Black Hills Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This annual filing reports full-year results; it does not provide a clear standalone fourth-quarter income statement. Black Hills is a regulated electric and gas utility serving approximately 220,000 electric and 1.1 million natural gas customers across eight states, with related generation and coal-mining operations.
Financial performance
- Revenue: $2.552 billion, up 31% from $1.949 billion in 2021. Higher natural gas commodity costs drove much of the increase in Gas Utilities revenue; these costs are generally passed through to customers.
- Operating income: $455.2 million, up 11% from $409.4 million. Electric Utilities operating income was $214.3 million (+$11.6 million); Gas Utilities was $244.2 million (+$33.0 million).
- Net income available to common stock: $258.4 million, versus $236.7 million. Diluted EPS was $3.97, up from $3.74. The effective tax rate increased to 8.5% from 2.8%, partly reflecting prior-year tax benefits.
- Utility margins (non-GAAP): Electric margin was $633.9 million, up $39.6 million; gas margin was $704.0 million, up $73.9 million. These measures exclude certain operating costs and are not GAAP operating income.
- Cash flow and investment: Operating cash flow was $584.8 million, compared with an outflow of $64.6 million in 2021. The swing largely reflected recovery and timing of Winter Storm Uri regulatory balances. Capital expenditures were $604.4 million, down from $677.5 million.
- Debt and liquidity: At year-end, notes payable were $535.6 million, current long-term debt maturities $525.0 million, and long-term debt net of current maturities $3.607 billion. The total debt ratio was 61%, versus 62% in 2021. Cash and cash equivalents were $21.4 million; availability under the $750 million revolving facility/CP program was $189.8 million after borrowings and letters of credit.
- Dividends: 2022 dividends were $2.41 per share, with a 61% payout ratio. In January 2023, the board declared a quarterly dividend of $0.625 per share ($2.50 annualized); management targets a 55%–65% payout ratio.
Changes and material developments
- Revenue growth reflected higher gas prices and volumes, new rates and rider recovery, colder weather, customer growth, and increased electric transmission and off-system sales. Fuel, purchased power and natural gas costs rose to $1.231 billion from $741.9 million.
- Operating costs also increased: operations and maintenance rose to $548.4 million from $501.7 million, while depreciation, depletion and amortization increased to $250.9 million from $236.0 million. Net interest expense rose to $161.0 million from $152.4 million, primarily due to higher rates and short-term borrowings.
- Electric Utilities’ power supply mix included 35.1% coal, 18.8% natural gas and diesel, and 11.4% wind generation; purchased power supplied 34.7% of total requirements. The total weighted-average fuel and purchased-power cost rose to $32.82/MWh from $30.17/MWh.
- Winter Storm Uri regulatory assets were $348.0 million at year-end, down from $509.0 million. Regulators approved recovery of the $546 million of incremental costs; the remaining balance had an estimated weighted-average recovery period of 2.6 years.
Outlook, risks and unusual items
- Investment plan: The company estimated approximately $3.5 billion of capital investment over five years. Forecast 2023 capital expenditures were $615 million; management also described a roughly $600 million next-year investment program while emphasizing balance-sheet and liquidity discipline.
- Energy transition and growth: Management’s goals include reducing electric utility GHG emissions intensity 40% by 2030 and 70% by 2040 (from a 2005 baseline), and achieving net zero Scope 1 methane emissions across the gas distribution system by 2035. Planned initiatives include renewable generation, pipeline replacement, RNG, and transmission expansion. Regulatory approval and project economics remain important uncertainties.
- Financing: Management planned to refinance $525 million of 4.25% notes due November 2023 and a portion of short-term borrowings. At year-end, 88% of debt was fixed-rate; a 100-basis-point increase on variable-rate debt was estimated to add $4.1 million in annual pretax interest expense.
- Regulatory and operating risks: Recovery of prudently incurred costs and returns depends on commission decisions. Inflation, rising rates, supply-chain constraints, labor availability, weather, fuel prices, cyberattacks, environmental rules, and potential changes in customer demand could affect costs, projects, earnings, cash flow, or liquidity.
- Contingency: A jury awarded GT Resources $41 million in a dispute involving a Costa Rica concession. Black Hills appealed and stated that any liability was not reasonably estimable.
- Goodwill: No impairment was recorded. Gas Utilities’ estimated fair value exceeded carrying value by less than 10%, leaving it potentially vulnerable if adverse conditions persist or worsen.
- Pension: The pension plan’s unfunded status was $35 million, up from $20 million; the company did not expect or plan to make a pension contribution in 2023.
- Audit and controls: Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. Regulatory accounting was identified as a critical audit matter because of management judgment about future cost recovery and customer refunds.
Investor verification priorities
- Review the timing and regulatory recovery of the remaining $348 million Winter Storm Uri asset, including carrying costs.
- Confirm the refinancing of the $525 million 2023 notes, short-term borrowing levels, and available liquidity as capital spending proceeds.
- Track actual capital expenditures against the approximately $3.5 billion five-year plan and assess recovery through rates and riders.
- Monitor the $41 million GT Resources appeal and any change in the company’s estimate of potential liability.
- Assess Gas Utilities goodwill headroom, rate-case outcomes, and whether higher operating and financing costs can be recovered.