Black Hills' Earnings Call Contradictions: EPS Growth Timelines, Load Forecasting, Equity Plans, and Data Center Upside

Business Commentary:

Key Theme:* Financial Performance and Earnings Guidance: - Black Hills Corporation reported Q3 EPS of $0.67, compared to $0.54 last year, representing a 24% year-over-year increase. - The company is reaffirming its 2023 earnings guidance and expects to deliver results at the top end of the range, assuming normal Q4 weather. - Year-to-date operating results were driven by $0.18 per share of new rates and rider recovery margin in Electric Utilities and $0.12 of new rates and rider recovery margin in Gas Utilities, partially offset by net weather impacts and inflationary O&M expenses.

Key Theme:* Regulatory Plan Progress and Rate Reviews: - The company has successfully negotiated a constructive settlement for Wyoming gas, pending commission review, providing $13.9M of new annual revenue. - It is working toward a year-end resolution for Colorado gas and preparing a natural gas rate review application for Arkansas to be filed by year-end. - The company plans to file three rate reviews per year as normal course, and expects to file its 2024 earnings guidance, dividend growth plans, and updated capital forecast at the Q4 earnings call.

Key Theme:* Growth Initiatives and Strategic Investments: - The company is advancing its 500 MW renewable resource plan (100 MW in South Dakota by 2026, 400 MW in Colorado by 2030). It is evaluating bids for its South Dakota RFP and expects to share a proposal with the PUC in Q1 2024. - The Ready Wyoming transmission expansion project is underway, with construction expected to start soon. It is targeted to be completed by year-end 2025 and will enhance system resiliency and market access. - The company is seeing strong load growth from data center expansions and a blockchain customer, with the latter recently exercising an option to increase its load to 75 MW. - A targeted workforce reduction was made to improve cost-effectiveness and align with macroeconomic conditions and customer affordability.

Key Theme:* Balance Sheet Strength and Capital Management: - The company has significantly improved its credit metrics: Net debt to total capitalization decreased 300 basis points from 60.8% at year-end 2022 to 57.8% as of September 30, 2023. - It has $599 million in cash and $1.4 billion in total liquidity, with no short-term borrowings on its $750 million revolver. - Capital expenditures are managed to approximately $615 million for 2023, with future growth investments focused on maintaining BBB+ credit quality. - The company has issued $108 million under its ATM equity program in 2023, within its planned range, to strengthen the balance sheet.

Contradiction Point 1

Drivers and Timeline for Achieving Upper Half of 4%-6% EPS Growth Target

This is a substantial contradiction concerning the **specific milestones and timeline** for achieving a key financial target. The 2025Q2 call explicitly anchors the upper-half target (starting 2026) to concrete project in-service dates (Ready Wyoming, Lange II, Meta data center). The 2023Q3 call, when discussing near-term growth confidence, omits these critical, time-bound drivers, instead citing vague factors like "strong momentum" and "ongoing load growth." This omission creates an inconsistency in the foundational drivers required to achieve the forecasted growth, potentially impacting investor understanding of the plan's execution risk and timing.

What factors support your confidence in achieving 4-6% growth in 2024 despite rising interest expenses? - Julien Dumoulin-Smith (Bank of America)

2023Q3: The confidence stems from strong momentum built in 2023... Ongoing load growth from customer migration, data center expansions, and blockchain mining... supports growth. - Linden Evans(CEO)

What factors are driving the expectation of growth in the upper half of the 4% to 6% range next year? - Andrew Marc Weisel (Scotiabank Global Banking and Markets)

2025Q2: Confidence in achieving the upper half of the 4%-6% long-term EPS growth target starting in 2026 is driven by: 1) Full recovery of the $350M Ready Wyoming transmission project starting Jan 1, 2026. 2) Benefits from the Lange II generation project (South Dakota) and Colorado Clean Energy Plan projects (2026-2028). 3) Data center growth (Meta ramping up in 2026) and potential new data center load additions. - Kimberly Nooney(CFO)

Contradiction Point 2

Inclusion of New Load Growth in Financial Forecasts

This is a substantial contradiction regarding the **principles and process for financial forecasting**. In 2025Q2, the company explicitly states that newly announced load (like the Wyoming data center) is "incremental to the existing pipeline" and "not yet included in the financial forecast," with updates contingent on signed contracts. In 2023Q3, the company cites specific "ongoing load growth" and a "recent 30 MW expansion option" as supporting its near-term growth confidence. This suggests these new projects are being factored into the plan, directly contradicting the prior "wait for signed contracts" principle. This inconsistency creates uncertainty about the conservatism and reliability of the financial forecasts.

What factors support the 4-6% growth target for 2024, given the 2023 midpoint and rising interest expenses? - Julien Dumoulin-Smith (Bank of America)

2023Q3: Ongoing load growth from... blockchain mining (e.g., a recent 30 MW expansion option) supports growth. - Linden Evans(CEO)

Was the Wyoming announcement part of the $500 million in your pipeline or additional to prior expectations? - Christopher Ronald Ellinghaus (Siebert Williams Shank & Co., L.L.C.)

2025Q2: The new Wyoming data center announcement... is incremental to the existing pipeline and not yet included in the financial forecast. The company will update its load forecast and financial plans only after contracts are executed and signed. - Linden Evans(CEO)

Contradiction Point 3

Equity Issuance Outlook and Timing

This is a substantial contradiction involving a **change in a key financial forecast** (future capital needs). In 2025Q1, the CEO states with specificity that "a significant uplift in earnings and cash flow is expected starting in 2026... which will drive lower equity requirements in subsequent years." In 2023Q3, the CFO provides a more neutral outlook, stating future equity will "likely be used to finance growth opportunities," without the expectation of a decline. This represents a material shift from a forecast of decreasing equity needs to a statement of continued (albeit growth-focused) equity use, directly impacting investor models for capital returns and cost of capital.

Did you raise less than $50M in equity this quarter compared to the $225M annual guidance midpoint due to timing or stock valuation considerations? Also, is your comment on reduced future annual equity needs new? - Andrew Weisel (Scotiabank)

2025Q1: A significant uplift in earnings and cash flow is expected starting in 2026 due to major projects... which will drive lower equity requirements in subsequent years. - Linn Evans(CEO)

How do you plan to address equity needs for 2024 and beyond—will you continue using ATM or explore other options? - Julien Dumoulin-Smith (Bank of America)

2023Q3: Future equity will likely be used to finance growth opportunities while maintaining BBB+ credit quality. - Kimberly Nooney(CFO)

Contradiction Point 4

Growth Strategy and Capital-Light Model

This is a substantial contradiction concerning the **description and constraints of the company's core growth strategy**. In 2025Q1, the CCO describes the capital-light strategy as being "focused on specific locations where capacity is available," introducing a clear geographic constraint. In 2023Q3, the CEO describes a strategy of building interest and determining tariffs based on customer needs in various states (Colorado, South Dakota, Wyoming), with no mention of such constraints, stating "The tariff construct for these new territories will be determined based on specific customer needs." This shift from a constrained, location-specific strategy to a more general, customer-driven approach without geographic limitation alters the perceived scalability and execution model of the growth plan.

Is there interest in the capital-light strategy in South Dakota? Would filing an ESA tariff be similar to Wyoming's or more unique to South Dakota? - Brian Russo (Jefferies, on for Julien DuMoulin-Smith)

2025Q1: The capital-light strategy is focused on specific locations where capacity is available, which has enabled this approach. - Marne Jones(CCO)

What gives confidence in 4-6% growth in 2024 despite interest expense headwinds? What specific projects will have regulatory or permitting clarity by Q4? What is your perspective on owning disproportionate quantities of renewable resources? - Julien Dumoulin-Smith (Bank of America)

2023Q3: The company is seeing significant interest from large customers in Colorado and South Dakota, similar to Wyoming. The tariff construct for these new territories will be determined based on specific customer needs. It could look similar to Wyoming's or be different. - Marne Jones(CCO)

Contradiction Point 5

Long-Term EPS Growth Target and Upside

This is a substantial contradiction regarding the **treatment of data center demand within the financial plan**. In 2025Q3, the CFO states the 4-6% target is the "current" goal and data centers are "significant potential upside," suggesting they are outside the baseline plan. In 2023Q3, the CEO discusses "ongoing load growth from... data center expansions..." as a supporting factor for the growth plan, implying a more integrated or baseline role. This shift in framing—moving from data centers as a key, integral growth driver to a separate "upside" opportunity—alters the perceived certainty and magnitude of future earnings growth.

What gives you confidence in achieving 4-6% growth for 2024 based on the 2023 midpoint? What specific projects will have regulatory or permitting clarity by Q4? - Julien Dumoulin-Smith (Bank of America)

2023Q3: The confidence stems from... incorporating macroeconomic challenges... into the plan from the start. Ongoing load growth from... data center expansions... supports growth. - Linden Evans(CEO)

Will the 4%-6% growth range remain unchanged until the merger closes, or will you adjust it if an event occurs before the deal closes? - Andrew Weisel (Scotiabank Global Banking and Markets)

2025Q3: The company is focused on achieving its current long-term EPS growth target of 4% to 6%... Data center demand represents significant potential upside to this plan. - Kimberly Nooney(CFO)