Economic Impact

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Economic Impact

Creating economic value in our communities

Black Hills is an integral partner to more than 800 communities across eight states. We create economic value within our local communities by providing jobs and benefits to our employees, by paying taxes, through our charitable contributions, and by investing in our vast network of electric and natural gas system infrastructure. In 2017, our direct economic impact was estimated at over $900 million.

2017 Direct Economic Impact Summary

Direct economic impact 2017 (rounded)
City franchise fees* $29,000,000
Community contributions $4,000,000
Employee compensation (wages and benefits**) $313,000,000
Payments to suppliers (total spend) $456,000,000
Property tax $39,000,000
Sales and use tax*** $74,000,000
TOTAL $915,000,000

*Payments made to local governments for use of public rights-of-way
**Benefits include employer contributions for Health and Welfare benefits as well as 401(k) and retirement contributions
***Depending on state and local laws, we are required to collect sales tax from customers on taxable sales of goods and services. We also pay taxes on certain purchases made by Black Hills that have not been previously taxed by the vendor or service provider.

2017 Direct Economic Impact Summary by State

Arkansas Direct economic impact 2017 (rounded)
  City franchise fees* $4,000,000
  Community contributions $300,000
  Employee compensation (wages and benefits**) $34,000,000
  Payments to suppliers (total spend) $18,000,000
  Property tax $3,000,000
  Sales and use tax*** $12,000,000
TOTAL   $71,300,000

*Payments made to local governments for use of public rights-of-way
**Benefits include employer contributions for Health and Welfare benefits as well as 401(k) and retirement contributions
***Depending on state and local laws, we are required to collect sales tax from customers on taxable sales of goods and services. We also pay taxes on certain purchases made by Black Hills that have not been previously taxed by the vendor or service provider.

colorado DIRECT ECONOMIC IMPACT 2017 (ROUNDED)
  City franchise fees* $7,000,000
  Community contributions $600,000
  Employee compensation (wages and benefits**) $63,000,000
  Payments to suppliers (total spend) $76,000,000
  Property tax $15,000,000
  Sales and use tax*** $14,000,000
TOTAL   $175,600,000

*Payments made to local governments for use of public rights-of-way
**Benefits include employer contributions for Health and Welfare benefits as well as 401(k) and retirement contributions
***Depending on state and local laws, we are required to collect sales tax from customers on taxable sales of goods and services. We also pay taxes on certain purchases made by Black Hills that have not been previously taxed by the vendor or service provider.

Iowa DIRECT ECONOMIC IMPACT 2017 (ROUNDED)
  City franchise fees* $2,000,000
  Community contributions $500,000
  Employee compensation (wages and benefits**) $17,000,000
  Payments to suppliers (total spend) $14,000,000
  Property tax $2,300,000
  Sales and use tax*** $3,000,000
TOTAL   $38,800,000

*Payments made to local governments for use of public rights-of-way
**Benefits include employer contributions for Health and Welfare benefits as well as 401(k) and retirement contributions
***Depending on state and local laws, we are required to collect sales tax from customers on taxable sales of goods and services. We also pay taxes on certain purchases made by Black Hills that have not been previously taxed by the vendor or service provider.

KANSAS DIRECT ECONOMIC IMPACT 2017 (ROUNDED)
  City franchise fees* $4,000,000
  Community contributions $400,000
  Employee compensation (wages and benefits**) $14,000,000
  Payments to suppliers (total spend) $12,000,000
  Property tax $4,000,000
  Sales and use tax*** $4,000,000
TOTAL   $38,400,000

*Payments made to local governments for use of public rights-of-way
**Benefits include employer contributions for Health and Welfare benefits as well as 401(k) and retirement contributions
***Depending on state and local laws, we are required to collect sales tax from customers on taxable sales of goods and services. We also pay taxes on certain purchases made by Black Hills that have not been previously taxed by the vendor or service provider.

Nebraska DIRECT ECONOMIC IMPACT 2017 (ROUNDED)
  City franchise fees* $6,000,000
  Community contributions $800,000
  Employee compensation (wages and benefits**) $55,000,000
  Payments to suppliers (total spend) $19,000,000
  Property tax $4,000,000
  Sales and use tax*** $18,000,000
TOTAL   $102,800,000

*Payments made to local governments for use of public rights-of-way
**Benefits include employer contributions for Health and Welfare benefits as well as 401(k) and retirement contributions
***Depending on state and local laws, we are required to collect sales tax from customers on taxable sales of goods and services. We also pay taxes on certain purchases made by Black Hills that have not been previously taxed by the vendor or service provider.

South Dakota DIRECT ECONOMIC IMPACT 2017 (ROUNDED)
  City franchise fees* N/A
  Community contributions $900,000
  Employee compensation (wages and benefits**) $81,000,000
  Payments to suppliers (total spend) $64,000,000
  Property tax $4,000,000
  Sales and use tax*** $11,000,000
TOTAL   $160,900,000

*Payments made to local governments for use of public rights-of-way
**Benefits include employer contributions for Health and Welfare benefits as well as 401(k) and retirement contributions
***Depending on state and local laws, we are required to collect sales tax from customers on taxable sales of goods and services. We also pay taxes on certain purchases made by Black Hills that have not been previously taxed by the vendor or service provider.

Wyoming DIRECT ECONOMIC IMPACT 2017 (ROUNDED)
  City franchise fees* $6,000,000
  Community contributions $400,000
  Employee compensation (wages and benefits**) $48,000,000
  Payments to suppliers (total spend) $29,000,000
  Property tax $7,000,000
  Sales and use tax*** $13,000,000
TOTAL   $103,400,000

*Payments made to local governments for use of public rights-of-way
**Benefits include employer contributions for Health and Welfare benefits as well as 401(k) and retirement contributions
***Depending on state and local laws, we are required to collect sales tax from customers on taxable sales of goods and services. We also pay taxes on certain purchases made by Black Hills that have not been previously taxed by the vendor or service provider.

Supply Chain and Supplier Diversity

With such a diverse geographic service territory, it is critical that we maintain close ties with local and regional business partners. By buying locally whenever possible, we can ensure responsive service to our customers while also supporting the economic health of our communities. In 2017, we spent $456,000,000 with suppliers to support our utility operations and serve our customers. More than half of that spend – 51 percent – was completed with businesses located within the states in which we operate.

We also remain committed to supporting the numerous small and diverse businesses that are located within our service territory and continue to identify opportunities to create sustainable business opportunities for small businesses, women- and minority-owned businesses, and other diverse suppliers* when possible. In 2017, our spending with small businesses and diverse suppliers represented 14 percent of our total dollars spent.

*Small business types and programs defined by the Small Business Administration.

Profitable Growth

As we approach our 135th anniversary of delivering essential energy to customers, we are reminded of the constant challenges to meet the evolving needs of our customers, communities and regulators. Our ability to deliver on these needs is dependent upon our financial strength and our ability to generate returns from our capital investments, access the financial markets for debt and equity, and provide sufficient liquidity when needed.

Budgeting

To support our financial requirements, we have an annual strategic planning and budgeting process that details our growth strategy, identifies our projected capital expenditures, forecasts our cash flows and identifies needed capital. This budgeting process provides discipline around our investment decisions, and ensures we have sufficient capital and liquidity to execute our strategy. The plan is reviewed annually with our board of directors and updates are provided regularly.

We maintain parameters to ensure we have the desired mix of debt and equity and access to sufficient liquidity resources. We target a long-term debt to total capitalization ratio of approximately 55 percent.

Liquidity

The utility industry is a capital-intensive industry. We are forecasting to spend over $400 million annually over the next three years to invest primarily in our utility businesses. Our largest source of capital is cash from operations supplemented with corporate debt borrowings. Important components of our liquidity are our $750 million revolving line of credit, our commercial paper program and our At-the-Market (ATM) equity offering program. We use our revolving line of credit and commercial paper program regularly to fund the daily needs of the corporation. We use the ATM equity offering program periodically and only when required to help fund larger capital projects that are over and above our base capital investment forecast.

Credit Ratings

A critical financial strategy for the company has been to increase our corporate credit rating – a reflection of our financial strength. Our earnings, improved balance sheet and lower business risk profile have resulted in improved credit ratings. Our strategy to divest non-regulated businesses that were not supportive of our utility businesses has improved our business risk profile. Two of the three major credit rating agencies rate our corporate credit at BBB equivalent, while a third has our credit rating at BBB+. These ratings determine our cost of borrowings under some of our debt facilities, which ultimately are recovered from our utility customers through their rates. We are targeting a BBB+ equivalent credit rating from all three agencies. Our current corporate credit ratings are listed below:

BLACK HILLS CORPORATION S&P MOODY'S FITCH
Corporate Credit Rating BBB Baa2 BBB+
Senior Unsecured BBB Baa2 BBB+
Outlook Positive Stable Stable

Capital Investment

Profitability is essential to creating the cash flows and attracting the financial capital necessary to fund our investment program to meet customer needs. The company has had a strong capital investment program over the last five years, driven mainly by investments in our electric and natural gas infrastructure necessary to meet growing energy demand, adhere to new environmental regulations and ensure system reliability. Over the last five years, we have invested $1.7 billion, most of which was allocated to our utility businesses.

These investments have driven strong earnings growth over the last five years. In 2017, we provided another solid year of financial results, reporting income from continuing operations, as adjusted, of $3.36 per share,* up 7.4 percent over the prior year’s results.

*Excludes discontinued operations. Earnings per share, as adjusted, is a Non-GAAP measure. Reconciliation to GAAP can be found in the section titled “About this report.”

Dividend

We have increased our annual dividend to shareholders for 48 consecutive years, one of the longest records in the utility industry. By increasing our dividend, we are ensuring that our investors share in the success and earnings growth of the company. To maintain sufficient capital and liquidity to fund our strategic plan, we limit the amount of dividends we pay to our investors as a percentage of our adjusted earnings from continuing operations. Our strategy has been to pay a dividend equal to 50 percent to 60 percent of our adjusted earnings from continuing operations.

For more information, see our 2017 Annual Report.