Black Hills Corp. (NYSE: BKH) (the "Company") announced its Wyoming natural gas utility, Black Hills Gas Distribution, LLC, filed for a certificate of public convenience and necessity on May 18 with the Wyoming Public Service Commission to construct a new 35-mile natural gas pipeline to enhance reliability of supply for approximately 57,000 customers in its Casper Division in central Wyoming.
If approved, the $54 million 12-inch steel pipeline will be constructed from an interconnection supply point near Douglas, Wyoming, to existing facilities near Casper, Wyoming. The pipeline, known as the Natural Bridge Pipeline, will connect with additional sources of supply and provide additional capacity to ensure reliability on the northern end of the 750-mile transmission pipeline system serving the Riverton and Casper areas in central Wyoming.
"This pipeline, planned to be in service in late 2019, will connect our customers to new long-term sources of cost-effective natural gas," said Linn Evans, president and chief operating officer of Black Hills. "The pipeline will also provide additional capacity to ensure that Black Hills can cost-effectively meet long-term peak day demand for our customers in the Casper and Riverton areas of Wyoming."
The $54 million pipeline project will be additive to Black Hills' detailed five-year capital spending plan disclosed in conjunction with its first quarter 2018 earnings. Although the Company does not expect to issue equity to meet its projected capital spending, it will continue to review its capital spending plans, forecasted credit metrics and financing needs to retain its strong investment-grade credit rating.
Black Hills filed three rate review requests in late 2017 in the states of Arkansas, Colorado and Wyoming. In Colorado, new rates for Rocky Mountain Natural Gas went into effect June 1 after an administrative law judge recommended approval of a settlement agreement and the Colorado Public Utilities Commission took no further action. The new rates are based upon $1.1 million of new revenue, a return on equity of 9.9 percent, and a capital structure of 46.6 percent equity and 53.4 percent debt. The settlement also included an extension of the safety, system and integrity rider to recover planned investments from 2018 through 2021.
On June 21, Wyoming Gas (Northwest Wyoming) signed a settlement agreement with the Office of Consumer Advocate and filed the settlement with the WPSC for approval. The settlement provides for $1.0 million of new revenue, a return on equity of 9.6 percent, and a capital structure of 54 percent equity and 46 percent debt. A hearing has been scheduled with the WPSC and implementation of new rates is expected in the third quarter of this year.
An Arkansas rate review was filed in December 2017 with the Arkansas Public Service Commission requesting $30 million of new revenue to recover more than $160 million of new infrastructure investment. The revenue request was subsequently adjusted to $19.6 million primarily related to a lower corporate income tax rate of 21 percent. The APSC previously issued a procedural schedule for the rate review. So far, staff and intervenor testimony have been filed and Black Hills filed rebuttal testimony on June 26. A final order and new rates are expected to be effective in the fourth quarter of 2018.
Tax Reform Benefits Update
The Company also announced it has now received state utility commission approvals to provide the benefits of federal tax reform to utility customers in four states. Black Hills has been collaborating with utility commissions in the states in which it provides utility service to deliver to customers the benefits of a lower corporate federal income tax rate, which was reduced from 35 percent to 21 percent beginning in 2018 with the passage of the Tax Cuts and Jobs Act. The approved customer benefits will be retroactive to Jan. 1, 2018, commensurate with the effective date of the lower corporate tax rate. Discussions are underway with utility commissions in the remaining states and final approval is expected prior to year-end.
Also, in support of returning benefits to customers, Black Hills adjusted the three rate review requests filed in late 2017 for Arkansas Gas, Wyoming Gas (Northwest Wyoming) and Rocky Mountain Natural Gas (a pipeline system in Colorado) to include the benefits to customers of federal tax reform.