Q3 2025 Black Hills Corp Earnings Call
Good day, and thank you for standing by. Welcome to the Q3 2025 Black Hills Corporation earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded after the speaker's presentation. There will be a question and answer session to ask a question. Please press star 1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please press star 11. Again, I would now like to hand the conference over to your speaker today, essay Diaz director, of investor relations.
Thank you, Operator. Good morning, and welcome to Black Hills Corporation's third quarter 2025 earnings conference call.
You can find our earnings release in materials for our call this morning on our website at Black Hills Corp.
Leading our quarterly earnings call are Lynn Evans, President and Chief Executive Officer; Kimberly Nooney, Senior Vice President and Chief Financial Officer; and Marne Jones, Senior Vice President and Chief Utility Officer.
During our earnings discussion today comments, we make may contain forward-looking statements as defined by the Securities and Exchange Commission. And there are a number of uncertainties inherent in such comments.
although we believe that our expectations are based on reasonable assumptions, actual results May differ materially,
We direct you to our earnings release.
Slide 2 of the investor presentation on our website and our most recent form, 10K and form. 10 Q files with a Security and Exchange Commission for a list of some of the factors that could cause future results to differ materially from our expectations.
With that, I will now turn the call over to Lynn Evans, Lynn.
Thank you, sell. Good morning and thank you all for joining us today. I'll start my comments on slide 3 with a summary of our quarter and our strategic Outlook, including an update on our merger with our friends at Northwestern Energy.
Kimberly will provide our financial updates and my will discuss our operational performance and progress on key initiatives.
We're filling our commitment to deliver results for our stakeholders in 3, key areas that, we identified at the beginning of the year.
First, we're delivering on our financial commitments. Having reaffirmed our earnings guidance and completed, our plan, financing activities,
Second we're executing on our Regulatory and growth initiatives, including our 1 billion dollar Capital plan to support key projects to serve our customers growing needs and third, we're providing. Excellent operational performance including top cortile reliability and a positive customer experience.
I'm proud of our team's remarkable work in delivering, strong financial results and making significant progress on our key initiatives.
We're on track to achieve our earnings guidance for the full year.
With 3 primary drivers, new base rates.
Rider recovery and customer growth.
We're also continuing to maintain a healthy balance sheet.
We have made significant progress with our regulatory strategy, including securing a recent settlement for our rate review. In Nebraska,
Including this settlement, our team has successfully completed seven rate reviews since the beginning of last year.
Highlighting our expertise in managing multiple regulatory requests.
We also successfully Advanced several key near-term projects that will drive growth. We're on schedule to complete our 260 me ready. Wyoming transmission Expansion Project by year end. And we broke ground on our Lang to generation project in Rapid City. During the quarter,
Additionally customer growth, including growing demand from our large load customers. Such as data centers and economic development. In our service territories are providing solid contributions to earnings.
In addition to our current plan, we continue to be very actively engaged with high-quality Data Center Partners. We have now signed non-disclosure agreements for more than 3 gigawatts of demand.
If and when these negotiations lead to signed agreements only then will we incorporate them into our plan?
Our financial Outlook is provided on slide 4.
We're reaffirming our prior 2025 earnings guidance, with an adjusted EPS range of $4.00 to $4.20, excluding merger-related costs.
PPS.
Looking ahead with solid progress in our Regulatory and growth initiatives, we plan to deliver in the upper half of our 4 to 6% long-term EPS grow Target starting in 2026.
Our confidence in a long-term growth Target is further strengthened, by our 4.7 billion dollar Capital plan and strong customer demand, including the data center opportunities. I previously mentioned
we anticipate presenting an updated Financial Outlook during our fourth quarter and full year earnings call in February including earnings guidance, for 2026 and capital investment plans for the years 2026 to 2030
Slide 5 represents our current $4.7 billion capital plan.
Our base annual investment is approximately $700 million.
Prioritizing our customers core needs for safety, reliability and growth.
Additionally, our transformative infrastructure expansion, investments will cost effectively enhance our systems, resiliency and support growing demand and evolving requirements for both our electric and natural gas systems.
Some of the major capital projects in our current plan, include our ready, Wyoming transmission expansion. That is on scheduled to be completed by year end.
Our 99 megawatt Lang to generation project in South Dakota, that is under construction, and we expect to place in service in the second half of 2026 and our battery storage project in 2027 to comply with the Colorado, clean energy plan.
Our 2025 through 2029 Capital plan does not currently include significant Investments related to Data Center demand.
We anticipate continuing to profitably, serve large, low demand through our market, energy model with minimal capital investment at a level of approximately 500, megawatts of demand through 2029.
However, demand exceeding that level will likely necessitate incremental investments in generation and transmission.
Many will provide more detailed information about data center demand in her business update.
Moving to slide 6.
On August 19th, we announced our merger with NorthWestern Energy. Although we are well positioned as standalone companies, this merger will create a stronger, more competitive entity with greater scale.
An enhanced Financial profile and complimentary strengths enabling us to unlock additional value creation opportunities for our customers and our shareholders.
In October, we submitted joint applications to our Regulators in Montana, Nebraska, and South Dakota. Requesting, their approvals of our merger.
We anticipate receiving procedural, schedules and commencing the discovery process. This quarter.
We're also diligently, working through the S4 process and intends to secure all necessary, approvals to finalize, a merger within a second half of next year.
With that, I'll turn the call over to Kimberly for our financial update Kimberly.
Thank you, Lynn. And good morning everyone.
Our team is executing our strategy except
Family. Well.
From a financial standpoint, we have successfully accomplished, several of our objectives in the current quarter, and throughout the year.
Our financial results met expectations, and we have maintained our strong investment-grade credit rating while funding our $1 billion capital plan for 2025.
On slide 8. We provide a bridge comparing Q3 2025 to Q3 2024.
For the current quarter. We delivered 34 cents per share of gaap eps. Which included 10 cents of merger related. Transaction costs.
After adjusting for these costs.
We reported 45 cents of adjusted EPS for Q3 2025 compared to 35 cents per share for Q3 2024.
For the quarter, our regulatory efforts provided 21 cents per share of new rates and writer recovery margin with offset, unfavorable weather, onm costs, and a moderate increase in financing and depreciation expenses.
Whether was a 7 Cent headwind compared to the same quarter. Last year, we experienced 4 cents of unfavorable weather this quarter compared to normal.
Primarily driven by lower agricultural irrigation demand and Nebraska.
On M was higher by 8 cents per share, which included 10 cents of merger-related transaction costs.
Excluding merger costs.
financing costs increased 3 cents per share, which included, 6 cents of higher interest expense
1 cent of shared, dilution and a benefit of 4 cents per share from
We also incurred higher depreciation of 2 cents per share reflecting new assets, placed in service.
Year to date EPS drivers are shown on. Slide 9.
We reported GAAP EPS of $2.508, which included 11 cents of merger-related costs.
Removing these costs from the year to date results.
We delivered $2.68 of adjusted EPS.
An increase of 6.3% compared to $2.52 for the same period last year.
Our year-to-date results till a similar success story to the third quarter.
Excluding merger related costs.
Our regulatory efforts delivered 68 cents of new rates and writer recovery. Which more than offset higher operating expenses, financing and appreciation.
We benefited from 7 cents of whether favorability.
With 4 cents of milder than normal weather, this year compared to 11 cents of milder than normal weather, for the same period last year.
Our Ernie's guidance is based upon normal. Whether within our jurisdictions,
onm increased by 37 cents, primarily due to merger related expenses, employee costs, and outside services.
Insurance premiums and unplanned outages.
Excluding merger related costs.
We expect to manage our 2025 onm expenses to a compounded annual growth rate of approximately 3.5% off of 2023 LM expense.
We encourage $0.34 of financing and depreciation. Expenses supporting our capital investments.
financing and costs increased by 25 cents, which included 23 cents of higher, interest expense due to higher interest rates,
11 cents of dilution from new shares issued,
And a benefit of 9 cents from afdc.
Depreciation expense increased by 9 cents, driven by new assets placed in service.
As we approach the end of the year, we remain confident, in our ability to meet our adjusted EPS guidance range.
And remain committed to achieving the financial commitments. We made at the beginning of the year, further details on year-over-year. Changes can be found in our earnings release and our 10 Q to be filed with the SEC later today.
By 10 presents, our solid financial position through the lens of credit quality, capital structure and the liquidity.
We continue to sustain a healthy balance sheet by delivering credit metrics within our targets of 55% net debt, total capitalization and 14 to 15% effort to debt.
100 basis points above our downgrade threshold of 13%.
We completed our planned Equity issuance for the year.
issuing a total of 200220 million of net proceeds in 2025, achieving our stated Equity guidance, range of 215 million to 235 million
Looking forward, we expect our 2026 Equity issuance to be significantly, lower driven by stronger cash flows from the successful execution of our strategic Capital Investments regulatory plans and increasing data center low growth.
In October, we completed our planned debt offering issuing 450 million of 4.55% notes. A portion to be used to pay off our January 2026. Long-term debt maturity of Millions.
As a result of our teams successful execution of our 2025 financing activities. We have funded our Capital plan and maintain strong liquidity with more than hundred million dollars of availability under our revolving credit facility at quarter end.
Slide 11 shows our earnings growth trajectory beginning in 2023, along with our 2025 earnings guidance assumptions.
for 2025, we expect adjusted EPS to be between $4 and $4.20 per share, which at the midpoint represents a 5% increase over 2024 earnings
Our long-term earnings growth will be driven by ongoing customer growth, within our jurisdictions, increasing data center demand.
And new rates and Rider recovery on strategic Investments, like ready, Wyoming and Lang 2 that will provide long-term benefits to customers.
We believe we are well positioned to achieve the upper half of our long-term EPS growth Target of 4 to 6% beginning in 2026.
55 consecutive years.
We continue to Target, a 55 to 65%. Payout ratio.
A dependable and increasing dividend is an important component of our strategy to deliver long-term value for our shareholders.
I will now turn the call over to Mary for a business update.
Thank you, Kimberly, and good morning everyone. I'm excited about our current position. The progress. We have made on key initiatives and the promising growth opportunities, that lie ahead all while continuing to provide our customers with safe reliable and cost-effective energy, they rely on every day.
Slide. 14 illustrates our industry-leading, reliability for our electric utilities.
2 of our 3, ranked in the top 10 companies in eei's most recent report based upon 2024 City metrics.
This reflects the benefits of our long-standing commitment to our customer, focused strategy and Investments.
Moving to slide 15. We continue to see significant data center interests and in Wyoming. We are filling this demand to our flexible service model of market energy, contractor generation and utility investment.
Through our Innovative tariff, we have served growing demand from Microsoft hyperscale data centers for more than a decade. We are now serving. Meta's new AI data center under construction in Cheyenne which we expect to transition from construction power to permanent service later this year.
As meta ramps up its data center and Microsoft demand continues to grow. Our current plan includes 500 megawatts of data center Demand by 2029
Growing data center, earnings contribution to more than 10% of total Epps in 2028.
Other leading Data Center Partners are also recognizing the value of our customer focused offerings in the ideal attributes of our service territory as a choice location.
As a result, our growing pipeline of load requests offers compelling upsite to our current plan.
We are actively engaged in negotiating with high-quality Partners representing more than 3, gigawatts of data center. Load a significant increase from our previously disclosed pipeline of 1 plus gigawatts.
Reporting this expanded pipeline to additional data center sites, which were announced in recent months to be constructed in Cheyenne and expected to take energy as early as 2026.
To capture this growth. We have executed non-disclosure agreements and our negotiating service agreements for these and other projects.
While doing so we continue to prioritize meeting our customers unique needs.
Maintaining overall system reliability and appropriately addressing risks while ensuring we earn a fair return for our shareholders.
keeping with our normal practice, we will announce details, when Agreements are signed
Moving to slide 16, we are very excited to be in the final stages of construction on our $260 million Wyoming transmission expansion and are just weeks away from the project being placed in service.
By year end, we will be serving customers with a stronger system that reduces Reliance on third-party transmission.
Enhances resiliency, and increases access to market energy, including Renewables.
Our interconnected transmission, network will support long-term price stability for our customers and enable continued growth across our service territory.
And as a reminder, this investment is recovered through our Wyoming transmission writer with new rates effective in January 2026.
Slide 17 outlines our progress on South Dakota Electric resource plan.
During the third quarter we broke ground on our Lang 2 project a 99 megawatt. Utility-owned natural, gas fire generation resource located, in Rapid City, South Dakota,
This new resource will replace aging generation facilities and address updated reserve margin requirements.
We are on Pace for the facility to be placed in service in the second half of 2026.
Moving to slide 18 in Colorado. Our clean energy plan is ever evolving. Moving from a 350 megawatt plan to a 250 megawatt plan. This week, we received approval of our CPC and settlement for a 50 megawatt. Utility-owned battery storage project.
And recently the commission provided additional guidance, on the Solar projects.
They have requested us to continue negotiating on the 200 megawatt PPA and abandoned negotiations on the 100w solar project due to increased pricing.
Slide 19, summar, our regulatory progress.
We are pleased with our settlement, which was reached during the third quarter for our Nebraska rate review. The settlement provides $23.9 million in new annual revenue based on an ROE of 9.85% and a capital structure of 50.5% equity.
January 1st, 2026, to replace interim rates in effect since August.
The settlement also includes a renewal of our 5-year system, safety and integrity writer and insurance cost tracker, and a weather normalization pilot program.
In Arkansas, we're preparing to file a gas rate review to recover investments that support safe, reliable service and strong growth in the region.
We are also preparing for an electric rate review, in South Dakota, after holding base rates unchanged for more than a decade.
the request will recover our customer focused Investments, including the length 2 generation project, and increase cost to serve customers since our last rate review in 2014,
and finally, in Wyoming, we are preparing to file our Wildfire mitigation plan this month for commission, approval in accordance with Wildfire liability legislation
Following the normal approval process. We expect to obtain significant liability protections as we remain in compliance with our approved plan.
With that, I will now turn the call back to Lynn.
Thank you morning as I hope you've heard, we delivered. Another strong quarter, achieving significant progress within our financial strategic and Regulatory strategies.
This gives us confidence in achieving our 2025 earnings guidance.
And our ability to deliver the upper half of our long-term EPS kager, starting next year.
We're at a pivotal juncture in our company's history. We have large transformative projects coming online in the near term, coupled with a robust pipeline of growth opportunities, including expanding data center demand.
Additionally, our plan merger with NorthWestern Energy will provide us with the advantages of increased scale in new opportunities.
Thank you for your interest and your trust in Black Hills. As we partner to grow long-term value for our customers and our stakeholders.
This concludes our prepared remarks and we're happy to take your questions.
Thank you as a reminder, to ask a question. Please press star, 1, 1 1 on your telephone and wait for your name, to be announced to withdraw your question. Please press star 1 1 1 again, 1 moment for questions.
Our first question comes from Chris, ellinghaus with seabird Williams, shank, you may proceed.
Hey, good morning everybody. Um Marie given your pipeline for data center. Potential resource requirements? Have you guys done anything to put in options or reservations on any important critical equipment at this point?
Yeah. Good morning, Chris, and thanks for the question. We're, we're obviously very excited about the pipeline that we're building, and you know, much to your point. It is going to require some generation. But we have, do we do have some reservations and we also you know, continue to use our our ltcs tariff which allows us to serve it through that mix of utility-owned contracted as well as Market purchases. And so, really providing us a lot of flexibility in how we serve uh this this growing pipeline.
Yeah, I wanted to ask you about this. Um, I I assume you have a preference for utility owned, but do you have any
Considerations or thought process on having it, be non-regulated generation transmission.
Yeah, you know, with the tariff.
certainly, there's
There's good opportunity for utility ownership but I think the flexibility is what's most important because our tariff does allow us to earn a utility like return even without the rate based investment.
And so that flexibility is really important as we talk about this expanded pipeline because we can be almost agnostic in some perspectives of how we serve it. It's really important, as I mentioned earlier today, that, you know, making sure we have the reliability. So that obviously is going to come through some control of capacity, but we want to make sure that we're managing.
From a risk perspective with, with tail risk and protection of customers. Want to make sure we're getting the returns. And so that model that we've, that we've been talking about here for gosh, we've had in place for a little over 10 years, will continue to be the model that we use. As we've talked about this, this growing load.
Okay, great. Um,
Given, uh, I don't know how to phrase this, but given the, uh, activity in the Montana Commission.
Um in the last couple of months, have you got any concerns or thoughts about the approval process in Montana? And are you thinking that that could be extended given what's been happening there?
The Northwestern Northwestern of course, does a lot of business for a long time in Montana, uh, we're taking a lot of guidance from them. In terms of the politics Etc, uh, to be blunt, we're not worried. In fact, some of the things that have happened recently arguably can be helpful to the process. We're watching it closely. Staying highly engaged with that commission, through our application, will be starting Discovery here quite soon. We'll look forward to the uh, procedural schedule. That will tell us a lot too. So we're aware and uh, we're managing our way through it.
Okay. Um,
given the the good third quarter results and sort of where consensus expectations are for the fourth quarter is that sort of implies towards the upper end of your guidance range for the year but you you didn't really address where
You think uh, you're falling in the range so far? Are are there any fourth quarter issues that you'd highlight that?
Might be on the more negative side.
Yeah, Chris. Good morning. It's Kimberly here. I don't think there's anything that we would highlight you know everything. Um,
You know operationally financially we're really hitting on all cylinders. We're obviously always focused on the weather and I just remind um listeners that you know our Ernie's guidance is based on normal weather. So that's the thing that we watch and you know are probably most concerned about but it's outside of our control operationally we're in a really good place. So overall there's just nothing else that I would.
Highlight and again, I just remind um, a listeners that we did, you know, reaffirm our guidance for the year. So um we're really feeling you know, good about where we're at Chris. This is Lynn. I would only highlight beyond what Kimberly just said that the largest project Capital project in our company's history our Wyoming ready project is on on schedule we'll have that finished before the end of the year so that's a big deal for us too.
Sure.
um, lastly, you know, there's been some data points, uh,
Some economic issues, some weakness here and there and lots of layoffs of late. Have you seen any indicators of weakness in your service areas at this point?
We monitor that closely Chris and I'd say those short answer is no uh we're watching that closely but in our particular service territories of the econ economic conditions seem to continue to be strong. Maybe not as strong as they've been in the past but they're still they're certainly not weak. Put it that way.
okay, appreciate
all our guys.
Thank you. Chris Chris.
Thank you, and as a reminder, to ask a question. Please press star, 1 1 1 on your telephone. Our next question comes from Andrew W with Scotia Bank. You may proceed.
Hey, good morning everybody.
Morning. Good morning, Andrew.
First question. Um, I want to ask a way to try to fight. Try to quantify the EPS upside from the Crus data center project. Bear with me here; I know that you're not going to answer the direct question here, but I want to go through this thesis going around. You may have heard the basic concept: you've talked about 10% of 2028 EPS coming from data centers based on 500 megawatts.
We can take 20205 Epps grow it by 5% per year, take 10% of that divided by 500. That gives a simplified math of eps per megawatt. You multiply that by 1.8 gigawatt you get a huge potential impact in the neighborhood of like a dollar 50, a VPS or more. By the time this project is at full scale.
If you went even higher, if we did, like 2.5 gigawatts or 3 gigawatts that you've talked about today. So, admittedly, this is very simplified math. But does that approach make sense to quantifying the upside? Or, I know you've talked a lot about the tariff structure. Are there diminishing returns, or any other reason to think that that approach and that level of upside is wrong?
Good morning Andrew. It's Kimberly. What I generally say is your theory and your mathematical calculation is directionally correct. It's really important to understand that we negotiate with each of these, um, data centers. And so, the nuances of those contractual, um, agreements will be different between each of, the respective hyperscalers, whether it's our existing customer base, with Microsoft and meta, whether it's the forecasted opportunities with some of the hyperscalers that were currently negotiating with. So in general, you know, each, you know, megawatt is going to look a little different, but from a theoretical perspective, you're absolutely right. This is going to be a significant opportunity. Um, from a, you know, black hills's, long-term growth perspective,
Sad that some of these revenues also go back to customers. They go back through uh administrative fees and other kinds of fees so it's very beneficial to customers. The way these tariffs are set up as well.
Okay, great. That's helpful and very encouraging um, along those lines. Um, you talked earlier about incorporating the upside to the growth plan from data centers, only after contracts are signed, which makes sense should that happen before the merger closes. Would you address the growth Outlook or is the 4 to 6% more or less Frozen? So to speak until the deal closes? I'm not looking for a number. I'm asking for a philosophy.
Hi Andrew. Yes, this is Kimberly again. So obviously we're very focused on achieving our current growth rate, um, and we're on target to do that. We've obviously got it to the upper end of that range as a result of, a lot of the projects, our teams are working on, that will go into service, you know, ready Wyoming, our, uh, Lang to project Etc. So, as we think about data center growth, obviously it would be a significant upside to our plan and we would obviously provide an update at the point that we're going to close or find these contracts. And at that point, we'll assess, whether it's the right time to change our earnings guidance range, our long-term earnings guidance range for any reason. So, that's really how we're thinking about it at this point.
Okay. It's very clear 1 last 1. If I met, uh, you own a coal mine which has not gotten a lot of investor attention recently. But in today's environment, it might be worth more than it has been in the past.
How are you thinking about that asset? Is it something that you could potentially monetize Cole obviously is not a rare Earth mineral, but it seems to fall into that rare Earth's conversation. How do you think about that asset strategically?
Uh, we're keeping our options open. I suppose Andrew. You might know, my background is mining engineering. Uh, so I'm aware of what this could be and what it could not be. Uh, we we are aware, we have Rare Earth minerals in our coal in our, uh, fly ash, Etc. It'd be my personal opinion. Probably not enough to monetize, but uh, stranger things have happened. We'll watch what's happening at the at the Washington DC region, especially if there was a price floor or something of that nature. You know, we're all aware that. The Chinese can flood the market very quickly if they choose to and in that regard. Etc. So we're keeping an eye on it. I suppose, uh, we our, our coal has been uh, tested analyzed. So we're kind of aware of what's there, but we don't think there's anything that we need to be really uh happy or concerned about in the near term. How's that sound?
Sounds good, appreciate it. Thank you, everybody.
Thank you, Andrew. Appreciate your questions.
Thank you. I would now like to turn the call back over to Lynn Evans for any closing remarks.
Well, thank you everyone for your interest in Black Hills. Today, we appreciate your time, we appreciate your investment in us and your confidence in us. As you can see, I think we're heading on all cylinders so we're very excited about finishing our ready, Wyoming project, we're excited about our merger in the second half of next year, with our friends at Northwestern Energy. I will be seeing many of you in the next couple of days at the Edison Electric Institute Financial conference. We wish you safe travels, um, and we'll look forward to connecting with you there. And then finally, I just want to say a, a huge thank you to our team. How engaged you are as you're improving, our customers lives with energy every day. Thank you for what you do. And with that, enjoy a Black Hills Energy safe day
Thank you, this concludes the conference. Thank you for your participation. You may now disconnect