Good day, ladies and gentlemen, and welcome to the Black Hills Corporation Third Quarter 2017 Earnings Conference Call. My name is Vitoria and I will be your coordinator for today. [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, Vitoria. Good morning everyone, welcome to Black Hills Corporation's third quarter 2017 earnings conference call. Before we begin today, I would like to note that Black Hills' will be attending EEI Financial Conference starting November 5, in Lake Buena Vista, Florida. The company will host one-by-one meetings and deliver presentation to investors on Tuesday, November 7. Our presentation material and webcast information will be posted on our website at www.blackhillscorp.com under the Investor Relations heading after market close today. 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 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 for our third quarter call this morning. For those of you following along on the slide deck for the webcast, I will be starting on Slide 3. The agenda today will follow format similar to that we followed in previous quarters. I will give a quick update on the quarter, Rich Kinzley our CFO will give the financial update for the quarter and then I'll hit on long-term strategic issues and then we’ll take questions. Moving on to Slide 5. Third quarter earnings per share from continuing operations as adjusted were $0.50 per share that's about 4% improvement compared to $0.48 per share in the third quarter of last year. And despite an improvement earnings were lower than our expectations. From an operational and strategic perspective however we had a great quarter and we demonstrated really strong cost control while achieving excellent operational metrics such as power plant availability and safety. Also from a strategic perspective we finalized the key decision to exit the oil and gas business. We increased our dividend for the second time this year and continued to make excellent progress on several other key initiatives including revising upward the future capital investment we believe will be necessary to serve our customers. Third quarter highlights on Slide 5, starting with our utilities. On 3 October Rocky Mountain Natural Gas which is our intrastate gas transmission pipeline in Colorado filed a rate review with the Colorado PUC seeking to increase annual revenues by approximately $2 million. In September the Mountain West Transmission Group which includes our three electric utilities of Black Hills Corporation plus seven other electric providers in the region announced its interest in joining the Southwest Power Pool RTO. If membership is deemed beneficial both by…

Thanks Dave and good morning everyone. I’ll jump right in on Slide 10 where we reconciled GAAP earnings to earnings as adjusted a non-GAAP measure. We do this to isolate special items and communicate earnings better representing our ongoing performance. We display the last five quarters and trailing 12 months as of September 30 for 2017 and 2016. As detailed on the Slide we experience special items not reflective of our ongoing performance in each of the last 5 quarters. The first special item is non-cash 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 related costs and non-cash impairments are not indicative of our ongoing performance and accordingly we reflect them on an as adjusted basis. Our third quarter as adjusted EPS was $0.50 as compared to $0.48 last year. Despite year-over-year growth, third quarter results fell short of our expectations as Dave already mentioned. Specifically, we experienced lower gross margins at our gas utilities related to agricultural irrigation loads, and at our electric utilities commercial and industrial gross margin growth didn't materializes as we had expected. As a result, we lowered our 2017 earnings guidance yesterday. I will discuss these various items and our guidance for 2017 and 2018 in more detail on the following slides. At the bottom of the slide, we present EPS as adjusted for the trailing 12 months. As shown, we achieved EPS as adjusted growth of $0.58, a 21% increase for the trailing 12 months ended September 30, 2017 compared…

Thank you, Rich. Moving on long-term strategy on Slide 23, consistent with the last several years we group our strategic goals into four major categories profitable growth, valued service, better every day and great workplace with the overall objective of being an industry leader in all that we do. Slide 24,we discussed this concept quite a bit at Analyst Day from a strategy execution perspective, there is only three key issues listed on this slide and the two that follow. First we target a long-term total shareholder return in the top quartile of the industry. We plan to accomplish that by achieving long-term earnings per share growth in the top quartile targeting 50% to 60% dividend payout ratio while retaining the flexibility to increase the dividend during periods of slower EPS growth and then we plan to continue our track record of 47 consecutive annual dividend increase. On Slide 27, the second item related to strategy execution we are in a period for the next couple of years where we’re transitioning our earnings drivers from an acquisition and integration focus back to a more traditional utility growth strategy. So in closing, the SourceGas acquisition in February of '16, we've had relatively slower earnings growth expectations by heavy emphasis on SourceGas acquisition and the associated integration savings, very focused capital spending to reduce regulatory lag and minimal rate review filings. Over the next couple years we will be transitioning back to relatively higher earnings growth expectations, much stronger capital investments to meet our customer needs, and more regular rate review filings associated with that capital investment. We will still focus on further business standardization and efficiency improvements as we go forward. On Slide 26 related to strategy execution is that our fuel and service territory diversity really reduces business risk and…

[Operator Instructions] The first question comes from Michael Weinstein of Credit Suisse. Your line is now open.

First question about the comment you made about gross margin that SourceGas now being what was expected to the first part of the year and that they were being masked by synergies, maybe you could clarify that a little bit more, I mean I am assuming that if unless you’re you trying to save the synergies disappearing going forward, shouldn't be I guess the masking continue. What you exactly are you saying about forward guidance, and are you going to have to restate anything for the previous part of the year?

No, I think the comment was more that we've done a really good job achieving the synergies, the targets that we thought we’re going to hit with the acquisition we have, and earnings to two quarters were what we’ve expected. The third quarter, you have a lot of construction going on, there were some commercial loads that we expected in industrial in our electrics that just haven’t materialized, and then the irrigation issue that I talked about a couple of times during the call you know surprised us I guess in the third quarter when we closed the books, those are the big drivers Dave would you add on that.

That's right, Mike I think if you look at the SourceGas acquisition I would say some of the agricultural loads in particular or probably not as accurate in forecasting as we would like to be. We’re getting a lot better at it very quickly, but it's been a bit of a challenge for us that's a much larger portion of their business then it was of ours in some of those things states. That being said, I think as we look at the capital investment opportunities for the SourceGas properties we've acquired, we’re very excited about those, and that's driving part of the increasing $100 million in capital spending in the next couple of years states like Arkansas are growing very rapidly and we're excited about that. You know overall, I would say net positive, the timing is the issue.

What about the - the fact that I guess 2018 guidance only about 3% about 2017 guidance. So those factors I guess are going to continue into next year and your guidance is that, am I right to think about it?

Yes, I think Rich made the comment that all those adjustments that we made, we've made on a forward basis to the extent that they continue right they don't all. Some of them are more short-term and some are longer-term we try to account for all of that. As we've gone through all that then we revisited and we've talked about this little bit at Analyst Day, we revisited our schedule when we’re going to need rate reviews in all of our jurisdictions, that's based on capital investment, cost trends, revenue trends et cetera. A lot of the increase in capital spending is driving a need for rate cases earlier than we thought we would. So that's changing the dynamic on, you know - when our savings are realized versus when the capital investment and the increase in rate basis realized, the timing is changing and some of those things. Largely due to increase in capital spending that's been necessary sooner than we thought it was going to be which is good thing in a long run, it's just timing issue.

Which negative factors do you think will disappear or could disappear if mitigated by 2019?

I mean, some of those, it is hard to say, but certainly weather is a variability that - our ability to forecast I think it is getting better and understand what it means particularly on the agricultural side. You know the other factors I think we continue to work on cost, we continue to work on standardization of our business that's very helpful and we've got several initiatives on that front. So I think as time progresses, we'll continue to get more and more efficient. Those things I think will continue forward in a positive way. We have revisited our load forecasts and things some of those are timing, some of its load that we just don't think going to show off. We visit with customers every year and prepare those forecast based on what they know about the business. We generally review those ourselves and handicap them some, they are typically always more optimistic than we are, but in this case some of those loads will materialize just later and some of them won't materialize at all or not for several years and we're trying to build all that into our forward forecast.

And when you think about your top tier earnings growth target is that a three year target or five-year target I mean maybe a little more clarity that how you're thinking about that?

We use a term, long-term which means it certainly is in one year or a two-year, but it’s a rolling probably three to five year period. We're not defining it super robustly but, when you look at utilities there is typically fluctuations in earnings from year-to-year given build cycles et cetera. So averaging over at least the three-year window I think is appropriate depending on what's going on maybe a year longer than that. But, we feel pretty good about our ability to invest like capital and that’s needed to serve our customers and I realize the benefits from doing that.

And on the apparent drag that’s going to remain after the sale - distillation of E&P about a nickel am I reading that right, what I heard?

About a half win are loses for this year roughly…

$0.10 of the loss, right, so half…

We are $7.5 million operating loss through three quarters, that's probably fairly linear for the year, and about half of its retained.

I guess it's a little bit of struggle in understanding the margins coming from SourceGas, does this, and you know the longer period I think it’s going to take to get to top Tier earnings growth with the existing assets. How does this change your view of M&A going forward, so I think in the past you’ve been kind of indicating that you're interested in it and I'm wondering if that's changed now?

Yes, I don’t think it’s really changed our outlook on M&A at all. You know what we’ve said earlier and we had a good discussion about this at Analyst Day as you know the smaller things that we can buy easily given our capital structure today and integrate them quickly, we will continue to look at those and we are. We keep looking at some of the smaller municipals systems and other things. The larger transactions until we get our balance sheet back a little bit closer to where we need to be from a debt-to-cap standpoint, which will be later this year or next year when the equity units converted. It’s going to be hard for us to compete for a large one. We just wouldn’t be a little apply the leverage necessary to be competitive if it's an open bid type process which we've been seeing, pretty frequently lately. So, I don't think it has any bearing on our readiness to acquire or anything else. I think we're pretty confident in our ability to buy and integrate utilities, it's just the timing of the timing kind of the same as it has been for the last year so when we had those discussion.

I will add to that, we’ve been pretty clear, it’s going to be the right fit if it's a big one right with SourceGas was we still feel very good about that acquisition because of the capital opportunities Dave has talked about and the synergies we could already achieve. But looking forward for a big one it’s going to be the right fit. I mean, we are not - you know looking to buy anything it's got to be the right fit.

Hope we’re very disciplined, right.

The next question comes from Insoo Kim of RBC Capital Markets. Your line is open.

Maybe just to follow up on Michael's question on the stuff that goes into the drivers for the guidance. I know, you know it's agricultural customer impact some C&I low growth and then the margin stuff that you've mentioned. So, that’s just - I guess that implies that the O&M synergies that you guys achieved are still there which means I guess when you are going for rate cases in the next year so you'll still have to work through managing to get back of the O&M synergies while you earned, while you are offsetting that with CapEx, is that a fair assumption?

Yes.

And then just the level of the margin stuff that you mentioned was it, it seems like that's still the bulk of what made the change given I think the agricultural customer stuff was $3 million impact for the quarter and I don’t know if you detailed with the C&I low growth changes versus…

No, we haven't done it.

Okay.

But I think they are key drivers obviously.

And then as you said the, I guess the E&P get $0.05 to $0.06 and if it’s already incorporating into 2018 it just seems like when I was doing back of the envelope math on the guidance that you guys gave initially it seemed like a reset of the allowed the earned ROEs closer to be allowed but with the I'm just a bit confused because on top of that it seems like there's comments on the margin assumptions that are going to change so I don’t know how that fits into your thinking just kind of stating my mind - there is a long way say I am bit confused?

Yes, a lot of bit I think Insoo is kind of related to exploration Michael and that is the timing right. We’ve spent more money invested more things sooner than we thought we would have to which is driving us to file for rate reviews sooner because we made a lot more investments for our customers sooner than we originally thought we would have to. In the grand scheme of things that's very positive it's just essentially a timing difference. So your question on synergy retention versus the next rate review and the capital investment that offsets that from a revenue standpoint that that's really the issue is about timing of that occurring more so than anything else.

The next question is from Julien Dumoulin-Smith of Bank of America. Your line is open.

So I don’t mean to beat too much on this but I’d love to hear how do you think about the year-over-year comparison of average share increases outstanding into 2019 versus 2018 obviously given the commentary for little bit more rolling in now. Net-net what's the actually ultimate increase into 2019 that you think about it?

Yes, well if you look at our basic share count Julian just add 6.3 million to it I mean that's the simple answer if you look at today's basic share count for 2019 if you add 6.3 million shares to that that's what are share counts is going to be in 2019 because this treasury method thing will go away when that convert occurs? That make sense.

Yes absolutely yeah that’s all very straightforward…

Well one clarification it's not today's fully diluted share count if you add the 6.2 million is the basic.

And math courses assume there is no additional large capital investment or anything else that would lead us we have to use our ATM program we’ve said we don't plan to issue many shares under that right. If we were to announce a big project or something we may have to do that.

And there are a few other little things that impact fully diluted share count but this treasury method is the big one right now on the unit.

Can I follow up a little bit on that Dave because you commented about improving credit core rate I think in your opening remarks is there a potential that you accelerate CapEx in the near term here and is there anything that we should be following here that could result in that obviously this RFP could that drive CapEx as soon as 2018 to shift your financing plan?

Well it’s possible we don't expect it today if we had a project to announce we’d announce it but certainly the one item that’s not in our forecast is if we end up doing something where we would own a portion and all of the renewable for Colorado I'm not sure that would necessarily drive the need to issue more equity but that’s something we could determine. We’re always looking at projects though and we’re doing some integrated resource planning for other electric utilities in Wyoming and South Dakota are actively doing that Wyoming right now so there's always a chance another opportunity could come along absent that we said that we expect to use our ATM program very minimally and have just a little bit of incremental shares coming in through the drip plan. And that's our intent today but you know that’s always subject to change we have increased and we said that today our two year plus this year but really two years and a couple months capital spending plan by a little over $100 million just on this call today. So that's a good thing from a long-term earnings growth perspective.

Let me just clarify this about the oil and gas business and earnings reflected in this guide. When you think about the timing here if you were to sell the remainder of the business let’s say tomorrow such that you had full year X anything. How much of an uplift in your guide would you see from that ultimately here. Obviously sort of appreciating the allocated SG&A piece here that's really what I'm trying to understand?

Well the earnings guidance range that we put out for 2017 and 2018 basically reflect E&P or oil and gas as a discontinued operation Julian so there is no additional uplift when we start reporting that as disco ops?

But would that change your SG&A allocations such that you would see a shift in your core earnings sorry that’s what are really was getting at?

No we’d kind of factored that into the guidance already basically when we start reporting that as a discontinued operation with our fourth quarter results and our 10-K and then next year with all our Qs that G&A that we are retaining will be reallocated back to the other businesses, but the E&P direct loss will be under – or below line as a discontinued operation.

Got it.

The guidance numbers we issued take that all into account, there is no additional uplift from the fact that that’s it going to be disco ops.

The reallocation I think it’s a timing issue its really your question Julian the reallocation of that allocated corporate cost that is going to oil and gas now stops immediately once we start recording as discontinued operation which is essentially now right. So for Q4.

So the reallocation in terms of timing when you thought doesn’t really matter you already affectively done that reflected in your 2018 guide?

Yes correct, correct.

Right, sorry absolutely.

Just to clarify this obviously you’ve accelerated your rate cases is there an angle in which 2019 versus 2018 just kind of I think for you a little bit or 20 could you see yet again an improving trend in the earned ROE off of what you're talking about today are talking about kind of stabilizing the rent ROE where we are?

In aggregate that’s kind of hard question to answer I think what we see is the opportunity to file for rate reviews which would suggest we need one in several of those territories. So I think that that would lead you to think at least in the areas where we have to file one that we need and improvement but as time goes on and you have continued growth and you don’t file our rate case your other territories gradually get lower, right and that is hard - we file rate cases for.

It wouldn’t be decisive shall we say to the extent to which if they there were to be an improving?

No we’re reasonable.

The next question is from Christopher Turnure of JPMorgan. Your line is open.

I just wanted to clarify foreseeable in the fourth quarter of this year. If we compare it to the fourth quarter of last year you're going to have a nice tailwind I think from a normalized weather if that's the case do you have a at least a small tailwind from the E&P business non-corporate direct piece going away but if I'm doing the math correctly are there still a pretty substantial drop there year-over-year. Is that basically due to the factors that you detailed for the lowering of the full year 2017 numbers is it all really that back weighted?

Well the third quarter is certainly as we described wasn't to our satisfaction and some of those factors are carrying into the fourth quarter Chris. Weather, hard to say if we’re going to get an uplift there or not it's Golden Rapid City and our other service territories today but we get two more months to go through.

So normal weather would be very welcome and I know obviously the reason for the range still is largely weathered dependent for our 2017 guidance range.

And are you prepared to give the number for the South Dakota amortization that you mentioned and the impact to the full year or 2018?

What I indicated in my comments was for the second - we had to start that amortization on July, it’s a six year amortization period and it's $1.3 million for the second half of 2017 and you'll see in the Q there's some when the Q comes out later today there's some disclosure on that that should help you with that.

Is that reflective of kind of a half year run rate?

Yes, basically.

And that’s a pretax number?

Correct.

And then just to maybe assuming that a little bit on the irrigation customers and some of the C&I load that's fallen short on the electric demand side I appreciate you guys being honest there about miss forecasting a little bit but kind of going into those rate cases that you previously done in those jurisdictions, was it more that you had priced in at peak to kind of what was going on and didn’t expect that decline. And then you know absent the cost cut impacts that are going to have to be given back to customers do you not have a chance to get a fair shot at earning an authorized ROE going forward once you get those rates reset?

I think we feel pretty good about when we end up increasing our spending and going in for additional rate reviews we feel pretty good about where we’re at. Really the issue isn't about what we are earning as much as what we thought we would earn. We had some loads we work with particularly some of our larger commercial and industrial customers at what their loads will be and try to forecast those quarter-over-quarter and a lot of that activity like when they're adding on to facilities, expanding facilities a lot of that stuff tends to happen in the summertime. And a lot of - some of that work got pushed out and isn't going to get materialized and a couple other things that we thought would happen we don't know if they are going to happen now some of them it's just taking longer. All of that been kind of factored into our forward forecast.

And on the agriculture Chris, I said in my comments this is well but last year was pretty hot and dry particularly in Nebraska where there's a lot of center pivot irrigations in those SourceGas service territories. And we knew we got some uplift from that last year, we didn't realize the extent to which that was the case this year was probably more normal and that's 3 plus million dollar delta.

It’s not as simple as heating or cooling degree Dave. Its moisture related issue and a lot - and the timing of those makes really big difference and that's what we’re really getting our arms around on the forecasting side.

I know it's hard to generalize but I guess if things were maybe pretty strong last year and then they’re obviously not so strong this year, is it fair to say that the overall volume on the electric or gas side as you currently expected to be is kind of in line with what's baked into the last rate case cycle or is it below the last rate case cycle?

Depends on the jurisdiction.

Yes depends on jurisdiction. That’s a hard one to generalize I think Chris.

The next question is from Lasan Johong of Auvila Research Consulting. Your line is open.

Just few questions on the oil and gas side, I think you might be expecting some of these. The valuation on the [indiscernible] sale can you tell me what it was on the MCF basis?

No, we haven't disclosed that yet. As I mentioned earlier we literally just signed those and have not closed them yet. So terms specifics, buyer's specific location all that are going to be disclosed yes if at all.

I am assuming you're going to deal opening up in data room?

Yes, what we've done Lasan we’re not going to sell the whole company in a single transaction. So the advisors we've engaged to sell a couple specific properties. So they're not huge transactions that are going to probably attract a lot of large buyers. We think that's the optimum way given the properties we have left to divest those. So we will have a data room or two likely but basically the sales of single assets. So one deal or one area or something like that and that will happen over the next…

I just slipped into the main event guys, the Mancos Shell how much of that has been recorded as proved underdeveloped?

Very little, if you look at our overall reserve report we have almost no proof underdeveloped reserves on our books there's some - that’s detailed in the 10-K very little. You would classify most of our assets as probable or possible and at current price levels a lot of them probably wouldn't be categorized as either probable or possible because by definition reserves mean it's economical to recover at current price. So that's the definition of a reserve. So we would categorize a lot of those as a resource right now rather than a reserve either probable or possible.

So then despite the nine wells that you drilled there, what you’re saying not actually saying is that the pricing on the Mancos Shell is likely be going as if it were even speculative reserves or possible reserves but not as PUDs?

Correct, but they are not PUDs.

The last question will come from Joe Zhou of Avon Capital. Your line is open.

So I just have a question - so first on share count and I think shall I use 60 million plus or minus?

Well if you take our basic share count add 6.3 million that’s about where you're at.

And second question is at your midpoint of 2018 guidance which is - I’ll take 3.45. Do you still see your confident that with this share count, it is still possible to grow into 2019 as a long-term EPS CAGR as you indicated?

We don't give long-term earnings guidance so we do one year at a time. Long-term I am not talking year-to-year but long-term we believe we have good potential to grow and achieve our objective of being a top quartile total shareholder return, but year-to-year I wouldn't infer that.

So your top quartile is more on a long-term basis?

Absolutely. Which gets back to - I think the question Mike Weinstein asked a little bit as well.

Thank you. Since there are no further questions, I will now turn the presentation back over to David Emery for closing remarks.

All right, well thank you everyone for attending this morning. We appreciate your continued interest in Black Hills. We’re excited about the future. Like I said we’ve got some timing issues right now related to earnings and earnings growth but we’re very excited about our dividend increase, our strategic decision to exit oil and gas business, and our long-term capital spending prospects are even better than we previously thought. So that's a great issue for us. Those of you who are going to be at the EEI Financial Conference, we look forward to seeing you there. Have a great rest of your day.

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