Key Highlights

● Third-quarter Earnings rose on rates and weather

● Full-year range was reaffirmed

● Transmission filings added around Google's Cheyenne data center

● Pending Montana Merger vote fills the near-term calendar

Black Hills Corp. (NYSE:BKH), among the Rocky Mountain and Plains Utility names, reported that third-quarter GAAP Net Income and Diluted Earnings per Share were above the prior-year quarter, with adjusted earnings per share also moving higher. The Rapid City, South Dakota, electric and Natural Gas company reaffirmed its adjusted earnings guidance for the year. The more consequential portion of the release, however, may be the detail it added on the large-load Business centred on a Google (NASDAQ:GOOGL) Data Center in Cheyenne, Wyoming.

Revenue and Operating Income both rose from the year-ago quarter. Merger-related costs took a smaller toll than they had a year earlier, which helps explain why GAAP earnings grew faster than the adjusted measure. Through September, net income, earnings per share and operating income all stood above the comparable period, while Revenue was up by a narrower margin.

Chief Executive Linn Evans described the quarter's results as excellent and tied them to progress on the company's strategic initiatives. He also said management expects performance in the upper portion of its long-term earnings per share growth target for its current long-range plan, a statement the release paired with a planned refresh of the plan at year-end.

Rates and Weather Did the Heavy Lifting

The company's bridge for adjusted earnings per share credited new rates and rider recovery as the largest positive Factor in the quarter, followed by favorable weather. Those gains more than absorbed higher operating, financing and Depreciation costs. The year-to-date bridge looked somewhat different: new rates, rider recovery and customer growth produced a larger benefit, offsetting mild weather along with higher financing and depreciation expense.

Weather pulled in opposite directions during the quarter. Heating degree days came in far below normal, while cooling degree days landed well above normal, a helpful combination for an electric business in summer. Over the year-to-date period, heating degree days were meaningfully below normal, and that shortfall appears as a drag in the year-to-date comparison.

Below operating income, the year-to-date comparison showed higher net interest expense, higher income tax expense partly offset by larger wind production tax credits, and a higher charge for non-controlling interest. The combination underlines that rate-driven operating growth is being partly consumed by the cost of funding the Investment program.

Electric Carries the Quarter

Electric Utilities accounted for most of the operating income growth in the quarter and for the year to date. The company pointed to new rates at South Dakota Electric and Colorado Electric, the Ready Wyoming rider, weather and usage. Total energy sold increased from the prior-year quarter, and the company said industrial sales rose on the back of large-load customers in Wyoming.

Gas Utilities also improved, though from a seasonally small third-quarter base. Rates in Nebraska and Kansas, transportation volumes and customer growth supported the segment, with higher operating expenses and, through September, weather acting as partial offsets. Most of the segment's earnings for the year were generated in the colder months, which is why the year-to-date figure far exceeds the summer quarter.

Corporate and Other showed a slightly narrower operating loss for the quarter but a wider one through September, mainly because of merger costs and a prior-year captive insurance consolidation.

A Crowded Docket Delivers New Revenue

The release listed a series of regulatory decisions reached in recent weeks. South Dakota Electric received approval from the South Dakota Public Utilities Commission for a black-box settlement that adds new annual revenue and includes a base-rate moratorium running into the end of the decade. New rates take effect in December, replacing interim rates in place since August.

The same utility received approval from the Wyoming Public Service Commission for a smaller rate review settlement, with new rates beginning in December. Arkansas Gas obtained final approval from the Arkansas Public Service Commission for rates that recover a substantial pipeline investment, and those rates took effect in mid-October. In Colorado, an electric rate review filed in June remains pending, with the company seeking to recover a sizable investment and requesting that rates begin early next year.

The moratorium in South Dakota is worth noting because it exchanges certainty about revenue today for a long period without a base-rate review. It appears alongside a rider request for the Lange II gas-fired project, which the company expects to enter service in the current quarter and for which cost recovery was filed separately in August.

Inside the Google Contract

The agreements with Google were first announced in October, and this release restated them with added financial context. The company said definitive agreements signed at the end of September extend across a multi-decade term, for a project served by a total resource portfolio measured in gigawatts. That portfolio includes new company-owned generation, built with a planned investment measured in the billions, and the management of a much larger block of third-party contracted resources.

Trade coverage fills in the structure. In October, the new gas-fired units would be built at the existing Cheyenne Prairie Generating Station and owned by a non-regulated affiliate rather than the Wyoming utility. The third-party turbines and fuel cells would run through a privately managed microgrid under Wyoming's Large Power Contract Service tariff, with Black Hills earning a management fee for coordinating operations, reliability services and dispatch. Enerdata similarly reported that Demand is expected to ramp up across the latter years of the decade, with a small balance of the grid-connected Supply coming from market purchases and retail service.

According to market data, Google would cover the cost of serving the data center, and the contract terms are meant to protect existing customers from stranded assets, early termination and unexpected costs. It also reported that Google advanced funds for long-lead equipment, an amount Black Hills expects to reimburse before the middle of next year.

When the Money Is Expected to Arrive

The company's earnings timeline is staged. Return on Investment earnings are expected to begin around the middle of next year and management fee earnings late next year, with a substantial net income contribution anticipated by the end of the decade. Over the contract term, the company forecasts unlevered free Cash Flow well in excess of the investment, after accounting for that investment.

These are management projections for a project still in development. According to market data, the company holds an air quality permit for the Cheyenne Prairie expansion and is pursuing additional siting and transmission approvals, so the path from contract to earnings still runs through further permitting and construction work.

The structure has drawn outside criticism as well. Princeton University energy researcher Jesse Jenkins criticized the Wyoming arrangement in a Social Media post cited by market data, arguing that data center developers would do better to use wind, solar and battery projects waiting for grid interconnection. The publication reported that Google has a goal of matching its electricity consumption with clean energy around the clock by the end of the decade.

How the Contract Tries to Protect Existing Customers

The treatment of existing customers is central to how the company presents the project. According to market data, the contract terms are designed to shield them from project-related expense, and the ownership arrangement places the new generation in an affiliate outside the Wyoming utility. Enerdata described the grid-connected portion as combining company-owned generation with a small balance of market purchases and retail service under the industrial tariff.

That design matters beyond Wyoming, because the question of who bears the cost of serving data centers has become a theme in utility regulation. It is visible in the Montana proceeding, where members of the public raised data center plans and possible rate increases during commission comment. Black Hills' release, for its part, addresses the matter through the structure of its flexible large-load Tariff and through its description of returns earned on company-owned generation.

The release's numbers also help explain why the company is emphasizing the project now. The net income it anticipates by the end of the decade is large relative to the company's earnings today, as the full-year adjusted guidance implies, so the contract could alter the composition of its earnings. The forecast remains subject to the regulatory approvals, construction schedules and ramp-up assumptions described in the filing.

Wires Join the Generation Story

New in this release is the scale of transmission tied to the region's growth. A filing for the Aeolus Transmission Project, submitted just before the earnings announcement, seeks a certificate for a long high-voltage line pair expected to be completed around the end of the decade, with a decision expected by the middle of next year. A separate South Cheyenne Transmission Project filed in September is smaller, with service dates extending from late next year into the following one.

A pending tariff filing, the LCTCAM, is due for a decision early next year. Combining transmission with the generation commitment, the company described its total large-load opportunity as measured in the billions of dollars of investment.

Demand figures explain the urgency. The company reported several new all-time peaks in its Cheyenne-area system this year, with the July peak running well above last year's high. That growth arrives before the Google project's main ramp, reinforcing why Wyoming occupies so much of the release. A Wyoming resource plan filed in June also identifies a near-term capacity shortfall and proposes gas reciprocating engines and battery storage.

Beyond Wyoming: Colorado and South Dakota Plans

Other resource plans continue in parallel. A Colorado Clean Energy Plan filed in September proposes wind, battery storage and gas-fired generation, giving the state a mix that differs noticeably from the gas-weighted Cheyenne project. The Lange II project in South Dakota is close to completion, adding gas-fired capacity to that system by year-end.

Wildfire mitigation received a brief mention, with the company saying Wyoming and South Dakota requirements under recent legislation have been completed. For a utility operating across the western Plains and the Rockies, the issue has become a standing part of regulatory disclosure, and it also surfaced among the conditions opponents sought in Montana's merger proceeding.

Montana Is the Last Stop for the Merger

Black Hills repeated its expectation that the all-stock combination with NorthWestern Energy (NASDAQ:NWE) will close by year-end, subject to a satisfactory final approval from the Montana Public Service Commission. Shareholder approvals, the Hart-Scott-Rodino waiting period, FERC approval and approvals in Nebraska and South Dakota are complete, the release said.

Commissioners postponed their final decision in late October, pushing it to a later meeting, with a statutory deadline days afterward. Commissioner Jennifer Fielder sought the delay to propose an additional condition. Commission staff backed approval, according to the report, while opposing intervenors, including the Montana Farmers Union, sought rejection of the transaction or enforceable conditions. Monica Tranel, a lawyer for the opponents, told the outlet, "Enforceable conditions are the necessary prenuptial here."

From the Black Hills side, the point is timing rather than the operating business. Its reaffirmed guidance excludes the merger, and the company's stand-alone plan, including the Google agreements, can be assessed separately from whether a combined company called Bright Horizon Energy comes into being.

What the Montana Record Says About the Combined Company

Reporting on the proceeding offers a view of the rationale the utilities have given. In October, the companies argue customers will benefit from more efficient access to Capital and greater financial resilience. It said a draft order described the transaction as strategically sound and cited estimated labor and total savings, with the savings details redacted, while stating that customers would not be billed for merger costs.

The draft also said the Montana utility would stay a separate Subsidiary and that commission oversight would not change. The combined company would operate across Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming, the outlet said, a footprint that brings together both companies' existing service territories under the proposed Bright Horizon Energy name.

Settling parties included the Montana Consumer Counsel, a large customer group, a labor union local, the city and county of Missoula and a coalition of energy advocates, according to the same report. The commission's final decision will determine whether the release's year-end timing holds.

Guidance, Equity and the Dividend Record

The reaffirmed adjusted earnings range assumes normal weather in service territories, constructive and timely regulatory outcomes, modest growth in operating and maintenance expense from last year, equity issuance within a defined band and a low effective tax rate. The company excluded merger costs and mark-to-market adjustments from the measure.

So far this year, the company Issued Shares through its at-the-market program, and management said it has maintained investment-grade Credit ratings. The release provided no total Capital Expenditure figure beyond the individual projects, leaving a consolidated view for the updated plan due with year-end results.

The board approved a quarterly dividend payable in December. The company reported a long record of consecutive annual dividend increases, spanning more than half a century, which places it among the longer-tenured dividend-raising utilities and gives the income question a continuing place in the merger and financing debate.