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 March 31, 2024
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 April 30, 2024
Common stock, $1.00 par value
68,933,306
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
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
8
Consolidated Balance Sheets
9
Consolidated Statements of Cash Flows
11
Consolidated Statements of Equity
12
Condensed Notes to Consolidated Financial Statements
13
Note 1. Management’s Statement
Note 2. Regulatory Matters
14
Note 3. Commitments, Contingencies and Guarantees
15
Note 4. Revenue
Note 5. Financing
16
Note 6. Earnings Per Share
17
Note 7. Risk Management and Derivatives
Note 8. Fair Value Measurements
20
Note 9. Other Comprehensive Income
22
Note 10. Employee Benefit Plans
23
Note 11. Income Taxes
Note 12. Business Segment Information
24
Note 13. Selected Balance Sheet Information
Note 14. Subsequent Events
25
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Executive Summary
Recent Developments
Results of Operations
27
Consolidated Summary and Overview
Non-GAAP Financial Measure
28
Electric Utilities
Gas Utilities
31
Corporate and Other
32
Consolidated Interest Expense, Other Income and Income Tax Expense
33
Liquidity and Capital Resources
Cash Flow Activities
Capital Resources
35
Credit Ratings
Capital Requirements
Critical Accounting Estimates
36
New Accounting Pronouncements
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Mine Safety Disclosures
37
Item 5.
Other Information
Item 6.
Exhibits
Signatures
38
2
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)
APSC
Arkansas Public Service Commission
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).
ASU
Accounting Standards Update as issued by the FASB
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 Electric 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 Utilities
Black Hills Energy Renewable Resources (BHERR)
Black Hills Energy Renewable Resources, LLC, a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings
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.
Chief Operating Decision Maker (CODM)
Chief Executive Officer
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 greenhouse gas emissions by a minimum of 80% from 2005 levels by 2030. The recommended resource portfolio proposes the addition of 400 MW of clean energy resources to Colorado Electric's system. Colorado legislation allows electric utilities to own up to 50% of the renewable generation assets added to comply with the Clean Energy Plan.
CO2
Carbon dioxide
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 participate 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.
CP Program
Commercial Paper Program
CPUC
Colorado Public Utilities Commission
Dth
Dekatherm. A unit of energy equal to 10 therms or one million British thermal units (MMBtu)
EPA
Environmental Protection Agency
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 of weather 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 (Black Hills Electric Generation and WRDC) 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
IUB
Iowa Utilities Board
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).
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
Ready Wyoming
A 260-mile, multi-phase transmission expansion project in Wyoming. This transmission project is expected to serve the growing needs of customers by enhancing resiliency of Wyoming Electric’s overall electric system and expanding access to power markets and renewable resources. The project is expected to help Wyoming Electric maintain top-quartile reliability and enable economic development in the Cheyenne, Wyoming region.
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. This facility includes an accordion feature that allows us to increase total commitments up to $1.0 billion with the consent of the administrative agent, the issuing agents and each bank increasing or providing a new commitment.
RNG
Renewable Natural Gas
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.
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).
4
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
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 coal mine which is a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings, providing coal supply primarily to five on-site, mine-mouth generating facilities at our Gillette Energy Complex (doing business as Black Hills Energy).
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, 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.
5
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 2023 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:
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.
ITEM 1. FINANCIAL STATEMENTS
BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months EndedMarch 31,
2024
2023
(in millions, except per share amounts)
Revenue
$
726.4
921.2
Operating expenses:
Fuel, purchased power and cost of natural gas sold
316.6
526.3
Operations and maintenance
133.6
141.0
Depreciation and amortization
65.9
61.6
Taxes - property and production
17.0
17.4
Total operating expenses
533.1
746.3
Operating income
193.3
174.9
Other income (expense):
Interest expense incurred net of amounts capitalized
(46.0
)
(44.1
Interest income
2.0
0.6
Other income (expense), net
(0.8
0.7
Total other income (expense)
(44.8
(42.8
Income before income taxes
148.5
132.1
Income tax (expense)
(16.9
(14.7
Net income
131.6
117.4
Net income attributable to non-controlling interest
(3.7
(3.3
Net income available for common stock
127.9
114.1
Earnings per share of common stock:
Earnings per share, Basic
1.88
1.73
Earnings per share, Diluted
1.87
Weighted average common shares outstanding:
Basic
68.2
66.0
Diluted
68.3
66.1
The accompanying Condensed Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Other comprehensive income (loss), net of tax;
Derivative instruments designated as cash flow hedges:
Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax of $(0.1) and $(0.2), respectively)
Net unrealized gains (losses) on commodity derivatives (net of tax of $0.0 and $0.3, respectively)
(0.1
(0.9
Reclassification of net realized (gains) losses on settled commodity derivatives (net of tax of $(0.6) and $(0.5), respectively)
1.5
Other comprehensive income, net of tax
2.5
1.2
Comprehensive income
134.1
118.6
Less: comprehensive income attributable to non-controlling interest
Comprehensive income available for common stock
130.4
115.3
See Note 9 for additional disclosures.
CONSOLIDATED BALANCE SHEETS
As of
March 31, 2024
December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents
123.0
86.6
Restricted cash and equivalents
6.7
6.4
Accounts receivable, net
334.4
350.3
Materials, supplies and fuel
130.6
160.9
Income tax receivable, net
18.2
18.5
Regulatory assets, current
147.3
175.7
Other current assets
37.4
28.2
Total current assets
797.6
826.6
Property, plant and equipment
9,068.4
8,917.2
Less: accumulated depreciation
(1,845.3
(1,797.9
Total property, plant and equipment, net
7,223.1
7,119.3
Other assets:
Goodwill
1,299.5
Intangible assets, net
8.4
Regulatory assets, non-current
283.8
304.4
Other assets, non-current
64.3
62.2
Total other assets, non-current
1,656.0
1,674.5
TOTAL ASSETS
9,676.7
9,620.4
(Continued)
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
132.6
186.4
Accrued liabilities
263.9
293.3
Derivative liabilities, current
6.5
Regulatory liabilities, current
89.9
98.9
Notes payable
-
Current maturities of long-term debt
600.0
Total current liabilities
1,088.4
1,185.1
Long-term debt, net of current maturities
3,802.8
3,801.2
Deferred credits and other liabilities:
Deferred income tax liabilities, net
576.1
548.0
Regulatory liabilities, non-current
463.5
467.7
Benefit plan liabilities
124.1
123.9
Other deferred credits and other liabilities
199.3
188.7
Total deferred credits and other liabilities
1,363.0
1,328.3
Commitments, contingencies and guarantees (Note 3)
Equity:
Stockholder's equity -
Common stock $1 par value; 100,000,000 shares authorized; issued 68,969,578 and 68,265,042 shares, respectively
69.0
Additional paid-in capital
2,040.2
2,007.7
Retained earnings
1,241.7
1,158.2
Treasury stock, at cost - 82,343 and 68,073 shares, respectively
(4.7
(4.1
Accumulated other comprehensive income (loss)
(12.3
(14.8
Total stockholders' equity
3,333.9
3,215.3
Non-controlling interest
88.6
90.5
Total equity
3,422.5
3,305.8
TOTAL LIABILITIES AND TOTAL EQUITY
10
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
Operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred financing cost amortization
2.7
2.4
Stock compensation
1.8
Deferred income taxes
16.7
14.9
Employee benefit plans
3.0
Other adjustments, net
(0.3
(2.9
Changes in certain operating assets and liabilities:
30.4
76.1
Accounts receivable and other current assets
(11.3
28.7
Accounts payable and other current liabilities
(59.6
(127.2
Regulatory assets
54.8
154.7
Other operating activities, net
(1.8
Net cash provided by operating activities
233.4
328.7
Investing activities:
Property, plant and equipment additions
(176.2
(119.1
Other investing activities
(0.7
17.6
Net cash (used in) investing activities
(176.9
(101.5
Financing activities:
Dividends paid on common stock
(44.4
(41.4
Common stock issued
31.2
27.4
Net borrowings (payments) of Revolving Credit Facility and CP Program
(535.6
Long-term debt - issuance
350.0
Distributions to non-controlling interests
(5.6
(4.5
Other financing activities
(1.0
(5.0
Net cash (used in) financing activities
(19.8
(209.1
Net change in cash, restricted cash and cash equivalents
36.7
18.1
Cash, restricted cash and cash equivalents beginning of period
93.0
27.0
Cash, restricted cash and cash equivalents end of period
129.7
45.1
Supplemental cash flow information:
Cash (paid) refunded during the period:
Interest (net of amounts capitalized)
(33.6
(27.6
Non-cash investing and financing activities:
Accrued property, plant and equipment purchases at March 31,
37.7
42.1
CONSOLIDATED STATEMENTS OF EQUITY
Common Stock
Treasury Stock
(in millions except share amounts)
Shares
Value
Additional Paid in Capital
Retained Earnings
Non-controlling Interest
Total
68,265,042
68,073
3.7
Dividends on common stock ($0.65 per share)
Share-based compensation
104,181
0.1
14,270
(0.6
1.9
1.4
Issuance of common stock
600,355
30.9
31.5
Issuance costs
Distributions to non-controlling interest
68,969,578
82,343
December 31, 2022
66,140,396
36,726
(2.4
1,882.7
1,064.1
(15.6
95.0
3,089.9
3.3
Dividends on common stock ($0.625 per share)
84,735
4,388
1.7
445,578
0.5
27.2
27.7
March 31, 2023
66,670,709
66.7
41,114
(2.7
1,911.5
1,136.8
(14.4
93.8
3,191.7
(Reference is made to Notes to Consolidated Financial Statements
included in the Company’s 2023 Annual Report on Form 10-K)
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 2023 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 March 31, 2024, December 31, 2023 and March 31, 2023 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.
Recently Issued Accounting Standards
Improvements to Reportable Segment Disclosures, ASU 2023-07
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, which expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly reviewed by the CODM and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The ASU also allows, in addition to the measure that is most consistent with GAAP, the disclosure of additional measures of segment profit or loss that are used by the CODM in assessing segment performance and deciding how to allocate resources. The ASU is effective for our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and subsequent interim periods, with early adoption permitted. We do not expect the ASU to have an impact on our financial position, results of operations and cash flows; however, are currently evaluating the impact on our consolidated financial statement disclosures.
Improvements to Income Tax Disclosures, ASU 2023-09
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which expands public entities’ annual disclosures by requiring disclosure of tax rate reconciliation amounts and percentages for specific categories, income taxes paid disaggregated by federal and state taxes, and income tax expense disaggregated by federal and state taxes jurisdiction. The ASU is effective for our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, with early adoption permitted. We do not expect the ASU to have an impact on our financial position, results of operations and cash flows; however, are currently evaluating the impact on our consolidated financial statement disclosures.
We had the following regulatory assets and liabilities (in millions):
144.9
199.6
Deferred energy and fuel cost adjustments
57.5
55.1
Deferred gas cost adjustments
8.1
4.1
Gas price derivatives
5.1
Deferred taxes on AFUDC
7.4
7.1
Employee benefit plans and related deferred taxes
88.2
89.3
Environmental
5.9
2.9
Loss on reacquired debt
Deferred taxes on flow through accounting
80.5
74.7
Decommissioning costs
Other regulatory assets
19.2
22.4
Total regulatory assets
431.1
480.1
Less current regulatory assets
(147.3
(175.7
Regulatory liabilities
Deferred energy and gas costs
85.7
88.9
Employee benefit plan costs and related deferred taxes
35.7
36.2
Cost of removal
182.2
181.9
Excess deferred income taxes
243.2
247.1
Other regulatory liabilities
6.6
12.5
Total regulatory liabilities
553.4
566.6
Less current regulatory liabilities
(89.9
(98.9
Regulatory Activity
On December 4, 2023, Arkansas Gas filed a rate review with the APSC seeking recovery of significant infrastructure investments in its 7,200-mile natural gas pipeline system. The rate review requests $44.1 million in new annual revenue with a capital structure of 48% equity and 52% debt and a return on equity of 10.5%. The request seeks to finalize rates in the fourth quarter of 2024.
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. In March 2024, Colorado Gas received final approval for a settlement agreement for a general rate increase which is expected to generate $20.2 million of new annual revenue with a capital structure of 51% equity and 49% debt and a return on equity of 9.3%. Final rates were enacted on May 1, 2024, and replaced interim rates effective February 13, 2024.
On May 1, 2024, Iowa Gas filed a rate review with the IUB seeking recovery of significant infrastructure investments in its 5,000-mile natural gas pipeline system. The rate review requests $20.7 million in new annual revenue with a capital structure of 51% equity and 49% debt and a return on equity of 10.5%. Iowa statute allows implementation of interim rates 10 days after filing a rate review and Iowa Gas plans to implement interim rates, subject to adjustment or refund, effective in May, 2024. The request seeks to finalize rates in the first quarter of 2025.
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 January 17, 2024, the WPSC approved a settlement agreement for a general rate increase which is expected to generate $13.9 million in new annual revenue with a capital structure of 51% equity and 49% debt and a return on equity of 9.9%. New rates were effective February 1, 2024. The agreement also included approval of a four-year extension of the Wyoming Integrity Rider.
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 2023 Annual Report on Form 10-K.
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 months ended March 31, 2024 and 2023. Sales tax and other similar taxes are excluded from revenues.
Three Months Ended March 31, 2024
Inter-segment Eliminations
Customer types:
Retail
188.3
437.4
625.7
Transportation
51.7
51.6
Wholesale
8.5
Market - off-system sales
Transmission/Other
18.0
11.2
(4.4
24.8
Revenue from contracts with customers
221.4
500.3
717.2
Other revenues
0.8
9.2
Total revenues
222.2
508.7
Timing of revenue recognition:
Services transferred at a point in time
8.7
Services transferred over time
212.7
708.5
Three Months Ended March 31, 2023
635.5
810.4
52.8
52.7
9.4
16.1
0.3
16.4
10.1
(4.3
23.2
217.8
698.7
912.1
0.9
8.2
9.1
218.7
706.9
209.1
903.4
Short-term Debt
Revolving Credit Facility and CP Program
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 millions) as of:
Amount outstanding
Letters of credit (a)
Available capacity
Weighted average interest rates
Revolving Credit Facility and CP Program borrowing activity was as follows (dollars in millions):
Maximum amount outstanding (based on daily outstanding balances)
548.7
Average amount outstanding (based on daily outstanding balances)
331.3
4.91
%
Financial Covenants
We were in compliance with all of our Revolving Credit Facility covenants as of March 31, 2024. 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 March 31, 2024, our Consolidated Indebtedness to Capitalization Ratio was 0.57 to 1.00.
Wyoming Electric was in compliance with all covenants within its financing agreements as of March 31, 2024. Wyoming Electric is required to maintain a debt to capitalization ratio of no more than 0.60 to 1.00. As of March 31, 2024, Wyoming Electric's debt to capitalization ratio was 0.52 to 1.00.
Equity
At-the-Market Equity Offering Program
ATM activity was as follows (in millions, except Average price per share amounts):
August 4, 2020 ATM Program
Proceeds, (net of issuance costs of $0.0 and $(0.3), respectively)
Number of shares issued
0.4
June 16, 2023 ATM Program
Proceeds, (net of issuance costs of $(0.3) and $0.0, respectively)
Total activity under both ATM Programs
Proceeds, (net of issuance costs of $(0.3) and $(0.3), respectively)
Average price per share
52.51
62.21
As of March 31, 2024, there were 47,596 shares issued under the ATM Program, but not settled.
A reconciliation of share amounts used to compute earnings per share in the accompanying Consolidated Statements of Income was as follows (in millions, except per share amounts):
Weighted average shares - basic
Dilutive effect of equity compensation
Weighted average shares - diluted
Net income available for common stock, per share - Diluted
The following securities were excluded from the diluted earnings per share computation because of their anti-dilutive nature (in millions of shares):
Equity compensation
Restricted stock
Anti-dilutive shares excluded from computation of earnings per share
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.
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:
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.
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.
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 April 2024 through December 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 and (short) positions as of:
Notional Amounts (MMBtus)
Maximum Term (months) (a)
Natural gas futures purchased
650,000
Natural gas options purchased, net
2,850,000
Natural gas basis swaps purchased
1,050,000
Natural gas over-the-counter swaps, net (b)
2,600,000
3,890,000
21
Natural gas physical contracts, net (c)
(444,110
12,582,415
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 March 31, 2024, the Company posted $0.1 million related to such provisions, which is included in Other current assets on the Consolidated Balance Sheets.
18
Derivatives by Balance Sheet Classification
The following table presents the fair value and balance sheet classification of our derivative instruments (in millions) as of:
Balance Sheet Location
March 31,2024
December 31,2023
Derivatives designated as hedges:
Liability derivative instruments:
Current commodity derivatives
Noncurrent commodity derivatives
(0.2
Total derivatives designated as hedges
Derivatives not designated as hedges:
(1.3
(3.8
Total derivatives not designated as hedges
(3.9
Derivatives Designated as Hedge Instruments
The impact of cash flow hedges on our Consolidated Statements of Comprehensive Income and Consolidated Statements of Income are presented below for the three months ended March 31, 2024 and 2023. 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.
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
Interest rate swaps
Interest expense
Commodity derivatives
(2.6
(2.0
3.1
As of March 31, 2024, $3.6 million of net losses related to our interest rate swaps and commodity derivatives are expected to be reclassified from AOCI into earnings within the next 12 months. As market prices fluctuate, estimated and actual realized gains or losses will change during future periods.
Derivatives Not Designated as Hedge Instruments
The following table summarizes the impacts of derivative instruments not designated as hedge instruments on our Consolidated Statements of Income for the three months ended March 31, 2024 and 2023. 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.
Derivatives Not Designated as Hedging Instruments
Location of Gain/(Loss) on Derivatives Recognized in Income
Amount of Gain/(Loss) on Derivatives Recognized in Income
(3.1
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. We did not have any net unrealized losses included in our Regulatory asset accounts related to these financial instruments in our Gas Utilities as of March 31, 2024 and the amount was $5.1 million as of December 31, 2023.
19
We use the following fair value hierarchy for determining inputs for our financial instruments. Our assets and liabilities for financial instruments are classified and disclosed in one of the following fair value categories:
Level 1 — Unadjusted quoted prices available in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. Level 1 instruments primarily consist of highly liquid and actively traded financial instruments with quoted pricing information on an ongoing basis.
Level 2 — Pricing inputs include quoted prices for identical or similar assets and liabilities in active markets other than quoted prices in Level 1, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 — Pricing inputs are generally less observable from objective sources. These inputs reflect management’s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels. We record transfers, if necessary, between levels at the end of the reporting period for all of our financial instruments.
Transfers into Level 3, if any, occur when significant inputs used to value the derivative instruments become less observable, such as a significant decrease in the frequency and volume in which the instrument is traded, negatively impacting the availability of observable pricing inputs. Transfers out of Level 3, if any, occur when the significant inputs become more observable, such as when the time between the valuation date and the delivery date of a transaction becomes shorter, positively impacting the availability of observable pricing inputs.
Recurring Fair Value Measurements
Derivatives
The commodity contracts for our Utilities segments are valued using the market approach and include forward strip pricing at liquid delivery points, exchange-traded futures, options, basis swaps and over-the-counter swaps and options (Level 2) for wholesale electric energy and natural gas contracts. For exchange-traded futures, options and basis swap assets and liabilities, fair value was derived using broker quotes validated by the exchange settlement pricing for the applicable contract. For over-the-counter instruments, the fair value is obtained by utilizing a nationally recognized service that obtains observable inputs to compute the fair value, which we validate by comparing our valuation with the counterparty. The fair value of these swaps includes a credit valuation adjustment based on the credit spreads of the counterparties when we are in an unrealized gain position or on our own credit spread when we are in an unrealized loss position. For additional information, see Note 1 of our Notes to the Consolidated Financial Statements in our 2023 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 as permitted by GAAP that were accounted for at fair value on a recurring basis for derivative instruments.
As of March 31, 2024
Level 1
Level 2
Level 3
Cash Collateral and Counterparty Netting (a)
Assets:
Commodity derivatives - Gas Utilities
Liabilities:
2.1
As of December 31, 2023
(1.9
6.8
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 2023 Annual Report on Form 10-K.
Other Fair Value Measures
The carrying amount of cash and cash equivalents, restricted cash and equivalents and short-term borrowings approximates fair value due to their liquid or short-term nature. Cash, cash equivalents and restricted cash are classified in Level 1 in the fair value hierarchy. Notes payable consist of commercial paper borrowings and are not traded on an exchange; therefore, they are classified as Level 2 in the fair value hierarchy.
The following table presents the carrying amounts and fair values of financial instruments not recorded at fair value on the Consolidated Balance Sheets (in millions) as of:
Carrying Amount
Fair Value
Long-term debt, including current maturities (a)
4,402.8
4,155.6
4,401.2
4,215.6
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 millions):
Amount Reclassified from AOCI
Location on the Consolidated Statements of Income
Gains and (losses) on cash flow hedges:
Commodity contracts
Income tax
Income tax expense
Total reclassification adjustments related to cash flow hedges, net of tax
(2.1
Total reclassifications
Balances by classification included within AOCI, net of tax on the accompanying Consolidated Balance Sheets were as follows (in millions):
Derivatives Designated as Cash Flow Hedges
Interest Rate Swaps
Commodity Derivatives
Employee Benefit Plans
(6.1
(2.5
(6.2
Other comprehensive income (loss)
before reclassifications
Amounts reclassified from AOCI
2.6
(5.5
As of December 31, 2022
(8.3
(1.2
As of March 31, 2023
(7.7
Components of Net Periodic Expense
The components of net periodic expense were as follows (in millions):
Defined Benefit Pension Plan
Supplemental Non-qualified Defined Benefit Plans
Non-pension Defined Benefit Postretirement Healthcare Plan
Service cost
1.0
Interest cost
4.4
Expected return on plan assets
Net amortization of prior service costs
Recognized net actuarial loss (gain)
Net periodic expense (benefit)
1.3
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 three months of 2024 and anticipated contributions for 2024 and 2025 are as follows (in millions):
Contributions Made
Additional Contributions
Contributions
Anticipated for 2024
Anticipated for 2025
2.3
3.4
Supplemental Non-qualified Defined Benefit and Defined Contribution Plans
2.8
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. The revenue procedure may be adopted in tax years ending after May 1, 2023. 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 March 31, 2024 Compared to the Three Months Ended March 31, 2023
Income tax (expense) for the three months ended March 31, 2024 was $16.9 million compared to $14.7 million reported for the same period in 2023. For the three months ended March 31, 2024, the effective tax rate was 11.4% which was comparable to 11.1% for the same period in 2023.
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. Our CODM reviews capital expenditures by operating segment rather than any individual or total asset amount.
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. Corporate and Other also includes business development activities that are not part of our operating segments and inter-segment eliminations. Our operating segments are equivalent to our reportable segments.
Segment information was as follows (in millions):
External revenues
219.3
507.1
Inter-segment revenues
1.6
64.6
130.8
Capital expenditures (a)
86.9
85.0
174.3
215.9
705.3
61.1
114.6
47.8
1.1
103.7
Accounts Receivable and Allowance for Credit Losses
Following is a summary of Accounts receivable, net included in the accompanying Consolidated Balance Sheets (in millions) as of:
Billed Accounts Receivable
216.1
198.5
Unbilled Revenue
122.2
154.0
Less: Allowance for Credit Losses
(2.2
Account Receivable, net
Changes to allowance for credit losses for the three months ended March 31, 2024 and 2023, respectively, were as follows (in millions):
Balance at Beginning of Year
Additions Charged to Costs and Expenses
Recoveries and Other Additions
Write-offs and Other Deductions
Balance at March 31,
2.2
(1.4
3.9
5.4
Materials, Supplies and Fuel
The following amounts by major classification are included in Materials, supplies and fuel on the accompanying Consolidated Balance Sheets (in millions) as of:
Materials and supplies
107.4
105.9
Fuel - Electric Utilities
7.5
7.7
Natural gas in storage
15.7
47.3
Total materials, supplies and fuel
Accrued Liabilities
The following amounts by major classification are included in Accrued liabilities on the accompanying Consolidated Balance Sheets (in millions) as of:
Accrued employee compensation, benefits and withholdings
52.2
74.8
Accrued property taxes
55.8
Customer deposits and prepayments
60.3
76.0
Accrued interest
56.0
46.3
Other (none of which is individually significant)
39.6
43.5
Total accrued liabilities
Except as described in Note 2, there have been no events subsequent to March 31, 2024, which would require recognition in the Consolidated Financial Statements or disclosures.
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 2023 Form 10-K.
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 aspiration is to be the trusted energy partner across our growing eight-state footprint, including Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. Our strategy is centered on four critical priorities: Growth—to grow strategically and achieve strong financial performance, Operational Excellence—delivering safe, reliable and cost-effective energy to meet our customers’ needs, Transformation—be a simple and connected company positioned for growth, and People & Culture—retain and attract a talented, engaged and thriving team.
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 140 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.
Environmental Matters - Power Plant Greenhouse Gas Regulations
In April 2024, the EPA published final rules addressing control of CO2 emissions from the power sector. The rules regulate new natural gas generating units and emission guidelines for existing coal and certain natural gas generation. The rules create subcategories of coal units based on planned retirement date and subcategories of natural gas combustion turbines and combined cycle units based on utilization. The CO2 control requirements vary by subcategory. We are currently evaluating the impact of these rules and believe that most costs incurred as a result of the new rules will be recoverable through our regulatory mechanisms.
Business Segment Recent Developments
Certain lines of business in which we operate are highly seasonal, and revenue from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Demand for electricity and natural gas is sensitive to seasonal cooling, heating and industrial load requirements. In particular, the normal peak usage season for our Electric Utilities is June through August while the normal peak usage season for our Gas Utilities is November through March. Significant earnings variances can be expected between the Gas Utilities segment’s peak and off-peak seasons. Due to this seasonal nature, our results of operations for the three months ended March 31, 2024 and 2023, and our financial condition as of March 31, 2024 and December 31, 2023, are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period or for the entire year.
All amounts are presented on a pre-tax basis unless otherwise indicated. Minor differences in amounts may result due to rounding.
2024 vs 2023 Variance
Operating income (loss):
3.5
16.2
Corporate and Other (a)
18.4
Interest expense, net
(44.0
(43.5
(0.5
(1.5
14.2
(0.4
13.8
Total earnings per share of common stock, Diluted
0.14
Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023:
The variance to the prior year included the following:
Segment Operating Results
A discussion of operating results from our business segments follows. Unless otherwise indicated, segment information does not include inter-company eliminations and amounts are presented on a pre-tax basis.
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.
Operating results for the Electric Utilities were as follows:
Revenue:
Electric - regulated
210.8
206.7
Other - non-regulated
11.4
12.0
Total revenue
Cost of fuel and purchased power:
54.3
54.7
Total cost of fuel and purchased power
55.4
Electric Utility margin (non-GAAP)
167.4
163.3
57.4
35.3
35.1
0.2
10.0
9.7
102.8
102.2
Three Months Ended March 31, 2024, Compared to the Three Months Ended March 31, 2023:
Electric Utility margin increased as a result of the following:
New rates and rider recovery
8.8
Off-system excess energy sales
(2.3
Weather
Other
Operations and maintenance expense was comparable to the same period in the prior year primarily due to $4.5 million of lower outside services expenses, $2.0 million of lower employee-related expenses and $1.3 million of lower generation expenses driven by the timing of planned outages offset by a prior year one-time $7.7 million gain on the sale of Northern Iowa Windpower assets.
Depreciation and amortization was comparable to the same period in the prior year.
Taxes - property and production was comparable to the same period in the prior year.
Operating Statistics
Revenue (in millions)
Quantities Sold (GWh)
Residential
62.5
59.8
388.8
393.9
Commercial
62.1
511.8
510.8
Industrial
44.1
38.9
553.6
455.9
Municipal
4.3
34.2
35.8
Subtotal Retail Revenue - Electric
177.6
165.1
1,488.4
1,396.4
Contract Wholesale
148.0
144.7
Off-system/Power Marketing Wholesale (a)
115.6
256.9
Other (b)
24.4
20.1
Total Regulated
1,752.0
1,798.0
Non-Regulated (c)
28.0
54.4
Total Revenue and Quantities Sold
1,780.0
1,852.4
Other Uses, Losses or Generation, net (d)
101.8
138.3
Total Energy
1,881.8
1,990.7
69.7
73.8
555.7
604.5
80.6
621.1
708.8
60.8
46.7
575.2
484.7
11.1
11.6
Quantities Generated and Purchased by Fuel Type (GWh)
Generated:
Coal
680.7
675.0
Natural Gas and Oil
523.4
501.1
Wind (a)
174.0
230.7
Total Generated
1,378.1
1,406.8
Purchased:
Coal, Natural Gas, Oil and Other Market Purchases
288.9
489.8
Wind and Solar (b)
214.8
94.1
Total Purchased
503.7
583.9
Total Generated and Purchased
29
Quantities Generated and Purchased (GWh)
161.6
160.2
534.6
564.0
215.2
230.6
466.7
452.0
90.2
197.6
100.6
157.0
295.7
209.8
17.2
19.5
Degree Days
Actual
Variance from Normal
Heating Degree Days:
2,507
(6)%
2,751
8%
3,134
(9)%
3,446
5%
2,986
(5)%
3,301
10%
Combined (a)
2,820
(7)%
3,099
7%
Contracted generating facilities Availability(a) by fuel type
95.6%
92.7%
Natural gas and diesel oil
96.7%
94.3%
Wind
90.3%
92.5%
Total Availability
95.5%
93.6%
Wind Capacity Factor (a)
39.8%
48.1%
30
Operating results for the Gas Utilities were as follows:
Natural gas - regulated
481.7
674.8
(193.1
32.1
(5.1
(198.2
Cost of natural gas sold:
259.9
454.1
(194.2
16.9
(14.9
Total cost of natural gas sold
261.9
471.0
Gas Utility margin (non-GAAP)
246.8
235.9
10.9
78.6
87.1
(8.5
26.5
7.0
116.0
121.3
(5.3
Gas Utility margin increased as a result of the following:
13.1
Mark-to-market on non-utility natural gas commodity contracts
Retail customer growth and usage
(7.4
Operations and maintenance expense decreased primarily due to $5.3 million of lower employee-related expenses, $1.6 million of lower bad debt expense attributable to lower customer billings and $1.2 million of lower travel expenses.
Depreciation and amortization increased primarily due to a higher asset base driven by prior year capital expenditures.
Quantities Sold and Transported (Dth in millions)
302.0
428.6
27.8
29.9
119.8
182.5
13.0
14.0
Total Distribution (a)
429.7
621.7
41.7
45.0
Transportation and Transmission
52.0
53.1
47.2
88.4
92.2
Non-regulated Services (b)
110.7
126.6
11.5
117.7
12.9
14.1
61.8
125.5
13.5
14.3
50.3
72.2
114.3
164.9
27.1
53.9
72.8
13.2
Heating Degree Days
Arkansas Gas (a)
1,772
(12)%
1,666
(18)%
2,743
(3)%
3,087
2,898
(16)%
3,247
Kansas Gas (a)
2,291
2,373
(4)%
2,802
3,054
--%
3,156
3,624
21%
Combined (b)
2,865
(8)%
3,196
4%
Corporate and Other operating results, including inter-segment eliminations, were as follows:
Operating (loss)
Operating loss was comparable to the same period in the prior year.
Interest expense, net was comparable to the same period in the prior year.
Other income (expense), net was comparable to the same period in the prior year.
Income tax (expense) increased primarily due to higher pre-tax income. The effective tax rate was 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.
There have been no material changes in Liquidity and Capital Resources from those reported in Item 7 of our 2023 Annual Report on Form 10-K except as described below.
CASH FLOW ACTIVITIES
The following tables summarize our cash flows for the three months ended March 31, 2024:
Operating Activities:
Non-cash adjustments to Net income
90.4
80.8
9.6
Total earnings
222.0
198.2
23.8
19.1
104.8
(85.7
Accounts payable and accrued liabilities
67.6
(99.9
132.3
(118.0
Other operating activities
(1.1
(95.3
Three Months Ended March 31, 2024, Compared to the Three Months Ended March 31, 2023
Net cash provided by operating activities was $95.3 million lower than the same period in 2023. The variance to the prior year was primarily attributable to:
Investing Activities:
Capital expenditures
(57.1
(18.3
(75.4
Net cash used in investing activities was $75.4 million higher than the same period in 2023. The variance to the prior year was primarily attributable to:
Financing Activities:
(3.0
3.8
Short-term and long-term debt borrowings, net
(185.6
185.6
4.0
189.3
Net cash used in financing activities was $189.3 million lower than the same period in 2023. The variance to the prior year was primarily attributable to:
34
CAPITAL RESOURCES
See Note 5 of the Condensed Notes to Consolidated Financial Statements for recent financing updates.
Covenant Requirements
The Revolving Credit Facility and Wyoming Electric’s financing agreements contain covenant requirements. We were in compliance with these covenants as of March 31, 2024. 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. We plan to re-finance our $600 million, 1.037%, senior unsecured notes due August 23, 2024, at or before maturity date.
CREDIT RATINGS
The following table represents the credit ratings and outlook and risk profile of BHC at March 31, 2024:
Rating Agency
Senior Unsecured Rating
Outlook
BBB+
Stable
Baa2
Fitch (a)
Negative
The following table represents the credit ratings of South Dakota Electric at March 31, 2024:
Senior Secured Rating
A
CAPITAL REQUIREMENTS
Capital Expenditures
Forecasted
Capital Expenditures by Segment
Three Months Ended March 31, 2024 (a)
2024 (b)
2025
2026
2027
2028
87
409
287
466
199
264
85
407
387
368
372
373
Incremental Projects (c)
100
400
50
174
840
803
1,263
648
716
Dividends
Dividends paid on our common stock totaled $44.4 million for the three months ended March 31, 2024, or $0.65 per share. On April 22, 2024, our board of directors declared a quarterly dividend of $0.65 per share payable June 1, 2024, equivalent to an annual dividend of $2.60 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.
A summary of our critical accounting estimates is included in our 2023 Annual Report on Form 10-K. There were no material changes made as of March 31, 2024.
Other than the pronouncements reported in our 2023 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 2023 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 March 31, 2024. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective at March 31, 2024.
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2024, 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.
ITEM 1. LEGAL PROCEEDINGS
For information regarding legal proceedings, see Note 3 of the Condensed Notes to Consolidated Financial Statements and Note 3 in Item 8 of our 2023 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 2023 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 March 31, 2024:
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
January 1, 2024 - January 31, 2024
1
53.43
February 1, 2024 - February 29, 2024
14,597
51.62
March 1, 2024 - March 31, 2024
51.44
14,599
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 March 31, 2024.
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
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*
Inline 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*
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Document
104*
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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.
/s/ Linden R. Evans
Linden R. Evans, President and
/s/ Kimberly F. Nooney
Kimberly F. Nooney, Senior Vice President and
Chief Financial Officer
Dated:
May 9, 2024