Black Hills Corporation (BKH) Q4 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Black Hills Corporation Fourth Quarter and Full Year 2018 Earnings Conference Call. My name is Daniel 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'd now like to turn the presentation over to Mr. Jerome Nichols, Director of Investor Relations of Black Hills Corporation. Please proceed, sir.

Thank you, Daniel. Good morning, everyone. Welcome to Black Hills Corporation's fourth quarter and full year 2018 earnings conference call. Leading our quarterly earnings discussion today are David Emery, Executive Chairman; Linn Evans, President 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'll now turn the call over to David Emery for a few comments.

Thanks, Jerome. Good morning, everyone. We appreciate your attendance on the call today. As most of you are likely aware, Linn Evans succeeded me as CEO, effective January 1, and I'm going to continue to serve as Executive Chairman of the Board until May 1 of 2020, which follows the expiration of my current three-year board term. In light of that CEO succession, this will be my last earnings call and today I plan to just make a few introductory comments and then I'll turn it over to Linn Evans and Rich Kinzley to review results and answer all your questions. 2018 was a transformational year for Black Hills. We made great progress on a number of key strategic initiatives during the year, that positions us extremely well for future success as we focus on the customer and growth as an electric and gas utility. Linn and Rich will provide the details for the year, but I think a few of our achievements deserves special mention. We completed our exit of the oil and gas business during the year, that's our final business that was not directly related to our utilities. We developed and disclosed comprehensive long-term capital investment plans for both our electric and natural gas utilities, those will ensure our ability to serve customers safely, reliably and affordably and also provide our shareholders with earnings growth that is well above industry average for years to come. We continued our track record now of 49 consecutive annual dividend increases for shareholders, which is now the second longest streak in the utility industry. We delivered solid financial results, even exceeding the top end of our earnings guidance range, thanks to a little help from weather in the fourth quarter and we had the most successful regulatory year in the company's history. Under the guidance of our regulatory team, our employees completed three different rate reviews, received approval to return the benefits of the Tax Cuts and Jobs Act to our customers in six states, we extended a critical integrity rider in Nebraska, settled a multiyear power cost adjustment dispute in Wyoming, filed an electric resource plan in Wyoming, we filed for approval of innovative renewable energy tariffs in Wyoming and South Dakota and block-chain and data center tariffs in Wyoming and Colorado and we made significant progress towards combining a multiple gas distribution utilities in three states; Colorado, Wyoming and Nebraska. All of those achievements set us up really well for success in 2019 and beyond. I want to personally thank each member of our employee team for a really successful 2018 and their efforts are greatly appreciated. The future of the company is extremely bright. We've got an excellent strategic plan to better serve our customers and communities, while providing our shareholders with strong total shareholder returns. Our leadership and employee team and which I believe is among the best in the industry is well-positioned to successfully execute that strategy. And finally to wrap up, I want to thank all of you in the investment community that I've had the pleasure to work with over the last 15 years as CEO, I wish you all the best and with that, I'll turn it over to Linn and Rich.

Thank you, Dave. Good morning, everybody. Please let me take this opportunity to once again recognize and congratulate Dave on his retirement after more than 29 years of service with our company and served our employees and our customers and shareholders very well. David has done extraordinary job in my opinion leading, creating and growing the company that we know today and I am enjoying and valuing my relationship with Dave as our Executive Chairman of the Board and we continue to wish David and Dianna, great happiness as they enter their next chapter of their life together. Starting on Slide 3 of our presentation, I'll cover the highlights of the quarter, Rich will then provide his financial update and then I'll finish with a discussion around our strategy. Before I cover highlights on Slide 5, I too would like to take a moment to recognize the 2018 achievements that are represented within the materials that we're going to present this morning. These achievements are certainly not possible without our investors, both large and small investors. They entrust us with their savings and we thank them for that. Without the broad access to cost-effective capital from our investors, we would not be able to make the necessary investments that we do to provide safe and reliable energy to our customers. We are laser focused on delivering for our customers and our investors this year and we also prepare for 2020 and beyond. Also at Black Hills we take safety very seriously. It continues to be top of mind with an enhanced commitment in everything that we do. We set an all-time record in 2018 with the fewest number of employee injuries, from boots on the ground to safety in the office, every meeting and every job we do, starts with what we call a safety share or a safety [tailboard] [ph]. In the field, all potential hazards are discussed before the job begins and necessary precautions are taken to protect employees and our communities. A sustained and strengthened safety culture requires persistent daily attention in everything that we do and I assure you, that all of us a Black Hills take that very seriously. We had an outstanding fourth quarter and full year 2018 operationally, financially and strategically. Our entire Black Hills' team continue to execute our electric and natural gas utility strategy and it showed through a variety of successes across the organization. Operationally, we delivered excellent performance being ready to deliver reliable service during all time peak weather demands enabling strong financial results. Financially, we reported earnings above our guidance range mainly related to weather benefits compared to normal weather of $0.06 per share for the quarter and $0.09 per share for the full year. Strategically we planned for and executed a comprehensive regulatory agenda and I am proud of how the organization responded. We further demonstrated our customer focus in 2018 laying the groundwork for upgrading and modernizing our utility infrastructure systems while we continue to transform the customer experience and then to cap off our achievements for the year, we did celebrate our 135th anniversary of serving customers. We've come a long way from our origins when we introduced electric lights to the western frontier back in 1883. Now moving to Slide 5 and our highlights for our electric utilities. On December 17, we request approval for our voluntary renewable energy tariffs in South Dakota and Wyoming and I plan to provide additional details about this later in the presentation. On November 30, we filed our Integrated Resource Plan in Wyoming. We are recommending that we serve customers through a balanced mix of generation resources that will include coal, natural gas and renewables. A balanced mix of generation assets will allow us to deliver reliable and affordable energy to customers, while adding renewable energy resources as it makes sense for our customers and shareholders. Importantly, the resource plan also notes that the Wygen I power plant is the most economic resource to meet our near-term capacity shortfall under all modeling scenarios. In October, Wyoming electric received approval from the Wyoming Public Service Commission for a multi-year, multi-docket settlement that resolved issues related to our power cost adjustment. Importantly, the settlement provides us clarity for the Wygen I power purchase agreement through 2022, and Rich will provide details around the customer credits related to this settlement in his financial update. Turning to Slide 6. Last summer, both Colorado electric and Wyoming electric set new all-time peak loads then in the fourth quarter, both of our Colorado electric and Wyoming electric utilities set new record winner peak loads, indicating ongoing load growth in those jurisdictions. Gas utility highlights on Slide 6, now on February 1, 2019, Colorado gas filed a rate review proposal with the Colorado Commission to consolidate the rates, the tariffs and the services of our two legacy gas utilities in Colorado. This is another step in our jurisdiction simplification. You may recall that in 2018, we filed a request with the Colorado Commission to approve the legal consolidation of our two legacy utilities into a single new company. We received approval for that consolidation, last October and then we completed the consolidation in the -- excuse me in December. Our Colorado Gas, rate review filing also requests a new rider mechanism to recover integrity investments that we have identified within Colorado. In November, our gas utilities received approval from the Wyoming commission to construct the $54 million natural bridge pipeline, to improve safe supply diversity and delivery capacity for our customers in central Wyoming. And we expect this pipeline to be in service in late 2019. In October, we received approval in Arkansas, for our first rate reviews since acquiring gas utility operations in the state. New rates were implemented in mid-October to recover more than $160 million of utility infrastructure investments, as we support the robust economic growth being experienced in northwest Arkansas, and in support of our continued safety and reliability investments on behalf of our customers. Now I'm moving to Slide 7. In December, our power generation segment acquired a 50% interest in the Busch Ranch one wind farm in Colorado, which provides renewable energy to our Colorado Electric Utility, under a power purchase agreement. That agreement expires in 2037, Our Colorado electric utility owns the other 50% interest in Busch Ranch I and also operates the entire facility. On January 30, our board declared a quarterly dividend of $50 and $1.5 per share, which represents an annualized rate of $2.2 in 2019. In is our 49th consecutive annual dividend increase, one of the longest track records in the utility industry and a record we are proud of and we are determined to continue. Last November we increased the dividend by 6.3%. Moving to Slide 8. As noted earlier David retired as CEO effective December 31. He has continued to serve as Executive Chairman until May of 2020, when his current board term will expire, I'm both humbled and excited to lead Black Hills as we focus on our natural gas and electric utility strategy as we deliver benefits to customers and shareholders. Now shifting back to the quarter, we completed the conversion of our equity units on November 1. We issued 6.37 million shares of new common stock, this milestone completed the financing related to the very successful acquisition of source gas back in February of 2016. Slides 9 and 10 illustrate our excellent fourth quarter and full year earnings, driven by strong results in our gas utilities. The gas utilities benefited from new rates associated with three completed rate reviews return on new infrastructure investments residential growth, increased usage per customer and cold weather. You can find a full year of highlights and more details on specific items in our earnings release which we distributed last night. Now I'll turn it over to Rich for his financial update. Rich?

Very good. Thank you Linn and good morning everyone. As Linn, noted we enjoyed strong financial performance in the fourth quarter and for the full year 2018. I'll start on Slide 12 where we reconcile gap earnings to earnings from continuing operations as adjusted a non gap measure. We do this to isolate special items and communicate earnings that better represent our ongoing performance. This slide displays the last five quarters in full year 2017 and 2018. Working from top to bottom on the slide. The first special item is related to onetime acquisition costs incurred as part of the source gas integration which wrapped up in 2017. The second item relates primarily to tax reform. At the end of 2017, we recorded a benefit related to tax reform. In 2018, certain benefits and expenses associated with the new law netted to $0.7 of expense for the full year. The tax reform items this year related to our continued evaluation of the impact of the new law on our financial statements, as well as impacts from continued revisions and IRS guidance regarding the new law. The largest special item you see is related to the tax benefit of legal restructuring is completed in 2018, as part of an effort to simplify our legal organization in Q1 and Q4, we restructured certain entities acquired as part of the source gas acquisition. The restructurings increased goodwill that is amortizable able for tax purposes resulting in a $49 million deferred tax benefit in the first quarter and $23 million deferred tax benefit in the fourth quarter for a total of $31 per share for the full year. The special items on this page are not indicative of ongoing performance and accordingly, we reflect them on an adjusted basis. As adjusted EPS for the fourth quarter grew 7% to a $1.5 per share compared to $0.98 cents per share in the fourth quarter of 2017. For the full year as adjusted EPS increased 5% in 2018 to $3.54 per share compared to $3.36 per share in 2017. This growth was driven mainly by strong performance at our gas utilities as Linn noted earlier we benefited from colder than normal weather across our service territories in 2018 and we estimate that sixth sense of EPS in the fourth quarter and $0.9 of EPS for the full year resulted from favorable weather, compared to normal. Backing the sixth sense in the fourth quarter of the $3.54, our EPS would have been $3.48, which is within the high end of the guidance range of $335 to $350 that we issued in early November. The waterfall chart on Slide 13, illustrates major drivers bridging net income from Q4 2017 to Q4 2018. All amounts on this chart are net of income tax. You'll note we had a revenue reduction in 2018, as a result of passing tax reform benefits on to our utility customers. These revenue reductions are offset by reduced income tax. Outside of tax reform the biggest item of note is that our gas utilities gross margin for the fourth quarter demonstrated substantial improvement driving our 13% increase in as adjusted net income compared to the fourth quarter last year. I'll detail segment performance shortly. The waterfall chart on slide 14, illustrates major drivers bridging net income for full year 2017 to full year 2018. As with the fourth quarter chart all amounts on this chart or net of income taxes. Again we had a revenue reduction in 2018. As a result of passing tax reform benefits onto our utility customers which is offset by reduced taxes. And strong margin improvement at the gas utilities drove our 6% percent increase in as adjusted net income. Slide 15, displays our fourth quarter and full year income statements comparing 2018 to 2017, we delivered growth in income from continuing operations as adjusted for both the fourth quarter and the full year. Operating income and EBITDA decreased in 2018, mainly due to the reductions in revenue and gross margin from delivering approximately $43 million of tax reform benefits to our utility customers. Again this reduction in revenue gross margin is offset by reduced income taxes so the effect on the bottom line is neutral, Operating expenses increased by over 5% year over year. However, 2018, operating expenses included a few non-recurring items such as the 30 day Wygen I major outage, which included $1.3 million of O&M and bad debt was $2.1 million higher in 2018, due to increased revenue recognized. Backing these amounts out of 2018, operating expenses, yields and approximately 4% normalized increase in operating expenses year over year. We did make targeted O&M investments during 2018, by hiring additional people in our higher growth areas like Arkansas and in areas such as gas engineering and regulatory to support our customer focused capital program. Looking ahead, we expect O&M escalation to be near inflationary. We remain committed to our long term objective of improving efficiencies for our customers. Also of note is that during 2018, we recognized approximately $69 million in onetime reductions of income tax expense. Related primarily to the legal restructurings, I mentioned previously. Excluding those onetime net benefits in our tax expense line our effective tax rate would have been 17.6% for the full year, which is about what we would have expected. Income from continuing operations as adjusted increased 6% from $185.3 million in 2017 to $196.5 million in 2018. You'll note our diluted share count increased year over year. On November 1, 2018, we issued 6.37 million common shares upon conversion of the unit mandatory Securities issued in late 2015 to help fund the source gas acquisition. This brought our year and actual diluted share count to just under 60 million shares. Overall we're pleased with the earnings per share growth from 336 to 354. Slide 16, displays our electric utilities gross margin and operating income. The electric utilities gross margin was relatively flat for the fourth quarter and full year compared to 2017, predominantly, driven by increases from shared facility revenue returns on transmission investments and favorable weather, offset by lower revenue due to tax reform. The shared facility revenues new and in 2018 it is reflective of South Dakota electric, owning our new corporate headquarters and receiving rent from all our subsidiaries. This amounted to $9.8 million in 2018 over 2017. This comparison difference in our segment information will go away in 2019. Another notable gross margin item relates to the $7 million, Wyoming PCA settlement, we reached in October. We recorded $1.7 million reserve associated with this issue in 2017 and another $4.3 million in 2018. So, we have $6 million of the $7 million settlement recorded through year in 2018, with $500,000 to be expensed in each 2019 and 2020, per the terms of the settlement. Other gross margin changes for the quarter and year over year are detailed in our press release yesterday. Operating expenses were $4.6 million higher in the fourth quarter and $19.2 million for the full year, as the result of increased expenses associated with vegetation management shared facility rent and depreciation. Operating income decreased by approximately $22 million for full year 2018 compared to 2017. Again this decrease in operating income is attributed to delivering approximately $22 million in tax reform benefits to our customers, which is offset by lower income tax. Moving to Slide 17, from an operating income perspective our gas utilities were flat year over year, which is remarkable given the effect of tax reform on operating income. Gross margin increased by $25 million despite delivering approximately $21 million of tax reform benefits to customers. The year-over-year margin increase was the result of new rates from three completed rate reviews return on new infrastructure investments residential customer growth increased usage per customer and favorable weather. Operating expenses were approximately $25 million higher year over year offsetting the increase in gross margin. Operating its operating expenses increased as a result of higher employee and contractor related costs associated with growth in our service territories, higher facility costs, higher on collectible accounts and increased from increased revenue and higher depreciation expense. Again achieving flat operating income at our gas utilities year over year is quite remarkable given the effective tax reform. As you saw back on slide 10 on an as adjusted basis the gas utilities increased their contribution to earnings by nearly $18 million, comparing 2018 to 2017. Next I'll talk about gross margin impact from weather at both our electric and gas utilities, were compared to normal as opposed to compared to last year. In the fourth quarter compared to normal weather favorability impacted our gas utilities gross margin by an estimated $4.1 million and our electric utilities gross margin by approximately $400,000. For the full year compared to normal weather favor ability impacted our gas utilities gross margin by an estimated $4.6 million and our electric utility gross margins by an estimated $1.8 million. On Slide 18, you see that power generation operating income decreased $3.2 million for the fourth quarter 2018 compared to 2017 and decreased by $4.1 million year-over-year, primarily driven by a planned major turbine outages on Wygen I that occurred in the fourth quarter of 2018. This scheduled outage reduced revenue by $2.9 million year-over-year and increased O&M by approximately $1.3 million year-over-year. Outside of that outage, the power generation segment continued to realized strong contract availability from its generating units and continued its strong cash flow contributions. On Slide 19, in the fourth quarter of 2018, our mining segment had an $800,000 operating income increase compared to the fourth quarter in 2017. For the quarter, revenue decline $900,000 with unfavorable tons sold primarily driven by the Wygen 1 outage. This revenue decrease was more than offset by decreased maintenance and overburden removal costs compared to the prior year. For the full year of 2018, mining and operating income increased by $2.8 million. Revenue was $1.4 million higher for the full-year with the benefit of increased pricing, partially offset by lower tons sold compared to full year 2017. On the cost side, we had decreased costs of $1.4 million, primarily driven by lower maintenance and mining costs in 2018. The mine continues to perform at a high level and sales almost entirely to on-site mine-mouth plants with roughly half our sales based on a cost plus pricing methodology. Slide 20 shows our financial position through the lens of capital structure, credit ratings and financial flexibility. Our credit ratings are strong and triple B plus at both Finch and S&P and BAA through at Moody's. We remain committed to maintaining our strong investment-grade credit ratings. At the end of 2018, our debt to total capital ratio of 58.9% was a was 710 basis point improvement from year-end 2017. We met our commitment to improve our capital structure after the acquisition of Source Gas and reduced our debt to cap ratio below 60% by the end of 2018. This improvement was in large part driven by the final settlement of our equity units and the resulting conversion of the unit mandatories to common equity on November 1. We used the proceeds received from the settlement to pay off the $250 million notes due January 2019 and reduced short-term debt. We continue to target a debt-to-total capitalization ratio in the mid-50s over the long-term. Looking to the future, we had strong and stable cash flows from our businesses, a very manageable debt maturity schedule and access to liquidity through our revolver and at the market equity program, providing us plenty of flexibility to fund our strong capital expenditure program. Slide 21 illustrates our dividend track record. We've grown the dividend at a faster rate the past few years demonstrating our confidence in our future earnings growth potential. As we've stated in the past, our intent is to not reduce the amount of the annual dividend increase and we maintain our dividend payout ratio policy of 50% to 60% of earnings. On Slide 22, we're reaffirming our earnings guidance for 2019 with a range of $3.35 to $3.55 per share and for 2020 with a range of $3.50 to $3.80 per share. As I noted on our third quarter call back in November, we don't intend to make two years of guidance our regular practice, but are providing this pulmonary 2020 guidance demonstrate confidence in our customer-focused growth strategy, which includes substantial capital expenditures to support the growth and maintain and enhance the safety and reliability of our utility systems. The major assumptions relied upon to formulate the earnings guidance for both 2019 and 2020 are noted on Slides 59 and 60 in the appendix. Our CapEx disclosure has once again increased this quarter primarily due to the addition of the Corey Dale wind project. In total 2018 through 2020 CapEx increased by $90 million from our previous disclosure in November. We've continue to assume annual equity issuances through our at the market equity program of $25 million to $50 million in both 2019 and 2020 to help fund our CapEx program. With that, I am going to turn it back to Linn to talk about our strategy.

Thank you, Rich. I'll be continuing on Slide 24, which sets forth our strategic objectives update and consistent with past several years, we group our strategic goals into four major categories, profitable growth, valued service, better every day and great workplace, our overall objective is to perform as the best-in-class utility in everything that we do. With the strategic divestiture of our final nonutility supporting business, the entire Black Hills team continues to be tightly aligned as we execute our customer-focused utility strategy. On Slide 25, we have completed the process of transitioning our earnings growth drivers from an acquisition and integration focus to a more traditional customer focused utility growth strategy. From a strategy execution perspective, we are focused on delivering long-term shareholder value returns, driven by our customer-focused capital investment program, our continued focus on standardization and efficiency improvements across the entire organization, more regular rate review filings as we return to a more traditional utility model and achieving greater burns of saturation in our gas utilities and adding load in our electric utilities. Additionally, we target a dividend payout ratio of 50% to 60%. Our team is determined to continue our track record what is now 49 consecutive annual dividend increases. Moving to Slide 26, this slide illustrates the diversity between our electric and gas utilities for complementary seasonality and the broad customer locations we serve in stable and growing states. This diversity reduces business risk and delivers earnings that are more predictable. Risk from any particular region or business are diminished in light of the total company scale as illustrated on Slide 27. Our strategic utility acquisitions over the years have created greater investment opportunities for our larger transmission and distribution systems and expanded customer base. These larger systems across eight states provide more diverse opportunities for investment, more interconnections for reliability and growth and greater overall efficiency of operations. On Slide 28, our larger systems require significant long-term investment to meet our customer's needs. We anticipate significant ongoing capital investment requirements focused on safety and reliability and supporting customer growth. These forecasted levels of investment needs, exceed forecast depreciation, which will translate to earnings growth. As we've noted on prior calls, we normally add capital to the outer years as those years get closer and as we gain more comfort around specific projects. Our total five-year forecasted capital expenditures are more than $2.5 billion has potential for incremental opportunities, which we're still evaluating. With the build-out of our programmatic infrastructure replacement plans, combined with growth in larger project opportunities, we fully expect our actual capital expenditures will be greater. We updated our capital investment plan again this quarter by adding our current 2023 capital investment forecast. As a reminder we added $208 million to the capital investment plan last quarter. Our current capital forecast now includes a couple of larger projects including the natural bridge pipeline or Casper Wyoming and the Busch Ranch 2 wind farm currently under construction in Colorado. This capital forecast also includes some initial capital for meeting the proposed mega rule as it's sometimes referred to. I want to add one more comment around capital investment and earnings growth. We believe our base investment forecast will translate to earnings growth rates above the utility and industry average. As we consider other growth objectives that have meters as an load and as larger customer focused capital investment projects that we don't currently have in our forecast start to come to fruition, we will then add to our base forecast. Then we should achieve even higher earnings growth rates. Slide 29 illustrates the background of our five-year capital forecast, excuse me the breakdown. 90% of our forecasted investment is in our utilities and of those utility investments over 70% are recovered in an accelerated matter. Moving to Slide 30 now, this slide provides detail on forecasted capital investment for our gas utilities, including breakouts by state, by investment type and by recovery mechanism. The forecast includes the addition of a natural bridge pipeline project this year as well. Slide 31 illustrates our base expectations around our long-term recurring capital outlook at our gas utilities for at least $225 million to $250 million annually related primarily to programmatic safety investment for both gas distribution and gas transmission. As we note on the slide, and I stated on Slide 28, larger pipeline and storage projects will be incremental to this base expectation. Slide 32 provides detail of forecasted capital investment for our electric utilities. As noted before we've added $57 million for the Corriedale Wind Project across 2019 and 2020. Slide 33 illustrates our current expectation of $120 million to $140 million of annual base investment in our electric utilities, 80% of which to ensure a safe and reliable system. Large generation, renewable and transmission projects will be incremental to this recurring annual expectation. With our natural gas and electric utilities combined, our current expectation for annual recurring base investment is $345 million to $390 million, plus incremental large projects across both utilities. Again as we enhance our customer investment programs and continue to grow, we expect our gas and electric utility capital forecasts will increase as we grow to -- as we continue to evaluate our system. Moving to Slide 34, as I noted earlier, Black Hills plans and executed extremely well a comprehensive regulatory agenda in 2018. We successfully completed three rate reviews, including our first at Arkansas Gas. We provided tax reform benefits to customers in six states. We prepared and filed an electric resource plan in Wyoming. We received approval for the natural bridge pipeline, also in Wyoming. We requested approval for the Corriedale Wind Energy project. We also commenced proceedings in Colorado to consolidate two gas utilities within the state. We completed that legal consolidation in December and we recently filed a rate review application to consolidate the rates, the tariffs and the services from our two legacy gas utilities. The table also shows the ongoing tax reform effort in Wyoming and we expect to receive approval in the first half of 2019. To date, we have returned approximate $43 million of benefits to customers related to the Tax Cuts and Jobs Act. Moving to Slide 35, this slide shows a timeline around our multistate jurisdiction simplification efforts. We have three states in which we own multiple gas distribution utilities; Colorado, Nebraska and Wyoming. We strongly believe consolidation of the multiple entities within each of these states will provide long-lasting benefits for all of our stakeholders, including our regulators, through streamlined and fewer regulatory proceedings and filings. Consolidation will also simplify the customer billing process and improve how we deliver customer service through fewer tariffs to manage. Having fewer jurisdiction entities will reduce our risk and also reduce both the complexity and the quantity of rate reviews, regulatory filings and other reporting requirements. We also make corporate processes simpler and in some cases it provided one-time tax benefits. Wyoming Electric will likely file a legal consolidation request in the first quarter of 2019 and if approved, will file a consolidated rate review later in 2019. Nebraska will most likely file a legal consolidation request in the first half of 2019, prior to our current plan to file a rate review likely in 2020. Moving now to Slide 36, to support our Renewable Ready program as we call it, we submitted request for approval of tariffs to both South Dakota and Wyoming Commissions. This tariff and program if it's approved will provide governments and larger commercial and industrial customers a cost-effective option to purchase utility scale renewable energy up to 100% of their needs. So far we have received strong interest from potential customers for renewable energy. This program is basically a subscription program that offers customers contracts and durations of five years and up to 25 years. If we continue to experience sufficient interest, the program will essentially fund the rate base investment required to provide the renewable energy and this program is designed to keep these larger customers on our electric utility systems while protecting remaining customers from the potential loss of load. Slide 37, on this slide, we focus every day on operational excellence. Our safety performance continues to be excellent and our reliability for 2018 was outstanding. Even though we did not quite achieve our internal safety goal this year, we delivered a record year with respect to the fewest number of employee injuries. All three electric utilities achieved reliability in the top quartile of all electric utilities in the country. We also received employee recognition in South Dakota and in Nebraska for their safety and their community service. Slide 38 contains our 2018 scorecard and this will be our final review of how we did for the year -- last year with many successes across the board and all-in-all I feel very good about our accomplishments in 2018. Slide 29 introduces our 2019 scorecards, listing a number of priorities across our organization. The scorecard includes a number of key objectives including executing on our capital program and completing construction of three major projects, the Natural Bridge Pipeline, the Busch Ranch 2 Wind Farm and the Rapid City, the Stegall Eagle transmission line. In conclusion, 2018 was a very eventful and productive year for Black Hills and I'm very proud of our accomplishments and the performance of the entire Black Hills team. We're really excited about 2019 as we execute on our natural gas electric utility strategy. We will continue to transform the customer experience. We remain laser focused on delivering results for shareholders and we will continue our journey to become the safest utility in the industry. This concludes my and Rich's remarks and we're happy to take questions please.

[Operator Instructions] Our first question comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Your line is now open.

Hey. Good morning. Congratulations. Again all the best for David. So and perhaps just to kick things off at a high level you talked strategy, you talked about being above average amongst the utilities. Can you elaborate a little bit on how you think about that, just is that under-using the current forecast and through what period are you thinking, sorry to ask you for a little more detail here, but just want to get little bit clear on how you're thinking about it.

We see that Julien for the next - through 2023 we have strong capital spending as we said earlier and we said before and in meetings like this as we get closer to those years, we routinely find projects that we are working on, I shouldn’t say find and we're working on projects as they come to fruition and we begin to add them to the capital and so we see -- I see strong spending through 2023 as we put into the presentation this quarter and we also see that ongoing rate spending of up to $390 million is something that we're going to continue to do. So we serve territories that are growing. We serve territories now that with specially after the Source Gas transaction and we have opportunities to enhance our customer reliability and enhance our system for custom reliability and continue to improve safety within our territory. So we see above industry average growth in the near-term and in the midterm as well at least through 2023.

Excellent. And so let me get a little more detail there if you can. Obviously a nice quarter-over-quarter increase again in the CapEx, just wanted to make sure I know what in and more importantly what’s out of the CapEx still today and I think you said several times the Natural Bridge program, Busch Ranch etcetera are in the CapEx program, but outside of it I think you said the tariff program in South Dakota and Wyoming is still excluded, what else is outside of it and how do you think about A, the timeline to getting that into the CapEx program and B, at least specific to the tariff program, the magnitude of capital.

Julien it's Rich. The Corriedale project, which supports renewable ready is in the CapEx, that's one of the additions we made. So that's $57 million of the addition you saw.

Okay. Now are there other projects that are excluded? I know that's sort of the quarter-over-quarter increases that we've seen and it seems like it's largely reflective at this point in time but is there anything else with respect to the capital program that you just discussed that are excluded?

Yeah, we've got a lot of projects that we've identified that we're working on. Again we typically don't add them to this CapEx schedule until we either we file the CPCM or otherwise advance the project to a point where we're comfortable adding it, but I think the point that Linn was making earlier and that I'll reiterate is it's very likely that you will see that forward CapEx schedule continue to increase as we get the cement to firm up around the different projects we're looking at.

Rich one quick follow-up there, on '18 very nicely done, I wanted just to clarify here, obviously it's a good chunk of weather there. Year-over-year as you roll over to '19 here, any favorable tailwind that we should be paying attention to that have materialized to get you above the top end of '18 here to make sure we're not missing anything?

If you're referring to weather, we're in the process of closing our January books and so nothing to share there, but I will say it was warm to start the year for the first couple weeks and then as you know, the latter half of January has been pretty cold. So I at this point kind of averaging that out, I'd characterize it as normal with nothing has materialized that would make us change the assumptions that we put in our guidance and that's why we reaffirm that.

Got it, but nothing outside of weather that you would be flagging here just that drove the beat of '18 to pay attention to into '19?

No.

[Operator Instructions] Our next question comes from Michael Weinstein with Credit Suisse. Your line is now open.

So on the Renewable Ready program, how big can that program get and what are you thinking about in terms of future growth for this and does it become a material driver of CapEx at some point?

It's a good question. It's early in the process Michael. So I wouldn't analyze it. We've been approaching our top, I would say our largest customers especially in South Dakota and Wyoming with this concept. We started talking to them several months ago and I'd say we were a little bit on the surprised side how interested those customers were and they have expressed strong interest frankly. In fact when we filed the tariffs we asked the customers who had high interest to sign Letters of Intent if you will to establish with our regulators that there is interest in this type of program and we've kind of just scratched the surface. We plan to talk to the tariffs proposal our top 600 customers would be eligible for the tariff and we're working our way down that list. So we will see. I'm pretty excited about it personally. I believe that we may have opportunity beyond this project, but we have a ways to go to determine that.

And with the emphasis on consolidation of the utilities, Colorado and Wyoming coming up, I know you've said that M&A is a acquisitions at least from a strategy point of view has been deemphasized and that continues to be the case now in 2019, but what about divestiture, which is I know that thing that you specifically mentioned is not included in the guidance, but is there any additional consolidation through divestitures that might be being considered or would be considered going forward?

Michael, I think the short answer to that is no. We like the territories that we're in. They're growing territories and we're in the utility business and we appreciate those that we have, so the short answer is no.

One final question about Wyodak and PacifiCorp, I don't know if you've got any kind of indication from them as to whether they intend to go extend their life of that plant beyond 2022 and if they did decide not to and the contract for coal with PacifiCorp was ended at that point, what would be the impact on net income?

Good question. We've been watching their IRPs closely and of course having conversations with PacifiCorp and frankly we're in negotiations with them now as we reopen the coal contract for pricing. If you note in their April as I recall 2017 IRP, they show why that plan is being a very low cost resource and operating it through 2039 and then they're making their 2019 IRP presentations now and those presentations continue to show the benefits of continuing to operate the Wyodak plant. Now the other half of your question -- we don't, we believe they will continue to operate it. The other side of your question what if they were to close it and we'll cross that bridge when we get to it, but we do have cost-plus contracts at the mine for our remaining plants and we will certainly right size the mine and operate it as efficiently as we could from that perspective going forward.

So there would be path to mitigate any earnings impact essentially from shutting off parts of the mine.

We think so, it's my guess.

Thank you. With no further questions, I will return the call back to Linn Evans for closing remarks. Go ahead Sir.

Thank you, everyone for your interest in Black Hills. I'll take this opportunity to once again thank our employee team for an outstanding 2018 and as for their continued focus on 2019 as we execute our strategy and thank you for your interest in Black Hills and have a great day, thank you.

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