Black Hills Corporation

Ladies and gentlemen, please stand by your Black Hills Corporation third quarter 2021 earnings conference call begin momentarily. Thank you for your patience and please stand by. Thank you. Thank you. Good day, ladies and gentlemen, and welcome to the Black Hills Corporation third quarter 2021 earnings conference call. My name is Josh, 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 would 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 at 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 and Please proceed, sir.

Thank you, and good morning, everyone. Welcome to Black Hills Corporation's third quarter 2021 earnings conference call. You can find our earnings release and materials for our call this morning at our website at www.blackhillscorp.com under the investor relations heading. Before we begin today, we would like to note that Black Hills will be attending the EEI Financial Conference this starting November 7th in Hollywood, Florida. Materials for our investor meetings will be posted on our website prior to the start of the conference. Leading our quarterly earnings discussion today are Lynn Evans, President and Chief Executive Officer, and Rich Kinsley, 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 Len Adams.

Thank you, Jerome. Good morning, everyone, and thank you for joining us. I'll begin on slide four, but before I discuss our key achievements for the third quarter, I'd like to start by recognizing our dedicated Black Hills team. Working together, we deliver strong operational and financial results, and we serve record peak customer loads, and we deliver quarter-over-quarter earnings that were up 21% compared to last year. We have a great team, and I value and appreciate them very much. Our board recently approved a 5.3% increase in our dividend, achieving 51 consecutive years of dividend increases. This represents one of the longest streaks in our industry, and naturally we're quite proud of this accomplishment and the growth that it reflects. We also made excellent progress on our regulatory initiatives, including our three rate reviews and Winter Storm URI cost recovery. And finally on this slide, early in the quarter we published our updated and our comprehensive corporate sustainability report, along with our new and expanded ESG disclosures. We continue to make solid strides communicating our sustainability focus, including our achievements and our goals for the future. Slide five lays out our financial outlook. Given our success in delivering strong operational, financial, and regulatory performance in the second and third quarters, we're increasing the lower end of our 2021 earnings guidance range by $0.05 per share. We're also maintaining our 2022 earnings guidance range, and we continue to target a 5% to 7% average earnings growth for 2023 through 2025 and at least 5% annual dividend growth. Slide six lays out our regulatory progress with a focus on regulatory rate reviews, our investment rider requests, and winter storm URI cost recovery. We've made good progress on our regulatory strategies this year, achieving constructive and productive outcomes. We've reached a unanimous settlement agreement with all parties for our Colorado natural gas rate review that will provide $6.5 million in new annual revenue. We anticipate new rates being effective January 1, 2022, pending final approval of the settlement. We also received approval for a new three-year system safety and integrity rider, which is a critical mechanism to help us provide ongoing safe and reliable service to our Colorado gas customers for years to come. In Kansas, we also reached a unanimous settlement agreement for our rate review, which includes renewal of our five-year safety-focused capital investment rider. The settlement benefits customers through a net neutral base rate impact. In addition, we're pleased that the settlement provides federal and state tax reform benefits to customers, a timely benefit for our Kansas customers given current high natural gas commodity prices. In Iowa, we're working through the regulatory process and hope to achieve a resolution by year end with final rates effective in the first quarter of 2022. Shifting to our winter storm URI cost recovery process, we filed our recovery plans in all states by the second quarter. We've already obtained approvals for Nebraska Gas and South Dakota Electric, and we're collecting interim rates for Arkansas, Iowa, and Wyoming Gas. At Wyoming Electric, URI-related costs will flow through their normal cost adjustment mechanism. We also recently received a positive settlement for Wyoming Gas. and we're currently engaged in settlement discussions for Kansas Gas. We expect to complete our URE cost recovery filings either during the fourth quarter or in the first quarter of next year, and we remain confident we will recover the costs submitted in our applications. Looking forward, we're preparing for our next rate reviews for Arkansas Gas and Wyoming Electric. We're planning to file a rate review for Arkansas Gas late this year, For Wyoming Electric, we'll file by mid-year 2022, as required by a prior settlement agreement from several years ago. Moving to slide seven, to enable continuing growth in Wyoming, we're excited to announce a 285-mile electric transmission expansion project that we're calling Ready Wyoming. As proposed, the project will provide many benefits for our customers. Among those benefits are enhancing resiliency through further interconnection of our Wyoming and South Dakota electric systems, expanding access to existing third-party transmission systems, and providing access to new energy markets and additional renewable resources. Importantly, the project will also increase overall transmission capacity, allowing us to serve the growing Cheyenne community. The project's expanded access and capacity will allow us to better serve growth in technology businesses like data centers and blockchain and crypto miners, which I'll discuss in more detail in a later slide. The project will also enable and benefit renewable energy expansion, both through expanded access for existing renewable resources and for new wind and solar projects in the Cheyenne region. We're working toward filing for approval of the project in the first quarter of 2022. And following approval, we plan to construct the project in several phases or segments spanning 2023 through 2025. Moving to slide eight, we have refreshed and increased our 2021 through 2025 capital investment program by $149 million to a total of $3.2 billion. In doing so, we firmed up nearly $300 million in projects that were placeholders in last quarter's forecast. This $3.2 billion forecast includes incremental investment for the Ready Wyoming project. This is a robust plan, and there are certain other investment opportunities we're aggressively pursuing, including other potential transmission projects and what we call capital light growth opportunities that may arise. I'll note that our current base capital forecast does not include potential transmission or renewable generation assets that may derive from our South Dakota and Wyoming integrated resource plan or from our clean energy plan to be filed in Colorado next year. To help evaluate additional opportunities to lower costs for customers, we joined several other utilities in the western U.S. to form the Western Market Exploratory Group. This group will explore the potential for developing an organized wholesale market in the Western Interconnect while also reviewing transmission expansion opportunities and other possible grid solutions. In Cheyenne, we continue to experience strong load growth, including growth from data centers and related businesses. For perspective, the peak demand day for Wyoming Electric increased from 192 megawatts in 2014 to 274 megawatts this past summer. That's a 43% increase during that period. With our entrepreneurial approach, combined with our ready Wyoming transmission project, we're optimistic about recruiting more technology-oriented businesses into Cheyenne and Wyoming. As an example, this summer, our growth team received numerous requests to serve crypto mining businesses. You may recall Wyoming was an early leader in passing legislation to support blockchain and crypto mining businesses, and we already have an approved blockchain interruptible service tariff in place. In response to the multitude of crypto mining inquiries, we issued a reverse request for proposals in August. That RFP results in a very robust response. We recently narrowed the bidders list, and we've selected finalists for contract negotiations. We also continue to be very optimistic about ongoing population migration into our service territories. Both our electric and gas utility service territories are seeing accelerating customer growth, and we continue to witness ongoing customer growth trends. Finally, we demonstrated our discipline throughout the pandemic and after Winter Storm Uri to manage costs, and we're also fostering ongoing sustainable cost savings through innovation and continuous improvement. You'll hear more about these efforts in the near future as we discuss our company-wide Energy Forward program. Moving to slide nine, we're fully engaged on sustainability for our communities. We made significant progress toward our carbon intensity reduction goals listed on this slide. In 2020, we already achieved a 30% reduction at our electric operations and a 33% reduction at our gas utilities since 2005. Our forward emission goals are not based on aggressive assumptions or technology that doesn't currently exist. Our Midwest culture is to be true to our word, and we have published goals that we expect to meet or exceed based on existing assets and current technologies. Because our goals are reliant upon current technology, there's potential upside for acceleration in our carbon reduction goals. As technologies advance and as costs decline for renewables and battery storage, We're confident in our emissions goals. We're also watching technologies for potentially reducing carbon emissions from our existing plants, which could accelerate achieving our emission goals. One of our defined steps to meet our 40% reduction goal by 2030 within our electric operations will be the conversion of our Neil Simpson II coal-fired power plant to natural gas. We'll also add renewable generation and battery storage resources to achieve our emissions goals. For our natural gas utilities, we expect to reach a 50% reduction by 2035. We'll do that through continued pipeline replacement programs and additional emission reduction strategies such as damage prevention, expanded leak detection, and energy efficiency. We're adopting process improvements such as vacuum technology for gas system blowdowns. We're also integrating more renewable natural gas in our system with several projects already in service and many more in development. And we voluntarily committed to reduce methane emissions through our participation in the EPA Methane Challenge and the One Future Coalition. Looking to the future, we're supporting research to advance emissions reduction technologies. We're participating in a feasibility study to test the viability of using hydrogen in natural gas generation at our Cheyenne Prairie Generating Station. We're also supporting the University of Wyoming's research program for turbine firing technologies that would further reduce emissions. We've invested alongside our peers in a carbon capture research project and other emerging clean energy technologies. Our goal in fostering innovation is to find more efficient and affordable ways to deliver energy with lower emissions, which will benefit our communities and our stakeholders. I encourage you to visit the sustainability link on our investor website to read more about our sustainability progress and our commitments. In August, we published new SASB and NGSI disclosures, as well as our 2020 sustainability reports and other refreshed and more comprehensive disclosures. Slide 10 is a graphic that shows the decarbonizing trends in our generation fleet. We've been upgrading our fleet for nearly a decade. beginning with the retirement of 123 megawatts of four older coal-fired power plants in 2013 and 2014. Since that time, we've added 282 megawatts of owned wind generation and another 132 megawatts of wind energy through power purchase agreements with a number of other renewable projects in flight. Looking forward, and as I stated previously, we already announced that the Neil Simpson 2 coal-fired power plant will be converted to natural gas in 2025. The remainder of the timeline shows how we expect to meet carbon reduction goals by converting or replacing the remaining coal-fired power plants over the next two decades. This timeline could very easily be influenced by generation and emission technology advances and cost declines. In our cold weather geography, having immediately available, reliable, and dispatchable generation capacity is an absolute must, as we demonstrated during winter storm Uri when we experienced no outages. Slide 11 lists recent achievements by our team. I'm pleased with our team's engaged mindset toward continuously improving our operations, especially in regard to safety, reliability, and the customer experience in our workplace culture. Our dedicated team at Cheyenne Prairie Generating Station was recently awarded OSHA's highest worksite safety recognition, STAR status. This recognition is no simple task. It required a multi-year rigorous audit and approval process to be recognized as a leader in the prevention of hazards and a focus on continuous improvement of safety and health management systems. Very well done and thank you to the team in Cheyenne, Wyoming and all who supported and continue to support those efforts. I'm happy to note this is our second time achieving this recognition with the Cheyenne Prairie team joining the Pueblo Airport Generating Station team in Colorado as OSHA recognized industry leaders in safety. We're also industry leaders in reliability with all three of our electric utilities recently listed in the upper half of the top quartile for reliability as measured by SADIE. This remarkable achievement reflects years of diligent effort by our team and executing our customer-focused operations and investment strategy. We also continue to improve our customer experience, achieving a J.D. Power ranking of second overall by our gas utility in the South region. Also, our year-to-date net promoter score through mid-October was approximately 64, an improvement from 60 in 2020, and notable improvement from a score of 42 four years ago. I already mentioned our great workplace and engaged team. I'm pleased to report we were named for the second consecutive year to Achiever's 50 Most Engaged Workplaces. We survey our employees about every 18 months to understand how we're doing and how we can improve as a team. This anonymous survey is conducted by a third party and returns strong scores as compared to our industry, especially in regard to safety, company values, and management effectiveness. Finally on this slide, We were named the Veteran Friendly Employer of the Year at Wyoming's 2021 Safety and Workforce Summit. The award recognized our success in recruiting, hiring, and providing an environment that supports veterans in the workforce, a focus we're honored to have in recognition and thanks for the service of our veterans and our respect for their valuable experience and discipline. Before I turn it over to Rich, as you can see, we've made excellent strategic progress and delivers strong operational and financial results, and we look forward to finishing the year strong to deliver results for all our stakeholders. That completes my comments, and I'll turn it over to Rich for the financial update. Rich?