BKH

Business Context and Reporting Period

Company: Black Hills Corporation (BKH)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2025
Business Overview: A regulated electric and natural gas utility holding company serving over 1.35 million customers across eight states (Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming). Operations are segmented into Electric Utilities, Gas Utilities, and Corporate & Other.

Key Financial Metrics

Note: Q3 2024 comparative balance sheet data is not provided in the filing text; only income statement and cash flow comparisons are available.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenue increased 7.1% in Q3 2025 and 9.4% for the nine months ended September 30, 2025, compared to the prior year. This was driven by new rate increases and rider recoveries.
• Segment Performance:
  • Gas Utilities: Operating income surged $9.9 million in Q3 and $43.1 million for the nine months, primarily due to new rates (Arkansas, Kansas, Nebraska) and favorable weather, partially offset by higher operating expenses.
  • Electric Utilities: Operating income decreased $2.7 million in Q3 and $10.3 million for the nine months. Declines were attributed to higher operating expenses, unplanned generation outages (specifically at Wygen III), and unfavorable weather, partially offset by new rates.
  • Corporate & Other: Operating loss widened significantly due to $8.4 million in merger-related costs associated with the NorthWestern transaction.
• Interest Expense: Net interest expense increased $4.2 million in Q3 and $17.7 million for the nine months, driven by higher interest rates on long-term debt and increased commercial paper borrowings.
• Capital Expenditures: Actual capital expenditures for the nine months ended September 30, 2025, were $608.5 million, an increase of $42.7 million compared to the prior year, driven by the Ready Wyoming transmission project and the Lange II generation facility.

Guidance, Outlook, and Risks

• Pending Merger: On August 18, 2025, Black Hills entered into an agreement to merge with NorthWestern Energy Group, Inc. The transaction is an all-stock deal (0.98 shares of BKH for 1 share of NorthWestern) expected to close in the second half of 2026, subject to regulatory and shareholder approvals.
  • Risks: Failure to obtain regulatory approvals (FERC, state commissions), antitrust challenges, or shareholder rejection could delay or terminate the merger. The filing notes significant transaction costs and potential integration risks.
• Regulatory Developments:
  • Rate Cases: New rates are effective or pending for Colorado Electric, Iowa Gas, Kansas Gas, and Nebraska Gas, contributing to revenue growth.
  • Wyoming Wildfire Legislation: New state legislation (HB0192) provides liability protections for utilities complying with approved wildfire mitigation plans. BHC plans to file its plan in Q4 2025.
• Legislative Impact (OBBBA): The "One Big Beautiful Bill Act" (signed July 4, 2025) rolled back certain clean energy provisions and restricted tax credit transfers to prohibited foreign entities. Management does not anticipate material impacts to pre-OBBBA in-service facilities but is monitoring IRS guidance.
• Capital Resources:
  • Debt Offering: On October 2, 2025, the company issued $450 million of 4.55% senior unsecured notes due 2031 to refinance maturing debt.
  • ATM Program: The At-The-Market equity program was reset to $400 million in May 2025. Net proceeds of $219.6 million were generated in the first nine months of 2025.
• Dividends: Quarterly dividend declared at $0.676 per share (annualized $2.704), payable December 1, 2025.

Investor Verification Checklist

• Merger Approval Status: Verify the progress of regulatory filings with the FERC, MPSC, NPSC, and SDPUC, and the timeline for shareholder votes.
• Generation Outages: Assess the long-term impact of unplanned outages at Wygen III and Pueblo Airport Generation on Electric Utilities' operating margins and reliability metrics.
• Rate Case Outcomes: Confirm the final implementation of rate increases in Nebraska and the status of the Colorado Electric rehearing request.
• Capital Program Execution: Monitor the cost and timeline of the "Ready Wyoming" transmission project and the "Lange II" generation facility, which are driving current capital expenditures.
• Tax Credit Monetization: Review the impact of the OBBBA on the valuation and transferability of future Production Tax Credits (PTCs) from renewable projects.