Good day, ladies and gentlemen, and welcome to the Black Hills Corporation First Quarter 2017 Earnings Conference Call. My name is Michelle, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would like to turn the presentation over to Mr. Jerome Nichols, Director of Investor Relations of Black Hills Corporation. Please proceed, sir.

Thank you, Michelle. Good morning, everyone. Welcome to Black Hills Corporation's First Quarter 2017 Earnings Conference Call. Leading our quarterly earnings discussion today are David Emery, Chairman and Chief Executive Officer; and Rich Kinzley, Senior Vice President and Chief Financial Officer. Before we begin today, I would like to note that Black Hills will be attending the American Gas Association Financial Forum starting May 21 in Orlando, Florida. Our presentation materials and webcast information will be posted on our website at www.blackhillscorp.com under the Investor Relations heading. 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 2 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 David Emery.

Thank you, Jerome. Good morning, everyone. Thanks for joining us. We appreciate your attendance on our call this morning. On Slide 3 of the webcast deck, we'll be following a similar agenda to those of previous calls. I'll give a quick update on highlights of the first quarter; Rich Kinzley, our CFO, will provide a financial update; and then I'll discuss forward strategy before we take questions. Moving on to Slide 5. We had an excellent first quarter. Our earnings per share as adjusted were up almost 15% compared to the first quarter of last year. That improvement was largely driven by a full quarter of earnings from a successful acquisition and integration of SourceGas, which we purchased on February 12 of last year. Highlights for our utilities during the quarter. Our South Dakota Electric utility continued its construction of a 144-mile transmission line from Northeastern Wyoming into [indiscernible]. The final segment of that line is expected to be placed in-service later this quarter -- the second quarter. Colorado Electric received approval from the Colorado PUC for its electric resource plan, which will provide for an additional 60 megawatts of renewable energy resources that will be in service by 2019. Colorado Electric plans to issue a request for proposals for those resources during the second quarter and present those results to the commission by year-end for their approval. We continue to pursue reconsideration of the Colorado PUC's decision on last year's rate review, which was primarily related to the new $63 million, 40-megawatt gas combustion turbine that we placed in service at year-end. Our request for rehearing and reconsideration is still pending before the commission. Moving on to Slide 6, continuing with first quarter highlights. Our Oil and Gas subsidiary continued to reduce operating costs and sell noncore properties as…

Great. Thanks, Dave, and good morning, everyone. We're pleased with our first quarter financial performance. When you review our Q1 results for 2017 versus 2016, you see the earnings power of our Gas Utilities with the addition of a full quarter of SourceGas, as Dave mentioned. Despite milder winter weather than normal, our Gas Utilities earnings increased substantially year-over-year. Additionally, we're pleased with the growth in our Electric Utilities from new generation investments and continued solid performance from our Power Generation and Mining segments. On Slide 9, we reconcile GAAP earnings to earnings as adjusted, a non-GAAP measure. We do this to isolate special items and communicate earnings that better represent our ongoing performance. This slide displays the last 5 quarters and trailing 12 months as of March 31 for 2017 and 2016. As detailed on the slide, we experienced special items not reflective of our ongoing performance in each quarter of 2016 and Q1 of 2017. The first special item is noncash asset impairments at our Oil and Gas business that occurred last year. The second special item is acquisition-related expenses, such as advisory fees, financing and other third-party consulting costs associated with the SourceGas acquisition and integration. We completed nearly all the integration work related to the acquisition in 2016 and are finishing the few remaining projects in 2017. These acquisition expenses and impairments are not indicative of our ongoing performance and, accordingly, we reflect them on an as adjusted basis. Our first quarter as adjusted EPS was $1.41 per share compared to $1.23 for the first quarter last year. The earnings uplift in Q1 this year compared to Q1 last year was driven mainly by the first full quarter ownership of the SourceGas utilities. As you'll recall, we closed on the acquisition in mid-February last year. This…

Thank you, Rich. Moving on to Slide 20. We group our strategic goals into 4 major categories, with the overall objective of being an industry leader in all we do. Those 4 categories are profitable growth, valued service, better every day and a great workplace. Slide 21. During the past few quarters we've discussed at length our earnings growth strategy for the next several years now that we've completed the acquisition and integration of SourceGas. We have a great opportunity to provide earnings growth by improving the efficiency and reducing the cost of the combined Black Hills and SourceGas company through a focus on best practices, standardization and continuous improvement. We will also focus our capital spending to reduce or eliminate regulatory lag to the extent possible. Moving on to Slide 22. Strong capital spending has and will continue to drive much of our earnings growth. Even with an increased focus over the next few years of reducing regulatory lag and optimizing our capital spending, we still expect to spend approximately $1 billion between 2017 and 2019, which is well in excess of our depreciation. On Slide 23, we continue to make excellent progress on our Colorado Electric Resource plan. That plan will enable us to meet the state's renewable energy standards. Those requirements provide that we have to supply 30% of our energy consumed by customers from renewable sources by 2020. We have Colorado PUC approval to add approximately 60 megawatts of renewable energy resources by 2019. As I mentioned earlier, we'll issue a request for proposals for those 60 megawatts of renewable resources during this upcoming quarter, the second quarter, and we expect to present the results of those RFP's to the commission by year-end for their approval, which would allow us to ensure that the project --…

[Operator Instructions] Our first question comes from the line of Mike Weinstein with Crédit Suisse.

Do you have any kind of indication as to when you'd be able to provide additional details around the CapEx forecast going forward, beyond perhaps the 2019 that your forecast now goes through?

Yes. We're working on that, Mike. It's one of those things that we've talked a lot about how to optimize our CapEx. We've had a lot of discussions internally and are continuing to look at that forecast. We'd hope that sometime during the year here, we can come out with at least an indication of what those post-2019 spending levels will look like. May not be as detailed as a year-by-year forecast, but probably at least provide some indication of what we expect the average CapEx to be in those first couple of years subsequent to 2019.

Okay, great. And on the cost of service gas program, is there any -- can you discuss what kinds of partners you're working with, if not their actual identities at this point? Is there a reason for the secrecy, I guess?

Yes. Certainly, not prepared to discuss who they are. I think, really, it's a matter of until we're certain that we're going to have partners, both Black Hills and the potential partners would prefer not to disclose that. But they would be other utilities that would serve and service territories that are outside of the ones that we serve. At least those are the people we're talking to currently.

That's mostly utilities.

Yes, absolutely, exclusively utilities.

And on the Colorado IRP approval, is that an indication at all of any improvement in Colorado's investment climate versus the Pueblo CT treatment?

Well, we're obligated to pursue the renewable portfolio standard there, the 30%. And certainly, as we go through the RFP process and look at investments in Colorado, part of the process, especially if it involves an investment by Black Hills, it's going to involve establishing some degree of comfort that the commission's comfortable with any investment that we would make, if one of our projects is selected as the winning project in RFP. I do feel optimistic that in time we'll reach a reasonable solution through the gas turbine investment and the rate review process there. With the change in commissioners, it's just taking a little longer than we would have preferred for that process to play out. But we feel pretty good about that overall and that in time, that'll work itself out as we work through the RFP for the renewables. And we'll see if a project that we would invest in is the winning project at the end of the day. But if it is, certainly we would want to have a pretty good feeling of comfort that we would be allowed to recover a fair return on that investment before we would choose to invest additional dollars there.

And our next question comes from the line of Insoo Kim with RBC Capital Markets.

First, regarding your 2017 guidance, reiterating the guidance. Is it -- how much -- when you originally gave the guidance, how much rate increase at the Colorado rate case did you embed? And is it safe to assume that was somewhat higher than what you ended up receiving?

Well, we haven't revised the guidance. So I guess, put it this way, we're comfortable with the number that's in there and what we would expect ultimately in maintaining that guidance number.

Right. So even if, I guess, the rehearing doesn't yield anything more than what you guys originally received, you would still be comfortable within that range.

Correct.

Got it. And then regarding the noncore asset sales, is it still your expectation to be divested of all the non-Mancos properties by the end of this year?

Yes. That's our target. What we really would like to do is kind of match up the 2 concepts where, by the time we are ready to focus on cost of service gas exclusively, we will essentially have divested all the rest of the noncore assets, and we expect that to be around year-end.

Got it. And then despite the moderate delay in the potential filing for cost of service gas, is your time line for being out of the unregulated E&P business, as we know it, still on track to have them by the end of '18, whether Mancos goes into this regulated model or you end up divesting it?

Yes. If I understand your question correctly, I think our intent is really to have divested all the noncore things by the end of '17 or shortly thereafter. And then, hopefully if we're fortunate and obtain approval for cost of service gas program, we would finish the transition kind of in '18. So yes, we're very much still on schedule to meet that as the plan.

Right. And then the tail end of that question was, I guess, if cost of service gas isn't approved or the Mancos properties aren't ultimately put into the program, then you would look to divest that also by the end of '18. Is that correct?

Certainly, we would have to have a discussion with our board as far as future alternatives there, but we've said kind of repeatedly that we would not intend to stay in kind of the non-regulated E&P business.

And our next question comes from the line of [ Joe Zhou ] with Avon Capital Advisors.

I'm sorry if has been asked before, but it has been a while since your acquisition of SourceGas. When do you think you will be open to continue to grow through another merger acquisition, if that's still part of your strategy?

Yes, [ Joe ], this is Rich. Certainly, we're always looking at acquisition opportunities. Right now, the balance sheet, as we've discussed, is pretty levered intentionally from this -- that's how we paid for SourceGas. But we're working through that deleveraging process. And as you look out, say, toward the end of 2018, we're going to be in a pretty good position in terms of our balance sheet. So in the meantime, we'll continue to evaluate opportunities, but it's probably -- anything material, say over $0.5 billion, it's probably a little way down the road before we can compete for one of those.

[Operator Instructions] Our next question comes from the line of Lasan Johong with Auvila Research Consulting.

I've been called worse. Anyway, first of all, your commercial paper program. I assume you've got the revolved backstopping that commercial paper issue?

That's correct.

Okay, good. Second, the Mancos Shale, is it a dry gas or does it have any liquids in it?

It depends on the area you're in, Lasan, a little of both. Certainly, I think, economics would be better in the short term if we focused on the liquids-rich areas, which we've done some of. We've done a little drilling in both areas, but our plan for cost of service gas would be to focus a little more attention on the liquids-rich areas early just because the economics are better, then as gas prices rise over time, then we can focus more on the dryer areas. But we have a fairly good handle on where we think the liquids-rich areas of the play are.

Okay. And then, obviously, the next question is, how -- is there thinking or methodology in terms of how you would share the profits from the liquids with utilities that you would serve or is that going to be completely Black Hills account only and the gas side is the only thing that the commission will care about?

Yes. If you look at the way we've -- at least the initial proposal, which of course we've withdrawn, we're not differentiating those. So any liquids benefit would essentially reduce the cost of gas for customers. We're not proposing some complicated sharing mechanism or anything like that. Our plan would be to basically drill the wells and all the benefits of both gas and liquids production would benefit customers.

Well, that's a hell of a deal for customers, that -- assuming the liquids portion is pretty healthy. The next question then begets is, do you have enough processing capacity for the liquids?

Yes, we do. If you read our 10-K and Qs along the way, you'll see that we have a Summit processing agreement, but we also have an arrangement with another entity where we're working on finalizing now where any excess capacity we could take to them for processing, and actually at a significantly less cost than Summit.

And they have substantial available capacity.

There's a lot of capacity available there. So yes, we've got more than adequate capacity.

Excellent. Then the other questions I have was something that's precipitated by your comment, David. You see, your partners are mostly, or if not all, utilities. Does that mean they are coming in on the drilling program as well as being recipients of cost of service gas or is it going to be they're just going to be customers at the end of the day?

No. To the extent we're successful in partnering with another utility, they would be full participants in the program, if we're successful [indiscernible]. They'd be partners in the entire venture.

[indiscernible] So including the drilling risks, there's no like super exclusion or you guys take the risk on the first 5 wells or something like that? [indiscernible] all the way.

No, no. We would assume a partnership all the way through.

Okay. And then the next question is, I assume that you have enough pipeline capacity to service all these partner utilities that you're talking to, correct?

Absolutely.

Yes.

So there is no need for new builds.

No. There might be some need for some minor gathering -- in-field gathering which we operate, but otherwise no.

And I'm showing no further questions. And I'd like to turn the conference back over to Mr. David Emery. Sir, please proceed with your closing remarks.

Thank you for your attendance on our call this morning. We appreciate your continued interest in Black Hills. Have a great rest of your day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.