Washington, D.C. 20549
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
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| | | | | | | | | | | | TABLE OF CONTENTS | | | | | | | Page | | | | | | | | | | | | | Item 1. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Item 2. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Item 3. | | | | Item 4. | | | | | | | | | | | | Item 1. | | | | | | | | Item 1.1A. | | | | | | | | Item 4. | | | | | | | | Item 6. | | | | | | | | | | | |
GLOSSARY OF TERMS AND ABBREVIATIONS
The following terms and abbreviations appear in the text of this report and have the definitions described below: | | | | | | AFUDC | Allowance for Funds Used During Construction | AOCI | | AOCI | Accumulated Other Comprehensive Income (Loss) | | | Arkansas Gas | Black Hills Energy Arkansas, Inc., a direct, wholly-owned subsidiary of Black Hills Gas Inc.Utility Holdings, providing natural gas services to customers in Arkansas (doing business as Black Hills Energy). | ASC | | | | ASC | Accounting Standards Codification | ASU | Accounting Standards Update issued by the FASB | ATM | At-the-market equity offering program | Availability | | Availability | The availability factor of a power plant is the percentage of the time that it is available to provide energy. | BHC | | BHC | Black Hills Corporation; the Company | | | | | | | Black Hills Colorado IPP | Black Hills Colorado IPP, LLC a 50.1% owned subsidiary of Black Hills Electric Generation | Black Hills Electric Generation | Black Hills Electric Generation, LLC, a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings, providing wholesale electric capacity and energy primarily to our affiliate utilities. | Black Hills Energy | The name used to conduct the business of our utility companies | | | | | | | | | | | | | | | | | | | | | | | | | Black Hills Energy Services | Black Hills Energy Services Company, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas commodity supply for the Choice Gas Programs (doing business as Black Hills Energy). | Black Hills Non-regulated Holdings | Black Hills Non-regulated Holdings, LLC, a direct, wholly-owned subsidiary of Black Hills Corporation | Black Hills Power | Black Hills Power, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy). Also known as South Dakota Electric. | Black Hills Utility Holdings | Black Hills Utility Holdings, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy) | Black Hills Wyoming | Black Hills Wyoming, LLC, a direct, wholly-owned subsidiary of Black Hills Electric Generation | Busch Ranch I | Busch Ranch Wind Farm
| | | | | | | | | | | | | CARES Act | Coronavirus Aid, Relief, and Economic Security Act, signed on March 27, 2020, which is a 29 MW wind farm near Pueblo, Colorado, jointly ownedby Colorado Electrictax and Black Hills Electric Generation. Colorado Electricspending package intended to provide additional economic relief and Black
Hills Electric Generation each have a 50% ownership interest inaddress the wind farm.
impact of the COVID-19 pandemic. | Busch Ranch II | Busch Ranch II wind project will be a 60 MW wind farm near Pueblo, Colorado, built by Black Hills Electric Generation to provide wind energy to Colorado Electric through a 25-year power purchase agreement. | CAPP | Customer Appliance Protection Plan | Cheyenne Light | Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation, (doing business as Black Hills Energy and providing electric service) | Choice Gas Program | The unbundling ofservice in the natural gas service from the distribution component, which opens up the gas supply for competition allowing customers to choose from different natural gas suppliers. Black Hills Gas Distribution andCheyenne, Wyoming Gas distribute the gas and Black Hills Energy Services, Wyoming Gas and Black Hills Gas Distribution are Choice Gas suppliers. | CIAC | Contribution In Aid of Construction | City of Gillette | Gillette, Wyoming | City of Cheyenne | Cheyenne, Wyoming | Chief Operating Decision Maker (CODM) | Chief Executive Officer | Colorado Electric | Black Hills Colorado Electric, LLC, an indirect, wholly-owned subsidiary of Black Hills
Utility Holdingsarea (doing business as Black Hills Energy) . Also known as Wyoming Electric. | | | Choice Gas Program | Regulator-approved programs in Wyoming and Nebraska that allow certain utility customers to select their natural gas commodity supplier, providing for the unbundling of the commodity service from the distribution delivery service. | | | City of Colorado Springs | Colorado Springs, Colorado | City of Gillette | Gillette, Wyoming | | | | | Colorado Electric | Black Hills Colorado Electric, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings, providing electric service to customers in Colorado (doing business as Black Hills Energy). | Colorado Gas | Black Hills Colorado Gas, Inc., an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Colorado (doing business as Black Hills Energy). | Colorado IPP | Black Hills Colorado IPP, LLC a 50.1% owned subsidiary of Black Hills Electric Generation | Consolidated Indebtedness to Capitalization Ratio | Any indebtedness outstanding at such time, divided by capital at such time. Capital being consolidated net-worthnet worth (excluding noncontrolling interest) plus consolidated indebtedness (including letters of credit and certain guarantees issued) as defined within the current Revolving Credit Facility. | Cooling Degree Day (CDD) | A cooling degree day is equivalent to each degree that the average of the high and low temperatures for a day is above 65 degrees. The warmer the climate, the greater the number of cooling degree days. Cooling degree days are used in the utility industry to measure the relative warmth of weather and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations. | CPCNCorriedale | Certificate of Public ConvenienceWind project near Cheyenne, Wyoming, that will be a 52.5 MW wind farm jointly owned by South Dakota Electric and NecessityWyoming Electric and will serve as the dedicated wind energy supply to the Renewable Ready program. |
| | | | | | COVID-19 | The official name for the 2019 novel coronavirus disease announced on February 11, 2020, by the World Health Organization, that is causing a global pandemic | | | CP Program | Commercial Paper Program | CPUC | Colorado Public Utilities Commission | CT | Combustion turbine | CVA | | CVA | Credit Valuation Adjustment | Dodd-Frank | | Dodd-Frank | Dodd-Frank Wall Street Reform and Consumer Protection Act |
| DRSPP | Dividend Reinvestment and Stock Purchase Plan | Dth | Dekatherm. A unit of energy equal to 10 therms or approximately one million British thermal units (MMBtu) | Equity Unit | Each Equity Unit had a stated amount of $50, consisting of a purchase contract issued by BHC to purchase shares of BHC common stock and a 1/20, or 5% undivided beneficial ownership interest in $1,000 principal amount of BHC RSNs that were formerly due 2028. On November 1, 2018, we completed settlement of the stock purchase contracts that are components of the Equity Units issued in November 2015. | FASB | | | | | | | | | | FASB | Financial Accounting Standards Board | FERC | United States Federal Energy Regulatory Commission | Fitch | Fitch Ratings Inc. | GAAP | Accounting principles generally accepted in the United States of America | | | | | | | | | Heating Degree Day (HDD) | A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The colder the climate, the greater the number of heating degree days. Heating degree days are used in the utility industry to measure the relative coldness of weather and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations. | IPPHomeServe | Repair service plans offered to electric and natural gas residential customers that cover parts and labor to repair electrical, gas, heating, cooling, and water systems. | ICFR | Internal Controls over Financial Reporting | Iowa Gas | Black Hills Iowa Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Iowa (doing business as Black Hills Energy). | IPP | Independent power producer | IRS | United States Internal Revenue Service | | | Kansas Gas | Black Hills Kansas Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Kansas (doing business as Black Hills Energy) | MMBtu | | | | | | | | | | | | | | MMBtu | Million British thermal units | Moody’s | | Moody’s | Moody’s Investors Service, Inc. | MW | Megawatts | MWhMW | Megawatt-hoursMegawatts | MWh | Megawatt-hours | Nebraska Gas | Black Hills Nebraska Gas, Utility Company, LLC, a direct,an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Nebraska (doing business as Black Hills Energy) | NPSC | | | | | | | | | | NPSC | Nebraska Public Service Commission | PPA | | | | | | | | OCA | Office of Consumer Advocate | | | | | OCI | Other Comprehensive Income | PPA | Power Purchase Agreement | PRPA | Platte River Power Authority | PSA | Power Sales Agreement | Pueblo Airport Generation Station | Two 100420 MW combined cycle gas-fired power generation plants jointly owned by Colorado Electric (220 MW) and Black Hills Colorado IPP (200 MW). Black Hills Colorado IPP owns and located at a site shared with Colorado Electric.operates this facility. The plants commenced operation on January 1, 2012.
| Renewable Advantage | A 200 MW solar facility project to be constructed in Pueblo County, Colorado. The project aims to lower customer energy costs and provide economic and environmental benefits to Colorado Electric’s customers and communities. If approved by the CPUC, the project would be owned by a third-party renewable energy developer with Colorado Electric purchasing all of the energy generated at the facility under the terms of a 15-year PPA. The project would be placed in service in 2023. | Renewable Ready | Voluntary renewable energy subscription program for large commercial, industrial and governmental agency customers in South Dakota and Wyoming. | Revolving Credit Facility | Our $750 million credit facility used to fund working capital needs, letters of credit and other corporate purposes, which was amended and restated on July 30, 2018, and now terminates on July 30, 2023. | RSNs | Remarketable junior subordinated notes, issued on November 23, 2015 and retired on August 17, 2018. |
| | | | | | SDPUC | South Dakota Public Utilities Commission | SEC | U. S.United States Securities and Exchange Commission | | | Service Guard Comfort Plan | New plan that will consolidate Service Guard and Customer Appliance Protection Plan (CAPP) and provide similar home appliance repair services through on-going monthly service agreements to residential utility customers. | S&P | Standard and Poor’s, a division of The McGraw-Hill Companies, Inc. | South Dakota Electric | Black Hills Power, which includes operationsInc., a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric service to customers in Montana, South Dakota and Wyoming and Montana(doing business as Black Hills Energy). | SSIR | System Safety and Integrity Rider | TCJA | | | | TCJA | Tax Cuts and Jobs Act enacted on December 22, 2017 | Tech Services | Non-regulated product lines within Black Hills Corporation that 1) provide electrical system construction services to large industrial customers of our electric utilities and 2) serve gas transportation customers throughout its service territory by constructing and maintaining customer-owner gas infrastructure facilities, typically through one-time contracts. | | | | | Utilities | Black Hills’ Electric and Gas Utilities | Wind Capacity Factor | Measures the amount of electricity a wind turbine produces in a given time period relative to its maximum potential | WPSC | Wyoming Public Service Commission | WRDC | Wyodak Resources Development Corporation, a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings (doing business as Black Hills Energy) | Wygen I | A mine-mouth, coal-fired power plant with a total capacity of 90 MW located at our Gillette, Wyoming energy complex. We own 76.5% of the plant and Municipal Energy Agency of Nebraska (MEAN) owns the remaining 23.5%. | Wyodak Plant | Wyodak, a 362 MW mine-mouth coal-fired plant in Gillette, Wyoming, owned 80% by PacifiCorp and 20% by Black Hills Energy South Dakota.Dakota Electric. Our WRDC mine supplies all of the fuel for the plant. | Wyoming Electric | Includes Cheyenne Light’sLight, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric utility operations
service to customers in the Cheyenne, Wyoming area (doing business as Black Hills Energy). | Wyoming Gas | Black Hills Wyoming Gas, LLC, an indirect and wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Wyoming (doing business as Black Hills Energy). |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BLACK HILLS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME | | (unaudited) | Three Months Ended September 30, | Nine Months Ended September 30, | (unaudited) | Three Months Ended June 30, | | Six Months Ended June 30, | | | 2019 | 2018 | 2019 | 2018 | | 2020 | 2019 | 2020 | 2019 | | (in thousands, except per share amounts) | | (in thousands, except per share amounts) | | | | | Revenue | $ | 325,548 |
| $ | 321,979 |
| $ | 1,257,246 |
| $ | 1,253,072 |
| Revenue | $ | 326,914 | | $ | 333,888 | | $ | 863,964 | | $ | 931,698 | | | | | | Operating expenses: | | Operating expenses: | | | | Fuel, purchased power and cost of natural gas sold | 73,090 |
| 80,244 |
| 411,695 |
| 432,544 |
| Fuel, purchased power and cost of natural gas sold | 71,629 | | 90,200 | | 259,508 | | 339,942 | | Operations and maintenance | 117,037 |
| 115,699 |
| 366,907 |
| 352,092 |
| Operations and maintenance | 117,308 | | 124,950 | | 242,774 | | 248,534 | | Depreciation, depletion and amortization | 51,884 |
| 49,046 |
| 154,507 |
| 146,345 |
| Depreciation, depletion and amortization | 56,663 | | 51,595 | | 113,065 | | 102,623 | | Taxes - property and production | 12,986 |
| 11,905 |
| 39,454 |
| 39,181 |
| Taxes - property and production | 14,381 | | 13,142 | | 28,499 | | 26,467 | | | Total operating expenses | 254,997 |
| 256,894 |
| 972,563 |
| 970,162 |
| Total operating expenses | 259,981 | | 279,887 | | 643,846 | | 717,566 | | | | | | Operating income | 70,551 |
| 65,085 |
| 284,683 |
| 282,910 |
| Operating income | 66,933 | | 54,001 | | 220,118 | | 214,132 | | | | | | Other income (expense): | | Other income (expense): | | Interest charges - | | | | Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts) | (36,200 | ) | (36,380 | ) | (108,232 | ) | (107,183 | ) | Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts) | (35,765) | | (34,660) | | (71,546) | | (69,676) | | Allowance for funds used during construction - borrowed | 2,200 |
| 701 |
| 4,555 |
| 1,345 |
| | Interest income | 513 |
| 382 |
| 1,208 |
| 1,012 |
| Interest income | 220 | | 396 | | 548 | | 695 | | Allowance for funds used during construction - equity | 311 |
| 193 |
| 486 |
| 503 |
| | Impairment of investment | (19,741 | ) | — |
| (19,741 | ) | — |
| Impairment of investment | — | | — | | (6,859) | | — | | Other income (expense), net | 269 |
| (703 | ) | (431 | ) | (2,426 | ) | Other income (expense), net | (1,863) | | 263 | | 490 | | (526) | | Total other income (expense) | (52,648 | ) | (35,807 | ) | (122,155 | ) | (106,749 | ) | Total other income (expense) | (37,408) | | (34,001) | | (77,367) | | (69,507) | | |
| | | Income before income taxes | 17,903 |
| 29,278 |
| 162,528 |
| 176,161 |
| Income before income taxes | 29,525 | | 20,000 | | 142,751 | | 144,625 | | Income tax benefit (expense) | (2,508 | ) | (7,477 | ) | (22,078 | ) | 11,784 |
| | Income from continuing operations | 15,395 |
| 21,801 |
| 140,450 |
| 187,945 |
| | Net (loss) from discontinued operations | — |
| (857 | ) | — |
| (5,627 | ) | | Income tax (expense) | | Income tax (expense) | (4,831) | | (2,307) | | (20,833) | | (19,570) | | Net income | 15,395 |
| 20,944 |
| 140,450 |
| 182,318 |
| Net income | 24,694 | | 17,693 | | 121,918 | | 125,055 | | Net income attributable to noncontrolling interest | (3,655 | ) | (3,994 | ) | (10,319 | ) | (10,447 | ) | Net income attributable to noncontrolling interest | (3,728) | | (3,110) | | (7,778) | | (6,664) | | Net income available for common stock | $ | 11,740 |
| $ | 16,950 |
| $ | 130,131 |
| $ | 171,871 |
| Net income available for common stock | $ | 20,966 | | $ | 14,583 | | $ | 114,140 | | $ | 118,391 | | | | | | Amounts attributable to common shareholders: | | | Net income from continuing operations | $ | 11,740 |
| $ | 17,807 |
| $ | 130,131 |
| $ | 177,498 |
| | Net (loss) from discontinued operations | — |
| (857 | ) | — |
| (5,627 | ) | | Net income available for common stock | $ | 11,740 |
| $ | 16,950 |
| $ | 130,131 |
| $ | 171,871 |
| | | | | Earnings (loss) per share of common stock, Basic - | | | Earnings from continuing operations | $ | 0.19 |
| $ | 0.33 |
| $ | 2.15 |
| $ | 3.33 |
| | (Loss) from discontinued operations | — |
| (0.02 | ) | — |
| (0.10 | ) | | Total earnings per share of common stock, Basic | $ | 0.19 |
| $ | 0.32 |
| $ | 2.15 |
| $ | 3.22 |
| | | | | Earnings (loss) per share of common stock, Diluted - | | | Earnings from continuing operations | $ | 0.19 |
| $ | 0.32 |
| $ | 2.15 |
| $ | 3.26 |
| | (Loss) from discontinued operations | — |
| (0.02 | ) | — |
| (0.10 | ) | | Total earnings per share of common stock, Diluted | $ | 0.19 |
| $ | 0.31 |
| $ | 2.15 |
| $ | 3.15 |
| | Earnings per share of common stock: | | Earnings per share of common stock: | | Earnings per share, Basic | | Earnings per share, Basic | $ | 0.34 | | $ | 0.24 | | $ | 1.84 | | $ | 1.97 | | Earnings per share, Diluted | | Earnings per share, Diluted | $ | 0.33 | | $ | 0.24 | | $ | 1.83 | | $ | 1.96 | | | | | | Weighted average common shares outstanding: | | Weighted average common shares outstanding: | | Basic | 60,976 |
| 53,364 |
| 60,458 |
| 53,346 |
| Basic | 62,573 | | 60,467 | | 62,175 | | 60,195 | | Diluted | 61,104 |
| 54,819 |
| 60,578 |
| 54,508 |
| Diluted | 62,617 | | 60,606 | | 62,230 | | 60,333 | |
BLACK HILLS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | (unaudited) | Three Months Ended June 30, | | Six Months Ended June 30, | | | 2020 | 2019 | 2020 | 2019 | | (in thousands) | | | | | | | | | Net income | $ | 24,694 | | $ | 17,693 | | $ | 121,918 | | $ | 125,055 | | | | | | | Other comprehensive income (loss), net of tax: | | | | | Benefit plan liability adjustments - net gain (net of tax of $0,$0, $(17) and $0, respectively) | — | | — | | 55 | | — | | Reclassification adjustments of benefit plan liability - prior service cost (net of tax of $6, $5, $13 and $10, respectively) | (19) | | (15) | | (42) | | (29) | | Reclassification adjustments of benefit plan liability - net gain (net of tax of $(182), $(52), $(277) and $(105), respectively) | 415 | | 169 | | 917 | | 336 | | Derivative instruments designated as cash flow hedges: | | | | | Reclassification of net realized losses on settled/amortized interest rate swaps (net of tax of $(170), $(172), $(340) and $(335), respectively) | 543 | | 541 | | 1,086 | | 1,091 | | Net unrealized gains (losses) on commodity derivatives (net of tax of $14, $119, $68 and $65, respectively) | (45) | | (399) | | (220) | | (219) | | Reclassification of net realized (gains) losses on settled commodity derivatives (net of tax of $(16), $19, $(131), and $147, respectively) | 54 | | (64) | | 425 | | (490) | | Other comprehensive income, net of tax | 948 | | 232 | | 2,221 | | 689 | | | | | | | Comprehensive income | 25,642 | | 17,925 | | 124,139 | | 125,744 | | Less: comprehensive income attributable to noncontrolling interest | (3,728) | | (3,110) | | (7,778) | | (6,664) | | Comprehensive income available for common stock | $ | 21,914 | | $ | 14,815 | | $ | 116,361 | | $ | 119,080 | |
| | | | | | | | | | | | | | (unaudited) | Three Months Ended September 30, | Nine Months Ended September 30, | | 2019 | 2018 | 2019 | 2018 | | (in thousands) | | | | | | Net income | $ | 15,395 |
| $ | 20,944 |
| $ | 140,450 |
| $ | 182,318 |
| | | | | | Other comprehensive income (loss), net of tax: | | | | | Reclassification adjustments of benefit plan liability - prior service cost (net of tax of $3, $10, $13 and $29, respectively) | (16 | ) | (34 | ) | (45 | ) | (104 | ) | Reclassification adjustments of benefit plan liability - net gain (loss) (net of tax of $(92), $(138), $(197), and $(409), respectively) | (9 | ) | 483 |
| 327 |
| 1,456 |
| Derivative instruments designated as cash flow hedges: | | | | | Reclassification of net realized (gains) losses on settled/amortized interest rate swaps (net of tax of $(165), $(152), $(500), and $(456), respectively) | 548 |
| 560 |
| 1,639 |
| 1,682 |
| Net unrealized gains (losses) on commodity derivatives (net of tax of $35, $0, $100 and $51, respectively) | (115 | ) | 30 |
| (334 | ) | (168 | ) | Reclassification of net realized (gains) losses on settled commodity derivatives (net of tax of $(5), $3, $142 and $(187), respectively) | 124 |
| 21 |
| (366 | ) | 615 |
| Other comprehensive income, net of tax | 532 |
| 1,060 |
| 1,221 |
| 3,481 |
| | | | | | Comprehensive income | 15,927 |
| 22,004 |
| 141,671 |
| 185,799 |
| Less: comprehensive income attributable to noncontrolling interest | (3,655 | ) | (3,994 | ) | (10,319 | ) | (10,447 | ) | Comprehensive income available for common stock | $ | 12,272 |
| $ | 18,010 |
| $ | 131,352 |
| $ | 175,352 |
|
See Note 1311 for additional disclosures.
BLACK HILLS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | (unaudited) | As of | | | | June 30, 2020 | | December 31, 2019 | | (in thousands) | | | ASSETS | | | | Current assets: | | | | Cash and cash equivalents | $ | 31,608 | | | $ | 9,777 | | Restricted cash and equivalents | 4,105 | | | 3,881 | | Accounts receivable, net | 170,980 | | | 255,805 | | Materials, supplies and fuel | 105,987 | | | 117,172 | | Derivative assets, current | 1,581 | | | 342 | | Income tax receivable, net | 20,118 | | | 16,446 | | Regulatory assets, current | 51,745 | | | 43,282 | | Other current assets | 27,981 | | | 26,479 | | Total current assets | 414,105 | | | 473,184 | | | | | | Investments | 15,438 | | | 21,929 | | | | | | Property, plant and equipment | 6,954,274 | | | 6,784,679 | | Less: accumulated depreciation and depletion | (1,251,075) | | | (1,281,493) | | Total property, plant and equipment, net | 5,703,199 | | | 5,503,186 | | | | | | Other assets: | | | | Goodwill | 1,299,454 | | | 1,299,454 | | Intangible assets, net | 12,536 | | | 13,266 | | Regulatory assets, non-current | 220,567 | | | 228,062 | | Other assets, non-current | 24,633 | | | 19,376 | | Total other assets, non-current | 1,557,190 | | | 1,560,158 | | | | | | TOTAL ASSETS | $ | 7,689,932 | | | $ | 7,558,457 | |
| | | | | | | | | (unaudited) | As of | | September 30, 2019 | | December 31, 2018 | | (in thousands) | ASSETS | | | | Current assets: | | | | Cash and cash equivalents | $ | 13,087 |
| | $ | 20,776 |
| Restricted cash | 3,688 |
| | 3,369 |
| Accounts receivable, net | 148,989 |
| | 269,153 |
| Materials, supplies and fuel | 123,002 |
| | 117,299 |
| Derivative assets, current | 412 |
| | 1,500 |
| Income tax receivable, net | 12,931 |
| | 12,978 |
| Regulatory assets, current | 46,206 |
| | 48,776 |
| Other current assets | 29,106 |
| | 29,982 |
| Total current assets | 377,421 |
| | 503,833 |
| | | | | Investments | 21,583 |
| | 41,013 |
| | | | | Property, plant and equipment | 6,567,229 |
| | 6,000,015 |
| Less: accumulated depreciation and depletion | (1,243,794 | ) | | (1,145,136 | ) | Total property, plant and equipment, net | 5,323,435 |
| | 4,854,879 |
| | | | | Other assets: | | | | Goodwill | 1,299,454 |
| | 1,299,454 |
| Intangible assets, net | 13,566 |
| | 14,337 |
| Regulatory assets, non-current | 214,152 |
| | 235,459 |
| Other assets, non-current | 25,339 |
| | 14,352 |
| Total other assets, non-current | 1,552,511 |
| | 1,563,602 |
| | | | | TOTAL ASSETS | $ | 7,274,950 |
| | $ | 6,963,327 |
|
BLACK HILLS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) | | | | | | | | | | | | (unaudited) | As of | | | | June 30, 2020 | | December 31, 2019 | | (in thousands, except share amounts) | | | LIABILITIES AND EQUITY | | | | Current liabilities: | | | | Accounts payable | $ | 118,942 | | | $ | 193,523 | | Accrued liabilities | 201,667�� | | | 226,767 | | Derivative liabilities, current | 621 | | | 2,254 | | Regulatory liabilities, current | 59,428 | | | 33,507 | | Notes payable | — | | | 349,500 | | Current maturities of long-term debt | 4,307 | | | 5,743 | | Total current liabilities | 384,965 | | | 811,294 | | | | | | Long-term debt, net of current maturities | 3,532,887 | | | 3,140,096 | | | | | | Deferred credits and other liabilities: | | | | Deferred income tax liabilities, net | 388,962 | | | 360,719 | | Regulatory liabilities, non-current | 506,393 | | | 503,145 | | Benefit plan liabilities | 142,580 | | | 154,472 | | Other deferred credits and other liabilities | 119,649 | | | 124,662 | | Total deferred credits and other liabilities | 1,157,584 | | | 1,142,998 | | | | | | Commitments and contingencies (See Notes 7, 9, 12, 13) | | | | | | | | Equity: | | | | Stockholders’ equity — | | | | Common stock $1 par value; 100,000,000 shares authorized; issued 62,772,996 and 61,480,658 shares, respectively | 62,773 | | | 61,481 | | Additional paid-in capital | 1,654,563 | | | 1,552,788 | | Retained earnings | 826,269 | | | 778,776 | | Treasury stock, at cost – 26,399 and 3,956 shares, respectively | (1,879) | | | (267) | | Accumulated other comprehensive income (loss) | (28,434) | | | (30,655) | | Total stockholders’ equity | 2,513,292 | | | 2,362,123 | | Noncontrolling interest | 101,204 | | | 101,946 | | Total equity | 2,614,496 | | | 2,464,069 | | | | | | TOTAL LIABILITIES AND TOTAL EQUITY | $ | 7,689,932 | | | $ | 7,558,457 | |
| | | | | | | | | (unaudited) | As of | | September 30, 2019 | | December 31, 2018 | | (in thousands, except share amounts) | LIABILITIES AND TOTAL EQUITY | | | | Current liabilities: | | | | Accounts payable | $ | 145,085 |
| | $ | 210,609 |
| Accrued liabilities | 217,832 |
| | 215,501 |
| Derivative liabilities, current | 2,396 |
| | 947 |
| Regulatory liabilities, current | 25,168 |
| | 29,810 |
| Notes payable | 294,900 |
| | 185,620 |
| Current maturities of long-term debt | 5,743 |
| | 5,743 |
| Total current liabilities | 691,124 |
| | 648,230 |
| | | | | Long-term debt | 3,049,235 |
| | 2,950,835 |
| | | | | Deferred credits and other liabilities: | | | | Deferred income tax liabilities, net | 347,952 |
| | 311,331 |
| Regulatory liabilities, non-current | 498,773 |
| | 510,984 |
| Benefit plan liabilities | 134,150 |
| | 145,147 |
| Other deferred credits and other liabilities | 120,820 |
| | 109,377 |
| Total deferred credits and other liabilities | 1,101,695 |
| | 1,076,839 |
| | | | | Commitments and contingencies (See Notes 8, 10, 15, 16) |
|
| |
| | | | | Equity: | | | | Stockholders’ equity — | | | | Common stock $1 par value; 100,000,000 shares authorized; issued 61,480,640 and 60,048,567 shares, respectively | 61,481 |
| | 60,049 |
| Additional paid-in capital | 1,553,190 |
| | 1,450,569 |
| Retained earnings | 742,138 |
| | 700,396 |
| Treasury stock, at cost – 26,572 and 44,253 shares, respectively | (1,636 | ) | | (2,510 | ) | Accumulated other comprehensive income (loss) | (25,695 | ) | | (26,916 | ) | Total stockholders’ equity | 2,329,478 |
| | 2,181,588 |
| Noncontrolling interest | 103,418 |
| | 105,835 |
| Total equity | 2,432,896 |
| | 2,287,423 |
| | | | | TOTAL LIABILITIES AND TOTAL EQUITY | $ | 7,274,950 |
| | $ | 6,963,327 |
|
BLACK HILLS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | | (unaudited) | Nine Months Ended September 30, | (unaudited) | Six Months Ended June 30, | | | 2019 | 2018 | | 2020 | 2019 | Operating activities: | (in thousands) | Operating activities: | (in thousands) | | Net income | $ | 140,450 |
| $ | 182,318 |
| Net income | $ | 121,918 | | $ | 125,055 | | Loss from discontinued operations, net of tax | — |
| 5,627 |
| | Income from continuing operations | 140,450 |
| 187,945 |
| | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | | Depreciation, depletion and amortization | 154,507 |
| 146,345 |
| Depreciation, depletion and amortization | 113,065 | | 102,623 | | Deferred financing cost amortization | 6,326 |
| 5,682 |
| Deferred financing cost amortization | 4,246 | | 4,219 | | Impairment of investment | 19,741 |
| — |
| Impairment of investment | 6,859 | | — | | Stock compensation | 8,332 |
| 7,544 |
| Stock compensation | 1,113 | | 7,093 | | Deferred income taxes | 24,381 |
| (14,396 | ) | Deferred income taxes | 26,401 | | 21,935 | | Employee benefit plans | 7,965 |
| 10,641 |
| Employee benefit plans | 5,656 | | 5,683 | | Other adjustments, net | 9,192 |
| 7,668 |
| Other adjustments, net | 3,679 | | 8,991 | | Changes in certain operating assets and liabilities: | | Changes in certain operating assets and liabilities: | | Materials, supplies and fuel | (4,126 | ) | (8,380 | ) | Materials, supplies and fuel | 7,503 | | 14,911 | | Accounts receivable, unbilled revenues and other operating assets | 115,325 |
| 72,061 |
| | Accounts payable and other operating liabilities | (83,436 | ) | (86,604 | ) | | Accounts receivable and other current assets | | Accounts receivable and other current assets | 73,302 | | 99,925 | | Accounts payable and other current liabilities | | Accounts payable and other current liabilities | (63,085) | | (107,563) | | Regulatory assets - current | 12,455 |
| 41,655 |
| Regulatory assets - current | 21,887 | | 16,116 | | Regulatory liabilities - current | (15,644 | ) | 21,416 |
| Regulatory liabilities - current | 314 | | (6,348) | | Contributions to defined benefit pension plans | (12,700 | ) | (12,700 | ) | Contributions to defined benefit pension plans | (12,700) | | — | | Other operating activities, net | 3,307 |
| 2,007 |
| Other operating activities, net | (1,152) | | (2,861) | | Net cash provided by operating activities of continuing operations | 386,075 |
| 380,884 |
| | Net cash provided by (used in) operating activities of discontinued operations | — |
| (2,162 | ) | | Net cash provided by operating activities | 386,075 |
| 378,722 |
| Net cash provided by operating activities | 309,006 | | 289,779 | | | | | | Investing activities: | | Investing activities: | | Property, plant and equipment additions | (592,537 | ) | (278,132 | ) | Property, plant and equipment additions | (348,313) | | (317,686) | | Purchase of investment | — |
| (24,429 | ) | | Other investing activities | (735 | ) | 2,766 |
| Other investing activities | (1,412) | | 389 | | Net cash provided by (used in) investing activities of continuing operations | (593,272 | ) | (299,795 | ) | | Net cash provided by investing activities of discontinued operations | — |
| 18,024 |
| | Net cash provided by (used in) investing activities | (593,272 | ) | (281,771 | ) | | Net cash (used in) investing activities | | Net cash (used in) investing activities | (349,725) | | (317,297) | | | | | | Financing activities: | | Financing activities: | | Dividends paid on common stock | (91,779 | ) | (76,309 | ) | Dividends paid on common stock | (66,440) | | (60,952) | | Common stock issued | 101,361 |
| 1,079 |
| Common stock issued | 99,435 | | 71,759 | | Net (payments) borrowings of short-term debt | 109,280 |
| (99,200 | ) | Net (payments) borrowings of short-term debt | (349,500) | | (83,120) | | Long-term debt - issuances | 400,000 |
| 700,000 |
| Long-term debt - issuances | 400,000 | | 400,000 | | Long-term debt - repayments | (304,307 | ) | (603,307 | ) | Long-term debt - repayments | (5,727) | | (302,871) | | Distributions to noncontrolling interest | (12,736 | ) | (13,755 | ) | Distributions to noncontrolling interest | (8,520) | | (9,251) | | Other financing activities | (1,992 | ) | (10,457 | ) | Other financing activities | (6,474) | | (1,948) | | Net cash provided by (used in) financing activities | 199,827 |
| (101,949 | ) | | Net change in cash, cash equivalents and restricted cash | (7,370 | ) | (4,998 | ) | | Cash, cash equivalents and restricted cash at beginning of period | 24,145 |
| 18,240 |
| | Cash, cash equivalents and restricted cash at end of period | $ | 16,775 |
| $ | 13,242 |
| | Net cash provided by financing activities | | Net cash provided by financing activities | 62,774 | | 13,617 | | | Net change in cash, restricted cash and cash equivalents | | Net change in cash, restricted cash and cash equivalents | 22,055 | | (13,901) | | | Cash, restricted cash and cash equivalents at beginning of period | | Cash, restricted cash and cash equivalents at beginning of period | 13,658 | | 24,145 | | Cash, restricted cash and cash equivalents at end of period | | Cash, restricted cash and cash equivalents at end of period | $ | 35,713 | | $ | 10,244 | | | Supplemental cash flow information: | | Supplemental cash flow information: | | Cash (paid) refunded during the period: | | Cash (paid) refunded during the period: | | Interest (net of amounts capitalized) | | Interest (net of amounts capitalized) | $ | (67,449) | | $ | (67,624) | | Income taxes | | Income taxes | $ | 1,896 | | $ | 1,790 | | Non-cash investing and financing activities: | | Non-cash investing and financing activities: | | Accrued property, plant and equipment purchases at June 30 | | Accrued property, plant and equipment purchases at June 30 | $ | 59,916 | | $ | 83,486 | |
See Note 14 for supplemental disclosure of cash flow information.
BLACK HILLS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EQUITY | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (unaudited) | Common Stock | | Treasury Stock | | | | | | | (in thousands except share amounts) | Shares | Value | Shares | Value | Additional Paid in Capital | Retained Earnings | AOCI | Non controlling Interest | Total | December 31, 2019 | 61,480,658 | | $ | 61,481 | | 3,956 | | $ | (267) | | $ | 1,552,788 | | $ | 778,776 | | $ | (30,655) | | $ | 101,946 | | $ | 2,464,069 | | Net income available for common stock | — | | — | | — | | — | | — | | 93,174 | | — | | 4,050 | | 97,224 | | Other comprehensive income (loss), net of tax | — | | — | | — | | — | | — | | — | | 1,273 | | — | | 1,273 | | | | | | | | | | | | | | | | | | | | | | Dividends on common stock ($0.535 per share) | — | | — | | — | | — | | — | | (32,902) | | — | | — | | (32,902) | | Share-based compensation | 69,378 | | 69 | | 20,700 | | (1,658) | | 2,263 | | — | | — | | — | | 674 | | | | | | | | | | | | Issuance of common stock | 1,222,942 | | 1,223 | | — | | — | | 98,777 | | — | | — | | — | | 100,000 | | Issuance costs | — | | — | | — | | — | | (967) | | — | | — | | — | | (967) | | | | | | | | | | | | | | | | | | | | | | Implementation of ASU 2016-13 Financial Instruments - - Credit Losses | — | | — | | — | | — | | — | | (207) | | — | | — | | (207) | | | | | | | | | | | | | | | | | | | | | | Distributions to noncontrolling interest | — | | — | | — | | — | | — | | — | | — | | (4,741) | | (4,741) | | March 31, 2020 | 62,772,978 | | $ | 62,773 | | 24,656 | | $ | (1,925) | | $ | 1,652,861 | | $ | 838,841 | | $ | (29,382) | | $ | 101,255 | | $ | 2,624,423 | | Net income available for common stock | — | — | — | — | — | 20,966 | | — | | 3,728 | | 24,694 | | Other comprehensive income (loss), net of tax | — | | — | | — | | — | | — | | — | | 948 | | — | | 948 | | | | | | | | | | | | | | | | | | | | | | Dividends on common stock ($0.535 per share) | — | | — | | — | | — | | — | | (33,538) | | — | | — | | (33,538) | | Share-based compensation | 18 | | — | | 1,743 | | 46 | | 1,781 | | — | | — | | — | | 1,827 | | | | | | | | | | | | | | | | | | | | | | Issuance costs | — | | — | | — | | — | | (79) | | — | | — | | — | | (79) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Distributions to noncontrolling interest | — | | — | | — | | — | | — | | — | | — | | (3,779) | | (3,779) | | June 30, 2020 | 62,772,996 | | $ | 62,773 | | 26,399 | | $ | (1,879) | | $ | 1,654,563 | | $ | 826,269 | | $ | (28,434) | | $ | 101,204 | | $ | 2,614,496 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | | Treasury Stock | | | | | | | (in thousands except share amounts) | Shares | Value | Shares | Value | Additional Paid in Capital | Retained Earnings | AOCI | Non controlling Interest | Total | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2018 | 60,048,567 | | $ | 60,049 | | 44,253 | | $ | (2,510) | | $ | 1,450,569 | | $ | 700,396 | | $ | (26,916) | | $ | 105,835 | | $ | 2,287,423 | | Net income available for common stock | — | | — | | — | | — | | — | | 103,808 | | — | | 3,554 | | 107,362 | | Other comprehensive income (loss), net of tax | — | | — | | — | | — | | — | | — | | 457 | | — | | 457 | | | | | | | | | | | | | | | | | | | | | | Dividends on common stock ($0.505 per share) | — | | — | | — | | — | | — | | (30,332) | | — | | — | | (30,332) | | Share-based compensation | 48,956 | | 49 | | (20,497) | | 1,078 | | (589) | | — | | — | | — | | 538 | | | | | | | | | | | | Issuance of common stock | 280,497 | | 280 | | — | | — | | 19,719 | | — | | — | | — | | 19,999 | | Issuance costs | — | | — | | — | | — | | (289) | | — | | — | | — | | (289) | | | | | | | | | | | | | | | | | | | | | | Implementation of ASU 2016-02 Leases | — | | — | | — | | — | | — | | 3,390 | | — | | — | | 3,390 | | | | | | | | | | | | | | | | | | | | | | Distributions to noncontrolling interest | — | | — | | — | | — | | — | | — | | — | | (4,846) | | (4,846) | | March 31, 2019 | 60,378,020 | | $ | 60,378 | | 23,756 | | $ | (1,432) | | $ | 1,469,410 | | $ | 777,262 | | $ | (26,459) | | $ | 104,543 | | $ | 2,383,702 | | Net income available for common stock | — | | — | | — | | — | | — | | 14,583 | | — | | 3,110 | | 17,693 | | Other comprehensive income, net of tax | — | | — | | — | | — | | — | | — | | 232 | | — | | 232 | | Dividends on common stock ($0.505 per share) | — | | — | | — | | — | | — | | (30,620) | | — | | — | | (30,620) | | Share-based compensation | 54,767 | | 54 | | 1,603 | | (112) | | 3,948 | | — | | — | | — | | 3,890 | | | | | | | | | | | | Issuance of common stock | 658,598 | | 659 | | — | | — | | 49,342 | | — | | — | | — | | 50,001 | | Issuance costs | — | | — | | — | | — | | (492) | | — | | — | | — | | (492) | | Implementation of ASU 2016-02 Leases | — | | — | | — | | — | | — | | (3) | | — | | — | | (3) | | Distributions to noncontrolling interest | — | | — | | — | | — | | — | | — | | — | | (4,405) | | (4,405) | | June 30, 2019 | 61,091,385 | | $ | 61,091 | | 25,359 | | $ | (1,544) | | $ | 1,522,208 | | $ | 761,222 | | $ | (26,227) | | $ | 103,248 | | $ | 2,419,998 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | (unaudited) | Common Stock | Treasury Stock | | | | | | (in thousands except share amounts) | Shares | Value | Shares | Value | Additional Paid in Capital | Retained Earnings | AOCI | Non controlling Interest | Total | December 31, 2018 | 60,048,567 |
| $ | 60,049 |
| 44,253 |
| $ | (2,510 | ) | $ | 1,450,569 |
| $ | 700,396 |
| $ | (26,916 | ) | $ | 105,835 |
| $ | 2,287,423 |
| Net income available for common stock | — |
| — |
| — |
| — |
| — |
| 103,808 |
| — |
| 3,554 |
| 107,362 |
| Other comprehensive income (loss), net of tax | — |
| — |
| — |
| — |
| — |
| — |
| 457 |
| — |
| 457 |
| Dividends on common stock ($0.505 per share) | — |
| — |
| — |
| — |
| — |
| (30,332 | ) | — |
| — |
| (30,332 | ) | Share-based compensation | 48,956 |
| 49 |
| (20,497 | ) | 1,078 |
| (589 | ) | — |
| — |
| — |
| 538 |
| Issuance of common stock | 280,497 |
| 280 |
| — |
| — |
| 19,719 |
| — |
| — |
| — |
| 19,999 |
| Issuance costs | — |
| — |
| — |
| — |
| (289 | ) | — |
| — |
| — |
| (289 | ) | Implementation of ASU 2016-02 Leases | — |
| — |
| — |
| — |
| — |
| 3,390 |
| — |
| — |
| 3,390 |
| Distributions to noncontrolling interest | — |
| — |
| — |
| — |
| — |
| — |
| — |
| (4,846 | ) | (4,846 | ) | March 31, 2019 | 60,378,020 |
| $ | 60,378 |
| 23,756 |
| $ | (1,432 | ) | $ | 1,469,410 |
| $ | 777,262 |
| $ | (26,459 | ) | $ | 104,543 |
| $ | 2,383,702 |
| Net income available for common stock | — |
| — |
| — |
| — |
| — |
| 14,583 |
| — |
| 3,110 |
| 17,693 |
| Other comprehensive income (loss), net of tax | — |
| — |
| — |
| — |
| — |
| — |
| 232 |
| — |
| 232 |
| Dividends on common stock ($0.505 per share) | — |
| — |
| — |
| — |
| — |
| (30,620 | ) | — |
| — |
| (30,620 | ) | Share-based compensation | 54,767 |
| 54 |
| 1,603 |
| (112 | ) | 3,948 |
| — |
| — |
| — |
| 3,890 |
| Issuance of common stock | 658,598 |
| 659 |
| — |
| — |
| 49,342 |
| — |
| — |
| — |
| 50,001 |
| Issuance costs | — |
| — |
| — |
| — |
| (492 | ) | — |
| — |
| — |
| (492 | ) | Implementation of ASU 2016-02 Leases | — |
| — |
| — |
| — |
| — |
| (3 | ) | — |
| — |
| (3 | ) | Distributions to noncontrolling interest | — |
| — |
| — |
| — |
| — |
| — |
| — |
| (4,405 | ) | (4,405 | ) | June 30, 2019 | 61,091,385 |
| $ | 61,091 |
| 25,359 |
| $ | (1,544 | ) | $ | 1,522,208 |
| $ | 761,222 |
| $ | (26,227 | ) | $ | 103,248 |
| $ | 2,419,998 |
| Net income (loss) available for common stock | — |
| — |
| — |
| — |
| — |
| 11,740 |
| — |
| 3,655 |
| 15,395 |
| Other comprehensive income (loss), net of tax | — |
| — |
| — |
| — |
| — |
| — |
| 532 |
| — |
| 532 |
| Dividends on common stock ($0.505 per share) | — |
| — |
| — |
| — |
| — |
| (30,827 | ) | — |
| — |
| (30,827 | ) | Share-based compensation | 18 |
| — |
| 1,213 |
| (92 | ) | 1,769 |
| — |
| — |
| — |
| 1,677 |
| Issuance of common stock | 389,237 |
| 390 |
| — |
| — |
| 29,611 |
| — |
| — |
| — |
| 30,001 |
| Issuance costs | — |
| — |
| — |
| — |
| (398 | ) | — |
| — |
| — |
| (398 | ) | Implementation of ASU 2016-02 Leases | — |
| — |
| — |
| — |
| — |
| 3 |
| — |
| — |
| 3 |
| Distributions to noncontrolling interest | — |
| — |
| — |
| — |
| — |
| — |
| — |
| (3,485 | ) | (3,485 | ) | September 30, 2019 | 61,480,640 |
| $ | 61,481 |
| 26,572 |
| $ | (1,636 | ) | $ | 1,553,190 |
| $ | 742,138 |
| $ | (25,695 | ) | $ | 103,418 |
| $ | 2,432,896 |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | Treasury Stock | | | | | | (in thousands except share amounts) | Shares | Value | Shares | Value | Additional Paid in Capital | Retained Earnings | AOCI | Non controlling Interest | Total | December 31, 2017 | 53,579,986 |
| $ | 53,580 |
| 39,064 |
| $ | (2,306 | ) | $ | 1,150,285 |
| $ | 548,617 |
| $ | (41,202 | ) | $ | 111,232 |
| $ | 1,820,206 |
| Net income available for common stock | — |
| — |
| — |
| — |
| — |
| 133,004 |
| — |
| 3,630 |
| 136,634 |
| Other comprehensive income (loss), net of tax | — |
| — |
| — |
| — |
| — |
| — |
| 1,260 |
| — |
| 1,260 |
| Dividends on common stock ($0.475 per share) | — |
| — |
| — |
| — |
| — |
| (25,444 | ) | — |
| — |
| (25,444 | ) | Share-based compensation | 64,770 |
| 65 |
| 14,895 |
| (743 | ) | 1,433 |
| — |
| — |
| — |
| 755 |
| Dividend reinvestment and stock purchase plan | 4,061 |
| 4 |
| — |
| — |
| 215 |
| — |
| — |
| — |
| 219 |
| Other stock transactions | — |
| — |
| — |
| — |
| — |
| (16 | ) | 18 |
| — |
| 2 |
| Distributions to noncontrolling interest | — |
| — |
| — |
| — |
| — |
| — |
| — |
| (5,648 | ) | (5,648 | ) | March 31, 2018 | 53,648,817 |
| $ | 53,649 |
| 53,959 |
| $ | (3,049 | ) | $ | 1,151,933 |
| $ | 656,161 |
| $ | (39,924 | ) | $ | 109,214 |
| $ | 1,927,984 |
| Net income available for common stock | — |
| — |
| — |
| — |
| — |
| 21,917 |
| — |
| 2,823 |
| 24,740 |
| Other comprehensive income (loss), net of tax | — |
| — |
| — |
| — |
| — |
| — |
| 1,161 |
| — |
| 1,161 |
| Dividends on common stock ($0.475 per share) | — |
| — |
| — |
| — |
| — |
| (25,435 | ) | — |
| — |
| (25,435 | ) | Share-based compensation | 13,033 |
| 13 |
| 11,022 |
| (593 | ) | 3,019 |
| — |
| — |
| — |
| 2,439 |
| Other stock transactions | — |
| — |
| — |
| — |
| (5 | ) | (1 | ) | — |
| — |
| (6 | ) | Distributions to noncontrolling interest | — |
| — |
| — |
| — |
| — |
| — |
| — |
| (4,350 | ) | (4,350 | ) | June 30, 2018 | 53,661,850 |
| $ | 53,662 |
| 64,981 |
| $ | (3,642 | ) | $ | 1,154,947 |
| $ | 652,642 |
| $ | (38,763 | ) | $ | 107,687 |
| $ | 1,926,533 |
| Net income (loss) available for common stock | — |
| — |
| — |
| — |
| — |
| 16,950 |
| — |
| 3,994 |
| 20,944 |
| Other comprehensive income (loss), net of tax | — |
| — |
| — |
| — |
| — |
| — |
| 1,060 |
| — |
| 1,060 |
| Dividends on common stock ($0.475 per share) | — |
| — |
| — |
| — |
| — |
| (25,430 | ) | — |
| — |
| (25,430 | ) | Share-based compensation | 13 |
| — |
| 7,934 |
| (430 | ) | 2,107 |
| — |
| — |
| — |
| 1,677 |
| Dividend reinvestment and stock purchase plan | — |
| — |
| — |
| — |
| 1 |
| — |
| — |
| — |
| 1 |
| Other stock transactions | — |
| — |
| — |
| — |
| 159 |
| (8 | ) | — |
| — |
| 151 |
| Distributions to noncontrolling interest | — |
| — |
| — |
| — |
| — |
| — |
| — |
| (3,757 | ) | (3,757 | ) | September 30, 2018 | 53,661,863 |
| $ | 53,662 |
| 72,915 |
| $ | (4,072 | ) | $ | 1,157,214 |
| $ | 644,154 |
| $ | (37,703 | ) | $ | 107,924 |
| $ | 1,921,179 |
| | | | | | | | | | |
BLACK HILLS CORPORATION
Notes to Condensed Consolidated Financial Statements (unaudited) (Reference is made to Notes to Consolidated Financial Statements included in the Company’s 20182019 Annual Report on Form 10-K)
(1) Management’s Statement (1) MANAGEMENT’S STATEMENT
The unaudited Condensed Consolidated Financial Statements included herein have been prepared by Black Hills Corporation (together with our subsidiaries the “Company”, “us”, “we” or “our”), pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of AmericaGAAP have been condensed or omitted pursuant to such rules and regulations; however, we believe that the footnotes adequately disclose the information presented. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 20182019 Annual Report on Form 10-K filed with the SEC.
Segment Reporting
We conduct our operations through the following reportable segments: Electric Utilities, Gas Utilities, Power Generation and Mining. Our reportable segments are based on our method of internal reporting, which is generally segregated by differences in products, services and regulation. All of our operations and assets are located within the United States.
Effective January 1, 2019, we changed our measure of segment performance to adjusted operating income, which impacted our segment disclosures for all periods presented. See Note 3 for more information.
On November 1, 2017, the BHC board of directors approved a complete divestiture of our Oil and Gas segment. We completed the divestiture in 2018. The Oil and Gas segment assets and liabilities were classified as held for sale and the results of operations were shown in income (loss) from discontinued operations, except for certain general and administrative costs and interest expense which do not meet the criteria for income (loss) from discontinued operations. At the time the assets were classified as held for sale, depreciation, depletion and amortization expenses were no longer recorded. Unless otherwise noted, the amounts presented in the accompanying notes to the Condensed Consolidated Financial Statements relate to the Company’s continuing operations. See Note 17 and Note 21 for more information on discontinued operations.
Use of Estimates and Basis of Presentation
The information furnished in the accompanying Condensed Consolidated Financial Statements reflects certain estimates required and all adjustments, including accruals, which are, in the opinion of management, necessary for a fair presentation of the SeptemberJune 30, 2019 and2020, December 31, 20182019 and June 30, 2019 financial information. Certain industries in which we operate are highly seasonal and revenue from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Demand for electricity and natural gas is sensitive to seasonal cooling, heating and industrial load requirements. In particular, the normal peak usage season for electric utilities is June through August while the normal peak usage season for gas utilities is November through March. Significant earnings variances can be expected between the Gas Utilities segment’s peak and off-peak seasons. Due to this seasonal nature, our results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, and our financial condition as of SeptemberJune 30, 20192020 and December 31, 20182019 are not necessarily indicative of the results of operations and financial condition to be expected for any other period. All earnings per share amounts discussed refer to diluted earnings per share unless otherwise noted.
Reclassification
We changed certain classifications of operating expenses on the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 to conform with current year presentation. The prior year reclassifications, which are shown in the table below, did not impact previously reported operating income or net income.
| | | | | | | | | | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 | | (in millions) | | Fuel, purchased power and cost of natural gas sold | $ | 0.4 | | $ | 1.3 | | Operations and maintenance | — | | (0.3) | | Taxes - property and production | — | | (0.2) | | Other operating expenses | (0.4) | | (0.8) | | | $ | — | | $ | — | |
COVID-19 Pandemic
In March 2020, the World Health Organization categorized COVID-19 as a pandemic and the President of the United States declared the outbreak a national emergency. The U.S. government has deemed electric and natural gas utilities to be critical infrastructure sectors that provide essential services during this emergency. As a provider of essential services, the Company has an obligation to provide services to our customers. The Company remains focused on protecting the health of its employees and the communities in which it operates while assuring the continuity of its business operations.
The Company’s Condensed Consolidated Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and reported amounts of revenue and expenses during the reporting periods presented. The Company considered the impacts of COVID-19 on the assumptions and estimates used and determined that for the three and six months ended June 30, 2020, there were no material adverse impacts on the Company’s results of operations.
Change in Accounting Principle - Pension Accounting Asset Method
Effective January 1, 2020, we changed our method of accounting for net periodic benefit cost. Prior to the change, the Company used a calculated value for determining market-related value of plan assets which amortized the effects of gains and losses over a five-year period. Effective with the accounting change, the Company will use a calculated value for the return-seeking assets (equities) in the portfolio and change to fair value for the liability-hedging assets (fixed income). See Note 12 for additional information.
Recently Issued Accounting Standards
Simplifying the Accounting for Income Taxes, ASU 2019-12
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, as part of its overall simplification initiative to reduce costs and complexity in applying accounting standards while maintaining or improving the usefulness of the information provided to users of the financial statements. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The new guidance is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted. We are currently reviewing this standard to assess the impact on our financial position, results of operations and cash flows.
Recently Adopted Accounting Standards
Financial Instruments -- Credit Losses: Measurement of Credit Losses on Financial Instruments, ASU 2016-13
In June 2016, the FASB issued ASU 2016-13, Financial Instruments -- Credit Losses: Measurement of Credit Losses on Financial Instruments, which was subsequently amended by ASUs 2018-19, 2019-04, 2019-05, 2019-10, and 2019-11. The standard introduces new accounting guidance for credit losses on financial instruments within its scope, including trade receivables. This new guidance adds an impairment model that is based on expected losses rather than incurred losses.
We adopted this standard on January 1, 2020 with prior year comparative financial information remaining as previously reported when transitioning to the new standard. On January 1, 2020, we recorded an increase to our allowance for credit losses, primarily associated with the inclusion of expected losses on unbilled revenue. The cumulative effect of the adoption, net of tax impact, was $0.2 million, which was recorded as an adjustment to retained earnings.
Simplifying the Test for Goodwill Impairment, ASU 2017-04
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, by eliminating step 2 from the goodwill impairment test. Under the new guidance, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit. The newWe adopted this standard is effective for interim and annual reporting periods beginning after Decemberprospectively on January 1, 2019, applied on a prospective basis with early adoption permitted. We do not anticipate the adoption2020. Adoption of this guidance, in conjunction with the annual goodwill impairment test as of October 1, 2020, is not expected to have anyan impact on our financial position, results of operations or cash flows.
Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, ASU 2018-15
Financial Instruments -- Credit Losses: Measurement of Credit Losses on Financial Instruments, ASU 2018-19
In June 2016,August 2018, the FASB issued ASU 2016-13, Financial Instruments --2018-15, Credit Losses: Measurement of Credit Losses on Financial InstrumentCustomer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contracts,, which was subsequently amended by ASU 2018-19aligns the requirements for recording implementation costs incurred in November 2018. The standard introduces new accounting guidance for credit losses on financial instruments within its scope, including trade receivables. This new guidance adds an impairment modela hosting arrangement that is baseda service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. As a result, certain categories of implementation costs that previously would have been charged to expense as incurred are now capitalized as prepayments and amortized over the term of the arrangement. We adopted this standard prospectively on expected losses rather than incurred losses. It is effective for interim and annual reporting periods beginning after December 15, 2019, and will be applied on a modified-retrospective basis through a cumulative-effect adjustment to retained earnings as of January 1, 2020. We do not anticipate the adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.
Recently Adopted Accounting Standards
Leases, ASU 2016-02
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by requiring the recognition of right-of-use assets and lease liabilities on the balance sheet for most leases, whereas previously only financing-type lease liabilities (capital leases) were recognized on the balance sheet. Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.
We adopted the standard effective January 1, 2019. We elected not to recast comparative periods coinciding with the new lease standard transition and will report these comparative periods as presented under previous lease guidance. In addition, we elected the package of practical expedients permitted under the transition guidance with the new standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for existing land easement agreements.
Adoption of the new standard resulted in the recording of an operating lease right-of-use asset of $3.1 million, an operating lease obligation liability of $3.2 million, and an accrued rent receivable of $4.5 million, as of January 1, 2019. The cumulative effect of the adoption, net of tax impact, was $3.4 million, which was recorded as an adjustment to retained earnings at January 1, 2019.
Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, ASU 2017-12
Effective January 1, 2019, we adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This standard better aligns risk management activities and financial reporting for hedging relationships, simplifies hedge accounting requirements and improves disclosures of hedging arrangements. The adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.
(2) REVENUE
Revenue Recognition
As
Our revenue contracts generally provide for performance obligations that: are fulfilled and transfer control to customers over time; represent a series of January 1, 2018, we adopted ASU 2014-09, Revenuedistinct services that are substantially the same; involve the same pattern of transfer to the customer; and provide a right to consideration from Contracts with Customers (Topic 606), and its related amendments (collectively known as ASC 606). Revenue is recognizedour customers in an amount that reflectscorresponds directly with the considerationvalue to the customer for the performance completed to date. Therefore, we expectrecognize revenue in the amount to receive in exchange for goods or services, when control of the promised goods or services is transferredwhich we have a right to our customers.invoice. The following tables depict the disaggregation of revenue, including intercompany revenue, from contracts with customers by customer type and timing of revenue recognition for each of the reporting segments for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. Sales tax and other similar taxes are excluded from revenues.
| | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2020 | Electric Utilities | Gas Utilities | Power Generation | Mining | Inter-company Revenues | Total | Customer types: | (in thousands) | | | | | | Retail | $ | 141,804 | | $ | 120,594 | | $ | — | | $ | 14,846 | | $ | (7,916) | | $ | 269,328 | | Transportation | — | | 30,792 | | — | | — | | (138) | | 30,654 | | Wholesale | 3,470 | | — | | 25,718 | | — | | (24,476) | | 4,712 | | Market - off-system sales | 3,538 | | 23 | | — | | — | | (1,580) | | 1,981 | | Transmission/Other | 12,761 | | 9,189 | | — | | — | | (4,432) | | 17,518 | | Revenue from contracts with customers | $ | 161,573 | | $ | 160,598 | | $ | 25,718 | | $ | 14,846 | | $ | (38,542) | | $ | 324,193 | | Other revenues | 1,627 | | 512 | | 404 | | 570 | | (392) | | 2,721 | | Total revenues | $ | 163,200 | | $ | 161,110 | | $ | 26,122 | | $ | 15,416 | | $ | (38,934) | | $ | 326,914 | | | | | | | | | Timing of revenue recognition: | | | | | | | Services transferred at a point in time | $ | — | | $ | — | | $ | — | | $ | 14,846 | | $ | (7,916) | | $ | 6,930 | | Services transferred over time | 161,573 | | 160,598 | | 25,718 | | — | | (30,626) | | 317,263 | | Revenue from contracts with customers | $ | 161,573 | | $ | 160,598 | | $ | 25,718 | | $ | 14,846 | | $ | (38,542) | | $ | 324,193 | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2019 | Electric Utilities | Gas Utilities | Power Generation | Mining | Inter-company Revenues | Total | Customer types: | (in thousands) | Retail | $ | 162,214 |
| $ | 89,810 |
| $ | — |
| $ | 14,992 |
| $ | (8,146 | ) | $ | 258,870 |
| Transportation | — |
| 29,019 |
| — |
| — |
| (195 | ) | 28,824 |
| Wholesale | 8,210 |
| — |
| 16,119 |
| — |
| (14,414 | ) | 9,915 |
| Market - off-system sales | 6,452 |
| 139 |
| — |
| — |
| (1,488 | ) | 5,103 |
| Transmission/Other | 14,274 |
| 10,965 |
| — |
| — |
| (4,206 | ) | 21,033 |
| Revenue from contracts with customers | $ | 191,150 |
| $ | 129,933 |
| $ | 16,119 |
| $ | 14,992 |
| $ | (28,449 | ) | $ | 323,745 |
| Other revenues | 234 |
| 811 |
| 9,692 |
| 560 |
| (9,494 | ) | 1,803 |
| Total revenues | $ | 191,384 |
| $ | 130,744 |
| $ | 25,811 |
| $ | 15,552 |
| $ | (37,943 | ) | $ | 325,548 |
| | | | | | | | Timing of revenue recognition: | | | | | | | Services transferred at a point in time | $ | — |
| $ | — |
| $ | — |
| $ | 14,992 |
| $ | (8,146 | ) | $ | 6,846 |
| Services transferred over time | 191,150 |
| 129,933 |
| 16,119 |
| — |
| (20,303 | ) | 316,899 |
| Revenue from contracts with customers | $ | 191,150 |
| $ | 129,933 |
| $ | 16,119 |
| $ | 14,992 |
| $ | (28,449 | ) | $ | 323,745 |
| | | | | | | |
15
| | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2018 | Electric Utilities | Gas Utilities | Power Generation (a) | Mining | Inter-company Revenues (a) | Total | Customer Types: | | | | | | | Retail | $ | 157,049 |
| $ | 88,559 |
| $ | — |
| $ | 16,751 |
| $ | (7,941 | ) | $ | 254,418 |
| Transportation | — |
| 30,079 |
| — |
| — |
| (267 | ) | 29,812 |
| Wholesale | 8,255 |
| — |
| 15,373 |
| — |
| (13,935 | ) | 9,693 |
| Market - off-system sales | 9,059 |
| 140 |
| — |
| — |
| (1,349 | ) | 7,850 |
| Transmission/Other | 10,196 |
| 11,887 |
| — |
| — |
| (3,693 | ) | 18,390 |
| Revenue from contracts with customers | $ | 184,559 |
| $ | 130,665 |
| $ | 15,373 |
| $ | 16,751 |
| $ | (27,185 | ) | $ | 320,163 |
| Other revenues | 231 |
| 1,011 |
| 9,118 |
| 550 |
| (9,094 | ) | 1,816 |
| Total Revenues | $ | 184,790 |
| $ | 131,676 |
| $ | 24,491 |
| $ | 17,301 |
| $ | (36,279 | ) | $ | 321,979 |
| | | | | | | | Timing of Revenue Recognition: | | | | | | | Services transferred at a point in time | $ | — |
| $ | — |
| $ | — |
| $ | 16,751 |
| $ | (7,942 | ) | $ | 8,809 |
| Services transferred over time | 184,559 |
| 130,665 |
| 15,373 |
| — |
| (19,243 | ) | 311,354 |
| Revenue from contracts with customers | $ | 184,559 |
| $ | 130,665 |
| $ | 15,373 |
| $ | 16,751 |
| $ | (27,185 | ) | $ | 320,163 |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2019 | Electric Utilities | Gas Utilities | Power Generation | Mining | Inter-company Revenues | Total | Customer Types: | | | | | | | Retail | $ | 139,732 | | $ | 123,630 | | $ | — | | $ | 12,428 | | $ | (7,041) | | $ | 268,749 | | Transportation | — | | 28,623 | | — | | — | | (276) | | 28,347 | | Wholesale | 6,781 | | — | | 15,062 | | — | | (13,296) | | 8,547 | | Market - off-system sales | 3,448 | | 161 | | — | | — | | (1,335) | | 2,274 | | Transmission/Other | 14,416 | | 11,612 | | — | | — | | (4,199) | | 21,829 | | Revenue from contracts with customers | $ | 164,377 | | $ | 164,026 | | $ | 15,062 | | $ | 12,428 | | $ | (26,147) | | $ | 329,746 | | Other revenues | 1,977 | | 1,443 | | 9,646 | | 617 | | (9,541) | | 4,142 | | Total Revenues | $ | 166,354 | | $ | 165,469 | | $ | 24,708 | | $ | 13,045 | | $ | (35,688) | | $ | 333,888 | | | | | | | | | Timing of Revenue Recognition: | | | | | | | Services transferred at a point in time | $ | — | | $ | — | | $ | — | | $ | 12,428 | | $ | (7,041) | | $ | 5,387 | | Services transferred over time | 164,377 | | 164,026 | | 15,062 | | — | | (19,106) | | 324,359 | | Revenue from contracts with customers | $ | 164,377 | | $ | 164,026 | | $ | 15,062 | | $ | 12,428 | | $ | (26,147) | | $ | 329,746 | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2020 | Electric Utilities | Gas Utilities | Power Generation | Mining | Inter-company Revenues | Total | Customer types: | (in thousands) | | | | | | Retail | $ | 290,444 | | $ | 418,841 | | $ | — | | $ | 29,249 | | $ | (15,755) | | $ | 722,779 | | Transportation | — | | 74,900 | | — | | — | | (277) | | 74,623 | | Wholesale | 9,022 | | — | | 51,185 | | — | | (48,088) | | 12,119 | | Market - off-system sales | 8,405 | | 161 | | — | | — | | (4,219) | | 4,347 | | Transmission/Other | 27,618 | | 21,761 | | — | | — | | (8,845) | | 40,534 | | Revenue from contracts with customers | $ | 335,489 | | $ | 515,663 | | $ | 51,185 | | $ | 29,249 | | $ | (77,184) | | $ | 854,402 | | Other revenues | 1,850 | | 6,220 | | 903 | | 1,372 | | (783) | | 9,562 | | Total revenues | $ | 337,339 | | $ | 521,883 | | $ | 52,088 | | $ | 30,621 | | $ | (77,967) | | $ | 863,964 | | | | | | | | | Timing of revenue recognition: | | | | | | | Services transferred at a point in time | $ | — | | $ | — | | $ | — | | $ | 29,249 | | $ | (15,755) | | $ | 13,494 | | Services transferred over time | 335,489 | | 515,663 | | 51,185 | | — | | (61,429) | | 840,908 | | Revenue from contracts with customers | $ | 335,489 | | $ | 515,663 | | $ | 51,185 | | $ | 29,249 | | $ | (77,184) | | $ | 854,402 | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2019 | Electric Utilities | Gas Utilities | Power Generation | Mining | Inter-company Revenues | Total | Customer types: | (in thousands) | Retail | $ | 455,409 |
| $ | 567,715 |
| $ | — |
| $ | 43,249 |
| $ | (23,315 | ) | $ | 1,043,058 |
| Transportation | — |
| 102,159 |
| — |
| — |
| (903 | ) | 101,256 |
| Wholesale | 23,334 |
| — |
| 46,650 |
| — |
| (40,923 | ) | 29,061 |
| Market - off-system sales | 16,592 |
| 517 |
| — |
| — |
| (5,047 | ) | 12,062 |
| Transmission/Other | 42,865 |
| 35,767 |
| — |
| — |
| (12,608 | ) | 66,024 |
| Revenue from contracts with customers | $ | 538,200 |
| $ | 706,158 |
| $ | 46,650 |
| $ | 43,249 |
| $ | (82,796 | ) | $ | 1,251,461 |
| Other revenues | 2,465 |
| 1,135 |
| 29,114 |
| 1,777 |
| (28,706 | ) | 5,785 |
| Total revenues | $ | 540,665 |
| $ | 707,293 |
| $ | 75,764 |
| $ | 45,026 |
| $ | (111,502 | ) | $ | 1,257,246 |
| | | | | | | | Timing of revenue recognition: | | | | | | | Services transferred at a point in time | $ | — |
| $ | — |
| $ | — |
| $ | 43,249 |
| $ | (23,315 | ) | $ | 19,934 |
| Services transferred over time | 538,200 |
| 706,158 |
| 46,650 |
| — |
| (59,481 | ) | 1,231,527 |
| Revenue from contracts with customers | $ | 538,200 |
| $ | 706,158 |
| $ | 46,650 |
| $ | 43,249 |
| $ | (82,796 | ) | $ | 1,251,461 |
| | | | | | | |
16
| | Nine Months Ended September 30, 2018 | Electric Utilities | Gas Utilities | Power Generation (a) | Mining | Inter-company Revenues (a) | Total | | Six Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 | Electric Utilities | Gas Utilities | Power Generation | Mining | Inter-company Revenues | Total | Customer Types: | | Customer Types: | | Retail | $ | 449,482 |
| $ | 565,816 |
| $ | — |
| $ | 49,653 |
| $ | (23,761 | ) | $ | 1,041,190 |
| Retail | $ | 293,195 | | $ | 477,905 | | $ | — | | $ | 28,257 | | $ | (15,169) | | $ | 784,188 | | Transportation | — |
| 100,760 |
| — |
| — |
| (977 | ) | 99,783 |
| Transportation | — | | 73,140 | | — | | — | | (708) | | 72,432 | | Wholesale | 25,497 |
| — |
| 43,744 |
| — |
| (39,457 | ) | 29,784 |
| Wholesale | 15,124 | | — | | 30,531 | | — | | (26,509) | | 19,146 | | Market - off-system sales | 18,142 |
| 728 |
| — |
| — |
| (5,531 | ) | 13,339 |
| Market - off-system sales | 10,140 | | 378 | | — | | — | | (3,559) | | 6,959 | | Transmission/Other | 36,622 |
| 36,230 |
| — |
| — |
| (10,967 | ) | 61,885 |
| Transmission/Other | 28,591 | | 24,802 | | — | | — | | (8,402) | | 44,991 | | Revenue from contracts with customers | $ | 529,743 |
| $ | 703,534 |
| $ | 43,744 |
| $ | 49,653 |
| $ | (80,693 | ) | $ | 1,245,981 |
| Revenue from contracts with customers | $ | 347,050 | | $ | 576,225 | | $ | 30,531 | | $ | 28,257 | | $ | (54,347) | | $ | 927,716 | | Other revenues | 2,218 |
| 3,106 |
| 27,429 |
| 1,675 |
| (27,337 | ) | 7,091 |
| Other revenues | 2,231 | | 324 | | 19,422 | | 1,217 | | (19,212) | | 3,982 | | Total Revenues | $ | 531,961 |
| $ | 706,640 |
| $ | 71,173 |
| $ | 51,328 |
| $ | (108,030 | ) | $ | 1,253,072 |
| Total Revenues | $ | 349,281 | | $ | 576,549 | | $ | 49,953 | | $ | 29,474 | | $ | (73,559) | | $ | 931,698 | | | | | | Timing of Revenue Recognition: | | Timing of Revenue Recognition: | | Services transferred at a point in time | $ | — |
| $ | — |
| $ | — |
| $ | 49,653 |
| $ | (23,761 | ) | $ | 25,892 |
| Services transferred at a point in time | $ | — | | $ | — | | $ | — | | $ | 28,257 | | $ | (15,169) | | $ | 13,088 | | Services transferred over time | 529,743 |
| 703,534 |
| 43,744 |
| — |
| (56,932 | ) | 1,220,089 |
| Services transferred over time | 347,050 | | 576,225 | | 30,531 | | — | | (39,178) | | 914,628 | | Revenue from contracts with customers | $ | 529,743 |
| $ | 703,534 |
| $ | 43,744 |
| $ | 49,653 |
| $ | (80,693 | ) | $ | 1,245,981 |
| Revenue from contracts with customers | $ | 347,050 | | $ | 576,225 | | $ | 30,531 | | $ | 28,257 | | $ | (54,347) | | $ | 927,716 | | | | | |
| | (a) | Due to the changes in our segment disclosures discussed in Note 3, Power Generation Wholesale revenue was revised for the three and nine months ended September 30, 2018, which resulted in an increase of $0.9 million and $2.6 million, respectively. The changes to Power Generation Wholesale revenue were offset by changes to eliminations in Inter-company Revenues within Corporate and Other and there was no impact to our consolidated Total Revenues. |
Contract Balances
(3) BUSINESS SEGMENT INFORMATION
(3) Business Segment Information
Our reportable segments are based on our method of internal reporting, which is generally segregated by differences in products, services and regulation. All of our operations and assets are located within the United States.
Accounting standards for presentation of segments require an approach based on the way we organize the segments for making operating decisions and how the chief operating decision maker (CODM) assesses performance. Effective January 1, 2019, we concluded that adjusted operating income, instead of net income available for common stock which was used previously, is the most relevant metric for measuring segment performance. The change to our segment performance measure resulted in a revision of the Company’s segment disclosures for all periods to report adjusted operating income as the measure of segment performance.
Prior to January 1, 2019, operating income for the Electric Utilities and Power Generation segmentsSegment and Corporate and Other included the impactsinformation is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2020 | External Operating Revenue | | | Inter-company Operating Revenue | | | Total Revenues | | Contract Customers | Other Revenues | | Contract Customers | Other Revenues | | | Segment: | | | | | | | | Electric Utilities | $ | 156,197 | | $ | 1,627 | | | $ | 5,376 | | $ | — | | | $ | 163,200 | | Gas Utilities | 159,824 | | 512 | | | 774 | | — | | | 161,110 | | Power Generation | 1,242 | | 349 | | | 24,476 | | 55 | | | 26,122 | | Mining | 6,930 | | 233 | | | 7,916 | | 337 | | | 15,416 | | Inter-company eliminations | — | | — | | | (38,542) | | (392) | | | (38,934) | | Total | $ | 324,193 | | $ | 2,721 | | | $ | — | | $ | — | | | $ | 326,914 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, 2019 | External Operating Revenue | | | Inter-company Operating Revenue | | | Total Revenues | | Contract Customers | Other Revenues | | Contract Customers | Other Revenues | | | Segment: | | | | | | | | Electric Utilities | $ | 159,140 | | $ | 1,977 | | | $ | 5,237 | | $ | — | | | $ | 166,354 | | Gas Utilities | 163,303 | | 1,443 | | | 723 | | — | | | 165,469 | | Power Generation | 1,765 | | 434 | | | 13,297 | | 9,212 | | | 24,708 | | Mining | 5,538 | | 288 | | | 6,890 | | 329 | | | 13,045 | | Inter-company eliminations | — | | — | | | (26,147) | | (9,541) | | | (35,688) | | Total | $ | 329,746 | | $ | 4,142 | | | $ | — | | $ | — | | | $ | 333,888 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2020 | External Operating Revenue | | | Inter-company Operating Revenue | | | Total Revenues | | Contract Customers | Other Revenues | | Contract Customers | Other Revenues | | | Segment: | | | | | | | | Electric Utilities | $ | 323,700 | | $ | 1,850 | | | $ | 11,789 | | $ | — | | | $ | 337,339 | | Gas Utilities | 514,111 | | 6,220 | | | 1,552 | | — | | | 521,883 | | Power Generation | 3,097 | | 792 | | | 48,088 | | 111 | | | 52,088 | | Mining | 13,494 | | 700 | | | 15,755 | | 672 | | | 30,621 | | Inter-company eliminations | — | | — | | | (77,184) | | (783) | | | (77,967) | | Total | $ | 854,402 | | $ | 9,562 | | | $ | — | | $ | — | | | $ | 863,964 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, 2019 | External Operating Revenue | | | Inter-company Operating Revenue | | | Total Revenues | | Contract Customers | Other Revenues | | Contract Customers | Other Revenues | | | Segment: | | | | | | | | Electric Utilities | $ | 335,803 | | $ | 2,231 | | | $ | 11,247 | | $ | — | | | $ | 349,281 | | Gas Utilities | 574,803 | | 324 | | | 1,422 | | — | | | 576,549 | | Power Generation | 4,022 | | 870 | | | 26,509 | | 18,552 | | | 49,953 | | Mining | 13,088 | | 557 | | | 15,169 | | 660 | | | 29,474 | | Inter-company eliminations | — | | — | | | (54,347) | | (19,212) | | | (73,559) | | Total | $ | 927,716 | | $ | 3,982 | | | $ | — | | $ | — | | | $ | 931,698 | |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | 2020 | 2019 | 2020 | 2019 | Adjusted operating income (a): | | | | | Electric Utilities | $ | 33,993 | | $ | 33,546 | | $ | 69,643 | | $ | 74,566 | | Gas Utilities | 18,209 | | 8,557 | | 121,106 | | 111,871 | | Power Generation | 11,402 | | 10,156 | | 22,751 | | 22,123 | | Mining | 3,358 | | 1,640 | | 6,487 | | 5,977 | | Corporate and Other | (29) | | 102 | | 131 | | (405) | | Operating income | 66,933 | | 54,001 | | 220,118 | | 214,132 | | | | | | | Interest expense, net | (35,545) | | (34,264) | | (70,998) | | (68,981) | | Impairment of investment | — | | — | | (6,859) | | — | | Other income (expense), net | (1,863) | | 263 | | 490 | | (526) | | Income tax (expense) | (4,831) | | (2,307) | | (20,833) | | (19,570) | | Net income | 24,694 | | 17,693 | | 121,918 | | 125,055 | | Net income attributable to noncontrolling interest | (3,728) | | (3,110) | | (7,778) | | (6,664) | | Net income available for common stock | $ | 20,966 | | $ | 14,583 | | $ | 114,140 | | $ | 118,391 | | | | | | | | | | | |
__________ (a) Adjusted operating income recognizes intersegment revenues and costs for Colorado Electric’s PPA with Colorado IPP. This PPA provides 200 MW of energy and capacity to Colorado Electric from Colorado IPP’s combined-cycle turbines and expires on December 31, 2031. Finance lease accounting required us to de-recognize the asset from Colorado IPP (Power Generation segment), which legally owns the asset, and recognize it at Colorado Electric (Electric Utilities segment).
The CODM assesses the performance of our segments using adjusted operating income, which recognizes intersegment revenues, costs, and assets for Colorado Electric’s PPA withBlack Hills Colorado IPP on an accrual basis rather than as a finance lease. Effective January 1, 2019, we changed how we account for this PPA at theThis presentation of segment level, which impacts disclosures for all periods for revenues, fuel and purchased power cost, operating income and total assets for the Electric Utilities and Power Generation segments as well as Corporate and Other. There were no revisions to Gas Utilities and Mining segments and this change had no effect on ourinformation does not impact consolidated revenues, fuel and purchased power cost, operating income or total assets.financial results.
Segment information and Corporate and Other is as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2019 | External Operating Revenue | | Inter-company Operating Revenue | | Total Revenues | Contract Customers | Other Revenues | Contract Customers | Other Revenues | Segment: | | | | | | | | Electric Utilities | $ | 185,811 |
| $ | 234 |
|
| $ | 5,339 |
| $ | — |
|
| $ | 191,384 |
| Gas Utilities | 129,385 |
| 810 |
|
| 549 |
| — |
|
| 130,744 |
| Power Generation | 1,703 |
| 531 |
|
| 14,415 |
| 9,162 |
|
| 25,811 |
| Mining | 6,846 |
| 228 |
|
| 8,146 |
| 332 |
|
| 15,552 |
| Inter-company eliminations | — |
| — |
| | (28,449 | ) | (9,494 | ) | | (37,943 | ) | Total | $ | 323,745 |
| $ | 1,803 |
| | $ | — |
| $ | — |
| | $ | 325,548 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2018 | External Operating Revenue | | Inter-company Operating Revenue | | Total Revenues | Contract Customers | Other Revenues | Contract Customers | Other Revenues | Segment: | | | | | | | | Electric Utilities | $ | 179,527 |
| $ | 231 |
| | $ | 5,032 |
| $ | — |
| | $ | 184,790 |
| Gas Utilities | 130,390 |
| 1,011 |
| | 275 |
| — |
| | 131,676 |
| Power Generation (a) | 1,437 |
| 348 |
| | 13,936 |
| 8,770 |
| | 24,491 |
| Mining | 8,809 |
| 226 |
| | 7,942 |
| 324 |
| | 17,301 |
| Inter-company eliminations (a) | — |
| — |
| | (27,185 | ) | (9,094 | ) | | (36,279 | ) | Total | $ | 320,163 |
| $ | 1,816 |
| | $ | — |
| $ | — |
| | $ | 321,979 |
|
| | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2019 | External Operating Revenue | | Inter-company Operating Revenue | | Total Revenues | Contract Customers | Other Revenues | Contract Customers | Other Revenues | Segment: | | | | | | | | Electric Utilities | $ | 521,614 |
| $ | 2,465 |
| | $ | 16,586 |
| $ | — |
| | $ | 540,665 |
| Gas Utilities | 704,188 |
| 1,134 |
| | 1,971 |
| — |
| | 707,293 |
| Power Generation | 5,725 |
| 1,401 |
| | 40,924 |
| 27,714 |
| | 75,764 |
| Mining | 19,934 |
| 785 |
| | 23,315 |
| 992 |
| | 45,026 |
| Inter-company eliminations | — |
| — |
| | (82,796 | ) | (28,706 | ) | | (111,502 | ) | Total | $ | 1,251,461 |
| $ | 5,785 |
| | $ | — |
| $ | — |
| | $ | 1,257,246 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2018 | External Operating Revenue | | Inter-company Operating Revenue | | Total Revenues | Contract Customers | Other Revenues | Contract Customers | Other Revenues | Segment: | | | | | | | | Electric Utilities | $ | 513,270 |
| $ | 2,218 |
| | $ | 16,473 |
| $ | — |
| | $ | 531,961 |
| Gas Utilities | 702,532 |
| 3,106 |
| | 1,002 |
| — |
| | 706,640 |
| Power Generation (a) | 4,287 |
| 1,066 |
| | 39,457 |
| 26,363 |
| | 71,173 |
| Mining | 25,892 |
| 701 |
| | 23,761 |
| 974 |
| | 51,328 |
| Inter-company eliminations (a) | — |
| — |
| | (80,693 | ) | (27,337 | ) | | (108,030 | ) | Total | $ | 1,245,981 |
| $ | 7,091 |
| | $ | — |
| $ | — |
| | $ | 1,253,072 |
|
| | (a) | Due to the changes in our segment disclosures, Power Generation Inter-company Operating Revenue for Contract Customers was revised for the three and nine months ended September 30, 2018 which resulted in an increase of $0.9 million and $2.6 million, respectively. The changes to Power Generation were offset by changes to Inter-company eliminations within Corporate and Other and there was no impact on our consolidated Total revenues. |
| | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | Nine Months Ended September 30, | | 2019 | 2018 | 2019 | 2018 | Adjusted operating income: | | | | | Electric Utilities (a) | $ | 50,653 |
| $ | 43,393 |
| $ | 125,219 |
| $ | 123,073 |
| Gas Utilities | 4,736 |
| 4,240 |
| 116,607 |
| 116,168 |
| Power Generation (a) | 11,822 |
| 13,079 |
| 33,945 |
| 33,731 |
| Mining | 3,374 |
| 4,551 |
| 9,351 |
| 12,647 |
| Corporate and Other (a) | (34 | ) | (178 | ) | (439 | ) | (2,709 | ) | Operating income | 70,551 |
| 65,085 |
| 284,683 |
| 282,910 |
| | | | | | Interest expense, net | (33,487 | ) | (35,297 | ) | (102,469 | ) | (104,826 | ) | Impairment of investment | (19,741 | ) | — |
| (19,741 | ) | — |
| Other income (expense), net | 580 |
| (510 | ) | 55 |
| (1,923 | ) | Income tax benefit (expense) (b) | (2,508 | ) | (7,477 | ) | (22,078 | ) | 11,784 |
| Income from continuing operations | 15,395 |
| 21,801 |
| 140,450 |
| 187,945 |
| Net (loss) from discontinued operations | — |
| (857 | ) | — |
| (5,627 | ) | Net income | 15,395 |
| 20,944 |
| 140,450 |
| 182,318 |
| Net income attributable to noncontrolling interest | (3,655 | ) | (3,994 | ) | (10,319 | ) | (10,447 | ) | Net income available for common stock | $ | 11,740 |
| $ | 16,950 |
| $ | 130,131 |
| $ | 171,871 |
|
___________
| | (a) | Due to the changes in our segment disclosures, Adjusted operating income was revised for the three and nine months ended September 30, 2018, which resulted in an increase (decrease) as follows (in millions): |
| | | | | | | | Segment | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | Electric Utilities | $ | 1.6 |
| $ | 4.8 |
| Power Generation | (1.4 | ) | (4.4 | ) | Corporate and Other | (0.2 | ) | (0.4 | ) | | $ | — |
| $ | — |
|
| | (b) | Income tax benefit (expense) for the nine months ended September 30, 2018 included a $49 million tax benefit resulting fromlegal entity restructuring. See Note 18 for more information.
|
Segment information and Corporate and Other balances included in the accompanying Condensed Consolidated Balance Sheets were as follows (in thousands): | | | | | | | | | | | | Total assets (net of inter-company eliminations) as of: | June 30, 2020 | | December 31, 2019 | Segment: | | | | Electric Utilities | $ | 2,982,841 | | | $ | 2,900,983 | | Gas Utilities | 4,052,860 | | | 4,032,339 | | Power Generation | 407,107 | | | 417,715 | | Mining | 79,774 | | | 77,175 | | Corporate and Other | 167,350 | | | 130,245 | | Total assets | $ | 7,689,932 | | | $ | 7,558,457 | |
| | | | | | | | | Total assets (net of inter-company eliminations) as of: | September 30, 2019 | | December 31, 2018 | Segment: | | | | Electric Utilities (a) | $ | 2,810,108 |
| | $ | 2,707,695 |
| Gas Utilities | 3,797,941 |
| | 3,623,475 |
| Power Generation (a) | 414,526 |
| | 342,085 |
| Mining | 78,073 |
| | 80,594 |
| Corporate and Other | 174,302 |
| | 209,478 |
| Total assets | $ | 7,274,950 |
| | $ | 6,963,327 |
|
___________
| | (a) | Due to the changes in our segment disclosures, Electric Utilities and Power Generation Total assets were revised as of December 31, 2018 which resulted in an increase (decrease) of ($188) million and $188 million, respectively. There was no impact on our consolidated Total assets. |
(4) Selected Balance Sheet Information
(4) ACCOUNTS RECEIVABLE
Accounts Receivable and Allowance for Credit Losses
Following is a summary of Accounts receivable, net included in the accompanying Condensed Consolidated Balance Sheets (in thousands) as of: | | | | | | | | | | | | | June 30, 2020 | | December 31, 2019 | Accounts receivable, trade | $ | 122,650 | | | $ | 144,747 | | Unbilled revenue | 55,915 | | | 113,502 | | Less: Allowance for credit losses | (7,585) | | | (2,444) | | Accounts receivable, net | $ | 170,980 | | | $ | 255,805 | |
| | | | | | | | | | | | | | | Accounts | Unbilled | Less Allowance for | Accounts | September 30, 2019 | Receivable, Trade | Revenue | Doubtful Accounts | Receivable, net | Electric Utilities | $ | 39,151 |
| $ | 31,843 |
| $ | (500 | ) | $ | 70,494 |
| Gas Utilities | 46,265 |
| 24,091 |
| (2,490 | ) | 67,866 |
| Power Generation | 2,733 |
| — |
| — |
| 2,733 |
| Mining | 1,804 |
| — |
| — |
| 1,804 |
| Corporate | 6,261 |
| — |
| (169 | ) | 6,092 |
| Total | $ | 96,214 |
| $ | 55,934 |
| $ | (3,159 | ) | $ | 148,989 |
|
| | | | | | | | | | | | | | | Accounts | Unbilled | Less Allowance for | Accounts | December 31, 2018 | Receivable, Trade | Revenue | Doubtful Accounts | Receivable, net | Electric Utilities | $ | 39,721 |
| $ | 35,125 |
| $ | (448 | ) | $ | 74,398 |
| Gas Utilities | 96,123 |
| 90,521 |
| (2,592 | ) | 184,052 |
| Power Generation | 1,876 |
| — |
| — |
| 1,876 |
| Mining | 3,988 |
| — |
| — |
| 3,988 |
| Corporate | 5,008 |
| — |
| (169 | ) | 4,839 |
| Total | $ | 146,716 |
| $ | 125,646 |
| $ | (3,209 | ) | $ | 269,153 |
|
Changes to allowance for credit losses for the six months ended June 30, 2020 and 2019, respectively, were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at Beginning of Year | | | | Additions Charged to Costs and Expenses | | Recoveries and Other Additions | | Write-offs and Other Deductions | | Balance at June 30, | 2020 | | $ | 2,444 | | | | | $ | 6,715 | | | $ | 2,203 | | | $ | (3,777) | | | $ | 7,585 | | 2019 | | $ | 3,209 | | | | | $ | 4,913 | | | $ | 1,870 | | | $ | (4,906) | | | $ | 5,086 | |
Due to the COVID-19 pandemic, all of our jurisdictions temporarily suspended disconnections for a period of time, which increased our accounts receivable arrears balances. As a result, we increased our allowance for credit losses and bad debt expense for the six months ended June 30, 2020 by $2.0 million.
The ongoing credit evaluation of our customers during the COVID-19 pandemic is further discussed in the Credit Risk section of Note 9.
Materials, Supplies and Fuel
The following amounts by major classification are included in Materials, supplies and fuel on the accompanying Condensed Consolidated Balance Sheets (in thousands) as of: | | | | | | | | | | | | | June 30, 2020 | | December 31, 2019 | Materials and supplies | $ | 92,284 | | | $ | 82,809 | | Fuel - Electric Utilities | 3,574 | | | 2,425 | | Natural gas in storage | 10,129 | | | 31,938 | | Total materials, supplies and fuel | $ | 105,987 | | | $ | 117,172 | |
Accrued Liabilities
The following amounts by major classification are included in Accrued liabilities on the accompanying Condensed Consolidated Balance Sheets (in thousands) as of: | | | | | | | | | | June 30, 2020 | December 31, 2019 | Accrued employee compensation, benefits and withholdings | $ | 59,701 | | $ | 62,837 | | Accrued property taxes | 36,832 | | 44,547 | | Customer deposits and prepayments | 45,143 | | 54,728 | | Accrued interest | 31,757 | | 31,868 | | Other (none of which is individually significant) | 28,234 | | 32,787 | | Total accrued liabilities | $ | 201,667 | | $ | 226,767 | |
(5) REGULATORY ACCOUNTING
Regulatory Matters
We had the following regulatory assets and liabilities (in thousands) as of: | | | | | | | | | June 30, 2020 | December 31, 2019 | | September 30, 2019 | December 31, 2018 | | Regulatory assets | | Regulatory assets | | Deferred energy and fuel cost adjustments (a) | $ | 31,832 |
| $ | 29,661 |
| Deferred energy and fuel cost adjustments (a) | $ | 36,900 | | $ | 34,088 | | Deferred gas cost adjustments (a) | 3,899 |
| 3,362 |
| Deferred gas cost adjustments (a) | 226 | | 1,540 | | Gas price derivatives (a) | 4,296 |
| 6,201 |
| Gas price derivatives (a) | 662 | | 3,328 | | Deferred taxes on AFUDC (b) | 7,691 |
| 7,841 |
| Deferred taxes on AFUDC (b) | 7,715 | | 7,790 | | Employee benefit plans (c) | 107,921 |
| 110,524 |
| Employee benefit plans (c) | 115,416 | | 115,900 | | Environmental (a) | 917 |
| 959 |
| Environmental (a) | 1,426 | | 1,454 | | | Loss on reacquired debt (a) | 19,710 |
| 21,001 |
| Loss on reacquired debt (a) | 23,820 | | 24,777 | | Renewable energy standard adjustment (a) | 2,871 |
| 1,722 |
| Renewable energy standard adjustment (a) | 1 | | 1,622 | | Deferred taxes on flow through accounting (c) | 37,609 |
| 31,044 |
| Deferred taxes on flow through accounting (c) | 44,940 | | 41,220 | | Decommissioning costs (b) | 11,206 |
| 11,700 |
| Decommissioning costs (b) | 9,854 | | 10,670 | | Gas supply contract termination (a) | 9,953 |
| 14,310 |
| Gas supply contract termination (a) | 5,521 | | 8,485 | | Other regulatory assets (a) | 22,453 |
| 45,910 |
| Other regulatory assets (a) | 25,831 | | 20,470 | | Total regulatory assets | 260,358 |
| 284,235 |
| Total regulatory assets | 272,312 | | 271,344 | | Less current regulatory assets | (46,206 | ) | (48,776 | ) | Less current regulatory assets | (51,745) | | (43,282) | | Regulatory assets, non-current | $ | 214,152 |
| $ | 235,459 |
| Regulatory assets, non-current | $ | 220,567 | | $ | 228,062 | | | | | | Regulatory liabilities | | Regulatory liabilities | | Deferred energy and gas costs (a) | $ | 9,919 |
| $ | 6,991 |
| Deferred energy and gas costs (a) | $ | 28,279 | | $ | 17,278 | | Employee benefit plan costs and related deferred taxes (c) | 42,737 |
| 42,533 |
| Employee benefit plan costs and related deferred taxes (c) | 41,025 | | 43,349 | | Cost of removal (a) | 162,169 |
| 150,123 |
| Cost of removal (a) | 168,137 | | 166,727 | | | Excess deferred income taxes (c) | 286,587 |
| 310,562 |
| Excess deferred income taxes (c) | 288,796 | | 285,438 | | TCJA revenue reserve | 2,770 |
| 18,032 |
| TCJA revenue reserve | 3,027 | | 3,418 | | Other regulatory liabilities (c) | 19,759 |
| 12,553 |
| Other regulatory liabilities (c) | 36,557 | | 20,442 | | Total regulatory liabilities | 523,941 |
| 540,794 |
| Total regulatory liabilities | 565,821 | | 536,652 | | Less current regulatory liabilities | (25,168 | ) | (29,810 | ) | Less current regulatory liabilities | (59,428) | | (33,507) | | Regulatory liabilities, non-current | $ | 498,773 |
| $ | 510,984 |
| Regulatory liabilities, non-current | $ | 506,393 | | $ | 503,145 | |
__________ | | (a) | We are allowed recovery of costs, but we are not allowed a rate of return. |
| | (b) | In addition to recovery of costs, we are allowed a rate of return. |
| | (c) | In addition to recovery or repayment of costs, we are allowed a return on a portion of this amount or a reduction in rate base. |
(a) Recovery of costs, but we are not allowed a rate of return. (b) In addition to recovery of costs, we are allowed a rate of return. (c) In addition to recovery or repayment of costs, we are allowed a return on a portion of this amount or a reduction in rate base.
Regulatory MattersActivity
Except as discussed below, there have been no other significant changes to our Regulatory Matters from those previously disclosed in Note 13 of the Notes to the Consolidated Financial Statements in our 20182019 Annual Report on Form 10-K.
Regulatory Activity
WyomingNebraska Gas
Jurisdictional Consolidation and Rate Review
On June 13, 2019, we received approval from the WPSC to consolidate our Wyoming gas utility operations into a new utility entity. The Wyoming portion of Black Hills Gas Distribution, LLC, Cheyenne Light’s natural gas utility operations (Cheyenne Gas and Northeast Wyoming), and Wyoming Gas (Northwest Wyoming) were combined into a new company called Black Hills Wyoming Gas, LLC. On June 3, 2019, Wyoming1, 2020, Nebraska Gas filed a rate review application with the WPSC to consolidate the rates, tariffs and services of its 4 existing gas distribution territories in Wyoming. The rate review requests $16 million in new revenue to recover investments in safety, reliability and system integrity. Wyoming Gas is also requesting a new rider mechanism to recover future safety and integrity investments in its system. A settlement was recently reached with the intervening parties in the rate review filing and filed with the WPSC on November 1, 2019. The stipulation and agreement are subject to review and approval by the WPSC, with a decision expected by the end of 2019.
South Dakota Electric and Wyoming Electric
South Dakota Electric and Wyoming Electric received approvals for the Renewable Ready Service Tariffs and related jointly-filed CPCN to construct the $57 million, 40 MW Corriedale Wind Energy Project. The wind project will be jointly owned by the 2 electric utilities to deliver renewable energy for large commercial, industrial and governmental agency customers. The project is expected to be in service by the end of 2020. In September 2019, the customer subscription period was completed with customer interest fulfilling the 40 MW of available energy. On November 1, 2019, South Dakota Electric filed with the SDPUC an amendment seeking approval to increase the generating capacity under the tariff for the South Dakota portion by 12.5 MW to a total of 32.5 MW.
Nebraska
On October 29, 2019, Nebraska Gas received approval from the NPSC to merge its 2 gas distribution companies in Nebraska. A rate review is expected to be filed by mid-year 2020 to consolidate the rates, tariffs, and services of its 2 existing gas distribution companies.territories. The rate review requests $17 million in new revenue, as well as renewal and expansion of the SSIR, to recover investments in safety, reliability and system integrity. The rate review requests a capital structure of 50% equity and 50% debt and a return on equity of 10% for investments Nebraska Gas made in its natural gas pipeline system. Nebraska statute allows for implementation of interim rates 90 days after filing a rate review. New rates are expected to be effective in early 2021.
Kansas
On June 25, 2019, Kansas Gas received approval from the Kansas Corporation Commission for an annual increase in revenue of $1.4 million, effective July 1, 2019, based on updates to the Gas System Reliability Surcharge Rider.
Black Hills Wyoming and Wyoming Electric
Wygen I FERC Filing
On April 30,June 1, 2020, Black Hills Wyoming and Wyoming Electric filed a settlement agreement with the FERC. The agreement represents a resolution of all issues in the joint application filed with the FERC on August 2, 2019 for approval of a new 60 MW PPA. On July 10, 2020, a judge certified the WPSCsettlement to the FERC and a decision is expected by the end of 2020. If approved, Wyoming Electric’s applicationElectric will continue to receive 60 MW of capacity and energy from the Wygen I power plant. The new agreement would commence on January 1, 2022, replacing the existing PPA, and would continue for a new Blockchain Interruptible Service Tariff. The utility has partnered with the economic development organization for City of Cheyenne11 years.
Colorado Gas
Jurisdictional Consolidation and Laramie County to actively recruit blockchain customers to the state. This tariff is complementary to recently enacted Wyoming legislation supporting the development of blockchain within the state.Rate Review
Colorado
On February 1, 2019, Colorado Gas filed a rate review with the CPUC requesting $2.5 million in new revenue to recover investments in safety, reliability and system integrity and approval to consolidate rates, tariffs, and services of its 2 existing gas distribution territories in Colorado. The rate review requests $2.5 million in new revenue to recover investments in safety, reliability and system integrity.territories. Colorado Gas is also requestingrequested a new rider mechanism to recover future safety and integrity investments in its system. A decision fromOn April 14, 2020 the CPUC is expecteddeliberated on the application and on May 19, 2020 issued a final order. The order denied the system integrity recovery mechanism and consolidation of rate territories. In addition, the order resulted in an annual revenue decrease of $0.6 million and a return on equity of 9.2%. New rates were effective July 3, 2020. In accordance with the final order, Colorado Gas will file a new system integrity rider proposal prior to the end of 2020. Colorado Gas also plans to file a new rate review by Marchthe end of 2020.
(6) Earnings Per Share
(6) MATERIALS, SUPPLIES AND FUEL
The following amounts by major classification are included in Materials, supplies and fuel in the accompanying Condensed Consolidated Balance Sheets (in thousands) as of:
| | | | | | | | | | September 30, 2019 | | December 31, 2018 | Materials and supplies | $ | 81,382 |
| | $ | 75,081 |
| Fuel - Electric Utilities | 2,535 |
| | 2,850 |
| Natural gas in storage held for distribution | 39,085 |
| | 39,368 |
| Total materials, supplies and fuel | $ | 123,002 |
| | $ | 117,299 |
|
(7) EARNINGS PER SHARE
A reconciliation of share amounts used to compute Earnings (loss)earnings per share in the accompanying Condensed Consolidated Statements of Income was as follows (in thousands): | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | 2020 | 2019 | | 2020 | 2019 | | | | | | | Net income available for common stock | $ | 20,966 | | $ | 14,583 | | | $ | 114,140 | | $ | 118,391 | | | | | | | | Weighted average shares - basic | 62,573 | | 60,467 | | | 62,175 | | 60,195 | | Dilutive effect of: | | | | | | Equity compensation | 44 | | 139 | | | 55 | | 138 | | Weighted average shares - diluted | 62,617 | | 60,606 | | | 62,230 | | 60,333 | | | | | | | | Earnings per share of common stock: | | | | | | Earnings per share, Basic | $ | 0.34 | | $ | 0.24 | | | $ | 1.84 | | $ | 1.97 | | Earnings per share, Diluted | $ | 0.33 | | $ | 0.24 | | | $ | 1.83 | | $ | 1.96 | |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | 2018 | | 2019 | 2018 | | | | | | | Net income available for common stock | $ | 11,740 |
| $ | 16,950 |
| | $ | 130,131 |
| $ | 171,871 |
| | | | | | | Weighted average shares - basic | 60,976 |
| 53,364 |
| | 60,458 |
| 53,346 |
| Dilutive effect of: | | | | | | Equity Units (a) | — |
| 1,344 |
| | — |
| 1,060 |
| Equity compensation | 128 |
| 111 |
| | 120 |
| 102 |
| Weighted average shares - diluted | 61,104 |
| 54,819 |
| | 60,578 |
| 54,508 |
|
__________
| | (a) | Calculated using the treasury stock method. On November 1, 2018, we completed settlement of the stock purchase contracts that were components of the Equity Units issued in November 2015. |
The following outstanding securities were excluded infrom the computation of diluted net income (loss)earnings per share ascomputation because of their inclusion would have been anti-dilutive nature (in thousands): | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | 2020 | 2019 | | 2020 | 2019 | | | | | | | Equity compensation | 29 | | — | | | 26 | | — | | Restricted stock | 76 | | — | | | 36 | | — | | | | | | | | Anti-dilutive shares | 105 | | — | | | 62 | | — | |
| | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | 2018 | | 2019 | 2018 | | | | | | | Equity compensation | 2 |
| 12 |
| | 4 |
| 15 |
| Restricted Stock | — |
| — |
| | 1 |
| — |
| Anti-dilutive shares | 2 |
| 12 |
| | 5 |
| 15 |
|
(8) NOTES PAYABLE, CURRENT MATURITIES AND DEBT
(7) Notes Payable, Current Maturities and Debt
We had the following notes payableshort-term debt outstanding in the accompanying Condensed Consolidated Balance Sheets (in thousands) as of: | | | | | | | | | | | | | | | | June 30, 2020 | | December 31, 2019 | | | Balance Outstanding | Letters of Credit (a) | Balance Outstanding | Letters of Credit (a) | Revolving Credit Facility | $ | — | | $ | 11,999 | | $ | — | | $ | 30,274 | | CP Program | — | | — | | 349,500 | | — | | Total | $ | — | | $ | 11,999 | | $ | 349,500 | | $ | 30,274 | |
| | | | | | | | | | | | | | | September 30, 2019 | December 31, 2018 | | Balance Outstanding | Letters of Credit | Balance Outstanding | Letters of Credit | Revolving Credit Facility | $ | 50,000 |
| $ | 18,313 |
| $ | — |
| $ | 22,311 |
| CP Program | 244,900 |
| — |
| 185,620 |
| — |
| Total | $ | 294,900 |
| $ | 18,313 |
| $ | 185,620 |
| $ | 22,311 |
|
_______________(a) Letters of credit are off-balance sheet commitments that reduce the borrowing capacity available on our corporate Revolving Credit Facility.
Ourour $750 million corporate Revolving Credit Facility extends through July 30, 2023 with 2, one year extension options (subject to consent from lenders). This facility includes an accordion feature that allows us, with the consent of the administrative agent, the issuing agents and each bank increasing or providing a new commitment, to increase total commitments up to $1.0 billion. Borrowings continue to be available under a base rate or various Eurodollar rate options. The interest costs associated with the letters of credit or borrowings and the commitment fee under the Revolving Credit Facility are determined based upon our Corporate credit rating from S&P, Fitch, and Moody's for our senior unsecured long-term debt. Based on our credit ratings, the margins for base rate borrowings, Eurodollar borrowings, and letters of credit were 0.125%, 1.125%, and 1.125%, respectively, at September 30, 2019. Based on our credit ratings, a 0.175% commitment fee was charged on the unused amount at September 30, 2019.
We have a $750 million, unsecured CP Program that is backstopped by the Revolving Credit Facility. Amounts outstanding under the Revolving Credit Facility and the CP Program either individually or in the aggregate, cannot exceed $750 million. The notes issued under the CP Program may have maturities not to exceed 397 days from the date of issuancemeet our business needs and bear interest (or are sold at par less a discount representing an interest factor) based on, among other things, the size and maturity date of the note, the frequency of the issuance andsupport our credit ratings. Under the CP Program, any borrowings rank equally with our unsecured debt. Notes under the CP Program are not registered and are offered and issued pursuant to a registration exemption.
capital investment plan. Our net short-term borrowings (payments) during the ninesix months ended SeptemberJune 30, 20192020 were $109$(350) million. At September 30, 2019, the weighted average interest rate on short-term borrowings was 2.43%.
Debt Covenants
Under our Revolving Credit Facility and term loan agreements,agreement, we are required to maintain a Consolidated Indebtedness to Capitalization Ratio not to exceed 0.65 to 1.00. Our Consolidated Indebtedness to Capitalization Ratio was calculated by dividing (i) Consolidated Indebtedness,consolidated indebtedness, which includes letters of credit and certain guarantees issued, by (ii) Capital,capital, which includes Consolidated Indebtednessconsolidated indebtedness plus Net Worth,consolidated net worth, which excludes noncontrolling interest in subsidiaries. AsSubject to applicable cure periods, a violation of September 30, 2019,any of these covenants would constitute an event of default that entitles the lenders to terminate their remaining commitments and accelerate all principal and interest outstanding.
Our Revolving Credit Facility and term loans require compliance with the following financial covenant, which we were in compliance with these covenants.at June 30, 2020: | | | | | | | | | | | | | | | | As of June 30, 2020 | | Covenant Requirement | | Consolidated Indebtedness to Capitalization Ratio | 58.7% | | Less than | 65% |
Debt TransactionOffering
On June 17, 2019, we amended our Corporate term loan due July 30, 2020. This amendment increased total commitments to $400 million from $300 million, extended the term through June 17, 2021, and had substantially similar terms and covenants as the amended and restated Revolving Credit Facility. The net proceeds from the increase in total commitments were used to pay down short-term debt. Proceeds from the October 3, 2019 public debt offering were used to repay this term loan.
Subsequent Event - Debt Offering
On October 3, 2019,2020, we completed a public debt offering of $700 million principal amount in senior unsecured notes. The debt offeringwhich consisted of $400 million of 3.05%2.50% 10-year senior unsecured notes due OctoberJune 15, 20292030. The proceeds were used to repay short-term debt and $300for working capital and general corporate purposes.
South Dakota Electric Series 94A Debt
On March 24, 2020, South Dakota Electric paid off its $2.9 million, Series 94A variable rate notes due June 1, 2024. These notes were tendered by the sole investor on March 17, 2020.
(8) Equity
February 2020 Equity Issuance
On February 27, 2020, we issued 1.2 million shares of common stock to a single investor through an underwritten registered transaction at a price of $81.77 per share for proceeds of $99 million, net of $1.0 million of 3.875% 30-year senior notes due October 15, 2049 (togetherissuance costs. The shares of common stock were offered pursuant to our shelf registration statement filed with the “Notes”).SEC.
Shelf Registration, DRSPP and ATM Activity
On August 3, 2020, we filed a shelf registration and DRSPP with the SEC. In conjunction with these shelf filings, we renewed the ATM. The proceeds of the Notes were used for the following:
Repay the $400 million Corporate term loan under the Amended and Restated Credit Agreement due June 17, 2021;
Retire the $200 million 5.875% senior notes due July 15, 2020; and
Repay a portion of short-term debt.
(9) EQUITY
At-the-Market Equity Offering Program
Ourrenewed ATM equity offering program, which allows us to sell shares of our common stock, with anis the same as the prior program other than the aggregate value of upincreased from $300 million to $300 million. The$400 million and a forward sales option was incorporated. Under the ATM, shares may be offered from time to time pursuant to a sales agreement dated August 4, 2017.3, 2020. Shares of common stock are offered pursuant to our shelf registration statement filed with the SEC.
We did not issue any common shares under the ATM during the three and six months ended June 30, 2020. During the three months ended SeptemberJune 30, 2019, we issued a total of 389,2370.7 million shares of common stock under the ATM equity offering program for proceeds of $30$49 million, net of $0.3$0.5 million in commissions.issuance costs. During the ninesix months ended SeptemberJune 30, 2019, we issued a total of 1,328,3320.9 million shares of common stock under the ATM equity offering program for proceeds of $99$69 million, net of $1.0$0.7 million in commissions. Asissuance costs.
(9) Risk Management and Derivatives (10) RISK MANAGEMENT ACTIVITIES
Market and Credit Risk Disclosures
Our activities in the regulated and non-regulated energy sectors expose us to a number of risks in the normal operationoperations of our businesses. Depending on the activity, we are exposed to varying degrees of market risk and credit risk. To manage and mitigate these identified risks, we have adopted the Black Hills Corporation Risk and Credit Policies and Procedures as discussed in our 2018 Annual Report on Form 10-K.
Market Risk
Market risk is the potential loss that mightmay occur as a result of an adverse change in market price, rate or rate.supply. We are exposed to the following market risks, including, but not limited to, commodityto:
•Commodity price risk associated with our retail natural gas, wholesale electric power marketing activities and our fuel procurement for certainseveral of our gas-fired generation assets.assets which include market fluctuations due to unpredictable factors such as the COVID-19 pandemic, weather, market speculation, pipeline constraints, and other factors that may impact natural gas and electric energy supply and demand;
•Interest rate risk associated with future debt, including reduced access to liquidity during periods of extreme capital markets volatility, such as the 2008 financial crisis and the COVID-19 pandemic;
Credit Risk
Credit risk is the risk of financial loss resulting from non-performance of contractual obligations by a counterparty.
For other than retail utilityproduction and generation activities, we attempt to mitigate our credit exposure by conducting business primarily with high credit quality entities, setting tenor and credit limits commensurate with counterparty financial strength, obtaining master netting agreements, and mitigating credit exposure with less creditworthy counterparties through parental guaranties, prepayments,guarantees, cash collateral requirements, letters of credit, and other security agreements.
We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and the customer’scustomers’ current creditworthiness, as determined by review of their current credit information. We maintain a provision for estimated credit losses based upon historical experience, changes in current market conditions, expected losses and any specific customer collection issue that is identified.
We continue to monitor COVID-19 impacts and changes to customer load, consistency in customer payments, requests for deferred or discounted payments, and requests for changes to credit limits to quantify estimated future financial impacts to the allowance for credit losses. During the three and six months ended June 30, 2020, the potential economic impact of the COVID-19 pandemic was considered in forward looking projections related to write-off and recovery rates, and resulted in increases to the allowance for credit losses and bad debt expense of $1.5 million and $2.0 million, respectively. See Note 4 for further information.
Derivatives and Hedging Activity
Our derivative and hedging activities recordedincluded in the accompanying Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income are detailed below and in Note 1110.
Utilities
The operations of our utilities, including natural gas sold by our Gas Utilities and natural gas used by our Electric Utilities’ generation plants or those plants under PPAs where our Electric Utilities must provide the generation fuel (tolling agreements), and natural gas sold by our Gas Utilities, expose our utility customers to volatility in natural gas prices. Therefore, as allowed or required by state utility commissions, we have entered into commission-approved hedging programs utilizing natural gas futures, options, over-the-counter swaps and basis swaps to reduce our customers’ underlying exposure to these fluctuations. These transactions are considered derivatives, and in accordance with accounting standards for derivatives and hedging, mark-to-market adjustments are recorded as Derivative assets or Derivative liabilities on the accompanying Condensed Consolidated Balance Sheets, net of balance sheet offsetting as permitted by GAAP.
For our regulated utilities’Utilities’ hedging plans, unrealized and realized gains and losses, as well as option premiums and commissions on these transactions, are recorded as Regulatory assets or Regulatory liabilities in the accompanying Condensed Consolidated Balance Sheets in accordance with the state utility commission guidelines. When the related costs are recovered through our rates, the hedging activity is recognized in the Condensed Consolidated Statements of Income.
We buy, sell and deliver natural gas at competitive prices by managing commodity price risk. As a result of these activities, this area of our business is exposed to risks associated with changes in the market price of natural gas. We manage our exposure to such risksrisk using over-the-counter and exchange traded options and swaps with counterparties in anticipation of forecasted purchases and/or sales during time frames ranging from October 2019July 2020 through October 2021; aMay 2022. A portion of theseour over-the-counter swaps have been designated as cash flow hedges to mitigate the commodity price risk associated with deliveries under fixed price forward contracts to deliver gas to our Choice Gas Program customers. The effective portion of the gain or loss on these designated derivatives is reported in AOCI in the accompanying Condensed Consolidated Balance Sheets.Sheets and the ineffective portion, if any, is reported in Fuel, purchased power and cost of natural gas sold. Effectiveness of our hedgedhedging position is evaluated at inception of the hedge, upon occurrence of a triggering event and as of the end of each quarter.least quarterly.
The contract or notional amounts and terms of the electric and natural gas derivative commodity instruments held at our utilitiesUtilities are composed of both long and short positions. We were in ahad the following net long positionpositions as of: | | | | | | | | | | | | September 30, 2019 | | December 31, 2018 | | Notional (MMBtus) | | Maximum Term (months) (a) | | Notional (MMBtus) | | Maximum Term (months) (a) | Natural gas futures purchased | 2,350,000 |
| | 15 | | 4,000,000 |
| | 24 | Natural gas options purchased, net | 8,580,000 |
| | 6 | | 4,320,000 |
| | 13 | Natural gas basis swaps purchased | 2,090,000 |
| | 15 | | 3,960,000 |
| | 24 | Natural gas over-the-counter swaps, net (b) | 5,460,000 |
| | 25 | | 3,660,000 |
| | 24 | Natural gas physical contracts, net (c) | 23,459,639 |
| | 6 | | 18,325,852 |
| | 30 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2020 | | | | December 31, 2019 | | | | | | | | Units | Notional Amounts | | Maximum Term (months) (a) | | Notional Amounts | | Maximum Term (months) (a) | | | | | Natural gas futures purchased | MMBtus | 660,000 | | | 9 | | 1,450,000 | | | 12 | | | | | Natural gas options purchased, net | MMBtus | 950,000 | | | 9 | | 3,240,000 | | | 3 | | | | | Natural gas basis swaps purchased | MMBtus | 520,000 | | | 6 | | 1,290,000 | | | 12 | | | | | Natural gas over-the-counter swaps, net (b) | MMBtus | 6,480,000 | | | 23 | | 4,600,000 | | | 24 | | | | | Natural gas physical contracts, net (c) | MMBtus | 8,085,376 | | | 9 | | 13,548,235 | | | 12 | | | | | Electric wholesale contracts (c) | MWh | 141,225 | | | 6 | | — | | | 0 | | | | |
__________ | | (a) | (a) Term reflects the maximum forward period hedged. |
| | (b) | As of September 30, 2019, 1,812,500 MMBtus were designated as cash flow hedges. |
| | (c) | Volumes exclude contracts that qualify for the normal purchase, normal sales exception. |
Based on September(b) As of June 30, 2019 prices, a $0.4 million gain would be realized, reported in pre-tax earnings2020, 1,776,900 MMBtus of natural gas over-the-counter swaps purchases were designated as cash flow hedges.
(c) Volumes exclude contracts that qualify for the normal purchases and reclassified from AOCI during the next 12 months. As market prices fluctuate, estimated and actual realized gains or losses will change during future periods.normal sales exception.
We have certain derivative contracts which contain credit provisions. These credit provisions may require the Company to post collateral when credit exposure to the Company is in excess of a negotiated line of unsecured credit. At SeptemberJune 30, 2019,2020, the Company posted $0.5 million related to such provisions, which is included in Other current assets on the Condensed Consolidated Balance Sheets.
Cash FlowDerivatives by Balance Sheet Classification
As required by accounting standards for derivatives and hedges, fair values within the following tables are presented on a gross basis aside from the netting of asset and liability positions. Netting of positions is permitted in accordance with accounting standards for offsetting and under terms of our master netting agreements that allow us to settle positive and negative positions.
The following table presents the fair value and balance sheet classification of our derivative instruments (in thousands) as of: | | | | | | | | | | | | | | | | Balance Sheet Location | | June 30, 2020 | December 31, 2019 | Derivatives designated as hedges: | | | | | Asset derivative instruments: | | | | | Current commodity derivatives | Derivative assets, current | | $ | 66 | | $ | 1 | | Noncurrent commodity derivatives | Other assets, non-current | | 83 | | 3 | | Liability derivative instruments: | | | | | Current commodity derivatives | Derivative liabilities, current | | (324) | | (490) | | Noncurrent commodity derivatives | Other deferred credits and other liabilities | | — | | (29) | | Total derivatives designated as hedges | | | $ | (175) | | $ | (515) | | | | | | | Derivatives not designated as hedges: | | | | | Asset derivative instruments: | | | | | Current commodity derivatives | Derivative assets, current | | $ | 1,515 | | $ | 341 | | Noncurrent commodity derivatives | Other assets, non-current | | 191 | | 2 | | Liability derivative instruments: | | | | | Current commodity derivatives | Derivative liabilities, current | | (297) | | (1,764) | | Noncurrent commodity derivatives | Other deferred credits and other liabilities | | (15) | | (63) | | Total derivatives not designated as hedges | | | $ | 1,394 | | $ | (1,484) | |
Derivatives Designated as Hedges
The impacts of cash flow hedges on our Condensed Consolidated Statements of Comprehensive Income isand Condensed Consolidated Statements of Income are presented below for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. Note that this presentation does not reflect gains or losses arising from the underlying physical transactions; therefore, it is not indicative of the economic profit or loss we realized when the underlying physical and financial transactions were settled. | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Three Months Ended June 30, | | | 2020 | 2019 | | 2020 | 2019 | Derivatives in Cash Flow Hedging Relationships | Amount of (Gain)/Loss Recognized in OCI | | Income Statement Location | Amount of Gain/(Loss) Reclassified from AOCI into Income | | | (in thousands) | | | (in thousands) | | Interest rate swaps | $ | 713 | | $ | 713 | | Interest expense | $ | (713) | | $ | (713) | | Commodity derivatives | 11 | | (601) | | Fuel, purchased power and cost of natural gas sold | (70) | | 83 | | Total | $ | 724 | | $ | 112 | | | $ | (783) | | $ | (630) | |
| | | | | | | | Three Months Ended September 30, 2019 | (in thousands) | Derivatives in Cash Flow Hedging Relationships | | Location of Reclassifications from AOCI into Income | | Amount of Gain/(Loss) Reclassified from AOCI into Income | Interest rate swaps | | Interest expense | | $ | (713 | ) | Commodity derivatives | | Fuel, purchased power and cost of natural gas sold | | (129 | ) | Total | | | | $ | (842 | ) |
| | | | | | | | | | | | | | | | | | | Six Months Ended June 30, | | | Six Months Ended June 30, | | | 2020 | 2019 | | 2020 | 2019 | Derivatives in Cash Flow Hedging Relationships | Amount of (Gain)/Loss Recognized in OCI | | Income Statement Location | Amount of Gain/(Loss) Reclassified from AOCI into Income | | | (in thousands) | | | (in thousands) | | Interest rate swaps | $ | 1,426 | | $ | 1,426 | | Interest expense | $ | (1,426) | | $ | (1,426) | | Commodity derivatives | 268 | | (921) | | Fuel, purchased power and cost of natural gas sold | (556) | | 637 | | Total | $ | 1,694 | | $ | 505 | | | $ | (1,982) | | $ | (789) | |
27 | | | | | | | | Three Months Ended September 30, 2018 | (in thousands) | Derivatives in Cash Flow Hedging Relationships | | Location of Reclassifications from AOCI into Income | | Amount of Gain/(Loss) Reclassified from AOCI into Income | Interest rate swaps | | Interest expense | | $ | (712 | ) | Commodity derivatives | | Fuel, purchased power and cost of natural gas sold | | (18 | ) | Total | | | | $ | (730 | ) |
Based on June 30, 2020 prices, a $0.2 million gain would be realized, reported in pre-tax earnings and reclassified from AOCI during the next 12 months. As market prices fluctuate, estimated and actual realized gains or losses will change during future periods.
| | | | | | | | Nine Months Ended September 30, 2019 | (in thousands) | Derivatives in Cash Flow Hedging Relationships | | Location of Reclassifications from AOCI into Income | | Amount of Gain/(Loss) Reclassified from AOCI into Income | Interest rate swaps | | Interest expense | | $ | (2,139 | ) | Commodity derivatives | | Fuel, purchased power and cost of natural gas sold | | 508 |
| Total | | | | $ | (1,631 | ) |
| | | | | | | | Nine Months Ended September 30, 2018 | (in thousands) | Derivatives in Cash Flow Hedging Relationships | | Location of Reclassifications from AOCI into Income | | Amount of Gain/(Loss) Reclassified from AOCI into Income | Interest rate swaps | | Interest expense | | $ | (2,138 | ) | Commodity derivatives | | Fuel, purchased power and cost of natural gas sold | | (802 | ) | Total | | | | $ | (2,940 | ) |
The following tables summarize the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018.
| | | | | | | | | | | | | | Three Months Ended September 30, | | 2019 | | 2018 | | (in thousands) | Increase (decrease) in fair value: | | | | Forward commodity contracts | $ | (150 | ) | | $ | 30 |
| Recognition of (gains) losses in earnings due to settlements: | | | | Interest rate swaps | 713 |
| | 712 |
| Forward commodity contracts | 129 |
| | 18 |
| Total other comprehensive income (loss) from hedging | $ | 692 |
| | $ | 760 |
|
| | | | | | | | | | Nine Months Ended September 30, | | 2019 | | 2018 | | (in thousands) | Increase (decrease) in fair value: | | | | Forward commodity contracts | $ | (434 | ) | | $ | (219 | ) | Recognition of (gains) losses in earnings due to settlements: | | | | Interest rate swaps | 2,139 |
| | 2,138 |
| Forward commodity contracts | (508 | ) | | 802 |
| Total other comprehensive income (loss) from hedging | $ | 1,197 |
| | $ | 2,721 |
|
Derivatives Not Designated as Hedge InstrumentsHedges
The following table summarizes the impacts of derivative instruments not designated as hedge instruments on our Condensed Consolidated Statements of Income for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018 (in thousands).2019. Note that this presentation does not reflect gains or losses arising from the underlying physical transactions; therefore, it is not indicative of the economic profit or loss we realized when the underlying physical and financial transactions were settled. | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | | 2020 | 2019 | Derivatives Not Designated as Hedging Instruments | Income Statement Location | Amount of Gain/(Loss) on Derivatives Recognized in Income | | | | | | Commodity derivatives - Electric | Fuel, purchased power and cost of natural gas sold | $ | (204) | | $ | — | | Commodity derivatives - Natural Gas | Fuel, purchased power and cost of natural gas sold | 449 | | (1,185) | | | | $ | 245 | | $ | (1,185) | |
| | | | | | | | | | | | | | | | | Three Months Ended September 30, | | | 2019 | | 2018 | Derivatives Not Designated as Hedging Instruments | Location of Gain/(Loss) on Derivatives Recognized in Income | Amount of Gain/(Loss) on Derivatives Recognized in Income | | Amount of Gain/(Loss) on Derivatives Recognized in Income | | | | | | Commodity derivatives | Fuel, purchased power and cost of natural gas sold | $ | (20 | ) | | $ | (96 | ) | Commodity derivatives | Other income (expense), net | 142 |
| | — |
| | | $ | 122 |
| | $ | (96 | ) |
| | | | | | | | | | | | | | Six Months Ended June 30, | | | | 2020 | 2019 | Derivatives Not Designated as Hedging Instruments | Income Statement Location | Amount of Gain/(Loss) on Derivatives Recognized in Income | | | | (in thousands) | | Commodity derivatives - Electric | Fuel, purchased power and cost of natural gas sold | $ | 1,158 | | $ | — | | Commodity derivatives - Natural Gas | Fuel, purchased power and cost of natural gas sold | 1,215 | | (1,160) | | | | $ | 2,373 | | $ | (1,160) | |
| | | | | | | | | | | | Nine Months Ended September 30, | | | 2019 | | 2018 | Derivatives Not Designated as Hedging Instruments | Location of Gain/(Loss) on Derivatives Recognized in Income | Amount of Gain/(Loss) on Derivatives Recognized in Income | | Amount of Gain/(Loss) on Derivatives Recognized in Income | | | | | | Commodity derivatives | Fuel, purchased power and cost of natural gas sold | $ | (1,180 | ) | | $ | 929 |
| Commodity derivatives | Other income (expense), net | $ | 142 |
| | $ | — |
| | | $ | (1,038 | ) | | $ | 929 |
|
As discussed above, financial instruments used in our regulated utilities are not designated as cash flow hedges. However, thereThere is no earnings impact for our Gas Utilities because the unrealized gains and losses arising from the use of these financial instruments are recorded as Regulatory assets or Regulatory liabilities. The net unrealized losses included in our Regulatory asset or Regulatory liability accounts related to the hedges in our utilitiesGas Utilities were $4.3$0.7 million and $6.2$3.3 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively.
For our Electric Utilities, the unrealized gains and losses arising from these derivatives are recognized in the Condensed Consolidated Statements of Income.
(11) FAIR VALUE MEASUREMENTS
Derivative Financial Instruments
(10) Fair Value Measurements
The accounting guidance for
We use the following fair value measurements requires certain disclosures abouthierarchy for determining inputs for our financial instruments. Our assets and liabilities measured at fair value. This guidance establishes a hierarchical framework for disclosing the observabilityfinancial instruments are classified and disclosed in one of the following fair value categories:
Level 1 — Unadjusted quoted prices available in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities. Level 1 instruments primarily consist of highly liquid and actively traded financial instruments with quoted pricing information on an ongoing basis;
Level 2 — Pricing inputs utilized in measuringinclude quoted prices for identical or similar assets and liabilities atin active markets other than quoted prices in Level 1, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and
Level 3 — Pricing inputs are generally less observable from objective sources. These inputs reflect management’s best estimate of fair value. value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels. We record transfers, if necessary, between levels at the end of the reporting period for all of our financial instruments. For additional information, see Notes 1, 9, 10 and 11 to the Consolidated Financial Statements included in our 2018 Annual Report on Form 10-K filed with the SEC.
Transfers into Level 3, if any, occur when significant inputs used to value the derivative instruments become less observable, such as a significant decrease in the frequency and volume in which the instrument is traded, negatively impacting the availability of observable pricing inputs. Transfers out of Level 3, if any, occur when the significant inputs become more observable, such as when the time between the valuation date and the delivery date of a transaction becomes shorter, positively impacting the availability of observable pricing inputs.
Valuation Methodologies for Recurring Fair Value Measurements
Derivatives
The commodity contracts for our Utilities Segments,segments are valued using the market approach and include forward strip pricing at liquid delivery points, exchange-traded futures, options, basis swaps and over-the-counter swaps and options (Level 2) for wholesale electric energy and natural gas contracts. For exchange-traded futures, options and basis swap assets and liabilities, fair value was derived using broker quotes validated by the exchange settlement pricing for the applicable contract. For over-the-counter instruments, the fair value is obtained by utilizing a nationally recognized service that obtains observable inputs to compute the fair value, which we validate by comparing our valuation with the counterparty. The fair value of these swaps includes a CVA based on the credit spreads of the counterparties when we are in an unrealized gain position or on our own credit spread when we are in an unrealized loss position.
Nonrecurring Fair Value Measurement
A discussion of For additional information, see Note 1 to the fair value of our investment in equity securities of a privately held oil and gas company, a Level 3 asset, isConsolidated Financial Statements included in Note 21.our 2019 Annual Report on Form 10-K filed with the SEC.
| | | | | | | | | | | | | | | | | | | | | | As of June 30, 2020 | | | | | | | Level 1 | Level 2 | Level 3 | | Cash Collateral and Counterparty Netting | Total | | (in thousands) | | | | | | Assets: | | | | | | | Commodity derivatives — Gas Utilities | $ | — | | $ | 1,114 | | $ | — | | | $ | (417) | | $ | 697 | | Commodity derivatives — Electric Utilities | — | | 1,158 | | — | | | — | | 1,158 | | Total | $ | — | | $ | 2,272 | | $ | — | | | $ | (417) | | $ | 1,855 | | | | | | | | | Liabilities: | | | | | | | Commodity derivatives — Gas Utilities | $ | — | | $ | 1,553 | | $ | — | | | $ | (917) | | $ | 636 | | Total | $ | — | | $ | 1,553 | | $ | — | | | $ | (917) | | $ | 636 | |
Recurring Fair Value Measurements | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2019 | | | | | | | Level 1 | Level 2 | Level 3 | | Cash Collateral and Counterparty Netting | Total | | (in thousands) | | | | | | Assets: | | | | | | | Commodity derivatives — Gas Utilities | $ | — | | $ | 1,433 | | $ | — | | | $ | (1,085) | | $ | 348 | | Total | $ | — | | $ | 1,433 | | $ | — | | | $ | (1,085) | | $ | 348 | | | | | | | | | Liabilities: | | | | | | | Commodity derivatives — Gas Utilities | $ | — | | $ | 5,254 | | $ | — | | | $ | (2,909) | | $ | 2,345 | | Total | $ | — | | $ | 5,254 | | $ | — | | | $ | (2,909) | | $ | 2,345 | |
| | | | | | | | | | | | | | | | | | | As of September 30, 2019 | | Level 1 | Level 2 | Level 3 | | Cash Collateral and Counterparty Netting | Total | | (in thousands) | Assets: | | | | | | | Commodity derivatives — Utilities | $ | — |
| $ | 2,750 |
| $ | — |
| | $ | (2,335 | ) | $ | 415 |
| Total | $ | — |
| $ | 2,750 |
| $ | — |
| | $ | (2,335 | ) | $ | 415 |
| | | | | | | | Liabilities: | | | | | | | Commodity derivatives — Utilities | $ | — |
| $ | 6,080 |
| $ | — |
| | $ | (3,471 | ) | $ | 2,609 |
| Total | $ | — |
| $ | 6,080 |
| $ | — |
| | $ | (3,471 | ) | $ | 2,609 |
|
29
Pension and Postretirement Plan Assets
| | | | | | | | | | | | | | | | | | | As of December 31, 2018 | | Level 1 | Level 2 | Level 3 | | Cash Collateral and Counterparty Netting | Total | | (in thousands) | Assets: | | | | | | | Commodity derivatives — Utilities | $ | — |
| $ | 2,927 |
| $ | — |
| | $ | (1,408 | ) | $ | 1,519 |
| Total | $ | — |
| $ | 2,927 |
| $ | — |
| | $ | (1,408 | ) | $ | 1,519 |
| | | | | | | | Liabilities: | | | | | | | Commodity derivatives — Utilities | $ | — |
| $ | 6,801 |
| $ | — |
| | $ | (5,794 | ) | $ | 1,007 |
| Total | $ | — |
| $ | 6,801 |
| $ | — |
| | $ | (5,794 | ) | $ | 1,007 |
|
Fair Value Measures by Balance Sheet Classification
As required by accounting standards for derivatives and hedges, fair values within the following tables are presented on a gross basis aside from the netting of asset and liability positions permitted in accordance with accounting standards for offsetting and under terms of our master netting agreements and the impact of legally enforceable master netting agreements that allow us to settle positive and negative positions.
The following table presents the fair value and balance sheet classification of our derivative instruments (in thousands) as of:
| | | | | | | | | | | Balance Sheet Location | | September 30, 2019 | December 31, 2018 | Derivatives designated as hedges: | | | | | Asset derivative instruments: | | | | | Current commodity derivatives | Derivative assets — current | | $ | — |
| $ | 415 |
| Noncurrent commodity derivatives | Other assets, non-current | | 2 |
| 18 |
| Liability derivative instruments: | | | | | Current commodity derivatives | Derivative liabilities — current | | (427 | ) | (114 | ) | Noncurrent commodity derivatives | Other deferred credits and other liabilities | | (70 | ) | (4 | ) | Total derivatives designated as hedges | | | $ | (495 | ) | $ | 315 |
| | | | | | Derivatives not designated as hedges: | | | | | Asset derivative instruments: | | | | | Current commodity derivatives | Derivative assets — current | | $ | 412 |
| $ | 1,085 |
| Noncurrent commodity derivatives | Other assets, non-current | | 1 |
| 1 |
| Liability derivative instruments: | | | | | Current commodity derivatives | Derivative liabilities — current | | (1,969 | ) | (833 | ) | Noncurrent commodity derivatives | Other deferred credits and other liabilities | | (143 | ) | (56 | ) | Total derivatives not designated as hedges | | | $ | (1,699 | ) | $ | 197 |
|
Fair value measurements also apply to the valuation of our pension and postretirement plan assets. Current accounting guidance requires employers to annually disclose information about the fair value measurements of their assets of a defined benefit pension or other postretirement plan. The fair value of these assets is presented in Note 18 to the Consolidated Financial Statements included in our 20182019 Annual Report on Form 10-K.
for additional information.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
Nonrecurring Fair Value Measurement
A discussion of the fair value of our investment in equity securities of a privately held oil and gas company, a Level 3 asset, is included in Note 15.
Other Fair Value Measures
The following table presents the carrying amounts and fair values of financial instruments for which the carrying value did not equalrecorded at fair value were as followson the Condensed Consolidated Balance Sheets (in thousands) as of: | | | | | | | | | | | | | | | | September 30, 2019 | | December 31, 2018 | | Carrying Amount | Fair Value | | Carrying Amount | Fair Value | Long-term debt, including current maturities (a) (b) | $ | 3,054,978 |
| $ | 3,424,747 |
| | $ | 2,956,578 |
| $ | 3,039,108 |
|
| | | | | | | | | | | | | | | | | | | June 30, 2020 | | | December 31, 2019 | | | Carrying Amount | Fair Value | | Carrying Amount | Fair Value | Long-term debt, including current maturities (a) | $ | 3,537,194 | | $ | 4,051,912 | | | $ | 3,145,839 | | $ | 3,479,367 | |
__________ | | (a) | Long-term debt is valued based on observable inputs available either directly or indirectly for similar liabilities in active markets and therefore is classified in Level 2 in the fair value hierarchy. |
| | (b) | (a) Long-term debt is valued based on observable inputs available either directly or indirectly for similar liabilities in active markets and therefore is classified as Level 2 in the fair value hierarchy. Carrying amount of long-term debt is net of deferred financing costs. |
| | (
(11) Other Comprehensive Income (Loss)
13)
| OTHER COMPREHENSIVE INCOME (LOSS) |
We record deferred gains (losses) in AOCI related to interest rate swaps designated as cash flow hedges, commodity contracts designated as cash flow hedges and the amortization of components of our defined benefit plans. Deferred gains (losses) for our commodity contracts designated as cash flow hedges are recognized in earnings upon settlement, while deferred gains (losses) related to our interest rate swaps are recognized in earnings as they are amortized.
The following table details reclassifications out of AOCI and into net income. The amounts in parentheses below indicate decreases to net income in the Condensed Consolidated Statements of Income for the period (in thousands): | | | Location on the Condensed Consolidated Statements of Income | Amount Reclassified from AOCI | | Location on the Condensed Consolidated Statements of Income | Amount Reclassified from AOCI | | Three Months Ended | | Nine Months Ended | | Three Months Ended June 30, | | | Six Months Ended June 30, | | September 30, 2019 | September 30, 2018 | | September 30, 2019 | September 30, 2018 | | 2020 | 2019 | | 2020 | 2019 | Gains and (losses) on cash flow hedges: | | | | | Gains and (losses) on cash flow hedges: | | Interest rate swaps | Interest expense | $ | (713 | ) | $ | (712 | ) | | $ | (2,139 | ) | $ | (2,138 | ) | Interest rate swaps | Interest expense | $ | (713) | | $ | (713) | | | $ | (1,426) | | $ | (1,426) | | Commodity contracts | Fuel, purchased power and cost of natural gas sold
| (129 | ) | (18 | ) | | 508 |
| (802 | ) | Commodity contracts | Fuel, purchased power and cost of natural gas sold | (70) | | 83 | | | (556) | | 637 | | | | (842 | ) | (730 | ) | | (1,631 | ) | (2,940 | ) | | (783) | | (630) | | | (1,982) | | (789) | | Income tax | Income tax benefit (expense) | 170 |
| 149 |
| | 358 |
| 643 |
| Income tax | Income tax benefit (expense) | 186 | | 153 | | | 471 | | 188 | | Total reclassification adjustments related to cash flow hedges, net of tax | | $ | (672 | ) | $ | (581 | ) | | $ | (1,273 | ) | $ | (2,297 | ) | Total reclassification adjustments related to cash flow hedges, net of tax | | $ | (597) | | $ | (477) | | | $ | (1,511) | | $ | (601) | | | | | | | | | Amortization of components of defined benefit plans: | | | | | Amortization of components of defined benefit plans: | | Prior service cost | Operations and maintenance | $ | 20 |
| $ | 44 |
| | $ | 59 |
| $ | 133 |
| Prior service cost | Operations and maintenance | $ | 25 | | $ | 20 | | | $ | 55 | | $ | 39 | | | | | | | | Actuarial gain (loss) | Operations and maintenance | (84 | ) | (621 | ) | | (525 | ) | (1,865 | ) | Actuarial gain (loss) | Operations and maintenance | (597) | | (221) | | | (1,194) | | (441) | | | | (64 | ) | (577 | ) | | (466 | ) | (1,732 | ) | | (572) | | (201) | | | (1,139) | | (402) | | Income tax | Income tax benefit (expense) | 89 |
| 128 |
| | 184 |
| 380 |
| Income tax | Income tax benefit (expense) | 176 | | 47 | | | 264 | | 95 | | Total reclassification adjustments related to defined benefit plans, net of tax | | $ | 25 |
| $ | (449 | ) | | $ | (282 | ) | $ | (1,352 | ) | Total reclassification adjustments related to defined benefit plans, net of tax | | $ | (396) | | $ | (154) | | | $ | (875) | | $ | (307) | | Total reclassifications | | $ | (647 | ) | $ | (1,030 | ) | | $ | (1,555 | ) | $ | (3,649 | ) | Total reclassifications | | $ | (993) | | $ | (631) | | | $ | (2,386) | | $ | (908) | |
Balances by classification included within AOCI, net of tax on the accompanying Condensed Consolidated Balance Sheets were as follows (in thousands): | | | | | | | | | | | | | | | | Interest Rate Swaps | Commodity Derivatives | Employee Benefit Plans | Total | As of December 31, 2019 | $ | (15,122) | | $ | (456) | | $ | (15,077) | | $ | (30,655) | | Other comprehensive income (loss) | | | | | before reclassifications | — | | (220) | | 55 | | (165) | | Amounts reclassified from AOCI | 1,087 | | 424 | | 875 | | 2,386 | | As of June 30, 2020 | $ | (14,035) | | $ | (252) | | $ | (14,147) | | $ | (28,434) | | | | | | | | | | | | | Interest Rate Swaps | Commodity Derivatives | Employee Benefit Plans | Total | As of December 31, 2018 | $ | (17,307) | | $ | 328 | | $ | (9,937) | | $ | (26,916) | | Other comprehensive income (loss) | | | | | before reclassifications | — | | (219) | | — | | (219) | | Amounts reclassified from AOCI | 1,091 | | (490) | | 307 | | 908 | | As of June 30, 2019 | $ | (16,216) | | $ | (381) | | $ | (9,630) | | $ | (26,227) | |
| | | | | | | | | | | | | | | Interest Rate Swaps | Commodity Derivatives | Employee Benefit Plans | Total | As of December 31, 2018 | $ | (17,307 | ) | $ | 328 |
| $ | (9,937 | ) | $ | (26,916 | ) | Other comprehensive income (loss) | | | | | before reclassifications | — |
| (334 | ) | — |
| (334 | ) | Amounts reclassified from AOCI | 1,639 |
| (366 | ) | 282 |
| 1,555 |
| As of September 30, 2019 | $ | (15,668 | ) | $ | (372 | ) | $ | (9,655 | ) | $ | (25,695 | ) | | | | | | | | | | | | Interest Rate Swaps | Commodity Derivatives | Employee Benefit Plans | Total | As of December 31, 2017 | $ | (19,581 | ) | $ | (518 | ) | $ | (21,103 | ) | $ | (41,202 | ) | Other comprehensive income (loss) | | | | | before reclassifications | — |
| (168 | ) | — |
| (168 | ) | Amounts reclassified from AOCI | 1,682 |
| 615 |
| 1,352 |
| 3,649 |
| Reclassifications of certain tax effects from AOCI | 15 |
| — |
| 3 |
| 18 |
| As of September 30, 2018 | $ | (17,884 | ) | $ | (71 | ) | $ | (19,748 | ) | $ | (37,703 | ) |
(12) Employee Benefit Plans
(14) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
| | | | | | | | | Nine Months Ended | September 30, 2019 | | September 30, 2018 | | (in thousands) | Non-cash investing and financing activities — | | | | Property, plant and equipment acquired with accrued liabilities | $ | 86,661 |
| | $ | 49,631 |
| | | | | Cash (paid) refunded during the period — | | | | Interest (net of amounts capitalized) | $ | (99,375 | ) | | $ | (104,035 | ) | Income taxes | $ | 2,255 |
| | $ | (14,842 | ) |
Change in Accounting Principle - Pension Accounting Asset Method
(15) EMPLOYEE BENEFIT PLANS
Effective January 1, 2020, the Company changed its method of accounting for net periodic benefit cost. Prior to the change, the Company used a calculated value for determining market-related value of plan assets which amortized the effects of gains and losses over a five-year period. Effective with the accounting change, the Company will use a calculated value for the return-seeking assets (equities) in the portfolio and fair value for the liability-hedging assets (fixed income). The Company considers the fair value method for determining market-related value of liability-hedging assets to be a preferable method of accounting because asset-related gains and losses are subject to amortization into pension cost immediately. Additionally, the fair value for liability-hedging assets allows for the impact of gains and losses on this portion of the asset portfolio to be reflected in tandem with changes in the liability which is linked to changes in the discount rate assumption for re-measurement.
We evaluated the effect of this change in accounting method and deemed it immaterial to the historical and current financial statements and therefore did not account for the change retrospectively. Accordingly, the Company calculated the cumulative difference using a calculated value versus fair value to determine market-related value for liability-hedging assets of the portfolio. The cumulative effect of this change, as of January 1, 2020, resulted in a decrease to prior service costs, as recorded in Other income (expense), net, of $0.6 million, an increase in Income tax expense of $0.2 million and an increase to Net income of $0.4 million within the accompanying Condensed Consolidated Statements of Income for the six months ended June 30, 2020.
Funding Status of Employee Benefit Plans
Based on the fair value of assets and estimated discount rate used to value benefit obligations as of June 30, 2020, we estimate the unfunded status of our employee benefit plans to be approximately $50 million compared to $51 million at December 31, 2019. In 2012, we froze our pension plan and closed it to new participants. Since then, we have implemented various de-risking strategies including lump sum buyouts, the purchase of annuities and the reduction of return-seeking assets over time to a more liability-hedged portfolio.As a result, recent capital markets volatility driven by the COVID-19 pandemic has not materially affected our unfunded status and does not require interim re-measurement of our pension plan assets or defined benefit obligations.
Defined Benefit Pension Plan
The components of net periodic benefit cost for the Defined Benefit Pension Plan were as follows (in thousands): | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | 2020 | 2019 | | 2020 | 2019 | Service cost | $ | 1,353 | | $ | 1,345 | | | $ | 2,706 | | $ | 2,691 | | Interest cost | 3,356 | | 4,344 | | | 6,713 | | 8,687 | | Expected return on plan assets | (5,648) | | (6,100) | | | (11,296) | | (12,200) | | Prior service cost | — | | 7 | | | — | | 13 | | Net loss (gain) | 2,093 | | 940 | | | 4,186 | | 1,881 | | Net periodic benefit cost | $ | 1,154 | | $ | 536 | | | $ | 2,309 | | $ | 1,072 | |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | 2018 | | 2019 | 2018 | Service cost | $ | 1,346 |
| $ | 1,708 |
| | $ | 4,037 |
| $ | 5,125 |
| Interest cost | 4,344 |
| 3,867 |
| | 13,031 |
| 11,602 |
| Expected return on plan assets | (6,100 | ) | (6,185 | ) | | (18,300 | ) | (18,555 | ) | Prior service cost | 6 |
| 15 |
| | 19 |
| 44 |
| Net loss (gain) | 941 |
| 2,158 |
| | 2,822 |
| 6,473 |
| Net periodic benefit cost | $ | 537 |
| $ | 1,563 |
| | $ | 1,609 |
| $ | 4,689 |
|
Defined Benefit Postretirement Healthcare PlansPlan
The components of net periodic benefit cost for the Defined Benefit Postretirement Healthcare PlansPlan were as follows (in thousands): | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | 2020 | 2019 | | 2020 | 2019 | Service cost | $ | 514 | | $ | 454 | | | $ | 1,028 | | $ | 908 | | Interest cost | 413 | | 563 | | | 825 | | 1,123 | | Expected return on plan assets | (46) | | (58) | | | (91) | | (115) | | Prior service (benefit) | (137) | | (100) | | | (274) | | (199) | | Net loss (gain) | 5 | | — | | | 10 | | — | | Net periodic benefit cost | $ | 749 | | $ | 859 | | | $ | 1,498 | | $ | 1,717 | |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | 2018 | | 2019 | 2018 | Service cost | $ | 454 |
| $ | 573 |
| | $ | 1,362 |
| $ | 1,718 |
| Interest cost | 560 |
| 521 |
| | 1,683 |
| 1,563 |
| Expected return on plan assets | (57 | ) | (57 | ) | | (172 | ) | (170 | ) | Prior service cost (benefit) | (99 | ) | (99 | ) | | (298 | ) | (297 | ) | Net loss (gain) | — |
| 54 |
| | — |
| 162 |
| Net periodic benefit cost | $ | 858 |
| $ | 992 |
| | $ | 2,575 |
| $ | 2,976 |
|
Supplemental Non-qualified Defined Benefit and Defined Contribution Plans
The components of net periodic benefit cost for the Supplemental Non-qualified Defined Benefit and Defined Contribution Plans were as follows (in thousands): | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | 2020 | 2019 | | 2020 | 2019 | Service cost | $ | 1,817 | | $ | 692 | | | $ | 447 | | $ | 1,977 | | Interest cost | 275 | | 324 | | | 550 | | 648 | | Prior service cost | — | | 1 | | | — | | 1 | | Net loss (gain) | 426 | | 134 | | | 852 | | 268 | | Net periodic benefit cost | $ | 2,518 | | $ | 1,151 | | | $ | 1,849 | | $ | 2,894 | |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | 2018 | | 2019 | 2018 | Service cost | $ | 429 |
| $ | 632 |
| | $ | 2,406 |
| $ | 1,347 |
| Interest cost | 324 |
| 293 |
| | 972 |
| 878 |
| Prior service cost | — |
| — |
| | 1 |
| 1 |
| Net loss (gain) | 134 |
| 250 |
| | 402 |
| 750 |
| Net periodic benefit cost | $ | 887 |
| $ | 1,175 |
| | $ | 3,781 |
| $ | 2,976 |
|
Contributions
Contributions to the Defined Benefit Pension Plan are cash contributions made directly to the Pension Plan Trust account. Contributions to the Postretirement Healthcare and Supplemental Plans are made in the form of benefit payments. Contributions made in 2019the first six months of 2020 and anticipated contributions for 20192020 and 20202021 are as follows (in thousands): | | | | | | | | | | | | | | | Contributions Made | Additional Contributions | Contributions | | | Six Months Ended June 30, 2020 | Anticipated for 2020 | Anticipated for 2021 | Defined Benefit Pension Plan | | $ | 12,700 | | $ | — | | $ | 12,700 | | Non-pension Defined Benefit Postretirement Healthcare Plans | | $ | 2,670 | | $ | 2,671 | | $ | 5,364 | | Supplemental Non-qualified Defined Benefit and Defined Contribution Plans | | $ | 710 | | $ | 710 | | $ | 1,614 | |
| | | | | | | | | | | | | | | Contributions Made | Contributions Made | Additional Contributions | Contributions | | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Anticipated for 2019 | Anticipated for 2020 | Defined Benefit Pension Plan | $ | 12,700 |
| $ | 12,700 |
| $ | — |
| $ | 12,700 |
| Non-pension Defined Benefit Postretirement Healthcare Plans | $ | 1,109 |
| $ | 3,326 |
| $ | 1,109 |
| $ | 4,815 |
| Supplemental Non-qualified Defined Benefit and Defined Contribution Plans | $ | 366 |
| $ | 1,098 |
| $ | 366 |
| $ | 1,406 |
|
33 (16) COMMITMENTS AND CONTINGENCIES
(13) Commitments and Contingencies
There have been no significant changes to commitments and contingencies from those previously disclosed in Note 19 of our Notes to the Consolidated Financial Statements in our 20182019 Annual Report on Form 10-K except for those described below.below and in Note 5.
Future PurchasePower Sales Agreement - Related PartyColorado Electric
On August 2, 2019, Black Hills Wyoming and Wyoming Electric filed a request with FERC for approval of a new 60 MW PPA. If approved, Black Hills Wyoming will continue to deliver 60 MW of energy to Wyoming Electric from its Wygen I power plant starting JanuaryJuly 1, 2023, and continuing for 20 additional years. A decision from FERC is pending.
Platte River Power Authority PPAs
On June 26, 2019,2020, Colorado Electric entered into a PPAPSA with Platte River Power Authoritythe City of Colorado Springs to purchasesell up to 60 MW of wind energy upon construction completion ofpurchased from PRPA under a new wind project, which is expected in mid-2020.separate PPA. This agreement will expire May 31, 2030.
On June 26, 2019, Colorado Electric entered into a PPA with Platte River Power Authority to purchase 25 MW of unit contingent energy. This agreement was effective September 1, 2019 and will expireexpires June 30, 2024.2025.
The following is a schedule of unconditional purchase obligations required under the 25 MW Platte River Power Authority PPA as of September 30, 2019 (in thousands):
| | | | | 2019 | $ | 1,369 |
| 2020 | $ | 5,475 |
| 2021 | $ | 5,475 |
| 2022 | $ | 5,475 |
| 2023 | $ | 5,475 |
| Thereafter | $ | 2,738 |
|
(14) Income Taxes
the employer portion of Social Security employment tax liabilities until 2021 and 2022, as well as a COVID-19 employee retention tax credit of up to $5,000 per eligible employee.
Eligible employers are taxpayers experiencing either: (1) a full or partial suspension of business operations stemming from a government COVID-19-related order or (2) a more than 50% drop in gross receipts compared to the corresponding calendar quarter in 2019. This 50% employee retention tax credit applies up to $10,000 in qualified wages paid between March 13, 2020 through December 31, 2020, and is refundable to the extent it exceeds the employer portion of payroll tax liability.
(17) DISCONTINUED OPERATIONS
Eligible wages or employer-paid health benefits must be paid for the period of time during which an employee did not provide services. However, employees do not need to stop providing all services to the employer for the credit to potentially apply.
Results
Additionally, the CARES Act accelerates the amount of alternative minimum tax (“AMT”) credits that can be refunded for the 2018 and 2019 annual tax returns.
During the second quarter 2020, we utilized the payroll tax deferral provision which allowed us to defer payment of approximately $2.9 million of Social Security employment tax liabilities. We are currently reviewing the potential future benefits of the CARES Act related to employee retention tax credits to assess the impact on our financial position, results of operations for discontinued operations were classified as Loss from discontinued operations, net of income taxes in the accompanying Condensed Consolidated Statements of Income. Prior periods relating to our discontinued operations were also reclassified to reflect consistency within our condensed consolidated financial statements.and cash flows.
Oil and Gas Segment
On November 1, 2017, the BHC Board of Directors approved a complete divestiture of our Oil and Gas segment. We completed the divestiture in 2018. See Note 21 for more information.
(18) INCOME TAXES
Income tax benefit (expense) for the Three Months Ended SeptemberJune 30, 20192020 Compared to the Three Months Ended SeptemberJune 30, 2018.2019.
Income tax benefit (expense) for the three months ended SeptemberJune 30, 20192020 was $(2.5)$(4.8) million compared to $(7.5)$(2.3) million reported for the same period in 2018. The decrease in tax expense was primarily due to a prior year $(5.3) million income tax expense associated with changes in the previously estimated impact of tax reform on deferred income taxes.
2019. For the three months ended SeptemberJune 30, 20192020, the effective tax rate was 14.0%16.4% compared to 7.6% excluding the tax reform adjustments,11.5% for the same period in 2018.2019. The higher effective tax rate is primarily due to a prior year statediscrete tax benefit.benefit related to repairs and certain indirect costs.
Income tax benefit (expense) for the NineSix Months Ended SeptemberJune 30, 20192020 Compared to the NineSix Months Ended SeptemberJune 30, 2018.2019.
Income tax benefit (expense) for the ninesix months ended SeptemberJune 30, 20192020 was $(22)$(21) million compared to $12$(20) million reported for the same period in 2018. The increase in tax expense was primarily due to a prior year $49 million tax benefit resulting from legal entity restructuring partially offset by a prior year $(7.5) million income tax expense associated with changes in the previously estimated impact of tax reform on deferred income taxes.
2019. For the ninesix months ended SeptemberJune 30, 20192020, the effective tax rate was 13.6%14.6% compared to 17.1% excluding the legal entity restructuring and tax reform adjustments,13.5% for the same period in 2018.2019. The lowerhigher effective tax rate is primarily due to $5.0 milliona prior year discrete tax benefit related to repairs and certain indirect costs and a current year discrete tax adjustment related to the impairment of our investment in equity securities of a privately held oil and gas company partially offset by increased tax benefits from forecasted federal production tax credits and related state investment tax credits associated with new wind assets and a $1.0 million tax benefit for deferred tax amortization related to tax reform.assets.
(19) ACCRUED LIABILITIES
The following amounts by major classification are included in Accrued liabilities in the accompanying Condensed Consolidated Balance Sheets (in thousands) as of:
| | | | | | | | | September 30, 2019 | December 31, 2018 | Accrued employee compensation, benefits and withholdings | $ | 57,313 |
| $ | 63,742 |
| Accrued property taxes | 38,937 |
| 42,510 |
| Customer deposits and prepayments | 56,220 |
| 43,574 |
| Accrued interest and contract adjustment payments | 35,100 |
| 31,759 |
| Other (none of which is individually significant) | 30,262 |
| 33,916 |
| Total accrued liabilities | $ | 217,832 |
| $ | 215,501 |
|
(15) Investments
(20) LEASES
Lessee
We lease from third parties certain office and operation center facilities, communication tower sites, equipment, and materials storage. Our leases have remaining terms ranging from less than one year to 37 years, including options to extend that are reasonably certain to be exercised.
The components of lease expense were as follows (in thousands):
| | | | | | | | | | Income Statement Location | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Operating lease cost | Operations and maintenance | $ | 380 |
| $ | 1,076 |
| Finance lease cost: | | | | Amortization of right-of-use asset | Depreciation, depletion and amortization | 28 |
| 72 |
| Interest on lease liabilities | Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts) | 5 |
| 14 |
| Total lease cost | | $ | 413 |
| $ | 1,162 |
|
Supplemental balance sheet information related to leases was as follows (in thousands):
| | | | | | | Balance Sheet Location | As of September 30, 2019 | Assets: | | | Operating lease assets | Other assets, non-current | $ | 4,864 |
| Finance lease assets | Other assets, non-current | 493 |
| Total lease assets | | $ | 5,357 |
| | | | Liabilities: | | | Current: | | | Operating leases | Accrued liabilities | $ | 970 |
| Finance lease | Accrued liabilities | 80 |
| | | | Noncurrent: | | | Operating leases | Other deferred credits and other liabilities | 4,252 |
| Finance lease | Other deferred credits and other liabilities | 419 |
| Total lease liabilities | | $ | 5,721 |
|
Supplemental cash flow information related to leases was as follows (in thousands):
| | | | | | Nine Months Ended September 30, 2019 | Cash paid included in the measurement of lease liabilities: | | Operating cash flows from operating leases | $ | 895 |
| Operating cash flows from finance lease | $ | 14 |
| Financing cash flows from finance lease | $ | 66 |
| Right-of-use assets obtained in exchange for lease obligations: | | Operating leases | $ | 2,775 |
| Finance lease | $ | 67 |
|
| | | | | As of September 30, 2019 | Weighted average remaining lease term (years): | | Operating leases | 8 years |
| Finance lease | 4 years |
| | | Weighted average discount rate: | | Operating leases | 4.27 | % | Finance lease | 4.19 | % |
As of September 30, 2019, scheduled maturities of lease liabilities for future years were as follows (in thousands):
| | | | | | | | | | | | Operating Leases | Finance Lease | Total | 2019 (a) | $ | 368 |
| $ | 32 |
| $ | 400 |
| 2020 | 992 |
| 126 |
| 1,118 |
| 2021 | 855 |
| 126 |
| 981 |
| 2022 | 736 |
| 126 |
| 862 |
| 2023 | 714 |
| 126 |
| 840 |
| Thereafter | 2,682 |
| 10 |
| 2,692 |
| Total lease payments (b) | $ | 6,347 |
| $ | 546 |
| $ | 6,893 |
| Less imputed interest | 1,125 |
| 47 |
| 1,172 |
| Present value of lease liabilities | $ | 5,222 |
| $ | 499 |
| $ | 5,721 |
|
| | (a) | Includes lease liabilities for the remaining three months of 2019. |
| | (b) | Lease payments exclude payments to landlords for common area maintenance, real estate taxes, and insurance. |
As previously disclosed in Note 14 of the Notes to the Consolidated Financial Statements in our 2018 Annual Report on Form 10-K, prior to the adoption of ASU 2016-02, Leases (Topic 842), the future minimum payments required under operating lease agreements as of December 31, 2018 were as follows (in thousands):
| | | | | | Operating Leases | 2019 | $ | 1,052 |
| 2020 | 464 |
| 2021 | 344 |
| 2022 | 224 |
| 2023 | 216 |
| Thereafter | 1,776 |
| Total lease payments | $ | 4,076 |
|
Lessor
We lease to third parties certain generating station ground leases, communication tower sites, and a natural gas pipeline. These leases have remaining terms ranging from less than one year to 35 years.
The components of lease revenue were as follows (in thousands):
| | | | | | | | | | Income Statement Location | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Operating lease income | Revenue | $ | 544 |
| $ | 1,749 |
|
As of September 30, 2019, scheduled maturities of lease receivables for future years were as follows (in thousands):
| | | | | | Operating Leases | 2019 (a) | $ | 551 |
| 2020 | 2,035 |
| 2021 | 1,857 |
| 2022 | 1,793 |
| 2023 | 1,799 |
| Thereafter | 55,481 |
| Total lease receivables | $ | 63,516 |
|
| | (a) | Includes lease receivables for the remaining three months of 2019. |
(21) INVESTMENTS
In February 2018, we made a contribution ofcontributed $28 million of assets in exchange for equity securities in a privately held oil and gas company as we divested from our Oil and Gas segment. The carrying value of our investment in the equity securities was recorded at cost. We review this investment on a periodic basis to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the value of the investment.
During the third quarter of 2019, we assessed our investment for impairment as a result of a deterioration in earnings performance of the privately held oil and gas company and an adverse change in future natural gas prices. We engaged a third-party valuation consultant to estimate the fair value of our investment. The valuation was primarily based on an income approach but also considered a market valuation approach. The significant inputs used to estimate the fair value were the oil and gas reserve quantities and values utilizing forward market price curves, industry standard reserve adjustment factors and a discount rate of 10%. Based on the results of the valuation, we concluded that the carrying value of the investment exceeded fair value. As a result, we recorded a pre-tax impairment loss of $20 million for the three and nine months ended September 30, 2019, which was the difference between the carrying amountvalue and the fair value of the investment.investment at that time.
During the first quarter of 2020, we assessed our investment for impairment as a result of continued adverse changes in future natural gas prices and liquidity concerns at the privately held oil and gas company. We performed an internal analysis to compute the fair value of our investment, utilizing a consistent methodology as applied during the third quarter of 2019. Based on the results of the valuation, we concluded that the carrying value of the investment exceeded fair value. As a result, we recorded a pre-tax impairment loss of $6.9 million for the three months ended March 31, 2020, which was the difference between the carrying value and the fair value of the investment at that time.
The following table presents the carrying value of our investments (in thousands) as of: | | | | | | | | | | June 30, 2020 | December 31, 2019 | Investment in privately held oil and gas company | $ | 1,500 | | $ | 8,359 | | Cash surrender value of life insurance contracts | 13,423 | | 13,056 | | Other investments | 515 | | 514 | | Total investments | $ | 15,438 | | $ | 21,929 | |
| | | | | | | | | | September 30, 2019 | | December 31, 2018 | Investment in privately held oil and gas company | $ | 8,359 |
| | $ | 28,100 |
| Cash surrender value of life insurance contracts | 12,907 |
| | 12,812 |
| Other investments | 317 |
| | 101 |
| Total investments | $ | 21,583 |
| | $ | 41,013 |
|
(16) Subsequent Events
(22) SUBSEQUENT EVENTS
There areWe evaluated all subsequent event activity and concluded that no subsequent events other thanhave occurred that would require recognition in the condensed consolidated financial statements or disclosures, with the exception of those items disclosed in Note 8.Notes 8 and 13.
| | ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Executive Summary
We are a customer-focused, growth-oriented utility company operating in the United States. We report our operations and results in the following financialbusiness segments:
Electric Utilities: Our Electric Utilities segment generates, transmits and distributes electricity to approximately 212,000214,000 customers in Colorado, Montana, South Dakota and Wyoming. Our electric generating facilities and power purchase agreements provide for the supply of electricity principally to our own distribution systems. Additionally, we sell excess power to other utilities and marketing companies, including our affiliates. We also provide non-regulated services through our Tech Services product lines.
Gas Utilities: Our Gas Utilities conductsegment conducts natural gas utility operations through our Arkansas, Colorado, Iowa, Kansas, Nebraska and Wyoming subsidiaries. Our Gas Utilities distributesegment distributes and transporttransports natural gas through our pipeline network to approximately 1,054,0001,066,000 natural gas customers. Additionally, we sell contractual pipeline capacity and gas commodities to other utilities and marketing companies, including our affiliates, on an as-available basis.
Our Gas Utilities also provide non-regulated services through Black Hills Energy Services. Black Hills Energy Services provides natural gas supply to approximately 47,00049,000 retail distribution customers under the Choice Gas Program in Nebraska and Wyoming with unbundled natural gas commodity offeringsWyoming. Additionally, we provide services under the regulator-approved Choice Gas Program. We also sell, install and service air conditioning, heating and water-heating equipment, and provide associated repair service and protection plans under various trade names. Service Guard Comfort Plan and CAPP provide appliance repair services to approximately 62,000 and 28,000 residential customers, respectively, through Company technicians and third-party service providers, typically through on-going monthly service agreements. Tech Services serves gas transportation customers throughout our service territory by constructing and maintaining customer-owned gas infrastructure facilities, typically through one-time contracts.also offer HomeServe products.
Power Generation: Our Power Generation segment produces electric power from its non-regulated generating plants and sells the electric capacity and energy principallyprimarily to our utilities under long-term contracts.
Mining: Our Mining segment extracts coal at our coal mine near Gillette, Wyoming, and sells the coal primarily to on-site, mine-mouth power generation facilities.
Our reportable segments are based on our method of internal reporting, which is generally segregated by differences in products, services and regulation. All of our operations and assets are located within the United States. All of our non-utility business segments support our utilities. Certain unallocated corporate expenses that support our operating segments are presented as Corporate and Other.
Effective January 1, 2019, we changed our measure of segment performance to adjusted operating income, which impacted our segment disclosures for all periods presented. See Note 3 of the Notes to Condensed Consolidated Financial Statements for more information.
Certain industries in which we operate are highly seasonal and revenue from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Demand for electricity and natural gas is sensitive to seasonal cooling, heating and industrial load requirements. In particular, the normal peak usage season for our electric utilitiesElectric Utilities is June through August while the normal peak usage season for our gas utilitiesGas Utilities is November through March. Significant earnings variances can be expected between the Gas Utilities segment’s peak and off-peak seasons. Due to this seasonal nature, our results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, and our financial condition as of SeptemberJune 30, 20192020 and December 31, 2018,2019, are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period or for the entire year.
COVID-19 Pandemic
One of the Company’s core values is safety. The COVID-19 pandemic has given us an opportunity to demonstrate our commitment to the health and safety of our customers, employees, business partners and the communities we serve. We have executed our business continuity plans across all of our jurisdictions with the goal of continuing to provide safe and reliable service during the COVID-19 pandemic.
| | See Forward-Looking Information in the Liquidity and Capital Resources section of this Item 2, beginning on Page
58. |
The segment information does not include inter-company eliminations. Minor differences in amounts may resultFor the three and six months ended June 30, 2020, we have experienced limited impacts to our financial results and operational activities due to rounding. All amounts are presented on a pre-tax basis unless otherwise indicated.
Results of Operations
Executive Summary, Significant Events and Overview
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | | 2018 | | 2019 | | 2018 | (in millions, except per share amounts) | Income | EPS | | Income | EPS | | Income | EPS | | Income | EPS | | | | | | | | | | | | | Net income from continuing operations available for common stock | $ | 11.7 |
| $ | 0.19 |
| | $ | 17.8 |
| $ | 0.32 |
| | $ | 130.1 |
| $ | 2.15 |
| | $ | 177.5 |
| $ | 3.26 |
| Net (loss) from discontinued operations | — |
| — |
| | (0.9 | ) | (0.02 | ) | | — |
| — |
| | (5.6 | ) | (0.10 | ) | Net income available for common stock | $ | 11.7 |
| $ | 0.19 |
| | $ | 17.0 |
| $ | 0.31 |
| | $ | 130.1 |
| $ | 2.15 |
| | $ | 171.9 |
| $ | 3.15 |
|
Three Months Ended September 30, 2019 ComparedCOVID-19. Estimated decreases to Three Months Ended September 30, 2018.
The variance to the prior year included the following:
Electric Utilities’ adjusted operating incomegross margins driven primarily by lower volumes, increased $7.3 million primarilycosts due to the prior year Wyoming Electric PCA settlement, warmer summer weather in Coloradosequestration of mission critical and Wyoming, increased industrial demand,essential employees and increased riderbad debt expense were partially offset by decreased training, travel and outside services related expenses.
During the three months ended June 30, 2020, COVID-19 had a limited impact on revenues and customer loads, as the decline in volumes from commercial and certain industrial and transport customers was partially offset by higher operating expenses driven by outside services and employee costs; Gas Utilities’ adjusted operating income increased $0.5 million primarily due to new rates, increased transport and transmission,residential usage. Decline in revenues and customer growth partially offset by lower heating demand from warmer weather, reduced irrigation demand dueloads for the six months ended June 30, 2020, when compared to heavy precipitation and higher operating expenses driven by outside services and employee costs;
Power Generation’s adjusted operating income decreased $1.3 million primarily due to higher depreciation and property taxes from new wind assets partially offset by higher revenue from increased wind MWh sold and higher PPA prices;
| | • | Mining’s adjusted operating income decreased $1.2 million primarily due to lower tons sold driven by unplanned generating facility outages partially offset by lower operating expenses;
|
A $20 million non-cash impairment of our investmentthe same period in equity securities of a privately held oil and gas company; and
A prior year $5.3 million income tax expense associated with changes in the previously estimated impact of tax reform on deferred income taxes.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018.
The variance to the prior year, included the following:
Electric Utilities’ adjusted operating income increased $2.1 millionwere driven primarily dueby weather. We continue to reduced power capacity charges, the prior year Wyoming Electric PCA settlementclosely monitor loads in our states as updated executive orders and increased rider revenues partially offset by higher operating expenses driven by outside services and employee costs;
Gas Utilities’ adjusted operating income increased $0.4 million primarily due to new rates offset by higher operating expenses driven by outside services and employee costs;
Power Generation’s adjusted operating income increased $0.2 million primarily due to higher revenue from increased wind MWh sold partially offset by higher depreciation and property taxes from new wind assets;
Mining’s adjusted operating income decreased $3.3 million primarily due to lower tons sold driven by planned and unplanned generating facility outages partially offset by lower operating expenses;
Corporate and Other expenses decreased $2.3 million primarily due to prior year expenses related to the oil and gas segment that were not reclassified to discontinued operations;
A $20 million non-cash impairment of our investment in equity securities of a privately held oil and gas company;
| | • | A prior year $49 million tax benefit resulting fromlegal entity restructuring partially offset by a prior year $7.5 million income tax expense associated with changes in the previously estimated impact of tax reform on deferred income taxes; and
|
A lower current year effective tax rate primarily due to $5.0 million of federal production tax credits and related state investment tax creditsrecommendations associated with new wind assetsCOVID-19 are provided. We have continued to proactively communicate with various commercial and a $1.0industrial customers in our service territories to understand their needs and forecast the potential financial implications. We have increased our allowance for credit losses and bad debt expense by $1.5 million tax benefit for deferred tax amortization related to tax reform.
The following table summarizes select financial results by operating segment and details significant items (in thousands):
| | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | Nine Months Ended September 30, | | 2019 | 2018 | Variance | 2019 | 2018 | Variance | Revenue | | | | | | | Revenue | $ | 363,491 |
| $ | 358,258 |
| $ | 5,233 |
| $ | 1,368,748 |
| $ | 1,361,102 |
| $ | 7,646 |
| Inter-company eliminations | (37,943 | ) | (36,279 | ) | (1,664 | ) | (111,502 | ) | (108,030 | ) | (3,472 | ) | | $ | 325,548 |
| $ | 321,979 |
| $ | 3,569 |
| $ | 1,257,246 |
| $ | 1,253,072 |
| $ | 4,174 |
| Adjusted operating income (a) | | | | | | | Electric Utilities | $ | 50,653 |
| $ | 43,393 |
| $ | 7,260 |
| $ | 125,219 |
| $ | 123,073 |
| $ | 2,146 |
| Gas Utilities | 4,736 |
| 4,240 |
| 496 |
| 116,607 |
| 116,168 |
| 439 |
| Power Generation | 11,822 |
| 13,079 |
| (1,257 | ) | 33,945 |
| 33,731 |
| 214 |
| Mining | 3,374 |
| 4,551 |
| (1,177 | ) | 9,351 |
| 12,647 |
| (3,296 | ) | Corporate and Other | (34 | ) | (178 | ) | 144 |
| (439 | ) | (2,709 | ) | 2,270 |
| Operating income | 70,551 |
| 65,085 |
| 5,466 |
| 284,683 |
| 282,910 |
| 1,773 |
| | | |
| | | | Interest expense, net | (33,487 | ) | (35,297 | ) | 1,810 |
| (102,469 | ) | (104,826 | ) | 2,357 |
| Impairment of investment | (19,741 | ) | — |
| (19,741 | ) | (19,741 | ) | — |
| (19,741 | ) | Other income (expense), net | 580 |
| (510 | ) | 1,090 |
| 55 |
| (1,923 | ) | 1,978 |
| Income tax benefit (expense) | (2,508 | ) | (7,477 | ) | 4,969 |
| (22,078 | ) | 11,784 |
| (33,862 | ) | Income from continuing operations | 15,395 |
| 21,801 |
| (6,406 | ) | 140,450 |
| 187,945 |
| (47,495 | ) | Net (loss) from discontinued operations | — |
| (857 | ) | 857 |
| — |
| (5,627 | ) | 5,627 |
| Net income | 15,395 |
| 20,944 |
| (5,549 | ) | 140,450 |
| 182,318 |
| (41,868 | ) | Net income attributable to noncontrolling interest | (3,655 | ) | (3,994 | ) | 339 |
| (10,319 | ) | (10,447 | ) | 128 |
| Net income available for common stock | $ | 11,740 |
| $ | 16,950 |
| $ | (5,210 | ) | $ | 130,131 |
| $ | 171,871 |
| $ | (41,740 | ) |
__________
| | (a) | In 2019, we changed our measure of segment performance to adjusted operating income, which impacted our segment disclosures for all periods presented. See Note 3 of the Notes to Condensed Consolidated Financial Statements for additional information. |
Overview of Business Segments and Corporate Activity
Electric Utilities Segment
Cooling degree days$2.0 million for the three and ninesix months ended SeptemberJune 30, 2019 were 27%2020, respectively, after considering the potential economic impact of the COVID-19 pandemic in forward looking projections related to write-off and 14% higher than normal comparedrecovery rates. All of our jurisdictions temporarily suspended disconnections for a period of time. State orders lifting those restrictions have been issued in some of our jurisdictions; however, we expect the status of restrictions will continue to 9% and 29% higher than normalfluctuate for the same periodsnext several months. We continue to monitor customer loads, accounts receivable arrears balances, disconnects, cash flows and bad debt expense. We are proactively working with customers to establish payment plans and find available payment assistance resources.
We continue to maintain adequate liquidity to operate our businesses and fund our capital investment program. In February 2020, the Company issued $100 million in 2018.
Heating degree daysequity to support its 2020 capital investment program. In June 2020, the Company issued $400 million of long-term debt which was used to repay short-term debt and for working capital and general corporate purposes. For the three and ninesix months ended SeptemberJune 30, 2019 were 36% lower2020, the Company also utilized a combination of its $750 million Revolving Credit Facility and 6% higher than normal, comparedCP Program to 20%meet its funding requirements. Disruptions in the commercial paper markets at the outset of the COVID-19 pandemic in the U.S. have since improved. The Company has no material debt maturities until late 2023 and 3% lower than normalas of June 30, 2020, had $770 million of liquidity which included $32 million of cash and $738 million of available capacity on its Revolving Credit Facility. We continue to meet our debt covenant requirements. We also continue to monitor the funding status of our employee benefit plan obligations, which did not materially change during the six months ended June 30, 2020.
We are monitoring supply chains, including lead times for key materials and supplies, availability of resources, and statuses of large capital projects. To date, there have been limited impacts from COVID-19 on supply chains including the same periodsavailability of supplies, materials and lead times. Capital projects are ongoing without material disruption to schedules. Our third party resources continue to support our business plans without disruption. Contingency plans are ready to be executed if significant disruption to supply chain occurs; however, we currently do not anticipate a significant impact from COVID-19 on our capital investment plan for 2020.
We continue to work closely with local health, public safety and government officials to minimize the spread of COVID-19 and its impact to our employees and the services we provide to our customers. Some of the actions the Company has taken include implementing protocols for our field operations personnel to continue to safely and effectively interact with our customers, asking employees to work from home to the extent possible, quarantining employees if they have traveled to an at-risk area, limiting travel to only mission-critical purposes and sequestering essential employees.
As we look forward to the second half of 2020, we anticipate that our operating results could potentially be further affected by COVID-19, as discussed in 2018.detail in our Risk Factors.
On September 17, 2019, South Dakota Electric completed constructionWe provide periodic status updates and maintain ongoing dialogue with the regulatory commissions in our jurisdictions. We are working with regulators in each of our service territories to preserve our right for deferred regulatory treatment for certain COVID-19 related costs and to seek recovery of these costs at a later date.
During these uncertain times, we remain highly focused on the final 94-mile segmentsafety and health of a 175-mile electric transmission line from Rapid City, South Dakota,our customers, employees, business partners and communities. We continue to Stegall, Nebraska. The first 48-mile segment was placed in service on July 25, 2018,monitor load, customers’ ability to pay, the potential for supply chain disruption that may impact our capital and maintenance project plans, the availability of resources to execute our plans and the second 33-mile segment was placed in service on November 20, 2018.capital markets to ensure we have the liquidity necessary to support our financial needs.
Colorado Electric and Wyoming Electric set new all-time and summer peak loads:
On July 19, 2019, Colorado Electric set a new peak load of 422 MW, exceeding the previous peak of 413 MW set in June 2018.
On July 19, 2019, Wyoming Electric set a new peak load of 265 MW, exceeding the previous peak of 254 MW set in July 2018.
2020 Business Segment Highlights and Corporate Activity
Electric Utilities
•South Dakota Electric and Wyoming Electric received approvals forcontinued construction of the Renewable Ready Service Tariffs and related jointly-filed CPCN to construct the $57$79 million, 40 MW Corriedale Wind Energy Project.project. The wind project will be jointly owned by the two electric utilities to deliver renewable energy for large commercial, industrial and governmental agency customers. The project is on schedule and on budget and expected to be in service by year-end 2020.
•On July 10, 2020, Wyoming Electric set a new all-time peak load of 271 MW, surpassing the endprevious peak of 2020.265 MW set in July 2019.
•On June 19, 2020, Colorado Electric submitted its 120-day report to the CPUC, which provided a detailed analysis of the proposals received during its competitive solicitation and outlined its preferred bid, a 200 MW solar project, along with several back-up options, in the Renewable Advantage plan. The bidding process for new renewable energy projects concluded in February 2020, attracting interest from developers in southern Colorado and across the U.S. In September 2019, the customer subscription period was completed with customer interest fulfilling the 40 MW of available energy. On November 1, 2019, South Dakotatotal, Colorado Electric filedreceived 54 bids from 25 bidders for renewable energy projects at varying sizes, prices, technology types and locations, with the SDPUC an amendment seeking approvalmajority of projects to increasebe sited in the generating capacity undercity of Pueblo and Pueblo County. A hearing to review the tariff120-day report with the CPUC is scheduled for the South Dakota portion by 12.5 MW to a total of 32.5 MW.
Gas Utilities Segment
Heating degree days for the three and nine months ended September 30, 2019 were 62% lower and 7% higher than normal, compared to 27% lower and 0% higher than normal for the same periods in 2018.
Regulatory activity:
| | ◦ | On October 29, 2019, Nebraska Gas received approval from the NPSC to merge its two gas distribution companies in Nebraska. A rate review is expected to be filed by mid-year 2020 to consolidate the rates, tariffs and services of its two existing gas distribution companies. |
| | ◦ | On June 3, 2019, Wyoming Gas filed a rate review application with the WSPC to consolidate the rates, tariffs and services of its four existing gas distribution territories in Wyoming.August 18, 2020. The rate review requests $16 million in new revenue to recover investments in safety, reliability and system integrity. Wyoming Gas is also requesting a new rider mechanism to recover future safety and integrity investments in its system. A settlement was recently reached with the intervening parties in the rate review filing and filed with the WPSC on November 1, 2019. The stipulation and agreement are subject to review and approval by the WPSC, with a decision expected by the end of 2019. See Note 5 of the Notes to Condensed Consolidated Financial Statements for additional details. |
| | ◦ | On February 1, 2019, Colorado Gas filed a rate review with the CPUC requesting approval to consolidate rates, tariffs and services of its two existing gas distribution territories in Colorado. The rate review requests $2.5 million in new revenue to recover investments in safety, reliability and system integrity. Colorado Gas is also requesting a new rider mechanism to recover future safety and integrity investments in its system. A decision from the CPUC is expected by March 2020. |
On May 10, 2019, Wyoming Gas commenced construction on the $54 million, 35-mile Natural Bridge pipeline project to enhance supply reliability and delivery capacity for customers in central Wyoming. The new 12-inch steel pipeline will interconnect from a supply point near Douglas, Wyoming, to existing facilities near Casper, Wyoming. Construction of the pipeline is nearly complete and the project is expectedscheduled to be in service by the end of 2019, with the associated investment included in the Wyoming Gas rate review filed on2023.
•On June 3, 2019.
Power Generation Segment
On August 2, 20191, 2020, Black Hills Wyoming and Wyoming Electric jointly filed a requestsettlement agreement with the FERC. The agreement represents a resolution of all issues in the joint application filed with the FERC on August 2, 2019 for approval of a new 60 MW PPA. On July 10, 2020, a judge certified the settlement to the FERC and a decision is expected by the end of 2020. If approved, Wyoming Electric will continue to receive 60 MW of capacity and energy from the Wygen I power plant. The new agreement would commence on January 1, 2022, replacing the existing PPA and would continue for 11 years.
•On May 5, 2020, citizens in Pueblo, Colorado voted overwhelmingly to retain Colorado Electric as its electric utility provider by 75.6% of votes cast. The current franchise agreement continues through 2030.
Gas Utilities
•On January 1, 2020, Nebraska Gas completed the legal consolidation of its two natural gas utilities, having received approval from the NPSC on October 29, 2019. On June 1, 2020, Nebraska Gas filed a rate review with the NPSC to consolidate rates, tariffs, and services of its two existing gas distribution territories. The rate review requests $17 million in new revenue, as well as an extension of the SSIR, to recover investments in safety, reliability and system integrity. The rate review requests a capital structure of 50% equity and 50% debt and a return on equity of 10% for investments Nebraska Gas made in its natural gas pipeline system. Nebraska statute allows for implementation of interim rates 90 day after filing a rate review. New rates are expected to be effective in early 2021.
•On February 1, 2019, Colorado Gas filed a rate review with the CPUC requesting $2.5 million in new revenue to recover investments in safety, reliability and system integrity and approval to consolidate rates, tariffs, and services of its two existing gas distribution territories. Colorado Gas also requested a new rider mechanism to recover future safety and integrity investments in its system. On April 14, 2020 the CPUC deliberated on the application and on May 19, 2020 issued a final order. The order denied the new system integrity recovery mechanism and consolidation of rate territories. In addition, the order resulted in an annual revenue decrease of $0.6 million and a return on equity of 9.2%. New rates were effective July 3, 2020. In accordance with the final order, Colorado Gas will file a new system integrity rider proposal prior to the end of 2020. Colorado Gas also plans to file a new rate review by the end of 2020.
•Wyoming Gas’s new single statewide rate structure was effective March 1, 2020. On December 11, 2019, Wyoming Gas received approval from the WPSC to consolidate the rates, tariffs and services of its four existing gas distribution territories. New rates are expected to generate $13 million in new annual revenue based on a return on equity of 9.40% and a capital structure of 50.23% equity and 49.77% debt. The approval also allows for a rider to recover integrity investments for system safety and reliability.
Power Generation
•On June 1, 2020, Black Hills Wyoming will continue to deliverand Wyoming Electric filed a settlement agreement with the FERC. The agreement represents a resolution of all issues in the joint application filed with the FERC on August 2, 2019 for approval of a new 60 MW of energy to Wyoming Electric from its Wygen I power plant starting January 1, 2023, and for 20PPA. See additional years. A decision from FERC is pending.
On March 11, 2019, Black Hills Electric Generation commenced construction on the $71 million, 60 MW Busch Ranch II Wind Farm. The project is expected to be fully in service by mid-November 2019.
Mining
In October, negotiations were completed for the price reopenerinformation in the contract with Wyodak Plant. The new price was reset at $17.94 per ton effective July 1, 2019, compared to the prior contract price of $18.25 per ton.Electric Utilities Segment highlights above.
Corporate and Other
•On October 15, 2019, Moody’s affirmed South Dakota Electric’s credit rating at A1.August 3, 2020, we filed a shelf registration and DRSPP with the SEC. In conjunction with these shelf filings, we renewed the ATM. The renewed ATM program, which allows us to sell shares of our common stock, is the same as the prior program other than the aggregate value increased from $300 million to $400 million and a forward sales option was incorporated.
•On October 3, 2019,June 17, 2020, we completed a public debt offering of $700$400 million principal amount in senior unsecured notes. ProceedsThe debt offering consisted of $400 million of 2.50%, 10-year senior notes due June 15, 2030. The proceeds were used to repay the $400 million Corporate term loan due June 17, 2021, retire the $200 million 5.875% senior notes due July 15, 2020short-term debt and repay a portion of short-term debt.for working capital and general corporate purposes.
During the nine months ended September 30, 2019, we issued a total of 1,328,332 shares of common stock under the ATM equity offering program for net proceeds of $99 million.
On August 29, 2019, Fitch affirmed our BBB+ rating and maintained a Stable outlook.
On June 17, 2019, we amended our Corporate term loan due July 30, 2020. This amendment increased total commitments to $400 million from $300 million and extended the term through June 17, 2021 on substantially similar terms and covenants. The net proceeds were used to pay down short-term debt. Proceeds from the October 3, 2019 debt transaction were used to repay this term loan.
•On April 30, 2019,16, 2020, S&P affirmed South Dakota Electric’s credit rating at A.
•On February 28, 2019,April 10, 2020, S&P affirmed our BBB+ rating and maintained a Stablestable outlook.
•On February 27, 2020, we issued 1.2 million shares of common stock at a price of $81.77 per share for net proceeds of $99 million.
Results of Operations
Segment information does not include intercompany eliminations and all amounts are presented on a pre-tax basis unless otherwise indicated. Minor differences may result due to rounding.
Consolidated Summary and Overview | | | | | | | | | | | | | | | | | (in thousands, except per share amounts) | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2020 | 2019 | | 2020 | 2019 | | Revenue | | | | | | | Revenue | $ | 365,848 | | $ | 369,576 | | | $ | 941,931 | | $ | 1,005,257 | | | Inter-company eliminations | (38,934) | | (35,688) | | | (77,967) | | (73,559) | | | | $ | 326,914 | | $ | 333,888 | | | $ | 863,964 | | $ | 931,698 | | | Adjusted operating income (a) | | | | | | | Electric Utilities | $ | 33,993 | | $ | 33,546 | | | $ | 69,643 | | $ | 74,566 | | | Gas Utilities | 18,209 | | 8,557 | | | 121,106 | | 111,871 | | | Power Generation | 11,402 | | 10,156 | | | 22,751 | | 22,123 | | | Mining | 3,358 | | 1,640 | | | 6,487 | | 5,977 | | | Corporate and Other | (29) | | 102 | | | 131 | | (405) | | | Operating income | 66,933 | | 54,001 | | | 220,118 | | 214,132 | | | | | | | | | | Interest expense, net | (35,545) | | (34,264) | | | (70,998) | | (68,981) | | | Impairment of investment | — | | — | | | (6,859) | | — | | | Other income (expense), net | (1,863) | | 263 | | | 490 | | (526) | | | Income tax (expense) | (4,831) | | (2,307) | | | (20,833) | | (19,570) | | | Net income | 24,694 | | 17,693 | | | 121,918 | | 125,055 | | | Net income attributable to noncontrolling interest | (3,728) | | (3,110) | | | (7,778) | | (6,664) | | | Net income available for common stock | $ | 20,966 | | $ | 14,583 | | | $ | 114,140 | | $ | 118,391 | | | | | | | | | | Earnings per share, Basic | $ | 0.34 | | $ | 0.24 | | | $ | 1.84 | | $ | 1.97 | | | Earnings per share, Diluted | $ | 0.33 | | $ | 0.24 | | | $ | 1.83 | | $ | 1.96 | | |
__________ (a) Adjusted operating income recognizes intersegment revenues and costs for Colorado Electric’s PPA with Black Hills Colorado IPP on an accrual basis rather than as a finance lease. This presentation of segment information does not impact consolidated financial results.
Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019:
The variance to the prior year included the following:
•COVID-19 related impacts to consolidated results included $2.4 million of lower gross margin driven primarily by lower volumes, $2.0 million of costs due to sequestration of mission-critical and essential employees and $1.5 million of additional bad debt expense which were partially offset by $3.4 million of lower travel, training, and outside services expenses; •Electric Utilities’ adjusted operating income increased $0.4 million primarily due to favorable spring weather and lower operating expenses mostly offset by a rider true-up and COVID-19 impacts to margin from lower commercial volumes; •Gas Utilities’ adjusted operating income increased $9.7 million primarily due to new customer rates in Wyoming, prior year direct and indirect impacts from significant rainfall and flooding in our service territories, mark-to-market gains on non-utility natural gas commodity contracts and lower operating expenses partially offset by COVID-19 impacts to margin from lower volumes from certain industrial and transport customers; •Power Generation’s adjusted operating income increased $1.2 million primarily due to increased MWh sold driven by new wind assets and strong availability;
•Mining’s adjusted operating income increased $1.7 million primarily due to higher tons sold driven by prior year planned and unplanned facility outages; •Interest expense increased $1.3 million primarily due to higher debt balances partially offset by lower rates; •Other expense increased $2.1 million primarily due to increased costs for our non-qualified benefit plan driven by market performance on plan assets; and •Income tax expense increased $2.5 million primarily due to a prior year discrete tax benefit related to repairs and certain indirect costs.
Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019:
The variance to the prior year included the following:
•COVID-19 related impacts to consolidated results included $2.4 million of lower gross margin driven primarily by lower volumes, $2.0 million of costs due to sequestration of mission-critical and essential employees and $2.0 million of additional bad debt expense which were partially offset by $3.4 million of lower travel, training, and outside services expenses; •Electric Utilities’ adjusted operating income decreased $4.9 million primarily due to COVID-19 impacts to margin from lower commercial volumes, lower power marketing margins and higher operating expenses partially offset by increased mark-to-market on wholesale energy contracts; •Gas Utilities’ adjusted operating income increased $9.2 million primarily due to new customer rates in Wyoming, prior year amortization of excess deferred income taxes, customer growth, mark-to-market gains on non-utility natural gas commodity contracts and lower operating expenses partially offset by lower heating demand from warmer winter weather and COVID-19 impacts to margin from lower volumes from certain industrial and transport customers; •Interest expense increased $2.0 million primarily due to higher debt balances partially offset by lower rates; and •A $6.9 million pre-tax non-cash impairment of our investment in equity securities of a privately held oil and gas company.
Operating Results by Segment
A discussion of operating results from our segments and Corporate activities follows in the sections below. Revenues for operating segments in the following sections are presented in total and by retail class. For disaggregation of revenue by contract type and operating segment, see Note 2 of the Notes to Condensed Consolidated Financial Statements for more information.
Non-GAAP Financial Measure The following discussion includes financial information prepared in accordance with GAAP, as well as another financial measure, gross margin, that is considered a “non-GAAP financial measure.” Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. Gross margin (revenue less cost of sales) is a non-GAAP financial measure due to the exclusion of depreciation and amortization from the measure. The presentation of gross margin is intended to supplement investors’ understanding of our operating performance.
Gross margin for our Electric Utilities is calculated as operating revenue less cost of fuel and purchased power. Gross margin for our Gas Utilities is calculated as operating revenue less cost of natural gas sold. Our gross margin is impacted by the fluctuations in power and natural gas purchases and other fuel supply costs. However, while these fluctuating costs impact gross margin as a percentage of revenue, they only impact total gross margin if the costs cannot be passed through to our customers.
Our gross margin measure may not be comparable to other companies’ gross margin measure. Furthermore, this measure is not intended to replace operating income, as determined in accordance with GAAP, as an indicator of operating performance.
Electric Utilities
| | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | Nine Months Ended September 30, | | 2019 | 2018 | Variance | 2019 | 2018 | Variance | | (in thousands) | Revenue | $ | 191,384 |
| $ | 184,790 |
| $ | 6,594 |
| $ | 540,665 |
| $ | 531,961 |
| $ | 8,704 |
| | | | | | | | Total fuel and purchased power | 71,593 |
| 74,638 |
| (3,045 | ) | 207,004 |
| 209,317 |
| (2,313 | ) | | | | | | | | Gross margin (non-GAAP) | 119,791 |
| 110,152 |
| 9,639 |
| 333,661 |
| 322,644 |
| 11,017 |
| | | | | | | | Operations and maintenance | 47,172 |
| 45,307 |
| 1,865 |
| 143,049 |
| 135,501 |
| 7,548 |
| Depreciation and amortization | 21,966 |
| 21,453 |
| 513 |
| 65,393 |
| 64,070 |
| 1,323 |
| Total operating expenses | 69,138 |
| 66,760 |
| 2,378 |
| 208,442 |
| 199,571 |
| 8,871 |
| | | | | | | | Adjusted operating income (a) | $ | 50,653 |
| $ | 43,392 |
| $ | 7,261 |
| $ | 125,219 |
| $ | 123,073 |
| $ | 2,146 |
|
________________
| | (a) | Due to the changes in our segment disclosures discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements, Electric Utilities’ Adjusted operating income was revised for the three and nine months ended September 30, 2018, which resulted in an increase of $1.6 million and $4.8 million, respectively. |
| | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2020 | 2019 | Variance | 2020 | 2019 | Variance | | (in thousands) | | | | | | Revenue | $ | 163,200 | | $ | 166,354 | | $ | (3,154) | | $ | 337,339 | | $ | 349,281 | | $ | (11,942) | | | | | | | | | Total fuel and purchased power | 59,053 | | 62,128 | | (3,075) | | 123,513 | | 135,411 | | (11,898) | | | | | | | | | Gross margin (non-GAAP) | 104,147 | | 104,226 | | (79) | | 213,826 | | 213,870 | | (44) | | | | | | | | | Operations and maintenance | 47,031 | | 48,733 | | (1,702) | | 97,530 | | 95,877 | | 1,653 | | Depreciation and amortization | 23,123 | | 21,947 | | 1,176 | | 46,653 | | 43,427 | | 3,226 | | Total operating expenses | 70,154 | | 70,680 | | (526) | | 144,183 | | 139,304 | | 4,879 | | | | | | | | | Adjusted operating income | $ | 33,993 | | $ | 33,546 | | $ | 447 | | $ | 69,643 | | $ | 74,566 | | $ | (4,923) | |
Results of Operations for the Electric Utilities for the
Three Months Ended SeptemberJune 30, 20192020 Compared to the Three Months Ended SeptemberJune 30, 2018:2019:
Gross margin for the three months ended SeptemberJune 30, 2019 increased2020 decreased as a result of the following: | | | | | | | (in millions) | COVID-19 impacts (a) | $ | (1.5) | | Rider recovery and true-up (b) | (1.3) | | Weather | 2.4 | | Other | 0.3 | | Total decrease in Gross margin (non-GAAP) | $ | (0.1) | |
| | | | | | (in millions) | Prior year Wyoming Electric PCA Stipulation settlement | $ | 3.4 |
| Weather | 1.8 |
| Increased industrial demand | 1.7 |
| Reduction in power capacity charges | 1.7 |
| Rider recovery | 1.3 |
| Other | (0.3 | ) | Total increase in Gross margin (non-GAAP) | $ | 9.6 |
|
____________________(a) The impacts to Electric Utilities gross margin from COVID-19 were driven by reduced commercial volumes partially offset by higher residential usage. (b) Gross margin decreased due to a $2.5 million rider true-up, which was partially offset by $1.2 million of increased rider recovery.
Operations and maintenance expense increaseddecreased primarily due to $1.0lower generation expenses driven by timing of planned outages and lower employee costs. COVID-19 impacts to operations and maintenance expense included $1.6 million of higher employee costsexpenses related to the sequestration of essential employees and $0.6$0.5 million of higheradditional bad debt expense which were offset by $2.0 million of lower travel, training and outside services related expenses.
Results of Operations for the Electric Utilities for the Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018:
Gross margin for the nine months ended September 30, 2019 increased as a result of the following:
| | | | | | (in millions) | Reduction in power capacity charges | $ | 4.9 |
| Prior year Wyoming Electric PCA Stipulation settlement | 3.7 |
| Rider recovery | 2.0 |
| Decreased residential customer usage | (0.9 | ) | Decreased commercial and industrial demand | (0.2 | ) | Weather | (0.1 | ) | Other | 1.6 |
| Total increase in Gross margin (non-GAAP) | $ | 11.0 |
|
Operations and maintenance expense increased primarily due to $3.6 million of higher employee costs and $3.4 million of higher outside services expenses.
Depreciation and amortization increased primarily due to a higher asset base driven by prior year and current year capital expenditures.
Operating Statistics
42 | | | | | | | | | | | | | | | | | | | | | | | | | | Electric Revenue (in thousands) | | Quantities sold (MWh) | | | Three Months Ended September 30, | Nine Months Ended September 30, | | Three Months Ended September 30, | Nine Months Ended September 30, | | | 2019 | 2018 | 2019 | 2018 | | 2019 | 2018 | 2019 | 2018 | Residential | | $ | 58,919 |
| $ | 58,122 |
| $ | 162,257 |
| $ | 163,979 |
| | 384,735 |
| 372,623 |
| 1,075,394 |
| 1,084,531 |
| Commercial | | 65,732 |
| 65,794 |
| 186,434 |
| 192,680 |
| | 560,547 |
| 550,791 |
| 1,556,449 |
| 1,560,911 |
| Industrial | | 33,937 |
| 31,939 |
| 98,074 |
| 93,959 |
| | 462,809 |
| 429,133 |
| 1,335,260 |
| 1,248,438 |
| Municipal | | 4,792 |
| 4,582 |
| 13,184 |
| 13,389 |
| | 46,106 |
| 43,972 |
| 121,025 |
| 122,953 |
| Subtotal Retail Revenue - Electric | | 163,380 |
| 160,437 |
| 459,949 |
| 464,007 |
| | 1,454,197 |
| 1,396,519 |
| 4,088,128 |
| 4,016,833 |
| Contract Wholesale | | 8,211 |
| 8,256 |
| 23,335 |
| 25,497 |
| | 229,369 |
| 221,327 |
| 646,611 |
| 677,163 |
| Off-system/Power Marketing Wholesale | | 6,452 |
| 9,059 |
| 16,592 |
| 18,142 |
| | 160,357 |
| 206,791 |
| 436,298 |
| 514,686 |
| Other | | 13,341 |
| 7,038 |
| 40,789 |
| 24,315 |
| | — |
| — |
| — |
| — |
| Total Revenue and Energy Sold | | 191,384 |
| 184,790 |
| 540,665 |
| 531,961 |
| | 1,843,923 |
| 1,824,637 |
| 5,171,037 |
| 5,208,682 |
| Other Uses, Losses or Generation, net | | — |
| — |
| — |
| — |
| | 112,172 |
| 121,478 |
| 299,038 |
| 337,939 |
| Total Revenue and Energy | | 191,384 |
| 184,790 |
| 540,665 |
| 531,961 |
| | 1,956,095 |
| 1,946,115 |
| 5,470,075 |
| 5,546,621 |
| Less cost of fuel and purchased power (a) | | 71,593 |
| 74,638 |
| 207,004 |
| 209,317 |
| | | | | | Gross Margin (non-GAAP) (a) | | $ | 119,791 |
| $ | 110,152 |
| $ | 333,661 |
| $ | 322,644 |
| | | | | |
________________
| | (a) | Due to the changes in our segment disclosures discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements, cost of fuel and purchased power was revised for the three and nine months ended September 30, 2018, which resulted in an increase of $1.6 million and $4.8 million, respectively. There were corresponding decreases to Gross margin for each period. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | | Electric Revenue (in thousands) | | Gross Margin (non-GAAP) (in thousands) | | Quantities Sold (MWh) (a) | | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | Colorado Electric (b) | | $ | 70,771 |
| $ | 68,052 |
| | $ | 41,916 |
| $ | 38,449 |
| | 634,098 |
| 610,079 |
| South Dakota Electric | | 77,022 |
| 78,067 |
| | 55,217 |
| 52,860 |
| | 835,725 |
| 874,962 |
| Wyoming Electric | | 43,591 |
| 38,671 |
| | 22,658 |
| 18,843 |
| | 486,272 |
| 461,074 |
| Total Electric Revenue, Gross Margin (non-GAAP), and Quantities Sold | | $ | 191,384 |
| $ | 184,790 |
| | $ | 119,791 |
| $ | 110,152 |
| | 1,956,095 |
| 1,946,115 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | Electric Revenue (in thousands) | | Gross Margin (non-GAAP) (in thousands) | | Quantities Sold (MWh) (a) | | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | Colorado Electric (b) | | $ | 186,030 |
| $ | 188,937 |
| | $ | 104,411 |
| $ | 105,997 |
| | 1,611,126 |
| 1,639,607 |
| South Dakota Electric | | 225,309 |
| 222,558 |
| | 162,390 |
| 154,158 |
| | 2,438,366 |
| 2,541,082 |
| Wyoming Electric | | 129,326 |
| 120,466 |
| | 66,860 |
| 62,489 |
| | 1,420,583 |
| 1,365,932 |
| Total Electric Revenue, Gross Margin (non-GAAP), and Quantities Sold | | $ | 540,665 |
| $ | 531,961 |
| | $ | 333,661 |
| $ | 322,644 |
| | 5,470,075 |
| 5,546,621 |
|
________________
| | (a) | Total MWh for 2019 includes Other Uses, Losses or Generation, net, which are approximately 6%, 5%, and 6% for Colorado Electric, South Dakota Electric, and Wyoming Electric, respectively. |
| | (b) | Due to the changes in our segment disclosures discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements, Gross margin was revised for the three and nine months ended September 30, 2018, which resulted in a decrease of $(1.6) million and $(4.8) million, respectively. |
| | | | | | | | | | | Three Months Ended September 30, | Nine Months Ended September 30, | Quantities Generated and Purchased (MWh) | 2019 | 2018 | 2019 | 2018 | | | | | | Coal-fired | 564,220 |
| 608,417 |
| 1,621,355 |
| 1,772,750 |
| Natural Gas and Oil | 234,366 |
| 199,351 |
| 445,498 |
| 345,978 |
| Wind | 55,407 |
| 54,450 |
| 167,331 |
| 196,932 |
| Total Generated | 853,993 |
| 862,218 |
| 2,234,184 |
| 2,315,660 |
| Purchased | 1,102,102 |
| 1,083,897 |
| 3,235,891 |
| 3,230,961 |
| Total Generated and Purchased | 1,956,095 |
| 1,946,115 |
| 5,470,075 |
| 5,546,621 |
|
| | | | | | | | | | | Three Months Ended September 30, | Nine Months Ended September 30, | Quantities Generated and Purchased (MWh) | 2019 | 2018 | 2019 | 2018 | Generated: | | | | | Colorado Electric | 149,509 |
| 163,276 |
| 341,925 |
| 388,251 |
| South Dakota Electric | 489,042 |
| 469,680 |
| 1,262,336 |
| 1,293,713 |
| Wyoming Electric | 215,442 |
| 229,262 |
| 629,923 |
| 633,696 |
| Total Generated | 853,993 |
| 862,218 |
| 2,234,184 |
| 2,315,660 |
| Purchased: | | | | | Colorado Electric | 484,589 |
| 446,803 |
| 1,269,201 |
| 1,251,356 |
| South Dakota Electric | 346,683 |
| 405,282 |
| 1,176,030 |
| 1,247,369 |
| Wyoming Electric | 270,830 |
| 231,812 |
| 790,660 |
| 732,236 |
| Total Purchased | 1,102,102 |
| 1,083,897 |
| 3,235,891 |
| 3,230,961 |
| | | | | | Total Generated and Purchased | 1,956,095 |
| 1,946,115 |
| 5,470,075 |
| 5,546,621 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | Degree Days | | | 2019 | | | | 2018 | | Actual | | Variance from Normal | | Actual Variance to Prior Year | | Actual | | Variance from Normal | Heating Degree Days: | | | | | | | | | | Colorado Electric | 4 |
| | (96 | )% | | (89)% | | 35 |
| | (64 | )% | South Dakota Electric | 175 |
| | (22 | )% | | (26)% | | 236 |
| | 5 | % | Wyoming Electric | 120 |
| | (77 | )% | | (52)% | | 248 |
| | (19 | )% | Combined (a) | 86 |
| | (36 | )% | | (41)% | | 147 |
| | (20 | )% | | | | | | | | | | | Cooling Degree Days: | | | | | | | | | | Colorado Electric | 1,079 |
| | 58 | % | | 19% | | 910 |
| | 33 | % | South Dakota Electric | 366 |
| | (31 | )% | | 3% | | 356 |
| | (33 | )% | Wyoming Electric | 433 |
| | 45 | % | | 32% | | 328 |
| | 10 | % | Combined (a) | 705 |
| | 27 | % | | 17% | | 603 |
| | 9 | % |
| | | | | | | | | | | | | | | | Nine Months Ended September 30, | | 2019 | | | | 2018 | Heating Degree Days | Actual | | Variance from Normal | | Actual Variance to Prior Year | | Actual | | Variance from Normal | | | | | | | | | | | Colorado Electric | 3,156 |
| | (6 | )% | | 9% | | 2,901 |
| | (14 | )% | South Dakota Electric | 5,370 |
| | 20 | % | | 8% | | 4,972 |
| | 11 | % | Wyoming Electric | 4,677 |
| | 5 | % | | 9% | | 4,285 |
| | (9 | )% | Combined (a) | 4,198 |
| | 6 | % | | 8% | | 3,888 |
| | (3 | )% | | | | | | | | | | | Cooling Degree Days: | | | | | | | | | | Colorado Electric | 1,226 |
| | 37 | % | | (13)% | | 1,404 |
| | 57 | % | South Dakota Electric | 404 |
| | (36 | )% | | (17)% | | 488 |
| | (23 | )% | Wyoming Electric | 462 |
| | 33 | % | | 7% | | 430 |
| | 24 | % | Combined (a) | 791 |
| | 14 | % | | (12)% | | 895 |
| | 29 | % |
__________
| | (a) | Combined actuals are calculated based on the weighted average number of total customers by state. |
| | | | | | | | | | Electric Utilities Power Plant Availability | Three Months Ended September 30, | Nine Months Ended September 30, | | 2019 | 2018 | 2019 | 2018 | Coal-fired plants (a) | 94.6 | % | 95.7 | % | 90.0 | % | 94.0 | % | Natural gas-fired plants and Other plants (b) | 89.6 | % | 97.0 | % | 89.8 | % | 97.2 | % | Wind | 93.7 | % | 96.9 | % | 95.0 | % | 96.9 | % | Total availability | 91.5 | % | 96.6 | % | 90.3 | % | 96.1 | % | | | | | | Wind capacity factor | 33.8 | % | 33.1 | % | 37.1 | % | 41.8 | % |
__________
| | (a) | 2019 included planned outages at Neil Simpson II and Wygen III and unplanned outages at Wyodak Plant and Wygen III. |
| | (b) | 2019 included planned outages at Neil Simpson CT and Lange CT. |
Gas Utilities
| | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | Nine Months Ended September 30, | | 2019 | 2018 | Variance | 2019 | 2018 | Variance | | (in thousands) | Revenue: | | | | | | | Natural gas - regulated | $ | 117,549 |
| $ | 117,070 |
| $ | 479 |
| $ | 651,366 |
| $ | 648,550 |
| $ | 2,816 |
| Other - non-regulated services | 13,195 |
| 14,606 |
| (1,411 | ) | 55,927 |
| 58,090 |
| (2,163 | ) | Total revenue | 130,744 |
| 131,676 |
| (932 | ) | 707,293 |
| 706,640 |
| 653 |
| | | | | | | | Cost of sales: | | | | | | | Natural gas - regulated | 28,154 |
| 30,612 |
| (2,458 | ) | 280,312 |
| 298,149 |
| (17,837 | ) | Other - non-regulated services | 4,870 |
| 5,514 |
| (644 | ) | 16,975 |
| 15,716 |
| 1,259 |
| Total cost of sales | 33,024 |
| 36,126 |
| (3,102 | ) | 297,287 |
| 313,865 |
| (16,578 | ) | | | | | | | | Gross margin (non-GAAP) | 97,720 |
| 95,550 |
| 2,170 |
| 410,006 |
| 392,775 |
| 17,231 |
| | | | | | | | Operations and maintenance | 70,170 |
| 69,746 |
| 424 |
| 225,239 |
| 212,319 |
| 12,920 |
| Depreciation and amortization | 22,814 |
| 21,564 |
| 1,250 |
| 68,160 |
| 64,288 |
| 3,872 |
| Total operating expenses | 92,984 |
| 91,310 |
| 1,674 |
| 293,399 |
| 276,607 |
| 16,792 |
| | | | | | | | Adjusted operating income | $ | 4,736 |
| $ | 4,240 |
| $ | 496 |
| $ | 116,607 |
| $ | 116,168 |
| $ | 439 |
|
Results of Operations for the Gas Utilities for the ThreeSix Months Ended SeptemberJune 30, 20192020 Compared to the ThreeSix Months Ended SeptemberJune 30, 2018:2019:
Gross margin for the threesix months ended SeptemberJune 30, 2019 increased2020 remained constant as a result of:of the following: | | | | | | | (in millions) | COVID-19 impacts (a) | $ | (1.5) | | Off-system power marketing | (1.2) | | Rider recovery and true-up (b) | (0.3) | | Mark-to-market on wholesale energy contracts | 1.2 | | Weather | 0.6 | | Residential customer growth | 0.4 | | Other | 0.8 | | Total change in Gross margin (non-GAAP) | $ | — | |
| | | | | | (in millions) | New rates | $ | 3.0 |
| Customer growth - distribution | 0.8 |
| Increased transport and transmission | 0.7 |
| Weather (a) | (3.4 | ) | Other | 1.1 |
| Total increase in Gross margin (non-GAAP) | $ | 2.2 |
|
____________________
(a) WeatherThe impacts for the three months ended September 30, 2019 compared to the same period in the prior year includeElectric Utilities gross margin from COVID-19 were driven by reduced heating demandcommercial volumes partially offset by higher residential usage. (b) Gross margin decreased due to warmer temperatures and reduced irrigation loads to agriculture customers in our Nebraska Gas service territory due to higher precipitation.a $2.5 million rider true-up, which was mostly offset by $2.2 million of increased rider recovery.
Operations and maintenance expense increased primarily due to higher employee costs$1.4 million of expenses related to the municipalization efforts in Pueblo, Colorado. COVID-19 impacts to operations and highermaintenance expense included $1.6 million of expenses related to the sequestration of essential employees and $0.6 million of additional bad debt expense which were offset by $2.0 million of lower travel, training and outside services related expenses.
Depreciation and amortization increased primarily due to a higher asset base driven by prior year and current year capital expenditures.
Operating Statistics | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Electric Revenue | | | | | Quantities Sold | | | | | (in thousands) | | | | | (MWh) | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | 2020 | 2019 | 2020 | 2019 | | 2020 | 2019 | 2020 | 2019 | | | | | | | | | | | Residential | $ | 50,148 | | $ | 45,700 | | $ | 104,653 | | $ | 103,338 | | | 334,682 | | 301,481 | | 707,832 | | 690,659 | | Commercial | 56,400 | | 59,739 | | 114,223 | | 120,702 | | | 459,632 | | 490,329 | | 953,940 | | 995,902 | | Industrial | 31,896 | | 31,697 | | 64,065 | | 64,137 | | | 459,533 | | 445,837 | | 920,165 | | 872,451 | | Municipal | 4,020 | | 4,253 | | 7,898 | | 8,392 | | | 38,372 | | 38,283 | | 74,771 | | 74,919 | | Subtotal Retail Revenue - Electric | 142,464 | | 141,389 | | 290,839 | | 296,569 | | | 1,292,219 | | 1,275,930 | | 2,656,708 | | 2,633,931 | | Contract Wholesale (a) | 3,470 | | 6,781 | | 9,023 | | 15,124 | | | 87,253 | | 194,222 | | 219,031 | | 417,242 | | Off-system/Power Marketing Wholesale | 3,537 | | 3,448 | | 8,404 | | 10,140 | | | 136,311 | | 135,091 | | 302,096 | | 275,941 | | Other | 13,729 | | 14,736 | | 29,073 | | 27,448 | | | — | | — | | — | | — | | Total Revenue and Energy Sold | 163,200 | | 166,354 | | 337,339 | | 349,281 | | | 1,515,783 | | 1,605,243 | | 3,177,835 | | 3,327,114 | | Other Uses, Losses or Generation, net (b) | — | | — | | — | | — | | | 85,185 | | 89,866 | | 176,056 | | 186,866 | | Total Revenue and Energy | 163,200 | | 166,354 | | 337,339 | | 349,281 | | | 1,600,968 | | 1,695,109 | | 3,353,891 | | 3,513,980 | | Less cost of fuel and purchased power | 59,053 | | 62,128 | | 123,513 | | 135,411 | | | | | | | Gross Margin (non-GAAP) | $ | 104,147 | | $ | 104,226 | | $ | 213,826 | | $ | 213,870 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Electric Revenue (in thousands) | | | Gross Margin (non-GAAP) (in thousands) | | | Quantities Sold (MWh) (b) | | Three Months Ended June 30, | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | Colorado Electric | $ | 57,897 | | $ | 55,412 | | | $ | 32,455 | | $ | 31,051 | | | 547,814 | | 485,346 | | South Dakota Electric (a) | 62,587 | | 69,246 | | | 49,973 | | 50,865 | | | 570,528 | | 757,640 | | Wyoming Electric | 42,716 | | 41,696 | | | 21,719 | | 22,310 | | | 482,626 | | 452,123 | | Total Electric Revenue, Gross Margin (non-GAAP), and Quantities Sold | $ | 163,200 | | $ | 166,354 | | | $ | 104,147 | | $ | 104,226 | | | 1,600,968 | | 1,695,109 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Results of Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Electric Revenue (in thousands) | | | Gross Margin (non-GAAP) (in thousands) | | | Quantities Sold (MWh) (b) | | Six Months Ended June 30, | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | Colorado Electric | $ | 116,455 | | $ | 115,259 | | | $ | 64,725 | | $ | 62,495 | | | 1,098,585 | | 977,028 | | South Dakota Electric (a) | 134,198 | | 148,287 | | | 105,597 | | 107,173 | | | 1,255,752 | | 1,602,641 | | Wyoming Electric | 86,686 | | 85,735 | | | 43,504 | | 44,202 | | | 999,554 | | 934,311 | | Total Electric Revenue, Gross Margin (non-GAAP), and Quantities Sold | $ | 337,339 | | $ | 349,281 | | | $ | 213,826 | | $ | 213,870 | | | 3,353,891 | | 3,513,980 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
________________ (a) Revenue and purchased power for the Gas Utilitiesthree and six months ended June 30, 2020 as well as associated quantities, for certain wholesale contracts have been presented on a net basis. Amounts for the Ninethree and six months ended June 30, 2019, were presented on a gross basis and, due to their immaterial nature, were not revised. This presentation change has no impact on Gross margin. (b) Includes company uses, line losses, and excess exchange production. | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Quantities Generated and Purchased (MWh) | 2020 | 2019 | 2020 | 2019 | | | | | | Coal-fired | 572,030 | | 471,840 | | 1,119,859 | | 1,057,135 | | Natural Gas and Oil | 86,798 | | 86,475 | | 254,542 | | 211,132 | | Wind | 63,628 | | 56,505 | | 137,178 | | 111,924 | | Total Generated | 722,456 | | 614,820 | | 1,511,579 | | 1,380,191 | | | | | | | Purchased (a) | 878,512 | | 1,080,289 | | 1,842,312 | | 2,133,789 | | Total Generated and Purchased | 1,600,968 | | 1,695,109 | | 3,353,891 | | 3,513,980 | |
| | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Quantities Generated and Purchased (MWh) | 2020 | 2019 | 2020 | 2019 | Generated: | | | | | Colorado Electric | 80,456 | | 91,886 | | 174,507 | | 192,416 | | South Dakota Electric | 442,566 | | 315,925 | | 915,532 | | 773,294 | | Wyoming Electric | 199,434 | | 207,009 | | 421,540 | | 414,481 | | Total Generated | 722,456 | | 614,820 | | 1,511,579 | | 1,380,191 | | Purchased: | | | | | Colorado Electric | 467,358 | | 393,460 | | 924,078 | | 784,612 | | South Dakota Electric (a) | 127,962 | | 441,715 | | 340,220 | | 829,347 | | Wyoming Electric | 283,192 | | 245,114 | | 578,014 | | 519,830 | | Total Purchased | 878,512 | | 1,080,289 | | 1,842,312 | | 2,133,789 | | | | | | | Total Generated and Purchased | 1,600,968 | | 1,695,109 | | 3,353,891 | | 3,513,980 | |
________________ (a) Purchased power quantities for the three and six months ended June 30, 2020, for certain wholesale contracts have been presented on a net basis. Amounts for the three and six months ended June 30, 2019, were presented on a gross basis and, due to their immaterial nature, were not revised. This presentation change has no impact on Gross margin.
| | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | | | Degree days | 2020 | | | 2019 | | | Actual | Variance from Normal | | Actual | Variance from Normal | Heating Degree Days: | | | | | | Colorado Electric | 518 | | (18) | % | | 603 | | (5) | % | South Dakota Electric | 1,127 | | 10 | % | | 1,279 | | 25 | % | Wyoming Electric | 1,149 | | (4) | % | | 1,359 | | 12 | % | Combined (a) | 853 | | (3) | % | | 986 | | 12 | % | | | | | | | Cooling Degree Days: | | | | | | Colorado Electric | 382 | | 83 | % | | 147 | | (30) | % | South Dakota Electric | 120 | | 21 | % | | 38 | | (62) | % | Wyoming Electric | 101 | | 102 | % | | 29 | | (42) | % | Combined (a) | 236 | | 69 | % | | 86 | | (38) | % |
| | | | | | | | | | | | | | | | | Six Months Ended June 30, | | | | | Degree days | 2020 | | | 2019 | | | Actual | Variance from Normal | | Actual | Variance from Normal | Heating Degree Days: | | | | | | Colorado Electric | 2,974 | | (9) | % | | 3,152 | | (4) | % | South Dakota Electric | 4,238 | | — | % | | 5,195 | | 23 | % | Wyoming Electric | 4,148 | | (1) | % | | 4,557 | | 3 | % | Combined (a) | 3,642 | | (4) | % | | 4,132 | | 8 | % | | | | | | | Cooling Degree Days: | | | | | | Colorado Electric | 382 | | 83 | % | | 147 | | (30) | % | South Dakota Electric | 120 | | 21 | % | | 38 | | (62) | % | Wyoming Electric | 101 | | 102 | % | | 29 | | (42) | % | Combined (a) | 236 | | 69 | % | | 86 | | (38) | % |
____________________ (a) Combined actuals are calculated based on the weighted average number of total customers by state.
| | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | Contracted Power Plant Fleet Availability (a) | 2020 | 2019 | 2020 | 2019 | Coal-fired plants (b) | 94.1 | % | 79.2 | % | 92.5 | % | 87.7 | % | Natural gas-fired plants and Other plants (c) | 78.3 | % | 89.3 | % | 80.9 | % | 90.0 | % | Wind | 98.1 | % | 94.5 | % | 98.6 | % | 95.6 | % | Total Availability | 85.0 | % | 86.4 | % | 86.0 | % | 89.7 | % | | | | | | Wind Capacity Factor | 39.0 | % | 34.8 | % | 42.3 | % | 38.7 | % |
____________________ (a) Availability and Wind Capacity Factor are calculated using a weighted average based on capacity of our generating fleet. (b) 2019 included planned outages at Neil Simpson II and Wygen III and unplanned outages at Wyodak Plant. (c) 2020 included an unplanned outage at Pueblo Airport Generation.
Gas Utilities | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2020 | 2019 | Variance | 2020 | 2019 | Variance | | (in thousands) | | | | | | Revenue: | | | | | | | Natural gas - regulated | $ | 148,432 | | $ | 149,942 | | $ | (1,510) | | $ | 484,329 | | $ | 533,817 | | $ | (49,488) | | Other - non-regulated services | 12,678 | | 15,527 | | (2,849) | | 37,554 | | 42,732 | | (5,178) | | Total revenue | 161,110 | | 165,469 | | (4,359) | | 521,883 | | 576,549 | | (54,666) | | | | | | | | | Cost of sales: | | | | | | | Natural gas - regulated | 42,910 | | 51,108 | | (8,198) | | 196,909 | | 252,158 | | (55,249) | | Other - non-regulated services | 1,712 | | 5,876 | | (4,164) | | 3,074 | | 12,105 | | (9,031) | | Total cost of sales | 44,622 | | 56,984 | | (12,362) | | 199,983 | | 264,263 | | (64,280) | | | | | | | | | Gross margin (non-GAAP) | 116,488 | | 108,485 | | 8,003 | | 321,900 | | 312,286 | | 9,614 | | | | | | | | | Operations and maintenance | 72,415 | | 77,131 | | (4,716) | | 149,709 | | 155,069 | | (5,360) | | Depreciation and amortization | 25,864 | | 22,797 | | 3,067 | | 51,085 | | 45,346 | | 5,739 | | Total operating expenses | 98,279 | | 99,928 | | (1,649) | | 200,794 | | 200,415 | | 379 | | | | | | | | | Adjusted operating income | $ | 18,209 | | $ | 8,557 | | $ | 9,652 | | $ | 121,106 | | $ | 111,871 | | $ | 9,235 | |
Three Months Ended SeptemberJune 30, 20192020 Compared to the NineThree Months Ended SeptemberJune 30, 2018:2019:
Gross margin for the ninethree months ended SeptemberJune 30, 20192020 increased as a result of: | | | | | | (in millions) | New rates | $ | 15.5 |
| Customer growth - distribution | 3.7 |
| Increased transport and transmission | 1.8 |
| Decreased mark-to-market on non-utility natural gas commodity contracts | (2.7 | ) | Excess deferred taxes returned to customers | (2.5 | ) | Weather | (0.6 | ) | Other | 2.0 |
| Total increase in Gross margin (non-GAAP) | $ | 17.2 |
|
| | | | | | | | | (in millions) | New rates | $ | 3.6 | | Weather | 2.8 | | Mark-to-market on non-utility natural gas commodity contracts | 1.6 | | Customer growth - distribution | 0.6 | | COVID-19 impacts (a) | (0.9) | | Decreased transport and transmission | (0.8) | | Other | 1.1 | | Total increase in Gross margin (non-GAAP) | $ | 8.0 | | | | | | | | | |
____________________ (a) The impacts to Gas Utilities gross margin from COVID-19 were primarily driven by reduced volumes from certain industrial and transport customers.
Operations and maintenance expense increaseddecreased primarily due to $7.2$1.5 million of higher outside services expenses, $4.1 million of higherlower employee costs and $1.3$1.5 million of higher property taxes duelower outside service expenses. COVID-19 impacts to a higher asset base drivenoperations and maintenance expense included $1.4 million of lower travel, training and outside services related expenses which were partially offset by $1.0 million of additional bad debt expense. Various other expenses comprised the remainder of the difference when compared to the same period in the prior and current year capital expenditures.year.
Depreciation and amortization increased primarily due to a higher asset base driven by prior year and current year capital expenditures.
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019:
Gross margin for the six months ended June 30, 2020 increased as a result of: | | | | | | | (in millions) | New rates | $ | 9.2 | | Prior year amortization of excess deferred income taxes | 2.7 | | Customer growth - distribution | 2.1 | | Mark-to-market on non-utility natural gas commodity contracts | 2.4 | | Weather | (7.6) | | COVID-19 impacts (a) | (0.9) | | Other | 1.7 | | Total increase in Gross margin (non-GAAP) | $ | 9.6 | |
____________________ (a) The impacts to Gas Utilities gross margin from COVID-19 were primarily driven by reduced volumes from certain industrial and transport customers.
Operations and maintenance expense decreased primarily due to $3.4 million of lower outside services expenses, $1.9 million of lower employee costs partially offset by $0.9 million of higher property taxes due to a higher asset base. COVID-19 impacts to operations and maintenance expense included $1.4 million of lower travel, training and outside services related expenses which were offset by $1.4 million of additional bad debt expense. Various other expenses comprised the remainder of the difference when compared to the same period in the prior year.
Depreciation and amortization increased primarily due to a higher asset base driven by prior year and current year capital expenditures.
Operating Statistics | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gas Revenue (in thousands) | | | | | Gross Margin (non-GAAP) (in thousands) | | | | | Gas Utilities Quantities Sold & Transported (Dth) | | | | | | Three Months Ended June 30, | | | | | Three Months Ended June 30, | | | | | Three Months Ended June 30, | | | | | | 2020 | 2019 | | | | 2020 | 2019 | | | | 2020 | 2019 | | | | | | | | | | | | | | | | | | | Residential | | $ | 83,240 | | $ | 85,093 | | | | | $ | 56,368 | | $ | 52,670 | | | | | 8,501,835 | | 7,919,158 | | | | Commercial | | 27,441 | | 30,984 | | | | | 15,336 | | 14,926 | | | | | 3,965,529 | | 4,194,879 | | | | Industrial | | 6,059 | | 3,980 | | | | | 2,140 | | 1,320 | | | | | 2,036,553 | | 997,942 | | | | Other | | 828 | | 887 | | | | | 827 | | 887 | | | | | — | | — | | | | Total Distribution | | 117,568 | | 120,944 | | | | | 74,671 | | 69,803 | | | | | 14,503,917 | | 13,111,979 | | | | | | | | | | | | | | | | | | | | Transportation and Transmission | | 30,864 | | 28,998 | | | | | 30,851 | | 29,031 | | | | | 30,243,501 | | 32,767,310 | | | | | | | | | | | | | | | | | | | | Total Regulated | | 148,432 | | 149,942 | | | | | 105,522 | | 98,834 | | | | | 44,747,418 | | 45,879,289 | | | | | | | | | | | | | | | | | | | | Non-regulated Services | | 12,678 | | 15,527 | | | | | 10,966 | | 9,651 | | | | | | | | | | | | | | | | | | | | | | | | | Total Gas Revenue & Gross Margin (non-GAAP) | | $ | 161,110 | | $ | 165,469 | | | | | $ | 116,488 | | $ | 108,485 | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Gas Revenue (in thousands) | | Gross Margin (non-GAAP) (in thousands) | | Gas Utilities Quantities Sold & Transported (Dth) | | | Three Months Ended September 30, | | Three Months Ended September 30, | | Three Months Ended September 30, | | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | | | | | | | | | | | Residential | | $ | 57,244 |
| $ | 58,221 |
| | $ | 43,441 |
| $ | 42,598 |
| | 3,599,549 |
| 3,708,196 |
| Commercial | | 19,629 |
| 19,639 |
| | 11,589 |
| 10,880 |
| | 2,298,919 |
| 2,278,304 |
| Industrial | | 8,770 |
| 8,258 |
| | 2,493 |
| 2,028 |
| | 2,960,930 |
| 2,304,098 |
| Other (a) | | 2,499 |
| 487 |
| | 2,499 |
| 487 |
| | — |
| — |
| Total Distribution | | 88,142 |
| 86,605 |
| | 60,022 |
| 55,993 |
| | 8,859,398 |
| 8,290,598 |
| | | | | | | | | | | Transportation and Transmission | | 29,407 |
| 30,465 |
| | 29,373 |
| 30,465 |
| | 31,538,815 |
| 29,808,567 |
| | | | | | | | | | | Total Regulated | | 117,549 |
| 117,070 |
| | 89,395 |
| 86,458 |
| | 40,398,213 |
| 38,099,165 |
| | | | | | | | | | | Non-regulated Services | | 13,195 |
| 14,606 |
| | 8,325 |
| 9,092 |
| | | | | | | | | | | | | | Total Gas Revenue & Gross Margin (non-GAAP) | | $ | 130,744 |
| $ | 131,676 |
| | $ | 97,720 |
| $ | 95,550 |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gas Revenue (in thousands) | | | Gross Margin (non-GAAP) (in thousands) | | | Gas Utilities Quantities Sold & Transported (Dth) | | | | Six Months Ended June 30, | | | Six Months Ended June 30, | | | Six Months Ended June 30, | | | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | | | | | | | | | | Residential | | $ | 290,471 | | $ | 326,222 | | | $ | 159,489 | | $ | 157,727 | | | 36,732,630 | | 40,757,176 | | Commercial | | 107,677 | | 127,123 | | | 48,855 | | 50,084 | | | 16,800,332 | | 19,185,727 | | Industrial | | 11,259 | | 9,994 | | | 4,183 | | 3,337 | | | 3,097,605 | | 2,180,469 | | Other | | (415) | | (3,467) | | | (415) | | (3,467) | | | — | | — | | Total Distribution | | 408,992 | | 459,872 | | | 212,112 | | 207,681 | | | 56,630,567 | | 62,123,372 | | | | | | | | | | | | Transportation and Transmission | | 75,337 | | 73,945 | | | 75,308 | | 73,978 | | | 75,299,008 | | 79,083,470 | | | | | | | | | | | | Total Regulated | | 484,329 | | 533,817 | | | 287,420 | | 281,659 | | | 131,929,575 | | 141,206,842 | | | | | | | | | | | | Non-regulated Services | | 37,554 | | 42,732 | | | 34,480 | | 30,627 | | | | | | | | | | | | | | | Total Gas Revenue & Gross Margin (non-GAAP) | | $ | 521,883 | | $ | 576,549 | | | $ | 321,900 | | $ | 312,286 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gas Revenue (in thousands) | | Gross Margin (non-GAAP) (in thousands) | | Gas Utilities Quantities Sold & Transported (Dth) | | | Nine Months Ended September 30, | | Nine Months Ended September 30, | | Nine Months Ended September 30, | | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | | | | | | | | | | | Residential | | $ | 383,466 |
| $ | 383,972 |
| | $ | 201,168 |
| $ | 192,072 |
| | 44,356,725 |
| 42,642,021 |
| Commercial | | 146,752 |
| 148,675 |
| | 61,673 |
| 57,890 |
| | 21,484,646 |
| 20,842,996 |
| Industrial | | 18,764 |
| 20,805 |
| | 5,830 |
| 5,341 |
| | 5,141,399 |
| 5,235,417 |
| Other (a) | | (968 | ) | (6,789 | ) | | (968 | ) | (6,789 | ) | | — |
| — |
| Total Distribution | | 548,014 |
| 546,663 |
| | 267,703 |
| 248,514 |
| | 70,982,770 |
| 68,720,434 |
| | | | | | | | | | | Transportation and Transmission | | 103,352 |
| 101,887 |
| | 103,351 |
| 101,887 |
| | 110,622,285 |
| 107,388,321 |
| | | | | | | | | | | Total Regulated | | 651,366 |
| 648,550 |
| | 371,054 |
| 350,401 |
| | 181,605,055 |
| 176,108,755 |
| | | | | | | | | | | Non-regulated Services | | 55,927 |
| 58,090 |
| | 38,952 |
| 42,374 |
| | | | | | | | | | | | | | Total Gas Revenue & Gross Margin | | $ | 707,293 |
| $ | 706,640 |
| | $ | 410,006 |
| $ | 392,775 |
| | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gas Revenue (in thousands) | | | | | Gross Margin (non-GAAP) (in thousands) | | | | | Gas Utilities Quantities Sold & Transported (Dth) | | | | | | Three Months Ended June 30, | | | | | Three Months Ended June 30, | | | | | Three Months Ended June 30, | | | | | | 2020 | 2019 | | | | 2020 | 2019 | | | | 2020 | 2019 | | | | | | | | | | | | | | | | | | | Arkansas Gas | | $ | 28,733 | | $ | 26,236 | | | | | $ | 21,906 | | $ | 18,617 | | | | | 4,906,236 | | 4,542,917 | | | | Colorado Gas | | 28,613 | | 36,713 | | | | | 18,807 | | 19,755 | | | | | 5,046,844 | | 6,067,353 | | | | Iowa Gas | | 21,407 | | 23,714 | | | | | 14,355 | | 14,588 | | | | | 5,521,119 | | 7,484,272 | | | | Kansas Gas | | 18,486 | | 17,379 | | | | | 12,460 | | 11,957 | | | | | 6,722,914 | | 6,290,716 | | | | Nebraska Gas | | 40,466 | | 39,315 | | | | | 30,719 | | 27,709 | | | | | 13,822,478 | | 14,816,996 | | | | Wyoming Gas | | 23,405 | | 22,112 | | | | | 18,241 | | 15,859 | | | | | 8,727,827 | | 6,677,035 | | | | Total Gas Revenue & Gross Margin (non-GAAP) | | $ | 161,110 | | $ | 165,469 | | | | | $ | 116,488 | | $ | 108,485 | | | | | 44,747,418 | | 45,879,289 | | | |
| | (a) | Other revenue reflects the impact of revenue reserved in accordance with the TCJA.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gas Revenue (in thousands) | | | Gross Margin (non-GAAP) (in thousands) | | | Gas Utilities Quantities Sold & Transported (Dth) | | | | Six Months Ended June 30, | | | Six Months Ended June 30, | | | Six Months Ended June 30, | | | | 2020 | 2019 | | 2020 | 2019 | | 2020 | 2019 | | | | | | | | | | | Arkansas Gas | | $ | 103,578 | | $ | 105,627 | | | $ | 70,761 | | $ | 62,899 | | | 15,869,184 | | 16,967,113 | | Colorado Gas | | 101,219 | | 113,184 | | | 56,813 | | 57,355 | | | 18,143,249 | | 19,244,278 | | Iowa Gas | | 76,231 | | 89,355 | | | 35,683 | | 37,638 | | | 19,801,392 | | 23,147,959 | | Kansas Gas | | 51,980 | | 58,596 | | | 31,063 | | 30,076 | | | 16,637,772 | | 16,733,986 | | Nebraska Gas | | 124,132 | | 148,112 | | | 82,385 | | 83,782 | | | 40,331,514 | | 43,816,014 | | Wyoming Gas | | 64,743 | | 61,675 | | | 45,195 | | 40,536 | | | 21,146,464 | | 21,297,492 | | Total Gas Revenue & Gross Margin (non-GAAP) | | $ | 521,883 | | $ | 576,549 | | | $ | 321,900 | | $ | 312,286 | | | 131,929,575 | | 141,206,842 | |
| | | | | | | | | | | | | | | | | | | | | | | Revenue (in thousands) | | Gross Margin (non-GAAP) (in thousands) | | Gas Utilities Quantities Sold & Transported (Dth)
| | | Three Months Ended September 30, | | Three Months Ended September 30, | | Three Months Ended September 30, | | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | | | | | | | | | | | Arkansas | | $ | 21,387 |
| $ | 18,743 |
| | $ | 16,249 |
| $ | 13,415 |
| | 4,094,454 |
| 4,022,089 |
| Colorado | | 22,632 |
| 22,362 |
| | 15,667 |
| 15,210 |
| | 3,806,360 |
| 2,893,029 |
| Iowa | | 16,381 |
| 16,982 |
| | 13,135 |
| 12,556 |
| | 5,686,772 |
| 5,595,205 |
| Kansas | | 19,013 |
| 18,497 |
| | 12,309 |
| 11,129 |
| | 7,602,758 |
| 6,164,821 |
| Nebraska | | 35,715 |
| 40,553 |
| | 28,046 |
| 31,264 |
| | 13,999,302 |
| 13,831,306 |
| Wyoming | | 15,616 |
| 14,539 |
| | 12,314 |
| 11,976 |
| | 5,208,567 |
| 5,592,715 |
| Total Gas Revenue & Gross Margin (non-GAAP) | | $ | 130,744 |
| $ | 131,676 |
| | $ | 97,720 |
| $ | 95,550 |
| | 40,398,213 |
| 38,099,165 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenue (in thousands) | | Gross Margin (non-GAAP) (in thousands) | | Gas Utilities Quantities Sold & Transported (Dth)
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, | | Nine Months Ended September 30, | | | 2019 | 2018 | | 2019 | 2018 | | 2019 | 2018 | | | | | | | | | | | Arkansas | | $ | 127,014 |
| $ | 116,226 |
| | $ | 79,148 |
| $ | 65,803 |
| | 21,061,567 |
| 21,183,322 |
| Colorado | | 135,816 |
| 125,898 |
| | 73,022 |
| 66,917 |
| | 23,050,638 |
| 19,301,834 |
| Iowa | | 105,736 |
| 111,968 |
| | 50,773 |
| 49,630 |
| | 28,834,731 |
| 28,527,522 |
| Kansas | | 77,609 |
| 81,880 |
| | 42,385 |
| 40,896 |
| | 24,336,744 |
| 23,391,905 |
| Nebraska | | 183,827 |
| 196,307 |
| | 111,828 |
| 117,925 |
| | 57,815,316 |
| 58,223,856 |
| Wyoming | | 77,291 |
| 74,361 |
| | 52,850 |
| 51,604 |
| | 26,506,059 |
| 25,480,316 |
| Total Gas Revenue & Gross Margin (non-GAAP) | | $ | 707,293 |
| $ | 706,640 |
| | $ | 410,006 |
| $ | 392,775 |
| | 181,605,055 |
| 176,108,755 |
|
Our Gas Utilities are highly seasonal, and sales volumes vary considerably with weather and seasonal heating and industrial loads. Approximately 70% of our Gas Utilities’ revenue and margins are expected in the first and fourth quarters of each year. Therefore, revenue for, and certain expenses of, these operations fluctuate significantly among quarters. Depending upon the geographic location in which our Gas Utilities operate, the winter heating season begins around November 1 and ends around March 31.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | | | | | | | | 2020 | | | | | | 2019 | | | Heating Degree Days | Actual | | Variance from Normal | | | | Actual | | Variance from Normal | Arkansas Gas (a) | 353 | | 7% | | | | 246 | | (25)% | Colorado Gas | 809 | | (15)% | | | | 1,017 | | 6% | Iowa Gas | 783 | | 14% | | | | 738 | | 8% | Kansas Gas (a) | 477 | | 7% | | | | 425 | | (5)% | Nebraska Gas | 692 | | 9% | | | | 664 | | 5% | Wyoming Gas | 1,216 | | —% | | | | 1,397 | | 15% | Combined (b) | 688 | | 2% | | | | 795 | | 5% |
| | | | | | | | | | | | Three Months Ended September 30, | | 2019 | | | | 2018 | Heating Degree Days | Actual | | Variance from Normal | | Actual Variance to Prior Year | | Actual | | Variance from Normal | Arkansas (a) | — | | (100)% | | (100)% | | 12 | | (72)% | Colorado | 68 | | (68)% | | (38)% | | 109 | | (49)% | Iowa | 43 | | (69)% | | (66)% | | 128 | | (7)% | Kansas (a) | — | | (101)% | | (100)% | | 54 | | (2)% | Nebraska | 22 | | (80)% | | (78)% | | 101 | | (7)% | Wyoming | 183 | | (37)% | | (22)% | | 236 | | (23)% | Combined (b) | 53 | | (62)% | | (51)% | | 109 | | (27)% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Six Months Ended June 30, | | | | | | | | | | 2020 | | | | | | 2019 | | | Heating Degree Days: | Actual | | Variance from Normal | | | | Actual | | Variance from Normal | Arkansas Gas (a) | 2,012 | | (17)% | | | | 2,347 | | (4)% | Colorado Gas | 3,638 | | (6)% | | | | 4,047 | | 4% | Iowa Gas | 3,964 | | (2)% | | | | 4,568 | | 13% | Kansas Gas (a) | 2,781 | | (4)% | | | | 3,204 | | 10% | Nebraska Gas | 3,527 | | (4)% | | | | 4,147 | | 13% | Wyoming Gas | 4,433 | | 1% | | | | 4,910 | | 11% | Combined Gas (b) | 3,606 | | (4)% | | | | 4,244 | | 10% |
___________ (a) Arkansas and Kansas have weather normalization mechanisms that mitigate the weather impact on gross margins. (b) The combined heating degree days are calculated based on a weighted average of total customers by state excluding Kansas due to its weather normalization mechanism. Arkansas is excluded based on the weather normalization mechanism in effect from November through April.
| | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, | | 2019 | | | | 2018 | Heating Degree Days: | Actual | | Variance from Normal | | Actual Variance to Prior Year | | Actual | | Variance from Normal | Arkansas (a) | 2,347 | | (5)% | | (5)% | | 2,460 | | (1)% | Colorado | 4,115 | | —% | | 16% | | 3,548 | | (14)% | Iowa | 4,611 | | 10% | | 3% | | 4,460 | | 6% | Kansas (a) | 3,204 | | 8% | | 6% | | 3,032 | | 2% | Nebraska | 4,169 | | 10% | | 4% | | 4,016 | | 6% | Wyoming | 5,093 | | 9% | | 12% | | 4,552 | | (4)% | Combined (b) | 4,297 | | 7% | | 7% | | 4,008 | | —% |
__________
| | (a) | Arkansas and Kansas have weather normalization mechanisms that mitigate the weather impact on gross margins. |
| | (b) | The combined heating degree days are calculated based on a weighted average of total customers by state excluding Kansas due to its weather normalization mechanism. Arkansas is excluded based on the weather normalization mechanism in effect from November through April. |
Regulatory Matters
For more information on recent regulatory activity and enacted regulatory provisions with respect to the states in which our Utilities operate, see Note 5 of the Notes to Condensed Consolidated Financial Statements and Part I, Items 1 and 2 and Part II, Item 8 of our 20182019 Annual Report on Form 10-K filed with the SEC.
Power Generation | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2020 | 2019 | Variance | 2020 | 2019 | Variance | | (in thousands) | | | | | | Revenue | $ | 26,122 | | $ | 24,708 | | $ | 1,414 | | $ | 52,088 | | $ | 49,953 | | $ | 2,135 | | | | | | | | | Fuel expense | 2,087 | | 2,024 | | 63 | | 4,372 | | 4,650 | | (278) | | Operations and maintenance | 7,350 | | 7,809 | | (459) | | 14,347 | | 13,871 | | 476 | | Depreciation and amortization | 5,283 | | 4,719 | | 564 | | 10,618 | | 9,309 | | 1,309 | | Total operating expense | 14,720 | | 14,552 | | 168 | | 29,337 | | 27,830 | | 1,507 | | | | | | | | | Adjusted operating income | $ | 11,402 | | $ | 10,156 | | $ | 1,246 | | $ | 22,751 | | $ | 22,123 | | $ | 628 | |
| | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | Nine Months Ended September 30, | | 2019 | 2018 | Variance | 2019 | 2018 | Variance | | (in thousands) | Revenue | $ | 25,811 |
| $ | 24,491 |
| $ | 1,320 |
| $ | 75,764 |
| $ | 71,173 |
| $ | 4,591 |
| | | | | | | | Operations and maintenance | 9,229 |
| 7,434 |
| 1,795 |
| 27,750 |
| 25,520 |
| 2,230 |
| Depreciation and amortization | 4,760 |
| 3,978 |
| 782 |
| 14,069 |
| 11,922 |
| 2,147 |
| Total operating expense | 13,989 |
| 11,412 |
| 2,577 |
| 41,819 |
| 37,442 |
| 4,377 |
| | | | | | | | Adjusted operating income (a) | $ | 11,822 |
| $ | 13,079 |
| $ | (1,257 | ) | $ | 33,945 |
| $ | 33,731 |
| $ | 214 |
|
________________
| | (a) | Due to the changes in our segment disclosures discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements, Power Generation Adjusted operating income was revised for the three and nine months ended September 30, 2018, which resulted in a decrease of $(1.4) million and $(4.4) million, respectively. |
Results of Operations for Power Generation for the Three and Nine Months Ended SeptemberJune 30, 20192020 Compared to the Three and Nine Months Ended SeptemberJune 30, 2018:2019:
Revenue increased in the current year driven primarily by increased MWh sold from new wind assets and additional Black Hills Colorado IPP fired-engine hours. Operating expenses increased primarily due to increasedhigher depreciation from new wind MWh soldassets and higher PPA prices. OperatingCOVID-19 impacts of $0.4 million of expenses related to the sequestration of essential employees partially offset by lower maintenance costs due to a prior year planned outage at Pueblo Airport Generation.
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019:
Revenue increased in the current year driven by an increase in MWh sold from new wind assets and additional Black Hills Colorado IPP fired-engine hours. Operating expenses increased primarily due to higher depreciation and property taxes from new wind assets. COVID-19 impacts to operations and maintenance expense included $0.4 million of expenses related to the sequestration of essential employees.
The following table summarizes MWh for our Power Generation segment: | | | | | | | | | | | | | | | | Three Months Ended June 30, | | Six Months Ended June 30, | | | 2020 | 2019 | 2020 | 2019 | Quantities Sold, Generated and Purchased (MWh) (a) | | | | | Sold | | | | | Black Hills Colorado IPP | 263,701 | | 210,316 | | 528,926 | | 416,289 | | Black Hills Wyoming (b) | 156,866 | | 149,713 | | 313,218 | | 313,762 | | Black Hills Electric Generation | 92,629 | | 47,796 | | 189,908 | | 81,549 | | Total Sold | 513,196 | | 407,825 | | 1,032,052 | | 811,600 | | | | | | | Generated | | | | | Black Hills Colorado IPP | 263,701 | | 210,316 | | 528,926 | | 416,289 | | Black Hills Wyoming (b) | 142,747 | | 132,189 | | 269,232 | | 264,782 | | Black Hills Electric Generation | 92,629 | | 47,796 | | 189,908 | | 81,549 | | Total Generated | 499,077 | | 390,301 | | 988,066 | | 762,620 | | | | | | | Purchased | | | | | | | | | | Black Hills Wyoming (b) | 14,160 | | 13,761 | | 44,093 | | 39,340 | | | | | | | Total Purchased | 14,160 | | 13,761 | | 44,093 | | 39,340 | |
___________ (a) Company uses and losses are not included in the quantities sold, generated, and purchased. (b) Under the 20-year economy energy PPA with the City of Gillette effective September 2014, Black Hills Wyoming purchases energy on behalf of the City of Gillette and sells that energy to the City of Gillette. MWh sold may not equal MWh generated and purchased due to a dispatch agreement Black Hills Wyoming has with South Dakota Electric to cover energy imbalances. | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | Contracted Power Plant Fleet Availability (a) | 2020 | 2019 | | 2020 | 2019 | | | | | | | Coal-fired plant | 98.2 | % | 95.8 | % | | 93.7 | % | 95.3 | % | Natural gas-fired plants (b) | 99.7 | % | 88.7 | % | | 99.6 | % | 92.1 | % | Wind | 93.1 | % | 94.1 | % | | 94.0 | % | 92.3 | % | Total Availability | 97.0 | % | 91.5 | % | | 96.6 | % | 92.8 | % | | | | | | | Wind Capacity Factor | 27.5 | % | 23.1 | % | | 28.9 | % | 25.7 | % |
___________ (a) Availability and Wind Capacity Factor are calculated using a weighted average based on capacity of our generating fleet. (b) 2019 included a planned outage at Pueblo Airport Generation.
| | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | 2018 | | 2019 | 2018 | Quantities Sold, Generated and Purchased (MWh) (a) | | | | | | Sold | | | | | | Black Hills Colorado IPP (b) | 275,867 |
| 304,102 |
| | 692,156 |
| 745,365 |
| Black Hills Wyoming (c) | 162,668 |
| 160,011 |
| | 476,430 |
| 470,072 |
| Black Hills Electric Generation (d) | 30,912 |
| — |
| | 112,461 |
| — |
| Total Sold | 469,447 |
| 464,113 |
| | 1,281,047 |
| 1,215,437 |
| | | | | | | Generated | | | | | | Black Hills Colorado IPP (b) | 275,867 |
| 304,102 |
| | 692,156 |
| 745,365 |
| Black Hills Wyoming (c) | 142,219 |
| 144,476 |
| | 407,001 |
| 407,324 |
| Black Hills Electric Generation (d) | 30,912 |
| — |
| | 112,461 |
| — |
| Total Generated | 448,998 |
| 448,578 |
| | 1,211,618 |
| 1,152,689 |
| | | | | | | Purchased | | | | | | Black Hills Wyoming (c) | 16,865 |
| 16,685 |
| | 56,205 |
| 65,724 |
| Total Purchased | 16,865 |
| 16,685 |
| | 56,205 |
| 65,724 |
|
____________
| | (a) | Company uses and losses are not included in the quantities sold, generated, and purchased. |
| | (b) | Decrease from the prior year is a result of the impact of Colorado Electric’s wind generation replacing natural-gas generation. |
| | (c) | Under the 20-year economy energy PPA with the City of Gillette effective September 2014, Black Hills Wyoming purchases energy on behalf of the City of Gillette and sells that energy to the City of Gillette. MWh sold may not equal MWh generated and purchased due to a dispatch agreement Black Hills Wyoming has with South Dakota Electric to cover energy imbalances. |
| | (d) | Increase from prior year is driven by Black Hills Electric Generation’s acquisition of new wind assets. |
The following table provides certain operating statistics for our plants within the Power Generation segment:
| | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | 2018 | | 2019 | 2018 | Contracted power plant fleet availability: | | | | | | Coal-fired plant | 98.0 | % | 97.9 | % | | 95.2 | % | 93.9 | % | Natural gas-fired plants (a) | 97.6 | % | 99.3 | % | | 98.4 | % | 99.4 | % | Wind (b) | 81.9 | % | N/A |
| | 93.4 | % | N/A |
| Total availability | 93.6 | % | 98.9 | % | | 96.5 | % | 98.0 | % | | | | | | | Wind capacity factor (b) | 15.0 | % | N/A |
| | 22.1 | % | N/A |
|
____________
| | (a) | 2019 included a planned outage at Pueblo Airport Generating Station. |
| | (b) | Change from the prior year is driven by Black Hills Electric Generation’s acquisition of new wind assets. |
Mining | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2020 | 2019 | Variance | 2020 | 2019 | Variance | | (in thousands) | | | | | | Revenue | $ | 15,416 | | $ | 13,045 | | $ | 2,371 | | $ | 30,621 | | $ | 29,474 | | $ | 1,147 | | | | | | | | | Operations and maintenance | 9,732 | | 9,175 | | 557 | | 19,558 | | 19,088 | | 470 | | Depreciation, depletion and amortization | 2,326 | | 2,230 | | 96 | | 4,576 | | 4,409 | | 167 | | Total operating expenses | 12,058 | | 11,405 | | 653 | | 24,134 | | 23,497 | | 637 | | | | | | | | | Adjusted operating income | $ | 3,358 | | $ | 1,640 | | $ | 1,718 | | $ | 6,487 | | $ | 5,977 | | $ | 510 | |
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2019 | 2018 | Variance | 2019 | 2018 | Variance |
| (in thousands) | Revenue | $ | 15,552 |
| $ | 17,301 |
| $ | (1,749 | ) | $ | 45,026 |
| $ | 51,328 |
| $ | (6,302 | ) | | | | | | | | Operations and maintenance | 9,900 |
| 10,761 |
| (861 | ) | 28,988 |
| 32,807 |
| (3,819 | ) | Depreciation, depletion and amortization | 2,278 |
| 1,989 |
| 289 |
| 6,687 |
| 5,874 |
| 813 |
| Total operating expenses | 12,178 |
| 12,750 |
| (572 | ) | 35,675 |
| 38,681 |
| (3,006 | ) | | | | | | | | Adjusted operating income | $ | 3,374 |
| $ | 4,551 |
| $ | (1,177 | ) | $ | 9,351 |
| $ | 12,647 |
| $ | (3,296 | ) |
Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019:
Current year revenue increased due to 29% higher tons sold driven primarily by prior year planned and unplanned facility outages partially offset by a 7% decrease in price per ton sold driven by contract price adjustments based on actual mining costs.
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019:
Current year revenue increased due to 7% higher tons sold driven primarily by prior year planned and unplanned facility outages partially offset by a 3% decrease in price per ton sold driven by contract price adjustments based on actual mining costs.
The following table provides certain operating statistics for our Mining segment (in thousands, except for Revenue per ton): | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | 2020 | 2019 | | 2020 | 2019 | Tons of coal sold | 972 | | 754 | | | 1,868 | | 1,751 | | Cubic yards of overburden moved | 2,211 | | 2,045 | | | 4,478 | | 4,039 | | | | | | | | Revenue per ton | $ | 15.27 | | $ | 16.48 | | | $ | 15.66 | | $ | 16.14 | |
Corporate and Other | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2020 | 2019 | Variance | 2020 | 2019 | Variance | | (in thousands) | | | | | | Adjusted operating income (loss) | $ | (29) | | $ | 102 | | $ | (131) | | $ | 131 | | $ | (405) | | $ | 536 | |
Consolidated Interest Expense, Impairment of Investment, Other Income (Expense) and Income Tax (Expense) | | | | | | | | | | | | | | | | | | | | | | Three Months Ended June 30, | | | Six Months Ended June 30, | | | | 2020 | 2019 | Variance | 2020 | 2019 | Variance | | (in thousands) | | | (in thousands) | | | Interest expense, net | $ | (35,545) | | $ | (34,264) | | $ | (1,281) | | $ | (70,998) | | $ | (68,981) | | $ | (2,017) | | Impairment of investment | — | | — | | $ | — | | (6,859) | | — | | $ | (6,859) | | Other income (expense), net | (1,863) | | 263 | | $ | (2,126) | | 490 | | (526) | | $ | 1,016 | | Income tax (expense) | (4,831) | | (2,307) | | $ | (2,524) | | (20,833) | | (19,570) | | $ | (1,263) | |
| | | | | | | | | | | | | | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | 2019 | 2018 | | 2019 | 2018 | Tons of coal sold | 969 |
| 1,078 |
| | 2,720 |
| 3,119 |
| Cubic yards of overburden moved | 2,341 |
| 2,361 |
| | 6,380 |
| 6,763 |
| | | | | | | Revenue per ton | $ | 15.47 |
| $ | 15.54 |
| | $ | 15.90 |
| $ | 15.92 |
|
Results of Operations for Mining for the Three Months Ended SeptemberJune 30, 20192020 Compared to the Three Months Ended SeptemberJune 30, 2018:2019.
Interest expense, net
Current year revenue decreased due to 10% fewer tons sold driven primarily by unplanned generation facility outages. Operating expenses decreased primarily due to lower royalties and production taxes on decreased revenues.
Results of Operations for MiningThe increase in Interest expense, net for the Nine Months Ended Septemberthree months ended June 30, 2019 Compared2020, compared to the Nine Months Ended September 30, 2018:same period in the prior year, was driven by higher debt balances partially offset by lower interest rates.
Other Income (Expense)
Current year revenue decreased due to 13% fewer tons sold driven primarily by planned and unplanned generation facility outages. Operating expenses decreased primarily due to lower royalties and production taxes on decreased revenues and lower fuel, labor and major maintenance expenses.
Corporate and Other
| | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, | Nine Months Ended September 30, | | 2019 | 2018 | Variance | 2019 | 2018 | Variance | | (in thousands) | Adjusted operating income (loss) (a) | $ | (34 | ) | $ | (178 | ) | $ | 144 |
| $ | (439 | ) | $ | (2,709 | ) | $ | 2,270 |
|
________________
| | (a) | Due to the changes in our segment disclosures as discussed in Note 3 of the Notes to Condensed Consolidated Financial Statements, Corporate and Other Adjusted operating income (loss) was revised for the three and nine months ended September 30, 2018, which resulted in a decrease of $(0.2) million and $(0.4) million, respectively. |
Results of Operations for Corporate and Other for the Nine Months Ended September 30, 2019 Compared to the Three and Nine Months Ended September 30, 2018:
The variance in Adjusted operatingOther income (loss)(expense), net for the three months ended June 30, 2020, compared to the same period in the prior year, was primarily due to prior year expenses related to the oilincreased costs for our non-qualified benefit plans which were driven by market performance and gas segment that were not reclassified to discontinued operations.increased non-service pension costs resulting from a change in accounting principle for our defined benefit pension plan effective January 1, 2020.
Income Tax (Expense)
Consolidated Interest expense, Impairment of investment, Other income (expense) and Income tax benefit (expense) for the Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018.
Impairment of Investment
For the three months ended SeptemberJune 30, 2019,2020, the effective tax rate was 16.4% compared to 11.5% for the same period in 2019. The higher effective tax rate is primarily due to a prior year discrete tax benefit related to repair costs and certain indirect costs.
Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019.
Interest expense, net
The increase in Interest expense, net for the six months ended June 30, 2020, compared to the same period in the prior year was driven by higher debt balances partially offset by lower interest rates.
Impairment of Investment
For the six months ended June 30, 2020, we recorded a pre-tax non-cash write-down of $20$6.9 million in our investment in equity securities of a privately held oil and gas company. The impairment was triggered by a deteriorationcontinued adverse changes in earnings performance offuture natural gas prices and liquidity concerns at the privately held oil and gas companycompany. The remaining book value of our investment is $1.5 million, and an adverse changethis is our only remaining investment in future naturaloil and gas prices.exploration and production activities. See Note 2115 of the Notes to Condensed Consolidated Financial Statements for additional details.
Other Income (Expense)
The variance in Other income (expense), net for the six months ended June 30, 2020, compared to the same period in the prior year, was primarily due to reduced costs for our non-qualified benefit plans which are driven by market performance partially offset by increased non-service pension costs resulting from a change in accounting principle for our defined benefit pension plan effective January 1, 2020. Income Tax Benefit (Expense)
Income tax benefit (expense) forFor the threesix months ended SeptemberJune 30, 20192020, the effective tax rate was $(2.5) million14.6% compared to $(7.5) million13.5% for the same period in 2018. The decrease in tax expense was primarily due to a prior year $(5.3) million income tax expense associated with changes in the previously estimated impact of tax reform on deferred income taxes.
For the three months ended September 30, 2019 the effective tax rate was 14.0% compared to 7.6% excluding the tax reform adjustments, for the same period in 2018.2019. The higher effective tax rate is primarily due to a prior year state tax benefit.
Consolidated Interest expense, Impairment of investment, Other income (expense) and Incomediscrete tax benefit (expense) for the Nine Months Ended September 30, 2019 Comparedrelated to repair costs and certain indirect costs and a current year discrete tax adjustment related to the Nine Months Ended September 30, 2018.
Impairmentimpairment of Investment
For the nine months ended September 30, 2019, we recorded a non-cash write-down of $20 million in our investment in equity securities of a privately held oil and gas company. The impairment was triggered by a deterioration in earnings performance of the privately held oil and gas company and an adverse change in future natural gas prices. See Note 21 of the Notes to Condensed Consolidated Financial Statements for additional details.
Income Tax Benefit (Expense)
Income tax benefit (expense) for the nine months ended September 30, 2019 was $(22) million compared to $12 million reported for the same period in 2018. The increase in tax expense was primarily due to a prior year $49 million tax benefit resulting from legal entity restructuring partially offset by a prior year $(7.5) million incomeincreased tax expense associated with changes in the previously estimated impact of tax reform on deferred income taxes.
For the nine months ended September 30, 2019 the effective tax rate was 13.6% compared to 17.1% excluding the legal entity restructuring and tax reform adjustments, for the same period in 2018. The lower effective tax rate is primarily due to $5.0 million ofbenefits from forecasted federal production tax credits and related state investment tax credits associated with new wind assets, a $1.0 million tax benefit for deferred tax amortization related to tax reform.assets.
Critical Accounting Policies Involving Significant Accounting Estimates
There have been no material changes in our critical accounting estimates from those reported in our 20182019 Annual Report on Form 10-K filed with the SEC.SEC except for Pension and Other Postretirement Benefits provided below. We continue to closely monitor the rapidly evolving and uncertain impact of COVID-19 on our critical accounting estimates including, but not limited to, collectibility of customer receivables, recoverability of regulatory assets, impairment risk of goodwill and long-lived assets, valuation of pension assets and liabilities, and contingent liabilities. For more information on our critical accounting estimates, see Part II, Item 7 of our 20182019 Annual Report on Form 10-K.
Pension and Other Postretirement Benefits
As described in Note 18 of the Notes to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K filed with the SEC, we have one defined benefit pension plan, one defined post-retirement healthcare plan and several non-qualified retirement plans. A Master Trust holds the assets for the pension plan. A trust for the funded portion of the post-retirement healthcare plan has also been established.
Accounting for pension and other postretirement benefit obligations involves numerous assumptions, the most significant of which relate to the discount rates, healthcare cost trend rates, expected return on plan assets, compensation increases, retirement rates and mortality rates. The determination of our obligation and expenses for pension and other postretirement benefits is dependent on the assumptions determined by management and used by actuaries in calculating the amounts. Although we believe our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension and other postretirement obligations and our future expense.
Effective January 1, 2020, the Company changed its method of accounting for net periodic benefit cost. Prior to the change, the Company used a calculated value for determining market-related value of plan assets which amortized the effects of gains and losses over a five-year period. Effective with the accounting change, the Company will use a calculated value for the return-seeking assets (equities) in the portfolio and fair value for the liability-hedging assets (fixed income). The Company considers the fair value method for determining market-related value of liability-hedging assets to be a preferable method of accounting because asset-related gains and losses are subject to amortization into pension cost immediately. Additionally, the fair value for liability-hedging assets allows for the impact of gains and losses on this portion of the asset portfolio to be reflected in tandem with changes in the liability which is linked to changes in the discount rate assumption for re-measurement.
See Note 12 of the Notes to Condensed Consolidated Financial Statements for additional information.
Liquidity and Capital Resources
There have been no material changes in Liquidity and Capital Resources from those reported in Item 7 of our 20182019 Annual Report on Form 10-K filed with the SEC except as described below.below and within the “COVID-19 Pandemic” discussion in the Executive Summary section above.
Collateral Requirements
Our utilities maintain wholesale commodity contracts for the purchases and sales of electricity and natural gas which have performance assurance provisions that allow the counterparty to require collateral postings under certain conditions, including when requested on a reasonable basis due to a deterioration in our financial condition or nonperformance. A significant downgrade in our credit ratings, such as a downgrade to a level below investment grade, could result in counterparties requiring collateral postings under such adequate assurance provisions. The amount of credit support that we may be required to provide at any point in the future is dependent on the amount of the initial transaction, changes in the market price, open positions and the amounts owed by or to the counterparty. At SeptemberJune 30, 2019,2020, we had sufficient liquidity to cover collateral that could be required to be posted under these contracts. For the six months ended June 30, 2020, we did not experience any requests to post additional collateral, including for concerns over a potential deterioration of our financial condition due to COVID-19.
Income Tax
54 The TCJA required revaluation
Cash Flow Activities
The following table summarizes our cash flows for the ninesix months ended SeptemberJune 30, 2019 (in thousands)millions): | | | | | | | | | | | | Cash provided by (used in): | 2020 | 2019 | Variance | Operating activities | $ | 309.0 | | $ | 289.8 | | $ | 19.2 | | Investing activities | $ | (349.7) | | $ | (317.3) | | $ | (32.4) | | Financing activities | $ | 62.8 | | $ | 13.6 | | $ | 49.2 | |
| | | | | | | | | | | Cash provided by (used in): | 2019 | 2018 | Variance | Operating activities | $ | 386,075 |
| $ | 378,722 |
| $ | 7,353 |
| Investing activities | $ | (593,272 | ) | $ | (281,771 | ) | $ | (311,501 | ) | Financing activities | $ | 199,827 |
| $ | (101,949 | ) | $ | 301,776 |
|
Year-to-Date 20192020 Compared to Year-to-Date 20182019
Operating Activities
Net cash provided by operating activities was $386$309 million for the ninesix months ended SeptemberJune 30, 2019,2020, compared to net cash provided by operating activities of $379$290 million for the same period in 20182019, for an increase of $7$19 million. The variance was primarily attributable to:
•Cash earnings (income from continuing operations(net income plus non-cash adjustments) were $19$7.3 million higher for the ninesix months ended SeptemberJune 30, 20192020 compared to the same period in the prior year;year primarily driven by higher operating income at the Gas Utilities segment;
•Net cash inflows from changes in operating assets and liabilities were $28$26 million for the ninesix months ended SeptemberJune 30, 2019,2020, compared to net cash inflows of $42$14 million in the same period in the prior year. This $14$12 million decreaseincrease was primarily due to:
| | ◦ | Cash inflows increased by approximately $48 million primarily as a result of higher collections of accounts receivable for the nine months ended September 30, 2019 compared to the same period in the prior year; |
◦Cash inflows decreased by $34 million primarily as a result of changes in accounts receivable driven by lower commodity prices and increased materials and supplies purchases;
| | ◦ | Cash outflows increased by approximately $3 million as a result of decreases in accounts payable and accrued liabilities driven by higher employee costs and other working capital requirements; and |
◦Cash outflows decreased by $44 million as a result of changes in accounts payable and accrued liabilities driven by the impact of lower commodity prices, lower employee costs, lower outside services expenses and other working capital requirements;
| | ◦ | Cash inflows decreased by approximately $66 million as a result of changes in the timing of recovery from fuel cost adjustments as well as revenue reserved in the prior year due to the TCJA tax rate change that has subsequently been returned to customers. |
◦Cash inflows increased by $12 million primarily as a result of changes in our regulatory assets and liabilities driven by timing of recovery from fuel costs adjustments and the TCJA tax rate change that was returned to customers in the prior year; and
◦Cash outflows increased by $13 million due to the timing of pension contributions made in the current year.
Investing Activities
Net cash used in investing activities was $593$350 million for the ninesix months ended SeptemberJune 30, 2019,2020, compared to net cash used in investing activities of $282$317 million for the same period in 20182019, for a variance of $311$32 million. The variance was primarily attributable to:
•Capital expenditures of approximately $593$348 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $278$318 million for the same period in the prior year. Higher current year expenditures arewere driven by higher programmatic safety, reliability and integrity spending at our Gas Utilities and Electric Utilities segments and the 35-mile Natural Bridge pipeline project at our Gas Utilities segment, the Busch Ranch IICorriedale wind project at our Power Generation segment and construction of the final segment of the 175-mile transmission line from Rapid City, South Dakota, to Stegall, Nebraska at our Electric Utilities segment.
A $24 million investment made in the prior year partially offset by an $18 million change in net cash provided by investing activities from discontinued operations primarily due to the prior year sale of assets held for sale.
Financing Activities
Net cash provided by financing activities for the ninesix months ended SeptemberJune 30, 20192020 was $200$63 million, compared to $102$14 million of net cash used inprovided by financing activities for the same period in 2018 for a variance2019, an increase of $302 million. This variance is$49 million primarily due to:to the following:
We amended our Corporate term loan due July 30, 2020, which increased our debt to $400 million from $300 million;
Current year issuance of•Cash dividends on common stock forof $66 million were paid in the current year compared to $61 million paid in the prior year;
•Increase of $28 million in common stock issued due primarily to current year net proceeds of $99 million through our ATM equity offering program;
Currentan underwritten registered transaction partially offset by prior year net short-term borrowingsproceeds of $109$69 million driven by increased capital expenditures;through our ATM;
In the prior year, $99 million of net proceeds from the August 17, 2018 debt transaction was used to repay short-term debt;
•$15266 million of higher current year dividend payments;repayments of short-term debt;
•Increase of $297 million in net proceeds due to issuances of long-term debt in excess of maturities; and
Payments•Cash outflows for other financing activities decreasedincreased $4.5 million driven primarily by $8.4 million, which was primarily driven by priorcurrent year financing costs associated within the July 30, 2018 and AugustJune 17, 20182020 debt transactions.offering.
Dividends
Dividends paid on our common stock totaled $92$66 million for the ninesix months ended SeptemberJune 30, 2019,2020, or $0.505$0.535 per share per quarter. On October 31, 2019,July 27, 2020, our board of directors declared a quarterly dividend of $0.535 per share payable DecemberSeptember 1, 2019,2020, equivalent to an annual dividend of $2.14 per share. The amount of any future cash dividends to be declared and paid, if any, will depend upon, among other things, our financial condition, funds from operations, the level of our capital expenditures, restrictions under our Revolving Credit Facility and our future business prospects.
Financing Transactions and Short-Term Liquidity
Revolving Credit Facility and CP Program
Our Revolving Credit Facility and CP Program had the following borrowings, outstanding letters of credit, and available capacity (in millions): | | | | | | | | | | | | | | | | | | | | | | | Current | Revolver Borrowings at | CP Program Borrowings at | Letters of Credit (a) at | Available Capacity at | Credit Facility | Expiration | Capacity | June 30, 2020 | June 30, 2020 | June 30, 2020 | June 30, 2020 | Revolving Credit Facility and CP Program | July 30, 2023 | $ | 750 | | $ | — | | $ | — | | $ | 12 | | $ | 738 | |
| | | | | | | | | | | | | | | | | Current | Short-term borrowings at | Letters of Credit at | Available Capacity at | Credit Facility | Expiration | Capacity | September 30, 2019 | September 30, 2019 | September 30, 2019 | Revolving Credit Facility and CP Program | July 30, 2023 | $ | 750 |
| $ | 295 |
| $ | 18 |
| $ | 437 |
|
_______________
(a) Letters of credit are off-balance sheet commitments that reduce the borrowing capacity available on our corporate Revolving Credit
The weighted average interest rate on short-term borrowings at September 30, 2019 was 2.43%. Short-termFacility.
Revolving Credit Facility and CP Program borrowing activity for the ninesix months ended SeptemberJune 30, 20192020 was (dollars in millions): | | | | | | | For the Six Months Ended June 30, 2020 | Maximum amount outstanding - Revolving Credit Facility (based on daily outstanding balances) | $ | 220 | | Maximum amount outstanding - CP Program (based on daily outstanding balances) | $ | 366 | | Average amount outstanding - Revolving Credit Facility (based on daily outstanding balances) | $ | 109 | | Average amount outstanding - CP Program (based on daily outstanding balances) | $ | 243 | | Weighted average interest rates - Revolving Credit Facility | 1.75 | % | Weighted average interest rates - CP Program | 1.48 | % |
| | | | | | For the Nine Months Ended September 30, 2019 | Maximum amount outstanding - short-term borrowing (based on daily outstanding balances) | $ | 295 |
| Average amount outstanding - short-term borrowing (based on daily outstanding balances) | $ | 171 |
| Weighted average interest rates - short-term borrowing | 2.59 | % |
Covenant Requirements
The Revolving Credit Facility contains customary affirmative and negative covenants, such as limitations on certain liens, restrictions on certain transactions, and maintenance of a certain Consolidated Indebtedness to Capitalization Ratio. Subject to applicable cure periods, a violation of any of these covenants would constitute an event of default that entitles the lenders to terminate their remaining commitments and accelerate all principal and interest outstanding. We were in compliance with these covenants as of SeptemberJune 30, 2019.2020. See Note 87 of the Notes to Condensed Consolidated Financial Statements for more information.
Covenants within Wyoming Electric’s financing agreements require Wyoming Electric to maintain a debt to capitalization ratio of no more than 0.60 to 1.00. As of SeptemberJune 30, 2019,2020, we were in compliance with these covenants. Financing Activities
FinancingSee Notes 7 and 8 of the Notes to Condensed Consolidated Financial Statements for information concerning significant financing activities for the ninesix months ended SeptemberJune 30, 2019 consisted of the following:2020.
We issued a total of 1,328,332 shares of common stock under the ATM equity offering program for proceeds of $99 million, net of $1.0 million in commissions. As of September 30, 2019, there were no shares that were sold, but not settled.
On June 17, 2019, we amended our Corporate term loan due July 30, 2020. This amendment increased total commitments to $400 million from $300 million, extended the term through June 17, 2021 and continues to have substantially similar terms and covenants as the amended and restated Revolving Credit Facility. The net proceeds were used to pay down short-term debt. Proceeds from the October 3, 2019 debt transaction were used to repay this term loan.
Short-term borrowings from our CP Program and Revolver.
On October 3, 2019, we completed a public debt offering of $700 million principal amount in senior unsecured notes. The debt offering consisted of $400 million of 3.05% 10-year senior notes due October 15, 2029 and $300 million of 3.875% 30-year senior notes due October 15, 2049. Proceeds were used to repay the $400 million Corporate term loan due June 17, 2021, retire the $200 million 5.875% senior notes due July 15, 2020, repay a portion of short-term debt.
Future Financing Plans
We will continue to assess debt and equity needs to support our capital expenditure plan.
Credit Ratings
After assessing the current operating performance, liquidity and the credit ratings of the Company, management believes that the Company will have access to the capital markets at prevailing market rates for companies with comparable credit ratings.
The following table represents the credit ratings and outlook and risk profile of BHC at SeptemberJune 30, 2019: | | | | | | | | | Rating Agency | Senior Unsecured Rating | Outlook | S&P (a) | BBB+ | Stable | Moody’s (b) | Baa2 | Stable | Fitch (c) | BBB+ | Stable |
__________ | | (a) | On February 28, 2019,(a) On April 10, 2020, S&P affirmed our BBB+ rating and maintained a Stable outlook. |
| | (b) | On December 12, 2018, Moody’s affirmed our Baa2 rating and maintained a Stable outlook. |
| | (c) | On August 29, 2019, Fitch affirmed our BBB+ rating and maintained a Stable outlook. |
(b) On December 20, 2019, Moody’s affirmed our Baa2 rating and maintained a Stable outlook.
56(c) On August 29, 2019, Fitch affirmed our BBB+ rating and maintained a Stable outlook.
The following table represents the credit ratings of South Dakota Electric at SeptemberJune 30, 2019: | | | | | | Rating Agency | Senior Secured Rating | S&P (a) | A | Moody’s (b) | A1 | Fitch (c) | A |
__________ | | (a) | On April 30, 2019,(a) On April 16, 2020, S&P affirmed A rating. |
| | (b) | On October 15, 2019, Moody’s affirmed A1 rating. |
| | (c) | On August 29, 2019, Fitch affirmed A rating. |
(b) On December 20, 2019, Moody’s affirmed A1 rating. (c) On August 29, 2019, Fitch affirmed A rating.
Capital Requirements
Capital Expenditures | | | Actual | Planned | | Actual | Planned | Capital Expenditures by Segment | Nine Months Ended September 30, 2019 (a) | 2019 (b) | 2020 | 2021 | 2022 | 2023 | Capital Expenditures by Segment | Six Months Ended June 30, 2020 (a) | 2020 (b) | 2021 | 2022 | 2023 | 2024 | (in millions) | | (in millions) | | Electric Utilities (c) | $ | 147 |
| $ | 215 |
| $ | 229 |
| $ | 203 |
| $ | 170 |
| $ | 137 |
| | Gas Utilities (c) | 367 |
| 490 |
| 361 |
| 297 |
| 274 |
| 303 |
| | Electric Utilities | | Electric Utilities | $ | 117 | | $ | 246 | | $ | 203 | | $ | 170 | | $ | 137 | | $ | 152 | | Gas Utilities | | Gas Utilities | 209 | | 391 | | 309 | | 285 | | 316 | | 293 | | Power Generation | 79 |
| 84 |
| 7 |
| 9 |
| 11 |
| 6 |
| Power Generation | 6 | | 7 | | 9 | | 11 | | 6 | | 6 | | Mining | 6 |
| 8 |
| 8 |
| 12 |
| 9 |
| 9 |
| Mining | 6 | | 8 | | 12 | | 9 | | 9 | | 9 | | Corporate and Other | 15 |
| 23 |
| 18 |
| 22 |
| 11 |
| 12 |
| Corporate and Other | 10 | | 17 | | 22 | | 11 | | 12 | | 10 | | | $ | 614 |
| $ | 820 |
| $ | 623 |
| $ | 543 |
| $ | 475 |
| $ | 467 |
| | $ | 348 | | $ | 669 | | $ | 555 | | $ | 486 | | $ | 480 | | $ | 470 | |
__________ (a) Expenditures for the ninesix months ended SeptemberJune 30, 20192020 include the impact of accruals for property, plant and equipment. (b) Includes actual capital expenditures for the ninesix months ended SeptemberJune 30, 2019.2020. (c) Planned capital expenditures increased for 2019 through 2023 primarily due to increased programmatic safety, reliability and integrity spending.
We are monitoring supply chains, including lead times for key materials and supplies, availability of resources, and statuses of large capital projects. To date, there have been limited impacts from COVID-19 on supply chains including the availability of supplies and materials and lead times. Capital projects are ongoing without material disruption to schedules. Our third party resources continue to evaluate potential future acquisitions and other growth opportunities when they arise. Assupport our business plans without disruption. Contingency plans are ready to be executed if significant disruption to supply chain occurs; however, we currently do not anticipate a result,significant impact from COVID-19 on our capital expenditures may vary significantly from the estimates identified above.investment plan for 2020.
Contractual Obligations
There have been no significant changes in contractual obligations from those previously disclosed in Note 19 of our Notes to the Consolidated Financial Statements in our 20182019 Annual Report on Form 10-K except for the items described in Notes 8, 16, and 20Note 13 of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Commitments
There have been no significant changes to off-balance sheet commitments from those previously disclosed in Item 7 of our 20182019 Annual Report on Form 10-K filed with the SEC except for the items described in Note 87 of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
New Accounting Pronouncements
Other than the pronouncements reported in our 20182019 Annual Report on Form 10-K filed with the SEC and those discussed in Note 1 of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, there have been no new accounting pronouncements that are expected to have a material effect on our financial position, results of operations, or cash flows.
FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking statements as defined by the SEC. Forward-looking statements are all statements other than statements of historical fact, including, without limitation, those statements that are identified by the words “anticipates,” “estimates,” “expects,” “intends,” “plans,” “predicts” and similar expressions and include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. From time to time, the Company may publish or otherwise make available forward-looking statements of this nature, including statements contained within Item 2 - Management’s Discussion &and Analysis of Financial Condition and Results of Operations.
Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. The Company’s expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including, without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. Nonetheless, the Company’s expectations, beliefs or projections may not be achieved or accomplished.
Any forward-looking statement contained in this document speaks only as of the date the statement was made. The Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement was made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, such as the COVID-19 pandemic, and it is not possible for management to predict all of the factors, nor can it assess the effect of each factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by the risk factors and cautionary statements described in our 20182019 Annual Report on Form 10-K including statements contained within Item 1A - Risk Factors of our 20182019 Annual Report on Form 10-K, Part II, Item 1A of this Quarterly Report on Form 10-Q and other reports that we file with the SEC from time to time.
| | ITEM 3. | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Information regarding our quantitative and qualitative disclosures about market risk is disclosed in Item 7A of our Annual Report on Form 10-K. DuringSee Note 9 of the nineNotes to Condensed Consolidated Financial Statements for updates to market risks during the six months ended SeptemberJune 30, 2019, there were no material changes to our quantitative and qualitative disclosures about market risk.2020.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934)1934, as amended (the “Exchange Act”)) as of SeptemberJune 30, 2019.2020. Based on their evaluation, they have concluded that our disclosure controls and procedures were effective at SeptemberJune 30, 2019.2020.
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Security Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Commission’sSEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the quarter ended SeptemberJune 30, 2019,2020, there have been no changes in our internal controlcontrols over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. Although we have altered some work routines due to the COVID-19 pandemic, the changes in our work environment (i.e. remote work arrangements) have not materially impacted our internal controls over financial reporting and have not adversely affected the Company’s ability to maintain operations, including financial reporting systems, ICFR, and disclosure controls and procedures.
PART II. OTHER INFORMATION
BLACK HILLS CORPORATION
Part II — Other Information
ITEM 1.LEGAL PROCEEDINGS
For information regarding legal proceedings, see Note 19 in Item 8 of our 20182019 Annual Report on Form 10-K and Note 1613 in Item 1 of Part I of this Quarterly Report on Form 10-Q, which information from Note 1613 is incorporated by reference into this item.
ITEM 1A.RISK FACTORS
There are no material changes to the risk factors previously disclosed in Item 1A of Part I in our 2019 Annual Report on Form 10-K filed with the SEC except as shown below:
Our business, results of operations, financial condition and cash flows could be adversely affected by the recent coronavirus (COVID-19) pandemic.
We have responded to the global pandemic of COVID-19 by taking steps to mitigate the potential risks to us posed by its spread.
For the six months ended June 30, 2020, the COVID-19 pandemic had a limited financial impact on our business, operations, financial condition and cash flows. In particular, we experienced:
•Lower commercial and certain industrial and transport volumes partially offset by higher electric and natural gas residential usage; •Increased allowance for credit losses and bad debt expense due to anticipated customer non-payment as a result of suspended disconnections; •Minimal cash flow impacts from delayed payments from residential, commercial and industrial customers; •Minimal disruptions receiving the materials and supplies necessary to maintain operations and continue executing our capital investment plan; •Reduced availability and productivity of our employees; •Minimal impacts to the availability of our third-party resources; •Minimal decline in the funded status of our pension plan; •Increased costs for personal protection equipment and cleaning supplies; •Increased costs due to sequestration of mission-critical and essential employees; •Minimal interest expense increase due to disruptions in the Commercial Paper markets; and •Reduced training, travel and outside services expenses.
Should the COVID-19 pandemic continue for a prolonged period or impact the areas we serve more significantly than it has to date, our business, operations, financial condition and cash flows could be impacted in more significant ways. In addition to exacerbating the impacts described above, we could experience:
•Adverse impacts on our strategic business plans, growth strategy and capital investment plans; •Increased adverse impacts to electricity and natural gas demand from our customers, particularly from commercial and industrial customers; •Further reduction in the availability and productivity of our employees and third-party resources; •Increased costs as a result of our emergency measures; •Increased allowance for credit losses and bad debt expense as a result of delayed or non-payment from our customers, both of which could be magnified by Federal or state government legislation that requires us to extend suspensions of disconnections for non-payment; •Delays and disruptions in the availability, timely delivery and cost of materials and components used in our operations; •Disruptions in the commercial operation dates of certain projects impacting qualification criteria for certain tax credits and triggering potential damages under our power purchase agreements; •Deterioration of the credit quality of our counterparties, including gas commodity contract counterparties, power purchase agreement counterparties, contractors or retail customers, that could result in credit losses; •Impairment of goodwill or long-lived assets; •Adverse impacts on our ability to develop, construct and operate facilities; •Inability to meet the requirements of the covenants in our existing credit facilities, including covenants regarding Consolidated Indebtedness to Capitalization Ratio; •Deterioration in our financial metrics or the business environment that adversely impacts our credit ratings;
•Delay in the permitting process of certain development projects, affecting the timing of final investment decisions and start dates of construction; •Adverse impact on our liquidity position and cost of and ability to access funds from financial institutions and capital markets; •Delays in our ability to change rates through regulatory proceedings; and •Other risks that impact us, such as the risks described in the “Risk Factors” section of our 2019 Annual Report on Form 10-K and our ability to meet our financial obligations.
To date, we have experienced limited impacts to our results of operations, financial condition, cash flows or business plans. However, the situation remains fluid and it is difficult to predict with certainty the potential impact of COVID-19 on our business, results of operations, financial condition and cash flows.
| | ITEM 4. | Mine Safety Disclosures |
ITEM 4. MINE SAFETY DISCLOSURES
Information concerning mine safety violations or other regulatory matters required by Sections 1503(a) of Dodd-Frank is included in Exhibit 95 of this Quarterly Report on Form 10-Q.
ITEM 6. EXHIBITS | | | | | | ITEM 6.Exhibit Number | ExhibitsDescription |
| | | | Exhibit Number | Description | | | | | | | | | | | | | | | Exhibit 3.1* | | | | Exhibit 3.2* | | | | Exhibit 4.1* | | | | | | | | | | | | | | | | | | | | | | Exhibit 4.2* | | | | | |
| | | | | Exhibit 4.3* | | | | | | | | Exhibit 4.4* | | | | Exhibit 10.1 | First Amendment dated as of June 17, 2019 to Amended and Restated CreditEquity Distribution Sales Agreement dated as of July 30, 2018,August 4, 2020 among Black Hills Corporation as Borrower,and the financial institutions party thereto, as Banks, and JPMorgan Chase Bank, N.A., as Administrative Agentseveral Agents named therein (filed as Exhibit 10.11.1 to the Registrant’s Form 8–K8-K filed on June 17, 2019)August 4, 2020). | | | Exhibit 31.1 | | | | Exhibit 31.2 | | | | Exhibit 32.1 | | | | Exhibit 32.2 | | | | Exhibit 95 | | | | 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | 101.SCH | XBRL Taxonomy Extension Schema Document | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | | 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
__________ | | * | * Previously filed as part of the filing indicated and incorporated by reference herein. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BLACK HILLS CORPORATION | | | | | | | | | | | /s/ Linden R. Evans | | | Linden R. Evans, President and | | | Chief Executive Officer | | | | | | /s/ Linden R. Evans | | | Linden R. Evans, President and | | | Chief Executive Officer | | | | | | /s/ Richard W. Kinzley | | | Richard W. Kinzley, Senior Vice President and | | | Chief Financial Officer | | | | Dated: | November 5, 2019August 4, 2020 | |
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