10-Q: Black Hills Q3 2025: Merger Progress, Rate Hikes Drive Revenue

Black Hills Corporation reports increased revenue and operating income for Q3 and YTD 2025, driven by new utility rates and rider recovery, alongside progress on its proposed merger with NorthWestern.

Summary

• Net income available for common stock increased to $24.9 million for the three months ended September 30, 2025, compared to $24.4 million for the same period in 2024, and to $186.6 million for the nine months ended September 30, 2025, from $175.0 million in 2024.
• Diluted earnings per share decreased slightly to $0.34 for Q3 2025 from $0.35 for Q3 2024, but increased to $2.58 for YTD 2025 from $2.52 for YTD 2024.
• Total revenue grew to $430.2 million in Q3 2025 from $401.6 million in Q3 2024, and to $1,674.5 million YTD 2025 from $1,530.6 million YTD 2024.
• Operating income increased to $78.7 million in Q3 2025 from $75.8 million in Q3 2024, and to $366.1 million YTD 2025 from $339.8 million YTD 2024.
• Electric Utilities operating income decreased by $2.7 million in Q3 and $10.3 million YTD, primarily due to milder weather, higher operating expenses, unplanned generation outages, and lower transmission services revenues, partially offset by new rates and rider recovery.
• Gas Utilities operating income significantly increased by $9.9 million in Q3 and $43.1 million YTD, driven by new rates and rider recovery in Arkansas, Kansas, and Nebraska, and favorable weather YTD, partially offset by unfavorable margin impacts of wet summer weather on Nebraska irrigation loads in Q3 and higher operating expenses YTD.
• Corporate and Other operating loss increased by $4.3 million in Q3 and $6.5 million YTD, mainly due to NorthWestern merger-related costs.
• Interest expense, net, increased by $4.2 million in Q3 and $17.7 million YTD, due to higher Commercial Paper Program borrowings, higher interest rates on long-term debt (YTD), and lower interest income, partially offset by higher Allowance for Funds Used During Construction (AFUDC) debt from Lange II and Ready Wyoming projects.
• The proposed merger with NorthWestern Energy Group, Inc. was announced on August 18, 2025, with NorthWestern becoming a wholly-owned subsidiary of Black Hills Corporation, and is expected to close in the second half of 2026.
• Wyoming Electric set four new all-time peak loads in the first half of 2025, including an all-time peak of 379 MW on June 20, 2025.
• The Ready Wyoming electric transmission expansion project (260-mile, $350 million) is on track and expected to be completed and in service by year-end 2025.
• The Lange II project (99 MW dual fuel) began construction in Q3 2025 and is anticipated to be in service during the second half of 2026.

Sentiment

Score: 7

Explanation: The company shows solid revenue and operating income growth, particularly in Gas Utilities due to successful rate cases. Strategic projects like Ready Wyoming and Lange II are progressing, and the NorthWestern merger is moving forward, indicating future growth potential. However, Electric Utilities faced some operational headwinds and merger-related costs impacted Q3 EPS and corporate expenses. The overall financial health and strategic direction are positive, but some challenges exist.

Positives

• Net income available for common stock increased to $24.9 million in Q3 2025 from $24.4 million in Q3 2024, and to $186.6 million YTD 2025 from $175.0 million YTD 2024.
• Total revenue increased to $430.2 million in Q3 2025 from $401.6 million in Q3 2024, and to $1,674.5 million YTD 2025 from $1,530.6 million YTD 2024.
• Operating income increased to $78.7 million in Q3 2025 from $75.8 million in Q3 2024, and to $366.1 million YTD 2025 from $339.8 million YTD 2024.
• Gas Utilities operating income significantly increased by $9.9 million in Q3 and $43.1 million YTD, driven by new rates and rider recovery in Arkansas, Iowa, Kansas, and Nebraska.
• Colorado Electric received CPUC approval for a general rate increase, generating approximately $17.5 million of new annual revenue, effective March 22, 2025.
• Iowa Gas received final approval for a settlement agreement for a general rate increase, expected to generate $15.0 million of new annual revenue, enacted January 1, 2025.
• Kansas Gas received final approval for a settlement agreement for a general rate increase, expected to generate $10.8 million in new annual revenue, enacted August 1, 2025.
• Nebraska Gas reached a settlement for a general rate increase, expected to generate $23.9 million in new annual revenue, with NPSC approval expected by mid-December 2025 and new rates effective January 1, 2026.
• Wyoming enacted comprehensive wildfire mitigation legislation (HB0192), effective July 1, 2025, providing material liability protections for utilities with approved wildfire mitigation plans.
• Wyoming Electric set four new all-time peak loads in H1 2025, including 379 MW on June 20, 2025, indicating strong demand growth.
• The Lange II project (99 MW dual fuel) received Certificate of Public Convenience and Necessity (CPCN) approval in June 2025 and began construction in Q3 2025.
• The Ready Wyoming electric transmission expansion project ($350 million) is on track for completion by year-end 2025.
• The GT Resources, LLC v. Black Hills Corporation lawsuit was resolved with a jury verdict in favor of Black Hills and its subsidiaries on all counts in May 2025, without material financial impact.
• The Revolving Credit Facility maturity date was extended to May 31, 2030, and the At-the-Market (ATM) equity offering program was reset to $400 million, enhancing liquidity and capital flexibility.
• S&P and Moody's affirmed BHC's credit ratings at BBB+ and Baa2, respectively, both with Stable outlooks, on August 19, 2025.

Negatives

• Diluted earnings per share decreased to $0.34 in Q3 2025 from $0.35 in Q3 2024.
• Electric Utilities operating income decreased by $2.7 million in Q3 and $10.3 million YTD, primarily due to milder weather, higher operating expenses, unplanned generation outages (Wygen III, Pueblo Airport Generation #4-5, Busch Ranch I and II), and lower transmission services revenues.
• Corporate and Other operating loss increased by $4.3 million in Q3 and $6.5 million YTD, primarily due to NorthWestern merger-related costs.
• Interest expense, net, increased by $4.2 million in Q3 and $17.7 million YTD, due to higher Commercial Paper Program borrowings, higher interest rates on long-term debt, and lower interest income.
• The effective tax rate in Q3 2025 was higher at 13.5% compared to 10.0% in Q3 2024, primarily due to the non-deductibility of certain NorthWestern merger-related costs.
• The Colorado Public Utilities Commission (CPUC) recommended no further action on Colorado Electric's 100-MW utility-owned solar project on October 29, 2025.
• Gas Utilities experienced unfavorable margin impacts from wet summer weather on Nebraska irrigation loads in Q3.
• Operations and maintenance expenses increased for Electric Utilities ($4.7 million in Q3, $17.3 million YTD) and Gas Utilities ($5.9 million YTD).
• Coal generation for Electric Utilities decreased due to unplanned outages at Wygen III.

Risks

• Ability to obtain adequate cost recovery for utility operations through regulatory proceedings and favorable rulings on periodic applications to recover costs for capital additions, plant retirements and decommissioning, fuel, transmission, purchased power and other operating costs, and the timing in which new rates would go into effect.
• Ability to complete the capital program in a cost-effective and timely manner.
• Ability to execute on strategy.
• Ability to successfully execute financing plans, including the effects of changing interest rates.
• Ability to achieve greenhouse gas emissions intensity reduction goals.
• Impact of future governmental regulation.
• Ability to overcome the impacts of supply chain disruptions on availability and cost of materials.
• Effects of inflation, tariffs and volatile energy prices.
• Ability to obtain sufficient insurance coverage at reasonable costs and whether such coverage will protect against significant losses.
• The expected timing and likelihood of completion and ability to realize the anticipated benefits of the proposed merger with NorthWestern, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals that could reduce anticipated benefits or give rise to the termination of the merger.
• Failure to complete the Merger, or significant delays in completing the Merger, could negatively affect the trading price of common stock or other securities and the future business and financial results.
• Governmental or regulatory agencies could seek to block or challenge the Merger or could impose restrictions they deem necessary or desirable in the public interest as a condition to approving the Merger.
• The Merger Agreement contains provisions that limit the ability to pursue alternatives to the Merger, could discourage a potential acquirer from making a favorable alternative transaction proposal and, in certain circumstances, could require payment of a termination fee of $100 million to NorthWestern.
• Uncertainties associated with the Merger may cause a loss of management personnel and other key employees.
• Business relationships may be subject to disruption due to uncertainty associated with the Merger.
• Risk of the Merger having an adverse impact on credit ratings, both while pending and following completion.
• The market prices of common stock and other securities may be subject to fluctuation while the Merger is pending and after the Merger is completed.
• Contractual restrictions in the Merger Agreement may hinder operations while the Merger is pending.
• Significant transaction and other costs will be incurred in connection with the Merger, and anticipated benefits may not be achieved.
• The Merger may not be accretive to earnings and may cause dilution to earnings per share.
• Subject to litigation challenging the Merger while it is pending, which could prevent or delay consummation and/or result in substantial costs.
• Failure to successfully combine the businesses of Black Hills and NorthWestern in the expected time frame or at all may adversely affect the future results of the combined company.
• Shareholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over management.
• The market price of common stock after the completion of the Merger may be affected by factors different from those that historically have affected or currently affect common stock.
• Each of Black Hills and NorthWestern may have liabilities that are not known to the other party.
• The combined company will have substantial indebtedness following the Merger, which could result in a downgrade in credit ratings or make it difficult to pay or refinance debts.
• The future results of the combined company following the Merger will suffer if expanded operations are not effectively managed.
• There is no guarantee regarding dividends following the Merger.
• The combined company is expected to record a significant amount of goodwill as a result of the Merger, and such goodwill could become impaired in the future.
• Ability to utilize historic net operating loss carryforwards and certain other tax attributes may be limited.
• Future sales or issuances of common stock could have a negative impact on the common stock price.

Future Outlook

The company anticipates the proposed merger with NorthWestern Energy Group to close in the second half of 2026, pending regulatory approvals from the NPSC, SDPUC (expected Q2 2026), and MPSC (expected H2 2026). The Lange II generation project is expected to be in service during the second half of 2026, and the Ready Wyoming transmission project is on track for completion by year-end 2025. Kansas Gas plans to file an abbreviated rate case in Q1 2026 for capital additions, and new Nebraska Gas rates are expected to be effective January 1, 2026, if approved. The company plans to continue monetizing tax credits through third-party transferability agreements and does not anticipate material impacts from the One Big Beautiful Bill Act on its clean energy facilities or Colorado Electric's Clean Energy Plan. Future capital plans and strategic objectives will be funded through operating cash flows and various financing alternatives, including the Revolving Credit Facility, Commercial Paper Program, and common stock issuances, with plans to repay $300 million senior unsecured notes due January 2026.

Management Comments

• "We are a customer-focused energy solutions provider with a mission of Improving Life with Energy for more than 1.35 million customers and 800+ communities we serve."
• "Our aspiration is to be the trusted energy partner across our growing eight-state footprint, including Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming."
• "Our strategy is centered on four priorities: People & Culture build a team that wins together, Operational Excellence relentlessly deliver on our commitment to serve our customers, Transformation be a simple and connected company and Growth grow to be a dominant long-term energy provider."
• "We have provided energy and served customers for 141 years, since the 1883 gold rush days in Deadwood, South Dakota. Throughout our history, the common thread that unites the past to the present is our commitment to serve our customers and communities."
• "By being responsive and service focused, we can help our customers and communities thrive while meeting rapidly changing customer expectations."
• "We are currently unable to predict the impact that recently imposed and possible future tariffs may have on our business. Trade tariffs have not had a material impact on our operations or financial performance to date. We are closely monitoring the impacts of trade tariffs and the potential effect they may have on our financial position, results of operations, or cash flows."
• "We do not anticipate material impacts to our pre-OBBBA in-service clean energy generation facilities as a result of the OBBBA. Further, we do not anticipate impacts to the execution of Colorado Electrics Clean Energy Plan. However, we continue to monitor IRS guidance and legislative developments to ensure compliance and optimize the timing and structure of future clean energy investments."

Industry Context

The utility sector is navigating a complex landscape characterized by a transition towards clean energy, as evidenced by Colorado Electric's Clean Energy Plan and the evolving tax credit landscape influenced by the Inflation Reduction Act and the One Big Beautiful Bill Act. The industry continues to face macroeconomic pressures from inflation, supply chain disruptions, and volatile energy prices, which Black Hills Corporation actively monitors. Wildfire mitigation is an increasing priority for electric utilities, with legislative support emerging in states like Wyoming to provide liability protections. The proposed merger with NorthWestern Energy Group reflects a broader trend of consolidation within the utility sector, aimed at achieving greater scale, operational efficiencies, and expanding geographic reach. Regional demand growth, particularly in Wyoming Electric's service area, highlights ongoing economic development and increasing energy needs.

Management Changes

Corporate Governance

Legal Proceedings

• Deborah Ferrari et al. v. Colorado Electric: Ongoing legal matter related to an auto accident. Liability is probable, but the company believes it has meritorious defenses regarding damages claimed. The possible range of liability is currently unable to be estimated, and no accrual has been recorded. The company intends to seek recovery under its insurance policy.
• GT Resources, LLC v. Black Hills Corporation: A retrial concluded on May 12, 2025, with a jury verdict in favor of Black Hills Corporation and its subsidiaries on all counts, resolving all claims without material impact on the company's financial position, results of operations, or cash flows.

Stakeholder Impact

• Shareholders: Potential for increased value from merger synergies, but also risks of dilution, integration challenges, and fluctuating stock price. Reduced ownership and voting interest in the combined company. Continued quarterly dividends declared at $0.676 per share.
• Customers: Benefit from ongoing infrastructure investments (e.g., Ready Wyoming, Lange II) aimed at enhancing reliability and expanding access to energy. Impacted by new rates and rider recovery mechanisms. Wildfire mitigation efforts aim to improve safety.
• Employees: Uncertainty about future roles and potential for loss of key personnel due to the pending merger. Management changes are planned as part of the merger.
• Creditors: Credit ratings affirmed, but the combined company will have substantial indebtedness post-merger, which could impact future access to capital or cost of capital. New debt offering completed to manage maturities.
• Communities: Continued energy services and potential economic development from large-scale projects like Ready Wyoming. Wildfire mitigation plans aim to enhance public safety.

Next Steps

• NPSC approval of Nebraska Gas settlement agreement expected by mid-December 2025.
• New Nebraska Gas rates, if approved, will be effective on January 1, 2026.
• Kansas Gas to file an abbreviated case in Q1 2026 that includes the addition of capital placed in service through December 31, 2025.
• Colorado Electric anticipates a decision on its 50-MW battery storage project CPCN by year-end 2025.
• Wyoming Electric plans to file its wildfire mitigation plan with the WPSC in Q4 2025.
• The Ready Wyoming electric transmission expansion project is expected to be completed and in service by year-end 2025.
• The Lange II project is anticipated to be in service during the second half of 2026.
• Decisions from the NPSC and SDPUC on the NorthWestern merger are expected in Q2 2026.
• A decision from the MPSC on the NorthWestern merger is expected in H2 2026.
• The NorthWestern merger transaction closing is anticipated in H2 2026.
• Continue to monitor IRS guidance and legislative developments to ensure compliance and optimize the timing and structure of future clean energy investments.
• Plan to repay $300 million, 3.95% senior unsecured notes due January 2026, at or before maturity.

Key Dates

Recommendation

The company demonstrates stable utility operations with successful rate case outcomes driving revenue and operating income growth in the Gas Utilities segment. Strategic capital projects are progressing, and the proposed merger with NorthWestern offers long-term growth potential and synergies. However, the Electric Utilities segment faces operational challenges and increased expenses, and the merger introduces significant integration risks, potential dilution, and substantial indebtedness. While the long-term outlook is positive, the near-term uncertainties and execution risks associated with the merger warrant a 'hold' position until more clarity emerges on integration success and synergy realization.

Keywords

utility, electric utility, gas utility, natural gas, power generation, renewable energy, SEC filing, 10-Q, merger, NorthWestern Energy, rate review, capital expenditures, financial results, earnings, dividends, credit ratings, corporate governance, risk management, Black Hills Corporation