BLACK HILLS CORP /SD/BKH
BLACK HILLS CORP /SD/ Commitments Disclosure
COMMITMENTS, CONTINGENCIES AND GUARANTEES
Power Purchase and Transmission Services Agreements
Through our subsidiaries, we have the following significant long-term power purchase contracts and transmission services agreement with non-affiliated third-parties:
| Subsidiary | Contract Type | Counterparty | Fuel Type | Quantity (MW) | Expiration Date | ||||||||||||
Colorado Electric (a) | PPA | PRPA | Wind | 60 | May 31, 2030 | ||||||||||||
| Colorado Electric | PPA | PRPA | Coal | 25 | June 30, 2024 | ||||||||||||
| Colorado Electric | PPA | TC Colorado Solar, LLC | Solar | 200 | Pending Completion (b) | ||||||||||||
| South Dakota Electric | PPA | PacifiCorp | Coal | 50 | December 31, 2023 | ||||||||||||
South Dakota Electric (c) | Transmission Services Agreement | PacifiCorp | N/A | 50 | December 31, 2023 | ||||||||||||
| South Dakota Electric | PPA | PRPA | Wind | 12 | September 30, 2029 | ||||||||||||
| South Dakota Electric | PPA | Fall River Solar, LLC | Solar | 80 | Pending Completion (d) | ||||||||||||
Wyoming Electric (e) | PPA | Happy Jack | Wind | 30 | September 3, 2028 | ||||||||||||
Wyoming Electric (f) | PPA | Silver Sage | Wind | 30 | September 30, 2029 | ||||||||||||
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(a) Colorado Electric sells the wind energy purchased under this PPA to City of Colorado Springs as discussed below.
(b) On January 31, 2022, TC Colorado Solar, LLC (TC Solar) provided termination notice of the PPA to Colorado Electric. Colorado Electric has disputed TC Solar’s right to termination and pursuant to the agreement, has initiated discussions with TC Solar. This agreement relates to a new solar facility to be constructed and would expire 15 years after construction completion.
(c) This is a firm point-to-point transmission service agreement providing the ability to deliver a maximum of 50 MW of capacity and associated energy.
(d) This agreement relates to a new solar facility currently being constructed and will expire 20 years after construction completion, which is expected by the end of 2022.
(e) Under a separate intercompany PSA, Wyoming Electric sells 50% of the facility output to South Dakota Electric.
(f) Under a separate intercompany PSA, Wyoming Electric sells 67% of the facility output to South Dakota Electric.
Costs under these agreements for the years ended December 31 were as follows (in thousands):
| Subsidiary | Contract Type | Counterparty | Fuel Type | 2021 | 2020 | 2019 | |||||||||||||||||
| Colorado Electric | PPA | PRPA | Wind | $ | 4,246 | $ | 2,791 | $ | — | ||||||||||||||
| Colorado Electric | PPA | PRPA | Coal | $ | 4,447 | $ | 4,524 | $ | 1,802 | ||||||||||||||
| South Dakota Electric | PPA | PacifiCorp | Coal | $ | 8,923 | $ | 5,897 | $ | 7,477 | ||||||||||||||
| South Dakota Electric | Transmission Services Agreement | PacifiCorp | N/A | $ | 1,783 | $ | 1,776 | $ | 1,741 | ||||||||||||||
| South Dakota Electric | PPA | PRPA | Wind | $ | 596 | $ | 715 | $ | 688 | ||||||||||||||
| Wyoming Electric | PPA | Happy Jack | Wind | $ | 3,544 | $ | 4,531 | $ | 3,936 | ||||||||||||||
| Wyoming Electric | PPA | Silver Sage | Wind | $ | 4,717 | $ | 6,203 | $ | 5,366 | ||||||||||||||
Power Purchase Agreements - Related Parties
Wyoming Electric had a PPA with Black Hills Wyoming scheduled to expire on December 31, 2022, which provided 60 MW of unit-contingent capacity and energy from Black Hills Wyoming’s Wygen I facility. On October 15, 2020, the FERC approved a settlement agreement in the joint application filed by Wyoming Electric and Black Hills Wyoming on August 2, 2019 for approval of a new 60 MW PPA. Under the terms of the settlement, Wyoming Electric will continue to receive 60 MW of capacity and energy from the Wygen I facility. The new agreement commenced on January 1, 2022, replaced the existing PPA and will continue for 11 years.
Black Hills Electric Generation provides the wind energy generated from Busch Ranch II to Colorado Electric through a PPA, which expires in November 2044.
Black Hills Electric Generation provides its 14.5 MW share of energy generated from Busch Ranch I to Colorado Electric through a PPA, which expires in October 2037.
Colorado Electric’s PPA with Black Hills Colorado IPP, expiring on December 31, 2031, provides 200 MW of power to Colorado Electric from Black Hills Colorado IPP’s combined-cycle turbines.
Purchase Commitments
We maintain natural gas supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated baseload gas volumes are established prior to the beginning of the month under these contracts on a monthly basis at contractually negotiated prices. Commitments for incremental daily purchases are made as necessary during the month based on requirements in accordance with the terms of the individual contract.
Our Gas Utilities segment has commitments to purchase physical quantities of natural gas under contracts indexed to various forward natural gas price curves. A portion of our gas purchases are purchased under evergreen contracts and are therefore, for purposes of this disclosure, carried out for 60 days. At December 31, 2021, the long-term commitments to purchase quantities of natural gas under contracts indexed to the following forward indices were as follows (in MMBtus):
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | |||||||||||||||
| El Paso - Bondad Station | 31,000 | — | — | — | — | — | ||||||||||||||
| Kern River - Opal | 9,300 | — | — | — | — | — | ||||||||||||||
| El Paso - San Juan Basin | 182,550 | — | — | — | — | — | ||||||||||||||
| Enable East Pipeline | 1,825,000 | 450,000 | — | — | — | — | ||||||||||||||
| Northern Natural Gas - Demarc | 1,614 | — | — | — | — | — | ||||||||||||||
| Northern Natural Gas - Ventura | 1,810,000 | 1,840,000 | 1,820,000 | — | — | — | ||||||||||||||
| Northwest Pipeline - Wyoming | 1,531,700 | 1,510,000 | 910,000 | — | — | — | ||||||||||||||
| ONEOK - Oklahoma | 5,475,000 | 5,475,000 | 5,490,000 | 4,560,000 | — | — | ||||||||||||||
| Southern Star Central Gas Pipeline | 113,130 | — | — | — | — | — | ||||||||||||||
| Panhandle Eastern Pipe Line | 1,609,680 | 2,737,500 | — | — | — | — | ||||||||||||||
| 12,588,974 | 12,012,500 | 8,220,000 | 4,560,000 | — | — | |||||||||||||||
Purchases under these contracts totaled $61 million, $25 million and $7 million for 2021, 2020 and 2019, respectively.
Other Gas Supply Agreements
Our Utilities also purchase natural gas, including transportation and storage capacity to meet customers’ needs, under short-term and long-term purchase contracts. These contracts extend to 2044.
The following is a schedule of unconditional purchase obligations required under the power purchase, transmission services and natural gas transportation and storage agreements (in thousands):
Power purchase and transmission services agreements (a) | Natural gas transportation and storage agreements | |||||||
| 2022 | $ | 23,985 | $ | 143,750 | ||||
| 2023 | $ | 11,678 | $ | 119,923 | ||||
| 2024 | $ | 2,738 | $ | 82,428 | ||||
| 2025 | $ | — | $ | 58,669 | ||||
| 2026 | $ | — | $ | 36,503 | ||||
| Thereafter | $ | — | $ | 60,429 | ||||
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(a) This schedule does not reflect renewable energy PPA obligations since these agreements vary based on weather conditions.
Power Sales Agreements
Through our subsidiaries, we have the following significant long-term power sales contracts with non-affiliated third-parties:
•On July 1, 2020, Colorado Electric entered into a PSA with the City of Colorado Springs to sell up to 60 MW of wind energy purchased from PRPA under a separate 60 MW PPA discussed above. This PSA with the City of Colorado Springs expires June 30, 2025.
•During periods of reduced production at Wygen III in which MDU owns a portion of the capacity, or during periods when Wygen III is off-line, South Dakota Electric will provide MDU with 25 MW from our other generation facilities or from system purchases with reimbursement of costs by MDU. This agreement expires January 31, 2023.
•South Dakota Electric has an agreement to provide MDU capacity and energy up to a maximum of 50 MW in excess of Wygen III ownership. This agreement expires December 31, 2023.
•During periods of reduced production at Wygen III in which the City of Gillette owns a portion of the capacity, or during periods when Wygen III is off-line, South Dakota Electric will provide the City of Gillette with its first 23 MW from its other generating facilities or from system purchases with reimbursement of costs by the City of Gillette. Under this agreement, which has an initial term through September 3, 2034 and would be renewed annually on September 3 thereafter, South Dakota Electric will also provide the City of Gillette their operating component of spinning reserves.
•South Dakota Electric has an amended agreement, effective January 1, 2019, to supply up to 20 MW of energy and capacity to MEAN under a contract that expires May 31, 2028. The contract terms are from June 1 through May 31 for each interval listed below. This contract is unit-contingent based on the availability of our Neil Simpson II and Wygen III plants, with decreasing capacity purchased over the term of the agreement. The unit-contingent capacity amounts from Wygen III and Neil Simpson II are as follows:
| Contract Years | Total Contract Capacity | Contingent Capacity Amounts on Wygen III | Contingent Capacity Amounts on Neil Simpson II | |||||||||||||||||||||||
| 2020-2022 | 15 | MW | 7 | MW | 8 | MW | ||||||||||||||||||||
| 2022-2023 | 15 | MW | 8 | MW | 7 | MW | ||||||||||||||||||||
| 2023-2028 | 10 | MW | 5 | MW | 5 | MW | ||||||||||||||||||||
•South Dakota Electric had an agreement that expired December 31, 2021 to provide 50 MW of energy to Macquarie Energy, LLC during heavy and light load timing intervals.
•Black Hills Wyoming sold its CTII 40 MW natural gas-fired generating unit to the City of Gillette, Wyoming on September 3, 2014. Under the terms of the sale, Black Hills Wyoming entered into ancillary agreements to operate CTII, provide use of shared facilities including a ground lease and dispatch generation services. In addition, the agreement includes a 20-year Economy Energy PSA that contains a sharing arrangement in which the parties share the savings of wholesale power purchases made when market power prices are less than the cost of operating the generating unit.
Lease Agreements
Lessee
We lease from third parties certain office and operation center facilities, communication tower sites, equipment and materials storage. Our leases have remaining terms ranging from less than one year to 34 years, including options to extend that are reasonably certain to be exercised. Our operating and finance leases were not material to the Company’s Consolidated Financial statements.
Lessor
We lease to third parties certain generating station ground leases, communication tower sites and a natural gas pipeline. These leases have remaining terms ranging from less than one year to 34 years. Lease revenue was not material for the years ended December 31, 2021, 2020 and 2019.
As of December 31, 2021, scheduled maturities of operating lease payments to be received in future years were as follows (in thousands):
| Operating Leases | |||||
| 2022 | $ | 2,173 | |||
| 2023 | 2,204 | ||||
| 2024 | 2,125 | ||||
| 2025 | 2,070 | ||||
| 2026 | 1,881 | ||||
| Thereafter | 51,233 | ||||
| Total lease receivables | $ | 61,686 | |||
Environmental Matters
We are subject to costs resulting from a number of federal, state and local laws and regulations which affect future planning and existing operations. Laws and regulations can result in increased capital expenditures, operating and other costs as a result of compliance, remediation and monitoring obligations. Due to the environmental issues discussed below, we may be required to modify, curtail, replace or cease operating certain facilities or operations to comply with statutes, regulations and other requirements of regulatory bodies.
Reclamation Liability
For our Pueblo Airport Generation site, we posted a bond of $4.1 million with the State of Colorado to cover the costs of remediation for a waste water containment pond permitted to provide wastewater storage and processing for this zero discharge facility. The reclamation liability is recorded at the present value of the estimated future cost to reclaim the land.
Under our land leases for our wind generation facilities, we are required to reclaim land where we have placed wind turbines. The reclamation liabilities are recorded at the present value of the estimated future cost to reclaim the land.
Under its mining permit, WRDC is required to reclaim all land where it has mined reserves. The reclamation liability is recorded at the present value of the estimated future cost to reclaim the land.
Manufactured Gas Processing
In 2008, we acquired whole and partial liabilities for former manufactured gas processing sites in Nebraska and Iowa, which were previously used to convert coal to natural gas. The acquisition provided for an insurance recovery, now valued at $1.2 million recorded in Other assets, non-current on our Consolidated Balance Sheets, which will be used to help offset remediation costs. We also have a $1.4 million regulatory asset for manufactured gas processing sites; see Note 2 for additional information.
As of December 31, 2021, we had $2.6 million accrued for remediation of Iowa’s manufactured gas processing site as the landowner. As of December 31, 2021, we had $0.6 million accrued for remediation of Nebraska’s manufactured gas processing site as the land owner. These liabilities are included in Other deferred credits and other liabilities on our Consolidated Balance Sheets. The remediation cost estimate could change materially due to results of further investigations, actions of environmental agencies or the financial viability of other responsible parties.
Legal Proceedings
In the normal course of business, we are subject to various lawsuits, actions, proceedings, claims and other matters asserted under laws and regulations. We believe the amounts provided in the consolidated financial statements to satisfy alleged liabilities are adequate in light of the probable and estimable contingencies. However, there can be no assurance that the actual amounts required to satisfy alleged liabilities from various legal proceedings, claims and other matters discussed, and to comply with applicable laws and regulations will not exceed the amounts reflected in the consolidated financial statements.
We record gain contingencies when realized, and expected recoveries under applicable insurance contracts when we are assured of recovery.
In the normal course of business, we enter into agreements that include indemnification in favor of third parties, such as information technology agreements, purchase and sale agreements and lease contracts. We have also agreed to indemnify our directors, officers and employees in accordance with our articles of incorporation, as amended. Certain agreements do not contain any limits on our liability and therefore, it is not possible to estimate our potential liability under these indemnifications. In certain cases, we have recourse against third parties with respect to these indemnities. Further, we maintain insurance policies that may provide coverage against certain claims under these indemnities.
Guarantees
We have entered into various parent company-level guarantees providing financial or performance assurance to third parties on behalf of certain of our subsidiaries. These guarantees do not represent incremental consolidated obligations, but rather, represent guarantees of subsidiary obligations to allow those subsidiaries to conduct business without posting other forms of assurance. The agreements, which are off-balance sheet commitments, include support for business operations, indemnification for reclamation and surety bonds. The guarantees were entered into in the normal course of business. To the extent liabilities are incurred as a result of activities covered by these guarantees, such liabilities are included in our Consolidated Balance Sheets.
See Note 8 for additional information on our off-balance sheet Letters of Credit commitment.
We had the following guarantees in place as of (in thousands):
| Maximum Exposure at | |||||
| Nature of Guarantee | December 31, 2021 | ||||
| Indemnification for reclamation/surety bonds | $ | 55,867 | |||
| Guarantees supporting business transactions | $ | 370,558 | |||
| $ | 426,425 | ||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2021 | Feb 15, 2022 | Showing above |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 14, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 26, 2018 | |
| 2016 | Feb 27, 2017 | |
| 2015 | Feb 25, 2016 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.