Black Hills Corporation

Good day, ladies and gentlemen, and welcome to the Black Hills Corporation's third quarter 2022 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 1-1 at any time during the conference. 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 Blackhill Corporation. Please proceed, sir.

Thank you, and good morning, everyone. Welcome to Blackhill Corporation's third quarter 2022 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 Leadership will be attending the EEI Financial Conference starting November 13th 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. Also in attendance this morning is Kimberly Nooney, Vice President, Corporate Controller, and Treasurer. 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. Hello, everyone. Thank you for joining us this morning. As Jerome noted, I'm pleased to have Rich and Kimberly with me this morning. We issued a news release last week announcing that Rich has provided notice of his intent to retire mid-year 2023. We will enjoy celebrating his retirement at a future date, but I want to take this early opportunity to thank Rich for his exemplary contributions to our company and, of course, wish he and his family the very best in their next chapter. Rich has proven to be a great partner and friend, and he will be missed. And now I have the pleasure to introduce Kimberly, our current vice president, corporate controller and treasurer, who many of you already know well. She will become our CFO on April 1 of next year, and she will continue to work closely with Rich over the next several months to ensure a smooth transition. For those of you that already know Kimberly, she has been a passionate leader within Black Hills for the past 26 years, and she brings deep experience and terrific leadership skills to the CFO role. I look forward to working with Kimberly to continue executing our strategy and delivering shareholder value. Moving to the investor presentation, I'll start my comments on slide four. I'm very pleased with our team's strong execution of our strategy and solid financial performance for the year. Through September, earnings per share were up 9% compared to the same period last year, driven by solid operations performance, great regulatory execution, and continued customer growth. Yesterday, we affirmed our 2022 earnings guidance, and we initiated 2023 earnings guidance in the range of $4 to $4.20 per share. We increased our capital forecast by $250 million to a total of $3.5 billion for 2022 to 2026, and we increased our dividend by 5%, which completes 52 consecutive years of annual increases. On the operations side, I'm once again extremely pleased with what our team has accomplished throughout this year. I note the performance of our generation team and the outstanding availability of our generation fleet during the quarter. We successfully served three new all-time peak electric loads in the third quarter. That's four for the year during very hot summer temperatures without a major outage. As I noted last quarter, this was our ninth consecutive summer that our South Dakota and Wyoming electric systems reliably serve new all-time customer demand peak loads. This excellent performance by our generation fleet also enabled strong off-system sales of excess energy throughout the quarter and the year, benefiting both our customers and shareholders through sharing arrangements that reduce customers' bills and enhance our profitability. We continue to make excellent progress on our regulatory strategies. and we're excited about the approval of our 260-mile Ready Wyoming Transmission Expansion Project in southeastern Wyoming. We continue to experience population migration into our service territories and expect this trend to continue. As an example, a recent study for Rapid City projected 19% population growth within the next seven years, representing a continued acceleration of population growth above the 15% we experienced between 2010 and 2020. On slide five, we outlined our progress with our regulatory rate review plans. In Arkansas, after reaching a partial settlement, we received final approval for $8.8 million of new annual revenue with new rates effective since October 21st. We also received approval for our new and comprehensive safety and integrity rider that consolidated and replaced three former riders. We also advanced our Wyoming electric rate review. We're requesting new rates in first quarter of 2023 to recover the $250 million of investments we made in the Cheyenne region since our last rate review eight years ago. In October, we filed a new rate review for Rocky Mountain Natural Gas, our 600-mile intrastate pipeline in Colorado. We're seeking recovery for over $120 million of investments we made since our last rate review five years ago. Taking a step back, I note our team has successfully managed multiple rate reviews and other regulatory requests simultaneously. This is normal course of business for us as we operate utilities in eight states, and we see this as a core strength. Once again, our team demonstrated our ability to achieve constructive regulatory results in multiple dockets and states as outlined on slide six. That slide sets forth how we recently finalized all of our winter storm URI cost recovery plans in all of our states. I also note we have recovered more than a quarter of the incremental costs we incurred for customers and have completed recovery for our South Dakota and Wyoming electric utilities. On this slide, we provided you by jurisdiction the detail of how we are recovering the $546 million of incremental costs we incurred for customers during winter storm URI. At the bottom of this slide, you'll note our expected recovery by year, excluding carrying costs. Turning to slide seven, we're very pleased that we received a bench approval from the Wyoming Public Service Commission for a CPCM to construct Ready Wyoming, our 260-mile electric transmission expansion project. We expect to start construction later next year, and we expect to have the transmission line in service for customers at 2025. This strategic project will provide a cost-effective, resilient, and cleaner energy future for our customers. It will also enable customer growth, expand access to renewable resources, and facilitate renewable generation development across the wind and solar-rich state of Wyoming. Slide 8 lays out our emissions reduction goals. In August, we published our comprehensive and expanded 2021 sustainability report, which highlights our ESG achievements and strategies to further reduce emissions on our electric and natural gas utility systems. We also provided key updates for our other ESG disclosures, including SASB, the AGAEEI templates, and the Natural Gas Sustainability Initiative. For the first time, we also published TCFD disclosures. We've made tangible progress on our targets through 2021, reducing our greenhouse gas emissions intensity by one-third of a 2005 baseline for our electric utilities and natural gas mains and service lines. We also announced our new net zero by 2035 target for our total natural gas distribution system, which doubled the previous target of a 50% reduction by 2035. Overall, our emissions targets are aggressive but achievable based on current technologies and do not require advancements in technology to be realized. We see this as a responsible approach to serving our stakeholders with integrity and transparency. Should technologies advance, we could see upside to our current emissions targets over the long term. Meanwhile, we are producing real results while delivering the cost-effective, safe, and resilient energy our customers depend upon. Moving to slide nine, in Colorado, we continue to work through the procedural schedule for approval of our Clean Energy Plan, which sets out our path to a potential 90% reduction in greenhouse gas emissions intensity in Colorado by 2030, again, off a 2005 baseline. Our plan opts in to the state's clean energy legislation and would exceed Colorado's stated goal of 80% by 2030. Our plan proposes to add 400 megawatts of wind and solar resources and 50 megawatts of battery storage between 2025 and 2030. We expect to initiate the competitive bidding process by 2023 for these new resources, and Colorado legislation provides up to 50% company ownership of these additions. These new clean energy additions would result in almost 80% of our Colorado customers' electricity coming from renewable resources. Importantly, our ability to add intermittent renewable resources to our Colorado territory would could only happen because of our dispatchable natural gas fire generation assets located at our Pueblo generating station. In South Dakota, we're evaluating next steps to add 100 megawatts of renewable resources and 10 megawatts of battery storage, which will likely include a competitive bidding process. Our plan proposes converting our 90-megawatt Neil Simpson II coal-fired power plant to natural gas in 2025 at the end of its engineered life, And we're also evaluating additional transmission opportunities. And last but certainly not least, we have a legacy of supporting new technology and research at our generation facilities to reduce emissions and make our generation fleet more efficient. We have an ongoing study for hydrogen blending with our natural gas fire generation and a coal to hydrogen fuel experiment in cooperation with the Wyoming Energy Authority and the University of Ohio. In total, by 2030, we plan to add 570 megawatts of new clean energy resources. We'd also expect to operate an expanded and enhanced transmission system with the addition of Ready Wyoming and other potential transmission projects. And we could see upside to our emissions targets and resource optionality should advancements in clean energy technology be achieved. Slide 10 summarizes our disciplined and customer-focused growth plan. For our base capital investment plan, we increased our total five-year capital forecast by $250 million for a total of $3.5 billion, with the largest increase in capital investment occurring in 2024. Other growth opportunities include investments to support and attract new customers, including our recently announced new large blockchain customer, which remains on track to be in service by year-end. We also remain excited about continued hyperscale data center growth in Cheyenne. We're also improving our effectiveness and efficiency as a team through our Energy Forward initiative. We're cultivating a mindset to identify and think more holistically about how we can better serve our customers every day. Moving to slide 11, before I turn the call over to Rich for his financial update, I'm going to brag one more time on our team for our excellent operational performance this year. Slide 11 mentions just a few of our recent accomplishments. First, our focus on safety is embedded in our culture on a daily basis. Our headquarters in South Dakota was recently recognized with the governor's meritorious award. On the right side of the slide, you'll note the 2021 EEI system reliability results. Once again, all three of our electric utilities were in the top quartiles. To my talented coworkers listening in today, thank you for your focus on excellence in all we do. You're at the tip of the spear delivering our reliable and safe service, providing our customers with a positive experience, and advancing our engaged culture and great workplace. Thank you for what you do to make us the energy partner of choice for all of our stakeholders. That completes my comments, and I'll turn it over to Rich for our financial update.