(3) COMMITMENTS, CONTINGENCIES, AND GUARANTEES

Unconditional Purchase Obligations

We have various PPAs and transmission service agreements, which extend to 2044, to support our Electric Utilities' capacity and energy needs beyond our regulated power plants' generation.

Our Utilities 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.

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 30 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 29 years. Lease revenue was not material for the years ended December 31, 2025, 2024, and 2023.

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 Liabilities

For our Pueblo Airport Generation site, we posted a bond 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.

See Note 7 for additional information.

Manufactured Gas Plants

In 2008, we acquired whole and partial liabilities for former manufactured gas plant sites in Nebraska and Iowa, which were previously used to convert coal to natural gas. The acquisition provided for an insurance recovery, which was valued at $1.5 million at the time of recovery in October 2025 and was used to offset remediation costs.

As of December 31, 2024, we had an Accrued liability of $9.7 million on our Consolidated Balance Sheets for the remaining remediation of the manufactured gas plant site in Iowa. During the year ended December 31, 2025, we completed substantially all remaining remediation work. As of December 31, 2025, $11.5 million of cumulative remediation costs, which are net of our $1.5 million insurance recovery asset, were recorded to a Regulatory asset on our Consolidated Balance Sheets. Iowa Gas intends to seek recovery of this $11.5 million regulatory asset during a future rate review.

As of December 31, 2025, we had $0.6 million accrued for remediation of the manufactured gas plant sites in Nebraska, which are included in Other deferred credits and other liabilities on our Consolidated Balance Sheets.

The remediation cost estimates for Nebraska could change materially due to results of further investigations, actions of environmental agencies, or the financial viability of other responsible parties.

Contingencies and 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.

Deborah Ferrari et al. v. Colorado Electric, Case No. 2024CV31889 (District Court for the City and County of Denver, Colorado)

During the year ended December 31, 2025, Colorado Electric settled a legal matter involving an auto accident. As part of the settlement, Colorado Electric recognized a legal liability of $20 million, which is included in Accrued liabilities on the Consolidated Balance Sheets as of December 31, 2025.

In connection with this matter, Colorado Electric also recognized a loss recovery receivable of $20 million under its insurance coverage, which management determined is probable of collection based on confirmation from the insurer and policy terms. The receivable is presented in Other current assets on the Consolidated Balance Sheet as of December 31, 2025. The liability and
receivable are presented gross, as we do not have an enforceable legal right of set‑off and do not intend net settlement.

The settlement and recovery were both recognized in the same reporting period, resulting in no material net impacts on the Consolidated Statements of Income for the year ended December 31, 2025. We do not expect additional material losses related to this matter. We expect to pay the legal liability and receive the insurance receivable in 2026.

GT Resources, LLC v. Black Hills Corporation, Case No. 2020CV30751 (District Court for the City and County of Denver, Colorado)

On April 13, 2022, a jury awarded $41 million for claims made by GT Resources, LLC (“GTR”) against BHC and two of its subsidiaries (Black Hills Exploration and Production, Inc. and Black Hills Gas Resources, Inc.), which ceased oil and natural gas operations in 2018 as part of BHC’s decision to exit the exploration and production business. The claims involved a dispute over a 2.3 million-acre concession award in Costa Rica which was acquired by a BHC subsidiary in 2003. GTR retained rights to receive a royalty interest on any hydrocarbon production from the concession upon the occurrence of contingent events. GTR contended that BHC and its subsidiaries failed to adequately pursue the opportunity and failed to transfer the concession to GTR. We appealed this verdict to the Colorado Court of Appeals. On October 19, 2023, the Appellate Court reversed and remanded the case with directions limiting any retrial to the narrow issue of whether there was improper interference with the prospective conveyance of the concession. The retrial occurred and on May 12, 2025, the jury returned a verdict in favor of BHC and its subsidiaries on all counts, thus resolving any claims without material impact on our financial position, results or operations and cash flows.

Indemnification

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, including the Captive, that may provide coverage against certain claims under these indemnities.

Transfers of Renewable Tax Credits

In June 2024 and January 2025 we entered into agreements with a third party to sell our 2023 and 2024 generated PTCs, respectively. In January 2026, we entered into a similar agreement with the same third party to sell our 2025 generated PTCs. In each of these agreements, we provided indemnifications associated with the proceeds for PTCs transferred to the third party in the event of an adverse interpretation of tax law, including whether the related tax credits meet the qualification requirements. Additionally, in our agreement for the sale of our 2024 and 2025 generated PTCs, we provided indemnifications in the event of a change in tax law. We believe the likelihood of having to make any material cash payments under these indemnifications is remote. See Note 15 for additional information.

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.