Black Hills Corporation

Good day, ladies and gentlemen, and welcome to the Black Hills Corporation second quarter 2020 earnings conference call. My name is Liz, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, there will be a question and answer session. If you'd like to participate in this portion of the call, please press star followed by one at any time during the conference. If assistance is needed any time during the call, please press star followed by zero, and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Jerome Nichols, Director of Investor Relations of Black Hills Corporation. Please proceed, sir.

Thank you, Liz. Good morning, everyone. Welcome to Black Hills Corporation's second quarter 2020 earnings conference call. You can find materials for our earnings call this morning at our website at www.blackhillscorp.com. under the investor relations heading. Leading our quarterly earnings discussion today are Lynn Evans, President and Chief Executive Officer, and Rich Kindley, Senior Vice President and Chief Financial Officer. During our earnings discussion today, some of the comments we make may contain forward-looking statements as defined by the Securities and Exchange Commission, and there are a number of uncertainties inherent in such comments. Although we believe that our expectations and beliefs are based on reasonable assumptions, actual results may differ materially. We direct you to our earnings release, slide two of the investor presentation on our website, and our most recent Form 10-K and Form 10-Q filed with the Securities and Exchange Commission for a list of some of the factors that could cause future results to differ materially from our expectations. I will now turn the call over to Lynn Evans.

Thank you, Jerome. Good morning, everyone, and thank you for joining us today. Turning to slide four, since the onset of the pandemic in the United States almost five months ago, our team has continued to execute exceptionally well while adhering to best practices within a rapidly changing landscape. Regardless of the uncertainty we are all facing, we remain more confident than ever in our team, our business model, and our strategy. We believe Black Hills is especially well positioned to successfully navigate the pandemic and the journey ahead for a number of reasons. First, our utilities are comprised of critical infrastructure operated by our team through a customer-focused culture that improves lives with energy for our customers and our communities, while also generating predictable and growing returns for our shareholders. Second, Black Hills operates primarily in states with constructive regulatory environments that support timely recovery mechanisms and reasonable returns. In addition, our operations across eight states provide geographic and regulatory diversity that reduces risk and provides a greater range of opportunities. Third, our capital allocation plan is balanced, and during the second quarter, We continue to invest free cash flow from operations into organic growth initiatives that will create long-term value. At the same time, we continue to reward our shareholders with a healthy and growing dividend. We are proud of our track record of increasing our annual dividends for the past 50 years. Fourth, we continue to strengthen our balance sheet, reflecting our commitment to maintaining an investment-grade credit rating. And while this is certainly not a complete list, I'll add that we have an experienced engaged and committed team of leaders across our company dedicated to the long-term success of our business and doing well for all of our stakeholders. Moving to slide six for an overview of our second quarter results. The strength of our customer focus strategy was on full display this quarter. We successfully managed through COVID-19 challenges to provide safe and reliable service to our customers. while also advancing our key strategic initiatives and delivering solid financial results. First and foremost, the safety of our customers and coworkers has always been a top priority and has become even more critical during this health crisis. We deployed all the safety equipment, protocols, and processes recommended by the CDC to keep our coworkers and communities healthy. At the same time, we maintained our relentless focus on reliability. to ensure that customers would have the uninterrupted and sufficient power and gas needed during these stay-at-home times. And we delivered. While we primarily serve rural territories that have been less impacted by this pandemic relative to large urban areas, many of our customers still face new hardships. We remain true to our values to help those with financial difficulties. During these trying times, we have deepened our relationships with our customers and communities. through a variety of financial assistance programs and donations to local nonprofits. During the second quarter, we continued to execute plans that address the long-term needs of our customers, while balancing that with our commitment to deliver strong results to shareholders. To that end, our 2020 capital investment plan remains on schedule, and at the same time, we enhanced our strong financial position and delivered solid quarterly results. At quarter end, our disciplined financial strategy provided us with excellent flexibility, liquidity, and access to capital. We further bolstered our liquidity in June with a $400 million debt issuance, taking advantage of the low interest rate environment. We also delivered solid financial performance in line with our expectations for the second quarter. Rich will cover the earnings drivers and COVID-19 impacts in detail, but at a high level, I am pleased to report that each of our business segments reported better financial results relative to last year's second quarter. I'm proud of the resilience that our team has demonstrated and our ability to deliver on key initiatives in the face of new challenges. During the quarter, we reached a settlement for the YGEN1 FERC application to fulfill a 60 megawatt capacity need for our Wyoming electric customers, adding clarity to our long-term outlook. We advanced efforts on utility consolidation and requested recovery of investments in Nebraska. We continue to make progress on responsibly integrating renewable energy into our energy mix for customers in Colorado, South Dakota, and Wyoming. And in Colorado, we are working hard with our communities and regulators. We are encouraged by a favorable vote of confidence from the Pueblo community in May regarding our franchise and the recently announced strategic alignment of our leadership structure in Colorado. Overall, we delivered solid second quarter results while building the foundation for long-term growth. Now, five months into this health and economic crisis, We are cautiously optimistic that our customers and communities are gradually recovering. Slide seven summarizes recent highlights across our business lines, starting with the gas utilities. Colorado Gas implemented a small reduction in rates resulting from the February 2019 rate review. We continue to invest to meet the needs of our Colorado customers, and we are planning to file a new rate review this quarter. On June 1st, Nebraska Gas filed a rate review requesting to consolidate customer rates into a single statewide structure and also to align two safety and integrity riders across the consolidated utility. We are requesting $17.3 million in additional annual revenue with a 10% return on equity. and 50-50 capital structure to recover investments made to improve our customers' experience. It's been at least 10 years since the legacy Black Hills Energy utility in Nebraska had its last rate review, which reflects solid customer satisfaction and growth and the efficient management that our team brings to work every day. Our renewable advantage program took a critical step forward this quarter. The request for proposals in Colorado benefits customers and further supports our clean energy goals by integrating additional cost-effective renewable energy. This program is made possible due to our investments in reliable and modern natural gas fire generation, which allows us to add more intermittent renewable energy to our system. In our 120-day report to the Colorado Public Utilities Commission, The preferred bid is a 200 megawatt solar project to be constructed in Pueblo County, Colorado by 2023. The project goals are to save customers an estimated $66 million over 15 years while providing strong local economic impact and increasing our Colorado renewable nameplate capacity mix to more than 50% by 2024. Construction on our Corydale wind project in Wyoming remains on schedule and on budget, reflecting our team's strong project management skills regardless of headwinds. The $79 million, 60 megawatt wind energy project is expected to begin serving customers in South Dakota and Wyoming by year end through our renewable ready subscription program. In Wyoming, we are pleased with the settlement agreement that will allow our Wyoming electric utility to continue serving customers with reliable and cost-effective energy and capacity generated by our Wyoming-based YGEN1 power plant through 2032. A FERC judge certified the settlement on July 10, and we anticipate a final decision by year-end, with the new contract starting in 2022. On May 5, the Pueblo, Colorado community resoundingly voted in favor of retaining Black Hills Energy as their electric service provider. We are pleased with this outcome and are working alongside Pueblo for a successful and thriving future. Moving to corporate, I'll cover some of the highlights that Rich will address in more detail. We filed a new shelf registration and dividend reinvestment and stock repurchase program and renewed our at-the-market equity offering program. On July 27, our board approved a quarterly dividend of 53.5 cents. The current annualized rate of $2.14 in 2020 represents 50 consecutive years of dividend increases, one of the longest track records in our industry. We enhanced our strong liquidity position during the quarter and also had our BBB Plus corporate credit rating affirmed by S&P. We ended the quarter with $770 million in liquidity, which demonstrates our strategy of maintaining a solid capital structure and investment grade credit rating. And finally, for this slide, we aligned our gas and electric utilities management structure in Colorado under a single state leader, Vance Crocker. We also brought Nick Wagner on board in Colorado, who is a former commissioner with the Iowa Utilities Board. and served as the 2019 president of NARUC. We are excited to have his leadership skills and regulatory experiences both in Colorado and company-wide. Vance and Nick will make a great team as we partner with our Colorado stakeholders. I'll now turn it over to Rich Kinsley for a financial update. Rich?