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Black Hills (BKH) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Utilities· May 7, 2026

Source: earnings call transcript

Executive summary

Black Hills Corporation Q1 FY26 — Strong Start with Reaffirmed Guidance and Data Center Growth

Black Hills Corporation reported a solid start to FY26, reaffirming its full-year adjusted EPS guidance despite significant weather headwinds in Q1. The company is actively pursuing substantial large load opportunities, including over 3 GW of potential data center demand, and made progress on its planned merger with NorthWestern Energy. Regulatory initiatives and ongoing capital projects underpin the company's confidence in achieving its long-term growth targets.

Highlights

5

  • Reaffirmed full-year adjusted EPS guidance range of $4.25 to $4.45, representing 6% growth at the midpoint over 2025.

  • Delivered $0.24 per share of new rates and rider recovery margin in Q1 FY26.

  • Reduced O&M expenses by $0.10 per share year-over-year in Q1 FY26, excluding merger costs.

  • Secured $201 million in refundable contributions from a prospective customer for generation equipment for a 1.8 GW data center project.

  • Increased dividend for the 56th consecutive year, targeting a 55% to 65% payout ratio.

Concerns

3

  • Q1 FY26 adjusted EPS of $1.79 was lower than Q1 FY25 adjusted EPS of $1.87.

  • Unfavorable weather impact reduced Q1 FY26 EPS by $0.18 per share compared to Q1 FY25, and $0.13 per share compared to normal weather.

  • Higher financing and depreciation costs impacted Q1 FY26 EPS by $0.16 per share.

Guidance & targets

CategoryTargetConfidence
Adjusted EPS
$4.25 to $4.45
high materiality
High
Long-term EPS growth target
Upper half of 4% to 6%
high materiality
High
Large load demand contribution to consolidated EPS
More than 10%
medium materiality
High
Large load demand
600 megawatts
medium materiality
High
Equity need
$50 million to $70 million
medium materiality
High
Dividend payout ratio
55% to 65%
medium materiality
High
Lange II generation project in-service
Q4 FY26
medium materiality
High
Battery storage project in-service
Late 2027
medium materiality
High
Arkansas Gas rate review new rates
Second half of this year
medium materiality
High
South Dakota Electric interim rates
Within 180 days of filing
medium materiality
High
Kansas abbreviated rate review rates
Early in the third quarter
medium materiality
High
Wyoming wildfire mitigation plan approval
Expected in the second quarter
low materiality
High

Orderbook & backlog

Large load potential demand More than 3 gigawatts Q1 FY26

Includes 600 MW by 2030 within current 5-year financial plan; negotiating with high-quality partners.

Data center demand in financial plan 600 megawatts Q1 FY26

By 2030; primarily driven by Microsoft and Meta's growth; served mostly through market energy procurement.

Additional large load opportunities More than 2.5 gigawatts Q1 FY26

Represents significant upside to current financial plan; pursuing negotiations.

Specific data center project 1.8-gigawatt Q1 FY26

Being developed in Cheyenne; generation reservation agreement executed; working through several agreements with counterparties.

Microsoft land acquisition for future data center expansion 3,200 acres Q1 FY26

In Cheyenne, Wyoming; represents future upside potential.

Meta AI data center ramp progressing Q1 FY26

Expected to begin ramping later this year in Cheyenne.

Deals & partnerships

NorthWestern Energy Planned merger to create a larger regional electric and natural gas utility company.

Received favorable shareholder votes on April 2. Hart-Scott-Rodino Act antitrust waiting period expired on April 20. Settlements reached with certain key intervenors in Montana, Nebraska, and South Dakota.

Prospective 1.8 GW data center customer Short-term generation reservation agreement for company-owned generation equipment. $201 million short-term (through June 30, 2026, with potential extensions)

Agreement provides for customer-funded milestone payments. Intended to transition into a long-term definitive generation facilities agreement. Focus on reliability, resiliency, and customer protections.

Undisclosed solar resource provider Power Purchase Agreement (PPA) for solar resources.

200-megawatt PPA to serve Colorado customers, previously approved by the Colorado PUC. Supports progress towards the state's clean energy plan.

Capital programs

5-year capital plan underway $4.7 billion

Invests in natural gas and electric customers' core needs for safety, reliability, and growth. Includes minimal investments for 600 MW of data center demand.

Lange II generation project underway

Benefit:99-megawatt

Construction continues on schedule. Will serve customers in Western South Dakota and Northeastern Wyoming. Recovery will be requested through South Dakota generation rider and Wyoming rate review.

Battery storage project (Colorado) underway
Start: Q4 2025

Benefit:50-megawatt

Utility-owned project as part of the clean energy plan in Colorado.

Ready Wyoming transmission project completed $350 million

Placed in service at the end of 2025, contributing to depreciation expenses.

Generation reservation agreement underway
Period spend: $201 million
Funding: customer-funded milestone payments

Benefit:generation equipment for 1.8 GW data center project

Executed with a prospective customer to support long lead-time generation equipment. Intended to transition into a long-term definitive generation facilities agreement.

Risks & headwinds

Weather impact on demand Q1 FY26

$0.18 per share impact on Q1 FY26 EPS compared to Q1 FY25; $0.13 per share unfavorability compared to normal weather.

Mitigation:Optimizing O&M, timing capital investments, working with regulators for weather normalization (e.g., Nebraska pilot).

Higher financing and depreciation costs Q1 FY26

$0.16 per share impact on Q1 FY26 EPS.

Mitigation:Managing balance sheet, evaluating refinancing options for debt maturity in January 2027.

Complexity of large load agreements Ongoing

Project of 1.8 GW involves multiple parties and interrelated contractual components.

Mitigation:Carefully structuring agreements to protect customers and appropriately manage operational and financial risk; ensuring no stranded assets.

What to watch in Q2 FY26

Merger regulatory approvals

Second half of this year
Current Favorable shareholder votes, HSR expired, settlements in MT, NE, SD
Target All state regulatory approvals and FERC approval

Why it matters

Merger completion will provide increased scale and new opportunities, impacting the company's long-term value proposition.

We anticipate securing all state regulatory approvals and FERC approval to finalize the merger within the second half of this year.

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Q&A highlights

Clarification on the nature of the $201 million generation reservation agreement, specifically if it's utility-owned, rate-based, and the type of return expected.

The $201 million is for customer-funded milestone payments to procure long lead-time generation equipment. It's a short-term financing bridge for utility-owned assets that would ultimately be part of a long-term definitive agreement. The return would be a negotiated, risk-adjusted rate, specific to the customer, and not part of the overall rate base for retail customers in Wyoming, ensuring no stranded assets for existing customers.

“It would be specific to this ultimately end-use customer. And so we think about the rate base of that and the return of that based on that customer and the unique needs for that specific customer as we talk about risk-adjusted returns. This would not be part of overall rate base for retail customers in Wyoming.”

asked by Andrew Weisel · answered by Marne Jones

2 min read 7 chapters

Detailed narrative

Q1 Performance & Strategic Progress

Black Hills Corporation reported Q1 FY26 GAAP EPS of $1.73 and adjusted EPS of $1.79, compared to $1.87 in Q1 FY25. Despite significant weather impacts reducing EPS by $0.18 per share, the company reaffirmed its full-year adjusted EPS guidance of $4.25 to $4.45. Strategic achievements include advancing regulatory reviews in Arkansas and South Dakota, and continued construction on the 99-megawatt Lange II generation project and a 50-megawatt battery storage project in Colorado.

Large Load Opportunities & Data Centers

The company is actively pursuing over 3 gigawatts of potential large load demand, including 600 megawatts by 2030 already in its 5-year financial plan. This includes a 1.8-gigawatt data center in Cheyenne, for which a generation reservation agreement has been executed, securing $201 million in customer-funded milestone payments for long lead-time equipment. Microsoft's acquisition of 3,200 acres in Cheyenne for future data center expansion represents significant upside potential beyond current plans.

Capital Plan & Investments

Black Hills outlined a $4.7 billion 5-year capital plan focused on safety, reliability, and growth for natural gas and electric customers. The plan includes minimal investments for the 600 megawatts of data center demand, primarily served through market energy procurement. However, additional opportunities for generation and transmission builds to serve growing large load demand are being developed and would be additive to the current plan.

NorthWestern Energy Merger Update

Solid progress has been made on the planned merger with NorthWestern Energy, including favorable shareholder votes and the expiration of the Hart-Scott-Rodino Act antitrust waiting period. The company has also reached settlements with key intervenors in Montana, Nebraska, and South Dakota. Management anticipates securing all state regulatory approvals and FERC approval to finalize the merger within the second half of this year.

Regulatory Initiatives

The company continues to execute its regulatory plan with 3 to 4 rate reviews annually across its 8-state service territory. The Arkansas Gas rate review is progressing, with new rates expected in the second half of the year. New rate review requests were filed for South Dakota Electric, seeking $50.6 million in annual revenue, and an abbreviated review in Kansas. Wildfire liability legislation was enacted in South Dakota, providing significant protections, and similar efforts are underway in Wyoming and Colorado.

Financial Position & Credit Quality

Black Hills maintains a strong financial position with investment-grade credit ratings and robust liquidity, including approximately $500 million available under its revolving credit facility. The company targets 14% to 15% FFO to debt and at or better than 55% net debt to total capitalization. A significantly lower total equity need of $50 million to $70 million is projected for 2026, with $41 million already issued under the ATM program in Q1.

Dividend Policy

The company increased its dividend in January, extending its track record of increases to 56 consecutive years. Black Hills continues to target a 55% to 65% payout ratio, emphasizing a dependable and increasing dividend as a core component of its strategy to deliver long-term shareholder value.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.