There’s a revolution brewing in Cheyenne, Wyoming, and it’s not about cowboys or rodeos. Black Hills Corporation, a seemingly unassuming utility company, is quietly positioning itself as a major player in the burgeoning data center and blockchain industry. While most analysts are focused on the company’s robust capital expenditure plan and renewable energy initiatives, a closer look at the Q1 2024 earnings call transcript reveals a compelling narrative about their "capital-light" business model, which could be the key to unlocking explosive growth.

Black Hills Corp. has been serving data center customers in Cheyenne for over a decade, but it’s only recently that this segment has started to show its true potential. In the Q1 call, Todd Jacobs, SVP of Growth and Strategy, revealed that data center and blockchain customers currently contribute around 5% of their total EPS. More intriguingly, he projected this contribution to more than double to "10% plus" by the end of their five-year plan. This aggressive growth, driven by both existing customer expansions and new entrants, is fueled by their innovative Large Power Contract Service (LPCS) tariff.

Now, here’s where it gets really interesting. Unlike traditional utility projects that require substantial capital investment to build generation assets, the LPCS tariff allows Black Hills Corp. to generate revenues by acting as an energy procurement partner for its data center customers. In essence, they leverage their existing infrastructure and expertise to help these customers purchase power directly from the market, securing a "utility-like" return on their services without having to deploy massive capital.

This "capital-light" strategy is particularly astute given the skyrocketing demand for data centers, fueled by advancements in AI, cloud services, and blockchain technology. Cheyenne, with its cool climate, access to high-speed data lines, and proximity to Denver, has emerged as a prime location for these power-hungry operations. Black Hills Corp., by positioning itself as the energy gatekeeper for this influx of tech giants, is primed to capitalize on this explosive growth trend without straining its balance sheet.

But the story doesn’t end there. While the projected 10% EPS contribution by 2028 is significant, it only reflects known customer expansions and new entrants. The current wave of interest in data centers, as evidenced by the "significant amount of load growth or load study requests" that Black Hills Corp. is evaluating, points towards a potential upside that could dwarf even their most optimistic projections.

Think about it: if existing and anticipated data center customers already represent a potential 10% of EPS by 2028, how much more could this segment contribute if Black Hills Corp. successfully secures even a fraction of the additional load they’re currently evaluating?

To provide some context, consider Microsoft. They established their second and third data centers in Cheyenne in 2023, demonstrating the area’s attractiveness. If other tech giants follow suit, drawn by Black Hills Corp’s innovative LPCS tariff and Cheyenne’s strategic advantages, the 10% EPS target could quickly become a conservative baseline.

Hypothetical EPS Growth Scenarios

Let’s hypothesize. Assume Black Hills Corp. achieves a 6% average annual EPS growth rate over the next five years, driven by their $4.3 billion capital plan and organic customer growth. With a 2023 EPS of $3.91, this trajectory would result in a 2028 EPS of $5.21. If the data center and blockchain segment contributes 10%, this equates to $0.52 per share. Now, imagine that, thanks to their "capital-light" strategy and the influx of new data center customers, this segment contributes 15% instead. That’s an additional $0.26 per share, pushing the 2028 EPS to $5.47, representing a 7.7% average annual growth rate.

While these numbers are hypothetical, they illustrate the potential magnitude of this underappreciated growth engine. Black Hills Corp., through its strategic foresight and innovative tariff structure, is tapping into a revenue stream that could fuel a period of remarkable growth, potentially outpacing the projections of most analysts. This quiet giant, already a leader in reliability and clean energy, could be on the verge of transforming itself into a tech powerhouse, all while maintaining its commitment to serving its customers and generating long-term shareholder value. The revolution in Cheyenne has begun, and Black Hills Corp. is at the forefront.

"Fun Facts"

Cool Climate, Hot Growth: Cheyenne's average summer temperature is a cool 73°F, making it ideal for data centers, which generate significant heat. Powering the Future: Black Hills Corp. is committed to renewable energy, with a goal of a 70% reduction in emissions by 2040.