Black Hills (BKH) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Presents the unaudited consolidated financial statements for Black Hills Corporation, including income, balance sheets, cash flows, and equity, with condensed notes Note 2. Regulatory Matters Details regulatory assets and liabilities, including deferred costs and recent rate review activities for various gas utilities Regulatory Assets and Liabilities (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total regulatory assets | $504,859 | $652,981 | | Less current regulatory assets | ($191,746) | ($260,312) | | Regulatory assets, non-current | $313,113 | $392,669 | | Total regulatory liabilities | $562,957 | $518,573 | | Less current regulatory liabilities | ($93,988) | ($46,013) | | Regulatory liabilities, non-current | $468,969 | $472,560 | - On July 12, 2023, the CPUC approved a settlement for RMNG's rate review, expected to generate $8.2 million in new annual revenue with new rates effective July 15, 2023[72] - On May 9, 2023, Colorado Gas filed a rate review seeking $27 million in new annual revenue, with a decision expected in Q1 2024[96] - On October 13, 2023, Wyoming Gas filed a settlement agreement for a general rate increase, expected to generate $13.9 million in new annual revenue, with new rates effective January 1, 2024, subject to WPSC approval[114] Note 3. Commitments, Contingencies and Guarantees Discusses significant legal and financial contingencies, including a reversed lawsuit award and an insurance recovery - Regarding the GT Resources, LLC lawsuit, a $41 million jury award against BHC was reversed on appeal on October 19, 2023, with the case remanded for retrial on a narrower issue, which the company believes has no merit[99] - In Q3 2023, the company recovered $5.0 million from a business interruption insurance claim related to a 2021 unplanned outage at the Wygen I facility, recognized as Revenue[100] Note 4. Revenue Disaggregates revenue by segment and customer type, reporting $1.74 billion in total revenues for the nine months ended September 30, 2023 Revenue by Segment (Nine Months Ended Sep 30, 2023, in thousands) | Segment | Revenue from Contracts with Customers | Other Revenues | Total Revenues | | :--- | :--- | :--- | :--- | | Electric Utilities | $639,096 | $10,015 | $649,111 | | Gas Utilities | $1,091,721 | $12,200 | $1,103,921 | | Inter-segment Elim. | ($13,464) | - | ($13,464) | | Total | $1,717,353 | $22,215 | $1,739,568 | Revenue by Segment (Nine Months Ended Sep 30, 2022, in thousands) | Segment | Revenue from Contracts with Customers | Other Revenues | Total Revenues | | :--- | :--- | :--- | :--- | | Electric Utilities | $664,822 | $4,764 | $669,586 | | Gas Utilities | $1,100,882 | $2,967 | $1,103,849 | | Inter-segment Elim. | ($12,743) | ($315) | ($13,058) | | Total | $1,752,961 | $7,416 | $1,760,377 | Note 5. Financing Details financing activities, including $800 million in debt offerings, ATM equity raises, and compliance with debt covenants - Completed a public debt offering of $450 million, 6.15% senior unsecured notes due 2034 on September 15, 2023[122] - Completed a public debt offering of $350 million, 5.95% five-year senior unsecured notes due 2028 on March 7, 2023[123] At-the-Market (ATM) Program Activity (Nine Months Ended Sep 30) | Year | Net Proceeds (millions) | Shares Issued | Average Price per Share | | :--- | :--- | :--- | :--- | | 2023 | $107.7 | 1,812,624 | $60.02 | | 2022 | $20.2 | 272,592 | $74.84 | - As of September 30, 2023, the company was in compliance with its debt covenants, with a Consolidated Indebtedness to Capitalization Ratio of 0.61 to 1.00, below the maximum of 0.65 to 1.00[107] Note 7. Risk Management and Derivatives Outlines market risk exposures and mitigation strategies using commission-approved hedging programs with various derivative instruments - The company uses derivative instruments such as natural gas futures, options, and swaps to hedge against natural gas price volatility for its utility customers[6] - As of September 30, 2023, $3.2 million of net losses related to interest rate swaps and commodity derivatives are expected to be reclassified from AOCI into earnings within the next 12 months[24] Net Long Derivative Positions (as of Sep 30, 2023) | Instrument | Notional Amounts (MMBtus) | Maximum Term (months) | | :--- | :--- | :--- | | Natural gas futures purchased | 1,730,000 | 6 | | Natural gas options purchased, net | 7,780,000 | 6 | | Natural gas basis swaps purchased | 1,730,000 | 6 | | Natural gas over-the-counter swaps, net | 5,610,000 | 24 | Note 8. Fair Value Measurements Describes the three-level hierarchy for fair value measurements, classifying commodity derivatives and long-term debt as Level 2 Fair Value of Derivative Instruments (Gross, in thousands) - As of Sep 30, 2023 | Category | Level 1 | Level 2 | Level 3 | Net Total | | :--- | :--- | :--- | :--- | :--- | | Assets: | | | | | | Commodity derivatives - Gas Utilities | $ - | $5,183 | $ - | $126 | | Liabilities: | | | | | | Commodity derivatives - Gas Utilities | $ - | $4,809 | $ - | $2,211 | Fair Value of Long-Term Debt (in thousands) | Date | Carrying Amount | Fair Value (Level 2) | | :--- | :--- | :--- | | Sep 30, 2023 | $4,924,510 | $4,481,989 | | Dec 31, 2022 | $4,132,340 | $3,760,848 | Note 9. Other Comprehensive Income Details components of Accumulated Other Comprehensive Income (AOCI), showing an improvement from a $15.6 million loss to a $12.9 million loss Changes in AOCI (in thousands) - Nine Months Ended Sep 30, 2023 | Component | Balance at Dec 31, 2022 | OCI before reclass. | Reclassifications | Balance at Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Interest Rate Swaps | $(8,255) | - | $1,649 | $(6,606) | | Commodity Derivatives | $(1,200) | $(937) | $1,881 | $(256) | | Employee Benefit Plans | $(6,112) | - | $67 | $(6,045) | | Total AOCI | $(15,567) | $(937) | $3,597 | $(12,907) | - For the nine months ended September 30, 2023, total reclassifications from AOCI to Net Income were a positive $3.6 million, primarily from gains on cash flow hedges[19] Note 10. Employee Benefit Plans Outlines net periodic expense and contributions for employee benefit plans, totaling approximately $8.0 million for the first nine months of 2023 Net Periodic Expense (Benefit) (in thousands) - Nine Months Ended Sep 30 | Plan | 2023 | 2022 | | :--- | :--- | :--- | | Defined Benefit Pension Plan | $2,411 | $1,685 | | Supplemental Non-qualified Plans | $2,738 | $(1,185) | | Postretirement Healthcare Plan | $2,780 | $2,177 | Plan Contributions (in thousands) | Plan | Made in First 9 Mos. 2023 | Anticipated for 2024 | | :--- | :--- | :--- | | Defined Benefit Pension Plan | $ - | $ - | | Postretirement Healthcare Plan | $3,690 | $4,808 | | Supplemental Plans | $1,673 | $2,417 | Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial condition and results of operations, covering operating results, liquidity, and capital resources Results of Operations Net income available for common stock was $182.5 million for the nine months ended September 30, 2023, a decrease from the prior year Consolidated Financial Highlights (Nine Months Ended Sep 30) | Metric (in thousands, except EPS) | 2023 | 2022 | | :--- | :--- | :--- | | Operating Income | $336,170 | $325,221 | | Net Income Available for Common Stock | $182,520 | $185,914 | | Earnings Per Share, Diluted | $2.74 | $2.86 | - Q3 2023 vs Q3 2022: - Electric Utilities operating income increased by $13.5 million, driven by an insurance recovery, a land sale gain, and new rates[181] - Gas Utilities operating income increased by $4.8 million due to new rates and lower operating expenses[181] - Nine Months 2023 vs 2022: - Electric Utilities operating income increased by $25.2 million, driven by new rates, asset sale gains, and an insurance recovery[182] - Gas Utilities operating income decreased by $14.6 million, due to higher expenses and a prior-year one-time true-up of carrying costs[182][201] Liquidity and Capital Resources Net cash from operating activities increased to $756.1 million, with investing activities using $403.8 million and financing providing $221.3 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $756,052 | $494,287 | | Net Cash used in Investing Activities | ($403,785) | ($466,321) | | Net Cash from Financing Activities | $221,250 | ($24,684) | - The $261.8 million increase in operating cash flow was primarily driven by higher collections on pass-through revenues, lower natural gas inventory levels, and higher recoveries of Winter Storm Uri costs[249] - The company plans to use proceeds from its September 2023 debt offering and cash on hand to repay $525 million of notes due November 30, 2023, and plans to refinance $600 million of notes due August 23, 2024[252] BHC Credit Ratings (as of Sep 30, 2023) | Rating Agency | Senior Unsecured Rating | Outlook | | :--- | :--- | :--- | | S&P | BBB+ | Stable | | Moody's | Baa2 | Stable | | Fitch | BBB+ | Stable | PART II. OTHER INFORMATION Legal Proceedings Reports no material changes to legal proceedings from the 2022 Annual Report on Form 10-K, with details in Note 3 - For information regarding legal proceedings, the report refers to Note 3 of the Condensed Notes to Consolidated Financial Statements[282] Risk Factors Reports no material changes to risk factors previously disclosed in the 2022 Annual Report on Form 10-K - The company states there are no material changes to the risk factors previously disclosed in its 2022 Annual Report on Form 10-K[268]