Black Hills Corporation

good day and thank you for standing by welcome to the fourth quarter 2022 black hills corporation's earnings conference call at this time all participants are in a listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session you'll need to press star 1 1 on your telephone you will there hear then hear an automated message advising your hand is raised to withdraw your question please press star 1 1 again please be advised that today's conference is being recorded I would now like to hand the conference over to your speaker today, Jerome Nichols, Director of Investor Relations.

Thank you. Good morning, everyone. Welcome to Black Hills Corporation's fourth quarter and full year 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. Leading our quarterly earnings discussion today are Lynn Evans, President and Chief Executive Officer, Rich Kinsley, Senior Vice President and Chief Financial Officer, and Kimberly Nooney, Vice President 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. Good morning, everyone, and thank you for joining us. As we announced last quarter, Rich will be retiring mid-year, so he gets one final opportunity this morning to provide the year-end financial review. Kimberly, as our incoming CFO, will provide the financial outlook for 2023 and beyond. I'll start on slide four with some key takeaways. While we successfully offset the impacts of the rapid macroeconomic shift through most of 2022, The increased carrying costs driven by natural gas prices and current interest rates are weighing on our expectations for 2023 and into 2024. We'll dive into those details shortly, but before I do that, I want to recognize our team's strong execution on what was within our control in 2022. Once again, our team delivered exceptional operational results, and we delivered earnings within our guidance range. This was no small feat considering the challenging macroeconomic and business conditions that impacted fourth quarter financial performance. I'm very proud of what our team accomplished as we executed our regulatory strategy and advanced our strategic initiatives for system-wide resiliency, growth, and a successful energy future. We also made strides towards strengthening our balance sheet, which remains a key focus for us in 2023. To our Black Hills team listening today, thank you for your dedication to excellence in serving our customers. I'm very proud of what we achieved together in 2022 with more wins than we can adequately cover on this call. To that point, slide five highlights the excellent operational performance of our team and our electric and natural gas assets. I'm particularly pleased with the continued industry-leading electric reliability we provide our customers. All three of our electric utilities maintain top quartile for reliability for the fourth consecutive year by the latest EEI survey for SADI reliability. And two of the three performed in the upper half of the top quartile. That's solid work by our team. We continue to serve growing customer demand for our products and services, which is reflected in 11 new all-time or winter peak loads at our electric utilities last year. These peaks continue to affirm the population and business migration we're witnessing into our service territories. Notably, at our Wyoming electric utility, we have served a remarkable nine consecutive years of increasing peak customer demand. To put this in perspective, this past year's new peak of 294 megawatts represents a 53% increase over the 192 megawatt peak we served 10 years ago. In December, we also served new winter peak loads at all three of our electric utilities during winter storm Elliott, while avoiding rolling blackouts experienced by others in some regions of the country. The reliability and resiliency of our infrastructure is perhaps more critical than ever given growing demand, the ongoing energy transition, and a more interconnected energy network. In our cold weather climate, resiliency and reliability go hand in hand with safety and our absolute priority of keeping our customers comfortable and safe during dangerously cold weather. Our excellent performance through the bitter cold of winter storm Elliott in December highlights once again the critical need for immediately dispatchable generation capacity and resilient electric and natural gas infrastructure. During our summer and winter peak load days, our electric utilities typically receive minimal contributions from our renewable resources. For example, our wind assets serving Colorado Electric include three wind farms that total about 150 megawatts. On December 22nd, we experienced a winter peak load of 334 megawatts. During that peak, our wind farm was producing only 17 of its potential 150 megawatts. This highlights the need for a balanced mix of generation resources until such time that technology can provide more economic and reliable battery storage for other similar energy capacity. And finally on this slide, we continue to make progress with enhancing our customer experience. During the year, we implemented voice response and live chat enhancements, and we were recognized by J.D. Power for our effective communications with customers. Moving to financial and regulatory execution on slide six, we delivered a 6% year-over-year increase in EPS. We also increased the annual dividend by 5%, extending our track record to 52 consecutive years of increased dividends to shareholders. Our team managed through supply chain challenges and successfully executed our $600 million capital program. On the regulatory front, negotiating effective solutions for customers and shareholders remains a core strategic strength of our team. Over the last year, we reached constructive settlements and approvals for rate reviews and investment rider requests for both Arkansas Gas and Wyoming Electric. Our Wyoming Electric settlement was recently approved by the Commission and includes an electric transmission investment rider. That rider will support transmission expansion to enhance resiliency for our customers. We filed a rate review last October for our Iraqi Mountain natural gas pipeline in Colorado, which is advancing through the regulatory process as planned. We anticipate new rates in the third quarter of this year. In addition to our rate review activity, we finalized approvals for all remaining applications for the recovery of $546 million of incremental fuel costs incurred during winter storm URI, and we have recovered more than one-third of those costs to date. Moving to slide seven, we advance our strategies to enhance resiliency, support customer growth, and comply with emissions legislation. For our electric utilities, we made progress with our ongoing resource plans in Colorado and for our jointly operated system in South Dakota and Wyoming. We expect these plans to provide investment opportunities and renewable resources to reduce greenhouse gas emissions intensity 70% by 2040 off a 2005 base year. The economic incentives for renewable energy from the Inflation Reduction Act will help make these resources more accessible and more economic for our customers while helping us achieve our emissions goals. We had a hearing last week before the Colorado Commission regarding our constructive unanimous settlement agreement for our clean energy plan. The settlement includes the addition of 400 megawatts of renewable generation needed to achieve an 80% reduction in greenhouse gas emissions by 2030. Half of the 400 megawatts will be owned by our utility. This would result in approximately 70% of our Colorado customers' annual electricity being generated by renewable resources. If the settlement agreement is approved as presented to the Commission last week, a competitive bidding process for the new resources is expected to commence in the second quarter again with the utility owning half of the 400 megawatts of resources we will seek we also advanced our 2021 integrated resource plan that we submitted for South Dakota which proposes the addition of 100 megawatts of renewable resources and the expiration of 10 megawatts of battery storage we're planning to issue an RFP for those resources later this quarter With respect to transmission opportunities, we received approval from the Wyoming Commission last October to construct our Ready Wyoming Transmission Line, a 260 mile project in Southeastern Wyoming. Construction is planned to start this year with final completion by the end of 2025. We're pursuing additional growth opportunities in our renewable natural gas business. We've already placed into service a number of RNG interconnects across our agriculture rich territories And we're developing a variety of investment possibilities to expand our RNG offerings and business. We also continue to pursue additional opportunities to serve hyperscale data centers and blockchain customers. We're upbeat about our first blockchain customer in Cheyenne going into service shortly and other prospects we're developing in the region. We also continue to make progress on our sustainability vision for the energy future. I already mentioned our electric emissions goals. And during the year, we enhanced our gas utility emissions goals to net zero by 2035. We will achieve this goal through ongoing infrastructure investment, enhanced processes and advanced leak detection, reducing third party line hits, and integrating low carbon fuels such as RNG and perhaps hydrogen. Our published sustainability report includes details about our emissions goals. It also includes our initial TCFD disclosure and other relevant information. Our financial outlook is summarized on slide eight. Rich and Kimberly will cover the details in their remarks, and I'll share my perspective. Taking a step back, solid execution is reflected in our 2022 earnings. When we issued 2022 earnings guidance two years ago, it was before winter storm URI. Inflation was less than 2%. and before 425 basis points of interest rate hikes and elevated natural gas prices. Through this volatile economic environment, our experienced team managed our business to achieve our guidance range, a significant accomplishment. Since early 2020, we've successfully managed through COVID. We absorbed and financed significant costs for customers related to Storm Uri and from elevated interest rates and energy pricing. We executed multiple years of financial discipline and cost control measures. We navigated supply chain constraints and successfully executed on our capital plan, and we completed numerous regulatory recovery requests, all with constructive results. I could go on, but I believe you get the idea. It was a great team effort. That said, I know you share our frustration that a solid 2022 is overshadowed by the near-term macroeconomic environment. We're addressing increased carrying costs and inflationary impacts on expenses necessary to serve our customers. Although we expect these pressures to ease over the next 12 to 18 months, the near-term earnings impact is beyond what can be fully offset through short-term financial discipline and cost control measures. Importantly, our business strategy remains strong and intact. We remain optimistic about our future growth profile as we work through 2023 and 2024 and expect to achieve 4% to 6% long-term EPS growth off a 2023 base year. As we will discuss in more detail, we revised our long-term EPS growth target primarily due to three general factors. First, increases in our working capital and interest rates, which are driving increased interest expense. Second, inflationary pressures and expenses not yet included in our rate structures. And finally, the equity we intend to issue to capitalize our business support the regulatory construct, and maintain our solid credit rating as we improve our balance sheet. Slide nine summarizes our strategic growth plan. We rolled our capital plan forward by one year, maintaining our five-year forecast total of $3.5 billion. This translates to a run rate of approximately $700 million per year. We've kept our 2023 capital forecast at approximately $600 million, to help strengthen our balance sheet while prudently investing capital to maintain a safe system. Our forecast for 2024 is approximately $800 million, reflecting Ready Wyoming and our intentional deferral of some projects. I'll note the base plan does not include any renewable generation assets resulting from our Colorado Clean Energy Plan or our South Dakota and Wyoming Resource Plan, which are examples of incremental investment opportunities. Other incremental investments could arise from transmission projects beyond Ready Wyoming, and we're always evaluating our capital needs, including natural gas pipeline and storage projects and additional programmatic investment. We're also pursuing other earnings drivers, especially those that require little to no capital investment. As I mentioned already, population migration across our service territories continues to drive organic growth with 5% growth in customer counts since 2018. This has translated into increased customer usage with the electric utilities total retail megawatt hours sold since 2018 up over 6%, and our natural gas utilities usage also increasing by more than 4%. We're also fostering ongoing sustainable cost savings through innovation and continuous improvement in how we do business and how we serve our customers. I'll complete my prepared comments by once again welcoming Kimberly to our call. who many of you have already had the pleasure to interact with in recent years. Kimberly has 26 years of deep experience with Black Hills and was appointed to be Rich's successor as CFO effective April 1st. It's just like her to already be working ahead of the curve and joining us today. I'm confident she is the right CFO to help lead our success going forward. But before we hear from Kimberly, Rich is still on the clock and he's finishing with his knees high. and he will provide a review of our 2022 results. Rich?