ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Summary
We are a customer-focused energy solutions provider with a mission of Improving Life with Energy for 1.37 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—transform to a simple and connected company and Growth—grow to be a dominant long-term energy provider.
We conduct our business operations through two operating segments: Electric Utilities and Gas Utilities. Certain unallocated corporate expenses that support our operating segments are presented as Corporate and Other. We conduct our utility operations under the name Black Hills Energy predominantly in rural areas of the Rocky Mountains and Midwestern states. We consider ourselves a domestic electric and natural gas utility company.
We have provided energy and served customers for 142 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.
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Recent Developments
Pending Merger with NorthWestern
On August 18, 2025, we entered into the Merger Agreement with NorthWestern and Merger Sub. See Note 17 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further discussion about the pending Merger.
One Big Beautiful Bill Act
See Note 15 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for discussion surrounding the OBBBA.
Trade Tariffs
Trade tariffs have been enacted over the last several months through presidential executive orders affecting products exported by several U.S. trading partners, and retaliatory tariffs have been imposed by some of these trading partners. While some tariffs scheduled to take effect were temporarily suspended, broad tariffs remain in effect with the possibility of additional tariffs being imposed. 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 of financial performance to date. We are closely monitoring the impacts of trade tariffs and the potential effect they may have on our financial positions, results of operations, or cash flows.
Business Segment Recent Developments
Electric Utilities
•
See Note 2 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for recent rate review activity for Colorado Electric.
•
In December 2025, the Ready Wyoming project was fully completed and placed in service and now interconnects South Dakota Electric’s and Wyoming Electric’s transmission systems. Ready Wyoming was originally announced in November 2021 and construction commenced in late 2023. The project provides customers long-term price stability and greater flexibility as power markets develop in the western United States. This project is also expected to enable economic growth in Wyoming, expand access to renewable resources and facilitate additional renewable development across wind- and sun-rich resource areas.
•
In 2025, Wyoming Electric continued to grow its large-load demand from existing data center customers, Microsoft and Meta, under its LPCS Tariff. In July 2024, Wyoming Electric announced it would partner with Meta to provide power for its AI data center. Meta's new AI data center plans to transition from construction power to permanent service later in the first quarter of 2026. We are also actively negotiating with prospective new data center customers that would further grow our load pipeline under Wyoming Electric's LPCS Tariff and also through strategic investments in new transmission and generation.
•
In 2025, Wyoming Electric set multiple all-time and winter records for System Peak Demand. The most recent all-time peak of 379 MW was set on June 20, 2025 and the most recent winter peak of 375 MW was set on November 30, 2025. Prior to 2025, the previous all-time and winter peak was 314 MW set on January 11, 2024.
•
On March 28, 2025, South Dakota Electric filed a CPCN with the WPSC for the Lange II project, which was approved in June 2025. The new facility began construction in the third quarter of 2025 and is anticipated to be in service in the fourth quarter of 2026. The addition of these resources will replace generation facilities planned for retirement and support updated planning reserve margin requirements.
•
In 2025, Colorado Electric received CPUC approval for the addition of 250 MW of new renewable generation resources in support of its Clean Energy Plan, which included a 50-MW utility-owned battery storage project and a 200-MW solar PPA. On November 3, the CPUC approved the CPCN for the 50-MW battery storage project. During the first quarter of 2026, Colorado Electric expects to execute the 200-MW solar PPA.
•
In 2024, we published our first formal WMP, which is an overview of our three-layered approach to manage wildfire risks driven by asset-based risk assessments that include asset programs, integrity programs and operational response. On June 30, 2025, we established our Emergency PSPS program across all three of our electric utilities to promote customer safety and mitigate wildfire risk. In establishing the Emergency PSPS program, we engaged with wildfire experts and key stakeholders including customers, community and local agencies, regulators and community leaders.
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•
On March 6, 2025, the state of Wyoming enacted comprehensive wildfire liability mitigation legislation (HB0192), effective July 1, 2025. The legislation provides material liability protections for a utility that complies with its commission-approved wildfire mitigation plan. In November 2025, we filed our WMP with the WPSC and anticipate approval in March 2026.
Gas Utilities
•
See Note 2 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for recent rate review activity for Arkansas Gas, Iowa Gas, Kansas Gas, and Nebraska Gas.
Corporate and Other
•
See Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for information regarding our corporate Revolving Credit Facility, October 2, 2025 debt offering and ATM program activity.
Results of Operations
Our discussion and analysis for the year ended December 31, 2025, compared to 2024, is included herein. For discussion and analysis for the year ended December 31, 2024, compared to 2023, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 12, 2025.
All amounts are presented on a pre-tax basis unless otherwise indicated. Minor differences in amounts may result due to rounding.
Consolidated Summary and Overview
For the Years Ended December 31,
(in millions, except per share amounts)
Operating income (loss):
Corporate and Other (a) (5.8 ) (1.2 ) (4.6 ) (4.9 ) 3.7
Other income (expense), net 6.1 (1.4 ) 7.5 (3.2 ) 1.8
Weighted average common shares outstanding, Diluted 73.2 69.9 3.3 67.1 2.8
(a)
Includes inter-segment eliminations.
2025 Compared to 2024
•
Electric Utilities’ operating income decreased $10.5 million primarily due to higher operating expenses, unplanned generation outages, lower transmission services revenues and unfavorable weather partially offset by new rates and rider recovery;
•
Gas Utilities’ operating income increased $49.5 million primarily due to new rates and rider recovery driven by the Arkansas Gas, Iowa Gas, Kansas Gas, and Nebraska Gas rate reviews and favorable weather partially offset by unfavorable retail customer usage and higher operating expenses;
•
Corporate and Other operating (loss) increased by $4.6 million primarily due to costs related to the pending Merger partially offset by a one-time favorable true-up from the consolidation of our Captive;
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•
Net interest expense increased $18.4 million due to higher interest rates on long-term debt, higher CP Program borrowings and lower interest income partially offset by higher AFUDC debt;
•
Other income, net increased $7.5 million primarily due to higher AFUDC equity driven by construction work-in-progress balances and higher investment income from our Captive;
•
Income tax (expense) increased $7.4 million primarily due to higher pre-tax income and a higher effective tax rate; and
•
Net income attributable to non-controlling interest decreased $2.4 million due to lower net income from Black Hills Colorado IPP primarily driven by unplanned generation outages.
Segment Operating Results
Non-GAAP Financial Measure
The following discussion includes financial information prepared in accordance with GAAP and a “non-GAAP financial measure", Electric and Gas Utility margin. 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. We define Electric and Gas Utility margin as operating revenue less cost of fuel, purchased power and cost of natural gas sold. Electric and Gas Utility margin is a non-GAAP financial measure due to the exclusion of operation and maintenance expenses determined to be directly attributable to revenue-producing activities, depreciation and amortization expenses, and taxes other than income taxes from the measure.
We believe that Electric and Gas Utility margin provides a useful basis for evaluating our segment operating results since our Utilities have regulatory mechanisms that allow them to pass prudently incurred costs of energy through to the customer in current rates. As a result, management uses Electric and Gas Utility margin internally when assessing the financial performance of our operating segments as this measure excludes the majority of revenue fluctuations caused by changes in these costs of energy. Similarly, the presentation of Electric and Gas Utility margin is intended to supplement investors’ understanding of operating performance.
Our Electric and Gas Utility margin measure may not be comparable to other companies’ Electric and Gas Utility margin measures. The following table includes a reconciliation of Electric and Gas Utility margin to Gross margin, the most directly comparable GAAP measure:
Electric Utilities Gas Utilities
For the Years Ended December 31,
(in millions)
(a)
Operations and maintenance expenses which are deemed to be directly attributable to revenue-producing activities include plant operations and maintenance expenses at our electric generation facilities, operations and maintenance expenses at our WRDC coal mine, and electric and gas transmission and distribution expenses. These amounts are included in the table above to calculate gross margin in accordance with GAAP. These amounts excluded operations and maintenance expenses not directly attributable to revenue-producing activities of $100.9 million, $96.1 million, and $83.0 million for the years ended 2025, 2024, and 2023, respectively, for the Electric Utilities and $157.4 million, $148.7 million, and $154.7 million for the years ended 2025, 2024, and 2023, respectively, for the Gas Utilities.
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Electric Utilities
Operating results for the years ended December 31 for the Electric Utilities were as follows:
(in millions)
2025 Compared to 2024
•
Electric Utility margin increased as a result of:
(in millions)
New rates and rider recovery $ 25.0
Retail customer growth and usage 1.9
Transmission services (5.9 )
Weather (2.7 )
Off-system excess energy sales (1.8 )
Other (3.0 )
•
Operations and maintenance expense increased primarily due to $5.5 million of higher outside services expenses, $4.8 million of expenses related to unplanned generation outages, $3.7 million of higher employee costs and $1.5 million from higher insurance expense primarily driven by higher excess liability premiums. Other unfavorable variances, none of which were individually significant, comprised the remainder of the difference when compared to the same period in 2024.
•
Depreciation and amortization increased primarily due to a higher asset base driven by capital expenditures.
•
Taxes other than income taxes were comparable to 2024.
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Operating Statistics
Revenue Quantities Sold
For the year ended December 31, For the year ended December 31,
(in millions) (in GWh)
Retail Revenue -
(a)
The increase in industrial revenues and quantities sold for 2025 compared to 2024 was primarily driven by Wyoming Electric LPCS Tariff and BCIS Tariff customers.
(b)
Primarily related to Integrated Generation, inter-segment rent, and non-regulated services to our retail customers under the Service Guard Comfort Plan and Tech Services.
(c)
Includes company uses and line losses.
Revenue Quantities Sold
For the year ended December 31, For the year ended December 31,
(in millions) (in GWh)
For the year ended December 31,
Quantities Generated and Purchased by Fuel Type 2025 2024 2023
(in GWh)
Generated:
Purchased:
Coal, Natural Gas, Diesel Oil and Other Market Purchases 1,860.6 1,117.8 1,842.9
(a)
The decrease in coal generation for 2025 compared to 2024 was primarily driven by unplanned outages at Wygen III.
(b)
The increase in total purchases for 2025 compared to 2024 was primarily driven by increased demand from Wyoming Electric LPCS Tariff and BCIS Tariff customers and unplanned outages at Wygen III as discussed in (a) above.
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For the year ended December 31,
Quantities Generated and Purchased by Business Unit 2025 2024 2023
(in GWh)
Generated:
Purchased:
For the year ended December 31,
Heating Degree Days:
Cooling Degree Days:
(a)
Degree days are calculated based on a weighted average of total customers by state.
For the year ended December 31,
Contracted generating facilities Availability (a) by fuel type 2025 2024 2023
Natural gas and diesel oil (b) 92.6% 92.9% 92.1%
(a)
Availability and Wind Capacity Factor are calculated using a weighted average based on capacity of our generating fleet.
(b)
2025 included unplanned outages at Wygen III, Pueblo Airport Generation #4-5 and Busch Ranch I and II. 2024 included unplanned outages at Wygen I and Pueblo Airport Generation #4-5.
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Gas Utilities
Operating results for the years ended December 31 for the Gas Utilities were as follows:
(in millions)
2025 Compared to 2024
•
Gas Utility margin increased as a result of:
(in millions)
New rates and rider recovery $ 60.9
Transport and transmission 3.3
Retail customer growth 4.3
Retail customer usage (11.0 )
Other (3.0 )
•
Operations and maintenance expense increased primarily due to $3.2 million of higher insurance expense primarily driven by higher excess liability premiums, $1.3 million of increased bad debt expense attributable to higher customer billings and $1.3 million of higher IT-related costs. Other unfavorable variances, none of which were individually significant, comprised the remainder of the difference when compared to the same period in 2024.
•
Depreciation and amortization increased primarily due to a higher asset base driven by capital expenditures.
•
Taxes other than income taxes were comparable to 2024.
Operating Statistics
Revenue Quantities Sold and Transported
For the year ended December 31, For the year ended December 31,
(in millions (Dth in millions)
Retail Revenue -
(a)
Includes Black Hills Energy Services revenue under the Choice Gas Program.
(b)
Includes inter-segment rent and non-regulated services under the Service Guard Comfort Plan, Tech Services, and HomeServe.
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Revenue Quantities Sold and Transported
For the year ended December 31, For the year ended December 31,
(in millions) (Dth in millions)
For the year ended December 31,
(a)
Arkansas Gas and Kansas Gas have weather normalization mechanisms that mitigate the weather impact on Gas Utility margins. Nebraska Gas received NPSC approval to implement a two-year pilot program for a weather normalization mechanism which was effective August 1, 2025.
(b)
Heating degree days are calculated based on a weighted average of total customers by state excluding Kansas Gas and Nebraska Gas (effective in August 2025) due to their weather normalization mechanisms. Arkansas Gas is partially excluded based on the weather normalization mechanism in effect from November through April.
Corporate and Other
Corporate and Other consists of certain unallocated expenses for administrative activities that support our operating segments. Corporate and Other also includes our Captive, business development activities that are not part of our operating segments, and inter-segment eliminations.
Corporate and Other operating results for the years ended December 31 were as follows:
(in millions)
Operating (loss) $ (5.8 ) $ (1.2 ) $ (4.6 ) $ (4.9 ) $ 3.7
2025 Compared to 2024
•
Operating loss increased primarily due to $9.9 million of costs related to the pending Merger partially offset by a one-time favorable true-up from the consolidation of our Captive.
Consolidated Interest Expense, Other Income (Expense) and Income Tax (Expense)
(in millions)
Other income (expense), net 6.1 (1.4 ) 7.5 (3.2 ) 1.8
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2025 Compared to 2024
•
Interest expense, net increased primarily due to higher interest rates on long-term debt, higher CP Program borrowings and lower interest income partially offset by higher AFUDC debt driven by construction work-in-progress balances related to the Lange II and Ready Wyoming projects;
•
Other income, net increased due to higher AFUDC equity driven by construction work-in-progress balances related to the Lange II and Ready Wyoming projects and higher investment income from our Captive;
•
Income tax (expense) increased primarily due to higher pre-tax income. The effective tax rate was 12.7% for 2025 and 11.3% for 2024. The higher effective tax rate was primarily driven by the non-deductibility of certain costs related to the pending Merger and lower flow-through tax benefits related to repair costs. See Note 15 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for additional details.
Liquidity and Capital Resources
OVERVIEW
Our company requires significant cash to support and grow our businesses. Our primary sources of cash are generated from our operating activities, Revolving Credit Facility, CP Program, ATM, and ability to access the public and private capital markets through debt and equity securities offerings when necessary. This cash is used for, among other things, working capital, capital expenditures, dividends, pension funding, investments in or acquisitions of assets and businesses, payment of debt obligations, and redemption of outstanding debt and equity securities when required or financially appropriate.
We experience significant cash requirements during peak months of the winter heating season due to higher natural gas consumption, during periods of high natural gas prices, and during the construction season, which typically peaks in spring and summer.
We believe that our cash on hand, operating cash flows, existing borrowing capacity, and ability to complete new debt and equity financings, taken in their entirety, provide sufficient capital resources to support and grow our business.
The following table provides an informational summary of our liquidity and capital structure as of December 31:
(dollars in millions)
Cash and cash equivalents $ 182.8 $ 16.1
Capital structure
Short-term debt $ - $ 133.8
Total stockholders' equity (excludes non-controlling interest) 3,823.6 3,501.5
Debt to capitalization 55.1 % 55.6 %
Long-term debt to total debt 100.0 % 96.9 %
(a)
Available capacity under Revolving Credit Facility and CP Program represents $750 million of total borrowing capacity less outstanding borrowings and letters of credit. See Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for more information.
Future Financing Plans
We plan to support and grow our business by using cash generated from operating activities and various financing alternatives, which could include our Revolving Credit Facility, our CP Program, and the issuance of common stock under our ATM program or in a secondary offering. We plan to re-finance our $400 million, 3.15%, senior unsecured notes due January 2027, at or before the maturity date. Additionally, our current shelf registration statement expires in 2026 and we expect to file a new shelf registration statement to replace it.
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CASH FLOW ACTIVITIES
The following tables summarize our cash flows for the years ended December 31:
Operating Activities:
(in millions)
Changes in certain operating assets and liabilities:
2025 Compared to 2024
Net cash provided by operating activities was $45.9 million lower which was attributable to:
•
Total earnings (net income plus non-cash adjustments) were $37.7 million higher primarily as a result of new rates and rider recovery, increased demand from LPCS Tariff and BCIS Tariff customers partially offset by higher operating expenses and higher net interest expense.
•
Net inflows from changes in certain operating assets and liabilities were $86.0 million lower, primarily attributable to:
o
Cash outflows increased by approximately $50.3 million as a result of changes in accounts receivable and other current assets primarily due to higher natural gas in storage inventories driven by fluctuations in commodity prices;
o
Cash inflows decreased by approximately $4.8 million as a result of changes in accounts payable and other current liabilities primarily driven by fluctuations in commodity prices, remediation costs for our manufactured gas plant site in Iowa and changes in other working capital requirements; and
o
Cash inflows decreased by approximately $30.9 million as a result of changes in our regulatory assets and liabilities primarily due to lower recoveries of our Winter Storm Uri regulatory asset as recovery is now complete in most of our jurisdictions.
•
Cash outflows decreased $2.4 million from other operating activities.
Investing Activities:
(in millions)
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2025 Compared to 2024
Net cash used in investing activities was $82.2 million higher which was attributable to:
•
Cash outflows from capital expenditures (which are net of contributions in aid of construction) increased $75.6 million primarily as a result of the Ready Wyoming and Lange II projects and prior year receipts related to contributions in aid of construction for data center projects in Wyoming partially offset by prior year expenditures from Black Hills Energy Renewable Resources' acquisition of an RNG production facility at a landfill in Dubuque, Iowa; and
•
Cash outflows increased $6.6 million for other investing activities primarily due to higher AFUDC debt driven by construction work-in-progress balances related to the Lange II and Ready Wyoming projects.
Financing Activities:
(in millions)
Distributions to non-controlling interests (9.8 ) (17.4 ) 7.6 (18.3 ) 0.9
Other financing activities (5.9 ) (8.4 ) 2.5 (13.0 ) 4.6
2025 Compared to 2024
Net cash provided by financing activities was $364.7 million higher which was primarily attributable to:
•
Cash outflows increased $15.6 million due to the increased dividend rate per share and increased number of common shares outstanding;
•
Cash inflows increased $37.8 million due to increased issuances of common stock;
•
Net inflows from changes in short-term and long-term debt (repayments) borrowings increased $332.4 million due to timing of repayments and borrowing activity. Proceeds from the issuance of $450 million of senior unsecured notes in October 2025 were used to repay our $300 million senior unsecured notes in January 2026. In 2024, proceeds from the issuance of $450 million senior unsecured notes in May 2024, along with available cash and short-term borrowings under our existing facilities, were used to repay $600 million senior unsecured notes in August 2024;
•
Distributions to non-controlling interests decreased $7.6 million due to lower net income from Black Hills Colorado IPP primarily driven by unplanned generation outages; and
•
Cash outflows decreased by $2.5 million for other financing activities.
CAPITAL RESOURCES
Shelf Registration Statement
We maintain an effective shelf registration statement with the SEC under which we may issue, from time to time, an unspecified amount of senior debt securities, subordinate debt securities, common stock, preferred stock, warrants, and other securities. Our current shelf registration statement expires in 2026 and we expect to file a new shelf registration statement to replace it.
Short-term Debt
For more information on our Revolving Credit Facility and CP Program, see Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
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Long-term Debt
For information on our long-term debt, see Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Financial Covenants
The Revolving Credit Facility and Wyoming Electric’s financing agreements contain covenant requirements. We were in compliance with these covenants as of December 31, 2025. See additional information in Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Equity
For information regarding equity, see Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Utility Money Pool
As a utility holding company, we are required to establish a cash management program to address lending and borrowing activities between our utilities and the Company. We have established utility money pool agreements which address these requirements. These agreements are on file with the FERC and appropriate state regulators. Under the utility money pool agreements, our utilities may, at their option, borrow and extend short-term loans to the utility money pool at market-based rates. While the utility money pool may borrow funds from the Company (as ultimate parent company), the money pool arrangement does not allow loans from our utility subsidiaries to the Company (as ultimate parent company) or to non-regulated affiliates.
CREDIT RATINGS
Financing for operational needs and capital expenditure requirements, not satisfied by operating cash flows, depends upon the cost and availability of external funds through both short and long-term financing. In order to operate and grow our business, we need to consistently maintain the ability to raise capital on favorable terms. Access to funds is dependent upon factors such as general economic and capital market conditions, regulatory authorizations and policies, the Company’s credit ratings, cash flows from routine operations, and the credit ratings of counterparties. After assessing the current operating performance, liquidity, and 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. We note that credit ratings are not recommendations to buy, sell, or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
The following table represents the credit ratings and rating outlook of BHC as of the date of this report:
Rating Agency Senior Unsecured Rating Outlook
S&P (a) BBB+ Stable
Moody’s (b) Baa2 Stable
(a)
On August 19, 2025, S&P affirmed our BBB+ rating and maintained a Stable outlook.
(b)
On August 19, 2025, Moody's affirmed our Baa2 rating and maintained a Stable outlook.
The following table represents the credit ratings of South Dakota Electric as of the date of this report:
Rating Agency Senior Secured Rating
S&P (a) A
(a)
On August 19, 2025, S&P affirmed A rating.
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CAPITAL REQUIREMENTS
Capital Expenditures
Capital expenditures are a substantial portion of our cash requirements each year and we continue to forecast a robust capital expenditure program during the next five years. A key strategic focus is to modernize and harden our utility infrastructure to meet customers’ and communities’ varied energy needs and ensure the continued delivery of safe, reliable and cost-effective energy. In addition, we invest in the expansion, capacity, and integrity of our systems to meet customer growth. A significant portion of our capital expenditures are included in utility rate base and eligible for recovery from our utility customers with regulatory approval. Those capital expenditures also earn a rate of return authorized by the commissions in the jurisdictions in which we operate.
To meet our electric customers’ continued expectations of high levels of reliability, a key strength of the Company, our Electric Utilities utilize an integrity program to ensure the timely repair and replacement of aging infrastructure.
Our Gas Utilities utilize a programmatic approach to system-wide pipeline replacement, particularly in high consequence areas. Under the programmatic approach, obsolete, at-risk and vintage materials are replaced in a proactive and systematic time frame. We have removed all cast- and wrought-iron from our natural gas transmission and distribution systems and continue to replace aging infrastructure through programs that prioritize safety and reliability for our customers. Our Gas Utilities are authorized to use system safety, integrity and replacement cost recovery mechanisms that provide for customer rate adjustments, between rate reviews, which allow timely recovery of costs incurred in repairing and replacing the gas delivery systems with a return on the investment.
As of December 31, 2025, we estimate our five-year capital investment to be approximately $4.7 billion, with most of that investment targeted toward upgrading existing utility infrastructure, supporting customer and community growth needs, and complying with safety requirements. Our actual 2025 and forecasted capital expenditures for the next five years from 2026 through 2030 are as follows:
Actual (a) Forecasted (b)
(in millions)
(a)
Includes accruals for property, plant and equipment as disclosed as supplemental cash flow information in the Consolidated Statements of Cash Flows in the Consolidated Financial Statements in this Annual Report on Form 10-K. Capital expenditures are presented net of CIACs in the Consolidated Statements of Cash Flows.
(b)
Projects are being evaluated by our segments for timing, cost and other factors
Our historical capital expenditures by reportable segment are shown in Note 16 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Repayments of Indebtedness
For information relating to repayments of our short- and long-term debt and associated interest payments, see Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Unconditional Purchase Obligations
We have unconditional purchase obligations which include the energy and capacity costs associated with our PPAs, transmission services agreements, and natural gas capacity, transportation and storage agreements. Additionally, our Gas Utilities have commitments to purchase physical quantities of natural gas under contracts indexed to various forward natural gas price curves. For additional information. see Note 3 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
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Common Stock Dividends
2025 represented our 55th consecutive year of increasing dividends. In January 2026, our Board of Directors declared a quarterly dividend of $0.703 per share, equivalent to an annual dividend of $2.812 per share. We continue to target a dividend payout ratio of 55% to 65% of net income. A dependable and increasing dividend is an important component of our strategy for delivering long-term value for our shareholders. Pursuant to the Merger Agreement, we agreed we would not increase our dividends by more than 4% over the prior year dividend amount during the pendency of the Merger without NorthWestern's consent.
Future cash dividends, if any, will be dependent on our results of operations, financial position, cash flows, reinvestment opportunities, and other factors, and will be evaluated and approved by our Board of Directors.
Additionally, there are certain statutory limitations that could affect future cash dividends paid. Federal law places limits on the ability of public utilities within a holding company structure to declare dividends. Specifically, under the Federal Power Act, a public utility may not pay dividends from any funds properly included in a capital account. The utility subsidiaries’ dividends may be limited directly or indirectly by state regulatory commissions or bond indenture covenants. See additional information in Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
The table below provides our dividends paid, dividend payout ratio, and dividends paid per share for the three years ended December 31:
(Dividends Paid in millions)
Dividend Payout Ratio 68 % 66 % 64 %
Defined Benefit Pension Plan
We have one defined benefit pension plan, the Black Hills Retirement Plan (Pension Plan). The unfunded status of the Pension Plan is defined as the amount the projected benefit obligation exceeds the plan assets. The unfunded status of the Pension Plan is $42.2 million as of December 31, 2025, compared to $41.4 million as of December 31, 2024. See further information in Note 13 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
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 December 31, 2025, we had sufficient liquidity to cover collateral that could be required to be posted under these contracts. The cash collateral we were required to post at December 31, 2025, was not material. See Note 9 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Guarantees
We provide various guarantees, which represent off-balance sheet commitments, supporting certain of our subsidiaries under specified agreements or transactions. For more information on these guarantees, see Note 3 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
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Critical Accounting Estimates
We prepare our consolidated financial statements in conformity with GAAP. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in application. There are also areas which require management’s judgment in selecting among available GAAP alternatives. We are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. We continue to closely monitor the macroeconomic environment and related impacts on our critical accounting estimates including, but not limited to, collectability of customer receivables, recoverability of regulatory assets, impairment risk of goodwill and long-lived assets, and contingent liabilities. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results may differ from our estimates and to the extent there are material differences between these estimates, judgments or assumptions, and actual results, our financial statements will be affected. We believe the following accounting estimates are the most critical in understanding and evaluating our reported financial results. We have reviewed these critical accounting estimates and related disclosures with our Audit Committee.
The following discussion of our critical accounting estimates should be read in conjunction with Note 1, “Business Description and Significant Accounting Policies” of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Regulation
Our regulated Electric and Gas Utilities are subject to cost-of-service regulation and earnings oversight from federal and state utility commissions. This regulatory treatment does not provide any assurance as to achievement of desired earnings levels. Our retail electric and gas utility rates are regulated on a state-by-state basis by the relevant state regulatory commissions based on an analysis of our costs, as reviewed and approved in a regulatory proceeding. The rates that we are allowed to charge may or may not match our related costs and allowed return on invested capital at any given time.
Management continually assesses the probability of future recoveries associated with regulatory assets and future obligations associated with regulatory liabilities. Factors such as the current regulatory environment, recently issued rate orders, and historical precedents are considered. As a result, we believe that the accounting prescribed under rate-based regulation remains appropriate and our regulatory assets are probable of recovery in current rates or in future rate proceedings.
To some degree, each of our Electric and Gas Utilities are permitted to recover certain costs (such as increased fuel and purchased power costs) outside of a base rate review. To the extent we are able to pass through such costs to our customers, and a state regulatory commission subsequently determines that such costs should not have been paid by the customers, we may be required to refund such costs.
As of December 31, 2025, and 2024, we had total regulatory assets of $394.7 million and $427.7 million, respectively, and total regulatory liabilities of $588.2 million and $568.7 million, respectively. See Note 2 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further information.
Goodwill
We perform a goodwill impairment test on an annual basis or upon the occurrence of events or changes in circumstances that indicate that the asset might be impaired. Our annual goodwill impairment testing date is as of October 1, which aligns with our financial planning process.
Accounting standards for testing goodwill for impairment require the application of either a qualitative or quantitative assessment to analyze whether or not goodwill has been impaired. Goodwill is tested for impairment at the reporting unit level. Under either the qualitative or quantitative assessment, the estimated fair value of a reporting unit is compared with its carrying amount, including goodwill. If the carrying amount exceeds fair value, then an impairment loss would be recognized in an amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit.
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Application of the goodwill impairment test requires judgment, including the identification of reporting units and determining the fair value of the reporting unit. We have determined that the reporting units for goodwill impairment testing are our operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available. We estimate the fair value of our reporting units using a combination of an income approach, which estimates fair value based on discounted future cash flows, and a market approach, which estimates fair value based on market comparables within the utility and energy industry. These valuations require significant judgments, including, but not limited to: 1) estimates of future cash flows, based on our internal five-year business plans and adjusted as appropriate for our view of market participant assumptions, with long range cash flows estimated using a terminal value calculation; 2) estimates of long-term growth rates for our businesses; 3) the determination of an appropriate weighted-average cost of capital or discount rate; and 4) the utilization of market information such as financial estimates from comparative peer companies and recent sales transactions for comparable assets within the utility and energy industry. Varying by reporting unit, weighted average cost of capital in the range of 6.7% to 7.2% and long-term growth rate projections of 1.75% were utilized in the goodwill impairment test performed as of October 1, 2025. Although 1.75% was used for a long-term growth rate projection, the short-term projected growth rate is higher with planned recovery of capital investments through rider mechanisms and rate reviews. Under the market approach, we estimate fair value using multiples derived from enterprise value to EBITDA for comparative peer companies for each respective reporting unit. These multiples are applied to operating data for each reporting unit to arrive at an indication of fair value. In addition, we add a reasonable control premium when calculating fair value utilizing the peer multiples, which is estimated as the premium that would be received in a sale in an orderly transaction between market participants.
The estimates and assumptions used in our impairment assessments are based on available market information and we believe they are reasonable. However, variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated.
For the years ended December 31, 2025, 2024, and 2023, there were no impairment losses recorded. At December 31, 2025, the fair value exceeded the carrying value at all reporting units.
See Item 1A - Risk Factors and Note 1 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.
Income Taxes
The Company and its subsidiaries file consolidated federal income tax returns. Each entity records income taxes as if it were a separate taxpayer for both federal and state income tax purposes and consolidating adjustments are allocated to the subsidiaries based on separate company computations of taxable income or loss.
The Company uses the asset and liability method in accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized at currently enacted income tax rates, to reflect the tax effect of temporary differences between the financial and tax basis of assets and liabilities as well as operating loss and tax credit carryforwards. Such temporary differences are the result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and provides any necessary valuation allowances as required. If we determine that we will be unable to realize all or part of our deferred tax assets in the future, an adjustment to the deferred tax asset would be made in the period such determination was made. These adjustments may increase or decrease earnings. Although we believe our assumptions, judgments, and estimates are reasonable, changes in tax laws or our interpretations of tax laws and the resolution of current and any future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements.
See Note 15 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our activities in the regulated and non-regulated energy industries expose us to a number of risks in the normal operations of our businesses. Depending on the activity, we are exposed to varying degrees of market risk and credit risk.
Market risk is the potential loss that may occur as a result of an adverse change in market price, rate or supply. We are exposed, but not limited to, the following market risks:
•
Commodity price risk associated with our retail natural gas services, wholesale electric power marketing activities and fuel procurement for several of our gas-fired generation assets. Market fluctuations may occur due to unpredictable factors such as weather, wildfires, geopolitical events, pandemics, market speculation, recession, inflation, pipeline constraints, and other factors that may impact natural gas and electric energy supply and demand; and
•
Interest rate risk associated with future debt, including reduced access to liquidity during periods of extreme capital markets volatility.
Credit risk is associated with financial loss resulting from non-performance of contractual obligations by a counterparty.
To manage and mitigate these identified risks, we have adopted the Black Hills Corporation Risk Policies and Procedures. The Black Hills Corporation Risk Policies and Procedures have been approved by our Executive Risk Committee. These policies relate to numerous matters including governance, control infrastructure, authorized commodities and trading instruments, prohibited activities, and employee conduct. We report significant issues or concerns pertaining to the Risk Policies and Procedures to the Audit Committee of our Board of Directors. The Executive Risk Committee, which includes senior level executives, meets at least quarterly and as necessary, to review our business and credit activities and to ensure that these activities are conducted within the authorized policies.
Commodity Price Risk
Electric and Gas Utilities
Our Utilities have various provisions that allow them to pass the prudently-incurred cost of energy through to the customer. To the extent energy prices are higher or lower than amounts in our current billing rates, adjustments are made on a periodic basis to reflect billed amounts to match the actual energy cost we incurred. In Colorado, South Dakota, and Wyoming, we have ECA or PCA provisions that adjust electric rates when energy costs are higher or lower than the costs included in our tariffs. In Arkansas, Colorado, Iowa, Kansas, Nebraska, and Wyoming, we have GCA provisions that adjust natural gas rates when our natural gas costs are higher or lower than the energy cost included in our tariffs. These adjustments are subject to periodic prudence reviews by the state regulatory commissions. If state regulatory commissions decide to discontinue these tariff-based adjustment mechanisms, or there are delays in the timing of recovery under these mechanisms, we may be more exposed to commodity price risk.
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), expose our utility customers to natural gas price volatility. Therefore, as allowed or required by state regulatory 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.
For our regulated 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 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 Consolidated Statements of Income. See additional information in Note 9 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Wholesale Power
There is a potential risk that our wholesale power sales could exceed our current generating capacity, which may arise from unplanned plant outages or from unanticipated load demands. To manage such risk, we restrict wholesale off-system sales to amounts by which our anticipated generating capabilities and purchased power resources exceed our anticipated load requirements plus a required reserve margin.
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Black Hills Energy Services
Through our non-regulated natural gas commodity supplier, we buy and sell natural gas in Nebraska and Wyoming 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 risks using over-the-counter and exchange traded options and swaps with counterparties in anticipation of forecasted purchases and sales. A portion of our over-the-counter swaps have been designated as cash flow hedges to mitigate the commodity price risk associated with fixed price forward contracts to supply gas to our Choice Gas Program customers. The gain or loss on these designated derivatives is reported in AOCI in the accompanying Consolidated Balance Sheets and reclassified into earnings in the same period that the underlying hedged item is recognized in earnings.
At December 31, 2025, and 2024, a 10% change in market prices for our derivative instruments would not materially impact pre-tax income, the fair values of our derivative assets and liabilities, or OCI.
See additional commodity risk and derivative information in Note 9 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Interest Rate Risk
Periodically, we have engaged in activities to manage risks associated with changes in interest rates. We have utilized pay-fixed interest rate swap agreements to reduce exposure to interest rate fluctuations associated with floating rate debt obligations and anticipated debt refinancings. At December 31, 2025, we had no interest rate swaps in place. Further details of past swap agreements are set forth in Note 9 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
At December 31, 2025, 99.8% of our debt is fixed rate debt, which limits our exposure to variable interest rate fluctuations. A hypothetical 100 basis point increase in the benchmark rate on our variable rate debt would not materially impact pre-tax interest expense for the years ended December 31, 2025, and 2024, respectively. See Note 8 for further information on cash amounts outstanding under short- and long-term variable rate borrowings.
We are subject to interest rate risk associated with our pension and post-retirement benefit obligations. Changes in interest rates impact the liabilities associated with these benefit plans as well as the amount of income or expense recognized for these plans. Declines in the value of the plan assets could diminish the funded status of the pension plans and potentially increase the requirements to make cash contributions to these plans. See additional information in Note 13 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Credit Risk
We have adopted the Black Hills Corporation Credit Policy that establishes guidelines, controls and limits to manage and mitigate credit risk within risk tolerances established by the Board of Directors. 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 guarantees, cash collateral requirements, letters of credit and other security agreements.
We perform periodic credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s 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.
See more information in Notes 1 and 9 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management’s Report on Internal Control Over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2025, based on the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission “COSO”. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on our evaluation, we have concluded that our internal control over financial reporting was effective as of December 31, 2025.
Deloitte & Touche LLP, an independent registered public accounting firm, as auditors of Black Hills Corporation’s financial statements, has issued an attestation report on the effectiveness of Black Hills Corporation's internal control over financial reporting as of December 31, 2025. Deloitte & Touche LLP's report on Black Hills Corporation's internal control over financial reporting is included herein.
Black Hills Corporation
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Black Hills Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Black Hills Corporation and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 11, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Regulatory Accounting – Impact of Rate Regulation on the Financial Statements – Refer to Notes 1 and 2 to the Financial Statements
Critical Audit Matter Description
The Company is subject to cost-of-service regulation and earnings oversight by state and federal utility commissions (collectively, the “Commissions”), which have jurisdiction over the Company’s electric rates in Colorado, Montana, South Dakota and Wyoming and natural gas rates in Arkansas, Colorado, Iowa, Kansas, Nebraska, and Wyoming. Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; revenue; operating expenses; and income tax benefit (expense).
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Rates are regulated on a state-by-state basis by the relevant state regulatory commissions based on an analysis of the Company’s costs, as reviewed and approved in a regulatory proceeding. Rate regulation is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. Decisions to be made by the Commissions in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. While the Company has indicated its regulatory assets are probable of recovery in current rates or in future proceedings, there is a risk that the Commissions will not judge all costs to have been prudently incurred or that the rate regulation process in which rates are determined will not always result in rates that produce a full recovery of costs and a reasonable return on invested capital.
We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, and (2) a refund or future rate reduction to be provided to customers. Given the uncertainty of future decisions by the Commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the Commissions included the following, among others:
•
We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) refunds or future reductions in rates that should be reported as regulatory liabilities. We tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
•
We read relevant regulatory orders issued by the Commissions, filings made by the Company, and other publicly available information, as appropriate, to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedence of the Commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to the Company’s recorded regulatory asset and liability balances for completeness and for any evidence that might contradict management’s assertions.
•
We obtained and evaluated an analysis from management regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order, as applicable, to assess management’s assertion that amounts are probable of recovery or of a future reduction in rates.
•
We inspected minutes of the board of directors to identify any evidence that may contradict management’s assertions regarding probability of recovery or refunds. We also inquired of management regarding current year rate filings and new regulatory assets or liabilities.
•
We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 11, 2026
We have served as the Company's auditor since 2002.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Black Hills Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Black Hills Corporation and subsidiaries (the "Company") as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2025, of the Company and our report dated February 11, 2026, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
February 11, 2026
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BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
Operating expenses:
Fuel, purchased power and cost of natural gas sold 831.5 730.3 982.9
Other income (expense):
Interest expense incurred net of amounts capitalized (206.9 ) (195.2 ) (180.0 )
Other income (expense), net 6.1 (1.4 ) (3.2 )
Net income attributable to non-controlling interest (8.2 ) (10.6 ) (13.8 )
Earnings per share of common stock:
Weighted average common shares outstanding:
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended
(in millions)
Other comprehensive income (loss), net of tax:
Derivative instruments designated as cash flow hedges:
Other comprehensive income (loss), net of tax (0.3 ) 5.4 0.8
Comprehensive income available for common stock $ 291.3 $ 278.5 $ 263.0
See Note 11 for additional disclosures related to Comprehensive Income.
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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BLACK HILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
As of
(in millions)
ASSETS
Current assets:
Cash and cash equivalents $ 182.8 $ 16.1
Restricted cash and equivalents 7.6 7.3
Income tax receivable, net 23.3 19.8
Less accumulated depreciation and depletion (2,110.7 ) (1,936.6 )
Total property, plant and equipment, net 8,234.2 7,629.9
Other assets:
Intangible assets, net 6.4 7.6
Regulatory assets, non-current 255.0 272.9
Other assets, non-current 78.8 70.4
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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BLACK HILLS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Continued)
As of
(in millions, except share amounts)
LIABILITIES AND EQUITY
Current liabilities:
Derivative liabilities, current 5.8 4.2
Regulatory liabilities, current 99.9 94.1
Notes payable — 133.8
Long-term debt, net of current maturities 4,701.1 4,250.2
Deferred credits and other liabilities:
Deferred income tax liabilities, net 697.9 625.1
Regulatory liabilities, non-current 488.3 474.6
Other deferred credits and other liabilities 213.4 201.2
Total deferred credits and other liabilities 1,523.0 1,423.8
Commitments, contingencies and guarantees (Note 3)
Equity:
Stockholders’ equity -
Accumulated other comprehensive income (loss) (9.7 ) (9.4 )
Non-controlling interest 82.1 83.7
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Operating activities:
Deferred financing cost amortization 9.7 10.7 10.1
Other adjustments, net 0.9 (4.1 ) 2.7
Change in certain operating assets and liabilities:
Materials, supplies and fuel (17.8 ) 13.2 51.4
Accounts receivable and other current assets (45.0 ) (25.7 ) 204.5
Accounts payable and other current liabilities 24.0 28.8 (109.9 )
Other operating activities, net (18.8 ) (21.2 ) (27.9 )
Investing activities:
Property, plant and equipment additions (819.8 ) (744.2 ) (555.6 )
Other investing activities (8.4 ) (1.8 ) 18.9
Net cash (used in) investing activities (828.2 ) (746.0 ) (536.7 )
Financing activities:
Long-term debt - repayments — (600.0 ) (525.0 )
Distributions to non-controlling interests (9.8 ) (17.4 ) (18.3 )
Other financing activities (5.9 ) (8.4 ) (13.0 )
Net cash provided by (used in) financing activities 321.8 (42.9 ) (341.7 )
Net change in cash, restricted cash and cash equivalents 167.0 (69.6 ) 66.0
Cash, restricted cash and cash equivalents beginning of year 23.4 93.0 27.0
Cash, restricted cash and cash equivalents end of year $ 190.4 $ 23.4 $ 93.0
Supplemental cash flow information:
Cash (paid) received during the period:
Interest (net of amounts capitalized) $ (196.4 ) $ (174.4 ) $ (157.3 )
Income taxes net of transferred tax credits (Note 15) $ 8.8 $ 14.4 $ (1.0 )
Non-cash investing and financing activities:
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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BLACK HILLS CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
Common Stock Treasury Stock
(in millions except share amounts)
Other comprehensive income, net of tax — — — — — — 0.8 — 0.8
Dividends on common stock ($2.50 per share) — — — — — (168.1 ) — — (168.1 )
Issuance costs — — — — (1.7 ) — — — (1.7 )
Distributions to non-controlling interest — — — — — — — (18.3 ) (18.3 )
Other comprehensive income, net of tax — — — — — — 5.4 — 5.4
Dividends on common stock ($2.60 per share) — — — — — (182.3 ) — — (182.3 )
Issuance costs — — — — (2.0 ) — — — (2.0 )
Distributions to non-controlling interest — — — — — — — (17.4 ) (17.4 )
Other comprehensive income, net of tax — — — — — — (0.3 ) — (0.3 )
Dividends on common stock ($2.704 per share) — — — — — (197.9 ) — — (197.9 )
Issuance costs — — — — (2.4 ) — — — (2.4 )
Distributions to non-controlling interest — — — — — — — (9.8 ) (9.8 )
The accompanying Notes to Consolidated Financial Statements are an integral part of these Consolidated Financial Statements.
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BLACK HILLS CORPORATION
Notes to Consolidated Financial Statements
December 31, 2025, 2024, and 2023
(1) BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
Business Description
Black Hills Corporation is a customer-focused, growth-oriented utility company headquartered in Rapid City, South Dakota. We are a holding company that, through our subsidiaries, conducts our operations through the following reportable segments: Electric Utilities and Gas Utilities. Certain unallocated corporate expenses that support our operating segments are presented as Corporate and Other.
Use of Estimates and Basis of Presentation
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in facts and circumstances or additional information may result in revised estimates and actual results could differ materially from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Black Hills Corporation and its wholly-owned and majority-owned and controlled subsidiaries. Furthermore, VIEs in which the Company has an ownership interest and is the primary beneficiary, thus controlling the VIE, have been consolidated. All intercompany balances and transactions have been eliminated in consolidation.
We use the proportionate consolidation method to account for our ownership interest in any jointly-owned facility. See Note 6 for additional information.
Non-controlling Interests
We account for changes in our controlling interests of subsidiaries according to ASC 810, Consolidation. ASC 810 requires that the Company record such changes as equity transactions, recording no gain or loss on such a sale. GAAP requires that non-controlling interests in subsidiaries and affiliates be reported in the equity section of a company’s balance sheet. In addition, the amounts attributable to the non-controlling interest net income (loss) of those subsidiaries are reported separately in the consolidated statements of income and comprehensive income. See Note 12 for additional information.
Variable Interest Entities
We evaluate arrangements and contracts with other entities to determine if they are VIEs and if we are the primary beneficiary. GAAP provides a framework for identifying VIEs and determining when a company should include the assets, liabilities, non-controlling interest, and results of activities of a VIE in its consolidated financial statements.
A VIE should be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary. Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and non-controlling interests at fair value and subsequently account for the VIE as if it were consolidated.
Our evaluation of whether our interest qualifies as the primary beneficiary of a VIE involves significant judgments, estimates and assumptions and includes a qualitative analysis of the activities that most significantly impact the VIE’s economic performance and whether the Company has the power to direct those activities, the design of the entity, the rights of the parties and the purpose of the arrangement.
Black Hills Colorado IPP is a VIE for which Black Hills Electric Generation, and ultimately BHC, is the primary beneficiary.
To support our overall insurance program, we established the Captive to insure certain risks of BHC and our subsidiaries. The Captive is a protected separate cell captive insurance company sponsored by EIS. EIS is owned by Energy Insurance Mutual Limited Company and allows participating member sponsoring organizations, such as BHC, to insure risks using captive entities. The Captive is a VIE for which BHC is the primary beneficiary.
See Note 12 for additional information regarding VIEs.
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Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. We maintain cash accounts for various specified purposes, which are classified as restricted cash.
Revenue Recognition
Our revenue contracts generally provide for performance obligations that are fulfilled and transfer control to customers over time, represent a series of distinct services that are substantially the same, involve the same pattern of transfer to the customer and provide a right to consideration from our customers in an amount that corresponds directly with the value to the customer for the performance completed to date. Therefore, we recognize revenue in the amount to which we have a right to invoice. Our primary types of revenue contracts are:
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Regulated natural gas and electric utility services tariffs - Our Utilities have regulated operations, as defined by ASC 980, Regulated Operations, that provide services to regulated customers under tariff rates, charges, terms, and conditions of service and prices determined by the jurisdictional regulators designated for our service territories. Our regulated services primarily encompass single performance obligations for delivery of either commodity natural gas, commodity electricity, natural gas transportation, or electric transmission services. These service revenues are variable based on quantities delivered, influenced by seasonal business and weather patterns. Tariffs are only permitted to be changed through a rate-setting process involving the state or federal regulatory commissions to establish contractual rates between the utility and its customers. All of our Utilities’ regulated sales are subject to regulatory-approved tariffs.
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Power sales agreements - Our Electric Utilities segment has long-term wholesale power sales agreements with other load-serving entities, including affiliates, for the sale of excess power from owned generating units. These agreements include a combination of “take or pay” arrangements, where the customer is obligated to pay for the energy regardless of whether it actually takes delivery, as well as “requirements only” arrangements, where the customer is only obligated to pay for the energy the customer needs. In addition to these long-term contracts, we also sell excess energy to other load-serving entities on a short-term basis. The pricing for all of these arrangements is included in the executed contracts or confirmations, reflecting the standalone selling price and is variable based on energy delivered. Certain energy sale and purchase transactions with the same counterparty and at the same delivery point are netted to reflect the economic substance of the arrangement.
The majority of our revenue contracts are based on variable quantities delivered. Typically, our customers are billed monthly with payment due within 20 days. Any fixed consideration contracts with an expected duration of one year or more are immaterial to our consolidated revenues. Variable consideration in the form of discounts, rebates, credits, price concessions, incentives, performance bonuses, penalties, or other similar items are not material for our revenue contracts. We are the principal in our revenue contracts, as we have control over the services prior to those services being transferred to the customer.