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…

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…

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…

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…

[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.