Business context and reporting period
Black Hills Corporation filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2021. It provides regulated electric and natural gas service to about 1.3 million customers in eight states, alongside power generation and coal mining operations. Results are seasonal and interim performance is not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $380.6 million | $346.6 million | $1,386.6 million | $1,210.6 million |
| Operating income | $89.9 million | $82.2 million | $295.5 million | $302.4 million |
| Net income available to common stock | $44.1 million | $36.3 million | $165.6 million | $150.4 million |
| Diluted EPS | $0.70 | $0.58 | $2.63 | $2.41 |
Q3 operating margin was approximately 23.6%, compared with 23.7% a year earlier; nine-month operating margin was approximately 21.3%, down from 25.0%. These are calculated from reported revenue and operating income. The filing presents segment gross margin as a non-GAAP measure: electric utilities gross margin was $130.3 million in Q3 and $335.3 million year to date; gas utilities gross margin was $121.5 million and $454.0 million, respectively.
Nine-month operating cash flow was negative $144.8 million, versus positive $419.5 million in 2020, primarily reflecting the cash impact of Winter Storm Uri regulatory costs. Investing cash outflow was $484.1 million, including $497.8 million of property, plant and equipment additions. Financing provided $633.1 million. Cash and restricted cash totaled $14.9 million at September 30.
At September 30, total assets were $8.91 billion. Current assets were $627.7 million versus current liabilities of $758.1 million. Long-term debt was $4.13 billion and notes payable were $332.5 million; the company reported a 62.4% consolidated indebtedness-to-capitalization ratio against a covenant limit below 65%. It had $394 million of available capacity under its $750 million revolving credit facility and commercial paper program. Credit ratings were BBB+ (S&P and Fitch) and Baa2 (Moody’s), all with stable outlooks.
Material changes versus the prior comparable period
- Q3 revenue rose about 9.8% and common-stock earnings rose about 21.6%; diluted EPS increased from $0.58 to $0.70. Operating income rose $7.6 million.
- For the first nine months, revenue increased about 14.5% and common-stock earnings increased about 10.1%, while operating income declined $6.9 million. Lower income tax expense and the absence of the prior-year $6.9 million investment impairment supported net income growth.
- Nine-month electric utilities adjusted operating income fell $6.7 million, while gas utilities were nearly unchanged. Power Generation and Mining adjusted operating income increased $1.4 million and $1.8 million, respectively.
- Regulatory assets increased to $830.1 million from $278.3 million at year-end 2020, principally reflecting Winter Storm Uri costs. The company recorded a $532.8 million Uri regulatory asset.
- Debt financing included $600 million of 1.037% senior notes due 2024, used to repay the $800 million Uri-related term loan. The company also issued about $63 million of common stock through its at-the-market program during the first nine months.
Outlook, management commentary, risks and unusual items
- Winter Storm Uri: Utilities sought recovery of approximately $546 million of incremental costs over a weighted-average 3.7-year period and requested carrying-cost recovery. Several jurisdictions had approved final or interim recovery; $15 million had been collected from customers through September. Recovery timing, periods and carrying costs remain subject to regulatory decisions. Black Hills Energy Services also incurred $8.2 million of unrecoverable Uri costs.
- Regulatory outlook: Colorado Gas reached a settlement expected to provide $6.5 million in annual revenue beginning January 1, 2022, subject to approval. Nebraska Gas’s new rates were expected to generate $6.5 million of annual revenue. Iowa Gas sought $8.3 million of additional annual revenue; Kansas Gas reached a proposed settlement shifting $6.6 million of rider revenue to base rates, subject to approval.
- Capital and financing: Forecast capital expenditures were $678 million for 2021, $611 million for 2022, $600 million for 2023, $684 million for 2024 and $653 million for 2025. The company planned to issue an additional $40–$60 million of ATM common stock in Q4 2021. The board declared a quarterly dividend of $0.595 per share, payable December 1, 2021; future dividends remain subject to board approval and financial conditions.
- Projects and operating events: Wyoming Electric planned to seek approval for the Ready Wyoming transmission project in Q1 2022, with construction expected to begin in early 2023 if approved. A 200 MW Colorado solar project under a 15-year PPA was expected to be completed by the end of 2023. A September unplanned Wygen I outage reduced operating income by $2.3 million.
- Risks: Management cited cost recovery and regulatory timing, capital-project execution and financing, inflation and volatile energy prices, market and interest-rate exposure, and the ability to meet greenhouse-gas goals. The company reported no material COVID-19 financial impact through September but continued monitoring workforce, customer-payment and supply-chain effects. It stated that disclosure controls were effective and reported no material changes in risk factors.
- No consolidated earnings guidance is stated in the provided filing text.
Important facts for investors to verify
- Regulatory commission decisions, customer collections and carrying-cost recovery for the approximately $546 million of Uri costs, including whether the recorded regulatory asset is fully recoverable.
- Operating cash flow and liquidity as Uri-related costs are recovered, alongside the company’s ability to meet its capital program and debt covenants.
- Approval and implementation of pending gas utility rate settlements and the expected revenue contributions.
- Execution, timing and financing of forecast capital expenditures, Ready Wyoming, and the Colorado solar PPA.
- Whether operating performance, commodity costs and any future outages affect earnings, margins, or dividend capacity.