Black Hills Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter earnings report. Black Hills operates regulated electric and gas utilities, power generation, and coal mining businesses, serving approximately 1.3 million customers across eight states.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $1.697 billion | $1.735 billion |
| Operating income | $428.3 million | $406.0 million |
| Net income available to common shareholders | $227.6 million | $199.3 million |
| Diluted earnings per share | $3.65 | $3.28 |
| Cash from operating activities | $541.9 million | $505.5 million |
| Capital expenditures | $755.4 million | $849.8 million |
| Long-term debt, net of current maturities | $3.528 billion | $3.140 billion |
- Revenue decreased about 2%, while operating income rose about 5% and common earnings rose about 14%. Diluted EPS increased from $3.28 to $3.65.
- Electric Utilities gross margin, a non-GAAP measure, was $447.0 million, up from $444.5 million. Gas Utilities gross margin was $620.0 million, up from $584.1 million. Gas Utilities operating income increased $25.9 million, chiefly from new rates, customer growth, and rider revenues.
- Operating cash flow increased $36.4 million. Capital expenditures remained substantial; cash and cash equivalents were $6.4 million at year-end.
- Year-end notes payable were $234.0 million, current maturities of long-term debt $8.4 million, and long-term debt $3.528 billion. The company reported a 60% total debt ratio and 58% long-term debt ratio; it was in compliance with debt covenants. Available revolving-credit capacity was $491 million, producing reported year-end liquidity of $498 million including cash.
- The Board declared a 2021 quarterly dividend of $0.565 per share, or $2.26 annualized. The 2020 dividend payout ratio was 60%.
Material changes versus 2019
- Gas Utilities’ adjusted operating income increased to $215.9 million from $190.0 million, while Electric Utilities’ declined to $156.1 million from $160.3 million. Power Generation income fell to $42.1 million from $44.8 million; Mining income was broadly stable at $12.8 million.
- Consolidated operating income and net income improved despite lower revenue. Lower gas commodity costs reduced reported revenue and cost of sales; management also cited increased gas gross margin from rate changes, growth, and other factors.
- Interest expense increased $5.8 million, primarily due to higher debt balances, partly offset by lower rates. A non-cash impairment of an oil-and-gas investment was $6.9 million, versus $19.7 million in 2019; $1.5 million of carrying value remained.
- 2020 capital spending was below 2019, which included major pipeline, wind, and transmission projects. The company issued $400 million of 2.50% senior notes due 2030 and approximately $99 million of common stock in February.
Outlook, management commentary, and risks
- Management forecasts approximately $2.7 billion of capital investment over 2021–2025, including $647 million in 2021. It expects to fund investment with operating cash flow, credit facilities, commercial paper, and $100–$120 million of common stock issuance through the ATM program. The filing does not provide a clear earnings or EPS guidance range.
- The company announced emissions goals: reduce electric-utility GHG emissions intensity 40% by 2030 and 70% by 2040, and reduce gas-utility GHG emissions 50% by 2035, measured against stated 2005 baselines. A Colorado solar program plans up to 200 MW by the end of 2023; the Corriedale 52.5 MW wind project entered service in November 2020.
- Subsequent event: Extreme February 2021 cold drove natural-gas purchases approximately $600 million above forecast base load through February 24; the estimate excludes certain pipeline charges still subject to settlement. To fund purchases and provide liquidity, the company entered an $800 million unsecured term loan due November 23, 2021. Regulatory mechanisms may permit cost recovery, but management expects heightened regulatory review. As of February 24, reported liquidity was $1.3 billion.
- COVID-19 had limited net financial impact in 2020, according to management. Effects included lower commercial and transport volumes, waived late fees, higher bad-debt expense and essential-worker costs, partly offset by higher residential usage and reduced travel and training. The company increased its credit-loss allowance by $3.3 million.
- Key risks include regulatory decisions and recovery timing, climate and environmental rules affecting fossil-fuel assets, weather and commodity-price volatility, customer arrears, operational disruptions, cyberattacks, and access to capital. The company’s investment-grade ratings were BBB+ from S&P and Fitch and Baa2 from Moody’s, all with stable outlooks.
- Environmental and contract matters include two active former manufactured-gas-plant sites, approximately $13 million accrued for mine reclamation, and a Wyodak coal-supply contract with PacifiCorp expiring in December 2022; extension negotiations were ongoing. A proposed regional-haze resolution involving operating limits and low-NOx burners remained subject to public comment and regulatory approval.
Most important facts for investors to verify
- How much of the approximately $600 million February 2021 incremental gas-purchase cost and related pipeline charges will be recovered, over what period, and with what impact on customer bills and cash flow.
- Repayment and refinancing plans for the $800 million term loan due November 2021, and liquidity, covenant, and credit-rating effects.
- Whether the planned capital program and equity issuance remain on schedule, and whether regulatory approvals allow timely recovery and returns on investment.
- Progress on Colorado Gas rate rehearing and safety-rider proceedings, Nebraska Gas rate implementation, and the Wyodak coal-contract extension.
- Whether customer collections, bad debt, environmental requirements, or climate-related policy changes materially alter earnings, cash flow, or asset values.