Business context and reporting period
Black Hills Corporation filed this Form 10-K for the fiscal year ended December 31, 2021. It operates regulated electric utilities serving about 218,000 customers and gas utilities serving about 1.09 million customers across eight states, alongside power generation and coal mining integrated with its electric operations. In Q4 2021, it moved power generation and mining into the Electric Utilities segment; comparative results were recast.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $1.949 billion | $1.697 billion |
| Operating income | $409.4 million | $428.3 million |
| Net income available to common stock | $236.7 million | $227.6 million |
| Diluted EPS | $3.74 | $3.65 |
| Net interest expense | $152.4 million | $143.5 million |
| Cash from operating activities | $(64.6) million | $541.9 million |
| Capital expenditures | $679.6 million | $755.4 million |
- Revenue rose 14.9%, while operating income declined 4.4%. Higher gas and power costs—substantially passed through to customers—contributed to revenue growth.
- Electric Utility margin, a company-defined non-GAAP measure, was $594.2 million, down $6.0 million. Gas Utility margin was $630.1 million, up $10.1 million. Segment operating income fell to $202.7 million for Electric Utilities and $211.2 million for Gas Utilities.
- Common-stock dividends paid were $145.0 million, or $2.29 per share; the payout ratio was 61%. The board declared a $0.595 quarterly dividend in January 2022.
- At year-end, cash and cash equivalents were $8.9 million; restricted cash was $4.9 million. Notes payable were $420.2 million and long-term debt, net, was $4.127 billion. The reported total debt ratio was 62%, versus 60% in 2020; the revolving credit facility covenant ratio was 62.1%, below its 65% limit.
- The $750 million revolving credit facility/CP capacity had $303 million available after short-term borrowings and letters of credit. Credit ratings remained investment grade with stable outlooks: BBB+ at S&P and Fitch, and Baa2 at Moody’s.
Material changes versus the prior year
- Operating cash flow swung to a $64.6 million use, principally due to Winter Storm Uri-related regulatory assets and working-capital movements. The company recorded a $509.0 million Uri regulatory asset; it collected $40 million from customers during 2021.
- Winter Storm Uri caused unusually high gas and electricity prices. The weighted-average fuel and purchased-power cost increased to $30.17/MWh from $17.36/MWh; natural-gas and diesel generation costs rose sharply.
- Net income increased despite lower operating income, helped in part by income-tax expense falling to $7.2 million from $32.9 million. The effective tax rate was 2.8%, compared with 11.9%.
- Interest expense increased as debt balances grew. The company issued $600 million of 1.037% notes due 2024, repaid its $800 million Uri-response term loan, and issued 1.81 million shares through its at-the-market program for net proceeds of about $119 million.
- Regulatory assets rose to $796.6 million from $278.3 million, largely due to Uri; regulatory liabilities declined to $503.0 million from $532.7 million.
Outlook, commentary, risks and unusual items
- Management forecast approximately $3.2 billion of capital expenditures over 2022–2026, including $611 million in 2022, focused largely on utility infrastructure, growth, safety and reliability. It said it expects to manage capital spending at roughly $600 million annually over the next two years and plans to issue $100–$120 million of common stock through the ATM in 2022.
- No specific earnings or EPS guidance is provided in the supplied filing text. The company targets a 50%–60% dividend payout ratio and intends to continue annual dividend increases; its 2021 payout ratio was 61%.
- Management’s clean-energy goals include reducing electric-utility GHG emissions intensity 40% by 2030 and 70% by 2040, and gas-utility GHG emissions 50% by 2035, measured against 2005 baselines. A 20-year resource plan proposed 100 MW of renewable generation, conversion of Neil Simpson II to natural gas in 2025, and consideration of up to 20 MW of battery storage.
- Risks include regulatory uncertainty over recovery of Uri costs and other investments; weather and commodity-price volatility; higher debt and financing needs; environmental and energy-transition requirements; supply-chain inflation and labor constraints; cyber threats; and potential reduced natural-gas demand from electrification.
- Wygen I’s unplanned outage from September to mid-December reduced 2021 operating income by $11 million; insurance recovery was under assessment. A solar PPA for up to 200 MW was disputed after the counterparty issued a termination notice in January 2022.
- The auditor issued an unqualified opinion on the financial statements and internal controls. Regulatory accounting was identified as a critical audit matter because future commission decisions affect cost recovery and potential customer refunds.
Most important facts for investors to verify
- Progress, timing, carrying-cost treatment and final regulatory approval for recovery of the Uri costs, including the $509 million recorded asset and the $546 million applications.
- How the company will fund its capital plan, dividends and debt maturities while operating cash flow is affected by regulatory-asset recovery and working-capital needs.
- Whether the Wygen I outage generates insurance proceeds and whether the disputed Colorado solar PPA proceeds, is replaced or otherwise affects resource plans.
- Whether regulators approve planned rate increases and infrastructure recovery, and whether environmental or energy-transition rules require additional spending or asset changes.
- Whether lower weather-normalized heating demand, commodity volatility, inflation or customer affordability pressures affect margins, collections and liquidity.