BLACK HILLS CORP /SD/ (BKH)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussions should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our 2025 Annual Report on Form 10-K.

Executive Summary

We are a customer-focused energy solutions provider with a mission of Improving Life with Energy for more than 1.37 million customers and 800+ communities we serve. Our aspiration is to be the trusted energy partner across our growing eight-state footprint, including Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Our strategy is centered on four priorities: People & Culture—build a team that wins together, Operational Excellence—relentlessly deliver on our commitment to serve our customers, Transformation—be a simple and connected company and Growth—grow to be a dominant long-term energy provider.

We conduct our business operations through two operating segments: Electric Utilities and Gas Utilities. Certain unallocated corporate expenses that support our operating segments are presented as Corporate and Other. We conduct our utility operations under the name Black Hills Energy predominantly in rural areas of the Rocky Mountains and Midwestern states. We consider ourselves a domestic electric and natural gas utility company.

We have provided energy and served customers for 142 years, since the 1883 gold rush days in Deadwood, South Dakota. Throughout our history, the common thread that unites the past to the present is our commitment to serve our customers and communities. By being responsive and service focused, we can help our customers and communities thrive while meeting rapidly changing customer expectations.

Recent Developments

Pending Merger with NorthWestern

On August 18, 2025, we entered into the Merger Agreement with NorthWestern and Merger Sub. See Note 14 of the Condensed Notes to Consolidated Financial Statements for recent developments surrounding the pending Merger.

Business Segment Recent Developments

Electric Utilities

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See Note 2 of the Condensed Notes to Consolidated Financial Statements for recent rate review activity for South Dakota Electric and Colorado Electric.

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During the second quarter of 2026, South Dakota Electric continued with construction of its Lange II project which is anticipated to be in service in the fourth quarter of 2026. The addition of these resources will replace generation facilities planned for retirement and support updated planning reserve margin requirements. On August 4, 2026, South Dakota Electric filed an application with the SDPUC for a PIRP rider which requests recovery of $320 million of Lange II project costs outside of a general rate review. If approved by the SDPUC, the rider is anticipated to be effective on December 1, 2026.

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On March 12, 2026, the state of South Dakota enacted comprehensive wildfire liability mitigation legislation (Senate Bill 36), effective July 1, 2026. The legislation provides material liability protections for a utility that complies with its published wildfire mitigation plan. On July 2, 2026, South Dakota Electric filed its WMP with the SDPUC. Under Senate Bill 36, a utility's WMP is valid and current if it is on file and all annual reports are timely filed with the SDPUC. In 2025, the state of Wyoming enacted similar legislation. In November 2025, Wyoming Electric filed its WMP with the WPSC, which was approved on July 9, 2026.

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On April 22, 2026, Wyoming Electric entered into a generation reservation agreement with a prospective new customer seeking to construct a 1.8 GW data center under Wyoming Electric's LPCS Tariff. In July 2026, the parties amended this generation reservation agreement to increase the total refundable advances and extended the maturity date to August 31, 2026. This agreement is a bridge agreement to support long lead-time items while Wyoming Electric continues to negotiate definitive agreements with the prospective customer. See Note 5 of the Condensed Notes to Consolidated Financial Statements for additional information.

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On June 30, 2026, Wyoming Electric submitted an IRP to the WPSC. The IRP, which is based on 20-year planning period including a near-term planning period through 2033, identified a near-term capacity shortfall of 95 MW beginning in 2027. Based on its forecasts and analysis, Wyoming Electric recommends the addition of natural gas-fired generation and battery storage assets to meet the identified resource need. Wyoming Electric's IRP does not address any LPCS Tariff capacity needs, which are handled separately under customer-specific agreements.

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On June 19, 2026, Wyoming Electric filed a request with the WPSC to establish an LCTCAM tariff. The LCTCAM tariff provides a framework to directly recover transmission investment costs from LPCS customers who are served by, and benefit from, the transmission facility. The proposed mechanism is designed to ensure that customers not directly served by those facilities are protected from bearing those costs. The filing requests WPSC approval of the LCTCAM tariff by September 1, 2026, with an effective date of January 1, 2027.

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In 2026, Wyoming Electric has set multiple all-time records for System Peak Demand. The most recent all-time peak of 439 MW was set on July 20, 2026. Prior to 2026, the previous all-time peak was 379 MW set on June 20, 2025.

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In 2025, Colorado Electric received CPUC approval for the addition of 250 MW of new renewable generation resources in support of its Clean Energy Plan, which included a 50-MW utility-owned battery storage project and a 200-MW solar PPA. During the fourth quarter of 2025, Colorado Electric commenced construction of the 50-MW battery storage project. The project is expected to be completed by year-end 2027. On February 18, 2026, Colorado Electric entered into a 200-MW solar PPA. See Note 3 of the Condensed Notes to Consolidated Financial Statements for additional information regarding the PPA.

Gas Utilities

•
See Note 2 of the Condensed Notes to Consolidated Financial Statements for recent rate review activity for Arkansas Gas, Kansas Gas and Nebraska Gas.

Corporate and Other

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See Note 5 of the Condensed Notes to Consolidated Financial Statements for information regarding recent financing activities.

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During the second quarter of 2026, we published our 2025 Corporate Sustainability Report, highlighting our environmental, social and governance impacts and our progress on major projects and climate goals. We reported a 43% reduction in electric utility emissions intensity compared to 2005, driven by the addition of renewable and natural gas resources and the retirement of aging power plants. We also reduced natural gas utility emissions by 25% since 2022, including a 53% reduction from transfer stations, reflecting progress toward our net-zero by 2035 goal through expanded leak detection and repair efforts.

Results of Operations

Certain lines of business 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 our Electric Utilities is June through August while the normal peak usage season for our 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 and six months ended June 30, 2026, and 2025, and our financial condition as of June 30, 2026, and December 31, 2025, are not necessarily indicative of the results of operations and financial condition to be expected as of or for any other period or for the entire year.

All amounts are presented on a pre-tax basis unless otherwise indicated. Minor differences in amounts may result due to rounding.

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Consolidated Summary and Overview

(a)
Includes inter-segment eliminations.

Three Months Ended June 30, 2026, Compared to the Three Months Ended June 30, 2025:

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Electric Utilities' operating income increased $12.1 million primarily due to new rates and rider recovery driven by the Wyoming Electric's recently completed Ready Wyoming project;

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Gas Utilities' operating income increased $7.6 million primarily due to new rates and rider recovery driven by the Nebraska Gas and Kansas Gas rate reviews partially offset by higher operating expenses;

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Corporate and Other operating loss increased $5.2 million primarily due to costs related to the pending merger with NorthWestern; and

•
Net interest expense increased $2.7 million primarily due to higher rates on increased debt.

Six Months Ended June 30, 2026, Compared to the Six Months Ended June 30, 2025:

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Electric Utilities’ operating income increased $16.9 million primarily due to new rates and rider recovery driven by the Colorado Electric rate review and Wyoming Electric's recently completed Ready Wyoming project partially offset by lower residential and commercial customer usage and unfavorable weather;

•
Gas Utilities’ operating income increased $1.0 million primarily due to new rates and rider recovery driven by the Nebraska Gas, Kansas Gas, and Arkansas Gas rate reviews partially offset by unfavorable weather and higher operating expenses;

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Corporate and Other operating loss increased $6.3 million primarily due to costs related to the pending merger with NorthWestern; and

•
Net interest expense increased $3.2 million primarily due to higher rates on increased debt partially offset by higher AFUDC debt.

Segment Operating Results

A discussion of operating results from our business segments follows. Unless otherwise indicated, segment information does not include inter-segment eliminations.

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Non-GAAP Financial Measures

The following discussion includes financial information prepared in accordance with GAAP and a “non-GAAP financial measure", Electric and Gas Utility margin. Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, finan

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Summary

We are a customer-focused energy solutions provider with a mission of Improving Life with Energy for 1.37 million customers and 800+ communities we serve. Our aspiration is to be the trusted energy partner across our growing eight-state footprint, including Arkansas, Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota, and Wyoming. Our strategy is centered on four priorities: People & Culture—build a team that wins together, Operational Excellence—relentlessly deliver on our commitment to serve our customers, Transformation—transform to a simple and connected company and Growth—grow to be a dominant long-term energy provider.

We conduct our business operations through two operating segments: Electric Utilities and Gas Utilities. Certain unallocated corporate expenses that support our operating segments are presented as Corporate and Other. We conduct our utility operations under the name Black Hills Energy predominantly in rural areas of the Rocky Mountains and Midwestern states. We consider ourselves a domestic electric and natural gas utility company.

We have provided energy and served customers for 142 years, since the 1883 gold rush days in Deadwood, South Dakota. Throughout our history, the common thread that unites the past to the present is our commitment to serve our customers and communities. By being responsive and service focused, we can help our customers and communities thrive while meeting rapidly changing customer expectations.

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Recent Developments

Pending Merger with NorthWestern

On August 18, 2025, we entered into the Merger Agreement with NorthWestern and Merger Sub. See Note 17 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further discussion about the pending Merger.

One Big Beautiful Bill Act

See Note 15 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for discussion surrounding the OBBBA.

Trade Tariffs

Trade tariffs have been enacted over the last several months through presidential executive orders affecting products exported by several U.S. trading partners, and retaliatory tariffs have been imposed by some of these trading partners. While some tariffs scheduled to take effect were temporarily suspended, broad tariffs remain in effect with the possibility of additional tariffs being imposed. We are currently unable to predict the impact that recently imposed and possible future tariffs may have on our business. Trade tariffs have not had a material impact on our operations of financial performance to date. We are closely monitoring the impacts of trade tariffs and the potential effect they may have on our financial positions, results of operations, or cash flows.

Business Segment Recent Developments

Electric Utilities

•
See Note 2 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for recent rate review activity for Colorado Electric.

•
In December 2025, the Ready Wyoming project was fully completed and placed in service and now interconnects South Dakota Electric’s and Wyoming Electric’s transmission systems. Ready Wyoming was originally announced in November 2021 and construction commenced in late 2023. The project provides customers long-term price stability and greater flexibility as power markets develop in the western United States. This project is also expected to enable economic growth in Wyoming, expand access to renewable resources and facilitate additional renewable development across wind- and sun-rich resource areas.

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In 2025, Wyoming Electric continued to grow its large-load demand from existing data center customers, Microsoft and Meta, under its LPCS Tariff. In July 2024, Wyoming Electric announced it would partner with Meta to provide power for its AI data center. Meta's new AI data center plans to transition from construction power to permanent service later in the first quarter of 2026. We are also actively negotiating with prospective new data center customers that would further grow our load pipeline under Wyoming Electric's LPCS Tariff and also through strategic investments in new transmission and generation.

•
In 2025, Wyoming Electric set multiple all-time and winter records for System Peak Demand. The most recent all-time peak of 379 MW was set on June 20, 2025 and the most recent winter peak of 375 MW was set on November 30, 2025. Prior to 2025, the previous all-time and winter peak was 314 MW set on January 11, 2024.

•
On March 28, 2025, South Dakota Electric filed a CPCN with the WPSC for the Lange II project, which was approved in June 2025. The new facility began construction in the third quarter of 2025 and is anticipated to be in service in the fourth quarter of 2026. The addition of these resources will replace generation facilities planned for retirement and support updated planning reserve margin requirements.

•
In 2025, Colorado Electric received CPUC approval for the addition of 250 MW of new renewable generation resources in support of its Clean Energy Plan, which included a 50-MW utility-owned battery storage project and a 200-MW solar PPA. On November 3, the CPUC approved the CPCN for the 50-MW battery storage project. During the first quarter of 2026, Colorado Electric expects to execute the 200-MW solar PPA.

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In 2024, we published our first formal WMP, which is an overview of our three-layered approach to manage wildfire risks driven by asset-based risk assessments that include asset programs, integrity programs and operational response. On June 30, 2025, we established our Emergency PSPS program across all three of our electric utilities to promote customer safety and mitigate wildfire risk. In establishing the Emergency PSPS program, we engaged with wildfire experts and key stakeholders including customers, community and local agencies, regulators and community leaders.

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•
On March 6, 2025, the state of Wyoming enacted comprehensive wildfire liability mitigation legislation (HB0192), effective July 1, 2025. The legislation provides material liability protections for a utility that complies with its commission-approved wildfire mitigation plan. In November 2025, we filed our WMP with the WPSC and anticipate approval in March 2026.

Gas Utilities

•
See Note 2 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for recent rate review activity for Arkansas Gas, Iowa Gas, Kansas Gas, and Nebraska Gas.

Corporate and Other

•
See Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for information regarding our corporate Revolving Credit Facility, October 2, 2025 debt offering and ATM program activity.

Results of Operations

Our discussion and analysis for the year ended December 31, 2025, compared to 2024, is included herein. For discussion and analysis for the year ended December 31, 2024, compared to 2023, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 12, 2025.

All amounts are presented on a pre-tax basis unless otherwise indicated. Minor differences in amounts may result due to rounding.

Consolidated Summary and Overview

(a)
Includes inter-segment eliminations.

2025 Compared to 2024

•
Electric Utilities’ operating income decreased $10.5 million primarily due to higher operating expenses, unplanned generation outages, lower transmission services revenues and unfavorable weather partially offset by new rates and rider recovery;

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Gas Utilities’ operating income increased $49.5 million primarily due to new rates and rider recovery driven by the Arkansas Gas, Iowa Gas, Kansas Gas, and Nebraska Gas rate reviews and favorable weather partially offset by unfavorable retail customer usage and higher operating expenses;

•
Corporate and Other operating (loss) increased by $4.6 million primarily due to costs related to the pending Merger partially offset by a one-time favorable true-up from the consolidation of our Captive;

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Net interest expense increased $18.4 million due to higher interest rates on long-term debt, higher CP Program borrowings and lower interest income partially offset by higher AFUDC debt;

•
Other income, net increased $7.5 million primarily due to higher AFUDC equity driven by construction work-in-progress balances and higher investment income from our Captive;

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Income tax (expense) increased $7.4 million primarily due to higher pre-tax income and a higher effective tax rate; and

•
Net income attributable to non-controlling interest decreased $2.4 million due to lower net income from Black Hills Colorado IPP primarily driven by unplanned generation outages.

Segment Operating Results

Non-GAAP Financial Measure

The following discussion includes financial information prepared in accordance with GAAP and a “non-GAAP financial measure", Electric and Gas Utility margin. Generally, a non-GAAP financial measure is a numerical measure of a company’s financial performance, financial position or cash flows that excludes (or includes) amounts that are included in (or excluded from) the most directly comparable measure calculated and presented in accordance with GAAP. We define Electric and Gas Utility margin as operating revenue less cost of fuel, purchased power and cost of natural gas sold. Electric and Gas Utility margin is a non-GAAP financial measure due to the exclusion of operation and maintenance expenses determined to be directly attributable to revenue-producing activities, depreciation and amortization expenses, and taxes other than income taxes from the measure.

We believe that Electric and Gas Utility margin provides a useful basis for evaluating our segment operating results since our Utilities have regulatory mechanisms that allow them to pass prudently incurred costs of energy through to the customer in current rates. As a result, management uses Electric and Gas Utility margin internally when assessing the financial performance of our operating segments as this measure excludes the majority of revenue fluctuations caused by changes in these costs of energy. Similarly, the presentation of Electric and Gas Utility margin is intended to supplement investors’ understanding of oper

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