Black Hills Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022; filed August 4, 2022. Black Hills provides regulated electric and natural gas service to approximately 1.3 million customers across eight states. Results are seasonal and interim performance is not necessarily indicative of full-year results.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $474.2 million | $372.6 million | $1,297.8 million | $1,006.0 million |
| Operating income | $72.4 million | $67.3 million | $245.7 million | $205.6 million |
| Net income | $35.8 million | $28.3 million | $156.9 million | $128.8 million |
| Net income available to common shareholders | $33.4 million | $25.2 million | $150.9 million | $121.5 million |
| Diluted EPS | $0.52 | $0.40 | $2.33 | $1.93 |
- Revenue rose 27% in Q2 and 29% year to date; operating income increased 8% and 20%, respectively. GAAP operating margin was approximately 15.3% in Q2 versus 18.1% a year earlier, and 18.9% for the first half versus 20.4%.
- Growth in reported revenue largely reflects higher natural-gas commodity costs passed through to customers. Gas Utilities’ operating income increased $8.2 million in Q2 and $29.7 million for the first half; Electric Utilities’ operating income decreased $2.2 million in Q2 but increased $9.2 million year to date.
- Operating cash flow was $442.0 million in the first half, compared with a $250.2 million outflow in 2021. The $692.2 million improvement was primarily related to changes in regulatory assets and liabilities, including recovery of Winter Storm Uri costs; it should not be viewed as solely a change in underlying earnings.
- Capital expenditures were $293.8 million in the first half. Investing cash outflow was $291.4 million; financing cash outflow was $149.1 million. Common dividends paid totaled $77.1 million, or $0.595 per share per quarter.
- At June 30, cash and cash equivalents were $10.2 million, with total current assets of $760.4 million and current liabilities of $785.2 million. Long-term debt, net of current maturities, was $4.13 billion and short-term notes payable were $335.1 million. The company reported $401 million available under its $750 million revolving credit/CP capacity, net of borrowings and letters of credit.
- The consolidated indebtedness-to-capitalization ratio was 60.8%, within the covenant limit of less than 65%; Wyoming Electric was also in compliance with its covenant. Management said 92% of debt was fixed rate. Credit ratings were BBB+ (S&P and Fitch) and Baa2 (Moody’s), all with stable outlooks.
Material changes and developments
- Winter Storm Uri regulatory assets totaled $403.0 million at June 30, down from $509.0 million at year-end 2021. Utilities collected $111 million from customers in the first half; the remaining asset had an estimated weighted-average recovery period of 3.0 years. Wyoming Gas still awaited a final decision on carrying costs and recovery period.
- Q2 Gas Utilities results included $12.3 million of increased margin from carrying costs on the Uri asset, including a one-time $10.3 million true-up to reflect authorized rates. Recovery timing and commission decisions remain relevant to cash flow and earnings.
- Inflation, higher energy and materials costs, supply-chain constraints, rising rates and tight labor markets were identified as pressures. Management reported moderate net impacts to date, noted that energy costs are generally passed through under regulatory mechanisms, and said project delays could occur if costs rise materially or materials are unavailable.
- Arkansas Gas requested $22 million of annual revenue in a rate review, with a decision targeted for Q4 2022. Wyoming Electric requested $15 million of annual revenue, with a decision targeted for Q1 2023.
- Wyoming Electric signed a five-year interruptible service agreement for up to 45 MW, with an option to expand to 75 MW; service was expected to begin in Q4 2022. Colorado Electric’s proposed 2030 Ready Plan includes 149 MW of wind, 258 MW of solar and 50 MW of battery storage; a regulatory decision was expected by April 2023.
Outlook, risks and unusual items
- Forecast capital expenditures were $611 million for 2022, $600 million for 2023 and $684 million for 2024. Management expects to fund capital plans through operating cash flow, revolving-credit/CP borrowings and ATM share issuance. The filing did not provide a specific full-year earnings or EPS guidance figure.
- The board declared a quarterly dividend of $0.595 per share payable September 1, 2022. Future dividends remain subject to board approval, financial condition, capital needs and other factors.
- A jury awarded $41 million against the company and two subsidiaries in the GT Resources Costa Rica concession dispute. Black Hills said it believes it has meritorious defenses and intends to appeal; the filing stated any related liability was not reasonably estimable.
- TC Solar gave notice of intent to terminate its agreement to supply up to 200 MW of renewable energy to Colorado Electric. The utility planned to seek replacement resources through its clean-energy planning process.
- Key exposures include regulatory cost recovery and timing, commodity and interest-rate volatility, financing access, execution of capital projects, supply-chain availability, inflation, and achievement of emissions goals. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Progress and final regulatory treatment of the remaining Winter Storm Uri balance, particularly Wyoming Gas recovery terms and carrying costs.
- Whether the requested Arkansas and Wyoming rate increases are approved, and how their timing compares with planned capital spending.
- Outcome of the GT Resources appeal and any subsequent assessment of potential liability.
- Execution, cost and financing of the 2022–2024 capital program amid inflation, supply constraints and higher interest rates.
- Whether the new Wyoming interruptible load and Colorado resource plan proceed as expected, including related costs, customer protections and regulatory approvals.
- How much first-half operating cash flow reflects ongoing operations versus timing of regulatory recoveries and working-capital movements.