Black Hills Corp. Colorado Electric Utility Proposes First Electric Rate Review in 8 Years

Rhea-AI Summary

On June 14, 2024, Black Hills Corp. (NYSE: BKH) announced that its Colorado electric utility, Black Hills Colorado Electric, (Black Hills Energy), filed a request with the Colorado Public Utilities Commission to update its electric rates, marking the first rate review in eight years. This request aims to address the rising costs of operations, maintenance, and upgrades of the electric system serving over 100,000 customers in Southern Colorado. Since 2016, Black Hills Energy has invested approximately $371 million in capital and plans an additional $98 million in 2024. The proposed rate review seeks an additional annual revenue of $36.7 million, with a capital structure comprising 52.75% equity and 47.25% long-term debt, and a return on equity of 10.5%. The new rates are expected to be effective in the first quarter of 2025.

Positive

• Black Hills Energy has invested $371 million in capital since 2016, highlighting a commitment to infrastructure improvement.
• The company plans to invest an additional $98 million in 2024, demonstrating ongoing development and upgrade efforts.
• The proposed rate review has a well-defined capital structure of 52.75% equity and 47.25% long-term debt, suggesting financial stability.
• The requested return on equity of 10.5% indicates a potentially attractive return for investors.
• The company has avoided seeking a rate update for eight years, showing diligence in managing costs.

Negative

• The proposed rate review requests an additional annual revenue of $36.7 million, which may lead to higher costs for customers.
• Rising operating and maintenance costs are cited as reasons for the rate increase, potentially indicating financial pressure.
• Inflation and supply chain issues are impacting the company's operational costs, which can affect profitability.
• While aiming to support customers, the necessity for a new Energy Assistance Team suggests underlying challenges in customer affordability.

Insights

Financial Analyst

Black Hills Corp's recent request for an electric rate review is significant. This is the first time in eight years that they are seeking such a review. The company is looking to adjust rates to offset rising costs related to operating, maintaining and upgrading its electric system in Southern Colorado. They have made substantial capital investments, totaling $371 million since 2016 and they plan to invest another $98 million in 2024.

From a financial perspective, the proposed rate review seeks additional annual revenues of $36.7 million, with a capital structure consisting of 52.75% equity and 47.25% long-term debt. The requested return on equity (ROE) is 10.5%. This ROE is a critical metric since it directly affects profitability and shareholder returns. A higher ROE can indicate effective management and good use of equity financing.

For investors, this review could imply potential revenue growth but also highlights the challenges of rising operational costs. The increased rates could ensure the company maintains its financial health amid rising supply chain and inflationary pressures. However, the impact on customers and potential regulatory hurdles should also be considered. It's essential to monitor how the Colorado Public Utilities Commission responds to this request and the proposed equity-debt mix.

Market Research Analyst

The proposed rate review by Black Hills Corp. has significant market implications. The incremental revenue of $36.7 million will likely stabilize the company's financial footing and could positively influence its stock price. Given that this is their first rate review in eight years, it reflects a constrained approach to passing costs onto consumers, which might be seen favorably by market observers.

From a market perspective, the company's strategic investments in infrastructure upgrades are essential. The reliability and resilience of the electric system are critical selling points. Investors should note that the company's forward-looking investments of $98 million in 2024 indicate a commitment to long-term growth and service reliability, which can enhance customer satisfaction and reduce operational risks.

Additionally, the establishment of the Energy Assistance Team to support customers indicates a strong commitment to corporate social responsibility, which can also positively influence public perception and customer loyalty. This balanced approach between financial performance and customer support measures can mitigate adverse reactions to rate increases.

RAPID CITY, S.D., June 14, 2024 (GLOBE NEWSWIRE) -- Black Hills Corp. (NYSE: BKH) today announced its Colorado electric utility, Black Hills Colorado Electric, LLC, doing business as Black Hills Energy, filed a request with the Colorado Public Utilities Commission seeking to update its electric rates to account for the rising cost of operating, maintaining and upgrading its Southern Colorado electric system which serves over 100,000 customers in Pueblo, Cañon City, Rocky Ford and surrounding communities.

Since its last general rate filing in 2016, Black Hills Energy has deployed approximately $371 million in strategic capital investments vital to providing safe and reliable electric service to its customers and plans to invest approximately $98 million in additional capital in 2024. These investments include upgrades made to support the resilience and reliability of its transmission and distribution system, which spans over 3,700 line miles.

“We are very mindful of the impacts of inflation and rising supply chain costs on our customers and our business, and we have worked diligently to manage cost increases,” said Campbell Hawkins, Black Hills Energy’s vice president of Colorado Utilities. “That’s why the company has avoided seeking a rate update for eight years. We are taking action to minimize the customer impact and have redoubled our efforts to provide support for customers who need it, including launching a new Energy Assistance Team with a dedicated resource in Pueblo, Colorado.”

As proposed, the rate review is requesting additional annual revenues of $36.7 million with a capital structure of 52.75% equity and 47.25% long-term debt and a return on equity of 10.5%. New rates are expected in the first quarter of 2025.

Black Hills Corporation
Black Hills Corp. (NYSE: BKH) is a customer focused, growth-oriented utility company with a tradition of improving life with energy and a vision to be the energy partner of choice. Based in Rapid City, South Dakota, the company serves 1.34 million natural gas and electric utility customers in eight states: Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. More information is available at www.blackhillscorp.com and www.blackhillsenergy.com.

Investor Relations
Jerome E. Nichols
605-721-1171
jerome.nichols@blackhillscorp.com

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Caution Regarding Forward Looking Statement
This news release includes “forward-looking statements” as defined by the Securities and Exchange Commission, or SEC. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this news release that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward looking statements, including the expected revenues and return on investments. These forward-looking statements are based on assumptions which we believe are reasonable based on current expectations and projections about future events and industry conditions and trends affecting our business. However, whether actual results and developments will conform to our expectations and predictions is subject to a number of risks and uncertainties that, among other things, could cause actual results to differ materially from those contained in the forward-looking statements, the risk factors described in Item 1A of Part I of our 2023 Annual Report on Form 10-K filed with the SEC, and other reports that we file with the SEC from time to time. New factors that could cause actual results to differ materially from those described in forward looking statements emerge from time-to-time, and it is not possible for us to predict all such factors, or the extent to which any such factor or combination of factors may cause actual results to differ from those contained in any forward-looking statement. We assume no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.

FAQ

What is the latest electric rate review filed by Black Hills Energy?

Black Hills Energy has filed a request with the Colorado Public Utilities Commission to update its electric rates for the first time in eight years.

How much additional annual revenue is Black Hills Energy seeking in the new rate review?

Black Hills Energy is seeking an additional annual revenue of $36.7 million in the new rate review.

What is the proposed return on equity for Black Hills Energy's rate review?

The proposed return on equity for Black Hills Energy's rate review is 10.5%.

When are the new rates for Black Hills Energy expected to be effective?

The new rates for Black Hills Energy are expected to be effective in the first quarter of 2025.

What major investments has Black Hills Energy made since the last rate review?

Since the last rate review, Black Hills Energy has invested approximately $371 million in capital improvements and plans to invest an additional $98 million in 2024.