Good day, ladies and gentlemen, and welcome to the Black Hills Corporation First Quarter 2018 Earnings Conference Call. My name is Brian, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Dave Soderquist, Investor Relations now of Black Hills Corporation. Please proceed, sir.

Good morning. Welcome to Black Hills Corporation's First Quarter 2018 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, we would like to note that Black Hills will be attending the American Gas Association Financial Forum starting May 20 in Phoenix, Arizona. 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, Dave, and good morning, everyone. I will be starting my comments on Slide 3 of the webcast deck for those of you following along. We'll have a format similar to past quarters. I will give a quick update on the quarter. Rich Kinzley, our CFO, will give the financial update for the quarter. I'll cover our forward strategy, and then we'll address questions. You may have noticed, or will notice as we go through the process this morning, that we've made a few changes to our presentation format. And notably, we've added some more detail to our forecasted capital spending, which should improve some visibility into our future earnings growth. We expect to further enhance those disclosures as the year progresses. Moving on to Slide 5, first quarter 2018 highlights for our utilities. On the 25th of April, our Colorado Electric utility received approval from the PUC in Colorado to contract with our own IPP subsidiary, Black Hills Generation, to purchase 60 megawatts of wind energy through a 25-year power purchase agreement. That agreement will provide the final amount of renewable resource we need to meet the state's renewable energy standard of 30% by the year 2020. On April 26, Rocky Mountain Natural Gas, which is our intrastate gas pipeline in Colorado, received a recommended decision from the Colorado Administrative Law Judge, approving a settlement for the rate review filed in October of last year. That settlement, which is subject to final approval from the Colorado PUC, includes a $1.1 million increase in annual revenue; importantly, an extension of our safety, system and integrity rider that cover investments that will be made this year through 2021; it includes an authorized return on equity of 9.9%; and a capital structure that's 46.6% equity. We expect new rates to be…

Very good. Thanks, Dave, and good morning, everyone. As Dave touched on, we delivered solid first quarter financial performance. Now with help from favorable weather, year-over-year, our natural gas utilities delivered strong financial results in Q1, demonstrating the benefits of our diversified utility portfolio and the 2016 SourceGas acquisition. I'll jump in on Slide 10, where we reconciled GAAP earnings to earnings as adjusted to non-GAAP measure. We do this to isolate special items and communicate earnings to better represent our ongoing performance. This slide displays the last 5 quarters and trailing 12 months as of March 31, 2018 and 2017. As detailed on the slide, we experienced special items not reflective of our ongoing performance in each of the past 5 quarters. The first special item is acquisition-related expenses associated with the SourceGas acquisition and integration. We completed our integration work in 2017 and don't have that adjustment in 2018 or forward. The second special item relates to income taxes and is predominantly the result of federal income tax reform. The corporate tax rate change from 35% to 21% beginning in 2018 required a revaluation of our deferred asset - deferred tax assets and liabilities on December 31, 2017, resulting in a $0.21 EPS benefit in the fourth quarter of 2017. Given additional information in Q1, certain estimates impacting the revaluation had been updated, resulting in a Q1 charge of $2.3 million or $0.04 of EPS. The largest special item in Q1 2018, also related to income taxes. As Dave noted, as part of our effort to simplify our legal organization, in Q1, we structured certain entities as part of the 2016 SourceGas acquisition. The restructuring increased goodwill that is amortizable for tax purposes, resulting in an associated deferred tax benefit of $49 million or $0.91 of EPS. These…

All right. Thank you, Rich. Moving on to Slide 20. We grouped our strategic goals into 4 major categories: profitable growth, valued service, better every day and great workplace, with the overall objective of being an industry leader in all we do. On Slide 21. From a strategy execution perspective, we're focused on delivering strong long-term total shareholder returns. We plan to accomplish that by achieving a long-term EPS growth rate that's above the industry average, targeting a 50% to 60% dividend payout ratio, while still retaining the flexibility to increase that dividend during periods of slower EPS growth and continuing our track record of 48 consecutive annual dividend increases. On Slide 22. We're currently in the process of transitioning our earnings growth drivers from a largely acquisition- and integration-focused strategy over the last year or so with the SourceGas acquisition back to a more traditional utility growth approach. In the near term, this year and next year, we expect slower earnings growth since we're entering test years in preparation for rate review filings or actually commencing those rate review filings in some of our jurisdictions. We do have 3 active rate review processes currently in process right now. Over the long term, starting in 2020 and beyond, we expect higher earnings growth expectations, driven by strong capital investments to meet our customer needs, continued focus on standardization and efficiency improvements and back to more regular rate review filings. Slide 23. As we focus on delivering long-term shareholder value, our fuel and service territory diversity reduces our business risk and drives more predictable earnings. Slide 24. Our utility acquisitions over the years have created a much larger transmission and distribution system network, both on the electric and gas side of the business. With that increase in size comes increased opportunity…

[Operator Instructions] And our first question will come from the line of Julien Dumoulin-Smith with Bank of America Merrill Lynch.

Congratulations. So perhaps, just to come back to a few things you said. First off, on the wind award. Just curious, how do you think about earnings profile of that asset, specifically on the latest one? But more broadly, do you anticipate participating perhaps even outside of your service territory for these kinds of projects more strategically, i.e., more contract? And I suppose this is the latest example, so I'd just be curious.

Yes. I would categorize this one. Obviously, this is an investment from our IPP subsidiary. I would categorize the earnings from that as probably consistent with how you would look at an IPP project, that is, it's financed with a little more debt than you would expect from a utility capital structure. And then also, the returns would be consistent with an IPP-like return. As far as whether we would do this outside of our existing service territories, they're not - I would say, the answer is yes, but on a limited basis. I think there would have to be a very compelling strategic reason for us to do so, whether that's a relationship with an existing wholesale customer or something like that. We don't have any aspirations of running out and being a full-blown competitor in the IPP business. That's not our strength. But I do think there are certain circumstances where it may make sense for us to do this to for others. They will be fairly few and far between, however.

All right. And just on - in terms of, like, the net income profile of the latest wind investment, would you characterize it as a premium or discount to the traditional utility returns?

Well, I think the return would be probably comparable, but the capital structure's significantly different with less equity, right? And then as - consistent with wind projects and other renewable projects, a lot of the earnings are really driven by production tax credits so they'll show up below the operating income line.

And I'd add one thing to that, Julien. That was a competitive process, and there were a lot of bids. It was vigorously competitive so we did have to be aggressive to win that bid.

Got it. All right. Understood. And actually, let me turn back - quickly here. It's - in terms of the comment you made on the call around capital spend and the potential need for equity, just can you frame that a little bit in terms of what sort of - under what circumstances you would see that at this point in time? And then secondly, I suppose related to that, you provided a little bit more of an extensive view on our CapEx here out to '22. Can you talk about some of the other big puts and takes that might materialize here in your forecast given now that we've got the wind one out?

Yes. From Q1 to Q2, you can see the difference in our CapEx schedule is the additional wind project. We added $11 million to this year's capital and $60 million the next year. We're still comfortable that after the convert, we're going to be well below 60%. When that converts, that'll get our debt-to-total cap down below 60%, and our cash flow should keep us there through the end of 2019. And then if you look post 2019 of that CapEx schedule, we should remain comfortably there. If additional large projects come up, we may need to issue some equity. That's where I believe that Julien.

Yes. And I'd say that story is consistent with what we've talked about in the past, Julien. We've said we have fairly aggressive capital spending outlook going forward, but we expect to finance that with internal cash flows and debt, absent any big special projects that might get at it. And that is why we have kept our At-the-Market equity issuance program active, just in case we may have one of those projects. But we would only use that in the event that we'd have some additional CapEx that is not on our current schedule.

But is there any other large capital project, whether in procurement now or bidding that we should be paying attention to? It doesn't sound like it.

Well, there are several that are in the works, but not mature enough to the point that we're ready to talk about specific projects. I mean, we're always looking at some renewable projects for our Electric Utilities pipelines, for our Gas Utilities transmission lines. We've talked about things like that. And we have several of those that we're looking at and studying and, potentially, would integrate into our forward plans, just not mature enough to actually file a certificate of public convenience in necessity or something that would say we're really ready to propose yet.

And our next question will come from the line of Michael Weinstein with Credit Suisse.

I may have missed this, but in light of the court decision now, I mean, can you still file for rehearing? I think you can, right? I mean, they should - my understanding is that this - the commission had suspended the rehearing or canceled it, waiting for the court decision, right? So is it possible that they might take it back up again anyway?

Yes. We've got several options and we're evaluating all those. One is, of course, another level of appeal, which we certainly could do. The other one is we could basically elect to either go back and ask the commission to rehear that or frankly, include it in another rate case. All those options are on the table. And frankly, having just received that ruling earlier this week, we're still in the process of discussing what those options are and which ones would be the best to pursue at this point in time. But they're all on the table.

Yes. I guess - I mean, my other interest there is that in light of the approval for Busch Ranch and also the Rocky Mountain gas pipeline ALJ recommendation, those decisions, do you think they bode well for a possible rehearing despite the court decision?

It's really hard to say and hard to speculate. I think we've been pleased working in relationship with the commission recently and we hope that continues.

Okay. Can you give any color on the other discussions on the passback of tax savings beyond Iowa and Kansas?

Well, they're all in various states of process. So the Colorado Rocky Mountain Natural Gas pipeline, that settlement includes the impacts of tax reform. Our active rate reviews in Northwest Wyoming and in Arkansas, when they get completed, will include the results of tax reform. And then all of the others are at various stages in the process, from very early to the well underway. Our tact in most of those - and it's going to be a commission-depended decision state-by-state, but we've taken the position that we think it's best for customers to go back to their most recent rate case and just compute the difference on the tax rate and start collecting - or stop collecting that difference from customers going forward and, of course, refund it back to the effective date of the tax rate change. That's not going to happen in every state, we don't think. Some of them are asking us to look at what's the current impact rather than the impact back to the most previous rate case. But all are progressing, and we're comfortable and happy, frankly, with the progress we're making. Some will be a little slower, though.

[Operator Instructions] And I'm showing no further questions over the phone lines. Mr. David Emery, please proceed with closing remarks.

All right. Thank you. Well, thanks for your time and attention this morning, everyone. We appreciate you attending our Q1 earnings call. And for those of you who are going to be at the AGA Financial Forum, we look forward to visiting with you there. Have a great day and a great weekend. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the presentation. You may now disconnect. Good day.