425: Black Hills Reaffirms 2025 EPS, Advances NorthWestern Merger

Black Hills Corporation reaffirms 2025 earnings guidance, progresses its $4.7 billion capital plan, and advances its merger with NorthWestern Energy, driven by strong regulatory execution and growing data center demand.

Summary

• Reaffirmed 2025 adjusted EPS guidance of $4.00 to $4.20, excluding merger-related costs, representing a 5% growth rate at the midpoint over 2024 EPS.
• Achieved Q3 2025 adjusted EPS of $0.45, up from $0.35 in Q3 2024, despite $0.10 in merger-related transaction costs.
• Year-to-date adjusted EPS reached $2.68, a 6.3% increase over $2.52 for the same period last year, excluding $0.11 in merger-related costs.
• Successfully completed seven rate reviews since the beginning of last year, including a recent settlement for Nebraska rate review providing $23.9 million in new annual revenue.
• Progressing on a $4.7 billion capital plan (2025-2029), with $1 billion allocated for 2025, prioritizing safety, reliability, and growth.
• The 260-mile Ready Wyoming transmission expansion project is on schedule for completion by year-end.
• Broke ground on the 99-megawatt Lange II generation project in Rapid City, South Dakota, expected in service in H2 2026.
• Signed non-disclosure agreements for over 3 gigawatts of data center demand, a significant increase from the previously disclosed 1+ gigawatts pipeline.
• Current plan includes 500 megawatts of data center demand by 2029, contributing over 10% of total EPS by 2028.
• Submitted joint applications for merger approval with NorthWestern Energy to regulators in Montana, Nebraska, and South Dakota, targeting finalization in H2 2026.
• Completed planned equity issuance of $220 million net proceeds and a debt offering of $450 million of 4.55% notes in 2025.
• Maintained strong liquidity with over $600 million available under the revolving credit facility.
• Received approval for a 50-megawatt utility-owned battery storage project in Colorado as part of the Clean Energy Plan.

Sentiment

Score: 8

Explanation: The filing presents a very positive outlook, reaffirming strong financial guidance, demonstrating successful execution of capital projects and regulatory strategies, and highlighting significant growth opportunities, particularly from data centers. The planned merger is also presented as a strong value-creation opportunity. While there are typical operational headwinds and merger-related costs, the overall tone and substance are highly optimistic about future growth and stability.

Positives

• Reaffirmed 2025 adjusted EPS guidance of $4.00 to $4.20, indicating financial stability and predictability.
• Achieved strong Q3 2025 adjusted EPS of $0.45, a significant increase from $0.35 in Q3 2024.
• Year-to-date adjusted EPS increased by 6.3% to $2.68, demonstrating consistent growth.
• Successful regulatory strategy, completing seven rate reviews since early 2024, including a Nebraska settlement for $23.9 million in new annual revenue.
• Significant progress on the $4.7 billion capital plan, with major projects like Ready Wyoming (260-mile transmission) on schedule for year-end completion.
• Broke ground on the 99-megawatt Lange II generation project, enhancing future capacity.
• Massive increase in data center demand pipeline, with NDAs for over 3 gigawatts, suggesting substantial future growth opportunities.
• Current data center demand (500 MW by 2029) is projected to contribute over 10% of total EPS by 2028.
• Maintained strong investment-grade credit rating and healthy balance sheet with 55% net debt to total capitalization and 14-15% FFO to debt.
• Completed 2025 planned equity issuance ($220 million) and debt offering ($450 million), ensuring funding for capital plan.
• Anticipates significantly lower equity issuance in 2026 due to stronger cash flows and data center load growth.
• Industry-leading reliability for Electric Utilities, with two of three ranked in the top 10 companies in EEI's 2024 SAIDI metrics.
• Approved CPCN settlement for a 50-megawatt utility-owned battery storage project in Colorado.
• Long-term EPS growth target of 4% to 6% (upper half starting 2026) is strengthened by the capital plan and customer demand.
• 55 consecutive years of increasing dividends, targeting a 55% to 65% payout ratio.

Negatives

• Q3 2025 GAAP EPS of $0.34 included $0.10 of merger-related transaction costs.
• Year-to-date GAAP EPS of $2.58 included $0.11 of merger-related costs.
• Q3 2025 experienced a $0.07 weather headwind compared to Q3 2024, with $0.04 unfavorable weather compared to normal, primarily due to lower agricultural irrigation demand in Nebraska.
• O&M expenses were higher by $0.08 per share in Q3 2025, including the $0.10 merger-related costs.
• Year-to-date O&M increased by $0.37, primarily due to merger-related expenses, employee costs, outside services, insurance premiums, and unplanned outages.
• Financing costs increased by $0.03 per share in Q3 2025, including $0.06 of higher interest expense and $0.01 of share dilution.
• Year-to-date financing costs increased by $0.25, including $0.23 of higher interest expense due to higher interest rates and $0.11 of dilution from new shares issued.
• Higher depreciation of $0.02 per share in Q3 2025 and $0.09 year-to-date due to new assets.
• Colorado Clean Energy Plan required abandoning negotiations on a 100-megawatt solar project due to increased pricing.

Risks

• Uncertainties inherent in forward-looking statements, with actual results potentially differing materially from expectations.
• Delays in consummating the potential merger transaction, including as a result of required regulatory and shareholder approvals not being obtained on the expected timeline or at all.
• Risk of any event, change, or other circumstance that could give rise to the termination of the merger agreement.
• Required regulatory approvals for the merger being subject to conditions not anticipated by Black Hills and NorthWestern Energy.
• The possibility that any anticipated benefits and projected synergies of the merger will not be realized or will not be realized within the expected time period.
• Disruption to businesses as a result of the announcement and pendency of the merger, including potential distraction of management and ability to retain/hire key personnel.
• Reputational risk and the reaction of customers, suppliers, employees, or other business partners to the merger.
• The possibility that the merger may be more expensive to complete than anticipated due to unexpected factors or events.
• Outcome of any legal or regulatory proceedings related to the merger agreement or transaction.
• Risks associated with third-party contracts containing consent and/or other provisions that may be triggered by the proposed transaction.
• Legislative, regulatory, political, market, economic, and other conditions, developments, and uncertainties affecting businesses.
• Evolving legal, regulatory, and tax regimes.
• Restrictions during the pendency of the proposed transaction that may impact the ability to pursue certain business opportunities or strategic transactions.
• Unpredictability and severity of catastrophic events, including extreme weather, natural disasters, acts of terrorism, or outbreak of war/hostilities.
• Weather variability impacting earnings, as guidance is based on normal weather.
• Need for incremental investments in generation and transmission if data center demand exceeds 500 megawatts through 2029.

Future Outlook

Black Hills plans to deliver in the upper half of its 4% to 6% long-term EPS growth target starting in 2026, strengthened by its $4.7 billion capital plan and strong customer demand, particularly from data centers. An updated financial outlook, including 2026 earnings guidance and 2026-2030 capital investment plans, will be presented during the Q4 and full-year earnings call in February. The merger with NorthWestern Energy is targeted for finalization in the second half of next year, expected to create a stronger, more competitive entity with greater scale and enhanced financial profile.

Management Comments

• "We're fulfilling our commitment to deliver results for our stakeholders in three key areas... delivering on our financial commitments... executing on our regulatory and growth initiatives... providing excellent operational performance." Linn Evans
• "We have now signed nondisclosure agreements for more than 3 gigawatts of demand. If and when these negotiations lead to signed agreements, only then will we incorporate them into our plan." Linn Evans
• "We plan to deliver in the upper half of our 4% to 6% long-term EPS growth target starting in 2026." Linn Evans
• "Although we are well positioned as stand-alone companies, this merger will create a stronger, more competitive entity with greater scale and enhanced financial profile and complementary strengths, enabling us to unlock additional value creation opportunities for our customers and our shareholders." Linn Evans
• "Our financial results met expectations, and we have maintained our strong investment-grade credit rating while funding our $1 billion capital plan for 2025." Kimberly Nooney
• "We expect our 2026 equity issuance to be significantly lower, driven by stronger cash flows from the successful execution of our strategic capital investments, regulatory plans and increasing data center load growth." Kimberly Nooney
• "This is going to be a significant opportunity from Black Hills long-term growth perspective." Kimberly Nooney (regarding data center upside)
• "Our interconnected transmission network will support long-term price stability for our customers and enable continued growth across our service territory." Marne Jones
• "To be blunt, we're not worried. In fact, some of the things that have happened recently arguably can be helpful to the process." Linn Evans (regarding Montana commission approval process for merger)
• "We are aware we have rare earth minerals in our coal, in our fly ash, et cetera. It'd be my personal opinion, probably not enough to monetize, but stranger things have happened." Linn Evans (regarding coal mine asset)

Industry Context

The company is actively capitalizing on the growing demand for data centers, particularly hyperscale and AI data centers, by leveraging its flexible service model and ideal service territory attributes in Wyoming. This trend is a significant driver for future load growth and capital investment in the utility sector. The focus on clean energy plans in Colorado and battery storage projects aligns with broader industry shifts towards decarbonization and grid modernization. The proposed merger with NorthWestern Energy reflects a trend towards consolidation in the utility sector to achieve greater scale, efficiency, and financial strength.

Comparison to Industry Standards

• Two of Black Hills' three Electric Utilities ranked in the top 10 companies in EEI's most recent report based upon 2024 SAIDI metrics, indicating industry-leading reliability.
• The company's flexible service model for data centers (market energy, contracted generation, utility investment) and innovative tariff for hyperscale data centers (e.g., Microsoft, Meta) positions it as a leader in serving this specialized, high-growth load compared to traditional utility models.

Corporate Governance

Stakeholder Impact

• Shareholders: Expected long-term value creation through reaffirmed EPS guidance, upper-half long-term growth target, increasing dividend, and potential upside from data center demand and the NorthWestern Energy merger.
• Customers: Benefits from $1 billion capital plan for safety, reliability, and growth; enhanced system resiliency from projects like Ready Wyoming; long-term price stability; and cost-effective energy. New rates from regulatory reviews ensure recovery of investments to serve customer needs.
• Employees: Potential for disruption and distraction during the merger pendency, but also opportunities within a larger, more competitive combined entity.
• Regulators: Engaged in multiple regulatory processes for rate reviews and merger approvals, demonstrating compliance and active participation.
• Creditors: Maintained strong investment-grade credit rating and healthy balance sheet, ensuring financial stability.

Next Steps

• Complete the 260-mile Ready Wyoming transmission expansion project by year-end 2025.
• Transition Meta's new AI data center in Cheyenne from construction power to permanent service later this year.
• Receive procedural schedules and commence the discovery process for the NorthWestern Energy merger approval this quarter.
• Diligently work through the S-4 process for the merger.
• Anticipate approval of the Nebraska rate review settlement in December 2025.
• New rates in Nebraska to be effective January 1, 2026.
• Pay off January 2026 long-term debt maturity of $300 million.
• Present an updated financial outlook, including earnings guidance for 2026 and capital investment plans for 2026-2030, during the Q4 and full year earnings call in February 2026.
• Place the 99-megawatt Lange II generation project in service in the second half of 2026.
• Secure all necessary approvals to finalize the merger with NorthWestern Energy within the second half of 2026.
• Place the battery storage project in Colorado in service in 2027.
• Prepare to file a gas rate review in Arkansas.
• Prepare for an electric rate review in South Dakota.
• Prepare to file the Wildfire Mitigation Plan in Wyoming this month for commission approval.
• Continue negotiating service agreements for the expanded data center pipeline.
• Continue negotiating on the 200-megawatt PPA for Colorado solar projects.

Key Dates

Recommendation

The filing presents a highly optimistic outlook with reaffirmed strong earnings guidance, significant progress on major capital projects, and a substantial increase in the data center demand pipeline (over 3 gigawatts under NDA), which is explicitly stated to be a "significant opportunity from Black Hills long-term growth perspective" and could lead to substantial EPS upside. The planned merger with NorthWestern Energy is also positioned as a value-accretive move. The company's strong regulatory execution, healthy balance sheet, and consistent dividend track record further bolster confidence. The combination of current performance, clear growth drivers, and potential for significant future upside from data centers makes it a compelling investment.

Keywords

Utilities, Electric Utility, Natural Gas Utility, SEC Filing, Earnings Call, Q3 2025, Black Hills Corporation, NorthWestern Energy, Merger, Acquisition, Data Centers, Hyperscale, AI Data Centers, Capital Plan, Regulatory Review, Rate Case, Transmission Expansion, Generation Project, Battery Storage, Clean Energy Plan, EPS Guidance, Dividend, Credit Rating, Wyoming, South Dakota, Nebraska, Colorado, Arkansas, Wildfire Mitigation