Black Hills ‘Powering a Better Future’ with Crypto,Energy Transition Proposals

After breaking three new summer peak loads for its Wyoming electric subsidiary this summer, management for Rapid City, SD-based Black Hills Corp. highlighted the utility’s interruptible service tariff agreement with a cryptocurrency miner.

Black Hills Energy’s Cheyenne Light, Fuel and Power Co. “completed its first agreement for service under our blockchain tariff in Wyoming with a well established crypto miner that is investing in long-term operations in China,” said CEO Linn Evans during the second quarter earnings update. 

The utility is expecting to deliver up to 45 MW of electricity to the Cheyenne, WY-based crypto miner by year’s end, with an option to expand the service up to 75 MW. 

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Evans told investors that the crypto-mining customer is under an interruptible service agreement so that “current customers are protected in terms of those peak days. We have the opportunity on an hour-by-hour, day-by-day basis to determine whether they want to take the energy or not. So it really provides us a great opportunity to add income to the organization without capital expense.”

Under the contract, the blockchain miner would build the infrastructure required for Black Hills to provide electric services in addition to providing upfront payments.

Renewables, RNG And Rates

Black Hills, which services natural gas and electric customers in several Rocky Mountain and Midwest states, filed for approval on a renewable natural gas (RNG) and carbon offset program in Colorado and Kansas.

The proposed tariff program would “allow business and residential customers to opt into the program,” Evans said. 

Black Hills also submitted integrated resource proposals (IRP) to the South Dakota Public Utilities Commission and Wyoming Public Service Commission to convert about 90 MW of coal-fired generation to natural gas-fired generation around 2025. The utility also wants to add 100 MW of renewable generation and evaluate the potential for 20 MW of battery storage.

In its Colorado IRP, still awaiting approval from regulators, Black Hills outlined renewables additions that would help it reach a 90% reduction in carbon emissions by 2030 based on 2005 levels. Black Hills wants to add about 400 MW of renewable wind and solar resources, in addition to about 50 MW of battery storage between 2025 and 2030, Evans said.  

“We already closed our only remaining coal plant in Colorado back in 2015, and these new clean energy additions would result in almost 80% of our Colorado customers’ electricity coming from carbon-free resources,” he said.

What’s more, the utility is preparing a rate review later this year to support its midstream subsidiary Rocky Mountain Natural Gas LLC, which operates 550 miles of transmission pipe, and one operational natural gas processing facility and one natural gas compression facility. 

Inflation Reduction Act ‘Quite Positive’

The Inflation Reduction Act of 2022, which is expected to be sent to President Biden’s desk following House approval, includes an estimated $370 billion over 10 years to cut greenhouse gas emissions. 

Evans, speaking to investors before the Senate affirmed the Act, said it could be “quite positive” and would “allow us to have a much more competitive position” as the company hones in on its request for proposals for clean energy with its Colorado utilities. 

“So we’re watching that closely,” he said. 

Uri Cost Recovery

CFO Rich Kinzley said last quarter’s earnings were primarily driven by new rates that came into effect as a result of recovery from Winter Storm Uri. 

“Margins improved due to new rates at our gas utilities and recovery for rider eligible investments across both our electric and gas utilities,” Kinzley said. 

The utility is awaiting approval on new rates for its Arkansas gas utility, and a hearing with the Arkansas Public Service Commission is expected ater this month, Evans said. 

“Our request seeks to implement new rates in the fourth quarter and implement an enhanced system safety, integrity and reliability rider,” Evans said. “We also made progress with our Winter Storm Uri cost recovery during the quarter. Thus far, we’ve recovered more than a quarter of the incremental costs we incurred to serve customers during Storm Uri.”

However, Kinzley noted, operations and maintenance costs were “tempered results” year/year. In 2Q2022, costs were higher, “mainly due to inflationary impacts, driven by higher outside services, noncompeting costs and vehicle fuel costs.” 

Black Hills reported net income of $33.4 million (52 cents/share) in 2Q2022, compared with $25.2 million (40 cents) for the same period last year.