), expose our utility customers to natural gas price volatility. Therefore, as allowed or required by state utility commissions, we enter into commission approved hedging programs utilizing natural gas futures, options, over-the-counter swaps and basis swaps to reduce our customers’ underlying exposure to these fluctuations. These transactions are considered derivatives, and in accordance with accounting standards for derivatives and hedging, mark-to-market adjustments are recorded as Derivative assets or Derivative liabilities on the accompanying Consolidated Balance Sheets, net of balance sheet offsetting as permitted by GAAP.

For our regulated Utilities’ hedging plans, unrealized and realized gains and losses, as well as option premiums and commissions on these transactions, are recorded as Regulatory assets or Regulatory liabilities in the accompanying Consolidated Balance Sheets in accordance with the state regulatory commission guidelines. When the related costs are recovered through our rates, the hedging activity is recognized in the Consolidated Statements of Income.

We use wholesale power purchase and sale contracts to manage purchased power costs and load requirements associated with serving our electric customers. Periodically, certain wholesale energy contracts are considered derivative instruments due to not qualifying for the normal purchase and normal sales exception to derivative accounting. Changes in the fair value of these commodity derivatives are recognized in the Consolidated Statements of Income.

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To support our Choice Gas Program customers, we buy, sell and deliver natural gas at competitive prices by managing commodity price risk. As a result of these activities, this area of our business is exposed to risks associated with changes in the market price of natural gas. We manage our exposure to such risks using over-the-counter and exchange traded options and swaps with counterparties in anticipation of forecasted purchases and sales during time frames ranging from July 2023 through October 2025. A portion of our over-the-counter swaps have been designated as cash flow hedges to mitigate the commodity price risk associated with deliveries under fixed price forward contracts to deliver gas to our Choice Gas Program customers. The gain or loss on these designated derivatives is reported in AOCI in the accompanying Consolidated Balance Sheets and reclassified into earnings in the same period that the underlying hedged item is recognized in earnings. Effectiveness of our hedging position is evaluated at least quarterly.

The contract or notional amounts and terms of the electric and natural gas derivative commodity instruments held at our Utilities are composed of both long and short positions. We had the following net long positions as of:


	June 30, 2023				December 31, 2022
	Notional Amounts (MMBtus)		Maximum Term (months) (a)		Notional Amounts (MMBtus)		Maximum Term (months) (a)
Natural gas futures purchased		80,000		8		630,000		3
Natural gas options purchased, net		120,000		9		1,790,000		3
Natural gas basis swaps purchased		80,000		8		900,000		3
Natural gas over-the-counter swaps, net (b)		6,580,000		27		4,460,000		24
Natural gas physical contracts, net (c)		1,813,165		9		17,864,412		12

(a)

Term reflects the maximum forward period hedged.

(b)

As of June 30, 2023, 3,151,300 MMBtus of natural gas over-the-counter swaps purchases were designated as cash flow hedges.

(c)

Volumes exclude derivative contracts that qualify for the normal purchases and normal sales exception permitted by GAAP.

We have certain derivative contracts which contain credit provisions. These credit provisions may require the Company to post collateral when credit exposure to the Company is in excess of a negotiated line of unsecured credit. At June 30, 2023, the Company posted $0.6 million related to such provisions, which is included in Other current assets on the Consolidated Balance Sheets.

Derivatives by Balance Sheet Classification

As required by accounting standards for derivatives and hedges, fair values within the following tables are presented on a gross basis aside from the netting of asset and liability positions. Netting of positions is permitted in accordance with accounting standards for offsetting and under terms of our master netting agreements that allow us to settle positive and negative positions.

The following table presents the fair value and balance sheet classification of our derivative instruments (in thousands) as of:


	Balance Sheet Location	June 30, 2023			December 31, 2022
Derivatives designated as hedges:
Asset derivative instruments:
Current commodity derivatives	Derivative assets, current	$	408		$	118
Noncurrent commodity derivatives	Other assets, non-current		-			198
Liability derivative instruments:
Current commodity derivatives	Derivative liabilities, current		-			(1,703	)
Noncurrent commodity derivatives	Other assets, non-current		(64	)		-
Total derivatives designated as hedges		$	344		$	(1,387	)

Derivatives not designated as hedges:
Asset derivative instruments:
Current commodity derivatives	Derivative assets, current	$	(105	)	$	464
Noncurrent commodity derivatives	Other assets, non-current		-			337
Liability derivative instruments:
Current commodity derivatives	Derivative liabilities, current		(322	)		(4,897	)
Noncurrent commodity derivatives	Other deferred credits and other liabilities		(84	)		(18	)
Total derivatives not designated as hedges		$	(511	)	$	(4,114	)

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Derivatives Designated as Hedge Instruments

The impacts of cash flow hedges on our Consolidated Statements of Comprehensive Income and Consolidated Statements of Income are presented below for the three and six months ended June 30, 2023 and 2022. Note that this presentation does not reflect the gains or losses arising from the underlying physical transactions; therefore, it is not indicative of the economic profit or loss we realized when the underlying physical and financial transactions were settled.


	Three Months Ended June 30,						Three Months Ended June 30,
	2023		2022				2023			2022
Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI					Income Statement Location	Amount of Gain/(Loss) Reclassified from AOCI into Income
	(in thousands)						(in thousands)
Interest rate swaps	$	713	$	713		Interest expense	$	(713	)	$	(713	)
Commodity derivatives		636		(4,371	)	Fuel, purchased power and cost of natural gas sold		(489	)		1,323
Total	$	1,349	$	(3,658	)		$	(1,202	)	$	610


	Six Months Ended June 30,						Six Months Ended June 30,
	2023		2022				2023			2022
Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in OCI					Income Statement Location	Amount of Gain/(Loss) Reclassified from AOCI into Income
	(in thousands)						(in thousands)
Interest rate swaps	$	1,426	$	1,426		Interest expense	$	(1,426	)	$	(1,426	)
Commodity derivatives		1,463		(5,238	)	Fuel, purchased power and cost of natural gas sold		(2,439	)		3,577
Total	$	2,889	$	(3,812	)		$	(3,865	)	$	2,151

As of June 30, 2023, $2.9 million of net losses related to our interest rate swaps and commodity derivatives are expected to be reclassified from AOCI into earnings within the next 12 months. As market prices fluctuate, estimated and actual realized gains or losses will change during future periods.

Derivatives Not Designated as Hedge Instruments

The following table summarizes the impacts of derivative instruments not designated as hedge instruments on our Consolidated Statements of Income for the three and six months ended June 30, 2023 and 2022. Note that this presentation does not reflect the expected gains or losses arising from the underlying physical transactions; therefore, it is not indicative of the economic profit or loss we realized when the underlying physical and financial transactions were settled.


		Three Months Ended June 30,
		2023		2022
Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) on Derivatives Recognized in Income	Amount of Gain/(Loss) on Derivatives Recognized in Income
Commodity derivatives	Fuel, purchased power and cost of natural gas sold	$	394	$	(2,332	)
		$	394	$	(2,332	)


		Six Months Ended June 30,
		2023			2022
Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) on Derivatives Recognized in Income	Amount of Gain/(Loss) on Derivatives Recognized in Income
Commodity derivatives	Fuel, purchased power and cost of natural gas sold	$	(2,700	)	$	1,162
		$	(2,700	)	$	1,162

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As discussed above, financial instruments used in our regulated Gas Utilities are not designated as cash flow hedges. However, there is no earnings impact because the unrealized gains and losses arising from the use of these financial instruments are recorded as Regulatory assets or Regulatory liabilities. The net unrealized gains included in our Regulatory liability accounts related to these financial instruments in our Gas Utilities were $0.1 million as of June 30, 2023. The net unrealized losses included in our Regulatory asset accounts related to these financial instruments were $8.8 million as of December 31, 2022. For our Electric Utilities, the unrealized gains and losses arising from these derivatives are recognized in the Consolidated Statements of Income.

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Fair Value Measurements

We use the following fair value hierarchy for determining inputs for our financial instruments. Our assets and liabilities for financial instruments are classified and disclosed in one of the following fair value categories:

Level 1 — Unadjusted quoted prices available in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. Level 1 instruments primarily consist of highly liquid and actively traded financial instruments with quoted pricing information on an ongoing basis.

Level 2 — Pricing inputs include quoted prices for identical or similar assets and liabilities in active markets other than quoted prices in Level 1, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Pricing inputs are generally less observable from objective sources. These inputs reflect management’s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels. We record transfers, if necessary, between levels at the end of the reporting period for all of our financial instruments.

Transfers into Level 3, if any, occur when significant inputs used to value the derivative instruments become less observable, such as a significant decrease in the frequency and volume in which the instrument is traded, negatively impacting the availability of observable pricing inputs. Transfers out of Level 3, if any, occur when the significant inputs become more observable, such as when the time between the valuation date and the delivery date of a transaction becomes shorter, positively impacting the availability of observable pricing inputs.

Recurring Fair Value Measurements

Derivatives

The commodity contracts for our Utilities segments are valued using the market approach and include forward strip pricing at liquid delivery points, exchange-traded futures, options, basis swaps and over-the-counter swaps and options (Level 2) for wholesale electric energy and natural gas contracts. For exchange-traded futures, options and basis swap assets and liabilities, fair value was derived using broker quotes validated by the exchange settlement pricing for the applicable contract. For over-the-counter instruments, the fair value is obtained by utilizing a nationally recognized service that obtains observable inputs to compute the fair value, which we validate by comparing our valuation with the counterparty. The fair value of these swaps includes a credit valuation adjustment based on the credit spreads of the counterparties when we are in an unrealized gain position or on our own credit spread when we are in an unrealized loss position. For additional information, see Note 1 of our Notes to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K.

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The following tables set forth, by level within the fair value hierarchy, our gross assets and gross liabilities and related offsetting of cash collateral and contractual netting rights as permitted by GAAP that were accounted for at fair value on a recurring basis for derivative instruments.


	As of June 30, 2023
	Level 1		Level 2		Level 3		Cash Collateral and Counterparty Netting (a)			Total
	(in thousands)
Assets:
Commodity derivatives - Gas Utilities	$	-	$	1,054	$	-	$	(751	)	$	303
Total	$	-	$	1,054	$	-	$	(751	)	$	303

Liabilities:
Commodity derivatives - Gas Utilities	$	-	$	495	$	-	$	(25	)	$	470
Total	$	-	$	495	$	-	$	(25	)	$	470

(a)

As of June 30, 2023, $0.8 million of our commodity derivative assets and none of our commodity derivative liabilities, as well as related gross collateral amounts, were subject to master netting agreements.


	As of December 31, 2022
	Level 1		Level 2		Level 3		Cash Collateral and Counterparty Netting (a)			Total
	(in thousands)
Assets:
Commodity derivatives - Gas Utilities	$	-	$	5,407	$	-	$	(4,290	)	$	1,117
Total	$	-	$	5,407	$	-	$	(4,290	)	$	1,117

Liabilities:
Commodity derivatives - Gas Utilities	$	-	$	11,455	$	-	$	(4,837	)	$	6,618
Total	$	-	$	11,455	$	-	$	(4,837	)	$	6,618

(a)

As of December 31, 2022, $4.3 million of our commodity derivative assets and $4.8 million of our commodity derivative liabilities, as well as related gross collateral amounts, were subject to master netting agreements.

Pension and Postretirement Plan Assets

Fair value measurements also apply to the valuation of our pension and postretirement plan assets. Current accounting guidance requires employers to annually disclose information about the fair value measurements of their assets of a defined benefit pension or other postretirement plan. The fair value of these assets is presented in Note 13 to the Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K.

Other Fair Value Measures

The carrying amount of cash and cash equivalents, restricted cash and equivalents and short-term borrowings approximates fair value due to their liquid or short-term nature. Cash, cash equivalents and restricted cash are classified in Level 1 in the fair value hierarchy. Notes payable consist of commercial paper borrowings and are not traded on an exchange; therefore, they are classified as Level 2 in the fair value hierarchy.

The following table presents the carrying amounts and fair values of financial instruments not recorded at fair value on the Consolidated Balance Sheets (in thousands) as of:


	June 30, 2023				December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt, including current maturities (a)	$	4,480,745	$	4,152,130	$	4,132,340	$	3,760,848

(a)

Long-term debt is valued based on observable inputs available either directly or indirectly for similar liabilities in active markets and therefore is classified in Level 2 in the fair value hierarchy. Carrying amount of long-term debt is net of deferred financing costs.

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Other Comprehensive Income

We record deferred gains (losses) in AOCI related to interest rate swaps designated as cash flow hedges, commodity contracts designated as cash flow hedges and the amortization of components of our defined benefit plans. Deferred gains (losses) for our commodity contracts designated as cash flow hedges are recognized in earnings upon settlement, while deferred gains (losses) related to our interest rate swaps are recognized in earnings as they are amortized.

The following table details reclassifications out of AOCI and into Net income. The amounts in parentheses below indicate decreases to Net income in the Consolidated Statements of Income for the period, net of tax (in thousands):


		Amount Reclassified from AOCI						Amount Reclassified from AOCI
	Location on the Consolidated Statements of Income	Three Months Ended June 30,						Six Months Ended June 30,
		2023			2022			2023			2022
Gains and (losses) on cash flow hedges:
Interest rate swaps	Interest expense	$	(713	)	$	(713	)	$	(1,426	)	$	(1,426	)
Commodity contracts	Fuel, purchased power and cost of natural gas sold		(489	)		1,323			(2,439	)		3,577
		$	(1,202	)	$	610		$	(3,865	)	$	2,151
Income tax	Income tax expense		295			(81	)		911			(456	)
Total reclassification adjustments related to cash flow hedges, net of tax		$	(907	)	$	529		$	(2,954	)	$	1,695

Amortization of components of defined benefit plans:
Prior service cost	Operations and maintenance	$	-		$	22		$	-		$	46
Actuarial gain (loss)	Operations and maintenance		(43	)		(187	)		(87	)		(375	)
		$	(43	)	$	(165	)	$	(87	)	$	(329	)
Income tax	Income tax expense		27			60			43			99
Total reclassification adjustments related to defined benefit plans, net of tax		$	(16	)	$	(105	)	$	(44	)	$	(230	)
Total reclassifications		$	(923	)	$	424		$	(2,998	)	$	1,465

Balances by classification included within AOCI, net of tax on the accompanying Consolidated Balance Sheets were as follows (in thousands):


	Derivatives Designated as Cash Flow Hedges
	Interest Rate Swaps			Commodity Derivatives			Employee Benefit Plans			Total
As of December 31, 2022	$	(8,255	)	$	(1,200	)	$	(6,112	)	$	(15,567	)
Other comprehensive income (loss)
before reclassifications		-			(743	)		-			(743	)
Amounts reclassified from AOCI		1,099			1,855			44			2,998
As of June 30, 2023	$	(7,156	)	$	(88	)	$	(6,068	)	$	(13,312	)


	Derivatives Designated as Cash Flow Hedges
	Interest Rate Swaps			Commodity Derivatives			Employee Benefit Plans			Total
As of December 31, 2021	$	(10,384	)	$	1,476		$	(11,176	)	$	(20,084	)
Other comprehensive income (loss)
before reclassifications		-			(1,267	)		-			(1,267	)
Amounts reclassified from AOCI		1,011			(2,706	)		230			(1,465	)
As of June 30, 2022	$	(9,373	)	$	(2,497	)	$	(10,946	)	$	(22,816	)

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Employee Benefit Plans

Components of Net Periodic Expense

The components of net periodic expense were as follows (in thousands):


	Defined Benefit Pension Plan						Supplemental Non-qualified Defined Benefit Plans					Non-pension Defined Benefit Postretirement Healthcare Plan
Three Months Ended June 30,	2023			2022			2023		2022			2023			2022
Service cost	$	614		$	982		$	770	$	(1,355	)	$	381		$	492
Interest cost		4,381			2,704			369		209			594			321
Expected return on plan assets		(4,672	)		(4,630	)		-		-			(55	)		(31	)
Net amortization of prior service costs		(17	)		(17	)		-		-			10			(73	)
Recognized net actuarial loss		498			1,523			8		69			(3	)		16
Net periodic expense (benefit)	$	804		$	562		$	1,147	$	(1,077	)	$	927		$	725


	Defined Benefit Pension Plan						Supplemental Non-qualified Defined Benefit Plans					Non-pension Defined Benefit Postretirement Healthcare Plan
Six Months Ended June 30,	2023			2022			2023		2022			2023			2022
Service cost	$	1,228		$	1,964		$	1,684	$	(1,747	)	$	762		$	984
Interest cost		8,761			5,409			738		417			1,188			642
Expected return on plan assets		(9,344	)		(9,261	)		-		-			(111	)		(62	)
Net amortization of prior service costs		(34	)		(34	)		-		-			20			(145	)
Recognized net actuarial loss (gain)		996			3,046			16		138			(6	)		32
Net periodic expense (benefit)	$	1,607		$	1,124		$	2,438	$	(1,192	)	$	1,853		$	1,451

Plan Contributions

Contributions to the Defined Benefit Pension Plan are cash contributions made directly to the Pension Plan Trust account. Contributions to the Postretirement Healthcare and Supplemental Plans are made in the form of benefit payments. Contributions made in the first six months of 2023 and anticipated contributions for 2023 and 2024 are as follows (in thousands):


	Contributions Made		Additional Contributions		Contributions
	Six Months Ended June 30, 2023		Anticipated for 2023		Anticipated for 2024
Defined Benefit Pension Plan	$	-	$	-	$	-
Non-pension Defined Benefit Postretirement Healthcare Plan	$	2,460	$	2,460	$	4,808
Supplemental Non-qualified Defined Benefit and Defined Contribution Plans	$	1,116	$	1,116	$	2,417

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Income Taxes

IRS Revenue Procedure 2023-15

On April 14, 2023, the IRS released Revenue Procedure 2023-15 “Amounts paid to improve tangible property.” The Revenue Procedure provides a safe harbor method of accounting that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve natural gas transmission and distribution property must be capitalized. We are currently assessing the Revenue Procedure to determine its impact on our tax repairs deduction.

Income Tax Benefit (Expense) and Effective Tax Rates

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Income tax benefit for the three months ended June 30, 2023 was $6.1 million compared to $0.7 million reported for the same period in 2022. For the three months ended June 30, 2023, the effective tax rate was (29.8)% compared to (1.9)% for the same period in 2022. The lower effective tax rate was primarily due to a $8.2 million tax benefit from a Nebraska income tax rate decrease compared to a $3.8 million benefit from a similar Nebraska tax rate decrease in 2022 and $2.3 million of lower wind PTCs driven by the March 2023 sale of Northern Iowa Windpower assets.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

Income tax (expense) for the six months ended June 30, 2023 was $(8.6) million compared to $(13.8) million reported for the same period in 2022. For the six months ended June 30, 2023, the effective tax rate was 5.6% compared to 8.1% for the same period in 2022. The lower effective tax rate was primarily due to a $8.2 million tax benefit from a Nebraska income tax rate decrease compared to a $3.8 million benefit from a similar Nebraska tax rate decrease in 2022 and $3.0 million of lower wind PTCs driven by the March 2023 sale of Northern Iowa Windpower assets.

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Business Segment Information

Our Chief Executive Officer, who is considered to be our CODM, reviews financial information presented on an operating segment basis for purposes of making decisions, allocating resources and assessing financial performance. Our CODM assesses the performance of our operating segments based on operating income.

Segment information was as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenues:
Electric Utilities
External Customers	$	190,212		$	201,450		$	406,105		$	405,059
Inter-segment		2,861			2,929			5,677			5,858
Total Electric Utilities Revenue		193,073			204,379			411,782			410,917

Gas Utilities
External Customers		221,071			272,745			926,337			892,706
Inter-segment		1,649			1,424			3,299			2,855
Total Gas Utilities Revenue		222,720			274,169			929,636			895,561

Inter-segment eliminations		(4,510	)		(4,353	)		(8,976	)		(8,713	)

Total Revenues	$	411,283		$	474,195		$	1,332,442		$	1,297,765

Operating income (loss):
Electric Utilities	$	46,619		$	45,226		$	107,679		$	95,972
Gas Utilities		17,725			28,195			132,350			151,735
Corporate and Other		(828	)		(1,032	)		(1,630	)		(1,965	)
Total Operating Income	$	63,516		$	72,389		$	238,399		$	245,742

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Total assets (net of inter-segment eliminations) as of:	June 30, 2023		December 31, 2022
Electric Utilities	$	3,914,037	$	3,929,721
Gas Utilities		5,252,521		5,578,282
Corporate and Other		242,537		110,227
Total assets	$	9,409,095	$	9,618,230

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Selected Balance Sheet Information

Accounts Receivable and Allowance for Credit Losses

Following is a summary of Accounts receivable, net included in the accompanying Consolidated Balance Sheets (in thousands) as of:


	June 30, 2023			December 31, 2022
Billed Accounts Receivable	$	192,444		$	267,571
Unbilled Revenue		71,097			243,574
Less: Allowance for Credit Losses		(3,191	)		(2,953	)
Account Receivable, net	$	260,350		$	508,192

Changes to allowance for credit losses for the six months ended June 30, 2023 and 2022, respectively, were as follows (in thousands):


	Balance at Beginning of Year		Additions Charged to Costs and Expenses		Recoveries and Other Additions		Write-offs and Other Deductions			Balance at June 30,
2023	$	2,953	$	4,278	$	1,444	$	(5,484	)	$	3,191
2022	$	2,113	$	4,239	$	1,266	$	(4,425	)	$	3,193

Materials, Supplies and Fuel

The following amounts by major classification are included in Materials, supplies and fuel on the accompanying Consolidated Balance Sheets (in thousands) as of:


	June 30, 2023		December 31, 2022
Materials and supplies	$	101,854	$	99,734
Fuel - Electric Utilities		7,757		3,115
Natural gas in storage		26,923		104,572
Total materials, supplies and fuel	$	136,534	$	207,421

Accrued Liabilities

The following amounts by major classification are included in Accrued liabilities on the accompanying Consolidated Balance Sheets (in thousands) as of:


	June 30, 2023		December 31, 2022
Accrued employee compensation, benefits and withholdings	$	62,031	$	62,890
Accrued property taxes		40,298		52,430
Customer deposits and prepayments		42,730		47,655
Accrued interest		40,715		33,798
Other (none of which is individually significant)		31,485		46,684
Total accrued liabilities	$	217,259	$	243,457

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Subsequent Events

Except as described in Notes 2 and 5, there have been no events subsequent to June 30, 2023, which would require recognition in the consolidated financial statements or disclosures.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 the 2022 Form 10-K.

Executive Summary

We are a customer-focused energy solutions provider with a mission of Improving Life with Energy for more than 1.3 million customers and 800+ communities we serve. Our vision to be the Energy Partner of Choice directs our strategy to invest in the safety, sustainability and growth of our eight-state service territory, including Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming, and to meet our essential objective of providing safe, reliable and cost-effective electricity and natural gas.

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 139 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 Wyoming Electric.

•

On July 31, 2023, Colorado Electric issued a request for proposals for 400 MW of new resources to be in service between 2026 and 2029 to achieve objectives in its Clean Energy Plan. In March 2023, the CPUC approved a unanimous settlement for Colorado Electric's Clean Energy Plan filed May 25, 2022. The Clean Energy Plan supports Colorado Electric's voluntary election to reduce carbon emissions 80% from 2005 levels by 2030.

•

On July 24, 2023, Wyoming Electric set a new all-time and summer peak load of 312 MW, surpassing the previous peak of 294 MW set on July 21, 2022.

Gas Utilities

•

See Note 2 of the Condensed Notes to Consolidated Financial Statements for recent rate review activity for Colorado Gas, RMNG and Wyoming Gas.

Corporate and Other

•

On June 16, 2023, we filed a new shelf registration statement with the SEC and entered into a new Equity Distribution Sales Agreement. The new Equity Distribution Sales Agreement is similar to our prior agreement and allows us to sell shares of common stock up to an aggregate of $400 million through our ATM program utilizing our shelf registration statement. See Note 5 of the Condensed Notes to Consolidated Financial Statements for further information.

•

On March 7, 2023, we completed a public debt offering of $350 million, 5.95% 5-year senior unsecured notes due March 15, 2028. The proceeds from the offering were used to repay notes outstanding under our commercial paper program and for other general corporate purposes. See Note 5 of the Condensed Notes to Consolidated Financial Statements for further information.

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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 and six months ended June 30, 2023 and 2022, and our financial condition as of June 30, 2023 and December 31, 2022, 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.

Segment information does not include inter-segment eliminations and 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


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands, except per share amounts)
Operating income (loss):
Electric Utilities	$	46,619		$	45,226		$	107,679		$	95,972
Gas Utilities		17,725			28,195			132,350			151,735
Corporate and Other		(828	)		(1,032	)		(1,630	)		(1,965	)
Operating income		63,516			72,389			238,399			245,742

Interest expense, net		(41,521	)		(38,764	)		(85,025	)		(77,309	)
Other income (expense), net		(1,540	)		1,563			(866	)		2,267
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

Total earnings per share of common stock, Diluted	$	0.35		$	0.52		$	2.06		$	2.33

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022:

The variance to the prior year included the following:

•

Electric Utilities' operating income increased $1.4 million primarily due to new rates and rider recovery and increased transmission services and off-system excess energy sales mostly offset by higher operating expenses and unfavorable weather.

•

Gas Utilities' operating income decreased $10.5 million primarily due to higher operating expenses and a prior year one-time true-up of carrying costs accrued on Winter Storm Uri regulatory assets partially offset by new rates and rider recovery and favorable mark-to-market adjustments on wholesale commodity contracts;

•

Interest expense increased $2.8 million due to higher interest rates;

•

Other expense increased $3.1 million primarily due to higher costs for our non-qualified benefit plans driven by market performance and higher non-service benefit plan costs driven by higher discount rates;

•

Income tax benefit increased $5.4 million driven by lower pre-tax income and a lower effective tax rate primarily due to a tax benefit from a Nebraska income tax rate decrease partially offset by a benefit from a similar Nebraska tax rate decrease in 2022 and lower wind PTCs driven by the March 2023 sale of Northern Iowa Windpower assets; and

•

Net income attributable to non-controlling interest increased $1.1 million due to higher net income from Black Hills Colorado IPP primarily driven by increased fired-engine hours.

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Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022:

The variance to the prior year included the following:

•

Electric Utilities’ operating income increased $11.7 million primarily due to new rates and rider recovery, a one-time gain on the planned sale of Northern Iowa Windpower assets, and increased transmission services and off-system excess energy sales partially offset by higher operating expenses and unfavorable weather.

•

Gas Utilities’ operating income decreased $19.4 million primarily due to higher operating expenses, a prior year one-time true-up of carrying costs accrued on Winter Storm Uri regulatory assets, unfavorable mark-to-market adjustments on wholesale commodity contracts and unfavorable weather partially offset by new rates and rider recovery and retail customer growth and demand;

•

Interest expense increased $7.7 million due to higher interest rates;

•

Other expense, net increased $3.1 million primarily due to higher costs for our non-qualified benefit plans driven by market performance and higher non-service benefit plan costs driven by higher discount rates; and

•

Income tax benefit increased $5.2 million driven by lower pre-tax income and a lower effective tax rate primarily due to a tax benefit from a Nebraska income tax rate decrease partially offset by a benefit from a similar Nebraska tax rate decrease in 2022 and lower wind PTCs driven by the March 2023 sale of Northern Iowa Windpower assets.

Segment Operating Results

A discussion of operating results from our business segments follows.

Non-GAAP Financial Measures

The following discussion includes financial information prepared in accordance with GAAP, as well as another financial measure, Electric and Gas Utility margin, that is considered a “non-GAAP financial measure.” 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. Electric and Gas Utility margin (revenue less cost of sales) is a non-GAAP financial measure due to the exclusion of operation and maintenance expenses, depreciation and amortization expenses, and property and production taxes from the measure.

Electric Utility margin is calculated as operating revenue less cost of fuel and purchased power. Gas Utility margin is calculated as operating revenue less cost of natural gas sold. Our Electric and Gas Utility margin is impacted by the fluctuations in power and natural gas purchases and other fuel supply costs. However, while these fluctuating costs impact Electric and Gas Utility margin as a percentage of revenue, they only impact total Electric and Gas Utility margin if the costs cannot be passed through to our customers.

Our Electric and Gas Utility margin measure may not be comparable to other companies’ Electric and Gas Utility margin measures. Furthermore, this measure is not intended to replace operating income as determined in accordance with GAAP as an indicator of operating performance.

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Electric Utilities

Operating results for the Electric Utilities were as follows (in thousands):


	Three Months Ended June 30,							Six Months Ended June 30,
	2023		2022		Variance			2023		2022		Variance
Revenue:
Electric - regulated	$	182,822	$	194,197	$	(11,375	)	$	389,523	$	389,921	$	(398	)
Other - non-regulated		10,251		10,182		69			22,259		20,995		1,264
Total revenue		193,073		204,379		(11,306	)		411,782		410,917		865

Cost of fuel and purchased power:
Electric - regulated		36,038		55,723		(19,685	)		90,688		107,202		(16,514	)
Other - non-regulated		366		909		(543	)		1,132		1,840		(708	)
Total cost of fuel and purchased power		36,404		56,632		(20,228	)		91,820		109,042		(17,222	)

Electric Utility margin (non-GAAP)		156,669		147,747		8,922			319,962		301,875		18,087

Operations and maintenance		74,219		69,000		5,219			141,373		138,669		2,704
Depreciation and amortization		35,831		33,521		2,310			70,910		67,234		3,676
Total operating expenses		110,050		102,521		7,529			212,283		205,903		6,380

Operating income	$	46,619	$	45,226	$	1,393		$	107,679	$	95,972	$	11,707

Three Months Ended June 30, 2023, Compared to the Three Months Ended June 30, 2022:

Electric Utility margin increased as a result of the following:


	(in millions)
Transmission services and off-system excess energy sales	$	4.2
New rates and rider recovery		4.2
Integrated Generation (a)		2.9
Weather		(2.4	)
	$	8.9

(a)

Primarily driven by favorable mining volumes due to a prior year planned outage and increased Black Hills Colorado IPP fired-engine hours.

Operations and maintenance expense increased primarily due to $3.8 million of higher generation expenses driven by planned outages and higher materials costs and $1.9 million of higher employee-related expenses.

Depreciation and amortization increased primarily due to a higher asset base driven by current year and prior year capital expenditures.

Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022:

Electric Utility margin increased as a result of the following:


	(in millions)
New rates and rider recovery	$	9.2
Transmission services and off-system excess energy sales		6.5
Integrated Generation (a)		5.2
Weather		(2.2	)
Other		(0.6	)
	$	18.1

(a)

Primarily driven by favorable mining volumes due to a prior year planned outage, mining contract pricing and increased Black Hills Colorado IPP fired-engine hours.

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Operations and maintenance expense increased primarily due to $6.2 million of higher mining and generation expenses driven by planned outages and higher fuel and materials costs and $5.4 million of higher employee-related expenses partially offset by a one-time $7.7 million gain on the planned sale of Northern Iowa Windpower assets. Other favorable variances, none of which were individually significant, comprised the remainder of the difference when compared to the same period in the prior year.

Depreciation and amortization increased primarily due to a higher asset base driven by current year and prior year capital expenditures.

Operating Statistics


	Revenue (in thousands)								Quantities Sold (MWh)
	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022		2023		2022		2023		2022
Residential	$	47,375	$	52,853	$	107,172	$	115,102		302,879		323,775		696,749		715,357
Commercial		63,530		68,756		125,602		133,109		498,239		509,830		1,009,029		1,000,248
Industrial		34,519		38,190		73,467		73,598		502,146		464,928		958,088		928,696
Municipal		4,204		4,992		8,471		9,567		37,571		40,240		73,337		75,545
Subtotal Retail Revenue - Electric		149,628		164,791		314,712		331,377		1,340,835		1,338,773		2,737,203		2,719,846
Contract Wholesale		3,206		4,339		8,610		10,262		118,344		150,645		263,135		332,852
Off-system/Power Marketing Wholesale		5,959		8,666		22,083		15,820		123,258		144,425		380,114		304,866
Other (a)		24,029		16,400		44,118		32,463		-		-		-		-
Total Regulated		182,822		194,197		389,523		389,921		1,582,437		1,633,843		3,380,452		3,357,564
Non-Regulated (b)		10,251		10,182		22,259		20,995		22,848		72,770		77,194		161,864
Total Revenue and Quantities Sold	$	193,073	$	204,379	$	411,782	$	410,917		1,605,285		1,706,613		3,457,646		3,519,428
Other Uses, Losses or Generation, net (c)										109,628		98,323		247,933		211,609
Total Energy										1,714,913		1,804,936		3,705,579		3,731,037

(a)

Primarily related to transmission revenues from the Common Use System.

(b)

Includes Integrated Generation and non-regulated services to our retail customers under the Service Guard Comfort Plan and Tech Services.

(c)

Includes company uses and line losses.


	Revenue (in thousands)								Quantities Sold (MWh)
	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022		2023		2022		2023		2022
Colorado Electric	$	62,338	$	71,197	$	136,133	$	146,642		536,754		568,890		1,141,298		1,188,478
South Dakota Electric		70,950		76,195		157,563		154,792		545,224		600,172		1,254,044		1,244,395
Wyoming Electric		49,939		47,146		96,610		89,235		500,459		464,781		985,110		924,691
Integrated Generation		9,846		9,841		21,476		20,248		22,848		72,770		77,194		161,864
Total Revenue and Quantities Sold	$	193,073	$	204,379	$	411,782	$	410,917		1,605,285		1,706,613		3,457,646		3,519,428


	Three Months Ended June 30,				Six Months Ended June 30,
Quantities Generated and Purchased by Fuel Type (MWh)	2023		2022		2023		2022
Generated:
Coal		620,952		589,438		1,295,899		1,252,876
Natural Gas and Oil		451,237		262,157		952,303		558,579
Wind		150,622		244,456		381,346		498,024
Total Generated		1,222,811		1,096,051		2,629,548		2,309,479
Purchased:
Coal, Natural Gas, Oil and Other Market Purchases		421,037		608,045		910,853		1,196,205
Wind		71,065		100,840		165,178		225,353
Total Purchased		492,102		708,885		1,076,031		1,421,558

Total Generated and Purchased		1,714,913		1,804,936		3,705,579		3,731,037

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	Three Months Ended June 30,				Six Months Ended June 30,
Quantities Generated and Purchased (MWh)	2023		2022		2023		2022
Generated:
Colorado Electric		120,374		112,117		280,575		197,548
South Dakota Electric		447,492		367,936		1,011,536		823,541
Wyoming Electric		215,169		225,720		445,731		430,318
Integrated Generation		439,776		390,278		891,706		858,072
Total Generated		1,222,811		1,096,051		2,629,548		2,309,479
Purchased:
Colorado Electric		128,359		255,969		325,983		556,366
South Dakota Electric		104,333		248,625		261,305		445,688
Wyoming Electric		246,165		185,932		455,958		376,737
Integrated Generation		13,245		18,359		32,785		42,767
Total Purchased		492,102		708,885		1,076,031		1,421,558

Total Generated and Purchased		1,714,913		1,804,936		3,705,579		3,731,037


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Degree Days	Actual	Variance from Normal	Actual	Variance from Normal	Actual	Variance from Normal	Actual	Variance from Normal
Heating Degree Days:
Colorado Electric	588	(5)%	556	(5)%	3,339	6%	3,271	5%
South Dakota Electric	1,035	(5)%	1,221	13%	4,481	3%	4,469	3%
Wyoming Electric	1,081	(9)%	1,159	(3)%	4,382	5%	4,291	2%
Combined (a)	840	(6)%	904	3%	3,940	4%	3,885	4%

Cooling Degree Days:
Colorado Electric	131	(56)%	333	24%	131	(56)%	333	24%
South Dakota Electric	36	(67)%	107	15%	36	(67)%	107	15%
Wyoming Electric	14	(82)%	121	102%	14	(82)%	121	102%
Combined (a)	75	(60)%	213	28%	75	(60)%	213	28%

(a)

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


	Three Months Ended June 30,		Six Months Ended June 30,
Contracted generating facilities availability by fuel type (a)	2023	2022	2023	2022
Coal (b)	92.0%	82.1%	92.4%	86.3%
Natural gas and diesel oil	93.5%	95.1%	93.9%	95.2%
Wind	93.0%	93.8%	93.4%	94.7%
Total Availability	93.0%	91.4%	93.4%	92.7%

Wind Capacity Factor	34.4%	39.8%	41.2%	40.9%

(a)

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

(b)

2022 included planned outages at Neil Simpson II and Wyodak Plant.

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Gas Utilities

Operating results for the Gas Utilities were as follows (in thousands):


	Three Months Ended June 30,							Six Months Ended June 30,
	2023		2022		Variance			2023		2022		Variance
Revenue:
Natural gas - regulated	$	206,763	$	258,349	$	(51,586	)	$	881,536	$	854,807	$	26,729
Other - non-regulated		15,957		15,821		136			48,100		40,755		7,345
Total revenue		222,720		274,169		(51,450	)		929,636		895,561		34,074

Cost of natural gas sold:
Natural gas - regulated		81,540		126,704		(45,164	)		535,646		510,416		25,230
Other - non-regulated		3,415		5,040		(1,625	)		20,275		6,055		14,220
Total cost of natural gas sold		84,955		131,744		(46,789	)		555,921		516,471		39,450

Gas Utility margin (non-GAAP)		137,765		142,425		(4,660	)		373,715		379,090		(5,375	)

Operations and maintenance		91,223		83,689		7,534			186,050		170,130		15,920
Depreciation and amortization		28,817		30,541		(1,724	)		55,315		57,225		(1,910	)
Total operating expenses		120,040		114,230		5,810			241,365		227,355		14,010

Operating income	$	17,725	$	28,195	$	(10,470	)		132,350	$	151,735	$	(19,385	)

Three Months Ended June 30, 2023, Compared to the Three Months Ended June 30, 2022:

Gas Utility margin decreased as a result of the following:


	(in millions)
Prior year true-up of Winter Storm Uri carrying costs (a)	$	(10.3	)
Weather		(0.7	)
Mark-to-market on non-utility natural gas commodity contracts		3.0
New rates and rider recovery		2.6
Residential growth and usage		0.8
Other		(0.1	)
	$	(4.7	)

(a)

In certain jurisdictions, we have commission approval to recover carrying costs on Winter Storm Uri regulatory assets which offset increased interest expense. During the second quarter of 2022, we accrued a one-time, $10.3 million true-up of these carrying costs to reflect commission authorized rates.

Operations and maintenance expense increased primarily due to $6.0 million of higher employee-related expenses and $0.5 million of higher materials and outside services expenses.

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

Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022:

Gas Utility margin decreased as a result of the following:


	(in millions)
Prior year true-up of Winter Storm Uri carrying costs (a)	$	(10.3	)
Mark-to-market on non-utility natural gas commodity contracts		(4.0	)
Weather		(2.9	)
New rates and rider recovery		7.8
Non-residential retail growth and demand		2.9
Residential growth and usage		1.6
Other		(0.5	)
	$	(5.4	)

(a)

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Operations and maintenance expense increased primarily due to $11.9 million of higher employee-related expenses and $3.1 million of higher materials and outside services expenses.

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

Operating Statistics


	Revenue (in thousands)								Quantities Sold and Transported (Dth)
	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022		2023		2022		2023		2022
Residential	$	116,577	$	143,127	$	545,153	$	519,171		7,596,797		8,523,755		37,532,381		40,338,005
Commercial		44,278		61,182		226,801		219,824		4,058,186		4,499,245		18,062,258		19,130,948
Industrial		7,109		16,875		16,308		26,113		1,408,612		2,150,532		2,447,045		3,315,115
Other		2,804		2,300		4,248		5,072		-		-		-		-
Total Distribution		170,768		223,483		792,510		770,179		13,063,595		15,173,532		58,041,684		62,784,068
Transportation and Transmission		35,995		34,865		89,026		84,627		34,226,643		37,623,610		81,406,183		82,668,813
Total Regulated		206,763		258,349		881,536		854,807		47,290,238		52,797,142		139,447,867		145,452,881
Non-regulated Services (a)		15,957		15,821		48,100		40,755		-		-		-		-
Total Revenue and Quantities Sold	$	222,720	$	274,169	$	929,636	$	895,561		47,290,238		52,797,142		139,447,867		145,452,881

(a)

Includes Black Hills Energy Services and non-regulated services under the Service Guard Comfort Plan, Tech Services and HomeServe.


	Revenue (in thousands)								Quantities Sold and Transported (Dth)
	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022		2023		2022		2023		2022
Arkansas Gas	$	35,231	$	51,815	$	161,868	$	179,624		5,250,053		5,445,450		16,725,803		18,373,186
Colorado Gas		51,463		50,328		196,349		170,381		5,639,570		6,365,777		19,694,864		19,784,461
Iowa Gas		23,896		42,050		149,353		162,629		7,111,510		8,178,613		21,402,918		23,554,795
Kansas Gas		23,533		35,482		95,754		94,333		7,123,557		8,762,807		18,297,059		19,751,874
Nebraska Gas		57,614		62,337		222,564		196,571		15,724,842		16,714,480		42,805,632		44,050,254
Wyoming Gas		30,983		32,157		103,748		92,023		6,440,706		7,330,015		20,521,591		19,938,311
Total Revenue and Quantities Sold	$	222,720	$	274,169	$	929,636	$	895,561		47,290,238		52,797,142		139,447,867		145,452,881


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Heating Degree Days	Actual	Variance from Normal	Actual	Variance from Normal	Actual	Variance from Normal	Actual	Variance from Normal
Arkansas Gas (a)	278	(15)%	271	(18)%	1,944	(18)%	2,370	(3)%
Colorado Gas	900	2%	817	(14)%	3,987	8%	3,763	(3)%
Iowa Gas	583	(20)%	803	17%	3,830	(9)%	4,382	8%
Kansas Gas (a)	370	(18)%	436	(2)%	2,743	(6)%	3,020	4%
Nebraska Gas	516	(21)%	679	7%	3,570	(4)%	3,720	1%
Wyoming Gas	1,149	(3)%	1,326	9%	4,773	14%	4,598	4%
Combined (b)	674	(10)%	768	2%	3,870	1%	3,933	2%

(a)

Arkansas Gas and Kansas Gas have weather normalization mechanisms that mitigate the weather impact on gross margins.

(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.

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Corporate and Other

Corporate and Other operating results were as follows (in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,
	2023			2022			Variance		2023			2022			Variance
Operating (loss)	$	(828	)	$	(1,032	)	$	204	$	(1,630	)	$	(1,965	)	$	335

Three Months Ended June 30, 2023, Compared to the Three Months Ended June 30, 2022:

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

Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022:

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

Consolidated Interest Expense, Other Income and Income Tax Expense


	Three Months Ended June 30,									Six Months Ended June 30,
	2023			2022			Variance			2023			2022			Variance
	(in thousands)
Interest expense, net	$	(41,521	)	$	(38,764	)	$	(2,757	)	$	(85,025	)	$	(77,309	)	$	(7,716	)
Other income (expense), net		(1,540	)		1,563			(3,103	)		(866	)		2,267			(3,133	)
Income tax benefit (expense)		6,089			658			5,431			(8,584	)		(13,830	)		5,246

Three Months Ended June 30, 2023, Compared to the Three Months Ended June 30, 2022:

Interest expense, net

The increase in Interest expense, net was due to higher interest rates.

Other income (expense), net

Other expense, net increased due to higher costs for our non-qualified benefit plans which were driven by market performance and higher non-service benefit plan costs primarily driven by higher discount rates.

Income tax benefit

Income tax benefit increased primarily due to lower pre-tax income and a lower effective tax rate. For the three months ended June 30, 2023, the effective tax rate was (29.8)% compared to (1.9)% for the same period in 2022. See Note 11 of the Condensed Notes to Consolidated Financial Statements for discussion of effective tax rate variances.

Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022:

Interest expense, net

The increase in Interest expense, net was due to higher interest rates.

Other income (expense), net

Other expense, net increased primarily due to higher costs for our non-qualified benefit plans which were driven by market performance and higher non-service benefit plan costs driven by higher discount rates.

Income tax (expense)

Income tax (expense) decreased primarily due to lower pre-tax income and a lower effective tax rate. For the six months ended June 30, 2023, the effective tax rate was 5.6% compared to 8.1% for the same period in 2022. See Note 11 of the Condensed Notes to Consolidated Financial Statements for discussion of effective tax rate variances.

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Liquidity and Capital Resources

There have been no material changes in Liquidity and Capital Resources from those reported in Item 7 of our 2022 Annual Report on Form 10-K except as described below.

CASH FLOW ACTIVITIES

The following tables summarize our cash flows for the six months ended June 30, 2023, (in thousands):

Operating Activities:


	Six Months Ended June 30,
	2023			2022			Variance
Cash earnings (net income plus non-cash adjustments)	$	287,792		$	296,002		$	(8,210	)
Changes in certain operating assets and liabilities:
Accounts receivable and other current assets		339,842			48,648			291,194
Accounts payable and accrued liabilities		(201,389	)		(24,130	)		(177,259	)
Regulatory assets and liabilities		186,699			128,315			58,384
		325,152			152,833			172,319
Other operating activities		(7,873	)		(6,805	)		(1,068	)
Net cash provided by operating activities	$	605,071		$	442,030		$	163,041

Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022

Net cash provided by operating activities was $163.0 million higher than the same period in 2022. The variance to the prior year was primarily attributable to:

•

Cash earnings (net income plus non-cash adjustments) were $8.2 million lower for the six months ended June 30, 2023 compared to the same period in the prior year primarily due to higher operating expenses and higher interest expense.

•

Net inflows from changes in certain operating assets and liabilities were $172.3 million higher, primarily attributable to:

Cash inflows increased by $291.2 million as a result of changes in accounts receivable and other current assets primarily driven by higher collections on pass-through revenues and lower natural gas in storage inventories driven by fluctuations in commodity prices and timing of injections and withdrawals;

Cash outflows increased by $177.3 million as a result of decreases in accounts payable and accrued liabilities primarily driven by fluctuations in commodity prices, payment timing of natural gas and power purchases and changes in other working capital requirements; and

Cash inflows increased by $58.4 million as a result of changes in our regulatory assets and liabilities primarily due to higher recoveries of deferred gas and fuel cost adjustments driven by fluctuations in commodity prices and higher recoveries of Winter Storm Uri incremental and carrying costs from customers.

•

Cash outflows increased by $1.1 million for other operating activities.

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Investing Activities:


	Six Months Ended June 30,
	2023			2022			Variance
Capital expenditures	$	(261,739	)	$	(293,803	)	$	32,064
Other investing activities		16,367			2,418			13,949
Net cash (used in) investing activities	$	(245,372	)	$	(291,385	)	$	46,013

Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022

Net cash used in investing activities was $46.0 million lower than the same period in 2022. The variance to the prior year was primarily attributable to:

•

Cash outflows decreased by $32.1 million as a result of lower capital expenditures which were driven by lower programmatic safety, reliability and integrity spending at our Gas and Electric Utilities; and

•

Cash inflows increased by $13.9 million for other investing activities primarily due to proceeds from the sale of Northern Iowa Windpower assets.

Financing Activities:


	Six Months Ended June 30,
	2023			2022			Variance
Dividends paid on common stock	$	(83,114	)	$	(77,136	)	$	(5,978	)
Common stock issued		54,689			20,095			34,594
Short-term and long-term debt (repayments), net		(185,600	)		(85,130	)		(100,470	)
Distributions to non-controlling interests		(9,017	)		(8,604	)		(413	)
Other financing activities		(5,095	)		1,682			(6,777	)
Net cash (used in) financing activities	$	(228,137	)	$	(149,093	)	$	(79,044	)

Six Months Ended June 30, 2023, Compared to the Six Months Ended June 30, 2022

Net cash used in financing activities was $79.0 million higher than the same period in 2022. The variance to the prior year was primarily attributable to:

•

Cash outflows increased $100.5 million due to short-term debt repayments in excess of short-term and long-term borrowings;

•

Cash inflows increased $34.6 million due to higher issuances of common stock;

•

Cash outflows increased $6.0 million due to increased dividends paid on common stock; and

•

Cash outflows increased by $6.8 million for other financing activities primarily due to financing costs in the March 7, 2023 debt offering.

CAPITAL RESOURCES

Shelf Registration Statement

See Recent Developments above and Note 5 of the Condensed Notes to Consolidated Financial Statements for recent updates on our shelf registration.

Short-term Debt

See Note 5 of the Condensed Notes to Consolidated Financial Statements for information on our Revolving Credit Facility and CP Program.

Long-term Debt

See Recent Developments above and Note 5 of the Condensed Notes to Consolidated Financial Statements for recent updates on our long-term debt.

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Covenant Requirements

The Revolving Credit Facility and Wyoming Electric’s financing agreements contain covenant requirements. We were in compliance with these covenants as of June 30, 2023. See Note 5 of the Condensed Notes to Consolidated Financial Statements for more information.

Equity

See Recent Developments above and Note 5 of the Condensed Notes to Consolidated Financial Statements for recent updates regarding equity.

Future Financing Plans

We will continue to assess debt and equity needs to support our capital investment plans and other strategic objectives. 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, the issuance of common stock under our ATM program or in an opportunistic block trade. We plan to re-finance a portion of our $525 million, 4.25%, senior unsecured notes due November 30, 2023, at or before maturity date.

CREDIT RATINGS

After assessing the current operating performance, liquidity and credit ratings of the Company, management believes that the Company will have access to the capital markets at prevailing market rates for companies with comparable credit ratings.

The following table represents the credit ratings and outlook and risk profile of BHC at June 30, 2023:


Rating Agency	Senior Unsecured Rating	Outlook
S&P (a)	BBB+	Stable
Moody's (b)	Baa2	Stable
Fitch (c)	BBB+	Stable

(a)

On February 17, 2023, S&P reported BBB+ rating and maintained a Stable outlook.

(b)

On December 20, 2022, Moody’s reported Baa2 rating and maintained a Stable outlook.

(c)

On October 6, 2022, Fitch reported BBB+ rating and maintained a Stable outlook.

The following table represents the credit ratings of South Dakota Electric at June 30, 2023:


Rating Agency	Senior Secured Rating
S&P (a)	A
Fitch (b)	A

(a)

On February 17, 2023, S&P reported A rating.

(b)

On October 6, 2022, Fitch reported A rating.

CAPITAL REQUIREMENTS

Capital Expenditures


	Actual		Forecasted
Capital Expenditures by Segment	Six Months Ended June 30, 2023 (a)		2023 (b)		2024		2025		2026		2027
(in millions)
Electric Utilities	$	100	$	212	$	348	$	268	$	184	$	163
Gas Utilities		153		386		452		412		393		444
Corporate and Other		3		17		19		20		19		18
Incremental Projects (c)		-		-		-		-		104		75
	$	256	$	615	$	819	$	700	$	700	$	700

(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.

(b)

Includes actual capital expenditures for the six months ended June 30, 2023.

(c)

These represent projects that are being evaluated by our segments for timing, cost and other factors.

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Dividends

Dividends paid on our common stock totaled $83.1 million for the six months ended June 30, 2023, or $0.625 per share per quarter. On July 24, 2023, our board of directors declared a quarterly dividend of $0.625 per share payable September 1, 2023, equivalent to an annual dividend of $2.50 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.

Funding Status of Employee Benefit Plans

Based on the fair value of assets and estimated discount rate used to value benefit obligations as of June 30, 2023, we estimate the unfunded status of our employee benefit plans to be approximately $30 million compared to $35 million at December 31, 2022. We have implemented various de-risking strategies including lump sum buyouts, the purchase of annuities and the reduction of return-seeking assets over time to a more liability-hedged portfolio. As a result, recent capital markets volatility had a limited impact to our funded status and does not require interim re-measurement of our pension plan assets or defined benefit obligations.

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Critical Accounting Estimates

A summary of our critical accounting estimates is included in our 2022 Annual Report on Form 10-K. There were no material changes made as of June 30, 2023.

New Accounting Pronouncements

Other than the pronouncements reported in our 2022 Annual Report on Form 10-K and those discussed in Note 1 of the Condensed Notes to Consolidated Financial Statements, there have been no new accounting pronouncements that are expected to have a material effect on our financial position, results of operations or cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our quantitative and qualitative disclosures about market risk previously disclosed in Item 7A of our 2022 Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

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 June 30, 2023. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective at June 30, 2023.

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 June 30, 2023, 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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For information regarding legal proceedings, see Note 3 in Item 8 of our 2022 Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS

There are no material changes to the risk factors previously disclosed in Item 1A of Part I in our 2022 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table contains monthly information about our acquisitions of equity securities for the three months ended June 30, 2023:


Period	Total Number of Shares Purchased (a)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
April 1, 2023 - April 30, 2023		1	$	63.12		-		-
May 1, 2023 - May 31, 2023		755		66.14		-		-
June 1, 2023 - June 30, 2023		2		60.48		-		-
Total		758	$	66.12		-		-

(a)

Shares were acquired under the share withholding provisions of the Amended and Restated 2015 Omnibus Incentive Plan for payment of taxes associated with the vesting of various equity compensation plans.

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ITEM 4. MINE SAFETY DISCLOSURES

Information concerning mine safety violations or other regulatory matters required by Sections 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is included in Exhibit 95.

ITEM 5. OTHER INFORMATION

None of our directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023.

ITEM 6. EXHIBITS

Exhibits filed herewithin are designated by an asterisk (*). All exhibits not so designated are incorporated by reference to a prior filing, as indicated.


Exhibit Number	Description

3.2	Amended and Restated Bylaws of Black Hills Corporation dated April 24, 2023 (filed as Exhibit 3.2 to the Registrant's Form 8-K filed May 3, 2023).
10.1*	First Amendment to Fourth Amended and Restated Credit Agreement dated as of May 9, 2023 (relating to $750 million Revolving Credit Facility), among Black Hills Corporation, as Borrower, the financial institutions party thereto, as Banks, and U.S. Bank, National Association, as Administrative Agent.
10.2	Equity Distribution Sales Agreement dated June 16, 2023 among Black Hills Corporation and the several Agents named therein (filed as Exhibit 1.1 to the Registrant’s Form 8-K filed on June 20, 2023).
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a - 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.
95*	Mine Safety and Health Administration Safety Data.
101.INS*	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BLACK HILLS CORPORATION


		/s/ Linden R. Evans
		Linden R. Evans, President and
		Chief Executive Officer

		/s/ Kimberly F. Nooney
		Kimberly F. Nooney, Senior Vice President and
		Chief Financial Officer

Dated:	August 3, 2023

EX-10.1

Execution Version

FIRST AMENDMENT TO

FOURTH AMENDED AND RESTATED CREDIT AGREEMENT

THIS FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is made as of May 9, 2023 (the “Effective Date”) by and among BLACK HILLS CORPORATION, a South Dakota corporation (the “Borrower”), the financial institutions listed on the signature pages hereto (the “Banks”) and U.S. BANK NATIONAL ASSOCIATION, as Administrative Agent (in such capacity, the “Administrative Agent”), under that certain Fourth Amended and Restated Credit Agreement, dated as of July 19, 2021 (as amended, supplemented or otherwise modified from time to time prior to the date hereof, the “Credit Agreement”), by and among the Borrower, the Banks party thereto and the Administrative Agent. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement, as amended by this Amendment (the “Amended Credit Agreement”).

W I T N E S S E T H:

WHEREAS, the Borrower has requested that the Banks and the Administrative Agent agree to make certain modifications to the Credit Agreement; and

WHEREAS, the Borrower, the Banks and the Administrative Agent have so agreed on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Banks and the Administrative Agent hereby agree as follows.

ARTICLE I - AMENDMENT

Effective as of the Effective Date but subject to the satisfaction of the conditions precedent set forth in Article III below, the Credit Agreement is hereby amended as follows:

1.1 Subject to the satisfaction of the conditions precedent set forth in Article III below, the Credit Agreement (including the Pricing Schedule and Exhibits E-1, E-2 and E-3, but excluding all other Schedules and Exhibits, which shall remain in the original form delivered) is hereby amended to delete the stricken text (indicated in the same manner as the following example: stricken text) and to add the double underlined text (indicated in the same manner as the following example: double-underlined text) as set forth in Exhibit A attached hereto.

ARTICLE II - REPRESENTATIONS AND WARRANTIES

The Borrower hereby represents and warrants as follows:

2.1 This Amendment and the Amended Credit Agreement constitute legal, valid and binding obligations of the Borrower and are enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, or similar laws affecting the enforcement of creditors’ rights generally.

2.2 As of the date hereof and after giving effect to the terms of this Amendment, (i) the Borrower shall be in full compliance with all of the terms and conditions of the Amended Credit Agreement, and no Default or Event of Default shall have occurred and be continuing and (ii) each of the representations and warranties of the Borrower set forth in the Amended Credit Agreement (except with respect to representations contained in the first sentence of Section 5.2 of the Amended Credit Agreement which are untrue as the result of information on Schedule 5.2 of the Amended Credit Agreement which has not yet been required to be updated pursuant to Section 7.6(c) of the Amended Credit Agreement) are true and correct in all material respects (unless such representation or warranty is already qualified with respect to materiality, in which case it shall be and remain true and correct in all respects) as of the date hereof, except that if any such representation or warranty relates solely to an earlier date it need only remain true in all material respects (unless such representation or warranty is already qualified with respect to materiality, in which case it shall be and remain true and correct in all respects) as of such date.

ARTICLE III - CONDITIONS PRECEDENT

This Amendment shall become effective on the Effective Date, provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent:

3.1 The Administrative Agent shall have received:

a. Counterparts of this Amendment duly executed by the Borrower, the Administrative Agent and the Banks; and

b. Such other documents and information as the Administrative Agent may reasonably request.

3.2 All legal matters incident to the execution and delivery of this Amendment shall be satisfactory to the Banks.

3.3 There has been no material adverse change in the business, assets, operations, performance or condition, financial or otherwise, of the Borrower and its subsidiaries taken as a whole, since the last day of the most recently audited financial year of the Borrower.

ARTICLE IV - GENERAL

4.1 Expenses. The Borrower agrees to reimburse the Administrative Agent upon demand for all reasonable out-of-pocket expenses paid or incurred by the Administrative Agent, including, without limitation, reasonable fees, charges and disbursements of outside counsel to the Administrative Agent incurred in connection with preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith.

4.2 Counterparts. This Amendment may be executed in any number of counterpart signature pages, and by the different parties on different counterparts, each of which when executed shall be deemed an original but all such counterparts taken together shall constitute one and the same instrument. Delivery of an executed counterpart hereof via facsimile or electronic means shall for all purposes be as effective as delivery of an original counterpart.

4.3 Severability of Provisions. Any provision in this Amendment that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Amendment are declared to be severable.

4.4 Governing Law. This Amendment, and the rights and duties of the parties hereto, shall be construed and determined in accordance with the internal laws of the State of New York.

4.5 Successors; Enforceability.

The terms and provisions of this Amendment shall be binding upon the Borrower, the Administrative Agent and the Banks and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Administrative Agent and the Banks and the successors and assigns of the Administrative Agent and the Banks.

4.6 Reference to and Effect on the Credit Agreement.

a. Upon the effectiveness of this Amendment, on and after the date hereof, each reference in the Amended Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import shall mean and be a reference to the Credit Agreement, as amended and modified hereby.

b. Except as specifically amended above, the Credit Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith (including, without limitation, all of the Credit Documents) shall remain in full force and effect and are hereby ratified and confirmed.

c. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Administrative Agent or the Banks, nor constitute a waiver of any provision of the Amended Credit Agreement or any other documents, instruments and agreements executed and/or delivered in connection therewith.

d. This Amendment shall constitute a Credit Document.

4.7 Headings. Section headings used in this Amendment are for reference only and shall not affect the construction of this Amendment.

(signature pages follow)

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first written above.


	BLACK HILLS CORPORATION, as the Borrower

	By:	/s/ Kimberly F. Nooney
	Name: Kimberly F. Nooney
	Title: Senior Vice President - Chief Financial Officer and Treasurer

Signature Page to

First Amendment to