Black Hills Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 14, 2024. Black Hills is a regulated electric and natural gas utility holding company, with vertically integrated generation and coal mining. It served approximately 222,000 electric and 1.116 million natural gas customers across eight states.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $2,331.3 million | $2,551.8 million |
| Operating income | $472.7 million | $455.2 million |
| Net income | $276.0 million | $270.8 million |
| Net income available to common shareholders | $262.2 million | $258.4 million |
| Diluted EPS | $3.91 | $3.97 |
| Net cash from operating activities | $944.4 million | $584.8 million |
| Cash and cash equivalents at year-end | $86.6 million | $21.4 million |
| Total debt | $4,401.2 million | $4,667.9 million |
| Debt to capitalization | 57.8% | 60.9% |
Revenue fell 8.6%, primarily reflecting lower natural gas and energy commodity costs passed through to customers. Operating income increased 3.8% and net income increased 1.9%, while diluted EPS declined from $3.97 to $3.91 as weighted average diluted shares rose to 67.1 million from 65.0 million. Net interest expense increased $6.9 million to $167.9 million. The effective tax rate was 8.5% in both years.
Electric Utilities operating income rose to $248.8 million from $214.3 million; its non-GAAP utility margin was $664.9 million, up $31.0 million. Gas Utilities operating income declined to $228.8 million from $244.2 million; its non-GAAP utility margin decreased $3.0 million to $701.0 million. These margin measures exclude specified operating costs and are not GAAP measures.
Cash from operations improved substantially, driven mainly by collections of pass-through revenues and deferred energy costs, lower gas-in-storage balances, and working-capital timing. Cash capital expenditures were $555.6 million, versus $604.4 million in 2022. Year-end available liquidity was $832.9 million, including cash and available capacity under the revolving credit facility and commercial paper program. Stockholders’ equity was $3,215.3 million.
Material changes and unusual items
- Electric results benefited from new rates and rider recovery, a $5.0 million business-interruption insurance recovery related to a 2021 Wygen I outage, and gains on asset sales. The planned Northern Iowa Windpower sale generated a $7.7 million gain, and a Wyoming land sale generated a $3.9 million gain.
- Gas results were pressured by unfavorable weather, higher operating expenses, and a $10.3 million prior-year true-up of Winter Storm Uri carrying costs; new rates, rider recovery, and customer growth partly offset these factors.
- The company issued $350 million of 5.95% notes due 2028 and $450 million of 6.15% notes due 2034. The latter, together with available cash, funded repayment of $525 million of notes that matured in November 2023. A $600 million, 1.0375% note maturity is due in August 2024, and management plans to refinance it.
- Black Hills sold Northern Iowa Windpower assets in March 2023. In January 2024, a subsidiary acquired a landfill renewable natural gas production facility in Iowa.
Outlook, risks and contingencies
Management forecast approximately $4.3 billion of capital investment over 2024–2028, including $840 million in 2024, for utility infrastructure, safety, reliability, customer growth, and strategic projects. Project timing and spending remain subject to evaluation and constraints. The company reported no specific earnings guidance in the provided filing text.
Strategy includes a 260-mile Wyoming transmission expansion, renewable resource procurements, and emissions goals: electric utility emissions-intensity reductions of 40% by 2030 and 70% by 2040, and net-zero methane emissions for Gas Utilities by 2035. The company targets a 55%–65% dividend payout ratio; the board declared a $0.65 quarterly dividend in January 2024. The 2023 annual dividend was $2.50 per share, with a 64% payout ratio.
Management cited inflation, supply-chain constraints, rising interest rates, weather variability, regulatory cost recovery, environmental rules, workforce availability, and cybersecurity among significant risks. The proposed EPA greenhouse-gas rules could require costly changes to generation assets; final rules were expected in the first half of 2024. The remaining Winter Storm Uri regulatory asset was $199.6 million, with a weighted-average recovery period estimated at 2.2 years. The filing identifies a $41 million jury award in a Costa Rica-related dispute; an appellate court reversed and remanded the case, and the company said it did not expect a material impact.
Year-end senior unsecured ratings were Baa2 from Moody’s and BBB+ from S&P and Fitch; Fitch revised its outlook to negative on January 26, 2024. The company was in compliance with debt covenants. Deloitte issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether 2024 refinancing of the $600 million maturity and planned capital spending can be completed on acceptable terms, given interest rates and Fitch’s negative outlook.
- Rate-case outcomes and the timing and prudence of recovery for infrastructure investment, Winter Storm Uri costs, and other regulatory balances.
- Whether mild weather, operating-cost inflation, and supply constraints continue to affect utility margins and project execution.
- Actual costs, regulatory approvals, and customer-rate effects of the transmission and renewable-energy plans and evolving emissions requirements.
- Developments in the remanded litigation and any changes to environmental, pipeline-safety, cybersecurity, or other contingencies.