BLACK HILLS CORP SD

Macroeconomic Trends

We continue to monitor challenging macroeconomic trends including supply chain disruptions, rising interest rates, potential recession and inflationary pressures on the prices of materials, outside services and employee costs. To date, we have experienced moderate net impacts from these trends. However, if current macroeconomic conditions deteriorate in 2024, adverse impacts to our businesses may be magnified.

Inflation has increased our operating expenses, which included higher employee-related expenses in 2023 compared to the prior year.

We are proactively managing increased costs of materials and supply chain disruptions to achieve our forecasted capital investment targets. To support our 2024 capital investment program, we have contracts in place with key suppliers and we have contracted services for a significant portion of our largest forecasted projects. We continue to forecast multi-year key material requirements with suppliers to enhance predictable material availability, challenge vendor price increases to ensure best value and cost transparency and invest in our distribution network to ensure the safety and reliability of our system. We have also evaluated each of our forecasted projects and will prioritize them depending on future constraints. Project delays may occur if costs rise significantly or if materials are not available.

Rising interest rates have led to increased interest expense on recent debt issuances. These impacts were partially offset by lower short-term, variable rate borrowings and higher interest income on our cash equivalents when compared to the prior year.

The deflationary trend in commodity prices throughout 2023 has partially offset macroeconomic headwinds from inflation and higher interest rates. Lower commodity prices have led to lower customer bills, lower cost of fuel, purchased power and natural gas sold, and improved cash flows from operations due to recoveries of deferred energy costs from customers (which were elevated at the end of 2022 and subsequently collected in 2023).

More detailed discussion of the future uncertainties can be found in Item 1A - Risk Factors.

Business Segment Highlights and Corporate Activity

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

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See Key Elements of our Business Strategy section above for discussion of recent developments related to Ready Wyoming, Colorado Electric's Clean Energy Plan, and South Dakota Electric and Wyoming Electric's IRP.

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On January 11, 2024, Wyoming Electric set a new winter peak load of 314 MW, surpassing the previous winter peaks of 301 MW set on December 26, 2023, 299 MW set on October 31, 2023, and 281 MW set in December 2022.

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On July 24, 2023, Wyoming Electric set a new all-time and summer peak load of 312 MW, surpassing the previous peak of 294 MW set on July 21, 2022.

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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, Colorado Gas, RMNG and Wyoming Gas.

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See Key Elements of our Business Strategy section above for discussion of recent developments related to BHERR's purchase of a RNG production facility in Iowa.

Corporate and Other

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On September 15, 2023, we completed a public debt offering of $450 million, 6.15% 10-year senior unsecured notes due May 15, 2034. Net proceeds from the offering were used to repay our $525 million principal amount outstanding notes and for other general corporate purposes. See Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further information.

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On June 16, 2023, we filed a new shelf registration statement with the SEC and entered into a new Equity Distribution Sales Agreement. The new Equity Distribution Sales Agreement is similar to our prior agreement and allows us to sell shares of common stock up to an aggregate of $400 million through our ATM program utilizing our shelf registration statement. As of December 31, 2023, we have $329 million available to issue under this program. See Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further information.

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On March 7, 2023, we completed a public debt offering of $350 million, 5.95% 5-year senior unsecured notes due March 15, 2028. The proceeds from the offering were used to repay notes outstanding under our commercial paper program and for other general corporate purposes. See Note 8 of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for further information.