Good day, ladies and gentlemen, and welcome to the Black Hills Corporation First Quarter 2020 Earnings Conference Call. My name is Daniel, and I will be your coordinator for today. [Operator Instructions]. 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 First Quarter 2020 Earnings Conference Call. You can find materials for our call this morning at our website at www.blackhillscorp.com under the Investor Relations heading. 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 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 Linn Evans.

Thank you, Jerome. Good morning, everyone. Thank you for joining us this morning. I anticipate we'll spend quite a bit of time this morning addressing our view of COVID-19 and the pandemic and its impact upon our business. So let me start, please, by acknowledging that our highest priority is the safety and health of our coworkers, our customers, our business partners and the communities that we proudly serve. Our most important assets are our unique Black Hills culture and our people. Sadly, this pandemic is affecting scores of people in some really, I guess, I would describe as unimaginable ways. I truly hope that each of you and your families are healthy and safe, and our sympathies go out to all who are impacted either physically, mentally and financially by this pandemic. Our hearts are certainly with each of you, and I know there will be what we call a post virus. I especially want to call out the extraordinary dedication and the effort by our first responders and the medical professionals who are on the front lines and caring for those inflicted by this virus. I'm particularly proud of our team's response. We're maintaining safe and reliable delivery of the essential energy our customers depend upon, especially in times like these. Our team quickly implemented a comprehensive set of well thought-out actions in response to the pandemic, ensuring we are doing everything we can do to help mitigate the spread of the virus simultaneously. We are very fortunate to have no confirmed cases among the Black Hills team. We have had a few coworkers who were treated as if they had the virus a few months ago after having traveled earlier in the year, and I'm pleased to say they have recovered. Also, our service territory has generally…

Very good. Thanks, Linn, and good morning, everyone. I'll start on Slide 9. As Linn noted, we delivered solid first quarter financial performance that met our expectations. First quarter EPS as adjusted was $1.59 compared to $1.73 in Q1 2019. Weather was the big driver affecting year-over-year results as last year's first quarter was much colder than normal, and this year's first quarter was milder than normal. For Q1 2020, we estimate weather unfavorably impacted EPS by $0.04 compared to normal and by $0.15 compared to Q1 2019. COVID-19 had limited impact on our financial results for Q1. Despite unfavorable weather, our start to 2020 was solid. However, given the combined impact of mild first quarter weather, unanticipated impacts from the pandemic over the remainder of the year, we revised our 2020 earnings guidance range to $3.45 to $3.65 per share on an adjusted basis, a decrease of $0.10 on each end from our prior guidance. I'll discuss our earnings guidance assumptions and anticipated pandemic impacts in more detail on Slide 16 through 18. On Slide 10, we reconcile GAAP earnings to earnings as adjusted a non-GAAP measure. We do this to isolate special items and communicate earnings that we believe better represent our ongoing performance. This slide displays the last 5 quarters and demonstrates the seasonality of our earnings. In the first quarter of 2020, we recorded a noncash pretax impairment of $6.9 million or $0.08 per share after tax related to an investment in a privately held oil and gas company. In the third quarter of 2019, we recorded an impairment related to the same investment. These impairments were both triggered by the significant decline in natural gas futures price and a deterioration in earnings performance of the third-party company. Our remaining book value in this investment of…

Thank you, Rich. I'm on Slide 21. Our operating and business strategies and our team's solid planning allowed us to be ready, and we responded, I think, very well to the pandemic. Our commitment to our strategy drives success for now and for the long term while we work through these near-term challenges. We believe our community focus -- excuse me, our customer-focused strategy will deliver sustainable long-term value growth for both our customers and our shareholders. We are investing in our customers' needs for safety, reliability, resiliency, growth and an overall positive customer experience. We are aligning our people, our processes, our technologies and the analytics to better and more safely serve our customers and based on the system needs across our expansive infrastructure, we expect to deliver long-term earnings growth above the utility average. We also expect to realize incremental growth opportunities from generation and other larger projects along the way. Slide 22 illustrates the strategic diversity of our utility business and the seasonality of our earnings streams. Our geographic and fuel diversity positions us for greater stability during uncertainty as we work through these headwinds alongside all of our stakeholders. As Black Hills has grown, we've added value for our customers and shareholders through efficiency of scale and a large geographic territory, providing diversification for opportunities to invest. Our mix of Electric and Natural Gas businesses also delivers complementary seasonality from more consistent and predictable total cash flows and earnings. The value of diversity is especially evident during difficult economic times, which differentiates us from other utilities. While we're certainly not immune from the impacts of this pandemic, our fuel diversity and our geographic diversity, coupled with our system scale provide us greater stability. Fortunately, and while certainly not losing sight of the impacts of COVID-19 on…

[Operator Instructions]. Your first question comes from Julien Dumoulin-Smith with Bank of America.

This is actually Ryan Greenwald on for Julien. So maybe if we could start with Colorado. Obviously, a lot going on there. As we're waiting for the written order from the Colorado gas hearing, how are you guys kind of thinking about your options here, whether it be an RRR or to file another rate case? And then can you provide a bit more granularity around the impact of CapEx and your embedded recovery assumptions?

In terms of the rate review, Ryan, we are -- as we said before, we're waiting for that decision. It would be important for us to read the decision. As I review the ALJ decision, which I haven't reviewed for a couple of months now, there was some indication that there were just too many issues that we're trying to resolve at once with consolidation or rate review and things of that nature. So I think it's going to be very important to see the actual written order, how -- if -- whether or not the commission tries to lay out maybe a path for us, if you will. So we'll take that into consideration. And as you indicated, we have several options. We have what's called RRR in Colorado. I won't get the acronym right, but it's kind of a review of an opportunity to go back to the commission SM to reconsider their decision. That's one option. Another decision -- option could be to appeal through a court and then, of course, as you indicated already, Ryan, a third option is perhaps to file another rate review, which we would only do after we've, again, read the commission's order, see what kind of path they may lay before us. Talk with, of course, with the OCC, Office of Consumer Counsel, and certainly staff in that state as well and then determine what might be best steps going forward. With respect to the capital, we are investing capital that we think is prudent for the customers' safety and reliability. We will certainly watch that capital closely. But it is capital that we continue to intend to invest in the state of Colorado, which is a growing state for us.

Got it. And then in terms of your recovery assumptions there, are you guys assuming that becomes rider eligible?

This is Rich, Ryan. One of the denials that the ALJ made and that was approved is the rider. So until we get that mechanism in place, it wouldn't move to rider eligible.

It's true.

Fair enough. And then could you just touch on your early expectations in terms of your ability to participate in the renewables? And then as well as any early thoughts on the play blow vote today?

We did receive very solid bids in the Renewable Advantage RFP. The bids were relatively, I would say, low bids. So we expect opportunity to save money on behalf of customers. At this point, we don't anticipate that we -- personally, our company will participate in adding those renewables. But then again, we have not seen the final report.

Got it. And then in terms of play blow, any early thoughts that are things that you're hearing today?

Yes, early thoughts. Well, today is the day of the final vote. We have heard that lots strong turnout. It's a mail-in ballot, so ballots have been mailed in. We understand very strong interest in it. We are hopeful for a decision that allows us to continue to serve those customers as we have for the past 12 years into the foreseeable future. So in the next 24 hours, perhaps, maybe 48, we'll have an answer to that question. So much more to come there.

Got it. And then just lastly, in terms of Wygen timing for resolution here. I know settlement discussions have been going on for a while here. So just in terms of timing, and then your latest spots-on options if you're not able to reach a constructive resolution.

Yes. Thank you for that question. We are in negotiations now. So I think I should be very cautious in what we say. We want those negotiations to continue to go well and to proceed. So we are involved in those. And with all the parties, including a judge assigned by FERC, who is overseeing the settlement discussions, we're in active participation in that. So I think that's probably all I should say, except the fact that we're watching that very closely, and we have options on the other side that we may need to pursue if we aren't able to reach a settlement beyond that. I probably shouldn't speak much more to that question.

Our next question comes from Andres Sheppard with Crédit Suisse.

Actually, this is Mike Weinstein speaking. Could you talk a little bit about the Nebraska rate filing? What's that going to -- what's that kind of focus on this summer?

That rate filing will focus primarily upon the recovery investments that we had made over the last several years. It's been a number of years since we filed the case in Nebraska. So we've invested quite a bit of capital over the years with respect to -- there to support customer growth. It also focuses on consolidating the 2 utilities into one single utility. Tariffs and rates is similar to what we have accomplished now in Wyoming and are trying to do in Colorado. So what will be the focus there? We have said for several quarters that we intend to file that case mid this year with the pandemic. We continue to visit with staff at Nebraska. And I understand those conversations continue to be productive. However, we've not made a final decision as to when we would file. I would say that as a company and as a team, the filing is largely, I understand, prepared, and so it's a matter of timing when we may file that particular case being sensitive to our customers in Nebraska and what's good for the business as well.

Got it. Understood. And maybe you could talk a little bit about the guidance. Right now, guidance assumes that electric and gas usage will recover after the second quarter throughout the year. What happens if the impact on the second quarter does not improve, and we continue to have more of an extended period of pandemic response throughout the year-end? How much more would you -- how much more would your guidance be affected?

Good question, Mike. And let me respond kind of at a high level, and I'll ask Rich to talk about our scenario planning. As Rich indicated in his comments, we've done a lot of scenario planning. In fact, we've spoken to over 200 of our largest customers across our territories, gauging in different industries, recognizing and trying to gauge how they're feeling, what they're doing, what their response has been to the pandemic and other things that have been caused by the pandemic like oil -- low oil prices. Now we don't serve the oil and gas industry directly, but we serve ethanol plants and things of that nature as an example. So we've done quite a bit of scenario planning. We have AMI on the electric side of our business. We watched that essentially daily. We're 100% AMI, essentially on the electric side, so we get reports essentially daily in what we're seeing there. And I think, as importantly, we're listening to our utility peers across the territories, paying attention to what they've seen on the coast. And then as we get closer to home, what we're all experiencing, if you will. So we, very early on the pandemic, put our team very focused on preparing different scenarios under which we might operate. We have -- we're not epidemiologists, as everybody well knows. And while we listen to them, we've not tried to predict, is there going to be a rebound and things of that nature. We've essentially said we anticipate and we are watching closely the loads. We anticipate that 5% to 10% load decline as we go forward. And then what we did is not to kind of have a real early rebound. We think we'll stay kind of low in this through the second and third quarters with the idea that we may begin to emerge in the fourth quarter. So I would like the analogy I have used of kind of take the middle of the fairway, if you will, pardon the sports analogy, with how we've approached our scenario planning. And maybe Rich, you can give a little more detail about that, please.

Yes. I think Linn gave a very good overview there. One thing, just to clarify, he said 5% to 10% reduction. That's on the commercial load. We do expect residential load to at least partially, if not fully completely offset that on the upside. That's really what we've seen in March and April on the more optimistic side is that overall load really has been pretty flat to prior years on a weather-normalized basis. Now our scenario planning, we looked at a variety of different scenarios. I think Linn's analogy of middle of the road is probably the best one. We do expect some impact as we continue through the second quarter. Certainly continuing well into the third quarter and then a slow rebound as we get through the year. That's kind of how we've framed it up.

In our territories, the authorities got ahead of, if you will, the curve on the pandemic as we all try to flatten the curve. And so largely, in our territories, not discounting anyone who has been ill, certainly not at all. But we've had relatively low positive cases for the virus, except for, you could argue, Arkansas and some in Colorado. But other states relatively, relatively unimpacted. So it's been more of an economic impact as we have intentionally closed our economies. And because of the rural nature, a lot of our businesses have been able to continue just at a slower pace, if you will. And now with the official reopening, it's going to be very interesting over the next week or two to see what happens within our territories, Mike. So hopefully, that helps you.

All right. Is it fair to say, though, that your guidance doesn't include any reduction in gas load, right, because that would be a fourth quarter issue and you're kind of assuming mostly a recovery by that.

Yes, I think that's fair.

We do anticipate some minor impact on the gas side in the second and third quarter and probably a little bit in the fourth quarter, but I think the way you said it is fair. It's that we're coming back by the fourth quarter and by year-end.

Okay. What kind of timing do you have internally for achieving the midpoint of that 50% to 60% dividend payout ratio? Is that -- how many years out?

We haven't disclosed that. I think a better way to think about that. Obviously, we haven't disclosed anything beyond 2020 yet in terms of earnings guidance. So I won't answer that directly. I'll just reiterate what I said in my script, our long-term earnings growth prospects support that payout ratio.

[Operator Instructions]. Our next question comes from Brian Russo with Sidoti.

A lot of my questions have been asked and answered. But just curious, the $14 million to $15 million of PTCs in your guidance, how much of that was used in the first quarter?

Well, it comes through the actual production of those credits. The actual megawatt hours generated that produce those credits occurs evenly through the year. But with FIN 18 tax accounting, we actually have to recognize those kinds of things proportionally to our pretax income generated in each quarter. So we really recognized about 44% of those in the first quarter. Does that make sense? The full year's expected production -- 44% of the full year's expected production tax credits.

Okay, great. And then the $0.05 to $0.10 of COVID-related headwinds, could you break that down at all between what's sales related versus what might be net expenses?

We have intentionally not done that. I mean, obviously, we have internal models that get us there. But we're intentionally not doing that because we're throwing darts on both loads, bad debts and all those kinds of things. People that -- we've looked at all the other calls from all the other utilities. And in our opinion, real detailed disclosures, our guess is at best. We're just too early in the pandemic. So we've chosen to frame it up in that bucketed approach.

Got it. Understood. And then the debt-to-cap -- net debt to cap. Obviously, it's come down a little bit. I would imagine it's because of the $100 million of equity offering completed in February. When we look through the next couple of years, how long do you think it's going to take for you to get into that mid- or low 50% to 60% range?

Yes. We want to get to the mid-50s. It should take a couple more years. Obviously, the $100 million equity issuance in the first quarter helped. And then just the fact that our first quarter is one of our biggest -- is our biggest earnings quarter contributes to retained earnings beyond the dividend paid out. So that really drove that 210 basis point reduction. But to answer your question, it's going to take 2, 3 more years to get where we want to be.

Got it. And just on the Mining segment, the 10% decline in first quarter volumes year-over-year. Is -- and I understand the planned out time and the planned outages. What about the Wyodak plant? Is that just due to a reduction in demand for electricity? Just trying to get a feel for -- should we be expecting that kind of volume reduction throughout the year?

Those reductions are primarily related to the fact that there have been so much wind has been constructed in the state of Wyoming. So it's dispatched first. And so the lack of transmission or transmission constraints oftentimes can put the Wyodak in a position where it's not operating at full capacity. So we'll see how that goes going forward. It's a little less with the -- it's less of a reflection on the demand for electricity as it is a reflection on the increase of renewables in the state of Wyoming.

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

Thank you, Daniel. Again, thank you to everyone for joining us today on our call. Please continue to stay safe and be well, and we'll look forward to actually seeing everyone face-to-face as soon as we can. So thanks so much for joining us today.

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