Business Overview: Powering Communities with Dedication and Innovation
Black Hills Corp (BKH) is a customer-focused, growth-oriented utility company with a rich history dating back to 1883. Headquartered in Rapid City, South Dakota, the company operates through two primary business segments: Electric Utilities and Gas Utilities, serving approximately 1.35 million customers across eight states.
Black Hills Corp has a long-standing tradition of "Improving Life with Energy," providing safe, reliable, and cost-effective electric and natural gas services to its customers. The company's roots can be traced back to the 1883 gold rush days in Deadwood, South Dakota, when it first began providing energy services to customers. Officially founded in 1941, Black Hills has grown to become a major utility company serving the Rocky Mountain and Midwestern regions.
The company's Electric Utilities segment generates, transmits, and distributes electricity to customers in Colorado, Montana, South Dakota, and Wyoming. It owns 1.39GW of generation capacity and 9,200 miles of transmission and distribution lines. The Gas Utilities segment serves 1.13 million natural gas customers in Arkansas, Colorado, Iowa, Kansas, Nebraska, and Wyoming, operating 4,650 miles of intrastate gas transmission pipelines and 44,520 miles of gas distribution mains and service lines.
Black Hills' diversified asset base includes both regulated utility operations and vertically integrated power generation and mining businesses, providing a balanced approach to serving its customers' energy needs. This structure has allowed the company to navigate changing regulatory environments and adapt to technological advancements in the utility industry over the decades.
Throughout its history, Black Hills has faced various challenges, including managing through economic cycles and severe weather events that have impacted its operations. Despite these obstacles, the company has demonstrated resilience and a steadfast commitment to serving its customers with safe, reliable, and cost-effective energy.
The company's commitment to operational excellence and strategic investments has enabled it to achieve industry-leading reliability, with its Wyoming Electric utility serving customers for 19 consecutive years of increasing peak loads. Black Hills' diversified asset base, which includes both regulated utility operations and vertically integrated power generation and mining businesses, provides a balanced approach to serving its customers' energy needs.
Financial Strength and Disciplined Capital Allocation
Black Hills has demonstrated a strong financial profile, with a focus on maintaining its investment-grade credit ratings. As of the end of 2024, the company had achieved its target net debt to capitalization ratio of 55%, further strengthening its balance sheet. The company's disciplined capital allocation strategy is evident in its robust five-year capital investment plan, which totals $4.7 billion from 2025 to 2029, a 10% increase from the previous plan.
The majority of these investments are targeted towards upgrading existing utility infrastructure, supporting customer and community growth, and complying with safety requirements. Additionally, the company has earmarked funds for strategic initiatives, such as its $350 million Ready Wyoming electric transmission expansion project and the addition of 99MW of dispatchable natural gas generation for its South Dakota Electric utility.
For the fourth quarter of 2024, Black Hills reported revenue of $597.1 million and net income of $98.1 million. The company's financial position remains solid, with $16.1 million in cash and cash equivalents as of December 31, 2024, and $612.7 million available capacity under its $750 million Revolving Credit Facility and CP Program. The company's debt-to-equity ratio stood at 1.25, with a current ratio of 0.97 and a quick ratio of 0.77.
Driving Shareholder Value through Dividend Growth and EPS Expansion
Black Hills' commitment to shareholder value creation is exemplified by its impressive track record of annual dividend increases, with 2025 marking the company's 55th consecutive year of dividend growth. The recent 4% dividend hike reflects the management's confidence in the company's long-term growth prospects and its ability to deliver consistent returns to investors.
In 2024, the company delivered earnings per share (EPS) growth of 4.3% compared to the 2023 guidance midpoint, and it expects to achieve approximately 5% EPS growth in 2025. This growth is underpinned by the successful execution of the company's regulatory strategy, which has resulted in $0.74 per share of new margins, as well as robust customer growth and effective expense management.
For 2025, Black Hills is guiding to earnings in the range of $4.00 to $4.20 per share, reflecting the anticipated 5% growth over 2024. This guidance assumes normal weather conditions, no unplanned generation outages, constructive and timely regulatory outcomes, and excludes mark-to-market adjustments. The company expects to issue between $215 million and $235 million of additional equity to finance its $1 billion capital investment plan for 2025 and estimates an effective tax rate of 13% for the full year.
Looking ahead, Black Hills maintains a long-term EPS growth target of 4% to 6% off the midpoint of its 2023 earnings guidance range of $3.75. This target is supported by the company's diverse portfolio of utility operations and strategic growth initiatives.
Capitalizing on Data Center Demand: A Unique Growth Opportunity
One of the key drivers of Black Hills' long-term growth is its ability to serve the growing data center market. The company has a proven track record of serving data centers and similar customers, such as supercomputers, in Cheyenne, Wyoming for over a decade. Through its innovative tariff and service model, the company is able to provide utility-like earnings without the need for significant capital investment.
Black Hills' existing data center customers project a total load exceeding 1GW, and the company expects to serve approximately 500MW of this demand by the end of 2029 with minimal capital investment. This unique revenue stream is expected to more than double its contribution to the company's total EPS to 10% or more by 2029, further bolstering its growth trajectory.
Regulatory Accomplishments and Constructive Relationships
Black Hills has demonstrated its ability to navigate the regulatory landscape effectively, maintaining constructive relationships with state utility commissions. In 2024, the company obtained commission-approved settlements in two of its rate reviews, including a $15 million annual revenue increase for its Iowa Gas utility and a $25 million annual revenue increase for its Arkansas Gas utility.
Additionally, the company received final approval for its Colorado Electric Clean Energy Plan, which includes the addition of 350MW of renewable resources to reduce emissions by 80% from 2005 levels by 2030. These regulatory achievements highlight Black Hills' commitment to balancing the needs of its customers, communities, and shareholders.
Navigating Challenges and Delivering Operational Excellence
While the company faced some headwinds in 2024, including mild weather conditions and unplanned generation outages, its operational excellence and disciplined expense management enabled it to deliver on its financial guidance. Black Hills' team successfully managed operating and maintenance expenses, limiting the year-over-year increase to less than 1%, well below the projected 3.5% target.
Furthermore, the company's investments in wildfire mitigation and risk management, including the formalization of its public safety power shutoff program, demonstrate its proactive approach to addressing emerging operational challenges.
Segment Performance: Electric and Gas Utilities
Black Hills' Electric Utilities segment, which includes regulated operations in Colorado, Montana, South Dakota, and Wyoming, generated total revenue of $876.1 million in 2024. The segment's Electric Utility margin increased to $669.7 million, up from $664.9 million in 2023, driven by new rates and rider recovery, retail customer growth and usage, partially offset by unfavorable weather impacts and higher insurance expenses.
The Gas Utilities segment, serving customers across six states, reported total revenue of $1.27 billion in 2024. The segment's Gas Utility margin rose to $745.1 million, up from $701.0 million in 2023, primarily due to new rates and rider recovery, favorable mark-to-market on commodity contracts, and retail customer growth and usage, partially offset by unfavorable weather impacts.
Both segments demonstrated effective cost management, with the Electric Utilities segment focusing on mitigating the impact of unplanned generation outages and higher insurance expenses, while the Gas Utilities segment benefited from lower employee-related costs and decreased bad debt expense.
Looking Ahead: Continued Growth and Shareholder Value Creation
As Black Hills moves forward, the company is well-positioned to capitalize on its robust growth opportunities. With its $4.7 billion five-year capital investment plan, the company is laying the foundation for future success, enhancing the reliability and resiliency of its electric and natural gas systems, while also supporting the growing energy needs of its customers.
The company's long-term EPS growth target of 4% to 6% is anchored by its strong regulatory relationships, disciplined capital allocation, and the unique revenue stream from its data center customers. Black Hills' unwavering commitment to delivering safe, reliable, and cost-effective energy services, coupled with its focus on shareholder value creation, makes it a compelling investment opportunity in the utility industry.
As the utility sector continues to evolve, with increasing emphasis on renewable energy sources and sustainability initiatives, Black Hills is well-positioned to adapt and thrive. The company's diverse generation fleet, including coal, natural gas, and wind resources, along with its ongoing investments in clean energy initiatives, demonstrates its commitment to meeting the changing needs of its customers and regulatory requirements.
With no reported scandals, short seller reports, or CEO departures, Black Hills maintains a strong reputation in the industry. The company's focus on operational excellence, regulatory relationships, and strategic growth initiatives provides a solid foundation for continued success in the dynamic utility landscape.