Good day, ladies and gentlemen. And welcome to the Black Hills Corporation Second Quarter 2019 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 would 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 Second Quarter 2019 Earnings Conference Call. Leading our quarterly earnings discussion today are, 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 two 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 Linn Evans.

Thank you. Jerome. Good morning, everyone and thank you for joining us this morning. The agenda for today appears on Slide 3. I will cover highlights of the quarter. Rich Kinzley will provide a financial update and then I'll finish with the discussion around our strategy. Before we dive into the quarter's results, I want to start this meeting as we do with all our meetings within Black Hills with the safety focus. In the vein, I want to pause and both thank and congratulate our team for their incredible and their safe response to our customers during the second quarter. Our teams work with focus, sensitivity and determination as they helped our customers respond to record rainfall and flooding across much of our territory. Many of our team is listening and I thank each of you for what you accomplished and especially how you did it safely. Moving to Slide 4, we are confident in our strategy. During the second quarter, we continue to execute on our plan for long-term success. We delivered safe and reliable service to our customers, we produced financial results on track to achieve our full year earnings guidance and we continue to execute our capital investment plan. On Slide 5, you'll see an overview of our strategy and action during this quarter. Our service territories experienced difficult weather conditions for a second consecutive quarter, and our team stepped up once again with strong operational performance. You may recall that in the first quarter, extreme cold, severe winter storms, dangerous winds and flooding impacted much of the Midwest. This quarter, many of our customers experienced record breaking precipitation and flooding mainly in parts of Iowa and Nebraska and then cooler-than-normal temperatures. These relatively poor conditions combined with trade tariffs that impact farmers and ranchers within…

Very good. Thanks, Linn and good morning, everyone. I'll start on Slide 9, as Linn noted other than weather related challenges, we delivered second quarter financial performance that met our expectations. Our quarterly EPS as adjusted was $0.24 compared to $0.45 in Q2, 2018. We estimate that weather negatively impacted Q2 results by $0.06 compared to last year's second quarter, and by $0.04 compared to normal weather. Beyond this direct weather impact, we believe economic activity and demand for energy in our service territories was reduced during the second quarter due to record precipitation and resulting flooding as reflected by reduced demand across nearly all customer classes. Aside from weather, results for the second quarter were positively driven by returns on investments made to benefit customers at our gas utilities. Lower purchased capacity costs and a lower effective tax rate and negatively impacted by planned and unplanned generation outages and higher operating expenses related to our long-term, customer-focused strategy. Results also reflect 11% increased share count related primarily to the equity unit conversion in November of last year. While many of these items are part of our business looking forward, a few of these items are non-recurring in nature. We believe approximately $0.10 of EPS impact in Q2, 2019 can be attributed to the combination of direct and indirect weather, generation outages and certain non-recurring expenses. I'll also remind everyone that the second quarter is a shoulder period for our utilities outside the heating season at our gas utilities in the primary cooling season at our electric utilities. More importantly and as Linn noted, we remain on track to achieve our earnings guidance for 2019. And we have reaffirmed our earnings guidance for 2019 and 2020. The assumptions for our earnings guidance are detailed on Slides 45 and 46 in…

Thank you, Rich. I'm moving to Slide 16, we group our strategic goals of the four major categories. Profitable Growth, Valued Service, Better Every Day and Great Workplace. We plan to drive future earnings growth as we invest in our customers' need centered on safety, reliability and growth. Based on our capital forecast, we expect to deliver long-term earnings per share growth above the utility average. In addition, we fully expect incremental growth opportunities from generation and other larger projects. Slide 17 helps us illustrate how we think about strategic execution. We are aligning our people, our processes and the use of technology and analytics around our customers' needs. In addition to our investment for customers that will deliver safe and reliable service. We are transforming our customer experience, working hard to know our customers well and make us easier to do business with. We're driving growth through a greater penetration, adding renewable energy and bringing forth innovative tariffs to recruit new businesses. In particular, we are enabling the growth of data centers, which fit the unique attributes of our service territory. And we are investing in the safety and reliability of our electric and natural gas infrastructure systems, utilizing a disciplined, programmatic integrity program. Slide 18 illustrates the strategic diversity of our business structure and the seasonality of our earnings. We have a mix of complementary gas and electric utilities across stable and growing Midwestern states. Slide 19 illustrates our large electric and natural gas infrastructure systems. These systems span across eight states and provide more diverse opportunities for investment, more interconnections for reliability and growth and greater overall efficiency of operations for our customers. Moving to Slide 20, our systems require significant long-term investment to meet our customers' needs. Forecasted capital investment is focused largely on safety, reliability…

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

Hi, good morning guys. Hey, a couple of questions about Wygen and the new contracts. So the FERC filing suggests that the new pricing is about $22 less than the old pricing on 60 megawatt that would suggest somewhere in the neighborhood of around $0.15 to $0.18 per share hit on its earnings unless there is mitigating factors. I am just wondering if there's any other mitigating factors we should be considering to that would reduce that impact. And then related question to that is there is a new contract in there for Gillette, a small one for about 5 megawatts, is that incremental? Is it like totally incremental situation that adds that would add new revenues? Or is that simply a reassignment of 5 megawatts that had been previously contracted somewhere else before and is just continuing under this new pricing?

Yes. I think you get the math about right on the PPA, Michael, this is Rich. The one of the mitigating factors is the coal contract right now the Wygen one plant is on a kind of a fixed with escalators, coal contract with the Wyodak mine. With this contract, it would move to our statement, our pricing and so that's a better price on the coal and then the 5 megawatts that right now is being sold on the open market. So that contract locks down that component of the plant, which is helpful as well. I think it's been characterized by you and others it's kind of a high single-digit net and that's about where we expect to land from 2022 to 2023. As a reminder, the existing contract runs through the end of 2022

Got you. So, I mean in other words, the high-single digit net impact is after 2022 when the contract to buyers.

Correct.

Got it. And then the second question is about the Wyodak coal contract, can you characterize but I that flipped on July 1 what's the economic impact there.

Mike, this is Linn. We continue to negotiate that contract with PacifiCorp for Rocky Mountain Power. We have extended the current contract during those negotiations. We anticipate an impact to the coal price of probably between $1 to $1.50 overall that's kind of what we're thinking at the moment.

And is that, so that's 1.5 million tons or half of that.

Probably less than that. They have been taking slightly less than the 1.5 million now for a while because of the availability of wind resources in Wyoming.

Got you. Okay. And can you make any comment about long-term earnings growth based on all these resets that have been happening. Does this have an impact on your expectation for above average growth?

No, it doesn't. We still anticipate that Mike above average growth next quarter early November. As I said in my remarks, we will be providing an updated capital forecast extending out another year and updating what we see in the current forecast. And we still believe that we can deliver above average earnings compared to utility average.

Thank you. And our next question comes from Julien Dumoulin-Smith with Bank of America. Your line is now open.

Hey guys, good morning, thanks for the time. Perhaps just to clarify the question real quickly with my -- I know we talked about the net impact. Can we clarify the timing of each of those mitigating offsets Just to be sure the re-positive also and the – sorry.

I'm sorry, I didn't mean to interrupt you, that you're talking about Wygen one. Right.

Yes.

That's all it all starts January 1, 2023. Everything stays the way it is until then, yes.

And then speaking of mitigating offsets, you talk about sort of the consistent above average growth trajectory. Anything else that we should be thinking about through that period that we were moving up or down to kind of enable a more smooth trajectory or anything else sort of big items in that period.

Well, we'll have the next four years, Julien, to consider at least the end of 2022 to look for our strategies and continue to develop strategies that help us is that ease that pain, if you will, that high single-digit loss in earnings, something we're very focused on.

Got it. All right, excellent. And then just if I can switch to a different topic here on the datacenter focuses of yours. There's certainly been ongoing for a few quarters here, any updates with respect to new contracts continued tariffs sign ups, et cetera. I just sort of curious just you regionally others continue to talk about it, any acceleration.

Yes. The couple of updates. We've received a number of contacts for blockchain in Wyoming. And we've been responding to those. We don't have anything that we can announce, but we've been responding to those. As to datacenters, we have approved tariffs and an approved contract by the Colorado Commission to serve in 50 megawatt load in Colorado Electric. I think we're under a confidentiality agreement with respect to the details of that. But we are excited to be bringing 50 megawatt datacenter to Pueblo.

Our next question comes from Andrew Weisel with Scotia Howard Weil. Your line is now open.

Hey, good morning, everybody. My first question is on equity. You raised $70 million in the first half, that's obviously the better part of the full-year guidance. Can you share any thoughts on why it's a bit more front-end loaded?

Market conditions were good during the second quarter and we just took advantage of that. Pretty simple.

All right. Simple enough. Next question, you talked a lot about the regulatory strategy at the three gas subsidiaries. How about on the electric side? Can you please share your latest thoughts on the outlook for rate case filings for the electric utilities?

Yes, good question. We don't anticipate any rate case filing in our current plan over the next, which is the next five years. Now that could be the change with respect to integrated resource plans that we will be working on and be filing in a couple of our states. For example, we have some capacity we believe we'll need to replace South Dakota Electric et cetera, working through those considerations. But as indicated, we don't have any plans for rate case over the next five years

Other than Wyoming Electric. We do have to file on there in a couple of years.

Yes. Thanks for that reminder. We have an agreement through our last IRP to file a rate case by 2021 and Wyoming Electric will be filing that.

Great, that's helpful. Then just one last one if I may. You mentioned $0.10 of one-time expenses in the quarter. Will you remind us sort of any noteworthy one-time item to either in the second half of 2018 or that you are aware of for the second half of 2019 just for comparisons?

Yes. Let me clarify. I didn't say $0.10 a one-time expenses. I said $0.10 during the second quarter that could be attributed to the impacts of weather, which if you think about, I said $0.04 compared to normal. And then the outage, the generation outages we estimate those were about a $0.02 net impact and then certain non-recurring expenses which were roughly $0.04. So that's the $0.10. Relative to future one time and so for us, I mean I have nothing to point out particularly there. This second quarter had some unusual items in it.

Our next question comes from Vedula Murti with Avon Capital. Your line is now open.

Good morning. I want to clarify following upon Mike Weinstein's questions. First to technology $0.15 to $0.18 that solely tied to the repricing income 2023. And then you referenced on favorable adjustment on the coal supply. I want to make sure I understood that. Coal supply is from a third party and not from your mine, is that correct?

It's from our mine. All our coal plants it on our coal mine, including Wygen one. So all that coals coming from our mine.

So but then where I'm going with this is, and then the mine earnings negatively affected as they get a lower price.

No. It will be a positive impact, Vedula, starting in 2023 because they will move to our standard regulatory arrangement, which we call statement are from the current price which is lower.

Okay. So the coal contract price actually goes up, and that's part of it, that's how you get the offset to and a bit high single digits.

Correct.

Okay. And we were referencing earlier about the current negotiation on coal supply. I assume that's Wyodak. My recollection is also this going to be a full reopen or I think in the 2022 -2023 timeframe. Is that correct?

Yes. The contract expires in mid 2022. So if I can just clarify a little bit. The last Rocky Mountain Power IRP indicates that plant is going to continue to run well into at least another decade beyond that. And we don't expect that to change. But we are waiting for more information from them.

That was pretty much going to be my next question. So when would you expect to get an update to either affirm the previous IRP or have any or disclose any changes?

Good question, Vedula. We don't know exactly when other states will approve there IRP. But what we do know through public presentations and documents that currently Rocky Mountain Power intends to operate the Wyodak operations through 2039. So we would expect renegotiated that contract at some point between now and 2022. And in fact, I would say that's part of our negotiations now with Rocky Mountain Powers. We negotiate its price, is there opportunity for us to extend that contract.

I mean I guess maybe one last thing, given some of the environmental movements in both Oregon and in Washington, how does that play into being able to transmit coal generation from another state into those states? Appears that that's going to be -- it could be somewhat challenging.

We tend to agree with you, and we're watching that closely. You might find of interest some of the legislation the Wyoming is passed lately to try to keep plants open in that state of Wyoming, but you're absolutely right. We'll be watching it very closely over the next couple of years. And determine the longevity of coal, especially for Rocky Mountain Power.

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

Thank you, everyone for your time this morning. We thank you for your continued interest in Black Hills. And hope that you enjoy a safe and great rest of your day. Thank you.

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