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Section 1: 10-Q (10-Q)

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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.

Commission File Number 001-31303

Black Hills Corporation

Incorporated in South Dakota IRS Identification Number 46-0458824

7001 Mount Rushmore Road
Rapid City, South Dakota 57702
Registrant’s telephone number (605) 721-1700

Former name, former address, and former fiscal year if changed since last report
NONE

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer
x
 
Accelerated Filer
 
 
 
 
 
 
 
 
 
Non-accelerated Filer
 
Smaller Reporting Company
 
 
 
 
 
 
 
 
 
 
 
 
Emerging Growth Company
 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes No

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
 
 
Common stock of $1.00 par value
 
BKH
 
New York Stock Exchange
 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
 
Class
Outstanding at April 30, 2020
 
 
Common stock, $1.00 par value
62,749,727

shares
 


Table of Contents


TABLE OF CONTENTS
 
 
 
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TABLE OF CONTENTS
 
 
 
Page
Item 2.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 3.
 
Item 4.
 
 
 
 
 
Item 1.
 
Item 1A.
 
Item 4.
 
Item 6.
 
 
 
 
 
 
 


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GLOSSARY OF TERMS AND ABBREVIATIONS

The following terms and abbreviations appear in the text of this report and have the definitions described below:
AFUDC
Allowance for Funds Used During Construction
ALJ
Administrative Law Judge
AOCI
Accumulated Other Comprehensive Income (Loss)
Arkansas Gas
Black Hills Energy Arkansas, Inc., a direct, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Arkansas (doing business as Black Hills Energy).
ASC
Accounting Standards Codification
ASU
Accounting Standards Update issued by the FASB
ATM
At-the-market equity offering program
Availability
The availability factor of a power plant is the percentage of the time that it is available to provide energy.
BHC
Black Hills Corporation; the Company
Black Hills Colorado IPP
Black Hills Colorado IPP, LLC a 50.1% owned subsidiary of Black Hills Electric Generation
Black Hills Electric Generation
Black Hills Electric Generation, LLC, a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings, providing wholesale electric capacity and energy primarily to our affiliate utilities.
Black Hills Energy
The name used to conduct the business of our utility companies
Black Hills Energy Services
Black Hills Energy Services Company, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas commodity supply for the Choice Gas Programs (doing business as Black Hills Energy).
Black Hills Non-regulated Holdings
Black Hills Non-regulated Holdings, LLC, a direct, wholly-owned subsidiary of Black Hills Corporation
Black Hills Power
Black Hills Power, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy). Also known as South Dakota Electric.
Black Hills Utility Holdings
Black Hills Utility Holdings, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation (doing business as Black Hills Energy)
Black Hills Wyoming
Black Hills Wyoming, LLC, a direct, wholly-owned subsidiary of Black Hills Electric Generation
Busch Ranch I
29 MW wind farm near Pueblo, Colorado, jointly owned by Colorado Electric and Black Hills Electric Generation, each having a 50% ownership interest in the wind farm.

Busch Ranch II
60 MW wind farm near Pueblo, Colorado, built by Black Hills Electric Generation to provide wind energy to Colorado Electric through a power purchase agreement expiring in November 2044.
CAPP
Customer Appliance Protection Plan, which provides appliance repair services to residential natural gas customers through on-going monthly service agreements. The consolidation of the existing Service Guard and CAPP plans into the revamped Service Guard Comfort Plan is currently underway across our service territories.
CARES Act
Coronavirus Aid, Relief, and Economic Security Act, signed on March 27, 2020, which is a tax and spending package intended to provide additional economic relief and address the impact of the COVID-19 pandemic.
Cheyenne Light
Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric service in the Cheyenne, Wyoming area (doing business as Black Hills Energy). Also known as Wyoming Electric.
Choice Gas Program
Regulator-approved programs in Wyoming and Nebraska that allow certain utility customers to select their natural gas commodity supplier, providing for the unbundling of the commodity service from the distribution delivery service.
City of Gillette
Gillette, Wyoming
Colorado Electric
Black Hills Colorado Electric, LLC, a direct, wholly-owned subsidiary of Black Hills
Utility Holdings, providing electric service to customers in Colorado (doing business as Black Hills Energy).
Colorado Gas
Black Hills Colorado Gas, Inc., an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Colorado (doing business as Black Hills Energy).

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Consolidated Indebtedness to Capitalization Ratio
Any indebtedness outstanding at such time, divided by capital at such time. Capital being consolidated net worth (excluding noncontrolling interest) plus consolidated indebtedness (including letters of credit and certain guarantees issued) as defined within the current Revolving Credit Facility.
Cooling Degree Day (CDD)
A cooling degree day is equivalent to each degree that the average of the high and low temperatures for a day is above 65 degrees. The warmer the climate, the greater the number of cooling degree days. Cooling degree days are used in the utility industry to measure the relative warmth and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations.
Corriedale
Wind project near Cheyenne, Wyoming, that will be a 52.5 MW wind farm jointly owned by South Dakota Electric and Wyoming Electric and will serve as the dedicated wind energy supply to the Renewable Ready program.
COVID-19
The official name for the 2019 novel coronavirus disease, which was announced on February 11, 2020 by the World Health Organization, that is causing a global pandemic
CP Program
Commercial Paper Program
CPUC
Colorado Public Utilities Commission
CVA
Credit Valuation Adjustment
Dodd-Frank
Dodd-Frank Wall Street Reform and Consumer Protection Act
Dth
Dekatherm. A unit of energy equal to 10 therms or approximately one million British thermal units (MMBtu)
FASB
Financial Accounting Standards Board
FERC
United States Federal Energy Regulatory Commission
Fitch
Fitch Ratings Inc.
GAAP
Accounting principles generally accepted in the United States of America
Heating Degree Day (HDD)
A heating degree day is equivalent to each degree that the average of the high and the low temperatures for a day is below 65 degrees. The colder the climate, the greater the number of heating degree days. Heating degree days are used in the utility industry to measure the relative coldness and to compare relative temperatures between one geographic area and another. Normal degree days are based on the National Weather Service data for selected locations.
HomeServe
Repair service plans offered to electric and natural gas residential customers that cover parts and labor to repair electrical, gas, heating, cooling, and water systems.

ICFR
Internal Controls over Financial Reporting
Iowa Gas
Black Hills Iowa Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Iowa (doing business as Black Hills Energy).
IPP
Independent power producer
IRS
United States Internal Revenue Service
Kansas Gas
Black Hills Kansas Gas Utility Company, LLC, a direct, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Kansas (doing business as Black Hills Energy)
MMBtu
Million British thermal units
Moody’s
Moody’s Investors Service, Inc.
MW
Megawatts
MWh
Megawatt-hours
Nebraska Gas
Black Hills Nebraska Gas, LLC, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Nebraska (doing business as Black Hills Energy)
NPSC
Nebraska Public Service Commission
OCI
Other Comprehensive Income
PPA
Power Purchase Agreement
Pueblo Airport Generation
420 MW combined cycle gas-fired power generation plants jointly owned by Colorado Electric (220 MW) and Black Hills Colorado IPP (200 MW). Black Hills Colorado IPP owns and operates this facility. The plants commenced operation on January 1, 2012.
Renewable Ready
Voluntary renewable energy subscription program for large commercial, industrial and governmental agency customers. The Corriedale wind project will provide 52.5 MW of energy for Renewable Ready subscribers in Wyoming and western South Dakota.

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Revolving Credit Facility
Our $750 million credit facility used to fund working capital needs, letters of credit and other corporate purposes, which was amended and restated on July 30, 2018, and now terminates on July 30, 2023.
RMNG
Rocky Mountain Natural Gas LLC, an indirect, wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas transmission and wholesale services in western Colorado (doing business as Black Hills Energy).
SDPUC
South Dakota Public Utilities Commission
SEC
United States Securities and Exchange Commission
Service Guard
Home appliance repair product offering for both natural gas and electric residential customers through on-going monthly service agreements. The consolidation of the existing Service Guard and CAPP plans into the revamped Service Guard Comfort Plan is currently underway across our service territories.
Service Guard Comfort Plan
New plan that will consolidate Service Guard and CAPP and provide similar services.
S&P
Standard and Poor’s, a division of The McGraw-Hill Companies, Inc.
South Dakota Electric
Black Hills Power, Inc., a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric service to customers in Montana, South Dakota and Wyoming (doing business as Black Hills Energy).
Tech Services
Non-regulated product lines within Black Hills Corporation that 1) provide electrical system construction services to large industrial customers of our electric utilities and 2) serve gas transportation customers throughout its service territory by constructing and maintaining customer-owner gas infrastructure facilities, typically through one-time contracts.
TCJA
Tax Cuts and Jobs Act
Utilities
Black Hills’ Electric and Gas Utilities
Wind Capacity Factor
Measures the amount of electricity a wind turbine produces in a given time period relative to its maximum potential
WPSC
Wyoming Public Service Commission
WRDC
Wyodak Resources Development Corporation, a direct, wholly-owned subsidiary of Black Hills Non-regulated Holdings (doing business as Black Hills Energy)
Wyodak Plant
Wyodak, a 362 MW mine-mouth coal-fired plant in Gillette, Wyoming, owned 80% by PacifiCorp and 20% by Black Hills Energy South Dakota. Our WRDC mine supplies all of the fuel for the plant.
Wyoming Electric
Cheyenne Light, Fuel and Power Company, a direct, wholly-owned subsidiary of Black Hills Corporation, providing electric service to customers in the Cheyenne, Wyoming area (doing business as Black Hills Energy).
Wyoming Gas
Black Hills Wyoming Gas, LLC, an indirect and wholly-owned subsidiary of Black Hills Utility Holdings, providing natural gas services to customers in Wyoming (doing business as Black Hills Energy).

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Table of Contents

PART I.     FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS


BLACK HILLS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)
Three Months Ended March 31,
 
2020
2019
 
(in thousands, except per share amounts)
 
 
 
Revenue
$
537,050

$
597,810

 
 
 
Operating expenses:
 
 
Fuel, purchased power and cost of natural gas sold
187,879

249,742

Operations and maintenance
125,466

123,584

Depreciation, depletion and amortization
56,402

51,028

Taxes - property and production
14,118

13,325

Total operating expenses
383,865

437,679

 
 
 
Operating income
153,185

160,131

 
 
 
Other income (expense):
 
 
Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts)
(35,781
)
(35,016
)
Interest income
328

299

Impairment of investment
(6,859
)

Other income (expense), net
2,353

(789
)
Total other income (expense)
(39,959
)
(35,506
)
 


Income before income taxes
113,226

124,625

Income tax (expense)
(16,002
)
(17,263
)
Net income
97,224

107,362

Net income attributable to noncontrolling interest
(4,050
)
(3,554
)
Net income available for common stock
$
93,174

$
103,808

 
 
 
 
 
 
Earnings per share of common stock:
 
 
Earnings per share, Basic
$
1.51

$
1.73

Earnings per share, Diluted
$
1.51

$
1.73

 
 
 
Weighted average common shares outstanding:
 
 
Basic
61,778

59,920

Diluted
61,856

60,060



The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

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Table of Contents


BLACK HILLS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)
Three Months Ended
March 31,
 
2020
2019
 
(in thousands)
 
 
 
Net income
$
97,224

$
107,362

 
 
 
Other comprehensive income (loss), net of tax:
 
 
Benefit plan liability adjustments - net gain (net of tax of $(17) and $0, respectively
55


Reclassification adjustments of benefit plan liability - prior service cost (net of tax of $7 and $5, respectively)
(23
)
(14
)
Reclassification adjustments of benefit plan liability - net gain (net of tax of $(95) and $(53), respectively)
502

167

Derivative instruments designated as cash flow hedges:
 
 
Reclassification of net realized losses on settled/amortized interest rate swaps (net of tax of $(170) and $(163), respectively)
543

550

Net unrealized gains (losses) on commodity derivatives (net of tax of $54 and $(54), respectively)
(175
)
180

Reclassification of net realized (gains) losses on settled commodity derivatives (net of tax of $(115) and $128, respectively)
371

(426
)
Other comprehensive income, net of tax
1,273

457

 
 
 
Comprehensive income
98,497

107,819

Less: comprehensive income attributable to noncontrolling interest
(4,050
)
(3,554
)
Comprehensive income available for common stock
$
94,447

$
104,265


See Note 11 for additional disclosures.

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

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Table of Contents


BLACK HILLS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)
As of
 
March 31, 2020
 
December 31, 2019
 
(in thousands)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
54,137

 
$
9,777

Restricted cash and equivalents
4,027

 
3,881

Accounts receivable, net
238,903

 
255,805

Materials, supplies and fuel
92,894

 
117,172

Derivative assets, current
1,780

 
342

Income tax receivable, net
22,319

 
16,446

Regulatory assets, current
49,415

 
43,282

Other current assets
26,198

 
26,479

Total current assets
489,673

 
473,184

 
 
 
 
Investments
15,250

 
21,929

 
 
 
 
Property, plant and equipment
6,808,261

 
6,784,679

Less: accumulated depreciation and depletion
(1,223,979
)
 
(1,281,493
)
Total property, plant and equipment, net
5,584,282

 
5,503,186

 
 
 
 
Other assets:
 
 
 
Goodwill
1,299,454

 
1,299,454

Intangible assets, net
13,083

 
13,266

Regulatory assets, non-current
222,814

 
228,062

Other assets, non-current
24,258

 
19,376

Total other assets, non-current
1,559,609

 
1,560,158

 
 
 
 
TOTAL ASSETS
$
7,648,814

 
$
7,558,457


The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

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Table of Contents


BLACK HILLS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(unaudited)
As of
 
March 31, 2020
 
December 31, 2019
 
(in thousands, except share amounts)
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
136,344

 
$
193,523

Accrued liabilities
203,445

 
226,767

Derivative liabilities, current
852

 
2,254

Regulatory liabilities, current
54,345

 
33,507

Notes payable
319,125

 
349,500

Current maturities of long-term debt
5,743

 
5,743

Total current liabilities
719,854

 
811,294

 
 
 
 
Long-term debt, net of current maturities
3,136,887

 
3,140,096

 
 
 
 
Deferred credits and other liabilities:
 
 
 
Deferred income tax liabilities, net
387,939

 
360,719

Regulatory liabilities, non-current
504,149

 
503,145

Benefit plan liabilities
152,693

 
154,472

Other deferred credits and other liabilities
122,869

 
124,662

Total deferred credits and other liabilities
1,167,650

 
1,142,998

 
 
 
 
Commitments and contingencies (See Notes 7, 9, 12, 13)


 

 
 
 
 
Equity:
 
 
 
Stockholders’ equity —
 
 
 
Common stock $1 par value; 100,000,000 shares authorized; issued 62,772,978 and 61,480,658 shares, respectively
62,773

 
61,481

Additional paid-in capital
1,652,861

 
1,552,788

Retained earnings
838,841

 
778,776

Treasury stock, at cost – 24,656 and 3,956 shares, respectively
(1,925
)
 
(267
)
Accumulated other comprehensive income (loss)
(29,382
)
 
(30,655
)
Total stockholders’ equity
2,523,168

 
2,362,123

Noncontrolling interest
101,255

 
101,946

Total equity
2,624,423

 
2,464,069

 
 
 
 
TOTAL LIABILITIES AND TOTAL EQUITY
$
7,648,814

 
$
7,558,457


The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

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Table of Contents


BLACK HILLS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)
Three Months Ended March 31,
 
2020
2019
Operating activities:
(in thousands)
Net income
$
97,224

$
107,362

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation, depletion and amortization
56,402

51,028

Deferred financing cost amortization
2,237

2,007

Impairment of investment
6,859


Stock compensation
291

3,296

Deferred income taxes
21,876

19,602

Employee benefit plans
1,235

3,137

Other adjustments, net
892

4,428

Changes in certain operating assets and liabilities:
 
 
Materials, supplies and fuel
19,222

29,387

Accounts receivable and other current assets
8,171

(15,857
)
Accounts payable and other current liabilities
(43,297
)
(41,689
)
Regulatory assets - current
20,679

13,031

Regulatory liabilities - current
1,316

(1,635
)
Other operating activities, net
(1,138
)
1,796

Net cash provided by operating activities
191,969

175,893

 
 
 
Investing activities:
 
 
Property, plant and equipment additions
(171,882
)
(144,126
)
Other investing activities
(1,202
)
(901
)
Net cash (used in) investing activities
(173,084
)
(145,027
)
 
 
 
Financing activities:
 
 
Dividends paid on common stock
(32,902
)
(30,332
)
Common stock issued
99,321

19,949

Net (payments) borrowings of short-term debt
(30,375
)
(20,970
)
Long-term debt - repayments
(4,291
)
(1,436
)
Distributions to noncontrolling interest
(4,741
)
(4,846
)
Other financing activities
(1,391
)
(1,657
)
Net cash provided by (used in) financing activities
25,621

(39,292
)
 
 
 
Net change in cash, restricted cash and cash equivalents
44,506

(8,426
)
 
 
 
Cash, restricted cash and cash equivalents at beginning of period
13,658

24,145

Cash, restricted cash and cash equivalents at end of period
$
58,164

$
15,719

 
 
 
Supplemental cash flow information:
 
 
Cash (paid) refunded during the period:
 
 
Interest (net of amounts capitalized)
$
(21,776
)
$
(30,672
)
Income taxes

8

Non-cash investing and financing activities:
 
 
Accrued property, plant and equipment purchases at March 31
53,011

56,571





The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these Condensed Consolidated Financial Statements.

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Table of Contents


BLACK HILLS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(unaudited)
Common Stock
Treasury Stock
 
 
 
 
 
(in thousands except share amounts)
Shares
Value
Shares
Value
Additional Paid in Capital
Retained Earnings
AOCI
Non controlling Interest
Total
December 31, 2019
61,480,658

$
61,481

3,956

$
(267
)
$
1,552,788

$
778,776

$
(30,655
)
$
101,946

$
2,464,069

Net income available for common stock





93,174


4,050

97,224

Other comprehensive income, net of tax






1,273


1,273

Dividends on common stock ($0.535 per share)





(32,902
)


(32,902
)
Share-based compensation
69,378

69

20,700

(1,658
)
2,263




674

Issuance of common stock
1,222,942

1,223



98,777




100,000

Issuance costs




(967
)



(967
)
Implementation of ASU 2016-13 Financial Instruments -- Credit Losses





(207
)


(207
)
Distributions to noncontrolling interest







(4,741
)
(4,741
)
March 31, 2020
62,772,978

$
62,773

24,656

$
(1,925
)
$
1,652,861

$
838,841

$
(29,382
)
$
101,255

$
2,624,423

 
 
 
 
 
 
 
 
 
 

 
Common Stock
Treasury Stock
 
 
 
 
 
(in thousands except share amounts)
Shares
Value
Shares
Value
Additional Paid in Capital
Retained Earnings
AOCI
Non controlling Interest
Total
December 31, 2018
60,048,567

$
60,049

44,253

$
(2,510
)
$
1,450,569

$
700,396

$
(26,916
)
$
105,835

$
2,287,423

Net income (loss) available for common stock





103,808


3,554

107,362

Other comprehensive income, net of tax






457


457

Dividends on common stock ($0.505 per share)





(30,332
)


(30,332
)
Share-based compensation
48,956

49

(20,497
)
1,078

(589
)



538

Issuance of common stock
280,497

280



19,719




19,999

Issuance costs




(289
)



(289
)
Implementation of ASU 2016-02 Leases





3,390



3,390

Distributions to noncontrolling interest







(4,846
)
(4,846
)
March 31, 2019
60,378,020

$
60,378

23,756

$
(1,432
)
$
1,469,410

$
777,262

$
(26,459
)
$
104,543

$
2,383,702

 
 
 
 
 
 
 
 
 
 


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Table of Contents


BLACK HILLS CORPORATION

Notes to Condensed Consolidated Financial Statements
(unaudited)
(Reference is made to Notes to Consolidated Financial Statements
included in the Company’s 2019 Annual Report on Form 10-K)

(1)    Management’s Statement

The unaudited Condensed Consolidated Financial Statements included herein have been prepared by Black Hills Corporation (together with our subsidiaries the “Company”, “us”, “we” or “our”), pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, we believe that the footnotes adequately disclose the information presented. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and the notes included in our 2019 Annual Report on Form 10-K filed with the SEC.

Segment Reporting

We conduct our operations through the following reportable segments: Electric Utilities, Gas Utilities, Power Generation and Mining. Our reportable segments are based on our method of internal reporting, which is generally segregated by differences in products, services and regulation. All of our operations and assets are located within the United States.

Use of Estimates and Basis of Presentation

The information furnished in the accompanying Condensed Consolidated Financial Statements reflects certain estimates required and all adjustments, including accruals, which are, in the opinion of management, necessary for a fair presentation of the March 31, 2020, December 31, 2019 and March 31, 2019 financial information. Certain industries in which we operate are highly seasonal, and revenue from, and certain expenses for, such operations may fluctuate significantly among quarterly periods. Demand for electricity and natural gas is sensitive to seasonal cooling, heating and industrial load requirements. In particular, the normal peak usage season for electric utilities is June through August while the normal peak usage season for gas utilities is November through March. Significant earnings variances can be expected between the Gas Utilities segment’s peak and off-peak seasons. Due to this seasonal nature, our results of operations for the three months ended March 31, 2020 and March 31, 2019, and our financial condition as of March 31, 2020 and December 31, 2019 are not necessarily indicative of the results of operations and financial condition to be expected for any other period. All earnings per share amounts discussed refer to diluted earnings per share unless otherwise noted.

Reclassification

We changed certain classifications of operating expenses on the Consolidated Statements of Income for the three months ended March 31, 2019.  Amounts previously reported as Operations and maintenance, Taxes - property and production, and Other operating expenses of ($0.3) million, ($0.3) million, and ($0.4) million, respectively, have been reclassified to Fuel, purchased power and cost of natural gas sold to conform with current year presentation.  The prior year reclassifications did not impact previously reported operating income or net income.

COVID-19 Pandemic

In March 2020, the World Health Organization categorized COVID-19 as a pandemic and the President of the United States declared the outbreak a national emergency.  The U.S. government has deemed the electric and natural gas utilities as “critical” in providing essential services during this emergency.  As a provider of critical services, the Company has an obligation to provide services to our customers.  The Company remains focused on protecting the health of its employees and the communities in which it operates while assuring the continuity of its business operations.

The Company’s Condensed Consolidated Financial Statements reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and reported amounts of revenue and expenses during the reporting periods presented.  The Company considered the impacts of COVID-19 on the assumptions and estimates used and determined that for the three months ended March 31, 2020, there were no material adverse impacts on the Company’s results of operations.

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Table of Contents


Change in Accounting Principle - Pension Accounting Asset Method

Effective January 1, 2020, we changed our method of accounting for net periodic benefit cost. Prior to the change, the Company used a calculated value for determining market-related value of plan assets which amortized the effects of gains and losses over a five-year period. Effective with the accounting change, the Company will continue to use a calculated value for the return-seeking assets (equities) in the portfolio and change to fair value for the liability-hedging assets (fixed income). See Note 12 for additional information.

Recently Issued Accounting Standards

Simplifying the Accounting for Income Taxes, ASU 2019-12

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes as part of its overall simplification initiative to reduce costs and complexity in applying accounting standards while maintaining or improving the usefulness of the information provided to users of the financial statements. Amendments include removal of certain exceptions to the general principles of ASC 740, Income Taxes, and simplification in several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The new guidance is effective for interim and annual periods beginning after December 15, 2020 with early adoption permitted. We are currently reviewing this standard to assess the impact on our financial position, results of operations and cash flows.

Recently Adopted Accounting Standards

Financial Instruments -- Credit Losses: Measurement of Credit Losses on Financial Instruments, ASU 2016-13

In June 2016, the FASB issued ASU 2016-13, Financial Instruments -- Credit Losses: Measurement of Credit Losses on Financial Instruments, which was subsequently amended by ASU 2018-19, ASU 2019-04, 2019-05, 2019-10, and 2019-11. The standard introduces new accounting guidance for credit losses on financial instruments within its scope, including trade receivables. This new guidance adds an impairment model that is based on expected losses rather than incurred losses.

We adopted this standard on January 1, 2020 with prior year comparative financial information remaining as previously reported when transitioning to the new standard. On January 1, 2020, we recorded an increase to our allowance for credit losses, primarily associated with the inclusion of expected losses on unbilled revenue. The cumulative effect of the adoption, net of tax impact, was $0.2 million, which was recorded as an adjustment to retained earnings.

Simplifying the Test for Goodwill Impairment, ASU 2017-04

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment by eliminating step 2 from the goodwill impairment test. Under the new guidance, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the amount of goodwill allocated to that reporting unit. We adopted this standard prospectively on January 1, 2020. Adoption of this guidance is not expected to have an impact on our financial position, results of operations or cash flows.

Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, ASU 2018-15

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for recording implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. As a result, certain categories of implementation costs that previously would have been charged to expense as incurred are now capitalized as prepayments and amortized over the term of the arrangement. We adopted this standard prospectively on January 1, 2020. Adoption of this guidance did not have a material impact on our financial position, results of operations or cash flows.



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Table of Contents

(2)    Revenue

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. The following tables depict the disaggregation of revenue, including intercompany revenue, from contracts with customers by customer type and timing of revenue recognition for each of the reporting segments for the three months ended March 31, 2020 and 2019. Sales tax and other similar taxes are excluded from revenues.
 
 
 
 
 
 
 

 
 
 
 
 
 
 
Three Months Ended March 31, 2020
 Electric Utilities
 Gas Utilities
 Power Generation
 Mining
Inter-company Revenues
Total
Customer types:
(in thousands)
Retail
$
148,640

$
298,247

$

$
14,403

$
(7,839
)
$
453,451

Transportation

44,108



(139
)
43,969

Wholesale
5,552


25,467


(23,612
)
7,407

Market - off-system sales
4,867

138



(2,639
)
2,366

Transmission/Other
14,857

12,572



(4,413
)
23,016

Revenue from contracts with customers
$
173,916

$
355,065

$
25,467

$
14,403

$
(38,642
)
$
530,209

Other revenues
223

5,708

499

802

(391
)
6,841

Total revenues
$
174,139

$
360,773

$
25,966

$
15,205

$
(39,033
)
$
537,050

 
 
 
 
 
 
 
Timing of revenue recognition:
 
 
 
 
 
 
Services transferred at a point in time
$

$

$

$
14,403

$
(7,839
)
$
6,564

Services transferred over time
173,916

355,065

25,467


(30,803
)
523,645

Revenue from contracts with customers
$
173,916

$
355,065

$
25,467

$
14,403

$
(38,642
)
$
530,209

 
 
 
 
 
 
 


Three Months Ended March 31, 2019
 Electric Utilities
 Gas Utilities
 Power Generation
 Mining
Inter-company Revenues
Total
Customer Types:
 
 
 
 
 
 
Retail
$
153,463

$
354,275

$

$
15,829

$
(8,128
)
$
515,439

Transportation

44,517



(432
)
44,085

Wholesale
8,343


24,147


(21,891
)
10,599

Market - off-system sales
6,692

217



(2,224
)
4,685

Transmission/Other
14,175

13,190



(4,203
)
23,162

Revenue from contracts with customers
$
182,673

$
412,199

$
24,147

$
15,829

$
(36,878
)
$
597,970

Other revenues
254

(1,119
)
1,098

600

(993
)
(160
)
Total Revenues
$
182,927

$
411,080

$
25,245

$
16,429

$
(37,871
)
$
597,810

 
 
 
 
 
 
 
Timing of Revenue Recognition:
 
 
 
 
 
 
Services transferred at a point in time
$

$

$

$
15,829

$
(8,128
)
$
7,701

Services transferred over time
182,673

412,199

24,147


(28,750
)
590,269

Revenue from contracts with customers
$
182,673

$
412,199

$
24,147

$
15,829

$
(36,878
)
$
597,970

 
 
 
 
 
 
 



15


Table of Contents

Contract Balances

The nature of our primary revenue contracts provides an unconditional right to consideration upon service delivery; therefore, no customer contract assets or liabilities exist. The unconditional right to consideration is represented by the balance in our Accounts Receivable further discussed in Note 4. We do not typically incur costs that would be capitalized to obtain or fulfill a revenue contract.


(3)    Business Segment Information

Our reportable segments are based on our method of internal reporting, which is generally segregated by differences in products, services and regulation. All of our operations and assets are located within the United States.

Segment and Corporate and Other information is as follows (in thousands):
Three Months Ended March 31, 2020
External Operating
Revenue
 
Inter-company Operating Revenue
 
Total Revenues
 Contract Customers
 Other Revenues
 Contract Customers
 Other Revenues
Segment:
 
 
 
 
 
 
 
Electric Utilities
$
167,503

$
223

 
$
6,413

$

 
$
174,139

Gas Utilities
354,287

5,708

 
778


 
360,773

Power Generation
1,855

443

 
23,612

56

 
25,966

Mining
6,564

467

 
7,839

335

 
15,205

Inter-company eliminations


 
(38,642
)
(391
)
 
(39,033
)
Total
$
530,209

$
6,841

 
$

$

 
$
537,050

 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
External Operating Revenue
 
Inter-company Operating Revenue
 
 Total Revenues
 Contract Customers
 Other Revenues
 Contract Customers
 Other Revenues
Segment:
 
 
 
 
 
 
 
Electric Utilities
$
176,663

$
254

 
$
6,010

$

 
$
182,927

Gas Utilities
411,500

(1,119
)
 
699


 
411,080

Power Generation
2,257

436

 
21,890

662

 
25,245

Mining
7,550

269

 
8,279

331

 
16,429

Inter-company eliminations


 
(