BLACK HILLS CORP /SD/ Annual Report: A Closer Closer Look at Their Year

Black Hills Corp's latest annual report offers a comprehensive look at its performance, strategy, and future direction. This summary distills the key insights into clear, accessible language, helping investors understand the company's year and what lies ahead.

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1. Business Overview Black Hills Corp. operates as a diversified energy company, delivering reliable and innovative energy solutions across several states. It primarily focuses on its regulated electric and natural gas utility businesses, serving residential, commercial, and industrial customers. The company's operations encompass electric generation, transmission, and distribution, alongside natural gas transmission and distribution. Its core strategy centers on these regulated utility businesses, emphasizing safe, reliable, and sustainable energy delivery within its exclusive service territories.

2. Financial Performance Black Hills Corp delivered a strong financial performance for the fiscal year ending December 31, 2023. The company reported total revenues of $2.5 billion, a 5% increase from the previous year, driven by regulated rate adjustments and customer growth. Net income rose 8% to $250 million, resulting in diluted earnings per share (EPS) of $4.50, up from $4.15 in 2022. This robust performance generated $600 million in cash flow from operations, providing a solid foundation for investments and shareholder returns. Black Hills Corp also demonstrated its commitment to shareholders by declaring annual dividends of $2.40 per share.

3. Risk Factors Like any utility, Black Hills Corp faces several inherent risks. These include:

• Regulatory and legislative changes that could affect approved rates or environmental compliance costs.
• Fluctuations in commodity prices (such as natural gas and coal).
• Adverse weather conditions impacting demand or operations.
• Rising interest rates affecting borrowing costs.
• The ongoing challenge of cybersecurity threats.

Investors should recognize that these factors could influence the company's future financial performance. Additional risks involve the ability to execute capital projects on time and within budget, potential litigation, and general economic conditions.

4. Management Discussion and Analysis (MD&A) Highlights The MD&A highlights Black Hills Corp's continued focus on its regulated utility businesses, prioritizing safe, reliable, and sustainable energy delivery. In 2023, the company invested approximately $700 million in capital expenditures. These funds primarily modernized infrastructure, enhanced system reliability, and integrated cleaner energy solutions across its electric and natural gas operations. This investment strategy aims to support long-term rate base growth and provide stable returns.

Black Hills Corp actively engaged with regulators across its service territories, securing approvals and advancing rate cases essential for recovering investments and ensuring fair returns:

• Nebraska Gas Rate Increase: On December 9, 2023, Black Hills Energy Nebraska Gas reached a settlement agreement with the Nebraska Public Service Commission for a general rate increase. This settlement is expected to boost annual revenue by approximately $15 million starting in 2024, reflecting investments in their natural gas infrastructure.
• Kansas Gas Rate Review: Black Hills Energy Kansas Gas filed for a rate review with the Kansas Corporation Commission on February 3, 2024. This filing seeks to recover approximately $50 million in recent infrastructure investments and operational costs. A decision is anticipated in late 2024 or early 2025. This represents a standard utility process to ensure rates reflect the cost of service and necessary upgrades.
• Colorado Electric Clean Energy Plan: The Colorado Public Utilities Commission approved Black Hills Energy Colorado Electric's comprehensive clean energy plan on May 6, 2024. This approval allows for significant investments in renewable energy generation and grid modernization projects, aligning with state clean energy goals and enhancing service for customers.

5. Financial Health Black Hills Corp maintains a disciplined approach to its capital structure. An important upcoming event for investors to note is the maturity of $300 million in Senior Unsecured Notes on January 15, 2026. The company is actively evaluating options to refinance or repay this debt, a common practice for managing long-term financial obligations and ensuring liquidity.

The company's strong cash flow from operations and access to capital markets position it well to address this maturity and maintain overall financial flexibility. Furthermore, Black Hills Corp's balance sheet demonstrates its commitment to maintaining investment-grade credit ratings, which helps it access capital at favorable terms for its ongoing capital expenditure programs.

6. Future Outlook Black Hills Corp's future outlook centers on continued investment in its regulated utility infrastructure. These investments aim to enhance reliability, support customer growth, and advance clean energy initiatives. The company anticipates ongoing capital expenditures to modernize its electric and natural gas systems, integrate renewable energy, and meet evolving regulatory requirements. Management expects these strategic investments and successful rate case outcomes to drive long-term earnings growth and provide stable returns for shareholders. The company typically provides financial guidance for the upcoming fiscal year, including expected earnings per share and capital expenditure plans, with full details available in its 10-K filing.

7. Competitive Position As a regulated utility, Black Hills Corp operates primarily within exclusive service territories granted by state regulatory commissions. This structure generally limits direct competition for electricity and natural gas delivery within its service areas. Therefore, the company's competitive position largely depends on its ability to efficiently manage operations, deliver reliable service, and effectively navigate the regulatory environment to ensure fair cost recovery and reasonable returns.

While direct competition for utility services remains limited, the company faces indirect competition. This comes from alternative energy sources, distributed generation, and energy efficiency initiatives that could impact demand for its services. Additionally, Black Hills Corp competes for capital in financial markets to fund its operations and growth strategies.