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

Thank you, Jonathan. Good morning everyone, welcome to Black Hills Corporation's second 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. 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, 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 this morning. I’ll start the discussion on Slide 3 of the webcast deck for those of you following along. Similar to prior quarters I’ll give an update on the second quarter, Richard Kinzley, our CFO will provide a financial update for the quarter and then I’ll talk a little bit about forward strategy before we take questions and answers. Starting with slide 5, we had a good second quarter, $0.02 increase in earnings per share as adjusted compared to the prior year which was in line with our expectations. We also continue to advance several of our key utility growth projects during the quarter. Second quarter highlights for our utilities included a peek at our Wyoming electric utility which was set right after quarter end in July surpassing the previous peak by a fair amount. We continue to grow our shine pretty strongly. On June 23, our Colorado electric utility issued a request for proposals to add 60 megawatts of renewable energy resources by 2019 in order to meet the states renewable energy requirements. Bids from the RFP are due on the 4 August and then we intend to select the winning project and recommend that to the Colorado PUC prior to year end. Our South Dakota electric utility entered an agreement with the South Dakota PUC staff which was approved by the commission itself on June 16 and that agreement secures the benefits of Service Gas acquisition and successful integration for South Dakota electric customers and our shareholders for the next six years. On May 30, our South Dakota electric utility completed the final segment of our 144 mile electric transmission line from Northeastern Wyoming to Rapid City South Dakota. And our oil and gas subsidiary during the quarter…

Thanks Dave and good morning everyone. At a high level our second quarter financial performance was in line with our expectations. As adjusted earnings increased to $0.41 for the quarter compared to $0.39 last year. I’ll jump right in on slide 9 where we reconcile GAAP earnings to earnings as adjusted in non-GAAP measure. We do this to isolate special items and communicate earnings to better represent our ongoing performance. This slide displays the last five quarters and trailing 12 months as of June 30th for 2017 and 2016. As detailed on the slide, we experience special items not reflective of our ongoing performance in each of the last five quarters. The first special item is non-cash impairments that are 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 related costs and non-cash impairments are not indicative of our ongoing performance and accordingly we reflect them on an as adjusted basis. As I already mentioned our second quarter as adjusted EPS was $0.41 which is $0.02 more than the second quarter last year. The second quarter results met our expectations as the quarter is composed of shorter months outside the main cooling season at our electric utilities which occurs in the third and the heating seasons that are gas utilities which occur in the first and fourth quarters. At the bottom of the slide we present EPS ad adjusted for the trailing 12 months. As shown we achieved $0.40 of as adjusted EPS growth of 13% increase for the trailing 12…

All right. Thank you, Rich. Moving on to slide 21, from a forward strategy perspective we group our strategic goals into four major categories and we have done this for quite some time, those being profitable growth, valued service better every day and great workplace. Our overall objective is being an industry leader in all we do. Moving on to slide 22, during the past several quarters we have discussed at lengths our earnings growth strategy focusing our efforts during the next two to three years on securing the full benefits of the SourceGas acquisition and successful integration for both customers and shareholders and then following that returning to more traditional utility growth model over the long term. Moving to slide 23, Strong capital spending has in the past and we'll continue to drive much of our earnings growth. You will notice that this slide has been revised this quarter to update our planned capital spending. As we continue to refine our capital spending priorities at each of our utilities going forward we have increased our forecasted 2017 through 2019 capital by nearly $200 million to a total of almost 1.2 billion in this current forecast. Related to slide 23, it is worth noting small increase in oil and gas capital spending even though it relatively small change. We recently completed two wells which has been previously drilled and cased in order to provide production volumes to avoid paying minimum quantity short fall penalties under our gas processing agreement. In addition to providing sufficient production to avoid the penalties well into next year the investment in the two well completions also yield solid investment returns. You will notice that following this year we planned very minimal capital spending in our E&P segment. Moving on to slide 24, as you can…

[Operator Instructions] Our first question comes from the line of Michael Weinstein from Credit Suisse. Your question, please.

Hi, good morning.

Good morning, Mike.

Hey, you mentioned that you were looking at other ways to maximize the value of the remaining core Permian assets, I'm sorry, Piceance's assets. And I'm just wondering if is there any additional detail like what are your thoughts on ways to maximize value?

Well, we're in the process of evaluating that now, Mike, and kind of what the best options are. One of the questions we've received in the past is what we consider holding those properties for a period of time. I would say if we would, it would be for a relatively short period of time and only if we can really minimize it if not eliminate our operating losses associated with those properties. We do fully intent to continue our transition away from the traditional exploration and production business.

Okay. I think there was -- take away that I would come away with that comment is that you were thinking about a sale at some point. But I want to hear some other possibility besides those two options which is one is cost of services or either a sale of the property. Is there a third option in there?

Well, there is always opportunities, you could turn out your assets to another company or do something like that, I wouldn’t say that's real high on our list right now but it's certainly something that's possible. These other alternatives, obviously the sales are most obvious ones but not necessarily the one that would capture the most value.

Okay. And maybe you could frame up a little bit more about the October Analyst Day, what kind of additional information you intent to provide and for that?

Yes, I mentioned essentially, I think what we're comfortable saying today and then we really want to talk a little bit more about our long term growth plans and particularly the capital spending. We've talked a little bit in the past about when will our capital spending return to a more quote-and-quote normal level. You saw us increase or particularly our 2019 CapEx this quarter, little bit of increase in '17 and '18 as well as we continue to refine our forward strategy and each of our individual utilities. I think by the time we get to Analyst Day, we should have quite a bit more color on that for you as well as provide updates on several other things. That's possible, we may have some additional updates on E&P at that time and things like that.

Okay, great. Thank you very much. I look forward to seeing you in October.

Sounds good, thanks Mike.

Thank you. Our next question comes from the line of Chris Turner from JP Morgan. Your question, please.

Good morning, David and Rich. I wanted to ask you about the changes to CapEx today. If we kind of just look at the numbers, it's a pretty material increase as you said versus your prior plan there. Has anything changed with your strategy that resulted in this increase and if not why did the increase occur now?

Yes. I don’t think anything's changed big picture wise, Chris. We've talked about subsequent for the SourceGas acquisition. We really wanted to look at how to maximize the value of our integration benefits there for both customers and shareholders and be very prudent about how we spend capital in the first few years subsequent to that. Now that we've owned it for a year and a half or so, when we're really refining the individual spending forecast in each utility, I'd suggest that some of those there may be some opportunity sooner rather than later to increase spending because of needs in those particular utilities. So, I would say the strategy hasn’t changed, we've just been able to spend a lot more time on the details of each individual company, now that we finalized all of our integration related activity and things like that.

Okay. And I think you've been clear in your message with this multi-year strategy that you only want to deploy capital where you can get a timely return on that capital. What is the other category for electric and gas utilities consist of in the CapEx chart?

Essentially, that would be some of the longer term more reliability related CapEx, things that we have to spend and maintain reliability in a good system for the benefit of our customers even though some of that CapEx may require rate cases and other things for recovery. And as you see some of that spending increasing over time, that will in the future require us to file for regulatory rate review proceeding.

Okay. But it didn’t distinct from the kind of full lag category?

Yes. I mean, I don’t know if I would say it's distinct from the full lag category, some of it includes what you might consider the full lag category. Some of that spending we have to do whether or not we want to file for rate reviews in the near future, there is still some of that spending we really need to do to maintain the buy ability of our system.

Okay. And then switching gears just for 2017 in particular on the O&M fronts, Richard if you kind of made it clear around $0.10 of weather versus normal year-to-date. As said you and you're trying to make up for a listed chunk of that with more cost cuts that you originally anticipated. So, it sounds like everything is leased on track on the cost cut front. But what's the amount of O&M that was at corporate or overhead expense that was at corporate last year on an adjusted basis as you report earnings that is now being moved for the full-year into the second?

Yes. I can't give you those numbers right off the top of my head, segment-by-segment, Chris. But if you look in our press release yesterday, you'll see those details.

Okay. See the detail of which were the first half actuals?

Correct. And you said cost cutting. I would characterize it maybe more as cost management. But yes, we're looking closely at all that for the second half of the year.

Okay. And is that at least a corporate cost that is essentially being spread out evenly among the different segments?

It's corporate cost and it's at all the business units, we're looking across the board.

Okay. Alright, thanks guys.

Alright, thank you.

Thank you. Our next question comes from the line of Insoo Kim from RBC. Your question, please.

Good morning everyone, and happy Friday.

Good morning, Insoo.

Good morning, Dave. Just starting, a couple of questions. One with the cost of service desk, comments. It seems like the way you said, are you still left open the possibility that you may potentially file the COSG beyond this year’s or maybe next year if maybe the prices seem right. Is that still an option that you're keeping on the table or is it that all of them equal, it just seems less likely that you'll file at all?

I mean, we would like to file but I think the likelihood of something happening that's dramatic enough to the gas markets in the next re-enable period of time, something that would trigger us to files, someone unlikely. We certainly would like to do that but we also have to feel like we have a reasonable chance of obtaining regulatory approval on. I think, right now that would be extremely difficult. And no, absent some big change you don’t really see that changing a whole lot even though we wish it would.

Right, for sure. But that would mean that the timeframe for whether this goes whether your asset go into a potential program or in divesting or moving away from that business. The timeline for that hasn’t really been pushed back at all. So, you're still thinking by end of next year let's say you would have something completed to that extent?

Yes. We certainly hope so. I mean, as I made the comment earlier about reconsider holding up for a while just to make sure that we receive an appropriate value and how we choose to capture value from those Piceance assets. And that's a reasonable timeframe. We don’t have a firm deadline but we clearly are in the process of transitioning that business.

Got it. And just one more from me. On the CapEx, if I look at the historical three-year run-rate for CapEx in SourceGas, I think it hovered kind of around that 1.2 billion to 1.3 billion. So, this kind of seems to be in that run-rate. But given that you have added SourceGas in the past year, does that mean that the ultimate potential run-rate for like a three year level is actually greater but that incremental level that you may be looking to do is either ones that are not recoverable immediately through holding off on that until more in that '19 or the 2020 and beyond timeframe?

Yes. I wouldn’t make a specific comment about what the ongoing run-rate is but I do think you see that we're increasing CapEx at '19 and one of the topics we hope to be able to provide a little more color around during our Analyst Day is what those long range plans are and what are returned to a more normal capital spending level is now that we own SourceGas and is fully integrated there.

Got it. Okay, thank you very much.

Good. Thank you, Insoo.

Thank you. Our next question comes from the line of Lasan Johong from Auvila Research. Your question, please.

[Indiscernible] Also you said something kind of extremely irrational about the cost of SourceGas program. So, I was just wondering that you shall share something [indiscernible]. Could you say that thing be very likely to be rejected because we are in the sustained period of low gas price environment? You didn’t say that, right?

I did say that, yes.

You did say that.

Which, I understand why you think that would be irrational and it makes sense probably from a strategic perspective to and or in the programs when prices are low. And I don’t --.

So, that's the only time you would?

They expect the political reality of it is there is very little incentive for regulators to tackle a new program that's unfamiliar for them during a period when they think gas prices are likely to remain low. Right run or other one to say.

Well, you might have thought.

Yes. Obtaining approval is highly unlikely.

Well, you never thought to pull it there because that's the way they stayed and Jesus Christ, that would have want you to be imploded, that kind of argument later on. When you have to inflate the reserves. Okay, well that's kind of screwed up, let's say it is what it is. Second, you guys don’t pay cash taxes, correct. So, the PTC the book reduction as a possible natural cash induction?

That part of that was on by, can you ask that again, please?

Yes, sure. Your production cash rate deductions of your income tax, that's actually a book deduction is done a actual?

Yes. Your, that's right, it's just adding basically to the time period. I mean, we're not going to be a cash tax payer probably until well into the next decade, 2021, 2021, at this point.

Yes.

So, all that's doing is its spending it out, it's a book, it's not a cash benefit it's a book benefit at this point.

Okay. Have you guys considered monetizing it or it is not enough?

I didn’t catch that either, I'm sorry?

He said, about monetizing.

I apologize.

We consider monetizing it. Well, all eyes looking at ways to improve our tax efficiency Lasan. So, we talked about that, something we'll always look at but we haven’t elected to do that at this point.

Got you. Third question. Did you say you're renewing the aftermarket shop registration filing for $300 million?

We are.

And if I'm not mistaken, will it go how deep with that at the very near term, correct?

No, we don’t. We don’t intend or really issue any shares in the near term as I mentioned. But it's a nice piece of flexibility to have in the event something comes up.

Okay. So, I am correct in surmising that this is a -- how I put this -- say -- a potential source of -- from if and when you need something big. What did you just say?

Yes, I mean, well "Quick" is a relative term, you're not going to go issue $300 million on that program in a very short period of time. But last year we demonstrated how effective that was last year by getting a $120 million placed over a period of six to seven months. So, we just like having it there to provide some flexibility.

Right. Can I rewind it, it doesn't just show flexibility?

I'm sorry, I missed that Lasan.

I'm sorry. Is it okay if I went a little more into it than just show a flexibility?

No, I wouldn’t read anything into it. Again, it's just it's a program we like to have in place.

Now, it's a very good tool for us, we never had one before. We liked it a lot, we want to keep it as a tool in the future if we need it. Nothing more, nothing less.

Okay. Thank you. That's just from me. I appreciate it.

Alright, thank you.

Thank you. Our next question comes from the line of Chris Ellinghaus from Williams Capital. Your question, please.

Hi, good morning guys, how are you?

Good morning, Chris.

Good morning, Chris.

I might have missed this, but I believe when you were talking about the CapEx situate to increase the total budget about $200 million. Can you just talk about what you might said about that proportion of that capital that has direct cost recovery mechanisms?

Well, we laid the slide out differently this quarter to help you be able to see that, Chris.

Okay. It's in that one.

Yes, we changed the format of the slide. We didn’t make a lot of commentary specifically on what drove change, other than a review of our individual utilities and when we thought it prudent to make that next round of investments in each of those utilities. But we did lay it out a little differently this time, so hopefully you can kind of get a sense for the types of CapEx and then the lag associated with that.

Okay, I'll look at that.

Okay.

As far, you didn’t say anything about in terms of cost of service gas, what you had been talking about partnership wise, can you just give us an update on that and even if you're not filing, are you making progress on that?

I think we have companies who would love to partner with us in a cost of service gas program provided we could recommend one that would get approval. As I said before, I think right now we're concerned that we wouldn’t be able to recommend one that would receive regulatory approval. So, we haven’t spent any more time working at a lot of real specific details with the potential partner, largely because we don’t think that we can file for approval right now, anyway. But we do still have parties who would be interested in partnering with us if we were to go ahead with the program.

Okay. Given that, if you're not working on a partnership and you don’t have any real near term expectations for success with cost of service gas programs. And you did say you don’t have a sort of a hard schedule for making a decision on the Piceance assets. Have you got some kind of schedule in the back of your head, how long do you think you can wait on those assets if current conditions sort of persist?

We got the question earlier about would we still be on a similar timeline kind of by late next year to have things decided and I answered that yes, I thought that was reasonable. I made the comments specifically that if we hold those assets hoping to lay them in the value somehow, we would only do that for a relatively short period of time and in a situation in which we either completely minimized or made negligible any operating losses we would have by holding them.

Okay. And lastly, when you updated the guidance, what was your sort of thought process in terms of July, whether so far did you include that in your thinking on the guidance. I guess, that's just it.

Yes. I mean, we don’t have from numbers yet for July, Chris. But certainly living in South Dakota has been hot. So, that factored into how we formed up our guidance.

Okay. So, you only reduced the top end by a nickel and you've had weather and delusion headwinds. So, we can assume that part of that good July is one of the offsets to those two issues in addition to the cost controls?

I think that's fair.

Okay.

But when you look at the August forecast, we'll see what, it's supposed to be fairly cool here. So, not hot. So, weather keeps moving back and forth.

Right. But you'd rather have July weather than August weather, right?

I'd rather not live in it but for business purposes, yes, we'll take it.

I'm not really all that concerned about your sweating during July.

Fair enough.

All right. Thanks for the details, guys.

Thank you, Chris.

Thank you. At this time, there are no questions in the queue. [Operator Instructions]

Alright, if there's no additional questions, we want to thank you for attending our call this morning. Look forward to hopefully to seeing some of you register for Analyst Day in October. Have a great rest of your day. Thank you.

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