Good day, ladies and gentlemen, and welcome to the Black Hills Corporation Second Quarter 2021 Earnings Conference Call. My name is Sara and I'll 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 call is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Jerome Nichols, Director of Investor Relations at Black Hills Corporation. Please proceed, sir.

Thank you. And good morning, everyone. Welcome to Black Hills Corporation's second quarter 2021 earnings conference call. You can find our earnings release and 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 and thank you for joining us today. I’ll begin on Slide 4, which lists our key achievements during the second quarter. Our team delivered strong financial results with earnings up 21% compared to last year. We also delivered solid operational performance with strong execution of our capital plan. And we made excellent progress in our regulatory initiatives, including Storm Uri expense recovery actions. After safety, one of our key operational priorities is providing reliable and resilient service to our customers. During the record-breaking heat in June across the Western United States, the Black Hills team and our electric systems and generating fleet performed exceptionally well. This was our second consecutive quarter that included extreme weather events, and our energy delivery systems performed as designed. During both quarters, our diverse mix of power generation resources, and our reliable and dispatch able generation capacity allowed us to serve customers and avoid rolling blackouts and other emergency actions that were required in other parts of the country. The Black Hillsteam continued to execute our capital investment plan to maintain our enviable reliability and system resiliency, and to serve our growing communities. We're on track to deploy up to $647 million of capital for the year. And we continue to evaluate and develop new opportunities beyond 2021. On the regulatory front, we had a very productive quarter, as we said we would do we filed rate reviews in Colorado, Iowa and Kansas. In Colorado, we recently received approval for a new safety focused investment rider for our gas utility. And on June 30, we submitted our electric integrated resource plan for our South Dakota and Wyoming utilities which I will discuss in more detail in a moment. And then Rich will cover regulatory activity in more detailed in…

Thanks, Linn. And good morning everyone. Slide 11 summarizes earnings per share for the second quarter, we delivered EPS as adjusted of $0.40 compared to $0.33 in Q2,2020, a 21% increase. Overall strong financial results were driven by new rates and rider revenues and recovery of wholesale power margins that are utilities. Higher gross margins were partially offset by increases in O&M, DD&A and interest expense. Weather was not a major driver of earnings during the non-peak second quarter for both our electric and gas utilities. The net benefit to earnings from weather was $0.01 per share compared to normal and $0.01 below the second quarter last year. Slide 12 illustrates the detailed drivers of change in net income quarter-over-quarter. All amounts listed on this slide are after-tax. As I noted on the previous slide, the main drivers compared to last year were $9.2 million of gross margin improvement from new rates and riders and recovery of wholesale power margins at our utilities. O&M increased due to higher employee costs and outside services planned power plant maintenance related expenses and operating expenses for new wind generation. The improvement in other income expense over the prior year was driven by lower retirement benefits service costs and market impacts on non-qualified deferred compensation expense. The additional quarter-over-quarter tax benefits of $4.3 million on the far right of the slide were primarily from two items. First Nebraska tax cuts and jobs act customer bill credits which reduced gross margins collected from customers and reduced income tax expense by the same amount. And second, increased flow through tax benefits related to repairs and certain indirect costs. Additional second quarter detail on segment earnings can be found in the appendix. And you can also find additional details on year-over-year changes in gross margin and operating…

Ladies and gentlemen, we are ready to open the lines for your questions. [Operator Instructions] Please stand-by for your first question. Your first question comes from a line of Brian Russo with Sidoti, Your line is now open.

Hi, good morning.

Good morning.

Hey on the IRP that was filed, procedurally what needs to happen for you to implement and execute on the preferred plan that you mentioned earlier?

Thanks for the question. Brian, this is Linn. We in Wyoming and South Dakota, the two states that we have filed the IRP. In South Dakota, it's submitted as information essentially only in Wyoming. They will have a review and comment period and a review and comment hearing they don't necessarily approve the IRP. So anything that we would want to do and have suggested to our IRP to add generation, transmission pipeline, etcetera. Each would be done through a CPC and replication request in Wyoming and South Dakota. It's a prudency review, frankly, after it's been constructed. So it's fairly simple IRP process. Most of the work comes through the CPC and process allowing us to then build those assets, Brian.\

Okay, great. And then the three projects that you outline the 100 megawatts of renewables that the Simpson coal to gas and the battery storage based on the cost estimates and ranges you provide is in the IRP. I mean, it looks like it could be anywhere between $125 million to $150 million of possible investment, is that accurate?

Yes, each one of these needs to be proven up individually and separately if you will. None of our current capital forecast includes any generation opportunities in it. So there would be incremental to the forecast we put out there thus far, Brian, we have, however put a little bit of the transmission investment into our capital forecast that would be represented in the IRP, we have pretty good confidence that we're going to be able to need to construct that transmission. So we begin to layer it in but not all of it’s layered in at this point.

Yes, and that, a follow up on transmission, that was a lot of discussion in the IRP, about new transmission for, reliability et cetera, could you just elaborate on that which is outside of the preferred plans, I assume it's more longer term in nature?

Relative longer term in nature. But be within next several years, what we have a kind of an objective or a goal, where we could connect our four generation sites in Gillette Rapid City, Cheyenne, in Pueblo, Colorado. We think by doing that we can lower our cost, improve reliability, improve resiliency. And again, as I just said most importantly, perhaps lower our customers cost through that and then provide us opportunity then to perhaps add more renewables in an effective way that would help us with both resiliency and reliability.

Okay, and regards to the positive customer growth, you're seeing, what's driving that growth? In what jurisdictions is that growth, concentrated in? And when you look at rate cases, is it possible that the load growth in those jurisdictions can allow you to delay rate cases?

Yes, good question. I'll start out with a high level question. I'll ask Rich to maybe fill in some of the figures and numbers. We are seeing nice population growth. And frankly, through our all of our territory. Some of the areas that are especially meaningful are Northwest Arkansas continue to see great growth, we see great growth on the Front Range of Colorado, and here in Rapid City. But again, we're seeing growth across the whole footprint, if you will. In fact, if you annualize growth for the first six months of this year, it's about double the rate that we were seeing in 2019. So it's been very interesting to watch. We're watching to see how sustainable it is. But it's certainly having an impact on our load. As you may remember, as I said in our comments a few moments ago, we did set new peaks in July of both the Wyoming electric and South Dakota electric, and they were significant increase in those peaks by nearly 5%, year-over-year. So we're think what's driving it is largely, maybe the virus people looking for perhaps more rural communities, smaller communities, etcetera. But we're just seeing a large migration into our service territories. Rich you want to add to that.

I can add a little color, I think you hit the jurisdictions pretty well in. But if you look at our electric utilities, our three electric utilities, kind of historic customer growth, there's been about 0.8%, we saw that start to accelerate, particularly in 2020, in the first half of this year, the run rate this year is about 1.6%. So as Linn noted about double what we've seen in the past, and at the gas utilities, our historic growth is more in the kind of 1% to 1.1% range. And we saw that start to pick up last year, and then this year, the run rate, again is about 1.6%. So we're really encouraged with these trends, and they appear to have some staying power time will tell but certainly looks awfully good right now.

Okay, great. And then just on the leverage, Obviously about 60% now due to the gas cost debt, how long do you think it'll take you to get back down to the mid 50% range?

The kind of the way we filed the Storm Uri recovery requests, comes out to about a 3.7 year weighted average to get those all recovered. It is a little front-end loaded, though. So I think assuming approval of all those which we fully expect. You’ll see that start to happen fairly quickly in 2022 and 2023. We prior to Storm Uri, we were targeting being to that mid 50s range in a couple of years pre-Uri is probably going to take more like three to four years now to get there, Brian with the recovery period of those Uricosts.

Okay, great. Thank you very much.

Thank you Brian.

Thank you. Our next question comes from the line of Brandon Lee with Mizuho. Your line is now open.

Hey, Linn. Hey, Rich.

Goo morning.

Quick question, the theme of the quarter has been an acceleration of decarbonization. Is that something that Black Hills is looking into? And if so, can you discuss the opportunities there?

Yes, we put out some ESG goals that I mentioned in my comments a few moments ago. And so we're very focused on those. We're focused not only on carbon reduction, but also greenhouse gas reduction across our regulated utilities, across our natural gas utilities. And the electric. As you heard about our IRP, we are also wanting to add at least 100 megawatts of renewables to our generation fleet. We're being very careful, though, to make sure that we're also focused on cost for customers. We're very focused on reliability and resiliency, especially as we see the capacity in the West, begin to close. For example, we're selling power this summer, and into the fall in triple digits for peak load periods. And I believe that's because so many utilities are now really relied upon the energy market, not so much and not had -- don't have quite the capacity that we probably ought to have. So we're watching that very closely as we make this transition. That's why we're focused on fuel switching with the Neil Simpson II plant we mentioned in the question before migrating that from coal, or at least our suggestion is we -- to the commission, we migrate that from coal to natural gas, we still support the local energy and fuel economy. Also making sure we have that resiliency, have that capacity available for those Storm Uris and things of that nature.

Great. And then just another quick question on your 2022 equity. Can you discuss the timing? Is that going to be front-loaded in the year? Or are you going to be more opportunistic throughout the year?

Yes, as you saw in our release, yesterday, we did $40 million of this year's $100 million to $120 million in the second quarter. So you'd expect the rest of this year to just kind of play out through the course of the year on the ATM. I would -- for modeling purposes, I would assume kind of an even spread of that equity need next year throughout the year, no front-ended load or anything like that.

Okay, great. That's all I had. Thanks a lot.

Thanks, Brandon.

Thanks, Brandon.

Thank you. [Operator Instructions] Our next question comes from the line of Chris Ellinghaus with Siebert Williams. Your line is open.

How are you doing guys?

Hey, Chris. How are you?

The IRP process, what's your expected timeline on approval?

Well, again, we don't have approval of the IRP themselves. We'll have hearings relatively soon in terms of reviewing the IRP. And the recommendations we made in it, get the chance for the public and we have more comments intervenors things of that nature, of course, the commission. And then once we're through that process, then again, we'll start filing for CPCins. For the generation side, we anticipate we would have to go through RFP to add that generation probably both South Dakota and Wyoming. However, we're very focused with the commission in making sure that we recognize especially in the aftermath of Storm Uri and things like that the importance of owning capacity, the party that has the obligation to serve is running and operating that capacity, etcetera. So we'll work hard to allow ourselves to have as much of that and ownership for ourselves and for our shareholders. So we think that's the right thing for customers in the long run. But there's a lot of water under that bridge that we'll have to work through.

Rich, at the end of the second quarter, have you got an adjusted number, absent to Uri, the Uri costs that are on recovered so far?

For calendar year ’21?

Yes, where would you have been on the debt-to-cap absent to Uri?

I don't know that off the top of my head, Chris. But I would tell you we probably would have been in the 58% to 59% range.

Okay, that's close enough.

Okay.

Can you give me a little color on the decline in the non-rig side for the quarter?

Yes, the big thing there really was at Power Gen. We had planned outages during the shorter quarter when we didn't need the capacity. That's probably the biggest driver Chris. And then at the coal mine we had a little downtick there as well because also of planned outages at the coal mine, so we delivered less coal.

Okay. You talked a little bit about seeing opportunities in RNG. Have you got any sense of when we might hear about a little bit more detail on your plan there?

Yes, we're working out pretty aggressively, Chris. We have four projects in place and have had those in place for a while. So we're learning from those. We've got another 6 to 10 that we're now currently negotiating. And then we've got a fairly long backlog of possibilities. Our focus to-date has been ensuring that we can build pipeline and transmission systems to the sources. We're also looking at other opportunities, of course, we serve. We got 1,000s and 1,000s of miles of pipe, across primarily agricultural oriented economies. We got lots of great potential customers, etcetera. So we're still learning very early stages, still relatively expensive as well. What kind of solutions we're looking for. We're looking for economic solutions, are we looking for emission solutions, and over time, perhaps, because we're looking for emission solutions, economic start to make more sense, and prices begin to come down as we get smarter, etcetera. So we're in early stages, but we do have a committed team that's looking at this very carefully, thinking about the opportunities and then making sure we're capturing them as quickly as we can.

Okay. Thanks for details. Appreciate it.

Thank you, Chris.

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

Well, thank you very much. Let me close by saying thank you for your interest in Black Hills. We're already at hard work on Q3. I greatly appreciate the Black Hills team and how focused we have been on O&M savings, while still hitting our metrics with respect to great customer service and safety especially just great thanks to our team. As all of you please be safe, stay well. We'll look forward to next quarter. Take care.

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