Black Hills Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited results compared with Q1 2021. Black Hills provides regulated electric and natural gas service to approximately 1.3 million customers across eight states. Results are seasonal and the first quarter is not necessarily indicative of full-year performance.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $823.6 million | $633.4 million; up 30% |
| Operating income | $173.4 million | $138.3 million |
| Net income | $121.0 million | $100.5 million |
| Net income available to common shareholders | $117.5 million | $96.3 million |
| Diluted EPS | $1.82 | $1.54 |
| Operating cash flow | $264.1 million | $(386.1) million |
| Cash capital additions | $136.8 million | $146.3 million |
- Electric Utilities operating income rose to $50.7 million from $39.3 million; reported non-GAAP Electric Utility margin was $154.1 million, up $19.0 million.
- Gas Utilities operating income rose to $123.5 million from $102.1 million; reported non-GAAP Gas Utility margin was $236.7 million, up $27.2 million.
- Revenue growth was concentrated in Gas Utilities, where regulated natural gas revenue rose $218.4 million alongside a $200.7 million increase in regulated gas cost. Higher commodity costs are largely passed through to customers; revenue growth therefore does not translate directly into equivalent earnings growth.
- Income tax expense was $14.5 million versus $0.5 million; the effective tax rate increased to 10.7% from 0.5%, largely because Q1 2021 included $7.6 million of prior-year Colorado TCJA-related tax benefits.
- At March 31, cash and restricted cash totaled $21.3 million. Short-term notes payable were $341.5 million and long-term debt was $4.13 billion. The $750 million revolving facility/CP capacity had $392 million available, after borrowings and letters of credit. The company was within its 65% debt-to-capital covenant, at 61.0%.
Material changes and cash flow
- Operating cash flow improved by $650.2 million year over year, chiefly due to changes in regulatory assets and liabilities, including prior-year Winter Storm Uri costs and current-period customer recovery. The comparison also reflects unusually large Q1 2021 cash outflows.
- Consolidated operating income increased $35.0 million. Management cited higher utility margins, new rates and rider recovery, customer growth, and favorable commodity mark-to-market effects, partly offset by higher operating costs.
- Interest expense rose approximately $0.9 million, primarily due to higher debt balances, including senior notes issued in 2021. Common dividends paid were $0.595 per share, versus $0.565 a year earlier.
Outlook, risks and unusual items
- Capital and funding: The company forecast $611 million of 2022 capital expenditures, including reported first-quarter amounts, and planned to fund investment through operating cash, its revolving facility/CP program, and $100–$120 million of common stock issuance under the ATM during the remaining months of 2022. The board declared a $0.595-per-share quarterly dividend payable June 1, 2022; future dividends remain subject to board approval and other factors.
- Winter Storm Uri: Utilities sought recovery of approximately $546 million of incremental costs. The remaining Uri regulatory asset was $438.7 million at March 31, with an estimated weighted-average recovery period of 3.1 years; $73 million was collected from customers during Q1. Arkansas Gas and Wyoming Gas had interim, not final, approvals. Recovery timing, carrying costs and commission decisions remain relevant.
- Projects and rates: Wyoming Electric sought approval for the estimated $260 million Ready Wyoming transmission project, proposed for phased construction during 2023–2025. Arkansas Gas requested $22 million in annual revenue in a rate review, targeting final rates in Q4 2022. Colorado Electric planned to join the SPP Western Energy Imbalance Service Market in April 2023.
- Contingencies: On April 13, 2022, after quarter-end, a jury awarded $41 million against the company and subsidiaries in the GT Resources dispute. Black Hills said it believes it has meritorious defenses and intends to appeal; it said any liability was not reasonably estimable at filing. A solar PPA counterparty had also given notice of termination, which Black Hills disputed; negotiations were ongoing.
- Operating risks: Management cited inflation, volatile energy prices, supply-chain constraints, rising labor costs, and possible project delays. Regulatory cost recovery, weather, commodity markets, financing access and execution of the capital program may affect results. Management said impacts from macroeconomic trends had been limited to date but remained difficult to predict.
- Disclosure controls were assessed as effective at March 31, 2022; the filing reported no material changes to risk factors or internal controls.
Key facts for investors to verify
- Whether Uri costs, carrying costs and recovery periods receive final regulatory approval and are collected on schedule.
- The basis and ultimate outcome of the $41 million GT Resources verdict, including appeal developments and any recorded liability.
- Whether the company can execute planned capital projects within budget and schedule amid inflation and supply constraints, and secure the proposed ATM financing.
- How much of Q1 earnings and cash-flow improvement reflects durable rate, customer and operating performance versus prior-year tax effects, commodity pass-throughs, mark-to-market changes and regulatory cash-flow timing.