Black Hills Q1 2025 Earnings Report

Black Hills EPS Results

• Actual EPS: $1.87
• Consensus EPS: $1.92
• Beat/Miss: Missed by -$0.05
• One Year Ago EPS: $1.87

Black Hills Revenue Results

• Actual Revenue: $805.20 million
• Expected Revenue: $729.73 million
• Beat/Miss: Beat by +$75.48 million
• YoY Revenue Growth: +10.80%

Black Hills Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 11:00AM ET

Black Hills (NYSE:BKH), through its subsidiaries, operates as an electric and natural gas utility company in the United States. The company operates in two segments: Electric Utilities and Gas Utilities. The Electric Utilities segment generates, transmits, and distributes electricity to approximately 222,000 electric utility customers in Colorado, Montana, South Dakota, and Wyoming; and owns and operates 1,394 megawatts of generation capacity and 9,106 miles of electric transmission and distribution lines. The Gas Utilities segment distributes natural gas to approximately 1,116,000 natural gas utility customers in Arkansas, Colorado, Iowa, Kansas, Nebraska, and Wyoming; owns and operates 4,663 miles of intrastate gas transmission pipelines; 42,514 miles of gas distribution mains and service lines; seven natural gas storage sites; and approximately 50,000 horsepower of compression and 516 miles of gathering lines. It also constructs and maintains customer owned gas infrastructure facilities for gas transportation customers; and provides appliance repair services to residential utility customers, as well as electrical system construction services to large industrial customers. In addition, the company produces electric power through wind, natural gas, and coal-fired generating plants; and coal at its coal mine located near Gillette, Wyoming. Black Hills Corporation was incorporated in 1941 and is headquartered in Rapid City, South Dakota.

Black Hills Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Q1 twenty twenty five Black Hills Corporation Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session.

[Operator]

I would now like to hand the conference over to your speaker today, Sal Diaz, Director of Investor Relations.

[Salvador Diaz, Director of Investor Relations at Black Hills]

Thank you, operator. Good morning, and welcome to Black Hills Corporation's first quarter twenty twenty five earnings conference call. You can find our earnings release and materials for our call this morning on our Investor Relations website at www.blackhillscorp.com. Leading our quarterly earnings call are Lynn Evans, President and Chief Executive Officer Kimberly Nooney, Senior Vice President and Chief Financial Officer and Marni Jones, Senior Vice President and Chief Utility Officer. During our earnings discussion today, comments we make may contain forward looking statements as defined by the Securities and Exchange Commission, and there are a number of uncertainties inherent in such comments.

[Salvador Diaz, Director of Investor Relations at Black Hills]

Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially. We direct you to our earnings release, Slide two of the investor presentation on our website and our most recent Form 10 ks and Form 10 Q filed with the Securities and Exchange Commission for a list of some of the factors that could cause future results to differ materially from our expectations. With that, I will now turn the call over to Lynn Evans. Lynn?

[Linden Evans, Board Member, President & CEO at Black Hills]

Thank you, Sal.

[Linden Evans, Board Member, President & CEO at Black Hills]

Good morning and thank you all for joining us today. I'll begin my comments with a summary of

[Linden Evans, Board Member, President & CEO at Black Hills]

the quarter and our strategic outlook. Kimberly will provide our financial update and Marni will discuss our operational performance and strategic progress. Starting on slide three, three of our key objectives for the year include delivering on our 5% year over year earnings growth, executing on our regulatory initiatives and our $1,000,000,000 capital plan and providing top quartile reliability to our growing customer base while exceeding industry average safety performance. I'm pleased to report we are making excellent progress toward these objectives. Our full year earnings growth is driven by three key drivers, new base rates, rider recovery mechanisms, and customer growth.

[Linden Evans, Board Member, President & CEO at Black Hills]

We have successfully implemented new rates through five rate reviews since the beginning of twenty twenty four, and we also have two active rate reviews requested to be in effect later this year. Collectively, regulatory execution by our team on these seven rate reviews reflects the recovery of more than $1,300,000,000 of new system investments. Additionally, rider mechanisms are providing material investment recovery, including the $40,000,000 first phase of our $350,000,000 Ready Wyoming Transmission Expansion Project, which remains on schedule. And we are serving strong customer growth across our regions. A recent example includes serving two new all time customer peak loads at Wyoming Electric, driven largely by ongoing data center and blockchain growth.

[Linden Evans, Board Member, President & CEO at Black Hills]

These new record peaks reflect an increase of nearly 10% over our prior all time peak in January 2024 and mark nineteen consecutive years of increasing demand. To cost effectively and reliably serve our customers and position the company for ongoing growth, we are strategically expanding our infrastructure by advancing our electric transmission project and our plans for new generation. We are well positioned to maximize opportunities for future growth as we experience the benefits of reassuring in our service territories due to attractive land prices, favorable business and regulatory climates, and a quality workforce. As we leverage our opportunities, we are also mitigating risk for our business and for our customers. For example, in Wyoming, very positive wildfire legislation was enacted during the quarter, which sets a standard of care and protects us from liability when we adhere to a commission approved wildfire mitigation plan.

[Linden Evans, Board Member, President & CEO at Black Hills]

Our financial outlook is provided on slide four, which is consistent with our fourth quarter call. We are reaffirming our 2025 earnings guidance range of $4 to $4.2 which is a 5 percent growth rate at the midpoint over our 2024 EPS. Strong customer demand, our pipeline of growth opportunities and cost discipline all support our expected 2025 results. As we evaluate trade tariffs and potential amendments to federal legislation, we do not expect material impacts to our five year outlook. The materials for the majority of our 2025 capital projects are already sourced, and our historical spend from foreign sources has been less than 3%.

[Linden Evans, Board Member, President & CEO at Black Hills]

We think this data point is a consistent indicator of the potential impact of our future capital investments. Additionally, while the future of the inflation reduction act is uncertain, our strategic exposure is minimal. We have less than $20,000,000 in annual production tax credits with limited reliance on the transferability of those credits. We have strong confidence in our long term EPS growth target of 4% to 6%, given our robust balance sheet, capital forecasts, incremental investment potential, and our other growth opportunities highlighted by increasing demand from our data center customers. Our multistate footprint provides valuable regulatory, weather, and customer diversification, further supporting EPS stability and growth.

[Linden Evans, Board Member, President & CEO at Black Hills]

These factors, coupled with our industry leading dividend track record, offer an attractive value proposition for shareholders, and we believe we are well positioned to accelerate EPS growth in the upper half of our 4% to 6% compound annual growth rate starting in 2026. To quickly summarize our capital plan on the next slide, we expect to invest $4,700,000,000 over a five year plan period through 2029. Our plan prioritizes safety and system integrity projects, modernization programs, and infrastructure expansion to support growing demands. Moving to slide six. In addition to our capital plan, we are building upon our decade of successfully serving a growing data center demand and continue to be excited about the upside potential.

[Linden Evans, Board Member, President & CEO at Black Hills]

Our current forecast reflects approximately 500 megawatts of data center demand by the end of twenty twenty nine. We expect EPS contribution from data centers to double to more than 10% of total EPS in 2028, with this contribution continuing into 2029. Over the next decade, we expect a pipeline of more than one gigawatt of demand likely to come from existing customers in a growing and more diverse group of select quality and stable customers as we see broader interest in our unique data center offerings. Companies are recognizing the ideal attributes of Cheyenne, Wyoming as a choice location for their data center operations and future expansion, given our industry leading reliability, Wyoming's economic incentives, a rich fiber backbone, plentiful renewable generation opportunities, and favorable weather and climate conditions for their significant cooling needs. We are also continuing to evaluate data center and blockchain opportunities in Colorado and South Dakota, and we are working to implement a tariff construct which could add to future growth.

[Linden Evans, Board Member, President & CEO at Black Hills]

With that update, I'll turn it over to Kimberly for our financial update. Kimberly?

[Kimberly Nooney, Senior VP & CFO at Black Hills]

Thank you, Lynn, and good morning, everyone. As you heard Lynn mention, we are successfully executing on several of our key growth initiatives, and first quarter results met our expectations. We are well positioned and have strong confidence in our ability to deliver on our full year earnings guidance and long term financial performance. Slide eight shows the primary year over year earnings drivers for the first quarter. Bridging Q1 twenty twenty four to Q1 twenty twenty five, we delivered $0.29 per share of new margins.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

These margins are comprised of $0.26 of new race and rider recovery and $03 of customer growth and usage. This positive margin more than offset capital plan execution costs of $0.21 per share, comprised of $09 from new share issuance, $0.08 from higher interest expense and $04 of additional depreciation expense. Comparing last year's very mild winter to this year's colder than normal winter, our year over year weather impact was favorable by $0.11 of EPS. When compared to normal, weather drove $04 per share of favorability during Q1 twenty twenty five. Our O and M was higher by $0.24 primarily driven by increases in employee costs, outside services, and higher insurance costs.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

As a reminder, throughout last year, we deployed significant expense management efforts to successfully offset the impacts of the mild weather we experienced in 2024 adversely affecting the year over year comparison. We are managing our full year O and M expense to an average annual increase of approximately 3.5% off our 2023 base year, as disclosed in our annual earnings guidance assumptions. As Lynn mentioned earlier, we are reaffirming our 2025 earnings guidance range of $4 to $4.2 We expect to achieve our guidance by delivering on our key strategic objectives, effectively managing the timing of our capital spend and continuing O and M management efforts. Further details on year over year changes can be found in our earnings release and our 10 Q to be filed with the SEC later today. Slide nine displays our solid financial position through the lens of credit quality, capital structure, and liquidity.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

Balance sheet strength remains a top priority with a focus on sustaining our FFO to debt target of 14% to 15% and net debt to total capitalization target of 55%. Using our rating agencies methodologies, we expect to maintain these credit metric targets throughout our long range financial plan, providing a healthy cushion above our downgrade thresholds. Our liquidity remains strong at quarter end at nearly $700,000,000 of availability under our revolving credit facility and short term borrowings of approximately $60,000,000 under our commercial paper program. We are evaluating timing and refinancing options for our next debt maturity of $300,000,000 which is due in early twenty twenty six. We are investing $1,000,000,000 in capital for the year, and as previously guided, we plan to issue approximately $215,000,000 to $235,000,000 of new equity to finance these investments.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

During the quarter, through our ATM program, we issued approximately $46,000,000 of new equity. Our at the market equity program remains a valuable tool and can comfortably help us meet our equity needs for the remainder of the year. Projecting equity needs for the future, under our base capital investment program, we expect annual equity needs in 2026 and beyond to be lower than 2025. We will continue to fund our accretive growth with the most efficient, cost effective capital available while maintaining credit quality. Slide 10 illustrates our industry leading dividend track record of fifty five consecutive years.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

We continue to target a 55% to 65% payout ratio. A dependable and increasing dividend is an important component of our strategy to deliver long term value for our shareholders. I will now turn the call over to Marni for

[Kimberly Nooney, Senior VP & CFO at Black Hills]

a business update.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Thank you, Kimberly, and good morning, everyone. Moving to slide 12. During the quarter, our team made solid progress in executing our strategic priorities, reducing risk and continuing to deliver safe, reliable and cost effective energy to our 1,350,000 customers. Over the next few slides, I'll provide details on our progress and further highlight our future opportunities.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Slide 13 reflects our success in serving our growing data center load. We have been serving data center needs for over a decade. Our contracted customers, Microsoft and Meta, are marquee names in the technology industry. We take great pride in our track record of meeting their unique needs through innovative solutions and look forward to Meta taking service starting in 2026. And further on the topic of load growth, we acknowledge recent headlines regarding Microsoft's potential delays in data center expansion plans.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

However, given our more than a decade of serving and engaging with Microsoft and listening to their recent Q1 earnings call, we continue to have confidence in our five year outlook. Looking beyond five years and given our advantageous service territory, we see broader interest in our unique data center offerings, which gives us confidence in our more than one gigawatt of demand over the next decade. Our distinctive market energy procurement model provides utility like returns without the need for material capital investment, while protecting and benefiting our other customers. Current market conditions and customer requirements have allowed us to efficiently and reliably serve these growing loads through market energy purchases. This flexible service model prioritizes speed to market, while achieving our customers' reliability, cost, and sustainability objectives.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

We believe we can serve approximately 500 megawatts of data center demand by the end of twenty twenty nine under our current construct. As we monitor energy market conditions, we are prepared to expand our service model to include a more traditional infrastructure investment construct as needed to serve the critical energy requirements of our customers. Moving to slide 14, our Ready Wyoming electric transmission expansion, the largest capital project in our company's history is expected to be completed by year end, just three years since regulatory approval. The two sixty mile, dollars $350,000,000 project will reduce dependence on third party transmission systems and enhance system resiliency through increased market access, including renewables. A more interconnected and expanded electric system helps maintain long term price stability for our customers, while also enabling ongoing growth.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

As you can see on slide 15, we've made significant progress with all regulatory approvals and land rights in place. The majority of our materials are on-site or are being domestically produced, limiting our impact from trade tariffs. As remaining phases are placed in service this year, they will be recovered through our constructive Wyoming transmission rider starting in 2026. Our Colorado Clean Energy Plan update is on slide 16. In 2024, we received approval for three fifty megawatts of renewable resources to reduce emissions for Colorado customers 80% by 02/1930.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

This includes a utility owned 100 megawatt solar project, a utility owned 50 megawatt battery storage project, and a 200 megawatt solar power purchase agreement. The utility owned investments are included in our capital plan between 2026 and 2028. As final contracts are signed, we may update our capital plan for any material shifts in timing or costs. We recently reached an agreement with the developer on the battery storage project and expect to request a Certificate of Public Convenience and Necessity, or a CPCN, for that project in the second quarter. Slide 17 outlines our South Dakota Electric Resource Plan.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Our LANG II project, a 99 megawatt utility owned natural gas fired generation resource located in Rapid City, continues to progress. The new resource will enhance the resiliency of our electric system as we replace aging generation and support an increased reserve margin. These modern gas fired resources are reciprocating internal combustion engines. They are dispatchable and responsive with the capability to ramp up to full load in as little as five minutes. These engines also provide black start capabilities, strengthening our grid resiliency.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

We filed a CPCN for the project with the Wyoming Public Service Commission in March and expect to place the new resource in service in the second half of twenty twenty six. Slide 18 summarizes our regulatory progress, with new electric rates in effect in Colorado and rate reviews ongoing in Kansas and Nebraska. First, for Colorado Electric, we implemented new rates on March 22 and began collecting $17,000,000 in new annual revenue. As a result of the reconsideration order received this week, new revenue will be adjusted to 17,500,000.0 In Kansas, we filed a gas rate review in February for $17,200,000 in new annual revenue based on a 10.5% return on equity with a 50% equity layer. We anticipate new rates in the second half of this year.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

And last week, we filed a gas rate review in Nebraska requesting $34,900,000 of new annual revenue based on a similar ROE and capital structure as our Kansas request. We are seeking interim rates effective August one of twenty twenty five and final rates by Q1 of twenty twenty six. As we have noted previously, our rate review cadence is determined by the need to recover our system investments and any inflationary impacts, and we expect to file three to four rate reviews annually. Lastly, we appreciate the Wyoming Commission's constructive approval of our request to track and defer increases in future insurance costs for Wyoming Gas and Wyoming Electric through a deferred regulatory asset. Slide 19 outlines our wildfire risk mitigation and management practices.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Our mitigation plan has been successful in reducing operational risk with our multilayered approach through asset programs, integrity programs, and operational response, which is detailed in our wildfire mitigation plan available on our website. We continue to engage stakeholders, including community and local agencies, regulators, legislative bodies, and our industry peers to define, review, and advance our wildfire management and mitigation plans, including our Public Safety Power Shutoff Program, or PSPS. As an industry wide expectation, having a PSPS available by midyear serves as a mitigation lever for extreme wildfire risk situations across our electric footprint. And finally, as Lynn mentioned earlier, we made great progress on the legislative side in Wyoming. The wildfire legislation provides material liability protections for utility in compliance with its Commission approved wildfire mitigation plan.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

We will continue to work with stakeholders and seek supportive legislation in Colorado and South Dakota during the next sessions. With that, I will now turn the call back over to Lynn.

[Linden Evans, Board Member, President & CEO at Black Hills]

Thank you, Marni. As you've heard over the past few minutes, we have strong confidence in achieving our 2025 guidance and our ability to deliver in the upper half of our long term EPS CAGR starting next year. Through our robust pipeline of strategic opportunities, we are investing in safely and reliably serving our customers. We are successfully and routinely executing on our regulatory plan, and we are innovatively developing customer solutions to enable data center and blockchain growth. This concludes our prepared remarks, and we're happy to take your questions.

[Operator]

Thank you. Our first question comes from Andrew Weisel with Scotiabank. You may proceed.

[Andrew Weisel, Director at Scotiabank]

Hey, good morning, everybody. Good morning, couple of questions on First, on the electric rate case, can you please talk a little more about the request for rehearing, reargument and reconsideration? I hope I said that correctly. You mentioned you were granted a slightly higher level of revenues, but can you get more specific on the challenge? I think it was largely related to the capital structure of the utility versus the parent, but how are you feeling about where we stand now?

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Good morning, Andrew. This is Marni. Thanks for the question. So yes, we did get our response on our Triple R decision just earlier this week. So what we found from that is an increase in the new annual revenue of about a half a million.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

As we look at that from a new base rate perspective, certainly is a workable increase. We're continuing to review the Triple R decision. There was not a change in the capital structure. So we'll continue to look at that decision and determine if there are any next steps that are necessary. As you know, we've talked about before, there is the opportunity to appeal.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

We can have that decision for the next basically thirty days. So we'll continue to review and scour that decision and determine if there's any future steps needed.

[Andrew Weisel, Director at Scotiabank]

Okay, Triple R is certainly easier to say. Next, in Pueblo, I know you've had some challenges historically. It looks like they just voted to keep the franchise agreement. I think that means you'll stick around through 02/1930, but I think there might be another vote later this year. Can you just talk about potential outcomes and next steps, how you're thinking about relationships, and also the outlook for race and affordability for that service territory,

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Yeah, Andrew, this is Marni again. So, on, I believe, May 6, we did have our vote, and through a landside decision by the citizens of Pueblo, it was determined to keep the franchise in place. The next term for that vote, which you noted, is 02/1930. So, for us, it is continuing to run that business. Affordability is always top of mind for us in Colorado and making sure that we're providing that safe reliable service that those customers expect.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

And obviously relationships and continuing to work with the city of Pueblo, the county, etcetera, to work on growing that area from an economic development perspective. So that's how we look at Colorado and really pleased with the vote from the citizens there.

[Linden Evans, Board Member, President & CEO at Black Hills]

We were very recently, Andrew, this sorry Andrew, this is Lynn. We were very recently highly engaged in working to develop an economic development tariff that is now in place. We believe that will be very helpful to us in terms of how we serve our customers in Pueblo and Southern Colorado.

[Andrew Weisel, Director at Scotiabank]

Thank you. Appreciate all that. One more if I may just on equity. I think you raised only about less than $50,000,000 in the quarter versus the guidance of $225,000,000 at the midpoint. Obviously, a little behind the ratable pace.

[Andrew Weisel, Director at Scotiabank]

Can you talk about that? Is that related to the timing of cash needs? Or are you making a call that the stock is undervalued or function of cash inflows? Maybe just talk about the timing. And I think I heard you say you're expecting lower levels of annual equity needs going forward.

[Andrew Weisel, Director at Scotiabank]

Is that a new disclosure? Is that a new comment? And maybe talk about what's driving that?

[Kimberly Nooney, Senior VP & CFO at Black Hills]

Yeah, Andrew, good morning. This is Kimberly. You're absolutely right on the timing of equity. We issue equity when we need it and just the timing of our capital projects as well as maintaining our FFO to debt, our credit metrics. So for us, that's what our equity is really focused on.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

We are still targeting that $2.15 to $235,000,000 for the year. So we feel comfortable that we'll be able to achieve that as we look forward. When we talked about our annual equity needs going forward, this year is an outsized capital expenditure year. So when you think about our billion dollar capital plan, we have a couple big projects that you heard Marni and Lynn talk about earlier with Ready Wyoming and our Lang 2 project that'll go into service in 2026. The majority of those cash flows will go investments will go into service in 2026.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

So as you think about earnings and cash flow being driven from there, that will be a significant uplift starting in 2026 as well as data center growth. Meta will be going into service in 2026. So a lot of good things happening as a result of the efforts that we've been putting in over these past couple years to drive our equity needs lower as we look forward in the future.

[Andrew Weisel, Director at Scotiabank]

That all sounds great. Thank you so much. Thanks, Andrew. Thanks, Andrew.

[Operator]

Thank you. Our next question comes from Ross Fowler with Bank of America. You may proceed.

[Ross Fowler, Head - North America Power & Utilities Equity Research at Bank of America]

Good morning, Kim. Good morning. How are you? Good morning. Just a couple questions from me.

[Ross Fowler, Head - North America Power & Utilities Equity Research at Bank of America]

First on wildfire mitigation efforts in Colorado and in Wyoming Lake or Colorado and South Dakota excuse me. Do you see those getting to a similar endpoint as the Wyoming legislation or how can you sort of contextualize those conversations at this point and where we might be headed or where the sticking points are as you work through that process?

[Linden Evans, Board Member, President & CEO at Black Hills]

Yeah, good morning Ross. This is Lynn. Thank you for that question. Yes, we anticipate very similar outcomes in the long run with both Colorado and South Dakota. We're waiting for the right time, if you will.

[Linden Evans, Board Member, President & CEO at Black Hills]

We approached South Dakota this past session. The timing wasn't right, and we knew that pretty quickly, so we thought we'd back off. We will approach that next legislative session, We think we're off to a good start because we are working behind the scenes aggressively with respect to seeking that legislation. We have some peers in Colorado that currently have some litigation ongoing, so that's made it a little bit more challenging with timing in Colorado. But similarly, we believe we can get very similar legislation in Colorado those decks are clear, if you will, with our peers.

[Ross Fowler, Head - North America Power & Utilities Equity Research at Bank of America]

That makes sense, Lynn. Thank you. And then back to sort of the data center conversation, you noted on Slide six and you talked about this a little bit about incremental demand driving investment in Colorado, South Dakota and Wyoming. Is that do you see that as more transmission to get sort of the generation capacity you have to where it needs to go as these large load customers come in or is there a generation opportunity out there tied to this incremental demand coming in?

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Good morning Ross, this is Marni. So as far as the data centers, our construct today is really capital light from our need to invest from a generation and transmission perspective. But certainly as we go forward and see opportunities, I think there's, to your point, there's opportunities on both the generation and the transmission side as we look to expand our systems and really focusing in on obviously the reliability needs for those customers as well. So probably twofold in opportunity.

[Ross Fowler, Head - North America Power & Utilities Equity Research at Bank of America]

Perfect. Thanks, Marni.

[Operator]

Thank you. And our next question comes from Julien Dumoulin Smith with Jefferies. You may proceed.

[Brian Russo, Analyst at Jefferies]

Hi. It's Brian Russo on for Julien.

[Andrew Weisel, Director at Scotiabank]

Good morning, Brian.

[Brian Russo, Analyst at Jefferies]

Hey, Hey,

[Brian Russo, Analyst at Jefferies]

just a quick follow-up on, the Capital Light strategy, particularly in South Dakota. Are you are you seeing interest there yet? And I suppose, at some point, you would file for, an ESA, tariff there. Would that be more customized to what you're, you currently have in Wyoming? Or was that would that be more unique to any sort of South Dakota construct?

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Hi, Brian. This is Marni as well. So as we look at the Capital Light that we've done in Wyoming, when we created that, gosh, just over ten years ago, really focused on meeting the customer needs. And so we worked very closely with them. As we look to expand in both Colorado and, to your point, South Dakota, initially we're going to focus on what's most important to the customer.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

And the tariff could be very similar, the tariff could look different. It's going be really determined on that customer's needs. And as far as pipeline of growth, we are continuing to get a lot of calls from large customers looking to locate both in Colorado and South Dakota as well as Wyoming. So continuing to work that log, lots of interest in growth in each one of those service territories.

[Linden Evans, Board Member, President & CEO at Black Hills]

Really gives us confidence, Brian, in our 500 megawatts by 2029 and that one gigawatt that we think will serve by the end of the decade.

[Brian Russo, Analyst at Jefferies]

Okay. And there seems to be a kind of a unique dynamic throughout MISO where there are pockets of kind of excess capacity due to transmission constraints. Is that an observation in your service territory as well, which allows you to do more of a CapEx like strategy? Just curious there.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Yeah, Brian. So we are vertically integrated and not part of an RTO in the West here. And so as we look at transmission, obviously, there are certain areas that are constrained, and there are certain areas where we have capacity. It's going to be very much focused on specific locations. And that certainly has led to our ability to have some capital light strategy.

[Brian Russo, Analyst at Jefferies]

Okay, understood. I was just curious on insurance costs. You seem to be making progress in certain jurisdictions. Are you have you filed for deferral of insurance costs in Colorado, or is that gonna get rolled up into your rate cases?

[Marne Jones, Senior Vice President of Utilities at Black Hills]

For Colorado specifically, that is going to get rolled up into our rate reviews. As I mentioned earlier, we did seek and did receive approval in Wyoming for that insurance recovery. To date, we are looking at rolling that through rate reviews as we go through those.

[Brian Russo, Analyst at Jefferies]

Okay, great. Thank you very much.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Thanks, Brian.

[Operator]

Thank you. Our next question comes from Anthony Crowdell with Mizuho. You may proceed.

[Anthony Crowdell, Managing Director at Mizuho Financial Group]

Hey, good morning, team. Just a couple of quick questions. One, O and M, talked about that was maybe more of a response to the mild weather you had last year. If you could just talk about maybe the timing or shaping of that as we go through the rest of the year. Should we does most of the pain hit first quarter and then we should start seeing maybe a slight decrease or we're going to continue to see something like that through the rest of the year?

[Kimberly Nooney, Senior VP & CFO at Black Hills]

Yeah, Anthony. This is Kimberly. Thanks so much for that question. Yeah, in Q1 it was outsized when you think about the comparative to the rest of the quarter throughout the year. We had some timing differences, just timing of some projects.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

We had a few items that none of them by themselves were material. Things like we invested in some marketing efforts to defend the franchise that Marni talked about earlier. When you compare Q1 of this year to Q1 of last year, a little bit of higher insurance costs because that increase in insurance costs didn't really start until Q3. So those are some of the things that would exist in this quarter that we've been addressing and will not be recurring as we look forward.

[Anthony Crowdell, Managing Director at Mizuho Financial Group]

Great. And then if I could pivot to the Colorado Electric decision, the equity ratio, I think you're asking for 52.4% and you got 48% or the commission awarded 48%. I mean, it's a sizable amount of differential. Just is do you need to have some offsets to maintain the guidance range? Are you planning offsets or you're contemplating the lower equity ratio in your 25 guidance?

[Kimberly Nooney, Senior VP & CFO at Black Hills]

Yeah, when we think about the Colorado decision, we really think about that decision holistically. There are always puts and takes in any decision that we get from a regulatory perspective. So the decision although there are always items that you wish you would have had a better results from. Overall the result met our expectations. Yes we had some items that we wanted to talk about with the commission which we did through the RRR process.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

So overall the decision was incorporated into our plan and is part of the framework that we've laid out of achieving our 5% year over year growth rate and our long term 4% to 6% growth that we've reaffirmed.

[Anthony Crowdell, Managing Director at Mizuho Financial Group]

Great. If I could just squeeze one last one in and it's I think our the sell side's forty first to forty second call for the quarterly cycle, so maybe just be bad eyes. But on Page four, where you announced the long term EPS growth rate, you used the word targeting 4% to 6% growth. And then on the fourth quarter call, you actually used the word affirm, 4% to 6% growth. Is it just, I'm just beaten down and tired and thinking there's something different?

[Anthony Crowdell, Managing Director at Mizuho Financial Group]

Or is there something different in the language versus affirm and targeting?

[Kimberly Nooney, Senior VP & CFO at Black Hills]

Yeah. Our apologies for

[Anthony Crowdell, Managing Director at Mizuho Financial Group]

And you could say we're tired. You could say tired. I'm fine with that.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

No, not at all, Anthony. You know, we'll be, you know, provide clarity here We are reaffirming our 4% to 6% growth. We're very confident in it as you've heard all of us talk about. And maybe the one additional color I'd give on this topic is we started this journey in 2023 setting our guidance to 4% to 6%.

[Kimberly Nooney, Senior VP & CFO at Black Hills]

And back then we talked about our growth rate being slower on the front end and higher on the back end. Well the back end is now here as we look to that twenty twenty six-twenty twenty seven range of higher growth. We just talked about a lot of our projects that we're working on that will be coming to fruition that we've been working on for the past couple of years. So that really gives us confidence in being able to operate in that upper end of that four to 6% guidance that we've set. So targeting was the target of 4% to 6%, but we are reaffirming and providing confidence that we're going to be operating in the upper end of that guidance.

[Anthony Crowdell, Managing Director at Mizuho Financial Group]

Thanks so much. Thanks for taking my questions.

[Operator]

Thanks, Anthony.

[Marne Jones, Senior Vice President of Utilities at Black Hills]

Thanks, Anthony.

[Operator]

Thank you. I would now like to turn the call back over to Lynn Evans for any closing remarks.

[Linden Evans, Board Member, President & CEO at Black Hills]

Well, thank you all for joining us today. We really appreciate your interest in Black Hills Energy and Black Hills Corporation. We value our relationship. We'll look forward to seeing many of you over the next several weeks. We'll be at the AGA Financial Forum, see several of you there, and we have other forums and investor conferences we'll be attending throughout the next month.

[Linden Evans, Board Member, President & CEO at Black Hills]

So thank you for that your interest, and we look forward to having a Black Hills Energy safe day. Take care.

[Operator]

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Participants

Executives

• Salvador Diaz, Director of Investor Relations
• Linden Evans, Board Member, President & CEO
• Kimberly Nooney, Senior VP & CFO
• Marne Jones, Senior Vice President of Utilities

Analysts

• Andrew Weisel, Director at Scotiabank
• Ross Fowler, Head - North America Power & Utilities Equity Research at Bank of America
• Brian Russo, Analyst at Jefferies
• Anthony Crowdell, Managing Director at Mizuho Financial Group