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BLACK HILLS CORP /SD/ - Quarter Report: 2023 June (Form 10-Q)

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

OR

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.

 

Large Accelerated Filer

x

 

Accelerated Filer

 

 

 

 

 

 

 

 

 

Non-accelerated Filer

 

Smaller Reporting Company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging Growth Company

 

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

 

 

Common stock of $1.00 par value

 

BKH

 

New York Stock Exchange

 

 

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

4


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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).

5


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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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Table of Contents

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

BLACK HILLS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

 

(unaudited)

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

2023

 

2022

 

2023

 

2022

 

 

(in thousands, except per share amounts)

 

Revenue

$

411,283

 

$

474,195

 

$

1,332,442

 

$

1,297,765

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Fuel, purchased power and cost of natural gas sold

 

121,245

 

 

188,171

 

 

647,512

 

 

625,097

 

Operations and maintenance

 

145,767

 

 

132,968

 

 

286,755

 

 

269,100

 

Depreciation, depletion and amortization

 

64,714

 

 

64,128

 

 

126,357

 

 

124,591

 

Taxes - property and production

 

16,041

 

 

16,539

 

 

33,419

 

 

33,235

 

Total operating expenses

 

347,767

 

 

401,806

 

 

1,094,043

 

 

1,052,023

 

 

 

 

 

 

 

 

 

Operating income

 

63,516

 

 

72,389

 

 

238,399

 

 

245,742

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense incurred net of amounts capitalized

 

(43,267

)

 

(39,053

)

 

(87,332

)

 

(77,874

)

Interest income

 

1,746

 

 

289

 

 

2,307

 

 

565

 

Other income (expense), net

 

(1,540

)

 

1,563

 

 

(866

)

 

2,267

 

Total other income (expense)

 

(43,061

)

 

(37,201

)

 

(85,891

)

 

(75,042

)

 

 

 

 

 

 

 

 

Income before income taxes

 

20,455

 

 

35,188

 

 

152,508

 

 

170,700

 

Income tax benefit (expense)

 

6,089

 

 

658

 

 

(8,584

)

 

(13,830

)

Net income

 

26,544

 

 

35,846

 

 

143,924

 

 

156,870

 

Net income attributable to non-controlling interest

 

(3,491

)

 

(2,431

)

 

(6,787

)

 

(5,929

)

Net income available for common stock

$

23,053

 

$

33,415

 

$

137,137

 

$

150,941

 

 

 

 

 

 

 

 

 

Earnings per share of common stock:

 

 

 

 

 

 

 

 

Earnings per share, Basic

$

0.35

 

$

0.52

 

$

2.07

 

$

2.33

 

Earnings per share, Diluted

$

0.35

 

$

0.52

 

$

2.06

 

$

2.33

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

66,591

 

 

64,721

 

 

66,315

 

 

64,643

 

Diluted

 

66,684

 

 

64,883

 

 

66,419

 

 

64,822

 

 

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

 

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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.

 

11


Table of Contents

 

 

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

 

 

12


Table of Contents

 

 

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.

 

 

13


Table of Contents

 

 

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

 

 

14


Table of Contents

 

 

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

 

 

 

15


Table of Contents

 

 

(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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Table of Contents

 

 

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.

 

 

(8)
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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(9)
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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(10)
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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(11)
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.

 

 

(12)
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.

 

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. Our operating segments are equivalent to our reportable segments.
 

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

 

 

 

(13)
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

 

 

 

(14)
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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Table of Contents

 

 

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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Table of Contents

 

 

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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Table of Contents

 

 

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)
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.

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Table of Contents

 

 

 

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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Table of Contents

 

 

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:

 

o
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;

 

o
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

 

o
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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Table of Contents

 

 

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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Table of Contents

 

 

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

 

 

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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Table of Contents

 

 

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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Table of Contents

 

 

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

 

 

43