Good day, ladies and gentlemen, and welcome to the Black Hills Corporation Second Quarter 2020 Earnings Conference Call. My name is Liz, and I will be your coordinator for today. [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, Liz. Good morning, everyone. Welcome to Black Hills Corporation's Second Quarter 2020 Earnings Conference Call. You can find materials for our earnings 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 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 today. Turning to slide four. Since the onset of the pandemic in the United States almost five months ago, our team has continued to execute exceptionally well while adhering to best practices within a rapidly changing landscape. Regardless of the uncertainty we are all facing, we remain more confident than ever in our team, our business model and our strategy. We believe Black Hills is especially well positioned to successfully navigate the pandemic and the journey ahead for a number of reasons. First, our utilities are comprised of critical infrastructure operated by our team through a customer-focused culture that improves lives with energy for our customers and our communities, while also generating predictable and growing returns for our shareholders. Second, Black Hills operates primarily in states with constructive regulatory environments that support timely recovery mechanisms and reasonable returns. In addition, our operations across eight states provide geographic and regulatory diversity that reduces risk and provides a greater range of opportunities. Third, our capital allocation plan is balanced. And during the second quarter, we continue to invest free cash flow from operations into organic growth initiatives that will create long-term value. At the same time, we continue to reward our shareholders with a healthy and growing dividend. We are proud of our track record of increasing our annual dividends for the past 50 years. Fourth, we continue to strengthen our balance sheet, reflecting our commitment to maintaining an investment-grade credit rating. And while this is certainly not a complete list, I'll add that we have an experienced, engaged and committed team of leaders across our company dedicated to the long-term success of our business and doing well for all of our stakeholders. Moving to Slide 6 for an overview…

Thanks, Linn, and good morning, everyone. I'll start on Slide 9. As Linn noted, we delivered solid financial performance that met our expectations for the quarter. Second quarter EPS as adjusted was $0.33, up from $0.24 last year. All our segments reported higher operating income compared to the same quarter last year driven primarily by new rates at our Gas Utilities and favorable weather at both our Electric and Gas Utilities. We also benefited from earnings on new wind assets at our Power Generation segment, higher tons sold at our Mining segment and lower consolidated operating expenses. We estimate weather favorably impacted EPS by $0.02 compared to normal and by $0.06 compared to Q2 2019. If you'll recall, results at our utilities for the second quarter last year were tempered by unseasonably wet and cool weather conditions. Results for the second quarter of 2020 included negative COVID impacts of approximately $0.03 per share, in line with our expectations. Net income increased 44% quarter-over-quarter, while EPS increased 37% quarter-over-quarter. The difference driven by dilution from additional common shares outstanding from our equity issuances in 2019 and earlier this year. With second quarter results meeting our expectations and COVID impacts trending as we expected, we reaffirmed our EPS guidance of $3.45 to $3.65 for 2020. Our earnings guidance assumptions are shown in more detail on slide 40. 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 five quarters and demonstrates the seasonality of our earnings. We didn't experience any special items in the second quarter this year. Slide 11 is a waterfall chart illustrating the primary drivers of our earnings results from Q2 2019…

Thanks, Rich. Moving to Slide 19. Our operating and business strategies and our solid planning by our teams allowed us to be ready and respond well to this pandemic. As we work through these near-term challenges, our commitment to our strategy drives success for now and over the long term. We believe our customer-focused strategy will deliver sustainable long-term value growth for customers and shareholders. We are investing in our customers' needs for safety, reliability, resiliency, growth and overall positive experience. We are aligning our people, our processes, technology and analytics to better and more safely serve our customers. Based on a 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. Slide 20 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 amid 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 scale efficiencies and a large geographic footprint, providing diversification of both opportunities and risks. Our mix of electric and natural gas businesses also delivers complementary seasonality for a more consistent and predictable total cash flows and earnings. The value of diversity is especially evident during difficult economic times, differentiating us from other utilities. While we are certainly not immune from impacts of this pandemic, our fuel diversity and our geographic diversity, coupled with our system scale, translates to greater stability. Fortunately, and while not losing sight of the impacts of COVID-19 on our nation and world, much of our territory has thus far experienced a relatively low incidence of COVID-19 cases. The lower…

[Operator Instructions] Your first question comes from Michael Weinstein with Credit Suisse.

Hey, good morning guys. Hey, Considering the recent consolidation of leadership in Colorado and the Pueblo vote on the franchise situation, maybe you could talk a little bit about how those two things have improved or affected the operations there and their relationship with the regulators? And how it might be affecting, for instance, the filing that you have for Renewable Advantage going forward and when the next rate case might eventually come up on the electric side?

Thanks, Mike. I'll start out by saying thank you to Susan Bailey, who's retiring. She's our VP of Colorado Gas, been doing that job for quite some time, been with us more than 40 years. Just done a fantastic job, so we really appreciate what she's done. And when we when she announced her retirement that is coming up this early this fall here a couple of weeks actually, we began the process of looking at how we can manage Colorado, holistically, if you will, from lots of different perspectives: how we grow the electric load; how we also grow the gas load, especially in light of force electrification and things of that nature. We determined it would be hopeful if we had a single obvious strategy across that state. And by executing a single strategy with a single leader, I thought we could be more successful. That was coupled with another decision to bring on a former commissioner from the IUB, the Iowa Utilities Board, Nick Gartner, as our VP of Colorado Regulatory Policy in Colorado. So you have the opportunity to be, frankly, cost-neutral in terms of adding an officer as one was retiring. That was another consideration for us. We're always looking at how we keep our costs as low as we possibly can for customers. And so a combination of those two leaders in that state, I think, are going to help us a great deal as we focus on continuing our partnership and our relationship, both with the commission, the staff, the OCC and, of course, with the customers that we have the opportunity to serve. You acknowledged you pointed out, we get a kind of shot in the arm, if you will, with respect to the franchise vote in Pueblo. Real pleased with that.…

Maybe along the same lines, you guys used to say that you expect above-average earnings growth over the long term. And obviously, the COVID-19 situation adds a lot of uncertainty, and it's hard to make predictions like that. But aside from COVID-19, is that still do you still see that going forward, above-average earnings growth?

We can do, Mike. Yes, we're still executing our sorry to interrupt you. We're executing our strategy in that regard, yes. Our capital investment for this year is on track. Projects are on track this year, particularly at Corriedale, one that's acknowledged there. So we still see our growth trajectory in spite of COVID-19 as something that's going to happen. Our territories, despite COVID-19, continue to grow. We're on a record pace, once again, in the front range of Colorado and Northwest Arkansas as examples with record meter sets this year. So we continue to see migration to our territories. And frankly, at least some theory that COVID-19 might increase or accelerate that growth for us, as some people may want to leave the more urban populated areas and move to the rural excuse me, the rural territories that we currently serve. We're hearing information and seeing facts about people buying homes site unseen within our service territories, which is something we've not seen in the past. We remain confident in that our growth story still remains intact despite COVID-19, and COVID might actually help us accelerate that in some respect.

One last question for me. Can you talk maybe about some of the opportunities that you see ahead for those one to two projects a year that are not in the current forward capital plan? And I know that you always have something on tap. Maybe not ready to announce yet, but maybe just give us kind of an indication of what things are on the radar, what types of projects might be additive to the current capital plan at some point in the future?

Yes. Thanks, Mike. One thing we're looking at very closely is renewable generation, our renewable-ready program. The subscription program we had in South Dakota and Wyoming was very popular. We have that essentially done, and those subscriptions are complete. So we have customers who are interested in more renewables, and so we're working with those customers and how we might cost effectively expand, for example, the renewable-ready program. We're looking at opportunities with respect to RNG, renewable natural gas. We serve a lot of the ranch and farm territory, as you know, across our territories and still partnering with the opportunity, both with landfills and with agricultural livestock, feed lots and things of that nature. We're examining those. We have some transmission opportunities, both on the electric and the gas side, opportunities for us to improve reliability and frankly, lower some costs for our customers. Looking also at grid enhancements, the smart grid. We kind of haven't heard a lot about that, but maybe of late, but how do we make a smarter grid. We have 100% AMI across our electric utilities. How do we continue to take advantage of that or reliability for our customers and enhance both the reliability and the experience that the customers have. And then importantly, it's working to attract continue to attract those loads to our service territory. Very focused on the agricultural loads, what we call alternative agriculture. Frankly, that's the marijuana load we hear about in Southern Colorado, lots of opportunity there. And also the which is the poultry industry, especially in Arkansas and even in Nebraska now. Data centers continue to be a focus for us. In the blockchain, haven't heard a lot about blockchain lately, but we still get inquiries, especially into Wyoming, which has been working hard to be attractive to blockchain loads. And then over the next quarter, you'll start to hear from us about ESG, obviously something very important to our industry. All our dollars that we invest are essentially ESG dollars. But we will be announcing, we hope by the next time we do our call, for ESG-oriented goals and things of that nature and investments that may occur around that. And then as I pointed out in some of our comments, Rich did as well, that we've got a very expansive infrastructure. We've got about 6,500 miles of pipeline that we'd like to replace. It's just a matter how quickly we replace it in terms of customer rates and regulatory oversight. And then we've got about 160,000 meters that are at risk that we'd like to continue to replace. So that kind of captures the pie, I think, comprehensively the things that we're looking at, Mike.

Our next question comes from Julien Dumoulin-Smith with Bank of America. Your line is now open.

Hey, good morning. Team. Thanks for the time we got the results no, absolutely. So if I can just start with the COVID impacts here. If I heard right, $0.03 of impact from COVID in the quarter. If I go back to my notes, for the first quarter here, you guys talked, I think, about initially reducing your guidance range by five to 10 for the $0.05 to $0.10 for the cumulative remainder of the year. How are you thinking about that $0.03 versus the $0.05 to $0.10 overall that you talked about just a quarter ago? It seems, at least from my perspective, that you're trending certainly in the better end of that range. And maybe the subsequent question is, what does that mean also for your overall 2020 guidance as well if I can?

Yes. This is Rich, Julien. Obviously, if you assume the similar trend through the next two quarters, that would put us toward the upper end of that $0.05 and $0.10 range. But even in July, as we look at load information, we're seeing improvement from what we saw in May and June. So it is trending as we expect. We do expect the impact to lessen as the year goes. So hopefully, we can head toward the better end of that range, but we're sticking with the $0.05 and $0.10. If you think at the midpoint of that, it's supportive of the midpoint of the guidance we put out earlier this year.

Given what we know year-to-date and not know what's coming in the future, we feel like we're down the middle of the fairway right now with respect to our forecast, Julien. That'd be both COVID and full year guidance. Yes.

Yes. Understood. Okay. Fair enough. We'll connect with you later in the year on that one. Sorry to bring up again. I just want to understand, and maybe you're not ready to talk too much about this. I don't know that there was a filing, I believe even this morning from Dyno Nobel here, can you comment a little bit about their efforts to bring this back in state level review in terms of the total capacity side? I mean, basically, how would you frame that decision? And I know you're not yet speak on behalf of on their behalf, but perhaps give some context perhaps behind that in the process that we follow subsequently at the same level there.

Yes. Thanks, Julien. Appreciate you raising that. Yes, on Monday, well, as you pointed out, just for the sake of the audience, Dyno Nobel did file a notice to withdraw or set aside the settlement, and they did that late last week. Over the weekend and late Friday and into Monday, we spent time with Dyno Nobel. And we have let them through our discussions with them, they have recently filed. You may not have seen it, but on Monday, they filed a notice to withdraw their motion to set aside the settlement. And then we also filed a concurrence, which supports that motion to withdraw. And so now where we think we are now, we'll have to wait 15 days and see if anybody files any other comments, and then that settlement would remain uncontested, and we think we're back on track for the commission FERC to approve the settlement perhaps late this quarter, certainly by the end of this year is what we believe. So not sure if you saw that most recent filing where Dyno Nobel withdrew that. We understand their filing to be centered around another large industrial customer that we serve in Cheyenne, a refinery that's going to temporarily close and then reopen as a renewable diesel of fuel refinery, which bodes well for future of that plant, I believe, in terms of its longevity as a customer. We're not sure about what their load might be on the other side of that retooling, if you will. And so Dyno Nobel raised this question, while we agree with the price that we've settled, maybe there's an issue around the quantity that, that other customer there for refinery will consume. And so we have agreed that as a state issue before the Wyoming commission. And that's where that argument or where that should be considered. So that's kind of the technical or the legal area, if you will. And on the operations side, we just very recently set another peak load in Cheyenne, indicating we do have growing loads there. So kind of no matter what might happen to this other customer in terms of reduced load, we continue to set peaks kind of each winter and each summer, if you will. So we're serving a very growing territory there. So maybe that answers your question with respect to what's happened, where we are and where we think we're going.

Sorry, one clarification because indeed, in the filing from this morning, I believe, Dyno, they referenced a state-level Wyoming PSC effort. I just want to understand that. But I think bigger point that you're trying to leave us with is you recently set a peak load despite having this larger customer mid-retooling on this renewable diesel. Is that a fair way to frame this? And maybe that's a back-end of way of addressing simply this PSC bucket that seems to be coming up?

That is correct, Julien. Yes. You strung those pearls together nicely. We'll see what happens in front of the commission over time. We intend to we've been asked to file an IRP or electric resource integrated resource plan in Wyoming later next year. We may not file that next year, might seek might have some conversations with our commission to postpone that a bit to kind of see what happens with this customer. So we'll work closely with commission staff about the best way to approach our integrated resource plan as we go forward. But again, as you pointed out, we are setting record peaks. We do have customers that are growing. Frankly, COVID is helping them grow because of the services they provide.

Our next question comes from Andrew Weisel with Scotiabank. Your line is now open.

Thank you, guys. My questions were all asked and answered.

Okay. Good, Andrew. How are you? Hope you're doing well.

Our next question comes from Brian Russo with Sidoti. Your line is now open.

Yeah, hi, good morning. Yes. Most of my questions were also asked and answered. But just curious, the settlement in Colorado for incremental bad debt but a pretty all right.

Sorry, Brian, you were breaking up. We couldn't understand your question.

All we heard was settlement in Colorado for bad debt.

Correct. Who is part of that settlement?

Good question. It's...

Yes. It's.

It's Atlas and I have a lot of headwinds Black Hills, of course, the commission trial staff and the Colorado office and consumer accounts or the OCC. So those were the ones we signed on to.

Okay. Got it. And then the $400 million of 2.5% 10-year debt that you raised in the second quarter, is that going to be used to pay off short-term debt or just to finance the capital budget?

Yes. We used our revolving credit facility and CP program. At the time we did that debt was at about $350 million. So we've paid that off and had some excess cash at the end of the quarter.

Okay, all right. That's it from me. Thank you.

Thanks, Brian.

[Operator Instructions] Your next question comes from Brandon Lee with Mizuho. Your line is now open.

[Indiscernible] Two quick questions. Yes. Can we get a little bit of clarity on the equity needs? I know you don't need any this year, but is this something that you're are you looking to raise equity next year?

Yes. What I've said in the past on that, Brandon, is with the currently disclosed capex, we probably need $25 million to $50 million of equity next year. And then thereafter, probably little in the way of equity needs, again, based on the disclosed capex. But as Linn noted in his comments, we're likely to add to that capex as we approach those years, given some of the opportunities we have. And as we add capital to the what we've disclosed, we will likely need, say, $0.25 to $0.30 on the dollar of equity to help fund that additional capex. Makes sense?

Yes. Sure. And then another quick question. Once you guys start disconnects, do you believe that the bad debt expense will decline?

That'd be the plan, Brandon. We started we've always communicated with our customers through this whole pandemic about helping them pay their bills, finding ways for them to find agencies to help and things of that nature, making that as easy as we can for our customers. And so yes, we started communicating in the last couple of weeks about reinitiating our nondisconnects for nonpay, things of that nature. We've had we've been walking hand-in-hand with our regulators with respect to that as well. And so we have their backing, if you will, this time to start that process once again. So yes, I think next couple of weeks, next month or two, bad debt will begin to go begin to decrease because we'll put our normal processes and procedures back in place. And of course, really continue to work hard with our customers in terms of helping them pay their bills. As an example, we've donated more than $600,000 from our shareholders into helping our customers pay their bills, working very closely with agencies, helping our customers find easy ways to contact them and work with them. So it's going to be an all of the above kind of approach being especially aggressive with helping them find ways to pay those bills.

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

Thank you, Liz. Again, thanks to everyone for joining us this morning. We really appreciate your interest in Black Hills, and I just want to express my extreme proud for my coworkers and how well we performed this past quarter and frankly, the last five to six months as we worked through this pandemic. They've done a fantastic job of serving our customers and keeping our customers safe and keeping ourselves safe, and very proud of our team and how they continue to execute. Our 2020 capital plan remains on schedule, and our treasury team has done a fantastic job with their balance sheet and making sure we have liquidity to execute our strategy. Again I'll remind you that both Rich and I are always available to answer any questions you got may have. And so please have great day, and stay safe and stay well. Thank you.

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