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BLACK HILLS CORP /SD/ - Quarter Report: 2023 September (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 September 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 October 31, 2023

 

 

Common stock, $1.00 par value

67,991,643

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

14

 

Note 1. Management’s Statement

14

 

Note 2. Regulatory Matters

14

 

Note 3. Commitments, Contingencies and Guarantees

15

 

Note 4. Revenue

16

 

Note 5. Financing

17

 

Note 6. Earnings Per Share

19

 

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

30

 

Gas Utilities

34

 

Corporate and Other

35

 

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

40

 

New Accounting Pronouncements

40

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

40

 

 

 

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

40

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

41

Item 6.

Exhibits

41

 

 

 

Signatures

 

42

 

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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

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.

CP Program

Commercial Paper Program

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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).

LIBOR

London Interbank Offered Rate

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

WRDC

Wyodak Resources Development Corp., a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings, providing coal supply primarily to five on-site, mine-mouth generating facilities (doing business as Black Hills Energy).

Wygen I

A mine-mouth, coal-fired power plant with a total capacity of 90 MW located at our Gillette, Wyoming energy complex. Black Hills Wyoming owns a 76.5% of the facility and Municipal Energy Agency of Nebraska (MEAN) owns the remaining 23.5%.

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).

Wyoming Integrity Rider

The Wyoming Integrity Rider (WIR) is a WPSC-approved tariff that allows us to recover costs from customers associated with ongoing infrastructure replacement, gas meter and yard line replacement projects driven by federal regulation.

 

 

 

 

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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.

6


Table of Contents

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

BLACK HILLS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

 

(unaudited)

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2023

 

2022

 

2023

 

2022

 

 

(in thousands, except per share amounts)

 

Revenue

$

407,126

 

$

462,612

 

$

1,739,568

 

$

1,760,377

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Fuel, purchased power and cost of natural gas sold

 

102,241

 

 

168,535

 

 

749,753

 

 

793,632

 

Operations and maintenance

 

125,767

 

 

134,449

 

 

412,522

 

 

403,549

 

Depreciation, depletion and amortization

 

64,878

 

 

64,019

 

 

191,235

 

 

188,610

 

Taxes - property and production

 

16,469

 

 

16,130

 

 

49,888

 

 

49,365

 

Total operating expenses

 

309,355

 

 

383,133

 

 

1,403,398

 

 

1,435,156

 

 

 

 

 

 

 

 

 

Operating income

 

97,771

 

 

79,479

 

 

336,170

 

 

325,221

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense incurred net of amounts capitalized

 

(44,477

)

 

(40,580

)

 

(131,809

)

 

(118,454

)

Interest income

 

3,479

 

 

561

 

 

5,786

 

 

1,126

 

Other income (expense), net

 

(647

)

 

464

 

 

(1,513

)

 

2,731

 

Total other income (expense)

 

(41,645

)

 

(39,555

)

 

(127,536

)

 

(114,597

)

 

 

 

 

 

 

 

 

Income before income taxes

 

56,126

 

 

39,924

 

 

208,634

 

 

210,624

 

Income tax (expense)

 

(7,366

)

 

(2,090

)

 

(15,950

)

 

(15,920

)

Net income

 

48,760

 

 

37,834

 

 

192,684

 

 

194,704

 

Net income attributable to non-controlling interest

 

(3,377

)

 

(2,861

)

 

(10,164

)

 

(8,790

)

Net income available for common stock

$

45,383

 

$

34,973

 

$

182,520

 

$

185,914

 

 

 

 

 

 

 

 

 

Earnings per share of common stock:

 

 

 

 

 

 

 

 

Earnings per share, Basic

$

0.67

 

$

0.54

 

$

2.74

 

$

2.87

 

Earnings per share, Diluted

$

0.67

 

$

0.54

 

$

2.74

 

$

2.86

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

67,315

 

 

64,876

 

 

66,652

 

 

64,722

 

Diluted

 

67,389

 

 

65,061

 

 

66,725

 

 

64,910

 

 

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
September 30,

 

Nine Months Ended
September 30,

 

 

2023

 

2022

 

2023

 

2022

 

 

(in thousands)

 

Net income

$

48,760

 

$

37,834

 

$

192,684

 

$

194,704

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax;

 

 

 

 

 

 

 

 

Reclassification adjustments of benefit plan liability - prior service cost (net of tax of $--, $8, $-- and $22, respectively)

 

-

 

 

(16

)

 

-

 

 

(48

)

Reclassification adjustments of benefit plan liability - net loss
(net of tax of $(
19), $(66), $(62) and $(179), respectively)

 

24

 

 

122

 

 

67

 

 

384

 

Derivative instruments designated as cash flow hedges:

 

 

 

 

 

 

 

 

Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax of $(162), $(134), $(489) and $(549), respectively)

 

550

 

 

578

 

 

1,649

 

 

1,589

 

Net unrealized gains (losses) on commodity derivatives
(net of tax of $
58, $(559), $291 and $(165), respectively)

 

(195

)

 

1,776

 

 

(937

)

 

509

 

Reclassification of net realized (gains) losses on settled commodity derivatives (net of tax of $(8), $10, $(592) and $881, respectively)

 

26

 

 

(33

)

 

1,881

 

 

(2,739

)

Other comprehensive income, net of tax

 

405

 

 

2,427

 

 

2,660

 

 

(305

)

 

 

 

 

 

 

 

 

Comprehensive income

 

49,165

 

 

40,261

 

 

195,344

 

 

194,399

 

Less: comprehensive income attributable to non-controlling interest

 

(3,377

)

 

(2,861

)

 

(10,164

)

 

(8,790

)

Comprehensive income available for common stock

$

45,788

 

$

37,400

 

$

185,180

 

$

185,609

 

 

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

 

 

September 30, 2023

 

December 31, 2022

 

 

(in thousands)

 

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

594,289

 

$

21,430

 

Restricted cash and equivalents

 

6,213

 

 

5,555

 

Accounts receivable, net

 

228,830

 

 

508,192

 

Materials, supplies and fuel

 

168,079

 

 

207,421

 

Derivative assets, current

 

126

 

 

582

 

Income tax receivable, net

 

17,749

 

 

17,637

 

Regulatory assets, current

 

191,746

 

 

260,312

 

Other current assets

 

33,242

 

 

50,579

 

Total current assets

 

1,240,274

 

 

1,071,708

 

 

 

 

 

Property, plant and equipment

 

8,767,954

 

 

8,374,790

 

Less: accumulated depreciation and depletion

 

(1,755,606

)

 

(1,576,842

)

Total property, plant and equipment, net

 

7,012,348

 

 

6,797,948

 

 

 

 

 

Other assets:

 

 

 

 

Goodwill

 

1,299,454

 

 

1,299,454

 

Intangible assets, net

 

8,708

 

 

9,589

 

Regulatory assets, non-current

 

313,113

 

 

392,669

 

Other assets, non-current

 

59,031

 

 

46,862

 

Total other assets, non-current

 

1,680,306

 

 

1,748,574

 

 

 

 

 

TOTAL ASSETS

$

9,932,928

 

$

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

 

 

September 30, 2023

 

December 31, 2022

 

 

(in thousands)

 

LIABILITIES AND EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

$

124,033

 

$

310,020

 

Accrued liabilities

 

257,458

 

 

243,457

 

Derivative liabilities, current

 

2,193

 

 

6,600

 

Regulatory liabilities, current

 

93,988

 

 

46,013

 

Notes payable

 

-

 

 

535,600

 

Current maturities of long-term debt

 

1,125,000

 

 

525,000

 

Total current liabilities

 

1,602,672

 

 

1,666,690

 

 

 

 

 

Long-term debt, net of current maturities

 

3,799,510

 

 

3,607,340

 

 

 

 

 

Deferred credits and other liabilities:

 

 

 

 

Deferred income tax liabilities, net

 

530,985

 

 

508,941

 

Regulatory liabilities, non-current

 

468,969

 

 

472,560

 

Benefit plan liabilities

 

119,046

 

 

116,742

 

Other deferred credits and other liabilities

 

152,174

 

 

156,062

 

Total deferred credits and other liabilities

 

1,271,174

 

 

1,254,305

 

 

 

 

 

Commitments, contingencies and guarantees (Note 3)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

Stockholder's equity -

 

 

 

 

Common stock $1 par value; 100,000,000 shares authorized; issued 68,046,262 and 66,140,396 shares, respectively

 

68,046

 

 

66,140

 

Additional paid-in capital

 

1,994,439

 

 

1,882,653

 

Retained earnings

 

1,121,196

 

 

1,064,122

 

Treasury stock, at cost - 54,428 and 36,726 shares, respectively

 

(3,457

)

 

(2,435

)

Accumulated other comprehensive income (loss)

 

(12,907

)

 

(15,567

)

Total stockholders' equity

 

3,167,317

 

 

2,994,913

 

Non-controlling interest

 

92,255

 

 

94,982

 

Total equity

 

3,259,572

 

 

3,089,895

 

 

 

 

 

TOTAL LIABILITIES AND TOTAL EQUITY

$

9,932,928

 

$

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)

Nine Months Ended September 30,

 

 

2023

 

2022

 

Operating activities:

(in thousands)

 

Net income

$

192,684

 

$

194,704

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation, depletion and amortization

 

191,235

 

 

188,610

 

Deferred financing cost amortization

 

6,928

 

 

7,430

 

Stock compensation

 

4,563

 

 

6,779

 

Deferred income taxes

 

16,114

 

 

16,062

 

Employee benefit plans

 

7,929

 

 

2,677

 

Other adjustments, net

 

(6,099

)

 

(10,243

)

Changes in certain operating assets and liabilities:

 

 

 

 

Materials, supplies and fuel

 

43,546

 

 

(88,405

)

Accounts receivable and other current assets

 

302,764

 

 

64,280

 

Accounts payable and other current liabilities

 

(186,500

)

 

5,963

 

Regulatory assets

 

199,093

 

 

118,330

 

Other operating activities, net

 

(16,205

)

 

(11,900

)

Net cash provided by operating activities

 

756,052

 

 

494,287

 

 

 

 

 

Investing activities:

 

 

 

 

Property, plant and equipment additions

 

(421,770

)

 

(466,302

)

Other investing activities

 

17,985

 

 

(19

)

Net cash (used in) investing activities

 

(403,785

)

 

(466,321

)

 

 

 

 

Financing activities:

 

 

 

 

Dividends paid on common stock

 

(125,446

)

 

(115,850

)

Common stock issued

 

107,380

 

 

20,027

 

Net borrowings (payments) of Revolving Credit Facility and CP Program

 

(535,600

)

 

81,170

 

Long-term debt - issuance

 

800,000

 

 

-

 

Distributions to non-controlling interests

 

(12,891

)

 

(11,678

)

Other financing activities

 

(12,193

)

 

1,647

 

Net cash provided by (used in) financing activities

 

221,250

 

 

(24,684

)

 

 

 

 

Net change in cash, restricted cash and cash equivalents

 

573,517

 

 

3,282

 

 

 

 

 

Cash, restricted cash and cash equivalents beginning of period

 

26,985

 

 

13,810

 

Cash, restricted cash and cash equivalents end of period

$

600,502

 

$

17,092

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

Cash (paid) refunded during the period:

 

 

 

 

Interest (net of amounts capitalized)

$

(108,813

)

$

(98,227

)

Income taxes

 

51

 

 

746

 

Non-cash investing and financing activities:

 

 

 

 

Accrued property, plant and equipment purchases at September 30,

 

52,984

 

 

42,687

 

 

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

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

45,383

 

 

-

 

 

3,377

 

 

48,760

 

Other comprehensive income, net of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

405

 

 

-

 

 

405

 

Dividends on common stock ($0.625 per share)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(42,332

)

 

-

 

 

-

 

 

(42,332

)

Share-based compensation

 

15

 

 

-

 

 

5,805

 

 

(290

)

 

1,445

 

 

-

 

 

-

 

 

-

 

 

1,155

 

Issuance of common stock

 

930,844

 

 

931

 

 

-

 

 

-

 

 

52,433

 

 

 

 

 

 

 

 

53,364

 

Issuance costs

 

-

 

 

-

 

 

-

 

 

-

 

 

(673

)

 

-

 

 

-

 

 

-

 

 

(673

)

Distributions to non-controlling interest

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(3,874

)

 

(3,874

)

September 30, 2023

 

68,046,262

 

$

68,046

 

 

54,428

 

$

(3,457

)

$

1,994,439

 

$

1,121,196

 

$

(12,907

)

$

92,255

 

$

3,259,572

 

 

12


Table of Contents

 

 

(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

 

Net income

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

34,973

 

 

-

 

 

2,861

 

 

37,834

 

Other comprehensive income, net of tax

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,427

 

 

-

 

 

2,427

 

Dividends on common stock ($0.595 per share)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(38,714

)

 

-

 

 

-

 

 

(38,714

)

Share-based compensation

 

27

 

 

-

 

 

2,517

 

 

(173

)

 

2,724

 

 

-

 

 

-

 

 

-

 

 

2,551

 

Issuance costs

 

-

 

 

-

 

 

-

 

 

-

 

 

(68

)

 

-

 

 

-

 

 

-

 

 

(68

)

Distributions to non-controlling interest

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(3,074

)

 

(3,074

)

September 30, 2022

 

65,105,205

 

$

65,105

 

 

26,208

 

$

(1,715

)

$

1,811,093

 

$

1,032,522

 

$

(20,389

)

$

97,141

 

$

2,983,757

 

 

13


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 September 30, 2023, December 31, 2022 and September 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

 

 

September 30, 2023

 

December 31, 2022

 

Regulatory assets

 

 

 

 

Winter Storm Uri

$

225,052

 

$

347,980

 

Deferred energy and fuel cost adjustments

 

59,129

 

 

72,580

 

Deferred gas cost adjustments

 

8,048

 

 

12,147

 

Gas price derivatives

 

3,849

 

 

8,793

 

Deferred taxes on AFUDC

 

7,180

 

 

7,333

 

Employee benefit plans and related deferred taxes

 

87,423

 

 

89,259

 

Environmental

 

2,868

 

 

1,343

 

Loss on reacquired debt

 

17,865

 

 

19,213

 

Deferred taxes on flow through accounting

 

69,259

 

 

69,529

 

Decommissioning costs

 

2,407

 

 

3,472

 

Other regulatory assets

 

21,779

 

 

21,332

 

Total regulatory assets

 

504,859

 

 

652,981

 

Less current regulatory assets

 

(191,746

)

 

(260,312

)

Regulatory assets, non-current

$

313,113

 

$

392,669

 

 

 

 

 

Regulatory liabilities

 

 

 

 

Deferred energy and gas costs

$

91,273

 

$

41,722

 

Employee benefit plan costs and related deferred taxes

 

33,006

 

 

34,258

 

Cost of removal

 

179,208

 

 

175,614

 

Excess deferred income taxes

 

250,390

 

 

254,833

 

Other regulatory liabilities

 

9,080

 

 

12,146

 

Total regulatory liabilities

 

562,957

 

 

518,573

 

Less current regulatory liabilities

 

(93,988

)

 

(46,013

)

Regulatory liabilities, non-current

$

468,969

 

$

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.

14


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. On October 13, 2023, Wyoming Gas filed a settlement agreement with the WPSC for a general rate increase. The agreement is expected to generate $13.9 million in new annual revenue with a capital structure of 51% equity, 49% debt and a return on equity of 9.85%. Subject to WPSC approval, the agreement includes new rates effective January 1, 2024 and a four-year extension of the Wyoming Integrity Rider.

 

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, 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

 

Except as described below, 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.

 

GT Resources, LLC v. Black Hills Corporation, Case No. 2020CV30751 (U.S. District Court for the City and County of Denver, Colorado)

 

On April 13, 2022, a jury awarded $41 million for claims made by GT Resources, LLC (“GTR”) against BHC and two of its subsidiaries (Black Hills Exploration and Production, Inc. and Black Hills Gas Resources, Inc.), which ceased oil and natural gas operations in 2018 as part of BHC’s decision to exit the exploration and production business. The claims involved a dispute over a 2.3 million-acre concession award in Costa Rica which was acquired by a BHC subsidiary in 2003. GTR retained rights to receive a royalty interest on any hydrocarbon production from the concession upon the occurrence of contingent events. GTR contended that BHC and its subsidiaries failed to adequately pursue the opportunity and failed to transfer the concession to GTR. We appealed this verdict to the Colorado Court of Appeals. On October 19, 2023, the Appellate Court reversed and remanded the case with directions limiting any retrial to the narrow issue of whether there was improper interference with the prospective conveyance of the concession. We continue to believe this lawsuit has no merit and will vigorously defend it. At this time, we do not believe any losses from this matter will have a material impact on our financial position, results of operations and cash flows.

 

Gain Contingency - Wygen 1 Business Interruption Insurance Recovery

 

In September 2021, Wygen I experienced an unplanned outage that continued until December 2021. For the year ended December 31, 2021, the outage resulted in lost revenue at our subsidiaries Black Hills Wyoming and WRDC. A claim for these losses was submitted under our business interruption insurance policy. During the third quarter of 2023, we recovered $5.0 million from our business interruption insurance which was recognized as Revenue in our Consolidated Statements of Income for the three and nine months ended September 30, 2023.

 

 

 

15


Table of Contents

 

 

(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 nine months ended September 30, 2023 and 2022. Sales tax and other similar taxes are excluded from revenues.

 

Three Months Ended September 30, 2023

Electric Utilities

 

Gas Utilities

 

Inter-segment Revenues

 

Total

 

Customer types:

(in thousands)

 

Retail

$

191,029

 

$

120,803

 

$

-

 

$

311,832

 

Transportation

 

-

 

 

42,654

 

 

(114

)

 

42,540

 

Wholesale

 

9,441

 

 

-

 

 

-

 

 

9,441

 

Market - off-system sales

 

12,999

 

 

25

 

 

-

 

 

13,024

 

Transmission/Other

 

18,092

 

 

9,607

 

 

(4,374

)

 

23,325

 

Revenue from contracts with customers

$

231,561

 

$

173,089

 

$

(4,488

)

$

400,162

 

Other revenues

 

5,768

 

 

1,196

 

 

-

 

 

6,964

 

Total revenues

$

237,329

 

$

174,285

 

$

(4,488

)

$

407,126

 

 

 

 

 

 

 

 

 

Timing of revenue recognition:

 

 

 

 

 

 

 

 

Services transferred at a point in time

$

7,843

 

$

-

 

$

-

 

$

7,843

 

Services transferred over time

 

223,718

 

 

173,089

 

 

(4,488

)

 

392,319

 

Revenue from contracts with customers

$

231,561

 

$

173,089

 

$

(4,488

)

$

400,162

 

 

Three Months Ended September 30, 2022

Electric Utilities

 

Gas Utilities

 

Inter-segment Revenues

 

Total

 

Customer types:

(in thousands)

 

Retail

$

211,489

 

$

157,203

 

$

-

 

$

368,692

 

Transportation

 

-

 

 

41,006

 

 

(99

)

 

40,907

 

Wholesale

 

13,667

 

 

-

 

 

-

 

 

13,667

 

Market - off-system sales

 

16,770

 

 

186

 

 

-

 

 

16,956

 

Transmission/Other

 

15,919

 

 

8,875

 

 

(4,148

)

 

20,646

 

Revenue from contracts with customers

$

257,845

 

$

207,270

 

$

(4,247

)

$

460,868

 

Other revenues

 

824

 

 

1,018

 

 

(98

)

 

1,744

 

Total revenues

$

258,669

 

$

208,288

 

$

(4,345

)

$

462,612

 

 

 

 

 

 

 

 

 

Timing of revenue recognition:

 

 

 

 

 

 

 

 

Services transferred at a point in time

$

7,928

 

$

-

 

$

-

 

$

7,928

 

Services transferred over time

 

249,917

 

 

207,270

 

 

(4,247

)

 

452,940

 

Revenue from contracts with customers

$

257,845

 

$

207,270

 

$

(4,247

)

$

460,868

 

 

Nine Months Ended September 30, 2023

Electric Utilities

 

Gas Utilities

 

Inter-segment Revenues

 

Total

 

Customer types:

(in thousands)

 

Retail

$

522,304

 

$

931,129

 

$

-

 

$

1,453,433

 

Transportation

 

-

 

 

131,410

 

 

(344

)

 

131,066

 

Wholesale

 

24,578

 

 

-

 

 

-

 

 

24,578

 

Market - off-system sales

 

37,487

 

 

349

 

 

-

 

 

37,836

 

Transmission/Other

 

54,727

 

 

28,833

 

 

(13,120

)

 

70,440

 

Revenue from contracts with customers

$

639,096

 

$

1,091,721

 

$

(13,464

)

$

1,717,353

 

Other revenues

 

10,015

 

 

12,200

 

 

-

 

 

22,215

 

Total revenues

$

649,111

 

$

1,103,921

 

$

(13,464

)

$

1,739,568

 

 

 

 

 

 

 

 

 

Timing of revenue recognition:

 

 

 

 

 

 

 

 

Services transferred at a point in time

$

24,344

 

$

-

 

$

-

 

$

24,344

 

Services transferred over time

 

614,752

 

 

1,091,721

 

 

(13,464

)

 

1,693,009

 

Revenue from contracts with customers

$

639,096

 

$

1,091,721

 

$

(13,464

)

$

1,717,353

 

 

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Nine Months Ended September 30, 2022

Electric Utilities

 

Gas Utilities

 

Inter-segment Revenues

 

Total

 

Customer types:

(in thousands)

 

Retail

$

553,327

 

$

947,290

 

$

-

 

$

1,500,617

 

Transportation

 

-

 

 

125,196

 

 

(298

)

 

124,898

 

Wholesale

 

32,370

 

 

-

 

 

-

 

 

32,370

 

Market - off-system sales

 

32,590

 

 

602

 

 

-

 

 

33,192

 

Transmission/Other

 

46,535

 

 

27,794

 

 

(12,445

)

 

61,884

 

Revenue from contracts with customers

$

664,822

 

$

1,100,882

 

$

(12,743

)

$

1,752,961

 

Other revenues

 

4,764

 

 

2,967

 

 

(315

)

 

7,416

 

Total revenues

$

669,586

 

$

1,103,849

 

$

(13,058

)

$

1,760,377

 

 

 

 

 

 

 

 

 

Timing of revenue recognition:

 

 

 

 

 

 

 

 

Services transferred at a point in time

$

21,712

 

$

-

 

$

-

 

$

21,712

 

Services transferred over time

 

643,110

 

 

1,100,882

 

 

(12,743

)

 

1,731,249

 

Revenue from contracts with customers

$

664,822

 

$

1,100,882

 

$

(12,743

)

$

1,752,961

 

 

 

(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:

 

 

September 30, 2023

 

December 31, 2022

 

Amount outstanding

$

 

$

535,600

 

Letters of credit (a)

$

3,707

 

$

24,626

 

Available capacity

$

746,293

 

$

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):

 

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

Maximum amount outstanding (based on daily outstanding balances)

$

548,700

 

$

508,200

 

Average amount outstanding (based on daily outstanding balances)

$

109,209

 

$

347,121

 

Weighted average interest rates

 

4.91

%

 

1.41

%

 

Long-term Debt

 

On September 15, 2023, we completed a public debt offering of $450 million, 6.15% senior unsecured notes due May 15, 2034. Proceeds from the offering, which were net of $7.2 million of deferred financing costs, were used for general corporate purposes. We also plan to use the proceeds from the offering, along with cash on hand, to repay all of our $525 million principal amount outstanding notes on their November 30, 2023 maturity date.

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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 September 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 September 30, 2023, our Consolidated Indebtedness to Capitalization Ratio was 0.61 to 1.00.

 

Wyoming Electric

 

Wyoming Electric was in compliance with all covenants within its financing agreements as of September 30, 2023. Wyoming Electric is required to maintain a debt to capitalization ratio of no more than 0.60 to 1.00. As of September 30, 2023, Wyoming Electric's debt to capitalization ratio was 0.53 to 1.00.

 

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. On June 16, 2023, in conjunction with the new shelf registration statement filing discussed above, we entered into a new Equity Distribution Sales Agreement ("Sales Agreement") and terminated the Previous Sales Agreement. The Sales Agreement, which is similar to the Previous Sales Agreement, 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 September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

 

August 4, 2020 ATM Program

 

 

 

 

 

 

 

 

Proceeds, (net of issuance costs of $0, $0, $(0.5) and $(0.2), respectively)

$

-

 

$

-

 

$

48.5

 

$

20.2

 

Number of shares issued

 

-

 

 

-

 

 

775,225

 

 

272,592

 

 

 

 

 

 

 

 

 

June 16, 2023 ATM Program

 

 

 

 

 

 

 

 

Proceeds, (net of issuance costs of $(0.5), $0, $(0.6) and $0, respectively)

$

52.8

 

$

-

 

$

59.2

 

$

-

 

Number of shares issued

 

930,844

 

 

-

 

 

1,037,399

 

 

-

 

 

 

 

 

 

 

 

 

Total activity under both ATM Programs

 

 

 

 

 

 

 

 

Proceeds, (net of issuance costs of $(0.5), $0, $(1.1) and $(0.2), respectively)

$

52.8

 

$

-

 

$

107.7

 

$

20.2

 

Number of shares issued

 

930,844

 

 

-

 

 

1,812,624

 

 

272,592

 

Average price per share

$

57.33

 

$

-

 

$

60.02

 

$

74.84

 

 

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 was offered which allows 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 September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

 

Net income available for common stock

$

45,383

 

$

34,973

 

$

182,520

 

$

185,914

 

 

 

 

 

 

 

 

 

Weighted average shares - basic

 

67,315

 

 

64,876

 

 

66,652

 

 

64,722

 

Dilutive effect of:

 

 

 

 

 

 

 

 

Equity compensation

 

74

 

 

185

 

 

73

 

 

188

 

Weighted average shares - diluted

 

67,389

 

 

65,061

 

 

66,725

 

 

64,910

 

 

 

 

 

 

 

 

 

Earnings per share of common stock:

 

 

 

 

 

 

 

 

Earnings per share, Basic

$

0.67

 

$

0.54

 

$

2.74

 

$

2.87

 

Earnings per share, Diluted

$

0.67

 

$

0.54

 

$

2.74

 

$

2.86

 

 

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

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

 

Equity compensation

 

74

 

 

-

 

 

48

 

 

-

 

Restricted stock

 

-

 

 

-

 

 

-

 

 

-

 

Anti-dilutive shares

 

74

 

 

-

 

 

48

 

 

-

 

 

 

(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 periodic 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.

 

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Table of Contents

 

 

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.

 

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 October 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:

 

 

September 30, 2023

 

December 31, 2022

 

 

Notional Amounts (MMBtus)

 

Maximum Term (months) (a)

 

Notional Amounts (MMBtus)

 

Maximum Term (months) (a)

 

Natural gas futures purchased

 

1,730,000

 

 

6

 

 

630,000

 

 

3

 

Natural gas options purchased, net

 

7,780,000

 

 

6

 

 

1,790,000

 

 

3

 

Natural gas basis swaps purchased

 

1,730,000

 

 

6

 

 

900,000

 

 

3

 

Natural gas over-the-counter swaps, net (b)

 

5,610,000

 

 

24

 

 

4,460,000

 

 

24

 

Natural gas physical contracts, net (c)

 

21,323,455

 

 

7

 

 

17,864,412

 

 

12

 

 

(a)
Term reflects the maximum forward period hedged.
(b)
As of September 30, 2023, 2,979,300 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 September 30, 2023, the Company posted $0.6 million related to such provisions, which is included in Other current assets on the Consolidated Balance Sheets.

 

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Table of Contents

 

 

Derivatives by Balance Sheet Classification

 

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

 

 

Balance Sheet Location

September 30,
2023

 

December 31,
2022

 

Derivatives designated as hedges:

 

 

 

 

 

Asset derivative instruments:

 

 

 

 

 

Current commodity derivatives

Derivative assets, current

$

-

 

$

118

 

Noncurrent commodity derivatives

Other assets, non-current

 

(18

)

 

198

 

Liability derivative instruments:

 

 

 

 

 

Current commodity derivatives

Derivative liabilities, current

 

143

 

 

(1,703

)

Noncurrent commodity derivatives

Other assets, non-current

 

(20

)

 

-

 

Total derivatives designated as hedges

 

$

105

 

$

(1,387

)

 

 

 

 

 

Derivatives not designated as hedges:

 

 

 

 

 

Asset derivative instruments:

 

 

 

 

 

Current commodity derivatives

Derivative assets, current

$

126

 

$

464

 

Noncurrent commodity derivatives

Other assets, non-current

 

18

 

 

337

 

Liability derivative instruments:

 

 

 

 

 

Current commodity derivatives

Derivative liabilities, current

 

(2,336

)

 

(4,897

)

Noncurrent commodity derivatives

Other deferred credits and other liabilities

 

2

 

 

(18

)

Total derivatives not designated as hedges

 

$

(2,190

)

$

(4,114

)

 

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 nine months ended September 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
September 30,

 

 

Three Months Ended
September 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

$

712

 

$

712

 

Interest expense

$

(712

)

$

(712

)

Commodity derivatives

 

(219

)

 

2,292

 

Fuel, purchased power and cost of natural gas sold

 

(34

)

 

43

 

Total

$

493

 

$

3,004

 

 

$

(746

)

$

(669

)

 

 

Nine Months Ended
September 30,

 

 

Nine Months Ended
September 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

$

2,138

 

$

2,138

 

Interest expense

$

(2,138

)

$

(2,138

)

Commodity derivatives

 

1,244

 

 

(2,946

)

Fuel, purchased power and cost of natural gas sold

 

(2,473

)

 

3,620

 

Total

$

3,382

 

$

(808

)

 

$

(4,611

)

$

1,482

 

 

As of September 30, 2023, $3.2 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.

 

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Table of Contents

 

 

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 nine months ended September 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 September 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

 

 

 

(in thousands)

 

Commodity derivatives

Fuel, purchased power and cost of natural gas sold

$

255

 

$

1,617

 

 

$

255

 

$

1,617

 

 

 

 

Nine Months Ended September 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

 

 

 

(in thousands)

 

Commodity derivatives

Fuel, purchased power and cost of natural gas sold

$

(2,445

)

$

2,779

 

 

$

(2,445

)

$

2,779

 

 

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 losses included in our Regulatory asset accounts related to these financial instruments in our Gas Utilities were $3.8 million and $8.8 million as of as of September 30, 2023 and December 31, 2022, respectively.

 

 

(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.

 

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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.

 

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 September 30, 2023

 

 

Level 1

 

Level 2

 

Level 3

 

Cash Collateral and Counterparty Netting (a)

 

Total

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

Commodity derivatives - Gas Utilities

$

-

 

$

5,183

 

$

-

 

$

(5,057

)

$

126

 

Total

$

-

 

$

5,183

 

$

-

 

$

(5,057

)

$

126

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Commodity derivatives - Gas Utilities

$

-

 

$

4,809

 

$

-

 

$

(2,598

)

$

2,211

 

Total

$

-

 

$

4,809

 

$

-

 

$

(2,598

)

$

2,211

 

 

(a)
As of September 30, 2023, $5.1 million of our commodity derivative assets and $2.6 million 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.

 

23


Table of Contents

 

 

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:

 

 

September 30, 2023

 

December 31, 2022

 

 

Carrying Amount

 

Fair Value

 

Carrying Amount

 

Fair Value

 

Long-term debt, including current maturities (a)

$

4,924,510

 

$

4,481,989

 

$

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.

 

 

(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 September 30,

 

Nine Months Ended September 30,

 

 

 

2023

 

2022

 

2023

 

2022

 

Gains and (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

 

Interest rate swaps

Interest expense

$

(712

)

$

(712

)

$

(2,138

)

$

(2,138

)

Commodity contracts

Fuel, purchased power and cost of natural gas sold

 

(34

)

 

43

 

 

(2,473

)

 

3,620

 

 

$

(746

)

$

(669

)

$

(4,611

)

$

1,482

 

Income tax

Income tax expense

 

170

 

 

124

 

 

1,081

 

 

(332

)

Total reclassification adjustments related to cash flow hedges, net of tax

 

$

(576

)

$

(545

)

$

(3,530

)

$

1,150

 

 

 

 

 

 

 

 

 

 

Amortization of components of defined benefit plans:

 

 

 

 

 

 

 

 

 

Prior service cost

Operations and maintenance

$

-

 

$

24

 

$

-

 

$

70

 

Actuarial gain (loss)

Operations and maintenance

 

(43

)

 

(188

)

 

(129

)

 

(563

)

 

$

(43

)

$

(164

)

$

(129

)

$

(493

)

Income tax

Income tax expense

 

19

 

 

58

 

 

62

 

 

157

 

Total reclassification adjustments related to defined benefit plans, net of tax

 

$

(24

)

$

(106

)

$

(67

)

$

(336

)

Total reclassifications

 

$

(600

)

$

(651

)

$

(3,597

)

$

814

 

 

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

 

-

 

 

(937

)

 

-

 

 

(937

)

Amounts reclassified from AOCI

 

1,649

 

 

1,881

 

 

67

 

 

3,597

 

As of September 30, 2023

$

(6,606

)

$

(256

)

$

(6,045

)

$

(12,907

)

 

24


Table of Contents

 

 

 

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

 

-

 

 

509

 

 

-

 

 

509

 

Amounts reclassified from AOCI

 

1,589

 

 

(2,739

)

 

336

 

 

(814

)

As of September 30, 2022

$

(8,795

)

$

(754

)

$

(10,840

)

$

(20,389

)

 

 

(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 September 30,

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

Service cost

$

614

 

$

982

 

$

(77

)

$

(271

)

$

381

 

$

492

 

Interest cost

 

4,381

 

 

2,705

 

 

369

 

 

209

 

 

594

 

 

321

 

Expected return on plan assets

 

(4,672

)

 

(4,631

)

 

-

 

 

-

 

 

(55

)

 

(31

)

Net amortization of prior service costs

 

(17

)

 

(17

)

 

-

 

 

-

 

 

10

 

 

(72

)

Recognized net actuarial loss

 

498

 

 

1,522

 

 

8

 

 

69

 

 

(3

)

 

16

 

Net periodic expense (benefit)

$

804

 

$

561

 

$

300

 

$

7

 

$

927

 

$

726

 

 

 

Defined Benefit Pension Plan

 

Supplemental Non-qualified Defined Benefit Plans

 

Non-pension Defined Benefit Postretirement Healthcare Plan

 

Nine Months Ended September 30,

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

Service cost

$

1,842

 

$

2,946

 

$

1,607

 

$

(2,018

)

$

1,143

 

$

1,476

 

Interest cost

 

13,142

 

 

8,114

 

 

1,107

 

 

626

 

 

1,783

 

 

963

 

Expected return on plan assets

 

(14,016

)

 

(13,892

)

 

-

 

 

-

 

 

(167

)

 

(93

)

Net amortization of prior service costs

 

(51

)

 

(51

)

 

-

 

 

-

 

 

30

 

 

(217

)

Recognized net actuarial loss (gain)

 

1,494

 

 

4,568

 

 

24

 

 

207

 

 

(9

)

 

48

 

Net periodic expense (benefit)

$

2,411

 

$

1,685

 

$

2,738

 

$

(1,185

)

$

2,780

 

$

2,177

 

 

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 primarily made in the form of benefit payments. Contributions made in the first nine months of 2023 and anticipated contributions for 2023 and 2024 are as follows (in thousands):

 

 

Contributions Made

 

Additional Contributions

 

Contributions

 

 

Nine Months Ended September 30, 2023

 

Anticipated for
2023

 

Anticipated for
2024

 

Defined Benefit Pension Plan

$

-

 

$

-

 

$

-

 

Non-pension Defined Benefit Postretirement Healthcare Plan

$

3,690

 

$

1,230

 

$

4,808

 

Supplemental Non-qualified Defined Benefit and Defined Contribution Plans

$

1,673

 

$

558

 

$

2,417

 

 

 

 

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Table of Contents

 

 

(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 costs 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 September 30, 2023 Compared to the Three Months Ended September 30, 2022

 

Income tax (expense) for the three months ended September 30, 2023 was $(7.4) million compared to $(2.1) million reported for the same period in 2022. For the three months ended September 30, 2023, the effective tax rate was 13.1% compared to 5.2% for the same period in 2022. The higher effective tax rate was primarily due to $1.4 million of lower tax benefits from various current and prior year state rate changes.

 

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

 

Income tax (expense) for the nine months ended September 30, 2023 was $(16.0) million compared to $(15.9) million reported for the same period in 2022. For the nine months ended September 30, 2023, the effective tax rate was 7.6% compared to 7.6% for the same period in 2022. The effective tax rate was comparable primarily due to a $8.2 million tax benefit from a current year Nebraska income tax rate decrease offset by $5.8 million of lower tax benefits from various current and prior year state tax rate changes and $2.3 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 September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

 

Revenues:

 

 

 

 

 

 

 

 

Electric Utilities

 

 

 

 

 

 

 

 

External Customers

$

234,490

 

$

255,741

 

$

640,595

 

$

660,800

 

Inter-segment

 

2,839

 

 

2,928

 

 

8,516

 

 

8,786

 

Total Electric Utilities Revenue

 

237,329

 

 

258,669

 

 

649,111

 

 

669,586

 

 

 

 

 

 

 

 

 

Gas Utilities

 

 

 

 

 

 

 

 

External Customers

 

172,636

 

 

206,871

 

 

1,098,973

 

 

1,099,577

 

Inter-segment

 

1,649

 

 

1,417

 

 

4,948

 

 

4,272

 

Total Gas Utilities Revenue

 

174,285

 

 

208,288

 

 

1,103,921

 

 

1,103,849

 

 

 

 

 

 

 

 

 

Inter-segment eliminations

 

(4,488

)

 

(4,345

)

 

(13,464

)

 

(13,058

)

 

 

 

 

 

 

 

 

Total Revenues

$

407,126

 

$

462,612

 

$

1,739,568

 

$

1,760,377

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

Electric Utilities

$

83,016

 

$

69,483

 

$

190,695

 

$

165,455

 

Gas Utilities

 

15,400

 

 

10,583

 

 

147,750

 

 

162,318

 

Corporate and Other

 

(645

)

 

(587

)

 

(2,275

)

 

(2,552

)

Total Operating Income

$

97,771

 

$

79,479

 

$

336,170

 

$

325,221

 

 

26


Table of Contents

 

 

 

Total assets (net of inter-segment eliminations) as of:

September 30, 2023

 

December 31, 2022

 

Electric Utilities

$

3,938,835

 

$

3,929,721

 

Gas Utilities

 

5,301,383

 

 

5,578,282

 

Corporate and Other

 

692,710

 

 

110,227

 

Total assets

$

9,932,928

 

$

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:

 

 

September 30, 2023

 

December 31, 2022

 

Billed Accounts Receivable

$

164,171

 

$

267,571

 

Unbilled Revenue

 

66,478

 

 

243,574

 

Less: Allowance for Credit Losses

 

(1,819

)

 

(2,953

)

Account Receivable, net

$

228,830

 

$

508,192

 

 

Changes to allowance for credit losses for the nine months ended September 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 September 30,

 

2023

$

2,953

 

$

7,195

 

$

2,445

 

$

(10,774

)

$

1,819

 

2022

$

2,113

 

$

6,473

 

$

2,117

 

$

(8,768

)

$

1,935

 

 

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:

 

 

September 30, 2023

 

December 31, 2022

 

Materials and supplies

$

104,945

 

$

99,734

 

Fuel - Electric Utilities

 

7,674

 

 

3,115

 

Natural gas in storage

 

55,460

 

 

104,572

 

Total materials, supplies and fuel

$

168,079

 

$

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:

 

 

September 30, 2023

 

December 31, 2022

 

Accrued employee compensation, benefits and withholdings

$

65,620

 

$

62,890

 

Accrued property taxes

 

46,309

 

 

52,430

 

Customer deposits and prepayments

 

57,100

 

 

47,655

 

Accrued interest

 

49,314

 

 

33,798

 

Other (none of which is individually significant)

 

39,115

 

 

46,684

 

Total accrued liabilities

$

257,458

 

$

243,457

 

 

 

(14)
Subsequent Events

 

Except as described in Notes 2 and 3, there have been no events subsequent to September 30, 2023, which would require recognition in the Consolidated Financial Statements or disclosures.

 

 

27


Table of Contents

 

 

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. Final bids were due in October 2023, and we received a diverse project proposal response. We are evaluating bids and expect a publicly available bid summary in the 30-day report on November 19, 2023, and will select finalists as part of a 120-day report to be submitted to the CPUC during the first quarter of 2024.

 

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

 

See Note 3 of the Condensed Notes to Consolidated Financial Statements for recent updates regarding the GT Resources, LLC v. Black Hills Corporation lawsuit.

 

See Note 5 of the Condensed Notes to Consolidated Financial Statements for information regarding our March 7, 2023 and September 15, 2023 debt offerings.

 

See Note 5 of the Condensed Notes to Consolidated Financial Statements for information regarding our new shelf registration with the SEC and our new Equity Distribution Sales Agreement.

 

 

28


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 nine months ended September 30, 2023 and 2022, and our financial condition as of September 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 September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

 

 

(in thousands, except per share amounts)

 

Operating income (loss):

 

 

 

 

 

 

 

 

Electric Utilities

$

83,016

 

$

69,483

 

$

190,695

 

$

165,455

 

Gas Utilities

 

15,400

 

 

10,583

 

 

147,750

 

 

162,318

 

Corporate and Other

 

(645

)

 

(587

)

 

(2,275

)

 

(2,552

)

Operating income

 

97,771

 

 

79,479

 

 

336,170

 

 

325,221

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(40,998

)

 

(40,019

)

 

(126,023

)

 

(117,328

)

Other income (expense), net

 

(647

)

 

464

 

 

(1,513

)

 

2,731

 

Income tax (expense)

 

(7,366

)

 

(2,090

)

 

(15,950

)

 

(15,920

)

Net income

 

48,760

 

 

37,834

 

 

192,684

 

 

194,704

 

Net income attributable to non-controlling interest

 

(3,377

)

 

(2,861

)

 

(10,164

)

 

(8,790

)

Net income available for common stock

$

45,383

 

$

34,973

 

$

182,520

 

$

185,914

 

 

 

 

 

 

 

 

 

Total earnings per share of common stock, Diluted

$

0.67

 

$

0.54

 

$

2.74

 

$

2.86

 

 

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

 

The variance to the prior year included the following:

 

Electric Utilities' operating income increased $13.5 million primarily due to a one-time recovery from our business interruption insurance related to the 2021 Wygen I unplanned outage, a gain on a strategic sale of land in Wyoming to a customer to support continued load growth, and new rates and rider recovery, partially offset by unfavorable weather;

 

Gas Utilities' operating income increased $4.8 million primarily due to new rates and rider recovery and lower operating expenses;

 

Income tax expense increased $5.3 million driven by higher pre-tax income and an effective tax rate of 13.1% compared to 5.2% for the same period in 2022. The higher effective tax rate was primarily due to decreased tax benefits from various current and prior year state rate changes.


 

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022:

 

The variance to the prior year included the following:

 

Electric Utilities’ operating income increased $25.2 million primarily due to new rates and rider recovery, increased transmission services revenue and off-system excess energy sales, a one-time gain on the planned sale of Northern Iowa Windpower assets, a gain on a strategic sale of land in Wyoming to a customer to support continued load growth, and a one-time recovery from our business interruption insurance related to the 2021 Wygen I unplanned outage partially offset by higher employee-related expenses and unfavorable weather;

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Gas Utilities’ operating income decreased $14.6 million primarily due to higher employee-related expenses, a prior year one-time true-up of carrying costs accrued on Winter Storm Uri regulatory assets and unfavorable mark-to-market adjustments on wholesale commodity contracts partially offset by new rates and rider recovery and retail customer growth and demand;

 

Interest expense, net increased $8.7 million due to higher interest rates partially offset by increased interest income on higher cash and cash equivalents balances; and

 

Other expense, net increased $4.2 million primarily due to higher non-service benefit plan costs driven by higher discount rates and higher costs for our non-qualified benefit plans driven by market performance.

 

 

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.

 

Electric Utilities

 

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

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

Variance

 

2023

 

2022

 

Variance

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Electric - regulated

$

221,715

 

$

245,269

 

$

(23,554

)

$

611,238

 

$

635,190

 

$

(23,952

)

Other - non-regulated

 

15,614

 

 

13,401

 

 

2,213

 

 

37,873

 

 

34,396

 

 

3,477

 

Total revenue

 

237,329

 

 

258,669

 

 

(21,340

)

 

649,111

 

 

669,586

 

 

(20,475

)

 

 

 

 

 

 

 

 

 

 

 

 

Cost of fuel and purchased power:

 

 

 

 

 

 

 

 

 

 

 

 

Electric - regulated

 

54,974

 

 

84,309

 

 

(29,335

)

 

145,662

 

 

191,511

 

 

(45,849

)

Other - non-regulated

 

454

 

 

1,644

 

 

(1,190

)

 

1,586

 

 

3,484

 

 

(1,898

)

Total cost of fuel and purchased power

 

55,428

 

 

85,953

 

 

(30,525

)

 

147,248

 

 

194,995

 

 

(47,747

)

 

 

 

 

 

 

 

 

 

 

 

 

Electric Utility margin (non-GAAP)

 

181,901

 

 

172,716

 

 

9,185

 

 

501,863

 

 

474,591

 

 

27,272

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations and maintenance

 

63,114

 

 

68,896

 

 

(5,782

)

 

204,487

 

 

207,565

 

 

(3,078

)

Depreciation and amortization

 

35,771

 

 

34,337

 

 

1,434

 

 

106,681

 

 

101,571

 

 

5,110

 

 

98,885

 

 

103,233

 

 

(4,348

)

 

311,168

 

 

309,136

 

 

2,032

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

$

83,016

 

$

69,483

 

$

13,533

 

$

190,695

 

$

165,455

 

$

25,240

 

 

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

 

Electric Utility margin increased as a result of the following:

 

 

(in millions)

 

New rates and rider recovery

$

5.7

 

Wygen I revenue recovery under business interruption insurance (a)

 

5.0

 

Weather

 

(2.3

)

Other

 

0.8

 

$

9.2

 

 

(a)
In 2021, Wygen I experienced an unplanned outage which resulted in lost revenue. A claim for these losses was submitted under our business interruption insurance policy. During the third quarter of 2023, we recovered $5.0 million from our business interruption insurance which was recognized as Revenue. See Note 3 of the Condensed Notes to Consolidated Financial Statements for further information.

 

Operations and maintenance expense decreased primarily due to a $3.9 million gain on a strategic sale of land in Wyoming to a customer to support continued load growth.

 

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

 

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022:

 

Electric Utility margin increased as a result of the following:

 

 

(in millions)

 

New rates and rider recovery

$

15.9

 

Wygen I revenue recovery under business interruption insurance (a)

 

5.0

 

Integrated Generation (b)

 

5.0

 

Transmission services

 

2.8

 

Off-system excess energy sales

 

1.1

 

Weather

 

(4.5

)

Other

 

2.0

 

$

27.3

 

 

(a)
In 2021, Wygen I experienced an unplanned outage which resulted in lost revenue. A claim for these losses was submitted under our business interruption insurance policy. During the third quarter of 2023, we recovered $5.0 million from our business interruption insurance which was recognized as Revenue. See Note 3 of the Condensed Notes to Consolidated Financial Statements for further information.
(b)
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.

 

Operations and maintenance expense decreased primarily due to a one-time $7.7 million gain on the planned sale of Northern Iowa Windpower assets and a $3.9 million gain on a strategic sale of land in Wyoming to a customer to support continued load growth partially offset by $5.5 million of higher employee-related expenses and $3.5 million of higher mining and generation expenses driven by planned outages, higher fuel costs and higher materials costs.
 

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

 

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Operating Statistics

 

 

Revenue (in thousands)

 

Quantities Sold (MWh)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

Residential

$

63,107

 

$

72,115

 

$

170,279

 

$

187,217

 

 

393,830

 

 

421,782

 

 

1,090,579

 

 

1,137,139

 

Commercial

 

69,508

 

 

77,314

 

 

195,110

 

 

210,423

 

 

567,111

 

 

581,239

 

 

1,576,141

 

 

1,581,487

 

Industrial

 

42,988

 

 

47,090

 

 

116,455

 

 

120,688

 

 

553,481

 

 

483,223

 

 

1,511,569

 

 

1,411,919

 

Municipal

 

4,731

 

 

6,093

 

 

13,202

 

 

15,660

 

 

42,782

 

 

46,745

 

 

116,118

 

 

122,290

 

Subtotal Retail Revenue - Electric

 

180,334

 

 

202,612

 

 

495,046

 

 

533,989

 

 

1,557,204

 

 

1,532,989

 

 

4,294,407

 

 

4,252,835

 

Contract Wholesale

 

6,839

 

 

8,378

 

 

15,449

 

 

18,639

 

 

140,547

 

 

160,070

 

 

403,682

 

 

492,922

 

Off-system/Power Marketing Wholesale

 

9,580

 

 

16,769

 

 

31,663

 

 

32,590

 

 

138,438

 

 

131,469

 

 

518,552

 

 

436,335

 

Other (a)

 

24,962

 

 

17,509

 

 

69,080

 

 

49,972

 

 

-

 

 

-

 

 

-

 

 

-

 

Total Regulated

 

221,715

 

 

245,269

 

 

611,238

 

 

635,190

 

 

1,836,189

 

 

1,824,528

 

 

5,216,641

 

 

5,182,092

 

Non-Regulated (b)

 

15,614

 

 

13,401

 

 

37,873

 

 

34,396

 

 

25,369

 

 

59,745

 

 

102,563

 

 

221,609

 

Total Revenue and Quantities Sold

$

237,329

 

$

258,669

 

$

649,111

 

$

669,586

 

 

1,861,558

 

 

1,884,273

 

 

5,319,204

 

 

5,403,701

 

Other Uses, Losses or Generation, net (c)

 

 

 

 

 

 

 

 

 

97,709

 

 

125,613

 

 

345,642

 

 

337,222

 

Total Energy

 

 

 

 

 

 

 

 

 

1,959,267

 

 

2,009,886

 

 

5,664,846

 

 

5,740,923

 

 

(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 September 30,

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

Colorado Electric

$

80,771

 

$

96,380

 

$

216,904

 

$

243,022

 

 

653,166

 

 

647,532

 

 

1,794,464

 

 

1,836,010

 

South Dakota Electric

 

83,024

 

 

94,281

 

 

240,588

 

 

249,073

 

 

622,670

 

 

684,059

 

 

1,876,714

 

 

1,928,454

 

Wyoming Electric

 

58,429

 

 

55,058

 

 

155,039

 

 

144,293

 

 

560,353

 

 

492,938

 

 

1,545,463

 

 

1,417,629

 

Integrated Generation

 

15,105

 

 

12,950

 

 

36,580

 

 

33,198

 

 

25,369

 

 

59,744

 

 

102,563

 

 

221,608

 

Total Revenue and Quantities Sold

$

237,329

 

$

258,669

 

$

649,111

 

$

669,586

 

 

1,861,558

 

 

1,884,273

 

 

5,319,204

 

 

5,403,701

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Quantities Generated and Purchased by Fuel Type (MWh)

2023

 

2022

 

2023

 

2022

 

Generated:

 

 

 

 

 

 

 

 

Coal

 

704,227

 

 

736,181

 

 

2,000,126

 

 

1,989,057

 

Natural Gas and Oil

 

540,927

 

 

457,790

 

 

1,493,230

 

 

1,016,369

 

Wind

 

138,527

 

 

143,278

 

 

519,873

 

 

641,302

 

Total Generated

 

1,383,681

 

 

1,337,249

 

 

4,013,229

 

 

3,646,728

 

Purchased:

 

 

 

 

 

 

 

 

Coal, Natural Gas, Oil and Other Market Purchases

 

459,141

 

 

609,699

 

 

1,369,994

 

 

1,805,904

 

Wind and Solar

 

116,445

 

 

62,938

 

 

281,623

 

 

288,291

 

Total Purchased

 

575,586

 

 

672,637

 

 

1,651,617

 

 

2,094,195

 

 

 

 

 

 

 

 

 

Total Generated and Purchased

 

1,959,267

 

 

2,009,886

 

 

5,664,846

 

 

5,740,923

 

 

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Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Quantities Generated and Purchased (MWh)

2023

 

2022

 

2023

 

2022

 

Generated:

 

 

 

 

 

 

 

 

Colorado Electric

 

211,420

 

 

127,090

 

 

491,995

 

 

324,638

 

South Dakota Electric

 

489,160

 

 

510,443

 

 

1,500,696

 

 

1,333,984

 

Wyoming Electric

 

221,999

 

 

236,761

 

 

667,730

 

 

667,079

 

Integrated Generation

 

461,102

 

 

462,955

 

 

1,352,808

 

 

1,321,027

 

Total Generated

 

1,383,681

 

 

1,337,249

 

 

4,013,229

 

 

3,646,728

 

Purchased:

 

 

 

 

 

 

 

 

Colorado Electric

 

116,234

 

 

251,076

 

 

442,216

 

 

807,442

 

South Dakota Electric

 

177,341

 

 

221,872

 

 

438,646

 

 

667,560

 

Wyoming Electric

 

267,583

 

 

174,946

 

 

723,542

 

 

551,683

 

Integrated Generation

 

14,428

 

 

24,743

 

 

47,213

 

 

67,510

 

Total Purchased

 

575,586

 

 

672,637

 

 

1,651,617

 

 

2,094,195

 

 

 

 

 

 

 

 

 

Total Generated and Purchased

 

1,959,267

 

 

2,009,886

 

 

5,664,846

 

 

5,740,923

 

 

 

Three Months Ended September 30,

Nine Months Ended September 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

26

(42)%

25

(66)%

3,365

5%

3,296

4%

South Dakota Electric

140

(15)%

91

(57)%

4,621

2%

4,560

---%

Wyoming Electric

152

(12)%

119

(60)%

4,534

4%

4,410

(2)%

Combined (a)

91

(19)%

66

(60)%

4,031

4%

3,952

1%

 

 

 

 

 

 

 

 

Cooling Degree Days:

 

 

 

 

 

 

 

 

Colorado Electric

909

6%

1,028

28%

1,040

(10)%

1,361

27%

South Dakota Electric

460

(11)%

707

38%

496

(21)%

814

35%

Wyoming Electric

315

(20)%

580

72%

329

(30)%

701

77%

Combined (a)

635

(2)%

828

36%

710

(15)%

1,041

34%

 

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

 

 

Three Months Ended September 30,

Nine Months Ended September 30,

Contracted generating facilities availability by fuel type (a)

2023

2022

2023

2022

Coal (b)

96.3%

96.5%

93.7%

89.7%

Natural gas and diesel oil

94.2%

97.0%

94.0%

95.8%

Wind

93.4%

94.4%

93.4%

94.6%

Total Availability

94.7%

96.4%

93.8%

94.0%

 

 

 

 

Wind Capacity Factor

31.3%

22.9%

37.9%

34.7%

 

(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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Table of Contents

 

 

Gas Utilities

 

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

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

Variance

 

2023

 

2022

 

Variance

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas - regulated

$

159,481

 

$

192,104

 

$

(32,623

)

$

1,041,017

 

$

1,046,910

 

$

(5,893

)

Other - non-regulated

 

14,804

 

 

16,184

 

 

(1,380

)

 

62,904

 

 

56,938

 

 

5,966

 

Total revenue

 

174,285

 

 

208,288

 

 

(34,003

)

 

1,103,921

 

 

1,103,849

 

 

73

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of natural gas sold:

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas - regulated

 

43,329

 

 

77,590

 

 

(34,261

)

 

578,860

 

 

588,007

 

 

(9,147

)

Other - non-regulated

 

3,599

 

 

5,187

 

 

(1,588

)

 

23,989

 

 

11,242

 

 

12,747

 

Total cost of natural gas sold

 

46,928

 

 

82,778

 

 

(35,850

)

 

602,849

 

 

599,249

 

 

3,600

 

 

 

 

 

 

 

 

 

 

 

 

 

Gas Utility margin (non-GAAP)

 

127,357

 

 

125,510

 

 

1,847

 

 

501,072

 

 

504,600

 

 

(3,528

)

 

 

 

 

 

 

 

 

 

 

 

 

Operations and maintenance

 

82,922

 

 

85,311

 

 

(2,389

)

 

268,972

 

 

255,441

 

 

13,531

 

Depreciation and amortization

 

29,035

 

 

29,616

 

 

(581

)

 

84,350

 

 

86,841

 

 

(2,491

)

 

111,957

 

 

114,927

 

 

(2,970

)

 

353,322

 

 

342,282

 

 

11,040

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

$

15,400

 

$

10,583

 

$

4,817

 

 

147,750

 

$

162,318

 

$

(14,568

)

 

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

 

Gas Utility margin increased as a result of the following:

 

(in millions)

 

New rates and rider recovery

$

2.6

 

Retail customer growth and demand

 

2.4

 

Mark-to-market on non-utility natural gas commodity contracts

 

(1.4

)

Weather

 

(1.3

)

Other

 

(0.5

)

$

1.8

 

 

Operations and maintenance expense decreased primarily due to $2.4 million of lower outside services expenses.

 

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

 

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 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

 

(5.4

)

Weather

 

(4.3

)

New rates and rider recovery

 

10.3

 

Retail customer growth and demand

 

7.1

 

Other

 

(0.9

)

$

(3.5

)

 

(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 $12.3 million of higher employee-related expenses.

 

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

 

34


Table of Contents

 

 

Operating Statistics

 

 

Revenue (in thousands)

 

Quantities Sold and Transported (Dth)

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

Residential

$

75,153

 

$

85,398

 

$

620,306

 

$

604,568

 

 

3,546,242

 

 

3,572,971

 

 

41,078,623

 

 

43,910,976

 

Commercial

 

28,629

 

 

36,819

 

 

255,430

 

 

256,643

 

 

2,399,834

 

 

2,374,179

 

 

20,462,092

 

 

21,505,127

 

Industrial

 

9,848

 

 

26,155

 

 

26,156

 

 

52,268

 

 

2,129,492

 

 

3,153,641

 

 

4,576,537

 

 

6,468,756

 

Other

 

3,057

 

 

2,566

 

 

7,305

 

 

7,638

 

 

-

 

 

-

 

 

-

 

 

-

 

Total Distribution

 

116,687

 

 

150,937

 

 

909,197

 

 

921,117

 

 

8,075,568

 

 

9,100,791

 

 

66,117,252

 

 

71,884,859

 

Transportation and Transmission

 

42,794

 

 

41,166

 

 

131,820

 

 

125,794

 

 

36,773,895

 

 

35,302,591

 

 

118,180,078

 

 

117,971,404

 

Total Regulated

 

159,481

 

 

192,104

 

 

1,041,017

 

 

1,046,910

 

 

44,849,463

 

 

44,403,382

 

 

184,297,330

 

 

189,856,263

 

Non-regulated Services (a)

 

14,804

 

 

16,184

 

 

62,904

 

 

56,938

 

 

-

 

 

-

 

 

-

 

 

-

 

Total Revenue and Quantities Sold

$

174,285

 

$

208,288

 

$

1,103,921

 

$

1,103,849

 

 

44,849,463

 

 

44,403,382

 

 

184,297,330

 

 

189,856,263

 

 

(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 September 30,

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

Arkansas Gas

$

27,166

 

$

30,663

 

$

189,034

 

$

210,287

 

 

4,372,453

 

 

4,396,388

 

 

21,098,256

 

 

22,769,574

 

Colorado Gas

 

31,503

 

 

32,239

 

 

227,852

 

 

202,620

 

 

3,588,228

 

 

3,408,420

 

 

23,283,092

 

 

23,192,881

 

Iowa Gas

 

18,784

 

 

24,580

 

 

168,137

 

 

187,209

 

 

5,790,254

 

 

5,103,212

 

 

27,193,172

 

 

28,658,007

 

Kansas Gas

 

22,724

 

 

38,029

 

 

118,478

 

 

132,362

 

 

9,084,974

 

 

9,202,701

 

 

27,382,033

 

 

28,954,575

 

Nebraska Gas

 

55,297

 

 

61,588

 

 

277,861

 

 

258,159

 

 

16,968,376

 

 

17,237,325

 

 

59,774,008

 

 

61,287,579

 

Wyoming Gas

 

18,811

 

 

21,189

 

 

122,559

 

 

113,212

 

 

5,045,178

 

 

5,055,336

 

 

25,566,769

 

 

24,993,647

 

Total Revenue and Quantities Sold

$

174,285

 

$

208,288

 

$

1,103,921

 

$

1,103,849

 

 

44,849,463

 

 

44,403,382

 

 

184,297,330

 

 

189,856,263

 

 

 

Three Months Ended September 30,

Nine Months Ended September 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)

--

(100)%

16

(63)%

1,944

(18)%

2,386

(4)%

Colorado Gas

91

(22)%

84

(61)%

4,078

7%

3,847

(6)%

Iowa Gas

37

(59)%

92

(34)%

3,867

(10)%

4,474

7%

Kansas Gas (a)

6

(78)%

23

(58)%

2,749

6%

3,043

3%

Nebraska Gas

21

(67)%

48

(56)%

3,591

(5)%

3,768

---%

Wyoming Gas

180

5%

140

(55)%

4,953

14%

4,738

1%

Combined (b)

56

(35)%

70

(53)%

3,926

1%

4,003

---%

 

(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.

 

 

Corporate and Other

 

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

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

Variance

 

2023

 

2022

 

Variance

 

Operating (loss)

$

(645

)

$

(587

)

$

(58

)

$

(2,275

)

$

(2,552

)

$

277

 

 

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

 

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

 

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022:

 

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

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Consolidated Interest Expense, Other Income and Income Tax Expense

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

Variance

 

2023

 

2022

 

Variance

 

 

(in thousands)

 

Interest expense, net

$

(40,998

)

$

(40,019

)

$

(979

)

$

(126,023

)

$

(117,328

)

$

(8,695

)

Other income (expense), net

 

(647

)

 

464

 

 

(1,111

)

 

(1,513

)

 

2,731

 

 

(4,244

)

Income tax (expense)

 

(7,366

)

 

(2,090

)

 

(5,276

)

 

(15,950

)

 

(15,920

)

 

(30

)

 

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

 

Interest expense, net

 

Interest expense, net was comparable to the same period in the prior year.

 

Other income (expense), net

 

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

 

Income tax (expense)

 

Income tax expense increased primarily due to higher pre-tax income and a higher effective tax rate. For the three months ended September 30, 2023, the effective tax rate was 13.1% compared to 5.2% for the same period in 2022. See Note 11 of the Condensed Notes to Consolidated Financial Statements for discussion of effective tax rate variances.
 

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022:

 

Interest expense, net

 

Interest expense, net increased due to higher interest rates partially offset by increased interest income on higher cash and cash equivalents balances.

 

Other income (expense), net

 

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

 

Income tax (expense)

 

Income tax expense and the effective tax rate were comparable to the same period in the prior year. See Note 11 of the Condensed Notes to Consolidated Financial Statements for further information on the effective tax rate.

 

 

 

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Table of Contents

 

 

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 nine months ended September 30, 2023, (in thousands):

 

Operating Activities:

 

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

Variance

 

Cash earnings (net income plus non-cash adjustments)

$

413,354

 

$

406,019

 

$

7,335

 

Changes in certain operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable and other current assets

 

346,310

 

 

(24,125

)

 

370,435

 

Accounts payable and accrued liabilities

 

(186,500

)

 

5,963

 

 

(192,463

)

Regulatory assets and liabilities

 

199,093

 

 

118,330

 

 

80,763

 

 

358,903

 

 

100,168

 

 

258,735

 

Other operating activities

 

(16,205

)

 

(11,900

)

 

(4,305

)

Net cash provided by operating activities

$

756,052

 

$

494,287

 

$

261,765

 

 

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022

 

Net cash provided by operating activities was $261.8 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 $7.3 million higher for the nine months ended September 30, 2023 compared to the same period in the prior year primarily due to increased Electric and Gas Utility margins driven by new rates and increased rider revenues partially offset by higher operating expenses and higher interest expense.

 

Net inflows from changes in certain operating assets and liabilities were $258.7 million higher, primarily attributable to:

 

o
Cash inflows increased by $370.4 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 $192.5 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 $80.8 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 costs from customers.

 

Cash outflows increased by $4.3 million for other operating activities primarily due higher cloud computing licensing costs.

 

Investing Activities:

 

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

Variance

 

Capital expenditures

$

(421,770

)

$

(466,302

)

$

44,532

 

Other investing activities

 

17,985

 

 

(19

)

 

18,004

 

Net cash (used in) investing activities

$

(403,785

)

$

(466,321

)

$

62,536

 

 

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Table of Contents

 

 

 

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022

 

Net cash used in investing activities was $62.5 million lower than the same period in 2022. The variance to the prior year was primarily attributable to:

 

Cash outflows decreased by $44.5 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 $18.0 million for other investing activities primarily due to proceeds from the sale of Northern Iowa Windpower assets.

 

Financing Activities:

 

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

Variance

 

Dividends paid on common stock

$

(125,446

)

$

(115,850

)

$

(9,596

)

Common stock issued

 

107,380

 

 

20,027

 

 

87,353

 

Short-term and long-term debt borrowings, net

 

264,400

 

 

81,170

 

 

183,230

 

Distributions to non-controlling interests

 

(12,891

)

 

(11,678

)

 

(1,213

)

Other financing activities

 

(12,193

)

 

1,647

 

 

(13,840

)

Net cash provided by (used in) financing activities

$

221,250

 

$

(24,684

)

$

245,934

 

 

Nine Months Ended September 30, 2023, Compared to the Nine Months Ended September 30, 2022

 

Net cash provided by financing activities was $245.9 million higher than the same period in 2022. The variance to the prior year was primarily attributable to:

 

Cash inflows increased $183.2 million due to current year long-term borrowings from the March 7, 2023 and September 15, 2023 debt offerings in excess of current and prior year short-term debt borrowings (repayments), net;

 

Cash inflows increased $87.4 million due to higher issuances of common stock;

 

Cash outflows increased $9.6 million due to increased dividends paid on common stock; and

 

Cash outflows increased by $13.8 million for other financing activities primarily due to financing costs from the March 7, 2023 and September 15, 2023 debt offerings.

 

CAPITAL RESOURCES

 

See Note 5 of the Condensed Notes to Consolidated Financial Statements for recent financing updates regarding our shelf registration, Revolving Credit Facility and CP Program, long-term debt and equity.

 

Covenant Requirements

 

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

 

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. Proceeds from the September 15, 2023 debt offering, along with cash on hand, will be used to repay our $525 million, 4.25%, senior unsecured notes due November 30, 2023 on their maturity date. We also plan to re-finance our $600 million, 1.04%, senior unsecured notes due August 23, 2024, at or before maturity date.

 

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Table of Contents

 

 

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 September 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 September 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

Nine Months Ended
September 30, 2023
(a)

 

2023 (b)

 

2024

 

2025

 

2026

 

2027

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

Electric Utilities

$

156

 

$

212

 

$

348

 

$

268

 

$

184

 

$

163

 

Gas Utilities

 

261

 

 

386

 

 

452

 

 

412

 

 

393

 

 

444

 

Corporate and Other

 

4

 

 

17

 

 

19

 

 

20

 

 

19

 

 

18

 

Incremental Projects (c)

 

-

 

 

-

 

 

-

 

 

-

 

 

104

 

 

75

 

 

$

421

 

$

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 nine months ended September 30, 2023.
(c)
These represent projects that are being evaluated by our segments for timing, cost and other factors.

 

Dividends

 

Dividends paid on our common stock totaled $125.4 million for the nine months ended September 30, 2023, or $0.625 per share per quarter. On October 23, 2023, our board of directors declared a quarterly dividend of $0.625 per share payable December 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 September 30, 2023, we estimate the unfunded status of our employee benefit plans to be approximately $38 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 September 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 September 30, 2023. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective at September 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 September 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 of the Condensed Notes to Consolidated Financial Statements and 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 September 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

 

July 1, 2023 - July 31, 2023

 

1

 

$

60.27

 

 

-

 

 

-

 

August 1, 2023 - August 31, 2023

 

1,171

 

 

56.89

 

 

-

 

 

-

 

September 1, 2023 - September 30, 2023

 

2

 

 

54.74

 

 

-

 

 

-

 

Total

 

1,174

 

$

56.89

 

 

-

 

 

-

 

 

(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 September 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

4.1

Twelfth Supplemental Indenture dated as of September 15, 2023 (filed as Exhibit 4.1 to the Registrant’s Form 8-K filed on September 15, 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:

November 2, 2023

 

 

42